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Operator: Good morning, and welcome to the Team, Inc. Third Quarter Update Call. I would now like to turn the conference over to Nelson M. Haight, Chief Financial Officer. Please go ahead. Nelson M. Haight: Thank you, operator. Good morning, everyone, and welcome to Team, Inc. About our third quarter 2025 operational and financial results. On the discussion today is Keith D. Tucker, our Chief Executive, and myself, Nelson M. Haight, Chief Financial Officer. I want to remind you that management's commentary today may include forward-looking statements, including without limitation those regarding revenue, gross margin, operating expense, other income and expense taxes, adjusted EBITDA, cash flow, and future business outlook, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the risk factors that could cause actual results to differ, please refer to the Risk Factors section of Team, Inc.'s latest annual and quarterly filings filed with the Securities and Exchange Commission, along with our associated earnings release. Team assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. With that, I will turn it over to Keith D. Tucker, our CEO. Keith D. Tucker: Thank you, Nelson. Welcome everyone and thank you for joining us to review our third quarter operational and financial highlights. I want to start off by thanking our employees for their hard work which has made many of our recent successes possible. In 2025, we continue to deliver improved operational and financial results with year-over-year growth in revenue, margin, and adjusted EBITDA, all while expenses continue to trend lower as a percentage of revenue. Revenue grew almost 7% or about $14 million year-over-year, with gross margin increasing by 8.4% and adjusted EBITDA up to 28.6% to the highest level for a third quarter since at least 2016. As you can see, the growth in our adjusted EBITDA outpaced our top-line growth, which is a testament to the solid progress we continue to make on our ongoing cost and margin improvement initiatives. Drilling down into the segments, we saw 5.7% overall revenue growth in inspection and heat treating, driven by strong nested and call-out activity in the U.S. and 8.9% growth in our international operations, including Canada. We have now seen multiple quarters of growth in our Canadian operations, demonstrating the increasing traction of our ongoing initiatives to strengthen our commercial and financial performance in that area. In our Mechanical Services segment, we saw strong revenue growth of 7.8% or $8 million, led by increased turnaround demand in our U.S. operations and improved year-over-year top-line performance in Canada. With both our IHT and MS segments demonstrating top-line growth, it should come as no surprise that our adjusted EBITDA for the third quarter increased by $3.2 million year-over-year, with adjusted EBITDA margin up 110 basis points to 6.5% of our consolidated revenue. Additionally, we continue to see benefits from our cost discipline in the third quarter, lowering our adjusted selling, general, and administrative expense, which excludes expenses not representative of Team's ongoing operations such as non-recurring fees and non-cash expenses, to 20.8% of consolidated revenue versus 21.7% in 2024. We believe that our ability to continuously deliver on our cost control and margin expansion initiatives and improving our balance sheet will continue to drive future shareholder value and stock appreciation. To that end, in September 2025, we completed the private placement of preferred stock with Stellix Capital Management, which strengthened our balance sheet and enhanced financial flexibility. This $75 million investment recognizes the impactful progress made to date in our ongoing program to improve margins and lower our cost structure, as well as reinforces the significant opportunities that remain for further improvements in margins and top-line growth. We are excited to partner with Stellix and look forward to working together to accelerate our value creation plan. We believe that our ongoing actions and continued focus on executing our strategic vision will help lead to more top-line growth and further improvements to our margins and free cash flow generation. We have seen some outstanding numbers reported in our 2025 results from our actions thus far, and during the third quarter, we continue to work on identifying additional opportunities to improve cost efficiencies and accelerate top-line growth. We expect to see additional impacts to our full-year 2025 operational and financial results. Looking ahead, we believe our diversified portfolio of service offerings across multiple industries and our geographic footprint positions us to better navigate macroeconomic uncertainty. We see top-line growth over the prior year across both segments and improved adjusted EBITDA levels for 2025. We have line of sight to full-year 2025 revenue growth of approximately 5% and adjusted EBITDA growth of approximately 13%. Our organization is focused on the things we can control, which are continued cost and capital discipline, and execution on our commercial initiatives that include aggressively leveraging our technical expertise and end markets with attractive margin profiles such as power, aerospace, and LNG into increased wallet share. We remain committed to delivering profitable growth that enhances our financial results and drives shareholder value. With that, I would like to turn it over to Nelson M. Haight to discuss our financial accomplishments. Nelson M. Haight: Thank you, Keith. Before I go into third quarter financial results, I would like to discuss in more detail the recent actions we have taken to strengthen our balance sheet. Over the last several years, we have diligently improved our balance sheet and enhanced our financial flexibility. And in 2025, we made further improvements. In March, we closed a refinancing transaction that lowered our blended interest rate by over 100 basis points, simplified our capital structure, and extended out our term loan maturities to 2030. In September, we successfully closed on a $75 million private placement of preferred stock and warrants with Stellix that helped us pay down about $67 million of debt. As part of the same transaction, we also amended our ABL credit facility to increase the commitment by $20 million in order to provide additional flexibility during the seasonal spring and fall demands on our working capital and to reduce the applicable interest rate margin. We also amended our first lien term loan facility to reduce the applicable interest rate margin and improve financial flexibility. Finally, the private placement includes a delayed draw feature that will allow the company to raise up to an additional $30 million in proceeds through the placement of additional preferred stock and warrants over the next twenty-four months. Our success since 2022 in improving our financial and operating performance helped make these transactions possible. We believe these improvements to our balance sheet help better position Team to accelerate execution of our long-term strategic plan focused on top-line growth, lowering our cost structure, and strengthening our cash flow. We also look to lean on Stellix as a partner whose insight and expertise we expect will help us achieve our strategic goals faster and more efficiently. These actions have helped to increase our liquidity, which at September 30, 2025, had increased to $57.1 million, consisting of unrestricted cash of $10.6 million and $46.5 million of undrawn availability under various credit facilities. This does not include the $30 million of potential additional proceeds from any future preferred stock issuances that I spoke about earlier. Turning to our financial results, we are very pleased to see strong top-line growth in both of our segments in the third quarter. For the first nine months of 2025, our IHT segment delivered 9.4% year-over-year growth and our Mechanical Services segment delivered revenue growth of just under 1%. On a combined basis, this is almost $33 million of additional year-over-year revenue. Thus far in 2025, we have also seen a 12% improvement in adjusted EBITDA or about $5 million year-over-year. While our absolute adjusted selling, general, and administrative costs, which excludes expenses not representative of our ongoing operations in other non-cash amounts, has marginally increased over the first nine months of 2025, those expenses as a percentage of consolidated revenue are down 70 basis points year-over-year to 20.7% of revenue. Our adjusted net loss for the first nine months of 2025 is also down $7 million compared to the first nine months of 2024. We have generated over $44 million in adjusted EBITDA through the first nine months of 2025, and we are on pace to deliver strong year-over-year growth. We have increased our adjusted EBITDA every year since 2021, and we are forecasting approximately 13% growth in adjusted EBITDA for the full year 2025 and believe that our continued focus on expanding our margins through cost discipline and growing higher margin work will help us accomplish this goal while building positive momentum as we head into 2026. As you have heard from both Keith and myself this morning, we are executing on our strategic roadmap designed to deliver profitable growth and improved cash flow generation. Year to date, our free cash flow has been negatively affected by non-recurring refinancing and transaction fees and related expenses as well as negative working capital impacts specifically around accounts receivable and payables. Looking forward, we expect fewer non-recurring professional fees and we expect these adverse working capital trends to begin reversing in the fourth quarter, all of which should help improve our future free cash flow generation. Over the last three plus years, we have made significant progress in improving the financial position and operating performance of the company. The balance sheet is healthier, margins have improved, and the top line is growing while the company continues to safely deliver best-in-class technical solutions to our customers. With our employees' continued focus and dedication, I am confident in our ability to build off our progress to date with further improvements in our overall financial and operating performance that will ultimately unlock the inherent value in Team. With that, let me now turn it back over to Keith D. Tucker for some closing comments. Keith D. Tucker: Thanks, Nelson. We have worked hard to streamline our business, expand our margins, simplify our cost structure, and improve our balance sheet. Looking ahead, we expect to continue seeing strong operational and financial results in 2025 with year-over-year growth in the top line, continued improved performance from our Canadian and other international operations, and further meaningful progress towards our adjusted EBITDA target margin of at least 10%, all of which we believe will enhance shareholder value. I am very proud of our safety culture and our focus on continuous improvement because at the end of the day, our people are our most vital asset and no job is too important not to be done safely. In closing, I remain confident about our future because I am a firm believer in our capabilities, talented employees, and this leadership team. We have delivered improving results over the past three years, and we remain committed to continuous improvement in margin, cost discipline, and cash flow generation. I believe that we are well positioned to sustainably and profitably grow Team well into the future. Thank you for joining us today and for your continued interest in Team. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to Broadwind, Inc.'s Third Quarter 2025 Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Thomas A. Ciccone. Thank you. You may begin. Thomas A. Ciccone: Good morning. And welcome to the Broadwind, Inc. Third Quarter 2025 Results Conference Call. Leading the call today is our CEO, Eric B. Blashford, and I am Thomas A. Ciccone, the company's Vice President and Chief Financial Officer. We issued a press release before the market opened today detailing our third quarter results. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of our latest annual and quarterly filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call in the press release issued today. At the conclusion of our prepared remarks, we will open the line for questions. With that, I'll turn the call over to Eric. Eric B. Blashford: Thanks, Tom. And welcome to our call. This quarter, we continued to transform Broadwind, Inc. into a leading precision manufacturing partner of choice for global OEMs. As we advance our priorities to focus on high-value end markets while becoming a leaner, more diversified business, equipped to deliver profitable growth through the cycle. Recent actions to consolidate our manufacturing footprint, reduce fixed overhead, and strengthen the balance sheet have created a strong foundation, one that positions us well entering 2026. This quarter, our performance was driven by strong demand across our power generation and renewables markets, with third quarter orders increasing 90% year over year, supported by broad-based growth across all of our reporting segments. Importantly, orders from our power generation customers more than doubled versus last year and now represent nearly 20% of revenue driven by strong demand for our natural gas turbine product offerings. In early September, we completed the sale of our industrial fabrication operations in Wisconsin, resulting in a net gain of $8.2 million. By consolidating our heavy fabrications operations into our Abilene, Texas facility, we continue to enhance asset utilization and position Broadwind, Inc. to capitalize on opportunities with higher value, growing end markets, where our technical expertise and 100% domestic manufacturing footprint are in high demand. Along with closing the sale in Manitowoc, we announced a $3 million share repurchase program underscoring our continued confidence in our long-term value creation potential. Customer activity remains robust, with incoming orders rising to $44 million, up 90% year over year and doubling sequentially. Led by strong demand from power generation, increasing demand from oil and gas and industrial customers, combined with strong wind orders. These market dynamics reinforce the importance of our diverse customer base and our strategy to pursue the capabilities and quality certifications required to expand in growing markets, specifically power generation. Orders within our heavy fabrications business reflect an increase in orders for our wind products offset by softness in our natural gas pressure reducing systems or PRSs. Gearing orders continue to rebound nicely, increasing 260% to nearly $16 million as we continue to see strength in power generation and some resurgence in the wind and oil and gas aftermarket. In Q3 2025, orders within our Industrial Solutions business continued to be strong, increasing 86% to nearly $14 million driven by strong demand for both new gas turbine installations and aftermarket upgrades and services. We are pleased to have set yet another record for backlog in this segment. Operationally, we continue to invest in equipment technology to improve our process capabilities, reduce costs, and improve our profitability. In 2025, margins were temporarily impacted by production process inefficiencies relating to a unique low volume tower build at our Manitowoc and Abilene facilities as well as lower capacity utilization levels within our Gearing segment. As production normalizes, we anticipate improved operating leverage through the duration of the year and into 2026. In the Industrial Solutions segment, we are investing in additional manufacturing capacity to address our growing backlog and meet future customer demand in the gas power generation equipment market. Within our heavy fabrication segment, Q3 revenue grew by 43% year over year, primarily due to an increase in wind towers and repowering adapters sold offset by lower demand for our proprietary PRSs. Revenue in our 23% year over year, due to lower demand from the mining and industrial sectors partially offset by power generation and steel. Within industrial solutions, revenue grew 37% year over year, primarily due to stronger shipments into the new gas turbine equipment market both domestically and internationally. In summary, the team and business continued to perform well, as we sharpen our focus within adjacent higher margin precision manufacturing verticals. Recent strategic actions to divest our Manitowoc facility position us for increased balance sheet strength and optionality, while improving capacity utilization at our Abilene facility and reducing overhead costs. Despite the volatile trade policy environment, our 100% domestic manufacturing base remains a key competitive advantage positioning us to partner with tier one OEMs who value our deep technical expertise, commitment to quality, and on-time service. With that, I'll turn the call over to Tom for a discussion of our third quarter financial performance. Thomas A. Ciccone: Thank you, Eric. Turning to Slide five for an overview of our third quarter performance. Third quarter consolidated revenues were $44.2 million, representing a 25% increase versus the prior year period. Third quarter benefited from restarting Manitowoc Tower production, as well as increased repowering revenue in both our Manitowoc and Abilene facilities. Outside of our heavy fabrication segment, lower gearing deliveries were more than offset by increased revenue within our Industrial Solutions segment, reflective of the strong order levels we've experienced recently. Sequentially, revenue increased nearly 13% due primarily to the increase in heavy fabrication shipments. Adjusted EBITDA declined $2.4 million versus the prior year of $3.4 million. This decrease was primarily due to lower capacity utilization within our Gearing segment, costs associated with unplanned machine downtime, and manufacturing inefficiencies related to the production of unique low volume power builds within our heavy fabrication segment. Third quarter orders were strong at nearly $44 million. This represents an increase of 90% versus the prior year quarter and 108% sequentially. Orders increased across all of our segments versus the prior year and were up or flat across all segments sequentially. This represents the highest quarterly order level since 2022. Turning to Slide six for a discussion of our heavy fabrication. Third quarter orders were nearly $14 million, a 25% increase versus the prior year quarter. Just a reminder, during the second quarter, we received purchase order releases satisfying the volume associated with the long-term customer supply agreement that we announced in January 2023. As such, the growth in Q3 was primarily attributable to resuming the recognition of new power orders with this customer, partially offset by the decrease attributable to winding down the industrial fabrication operation at our Manitowoc facility. Third quarter revenues of $29.4 million are up 43% versus the prior year quarter, driven by an increase in wind power sections sold as we restarted Manitowoc Tower production in the previous quarter on a limited run which was completed during the third quarter, and increased repowering revenue. This was partially offset by a decrease in the industrial fabrication shipments as we wound down the Manitowoc operation and had fewer shipments of our PRS units. Despite the increase in revenue, third quarter segment adjusted EBITDA was down versus the prior year due to the manufacturing headwinds and unplanned machine downtime previously mentioned. Turning to Slide seven. Q3 Gearing orders increased $11.5 million year over year to $16 million, a level almost three times the average quarterly total over the past three to two years. Most notably, Q3 included a $6 million follow-on order from a leading OEM in the natural gas turbine segment of the power generation end market which we announced in July. This order represents the year one volume of a multiyear supplier agreement for Gearing products. In addition, during the quarter, oil and gas orders remained elevated relative to prior year levels, as we are benefiting from reshoring in reaction to recent US trade policies. Segment revenue was $7.1 million, down over $2 million period, driven by lower revenue and reduced capacity utilization. Turning to Slide eight. Industrial Solutions booked nearly $14 million of orders during the third quarter, maintaining the strong demand seen this year. The segment participates in the natural gas power equipment industry which is experiencing significant resurgence driven by the increasing demand for reliable and flexible power supply. Segment backlog hit a new record of almost $36 million at the end of the third quarter, eclipsing the previous record of $30 million set in Q2. This quarter represents the fourth straight quarter setting a record backlog level. Q3 segment revenue was $7.9 million, up both sequentially and versus the prior year quarter, reflective of the strong commercial environment. Revenue is up 37% versus the prior year quarter, but adjusted EBITDA of 0.6 was flat versus the prior year due to a lower margin mix of products sold as well as additional overhead to support increased production volumes. Turning to Slide nine. We ended the third quarter with total cash and availability on our credit facility of nearly $27 million. Liquidity was boosted in the quarter by the September closing of the sale of our Manitowoc Industrial Fabrication operations which resulted in over $13 million in cash. We used that cash to pay off a portion of our term loan with the balance applied to our line of credit which decreased from $17.6 million down to $3.8 million during Q3. Also boosting liquidity was a decrease in our operating working capital by almost $5 million, primarily driven by reduced inventory levels. We anticipate that working capital levels will decrease again during the fourth quarter. Finally, with respect to our financial guidance, today, we are updating our full year 2025 guidance. We are increasing our full year 2025 revenue expectations to be in the range of $155 to $160 million, up from $145 to $155 million. And the adjusted EBITDA range is maintained at $9 to $10 million, which excludes the $8.2 million gain on the sale of our Manitowoc industrial fabrication operation. As a reminder, in 2024, the Manitowoc facility generated over $25 million of revenue, but adjusted EBITDA margin rate of approximately 8% to 9%. The majority of that 2024 revenue was industrial fabrication work that we do not anticipate replacing organically in 2025. We expect to provide more detail around the full year 2026 outlook on our fourth quarter conference call. That concludes my remarks. I turn the call back over to Eric to continue our discussion. Eric B. Blashford: Thanks, Tom. Now allow me to provide some thoughts as we move into Q4 and 2026. We continue to make a decisive shift toward increasingly stable, growing power generation markets with an emphasis on oil and gas, renewables, and potentially nuclear. Our strategic emphasis is on pursuing the highest growth and the highest margin opportunities that leverage our precision manufacturing expertise. Our facilities in Abilene, Texas, Cicero, Illinois near Chicago, Pittsburgh, Pennsylvania, and Sanford, North Carolina near Raleigh have more than 600,000 square feet of manufacturing space ready to serve our customers. Given the consolidation of our manufacturing base, we anticipate Broadwind, Inc. should be on pace to materially improve capacity utilization going forward. Recent wins within the Gearing and Industrial Solutions segments from power generation, specifically within distributed power, as well as growing opportunities in utility scale natural gas turbines, support our strategy to expand in this market. We continue to see robust quote activity in both gearing and industrial solutions, generated by our ability to solve the complex precision manufacturing and sourcing challenges faced by customers in this growing market. Accordingly, we are expanding resources to meet this demand. In our Gearing segment, we continue to pursue our strategy to move beyond traditional gearing markets for new opportunities and other precision machine products. The recent sizable orders we received from the power generation sector are exciting, with more expected to come next year. We're pleased with the increasing level of customer activity we're seeing in various new infrastructure-related markets, such as road maintenance, cement plants, and aggregate material processing among others. Additionally, we're seeing an increase in orders from our traditional oil and gas customers, partially due to reshoring efforts. Accordingly, we continue to expand our capabilities to serve the high-speed geared segment with additions to our dynamic balancing capabilities, as we bring more key processes in-house. In industrial solutions, continued growth in the natural gas turbine industry driven by the global demand for power is having a positive commercial impact on our business. In Q3, we had near record bookings which led to a new record quarterly backlog. New data center installations are driving increased demand for distributed power solutions, including those that provide redundancy. And many of our key customers are adding significant production capacity in order to meet both the current and foreseeable future demand. Accordingly, we are expanding our internal capabilities in production, fulfillment, and the customer response team to address this growing opportunity and better serve our customers. Expanding on the investments made in robotics, coatings, and machining made earlier this year, we added another vertical machining center in Q3 to expand our fabrication capability. In our heavy fabrication segment, we believe that domestic, onshore wind tower activity will continue at its present pace through 2026. We are encouraged by the continued momentum in the wind repowering market as we are seeing sustained demand from our OEM customers for the adapters we manufacture which are required to upgrade most legacy turbines. We have good visibility for tower production through 2026 and good customer indications beyond that. In summary, I'm pleased with the order growth and strategic actions we've taken this year as we continue to demonstrate strong execution of our strategic priorities. Our divisions are well positioned to support the nation's growing need for power generation and infrastructure improvement which we see as long-term opportunities for us. Our quality, quick response, and ability to solve complex manufacturing challenges for our customers continue to help us win new opportunities. We're reducing our cost structure, investing wisely, and taking strategic actions to refocus our resources toward higher value and growing end markets. We value our people and are committed to keeping them safe, fulfilled, and productive. Our 100% US-based plants are expanding capabilities to take advantage of opportunities afforded by the pro-domestic manufacturing policy backdrop afforded by the current administration. We're encouraged that our order intake continues to grow, positioning us for improved utilization of our manufacturing footprint for the rest of the year and into 2026. As we strengthen our foundation for steady, profitable growth serving the power generation, critical infrastructure, and other key markets, with high-quality precision components and proprietary products to capitalize on improved demand in the years ahead. With that, I'll turn the call over to the moderator for the Q&A session. Operator: Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. One moment, while we poll for questions. Our first question comes from Amit Dayal with H.C. Wainwright. Please proceed with your question. Amit Dayal: Thank you. Good morning, everyone. So Eric, good morning, Amit. Good morning, Amit. Looking into 2026 a little bit, you know, is it looks like, you know, you're having good traction on the industrial solution side with, you know, the power infrastructure ramp that is underway. Is that going to be the key driver for you guys next year in terms of growth? Eric B. Blashford: I think power, well, in terms of division, yes. But I think in terms of market, power generation and critical infrastructure are going to lift both industrial solutions and gearing in 2026. Amit Dayal: Okay. So and that's why I was wondering why gearing was soft. You know, I know you indicated some sort of organic near-term issues, but is the general business environment for the gearing segment positive, I guess, you know, given some of the headlines we are seeing about maybe some economic slowdown, etcetera? Eric B. Blashford: Well, again, with certain markets, we are seeing a lift. We're seeing power generation, with distributed power, primarily with reciprocal turbines, below maybe 50 megawatts. So that's strength for us. We're also seeing some strength in aggregates. And even road maintenance of all things. So we're seeing some general infrastructure lift as well as power generation in gearing. Now gearing reminder, does have a bit of a lead time. So what we're seeing in softness in revenue is because of the lack of orders we had a couple, three quarters ago. These orders that we're receiving now, we will be delivering in 2026. Amit Dayal: Okay. Understood. And then just last one for me. You know, are you seeing learn about the margin profile for 2026 with the level of visibility you have right now. Eric B. Blashford: It's pretty stable. We are having some increases because of tariffs. We're able to pass those on. Some of our sourcing has to come from those countries that do primarily for industrial solutions. That are subject to tariffs, but we are able to pass those on with a timing difference to our customers. So I'd expect the margin profile to be about the same in '26 as it is in '25. However, the increase in capacity utilization does help us. Yeah. I think the only thing I'd add there, Amit, is that we did some operational headwinds in '25 here. And I think maybe all else being equal, we could expect a marginal improvement just due to the absence of those headwinds. Amit Dayal: Understood. Okay, guys. That's all I have. Thank you so much. Eric B. Blashford: Thank you. Operator: Our next question comes from Sameer Joshi with H.C. Wainwright. Sameer Joshi: Hey. Hey, Tom. Just following up with some more questions on the costs front. Now that the Manitowoc overhead is out of the way, do you expect to have higher gross margins going forward? Thomas A. Ciccone: Yeah. I would say it's probably more to do yeah. The answer is yes. And I think it probably has more to do with the, again, with the lack of operational headwinds that we had. The Abilene facility is an owned facility versus Manitowoc being a rented facility. So we do see slightly higher margins out of that facility. And I think capacity utilization is a big factor here. The more we can run across that plant, we should see some good returns on that. Sameer Joshi: Understood. And then, the PRS, sort of it's showing some weakness, at least in this quarter. Is that because of just timing, or is there a general lack of demand for that? Eric B. Blashford: Well, we like to think it's timing. Talk with our customers about it when we're on roadshows. And demos, and they really like the specifications of that. But what they say is at least right now, the price of oil is restricting their ability to increase capital. Once that turns a bit for them with new budget season, we should expect a resurgence in volume from that product line. Sameer Joshi: Great. Thanks. Thanks for that color. Operator: Thank you. Our next question comes from Eric Stine with Craig Hallum Capital Group. Please proceed with your question. Eric Stine: Hi, Eric. Hi, Tom. Good morning. Eric B. Blashford: Morning, Eric. Thomas A. Ciccone: Morning. Eric Stine: So maybe it sounds like, I mean, you're clearly making investments for growth across the business. I just want to specifically look at Industrial Solutions given where the backlog is? I guess, first, could you just talk about you've done it sounds like, quite a few. You've got more upgrades planned, what that might mean from a CapEx perspective, but also how quickly can that come on because your backlog would imply, you know, that you could have a pretty meaningful step up in revenues. Once those investments kind of come to bear. Thomas A. Ciccone: Yeah. I think to answer your question about CapEx, we've made some investment this year. They've been relatively modest. We don't expect anything that would move the needle from a consolidated perspective. As we look forward, historically, we've been about 2% to 3% of revenue as CapEx. We don't anticipate exceeding that in '26 or Q4 or '26. But what I will tell you is we do intend to expand that plant into another portion of a larger building which we can get into. Increases our floor space by about 35%. Going into 2026. So that, along with the increase we're making in staffing and equipment, we should be able to respond to this demand. But the demand is there and is coming, it is there and is continuing. So we definitely need to make these investments to keep up with it. Eric Stine: Right. And, okay. So second half is should it should be more of the expectation potentially for a step up there. Sure. I mean, maybe a good segue just on you know? I mean, obviously, it's no secret what's going on in energy markets, demand, need for resiliency, etcetera. But, I mean, I would think that this is a tailwind for your business for multiple years. And, so, you know, curious if you agree with that first. But then secondly, I mean, do you have you mentioned what you're doing in Industrial Solutions. But even in gearing, I mean, do you have kind of additional ways to expand capacity as you think about that, not just for 2026, but as you look at '27, '28, and beyond given these trends. Eric B. Blashford: Sure. Well, first of all, the demand for electricity is going to keep on going up, and we all know that. The demand for data centers is projected to go from 22 GW up to 35 GW through 2030 just for data centers alone. So we know that's a demand driver for us. Regarding capacity, I'm sorry. The visibility that we have for the gas turbine market goes beyond 26 into 27 and even into 28. So we do expect that tailwind to be behind us for the next certainly two or three years which is as far as we can see out right now. Gas turbines sold are about 30% up year over year, 2025 versus 2024. And '24 was a strong year. So you know, the basics are there for the growth. Regarding the capacity, we're really only still about 45% full in gearing facility. So we have plenty of capacity to fill there as this business grows. But what we're doing is specifically adding technology to bring more in-house. That was the balancing equipment I mentioned. Because the more we can bring in-house, the more control we hope we have of quality, over timing, and over price. So those are where are to see our investments made going forward. Eric Stine: Yep. Okay. That is helpful. And then just on heavy fab and specifically wind, you know, I would assume we should expect this to be the new norm now that you have satisfied that long-term contract. I mean, not that you would turn down an order of that magnitude should it happen. I mean, this is going to be a maybe not quarter to quarter, but this is going to be a you know, you get a large order. It's probably gonna mean that you're at elevated levels for you know, the next few quarters. And you know? But no one should expect necessarily that heavy fab backlog, you know, is meaningfully higher. Until wind really picks up. I mean, is that a fair or correct answer? Eric B. Blashford: Correct. Our customers like to issue us ratable POs because it also helps them because they don't necessarily know the turbine they're going to sell. That far out. They know that we know they want our capacity. We've got good visibility through '26 and really good customer indications beyond that. But when it comes to which turbine they sell and which tower goes under it, they really can't look out that far. So yes. What we saw this quarter, should expect to see going forward. Eric Stine: Okay. Thank you. Thanks, Eric. Eric B. Blashford: Very good. Thank you. Operator: We have reached the end of the question and answer session. I'd now like to turn the call back over to Eric B. Blashford for closing comments. Eric B. Blashford: Yes. Thanks, everyone, for listening. We look forward to coming back to you again early next year to talk about our full year 2025 and how 2026 looks. Operator: Thank you for your interest. This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss SharpLink Gaming Ltd.'s financial and operating results for the third quarter ended September 30, 2025. The release is available in the Investor Relations section of SharpLink Gaming Ltd.'s website. By now, you should have access to the third quarter 2025 earnings press release, which was issued yesterday afternoon at approximately 4:05 PM Eastern Time. This call will also be available for webcast replay on the company's website. Following management's remarks, we will open the call up for Q&A. I will now hand the call over to SharpLink Gaming Ltd.'s Vice President of Business and Legal Affairs, Dodi Handy. Please go ahead. Dodi Handy: Thank you, operator. Please see SharpLink Gaming Ltd.'s quarterly report on Form 10-Q filed yesterday with the SEC and the earnings press release, which crossed the wire yesterday afternoon. These documents list some of the factors that may cause the results of SharpLink Gaming Ltd. to differ materially from what we say today and which identify some of the risks and uncertainties that could affect our business prospects and future results. SharpLink Gaming Ltd. assumes no duty and does not undertake to update any forward-looking statements. Any forward-looking statements made by us during this call are based only on information currently available to us and speak only as of the date when they are made. In addition, we may be discussing or providing certain metrics today such as concentration that are not GAAP metrics. Please see our earnings press release and SEC filings for further information regarding these metrics. To set the agenda for today's call, we will begin with SharpLink Gaming Ltd.'s Chairman, Co-Founder of Ethereum, and Founder and CEO of ConsenSys, Joseph Lubin, who will provide a broader perspective on Ethereum's continued growth, institutional adoption, and the evolving regulatory landscape shaping the digital asset economy. Next, Co-Chief Executive Officer, Joseph Chalom, will discuss SharpLink Gaming Ltd.'s progress and execution of its ETH treasury strategy, highlighting key achievements from the quarter and our areas of primary focus in the quarters ahead. Then Rob Phythian, Co-Chief Executive Officer, will share an update on SharpLink Gaming Ltd.'s affiliate marketing business. He will then be followed by Chief Financial Officer, Robert Michael DeLucia, who will be recapping the third quarter 2025 financial results and key performance metrics related to SharpLink Gaming Ltd.'s strategy. I would now like to turn the call over to SharpLink Gaming Ltd.'s Chairman of the Board, Joseph Michael Lubin. Joe? The floor is yours. Joseph Michael Lubin: Thank you, Dodi. Good morning, everyone. I'm the Chairman of SharpLink Gaming Ltd. and as many of you know, also a Co-Founder of Ethereum and the CEO and Founder of ConsenSys, a leading Ethereum software development company. ConsenSys is a strategic advisor to SharpLink Gaming Ltd., offering support across a broad range of topics from product collaboration, market education, protocol due diligence, and more. The strategic connectivity between ConsenSys and SharpLink Gaming Ltd. provides SharpLink Gaming Ltd.'s stockholders with unique competitive advantages relative to other digital asset treasuries. Stockholders are starting to see early examples of this, such as the staking collaboration between ConsenSys and SharpLink Gaming Ltd. that we announced in October to provide enhanced levels of risk-adjusted yield on a portion of our ETH capital. Beyond this unique partnership, we are seeing incredible tailwinds that I can only describe as a massive acceleration of an institutional adoption super cycle. Wall Street and other institutions, including our own government in the U.S., are fully embracing the Ethereum opportunity. Just over the past few months, we've seen major accelerants to this adoption. These include the SEC's Project Crypto announcement to support bringing capital markets on-chain as a national competitive advantage, the passage of the Genius Act to create a regulatory framework for stablecoin adoption, and JP Morgan announced that they will allow institutional clients to use their ether holdings as collateral for loans. Governments in Japan and South Korea are announcing the launch of their local currency-denominated stablecoins on Ethereum, where the bulk of the global stablecoin activity resides. Alibaba announced the launch of their layer two network built on Ethereum. At their CyBOS annual meeting five weeks ago, the Swift CEO announced as a focus of his keynote that they are working with ConsenSys to build the SWIFT ledger using Linea, ConsenSys's layer two Ethereum technology. It was clear to everyone at Cybos that traditional finance was now moving rapidly to onboard itself onto Ethereum and various aspects of decentralized finance. In parallel to Swift's adoption, the DTCC and other central securities depositories around the world, major stock exchanges, and banks like JPMorgan and Deutsche Bank are just a few of the major financial institutions that are building on Ethereum. I will restate our long-term thesis: Ethereum is becoming mainstream global trustware, a new kind of software platform that eliminates some traditional risks and inefficiencies, guarantees execution as advertised, and is the institutional-grade trust commodity that is powering transactions, agreements, and systems on the next-generation financial infrastructure. Ethereum continues to extend its massive lead in the smart contract platform space as Ethereum dominates the flows across stablecoins, tokenized real-world assets, and high-quality DeFi liquidity. This institutional adoption super cycle is underway and it is now finally supported by our regulators. Joseph Chalom and I both attended and presented this week at a very high-quality Cantor crypto event organized by Cantor Fitzgerald. They brought together many of the leading U.S. regulators and legislators with top-tier founders, C-suite execs, and investors for a wide range of presentations and discussions. The institutions are present in force and accelerating their activities in the Ethereum ecosystem. Ethereum has done the hard part: implementing the strongest security, attracting the most validators, the largest developer community, while maintaining the most rigorously decentralized network, all with a track record of 100% uptime for over ten years since inception. This has resulted in Ethereum becoming the home of most of the DeFi liquidity in the ecosystem. Now, to support institutional adoption and high transaction volume, in addition to the massive scaling provided by the Ethereum layer two networks, we are witnessing step function improvements in Ethereum's Layer one main net transaction throughput, scalability, and efficiency. Further improvements are coming with Ethereum's Fusaka upgrade in December, which will unlock even further much more regular parallel scaling upgrades to support the growing demand from institutions to drive transactions and value on Ethereum's main net. We at SharpLink Gaming Ltd. are executing in anticipation of a future where Ethereum becomes the settlement layer for trillions of dollars in tokenized assets, real-world instruments, and on-chain liquidity, increasing ETH per share for our investors. As a Co-Founder of Ethereum, I've witnessed great cyclicality and volatility in the price of digital assets, including ETH. It should not distract us from the secular paradigm shift that is now going mainstream. SharpLink Gaming Ltd. is perfectly positioned to build value for shareholders at the confluence of technological scaling and maturity, regulatory clarity, and institutional adoption of Ethereum. I'd like now to turn the call over to our Co-Chief Executive Officer, Joseph Chalom, to walk through how we're positioned during this important moment in the Ethereum journey and share our third-quarter operational updates. Joseph Chalom: Thank you, Joe, and good morning, everyone. To begin, I'd like to share that we are really pleased with the results of this quarter, our first full reporting period since we launched our Ethereum treasury strategy. We will talk through our Q3 financials in more detail later, but I want to highlight two very positive points. First, we delivered approximately $10.8 million in total revenue, up over 10x year over year as a result of our best-in-class treasury management and staking nearly 100% of our ETH. Second, we delivered net income of approximately $104.3 million, largely driven by gains in our Ethereum holdings. These results demonstrate the strong momentum we're seeing across our business, particularly as institutions continue to build on and engage with the Ethereum ecosystem amid a new era of regulatory clarity. What was once viewed as a major barrier to institutional participation has now been lifted, with the digital asset industry gaining clear recognition and support from the U.S. Government. It is not a coincidence that we're seeing a major inflection point for institutional adoption of digital assets and decentralized finance. Wall Street and governments globally are recognizing the power of stablecoins to facilitate nearly instant movement of value at no cost. The largest banks and asset managers are deploying on-chain and announcing roadmaps to the tokenization of real-world assets. This unlocks a new frontier of distribution and capital efficiency for investors. We're also seeing institutions, including SharpLink Gaming Ltd., access high-quality DeFi for borrowing, lending, and other financial primitives. Given the history, security, trust, and liquidity on Ethereum, it not only has the license to win, it is winning the predominance of this institutional activity. For this reason, we're building a SharpLink Gaming Ltd. team capable of fully capitalizing on this paradigm shift. I'm really proud that we've been able to attract some of the brightest talent in our industry to our senior executive team, giving us greater institutional experience and expertise. Matthew Sheffield joined as our Chief Investment Officer from FalconX, where he served as the Head of U.S. Spot Trading, and previously worked at Bridgewater Associates. Mandy Campbell joined as Chief Marketing Officer from Bain Capital Crypto, where she led marketing for the firm's dedicated digital asset and early-stage venture funds and previously built brands for companies like GitHub and Facebook. Michael Kamarta joined as our Chief Development Officer from ConsenSys, where he led corporate development. He previously worked at JPMorgan across investment banking and strategic investments. Leveraging our expertise and strategic partnership with ConsenSys, our team is laser-focused on identifying the best ETH deployment opportunities and ecosystem partnerships to maximize value creation. Since we initiated our Ethereum treasury strategy in June, we have staked nearly 100% of our ETH. This is in contrast with many of our peers and with the ETH ETFs. We're earning real on-chain yield through native staking and liquid staking protocols. More recently, working alongside ConsenSys, we announced we will deploy $200 million of ETH onto its Linea layer two platform in partnership with Eigen Cloud, EtherFi, and Anchorage Digital Bank. Our scale and permanent capital base allow us to structure multiyear deals that generate yield and economic incentives that materially exceed the standard Ethereum staking rate. Importantly, we're accessing DeFi-level yields while carefully managing our risks, including ensuring that this deployment and custody are maintained within Anchorage, one of our qualified custodians. Yield opportunities like this are generally not available to individual investors or passive ETFs and highlight the enhanced value that our actively managed treasury can generate for our investors. As part of our mandate, we've been proactively sharing our long-term vision for Ethereum's role in global finance with both retail and institutional audiences. A central element of our Ethereum adoption thesis is that most financial assets, including funds, stocks, and bonds, will be tokenized. This means that ownership of these assets will be represented in a digital token format on the blockchain. We're not alone in this view. Just last month, Larry Fink, the CEO of BlackRock, shared his vision that all assets will be tokenized on-chain to drive both efficiency and accessibility for investors. At SharpLink Gaming Ltd., we're not a passive observer of this paradigm shift. We're helping usher it in. In September, we announced a partnership with Superstate, a digital transfer agency, to become the first public company to natively issue its stock on Ethereum. The intent of this innovative partnership is to increase both accessibility and on-chain utility of our public equity for the new digitally native investor base. We're actively working in the ecosystem to ensure there are market participants which can support this innovative new financial standard and primitive. It's important to acknowledge that like others in our space, SharpLink Gaming Ltd.'s share price has experienced periods of volatility. That's expected given our exposure to our reserve asset, ETH, which is volatile. What's important is that we've grown our total ETH holdings significantly over the past quarter and doubled our ETH per share concentration from 2.0 to 4.0 since the inception of our ETH treasury strategy in June. As we have shared in the past, SharpLink Gaming Ltd. is relentlessly focused on shareholder value and ETH per share accretion. We've built a team that is well-positioned to navigate these volatile markets. We have the expertise and agility to take advantage of the right capital market opportunities with a strong balance sheet as our foundation. Our digital asset treasury structure gives us flexibility to make strategic decisions for the benefit of our investors. Speaking on capital markets specifically, when our multiple to NAV is above one, we have the ability to issue new shares and purchase ETH. This is immediately accretive to ETH per share. When our multiple to NAV is below one, we can raise capital to fund share buybacks. We can do this by monetizing our volatility through convertible bonds or other equity-linked structures and can utilize a portion of the $3 billion of ETH on our balance sheet as collateral to borrow capital. In either of these scenarios, we're able to execute transactions that are accretive to stockholders and increase our ETH per share concentration. I want to share just one example of where we found an innovative opportunity to raise capital. In October, we raised $76.5 million through a registered direct offering priced at a 12% premium to our then market price and a premium to the net asset value of our ETH holdings. This novel transaction paired an equity sale with a short-dated premium purchase agreement, enabling us to issue stock to a high-quality institutional investor interested in gaining upside exposure via this unique structure. This deal reflects the strong institutional confidence in SharpLink Gaming Ltd.'s strategy and long-term vision. By raising capital at a premium, we continue to expand our ETH treasury and increase ETH per share for our stockholders. Beyond innovative treasury management, we do not have an exclusive multi-year asset management agreement in place like other treasuries. We manage the vast majority of our assets through our in-house team of institutional experts from both crypto and traditional financial markets. This allows us to raise capital, acquire ETH, and maximize its productivity through in-house active management, allowing more of this value to flow to our stockholders. Together, these factors place SharpLink Gaming Ltd. in a distinctly advantageous position to capitalize on the institutional adoption super cycle now unfolding across the Ethereum ecosystem. In closing, our third-quarter earnings results mark a proof point that SharpLink Gaming Ltd.'s Ethereum treasury model is indeed working. Our mission is to give investors the smartest and most efficient way to benefit from the long-term Ethereum opportunity. We have built what we believe is the most innovative Ethereum treasury company, providing stockholders with institutional-grade, risk-managed exposure to ETH. With that, I will now turn the call over to my partner, Rob Phythian, to provide an update on SharpLink Gaming Ltd.'s affiliate marketing business. Rob? Rob Phythian: Thanks, Joseph, and good morning, everyone. With the shifting of SharpLink Gaming Ltd.'s focus and management resources towards execution of our ETH treasury strategy, we reduced emphasis on expanding our affiliate marketing business. Nonetheless, this segment continues to operate steadily, providing a modest source of revenue through our performance marketing and player acquisition services. For the three months reporting period ending September 30, 2025, and 2024, revenue declined to approximately $570,000 from $882,000, respectively. Our 2025 consolidated net loss from continuing operations improved, with losses declining to approximately $800 compared to a consolidated net loss from continuing operations of $781,000 for the same three months in 2024. We are very pleased that our affiliate marketing segment is holding its own and operating efficiently as part of a broader business platform. To provide you with greater insight and perspective on SharpLink Gaming Ltd.'s third-quarter financial results, I'll now turn the floor over to Robert Michael DeLucia. Bob? Robert Michael DeLucia: Thank you, Rob. I'll begin by encouraging everyone listening today and those who have read our earnings release to review our quarterly report on Form 10-Q for the period ended September 30, 2025, which we filed yesterday afternoon with the SEC. The 10-Q provides detailed disclosures and footnotes that complement today's discussion, offering stockholders and investors a comprehensive view of SharpLink Gaming Ltd.'s financial position, liquidity, and ETH treasury performance metrics. We will now go through the financial results for the quarter ended September 30, 2025. As we review our third-quarter income statement results, I'd like to remind everyone that all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. As of September 30, the company held 580,841 ETH with a net fair value of $2.4 billion. In addition, we held 236,906 LSE or liquid staked ETH with a net cost value of $622.7 million. Subsequent to the end of the quarter, our combined ETH holdings have continued to climb, standing at 637,752 ETH and 223,499 LSEs for a total of 861,251 as of Sunday, November 9, 2025. Revenue in the third quarter increased to $10 million compared to $900,000 in 2024. The increase was due to the success of our ETH staking strategy during the third quarter. I'd like to point out that our income statement now reflects a section presenting other operating income resulting from our ETH holdings. We believe this presentation of our income statement provides stockholders, investors, and the general public with greater clarity and ease of understanding our results when reading our financial statements. SG&A expenses in the third quarter were $12.4 million compared to approximately $709,000 in 2024. Net income for the third quarter increased materially to $104.3 million compared to a net loss of $900,000 in Q3 of last year. The significant growth in net income was primarily driven by a $107.3 million unrealized gain related to fair value accounting adjustments on our ETH holdings. We also had a realized gain of $6.3 million from the conversion of ETH to LSETH and a non-cash impairment charge of approximately $7 million due to the lowest intraday market price for LSE during the third quarter. As of September 30, 2025, cash on hand was $11.1 million compared to cash on hand of $1.4 million as of December 31, 2024. Additionally, at September 30, 2025, we held $26.7 million in USDC stablecoins as a financial asset. For additional details, our complete official financial statements and accompanying footnotes, including all required disclosures and management's discussion and analysis, are contained in our quarterly report on Form 10-Q for the period ended September 30, 2025, filed with the SEC. This concludes our prepared remarks. We will now open it up for questions from those participating on the call. Operator, back to you to provide instructions for those who may have questions for management. Operator: Thank you. Our first question comes from the line of Devin Patrick Ryan with Citizens Bank. Please proceed with your question. Devin Patrick Ryan: Great. Good morning, Joseph, Joseph, Rob, and Bob. First question is probably for Joseph Michael Lubin, because I'd love to dig in a little bit just on kind of the Ethereum growth and particularly Linea because it just seems like a ton of momentum there. And I know that can kind of trickle down into more activity here. And so huge wins like Swift. And so I'd love to just hear about what the attributes are that are driving that demand from partners? And then also, if you can just talk a bit more about what the pipeline there looks like and any color around kind of the details of the pipeline, if you can, just in terms of what the use cases are and what most people are interested in? Joseph Michael Lubin: So the general answer is that the institutions are finally here, that financial institutions and other enterprises have recognized that the digital assets are an incredibly important technology, the decentralization. Is a direction of travel or not just the financial industry but for the Internet and the web itself? Ethereum has executed its roll-up centric roadmap for scaling and executed it remarkably well. So we have a lot of scalability capacity that has come online and much more coming nearly every day. We are focusing on making operations more interoperable across the different networks and down to the layer one even while we scale layer twos with the enhanced blob binary large object access and scaling layer one as well, the Fusaka upgrade will do great things for both of those. And Amsterdam upgrade hopefully somewhere around six months later will in particular concentrate on layer one scalability. We've also decoupled the ability to upgrade blobs and gas limits from the traditional upgrade cycle. And so we're going to be able to accelerate both of those. Linea is particularly exciting because it is the only layer two type technology, ZK EVM technology that is 100% compatible with Ethereum layer one. Additionally, it's making use of ether for fees on that network and on subsequent implementations of the Linea technology. And is burning both ether and Linea as we speak, contributing to the financial health of the mothership layer one. We I can't announce too much about what we're launching in the near term on Linea. And the Swift project itself is going well. We are on track to build the prototype that has been articulated. And other financial systemically important financial institutions are also building on Ethereum technology. We've seen actual launches from DTCC. There are other DSTs around the world that are making use of ConsenSys's Ethereum technology. Major stock exchanges have announced that they are tokenizing stocks on Ethereum technology and ConsenSys's Ethereum technology and major banks are also doing the same thing. So I mean, we did that. Devin Patrick Ryan: Yes. No, I appreciate all that detail. And then just one on SharpLink Gaming Ltd. and kind of the broader strategy as we look into 2026 and I appreciate there's a number of variables that probably go into this. But how do you think about what percentage of ETH over kind of the intermediate term should be staked versus could be applied to enhance yield or operating earnings in other ways for the business. And so is there a percentage or how are you thinking about that? And then as we think about kind of intermediate term, the incremental spread that you think your team can generate above and beyond what someone can get as kind of just staking yield as they're an active owner of ETH? Joseph Chalom: So Devin, I'll take that. This is Joseph, and thanks for the I think there's two ways to answer it. Given ETH is a productive asset that you can stake, restake and gain yield, as a treasury, our first responsibility is to provide that yield. So I just want to say we have been staking nearly 100% of our yield of our ETH since the inception of our treasury strategy. I as a responsibility and as a steward of that. Second is we're we don't provide guidance on the specific yield we expect to achieve from our staking and restaking opportunities, what we will say is we are focused on a risk-adjusted yield. There may be people who swing for the fences and seek very high default DeFi level yields. You would have seen our Linea and ConsenSys announcement just last month where we're deploying about $200 million of our ETH from our ETH Treasury, in a collaboration with EtherFi, Eigen, Linea, and ConsenSys. And in that case, we're investing in a liquid restaking token, and we're getting enhanced yield without taking enhanced risk. Because of economic incentives from some of our collaborators and partners. So I think what you'll hear from us is we're going to take an institutional approach to how we stake, we're gonna stake nearly 100% of our ETH and seek the best risk-adjusted returns which you can do given the scale of us being the second largest corporate holder of ETH. So we're gonna participate in the ecosystem. We're going to get that yield. The one thing we've highlighted is that this unique yield opportunity in this collaboration is still being risk managed. And the liquid restaking token is sitting in Anchorage. Or qualified custodian. So you could think of us trying to get the best risk-adjusted yield but we won't get a we won't give a target on the spread. We will do the right thing and focus on risk management. And get those best opportunities for our investors that the average retail investor cannot achieve and that an investor in an ETH ETF cannot achieve either. Devin Patrick Ryan: Yes. Okay. I really appreciate that Joseph. I will stop back in the queue, let others ask, but great to see the progress over the past couple of months. And let me also emphasize that it is the relationship, the close relationship between SharpLink Gaming Ltd. and ConsenSys that enabled us to configure a yield situation that was significantly above the regular staking yield without increasing any risk above what one would normally do in the vanilla case. And that was directly due to the Linea relationship. Operator: Thank you. Our next question comes from the line of Brian David Kinstlinger with Alliance Global Partners. Please proceed with your question. Brian David Kinstlinger: Great. Thanks so much. As a follow-up to those questions, can you speak to the pipeline of other capital deployment opportunities? And will there be competition with some of the larger ETH holders as well? Or do you think some of these opportunities are exclusive to SharpLink Gaming Ltd.? Joseph Chalom: I can take that one. Thanks, Brian. We are looking and surveying the entire ecosystem for opportunities, staking, restaking, liquid staking, potentially borrowing and lending with our ETH in the DeFi ecosystem. That said, we've hired a really expert team with both crypto and institutional experience that is focused not only on those enhanced yield opportunities, but what are the inherent risks. And we are right now in the midst of doing a survey of the entire ecosystem for these yield opportunities. The ConsenSys Linea announcement was the first in what I would expect would be more innovative announcements. And what's interesting being a large corporate holder of ETH, is that we view our ETH as permanent capital. And what that means is as we approach the ecosystem, many of these ecosystem protocols are very, very interested in not only having us stake our ETH with them, but to commit to a multiyear staking relationship. And others have a very difficult time doing that. Whether you're a retail investor, whether you're an ETF manager, because of the daily liquidity that you may need. When we approach the ecosystem and are willing to provide multiyear commitments, we are seeing that they are very eager to provide enhanced incentives for that locked TVL or total volume locked. So we're still surveying. You will see, I believe, additional announcements later this quarter and in quarter two. But we're viewing it essentially as a portfolio of a staking and as an institutional investor and steward we are looking at the efficient frontier of opportunities. And that's how we're approaching it. Like a great steward of institutional capital for our investors. Brian David Kinstlinger: Great. And then for maybe for Joe Lubin, we hear a lot about AgenTek AI in autonomous digital commerce. How do you feel if you're in this position for this trend compared to other chains? I know it sounded like the Osaka upgrade definitely improves the positioning, but maybe I'd love to hear your thoughts. Joseph Michael Lubin: Yes. So, via ConsenSys and across the Ethereum ecosystem, we are very excited for our AgenTek future or hybrid human-machine intelligence future. The Ethereum Foundation itself has been doing some outstanding work in figuring out the many ways that we and the ecosystem can support AgenTek AI. ConsenSys itself has been doing some of the same. Marco DiRosse of ConsenSys has been working with the Ethereum Foundation and with Google to pioneer ERC-8004. It is essentially a registry for AgenTek AIs to register their capabilities and be accessible by other agents or other software, humans. So it's useful for discovery. And it's useful for reputation as other agents or humans can provide feedback on the registry regarding their results. So with respect to certain characteristics that have been published in the registry. Linea is going to be a very welcome home to agents. And another interesting element that I think has the potential to transform how we interact with the web quite significantly and how AgenTek AI interacts with other AgenTek AI is X402. The internet and web were built without native money, native payments. And also native identity, that's a different topic. Essentially, X402 is going to enable first off the Holy Grail of micro payments that makes sense to make use of, because Ethereum is very inexpensive right now and getting more inexpensive to do transactions and the Layer 2s are very inexpensive. And so it's starting to make sense to be able to pay sub-second fees for accessing data and other kinds of services on the internet. So you can imagine, as it evolves, the web APIs can be wrapped in X402 and agents or people can ask for data, receive a price, pay that price, and be able to access what they want from a website without having to sit through all the advertising that is currently saturating the World Wide Web. Brian David Kinstlinger: And Brian, would just add, which I was described is a massive future opportunity and use case on the Ethereum network. And that will drive more usage of ether as the native token securing it. And that's why we believe there's a long-term macro opportunity to own as much ether as possible. And this AgenTek AI use case is another tailwind for Ethereum just like tokenized assets, stablecoins, and institutional adoption. Operator: Thank you. Our next question comes from the line of Fedor Chabalin with B. Riley Securities. Please proceed with your question. Fedor Chabalin: Thank you, operator, and good morning, everyone. Good to see solid staking rewards contribution in 3Q revenues. And my question is about the current multiple to net asset value. Stock is trading at a discount right now and could you provide any details on what initiatives you consider besides just share buybacks? Any color on your priorities here would be helpful. Thank you. Joseph Chalom: Sure. I think we are going through a period which we hope is temporary, where many digital asset treasuries are seeing some compressed multiple to NAVs. I do think it provides us with an opportunity to do two things which are really, really important when you put shareholders first. We are set up to basically be able to deal not only with price volatility, but even when our NAVs are trading at a discount. Our goal continues to be ETH per share growth. And when our market multiple to NAV is above one, we can issue equity to purchase more shares. When it's below one, we can buy back stock. And you would have seen that in August, our Board approved a stock buyback program. And both of these actions are accretive. So in this space, volatility can become an opportunity to capture value and not always a constraint. I would also say that our decision framework again, is rooted in ETH per share accretion. And capital efficiency. We've built an incredible team of institutional experts who are constantly looking at opportunities both business development opportunities as well as capital market opportunities when we're in a period where our NAV is trading at a discount. We won't publicly disclose further details into our methodology for competitive purposes. But at the end of the day, we are focused on increasing ETH per share concentration. And we've disclosed that it's more than doubled from 2.0 to 4.0 through our disciplined capital management. I appreciate the fact that we are in a position where we could raise capital in multiple ways. And when our multiple to NAV is below one, we have to be careful in terms of how we can raise equity. But you would have seen the unique fundraising opportunity we took advantage of in October. And we are going to continue doing the right thing for investors but with a focus on ETH concentration. Again, we are not providing guidance or detail on how we would execute on our capital market strategy or share buybacks at this time. Fedor Chabalin: I appreciate this color. And my follow-up is, has a macro nature. And this question is probably for Joseph Michael Lubin. Maybe many investors view Solana as a competitor to ETH citing its transaction speed and low cost as the key advantages. And how can Ethereum preserve its leading position in the face of this competition? And additionally, could you provide more details about the December upgrade and what the main updates will include just briefly if you can frame it up? Thank you. Joseph Michael Lubin: Let me start with the second piece. Data availability sampling is one of the major upgrades and that's going to enable nodes on the network to need to hold less data, but it'll enable the amount of blobs or binary large objects to grow significantly. And there's also an upgrade that enables them to start to grow as a result of something like monthly activity, that it's called the parameter-based upgrading. And so both blobs as well as gas limits will be upgradeable on a very regular basis. So that's going to enable greater scalability at both Layer 1 and Layer 2. The Ethereum ecosystem is growing pretty dramatically in its scalability. And we already see networks on Ethereum that significantly rival or beat Solana's transaction throughput. A project that's coming online rapidly, Mega ETH, operates at speeds that I believe are significantly in excess in terms of transaction per second throughput of Solana. The Solana numbers actually include in their transaction per second throughput essentially their voting mechanism, which are not actual transactions initiated by users. And so we'll see pretty soon the total transaction throughput of the Ethereum ecosystem eclipse what Solana is doing. And we have composability enhancements, which will enable transactions and operations across different Layer 2s and across Layer 1 to be very smooth and to have a very low latency in between them. So we'll start to see applications being built that access multiple Layer 2 networks and Layer 1 in roughly the same operation. Joseph Chalom: And Fedor, it's worth noting that if you look at the most recent figures, stablecoins, which is probably the fastest growing area of digital assets with over $300 billion, over 60% of all stablecoin activity is happening on Ethereum and its ecosystem. Ethereum has, last time I looked, approximately 10 times as much stablecoin activity as Solana. Over 80% of tokenized real-world assets, which we believe is going to be the next driver of growth, is happening on Ethereum. And if you look at the high-quality liquid asset activity happening in the decentralized finance space, the majority is happening on Ethereum. So we feel quite confident that institutional real activity is gonna be dominated by the Ethereum ecosystem, despite some of the marketing and prior hype around Solana. Joseph Michael Lubin: Another important point to make is that many users don't need incremental transaction per second throughput. Lots of these networks are sufficiently capable of handling the volume. What a lot of these cases do require is reliability, and nothing comes close to the ten years of uptime, non-interrupted uptime that Ethereum provides. Fedor Chabalin: Thank you very much, Joe, Joseph, and the team. Appreciate all the color and continue best of luck. Operator: Thank you. Our next question comes from the line of Kevin Darryl Dede with H.C. Wainwright. Please proceed with your question. Kevin Darryl Dede: Thank you. Good morning, gents. Appreciate being on the call. Mr. Lubin, apologies for dragging you back over the upcoming upgrades. But I'm curious given your insight, how you see them progressing. I know the merge pushed to the right on numerous occasions and I'm wondering if in your negotiations with financial services institutions, whether or not that potentiality affects discussion of ETH versus Solana. Joseph Michael Lubin: So in terms of being able to land upgrades on time, the Ethereum ecosystem has significantly matured on that front. The Ethereum Foundation is almost a brand new foundation. It is firing on so many new cylinders and the level of breadth that it's addressing and excellence at which it's operating is incredibly exciting to all observers from deep inside the ecosystem and hopefully from outside of the ecosystem. So, we're targeting more than one major upgrade to the Ethereum protocol per year, hopefully landing on an average of two. And we're on track to accomplish that this year. We're looking like we're on track to accomplish that next year. We do expect after Fusaka, the Glamsterdam upgrades will probably land somewhere around six to eight months after Fusaka lands in December. And as I indicated before, we've decoupled a bunch of the upgrade trajectories from the main dinner of the main schedule, so that we'll be able to upgrade the number of blobs or binary large objects on their own pace, and we're going to be able to upgrade gas limits on its own pace. And so we'll look to do a number of those decouplings and parallel developments over time. As always, when we do the work, we're doing the work for the next few major upgrades. These things take time and we've got many, many teams on a number of different clients that are always working in parallel. And an upgrade picks from the priorities that need to be addressed and the level of maturity of that thread to determine what actually ends up in an upgrade. Also, yeah, in terms of how financial institutions impact the Ethereum upgrade cycle. I would argue that financial institutions are starting to be a forcing function in what the Ethereum ecosystem considers necessary to include in the protocol. Things like enhancements to reduce the delays on the staking queue are a very important one that is being addressed. And we've written specifications to handle that and essentially solve that problem. But other than that, because of the roll-up centric roadmap, much of the activity of financial institutions will be landing at Layer 2s. Layer 2s have their own upgrade schedule and often their own technologies. And so that sort of modularity enables the Ethereum protocol proper to have an upgrade schedule and activities that are decoupled from the needs of different institutions that are making use of the technology at Layer 2. So no delays would be caused by us paying attention to the needs of financial institutions and just improvements would be driven by that. Kevin Darryl Dede: When you look at the entire Ethereum ecosystem, and some of the large treasury companies evolving, I mean, I know you know them all, Bitmine, yourself, Ethan's Villa, the ETH machine, all accumulating massive amounts of the token. How would you recommend we look at the inflation characteristics of token issuance? Joseph Michael Lubin: And so, also, I can jump in there. Joseph, do you want to start? Joseph Chalom: Joe, why don't you go on token inflation and I'll chat about competition or what I call coopetition. Joseph Michael Lubin: Yes. So the Ethereum issuance schedule has expected inflation below 1% annually. I think it's a little bit below coins and massively below Solana's, which I think is I forget what it is, but it's probably in the range of 6% to 8%. Ethereum as it gets busier, burns ether with every transaction. We do issue ether to incentivize validators to build blocks. But you can expect that the MAX that could be issued in a year that if there's effectively no burning, believe is I think around 1.5%. And we're almost certainly going to be below 1%. I haven't looked recently, but my guess is it's probably around 0.7% or 0.8%, please hold me to that. And again, as the network gets busier and busier, we'll be burning more ether. We will move to net zero issuance when the network is really busy and we'll move to being deflationary when the network gets very busy. And it's not just the Ethereum network layer one that burns ether. There are two linear networks that are burning and we look to see other projects taking up that mechanic and start burning ether as well on different networks. And so my colleague informs me that I was pretty close, that if there is median annual inflation rate is around 0.8%. Joseph Chalom: Yes. Remember, was deflationary after the merge for, geez, I want to say almost a year. For a while, yes, exactly. Kevin Darryl Dede: And Kevin, just want to add from a SharpLink Gaming Ltd. perspective, you spoke about some of our competitor or peer digital asset treasuries in the Ethereum ecosystem, we view that as actually very positive. And a validation of the macro investment thesis that Joe and I have been speaking about. Coopetition is actually very good. One of the most important things you've seen since the launch of this wave of digital asset treasuries in the Ethereum ecosystem since May and June, is a complete change in the level of mind share and conversation, not only about Ethereum, but institutional adoption that's happening on Ethereum. And that mind share think, had been lost for a period of time to Bitcoin and Solana. And I think we've regained that whole position. I would say we're trying to differentiate ourselves from our peers in a few ways. One is we are building, as I shared, the strongest in-house team with expertise to manage the vast majority of our ETH and ETH staking. And when you can do it on Team, more of the yield is yours to the benefit of our shareholders. So you're not paying out one, two, or even a higher percent of your NAV every year to third-party asset managers. We use them selectively. And second is our team in conjunction with our advisers at ConsenSys, we are going to be differentiating ourselves on yield generation and finding the best opportunities and to do it in a really risk-managed way because we have a team of experts along with ConsenSys who know how to do that. And we are gonna be committed to the North Star, which is increasing ETH concentration. And making sure throughout this process even through volatility of the price of that we're transparent and we're always going to do the right thing for investors. So we welcome the competition. It's a validation of the thesis. And, I hope the entire industry does well. Because that'll be really, really good for, not only the Ethereum ecosystem, but hopefully for the long-term price of ether which secures the transactions on Ethereum. Kevin Darryl Dede: Thank you, Joseph. Appreciate the color. I was curious about the collective impact on token issuance and burn. Because I mean, it is unprecedented in Ether's history to have such huge accumulation held in treasury versus necessarily working on the transaction side. But I appreciate the color. Thank you for that. On that note of working in-house, would that include at some point that SharpLink Gaming Ltd. starts running its own validator nodes? Joseph Chalom: I think we started our ETH Treasury strategy in late May, early June. You would have seen tremendous progress, staking nearly 100% of our ETH, accumulating over $3 billion of ETH. Doing unique things in the ecosystem like our partnership and announcement with ConsenSys and Linea, the intent to tokenize our public equity, with our collaboration with Superstate. We shared on previous calls that we are looking at what the future operating model can be and whether we will be doing things to operate companies. I think watch for the future. But we don't have a comment on whether we're gonna validate ourselves or leverage third parties like we've been doing to date through our qualified custodians, and through liquid staking. Over time, we will evolve our operating business. But we have nothing to share on today's call, Kevin. But great question. Kevin Darryl Dede: Okay. Well, thank you for that. I think I did ask you after the June call, so I appreciate that. In light of sort of compressing premiums to NAV, I'm wondering Mr. Chalom, how you're viewing issuing preferred versus converts? And I understand your financial service prowess and experience. And I value your opinion. Joseph Chalom: Sure. Kevin, I think the beautiful thing about doing this through a structure, a public company structure and a digital asset treasury structure is we have many tools available to us to raise capital. And to date, it's primarily been through issuance of common equities. You mentioned two others, convertibles and other equity-linked securities or prefs. There are certainly tools in the toolbox that can enable us to capture value from both ETH volatility as well as investors who may be seeking exposure to that volatility. And in both those instances, we would be able to issue those capital structures without diluting shareholders even when we're trading below NAV. We do view those, Kevin, as complementary pools to our at-the-market and stock buyback strategies. And as I said before, the fact that our reserve asset, Ether, is volatile is actually a plus. And there are many ways, as you've described, to monetize that volatility while enhancing liquidity and ETH exposure. We're not going to comment on today's call about share buybacks or our future capital raise, but those are two very good tools in our toolbox. And we're constantly looking at these opportunities to see how we can both raise capital and allow ourselves to capitalize on the volatility of our asset. And both converts and prefs are tools we're considering. Kevin Darryl Dede: Awesome. Thank you very much, gentlemen. Appreciate the additional color and congrats on the progress. Operator: Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Chalom for any final comments. Joseph Chalom: Thank you all. In conclusion, I really want to thank everyone for joining us today and for your continued support and confidence in SharpLink Gaming Ltd.'s long-term vision. We are really proud of the progress we've made in this third quarter, our first full quarter of being an Ethereum treasury strategy, and we're very excited about what's ahead. I need to thank our team who's worked relentlessly over this period in building and accumulating and staking our ETH and doing it as you would expect in a risk-managed way from an institutional steward of billions of dollars of ETH on our balance sheet. And we look forward to speaking with you again on our next earnings call. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the DarioHealth third quarter 2025 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If you require immediate assistance during the call, please press 0 at any time for the operator. This call is being recorded on Thursday, November 13, 2025. I would now like to turn the conference over to Zoe Harrison, VP of Accounting and Corporate Development at DarioHealth. Zoe, please go ahead. Zoe Harrison: Thank you, operator, and good morning, everyone. Thank you for joining us today for a discussion of DarioHealth's third quarter 2025 financial results. Leading the call today will be Erez Raphael, Chief Executive Officer of DarioHealth. He'll be joined by our President and Chief Commercial Officer, Steven Nelson, and Chen Franco-Yehuda, our Chief Financial Officer. An audio recording and webcast replay for today's call will also be available online as detailed in the press release invite for this call. For the benefit of those who may be listening to the replay or archived webcast, this call is being held on Thursday, November 13, 2025. This morning, we issued a press release announcing our financial results for 2025. A copy of the release can be found on the Investor Relations page of DarioHealth's website. I'd like to remind you that on this call, management will make forward-looking statements within the meaning of the federal securities laws. For example, the company is using forward-looking statements when it is discussing the amount of its targeted new business, its 2026 pipeline, and expected strong revenue acceleration in 2026. That it expects to reach cash flow breakeven by late 2026 to early 2027, that it expects to transition to a high-margin recurring revenue model, that it is on a solid path to profitability, the number of new accounts it expects to sign in 2025, its potential future business opportunities, and that it expects to further cut its operating expenses over the next twelve to fifteen months. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond the company's control, including the risks described from time to time in its SEC filings. The company's results may differ materially from those projections. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. I encourage you to review the company's filings with the SEC, including without limitation, the company's annual report on Form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. With that, I'll hand it over to Erez Raphael, Chief Executive Officer of DarioHealth. Erez Raphael: Good day, everyone, and thank you for joining our third quarter result review. Before getting into the numbers, I want to start by highlighting what makes Dario truly unique and why we are seeing a growing strategic interest in our business. Today, Dario is a digital companion for whole person health. Our platform unifies physical, mental, and behavioral care into one connected experience, addressing diabetes, hypertension, weight management, musculoskeletal pain, mental health, and more, all within a single data-driven framework. We believe this multi-condition whole person model is where the market is heading, and our results prove it. More than 50% of our new clients this year have chosen our multi-condition solution. Our artificial intelligence-powered personalized engine combines biometric, self-reported, and behavioral data to deliver measurable outcomes. Our software-first model drives 60% GAAP and over 80% non-GAAP gross margins with expanding profitability. We now serve over 125 clients, including four national and seven major regional health plans, and numerous Fortune-level employers, supported by channel partners reaching more than 116 million covered lives. Together, these assets—our engagement engines, scalable infrastructure, deep data, and expanding client base—make Dario one of the most advanced and scalable digital health platforms in the industry. Now let's jump into the numbers. In 2025, our top line and gross margin results reflected the ongoing transition to our high-margin annual recurring revenue model. While revenue came in at $5 million and was lower on a year-over-year and quarter-over-quarter basis, key metrics driving future revenues combined with reductions in operating costs and growing margins set Dario on a track for a strong 2026, including reaching cash flow breakeven by late 2026 to early 2027. We are targeting $12.4 million in new business for implementation in 2026, including committed annual recurring revenues and a portion of our late-stage pipeline that is in the final stages of contracting. With 45 new signed accounts year-to-date in 2025 contributing to revenue momentum for 2026, we have already surpassed our 2025 goal of 40 new accounts. This brings our client base to over 125 and counting, which includes over 110 employers, four national health plans, and seven major regional health plans. Our new accounts and a large portion of our $69 million pipeline are customers that are two to ten times larger than our clients have been in the past, creating a multiplier effect with new business coming in for the balance of 2025 and 2026. Dario's business economics are healthy and stronger than ever. In 2025, we achieved GAAP gross margins of 60% and we achieved seven consecutive quarters of 80% plus non-GAAP gross margins on our core B2B2C business. With the help of AI and our commitment to optimizing efficiency, we reduced operating expenses by an impressive $17.2 million or 31% in the first nine months of 2025 and reduced by $3.4 million or 21% during the third quarter compared to the year-ago period. Several new accounts are now onboarding and beginning to contribute to revenue with full impact expected in 2026. Of this, two large health plans are among the most sizable and strategic clients in Dario's history. Our 90% renewal rate underscores the value we deliver to our clients. As an early leader in digital health, we aim to continue to drive the industry-wide shift from fragmented point solutions to integrated multi-condition platforms that deliver measurable outcomes and cost savings. With healthcare costs continuing to rise, Dario's approach to parlaying lasting behavioral changes for personalized digital solutions is in high demand. I will now turn the call over to Steven. Steven C. Nelson: Thank you, Erez, and hello, everyone. We are seeing stronger demand than at any point in Dario's history, especially from blue-chip employers and national insurers. Our multi-condition platform remains the most comprehensive in digital health, covering more conditions and backed by more clinical evidence than anyone else in the market. Commercial traction is accelerating. We've adjusted our product market fit to better serve health plans, the government sector, and off-cycle employers, and it's paying off. Our 2026 pipeline has grown to $69 million, with more than 50% of our new clients choosing our multi-condition solution. We're meeting payers and employers where they are, delivering personalized data-driven care across five or more conditions, all at equal or lower cost than most single-condition competitors. Our core business, employers, and health plans is performing exceptionally well. The average employer account size that we have won and still remains in our pipeline has almost doubled versus last year, which is a clear validation of the platform and the expanding confidence we are seeing from the market. It's driving real revenue momentum as these clients begin to implement and scale with us. We are targeting $12.4 million in new business for implementation in 2026, reflecting both committed annual recurring revenue and late-stage opportunities nearing completion. Our pipeline includes several opportunities in late-stage development still remaining in 2025. Year-to-date, we've added 45 new clients contributing to that growth. These are high-quality recurring revenue relationships, not one-time contracts. Since the last earnings call, we've signed 24 new employer agreements, including one of the largest in our history. Most of them will onboard in 2026. These wins span multiple industries and validate the market's growing preference for Dario's multi-condition solution and our new value-based pricing model, which aligns our success directly with measurable outcomes for our clients and their members. This is why we now have more than 125 clients, including Fortune 100 employers and national and regional health plans. Our diversified mix across employers, health plans, and pharma ensures multiple revenue streams and low customer concentration. Client retention remains strong at 90%. We expect our win rate velocity will only accelerate, driven by our effective go-to-market strategy and the strength of our channel partners, which account for more than 80% of our new logo wins this year. Through our top-tier channel partners, we now reach over 116 million covered lives, expanding our market access and helping deals move faster through contracting. Many of these partners were newly contracted or recontracted this year under win-win agreements that strengthen alignment and create even greater momentum going into 2026. We've made major progress with several top-tier health insurers. Some of the most meaningful launches in Dario's history. UnitedHealthcare launched Dario on its digital marketplace in a soft launch during 2025, which is a full suite offering. A full national rollout will be coming in January 2026. We're proud to be a part of this innovative go-to-market approach with the largest health insurer in the US, serving more than 50 million people. In partnership with our valuable channel partner, Solara Health, Primera Blue Cross, one of the largest not-for-profit health plans in the Pacific Northwest, has also launched Dario. Solara Health has built a powerful digital network where Dario is a preferred partner. And Primera Blue Cross deserves credit for leading with vision and executing an innovative rollout. Additionally, Solara and their partner, Aetna, have selected Dario to work with one of our largest employers in our company's history, representing 126,000 lives. This is our biggest channel partner launch to date, offering Dario to Aetna's employer network, reaching millions of covered lives. And most recently, we announced another large health plan launch with another key channel partner, Amwell. As shared on Amwell's recent earnings call, they were selected by Florida Blue, and Dario is chosen as a part of that new business. Through this partnership, Florida Blue's self-insured employers will have access to our multi-condition solution for cardiometabolic health, while the fully insured line of business will offer Dario's diabetes program. This is a major strategic win and a tremendous validation of our platform. We're proud to partner with Florida Blue for 2026 and beyond. Taken together, we believe these launches mark a turning point for Dario, expanding our reach, validating our leadership, and setting the stage for accelerated growth in 2026. While we are well established with commercial partners in the private sector, we are also seeing opportunities opening in the public sector. Policy tailwinds are driving the adoption of digital health solutions for federal and state-funded health programs. Dario, with our attractive pricing, proven clinical benefits, and return on investment, or ROI, is very well positioned to be competitive in this space. We previously announced our partnership with Green Key Health, and we're now seeing that come to life through Temple University Health System's announcement last week at the Becker's Healthcare CEO and CFO roundtable. Temple's Executive Vice President and Hospital CEO, Avi Arstavi, shared on the main stage that Temple is collaborating with DarioHealth and Green Key Health to manage the cost and clinical utilization of GLP-1 medications and obstructive sleep apnea therapies, two of the fastest-growing and most expensive areas in healthcare. Dario is also in the final stages of executing a similar GLP-1 digital utilization management program for a national account employer launching early in 2026. We are excited about the product market fit both opportunities afford Dario for the future in 2026 and 2027 sales. This collaboration was achieved through a product partnership model, requiring minimal R&D investment from Dario, demonstrating our ability to scale innovation efficiently and drive meaningful impact without significant internal spend. We believe that this also reinforces Dario's expanding leadership in helping major health systems achieve measurable ROI through digital, data-driven engagement and outcomes, and represents another step forward in our growth across employers, payers, and now integrated delivery networks. We're also continuing to expand our capabilities through other strategic collaborations in alignment with Dario's whole person condition management strategy. It's AI-powered fall risk assessment and prevention technology directly into Dario's platform. Falls represent more than $50 billion in annual medical costs, and this integration further enhances our ability to deliver measurable ROI for health plans by improving safety, reducing avoidable claims, and broadening the overall clinical and value of Dario's platform. Another important growth driver is our pharma business. About a year ago, we began transitioning Dario's pharma services from milestone-based projects to a recurring revenue model, and we've made some strong progress in that effort. We've now launched the business with a sharper, more targeted focus on therapeutic areas where we can deliver the greatest impact. Dario Pharma Services remains a smaller part of our broader business today, but momentum is clearly building. We bring deep experience helping pharma companies find, onboard, and keep patients engaged across their treatment journey. Our platform consistently delivers between 5x and 10x ROI through 30% to 60% lower recruiting costs, 32% higher engagement, four times better prescription conversion, and more than 20% improved adherence compared to traditional approaches. This is how we're positioning Dario as a long-term strategic partner in pharma, one that drives both clinical and commercial value through digital precision and recurring relationships. Our latest pharma services initiative focuses on MASH, formerly known as NASH, a fast-emerging $10 billion market driven by the first drugs for fatty liver disease. Most patients remain undiagnosed and need support beyond the pill, which is where Dario adds value. Through our F.A.I.R. framework—Find, Assess, Initiate, Retain, and Augment—we help pharma deliver whole person digital engagement and behavioral support. Our new twelve-week thought leadership campaign launched this week, highlighting how this model not only unlocks the MASH opportunity but could be replicated across cardiometabolic, mental health, and other high-burden therapeutic areas. As we approach the January renewal cycle, our commercial teams are fully engaged in finalizing contracts and onboarding new clients. This is one of the busiest and most important times of the year for us, and the team is working hard to ensure a smooth transition into 2026. We've established an internal benchmark to retain roughly 85% of our clients on a year-over-year basis, a standard consistent with leading health SaaS companies, and we feel very good about achieving that target based on the renewal conversations underway. With the rapidly expanding pipeline, proven outcomes, and a strong renewal foundation, we're seeing continued acceleration in our business as we move into 2026. The combination of new growth, recurring revenue, and disciplined client retention gives us real confidence in the year ahead. With that, I'll turn the call over to Chen. Chen Franco-Yehuda: Thank you, Steven, and good morning, everyone. In the third quarter, we continued to strengthen DarioHealth's financial position and advance our transition to a business model centered on high-quality, recurring revenues, strong margins, and operating leverage. We're executing this strategy with discipline, and you can see the progress clearly reflected in this quarter. As of September 30, 2025, we had $31.9 million in cash and equivalents. This reflects the successful completion of an oversubscribed $17.5 million private placement of common stock or equivalents only in the business, which we view as a meaningful signal of investors' confidence in the market opportunity and in our ability to execute. In parallel, we took several steps to simplify and strengthen our capital structure. We completed the conversion of preferred shares into common stock and equivalents, resulting in a clear and more transparent cap table. We also amended our current credit agreement to provide greater flexibility on covenant testing, which enhances our financial resilience while we continue to scale. Let me now turn to the financial results. Revenues for the third quarter of 2025 were $5 million compared to $5.4 million in 2025 and $7.4 million in 2024. As we've discussed in previous quarters, the year-over-year decline reflects the nonrenewal of a large scope of work with a national health plan in early 2025, as well as the deliberate shift from one-time revenue streams towards long-term annual recurring revenue. This transition emphasizes quality, predictability, and scalability of revenue, and we believe it positions Dario for stronger, more durable growth. Gross margin performance continued to reinforce the strength of our unit economics. GAAP gross margin expanded to 60%, up from 55% in 2025 and 52% in 2024. Non-GAAP gross margin in our core B2B2C remains above 80% since the beginning of 2024, reflecting the benefits of a software-led model and disciplined cost management. Turning to operating expenses, we continue to execute on efficiency and scale. For the first nine months of 2025, operating expenses declined by $17.2 million or 31% year-over-year. For the third quarter, operating expenses declined by $3.4 million, a 21% reduction from the prior year period. These improvements were driven by cost measure integration of process automation, organizational streamlining, and expanded use of AI-based workflow across all operations. As a result, operating loss improved by $18 million or 39% for the nine-month period compared to last year. Looking ahead, we expect an additional 10% to 15% improvement in operating expenses over the next twelve to fifteen months as we continue to automate core processes and improve efficiency. To summarize, as of the end of the third quarter, we have a strong balance sheet and a simplified capital structure. Our operating expenses continue to decline, and we are building a durable base of recurring revenue supported by high retention with an existing customer base and accelerating momentum signing and onboarding new clients. This includes a target of $12.4 million in new business for implementation in 2026, reflecting both committed ARR and late-stage opportunities nearing completion. Given the committed ARR, a healthy and expanding pipeline, and continuous progress on operational efficiencies, we reiterate our expectations to reach run-rate cash flow breakeven by late 2026 to early 2027. I'll now turn the call back over to Erez before we go to the Q&A session. Erez Raphael: Thank you, Chen. Today, Dario stands at a critical and exciting inflection point where our differentiated offering is exactly what payers are looking for. Our team is executing with focus and discipline. The groundwork is in place, and we are fully aligned with the market dynamics that favor integrated, outcome-driven solutions. We are committed to growing our business by improving health outcomes for users and creating savings for payers. The technology platform we have invested in and built, including integration of several acquisitions over the last decade, is a highly valued strategic asset, in addition to and beyond its ability to generate high-margin recurring revenues. As a reminder, in September 2025, in response to multiple unsolicited inbound expressions of interest, Dario engaged Parella Weinberg Partners and established a special committee of its board of directors. We will not comment further on this matter unless and until there is a material update. With that, I want to hand over the call to the operator for the Q&A session. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. We will pause for a moment. To withdraw your question, please press star then 2. Our first question comes from the line of David Grossman from Stifel. Your line is open. Again, David Grossman, your line is open. Our next question comes from the line of Charles Rhyee from TD Cowen. Your line is open. Charles Rhyee: Hi. This is Lucas on for Charles. Thanks for taking the questions. Wanted to ask about your UnitedHealth national rollout starting in January 2026. Can you help us understand how much of the $12 million in new business expected to be implemented in '26 is coming from this client? And then can you, I guess, just speak to the overall opportunity you see with this client in 2026 and beyond? Steven C. Nelson: Yeah. Hi. This is Steven Nelson. Yeah. I am happy to take that question. Two things. One is they have launched a digital marketplace for all their book of business. They're rolling it out in chunks. They soft announced that in Q3. We've been active in that pilot rollout, and now they're doing it with scale against their entire book. We don't get specific in terms of client segments and revenue by client by the book. But we're really encouraged by what they're doing. We were one of the few selected in terms of that digital marketplace. And as they roll that out, they're rolling it out in chunks, I believe, in membership books as they go quarter by quarter, with the formal rollout. So it's more of what they've done before to have a market. They've done a little bit of this in the past, but this is kind of a newer launch for them. I'd say quite innovative, to say the least. And this is a group-sponsored business where the group benefits people, members, consumers can go on and use their benefits to then purchase within a digital portfolio of products. So not necessarily built within their product. In direct form, more through a group type of plan. And so it's a pretty innovative launch. We're excited to be a part of it, and that will all kick off in a formal way in January. Charles Rhyee: Okay. Appreciate that. And then, still want to focus on the $12 million in new business expected to be implemented in '26. Can you help us understand what sort of pacing we should be modeling in and expecting for this new business? Steven C. Nelson: Yeah. So some of it's already started. We've been in Q4, the time period, as we kind of launched a lot of these accounts. As we noted on the call, our expectation was to have 40 that would be signed this year that would impact this year or start in next year. We've achieved 45. Specifically already to date, and we still have some time left to sign some others. So it's kind of rolling in now as open enrollment kind of kicked in now. Some of those accounts did start earlier. The majority of those accounts will start in January. In normal benefits time frame. Some of them will roll in in January as normal benefits from open enrollment. Some of them may start in terms of February. Just delayed slightly after their open enrollment. We've seen a lot of employers that are starting things in an off-cycle but still within the benefits stack. So a lot of them are starting things within the time frame of their benefits. But not necessarily at the start of the benefits year. So it's gonna roll in, I'd say, over the course of Q1. We do have some off-cycle things that we're still engaged in. Some of the health plan businesses off-cycle. Obviously, some of the things we've done in the government sector is just waiting for the government to kind of finish their budgets and move forward. And that's we're pretty encouraged about a couple of those as well in maternal health. And some digital health initiatives that have already been spoken about. And then lastly, we also have a little bit of other new business from employers that are off-cycle. So we've done things around some different sectors of business and employer business with our specific channel partners that are also off-cycle. So it's kind of a little bit of a roll-in. I'd say the majority of that was in Q1. But some of that has already started, and some of that also will be a tail after Q1 will start. But the majority will definitely be in Q1 timing. Charles Rhyee: Okay. I appreciate that. And then, I mean, you guys are saying, you know, the commercial pipeline is growing. You talked about a 90% renewal rate. When we look at the B2B2C revenue, we're still seeing sequential declines. Can you help us understand what's driving this? You spoke to a nonrenewal that took place in early 2025. Is this the primary driver for, you know, continued sequential declines here? Can you kind of peel back the layers on what the underlying trends are in this business in Q3? Erez Raphael: Yeah. I'm gonna take it. So Lucas, we mentioned in the previous quarters, we had this one national health plan that didn't continue this year. I think that this is what created the decline. Other elements that are showing a decline between this quarter to the previous quarter is the transition of the pharma business from milestone-driven into recurring revenue-driven. If we are looking into the book of business that is purely employers and health plans, it's stable between Q2 to Q3, and we believe that it's gonna be stable and even going a bit up between Q3 to Q4. I want to also assign some numbers to your previous questions. You asked specifically about UnitedHealthcare. We are not exposing exactly how we are modeling everything, every opportunity, and every client. But if I'm gonna look into the numbers from 30,000 feet, you have 45 new accounts that have been signed this year. 90% of them will launch only in Q1. So you're gonna see the ramp-up only in Q1. And the way that we modeled all the accounts is that we don't have a single opportunity that is contributing more than a million dollars out of the $12.4 million. So I think that we have here a very diversified approach where we are not putting all the weight on one client in order to get us the growth for 2026. Hope it's helpful. Charles Rhyee: Gotcha. That's helpful. And then the last question I have, and I'll jump back in the queue, is just speaking, can you give us an update on the pharma services pipeline? What kind of demand you're seeing following your sharper focus on therapeutic areas? And just be curious to hear how prospective clients in that side of the business are responding to this approach. Erez Raphael: Yeah. So, the way that we are looking into the few B2B channels, employers, healthcare, and pharma, is that our priority is, first of all, employers and health plans. This is where we are focusing all the efforts and also the sales and marketing budget perspective. We do believe that we have a very impressive portfolio of products that is helping and helped pharma in the past. I mean, if we're looking into previous business that we had, we had a lot of business with all the big names. From Sanofi to Eli Lilly to Novo Nordisk. All of them were clients of Dario or Twill. The issue that we had with the business is that we wanted to make sure that we are operating as a SaaS-oriented business, and we are running recurring revenue only. Which means that we transformed the business and literally shut down accounts that were only one-time revenues. The way that we view it in the future is that we're gonna be extremely selective. And I believe that for next year, we're gonna have between two or four accounts that are gonna contribute to the revenue. And I believe that the numbers are gonna be relatively smaller compared to the employers in the health plan channel. Charles Rhyee: Okay. Great. Appreciate the color. Thanks. Operator: Our next question comes from the line of David Grossman from Stifel. Your line is open. Our next question is from Theodore O'Neill from Witchfield Hills Research. Your line is open. Theodore Rudd O'Neill: Thank you very much. Steven, you talked about adjusted product market fit. And in the press release, it also highlights the new performance-based pricing model. And I'm wondering between those two things, what are you finding is working for you better now than, say, twelve months ago? Steven C. Nelson: Yeah. Two things. One is that we're really focused on which multi-condition offerings we're taking in the market for clients. So we're doing more around claims-based analytics. We're doing more around claims-based engagement. Trying to make sure that our product fits kind of what they're looking for. A solution, first of all. That's from the marketing to the presentation to the sales process to closing it and then reporting on it, engaging it, you know, etcetera with the clients. So I think that's one big broad thing. I think the second thing is, you know, we didn't do it all ourselves. I noted in the earnings release, specifically in my script, that we talked about how we added in a couple of key partners to round out our product solution where we didn't have to necessarily develop the R&D but they are presenting market opportunities for us, specifically most recently, Green Key around sleep. Again, partnering with what we have in cardiometabolic offering, tying that into sleep gets us into a different category. Doesn't increase our R&D expenditures, and allows us to go to market with a new offering. Again, product market fit, finding ways to reduce the cost of care for payers, specifically in the sleep category. We're looking at the same thing with OneStep recently announced around falls prevention, Medicare Advantage, One Step. So, again, we're trying to think differently about how our product and how the market, either through partners or our core bread and butter product, really goes towards certain segments. Strategically, we also went after some different accounts. So we went at certain accounts that were a certain size. Type, where they operate a certain way. Manufacturing, production, etcetera. So we tried to really make sure that our product, digital health being kind of how we engage people remotely, would fit with people and how their segments were, their employer segments were, etcetera. So one was really a detailed approach about the clients we were targeting. Two was the partners that we brought on to our product. And three is how we actually went to market to win. Theodore Rudd O'Neill: Okay. And then talking about federal and state interest in DarioHealth, is that as a customer, does that present some more unique challenges compared to your successes here in the commercial side? Steven C. Nelson: Yeah. Not necessarily. If you know, the details of what the government has actually released fits with what we're doing. So one of the things actually I didn't cover in your first question was how we went to market with really a value-based light offering. We have a milestone-based payment model now we went out regarding clinical milestones being met in order for us to get paid. And that really kind of proves that we're getting after clinical metrics, clinical data, claims data to kind of get paid with the client. So it's a better ROI model. That's more appealing to government-sponsored plans, which also fits well with Medicaid, Medicare plans, etcetera. And for us, doesn't present a challenge as long as they can get out of each other's way. And appropriate budgets effectively. We feel pretty good with where we sit right now with a couple of initiatives that went out. Maternal health initiatives, some rural health initiatives as well. So some things that occurred that allow us to kind of get back out into the market differently. We worked with those offices on those proposals. Now we're just really waiting on how the government's going to fund them. From the federal down into the states. And I think that you're gonna see some healthcare funding. I think once they get out of their own way, healthcare is a hot topic right now on no matter which side of the house you're on. No pun intended. I think that at the end of the day, we'll have some offerings that were a good product fit for them. Theodore Rudd O'Neill: Okay. Thanks very much. Operator: We have a question from David Grossman from Stifel. Your line is open. David Grossman: Hi, guys. This is Aiden on for David. Are you able to hear me? Erez Raphael: Yes. We can hear you. David Grossman: Okay. Great. Sorry about that. I had some technical difficulties. But I wanted to ask on the new client wins, 45 already for the year, exceeding the target. Has anything changed in your approach for go-to-market? And what's resonating with these new clients? Steven C. Nelson: I mean, our first biggest thing that I noted on the script, and obviously important for the market to note, is we doubled down with some of our key channel partners. And our channel partners really delivered in terms of the market that we're going after, the accounts we're going after, etcetera. So one would be our channel partners. We're a big difference than what we had from wins of last year at the same time. Two is our fit with them. I mean, I know there's a product market fit to the clients, but there's also one with our distribution partners as well. And that also has gone well. From how we're contracted with them to creating win-win agreements to making sure that we meet the needs on how they're reporting, how we engage, etcetera. So one big one would be our distribution channel partners for sure. Then I'd say, secondarily, just how we targeted. We are targeting without getting into the specific strategy and the detail of the strategy. I mean, we're going at it a certain way. We kind of pivoted to make sure that we could win in a differentiated way. Again, I don't want to get into all the details of that competitively, but I would say that we really thought about it differently, approached it differently, and won. And our channel partners are a big part of that. However, we had some other partnerships as well that weren't channel-specific that were just kind of at the table. Our consultant relationships that came through a couple of new ones that have been really favorable for us as well. And I'd say also a couple of different segments that we dipped into. We were dipping into the TPA segment for the first time in a while. We now have a PBM relationship for the first time. So we have some other different market segments that aren't channel partners but are good partners to go to business with. We're seeing some uplink in those as well. David Grossman: Great. Thanks for that. And then just a follow-up on the 45 new clients. You guys had said that 50% are taking multi-condition offerings. I think last quarter, that number was around 80%. So is that just client mix? Anything changed there with clients taking less of a multi-condition approach? Steven C. Nelson: No. I mean, most of that was driven specifically off of our channel partners. Some of our channel partners have more than, you know, have one condition right now. They gave us a chance to have one condition. In the market, not necessarily two. We've proven out that we can win now with them, and so they're giving us a chance to have more products through their channel partnership. And so, some of their channel partners were multi. A couple of the larger ones that drove care through their channel partnership only had one condition. So the uptake just watered down our 80 to fifty. But, candidly, I think if we get in with these clients and see what we can do to grow them and upsell them and cross-sell them into what we have, I feel pretty confident about that. So I know that it came down in terms of 50. I'd say 50 as a multi-condition platform is still pretty substantial. Again, our value proposition is really relevant here. I'd be remiss not to cover it, which is, no matter what condition you're engaged into in our platform, it's the same price. So the investment of the ROI, return on investment, the investment side for clients is the same. And that gives us a chance to go to market and win differently. And so we've let they'll capture that and really send that in the market and our product market fit and win. So while that's come down, in terms of more than one, we're still really happy that we have 50 plus or more. Erez Raphael: Just one reminder. When we reported last time, I think that we were in 23 or 25 accounts. So the sample was relatively low, and now we are looking into 45. And in 45, the number now percentage-wise is 50%. So I think that given where the market is and where the market is going, 50% of clients that are signing for multi-condition shows a very consistent trend that the market is consolidating for sure. David Grossman: Great. Thanks, guys. Operator: There are no questions at this time. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a wonderful day.
Rafael Vittore: Hello, everyone. I'm Rafael Vittore, IR at Inter, and I would like to welcome all to Inter & Co's third Quarter 2025 Earnings Conference Call. First of all, some instructions. This call is also available in Portuguese. To access it, press the globe icon on the lower right side of your Zoom screen then select the Portuguese room. Please be advised that all participants will be in listen-only mode. And that the conference is being recorded. You may submit online at any time today using the Q&A box on the webcast. A replay will be available at the company's IR website. With me on today's call are João Vitor Menin, Inter's Global CEO, Alessandra Issu, Brazil CEO, and Santiago Stel, Senior Vice President and CFO. Throughout this conference call, we'll be presenting non-IFRS financial information. These are important financial measures for the company, but are not financial measures as defined by the IFRS. Reconciliations to the IFRS financial information are available in our earnings release and earnings presentation appendix. I would also like to remind everyone that today's discussion might include forward-looking statements, which are not guarantees of future performance. Please refer to the forward-looking statements disclosure in the company's earnings release and earnings presentation. Today, João will discuss Inter's strategy and business overview. After that, Alessandra and Santiago will take you through our financial and operating results in more detail. We'll then open the call for questions. I will now turn the call over to João. João, please go ahead. Thank you, Rafa. João Vitor Menin: Hello, everyone. I'm excited to share that we have accomplished yet another remarkable quarter of growth while continuing to build Inter for the future. This year is a very special one for us. It marks the ten-year anniversary of the launch of Brazil's first digital account. It's a moment of pride and reflection, as we look back to 2015 and remember the challenges we overcame to get where we are today. What makes us even prouder is that we have never lost our essence. Creating value for every single stakeholder and truly walking the talk of transforming Brazil's financial system into a better, more inclusive environment. For our clients, our no hidden fees approach and more importantly, our sustainable credit products offer an inclusive and accessible way to meet their financial needs. This has led us to grow from zero to 41 million clients in this amazing journey. For regulators, being the pioneer that launched the first digital bank back in 2015, we act as a partner of a better financial system. One that is efficient, transparent, and client-focused. For our shareholders, the disciplined execution of our six thirty thirty plan allows us to deliver an attractive balance of profitability and growth, ensuring long-term value, as shown in our path of growing our ROE. For our employees, Inter remains an exciting, dynamic work environment where our people are empowered to innovate, grow, and contribute to meaningful change every day. As we celebrate a decade of innovation, we remain true to our disruptive spirit. Inter is built for the future, and I believe that our next decade will be even more exciting than this one. As we celebrate our ten-year anniversary, I'm sure that our mission statement was the secret sauce that made it possible. Our mission statement is crystal clear: to create a world where interactions between people generate more value. This mission captures what drives us every day. We create products, services, and solutions that simplify lives, empower people, and build stronger connections. Whether through innovation, flawless execution, or a customer-first approach, every interaction brings meaningful value. Our mission is deeply rooted in our culture, which is built on four core pillars. First, is customer centricity, always prioritizing our clients' needs and delivering great experiences. We are always looking ahead. Second, we lead with true innovation to anticipate our clients' needs. Third, our operational excellence means we aim for flawless execution in everything we do at Inter. And fourth, our winning mentality by delivering the extra mile and achieving great results together as a team. By living these pillars every day, we are setting the foundation to make our mission a reality. With these pillars as our foundation, my focus for the next steps is clear: keep innovation alive within the company by leveraging AI, hyper-personalization, and introducing new features to our app. Today, we already have 380 AI initiatives live at Inter. For perspective, during our 2024 Tech Day, we had just 80. Second, driving our global expansion, enhancing our global account with new products, and exploring opportunities in new markets to strengthen our international footprint. Third, investing in our talent team by developing our executives, bringing market experts, and continuously nurturing the cultural pillars that make Inter unique. I'm tremendously proud of what we are building and the ability we have to create meaningful value for every client we serve. With that in place, I will pass to Shange and Santi, who will present our operational and financial performance. Shange, please go ahead. Thank you, João. Hello, everyone. Guided by our core pillars, Santiago Stel: we are on track for another outstanding year of execution. We're the fastest-growing large financial institution in Brazil among those with over 20 million clients, pursuing what we believe is our market fair share. Our Net Promoter Score remains at the excellence zone at 85 points. These results come from clients who use our platform at a high frequency. In September, we saw more than 20 million daily logins, that's 14,000 per minute. On average, we process 20,000 financial transactions per minute, totaling over 850 million in a single month. This level of engagement shows how well our platform works and proves the value created by the synergy between our seven verticals. In the third quarter, we set a new record performance in new active clients and accounts opened. We welcomed 2 million new clients, our highest number ever, beating the 2022 record. This reinforces clients' view of Inter's strong value proposition. Our focus on quality remains strong. Of these new clients, 1.2 million were active, bringing our overall activation rate to 58%. I'd like to stress three aspects that make us confident with the future. First, we have improved cost onboarding dynamics, and that's seen throughout the onboarding funnel. Several improvements are helping us increase the number of new accounts. Second, we have been running an efficient client early activation journey, and that explains why we can consistently increase our activation rate. And finally, the sum of these two points is resulting in a fast payback of around two months after clients onboard. This engagement translates into high transaction volumes. Our active clients transacted over BRL 412 billion on our platform, a year-over-year growth of around 30%. A large part of this volume comes from PIX, which is a strong indicator of clients using Inter as a primary bank. Moving to our credit cards, volume reached a new record surpassing BRL 15 billion for the first time. This represents a 20% growth on a yearly basis. This growth in TPV levels is consistent across all cohorts, but our newer clients present impressive results, transacting more and faster than older ones. Moving to our credit vertical, I have three key highlights. First, we continue disciplined in our strategy of high growth, respecting ROE targets and a balanced ratio of secured to unsecured loans. Roughly two-thirds of our portfolio is secured, one-third of our portfolio is unsecured. Second, private payroll loans have been the main highlight of the year, and we keep a very positive view on the product. We reached a BRL 1.3 billion portfolio with over 300,000 clients. This shows the strength of our digital distribution and our ability to scale a new product quickly. We're also seeing operational improvements coming from data prep and companies' HRs, which increases product quality and our confidence with the delinquency levels that we're going to see long term. We also expect clients from the FGTS loan products to migrate to this product given the similar profile and the new regulatory changes that came in the last few months. And third, two quarters ago, I introduced the concept of reshaping our credit card portfolio as a key focus for the year. We're making good progress in moving clients from being pure transactors to our interest-earning portfolio. IEPs now represent over 23% of our credit card portfolio, up from 20% last year. This is happening through key initiatives like PIX financing, monthly limit reassessments, and new installment plan offerings. Santi will provide more details on our strong loan book performance. Talking about market shares, consistency is the name of the game. We have always used our market share in PIX as an internal benchmark. Our goal was for other products to reach that same level of success. This quarter, I'm proud to announce that two of our key products have surpassed that goal. First, home equity for individuals. Thanks to the amazing work of our credit and distribution teams, we're now the second-largest underwriter of the product in Brazil. We have reached 8.9% market share in portfolio balance. Second, FX transactions. The success here is driven by the high engagement in our global account and the amazing UX of this product. We have reached 8.4% of the market transactions. I have highlighted two products, but this progress is visible across all of our businesses, with consistent growth quarter after quarter. I am confident we will keep strengthening our position in the market and that more and more products will surpass the PIX benchmark. João Vitor Menin: To finish, Santiago Stel: I want to emphasize how these outstanding results are powered by our seven verticals and our commitment to continuous innovation. Each vertical contributes to our growth, working seamlessly and interconnected to enhance client value and compound our profitability. This ecosystem is what makes Inter unique and drives us forward. Now I'll pass the word to Santi who will walk us through our financial performance. Santiago Stel: Thank you, Shande. And good morning, everyone. Moving to our loan portfolio, we delivered another quarter of strong results. Our loan book grew 30% year on year with quarterly growth accelerating to 9%, 6% on an annualized basis. Within collateralized loans, we achieved impressive growth led by private payroll loans. In credit cards, the reshaping strategy mentioned by Shande together with our continuously improving underwriting and collection processes, gives us confidence to continue growing at a pace from 30% year on year. Looking at SMBs, we have been prioritizing profitability over loan growth, though we see a great potential to accelerate growth soon with the upcoming centralized invoice discounting clearing house known in Portuguese as duplicatas escriturais which is set to be launched by the Central Bank early next year. Once again, we outpace the market in our key portfolios. Private payroll, home equity, and credit cards. In payroll and personal loans, we are moving quickly to capture the private payroll market opportunity. And in just six months, we built a BRL 1.3 billion portfolio from scratch. The overall market, also considering public and other personal loans, grew 22%, while we reached a growth of 38%. Mortgages, we're differentiating our offering through digital distribution and we have been able to grow at 37% on annual comparison reaching a 9 billion reais portfolio. In home equity, the number two player in originations, growing 33% year on year, significantly outpacing the market growth of 21%. And in credit cards, reached 30% growth while maintaining our conservative approach to risk underwriting. As Shande mentioned, we're also successfully reshaping this portfolio to further improve its profitability. Moving to asset quality. Our metrics showed strong performance this quarter. The fifteen to ninety day NPL ratio stayed stable at 4.1% while the ninety day past due metric improved 10 basis points while decreasing from 4.6 to 4.5%. The credit card NPLs analyzed across cohorts, continued to show strong performance validating the improvement made in our underwriting and collection models. And finally, NPL formation and Stage three formation stood at 1.65% and 1.46%, respectively, in line with historical trends. Here, we see the evolution of our cost of risk which reached 5.35% this quarter. The main driver of the recent increase is the new private payroll portfolio, which requires upfront provisioning. The coverage ratio shows the increase associated with those provisions. On the right-hand side, we show an illustrative chart of the return profile of the new portfolio. In which we have been investing throughout this year as we build the portfolio and now pass the breakeven point. And from now on, we expect high-end profitability. Our funding franchise had another great quarter, growing 35% year on year reaching BRL 68 billion. This growth was primarily led by tank deposits driven by the higher Selic rate and the success of my piggy bank. Our product that makes fixed income investing easy for our clients. Our transactional deposits, which are a core competitive advantage of our platform, also had a strong quarter, growing 1.3 billion reais or 7% this quarter. And lastly, on this page, our active clients surpassed for the first time ever an average of 2,000 reais in deposits, which is a great milestone that shows how our clients trust our platform with their deposits. This strong funding franchise translates directly into a key competitive advantage, our low cost of funding, which this quarter reached 68.2% of CDI. What we added this quarter is a complementary metric that fixes the number of business days making the comparison across quarters better. In that sense, our ratio reached 65.1% which was the best one so far this year. Our strong operational performance translates directly into strong revenue growth. In that sense, our net revenue reached 2.1 billion reais, up 29% year on year and 8% sequentially. The key driver this quarter was our growth in our credit book. With NII increasing 39% in a yearly comparison. As already mentioned, this was fueled by strong results in private payroll, credit cards, mortgages, and home equity portfolios. As Shande showed, higher client engagement is driving faster monetization across our cohort. As Shande showed, higher client engagement is driving faster monetization across cohorts. This quarter, net ARPAK reached BRL 33.2. This shows our potential as our mature clients are already generating close to BRL 90. When we combine this strong monetization, with our low cost to serve of BRL 13.1, the result is our best ever gross margin per active client, reaching twenty point two reais. We are confident that the success of new products, like private payroll will continue to drive monetization even higher in the coming quarters. Now let's dive into our net interest margins. Both our NIM 1.0 and our NIM 2.0, which exclude the noninterest receivables of credit cards, are consistently showing growth quarter after quarter and achieving new record levels. As you can see on the page, we have improved our risk-adjusted NIM by an average of 14 basis points per quarter. In this quarter, in particular, earning was positively impacted by private payroll, and credit cards given the reshaping of this portfolio. João Vitor Menin: However, we Santiago Stel: faced lower inflation which impacts our real estate portfolio, which is cost of funding. With all these impacts together, our NIM continued to expand both before and after cost of risk. Lastly, we continue to optimize the use of our capital structure with our assets to equity ratio increasing from 7.9x to 9.4x year on year. On the expense side, this quarter allows us to have a comparable basis given the acquisition of Pinterpak back in 2024. Our strong cost control focus allowed us to report a total expense growth of 5% quarter on quarter and 16% year on year. This growth is approximately half of the pace of our annual net revenue growth, showcasing the strong operational levers of our business. The quarterly growth in personnel expenses reflects mandatory annual salary adjustments as well as bonuses linked to our growing earnings. As our business continues to expand rapidly, we remain focused on renegotiating contracts with major vendors to reduce our cost per transaction and further improve our efficiency. And in terms of ratios, the result of our cost control is an efficiency ratio improving from 47.1% to 45.2% this quarter. This 190 bps improvement is a very significant one which demonstrates that the operating leverage of our digital banking model is very promising. Finally, I'd like to highlight the progress we've made in profitability. This quarter, we reached 14.2% ROE, and delivered a record net income of BRL 336 million, a true milestone in our journey. What makes this quarter even more meaningful is that we maintain this profitability while investing heavily in innovation, enhancing the client experience, and improving operational excellence. These efforts lay a strong foundation as we continue positioning Inter as a world-class financial institution. Thank you all. I'll pass it now to João for his final remarks. Thank you, Shande and Santi. João Vitor Menin: After hearing what they shared, it's clear that our powerful ecosystem is running seamlessly. And we are exceptionally well positioned within the evolving banking trends being shaped by the regulators in Brazil. The focus on sustainable credit, client-centric solutions, and lowering borrowing costs is perfectly aligned with the Inter by design Santiago Stel: concept. João Vitor Menin: We are laser-focused on finishing 2025 with strong momentum, setting the stage to start 2026 energized. We are committed to keeping pushing forward, creating value for our clients, shareholders, partners, and employees. Rafa, let's now open the Q&A session. Thank you all. Rafael Vittore: We'll now open the call for the Q&A. We'll take one question and one follow-up from each participant. Our first question is from Tito Labarta. Tito, your mic is open. Please go ahead. Tito Labarta: Alright. Thanks, Rafa. Santi. Thank you for the call. Tito Labarta: And taking my question. I guess my question is more thinking about the longer-term guidance that you've given. The sixty thirty thirty. Right? Because, I mean, you know, trends are looking very healthy. Right? NIM is expanding, risk-adjusted NIM is expanding, loan growth is doing well, efficiency is improving, and ROE is up to 14%. But just to think about, you know, to get to that 30% in the next two years, what else would need to drive that? I mean, you mentioned that you're delivering this ROE despite investing a lot in the business. Do you expect some of these investments to begin to subside or will they taper off and that's gonna boost the ROE? Just because looking at the trends. Right? I mean, NIM, I think you've mentioned in the past, should continue to expand through next year. Still repricing the loan book. But just help us kind of bridge from where you are today to sort of that longer-term view that you had previously given and, you know, what can drive that continued ROE improvement? Thank you. João Vitor Menin: Tito, João Vitor speaking. Thank you for the question. So let me start by saying that we are really happy with what we have achieved having this six thirty thirty plan as a guideline for us for the past, let's say, almost three years. If you recap, we came from a 0% ROE back then to almost 15% ROE now on a running base for 3Q. So this is something that highlights what we have achieved in terms of profitability. Also, on the first number of it, the 60, talking about the 6 million clients that we wanted to achieve, this quarter was the best quarter ever in terms of client addition. And also, October was the best month ever for the past three years. So we're really doing a great job in bringing clients to our ecosystem. On the efficiency ratio also, this quarter was a very good one. We dropped almost 200 bps in that. So see that we are on the right direction. About the ROE, which was your specific question, to be honest, we know that we have a tough environment in terms of Selic different from where we were when we predicted the six thirty thirty plan. And therefore, our credit portfolio exposure today is lower than it was supposed to be. But we see very good trends ahead, such as the private payroll loan, we see coming in next year, the factoring clearing house that is going to help us to grow a lot our exposure to SMEs which we are very excited about. And with all that in place, it's hard for us to predict if we're going to be on the 30% ROE by 2027 or later on. But the important thing is that the trend is good, the team is committed. And last but not least, we do have a very strong and very positive room to grow our credit portfolio ahead. I like to say that it's good that we have been growing 30% year over year, but we still have most of the portfolios we operate today in single digits, low single digit in market share. We found that in place and maybe with the 30% ROE by the end of 2027, or I don't know somewhere in 2028. So very committed, excited, and I believe that the platform is well-tuned for us to keep achieving the six thirty thirty. Tito Labarta: No. That's very helpful, João Vitor. Thank you for that. I guess maybe just ask it a slightly different way, but maybe to paraphrase a little bit what you said. Would the biggest headwind you think be more macro just given, you know, that rates, as you mentioned, are 15%? Is that the biggest headwind to be able to achieve that 30%? Because execution-wise, I mean, you seem to be doing everything that you've said. Right? So just what the biggest risk to achieving that could be. João Vitor Menin: Yes. Tito. Yeah. I would say that as of today, the biggest headwind is the Selic. So therefore, the, for instance, the payroll segment grows slower, the more than in everything grows slower. But as you mentioned, everything that is in our hands, we're doing well. I mean, we're bringing deposits. We're improving the asset side. We are improving the efficiency by being more diligent on the expense, trying to use AI to optimize how we run the machine. So that's it. I see that as of today, our biggest headwind is the rate in Brazil. Tito Labarta: Okay. So very clear. It's a right assumption. Okay. Great. Thank you very much, João Vitor, and congrats on the results. Rafael Vittore: Our next question is from Gustavo. Gustavo, please go ahead. Gustavo Schroden: Hi. Can you hear me? Tito Labarta: Yes. Okay. So good afternoon, and thanks for the call, and congrats on the high-quality results. My question is specifically about this higher cost of risk that we saw in the quarter. You mentioned that it is related to private payroll loans. Why we saw the NPLs totally under control? So my question is, is this a new level of cost of risk that we should work with for the coming quarters or is the increase in coverage ratio that you did in this quarter enough for the coming quarters? Thank you. Good morning, Gustavo. Thank you for the question. Santiago Stel: Yes. So what happens in sequence of factors as we build a new portfolio, cost of risk picks up first since we have the expected credit loss model, and we have to provision upfront. And then as the quarters go by, delinquency starts passing the ninety-day mark, and then the NPL follows. We haven't seen that NPL increase yet, or it was very minimal yet given the life of the book is close to six months by now, and the majority of that was built on the second part of those six months, meaning on this last third quarter. So the NPL should start to catch up a bit, and the cost of risk will likely stabilize very close to the current level of around five and a half percent. Again, as we mentioned many times, we're working to maximize risk-adjusted NIM, not to minimize cost of risk. That's the variable we aim for in a sustainable way, as we call in the Inter by design. By providing our clients with products that are actually good for them and tend to lower their cost of, or borrowing cost relative to alternative processes they have in the market. So we think we're driving the outcome there in the proper way. The coverage ratio also anticipates that way to help with the cost of risk. But stage three and NPLs are the ones that follow later. We should see that going up a bit in the next quarters without increasing further the cost of risk to the level that we have reported this quarter. Gustavo Schroden: Oh, great, Santi. A follow-up on this private payroll loan because even with this higher cost of risk, that you mentioned in the product, you showed a nice slide a nice chart demonstrating that the product has reached the breakeven in the second quarter and now it is in positive territory, right? So my question is, could you share with us what is the level of profitability you are delivering in this product? And if there is further room to improve the profitability in the private payroll loan. Thank you. Santiago Stel: Well, it's super high by now. We are starting to see the cost of risk or delinquency level converge towards the high single-digit level in the prior cohorts. So the first few months were higher, and as the months go by and the system starts working as it was designed originally, then the cost of risk hits the high single digit. With the high single digit, this is significantly higher than 30% ROE. What we think will likely happen is that the interest rate on the asset side will probably go down as more competition comes in. For now, we're seeing it in the high threes percent per month. And with that level of interest rate, the ROE, as I mentioned, is highly above the 30% mark. It's the highest ROE product we have in the portfolio. Nicely, it's 1.3 billion and counting in the loan book, so it starts moving the NIM in the right direction. It's, as I mentioned in the prior question, a product that will the clients have available to go away from more expensive alternatives. And this one, it's one that they can use their income to finance their daily needs or their financing needs in a much better way, which is what we call the Inter by Design. So it's a really win-win product. Hats off to the regulators in having it designed. We think that the TAM is really significant. It should be multiple more than the public payroll time given that you have three times more employees in the private sector than in the public sector. We'll see how much it continues growing in the future. And so far, we're very pleased with the results. Gustavo Schroden: Okay. Great. Thank you, and congrats on the execution. Rafael Vittore: Our next question is from Mario Pierry. Please go ahead. Mario Pierry: Hi, guys. Good morning. Congrats on the quarter. Let me ask you two questions. First one, Mario Pierry: is on your net interest margin expansion. Right? You're growing your margins 10 to 20 points per quarter as you had talked about at the beginning of the year. In part, that reflects some of the repricing they had done in your portfolio in the past. So have we seen the full benefits of the repricing yet? And should we think about margins now going forward being more stable? Especially as the mix of the loan book is shifting. Right? Like, I would imagine, right, the rates you charge on the private payroll product are lower than a credit card. So help us understand how you're thinking about the outlook for net interest margin, and then I'll ask my second question later. Santiago Stel: Mario, good morning, and thank you for the question. So the three drivers of NIM expansion are, one, repricing, two, better mix, and three, investment yield going up. Those are the three drivers. On repricing, we have done a very high share of that repricing since we started this a few years ago. Surprisingly, we did more on mortgages than on payroll. Mortgages had higher growth than public payroll. You know, it has a higher longer duration. And then on payroll, we still have a significant part of our loans that are rates not very far from one, 1.2% per month. That have some upside on repricing. So there is an element. It's no longer the higher driver of new expansion as it was in the early days of the sixty thirty thirty, but there is still some potential. I would say that around one-third of those portfolios still have upside in terms of interest rates. And the good thing is that on public payroll, which hasn't grown for several quarters, public payroll specifically, it has grown in the last two quarters. And therefore, that accelerates the repricing or the increase in the yield of that. In terms of better mix within the loan book, the two main drivers were FGTS equity in the prior years. This year is a bit more led by private payroll and credit cards. The reshaping that Shande alluded to. On the investment yield, also, we have been improving in that sense. But we still have to go to make some more progress on optimizing capital. We haven't done much very complicated structures yet in terms of or structured records to optimize the capital more than what we could. That's another lever that could be added to the list of the three that I mentioned before. But when you put all that together to summarize the answer, Mario, I think that the trend of NIM expansion still has ample room to continue to improve. We have answered this in the prior calls. At least in the next four quarters, we see a continuation in the trend of the risk-adjusted NIM in line with what we have seen in the prior quarters. Mario Pierry: Okay. So that's clear. And now my second question then on slide 19, right, you show that you're growing faster than the market in all of the products. Mario Pierry: What gives you confidence? Right? Because when we talk to the big incumbent banks, they seem more concerned about the economic outlook. They seem like they are derisking their loan books. And while you're doing the opposite. Right? You're trying to accelerate growth, maybe this is the best time to grow, right, when the competition is slowing down, you probably can get, like, very good clients, and attractive spreads. So first of all, so then the question is, what makes you comfortable to be growing your loan book at a 30% pace when everyone expects the economy to decelerate? And, how do you think you can maintain this growth once the traditional banks start to accelerate again? Thank you. Santiago Stel: Hi, Mario. This is Shande speaking. Thank you for your question. So, there is a lot here. Right? I think the first thing is about what we call our right to win. So we're very well positioned to grow overall and to expand in the markets we're operating. So large client base, our brand is getting stronger and stronger as we go. And the products are there. And these products we derive to the next portion of why we believe we can keep growing. Which is about the Inter by design. So we positioned our credit portfolio with those two-thirds in secured lending, one-third in unsecured. Within the secured lending, we're talking about Brazil's largest credit markets, which includes mortgages, and also payroll loans. All these products are growing. And when we think about mortgages specifically, we see a decline in the balance of savings accounts in Brazil when linked mortgages, and this is really good for Inter. So we've been originating for more than ten years, mortgages at market-based pricing. And this gives us confidence that we're gonna keep on growing both mortgages and home equity as the entire market should derive to a more market-based solution that we believe is a lot more sustainable long term. So this takes care of mortgages, payroll loans as Santi mentioned already. Having the client base, having the digital experience, and being playing in a market that should achieve between 250 and 300 billion, we should keep on growing. Credit cards, another point that we have been growing fast and we believe we can stay there. And in here, we talk a lot about share of wallet. So we're occupying still a relatively small part of the share of wallet of our customers. And as we improve as we keep doing all the improvements that we have been doing in underwriting, in growth, in UX, we will keep expanding our penetration. So having said all of this, it's a lot about continuity of good execution, and our team is getting stronger and stronger, and we'll keep on it to sustain these growth levels that we have been seeing. Mario Pierry: Very clear, Santi. Thank you very much. Rafael Vittore: Our next question is from Pedro Leduc. Please go ahead. Pedro Leduc: Thanks, guys, for the call. Congrats on the journey so far. Pedro Leduc: Question on credit cards. Now we've been watching it carefully. Simple math interest minus provisions was negative, breakeven. Now this quarter, positive, and now sustainably positive. So if you could share with us maybe what you have learned, what actions have led to this? And now at these what look to be much more healthy ROE levels for the product standalone, if we could expect a more meaningful penetration increase within your client base which is still fairly underpenetrated, I would say. So I'm just trying to see if now this product is at the economics that seems fruitful for you to roll it out a little bit more aggressively. I imagine that it maybe could grow ahead of the overall loan book in 2026 again, maybe even faster than it grew this year considering also the income tax boost that a lot of your clients are going to have? Thank you. Santiago Stel: Hi, Pedro. This is Shande speaking. Thank you for your question. So, yeah, we're very positive on what's been happening in the credit card portfolio. So as you know, we've been evolving on a 360 view. So both credit team getting more and more mature and models getting more and more mature collections same thing. And the product team very engaged on making this evolution that we saw in these last periods. So this is the first to say that, like, the ground to keep the good execution is set, and we're very positive on that. When we get on the metrics in the portfolio, we go back to the reshaping that we talked also during the call. So about two quarters ago, we started saying that the percentage of interest-earning portfolio at Inter was asymmetrical as compared to the market. We were at only about 20% interest-earning, and the idea is to expand this. So the result that we see in interest is all about the execution or the good execution of the reshaping of the portfolio. We're now at more than 23% interest-earning. And as we execute, we should see this interest-earning portfolio expanding. And the good thing about the lessons learned and you asked about the lessons learned that I want that it's important to explore is as we increase interest-earning portfolio, and we want to get to say 25, 26%, we're also helping clients. Before, we didn't have the number of collection products that we have today, and as we implement them, we help clients pass through moments where they need more time to pay. So it's truly a win-win for the portfolio. And we'll keep on it to deliver this first goal of interest-earning portfolio at 25, 26%. Thank you, Pedro Leduc: And about maybe rolling out more arms within your deck? João Vitor Menin: Speaking here on that I think that Shande was explaining how we are more confident on underwriting more credit cards, and we're doing that. But, also, on the other hand, when connecting to my API question about the market, being not too aggressive in credit underwriting, we always connect that type of question to Inter by Design where we want to have the to explore more the collateralized credit solutions, private payroll, the receivables for the SME companies that is going to roll out next year. On credit card, Percept, we believe that we're growing in the right pace, to be honest. I mean, we're growing a lot, I'd say, but we don't want to just go all in on that product. We know that this is the product that gets more impact when the economy is not doing well. So as we always say, we like to produce alpha on our credit portfolio. To try to get away from the data. So even though the employment might not be doing well next year or whatever interest rate is too high. We don't want to get that exposure. What we're trying to do at Inter, we are building exposure to credit as you can see, growing 30% year over year, but doing that in a cautious way, a good balance between unsecured and secured which is today's one-third to two-thirds, and that's how we want to keep doing ahead. So I wouldn't expect Inter, you should not expect Inter to massively grow in our exposure to credit cards going forward. I'd say that we want to compound our portfolio increase news, and sentiment, but without doing enforced errors. So and consumer finance is a segment that we need to be cautious. So that's how we were running the business for the years to come. Okay? Rafael Vittore: Our next question is from Yuri Fernandes. Yuri, please go ahead. Yuri Fernandes: Thank you, Rafael. Hi, João. I'm sharing the Santiago Stel: Also, congrats on the journey. João Vitor Menin: A follow-up, and I think João already Santiago Stel: clarified part of my questions here on stage three and stage two. Like, on stage two, my question is what drove the increase quarter over quarter, like, on your total balance? I think last quarter was a little bit low or maybe it's a base. I'm not sure what happened in the second quarter, but stage two balance they went up 28% quarter over quarter. So I'm just trying to understand what drove it. And regarding stage three, like, your new stage three formation is mostly stable. There was a marginal increase. But when we break it down by products, and we take a look at personal loans and credit cards and usually, we look together. Right? Because sometimes refinance, they are part of personal loans and all these. These two products together, they are up 20% quarter over quarter. And I think Pedro was very happy in mentioning interest income because in the end, I think you are building more provisions, but you are pricing the risk and your interest income is higher. But given we are in a moment that are getting a little bit more concerned about asset quality in Brazil, what explained this increase in information for those two products? The private payroll, which personal loans? Like, is there anything on credit cards? And again, I think João was very clear saying that he's cautious and not the time to be super aggressive on, you know, on cards. What I'd love to understand a little bit the moving here on stage two and stage three. Thank Santiago Stel: So starting with stage three, you're correct that on a by-product basis, it varies, but it's the personal loans category, which includes private payroll, the one that went from 2.1% last quarter to 3.4. Remaining ones, including credit cards, were stable. Quarter over quarter. So the driver was the private payroll, and that's the main one on stage two as well. It's even more pronounced on stage two given the fact that the tenors, no, of the stage two captures in the life of the portfolio being a six-month-old portfolio. More predominant by now in stage two and stage three. But both drivers are having private payroll. We think there's gonna be more proportionate stage three in the coming quarters on 98 NPL as well as the portfolio continues to grow in size. Yuri Fernandes: No. No. Thank you, Santi. And regarding the stage three that you're really ninety days, up to two at an absolute figure, the increase on private payroll is because of operational risk, too high and, you know, like, this should be the level because it was they're trying to understand because given this is a new product, stage two is fine, but I will not be expecting stage three to be a problem for this product. Right now. Santiago Stel: It's within the expected losses that we had, nothing out of the ordinary in terms of the expectation. It's the way we modeled it, Yuri. And differentiate operational risk from credit risk in a product is very early stage. Sometimes it's a bit blurry. But as we mentioned, we are converging to a high single-digit delinquency level in this product. And with that, the return profile is, as I mentioned, in a better question, north of 30%. So it's accretive for the results. Yuri Fernandes: No. No. Thank you. Thank you, Sergio. Clear on your answer, and congrats on pricing, you know, those losses. Thank you. Santiago Stel: Thanks. Rafael Vittore: Our next question is from Marcelo Mizrahi. Marcelo, please go ahead. Marcelo Mizrahi: Hello, everyone. Thanks for the question and congratulations for a very solid result. Marcelo Mizrahi: My question is regarding the fee business. So we were seeing the last couple of quarters a deceleration, especially in this last one. On the growth of the fees. Can you share a little bit your ideas and the strategy here? So there are a lot of investments here in insurance, in the international account. So why do you believe that the growth is slowing down? And how to reaccelerate that? Very much. João Vitor Menin: Marcelo, João speaking. Thank you for your question. Santi will deep dive on the numbers and on the KPIs and economics later on. But just to highlight, we have been since, say, the launch of our digital account, trying to put more and more service business on our that will get us more fees, a better fee ratio. We were running between 25-30% back then. What happened is, because we're growing more on credit, recently due to private payroll, mortgage, and everything that we just discussed on this call. The ratio is lower. There are some one-offs here, something we'll cover. But the thing is, out of our seven verticals, five of them are focused on fees. We have FX, as we mentioned, global account. We have investments, insurance, LIOT, our loop program, and our inter shop. So this is something that is in our DNA, putting new products and we'll keep doing that increasing the addressable market for that. We don't know how our breakdown between fees and NII will behave going forward. Because as again as I mentioned, we're growing fast on NII. But we see still a good opportunity for us to keep running on this 25% range going forward. And, again, I'm sure that once some of these verticals get more mature, we believe that this could be a tailwind for us. So when Santi will mention about the change between quarter over quarter and year over year on that metrics. Okay? Thank you. Good morning, Marcelo. Just to complement Santiago Stel: João, we had two one-offs in the fee side impacting negatively. One was we shut down I m design or which is a company that we co-owned. It was a graphic design company. Acquired many, many years ago, and that had an impact of 15 million reais. In the fee line as well and another one is the $4.09 6 impact of deferred fees associated with credit of around another 15 million reais. So those two one-offs together would have given us 30 million reais of additional NII to make it on an apples-to-apples basis to what we had in the same third quarter of last year. With that, the growth would have been 7% instead of 1%. So it's a line that is growing less than NII as we mentioned. NII is growing consistently around 40%. Last five quarters, we had a growth in that level. Fees are trailing a bit behind that, but we could do high hopes on this being a key driver of revenue growth and profitability. Marcelo Mizrahi: Okay. Thank you. Rafael Vittore: One-off switchlet on the fee income discussion here. So we do understand these to the weakness, but, would it be fair, like, as you all mentioned, that going forward, we could still see net fees growing in the 20% range? Or is that too high? João Vitor Menin: Hi, Nika. Santi here. So, yes, that's So if we decompose a bit by line, the biggest component of fees is credit card, and that's highly associated with TPV growth. As Shande showed, TPV grew percent. So this fee line is growing in line with it. Interesting thing to mention is that Intershop ecommerce platform has a big of the monetization now being driven on the NII through buy now pay later how we call it in Portuguese. So that's a fee driver of NII directly. Mean, FX is performing very well. It's still a smaller line, but it's growing very, very high. So all of that together, we think in the twenties or around 20% is an assumption to have. Which is lower than NII, but still it's a higher an important component of our revenue base. Rafael Vittore: Okay. Perfect. Then on the private payroll, we already had a lot of discussion on that. But it seems from your comments that things have been improving. The collateral is still not fully functional. The FGDS collateral has been delayed to next year, but it seems like things are going in the right direction. Have you seen more competition from maybe not the incumbent banks, but from other smaller players become a bit more aggressive if the product seems much more viable than it was six months ago? João Vitor Menin: I knew her. So gonna talk a little bit this is Alex speaking, and thank you for your question. Santiago Stel: So talking about the payroll loans, we looking at the product as a whole, we're very happy with what we're seeing. In from any angle we look at. So from the capacity of underwriting more, we're happy. So we're growing underwriting. We're doing evolutions in our credit model and our credit policies and this has been driving increased underwriting volumes day after day. So very happy there. From a collection standpoint, we're also seeing improvements. And as Santi mentioned, we should converge longer term to high single digits, which is much better than what we initially forecasted or how we initially calculated the profitability of the product. That, as we mentioned before, we had a scenario of up to 15% and now we're looking at long-term high single digits. Much lower, much higher ROE. And from a competitive standpoint, we don't see any concerns yet. As we mentioned also earlier, we're talking about the $250 to $300 billion potential portfolio, that today is running close to 90 billion. So a lot of expansion to happen. And the idea now and the idea in the upcoming quarters is to keep absorbing as much demand as we can. On a static basis, the market share is at 2.1, but on an underwriting basis, we're executing at a much higher percentage of market share probably in the getting close to the 10% range. Of market share. And we'll keep on it. And João will follow-up also on the question, Neha. João Vitor Menin: Hi, Neha. João speaking. Just more of a high-level Santiago Stel: view in terms of competition as you asked. We see Inter in a, I would say, in a sweet spot in terms of competing in Brazil. We have elements that the incumbents do have such as a massive number of clients, all the products, we do have elements that only the fintech players have. Such as digital distribution, good NPS, good service, and now, so we have elements that the incumbent banks do have and the fintechs they don't have, which is a very good cost of funding. So when you combine all of that, and I really think that we're in a sweet spot between the incumbents and between the fintech players in on the north of 30% year over year. So and, again, we have been building this platform for many, many years to be in that position. We started from the beginning, from the basics of a good from a good banking approach. So we started having the client. We started doing the digital distribution. We start to bring a very good deposit base. So we have all that in place. So I don't see competition as an issue. As I mentioned. And, again, just to repeat, we are in a position to keep producing alpha in terms of credit underwriting and not just Rafael Vittore: Fort. Thank you. João Vitor Menin: Thank you so much, team, and a very interesting performance in terms of net adds and the deposit growth. Which will help you keep maintaining that funding edge that you mentioned. Thank you so much. With that, we conclude the Q&A session. I will now pass it to João for his closing remarks. Thank you, Rafael. Santiago Stel: Thank you, everyone, for being with us for this last hour. I would like also to thank our employees. We have a very good team working hard every day to put us ahead of the competition, to drive us to the next chapter. Thank you for all the shareholders that have been supporting us since 2000 when we listed the company. And hope to see you soon. In a few months for us to discuss the 4Q results. Thank you very much. Have a good day. Bye-bye.
Operator: And welcome to The Walt Disney Company Fourth Quarter 2025 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. I would now like to turn the conference over to Carlos Gomez, Executive Vice President, Treasurer, and Head of Investor Relations. Please go ahead. Good morning. It's my pleasure to welcome everyone to The Walt Disney Company's fourth quarter 2025 Earnings Call. Carlos A. Gomez: Our press release, Form 10-Ks, and management's posted prepared remarks were issued earlier this morning and are available on our website at www.disney.com/investors. Today's call is being webcast, and a replay and transcript will be made available on our website after the call. Before we begin, please take note of our cautionary statements regarding forward-looking statements on our Investor Relations website. Today's call may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects, and financial performance, are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties. Including, among other factors, economic, geopolitical, operating, and industry conditions, competition, execution risks, the market for advertising, our future financial performance, and legal and regulatory developments. Refer to our subsequent Form 10-Qs, 10-Ks, and other filings with the SEC for more information concerning factors and risks that could cause results to differ from those in the forward-looking statements. A reconciliation of certain non-GAAP measures referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website. Joining me this morning are Bob Iger, Disney's Chief Executive Officer, and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following introductory remarks from Bob, we will be happy to take your questions. So with that, I will now turn the call over to Bob. Robert A. Iger: Thank you, Carlos, and good morning, everyone. This was another year of great progress as we strengthened the company by leveraging the value of our creative and brand assets and continued to make meaningful progress in our direct-to-consumer businesses, resulting in strong earnings growth for the company. Adjusted EPS for fiscal 2025 was up 19% from fiscal 2024. And over the past three fiscal years, we have delivered a 19% compound annual growth rate in adjusted EPS. Our strategy and portfolio of complementary businesses, coupled with a strong balance sheet, enable us to continue to grow adjusted EPS and free cash flow over time. For fiscal 2026, we expect to deliver double-digit adjusted EPS growth compared to the prior year. The expected growth in earnings and cash flow enables us to continue investing in our businesses and to increase our return of capital to shareholders. We are targeting $7 billion in share repurchases in 2026, double the $3.5 billion we repurchased in fiscal 2025. We are also pleased to announce that the board has declared a cash dividend of $1.5 per share, a 50% increase over the dollar paid to shareholders in fiscal 2025. Before we take your questions, I'd like to touch on a few highlights from the quarter. First, our film studios. This summer's box office once again demonstrated the global and cross-generational appeal of our storytelling and IP. To date, Disney's live-action Lilo and Stitch remains the highest-grossing Hollywood film at the global box office this calendar year. And its success has extended across our interconnected businesses and consumer touchpoints. The film achieved 14.3 million views during its first five days on Disney Plus, becoming the second biggest Disney live-action premiere on the platform ever. Retail sales for Stitch from our consumer products business also continue to grow, eclipsing $4 billion in fiscal 2025. The popularity of this global phenomenon underscores the franchise's enduring strength and characters and the effectiveness of our strategy to invest in popular stories. Over the past two years, our studios have delivered four global franchise hits that have earned more than $1 billion each, while no other Hollywood studio has achieved a single one during the same period. Additionally, with a strong opening of Predator: Badlands, the biggest opening in the franchise's nearly forty-year history, the Walt Disney Studios has now crossed the $4 billion mark at the global box office for the fourth consecutive year. Heading into the holiday season, we're excited to bring audiences Zootopia 2 and Avatar: Fire and Ash. Looking ahead, next year's slate includes numerous highly anticipated titles such as The Devil Wears Prada 2, The Mandalorian and Grogu, Toy Story 5, the live-action Moana, and Avengers: Doomsday. We saw strong viewership of our television content in Q4, fueled by series such as Alien Earth, FX's biggest premiere ever on Disney Plus and Hulu, season two of High Potential, the number one original broadcast series across all platforms among adults 18 to 49. The Korean global hit Tempest and season 34 of ABC's Dancing With the Stars, which made history as the only fall show to increase its overall audience for six straight weeks following a season premiere. Something that's never been achieved by any show since Nielsen began electronic measurement in 1991. And we have more highly anticipated titles to come over the next few months, including new seasons of Paradise, The Secret Lives of Mormon Wives, Percy Jackson and the Olympians, American Idol, and the revival of the comedy Scrubs. We're also excited to bring viewers Taylor Swift's End of an Era docuseries as well as the concert film Taylor Swift: The Era's Tour, The Final Show. In our entertainment segment, our streaming business had another quarter of profit growth, with operating income up 39% in Q4. For the full year, we hit $1.3 billion in operating income, up $1.2 billion from last year and $300 million ahead of our original guidance. That is a significant achievement when you consider that just three years ago, our DTC business was running a $4 billion operating loss. As we continue to build DTC into a core growth engine, we're rolling out a more unified experience to better serve our consumers and unlock new value. In October, Hulu became our global general entertainment brand. And we continue to work to consolidate all of our entertainment content domestically within a single app, which will simplify the user experience, highlight the full value of our bundles, and unlock global marketing efforts. We're also expanding our international reach by investing strategically in our own originals and working with local studios to license content that brings more high-quality local storytelling to the platform. Taking a disciplined approach to the markets we are prioritizing, we have confidence in our long-term strategy. Turning to sports, we ushered in a new era with the launch of ESPN's full direct-to-consumer service and enhanced ESPN app. Making ESPN's full suite of networks and services available directly for the first time. We're thrilled by the response from fans so far, especially to the upgraded ESPN app, which now includes features such as multi-view, SportsCenter for You, catch up to live, and tools like live game stats, betting, fantasy sports, and commerce integration. Viewership of our industry-leading portfolio of live sports also remains robust, with ratings across ESPN networks, including ESPN on ABC, finishing the quarter up 25% over the prior year quarter. In our Experiences segment, we delivered a record operating income for both Q4 and the full year, with operating income up 13% for the fourth quarter compared to the prior year and up 8% for the full year. We're looking forward to two new cruise ships joining our fleet in the coming months. Disney Destiny, which sets sail next week, and the Disney Adventure, which will become our first ship home-ported in Asia when it launches in March. This will bring our fleet to a total of eight cruise ships, and in the spring, we're excited to open a world of Frozen at Disneyland Paris. With expansion projects underway at every one of our theme parks, five additional cruise ships scheduled for launch beyond fiscal 2026, and a new theme park planned for Abu Dhabi, the strategic investments we are making now will help ensure our offerings remain best in class and appeal to audiences worldwide well into the future. Overall, this quarter caps another strong fiscal year for the company. We continue to execute across our strategic priorities as we build for the future, deliver the very best in entertainment, and create value for shareholders. And with that, Hugh and I will be happy to take your questions. Carlos A. Gomez: Thanks, Bob. As we transition to Q&A, I ask that you please try to limit yourself to one question in order to help get to as many analysts as possible today. And with that, Rocco, we're ready to take the first question. Operator: Yes, sir. Our first question today comes from Ben Swinburne at Morgan Stanley. Please go ahead. Benjamin Daniel Swinburne: Thank you. Good morning. Bob, I think we've been talking about ESPN going direct to consumer for, I don't know, it feels like a decade or so now. And you've got the product in the market. I know it's not been a ton of time, but I'm wondering if you could share a little bit about what you've learned so far in terms of adoption, engagement, anything interesting in terms of what kind of packages people are attracted to and, really, the question is, does this product kinda change the outlook in any meaningful way for the business? As you look out over the longer term? And I just want to ask you on the cash from operations guidance that you provided with the $1.7 billion cash tax swing. If I sort of adjust for that, I'm getting kind of underlying growth of well over 20%. So is there anything else we should be thinking about? Maybe it's the one big beautiful bill, tax benefits, or anything else in the cash outlook that suggests such a strong cash flow year in 2026? Thanks so much. Robert A. Iger: Ben, I'll take the first part of the question. The ESPN launch has been a real success for a number of reasons. First of all, what we set about to do was to attract basically new users, people who had either been subscribers to the multichannel linear bundle or people who had not but wanted to engage more with ESPN. And we've done extremely well in that regard, signing up essentially new users. The other thing we wanted to do is we wanted to give people who wanted to stay in the multichannel linear bundle a chance to use the app and to engage with us more deeply because the app has so many more features than the linear channels do. And the authentication rate of people who are already subscribers has been very, very encouraging. Third, we ended up signing up a substantial number of subscribers to what we call the ultra product or the ultimate ESPN product, which is essentially mostly attracting cord-nevers who want to engage with sports but maybe they don't want to engage as deeply as those that get linear channels or those that subscribe to the main app. So it's been very successful in that regard. We're encouraged that people have found all the new features and are using them, particularly the SportsCenter for You and what we call VERTS, which is essentially just vertical sports highlights. And the algorithm seems to be working as well. I know it's working for me where if you watch certain videos on the ESPN app and particularly if you click like, then your feed is populated by sports news and sports highlights that you are more interested in. So I guess in almost every way you look at it, it is worth it's also working for advertisers because obviously, there's real value in the data that we provide advertisers on the direct-to-consumer platform. And so we're attracting both more advertising and new advertisers to the service. And as we look ahead, we believe that we've created a product that is very, very consumer-friendly, very advertiser-friendly, and actually works both for the traditional distribution ecosystem and for what I'll call the DTC ecosystem if there is such a thing. So we're very, very encouraged. I think it's a very positive step for the future of ESPN because while nothing necessarily provides future-proof concepts or circumstances for a business that is constantly changing, this certainly is a step in the direction of solidifying ESPN's future going forward. The last thing that I'll say is the great thing about the app is this incredible variety of sports that you can access on it. So where the linear channels provide obviously, live sports and studio programming more along the lines of the traditional sports television, the new app gives users a chance to engage with thousands and thousands more sports events over the year. And I think that's not only a sports fan's delight, but I think overall it's about as consumer-friendly as it gets. Hugh F. Johnston: Okay, Ben. Yeah. And I'll take the question on cash flow. You're right, if you adjust for tax we're up about 28% year over year. Because of the timing on tax payments, the reported number is closer to 7%. Driven by a couple of things. Number one, obviously, OI growth is quite strong. Number two, we've been investing for a couple of years and we've now sort of leveled off in terms of those levels of investment. That's something that we think you can look forward to in the out years. Continued strong free cash flow growth from Disney, which obviously gives us a lot of flexibility in terms of the ability to return cash to shareholders. Which was evidenced today by the doubling in the share repurchase and the 50% increase in the dividend. So we feel very good about the free cash flow growth going forward. Carlos A. Gomez: Thank you. The next question, Carlos? Robert A. Iger: Thanks, Ben. Before we take the next question, go ahead. Yeah. Go ahead. Before we take the next question, Carlos, I just want to add something to the question that Ben Swinburne asked about ESPN. One of the things that we're also very encouraged by is the fact that of the subscribers that have signed up to the new app, a substantial number of them, about 80%, have signed up to what we call the Trio bundle, which includes Disney Plus and Hulu. Carlos A. Gomez: Thanks, Bob. And thanks, Ben. Operator, next question, please. Operator: Our next question comes from Steven Cahall with Wells Fargo. Steven Lee Cahall: So just on content, you had a pretty strong last couple of years in general entertainment. Bob, you talked about some of the things like Alien Earth and FX that have done really well. As we look into this year for the studio, I mean, it's a big slate with Avatar and Moana. You're off to a little bit stronger or softer start, I think, implied in the guide for the first quarter. So I was wondering if you could just talk a little bit about what kind of growth you think you can do at the studio this year or over the next couple of years? And then, Hugh, just a tactical one. Given the ongoing carriage dispute with YouTube TV, have you provisioned anything in the EPS guidance for a sustained blackout? Is the economic impact actually more minimal because you think those folks would resubscribe elsewhere, including maybe the ESPN app? Robert A. Iger: Thank you. You all take the first part of the question, Steven. Thank you. We're very encouraged by the studio slate that is coming up. In fact, we have a premiere of Zootopia 2 tonight. That is our Thanksgiving release. And then we finish the calendar year with Avatar: Fire and Ash. Obviously, we have very, very high hopes for that. And if you look at the slate for the rest of the year, it's about as strong as it's been in a while. Maybe stronger than it's been in a while, The Mandalorian, Toy Story 5, a live-action Moana, and then we're gonna finish the calendar year with Avengers: Doomsday. So we are very bullish on the slate ahead. As we look at the slate well into '27 and into '28, we feel that we've got similar strength to the strength that I just described for fiscal and calendar year '26. Obviously, not every film works. We've seen we know that. We've been around long enough to understand that. But if you look back at the year and look at the fact that we've already crossed substantial global box office level. We know we feel that we had some real strength, $2 billion films in the fiscal year, the biggest film of the year fiscal 2025 and calendar 2025 to date, which you know, was Lilo and Stitch, which also had tremendous, tremendous consumption when it went on the platform. So we feel good about the direction of the studio, both the current slate, the slate that's coming up, and what it looks like in the future. Hugh F. Johnston: Right. And Steven, just to add to Bob's comments, in terms of Q1, that's more about what we're overlapping rather than the slate for the year itself. Just the timing of the overlap particularly with Avatar coming at the very end of Q1 is what's driving the guide that we shared with you all. As it relates to the discussions with YouTube, obviously, I'm not gonna comment much on ongoing negotiations that are live right now. The only thing I would say is in terms of our guidance, we built a hedge into that with the expectation that these discussions could go for a little while. In terms of the dollar impacts, keep in mind there's two pieces to it. There's the piece that we're not getting paid for and then the piece that we're picking up by virtue of subscribers moving elsewhere. But beyond that, I don't wanna comment because it is a live negotiation right now. Thanks, Steve. Operator, next question please. Operator: Absolutely. Next question comes from Robert Fishman at MoffettNathanson. Robert S. Fishman: Bob, we think about Disney Plus as a portal to all things Disney. Can you talk about the future roadmap and how subscribers will be able to use Disney Plus as a super app for not only Hulu and ESPN that you start to talk about, but also engage with your parks and other assets? And then, Hugh, do you see a path ahead for sustained double-digit DTC revenue growth through a combination of subscriber engagement and advertising increases? Thank you. Robert A. Iger: Thanks, Robert. First of all, regarding Disney Plus, we're in the midst of rolling out the biggest and the most significant changes from a product perspective, from a technology perspective since we launched the service in 2019. And we're really encouraged because enabling greater personalization resulting in a product that's just more dynamic, more engaging, and it's basically working. And as I mentioned in my remarks, we've turned Hulu into a global general entertainment brand, which we think is gonna create more awareness and basically create closer alignment with our US product. So as we look ahead, these things are obviously all designed to create a one-app experience. But we also see, particularly with the deployment of AI, the opportunity to use Disney Plus as you suggested as a portal to all things Disney. There's clearly an opportunity for commerce. There's an opportunity to use it as an engagement engine for people who want to go to our theme parks, want to stay at our hotels, or want to enjoy our cruises, our cruise ships, and obviously, there's a huge opportunity for games. And the investment that we made and the agreement that we reached with Epic Games, while that will largely be on their platform, gives us an opportunity to integrate a number of game-like features into Disney Plus. The other thing that we're really excited about that AI is going to give us the ability to do is to provide users of Disney Plus with a much more engaged experience, including the ability for them to create user-generated content and to consume user-generated content, mostly short form, from others. So a lot going on. We're pleased with the progress that we've already made from a technology perspective. We've made some great hires, by the way, in the last year in that regard, including Adam Smith, who's also brought in some real talent. And the opportunity here, we think, is enormous in terms of increasing our engagement with Disney fans across the world. Hugh F. Johnston: Okay. And Robert, regarding your question on DTC, a couple of comments. Number one, obviously, we guided you to the double-digit margins as we've been talking about in the past and as was expected coming into the year. Number two, in no way are we gonna get there through cost-cutting. The way we're gonna get there is through revenue growth and through driving operating leverage through the business. We didn't give a specific revenue guide, but our objective and our aspiration is very much to be growing the top line of that business by double digits. As we did on an apples-to-apples basis in Q4. That's what we're looking to do going forward is to grow the top line double digits. And again, as a reminder and as we've discussed in the past, getting beyond '26, we're certainly looking to gain margin in chunks, not in basis points. As we think beyond 2026 and into the future. We think this is a terrific business that's really going to be super strategic for The Walt Disney Company and it's gonna be a growth driver for us for many years to come. Carlos A. Gomez: Thanks, Robert. Operator, next question, please. Operator: Our next question today comes from Jessica Reif Ehrlich with Bank of America Securities. Please go ahead. Jessica Reif Ehrlich: Thank you. I've got a couple of things. One, you've grown content via both building and buying. And, clearly, if we're going to see M&A in media in the coming year, with a lot of moving pieces across the industry, some companies being broken up. So I'm just wondering, do you see any role for Disney and if not, any concern that you'll see a stronger competitor coming out of all of this? And then secondly, I was on advertising, could you maybe go a little bit under the covers? There are a lot of things going on in DTC and linear, both entertainment and sports. Could you give us some color on your outlook for fiscal 2026? Thanks. Hugh F. Johnston: First question to you. Go ahead, Bob. Sorry. Go ahead. So Jessica, M&A, a couple of things. Number one, obviously, we don't comment on M&A specifically. That said, with what's happening in the industry right now, Bob and the team really built the IP portfolio that we have over the last decade, whether it was the Fox acquisition, or Lucas, or Pixar. So we actually feel like we've got a great portfolio and we don't need to do anything. From that perspective, I think we'll let this play out. In terms of other competitors, we'll see how the various moves play out. But we like the hand that we have right now. So I wouldn't expect us to participate in making any significant moves. As it relates to the advertising side, what you saw for the year for us last year was advertising grew 5%. Sports was particularly strong. DTC has had supply coming into the market. That said, we did see CPMs improve at Disney over the last two quarters. So we feel like that's trending in the right direction. And then from a linear perspective, obviously, that's driven by what happens with subscribers. Going forward, we do expect advertising growth going into '26 as well. Despite the fact that we're overlapping political advertising in the first quarter of '26. Carlos A. Gomez: Thanks, Jessica. Operator, next question, please. Operator: Thank you. Our next question today comes from Michael Morris at Guggenheim. Please go ahead. Michael C. Morris: Thank you. Good morning, guys. Wanted to ask you first on the Experiences business. Can you talk a little bit more about the drivers of the segment in fiscal 2026 in the context of that high single-digit operating income growth that you guided to? So how is demand currently trending? And how much of the guided growth comes from revenue as opposed to margin expansion in the coming year? If I could ask one on the Sports side, you talked about some of the content-driven cost pressure in the second and third quarters of the year. I would assume that comes from the NBA investment. Can you talk a bit about how the NBA investment is positive for you and will drive your growth over time? Thank you. Hugh F. Johnston: Okay. Yeah, happy to jump in on both of those. In terms of the experiences business and drivers for 2026, obviously, we've made big investments in cruise and we're expecting Cruise to be a meaningful contributor to growth of Experiences during the course of the year, particularly in the second half as we get past the launch costs and some of the dry docks that we have in the first half of the year. Number two, obviously we're always going to have a combination of some pricing and some attendance growth. So certainly feel positive about that. And then obviously with the slate that we have coming on the film side, consumer products ought to be a meaningful contributor as well. As far as sports goes, from the perspective of the NBA, because of the timing of the rights cost, it does create a little bumpiness during the course of the year. Again, the latter half is where we'll really see material growth in ESPN. And then in terms of NBA being a the NBA is obviously a phenomenal property. We were fortunate enough to get out in front of that and create an attractive deal both for the NBA and for ourselves. It obviously, like a lot of other live sports, attracts audience and in the case of the NBA, like the NFL, attracts scale audience. Which obviously is super attractive to advertisers and therefore is strategically beneficial to us as well. Michael C. Morris: Thanks. If I could follow-up, can you share anything about what you're seeing on the demand side currently domestically for the parks? In terms of advanced bookings or per caps? Hugh F. Johnston: Yeah, yeah, sorry, I forgot to answer that portion of your question. Bookings are up 3% in the first quarter, so feel good about that. And they're also up for the year. So feel good about where demand is right now. Michael C. Morris: Great. Thank you, Hugh. Operator: Thank you. And our next question comes from Kannan Venkateshwar with Barclays. Please go ahead. Kannan Venkateshwar: Thank you. Bob, any interest from you on becoming a broader bundler of streaming? You already have ESPN, Disney Plus, and Hulu bundled, and, of course, you also have Fox One and HBO. And it feels like there's an opportunity here for Disney to maybe emerge as a new form of bundler. Which nobody in the industry appears to have attempted yet. So any thoughts on that would be great. And then just to understand the impact of ESPN bundling on Disney Plus and Hulu a little bit better, anything you can share with respect to maybe the churn benefits or any kind of subscriber acquisition cost tailwinds that you saw in the quarter? What do you expect going forward potentially from that? Thank you. Robert A. Iger: So I'll answer both parts of your question. First of all, as it relates specifically to ESPN bundling, what we found is that subscribers that bundle, either they bundle Disney Plus and Hulu, or subscribers that bundle Disney Plus, Hulu, and ESPN, are healthier subscribers in the sense that the churn rates are lower than the subscriber that only subscribes to one app. So what I mentioned earlier, the fact that about 80% of all the subscribers to the new ESPN service are actually buying the trio or the triple bundle. That's a very positive sign for us in terms of lowering churn into the future. We've also found that bundling with others, for instance, we've been bundling with Max in the United States, also has an effective lowering churn. And we've expressed the desire to do more bundling with other companies and have been in discussions on and off with other companies about doing just that. So typically, the opportunity to bundle definitely exists and to bundle more exists. And we also have proven that it works both for us in terms of our subscribers and also for the subscribers that we attract for the bundling entity. If you were to ask the folks at Warner Brothers Discovery about the impact of the Max bundle on them, they would tell you that they've signed up a substantial number of subscribers thanks to the bundle with us. Carlos A. Gomez: Thanks, Kannan. Operator, next question, please. Operator: Absolutely. Our next question today comes from John Hodulik with UBS. Please go ahead. John Christopher Hodulik: Great. A quick follow-up on the parks business and then a question on cruises. It looks like domestic parks attendance was a little light in the fourth quarter. Hugh, is that driven by sort of competition? Macro? Or are there any other factors that may have accounted for that? And then on the cruise side, just comment on overall demand for the cruise business. And if you could remind us how do the margins in cruises compare to overall margins in the parks business? And what should be the impact on that segment as that business grows as fast as it's slated to over the next several years? Hugh F. Johnston: In terms of the demand, demand was, I wouldn't characterize it as light. It basically came in, in line with our expectations. We've talked about Epic in the past in particular as something that we knew was gonna be a factor in domestic parks and in fact was very much in line with our expectations. If anything, it seems to be impacting the rest of the competition down in Florida more than it's impacting us. From a consumer perspective, we certainly feel good about it. In terms of demand for cruise, very strong despite the fact that we've added as much capacity as we have. Utilization rates are in line with what we've seen in the past. So we're filling all of that capacity as quickly as we can add it. Regarding margins, we don't really talk about specifics on cruise margins. That's not a disclosed item. But obviously, it's a very attractive business. We're capable of pricing at a good level. The guest satisfaction scores are higher than basically anything else in the company. So the margins in that business, as you would imagine, are quite attractive. Carlos A. Gomez: Thanks, John. Operator, next question, please. Operator: Absolutely. Our next question today comes from Kutgun Maral with Evercore ISI. Kutgun Maral: Morning, and thanks for taking the questions. Two, if I could. First, on direct-to-consumer, I was hoping you could share some of the puts and takes on the cost side in 2026. Especially as you continue to invest in technology and programming. But I didn't know if there's some maybe cost savings associated with integrating the tech stacks, for example, that we should be mindful of. Then, Hugh, just a housekeeping one, if I could, around the fifty-third week. Thank you for providing a clean guidance for the year and on an underlying basis. With that, can you help quantify the impacts of the extra week to this year? And as we look to fiscal 2027, would the expectation be that you could grow EPS double digits again even without adjusting for the fifty-third week comp? Thank you. Hugh F. Johnston: Yeah. First on DTC. It's really consistent with what we've talked about in the past. So we expect to grow revenue at an attractive rate. As I mentioned earlier in the call, the aspiration is to be double digits in that business. In terms of then the line items underneath, we'll obviously continue to invest at a reasonable level in content. Leaning a bit more towards the international side as we identify opportunities in specific markets to grow the international business where we have a big opportunity. In addition to that, we'll be investing in product. So the technology area will get some level of investment as well. And obviously, as we put the two businesses together, there's opportunities to do a bit of savings on SG&A. That said, I would expect P&L leverage, in other words, expenses growing less quickly than revenue, across all of those items. Which is how we drive the margin growth that we would expect to see. In terms of the fifty-third week, again, would expect us to figure out as we get to Q4 what the fifty-third week is worth. And then as we determine that, as we have in the past two times, we've had the fifty-third week, we would share something on that with investors and we'd look to grow double digits off of that. Carlos A. Gomez: All right. Thanks, Kutgun. Operator, we have time for one more question. Operator: Thank you. And our final question today comes from David Karnovsky with JPMorgan. Please go ahead. David Karnovsky: Hey, thank you. Bob, you noted Generative AI earlier, but it sounded primarily as a use case within your apps. And I'm wondering how you view the opportunity or risk to license out content or IP to some of the emerging video creation platforms. And then just relatedly, it pertains to production costs over time, what role do you see for generative AI to drive cost efficiencies in the business? Thanks. Robert A. Iger: Very good question. We've been in some interesting conversations with some of the AI companies. I would characterize some of them as quite productive conversations as well. Seeking to not only protect the value of our IP and of our creative engines, but also to seek opportunities for us to use their technology to create more engagement with consumers. And we feel encouraged by some of the discussions that we're having. It's obviously imperative for us to protect our IP using or with this new technology. And we've been pretty engaged on that subject with a number of entities. And hopeful that ultimately, we'll be able to reach some agreement, either the industry or the company has on its own, with some of these entities that would in fact reflect our need to protect the IP. We also, as we look ahead, we see opportunities in terms of efficiency and effectiveness by deploying AI not just in the production process, but really across our company as we engage with our cast members and our employees, but also our guests and our customers. There are opportunities as you talked about earlier about what I'll call the office and creating efficiency there. They are great in terms of our collection of data and our mining of data. And I'd say above all else, there's phenomenal opportunities to deploy AI across our direct-to-consumer platforms. Both to provide tools that make the platforms more dynamic and more sticky with consumers, but also to give consumers the opportunity to create on our platforms. I also before we end the call, Carlos, I just wanna say one thing. Because I know there was reference to where we are with YouTube. And I just wanna end the call because we've been so engaged in this over the last few weeks. By kinda giving an overall summary of just where things stand. First of all, obviously, we care deeply about our consumer. And our priority has always been to remain on their service without interruption, to close a deal on a timely basis so that interruption does not occur. The deal that we have proposed is equal to or better than what other large distributors have already agreed to. So we're not trying to really break any new ground. And while we've been working tirelessly to close this deal, and restore our channels to the platform, it's also imperative that we make sure that we agree to a deal that reflects the value that we deliver which both YouTube by the way and Alphabet have told us is greater than the value of any other provider. So we're not trying to break new ground. The offer that's on the table is commensurate with deals that we've already struck with actually distributors that are larger than they are. We're trying really hard, as I said, working tirelessly. To close this deal. And we're hopeful that we'll be able to do so on a timely enough basis to at least give consumers the opportunity to access our content over their platform. Carlos A. Gomez: Thanks, Bob. And thanks to everyone for your questions. We wish you all a good day. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day. [speaker 0]: Goodbye.
Operator: Greetings, and welcome to the flyExclusive, Inc. third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sloan Bohlen of Investor Relations. Thank you. You may begin. Sloan Bohlen: Thank you, Operator. Good afternoon and thank you for joining flyExclusive, Inc.'s third quarter 2025 earnings conference call. Joining me on the call today are Jim Segrave, flyExclusive, Inc.'s Founder and Chief Executive Officer, and Bradley Griffin Garner, our Chief Financial Officer. We will be providing certain non-GAAP information during today's discussion. We announced third quarter financial results yesterday after market close along with the filing of our Form 10-Q for the quarter ended September 30, 2025. Important disclosures about this information and the reconciliation of the non-GAAP information to comparable GAAP information is included in our Form 10-Q filed with the SEC and is available on our Investor Relations website. In addition, this discussion might include forward-looking statements. Actual results may differ materially for any number of reasons, including risk factors described in our annual report on Form 10-Ks and in our quarterly reports on Form 10-Q and in the press release covering forward-looking statements. Rather than rereading this information, we are going to incorporate it by reference into our prepared remarks. And with that, let me turn the call over to Jim. Jim Segrave: Thank you, Sloan, and thanks to everyone joining us today. The third quarter marked another very strong step forward for flyExclusive, Inc. Our transformation is clearly working. Our strategy is delivering results, and the positive impact is accelerating across the business. As a reminder, our results are outlined in an earnings presentation which is posted on the Investor Relations page of the flyExclusive, Inc. website. Like last quarter, the charts detailed the incredible progress our team has made in every metric and category. We reduced costs, increased sales, grew our membership base, increased utilization, and significantly improved our financial performance. Over the past year, we've modernized our fleet, streamlined our cost structure, and strengthened every area of the business operationally, financially, and culturally. The result is the company generating stronger growth, more profitability, and more momentum than at any point in our history. We are flying smarter, running leaner, and serving our members with greater consistency, reliability, and value than ever before. Our fleet refresh continues to be a major driver of our transformation. Over the last twelve months, we eliminated 26 non-performing aircraft, including two more in the third quarter and already an additional two in the fourth quarter as well. That reduction has decreased the operational drag from these jets by roughly 85%, taking monthly losses associated with these aircraft from over $3 million per month in 2024 to just under $500,000 per month today. At its peak, our non-performing fleet represented an annualized EBITDA drag of roughly $36 million. That drag is nearly gone, and our financial results show just how dramatically this transformation has improved our performance. We expect to reduce the number of non-performing aircraft to mid-single digits by the end of 2025 and to fully eliminate it in 2026. These non-performing aircraft have been replaced with high-performing Challenger 350s, XLSs, and CJ3 Plus, which are delivering exactly what we expected: higher reliability, utilization, margin, and a much better customer experience. Each Challenger flies roughly 250% more flight hours per month than the aircraft it replaced and generates $8 million to $10 million in annual revenue at far stronger margins. Our overall fleet utilization approached 7,000 hours in October, our largest month in history. We now have seven Challengers in operation, and two more in the immediate pipeline. Additionally, we are still adding CJ3 and XLS aircraft to our fleet. Now that the elimination of the non-performing aircraft is nearly complete, we are planning for significant fleet growth in 2026 and beyond. These newer jets are driving increased Jet Club and fractional demand. That's the broader impact of the fleet strategy: more reliable aircraft lead directly to better economics, improved customer satisfaction, and stronger customer engagement. Even with a fleet that's about 20% smaller than a year ago, flight hours increased 15%, and our core fleet utilization—the CJ3s, XLSs, and Challengers—represented 12% of this increase. Our dispatch availability improved 650 basis points year over year, or about 16%, which reflects the performance of the new fleet and the benefits of our vertical integration. Each percentage point of additional aircraft availability improvement at our current size contributes roughly $3 million to annual EBITDA. So this is and will continue to be a major driver of profitability going forward, as well as an important factor in our quality of service delivery. Total company revenue for the quarter rose 20% year over year to $92 million, and about half of this revenue is now contracted through our partner, fractional, and Jet Club programs, giving us more visibility and more recurring volume than ever before. Across these programs, our contractually committed hours grew 30% compared to Q3 2024. This increasing share of contracted revenue enhances our visibility in the market and the stability in our operating model. This also continues to strengthen the predictability and quality of our revenue base. At the same time, our wholesale channel remains an incredibly important part of the business. While we are rapidly growing our retail footprint and often highlight that growth, we are not reducing our wholesale flight hours or revenue to make room for retail. The wholesale channel is a critical part of our strategy we will continue to service. We receive on average over 500 quote requests per day from the wholesale market, which highlights the demand for our services. The broker community is just as important to our model and our performance as the retail side of our business. Our maintenance, repair, and overall MRO operation continues to be both a revenue driver and a core differentiator. What began as a vertical integration strategy to support our fleet has become a revenue and profit center with solid growth potential. MRO revenue grew 103% year over year in Q3, reflecting both external demand and expanded internal throughput. As an example, our paint business stays booked solid months in advance at this point, and over 80% of the work is from external customers. We are now also generating similar bookings in our maintenance shops, interior shop, and avionics shop. The MRO growth not only provides incremental profit but also supports fleet uptime, which in turn drives dispatch availability and customer satisfaction. As we continue scaling our internal MROs, avionics, paint, and interior refurbishment operations, we expect this to remain a long-term competitive advantage. Few private operators have the same degree of in-house control over maintenance, quality, and cost. To this end, we have added six mobile service units in October, bringing the total to 12. Again, the intention was to service our aircraft and continue to increase our dispatch reliability. But the demand from other operators for this service is incredibly strong, and we expect to continue to build our mobile service unit division for our own needs and to meet this demand, creating yet another revenue stream in 2026. Now moving to our outstanding customer metrics: Retail membership grew 51% year over year, a testament to our brand momentum and service reliability. Year-to-date Jet Club sales increased 17%, and fractional sales were up 68% year to date compared to last year, fueled by growing demand for the Challenger platform and reinforced by confirmation of 100% bonus depreciation in the latest tax legislation. The fourth quarter is traditionally our busiest for fractional activity, and based on the pipeline we've developed and new inquiries we're seeing, we expect that trend to continue this year. Together, our Jet Club and fractional programs continue to expand their contribution to the business, building recurring, high-quality revenue and deepening our customer relationships. The operational results we've delivered are translating directly into stronger margins. Year-to-date gross profit increased 82% year over year, and gross margin expanded by roughly 500 basis points. Adjusted EBITDA improved 72%, and adjusted EBITDAR increased 104% year over year, reflecting broad-based efficiency gains across every part of the business. Our adjusted EBITDA margin improved by 1,550 basis points year to date. That improvement was driven by fleet mix, better utilization, higher dispatch availability allowing more utilization on each aircraft, and disciplined cost control. SG&A expenses declined 9% year to date, primarily from savings in third-party services and headcount efficiencies. This 9% alone translated to $7 million in savings year to date. Revenue per SG&A headcount rose 19%, and SG&A as a percentage of revenue improved 587 basis points. These gains demonstrate that our cost structure is now scalable and built for profitable growth. Each quarter this year has shown stronger operating leverage and profitability, and that pattern has continued into the fourth quarter. Given the efficiency gains achieved so far and the strength of our core programs, we expect our fourth quarter performance to continue to reflect the positive trajectory we've demonstrated all year, both operationally and financially. October was a record month for us in hours flown and revenue, and November has started off stronger than ever, even in the face of the restrictions imposed from the government shutdown. We also are now the number one charter operator in the United States according to Aviation Research Group data based on hours flown, with 6,810 hours flown in October. This was also 7% more than the number two operator in the United States. We are now operating from a position of sustained strength, and based on the trends over the past year, we expect to sustain positive adjusted EBITDA going forward into 2026 and beyond. Looking ahead, the fourth quarter is historically our busiest every year, and we are already seeing record demand across every part of the business. October set the record for the highest revenue month in our history, and November month-to-date is positioned to break that record again. That positions us well to deliver our best performance yet to close out 2025. With a modernized fleet, a growing base of committed members, and a leaner cost structure, we are also well-positioned to keep compounding our gains in the next year. There is no question that we're now running a more efficient, more profitable, and more reliable business than ever before, and you are seeing that in our numbers. The heavy lifting of our transformation is behind us, and we are entering the next phase of our growth story with confidence, momentum, and a clear line of sight to sustained profitability. Through our employees, our pilots, technicians, dispatchers, and every member of our administrative and customer-facing teams—member services, sales, and finance—thank you for the professionalism and dedication that make these results possible. To our shareholders and partners, we appreciate your confidence and your continued support as we move into what I believe will be the strongest period in our company's history. With that, let me turn the call over to Brad for his comments. Bradley Griffin Garner: Thank you. I'll begin by echoing Jim's sentiment that this quarter marked another important step in our continued transformation as a business. From top-line growth, operational discipline, and marked bottom-line improvement, the third quarter illustrated what we believe to be a sustainable and accelerating path towards profitability and scale. We have driven value through growth in members, hours flown, and average rates. We've driven operational leverage through increased efficiency and utilization of our fleet. We are seeing accelerating momentum in our club and fractional programs, which drives retail sales gains as well as higher quality and more durable earnings. And lastly, as mentioned, we've driven margin expansion through the significant reduction in our corporate cost base. Best of all, we aren't done, and the initiatives that are producing results are part of a strategy that will extend well beyond next year. With that, let me begin my review of the summary financials for the third quarter. Revenue for the third quarter totaled $92.1 million, which is a 20% increase over 2024. Year-to-date revenue expanded 15% to $272 million compared to the same period last year. Impressively, and largely as a result of our fleet modernization initiative, we accomplished this growth with a fleet that is 20% smaller than it was a year ago. This is proof that the quality of our fleet and the leverage in our model are both improving and real. Similar to the earlier quarters this year, our revenue growth continues to diversify. Our flight revenue in the third quarter grew 17% year over year. That's largely a function of stronger aircraft performance, higher utilization, and our continued pivot to more productive aircraft types. Dispatch availability improved to roughly 650 basis points year over year, and our aircraft are simply flying more and more profitably than they did a year ago. Again, on a fleet that's 20% smaller, all facets of our business executed at an institutional level to drive that 17% growth in our flight revenue. Importantly, the composition of our flight revenue continues to evolve and improve. We've been intentional about shifting towards more contractually committed demand and recurring revenue streams—Jet Club, fractional ownership, and partner programs—and those now account for approximately 45% of our total flight revenue. That's up from a little over 40% in the prior year, and we expect that mix to continue to trend higher as these programs scale. This shift gives us more predictability, more pricing power, and a more stable margin profile. And as Jim mentioned, even though our flight revenue mix has intentionally shifted, our wholesale business continues to grow at a double-digit pace. Wholesale flight revenue totaled $47.5 million in 2025, a 15% growth compared to Q3 of last year. Year-to-date, wholesale revenue grew 4% to over $134 million compared to the same nine-month period of 2024. Our wholesale business continues to be both a growth area and foundational for maximizing the capacity utilization of our fleet. Looking at the details of our flight operations, growth was underpinned by a 51% increase in retail members. As we ended the quarter with more than 1,160 members driven by strong demand for our Jet Club and fractional program offerings that provide access to the higher performance aircraft in our fleet, like the Challenger 350. Retail sales in the Jet Club program exceeded $31 million during the third quarter, up roughly 4% year over year. As Jim noted, fractional demand in particular has been a growing bright spot this year. This demand drove retail fractional sales to $13 million during the quarter, up 91% compared to 2024. Momentum has accelerated with a higher performing and more reliable fleet and the reinstatement of 100% bonus depreciation, which has reignited interest in tax-advantaged ownership. This momentum, coupled with the increased interest in our Jet Club program, gives us confidence that our significant growth will continue to accelerate as we enter the historically busiest quarter of the year. The increase in flight revenue and retail sales was compounded by 103% growth in our expanding MRO business, demonstrating its strategic value. External MRO revenue reached $3.1 million in 2025, more than double that level from a year ago. In the first nine months of the year, our MRO business generated $7.7 million in revenue, surpassing 2024's full-year revenue. Beyond the growth prospects of our external MRO business, MRO remains an integral part of our vertical integration strategy, keeping our aircraft flying, our dispatch availability high, and our cost structure controlled. We believe our ability to operate this capability in-house sets us apart, especially as we expand our fleet. In summary, when looking at the drivers and breadth of our growth, despite a smaller fleet, we are very encouraged by what we've accomplished this year and the operational momentum we have carrying us into Q4 and 2026. Turning to profitability, we delivered meaningful margin expansion across the board. Gross margin increased 46% compared to 2024. Year-to-date, our gross margin has expanded 82%, ending the third quarter at 14%. As we continue to optimize our fleet, we believe there is additional room to drive operational leverage and further expand margins into 2026. The third quarter marked our continued sequential improvement to adjusted EBITDA. The adjusted EBITDA loss for Q3 2025 was just $1.9 million compared to a $13 million loss in Q3 of last year, evidencing continued progress towards our expectation of generating positive adjusted EBITDA in the near term. Q3's near breakeven adjusted EBITDA represented nearly 1,500 basis point improvement in EBITDA year over year. The near doubling of our profitability over the past year is again attributable to increased leverage provided by our revamped fleet. Year-to-date, we have seen a progressive increase in dispatch availability, which now improved 500 basis points compared to the average dispatch availability for the same nine-month period last year. This is again how we were able to fly over 54,000 hours year to date, which is 11% higher than last year, on a revenue-generating fleet that's about 20% smaller. And as we've said since the inception of the company, we're doing it the flyExclusive, Inc. way, which is to maintain discipline on members per aircraft, which now stands at 13.4. We continue to lead the industry in this metric, where other providers often stretch their fleets and sacrifice service with member-to-aircraft ratios in the 20 to 30 plus range. Total SG&A as a percentage of revenue declined nearly 500 basis points year over year to $19.5 million. That improvement came from a combination of headcount leverage, reduced reliance on third-party contractors, and tighter control over discretionary spend. Revenue per SG&A employee exceeded $470,000 for the quarter, a nearly 20% year-over-year improvement. We believe that as the top line continues to grow, we will see continued improved leverage of the company's SG&A cost base. As Jim noted, we continued our deliberate effort to modernize and streamline the fleet. We exited Q3 with 11 non-performing aircraft, down from 37 in 2024. We maintain our expectation that we'll finish the year with mid-high single-digit non-performing aircraft in the fleet. The elimination of these non-performing aircraft has resulted in more than $2 million per month operating improvement. Against this, we've added five Challenger aircraft in the past seven months, finishing the quarter with seven Challengers on certificate. These aircraft, as Jim highlighted, each contribute between $8 million and $10 million in annual revenue, with far superior margins relative to the older airframes we've retired. We're excited to operate a much different fleet in 2026 than we have over the past few years and see the impact of that not only on our bottom line but our ability to continue to provide a premium experience for our customers. Lastly, I'll conclude with several key updates on flyExclusive, Inc.'s ongoing effort to improve our liquidity and balance sheet flexibility. As I've highlighted in past quarters, we have a merger agreement with JetAI that will not only provide operational synergies with the acquisition of their aviation operations but will provide capital for growth and deleveraging of our balance sheet. We have extended the outside date for completion of the merger agreement, in part as a result of the ongoing federal government shutdown. The federal government shutdown has also delayed our finalizing our at-the-market (ATM) sales facility, which we anticipate utilizing to access capital markets to strengthen our balance sheet. Effective October 1, 2025, we announced an amendment to the aircraft management services agreement with Vilato, where we will acquire Vilato's aircraft sales division for $2.1 million in stock. That division is expected to generate $6 million to $8 million in profit in 2025. The agreement also grants us the right to acquire additional high-growth technology platforms, including Vault, a luxury experiential travel app providing access to private jet empty legs, and Mission Control, a cutting-edge flight management private aviation operation software, for an additional $2 million in stock. We believe that this transaction is another strategic lever not only to provide liquidity but to broaden our vertical integration strategy while generating an attractive multiple on our invested capital. As we close the quarter and look forward to continued growth in Q4, I want to underscore the transformation that has been accomplished over the past year. We've modernized our fleet, streamlined our operations, and reengineered our revenue mix, all while maintaining our commitment to safety, service, and operational excellence. This is no longer a company in transition; we're a company in control. The momentum we've built is not fleeting; it's the result of deliberate, disciplined execution at every level of our organization. Our team is sharper, our platform stronger, and our strategy is working. While there's still more work ahead, we're no longer laying the foundation; we're building on it. And what we're building is a more durable, profitable, and category-defining company. Thank you all again. Now I'll turn it back to the operator. Jim Segrave: Thank you. Operator: And ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect your lines.
Operator: Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's fourth quarter and full year fiscal 2025 results. All participants have been placed in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Additional instructions will be given at that time. Now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings. Jeff Harkins: Thank you. Good morning, everyone, and thank you for joining us. With me on the call today are Denise Paulonis, President and Chief Executive Officer, and Marlo Cormier, Chief Financial Officer. Before we begin, I would like to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-Ks and other filings with the SEC. Any forward-looking statements made in this call represent our views only as of today, and we undertake no obligations to update them. The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website. Now I would like to turn the call over to Denise to begin the formal remarks. Denise Paulonis: Thank you, Jeff, and good morning, everyone. Fiscal 2025 was a meaningful year for the company, highlighted by strong operating and financial performance in the context of a rapidly changing and uncertain macro environment. We are pleased to report both Q4 and full-year results that exceeded our expectations. For our fourth quarter, we delivered comparable sales growth of 1.3%, 100 basis points of gross margin expansion to 52.2%, adjusted operating margin of 9.4%, and a 10% increase in adjusted diluted earnings per share to $0.55. On a full-year basis, we delivered $3.7 billion in revenue, positive comparable sales, gross margin north of 51%, and adjusted operating margin of 8.9%, which is up 40 basis points to the prior year and above the high end of our guidance range. Adjusted diluted earnings per share came in at $1.9, representing 12% growth compared to last year. Our core strategic pillars drove customer engagement and sales, contributing approximately 260 basis points of comp sales growth for the full year. The business also generated strong cash flow from operations, of $275 million, which we deployed towards investing for growth, further strengthening our balance sheet with $100 million of debt pay down, and returning value to shareholders through more than $50 million of share repurchases. These results are a testament to the executional excellence across our organization and demonstrate the underlying strength of our business model. We have resilient customers, defensible categories, and strategic initiatives built to drive growth and increase profitability. Touching on some of the strategic highlights of the year, we advanced the business through several important initiatives. We maintained our leadership position in color, delivering growth of 7% in fiscal Q4 and 4% for full year 2025. We delivered on our promise of customer centricity, driving strong growth in our licensed colors on demand consultation service, by delivering standout education and advice. We extend our reach and fuel digital growth with the expansion of our marketplace strategy, adding Uber Eats to our already strong roster of partners, including DoorDash, Instacart, Amazon, and Walmart. We delivered a continuous pipeline of product innovation, adding new powerhouse brands like K18 at BSG, and expanding our partnership with Sauce Beauty, as well as adding newness in color from Wella and IroIro at Sally. We launched a comprehensive Sally brand refresh, which we are now calling Sally Ignited, designed to transform the business from a trusted beauty supplier to a modern dynamic beauty powerhouse. We generated an incremental $46 million of benefits through our Fuel for Growth program in fiscal 2025, building our cumulative run rate benefits to $74 million. Of that cumulative total, approximately $42 million flowed to the bottom line, with the remaining $32 million being reinvested in the business. And lastly, we are responsible stewards of capital focused on building long-term value for all of our stakeholders. Entering fiscal 2026, we have proven our ability to navigate a complex and dynamic external backdrop. And we will continue to execute leveraging the power of our competitive and structural advantages, our global scale, our compelling value proposition, and the strong fundamentals of our business to drive top-line and bottom-line growth. Throughout the year, our teams will focus on actioning at four key growth drivers: understanding and activating the customer, unlocking and harvesting digital value, differentiating with product assortment and innovation, and accelerating new growth pathways. I'll discuss each of these. Our customer activation strategy is focused on acquisition, retention, and share of wallet. Much of our success is rooted in our customer-centric capabilities. We've always been intensely focused on delivering unmatched levels of education, service, and advice. Today, we are deepening our understanding of customers beyond the transactional view. By leveraging our rich customer data, advanced analytics, such as our enhanced media mix model, and robust customer research, we can better target high-potential segments. This will enable us to improve customer engagement across touchpoints, that include performance marketing and personalization at both Sally and BSG, as well as refresh brand marketing, and our licensed callers on demand offering at Sally. On the performance marketing front, we are refining our paid search, social media, PR, and influencer strategies, informed by our enhanced media mix model to acquire new customers and drive sales growth. When it comes to personalization, we are focused on expanding our personalization experiences across all customer touchpoints, deepening our customer insights to drive the richness of the personalization decisioning, and targeting and strengthening our omnichannel communication and customer connection. A great example of our refined marketing campaigns is our plan for holiday at Sally. We're bringing elevated marketing to our stores and digital channel that has contemporary, unified look and feel designed to resonate with today's beauty consumer while staying true to Sally's brand heritage. Our holiday messaging platform, "skip save while you skip the salon," was created based on our latest customer data and insights. And represents a tactical shift from the buying bulk promotions of recent quarters. Additionally, at Sally, we are embedding licensed colors on demand, or LCOD, into our brand marketing strategy to reinforce our key pillars of expertise and accessibility. Our leading indicators offer a compelling view of the lifetime value of our LCOD customer. Twelve-month spend is almost 2x higher than non-LCOD customers, including about two additional transactions per year. New and reactivated customers comprise more than 50% of the LCOD customer base, and the number of consultations at fiscal year-end was averaging a record 5,000 plus per week. Additionally, our licensed colors are strengthening their knowledge of the care category and beginning to test care consultations where we're seeing positive early response. Moving now to our digital strategy. On the Sally side, there's a clear opportunity to build on the momentum of our marketplaces. Success. Which continues to be a key driver of e-commerce sales at Sally US and Canada. In fiscal Q4, Sally US and Canada's e-commerce sales increased 34% over the prior year and comprised 9% of total sales. Our teams are focused on unlocking greater digital value through marketplace expansion, leveraging our speed to market delivery capabilities, and strengthening our digital foundation. This will include website and app enhancements, that feature an elevated beauty persona, modern navigation, a more seamless customer journey designed to drive increased engagement and conversion. On the BSG side, mobile app usage accounts for a significant portion of our digital traffic. With increasing reliance on our app for education and transacting. We are targeting 2026 for a substantial update to the BSG app and e-commerce platform designed to deliver improved user experience and enhanced personalization. We believe this will fuel long-term benefits including higher conversion, increased retention, and engagement, and enhanced brand loyalty. We're also in the early stages of developing an exclusive digital ecosystem designed to expand BSG's relationship with a stylist and increasingly integrate into their businesses. This will include a centralized hub for education, community, and services, one that will enable us to leverage data to continuously create incremental value for both our stylists and brand partners. Turning to product assortment and innovation. For the Sally segment, we are focused on driving multi-category performance, by continuing to bring in new brands and products while expanding and nurturing categories beyond color. The most obvious opportunities exist in the strategic categories of care and nails, where we already have a strong presence and authority. In addition, we added fragrances as a new category in our top 1,000 Sally US stores in November. We're also leveraging our higher margin own brand offerings and have a number of initiatives on deck for fiscal 2026. First, we are refreshing and relaunching some of our key brands, including Texture ID, Inspired by Nature, and ION Semi Brace. And we're bringing infrared innovation to the market with a dynamic collection of ION styling tools. We believe that building momentum with our higher margin owned brands will enable us to drive increased customer retention and frequency at Sally, fueling long-term growth and profitability. For the BSG segment, we are pleased to serve as a trusted and valued resource. To our BSG stylist who are always seeking the latest and greatest in trends and innovation. With our ability to reach nearly every stylist in the US and Canada, we provide a valuable platform for brands to grow. And we have found that one great brand begets another. Of note, innovation drove upwards of 30% of BSG's total hair care sales in fiscal 2025. For perspective, that's up approximately three times from just a few years ago. In fiscal 2026, we have another exciting lineup of innovation coming. Key trends include glossing, bonding, smoothing, molecular repair, and scalp care. And we will be in stock with highly desired brands like Briogeo, Color Wow, Danger Jones, K18, Moroccan Oil, Schwartzkopf, and Unite. In addition, we see incremental opportunities for BSG to build upon its strong track record of expanding its distribution rights. This can take shape by partnering with existing brands, pursuing opportunistic acquisitions, and adding new brands, all strategies we successfully actioned in recent years. Lastly, looking at our strategy for new growth pathways. For our Sally business, we view Sally Ignited as a true game changer for our platform going forward. Sally Ignited is a comprehensive initiative encompassing both physical and digital refreshes, category and brand expansion, and immersive experiences focused on discovery and community. We see a tremendous opportunity to supercharge a fundamentally better store experience, especially as we double down on multi-category expansion, continue to deliver a relentless flow of innovation, and lean into momentum in areas like LCOD and marketplaces. Our mission is to ensure that the Sally brand emotionally connects with our customers while creating a discovery-focused omnichannel, specialty beauty experience, all enabling us to more effectively compete in today's product-obsessed beauty marketplace. At the end of fiscal 2025, we had completed 30 store refreshes. The stores are modern, on-trend, open, warm, and inviting. With a new layout that increases the ease of wayfinding. We've continued to see customers spending more time in-store and cross-shopping categories at an increased rate. Key indicators, including UPT, and ATV, are trending above the rest of the fleet. We are planning to bring Sally Ignited to an additional 50 locations throughout the remainder of fiscal 2026. Because these refreshes are mostly occurring in stores that were previously slated for updates or relocation, the investment is not incremental to our planned capital spending for the year. Looking further ahead, we continue to have conviction in the opportunity to refresh up to 1,500 stores for approximately two-thirds of the Sally fleet. Sally's strong brand equity and sixty years of heritage certainly provide a powerful foundation from which to build. In fact, we are incredibly proud that just last month, Sally's was ranked as the number three beauty retail brand in the prestigious Alice Partners consumer sentiment index for 2025. Turning to our BSG business. We're looking at new category expansion. We're focused on expanding BSG's addressable market by entering adjacent product categories, either organically or through acquisition. We recently began testing a couple of brands in the skin and spa space, while pursuing aesthetician. More to come on this in the coming quarters. Now moving to an update on our Happy Beauty initiative. Which currently has 20 stores. We've leaned into Happy Beauty as an indie brand headquarters, known for on-trend brands and key categories such as skincare and fragrance. Leading up to the holiday season, we recently completed key merchandising updates and implemented new marketing tactics, including increased influencer engagement and messaging, highlights indie brands, test before you buy, dupes, and value. We're putting a lot of energy behind the holiday selling season, and believe that coming out of that period we'll be better positioned to understand the trajectory of the concept and the optimal path forward. Underpinning the top-line growth drivers I discussed is a core discipline focused on profitability unlocks. In fiscal 2025, we generated meaningful operating efficiencies through our Fuel for Growth program. This work is ongoing and encompasses merchandising, sourcing, supply chain, best cost location, and non-trade spend. We have carried out deep dives and are continuing to extract value. In the first two years of the program, we generated cumulative run rate gross margin and SG&A benefits of $74 million, above our original expectation for $70 million, and we expect to capture cumulative run rate savings of $120 million by the end of our current fiscal year. Key levers we're focused on include SKU optimization, further supply chain optimization, promotion, and pricing. The expected benefits will continue to be an important contributor to gross margin and bottom-line profitability in fiscal 2026. Looking further ahead, we're committed to delivering significant value for our customers, associates, and shareholders. Our focused strategies and consistent execution position us to achieve compounding growth while the strength and flexibility of our balance sheet will enable us to remain disciplined capital allocators. As part of our long-range planning, we are introducing financial targets to reflect our three-year planning horizon ending with fiscal 2028. On an annual basis, we expect to generate net sales growth in the range of 1% to 3%, adjusted operating earnings growth of 3% to 5%, adjusted diluted EPS growth of at least 10%, including approximately 50% of free cash flow going to share repurchases, capital expenditures in the range of $90 million to $120 million, and free cash flow of approximately $200 million. Our foundation is strong, and our focus is clear. Our fiscal 2025 performance underpins our confidence that we have the strategy, capabilities, and team in place to scale and win with significant runway for growth and value creation. I'll turn the call over to Marlo to discuss the financials. Marlo Cormier: Thank you, Denise, and good morning, everyone. We concluded the year with strong business momentum, enabling us to deliver fourth quarter and full-year results ahead of our expectations on the top and bottom line. Our performance reflects our disciplined execution and commitment to long-term value creation. Turning to the details of the fourth quarter. Consolidated net sales increased 1.3% to $947 million, which included 40 basis points of favorable impact from foreign currency translation, while operating 38 fewer stores compared to the prior year. Consolidated comparable sales increased 1.3%. On the selling side, we saw strong growth in our core category of color, our digital marketplaces, and from our Sally e-commerce site. At BSG, color also performed well. And extended distribution and new brands drove another quarter of positive comp sales. Global e-commerce sales increased 15% to $105 million and represented 11% of total net sales. We maintained our strong margin profile in Q4, with gross margin expanding 100 basis points to 52.2%. The year-over-year improvement is primarily attributable to higher gross margin in both business segments driven by the benefits of our Fuel for Growth program. We expect to maintain our healthy margin profile in fiscal 2026, and anticipate we can continue to offset potential cost of goods impacts related to tariff increases through cost sharing with vendors, sourcing optimization, and modest price increases on select products. Looking at expenses, Q4 adjusted SG&A totaled $405 million. That's up $14 million to last year, reflecting higher labor costs, bonus expense, rent expense, and IT costs. Partially offset by $7 million in Fuel for Growth benefits. In total, we captured an incremental $13 million of pretax Fuel for Growth benefits to both gross margins and SG&A in Q4. Enabling us to deliver an incremental $46 million pretax benefits full year fiscal 2025. This translates to $74 million of cumulative run rate benefits since we initiated the program in fiscal 2024. Of that amount, gross margin benefits totaled $32 million coming from the optimization of our supply chain, vendor partnerships, and promotional efficiencies. SG&A benefits totaled $42 million coming from transportation efficiencies, outsourcing, and reductions in non-trade spend. Approximately $32 million was reinvested in the business to support our strategic initiatives, with $42 million flowing to the bottom line as profit or to offset inflation. We anticipate delivering an additional $45 million in run rate savings in fiscal 2026, with about two-thirds coming from gross margins and a third from SG&A. By the end of fiscal 2026, we expect that our cumulative run rate savings will be approximately $120 million. Returning to the P&L. Pleased to report that bottom-line results exceeded our expectations driven by gross margin expansion and cost reduction. Adjusted operating margin came in at 9.4%, and adjusted diluted earnings per share was $0.55, a 10% increase over the prior year. On a full-year basis, we delivered adjusted operating margin expansion of 40 basis points to 8.9%, adjusted diluted earnings per share growth of 12% to $1.9. Moving to segment results. Sally Beauty net sales increased 1.4% to $542 million, which included 80 basis points of favorable impact from foreign currency translation while operating 33 fewer stores versus a year ago. Comparable sales increased 1.2% with comparable transactions flat and average ticket up 1%. For the global Sally Beauty segment, color increased 8% while care declined 7% compared to the prior year. E-commerce sales increased 23% to $47 million and represented 9% of segment net sales for the quarter. In addition, e-commerce sales for Sally US and Canada grew by 34%. Gross margin in our Sally segment increased 90 basis points to 61.3%, driven primarily by higher product margins from the benefits of our Fuel for Growth program. Segment operating margin came in at 15.9%. Looking at the BSG segment, net sales increased 1.1% to $406 million, which included 10 basis points of unfavorable impact from foreign currency translation while operating five fewer stores versus a year ago. Comparable sales increased 1.4% with comparable transactions up 6% while average ticket was down 4%. From a category perspective, color increased 5%. Care was up 1%. BSG e-commerce sales increased 8% to $58 million, representing 14% of segment net sales for the quarter. Gross margin at BSG expanded 100 basis points to 40%, primarily reflecting higher product margins from the benefits of our Fuel for Growth program. Segment operating margin was strong, coming in at 12.6%, up 160 basis points to the prior year. Turning to the balance sheet and cash flow. We ended the year in strong financial condition with $149 million of cash and cash equivalents and no outstanding borrowings under our asset-based revolving line of credit. Inventory levels totaled $988 million, down 5% versus last year. Entering fiscal 2026, we remain focused on driving process improvement to enable faster inventory turns and improve working capital productivity. Fourth quarter cash flow from operations totaled $121 million, while free cash flow totaled $78 million. In Q4, we utilized excess cash to repay $21 million of term loan debt, bringing our net debt leverage ratio at year-end down to 1.6 times. We also deployed $20 million of cash to repurchase 1.7 million shares of stock under our existing share repurchase program. On a full-year basis, we generated $275 million of operating cash flow and $216 million of free cash flow, allowing us to repay nearly $120 million of term loan debt and repurchase more than $50 million of our shares. Turning to our fiscal 2026 guidance. On a full-year basis, we expect the following: consolidated net sales in the range of $3.71 to $3.77 billion, which includes approximately 50 basis points of favorable impact from foreign currency rates. Comparable sales flat to up 1%. Adjusted operating earnings of $328 million to $342 million, adjusted diluted earnings in the range of $2.02 to $2.10 per share, which assumes that 50% of free cash flow goes towards share repurchase. Capital expenditures are expected to be approximately $100 million. And free cash flow is expected to be approximately $200 million. In addition, we expect our store count to be approximately flat, including about 40 new stores, 40 store closures, and 50 relocations. For our 2026, we expect the following: consolidated net sales in the range of $935 million to $945 million, which includes approximately 40 basis points of favorable impact from foreign currency rates. Comparable sales to be approximately flat, adjusted operating earnings of $75 million to $80 million, and adjusted diluted earnings in the range of $0.43 to $0.47 per share. In summary, we are pleased to finish the year strong and look forward to making meaningful progress in fiscal 2026 toward the long-term financial targets Denise outlined. We appreciate your time this morning. Now I'll ask the operator to open the call for Q&A. Operator: Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from Oliver Chen with TD Securities. Oliver Chen: Hi, Denise and Marlo. On the quarter, you just had, would love to hear about what were some of the key factors that helped drive the upside at both at each division. And then as we think about the comp complexion this quarter, did ticket run similar to what you expected in terms of the negative ticket trends at BSG relative to the positive ticket trends at Sally. And then would just love to hear your thoughts on your comp guidance relative to occupancy leverage. What do you see happening in terms of your ability to leverage some of the fixed costs with the comp outlook? Thank you. Denise Paulonis: Good morning, Oliver. We are very pleased with performance in Q4. In terms of factors that drove the performance and drove the upside, I think what's really notable in the quarter is the strength of color in both of our businesses. So in the quarter, color was up 7% overall, 8% in Sally, and 5% in BSG, really speaking to the strength of the DIY kind of pro product, in our Sally segment and then the importance of the brands that we carry on the BSG side. And I think underlying that, the other things that we saw of strength, marketplaces continued to overperform on the Sally side of the business, which we are pleased to see. Innovation, in BSG helped to drive care back into positive sales growth territory, which we were pleased to see as well. And then finally, customer activation. The strength of the LCOD program with, you know, 5,000 to 6,000 consultations a week and a nice conversion rate in there, was a real benefit, comp by personalization. So thrilled with the outcome, and I think there's a lot of things there that are positive momentum that will continue with us into fiscal 2026. When we think about the ticket, particularly, I think you commented on the ticket in BSG. It was not surprising at all to us, that ticket was down and transactions were up. The behavior that we're seeing from that stylist is they still have a fairly healthy book of business. But they continue to buy what they need when they need it. So they're more likely to come in more frequently and pick up those items, which then in turn makes it for a little bit different lower basket. But in total, you know, delivering a little over 1% sales growth, 1.4% comp growth on the BSG side, the relationship with that customer is still extremely healthy. Then, Marlo, maybe you'll talk a little bit about the occupancy leverage, SG&A, for the coming year? Marlo Cormier: Yes. So for the coming year. In Q1, you know, the top line is a bit under pressure from some of the government shutdown, so we'll see a little bit of deleverage there. But as we go through the year, we'll see that leverage improving, and on a full-year basis, we would expect leverage to be fairly similar to last year. Oliver Chen: It'd be helpful to ask you a bit about the consumer environment because it's pretty bifurcated as we see with more pressure in the middle and low. And as you called out, sentiment and government shutdowns on people's minds as well. How is that interplaying? And what might drive comps better than your guidance that feels somewhat conservative, but I know there's a cautious optimism in terms of what you're seeing with the top line. And then second question on the long-term outlook, on your net sales growth of 1% to 3% to operating earnings growth of three to five? Are the leverage points we should think about in that algorithm? Thank you very much on the margins. Denise Paulonis: Absolutely. So let me start with on the consumer front. I think what we've seen today is that the Sally customer is resilient. Continues to respond well to a lot of the key initiatives we have in play, like licensed colors on demand, marketplaces, innovation. We also see the stylist business being nice and stable. Certainly, look forward to them having a very positive holiday season. Underneath all of this, I'd say in particular on the consumer side, we are seeing consumers remain choiceful. That's not new news. And for us, choiceful means continuing to spend in the core color category, but spending a little lighter in styling tools and leaning into value a bit more. We did see a bit of a slowdown on the low-income customer coming into our stores as we've navigated through the forty-plus days of the government shutdown. At this point, we hope that that's transitory behavior. We're certainly watching and monitoring what is happening with that consumer base. But I think if we step back, we just feel really good about the momentum in the business with strategic initiatives driving over 250 basis points of comp this past year. And those continuing into the new year. So focused on innovation, performance marketing, personalization, licensed colors on demand. If we said what could help a little bit more and drive a little bit outsized growth, we always have the potential on the BSG side for expanded distribution, tuck-in M&A that continues to expand our reach, with brands existing or new brand partners that is out there. You know, we're also excited with the work that we're doing on Sally Ignited. We're starting to understand with Wabak just in a few stores today what things we're learning that we can lift and shift. So for example, putting a thousand Sally stores our fragrance assortment kinda coming into holiday. So I think those are things that could trend positive. You know? But we think with what we just witnessed with the government shutdown, it's prudent in the way that we're thinking about Q1, but feel great momentum for the full year. And then, Marlo, do you want to comment a bit on the sales to profit equation, I think, Oliver asked about? Marlo Cormier: Yeah. And I think you were asking to the longer term. And so I think the growth on the top line, on top of that, where we see additional leverage coming and additional growth opportunity the bottom line is certainly through the continuation of our Fuel for Growth program. We have, you know, most of the heavy lifting will be done through the end of fiscal 2026, but it's the muscle memory that will remain within our organization and continue as we go forward. So we'll continue to optimize and leverage the capabilities of our Fuel for Growth program. For incremental opportunities to drive savings for both reinvestment and flow through to the bottom line. And then on top of that, our own brand performance continues to drive those results. Oliver Chen: Thank you. Best regards. Operator: Our next question from Susan Anderson with Canaccord Genuity. Susan Anderson: Hi, good morning. Thanks for taking my questions. I was wondering if maybe you can give us an update on the Sally store remodel program. How I guess, where are you at with the store remodels? Have you completed any beyond the Orlando market? And then maybe if you could just talk about where they're performing versus the core in the Orlando market, and then also if you've completed the ones outside. Thanks. Denise Paulonis: Sure. Happy to provide an update there. So as of this quarter, we kind branded our Sally brand refresh as Sally Ignited. And we think it's a great representation of how our reacting when they're coming into our new stores. Just as a reminder, what are we really doing? It's a physical and digital refresh. It really is about creating a more immersive experience that lets get more discovery in community. The store update in particular really has a new layout. Nail is displayed in a rotunda that's very dramatic as you come into the store. There's a discovery bar to help you in hair color choices. It's fixtures built for a purpose to shop as a specialty retailer rather than a supply store. And there's a cash wrap in the sense that really helps our associates deliver the high-quality service that customers have come to expect with us. Where we are today, at the end of the fiscal year, we had about 30 stores open, which included the full Orlando market as well as a handful of stores in other locations throughout the country. We're doing both of those models because Orlando will let us test kind of a full marketing program tied with the new program. And then when you think about the drop-in markets, we'll have a great ability to read APT results against specific changes that we're making in the stores to understand what's working, what we might do differently. We plan for 50 stores, fiscal 2026 that will let us continue to extend that reach and test and try. Great news is that's within our capital program for the year, because we would have been doing remodels or relocations in a number of stores, and we're really doubling down on Sally Ignited. Specifically on what we're seeing. We love that we're seeing customers have higher dwell time and shop cross-category when they come into the store, which is a great part of the design that we were looking to do. So that hair color customer exploring a nail, that textured hair customer looking and thinking differently about styling tools is what we were trying to drive. In turn, we are seeing UPT as well as ATV. So our units per transaction and our average transaction value higher than the rest of the fleet. That's very encouraging to us and what we hope we'll continue to see as the test progresses. You know? And I'd be remiss not to say, you know, we are working to lift and shift things that we're finding that are working quite quickly into some of our core fleet. A great example of that is the expansion of fragrances into a thousand stores in Sally here for the holiday. Susan Anderson: Okay. Great. Interesting. And then I wanted to maybe follow-up just on the strong growth in color at Sally. I think you had said that you are seeing, I guess, more new low-income consumers coming in. I guess, know, one, are you seeing more people do their hair themselves, and is that guess, you think being driven by just their wallets being stretched and you know, wanting to save some money on that front? And, I guess, are these new consumers as well to Sally? Are they just coming back? And then, you know, while they're in the stores, I guess, you seeing them pick up other products in the stores when they do come in to buy color? Denise Paulonis: Yeah. So we love what's happening with color. In Sally. I'd say the great thing is that we are seeing new reactivated and existing customer growth. When we think about the new customer growth, we think there's an extra benefit from licensed Colorist On Demand. When that customer can get support from an expert to get confidence in what is really a high-stakes category that going to go purchase and take on in your own DIY endeavor. We're seeing that customer come in, and that is fueling some of the growth in the model there's no doubt about that. You know, secondarily, when you think about the customer and them trying to manage their budget, no matter what income level you are, doing your hair in a salon all the time is a very expensive proposition. We recently did a survey, and out of the 61% of customers who told us they color their hair, it was quite fascinating that 25% of them do it just DIY. 25% of them split their time between DIY and salon. So think about that as they might get a big update at the salon and they might do touch-ups at home. And with only that remaining 11, 12% that actually said I only go to a salon. So our ability to have them understand how we can help them get that better out things like our in-store support and our LCOD, we think is driving people into the store, complemented by a great lineup of products and really easy accessibility. Susan Anderson: Yeah. Great. Thank you so much. Good luck with this holiday. Operator: Our next question comes from Simeon with Morgan Stanley. Laureen Ng: Hi, this is Laureen Ng on for Simeon. Thanks for taking our question. Our first one is on the longer-term outlook you provided this morning. Just curious as your fuel for growth initiatives wind down this year, what gives you confidence for achieving that longer-term outlook for the EBIT dollar growth of 3% to 5% range? Denise Paulonis: Oh, yes. Yeah. The longer-term algorithm that we've set forward, you know, certainly, you're seeing this fiscal '26 is on the path to that. Again, a big part of that is our growth drivers on the top line, which will help flow through to the bottom line. But then also adding to that is the full further opportunities within our Fuel for Growth program. Which we've got more runway on our supply chain optimization, further opportunities within our vendor negotiations, as well as the combination of own brand penetration continuing to increase. Laureen Ng: Okay. Great. Thank you. And then just a shorter-term question. On the Sally side, it looks like transactions are still a little bit soft. Can you help us understand how you're thinking about maybe traffic versus ticket? For 26 as it relates to the Sally segment and maybe how your initiatives are positioned to reignite growth for both in '26? Denise Paulonis: Yeah. Transactions in the Sally segment in the fourth quarter were pretty much flat, and our 1.5% sales growth came from a contribution of AUR and ticket coming into the stores. That's actually an improvement from what we've seen of late where traffic had been a bit more particularly on that lower-income consumer side of the business. Looking ahead, into 2026, we expect all the metrics will improve and continue to grow, right, in driving transactions will really be things around our performance marketing and attracting new customers into the fleet, the strength of our personalization and how we continue to enable and fuel that customer insights to really drive customer frequency. And then when we think about the basket itself, this focus on cross-category shopping is a primary effort that we have going on within our stores that I think is complemented nicely by new innovation coming in and the continued driven the continued success in our digital strategy that we've had of late. Laureen Ng: Okay. Great. Thank you. Operator: Our next question comes from Sydney Wagner with Jefferies. Sydney Wagner: Hi. Thanks for taking our question. Can you just share a little bit more about your expectations for category growth? That are underpinning that long-term net sales growth range? Curious kind of what trends and innovations you maybe are expecting to drive the category. And then maybe just an update on the promotional environment. What you saw during the quarter, and maybe what you're expecting into 2026. Thank you. Denise Paulonis: Yeah. So when we think about the long-term growth of the business, we believe color is still going to be at the core of both of our businesses. And we would anticipate continued nice growth in that space. You know, when we look beyond, you know, we're looking to have in the Sally business, care and nails really continue to gain traction. Nail and what we're working on in the Sally Ignited stores is quite dramatic and quite exciting for us and what we're delivering. And on the BSG side, the innovation flywheel, particularly on the care side of the business, is quite strong. But I think the part that's exciting in our long-range plan is how we're working on further category expansion. So when we think about that on the BSG side, we're starting to test into Skin and Spa, which not only can be bought by our existing beauty professionals that are coming into the store, but can expand our base to talk more to estheticians and what they need for their business. And on the Sally side, you know, the opportunity to understand how cosmetics, fragrance, men's grooming can play a larger role in the box and online is gonna be an important part of that category side of growth as well. So all good things that are underpinned by our ability to activate the customer, harvest digital value overall, and then our new growth pathways can help us advance that as well. And then your other question on promotional levels and what we saw in the fourth quarter. In general, I'd say levels for us were fairly similar year over year at both businesses. A little bit of nuance underneath that. You know, Sally running more promos but shorter days. So that idea of, if this is important to you, there is an expiration time on when you can come in and get a certain offer is been something we've been working on. And then BSG ran a little bit heavier in promo, but a part of that as well was strength of what we've been able to do with a lot of our brand partners in terms of preparing for the holiday selling season as we were approaching into the quarter. So we felt good about that. I think one thing that's really interesting that we're doing in Q1 here and the holiday on the Sally side is trying to move the customer a little bit more on the emotional reason to shop with us. So we've historically done more buying the bulk promotions, buying save promotions. And the holiday message platform that we have out there now, which is save while you skip the salon, is really the emotional appeal to say, how can you get the outcomes that you want when your budget might not be able to be perfect to be able to afford all of that? We're really looking to see how that resonates with the customer and are excited about it. Operator: As a reminder, if you'd like to ask a question at this time, please press 11 on your touch-tone phone. Our next question comes from Olivia Tong with Raymond James. Olivia Tong: Great. Thanks. Good morning. Great to hear your confidence in providing the long-term targets. So can you talk about the underlying category growth assumptions embedded in those targets, your market share assumptions? And then how you think about the contribution of existing doors versus some of the newer categories and doors that you're expanding into or entering? And then specific to Q1, the guide is a little bit lighter than we had expected and would be a deceleration versus Q4. You also expect things to improve as the year progresses. So can you talk about the headwinds that you're seeing in Q1 and then how you plan to build over the course of the year to give you the confidence despite the volatile backdrop? Thank you so much. Denise Paulonis: Yeah. Maybe I'll actually do this in reverse order. So I think first and foremost, when we think about Q1, I want to reemphasize we feel great about the underlying momentum in the business. What we've seen in terms of licensed colors on demand, innovation, performance marketing, personalization, we think are all very strong. For the full year, when we think about what underpins that, we assume that the consumer behavior and spending would be very similar to what we saw in 2025, which is choiceful, but resilient. And we still think that that's the case. You know, we are realistic that we do expect that we will have seen some incremental pressure on lower-income consumers in Q1 from the government shutdown. Right? Just the fear of the nature of when I'm getting that paycheck, you know, has an impact on lower-income consumers. And so, you know, we're hoping that we're gonna be past that very soon, but it's reflected in the expectations for the quarter. You know? And I think importantly, the model has really proven resilient with the hair color category at the core. It's really a staple category rather than the discretionary category. So strength there, and we'll remain nimble to respond to changes as the customer starts moving into the selling season. I think on the top line, what the other important part to note is that we move into Q2. We actually are up against an easier compare to last year. So while it's our smallest quarter, recall last year, there were a lot of transitory events whether that was the announcements around tariffs, the very high flu season that hit our stylists quite hard. So we expect Q2 to be a stronger category, because of what we're lapping there. And then the back half of the year to be, you know, on trend and on the base of the business. So I think what we're just doing is we're watchful about how that consumer is spending through this government shutdown period, which is what you're seeing in our Q1 expectation. And your bigger question, I think, was about long-term growth. And what is supporting our long-term growth drivers and that 1% to 3% top-line growth. And our guidance suggests that we'll be on the low end of that range as we move through the year. I talked about on the call, the four key pillars that we're really focused on, which is understanding and activating the customer, unlocking and harvesting digital value, you know, differentiating with products assortment and innovation, which includes category expansion. And then accelerating new growth pathways, which importantly is our Sally Ignited program as well as Happy Beauty. You know, when I think about where we are in the cycle of these different initiatives, I think the thing to think about is all of these are proven track record in what we delivered in FY 2025 with about 250 basis points growth coming of those from comp. In terms of pacing and how we see the progression of impact right, I think what's important to think about is, as we go into '27 and '28, what customer activation can do for us. And this understanding of the customer, being able to respond to that, incorporating how artificial intelligence can help us on that curve, we think the impact in personalization, performance marketing, and our LCOD campaign. I can't overstate the opportunity that we see there and what we're working on and delivering. And then secondarily, I would say is the other big opportunity as you look to the later years within that long-term guidance range. You know, we're already working on how to work how to think about this. So in BSG, we're sampling into Skin and Spa. We're excited about seeing how our customer reacts to that and that ability to attract a new aesthetician customer. And how we might be able to grow that business meaningfully as we look to future years. And then in the Sally side of the business, you know, we think that there's a lot more runway in the nail portion of the business the way that our Sally Ignited stores bring nail to the forefront in terms of what a new customer can experience coming in. We think there's a lot there. And then we expect that we will also start to more meaningfully play in categories like cosmetics and fragrance. In Sally, as well as men's grooming. So that's going to be some things that are gonna go on our growth curve. We expect that we will continue to extremely strong performance in color. It is the core of what we do and the expertise that we have. And then with these other categories of providing underlying growth, our confidence in that 1% to 3% top-line growth is quite solid. I think there's a lot of things underpinning that just for the Sally business as well that when you think about the global scale we have, as well as sticky customers, and great high NPS scores. And we think we're really on the path here to giving those customers what they want and being rewarded in return. Olivia Tong: Great. Thank you. Just one follow-up on what's on BSG. You had mentioned how stylists are buying closer to demand just in time. Imagine you're pretty adept in terms of providing to them. So can you talk about what you're doing to support that given that you have that footprint and capability to do that? Denise Paulonis: Absolutely. So I think the great thing and the strength here is with 1,300 stores across the country, our stylists can easily access us and then we can easily support them. So in addition to being able to come directly into the stores, we do offer two-hour delivery. So if you're engaging digitally and need that product right away, we're there and offer that service for you as well as buy online, pick up in store. For our customers who buy in larger quantities, our full-service portion of our business is still there, to actively serve our customers, and pull through. I think what we're excited about is to make things even easier for our customers a little bit later into 2026, we're actually relaunching our app. And our stylist is heavily engaged in the app. If you ever sat behind, you know, got your haircut, they're on their phone, all the time. It's how they place their orders. It's how they write down what they need. It's they think about how they're gonna serve their customers. Our ability to have that app be more intuitive, faster for them to be able to build a basket so that whether they want to buy online, pick up in store, whether they wanna come shop in store, whether they want us to deliver that product to them, we can handle that in all the ways that we need to. But that idea of supporting speed to market to that is very important to us. Olivia Tong: Great. Thank you. Best of luck. Operator: That concludes today's question and answer session. I'd like to turn the call back to Denise Paulonis for closing remarks. Denise Paulonis: Well, thank you for joining us all today, and thank you to our teams around the world for delivering a strong quarter and a strong year. But most importantly, supporting our customers and helping them get the looks that they love what they like to achieve in their own personal life. So thank you to everyone, and an early happy holidays. And we'll talk to you again next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the NextPlat Corp 2025 Third Quarter Earnings Conference Call. Certain statements made during this conference call constitute forward-looking statements. These statements include the capabilities and success of the company's business and any of its products, services, or solutions. The words believe, forecast, project, intend, expect, plan, should, would, similar expressions, and all statements which are not historical facts are intended to identify forward-looking statements. These forward-looking statements involve and are subject to known and unknown risks, uncertainties, and other factors, any of which could cause the company to not achieve some or all of its goals, or the company's previously reported actual results. Performance, financial or operating, including those expressed or implied by such forward-looking statements. More detailed information about the company and the risk factor forward-looking statements that may affect the realization is set forth in the company's filings with the Securities and Exchange Commission, the SEC. Copies of which may be obtained from the SEC's website at www.sec.gov. The company assumes no and hereby disclaims any obligation to update the forward-looking statements made during this call. Joining us on the call today are David Phipps, Chief Executive Officer and President, Amanda Ferriero, Chief Financial Officer, and Barut Norkut, Vice President of Healthcare Operations. I'll now turn the meeting over to David Phipps for his opening remarks. Good morning, and welcome to NextPlat Corp's Third Quarter 2025 Earnings Call. Thank you for joining us. David Phipps: Objective today is to highlight many of the changes that we've undertaken in the third quarter, many of which will be more fully realized on a sequential basis starting in 2025 and throughout fiscal year 2026. Although our results of operations for the third quarter 2025 are not what we would have liked, we believe that our efforts resulted in favorable operating expenses and cash outflows. An improvement in our pharmacy and e-commerce revenue and profitability. Operationally, improvements were evident late in the third quarter and have continued into the fourth quarter. A positive trend we expect to continue. After I recap the developments in the third quarter, Barut Norkut will discuss activities in our Healthcare segment. Amanda Ferriero, our CFO, will discuss our financial results. Then I will provide some concluding high-level remarks on our long-term objectives and developments, which we believe will positively drive the business forward. After that, we will then conclude the conference call by responding to questions that were submitted by our shareholders. Before I start, I would like to comment on our latest leadership updates. First, I wish to thank Cecile Munnik for her efforts as CFO leading our financial team and for her support during our transition to our new CFO, Amanda Ferriero. I also wish to welcome Barut Norkut as Vice President of Healthcare Operations who is joining us on this call today. Now, in terms of the business as we discussed with you during our last earnings conference call, and in our recent CEO shareholder updates. Our team has been busy implementing a series of actions designed to improve operations, reduce costs, and grow the business. As I stated earlier, although overall results for the third quarter do not reflect the full impact of our efforts, we did see meaningful improvements to operating metrics in September and we believe they will be more fully clear in our results for the fourth quarter and into next year. For those of you that are new investors in our company, I'd like to review NextPlat Corp's business model. This is built around three core segments. Healthcare services through our PharmCo Rx pharmacies, communications products and services through our global Telesat, Orbis and Satcom, and Outfit of Satellite subsidiaries, and our e-commerce development program supporting the sales of US-produced products into the Chinese market. Provided an extensive review of these segments in our recent shareholder letter released on October 8. You can find this on our website. I'd like to now provide a further update on our progress since that date. Most of which is reported in more detail in our quarterly interim financial report on Form 10-Q, which we have just released. Our Healthcare segment, we're continuing to see improvements resulting from our cost reduction efforts, and additional investments in business development. To illustrate these improvements, Amanda will provide the third quarter to second quarter review of the financial results. Overall, we're realizing significant revenue and profitability improvements from our business development initiatives started in the second quarter. This is highlighted by new contracts with a state prime contract holder and expanded business within the 340B space. Our leadership team has been successful in reengaging with a number of important clients who have, for various reasons, reduced business with us over the last few quarters. These efforts have already contributed to improved prescription volumes late in the third quarter, and into the early part of the fourth quarter. Barut Norkut will provide more insight into our health operations in a moment. In our e-commerce and communications segment, these are the most recent highlights. During the quarter, our e-commerce segment continued to see robust sales for satellite-based connectivity and IoT products, through our various e-commerce sites, as well as high-margin recurring revenue, which continues to run at record levels. We are continuing to expand our portfolio of cutting-edge connectivity products, and we grow our customer, consumer, and enterprise base with new and existing relationships. Operator: Relationships. David Phipps: Recent highlights here are the selection of GTC as the exclusive distributor for personal messaging and tracking products by a leading global satellite network operator for countries in the Nordic region. And the initial sales of Starlink products in the US through our Outfit for Satellite Unit. Sales of OPKO Healthcare branded human health and wellness products in China continue to show good sell-through despite lingering challenges of limited inventory levels. We are currently experiencing record sales volumes of OpCo products during the current 11/11 event, the world's largest sales event. In September, we also launched our Florida Sunshine range of nutraceutical products in the UK and the EU, and we began processing orders via Amazon Shopify e-commerce storefronts. Launching a new brand in new markets always takes time. And therefore initial sales are very modest as expected. But we are excited to be preparing the launch of an AI-driven marketing campaign for Florida Sunshine in partnership with an experienced healthcare brand marketing firm and to advancing our storefront on Alibaba's Tmall store in China. Now we've been approved to sell in the country. Now I'd like to turn the call over to Barut Norkut for her update. Barut Norkut, over to you. Operator: Thank you, David. Barut Norkut: As David noted in his opening remarks, our third quarter financial results reflect continued weakness across several areas. That said, we began to see a meaningful turnaround during the quarter, most notably in our 340B line of business. This momentum has continued through October, and we expect it to carry into the fourth quarter. To date, we have reduced our employee headcount by 50 since the start of the year, resulting in approximately $200,000 in monthly payroll savings inclusive of new hires added during the year. We expect payroll expenses to continue to decrease throughout the remainder of the year. Our 340B business has delivered a strong and sustainable rebound, driven by targeted service improvements and stronger customer engagement. Former clients have returned, new covered entities have joined us, and together, these factors have produced meaningful gains in both volume and revenue. In October, we dispensed more than 1,600 340B prescriptions, a significant increase, resulting in over 140% rise in monthly 340B contract revenue when compared to our lowest month earlier in the year. Our retail prescription business is also gaining momentum, with volumes up 27% from the low experienced earlier in 2025, supported by the new government pharmacy service contract and more consistent operational performance. These improvements have strengthened confidence among both existing and new clients as delivery times have shortened and customer response rates have improved significantly. Collectively, these advances have enhanced efficiency, customer satisfaction, and overall reliability, positioning us well for continued growth through the fourth quarter. Looking ahead, our focus will be on optimizing inventory levels and purchasing intervals to improve working capital efficiency. We also implemented key personnel changes in logistics to enhance performance and reduce delivery costs. These actions are expected to generate more than $1,500,000 in one-time cash savings through the return of excess inventory to our supply. While there is still work ahead, we are encouraged by the progress achieved and the solid foundation we're building for our future growth. The initiatives now underway are creating opportunities to further enhance efficiency, expand our capabilities, and strengthen long-term financial and operational performance. That concludes my remarks. Back to you, David. Operator: Thank you, Barut. David Phipps: At this point, I will turn the call over to Amanda to discuss our financial results for the three and nine months ended 09/30/2025. Over to you, Amanda. Amanda Ferriero: Thank you, David. Good morning, everyone. It's a privilege to join you today for my first earnings call as Chief Financial Officer. I will now walk through our consolidated financial results. For the third quarter ended 09/30/2025, we reported total revenue of $13,800,000 compared to $15,400,000 in the prior year quarter, representing an 11% decrease. The decline was primarily driven by lower contribution from our Healthcare Operations segment, which experienced a decline of approximately $1,500,000 while our e-commerce segment experienced a modest decrease of about $100,000. Within our Healthcare Operations segment, pharmacy prescription revenues increased by approximately $400,000 or 5% to $9,500,000 for 2025 when compared to the prior year period. This improvement was driven by higher reimbursement rates per prescription which offset the decline in total prescriptions filled, about 96,000 this quarter versus 128,000 a year ago. However, comparing 2025 to 2025, prescription volume increased by roughly 5,000 prescriptions resulting in a revenue increase of $1,300,000 or 16%. Our 340B contract revenue for 2025 decreased to $600,000 from $2,500,000 in the prior year quarter. This was due to transitions of certain covered entities to other pharmacy partners and their exit from the program or in-house sourcing. When comparing Q3 to 2025, 340B contract revenue declined by approximately $400,000. In e-commerce, revenue totaled $3,700,000 compared to $3,800,000 in the prior year quarter, a modest 4% decline. The decrease was mainly related to lower hardware sales which were partially offset by favorable foreign currency impact. Gross profit margin for the quarter was $2,700,000 compared to $3,600,000 in the prior year quarter. That represents a gross margin of 19.9%, down from 23.2%. The decline reflects softer performance in both segments, primarily due to reduced 340B contract revenue in Healthcare Operations and increased airtime costs in our e-commerce business following the expiration of a legacy service provider contract at the end of 2024. As we described earlier in this call, operational changes instituted during the third quarter have led to efficiencies and improvements that resulted in significant cost reductions. Total operating expenses decreased by nearly 40% to $4,700,000 compared to approximately $7,800,000 in 2024, which is excluding a non-recurring impairment charge of $3,700,000 in the prior year. Salaries and wages declined by approximately $800,000 due to lower stock-based compensation, reduced executive compensation, and a leaner workforce. Professional fees also decreased by about $1,800,000 reflecting lower legal and consulting costs. During 2025, we began repurchasing our common shares under the authorized share repurchase program. A total of 130,549 shares were repurchased and are being held as treasury stock. We ended the quarter with $13,900,000 in cash and working capital of $18,900,000. While we continue to experience net cash outflow during the quarter, we expect to significantly reduce our cash burn going forward as a result of the operational improvements mentioned earlier. In summary, while the quarter reflected some top-line pressure, our results demonstrate continued progress in streamlining our cost structure, improving efficiency, and preserving liquidity. As we look ahead to the fourth quarter, our focus remains on disciplined expense management. As David and Barut mentioned, we're advancing several initiatives aimed at achieving lasting cost savings. We all remain fully committed to improving operational efficiency and strengthening our financial foundation. I encourage you to review our financial statement as contained in our quarterly report on Form 10-Q filed with the Securities and Exchange Commission. That concludes my remarks on the financial results of the business. Back to you, David. Thanks, Amanda. David Phipps: At this point, I would like to provide some closing thoughts. Our progress against our refocusing and cost-cutting efforts had only a slight impact on the third quarter, which still largely reflects the ongoing state of the business without the benefits of the many positive developments discussed today. As such, we would review Q3 results as the low point in our business and believe that going forward, our efforts will begin to make more meaningful sequential impact across multiple operational metrics starting in the fourth quarter and continuing through next year as we advance towards our goal of achieving operational breakeven in 2026. In the shorter term, our efforts include continued emphasis on growth of profitable business lines through commitment of capital to marketing and sales efforts. We continue to add new contracts in both our communication and healthcare segments that will come online during Q4 2025. Although we see continued progress in our 340B and long-term care business, development efforts with new contracts coming online. We see opportunities for continued improvement here. Finally, we have further committed to invest in critical areas of the business. Some specifics here include adding to our sales team during the fourth quarter, enhancing our business development efforts, and as previously mentioned, recruiting the long-term care sales team so that we can capitalize on the opportunities we see in this part of the market. That concludes our formal remarks. We can now conduct the Q&A portion of today's call. We have again asked investors and shareholders to submit their questions in advance. And we would like to thank all of you who did. Question number one. What are the current plans for the buyback? Do you intend to increase the level of activity and pace? At this point in time, the program is still available. And as such, we continue to monitor the market. Please note, as we have said, we intend to be prudent in terms of deploying our available cash for the repurchase of shares. As we do have other critical investments we intend to make as described earlier today. As is our policy, we will provide an update on this program in our fourth quarter report. Question number two. How does the additional 180-day extension from Nasdaq change your plans to increase the stock price to regain compliance? We are pleased to get this extension, but in the very short term, it doesn't really change plans. We remain focused on improving our financial results, which will be critical for investors' confidence in our company. We do believe, however, starting early in the New Year, that we will have opportunities to be more proactive in engaging with new investors and we're looking at a number of events and activities. Question number three. Have your views on China changed given the lingering uncertainties? As we have said previously, tariff-related challenges are something we are dealing with. However, for non-US made products like OpCo, there are still opportunities. When we get inventory into China, it sells quickly. So even when you factor in high marketing costs, we're still able to generate very attractive margins. In terms of expanding our efforts with the optical animal products, the slow approval process is frustrating. But we continue to see strong demand overall for OpCo products. And we intend to still pursue these products as soon as we get approval. After Florida Sunshine, our Tmall store has now been approved. And we'll be shipping our first batch of products as soon as we clear some import certification requirements. Question number four. Can you comment on the status of the ongoing lawsuits? Cannot comment specifically on the ongoing litigation other than to say that as of today, we have resolved two of the matters and are working with counsel to resolve the final matter as quickly as possible while protecting the long-term interest of our shareholders. That was the final question that we received from investors. Thank you all again for submitting. Please remember that you can submit your questions on our Investor Relations email which is investors@nextplat.com or with our IR contact listed on our press releases. Michael Gretman, at mike@mwgco.net. That concludes our earnings conference call. We look forward to continuing to share with you our progress in the weeks and months ahead. Have a nice rest of your day. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Good morning, and welcome to the PAVmed's Third Quarter 2025 Business Update Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Thursday, November 13, 2025. I would now like to turn the call over to Mr. Matt Riley, PAVmed Senior Director of Investor Relations. Please go ahead. Matt Riley: Thank you, operator, and good morning, everyone. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of PAVmed, along with Dennis McGrath, Chief Financial Officer of PAVmed. The press release announcing our business update and financial results is available on PAVmed's website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update, press release, and the conference call all include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in this disclaimer and our filings with the SEC. For a list and a description of these and other important risks and uncertainties that may affect future operations, see Part 1, Item 1A, entitled Risk Factors in PAVmed's Most Recent Annual Report Forms 10-Ks filed with the SEC, and any subsequent updates filed in the quarterly reports on Forms 10-Q and subsequent Forms 8-K. Except as required by law, PAVmed disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions, or circumstances on which the expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statement. I would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of PAVmed. Lishan Aklog: Thank you, Matt, and good morning, everyone. Thank you for joining our quarterly update call. I would like to thank our long-term shareholders for your ongoing support and commitment. Before we delve into our recent operational highlights, as I have in the last couple of calls, I want to just remind you that over the past now eighteen months, we've been taking some really critical steps to stabilize PAVmed's corporate structure and balance sheet. We did a restructuring of debt in the early part of this year. And we've been working on that. But there's still work to be done on that front. We have a couple of additional steps we think we're going to be able to consummate in the very near future, whereby following that, we think PAVmed will be fixed and we'll be back to the original proposition where PAVmed will be really well positioned to operate per our vision as a diversified commercial life sciences company. With multiple independently financed subsidiaries operating under a shared services model, it'll give us the opportunity to start building that portfolio beyond our two major main commercial subsidiaries right now. So, let me just talk about that briefly. I'll provide a brief overview of PAVmed's portfolio. PAVmed is a vehicle to deliver innovative medical technologies, and we continue to operate under a shared services model. And as our subsidiaries succeed, particularly Lucid, PAVmed should also succeed. So let me just start with Lucid. Lucid's obviously our main asset. It's a publicly traded diagnostic company. And it's on the cusp of a transformative milestone, particularly Medicare coverage. It continues to succeed at raising its own capital, including this past quarter. And in that, it has sufficient runway to accelerate its commercialization once Medicare coverage is secured. I'll talk more about Veris in much more detail later. But Veris is our digital health company that offers a cancer care platform to enhance personalized care for cancer patients who are initiating and undergoing systemic treatment with chemotherapy and immunotherapy. We made a big move earlier this year where we were able to secure financing that's allowed us to bring our project plans forward to develop the key implantable device, and an FDA submission is planned for next year. As we talked about on previous calls, we have started to make some effort to bring other technology within our portfolio, as well as others that we have access to. And we are in the process of organizing around that and seeking to raise capital around that. And this sort of final steps of our restructuring that I mentioned earlier we think will put us in a very strong position to be able to continue to build these subsidiaries, to finance them, and to pursue very promising assets across the life science sector that we're actively pursuing. One of those technologies which we mentioned in a press release earlier this year was an exciting technology that involves a licensing agreement, a partnership with Duke University and the University of North Carolina. And it's an Endoscopic Imaging Technology for esophageal pre-cancer that can provide real-time detection of dysplasia, or advanced precancer, with the potential to completely transform the way that's treated and to do so at the same time as a diagnostic procedure. We're partnering with Dr. Adam Wax at Duke, who pioneered this technology, and Dr. Nick Shaheen from UNC, who's working with him closely. This fits within our partnership model, the same one that we launched Lucid and Veris. We are in the final stages of finalizing the license agreement and looking for building a team around this technology and a pathway towards the early stages of product development, finalizing regulatory strategy, and really just sort of getting this project, which we're really excited about, off the ground. Let's get into the operational side of things. I do encourage you to, as always, to listen to yesterday's Lucid Business Update Call for greater detail on some of these areas. But the main takeaway for Lucid is that we are now better positioned than ever to capitalize on EsoGuard's large market opportunity, a large clinical opportunity. And their near-term milestones, which we believe will ultimately positively impact PAVmed as PAVmed remains the largest shareholder of Lucid. EsoGuard revenue was $1.2 million for the quarter, and tests were just over 2,800. Both of those are in line with last quarter. Our volume has been consistent with the target range of 2,500 to 3,000 tests that we've articulated that we are seeking to maintain to facilitate our engagement with commercial payers while we await Medicare coverage. The big highlight, as we talked about on our Lucid call, was that Medicare contractor meeting that was held in September. It was wildly successful. The experts unanimously endorsed Medicare coverage for EsoGuard. This is really the final step towards what we believe is near-term Medicare coverage for that test. We also raised capital and strengthened the balance sheet for Lucid, an underwritten public offering of just under $27 million in proceeds. And so, as I mentioned earlier, the extensive runway through 2026 was a very strong investor interest and confidence, including institutional investors and insiders, and bodes well for Lucid's ability to execute on its strategic plan. So let's move on to Veris. So the most important development this past quarter was that we launched the commercial phase of our strategic partnership with OSU. If you may recall, we've got a long-standing working relationship with OSU where we completed a pilot study. The study was very successful. The technology was found to be valuable to their patients, meeting all objective measures and predefined performance criteria. And so we are in the commercial phase. We are finalizing EHR integration, but we've already started to proceed with building the commercial side of things with the initial three departments within OSU's James Cancer Center, now launching this in a broader patient population beyond the pilot. And the agreement targets 1,000 patients in the first year that will be enrolled in the registry. We've also, after completing our financing, fully relaunched the development work on the implantable physiologic monitor and to work towards the 2026 FDA submission. We've locked down or restarted or locked down new vendors for that product development, and it's actually going quite well. And Veris is sufficiently capitalized to fund that development all the way through FDA clearance and subsequent commercial launch. So that's going really extremely well, and we're looking forward to getting that wrapped up in 2026. So beyond that, now that Veris is stabilized, it's well-capitalized, the implantable is on its way, we've gotten a really solid proof of concept with regard to our commercial partnership with OSU. We are working on executing an expanded strategy for Veris. We're not necessarily going to wait for the implantable to do so. So, we have an opportunity now that we have the template from OSU to expand our commercial offering to include other academic medical centers. And as part of that, we are incorporating the lessons that we've learned from our engagement with OSU as we launch engagement with other centers to provide value-added to these centers, an offering that goes beyond simply remote patient monitoring. And the economics and the business model around that. So, one of the things that we've learned over the past year is that clinical support services are really important. Ohio State has a call center, and we've learned how to interface with them so that the alerts that come from the platform are processed in an efficient way. But many centers don't have that, don't have call centers. And any type of digital health tool can actually be somewhat overwhelming to the personnel with regard to alerts and so forth. So, we've hired our first full-time physician assistant, and we're looking to build a clinical support team around that to provide such clinical support services as a value-added service to our commercial partners, whereby our team will be able to provide varying levels, a menu of varying levels of clinical support to triage alerts that come through the system. And to make the process of incorporating our platform much more efficient and consistent with the personnel needs that these centers have. So that's a really important additional value-added offering that we're looking to provide. Another one is, really, we're seeking to transform Veris beyond just remote patient monitoring to actually become a modern-day AI-based company where we can provide AI-based clinical decision tools that help these physicians just manage their care patients better, manage them more cost-effectively, improve outcomes, improve the economics of healthcare delivery, and so forth. And we've had a very intense internal process where we've mapped out what we intend to do. And we are looking to build the stratification tools that will provide such input AI-based input to the practitioners, and we're looking to partner with OSU to build and train such a decision tool that will be ultimately fully integrated within the platform. And again, provide value to the center beyond the simple billing around remote patient monitoring. So with that, I'll hand the call over to Dennis for an update on our financials. Dennis McGrath: Thanks, Lishan, and good morning, everyone. Our summary financial results for the third quarter were reported in our press release that has been distributed. On the next three slides, I'll emphasize a few key highlights from the third quarter. But I encourage you to consider those remarks in the context of full disclosures covered in our quarterly report on Form 10-Q as filed with the SEC. As a couple of reminders, as our financials, particularly the income statement with year-over-year comparisons, will, this last quarter, illustrate periods before September 10, 2024, with Lucid's operating results being consolidated into the PAVmed results. Versus the presentation of the 2025 periods they are without Lucid's operating results being consolidated into the PAVmed financials. We do present some supplementary information in footnote four of the 10-Q that will help with some of those comparisons. So with regard to the balance sheet, you'll recall from our investor update call since this time last year that the company was engaged in a multistep to regain compliance with Nasdaq listing standard for minimum equity, which it did in February. And also position the company for longer-term financial stability. The two key components were deconsolidating Lucid from PAVmed consolidated finance statements and restructuring our debt whereby we exchanged about 80% of our outstanding debt for a new series C preferred equity. The slide reflects the balance sheets where the third quarter and second quarter of this year, both after deconsolidation which again occurred in 2024. So a couple of key things to point out each of these balance sheets. First, the cash burn rate of $900,000 for the third quarter reflects the various operating costs, including approximately $500,000 outside contractor development costs associated with the implantable device, which had been funded by the two Veris-related financings, namely $2.4 million in the first quarter and $2.5 million in the second quarter. Support the development and FDA submission of Veris's implantable device. Secondly, the equity method investment balance of $32 million as of September 30 reflects the 31.3 million Lucid shares mark to market and reflects a $4.4 million sequential reduction consistent with the change in Lucid stock price. This amount was previously eliminated from PAVmed's balance sheet prior to the deconsolidation for most of the quarterly periods in 2024. Note, there's plenty of information in the 10-Q and 10-K on both the debt exchange series C preferred stock, and the equity method treatment of PAVmed's investment in Lucid shares. At present, PAVmed continues to be the single largest shareholder of Lucid Diagnostics with ownership of approximately 23% of the common shares outstanding. Although PAVmed no longer has voting control, Lucid PAVmed, its board, and its management still have significant influence over Lucid with a 28% voting interest. Shares outstanding today including unvested restricted stock awards, are approximately 29.7 million shares. The GAAP quarter ending outstanding shares of 23.1 million are reflected in On the slide as well as on the face of the balance sheet in the 10-Q. GAAP shares do not reflect unvested RSA amounts. Additionally, we issued 25,000 series C preferred shares as part of the debt restructure at the beginning of the year. To date, approximately 4,300 series C have been converted to approximately 11 million common shares. If the balance were converted at the contractual $7 conversion price, an additional 20.5 million common shares would be issued. Next slide, please. Similar to the past presentations, this P&L slide provides some GAAP and non-GAAP year-over-year quarterly and annual comparisons. As cautioned earlier in my comments, there are some significant differences in how the information is compiled between comparative periods given the changes in PAVmed's financial control have boosted. Importantly, the GAAP construct for deconsolidating Lucid on September 10 of last year somewhat blurs the historical understanding of the information for PAVmed as a standalone entity, and GAAP does not allow the presentation for prior periods on the face of the financial statements to be similarly adjusted. Although as mentioned, there is some supplemental information in the footnotes. On a pro forma basis and purely for illustrative purposes on the slide only, the Veris revenue and the Lucid management fee income are combined collectively more than $3 million a quarter to visually align PAVmed's income sources versus its operating expenses. For SEC reporting purposes, the MSA income is a below-the-line item. Furthermore, for the third quarter, you see on the slide and in the 10-Q a GAAP net loss of $6 million before NCI and before preferred dividends. This includes a noncash loss of $4.4 million for the change in fair value of the equity investment. And together with the preferred dividend stock-based comp reconciles to a non-GAAP loss of $446,000. Basically, the equivalent to the incremental contractor development cost for the Veris implantable device. Happy to answer any detailed questions on the slide in the Q&A, but think it's more informative to look at the third quarter standalone information presented in this slide and in and the full third quarter information presented in our press release that shows the company baseline bias of operating at cash flow breakeven and incurring incremental PAVmed expenses for development activities that are offset by dedicated funding. So in the third quarter, you see a non-GAAP loss of $446,000 which has been funded in part by the NIH grant proceeds of $1.1 million since the end of last year, and $4.9 million of PAVmed Veris financing earlier this year. Non-GAAP operating expenses for the last four quarters have averaged approximately $4.4 million with very small variation from quarter to quarter. Next slide, please. With regard to non-GAAP operating expenses, on the slide, you see a graphic illustration of our operating expense over time as presented in more detail in our press release. The non-GAAP OpEx since the Lucid deconsolidation last year has been nearly flat for the last four quarters. OpEx increases moving forward are likely to be tied directly to the R&D efforts to get the Veris implantable device submitted and cleared by the FDA for which the recent Veris-related financings are supported. With that, operator, let's open it up for questions. Operator: Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the following process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. At this time, there are no questions. I will now turn the call over to Dr. Lishan Aklog. Please go ahead. Lishan Aklog: Great. Thank you, operator, and thank you all for joining today. Let me just restate something that I stated earlier that PAVmed was founded to be an engine of innovation that's capable of ingesting groundbreaking technologies and advancing them. And although Lucid is really in a great position and Veris is progressing well, our ability to consummate this broader vision has been constrained by capital markets and structural challenges. It's taken a series of steps which Dennis has outlined over a period of time to address these. And we really feel like we are now poised to complete that work, we can reignite the broader vision and continue to pursue the next Lucid, the next Veris. And we really have some excellent prospects, some of which we've talked about, the Duke technology and others waiting in the wings for us to finally transition back to the original vision of PAVmed. We look forward to that, and we look forward to continually continuing to address those opportunities and finalize this restructuring that has put us in a position to expand those horizons. So with that, oh, actually, it looks like we have somebody back in the Q&A. Should we bring him in? Yeah. Let's go back to the operator. I believe we have one question around the Q&A that we'd like to address. Operator: We do have one question. It does come from Anthony Vendetti from Maxim Group. Please go ahead. Anthony Vendetti: Great. Thank you. Hi, Anthony. Good morning. Dennis McGrath: Hi, Dennis. Lishan, I was wondering if you could just talk about where you exactly are with the implantable monitor. Are there any other clinical steps necessary other than, you know, completing the OSU trials and so forth? Or... Lishan Aklog: Yeah. Yeah. Let me just jump in if that's okay, Anthony. So the development of the implantable, remember, the implantable is an implantable device that allows the physician to implant an intracardiac cardiac implantable cardiac monitor in conjunction with a port at the time of the beginning of therapy. Although we have part of our strategic partnership with OSU involves them being the first site and them doing the initial pilot work once the implantable is cleared. The development work actually is unrelated to our relationship with OSU. So we, with the financing that we secured earlier this year, we have relaunched the development that had been on pause when we were awaiting access to capital to do so. And that relaunch actually included us transitioning to a new development and manufacturing partner who has extensive experience with making such implantable devices such as stimulators and others. And so, we've transitioned. We've launched that product development work with this new partner, going extremely well. And, you know, there's a variety of just bread and butter engineering work that's required to get us to a final to complete that part of the development work and get us into a position to submit to FDA. You had mentioned, you had asked about the, I think, clinical trials. So one of the things that we have been doing was we've had an ongoing engagement with FDA over many, many meetings to establish first our preclinical requirements of animal studies that have been ongoing and will continue to be ongoing as part of this work. And that was already previously locked down. The final step, which I think we talked about in our last call, was to get a final sign-off from FDA on any clinical work we would need to do. Since the predicate, this is a 510(k). Since the predicate here is an existing implantable cardiac monitor, the clinical requirements were actually quite modest. And we did eventually work with the FDA to establish that the only clinical data we'd need is what we refer to as a skin study. So instead of having to implant the device to perform this study, we can actually just stick it on the skin and measure its ability to detect primarily the cardiac rhythm. And show that it's equivalent to the predicate. So it's a pretty straightforward simple, small study that'll be required as part of that. That's not the rate-limiting factor. Frankly, the rate-limiting factor between us and a submission is all of the development work, the traditional biocompatibility, packaging, things like that, that are things that typically use up the clock. Anthony Vendetti: Okay. Great. So this should, it sounds like with the predicate, it should be, I'm not saying anything with the FDA's routine, but should be relatively routine versus if you were using a version device. Lishan Aklog: Yeah. Yeah. I mean, it would, I think it's fair to say that the path is very clear. The requirements are clear. It's just we just need to execute on it. I think there's very little uncertainty as to what's required. There's really good guidance from FDA on what they expect for these kinds of devices. So we have a very carefully tuned regulatory strategy that's designed to really leverage this predicate carefully. And there's always opportunities in the future to seek additional indications, expanded language, and things like that. So we're pretty happy, we're extremely frankly with the path that we have ahead of us and expect it to be straightforward. Anthony Vendetti: And I know the focus is on that and OSU, but is it too early to start having commercialization conversations with other cancer centers, or are you going to wait a little bit longer until even though, like you said, it should be relatively straightforward with the FDA? Are you going to start having those conversations? Lishan Aklog: So that was what I was trying to... Yeah. That was, sorry. I interrupted, Anthony. That was what I was hinting at earlier. So let me just kind of restate it a little bit more directly. So the answer to your question is yes. When earlier in this year, you know, as we were able to finally secure some capital to develop this, our strategy had been one of just sort of sticking to the OSU partnership, you know, getting a bunch of commercial experience there and waiting until the implantable to broaden our commercial activity. We've shifted that strategy. So that's no longer, we really do believe given how well things have gone with OSU, that we are in a position starting in the first quarter after we've had some volume at OSU to start looking to expand at other centers. And the key factor there, you know, it's not like we haven't had ongoing conversations and solicited other centers. We just didn't do it very aggressively because we knew that we had limited capital for commercial expansion over the last couple of years. But one of the things that we learned will be key in that is one of the things I mentioned, is to offer not just the software platform, ultimately, not just the implantable, which is economically a very attractive thing for them. But to offer some additional value-added, have a bit of an expanded vision for the offering from Veris. And one of those things includes offering clinical support services. As I mentioned earlier, to really streamline and make more efficient the process of using our platform. Hospitals, cancer centers, including cancer centers, are pretty overwhelmed. The clinicians are pretty overwhelmed. They're understaffed. And although there's clear clinical value in the data and having those continuous data that is sent to them to monitor their patients, often they're strapped for personnel time to be able to interpret these alerts and so forth. And, you know, it's put within while we were soliciting other accounts, it became clear that us being able to centralize that and offer clinical support services, it was essentially to be able to triage alerts. So if there's an alert on our system that says, you know, the patient's temperature is rising or they're reporting certain symptoms that may be consistent with a complication of chemotherapy, to be able to offer the account value-added service that they can kind of select from a menu to have a clinician, our clinician, be the frontline to check in with the patient and sort of sort it out and then pass the baton on to the clinical team. Lots of interest in that. And so we're going to start building that. We have our first PA who's going to be working closely with OSU on that. And we think there's a real opportunity and a real revenue opportunity around that as well. And then the other thing which we're going to not wait for the implantable on and we're going to start working on our AI-based tools that can provide value-added both from a clinical point of view and economic point of view for the client. That we do expect to work closely with OSU on because those products, as I assume you know, require clinical data to train models and so forth. So for us to build a risk stratification tool that can predict which patients on a particular chemotherapy or immunotherapy are at risk for rehospitalization or for complications. That's extremely valuable, but that will require training with data that we would expect to we'd be able to partner with, that we're planning on trying to partner with on that. So all those activities are going to start gearing up in the first quarter even before we have the implantable. Anthony Vendetti: Okay. Great. Great. Great. No. That's great clarity. I appreciate that. And then lastly, is the letter of intent for the endoscopic imaging technology. And I know LOI sometimes, you know, doesn't result in a definitive agreement. But do you have some exclusivity with this LOI? And what's the timing do you believe that it could lead to a definitive agreement? And then would you first take that in, it sounds like because it's, you know, in the PAVmed press release, would that first go into the PAVmed portfolio and then would there be a plan to eventually shift that to Lucid Diagnostics? Lishan Aklog: Great. Lot to unpack there. So just let me know if I missed anything. So the first answer to your question is that now this LOI will translate into a licensing agreement. And it's forthcoming very, very soon. We're in the final stages of ironing out that language. So we expect to sign the definitive license agreement for this technology very, very, very shortly. That will be within a subsidiary, a separate subsidiary of PAVmed to advance the technology through some additional development work and then ultimately through an FDA submission and clearance. That work will begin immediately upon us signing the license agreement. There's development work to be done that will be done at the laboratory where this technology is being developed at Duke. To try to make some adjustments to sizing. Just maybe a little bit of background, we haven't spent a lot of time on this. This is technology that has actually been used in humans. One of our longtime colleagues and partners, Dr. Nick Shaheen, is a PI in our studies and the head of Lucid AB. Is the clinical gastroenterologist who's been working with Duke on this. So they've used this in humans and have demonstrated its efficacy in being able to detect dysplasia at the time of a diagnostic endoscopy. There's additional design work to kind of, so from a form factor point of view and how it sort of snaps together with the endoscope and so forth, that will be supporting at Duke. And once that has been completed, we'll transition it into a commercial product development pathway and then ultimately submit. We do have a regulatory. We've finalized our regulatory strategy around how to pursue this. We are convinced this is also a 510(k). It'll likely require a small clinical study. But nothing, you know, nothing too large or resource-intensive. So that's the plan. So it's coming. We're going to get this thing done. It's just, yeah, dotting i's and crossing t's on the documents. Anthony Vendetti: Understood. Perfect. You sorry. You had mentioned the relationship with Lucid. Sorry. I forgot. Lishan Aklog: Yeah. So look, the, you know, obviously, Lucid is in the space. These are patients that EsoGuard will be finding, right, who will be undergoing a confirmatory endoscopy based on a positive EsoGuard test that will require an endoscopy to determine whether they're a true positive and if they're true positive, where they are along the spectrum for further follow-up, right? So clearly, the work of Lucid is linked to the application of this technology. We've decided for the time being to keep it separate. Lucid has plenty on its plate. It's super late kind of positioned as a molecular diagnostic company. Lucid, there's an agreement with between Lucid and PAVmed for a modest equity position in the subsidiary. So Lucid will have upside on that. And then when it's near commercialization, we'll decide, you know, sort of what the right pathway for it. If there's synergies that make sense at the time with Lucid, we'll pursue that. If it's a distraction to Lucid, we'll pursue it separately. Anthony Vendetti: Okay. Great. Thanks for all that color. Appreciate it. Lishan Aklog: Great. Thanks, Anthony. So with that said, let's wrap things up. Just would like to again encourage you to remain connected to us and our progress. So follow our press releases and these quarterly update calls. Subscribe to our email alerts and just contact us by phone if necessary. So thank you very much, and everybody have a great day. Operator: Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation and you may now disconnect. Have a great day.
Operator: Ladies and gentlemen, thank you for joining us and welcome to the Better Home & Finance Holding Company's Third Quarter 2025 Results Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press 9 to raise your hand and 6 to unmute. I will now hand the conference over to Tarek Afifi, Corporate Finance at Better. Tarek? Please go ahead. Tarek Afifi: Hello, everyone. And welcome to Better Home & Finance Holding Company's third quarter earnings conference call. My name is Tarek Afifi, on Better's Corporate Finance team. Joining me today is Vishal Garg, Founder and Chief Executive Officer of Better. In addition to this conference call, please direct your attention to our third quarter earnings release, which is available on our Investor Relations website. Also available on our website is an investor presentation. Certain statements we make today may constitute forward-looking statements within the meaning of federal securities laws that are based on current expectations and assumptions. These expectations and assumptions are subject to risks, uncertainties, and other factors as discussed further in our SEC filing that could cause our actual results to differ materially from our historical. We assume no responsibility to update forward-looking statements other than as required by law. During today's discussion, management will discuss certain non-GAAP financial measures, which we believe are relevant in assessing the company's financial performance. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. These non-GAAP financial measures are reconciled to GAAP financial measures in today's earnings release and investor presentation, and when filed in our quarterly report on Form 10-Q filed with the SEC. Amounts described as of and for the quarter ended 09/30/2025, represent a preliminary estimate as of the date of this earnings release and may be revised upon our quarterly report on Form 10-Q with the SEC. More information as of and for the end of the quarter ended 09/30/2025, will be provided upon filing our quarterly report on Form 10-Q with the SEC. I will now turn the call over to Vishal. Vishal Garg: Thank you, Tarek, and welcome to our third quarter 2025 earnings call. This has been a pivotal quarter with significant developments for Better as the leading AI home finance company. We have rapidly evolved from a dominant direct-to-consumer business into a platform powering the entire home finance ecosystem, both for consumers directly and increasingly through our growing list of institutional partners. Partners include both local mortgage lenders and financial institutions, and we empower them with our Tinman AI platform to serve their customer needs better. In summary, over the last couple of months, we announced three new partnerships, which we see as deeply validating and believe will meaningfully expand our market reach across the home finance landscape and drive profitability as we track to breakeven adjusted EBITDA by Q3 2026. We are already pacing to fund $500 million in monthly volume as a result of the growth through these partnerships, and that momentum is accelerating rapidly. In the next six months, we are comfortable that this will double to at least a billion a month in funded loan volume. Our progress comes mostly from our soft launch during which we have marketed the power by Better solution to only a small fraction of our partner's customer bases and seen great success. This partnership represents the most significant opportunity in Better's history. Excitingly, thanks to our strong unit economics and best-in-class experience, powered by Betsy and Tinman, our pipeline of additional partners continues to expand rapidly. We expect to share further updates on these partnerships and additional ones in Q4. Our pipeline of Tinman AI platform clients keeps expanding as the industry is seeing what our platform could deliver. We are in late-stage conversations to land partners in some of the biggest, most strategic verticals in consumer finance. Examples include one of the top home improvement lenders, two of the top servicers in the country, one of the top personal lenders, and an additional mid-sized bank. Additional partnerships will add an additional 10 million American homeowners to whom we can algorithmically qualify market mortgage and home equity products. All of these events validate our strategy of diversifying our distribution channels, as our AI-driven platforms, Betsy and Tinman, deliver the lowest unit costs while providing the best experience for both customers and partners. This gives us strong conviction that our peak volumes in this rate cycle should comfortably exceed those achieved in the last rate cycle when we originated approximately $60 billion in one year, almost $5 billion a month. We have built a platform that is AI-first. We are one of the few players, if not the only one in the US, with a single full-scale tech stack. All in one place, all in one flow, and entirely API-able via our proprietary MCP server, the only one in the mortgage industry, to AgenTeq AI, which allows us to deliver a better experience at lower cost, scale faster than anyone else, and really continue to define the future of this $15 trillion industry. Better is the network for the largest tangible asset class in the US: residential real estate. On one side of this network are the end consumers directly, and on the other side are consumers using the Tinman AI platform similar to that of merchants on platform networks like Stripe, Visa, and Mastercard. On the other side, our investors seeking to buy cash flow-producing assets secured by US residential real estate. We are the matching, processing, and fulfillment engine in between the two sides of this network. Our engine is called Tinman, which uses machine learning to triangulate consumer attributes, property attributes, and the unique criteria of over 40 institutional investors on the platform, including the GSEs, the FHA, and the VA. We have built a multisided matching engine, something that simply cannot exist outside of what we have built inside Tinman. To contrast, most fintechs operate on a single path and distribute the product through securitization. With Better, the result for the consumer is a significantly higher approval rate and generally lower interest rates, which because Tinman matches consumer and property-specific attributes across a broad cross-section of the investors on our platform, on a single loan-by-loan basis. Further, despite Better being balance sheet light and not taking any credit or prepayment risk, the default rate of our mortgages is one-third that of the industry average on over $100 billion of originated volume over the past nine years. So the proof is in the pudding. Our deep proprietary data moat has been instrumental in training our AI models and powering our platform. Betsy, our generative AI home finance agent, built on top of Tinman, has learned from over 12 million recorded phone calls, 6 million approved customers, 600,000 funded loan documents, and almost 5 billion pages of property and consumer data information. All in one place, all in one end-to-end platform, with all of the things that were done by humans on those data all in one place. And recorded through the platform. We believe that this is something that does not exist anywhere else in mortgage lending or even broadly in consumer finance. Today, we are at feature parity between Betsy and the bottom 80% of human loan officers. Betsy communicates across voice chat, text, and email, with consumers nearly instantly to compute various scenarios and learns how to better understand consumers' needs every day through every interaction. What's more is Betsy can handle millions of consumer conversations at the same time, enabling infinite scalability without adding additional headcount. As consumers learn to adopt and integrate their consumer finances and transact with an AgenTeq AI, Betsy is not just a voice agent or chatbot. Betsy can perform the functions of a human loan officer, processor, underwriter, and closer. Betsy is the user interface, helping consumers step by step through their homeownership journey, performing hundreds of thousands of consumer interactions per month, and remarkably good at detecting fraud throughout the entire platform. Additionally, Betsy has mastered finding ways to get an approval with the lowest possible interest rate across our network of investors with the lowest post-closing defect rate in manufacturing a mortgage, approximately 19 times lower than the industry average. In fact, as of September, no human underwriter is allowed to decline a loan in our system without checking with Betsy first as to the alternatives that are available to restructure the loan so that the consumer can be approved and move forward in their homeownership journey. We believe this is a first across lending in the United States. Since we launched Betsy, our lead-to-lock conversion rate has increased by approximately 84% from 3.3% to 6.1%. This has been transformative to our platform in driving incremental volume and revenue through our platform, and it's still very early days. As we scale Betsy at near zero marginal cost, we expect to further improve our unit economics through cost efficiencies on a per-loan basis. During the quarter, Betsy performed approximately 700,000 customer interactions and our AI underwriting approved over 61% of locked loans, with a clear path to 75% in the near future and 90% after that. Our loan officer productivity in terms of funds per month increased to over three times the mortgage industry median. We have been heads down over the past few years honing our technology and optimizing the business for efficiency. With Tinman and Betsy, we removed the traditional constraints to growth in the mortgage industry, which is typically throttled by a lack of specialized licensed labor, whether it's loan officers, processors, appraisers, or underwriters. We can now grow infinitely with AI and with a single unified tech stack at the core. There's almost no better use case for AI to disrupt the market than the massive and antiquated mortgage market. The majority of the mortgage market still operates on what was built in the 1990s, where eight different separate systems were integrated through dated middleware, old-school FTP servers, and disparate databases. What's more, this dominant platform, which has over 80% market share, only allows one person to work in the loan file at any time, a file that costs the mortgage industry more than twice as much as Better to make. AI was designed to disrupt industries like this and yet fails in most cases due to the lack of a singular database architecture, causing huge latencies for any LLM to intermediate data and capture context quickly between disparate systems. Further, the lack of a unified interface prevents LLMs from being able to handle every single task required to fulfill a mortgage. Those limitations do not exist in Tinman. Tinman shines as a brand new modern tech stack with AI in action delivering real tangible measurable results in a multitrillion-dollar industry at a fraction of the cost. I often think back to when we were building our AI platform. One of the point solutions CEOs said to the then CEO of Fannie Mae that he thought Better was trying to boil the ocean. And here we are. We have gotten the ocean hot. And it's starting to drive tangible results in a way that is groundbreaking for the industry. With some macro green shoots in our favor and momentum in winning new partnerships, we believe we are in a position to scale rapidly, profitably, and with AI infinitely. When you look back at the last time rates declined, Better grew its volume by over 100 times over a five-year period and over 10 times over a two-year period in 2020 and 2021. We are positioned to do it again. This time, more efficiently and much more profitably. And we believe we can achieve significant market share as this next cycle unfolds. Betsy and Tinman is our flywheel. That flywheel is turning. The opportunity is massive, and we are ready to monetize. I'll now turn to our third quarter results. Starting with growth, we continue to propel opportunities independent of broader economic and mortgage market conditions. In 2025, on a year-over-year basis, we grew funded loan volume by 17% to approximately $1.2 billion, and revenue by 51% to approximately $44 million, driven by funding more loans, both through our D2C channel and our Tinman AI platform. By product, year-on-year funded loan volume growth during the quarter was driven by home equity volume increasing by 52% year-on-year, refinance loan volume increasing by 41%, and purchase loan volume increasing by 5%. We have been rapidly growing our home equity business, taking share in a market that is coming back quickly as Americans are sitting on $35 trillion of home equity, the largest untapped asset class in the country. We've grown to an approximately billion-dollar-plus quarterly run rate origination in Q3 2025, compared to approximately $100 million in Q3 2023 just two years ago when we launched. Our model does not require us, unlike many others, to take any credit, prepayment, or liquidity risk. Because we can sell HELOCs onto the investor marketplace we have built. We do not rely on securitization. And we are able to mimic what we have done in the mortgage space in HELOCs, allowing investors to buy and bid on loans at a loan-by-loan level, which is unique in the industry. There are incumbents in the home equity space who have started to create their own version of our investor marketplace. But today, that marketplace only comprises a very small portion of their volume and revenue. Whereas for us, the marketplace is 100% of volume, and 100% of revenue, in the HELOC space. During the quarter, we broadened our already high approval rates for HELOC products by launching AI-driven HELOC underwriting for small business and self-employed borrowers, making approvals possible using bank statements only. This product opens the door for 36 million self-employed and small business owners who have traditionally been underserved by traditional underwriting methods in the mortgage and HELOC space. Another example of how we are using AI to widen use cases and enable home finance for more American families to help them save more money. Turning to cost efficiency. Total net revenue in Q3 grew 51% year over year, while expenses remained flat. Demonstrating our ability to scale revenue at lower marginal costs. We continue to adjust our cost structure to be leaner in overhead, building adequate resources to support the ramp of our new partnerships, which we expect to drive transformative growth in 2026 and beyond. With the goal of reaching adjusted EBITDA profitability by the end of Q3 2026. While our initial goal was to achieve further expense reductions this quarter, the team was focused on launching our three new transformational partnerships and engaging with additional partners in our pipeline. As a result, the intensity of our cost-cutting was somewhat muted compared to the vigor we've had in prior quarters. Looking ahead, as we get these partnerships up and running, and to scale, we expect these anticipated cost savings to materialize in 2026. With Tinman AI technology, we automate time and labor-intensive components of the mortgage process, consistently reducing our cost to originate to approximately half of the industry average. I'll now turn to quarterly business developments. Unit economics in our direct-to-consumer channel continue to improve with revenue per fund increasing to $8,300. The labor cost to fund continued to decrease to $2,500 and CAC per fund to $3,200, by the implementation of AI in every aspect of the sales and operations workflow. Resulting in a net contribution margin of $1,772 per fund compared to $1,064 per fund last quarter, an approximately 64% increase quarter on quarter. We have not seen these types of contribution margins since, like, 2021. We expect to continue to lower the cost to originate as we increase conversion, lower CAC, and improve labor costs. And while our DTC business has always been at the forefront of pushing the envelope of what technology can do in the mortgage industry at its core, we are making great advancements in broadening the use of Tinman through our partnerships. We are very excited to have recently announced three new partnerships that we see as deeply validating the Tinman AI platform and believe will meaningfully expand our revenue and drive to profitability in the year ahead. First, we partnered with a top five US personal financial services platform, which currently serves over 50 million customers. Under this agreement, our partner will offer home financing products to its end customers using the Tinman platform on a fully white-labeled solution, and we will earn revenue on a per-funded unit basis. Essentially, this is mortgage broker in a box. For financial institutions across the American landscape. We are focused on financial institutions that have large banks of customers. 10 million, 20 million, 50 million customers, and we believe that these financial institutions who have traditionally been limited, especially post the global financial crisis, in being in the mortgage business or offering mortgage business mortgages to their customer base, will dive right in with our mortgage broker in a box Tinman AI platform. We brought this fit partner from being just a fintech to a fintech plus mortgage broker. There will be no upfront tax spend required by Better as our partner will programmatically feed customer data into Tinman. From there, Tinman will manifest offers delivered through our partner's app, which has tens of millions of monthly active users all nearly instantly and updated daily. We expect transformative volume potential from this partnership as we scale into their vast customer base. Second, we entered into an agreement with a top five US nonbank mortgage loan originator. By migrating from the incumbent solutions that they've traditionally had for years, if not decades, onto Tinman, our partner's loan will dramatically scale ability to surface eligible customers for HELOC and HELOANS within their customer base. They'll also be able to mine their MSR book of over $300 billion to offer HELOCs and HELOANS to those customers on a programmatic basis in a way they've never been able to do with the incumbent HELOC solutions that are available to them today. The initial focus will be on home equity products, and we believe there's great potential over to help the partner unlock new ways to monetize its extensive customer base. In a way that has not been done before. It's important to note that we are not just processing customers who raise their hand and ask for a home finance product. Rather, we are fully integrating Tinman into both of our partners' customer data loads and CRM systems. This allows us to algorithmically mine customer data attributes and property data attributes for these customers, match them to products and investors on the Tinman platform, and use our AI to recommend the most applicable offer directly to the customer. We are also completely agnostic to the user interface, be it an iPhone app, or a human loan officer in a branch. We serve all of them. Third, we partner with Finance of America, an industry-leading reverse mortgage lender with access to millions of senior customers who are typically home equity rich but cash flow disadvantaged. Together, we are launching the first HELOC and HELOAN product offerings to their customers powered by our Tinman AI. What's more, leveraging Tinman, we have developed a senior second lien HELOAN product that specifically addresses the debt-to-income challenges that limit traditional HELOC products from being offered to seniors and that you typically see securitized by the incumbent players. Together, we believe these new partnerships demonstrate our evolution in powering the home finance ecosystem as a full suite platform and software well beyond our direct-to-consumer origins. These partners are now live, and we look forward to sharing updates on our subsequent earnings calls as these partnerships ramp. In addition to our newest partnerships, we continue to make great progress growing our existing Tinman AI platform Neo powered by Better, local loan officer teams across the US experiencing rapid growth. The Tinman AI platform approach to local retail mortgage loan officer teams is similar to how Amazon opened its D2C model to a third-party seller marketplace. Similarly, Better is enabling retail mortgage lenders to build their business on the Tinman platform. And in doing so, we provide the compliance and licensing engine, loan origination system, and capital markets marketplace. We have near zero customer acquisition cost on this channel, and as partners fund loans on our platform, we earn a platform fee and a share of profits. We've grown this channel from zero just nine months ago to now approximately 40% of our total revenue. The Tinman AI platform enables retail loan officer teams to originate more loans, serve more families, and lower their cost of funds, dramatically increasing their profitability and throughput versus traditional platforms that these loan officer teams have been on for decades. These officers are transitioning from dated expensive tech stacks where origination of a loan could cost over twice as much as Tinman to Tinman where the cost is just a fraction of that, at approximately $3,000. Savings go straight to their bottom line, allowing them to reinvest in their customers, offer lower rates, and close more deals within their local markets. Further, we've designed an optimization path to retain customers entering through the direct-to-consumer channel, who we might otherwise lose to an outside local loan officer. By identifying customers who would benefit from more personalized local support, we connect them early on with a partner loan officer instead of losing them to competitors later on in our direct-to-consumer flow. This approach significantly boosts conversion rates amongst these customers and in turn strengthens our overall unit economics. During the third quarter, we funded approximately $483 million in funded loan volume for 1,148 families on the Tinman AI platform, an increase of 13% respectively compared with the prior quarter. And coming back to our multipronged distribution, we are also serving the customer by powering banks, credit unions, and other large mortgage originators that are seeking to license our Tinman AI software to either enter or reenter the mortgage business. As our Tinman AI platform approach is like Amazon's third-party marketplace model, you can think of our Tinman AI software channel as Amazon's AWS software model. A lot of banks and credit unions are taking a refreshed look at the mortgage space as a regulatory environment is becoming increasingly favorable. However, bank origination of mortgages has largely been unprofitable given their high cost to originate. This is where our Tinman AI software comes in. Our Tinman AI software essentially provides mortgage in a box, enabling banks to not only use our software but also gain access to underwriting resources and sales resources if they so desire. And while the broader software industry charges clients on a per-seat basis, we have a disruptive pricing model of charging on a per-funded loan basis, or outcome as a service, which is very similar to what a lot of the leading AI companies in Silicon Valley are doing. Over time, we expect this channel to be the most profitable of our three channels with SaaS-plus level margins since most of the costs associated with this initiative have already been spent on developing Tinman internally for our direct-to-consumer business. Our existing bank partner on the Tinman AI software platform is ramping as we power its mortgage origination business from click to close across multiple products and across multiple channels. And we expect revenue from this partnership starting in Q4 2025, with SaaS-level margins. Our overall partnership pipeline is robust. We are focused on aligning with companies that are leaders in their respective verticals, those with large customer bases and where the Tinman AI platform clearly outperforms legacy systems. Our strategy is simple yet powerful: capture a leading player in each vertical, empower them to scale their mortgage business and home equity business with Tinman, and then expand outward across the ecosystem as others follow suit. Land and expand. Verticals that we are interested in include fintechs, BNPL providers, traditional mortgage lenders, and servicers. Each of these verticals represents hundreds of billions of dollars in annual mortgage originations. So by first securing a partner who is a leader in their vertical, we establish credibility, create momentum, and open the door to broader adoption across that vertical. Looking ahead, the opportunity has never been more exciting. We continue to make great progress towards our goals of driving increased volume and revenue, balanced with ongoing expense management and improved efficiency. We remain focused on enhancing our go-to-market strategy with growth being our North Star, alongside continued expense management and channel diversification. We all with the goal of reaching breakeven on an adjusted EBITDA basis by 2026. Our path to adjusted EBITDA profitability will be multifaceted, driven by volume growth in both our direct-to-consumer and Tinman AI platform channels, unit economics or per-loan contribution margin continuing to improve as we further lean into AI efficiencies, the scaling of higher-margin partnership channels, including Tinman AI platform and Tinman AI Software, pricing improvements, and continued corporate cost reductions. While our unit economics are already profitable at the contribution margin level, increasing volume will allow us to offset additional corporate expenses. Note that these growth opportunities come with varying levels of expansion and profitability profiles and will change based on the broader macroeconomic trajectory. As a result, our path to adjusted EBITDA breakeven is unlikely to be linear on a quarterly basis. We do not anticipate the same level of burn reduction each and every quarter. During the third quarter, we had an adjusted EBITDA loss of approximately $25 million, down from $27 million last quarter and $39 million one year ago. In particular, for the three large partnerships we signed, we had a significant amount of resources in sales, operations, and technology dedicated to launching those partners that were not revenue generative but will create significant growth in the years ahead. As these partnerships launch and start to generate revenue and contribution profit, we expect burn to come down more dramatically in the coming quarters ahead. 2026. Now to touch briefly on our balance sheet and capital positioning. We ended 2025 with $226 million of cash, restricted cash, short-term investments, and assets held for sale. In addition, we continue to maintain strong relationships with our three financing counterparties, which provided a total capacity of $575 million as of September 30, 2025. We expect that our recently announced partnerships will require us to increase those warehouse lines meaningfully to accommodate the expected funding demand. On capital positioning, we rightsized the capital structure earlier this year, retiring approximately $530 million of convertible notes for a $110 million cash payment and a $140 million note, generating $211 million of positive equity. As announced in our 8-Ks, our CFO, Kevin Ryan, will be concluding his time with us. We are so grateful for everything Kevin has done for this company, taking us public, rightsizing our capital structure, and building out our finance and accounting function. We wish him the very best in his new endeavor and are excited about the strong candidates in consideration for the CFO role. We hope to share the outcome of our new CFO search with you soon. In the UK, we were pleased that Birmingham Bank grew its loan book by 44% in the third quarter sequentially. Versus 2025 as we have implemented our technology stack into the bank and, in doing so, enable the bank to become the fastest-growing specialist mortgage lender in the UK. With respect to our non-core UK assets, we continue to exit those positions and expect these divestitures to continue to benefit our adjusted EBITDA through the remainder of 2025. Turning to our outlook, the Tinman AI platform loan volume continues to grow rapidly, and we expect over $600 million of AI platform originations in Q4. This would be growth of over 24% versus Q3. For the full year 2025, we expect total funded loan volume to increase year over year driven by tailwinds from growth initiatives, including Tinman AI platform, offset by continued macro pressure and the loss of our Ally business, a roughly $1 billion headwind. We expect further improvements to adjusted EBITDA losses for the full year 2025 versus the full year 2024 through a combination of AI-driven improvements in conversion rates, efficiency gains, and continued corporate cost reductions. In the medium term, while we expect D2C to continue to grow nicely, we expect it to become a smaller part of the total revenue mix as our partnership channels scale faster. We spent the past three years building for this moment. Our platform is proven. The housing cycle is turning. Our AI is scaling, and our partnerships are just beginning to ramp. About a year ago, we met the NEO Home Loans team, and I saw firsthand the experience they were able to deliver in a branch or over a Zoom call. And I thought to myself, how can we make this accessible to everyone? How can we take this four seasons experience that the Neo team delivers and deliver it at a four points price to the average consumer? That got us thinking about the experience of being in a branch or on a Zoom call, with someone with ten, twenty, thirty years of experience with a deep knowledge base, someone who's done billions of dollars of loans and one who can walk you through every aspect of the process that is life's biggest financial transaction. One, American families are still fundamentally insecure and unknowledgeable about. We'll be launching the AI mortgage adviser in a prerelease. And you can sign up to join us at better.com/tinman. Please take a look and let us know what you think. Tarek Afifi: Hello. Ryan Grant: My name is Ryan Grant. How are you doing today? Vishal Garg: Woah. Am I talking to an AI or is it you, Ryan? What happened here? Ryan Grant: Hey. It's actually me. Ryan's AI mortgage adviser. Kind of like having Ryan's brain and Better Mortgage's tech all rolled into one. Ready to help you anytime. What can I do for you today? Woah. Woah. Woah. Vishal Garg: Like, what did you do with Ryan's brain? Like, Ryan Grant: Think of it like this. I get it. It sounds wild. Basically, I'm Ryan's expertise combined with AI tech. So I can help you anytime with mortgage questions, calculations, and advice just like he would. But instantly and around the clock. No worries. Ryan's still around. But I'm here to make things easier for you. What would you like to know or talk about? Vishal Garg: Okay. I mean, that's interesting. Like, you tell me a little bit about yourself? Like, do you have a lot of experience doing this, or do they just get, like, some guy off the street? Ryan Grant: I'm built on Ryan's experience. He's personally funded nearly $2 billion in mortgages and helped thousands of homeowners. So I bring all that know-how plus Better Mortgage's smart tech to guide you through your mortgage journey with confidence and clarity. Think of me as Ryan's brain. But always ready to help you anytime you need. What's your biggest question or goal with your mortgage right now? Vishal Garg: I mean, I think rates are coming down, and I got this mortgage two years ago. And I think I can save some money. Right? Ryan Grant: That makes sense. Refinancing to save money is a smart move if rates have dropped since you got your mortgage. To see how much you could save, I'd need to know your current interest rate, your remaining loan balance, and how many years you have left on your mortgage. Can you share those details? Vishal Garg: Yeah. No. So I think I have $500,000 left on my mortgage. I got it two years ago, literally, like in September '23. And I think like, you know, I don't remember exactly what my rate was, but it was like, in the 7% something range. Maybe you can help me, like, figure that out. Like, yeah. Ryan Grant: Got it. You have about $500,000 left and your loan started around September 2023 with a rate around 7%. I can help estimate your savings based on that. Do you happen to know your current monthly principal and interest payment? If not, no worries. I can estimate that too. Vishal Garg: Yeah. I know. It's like on autopay, so I don't know exactly what it is. So, yeah, if you have an estimate, that would be really great. Ryan Grant: Your current loan is about 7% with a $500,000 balance and twenty-eight years left. And your monthly payment is roughly $3,398. Oh, that's close. Got it. Let's start with the option that gives you the lowest monthly payment by paying points upfront. This option lowers your interest rate, so your monthly payment goes down. But you'll pay some cash at closing. Sound good? Vishal Garg: Yeah. Yeah. Let's find out. Sure. Ryan Grant: The lowest monthly payment option with points. Your new rate would be about 5.13%. Your monthly payment would drop to around $2,722, saving you about $676 each month when it comes with points costing about $12,907 upfront. Would you like to hear about the par rate option with lower closing costs too? Vishal Garg: Yeah. Yeah. Why not? Like, you know, I'm not sure if I've got just $12 lying around. Ryan Grant: The par rate option means no points upfront. So your closing costs are lower. Your rate would be about 5.99% with the monthly payment around $3,053, still a bit lower than your current payment, saving about $345 each month. It's a bit higher monthly, but you keep more cash at closing. Sound like something you want to explore more? Vishal Garg: Yeah. No. Like, isn't there a way, like, I heard, like, you can just roll the closing cost into, like, the mortgage, like, at closing? Is that possible here? Ryan Grant: Yes. You can often roll closing costs into your new loan balance, which means you don't pay them out of pocket at closing. That usually comes with a slightly higher interest rate, like the par rate option I just mentioned. So your monthly payment might be a bit higher, but you keep your cash upfront. Does that sound like a good fit for you? Vishal Garg: Yeah. No. I think I'm gonna go with a lower monthly payment. Like, $700 a month of savings is like a lot more than $350 a month of savings. So I think that will be really good for my cash flow. So what do I need to do next? Like, does this work? Ryan Grant: Great choice. Saving about $700 a month can really help your cash flow. The next step is to start your refinance application so we can lock in that lower rate and get the process going. Could you please spell your first and last name for me? Vishal Garg: Yeah. Yeah. Wait. Wait. Wait. Can I talk to the real Ryan too? Like, or is it just gonna be me and you all the time? Ryan Grant: I totally get wanting to chat with the real Ryan. He's a great guy. I'm here to help you anytime with quick answers and guidance. If you ever want to connect with Ryan directly, I can help make that happen once we get your application started and things are moving along. Sound good? Vishal Garg: Sounds great. Alright. Listen. You know, I'll get the application going, and then why don't we, like, set out some time to talk to the real Ryan? It'll be interesting to see whether he knows as much as you do. Ryan Grant: That sounds like a solid plan. To get started, could you please spell your first and last name for me? That way, I can set up your application, and we'll be on our way. Vishal Garg: Okay. It's Vishal Garg. Why don't I do the rest of this online, and then we'll, you know, connect later? Alright? Talk soon. Bye. Operator: Thanks, Vishal. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press 9 to raise your hand and 6 to unmute. Your first question comes from the line of Owen Rickert with Northland. Your line is open. Please go ahead. Owen Rickert: Hey, Vishal. Thank you for taking my questions here. I guess quickly, can you just dive a bit deeper into the three recent partnership announcements and how you expect each of these to ramp as we head into 2026? Vishal Garg: Sure. So with respect to the large financial services platform, we expect that to ramp over time, over the next six months, specifically as we increase the penetration of their users in their app that see the offers from us and the number of users every day that they drop into Tinman to surface offers for. And those offers will be sent via stories in their app, notifications, text messages, things like that. And so we're just gonna increase those. And we've created a specific pod for this partner because it's such a large partner. And we need to staff into that pod. And so, while we expect the overall size of the partnership to manifest itself into, you know, multiple billions of dollars a month, it's going to take a bit of time for us to also ramp up and see what labor is gonna be required, what percentage of that partner's customers are comfortable talking to an AI, what percentage of that partner's customers need to talk to a person. So we're working all of that out. With respect to the other partnerships, the large mortgage originator, we're gonna start first with their direct-to-consumer team, then we're gonna start rolling it out to the team that does MSR and MSR recapture. And then from there, we're gonna start rolling it out to their loan officer teams all around the country to market HELOCs and HELOANS too. And so there's gonna be a ramp in that regard as well over the next six months or so. And then, with Finance of America, we are launching the HELOCs and HELOANS first to their customer base, then to their partner originators, and then across to their wholesale channel. And so, I think that is also gonna take, you know, another three to six months to fully ramp up. As well as the second, you know, the reverse second lien HELOC product, which we are rolling out in beta right now, which we're going to then ramp up across their entire network. Owen Rickert: Got it. Thank you. And then secondly, you did hit on this pretty early on in the prepared remarks, but how would you characterize the future partnership pipeline right now? And what does that look like today? And maybe how has this pipeline evolved over the last few months? Vishal Garg: I think as our partners are able to see how fast we're able to implement some of the earlier partners that we have now launched, the quality of the user experience, the ability to, you know, get approved for a mortgage programmatically, the ability to take something that traditionally has been very passive and sold passively by these partners and then have that be done in an active algorithmic way, the partner pipeline has really quite frankly exploded. And so we are seeing a lot of demand. The other thing just from a macro perspective, the largest incumbent solution has been forcing, has been going through an SDK change and has been forcing reintegrations with all of its partners, for its clients. And so it's been an interesting moment where a lot of people are very, very frustrated with the incumbent solutions that are out there and are looking for something new. And so I think, you know, it's sort of like, luck is when preparedness meets opportunity. And I think, you know, we're pretty thankful to be in the position that we're in now. Owen Rickert: Great. Thanks, Vishal. Operator: Your next question comes from the line of Brendan McCarthy with Sidoti. Your line is open. Please go ahead. Brendan McCarthy: Great. Good morning, Vishal. Good morning, everybody. I really appreciate the demo there with Ryan. I thought that was great. I just wanted to start off circling back to the new partnerships, particularly the one with the top five US personal financial services platform. Can you give us detail on what the ultimate volume opportunity is like there? You know, 50 million customers is obviously a huge number. Just curious as to what you think the addressable market is in terms of volume. Vishal Garg: Yeah. So, I mean, if you go and try GPT and type in what is the mortgage penetration rate for a financial institution in the United States with 50 million customers, it will tell you that, you know, it ranges from 10 basis points of that customer base to 15 basis points of that customer base. So let's use, like, you know, a low average 12 basis points. You multiply 12 basis points by 50 million, that gives you 60,000 originations a year. 60,000 originations times an average balance of, like, $400,000 gives you about $24 billion. So I don't know exactly what the number is. I'm not committing to that number, but that's sort of, you know, if we were able to just do it in an average passive manner at some branch, what we think we can achieve could be multiples of that if we're able to sort of algorithmically mine and surface offers directly to consumers in their mobile app. Brendan McCarthy: Understood. That's very helpful. Thank you for that. And next question, just looking at the guidance, you know, really implying strong growth there, I think, from, you know, the 500 million monthly loan volume run rate to about a billion. It's just really a step up there. What's really underpinning that outlook? Is it, you know, just strictly the partnerships? Is it a growth in D2C? Is there any interest rate assumptions there? Just curious as to what's underpinning that. Vishal Garg: No. We're assuming interest rates stay the same. And, yes, I mean, as you can see in D2C, we have been focused on making more money per loan in D2C rather than growing volume, though volume has grown pretty substantially, especially if you take out, you know, on a quarter-on-year basis, if you take out the Ally volume that we had last year, you know, organic growth has been over 50%. And, you know, when you layer that on, if there's a rate cut, I think, you know, D2C is going to fly. But other than that, like, we're just assuming that the rates stay the same. And so the numbers I've given you and I've indicated assume the interest rate environment doesn't change. Brendan McCarthy: Great. Great. Thanks. That's all for me. Operator: Your next question comes from the line of Kartik Mehta with Northcoast. Your line is open. Please go ahead. Kartik Mehta: The press release indicated that you anticipate about a billion dollars of loan volume in the next at the end of six months because of these partnerships. Does that assume that each of these partners will be fully ramped or get fully integrated? Or are you anticipating the ramp to take longer? So, really, the billion dollars could be a lot more once the partnerships are fully integrated. Vishal Garg: I think it could be a lot more once they've fully integrated. Kartik Mehta: And then just, you know, the per funded contribution margins increased significantly. The one volatility is in the CAC. So I'm just curious, what's your anticipation for CAC as we move through 2025 and then 2026? I'm assuming they'll start trending lower as the partnerships become a bigger part of the loan volume. But I wanted to get your perspective on that. Vishal Garg: Yeah. I mean, with the partners, there's no CAC. Right? There's, you know, no upfront CAC. The D2C CAC remains quite high. It, you know, purchased, you know, which remains a challenge in this market environment. You're spending money this quarter to book loans in six months, twelve months, eighteen months, when the consumer actually buys the house and books a loan. I think one thing that may be underappreciated about Better is over the past three years, we've given out over a million preapprovals to consumers, and those consumers have not been able to find a house or it's been too expensive for them to find a house. And so that CAC, you know, that you see there is elevated because for all the consumers that are not able to find a house or that they want to buy, you know, basically, we eat that CAC in that specific quarter, then when that consumer finds the house they want to buy, then when they come through, then, you know, it shows as lower CAC. So the mortgage industry CAC acquisition cost problems are even further compounded by the long gestation cycle of, you know, consumers on the Internet and when they get preapproved and when they actually find a house. So, you know, we do expect as rates, if rates come down, that, you know, the CAC will come down materially across the board for purchase or for refi. I mean, just to give you some context, when in the last rate cycle, when rates were coming down, our CAC on a refi was $1,000 a loan. And so there's a lot of positive convexity in the CAC as consumers, you know, as the rate environment changes and consumers' propensity to get preapproved and then actually fund increases. Kartik Mehta: Perfect. Thank you very much. I really appreciate it. Operator: Your next question comes from the line of Bose George with KBW. Your line is open. Please go ahead. Frankie: Hey, good morning guys. This is actually Frankie on for Bose. Nice to see you. Start with, can you just walk through the ways in which AI efficiencies increase revenue per funded loan? In slide 16, you noted that this will be driven through enhanced sales and operational performance. Vishal Garg: Yeah. So I think what you'll see is our revenue per loan is continuing to grow up. Right? And I think the reason for that is Betsy's able to supplant the loan officer whenever the loan officer is not able to, you know, either pick up the phone, answer a question, turn around a new preapproval based on, you know, data that the consumer has provided. You know, Sunday afternoon, 04:00, they want to put in an offer that they saw. You know, Betsy's there for them in a way that, you know, traditionally, your human loan officer isn't able to be. So that's enabled us to, one, you know, make our competitive pricing, and, you know, slightly less competitive and, you know, increase the gain on sale. Number two, as our volumes are going up, and, you know, it allows us to not have to staff up with many people. I think as you can see, like, on a year-on-year basis, volume and revenue went up substantially over 50%. And expenses actually, you know, stayed the same. And, therefore, the burn came down substantially by, like, about 35, 40%. And so that's sort of how Betsy's allowing us. It's allowing us to be more responsive, which means lower discounts, superior service, really build a service offering for consumers. And then on the flip side, you know, not have to hire as many people as we scale volume. And automate the processes, like processing loans, underwriting loans, closing loans, that traditionally have been done by people. Frankie: Great. Thank you. That's very helpful. And then can you just help us understand what types of incumbent solutions you're replacing in your partnership? Is it both the LOS system and POS system? Vishal Garg: Yes. So we have integrated with a number of POS systems that are out there. Where, let's say, if our client wants to keep the POS that they're using today, that's fine with us. You know? We'll take all of the other stuff. We generally do replace the incumbent LOS. And in many cases, we replace the POS, the LOS, the pricing engine, the CRM system, the document generation engine, the notary, you know, and closing engine, and the warehouse, you know, the warehouse software. So when the client signs up with us, we might replace as many as eight to 10 different systems that the client has. Frankie: Awesome. Thank you. That's all for me. Operator: Your next question comes from the line of Mikhail Goberman with Citizens JMP. Your line is open. Please go ahead. Vishal Garg: Hi, Mikhail. You're on mute. I think you have a question. Mikhail Goberman: I was. Sorry about that. Thank you. No problem. Good morning. Thanks for taking the question. If I could ask about expenses and I appreciate the comments prepared remarks about the expenses and how you're planning to deal with the partnerships with regard to that going forward. I believe you mentioned a target for the first quarter of next year. Is there any sort of a number or run rate that we can put on that? Vishal Garg: No. I think we, you know, we're hoping that, you know, within the next six months, we get to a billion dollars a month origination run rate. I think, you know, we're hoping that we continue to have scale in our expenses. We're hoping that we continue to drive a lot of corporate cost reductions forward. We've been really busy this last quarter, so I think I personally wasn't able to pay as much attention to some of the, you know, legacy contracts and things like that that we need to kind of continue to still beat out, you know, three or five-year contracts that we signed back in 2020, 2021 that we're, like, working to sort of, you know, reset, with more AI-driven type solutions. I think there's still a lot of cost savings left. Which is why we continue to drive to, you know, achieving profitability. While, you know, growing scale at the same time, you know, by Q3 2026. Mikhail Goberman: Great. Appreciate that. And if I can fit in one more, just your general thoughts on the stability and strength of the mortgage industry in general given where we are with interest rates and sort of wobbles, I guess, you could say, with the economy a little bit. Just your general thoughts on the borrower and the consumer and how the whole system is developing going forward. Thank you. Vishal Garg: Yeah. No. I think, look. I really believe that we're headed into a recession. I believe that, you know, that's gonna result in a couple of things from a macro standpoint. I think there's, you know, you would think that heading into a recession, purchase mortgage would be disadvantaged. But there's millions of people who have wanted to buy a home over the past four, five years who missed out on the 2019 to 2021 rate environment. And they have been building up their savings, and they're looking and, you know, many of them who have owned equities in the past couple of years, they have been building up wealth to go and buy a home. So I think that you're gonna see purchase mortgage origination stay at sort of where they are. You might not have, like, the boom that you did in 2020 and 2021. If we have a real recession. And then on the flip side, you know, there's like 20 million people that can start to save money as rates go below 6%. If we do actually enter into a recession. And I think that that's pretty significant. And then lastly, in the current period, let's assume we just stay in this sort of muddled medium inflation, 6% plus interest rate environment, you know, home equity origination is still such a small number compared to what they were pre-global financial crisis, you know, or where they are, you know, relative to the total size of home equity that people have in their homes, which is now, I think, $22 trillion of capital home equity, according to the latest TransUnion report. And I think for us, you know, we have both the secular tailwinds of a very competitive business model in D2C that we are now, you know, continuing to improve the conversion rate on. I think as you might have seen, like, in the earnings release, like, we talk about the conversion rate going from 3.3% over 6%, like an 81% increase. Right? That's just, like, grinding out, like, putting the AI in places where the humans are not able to do as good of a job. Right, to satisfy the consumer, just keep on grinding away at that. And so that, I think, is super meaningful. And will continue to drive both unit economics and growth in the D2C channel. And then when we're taking on partners that we're taking away from incumbent platforms, they are, quite bluntly, we're stealing market share. And so, you know, and then that's the fastest-growing part of our business. And so, you know, the mortgage market stays the same, if it's whether it's a trillion and a half in originations, 2 and a half trillion in originations, of course, we'd love it to be 2 and a half trillion in originations. But, you know, where we're moving partners from incumbent solutions that are, you know, built in the eighties, nineties, February, onto our tech stack, they're, you know, we're relatively agnostic to the cycle. And if the cycle comes our way, then that's even better. Mikhail Goberman: That's great color. Thank you very much. Operator: Your final question comes from the line of Doug Harter with UBS. Doug Harter: Hi, Doug. Thanks. Vishal, I was hoping you could talk about, as you're guided to getting back to breakeven and to profitability, what type of volumes do you need to accomplish that? Vishal Garg: I think depending on the mix, you know, I think we get to a billion plus, and, you know, we have a good shot at it. Obviously, the margins in our partnership business are higher than that in our D2C business. But, you know, even D2C is getting to a place where the margins are pretty healthy on a contribution margin basis. But, yeah, you know, I think we get to a billion plus. And then, you know, depending on the mix, we get to beyond that. I think, per month, I think you have a very, very, very good business that's driving towards breakeven. Doug Harter: And then can you talk about is there different revenue that you're generating with partners for home equity origination versus a traditional first lien mortgage? Vishal Garg: I think home equity originations, I mean, the, you know, the loan amounts are much smaller. But the gain on sale is higher. And, you know, between the gain on sale and the fees, you know, you're making, you know, on the mortgage side, you're making maybe $8,000 a loan. In the home equity side, you're making, like, $6,500 a loan. I think it's very important to remember in both of these cases, we're not retaining mortgage, the MSR, we're not taking credit risk, we're not taking prepayment risk. We're not taking any of those risks. In home equity, we have yet to scratch the surface on what scale looks like. There are other people in the home equity market selling their loans at 107 or booking a gain on sale at 107. We're at 103 and a half. So there's a long way to go in bridging that gap. But, you know, when those people are booking those loans at 107, they're taking principal prepayment risk. They're taking credit risk. They're, you know, booking residues, all that sort of stuff. If you like comparing apples on apples basis on a pure marketplace basis, I think we're getting a pretty good deal, but I think we probably still have another point or two that we can squeeze out on our home equity originations. Doug Harter: Great. Appreciate it, Vishal. Thank you. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending and you may now disconnect. Vishal Garg: Thank you, everyone.
Operator: Good morning, ladies and gentlemen. This is the operator. Thank you very much for standing by. Today's conference call will begin momentarily. Thank you very much. Again, this is the operator. Today's conference call will begin. Please stay on the line. Thank you very much for your patience. Good morning, ladies and gentlemen, and welcome to the Sound Point Meridian Capital's Second Fiscal Quarter Ended September 30, 2025, Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, this call is being recorded on Thursday, November 13, 2025. I would now like to turn the conference over to Julie Smith, Head of Investor Relations. Please go ahead. Julie Smith: Ladies and gentlemen, thank you for standing by. Sound Point Meridian Capital refers participants on this call to the investor webpage at www.soundpointmeridiancap.com for the press release, investor information, and filings with the Securities and Exchange Commission and for a discussion of the risks that can affect the business. Sound Point Meridian Capital specifically refers participants to the presentation furnished today on the Form 8-Ks with the SEC and to remind listeners that some of the comments today may contain forward-looking statements. And as such, will be subject to risks and uncertainties which, if they materialize, could materially affect results. References are made to the section titled Forward-Looking Statements in the company's earnings press release for the period ended September 30, 2025, which is incorporated herein by reference. We note forward-looking statements, whether written or oral, include, but are not limited to, Sound Point Meridian Capital's expectation or prediction of financial and business performance and conditions, as well as its competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties, and assumptions, which, if they materialize, could materially affect results, and such forward-looking statements do not guarantee performance. And Sound Point Meridian Capital gives no such assurances. Sound Point Meridian Capital is under no obligation and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. In addition, historical data pertaining to the operating results and other performance indicators applicable to Sound Point Meridian Capital are not necessarily indicative of results to be achieved in succeeding periods. I will now turn the call over to Ujjaval Desai, Chief Executive Officer of Sound Point Meridian Capital. Ujjaval Desai: Thank you to everyone joining us today. And welcome to the Sound Point Meridian Capital earnings call for the fiscal second quarter ended September 30, 2025. We would like to invite you to download our investor presentation from our website, which provides additional information about the company and our portfolio. With me today is our Chief Financial Officer, Kevin Gerlitz, and his successor, Dan Fabian. And after our prepared remarks, we'll open it up for questions. We are pleased to report results for the second fiscal quarter ended September 30, 2025. Kevin Gerlitz: For the quarter, we generated net investment income or NII of $11 million or $0.54 a share. And recorded a net realized loss of $0.05 per share on exited investments. We paid distributions of $0.75 per share during the quarter. The shortfall in NII relative to common distributions was primarily driven by continued spread compression within the CLO collateral portfolios and lower participation in loan accumulation facilities during the quarter. Net asset value or NAV per share ended the quarter at $16.91, down from $18.50 as of June 30. During the quarter, we deployed approximately $9.2 million across two warehouse investments, purchased three new issue equity positions with an amortized cost of $14 million, weighted average GAAP yield of 15.3%. And purchased 12 new equity investments in the secondary market with an amortized cost of $31.6 million and yield of 14.2%. We also sold two equity investments with an amortized cost of $4.5 billion, refinanced the liabilities of seven equity investments. We ended the quarter with one active loan accumulation facility and two unfunded commitments totaling $3.5 billion. As of quarter end, our CLO equity portfolio's weighted average GAAP yield was 12%, versus 12.9% in the prior quarter reflecting continued loan repricing throughout the quarter. Our portfolio remained highly diversified with 94 CLOs managed by 27 managers with exposure to over 1,600 loan issuers across more than 30 on a look-through basis. We believe our diversified strategy enhances dividend stability and downside protection through evolving market conditions. With that, I'll now turn the call over to Kevin for a more detailed review of our financial highlights for the quarter. Kevin Gerlitz: Thanks, Ujjaval, and hello, everyone. As Ujjaval mentioned, the quarter ended September 30, 2025, we delivered net investment income of $11 million or $0.54 per share. For the quarter ended September 30, we recorded a net realized loss of $925,000 and an unrealized loss on investments of $27.4 million. Total expenses during the quarter were $9.2 million. The GAAP net loss for the quarter was $17.2 million or a loss of $0.84 per share. Moving to our balance sheet. As of September 30, total assets were $541.3 million, net assets were $346.2 million, and our net asset value stood at $16.91 per share. The fair value of our investment portfolio stood at $535.2 million while available liquidity consisting of cash was approximately $3.7 million at the end of the quarter. As of September 30, the company had outstanding debt that totaled 35% of total assets. During the quarter, we declared monthly cash dividends of $0.25 per share payable in October, November, and December. Based on our share price as of September 30, this represents an annualized dividend yield of 17.3%. On November 5, we announced monthly distributions for calendar Q1 2026 of $0.25 per share unchanged from our previously announced Q4 2025 monthly distributions. As of October 31, 2025, our estimated net asset value per common share was $16.17 per share. Finally, on November 5, in connection with my planned retirement, the board of directors appointed Dan Fabian to succeed me as chief financial officer of the company, effective December 31, 2025. Dan joined Sound Point Capital Management earlier this year as global chief financial officer and brings more than twenty years of experience in the global asset management industry. I am confident that Dan's leadership and expertise will be a tremendous asset to the company. I'll now turn the call over to Dan for a brief introduction. Dan Fabian: Thank you, Kevin, and hello, everyone. As Kevin just mentioned, my name is Dan Fabian, and I currently serve as global chief financial officer at Sound Point Capital Management, where I lead our global finance team comprising of tax, fund accounting evaluations, as well as our risk and core technology functions. Prior to joining Sound Point, I served in a number of senior positions in asset management, most latterly as president and chief operating officer at Alcentra, where I directed firm-wide operations spanning across six credit investment strategies. I'm excited and look forward to working closely with the leadership team and Board of Sound Point Meridian Capital and stepping into this role to support the company in the years ahead. I'll now turn it back to our CEO, Ujjaval, to provide an update on the CLO market. Ujjaval Desai: Thanks, Dan. Before opening up for questions, I want to give a quick update on the overall market environment for corporate loans and CLO equity. The U.S. leverage loan market is expected to maintain steady new issue supply over the next twelve months supported by a gradually improving M&A pipeline and renewed large-cap sponsor activity. Primary institutional issuance rebounded to $44 billion in Q3 2025, the highest quarterly total on record. As deal flow normalized following media disruptions. Recent large financings, including Dayforce's $5.5 billion Term Loan B backing Thomas Bravo's $12.3 billion LVL signal a more active pipeline of buyout and corporate transactions heading into 2026. While isolated credit events such as the First Brands Group's bankruptcy have attracted market attention, we view these developments as idiosyncratic rather than systemic. Overall, credit fundamentals remain healthy, supported by steady corporate earnings, conservative new issue leverage, and continued access to refinancing capital. The broader loan market continues to demonstrate resilience with default rates still below long-term averages and robust investor demand anchoring secondary pricing. In the CLO market, AAA spreads are poised to tighten further as incremental demand builds from an expanding investor base. In addition to traditional bank and insurance buyers, new vehicles such as CLO ETFs have become meaningful participants attracting sustained inflows and growing total assets above $36 billion across more than two dozen funds. This broadening demand base continues to underpin robust pricing for senior CLO tranches and supports expectations for additional spread tightening in 2026. Meanwhile, the path of interest rates remains uncertain. With market expectations pointing toward a range-bound SOFR environment in the near term. Table-based rates are constructive for both sides of the CLO capital structure, supporting continued demand for AAA tranches sustaining higher cash flows for equity investors. Through active rotation, we have increased structural optionality in the SPMC portfolio positioning it to benefit from future refinancing opportunities. Approximately 70% of the portfolio will exit its non-call period by year-end 2026, providing optionality to refinance debt at lower spreads. A reduction in debt cost may significantly offset the loan spread tightening seen year to date and increase the equity arbitrage into 2026. Which we view as a welcome development and reprieve from the challenged technical environment we have experienced in 2025. With that, we thank you for your time and would like to open up the call for Q&A. Operator? Operator: Ladies and gentlemen, we will now begin the question and answer session. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your first question comes from the line of Gaurav Mehta from Alliance Global Partners. Please go ahead. Gaurav Mehta: Thank you. Good morning. I wanted to ask you about the loan investment opportunity. Can you discuss what you guys are seeing in the market for primary and secondary opportunities? Ujjaval Desai: Hi, Gaurav. Thanks for the question. Just to clarify, you asked about the underlying loan market? The opportunities that you're seeing in the market to deploy capital both in primary and secondary markets? Gaurav Mehta: Okay, sure. So I think as we discussed in the past, we have been a lot more focused on investing in the secondary market this year. The primary market arbitrage for CLO equity has been challenged because, as we have discussed, the loan spreads have tightened significantly. The liability spreads have also tightened, but not as much. And so the arbitrage has been a little bit constrained this year. And so our focus has been mostly on the secondary side. And we have and we continue to invest heavily in the secondary and have picked up very interesting paper in the market. The primary market arbitrage is slowly getting better. Still not quite there. And, you know, I think as the loan market continues to the pipeline loan market continues to improve, as a result of M&A activity in the loan market. We think that should provide some stability to spreads. We have seen spreads the tightening in spreads has stopped now. On the loan market side. And so as new issues come on board, that should certainly help improve the environment for new issue equity. But so far, this year, the focus has mostly been on the secondary side. And we are we do see good value in the equity markets and still solid yields can be obtained. In the secondary market, less so in the primary. Gaurav Mehta: Okay. Thanks for that color. Second question on your comments around refinancing opportunity. Is that you mentioned more than 70% of the portfolio has refinancing opportunities. So do you think that that's enough to offset the yield compression that you're seeing in the market and should we expect the yields to remain stable because of that refinancing within your portfolio? Ujjaval Desai: Well, it's, I think we post in our presentation a table that you can see that shows the change in spread in the portfolio in the last twelve months. About 36 basis points have been lost. And then if you look at on the liability side, the 70% of the portfolio that is resettable in the next twelve months, the savings on that is about 41 basis points on that portion, assuming of course, that the market stays where it is, which is a big assumption. It could go tighter, it could go wider. But as using today's market conditions, you see a 40 basis points tightening in our liability cost on 70% of the portfolio. So that more or less offsets most of that change. It's not going to be perfect obviously. But there is significant optionality there. Which, you know, obviously, have to wait for the non-call periods to be over. For us to, to get that savings. We have done quite a few resets already this year. And, you know, there's still a lot left for next year. Gaurav Mehta: Okay. So assuming the market remains stable, that 41 basis points in saving, that can take you back to where the spreads were in September '24? Ujjaval Desai: I mean, not on its own. Not quite. 41 is on 70% of the portfolio, so that just doing the math, it's, like, high twenties versus 35 basis points change. So it's, you know, it should be close, but not you know, there are a lot of variables obviously. We're not going to predict where things are going to go from here. But that optionality certainly makes a significant dent in the spread tightening we've seen on the portfolio side. Gaurav Mehta: Okay. Thank you. That's all I had. Ujjaval Desai: Okay. Great. Thanks. Operator: Your next question comes from the line of Mickey Schiff Schleien from Clear Street. Please go ahead. Mickey Schiff Schleien: Yes. Good morning, Ujjaval. I'm a little confused about the comments. I want to make sure I understand. At the beginning, you said I think you said that the supply of capital would keep the loan market imbalanced, and you expect pressure on loan spreads to continue. But then later on, I think you said it stopped. So let me just back up. How would you describe the balance of supply and demand in the loan market and what is your, you know, sort of medium-term outlook for loan spreads? Ujjaval Desai: Sure, Mickey. So I think what I was talking about was the year to date we have seen a significant imbalance in supply demand for loans. And that's what I was talking about. So it was a statement for sort of what happened in the first nine months of the year. And that resulted in effectively not much new supply of loans, but significant demand for loans. From CLOs and other investors. That resulted in significant spread tightening. In the loan market. As you've seen in every single market, credit equities everywhere else. What's changed recently is there's been a lot more activity in the new issue loan market. And from talking to various sources, capital markets folks, bankers, there seems to be an increased pipeline of M&A activity that the banks expect early next year. So if that pipeline materializes then that should result in a lot more loan supply. And that's what I'm talking about. The dynamic where if you have that loan supply that then brings the supply demand into balance and that's certainly helpful for us. So that's kind of what we feel is going on in the loan market. And because of that, we think the spread tightening in the loan market has suddenly paused. Obviously, there is a scenario where the market continues to be super benign and the demand for loans continues to outpace supply and loan spreads tighten further. But that's but if that happens obviously that should bode well for our liabilities as well. And because both markets go hand in hand. And so we can then monetize that tightening by tightening our liabilities further. But what we are showing in the table I talked about earlier is basically kind of a static picture of where the portfolio is today. And based on the market conditions today, if we were able to reset those liabilities, that's the savings I was talking about the 40 basis points on 70% of the portfolio. Mickey Schiff Schleien: Okay. I understand. That's helpful. One follow-up question, if I can. For a couple of quarters now, NII per share for your fund is running about 20¢ below the distribution. Which was raised not too long ago. Could you walk us through what factors the Board considered in keeping the dividend stable? Ujjaval Desai: Sure. So I think the NII so there are, you know, obviously, various factors here. The NII drop has been because of spread compression in the underlying portfolio which we talked about. And so that has been that has been the main driver for that change. I think where we are and again, this is the point of that table is that the liabilities can be tightened which then boost our dividend yield once we can do the liability resets, right? So what we want to do is have kind of a knee-jerk reaction to one side of the equation, which is spread tightening on the asset side. Because it goes hand in hand with spread tightening on the liability side. But with a slight bit of delay. So that's what we're trying to manage to that to make sure that we don't just react to one side. The other side of the equation is very important too. Obviously in maintaining our arbitrage. And we are as the table shows every quarter we're going to make a meaningful dent in reducing that cost. Assuming the market stays where it is today. And so that's what we are effectively on a projected basis we feel very comfortable keeping the dividend where it is and that's why the board decided to keep it at $0.25 a month. We're not that far behind in terms of our sort of dividends paid out versus yield earned and you can see that from our presentation. We're running about $0.30 behind on a cumulative basis. So we could certainly catch up a chunk of that once the liability tightening can be accomplished through resets. Mickey Schiff Schleien: I understand. So it's really more of a timing thing. Those are all of my questions this morning. I very much appreciate you taking them. Ujjaval Desai: Of course, Mickey. Thanks. Operator: Your next question comes from the line of Eric Zwick from Lucid Capital Markets. Please go ahead. Eric Zwick: Thank you. Good morning. Most of my questions have been asked and answered at this point. But just looking at that page 10 and those estimated cost savings that you've mentioned you, your expectations for continued investor interest could cause further compression. Maybe just to kind of look at it from a different perspective, you know, in the past when interest rates have gone down, we've typically seen some spread widening. And if you believe this over curve, in your expectations for fed fund cuts, we could see, you know, base rates coming down further, which could potentially maybe erode the opportunity for you to realize some of those cost savings, particularly out maybe later in 2026. So just how much confidence do you have in your ability to extract the cost savings there to offset the, you know, kind of live or asset side compression that you've already seen? Ujjaval Desai: Eric, thanks for the question. I think, look, it's really hard to predict where the market is going to go. And, you know, we're not sort of experts in predicting rates right now, but there's certainly pressure on rates from both sides given the inflation dynamic as well as the labor market conditions. So we'll leave that as is. But in terms of the impact on our markets, clearly what we're saying is that if the market stays where it is certainly we can maximize these savings here. If the market goes wider you have two things going on. One the optionality to reset these liabilities is a go-forward optionality. So if you can't reset them immediately, we will be able to do them next time the market tightens. So it does create timing, but it's not a one-off option. So that's one thing. The second thing is that if liabilities do not tighten from here in that scenario, the assets will cheapen as well. And if that happens, we will be able to take advantage of that in two ways. One, our underlying portfolios, the portfolio managers that manage the CLOs we invest in we believe are top-tier managers who are very actively managing their portfolios. And to the extent there's any volatility, they can take advantage of cheaper assets to build par and improve the deals. And then as you know, we ourselves trade our portfolio quite actively and take advantage of any market volatility, any dislocation we see. Historically, I would say in the last sort of since inception of the CLO market, CLOs tend to do quite well CLO equity, particularly when there is volatility because of the optionality and the structure. And the reason why CLOs have had a challenging time this year is because of lack of volatility because spreads have gotten one way. So if there is any volatility, I think that certainly can be a helpful factor in the medium to long term. Certainly, will mean that our resets will get delayed a little bit if spreads widen out. But, I think it's more of a short-term impact. We're much more concerned on medium-term improving the outlook for the portfolio. Eric Zwick: That that's helpful, I appreciate the commentary. So it sounds like, you know, you're confident in the longer-term arbitrage opportunity still exists and there just may be some kind of short-term dislocations in terms of, you know, maybe assets repricing faster than you have the ability to liabilities, but over time, the opportunity remains, which is good to hear. So, that's all that's all I have for today. Thank you for Ujjaval Desai: No. I think they just to confirm that. Yeah. I think that the reason why we you know, this mismatch exists is because assets can reset loans can reset in six months while CLO liabilities are non-call for two years. So that's six months versus two years. That's the timing mismatch. And of course, it's very hard to predict where that goes going forward. But I think there are a lot of tools that we have that can be used to make sure that or a medium to long term the portfolio does well. Notwithstanding short-term kind of fall that you will see from market movements. Eric Zwick: Understood. Thank you. Kevin Gerlitz: Alright. Thanks, Eric. Operator: Your next question comes from the line of Tim D'Agostino from B. Riley Securities. Please go ahead. Tim D'Agostino: Hi. Thanks for taking the question. Just one for me on net asset value per share. Seems like there's a pretty substantial decline in the quarter. Looking at the balance sheet, obviously, you added the preferred b line and the repo. But I guess, you just provide more color on some of the drivers behind that decline quarter over quarter? Thank you. Ujjaval Desai: Sure. So the decline again, all roads lead to the same, fact, which is that spreads have tightened in the underlying loan market and liability spreads haven't tightened as much. So if you think about a portfolio of CLO equity, that's already in the ground, existing portfolio, if loans get repriced, the income component goes down. And that reduction is not matched by any liability tightening because that's still months away. What happens is that you get less income for equity and that is then that means there's less, sort of yield. Again, assuming liabilities stay where they are. End up with less yield. And that means the NAV of the portfolio keeps dropping because the CLO equity is marked based on discounting future cash flows at a required market yield, which hasn't really changed. This year. So the yield for CLO equity is still more or less what it was at the beginning of the year. But the cash flows have dropped. So that results in the mark to market sort of all these equity positions dropping. And we've seen that sort of, you know, if again, just rough math, if you have a 30 basis points or let's say 36 basis points in the last year, of spread reduction in the portfolio. That 36 basis points because of the leverage in the CLO structure means 400 basis points of drop in income per year. And that can result in 10%, 12% drop in the equity price. And so that's what we have seen. That's offset by the income we generate in the portfolio itself, but the NAV is going to be impacted. So that's it's all linked to the same factor and that's where the NAV is down. In the last quarter. Tim D'Agostino: Okay. Great. Thank you so much. Ujjaval Desai: Of course. Operator: Thank you very much. There are no further questions at this time. I would like to turn the call back to Ujjaval Desai, CEO for closing comments. Sir, please go ahead. Ujjaval Desai: Great. Well, thank you everyone for listening in today. I appreciate your support and your questions, and we'll look forward to seeing you again next quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for your patience. We will begin in about two minutes. Again, we thank you for your patience. We'll start in less than two minutes. Thank you. Greetings, and welcome to the Eagle Point Income Company third quarter 2025 financial results 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, please press 0 on your telephone keypad. It is now my pleasure to introduce your host, Darren Daugherty. Thank you. You may begin. Darren Daugherty: Thank you, operator, and good morning. Welcome to Eagle Point Income Company's earnings conference call for the 2025. Speaking on the call today are Thomas Majewski, Chairman and Chief Executive Officer of the company, Dan Ko, Senior Principal and Portfolio Manager for the company's adviser, and Lena Umnova, Chief Accounting Officer for the adviser. Before we begin, I would like to remind everyone that the matters discussed on this call include forward-looking statements and projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from such projections. For further information on factors that could impact the company, the statements and projections contained herein, please refer to the company's filings with the Securities and Exchange Commission. Each forward-looking statement or projection of financial information made during this call is based on the information available to us as of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law. Earlier today, we filed our third quarter 2025 financial statements and investor presentation with the Securities and Exchange Commission. These are also available in the Investor Relations section of the company's website eaglepointincome.com. A replay of this call will also be made available later today. I will now turn the call over to Thomas Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company. Thomas Majewski: Thank you, Darren, and good morning, everyone. Glad you're joining the call with us today. Eagle Point Income Company had a positive third quarter. Our NAV increased, and we covered our distribution from both net interest income as well as recurring cash flows. The scale and experience of the Eagle Point platform remain key advantages as we seek to capitalize on opportunities in a dynamic market environment for CLO investing. For the quarter, the company generated net investment income, less realized losses, of 26¢ per share. This was made up of $0.39 per share of net investment income and offset by 13¢ of realized capital losses. Recurring cash flows totaled $17 million or 67¢ per share, and this is consistent with the prior quarter's $18 million or $67 per share. Recurring cash flows exceeded our regular common and total expenses by 5¢ per share. NAV rose to $14.21 per share as of September 30, and that's up from $14.08 per share at the June. The increase reflects our continued portfolio performance, net investment income coverage of our common distribution, improving market conditions, and disciplined capital management. Our GAAP return on equity for the third quarter was 3%. During the quarter, we deployed $60 million into new investments. The new CLO equity we purchased during the quarter had a weighted average effective yield of 16.6%. The company's ability to invest in both CLO debt and CLO equity in both the primary and secondary markets allows us to assess relative value opportunities wherever they present themselves. Backed by Eagle Point's deep expertise in the CLO market, we believe this approach positions us to deliver attractive returns and long-term value for shareholders. We completed three resets and four refinancings of our CLO equity positions during the quarter. These actions lowered the debt costs in those CLOs and in the case of the resets, extended the reinvestment periods. Which continue to enhance our portfolio's weighted average remaining reinvestment period and long-term earnings power. During the third quarter, we issued $35 million of preferred stock through our at-the-market program. In light of recent Fed rate cuts, earlier today, we announced the scheduled redemption of 100% of our 7.75% Series B term preferred stock. This redemption allows us to further optimize our capital structure and reduce financing costs. Positioning the company to enhance earnings power for our common shareholders over time. Also during the quarter, we repurchased $21 million of common stock at an average discount to NAV of 8.3%. This resulted in NAV accretion of 7¢ per share. Today, we announced that our board increased our common share repurchase authorization to $60 million from $50 million, which had been previously announced in June. Since June, through October 31, we've repurchased in total $33 million of common stock and an average discount of 8.8% to NAV, creating $0.11 per share of NAV accretion for our shareholders. These actions reflect our ongoing commitment to enhancing shareholder value while maintaining prudent leverage and balance sheet flexibility. We plan to continue to be aggressive in buying back shares when they are trading at a discount to NAV. Since our last earnings call in August, the Fed has cut interest rates twice. Our CLO debt portfolio, which makes up the majority of our holdings, is directly indexed to short-term rates and will earn lower coupons as a result of the Fed rate cuts. Earlier today, we declared three monthly distributions of $0.11 per share for the '26. This is a reduction from our previous monthly distribution of $0.13 per share and reflects largely the impact of the Fed rate cuts. The company's board considers numerous factors when setting the monthly distribution level, including cash flow generated from the company's investment portfolio, GAAP earnings, and the company's requirement to distribute substantially all of its taxable income. We believe this new distribution level is aligned with the current interest rate environment and the company's near-term earnings potential. CLO debt is a floating rate asset, it is expected that our earning power will move around as benchmark rates move. Just as it increases when rates are rising. That said, we believe junior CLO debt continues to offer compelling risk-adjusted returns compared to comparably rated corporates, given its low credit expense and premium yield. I'll now turn the call over to Senior Principal and Portfolio Manager Dan Ko, for an update on the market. Dan Ko: Thanks, Tom. I'll provide a quick update on both the loan and CLO markets during the third quarter. The S&P UBS Leveraged Loan Index returned 1.6% for the quarter and continued to perform well through October, returning 0.3% for the month. There were five leveraged loan defaults during the quarter, and as of September 30, the trailing twelve-month default rate stood at 1.5%, up from 1.1% as of June 30 but well below the long-term average of 2.6%. The widely reported First Brands default caused most of the increase in the default rate but had a minimal impact on the broader CLO market. First Brands accounts for only 25 basis points of our portfolio on a look-through basis, and we do not view it as an indication of widespread credit weakness. Note that our CLO double B's benefit from par subordination, so the loss from September stood at 41 basis points, which is well below broader market levels. With rates expected to fall further, defaults should remain muted as loan issuers will have much lower interest costs. In addition, corporate fundamentals across the loan market remain resilient, with issuers generally continuing to grow revenue and EBITDA despite the effects of inflation, tariffs, and rates over the past year. During the quarter, approximately 6.8% of leveraged loans or roughly 27% annualized were prepaid at par. In general, loan issuers continue to be proactive in tackling their near-term maturities and the maturity wall, as we have mentioned on prior calls, continues to be pushed out. In terms of CLO new issuance, we saw $53 billion of volume during the quarter. This was up slightly from $51 billion in the second quarter. Reset and refinancing activity for the third quarter was $69 billion and $36 billion respectively. Both of which represented significant increases from the prior quarter. CLO debt spreads remain resilient despite the many bouts of volatility that we have observed in the third quarter. Although lower base rates weigh on the earnings power of our CLO debt portfolio, we view the yield and low credit expense offered by CLO BBs as very attractive relative to comparably rated fixed income instruments. Meanwhile, our CLO equity exposure provides a partial offset to lower rates, as it is less rate sensitive. Returns are largely driven by spreads, not base rates. In many respects, lower rates can be constructive for the asset class easing interest costs for loan issuers and supporting continued credit stability. While also seeing increased LBO activity that contributes to new loan supply and wider loan spreads. As of September 30, we had $52 million of cash in undrawn revolver capacity available for investment and common stock repurchases. Providing ample liquidity to act on the best relative value opportunities and deliver long-term value for our shareholders. With that, I'll hand it over to our adviser's Chief Accounting Officer, Lena Umnova, to walk through our financial results. Lena Umnova: Thank you, Dan. For the third quarter, the company recorded net investment income less realized losses of $7 million or 26¢ per share. This compares to NII and realized gains of $0.39 per share for the last quarter and NII and realized gains of 57¢ per share for the third quarter of last year. Including unrealized portfolio gains, GAAP net income was $11 million or 43¢ per share for the 2025. The company's third quarter net income was comprised of investment income of $16 million and unrealized gains on investments of $5 million. Partially offset by financing and operating expenses of $6 million, realized losses of $3 million, and unrealized losses on certain liabilities recorded at fair value of $1 million. Additionally, other comprehensive income was $1 million for the third quarter. We paid three monthly distributions of 13¢ per share during the quarter, and earlier today, we declared three monthly distributions of 11¢ per share for the first quarter of next year. As of September month-end, the company had outstanding preferred equity securities which totaled 35% of total assets less current liabilities. This is at the top end of our long-term target leverage ratio range of 25 to 35%, where we expect to operate the company under normal conditions. The company's assets coverage ratio at quarter-end for preferred stock calculated in accordance with investment company requirements was 285%. This is comfortably above the statutory requirement of 200%. As of September month-end, the company's NAV was $356 million or $14.21 per share. An increase versus $14.08 per share as of June month-end. During the quarter, we repurchased over 1,500,000 shares of our common stock for the total amount of $21 million. At the average discount to NAV of 8.3% per share. This has resulted in NAV accretion of 7¢ per share. We would like to highlight that all repurchased shares were retired. Looking at our portfolio activity during the month of October, the company received recurring cash flows on its investment portfolio of $17 million. I would like to highlight that some of the company's investments are still expected to make payments later in the quarter. As of October month-end, net of pending investment and settlement, the company had $55 million of cash and revolver capacity available for investment and other purposes. Management's unaudited estimate of the company's NAV as of October month-end was between $13.94 and $14.04 per share. I will now turn the call back over to Tom who will provide closing remarks before we take your questions. Thomas Majewski: Thanks, Lena. The third quarter demonstrated our focus on actively managing our portfolio and executing our strategy across shifting market conditions. We were selective in finding the best relative value opportunities between CLO debt and equity. We also remained active with our share repurchase program aggressively buying back stock, which we believe is undervalued. The board increased the program giving us more to keep buying our own stock at a discount. It's a great investment for the company. Periods like this often reward patient, well-capitalized investors and we believe the company is well-positioned to continue generating solid risk-adjusted returns and building long-term value for our shareholders. We appreciate your continued support. Thank you for your time and interest in Eagle Point Income Company. Lena, Dan, and I will now open the call to your questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. Participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, while we poll for questions. Our first question comes from the line of Erik Edward Zwick with Lucid Capital Markets LLC. Please proceed with your question. Erik Edward Zwick: Hey, Eric. How are you? Thomas Majewski: Hey. Thanks. Good morning. Good to talk to you again today. Wanted to start just looking at slide 26, and it seems, you know, in the most recent data for revenue and EBITDA change for below-grade companies that it's we've seen a little bit of a pickup here. And then if we kind of, you know, take the Fed cuts and reductions and so forth that we've already seen and maybe extrapolate the futures curve a little bit. It seems like, you know, kind of profit for companies are trending in a positive direction. So just curious, you know, what that means for your expectations in terms of, you know, credit quality going forward. There certainly are some concerns in the market today and some unknowns in the macroeconomic, but you know, wonder if you kind of put that together and relay some thoughts on future credit quality. Thomas Majewski: Yeah. A very good question. And on this page, which looks like page 26 in the deck, you can see data going back over a decade going back to 2012. And generically below investment grade companies should be growing at a faster rate than the economy. That's just kind of the nature of the beast. They're levered. They're growth-oriented. In many cases, sponsor-backed. If you look at the last few quarters, in general, you can see a positive revenue trend. And a positive-ish EBITDA trend, not as good as the revenue trend is a little bit of a spread there. But overall, that's what we like to see. This goes through Q2, which does include some of the tariff-related behavior. Q3 data is still kind of being finalized right now. But overall, you know, we view this as directionally credit positive. You know, these numbers I don't want to say they can never be big enough if they were both if the 6.3 and 4.3 were double, we wouldn't object for sure. If they were triple, we might wonder what's going on. But overall, the growth of these companies is very much moving back into the right direction. We certainly had a little bit of shock earlier in the year. But the takeaway here, you know, if top line and bottom line are growing, you know, those are credit positives. You know, broadly for the companies we deal with. Dan Ko: And if I might add, this is Dan Ko speaking. As long as these kinds of companies continue to grow revenue and EBITDA, we haven't seen defaults pick up materially. And if anything, as maybe the growth rate increases, we'll likely see defaults start to slow down, which we've seen in some of the research that we're seeing, the outlooks for next year, kind of seeing default rates come down. We've even seen the percentage of kind of LMEs relative to last year kind of come down. And so generally, with lower rates should lower the interest cost for a lot of these companies. So from a credit standpoint, should be at least some tailwinds going into next year. Erik Edward Zwick: That's all great to hear. And then on the next slide, slide 27, there's been a noticeable increase in annual trading volume really since 2020, maybe, notwithstanding 2021. And it looks like '25 is on pace to be a record if I extrapolate into the fourth quarter, from the first three quarters. So one, I guess, maybe a two-part question. One, what has driven that increase over the past call it, you know, five plus years? And two, what does that mean for your business in managing Eagle Point Income Company? Dan Ko: Sure. So in terms of trading volumes, I think some of that has to do with the fact that there are just more eyes on CLOs. I think people have recognized just the premium yields that you can receive as well as the low credit expense for CLO debt relative to kind of other fixed income asset classes, rated fixed income asset that are out there. So I think people have seen just the data on how well it's performed. And so we're seeing a lot more activity within the CLO space. There are more entrants kind of looking at buying CLO debt as well as equity, which has kind of increased the competitive landscape of being kind of the established player in the space certainly helps in that, you know, we're a top counterparty for nearly all the desks that are out there, both on our debt and equity standpoint. And then for your second part of your question, some of that I guess, of the increase is really due to, I guess, the advent of ETFs that have come along kind of over the past couple years or so. So a lot of the I think the investment-grade trading activity is probably related to ETF. Some of the non-investment grade as well. But, ultimately, we think that the additional liquidity that we're seeing within the market, I think, is good. In that it allows us to be able to take kind of views on investments to buy and sell. And the bid-ask typically for a lot of these tranches has kind of tightened. So just an easier way for us to kind of express views on our positions. Erik Edward Zwick: Thanks. And last one for me. Just making sure I'm following your thoughts correctly reducing the dividend. Going into Q1 of next year. Safe to assume you know, I think you mentioned, yes, primarily due to the Fed rate cuts that we've seen and maybe some more coming. Safe to kind of assume that you feel the earnings power of the portfolio is likely to trend down somewhat here from this level? That you were reported in the most recent quarter? Dan Ko: Yeah. I mean, it has something to do obviously, the rates is a driver of that for the CLO debt portfolio. But, you know, we are making some rotations within the CLO equity portfolio to kind of increase earnings and to offset some of that. As well as some other higher-yielding investments. So we do we change the dividend rate to what we see as kind of the near-term kind of a rate that can be supported. But, obviously, many factors kind of go into determining that each quarter along with the board. But at least for Q1, we think that that's kind of the appropriate level. Erik Edward Zwick: Thank you for taking my questions. Dan Ko: Of course. Thank you. Operator: Our next question comes from the line of Timothy DeGasino with B. Riley Securities. Please proceed with your question. Timothy DeGasino: Yeah. Hi. Thank you. Kind of piggybacking off that last question in terms of what asset rotation, it seems quarter over quarter, dealer debt decreased. Fine. That kind of breaks the trend of the past four quarters of, you know, like, more CLO debt assets. It also seems like you're sounds in those investments. So it's obviously sad to see kind of the higher yields go away, but it's also good to get par back a lot sooner than we had anticipated, certainly when we bought some of these at a discount. And so we have seen a little bit of a buildup in cash as we announced that some of that cash is gonna be used to pay down the EICBs. Later this quarter. So that's kind of I guess, why we have a little bit of a little more cash than usual. But, also, it's kind of finding the right kind of relative value in investments. CLO double B's are by no means kind of a sector that we're trying to exit. But trying to pick our spots given that most of the paper that we think that's interesting today is actually less new issue, but probably more refis and resets. But they do come with a little bit of kind of hair in the portfolios. They're not as squeaky clean as new issue is. But you can pick up 50 to 100 basis points potentially, so kind of picking our spots, then also kind of trying to pick our spots for CLO equity as well as kind of other sort of higher-yielding investments. Timothy DeGasino: Okay. Great. And then just as a follow-up to that for on the cash component. You mentioned paying down the fees. Is that the primary focus to pay down the fees with the cash or will you also be looking to buy back common shares? Just trying to understand, you know, like, where we could see the cash flow more towards it. Is it gonna be paying down the Visa 100% and taking buying back some common? Or will you really just be focused on paying down the bees? Thank you. Thomas Majewski: Yeah. I mean, it's really to focus on the bees, and we haven't publicly announced any sort of share buyback. I'm sorry. I'm sorry. We have announced a share buyback. I apologize. Yes. I mean, so we'll be using it for both. That we'll pay back the bees and then, you know, we've said in the script that we'll aggressively pay look to buy back the common. So we'll be using it for ultimately for both. Timothy DeGasino: Okay. Great. Thank you so much. Thomas Majewski: Thank you. Operator: Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your question. Christopher Nolan: Hi. Thanks for taking my questions. On page 22, you have the largest industry concentration is software and technology. How much of that might be AI or data center related, please? Dan Ko: Not a ton, to be honest. Most of this is kind of enterprise software. So kind of software that's really embedded in a lot of companies' operations. And so it's, you know, stickier credits. It's harder for companies to pull out the software that they're using on a daily basis because you've assisted the replace or the cost of replacing, meaning both just the actual cost but also just the time and effort that goes into replacing the software is very costly. So it's been generally, one of the higher industry concentrations within the loan market. And has generally performed well over the past several cycles. Christopher Nolan: Great. As a follow-up, just following up to the most recent question talking about investing in the double B's. When you're looking at deals to invest in, is there particular industries that you're looking to get more exposure on? Or does each CLO seem to have a broad-based industry composition? Dan Ko: Yeah. I mean, most CLOs have very similar industry concentrations than the loan market. And that CLO managers are generally buying kind of what the market has put before them. You know, you might see, you know, a little bit of tweaks here and there, and maybe a certain manager decides not to buy any kind of oil and gas names because they've been burned in the past. But it's kind of hard to avoid some of the higher, like, you know, technology and healthcare. Those are typically the two highest concentrations within the loan market. So but most people are not materially kind of off index, if you will. Christopher Nolan: Great. Thank you. Dan Ko: Thanks for your questions. Operator: Thank you. And we have reached the end of the question and answer session. Therefore, I'll now turn the call back over to Thomas Majewski for closing comments. Thomas Majewski: Great. Thank you very much, everyone. We appreciate your interest in Eagle Point Income Company. We continue to work very hard for shareholders. The biggest thing continuing to aggressively buy back our stock using the buyback program. Good to get their call of the preferred use at the highest rate. We'll get that done this year and continue to optimize the company's balance sheet and continue to look for the best investments for the company. So we appreciate your time and effort and time and interest, and we appreciate joining us today. Thank you very much. Operator: Thank you. And ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Miranda Hunter: Good morning, and welcome to Fidelis Insurance Group's Third Quarter 2025 Earnings Conference Call. With me today are Dan Burrows, our CEO, Allan Decleir, our CFO, and Jonathan Strickle, our Group Managing Director. Before we begin, I'd like to remind everyone that statements made during the call, including the question and answer section, include forward-looking statements. Management's comments regarding expectations, projections, targets, and any future results are based on current assessments and assumptions and are subject to a number of risks, uncertainties, and emerging information developing over time. It's important to note that actual results may differ materially from those expressed or implied today. Additional information regarding factors shaping these outcomes can be found in Fidelis' SEC filings, including our earnings press release issued last night. Management will also make reference to certain non-GAAP and proprietary measures of financial performance. The reconciliations to US GAAP for each non-GAAP financial measure, as well as our descriptions of proprietary financial measures, can be found in our earnings press release available on our website at fidelisinsurance.com. With that, I'll turn the call over to Dan. Dan Burrows: Thanks, Miranda. Good morning, everyone, and thank you for joining us on our call today. Our excellent third quarter performance is a reflection of three key points that we hope you will take away from this call this morning. Firstly, we delivered outstanding results. This performance demonstrates the strength of our portfolio and the success of our underwriting strategy. Our combined ratio for the quarter was 79%, our best as a publicly traded company, and an improvement of more than eight points from the same quarter last year. Our annualized operating ROAE was 21.4%, which represents an increase of five points year over year. We also grew diluted book value per share by $1.25 in the quarter. Secondly, we expect to continue driving profitable growth. We delivered strong top-line growth of 8% for the quarter, in line with our target range of 6% to 10% for the year. This performance reflects our leadership in lines of business with more pronounced verticalization. We are leveraging our deep relationships and unique market access to continue broadening our distribution network and creating attractive growth opportunities in a prevailing hard market. That brings us to our third key message, which is our ongoing focus on dedicated capital allocation and expert risk selection. That means we strategically determine the best risk-reward opportunities, balancing profitable growth with returning capital to shareholders through share repurchases and dividends. It also means working with our growing network of underwriting partners to select the optimal risks in line with our strategy. Turning to performance across each of our segments, within insurance, we delivered 4% growth on gross premiums written in the quarter. As we continued to strategically deploy capital into areas of opportunity and margin, we saw strong performance from our property and asset-backed finance, portfolio credit books, and our overall RPI remained broadly flat, reflecting our differentiated position, business mix, and product diversification, as well as our ability to effectively navigate market conditions and capitalize on cross-selling opportunities. As a reminder, RPI reflects price, terms, and conditions. Our direct property book grew 9.5% for the same period year on year, driven by new opportunities at compelling pricing. Given the pronounced verticalization of the property market, we are able to leverage our deep multiline relationships, meaningful line size, and unique access to secure attractive rates, terms, and conditions. We also continue to benefit from a strong flow of new business moving from the admitted markets to the E&S market. For example, in the quarter, we identified a flow of new high-value homeowners business opportunities. Our client and business retention rates continue to be strong, and we delivered an RPI that was broadly in line with the previous quarter. Even though rates have decreased in certain areas, our portfolio continues to deliver pricing which produces attractive margin, enhanced by our ability to capitalize on favorable pricing dynamics in the facultative market. Additionally, terms and conditions in the property market have significantly improved following the substantial changes achieved during the hard market over the past seven years. As a result, we are able to maintain attractive margins in this important line of business. Asset-backed finance and portfolio credit have remained key drivers of growth. We are converting on our pipeline of strong opportunities, including through our new underwriting partners. This business is highly bespoke in nature, and buying motivation is driven by capital relief or underlying transaction facilitation. These bespoke offerings are largely unaffected by traditional insurance pricing cycles. As a leader in this space, we execute on our terms. Across other major lines of business within the insurance segment, performance has remained consistent with expectations. In the aviation hull and liability sector, we're beginning to see encouraging signs, and let me remind you that this is a highly verticalized market. As a leader, we set pricing at the top of the market ranges as well as other differentiated terms. We will remain cautious in this line and will continue to monitor trends throughout the balance of the year, selectively deploying on opportunities where we believe price adequately reflects risk. In marine, we're again seeing signs of widening verticalization. We continue to leverage our ability to offer leading capacity across all the major subclasses to balance our portfolio in line with appetite and maintain overall margin. New builders' construction opportunities continue to support growth in the portfolio. Turning to reinsurance, we delivered 20% year-on-year premium growth, driven by enhanced pricing at seven one. We capitalized on attractive post-wildfire opportunities, which presented significant price increases supporting our renewal book as well as the ability to add new business. Overall, the RPI in reinsurance for the quarter was positive, supported by double-digit increases on the US book driven by post-loss pricing. While we saw more pressure across international pricing, we continue to see margin across the portfolio following prior year increases. Our focus is on maintaining coverage and structure, taking a disciplined stance to pricing as we evaluate the portfolio. Pricing dynamics continue to develop in the lead-up to January the first renewals. We are leveraging the interplay between our inwards portfolio and outwards reinsurance to enhance overall portfolio efficiency. We believe that current dynamics will provide attractive opportunities to further strengthen our protections. As a reminder, we use proportional reinsurance as a valuable tool to create underwriting leverage, which, depending on peril and/or territory, can be up to 60%. This supports our gross-to-net line size strategy, enabling us to deploy as a leader with meaningful capacity, working with our core partners across our portfolio. We are pleased to have renewed our whole account quota share with Travelers for 2026. They continue to be a valued and strategic partner. With that, I will turn it over to Allan to discuss our financial results in more detail, and then Jonathan will cover our underwriting risk selection strategy. Allan Decleir: Thanks, Dan, and good morning, everyone. Taking a closer look at our quarterly results, we had an excellent third quarter with operating net income of $127 million or $1.21 per diluted common share, resulting in an annualized operating return on average equity of 21.4%. We also continued to grow our book value per diluted common share to $23.29. Including dividends, this is an increase of 8.3% since year-end. In the third quarter, we grew our gross premiums written by 8% to $798 million, bringing our year-to-date gross premiums written to $3.7 billion, also an increase of 8% versus the same period last year. In the insurance segment, gross premiums written increased by 4% in the quarter to $606 million. We saw continued growth from new business in our asset-backed finance and portfolio credit line of business. Meanwhile, in the reinsurance segment, gross premiums written grew to $192 million for the quarter, compared to $159 million in the prior year period. The increase relates to new business opportunities, including from loss-impacted accounts following the California wildfires. Our net premiums written increased by 8% versus 2024, in line with our growth in gross premiums written. Our net premiums earned decreased by 5% versus 2024. The decrease was driven by business mix, as a result of higher gross premiums written in lines of business with longer earnings patterns, such as asset-backed finance and portfolio credit. On a year-to-date basis, our net premiums earned have increased by 7%, which aligns with our gross premiums written growth of 8% for the same period. Our excellent underwriting performance resulted in a combined ratio of 79% for the quarter, our best as a publicly traded company, and more than eight points better than 2024. I'll break down the components of the combined ratio in more detail. During the third quarter, our attritional loss ratio continued to trend positively, improving to 23.2%. This compares to 24.7% in 2024, reflecting the continued strength of our portfolio. For the third quarter, our catastrophe and large losses were $57 million or 9.6 points of the combined ratio, an improvement compared to the same period last year where our losses were $92 million or 14.4 points. We recognized net favorable prior year development of $16 million for the quarter, compared to $10 million in the prior year period. Of the $16 million recognized in the quarter, $3 million was in the insurance segment and $13 million in the reinsurance segment, which was driven by positive development on prior year catastrophe losses and benign prior year attritional experience. Turning to expenses, policy acquisition expenses from third parties were 29.9 points of the combined ratio for the quarter, compared with 31 points in the prior year period. While we may see movements quarter to quarter, policy acquisition expenses are in line with expectations. We continue to anticipate our annual policy acquisition expense ratio to be in the low thirties for insurance and in the mid-twenties for reinsurance, in line with our year-to-date results of 30.4 points in insurance and 26.1 points in reinsurance. For the quarter, PFP commissions accounted for 14.5 points of the combined ratio, compared to 15.3 points in 2024. This decrease was due to underwriting profits from TFP not meeting the required 5% annual hurdle rate in 2025. Therefore, we have not accrued any profit commission as it is calculated based on annual performance. Finally, our general and administrative expenses were $27 million versus $23 million in 2024. Our year-to-date G&A of $72 million continues to trend below our expected $26 million per quarter as a result of lower accrued variable compensation. Moving on to our investment results, our net investment income for the quarter was $46 million, compared to $52 million in the prior year period. In addition to our net investment income, we have net unrealized gains on our other investments of $5 million as a result of our strategic deployment of assets into alternative investments, including a hedge fund portfolio which began in 2024. As of September 30, the average rating of our fixed income securities remains very high at A+ with a book yield of 5%, reflecting the steps we have already taken to optimize our portfolio. Average duration remains consistent with year-end at 2.7 years. Turning to tax, our effective tax rate for the first nine months of the year was 18.8%, compared to 14.6% in the same period of 2024. This rate reflects a greater proportion of pretax income generated in higher tax rate jurisdictions. To reiterate what I said on the last call, we expect our full-year effective tax rate to remain in the 19% range given the expected mix of profits and losses across our three locations. Looking at our capital management strategy, as Dan mentioned, our focus is on being best-in-class capital allocators. Our approach begins with deploying capital into the most attractive underwriting opportunities. We also use outward reinsurance as a strategic and fungible tool to support growth and optimize our capital structure. We remain committed to returning excess capital to shareholders through a mix of dividends and share buybacks. Our focused and disciplined approach ensures we are well-positioned to maximize value for our shareholders while maintaining the financial strength and flexibility to support our long-term strategic objectives. We continue to view share repurchase as a highly accretive use of capital given our current share price. In the third quarter, we repurchased 1.8 million common shares for $32 million at an average price of $17.40 per share. Subsequent to September 30 and through November 7, we repurchased an additional 820,000 common shares for $15 million at an average price of $18.25 per share. This brings our shares repurchased for 2025 to 9.6 million common shares at an average price of $16.46, and thus highly accretive on both a book value and earnings per share basis to our shareholders. In conclusion, our results this quarter demonstrate the strength of our portfolio, the effectiveness of our approach to investments and capital management, and our commitment to delivering returns to shareholders. I will now turn it to Jonathan, who will discuss our underwriting partnerships and market outlook by line of business. Jonathan Strickle: Thank you, Allan. As Dan mentioned earlier, our third quarter results reflect positive contributions from the continued expansion of our underwriting partnerships. Today, our total number of underwriting partners has grown to the mid-single digits. While we don't break out the individual collective contributions of these partnerships, they remain a strategic priority and play an increasingly important role in our growth and differentiation as we shape the future trajectory of our business. Building on Allan's comments about capital management, our top priority is allocating capital to underwriting strategies offering the best risk-reward dynamics, and then determining the best partners to help us execute. Our cornerstone relationship with the Fidelis partnership provides consistent access to a leading, well-established book of specialty business. We have exclusive access via our right of first refusal on all business written by the Fidelis partnership. Under our ten-year rolling agreement, only business that is not within our underwriting strategy and which we decline to support is then available for the Fidelis partnership to place with other capital providers. Importantly, our agreement gives us significant flexibility when it comes to allocating any additional capacity we wish to deploy. This allows us to choose the most suitable underwriting partners in a particular area, whether that's the Fidelis partnership or other partners in our network. Our robust pipeline of new partnership opportunities with top-tier underwriters provides valuable complementary growth prospects. Our focus remains on risk-reward, margin, and pricing adequacy. As a market leader, we are disciplined in maintaining underwriting standards, even as we see competition increasing in certain lines. It's important to remember it remains a highly attractive underwriting environment following several years of compound rate increases that have significantly improved margins, structures, and terms and conditions. Taking a closer look at opportunities we're seeing across our segments, property insurance continues to deliver compelling loss ratios that reflect both our ability to risk select and to achieve differentiated pricing. We've maintained high retention rates, and we've complemented our portfolio by allocating capital to new business opportunities through a growing set of distribution channels. As a leader in a verticalized market, we continue to underwrite business with attractive margins across the portfolio. In other traditional specialty lines, we continue to exercise strict underwriting discipline and capitalize on areas with the most attractive rate and margin. For example, in marine construction, new business opportunities have allowed us to continue to grow in an area that remains well-priced. And as we noted last quarter, we're seeing signs of improvement in areas of aviation pricing following recent loss events. Outside of our traditional specialty lines, a significant portion of our insurance business is largely unaffected by the broader market cycle, particularly where placements are linked to the facilitation of underlying transactions or provide significant capital relief for our clients. In structured credit, we continue to see attractive opportunities from a risk-return standpoint, supported by our long track record and strong client relationships. We have built a robust suite of products and established a track record of customization in this space. These lines of business have been a consistent outperformer and differentiator for us over the past decade. Our current focus is on introducing these capabilities to an ever-increasing client base. We are monitoring a strong pipeline heading into year-end and are actively structuring programs for both new and existing clients. Turning to reinsurance, even if pricing moves back towards levels seen in the last couple of years, remember these years represented one of the best trading environments we've experienced in the past two decades. As a result, we remain in a prevailing hard market and are still seeing significant margin in property cat reinsurance. Our priority is to maintain discipline, particularly in upholding coverage, terms, and conditions, and continue to capitalize on the most compelling opportunities. At the same time, we are further enhancing our outward reinsurance, combining traditional reinsurance protections and alternative risk transfer mechanisms such as cat bonds, to achieve optimal portfolio protection. For these reasons, we remain confident in our ability to deliver compelling underwriting margins across our segments. I will now turn it back to Dan for closing remarks. Dan Burrows: Thank you, Jonathan. Let me leave you with a few final thoughts before we take your questions. As this excellent quarter demonstrates, we are delivering results through expert risk selection, strategic capital allocation, and a growing network of underwriting partners. We just reported our best quarterly combined ratio as a publicly traded company, and we are driving consistently higher diluted book value per share. In a prevailing hard market, our lead positioning in highly verticalized lines of business is a clear differentiator and a competitive advantage. This enables us to continue driving profitable growth and preserving strong margins even if rates become pressured in certain pockets. Our strong balance sheet gives us significant flexibility to shape our future. We are focused on striking the optimal balance between underwriting growth and other strategic uses of capital to ensure every dollar we deploy delivers attractive returns for our shareholders. With that, operator, we will now open the line for questions. Operator: We will now begin the question and answer session. Again, to ask a question, please press star followed by one. Before we take your questions, I'd like to kindly ask everyone to please limit your questions to one primary question along with a single follow-up. If you have any further questions, please rejoin the queue. With that, our first question comes from the line of David Motemaden from Evercore ISI. David, please go ahead. Your line is now open. David Motemaden: Hey, thanks. Good morning. Just had a question, Dan, just in terms of how you're thinking about you obviously saw the good growth in reinsurance this quarter. How are you thinking about just the one-one renewals both from an inwards and outwards perspective and know, sort of expectations, I'd be interested if you guys think just holistically, you guys can do the same sort of top-line growth for the company as you did this year in 2026? Dan Burrows: Thanks, David. It's a really interesting question. It's Dan here. So I think fundamentally, we're still bullish about the market. We still think, as others have commented, that we're in a prevailing hard market. In many lines of business, we're still very much very near the kind of peak of market that we've seen, you know, the best market conditions in the last twenty years. So I think that gives us confidence that, a, the portfolio performed really well in the quarter, and, b, that there are opportunities to grow. And I think when we look at that, looking forward, that will be with both the Fidelis partnership and now importantly through our network of new underwriting partners. So I think, you know, we're looking for best-in-class A property MGA in California, and we built a really strong mic Partnerships. We onboarded in Q3. pipeline moving into head to one-one. That's really building on the strong relationships that we have in the industry. So I think we're really excited about executing on that strategy. We do see growth opportunities across the book. Very verticalized market. You've heard us mention that. In previous calls and in the script. That that is broadening. Rates, term, and conditions really are becoming more differentiated by carrier. Really depends now where you sit in the food chain. We're a lead market. We get leverage through that. We have over a 100 lines of business that we set terms, conditions, and we execute on those. So we have a differentiated outcome, and I think that plays through the result. In our APIs and our ability to grow moving forward. I think the second part looking at outreach reinsurance yet, very important interplay between inwards and outwards aligning coverage, looking for efficiency next year in our retro session programs. We do use proportional, to gross our lines up. That's a really important part of being a leader. The gross to net strategy. I think we'll be looking to broaden cover, look for efficiency in the outwards program, If you remember last year, when we commented on the one-one outwards program renewals, we did actually see that market as the most competitive. And I think we'll see more of the same moving into one-one. There's more supply obviously, across, you know, insurance and reinsurance. We do expect more demand as well, but we think that's going to be a really competitive market. David Motemaden: Got it. Thank you. And maybe just following up, just it sounded like the RPIs that you disclosed were generally stable this quarter versus last quarter. Yep. Was that I mean, it sounds like there's still pressure particularly in some of the property lines. So I'm wondering, that just less this quarter? Were you did you put more outwards on at favorable terms that kind of offset that? Because I know that's included in the RPI. Just hoping to get some color around that as well. Dan Burrows: Can you ex Exactly right, David. I think there is definitely more pressure in certain lines, proper direct is certainly one of those. And then, again, that's why it's important to be able to deploy meaningful capacity as a leader. Also, you know, cross-class selling. If you're offering multi-class capacity to a client, to a broker, it kind of gives you that leader leverage. We've got really strong retention rates in the book. Really strong margins that built up over compound increases for the last five to seven years. It's been an incredibly strong performer. Our direct property book is running at 40% loss ratios, and we're still seeing a flow of business from admitted market into the ENS market. You know, when we think about the quarter, we also on some hot new high-value homeowners business. There are opportunities out there just got to work a lot harder and, you know, when we think about RPIs, you're right, David, it's not just price terms, conditions, and, you know, what we're seeing is coverage structures, retentions, are holding firm. They're pretty robust. And the pressure is more on pricing. But even saying that, there's plenty of good margin in the book. David Motemaden: Got it. Thanks. And maybe if I could just sneak one more in. So it sounded like the direct property group sorry, direct property book grew 10% in the quarter. You know, just given what sounded like elevated competition there, it sounded like some new home owned business helped that. I'm wondering if there you know, any sort of tailwind that you guys might seen or or you guys think might be coming just from some of the construction of data centers, if that's a line that you guys are in in terms of providing capacity on those, on those deals. Jonathan Strickle: Hey, David. It's Johnny here. I'll take that one. Mean, I think that's a great example of our strategy to be proactive in responding to changing risk landscape mean, you look at that type of risk, there's really large insured values there. It's difficult to be meaningful on that type of placement unless you've got a large line size. It's one of the benefits of the structure we have here at Fidelis. So through our right first refusal with the partnership, we can take the line size that we'd want to deploy on that type of opportunity and then align up other capacity providers behind us to have an overall larger line size for them to go to market with. That then lets them be meaningful in the placement so they can negotiate pricing terms and conditions and we can benefit from the leverage of that without having a line size that would unbalance our portfolio. So, yeah, we're really excited by that opportunity it's something that I think would be more difficult to on unless you have the structure that we have. David Motemaden: Got it. Thanks, guys. Operator: Thank you. The next question today comes from the line of Meyer Shields from KBW. Please go ahead. Your line is now open. Meyer Shields: Thanks so much. I was hoping to talk a little bit about verticalization because just wanna make sure I understand it. Should we think of this as a typical soft market phenomenon? Dan Burrows: Hi, Meyer. It's Dan. Actually, it's a phenomenon that is prevalent in both you know, both hard and a softening market. So we see it across a cycle. I think in more recent cycles, it's actually been exaggerated. Now we're seeing a more differentiated position as there's a bit more competition. So as I said earlier, being a lead you sit at the top of the food chain you see risks first, you can set terms, conditions, can execute even before others see it. So brokers bring you the opportunities say say new business and growth, and we can execute on that. So there's a real difference between market makers and the market takers here. Or price takers. I think it's very important, you know, that you we continue to back leaders that have track records over many decades in the market. That can manage through the cycle. Richland and the underwriters at TFP have demonstrated that. When we look for new partners, we want track records. We want them to be able to trade through different markets cycles. And we're really excited about the pipeline we built there as well. Meyer Shields: Okay. Thank you. That's helpful. Second question, there does seem to be a little bit of disruption in The US wholesale market, and, you know, it seems to be just the implications of how in building a retail platform. I was wondering if there's an update in terms of how the, really the challenges and opportunities that that presents. Dan Burrows: Yeah. Interesting question. It's Dan again. I think the short answer to that is can definitely say we've seen some opportunities coming out of that. But I wouldn't really wanna comment anymore on how the strategy and what that means to the market other than we are seeing opportunities because of that. Meyer Shields: Okay. That's good, man. Thanks so much. Operator: Thank you. The next question today comes from the line of Leon Cooperman from Omega Family Office. Thank you. Let me first congratulate you on a good quarter. Know, and excellent results. I still get mystified, you know, I'm a I'm not an insurance expert, I do look at numbers closely. We have superior profitability to the primary insurance carriers. And the reinsurance peers. Yeah. We sell a very significant discount in our multiple there something you're hearing about our business prospects? That would suggest we deserve to sell a discount multiple? Dan Burrows: Yes. Thanks, Lee. Appreciate the question. It's Dan here. Yes. Look, we just had our best quarter our best combined ratio since IPO. I think to unlock value, we really need to be consistent and deliver strong underwriting results quarter on quarter. Agree with you. Think we're undervalued. You know, especially given results like this. Our opportunity to grow profitably. And sustainably, And now we're, you know, with a very strong balance sheet, that we've built over the last couple of years, we can grow not only with the TFP but other best in class underwriters. Richard sets a very high benchmark and anyone we're considering would have to meet or beat that. But they do exist, and that gives us confidence that we continue to grow, continue to deliver good combined ratios and good ROEs that will unlock the value. But, yeah, fundamentally, we agree with you We are, you know, we're undervalued at the moment. Leon Cooperman: Well, basically, in the last call, talked about 12 to 16% return on equity. And we're now running over 20. Are we over earning or would you raise the target of being sustainable 20% ROE is realistic to where you're running the business. Yeah. Good question. I think you know, we state our financial metrics as being through the cycle. I think we're comfortable where we are now. But it does obviously demonstrate the strength of the underlying portfolio. Dan Burrows: So if I took the dollar 20, whatever the number was in the third quarter, multiply it by four, that would not be out of line with what you're thinking for next year? Leon Cooperman: Yeah. It's a good question. I think if we can continue to deliver quarter on quarter, then that's where we're heading, Lee. Dan Burrows: The stock is showing you, like, five times earnings. Doesn't make any sense. We're doing the right thing and it's freaking the cap. Leon Cooperman: With we'll see what happens. Dan Burrows: Yep. We're working hard later to develop deliver value to every shareholder. So, you know, all we can do is continue to deliver quarter on quarter. Allan Decleir: Thank you. Operator: Next question today comes from the line of Brian Meredith from UBS. Please go ahead. Your line is now open. Brian Meredith: Yes, thanks. A couple of them here. Just first, any exposure to some of the Caribbean losses in the quarter from the hurricane? Dan Burrows: Yeah. Thanks, Brian. Look. Firstly, obviously, a tragic event the island of Jamaica and like many others, our thoughts are with all those people. We do have some exposure with respect to loss impact for us. It's just too early. Give detailed numbers on that. I would say based on our initial analysis, we would expect any, you know, net losses would fall within our expected cat load. To be honest, Brian, that's about as much as I can say at the moment. Brian Meredith: K. Thanks. And then second question, I'm just curious. Could you talk maybe a little bit about your, you know, either some of the partnerships or capabilities to kind of take advantage of whole data center construction you know, build out and all the insurance opportunities there? Jonathan Strickle: Hey, Brian. It's Johnny here. Yeah. I'll take that one. I think as we were saying earlier, it's really about having a meaningful line size to be able to participate on those programs in the first place. And an even bigger line size than would normally be deployed in order to be meaningful enough to drive pricing terms and conditions on it. So that's the core of the strategy. Now, we would choose reinsurance to gross our line size up anyway. If we take 50% reinsurance, for example, a line of business, that means we can double the gross line we put out and still be happy with our net position. So that's one part of our strategy to help deploy in a more meaningful way on this type of program. And the other one really comes from our structure. So, with the structure with the Fidelis we can put down the line that we would like, they have other capital providers that can then come in and put more capacity behind that. They can go with that combined proposition and negotiate as one and get terms and conditions that benefit all. So for us, I think the strategy of deploying in a meaningful way is key across our portfolio. No doubt. I think that's one of the big drivers in terms of price differentiation. But on this type of opportunity, it lets you get in there first, be meaningful, and really lead the market. Brian Meredith: Makes sense. Thank you. Operator: Thank you. The next question today comes from the line of Alex Scott from Barclays. Please go ahead. Your line is now open. Alex Scott: Hi. I just wanted to ask about TFP setting up a Lloyd's syndicate and you all not participating is that a sign that you're getting more selective they're feeling the need to to go elsewhere because you're know, maybe refusing a little more of the business that's coming your way. I'm just trying to understand how to interpret that. Jonathan Strickle: Hey, Alex. It's Johnny here. I'll take that one. I mean, just sort of as a reminder of how the agreement works. We've got exclusive right of first access over all business that the Fidelis partners sit originate, and that's under our ten-year rolling agreement with them. So we get the first pick and anything that's not within our appetite, they're free to go with elsewhere. As I talked to a bit on the data strategy, often that's a win-win. It means that we get to fill up the line size we want. They've got access to plenty more, so other capital providers can take a share there and everyone benefits. But to be clear, agreement's working exactly as we intended. To. We get to take the bits that we want. There's still an attractive portfolio remaining outside of that and that enables them to deliver results for other providers. Dan Burrows: Yeah, I'll just add there. If you think about growth for the year today, it's 8.4%. Most of that has come from the partnership. So we're very aligned to them. We see opportunity with them. But as Johnny said, it's a really great example of the binder agreement working exactly as intended. They're matching the right capital with the right risk. Alex Scott: Understood. Okay. And then second question is I wanted to just ask a bit about the process for bringing on new partners You've had one big partner and very integrated into TFP. You know, what what is the tech platform look like and and diligence look like when you're bringing on these new partners, and we have the same kind of visibility you get into what you're underwriting through TFP. Dan Burrows: Yeah. I'll start, and then I'll pass on to Johnny. Lee, it's Dan here. So obviously, you know, we're looking for a very high benchmark before you even consider any complementary partnerships. Now the TFPRX Lite, excellent underwriting out and with that's demonstrated in know, the strength of our results in this quarter. But we do have access to other good underwriters, best in class that will complement the portfolio. And a lot of that is relationship driven. Myself, the COO, got something like approaching eighty years of experience in the market. So we know who the good underwriters are out there. We know how they're motivated, why they buy, who they want to deal with. But we're looking for continuity of partners. We want to grow with them. So we won't be headlining hundreds of different partners It will be a considered approach but we do see opportunity. In terms of the more technical framework around it, Johnny, Jonathan Strickle: Yeah. I mean, how we think about it is we really start with our underwriting and risk strategy. So there we're trying to work out where do we allocate capital based on the best risk-reward dynamic as we see it in the market at the time. Our agreement with the partnership gives us flexibility in how we do that. So we can choose the most suitable and drying partner to execute in a particular area Now, the Fidelis partnership continued to execute really successfully over a wide range of classes of business and product, and leaders in the market, great track record. They've been fundamental to the great combined ratio we've had in this quarter. But as we keep building out our network of relationships outside of that, we're finding complementary opportunities that sit there that we can execute on with other partners. I think the pipeline there continues to grow It consists of market-leading underwriters and they're writing business in lines of business that we see as a great risk-reward dynamic right now. Operator: Thank you. The next question today comes from the line of Michael Zaremski from BMO Capital Markets. Please go ahead. Your line is now open. Michael Zaremski: Hey, good morning. It's Dan on for Mike. My first one is maybe just on property reserve release level. So given the strength of the releases coming from property this year in both segments, can you maybe help frame what percent of reserves sit in IBNR and how that could compares to a year ago so we could better gauge the durability of these reserves over the next twelve to eighteen months? Jonathan Strickle: Hey. It's Johnny here. Yeah. Thanks for the question. Mean, if I think about how we set our reserves especially for those lines of business, that's not something that we've changed in a meaningful way over the past five years really. So think we've been pretty consistent. What we have seen is increasing strength in the underlying underwriting portfolio. So the business is just running at a lower loss ratio. Which has fueled some of that PYD that we've seen pretty consistent in those lines of business over the last three or four years. So then I don't think there's any change to the approach other than you seeing more clearly the underlying profitability. What I would say is we really expect a lot of that PYD to come through in the first two quarters. So property PYD for us comes through within about six months typically. So by the time we get to Q3, Q4, in either direction, I'd expect to see less coming through and it's really the first half of the year that's going to determine our PYD position. Michael Zaremski: Okay. That's very helpful. Thanks. And then maybe just on aviation, it seems like that's seeing encouraging signs now. That's a pretty big swing versus your comments in the second quarter. You just talk about what changed there this quarter? Maybe how far away are current prices from meeting your hurdle for so we could see Fidelis jump back into writing that line? Dan Burrows: Yeah. Good question. And, yeah, I think the theme is really very much around more of the same. We disclosed, as you said on the last earnings call, that it's probably the most challenged part of the portfolio, and I think it continues to be that. We've seen much more competitive landscape. And when you consider the impacts of a number of losses that have happened over the last year and a half or so, including the most recent UPS which I'm pleased to say didn't fall within our underwriting appetite, so we declined that. The market hasn't really corrected in the way that we want to, so we're very cautious around aviation. Have seen some improvement in hull and liabilities. And we'll continue to watch the segment. But we definitely see it as a line of business that has the most competition is the most challenged. So, again, it's about picking away through that market. We will not renew business that doesn't hit our risk return metric. I think it's really important that you keep a discipline and focus on margin. So, yeah, I think you've read it right. We talked about it actually for probably two quarters now. So this will be the third If we see opportunity, you know, we're nimble. We will be opportunistic. For the right deal. At the moment, it is a challenged landscape. Operator: Thank you. The next question today comes from the line of Andrew Andersen from Jefferies. Please go ahead. Your line is now open. Andrew Andersen: Hey, thanks. Maybe a similar question on marine. I think it's a bigger line relative to aviation for you guys, and I think it's first half weighted. But maybe you could just talk a bit about what seeing in the pricing environment there and opportunity for growth in '26? Dan Burrows: Thanks very much. What we're seeing actually is probably a flatter RPI, and that's mostly because we are a leader across all the subclasses in marine. We leverage our position. So if we're riding the cargo, the hull, the war, etcetera, etcetera, etcetera, But then they're also being able to look at maybe are we a property participant on their program and using all that leverage as a leader getting us a differentiated position. So I think we're more comfortable with marine than we are with aviation. Were also we talked about before, seeing good opportunities in the construction line set. So we're seeing new business which, again, is helping on your book and kind of stabilizing RPIs. But, you know, we're much more comfortable with marine. Andrew Andersen: And then when you were talking about the strong flow of business from admitted into E and S and property, it sounded like you're really highlighting the homeowners piece. Are you still seeing flow on the commercial property side Or or maybe it's still coming in, but you're not really just hitting the same bind rates? Maybe just some more color on on E and S property. I was I still saying Dan Burrows: yeah. Thanks. Sorry to cut you off there. It's Dan again. We're still seeing opportunity on the commercial side. I mean, I think the DNF is more competitive, but we're seeing opportunity because we can deploy meaningful capacity. You know, we built up strong relations with both brokers and clients. We're relevant. We get to see the business first. We're kind of a go-to market. But yeah, are seeing opportunity across those two occupancies. Andrew Andersen: Thank you. Thank you. Operator: Our next question today comes from the line of Pablo Singzon from JPMorgan. Please go ahead. Your line is now open. Pablo Singzon: Hi, good morning. Maybe first off for Allan, You had referenced the longer earnings pattern for asset-backed business affecting NPE this quarter. I was wondering if you could quantify how much NPE would have been had you written just regular annual renewal business. Right? Just trying to size much of a potential drag we should account for in the next three to four quarters. I suppose after that, it should be a tailwind. Right? Because it won't show up in MPW. But, anyway, deserve, like, frame and size that drag which showed up this quarter. Allan Decleir: Yeah. Hi, Pablo. It's Owen. Yeah. I think important to remember that our net premium earned for the year to date has grown 7%, which is in line with the growth premium premium Britain of 8%. So it is in line year to date. A little bit more noise in the current quarter, and can fluctuate quarter to quarter. As I mentioned, it's largely due to business mix As you mentioned, asset-backed finance and portfolio credit. But I think for now, the trend that we've had year to date is more in a way to look at how to earn a pattern. How to earn our premium going forward. But we'll certainly let you know if as this evolves over the next few quarters. Pablo Singzon: Understood. Okay. And then second question, the third quarter was light on catastrophes for the overall industry. So this is more of a hypothetical, I suppose, right? I was curious if you had some perspective on how much better you, you know, or how your performance would have been, right, in a more normal storm season recognizing that, you you've been historically underwritten in the Southeast US anyway But any perspective on, you know, how much the this actual period helped or detracted from a normal quarter for you. So Jonathan Strickle: Hi, Pablo. It's Johnny here. I'll take that one. Thanks for the question. I think for us, it's important to remember that we can bind large losses with cat losses. So we'd also have fire type losses, events like that coming through on our property DNF book as well as man-made marine losses as well. And we've had a couple of those as we disclosed in the quarter. So if you look at our cat overall for the insurance pillar, yeah, it's better than we would have guided to before, but not that significantly. It feels like it's slightly better than normal quarter in insurance overall. Reinsurance has had a great time and that's been the driver of the fantastic low loss ratio we've seen on that and a real helper towards our combined ratio in the quarter. Certainly on that, it's been a light cooler in terms of cat experience and you can see if that was lifted up to a more normal level, what that would have done to the result. But it still would have been well in line with our long-term guided levels. Pablo Singzon: Great. Thanks, Johnny. Operator: Thank you. Our next question today is a follow-up question. From Leon Cooperman from Omega. Please go ahead. Your line is now open. Leon Cooperman: Yeah. I'm still somewhat confused. And I gotta admit, you know, your evaluation just seems out of line with what makes sense. And does your makeup as a company sufficiently different than the industry? It would discourage anybody from coming to look at us? Dan Burrows: Thanks, Leon. They stand here. No, I don't think it's any different. In fact, we would argue it's kind of more efficient as we're able to pick out the very best of the underwriting in the market. Leon Cooperman: We were supercharged in an environment. I would be shocked you know, with your multiple at five. In the industry for insurance industry. Multiple ways. You know, almost twice that. And it wouldn't be the beneficiary of somebody coming to try and consolidate with us. Dan Burrows: Sorry, I can't quite hear you. Leon Cooperman: What I'm saying is, you know, we're in a slow-growing world. And companies are looking to grow and Yeah. The revenues. You have a nice spare for the revenues in the insurance business. Selling at a valuation far below your peer group And I don't know where we could see a peer group. With the reinsurance peers or the primary insurance carriers. They're more selling a significant multiple premiums to us. Dan Burrows: Yes. Thanks, Lee. Got it. So I think it's Dan, it's an interesting question. You know, obviously, given some of the activity in the M and A market, for us, you know, the focus will remain on executing the current strategy. Building building on this quarter, delivering strong courses, you know, consistently, I think, is really important. Getting a strategy narrative out there that people are familiar that we're centered on underwriting. We can deliver organic growth. And, really, we're all about building long-term value for the shareholders. We're monitoring the M and A world. Obviously, there's been a lot of noise, especially in the last quarter. We're aware of industry development, but we've really got to focus on our plan if that's of interest, fair enough. But I think you know, we're expanding a partnership. We're expanding with new relationships. That will deliver excellent results, which we think is the best part of sustainable growth. But it's interesting. It's been an active quarter. Do monitor it. But we just gotta focus on what we can do, what we can control. Leon Cooperman: How do you compare the relative attraction of your stock? Repurchase versus writing new business? Dan Burrows: Totally. Leon Cooperman: You see me be attractive? Yeah. I think we all feel our valuation we're undervalued, but we understand it takes time delivering consistent results demonstrating good underwriting, demonstrating good capital management, increasing book value. If you can continue to do that, the valuation will find a level that we think. Should be trading at, which is above book. I mean, look at the quartets. Fantastic quarter, 79% combined. Not 21.4 ROAE, well ahead of our target metrics as you pointed out. So I think that that's really important. Allan Decleir: Yeah. And I think just Talander, just to point out, we have added value through our buyback program. Since inception. Of our buyback program in 2024, we've repurchased $248 million of shares and added 83¢ to our book value per share as a result of those activities, We as Dan says, we have great capital base that allows us to grow. As well as buy back shares We have purchased another $15 million post quarter end and still have a $153 million remaining under our share buyback program. So we continue to add value through our capital management as well as our growth strategies, and we'll continue to do that in the current environment. Leon Cooperman: Good luck. Excuse me. You're on the right track. Dan Burrows: Thanks, Lee. Thanks for the question. Operator: Thank you. Our next question today is a follow-up question from Michael Zaremski BMO Capital Markets. Please go ahead. Your line is now open. Michael Zaremski: Just wondering how the the combined ratios of coming from the new underwriting partners are relative to the Fidelis partnership and and to the relative, mid to high eighties combined target? Thanks. Allan Decleir: Yeah. Thanks, Mike. As we've mentioned before, it's when we enter these relationship with this network of underwriting partners, in addition to the Fellows partnership, it's it's a high hurdle. And we we certainly make sure that the combined ratio expectations are at least as high as the TFP. It's early to early doors in terms of the results of those, but so far, everything's looking good. And, certainly, they're meeting the combined ratio hurdles that we had expected. Through the first nine months of the year. Operator: Thank you. That concludes today's question and answer session. I'd like to turn the call back to Dan Burrows for closing remarks. Dan Burrows: Thanks. We appreciate everyone joining us today. Thank you very much. And of course, if you do have any additional questions, we're here to take your calls. We thank you for your ongoing support. And hope you have a great day. Operator: This concludes today's call. Thank you all for your participation. You may now disconnect your line.
Operator: Thank you for standing by. Ladies and gentlemen, welcome to the Seanergy Maritime Holdings Corp. Conference call on the third quarter and nine months ended 09/30/2025 financial results. We have with us Mr. Stamatios Tsantanis, Chairman and CEO, and Mr. Stavros Gyftakis, Chief Financial Officer of Seanergy Maritime Holdings Corp. At this time, all participants are in a listen-only mode. There will be a question and answer session at which time if you would like to ask a question, please press 11 on your telephone keypad. You will then hear an automated message advising that your hand is raised. Please be advised that this conference call is being recorded today, Thursday, 11/13/2025. The archived webcast of the conference call will soon be made available on the Seanergy website www.synergymaritime.com. To listen to the archived audio file, visit the Seanergy website following the webcast and presentation section under the Investor Relations page. Many of the remarks today contain forward-looking statements based on current expectations. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward-looking statements is contained in the third quarter and nine months ended 09/30/2025, release which is available on the Seanergy website again www.synergymaritime.com. I would now like to turn the conference over to one of your speakers today, the Chairman and CEO of the company, Mr. Stamatios Tsantanis. Please go ahead, sir. Stamatios Tsantanis: Thank you, operator, and welcome, everyone. Today, we are pleased to present another quarter of strong performance for Seanergy. Underlying our consistent profitability, disciplined strategy, and the continued success of our focused Capesize and Newcastlemax platform. A model that we expect will deliver superior earnings capacity versus most peers. Following the strong momentum established in the second quarter, Seanergy delivered a profitable third quarter driven by our large vessel exposure and the ongoing strength in the Capesize market. Net revenue reached approximately $47 million, adjusted EBITDA was $27.5 million, and net income totaled $12.8 million, demonstrating Seanergy's superior earnings capacity and operational leverage. Over the first nine months of the year, we generated net revenue of $108.7 million, adjusted EBITDA of $52.8 million, and net income was $8.8 million. In line with our dividend policy, we declared a cash dividend of $0.13 per share for the quarter, bringing total 2025 distributions to $0.23 per share and reaffirming our commitment to regular shareholder returns. The expiration of our Class E warrants removed legacy dilution and further strengthened our capital structure, fully aligning long-term performance with shareholder value. With a fleet of 20 large Capesize vessels and Newcastlemaxes, and a fleet loan-to-value ratio around 45%, Seanergy is very well positioned to benefit from a robust Capesize cycle. Moving on to fleet developments, we continue our disciplined fleet renewal strategy. In October, we placed our first-ever newbuilding order, a 181,000 deadweight Capesize at Hengli shipyard, marking the next phase of a large vessel strategy focused on efficiency, scale, and modernization. The vessel is priced at approximately $75 million with delivery scheduled for 2027, offering a strategic delivery window ahead of most comparable projects. This decision reflects attractive newbuilding economics versus surging secondhand values and positions Seanergy to capture stronger long-term returns from a modern, fuel-efficient fleet. The project's timing aligns with the expected upswing in iron ore and bauxite trade through 2027 and thereafter. In parallel, we sold and delivered the vintage Capesize ship for $21.6 million, releasing approximately $12 million in net liquidity and further optimizing our fleet composition. Our vessels continue to secure premium employment with top-tier charterers, supported by index-linked charters that preserve full market exposure. This disciplined structure, complemented by selective FFA hedging, ensures resilience across cycles. Our time charter equivalent has consistently outperformed the BCI, confirming the strength of our larger vessel commercial model and positioning us for sustained earnings momentum heading into 2026. To conclude the first part of this call, our focus on larger Capesize and Newcastlemax vessels continues to differentiate Seanergy. These assets deliver superior earnings capacity and long-term value compared to smaller bulk segments. Our boutique platform is built on scale where it matters: vessel size and operational performance, maximizing value creation per share. With a modern, efficient fleet, prudent leverage, and consistent dividends, Seanergy remains very well positioned to lead in shareholder value among listed drybulk companies. I will now pass the floor to Stavros to discuss our financial update. And I will conclude later with our comments on the market. Stavros, please go ahead. Stavros Gyftakis: Thank you, Stamatios. Welcome to everyone joining us today. Let me walk you through the key highlights of our financial performance for the third quarter and the nine-month period ended 09/30/2025. The third quarter delivered another period of solid profitability and balance sheet strength for Seanergy, underscoring our disciplined financial management and focus on capital efficiency. For the quarter, net revenue reached $47 million, representing a 6% increase year over year, while adjusted EBITDA came in at $26.6 million, broadly in line with last year's performance. Net income and adjusted net income for the quarter were $12.8 million and $14 million respectively, translating to earnings per share of $0.61. For the first nine months of 2025, net revenue amounted to $108.7 million with adjusted EBITDA of $52.8 million. Net income for the period reached $8.8 million with earnings per share at $0.42. While these figures are below last year's levels due to a softer market during the first half, we expect profitability to strengthen meaningfully in the fourth quarter, supported by fixtures already secured at higher levels. Turning to our balance sheet, our cash position strengthened to approximately $37 million at the end of the quarter, equivalent to $1.8 million per vessel. This reflects our disciplined approach to cost management, as outflows related to vessel acquisitions earlier in the year were effectively offset by the net proceeds from the sale of our older Capesize vessel during the third quarter. In parallel, we continue to fund building distributions and an extensive dry docking program, underscoring the company's ability to invest in its fleet while maintaining robust liquidity. This healthy cash position provides financial flexibility, enabling us to pursue attractive opportunities and support our newbuilding project with confidence. Notably, our financial performance and stability have enabled us to declare nearly $5 million in cash dividends so far this year, despite the challenging conditions of the first half, reaffirming our commitment to consistent shareholder returns. As of quarter-end, our total debt stood at approximately $292 million. Based on the current market value of our fleet, this corresponds to a loan-to-fleet value ratio below 45%, reflecting a healthy and conservatively capitalized profile. On a per vessel basis, our debt stands at roughly $14.6 million, which is nearly $18 million below the average market value of our ships, highlighting the strong asset coverage supporting our balance sheet. In terms of financing activity, this quarter we maintained a measured pace following an exceptionally active first half of the year during which we executed transactions totaling $110.6 million. Nevertheless, we are now in the final stages of concluding a highly attractive financing package for our newbuilding, featuring a competitive structure and compelling interest margin. We expect to be in a position to disclose additional details on upcoming financings soon. The constructive shift in the finance environment, offering multiple options across both bank and leasing markets, has been an important consideration in the decision to pursue newbuildings at this stage. At the same time, we continue to assess opportunities to optimize our capital structure and expect to report additional progress in the coming months. It is also worth noting that we have a clear debt maturity profile through 2026, with no balloon repayments before that period. This provides valuable flexibility in that we can time our future financing strategically without pressure. Finally, as of 09/30/2025, total shareholders' equity reached $271 million. With both Class B and Class C warrants now fully eliminated, Seanergy's capital structure is stronger, simpler, and fully aligned with shareholder interests. That concludes my overview. I will now hand the call back to Stamatios, who will provide insights on the Capesize market and broader industry fundamentals. Stamatios, over to you. Stamatios Tsantanis: The Capesize market continued to show sustained strength in Q3, with average rates of about $24,600 per day, the highest levels in recent quarters. This performance was driven by a 2% increase in ton-mile demand against only 1.3% growth in available tonnage, reflecting a very tight market balance. Iron ore remained the main catalyst. Australian exports recovered strongly from early-year weather disruptions, while Brazilian record volumes surged, supported by Vale's output increase and long-haul routes that amplified ton-mile demand. Looking ahead, the upcoming Simandou project in West Africa, combined with steady steel production and iron ore demand in China, underpins a solid multiyear outlook for the Capesize trade. Bauxite continues to be another key growth driver, with shipments rising more than 15% year over year in Q3 and 20% for the nine-month period. This trend, coupled with Atlantic Basin cargo growth, is expected to support high utilization levels going forward. Coal flows were also supported, led by an eight-month import high in China and increased demand across South Korea, Japan, and Southeast Asia. On the supply side, 2025 marked a record low year for Cape deliveries, with less than 1.5% fleet growth. Only 38 newbuilding orders were placed, the lowest since 2020, while 7% of the fleet is above twenty years and 30% is above fifteen years. With global shipyard capacity effectively booked through 2029, supply growth will remain structurally constrained for several years. Overall, the combination of rising Atlantic-based trade, a historically low order book, and limited yard availability supports a sustained high earnings environment for Capesize vessels. To conclude, Seanergy's pure-play Capesize and Newcastlemax focus continues to differentiate our platform. These larger vessels generate superior earnings capacity and long-term value compared to smaller bulk segments, reinforcing our boutique model based on scale where it matters: vessel size and operational performance. Our strategy remains focused on three priorities: capital returns, maintaining a consistent dividend policy, and pursuing share buybacks when accretive; fleet renewal and growth, enhancing fleet efficiency and environmental performance through disciplined high-return investments; and financial health, preserving balance sheet strength and prudent leverage, ensuring flexibility throughout market cycles. We are executing on all three fronts and remain confident that Seanergy will continue to deliver industry-leading value per share as the Capesize market enters another strong phase. On that note, I would like to turn the call back to the operator and receive any questions you may have. Operator, please take the call. Thank you. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. Please standby while we compile the Q&A roster. Our first question comes from the line of Liam Dalton Burke from B. Riley Securities. Please go ahead. Your line is open. Liam Dalton Burke: Thank you. Good afternoon, Stamatios. Good afternoon, Stavros. Stamatios Tsantanis: Hello, Liam. Good morning. Liam Dalton Burke: Stamatios, you have been very active in the fleet renewal program with the ordering and even with the sale of older assets. If I look forward, you have the financial flexibility. How do you anticipate growing the fleet? Would it be to add new builds or to mix in some secondhand vessels? Stamatios Tsantanis: We are constantly in the market seeking opportunities both in more modern and secondhand ships, as well as a few newbuilding vessels that we believe could add value to the company. We want to avoid having the so-called debt capital, you know, invest money in advances, you know, while the ships will be delivered in 2030 or whatever. So we have to be very selective, and the reason why we chose that particular shipyard is not only its quality, but also the fact that it is basically going to deliver the ship in a year and a half from today. So that eliminates that issue. We are constantly looking for both. I cannot give you an answer right now because there are a few opportunities that we are getting closer to. So in the next few weeks, I will be in a position to discuss more. Liam Dalton Burke: Great. Thank you. And just taking a look at the macro, it looked like you have the best of all worlds here. You know, as we end the year, it looks like China's steel production will be down. If I flip the narrative and say China's steel goes back to its historical growth rate of one or 2%, does that even increase your optimism for '26? Or is that sort of baked in in how you look at the demand side of the Capesize equation? Stamatios Tsantanis: We were never worried about the demand side even when we were downplaying China and its ability to keep up with the housing crisis and the real estate problems. We are very optimistic about demand for iron ore, coal, and bauxite. The Simandou starting now in November and December is going to pick up a lot of long-haul demand for high-quality iron ore, and this is going to ramp up in '26 and '27. So demand is not going to be an issue. What is very interesting to note is the fact that about 23%, 24% of the global Capesize Newcastlemax and VLOC fleet is older than sixteen years. And that gives you a sense while the order book is, of course, at the lowest point. So that gives a sense of, you know, potential supply squeezes getting into '26-'27. So that makes us feel way more optimistic than the demand narrative. Liam Dalton Burke: Great. Thanks very much, Stamatios. Stamatios Tsantanis: Thank you. Nice to hear from you. Thank you. Operator: Our next question comes from the line of Mark Reichman from NOBLE Capital Markets. Please go ahead. Mark Reichman: Thank you, and always great to see another strong quarter. Just really two questions for me on this new build contract. The five installment payments, can we just think about that as, you know, the $41.25 million or 55% paid on the fifth payment, and then the balance of the $33.75 million spread over the first four payments? And what quarter do those payments begin? Stavros Gyftakis: Hi, Mark. This is Stavros. Yes, I mean, your assessment is correct. We expect the 45% to be paid over the next twelve months and then at delivery, which is, you know, approximately one year and five months from now, the remaining 55%. Based on the financing that we are contemplating for this unit, we would be liable from our own cash reserves for approximately 25% of the contract price. And these installments, we expect to be paid in 2026. Everything else will come from debt. Mark Reichman: Okay. And then just a second question. On the commercial updates, I was just kind of curious about the tenor going into maybe some of these renewals. I mean, do you feel like you have more pricing power? I mean, I noticed that in some instances, the daily hire is based on a revised premium over the BCI, and I was just wondering if that premium went up. Stavros Gyftakis: Well, we tend to agree on the extensions for a period of about twelve to fourteen months. This is what we like, and that is what the charters are comfortable about. We have no concern about renewing them thereafter. So it is not going to be an issue. And we have proven to be in a position to renew our ships consistently with very high-quality charters all the way until we become close to 20 or sometimes above 20 years old. So we see no issue in renewing anything for longer periods. We like it the way it is right now. And that provides flexibility on both sides of the transaction, both for us and the charters, and we like it like this. Mark Reichman: Okay. Just to go back, I mean, in terms of the pricing power, is that even something that you think about? Or, I mean, do you have greater leverage in this market? Or could you even comment on the revised premium over the BCI on some of those contracts? Stamatios Tsantanis: Yes. The way that we obtain this premium, the way we achieve this premium is with the conversions that we do. So whenever we feel the time is right, and the forward rate is above the BCI, that is when we trigger certain conversions. We feel comfortable about securing certain cash flows. And I am not going to say coincidentally, but in most cases, that leads us to the premium over the BCI. In certain cases, of course, we may not be able to get the full extent of that. But we like that we hedge the downside. We feel way more confident and comfortable having a certain stream of cash flows even if we lose a couple of thousand from the upside. We feel better off by securing the downside risk in certain quarters that might be weaker throughout the year. Mark Reichman: I see. Thank you very much. That is very helpful. Stamatios Tsantanis: You are very welcome, and nice to hear from you. Operator: Thank you. Our next question comes from the line of Tate H. Sullivan from Maxim Group. Please go ahead. Tate H. Sullivan: Hi. Thank you. Congratulations on the new build and consistent with how you have been talking about the market for the last at least two years. Was there a specific secondhand transaction in the market that made you decide to go the new build route? Or at what point did the S&P prices increase to a level where new builds are more attractive, please? Stamatios Tsantanis: Good morning, Tate, and thanks for the question. Yes. I mean, there comes a time where we have triggering events. We were chasing a couple of secondhand acquisitions, and, you know, we missed on those because the higher bidders paid more than 20% or ten, fifteen, 20% than what we had anticipated or what we consider to be the fair value of that asset for that particular time. So when you see this kind of abrupt increases in prices of secondhand vessels, which are not, like, really modern—I mean, we are talking about close to 15 years old or 12 years old or 13 years old—then it kind of drives you, the decision automatically gets, you know, taken. So that is how the triggering events happen. Tate H. Sullivan: And how were you able to secure a 2027 delivery? Was it the last slot in the China shipyard or one of the last slots? Did you consider other countries as well, too, please? Stamatios Tsantanis: Well, quality above all. So we are not going to sacrifice any delivery for inferior quality, as you can understand. So we found this—I mean, we have been in discussions with various shipyards for quite some time. We chose that. We might be seeking other solutions as well at similar other shipyards of high quality in China. So we will not sacrifice the quality of this vessel for early delivery. In this particular case, we kind of had a win-win situation where we had prompt delivery, kind of prompt delivery, and at the same time, very high quality. So we felt comfortable with that. We have certain good connections with a lot of people in the Far East. So we believe we will be able to source some other deals as well. Tate H. Sullivan: Okay. Well, yeah. You mentioned that earlier too. We will look out for those. And then Stavros, on the cost of your debt, your interest rate going forward, I am sorry if I missed it. What do you think you are now at about the 7% interest rate level or even lower with where floating rates have gone? Stavros Gyftakis: It is lower than that. I mean, look. The financings that we have concluded recently, the margins are at around 2%. And as we move forward, the ones that we are negotiating now, a couple of packages in connection with a new building and some of the financings that we want to do, are even lower. I mean, from quarter to quarter, you might see variations because there are certain fees that are being paid in order to break financing or get into another financing, which sometimes are charged under the interest expenses. But overall, judging where SOFR is today, I would estimate the average cost to be closer to 5.5%, below 6%. Tate H. Sullivan: Okay. Thank you very much. Stavros Gyftakis: Thank you, Tate. Operator: Thank you. That is star one and one to ask a question. There are no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
Operator: Good morning, and welcome to the Crescent Capital BDC, Inc. Third Quarter Ended September 30, 2025, Earnings Conference Call. After the speakers' remarks, there will be a question and answer session. Please note that Crescent Capital BDC, Inc. may be referred to as CCAP, Crescent BDC, or the company throughout the call. I'll start with some important reminders. Comments made over the course of this conference call and webcast may contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in forward-looking statements for any reason, including those listed in its SEC filings. The company assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. I'll now turn the call over to Dan McMahon. Thank you. Dan McMahon: Yesterday after the market closed, the company issued its earnings press release with some thoughts on the market, touching on our portfolio, and our forward earnings outlook. In terms of third quarter earnings, we reported net investment income of $0.46 per share, unchanged from the prior quarter, translating into an annualized NII yield of 9.5%. Earnings continue to remain in excess of our dividend with 110% base dividend coverage for the quarter. Net asset value was $19.28 per share as of September 30, compared to $19.55 per share as of June 30. The quarter-over-quarter decline was primarily due to unrealized and realized losses stemming from certain portfolio companies that have demonstrated weakened operating outlooks due to tariffs. Let me now discuss what we are seeing in our market and our positioning. With respect to the macroeconomic environment, the U.S. economy has largely remained resilient. While we have been seeing signs of some slowing momentum amid mixed labor and economic data, we believe that the Federal Reserve's recent rate cuts combined with greater clarity on tariff policies may lead to near-term growth in LDL activity. On new investment opportunities, our private credit platform continues to maintain lead roles in the majority of our transactions. Given our focus on the core and lower middle markets, we believe we drive better structural protections than deals in the more competitive upper middle market or BSL replacement segment. Our segment focus provides us with the opportunity to lead our transactions and drive the documentation. We are focused on strong cash flow generation, tight EBITDA definitions, as well as enhanced monitoring rights, which allow us to be proactive versus reactive as we think about our approach to portfolio management. While we have no exposure to first brands and Tricolor, these recent bankruptcies highlight governance issues that we seek to avoid by working with well-established private equity sponsors. We've established our private credit business by partnering closely with our long-standing sponsor relationships to uphold strong governance and oversight across our portfolio companies. Let's shift gears and discuss the investment portfolio. Please turn to Slide 13 and 14. We ended the quarter with approximately $1.6 billion of investments at fair value across a highly diversified portfolio of 187 companies, with an average investment size of approximately 0.6% of the total portfolio. Our top 10 largest borrowers represented 16% of the portfolio as we are believers in modulating credit risk to position size. We have maintained an investment portfolio that consists primarily of first lien loans since inception, collectively representing 90% of the portfolio at fair value at quarter end. Additionally, we have positioned our portfolio to focus on domestic service-oriented businesses and, in our view, mitigate concentrated risks associated with tariffs, shifts in government spending, and other policy changes. Finally, our investments are supported by well-capitalized private equity sponsors, with 99% of our debt portfolio in sponsor-backed companies as of quarter end. We have partnered with our sponsors to invest in well-capitalized borrowers with significant equity capital beneath us. We note that the weighted average loan to value in the portfolio at the time of underwriting is approximately 40%. Moving on to our dividend. For the fourth quarter, our Board declared a regular dividend of $0.42 per share, which represents a 9.12% annualized dividend yield based on NAV and today's closing stock price, respectively. This dividend is payable on January 15, 2026, to stockholders of record as of December 31. This marks our thirty-ninth consecutive quarter of earning our regular dividend at CCAP. Before I turn it over to Henry, I'd like to take a moment to discuss our outlook for CCAP's earnings potential and base dividend in light of recent rate cuts and potential further easing in 2026. Looking ahead, we anticipate that a lower base rate environment may gradually reduce portfolio yields and place some pressure on net investment income. Given the largely floating rate nature of direct lending portfolios, we believe several factors position CCAP well to address base rate-driven earnings headwinds. To start, in 2025, our net investment income once again exceeded our base dividend with 110% coverage. On the liability side, approximately half of our borrowings are also floating rate, allowing funding costs to adjust downward to preserve our net interest margin. We have several additional levers that may help offset potential earnings pressure on lower base rates and support future growth. First, we ended the quarter with net debt to equity of 1.20x, below the upper end of our 1.3 times target range. This provides us with flexibility to leverage Crescent's attractive origination pipeline and enhance earnings through prudent portfolio growth. Crescent's private credit platform has been active with over $6 billion of capital committed to new and add-on investments on a trailing twelve-month basis, including over $1.7 billion during the third quarter. Being associated with Crescent's private credit platform provides ample opportunity for CCAP to reinvest in attractive private credit investment opportunities. Second, a more accommodative rate environment should serve as a tailwind for new deal activity. Lower borrowing costs are expected to support renewed M&A refinancing volumes, creating opportunities for attractive reinvestment and additional fee income. We are optimistic that over time, we may see higher levels of non-interest-related income as compared to this third quarter, driven by a pickup in origination and structuring fees on new investments, as well as accelerated amortizations on realizations. Third, our spillover income remains a meaningful source of earnings support. At approximately $1.1 per share, this balance provides a cushion as we navigate the current rate outlook. And finally, we have a demonstrated record of alignment with shareholders. Since inception, each of our portfolio ramping initiatives, both when we established CCAP in 2015 and listed CCAP in 2020, were supported by our fee structure during the respective ramps. Additionally, we have committed substantial advisor support for accretive non-dilutive growth opportunities, including our two public acquisitions. As I noted last quarter, our positioning has and always will be for the long term. And today, we are comfortable with our dividend level. With that, I will now turn the call over to Henry. Henry? Henry Sahn Chung: Thanks, Jason. Please turn to Slide 15 where we highlight our recent activity. Gross deployment in the second quarter totaled $74 million, as you can see on the left-hand side of the page. During the quarter, we closed seven new platform investments totaling $51 million. Even as spreads have tightened, our focus remains on high-quality companies with strong credit profiles. These new investments were loans to private equity-backed companies with a weighted average spread of approximately 530 basis points. The remaining $22 million came from incremental investments in our existing portfolio companies. The $74 million in gross deployment compares to approximately $80 million in aggregate exits, sales, and repayments, resulting in net realizations of approximately $12 million for the third quarter. Our portfolio activity resulted in net realizations during the quarter due to several commitments to new portfolio companies that slipped into the fourth quarter. Turning back to the broader portfolio, please flip to Slide 16. You can see that the weighted average yield of our income-producing securities at cost remained stable quarter over quarter at 10.4%. As of June 30, 97% of our debt at fair value were floating rate, with a weighted average floor of 77 basis points. The weighted average interest coverage of the companies in our investment portfolio at quarter end remained stable at 2.1 times, demonstrating durability and strength within the earnings at our underlying portfolio companies. As a reminder, this calculation is based on the latest annualized base rates each quarter. Please flip to Slide 17, which shows the trends in internal performance ratings. Overall, we have seen stability in the fundamental performance of our portfolio, resulting in consistency in our risk ratings and a weighted average portfolio risk rating of 2.1. On the right-hand side of the slide, you'll see that one and two-rated investments, representing names that are performing at or above our underwriting expectations, increased modestly from 86% to 87% quarter over quarter, continuing to represent the lion's share of our portfolio at fair value. As a percentage of those investments at fair value, non-accruals improved from 2.4% as of June 30 to 1.6% as of September 30, driven by a change of control and recapitalization, as well as the sale of an investment that has previously been on non-accrual. This was partially offset by two new non-accrual investments during the quarter. The overall portfolio continues to demonstrate resilient business fundamentals, supported by the fact that the vast majority of our borrowers experienced steady revenue and EBITDA growth year over year. We have seen weakness in certain watch list investments that are facing operating challenges resulting from tariff impacts. Two of these investments, one which exports goods to the U.S. from Europe, the other which sources a meaningful percentage of its inventory from overseas, negatively impacted NAV this quarter, collectively accounting for $0.15 per share in unrealized losses. As a reminder, in May, we highlighted that our initial tariff analysis identified 4% of our portfolio may face direct operating impact from tariff policies. We do not believe this exposure has increased in any meaningful way since our initial review, and outside of the select portfolio companies highlighted, the portfolio impact from tariffs remains muted. We continue to monitor closely for potential adverse impact in the portfolio stemming from trade policy and believe our aggregate risk is manageable, particularly as the portfolio further diversifies. More broadly speaking, we have continued to take a preemptive and rigorous approach to our watch list, recognizing that there are a variety of approaches to how managers think about these categorizations. It's worth noting that as of the end of the third quarter, as a percent of total investments at fair value, CCAP's watch list, which we define as three, four, and five-rated investments, was 13% as compared to non-accruals of 1.6%, so a gap of over 11%. Based on an analysis of our public peers, this gap is approximately 5%. We do not wait until there is default for moving an investment down the risk scale. We strive to be transparent about the health of our portfolio with the market, and one of the ways we do so is by taking a preemptive approach towards how we classify our watch list investments. With that, I will now turn it over to Gerhard. Gerhard Pieter Lombard: Thanks, Henry, and hello, everyone. Yesterday evening, we reported net investment income of $0.46 per share, which is in line with the prior quarter. Net income for the third quarter was $0.19 per share, compared to $0.41 in the prior quarter. The quarter-over-quarter change primarily reflects higher net realized and unrealized losses. The tariff-impacted investments that Henry noted accounted for the majority of the change in realized and unrealized losses during the quarter. While these items impacted results this quarter, they represent isolated credit events within an otherwise stable and well-diversified portfolio. Turning to the balance sheet. As of September 30, 2025, our investment portfolio at fair value totaled $1.6 billion, consistent with the prior quarter. Total net assets were $714 million, and NAV per share was $19.28, a decrease from $19.55 at the end of the second quarter. Let's shift to our capitalization and liquidity. I'm on Slide 19. In light of the continued tightening in credit spreads, we're actively pursuing opportunities to optimize the pricing, tenure, and diversification of our financing sources, leveraging more constructive dynamics in the private placement market. In October, we priced $185 million of new senior unsecured notes broken down into three tranches. First, $67.5 million due February 2029, second, $67.5 million due February 2031, and third, $50 million due May 2029. The notes will be issued in two closings. The first and second tranches totaling $135 million will be issued on February 26, and the third tranche will be issued in May 2026. The proceeds from these respective issuances will be used to repay the majority of our existing debt maturing in 2026. Pro forma for this activity, over 90% of total committed debt now matures in 2028 or later. So we're pleased with our progress here. The weighted average stated interest rate on our total borrowings was 5.99% as of quarter end, down from 6.09% in the prior quarter, due primarily to a 50 basis point spread reduction in our SPV asset facility, which we rightsized during the second quarter and discussed on last quarter's call. Our quarter-end debt to equity ratio was 1.23 times, or 1.20x on a net basis, unchanged from the prior quarter, within our stated target range of 1.1 times to 1.3 times. With $240 million of undrawn capacity subject to leverage, borrowing base, and other restrictions, and $28 million of cash and cash equivalents as of quarter end, we have sufficient liquidity to selectively fund further investment activity while maintaining a debt to equity ratio inside our target range. The third and final previously announced $0.05 per share special cash dividend related to undistributed taxable income was paid in September. As Jason noted, for 2025, our Board has declared our regular dividend of $0.42 per share. While our existing variable supplemental dividend framework remains in effect, CCAP will not pay a Q4 supplemental dividend as the measurement cap exceeded 50% of this quarter's excess available earnings. And with that, I'd like to turn it back to Jason for closing remarks. Jason Breaux: Thank you, Gerhard. In closing, as we enter the last two months of the year and look towards 2026, we believe CCAP remains well-positioned with respect to our experienced investment team, high-quality, diversified portfolio, and strong capital structure. We remain optimistic about the long-term prospects of the company given our positioning as a leader in the core and lower middle market with access to the breadth and resources of the broader Crescent platform. And we are focused on continuing to deliver a stable NAV profile and attractive total economic return in excess of the public BDC space. Thank you all for joining us today and for your interest in CCAP. I'll now turn the call over to the operator for Q&A. Operator: We will now open for questions. Your first question comes from the line of Robert Dodd with Raymond James. Please go ahead. Robert Dodd: Hi, thanks for all the color on kind of the earnings outlook and the dividend question. So, I mean, digging into that, I mean, as you said, spillover about $1.10. So you have that as a cushion if necessary. But, I mean, obviously, that eats away NAV if you dip into that. I mean, what do you think between your liability side, sort of the leverage activity fees, etcetera, what do you think the probability is that you have enough levers to actually keep NII coverage as a dividend at 100% or more? Or do you think spillover is going to be necessary consumed during 2026? Jason Breaux: Hey, Robert. Jason here. Thanks for the question. We certainly think that the levers will be available to us on a go-forward basis here. I think for the immediate near term, we do believe that we are going to cover our base dividend with NII. I think we are certainly going to be tactical about how we think about generating incremental NII to support our base dividend. And as noted on the call, we've got an availability to certainly increase the size of the portfolio. We do think that there is the potential for increased non-interest-related income that can be driven from a pickup in activity relative to a more subdued line item for non-interest-related income. And then lastly, as noted, I think we've always tried to do the right thing and support CCAP and support our shareholders. And so between all of those levers, we're focused on covering the dividend. Robert Dodd: Thank you for that. So I'll just give him some notes. On the couple of assets that got marked down, the tariff question to Henry's point, I don't think that the tariff exposure has increased, but has the ability of the exposed companies to handle the tariffs deteriorated because the exposure doesn't seem to have gone up, but some of them have been marked down fairly significantly on a tariff issue that's, I want to say, been known about all year because it hasn't. But, you know, it wasn't a new surprise this quarter. Is there something that's changed in the ability to cope on specific tariffs or anything like that? Henry Sahn Chung: Yes. Robert, this is Henry. I'll take that. The short answer is, in aggregate, no. Nothing has changed there. We've actually been, on a broader portfolio perspective, pleased with how management teams have responded with respect to either enacting price increases, repositioning supply chains, or exercising customer power that they have over their suppliers to be able to address potential pressures from tariffs. We highlighted the two names that we saw pronounced reduction in near-term operating outlooks because while overall in the portfolio we certainly seen resilience, those two companies, at least in the near-term outlooks, are going to have to have a longer road in terms of being able to exercise all those levers to get back to what I would say is more historical levels of profitability. So in order to summarize that, I would say that for the broader portfolio, it's certainly the case that we have seen management teams and sponsors able to respond proactively to the actions, outside of specific portfolio companies where our view is that that outlook is going to be longer term. Robert Dodd: Got it. Got it. Thank you for that. One more, if I can. You focus, obviously, on core loan middle market, you know, middle market is what it used to be. But the tone this quarter from other BDCs seems to be that the competition in the core and lower market has heated up to the spreads, etcetera, has heated up at kind of an accelerated rate as we go through as we've gone through this year. Can you give us an economy? What do you think is the state of the market? You're still covenants, but are they as tight as they were? The spreads aren't necessarily where they were. Obviously, everybody's seen spread compression, but to some degree, has it exceeded your expectations for what you normally see in your core market? And when do you think that changes if it does? Jason Breaux: Robert, Jason here. Thanks. I would say we've certainly all seen spread compression this year across the middle market, whether it's lower, core, or upper. It's certainly been exacerbated in the upper where you're really competing with the broadly syndicated loan market. And quite frankly, you can get single B type spreads in that market in the 300s. Where we're operating, I would say not a significantly notable pickup in increased competition from actual new competitors. I think there's certainly competition for deals because of lower volumes, certainly in the first half of the year. And so that has resulted in some spread compression in our end of the market as opposed to new entrants. What I would say is that I think that we're still seeing transactions, high-quality private transactions in the lower and core in the S plus 450 to 500 range versus what you might see in the upper mid in the low 400 range. And importantly, different leverage structures. Right? So in the upper mid market, you might see deals getting done at the low 400 at one or two turns more leverage than what you might see in the lower and core. So from a risk-adjusted standpoint, we like where we're investing. I do think from a spread standpoint, we have some optimism that with the demonstrated rate cuts by the Fed, we are seeing increased pipeline activity, increased dialogue. And so now we've said this before, but we do have some optimism around a real pickup in activity in 2026. Henry Sahn Chung: Just to add to that, across the platform, as you know, Robert, CCAP is a small part of Crescent's broader private credit platform. We've been actually quite active with a lot of activity coming in recent quarters. We've adjusted around $6 billion total over the last twelve months that have been deployed across private credit here. That's where we're picking our spots. Certainly being competitive on the rate side, but we are not really willing to compromise on how these businesses are capitalized and our corresponding documentation that goes with it. So, with that, you know, there's I think there's a strong case here for in the near term, expecting that opportunity set to be larger over the next twelve months than it was over the prior twelve months. Which I think kind of feeds to your original question as well, which is thinking about levers here to continue to drive attractive reinvestment and consistent investment income here. Robert Dodd: Got it. Thank you. Operator: Thank you. Your next question comes from the line of Mickey Schleien with Clear Street. Please go ahead. Mickey Schleien: Yes. Good afternoon, everyone. Sticking to the issue of spreads, looking at page eight of your presentation, it was, I'd say, gratifying to see that spreads on your new investments increased quarter to quarter. Could you help us understand what drove that increase? Henry Sahn Chung: Yeah. So thanks for the question. This is Henry. We've actually been able to, I'd say, over the last five quarters here, kind of hold the origination spreads at around that 500 basis points over so far. Baseline. It's gonna be a mix of incremental activity from our existing portfolio, a strong source of our origination on a quarter-to-quarter basis, add-ons at the existing portfolio companies, as well as just opportunities that we're seeing within our specific market segments that kind of tie closer to that $4.75 to $5.25 over so per band. So as you kind of think about where we play in the market as well as add-ons being a large, you know, can it be anywhere from a third to a half of our origination on a quarter-to-quarter basis. Those two dynamics are certainly providing us the ability to maintain spreads here even in this market. Mickey Schleien: So would it be reasonable to say that the spread expansion quarter to quarter did not include taking on excessive risk? Henry Sahn Chung: Yes. I would absolutely agree with that. We're very conscious to stay within our lane in terms of where we're underwriting with respect to security. So we haven't deviated from this focus on top of the capital structure. Everything we do historically and today remains sponsored by portfolio companies, and we're not it's never been our ethos to stretch for yield by either taking on leverage beyond what we think is prudent or expanding to company types that are outside of our comfort zone. Mickey Schleien: I understand. That's helpful. Staying with the presentation, but switching to Page 15. New equity investments represented 20% of this quarter's new investments. Could you describe what those new equity investments were? And what did you see that made them interesting to you? Henry Sahn Chung: Yeah. So those new equity investments are actually tied to restructurings of portfolio companies where we recapitalize part of the capital structure into both the debt and equity component. So when you think about the breakdown there, the majority of what you'll see on that page is tied to the recapitalization and change of control that we did with two portfolio companies during the quarter. Mickey Schleien: Okay. So I guess it's new in sort of quotation marks. Another question on investing. I noticed your investment in Family Dollar, which is interesting. What is your thesis there? We're getting such mixed messages on the health of the consumer, particularly at the low end of the spectrum. So wanted to understand what your thinking is there. Henry Sahn Chung: Yes. That loan was actually done with an equity investment that we have in an asset-based lender called White Hawk. This is a group that we've been investing in and alongside going back to 2017, across multiple vintages. Historically, they were called Great American Capital Partners. And selectively, we have participated in co-investment opportunities alongside them from time to time. So if you kind of look back at our history, some notable that would fall down a category in the past include Amyris as well as BJ Services, and Family Dollar is one of the more recent ones that we've done with them. You think about the investment thesis there, given that their focus is on asset-based lending, that is an asset-based loan where the primary collateral there is not the ongoing operations of the business. So we're not underwriting necessarily consumer demand for that specific type of retailer, but more so the hard assets that underpin the loan there. So it's something that we've done in spots historically over the last eight years or so. Never a large percentage of the portfolio, but that investment would be part of that categorization. Mickey Schleien: Okay. That's interesting. We've seen other BDCs do really well in that space. Just one final question, if I can. It's more of a, I guess, a philosophical question. It's a small position. Referring to I don't know if it's CECO or SACO. I don't know. How do you pronounce it? It's valued above par, but it's on non-accrual, which is unusual. What is the valuation reflecting there? And just philosophically, if you could explain the approach. Henry Sahn Chung: Yeah. So CECO is a third-party logistics provider. That company we actually restructured at the beginning or in the first half of the year, and the valuation that you see reflects its position in the capital structure as the priority revolver. As far as the accrual status of the loan goes, what that reflects is just the ultimate view here in terms of recovering the initial cost basis in that loan. CECO, in particular, is operating in one of, I would say, the hardest-hit subsectors that we've seen, which is party logistics, following the Liberation Day announcements. And as a result, there's a fair amount of near-term operating uncertainty with the business, just in terms of operating performance given some of the revenue headwinds that it's seeing both on the rate as well as the volume side. So as a result, we made that determination just based on the latest near-term outlook that we had. To the extent that changes here, it's something that we'll reevaluate. We really want to make sure that we're conservative in terms of factoring in the near-term outlook, especially for businesses that are kind of at the front lines of potential macro headwinds like a business like CECO. So that's what you'll see as far as that particular line item goes. Mickey Schleien: Thank you for that. That's helpful. Those are all my questions this afternoon. Thank you for your time. Operator: Thank you. Your next question comes from the line of Christopher Nolan with Weidenberg Thalmann. Please go ahead. Christopher Nolan: Hi, thanks for taking my questions. Are there any non-recurring items in earnings this quarter? Gerhard Pieter Lombard: Non-recurring items. Yes. Hi. I'll take that question. Certainly, in the revenue top line, I think Jason mentioned this earlier in the response to your question. Our sort of fee income is running a little bit lower than sort of the, I would say, maybe at a third, about one third of sort of the historical run rate. We only have about any of fee income, sort of non-interest fee income in revenues this quarter. But other than that, there's nothing that I would call out that's material from a non-recurring perspective. The sort of core interest income, meaning sort of cash income, PIC income, the amortization of OID, unused fees, and what we view sort of the distribution recurring distribution from the 97% of total top-line revenue. So nothing out of the ordinary or non-recurring that I would call out there. Christopher Nolan: Great. And then following up on the earlier how you guys are holding the line in terms of yields on new investments. Are you seeing more PIC or OID as components of the overall weighted yield for these deals? Henry Sahn Chung: This is Henry. I can comment on that. Now within our deals, the PIC component is something that we just deemphasized from the beginning. So I think a short answer on PIC is no. We've certainly seen deals out there where there's more PIC either in the form of PIC that can be toggled or just PIC premium that's added on the coupon at the beginning in order to deliver yields in excess of market. But as far as what we're originating, PIC is not a material component of the spreads underwrite for this quarter and just overall in terms of where we invest. On the OID side, I would say that OIDs generally have been tightening. You know, about a year ago, OIDs were probably kind of in the one and a half to a point of the original deal, and now that's probably 25 basis points tight of where we've seen. So that component along with just market pricing as a whole has tightened a bit. But OID is always kind of one of our upfront deal considerations that we consider as we're thinking about our investments here, and like spreads, we've seen some modest tightening there. Christopher Nolan: And I guess the final question is, it's more broad-based in terms of the lower middle market and middle market sectors. Sure, tariffs have been a headwind, but energy costs have gone down as well. And given the lower interest rates, do you think this is going to help company EBITDA multiples on deals that you're going to see or not? What's your thoughts on this? Henry Sahn Chung: Yeah. I think in the near term, it can potentially be a tailwind on both of those fronts. What we're seeing across our portfolio just in terms of free cash generation despite some of the tariff headwinds is that with lower borrowing costs, interest coverages are the highest we've seen in really two years since the prior rate hiking cycle began. And with the higher interest coverages kind of across the board, you have the ability potentially for borrowers to be able to service a larger quantum of debt, which allows buyers to justify larger purchase multiples. While we haven't seen that dynamic in a broad-based fashion yet, a lot of the multiples and businesses that we've seen trade in this market have really been amongst kind of the highest quality assets that have been out there. We can certainly see that being a potential tailwind coming in the coming quarters here as we see broader M&A volumes increase. Christopher Nolan: Great. Thank you. Operator: There are no further questions at this time. I will now turn the call back over to Jason Breaux for closing remarks. Jason Breaux: Okay. Thank you, operator. Thank you all for your time and attention here today and your support of CCAP. We appreciate it, and we look forward to speaking with you all again soon. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the National Energy Services Reunited Corp. Third Quarter 2025 Financial Results Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Blake Gendron. You may begin. Blake Gendron: Thank you, Kate. Hello, and welcome to National Energy Services Reunited Corp.'s Third Quarter 2025 Earnings Call. With me today are Sherif Foda, Chairman and Chief Executive Officer of National Energy Services Reunited Corp., and Stefan Angeli, Chief Financial Officer. On today's call, we will comment on our third quarter results and overall performance. After our prepared remarks, we will open up the call to questions. Before we begin, I'd like to remind our participants that some of the statements we'll be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest earnings release filed earlier today and other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our press release, which is on our website. Finally, feel free to contact us after the call with any additional questions you may have. Our investor relations contact information is available on our website. Now I'll hand the call over to Sherif. Sherif Foda: Thanks, Blake. Ladies and gentlemen, good morning, thank you for participating in this conference call. Today's call comes at a pivotal moment in the history of our firm. As our crews mobilized to deliver one of the largest projects in sector history, and company growth hits a new gear. Despite the transition of key contracts in the third quarter, I'm proud of the National Energy Services Reunited Corp. team for strong execution and cost control, with an unwavering focus on safety. As recently announced, National Energy Services Reunited Corp. has secured the winning position for the massive frac tender in Jafurah. This multiyear, multibillion-dollar award is a cornerstone achievement for the company, upon which we will continue to build beyond our revenue target we set ourselves. At the same time, we are also seeing a path activity inflection beyond Jafurah, with continued growth in Kuwait, return of additional rigs in Saudi, and increased activities in the majority of our countries. Our countercyclical investment strategy is allowing National Energy Services Reunited Corp. to capitalize on global weakness and boosting the company into a position of strength and operational readiness. While others are cutting, we are playing offense. I will dig into both Jafurah and our broader strategy later in the call. But first, I want to take a slightly different angle and discuss two, what I call mega themes, that have emerged from the recent FII event in Riyadh, followed by ADIPEC in Abu Dhabi. FII or Future Investment Initiative, known as Davos of the Desert, is one of the largest macro conference and leadership gatherings in the world. And ADIPEC is the largest oil and gas conference globally. Our participation was both timely with the Jafurah award and also crucial with the GCC at the epicenter of these two mega themes. From these events, the message was clear and crisp. Theme one, energy demand and GCC leadership in the AI revolution. Traditional energy is here to stay, and demand growth will be supercharged by the huge power demand of AI, data centers, and cybersecurity. The AI-powered demand commentary was nothing new, but the signals from both Saudi and UAE during this event suggest that the Middle East AI race is on, and significant investment is coming. Both countries presented a vision of becoming number three globally for AI after the US and China. What this means is that the region has moved beyond the concept of energy transition and is now focused on energy addition, in all forms, including more oil, more renewables, in particular, natural gas and solar. For National Energy Services Reunited Corp., this means that its established leadership in unconventional aligns completely with the upcoming AI race in the region. In fact, our largest customer formerly increased its sales gas growth target from 60% to 80% by 2030. This gas capacity for internal consumption will be critical to support AI ambition in the country, a strategy that is being discussed across MENA. Theme two, the Gulf Region geopolitically. The relationship between the US and Gulf States is clearly very strong. This has positive implications for both energy markets as OPEC expands production with an eye on materially higher demand by the 2030 time horizon. And, also, foreign investment as multiple IOCs make moves across the MENA region. Knowledge is power, and now power is knowledge. Cross-border cooperation on AI is at an all-time high between the US and the Gulf, with bilateral investment deals already announced. As the national champion of the Middle East, but also US NASDAQ-listed, National Energy Services Reunited Corp. is a company made for the current political moment. We have a role to play in the bridge-building between the US energy sector and the MENA national oil companies. We can point to Jafurah as a case study of how we can help US expertise navigate the region, leveraging technology and efficiency while empowering local content and human capital. We've talked about how this benefits our NOC partners, but it's worth noting that this also helps our IOC partners feel right at home in MENA. Which is a good segue to discuss our newfound position as the largest frac company in the Middle East. The Jafurah tender represents the single largest single service contract in sector history. And as the outright winner of the committed scope, our National Energy Services Reunited Corp. team has clearly earned its reputation for pushing the envelope on efficiency. It is a remarkable achievement, and we thank our dearest customer for the trust. Having started from zero in frac just five years ago, Jafurah is now as efficient as any leading Permian operation. A world-class case of science and data-driven shale development, orchestrated by Aramco. In the early days of National Energy Services Reunited Corp.'s involvement, this included our open technology platform approach. More recently, this has involved huge investment in infrastructure, logistics, best-in-class supply chain, across sand, water, chemicals, maintenance, and other dimensions across multiple product lines within this integrated frac project. We've driven substantial cost out of the system, initially on integration, efficiency gains, and agnostically, the use of leading technology from around the world. We challenged the status quo and brought fit-for-purpose and sometimes made-in-the-kingdom technology to have the best locally made, that includes site preparation, local sand, chemicals, coiled tubing, perforation, well testing, flowback. Now we are on a path to fully embed AI into our operation, predicting failures, and ensuring flawless delivery and another level of efficiency, breaking world records. But cracking the code on unconventional does not stop at sounding. The service delivery model that we've developed alongside our partners at Aramco is a blueprint that we can take across the MENA region to unlock additional unconventional development, particularly for natural gas. There are huge ambitions and potential in several countries that we operate in, and all of our top customers are coming to National Energy Services Reunited Corp. to fully understand how we can unlock their resources. Which brings me back to our broader growth strategy because National Energy Services Reunited Corp.'s success in Jafurah and across the region would not be possible without our aggressive countercyclical investment playbook. For decades, the oil service industry has matched investment, hiring, and R&D with the activity cycle. But now that the global cycles have accelerated and shortened, the traditional waiting-out-the-storm strategy no longer works. By the time the cycle turns, many companies are left behind. Which is why we've taken a different approach: invest during the downturn. It's been easier said than done, but as the only public MENA pure play, we benefit from the relative stability of activity in the region and agility of decision-making. Rig activity is largely decoupled from commodity price on oil because of focus on capacity building, and in gas, because of domestic needs. If any company is well-positioned to break from the pack and establish a countercyclical investment market position, it's National Energy Services Reunited Corp. And our customers value our bold approach, particularly since our NOC partners themselves are taking a longer-term view of oil fundamentals. As a company, National Energy Services Reunited Corp. is small enough to be agile, but large enough to scale. That is our window. While downturns expose weakness in our industry, they also reveal who's actually planning for the future. Our operational readiness is unmatched among our peers. Blake Gendron: And it's only possible because we are growing and investing Sherif Foda: while others are shrinking. To be honest, it's no walk in the park trying to convince some shareholders and board members of the strategy. Public companies in our sector often suffer from short-term pressure. Everyone wants results, cash, dividends, and they want them now. It is understandable, particularly in the lower oil price environment, and with tight risk mandates in public markets. We spent the last seven years since the founding of the company trying to convince the market that MENA upstream fundamentals are inherently derisked. And our financial results over the past few years have borne this out. Even in the current lower oil environment, the National Energy Services Reunited Corp. outlook only continues to improve. To be sure, we aren't growing for growth's sake. Our countercyclical investment strategy speaks to the fact that there is ample return accretive expansion still out there for National Energy Services Reunited Corp. This strategy perhaps isn't available for others with a more established and mature market position. And with that, I'll pass the call to Stefan to discuss the financials in detail. Stefan Angeli: Thank you, Sherif. Good morning to our audience joining from the United States, and good afternoon or good evening to those joining us from the Middle East, North Africa, Asia, and Europe. We are delighted to have you with us today. I'm pleased to present an update on our financial results for 2025 and to share perspectives on our outlook for the fourth quarter and the full year. In the three months since we last spoke, global macroeconomic volatility has persisted. Factors such as ongoing trade uncertainty, inflationary pressures, reduced subsidies in developing economies, fully supplied oil markets, and additional OPEC plus supply releases have collectively contributed to range-bound oil prices and lower reactivity in certain countries. As we also heard from our peers, these dynamics have weighed on the third quarter 2025 results across the broader oilfield service sector, making short-term forecasting increasingly challenging. Despite these headwinds, and as Sherif highlighted in his market overview, we continue to invest heavily, looking at our long-term vision with contract awards, and getting ready for the years to come. Now shifting to Q3 2025. Our overall third-quarter revenue was $295.3 million, down 9.8% sequentially and 12.2% year over year. Sequentially, revenue declined primarily due to the transition between the major contract in Saudi Arabia, partially offset by solid growth in Kuwait, Qatar, and Iraq. Year over year, revenue declined due to the transition between the major contract in Saudi Arabia, timing and lumpiness of product sales, and partially offset by steady growth in Kuwait, Oman, Egypt, Algeria, Iraq, and Libya. Adjusted EBITDA for 2025 was $64 million, representing a margin of 21.7%, which was in line with the second quarter 2025 levels despite lower revenues. Margins remained steady on strong cost discipline and improved execution across our portfolio. Adjusted EBITDA includes adjustments for certain charges and credits impacting adjusted EBITDA totaling $6.9 million, primarily relating to a loss on inventory and a fire credit loss provisions, costs tied to the remediation of material weakness, controls, which is expected to decline dramatically going forward. Interest expense for 2025 was $8.1 million, and the tax expense was $3.7 million after normalizing for a net release of uncertain tax positions and unrecognized tax benefits in two geographies totaling $9.2 million. As normalized, this corresponds to an effective tax rate of 29.9% for Q3 2025, and 24.8% year to date. Adjusted EPS for 2025 was 16¢. Adjusted EPS includes adjustments for certain charges and credits impacting adjusted EPS totaling $2.3 million, including the net release of uncertain tax positions and unrecognized tax benefits in two geographies described previously. Turning to cash flow and liquidity, areas that have consistently been among our most positive over the past several years. Third-quarter cash flow from operations and free cash flow came in below expectations, reflecting lower working capital efficiency driven by delayed collections, much of which was received in early Q4 2025. Consistent with our countercyclical approach, we continue to deploy CapEx tied to recent contract wins to enable rapid operational ramp-up. As of September 30, our gross debt totaled $332.9 million, net debt was $263.3 million. Our net debt to adjusted EBITDA ratio stood at 0.93, remaining below our target threshold of one time. On a trailing twelve-month basis, our return on capital employed or ROCE was 10.1%, reflecting the continued execution of our robust growth investment strategy. Looking ahead, we expect full-year 2025 revenues to be broadly in line with full-year 2024 levels. Based on this outlook, one can infer our Q4 2025 revenue expectation, which represents a record performance consistent with the start-up of the recently awarded contracts discussed earlier by Sherif. Both Q4 2025 and full-year 2025 EBITDA margin percentages are expected to be in line with Q3 2025 and year-to-date adjusted EBITDA margin percentages, reflecting continued operational discipline and execution consistency. Implied in our outlook is that we'll exit full-year 2025 at a revenue record run rate, positioning us for continued growth in 2026. We anticipate ending full-year 2026 with a revenue run rate of approximately $2 billion, supported by our expanding contract base and sustained execution momentum. For Q4 2025, we expect interest expense to be approximately $8 million and our normalized full-year 2025 ETR to remain in the mid-20% range consistent with prior guidance. Capital expenditures or CapEx for the full year are anticipated to be in the range of $140 to $150 million, in line with the previous guidance reflecting the positive outcomes of the recent tenders. We expect Q4 2025 cash flow from operations to be very healthy, driven by the seasonally high fourth-quarter collections. As a result, free cash flow for full-year 2025 is projected to be in the range of $70 to $80 million, which we view as robust given the significant CapEx investments made during the year to support our recent contract wins. These investments are expected to position us for a very positive free cash flow trajectory in 2026. Finally, we do not expect to be materially impacted by changes in global tariff policy. Now on to housekeeping topics. As noted last quarter, we have remediated all previously identified material weaknesses, and this update has been formally disclosed to the SEC. We continue to strengthen our internal processes and controls, which have played a vital role in supporting our financial health and operational discipline. The company is currently in the process of refinancing its debt facility and remains on track to complete the refinancing by the end of 2025 or early January 2026. This initiative is expected to further enhance financial flexibility. The remainder of 2025 and 2026, given the continued market volatility, the ongoing debt refinancing, and the capital expenditure commitments tied to new contract awards, including the start-up of the largest frac contract in the world, the company intends to deploy all excess cash flow exclusively towards debt reduction. This approach reinforces our commitment to balance sheet strength and financial discipline during this period of strategic investment and growth. Once these initiatives have stabilized by mid-2026, we will reevaluate our capital allocation program to maximize value for our shareholders. The outlook across the Middle East and North Africa region remains favorable. We expect these markets will lead activity recovery as market fundamentals move towards equilibrium, supported by sustained investment in oil capacity and ongoing gas expansion projects across several of our core geographies. National Energy Services Reunited Corp. remains focused on its core strategic priorities: delivering profitable revenue growth, enhancing execution efficiency, expanding our technology portfolio, maintaining disciplined debt reduction, and improving working capital efficiency, all of which are expected to drive sustainable financial performance going forward. On behalf of management, I'd like to thank our entire workforce for their outstanding efforts in delivering these results and awards, as well as our shareholders and banking consortium for their continued trust and support. The outlook for National Energy Services Reunited Corp. remains highly favorable, supported by consistent execution on our major contract wins, strategic investments, and growing market opportunities. I'll turn the call back to Sherif. Sherif Foda: Thanks, Stefan. Let me conclude. In short, a confluence of macro and industry trends are aligning to supercharge National Energy Services Reunited Corp. A wave of AI investment and fruitful geopolitical collaboration in the Gulf is fundamentally positive for National Energy Services Reunited Corp. As a key player in the unconventional gas renaissance, National Energy Services Reunited Corp.'s bold decision to invest and have a solid long-term strategy is working. As our unique position as the national champion of MENA and US NASDAQ-listed, we are in the best position more than ever to build on the appetite of the GCC capacity growth while securing long-term contracts. The Jafurah award elevates our profile significantly and puts the future firmly in our hands. And there are more awards to come and will be announced very soon. With oil activity inflection outside of Jafurah, continued growth in Kuwait, and North Africa, and all-time high activities across most of our countries translating into positive region fundamentals that match the equally positive position we have in the region, and we will capitalize on all those tailwinds. I'd like to close by thanking all of our employees and their families. They broke records, delivered flawlessly, and secured several billion dollars of contracts. We still have big ambitions for the future, not only in more contract awards but in innovation, sustainability, and technologies. Our success would not be possible without the steadfast support of our beloved customers, who we know very well and are honored to be their trusted partner. With that, we are ready to take your questions. Kate, please open the floor. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd like to remove your question from the queue. We ask to please limit your questions to one question and one follow-up. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question from the line of David Anderson with Barclays. Please go ahead. David Anderson: Good morning, Sherif, and obviously, congratulations on the big win in Jafurah. The long run to get here. Great to see you guys rewarded for all the efforts you've done there on the unconventional field. Not surprisingly, those who didn't win the contract, of course, they wanted a price that no one else is willing to go to. Can you please respond to that and just sort of tell us how you're able to price this more competitively than others that you're still able to keep these margins at these great levels? How much of this is being a local player? What else is into this mix? Thank you, Sherif. Sherif Foda: Dave, thanks for the congratulations, and obviously, I wouldn't comment on others, but I just can tell you very clearly, as we tried to explain in great detail, we've been on this journey now for several years with our dear customer Aramco. And as we've been part of it, and we've been, you know, performing and, I would say, beating all the records in that domain, we understand exactly how the structure works, as we are very locally embedded with all the ecosystem. And as I tried to explain, we knew how to take the cost out of the system. And look at the future of that project being three times at least what it was before. So how you are going to operate in that new paradigm, your cost control, your new supplier and partners, you know, a lot of it is for the people that do not know. This is an integrated project. So, basically, we look at the sites, the water, the sand, the coiled tubing, the plugs, the flowback, the testing, in addition to frac. We knew exactly how to acquire equipment and use the weakness, if you like, of the US to take full advantage of that. We brought everything to the kingdom already. So we invested, as I say, countercyclically because we knew the downturn could play a very big benefit for us. And this will translate into maintaining our margins in this project going forward. Blake Gendron: So as we try to explain, this is Sherif Foda: it's gonna be much bigger and significantly bigger. So our target is to maintain the same profitability as we had today and as we had before. And the best thing to say is people have just to watch the results and the margins going forward. And that would be the best answer. David Anderson: Well, we've seen it so far. So it's great to see you continue on this journey here. So I was wondering, could you provide us a bit of a roadmap on the pace of development at Jafurah? How many crews are you gonna have in this coming fourth quarter? Where do you expect to be at the end of 2026? And just kind of ultimately, how many kind of wells or stages per month are you targeting? Any details around that you could provide, please? Sherif Foda: Yeah. So, obviously, I mean, I know all the details in great detail, but I will always leave this to my dear customer to say it. But I can tell you we prepared to send all the extra equipment and crews in this quarter. So then we are ready in Q4. So we started the contract November 1. So we didn't have to wait. Obviously, we had the transition, and in the business, and we started executing using our, today, two fleets that are running as we speak from November 1. And our plan is to deliver those stages that Aramco wants us to deliver using the crews and the additional crew that we the equipment that we already bought as well. And it's shipping to the kingdom. They will be there in November. So we would be ready with the additional crew. So our plan after that is in 2026, how to execute the number of stages with the least amount of crews based on the efficiency gain. We get, right, which is very similar to what you have in the US. So we believe that we can make, you know, addition, you know, in north of a thousand stages per month. Every month. And if they want us to increase to all the way to 1,500, we are ready to do it. Right? So that is our plan is to execute with the flexibility up and down as they like, and we have all the crews. We have all the people. Everybody is already there. So as I said, as we planned this extremely well, we did not release people. We did not shut down. So we kept investing. We hired our people. We had very good cost control. And if you do that and you have that flexibility, you will be able to deliver. So, really, Aramco's plan is very aggressive. I think you heard their earning call very clearly. They added the gas to 80%. They are really world-class in terms of planning, so they know exactly what to do. And we work very, very closely with them. We have a full team in their office. So we can be as flexible as they want us to be. David Anderson: Sherif, if I could squeeze in one last question. You've been you've had at least a crew or you've been working on Jafurah for, I think, as you said, about five years or even more now. But now Jafurah has taken this next step up, your company has taken up the next step of growth. Can you help us provide a little bit of a sense of the incremental EBITDA here? Stefan, I think you said can you just repeat what you said? I think you said $2 billion run rate by 2026. And if that's sort of the number incrementally, I come up with something like a $100 million incremental EBITDA. Something in that neighborhood. Is that low? Is that high? Am I in the range? Just trying to get a sense in kind of 26%. On incremental, that's approximately correct. Stefan Angeli: Right? For the full year, for the full year of 2026, I would use the same margin as the full year of 2025, right, as a total. Right? Total corporate. But the $100 million you're quoting is approximately correct. David Anderson: Awesome. Okay. Thank you, gentlemen. Congratulations once again. Thank you, sir. Operator: Thank you. Our next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead. Jeff Robertson: Thank you. Good morning. Sherif and Jafurah, can you talk about the ramp-up in activity over the next couple of years? Sherif Foda: Yeah. I mean, if you look at, I would say, from the big picture, right, you have a first gas at the end of this year, and you have one BCF in 2027, two BCF in 2030 with the condensate and NGL. Right? Which means then you have all the rigs running in Jafurah, and the other two Telgawar and North Arabia, which is all the unconventional in Saudi. Right? So if you take that up and you think about the ramp-up and the number of stages, anything between, you know, two times to three times what we used to do now. So it's a very significant project. A very significant number of wells, number of stages to be delivered. And as I try to reply again, there is a flexibility in the system. And Saudi will definitely decide if they want to do, let's say, 15,000 stages, 20,000 stages, 25,000 stages per year, and you have the flexibility and ability to go up and down with that based on what that demand and, obviously, based on productivity. And the national agenda. Right? So our role is to ensure that we have that flexibility ready, and ensure as well that we can add crew, release crew, or decrease crew or update as they like. To date, our plan is to have full four crews running all the time in a very, I would say, efficient way to ensure that you can deliver those number of stages that are required with the number of wells. Because now the wells are drilled extremely much faster than before. Obviously, again, they did, as I said, the science-driven approach to deliver those wells much faster than before, but in a very efficient way, very professional way. So now there is an inventory of wells. And most of the unconventional projects for people around the world to know, it's really about do you have the inventory of wells and the pads ready? So then you can plan your frac crews to get ready on those pads. Right? So you preintervene. You prepare those wells, and then you frac them, and then they put them online when they are ready. Right? So this project has, again, I keep saying it's the blueprint because it's very differently made than others. Right? Because it's well planned, very high in advance, was an exploration phase. And then, obviously, these wells were not hooked. Right? So they were fracced, but stopped, but then they're all hooked, and then now they're all in production. Right? So we plan to have at least three to four times what we used to have before. And, again, we are ready for the availability up and down as our client wants us to do. Jeff Robertson: Sherif, in the context of a blueprint, can you share some perspective on unconventional development over the next couple of years and where in other markets in the Middle East and North Africa and how National Energy Services Reunited Corp. is positioned to take advantage of that? And then if alongside that, is there any color you could share over the contract value of tenders that you all are working on that might have an impact in 2026 or 2027? Sherif Foda: So let me try to separate. So the unconventional, I mean, again, I'm talking here as well for the wider audience. If you look today on the Middle East, obviously, it's extremely rich in conventional resources. Right? You will never go and develop something that is expensive if you have something very easy to produce. Now because of the success of Saudi unlocking that unconventional play in a very cost-efficient and very professional manner, now people opened up and say, wow. Why can't I do the same in my because, obviously, if you have all these reserves, that means your source rock exists. But is it economical and do you need it? And that's why it's a bit opposite to the US. It's actually because they have a lot of oil but they want a lot of gas again, for what saying for their AI revolution, for internal consumption, etcetera. So now they are looking at all these plays and where are they? So, obviously, you know that Abu Dhabi as well is doing exactly the same, and they started this already. They have a development already on that unconventional play. Very successfully. Two clients already or you have EOG and veterinarians already there doing the same. So you have as well two separate international oil companies looking at unlocking this unconventional in UAE. And then the others are looking at it. So if you look at the basin, Algeria has an amazing unconventional resource. Ahenad Basin. And it's very similar to actually Vaca Muerte in Argentina. You have Libya that has resources. You have Egypt with Abu Rawash and Apollonia. So you have Kuwait now is even looking at it. Qatar as well. So there will be that's why I call it the renaissance. Basically, people will look into all these plays, and see if it's conventional, unconventional, how much does it cost to produce a barrel of gas? How much it's or unit of gas, and how much is to produce oil. If it is economical, they will do it, and then they will develop it. Because, again, the whole narrative changed totally in the world with you need a lot of traditional energy in addition to the others. Which means gives me to the point that you have to look into the unconventional. And I believe you are going to see this more and more in the coming years. Now on your other question was no. That you had another question. Jeff Robertson: Just can you share any color on the value of contracts that National Energy Services Reunited Corp. is currently working on or working to secure that could impact 2026 and 2027? Sherif Foda: So look. I mean, we are tendering huge contracts. Obviously, the biggest by far on a scale with Jafurah and this is done. We are bidding a lot of tenders in Kuwait and in other countries. And I would say it's $23 billion additional tenders we are running. So we are going to announce as we know the results of those. And, obviously, that will translate into all the additional revenue we were signing. So if you that's why I keep saying I mean, we I used to always say we're gonna double the growth of MENA. Now this is irrelevant because if MENA is gonna be, you know, 5%, let's say, we are gonna grow at least 30%, right, minimum. So definitely, now our growth profile and our additional is much higher scale than what the market gonna grow. Blake Gendron: Thank you. Operator: Our next question comes from the line of Shareef El Megrabi with BTIG. Please go ahead. Shareef El Megrabi: Hi, Sherif. Thanks for taking my question. I want to ask about the uncommitted work at Jafurah. Just to make it a two-parter, when could Aramco tender for that, I guess, and what are they looking for? And then also, on your side, what's it gonna take from an investment point of view over and beyond what you've already been able to build countercyclically? Sherif Foda: So okay. Let me clarify. This contract is already done. Right? So the Jafurah, the way it works is there is a tender, and we all participated. They have, what do you call it, winner for the 100% of the committed work, which is us. And then everybody else signed that contract. Right, or a similar contract. And that is what we call uncommitted. So that piece of the pie for Aramco, they decide as they like when to start, who takes it, they want to diversify. Everybody can operate in that. So this is not gonna be this is already done. Finished. And we basically, all the service companies, what they call, they sign these contracts. And, very similar to, by the way, what happened in the last month. So that scope could be big, and people would work. Anyone who was approved in that list and they were qualified and signed the contract can operate and execute that piece of the contract. Shareef El Megrabi: Got it. That's pretty helpful. Thank you. And Sherif Foda: what was the other part? Investment needed? So they invest I was ask Shareef El Megrabi: Go ahead, sir. I was asking about if there's any other rigs or equipment that you need to buy over and beyond what you've already got for this contract. Sherif Foda: Yeah. I mean, obviously, what we did ourselves is we purchased it's in our CapEx number already that Stefan explained. We purchased all the additional equipment that we need to execute on this contract. That's why we managed to start immediately the contract, November 1. Now as we go along, we will definitely keep adding equipment. Right? Because this for example, let's say, we are ready now with three fleets. Need a fourth fleet. We need additional equipment because this has surface well testing, coiled tubing, perforation, wireline, so be it. So we will definitely keep investing in that. Make sure that we can execute the contract professionally. The key for us and I guess the key for you and the investment community, is we said we are going to maintain our CapEx the same. So if we spend $140 to $150 million in 2025, we're gonna spend exactly the same in 2026 with the 30%, 40% growth revenue, which gives you that stability that we know exactly how much CapEx we need to spend and how much cash flow we're gonna get. Because we are, again, taking full advantage of the weakness of the outside market. Right? So the project, I would say, it's very well designed. From our side, we did a very good job and a very detailed work exactly what we need and what we don't need. We already front-loaded that in 2025 to ensure that we can execute flawlessly and deliver to the client without any hiccups in the future. Shareef El Megrabi: Great. Thanks again. Sherif Foda: Thanks. Operator: Our next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead. Jeff Robertson: Thank you. Sherif, can you share any updates on some of the NEDA projects you're working on? Especially with some of the water initiatives in Saudi Arabia? Sherif Foda: Look. We are doing so much in that, but, obviously, because of the, I would say, the significance, we decided to speak about it in the next one when we know the results as well. So as we said last time, we are on several pilots, on water mineral recovery, lithium. Those projects are in the pilot phase now. They are physically in the country. We are doing the test with our customer in several locations. We will be able to really give you a bit more color based on the results of all those pilots. So we're very excited about it. I am personally love the story because I believe that this can make something so different in the world that nobody did in the entire industry. In the universe, actually, where, basically, you're gonna start to say, I can produce oil and gas and I can produce a lot of other material that is good for the world, for the earth, for the climate, I am cleaning the water economically. I am bringing minerals, and I'm selling it to other industries. And the best would be if I can get lithium at an economical scale to make batteries, you know, and, you know, the narrative of the industry becomes extremely positive. Regardless if the ESG is out of flavor now or in. But I think our commitment is a long-term sustainability of our industry. And as they say, if the world needs all this oil and gas and energy, we have to make sure that we can do this sustainably. So we will be able to give you a bit more color in our next call based on the results of all those pilots. Jeff Robertson: Thank you. Operator: As a reminder, if you'd like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd like to remove your question from the queue. Our next question comes from John Ajae with Ottpam Press. Please go ahead. John Ajae: Yes. Hi. Curious on a couple of things. Can you give us a sense for the visibility and the confidence that you have in hitting the $2 billion exit run rate for 2026, what you think the growth rate National Energy Services Reunited Corp. looks like, you know, over the year or two that follow that. And the level of visibility and confidence you would have in that growth rate, and maybe what like, an 80% confidence level might be for a 2027 and or 2028 exit run rate? Based on that trajectory. Sherif Foda: Thanks, John. So if I will tell you on the 2026, level of confidence 99%, I would say. So those contracts are awarded and those contracts are signed. The work started. So I would say the level of confidence we have on the delivery and, you know, barring anything happening in the world, it should be kind of a very, very steady and very, very sure. Now if I look at our growth profile 2027-2028, definitely, it's gonna still growing because this contract, for example, and others are four, five years. We have a backlog of tenders that are very, very solid. So we believe we win our fair market share on that, at least with the growth that we see in Libya in Kuwait, that is more than the average of the 5% growth rate that the region will see definitely, we will have the continuation of that growth rate. It will not be obviously 30, 40% like we're gonna have in 2025, but you'll have a very good at least 10, 15% growth rate following that. Now if we are more successful in the tenders that are coming, which, obviously, that's our plan, and we ensure that we can secure those and deliver on them in a same way flawlessly that we're planning to do the Jafurah, then definitely we can opt for much higher growth rate in 2027 and 2028. In addition to that, we have obviously our technology and kind of out-of-the-box portfolio that the market that we're trying to create. So we have NEDA, which is our decarbonization arm, there is plenty of pilots, plenty of investment, a venture capital style as we have, on water, on emission, and definitely on the lithium story, if this cracks, I keep saying this our target is to have this segment that's $500 million. So now you need to make sure it's economical. So we don't have this in our plan. This is what I call all the add-on if we crack the code. And then you have, obviously, our technology on Ruya, which is the rotary steerable MWD, LWD, again, we need to commercialize it professionally. We are doing all the extensive testing. And we have a plan or our target internally for a much bigger market share. We don't have this again in the numbers. All this is add-on to our growth profile, and this will all translate, I would say, as revenue growth. That is significant would be, to answer your question, 2027, 2028, 2029, 2030. Right? Because now you know that these projects are economical, commercial, bigger in size, and can translate to significant revenue and margins. John Ajae: Yeah. That sounds great. Curious also, what type of margin do you have high confidence in for the next few years? Just, you know, without the water and you know, just kind of on what your high confidence baked-in growth is from existing contracts, what would you see as the multiyear margin evolution? Stefan Angeli: I'll take that. For 2026, as I said to David in a few questions before, we see the margin for 2026 being the same as 2025. So it'll be somewhere between 21-22%. Right? Plus or minus 1% on that. It's probably in the high 90% confidence levels. Right? Going forward in 2027 and 2028, right, we will use the same margins for our own internal model, but we'll try as efficiencies come more supply chain, greater revenues, so you have revenue efficiencies, overhead efficiencies, supply chain savings. We'll endeavor to try and get margin improvement. And, over time, we want to try and get back to the 23 to 25% level. Right? That's our goal. John Ajae: And how is ROYA progressing relative to what we might have thought at the beginning of the year? And what type of growth is embedded in that, you know, that $2 billion exit run rate? And you know, is this an area that could contribute above it? The $2 billion, if it goes really well, or is it kind of baked success there baked into that $2 billion? Sherif Foda: Yeah. So the our numbers straight is a very limited Roya in 2026. It's going from 2027 onwards, right, as a number, again, as a significant number to that ecosystem. Why? Because ROYA, rotary steerable, LWD, all this, what we call it, we do an extensive testing. To the technology to ensure it is working, and I commercialize it when we are happy. So, actually, it's the push-pull. So the clients are pushing us to do more work, and we are resisting that because we want to make sure it works perfectly. Right? So I would say it will contribute, and you will see it in the numbers in 2027-2028. They will it will be there in 2026, but it's not a significant number and it is included in our $2 billion exit rate. John Ajae: Great. Thanks a lot. Sherif Foda: Thank you. Operator: This now concludes our question and answer session. I would like to turn the floor back over to Mr. Sherif Foda for closing comments. Sherif Foda: Thank you very much. We don't want to take any more of your time. Appreciate all the support, and we thank again all our shareholders, employees, customers for their trust and looking forward to an amazing 2026. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: Welcome to Nexxen International Ltd.'s Third Quarter Earnings Call. At this time, participants are in a listen-only mode, with a question and answer session to follow at the end of the presentation. This call is being recorded, and a replay of today's call will be made available on Nexxen International Ltd.'s Investor Relations website. I will now hand the call over to Billy Eckert, Vice President of Investor Relations, for introductions and the reading of the safe harbor statement. Billy, please go ahead. Billy Eckert: Thank you, Operator. Good morning, everyone, and welcome to Nexxen International Ltd.'s third quarter earnings call. During today's call, we will discuss our financial and operating results for the three and nine months ended September 30, 2025, as well as our forward-looking guidance. With us on today's call are Ofer Druker, Nexxen International Ltd.'s Chief Executive Officer, and Sagi Niri, the company's Chief Financial Officer. This morning, we issued a press release, which you can access on our IR website at investors.nexxen.com. During today's conference call, we will make forward-looking statements. All statements other than statements of historical fact could be deemed as forward-looking. We advise caution in reliance on forward-looking statements. These statements include, without limitation, statements and projections regarding our future financial and operating performance, market opportunity, growth prospects, strategy, and financial outlook. These statements also include, without limitation, statements regarding our partnerships and anticipated benefits related to those partnerships, anticipated benefits related to the company's intended growth and platform investments, forward-looking views on macroeconomic and industry conditions, as well as any other statements concerning the expected development, performance, and market share competitive performance relating to our products or services. All forward-looking statements are based on information available to us as of the date of this call. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those implied by these forward-looking statements, including unexpected changes in our business or unexpected changes in macroeconomic or industry conditions. More detailed information about these risk factors and additional risk factors are set forth in our filings with the US Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Risk Factors" in our most recent annual report on Form 20-F. Nexxen International Ltd. does not intend to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in IFRS and non-IFRS terms. We refer you to the company's press release for additional detail, including definitions of non-IFRS items and reconciliations of IFRS to non-IFRS results. At this time, it is my pleasure to introduce Ofer Druker, CEO of Nexxen International Ltd. Ofer, please go ahead. Ofer Druker: Thanks, Billy. Nexxen International Ltd. delivered a strong Q3, generating 10% year-over-year programmatic revenue growth or 15% ex-political, driven by omnichannel strength, rising enterprise DSP adoption, and growing data demands. Throughout 2025, we have been leveraging the combined assets we have built and acquired over the years, strengthening and better showcasing the power and interconnectivity of our full stack to drive greater enterprise demand. Q3 results show this effort is paying off. Our SSD benefited from proprietary data assets like Nexxen Discovery, delivering stronger performance and greater market recognition. Our renewed and expanded data partnership also adds a long-term growth engine via exclusive ACR data and CTV media while enabling innovation like the industry's first solution for programmatic smart TV on-screen through the Nexxen DSP and SSS. SSD. This opens a new frontier for advertisers to reach send OEM media via high attention placement never before available programmatically. With an advanced enterprise DSP, proprietary data, and a unique and growing CTV and cross-device media footprint, Nexxen International Ltd. is creating a very impressive value proposition that sets the stage for meaningful long-term growth. We have continued investing in our omnichannel DSP, enhancing automation, performance, and user experience to bring more enterprise partners onto the platform and believe it can now compete directly with and win against top standalone DSPs. What truly depreciated is how it connects across and benefits from our full stack, combining text data, AI, creative, and media to deliver superior performance and efficiency to enterprise customers and independent agencies. Recent upgrades have not only enhanced the DSP itself but also strengthened the data, AI, and media engines that power it. In the DSP, we have improved buying algorithms and automated budget optimization, lowering media costs and increasing return of expense. Meanwhile, Next AI continues to elevate its performance and efficiency. The NextAI DSP assistant is helping users gain and act on powerful real-time insights faster, enhancing results and usability with customer satisfaction scores often above 90% and some reporting efficiency gains of up to 97%. We are also leveraging our data platform to strengthen the value proposition of our enterprise DSP. Nexxen Discovery, our proprietary insights and audience segmentation tool, is now central to agency and brand conversation and integral to pitching and winning new clients. It unifies cross-channel data sources, including exclusive Asia data, enabling advertisers to uncover, build, and activate high-performing audiences at scale while generating critical insights and reporting. We have enhanced discovery in our broader data platform through Next AI by improving our customers' first-party data connects with Nexxen International Ltd. and improving usability for users of all skill levels. This has resulted in greater adoption, expanded reach, more precise targeting, and measurable performance gains. Discovery has become a true competitive advantage that we believe will grow over time. Together, these advancements are driving stronger cross-channel performance across targeting, activation, optimization, media buying, and measurement. End-to-end users are achieving roughly two times higher retail of ad spend and 30% lower costs. Key reasons we are winning more in ad-to-ad USP evaluations. Our DSP's performance, connected to and driven by our full stack, has brought dozens of new enterprise customers on the platform in 2025, creating significant long-term growth potential. As more enterprise customers onboard, we capture greater direct demand, strengthen our end-to-end revenue opportunities, and reduce reliance on third parties, which is critical as major DSPs continue to tighten SPOs within their ecosystem and work directly with publishers. With a stronger DSP, more powerful and connected data solution, and deeper AI integration, we are now focused on capitalizing on strategic partnerships and scaling platform adoption. We believe this will further our end-to-end revenue opportunities, drive increased growth potential, and create greater resilience against evolving industry dynamics. In Q3, we announced our updated partnership with Vida, successfully renewing and expanding it through 2029, extending exclusive global access to the ACL data, and securing third-party ad monetization exclusivity on their North American media. This provides a durable advantage over peers lacking exclusive and unique assets. We believe we struggle to differentiate and drive value in the future. As advertisers need alternatives to walled gardens, Nexxen International Ltd. is well-positioned to fill that gap as an open, independent platform. Our ratio data cements us as a fundamental targeting and measurement data provider, fueling both platforms' spend and licensing opportunities. For example, our ACR audience segments recently became available for targeting in the Yahoo DSP, underscoring growing demand and paving the way for licensing growth in 2026 and beyond. Our media exclusivity also creates leverage to attract new partners and incremental spend through unique opportunities unavailable anywhere else. And as Vida's footprint grows, so does the value of our facilities. The new agreement is already powering breakthrough innovation. We recently launched the industry's first solution for programmatic smart TV on-screen activation that will be available exclusively through the Nexxen DSP. It provides direct access to native smart TV inventory via the Nexxen SSD across iSense CTVs and other CTV OM brands powered by Vida's operating system. This marks a major step forward for the CTV industry, unlocking previously inaccessible scaled OEM media for programmatic activation and creating exclusive eye attention placement that commands premium pricing. Advertiser interest has been strong, and this solution differentiates us as major competitors cannot offer similar capabilities. We believe this will become a powerful intermediate and long-term growth engine for Nexxen International Ltd., one that can accelerate DSP adoption, expand end-to-end spending, and reinforce our leadership in programmatic smart TV innovation. While we are encouraged by our momentum and strategic progress, we are disappointed to lower guidance due to near-term headwinds, including softness in select channels and a shift in our leading DSP customer reinforcing its SPO strategy. That said, our platform's interconnected advanced technology solutions, TV data, and robust omnichannel media footprint give us confidence we can navigate these dynamics and emerge stronger in 2026 and beyond. Our strategy is evolving, not changing, as we are doubling down on our DSP, discovery, and broader data platform to drive enterprise adoption, strengthen end-to-end revenue opportunities, and reduce third-party reliance. In 2026, we are releasing new DSP innovations, expanding infrastructure and capacity, and deepening new AI integration to enhance usability and performance. To insulate against disruptive open Internet trends, like LLM-driven traffic sheets, we are enhancing our CTV capability through innovative product launches like our first-to-market programmatic smart TV home screen activation solution. In addition, we are entering new scales mobile in-app partnerships. Finally, we are aggressively pursuing new sizable strategic commercial partnerships, leveraging our Vida exclusivities and first-to-market programmatic smart TV on-screen activation solution. These assets provide leverage with ecosystem partners, agencies, postcos, and data providers and can ask if you last spent commitments, greater enterprise adoption, and scale licensing opportunities. While Q4 presents near-term charges, our long-term outlook and conviction in our strategy remain strong. The actions underway, combined with continued investment in our enterprise DSP, cross-device capabilities, and data and AI innovation and integration, position us for a stronger 2026 and beyond. We are on a clear path to becoming a strategic and partner of choice for industry leaders, fueled by exclusive TV data, advanced tech, and innovative smart TV solutions unavailable anywhere else. With a solid foundation, expanding partnerships, and critical capabilities unique to Nexxen International Ltd., we are confident in our positioning to drive greater enterprise adoption and outsized long-term growth. With that, I will turn it over to Sagi Niri. Sagi Niri: Thank you, Ofer. In Q3, we delivered contribution ex-TAC of $92.6 million, a Q3 record reflecting an 8% increase year-over-year or 14% ex-political. Programmatic revenue also reached a Q3 record of $89.6 million, up 10% year-over-year or 15% ex-political. Growth was driven by data product self-service, desktop and mobile, alongside increases across our health, business, and finance verticals. In contrast, contribution ex-TAC from our non-programmatic business line declined roughly $1 million year-over-year. We also observed year-over-year decreases in CTV and display, as well as reduced spending within our government, retail, and education verticals. CTV revenue declined 17% year-over-year in Q3, or 13% ex-political, to $24.5 million. Results were impacted by decreased activity from select third-party deals, partners within our ONP and PMP channels, tariff-related spending reductions from certain customers, and more competitive CTV CPMs. Though these pressures have persisted in Q4, we continue to see significant CTV revenue growth opportunities in 2026 and beyond, particularly following the renewal and expansion of our strategic partnership with Vida. In Q3, desktop revenue increased 67% year-over-year, and mobile revenue rose 3% as our targeting tools continue to help advertisers find audiences across devices, while overall video revenue represented 70% of programmatic revenue. Contribution ex-TAC from PMP declined 4% year-over-year in Q3, and contribution ex-TAC from display decreased 2%. Despite headwinds across some formats and devices, we achieved record Q3 contribution ex-TAC, thanks to the benefits of our diversified omnichannel approach and continued momentum across focus areas we've invested heavily in over the past several years. In Q3, self-service contribution ex-TAC grew 11% year-over-year amid greater enterprise DSP adoption, while contribution ex-TAC from data products increased 164%. We generated adjusted EBITDA of $28 million in Q3, reflecting a 30% adjusted EBITDA margin as a percentage of contribution ex-TAC. We remain confident in our ability to expand margins over time through contribution ex-TAC growth, cost discipline, and anticipated benefits from our AI initiatives. In Q3, we generated $35.8 million in net cash from operating activities, compared to $39.9 million in Q3 2024. As of September 30, we had $116.7 million in cash and cash equivalents, no long-term debt, and $50 million undrawn on our revolving credit facility. Non-IFRS diluted earnings per share were $0.20 in Q3 compared to $0.27 in Q3 2024, on a post-reverse split basis. We repurchased roughly 1.8 million shares in Q3, investing approximately $18.1 million through our now-completed $50 million program and recently launched $20 million program. From March 2022 through 2025, we repurchased roughly 36.6% of outstanding shares, investing approximately $247.4 million. As of October 31, approximately $13.9 million remained under our authorization, and we intend to evaluate implementing a new repurchase program following completion of our current program. We invested $20 million in Vida in Q3, with an additional $15 million planned for Q3 2026, and we are also continuing to explore M&A opportunities focused on accelerating programmatic revenue growth and enhancing our data, CTV, and mobile in-app capabilities. With that, I'll turn to our outlook. Despite meeting our expectations for both Q3 and the first nine months of 2025, we are lowering our full-year 2025 guidance. We now expect contribution ex-TAC in the range of $350 million to $360 million, adjusted EBITDA in the range of $113 million to $117 million, for programmatic revenue to represent roughly 95% of total revenue. Our updated guidance now reflects full-year 2025 contribution ex-TAC growth of approximately 3% at the midpoint or 6% ex-political, and programmatic revenue growth of approximately 6% at the midpoint or 9% ex-political. Our revised guidance reflects several factors impacting Q4 performance. We have experienced lower-than-expected activity from certain third-party DSP partners in our OMP and TMP channels, which has impacted contribution ex-TAC within the Nexxen SSP. That said, demand generated directly through the Nexxen DSP to the Nexxen SSP has remained in line with expectations. The majority of softness within our ONP channels has been attributable to changes in spending behavior from one DSP customer. While the customer remains active on our platform, its activity to this point in Q4 has decreased significantly year-over-year following a sizable increase in spending during Q4 2024, partly driven by the 2024 U.S. Election cycle. We expect contribution impact related to this customer's reduced spending to be isolated to Q4 2025 and to not have a material impact on Nexxen International Ltd.'s performance in full-year 2026. In Q4, we've also observed more competitive CTV CPM as well as reduced spending from certain customers reflecting some macro softness, which we believe has been driven largely by tariffs. Additionally, we've experienced continued weakness in our non-core non-programmatic business lines for which we are actively evaluating all options. As Ofer mentioned, while we are disappointed with our reduced guidance, we are confident in the swift actions we've taken to address near-term headwinds in our long-term strategy and positioning. Our strategic shift towards revenue generators from our omnichannel self-service DSP and data products continues to gain momentum, supported by our unique data and media assets fueling greater enterprise adoption and growing end-to-end opportunities. Over time, we believe this combination will continue to attract new partners and increase spending, create larger growth opportunities, and drive more predictable and resilient contribution ex-TAC. We expect contribution ex-TAC from our Vida partnership to increase in 2026, supported by ACR data licensing revenue, exclusive third-party ad monetization opportunities, and the launch of our programmatic smart TV home screen activation solution. Adoption of Next.ai is strong and growing, and as usage increases, we expect it to be a driver of operational efficiency, adjusted EBITDA growth, and margin expansion over time. We will continue investing in AI, data, and technology to reinforce our platform advantages and depreciation. Through the actions we've taken to address Q4 challenges and continued execution on our long-term strategy, we are confident we will become a stronger, more resilient, leading platform well-aligned with where the industry is heading and better positioned for sustainable long-term growth and margin expansion. As always, thank you to our shareholders, employees, and partners for your support. Operator, we'll now take questions. Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up question. Our first question comes from Matt Swanson from RBC Capital Markets. Please go ahead. Matt Swanson: Great. Yes. Thank you for taking my question. When thinking about this DSP headwind, Sagi, I think you mentioned that you do not expect it to be a material impact to 2026. Could you just talk a little bit about the steps that you're taking in Q4 to kind of help rectify some of these headwinds? The one thing I know we've seen from some of your SSP peers is leaning heavier into more DSP diversity, especially DSPs that may be set in the mid-market. I'm just curious if that goes into your strategy as well. Sagi Niri: Hi, Matt, first of all, and thank you for your question. We have a very clear path that we are taking, but we are going, of course, to accelerate according to what we are feeling in the market. The first thing is about CTV media. So a lot not far, like, the last month or so, we announced that we basically launched a new product that enables us to run programmatically TBS on the platform of the OS of the operating system of Vida and others. And this is very meaningful because the amount of media that you have on the CTV is massive. And basically, users are spending about ten to eleven minutes a day on a TV in front of the operating system, and we will have the opportunity to engage with them in a programmatic manner for the first time in the industry. So this is, like, something that we believe that also is resilient for the AI changes in the world and is supporting us. The second thing is, of course, when you mentioned about the DSPs, so what we feel is that we see that our sales team this year and in Q3 and also what we are seeing going forward is reaching their targets, which means that our offering is very compelling, and we are able to satisfy the needs of the clients with our technology and capabilities. And we are going, of course, to continue doing that. Our self-serve solution we are going to enhance what we did until now. We already see very good traction to that. It grew 14% in the first nine months of the year compared to last year. And it grew about compared to last year. Percent in Q3. Which is very nice numbers. And I think that with the push in resources and capabilities, we will be able to achieve even more. So we are going to do that in order to lower the reliance on third-party DSPs in the market. That's the reason that we made this investment a few years ago. We built the capabilities, and we believe that this is a unique capability that we got. And if we enhance it, we'll enjoy that in the future. On top of that, we are also adding one of the key things that we are doing all the time, which is like a differentiator, also, is the way that we are dealing with data. And the discovery tool that we basically acquired from the acquisition of Amobee, and we made it like a standalone platform that is attracting a lot of advertisers and partners. We are going to also add to this platform now mobile data that is coming from partners that we are talking to or already got agreements with. And this will enable us to put it side by side with our strong and exclusive data sets that we have from the agreement that we got with Vida. Which is super important. They share data globally and especially in the US and Canada, which is more related to us because more than 90% of our revenues are coming from the US. The last point that we feel is important to mention is also to add in-app mobile media to the mix because we tried in the middle of the year to understand what basically channels of media will be less affected by AI. We got into the resolution that basically also in-app mobile is less affected by AI, and we are investing in that. We already signed a few agreements around that, and we stopped moving resources into this channel of media. And we believe that everything that I just said, like CTV, the TV ads, native ads in the operating system, in-app mobile media, and data that we are adding, moving resources to the self-serve solutions that we are basically already showing and demonstrating growth year over year. All of that, including the fact that our sales teams are able to reach their targets with our offering, give us optimism and the belief that we can continue next year with full power. Matt Swanson: That's really helpful. You mentioned AI a couple of times. One of the big points of emphasis at your Investor Day earlier this year was talking about the power of your AI platform once you've got all three pieces, right, working kind of interoperability of being full stack with AI. I know we have a couple of products launched. Can you just talk about how close we are to getting that kind of full stack vision completed? Sagi Niri: So first of all, we keep, of course, the investment in AI. For us, it's already, like, a part of everything that we are doing. And basically, what we see is that if we are looking at, for example, the discovery tool and we mentioned it also in the script, basically, what we see is that sellers that are using the discovery plus AI, in the past, it took you, like, a few hours to issue a report. You need, like, an expert to do that. And people were like I will not say they were not tempted to use it so much. But now we see that people are using the AI, our discovery tool, and data segments. They are getting in a few minutes, like, a very good speech. It basically doubled the revenues that the seller that is using our tools is generating compared to a seller that is not. So, of course, it's encouraging us, and we keep pushing for this development. The second thing is that we release and we are getting really good feedback. Feedback is from the usage of AI on our in order to buy media, and it's helping buyers not just to buy smartly, but also more efficiently, and we see very good engagement around that. We now, as we mentioned before, are moving to the SSP side. I feel that early next year, we'll have, like, news also around that. Because this is the third element, as we mentioned, and you have a good memory, Matt, because this is the third piece that we are building, which will be around the SSD side. Building these capabilities, improving the way that publishers can interact with our media, with our data, and understand also their needs. And I think that then in the middle of next year, we will add the layer that will help us manage the full platform, meaning connected to all these three elements of the DSP, DMP, and SSD, and enable us to work much more fluently, much more effectively, and generate better results for our clients. Operator: Our next question comes from Jason Kreyer from Craig Hallum. Please go ahead. Jason Kreyer: Thank you, guys. So I just wanted to ask about the current trend line in CTV. We've seen a deceleration there over the last few quarters that culminated into a bigger decline in Q3. So just wondering if you could unpack that a little bit. My understanding is that the changes with this DSP partner are less attributed on the CTV side, but maybe you can talk about kind of what that trend line looks like and what's ahead for CTV. Ofer Druker: Thanks. Of course. Thank you, Jason. I think that our CTV strategy is solid, as I mentioned before. But in Q4, and also earlier this year, we felt softness in some of the categories that are basically usually supported by CTV in order to advertise their product, and it's, of course, affected us. The second thing is basically competition in the market that is very fierce in the last six months between some of the big companies in the market that are basically lowering their prices in order to attract advertisers. So the CPM in general, what we feel again at least is, went down. So people can deliver their results with less budgets, which was, of course, affecting companies like us because if a company used to spend $1 million in order to achieve certain results, maybe today, they can do that with a few dozens of percentage less in order to do that, and it's affecting the revenues of a company like us. And the last point that I feel is also the political element that last year in Q3 and Q4 was meaningful for us. And, of course, it's not existing almost totally this year. So all these things together I think basically affected us in the second half of the year. But when we are looking at 2026 and going forward, I think that what I mentioned before when I spoke to Matt, when I'm looking at that, this TVS, native ads that we are running, and the agreement with Vida, the investment that we did in order to kick in more TVs in the US, will give us more ground because we have also a full exclusivity on that media, which is growing. ISense and Vida is becoming a very big player in the market. Currently, like, number two globally in pushing new TVs to the market according to the last professional reports that we see. And when we are looking at the TV ads, and our ability to turn them in programmatically, I'm getting a lot of interest in the market from other publishers like Vida, which is OEMs, which need this solution in order to simplify the sale process and make it more competitive. And the second thing is, of course, to advertisers that it will be more like a commodity for them to buy this media than today that they need to deliver the campaign to the OEM in order to run it on this platform. And, of course, it's heavier and it's more difficult to run and to maintain. So I feel that the CTV part, we feel that in 2026 onwards, we start seeing the effect of that, and we will be able to return to growth on that piece of media. Jason Kreyer: Appreciate that, Ofer. Just one follow-up. So recently, one of your competitors announced a win with an advertiser you've worked with in the past. Just wondering if you could talk to that at all and maybe help us understand why that perhaps a more isolated event. Thanks. Ofer Druker: So, this specific client used to work with us for many, many years. Sometimes people want needs or want to change, which makes sense. We did it in good terms and all good. We are winning other accounts in the market as I just mentioned. Our self-serve grew in the first nine months by 14%. And I think that our offering we have a lot of advantages in our offering that we are even going to enhance now. Which is about data platform that we are connected to our DSP. Including exclusive TV targeting, TV data for targeting and measurements. That is very important. We see now, as we also integrated some of these data elements, but it's giving us a clear advantage in the market around data and TV, whichever is related to TV. And the second thing is the fact that we are an end-to-end solution and we can also generate revenues from them by media that can turn our offering to much more attractive and we are going to use this, of course, in the near future. So I think that overall, you win some, you lose some, you are trying to win more than you lose. And I think that we have a strategy that can support our growth. And we see the growth already in 2025 even that it was not an easy year because some of our clients are already using the platform. Even some of them lower a little bit their spend. But I see that we are winning, 14% in the last nine months growth compared to last year. 11% in Q3, and I'm optimistic that with more resources that we are shifting there, and with the capabilities that I just mentioned, we will see much more growth in 2026 and going forward. Operator: Our next question comes from Laura Martin from Needham. Please go ahead. Laura Martin: Yes. My first question is on, could you remind us how much of your total traffic is from a desktop browser? And you mentioned that traffic was you're seeing traffic down. How much was traffic down in Q3 for you? So that's my first question. And then my second question is on the DSP. So your three-quarter numbers were great, which means this DSP loss for the fourth quarter was a surprise, and I get presumably you didn't really have visibility until this quarter started. If you don't have visibility so I don't understand why this DSP spending less money doesn't affect next year at all. But even if that's true, you didn't have visibility for this, how can you have confidence that 2026 is gonna be okay since I don't think you're anticipating this DSP disappearing in April. Those are my two questions. Yeah. This will disappear. Ofer Druker: No problem, Laura. First of all, this DSP didn't disappear. It's there. It's buying media. We didn't close the DSP. A major one on our platform. They keep buying from us. There is a few issues with the big DSPs right now. Some of them changed the way that they are buying media. And they prefer more media that is basically related to their algorithm and to their SPO processes. And it's affecting the market. The second thing what I mentioned is that we are trying to lower the reliance on third-party DSPs. And we are increasing the resources and pushing forward our plans to enhance our self-serve capabilities, which we see that is growing and is making a very good effect on our revenues because it's not just the taxes that we are winning, but also these clients are shifting some of their budgets to our SSP. So this is a solution that basically helps us to mitigate risk that is coming from third-party DSPs. The second thing is that the fact that we are now adding really important pillars of CTV media. We already started discussions with big DSPs and partners in order to enhance their spend with us. Mainly on CTV because of this unique technology and unique capabilities. And we believe that it will compensate and even generate growth next year. We didn't mention in my conversation drop, but I said is that when we look at the market for the future, sometimes you need to plan ahead, of course. And what we understood the display that we invested in that in 2024, in the '25, we see that it's like a we don't feel it so much in our revenues. We see very, very small drop in revenues of DSP, but we feel that it will it can be a challenge in the future because of AI. And people are surfing some sites and so on and even mobile browsing. So we shifted more attention also to in-app mobile that is basically will grow our revenues and lower our dependency on media that can be affected by AI. Operator: Our next question comes from Andrew Marok from Raymond James. Please go ahead. Andrew Marok: Hi, thanks for taking my question. Another theme we've heard across some of your peers has been kind of leaning into performance objectives in kind of what are considered maybe traditional brand formats. I guess, you talk a bit about how you're positioned for that trend and maybe any advantages provided by things like the Nexxen Data Platform? And to the extent that you're able to capitalize on those types of trends, the type of potentially insulating impact it could have on '26? Thank you. Ofer Druker: Amazing question. Thank you, Andrew. I think that performance is now is the right time to basically push for that, and we are doing it in the last twelve months. Our DSP is built for performance and generating amazing results when it's being compared to other DSPs around measurement of performance. And that's also one of the key things that is helping us to win new accounts because when they run us head to head with another DSP or a couple of DSPs, we are generating most in most cases, better results. So it's helping us, of course. I think that also the combination with CTV, which was until now more challenging. And my background is performance for many, many years. It was the price of the CTV. Because when the price was the average price was a note of $15 to $20, it was very difficult to generate results from performance on CTV. But now when the prices are basically dropping, the volumes are growing, we can see that there is a bigger opportunity to combine basically performance with CTV and we are putting a lot of efforts on that. And we have also additional advantage with that because when we mentioned the PVS, this is basically PVS are getting a lot of attention from the clients because they can be alone on the screen for a certain time, we can basically achieve additional impact by using that. So I think that the near future, which is giving us opportunity because the lower CPM that I mentioned, that also reduced our revenues, will help us to basically enable us to do more things around performance and our DSP is basically built for that. It was we built a lot of algorithms that are helping the buyers to generate better results. And I think that in the past few years, we basically moved it to the level that now is one of the top DSPs that is related to performance in the market. Andrew Marok: Great. Thank you. And maybe a quick follow-up, if I could. On your non-programmatic business, you called that out as one of the potential headwinds to Q4. Just wondering, to the extent that it provides any benefit to the programmatic business, is it kind of completely in its own little silo, or are there some benefits that the programmatic business can realize from it maybe in terms of data sharing or something like that? That's all. Thank you. Ofer Druker: Thank you. No. There are totally silos. There is no relationship between this performance element and our core business. Basically, it's business units that we acquired in one of the major acquisitions that we did in the past with RhythmOne. That we basically inherited two business units that were not related to what we are doing today. They are in silos. We are not getting from them any benefit of data, as you mentioned, or around that, and it will not affect us when we will take these steps. And we kept them basically running as long as they were generating value for us. But now, as I mentioned, we as we mentioned, we are basically evaluating what we should do with them because they are not hitting their targets and, of course, cause us a loss of revenues in our forecast, which is meaningful. So not so meaningful, but still meaningful. And but there is no relationship to any of the other business that we are doing, and it will not affect us at all when we will basically take action with them. Operator: Our next question comes from Matt Condon from Citizens. Please go ahead. Matt Condon: Thank you so much for taking my questions. My first one is just on you guys announced in the press release a new data licensing partnership with Yahoo DSP. Can you maybe just refresh us on how The Trade Desk partnership is going and then how big Yahoo can be and then maybe overall just how big data licensing can be for you guys? Ofer Druker: Very good question also. So basically, there are a few elements for us to cooperate with partners around our data. The easiest way for us is basically to create segments and to send them to the DSP that basically wants to utilize them in order to contact targeting. That's what we are doing mostly with The Trade Desk and now with Yahoo. And it's growing. I cannot reveal numbers, but it's growing. And it's showing good signs, and we have a list of new DSPs that are showing interest in order to grow basically with us and embrace this technology and these capabilities. And we need to remember that, basically, the profit or the net revenues of this initiative are 100% because it's coming to utilizing our data that we own. And when we are looking at more advanced solutions, it's basically licensing this data for measurement, integrating raw data into DSPs or other DMPs, this is a very big this is even a bigger opportunity. And we tie it with, basically, the ability to utilize our discovery tool, which is the platform that enables clients to utilize the data but also enrich their data. Meaning, they can upload their first-party data into the platform, enrich it with our TV data, and get, like, unique reach, which changes sometimes their perspective about their audiences. And this is also something that we start selling and generating revenues. And I believe that in the near twenty-four months, we'll see these segments grow in our revenues. The licensing, and the licensing of data in segments, like I mentioned, but also even AVL platform like the discovery plus data that we are licensing to companies in order to utilize them on their platforms and in favor of their activity and their clients. Matt Condon: That's very helpful. And then maybe just a follow-up. You mentioned also in the press release just the potential to do more M&A transactions with smaller than what you did with Amobee. Just what are the key areas when you look at your business today that you think that you need to round out or different functionalities that you need to add on to? You know, via M&A. Ofer Druker: Okay. So I think that from a technology perspective, we have everything that we need. We have a very strong DSP, a very advanced and robust DMP, and a very powerful SSP. But I think that there are supposed to be now more opportunities to buy sometimes clients or verticals activity in verticals you are less exposed to or less working in these verticals and can enrich your technology. I think that also from an integration point of view, we are not interested right now to buy another DSP or another SSP or DSP or DMP because we have this platform, but also from an integration process. We did a heavy lifting in the last two or three years that we have we got to the point that we are really happy with the technology stack that we got. So what we are looking more is to buy activities for clients, as I mentioned, or knowledge or client-based or activity-based that we are not familiar with that we can integrate into our platform and generate additional revenues from them. Operator: Our next question comes from Barton Crockett from Rosenblatt. Please go ahead. Barton Crockett: Okay, great. Thanks for taking the question. I'd like to try and understand a little bit better the DSP impact being just a one-quarter phenomenon. In your guide. I guess the first thing I just want to understand around that are you saying that that's because whatever revenue you lose in the fourth quarter will come back to you in the first quarter, or is it because you see other revenue sources offsetting whatever the negative impact is that you see this quarter and next quarter being offset by new revenue sources starting by next year. Sagi Niri: Hey, Barton. Thanks for the question. I think that's what we are trying to say. You know? I think you answered your question by yourself. So it's like first of all, aforementioned a couple of times, like, all the actions we are doing in order to have our usual growth in 2026, you know, the in-app focus, the self-serve focus, the data focus, the Vida deal, focus. Which are our main growth engines going forward. The one DSP that's, like, you know, is part of the gap in Q4. It's something that we expected this DSP to do with us or to spend with us in Q4 because this is what it did last year, which some of it, of course, connected to the political spend. And this series is spending much less. It's not going with us into 2026 because we already acknowledge that this is the new base, and this is its level of spend. And we are not, like, taking into consideration that for some reason, he may spend more in 2026. Yeah. That's what So I think this answers your question. I hope. Barton Crockett: Okay. And so when you say your normal level of growth mean, you guys think of normal growth being double-digit. Sagi Niri: Yeah. I think that, yes, the lower double-digit, I think that according to the growth engine in front of us and, of course, we are already working very extensively on the 2026 budget. I think that we can achieve this growth of 10% in programmatic activity. Operator: Our next question comes from Tyler DeMatteo from BTIG. Please go ahead. Tyler DeMatteo: Great. Thank you. Appreciate the time. I wanted to start with on the double growth comments right there. When you think about the different product solutions and how you're trying to go to market, I mean, what physically needs to happen with the different business and product solutions to get you back to double-digit growth? Like what's the real needle mover to get you there? And can you just kind of unpack that for us? And then my second question here is I want to talk about the Vida partnership. How much of a contribution I think you kind of quoted this on an ex-TAC basis. How much of a contribution do you actually expect next year? And how is that going to flow through? Thank you. Ofer Druker: First of all, Tyler. I think that the main thing that will bring us growth next year will be the CTV part because, generally speaking, this is something that we put emphasis on it for a long time. We suffered from weakness in the last quarter and also, the last quarter was not a great one for CTV, as I mentioned. But I think that by integrating this solution, building relationships with a lot of buyers that are interested in this type of media will see a growth in that section from the feedback that we are getting in the market and from even additional publishers that are interested to integrate with big volume of media and so on can be very helpful. The second thing is again, in order to reduce the reliance on third-party DSP, in 2022, we acquired Amobee for that reason. We saw it coming. We knew that basically the big DSPs in the future will have to build their own end-to-end solution in order to increase their margin and so on. That's why we made we look for DSP that can add to us enterprise capabilities and can grow and can help us to grow in dependency. That's why we acquired Amobee, and we invested a lot of money and time in order to build and improve the technology, grow the talent, build the models, integrate them with data, not in silos, but as one piece. And we believe that the growth that we are seeing from the beginning of the year will continue and even emerge more next year. And will support our growth in the future. And the in-app that we are testing now is showing really good results. From the middle of the year, we are testing and running media on in-app, and we see that by utilizing our capabilities in the ecosystem of the programmatic world, we are able to drive meaningful revenue into the in-app. And we feel that also next year with the agreement that we already signed, and we will announce some of them soon. We will see that basically we believe that this sort of media will generate for us growth also in 2026 and going forward. And the last point is about data. It was tough in the beginning to educate the market, and to also to build the models for ourselves. As I mentioned before in the call, selling segments, selling raw data, or selling it as part of the discovery tool, and now we feel that the market is getting to the notion of how to work with us. Because we need to remember this ACR data and TV data is not common in the market. Most of the companies that we are looking at or other OEMs are keeping it in their gaze for obvious reasons, and we are one of the only ones that is basically willing to use it in order to build partnerships and to enhance cooperation between us and other partners. And this is, of course, with the full support of Vida. And we feel that this is unique and getting more and more attention from the market as we indicated the traders, the Yahoo, and other DSPs that are basically looking to work with us. To give you an exact number of net revenues of Vida, I think it's too early to say, but it will be much more meaningful, of course, than today because today it's very, very small. Operator: Our next question comes from Maria Ripps from Canaccord Genuity. Please go ahead. Matt Swanson: Hi. This is Matt on for Maria. Thanks for squeezing me in here. We just wanted to ask about the increasing focus on mobile and app. As we think about Nexxen International Ltd. scaling this channel further, how much of that is a function of building supply versus adding specific in-app targeting and measurement capabilities? And then just on supply specifically, based on an earlier response, it doesn't sound like, you know, M&A is in the works here in terms of scaling supply. So just could you just talk to why you feel ostensibly, I don't want to put words in your mouth, that a partnership approach is more appropriate here. Thanks so much. Ofer Druker: I didn't understand the last question. What you said about the attitude? The attitude is just trying to Matt Swanson: Yeah. I just just thinking trying to think through the puts and takes in terms of, say, you know, acquiring another SSP to sort of, you know, build out mobile and app supply versus, you know, partnering with other SSPs? Just trying to understand, you know, how you're thinking about those two options. Ofer Druker: Okay. So I will touch first on the last question because I think that it's easier to, you know, to give a quick answer. But basically, today, with all the SPO laws, if you want to regulations and practices, if you want to utilize your programmatic capabilities and footprint, you cannot basically jump between yourself and another SSP in order to drive media. You need to be connected directly to the in-app, and we are doing it by working with the SDK companies that basically we are connected to them, and then we can basically bring the app into the market and pay them directly. And maintain the SPO rules and get, like, more of a traction by the buyers. Which is you can audit it by pulling this media from another SSP. It will not work anymore. In the current market conditions. I hope that it's understood. If not, I can explain more. The second thing, your first question was about INAP. And acquisition. Basically, you don't need to buy an SSP in order to get connected to more SDK inventory. Basically, what we are doing is we are, as you mentioned, we are signing agreements, cooperation agreements, partnership agreements with SDK companies that allow us to monetize and interact introduce us to their clients in order for us to generate additional revenues from the apps that they own. And this is until now, we found it very successful and promising, and we believe that it could grow even further, of course. Operator: That concludes the question and answer session. I would like to turn the call back over to Ofer Druker, CEO, for closing remarks. Ofer Druker: Thank you. I think that, as we mentioned, we deliver a good Q3 numbers, you know, record in many fields, maybe not in CTV, but in revenues. And in growth year over year and so on. But when we are looking at the full year, of course, it's disappointing to reduce guidance. But even after reducing guidance, we need to remember that we are growing year over year around 3% to 6% in general, but six to 9% programmatically. If we are looking at that. And I think that the fact that we are more heavier in the US it's showing that the US lately was more of a challenge to grow the business than other markets. And we are, like, more than 90% in that market. So it affected us maybe a little bit more than others. But again, when we are looking at growth, we didn't shrink. We grew still even with a disappointing Q4. And what we saw until the end of September was a good result. In October, usually, from year to year, we see, like, an increase in demand. Coming from not just one DSP or other DSP, but from the market as a whole. And mostly. And now this year, we didn't see this wave of growth coming into the system. So we basically felt that we need to announce this guidance reduction because we didn't see this wave of growth coming and supporting our growth. It's usually from Q3 to Q4 statistically, is meaningful. So that's the issue, but we believe strongly in our strategy, in our platform, in our technology, in our talent, and we are willing to work hard in order, of course, to improve our performance in 2026 and going forward. So thank you very much, all of you, for your support. Thank you to our employees, our shareholders, stakeholders, and we are obligated to work hard in order, of course, to have a better 2026. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by, and welcome to Bitfarms' Third Quarter 2025 Earnings Conference Call. I would now like to hand the call over to Jennifer Drew-Bear from Bitfarms' Investor Relations. Please go ahead. Jennifer Drew-Bear: Thank you, and welcome to Bitfarms' Third Quarter 2025 Conference Call. With me on the call today are Ben Gagnon, Chief Executive Officer and Director; and Jonathan Mir, Chief Financial Officer. Before we begin, please note, this call is being webcast with an accompanying slide presentation. Today's press release and our presentation can be accessed on our website, bitfarms.com, under the Investors section. Turning to Slide 2. I'd like to remind everyone that certain forward-looking statements will be made during the call, and that future results could differ from those implied in this statement. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult Bitfarms' MD&A for a complete list. Please note that references will be made to certain measures not recognized under IFRS and therefore, may not be comparable to similar measures presented by other companies. We invite listeners to refer to today's press release and our MD&A for definition of the aforementioned non-IFRS measures and their reconciliations to IFRS measures. Please note that all financial references are denominated in U.S. dollars, unless otherwise noted. And now turning to Slide 3. It is my pleasure to turn the call over to Ben Gagnon, Chief Executive Officer and Director. Ben, please go ahead. Ben Gagnon: Good morning, everyone, and welcome to Bitfarms' Third Quarter 2025 Earnings Call. We made strong, steady progress in Q3, building on the momentum from the first half of the year as we advance our transformation into a leading North American HPC and AI infrastructure company. Today, I'll walk you through our investment thesis, value proposition and key developments, including updates on our energy portfolio and site-specific advancements, all of which gives Bitfarms a competitive advantage to capitalize on the surge in demand for HPC and AI infrastructure. Turning to Slide 4. I would like to kick off today's call by outlining our market thesis, one that we believe differentiates us from our peers and best aligns Bitfarms with long-term investors in our transition to HPC and AI. Infrastructure is not a bubble. Since the invention of modern compute, the supply of compute has increased exponentially. As compute grows, so too does the data center industry that powers it. This is a trend that has a trajectory of over 20 years of exponential growth and an annualized growth rate of 8.8% behind it. This isn't a bubble. It's a reflection of a new paradigm that showed no signs of slowing down before AI and now as AI rewrites the rules of how humans interact with computers, the demand for data center capacity is accelerating. But the demand for compute and infrastructure has reached an impasse. Data centers that used to be measured in kilowatts are now being measured in megawatts and gigawatts. Racks that used to support 10 kilowatts are now being designed to support 370 kilowatts. The exponential increase in demand for power can no longer be met at the pace of the market demands. And as a result, the lease rates for data center infrastructure, which have grown at an average rate of 3% over the last 20 years, are now growing at an average rate of 12% since 2022, and we expect this trend to continue. Turning to Slide 5. Infrastructure is a bottleneck. As manufacturers continually introduce newer, more efficient chips and increase production every year, this trend continues to accelerate. Next year, NVIDIA alone is expected to be shipping somewhere between 10 and 15 gigawatts of GPUs. And that doesn't include, of course, AMD, Intel, Qualcomm and others who are also producing their own hardware with over 100 gigawatts of chips expected to be produced by 2030. While the supply of compute chips continues to increase, the growth in data center infrastructure is happening at a much slower pace. It is not silicon nor capital that will be the real bottleneck for continued growth in HPC and AI, but power and infrastructure. Over the next few years, the gap between the amount of chips that are being produced and the megawatts and the racks available to plug them in and operate them will continue to widen significantly. We strongly believe that as this dynamic continues to play out, the value and the economics will continue to move in favor of those who own the energy and data center infrastructure. We've watched this play out in the market with the contracts that have been announced in the industry to date. When Core Scientific and CoreWeave announced their landmark transaction in April of last year, the rates were contracted around $120 per kilowatt per month. As we've moved further along this curve that's shown on the slide, those rates have continued to trend upward. Most of the contracts over the past few months have been around $150 per kilowatt per month. As time goes on, this trend is expected to continue with analysts predicting a massive shortfall of nearly 45 gigawatts of power for data centers by 2030. Just within the last 2 weeks, Satya Nadella, the CEO of Microsoft, confirmed the shortfall when he publicly stated on a recent podcast that they have GPUs they cannot deploy. We believe that over time, the companies who've allocated and will continue to allocate billions of dollars into compute will be increasingly economically incentivized to pay rising prices in order to deploy their compute faster and with greater certainty, because every day they do not deploy is a day of revenue they will never recover and because their customers will simply move on to a competitor. With direct operating margins for new GPUs typically in the 80s or 90% range, this infrastructure expense is a modest cost driver for those who own the compute, equivalent to a low single-digit percentage of OpEx. If this cost were to double, it would not impact direct OpEx for the customer by more than a low single-digit percentage. These rates, which are largely inconsequential for the customer are very significant for Bitfarms as the developer. With OpEx costs that are largely fixed, every additional dollar earned in a lease goes to the bottom line. This is what Bitfarms is aiming to optimize for, not the fastest contract, but the highest value per megawatt and the greatest margins for the longest period of time with great customers. We believe this will be the primary driver of our multiple expansion and what drives shareholder value creation long term. Our investment thesis is clear and backed by decades of data. Our conviction is high, backed by consistent incoming demand. We don't want to cap our upside by signing leases prematurely. Instead, Bitfarms plans to optimize and achieve higher lease rates and margins through the following 3 strategic actions: one, prioritize infrastructure development first by minimizing the time between signing a lease and generating revenue for a customer, we will minimize the discount that would otherwise be applied to the lease rates and locked into multiyear contracts; two, take advantage of the increasing gap between supply of data center infrastructure and data center demand to lock in higher rates and greater margins under multiyear agreements; and three, while the industry is focused on NVIDIA GB200 and GB300, Bitfarms plans to leapfrog NVIDIA's Blackwell architecture and lead the industry in developing infrastructure for NVIDIA's next-generation Vera Rubin GPUs across 99% of our 2026 and 2027 development portfolio. With Vera Rubin GPUs expected to begin shipping in Q4 of 2026, and the infrastructure requirements to support them largely incompatible with facilities designed for Blackwell GPUs, we believe Vera Rubin infrastructure will be in the greatest demand and shortest supply in 2027 and will command significantly greater economics. Turning to Slide 6. We are able to take this approach because we have a robust balance sheet to fund development and know the value of what we own. While we don't have the largest portfolio of power among the public miners who are transitioning to HPC and AI, we do have the largest portfolios of power in each of the regions in which we operate, none of which are in Texas and all of which are either existing or emerging data center hubs. With consistent inbound demand for our sites, we have high conviction in the value of our unique energy portfolio, the demand for our power and our ability to develop next-generation HPC and AI infrastructure. We believe that not all megawatts are created equal. Our megawatts are strategically located in high-value areas that have multiyear waitlist to secure the power we have today. Our campuses are close to major metros and existing data center clusters, have ample access to major fiber trunk lines and undersea fiber optic cables and benefit from temperate climate compared to places like Texas. While Texas is undisputably a great energy market and arguably the easiest market to grow and develop megawatts in the U.S., there are, of course, trade-offs. The trade-off to short-term development efficiencies is long-term operating inefficiencies. It is no secret that besides power, the primary challenge with data centers is cooling and cooling is becoming an increasingly more difficult problem to solve as energy density continues to increase with every generation of new hardware. Building and operating data centers in a hot, arid desert climate like Texas as opposed to cooler northern climates like Pennsylvania, Washington and Quebec means more CapEx and OpEx for cooling. This isn't an opinion. It's math and engineering. If we built our exact same data center for Panther Creek with the same design, equipment and materials in Texas, it would have a PuE of about 1.4 to about 1.5. Whereas in Pennsylvania, Quebec or Washington, it would be about 1.2 to 1.3. That means for every megawatt we are converting, more of those electrons are going to compute, which is the revenue-generating activity for customers as opposed to supporting revenue generation through cooling. Simply put, our megawatts are harder to get in higher demand areas, produce more value for customers and are worth more per megawatt. In Pennsylvania, we have the strategic foresight to acquire our 3 campuses and submit our energy applications in 2024 before the HPC and AI demand really came into play in the state earlier this year. This has positioned us with secured power at Panther Creek and Sharon and at the front of the queue with very well-advanced power applications at Scrubgrass. In Quebec, new power allocations are almost impossible to get with numerous data center applications denied by the province in the past year. Bitfarms has 170 megawatts operating with some of the cheapest power rates for data centers in North America and 100% renewable. 100% of these megawatts are currently being utilized for Bitcoin mining. And just in the last month, we confirmed that we will be able to convert our Bitcoin megawatts for HPC and AI. This means our Quebec portfolio represents a unique and strategic opportunity to increase total data center megawatts in the province by 25% from about 700 megawatts today, while fulfilling 2 strategic national and provincial objectives, the scaling back of Bitcoin mining megawatts while increasing HPC and AI infrastructure and data sovereignty. In Washington, we have 18 megawatts of secured power in the largest data center cluster on the West Coast with the cheapest power in the U.S. for data centers and 100% renewable. Because of this, the area has a 10-year wait list for power. Everybody is looking to grow here, and it is nearly impossible to do so outside of secured megawatts like ours. This means that despite the relatively smaller scale of Washington, sites in the area are in high demand by both enterprise and hyperscalers alike. I'd now like to spend a few minutes discussing Washington and the news we issued this morning in more detail. Turning to Slide 7. Earlier this morning, we announced plans for the conversion of our 18-megawatt Washington site to HPC and AI workloads. We signed a fully funded binding agreement for $128 million for all the critical IT infrastructure and building materials to develop the full 18 megawatts of gross capacity with anticipated industry-leading energy efficiency between 1.2 and 1.3 PuE. The state-of-the-art facility will feature: one, validated reference designs, ensuring compatibility and performance with NVIDIA GB300s; two, modular infrastructure, enabling phased deployment and scalability, reducing the downtime of Bitcoin mining revenues and ramping up our time to HPC and AI revenues; and three, proven thermal and power management systems critical for HPC and AI operations. The construction team is in Washington today with the general contractor and are kicking off the conversion of the Washington site, which is targeted for completion in December 2026. Turning to Slide 8. I would now like to discuss monetization strategy at Washington. With decade-long wait times for new power and the cheapest power in the U.S. for data centers, we are actively pursuing colocation for both hyperscaler and enterprise, where we can capitalize on the long wait times as previously discussed. This morning, for the first time, we announced we are also pursuing GPU as a service or cloud. While our focus is on developing next-generation Vera Rubin infrastructure across most of our portfolio, we believe there are some compelling reasons to potentially go with cloud as a monetization strategy at Moses Lake specifically. One, GPU as a service would enable us to capture the benefit of the lowest cost power for data centers in the U.S. for ourselves and generate what we expect to be above-market margins and returns for cloud. Two, the relatively smaller scale makes cloud at this site easier to execute and finance. We have more than enough liquidity to consider the site and strategy fully funded today and are in active discussions with leading GPU manufacturers on GPU sourcing and financing, which we believe could be done on very attractive terms. GPU financing could materially reduce CapEx requirements and enhance expected returns. Three, we expect that by demonstrating our ability to execute across the entire stack, we will also be able to better understand customer needs, provide better quality service and negotiate better leases at our other facilities. Lastly, but most importantly, despite being less than 1% of our total development portfolio, we believe that the conversion of just our Moses Lake site to GPU as a service could produce more net operating income per year than we have ever generated with Bitcoin mining, providing the company with a strong cash flow foundation that would fund OpEx, G&A, debt service and contribute to CapEx as we wind down our Bitcoin mining business. I will now walk through the rest of our sites in a bit more detail, starting with Panther Creek. Turning to Slide 9. Panther Creek is our flagship HPC and AI campus in Eastern Pennsylvania. As we've discussed previously, we have 350 megawatts of secured power with PPL. This power is contractually obligated to be delivered with 50 megawatts at the end of 2026 and 300 megawatts at the end of 2027. The site has sufficient acreage for the development of the entire 350 megawatts with capacity to go beyond that. Additionally, we have $200 million remaining on our project facility with Macquarie that is intended to finance Phase 1 of the project as well as a few long lead time expenses for Phase 2. We also have some exciting news around potential further capacity expansion at Panther Creek. Lately, there have been a number of developments, including the recent 403 letter from the Department of Energy and commitments to deploy more natural gas energy generation in Pennsylvania that have given us line of sight to expand beyond the existing 350 megawatts of secured power capacity. We have received positive indication on converting our existing interconnection service agreement, or ISA 60 megawatts to a firm energy service agreement, or ESA, of 60 megawatts to expand power to 410 megawatts and on a recent load study to expand power capacity to over 500 megawatts of growth capacity. With these positive developments that could meaningfully expand capacity at this campus and in line with our investment thesis, we are modifying our original Phase 1 designed for Blackwell GPUs and planning a new Phase 3 and Phase 4. The entire campus will now be developed for NVIDIA's Vera Rubin GPUs and their greater energy density to accommodate our new expectations on future expanded power capacity. This is expected to delay the energization of Phase 1 marginally from December 2026 into the first half of 2027, with no anticipated impacts to Phase 2 time lines. We believe this will enable the company to achieve significantly higher economics in line with our long-term thesis and strategy. Turning to Slide 10. Moving on to Sharon, where we have 110 megawatts of power secured by an ESA with FirstEnergy and PJM under development. We are currently operating 30 megawatts of Bitcoin mining on site, but have started development on an additional 80-megawatt substation, bringing the total available for HPC and AI uses to 110 megawatts. We expect to have the full 110-megawatt substation online by year-end 2026. We recently closed on the purchase of the land for the site, effectively ending our lease and enabling us to move forward with our planned development of HPC and AI infrastructure. Similarly to Panther Creek, we will be working to develop the campus for Vera Rubin GPUs, targeting site completion and revenue in the first half of 2027 for the full 110 megawatts of gross capacity. Turning to Slide 11. In Quebec, we have 170 megawatts of low-cost hydropower currently operating across multiple Bitcoin mining sites, almost all of which are within a roughly 90-minute drive from Montreal. This is an incredibly attractive opportunity for hyperscalers who are following what's called a regional campus strategy. This is something that was pioneered by Amazon, where smaller sites can be directly connected with direct fiber infrastructure in order to reduce the latency between sites below 2 milliseconds, enabling many sites to be connected together to function as one larger site. As I mentioned, it's almost impossible to grow organically in the province. And in October, we confirmed the ability to convert over our Bitcoin mining infrastructure to HPC and AI with regulators and utilities in the region. With that pathway clear, we are accelerating our plans in Quebec. We will focus our development efforts on the city of Sherbrooke, where we have 96 megawatts, robust fiber connectivity, a strong and developed local labor force and ample support from the local energy utility and municipality. We will be applying some of the standardized engineering and design plans completed for our Washington site to Sherbrooke in order to convert these facilities from Bitcoin mining into next-generation HPC and AI infrastructure adapted for Vera Rubin GPUs. Similar to Washington, Quebec has a cool climate and some of the lowest cost energy in North America for data centers. With strong unmet demand for GPU cloud in Montreal, Sherbrooke also represents a potential opportunity to scale up a cloud business in 2027 with VR200s, a strategy that we will evaluate as we work through the engineering and development plans for Sherbrooke. The remaining 74 megawatts of Bitcoin mining in the province are earmarked for potential expansion in 2028, and we look forward to providing more detailed plans for Quebec in 2026. Turning to Slide 12. Last, but certainly not least, we have our Scrubgrass campus in Pennsylvania. This is about 30 minutes away from our Sharon, Pennsylvania campus on the western side of the state. With the exception of the new Panther Creek Phase 3 and Phase 4, which I spoke to a minute ago, this is the only power in our portfolio that is not 100% fully secured today. This is a very, very exciting development opportunity for Bitfarms. We believe this is the only campus outside of Texas for public miners converting to HPC and AI that has over 1 gigawatt of potential capacity. And while we have made great progress on developing the power story for this giga campus, there are still quite a few steps to be taken in order to contractually secure the power, which falls into 2 buckets. First, we have completed 3 conceptual load studies with FirstEnergy, starting with 250 megawatts, 500 and then 750 megawatts, thus moving over to what's called a detailed load study with FirstEnergy, which would eventually be converted over to firm service in an ESA. Second, we have made substantial progress on evaluating the potential to add additional generating capacity on site. This could be accomplished by building a 3- to 4-mile pipeline from our campus to the second largest natural gas pipeline in the U.S., the Tennessee Natural Gas Pipeline, which we have confirmed could supply up to 550 megawatts of natural gas, multiplying our generation capacity on site. We're still in the early stages of evaluating how we would expand the generating capacity, and we'll provide more details as we progress. Combined, the 2 buckets could potentially provide 1.3 gigawatts of gross capacity. And additionally, there is very good fiber infrastructure in the area with our 8 fiber infrastructure networks nearby and is in close proximity to Pittsburgh and Cleveland as well as the other data centers, which are starting to pop up throughout the state. The earliest time that we anticipate we could have additional power at this kind of scale implemented at Scrubgrass is around 2028. Though this is a longer lead time campus for us, we believe that with the forecast on power and demand for HPC and AI infrastructure, the timing for our giga campus will play-in well with the cycle, our investment thesis and our other development plans. Turning to Slide 13. To sum up, we believe that we are incredibly well positioned to execute against our investment thesis in 2026 and 2027 and maximize long-term shareholder value. One, we have a very unique portfolio of energy assets that we aim to fully convert to HPC and AI infrastructure. Two, we have announced our plans to convert our Washington site to HPC and AI workloads and lead the industry in the development of next-generation data centers for NVIDIA's Vera Rubin GPUs. Three, we are actively evaluating a potential cloud monetization strategy for our Washington site, which we believe would be a meaningful driver of cash flows and could eclipse any Bitcoin mining cash flows we have ever generated. Four, we are well capitalized to make our currently planned investments with a financial flexibility that exceeds $1 billion across cash, Bitcoin and our Panther Creek project facility with Macquarie, all of which are going to fund CapEx. As we continue to produce strong free cash flows from our Bitcoin mining operations that fund OpEx, G&A, debt service and contribute to CapEx with no further planned minor CapEx. And lastly, we continue to execute on our U.S. pivot with the anticipated sale of our Paso Pe facility and our full LATAM exit. Our transition to U.S. GAAP for Q4, the establishment of our New York City office and working towards a U.S. redomicile in 2026. We believe this would give us significantly greater index inclusion and meaningfully improve the institutional composition of our cap table. I now have the pleasure to hand the call over to our new CFO, Jonathan Mir. Turning to Slide 14. Jonathan, over to you. Jonathan Mir: Thank you, Ben, for the warm introduction. I'm excited to join Bitfarms at this pivotal moment in the company's transformation. My principal objectives as the new CFO are centered around capital allocation, capital sourcing and capital structure. I'm working hand-in-hand with the operations and development teams on the ground to ensure we implement financing plans that are appropriate for the company and its assets, efficient and support long-term shareholder value creation and that we are also allocating capital to its best possible risk-adjusted returns. With an extensive background in energy infrastructure strategy and financing, I believe there's an extraordinary opportunity to use our strong balance sheet, unique assets and the talents of our people to create value in the high-growth HPC/AI space. I look forward to working closely with the team to deliver on our strategy and capture the exceptional long-term shareholder value that would accompany our successful execution. Turning to Slide 15. Today, Bitfarms has the strongest balance sheet and most available capital in the company's history. In Q3, we were able to execute across several initiatives. First and foremost, we recently completed a very successful convertible note offering, where we were able to upsize the offering to $588 million while improving on pricing, preserving upside and minimizing potential equity dilution through a 125% capped call. Bitfarms chose to issue convertible notes because they allow us to access capital at a lower coupon than straight debt and with less dilution than straight equity. The cash settled capped calls we purchased allow us to offset economic dilution up until $11.88 per share, representing a significant premium to the share price today. It is also important to highlight that investor commitment to Bitfarms is strong. 100% of institutional investors that management met with during the marketing process participated in the transaction and invested their capital in Bitfarms. We're thrilled with the outcome of this raise, and it will allow us to advance our pipeline in tangible ways. Second, we converted our previously announced $300 million debt facility with Macquarie to a project-specific financing facility dedicated to the development of our Panther Creek data center. Moving the debt facility from a corporate level to the asset level materially enhances financial flexibility for the entire company. In October, we drew an additional $50 million from the facility in order to accelerate development of the site for a total of $100 million drawn to date. Finally, we maintained steady and efficient mining operations throughout the quarter, achieving approximately $8 million in monthly free cash flow after G&A. We expect to use this cash flow to support our HPC/AI development projects. Looking ahead, we anticipate continuing to use a mix of both corporate level and project level debt and equity financing as we advance our project milestones. On an ongoing basis, we will evaluate a wide range of opportunities and choose those that we believe support both a strong, stable balance sheet and realize the full potential shareholder value creation that would accompany the successful execution of our plans and fund milestone objectives. Turning to Slide 16. Let's focus now on our third quarter financial performance. In Q3, we achieved a total revenue of $84 million from continuing and discontinued operations. With the intention to sell the Paso Pe site in order to complete our Latin American exit, all revenue from that asset is classified as discontinuing operations. From continuing operations, we earned 520 Bitcoin and achieved revenue of $69 million, representing a year-over-year increase of 156% in revenue. For our continuing operations, our gross mining profit was $21 million, representing a gross mining margin of 35% and an average direct cost of $48,200 per Bitcoin mined. During the third quarter, we introduced a new program for digital asset management, Bitcoin 2.1, which is designed to offset Bitcoin production costs and achieve higher value per Bitcoin sold as a low-cost and low-risk funding mechanism for the energy infrastructure investments that define Bitfarms going forward. It is important to highlight that we are not a Bitcoin treasury company. The goal of this program is not to accumulate Bitcoin, but rather to offset the production cost of Bitcoin and by doing so, contribute to cost effectively funding our HPC/AI initiatives. This is a multi-strategy program that primarily sells both short and long-dated out-of-the-money covered calls on the Bitcoin and treasury as well as for Bitcoin production. During Q3, we incurred an all-in cost per Bitcoin of $82,400 from continuing operations. When considering our net gain of $13.3 million from derivatives against our all-in production costs, it would bring the effective all-in cost down to $55,200. Cash G&A for Q3 was $14 million compared to $20 million in Q3 2024. The improvement was largely driven by lower professional services costs. Operating loss from continuing operations was $29 million for the quarter, including impairment charge of $9 million of nonfinancial assets. As a result, net loss from continuing operations for Q3 was $46 million or $0.08 per share. For the third quarter, our adjusted EBITDA from continuing operations was $20 million or 28% of revenue, up from $2 million or 8% of revenue year-over-year in Q3 2024 and up from $9 million or 15% of revenue in Q2 2025. Turning to Slide 17. Before we begin Q&A, I'd like to reiterate our strong financial position and review our expected capital investment plans for the next 12 months. We are extremely well capitalized to fund our HPC/AI growth initiatives. We have a war chest of over $1 billion, comprised of roughly $820 million in cash and Bitcoin and the remaining $200 million available to draw from our Macquarie facility. With these funds, we expect to be able to fully finance the build-out of our Washington site and the initial phases of construction at our Sharon, Sherbrooke and Panther Creek sites. As we advance our development, the actual investment in our projects will be dependent on a number of factors. We are currently focused on executing on the initial phases of our projects, beginning construction and securing long lead time items to ensure our project time lines. We will continuously evaluate a wide range of financing alternatives at both the corporate and project level, maximizing shareholder value with accretive financing will determine our choices as well as the need for a healthy balance sheet. In closing, I'll underscore that Bitfarms is in the strongest financial position in the company's history, and we have a clear vision of how we are going to best utilize this capital to advance our HPC/AI build-outs in North America. The entire Bitfarms team is incredibly enthusiastic and engaged about the opportunities ahead. With that, I'll now turn the call over to the operator for Q&A. Operator: Our first question comes from the line of Mike Colonnese of H.C. Wainwright. Michael Colonnese: Appreciate all the color on the HPC strategy this morning. First for me, Ben, you mentioned that infrastructure for the Vera Rubin GPU should command a premium to the Blackwell infrastructure. Can you share more on how you guys are thinking about economics there and the CapEx differences? Ben Gagnon: Thanks, Mike. Yes, happy to speak to that a little bit. There's kind of 2 driving forces there with our expectations on Vera Rubin economics. The first is that as the dynamic continues to play out where the infrastructure is going to be an increasingly greater and greater shortage, there's going to be a driver there that will drive the economics. And the second part of this is that the economics around supply and demand imbalance are really specific to GPU models. So if you look at H100s, H200s, the GBs, the 200s and 300s and then what's going to be the next series, the VR, there's a lot more infrastructure available to support those older GPUs, which have less specific requirements. And when you look at what's going to happen with the VR series, the energy density is going up from 190 kilowatts per rack with the GB300s to upwards of 370 kilowatts per rack with the VR200s. And so a lot of the infrastructure that's being built right now is not going to be compatible with the next generation. And as companies allocate all this money into those Vera Rubin GPUs, they're going to be very economically incentivized to deploy them. And what I spoke to with regards to our investment thesis earlier today, is that as this dynamic continues to play out, would you rather sit on your GPUs and not deploy them? Or would you rather pay a higher infrastructure expense in order to deploy them and start monetizing the asset. And really, the margins are so high on these GPUs, especially when the GPU is the newest, most cutting-edge state-of-the-art GPUs as the Vera Rubins will be in 2027, that the economic incentive to deploy those faster with very few options available should drive higher economics. We don't have a firm price point of exactly where that's going to lie, but we think the trend is abundantly clear that the economics next year and in 2027, they're just going to continue to get better and better, especially as the shortfall continues to get exacerbated. Michael Colonnese: Really helpful color there, Ben. And how should we think about the wind down of your mining operations in the coming years, specifically as it relates to the pace and timing of hash rate coming offline as you start to convert and make further progress in converting your data centers over to HPC/AI? Ben Gagnon: Yes, happy to speak to that. I mean the first area is the LATAM export that we've been working on. We obviously shut down our Argentina facility earlier this year. And I think one of the big areas here is the Paso Pe facility, which is an asset that's being held for sale. That represents around a little bit under 20% of our hash rate. And so that will impact the hash rate for the company rolling forward. But when we look at transactions like this, just like how we looked at the economics around shutting down the Argentina facility, we expect to pull forward a significant amount of expected free cash flow from those operations today so that we can reinvest them more immediately in the U.S., in North American HPC and AI infrastructure to greater effect. So while it should have an impact on the free cash flow from operations, really the impact is very mitigated by the fact that we're taking 1 to 2 years' worth of free cash flow from operations and bringing it forward for reinvestment now. And then we also have the derisking factor with regards to having less and less Bitcoin exposure or Bitcoin mining exposure, I should say. So as we move forward through 2026, the next sites that would be coming offline, would be coming offline as we develop the HPC and AI infrastructure and they would get replaced. Washington would probably happen sometime in the -- probably middle of the year, and that would be about 1 exahash and everything else will kind of come off slowly as we convert over the facilities to HPC and AI. So it would be a bit of an orderly transformation, and we'll continue to update the market as we announce those plans. Operator: Our next question comes from the line of Brett Knoblauch of Cantor Fitzgerald. Brett Knoblauch: Thanks for a lot of the color on the different sites throughout the call. I guess when it comes to maybe your PA sites and getting additional power, I feel like that's kind of like the biggest catalyst maybe over the near term. I believe Stronghold was kind of in queue before you guys went out and acquired it, which was probably, I don't know, over a year ago now. Do you have any idea on an update of when you expect to maybe expand the power capacity at both Panther Creek and Scrubgrass. Is that a couple of months thing? Within 6 months thing? How should we think about the timing there? Ben Gagnon: Thanks, Brett. Yes, it's a pretty exciting development there at Panther Creek because just over the last couple of weeks, we've received positive indications on the conversion of the ISA to an ESA as well as the expansion with an additional load study. It's a little too early to say exactly when that would come on to site. What we're planning here is an additional Phase 3 and Phase 4, which would come likely after Phase 2. But it's possible that the conversion of the ISA to an ESA could happen very quickly because all of the infrastructure is in place. There is no investments that need to be made. It's really just subject to the regulatory approval and signings and paperwork for all of that to be converted over. So I would think within the Phase 3, it's not really clear exactly when that's going to take place, but it could happen quickly. It could take several months. When it comes to a Phase 4, that's likely going to be a 2028 deal. Brett Knoblauch: Awesome. And then on the GPU cloud as a service, the CapEx figure that you've noted on, I guess, maybe converting that Bitcoin mining to host GPUs, that was not including the GPUs, correct? Ben Gagnon: Correct. That's not including GPUs and some of the construction costs associated with converting over the facility. So there will be additional expenses at the Washington site. We've had several conversations now with some of the leading GPU manufacturers, and we think that there's very attractive financing options on the GPUs as well that would really keep the CapEx requirement down to basically the infrastructure expense, and we'd be able to fund potentially up to 100% of the compute through these GPU manufacturers, which could be done on what we believe to be really attractive terms. And we also think that it would provide a significantly greater return profile on doing GPU as a service or cloud. Brett Knoblauch: And from a capital allocation, I guess, standpoint, what is your guys' preference? Obviously, the PA sites appear to be leaning more towards colocation, Washington site cloud. Do you guys expect to kind of grow both businesses at the same time? Is there a preference for one to kind of get online sooner than the other? Ben Gagnon: The expectation is that the Washington site will be the first site that's fully online. The Sharon site will probably be the second site that's fully online because Scrubgrass -- sorry, Panther Creek is split out into those 2 phases in 2027 with additional Phases 3 and Phase 4, which still needing to be confirmed. Our priority is managing the critical path and all the project management time lines that we have across our various facilities. But when we're looking at capital and how we'd allocate it across, it's managing the critical path, and it's also making sure that when it comes to looking at the opportunities around cloud, we're doing so in a way that makes sense and is affordable. And one of the benefits of doing it at Washington is a relatively smaller scale does make it very cost effective to do it. It's something that we could consider fully funded today. It's something that we could get financing for it at scale, whereas when you're looking at the really large campuses that we have in Pennsylvania, a colocation strategy is going to be a lot easier to finance. Operator: Our next question comes from the line of Stephen Glagola of JonesTrading. Stephen Glagola: On the $128 million critical IT supply agreement for Washington, can you clarify the counterparty to that agreement? Is that T5? Or is that another firm? And then additionally, just a follow-up to the last one on the GPU cloud model potentially at Washington and Sherbrooke. Can you maybe elaborate on what factors make GPU as a service compelling relative to standard colocation in these markets? And sort of how are you evaluating both potential GPU risk and your, let's say, return on invested capital IRR hurdle for the cloud opportunity? Ben Gagnon: Yes. Thanks, Stephen. When it comes to the supply agreement that we have for the Washington site, it's not with T5., it is with a large publicly traded American national company who serves and supplies data center equipment and data center services. The facility is really an attractive facility for both colocation and both cloud. But when you look at the opportunities that we have here to go fully up the stack and what that might mean for the company, both in terms of a free cash flow perspective as well as our ability to really demonstrate ourselves not only as a developer, but as an operator, I think there's a lot of tangible benefits there that will pay dividends in the long run. The conversion of the site according to our modeling and similar transactions that have happened in the market over the last couple of months, indicate that this one site could be worth significantly more than the entire Bitcoin mining business that the company has been operating for multiple years. And so that would provide us with a really strong free cash flow foundation as the Bitcoin mining business winds down. It will also enable us to better understand and better learn these facilities as we're looking to provide service and work with hyperscale and enterprise customers and neocloud customers on really large campuses. And so the benefit of doing it at the smaller facility is that we should be able to extract a lot of knowledge and value that we can apply to a lot of our other facilities as well. Operator: Our next question comes from the line of Mike Grondahl of Northland. Mike Grondahl: Ben, just curious, what would you describe as the 2 biggest challenges to maybe meeting your time lines for Washington, Sharon and Panther Creek? Like what's going to be the potential bottlenecks and how are you dealing with them? Ben Gagnon: Mike, I mean the potential bottlenecks in construction are a little hard to forecast. I mean construction is something that is changing every single day on the ground. I think that the key way that you mitigate potential risk in construction is having great partners with your owners rep, your general contractors, having a great team of project managers internally who are making sure they're on track of everything, every step of the way, and they're trying to think forward on all the potential problems in managing that -- those critical paths. It's not possible, I think, to identify what would be the key bottleneck or the key risk. But I think with the team that we have in place, the strategic partners that we have in place and the kind of groups that we're working with on the contracting side or on the owner's rep side, we're in a really strong position to execute. Mike Grondahl: Great. And then any rough guidelines or framework you can give us for sort of like 2026 CapEx? Ben Gagnon: So when we're looking at 2026 CapEx, we've outlined some of the numbers for Washington. We're still working on clear path forward as we're revising for Vera Rubin. The real challenge with providing full CapEx figures for 2026 is that the Vera Rubin infrastructure is so new that even NVIDIA hasn't completed their validated reference designs to support that equipment and that infrastructure. So that's something that's adjusting in real time and still moving forward. We should expect to have a better indication of what CapEx looks like in 2026 in Q1. From our conversations that we're having with the various different engineering firms and suppliers and partners of NVIDIA, NVIDIA is going to be producing the first Vera Rubin GPUs and taking them for their own purposes in probably Q2 of next year. And so sometime in Q1, the reference design should be relatively final, and we should be clear in terms of what the CapEx implications are for 2027 and 2026. Operator: Our next question comes from the line of Nick Giles of B.Riley. Nick Giles: Appreciate all the detail here. Ben, you mentioned the higher rack density of the Vera Rubin gen and that it could make the rack density suited for Blackwells obsolete. And it wasn't that long ago that 100 kilowatts per rack was the high end of the rack density. So how are you thinking about future proofing as this trend continues? And are there any contract structures that could protect you from the need to upgrade later down the road? Ben Gagnon: Thanks, Nick. It's a great question. The evolution of hardware is happening at a rapid pace, right? The GB200s were 150, the GB300s were 190 kilowatts per rack. And now the Vera Rubins are going to be over 370. And what that means is that your cooling needs to provide a lot more capacity in a very small footprint. It also means that your electrical distribution is very different. Most of the networking is more or less the same. But on the cooling and the electrical, it's a really big challenge. And one of the things that NVIDIA is looking at doing is increasing the voltage and even going to direct DC systems for the Vera Rubin technology. So they're looking at switching over to 800-volt DC. That doesn't mean that you necessarily have to go upwards of 800 volts or switch over to DC, but it does mean that as the increasing energy density continues to accelerate, you need to be rethinking your energy infrastructure and how you're actually building out these facilities. I think one of the ways that you try and do this is you try and build for the hardware at the time and then you try and lock that in with multiyear agreements, which help you to recover your investment and capitalize those investments over a long period of time. When you're signing an agreement for 5, 10, 15 years, most of the time, those agreements don't anticipate material upgrades to the infrastructure or any upgrades to the infrastructure. And so you're locking yourself in, the customer is locking themselves in with the infrastructure that they have in hand. And so I think the best way to mitigate those risks is to spread out your facilities, make sure you have a pipeline that exists over multiple years and make sure that you're building to the technology that's coming, not to the technology that already exists today because if you're building for today's technology by the time the facility is done, it's obsolete. Nick Giles: I really appreciate that perspective. That takes me to my next question. You mentioned the pipeline. Obviously, you have a lot of growth in front of you, but how much time are you spending on M&A opportunities? And where does that ultimately rank in terms of capital allocation? Ben Gagnon: Virtually none, Nick. Our focus as a management team is execution, execution, execution. We don't believe that there is a tremendous value that comes for our shareholders for looking at opportunities that are 2029, 2030 and these kind of long lead time items. We believe the value comes from executing against our existing portfolio. And we continue to get inbounds in terms of new opportunities and growth opportunities, but none of them seem to compare at all with what we already have in hand. And so I think the best opportunity for us is to continue to execute against our existing pipeline. There will be a time in the future where we're going to want to continue to expand that pipeline. But that's probably an easy year or 1.5 years out from today. Nick Giles: Got it. That's good to hear. Maybe one more, if I could, just for Jonathan. Sorry if I missed any commentary around this earlier, but how are you ultimately thinking about the Bitcoin treasury? Would you look to liquidate these holdings around the time that mining operations wind down? Or would those be separate time lines? Jonathan Mir: So to be -- first, it's nice to meet you. So we are definitely not operating as a Bitcoin treasury company, and we don't want to be one. What we're doing right now through programs like Bitcoin 2.1 is offset Bitcoin production costs and achieve higher value per Bitcoin sold in a low-risk, low-cost funding mechanism for the energy infrastructure investments that define Bitcoin going forward. The program primarily sells short and long-dated out-of-the-money calls on the Bitcoin and the treasury as well as for Bitcoin production. So our efforts are focused around maximizing yield and minimizing costs. And we expect the Bitcoin treasury to wind down into strength as we allocate it to CapEx. Operator: Our next question comes from the line of Martin Toner of ATB Capital Markets. Martin Toner: Congrats on all this progress, guys. My question is around the GPUs. What's your confidence in being able to acquire them on a timely basis? And would you go through a distributor that comes with the financing or who might finance them? Ben Gagnon: Thanks, Martin. Yes, happy to speak to that. We've had quite a few conversations with leading GPU manufacturers. As you probably know, NVIDIA produces GPUs themselves, but they also sell chips to a lot of OEM manufacturers. When you speak with those manufacturers, they often have finance programs in place, and those finance programs are -- can be pretty attractive, especially if you have the right infrastructure to ensure the quality and the lifespan of those GPUs. So going with an OEM manufacturer has a lot of benefits. They'll provide a full turnkey solution with regards to the servers themselves, and they can often come with financing. With our time line for end of next year on Washington, we're highly confident in sourcing our GPUs, and we believe that there's a lot of financing options out there that we are evaluating and could really juice up those return profiles. Martin Toner: That's great. Is there a good exahash number to use for Q4? Ben Gagnon: Our exahash should stay relatively consistent in Q4 when you're looking at our continuing operations. It's not possible right now to really forecast the impact or when the impact from the Paso Pe sale is going to happen. But the site continues to run today. It continues to hash. It continues to generate free cash flow. It's just not classified there under normal revenue according to IFRS standards, we have to hold that under discontinuing operations. But I think if you just look at the hash rate associated with our -- the rest of our portfolio, that will stay relatively constant -- it will stay constant throughout Q4, and then we'll make adjustments to it throughout 2026 as we execute on the HPC and AI development. Martin Toner: Fantastic. Can you give us a sense for initial conversations with customers of the GPU as a service product, reaction and confidence in being able to like contract them on a timely basis? Ben Gagnon: So conversations on the GPU front are really new for us because we've only started evaluating this in the last month or 2 as we've seen the market dynamic really take hold. I think the inbound demands that we've had across Washington and specifically Panther Creek is a lot. And when we're looking at what's the best way to service those customers, what's the best way to lock in long-term value under those agreements, there's a variety of different customers who are coming to us, and some of them want the GPUs included in there, and there's an associated premium that could be potentially extracted from that. So it's a little too early to indicate exactly what we would expect with economics, but we do believe the economics from our conversations and from the internal modeling that we've done and from the transactions that a lot of the companies in the space have announced in the last couple of months is very compelling, especially when we can execute it at a smaller site like Washington, which we can consider fully funded today. Operator: Our next question comes from the line of Brian Dobson of Clear Street. Brian Dobson: I guess more broadly speaking about Bitcoin mining, as more and more miners transition megawatts to HPC? How do you see the global hash rate evolving over the next few years? Ben Gagnon: No, interesting question, Brian. Personally, I think the hash rate is going to continue to evolve at the same rate that it has been evolving. But if Bitcoin price is not moving up meaningfully, that would be a major headwind to further growth. I think what you'll see more likely is that Bitcoin miners will continue to rotate out to lower and lower cost jurisdictions. And I think one of the big dynamics that is taking place is that the public miners represented almost 1/3 of the entire network, and they all seem very keen on moving over to the higher economics associated with HPC and AI. So that removes a lot of the available and current existing infrastructure for Bitcoin mining. So there could be some potential headwinds in exahash growth for the network. But I think what you'll see is it's just going to rotate off to different jurisdictions. We've seen huge growth in the Middle East, in Africa. I think Russia is a very large booming market for Bitcoin mining right now. And I think the best opportunity for most miners in the United States really is this transition to HPC and AI. And the economics are really going to drive that forward because the U.S. is the best market to invest in for HPC and AI, whereas Bitcoin mining is largely location agnostic. And it's happy to go to cheaper locations, higher-risk locations, more remote locations than HPC and AI is. Brian Dobson: Yes, excellent. And then just a quick follow-up. So as you're reviewing your portfolio, do you see an opportunity to engage in this type of megawatt redeployment in a broader sense? Ben Gagnon: When we're looking at whether or not we could redeploy our Bitcoin mining assets somewhere else, I think the opportunities are really few. And really, I don't think that's a great use of management's resources or time. I think the best opportunity is to basically bring forward what should be estimated free cash flow for mining operations today into cash and reinvest those into HPC and AI. Operator: Our next question comes from the line of Michael Donovan of Compass Point. Michael Donovan: Ben, you mentioned dollar per kilowatt trends. Can you quantify a premium on dollar per kilowatt that you're seeing for power secured in Pennsylvania or Washington versus Texas? Ben Gagnon: Yes, it's a good question. There's a few variables that go into dollar per kilowatt on these leases. One is obviously time line, one is location. Another one is risk factors that go into the development time line. And so it's not really possible to pinpoint an exact price per location because there's multiple factors which come into play when you're looking at what the total lease rates can accumulate to. I think if you look around at the transactions that are here and you look around at kind of what Bitfarms could secure today at Pennsylvania before it's even really broken ground at our Panther Creek site, which we plan to do next month, we could probably lock in $140 to $150 per kilowatt per month. But I think when you look at that rate, that rate takes into consideration the location. It also takes into consideration the shovel has not been put in the ground yet. And what we don't want to do is we don't want to lock in a lot of discounts that would be associated with the build time line and the uncertainties around the build time line into a 10-, 15-year agreement. What we'd rather do is we'd rather execute against our construction milestones utilizing the substantial war chest that we have today. And the closer we can bring that window down from signing a lease to actually generating revenue from a customer, the more that we should expect to get. It's hard to put an exact price, but I would think that if that window was shorter, we could probably get upwards of $180 per kilowatt per month if we didn't have the risk and uncertainty priced into the time line that would bring it down to $140 to $150 per kilowatt today. That's internal estimates and modeling. So there's a lot of factors that go into that. And we also think that as you execute against 2026 and as the gap between data center supply and data center demand continues to exacerbate, those numbers could get even better. And when we look at how does the margins work out for these contracts, you're largely looking at pretty fixed OpEx. And so the difference for the company between getting $140 per kilowatt hour, $140 per kilowatt per month versus $150 or $180 is not only a huge increase in terms of the top line revenue, but it's an even larger increase in terms of the profit margin, in terms of what your adjusted EBITDA is going to be. And then not that all translates out into that multiple expansion that we're targeting with this transformation, right? So if you're getting a significantly higher free cash flow out of that operation, that's what the multiple expansion is going to be based on. So we really want to make sure that -- we're not pricing in those discounts. We're trying to maximize the dollar per kilowatt per month in the lease, and that's going to be the way that we achieve the highest multiple expansion for shareholders in the long term. Michael Donovan: That's helpful, Ben. And you talked about connecting data centers to be one campus, and I was hoping you can unpack this a bit more. How can we think about distance between hauls or pods versus theoretical loss and performance for compute? Ben Gagnon: Yes. There's a strategy that Amazon pioneered. It's called the regional campus strategy, and they've effectively determined that somewhere around 300 miles is the cost-effective range to build direct fiber infrastructure. But the real thing is the latency that you could get between your sites. Now obviously, when you're looking at these facilities, you're even concerned about the latency in rack and in between racks or inside the facility to go from one rack to another rack on the other side of the facility. So that latency is becoming an increasingly bigger bottleneck as you're looking at performance on the high, high end of GPUs. But what we've seen is that most of our facilities in Montreal, where we'd be looking at this regional campus strategy, they're much closer than 300 miles. They're all within 90 minutes of Montreal. Many of them are 15-, 20-minute drive apart from each other. And so it would be possible to reduce the latency below 2 milliseconds with direct fiber. It would be pretty cost effective to do so. And you'd get a lot of benefits from doing that in terms of the scalability, given it's just so difficult to scale up new megawatts in the province. Operator: I would now like to turn the conference back to Ben Gagnon for closing remarks. Sir? Ben Gagnon: Thank you very much. I would like to thank everyone for attending our earnings call this morning. The management team is very excited. Our long-term investment strategy, we believe, is fully aligned with long-term investors. And we are really, really excited about the future of this company and what we're building at Bitfarms, and we appreciate your continued support. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Chicago Atlantic BDC, Inc. Quarter Three 2025 Earnings Call. By pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Tripp Sullivan of IR. Please go ahead. Tripp Sullivan: Thank you. Good morning. Welcome to the Chicago Atlantic BDC, Inc. conference call to review the company's results. On the call today will be Peter Sack, Chief Executive Officer; Thomas Napoleon Geoffroy, Interim Chief Financial Officer; and Bernardino M Colonna, President. Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website, and in our supplemental earnings presentation filed with the SEC. A live audio webcast of this call is being made available today. For those who listen to the replay of this webcast, we remind you that the remarks made herein are as of today and will not be updated subsequent to this call. Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including any statements related to financial guidance, may be deemed forward-looking statements under federal securities laws because such statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Encourage you to refer to our most recent SEC filings for information on some of these risk factors. Chicago Atlantic BDC, Inc. assumes no obligation or to update any forward-looking statements. Please note that the information reported on this call speaks only as of today, November 13, 2025. Therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay or transcript reading. And now I'll turn the call over to Peter Sack. Please go ahead. Peter S. Sack: Thank you, Tripp. Good morning, everyone. During the third quarter, the results continued to demonstrate that Chicago Atlantic BDC, Inc. is a uniquely positioned BDC with the experience and expertise to capture above-market returns while protecting principal. We remain the only BDC focused on and able to lend to cannabis companies, together with a focus on the lower middle market, commonly underserved by capital providers. We believe that this differentiation provides uncorrelated distinct credit opportunities. Net investment income per share was 42¢ for the 2025, demonstrating the potential of the business model to generate a 12.5% yield to book value. For the third quarter, we are excited to announce that we executed on our pipeline and funded $66.7 million to 13 new investments, of which seven were new borrowers. This improved diversification of the portfolio and allowed us to utilize our credit facility. I'm proud to say that's a new originations record for us. I believe we're all familiar with the issues that arise in the broader private credit markets, such as borrowers defaulting, interest rate sensitivity, dividend coverage, and in some cases, outright fraud. With our company seeming to trade as if these issues apply to us equally, it's worth pointing out some specifics when we say Chicago Atlantic is a differentiated BDC. The public BDC industry data point that I'm about to mention is taken from Oppenheimer's Equity Research Industry Update as of August 20, 2025, except for the average yield, which was taken from October. Our weighted average yield on debt investments as of September 30, 2025, was 15.8% compared to 11.4% for the average BDC. 99.5% of our portfolio is senior secured, compared to other BDCs with an average of 19.5% exposure to subordinated debt equity, and JV investments. The balance of fixed to floating interest rates in the portfolio has improved with 31% of the debt portfolio fixed and 69% floating, better positioning the company against a drop in interest rates. We calculate that a 100 basis point drop in rates only impacts 17% of the portfolio, demonstrating the impact of high interest rate floors. Our unique investment strategy is focused on underserved markets, providing no overlap in investments made by any other public BDC that we are aware of. We conduct full due diligence on new credits ourselves, instead of relying on underwriting conducted by banks or co-investors. We carefully monitor the performance of each of our companies ourselves. The portfolio is under-levered with only $11 million of debt as of quarter end, compared with the BDC average of 1.2 times debt to equity. Assuming full utilization of our $100 million credit facility during the year, we would still be well below industry averages. Lastly, we have no non-accruals compared with an average of 3.5% of cost. Today, we announced a 34¢ dividend marking the fifth consecutive quarter at that rate. This dividend is also well covered this quarter with net investment income per share of 42¢. As we continue executing our strategy, we will focus on further diversifying the portfolio, utilizing the credit facility, and managing interest rate sensitivity while maintaining the overall strength of the portfolio. Now I'll turn it over to Thomas to discuss the numbers in greater detail. Thomas Napoleon Geoffroy: Good morning. Thanks, Peter. I want to highlight our investor presentation that we filed with the SEC this morning that serves as our earnings supplemental. I'll start with the investment portfolio. We have 37 portfolio company investments. 24% of the portfolio is invested in non-cannabis companies, across multiple sectors. The average credit investment size is approximately 2.4% of our debt portfolio. 69% of the portfolio has floating interest rates, and 58% of these loans have already reached their respective interest rate floors. The gross weighted average yield of the company's credit investment portfolio is approximately 15.8%. And all loans are performing. As of September 30, 2025, the company had $11 million of debt outstanding. All of which was drawn from the new credit facility. As of November 12, 2025, the company had approximately $97.8 million of liquidity comprised of $92.5 million of borrowing capacity and $5.3 million of cash on the balance sheet. Which is available to deploy. This gives us ample liquidity to deploy additional capital over the remainder of the year while remaining relatively underlevered compared to other BDCs. Financial highlights for the third quarter were gross investment income, totaling $15.1 million compared to $13.1 million for the second quarter. Interest income included $1.9 million of onetime prepayment and make-whole fees from unscheduled repayments. Net expenses were $5.6 million which is net of the expense limitation agreement. Compared to $5.4 million of net expenses in the second quarter. Net investment income was $9.5 million or 42¢ per share, up from $7.7 million or 34¢ per share in the second quarter. Net assets totaled $302.9 million at quarter end and the net asset value per share was $13.27, up from $13.23 in the second quarter. At quarter end, there were $22.8 million common shares issued and outstanding on a basic and fully diluted basis. I will now turn it over to Bernardino to talk about our origination efforts. Bernardino M Colonna: Thanks, Thomas. During the third quarter, we funded $66.3 million in new debt investments to 11 portfolio companies. A record quarter for us. Seven of these investments are new borrowers to BDC. Of these new debt investments, 100% of them are senior secured and 84% are either fixed-floating rate loans at their respective floors as of quarter end. During the third quarter, we also had loan repayments and amortization totaling $62.7 million which included early principal payoffs of $59.6 million. As of the end of the third quarter, there was approximately $27 million in total unfunded commitments for the portfolio. To date in the fourth quarter, we have funded $5 million to one new borrower. We expect additional deployment activity between now and year-end but at a more measured pace than the robust gross originations activity we have seen in the last two quarters. The pipeline across the Chicago Atlantic platform as of quarter end which includes cannabis and non-cannabis opportunities, totaled approximately $610 million in potential debt transactions. The breakdown of the opportunity set includes approximately $415 million in cannabis opportunities and approximately $195 million in non-cannabis investments. As Thomas mentioned, we have approximately $98 million of dry powder to grow the portfolio, but we will maintain our high bar when it comes to underwriting and structuring investments that deliver above-market risk-adjusted returns. We've had to show patience in the past when the markets around us seem to underprice risk, and we will continue to adhere to that discipline when needed. Both the cannabis and non-cannabis verticals continue to show healthy performance in the portfolio and strong demand for new debt capital within the lower middle markets, where our focus lies. As Peter noted earlier, this is in contrast to some middle and upper middle market credit lenders which are experiencing growing credit issues where there is some overlap among lenders and even certain challenges maintaining existing dividends. At Chicago Atlantic, our focus has always been on building credit portfolios with attractive risk-adjusted returns. We believe our approach to lending is unique, and our results thus far have highlighted our ability to create alpha in the private credit market. As a result of our direct origination model, 84% of our portfolio company investments are agented internally. This model allows us to be highly selective. And not dependent on syndicated deals, which tend to have overlap among other public BDCs. Lastly, our rigorous approach to underwriting and structuring loans while maintaining pricing discipline has allowed us to craft a differentiated portfolio with strong credit metrics. Thank you for your continued support, we look forward to updating you again next quarter. Operator, we're now ready for questions. Operator: We will now begin the question and answer session. You were 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. At this time, we will pause momentarily to assemble our roster. Operator: First question comes from Pablo Zuanic with Zuanic and Associates. Please go ahead. Pablo Zuanic: Thank you, and good morning, everyone. Congratulations on deploying, you know, the large amount of new loans in the quarter I think it's at $66.6 million. I'd I guess the question is more about the repayments of loans in the quarter, you know, were they in line with your expectations, or were there some repayments that were unexpected And did that in a way, you know, force you to be more aggressive in lending in the quarter to show some book growth If you can comment on that, And then the second question, in the context of other lenders, they are sounding pretty bearish about the cannabis industry outlook. It seems to me that you have a more constructive view about the industry. And that's allowing you to increase your book. If you can comment on that. Thank you. Thomas Napoleon Geoffroy: Sure. Thank you, Pablo. You know, our pipeline is more longer takes a long time to develop. A long time to mature into deployment. These are relationships that are nurtured over many months and sometimes years. And so while we had a larger amount of repayments in Q3 than expected, that does not impact the pace of our deployment because our pipeline and deployment is simply not that reactive to liquidity for better or worse. I think we are extremely proud of our deployment. We executed 13 new investments. That's almost one investment per week in the quarter. To which seven were new borrowers. I think that's a testament to the work to build relationships and nurture relationships across the industry that goes back in time way long way before this quarter. With regards to our outlook on the industry as a whole, I think from the start of our involvement in the cannabis industry, we haven't viewed the industry as a monolith. The industry is challenging to speak as one national industry because it's really a collective of 40 or 41 different jurisdictions in which adult use and medical markets are active. And each of these reflects its own supply and demand dynamics, its own growth expectations, and its own competitive dynamics. And our focus within each of those jurisdictions evolves over time as certain markets are growing, certain markets are declining, certain markets are facing more difficult margin pressure, and certain markets are facing less difficult margin pressure or none at all. And so I think this is where the investment in a very fulsome originations platform, a very fulsome underwriting platform pays off. It's the ability to be able to pivot from challenging markets to less challenging markets, to be constantly developing relationships with the strongest borrowers possible, to maintain the broadest pipeline possible. And pipeline and relationships are the lifeblood of our industry. Ultimately, the quality of our deployments is determined by the quality of the relationships that we can garner at the beginning of the process in the development of that pipeline. Pablo Zuanic: Right. Thank you for that. And congratulations on all the deployment in the quarter. Look, this is again a bigger picture industry question, and I know the bill was only signed last night. But, some people have estimated the hemp derivatives industry to be north of $20 billion. I don't know if I totally agree with that number. But if that's the right number, you know, and that were to flow to the cannabis industry, that would be a big lift for the industry that we're all involved in. Right? Do you see it that way? Do you see a lot of that, with a lot of hemp derivatives being recombinized that type of volume flowing into cannabis players benefiting the industry? And I know that this has yet happened how do you think about that in terms of the industry outlook? Peter S. Sack: Mhmm. I think that part of price compression that we're seeing in many cannabis markets over the last year, while data is difficult to ascertain, I suspect that part of that price compression is driven by competition with the hemp derived THC markets. And so the closing of the hemp related loophole, I suspect, is going to support state regulated markets. Going to be a positive catalyst for most of our borrowers. I think on the flip side, there are some negatives that are worth recognizing. I think that the hemp derived beverage market in particular was successful in expanding the pie and the market of users of the THC ecosystem. I think it brought consumers into the THC ecosystem that were not consumers previously. And it is somewhat unfortunate that this area of the market that was not necessarily well served by dispensaries in the state licensed market will not exist anymore. But I think overall, this is an unequivocal positive for our target markets and for our investment base. Pablo Zuanic: K. And then one more, in terms of what you can share publicly, I know we've talked about two eighty many times before. What we are hearing is that Trulieve in their 10 Q disclosed that there's a penalty being charged by the IRS because of their uncertain tax provisions. And, of course, you are going to contest that. That's the only company that disclosed that so far. We are hearing that other companies are starting to negotiate terms on those long-term uncertain tax provisions with the IRS and they are beginning to pay them over time. Without interest, without penalties, but paying them over time. I don't know if you can comment in very general terms about what you are hearing in terms of how companies are starting to deal with paying back those long-term uncertain tax provisions that are in most companies' balance sheets. Again, it is the way you can share, Peter. Peter S. Sack: Sure. I think our outlook is a little bit different. In that we assume that uncertain tax liabilities, unpaid tax liabilities, we view them as indebtedness that ultimately will have to be paid. When and under what terms is difficult to forecast, but we view it in no uncertain terms as a liability and obligation of our borrowers. In our loan documents, we aim to limit the incurrence of such liability as it does add ultimate risk to the balance sheet. I'm not surprised by such articles and not surprised that companies ultimately do want to reduce the liabilities on their balance sheet because it leads to a healthier, more sustainable enterprise. But I don't have additional information beyond what you've been reading, Pablo. Pablo Zuanic: Right. Look. And apologies if there's more people on the queue here, but, I'm gonna ask a couple of more. You know what? Obviously, because of a BDC's structure, you are able to lend against cash flow and not just real estate backed loans. But a lot of these loans are to medium sized, maybe smaller private companies. Right? There's very few large public MSOs here. Obviously, Curaleaf is a large one. There's a new loan to Cresco. I'm looking here in the October. But in general, they are mostly smaller mid-sized companies in which we don't have a lot of visibility. I don't know if you want to comment on that. I mean, from my perspective, that would imply a little bit more risk, but maybe I'm interpreting it wrongly. Peter S. Sack: Mhmm. With smaller companies, we have more leverage and bargaining power to negotiate greater asset downside protection in our loans. And so with smaller companies, we find the ability to limit leverage, have greater negotiation power in structuring our loan documents, in structuring covenants, in structuring portfolio monitoring activities. And so we try to balance the risk of lending to smaller enterprises with lower leverage, with stronger portfolio monitoring characteristics. And with a very strong focus on the markets in which we are lending. Pablo Zuanic: Right. Understood. That's all for me. Thank you. Operator: Again, if you have a question, please press star then 1. This concludes our question and answer session. I would like to turn the conference back over to Peter S. Sack for any closing remarks. Peter S. Sack: You, Pablo, for your questions, and thank you to our investors for your support. We look forward to finishing out the year on a strong note and reporting earnings in the first quarter. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.