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Operator: Good afternoon, and thank you for waiting. Welcome to Braskem's Third Quarter of 2025 Results Conference Call. With us here today, we have Mr. Roberto Ramos, Braskem's CEO; Felipe Jens, Braskem's CFO; and Rosana Avolio, Investor Relations, Strategic Planning and Corporate Market Intelligence Director. Please note that this event is being recorded. The presentation will be held in Portuguese with simultaneous translation into English. [Operator Instructions] Now I will repeat the same instructions in Portuguese translated into English. The presentation is being held in Portuguese and simultaneous interpreting into English. [Operator Instructions] The audio for this event will be available on the Investor Relations website after it ends. We remind you that participants will be able to submit questions for Braskem, which will be answered after the end of the conference by the IR department. Before we proceed, please note that any statements that may be made during this conference call regarding Braskem's business prospects, projections, operational and financial goals constitute beliefs and assumptions of the company's management as well as information currently available to Braskem. Future considerations are not a guarantee of performance and involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, industry conditions and other operational factors may affect Braskem's future results and may lead to results that differ materially from those expressed in such future conditions. Now I'll turn the conference over to Ms. Rosana Avolio, Investor Relations, Strategic Planning and Corporate Market Intelligence Director. Ms. Avolio, you may begin your presentation. Rosana Avolio: Good morning, everyone. Thank you for participating in Braskem's earnings conference call for the third quarter of 2025. As indicated in the agenda described on Slide 3, I will begin the presentation with the company's main highlights in the period, starting on Slide 4. In the third quarter of 2025, the industry's performance continued to be impacted by the prolonged downward cycle. Utilization rate at petrochemical plants in Brazil were lower than in the second quarter due to the scheduled maintenance stoppage at the Rio de Janeiro plant and the continued implementation of the strategy to optimize production at naphtha-based plants, which takes into account demand levels and spreads on the international market. In the United States and Europe, the increase is mainly due to the normalization of operations and the rebuilding of stocks in the United States, while production levels in Mexico remained lower given the first general maintenance stoppage since the start of production, which was completed at the end of July 2025. With regard to safety and nonnegotiable value, Braskem recorded an average accident frequency rate of 0.75 events per million hours worked, down on the previous quarter and well below the global industry average. In the quarter, the company recorded consolidated recurring EBITDA of $150 million, 104% higher than that in the first -- second quarter of '25, with Brazil, South America segment standing out. With regard to operating cash flow, despite the better EBITDA recorded in the quarter, the company had operating cash consumption of approximately $62 million. Braskem's cash position at the end of the quarter was approximately $1.3 billion, sufficient to cover debt maturities over the next 27 months without taking into account the international standby revolving credit line in the full amount of $1 billion and maturing in December 2026. The company's total liquidity, including this credit line was approximately $2.3 billion at the end of the quarter. Let's move on to the next slide. In the third quarter of 2025, the global macroeconomic scenario was marked by moderate growth, the accelerated inflation, high interest rates and strong geopolitical and trade tensions. And considering the still volatile scenario, we have seen a significant impact in the regions where we operate, resulting in lower industrial activity in resin processing and a typical downturn in demand for the period, reflecting the challenges faced by the industry on a global scale, especially in Brazil and Europe. In addition, most international petrochemical spreads fell in the period, remaining at historically low levels due to excess installed capacity, which together with weakened demand continue to put negative pressure on the sector's profitability at the global level. Moving on to the next slide. The performance of each of the company's segments will presented below, starting with Brazil on Slide #7. In Brazil, the utilization rate at the petrochemical plants was lower due to the scheduled shutdown of the Rio de Janeiro petrochemical plant and the strategy of optimizing production at naphtha-based plants in face of demand levels. Resin sales in the Brazilian market were lower, mainly due to the higher volume of polyethylene imports and lower demand for polypropylene. This reduction was offset by higher sales of key chemicals. In the quarter, recurring EBITDA was $205 million, higher than in the previous quarter. This increase is explained by the prioritization of sales with higher added value, the implementation of the commercial strategy to supply the Brazilian market and the initiatives of the resilience program. Let's move on to the next slide, please. In the third quarter of 2025, the utilization rate of green ethylene plant was 40%, 31 percentage points lower than the previous quarter, impacted by the continued implementation of measures to optimize stock levels, which is part of the resilience program. Sales were lower compared to the second quarter due to lower demand from Asian markets. In relation to the strategy of accelerating the production of new bioproducts and with the aim of seeking opportunities to create value, Braskem GreenCo was created at the end of 2023, a company that already owns the green ethylene assets in Rio Grande do Sul and which will concentrate the growth of Braskem's green portfolio. Next slide, please. The utilization rate in the United States and Europe segment was higher due to the normalization of operations and the rebuilding of inventories in the United States. The lower sales volume compared to the previous quarter is mainly explained by the lower industrial activity in Europe and the weakened demand in the United States. The segment's results continued at negative levels, impacted by weakened demand in the regions pressured spreads and higher ship expenses. These effects were partially offset by the lower inventory effect of feedstock acquired in previous periods in the United States. Moving on to the next slide, we will talk about the Mexico segment's performance in the quarter. The utilization rate for the quarter was 47%, still impacted by the first general maintenance stoppage since the plant start-up, which was concluded on July 31. With regard to ethane supply, the lower volume of ethane supplied by PEMEX compared to the previous quarter was offset by the increase in the volume imported through Fast Track and the start of supply from the ethane import terminal. In this scenario, the volume of polyethylene sales was lower than in the second quarter. Recurring EBITDA of the segment for the period was negative by $37 million, also impacted by the higher idle expenses in the quarter due to scheduled stoppages and lower provisions for fine receivable for delays in the construction of the terminal of ethane imports compared to the second quarter of 2025. Now let's move on to the next slide. The general maintenance stoppage at Braskem Idesa petrochemical plant was completed at the end of July with the participation of more than 30,000 people. This was the first scheduled maintenance stoppage at the petrochemical complex in Mexico since its inauguration in 2016. In addition, the start of ethane supplies from Terminal Química Puerto México in September 2025 marks the beginning of a new chapter in the history of Braskem Idesa with the reduction of the need to use Fast Track solution and guaranteeing the possibility of access to 100% of Braskem Idesa's feedstock at lower logistics costs. This ethane will be transported using two ethane transport vessels leased by Braskem Trading and Shipping, which are dedicated to this operation. TQPM is connected to the petrochemical complex in Mexico via pipelines, guaranteeing greater reliability to the operation when compared to the Fast Track solution. It's worth noting that in September, TQPM supply of ethane to Braskem Idesa amounted to approximately 11,000 barrels per day. Next slide, please. In the next chapter, we will discuss the company's consolidated results. Consolidated recurring EBITDA in the third quarter was $150 million. The increase in relation to the previous quarter is mainly explained by the prioritization of higher value-added sales, prioritization of supply to the Brazilian market, positively impacting the contribution margin, lower inventory effect in the United States and the implementation of the resilience plan initiatives with emphasis on reducing fixed costs in general. These effects were partially offset by higher idle expenses due to scheduled stoppages in Brazil and Mexico and by the appreciation of the real against the dollar. Moving on to the next slide. By the end of September 2025, all work fronts in Maceió were progressing according to plan. The relocation and compensation front continue to show progress in its indicator and ended the quarter with 99.9% execution of the residents relocation program. The same percentage applies to the number of proposals submitted for the financial compensation and relocation support program of which around 99.6% were accepted and 99.5% were paid out. At the same time, the closure and monitoring of the salt cavities is being implemented after all the actions have been taken, if necessary, to ensure that the 35 cavities reach a maintenance-free state in the long term. This quarter, we highlight the achievement of the technical filling limit of cavity 16. As a result, six cavities have now been naturally filled, six cavities have been completed, three have reached the technical filling limit and seven cavities are being filled. Additionally, as announced by the company through a material fact, Braskem and the state of Alagoas signed an agreement related to the Alagoas geological event, providing for a total payment of BRL 1.2 billion, of which around BRL 139 million had already been paid. The outstanding balance is to be paid in 10 variable and adjusted annual installments, mainly after 2030, taking into account the company's payment capacity. The state agreement establishes compensation, indemnification and/or reimbursement to the state of Alagoas for full operation of any and all state property and of patrimonial damages and granted the company full discharge for any damages arising from and/or related to the geological event in Alagoas, including the extinction of the Alagoas state suit in action. The signing of this agreement represents a significant and important step forward for the company in relation to the impact resulting from the geological event in Alagoas. Therefore, in relation to the final provision, the total provision related to Alagoas event was around BRL 18.1 billion, of which around BRL 13.6 billion have already been disbursed and approximately BRL 1.5 billion have been reclassified to other obligations payable, including those related to the agreement signed with the state of Alagoas as mentioned above. As a result, the total provisioned balance at the end of the third quarter of 2025 was BRL 3.8 billion. Now let's move on to the next slide. In the third quarter of 2025, the implementation of resilience measures, especially the optimization of inventory levels was important in partially mitigating the consumption of working capital. The company had an operating cash consumption of BRL 334 million, impacted mainly by the higher seasonal disbursement of operating investments, including the scheduled stoppage at the Rio de Janeiro petrochemical plant and in Mexico. Recurring cash consumption was mainly impacted by higher half yearly interest payments on debt securities issued on the international market by the company, which are concentrated in the first and third quarters of the year. The sales of fund quotas part of the resilience plan and the receipt of the last installment of the sale of Cetrel reduced this consumption by BRL 211 million. Finally, considering the disbursements in Alagoas, the company had a cash consumption of approximately BRL 2.2 billion. Now let's move on to the next slide. Braskem ended the third quarter of the year with an elongated debt profile with 69% of its debt concentrated after 2030. In order to strengthen its liquidity position in the face of the industry prolonged downturn, the company drew down its standby line in the amount of $1 billion at the beginning of October. The current line matures in December 2026. The available cash of $1.3 billion is enough to cover the debt principal repayments over the next 27 months. Finally, corporate leverage stood at approximately 14.7x at the end of the third quarter of 2025, mainly due to the lower EBITDA over the last 12 months. Moving on with our agenda on Slide 11. This concludes the overview of the results for the third quarter of 2025. And next, I will comment on the company's resilience and transformation program. Braskem continues to focus on implementing the initiatives set out in its global resilience and transformation program, considering the significant impact resulting from the prolonged downturn of the entire industry and the Brazilian chemical sector. To this end, the company has adopted measures aimed at generating sustainable value with an emphasis on maximizing EBITDA and mitigating cash consumption. Braskem's resilience program is aimed at implementing tactical initiatives in the company's operations and processes and is structured around two pillars. initiatives with an impact on EBITDA and short-term cash generation and actions to defend the competitiveness of the Brazilian chemical industry with a focus on building a more competitive Braskem, resilient and sustainable. The transformation program brings together initiatives that support the perpetuity of the business and is structured around three pillars: optimization of naphtha base, increasing and flexibility of the gas base, and finally, migrating to products with renewable sources. Now let's move on to the next slide. Following on from what was presented on the previous slide, the implementation of the global resilience program fronts have been intensified considering the prolonged downturn in the industry. So far, we have established 79 action plans globally, which have been broken down into more than 700 initiatives. These actions are distributed on fronts presented above, institutional agenda, commercial agenda, monetization of assets, negotiation with suppliers, optimization of capital employed and operational optimization. In 2025, the potential for capturing these actions is around $400 million in EBITDA and about $500 million in cash generation in relation to the business plan budget for the year 2025. Regarding the progress of the implementation of the actions, around 1/3 of the initiatives have already been implemented and other are in execution or partially implemented, demonstrating the progress of the program. This program is an essential pillar to get through the challenging scenario of the global industry. Moving on to the next slide. Continuing what we saw in the previous slide, resilience initiatives have made progress that is fundamental to mitigating the impact of the prolonged downturn in the industry. On the regulatory side, we have made significant progress in strengthening the Brazilian chemical industry, ensuring fair competitiveness. Among them, the approval of the provisional application of the antidumping duty for the imported from the U.S. and Canada, mitigating the existing damage in the Brazilian market and the maintenance of the 20% import rate in Brazil for PE, PP and PVC resins. In addition, the approval of Bill 892 of 2025 by the Chamber of Deputies represents a significant step forward for the Brazilian chemical industry, which has been operating at the highest rate in the last 30 years. This bill has the purpose of extending the break, the special regime for chemical industry in November and December 2025, in addition to instituting the PRESIQ, which is the special program for the sustainability of the chemical industry from 2027 to 2031. The text of the bill is currently being processed in the Senate for approval and subsequent presidential sanction. Braskem, together with ABIQUIM and other companies in the sector, reinforces the importance of proving the Bill 892. ABIQUIM's technical studies indicate that this bill could generate an estimated positive impact of BRL 112 billion on the Brazilian GDP by 2029, create up to 1.7 million direct and indirect jobs recover up to BRL 65 billion in tax revenues as well as increasing the use of the sector's installed capacity, which currently operates at the lowest level in the industry. In addition, a series of initiatives with an impact on EBITDA were implemented, such as commercial optimizations, reductions of logistics costs, energy, supplies, input, raw materials, optimization of inventory levels as we commented on throughout the performance of the segment, monetization of tax credits, among others. These combined initiatives generated positive impact of around $240 million in EBITDA and approximately $330 million in cash in the year-to-date compared to the budget of the company's business plan for 2025. These results reinforce the importance of the resilience program in the current industry scenario. Now let's move on to the next slide. With regard to the transformation program, the company also made progress on initiatives to increase the competitiveness of its operations in the medium and long term with the aim of ensuring the perpetuity of our business. Starting with Transforma Alagoas, we highlight the beginning of actions to increase the competitiveness of the company's PVC operations and make them more sustainable. The chlorine-soda plant in Alagoas will be transformed into a unit dedicated to handling volumes of EDC, the raw material for the production of PVC. In this context, the chlorine-soda plant was hibernated in September 2025. the company started a new PVC operating model and will now import all its EDC needs through a long-term contract signed with an international supplier. Braskem, which has been present in Alagoas for 48 years, reaffirms its commitment to the socioeconomic development of the state, boosting the strengthening of the chemical and plastic chain. With regard to Transforma Sul initiative, the study into importing LPG for use as feedstock has been completed. It's worth noting that the Rio Grande do Sul petrochemical plant is the most competitive naphtha-based plant in South America and the best positioned on the global ethylene cash cost curve. This study was carried out with the aim of taking advantage of the plant's existing gas processing flexibility, combined with greater logistical efficiency by importing LPG from Argentina, taking advantage of Vaca Muerta production. This initiative brings potential incremental profitability of about $110 per tonne compared to the using naphtha as a feedstock. These actions demonstrate how the company has sought to modify its operations to ensure efficiency, flexibility and long-term sustainability. Now let's move on to the next slide. Concluding this chapter, we come to the biggest transformation initiative underway, Transform Rio. The expansion of the Rio de Janeiro plant's capacity was approved by the Board of Directors in October 2025. This project will add 220,000 tonnes per year of ethylene capacity with an equivalent expansion of PE, increasing the share of gas in Braskem's feedstock profile. The estimated investment of BRL 4.2 billion with completion estimated for the end of 2028. The implementation of the project is conditional on obtaining funding in addition to the resources already approved under the REIQ investments benefit for 2025 and 2026 and a long-term supply contract with Petrobras. In addition to increasing the competitiveness of Brazil's most efficient petrochemical plant, this expansion will bring greater competitiveness to the Brazilian polyethylene market, which is in deficit and positive socioeconomic impacts such as revenue generation for the states and the creation of more than 7,500 jobs during the project execution. With this, we conclude the chapter by reinforcing that the resilience and transformation program is essential for getting through the industry's challenging cycle, guaranteeing competitiveness and sustainability. On to the next slide. I will now comment on the company's strategic direction for the next five-year cycle and the outlook for the petrochemical scenario. Now let's move on to the next slide. Every year, the company draws up its business plan with a five-year horizon through a regular process with a structured timetable and the involvement of various areas of the company. Discussions related to the strategic direction typically take place during the second half of the year, where we revisit our vision for the next five years. taking into account changes in the global scenario, trends and fundamentals in the energy and petrochemical industry. For this cycle between May and July, we kick off by drawing up future scenarios for the petrochemical industry. In August and September, after a detailed discussion, the macroeconomic and petrochemical scenarios were validated with the leadership. In October, we refined the market, operational, financial projections based on these validations. And in December, we will consolidate the strategic direction for approval by the Board of Directors. Now let's move on to the next slide. When we look at the global scenario in 2025, what stands out most is the high level of uncertainty and volatility. This movement has been driven by trade tensions between the United States and China, which have escalated throughout the year. These tensions are accompanied by a series of factors that are likely to continue over the next years, such as more fragmented global chains, increasingly protectionist industrial policies and changes in investment flows, which directly affect international competitiveness. Even with interest rate cuts, the risk of global economic slowdown is still present. When we look at the GDP projections, the consensus is for growth similar to the start of the decade, but limited by the uncertainties of the trade war. This means that we are facing a scenario in which globalization is weakening and protection is advancing. The main impacts of this scenario are uncertainty about the stability of the global economic growth and the profound transformations in the dynamics of international trade with additional risks of disruption in global supply chains. This is the macroeconomic backdrop that we are taking into consideration in our strategic discussions for the 2026 to 2030 cycle. Moving on to the next slide. The current scenario combines two factors that put pressure on the petrochemical industry, which are lower oil prices and subdued global demand. This configuration tends to reduce resin prices on the international market as the marginal producers' cost falls, and there is not enough demand to sustain the price of resin on the international market, even with relatively stable spreads for the marginal producer based naphtha. Lower oil prices and consequently, naphtha and resins on the international market could be unfavorable for base gas producers as in the case of Mexico, depending on the magnitude of the drop in the naphtha prices if gas prices remain stable. In 2025, the price of oil on the international market was intensified by the trade war between the United States and China, which brought uncertainties and reduced expectations of growth and global energy consumption. In addition, there was a significant increase in oil production, especially by OPEC, OPEC+, which gradually resumed its supply, contributing to adjustments in global supply and putting pressure on resin prices benchmarks. In this scenario, realized oil prices this year were lower than expected when compared to the assumption made in the company's 2025-2029 business plan as well as most of the market. This difference has resulted in a challenging environment for the petrochemical industry, with direct impact on competitiveness and profitability. Now let's move on to the next slide. In the company's internal discussions supported by external consultants, it was concluded that dynamics of the petrochemical industry will remain structurally challenging until at least 2030, with China leading investments to achieve self-sufficiency. These investments, combined with the growth in demand impacted by the macroeconomic uncertainties, as mentioned above, contributed to the continued imbalance between supply and demand, putting pressure on overall operating rates, which should remain at historically low levels, even with moderate growth in demand. Given the current expectations about the rationalization scenario, it's expected that the sector will begin to recover towards the end of the decade. Now let's move on to the next slide. Finally, when we look at the outlook for the petrochemical spreads until 2030, the scenario is structurally challenging, considering global trends and industry dynamics. The prolonged downward cycle is expected to last until the end of the decade with a modest recovery after 2029. This behavior reflects the structural excess of supply combined with moderate growth in demand, which has kept international spreads below the historical average for a prolonged period. This reality reinforces the importance of the initiatives we presented in previous chapters aimed at resilience and transformation as well as the need for increasingly assertive commercial and operational strategies. With this, we end this chapter by emphasizing that in the face of a challenging global environment and pressured margins, Braskem's strategic advances will be essential to ensure competitiveness, sustainability and value generation. I would now like to close the presentation by reinforcing the company's priorities for 2025 on the next slide. We will continue to make progress with the initiatives to transform our assets. This front of the resilience and transformation plan is strategic if we are to continuously increase the competitiveness, efficiency and sustainability of our business, making Braskem better prepared to face the adversities of the global petrochemical scenario and guaranteeing its perpetuity. In order to guarantee the continued progress of the transformation, it's essential that the company continues to identify and implement resilience measures. These actions are fundamental to mitigating the impact of the cycle on the company's results and cash flow. strengthening the competitiveness of our business throughout this prolonged downturn. Braskem reaffirms its commitment to the competitiveness of the Brazilian chemical industry together with associations, clients, suppliers and society. It will continue to promote initiatives that guarantee a level playing field and a fair competitiveness for the Brazilian industry, making a consistent contribution to the sector's development. In addition, the company maintains its commitment to the agreement signed in Maceió, conducting each stage with transparency, responsibility and respect for all parties involved. Finally, it's essential to emphasize that all our priorities will be carried out while maintaining our commitment to safety in our operations. safety is and will continue to be a perpetual and nonnegotiable value in Braskem's strategy, guiding every action and decision the company makes. This concludes the presentation of Braskem for the third quarter of 2025. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Please, you may proceed. Roberto Ramos: Good afternoon, everyone. This is Roberto Ramos, President of Braskem. Before we begin the Q&A session, I'd like to highlight some aspects from the presentation in addition to some updates about the financial and economic alternatives for our capital structure, which are currently in effect in assistance from our external consultants as we announced in September '25. That work in developing our strategy for the 2026-2030 cycle began in August and have now been finished by the Administrative Board. We've made some significant conclusions about the company's mid- and long-term outlooks. We have ascertained that the perspectives for the local and international petrochemical industry have suffered a significant negative impact for a number of reasons because China will continue to make significant expansions in its ethylene, propylene, propylene and polypropylene chains using different feedstocks and solutions, also because in the Middle East, there are similar movements. This movement by the Chinese government will have a significant impact on the global scenario with over 40 new crackers increasing production by 70 million or 100 million tonnes, respectively. This will have a significant effect as well on the different petrochemical plants idle capacities. This, combined with the very timid rationalization in the petrochemical industry updates our idle projections. We project a significant gap between supply and demand up until at least the turning of the decade. As such, the companies and the petrochemical industry's mid- and long-term outlooks must be updated. And so this leads to our strategic planning project. So, in September, the company announced the contracting of external consultants to investigate a healthier capital structure. And this is given the projection that the downward cycle is going to be longer than we expected. Since then, we have been updating our mid- and long-term strategies and outlooks. This is made even more challenging by the 2025, '26 cycle. Any potential change about the path to -- path forward must consider these projections. As always, the company will keep its investors and the market as a whole duly informed about all material developments and conclusions about the topic. Lastly, please note that any -- in spite of any negative outlooks or projections, Braskem continues to move forward with its resiliency project, which was approved by its shareholders in '25 and focuses on increasing global competitivity around the world. As such, I'd like to highlight some initiatives linked to value generation for various stakeholders, emphasizing on maximizing EBITDA and cash generation, which were announced recently by Rosana. First, defense of competitivity for the Brazilian industry. by maintaining the 20% import rate for various feedstocks; two, approving various antidumping laws and rights with regard to the U.S. and Canada and also with regard to PVC in the U.S.; three, approval in the Chamber of Deputies of a bill here PL 892/2025, which sets forth rules about the REIQ and PRESIQ, which is now going to the Brazilian Senate for approval. Next, the hibernation of the chlorine-soda plant in September '25 with the goal of making PVC production in Alagoas more competitive and sustainable by importing EDC, this feedstock makes our PVC plant more competitive and also approving the transformer Rio project, which will make Braskem more competitive by using gas in its feedstock matrix to produce polyethylene. And next, operating improvements, which have been generated by over 700 initiatives in 79 different action plans, which include the use of inventories linked to CapEx, producing resin with lower -- or higher added value, reducing downtime in plants due to upgrades, which is something that used to hurt us, improving our use of feedstocks and inputs and also the use of fiscal incentives and credits. So, that being said, I will now begin to answer our listeners' questions. Rosana Avolio: Thank you, Robert. I'll start with the questions that we received on the chat. And there is some convergence in some points. So I'm going to answer some individual questions, and then I'm going to answer the questions that are grouped in terms of content, starting with Vicente with Bradesco. Vicente asked two questions. The first one, he made some comments as follows Lots have happened since the last fall and Braskem hire financial processors to help them in this restructuring. When are we going to have a decision on this? And does the company consider injecting equity now that Alagoas case seems to be completed? And Vicente also ask us resin volumes were very weak in this quarter. What was the main economic driver? What can we expect for the quarters to come? Felipe Montoro Jens: Thank you, Rosana, and thank you, Vicente, for the question. I'll field the first one, and Rosana will handle your second question. With regard to hiring the advisers, as you can imagine, this is something that comes up rather often. It's an important decision of the company, which was actually a relevant fact that was announced to the market in September. And what we can state right now is what Roberto has just read when he opened the Q&A session vis-a-vis any decision pertaining to whatever route we will move forward is still subject to the completion of this diagnostic and especially with the necessary adaptations by the company's Board. At this moment, these discussions are already being elaborated on the results as well so that we can, as we mentioned previously, develop in conjunction with the company's main stakeholders, something that will effectively reorganize Braskem's capital structure. At the present moment, no options are discarded or confirmed. Everything is open. Rosana? Rosana Avolio: Yes, of course. Thank you for the question. You know the company quite well. On a quarterly basis, we see some dynamics of seasonability. And in the historic seasonability, the third quarter tends to be the best period because it anticipates the we -- end of year celebrations and the formation of inventory levels. It was different this year, however. If we consider 2025 compared to 2024, if we consider the demand growth of resins, we do not see a growth posted in this line. We see that demand of resins, the demand of plastic is strongly associated with the Brazilian GDP. When we talk about PE and PP, we can see that there is a drop of about 4% for the next months. For the year to come, we see a recovery of about 3%, but without any doubt, there was a drop when compared to last year. If you see because of the sanitation law, we have seen a very important demand from the sectors of [indiscernible] and civil construction that is a result from the sanitation law. So we expect a 3% growth for this year, just what -- just as we saw in the third quarter when we compare to the previous quarter, we saw a 3% growth. And for the next year, we expect a growth of 3% based on the sanitation law. And a general comment I would like to make. We have seen from the global viewpoint, a very weakened demand or I would even say an uncertain demand due to tariff war that we have seen along the year of 2025. Answer the next question by Gabriel with Citi. This is his question. It's about -- in relation to transform Rio project, could you provide us the time line of the investments and the impact expected on the EBITDA of the company? In addition, could you talk about the funding of the project? Could Petrobras take part in the funding of the project? And the second question is as follows. Could you provide an update on the PRESIQ? And what are the discussions like in Brazil? Is there a time line to provide? What would be the potential impact for the company? Felipe Montoro Jens: All right. I'll begin with transformer Rio and Roberto can talk about PRESIQ afterwards. So, with regard to Transformer Rio, as we -- as Rosana presented now, we have a schedule. The project will begin its engineering phase right now. And this persists until the end of '28 or the beginning of 2029, at which point the project will be completed. If we do some math to calculate the added value that this could bring to the company's EBITDA and using a 220,000 tonnes installed capacity as announced and using an average from the spreads of the previous years, which is $860 per tonne, this brings us to just under $200 million per year of additional EBITDA that we will bring to the company. With regard to financing this project, which is extremely important, as was also announced in our relevant fact, there is a condition for this project to persist so that it can have the needed resources and funds so that it can proceed with the company's cash flow. So, at this first stage, we use the funds that are already available for the company from the REIQ and investments. This allows us to neutralize those impacts to our cash by the first part of 2026. And after that, the need to raise additional funds is already included in the context. So, actually, the first question that was asked with regard to restructuring the company, this has -- this already includes this project. Due to the nature of the project, very likely we were going to find funding sources, but this is not yet defined. It is still being discussed. It will be defined as soon as possible so that this project will not be delayed. Roberto, could you talk about PRESIQ and our forecasts for next steps? Roberto Ramos: Yes, of course. The project, as you know, was approved by the chamber here in Brazil and was sent to the Senate, EBDQUIM and ourselves as members of EBDQUIM, the Brazilian chemical industry is pushing for this to be voted on with urgency so that it can be duly studied by the industry and Trade Commission and then follow on to the plenary session to actually be voted on. We believe that if we manage to get it evaluated with urgency, it can still be signed this year, maybe in November, or if not November, then at least in December, so that it will have an impact on the 2026 results. It's very difficult to make projections about how quickly these bills go through, whether it's in the chamber or in the Senate because political scenarios change every day. New scenarios produce the need for other discussions and other topics to be pushed forward. So it's very difficult for us to give any kind of forecast as to when we think this will happen. But it's our wish and our firm belief that this will be approved in 2025. Rosana Avolio: Thank you, Roberto, Felipe. Now a question about Alagoas about recent announcement. We disclosed a material fact yesterday. Since there are many questions, I'm going to try to focus on the main points. So, there's a request for more details about the agreement in Alagoas, especially in relation to the schedule of payment expected. And there's a question if there is flexibility of the amount considering each payment individually. Felipe Montoro Jens: Thanks for the question. The state of Alagoas, as we mentioned in the material fact, signed with Braskem this agreement. It now needs to once again go through the legal approval by the public sector. This is a BRL 1.2 billion, of which BRL 139 million have already been paid by Braskem. So the remaining balance, and this is a very important topic in the negotiations by both parties or all parties with regard to Braskem's present financial condition was established so that this agreement would be paid over a 10-year period. And so that's our material fact. And the initial installments up until 2030 do respect the company's projected financial condition, which is a result of the entire tightening of the whole global petrochemical cycle and Braskem is tied to it. And after that period, these factors become even more material and move to make Braskem's financial condition recover, as Rosana mentioned in the beginning of the call, and that includes the transformation, switch to gas, fly up to green and all of our green projects in a context with more rational balance between supply and demand for the global petrochemical sector. Rosana Avolio: Thank you, Felipe. Moving on along the same lines, there's a question by Gustavo with BTG, which is consistent with what you just mentioned. In a scenario of a possible change of control in the pillar of transformation, what do you believe to be nonnegotiable to sustain the long-term cases. So there is the green agenda. The second question, what is material in terms of hibernation of capacity in Europe and Asia? And how does it compare to the scenarios announced in the past? As the company sees it, the rationalization tends to be relevant within two years. And lastly, in relation to Braskem Idesa, with ethane terminal in operation, what is the EBITDA capacity that you would consider to be normalized for Braskem Idesa? And how long this asset is likely to start contributing again for reducing the consolidated leverage level? Felipe Montoro Jens: Of course. Thank you, Rosana, and thank you Gustavo. The answer to the first question is contained right in the question. It's, in fact, what the company believes it has as far as ability to add value to all its stakeholders. That is continuing with the transformation plan, our migration to gas, our focus on competitive assets and the green agenda or what we call here in-house as fly up to green. A new, if a new potential shareholder has a different view, it's difficult to answer that because if we already had that view, we would certainly be implementing it right now. So it really will depend on what such a question would be, if and when such a new shareholder would be. With regard to our strategic plan, this is what we've been working on throughout 2025. With regard to the perspectives of closing or hibernating Europe, that depends on rationalization and our rationalization strategy. What we've been seeing is that rationalization has been lower than what we initially projected. We know this from our own experience. We announced recently the hibernation of chlorine-soda. This is a decision that was made in the beginning of the year and was only implemented in September. So these decisions all take significant time to implement with all the due care and precautions that are needed so that they can actually happen in the most sustainable and rational and also productive possible ways for the company. Roberto? Roberto Ramos: I have two points. First, our strategic plan was approved by our Board of Administrators which is composed of -- there's a significant stake by Petrobras there. So, Petrobras is certainly aligned with our vision, and I'm sure that Petrobras will continue to have that same vision regardless of whatever new shareholder comes in, if that happens. And again, this needs to be approved by all shareholders. We never do anything different from what is approved by the shareholders. So this new shareholder, if and when someone arrives, they will need to get involved in discussions with all shareholders as always. With regard to Europe, what we are seeing in Europe is announced shutting down of units and refineries, one of the biggest petrochemical companies in the world, which has units in England and the Netherlands has closed dozens of refineries in the previous years. The President of a large European petrochemical company announced the closure of 12 million tonnes of capacity of ethylene production in Europe if they do not obtain the necessary protection measures that includes either antidumping or tariffs to prevent the arrival of products, especially from China that come into Europe. That also includes U.S. products that arrive in Europe without any import tariffs. Now that being said, Europe is strategically long in propane. Now our polypropylene plants use propane as a feedstock. So it's really about finding the needed logistics. So if we need to replace any current suppliers, we'll do that. But the propane molecule, which is important for us, will continue to exist. So it will just be a matter of plugging the right numbers into the equation. Rosana Avolio: Thank you, Roberto. In relation to ethane terminal, to only to provide the context. Today, we have Braskem Idesa solution for the import of 80,000 barrels per day. Braskem Idesa to run the total capacity would require 660 barrels per day. And therefore, the total focus of Braskem team is to run full capacity. So an operation rate above 90% that in our industry, extremely high. That will be the focus. From the startup of the terminal, we have had operating results very positive, all in line with what we expected. And when you made a comment about the consistent way of reducing the consolidated leverage. It's good to remember that Braskem Idesa since when we developed this project, it was devised by means lim recourse at the time, all the bonds, all the debt have no collateral by Braskem. Braskem as a controller of the asset. So every time we are announcing our cash position, our debt coverage and the consolidated leverage. We do not consider the cash position or EBITDA or the debt of Braskem Idesa. The way it's going to contribute to the future is when there will be dividend payments impact since the startup of the plan in 2016, considering everything that we went through, the reduction of ethane supply, the renegotiation of ethane contract -- so there is a limitation of the availability of ethane in Mexico. And this is why we made this investment. So we received dividends only once in the past 10 years. So the total focus of the team is to increase the operating rate, increase the sales volume, focus on the Mexican market. This was the first purpose when the product was devised, which is to meet the demands of the Mexican market. And as there is a more balanced capital structure, we will consider the contribution for Braskem. Roberto Ramos: Rosana, Gustavo also asked about China and whether the movements in China tend to have an impact on the market. I believe Rosana already mentioned this in her presentation. We are looking at an increase in 20 million to 30 million tonnes of additional capacity in China over the next five years, essentially resulting from crackers, whether they are gas-based or naphtha based and also whether they are carbon based, believe it or not. And even gas for olefins and methanol for olefins plants. So these are four different types of feedstocks that China is coordinating in its search for self-sufficiency with regard to PE consumption. And it's always very difficult to understand the scale of this shift. But this means that China's trend is just as it is in polypropylene to be a net importer of polyethylene. Today, it is currently an importer of polypropylene, but it will become self-sufficient after some time, and it will become a net exporter of polyethylene as well. This is the baseline scenario for us. And it's a scenario that leads us to conclude that this downward cycle will extend for many years. Rosana Avolio: Thank you, Roberto. Another question by Joaquin with Moneda. He asks about the context of transformer contract that has been recently announced by the company. The question is, have we signed a long-term contract with Petrobras to supply ethane or would that depend on the construction of the project? Unknown Executive: Thanks for the question. Yes, as we mentioned in the material fact, Braskem's Board approved the terms of the negotiation between Petrobras and Braskem for ethane supply. But this contract has not yet been signed. It is still subject to being concluded. This has not yet occurred. It is still currently in negotiations. And so within the schedule that we announced recently, that Rosana announced recently. But we do not foresee any kind of change. The commercial conditions have already been agreed to officially. The only conditions that are still being discussed are secondary conditions that are not material to the contract. Rosana Avolio: Thank you. Moving on. Conrado from J. Safra, asked the following to whom you attribute the sequential improvement of the margin in Brazil, the focus that had a better margin and better cost efficiency? Or is there any special reason or a combination of all? Is there -- is it likely for the margin to continue improving? Felipe Montoro Jens: Thank you, Conrado. I'm going to answer your question. Let's consider the historical viewpoint. Brazilian business is very important for the company. Without, we saw some improvement with an EBITDA margin from 5% to 9%, but below what would be a historical margin for this business as a result of everything that we mentioned in this call, capacity, the demand is weakened when compared to the historical levels, especially 2010, 2019, putting pressure on the petrochemical spread at the international level. And this is where our resiliency program stands. So when you ask what were the factors? Without a doubt, this is a combination of different factors. Without a doubt, we are always going to prioritize the supply of the Brazilian market, the South American market, but we have been going for grades whose value added is higher for the company. In terms of cost reduction, we have made different renegotiations with our suppliers, and we've been seizing to reduce logistics costs. And in addition, when considering the EBITDA and the cash flow, we captured along the year nearly $100 million as the numbers presented in the presentation, and that was driven by the optimization of inventory levels. And when the spread, which is the main contributor to the result of any petrochemical industry, when it stands at a level which is historically low, the company has to operate in such a way to mitigate this impact partially of this downward turn. And this is something we are going to continue doing. We are going to continue communicating. Roberto Ramos: I just wanted to add one thing. With regard to when Braskem was created 20 years ago, the major difference with regard to supply and demand is that at the time, the European petrochemical industry was very important. It was actually the largest in the world, and it gradually lost competitivity and has been replaced by the petrochemical industry that is being created in China and that already existed in the Middle East and was expanded. The consequences are that the new petrochemical industries that were created and also with -- in Japan and Korea, but to a lesser extent. But China and Middle East react much more quickly to requests for higher demand than the European industry did. As a result, the high and low cycles are going to be less steep and longer. And as a result of that, the petrochemical industry must adjust its processes, reduce its costs so that it can coexist with the new reality for the future, where the EBITDA margins are not going to be exuberant as they were before, 20% or more. These margins are going to be more contained, closer to the refinery margins. And so we need to reinvent the way we operate petrochemical plants, for example, by reducing the impact of labor, increasing automation, using artificial intelligence tools to make the plant respond automatically to certain requests. All of this will reduce direct cost and fixed cost. This movement is an intrinsic part of our resiliency plan. We've had results in 2025. We're going to capture even more of them in '26. This is inexorable. It's a new reality in the petrochemical industry, and everyone is going to need to adapt to this new way of doing business. Rosana Avolio: Thank you, Roberto. I'm going to read a question that we received from different people participating in this call in relation to the possible sale of Novonor and change of control, bringing the name of IG4 as a result of what we've seen in the media. So there is a question asking if we have any type of time line to complete the discussion, especially in the case of IG4. Roberto Ramos: I would really love to be able to give you that answer. Unfortunately, I can't. As we've been saying repeatedly, we are not party to that negotiation. The information we received from Novonor, everything we received, we immediately convey to the market through material facts. And we are not aware of any topics or any progress that leads to an imminent decision with regard to the sale of Novonor shares. So we remain waiting just as the market as a whole is waiting, of course, it's a topic that is of interest to us. It's of interest to everyone. But we are not even side players. We are merely spectators. Sure, we may be in the first row, but we are spectators nonetheless. Rosana Avolio: Thank you, Roberto. There's a question of Anne with Bank of America in relation to our transformation in Alagoas. Can you provide more information about Braskem chlor-alkali for transformation plant? And we would like to understand a little bit more about Ode and if we saw the press release that was published by Ode, as you would like to understand how this relationship is going to play out. So at the end of the day is how to Transforma Alagoas will perform in general. Roberto Ramos: Well, what does this transformation bring us? Our chlor ethane process is based on electrolysis used with salt. This is something that's been in effect since we opened in 2021. It was a brine transformation. And this actually was -- it didn't generate value. It produced EDC at a cost that was harmful to the PVC plant. The PVC plant carried the cost of the lack of competitivity from the chlor soda plant. This is a plant that dated from the 1970s and whose technology had already lost its competitivity and especially guided by the fact that we needed to bring salt, gem rock salt halite, which is different from sea salt from Chile. So this halite came all the way down -- down south through the coast of Chile through the Magellan Strait and then north all the way up through the Brazilian coast. So the logistics cost was actually just as high as, if not even higher than the halite itself. So this was something that could only work if the product, the polyethylene prices were high -- sorry, not polyethylene, he corrects himself, PVC. But if the costs were sufficient, so replacing EDC manufactured in Alagoas with a noncompetitive plant, such as EDC imported from the U.S. made using ethane resulting from shale gas. therefore, an appreciable comparative advantage. And it was transported using efficient cabotage to our Alagoas plant. This makes the work of the PVC plant more competitive than it was before. And we were actually often forced to reduce the output of the PVC plant to stop losing money. Now with this change, we can run our PVC plant at its maximum capacity. We can even apply some improvements that will improve it by 25, maybe 30 per year -- tonnes per year. And it will also lead us to produce more material in a shorter amount of time. This is all based on the fact that it is going to be produced. The PVC is going to be produced from more efficient feedstocks. In addition, in a partnership that we have signed, we are burning [ Kwako ], which is a renewable feedstock. This makes our PVC increasingly more and more green. This is going to improve the results for our sales as well. With regard to the press release from Ode, I apologize, I haven't read it. Rosana Avolio: As we mentioned previously, when we were mentioning Transform Rio, any change, any project is necessary, requires raw material contract in order to maintain operational stability. With the change explained by Roberto, the answer is yes, we have an agreement for the supply of feedstock and it's a long-term contract. Moving on, we have some questions by [indiscernible] about PRESIQ. And the question is repeated sometimes. So it's in relation to PRESIQ seems to be an important and necessary program in order to control the cash burn of the company. What are the expected impacts of PRESIQ? Felipe Montoro Jens: Thanks for the question. This is a relevant fact, a material fact for the company. It deals with our resiliency and transformation plan. So I'll answer in two sections. With regard to the year 2026, during which rate will still be in effect and two rigs, the investment and feedstock rigs. Now the investment rate has no change from what is currently in effect. This is a fiscal benefit, a 1.5% benefit we have based on PIS and COFINS that Braskem pays. As we mentioned previously, this is something we use as our funding for the Transformer Rio project and other projects of the company. And the second is the feedstocks rate, which today is 0.7. As of 2026, as Roberto mentioned, once this is approved by the President, this will move to 6.25% from the current 0.7. So this will mean something in the order of $280 million to $300 million of EBITDA in the year 2026, starting as of 2027, up until 2031, which is currently in PRESIQ. It has a yearly budget for the petrochemical industry. And of course, Braskem is part of that of BRL 3 billion per year, out of which BRL 2.5 billion will be the so-called PRESIQ feedstocks and another BRL 500 million for PRESIQ investments. So this is what we are currently working on with our projections, and we currently await that signature as quickly as possible. We hope that it will be approved by the Senate firstly and then by the President. Roberto Ramos: Just a reminder, the sum is for the whole industry, the BRL 3 billion that Felipe mentioned, BRL 3 billion per year. sum is the grant that is being given to the industry as a whole. We imagine that Braskem will receive something in the order of 50% of that sum. Rosana Avolio: Thank you, Roberto. And to wrap up, due to time limits, we have last questions. And the remaining questions will be answered lately, later. And the question is about our projections. So there's a comment about our spreads projections, chemicals and petrochemical spreads. Why would make us so confident to believe that the cycle would continue below the historical levels in the next five years. And they believe that external consulting services has a weak track record to estimate what would be the spreads for the future. And why -- what they usually do is to extrapolate what's happening at the moment. So I'm going to talk about our planning process at the conceptual level and how we carry out the mitigation. But before that, I would like to say that the downward cycle has been different from the other ones. So when we discuss the track record and the weakness and the weaknesses of the external consulting services, but this is the environment we have been experiencing since 2019. So we have seen a weakened demand when compared to the global GDP of 2010 to 2019, which was different to what we saw since 2019. As a reminder, the demand for plastic is very connected to the global GDP. The higher the global GDP, the higher the consumption of plastic. So whenever there is a drop in plastic, even though it's been growing, but we see a drop of the global average GDP when compared to the previous decade. In addition to that, there's a very important difference to consider. China with the driver with -- for new capacities, they are very based on sufficiency and to meet their own demand. And this is what we have seen, and this is aligned with the external consultancy. And this has created a very major oversupply. And this is something we showed in the results definition. And there is a backlog, there's a backlog before offering demand. And the backlog is really huge. And when I look into the future, we still see capacity coming in, especially in China in its search for self-sufficiency. When we defined our projections, this is what we considered. By the way, this is an approval process, which is still going on. And this is a process which will end at the end of the year with the approval by the Board. as we have mentioned in this results presentation. So for us to define the scenarios, we can consider different probabilities in different scenarios. We do not work with one case only. We incorporate different probabilities when we define the assumptions. And without any doubt, in our base case, we have been more conservative or even more realistic would be a better word when we do the rationalization because that could accelerate or could provide a better support to the better spread for the future. But as we mentioned in this call, it's very difficult to estimate other people's decision. So there are external consultancies that provide the cash cost of all producers in the world. But we do not have the disclosure of any agreement between suppliers and clients. So the decision of investment to close a plant is a decision based only on cash cost. It starts from cash cost, but there is a definition at play, agreements, what's the best moment to make the decision for the rationalization. So, again, in the past five or six years, there was a different downturn from the previous years. And there are players, there's this player that is going to include capacity up to 2030. So we consider the probability plus the definition of the assumption. And again, we were very realistic more than what we have been -- on what we have been observing. Roberto Ramos: Just to mention something else about the topic of rationalization. We have some perspectives for reductions. Some have been announced, others not yet, but there's a significant reduction in South Korea, which should reach maybe even 4 billion tonnes in China. The Chinese capitalist process encourages creation of various industries and allows those industries to fight for space. And then once some time has elapsed, the winners remain and the Chinese government rationalizes the winners and losers. So, of course, they have a lot of capacity spinning up. And of course, there's going to be rationalization. And the biggest losers are Europe. Europe has 12 million tons of ethylene production that is currently at risk. Structurally, Europe's problem is much more serious because not only do they not have the feedstocks, they don't have the ethane. They don't have the oil. So they import oil. Yes, they refine it, but they import oil and they import ethane -- and their energy cost is also very high as a result of the war between Russia and Ukraine, which has shut down the supply of cheap Russian gas to Europe and especially to Germany. So with the energy cost in Europe, which is currently almost 3x as high as it was before Ukraine was invaded and also considering that the petrochemical industry is highly energy intensive, combined with the fact that Europe doesn't produce any of these feedstocks, not even naphtha because they don't have oil or gas because they don't have oil reserves. And of course, I'm not considering Russia. This means that Europe's petrochemical industry is moving forward toward a state of the industrialization of total inexistence. And we have a significant amount of production capacity that is at risk during this sunset perspective. Rosana Avolio: Thank you, Roberto. Due to some limitations, the other questions we will answer later. So we would like to thank everyone for attending this call to discuss the results of the third quarter of 2025. And I'll see you next time when we -- for our next call. Thank you. Unknown Executive: Thank you. Operator: This concludes Braskem's conference call. Thank you all for joining us, and have a great afternoon.
Operator: Good afternoon, and welcome to Fathom Holdings Third Quarter 2025 Conference Call. Joining us today is the company's President and CEO, Marco Fregenal; and Senior Vice President of Finance, Daniel Weinmann. [Operator Instructions] Please note, this conference is being recorded. Before I turn things over to management, I want to remind listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those outlined in the Risk Factors section of the company's Form 10-K for the year end ended December 31, 2024, and other company filings made with the SEC, copies of which are available on the SEC's website at www.sec.gov. As a result of those forward-looking statements, actual results could differ materially. Fathom undertakes no obligation to update any forward-looking statements after today's call, except as required by law. Please also note that during this call, management will be discussing adjusted EBITDA, which is a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release, which is now posted on Fathom's website. With that, I'll turn the call over to Fathom's President and CEO, Marco Fregenal. Please go ahead, sir. Marco Fregenal: Thank you, operator, and good afternoon, everyone, and welcome to Fathom Holdings Third Quarter 2025 Conference Call. Before we begin, today is a very special day as it is Veterans Day. It is the day that we have an opportunity to thank and show gratitude to those who have served and continue to serve our great country. Let us also thank their families. As we all know that when someone serves the entire family serves. So thank you all for all you do. We are sincerely grateful. Let us begin by highlighting some of our accomplishments this quarter, then move to the broader market outlook and our plans for 2026. The third quarter marked another significant step forward for Fathom. We delivered 37.7% year-over-year revenue growth, nearly doubling the analyst expectations of an increase of 20% and achieved another quarter of adjusted EBITDA profitability. These results highlight our financial continued ability to execute our strategy, maintain operational discipline and capture growth across both our core brokerage and fast-growing ancillary businesses. Our agent base continues to expand at a healthy pace, growing 24% year-over-year to more than 15,300 licensed agents, supported by our lowest turnover in recent years, averaging just 1% of agents per month in Q3, far below the industry average. As we move forward, we remain focused on attracting and empowering high-performing agents who leverage our programs and technology to maximize productivity and earnings. Our ongoing investments in tools, technology and culture are helping agents convert more leads, close more transactions and build stronger, more sustainable businesses. Every initiative is designed to elevate agent success, deepen engagement and improve retention. These investments not only reinforce our reputation as one of the most agent-centric brokerages in the industry, but also drive our long-term revenue growth and profitability. Gross profit for the quarter increased by more than $2.7 million to over $9.6 million, representing a 38.5% year-over-year increase. What's most significant is that over 50% of that increase in gross profit flowed directly to EBITDA. This demonstrates the power of our operating model and disciplined expense management. We're not just growing revenue, we're converting that into real earnings. We have reached an inflection point where each additional dollar of gross profit now contributes more to our bottom line. This is the result of years of investment in technology, efficiency and scale, and it is to prove that our model is working exactly as designed. As we continue to grow, we expect this leverage to expand further, driving sustained profitability growth and creating meaningful long-term value for our shareholders. Turning to our ancillary businesses. We continue to see strong momentum across mortgage, title and technology. Our mortgage company Encompass Lending increased revenues by 20.7% and achieved adjusted EBITDA of about $160,000 for the quarter, which is a clear sign that our strategic investments in process automation and loan office productivity are paying off. Verus Title, our title business delivered 28.6% revenue growth, while our Technology segment posted an 18% increase. It is important to highlight that our ancillary business transactions generate gross profits that are 7 to 10x higher than those of our real estate transactions. The margin advantage makes them powerful growth catalysts for future profitability. Expanding these segments enable us to capture greater share of the real estate transaction value chain and strengthening our overall earnings. As these businesses continue to scale, they're become increasingly meaningful drivers for both margin expansion and long-term shareholder value. As we enter the fourth quarter, growth is accelerating with file starts for both our mortgage and title businesses up more than 60% compared to the same period last year. We anticipate these growth rates to continue. This search reflects the strong alignment between our real estate network and our ancillary services as agents increasingly refer clients to our mortgage and title companies for more seamless transaction experience. Growth in these areas reflect our ability to deliver complementary services that simplify the real estate transaction process. As transactions become increasingly complex, both agents and clients are seeking solutions that streamline closings, improve efficiency and enhance the overall experience. We're also beginning to see tangible returns from our technology investments. For example, Verus Title's successful expansion into Arizona and Alabama demonstrates our ability to replicate success in new markets. These expansions are a key part of our strategy to increase growth. At the same time, our local efforts to build strong relationships to improve attach rates, further accelerating revenue per transaction and strengthening our overall value proposition for both agents and their clients. We are leveraging our proprietary technology to unlock new high-margin revenue streams. The recent intelliAgent licensing agreement with Sovereign Partners underscores the scalability of our platform and the strong demand for our technology beyond our own agent network. By combining intelliAgent platform with our technology-enabled services, real estate companies can significantly boost profitability, a result we have already seen at My Home Group and Sovereign Partners. Looking ahead, we estimate that there are more than 18,000 small to midsized brokerages that could substantially improve their financial performance by adopting intelliAgent platform, highlighting a significant growth opportunity for Fathom. These kinds of opportunities validate our innovative and reinforce Fathom's position as a forward-thinking leader in the real estate industry. Now let's talk about Elevate, which we believe will be a meaningful growth driver for both -- for Fathom in 2026 and beyond. For those less familiar, Elevate is our concierge level growth program designed to help agents dramatically increase productivity and earnings through done-for-you branding and marketing, lead generation and conversion, transaction support and coaching, all offered at a competitive 20% commission split. It's a complete business building platform that allows agents to focus on clients while Fathom handles the back-office complexity. Think about it in this way. For the same 20% commission that an agent might pay to another broker simply to hang their license, that same agent at Fathom gains a full-service concierge team that is dedicated to help them grow their business. Elevate delivers tremendous value to agents while simultaneously improving Fathom's retention, productivity and profitability as the gross profit for Elevate transaction is on average 5x higher. As more agents join the program, we expect to see measurable increases in closed transactions, overall revenue per agent. This program not only strengthens our competitive advantage, but also creates a scalable pathway to higher margin growth well into the future. We have already onboarded over 165 agents to Elevate with another 45 agents in the pipeline and adoption is accelerating. Elevate is a powerful example of how our programs help agents maximize profitability while reclaiming their time. By combining best-in-class tools, coaching and technology, Elevate enhances performance, deepens engagement across our network, which in turn drives higher attach rates and greater adoption of our broader platform. Beyond Elevate, we also launched several new growth initiatives in recent months. First, we recently announced the acquisition of START Real Estate, a firm dedicated to serving first-time homebuyers. START headquartered in Colorado with approximately 70 agents is on track to close roughly 400 transactions this year, delivering a 50% gross margin and a mortgage attach rate of 70%. With our size and their strategy, we have already begun expanding START into other markets, including Utah, Arizona and Nevada and with a broader plan to enter more than 15 states over next year. This expansion is expected to generate over 1,500 additional transactions next year while sustaining both strong margins and high mortgage attachment rates. Ultimately, our goal is to launch START in every state, positioning Fathom to capture an important share of the first-time homebuyer market and drive meaningful revenue and EBITDA growth. Second, we're expanding the Real Results team, our lead generation and qualification program. After providing -- after proving highly effective within the Elevate program, Real Results is now being rolled out company-wide to help agents access vetted high-quality leads. This program shorten sales cycles, boost conversion rates and drives higher productivity, all while creating a more scalable growth engine for the company. Third, we established strategic partnership with ByOwner, providing Fathom with access for the for-sale ByOwner market, which currently represents approximately 6% of all U.S. homes listings. ByOwner tracks over 500,000 visitors per month across its 2 websites, including buyers, sellers and renters. Analysts estimate that approximately 20% of first-time ByOwner listings eventually convert to full service representation, which creates a significant opportunity for our agents. Through this partnership, ByOwner will refer motivated sellers and buyers to the Fathom network of agents and lenders, expanding our reach and create additional valuable growth channel. Collectively, these initiatives demonstrate our commitment to delivering measurable results for our agents and customers. By continually enhancing our technology platform and forming strategic partnerships, we are improving efficiency, simplifying transactions and creating sustainable diversified growth opportunities. As you can see, our investment of human resources and capital into strategy is translating to consistent operational execution, stronger engagement across our agent base and accelerating contribution from our ancillary businesses. With that momentum, let me turn it over to Daniel Weinmann, our Senior Vice President of Finance, who will walk through the financial results and provide additional insight into segment performance and the profitability trends. Daniel? Daniel Weinmann: Thank you, Marco. I'll begin with our financial results for the third quarter of 2025 and then provide a breakdown of performance by business segment. For the third quarter of 2025, total revenue was $115.3 million, a 37.7% increase year-over-year compared to $83.7 million for the third quarter of 2024. The increase was driven by a 39% increase in brokerage revenue, reflecting higher agent production and continued expansion of our Brokerage network. In addition, our Mortgage and Technology segments contributed modest year-over-year growth, including the initial contribution from new third-party licensing fees within our technology platform. Gross profit increased 39.1% in the third quarter of 2025 compared to the same period in 2024, primarily driven by higher transaction volume and revenue growth. Gross profit margin remained consistent at 8.3% for both periods, reflecting pricing stability and cost discipline as increases in agent-related commissions and cost of revenue scale proportionately with revenue growth. Technology and development expenses were $1.8 million for the third quarter of 2025 compared to $1.7 million for the same period in 2024. The $100,000 increase reflects continued investment in our technology platforms, including new capabilities within intelliAgent and enhancements to our Elevate program. General and administrative expenses totaled $8.3 million for the third quarter of 2025 compared to $8.1 million for the same period in 2024. The $200,000 increase reflects modest increases in personnel and administrative support costs, while the company continued to discipline spending across the organization. Marketing expenses were $1 million for the third quarter of 2025 compared to $1.4 million for the same period in 2024, primarily due to a shift towards more efficient conversion-focused marketing channels and reduced broad-based advertising spend. Our GAAP net loss for the third quarter of 2025 was $4.4 million or $0.15 per share compared to a net loss of $8.1 million or $0.40 per share for the third quarter of 2024. The improvement in net loss was primarily driven by higher revenue and operating leverage in the current period as well as the absence of approximately $3.1 million in litigation contingency expense recognized in the prior year quarter, partially offset by $2 million in litigation contingency expense recognized in third quarter of 2025. Adjusted EBITDA, a non-GAAP measure, was $6,000 for the third quarter of 2025 compared to a negative $1.4 million for the same period in 2024. The improvement was primarily driven by higher revenue and improved operating leverage as the increase in transaction volume resulted in a proportionate increase in gross profit. In addition, lower marketing spend and continued cost discipline contributed to the improvement in adjusted EBITDA year-over-year. I will now walk through the results of our individual business segments in more detail. We will start with brokerage. Revenue for the Brokerage segment was $109.2 million for the third quarter of 2025, an increase of 39% compared to the prior period, primarily driven by the addition of My Home Group, which was acquired in November 2024 and contributed significantly to transaction volume and commission income. The increase also reflects modest organic growth from our existing agent base supported by expanded market coverage. We ended the quarter with 15,371 agent licenses, an increase of 24.1% compared to 12,383 in the same period of 2024, driven primarily by the addition of agents from My Home Group as well as continued success in attracting and retaining agents through competitive commission structures, enhanced support services and targeted recruitment efforts. Gross profit margin for the Brokerage segment was 6% for the third quarter of 2025, consistent with the prior year period as higher transaction volumes from the addition of My Home Group and modest organic growth were offset by a proportional increase in commission expense and other agent-related costs, resulting in stable margins year-over-year. Adjusted EBITDA for the Brokerage segment increased by 100% to $1.6 million for the third quarter of 2025, an increase of approximately $800,000 compared to the same period in 2024, primarily driven by higher revenue and ongoing cost management initiatives. Our mortgage business, the revenue for the mortgage segment was $3.5 million for the third quarter of 2025 compared to $2.9 million in the prior year period. The increase was primarily due to higher funded loan volume supported by a more favorable interest rate environment and increased buyer activity. Adjusted EBITDA for the mortgage segment was $161,000 for the third quarter of 2025 compared to a loss of $319,000 in the same period of 2024. The improvement was primarily driven by higher funded loan volume and improved operating leverage as increased revenue flowed through while fixed operating costs remained relatively consistent year-over-year. Next, our Title business. Verus Title revenue was $1.8 million for the third quarter of 2025, an increase of 28.6% compared to $1.4 million in the same period of 2024, driven by strong organic growth from increased order volumes, the expansion of relationships with existing agents and agent workovers. Additionally, contributions came from targeted marketing initiatives and process enhancement that improved closing efficiency and capacity. Adjusted EBITDA for Verus Title was a loss of $191,000 for the third quarter of 2025 compared to a loss of $92,000 in the same period of 2024. Despite a 28.6% increase in revenue year-over-year, profitability declined due to higher operating expenses associated with supporting transaction growth, including increased personnel, onboarding costs and other investments to expand capacity. Our technology business, third-party revenue was $829,000 for the third quarter of 2025 compared to $785,000 for the same period in 2024. The increase primarily reflects the initial recognition of licensing fees from external users of our data and technology platform, representing the first quarter in which these third-party arrangements contributed to revenue. Adjusted EBITDA was $488,000 for the third quarter of 2025 compared to $152,000 in the same period of 2024. The improvement was primarily driven by the addition of a new third-party licensing revenue stream as well as improved operating leverage relative to total revenue. Focusing on our balance sheet and capital allocation, we continue to actively manage our balance sheet in light of current real estate market conditions. We ended the quarter with $9.8 million in cash, which includes $6.5 million in proceeds received in September 2025 from our public stock offering. No share repurchases were made during the first 9 months of 2025 under the company's authorized stock repurchase program. That concludes my remarks on the financial results. I will now hand it back to Marco to share more on our strategic initiatives and outlook. Marco Fregenal: Thank you, Daniel. As Daniel highlighted, our financial performance this quarter reflects both the strength of our core business and the early benefits of our strategic initiatives. I would like to take a few minutes to discuss the broader housing market and our outlook for 2026. The residential real estate market is beginning to show early signs of recovery. One encouraging indicator is the narrowing spread between the 10-year treasury yield and the 30-year mortgage rate, which is currently around 205 basis points. Combined with the growing expectations of lower Federal Reserve rates and modest declines in home prices in some states, these factors point towards an improved affordability and a gradual reopening of the housing market. We're also encouraged by the potential agreement and reopening of the government. Although thus far, we have not seen a significant negative effect on the real estate industry, we believe that a prolonged government shown would have a negative effect in Q4. As affordability improves, we expect programs like START and Real Estate and Elevate to gain significant momentum. Elevate in particular, is a differentiator, helping agents boost productivity through integrated marketing, lead generation and support services that tie directly into our mortgage title and technology ecosystems. This program is already driving higher attach rates and incremental revenue across multiple lines of businesses. Recent larger acquisitions in the market have created some uncertainty within the brokerage landscape and highlight the ongoing trend towards consolidation. The environment reinforces the need for brokerages to deliver exceptional value and elite service, areas where Fathom continues to lead through our agent-centric model and integrated platform. We anticipate that small brokerages will explore opportunities to merge with or partner with larger firms. Now looking ahead in 2026, Fathom is well positioned to capitalize on these trends. Our priorities remain clear. First, to continue diversifying revenue streams with higher-margin products and services, to expand flagship programs like Elevate and START to strengthen attach rates across mortgage and title and finally, to license our technology platform to small brokerages and teams to scale efficiently and profitably. These initiatives, combined with our commitment to disciplined execution are expected to drive further margin expansion and position us to achieve operational cash flow breakeven by second quarter of 2026. In short, momentum is building across our platform, and we are entering 2026 with confidence and focus. We see tremendous opportunity to build on our foundation, deepen agent engagement and create long-term value for our shareholders. Before we open the line for questions, I want to express my sincere gratitude to our team and partners for their relentless focus, to our agents for their trust and commitment and to our shareholders for their continued support and their continued confidence in our vision. With that, operator, we're ready to take questions. Operator: [Operator Instructions] And our first question will come from Dillon Heslin with ROTH Capital Partners. Dillon Heslin: To start on intelliAgent licensing, you talked about 18,000 brokerages you identified, I think. Could you sort of go into a bit more detail on your go-to-market strategy on that? How many are you potentially in talks with or have approached you? Marco Fregenal: Yes, sure. Thank you, Dale, for your question. Yes, there are approximately about 18,000 brokers between 25 and 500 agents. And we already -- our go-to-market strategy really to start -- we already built several different relationships across the industry over the last 4 or 5 years. We probably have relationship with a few hundred small brokers already. Also through our partnership with LiveBy. LiveBy has approximately another 200 brokerages as customers. So when you combine all of this, you're looking at 300 or 400 small brokers that we have a relationship with. So we'll begin with those, and then we'll continue marketing to all 18,000 and demonstrating our value proposition to them as we have done for My Home Group and Sovereign Partners as well. So -- and we'll begin that -- we already have begun that in terms of discussions, but that will accelerate in Q1 of next year. Dillon Heslin: And just as a follow-up, could you comment on attach rates this quarter? And then with START Real Estate, they seem to have quite high attach rates. What do you think is the possibility of -- obviously, you're trying to expand that, but keep the attach rates where they're at on that business as you take it into more states and just scale? Marco Fregenal: Yes. So START is really a very interesting business. Randy, the owner, really created a process in which really holds the hand of a first-time buyer. For people who never bought a home, buying your first home is a rather complex process. My son just bought his -- my younger son just bought his first home and he even told me that I can measure how complex this is. So it is a complex process. And Randy has created a really hands-on operational process that does that. His attach rate is over 70%. He currently is in Colorado. We already are expanding into 3 other states. And we believe that we'll be able to expand to every state in the country. We do anticipate attach rates to continue to be that high. And we've seen that because he already started in Utah, and he's already seeing that attach rate because really is a byproduct of the process that he created. And so he's -- we're going to basically going to replicate that across the country, and that's really his special sauce to run this program. So to answer your question, we do anticipate significantly growing the program, and we do anticipate to have attach rates over 70%. Having said that, we continue to improve the attach rate -- attachment rate for ELG across the country as well. And about 50% of the ELG business coming from Fathom. And as ELG continues to grow, we continue to see that. And same thing with Verus Title. So I think the combination of what we have done with ELG and Verus, combined with START Realty, I think overall, we'll see attachment rates continue to grow next year and beyond. Operator: And at this time, this concludes the question-and-answer session. Thank you for joining Fathom's third quarter earnings call. You may now disconnect.
Operator: Welcome to Intrusion Inc.'s Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please note, this conference call is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Josh Carroll with Investor Relations. Joshua Carroll: Thank you, and welcome. Joining me today are Tony Scott, President and Chief Executive Officer; and Kimberly Pinson, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Tony, I would like to remind everyone that statements made during this conference call relate to the company's expected future performance, future business prospects, future events or may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's conference call. Any forward-looking statements that we make on this call are based upon information that we believe as of today and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. During the call, we may use non-GAAP measures if we believe it is useful to investors or if we believe it will help investors better understand our performance or business trends. With that, let me now turn the call over to Tony for a few opening remarks. Anthony Scott: Thank you, Josh, and good afternoon, and thank you all for joining us today. I'm pleased to report that during the third quarter of 2025 we continue our path towards achieving our goal of creating sustainable growth and long-term profitability. And a few of our highlights of our progress in Q3 include our sixth consecutive quarter of sequential topline growth, demonstrating consistent execution and increasing demand for our products, continued near 0 customer churn, which we view as a testament to the value of our offerings, and the expansion of our Shield technology offering through the launch of Shield Cloud on the AWS marketplace. I'd also highlight the ongoing rollout of our critical infrastructure solutions, reinforcing the demand that we see to help protect these essential assets from cyber threats. And finally, the strong momentum we are seeing from our solution partner, PortNexus, as they continue to deploy the MyFlare Alert platform. Now none of what we achieved this quarter would be possible without our incredible team, and I'm deeply grateful for the passion and the commitment our employees show every day in serving our customers and advancing our mission. I'd like to provide some additional context on a few of these highlights, all of which are aimed at positioning Intrusion for sustained growth. First, we're really excited about the launch of our Shield Cloud offering on the AWS marketplace, which we believe will help drive long-term growth for our business. By making Shield Cloud available on the AWS marketplace, we're not only expanding the opportunity for customers to access our Shield technology, but we're also positioning our cybersecurity engine directly where innovation is taking place. Although still in the early stages, we're already seeing encouraging traction with new potential customers, which we believe will begin contributing positively to our financial results in the fourth quarter and throughout fiscal year 2026. In addition to AWS, we're also preparing for the launch of our Shield Cloud offering on Microsoft's Azure Cloud platform later this quarter or early in the first quarter of 2026. This launch will further expand our ability to reach new potential customers. Next, I wanted to mention that we're continuing to make progress with the rollout and adoption of our Shield critical infrastructure offering. And at the end of the third quarter, we shipped over 230 units of this critical infrastructure device as a part of our previously announced contract with the Department of Defense. And as we've previously noted, this represents a promising opportunity for Intrusion, driven by the growing need to protect critical infrastructure from evolving cyber threats. We're actively pursuing additional contracts in the private sector as well at both the federal, state and local government levels, and we remain optimistic about pursuing new agreements in the near future. As for our partnership with PortNexus, we're continuing to see strong demand for Shield endpoint that's embedded within their MyFlare solution. And that solution provides enhanced security for education and law enforcement customer end points. As some of you may have heard me say during recent discussions, the sales cycle for this solution has been one of the shortest I've ever seen. The demand for this solution, especially among school districts, is strong, and we anticipate that we will see further adoption of this offering in coming quarters. Now briefly on to our financials for the quarter. Total revenues for the third quarter were $2.0 million, representing a 5% increase compared to the previous quarter and a 31% increase on a year-over-year basis. This was largely driven by the contract expansion with the Department of Defense that we previously discussed. And our operating expenses increased modestly this quarter, primarily reflecting the continued strategic investments that we're making in the business to drive growth. As we've noted in the past, we remain committed to disciplined spending, as we invest to support our growth over the coming quarters. Now before I turn the call over to Kim, I'd like to address the current government shutdown. As you all know, the current government shutdown has impacted businesses across the board. For Intrusion, we've not yet seen any meaningful effect on our business. And it looks like the situation is on a path to resolution, thankfully. But most of the government contract conversations are still occurring. And we expect that we will be able to see additional government contracts once this situation has been resolved in Washington. In the meantime, we're continuing to see our pipeline of nongovernment opportunities expand, and we remain excited about the future here at Intrusion, as the demand for our products continues to grow. And with that, I'd now like to turn the call over to Kim for a more detailed review of our third quarter financials. Kim? Kimberly Pinson: Thanks, Tony, and good afternoon, everyone. Third quarter 2025 revenue was $2 million, up 5% sequentially and 31% year-over-year. Growth was driven by expansion of work performed under the contract with the U.S. Department of Defense, which utilizes both Shield technology and consulting services. Consulting revenue of $1.5 million is up $0.1 million sequentially and $0.4 million year-over-year. Shield revenues in the third quarter totaled $0.5 million, which was relatively flat sequentially but up approximately $0.1 million year-over-year. The increase in Shield revenue primarily reflects the work performed under the previously noted DoD contract work. As Tony mentioned, we are continuing to see strong demand for our services with both governmental and commercial customers and anticipated deeper penetration in both sectors, which will result in further changes to our customer mix. Third quarter gross profit margin was 77%, down 58 basis points year-over-year, which is consistent with expected variability based on product and service mix. Operating expenses in the third quarter of 2025 totaled $3.6 million, an increase of $0.1 million sequentially and $0.4 million year-over-year. The increase sequentially was largely driven by an increase in sales and marketing expense related to increased participation in trade shows and programs to generate brand awareness and concise product marketing messaging. We may continue to further increase our investment in both product development and sales and marketing to accelerate the growth of our customer base, which will result in higher operating expenses. The increase over the prior year period of $0.4 million is primarily due to higher share-based compensation from equity grants made in the first quarter, timing of merit increases and minor changes to staffing. Net loss for the third quarter of 2025 was $2.1 million or $0.10 per share compared to a net loss of $2.1 million for the third quarter of 2024. Turning to the balance sheet. From a liquidity perspective, on September 30, 2025, we had cash and cash equivalents of $2.5 million and short-term investments in U.S. treasuries of $2 million. Subsequent to quarter end, we received $3 million in cash related to the DoD contract extension, which increased our cash position, inclusive of short-term investments to $7.5 million, which we believe is sufficient to fund operations through the remainder of 2025 and into early 2026. With that, I'd now like to turn the call back over to Tony for a few closing comments. Tony? Anthony Scott: Thank you, Kim. And I think the third quarter was another step in the right direction for Intrusion as we are continuing to make great progress towards achieving our goal of generating sustainable growth and long-term profitability. And while we're proud of the progress we've made, we're not satisfied with our overall financial results. We know there's still more work to do, and we're confident that we can and will deliver stronger performance over time. Achieving this will require continued discipline and time, but we believe our ongoing investments in the business, the strength of our expanding pipeline and the improved engagement we're seeing with both customers and partners, has positioned us well to drive enhanced financial results. Now this concludes our prepared remarks. And I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Scott Buck with H.C. Wainright. Scott Buck: Tony, I think you touched on it a little bit in the prepared remarks, but I wanted to kind of dig in a little bit deeper on the infrastructure work with the DoD. When do you get far enough along the process or prove yourself enough that maybe you open the door to some additional work of a similar nature with them? Anthony Scott: Already in progress. So with this first project, it's opened the doors for us to have conversations about deployment in other locations. Right now, we're in a one island location in the Pac Rim, but there's lots of islands there. There's also domestic opportunities for this from a government perspective and then there's, we think, even more opportunities from a private sector or a commercial perspective. So I'm particularly excited about this product. These are -- like we've seen in this particular case, it's a big dollar sale when it happens and we think we have an opportunity for many more of these during not only the next quarter, but next year. So it's a big area, a big opportunity for us. Now we've got to close them. We got to get government funding squared away, which as we've all experienced, is a daily up and down sort of situation. But I think the potential is big for this product. It is our most successful product at this particular point. So we're going to bet on it and get all we can. Scott Buck: No, that's great to hear. Now Kim, do you need to add heads or any kind of other supports to kind of press on those opportunities? Kimberly Pinson: No. There's a fairly small capital investment because there is a device that goes with this infrastructure monitoring. But otherwise, we don't expect or anticipate having to add heads or increase our operating expenses to any large degree. Scott Buck: All right. Perfect. And then, Tony, I want to ask -- I know it hasn't been very long, right? But I'm curious what the experience has been like so far on AWS where you may be seeing some interest and any kind of initial feedback you guys are getting, I think, would be helpful. Anthony Scott: Yes. It's -- we've gone through -- we've actually been in AWS for the bulk of the third quarter and now into the fourth quarter. And we've already done a couple of updates to make it easier to configure and install. And we have one more big update coming shortly that I think will make it even easier. And this is all based on feedback we've gotten from our initial beta customers and so on. And I think with these changes, it will significantly make it easier for people to adopt. So a lot of excitement around it. The numbers aren't huge at the moment, but we're on our plan. We're starting to do the marketing and advertising work that I think we've talked about on prior calls. And our expectation is that, that's going to pay off. And the lessons we've learned from this will also apply as we get into the Azure marketplace on the Microsoft platform. And so I'm expecting that the acceleration there can go even quicker than what we've experienced in the AWS environment. But I'm very positive about it. Scott Buck: Good. No, that makes sense. And on Azure, it sounds like it could be end of this quarter it could beginning of '26. What steps do you have left there to get up and active? Anthony Scott: Well, we created a new kind of gold from scratch variant of Shield for the cloud that makes it much easier to deploy in these virtual environments. And that's the one that we're going to target for Azure as well. So easier for -- a better build for us, easier for the customer to adopt. The current AWS 1 has -- is coupled with pfSense, the open source firewall and the new versions that will go into AWS shortly and also Azure are just Shield and not coupled to pfSense, and we think that's going to attract a broader set of customers. We'll still offer the pfSense version in AWS. So we'll actually have two properties in AWS, one with pfSense and one stand-alone. And probably in Azure... Scott Buck: Does that change the way you price it, Tony? Anthony Scott: Pardon me? Does it change the pricing? Scott Buck: Does that change the way you price it? Yes. Anthony Scott: Not a whole lot because the pfSense is open source. So there's no royalties or anything like that associated with it. But what we heard from customers is, some of them want choice around which firewall they use. And while we like our technology, they had a different choice for firewall than what we chose, which was pfSense. So this will give customers broader choice. If they don't have a firewall and want one and like open source, they can use that. If they want to choose something else but still want our technology, they can have that choice as well. Scott Buck: Congrats on the progress this quarter. Operator: The next question comes from Ed Woo with Ascendiant Capital. Edward Woo: Congratulations on the progress. My question is on your channel partner, PortNexus. What are you able to do there that is able to give you the successes? And is this able to be translated to other channel partners? Anthony Scott: Yes. So what we're providing to PortNexus is endpoint security for their solution that's deployed in classrooms and other public sort of places. And that endpoint security is important so that the devices are effectively tamper-proof and safe from hacking and so on. I'm excited about it because as we've done trade shows with PortNexus and school administrators come by and see the demo and understand the capability, they get pretty excited. And as I kind of hinted the sales cycle, it looks like it's pretty short. The feedback is I want this now kind of thing, which with other solutions, there's a much longer conversation that ordinarily takes place. So we're in a couple of school districts already, and I think as experience with this product grows, the excitement is going to only accelerate. We're attending all the right trade shows with PortNexus, but also word of mouth is beginning to get out that this is a pretty cool solution. So at the end of the day, we've got great expectations for this. Edward Woo: Can you translate these opportunities to other channel partners? Or is this very specific just to PortNexus? Anthony Scott: Well, we can certainly port it to or extend it to other endpoint kinds of solutions where network security is of paramount importance, and we are looking for those opportunities. I'd say, the success with PortNexus will certainly be a good indicator for other potential partners as well. And so yes, I think it can extend and we are looking for those kinds of opportunities. Edward Woo: Great. And my last question is, as you rolled out in AWS and then also on the Azure platform soon, do you care where your customer buys it? Is there any difference in profitability and R&D costs? Anthony Scott: No impact on R&D costs. We're only at this point, extending it to U.S. customers. We're not in the global marketplaces. So that kind of, by definition, restricts where it's for sale, but it doesn't really impact our costs one way or the other. Edward Woo: And you don't really care where your customer gets it because the profitability margins are about the same? Anthony Scott: Yes. Correct. Operator: [Operator Instructions] The next question comes from Howard Brous with Wellington Shields. Howard Brous: Tony, congratulations on the increase quarter-over-quarter-over-quarter. I have a couple of questions. Can you discuss the revenue opportunity with OT Defender as an example? Anthony Scott: I can talk about it generally. I mean, I think the nice thing about these is as compared to our Shield or PortNexus deals that tend to be smaller, these tend to be bigger sales. $100,000, $200,000 above kind of opportunities. And so as you get one of these, there's a more meaningful impact in terms of revenue and overall sales. So obviously, that's important in terms of the revenue opportunity. The second thing is it's pretty widely recognized at this point that the OT environment is probably the biggest area of underinvestment from cybersecurity perspective. And it also happens to be one of the biggest targets for nation state actors who in anticipation of some sort of aggressive activity would love to take out water systems and the electrical grid and communication systems and the things that are necessary to sustain life in most places around the world. A lot of the environment in these OT spaces is old gear that over time got hooked up to networks, but we're never ever designed to fend off the kinds of attacks and threats that are just a part of our modern day world. And the reality is we've -- as a nation and even internationally, we've been a little slow to wake up to this aspect of cybersecurity, it's particular kind of threat. So we think the market opportunities are really big. And we think we have a very cost-effective and now proven solution to this particular problem, and we're going to do everything we can to let everybody know what we've got and what its capabilities are. So I think I'm pretty bullish on this. It's going to take work. But I'm excited not just from a revenue perspective for intrusion, but I'm excited for the protection, I think this can bring to some very vulnerable environments in our cities and states and critical infrastructure generally. And then as I mentioned on the call, it also applies to commercial environment, shop floors and other manufacturing environments and so on. And all of those are pretty vulnerable at this particular point. If you can disrupt manufacturing or disrupt the production of goods, that's got a pretty serious economic impact. And I think our technology is good to help protect those environments as well. So a pretty broad-based market or surface for us to go after. Howard Brous: So the second question, the same question with revenue opportunity on PortNexus school safety offering, which I -- from my understanding, should be critical with every school in the country. Anthony Scott: Yes. That one is probably not as big as the critical infrastructure stuff. But this is one of those things where once you see it, you can't unsee it. And as we've experienced the trade shows, the school administrators love the simplicity of it and also the sort of capability that the PortNexus solution provides. And the critical thing there is visibility in that first 1 to 5 minutes of an incident where you have really good and better situational awareness than you do with any other solution that's out there. And the first responders call that the critical first few minutes. If you can understand what's going on and have situational awareness, you can have a much better response, and that's what the PortNexus solution provides. So we're happy to be a part of that clearly. And I think just like you've seen police departments all over have body-worn cameras. I think ultimately, this is going to be a required thing in every school classroom or at least public school classroom in the country because it's just such a good solution. So we're happy to partner with PortNexus on that journey. Howard Brous: So my last question -- well, let me come back to the PortNexus. Any sense for 2026 of a revenue opportunity? Anthony Scott: I'd be wildly guessing at this point, Howard, but our eyes are towards up and onward from a revenue perspective. So we're, I think, genuinely excited about the opportunity. Clearly, we've got to execute. Clearly, we've got to get in front of customers, make the case and go forward. But I think we have all the right things in our briefcase to go sell, and we're as excited as I've ever been about it. Howard Brous: My last question, then one comment afterwards Shield Cloud revenue opportunity? Anthony Scott: Again, as I said on the call, that's the place where innovation is happening. And so the growth in small, medium business, they've moved to the cloud and are moving to the cloud, and that's where the economy is growing the fastest. It's probably the biggest opportunity from a tech standpoint for that part of the market. And we'll see. Again, we've got to execute. We've got to continue to work our marketing plan and demand gen plan, but we've seen a lot of other companies do it. And we're going to be a fast follower in terms of all of the things that we've seen work in that journey. So hard to exactly predict, but we have, I would say, great expectations. Howard Brous: At what level -- last question, what level of revenue per contract, would you make a public announcement $100,000, $1 million? Anthony Scott: It's not so much like -- well, it's not so much -- in some cases, Howard, it's not the level of the dollar amount that would determine whether we can make an announcement. We actually signed some deals in Q3 that didn't produce revenue in Q3, but it will produce revenue in Q4, that by contract, we were prohibited from announcing. So the only way you'll see them is when revenue shows up after the end of a quarter. And that's not uncommon in the cybersecurity space. We'll announce whatever we can when we can, if it's significant. I'm not going to announce a $5,000 deal or a $10,000 deal or something like that. But if it's $100,000 or $400,000 or $1 million, I'll certainly announce it if I'm allowed to. Operator: The next question comes from Jerry Yanowitz with -- he is a private investor. Unknown Attendee: Tony, do you believe your intellectual property alone could be worth multiples of your current stock price and I'm just looking for a simple yes or no answer. Anthony Scott: Yes. Unknown Attendee: And based on your knowledge in the cybersecurity market, do you believe your products could integrate well with a larger cybersecurities company suite of products. Yes or no? Anthony Scott: Yes. Yes, yes, I do. It may not always be the obvious first names that come to mind. But the answer is yes. It's I think obvious that, that could be very interesting and exciting for us. Operator: At this time, there are no other questions in the queue. I'll turn the call back over to our host, Mr. Tony Scott, for any closing remarks. Anthony Scott: Well, thankfully, the -- it looks like the government shutdown is close to coming to an end. And I think we all breathe a sigh of relief in that regard. We're looking forward to working with our government partners as we've talked about at some length already today. This is the opportunity that's in front of us right now is doing better protection for critical infrastructure, whether it's public sector or private sector, it's the biggest cybersecurity opportunity, I think there is out there. And so with the shutdown behind us, I think it opens the door for us to move ahead. We'll let you know is when we can and as soon as we can when anything has developed. But as I said earlier, I'm pretty excited about the opportunity and look forward to having this call with you for the next quarter in our annual results. So thanks, everybody, for your patience. We're working hard. We've got a great team on this, and I think we're making great progress. So talk to you all soon. Thanks. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the Upexi Fiscal First Quarter 2026 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Valter Pinto, Managing Director at KCSA Strategic Communications. Please go ahead. Valter Pinto: Thank you, operator. Good evening, and welcome, everyone, to the Upexi Fiscal First Quarter 2026 Financial Results Conference Call. I'm joined today by Allan Marshall, Chief Executive Officer; Andrew Norstrud, Chief Financial Officer; and Brian Rudick, Chief Strategy Officer. Before we begin, I'm going to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks, uncertainties and other factors. For a detailed discussion of some of the ongoing risks and uncertainties in the company's business, I refer you to the press release issued this evening and filed with the SEC on Form 8-K, as well as the company's reports filed periodically with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by law. In addition, during the course of the call, we may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States, and they may be different from non-GAAP financial measures used by other companies. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in our earnings release issued this evening, unless otherwise noted. I'd now like to turn the call over to Upexi's CEO, Allan Marshall. Allan Marshall: Thank you, Valter, and welcome, everyone, to our first quarter 2026 earnings conference call. I couldn't be more excited to hold our first earnings call since adopting the Solana Treasury strategy. It has been truly transformational for the company, and as such, I wanted to comment on our past since inception. As you know, we primarily were a consumer Amazon brand owner. As the Amazon business became increasingly more difficult we started to think about the best ways to create shareholder value going forward. After a thorough analysis of many options, we made a strategic decision to invest our time and resources into digital assets. This was due to 2 reasons. The first was a new found openness towards crypto in the U.S., mainly due to the change in administration and its various regulatory bodies. Put simply, the U.S. administration went from a headwind to a tailwind for digital assets and which we believe will accelerate innovation, adoption and ultimately affect prices moving upwards. Second was a greater appreciation for the value MicroStrategies has created for shareholders. Indeed, it has been the best performing stock in the U.S. since adopting a Bitcoin treasury strategy in 2020. And more importantly, it has more than doubled the return of Bitcoin with only minimal leverage, meaning its capital markets activities are creating tremendous value for shareholders. We first publicly announced a pivot towards digital assets in February. And as we honed our strategy, we settled in on one built around Solana. We'll cover the rationale in more detail later in the call, but the decision on -- to focus on Solana was simple. From an asset perspective, we believe strongly that Solana has the best chance to be the end game winning high-performance blockchain and particularly so as the new rails for global finance. Second, from a treasury perspective, Solana offers additional ways to create value for shareholders via activities like staking and purchasing of discounted locked SOL. Our plan was simple: close on a large scale capital raise, employ and improved the proven capital markets playbook from MicroStrategies where issuing equity above book value is by definition accretive. Then innovate on MicroStrategy's model by staking our Solana to generate yield to turn the treasury into a cash flowing asset and also buy on locked discounted SOL for built-in shareholder gains. We did just that in April, successfully completing a $100 million equity private placement in what we believe was the first large-scale equity pipe for an Altcoin strategy. We followed it up with a $200 million raise in July, which included an innovative in-kind convertible note issuance, offering with significant benefits for both investors and the company. And again, we believe that to be an industry first. Each time we deploy the funds into spot and locked SOL at attractive entry prices, sticking nearly all of it to generate cash flow. The company currently owns $2.1 million SOL valued in excess of $327 million. While raising capital and deploying the capital in a systematic way, we remain hyper focused on both external visibility and intelligent capital issuance. Success in raising capital and deploying it are only part of a successful public strategy. We have put forth an enormous effort to build our online and traditional finance following and to educate the market on our vision and the investment opportunity. We are proud to have been quoted in over 50 news articles since launching the strategy, participating in multiple leading podcasts each month, establishing an advisory committee with Arthur Hayes, Jon Najarian and SOL Big Brain, and attended or are scheduled to attend over 20 mostly traditional finance-oriented conferences and have conducted hundreds of individual investor meetings. As previously stated, we have remained steadfast on utilizing the capital markets to create value for shareholders. Notably, our July raise not only materially increased our Solana per share, but also led to multiple expansion as we demonstrated our ability to raise funds in an accretive fashion. On the financial side, our Consumer Brand business continues to perform as expected. Most importantly, our stacking revenue is uniquely providing a huge boost to company revenue. Our fiscal Q1, we generated over $6 million in digital asset revenue, and we are currently adding over $75,000 a day. As we look ahead, Q2 will benefit from having all of 2.1 million SOL stake for the future quarter. I'll now turn the call over to Brian Rudick, Chief Strategy Officer. Brian Rudick: Thanks, Allan, and hello, everyone. The biggest determinant of any treasury company's performance will be that of its underlying token. Here, we are supremely confident in and feel very fortunate to be underpinned by Solana. We chose Solana for 3 reasons. First, it's the first second-generation smart contract blockchain. This means that it benefits from having best-in-class technology like parallel transaction processing like modern computers do, but also from strong network effects having launched in 2020. Second, Solana has a vibrant and growing ecosystem of users, developers and decentralized applications. You can really build anything on Solana from decentralized finance to deep into stable coins tokenization, gaming, art, social AI agents, meme coins and more. And third, Solana is already putting up the best metrics of any blockchain, often beating out all of them combined. These metrics include daily active users, decentralized application revenues and decentralized exchange volumes. But what gets me so excited is the potential for Solana to revolutionize the world's antiquated financial infrastructure. Indeed, current financial rails, for example, ACH and the credit card issuer networks were created 50-plus years ago, and even fintech is a front-end wrapper that uses these antiquated rails on the back end. However, blockchain technology allows us to entirely reimagine these antiquated rails and to utilize things like stable coins and tokenization to remove rent extracting intermediaries and democratize value exchange. Tangibly, this means huge cost savings and speed benefits, not to mention improvements in settlement times, transparency, composability, investor access and much more. And Solana is purpose built for exactly this in what it calls Internet capital markets. Its goal is to have all of the world's assets trading on the same liquidity venue, accessible 24/7 to anyone with the Internet connection. And institutions are taking note from PayPal to Societe Generale, Fiserv, Western Union and others. Leading financial companies are building stable coins on Solana due to its industry-leading speed, cost and reliability. Tokenization infrastructure firms like Securitize, Superstate and R3 are bringing real-world assets on chain from leading asset managers like BlackRock, VanEck, Apollo, Franklin Templeton, Hamilton Lane and others. And Visa is using Solana for its USBC stable coin merchant settlement program for cross-border payments. Finance is moving on to the blockchain, and it's happening on Solana. We are in the very early innings, but this transformation is absolutely happening and with Solana front and center. Lastly, I'd point out that we have what I consider to be the mother of all catalysts that can drastically accelerate this transformation in the U.S. passing comprehensive digital asset legislation. Indeed, a lack of clear rules in the U.S. has, in my opinion, always been the biggest item holding crypto back. Institutions have thus far only dabbled in digital assets and blockchain technology and have been loath to materially adopt the technology when it comes with heightened legal and regulatory risks. However, if and when the U.S. passes this market structure bill called the Clarity Act, which is currently being worked on in the Senate with high bipartisan support, institutions will be forced to jump in, in a big way. Otherwise, they will be disintermediated by those who do. And it's big pack and big finance that have billions of customers built in trust, billions of dollars for investment in the top developers. Imagine Google adding a built-in crypto wallet to its Chrome browser or Amazon integrating stable coin payments. We just may be on the precipice of onboarding the masses, leading to a step change in digital asset innovation, adoption and usage. Solana and Upexi are well positioned to benefit. And with that, I'll turn it over to our Chief Financial Officer, Andrew Norstrud. Andrew Norstrud: Thank you, Brian. Total revenue increased by $4.9 million to $9.2 million for the quarter. Net income was $66.7 million for the quarter, and earnings per share was $1.21 for the quarter. All of these increases were related to the Solana treasury performance. Solana tokens increased during the quarter by approximately 1,322,000 tokens. This increase was from both liquid and locked Solana purchases and swaps with approximately $181 million in noncash Solana purchases. The company has purchased approximately 2,029,100 tokens through direct purchases and swap transactions. The average price of Solana tokens purchased is $155.57, 31,347 of the quarter's increased tokens were from the $6.1 million in staking revenue generated from the treasury. In total, the treasury has generated approximately $7.1 million and 37,742 Solana tokens since inception. Unrealized gains of approximately $78 million was recognized during the quarter and had significant impact to the reported financials. Management understands the volatility of the digital assets and we'll continue to focus on growing the number of Solana tokens held in the treasury in a way that will maximize the return for our shareholders. And now I'll turn it the call back over to Allan for concluding remarks. Allan Marshall: Thanks, Andrew. Upexi is a truly differentiated treasury company with many advantages. We have a differentiated management team that is more traditional finance rather than crypto oriented. I founded what is now New York Stock Exchange listed XPO Logistics, and Andrew was our CFO at XPO and has been a public CFO for decades. Brian spent years at the most prestigious hedge funds managing hundreds of millions of dollars. This is relevant because at the end of the day, this is a capital market exercise, and we believe our experience will be paramount to our future success. We led the innovation to create what is now the DAT industry and look to innovate in the future to stay ahead of peers. With the first large-scale equity raise for altcoin treasury and the first in-kind convertible note, we have set Upexi on trajectory for a very bright future. We do several things to be more in line with traditional finance to differentiate our strategy. First, we only take on prudent amount of credit risk leverage and limit it to 20%. We do not partake an aggressive on chain trading that increased our contract, liquidation and legal regulatory risk. Lastly, we only use qualified custodians and top validators and diversify amongst them for operational risk management and best practices. We believe this strategy will not only position us well for any market environment, but also will appeal to crypto and traditional investors alike. Finally, and again, quite uniquely, we have a proven ability to create value. We have increased adjusted SOL per share in SOL terms by 47% and in U.S. dollar terms by 82%. As a reminder, the former measures our ability to capture our 3 value accrual mechanisms and accretive issuances, staking income and purchases of discount on locked SOL tokens, while the latter also incorporates the price of Solana. We are in an advantaged position to win. We are underpinned by an end game winning asset with nearly unlimited upside and offering additional value accrual mechanisms in staking and discount on locked purchases. We have a differentiated management team with best-in-class capital markets expertise. We have a risk prudent strategy, positioning us for any market environment and resonating with investors of all kinds. Lastly, we have a proven track record of innovation and shareholder value creation. With that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Brian Kinstlinger: Great. The company has added a few high-profile crypto investors to the advisory committee, like you mentioned. So can you talk about the impact we're having on the company? And any recommendations the committee is making as we think about differentiation of DAT, for example, outside of SOL accumulation and yield. Is the committee recommending or is management thinking about ancillary revenue generating businesses? And if so, can you share any details. Allan Marshall: Thanks, Brian. So two parts. One is, so far, it's been a short amount of time we've been working with them, but we've gotten a lot of good feedback both on how we're presenting ourselves to the market, their opinions on SOL, the overall opinion on how we're positioning the company to communicate to both TEFI, I mean, traditional finance and also the crypto community. No one right now is talking about anything outside of Solana and revenue-generating outside of that, like we still believe as we get some clarity here going forward on regulatory changes that Solana is in line for in all of crypto or all of the top cryptos in line for a pretty big move. So we're going to continue with the strategy we have, like we've said to our investors and stay focused. We will try to maximize yield. And we have had internal discussions, but none of that's public yet. We're going to do the right thing to increase our yield for our investors as quickly as possible, and we always open to input from the people we bring on board and also the outside community we talk to. Brian Kinstlinger: Great. I have 2 more questions. The first 1 is, given you didn't have a full quarter of SOL holdings, can you tell us what your effective yield has been? And is there any way to enhance that? Or are you maximizing that already? Maybe any information on the yield would help? Allan Marshall: I can let Andrew answer that question. I will say, as we've been -- because we've been building it step by step, not everything is staked as quickly -- well, it's staked quickly, but as quickly as possible. And just moving things around and getting things set in like the risk-prudent factor, the way we manage it, Also, we're always working with different -- we've been working with different validators. We've been increasing the yield as it goes. So I think this is probably the baseline for us and it's going to go higher from here and especially since it's mostly all staked now that we have on board. So I can turn it over to Andrew, if he has a rate, but I'm not sure we've been able to blend it exactly just because of all the steps along the way, but Andrew? Andrew Norstrud: Yes, you're not going to be able to blend it yet. Next quarter will be a lot better. But just to add to Allan's note, we've got a program that we put in place to look at the various different validators to have them compete against each other on any fees or anything else that's being done. We've got some great partners with us on that side and continue to look at how to increase that yield, plus we've had some other opportunities to try and increase the yield higher than just the standard staking yield. So more and more of that will come out this next quarter as we kind of have everything under control and have some of these programs in place. So -- unfortunately, I can't give you an exact yield, but going forward, you'll be able to calculate a lot better next quarter. Allan Marshall: But to close that off, Brian, we definitely think this is kind of like the baseline for us, like this is the low end and it will continue to rise from here. Brian Kinstlinger: Okay. The last one, several of the DATs are trading below 1x, steep discounts, in fact. Thankfully Upexi is not. But I think investors are interested in management, in general, of DAT companies plans with capital markets, should Upexi face a deep discount. What -- how would you address that? Allan Marshall: We have plenty. I think Brian and I and Andrew have always said when -- if for some reason, we do trade at a discount, it's -- the model is just on top. Like we still believe that inevitably crypto yield, the crypto increases and the yield and us maximizing that and also keeping company expenses as low as possible and continuing to get better at that. We'll warrant a premium. So at those moments in time, I mean, the company does have plenty of options, right? It can turn its staking revenue into a buyback. It could actually buy back shares. There's plenty of ways to offset that. But what I want to stress like this is a longer game, right? Like we don't want to think about it as 1 quarter at a time. We really do believe even if there is some sort of crypto pullback, it's just a pause. And I'll let Brian chime in here a little bit because him and I have talked about this over -- with multiple investors and I'm sure he would like to add in something on this one. Brian Rudick: Yes. Thank you, Allan, and thank you, Brian. Yes, plus 1 on the capital market side of the equation, just being a bit on pause. I think that there's no better example than MicroStrategy. So 2024, it increased Bitcoin per share by 74%. In 2021, it was something like 47%. And then when it got into a bear market, and it did trade at a discount to NAV it still was able to increase Bitcoin per share, but it was something like mid-single digits. So it was just a bit on pause. Like Allan mentioned, there are things that we can do to compress any discount should 1 come to fruition. And importantly, we actually don't have to sell our SOL to do that. You could actually borrow some funds to repurchase your shares to compress any sort of discount. And then the last thing I'd say is like we make an 8% staking yield on almost our full treasury. And then on top of that, a lot of the SOL that we've bought is locked form, which when you put that discount into any sort of yield equivalent. It's nearly doubling that 8% staking yield. So all in, we're making this really nice return on our treasury and so while we are waiting to issue capital in this accretive fashion, we were able to increase our SOL per share at a very nice pace. Operator: [Operator Instructions] There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and welcome to Pixelworks, Inc's. Third Quarter 2025 Earnings Conference Call. I will be your operator for today's call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Brett Perry with Shelton Group Investor Relations. Please go ahead. Brett Perry: Thank you, Latif. Good afternoon, and thank you for joining today's conference call. With me today on the call are Pixelworks' President and CEO, Todd DeBonis; and Chief Financial Officer, Haley Aman. The purpose of today's conference call is to supplement the information provided in Pixelworks' press release issued earlier today announcing the company's financial results for the third quarter of 2025. Before we begin, I'd like to remind you that various remarks we make on this call, including those about projected future financial results, economic and market trends and competitive position constitute forward-looking statements. These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. All forward-looking statements are based on the company's beliefs as of today, Tuesday, November 11, 2025. The company undertakes no obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today's press release, the company's annual report on Form 10-K for the year ended December 31, 2024, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms, including gross margin, operating expenses, net loss and net loss per share. Non-GAAP measures exclude restructuring costs and stock-based compensation expense as well as the tax effect of the non-GAAP adjustments. The company uses these non-GAAP measures internally to assess its internal operating performance. We believe these measures -- we believe these non-GAAP measures provide a meaningful perspective on core operating results and underlying cash flow dynamics. We caution investors to consider these measures in addition to and not as a substitute for nor superior to, the company's consolidated financial results as presented in accordance with U.S. GAAP. Please note throughout the company's press release and management statements during this conference call, we refer to net loss attributable to Pixelworks, Inc. as simply net loss. Also note, on January 6, 2025, the company effected a 1-for-12 reverse stock split of the company's common stock and all shares of the company's common stock per share data and related information included in today's published condensed consolidated financial statements have been retroactively adjusted as though the reverse stock split had been affected prior to all periods presented. For additional details and reconciliations of GAAP to non-GAAP net loss and GAAP net loss to adjusted EBITDA, please refer to the company's press release issued earlier today. With that, it's now my pleasure to turn the call over to Pixelworks' CEO, Todd DeBonis, please go ahead. Todd DeBonis: Thank you, Brett. Good afternoon, and welcome to everyone on the phone and on the webcast. We appreciate you joining us for today's conference call. I'll start with a brief overview of the results for the quarter, and then I'll follow with the 2 primary objectives for today's call. The first is to review the background and rationale for the proposed transaction involving our Shanghai-based subsidiary. And second is to provide a preview of what the future Pixelworks will look like after the proposed transaction closes. With respect to results for the third quarter, both top and bottom line results were within our guidance. Revenue grew by 6% sequentially, and gross margin improved to approximately 50%, a little better than expected. We also realized continued benefits from our previous cost reduction actions with third quarter operating expenses decreasing sequentially and down $3.1 million year-over-year. Through a combination of our prior restructuring and ongoing cost reductions, we reduced cash burn from operations by more than 60% year-over-year to under $3 million in the third quarter. Turning to our Pixelworks Shanghai subsidiary and the proposed transaction. As background, our Shanghai-based subsidiary was formed in 2021, as part of a comprehensive realignment of the larger Pixelworks organization. This included restructuring our Shanghai-based subsidiary to serve as the center of operations for all of Pixelworks semiconductor business and then securing investment from China-centric investors as well as our Pixelworks Shanghai employees. More specifically, this business comprises all generations of our open market and codeveloped visual display processing ships, for both digital projector and the mobile markets. Today, the subsidiary represents a substantial amount of our operating revenue and expenses and also accounts for the majority of our employees. After several prior investment rounds in the subsidiary, Pixelworks ownership ended up at approximately 78%, which is where it is today. On October 15, 2025, we signed a definitive purchase agreement to sell all of Pixelworks, Inc's. ownership in the Pixelworks Shanghai subsidiary to a special purpose entity led by VeriSilicon. For those not familiar with this name, VeriSilicon is a well-established Chinese company that provides platform-based custom silicon services and semiconductor IP licensing services. Most participating on today's call are aware, however, I would like to emphasize that this proposed transaction did not come about suddenly nor without extensive deliberation and due diligence. The recently entered definitive agreement is the result of a thorough strategic review process launched in the latter part of 2024. And that started with the engagement of Morgan Stanley as an adviser to evaluate potential alternative ownership structures for the Shanghai subsidiary, in a large part due to inpatients, from the subsidiaries China-based investors, escalating geopolitical tensions and capital market constraints within China and after evaluating all serious interest in the subsidiary. The Board and I unanimously concluded that the currently proposed transaction was in the best interest of our shareholders. Although still subject to the approval by Pixelworks, Inc. shareholders as well as other customary closing conditions and after satisfying agreed upon and contractually reduced obligations to minority equity holders of the subsidiary, transaction costs and withholding taxes. The proposed transaction is expected to result in net cash proceeds to Pixelworks of between $50 million and $60 million upon closing. As outlined in my recent published letter to shareholders on November 4, the rationale for the proposed transaction is threefold. First, it unlocks significant value for shareholders while eliminating minority investor obligations, acknowledging the strategic and potential long-term value in our Pixelworks Shanghai subsidiary, this transaction captures the optimal realizable value in the current environment and allows the company to monetize a significant asset in the form of cash proceeds repatriated to the U.S. Second, it enables a renewed focus and expansion of core strengths, following a successful exit of the semiconductor hardware business, Pixelworks will be positioned as a global technology licensing business, specializing in cinematic visualization solutions. As an asset-light, IP-rich company in this space, the company will have competitive differentiation and compelling long-term growth potential. And third, it will achieve financial flexibility. The net cash proceeds from the transaction will significantly enhance the balance sheet. Pixelworks will have the flexibility to invest in growth opportunities support new and existing licensing initiatives and enable the allocation of capital to the highest return projects. As a reminder, shareholders as of October 17, record date have the right to vote. And I strongly encourage those investors to consider the published proxy materials and vote their shares for in support of the proposed transaction. Importantly, I want to emphasize that all current shareholders will have equal per share participation in the future growth opportunity and success of our transformed business going forward. Having said that, I want to frame what this future transformed business looks like. Post-transaction, Pixelworks become a low head count pure-play technology licensing company. Specializing in cinematic visualization solutions. Our existing TrueCut Motion platform used by leading filmmakers to enhance the cinematic experience across premium theatrical and home screens will anchor a portfolio of proprietary imaging technologies extending beyond film and into high-growth enterprise, consumer visualization and entertainment markets. Specific to TrueCut Motion. I want to reiterate that Pixelworks continues to own and control 100% of TrueCut Motion including all related assets and intellectual property. Irrespective of the proposed transaction with our Shanghai subsidiary. Even though a majority of our recent TrueCut engagement activity with new prospective ecosystem partners has remained behind the scenes. We are continuing to make tangible progress in support of expanded market awareness and adoption of our TrueCut Motion platform. As previously highlighted on our August conference call, during the third quarter, we were credited in 3 new theatrical releases. Universal Pictures, Jurassic World Rebirth, DreamWorks Animation, The Bad Guys 2; and Universal Pictures, Nobody 2. Today, I can confirm the next theatrical release to feature our award-winning TrueCut Motion grading technology will be Universal Pictures, Wicked: For Good, which is slated to hit theaters on November 21. Earlier today, we confirmed that the TrueCut -- the TrueCut Motion version of Wicked: For Good was selected for last night's U.K. premier of the film. Separately, we believe we are getting close to completing an agreement with a strategic ecosystem partner to license the broader distribution of TrueCut Motion content to consumer devices in their home. This prospective partner is currently in the process of late-stage certification and if successful, we believe it can open and accelerate the path to device licensees. While we continue to be encouraged by this and other ongoing engagement activity, we see our TrueCut Motion platform as a foundation to build upon. Exiting the obligations associated with Pixelworks Shanghai's manufacturing and design business will free up the company's management and capital resources to grow an attractive high-margin licensing business. As we grow the post-transaction Pixelworks into a global technology licensing company, TrueCut Motion will not remain the company's exclusive offering. Coupled with significantly lower head count and cost structure, we envision a post-transaction business model that will be inherently more scalable, less capital intensive, and has the potential to deliver high return on invested capital. With more than 2 decades of image processing innovation and our industry-leading TrueCut Motion platform serving as the flagship offering. We believe Pixelworks is poised to enable the most authentic high-fidelity viewing experiences across all screens, both today's and the advanced screens of the future. With that, I'll turn the call over to Haley to review the financials for the third quarter. As well as a couple of positive new balance sheet developments that took place subsequent to quarter end. Haley Green: Thank you, Todd. Revenue for the third quarter of 2025 was $8.8 million compared to $8.3 million in the second quarter and $9.5 million in the third quarter of 2024. The sequential increase in third quarter revenue reflected growth across both of our end markets, led by increased sales in the home and enterprise market. The breakdown of revenue in the third quarter was as follows: Home and Enterprise revenue was approximately $7.4 million. Revenue from mobile was approximately $1.4 million. Third quarter non-GAAP gross profit margin was 49.9%, compared to 46% in the second quarter of 2025 and 51.3% in the third quarter of 2024. The sequential increase in gross profit margin primarily reflected a more favorable product mix on shipments into the home and enterprise market. Non-GAAP operating expenses were $9.2 million in the third quarter compared to $9.7 million in the prior quarter and $12.4 million in the third quarter of 2024. The sequential and year-over-year decrease in operating expenses reflects the ongoing realized benefits of our previously taken actions to reduce expenses. On a non-GAAP basis, third quarter 2025 net loss was $3.8 million or a loss of $0.69 per share compared to a net loss of $5.3 million or a loss of $1 per share in the prior quarter and a net loss of $7.1 million or a loss of $1.45 per share in the third quarter of 2024. Adjusted EBITDA for the third quarter of 2025 was a negative $3.6 million compared to a negative $4.3 million in the prior quarter and a negative $6.3 million in the third quarter of 2024. With respect to our outlook, the company is electing not to provide financial guidance for the fourth quarter due to the previously announced definitive agreement to sell substantially all of the assets to Pixelworks Shanghai. However, we want to highlight that in October 2025, we closed a registered direct offering and the sale of patents pertaining to technologies we no longer pursue collectively contributing approximately $10 million to our cash position. As of October 31, 2025, our cash and cash equivalents balance was approximately $22 million, of which roughly half is associated with Pixelworks Shanghai, and the other half is associated with it Pixelworks, Inc. That completes our prepared remarks, and we look forward to taking your questions. Operator, please proceed with the Q&A session. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Suji Desilva of ROTH Capital. Sujeeva De Silva: Congratulations on the transformative transaction. So maybe you can start with the transaction itself. And maybe, Todd, you can help us bridge or Haley, the $133 million of consideration to the $50 million to $60 million you're going to get, just understanding what the amounts were and the circumstance of the, I guess, the minority shareholders receiving a portion of this? Todd DeBonis: I'll take it. I'll give you a rough guideline on how to. So first of all, we do only own 78% of the entity. So the value of the entire entity was valued at RMB 950 million or USD 133 million. Then we had obligations, either redemption obligations to like our employees, and we had actually preferred return obligations to all of the outstanding investors. As part of this transaction, they've all agreed to release the preferred return benefit in return for just redemption. So we're using some of our ownership to effectively redeem them at this lower valuation. I'll remind you that when we raised capital for the subsidiary, it was at significantly higher valuations than what we are selling the entity for. In fact, the later stage investors, it was valued over USD 500 million. So that's the main reason why we're not getting 78% of returns because we're redeeming the shareholders. But in return, they're foregoing their preferred return, which would have been significantly higher. And then there's just your normal transaction costs and legal costs. The final step is that there is a -- withholding tax as we're selling a Chinese asset to a Chinese buyer in China to repatriate our cash, we have to pay withholding tax in China of approximately 10%. So once you go through all of that, you get to this net proceeds delivered in the U.S. between $50 million and $60 million. Sujeeva De Silva: Okay. Todd, I appreciate the detail there. Second question is really on the Shanghai subsidiary. Have you seen actual impact to the business in the last few weeks or months? Due to geopolitical just to understand that asset and this deal closing? Just to understand if there has been any impact there or whether it's more normal course? Todd DeBonis: It's hard to be definitive on this, but there is a delete a -- you could call it a policy, it's an undercurrent Delete A being Delete America. There is a big effort. And you can see this in the AR world right now where the government steps in and pushes the large buyers of semiconductors, so large equipment manufacturers to the smartphone manufacturers, et cetera, to -- they want a preferred preference on local semiconductor companies. We were a hybrid, Pixelworks Shanghai was effectively a little giant, it got subsidies, et cetera, but they knew it was 80% owned by a U.S. public entity. We felt it. We felt it for the last 18 months. We tried to sell through it. In some cases, we were successful in some cases, we weren't. I can tell you since the deal was announced in public. I've seen several opportunities show up to the subsidiary that I do not think would have showed up to the subsidiary if we would have kept the existing ownership intact. Now whether the VeriSilicon will convert those opportunities or not remains to be seen, but you can feel it, Suji. Sujeeva De Silva: Right. No, that really helps. And then lastly, turning to the forward look, the TrueCut business you have here. Just maybe give me the before and after this transaction, how you are running that business? And what -- if this question makes sense, what this transaction unlocks and how you will run the TrueCut opportunity here differently going forward, whether it's capital employees, customer discussions, anything of color there would help to kind of look forward to the pro forma business? Todd DeBonis: That's a good question. I never really thought about it in running it differently, okay? I thought we were running it appropriately up to this point. And now we are going to focus on it and try to accelerate it. I do believe the nature of the business and the way we went to market, which is a very difficult way to go to market, where you have to bring the whole ecosystem together. So from content generation to theatrical distribution, then to home entertainment distribution and then device manufacturers. And you have to bring this whole ecosystem sort of forward together. It takes a lot of evangelism. And so during that evangelism period, not always throwing money and resources accelerates it. And so -- since we sort of first won awards for this technology from HPA and other Hollywood technical bodies. We've been evangelizing -- could we have done more of it maybe with more capital and more focus. But for the most part, it took its own time. We see now that, that evangelism is starting to pay dividends. And so now might be the time to accelerate the investment and energy into the business. So I would say that's probably the only difference between then and now. I will say, as a public company, you're very focused on trying to be cash flow positive and earnings growth. And so when we ran into headwinds in China, we definitely slowed down our investment in TrueCut. So maybe for the last year or so, it was artificially constrained. Operator: Thank you. I would now like to turn the conference back to management for closing remarks. Todd DeBonis: Yes. So thanks, everybody. I once again would like to repeat, I encourage all shareholders of record to vote your proxy shares as an Oregon corporation we require 67% of all outstanding shareholders to vote for in order for this to pass. So I encourage you all to vote your shares. And thanks for your time. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Julia Weinhart: Good morning, everyone, and thank you for joining us today. We value your continued support and are pleased to present to you today our latest development. After the presentation, we'll be happy to address your questions. With that, I'll hand it over to Alessandro to begin. Alessandro Petazzi: Thank you, Julia, and thank you, and good morning, everyone. Thanks for joining us. Well, we just closed what is traditionally the most important period of the year for us and for leisure travel in general. And our results this quarter confirmed the strength of demand. And I would say the strength of our execution, which is clearly more important. Over the past few months, we've been very focused on 3 things, right, on delivering disciplined growth, which means gaining customers and share in markets and channels where the unit economics are attractive. We've also been enhancing profitability, which we have achieved through pricing, automation and improved booking quality, and I will elaborate on that in the next few slides. And lastly, we've been building a more scalable organization, one that is leaner, faster and structurally more efficient. This quarter, you see the first results of those decisions translating into performance, high-teens revenue growth, strong EBITDA expansion, and we continue to improve our cash generation, supported by a lower fixed cost base, also following the reorganization of the company we had in the second quarter. Just as importantly, we have continued to simplify the business and allocate focus on the areas where we can win at scale, and the decision to discontinue the cruise units reflects that decision. Looking ahead, we're building a travel player with stronger customer engagement, increased automation and enhanced operating leverage. We will also present today our 3-year outlook, which reflects exactly this. We're sharing a road map grounded in execution with clear initiatives around product, loyalty, technology, brand, and we have aspirations and a clear plan to get there, which we'll be sharing with you today. But before we do a deeper dive into the outlook, let's start by reviewing our third quarter and 9-month performance. I will then move to our future and the strategic drivers supporting that trajectory. So also with the support of Diego on certain pages, we're going to take a look at the numbers. Starting with, I would say, a snapshot of everything that happened in the quarter and in the 9 months. So starting with the quarter, happy to say this summer was clearly very positive. I think the numbers really speak about themselves. We saw strong growth across GTV, revenues, gross profit and adjusted EBITDA and also adjusted EBITDA minus CapEx. We're starting to talk about this because I think it's a metric that is important for us within the business, and I think it's important for the financial community to prove that our focus on improved cash generation. Adjusted EBITDA minus CapEx grew 68% in the quarter, reflecting this meaningful step-up in operational efficiency. We're also seeing structural benefits of our organization with fixed cost decreasing 6% year-over-year in absolute terms and even more significantly as a percentage of revenue. So the efficiency is now translating already in the P&L. It's also worth noting that the year-on-year comparison is clean. In Q3 last year, Ryanair had already been reintegrated into our offerings. So we had a lot of comments about that and questions and rightfully so understandably in the first half. But now we can be very clear that the results we're showing show a genuine like-for-like comparison. So I would say the first 9 months, the key thing has been consistency. I mean, we explained already in Q2 results call that we had a strong Q1, softer Q2 due to Easter timing and especially positive Q3, but I'd like to see the 9 months performance, which obviously is not impacted by these changes between March, April or June, July. If we look at the 9 months, the picture is also very clear and consistent. So before we move and take a look at each component of the P&L separately, as anticipated in this morning's press release, we have an announcement about our Cruise business, right? So for those who maybe didn't have the time to read it, the announcement comes as a part of our commitment and long-term focus on consolidating and strengthening the segments of our group, which are really the core where we can grow profitably and at scale. The Cruise division had primarily operated in the Italian market under the Crocierissime brand, and as we announced in the PR, we'll seize its operations, complying of course, with all applicable law provisions. This division was reported under the others segment in the forthcoming revenue slide, and has been underperforming over the past few years, generating ongoing constant losses despite the effort of the team. So this is the right decision to really make sure that we can focus our attention and resources where it matters and where we can move the needle for the group as a whole. In the context of that, Crocierissime trademarks and domain have been sold to Cruise Line, which is one of the European specialist leaders in that segment. Now as we have a lot to go through this morning, let's take a look at the revenues in the third quarter and in the 9 months. So clearly, revenues reached EUR 101 million in Q3, up 17% year-on-year from approximately EUR 87 million in the same year ago period. Packages remain the pillar of our growth, contributing almost EUR 66 million with an 11% increase. Now, I think it's important to give you a bit of details about how this performance came about because clearly, it's not that we're just riding away of the market. This is due to a lot of things that we are doing internally. For example, in dynamic packaging, we released a new pricing algorithms, which progressively is substituting all the manual efforts on pricing. So there is that element. We expanded the unitary revenues, particularly from ancillaries, thanks to a higher show rates. So we were able to show especially flight ancillaries for more of our products, thanks to the fact that we've been adding suppliers, which cover situations which were not covered by the previous suppliers. And all of that basically means reflects into an improvement of unit economics. And if you have higher margin and revenues for a single transaction, then clearly, you can also afford to profitably spend more in marketing for the higher customer acquisition cost and then you start having a flywheel effect on volumes and profitability. The other element was also revised the strategy on how we consider our ad spending, which basically is focused not only on expanding traffic in the Tier 2 markets, but also considering revenues from all channels in our ROI calculations. It might sound a bit like a technical element, but definitely helped deliver successfully both traffic and top line growth across all markets. From a flight point of view, you can see that there was a pretty even more significant growth, I would say, up 39% year-on-year to almost EUR 26 million. And again, as I said, apples with apples, Ryanair was already there last year. And so this actually reflects stronger unit economics. Similar to DP also here, new pricing model. I would say the one thing, which also happened on flights is not only pretty similar to the one we mentioned on DP with pricing and ancillary revenues, but also with an improvement in conversion rates, which stemmed mostly from a change in our checkout in which basically we reduced the steps to get to a final transaction, okay? So we were able to reduce the steps, improve the conversion for that and also improve the quality of the bookings we delivered by increased automation. So there was a number of bookings made on price, especially, which had to be completed manually by our customer operations specialist. And now that percentage has dramatically reduced. And as -- basically because of that we are able to confirm the booking right away. And again, this has a positive flywheel effect on the whole system. Also, the hotel category has been growing very significantly, 24% year-on-year to over EUR 7 million in the third quarter. And here, I would say the elements from an industrial point of view were for sure, the revised approach to outspending, which I was also already mentioning for DP, but also the launch of a partnership with a new meta search channel, Trivago, which even if it happened towards the end of September, started to contribute significantly already and the partnership channel. So basically, the revenues that we get by the agreements we have for the so-called welfare channels for employees in a range of countries, especially in Southern Europe. So these were the other big contributors to the revenue growth on the hotels. So in summary, I would say top line has been pretty -- very strong. We improved also the profitability per booking, and we executed on our technology and partnership roadmap and altogether, that support these results. And with these things that we're doing in pricing and automation, it's not just the third quarter, but clearly, it's a strong foundation for the growth into 2026 and beyond. And if we look at it from a 9-month point of view, revenues at over EUR 284 million, up 13% year-on-year with all the core segments delivering double-digit growth. And packaging is remaining the core, of course, but flights and hotels also delivering growth of 26% and 20%, respectively. The only element of the business, which didn't perform is the other segments, which declined by 13%. As I was mentioning, in this area, also the Cruise unit is included. And clearly, we will not see it going forward. So luckily, the limit -- the overall -- the impact of this on the overall results is limited, but I think the picture is very clear. Strong growth in the core, decline in the noncore and which we are focusing or divesting or discontinued. Now as we move on to profitability. The strong top line growth also translated into gross profit growth, very clearly with a growth of 9% year-over-year to almost EUR 38 million in the quarter with packages having a 10% increase by 14% and hotels 10%. Now one thing that would be directly addressing is the fact that you might see a slight dilution in our percentage gross margin. So I would like to clarify that this movement is planned and is consistent with our strategy. It's not a blip, it's not a glitch. It's something that is coherent with what is going on from an industrial point of view for 2 reasons. One is that we increased our marketing investment to capture demand as we were seeing in a profitable way, and this is clearly paid off with the 70% revenue growth in the quarter. The second, obviously, is the business mix. Flights have been growing proportionately more than packages, and we know that flights have lower percentage marginality. And so obviously slightly different mix with a bit of a lower margin percentage, but higher -- the key thing for me here is to emphasize that we were talking about higher, absolute gross profit and contribution. This is what we care about, right? Basically, our unit profitability, which remains strong and the absolute growth, and this is something that we continue to prioritize profitable volumes and cash conversion over the pure, let's say, optics of doing the percentage calculation. Looking at the first 9 months, also gross profit has been growing in the same pace, 9% overall with flights up 21% and hotels up 16%. And so I would say that the fact that the performance was consistent over the 9 months demonstrates the health here of what we're doing and the execution of the strategy on which we will also give you more details going forward. But with that, I hand over to Diego for some more detailed look at our cost, P&L and cash flow. Diego Fiorentini: Thank you, Alessandro, and good morning, everyone. We are now on Slide 8, where we show our total cost structure, split between variable and fixed cost. The quarter brought some good news on the cost front. Fixed costs were down 6% as we are already seeing the first tangible benefits of the organization announced in Q2, flowing through the profit and loss. At the same time, notable costs were up 22% in the quarter, mainly reflecting reinvestments in marketing and sales that began in Q2 and continued over the summer, supporting the strong gross cover value growth momentum. This increase was partially offset by other variable costs, which rose only 7%, reducing their weight on revenues by about 2 percentage points. Taken together, the combination of higher revenues and lower fixed costs, both the fixed cost ratio down 5 percentage points over the quarter, which is a very positive development. If we look at the first 9 months, the picture is quite similar with fixed costs down about 2% year-on-year compared to 2024. If we now switch to Slide #9, we can have a look at the full profit and loss, giving you a bit more detail of what we just went through. In the third quarter, adjusted EBITDA reached EUR 17.2 million, up 35% year-on-year. This strong increase reflects our operational leverage, which amplified profitability even if we continue to invest in marketing and sales. Reported EBITDA came in at EUR 13.5 million, which is broadly in line with last year, despite the provision related to the closure of the Cruise division. EBIT totaled EUR 4 million versus EUR 8.8 million last year, mainly impacted by the impairment of the Cruise related intangibles. Importantly, despite all of this effects, the net results remained positive for the quarter at EUR 1.9 million with earnings per share of EUR 0.18. If we move to the 9 months results, so the picture remains very consistent. Adjusted EBITDA continued to show a strong year-on-year improvement, which clearly supports our upgraded full year guidance. EBITDA was in line with last year at EUR 13.7 million, while EBIT decreased to EUR 17.3 million, down 29%. Both metrics were impacted by one-off items mentioned earlier. Alessandro Petazzi: Yes. And if I can chip in for a second, Diego, sorry till you [indiscernible] here, but I think it's also important to note the adjusted EBITDA minus CapEx metric. Because basically, if you look at the 9 months, you see that we've grown the adjusted EBITDA by approximately EUR 10 million. And then we've also reduced our CapEx in the period. So the adjusted EBITDA minus CapEx grew even more than proportionally EUR 14 million or 80%. And I think this is a very important metric that we work on internally, and I think it's important to start talking about that with the financial community. Diego Fiorentini: Yes. Thank you, Alessandro. I have a point on that on Slide 11. So if we can move to Slide 10 now, we take a closer look at the net results for the quarter to help put the numbers into context. As you can see, reported net income is lower than last year. However, this difference reflects one-off items related to the closure of the Cruise division. In the third quarter, we booked a provision for restructuring expected to be settled over the next few months while the impairment of intangible represents a noncash charge. Together, these items had a negative impact of EUR 6.2 million net of tax. On a comparable basis, this picture looks quite different. Underlying net income would have been EUR 8.1 million, 42% higher quarter-on-quarter without these one-off effects. We now move to Slide 11, where you can see the net financial position movements over the last 12 months. This view has to smooth out the seasonality of our business, which is strongly influenced by the typical OTA working capital dynamics. The net financial position stood at EUR 63.5 million, broadly in line with the EUR 67.1 million recorded in September 2024. The main driver of the cash flow was EBITDA, which reached EUR 43.5 million over the last 12 months after absorbing the organizational related cost. CapEx totaling EUR 19.1 million continued its downward trend following the peak spending we saw in 2024. The change in net working capital was essentially flat, reflecting the reversal of the seasonal movement we saw in Q2, and it is expected to continue a positive trajectory toward year-end, supporting the higher gross order value compared to last year. Overall, free cash flow came at EUR 16.4 million over the last 12 months, a significant improvement compared to the EUR 0.4 million in the same period of last year. And with that, I hand over to Alessandro for the key takeaways. Alessandro Petazzi: Thank you. Thank you, Diego. Well, I think it's pretty straightforward. We had a very solid performance throughout the first 9 months of the year, and we are expecting to continue doing that over the next few quarters. Packages have been growing, flights and hotels maintained good momentum. And because of that, we are raising our EBITDA guidance to around 20% of year-on-year growth, that showed improved unit economics and continued fixed cost discipline driving stronger cash conversion. And as part of that, I would also, I would say, talk about delivering on commitments in general, right? So not only cost discipline and growth. I think we said in January, when I joined and the first call I had with all of you, I was very clear on the fact that this company cannot be just a company with stagnating revenues and bottom line growing by cost cutting, we need actually to grow the top line, and grow the bottom line by having operational leverage. This is it. I'm having strategic focus. And clearly, the decision to discontinue the Cruise business also goes in that direction and will start showing its own positive effects in the next few quarters. So growth is the name of the game here. And it will continue to be so in our 3-year outlook, which we are going to now see in greater details. So what we're sharing today is a reaffirmation of the strategy we set earlier this year, right? So I would say no revolution, but an evolution and more clarity on the execution plan, right? I like to -- always like to say that vision without execution is just hallucination. And clearly, that's not where we are here. So the 4 strategic drivers you see have guided our decisions already throughout 2025, and they will continue to guide how we operate, scale and grow the business over the next 3 years. So it's about execution, focus, consistency and building momentum quarter after quarter. Now before we dive into each of the 4 core pillars that you might already be familiar with, let me briefly touch on the 2 key enablers that support this road map, right? I mean when we talk about scalability, what means is that we're building a business that scales efficiently with faster decisions, faster execution and lower cost to serve our customers. So how do we make it happen? Because otherwise, it just remains a declaration of principle, but the fact is that we are already streamlining and consolidating systems to reduce complexity. Automating core workflows, we already have identified more than 40 on which we are working to provide automation, things such as refunds, cancellations, service reporting, things which some of them are in the back office and some of them are also impacting our customer satisfaction. So again, not just a matter of efficiency, but a matter of overall being better able to serve our customers. And in the same -- with the same philosophy, we're also applying a buy overbuild approach to technology, ensuring that we have speed and capital discipline as you see reflected -- you saw reflected, for example, in the decline in CapEx this year. So the goal is pretty simple, and it's a leaner organization with higher productivity and better customer experience. I don't think the 2 things are in a trade-off, but the 2 things must go hand in hand as we continue scaling the business with the strong operating leverage that we talked about. AI. Now everyone is talking about AI. Obviously, I do not think personally that AI is a value proposition. AI is a crucial tool and AI must be embedded in everything you do. It's something that really must be the fabric of the organization, I would say. And it touches our business in at least 3 different ways. One is that from a customer acquisition point of view, AI is already influencing how travelers search and plan, right? And we see a shift of behavior from search engines to LLMs or within Google, for example, from traditional search to Gemini, AI mode and AI powered reply. So we are preparing for all scenarios to ensure we remain relevant and competitive whatever happens in the upper funnel by remaining the trusted fulfillment partner of whoever is going to provide that type of recommendations to customers. And that also includes from a more tactical point of view evolving from an SEO approach into a so-called GEO approach to make sure that we're also present organically in the results in the various LLMs. That's the first way that AI impacts us, but actually and which is a bit more, I would say, external from our own company. But in terms of the things we can do internally, customer experience then comes first, followed by efficiency and automation. So basically, AI is already helping us personalize, inspiration and recommendation. And we've been working on it for few years already in terms of our ranking and pricing personalization systems, which are the ones, by the way, the evolution of which contributed to the significant growth we were seeing for the quarter. But by continuing to work on that, we can also support the way our agents deliver faster and more consistent service in areas, especially where ever the human intervention matter. So from an efficient point of view, as I was saying, it's across pricing, booking quality, customer operations, a lot of back-office systems, AI is already improving the speed and accuracy of what we do. A significant portion of the code that we submit for deployment every month is already generated with the support of AI. So we haven't been talking a lot about that, but there's a lot of things already happening in the organization, I would say, across the board to allow us to scale without adding proportional cost. So, in short AI is not a stand-alone initiative, but it's really a core feature of our operating model. And that being said, let's now walk through each of the 4 strategic drivers and how they evolve over the next 3 years and how together, they underpin the financial ambition we're sharing with you today. First one is our core engine, dynamic packages, right? So travelers expect relevance, simplicity, value and seamless fulfillment. I think this is something that has been very clear with us, for us and remains true even in a AI-first world, obviously, with potentially more and more of the operations powered by AI. But for fulfillment, you need a lot more elements, right? So the goal here is to move from choice, which obviously is important, and we want to continue to give our customers choice, but we want to start introducing intelligent curation in that, bringing travelers to the right holiday faster, right, with a product that feels designed around them rather than assembled by them. So this is exactly the evolution that we are talking about. In practical terms, it means curated inventory focused on quality and relevance with also personalized bundles, not only with flights and hotels, but further extras and further additions to the trip, which makes the trip more memorable. And that is already happening in the short term. Going forward, we will have more and more audience-driven bespoke offers. And we will also be offering theme signature collections such as a romantic week in Paris or a week on the slopes for ski lovers. It might sound pretty normal, I would say, but I think that if you think about it, having a system that gives you exactly the type of holiday you need in a specific moment of the year is, I would say, an ambition that every travel company has been having and very few already delivered on. So we definitely plan to be there. And we intend to help travelers also in the discovery phase while remaining the trusted fulfillment partner that makes the holiday happen. From a -- I would say, from the point of view of the industrial effect and the economics, what do we expect by this evolution of the business? We expect, as you can see on the top right corner of the page, higher conversion rates, the higher attach rate and average -- and higher average booking values. This is basically the effect we expect on our own economics by this evolution. The second pillar, as you know, is about building deeper, repeatable customer relationships, moving beyond the transactional model that has been a staple of the company for a number of years. And this is where loyalty, personalization and proactive service comes together. And again, you might say that this is what every company wants and it doesn't exactly sounds like the discovery of fire. But I think it's important to take a closer look at the key initiatives which are already in motion underpinning this. So the launch of our multi-tier loyalty program offering rewards and designed to drive lifetime value. So lifetime value for sure, is the element of focus as we go forward, providing more relevant content and offers so that every interaction can feel tailored. AI comes back into the picture to provide support in service and automation so that the attention of our human agents can be focused on where it has most impact. And support and inspiration are also coming to be embedded in our app, which must be the primary engagement hub for inspiration, booking service, rewards, but I would say the way for us to be relevant in every single moment and every single touch point of the customer journey, not just when they book, but when they are waiting between the booking and the holiday itself, when they approach the holiday, that moment of expectation when they actually start enjoying their holiday and even when they are back home and thinking maybe about having those post-holiday blues and thinking about what they should be doing next. The expectation is that thanks to all these actions, we can increase the repeat rate, which is already pretty high. I would say our repeat rate in the 12 and 18 months is already pretty high, but we can do better, for sure. We expect this to increase the app adoption, also as a way to remain relevant in the minds of customers to increase our NPS and to reduce the cost to serve. Now on to the next page with brand. In 2025, our focus under the strategic driver has been on highlighting the strength of each brand in the group. You might remember, we've already talked about that, that rather than trying to be everything to everyone, we concentrate our investments where each brand creates most value. And obviously, we have local brands like Bolgratis, Rumbo, Weg and mother ship lastminute.com. And each deserves a differentiated approach and efficient marketing to make the most of local strength with the combination of the marketing approach, the brand and the product that we sell via each brand. And so this already translated into something really concrete from aligning the visual identity of all the local brands with the core lastminute.com brand, you might have noticed that already. If you are a customer or if you are curious anyway. And we've also launched brand awareness campaigns for the first time outside our core markets. Now, if we look further ahead, this driver evolves towards ensuring that our brand purpose mirrors what we're becoming as a company. So it must be consistently aligned with our vision of a curated travel experience, especially for packages, right, what we have been discussing and reflected across each touch point product, pricing, conditions and service. A brand is not just about the nice ad campaign, is if we say that we are a customer-first, if we say that we are customer-centric, and this can really be a corporate cliche, we really want to live that mission, then clearly terms and conditions and the way we treat our customers, the way we serve them is part of that, and there must be consistency across all of that. So the brand platform that supports our strategy is about curation, ease, trust and emotional relevance. The -- I would say, more practical economic consequence of that is in, say, in our aspiration to have a higher recall of brand association, which then should also, over time, become a source of lower customer acquisition cost and higher conversion, especially as we shift more traffic into our own loyalty program and the app environment. And finally, market presence and distribution, which is about balanced and profitable scale, not footprint for its own stake. This is very important. Every time we've been expanding to new markets, we've been doing that with a data-driven approach and making sure that we were profitable very early on. So from a geographic perspective, we are maintaining a strong focus on our core European markets, depending on our leadership positions in the core 5 while also expanding selectively into high potential markets where unit economics are favorable as we've been doing already since the beginning of the year. The new thing here is that from a market perspective, this also means widening our reach with the launch of a new B2B, B2B hotel distribution channel and product. So basically is what in the sector is called a bed bank, bed as in bed, not in bad. Apologies for my pronunciation here. So that's what we're launching, opening an extra revenue stream for the group. And this is something that is already happening in these very months. From -- if we're talking about the B2C customer acquisition source point of view, the focus is on evolving how we reach customers. So shifting gradually from the history of the company, which has been a pure performance marketing to more of the brand-led growth, building awareness and preference to more diversified mix, including paid social, where we've also already started investing this year and B2B2C partnerships, and we were talking about generative engine optimization earlier on. So the outcome of this from a business point of view is more resilient demand generation, which is consistent whatever the possible shift in traffic in the upper funnel might be. So higher-quality traffic, more diversified revenue streams and overall a more resilient business. So I'm sure that all of you are now curious to see the financial impact of all the qualitative elements we talked about. And so here we are anchored in the strategy and supported by the initiatives we talked about. We're confident in our ability to continue delivering the profitable growth and reaching by 2028 approximately EUR 450 million of revenues and an adjusted EBITDA above EUR 70 million. Now, it reflects the compounding effect of scale, automation, stronger customer and higher customer lifetime value for the reasons we discussed across all the core segments and the disciplined approach to cost and capital allocation. Now let me also add, I would say a brief personal reflection on this guidance, right? When I joined in January, you might remember, one of the priorities I outlined was to make sure we established credibility with you guys. The very simple principle to say what we do and to deliver on it, right? And I think that the past 3 quarters, frankly, show pretty clear progress in that direction because we've been meeting our guidance. And actually, we're even upgrading our guidance, and we've been growing top line, growing bottom line exactly with doing -- by doing not because the market grew, but because of we executed on all the plans that we outlined at the beginning of the year. So we're executing with focus, with discipline, with transparency. That approach will continue. I also know it's just the beginning of a journey, right? So the outlook we're sharing today is intentionally grounded and realistic. It is not the ceiling of our ambition. I would say it's more the base camp, if you want. And as we keep building operational momentum, I'm confident you'll see the same clarity and consistency reflected in the actual results, which at the end is what really matters, right? I mean again, having the vision, a clear story and a clear plan to get there and deliver on the results. And with that, I conclude the strategy overview, and I hand it over to Julia again for the financial calendar. I'll be back shortly to take your questions. Julia Weinhart: Thank you, Alessandro. Now let me briefly share with you which conferences we will be attending in the coming months and our financial calendar for 2026. So on November 25, we will be at the Deutsche Eigenkapitalforum in Frankfurt. On the 15th of January will be at the Baader Swiss Equities Conference in Bad Ragaz in Switzerland. And now I'm moving into our financial releases. We will release our preliminary unaudited full year figures results on the 12th of February. Our annual report publication will be on the 2nd of April. On the 6th of May, we will publish our Q1 2026 trading update. On the 24th of June, we will have our Annual General Meeting. And on the 30th of July, we will be sharing with the market our half year results, followed then on the 29th of October, our publication of the Q3 2026 trading update. With this now, we will begin our Q&A session, starting with the live questions first, followed by those submitted via the webcast. Please note, again, as always, we might group similar questions together and slightly rephrase them. In line with our privacy and data protection policies, we remind participants that stating your name is optional when asking live questions today. With this, I'll hand over now to Sherry, our Chorus Call operator to begin with the first live question. Thank you, Sherry. Operator: [Operator Instructions] I am now pleased to hand over to Julia Weinhart, Investor Relations, who will be moderating the session. Julia Weinhart: Thank you, Sherry. So do we have any live questions in the queue already? Operator: We have no questions in the queue. Julia Weinhart: Okay. So no live questions, so with that, we'll move directly to the webcast questions we have received. And I will start with the first question, which we have received this morning. How do you intend to use the cash available since you are now even generating significant amount per quarter? Any M&A ahead of us? Alessandro Petazzi: Yes. Thank you, Julia. I'll take this one. Where our cash position will be primarily used to sustain the growth of the business. Now we've always been active and we see ourselves continuing to be active in the M&A market if any opportunity arises. For example, there might be start-ups, which come up with very interesting products, but are not able to scale due to the known difficulty of scaling B2C businesses in the travel market, which is a market with very low frequency of usage, which creates more challenges than if you try to build a B2C brand in markets in which people potentially use your service every day or every week. So there might be opportunities there and to get maybe some support for our innovation efforts. But again, I see that rather than for sure, not a transformational M&A more, something that complements and contributes to the operational execution we talked about, right? The very tactical, I would say, decisions on make or buy on certain things. So I would say the strategic focus is on investing in the initiatives that we have to strengthen our position and continue driving this profitable organic growth. Julia Weinhart: Thank you, Alessandro. Now we will move to the next question we have received. What can you say about the current market cap and rerating expectations? Are you planning to move the stock exchange to London or Amsterdam to improve liquidity? Alessandro Petazzi: Look, I think this question reflects frustration. And to be honest, it's a frustration I share. It's a frustration we all share. You might know, I think we had -- we also -- we already had comments on that, that the entire executive team is very much incentivized in line with shareholder value creation. Plus we have an institutional duty, right? So it's not only, I would say, it's a selfish element, if you want, but also an institutional element in terms of our role to provide value for shareholders. I would say that right now, considering where we're coming from, the key focus is to improve the industrial results of the company to make sure that we deliver quarter-after-quarter as we've been doing over the past 9 months. And also to continue to have more discipline and transparency and that approach to investors as well. As Julia was saying, I mean, we've already been meeting a lot of investors over the past few months. And as you've seen in our financial calendar, we are -- we will be attending a number of conferences. We will be meeting a number of you one-to-one. So I think that we are doing everything in our power to make sure that progressively, the market realizes that we deserve a different multiples because we -- the growth rates and the absolute value of our numbers, I also clearly think that we are not currently priced in the right way. Now at the same time, when we are in this journey of transformation of the company, when so many things happening with the potential to disrupt our sector and us trying to disrupt ourselves, right? We definitely want to be innovating in a way that we go ahead of market disruption, then I think that's where the focus must be. Changing, listing and stuff like that is potentially a huge distraction for the team. And so even if it might sound like a shortcut to potentially improve our liquidity, I think it will be the cost to pay in terms of defocusing the company at the moment in which the company actually is proving that focus is a good thing, is probably not the right approach. That being said, this is the evaluation now. Going forward, we will continue to monitor the things. Again, deliver on the promise, show credibility, show transparency, have a bit of patience because, of course, I think this journey is not one of a day. It's one of a few years. The plan is not a coincidence, right? That it goes until the end of 2028. I think that's a reasonable time horizon. And then we might reassess obviously a year from now, this hasn't changed, but we will see. But now focus is on industrial aspects for sure. Julia Weinhart: Thank you, Alessandro. Now moving to the next question. Could you provide a breakdown of your net cash position? How much is real cash and how much is advanced cash payments from clients? Diego Fiorentini: Thank you, Julia. Well, as you can see from our third quarter report, cash and cash equivalents stood at EUR 103.8 million at the end of the quarter. It is important to note that part of the short-term financial liabilities reflect the negative balance on our notional cash pooling structure. Adjusting for this, our effective cash position would be around EUR 55 million. This strong cash position is, of course, supported by the negative working capital dynamics that are typical of our industry. Julia Weinhart: Thank you, Diego. Now moving to the next question. What is the composition of the Dynamic Packages growth? How much of growth comes from B2B, how much from B2C? And can you give us an overview of the growth in the various regions? Alessandro Petazzi: Yes. Okay. So 2 different questions in one. So let me try and address them both. So the first one is that I guess you know that in our reporting structure, when we talk about packages, actually, it includes dynamic packages, which are the core of our business, mostly sold via the lastminute.com brand in its various incarnations in the various countries, but also the so-called tour operator business, which basically is a business in which we allow people to book the products of companies such as TUI or their tour. This is especially strong in the German market, and it's mostly sold by the Weg.de brand. Even there is also a portion in France, but lion's share of this tour operator business is in Germany with Weg.de. Now that part hasn't been growing, to be honest, the tour operator bit. But again, it's where we do not have control of the product. And so we're now working on some actions to make sure that we can also make sure that they gets back to the growth that it deserves as a historic brand in the German market. If we focus on the core of our dynamic packages, which are clearly the vast majority of the total line that we report as package, we've seen growth across both, B2C and B2B2C, as I prefer to call it rather than B2B, right? The white label solutions that we have with booking.com, with Holiday Pirates and in others, they were both growing, but the B2C channel, which clearly represents the strategic focus on which we have more control, has been growing more than the other. So I would say B2B2C has been relatively with a pretty limited growth in terms of revenues and a good growth in terms of profitability, whereas the B2C channel delivered higher growth in the quarter and in the 9 months and also remains the predominant contributor in absolute terms within the Dynamic Packaging segment. Now in terms of the growth in the various regions, we've been growing both in the core markets and in the other European markets, which we started to invest in this year. So the growth doesn't come just from the new markets. I would say within the core markets, the most positive performance has been coming from Italy and Germany, but we're also satisfied about the situation in France, Spain and the U.K. But Italy and Germany has been, for sure, the ones -- the outstanding ones in the quarter and in the 9 months. Julia Weinhart: Thank you, Alessandro. I now move to the next question. Currently, around 30% of revenue is generated through partnerships. How much of the EUR 450 million in revenue by 2028 is expected to come from partners? Will the share remain at 30%? Or will it be higher? Alessandro Petazzi: No. I mean, basically, as I said, our B2C core channels are growing more. And I think that we will continue focusing on this. And this is what we expect. So the revenues coming from partnerships will be growing if we are able to add more channels, more partners. So I would say that for sure, we do not expect the contribution of partnerships to increase as a percentage of revenues. We expect it to remain stable or potentially even slightly decline as we focus on higher growth on our B2C core properties. Julia Weinhart: Okay. Perfect. Thank you, Alessandro. With this, we have -- we move to the next question. I missed the beginning of the presentation. Unfortunately, can you explain the [indiscernible] sale? When will it be closed, which legal entities are changing their ownership? And when will it be closed? Alessandro Petazzi: Okay. So let me first clarify that no legal entities will change ownership. This is very important. It's something else we're talking about. We're not talking about sale of entities. So the context -- the strategic context of this is that we are delivering on the promise to be focused on what moves the needle and in the areas of the business where we can grow profitably at scale. So -- and that's why we have decided to seize operations of the Cruise division. This is what we're doing. We are seizing operations. The Cruise division was primarily operating in Italian market with the brand Crocierissime. Now the other thing we said is that, that brand, Crocierissime and the related domains have been sold Cruise Line, which is one of the European specialty leaders in the segment. So this is what is happening. Seizing operations, and then as a separate element, selling just the trademarks and domain. But for sure, not the operations as such, which are seizing and not the legal entities. Julia Weinhart: Thank you, Alessandro. With this, we have answered now all of the questions we have received via the webcast. Sherry, maybe in the meantime, did we receive any request to ask a live question? Otherwise, we would... Operator: There are no more questions from the phone. Julia Weinhart: Okay. Then we will be closing the call. Alessandro, would you like to say a few words at the end? Alessandro Petazzi: Yes. I mean I just want to thank everyone for the questions and for the conversation, which we obviously value and we intend to remain focused. We intend to remain focused on building on the industrial performance on the plan we disclosed. We are really confident in the path ahead. We have an ambition, which even goes beyond what we've been talking about and the plan to deliver on the targets we talked about. And we look forward to continue having this constant communication with you at the next quarter or ideally at one of the conferences that we will be attending. Thank you from that, and I see you very soon.
Operator: Thank you for standing by, and welcome to the Amdocs Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Matt Smith, Head of Investor Relations. Please go ahead, sir. Matthew Smith: Thanks, operator. Before we begin, I need to call your attention to our disclaimer statement on Slide 2 of the presentation. It notes that some of our comments today may be forward-looking statements and are subject to risks and uncertainties, including as described in Amdocs' SEC filings and that we will discuss certain financial information that's not prepared in accordance with GAAP. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's earnings release, which will also be furnished with the SEC on Form 6-K. Participating on the call with me today are Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Rapaport-Dagim, Chief Financial and Operating Officer. To support today's earnings call, we are providing a presentation, which you can find on the Investor Relations section of our website. And as always, a copy of today's prepared remarks will be posted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the fourth quarter and full fiscal year 2025, and we'll update you on our strategic progress, including our continued sales momentum in cloud and recent commercial developments in generative AI and data services. Shuky will finish by previewing our financial outlook for the full fiscal year 2026, after which Tamar will provide additional details on our Q4 financial performance and our forward guidance. As we communicated previously, Shuky and Tamar will compare certain financial metrics on a pro forma basis, which adjusts prior fiscal year 2024 revenue by about $600 million to reflect the phaseout of certain low-margin noncore business activities, which was substantially already ceased in the first quarter of fiscal 2025. And with that, I'll turn it over to Shuky. Joshua Sheffer: Thank you, Matt, and everyone joining us on the call today. Starting on Slide 6. I want to express my sincere appreciation to our global team as we close out another year of important progress. Your dedication and commitment have driven solid financial results, consistent with our guidance, and you did it while executing our strategy to support our telco customers with cutting-edge cloud, digital and AI-based solutions. To briefly recap fiscal 2025, revenue grew up by 3.1% in a pro forma constant currency, which adjusts for our decision a year ago to phase out certain low-margin noncore business activities to sharpen Amdocs' strategic focus while also resulting in a stronger business visibility. Among the many highlights, we delivered double-digit growth in cloud, which contributes over 30% of total revenue this year. Share of revenue for long-term managed services reached a record 66%, further supporting Amdocs's already strong business resilience. Profitability improved by 300 basis points, including 60 basis points from ongoing business transformation and efficiency gains. And we maintain our commitment to technology, innovation and product leadership, tailoring our investments to serve our customer key business imperative. These include B2B modernization, next-gen monetization, fiber networks and of course, generative AI, where this year, I'm proud to say we made a successful transition from proof-of-concept trials to winning actual generative AI-related deals. Overall, we delivered non-GAAP diluted earnings per share growth of 8.5% in fiscal 2025 and achieved our target to deliver double-digit expected total shareholder return, including our dividend yield. Now let's take a close look at our fourth quarter performance, beginning with the financial on Slide 7. Revenue of $1.15 billion was above the midpoint of guidance and up 2.8% from a year ago in pro forma constant currency. Profitability improved by 20 basis points sequentially. Non-GAAP diluted earnings per share was $1.83, slightly above the guidance midpoint, and we finished the quarter with 12-month backlog of $4.19 billion, up $40 million sequentially and 3.2% from a year ago. Growth in 12 months backlog was driven by strong sales momentum this quarter, contribute to our overall long-term book of business. As Slide 8 shows, pipeline to deal conversion was well balanced across our key operating regions and strategic domains, showcasing Amdocs' proven ability to scale our customer activities by continuously delivering fresh innovation over time. In cloud, we signed a multiyear managed services SaaS agreement with AT&T to deliver entitlement server capabilities via our eSIM cloud platform, and we won new cloud modernization and migration awards at Lumen Technologies in the U.S. and TELUS in Canada. We expected our recent momentum in generative AI domain with -- we extended our recent momentum in generative AI domain with an exciting new award at Telefonica Germany, and we expanded our international footprint with new monetization and digital modernization awards at BT-EE in the U.K., Altice SFR in France, Telia in Finland, KT in South Korea and Claro Brazil. Several deals this quarter were struck among under long-term managed services agreements, further deepening our customer relationship. This includes an exciting landmark multiyear strategic agreement with PLDT in the Philippines, which expands our long-term-standing managed service engagement to accelerate its IT modernization and streamline business processes through AI and generative AI capabilities. Rounding on operational highlights, Amdocs is engaged in the execution of complex mission-critical transformation projects, closely working with our customers as key partners. Q4 was another quarter of consistent execution in which we achieved important project milestone at AT&T, Comcast, Bell Canada, BT Everything Everywhere, Vodafone and Vodafone 3, PLDT and e& UAE. I'm also proud to say that Amdocs ensured smooth customer operation during the high-volume launch on Apple's iPhone 17 in September. Now turning to Slide 9. I would like to provide some additional color with respect to our growth strategy, which is designed to deliver the [indiscernible] product and services our customer needs to, accelerate the journey to the cloud, maximize the value of generative AI and data across our customer footprint, digitalize customer experiences for consumer and B2B, monetize next-generation network investments and streamline and automate complex network ecosystems. Beginning with cloud on Slide 10. Demand for our cloud-native solution and proven ability to accelerate public, private and hybrid cloud migration remains strong as we continue our strategy of moving mission-critical system, workloads and applications that enable innovation, agility and cost savings for all our customers. In the U.S., Lumen Technologies selected Amdocs to support its cloud transformation, moving mission-critical BSS application to Google Cloud to strengthen its digital foundation. TELUS in Canada expanded its multiyear managed service agreement with Amdocs to migrate on-premise wireless monetization operation to Google Cloud, enabling the faster launch of new consumer and enterprise offerings, improve customer experience and reliability and reduce operational costs. And Bell Canada, in collaboration with Amdocs is migrating existing system to the cloud to enhance scalability, resiliency and achieve operational efficiencies. Our SaaS-based platforms, including Amdocs eSIM, Amdocs Market One and Amdocs ConnectX are also contributing to growth with rising customer adoption. To provide a few examples, we signed a multiyear managed services SaaS agreement with AT&T to deliver entitlement server capabilities via our eSIM cloud platform. This continued to expand our eSIM SaaS platform momentum, adding over 100 million devices to it. Additionally, Amdocs ConnectX has already more than 15 customers, including consumer cellular and PLDT, who are deploying the generative AI native platform to quickly launch existing new digital brands. Adding to the list, I'm pleased to announce that Orange Belgium has selected Amdocs to lead key modernization initiative on their prepaid stack, leveraging our ConnectX platform. This project includes real-time charging and next-generation scalable architecture designed to support their needs. It will drive efficiency while transforming the user experiences with modern digital-first journeys that will redefine engagement for Orange Belgium prepaid subscribers. Looking forward, cloud will remain a primary focus for Amdocs, as we continue to support our global telco customer base, many of which are only just getting started on their multiyear cloud journeys. Now let's talk about generative AI and data on Slide 11. Following the generative AI-related deals we recently announced with e& UAE, Altice Optimum and Consumer Cellular, I'm excited to report that Telefonica Germany, one of the country's largest quad-play service providers, has selected Amdocs to extend its billing platform for both consumer and enterprise services. As part of this expanded multiyear collaboration agreement, Telefonica Germany will deploy new generative AI use cases, leveraging Amdocs' amAIz Sales Agent to enable the efficient promotion of new products and to automate the upsell of personalized offers to drive higher ARPU. This award with Telefonica Germany is another proof point that shows that we are starting to see trial POC conversion to actual generative AI projects, and we are excited about the initial results we are seeing. For example, one of the first service provider to integrate generative AI was e& UAE, a customer which is already achieving double-digit improvement in Net Promoter Scores after deploying amAIz agents. Such progress reflect Amdocs' core telco platform and data services expertise built on our vectorized amAIz platform, which we have deployed in collaboration with NVIDIA and other generative AI leaders. Moreover, I believe our recent success demonstrating the pivotal role Amdocs is playing as an IT player in helping accelerate generative AI adoption in telecom industry. In addition to cloud and generative AI, we secured important wins in the strategic domain this quarter as highlighted on Slide 12. As previously announced, we finalized a significant 10-year digital modernization and managed service agreement with BT-EE in the U.K. to deliver a modern B2C mobile platform for its prepaid and postpaid segments. We signed a multiyear strategic agreement with Telia Finland to build its next-generation digital BSS enhanced and with advanced AI capabilities. And AT&T Mexico closed a new digital program with Amdocs to enhance self-service experiences, expanding its digital selling capabilities. Here in the U.S., we signed a multiyear software and IT service agreement with Fidium, a next-generation American fiber Internet and network service provider and a new logo for which Amdocs will modernize and manage its IT operation while supporting its broader digital transformation strategy. Elsewhere in the U.S., a leading Tier 2 operator selected Amdocs for additional 5-year renewal of their BSS ecosystem. Service providers are also adopting next-generation monetization solution to support their wireless and fiber infrastructure elements. Amdocs recently signed an expanded multiyear billing transformation agreement with Altice, France's SFR to consolidate multiple billing operation to a unified cloud-ready platform. And we signed a new agreement with South Korea's telecom operator, KT, to upgrade and modernize its charging system to accelerate time to market and to boost operational efficiency. This quarter was also -- we also expanded our activities with the 2 largest operators in Brazil. First, Amdocs entered an agreement with Claro Brazil to implement a real-time billing platform designed to enable full-scale converge across its multiple line of business. Claro also extended its multiyear service contract with Amdocs. Second, in the network domain, we signed a modernization agreement with Telefonica Vivo to provide a future-ready foundation for ongoing operation by deploying our latest OSS products. Further underlying Amdocs expertise and growth potential in the network domain, we have expanded our managed services agreement with Globe in the Philippines to include network strategy and planning, mobile access engineering and optimization to enhance service quality and operational agility. Additionally, we delivered a successful go-live of Amdocs advanced network inventory platform for Vodafone Ireland and continue to expand our network activities with Vodafone Greece. Before discussing our fiscal 2026 outlook, I wanted to circle back on generative AI to share our thoughts with respect to our strategy and investment plans as presented on Slide 14. Over the past couple of years, we've shared our belief that generative AI holds immense potential to transform the telecom industry. We've been working closely with our customers to deliver tangible improvement in critical areas such as customer care and network operation while building out generative AI capabilities in our amAIz platform. As the technology matures, the industry advance and we see the progression from POCs to production, we believe there is now the potential to unlock even greater opportunities to enhance experiences, agility and efficiency. To fully capture this potential for Amdocs and for our customers, we are accelerating our generative AI investment, which we expect will open new pathway for future growth across our entire customer base, irrespective of their BSS or SS version. This included fast tracking the development of what we call a Cognitive Core, a next-generation platform built on the solid foundation of Amdocs amAIz. It integrates advanced generative AI capabilities such as agent-to-agent MCP technologies, our vectorized telecom expertise and the enablement of agentic services. In the coming quarters, we'll share more about our vision for AI-powered telecom operating system. For our customers, this investment in generative AI may represent a substantial shift in how they will adopt future software and services. Notably, we believe it promises to simplify and accelerate their digital transformation and journey to the cloud delivered under our outcome-based model. Overall, with focused and intentional investment, we expect Cognitive Core to emerge as a long-term growth engine for Amdocs by enabling us to better serve our full spectrum of customers from those running current platform seeking cost-effective line of business modernization to top-tier innovators already modernizing on Amdocs' next-gen platform to lead with future-ready digital experiences. Now let me comment on the current operating environment and our outlook for fiscal year 2026. We are entering fiscal 2026 with a healthy 12-month backlog visibility and a strong overall book of long-term business supported by a recent win momentum. With our unique tech-led and outcome-based accountability model, Amdocs is strongly positioned within our serviceable addressable market of nearly $60 billion to monetize a rich pipeline of opportunities across cloud, digital network and generative AI and data. That said, we are closely watching for any impact of the uncertain global macroeconomic environment on us and our customers' demand and spending behavior. Tying everything together with our outlook on fiscal -- on Slide 16. We expect revenue growth in the range of 1.7% to 5.7% as reported and 1.0% to 5.0% in constant currency for the full year fiscal 2026. As to our profitability, we expect a non-GAAP operating margin to increase by roughly 20 basis points year-over-year at the midpoint on our target range as we balance our strategic long-term growth investment with the benefits of ongoing cost and efficiency gains across the business. All up, we expect to deliver a non-GAAP diluted earnings per share growth of between 4% to 8% in fiscal 2026, the midpoint of which equates to an expected total shareholder return in the high single digits, including our dividend. With that, let me turn the call over to Tamar for remarks. Tamar Dagim: Thank you, Shuky, and hello, everyone. Thank you for joining us. Before I begin in today's comments, I will compare certain financial metrics on a pro forma basis, which adjusts prior year fiscal year '24 revenue by approximately $600 million to reflect the phaseout of certain low-margin noncore business activities, which were substantially already ceased in the first quarter of fiscal 2025. To further assist your modeling, the regional mix of this revenue was similar to the overall company, and it contributed roughly $150 million per quarter. To begin, I'm pleased with our solid financial performance for the fourth fiscal quarter as detailed on Slide 18. Q4 revenue of approximately $1.15 billion was up 2.8% year-over-year in pro forma constant currency. Revenue exceeded the midpoint of our guidance with no impact from foreign currency movements as compared to our guidance assumptions. Reflecting the phaseout of certain business activities, reported revenue declined by 9% from a year ago. On a regional basis, North America improved more than 2% sequentially, posting its strongest quarter of the fiscal year. Europe declined, reflecting normal business fluctuations following a record quarter in the previous quarter. Rest of the world was slightly lower on a sequential basis, reflecting mixed trends. With our strong sales momentum, we have clear visibility to continued growth in Rest of the World, but quarterly trends may fluctuate given the project orientation of our customer activities in this region. Shifting down the income statement. Non-GAAP operating margin of 21.6% improved by 290 basis points from a year ago, driven by the announced phaseout of low-margin noncore business activities and the benefit of ongoing efficiency gains within our operations. Non-GAAP operating margin improved by 20 basis points sequentially. Interest and other expenses amounted to roughly $10.3 million in Q4. On the bottom line, non-GAAP diluted EPS of $1.83 was slightly above the midpoint of guidance. Diluted GAAP EPS of $0.88 included a restructuring charge of $0.60 per share, resulting from certain transformational actions we have taken to optimize our workforce allocation, technology mix, infrastructure, workspace and other resources as we prepare to accelerate the internal adoption of generative AI in fiscal 2026. Excluding this restructuring charge, diluted GAAP was at the high end of the $1.41 to $1.49 guidance range. To quickly summarize our full year 2025 financial performance, results were consistent with the original guidance we provided a year ago, as shown on Slide 19. Revenue was up 3.1% in pro forma constant currency, above the midpoint of guidance. On the bottom line, we delivered non-GAAP diluted earnings per share growth of 8.5% in fiscal year 2025, consistent with the midpoint of guidance and driven by sustained revenue growth, a 300 basis points improvement in non-GAAP operating profitability and the benefits of our share repurchase activity. Turning to Slide 20. This year, we delivered double-digit growth in cloud, which exceeded 30% of overall revenue as compared with roughly 25% in the prior year. Further highlighting the ongoing diversification of our business and growing traction in international markets, half of our top 12 customers are international customers, 2 of which are new logos added in the last 10 years, as Slide 20 shows. Additionally, we continue to expand our footprint with long-standing customers and new logos in North America. A great example is Charter, with which we had limited business a decade ago, but is now one of our top 10 customers. Over the years, we have also added new logos in North America, such as Consumer Cellular and Fidium in fiscal 2025. Turning to Slide 21. Managed Services revenue was a record $3 billion in fiscal 2025, up 3.1% from a year ago. Managed Services as a share of overall revenue also reached a new high of 66% in fiscal 2025, further strengthening our business resilience as we maintained high renewal rates and expanded our customer activities under long-term agreements. As Shuky alluded to earlier, several of our key deals signed in the fourth quarter were struck under multiyear managed services engagements, the most significant being our landmark agreement with PLDT from the Philippines, for which Amdocs will manage its complete IT services requirements, covering architecture, implementation, operations and performance outcomes with end-to-end accountability. Additionally, we expanded our managed services agreements with Globe in the Philippines to include network operations and TELUS in Canada to cover the migration of its wireless monetization operations to Google Cloud. Managed Services can also be a spearhead to winning new customer logos, such was the case with Fidium in the U.S. for which Amdocs will serve as the primary and exclusive partner to maintain and operate its ID fiber operation across multiple applications while supporting its IT transformation as a preferred development partner. Moving to the balance sheet and cash flow highlights on Slide 22. DSO of 74 days was down by 2 days sequentially and unchanged year-over-year, reflecting normal fluctuations in the business activity. Unbilled receivables net of deferred revenue rose by $62 million sequentially in Q4 and was relatively flat compared to a year ago, aggregating both the short-term and long-term balances. As a reminder, the net difference between unbilled receivables and deferred revenue fluctuates from quarter-to-quarter, in line with normal business activities as well as our progress on multiyear transformation programs. Driven by a strong fourth quarter, free cash flow before restructuring payments was $735 million in fiscal 2025 and above our guidance range of $710 million to $730 million. Including restructuring payments of $90 million, reported free cash flow was $645 million for the year. Overall, we finished fiscal 2025 with a healthy cash balance of approximately $325 million and an available $500 million revolving credit facility, providing ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth. Switching to capital allocation on Slide 23. This quarter, we repurchased $136 million of our shares. We had up to $1 billion of remaining repurchase authority as of September 30, 2025. We paid cash dividends of $58 million in the fourth fiscal quarter. Looking to fiscal 2026, we expect free cash flow of between $710 million to $730 million, not including additional payments we expect to make under our current restructuring program. Our free cash flow outlook equates to a conversion rate of roughly 90% relative to expected non-GAAP net income and translates to a healthy free cash flow yield of roughly 8% relative to Amdocs' current market capitalization. Regarding our capital allocations for the coming year, we expect to return the majority of our free cash flow to shareholders. This includes dividends for which we are pleased to announce a proposed 8% increase in our quarterly cash payment to a new rate of $0.569 per share, subject to shareholders' approval at the Annual Meeting in January 2026. Moving to Slide 24. 12-month backlog was $4.19 billion at the end of Q4, up 3.2% from a year ago. We expect 12-month backlog to represent roughly 90% of our forward-looking revenue, further underscoring the importance of this metric as a leading indicator of our business. Now turning to our revenue outlook on Slide 25. We are continuing to closely monitor the prevailing level of macroeconomic, geopolitical, business and operational uncertainty in the current business environment. The first quarter and the full year fiscal 2026 financial guidance reflects what we consider to be the most likely outcomes based on the information we have today, but we cannot predict all possible scenarios. For the full fiscal year 2026, we expect revenue growth of between 1.7% and 5.7% as reported and between 1% to 5% in constant currency. We expect our strong sales momentum in fiscal 2025 to contribute to fiscal year 2026 revenue growth, and we assume a stronger second half to the fiscal year as we ramp up activities on recently secured deals. On the other hand, our fiscal year 2026 revenue guidance assume a revenue decline at T-Mobile due to reduced discretionary spending. Our annual guidance also incorporates some contribution from inorganic deal activity. As for the first fiscal quarter, we expect revenue between $1.135 billion to $1.175 billion. Moving down the income statement, we expect non-GAAP operating margins within a new and improved target range of 21.3% to 21.9% in fiscal 2026, the midpoint of which is roughly 20 basis points higher than the prior year. Our profitability outlook reflects an intentional decision to accelerate our R&D, sales and marketing investments with respect to generative AI and next-generation Cognitive Core platform while balancing this with ongoing cost and efficiency gains resulting from our continued focus on operational excellence, automation and the internal deployment of generative AI-based tools across our business. Our margin outlook excludes additional restructuring charges we may take. Wrapping everything together on Slide 27, we expect to deliver non-GAAP diluted earnings per share growth of 4% to 8% in fiscal 2026. This outlook assumes pressure from below-the-line items in the year ahead. We anticipate a moderate increase in our non-GAAP effective tax rate to a rate for fiscal year 2026 of between 16% to 19%, primarily driven by a combination of regulatory changes, including the implementation of the Pillar 2 global minimum tax and other evolving international tax requirements. In the first fiscal quarter of 2026, our non-GAAP effective tax rate is expected to be above the annual range. Additionally, we anticipate higher finance costs this year, resulting from a reduced cash balance and funding of our strategic long-term growth plans. Overall, we expect to deliver high single-digit expected total shareholders' return in fiscal 2026, assuming the 6% midpoint of our non-GAAP diluted EPS growth outlook plus our dividend yield of roughly 2.7% based on the new dividend payment we announced today. With that, back to you, Shuky. Joshua Sheffer: Thank you, Tamar. I'm pleased with our solid financial performance and continued strategic progress in fiscal 2025, and I'm excited by our technological leadership and potential to open new growth opportunities by accelerating our generative AI investment in the year ahead. With that, we are happy to take your questions. Operator: And our first question for today comes from the line of Timothy Horan from Oppenheimer. Timothy Horan: You've had a lot more experience with AI at this point. Can you just talk about maybe qualitatively how impactful you think it will be to the telecom industry? And how much can you think improve productivity over time and generate kind of new services? And related to that, I guess the same thing internally, how much can it improve your own productivity internally? I realize you are reinvesting a lot of that productivity in R&D and in investing for longer-term growth? Joshua Sheffer: Thank you, Tim. We are evolving our offering in the in the GenAI domain. Internally, as you mentioned, we are using more and more generative AI capabilities in the software development life cycle and operation. And this is improving gradually, and we see more and more, I would say, benefits. It's not just to cost, to quality, to speed, many items that we see using this technology. From the offering perspective to customers, the initial offering that we have and which we are deploying and now successfully converting POCs to actual deals was more, I would say, add-ons on top system, some agents in the call center for care and for commerce and things like these type of capabilities, which now we are doing with many customers we mentioned and are pretty successful. The next, I would say, GenAI capabilities is what we discussed today, what we call Cognitive Core. The idea is to add a layer on the top of our BSS systems or the different one that we are supporting today and actually create a new model that can support agentic activity, agent to agent and actually completely disrupt and change the way we are running this operation today. Part of the investment that we discussed that we are going to accelerate this year is to build this layer. I think it's going to be -- it will take some time to deploy it. We believe it's going to be extremely exciting and give completely new capabilities to our customers in the agentic area. And we definitely believe that this will be another very important growth engine for Amdocs for the years to come. Timothy Horan: And do you have a rough idea when that will hit the market? Joshua Sheffer: Mid-'26. Operator: And our next question comes from the line of George Notter from Wolfe Research. George Notter: I guess I wanted to just probe the decision to kind of reallocate more capital into the business from an R&D perspective. I heard certainly what you said about building more agentic capability. I guess I'm just looking for sort of the puts and takes, right? You're implementing AI internally. You've been on a path of generating 60 or 70 basis points of efficiency each year. The coming year, it's going to be more like 20 basis points. Is that the amount of the investment, that incremental 50 or so basis points. Is that the right way to look at it? And -- or are there some other kind of growth factors we should look at? Tamar Dagim: Yes. Most of the margin story here is this intentional decision to invest more into this opportunity that we see as an exciting one. So at the same time, as you said, that we are continuing to enjoy the productivity gains. We do want to reinvest in making sure we are capturing this growth opportunity. It's not just R&D. It's also in the sales and marketing aspects, the go-to-market, how we are going to support and accelerate our coverage of the different opportunities in the pipeline. So I would say it's both. And definitely, we would like to see that keeping and accelerating the momentum we think we can bring on that aspect. We talked in the last 2 quarters about the fact that we are moving from proof of concept and feasibility to actual commercial deals. We continue to see that with the examples of Telefonica Germany we mentioned now and etisalat is much more mature and adding more and more use cases. PLDT as part of a large mega deal that we just signed is going to include adoption of our amAIz platform. So we are continuing to see more and more commercial pickup on that aspect and think that there's a great opportunity there. George Notter: Got it. Okay. And then also, I just wanted to ask about your conversations with customers. Obviously, the company prices its contracts, its businesses on outcomes, not billable hours times rate model. I get that. But I assume your customers do expect that you're using AI internally to improve efficiency. And I'm wondering if there's some expectation from customers to get better pricing or contract prices from you guys as part of that realization. I'd like to hear more about how those conversations are going. And at the moment of contracting with customers, are you seeing that pricing impact or pressure roll down on to Amdocs or not? Joshua Sheffer: So this is not new. I mean, yes, now I think the most discussed item is generative AI, but this -- we have the situation pretty much in every renewal situation. Over then, we changed technology, we moved to the cloud. So technology is evolving. Definitely, there is discussion like this with GenAI. What we are trying to do, obviously, is, a, our business model is, for the most part, as you mentioned, is outcome-based. So this is helping a bit. And I think what is more important that whenever we renew or sign a new agreement, we are doing a lot of effort very successfully to completely change the scope of the agreement by adding transformation to the cloud, generative AI capabilities and other automation and other products that we have. So yes, there is pressure. Customers expect to see savings. But as you mentioned, because we are not in a rate cut type of relationship as part of this discussion, on one hand, we show the customer efficiencies; on the other hand, we're expanding the scope of our activities. We're adding new products and new services and GenAI capabilities. So between the 2, I think we are doing a pretty good job in minimizing the impact. Tamar Dagim: And just to add on that, George, our offering is very rich. And typically, what happens is as we get into these dialogues with customers looking on their own on total cost of ownership, how they want to achieve this kind of savings or what benefits they're looking for in terms of improving customer experience and other pain points they have. So engaging in this dialogue, we have a lot of tools to go into this -- to go back to Shuky's point of mentioning additional scope. So we can take a bigger wallet share of what they need to invest in and give them the benefits that they're looking for. So it's not just a dialogue on, "Okay, what do we do for you right now and how are we pricing it moving forward?" It's a whole different dialogue that is emerging. And we've seen this quarter a lot of Managed Services expansion and extensions, and that has been part of this discussions. And as you can see, we're expanding the 12 months backlog beyond that. I feel very good about the fact that it's expanding our book of business beyond the 12 months that we are including in the backlog. So I think the method works. We can bring them that value while giving them the TCR reduction they're looking for and looking how to bring more and more of our offering to support their needs. Operator: [Operator Instructions] Our next question comes from the line of Tal Liani from Bank of America. Tal Liani: I have like 5 questions. So stop me when I'm going through too much. Cash flow is down next year. Why is it? And then I have -- I'm not asking the question in any order. Maybe I'll ask 2 at a time. But also the growth, if I take your midpoint on a constant currency basis, the growth is not showing much acceleration from this year. It's actually below -- slightly below Street expectations. What are the puts and takes in the growth because you also made the disclosure that T-Mobile is going to be down in 2026. So can you kind of elaborate on the good parts and the parts that are maybe more flattish and declining? I thought after some discontinuation of businesses, growth should somewhat accelerate from where we are or where we were? Tamar Dagim: Thanks, Tal. So I'll address the cash flow first. We ended the adjusted cash flow for 2025 of $735 million, but we started the year with exactly the same guidance range that we are starting now, $710 million to $730 million. We want to be appropriately conservative. So I don't see that as a cash flow decline. We are more or less at the same level. When we are looking into the question into the revenue growth, as you rightfully articulated, we are seeing, on the one hand, an amazing sales quarter, finishing 2025. Very happy about the deals we've signed. A lot of that momentum on the sales will contribute more into the second half of the year as it's naturally taking us more time to ramp up deals that we are capturing. So that's why we said that within the fiscal year '26, we will see a stronger second half growth. At the same time we see this positive aspect, we do see the pressure of lower discretionary spending in T-Mobile, and this is why we feel we want to be absolutely transparent about the decline we expect there. It is a major customer. I just want to give some context. T-Mobile has been a long-term relationship for us. We are supporting their billing activities across all their key brands, Magenta, MetroPCS, now UScellular. And this is obviously a core activity of what we do for them, and we are very focused on continuing to bring value. But at the same time, we need to acknowledge the fact that they are reducing some discretionary spend. So yes, there are positives, there are some negatives. But I believe that overall, looking on the sales activity and how strong we finished 2025, we feel good about our future. Tal Liani: Tamar, can you elaborate on your top 10 customers? That's number one. This is kind of -- you normally give this time of the year, you give the disclosure in the K, if you have the data. And then just on T-Mobile, they announced they made a disclosure that they are starting to transfer customers to a new billing system, and they made a few days ago. And the question is, is this kind of an end of a project? That's why revenues are going to be down? And is this normal for big transformational projects that at the end, you start to see a decline? When you say discretionary spending, it looks like things are being pushed out. And I'm wondering if it's really things that are being pushed out or being deprioritized versus the big contract that is basically done? Tamar Dagim: So Tal, to the point on the top customers, we are typically giving this information in our annual report that is coming out in December, and we'll do the same this year. I will just say that, as I mentioned on the prepared remarks, we are happy to see the customer diversification evolving in a positive way with more customers entering, I would say, the high thresholds of our business, including many international names that we've added, including relationship that a long time ago, were relatively small like Charter and are now a top customer. And we -- when we look into our relationship with T-Mobile, we cannot comment on the specific project or specific program plans, et cetera, on a single customer basis. But I can definitely tell you that we've taken all the reasonable assumptions in terms of the outcomes that we are seeing with relations to us into the guidance that we've given. So more to come, of course, in terms of what we can release moving forward. But I feel that we have taken everything we know as of today into the guidance. Tal Liani: Got it. Last question. I promised you 5 questions. So last question. You -- in the last year, you implemented AI in order to save -- to improve margins in order to reduce costs, and you've done it very successfully. And now you are talking about increased costs. Tell us about the margin trajectory, meaning on one hand, you are reducing expenses. On the other hand, you are spending more. What drives the increase in spend? And how soon could it translate into accelerated growth? Joshua Sheffer: Tal -- by the way, congratulations on the award, if we speak. The best way to tell it, if we did not have all the tools of capabilities we developed with generative AI in our software development life cycle, all the engineering activities in the company, including operation, in a year like this that we accelerate investment in developing our next generation, I would say, GenAI capabilities around the core system, you could see even a situation there is some pressure on the margin. The reason that we are able, on one hand to accelerate the investment in GenAI and still to generate maybe a moderate but still 20 basis points of increasing the margin is because we have all these capabilities that we develop and continue to see progress of actually doing everything much faster and better and with higher quality. Tal Liani: Got it. So if I take a step back for investors that are long term and looking at Amdocs as a kind of safe, relatively low-risk investment for the long term. The question that I'm asking is you've had tremendous success in the last 1 or 2 years with big projects with big customers, you are doing great in cloud. You're doing good. We start to see signs of GenAI. But the growth is still the same in a sense that even before you decided to discontinue some operations, you were growing between 3% to 4%. Now the guidance is for the same growth, maybe it accelerates second half, but we're still in the same neighborhood of growth. The question is, if you look out, without giving us guidance for growth, like specific guidance, but when you look out and you say where you want to position the company as a CEO a few years down the road, do you think that what you're doing today and your activity in cloud and your activity in GenAI, could it change the growth profile of the company? Meaning can you grow sustainably above the current 3% to 4% going into new markets and new TAMs? So sorry, it's a long-winded question, but I'm just trying to understand kind of the longer term, what you have in mind, the longer-term goals for the company in terms of growth. Joshua Sheffer: I think the answer will be shorter than the question. But I think in the last couple of years, the main growth engine for Amdocs was the cloud. In order for us to break this 3% and to go to a mid-single digit that we would like to be, we need more than one growth engine as big as it is, it's become already 30%. So we really believe that with the investments we do and with unique offering, we are going to have more than one significant growth engine like cloud, and we believe that what we develop right now in GenAI will be another one. And the answer to your question, I think in the mid, we established 2, 3 growth engines, then we can be there, and this is our intention. Operator: And our next question comes from the line of Shlomo Rosenbaum from Stifel. Adam Parrington: This is Adam, on for Shlomo. What is the organic constant currency growth implied in the guidance for fiscal 1Q '26 and full year '26? There's some commentary around some contribution from inorganic deal activity. If you could talk about that, please. Tamar Dagim: We expect to have roughly half coming from inorganic. When we started 2025 as well, we talked about some inorganic contribution and eventually, it was less than half of the growth. So we leave some flexibility for that, of course. And if you look back on the -- just on the type of deals we signed even this quarter in Q4, we already see direct relation to past acquisitions and the benefit it's bringing. So we feel this is a very important way for us to capture strategic growth opportunities, whether it's fiber -- some of those small deals that we've done in 2025 was around the fiber growth opportunity as an example. So we want that lever to stay open and contribute to the company. Adam Parrington: Okay. And the change in AI spend, where are you seeing customers put their budgets and capital? And how does that match up to the areas where you're stepping up investments in GenAI? Joshua Sheffer: So far, most of the investment we're building agents and use cases to support, as I said, to improve activities in the call center, both for our digital application, both for commerce and care. What we've built right now -- and by the way, the other thing we talked about is actually GenAI is all about data, so how to prepare the data to be available in real time to support the agents. What we are talking right now, it's a completely different scale. It's meaning that we are going to augment our core billing systems or core monetization system with the cognitive core layer that will, as I said, will allow agent to agent and all the capabilities of agentic options. This is a different scale of capabilities, which is relevant for every Amdocs customer everywhere. So we believe that from a scale perspective, it's much bigger from what we've done so far. Adam Parrington: Okay. And there was some commentary about some pressure from below-the-line items just on the modeling side. What areas specifically you're referring to and what's driving that? Tamar Dagim: Referring specifically to tax rates as we see more regulatory changes around the world, like the Pillar 2 minimum tax as well as other countries that are putting some new regulations. We elevated the effective tax rate range from 15% to 17%, to 16% to 19%. So that would be one point. And the other one is financing costs. As we are starting the year in the lower cash balance and continue to have plans to invest in some strategic growth areas, we will see some higher finance expense costs. So that's what we refer to as items below the operating income line. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Smith for any further remarks. Matthew Smith: Okay. Thanks, operator. Thanks, everyone, for joining the call tonight. If you've got any additional questions, please give us a call in the IR group here. And with that, have a great evening. Thanks a lot. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, everyone, and welcome to Proficient Auto Logistics Third Quarter Financial information. [Operator Instructions] Please note that this conference is being recorded. Now it's my pleasure to turn the call over to the Chief Financial Officer, Brad Wright. Please proceed. Bradley Wright: Good afternoon, everyone. I'm Brad Wright, Chief Financial Officer of Proficient Auto Logistics. Thanks for joining us on Proficient's Third Quarter 2025 Earnings Call. Under SEC rules, our Form 10-Q covering the 3- and 9-month periods ending September 30, 2025 and 2024, will include financial statements for both the predecessor accounting entity, Proficient Auto Transport and the successor entity Proficient Auto Logistics, Inc. We are not required to provide and the Form 10-Q will not contain pro forma financial data for the combined companies. Our earnings release provides comparative summary financial information for the third quarter of 2025 to the third quarter of 2024 for the company. It can be found under the Investor Relations section of our website at proficientautogistics.com. Our 10-Q when filed can also be found under the Investor Relations section of our website. During this call, we will be discussing certain forward-looking information. This information is based on our current expectations and is not a guarantee of future performance. I encourage you to review the cautionary statement in our earnings release describing factors that could cause actual results to differ from those expressed by our forward-looking statements. Further information can be found in our SEC filings. During this call, we may also refer to non-GAAP measures that include adjusted operating income, adjusted operating ratio, EBITDA and adjusted EBITDA. Please refer to the portions of our earnings release that provide reconciliations of those profitability measures to GAAP measures, such as operating earnings and earnings before income taxes. Joining me on today's call are Rick O'Dell, Proficient's Chairman and Chief Executive Officer; and Amy Rice, our President and Chief Operating Officer. We will provide a company update as well as an overview of the company's combined results for the third quarter. After our prepared remarks, we will open the call to questions. During the Q&A, please limit yourself to one question plus one follow-up. You may then get back into the queue if you have additional questions. Now I would like to introduce Rick O'Dell, who will provide the company update. Richard O'Dell: Well, thank you, Brad, and good afternoon, everyone. I'll start with an overview of our operations during the third quarter and some trends that provide insight into our expectations for the remainder of this year. First, as it relates to the third quarter, as we discussed in our last earnings call, July auto sales and deliveries were stronger than had been expected with SAAR finishing at 16.4 million units and while sequentially lower, consistent with seasonality. August and September SAAR were stronger year-over-year at an average of 16.3 million units driven in part by a surge in EV purchases ahead of the expiration of federal tax credits. Company revenue and unit volumes in the quarter largely followed these trends and were further bolstered by market share gains and the Brothers acquisition, finished up 21% and 25%, respectively, year-over-year for the quarter. The combined results nearly matched the revenue produced in the second quarter of this year and again, improved profitability sequentially and improved 250 basis points year-over-year, demonstrating continued momentum and operational improvements and strategic execution. From a market perspective, volatility in automotive manufacturing and purchase levels continues reflecting production disruption due to supply chain issues and economic impacts of the expiring EV tax credit, interest rate adjustments and tariffs. While automotive OEMs continue to face cost pressure from tariffs as widely reported in their Q3 earnings releases, PAL continues to provide critical infrastructure in the transportation supply chain and we have the ability to be nimble to serve customer needs as they make necessary shifts. The pricing environment is not as strong as we'd like to see, however, we continue to show discipline in our pursuit of new business and retention of incumbent business to ensure that our portfolio allows for sustainable profitability and reinvestment. We're confident that we can be successful in achieving growth and margin expansion despite complexities in the market. Looking to the fourth quarter, October SAAR slowed to 15.3 million, and we are feeling this softness on volumes. SAAR forecasts are for high 15 million to low 16 million range for the balance of this year and into next year with dealer inventory levels healthy, along with a favorable tax policy for qualifying car loan interest deductions, a high likelihood of continued interest rate reductions and average vehicle age above historical norms for replacement and a typical seasonal increase in buying at the end of the year, we're hopeful that volumes strengthened through the balance of the fourth quarter, but we expect a modestly lower revenue outcome than the third quarter, and we expect to achieve similar adjusted operating ratio and cash flow. With regard to profitability, as I referenced in the second quarter earnings call, we remain focused on controlling costs and advancing targeted cost savings initiatives and operating efficiencies that produce sustainable benefits. In the third quarter, we recognized a $1.9 million restructuring charge, representing approximately $0.06 per share which is primarily composed of onetime headcount and facility consolidation resulting from organizational realignment as well as fees associated with the consolidation of causality insurance coverage for all operating companies. In total, we expect to realize over $3 million in annual savings from the combined restructuring actions going forward though much of this begins in 2026. Note that under our new insurance program, we have a larger retention consistent with the company of our size, and there may be greater quarter-to-quarter volatility in the insurance and claims expense line going forward reflecting frequency and severity of any accidents and injuries that do occur. That being said, we do anticipate annual savings in our annual insurance expense. In addition to these items, we continue to leverage our national scale to drive cost synergies through our procurement efforts. While our now unified accounting and transportation management systems are increasingly providing visibility and actionable insights into our customer base, operational efficiency opportunities and profitability. As evidence of this continued progress sister hauls or load sharing between the merged companies grew to 11% of revenue in the quarter from 9% in the prior quarter, reducing empty miles and contributing to improved asset utilization. As we look ahead, we're well positioned to operate profitably with strong cash flow in the current environment and to respond quickly and efficiently when the market improves. The company will continue to protect its strong balance sheet position and advance our strategic objectives for continued margin expansion, market share gains and acquisitions. I'll now turn it back over to Brad to cover key financial highlights. Bradley Wright: Thank you, Rick. First, a few summary statistics and note that the contributions from ATG and Brothers are only reflected in periods since their acquisition by Proficient. Operating revenue of $114.3 million in the third quarter was 24.9% higher than in the third quarter of 2024. The adjusted operating ratio for the third quarter was 96.3%, an improvement of 250 basis points from the comparable quarter in 2024, which was 98.8%. Units delivered during the third quarter totaled 605,341, which is an increase of 21% compared to third quarter 2024. Revenue per unit excluding fuel surcharge, was approximately $173, up approximately 3% from the third quarter of 2024. Company deliveries were 36% of revenue this quarter, down slightly from 37% in the same quarter last year when revenue was much lower, which diminished the volume available for allocation to sub haulers. Our OEM contract business generated approximately 93% of total transportation revenue in the quarter, which is essentially unchanged from last quarter and reflects a continued lack of spot volume opportunities. Likewise, our dedicated fleet business generated $4.2 million of third quarter revenue, consistent with our expected run rate for the full year 2025. Building on Rick's comments about our expectations for fourth quarter revenue, we now foresee full year top line growth in a range of 10% to 12% compared to the combined company's 2024 total. The company has approximately $14.5 million in cash and equivalents on September 30, 2025, up from $13.6 million at the end of last quarter. Aggregate debt balances at the quarter end were approximately $79.2 million down $11 million from $90.2 million at the end of the second quarter. The resulting net debt of $64.7 million on September 30 of this year equates to 1.7x trailing 12 months adjusted EBITDA versus 2.2x at the end of last quarter. Free cash flow from operations represented by adjusted EBITDA less CapEx was approximately $11.5 million during the quarter, which allows for this meaningful reduction in our debt balances. While CapEx was light during the past quarter, we can reiterate our expectations stated in last quarter's earnings call that full year equipment CapEx will be approximately $10 million for 2025. Maintenance CapEx will likely grow from this level as our fleet expands. However, even with expected CapEx increases, we expect free cash flow yields of mid-teens to 20% return against our current market capitalization. Total common shares outstanding ended the quarter at 27.8 million, up slightly from 27.7 million last quarter as a result of vesting share grants. Operator, we will now take questions. Operator: [Operator Instructions] Our first question is from Tyler Brown with Raymond James. Patrick Brown: Brad, just some clarification just real quick. So you said revenues up 10% to 12% for the full year. Brad, is that on a $389 million pro forma base? Basically, is it about a little over $430 million for -- using the midpoint for 2025? Bradley Wright: Yes. It's off of the $388.8 million. Patrick Brown: $388.8 million. Okay. Perfect. And then flattish OR, is that what you said, Rick, sequentially. Richard O'Dell: Yes. Patrick Brown: Into Q4. Okay. Okay. Perfect. And then I was hoping, could we get a quick update on where we are on systems. I think that you guys had made the full conversion on the accounting system, but are we fully transitioned on the TMS across all the 7 opcos? Amy Rice: Yes, we are. Patrick Brown: You are. And then how is that unified operating platform? Can you talk about how that visibility is helping with those sister hauls? I think you said it was 11% of revenue, up from 9%. But just big picture, Amy, I mean, where can that number go longer term? Amy Rice: We see that number continuing to rise. In the early stages, we're using that largely as a proxy for filling empty miles. But as our assets become more fluid and flexible across the network, I would expect that sister haul volume to rise, whether it's representing filling empty miles or not. So that the additional visibility in the system is very helpful to being able to act more quickly and there's opportunity for additional technology overlay for dispatch optimization and some of those capabilities as we look forward. Patrick Brown: Okay. And then just real quick here. Just -- sorry, just a couple of other ones. But just, Rick, you mentioned last quarter that there were a number of OEM contracts that have been -- that were coming up this quarter. I'm just curious how you fared in those RFPs. Richard O'Dell: Yes, go ahead, Amy. Amy Rice: Yes. We still have a number of OEM contracts that are awaiting awards and sort of in the process of being resolved. We've not made any results that are material to overall revenues, and we commit to share anything that is of a materiality threshold. There is, as we've shared with pricing, we will work to retain profitable volume only to the point that it makes sense for our portfolio. So we have had some experience of letting some volume go to price points that are not attractive to us. We are, however, continuing to pick up some new lanes and new opportunities in some of these contracts, but they've been smaller more recently. Patrick Brown: Okay. And just my last one, I promise. But -- and I know '26 is a ways away. But -- there are a few moving pieces that roll into '26. I mean I think you've got some old Jack Cooper business that kind of is still incremental. Brothers, I believe, is incremental. But Brad, is there a reason that assuming that SAAR is flat into '26 that revenue couldn't be up maybe high single digits. Is that a crazy assumption? Bradley Wright: I don't think that's a crazy assumption, Tyler. We will pick up, as you point out, some incremental revenue for a full year of Brothers. And so that helps. It's -- we're still in the process of doing our 2026 plan, and we'll give you some more specifics on our next call. But I think that's not a crazy assumption. Richard O'Dell: Tyler, I would just add to that while, again, we're still in our '26 planning progress, we do -- we have kind of established a target to improve our operating ratio by at least 150 basis points in 2026 over the 2025 results. Operator: Our next question comes from Ryan Merkel with William Blair. Ryan Merkel: I wanted to ask on October just to get a little more specific what was the year-over-year increase in revenue for October? And then just clarify, it sounded like you thought November and December, the growth could pick up a bit from October. Did I hear that right? Amy Rice: Yes. So for October, I'll give you the pieces in there. We had Brothers this year, we had the incremental market share gains this year, neither of which were in the comps from last year. And then on just the base market, I would say it was slightly improved from where October was last year. In terms of November and December, typically, seasonally, there is an end of year purchase pattern and pushing up inventory to clear out the 2025 model and bring in 2026 inventory. We're seeing a bit of sluggishness in the current market as it stands in early November. So we are still, as we said, hopeful that we see that uptick seasonally, but we are not experiencing it in the current market. Ryan Merkel: Got it. Okay. And then the ARPU was still down year-over-year for the company deliveries, so -- and then in the press release, you mentioned there's still excess supply. I realize that's a near-term problem. But how should we think about pricing in the next couple of quarters? Do you think we've bottomed here? Or might there still be a little more pressure? Amy Rice: So I'll take that in 2 ways, Ryan. One is how we are experiencing pricing on bids that are coming up for renewal. The other is really the RPU trends quarter-to-quarter and how that may change. As we shared pricing dynamics on new contracts are pretty weak right now. We would like to see a more constructive market for pricing with supply and demand a bit more imbalanced. From an RPU perspective, though, we would expect largely stable RPU. The big changes that we saw in some of the quarters previously, we're cycling the declines in the dedicated product cycling the declines in the spot market. So those 2 things had a really material impact on RPU year-over-year. We are stabilizing now, and you should expect to see more consistent RPU year-over-year just with any impact from mix change within the portfolio. Ryan Merkel: Got it. Okay. That's helpful. And I'll slip in one more. Rick, you said that the dealer inventory was healthy so should I take that to mean that they're fairly lean levels, you feel comfortable? And I realize it's a moving target, but is that something you feel good about as you enter 4Q? Richard O'Dell: Yes. Yes, we don't perceive the inventories to be in excess. SAAR has been strong. Operator: Our next question comes from Alex Paris with Barrington Research. Alexander Paris: Congrats on a strong quarter. Just to be clear on the Q4 guide, so to speak. You said 10% to 12% Brad, I think, for the full year, that would suggest Q4 revenues of somewhere between $103 million and $110 million or so. Still strong growth year-over-year, like the -- maybe not quite as high as Q3 year-over-year. But I'm wondering where is the strength coming from? I think last quarter, you talked about several buckets. The acquisitions of Brothers, Jack Cooper market share gains, organic growth, how would you allocate the importance of those buckets to the revenue growth of 25% in the quarter just ended and the unit growth of 21%? Bradley Wright: Well, I think it's not unlike the second quarter. We still are having the same benefit, roughly the same amount of revenue from both of those 2 components, the Brothers and the new GM revenue. And with revenue essentially flat quarter-over-quarter, I think you could apply the same metrics. Alexander Paris: Got you. And then just a follow-up question on free cash flow. You said it was adjusted EBITDA minus CapEx, $11.5 million in the quarter. And I think you said on the last call, $30 million to $40 million of free cash flow for the full year. Is that still a reasonable target? Or it seems like it's running a little hotter than that right now. Bradley Wright: It is. If you -- I was using kind of a run rate last quarter, certainly annualizing this one gets you a little -- get you a higher, probably closer to $35 million. Alexander Paris: Okay. And then on that basis, by far, you generate on a free cash flow yield basis more than any other company in the group, whether truckload or LTL. And a free cash flow yield approaching 20% when the next closest is 5% or 6%, which would support a significantly higher stock price. And that's enabling you to reduce debt at a pretty aggressive rate. Is it just a matter of you're a new company, you're a small company? What's it going to take to get the market to recognize this free cash flow characteristic. Bradley Wright: Well, listen, when we talk to a lot of investors, and I think most of them appreciate the fact that the business is kind of an outsized cash flow return. When we start working off some of these other depreciation levels, amortization and that starts coming through as GAAP operating earnings, maybe that wakes other people up. But I don't know, Alex, it's -- we're as flummoxed by it as you are. Alexander Paris: And then I guess last one, m&A pipeline. It seems that you have the 7 companies fully integrated. Is there more cost takeout potential there? And then what does the new M&A pipeline look like? Are you still pretty active there, particularly with this free cash flow generation. Richard O'Dell: Yes. I mean we're always pursuing incremental efficiencies. And I think we've demonstrated or we're in the process of demonstrating kind of a cadence of regular improvements, validating our execution and our strategy and that strategy does include a combination of organic growth opportunities, supplemented by selective tuck-in acquisitions. And we have a pretty robust pipeline of opportunities. And obviously, with our strong cash flow, we've got the capability to fund that. And we would expect to continue on our target of 1 to 2 tuck-in type acquisitions a year as we proceed in 2026. Operator: Our last question comes from the line of Bruce Chan with Stifel. Andrew Baxter Cox: This is Andrew Cox on for Bruce. Building upon the cash generation discussion prior. Just kind of wanted to talk a little bit about CapEx and cash flow expectations moving through the end of the year and into 2025. You guys said in the prepared remarks that you do expect CapEx to move higher after this year and really appreciate the full year reiteration of the CapEx guide. But kind of wanted to get an expectation of your CapEx into 2026 and beyond. Is -- are there any additional CapEx needs to meet higher volumes if they should come sometime next year. And how do you plan to deploy free cash flow beyond CapEx next year? Bradley Wright: Thanks, Andrew. I think, look, CapEx at $10 million is probably kind of at the bottom of the range. But having said that, we've got fleet capacity that could support this kind of a market absent big gains in contract share. And so we'll have to kind of adjust as we go through the year. But the comment in the prepared remarks was just that we do expect that as our fleet grows, we intend to keep the average age at around 5 years. And that's just going to mean that CapEx by definition, has to go up a little bit. And so maybe $15 million a year might be more normal or even as high as $20 million as we continue to grow. But with the cash flow generation that we've been talking about, that still yields a mid- to high teens return on market cap, at least at today's market cap. So I wouldn't expect -- we're still working on the CapEx plan along with our full budget for 2026, but I wouldn't expect a much higher commitment to CapEx during '26 unless as again, the market changes, and we see big needs for addressing some contract gains. Andrew Baxter Cox: Okay. That's really helpful. Every trucking executive team this earnings season has been asked a question about the changes to whether it be non-domiciled CDLs or the enforcement of the English language proficiency. Just kind of wanted to see if you guys have any sense on the impact of maybe these supply changes could have on the auto hauler capacity. Anything on the regulatory side? We would expect that it would have much less impact than dry van, but just any insight you guys have to help us try to model that in would be really helpful. Amy Rice: Sure. So I mean, of course, we saw today that the interim rule was stayed for now on the non-domiciled CDL front. So we will continue to watch and see how that plays out through the appellate process. But assuming that interim rule does go forward in something substantially similar to what has been proposed, we do think there's a pretty material impact on trucking overall. It is not a material impact that we would expect to Proficient per se as our company's driver population is not impacted in a large way. But we would think for the auto hauler segment, that would hit more closely for smaller carriers potentially sub haulers and there are some niche players in the industry that have a driver composition that it's more likely heavily and/or majority impacted by the non-domiciled CDL interim rule proposed. It is certainly more of an impact on that front than the English language proficiency front. Andrew Baxter Cox: Okay. Amy, that's really helpful as well. If I can sneak one more in here. Just kind of double-clicking on the mix benefit or just benefit at all that you had from the potential pull forward of EV demand prior to the expiration of the tax credits this quarter. Maybe it might be best if you guys have this offhand or if you guys can help us understand like what percentage of the units in 3Q were electric vehicles, maybe compare that to the year prior or the quarter prior. Just trying to understand what sort of impact this pull forward may have had on the quarterly results. Amy Rice: Yes. So I'll come at that in a slightly different way. We don't actually track our volume on the basis of internal combustion engine versus EV vehicles. But the impact to us is that the EV vehicles are a heavier weight so you can get fewer of them on a given truck. So where you'd expect to see some impact is potentially a lower load factor per truck, but that's often and we seek to ensure compensation around EVs so that the lower load factor is offset in higher revenue on those units. Andrew Baxter Cox: Right. Okay. I just -- I mean should we believe that the revenue per unit impact this quarter, was it at all impacted by mix changes to the EV side? Amy Rice: I don't think so. Richard O'Dell: Minimally. Bradley Wright: Yes. Minimally. Operator: We have a follow-up from the line of Tyler Brown with Raymond James. Patrick Brown: I appreciate you guys actually answered my follow-up on non-domiciled. That was very helpful, Amy. But since I've got you, real quick, I think, Brad, you mentioned last quarter that 3 of the 7 opcos were running 90 or better. Can you chalk up 1 or 2 more this quarter? And then on the opcos, the other ones that are not running at 90 or better, they've got to be running just mathematically, call it, 100 or more. And if you were to build the bridge between where they're operating and some of the 90 or better opcos, what are the kind of 2 or 3 key things that really differentiate there on the P&L? Bradley Wright: So several things there, Tyler. One, the count on those at 90 or better hasn't really changed this quarter versus last quarter. But I would say more generally that there has been a pretty broad improvement across almost all of the opcos, and that has come on constant revenue. So we are seeing incremental gains even if small, but on flat revenue. In terms of your observation that others would have to be over 100, we don't have that in a pervasive way, but we've got a couple of opcos with -- that are experiencing lower volumes that are at or a little above 100, and that is mostly a revenue issue. We have dealt with a lot of the cost issues through this consolidation effort and the reorganization that we talked about. And so I think that will help in the go forward even for those entities and then pushing some extra revenue through whether that's wins on contracts or whatever it may be, we will take care of the difference. That's the path really. Patrick Brown: Okay. So it's not a fundamental cost structure issue. It sounds like it's a little bit of price, a little bit of volume would go a long way. Bradley Wright: Yes. Amy Rice: Yes. Patrick Brown: Okay. And then did you give the spot mix? That's my last question. Bradley Wright: We -- I don't know that we did, but similar to last quarter, it was at or a little below 3%. Operator: And with that, ladies and gentlemen, we conclude our Q&A session. I will turn it back to Rick O'Dell for final comments. Richard O'Dell: Well, thank you for your interest in Proficient Auto Logistics. We're pleased with the progress that we've made in the first 18 months of our endeavor as a public entity. And most importantly, never satisfied with the absolute results and clearly optimistic about our ability to continue to execute and progress our operating margins. Thank you again for your interest. Operator: And ladies and gentlemen, this concludes our conference. Thank you for your participation. You may now disconnect.
Operator: Welcome to the Grown Rogue Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions]. As a reminder, during the course of this conference call, Grown Rogue's management may make forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. The risks are outlined in the Risk Factors section of the company's filings and disclosure materials. Any forward-looking statements should be considered in light of these factors. Please note that the safe harbor and the outlook presented speaks as of today, and Grown Rogue's management does not undertake any obligation to revise any forward-looking statements in the future. This call will also reference non-IFRS financial measures, including adjusted EBITDA. These measures do not have any standardized definition under IFRS and may have -- may not be comparable to those used by other companies. They are provided as supplemental information to evaluate the company's core operating performance and should be viewed alongside IFRS results. I'll now turn the call over to Obie Strickler, Chief Executive Officer of Grown Rogue. Thank you. Please go ahead. J. Strickler: Thank you very much. And thanks, everyone, for joining today. I appreciate all of you taking time out of your busy day to learn more about our business as we talk about Q3. It would be [indiscernible] of me not to start today, I think, with the recent regulatory change on hemp. I think there's a lot of polarization when it comes to the -- that topic, I think, regardless of your position whether it was a loophole or not, whether you think it should have passed or not, this, what I consider unexpected change in the regulatory structure there certainly reflects the volatility and uncertainty that we face every day in this industry. But I think it's important to remember, it's this volatility that creates so much turmoil and risk that if navigated properly is going to result in significant reward for the winners. And I couldn't be more excited, more confident in the ability of Grown Rogue to win and to win big because we continue to navigate and kind of expand our platform inside of this industry. So I think that's how I wanted to start today's call with really talking about how we think about winning in this industry and what that looks like. At the core for us, it always starts with our people. We had recently -- I think, it's our fourth Annual Leadership Summit in Oregon. It's where we bring like the entire team together, kind of like the senior management from each of our states. We've got kind of a diverse group that lives in different parts of the country. That is the one time a year where we get everyone in the same room. And what was so kind of important and kind of awesome for me to experience during this time was kind of watching the integration of what I like to call the OGs, like the original kind of group that's been with us for 4, 5, 6 years. One of the personal people on our team has been with us since we started coupled with the new folks that we've been bringing in as we've embarked on this kind of growth platform, kind of bolster our abilities and help us execute on this next phase of growth. I can't stress enough the importance of team and how critical that is to good operations, good culture, lack of drama, lack of bureaucracy. And the focus Grown Rogue, myself and the rest of the team put on that from leadership all the way down to the people working inside [indiscernible]. We'll continue to invest and focus on our team as a critical path what we think will be 1 of the core principles of companies that are going to win and win long term in the space. The next thing we think about a lot is the controllables. There's a lot of things in life, in this industry that we don't control. And then there's the things that we have a significant amount of control over. In our business, that really comes down to kind of the two most important things, and it relates to production, which is yield on cost. I think you'll see from the press release we put out that has some of the KPIs, both Michigan and Oregon had incredible production cost this quarter. And I think, what, $368 and $348, respectively. And I want to remind everyone, this is an all-in 4-wall cost, right? This is not just COGS, like typical companies will report. Our business is really focused on cash generation. And so we look at true cash cost. What does it take for us to grow it, sell it, get it out the door, get it into customers' hands. I mentioned this, I think, on the last conference call, I think we've even beat what we were doing previously this quarter in terms of cost control. But if you look at a true definition of COGS, for indoor production as the quality that we put out, we're probably sitting somewhere less than $200, which is pretty fantastic for cost of production. Yields are also up. We're pushing 75 grams a square foot of full flower, which is almost a 20% improvement year-over-year. We believe effectively, we're one of the leading indoor producers in the U.S. that combines this amazing quality, coupled with the yield and industry-leading cost of production. It's this fact, coupled with others, but this is probably one of the most important components that positions us as well as any company, we think, in the space to continue to expand our portfolio into new states in a very kind of cost efficient and profitable manner. The next big thing for us, and you've heard Grown Rogue talk about this consistently year after year after year is focus. Staying core to our flower forward approach, not losing our low cost and quality focus. It gets increasingly difficult, especially as the industry continues to evolve because there's lots of things to chase. And our focus is going to be one of the big differentiators. And while people may say, you're not going fast enough, you're not doing enough things. We're very committed to doing a smaller number of things very good. We want to be excellent at what we want to do and not get kind of overextended or too spread out what we do. We take the mantra that simplicity is the true form of mastery, and we're going to continue to execute against that plan as we continue to go forward. Next big thing on our list is balance sheet. Obviously, we've seen a lot of distress and a healthy balance sheet to not getting overextended as critical. We have done and we'll continue to do a great job at managing the balance sheet. Important to remind everyone that we upsized our credit facility in September, adding another $5 million. We're now sitting at a $12 million credit facility at a sub 8% interest rate. I think our newest tranche was somewhere in the range of 7.5%. Again, positions us very well for our immediate development goals, and we have a very healthy cash balance coming out of Q3 with a little over $13 million in the bank. All of those pieces is what drives us into the exciting part of our industry, which is growth. And once you have those core components I just mentioned, it's all about how you maintain them and use them to continue to grow the platform. Our expansion into New Jersey has gone extremely well. It's been a little bit slower than we all hoped, but it's definitely solidified in my mind, our ability to transfer our expertise into new markets in a successful way, not only with our systems, but ability to produce quality products that customers love and they keep coming back, the customer. That's where the focus is at our ability to give them products that they're happy about at the right price. And we happen to earn it in Jersey. We expect that market to be a little bit more seamless but the benefit of like that brand loyalty, earning customers and their loyalty in order -- turned into a fairly competitive market is amazing. And I don't know if people saw -- I think it was in the press release, but big kudos to our team. We won two awards recently at the Best-in-Grass competition, 1 for flower and 1 for pre-rolls. So again, solidifying ourselves as a big player in that market, continuing to expand and build out Phase 2. I'm very excited about kind of the position where we sit inside of New Jersey. And this is ultimately why we're so excited about Minnesota right now. Josh will speak a little bit later more directly to some of these things, but we definitely believe Minnesota offers 1 of the most compelling opportunities in front of us. And it's -- honestly, where we're going to put most of our immediate focus and the balance sheet kind of component that we have over the coming year. We're not going to get crazy. We're going to continue to build projects the Grown Rogue way, starting with about 10,000 square feet of canopy in this Phase I kind of production. I think it is important to remind people that in Minnesota because of our license type and then the building that we have under contract, it would allow us to double our canopy size from our typical kind of 15,000 square feet that we have in Oregon, Michigan, and where New Jersey will sit when it's fully built out, up to 30,000 square feet. It just gives us a lot more flexibility and kind of opportunity to lean into that market if we feel that the demand and the opportunity sits there. We definitely believe being an early mover in Minnesota is going to be critical. We talked a lot about surplus profits and those versus what we consider kind of a more sustainable profit stream, and we think Minnesota has the potential to generate considerable surface profits in the early years. And so we're excited about taking advantage of that. The other thing we're continuing to get closer and closer and this kind of gets away from less part of the controllable piece, as I talked about earlier but the distress that we've been talking about for the last 3, 4 months. We keep getting closer to some of these moving down the path. There's a lot of different parties involved, and so it makes it a little bit harder for us to kind of wrap our arms around the specifics, but definitely seeing some of these, I think, get much closer to the finish line. And I think, taking advantage of some of these distressed opportunities to kind of augment our new project and new market build is just only going to increase our scale and our reach and our financial returns as we look again to expand the portfolio from 3 current states into 5, into 7. And so Josh will talk more about some of the distress he's been leading along that for us as I think most of you are aware, but very excited about that portion of the business opportunity in front of us as well. Switching gears a little bit, I think it's time to -- and I want to touch a little bit on our renewed focus on the brand. Our history in Oregon, when Sarah and I first started the company, God, going all the way back to like the medical days in 2005, 2006. But even when we first started Grown Rogue, in 2016, it was always about consistent quality of product, like first for ourselves then our medical patients and then consumers, but it was always just about good weed. Like that was what the core focus, it was to be reliable, it would be consistent. That was really what got us into this industry in the first place. It was never about building this company. It was never about building a brand. We just wanted great reliable flower. This ethos was how we started it was the initial building block of how we started Grown Rogue where we really focused on product quality, we focused on cost control, and that resulted in a very kind of sales-first sales-driven culture. This was coupled with the fact, as many of you know, Oregon is essentially a 100% deli-style market, not as great for brand development, fantastic for the consumer, they get to see it, they get to smell it if they want. There's a lot more interaction, and so you make sure what you're buying, you're very comfortable with. And there's a similar market in Michigan. Michigan has a little bit more packaging component, but still the bulk of flower sold in Michigan is deli style. And so branding is important, but it's not been as critical in some of these markets. But obviously, with kind of the focus and the -- where the organization is heading, realizing with the foundation we have, how important brand has become to the story and winning the hearts and minds of consumers long term. And this is very interesting because in New Jersey, it's essentially the opposite. I think right now, I mean, Michigan is probably 80% bulk, 20% package. Oregon is probably somewhere in that range. Jersey is the opposite? I mean our goal in Jersey is to be 100% package. Right now, we're probably 80% package, 20% kind of bulk flower sales. And what we've realized over the years, especially if you move into some of these markets is best flower competes with anyone, even the more recognized routes that you'll hear in the markets or in the news. And as we think about how we compete and the long-term value of what we're trying to establish in the industry with our foundation set, low cost, great yield, great culture, our company is definitely going to be investing more heavily, focusing more on building the brand and our brand equity. This doesn't mean we're turning into a marketing engine, right? Like we're going to do this the Grown Rogue way. We're not going to be spending tons of money on marketing and fancy agencies and all these types of things. Like again, we'll do it Grown Rogue way with an emphasis on the consumer, more exciting packaging offerings, better customer engagement with our retail partners. We're building a brand new and revised website that is much more consumer-focused. I invite people on this call. It should be launched in the next week or two. Much more focused on our packaging, some of the strain specific stuff we're doing that is getting very, very good reviews in both Michigan and about to roll out some of that stuff in Jersey, the different products that we offer in our portfolio now. So pretty excited about that piece of it. The other area we're spending some time on in our core markets is product extension. And this isn't to get away from our focus. This is just effectively the ability to broaden our product offering inside of the markets that we operate. And some of this is being driven by the pressure, we see in like Oregon. I mean pricing is difficult. We see pressure across the space, but we've also navigated several of these over the last 15 years, as you see these pricing cycles kind of come and go. And they put a ton of pressure on every business, Grown Rogue included. But I can't just stress that during this distress, during these periods of pain where you really have to lean in. I mean this is where we make our most significant strides in terms of improvements, not only inside the business, but it also gives us opportunity outside of the business as we work with our partners and our customers to grab more share. I coined the term a few years ago with our internal team, we're going to meet pressure with force. And we see pricing pressure, we meet it with force, we meet it with better cost control, better yields, maybe more products. And it's something that we're doing across all aspects of the business. Again, you'll see that in lower costs, better yields, new products come into the market. Most of our R&D work happens in Oregon. It's one of the reasons we like the state. It's got a really kind of advanced experienced consumer. It's also the state where we have probably the strongest talent in terms of just operational efficiencies and the resources and the infrastructure to support kind of new product ideation. We relaunched pre-rolls in Oregon about 18 months ago. I think we're already a top 5 brand in the state between the 2 brands that we have, which is pretty spectacular and a very strong and mature market to come in with a brand-new product. And I think it goes to the team, the efficiency, but also the loyalty that we have across this state in terms of the brand presence. We launched our first infused pre-roll. I think I mentioned that on the conference call a few months ago, and that's gone really, really well. We're slowly starting to build kind of the scale and the size of that thinking about some different offerings we can bring in terms of how we build out our infused pre-roll business. And then the team has been working on our first vape cartridge that should come out later this year. And so just looking at ways that we can expand the business through non-expensive capital allocation to take advantage of kind of the platform we have. These are not huge endeavors by our team, but really just incremental improvements in our production capabilities, capitalizing on the brand reputation we have with our retailers and customers and then really taking advantage of our already established sales and distribution channels. And we have sales networks in all these states. We have teams that cover the entire market. We have customers that are looking for more reliable and better products. And so these are things that are kind of right in our knitting. Once we kind of fine-tune these in Oregon, we then look to roll them out across our markets, probably starting with Michigan, soon to come to New Jersey and then other states as we turn them on. I then wanted to shift to a couple of the kind of the KPIs in our press release. I've kind of talked about and sprinkle those in throughout this kind of monologue here. Production-wise, very strong yield improvements, most notably in Oregon, which we had a 23% yield improvement year-over-year. Most importantly, the 21% A flower kind of improvement year-over-year we definitely have some room to improve in New Jersey. I think New Jersey is down, i.e., 50s, low 60s in terms of yields, which really shows you like, a, what we do is hard, even with our expertise, like you don't just start a new state and instantly up to the level of quality that we have in the markets we go operate in for years. I think that helps us with our moats and understanding that something we're really good at, it's still hard to like just get right, right out of the gate. But excited about the opportunity that sits there as we kind of get the team trained up, get the systems fully entrenched, get our strain selection right but it bodes well for continued improved financial performance. Not only as we build out Phase II when we just bring more square footage online, but there's considerable room for additional yield based upon maximizing the current square footage that we're operating in. Pro forma revenue was up 26% year-over-year, mostly through to the contribution from New Jersey. We continue to see pricing pressure in Oregon and Michigan, which is no surprise. We're not predicting any kind of changes, but I want to remind people, we've been through these cycles before, there is changes, and we expect it to recover and shift back upwards in a positive direction. But again, that's why we're so focused on price control, cost control. We're prepared to combat these markets for as long as it takes before you see some of that supply-demand imbalance kind of correct itself. Particularly excited about Michigan. We had a couple of rough quarters there. Some of that was price compression. Some of that was self-inflicted as we've talked about over the last few months around just -- we're not perfect. We make mistakes. We get caught up in other things that take our attention. And when you see those things, it's always good, just brings us back to the core, like where do we want to focus, how do we get in, how do we correct things? And seeing Michigan get back up above $1 million of EBITDA was really kind of encouraging. Same price, still down a little bit, but starting to stabilize is exciting. We've been making some capital improvements in there. But I think we'll continue to help with yield. We also expect them to be producing more product coming out of that market as this year ends and gets into 2026. On the flip side, Oregon was a tough quarter. [indiscernible] to laugh at it, but it just never surprises me just how hard these markets are. I mean there's a d**** knife fight every day. So a little disappointed in Oregon this quarter. Very happy with the controllables, but again, disappointed with kind of the pricing environment. Some of this was kind of exacerbated by like getting rid of some old inventory, things like that. Typical companies would do like a deduction or an add-back, like that's not the game we play. Like we had old inventory, we sold it affected price a little bit. But we've seen a nice recovery in October. And so we're optimistic for a strong Q4 as we look at Oregon kind of individually. Long term, the goal, I think, for the organization. I've been talking to our GMs about this is we need these kind of mature states to be in the $12 million run rate, $1 million a month, hopefully pushing up a little bit more than pricings better and having kind of long-term sustainable EBITDA in that $4 million range. I mean that's kind of the objective. That's the goal. Those are averages, things are going to get up and down from that a little bit. But we think these are markets that should have long-term kind of sustainability in those range. And we're going to keep pushing the team finding areas to be more efficient, seeing opportunities to expand our kind of product offering and then obviously, on the noncontrolled side, there will be a recovery in price at some point as we go through these kind of pendulum swings in the cycle. And so that's it for me. I'm going to hand it over to Josh, who is going to talk a bit about kind of capital allocation, what we're prioritizing right now. And then obviously, he's been the primary lead in our distress and all the different opportunities that we're kind of evaluating that would be kind of -- additional opportunities for the company as we continue our growth. So Josh, the floor is yours. Joshua Rosen: All right. Thanks, Obie. As Obie referenced, I'm going to talk about capital allocation and then weave that into how we're thinking about distress as part of our overall growth plans. We believe we have a multifaceted growth platform with our flower production capabilities. I often refer to this as the engine of the industry. In addition to the product expansion opportunities that will be referenced, which does represent our most capital-efficient growth driver. The more significant growth drivers continue to tie to new market expansion, which can take the form of the organic new builds like New Jersey or acquiring fixer uppers for us, the fixer-upper theme currently maps to our focus on distress. So building new cultivation facilities is 1 of the most capital-intensive parts of the industry. It's also where many of our peers have gotten sideways with the lack of discipline on cost containment and overbuilding and most often not being prepared for eventual price normalization. We're going to keep looking for opportunities for us to build new facilities in markets we believe are undersupplied when it comes to affordable quality flower. New Jersey being the prime example of this. And we previously highlighted that Illinois was going to be our next new build. Based upon our internal analysis and experience, we've pivoted to prioritizing Minnesota over Illinois when it comes to deploying capital into a new build. I wanted to provide the context on this decision. To start, we have great familiarity with the Minnesota market, including our experience, helping turn around Vireo and Grown Rogue's advisory work, which was specifically focused on Minnesota and Maryland. Our core price area for supporting new builds relates to being confident the market is undersupplied affordable quality flower. Although we don't underwrite our projects based upon a permanent undersupply, we do factor the anticipated supply/demand imbalances into our risk assessment and overall expected cash returns. In Minnesota's case, we're excited enough about the opportunity, as Obie referenced, to focus our real estate strategy of having the flexibility to scale in some more capacity than the typical Grown Rogue build out, in this case, the degree of about 2x. As Obie referenced, maximum allowable canopy for a cultivation license in Minnesota is 30,000 square feet. To be clear, we're not planning to build this immediately nor are we necessarily going to build it, but we search for a property that would allow for it. Our planned starting point for Phase 1 is approximately 10,000 square feet of bench canopy space, and we currently anticipate having product available early in 2027, and are doing everything in our power to try to accelerate that time line. Importantly, our preferred property received its conditional use permit yesterday. So we had some good news. This prioritization in Minnesota doesn't imply that we're not going to build out Illinois. We have the flexibility with a favorable lease to [indiscernible] our capital expenditures at Illinois. Sometimes we need to make tough decisions about optimizing our capital allocation based upon available capital, maintaining a prudent balance sheet and managing our internal bandwidth. It's also worth noting that we're currently evaluating a couple of compelling fixer-upper or distressed opportunities in Illinois that could support a slower approach to deploying more meaningful capital in this market. These fixer-uppers might provide us an opportunity to materially increase our speed to market while also materially decreasing our near-term capital needs. Should this materialize at a minimum, we think it helps derisk our planned CapEx in Illinois. Turning to distress more formally. On our last earnings call, I highlighted a confluence of factors creating a window of opportunity to evaluate distressed assets, and we remain highly active. Our work includes recently submitted multiple nonbinding LOIs and ongoing follow-ups with bankers, receivers, landlords and restructuring officers as they work through their processes. It has become abundantly clear that there are not many companies positioned like ours. Most other potential buyers and distressed assets are heavily focused on retail, and are on a much narrower set of states. I also want to repeat that while we are unable to commit to specific time lines or size, we would be disappointed that these opportunities are not a meaningful contributor to our growth within the next several quarters. These processes take time and the 1 anecdote that I'll share is that of the opportunities we're most excited about, none of them is traded away from us yet. They are a slog from the process and patience standpoint and will stay disciplined. One last mention for me, and it's likely less relevant after the recent news out of the federal government, and Obie referenced this at the outset, but it's still useful for folks to understand how we evaluate risks and opportunities. We believe the ambiguity around hemp laws, plus maybe a little bit less ambiguity now. And particularly for us, the THEA flower world, it can help us to better understand that emerging market, both as a competitive threat and as a potential opportunity. We believe our core competency, the low-cost production of craft quality flower, transcends regulatory regimes, and we want to ensure we are positioned long term to capitalize on our capabilities. So we recently started a very deliberate collaborative exploration to learn more about this market. Importantly, anything we do in this arena would be very capital light with commensurate low expectations on being a material contributor anytime soon. And obviously, with the more recent news, we will pay very close attention. Before turning it over to Andrew, I simply wanted to remind investors that we remain anchored on very high return hurdles when it comes to deploying capital. We've articulated this as targeting $0.75 of sustainable annualized EBITDA for every dollar deployed. This distressed opportunities we're evaluating very much fit this profile based on conversations, we believe we have a supportive investor base that's excited about our focus on distress and should something on the larger side materialize, I'm confident that the compelling return profile will speak for itself in terms of allowing us to access any needed incremental funds. Hopefully, we can start talking more tangibly about these things shortly. Now over to Andrew. Andrew Marchington: Thanks, Josh. First off, I'd like to remind everybody, as we have before, that our investment in ABCO Garden State is currently accounted for under as an equity method investment, which is why we report ABCO's revenue and EBITDA and our pro forma metrics as though it were consolidated. Under IFRS, the majority of cash flows from ABCO are reported in investing activities on the cash flow statement as the investments sit on those receivable on the Grown Rogue balance sheet. While we don't report a pro forma cash flow, we are pleased to report that ABCO generated $1.2 million in cash flow from operations for the third quarter of 2025. Moving to year-end 2025, we are in the midst of converting from IFRS to U.S. GAAP. And this will result in consolidation of ABCO Garden State, which we believe results in a simpler and easier to understand barometer of the economic benefit ABCO provides to Grown Rogue as its full revenue, EBITDA and cash flow will be consolidated into our results. To be clear, this means that when we report our fourth quarter and full year 2025 results, ABCO's results will be consolidated in those results for the full fourth quarter and full year of 2025. With that, I'll turn it back over to Obie to conclude. J. Strickler: Yes. Thanks, guys. I think we're -- think of anything else, maybe some closing remarks after questions, but I think we're ready to open it up to questions. So again, thanks for listening and yes -- any questions? Operator: [Operator Instructions] And your first question comes from the line of [Aaron Edelheit] from Mindset Capital. Unknown Analyst: I have a couple of questions. The first was, do you plan to consolidate your results, will it be for Q4 or sometime in 2026? In other words, you won't see this funky kind of reporting tables. Can you tell us when we might be able to see just 1 reporting table in the press release? Andrew Marchington: Yes. Aaron, technically, the consolidation is going to be effective back in 2024 when we first acquired the equity. So we'll actually be consolidating approximately 7 months of 2024 and then the full year 2025. There will be none we pro forma reporting. Unknown Analyst: Got you. So when you report in March, it will just be one, there won't be two different. Is that accurate? Andrew Marchington: Well, there will just be -- yes, we won't need pro forma results. Everything will be consolidated under Grown Rogue filing [indiscernible]. Unknown Analyst: Great. And I wanted to just -- Obie, I wanted to ask you about the $348 cost number. It is a pretty remarkable figure. And I'm just curious -- do you think that this is the kind of -- are you scraping the bottom of where costs you can get costs to be? Or do you think there's more room for improvement? And how would you do that exactly? J. Strickler: [indiscernible] I think -- I mean here's where the focus is. I'm always -- we're always going to drive for just better metrics. I think where we're really seeing the opportunity is the efficiencies we're bringing forward with some of the new like lighting technologies that are helping yield, but also a little bit less costly in terms of electrical and power. The scale of our footprint is allowing us to maximize kind of consumable economies of scale. So we're driving down like fertilizer costs and things like that. Our team is super dialed right? We've been -- I mean these costs even include like a bonus that we put in place for our team that's based upon yield that gives them a little bit of participation in hitting some of these numbers and targets. So I think there's still room. I think sub-$300 would be a great goal, probably something we should put up on the board as a target. A lot of it is going to come into continue to drive yield. When you -- our costs are changing a little bit to go down, you have some inflationary pressure, things like that. But really, I think yield is the big driver. And some of the stuff we've been doing with genetic selection again referencing some of the technology that we've been deploying, we're seeing a pretty compelling increase in yield, which you can have a direct impact because it's fixed cost against bigger denominator is just going to lower that cost. And so challenge accepted trying to go below $300. I think is a really reasonable goal because we know like it's cost control and those efficiencies you put in place, you keep forever. Pricing comes and goes in terms of ups and downs, but it's these learnings that we get that we're so excited about as we continue to navigate some of the other pain that comes from these competitive markets. But things like that transfer to our new states as well, just those learnings and that efficiency. And so yes, pretty excited. Really happy with the numbers this quarter. And as always, you're pushing us to be better, and I agree with that. So let's make $300 -- $600. Unknown Analyst: When I first invested, you were at $600 and now $348. So kudos to your team. I wanted to ask, when I think about New Jersey, Minnesota, Illinois, any distressed opportunities. And I look at that 4-wall cost of $348 for Oregon. Now I know New Jersey had some extra costs in there. But is there any reason, let's just take Minnesota, for example, that you couldn't get Minnesota to where Oregon and Michigan are now at? J. Strickler: I think there will be some -- there's going to be some site-specific kind of contributors to that. I think the impact of packaging is like -- like Oregon is a bulk market, putting a pound into one bag is infinitely -- not infinitely less expensive than putting it into 8 where you have 128 bags or something like that. So I don't -- Oregon is probably always going to be on the leading edge of cost control and kind of cost efficiency. But so much of it is fixed, right? It's really about do we get the team trained up. And New Jersey right now will have a lot more noise, like costs were up this quarter. mostly because it's just not harvest yield, like we harvested less room, and there's only 4 rooms. And so that is like a 20 -- 15%, 16% kind of impact to what our cost structure would be because the costs are kind of fixed in how we calculate it. But I don't know if we'll get to 350, but I don't think it's unreasonable to be looking at sub $600 pounds in these markets, sub-$500 pounds. And so we'll be pushing every lever we can to get there. I can tell you, and this is probably something for me to talk to the team about, like I don't think there's anything in Jersey outside of packaging that is really like, oh my gosh, this is just so much more expensive in that market. Lease is a little bit more expensive, like we have great lease rates in Oregon that helps with it. We have a great lease rate in Michigan. And so probably never reaching kind of those numbers, but pushing towards them and still being on a normal basis, a really, really efficient indoor producer in every market that we go into, obviously, is the [indiscernible]. Unknown Analyst: Got you. And a question about Minnesota, just so I understand correctly, when you say you have the potential to double the capacity, does that mean when I look at your current markets, you can produce between 1,000, 1,200 pounds a month? Does that basically mean that you could do like 25,000 -- if you decided to build out all of Minnesota that you could produce 25,000 pounds of flower, basically double what you do in your other states? Is that correct? J. Strickler: Yes. That's -- I mean, it's double the potential canopy. Like we kind of set our core markets at around 15,000. Oregon is like 1,900. Michigan is like 14,800. Jersey, I think at full production will be 16,000. That's kind of been our sweet spot. And the license in Jersey allows for 30,000 square feet. So if you do the math on the same yield ratios, that would double the production amount. We thought about this. We want to get outside of kind of the core kind of knitting of what Grown Rogue is. And luckily enough, we're able to find a building that was priced really well. And so we have that flexibility based upon the markets based upon how we're seeing pricing based upon balance sheet, like all these things to give us that flexibility without being stuck in a crazy expensive building that you're not using half of it becomes a drag? Like the overall cost of that building is going to be really good for us, like we're very happy with that. It's got a ton of power. But yes, in a perfect world, based on the license type and the size of our building, we could double production capacity in Minnesota versus other states. Unknown Analyst: Got you. Last question, and then I'll let someone else ask a question. But I think I'm starting to understand exactly how to look at the KPIs. And I just wanted to ask if this is the right way is that when I look at your yields let's say, in like an Oregon or a Michigan. I'm seeing in like Q2, you had a yield of 63 grams a square foot. But in Q3, 76. Now that didn't necessarily flow all the way through in Q3, you harvested, but there's a delay between the amount of flower you're harvesting versus actually selling. So is the right way to think about it that there might be a quarter or so delay when you see because there was quite an improvement in yields, both in the A and B and the as and feels like because last quarter, you had this issue where Michigan looked really rough, but it's because of a production issue from Q1. Is that the right way to look at this? J. Strickler: Yes. It gets -- so let me just explain a little bit because it's a good question around how -- and there's 1,000 KPIs and every single 1 creates -- you kind of got to have a view on all of them. And so we measure our harvested flower pounds quarter-to-quarter, which is just raw A and B flower. That number can fluctuate a little bit based upon which rooms you harvested during that quarter, Michigan is a prime example. Every room is a little bit different. A lot of people when we're trying to do this now, you build the grow rooms exactly the same. That way every single room has got, say, 2,000 square feet. But Michigan is kind of a franking sign. Like we built it. We were very scrappy. We built it very cheap. Some rooms have 800 square feet, some have 600 square feet. And so total pounds produced could fluctuate even though you get to grams per square foot, it's fantastic just because you harvested a bigger room in the quarter twice and you harvested a smaller 1 once or vice versa? So total pounds is a good kind of just production, but it's not necessarily representative of the quality of our grow, which is why we use grams per square foot. So gram per square foot eliminates the noise between which rooms got harvested or how many got harvested in the quarter and really looks at for the area you were able to produce in, what was your efficiency? And so we look at grams per square foot as kind of a north star for how we're evaluating our production business on a yield standpoint, which is why we report both of those. And then obviously, A flower production is super critical. That's the best value. That's really what we're growing for. And so watching that improve is really important as well. So that's kind of way the metrics work. And so you could see a great -- my point being is, as people learn how these KPIs work, you could see a grade grams per square foot, like even next quarter, you could see grams per square foot up a little bit, but total yields down. And that's just a factor of the rooms that were harvested, but you can still see the efficiency of what we're able to do inside the kind of the plant -- portion of the plant that we were able to harvest and operate in. As it relates to timing, there's definitely overlap. And it happens in a number of ways, like it takes us about 30 to 45 days from harvest to get product ready for sale. Jersey might even be a little bit longer, maybe Oregon is a little bit shorter. But you harvest, you've got to dry it for 10 days. Sometimes you go a little bit more. You've then got a bucket time, past it, package it, get it into inventory there's kind of this lag. And so it's not like perfect science. Sometimes, we'll like in Michigan we'll harvest 2 rooms in a week, sometimes because we have 14 rooms there. Sometimes based on demand, we're like, hey, we're not going to process this strain from this room, right? Let's prioritize this one. So sometimes maybe a strain might take a little bit longer. Something you harvest might take 2 months before it gets to the market. And so there's always going to be a little bit of that timing lag -- but effectively, I think you could argue that it's, call it, 45 to 60 days. So while not quite what you harvest in Q2 is sold in Q3, a bunch of what you're harvesting in Q2 was sold in Q3 because there's about a 45- to 60-day lag there. And so like I think in Q2, we had kind of a down quarter but we had a big harvest and we said, okay, great, we're going to be selling that into Q3, which manifested itself out, like sales in Q3 were better. We're working through a little kind of production inventory thing in Michigan around how the product is moving through the system. When some of these KPIs identify things for us to kind of really evaluate which is good. But there's definitely a tiny gap there. Like you don't harvest a room on September 30 and sell it all that month, right? You're going to sell most of that in like October and November, end of October, like middle of November, that kind of time frame. Operator: [Operator Instructions] And your next question comes from the line of [Jerry Daryani from Banco Capital]. Unknown Analyst: Can hear me? J. Strickler: Yes. Got you. Unknown Analyst: I think you covered it, but just the -- what is kind of the -- if you balance out the production kind of timing stuff, what is kind of the run rate production out of Phase 1 in New Jersey kind of averaged out or in terms of flower and A flower going forward? Because I know there was a little bit of a timing bump. So you had like 1,450 pounds last quarter, had 1,300 pounds this quarter. What kind of -- what should we expect kind of going forward? J. Strickler: Yes. I mean right now, yields are in the 60-gram a foot, call it, they should be in the 70s. So we're going to see some bump there. But it should be a 500 to 600 pounds a month Phase 1 production in terms of total harvested pounds. So we harvested 1,300 pounds this quarter which was 1 less room than last quarter. Yields were up just a tad, but we're getting about 250, 300 pounds a harvest is where we should be at. We got 4 rooms. So 600 at the peak of kind of production efficiency, 500 is kind of, I think, the bottom of that. And my expectation is by early '26 we'll be at a kind of the 600-pound, 65 grams a square foot kind of category. Unknown Analyst: And when you get there, are the costs going to be closer to like roughly, if you assume just flat costs? Where does that get you at like roughly per pound? J. Strickler: I probably want to come back to you on that and think about. My suspicion is we should be in the $700 range. I mean that's where we were kind of in Q2, I think, jumped up a little bit because less pounds harvested this more towards up to the upper 8s. But probably in the 7s, maybe pushing down into the 6s. We've got a couple of things working against us in terms of optimizing cost in Jersey right now. Number one is we have fully loaded kind of personnel costs against half the production, like we have a Director of Cultivation, full salary after production when we turn on the rest of it, it doesn't hit a second Director of Cultivation. We have [irrigation] managers, ADLCs. We have a GM, we have a sales director being loaded against it. So we're kind of fully loaded for like the organizational structure. And then we'll allocate that labor against kind of our management [indiscernible] against just more production. We're also still like -- we've realized this, I mentioned this in my notes was getting the team up to the speed we have established in Oregon and Michigan has proven -- it's not a trivial exercise. And so we're still getting the team like to speed pushing on them. We've seen the most improvements over the last 6 months, but there's still room for improvement there. So we expect kind of labor cost to be allocated against a broader footprint, lease costs, things like that. Consumables kind of scale with production, right? We turn on another room, we got to buy more pots, we've got to put more fertilizer in, we got to have more dirt that kind of thing. But I think pushing into the 6, 7 kind of in Phase I, I think, is reasonable and then a Phase 2 comes on. I think that's where we started getting sub-6, hopefully down into the 5s as kind of like a steady state in Jersey. Unknown Analyst: What's the time line for Phase 2? J. Strickler: Probably turn -- so we're going to do Phase 2 room-by-room, right? We think that's really important, like we built Phase 1 with like 4 rooms turned on overnight. We've said this publicly, and it's continued to be the strategy is to turn them on 1 room at a time. Our next room should turn on in kind of early '26, where we'll convert the flow room that we're currently using as a bedroom. We originally planned to turn it on more towards the end of this year and then realize like wholesale sales typically slow down during kind of the winter months. I mean, we're pretty confident we'll maintain it. And we didn't necessarily want to bring a bunch more supply into the market. It's not a bunch more, but another 20% of our own supply into the market during kind of the slower months. So right now, targeting like February, March to have the next room turned on, and then based on demand and how the sales process is going, we'll continue to turn on the next room and the room after that with anticipation middle of '26 hopefully having the full facility up in operation. Unknown Analyst: Understood. In terms of corporate costs, is it right to kind of look at and goes about $1.2 million, I think, this quarter roughly. And do you have any -- not to say guidance, but do you have any input on how we should think about those costs? Are you guys kind of ready -- those costs are going to stay more or less fixed as they have reasonably for like a while? Should we anticipate some more costs there? How should we think about that? J. Strickler: I think [indiscernible] go ahead, Josh. Joshua Rosen: If I could, and then you can offer more color. But I mean, I think the core on this it somewhat will be dictated by, call it, the timing and pace and success of what we're looking at on the distress side. I think if you look at the core business and the New Jersey. The New Jersey side of the equation going a room at a time, mixed with Minnesota, which is -- it's heavy engagement, but heavy on the construction side right now. We don't have -- we're in very good shape. So maybe a little bit of an inflationary creep, but we're in a pretty good place from a corporate standpoint. If we do some things that ramp our market presence up and bring just a healthy amount of our back-office work into the fold quickly, then you'll probably see a commensurate increase in corporate costs, but it will be with a catalyst attached to it or with something very tangible attach that we're not talking about tangibly today. J. Strickler: I agree with that. I don't have any other additions other additions. Joshua Rosen: Without distress, even I mean, going into Illinois is the next one, we're really well staffed right now. Unknown Analyst: Okay. Understood. I think last question. Can you give some idea of what B pricing is versus A pricing? And what trim pricing is? Because A pricing, I know it drives a lot of the business, but B I've always kind of mentally thought that there's about a 20% discount for B pricing, but if that's changed, that kind of changes the some of the math materially. So any input on how we should think about that? J. Strickler: I don't have the exact numbers. 20% sounds right in Jersey and Michigan. In Oregon, it is a bigger delta. We've seen it creep up to the 20%, 30% range. But in periods of distress, usually, it's like 30% to 40%, sometimes 50% difference, which is unique to Oregon. It's the only market like that. Like I think A pricing in Michigan was $850, B pricing was $675 in that range. Oregon, call it, $600 A pricing, B pricing was in the high $20s, $300 range, so more like that 50%. And then Jersey, it's 20% sounds about right. Most of our quarters are in -- with B buds, our A flower in the 8s, B flower goes in the quarters, and there's about a 20% gap there. So Oregon is kind of an outlier in that regard, but I think your math is pretty accurate in the other states that we operate in. Joshua Rosen: And for [trim], Oregon is also probably an outlier in terms of what trim is worth. J. Strickler: [Trim] I mean perhaps like -- I mean I don't even like trims all over the board. I mean this -- it's actually 1 of the things we're really focused on in Oregon is -- and we've done this in several states. So the Yeti brand is an indoor product that actually incorporates some trim. And so we've been putting trim into this pre roll with a little bit of flower. It actually smokes really, really good. Like regionally, we built Yeti because we were worried that it would degrade the reputation of Grown Rogue or kind of more of a high-quality product. The reality is that Yeti a fantastic product. But we're using like really low input trim costs that like a typical, call it, indoor trim pad likely $50, we can put it into Yeti, and all of a sudden, that same products like $200. So it's just margin improvement. In Michigan, same thing with Yeti. It's kind of all over the board for indoor. In indoor in Jersey, we actually take a fair amount of our trim and we turn it into a product called ready-to-roll, which is -- it's a Yeti product, it's like ground up, we grind it again, but it's effectively tram with maybe a tiny bit of flower in there that's ground up that we actually saw for a pretty good price point, like tested training Jersey might be $300 a pound. And we sell the ready-to-roll in [indiscernible] for, I think, $1,000 a pound. So again, trying to utilize these products in the best way we can. And then I talked about some of the other products in our outdoor category with the infused pre-roll as well as our vape cart. We're starting to use all of our outdoor trim, which is really inexpensive like $10 or $15 a pound to turn into higher value kind of retail-ready products. So the infused pre-roll, we use like fees for the flower material in the pre-roll but we extract our own [indiscernible] from the trim, thereby increasing the value of that. And then with the vape cart, we're doing the same thing. We're [indiscernible] outdoor trim. It's being extracted into a cured resin vape which will come back to us again, taking $15 product that people are buying and doing the same thing with paying for it ourselves, putting their own brand and selling them to the marketplace. But trim is -- I hope that answered the question on trim, but we don't spend a lot of time thinking about trim as a contributor. Mostly it's -- is there any additional value we can squeeze out of that and because it varies on the prices all over the place. And like key markets, it might be over $100, we've seen over $100 in Oregon when things get tight, $30, $40, $50, it varies quite a bit. Unknown Analyst: Okay. How is AI changing your business? I'm just kidding -- that's not a real question. I'm just kidding. J. Strickler: I was going to give you a real answer, too. about -- I mean we got a big AI play for you. We just -- we can't talk about it quite yet. It's synchronous I've got a whole server farm going. I was going to say, we -- this Minnesota property does have a lot of power. Operator: There are no further questions at this time. I will now hand the call back to Obie Strickler for any closing remarks. J. Strickler: Yes. Again, thanks, everyone, for joining. For those that couldn't, hope you get a chance to listen to or read the transcript. Excited about the future, excited about how we're going to win, things are choppy, growth and success does not come in nice straight lines, we understand that, focus on what we control cost yields team culture, super excited about what the growth that sits in front of us. I mean, Minnesota, I think, is going to be a monster especially being early and then waiting for one of these distressed things to kind of pop. So liking where we're heading, coming out of '25, moving into '26 and very excited about the future and hope you guys continue to be a part of that going forward. It's going to be a fun ride. So thanks, everyone, for joining. And if you got any questions, feel free to reach out. Happy to have calls with investor shareholders or people just more interested in learning about our business. Thank you. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, November 11, 2025, and the earnings press release accompanying this conference call was issued after the market close today. I'd like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations, involve risks and uncertainties as discussed in its periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there could be no assurances that the projected results will be realized. In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP. We refer to these non-GAAP financial measures. Please refer to our SEC reports and certain of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers. CEO, Sam Rubin, will begin today's call with a strategic overview of the business and recent developments for the company, while CFO, Al Miranda, will then review financial results for the quarter. Following the prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to CEO, Sam Rubin. Sam, the floor is yours. Sam Rubin: Thank you, operator. Good afternoon to everyone, and welcome to another exciting quarterly update from LightPath Technology (sic) [ Technologies ] for our fiscal first quarter 2026 financial results. LightPath is entering a clear inflection point. After several years of disciplined execution to transform our business from a component supplier into a vertically integrated provider of high-value infrared optics and camera systems, we are now seeing that strategy translate into measurable commercial success. The progress we have made is reflected in record orders, a growing systems backlog and increased customer adoption of our technologies. Since we likely have a growing base of shareholders and with them likely more new listeners on this call, I will take some time to describe where we have come from, which will help put in context the recent developments. Then I will talk about specific programs that are driving our record backlog, the strategic investment from Ondas and Unusual Machines and upcoming growth drivers. For decades, LightPath was known primarily for its precision optical components. As the photonics industry matured, the dynamics shifted, margins compressed, competition intensified and values migrated up -- and value migrated up the food chain towards engineered subsystems and full systems, particularly in infrared imaging. Recognizing this, we realigned our strategy beginning in late 2020 to move up the value chain, integrating our proprietary materials and design expertise into complete imaging systems where we could capture more of the value we create. At the center of this strategy is our proprietary BlackDiamond chalcogenide glass, which we licensed exclusively from the U.S. Naval Research Laboratory as a domestic alternative for germanium for use in infrared imaging. BlackDiamond enables us to produce infrared optics that are lighter, more affordable and important -- and most importantly, secure from supply chain disruptions following China's restrictions on germanium export earlier this year. By pairing this material leadership with the advanced infrared camera technologies gained through acquisitions of G5 Infrared and Visimid Technologies, LightPath has become the only pure-play company offering fully integrated infrared systems designed and manufactured in the West. LightPath has a sweet spot of going into subsystems or small systems, which we often call engineered solutions. Those do not require a large infrastructure of service and support as full systems do, but still allow us to capture much more value. The combination of LightPath's materials and optics with our recently acquired subsidiary of G5 Infrared is an -- which is an industry-leading in cameras is a case in point. G5 is known as the industry leader for long-range infrared cameras. That was the case before we acquired them, not something we created. But like all of their competitors, G5 was facing supply chain challenges due to global geopolitics and primarily germanium and gallium, which are critical materials in their systems. After acquiring G5 in conjunction with their team, we begun an effort to redesign those systems to use our proprietary BlackDiamond materials. By doing so, we are positioning ourselves now not only as offering the best cameras, but as the most reliable provider of cameras with supply chain resiliency that no one else can offer. And in August, we introduced the first germanium-free G5 camera variant, utilizing our BlackDiamond glass. These redesigned systems represent the first wave of a broader transition across our G5 camera portfolio and addresses a critical need among defense and industrial customers to eliminate reliance on Chinese controlled materials. Around the same time, we announced 2 significant orders from our -- for our advanced infrared cameras, an $18.2 million order for deliveries in calendar 2026 and shortly after a follow-on order for $22.1 million for deliveries in calendar 2027. Combined, these represent more than $40 million in contracted revenue, reflecting both the strength of the underlying demand and the growing confidence in our ability to deliver. G5 is a prime example of the value that we can derive from thoughtful acquisitions being on track to double in size since the acquisition with several strategic benefits such as the implementation of BlackDiamond and their cameras. Visimid was another fantastic example, bringing us the NGSRI missile program with Lockheed. I continue to believe that leveraging our strong industry knowledge and expertise for strategic M&A will continue to be an important tool in our arsenal going forward. And when we acquire a company, the resulting value is often far, far more than the sum of the past. Last quarter, we also announced a strategic $8 million equity investment from Ondas Holdings and Unusual Machines during the quarter, 2 key partners driving the domestic drone ecosystem. Their investments are intended to help accelerate our commercialization road map, particularly focusing around uncooled infrared solutions for drone applications. Beyond the financial contribution, this partnership also underscores LightPath's strategic relevance in the reshoring of advanced optical and imaging technologies to the U.S. and Europe. Altogether, these developments have driven our backlog to approximately $90 million, more than 4x the levels of just a few short quarters ago. Importantly, more than 2/3 of this backlog is now in systems and subsystems, validating the success of our move up the value chain. Mix shift towards systems not only expands our margins, but also deepens our relationship with customers who rely on LightPath for critical capabilities and supply assurance. With this background behind us, I would like to dive into some of the most recent wins and add some color on -- and background on the announcements we have recently made. Several programs continue to anchor our short term -- our near-term growth. Border surveillance and counter-UAS applications, our long-range zoom cameras are being deployed -- where our long-range zoom cameras are being deployed across a wide variety of platforms, including mobile and stationary systems, and stationary systems designed to detect, classify and track threats. In fact, more than $15 million of our current backlog is for counter-UAS applications. Turning to border surveillance. We now expect that there will be over 1,000 new border surveillance towers installed, and we ultimately expect to win placement in the majority of those. With prices of $150,000 to $250,000 per camera, one camera goes on each border tower and LightPath servicing 2 of the 3 border tower vendors, this could be an extremely material business for us in the coming 2 to 3 years. In the naval domain, the U.S. Navy's SPEIR program for which we supply key infrared cameras to L3Harris is advancing towards low rate initial production, positioning us for long-term revenue streams as the system is installed across surface vessels. Also, our collaboration with Lockheed Martin on the next-generation Stinger replacement initiative also remains an important future opportunity, and I'll talk a bit more about this in a second. That program is currently in testing and if selected, could represent as much as $50 million to $100 million of annual revenue while in full rate production. Beyond those specific programs, we have a number of additional programs with potential for over $10 million in annual revenue from each. And we, of course, continue to see growing demand for our engineered lens assemblies designed to replace legacy germanium optics in thermal cameras and drone payloads. While that part of the business cannot point to one specific program like we have with the long-range cameras, there are a multitude of customers and programs that are continuing to drive very strong growth for the assemblies and optics part of the business, also based on our BlackDiamond glass technology. With this rapidly scaling backlog and prospective customer list, scaling production will prove to be paramount. To that end, we're taking several strategic measures to position ourselves better for the robust growth that we believe our future holds. Looking at our Texas facility, just next week, we'll be moving our team into a much larger facility, intended to support the immense production volumes needed for the Lockheed NGSRI program, which we continue to be very bullish about. In parallel, in Orlando, we are adding capacity for additional BlackDiamond glass manufacturing as well as for the first time, building, integrating and testing complete G5 cameras in Orlando, supporting the robust demand growth G5 is realizing. To oversee this, we've appointed Israel Piergiovanni as Vice President of Manufacturing, a former Luminar manufacturing veteran, who will oversee the production scale-up across our global footprint. We also recently strengthened our corporate governance with the appointment of Mark Caylor to the Board of Directors. Mark is a veteran defense industry executive with over 35 years of experience driving profitable growth and leading large organizations. He recently retired as President of Northrop Grumman Mission Systems sector, a supplier of advanced sensing, processing and communication technologies for defense and intelligent customers with operations in U.S. and Europe. His guidance, leveraging an extensive background across government, military, private and public sectors and the relationships on the side of the defense primes will help guide our vision forward. In summary, the transformation of LightPath is now well underway. We are moving from components to systems and from commoditized supply to strategic technology leadership. We are replacing constrained China-linked materials with domestic scalable and proprietary alternatives. And we are converting that differentiation into multiyear contracts, strategic investments and long-term relationships with some of the most sophisticated defense and industrial customers in the world. With a record backlog, growing portfolio of germanium-free systems and a recent strategic investment to help scale production, we believe LightPath is positioned to sustain growth and expanding profitability. The strategic work over the past several years is now delivering tangible assets, and we expect it to continue momentum through fiscal 2026 and beyond. Now I'd like to turn the call over to our CFO, Al Miranda, to talk about our first quarter fiscal 2026 financial results. Al, please go ahead. Albert Miranda: Thank you, Sam. I'll keep my review to a succinct highlight of the financials this quarter. As a reminder, much of the information we're discussing during this call was also included in our press release issued earlier today and will be included in the 10-Q for the period. I encourage you to visit our Investor Relations web page to access these documents. Revenue for the first quarter of fiscal 2026 increased 79% to $15.1 million as compared to $8.4 million in the same year ago quarter. Sales of Infrared Components were $4.3 million or 28% of the company consolidated revenue. Revenue from Visible Components was $3.8 million or 25% of consolidated revenue. Revenue from Assemblies & Modules were $5.9 million or 39% of consolidated revenue. Revenue from Engineering Services was $1.1 million or 7% of consolidated revenue. Gross profit increased 58% to $4.5 million or 30% of total revenues in the first quarter of 2026 as compared to $2.8 million or 34% of total revenues in the same year ago quarter. The difference in the gross margin as a percentage of revenue was primarily due to certain nonrecurring or end-of-life orders in the prior year period that had higher margins. Operating expenses increased 66% to $7 million for the first quarter of fiscal 2026 as compared to $4.2 million in the same quarter of the prior fiscal year. The increase was primarily due to the integration of G5 following its acquisition earlier this year as well as increased sales and marketing spending to promote new products. Net loss in the first quarter of fiscal 2026 totaled $2.9 million or $0.07 per basic and diluted share as compared to $1.6 million or $0.04 per basic and diluted share in the same quarter of the prior fiscal year. Adjusted EBITDA for the first quarter of fiscal 2026 was $0.4 million positive compared to an adjusted EBITDA loss of $0.2 million for the same period of the prior fiscal year. Although not perfect, we believe that adjusted EBITDA is a better indicator of core operating performance by excluding noncore noncash items. Cash and cash equivalents as of September 30, 2025, totaled $11.5 million as compared to $4.9 million as of June 30, 2025. As of September 30, 2025, total debt stood at $5.6 million and backlog totaled $86 million. Looking forward, our focus for fiscal year 2026 supports the business opportunities that Sam described. We have a detailed go-to-market strategy that we are funding to target key high-growth areas. Our prior year investments in manufacturing are bearing fruit in terms of quality and on-time delivery. And in the coming quarters, I expect we'll see margin expansion as a result. With all of the interesting accounting around acquisitions, we will continue to report adjusted EBITDA in fiscal year 2026 as a helpful measure of financial success. Also, as Sam noted, we recently secured an $8 million strategic investment from Ondas Holdings and Unusual Machines at $5 per share. We are truly fortunate with the quality of investors in the company and Ondas and Unusual Machines are not only a continuation of quality investors, but in addition, they are a great strategic fit. With that, I will turn the call back to Sam. Sam Rubin: Thank you. Thank you, everyone, for joining us today. Before we move on to Q&A, just some closing remarks. We're entering the next phase of execution and growth. The G5 integration is progressing. Our record backlog provides visibility, and we're scaling production to meet demand across defense, public safety and industrial end markets. Our BlackDiamond glass strategy is moving customers off germanium, improving supply assurance and total system value. The strategic investment we received from Ondas and Unusual Machines supports increased capacity, focused hiring and the tools we need to deliver reliability at scale. We see a real inflection point ahead as our mix continues to shift from components to higher-value systems and subsystems. The priorities are clear for the coming quarters, ship on time at quality, expand germanium-free product variants, harden the supply chain and convert the backlog into revenue at a healthy margin profile. With the team additions we have made in various manufacturing and engineering, we're set up to execute against a robust multiyear opportunity set. With a differentiated technology position and strong customer engagement, we're confident in our path to durable growth and increased profitability. With that, I'll now hand the call over to the operator to begin the Q&A questions -- session. Operator? Operator: [Operator Instructions] Our first question is from Richard Shannon with Craig-Hallum. Richard Shannon: Congrats on a very nice quarter. Audio on my end here is a little tight or a little dicey. So hopefully, it's okay for you there. With that said, I'll start with my first question here. I wanted to ask about germanium and BlackDiamond glass. It seems some reports that maybe China is opening up the window for acquisition of germanium outside the country. I wanted to see if you're seeing that and whether there's any different reaction or approach to germanium given that? And then also maybe as a follow-on here, maybe you can talk to us about how fast you're converting your portfolio of cameras and subassemblies to BlackDiamond and how fast you expect the customers to transition there? Sam Rubin: Yes. Thank you. So the germanium situation changes by the day. It's definitely very interesting, and we're following it. As far as we can tell, China is making it very clear that they will put a lot of effort to make sure it will not end up in defense applications. And so we don't think it will be very freely available. I can say this, pretty much every customer that has switched over from germanium to our BlackDiamond or is in the process too, including a key customer that was just visiting here yesterday, mentioned that from their point of view, the disruption in supply chain was so big that they will not take a chance to gain with that. And so we believe that people burnt once, so obviously, far more careful. And even if China makes the material available now, everyone understands that the faucet could close at any point in time, at any moment, notice. And so people are already very, very careful. Additionally, I'll just emphasize again that our materials perform far better than germanium in many, many use cases. And so our struggle has always been convincing customers, getting them to the point of redesigning to use our materials instead of germanium because once they did, the performance is much better, lighter, smaller systems, better throughput, you name it, lots of different reasons. So absolutely, germanium is still needed in many places. And there's a room for both materials to coexist. But from what we can tell, most customers that have been switching over to BlackDiamond will remain in BlackDiamond even if the material is freely available [ there ]. In terms of our transition of our own cameras, it is more a question of resources. So we have many, many projects going on. And as you can imagine, with the $90-something million backlogs we have comes also some engineering work and some modifications and so on, which oftentimes happen to overlap with the same resources that would redesign cameras. So I think our team is nearly done with one more redesign and working on some others. But until we hire more people for that, and we have quite a number of open positions that we're planning to fill for those kind of areas, until we fill those positions, the priority is, first of all, on the short-term revenue delivering what we have now here and now before we put more resources into converting the cameras over. Richard Shannon: Okay. That is helpful to hear. Maybe just addressing the supply chain resiliency and capacity. You mentioned a couple of dynamics specifically regarding Visimid. If you can describe where else you're having to work to improve capacity either from an internal capability or equipment point of view or with external suppliers? And over what time frame do you expect that to be improved or resolved? Sam Rubin: Yes, pretty much across the board. I mean, the growth we're seeing is in almost every aspect other than the old technology of molded optics that we have a lot of capacity for and was sort of what LightPath used to do until a few years ago. Everywhere else, we need to add capacity. So we need to add capacity of fabrication in our Latvia operation and in Orlando. We're putting an enormous investment into glass capacity. And even the investment we're making, I feel sometimes is not enough. We're already getting booked as soon as we add capacity. We have seen some constraints on some of our vendors, primarily the detector companies are making the focal plane arrays that go into cameras. Some of them depend on germanium. And we work towards them to either replace the germanium or solve some of their problems. And some of them are just seeing a very high growth in some of their new products, which are what we're using oftentimes. So we work with our vendors for the focal plane array when needed. But other than the focal plane array, pretty much everything else is vertically integrated and we control internally [ for every key element ]. Richard Shannon: Okay. Perfect. Good to hear. Maybe 1 or 2 quick numbers questions, and I'll jump out of line here. I guess September quarter results your sales are very nice, well above what we had in our model. Obviously, you didn't give any guidance there. But any thoughts as to how you'd like us to think about the sales progression in the December quarter would be a great help here. And then how do we think about the EBITDA follow-through on that as well? Albert Miranda: So Richard, obviously, we're not going to give any guidance. We're happy to see where we came in this quarter. We would like to see that number again. So that's what we're shooting for in Q2. But I think from an EBITDA perspective, we were positive this quarter. It's a good sign, and that will continue. Richard Shannon: Okay, perfect. Guys, I will jump out of line. Congratulations. Keep up the good work. Operator: Our next question is from Glenn Mattson with Ladenburg Thalmann. Glenn Mattson: Sam, I think in the past, you said that NGSRI would be like potentially a fall of 2025 award or maybe first Q calendar '26. Is that still your expectation? And I guess in the second quarter that you talked about the upgraded Texas facility that services that contract. So I don't know if you're trying to signal high confidence there? Or if you can clarify that, that would be helpful as well. Sam Rubin: Sure. So nothing has changed other than the government shutdown continues. So any time line related to anything government is up into the air. There was hopes that early fall or in fall 2025, there will be a down selection. However, quoting just what is said publicly in different publications, Lockheed has been ready for flight tests and Raytheon was saying that it would be in late November or December that their units will be ready for flight tests. So this was said publicly and by both companies. So clearly, a down selection cannot happen if both units aren't ready for full testing yet. We are making that investment in conjunction with our customer with Lockheed Martin for a few reasons. One, they're very, very bullish about this and so are we. Secondly, these systems or what we'll be building there can be and is used in more programs other than just NGSRI. And actually, in Lockheed, we're already in a few -- a couple of other programs that are needed. And thirdly, most importantly, if or hopefully, when Lockheed Martin wins, everyone is going to want to scale up as quickly as possible. So making a small bet now, and the bet is both by Lockheed and us, shared costs there, making a small bet now could pay off big time later on if we're awarded. If we don't do that, then we'll be at a pretty stressful point comes the award. Glenn Mattson: Yes. Makes sense. On the gross margin, Al, you talked about it being impacted year-over-year. But also just given the growth in systems and modules and that being a higher-margin business, can you say just perhaps maybe it could have been even stronger this quarter or with the 2/3 backlog in systems and modules, maybe just directionally, can you remind us of where you think that's going medium and long term? Albert Miranda: Yes. So I mean, we want to step up from here, Glenn, to [ 35% ] by the end of the fiscal year, March up that ladder. This quarter, we sold a lot of IR Components. It was a high sales number, which is typically lower margin. So we had a sales mix that sort of brought down what would have been a higher than 30% gross profit. When that kind of event happens, I'm not terribly worried in terms of the percentage. I flip back and I look at the dollar and I think, okay, we did well because we exceeded where we thought we were going to be from a revenue perspective on the IR side. So I'm like, all right, that works for us. We budget sort of a mix and then the mix changed a little bit compared to budget, but pretty satisfied where we are at Q1. Glenn Mattson: Okay. And the last thing for me is a couple of times in the call, you mentioned scaling operations and I just wonder what that means in terms of OpEx. If you're trying to signal some increased investment there. Albert Miranda: No, I don't think we're going to have a major impact to OpEx. We'll continue more or less like we thought for fiscal year '26. The OpEx is basically for moving things around. The capacity in some areas, like Sam mentioned in glass, for example, that's more CapEx, right? We already have the space. So it's not -- we don't have to do a build-out or anything like that. So we have the room, but we just have to buy more furnaces, for example, to produce more glass. We already have molding capacity, so we don't have to spend a tremendous amount there. And then when we talk about cameras, systems, subsystems, those workstations and work lines are to expand them are relatively inexpensive. It doesn't cost millions of dollars for capital equipment. It's tens of thousands of dollars for assembly stations. And we are going to rationalize the footprint in the United States. We're going to move things around a little bit to maximize the entire footprint on the assembly modules and systems. Operator: [Operator Instructions] Our next question is from Jaeson Schmidt with Lake Street Capital Markets. Jaeson Schmidt: Sam, I just want to follow up on your comment on these $10 million-plus annual revenue opportunities. Curious how many of these sort of 8-figure deals you have in the pipeline? Sam Rubin: That's a great question. I need my fingers now to count them. But I'd say probably about 7 now. We've been at a steady 6 for a while, but I think we have 1 or 2 being added, maybe a bit early stage on some of them. The counter-UAS, I expect that to grow quite a bit. And we are at least in 2 different counter-UAS programs. Only one of them is currently in the backlog. So I'd say 7 or 8 programs like that. Jaeson Schmidt: Okay. That's helpful. And then just going back to gross margin, I mean would we expect any sort of noise in the gross margin line with these capacity expansion plans here in the December quarter? Albert Miranda: I don't think so. I don't think so. The way we modeled it out, it should not be. We should still see -- we should see improvement in margins. Jaeson Schmidt: And then just the last one for me, and I'll jump back into queue. Looking at that backlog number, obviously, really impressive. I think at one point, G5 was about 2/3 of that backlog. Is that still the case? Sam Rubin: Pretty much, I think. I mean there's ebbs and flows and it comes up and down. And I think G5 [ partners ] pushing product out much more aggressively now. So -- but still about 2/3, yes. Operator: Our next question is from Orin Hirschman with AIGH Investment. Orin Hirschman: Congratulations on another quarter of tremendous progress. Sam Rubin: Thank you. Orin Hirschman: [ Let's see ]. Going back to the question on those other potential awards of decent size awards. Can you just go back and just what's -- go through what's really driving it? Is it the long-range infrared cameras? What are behind most of those deals if there is -- if there are 1 or 2 trends that are noticeable? Sam Rubin: Yes. Most of them are around the BlackDiamond glass. So whether it's [ patchy ] program or whether it's additional defense airborne program that we recently talked about, all of them are around the uniqueness of the BlackDiamond glass, not even replacing germanium, but just improving -- drastically improving the performance of existing systems. So this is sort of the -- has always been the major selling point of those materials is you can improve performance even of existing systems. So we're seeing that come to fruition now. Others that are a bit earlier stage -- sorry, the counter-UAS is also at a fairly advanced stage. And those are pretty big ones. They come in big numbers because they are the long-range cameras most times, mid- and long-range cameras. And then earlier stage ones are much bigger system programs like related to Golden Dome or satellite programs or things like that, that will take a long time, but have very, very large numbers tied to them. Orin Hirschman: In terms of the long-range cameras for spotting drones and UAS, is there any other technology that's crept up that could spot them from the same distance or without -- without using -- without having to use frequency -- radio frequency? Sam Rubin: So even if you can use radio frequency, you still need the visual part for validation. So the key here is you're about to shoot something down, you have to be a million percent sure that you're shooting the right thing down and not just something because it's flying there. So a visual validation has -- is becoming a must for any system that needs to kinetically or otherwise take down something. And so even when you can use the radar and you would have no problem turning it on because you're in your own territory or whatever, you still have to have that visual validation. Visible cameras are very limited in range, but also, of course, can't work at night, can't work in certain weather conditions and so on. So I don't know of anything other than the thermal cameras that can give you that absolute validation when you see something using any other system, whether it's radar, acoustic, electronic signals and so on to validate that you're going to shoot down the right thing. Orin Hirschman: The question I never asked you as a company, the systems that are being shipped, are they primarily just to the military directly? Or are they actually to customers that are integrating them into systems that actually do the defense and try and take it down? Sam Rubin: Always to integrate it. So I don't think we've shipped systems directly to military, definitely not on the long-range cameras. We have some direct military programs on optical assembly side, but not on cameras. Cameras currently all go to integrators. They could be defense primes like Lockheed Martin, Raytheon, Booz and Co -- Booz Allen. They could be much smaller companies that are integrating. It could be remote weapon systems where it's sort of automated systems to shoot drones down, but there's always some level of integration after us. Orin Hirschman: Just 2 more questions, if I may. Those systems that do the integration, do they actually integrate in such a way that the drone is kept under surveillance from your system and it actually has to do the calculations and help in terms of the countermeasure that's being done? Sam Rubin: Yes, absolutely. Systems are integrated into pan-tilts or moving controls that are then tracking the drone. And oftentimes, from the data you collect from the camera, there's quite a bit of calculations you can do. Simplest is the azimuth and even distance. In other extremes, you can calculate some atmospheric conditions, including even wind speed in some cases using the information from the camera. And our customers, the integrators do exactly that. Orin Hirschman: Okay. And the last question is on the missile program. Are there other missile programs that need the same level of sophistication that are in any stage of discussion or anything moving along through the pipeline? Sam Rubin: Yes. We have 2 more missile programs that our technology is being integrated into. Orin Hirschman: Are those actually clear that those programs are going to go into production? Have you talked about those programs? Sam Rubin: No, it's a bit -- they're much earlier on than the NGSRI program. But on the other hand, we don't -- the last 2 years in which we spent developing a product that passes all environmental and [ G-Force ] acceleration and all of that, that's behind us. So now we come to every -- every new program like that with the credibility already of having developed something that passes all of that. So the earlier stage, but our time in those programs will be much faster. Orin Hirschman: One last question, if I may, just a housekeeping question. Is there -- do you happen to have handy a non-GAAP OpEx number pulling out the acquisition-related charges? Albert Miranda: No, we don't. We don't. Operator: Thank you. There are no further questions at this time. This does conclude today's conference. We thank you again for your participation. You may now disconnect your lines.
Operator: Thank you, everyone, and welcome to the Beyond Meat, Inc. 2025 Third Quarter Conference Call. [Operator Instructions]. Please note this call is being recorded, [Operator Instructions]. It is now my pleasure to turn today's conference over to Paul Sheppard, Vice President of FP&A and Investor Relations. Paul Sheppard: Thank you. Hello, everyone, and thank you for your participation in today's call. Joining me are Ethan Brown, Founder, President and Chief Executive Officer; and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to our third quarter 2025 earnings press release filed yesterday after market close. This document is available in the Investor Relations section of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that all the information presented today is unaudited and that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Forward-looking statements in our earnings release, along with the comments on this call are made only as of today and will not be updated as actual events unfold. We refer you to yesterday's press release, our quarterly report on Form 10-Q for the quarter ended September 27, 2025, to be filed with the SEC and our annual report on Form 10-K for the fiscal year ended December 31, 2024, along with other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements today. Please also note that on today's call, management may reference adjusted EBITDA, adjusted loss from operations and adjusted net loss which are non-GAAP financial measures. While we believe these non-GAAP financial measures provide useful information for investors, any reference to this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to yesterday's press release for a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures. And with that, I would now like to turn the call over to Ethan Brown. Ethan Brown: Thank you, Paul, and good afternoon, everyone. First and foremost, I would like to recognize all veterans on this important day of observance, including those veterans we are fortunate enough to have on our team at Beyond. You exemplify the values of putting others in country first. And we are deeply appreciative of your service, sacrifice, encourage. We are indebted to each of you, and that is top of mind today. I will now turn to the business and cover 3 main subject areas. First, I will seek to put our recent balance sheet activities in the appropriate context. Second, I will briefly review the performance headlines from our third quarter of 2025, results that point to a business that remains in turnaround mode. Third, I will outline the key operational and top line initiatives we are taking in pursuit of this turnaround and return to growth. Though a protracted process, our recently announced transaction with our bondholders was sweeping in its scope and together with the nearly $150 million in cash we raised through the completion of our existing ATM program represents a fundamental reset of our balance sheet. Specifically, we reduced debt levels by approximately $900 million, nearly 75% of our total leverage and put in place a path to potentially convert another $209 million for a total reduction of over 90% and in total outstanding debt for consideration of any PIK interest. Further, the transaction not only significantly reduced leverage levels but extended the maturity of most of our overall debt profile. We view this as an important resetting of our balance sheet and one that supports in many ways, a reset of our business as we target sustainable operations and renewed growth. Clearly, we were disappointed by this quarter's results, which I will now summarize before outlining with as much specificity as this forum permits our path forward. Net revenue of $70.2 million came in within our guided range, but nevertheless, represents a 13% (sic) [13.3%] decline year-over-year as we faced ongoing category challenges. This quarterly net revenue declined coupled with a less favorable product mix and higher trade promotion spending versus the prior year put pressure on gross margin even as conversion costs fell on a year-over-year basis. Lower volumes also reduced fixed cost absorption, and we continue to experience a transitory accounting drag in the form of $1.7 million in noncash charges related to the suspension of our China operational activities. Accordingly, gross margin landed at 10.3% in the third quarter, down from 17.7% in the year ago period. Operating expenses, excluding a large noncash impairment charge relating to certain long-lived assets improved on both a year-over-year and sequential basis. I should note that operating expense in the third quarter included substantial nonroutine expenses, a future that makes our cost cutting appear more incremental than our underlying progress would suggest. Highly conscious of the opportunity or substantial delevering and increased liquidity provides, we are intensely focused on the 5 following steps towards sustainable operations and return to growth. One, we continue to address misinformation surrounding our plant-based needs. As many of you are aware, as industrial livestock and pharmaceutical interest rally around scare tactics and misinformation to confuse consumers, we are driving the health profile of our products to greater heights so as to reduce the disingenuous to be absurd. The results of our multiyear efforts is a growing range of products, such as the Beyond Pork platform and Beyond Steak that deliver on taste with ingredient and nutritional profiles and have earned various accreditations and recognitions in the clean label project, American Diabetes Association and American Heart Association and enthusiastic support from an impressive assembly of leading medical nutrition experts. More of this journey is shared in our short approximately 9-minute documentary on YouTube planting change and this defining commitment is made clear in product advertising that highlights impressive ratios of protein to saturated fat, cholesterol and calories together with great taste and clean, simple, limited ingredients. It is also made clear in our innovation road map, where new products are designed to reinforce this message. Consider, for example, are Beyond chicken pieces, which although still gaining national retail distribution, has achieved considerable taste and nutrition accolades while delivering 21 grams of protein per serving with 0 cholesterol and less than 1 gram of saturated fat from heart healthy avocado oil, all in just 150 calories. And we've recently opened Beyond Test Kitchen, where consumers get the early opportunity to buy our latest innovation before hits supermarket shelves. The first two innovations on this direct-to-consumer platform purposely exemplify our commitment delivering taste and strong macro nutrient ratios with clean, simple and limited ingredients. One is Beyond Steak Filet, which provides 28 grams of protein with 0 cholesterol, and only 1 gram of saturated fat from heart-healthy avocado oil, all with only 230 calories per serving. The other is the Beyond Ground platform. Simply put, Beyond Ground is a center-of-the-plate protein that confidently stands on its own. It's not trying to mimic any species of animal, say a cow, chicken or pig and is consistent with our increasing emphasis on using Beyond versus Beyond Meat as our primary brand identifier. It is made with only 4 ingredients: water, fava bean protein, potato protein and psyllium husk, and each serving delivers an impressive 27 grams of protein and 4 grams of fiber, all in just 140 calories with no cholesterol, 0 saturated fat and no edit oils. The original design is a blind cannabis to be seasoned as a consumer would like. And to our delight, we are watching early adopters to develop a host of recipes around it. For those who prefer a seasoned variety, -- we're also selling a Tuscan Tomato, a Korean barbecue and Chipotle Pineapple version. Two, we are building back distribution in U.S. retail and U.S. foodservice. In U.S. retail, we are successfully rebuilding distribution and seeking to consolidate our brand where possible into brand blocks. As you will recall, over the last 18 to 24 months, we've seen a substantial migration of our products from the refrigerated meat aisle to the frozen meat aisle and frozen meat alternative aisle. Though we believe that ultimately plant and animal protein should be offered to consumers in equally prominent locations in the supermarket and ideally in the same section to facilitate convenience and choice, the unplanned and at times chaotic transition replete with long periods without product availability at all, followed by consumers' lack of awareness regarding new placement has been damaging to our business. Accordingly, we are now encouraging the consolidation of our brand, where possible, within brand blocks in the frozen section of supermarkets to reduce what can seem like a game of Hide-and-Go-Seek for the consumer. As we rebuild our presence in U.S. retail, we are prioritizing consolidated offerings at high-impact chains to drive results. For example, in October, we announced plans with Walmart to increase availability of select products at over 2,000 stores nationwide, including our new Beyond Burger 6-Pack, which is designed to offer consumers value during a sustained period of economic stress. In U.S. Foodservice, we are adjusting our go-to-market strategy to capture a higher percentage of operators whose consumer base assigns value to our award-winning non-GMO, plant-based meats made from simple and clean ingredients. Though we expect a renewal of interest in plant-based meats in the broader restaurant segment in the United States, particularly as the price of animal protein continues to rise and we start to achieve the necessary scale to consistently underprice it. For the time being, we see room for growth within institutions, restaurant chains and other establishments that are more directly and explicitly focused on health and clean ingredients. Accordingly, we are increasing our investments against these specific targets. Three, through our transformation office and program, we are implementing further actions to reduce and reset our operating expenses. We continue to seek to more fundamentally and more quickly reset our operating base. And as you recall, we have enlisted the restructuring support of AlixPartners, including our appointment of John Boken, as Chief Transformation Officer to accelerate the work of our transformation office. We are deep into this process and are committed to positioning the business for a more fundamental resizing of operating expense. Further, this underlying series of actions relating to our base operating expense is joined, by what we believe will be a reduction in certain non-routine and non-recurring spend that burden our operating expense in 2025. Four, through our transformation office and program, we are taking additional action to expand margin in the currently constrained demand environment. We have and will continue to take steps to exit certain unprofitable product lines while we configure and others are making targeted investments in our facilities, including a continuous production line for certain popular but currently lower margin products and are doing extensive RFP work to drive competition and lower pricing within our supply chain. As with operating expense, we expect this underlying margin progress to be accompanied by the retirement of certain drags previously mentioned, such as the charge for China-related depreciation and remain committed to the goal of laddering margins back to 30% plus. Five, we are considering certain strategic initiatives that, if successful, could help accelerate our return to growth. The path articulated above addresses the core challenges our business faces. The need to counter misinformation and change product narrative around our products. Reestablished distribution and improve product availability in the U.S. retail and foodservice markets and drive significant operating expense reduction and margin expansion through our transformation office and program. These, along with other similar efforts are designed to support the achievement of EBITDA positive operations as soon as possible. Even in an environment where demand remains subdued for the near term. We do, however, see the potential for growth outside of these actions, when we take a more comprehensive view of the Beyond brand technology across our U.S. and European markets, and we will be exploring this in quarters to come. It would be too early to provide further information today for a host of reasons. And as such, I'll leave the subject now for future updates. In closing, as those of you who have followed us closely know well, over the last decade or so, we've lived at the forefront of the rise and precipitous destabilization of a nascent industry with a deeply disruptive potential. All too typical of the heavy turbulence experienced by a company so closely wedded to emerging innovation, we've, as they say, been through it. Along this journey, I have sought to characterize our response as harnessing adversity to grow stronger, better and more capable of achieving our long-term vision. More than any time over the last 6-plus years of being a public company, we have the opportunity today to reset our business and service to sustainable growth on behalf of all shareholders and on behalf of our mission. We are [buoyed by] and I am personally moved by the tremendous support we have seen from retail investors from throughout the United States, all the way to Korea and have great enthusiasm for winning on their behalf. We are acutely aware of having more challenges to overcome, more misinformation to counter, more cost to cut and more margin to expand. We've been in our turnaround phase for too long. And moving forward, you will not simply see more of the same from us. There is plenty of fight left and beyond an enormous enthusiasm to use this reset to hasten our future as a global protein company of tomorrow. With that, I will now turn the call over to Lubi. Lubi Kutua: Thank you, Ethan, and good afternoon, everyone. I'll begin by reviewing our financial results for the quarter before providing some brief remarks on our outlook for the fourth quarter. And finally, commenting on the significant balance sheet initiatives we completed subsequent to the end of our third quarter. Total net revenues decreased 13.3% to $70.2 million in the third quarter of 2025 and compared to $81 million in the year ago period. The decrease in net revenues was primarily driven by a 10.3% decrease in the volume of products sold and a 3.3% decrease in net revenue per pound. The year-over-year weakness in volume of products sold continues to reflect general softness in the plant-based meat category as well as select distribution losses and to a lesser extent, impacts from competitive activity. While category dynamics in our key international markets remain more favorable than the U.S., two of our top 3 markets in the EU have also been experiencing year-over-year declines according to consumer takeaway data. This underscores the current reach of the soft macroeconomic environment in plant-based meat that we continue to navigate. With respect to pricing, the year-over-year decrease in net revenue per pound was primarily driven by higher trade discounts, reflecting in part reduced promotional efficiency as well as changes in product sales mix, partially offset by favorable changes in foreign currency exchange rates. Taking a closer look by channel, U.S. retail net revenues decreased 18.4% to $28.5 million in the third quarter of 2025 compared to $35 million in the year ago period. The decrease in net revenues was primarily driven by a 12.6% decrease in volume of products sold, mainly reflecting weak category demand and reduced points of distribution and a 6.6% decrease in net revenue per pound. Net revenue per pound was negatively impacted by higher trade discounts and price decreases of certain of our products, partially offset by favorable changes in product sales mix. In our U.S. foodservice channel, net revenues decreased 27.3% to $10.5 million in the third quarter of 2025 compared to $14.5 million in the year ago period. The decrease in net revenues was primarily driven by a 27.1% decrease in volume of products sold. This decrease in volume was primarily driven by weak category demand and the lapping of a limited time offering of our chicken products at a QSR customer in the year ago period. Turning to international. In international retail, net revenues decreased 4.6% to $15.8 million in the third quarter of 2025 compared to $16.6 million in the year ago period. The decrease in net revenues was primarily driven by a 12.5% decrease in volume of products sold, partially offset by a 9.1% increase in net revenue per pound. The decrease in volume was primarily driven by reduced sales of our burger, dinner sausage and chicken products, mainly in Europe, where, as I mentioned earlier, two of our top 3 markets are also experiencing softer [Technical Difficulty]. The year-over-year increase in net revenue per pound in international retail was primarily driven by favorable changes in foreign currency exchange rates, price increases of certain of our products and changes in product sales mix partially offset by higher trade discounts. Finally, International Foodservice net revenues increased 2.4% (sic) [2.3%] to $15.3 million in the third quarter of 2025 and compared to $15 million in the year ago period. The increase in net revenues was primarily driven by a 4.4% increase in volume of products sold, reflecting higher sales of chicken products to a QSR customer partially offset by reduced burger sales to certain QSR customers. Net revenue per pound decreased 2% compared to the year ago period, primarily driven by changes in product sales mix, partially offset by favorable changes in foreign currency exchange rates and reduced trade discounts. Moving down the P&L. Gross profit in the third quarter was $7.2 million or gross margin of 10.3% compared to gross profit of $14.3 million. or gross margin of 17.7% in the year-ago period. Gross profit and gross margin in the third quarter of 2025 included $1.7 million in expenses related to the suspension and substantial cessation of our operational activities in China. More generally, our gross margin also continues to be weighed down by lower volume. Which is negatively impacting fixed cost absorption within our manufacturing facilities and more recently by higher trade discounts as a percentage of gross revenues. While our total cost of goods sold per pound increased on a year-over-year basis, primarily reflecting higher materials costs and inventory provision, we made positive progress on reducing our conversion and logistics costs. In this regard and through various initiatives under our transformation office, we are pursuing additional investments, which we expect to further benefit our conversion costs beginning in the early part of next year, and we are optimizing our supply chain to bring additional savings out of our logistics costs in the U.S. Lastly, as Ethan mentioned, we have also begun extensive RFP work to pursue potential savings on our materials costs. Now turning to operating expenses. OpEx for the third quarter of 2025 was $119.6 million, which included $77.4 million in non-cash impairment charges related to certain of our long-lived assets. With regard to the impairment in accordance with accounting guidance under ASC 360, when certain triggering events or combination of events have occurred we are required to review our long-lived assets for potential impairment. Given our lower-than-expected performance through the first 3 quarters of 2025, a our view that the ongoing softness in the plant-based meat category is likely to persist longer than previously anticipated and the decrease in our stock price during the quarter we determined that triggering events had occurred and performed a quantitative assessment that concluded that an impairment existed as of September 27, 2025. The total impairment amount of $77.4 million was recorded as a loss on our income statement and allocated to PP&E, operating lease ROU assets and prepaid lease costs on our balance sheet. In addition to the impairment charge, operating expenses in the third quarter of 2025 also included certain nonroutine items as summarized in our earnings press release, totaling approximately $2.1 million. Excluding these items and the impairment charge, operating expenses in the third quarter of 2025 decreased as compared to the year ago period primarily driven by reduced marketing expenses and reduced salaries and related expenses for non-production staff. Below the line, total other income net was $1.6 million in the third quarter of 2025 compared to total other income net of $4.4 million in the year-ago period. Primarily due to a reduction in net realized and unrealized foreign currency transaction gains, and an increase in interest expense related to finance leases and our delayed draw term loan facility, partially offset by a benefit from the remeasurement of warrant liability as well as interest income. Overall, net loss inclusive of the aforementioned impairment charge was $110.7 million in the third quarter of 2025 compared to $26.6 million in the year-ago period. Net loss per common share was $1.44 in the third quarter of 2025 compared to net loss per common share of $0.41 in the year ago period. Adjusted EBITDA was a loss of $21.6 million or -30.8% of net revenues in the third quarter of 2025 compared to an adjusted EBITDA loss of $19.8 million or -24.4% of net revenues in the year ago period. Turning to our balance sheet and cash flow highlights. Our cash and cash equivalents balance, including restricted cash, was $131.1 million, and total outstanding debt was approximately $1.2 billion as of September 27, 2025. Net cash used in operating activities was $98.1 million in the 9 months ended September 27, 2025 compared to $69.9 million in the year ago period. While this increased rate of cash used from operating activities partly reflects the negative impact of reduced sales and gross profit, among other things, it is also worth noting that several nonroutine factors, including those related to our balance sheet initiatives and certain nonroutine legal expenses have also meaningfully added to cash use this year. Capital expenditures totaled $9.3 million in the 9 months ended September 27, 2025 compared to $4.5 million in the year-ago period. Largely reflecting increased investments in manufacturing capabilities intended to improve our production efficiency and expand our gross margin. Net cash provided by financing activities was $87.8 million in the 9 months ended September 27, 2025, compared to net cash used in financing activities of $1.3 million in the year-ago period. The year-over-year increase in net cash provided by financing activities primarily reflects draws in the aggregate amount of $100 million from our Delayed Draw Term Loan Facility, partially offset by related debt issuance costs. I'll now touch briefly on our outlook for the balance of the year. As I indicated earlier in my remarks, we continue to navigate a soft and uncertain macroeconomic environment across several of our key geographies. Under these circumstances, it is difficult to forecast our operating results beyond the limited horizon, and we are, therefore, continuing to provide only limited guidance around our near-term revenue expectations. Specifically, in the fourth quarter of 2025, we expect net revenues to be in the range of $60 million to $65 million reflecting, among other things, ongoing demand weakness in the plant-based meat category and the anticipated impact from distribution losses at certain QSR customers. Before closing, I'll take a moment to discuss some key events with respect to our balance sheet that occurred subsequent to the end of our third quarter. On October 29, we announced the final tender results of our previously communicated debt exchange offer. Successfully tendered notes in connection with the exchange offer represented just over 97% (sic) [97.44%] of the aggregate outstanding principal amount of our 2027 convertible notes. Said differently, all but $29.5 million (sic) [$29.459 million] of the original $1.15 billion aggregate principal amount of the 2027 convertible notes were successfully tendered in the exchange offer. We believe this is a significant outcome that goes a long way in strengthening our company's balance sheet for the long term by substantially reducing our total debt outstanding and simultaneously extending the maturity of the vast majority of our remaining debt obligations. Following the final settlement date on October 30 as part of the exchange offer, a total of approximately $209.7 (sic) [$209.721] million in aggregate principal amount of new second lien convertible notes and approximately 318 million new shares of common stock have been issued to previous holders of the 2027 convertible notes who participated in the exchange offer. In addition, and separate from the exchange offer, subsequent to the end of the third quarter, we sold approximately [Technical Difficulty] of common stock under our ATM program, generating approximately $148.7 million in proceeds net of selling commissions. As with the exchange offer, we believe this incremental capital infusion goes a long way in strengthening our balance sheet for the coming quarters and further supports our efforts to execute our turnaround plan. Notwithstanding these developments, we intend to continue to pursue our near-term objectives with urgency and discipline as we target the achievement of sustainable operations as quickly as possible. And with that, I'll turn the call over to the operator to open it up for your questions. Thank you. Operator: [Operator Instructions]. Our first question comes from Ben Theurer with Barclays. Benjamin Theurer: Thanks for the detailed prepared remarks and congrats on some of the refinancing stuff. Two quick ones I had for you. So number one, Ethan, you talked about your path to get back to a gross profit margin of 30% plus, which is clearly something you used to have in the past and many years ago, even with the sales level that's comparable to what we have right now, you were able to achieve that. So just to help us maybe understand what's currently holding you back of being as profitable as you may have been back in 2019 when sales was just around that high $200 million, close to $300 million mark, but gross margin was actually in the low 30s. So that would be my first question, and then I have a quick one for Lubi on the financing piece. Ethan Brown: Great. And good to hear from you, and thanks very much for the question. So I think if you look at our history on margin, first of all, I appreciate you recognizing that this is not something that is just only future oriented. We've had healthy margins in the past. And I think the main drag that you see throughout the P&L is the lower top line. We built a system that was for much higher revenue than we're currently facing. And so we've been going through the process of trying to scale that back and deal with things like lower overhead absorption and things of that nature. But I think it's really almost a tale of two different trends. One is we have this lower top line, which is reverting throughout the P&L and there's some pressure on margin, as a result of mix. Some of our more popular products recently have been lower-margin items. We have a little bit of higher material costs, and we had to kind of [knick-knacks], like the China depreciation charge I referenced among others. So those things are weighing down overall margin, and it's just a question of calibrating the production capacity to the current level of demand. And I think the biggest issue we have. And then second, there's a lot of underlying progress that's going on around our operations. And you can see that now this quarter, for example, in conversion costs, they're lower on a year-over-year basis. But a lot of the progress is on a slightly longer time frame, and I expect it to start showing up in '26. And so I'm actually pretty confident that we can make a substantial step change in our margin over the next several quarters. And so if you look at -- if you look at the implementation of the continuous production lines that we're putting in for some of those lower-margin products that are inhibiting the -- that are leading to some of the mix challenges we're having. Those should be going in shortly. So we expect to see improvements from there. We're looking at the RFP work that's going on now to pay dividends in '26. And some of that's actually underway now. We've seen some good savings with some key ingredients. And of course, we'll continue to optimize our portfolio. So I think the conservative outcome of all of this is a healthy margin at much lower volume. But the optimistic outcome of all of this really is it growth resumes, and we put forward some really nice margins, right? And so if we can continue to drive this work, we'll at least get to healthy margins with a lower top line. But if we can get back to growth, all of this pays dividends that are, of course, much larger. So I hope that was instructive. Benjamin Theurer: Okay. And then Lubi one for you. Can you help us maybe reconcile at the end of October or whatever a few days ago, what your cash balance looks like? Because obviously, at the end of September, it was about call it, $120 million, excluding the restricted piece of it. So just to understand some of the ATM transactions plus some of that convert, has there been anything that's helped to get the cash balance up a little bit higher, just in light of the quarterly cash burn still somewhat relevant. So to understand a little bit like what's the level of cash right now? Lubi Kutua: Yes. So the only thing we can really comment on that happened subsequent to the end of the quarter is what I discussed in my prepared remarks related to the ATM. There were -- obviously, we've detailed in some of our other disclosures around the exchange offer that there is a certain amount of transaction fees that are associated with that. But we're not prepared at this point to quantify exactly how much that was. But I think if you look at the cash balance, where we ended the quarter, the third quarter and then you add in the incremental proceeds from the from the ATM, you would obviously have to make some assumptions about some transaction fees paid as well as just kind of the ongoing rate of cash consumption of the business to get to the number that you're looking for. But we can't, at this point, provide that specific information. Ethan Brown: Just on the quarterly cash consumption, it's obvious something we're very, very focused on. We brought it down to much lower levels in the past. And I think you'll -- you should expect us to return to that. I mean we're obviously extremely focused on this EBITDA positive goal. And a lot of the transformation work that's going on is designed to really minimize cash use and ultimately turn it into cash generation. But I think that this year has been characterized by a lot of non-recurring and non-routine expense. I mean we've had the transaction going on, we've had this arbitration, which we were successful and we won that, which was a nice outcome given that the facts there. So a lot of that hopefully will be burning off and we can get to... Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ethan Brown for any closing remarks. Ethan Brown: Thank you, and thanks, folks, for joining. I think given that we didn't have much Q&A, I might just spend a minute reinforcing some of the comments that I made during the prepared remarks. One of the main things that we need to keep doing to return to growth is to change the narrative around our products and around the brand in general. And you've heard me talk about this many times, there is a very significant set of misinformation out there that slowly, I think we are making progress toward and helping to erode. But this is the key factor. We have spent so much time working on the health benefits of our products and the Beyond Pork platform and subsequent products that are just getting cleaner and cleaner and healthier and healthier. And I think that's starting to pay some dividends with a certain set of consumers who are able to look through a lot of misinformation that's going on and make decisions for themselves. And so we're continuing to encourage folks to do that. The most recent products that we've launched around Beyond Ground and around Beyond Steak really speak to that with the Beyond Ground product being only for ingredients and to be on Steak, having a really terrific macronutrient profile 28 protein, less than 1 gram of saturated fat. That's saturated fat coming from avocado oil. But the main point is that the more we can get consumers to see the very strong health benefits of our products, the more we can get back into growth mode. I think price is extremely important, and you see us focused on that. In fact, in Europe, we are providing at the same price to its animal protein equivalent to a very large customer, one of our products. We are working very much on driving the price toward parity with animal protein, but here in the U.S., it's really around countering this misinformation campaign. That's why I continue to come back to the work we're doing with Stanford, I continue to point out the support of the American Heart Association, American Diabetes Associations and so on and so forth. So that's the work that we're doing on fixed narrative. You'll see us continue to reinforce that with marketing. You'll see us continue to reinforce that with the new products that we put on the market. And you'll continue to see us put out information like planting change and other pieces that help the consumers see through some of the misinformation. In terms of innovation, I mentioned towards the end of my prepared remarks that we're doing two things, I think, that should be of interest and hopefully point people in the direction that we're headed. One is the increasing emphasis on the word Beyond versus Beyond Meat as we go forward. And that's really around broadening the aperture of our business. We have tremendous innovation capabilities, and I want to make sure that those are being put to the best use for the consumer. And so that's the first. And the second is the Beyond Test Kitchen. This allows us to really open the gates on innovation in an inexpensive way and get the products to the consumer as we broaden this aperture. And so any category that we go into, you should expect us to raise the bar in terms of health and nutrition, obviously, taste and things of that nature. And I think we're capable of doing that because of the tremendous R&D capacity we built up over the last nearly 17 years. We understand plant protein and plant ingredients in a way that many, many other companies don't. And so as we look at other areas to tilt our arsenal of technology and R&D toward, I hope I'm not drinking the cool aid on this, but I think that our ability to go in there and do things that are disruptive is exciting. And lastly, over many years, we've built up a lot of innovation. So we have quite a bit of dry powder in terms of what we can go ahead and get into the market. And so this is where my comments came from that don't expect more of the same from us. We are looking to transform not only the operational base, the margin of our company but also the top line growth, and we're thinking about that creatively and aggressively. I've really enjoyed the support of the retail investors recently, been paying attention to their comments. We feel very much indebted to them for their support and for their continued commitment to Beyond, and we're looking forward to growing together with them in years to come. So with that, I'll wrap it up and talk to you guys next time. Thanks. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good evening, ladies and gentlemen. Welcome to the Third Quarter 2025 Results Conference Call. I would now like to turn the meeting over to Mr. Rob Wildeboer. Please go ahead. Robert Wildeboer: Good evening, everyone. Thank you for joining today. We always look forward to talking to our shareholders, updating you on our business and answering questions. We also note that we have other stakeholders, including many of our employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary to our network. With me this evening are Pat D'Eramo, Martinrea's CEO; our President, Fred Di Tosto; and our CFO, Peter Cirulis. Today, we will be discussing Martinrea's results for the third quarter ended September 30, 2025. I refer you to our usual disclaimer in our press release and our filed documents. On this call, I'll make a few short comments on the trade and tariff situation, geopolitics and capital allocation at the end. Pat will outline some key highlights of the quarter and make some comments on the business and some industry issues. Fred will discuss operations, and then Peter will review some financial highlights, and then we'll do Q&A. And now here's Pat. Pat D'Eramo: Good evening, everyone. We're pleased with our performance in the third quarter, both operationally and financially. Adjusted operating income margin was up year-over-year as we continue to drive operating improvements and negotiated commercial recoveries from our customers, largely for volume shortfalls on EV programs. We generated positive results, notwithstanding the current environment as it relates to tariffs and the production disruption from a cybersecurity attack at Jaguar Land Rover, a key customer of ours. Results would have been even better absent these issues. Good news, production at JLR has resumed and is ramping up, and we expect them to return to normal by Q1. On tariffs, we are at advanced stages of negotiating with our customers for relief. Ultimately, we expect to recover the vast majority of our tariff exposure. We anticipate these negotiations to be complete before the end of the year. We are having a good year as our Q3 year-to-date results show as we continue to drive operating efficiency improvements on the shop floor, along with other cost savings, including our SG&A reduction program. We expect operating margins to continue to improve year-over-year in 2026. Note that we have been impacted to a degree by supply chain disruptions from the Novelis fire and Nexperia semiconductor chip issue. This is reflected in our outlook. Peter will elaborate on our third quarter results and 2025 outlook shortly. Shifting gears, we expect more production to come to North America over the next few years via reshoring or friend-shoring. Between the push to localize from the U.S. administration, coupled with the USMCA, we believe that all 3 countries, Canada, the U.S. and Mexico will benefit ultimately. As you know, North America accounts for more than 3/4 of our production sales. So we are spending a lot of time looking at our footprint in the region and continuing to find ways to open more capacity through continued operational improvement and optimization of floor space in anticipation of work flowing into North America. Fred will also touch on this by discussing a recent acquisition we made in the U.S. We're doing a lot on the people side to prepare for and avoid labor shortages, particularly in the skilled areas, and we're ahead of the curve in this regard. At Martinrea, we focus on internal development as well as internal promotions. We target 80% promotion from within and 20% from outside. One example of our unique approach is our semi-skill positions. This is a pre-apprentice program giving direct labor team members an opportunity to enhance their skills, freeing up time for higher skilled trades workers to focus on more advanced problem solving and plant improvements. This fosters promotion and advancement as well as an avenue for women to enter the nontraditional roles. Women make up 50% of the workforce, yet less than 25% enter manufacturing. These efforts have been recognized by the Automotive Women's Alliance Foundation, who recently selected Martinrea for its 2025 Change Champion Award. This award recognizes a company who has contributed significantly to the acceptance and advancement of women in the automotive industry. These efforts also extend to high school graduates, something like 60% of high school graduates pursue higher education such as university as well as other programs. The remaining 40% are looking for a good job and tend to want opportunity for advancement as well, and we're providing an avenue for them to pursue it. This is just one of a number of labor-related strategies we employ. We're very proud of this activity, which feeds our strong culture at Martinrea. Longer term, as more manufacturing moves to North America, we will continue to invest in our people, while enhancing our productivity through initiatives, including automation and machine learning. I'd like to end by thanking the Martinrea team for their hard work and continued enthusiasm. With that, I'll turn it over to Fred. Fred Di Tosto: Thanks, Pat. Good evening, everyone. We continue to execute well, both operationally and financially. Simply put, we're doing a great job of managing the factors that are in our control. We have the right team in place, and I'd like to thank our people for their dedication and hard work in delivering these results. Turning to our segments, starting with North America. Adjusted operating income margin came in at 6.9%, a continued healthy level. Absolute results were consistent year-over-year as the impact from slightly lower production sales was mostly offset by a higher margin, reflecting lower tooling sales, operating improvements and higher favorable commercial settlements. In Europe, adjusted operating income was about breakeven for the third quarter. While margins remain below potential given low volumes of certain programs, in particular, EVs, results are much improved from early this year and late last year. Profitability in our Rest of World segment was positive in Q3, ending the quarter at an adjusted operating income margin of 5.4%. As you know, this is a small segment for us, accounting for less than 3% of our consolidated sales and changes in volumes on a small number of programs as well as timing of commercial settlements can result in swings in profits in this segment from quarter-to-quarter. As we indicated on previous calls, our strategy is to maintain a minimal footprint in this segment, and this has not changed. Moving on, I am pleased to announce that we've been awarded new business worth $30 million in annualized sales and mature volumes, which includes $15 million in structural components in our lightweight structures commercial group from General Motors and Toyota, $12 million in our Propulsion Systems group with Stellantis and Ford and $3 million in our flexible manufacturing group of Volvo Truck and Central Power for energy storage products. New business awards over the last 4 quarters have totaled $170 million. Quoting activity remains robust. And we have recently won work on a number of program extensions with various customers with a value of approximately $1 billion in annualized sales. It's important to note that, while extensions are replacement work, they support our sales outlook and ultimately help our margin profile as we can generally reprice the business to fully build in the inflationary costs that we've had to absorb over the last few years. Extensions also require less capital for the same amount of volume compared to new programs, which supports our free cash flow. We also continue to see several takeover business opportunities, which, if prudent, we will look to capitalize upon. We recently closed on one such opportunity with Lyseon North America. Lyseon is a single plant operation in Tulsa, Oklahoma, engaged primarily in manufacturing metal parts and assemblies for school buses. This was a distressed situation where we are stepping in to support our customer, International Motors, formerly Navistar. The price we paid was nominal. We'll have to make some investments in the business, but we expect it to be accretive within a reasonable amount of time. This acquisition adds work for a great customer that we are under penetrated with, and we see a lot of opportunity to grow in international over time in both buses as well as commercial vehicles. In addition, it allows us to broaden our product offering and further diversify nonautomotive end markets, where we see some good opportunities for our business. This transaction also expands our footprint in the U.S. Note, our growing footprint in the U.S. built up over 2 decades is now more than twice the size of our Canadian footprint. We will continue to grow where we see opportunity. We're excited to welcome the Lyseon team to Martinrea and look forward to growing our business with them over the long term. And with that, I'll turn it over to Peter. Peter Cirulis: Thanks, Fred. Looking at the results year-over-year, adjusted operating income came in at $65 million, similar to quarter 3 of last year on consistent production sales. Adjusted operating income margin came in at 5.5%, up 20 basis points year-over-year. The margin improvement was a function of lower tooling sales, operational improvements and lower depreciation, partially offset by higher SG&A expense, reflecting higher mark-to-market stock-based compensation expense given the increase in our share price in the third quarter. Assuming a constant share price quarter-over-quarter, adjusted operating income margin would have been 40 basis points higher or 5.9%, reflecting a very strong performance by all accounts. Free cash flow before IFRS 16 lease payments came in at $44.5 million, down from $57 million in quarter 3 of last year, largely reflecting less cash generated from noncash working capital. This is mainly due to the disruption from the JLR cyberattack that Pat mentioned, which resulted in a delay in the collection of certain receivables from JLR. This is a timing issue, and receivables have been since collected in the early part of the fourth quarter. Including lease payments under IFRS 16 accounting, free cash flow was $30.5 million, down from $43.9 million in quarter 3 2024. We remain on track to meeting our full year 2025 free cash flow outlook of $125 million to $175 million. Based upon our solid year-to-date performance and the typical seasonal pattern where the fourth quarter is usually the strongest from a free cash flow perspective as we tend to harvest a relatively large amount of cash from working capital. Based on how things are currently playing out, we expect to be closer to the high end of our outlook range on free cash flow. Moving on, adjusted net earnings per share came in at $0.52, up from $0.19 in the third quarter of 2024. Recall that in quarter 3 of last year, EPS was impacted by an abnormally high tax rate of 70.2%. Additionally, it is worth noting that adjusted EPS would have improved further, if we did not have the JLR production disruptions resulting from the cyberattack. Turning now to our balance sheet. Net debt, excluding IFRS 16 lease liabilities, decreased by approximately $24 million over quarter 2 to $768 million, reflecting the free cash flow generation in the quarter. Less debt means less interest cost, which is a nice tailwind. Our net debt to adjusted EBITDA ratio ended the quarter at 1.5, consistent with quarter 2 and at our target of 1.5 or lower. We think this is a good place to be as it allows us to execute on our capital allocation priorities while maintaining a solid balance sheet. Year-to-date, we have repaid approximately $51 million in debt and reduced our financing cost by approximately $9 million, with further improvements expected in quarter 4 from lower interest rates and reduced debt levels. As you can read about in the automotive news sources, there is some distress in parts of the automotive supply base. This provides not only takeover opportunities in the moment like Lyseon, as Fred mentioned, but it's also a reminder to customers that financially healthy suppliers do not provide undue credit risk to them. We have a strong balance sheet. We are maintaining our 2025 outlook, which calls for total sales of $4.8 billion to $5.1 billion and adjusted operating income margin of 5.3% to 5.8% and free cash flow of $125 million to $175 million. We are on track to meet this outlook based upon our solid year-to-date performance. As we indicated on the last call, we expected production sales to be lower in the second half of the year compared to the first half based upon a typical seasonal pattern in our industry, with the summer and holiday season shutdown periods in the third and fourth quarters. We also expect lower EV volumes as some demand was likely pulled forward ahead of the expiry of the U.S. EV tax credit on September 30. We also have some softness in heavy truck volumes. These issues impact all parts suppliers engaged in these segments. On a positive note, vehicle sales in North America have been resilient, notwithstanding some monthly variation due to the timing of incentives and expiry of electric vehicle tax credits that resulted in some sales being pulled forward. Underlying demand for vehicles remains strong. More specific to us, JLR volumes are expected to improve quarter-over-quarter in quarter 4 as they ramp up following their cyberattack-related shutdown. We are also negotiating with customers on some EV-related commercial settlements, which could fall either into the fourth quarter or the first half of next year, depending on how the customer discussions go over the next few weeks. In any case, we will be prudent and take the necessary time to get the right deals in place. Looking further out, we see a lot of opportunity for our business. As Fred noted, we are seeing an increasing number of inquiries from our customers asking us to look at taking over business from distressed suppliers. We also believe that the rebalancing of global trade will result in meaningful volumes being reshored to the U.S., which will ultimately benefit North American suppliers. Our customers are asking about our readiness plans for moving volumes or relocating next-generation programs into the U.S., and we are well positioned to accommodate them in our North American-centric footprint. As Pat noted, we are having a good year, and we expect our operating margin performance to continue to improve on a year-over-year basis in 2026. And with that, I would like to thank our people for their hard work and perseverance in these dynamic times. And now I turn you back over to Rob. Robert Wildeboer: Thanks, Peter. A few comments on the broader geopolitical trade and tariff situation. I've outlined my view of a 5-part plan for the automotive industry, OEMs and suppliers in North America and said that this is where I think we should get to, which would be best for the North American auto industry and supply base, consistent with the U.S. view of a stronger U.S. industry. Here are the 5 points. One, free trade in autos and parts between the U.S., Canada and Mexico, Fortress North America, the best place to build autos in the world, focusing on the strengths and markets of the U.S., Mexico and Canada. Two, higher North American content in vehicles produced in North America in terms of higher rules of origin requirements or stricter interpretation rules. The U.S. has been advocating for that in interpreting the current USMCA. Canada and Mexico have opposed as of automakers, but this is a good way to go, and it will be good for all North American-based auto suppliers who are located everywhere throughout North America. Studies have shown that stricter content rules in the USMCA have increased production and jobs in the U.S. and North America. Three, higher penalties for noncompliance with rules of origin, not a 2.5% penalty, which many simply accept, but higher and punitive like 25%. Four, measures to attract assembly into North America, make it worth it to build here if you sell here. This could include carrots, such as investment and tax incentives or potential sticks, such as quotas or tariffs. Note that North Americans buy between 19 million and 20 million new vehicles a year, but imports account for close to 5 million. Imagine another 2 million to 3 million vehicles built in North America. Everybody wins here, including the supply base with North American content rules. We used the CARE approach to encourage EV investments in Canada. Even though EV adoption is stagnated, there is an effective way to encourage investment. The U.S. agreements with the EU, Japan and South Korea for a 15% tariff encourage this to happen to some extent. Five, I believe tariffs on China are appropriate. But more than that, North America should not support direct Chinese investment in parts or auto companies in North America. The reality is that all Chinese part suppliers and OEMs are in effect extensions of the state and subsidized by it, and their investments do not add new investment, but they displace investment from market-oriented firms. Do all this, and we have a really solid North American market. And all this can happen quickly with the U.S. being the biggest beneficiary in my view. I believe we are lurching toward this. I think it is important for Canada and Mexico to continue to fight for 0 tariffs on autos assembled in their jurisdictions eventually as part of a USMCA renewal or otherwise. Over time, I believe in North America. I believe it is in the best interest of the U.S. to have a strong North America. I believe it is good for all of us, and I believe we will have a prosperous U.S. and North America over the coming decade. The clouds and overhang will not last. I would like to make one further point about some of the moves by OEMs in terms of not proceeding with production of certain previously announced programs, ending production of certain programs or moving existing or planned programs. I will not get into the various announcements, but talk generally. First, a number of previously announced EV programs have been scaled back or canceled. That obviously reduces EV production numbers, but there is a lot of program extension on ICE vehicles and hybrid vehicle production is up. The extensions are good news for us. But note that as we have been and are largely propulsion agnostic, we have limited risk and some good opportunity with what I could call the reversion to reality, namely to produce vehicles people want to buy and will buy. Second, a move of a program that we are on is less of a risk for us because we generally have capacity to produce most of what we make in locations in different countries. Our plants are located throughout North America. Third, while we started in Canada, note that our total sales are mainly international. Less than 15% of our total sales, for example, are in Canada. And even there, currently, approximately 75% of what we make goes into U.S. assembly plants. Some of what we make in Michigan goes into Canadian assembly plants, too, but we are well poised to deal with some of these movements. Investors in our company are buying into a truly international company with a great North American footprint. Finally, I'd like to close with some brief comments on capital allocation. We continue to take a balanced approach to allocating our capital that is investing in the business, maintaining a solid balance sheet and returning capital to shareholders when appropriate. In the past several months, we invested in our business and did the Lyseon acquisition. In addition, we invested $5.6 million in NanoXplore shares subsequent to quarter end as part of a bought deal private placement financing that raised close to $26 million in gross proceeds for the company. We invested in the deal on a pro rata basis to maintain our ownership position. We think the future is bright for graphene and for Nano, particularly considering the recent supply agreement signed with Chevron Phillips to supply graphene for use in drilling fluids. This is the largest graphene contract in history, to my knowledge. We think this is the beginning. NanoXplore is poised for graphene-related growth. Recall that we paused -- our buyback program earlier this year given an uncertain outlook mainly related to tariffs. We see some of these clouds clearing, although storm clouds reappear on a regular basis. We see a continued tariff exemption for USMCA-compliant auto parts. As such, we may resume some share purchases as early as this quarter, though we will likely be gradual in our approach. As Peter said and showed, less debt is a good thing, too. Note that our net debt is now the lowest it has been since 2020. Now, it's time for questions. We have shareholders, analysts, employees and even some competitors on the phone. So, we may need to be a little bit careful with our comments, but we will answer what we can. And thank you all for calling in. Operator: [Operator Instructions] Your first question comes from the line of Michael Glen from Raymond James. Michael Glen: So just to start, I want to start with Europe. And I'm just looking to understand what's realistic in terms of operating margin assumptions for this segment? Should we expect a catch-up to take place in Q4 in terms of some recoveries or customer settlements? Any insights there about what the realistic margin profile would be helpful. Peter Cirulis: Yes, sure, Michael. So this -- the outlook there for Europe, I'd say, on a longer-term basis is improving. As you know, we did our restructuring last year and then to a large extent this year. So those restructuring savings will start to take hold here as it's essentially been completed here as of the middle of the summer. So we would expect that those results start to come in. Now of course, that could be offset by, again, timing of some of these commercial issues, which we work through with our customers. So that's to be determined as we move through in the next couple of quarters. Michael Glen: I'm just looking at prior years, and there were some pretty lumpy EBIT contributions coming out of Europe, I think, over the past 3 years. Is there any expectation that we should think about Q4 seeing a big pickup from Europe? Peter Cirulis: Yes. I would say being in a high-cost area just in general, we wouldn't see a step change in terms of large, large margins, but you will see improving margins, again, but it depends on the lumpiness of these commercial settlements that we have with multiple customers in the region. It's primarily based upon the EV challenges. So we're -- relative to other regions in Europe, a significant portion, I'd say, of our revenue is based upon some of the EV programs. So, I would continue to expect that there would be some lumpiness in that segment of our business. Fred Di Tosto: Yes. And Michael, we did highlight in our opening remarks some commercial activity or negotiations that are ongoing right now, and we'll have to assess how that goes over the next few weeks. And those can land in the fourth, they can land in the front half of next year. It all depends on when we're able to close them. So, I think lumpiness is something you should expect over the next little while as these commercial activities and negotiations kind of take hold. Peter Cirulis: I think the other thing is you can't -- we're not going to settle unless we have the right number. So that's really important in all of this is we're not going to get pushed up against a quarter or something like that. We're going to make sure the number is the right number, whether it's this quarter or next quarter, we're not relying on it in this quarter. Robert Wildeboer: We focus more on results and timing. Michael Glen: And just stepping back overall, these customer recoveries and customer settlements that we've seen in everybody's results over the past few years, nothing's really quantified into the size of the contributions or what they contribute to margin. So, what -- how should we think about the levels of these recoveries or settlements in '26 versus '25? Do you see any potential changes in OEM behavior or their view on these amounts? And what do we need to take into consideration as we go into 2026? Peter Cirulis: Sure. So, I think overall, you should expect that across the industry, including here at Martinrea, that these commercial settlements will still be a portion of our ongoing business, especially given the EV fits and starts. So that's a big part of it. And then as part of our, I'll call it, tariff compensation negotiations, that's in some customers' cases, playing a part of it as well. They're weaving that into some of these negotiations. So, I would expect it to continue for the foreseeable future. But I would say that, it's probably, I would say, relatively less than maybe in the recent past, but it will still be a portion of our business going forward for sure. Operator: Your next question comes from the line of Ty Collin from CIBC. Ty Collin: Maybe just to start, could you help us quantify or otherwise understand the impacts from the Novelis, Nexperia and JLR issues within the Q3 quarter? And also, how should we think about each of those impacting Q4? Peter Cirulis: Okay. Sure, Ty. So, in terms of quarter 3 versus quarter 4, so in the Novelis and Nexperia headlines, those are not affecting our quarter 3, but mildly affecting quarter 4. In fact, we had a JOEM just recently tell us today, hey, there's some disruptions here. We're going to be shut down for a week. So, these happen every couple of days, it seems in the last few weeks relative to Novelis and Nexperia, although one could argue that Nexperia has calmed down a little bit. So, there's some, let's say, indirect impacts there for our customers, the ones that we service. We're on several of those programs that are Ford affected. As far as JLR, that is primarily a quarter 3 issue or was a quarter 3 issue. So, they were down for practically a month. and then they'll start ramping up again here. They won't be at what was expected, let's say, prior to quarter 3, but they are plant by plant coming back up to speed. So, we would expect that to be past us here as we enter into quarter 1. So, we won't specifically say quantifying those numbers only because we wouldn't want to go through the profile that we have with that customer. Robert Wildeboer: We don't know what we don't know. Peter Cirulis: Yes. Ty Collin: Got it. Okay. That's really helpful. And then just a question on the guidance. I mean, is there any reason you decided not to raise or at least narrow the operating margin guide? I mean, the low end of that guidance or even really the midpoint implies a very low margin rate for Q4. I don't have a strong reason to suspect that, that would materialize. And maybe you could just help us understand some of the puts and takes from a margin perspective in Q4 outside of what's already been discussed. Peter Cirulis: Sure, Ty. So, the approach that we took was primarily, as you've said, in terms of the puts and takes. So, a lot of the, let's say, external elements we face similar to other customers in our space, right? So seasonally, quarter 3 versus quarter 4 volumes will be seasonally down. You hear about all the EVs, so that's affecting us as well. So, some of the programs that we're on continue to reduce here in quarter 4 versus quarter 3 because primarily of some of that prebuy that we experienced. And as you know, a portion of our business is commercial vehicle related with some of the transmission products that we sell. So that overall, as you know, and probably heard from other earnings calls, that's a little bit of a sluggish segment as well. So, you've got that going on. But of course, then offsets, we've got our performance. We mentioned some benefit from the depreciation, which we experienced from the write-down. And also, we've got these -- we talked about earlier here today, the commercial negotiations that we have, right? So, several of them are in motion and so we would rather not talk too much about negotiations in motion here. But there is a high likelihood that we will be middle of the range to the upper half of that range, but we just decided to keep the statement at guidance. So, within our range of 5.3% to 5.8%. Robert Wildeboer: And so one of the things we do is we give our yearly guidance in March related to our budgets, how we see things. And we think that's actually a good practice as opposed to necessarily changing it every quarter because what we find and what we certainly found this year is things come out of the woodwork pretty quickly. We can't necessarily tell the timing of different things. We did not expect a cyber attack with one of our customers. We just read this morning that one of our customers is facing or is involved in a lawsuit with a Canadian supplier that might shut down a couple of its plants. So, these types of things happen. So, in that context, there's still 6 weeks to go. Having said that, I think Peter has answered your question. Peter Cirulis: Yes. And I think, Ty, the other thing to take a look at and consider is that looking at our industry over time, again, because of some of the lumpiness of these commercial negotiations need to take more than a quarter-by-quarter look. We had a very strong year-to-date result. And I'd say relative to some of our companies in our peer group, very good results. In fact, some of our peer group is now they raised guidance in the fourth quarter to where we've already -- where we are already at in our range. So, let's consider the longer-term aspect, not just the quarter at a time, given the lumpiness of the commercial issues, which we've talked about with Michael. Ty Collin: Okay. Yes. Understood. And if I could just sneak in one more. I'm wondering if you could also give a bit of an update on the conversations you've been having with OEMs around onshoring. I'm wondering, if those discussions have evolved at all since the summer now that some more trade deals have been reached? I mean, are you still optimistic in general that there will be opportunities around that? Pat D'Eramo: I think -- this is Pat. Ultimately, yes, there'll be a little bubble in between now and then because of what Pete talked about, there was a lot of EV capacity put in place, equipment, buildings, things like that. that aren't being fully utilized. And so, I think the onshoring will allow us to fill some of that over the next couple of years. But certainly, the industry, it's not just myself, but amongst my counterparts and so forth, we all are looking forward to more onshoring. So, some of the OEMs have announced changes of bringing things into North America. Some have taken product or volume out of Asia and moved it already into North America. And so, these bring opportunities pretty quickly. But of course, you got to put the tooling and those type of things in place. But we certainly see a pretty positive outlook from the movement. And not just in the U.S., but I think at the end of the day, when the USMCA gets settled or resettled, if you will, the benefit is going to stay there. And the content, as Rob indicated, will probably be higher in North America, which will draw even more work here. I think all 3 countries will ultimately benefit over the next few years. Operator: [Operator Instructions] Your next question comes from the line of Brian Morrison from TD Cowen. Brian Morrison: I just want to follow up on the questions with respect to Q4. I appreciate that you've had a very strong year-to-date in Q4, there is some lumpiness in it. But when I take a look at the mid- to high end, it implies sort of a 5% or lower margin for Q4. And just what's the largest component of the ones that you listed? Is it the commercial vehicle sluggishness or the Novelis fire that's impacting you the most in Q4? Peter Cirulis: Yes. So, the element of, let's say, reduction, I would say, mostly comes from the EV area. So, the reduction in the EVs quarter 3 to quarter 4 has a very large impact for us. I mean, there are certain customers that we've got with EVs that are down, let's say, 10%. And then we've got one on the far end, far end is over 80% reduction because of some of these prebuys, which took place because of the expiry of the U.S. credits. As far as headwinds are concerned. Fred Di Tosto: I also just want to add just -- I said it earlier, just the commercial settlements. We're going into the end of the year. We've got a number of them that are still in progress. We're not going to back ourselves into a corner. So, we don't want to lock ourselves into a particular band. We'll make the right deal and whether it pops in the fourth quarter or the first quarter or the second quarter next year, we're going to do the right thing. right? So, I think based on what we see here today, I think Peter said it, we are expecting for the year to be in the upper half of our guidance range based on our year-to-date performance and what we see. But there are obviously some puts and takes potentially as we close out the year. Robert Wildeboer: I think if you look at the number of -- that many, but some suppliers have raised their guidance. And we're all in the same market, as Pete said, we're all servicing the same customers, and we're all dealing with the same disruptions. The likelihood is there's a settlement. And that's how -- that's really the easiest way in the fourth quarter, given the current conditions in the industry to raise guidance. Brian Morrison: Okay. Let's look forward for a moment because there was a disclosure in your press release earlier that said you expect 2026 margins to be higher. I wonder if you can just talk to me about what your North American production assumptions are in that commentary. I believe that you should have at least 50 basis points from operating efficiencies that are to fall to the bottom line. Like there are many key drivers here, whether it be improved contract pricing, whether it be your operating efficiencies, whether it be machine learning that you're doing very well at. Like what kind of cadence should we look at like in terms of improvement year-over-year? I don't want to box you into a corner, but it does seem like 50 basis points should kind of be a minimum threshold. Robert Wildeboer: Yes. You do. Fred Di Tosto: Rob, I want to back you into a corner. Maybe you can do. Robert Wildeboer: I think you laid out a lot of really good things there. There's still some uncertainty, obviously, with the tariff discussions and so forth. In terms of overall volume, I believe working people are assuming lower production for next year in North America. We'll have to see if that's correct. I personally believe that, that's conservative. But those are numbers that we're seeing. And I think that they don't necessarily factor in the reshoring or the new shoring or whatever you want to call that I think is going to happen, which I talk generally. But I think those numbers are kind of there. In terms of what the other guys see, I'll turn it over to Peter or Fred. Peter Cirulis: Yes. So, like we've said in previous calls, we see a flat market based upon the '25 to '26 in terms of the market assumptions, just based upon what everyone else is looking at as well. So, we based our North America production number at $14.5 billion, $14.7 billion, somewhere in that range. So that's kind of where we see the business. As far as opportunities, we've talked about these as well. With the challenges in EV, Brian, we are seeing new inquiries on propulsion product, right, for engine blocks and so forth, which is something refreshing, and that's a very good business for us, especially in our aluminum product lines. So, we see some benefits there to offset some of that flatness, if you will, that you see from the EV challenges. Robert Wildeboer: What we will do is we typically do is at our year-end, which we'll announce at the end of February or First week of March this year. Peter Cirulis: March. First week of March. Robert Wildeboer: We'll try and give a sense of the year that we see and which includes cash flow revenues and margin. Peter Cirulis: Yes. And I think it goes back to the earlier statements on the call today, Fred and Pat and myself. It really depends on some of what we're working through here in the fourth quarter with the commercial negotiation, right, to get the right deal, maybe it falls into quarter 1, depends. Brian Morrison: Okay. I appreciate that. Last question, free cash flow for next year. You're establishing a pretty good track record here. I'm just wondering with the near-shoring opportunities that you have, if we should think of this surplus free cash flow as it gains momentum later this year and into next, whether we should think of it more being allocated towards potential opportunities, takeover business opportunities? Or I did hear you say, Rob, that you will be active with your NCIB to a certain extent. But should we really think that maybe there's just more opportunity in takeover business in the near term? Robert Wildeboer: I think so. We hope so. We want to grow our business with the right opportunities, help customers build deeper relationships with existing customers and benefit from that trend. So, we invest in the business first, the technologies related to the business. We think there's opportunities out there and the Lyseon, -- example that we talked about was a very good, very difficult, very messy. But at the end of the day, it's a nice chunk of business. We've got a new plant in the U.S. We'll fix it, and we got a much deeper customer relationship with a great customer. Pat D'Eramo: I think -- there's another benefit here also to think about. And if you recall, over the years, we've talked a lot about our flexible equipment and how we've been able to carry it over into other programs. And with the EV downturn and the excess capacity, some of this takeover work doesn't necessarily mean a big tax on capital. So, I wouldn't say it, necessarily a direct relationship like new business might be. So, I think we can actually make some really good deals and bring in new work. Brian Morrison: And I assume those new deals, Pat, will have contract restructuring within them as well in terms of pricing to ensure that your hurdle rates are met and your margins are maintained. Pat D'Eramo: I would say consistently, that's happened, yes. Peter Cirulis: That would be a prerequisite for any deal that we do in that space, let's say. Operator: Your last question is from the line of Michael Glen from Raymond James. Michael Glen: I just want to follow up on the takeover work and the bidding exercise. Can you characterize what the bidding -- were there a number of bidders lined up for this asset? Just trying to get a sense as to what the competitive set looks like when you're trying to pursue some of these deals. Pat D'Eramo: So this happens a couple of different ways. In the Lyseon deal, it was kind of interesting. We've started a little side business where we're helping people in manufacturing improve their floor and their efficiencies and so forth because as you guys know, we brought a lot of lean people in over the years and educated our folks in the same light. So, the company hired us to go in and see what we could do to help them out. And we spent a couple of weeks there, gave them the list, here's what you need to do and here's what we can help you do, and they came back a week later and said, you know what, we think we're out of our league. Would you guys buy it? And that's pretty much how that deal went down. In other cases where we have takeover activity happening in discussions is 9 times out of 10, the customer will come to us and say, Hey, supplier X over here is struggling. We need some help. Would you be willing to help? That may be a purchase of a plant or just a movement of work based on our open or capable capacity. So, it can happen usually 1 of those 3 ways when it comes to takeover work. Michael Glen: And I guess, Martinrea, the history of the company has been put together by pursuing a number of these types of acquisitions over time. Is the way you -- how has the approach to these types of transactions changed now versus what it might have looked like 10 to 15 years ago? Has there been a change at all? Robert Wildeboer: Yes. I think there's been a change. But historically, of course, we wanted to build a footprint when we said build or buy. A lot of stuff we purchased was insolvent or close to or perhaps should have been insolvent. And that's how we built our footprint in the U.S., for example, and also the aluminum business. I think that here, we're looking at it on a job basis. We aren't necessarily looking for something that's in distress. But often, there is an issue that the customer has with the supplier when they're asking us to work on something. It's not necessarily that the job is a bad one or that the customer is insolvent. At the same time, we're willing to look for good things, too, right? And I think that, there are -- we're in an industry that the pricing actually is not as bad as it used to be. So, we would look at situations like that, too. We are not committed to basically saying, we want to look for insolvent companies where we have to put a lot of capital and it's going to take 5 years to turn around and all that type of stuff. 15, 20 years ago, that's what was there. That's what we did. The Lyseon situation, for example, is a very quick turnaround situation. We expect that -- we expect that to be accretive within the first 12 months, and that's a good position to be in. Some of the things we bought in the past took longer. Pat D'Eramo: I would also argue that, we're a lot better at fixing things faster today than we've ever been. We've learned a lot. Robert Wildeboer: Thanks for asking. Any more questions, I'm sure. Operator: There are no further questions at this time. I would like to turn the call back to Mr. Rob Wildeboer for closing comments. Sir, please go ahead. Robert Wildeboer: Well, thank you very much for taking part of your evening with us. Really appreciate your time and work getting to know us and spreading the word on us. If anyone has any further questions, please feel free to contact any of us or Neil Forster. Happy to answer your questions and have a great evening. 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 standing by. At this time, I would like to welcome everyone to the Third Quarter 2025 IRIDEX Earnings Conference Call. I would now like to turn the conference over to Trip Taylor, Investor Relations. You may begin. Philip Taylor: Thank you, and thank you all for participating in today's call. Joining me from the company are Patrick Mercer, IRIDEX's Chief Executive Officer; and Romeo Dizon, the company's Chief Financial Officer. Earlier today, IRIDEX released financial results for the quarter ended September 27, 2025. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical facts including, but not limited to, statements concerning our strategic goals and priorities, product development matters, sales trends and the markets in which we operate. All forward-looking statements are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place reliance on these statements. For a discussion of the risks and uncertainties associated with our business, please see our most recent Form 10-K and Form 10-Q filings with the SEC. IRIDEX disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 11, 2025. And with that, I'll turn the call over to Patrick. Patrick Mercer: Good afternoon, everyone, and thank you for joining us. Today, I'm excited to highlight our third quarter business results. We are proud of the steady progress we have made during my first year as CEO. And over the past 4 quarters, we have executed our strategy to streamline our operations and advance IRIDEX towards profitability. The financial transformation of this business is demonstrating by our fourth consecutive quarter of year-over-year revenue growth, reduced operating expenses and improved adjusted EBITDA. We are on track to achieve both positive cash flows in the fourth quarter and positive adjusted EBITDA for the full year 2025. Importantly, the result of our hard work over the last year puts us in a position to achieve cash flow positive operations in 2026 as well. I am proud to say we have accomplished the goals we set in place for IRIDEX when we started this transformation. Turning to the third quarter specifically, we achieved strong year-over-year revenue growth of 8%. This was accomplished while reducing operating expenses by 12% and improving our adjusted EBITDA by $1.3 million compared to the prior year period. You will recall that beginning in the fourth quarter of 2024, we implemented a series of targeted cost reduction programs that have resulted in lowered operating expenses throughout 2025. For the 9 months ending September 27, operating expenses have been reduced by 25%. These efforts have meaningfully reduced our cash burn and strengthened the company's overall financial position as the cost structure is now better in line with our revenues. We have identified additional opportunities to further strengthen the company's financial profile and are now implementing actions to enhance our gross margins and further reduce operating expenses. On the manufacturing front, we are in negotiation with contract manufacturers that could reduce our cost of goods sold and benefit gross margins. It will take some time to implement these new relationships and transition certain product lines, but this is an initiative we remain very excited about for 2026. In the near term, we are relocating certain general and administrative functions outside of California. This initiative alone is expected to generate approximately $165,000 and quarterly savings beginning in the first quarter of 2026. These moves demonstrate our commitment to continuing cost discipline and improved financial performance. Turning next to discussing our commercial performance. I am pleased to share that in the third quarter, our top line revenue grew a healthy 8% year-over-year to $12.5 million. With a smaller sales force and reduced marketing spend, our commercial team's strong execution has been truly impressive. They continue to drive efficiency by levering technology and long-standing customer relationships to drive sales. The third quarter's revenue increase was driven by strength in both our glaucoma and retina product lines. Starting with our glaucoma business. We remain enthusiastic about the global growth potential as acceptance of our treatment solutions increases. In the U.S., our strategy for the G6 system centers on deleveraging our substantial installed base to drive higher system utilization. The Medicare LCDs introduced last year have also created new opportunities for adoption of the G6 treatment earlier in the continuum of care for mild to moderate stage patients. From a tactical standpoint, we are continuing to utilize MedScout, a sales enablement platform to identify accounts within the midrange of utilization and support them to increase the utilization. These practices have already demonstrated a strong commitment to G6. And with targeted engagement, we see meaningful potential to increase their procedure volumes. Overall, during the third quarter, Cyclo G6 system sales increased to 30 units from 26 in the prior year period. Most units were sold to existing users acquiring additional systems often as they expanded into new locations. We believe this demonstrates recognition of TLT as a necessary treatment option for clinicians. We sold 14,900 probes compared to 13,600 in the prior year period, representing a higher utilization in both the U.S. and internationally. We have also realized an increase in ASPs for both probes and consoles. International glaucoma performance was strong with positive contributions across geographies. In Europe, Middle East and Africa, we saw continued growth in glaucoma probe sales, supported by the fulfillment of several orders initially deferred from Q2 due to supply constraints IRIDEX experienced last quarter. In GmbH, G6 Pro sales remain on a steady upward trajectory, reflecting sustained procedural demand and solid recurring revenue streams. In Asia, for the second consecutive quarter, the region experienced volatility and operational challenges. While demand remains strong, several macro factors continue to weigh on our commercial activity. As anticipated in Q2, the ongoing tariff dispute with China continued to disrupt sales planning and forecasting into Q3. Japan's market remains sluggish, driven by the weak yen against the U.S. dollar, which benefits domestic competitors who are less exposed to currency fluctuations. Looking to Latin America and Canada, we saw improved G6 business momentum following the appointment of new glaucoma distributors and a stronger push from existing partners. Shifting to our retina product portfolio. Here, our top priorities include driving broader adoption of our flagship PASCAL system and securing additional international regulatory approvals for our next-generation retina platforms, enabling us to capitalize on robust global distribution network. In the U.S., PASCAL sales remained strong as sales representatives increasingly focusing their efforts on promoting our next-generation PASCAL platform. Medical and surgical retina revenue grew more than 10% year-over-year in line with expectations and reflecting steady market demand. EndoProbe sales remained stable throughout the quarter, demonstrating consistent performance across our customer base. Now on to international retina performance. In Europe, Middle East and Africa, the region continues to outperform expectations, primarily driven by strong PASCAL performance in the Middle East and Africa, alongside steady Synthesis activities from European markets. MDR certification for the IRIDEX PASCAL are negatively affecting retina cells throughout Europe. We expect this and anticipate pent-up demand will provide a tailwind once certification is achieved. In GmbH, operations faced a slowdown in capital equipment sales, largely due to purchase order delays associated with the region's summer holiday period. In Asia, our retina business was similarly affected by the same regional dynamics impacting the glaucoma business including the continued impact of the China tariff dispute and currency-driven competitive pressures in Japan. Despite these headwinds, underlying demand for our retina products remains solid. In Latin America and Canada, a region is showing signs of recovery, primarily fueled by a rebound in PASCAL sales supported by renewed distribution engagement. Now I'll hand the call over to Romeo to discuss our financial results. Romeo Dizon: Thank you, Patrick. Good afternoon, everyone, and thank you for joining us today. I would like to begin by reviewing our financial performance for the third quarter ended September 27, 2025. As we noted in our press release and in Patrick's comments, our total revenues for the third quarter of 2025 were $12.5 million, representing an 8% year-over-year increase. Growth was driven primarily by higher glaucoma probe sales and PASCAL system sales partially offset by lower surgical retina probe sales. Retina product revenue increased 4% in the third quarter of 2025 to $6.7 million compared to the third quarter of 2024, driven primarily by higher PASCAL system sales, medical and surgical retina system sales, partially offset by a decrease in surgical retina probe sales. Total product revenue from the Cyclo G6 glaucoma product group was $3.5 million, representing a growth of 13% year-over-year. Other revenue increased $0.2 million to $2.2 million in the third quarter of 2025 compared to $2.0 million in the third quarter of 2024, driven primarily by an increase in service revenue. Gross profit in the third quarter of 2025 was $4.0 million or a gross margin of 32.1%, a decrease of $0.3 million compared to $4.3 million or a gross margin of $37.3 million in the third quarter of 2024. Gross margin decreased by 520 basis points driven by $0.8 million charge to cost of goods sold, issued inventory write-down, partially offset by more favorable geographic and product mix in the current year. In the third quarter of 2025, we recorded a onetime nonrecurring noncash charge to write-down inventory, following a detailed review related to the transition to a new resource planning system in our estimate of the cost of raw materials and subassembled products not absorbed as we continue to transfer our production of various product lines to third-party contract manufacturers. It was determined that such inventories are now excess and obsolete. These stranded costs are typical in the transfer of production to contract manufacturers. Excluding this onetime write-down, our gross margin rate would have improved to 38.7%. Operating expenses were $5.4 million in the third quarter of 2025, a decrease of $0.8 million or 12% compared to $6.2 million in the third quarter of 2024 due to expense reductions measures taken late 2024. Consequently, net loss, including the onetime charge, was $1.6 million or $0.09 per share for Q3 2025 compared to a net loss of $1.9 million or $0.12 per share in the same period of the prior year. Non-GAAP adjusted EBITDA for the first quarter of 2025 was a loss of $131,000, an improvement of $1.3 million compared to non-GAAP adjusted EBITDA loss of $1.4 million for the third quarter of 2024. The improvement is driven primarily by the expense reduction measures implemented in late 2024. Cash and cash equivalents totaled $5.6 million at the end of the third quarter of 2025, a reduction of $1.2 million compared to $6.8 million at the second quarter of 2025. We are very pleased with our reduction in cash usage and expect cash use to continue or improve on these levels. As you can see, we are making significant progress advancing our business plan with a greater focus on profitability. We are pleased with the results of our continuing financial prudence, and we plan to achieve a cash flow breakeven fourth quarter positive EBITDA in fiscal year 2025. And with that, I'll turn the call back to Patrick. Patrick Mercer: Thank you, Romeo. Looking back over the past 12 months, we have made significant progress towards the goals we established a year ago when I assumed the CEO role. Most notably, we are proud that our focus on operating improvements are expected to support sustained cash flow positivity for IRIDEX going forward. We continue to take decisive actions to reduce operating expenses and strengthen our financial position. IRIDEX is well positioned to extend its leadership in ophthalmic laser systems. To the IRIDEX team, I'd like to take a moment to thank you for your continued commitment, dedication and outstanding execution. We recognize that many of you are wearing multiple hats and your contributions have not gone unnoted. To our shareholders, thank you for your continued support of IRIDEX. We look forward to updating you on our progress next quarter. To all the veterans, Happy Veterans Day. Thank you for your sacrifice and service. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
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