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Operator: Greetings, and welcome to the Paysafe Third Quarter 2025 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kirsten Nielsen, Head of Investor Relations. Kirsten, please go ahead. Kirsten Nielsen: Thank you, and welcome to Paysafe's earnings conference call for 2025. Joining me today are Bruce Lowthers, Chief Executive Officer, and John Crawford, Chief Financial Officer. Before we begin, a reminder that this call will contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent SEC reports. Statements reflect management's current assumptions and expectations and are subject to factors that could cause actual results to differ materially from those forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements speak only as of the date of this call, and we undertake no obligation to update them. Today's presentation also contains non-GAAP financial measures. You can find additional information about non-GAAP measures and, where relevant, reconciliations to the most directly comparable GAAP measures in today's press release and in the appendix of this presentation, which are available in the Investor Relations section of our website. Now I'll turn the call over to Bruce. Bruce Lowthers: Good morning, and thank you for joining us today. Paysafe delivered accelerated financial results in the third quarter, including 6% organic revenue growth, 7% adjusted EBITDA growth, and 37% adjusted EPS growth. Growth from our existing customers or same-store sales contributed 5% to growth, while contribution from new sales and product accelerated to double digits. The overall attrition level was stable around 11%. We returned another $20 million to shareholders by repurchasing 1.5 million shares during the third quarter, bringing our year-to-date total to $50 million as our shares remain significantly undervalued, and we remain confident in Paysafe's long-term strategy and growth potential. To that effect, our Board has authorized an additional $70 million to our existing share repurchase program. While we're pleased with our third quarter and year-to-date progress, we continue to see outperformance of our lower-margin product and sales channels. Our updated 2025 outlook reflects our current business dynamics and a longer timeline for the delivery of key product initiatives as we navigate the complex ecosystem required to bring innovative new solutions to the market. We'll discuss both of these areas in more detail throughout the call. Bruce Lowthers: So let's start with our regional performance on Slide four. The largest market, North America, grew 8% in the third quarter, excluding the divestiture. This was driven by approximately 50% growth from iGaming, while SMB grew 4%. Europe is our next largest market, which also grew 8% normalizing for FX. Latin America was roughly flat in Q3; this is mainly related to a large customer contract renewal in the prior year. As we lap that impact in Q4, we're seeing a normalized growth rate of 10%. In the non-core rest of world countries, we saw a double-digit decline attributable to our 5% of total revenue three years ago to 3% of revenue today, as a function of both macro dynamics and our own actions to trim this exposure over the years. So this gives you a sense of the puts and takes from a regional perspective, including very strong organic growth from our largest core markets that represent about 90% of our revenue. Turning to Slide five. I'd like to highlight some of our recent client wins starting with iGaming. In the third quarter, we signed an agreement with BetMGM to provide payments for their online players in Ontario, where Paysafe already maintains a strong market presence. They were looking for a new partner who could deliver high approval rates with stronger customer support and reliability. What's awesome about this deal is that BetMGM is one of the largest merchants in North America that Paysafe did not have integrated, so we're thrilled to partner with them in Ontario. It's also worth highlighting that Paysafe is very well positioned in the up-and-coming predictions market. Paysafe is in active discussions with several key players. As one example, we're expanding our partnership with Underdog to support their growth in the predictions market across 16 states. This win reflects our strong customer relationship and our ability to support our clients' growth aspirations by launching in new jurisdictions at speed. We also signed agreements with new international iGaming operators such as state.com to provide eCash digital wallet solutions and our local APMs across Latin America and Europe for pay-ins and payouts. We're also expanding our relationship with Bitano to offer eCash solutions in support of their recent launch in Belgium. Outside of iGaming, we continue to make progress expanding our pipeline and winning deals in other core verticals. For several years, Paysafe has been a trusted partner of Campminder, a leading ISV whose technology powers thousands of camps and recreational organizations. We are now taking our joint success across borders, expanding with them into Canada. Lastly, in the FinTech space, we signed a new client agreement with PaySagi in Europe. By integrating with Paysafe's acquiring platform, PaySagi can now offer their global online merchants instant access to major payment methods. Collectively, these are great examples of how our operational improvements, sales team investment, and product focus are enabling us to expand our TAM and growth opportunities across new and existing clients. Turning to Slide six. Across enterprise-level merchants, our growth in e-commerce continues to be very strong, exceeding 20% in the third quarter, driven by iGaming growth of more than 50%. Bruce Lowthers: Total e-commerce growth moderated compared to more than 30% in recent quarters due to softer performance across other verticals concentrated within lower-tier merchants, mainly in non-core areas. Importantly, we booked over 100 enterprise-level deals in Q3, an increase of 25% compared to last year, along with double-digit growth in the annual contract value of those bookings. We also continue to see higher quality deals, which supports continued revenue growth along with the durability and diversity of our merchant base. We believe our e-commerce business remains on track to reach $200 million in revenue this year, reflecting a three-year CAGR of 29%. On the SMB side, after driving 6% new mid-growth in Q2, we accelerated new mid-growth to more than 20% in Q3, led by our direct sales channel along with positive growth in SMB revenue and revenue per merchant. We also saw strong acceleration with our new mid-acquisition for Clover in Q3, up 49% from Q3 2024. A very impressive result with great progress from the team. We're excited to build on this momentum as we look ahead to 2026. Even with the strong execution on the direct side of the business, overall revenue mix has shifted to the lower-margin ISO business as we continue to deliver double-digit revenue growth from this third-party channel in Q3 and year-to-date. We continue to focus on optimizing our SMB portfolio, but given the comparative size and the growth profiles of the portfolios, we expect pressure on the total segment margin as we continue to ramp up our direct efforts. Let's turn to Slide seven. To take this a step further, and discuss our focus areas to optimize the SMB portfolio, as we've shared before, our Merchant Solutions segment today is comprised of three business lines: e-commerce, which serves our larger enterprise merchants, SMB direct sales, and SMB sales through ISOs. When you look at the aggregate of our e-commerce and SMB direct sales, which go to market under the Paysafe brand, compared to the third-party ISO channel, the direct revenue streams are not outpacing the stronger ISO growth, which now represents more than one-third of the Merchant Solutions segment, up five percentage points from two years ago. The ISO book has an EBITDA margin profile in the single digits, while the direct channels across SMB and e-commerce have attractive EBITDA margins in the mid-20s range on average. So while we were focused on the right things to improve our growth profile of the segment, we were frankly too optimistic in our assumption around shifting this mix dynamic in 2025. However, as I mentioned on the prior slide, we drove an acceleration in new SMB mid-growth in Q3, up more than 20% from last year, led by the direct channel. We'll build on this momentum in new merchant acquisition and continue to implement the improvement plans underway, including new SMB leadership and the expansion of our agent programs, where we've seen an increase in demand from single agents who want to sell under the Paysafe brand. Finally, we continue to roll out value-added services with plans to bring several new products throughout 2026. This represents the marketplace that Paysafe will support as part of a fully integrated and streamlined onboarding experience for value adds that help our customers manage their businesses. Shifting gears to digital wallets, on Slide eight. To put it simply, the digital wallets remain a work in progress. Starting with the positives, we're seeing strong consumer engagement related to eCash product initiatives as we continue to cross-sell and shift towards online account-based distribution. In October, our account and card products surpassed 500,000 registrations, a major milestone that reflects the team's drive and stronger consumer engagement. In just over two years since introducing the product, we've reached the scale that took even some of the leading digital banks nearly two years despite their broader offerings and massive marketing budgets. And this was achieved through targeted regions across Europe, so we still see opportunity for further geographic expansion. Next, our digital banking partnerships continue to ramp up and deliver growth across Europe, including our recent launch with BBVA to offer their consumers seamless cash solutions to deposit and withdraw to and from their bank accounts at any of our point-of-sale partners' locations in Germany. Additionally, we see strong demand for Paysafe's suite of local payment solutions in Latin America, including double-digit volume growth from Pago Effectivo and Safety Pay in Q3 and year-to-date. The rollout of our new Pago Effectivo wallet in Peru is progressing very nicely. And in the third quarter, we launched our iOS app along with product enhancements that have helped drive onboarding efficiency and build trust across merchants and consumers. These are the key areas and products collectively driving the strong double-digit revenue growth, while Classic Wallets is not accelerating to the level we have planned for 2025, as weakness in the rest of the world partly offsets strong progress in Europe. At the same time, some of our new product initiatives, such as our business wallet, are taking longer to deliver and gain momentum than we planned. This is a function of a complex ecosystem across the regulatory, risk, and banking needs required to develop innovative new products and supporting infrastructure to bring merchants and consumers together in a seamless experience. The inertia across these legacy systems has resulted in some delay in execution of our product roadmaps. While implementing and integrating these new models is complex, our customer pipeline remains strong, and we identify more and more money movement opportunities where the wallet helps solve the unique challenges and opportunities our clients face. To wrap up, before I hand the call over to John, I want to reiterate that we delivered strong results in Q3, and our sales team is becoming more productive, driving higher bookings and quality of revenue. Through our operational transformation, we now have a strong platform to build upon and launch new products and services. With that, I'll ask John to review the financial results and outlook. John Crawford: Thank you, Bruce. Let's move to Slide 10 for a summary of our third quarter results. On a reported basis, revenue increased by 2% to $433.8 million. Organic revenue growth was 6% for the quarter, reflecting continued double-digit growth from e-commerce, 4% growth from SMB, and 4% organic growth from digital wallets. This excludes the impacts from the divestiture, foreign exchange, and interest. While this marks an increase in reported inorganic revenue growth from the first half, this was slightly below our expectations in terms of the overall revenue performance as well as business mix. As Bruce mentioned, it reflects some moderation of e-commerce growth and lower than expected growth in the second half from digital wallets. Adjusted EBITDA increased 7% to $126.6 million. Our third quarter results benefited from a licensing deal, which contributed approximately $10 million to revenue and adjusted EBITDA, offsetting the headwind from ongoing business mix and the divestiture, which has less impact in the second half. As a result, adjusted EBITDA margin was 29.2%, up 160 basis points year over year. Given what we're continuing to see at the gross margin level for both segments, we don't expect EBITDA margins to be at this level in Q4. We expect adjusted EBITDA margins closer to 23% in Q4, about 25% for the full year. Turning to cash flow. We generated $83.6 million in unlevered free cash flow in the quarter, with a 66% conversion of adjusted EBITDA. Down from 76% in the prior year, mainly reflecting one-off tax refunds which benefited the prior year and the timing of a large receivable. Normalizing for this, conversion would have been above 70%. On an LTM basis, unlevered free cash flow was $265 million, reflecting 62% conversion. We expect Q4 to be within or slightly above our targeted range of 65% to 70%. Adjusted net income was $40.3 million or $0.70 per share, compared to $0.51 in Q3 of last year, driven by higher adjusted EBITDA, lower interest expense, a lower effective tax rate, and a reduction in share count. Lower than the prior year quarter, the third quarter did include a USB tax expense, which drove the tax rate higher in the third quarter relative to the 27% to 28%. GAAP net loss for the third quarter was $87.7 million, reflecting a charge to income tax expense of $81 million due to the recognition of an additional valuation allowance against the company's U.S. Deferred tax assets. Due to the enactment of the One Big Beautiful Bill Act as previewed last quarter. As a reminder, this is a non-cash expense that does not impact the company's current or future cash tax payments. Turning to slide 11, for a breakdown of our revenue growth drivers year to date. Revenue attrition continues to trend in the 11% to 12% range. The growth contribution from existing customers is now 10% year to date, which includes clients onboarded in 2024, naturally moderates as the year progresses and we annualize the start dates of client onboards. Contribution from new sales and new product initiatives accelerated to double-digit growth in Q3, leading to 7% year to date. Turning to slide 12 to discuss the Merchant segment results. Merchant Solutions volume increased 9% to $34.9 billion, resulting in organic revenue growth of 7% led by double-digit growth from e-commerce, including robust processing volumes with the start of the U.S. Football season. The second biggest growth driver in the quarter was the license deal, and while we're excited to have proven we can monetize data, underlying growth from processing was just around 5% in the quarter, when normalizing for various one-timers in both periods. We expect to see a higher growth rate in Q4 supported by the mid-production over the last several months. Adjusted EBITDA for the Merchant Solutions segment was $47.8 million, with an adjusted EBITDA margin of 20.6%. There continues to be some noise here, but looking past the impact of the benefit from the licensing deal, adjusted EBITDA margin was stable sequentially with Q2. Again, the main driver of this year is the mix dynamic, due to the success within our ISO channel, which continues to outpace the growth of the higher-margin direct channel in Merchant Solutions as Bruce discussed earlier. Turning to the Digital Wallet segment on slide 13. Volume from digital wallets increased 13% to $6.7 billion or 8% on a constant currency basis. Revenue from digital wallets was $205.7 million, an increase of 8% or 4% on an organic basis. Our three-month actives were 7.1 million, stable compared to last year. Organic growth was supported by increasing consumer engagement related to our eCash product initiatives, expansion of Paysafe's digital banking partnerships across Europe, as well as demand for our suite of local payment solutions in Latin America, particularly across iGaming and payment service providers. Adjusted EBITDA for the digital wallet segment was $93.4 million, an increase of 11% compared to last year, reflecting revenue growth and lower SG&A expense. Gross margin for the segment was stable sequentially at roughly 71%, down 120 basis points versus last year due to lower interest revenue accounted for 50 basis points as well as business mix reflected by higher relative growth from eCash products. Turning to slide 14 for an update on leverage and capital allocation. At the end of the quarter, total debt was $2.5 billion and net leverage improved to 5.2 times. Compared to where we started the year, the stronger euro has increased our euro debt balances by more than $140 million when translated back to U.S. Dollars. Divestiture has been the other key driver of this temporary increase in our net leverage, but this is the last quarter that will have that headwind to our LTM adjusted EBITDA metric. Lastly, while we remain keen to delever, share repurchases have remained very attractive. We repurchased 1.5 million shares during the third quarter at an average price of $13.62 per share, bringing our year-to-date total to 3.6 million shares or $50 million. As Bruce noted earlier, our Board has authorized an additional $70 million for share repurchase. Finally, turning to Slide 15. Bruce discussed at the start of the call we're updating our 2025 outlook based on our year-to-date results and our expectations for the remainder of the year. Our reported growth in the second half benefits from the stronger euro and a much smaller impact from the business disposition, we now expect full-year organic growth in the range of 5% to 6%. On the left-hand chart, you can see on a rounded basis, the revenue growth drivers are largely consistent with what we shared for our original guidance. Reflect a slightly lower contribution across existing clients, new sales, and product initiatives. This puts our current expectation of full-year revenue at the low end of our prior range or slightly below based on the updated midpoint. Key areas to point out versus our original expectation are as follows: one, slower growth from the Digital Wallet segment, particularly our Classic Wallet; two, a slower planned rollout of new wallet solutions; and three, lower than expected e-commerce growth, which saw a moderation in growth in Q3 although still very strong at over 20%. As a reminder, these business lines contribute the highest gross margins, so these relatively small top-line changes result in a less favorable business mix across both segments. The final driver is the continued strong performance from our ISO channel in Merchant Solutions, which has the lowest gross margins. Translating this to EBITDA and margin, you can see the impact is largely a gross margin headwind, while operating expenses as a percentage of revenue are lower compared to 2024, as we've continued to aggressively manage our cost base. Overall, this is not where we plan to be from a margin perspective, nor does it reflect the potential of our business model and the operating leverage that we can deliver. You'll see our full-year guidance summarized on slide 16, reflecting 5% to 6% organic growth, adjusted EBITDA growth of 4% to 5% excluding the business disposition, resulting in adjusted EPS in the range of $1.83 to $1.88. Looking ahead to 2026, on a preliminary basis, we expect organic revenue growth to be in the mid to high single digits range and adjusted EBITDA to increase high single digits versus 2025. We'll be finalizing our financial planning process over the next few months to refine this outlook further and discuss it on our year-end earnings call as usual. With that, we'll turn it over to Bruce for final remarks. Bruce Lowthers: Thank you, John. To wrap up, I'd like to reiterate that we are on track to deliver our third consecutive year of organic revenue growth and importantly, with the transformation that we've driven over the last three years, we are seeing real improvements in how we operate. While we're not seeing the EBITDA expansion that we initially planned for the year, we remain focused on driving stronger operating leverage and expect to deliver higher adjusted EBITDA growth in 2026 and beyond. I'm more confident than ever that Paysafe is a more agile and adaptable business today with higher quality revenue streams well-positioned for long-term success. Now, let's begin with the Q&A session. Operator: Thank you. We'll now be conducting a question and answer session. Our first question is coming from Trevor Williams from Jefferies. Your line is now live. Trevor Williams: Great. Thanks. Good morning. I just want to go back to some of the dynamics within the SMB book on the direct side. We can see the mid-growth acceleration. It sounds like attrition has been stable. So Bruce, it'd be helpful to hear kind of what else you need for that direct channel growth to get pulled up, whether that's just the time with the mid-growth needing to compound and we'll see that just naturally get pulled up over time or anything else initiatives-wise that you would point us to for kind of what the levers are needed to get that growth rate up? Thanks. Bruce Lowthers: Yes. Good morning, Trevor. Thank you for the question. Look, the SMB, as we've talked about before on the direct side, is just gonna take time. You can see as you just articulated nice acceleration of new mid-acquisition. We've got the attrition stabilizing, but it just will take time to kind of get that to build. It's a big book. So each of these SMB mids are very small in a revenue stream, talking about $200 to $300 a month in revenue stream. So it takes a lot of them, and so it takes some time to build that up. But we feel very good about what we're doing there. We have a nice acceleration of our Clover product that we resell on Fiserv's behalf. So a nice uptick there. And that really opens the door for ancillary services, value-added services that should help improve even further the attrition rate because once an SMB client has not only processing but these other services around it, like lending, like payroll, these things really increase the stickiness of the client. So I think we have what we need. We need to just keep doing what we're doing and keep accelerating the sales team. Productivity per rep. Which I think we've got underway. We've really found a rhythm with the marketing and sales team. And now it's just gonna take a little time to build up those billable mids to get the growth rate back up. Trevor Williams: Okay. No, that's helpful. And then just on the e-commerce deceleration, it sounds like it was mostly in non-core verticals, but any more detail there would be helpful. And I don't know if you guys could share how the quarter-to-date trends look relative to the 20% growth from Q3? Thanks. Bruce Lowthers: Yes. So you're absolutely right. So I want to be very clear. The 50% growth rate. It's really the non-core piece. And candidly, coming into even the last day of the quarter, we thought we were rocking along pretty well. We had a last-minute client that had to shut down, which caused several million dollar write-down in Q3. So that business is one that is a little more interesting than the iGaming, the e-commerce core business. So this is for us, we're in kind of a lower-tier market. A lot of kind of travel, or things that are more high things sometimes are a little difficult, higher risk MCC codes. And so those to bank. Even if you have existing clients that are with the bank as they try to expand, sometimes the banks aren't open to the additional risk, and then you've got to find other places for them to bank. And so had a little bit of challenge with that with some of those MCC codes, and we're working our way through that. The nice part is we continue to sell the deals. We've now got to figure out how to keep the deals once they start ramping up. Trevor Williams: Okay. No, I appreciate that. Thank you. Operator: Thank you. Our next question is coming from Darrin Peller from Wolfe Research. Your line is now live. Darrin Peller: Hi, thanks. This is Paul Obrecht on for Darrin. You talked about the longer timeline for delivery of new products, including the wallet initiatives. Just curious if you could provide a bit more color on really what changed during the quarter relative to your prior expectations? Bruce Lowthers: Yes. So Paul, as we looked at the quarter, coming in, we felt pretty good. We had, as we said in the last call, sold a number of deals. We thought they were progressing. Sometimes just with these deals as we're talking about white-label wallet solutions, we're kind of going into different markets. And sometimes, whereas we're expanding those markets, these are things that are new to us, getting our regulators, getting our banks kind of aligned on these new risk opportunities. Sometimes it takes a little longer. The analogy we have here is the fintech ecosystem is this big boulder, and as we move into some of these newer spaces, pushing that boulder uphill takes a little bit longer than we anticipated. Overall, we have good demand for our solutions. The clients are staying with us, working through these issues. So we feel good that ultimately it will come. It's just coming slower than we anticipated. Paul Obrecht: Got it. That's helpful. And then John, I know you talked about the stronger euro leading to the increase in the leverage along with the divestiture. I know you're also balancing buybacks, but just curious if you have any updated views on what delevering could look like over the medium to long term? John Crawford: Yes. I think that over the medium term, we're still focused on getting leverage below four. It's going to take a little longer than we expected, probably obvious based on where we are today. But we expect to finish this year probably around the leverage that we're at today in the low 5s. And then continue to delever through both paying back and growing EBITDA in 2026 and 2027 with the objective to get to 3.5%, but it's probably going to be 2027 to get to that 3.5 level. Paul Obrecht: That's helpful. Thank you. Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing remarks. Bruce Lowthers: Thank you. I appreciate everybody dialing in. Again, we felt we had a very good quarter for Q3. Continuing to make progress in our transformation. We really like the growth drivers that are emerging. Obviously, e-commerce continues to be a 20% grower. We continue to see on an enterprise-wide more value-added services, more products starting to come to market, which we're excited about. Still remain very excited about Account and Card and our geo expansion in LatAm. So a lot of good things coming to market. So thank you very much. We appreciate everyone dialing in this morning. And thank you to the team for all the work that you're doing to drive transformation. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Rafael Vittore: Hello, everyone. I'm Rafael Vittore, IR at Inter, and I would like to welcome all to Inter & Co's third Quarter 2025 Earnings Conference Call. First of all, some instructions. This call is also available in Portuguese. To access it, press the globe icon on the lower right side of your Zoom screen then select the Portuguese room. Please be advised that all participants will be in listen-only mode. And that the conference is being recorded. You may submit online at any time today using the Q&A box on the webcast. A replay will be available at the company's IR website. With me on today's call are João Vitor Menin, Inter's Global CEO, Alessandra Issu, Brazil CEO, and Santiago Stel, Senior Vice President and CFO. Throughout this conference call, we'll be presenting non-IFRS financial information. These are important financial measures for the company, but are not financial measures as defined by the IFRS. Reconciliations to the IFRS financial information are available in our earnings release and earnings presentation appendix. I would also like to remind everyone that today's discussion might include forward-looking statements, which are not guarantees of future performance. Please refer to the forward-looking statements disclosure in the company's earnings release and earnings presentation. Today, João will discuss Inter's strategy and business overview. After that, Alessandra and Santiago will take you through our financial and operating results in more detail. We'll then open the call for questions. I will now turn the call over to João. João, please go ahead. Thank you, Rafa. João Vitor Menin: Hello, everyone. I'm excited to share that we have accomplished yet another remarkable quarter of growth while continuing to build Inter for the future. This year is a very special one for us. It marks the ten-year anniversary of the launch of Brazil's first digital account. It's a moment of pride and reflection, as we look back to 2015 and remember the challenges we overcame to get where we are today. What makes us even prouder is that we have never lost our essence. Creating value for every single stakeholder and truly walking the talk of transforming Brazil's financial system into a better, more inclusive environment. For our clients, our no hidden fees approach and more importantly, our sustainable credit products offer an inclusive and accessible way to meet their financial needs. This has led us to grow from zero to 41 million clients in this amazing journey. For regulators, being the pioneer that launched the first digital bank back in 2015, we act as a partner of a better financial system. One that is efficient, transparent, and client-focused. For our shareholders, the disciplined execution of our six thirty thirty plan allows us to deliver an attractive balance of profitability and growth, ensuring long-term value, as shown in our path of growing our ROE. For our employees, Inter remains an exciting, dynamic work environment where our people are empowered to innovate, grow, and contribute to meaningful change every day. As we celebrate a decade of innovation, we remain true to our disruptive spirit. Inter is built for the future, and I believe that our next decade will be even more exciting than this one. As we celebrate our ten-year anniversary, I'm sure that our mission statement was the secret sauce that made it possible. Our mission statement is crystal clear: to create a world where interactions between people generate more value. This mission captures what drives us every day. We create products, services, and solutions that simplify lives, empower people, and build stronger connections. Whether through innovation, flawless execution, or a customer-first approach, every interaction brings meaningful value. Our mission is deeply rooted in our culture, which is built on four core pillars. First, is customer centricity, always prioritizing our clients' needs and delivering great experiences. We are always looking ahead. Second, we lead with true innovation to anticipate our clients' needs. Third, our operational excellence means we aim for flawless execution in everything we do at Inter. And fourth, our winning mentality by delivering the extra mile and achieving great results together as a team. By living these pillars every day, we are setting the foundation to make our mission a reality. With these pillars as our foundation, my focus for the next steps is clear: keep innovation alive within the company by leveraging AI, hyper-personalization, and introducing new features to our app. Today, we already have 380 AI initiatives live at Inter. For perspective, during our 2024 Tech Day, we had just 80. Second, driving our global expansion, enhancing our global account with new products, and exploring opportunities in new markets to strengthen our international footprint. Third, investing in our talent team by developing our executives, bringing market experts, and continuously nurturing the cultural pillars that make Inter unique. I'm tremendously proud of what we are building and the ability we have to create meaningful value for every client we serve. With that in place, I will pass to Shange and Santi, who will present our operational and financial performance. Shange, please go ahead. Thank you, João. Hello, everyone. Guided by our core pillars, Santiago Stel: we are on track for another outstanding year of execution. We're the fastest-growing large financial institution in Brazil among those with over 20 million clients, pursuing what we believe is our market fair share. Our Net Promoter Score remains at the excellence zone at 85 points. These results come from clients who use our platform at a high frequency. In September, we saw more than 20 million daily logins, that's 14,000 per minute. On average, we process 20,000 financial transactions per minute, totaling over 850 million in a single month. This level of engagement shows how well our platform works and proves the value created by the synergy between our seven verticals. In the third quarter, we set a new record performance in new active clients and accounts opened. We welcomed 2 million new clients, our highest number ever, beating the 2022 record. This reinforces clients' view of Inter's strong value proposition. Our focus on quality remains strong. Of these new clients, 1.2 million were active, bringing our overall activation rate to 58%. I'd like to stress three aspects that make us confident with the future. First, we have improved cost onboarding dynamics, and that's seen throughout the onboarding funnel. Several improvements are helping us increase the number of new accounts. Second, we have been running an efficient client early activation journey, and that explains why we can consistently increase our activation rate. And finally, the sum of these two points is resulting in a fast payback of around two months after clients onboard. This engagement translates into high transaction volumes. Our active clients transacted over BRL 412 billion on our platform, a year-over-year growth of around 30%. A large part of this volume comes from PIX, which is a strong indicator of clients using Inter as a primary bank. Moving to our credit cards, volume reached a new record surpassing BRL 15 billion for the first time. This represents a 20% growth on a yearly basis. This growth in TPV levels is consistent across all cohorts, but our newer clients present impressive results, transacting more and faster than older ones. Moving to our credit vertical, I have three key highlights. First, we continue disciplined in our strategy of high growth, respecting ROE targets and a balanced ratio of secured to unsecured loans. Roughly two-thirds of our portfolio is secured, one-third of our portfolio is unsecured. Second, private payroll loans have been the main highlight of the year, and we keep a very positive view on the product. We reached a BRL 1.3 billion portfolio with over 300,000 clients. This shows the strength of our digital distribution and our ability to scale a new product quickly. We're also seeing operational improvements coming from data prep and companies' HRs, which increases product quality and our confidence with the delinquency levels that we're going to see long term. We also expect clients from the FGTS loan products to migrate to this product given the similar profile and the new regulatory changes that came in the last few months. And third, two quarters ago, I introduced the concept of reshaping our credit card portfolio as a key focus for the year. We're making good progress in moving clients from being pure transactors to our interest-earning portfolio. IEPs now represent over 23% of our credit card portfolio, up from 20% last year. This is happening through key initiatives like PIX financing, monthly limit reassessments, and new installment plan offerings. Santi will provide more details on our strong loan book performance. Talking about market shares, consistency is the name of the game. We have always used our market share in PIX as an internal benchmark. Our goal was for other products to reach that same level of success. This quarter, I'm proud to announce that two of our key products have surpassed that goal. First, home equity for individuals. Thanks to the amazing work of our credit and distribution teams, we're now the second-largest underwriter of the product in Brazil. We have reached 8.9% market share in portfolio balance. Second, FX transactions. The success here is driven by the high engagement in our global account and the amazing UX of this product. We have reached 8.4% of the market transactions. I have highlighted two products, but this progress is visible across all of our businesses, with consistent growth quarter after quarter. I am confident we will keep strengthening our position in the market and that more and more products will surpass the PIX benchmark. João Vitor Menin: To finish, Santiago Stel: I want to emphasize how these outstanding results are powered by our seven verticals and our commitment to continuous innovation. Each vertical contributes to our growth, working seamlessly and interconnected to enhance client value and compound our profitability. This ecosystem is what makes Inter unique and drives us forward. Now I'll pass the word to Santi who will walk us through our financial performance. Santiago Stel: Thank you, Shande. And good morning, everyone. Moving to our loan portfolio, we delivered another quarter of strong results. Our loan book grew 30% year on year with quarterly growth accelerating to 9%, 6% on an annualized basis. Within collateralized loans, we achieved impressive growth led by private payroll loans. In credit cards, the reshaping strategy mentioned by Shande together with our continuously improving underwriting and collection processes, gives us confidence to continue growing at a pace from 30% year on year. Looking at SMBs, we have been prioritizing profitability over loan growth, though we see a great potential to accelerate growth soon with the upcoming centralized invoice discounting clearing house known in Portuguese as duplicatas escriturais which is set to be launched by the Central Bank early next year. Once again, we outpace the market in our key portfolios. Private payroll, home equity, and credit cards. In payroll and personal loans, we are moving quickly to capture the private payroll market opportunity. And in just six months, we built a BRL 1.3 billion portfolio from scratch. The overall market, also considering public and other personal loans, grew 22%, while we reached a growth of 38%. Mortgages, we're differentiating our offering through digital distribution and we have been able to grow at 37% on annual comparison reaching a 9 billion reais portfolio. In home equity, the number two player in originations, growing 33% year on year, significantly outpacing the market growth of 21%. And in credit cards, reached 30% growth while maintaining our conservative approach to risk underwriting. As Shande mentioned, we're also successfully reshaping this portfolio to further improve its profitability. Moving to asset quality. Our metrics showed strong performance this quarter. The fifteen to ninety day NPL ratio stayed stable at 4.1% while the ninety day past due metric improved 10 basis points while decreasing from 4.6 to 4.5%. The credit card NPLs analyzed across cohorts, continued to show strong performance validating the improvement made in our underwriting and collection models. And finally, NPL formation and Stage three formation stood at 1.65% and 1.46%, respectively, in line with historical trends. Here, we see the evolution of our cost of risk which reached 5.35% this quarter. The main driver of the recent increase is the new private payroll portfolio, which requires upfront provisioning. The coverage ratio shows the increase associated with those provisions. On the right-hand side, we show an illustrative chart of the return profile of the new portfolio. In which we have been investing throughout this year as we build the portfolio and now pass the breakeven point. And from now on, we expect high-end profitability. Our funding franchise had another great quarter, growing 35% year on year reaching BRL 68 billion. This growth was primarily led by tank deposits driven by the higher Selic rate and the success of my piggy bank. Our product that makes fixed income investing easy for our clients. Our transactional deposits, which are a core competitive advantage of our platform, also had a strong quarter, growing 1.3 billion reais or 7% this quarter. And lastly, on this page, our active clients surpassed for the first time ever an average of 2,000 reais in deposits, which is a great milestone that shows how our clients trust our platform with their deposits. This strong funding franchise translates directly into a key competitive advantage, our low cost of funding, which this quarter reached 68.2% of CDI. What we added this quarter is a complementary metric that fixes the number of business days making the comparison across quarters better. In that sense, our ratio reached 65.1% which was the best one so far this year. Our strong operational performance translates directly into strong revenue growth. In that sense, our net revenue reached 2.1 billion reais, up 29% year on year and 8% sequentially. The key driver this quarter was our growth in our credit book. With NII increasing 39% in a yearly comparison. As already mentioned, this was fueled by strong results in private payroll, credit cards, mortgages, and home equity portfolios. As Shande showed, higher client engagement is driving faster monetization across our cohort. As Shande showed, higher client engagement is driving faster monetization across cohorts. This quarter, net ARPAK reached BRL 33.2. This shows our potential as our mature clients are already generating close to BRL 90. When we combine this strong monetization, with our low cost to serve of BRL 13.1, the result is our best ever gross margin per active client, reaching twenty point two reais. We are confident that the success of new products, like private payroll will continue to drive monetization even higher in the coming quarters. Now let's dive into our net interest margins. Both our NIM 1.0 and our NIM 2.0, which exclude the noninterest receivables of credit cards, are consistently showing growth quarter after quarter and achieving new record levels. As you can see on the page, we have improved our risk-adjusted NIM by an average of 14 basis points per quarter. In this quarter, in particular, earning was positively impacted by private payroll, and credit cards given the reshaping of this portfolio. João Vitor Menin: However, we Santiago Stel: faced lower inflation which impacts our real estate portfolio, which is cost of funding. With all these impacts together, our NIM continued to expand both before and after cost of risk. Lastly, we continue to optimize the use of our capital structure with our assets to equity ratio increasing from 7.9x to 9.4x year on year. On the expense side, this quarter allows us to have a comparable basis given the acquisition of Pinterpak back in 2024. Our strong cost control focus allowed us to report a total expense growth of 5% quarter on quarter and 16% year on year. This growth is approximately half of the pace of our annual net revenue growth, showcasing the strong operational levers of our business. The quarterly growth in personnel expenses reflects mandatory annual salary adjustments as well as bonuses linked to our growing earnings. As our business continues to expand rapidly, we remain focused on renegotiating contracts with major vendors to reduce our cost per transaction and further improve our efficiency. And in terms of ratios, the result of our cost control is an efficiency ratio improving from 47.1% to 45.2% this quarter. This 190 bps improvement is a very significant one which demonstrates that the operating leverage of our digital banking model is very promising. Finally, I'd like to highlight the progress we've made in profitability. This quarter, we reached 14.2% ROE, and delivered a record net income of BRL 336 million, a true milestone in our journey. What makes this quarter even more meaningful is that we maintain this profitability while investing heavily in innovation, enhancing the client experience, and improving operational excellence. These efforts lay a strong foundation as we continue positioning Inter as a world-class financial institution. Thank you all. I'll pass it now to João for his final remarks. Thank you, Shande and Santi. João Vitor Menin: After hearing what they shared, it's clear that our powerful ecosystem is running seamlessly. And we are exceptionally well positioned within the evolving banking trends being shaped by the regulators in Brazil. The focus on sustainable credit, client-centric solutions, and lowering borrowing costs is perfectly aligned with the Inter by design Santiago Stel: concept. João Vitor Menin: We are laser-focused on finishing 2025 with strong momentum, setting the stage to start 2026 energized. We are committed to keeping pushing forward, creating value for our clients, shareholders, partners, and employees. Rafa, let's now open the Q&A session. Thank you all. Rafael Vittore: We'll now open the call for the Q&A. We'll take one question and one follow-up from each participant. Our first question is from Tito Labarta. Tito, your mic is open. Please go ahead. Tito Labarta: Alright. Thanks, Rafa. Santi. Thank you for the call. Tito Labarta: And taking my question. I guess my question is more thinking about the longer-term guidance that you've given. The sixty thirty thirty. Right? Because, I mean, you know, trends are looking very healthy. Right? NIM is expanding, risk-adjusted NIM is expanding, loan growth is doing well, efficiency is improving, and ROE is up to 14%. But just to think about, you know, to get to that 30% in the next two years, what else would need to drive that? I mean, you mentioned that you're delivering this ROE despite investing a lot in the business. Do you expect some of these investments to begin to subside or will they taper off and that's gonna boost the ROE? Just because looking at the trends. Right? I mean, NIM, I think you've mentioned in the past, should continue to expand through next year. Still repricing the loan book. But just help us kind of bridge from where you are today to sort of that longer-term view that you had previously given and, you know, what can drive that continued ROE improvement? Thank you. João Vitor Menin: Tito, João Vitor speaking. Thank you for the question. So let me start by saying that we are really happy with what we have achieved having this six thirty thirty plan as a guideline for us for the past, let's say, almost three years. If you recap, we came from a 0% ROE back then to almost 15% ROE now on a running base for 3Q. So this is something that highlights what we have achieved in terms of profitability. Also, on the first number of it, the 60, talking about the 6 million clients that we wanted to achieve, this quarter was the best quarter ever in terms of client addition. And also, October was the best month ever for the past three years. So we're really doing a great job in bringing clients to our ecosystem. On the efficiency ratio also, this quarter was a very good one. We dropped almost 200 bps in that. So see that we are on the right direction. About the ROE, which was your specific question, to be honest, we know that we have a tough environment in terms of Selic different from where we were when we predicted the six thirty thirty plan. And therefore, our credit portfolio exposure today is lower than it was supposed to be. But we see very good trends ahead, such as the private payroll loan, we see coming in next year, the factoring clearing house that is going to help us to grow a lot our exposure to SMEs which we are very excited about. And with all that in place, it's hard for us to predict if we're going to be on the 30% ROE by 2027 or later on. But the important thing is that the trend is good, the team is committed. And last but not least, we do have a very strong and very positive room to grow our credit portfolio ahead. I like to say that it's good that we have been growing 30% year over year, but we still have most of the portfolios we operate today in single digits, low single digit in market share. We found that in place and maybe with the 30% ROE by the end of 2027, or I don't know somewhere in 2028. So very committed, excited, and I believe that the platform is well-tuned for us to keep achieving the six thirty thirty. Tito Labarta: No. That's very helpful, João Vitor. Thank you for that. I guess maybe just ask it a slightly different way, but maybe to paraphrase a little bit what you said. Would the biggest headwind you think be more macro just given, you know, that rates, as you mentioned, are 15%? Is that the biggest headwind to be able to achieve that 30%? Because execution-wise, I mean, you seem to be doing everything that you've said. Right? So just what the biggest risk to achieving that could be. João Vitor Menin: Yes. Tito. Yeah. I would say that as of today, the biggest headwind is the Selic. So therefore, the, for instance, the payroll segment grows slower, the more than in everything grows slower. But as you mentioned, everything that is in our hands, we're doing well. I mean, we're bringing deposits. We're improving the asset side. We are improving the efficiency by being more diligent on the expense, trying to use AI to optimize how we run the machine. So that's it. I see that as of today, our biggest headwind is the rate in Brazil. Tito Labarta: Okay. So very clear. It's a right assumption. Okay. Great. Thank you very much, João Vitor, and congrats on the results. Rafael Vittore: Our next question is from Gustavo. Gustavo, please go ahead. Gustavo Schroden: Hi. Can you hear me? Tito Labarta: Yes. Okay. So good afternoon, and thanks for the call, and congrats on the high-quality results. My question is specifically about this higher cost of risk that we saw in the quarter. You mentioned that it is related to private payroll loans. Why we saw the NPLs totally under control? So my question is, is this a new level of cost of risk that we should work with for the coming quarters or is the increase in coverage ratio that you did in this quarter enough for the coming quarters? Thank you. Good morning, Gustavo. Thank you for the question. Santiago Stel: Yes. So what happens in sequence of factors as we build a new portfolio, cost of risk picks up first since we have the expected credit loss model, and we have to provision upfront. And then as the quarters go by, delinquency starts passing the ninety-day mark, and then the NPL follows. We haven't seen that NPL increase yet, or it was very minimal yet given the life of the book is close to six months by now, and the majority of that was built on the second part of those six months, meaning on this last third quarter. So the NPL should start to catch up a bit, and the cost of risk will likely stabilize very close to the current level of around five and a half percent. Again, as we mentioned many times, we're working to maximize risk-adjusted NIM, not to minimize cost of risk. That's the variable we aim for in a sustainable way, as we call in the Inter by design. By providing our clients with products that are actually good for them and tend to lower their cost of, or borrowing cost relative to alternative processes they have in the market. So we think we're driving the outcome there in the proper way. The coverage ratio also anticipates that way to help with the cost of risk. But stage three and NPLs are the ones that follow later. We should see that going up a bit in the next quarters without increasing further the cost of risk to the level that we have reported this quarter. Gustavo Schroden: Oh, great, Santi. A follow-up on this private payroll loan because even with this higher cost of risk, that you mentioned in the product, you showed a nice slide a nice chart demonstrating that the product has reached the breakeven in the second quarter and now it is in positive territory, right? So my question is, could you share with us what is the level of profitability you are delivering in this product? And if there is further room to improve the profitability in the private payroll loan. Thank you. Santiago Stel: Well, it's super high by now. We are starting to see the cost of risk or delinquency level converge towards the high single-digit level in the prior cohorts. So the first few months were higher, and as the months go by and the system starts working as it was designed originally, then the cost of risk hits the high single digit. With the high single digit, this is significantly higher than 30% ROE. What we think will likely happen is that the interest rate on the asset side will probably go down as more competition comes in. For now, we're seeing it in the high threes percent per month. And with that level of interest rate, the ROE, as I mentioned, is highly above the 30% mark. It's the highest ROE product we have in the portfolio. Nicely, it's 1.3 billion and counting in the loan book, so it starts moving the NIM in the right direction. It's, as I mentioned in the prior question, a product that will the clients have available to go away from more expensive alternatives. And this one, it's one that they can use their income to finance their daily needs or their financing needs in a much better way, which is what we call the Inter by Design. So it's a really win-win product. Hats off to the regulators in having it designed. We think that the TAM is really significant. It should be multiple more than the public payroll time given that you have three times more employees in the private sector than in the public sector. We'll see how much it continues growing in the future. And so far, we're very pleased with the results. Gustavo Schroden: Okay. Great. Thank you, and congrats on the execution. Rafael Vittore: Our next question is from Mario Pierry. Please go ahead. Mario Pierry: Hi, guys. Good morning. Congrats on the quarter. Let me ask you two questions. First one, Mario Pierry: is on your net interest margin expansion. Right? You're growing your margins 10 to 20 points per quarter as you had talked about at the beginning of the year. In part, that reflects some of the repricing they had done in your portfolio in the past. So have we seen the full benefits of the repricing yet? And should we think about margins now going forward being more stable? Especially as the mix of the loan book is shifting. Right? Like, I would imagine, right, the rates you charge on the private payroll product are lower than a credit card. So help us understand how you're thinking about the outlook for net interest margin, and then I'll ask my second question later. Santiago Stel: Mario, good morning, and thank you for the question. So the three drivers of NIM expansion are, one, repricing, two, better mix, and three, investment yield going up. Those are the three drivers. On repricing, we have done a very high share of that repricing since we started this a few years ago. Surprisingly, we did more on mortgages than on payroll. Mortgages had higher growth than public payroll. You know, it has a higher longer duration. And then on payroll, we still have a significant part of our loans that are rates not very far from one, 1.2% per month. That have some upside on repricing. So there is an element. It's no longer the higher driver of new expansion as it was in the early days of the sixty thirty thirty, but there is still some potential. I would say that around one-third of those portfolios still have upside in terms of interest rates. And the good thing is that on public payroll, which hasn't grown for several quarters, public payroll specifically, it has grown in the last two quarters. And therefore, that accelerates the repricing or the increase in the yield of that. In terms of better mix within the loan book, the two main drivers were FGTS equity in the prior years. This year is a bit more led by private payroll and credit cards. The reshaping that Shande alluded to. On the investment yield, also, we have been improving in that sense. But we still have to go to make some more progress on optimizing capital. We haven't done much very complicated structures yet in terms of or structured records to optimize the capital more than what we could. That's another lever that could be added to the list of the three that I mentioned before. But when you put all that together to summarize the answer, Mario, I think that the trend of NIM expansion still has ample room to continue to improve. We have answered this in the prior calls. At least in the next four quarters, we see a continuation in the trend of the risk-adjusted NIM in line with what we have seen in the prior quarters. Mario Pierry: Okay. So that's clear. And now my second question then on slide 19, right, you show that you're growing faster than the market in all of the products. Mario Pierry: What gives you confidence? Right? Because when we talk to the big incumbent banks, they seem more concerned about the economic outlook. They seem like they are derisking their loan books. And while you're doing the opposite. Right? You're trying to accelerate growth, maybe this is the best time to grow, right, when the competition is slowing down, you probably can get, like, very good clients, and attractive spreads. So first of all, so then the question is, what makes you comfortable to be growing your loan book at a 30% pace when everyone expects the economy to decelerate? And, how do you think you can maintain this growth once the traditional banks start to accelerate again? Thank you. Santiago Stel: Hi, Mario. This is Shande speaking. Thank you for your question. So, there is a lot here. Right? I think the first thing is about what we call our right to win. So we're very well positioned to grow overall and to expand in the markets we're operating. So large client base, our brand is getting stronger and stronger as we go. And the products are there. And these products we derive to the next portion of why we believe we can keep growing. Which is about the Inter by design. So we positioned our credit portfolio with those two-thirds in secured lending, one-third in unsecured. Within the secured lending, we're talking about Brazil's largest credit markets, which includes mortgages, and also payroll loans. All these products are growing. And when we think about mortgages specifically, we see a decline in the balance of savings accounts in Brazil when linked mortgages, and this is really good for Inter. So we've been originating for more than ten years, mortgages at market-based pricing. And this gives us confidence that we're gonna keep on growing both mortgages and home equity as the entire market should derive to a more market-based solution that we believe is a lot more sustainable long term. So this takes care of mortgages, payroll loans as Santi mentioned already. Having the client base, having the digital experience, and being playing in a market that should achieve between 250 and 300 billion, we should keep on growing. Credit cards, another point that we have been growing fast and we believe we can stay there. And in here, we talk a lot about share of wallet. So we're occupying still a relatively small part of the share of wallet of our customers. And as we improve as we keep doing all the improvements that we have been doing in underwriting, in growth, in UX, we will keep expanding our penetration. So having said all of this, it's a lot about continuity of good execution, and our team is getting stronger and stronger, and we'll keep on it to sustain these growth levels that we have been seeing. Mario Pierry: Very clear, Santi. Thank you very much. Rafael Vittore: Our next question is from Pedro Leduc. Please go ahead. Pedro Leduc: Thanks, guys, for the call. Congrats on the journey so far. Pedro Leduc: Question on credit cards. Now we've been watching it carefully. Simple math interest minus provisions was negative, breakeven. Now this quarter, positive, and now sustainably positive. So if you could share with us maybe what you have learned, what actions have led to this? And now at these what look to be much more healthy ROE levels for the product standalone, if we could expect a more meaningful penetration increase within your client base which is still fairly underpenetrated, I would say. So I'm just trying to see if now this product is at the economics that seems fruitful for you to roll it out a little bit more aggressively. I imagine that it maybe could grow ahead of the overall loan book in 2026 again, maybe even faster than it grew this year considering also the income tax boost that a lot of your clients are going to have? Thank you. Santiago Stel: Hi, Pedro. This is Shande speaking. Thank you for your question. So, yeah, we're very positive on what's been happening in the credit card portfolio. So as you know, we've been evolving on a 360 view. So both credit team getting more and more mature and models getting more and more mature collections same thing. And the product team very engaged on making this evolution that we saw in these last periods. So this is the first to say that, like, the ground to keep the good execution is set, and we're very positive on that. When we get on the metrics in the portfolio, we go back to the reshaping that we talked also during the call. So about two quarters ago, we started saying that the percentage of interest-earning portfolio at Inter was asymmetrical as compared to the market. We were at only about 20% interest-earning, and the idea is to expand this. So the result that we see in interest is all about the execution or the good execution of the reshaping of the portfolio. We're now at more than 23% interest-earning. And as we execute, we should see this interest-earning portfolio expanding. And the good thing about the lessons learned and you asked about the lessons learned that I want that it's important to explore is as we increase interest-earning portfolio, and we want to get to say 25, 26%, we're also helping clients. Before, we didn't have the number of collection products that we have today, and as we implement them, we help clients pass through moments where they need more time to pay. So it's truly a win-win for the portfolio. And we'll keep on it to deliver this first goal of interest-earning portfolio at 25, 26%. Thank you, Pedro Leduc: And about maybe rolling out more arms within your deck? João Vitor Menin: Speaking here on that I think that Shande was explaining how we are more confident on underwriting more credit cards, and we're doing that. But, also, on the other hand, when connecting to my API question about the market, being not too aggressive in credit underwriting, we always connect that type of question to Inter by Design where we want to have the to explore more the collateralized credit solutions, private payroll, the receivables for the SME companies that is going to roll out next year. On credit card, Percept, we believe that we're growing in the right pace, to be honest. I mean, we're growing a lot, I'd say, but we don't want to just go all in on that product. We know that this is the product that gets more impact when the economy is not doing well. So as we always say, we like to produce alpha on our credit portfolio. To try to get away from the data. So even though the employment might not be doing well next year or whatever interest rate is too high. We don't want to get that exposure. What we're trying to do at Inter, we are building exposure to credit as you can see, growing 30% year over year, but doing that in a cautious way, a good balance between unsecured and secured which is today's one-third to two-thirds, and that's how we want to keep doing ahead. So I wouldn't expect Inter, you should not expect Inter to massively grow in our exposure to credit cards going forward. I'd say that we want to compound our portfolio increase news, and sentiment, but without doing enforced errors. So and consumer finance is a segment that we need to be cautious. So that's how we were running the business for the years to come. Okay? Rafael Vittore: Our next question is from Yuri Fernandes. Yuri, please go ahead. Yuri Fernandes: Thank you, Rafael. Hi, João. I'm sharing the Santiago Stel: Also, congrats on the journey. João Vitor Menin: A follow-up, and I think João already Santiago Stel: clarified part of my questions here on stage three and stage two. Like, on stage two, my question is what drove the increase quarter over quarter, like, on your total balance? I think last quarter was a little bit low or maybe it's a base. I'm not sure what happened in the second quarter, but stage two balance they went up 28% quarter over quarter. So I'm just trying to understand what drove it. And regarding stage three, like, your new stage three formation is mostly stable. There was a marginal increase. But when we break it down by products, and we take a look at personal loans and credit cards and usually, we look together. Right? Because sometimes refinance, they are part of personal loans and all these. These two products together, they are up 20% quarter over quarter. And I think Pedro was very happy in mentioning interest income because in the end, I think you are building more provisions, but you are pricing the risk and your interest income is higher. But given we are in a moment that are getting a little bit more concerned about asset quality in Brazil, what explained this increase in information for those two products? The private payroll, which personal loans? Like, is there anything on credit cards? And again, I think João was very clear saying that he's cautious and not the time to be super aggressive on, you know, on cards. What I'd love to understand a little bit the moving here on stage two and stage three. Thank Santiago Stel: So starting with stage three, you're correct that on a by-product basis, it varies, but it's the personal loans category, which includes private payroll, the one that went from 2.1% last quarter to 3.4. Remaining ones, including credit cards, were stable. Quarter over quarter. So the driver was the private payroll, and that's the main one on stage two as well. It's even more pronounced on stage two given the fact that the tenors, no, of the stage two captures in the life of the portfolio being a six-month-old portfolio. More predominant by now in stage two and stage three. But both drivers are having private payroll. We think there's gonna be more proportionate stage three in the coming quarters on 98 NPL as well as the portfolio continues to grow in size. Yuri Fernandes: No. No. Thank you, Santi. And regarding the stage three that you're really ninety days, up to two at an absolute figure, the increase on private payroll is because of operational risk, too high and, you know, like, this should be the level because it was they're trying to understand because given this is a new product, stage two is fine, but I will not be expecting stage three to be a problem for this product. Right now. Santiago Stel: It's within the expected losses that we had, nothing out of the ordinary in terms of the expectation. It's the way we modeled it, Yuri. And differentiate operational risk from credit risk in a product is very early stage. Sometimes it's a bit blurry. But as we mentioned, we are converging to a high single-digit delinquency level in this product. And with that, the return profile is, as I mentioned, in a better question, north of 30%. So it's accretive for the results. Yuri Fernandes: No. No. Thank you. Thank you, Sergio. Clear on your answer, and congrats on pricing, you know, those losses. Thank you. Santiago Stel: Thanks. Rafael Vittore: Our next question is from Marcelo Mizrahi. Marcelo, please go ahead. Marcelo Mizrahi: Hello, everyone. Thanks for the question and congratulations for a very solid result. Marcelo Mizrahi: My question is regarding the fee business. So we were seeing the last couple of quarters a deceleration, especially in this last one. On the growth of the fees. Can you share a little bit your ideas and the strategy here? So there are a lot of investments here in insurance, in the international account. So why do you believe that the growth is slowing down? And how to reaccelerate that? Very much. João Vitor Menin: Marcelo, João speaking. Thank you for your question. Santi will deep dive on the numbers and on the KPIs and economics later on. But just to highlight, we have been since, say, the launch of our digital account, trying to put more and more service business on our that will get us more fees, a better fee ratio. We were running between 25-30% back then. What happened is, because we're growing more on credit, recently due to private payroll, mortgage, and everything that we just discussed on this call. The ratio is lower. There are some one-offs here, something we'll cover. But the thing is, out of our seven verticals, five of them are focused on fees. We have FX, as we mentioned, global account. We have investments, insurance, LIOT, our loop program, and our inter shop. So this is something that is in our DNA, putting new products and we'll keep doing that increasing the addressable market for that. We don't know how our breakdown between fees and NII will behave going forward. Because as again as I mentioned, we're growing fast on NII. But we see still a good opportunity for us to keep running on this 25% range going forward. And, again, I'm sure that once some of these verticals get more mature, we believe that this could be a tailwind for us. So when Santi will mention about the change between quarter over quarter and year over year on that metrics. Okay? Thank you. Good morning, Marcelo. Just to complement Santiago Stel: João, we had two one-offs in the fee side impacting negatively. One was we shut down I m design or which is a company that we co-owned. It was a graphic design company. Acquired many, many years ago, and that had an impact of 15 million reais. In the fee line as well and another one is the $4.09 6 impact of deferred fees associated with credit of around another 15 million reais. So those two one-offs together would have given us 30 million reais of additional NII to make it on an apples-to-apples basis to what we had in the same third quarter of last year. With that, the growth would have been 7% instead of 1%. So it's a line that is growing less than NII as we mentioned. NII is growing consistently around 40%. Last five quarters, we had a growth in that level. Fees are trailing a bit behind that, but we could do high hopes on this being a key driver of revenue growth and profitability. Marcelo Mizrahi: Okay. Thank you. Rafael Vittore: One-off switchlet on the fee income discussion here. So we do understand these to the weakness, but, would it be fair, like, as you all mentioned, that going forward, we could still see net fees growing in the 20% range? Or is that too high? João Vitor Menin: Hi, Nika. Santi here. So, yes, that's So if we decompose a bit by line, the biggest component of fees is credit card, and that's highly associated with TPV growth. As Shande showed, TPV grew percent. So this fee line is growing in line with it. Interesting thing to mention is that Intershop ecommerce platform has a big of the monetization now being driven on the NII through buy now pay later how we call it in Portuguese. So that's a fee driver of NII directly. Mean, FX is performing very well. It's still a smaller line, but it's growing very, very high. So all of that together, we think in the twenties or around 20% is an assumption to have. Which is lower than NII, but still it's a higher an important component of our revenue base. Rafael Vittore: Okay. Perfect. Then on the private payroll, we already had a lot of discussion on that. But it seems from your comments that things have been improving. The collateral is still not fully functional. The FGDS collateral has been delayed to next year, but it seems like things are going in the right direction. Have you seen more competition from maybe not the incumbent banks, but from other smaller players become a bit more aggressive if the product seems much more viable than it was six months ago? João Vitor Menin: I knew her. So gonna talk a little bit this is Alex speaking, and thank you for your question. Santiago Stel: So talking about the payroll loans, we looking at the product as a whole, we're very happy with what we're seeing. In from any angle we look at. So from the capacity of underwriting more, we're happy. So we're growing underwriting. We're doing evolutions in our credit model and our credit policies and this has been driving increased underwriting volumes day after day. So very happy there. From a collection standpoint, we're also seeing improvements. And as Santi mentioned, we should converge longer term to high single digits, which is much better than what we initially forecasted or how we initially calculated the profitability of the product. That, as we mentioned before, we had a scenario of up to 15% and now we're looking at long-term high single digits. Much lower, much higher ROE. And from a competitive standpoint, we don't see any concerns yet. As we mentioned also earlier, we're talking about the $250 to $300 billion potential portfolio, that today is running close to 90 billion. So a lot of expansion to happen. And the idea now and the idea in the upcoming quarters is to keep absorbing as much demand as we can. On a static basis, the market share is at 2.1, but on an underwriting basis, we're executing at a much higher percentage of market share probably in the getting close to the 10% range. Of market share. And we'll keep on it. And João will follow-up also on the question, Neha. João Vitor Menin: Hi, Neha. João speaking. Just more of a high-level Santiago Stel: view in terms of competition as you asked. We see Inter in a, I would say, in a sweet spot in terms of competing in Brazil. We have elements that the incumbents do have such as a massive number of clients, all the products, we do have elements that only the fintech players have. Such as digital distribution, good NPS, good service, and now, so we have elements that the incumbent banks do have and the fintechs they don't have, which is a very good cost of funding. So when you combine all of that, and I really think that we're in a sweet spot between the incumbents and between the fintech players in on the north of 30% year over year. So and, again, we have been building this platform for many, many years to be in that position. We started from the beginning, from the basics of a good from a good banking approach. So we started having the client. We started doing the digital distribution. We start to bring a very good deposit base. So we have all that in place. So I don't see competition as an issue. As I mentioned. And, again, just to repeat, we are in a position to keep producing alpha in terms of credit underwriting and not just Rafael Vittore: Fort. Thank you. João Vitor Menin: Thank you so much, team, and a very interesting performance in terms of net adds and the deposit growth. Which will help you keep maintaining that funding edge that you mentioned. Thank you so much. With that, we conclude the Q&A session. I will now pass it to João for his closing remarks. Thank you, Rafael. Santiago Stel: Thank you, everyone, for being with us for this last hour. I would like also to thank our employees. We have a very good team working hard every day to put us ahead of the competition, to drive us to the next chapter. Thank you for all the shareholders that have been supporting us since 2000 when we listed the company. And hope to see you soon. In a few months for us to discuss the 4Q results. Thank you very much. Have a good day. Bye-bye.
Operator: Good morning, ladies and gentlemen, and welcome to the DarioHealth third quarter 2025 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If you require immediate assistance during the call, please press 0 at any time for the operator. This call is being recorded on Thursday, November 13, 2025. I would now like to turn the conference over to Zoe Harrison, VP of Accounting and Corporate Development at DarioHealth. Zoe, please go ahead. Zoe Harrison: Thank you, operator, and good morning, everyone. Thank you for joining us today for a discussion of DarioHealth's third quarter 2025 financial results. Leading the call today will be Erez Raphael, Chief Executive Officer of DarioHealth. He'll be joined by our President and Chief Commercial Officer, Steven Nelson, and Chen Franco-Yehuda, our Chief Financial Officer. An audio recording and webcast replay for today's call will also be available online as detailed in the press release invite for this call. For the benefit of those who may be listening to the replay or archived webcast, this call is being held on Thursday, November 13, 2025. This morning, we issued a press release announcing our financial results for 2025. A copy of the release can be found on the Investor Relations page of DarioHealth's website. I'd like to remind you that on this call, management will make forward-looking statements within the meaning of the federal securities laws. For example, the company is using forward-looking statements when it is discussing the amount of its targeted new business, its 2026 pipeline, and expected strong revenue acceleration in 2026. That it expects to reach cash flow breakeven by late 2026 to early 2027, that it expects to transition to a high-margin recurring revenue model, that it is on a solid path to profitability, the number of new accounts it expects to sign in 2025, its potential future business opportunities, and that it expects to further cut its operating expenses over the next twelve to fifteen months. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond the company's control, including the risks described from time to time in its SEC filings. The company's results may differ materially from those projections. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. I encourage you to review the company's filings with the SEC, including without limitation, the company's annual report on Form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. With that, I'll hand it over to Erez Raphael, Chief Executive Officer of DarioHealth. Erez Raphael: Good day, everyone, and thank you for joining our third quarter result review. Before getting into the numbers, I want to start by highlighting what makes Dario truly unique and why we are seeing a growing strategic interest in our business. Today, Dario is a digital companion for whole person health. Our platform unifies physical, mental, and behavioral care into one connected experience, addressing diabetes, hypertension, weight management, musculoskeletal pain, mental health, and more, all within a single data-driven framework. We believe this multi-condition whole person model is where the market is heading, and our results prove it. More than 50% of our new clients this year have chosen our multi-condition solution. Our artificial intelligence-powered personalized engine combines biometric, self-reported, and behavioral data to deliver measurable outcomes. Our software-first model drives 60% GAAP and over 80% non-GAAP gross margins with expanding profitability. We now serve over 125 clients, including four national and seven major regional health plans, and numerous Fortune-level employers, supported by channel partners reaching more than 116 million covered lives. Together, these assets—our engagement engines, scalable infrastructure, deep data, and expanding client base—make Dario one of the most advanced and scalable digital health platforms in the industry. Now let's jump into the numbers. In 2025, our top line and gross margin results reflected the ongoing transition to our high-margin annual recurring revenue model. While revenue came in at $5 million and was lower on a year-over-year and quarter-over-quarter basis, key metrics driving future revenues combined with reductions in operating costs and growing margins set Dario on a track for a strong 2026, including reaching cash flow breakeven by late 2026 to early 2027. We are targeting $12.4 million in new business for implementation in 2026, including committed annual recurring revenues and a portion of our late-stage pipeline that is in the final stages of contracting. With 45 new signed accounts year-to-date in 2025 contributing to revenue momentum for 2026, we have already surpassed our 2025 goal of 40 new accounts. This brings our client base to over 125 and counting, which includes over 110 employers, four national health plans, and seven major regional health plans. Our new accounts and a large portion of our $69 million pipeline are customers that are two to ten times larger than our clients have been in the past, creating a multiplier effect with new business coming in for the balance of 2025 and 2026. Dario's business economics are healthy and stronger than ever. In 2025, we achieved GAAP gross margins of 60% and we achieved seven consecutive quarters of 80% plus non-GAAP gross margins on our core B2B2C business. With the help of AI and our commitment to optimizing efficiency, we reduced operating expenses by an impressive $17.2 million or 31% in the first nine months of 2025 and reduced by $3.4 million or 21% during the third quarter compared to the year-ago period. Several new accounts are now onboarding and beginning to contribute to revenue with full impact expected in 2026. Of this, two large health plans are among the most sizable and strategic clients in Dario's history. Our 90% renewal rate underscores the value we deliver to our clients. As an early leader in digital health, we aim to continue to drive the industry-wide shift from fragmented point solutions to integrated multi-condition platforms that deliver measurable outcomes and cost savings. With healthcare costs continuing to rise, Dario's approach to parlaying lasting behavioral changes for personalized digital solutions is in high demand. I will now turn the call over to Steven. Steven C. Nelson: Thank you, Erez, and hello, everyone. We are seeing stronger demand than at any point in Dario's history, especially from blue-chip employers and national insurers. Our multi-condition platform remains the most comprehensive in digital health, covering more conditions and backed by more clinical evidence than anyone else in the market. Commercial traction is accelerating. We've adjusted our product market fit to better serve health plans, the government sector, and off-cycle employers, and it's paying off. Our 2026 pipeline has grown to $69 million, with more than 50% of our new clients choosing our multi-condition solution. We're meeting payers and employers where they are, delivering personalized data-driven care across five or more conditions, all at equal or lower cost than most single-condition competitors. Our core business, employers, and health plans is performing exceptionally well. The average employer account size that we have won and still remains in our pipeline has almost doubled versus last year, which is a clear validation of the platform and the expanding confidence we are seeing from the market. It's driving real revenue momentum as these clients begin to implement and scale with us. We are targeting $12.4 million in new business for implementation in 2026, reflecting both committed annual recurring revenue and late-stage opportunities nearing completion. Our pipeline includes several opportunities in late-stage development still remaining in 2025. Year-to-date, we've added 45 new clients contributing to that growth. These are high-quality recurring revenue relationships, not one-time contracts. Since the last earnings call, we've signed 24 new employer agreements, including one of the largest in our history. Most of them will onboard in 2026. These wins span multiple industries and validate the market's growing preference for Dario's multi-condition solution and our new value-based pricing model, which aligns our success directly with measurable outcomes for our clients and their members. This is why we now have more than 125 clients, including Fortune 100 employers and national and regional health plans. Our diversified mix across employers, health plans, and pharma ensures multiple revenue streams and low customer concentration. Client retention remains strong at 90%. We expect our win rate velocity will only accelerate, driven by our effective go-to-market strategy and the strength of our channel partners, which account for more than 80% of our new logo wins this year. Through our top-tier channel partners, we now reach over 116 million covered lives, expanding our market access and helping deals move faster through contracting. Many of these partners were newly contracted or recontracted this year under win-win agreements that strengthen alignment and create even greater momentum going into 2026. We've made major progress with several top-tier health insurers. Some of the most meaningful launches in Dario's history. UnitedHealthcare launched Dario on its digital marketplace in a soft launch during 2025, which is a full suite offering. A full national rollout will be coming in January 2026. We're proud to be a part of this innovative go-to-market approach with the largest health insurer in the US, serving more than 50 million people. In partnership with our valuable channel partner, Solara Health, Primera Blue Cross, one of the largest not-for-profit health plans in the Pacific Northwest, has also launched Dario. Solara Health has built a powerful digital network where Dario is a preferred partner. And Primera Blue Cross deserves credit for leading with vision and executing an innovative rollout. Additionally, Solara and their partner, Aetna, have selected Dario to work with one of our largest employers in our company's history, representing 126,000 lives. This is our biggest channel partner launch to date, offering Dario to Aetna's employer network, reaching millions of covered lives. And most recently, we announced another large health plan launch with another key channel partner, Amwell. As shared on Amwell's recent earnings call, they were selected by Florida Blue, and Dario is chosen as a part of that new business. Through this partnership, Florida Blue's self-insured employers will have access to our multi-condition solution for cardiometabolic health, while the fully insured line of business will offer Dario's diabetes program. This is a major strategic win and a tremendous validation of our platform. We're proud to partner with Florida Blue for 2026 and beyond. Taken together, we believe these launches mark a turning point for Dario, expanding our reach, validating our leadership, and setting the stage for accelerated growth in 2026. While we are well established with commercial partners in the private sector, we are also seeing opportunities opening in the public sector. Policy tailwinds are driving the adoption of digital health solutions for federal and state-funded health programs. Dario, with our attractive pricing, proven clinical benefits, and return on investment, or ROI, is very well positioned to be competitive in this space. We previously announced our partnership with Green Key Health, and we're now seeing that come to life through Temple University Health System's announcement last week at the Becker's Healthcare CEO and CFO roundtable. Temple's Executive Vice President and Hospital CEO, Avi Arstavi, shared on the main stage that Temple is collaborating with DarioHealth and Green Key Health to manage the cost and clinical utilization of GLP-1 medications and obstructive sleep apnea therapies, two of the fastest-growing and most expensive areas in healthcare. Dario is also in the final stages of executing a similar GLP-1 digital utilization management program for a national account employer launching early in 2026. We are excited about the product market fit both opportunities afford Dario for the future in 2026 and 2027 sales. This collaboration was achieved through a product partnership model, requiring minimal R&D investment from Dario, demonstrating our ability to scale innovation efficiently and drive meaningful impact without significant internal spend. We believe that this also reinforces Dario's expanding leadership in helping major health systems achieve measurable ROI through digital, data-driven engagement and outcomes, and represents another step forward in our growth across employers, payers, and now integrated delivery networks. We're also continuing to expand our capabilities through other strategic collaborations in alignment with Dario's whole person condition management strategy. It's AI-powered fall risk assessment and prevention technology directly into Dario's platform. Falls represent more than $50 billion in annual medical costs, and this integration further enhances our ability to deliver measurable ROI for health plans by improving safety, reducing avoidable claims, and broadening the overall clinical and value of Dario's platform. Another important growth driver is our pharma business. About a year ago, we began transitioning Dario's pharma services from milestone-based projects to a recurring revenue model, and we've made some strong progress in that effort. We've now launched the business with a sharper, more targeted focus on therapeutic areas where we can deliver the greatest impact. Dario Pharma Services remains a smaller part of our broader business today, but momentum is clearly building. We bring deep experience helping pharma companies find, onboard, and keep patients engaged across their treatment journey. Our platform consistently delivers between 5x and 10x ROI through 30% to 60% lower recruiting costs, 32% higher engagement, four times better prescription conversion, and more than 20% improved adherence compared to traditional approaches. This is how we're positioning Dario as a long-term strategic partner in pharma, one that drives both clinical and commercial value through digital precision and recurring relationships. Our latest pharma services initiative focuses on MASH, formerly known as NASH, a fast-emerging $10 billion market driven by the first drugs for fatty liver disease. Most patients remain undiagnosed and need support beyond the pill, which is where Dario adds value. Through our F.A.I.R. framework—Find, Assess, Initiate, Retain, and Augment—we help pharma deliver whole person digital engagement and behavioral support. Our new twelve-week thought leadership campaign launched this week, highlighting how this model not only unlocks the MASH opportunity but could be replicated across cardiometabolic, mental health, and other high-burden therapeutic areas. As we approach the January renewal cycle, our commercial teams are fully engaged in finalizing contracts and onboarding new clients. This is one of the busiest and most important times of the year for us, and the team is working hard to ensure a smooth transition into 2026. We've established an internal benchmark to retain roughly 85% of our clients on a year-over-year basis, a standard consistent with leading health SaaS companies, and we feel very good about achieving that target based on the renewal conversations underway. With the rapidly expanding pipeline, proven outcomes, and a strong renewal foundation, we're seeing continued acceleration in our business as we move into 2026. The combination of new growth, recurring revenue, and disciplined client retention gives us real confidence in the year ahead. With that, I'll turn the call over to Chen. Chen Franco-Yehuda: Thank you, Steven, and good morning, everyone. In the third quarter, we continued to strengthen DarioHealth's financial position and advance our transition to a business model centered on high-quality, recurring revenues, strong margins, and operating leverage. We're executing this strategy with discipline, and you can see the progress clearly reflected in this quarter. As of September 30, 2025, we had $31.9 million in cash and equivalents. This reflects the successful completion of an oversubscribed $17.5 million private placement of common stock or equivalents only in the business, which we view as a meaningful signal of investors' confidence in the market opportunity and in our ability to execute. In parallel, we took several steps to simplify and strengthen our capital structure. We completed the conversion of preferred shares into common stock and equivalents, resulting in a clear and more transparent cap table. We also amended our current credit agreement to provide greater flexibility on covenant testing, which enhances our financial resilience while we continue to scale. Let me now turn to the financial results. Revenues for the third quarter of 2025 were $5 million compared to $5.4 million in 2025 and $7.4 million in 2024. As we've discussed in previous quarters, the year-over-year decline reflects the nonrenewal of a large scope of work with a national health plan in early 2025, as well as the deliberate shift from one-time revenue streams towards long-term annual recurring revenue. This transition emphasizes quality, predictability, and scalability of revenue, and we believe it positions Dario for stronger, more durable growth. Gross margin performance continued to reinforce the strength of our unit economics. GAAP gross margin expanded to 60%, up from 55% in 2025 and 52% in 2024. Non-GAAP gross margin in our core B2B2C remains above 80% since the beginning of 2024, reflecting the benefits of a software-led model and disciplined cost management. Turning to operating expenses, we continue to execute on efficiency and scale. For the first nine months of 2025, operating expenses declined by $17.2 million or 31% year-over-year. For the third quarter, operating expenses declined by $3.4 million, a 21% reduction from the prior year period. These improvements were driven by cost measure integration of process automation, organizational streamlining, and expanded use of AI-based workflow across all operations. As a result, operating loss improved by $18 million or 39% for the nine-month period compared to last year. Looking ahead, we expect an additional 10% to 15% improvement in operating expenses over the next twelve to fifteen months as we continue to automate core processes and improve efficiency. To summarize, as of the end of the third quarter, we have a strong balance sheet and a simplified capital structure. Our operating expenses continue to decline, and we are building a durable base of recurring revenue supported by high retention with an existing customer base and accelerating momentum signing and onboarding new clients. This includes a target of $12.4 million in new business for implementation in 2026, reflecting both committed ARR and late-stage opportunities nearing completion. Given the committed ARR, a healthy and expanding pipeline, and continuous progress on operational efficiencies, we reiterate our expectations to reach run-rate cash flow breakeven by late 2026 to early 2027. I'll now turn the call back over to Erez before we go to the Q&A session. Erez Raphael: Thank you, Chen. Today, Dario stands at a critical and exciting inflection point where our differentiated offering is exactly what payers are looking for. Our team is executing with focus and discipline. The groundwork is in place, and we are fully aligned with the market dynamics that favor integrated, outcome-driven solutions. We are committed to growing our business by improving health outcomes for users and creating savings for payers. The technology platform we have invested in and built, including integration of several acquisitions over the last decade, is a highly valued strategic asset, in addition to and beyond its ability to generate high-margin recurring revenues. As a reminder, in September 2025, in response to multiple unsolicited inbound expressions of interest, Dario engaged Parella Weinberg Partners and established a special committee of its board of directors. We will not comment further on this matter unless and until there is a material update. With that, I want to hand over the call to the operator for the Q&A session. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. We will pause for a moment. To withdraw your question, please press star then 2. Our first question comes from the line of David Grossman from Stifel. Your line is open. Again, David Grossman, your line is open. Our next question comes from the line of Charles Rhyee from TD Cowen. Your line is open. Charles Rhyee: Hi. This is Lucas on for Charles. Thanks for taking the questions. Wanted to ask about your UnitedHealth national rollout starting in January 2026. Can you help us understand how much of the $12 million in new business expected to be implemented in '26 is coming from this client? And then can you, I guess, just speak to the overall opportunity you see with this client in 2026 and beyond? Steven C. Nelson: Yeah. Hi. This is Steven Nelson. Yeah. I am happy to take that question. Two things. One is they have launched a digital marketplace for all their book of business. They're rolling it out in chunks. They soft announced that in Q3. We've been active in that pilot rollout, and now they're doing it with scale against their entire book. We don't get specific in terms of client segments and revenue by client by the book. But we're really encouraged by what they're doing. We were one of the few selected in terms of that digital marketplace. And as they roll that out, they're rolling it out in chunks, I believe, in membership books as they go quarter by quarter, with the formal rollout. So it's more of what they've done before to have a market. They've done a little bit of this in the past, but this is kind of a newer launch for them. I'd say quite innovative, to say the least. And this is a group-sponsored business where the group benefits people, members, consumers can go on and use their benefits to then purchase within a digital portfolio of products. So not necessarily built within their product. In direct form, more through a group type of plan. And so it's a pretty innovative launch. We're excited to be a part of it, and that will all kick off in a formal way in January. Charles Rhyee: Okay. Appreciate that. And then, still want to focus on the $12 million in new business expected to be implemented in '26. Can you help us understand what sort of pacing we should be modeling in and expecting for this new business? Steven C. Nelson: Yeah. So some of it's already started. We've been in Q4, the time period, as we kind of launched a lot of these accounts. As we noted on the call, our expectation was to have 40 that would be signed this year that would impact this year or start in next year. We've achieved 45. Specifically already to date, and we still have some time left to sign some others. So it's kind of rolling in now as open enrollment kind of kicked in now. Some of those accounts did start earlier. The majority of those accounts will start in January. In normal benefits time frame. Some of them will roll in in January as normal benefits from open enrollment. Some of them may start in terms of February. Just delayed slightly after their open enrollment. We've seen a lot of employers that are starting things in an off-cycle but still within the benefits stack. So a lot of them are starting things within the time frame of their benefits. But not necessarily at the start of the benefits year. So it's gonna roll in, I'd say, over the course of Q1. We do have some off-cycle things that we're still engaged in. Some of the health plan businesses off-cycle. Obviously, some of the things we've done in the government sector is just waiting for the government to kind of finish their budgets and move forward. And that's we're pretty encouraged about a couple of those as well in maternal health. And some digital health initiatives that have already been spoken about. And then lastly, we also have a little bit of other new business from employers that are off-cycle. So we've done things around some different sectors of business and employer business with our specific channel partners that are also off-cycle. So it's kind of a little bit of a roll-in. I'd say the majority of that was in Q1. But some of that has already started, and some of that also will be a tail after Q1 will start. But the majority will definitely be in Q1 timing. Charles Rhyee: Okay. I appreciate that. And then, I mean, you guys are saying, you know, the commercial pipeline is growing. You talked about a 90% renewal rate. When we look at the B2B2C revenue, we're still seeing sequential declines. Can you help us understand what's driving this? You spoke to a nonrenewal that took place in early 2025. Is this the primary driver for, you know, continued sequential declines here? Can you kind of peel back the layers on what the underlying trends are in this business in Q3? Erez Raphael: Yeah. I'm gonna take it. So Lucas, we mentioned in the previous quarters, we had this one national health plan that didn't continue this year. I think that this is what created the decline. Other elements that are showing a decline between this quarter to the previous quarter is the transition of the pharma business from milestone-driven into recurring revenue-driven. If we are looking into the book of business that is purely employers and health plans, it's stable between Q2 to Q3, and we believe that it's gonna be stable and even going a bit up between Q3 to Q4. I want to also assign some numbers to your previous questions. You asked specifically about UnitedHealthcare. We are not exposing exactly how we are modeling everything, every opportunity, and every client. But if I'm gonna look into the numbers from 30,000 feet, you have 45 new accounts that have been signed this year. 90% of them will launch only in Q1. So you're gonna see the ramp-up only in Q1. And the way that we modeled all the accounts is that we don't have a single opportunity that is contributing more than a million dollars out of the $12.4 million. So I think that we have here a very diversified approach where we are not putting all the weight on one client in order to get us the growth for 2026. Hope it's helpful. Charles Rhyee: Gotcha. That's helpful. And then the last question I have, and I'll jump back in the queue, is just speaking, can you give us an update on the pharma services pipeline? What kind of demand you're seeing following your sharper focus on therapeutic areas? And just be curious to hear how prospective clients in that side of the business are responding to this approach. Erez Raphael: Yeah. So, the way that we are looking into the few B2B channels, employers, healthcare, and pharma, is that our priority is, first of all, employers and health plans. This is where we are focusing all the efforts and also the sales and marketing budget perspective. We do believe that we have a very impressive portfolio of products that is helping and helped pharma in the past. I mean, if we're looking into previous business that we had, we had a lot of business with all the big names. From Sanofi to Eli Lilly to Novo Nordisk. All of them were clients of Dario or Twill. The issue that we had with the business is that we wanted to make sure that we are operating as a SaaS-oriented business, and we are running recurring revenue only. Which means that we transformed the business and literally shut down accounts that were only one-time revenues. The way that we view it in the future is that we're gonna be extremely selective. And I believe that for next year, we're gonna have between two or four accounts that are gonna contribute to the revenue. And I believe that the numbers are gonna be relatively smaller compared to the employers in the health plan channel. Charles Rhyee: Okay. Great. Appreciate the color. Thanks. Operator: Our next question comes from the line of David Grossman from Stifel. Your line is open. Our next question is from Theodore O'Neill from Witchfield Hills Research. Your line is open. Theodore Rudd O'Neill: Thank you very much. Steven, you talked about adjusted product market fit. And in the press release, it also highlights the new performance-based pricing model. And I'm wondering between those two things, what are you finding is working for you better now than, say, twelve months ago? Steven C. Nelson: Yeah. Two things. One is that we're really focused on which multi-condition offerings we're taking in the market for clients. So we're doing more around claims-based analytics. We're doing more around claims-based engagement. Trying to make sure that our product fits kind of what they're looking for. A solution, first of all. That's from the marketing to the presentation to the sales process to closing it and then reporting on it, engaging it, you know, etcetera with the clients. So I think that's one big broad thing. I think the second thing is, you know, we didn't do it all ourselves. I noted in the earnings release, specifically in my script, that we talked about how we added in a couple of key partners to round out our product solution where we didn't have to necessarily develop the R&D but they are presenting market opportunities for us, specifically most recently, Green Key around sleep. Again, partnering with what we have in cardiometabolic offering, tying that into sleep gets us into a different category. Doesn't increase our R&D expenditures, and allows us to go to market with a new offering. Again, product market fit, finding ways to reduce the cost of care for payers, specifically in the sleep category. We're looking at the same thing with OneStep recently announced around falls prevention, Medicare Advantage, One Step. So, again, we're trying to think differently about how our product and how the market, either through partners or our core bread and butter product, really goes towards certain segments. Strategically, we also went after some different accounts. So we went at certain accounts that were a certain size. Type, where they operate a certain way. Manufacturing, production, etcetera. So we tried to really make sure that our product, digital health being kind of how we engage people remotely, would fit with people and how their segments were, their employer segments were, etcetera. So one was really a detailed approach about the clients we were targeting. Two was the partners that we brought on to our product. And three is how we actually went to market to win. Theodore Rudd O'Neill: Okay. And then talking about federal and state interest in DarioHealth, is that as a customer, does that present some more unique challenges compared to your successes here in the commercial side? Steven C. Nelson: Yeah. Not necessarily. If you know, the details of what the government has actually released fits with what we're doing. So one of the things actually I didn't cover in your first question was how we went to market with really a value-based light offering. We have a milestone-based payment model now we went out regarding clinical milestones being met in order for us to get paid. And that really kind of proves that we're getting after clinical metrics, clinical data, claims data to kind of get paid with the client. So it's a better ROI model. That's more appealing to government-sponsored plans, which also fits well with Medicaid, Medicare plans, etcetera. And for us, doesn't present a challenge as long as they can get out of each other's way. And appropriate budgets effectively. We feel pretty good with where we sit right now with a couple of initiatives that went out. Maternal health initiatives, some rural health initiatives as well. So some things that occurred that allow us to kind of get back out into the market differently. We worked with those offices on those proposals. Now we're just really waiting on how the government's going to fund them. From the federal down into the states. And I think that you're gonna see some healthcare funding. I think once they get out of their own way, healthcare is a hot topic right now on no matter which side of the house you're on. No pun intended. I think that at the end of the day, we'll have some offerings that were a good product fit for them. Theodore Rudd O'Neill: Okay. Thanks very much. Operator: We have a question from David Grossman from Stifel. Your line is open. David Grossman: Hi, guys. This is Aiden on for David. Are you able to hear me? Erez Raphael: Yes. We can hear you. David Grossman: Okay. Great. Sorry about that. I had some technical difficulties. But I wanted to ask on the new client wins, 45 already for the year, exceeding the target. Has anything changed in your approach for go-to-market? And what's resonating with these new clients? Steven C. Nelson: I mean, our first biggest thing that I noted on the script, and obviously important for the market to note, is we doubled down with some of our key channel partners. And our channel partners really delivered in terms of the market that we're going after, the accounts we're going after, etcetera. So one would be our channel partners. We're a big difference than what we had from wins of last year at the same time. Two is our fit with them. I mean, I know there's a product market fit to the clients, but there's also one with our distribution partners as well. And that also has gone well. From how we're contracted with them to creating win-win agreements to making sure that we meet the needs on how they're reporting, how we engage, etcetera. So one big one would be our distribution channel partners for sure. Then I'd say, secondarily, just how we targeted. We are targeting without getting into the specific strategy and the detail of the strategy. I mean, we're going at it a certain way. We kind of pivoted to make sure that we could win in a differentiated way. Again, I don't want to get into all the details of that competitively, but I would say that we really thought about it differently, approached it differently, and won. And our channel partners are a big part of that. However, we had some other partnerships as well that weren't channel-specific that were just kind of at the table. Our consultant relationships that came through a couple of new ones that have been really favorable for us as well. And I'd say also a couple of different segments that we dipped into. We were dipping into the TPA segment for the first time in a while. We now have a PBM relationship for the first time. So we have some other different market segments that aren't channel partners but are good partners to go to business with. We're seeing some uplink in those as well. David Grossman: Great. Thanks for that. And then just a follow-up on the 45 new clients. You guys had said that 50% are taking multi-condition offerings. I think last quarter, that number was around 80%. So is that just client mix? Anything changed there with clients taking less of a multi-condition approach? Steven C. Nelson: No. I mean, most of that was driven specifically off of our channel partners. Some of our channel partners have more than, you know, have one condition right now. They gave us a chance to have one condition. In the market, not necessarily two. We've proven out that we can win now with them, and so they're giving us a chance to have more products through their channel partnership. And so, some of their channel partners were multi. A couple of the larger ones that drove care through their channel partnership only had one condition. So the uptake just watered down our 80 to fifty. But, candidly, I think if we get in with these clients and see what we can do to grow them and upsell them and cross-sell them into what we have, I feel pretty confident about that. So I know that it came down in terms of 50. I'd say 50 as a multi-condition platform is still pretty substantial. Again, our value proposition is really relevant here. I'd be remiss not to cover it, which is, no matter what condition you're engaged into in our platform, it's the same price. So the investment of the ROI, return on investment, the investment side for clients is the same. And that gives us a chance to go to market and win differently. And so we've let they'll capture that and really send that in the market and our product market fit and win. So while that's come down, in terms of more than one, we're still really happy that we have 50 plus or more. Erez Raphael: Just one reminder. When we reported last time, I think that we were in 23 or 25 accounts. So the sample was relatively low, and now we are looking into 45. And in 45, the number now percentage-wise is 50%. So I think that given where the market is and where the market is going, 50% of clients that are signing for multi-condition shows a very consistent trend that the market is consolidating for sure. David Grossman: Great. Thanks, guys. Operator: There are no questions at this time. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a wonderful day.
Operator: And welcome to The Walt Disney Company Fourth Quarter 2025 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. I would now like to turn the conference over to Carlos Gomez, Executive Vice President, Treasurer, and Head of Investor Relations. Please go ahead. Good morning. It's my pleasure to welcome everyone to The Walt Disney Company's fourth quarter 2025 Earnings Call. Carlos A. Gomez: Our press release, Form 10-Ks, and management's posted prepared remarks were issued earlier this morning and are available on our website at www.disney.com/investors. Today's call is being webcast, and a replay and transcript will be made available on our website after the call. Before we begin, please take note of our cautionary statements regarding forward-looking statements on our Investor Relations website. Today's call may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects, and financial performance, are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties. Including, among other factors, economic, geopolitical, operating, and industry conditions, competition, execution risks, the market for advertising, our future financial performance, and legal and regulatory developments. Refer to our subsequent Form 10-Qs, 10-Ks, and other filings with the SEC for more information concerning factors and risks that could cause results to differ from those in the forward-looking statements. A reconciliation of certain non-GAAP measures referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website. Joining me this morning are Bob Iger, Disney's Chief Executive Officer, and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following introductory remarks from Bob, we will be happy to take your questions. So with that, I will now turn the call over to Bob. Robert A. Iger: Thank you, Carlos, and good morning, everyone. This was another year of great progress as we strengthened the company by leveraging the value of our creative and brand assets and continued to make meaningful progress in our direct-to-consumer businesses, resulting in strong earnings growth for the company. Adjusted EPS for fiscal 2025 was up 19% from fiscal 2024. And over the past three fiscal years, we have delivered a 19% compound annual growth rate in adjusted EPS. Our strategy and portfolio of complementary businesses, coupled with a strong balance sheet, enable us to continue to grow adjusted EPS and free cash flow over time. For fiscal 2026, we expect to deliver double-digit adjusted EPS growth compared to the prior year. The expected growth in earnings and cash flow enables us to continue investing in our businesses and to increase our return of capital to shareholders. We are targeting $7 billion in share repurchases in 2026, double the $3.5 billion we repurchased in fiscal 2025. We are also pleased to announce that the board has declared a cash dividend of $1.5 per share, a 50% increase over the dollar paid to shareholders in fiscal 2025. Before we take your questions, I'd like to touch on a few highlights from the quarter. First, our film studios. This summer's box office once again demonstrated the global and cross-generational appeal of our storytelling and IP. To date, Disney's live-action Lilo and Stitch remains the highest-grossing Hollywood film at the global box office this calendar year. And its success has extended across our interconnected businesses and consumer touchpoints. The film achieved 14.3 million views during its first five days on Disney Plus, becoming the second biggest Disney live-action premiere on the platform ever. Retail sales for Stitch from our consumer products business also continue to grow, eclipsing $4 billion in fiscal 2025. The popularity of this global phenomenon underscores the franchise's enduring strength and characters and the effectiveness of our strategy to invest in popular stories. Over the past two years, our studios have delivered four global franchise hits that have earned more than $1 billion each, while no other Hollywood studio has achieved a single one during the same period. Additionally, with a strong opening of Predator: Badlands, the biggest opening in the franchise's nearly forty-year history, the Walt Disney Studios has now crossed the $4 billion mark at the global box office for the fourth consecutive year. Heading into the holiday season, we're excited to bring audiences Zootopia 2 and Avatar: Fire and Ash. Looking ahead, next year's slate includes numerous highly anticipated titles such as The Devil Wears Prada 2, The Mandalorian and Grogu, Toy Story 5, the live-action Moana, and Avengers: Doomsday. We saw strong viewership of our television content in Q4, fueled by series such as Alien Earth, FX's biggest premiere ever on Disney Plus and Hulu, season two of High Potential, the number one original broadcast series across all platforms among adults 18 to 49. The Korean global hit Tempest and season 34 of ABC's Dancing With the Stars, which made history as the only fall show to increase its overall audience for six straight weeks following a season premiere. Something that's never been achieved by any show since Nielsen began electronic measurement in 1991. And we have more highly anticipated titles to come over the next few months, including new seasons of Paradise, The Secret Lives of Mormon Wives, Percy Jackson and the Olympians, American Idol, and the revival of the comedy Scrubs. We're also excited to bring viewers Taylor Swift's End of an Era docuseries as well as the concert film Taylor Swift: The Era's Tour, The Final Show. In our entertainment segment, our streaming business had another quarter of profit growth, with operating income up 39% in Q4. For the full year, we hit $1.3 billion in operating income, up $1.2 billion from last year and $300 million ahead of our original guidance. That is a significant achievement when you consider that just three years ago, our DTC business was running a $4 billion operating loss. As we continue to build DTC into a core growth engine, we're rolling out a more unified experience to better serve our consumers and unlock new value. In October, Hulu became our global general entertainment brand. And we continue to work to consolidate all of our entertainment content domestically within a single app, which will simplify the user experience, highlight the full value of our bundles, and unlock global marketing efforts. We're also expanding our international reach by investing strategically in our own originals and working with local studios to license content that brings more high-quality local storytelling to the platform. Taking a disciplined approach to the markets we are prioritizing, we have confidence in our long-term strategy. Turning to sports, we ushered in a new era with the launch of ESPN's full direct-to-consumer service and enhanced ESPN app. Making ESPN's full suite of networks and services available directly for the first time. We're thrilled by the response from fans so far, especially to the upgraded ESPN app, which now includes features such as multi-view, SportsCenter for You, catch up to live, and tools like live game stats, betting, fantasy sports, and commerce integration. Viewership of our industry-leading portfolio of live sports also remains robust, with ratings across ESPN networks, including ESPN on ABC, finishing the quarter up 25% over the prior year quarter. In our Experiences segment, we delivered a record operating income for both Q4 and the full year, with operating income up 13% for the fourth quarter compared to the prior year and up 8% for the full year. We're looking forward to two new cruise ships joining our fleet in the coming months. Disney Destiny, which sets sail next week, and the Disney Adventure, which will become our first ship home-ported in Asia when it launches in March. This will bring our fleet to a total of eight cruise ships, and in the spring, we're excited to open a world of Frozen at Disneyland Paris. With expansion projects underway at every one of our theme parks, five additional cruise ships scheduled for launch beyond fiscal 2026, and a new theme park planned for Abu Dhabi, the strategic investments we are making now will help ensure our offerings remain best in class and appeal to audiences worldwide well into the future. Overall, this quarter caps another strong fiscal year for the company. We continue to execute across our strategic priorities as we build for the future, deliver the very best in entertainment, and create value for shareholders. And with that, Hugh and I will be happy to take your questions. Carlos A. Gomez: Thanks, Bob. As we transition to Q&A, I ask that you please try to limit yourself to one question in order to help get to as many analysts as possible today. And with that, Rocco, we're ready to take the first question. Operator: Yes, sir. Our first question today comes from Ben Swinburne at Morgan Stanley. Please go ahead. Benjamin Daniel Swinburne: Thank you. Good morning. Bob, I think we've been talking about ESPN going direct to consumer for, I don't know, it feels like a decade or so now. And you've got the product in the market. I know it's not been a ton of time, but I'm wondering if you could share a little bit about what you've learned so far in terms of adoption, engagement, anything interesting in terms of what kind of packages people are attracted to and, really, the question is, does this product kinda change the outlook in any meaningful way for the business? As you look out over the longer term? And I just want to ask you on the cash from operations guidance that you provided with the $1.7 billion cash tax swing. If I sort of adjust for that, I'm getting kind of underlying growth of well over 20%. So is there anything else we should be thinking about? Maybe it's the one big beautiful bill, tax benefits, or anything else in the cash outlook that suggests such a strong cash flow year in 2026? Thanks so much. Robert A. Iger: Ben, I'll take the first part of the question. The ESPN launch has been a real success for a number of reasons. First of all, what we set about to do was to attract basically new users, people who had either been subscribers to the multichannel linear bundle or people who had not but wanted to engage more with ESPN. And we've done extremely well in that regard, signing up essentially new users. The other thing we wanted to do is we wanted to give people who wanted to stay in the multichannel linear bundle a chance to use the app and to engage with us more deeply because the app has so many more features than the linear channels do. And the authentication rate of people who are already subscribers has been very, very encouraging. Third, we ended up signing up a substantial number of subscribers to what we call the ultra product or the ultimate ESPN product, which is essentially mostly attracting cord-nevers who want to engage with sports but maybe they don't want to engage as deeply as those that get linear channels or those that subscribe to the main app. So it's been very successful in that regard. We're encouraged that people have found all the new features and are using them, particularly the SportsCenter for You and what we call VERTS, which is essentially just vertical sports highlights. And the algorithm seems to be working as well. I know it's working for me where if you watch certain videos on the ESPN app and particularly if you click like, then your feed is populated by sports news and sports highlights that you are more interested in. So I guess in almost every way you look at it, it is worth it's also working for advertisers because obviously, there's real value in the data that we provide advertisers on the direct-to-consumer platform. And so we're attracting both more advertising and new advertisers to the service. And as we look ahead, we believe that we've created a product that is very, very consumer-friendly, very advertiser-friendly, and actually works both for the traditional distribution ecosystem and for what I'll call the DTC ecosystem if there is such a thing. So we're very, very encouraged. I think it's a very positive step for the future of ESPN because while nothing necessarily provides future-proof concepts or circumstances for a business that is constantly changing, this certainly is a step in the direction of solidifying ESPN's future going forward. The last thing that I'll say is the great thing about the app is this incredible variety of sports that you can access on it. So where the linear channels provide obviously, live sports and studio programming more along the lines of the traditional sports television, the new app gives users a chance to engage with thousands and thousands more sports events over the year. And I think that's not only a sports fan's delight, but I think overall it's about as consumer-friendly as it gets. Hugh F. Johnston: Okay, Ben. Yeah. And I'll take the question on cash flow. You're right, if you adjust for tax we're up about 28% year over year. Because of the timing on tax payments, the reported number is closer to 7%. Driven by a couple of things. Number one, obviously, OI growth is quite strong. Number two, we've been investing for a couple of years and we've now sort of leveled off in terms of those levels of investment. That's something that we think you can look forward to in the out years. Continued strong free cash flow growth from Disney, which obviously gives us a lot of flexibility in terms of the ability to return cash to shareholders. Which was evidenced today by the doubling in the share repurchase and the 50% increase in the dividend. So we feel very good about the free cash flow growth going forward. Carlos A. Gomez: Thank you. The next question, Carlos? Robert A. Iger: Thanks, Ben. Before we take the next question, go ahead. Yeah. Go ahead. Before we take the next question, Carlos, I just want to add something to the question that Ben Swinburne asked about ESPN. One of the things that we're also very encouraged by is the fact that of the subscribers that have signed up to the new app, a substantial number of them, about 80%, have signed up to what we call the Trio bundle, which includes Disney Plus and Hulu. Carlos A. Gomez: Thanks, Bob. And thanks, Ben. Operator, next question, please. Operator: Our next question comes from Steven Cahall with Wells Fargo. Steven Lee Cahall: So just on content, you had a pretty strong last couple of years in general entertainment. Bob, you talked about some of the things like Alien Earth and FX that have done really well. As we look into this year for the studio, I mean, it's a big slate with Avatar and Moana. You're off to a little bit stronger or softer start, I think, implied in the guide for the first quarter. So I was wondering if you could just talk a little bit about what kind of growth you think you can do at the studio this year or over the next couple of years? And then, Hugh, just a tactical one. Given the ongoing carriage dispute with YouTube TV, have you provisioned anything in the EPS guidance for a sustained blackout? Is the economic impact actually more minimal because you think those folks would resubscribe elsewhere, including maybe the ESPN app? Robert A. Iger: Thank you. You all take the first part of the question, Steven. Thank you. We're very encouraged by the studio slate that is coming up. In fact, we have a premiere of Zootopia 2 tonight. That is our Thanksgiving release. And then we finish the calendar year with Avatar: Fire and Ash. Obviously, we have very, very high hopes for that. And if you look at the slate for the rest of the year, it's about as strong as it's been in a while. Maybe stronger than it's been in a while, The Mandalorian, Toy Story 5, a live-action Moana, and then we're gonna finish the calendar year with Avengers: Doomsday. So we are very bullish on the slate ahead. As we look at the slate well into '27 and into '28, we feel that we've got similar strength to the strength that I just described for fiscal and calendar year '26. Obviously, not every film works. We've seen we know that. We've been around long enough to understand that. But if you look back at the year and look at the fact that we've already crossed substantial global box office level. We know we feel that we had some real strength, $2 billion films in the fiscal year, the biggest film of the year fiscal 2025 and calendar 2025 to date, which you know, was Lilo and Stitch, which also had tremendous, tremendous consumption when it went on the platform. So we feel good about the direction of the studio, both the current slate, the slate that's coming up, and what it looks like in the future. Hugh F. Johnston: Right. And Steven, just to add to Bob's comments, in terms of Q1, that's more about what we're overlapping rather than the slate for the year itself. Just the timing of the overlap particularly with Avatar coming at the very end of Q1 is what's driving the guide that we shared with you all. As it relates to the discussions with YouTube, obviously, I'm not gonna comment much on ongoing negotiations that are live right now. The only thing I would say is in terms of our guidance, we built a hedge into that with the expectation that these discussions could go for a little while. In terms of the dollar impacts, keep in mind there's two pieces to it. There's the piece that we're not getting paid for and then the piece that we're picking up by virtue of subscribers moving elsewhere. But beyond that, I don't wanna comment because it is a live negotiation right now. Thanks, Steve. Operator, next question please. Operator: Absolutely. Next question comes from Robert Fishman at MoffettNathanson. Robert S. Fishman: Bob, we think about Disney Plus as a portal to all things Disney. Can you talk about the future roadmap and how subscribers will be able to use Disney Plus as a super app for not only Hulu and ESPN that you start to talk about, but also engage with your parks and other assets? And then, Hugh, do you see a path ahead for sustained double-digit DTC revenue growth through a combination of subscriber engagement and advertising increases? Thank you. Robert A. Iger: Thanks, Robert. First of all, regarding Disney Plus, we're in the midst of rolling out the biggest and the most significant changes from a product perspective, from a technology perspective since we launched the service in 2019. And we're really encouraged because enabling greater personalization resulting in a product that's just more dynamic, more engaging, and it's basically working. And as I mentioned in my remarks, we've turned Hulu into a global general entertainment brand, which we think is gonna create more awareness and basically create closer alignment with our US product. So as we look ahead, these things are obviously all designed to create a one-app experience. But we also see, particularly with the deployment of AI, the opportunity to use Disney Plus as you suggested as a portal to all things Disney. There's clearly an opportunity for commerce. There's an opportunity to use it as an engagement engine for people who want to go to our theme parks, want to stay at our hotels, or want to enjoy our cruises, our cruise ships, and obviously, there's a huge opportunity for games. And the investment that we made and the agreement that we reached with Epic Games, while that will largely be on their platform, gives us an opportunity to integrate a number of game-like features into Disney Plus. The other thing that we're really excited about that AI is going to give us the ability to do is to provide users of Disney Plus with a much more engaged experience, including the ability for them to create user-generated content and to consume user-generated content, mostly short form, from others. So a lot going on. We're pleased with the progress that we've already made from a technology perspective. We've made some great hires, by the way, in the last year in that regard, including Adam Smith, who's also brought in some real talent. And the opportunity here, we think, is enormous in terms of increasing our engagement with Disney fans across the world. Hugh F. Johnston: Okay. And Robert, regarding your question on DTC, a couple of comments. Number one, obviously, we guided you to the double-digit margins as we've been talking about in the past and as was expected coming into the year. Number two, in no way are we gonna get there through cost-cutting. The way we're gonna get there is through revenue growth and through driving operating leverage through the business. We didn't give a specific revenue guide, but our objective and our aspiration is very much to be growing the top line of that business by double digits. As we did on an apples-to-apples basis in Q4. That's what we're looking to do going forward is to grow the top line double digits. And again, as a reminder and as we've discussed in the past, getting beyond '26, we're certainly looking to gain margin in chunks, not in basis points. As we think beyond 2026 and into the future. We think this is a terrific business that's really going to be super strategic for The Walt Disney Company and it's gonna be a growth driver for us for many years to come. Carlos A. Gomez: Thanks, Robert. Operator, next question, please. Operator: Our next question today comes from Jessica Reif Ehrlich with Bank of America Securities. Please go ahead. Jessica Reif Ehrlich: Thank you. I've got a couple of things. One, you've grown content via both building and buying. And, clearly, if we're going to see M&A in media in the coming year, with a lot of moving pieces across the industry, some companies being broken up. So I'm just wondering, do you see any role for Disney and if not, any concern that you'll see a stronger competitor coming out of all of this? And then secondly, I was on advertising, could you maybe go a little bit under the covers? There are a lot of things going on in DTC and linear, both entertainment and sports. Could you give us some color on your outlook for fiscal 2026? Thanks. Hugh F. Johnston: First question to you. Go ahead, Bob. Sorry. Go ahead. So Jessica, M&A, a couple of things. Number one, obviously, we don't comment on M&A specifically. That said, with what's happening in the industry right now, Bob and the team really built the IP portfolio that we have over the last decade, whether it was the Fox acquisition, or Lucas, or Pixar. So we actually feel like we've got a great portfolio and we don't need to do anything. From that perspective, I think we'll let this play out. In terms of other competitors, we'll see how the various moves play out. But we like the hand that we have right now. So I wouldn't expect us to participate in making any significant moves. As it relates to the advertising side, what you saw for the year for us last year was advertising grew 5%. Sports was particularly strong. DTC has had supply coming into the market. That said, we did see CPMs improve at Disney over the last two quarters. So we feel like that's trending in the right direction. And then from a linear perspective, obviously, that's driven by what happens with subscribers. Going forward, we do expect advertising growth going into '26 as well. Despite the fact that we're overlapping political advertising in the first quarter of '26. Carlos A. Gomez: Thanks, Jessica. Operator, next question, please. Operator: Thank you. Our next question today comes from Michael Morris at Guggenheim. Please go ahead. Michael C. Morris: Thank you. Good morning, guys. Wanted to ask you first on the Experiences business. Can you talk a little bit more about the drivers of the segment in fiscal 2026 in the context of that high single-digit operating income growth that you guided to? So how is demand currently trending? And how much of the guided growth comes from revenue as opposed to margin expansion in the coming year? If I could ask one on the Sports side, you talked about some of the content-driven cost pressure in the second and third quarters of the year. I would assume that comes from the NBA investment. Can you talk a bit about how the NBA investment is positive for you and will drive your growth over time? Thank you. Hugh F. Johnston: Okay. Yeah, happy to jump in on both of those. In terms of the experiences business and drivers for 2026, obviously, we've made big investments in cruise and we're expecting Cruise to be a meaningful contributor to growth of Experiences during the course of the year, particularly in the second half as we get past the launch costs and some of the dry docks that we have in the first half of the year. Number two, obviously we're always going to have a combination of some pricing and some attendance growth. So certainly feel positive about that. And then obviously with the slate that we have coming on the film side, consumer products ought to be a meaningful contributor as well. As far as sports goes, from the perspective of the NBA, because of the timing of the rights cost, it does create a little bumpiness during the course of the year. Again, the latter half is where we'll really see material growth in ESPN. And then in terms of NBA being a the NBA is obviously a phenomenal property. We were fortunate enough to get out in front of that and create an attractive deal both for the NBA and for ourselves. It obviously, like a lot of other live sports, attracts audience and in the case of the NBA, like the NFL, attracts scale audience. Which obviously is super attractive to advertisers and therefore is strategically beneficial to us as well. Michael C. Morris: Thanks. If I could follow-up, can you share anything about what you're seeing on the demand side currently domestically for the parks? In terms of advanced bookings or per caps? Hugh F. Johnston: Yeah, yeah, sorry, I forgot to answer that portion of your question. Bookings are up 3% in the first quarter, so feel good about that. And they're also up for the year. So feel good about where demand is right now. Michael C. Morris: Great. Thank you, Hugh. Operator: Thank you. And our next question comes from Kannan Venkateshwar with Barclays. Please go ahead. Kannan Venkateshwar: Thank you. Bob, any interest from you on becoming a broader bundler of streaming? You already have ESPN, Disney Plus, and Hulu bundled, and, of course, you also have Fox One and HBO. And it feels like there's an opportunity here for Disney to maybe emerge as a new form of bundler. Which nobody in the industry appears to have attempted yet. So any thoughts on that would be great. And then just to understand the impact of ESPN bundling on Disney Plus and Hulu a little bit better, anything you can share with respect to maybe the churn benefits or any kind of subscriber acquisition cost tailwinds that you saw in the quarter? What do you expect going forward potentially from that? Thank you. Robert A. Iger: So I'll answer both parts of your question. First of all, as it relates specifically to ESPN bundling, what we found is that subscribers that bundle, either they bundle Disney Plus and Hulu, or subscribers that bundle Disney Plus, Hulu, and ESPN, are healthier subscribers in the sense that the churn rates are lower than the subscriber that only subscribes to one app. So what I mentioned earlier, the fact that about 80% of all the subscribers to the new ESPN service are actually buying the trio or the triple bundle. That's a very positive sign for us in terms of lowering churn into the future. We've also found that bundling with others, for instance, we've been bundling with Max in the United States, also has an effective lowering churn. And we've expressed the desire to do more bundling with other companies and have been in discussions on and off with other companies about doing just that. So typically, the opportunity to bundle definitely exists and to bundle more exists. And we also have proven that it works both for us in terms of our subscribers and also for the subscribers that we attract for the bundling entity. If you were to ask the folks at Warner Brothers Discovery about the impact of the Max bundle on them, they would tell you that they've signed up a substantial number of subscribers thanks to the bundle with us. Carlos A. Gomez: Thanks, Kannan. Operator, next question, please. Operator: Absolutely. Our next question today comes from John Hodulik with UBS. Please go ahead. John Christopher Hodulik: Great. A quick follow-up on the parks business and then a question on cruises. It looks like domestic parks attendance was a little light in the fourth quarter. Hugh, is that driven by sort of competition? Macro? Or are there any other factors that may have accounted for that? And then on the cruise side, just comment on overall demand for the cruise business. And if you could remind us how do the margins in cruises compare to overall margins in the parks business? And what should be the impact on that segment as that business grows as fast as it's slated to over the next several years? Hugh F. Johnston: In terms of the demand, demand was, I wouldn't characterize it as light. It basically came in, in line with our expectations. We've talked about Epic in the past in particular as something that we knew was gonna be a factor in domestic parks and in fact was very much in line with our expectations. If anything, it seems to be impacting the rest of the competition down in Florida more than it's impacting us. From a consumer perspective, we certainly feel good about it. In terms of demand for cruise, very strong despite the fact that we've added as much capacity as we have. Utilization rates are in line with what we've seen in the past. So we're filling all of that capacity as quickly as we can add it. Regarding margins, we don't really talk about specifics on cruise margins. That's not a disclosed item. But obviously, it's a very attractive business. We're capable of pricing at a good level. The guest satisfaction scores are higher than basically anything else in the company. So the margins in that business, as you would imagine, are quite attractive. Carlos A. Gomez: Thanks, John. Operator, next question, please. Operator: Absolutely. Our next question today comes from Kutgun Maral with Evercore ISI. Kutgun Maral: Morning, and thanks for taking the questions. Two, if I could. First, on direct-to-consumer, I was hoping you could share some of the puts and takes on the cost side in 2026. Especially as you continue to invest in technology and programming. But I didn't know if there's some maybe cost savings associated with integrating the tech stacks, for example, that we should be mindful of. Then, Hugh, just a housekeeping one, if I could, around the fifty-third week. Thank you for providing a clean guidance for the year and on an underlying basis. With that, can you help quantify the impacts of the extra week to this year? And as we look to fiscal 2027, would the expectation be that you could grow EPS double digits again even without adjusting for the fifty-third week comp? Thank you. Hugh F. Johnston: Yeah. First on DTC. It's really consistent with what we've talked about in the past. So we expect to grow revenue at an attractive rate. As I mentioned earlier in the call, the aspiration is to be double digits in that business. In terms of then the line items underneath, we'll obviously continue to invest at a reasonable level in content. Leaning a bit more towards the international side as we identify opportunities in specific markets to grow the international business where we have a big opportunity. In addition to that, we'll be investing in product. So the technology area will get some level of investment as well. And obviously, as we put the two businesses together, there's opportunities to do a bit of savings on SG&A. That said, I would expect P&L leverage, in other words, expenses growing less quickly than revenue, across all of those items. Which is how we drive the margin growth that we would expect to see. In terms of the fifty-third week, again, would expect us to figure out as we get to Q4 what the fifty-third week is worth. And then as we determine that, as we have in the past two times, we've had the fifty-third week, we would share something on that with investors and we'd look to grow double digits off of that. Carlos A. Gomez: All right. Thanks, Kutgun. Operator, we have time for one more question. Operator: Thank you. And our final question today comes from David Karnovsky with JPMorgan. Please go ahead. David Karnovsky: Hey, thank you. Bob, you noted Generative AI earlier, but it sounded primarily as a use case within your apps. And I'm wondering how you view the opportunity or risk to license out content or IP to some of the emerging video creation platforms. And then just relatedly, it pertains to production costs over time, what role do you see for generative AI to drive cost efficiencies in the business? Thanks. Robert A. Iger: Very good question. We've been in some interesting conversations with some of the AI companies. I would characterize some of them as quite productive conversations as well. Seeking to not only protect the value of our IP and of our creative engines, but also to seek opportunities for us to use their technology to create more engagement with consumers. And we feel encouraged by some of the discussions that we're having. It's obviously imperative for us to protect our IP using or with this new technology. And we've been pretty engaged on that subject with a number of entities. And hopeful that ultimately, we'll be able to reach some agreement, either the industry or the company has on its own, with some of these entities that would in fact reflect our need to protect the IP. We also, as we look ahead, we see opportunities in terms of efficiency and effectiveness by deploying AI not just in the production process, but really across our company as we engage with our cast members and our employees, but also our guests and our customers. There are opportunities as you talked about earlier about what I'll call the office and creating efficiency there. They are great in terms of our collection of data and our mining of data. And I'd say above all else, there's phenomenal opportunities to deploy AI across our direct-to-consumer platforms. Both to provide tools that make the platforms more dynamic and more sticky with consumers, but also to give consumers the opportunity to create on our platforms. I also before we end the call, Carlos, I just wanna say one thing. Because I know there was reference to where we are with YouTube. And I just wanna end the call because we've been so engaged in this over the last few weeks. By kinda giving an overall summary of just where things stand. First of all, obviously, we care deeply about our consumer. And our priority has always been to remain on their service without interruption, to close a deal on a timely basis so that interruption does not occur. The deal that we have proposed is equal to or better than what other large distributors have already agreed to. So we're not trying to really break any new ground. And while we've been working tirelessly to close this deal, and restore our channels to the platform, it's also imperative that we make sure that we agree to a deal that reflects the value that we deliver which both YouTube by the way and Alphabet have told us is greater than the value of any other provider. So we're not trying to break new ground. The offer that's on the table is commensurate with deals that we've already struck with actually distributors that are larger than they are. We're trying really hard, as I said, working tirelessly. To close this deal. And we're hopeful that we'll be able to do so on a timely enough basis to at least give consumers the opportunity to access our content over their platform. Carlos A. Gomez: Thanks, Bob. And thanks to everyone for your questions. We wish you all a good day. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day. [speaker 0]: Goodbye.
Operator: Good day, and welcome to Bilibili's Third Quarter 2025 Financial Results and Business Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Please go ahead. Juliet Yang: Thank you, operator. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filing with the SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provide are for comparison purposes only. The definition of these measures and the reconciliation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Bilibili IR website at ir.bilibili.com. Joining us today from Bilibili senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer, Ms. Carly Li, Vice Chairwoman of the Board, Chief Operating Officer, and Mr. Sam Fan, Chief Financial Officer. I will now turn the call to Mr. Chen. Rui Chen: Thank you, Juliet. And thank you to everyone for joining us today to discuss our 2025 third quarter results. Our 2025 momentum carried through the third quarter as we delivered solid growth, improved profitability, and attracted an even larger, more engaged community. As an influential hub of diverse interests, our high-quality content offerings and unique community experience continue to fascinate the hearts and minds of the young generation. We are increasingly seeing this in our key user metrics, which have resumed an accelerated growth trajectory since the beginning of the year. In the third quarter, our DAUs rose 9% year over year to 117 million, MAUs grew 8% to 376 million, and average daily time spent per user increased to 112 minutes, up six minutes from the same period last year. Each hit an all-time high. We are very proud of these numbers, as they show users' rising demand for quality content and the welcoming community spirit that makes Bilibili unique. We will keep building on the strong user momentum and reinforcing our leading user mindshare as the best PUGV community in China. This solid community growth is translating into increasing commercial value, with even greater opportunities ahead. While enjoying engaging content, users are demonstrating a stronger willingness to spend on our platform, both directly and indirectly. Monthly paying users hit a record high of 35 million in the third quarter, up 17% year over year, with more users converting through our various games and VAS offerings. We are also seeing deeper engagement around consumption, as users increasingly turn to Bilibili for advice and inspiration, with real purchasing intent. Our advertising business also accelerated, and revenue grew 23% year over year in the third quarter. With an average user age of 26, a maturing cohort with stronger purchasing power and expanding consumption needs, we are capturing more commercial potential across the platform and realizing greater value from our users' evolving needs. Building on these strong fundamentals, we delivered solid financial results in the third quarter. Total net revenues grew 5% year over year to RMB 7.7 billion. As our revenue mix shifts toward high-margin business, gross profit increased 11% year over year, with gross margin expanding to 36.7%, marking the thirteenth consecutive quarter of growth. Supported by disciplined cost management and higher operating leverage, our non-GAAP operating and net profit surged 153% and 233%, respectively, year over year. Our non-GAAP operating and net margins reached 9% and 10.2%, respectively, showing meaningful improvements from the same period last year. These metrics underscore the sustainability of our growth model, reflected in our continued profitability expansion. Notably, we welcomed another blockbuster game, Escape from Duckhoff, Haori Yakufu, in October. This self-developed single-player extraction shooter game became an instant hit after its debut, selling over 3 million copies globally and earning great user reviews. The success illustrates our sharp genre insight, in-house development capabilities, and solid execution in reinventing games for new generations of gamers. There is still a lot of unmet demand in the market, and we are ready to tap into it with our upcoming pipeline and robust game content ecosystem. As we continue to strengthen our business fundamentals, AI is becoming a key enabler of our future growth. Later this year, we plan to launch several AI-powered applications, including multilingual video accessibility features such as AI-enabled dubbing, subtitles, and lip-syncing. We are also developing a new video generation tool tailored to video podcast production, where compelling storytelling defines high-quality output. Beyond these initiatives, AI is consistently enhancing our operational efficiency, and there is so much more to explore. Looking ahead, our focus remains on empowering our unique PUGV community, strengthening our commercialization capabilities, and sustaining profitability. We will continue to scale our core businesses while exploring opportunities such as innovative games and AI-empowered solutions to enhance user experience and capture additional monetization potential. With that overview, let's take a closer look at our core pillars of content, community, and commercialization. Beginning with content and community, our ecosystems continue to grow stronger as quality content and community connections reinforce each other. This growing synergy is reflected in record engagement and increased commercialization, demonstrating Bilibili's ability to turn cultural relevance into sustainable growth. Average daily time spent hit a new record high of 112 minutes in the third quarter. This is a six-minute increase over the same period of last year. Mid to long-form videos remain our hallmark. Users continue to show high engagement with our more substantial informative content, and watch time for videos over five minutes increased by 20% year over year in the third quarter. Our official members grew to 278 million with ongoing steady twelve-month retention of around 80%, reflecting strong user loyalty. ACG remains the legacy category of our cultural ecosystem. Chinese anime content watch time more than doubled this quarter, led by popular series made by Bilibili, such as A Record of Mortal's Journey to Immortality, The Tales of Hurting Gods, and Link Cage. The success of these Chinese anime drove premium memberships to a record high of 25.4 million. In addition, game content grew solidly with watch time up 22% year over year. This momentum further reinforced games as our largest ad vertical, with Bilibili continuing to provide the ideal community for developers to engage players and strengthen their IP influence. Meanwhile, AI-related content remains one of our fastest-growing categories. Watch time was up nearly 50% year over year, and revenues from AI advertisers rose around 90% in the third quarter, highlighting Bilibili's position at the intersection of tech innovation, user interest, and commercialization. Lifestyle and consumption-related content also grew as our audience matures and their interests diversify. Our mid to long-form creator-led storytelling content is keeping viewers engaged and drawing more interest from advertisers. For example, automobiles stood out in the third quarter, with watch time up nearly 20% and ad spending rising 35%, demonstrating how our community continues to evolve with our users while expanding opportunities for brands. Our creator ecosystem is the key force behind our progress, and creators sit at the center of Bilibili. As a platform, our most important job is to help talented creators build their followers faster and earn more. In the first nine months of 2025, the number of creators with 1,000, 10,000, 100,000, and 1 million followers each grew by over 20% year over year. Over the same period, nearly 2.5 million creators earned income on Bilibili through various advertising and VAS products, and average income per creator increased by 22% year over year. These trends show how creator success and user engagement reinforce each other, strengthening the foundation of Bilibili's content ecosystem. Now let's talk about our commercial businesses and their progress. Our commercial momentum continued in the third quarter as we tapped into more of the value behind our highly engaged and growing user base. Advertisers are increasingly recognizing the strength of Bilibili's influence, and total advertising revenues grew 23% year over year to RMB 2.6 billion. In Q3, we continued advancing our ad infrastructure on multiple fronts. By leveraging our multimodal LLM, we gained a deeper understanding of video content, community interaction, and their interconnection with user intent, improving our ad targeting and recommendation efficiency. Meanwhile, our upgraded smart app placement system automates campaign routing and delivery, maximizing scale, speed, and performance. This drove a 16% year over year increase in the number of advertisers seeking incremental value on Bilibili. Beyond ad algorithms and placement, our AIGC creative tools add another layer of ad efficiency. Advertisers can automatically generate compelling titles and thumbnails, saving production time and cost while improving conversion rates. In the third quarter, over 50% of the performance ads material had the help from our AIGC tools, assisting advertisers in reaching users more effectively with content that resonates with their intended audiences. These infrastructure advancements go beyond efficiency; they are reshaping how advertisers connect with our community. By combining intelligent algorithms with authentic engagement, we are turning creativity into conversion and positioning Bilibili's ad business to capture higher value as we continue to scale. This quarter, our top five advertising verticals were games, Internet services, digital products, home appliances, e-commerce, and automobiles. As our mid to long-form PUGVs deliver more informative content and more real usage scenarios for users, we have become an ideal platform for digital product and home appliance brands to reach and convert young users. Ad revenues from digital products, home appliances, and home decoration both grew by over 60%. As more and more online merchants recognize the commercial value of our unique young user base, they are allocating larger advertising budgets to our platform. In addition to our anchor verticals, we continue to see incremental ad revenue from emerging verticals. In Q3, ad budgets from AI and education both increased meaningfully. Turning to our games business, in the third quarter, game revenues came in at RMB 1.5 billion, down 17% year over year, mainly due to the high base from the same period last year when THEMMO was initially launched. We continue to focus on building a diversified game portfolio, laying a stronger foundation for long-term growth in our gaming business. In the third quarter, Semo maintained its popularity. We further enhanced the user experience by streamlining gameplay and character progression to create a more balanced and enduring title. Building on our success in the domestic market, we plan to launch the traditional Chinese version of SEMMO in Q1 2026 for Hong Kong, Macau, and Taiwan, with additional international versions planned for later next year, opening it up to strategy players worldwide. Besides SEMMO, our legacy titles, SGO and Azure Lane, continue to be welcomed by ACG lovers, maintaining loyal fan communities and consistent engagement. On October 16, we launched Escape from Duckoff, our first single-player extraction shooter game. Developed in-house by a five-man team, the indie game won over millions of users with innovative gameplay and its cute graphics. Over 3 million copies have been sold globally across various platforms, making Escape from Duckoff the number one popular indie game in China this year. This was an encouraging debut for us and a prime example of our expanding game development capabilities across genres and platforms. Leveraging our leading game content platform and influential game creators, we are confident we can expand the IP and bring more franchise titles to players next year. Looking at our pipeline, we are preparing to roll out End Card Sanguo by Jiangpai in early 2026, an asymmetric PVP card game inspired by the Three Kingdoms culture, designed for a broad audience of lightweight players. The game features fast-paced matches that last around three minutes per round, making it well-suited to casual, on-the-go play. As our first step into the casual gaming genre, the title is backed by Bilibili's vibrant gaming community, which provides a strong foundation for player acquisition and long-term engagement. Results from the beta test have been encouraging, and we will continue refining the game to deliver a creative, unique casual card game experience. And finally, let's look at our VAS business. Revenues increased 7% year over year to RMB 3 billion. This quarter, more users joined our live broadcasting universe as we continued expanding content aligned with their interests. Our focus remains on refining operations to ensure steady, sustainable growth while further improving margins. Driven by our popular Chinese anime titles, premium memberships also maintained solid growth, reaching a record high of 25.4 million by the end of the quarter. Around 80% of members are on annual or auto-renewal plans, underscoring their loyalty and deep connection to our community. Other VAS products continue to grow rapidly in the third quarter, led by our fan charging program, which saw its revenue nearly double year over year. This momentum reflects users' willingness to directly support the creators and high-quality content they value most. Beyond the numbers, we remain deeply committed to shaping a healthy culture and community for China's young generation. ESG principles are central to that mission. This year, MSCI ESG reaffirmed Bilibili's A rating, recognizing our ongoing progress in using technology and culture to create meaningful impact. In conclusion, everything we have achieved today comes from more than a decade of staying focused on one thing: building great content and a vibrant community. This long-term focus has created a self-reinforcing cycle where high-quality content attracts younger users, and an engaged community adds ongoing value and monetization follows organically. As we become more profitable, this flywheel will become even more effective. We will stay firmly on this path and continue to create lasting value for all of our stakeholders. With that, I will turn the call over to Sam to share more financial details. Sam, please go ahead. Sam Fan: Thank you, Mr. Chen. Hello, everyone. This is Sam. In the interest of time, on today's call, I will review our third-quarter highlights. We encourage you to refer to our press release issued earlier today for a closer look at our results. In the third quarter, we continued to grow revenues and expand our margins and profitability, driven by growth across our commercial businesses, particularly in our high-margin advertising businesses. Total net revenues for the third quarter were RMB 7.7 billion, up 5% year over year. Approximately 39% from VAS, 33% from advertising, 20% from games, and 8% from our IP derivatives and other businesses. Our cost of revenues increased by 2% year over year to RMB 4.9 billion in the third quarter, while our gross profit rose 11% year over year to RMB 2.8 billion. Our gross profit margin reached 36.7% in Q3, compared with 34.9% in the same period last year. Our expanding gross profit and margin show that our model is built to scale. Our total operating expenses were RMB 2.5 billion, down 6% year over year. Sales and marketing expenses decreased 13% year over year to RMB 1.1 billion, mainly due to decreased marketing expenses for our games. G&A and R&D expenses were RMB 509 million and RMB 905 million, respectively, both flat year over year. These efforts allowed us to maintain positive operating results. Our operating profit was RMB 354 million, compared with a loss in Q3 2024. Our adjusted operating profit was RMB 688 million, and our adjusted operating profit margin reached 9% in the third quarter, versus 3.7% in the same period a year ago. Net profit was RMB 469 million, versus a loss in Q3 2024. Our adjusted net profit was RMB 786 million, and our adjusted net profit margin in the third quarter was 10.2%, compared with 3.2% in the same period a year ago. Cash flow-wise, we generated about RMB 2 billion in operating cash flow in the third quarter. As of September 30, 2025, we had cash and cash equivalents, time deposits, and short-term investments of RMB 23.5 billion or USD 3.3 billion. Under our 200 million US dollar share repurchase program, approved by the board in November 2024, we have repurchased a total of 6.4 million shares so far, at a total cost of 116.4 million US dollars, leaving about 83.6 million US dollars available for future buybacks as of September 30, 2025. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead. Operator: We will now begin the question and answer session. If you would like to ask a question, please press 1-1 on the telephone and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your question in English. The company will provide consecutive interpretations for management statements during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. One moment for the first question. Our first question comes from Alex Liu of Bank of America. Please go ahead. Alex Liu: Thanks, management. I think it's a great quarter. We see DAU, MAU, and time spent are basically all at their highs, and it's growing, accelerating. So I was just wondering if management can share more about what's really driving this and in terms of user engagement, is there any medium-term target? And also for monthly paying users, it's also accelerating in terms of growth. What are the drivers behind this, and how should we think about the future trends in user payments for content? Thank you. Rui Chen: The fundamental reason for our continuous user growth lies within our focus on high-quality content. High-quality content is always a strong and sustainable growth driver. Actually, we think there has been a fundamental change in video content supply. Currently, the video content supply is very much sufficient and in some ways even oversupplied. Every year, there are tens of billions of new videos being created. Riding on the rapid adoption of AI tools, there are going to be tens of thousands, billions, trillions of new videos being made every year. However, we think that the quantity of video and the quality of the video are two different things. High-quality content is still in short supply. Once someone starts to enjoy or start watching high-quality content, it's very hard for them to go back. They become pickier. They wouldn't go back to the low-quality, time-killing type of videos. That's why Bilibili has a long runway for growth because the demand for high-quality content will continue to rise. The population that will be interested in Bilibili content will grow. Apart from our focus on high-quality content, our unique community aspect of our business also helps further strengthen our advantage. This is because our community can help discover high-quality content and also help our talented content creators to continuously focus on their content creation. Content needs to be discovered with the eye of beauty. We have many users who have a passion for high-quality content and the taste to select and promote those high-quality content. Good content creators need a good audience, and Bilibili is where those two parties meet and resonate with each other, especially for content creators before they become popular and earn a good reputation. There's a relatively long fair wait for them to grow in Bilibili's community, and the users' encouragement will accompany them through that process. That's why you see those content creators on Bilibili. They have been creating content on our platform for five years, even ten years long. Let's look at the MPU trend. This quarter, our MPU reached a new high of 35 million, growing by 17% year over year. For the third quarter, the premium membership business was the primary driver of that. On a long-term horizon, we think the 2C business, the user paying for content type of business model, will be a very big growth driver. I'll talk about three reasons that will drive the content consumption-related paying activity. First of all, it's our users. The average age of our user is now 26 years old, a cohort with increasing income and expanding consumption scenarios. They are generating on both the 2B advertising front as well as the 2C, the paying for content or paying for services aspect. The second point is high-quality content. We believe creators who consistently produce over a long period of time can foster their personal IP and drive sustainable monetization. There's a very large group of content creators that have been producing content on Bilibili for a very long time. Through that period, they create their own personal brand and reputation. People will follow their new creations. That's why the fan charging program, whenever they sell their own premium courses or even their personal IP derivatives, their followers, their fans, will pay for that content or services. That is also driving the overall MPUs growth. The last point is that what we have discovered is for the younger generation, consumption is mainly driven by self-gratification. People will pay for things that make them happy. They will pay for people that they love. This trend has become even more clear nowadays with our initiatives on the fan charging program, helping our content creators to monetize their own personal IP. This will be another very important growth factor behind the continuous growth of our MPU. That concludes the answer for this question. Operator, next question, please. Operator: Thank you for the questions. One moment for the next question. Our next question comes from the line of Thomas Chong of Jefferies. Please go ahead. Thomas Chong: Good evening. Thanks, management, for taking my question. My question is about the gaming business. We saw Escape from Duckoff received remarkable results. Can management share about its future business plan? Do we have any plans for developing a mobile game? On the other hand, can management comment about SunBoard and card? With regard to its monetization testing in October, when should we expect it to be released? On the other hand, what are the things in the pipeline to anticipate? For SunMo, did the performance in Q3 meet expectations? How should we think about the performance in the next year? Thank you. Rui Chen: I'll talk about Escape from Duckoff. Truly, this game has been the dark horse of the year in the games market. In less than one month after its debut, it has already sold over 3 million copies across various platforms globally, and the peak concurrent user reached over 300,000. Based on the current momentum, it is safe to say Escape from Duckoff has the potential to become the number two best-selling console game in the history of China. This has been very encouraging. On top of that, besides the sales volume, players have been giving the game extremely high ratings on the Steam platform. There have been tens of thousands of comments, and 96% of them are overwhelmingly positive. Why has it been so successful? I think there are two main reasons as a player myself. First of all, this game is fun to play. There are a lot of games launched every year, but not every one of them is fun to play. We found this game is very carefully designed with different stages and graphics. People will find it's a truly fun game to play. People will enjoy themselves. Secondly, the game has a very light mood. When you play it, you don't feel the stress of PVP. It's just the simple pleasure of collecting and looting. Also, this game doesn't pressure people to spend a lot of time or money. It's just very easy and breezy. At this time of the year, it's very entertaining and fun to play. Those two elements, fun to play and relaxing, are the two main reasons for this game's success. The reason behind that is when we were thinking about setting up a project like this back in 2023, it was just a simple few young developers gathered together who were true fans of Escape from Tarkov-type games, the extraction game fans. They wanted to create something for the young generation, easy to play, relaxing, and with cute graphics. This is a very good example of how we are thinking about our game strategy, reinventing games for the new generation of gamers. It is also an example of how we have been picking niche genres in the game market and making them the best. We think that's the perfect example of how we are executing our game strategy. This is one of many examples of our pipeline, how we are designing it. On the IP expansion question, because the game is currently only on PC, we have already kicked off the console project and the mobile adaptation for Escape from Duckoff. Because on console and mobile projects, there are going to be differences with the gameplay, we will be spending a lot of time fine-tuning the project. While doing so, we will also continue to listen closely to our gamer community, and we will share updates when the time is appropriate. As for the end card game, currently, the closed beta testing has been going very smoothly. We will be focusing on fine-tuning and polishing the game to make it the best and introduce it to the market. It's currently expected to be released in Q1 next year. The end card game is designed to cater to the need of a casual card game user. It will be a very short, on-the-go play for three minutes per round. This is another attempt to cater to the new generation of gamers. There is a lot of innovation within the gameplay. Hopefully, leveraging our very unique and best-of-the-state gamer community, as well as our talented content creators, leveraging our PUGV community as well as the live broadcasting community, we can bring this innovative game to all of the Bilibili users. Because the game has a lot of aspects with great innovation, we are putting a lot of effort into making it the best quality. We will be spending time fine-tuning the game. When the game is launched, the number one goal for this game is DAU growth. Hopefully, this game will become Bilibili's next great evergreen title. As for SunMo, it is one of the most important titles in our portfolio. Overall, the performance in the third quarter is in line with our expectations. We will be focusing on fostering a very balanced and pro-user character progression, and we will be focusing on user satisfaction. The goal for this title, the most important goal, is longevity. We are hoping to make this game operate for at least five years. In the first quarter of next year, we plan to launch the traditional Chinese version of SunMo in Hong Kong, Macau, and Taiwan. In the second half of next year, we will be rolling out additional international versions. Thank you. That concludes this question's answer. Operator, next question, please. Operator: One moment for the next question. The next question comes from Felix Liu of UBS. Please go ahead. Felix Liu: Thank you, management, for taking my question, and congratulations on the very strong results, especially on the advertisement part. How does management see the growth potential in your ad business from here? Can management share more color on the potential improvements in recommendation algorithms and AI on your ad business from here? More on the near term, how does management see the advertisement demand for the recently concluded Double Eleven shopping festival as well as the overall Q4? Thank you. Rui Chen: In Q3, our advertising revenue reached RMB 2.7 billion, up 23% year over year, with our market share continuing to rise. On top of the steady growth for our performance-based ads, we are seeing both brand and sparkle ads grow much faster than the overall market. Based on our complete industry data, the brand ads and sparkle ads growth rate are among the fastest-growing players in the industry. How should we think about the ad revenue growth going forward? I would like to firstly talk about the underlying growth. The underlying logic of Bilibili's ads. As time goes by, more clients are recognizing and tapping into the value of the Bilibili ecosystem and its users. Thanks to the uniqueness of our community, our ad's key advantage is that we can deeply shape and make a big impact on users' purchasing decisions. To put it more simply, Bilibili's advertising business can bring to our advertisers: Number one, it will not be a one-off value hit. Secondly, we are more effective at bringing new users, new customers. Thirdly, we are more likely to drive a sharp increase in repeat purchases from both new and existing users. In other words, we will help our clients achieve both short-term conversion goals and long-term brand-building goals. Yet, anything we haven't fully realized is pure upside for the future. From a client perspective, our top five advertiser verticals in Q3 were gaming, Internet services, consumer electronics and home appliances, e-commerce, and automotive. To better serve our advertising clients, there are three main points. One is to enhance our strategy or service for our super key accounts (SKAs). We will be serving our largest clients with a dedicated service team and a year-round integrated Bilibili marketing solution. Our goal for this team is to achieve over a 90% repurchase rate and keep increasing our share of their spending on Bilibili. Secondly, we hope to replicate our successful model into multiple new verticals. We are using an always-on performance model to better serve our other verticals, especially for those with big spending budgets, such as big FMCG categories like food and beverage, pet and baby, beauty, and apparel. We expect a new wave of clients and budgets to come onto our platform. As the competitive landscape becomes more diversified in the second half of this year and even next year, we are still very confident that by 2026, there is still sub-growth potential in gaming platforms, e-commerce, and content consumption-related advertisers. The third point is we are planning to expand our ad penetration across different community scenarios. This will be another growth driver because Bilibili by itself has many consumption scenarios within our products. Unlike other platforms where most consumption happens in a single video feed, our users are spending a lot of time on more videos within the players, within the commentary section, and also in the bullet chat. They also watch live streams and engage with the live stream content. They do searches, browse trendy topics, and hot searches on our platform, and also consume content across multiple devices, including mobile, PC, OTT, etc. In Q3, ad revenue from these different scenarios all grew by more than 50% year over year. The current penetration is still very behind where we think it can be, which means there's still a lot of room to grow. The fourth point is about your question on AI. We have been intensively discussing internally that AI as a topic can easily make people overly optimistic about the short-term boost to advertising revenue while overlooking its potential to fundamentally reshape the industry over the long term. However, there are still a lot of positive changes we are seeing. First of all, it's on the AIGC creative. Now it accounts for 55% of the total creative volume in the performance-based ads, and it's continuing to rise. We are providing video generation tools to our clients in the Internet service sector. For online novels, we support text-to-video generation, and for short drama advertisers, we support AI highlighting and editing. In this sector, AI-generated video creators already account for over 60% of the creative consumption. This upgrade has freed up a lot of productivity. The second application for our AI is on the smart delivery system. Currently, the automated buying smart delivery advertisement system is already accounting for 45% of the overall performance-based ad spend. Most clients have been seeing their spend scale up through this model. Thirdly, it's on the recommendation efficiency. By combining the multimodal content understanding with the generative recommendation algorithms, we have been lifting our distribution efficiency by more than 10% in total. All of the above are the tangible results and benefits that AI has brought to us this quarter. However, we do think that AI, with a long-term mindset, the real significance lies with the new opportunities and the structural change that will unlock over time. We will be trying a lot of innovation with a long-term mindset, not just the short-term bump in a few metrics and revenue lines. Lastly, on our Double Eleven results, first of all, looking at our users, especially the Gen Z consumers, their spending power is two to three times that of the previous generations. They are used to online consumption as their default shopping mode avenue. They buy when it makes them happy. They buy when they like something or truly need something. They no longer chase the rock-bottom prices in a single promotion time window in a mechanical way. All of this observation is pointing to the huge commercial potential embedded in the Bilibili user profile and our ecosystem. Given that, our Double Eleven report card this year still exceeded our expectations. During this year's Double Eleven, Bilibili's ad revenue grew 30% year over year, and the number of advertisers more than doubled. Over the Double Eleven campaign period, Bilibili delivered an average new customer rate of 55% for all industries, and in categories such as watches and jewelry, household daily goods, food and beverage, and beauty, the new customer rate even exceeded 60%. Lastly, on the outlook for Q4 and next year, we remain upbeat about the advertising business. More importantly, we are hoping to deliver something more meaningful and new breakthroughs and changes within our business. Thank you. Operator, next question, please. Operator: The next question comes from the line of Xueqing Zhang from CICC. Please go ahead. Xueqing Zhang: Management, congratulations on the strong result. My question is regarding your financial outlook. The company's profitability has continued to strengthen. Looking ahead to Q4 and into 2026, how do you expect the gross margin and net margin trend as we maintain a strong cash position? How do you plan to allocate cash in the future? Thank you. Sam Fan: Thank you, this is Sam. I will take your question. Yes, we continue to see strong operational leverage in our business. In Q3, our top line grew by 5%, and our gross profit grew by 11% year over year. Our gross profit margin has improved for thirteen consecutive quarters. We expect this trend to continue this year. We keep our mid-term gross profit margin target of reaching 37% in Q4. That's 40% to 45% unchanged. Additionally, our adjusted operating profit, that's a profit before other income, jumped over 150% year over year, with adjusted operating margin expanding from 3.7% to 9% year over year. We expect that number to further improve to around 10% in Q4 this year, keeping us on a steady path to our mid-term target of up to 15% adjusted operating margin. We already saw the resilience of Bilibili's business model and our strategy of focusing on healthy revenue growth and leveraging scale for sustainable profit expansion. We are confident in reaching our mid to long-term margin targets. Regarding cash usage, we will allocate our resources carefully. Currently, we already turn over one billion free cash flow every quarter. First, we will support our high-quality revenue growth engine like the advertising business. Secondly, we will invest in some new opportunities. For example, to expand our business boundaries, like reinventing some games for new generations, just like Escape from Duckoff. We already announced a plan to explore opportunities in the console game and the mobile game. Last but not least, we will also capture some major industry opportunities. For example, we are also seeking new talent for new areas like AI. Regarding shareholder return, we have repurchased over 100 million US dollars worth of shares this year already, and we have a two-year share buyback plan as approved by our board. We still have around 83 million US dollars left. We expect to fully utilize that amount in the remaining period of the plan. Thank you. That's all for my question. Operator, next question, please. Thank you. Operator: One moment for the next question. Our next question comes from the line of Yuan Zhang from China Renaissance. Please go ahead. Yuan Zhang: Thanks for taking my question. I have a question regarding AI application. You asked to discuss a few AI functions or products you have just launched. What is your thinking and expectation of future AI application on Bilibili? Also, what kind of impact do you think your products like Sora will bring to video production and consumption? Thank you. Rui Chen: Bilibili has the highest AI density among both our content creators and our users. Many of China's best AI-themed content creators and users who are most interested in AI talent are all active and gathered on Bilibili. In the third quarter, nearly 100,000 creators were active on Bilibili every month working on AI-related content. Some of them are doing the latest learning explanations, some of them are breaking down and teaching new AI applications or using AI for video creations. The average daily number of AI-related video uploads in the third quarter increased over 80% year over year. There is a lot of potential for us to further discover because we have gathered over two-thirds of the young generation in China on Bilibili. That is the exact cohort eager to learn about AI or leverage AI technology to create things. When you asked me about Sora, whether Sora will change how people create or consume content, we think personally, I think Sora is a new gamble on both content video creation and user interface. As I said earlier, there is already an oversupply of short video content. The adoption of AI tools will only increase that video supply and will not change how people consume the content. However, on the high-quality video aspect, there is still a scarcity in terms of high-quality content supply. The adoption of these tools will help us increase the supply and improve the talented content creators' efficiency in producing such content. We've seen this in many content categories where AI is becoming the new paradigm. For example, in the AutoTune remix sector, in the music sector, or even the animation sector, there are a lot of very good quality videos made with the help of AI tools. To summarize, we do think that AI will be a fundamental efficiency booster for high-quality video creation, and Bilibili will benefit most from that technology innovation. Based on that observation, we will be very focused on the video pack of AI applications. We want to make AI effective tools to help our content creators produce higher quality videos. You probably already saw some of the functions we have launched lately. For example, there will be multilingual video accessibility features, including dubbing, subtitles, and even lip-syncing. We are also planning to launch AI-enabled text-to-video tools tailored for video podcast-type content. We believe this product will help bring more high-quality content to Bilibili and our users. That concludes the question and answer session. Operator, back to you. Operator: Thank you once again for joining Bilibili's third quarter 2025 financial results and business update conference call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director, or Pierre Santiv Financial Communications. Contact information for IR in both China and the US can be found on today's press release. Thank you, and have a great day.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile Third Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. And to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host today, Rene Vanguestaine. Please go ahead, sir. Thank you, Michelle. Rene Vanguestaine: Hello, everyone, and thank you for joining us today. Aurora Mobile's earnings release was distributed earlier today and is available on the IR website at ir.gguang.cn. On the call today are Mr. Weidong Luo, Chairman and Chief Executive Officer, Mr. Shan-Nen Bong, Chief Financial Officer, and Mr. Guanyang Chen, General Manager. Following their prepared remarks, they will be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and is defined in The US Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions, which are difficult to predict and may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, and or factors are included in the company's filings with the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, as required under applicable law. With that, I would now like to turn the conference over to Mr. Luo. Please go ahead. Weidong Luo: Thanks, Rene. Greetings to all. Welcome to Aurora Mobile's 2025 Third Quarter Earnings Call. Before I comment on our Q3 results, I would like to remind everyone that the quarterly earnings are available on our IR website. You may refer to that as we proceed with the call today. Without further ado, let's get started. As we did in the past, based on the Q3 earnings numbers, the suitable discretion I will give to the fourth quarter result is good things. Kind of impulse. Because we record the first-ever back-to-back quarterly net GAAP profit in our history. Following the Mandan net debt profit last quarter, our strong business performance carried us across the line again in Q3. Let me elaborate more on the strong business we have had in this quarter. Firstly, the group's revenue this quarter of RMB 19,900,000, achieving a remarkable 15% year-over-year and 1% sequential growth. This RMB 19,900,000 was at a very high end of the guidance we have provided. Secondly, our global flagship product, Engagement, continued its great momentum with another quarter of great numbers. Engagement app recorded a very strong quarterly growth in customer number and contract value growth. In particular, Engage Labs ARR for September 2025 stood strongly and reached a new milestone at RMB 53,700,000. It has grown by 160% year-over-year. Thirdly, our financial risk management business had its best quarter yet, recording the highest quarterly revenue of RMB 222,600,000 with growth of 43% year-over-year. Fourthly, gross profit exceeded our expectation and grew strongly by 20% year-over-year while achieving the highest growth gross profit for the past fifteen quarters. Gross margin has also improved year-over-year and quarter-over-quarter. Last but not least, have you ordered a great number about its grade? It's equally important that we are generating positive cash flow and in great cash position. Indeed, we are. The net operating cash inflow of RMB 23,300,000 recorded the highest level since 2020. It is very humbling for me to share with you all on yeah. And others, there are quarterly financial results. As I mentioned in the pre-earnings call, assuming historical GAAP net profit was not easy. For us to have back-to-back GAAP net profit is simply a great achievement for Aurora Mobile. To achieve that, all the processes in the organization worked really well for the entire fourth quarter of 2025. Our hard work and commitment to excel throughout Aurora Mobile will not stop here. There are more we need to achieve together. And we will. Short of giving our promise on this call, I truly hope for all the team's dedication or execution on our group's strategy and going forward. Now let me share more on the individual business performance. Our total Q3 group revenue has grown both year-over-year and quarter-over-quarter. In particular, revenue grew 15% year-over-year driven by strong numbers from developer services and financial risk management basis. Again, in this quarter, all business segments, many developers' subscription services, video ad services, and vertical applications, record story acceleration, with double-digit year-over-year revenue growth. This is the second consecutive quarter we have such a strong revenue growth momentum. Developer services revenue, which consists of subscription services and value-added services, increased by a strong 12% growth year-over-year and flat quarter-over-quarter. Subscription revenue has solid revenue numbers, well, it increased by 11% year-over-year and increased 7% quarter-over-quarter. Value-added services revenue grew by an impressive 22% year-over-year, but decreased 44% quarter-over-quarter. Our core business developer subscription services with revenue of RMB 57,300,000, record year growth of 11% year-over-year and 7% quarter-over-quarter. Year-over-year revenue growth was mainly driven by an increase in both customer numbers and ARPU. Subscription revenue recorded the fifth consecutive quarter of renminbi 50,000,000 plus revenue and reached its highest level in history in this quarter. Next, Amy Shea Moore on our global Flex global flagship product. Engaged App, which continues its excellent growth acceleration path quarter after quarter since its introduction. Firstly, Engage Labs ARR has reached a new and important milestone of RMB 53,700,000 mark in September 2025. This 160% year-over-year ARR growth was just impressive. Secondly, we had another very strong quarter for engagement where the cumulative contract value we get signed amount to renminbi 128,000,000 by the 2025. In Q3 alone, we signed up more than maybe $15,000,000 worth of new contracts. This is just outstanding. We do expect this revenue growth momentum to continue for the next twelve to twenty-four months. Thirdly, global customers from all corners of the world continue to purchase our products and services. The customer number has increased by 156% year-over-year, reaching 1,312. This was driven by the continued progress we are making for our global go-to-market effort. Firstly, our engagement products and services are now sold to customers in more than 52 different countries and regions globally. This is a great testament that our global flagship product, Engager, is indeed a globally accepted product. From customers originated from all four corners of the world. Our global flagship product, Engagement, has a very unique and different position in the market. We have been taking market share from competitors in all the overseas markets we operate in. This is evident from the growth rate of engagement we have seen today. From the market intelligence, we have gathered it shows that the demand for our engagement products and services remains strong. With this great result delivered by EngagedLab, once again reinforced my strong belief that this global flash product is the to spare as far as revenue growth is concerned for us in the next twelve months or twenty-four months. Within subscription revenue, some of the notable wins this quarter include anonymity two, LipSig, Shanghai Disneyland, BYD, and China Eastern Airlines, just to name a few. Value-added services revenue will remain b 7,100,000, increased by 22% year-over-year, but decreased by 34% quarter-over-quarter. Solid revenue year-over-year growth was mainly due to the increase in new advertisers acquired between the years. The absence of traditional quarter online shopping festival will result in a negative revenue growth sequentially. Now let me pass the call over to Shan-Nen Bong, who will share more about the application and other aspects of our financial performance for this quarter. Thanks, Chris. Shan-Nen Bong: And next, I'll go over the revenue for a particular application that includes financial risk management and market intelligence. Overall, vertical application had a good quarter. Where revenue grew both year-over-year and quarter-over-quarter. Within vertical application, financial risk management recorded significant 33% growth in revenue year-over-year and 3% quarter-over-quarter. Financial Risk Management had its Following the strong Q2, sequential excellent quarter. It is now the third consecutive quarters of revenue in excess of RMB 21,000,000 under its belt. Another significant milestone for this business is that it recorded the highest quarterly revenue in history of RMB 22,600,000 in this quarter. This 33% year-over-year revenue growth mainly due to a strong 44% in customer number growth. The customers that we sign up or renew in QT in Q3 include, but not limited to, nursing. And many more licensed credit and financial institutions throughout China. Market intelligence revenue, on the other hand, decreased by 23% year-over-year and 2% quarter-over-quarter due to the weak the continued weak demand for the Chinese APP data. And this result is in line with our expectation. Next, I'll go over some of the P&L and balance sheet items. Our gross profit had spectacular results too. In this quarter where it grew 20% year-over-year and 7% quarter-over-quarter. The rupee 63,800,000 gross profit we had was also the highest gross profit for the past fifteen quarters. With the group revenues grew 15% year-over-year, yet our gross profit grew by 20% year-over-year, it shows that we had recorded very high margin revenue in this quarter. This is certainly a key target that we would like to maintain and extend beyond this quarter. Onto operating expenses. The Q3 operating expenses was at RMB 64,400,000, representing a 12.8% increase year-over-year, an increase of 5.8% quarter-over-quarter. Operationally, our Q3 revenue grew by 15% year-over-year while OpEx only grew by 12.8%. Overall, we are pleased to see how we have been controlling OpEx to support the double-digit revenue growth across our business line. I'll now dive deeper into the individual OpEx category. For R&D, expenses increased by 7% year-over-year to renminbi $25,900,000, mainly due to the increase in staff costs and associated expenses. Technical service fee and cloud cost also contributed to the year-over-year increase in R&D expenses. Selling and marketing expenses increased by 19% year-over-year to RMB 26,600,000, mainly due to the increase in sales commission in line with revenue growth and the cash collection in this quarter. Marketing expenses for investment in global business expansion also contributed to the year-over-year increase in selling and marketing expenses. G&A expenses increased by 13% year-over-year to RMB 11,900,000. Mainly due to increase in staff cost, professional fees, better provision. Next, I'll share three very important KPI that we closely monitor. For NDR, you should I mean, net dollar pension rate, a commonly used KPI for SaaS companies, is stood at 104% for our core developer service business for the trailing twelve months ended 09/30/2025. And this is the very first time where NDR numbers have exceeded 100% milestone. The number says it's all. It means customer retention rate coupled with the fact that our customer has increased their spending with us through upsell, upgrades, and extension. And this is the best testament of our sustainable SaaS business. Secondly, another important financial KPI for tracking the performance of staff company is total deferred revenue. Which represents cash collected in advance from customers for future contract performance. Which was at historical high of RMB 166,300,000. And this higher deferred revenue balance is a hallmark of a high-quality scalable business. It signifies the strong customer loyalties, predictable future revenue, healthy cash flow, and effective sales strategy. Thirdly, we continue to maintain healthy AR turnover days level at forty-nine days. And this remains at an industry-leading level. Cash from customers. We will continue to work hard to ensure we actively and timely collecting and at the same time mitigating the risk of bad and doubtful debts. On the cash flow, we recorded another great numbers. For the quarter ended 09/30/2025, recorded net operating activities cash inflow of 33,300,000. This is the best quarterly cash flow numbers we have since 2020. Onto balance sheet. Total assets were renminbi $3.08 8,200,000 as of 09/30/2025. This includes cash and cash equivalent of $1.01 1,200,000. Accounts receivable of 43,900,000. Prepayments and other assets of 15,700,000. Operating lease right of use assets of 15,900,000 fixed assets of 2,900,000, long term investment of $1.01 3,000,000, goodwill of 37,800,000, and intangible assets of 11,500,000 resulting from Sendcloud acquisition in March 2022. Total current liabilities were $2.07 4,600,000 as of 09/30/2025. And this includes accounts payable of 31,900,000. Other operating at least liability of 4,100,000. Deferred revenue of $1.06 6,300,000. Accrued liabilities of 72,300,000. Now let me take a few minutes here to recap the description. Good things come in pairs. That Chris mentioned at the beginning of this call. This quarter, we have many great achievements that I would like to take a few minutes to reiterate. Weidong Luo: First, we achieved our very first back-to-back GAAP net profit in history. Number two, our core developer subscription business had its best revenue in history of 57,300,000. As did the financial risk management business. Our flagship product, EngagedLab, continued its expansion beyond the shores. Apart from great growth in customers' number and contract value, EngagedLab business reached another very important key milestone. Where the ARR was at 53,700,000 in September 2025. Representing a stunning 160% year-over-year growth. Gross profit grew 20% year-over-year and recorded its highest levels for the past fifteen quarters. Number five, operating activities brought in net cash inflow of RMB 33,300,000. Our NDR net dollar retention for core developers to be recorded at the best number in history of 104%. And now let's turn to business outlook. Based on the current available information, the company sees the Q4 2025 revenue guidance to be in the range of RMB 94,000,000 to RMB 96,000,000. Representing a solid growth of one to 3% year-over-year compared to the same quarter 2024. The above outlook is based on the current market conditions and reflects the company's current and preliminary estimate of the market and operating conditions and customer demands, which are all subject to change. Before I conclude, I'll give a quick update on the share repurchase plan. In this quarter ended 09/30/2025, we repurchased 4,000 ADS. Cumulatively, we have repurchased a total 327,000 ADS since the start of our repurchase program. And today, our board of directors of the company approved a share repurchase program whereby the company is authorized to repurchase up to US dollars 10,000,000 worth of its ordinary share, including in the form of ADS. During the twelve-month period starting today. And this is a 100% increase from the US dollars 5,000,000 program we had previously. The company proposed repurchase will be made from time to time in the open market at a prevailing market price. In private negotiated transaction, in block trades, and or other to other legally permissible means. Depending on the market conditions and in accordance with applicable rules and regulation. Company's board of directors will review the share repurchase program periodically and may authorize adjustment in terms of size and terms. The company expects to fund the repurchase of its existing cash. And this concludes our prepared remarks. We'll be happy to take your question now. Operator, please proceed. Operator: Thank you. As a reminder to ask a question, please press 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press 11 again. And our first question will come from Calvin Wong with Spica Capital. Your line is now open. Calvin Wong: Good evening, management. Thank you for taking my questions. First of all, congrats for delivering another set of stunning results this quarter. I have only one question. Based on my reading of the earnings release, I noticed the strength of engagement that business. And how it strengthened the group's financial result. So I would appreciate if management could tell us more about EngageLab. And why the growth trajectory has been so strong since day one. Thank you. Shan-Nen Bong: Let me take this call. Kevin, to hear from you again, and thanks for interest. And I'll take your earlier statement about EngagedLab rules to track has been strong since day one. And this is factual, and we are very proud of the achievement since day one. And for those listeners, have access to our ER deck that we have uploaded to the IR web page, You can refer to, I think, slide number three we have the pictorial display or diagram of engagement of EngishLab business to date. And one new particular data point that we have included in this quarter's earning deck is the ARR. It's the annual recurring revenue for English lab business. For the month of September, 2025, the ARR was at 53,700,000. And this is a 160% jump from a year ago. And we are very encouraged by this number. Because it shows that the business has a very significant growth trajectory, and we have made great revenue expansion in just twelve months. I would say the success of EnglishLab is not by chance that we are lucky. It was a result of endless improvement upgrades that we made to the product and service offering that help us to acquire more new customers and retain existing customers globally. If you look back, when Chris decided to launch English Lab back in 2022, the mission was pure and direct. Just to address our customers' main needs of reaching out and engaging with their users in a cost-efficient and effective manner. And through EngageLab, our customers are able to reach and engage with the users who anyone or all of the following messaging channels such as app push, web push, email, SMS, WhatsApp, and OTP. And also from a technical standpoint, have done all the heavy lifting for our customers too. To deliver the global solution for our customers, we have invested heavily in data facility in eight cities globally. And just this week, we have launched a new data center in Turkey. Further expanding our global infrastructure. That aside, we have also incorporated our notification channel for all different operating from iOS to Androids. From Harmony OS to others. And it makes it easy and efficient for our customers to ensure that their notifications are delivered no matter where the users are and what phone they are using. And maybe you can think of EnglishLab as reaching your users without borders. And for service-wise, we have received countless compliments from our customers. Our customer service team is very responsive and delivers a much better service than our peers. And this says a lot from a customer standpoint. And they when they encounter issues, they need solutions. And this is something that we can deliver, and we are proud of it. And therefore, with such a great value proposition, customers can get a one-stop engagement platform and great services all wrapped in one it is not hard to see why EngagedLab has been able to deliver such great numbers quarter over quarters. And historical results aside, and both Chris and myself had great hopes and confidence in the English lab business going forward. As Chris rightly called out during the call earlier, EnglishLab is the touch bearer for our revenue growth in the next twenty-four months. And, Kevin, hope this answers your question adequately. Calvin Wong: Great to hear that. It's very clear then. Operator: Thank you. And our next question will come from Jack Sun with Gullingway Research. Your line is open. Jack Sun: Good evening. I'm Jack Sun from Gong Fu Research. Thank you, management, for taking my question. Congratulations on another good quarter with solid earnings. In particular, two consecutive quarters with getting that profit. Well done. I have a question for the management. Help me to recap what went well in Q3 that delivered another quarter with a GAAP net profit. Thank you. Shan-Nen Bong: Hi. Hi, Jack. Thanks for the question. Yeah. It was a great quarter indeed. I think Chris mentioned we executed very well operationally and everything just went well. And this flow on to our financials number that we have released earlier today. There are a couple of things I can share more. Firstly, revenue in Q3 has been very strong. All business lines recorded great year-over-year double-digit growth. What I mean is we are now head and shoulders above where we were a year ago. And both the subscription business and the financial risk management recorded their own best revenue quarter in history. Equally important is the revenue by EnglishLab where it contributed RMB 13,000,000 in this quarter alone. Also a historical high. We grew our revenue not at the expense of sacrificing margins. This is evident that while we grew our revenue significantly, our gross profit reached the highest level for the past fifteen quarters. At the same time, our gross margin increased year-over-year and quarter-over-quarter too. And this is a really hard act to follow. And since revenue, gross profit grew at a faster pace than our OpEx, the US GAAP net profits is a certainty. And which is why we had a second quarter of US GAAP net profit. And two other important and great KPIs that I would like to reiterate here. One is the NDR. Where we reach 104% for our core developer sufficient business. And this is the very first time NDR exceeded 100%. And what that means is simple and straightforward. Our customers have been buying more of our services between the periods through upgrades, upsell, and other services. And this is a great number to have. And secondly, is the deferred revenue balance of 166,300,000, another historical high balance. In short, we have 166,300,000 worth of secure revenue that we can recognize in the future. And the best part is we have already received cash. So for this 166,300,000, we don't need even have to worry about cash collection effort or the risk of bad debt in the future. And managing cash flow has also yielded great results. In this quarter, we have net operating cash inflow of 23,300,000, the highest level for the past twenty quarters, which is actually the five years the past five years, the best results. And with that positive inflow of cash, our $9.30 quarter-end cash balance has also climbed to 141,200,000, the highest balance in the past fourteen quarters. It improved by 40% year-over-year. And you can see, it's not hard for you or anyone to conclude that this quarter has been great. And however, rest assured that we are not contented by the present. We need to move faster and expand more. Therefore, we will continue to invest as part of our global growth plan. And lastly, if time permits, I would like to quarterly invite you and other investors to drop by our central or head office. We are more than happy to host you and chat with greater detail any question you might have. Yeah. This is my answer to your question, Jack. Jack Sun: Okay. Thank you. That's very clear. Appreciate that. Operator: Thank you. I show no further questions in the queue at this time. I would like to turn the call back over to Rene for closing remarks. Rene Vanguestaine: Thank you, everyone, for joining our call tonight. If you have any further questions and comments, please don't hesitate to reach out to the IR team. This concludes the call. Have a good night. Thank you all. Operator: This does conclude the conference call. Thank you for participating and you may now disconnect.
Operator: Hello, and welcome to the Brookfield Corporation Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference call over to your first speaker, Ms. Katie Battaglia, Vice President, Investor Relations. Please go ahead. Katie Battaglia: Thank you, operator, and good morning. Welcome to Brookfield Corporation's Third Quarter 2025 Conference Call. On the call today are Bruce Flatt, our Chief Executive Officer; and Nick Goodman, President of Brookfield Corporation. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results for the quarter. As a reminder, we completed a three-for-two stock split on October 9, 2025. Accordingly, all per share amounts that are discussed during the conference call are on a post-split basis. After our formal comments, we'll turn the call over to the operator and take analyst questions. In order to accommodate all those who want to ask questions, we request that you refrain from asking more than 2 questions. I would like to remind you that in today's comments, including in responding to questions and in discussing new initiatives in our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. security laws. These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impact on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. In addition, when we speak about our Wealth Solutions business or Brookfield Solutions, we are referring to Brookfield's investments in this business that supported the acquisition of its underlying operating subsidiaries. With that, I'll turn the call over to Bruce. J. Flatt: Thank you, and welcome, everyone, on the call. We delivered another strong quarter of financial results. Distributable earnings before realizations were $1.3 billion for the quarter, or $0.56 per share and $5.4 billion over the last 12 months. That was $2.27 per share. That was an 18% increase over the same period last year. Our outlook remains strong with each of our underlying businesses continuing to execute their strategic plans, driving strong organic earnings growth. Turning first to markets. Economic activity and corporate earnings remain healthy. Capital markets are open and transaction activity is picking up across most asset classes. For our business, that backdrop is constructive and highly supportive of real assets. So far this year, we financed $140 billion of debt across our operations and closed $75 billion of asset sales at attractive values, including over $35 billion in just the past few months. At the same time, the direction of monetary policy is turning. After an extended period of elevated interest rates, some softness in the labor market has started to prompt policy easing from the Federal Reserve to support growth and maintain balance across the economy. And while the current environment is influencing policy decisions today, it is important to consider the structural forces that shape where policy goes from here. Over the past 15 years, governments have relied on fiscal stimulus offset slowdowns, leading to a buildup of public debt that is difficult to sustain in a higher interest rate environment. Policymakers around the world are now evaluating the tools available to stabilize these debt burdens. The most constructive outcome of that and the one that we hope for is faster economic growth that outpaces debt, which can be helped by AI and innovation. Second, austerity is always possible, but not too many governments have shown the desire to push that. And third, if growth stays modest, policymakers may instead quietly manage rates below inflation to ease debt burdens, lowering short rates and guiding long rates down. If this path is pursued, it would likely lead to a period of declining real yields and low nominal rates. This environment will provide the optimal conditions for real assets we invest into. Our portfolio is built around inflation-linked durable cash flows backed by hard assets that protect real returns. The benefits of real assets are always evident, but in this evolving environment, they are becoming an essential investment product for every portfolio. A suppression of real yields will amplify these benefits and enhance long-term value across the franchise. Turning to the business. We are entering the final quarter of 2025 with strong momentum and a record almost $180 billion of deployable capital, position our business to invest for value in powerful secular trends that define the next chapter of growth in Brookfield, but also the global economy. First, AI innovation is fueling unprecedented demand for large-scale infrastructure. Second, aging populations are reshaping global savings and driving demand for new wealth and retirement products, which is going to last for decades. And third, the real estate recovery is well underway. Nick will cover that and gaining momentum. Each of these trends represent a multi-decade opportunity to invest where our scale and expertise gives us a major advantage. To that end, we advanced a number of strategic transactions during the quarter. In our Wealth Solutions business, we received shareholder approval for our acquisition of Just Group in the U.K., a region where growing retirement market is creating significant opportunities for long-term investment. We also announced a reinsurance agreement with a leading Japanese insurance company, marking our entry into Japan insurance market, the first of many expected opportunities in the region. We agreed to acquire the remaining 26% of Oaktree that we don't own already, which will bring our ownership to 100% upon completion of the transaction. From the outset, our partnership with Oaktree has been grounded on shared principles, including a value-oriented approach to disciplined investing with a focus on compounding capital over time. Our scale and real asset expertise combined with Oaktree's deep credit experience has created one of the most comprehensive and diversified credit platforms globally. Third, we continue to partner with leading institutions, corporates and governments around the world, and this is what makes our business different, combining capital expertise and our global reach to capture opportunities for all. We have several initiatives underway to deliver the next generation of energy transition in AI infrastructure globally, and I'll just mention a few. Through Westinghouse, during the quarter, we partnered with the U.S. government to deliver $80 billion of nuclear reactors. For context, that is the equivalent of 8 large-scale nuclear plants, enough, for example, to power the entire state of Utah. These projects will help rebuild critical supply chains in the U.S. revitalize the domestic nuclear industry and marks an inflection point for the growth of nuclear energy in North America. With Bloom Energy, we are developing 1 gigawatt of behind-the-meter power generation from fuel cells to meet the growing demand from AI data centers and other energy-intensive applications and we think this is just the beginning. And through our strategic partnership with Figure recently announced a leading developer of humanoid robotics, we are providing access to our portfolio of real assets to create the real-world environments needed to develop, train and deploy this technology safely and effectively, positioning us, most importantly, at the forefront of one of the most significant technological advances of the coming decades. Looking ahead, despite our size and scale today, our growth potential is greater than it has ever been. Our investment discipline, operating expertise and access to large-scale capital positions us to deliver another strong phase of growth for shareholders in years to come. As always, thank you for your support. We appreciate your continued interest in Brookfield and over to Nick. Nicholas Goodman: Thank you, Bruce, and good morning, everyone. We delivered strong financial results for the quarter, supported by continued momentum across our core businesses. Distributable Earnings, or DE, before realizations were $1.3 billion for the quarter or $0.56 per share and $5.4 billion over the last 12 months or $2.27 per share, representing an 18% increase over the prior year period. Total DE, including realizations was $1.5 billion or $0.63 per share for the quarter and $6 billion or $2.54 per share over the last 12 months with total net income of $1.7 billion over the same period. Starting with our operating performance, each of our businesses continues to perform well. Our Asset Management business generated distributable earnings of $687 million or $0.29 per share in the quarter and $2.7 billion or $1.14 per share over the last 12 months. Strong fundraising momentum led to $30 billion of inflows during the quarter and included over $6 billion from our retail and wealth clients. Fee-related earnings increased by 17% to a record $754 million as fee-bearing capital grew to $581 billion. During the quarter, we held the final institutional close of our second vintage flagship global transition strategy with total commitments of $20 billion exceeding our target and marking the largest private fund globally dedicated to energy transition. We also launched our seventh vintage flagship private equity fund focused on essential services and industrial businesses and are preparing to launch our inaugural AI infrastructure fund, which together will drive strong fundraising momentum going into 2026. Finally, jointly with Brookfield Asset Management, we announced the acquisition of the remaining interest in Oaktree, of which $1.4 billion will be funded by the corporation. The transaction expands our ownership in Oaktree's carried interest fee-related earnings and balance sheet investments and further strengthens our global credit platform. Transaction is expected to close in the first half of 2026, subject to customary closing conditions and regulatory approvals. Turning to our Wealth Solutions business. We delivered another quarter of strong growth with distributable earnings of $420 million or $0.18 per share in the quarter and $1.7 billion or $0.70 per share over the last 12 months. This represents organic growth of over 15% year-over-year, supported by strong investment performance, robust underwriting across property and casualty lines and disciplined capital deployment. During the quarter, we originated $5 billion of retail and institutional annuities, bringing our total insurance assets to $139 billion. Importantly, we continue to focus on raising long-duration liabilities with approximately 80% of new retail annuities written during the quarter, having durations of 5 years or longer. Our investment portfolio generated an average yield of 5.7%, contributing to spread related earnings that were 1.7% above our average cost of funds. As we continue to reposition the portfolio into higher-yielding real asset investments sourced within Brookfield, we are well positioned to sustain strong spread-related earnings. During the quarter, we deployed $4 billion into Brookfield managed strategies at an average net yield of 9%, which helped support a 15% return on equity, consistent with our long-term target. We also made meaningful progress internationally, expanding across the fast-growing retirement markets in the U.K. and Japan. In the U.K., we received shareholder approval for the acquisition of Just Group, which remains on track to close in the first half of 2026 subject to customary closing conditions and regulatory approvals. Upon closing, our insurance assets are expected to grow by approximately $40 billion to $180 billion. In Japan, we announced our first reinsurance agreement in the region with a leading Japanese insurance company to reinsure annuity policies on a full basis. These initiatives strengthen our position in key international markets and position us to capture the growing global demand for retirement solutions. Our operating businesses continue to deliver growing and resilient cash flows generating distributable earnings of $336 million or $0.15 per share in the quarter and $1.7 billion or $0.72 per share over the last 12 months. These results underscore the strength of our operating performance and the continued momentum across each of the businesses. Our infrastructure and renewable power and transition businesses remain at the forefront of secular trends, reshaping global investment opportunities. Recently, we announced new initiatives to advance next-generation power and AI infrastructure including our partnership with the U.S. government through Westinghouse to deliver $80 billion of new nuclear plants in the United States. In our publicly listed private equity business, we announced plans to simplify its structure into a single listed corporate entity aimed at broadening the investor base and improving trading liquidity. Our real estate business continues to perform well, supported by improving market conditions and strong fundamentals. Leasing activity remains concentrated in high-quality, well-located assets, driving strong operating performance across the portfolio. Our Supercore portfolio continues to outperform with 96% occupancy at the end of the quarter and our Core Plus portfolio, which shares similar high-quality characteristics ended the quarter with 95% occupancy. During the quarter, we signed 3 million square feet of office leases with rents on newly signed leases averaging 15% above those expiring. Notably, at Canary Wharf, leasing activity remains very strong with over 450,000 square feet leased year-to-date putting 2025 on track to be its best leasing year in the past decade. The leasing pipeline is also the strongest it has been in years, underscoring the depth of demand for high-quality space and Canary Wharf positioned as 1 of the world's leading business destinations. Turning to monetizations. Market conditions remain highly favorable for high-quality assets and businesses like the ones we own. To date this year, we have had $75 billion of monetizations across our franchise including $22 billion of real estate assets, $14 billion of infrastructure assets, nearly $11 billion of renewable assets, $7 billion from private equity and $21 billion from credit and other diversified assets. Two recent highlights to note are as follows. In our infrastructure business, we completed the IPO of Rockpoint Gas Storage, one of the largest independent natural gas storage operators in North America. The offering was well received and oversubscribed raising CAD 810 million, the largest IPO on the Toronto Stock Exchange since May 2022. Following the IPO, we have now realized a multiple of capital over 3x for retaining significant ownership interest in the business. And in our real estate business, we advanced the sale of the remaining assets in our U.S. manufactured housing portfolio for $2.5 billion, resulting in a total investment IRR of 25% and a 3.5 multiple on invested capital. Substantially all sales completed this year were at or above carrying values and have crystallized significant value for our clients at attractive returns. Through these monetizations, we realized $154 million of carried interest into income during this quarter. Importantly, because our earnings recognition follows European water for model where carried interest is recognized only after we have returned to funds invest the capital and achieved the preferred return. A number of the realizations have advanced our mature funds closer to that carried interest realization. Shifting to capital allocation. During the quarter, we reinvested excess cash flow back into the business and returned to the $180 million to shareholders through regular dividends and share buybacks. To date this year, we have repurchased over $950 million of shares in the open market at a roughly 50% discount to our view of intrinsic value. Moving on to our balance sheet and liquidity. We continue to maintain a conservatively capitalized balance sheet and high levels of liquidity with record deployable capital of $178 billion at the end of the quarter. We also maintained strong access to the capital markets, executing $140 billion of financing so far this year, including the issuance of $650 million of 10-year senior notes at the corporation during the quarter. Other notable financings include the successful refinancing of a $1.9 billion 5-year loan at a luxury resort in the Bahamas and 2 5-year CMBS issuances at New York trophy office buildings each over $1.25 billion, reinforcing the capital continues to flow to high-quality assets at attractive returns. Bringing it all together, our financial results continue to be very strong, and we expect continued growth in our results over the remainder of the year and into 2026. I am pleased to confirm that our Board of Directors has declared a quarterly dividend of $0.06 per share, payable at the end of December to shareholders of record at the close of business on December 16, 2025. On a post-split basis, the quarterly dividend is consistent with the previous quarter's dividend. Thank you for your time, and I will now hand the call back to the operator for questions. Operator? Operator: [Operator Instructions] And our first question will come from the line of Michael Cyprys with Morgan Stanley. Michael Cyprys: If we think about the pillars of your success over the years, I think it's been your ability to adapt the business and innovate in recent years. You've added wealth solutions, continue to grow that. But recently, you've made some partnerships around AI, humanoid, partnership with Figure as one example. So I was hoping you could talk about how you see humanoid and AI broadly potentially creating another leg of the stool for Brookfield over time. I remember at your Investor Day, I think, embedded in your 2030 DE guide was about $2.6 billion of DE from capital allocation. Maybe you could help unpack the components there and how you think about other different contributors over time. Nicholas Goodman: Good morning Michael and thanks for the question. I would break the answer into 2 parts. I'd say most of the capital deployment and the focus that we have today is around building the backbone infrastructure to support the build-out of AI. The growing demand, the secular trend of the growth of AI, the need for compute capacity and also the need for the power to drive that and be able to supply the electricity for the compute capacity is where we are investing most of our time in our dollars right now. And we have a very unique position around that, given our capability and our global reach and our operating expertise around renewable energy, nuclear and other energy sources and then our data center and AI fund that we're launching soon. So I'd say that, that offers great growth potential for the franchise, and we're very well positioned to participate in that and are investing in a disciplined way to drive really, really impressive results so far. I'd say the second component and the figure transaction that you talked about. Brookfield Corporation, what we're doing is looking to stay ahead of the curve and deploy capital for the benefit of the rest of the organization and for the benefit of our operations. And what we see with the developments in AI in humanoid robotics, we believe that over time, will have a material impact on the way that businesses are run an even broader society. And so I think this is about investing as a defensive investment and an opportunity to make money, but to really learn and be at the forefront for the benefit of the broader organization and we would look to do that, I'd say, over time, we'd look to do that selectively as we see good opportunities to do so. So I don't think of this as necessarily the next leg. I think it's a force and a trend that's driving broad growth across the organization, and we're well positioned to participate in it. Michael Cyprys: Okay. And then just a follow-up question on Wealth Solutions. So you signed the first reinsurance agreement in Japan expanding your global footprint. I was hoping you could talk about that arrangement? How you see that contributing. What's the scope for others in Japan as well as elsewhere around the world. Maybe you could just update us on your global ambitions. Clearly, you have that transaction underway in the U.K. . Nicholas Goodman: Yes. Thanks. My guess, as you mentioned, we made the transaction -- well, we've agreed the transaction in the U.K., and we're working towards closing that transaction in the early part of next year. That's a significant step for us, scaling PRT and giving us access to a long-duration local of low-risk liability -- sorry, long duration pool of low-risk liabilities. And so we're excited to close that. That really sets us up well in the U.K. market. And we identified Asia and Japan as the next market that we look to grow into and doing that in partnership with local players. This reinsurance, it's a flow agreement. So it's really a transaction that will build over time, month-to-month, quarter-to-quarter as we participate in the business that they're writing. So it has the potential to scale and then it also has -- we also have the potential to partner with other local players. So very much about continued growth in both markets. And those are the 2 markets we're predominantly focused on outside of North America today. Operator: One moment for our next question. And that will come from the line of Mario Saric with Scotiabank. . Mario Saric: Coming back to the Wealth Solutions business, Nick, I was wondering how long do you think it may take to get to your approximate 200 basis point target net investment yield spread? And then secondly, how should we think about the evolution of gross versus net insurance lows? I think in this quarter, it was -- the net was about 40% of growth. So just curious on what your thoughts are on those 2 items. Nicholas Goodman: Yes. I mean, listen, the 200 basis points is a long-term -- medium- to long-term target. So it will take time to grow into it. And as you know, as cash comes in, we're very disciplined on the deployment. And we're looking at a sort of barbell approach on deployment sitting in significant short-term liquidity and balancing that with investment into real assets or in credit and equity. So it just takes time for the deployment. But as we work through the plan, we do expect that spread to start to broaden out and work towards it. Importantly, we think about ROE, Mario, as opposed to just spread and the return on equity that we're generating and the capital is compounding at 15% plus, and that is in line with our long-term targets. We're very happy with the performance there. On the gross to net flows, it should stabilize out to about 1/3 outflows versus inflows in a quarter as we move forward. . Mario Saric: Got it. Okay. And then my follow-up, just with respect to the recently announced Oaktree acquisition, has the composition of the $3 billion purchase price between BAM BN shares and cash. Has that been settled? And how do you see the transaction impacting the velocity of BN share repurchases going forward, if at all? Nicholas Goodman: So yes, Mario, we do have the elections finalized. And the end result, what I'd say roughly was $250 million of BN shares elected. The balance will be in cash and almost 100% of the BAM consideration will be in cash. And it will have zero impact on our buyback. We will buy back the 250 million of shares that we issue, but it won't have impact on our broader buyback strategy. . Operator: One moment for our next question, and that will come from the line of Alex Blostein with Goldman Sacs. . Alexander Blostein: Just maybe zoning back to trajectory of the insurance business, so really good growth. So the sales are coming through nicely. On the spread, though, and I hear your comment around the ROE. But the spread, I think in annuities was 165 basis points this quarter. So maybe help us think through kind of the near-term dynamics over the last maybe 12 to 24 months on the trajectory of that spread as you kind of start to earn your way back towards the targets. Nicholas Goodman: Yes. So first of all Alex, welcome to the call. I know it's your first one. It's great to have you. I'd just say that the spread is right 165, and it's really because we're being disciplined in deployment. And you know the way we think about the business. We run it for the long term. And so we're being patient in the deployment. We are sourcing very attractive real asset investment opportunities in the credit and equity side, as I just said, and so as we look forward, we do expect it to work its way back up, but we're not running, as you know, the business quarter-to-quarter. We're running it long term. So we're going to be patient and wait for the right investment opportunities. And as they come in, you'll start to see that spread widen out. But again, what it all comes back to is the ROE. And so we're happy with the performance. . Alexander Blostein: Got you. And then for my follow-up, we will just maybe stay with insurance. Can you spend a couple of minutes maybe on how you're progressing towards closing the Just acquisition? I know there's probably a lot of limitations to what you could say publicly. But as you were to sort of frame the spread-related earnings contribution and then strategically, how you think this could accelerate growth of your presence outside the U.S. and PRT markets in U.K. and Europe broadly, which would be helpful to understand what this deal could mean financially for the business over kind of medium term. Nicholas Goodman: So I do apologize because we are limited in what we can say, and we haven't really talked to date about what the pro forma looks like as we work our way through the regulatory approvals. I would just tell you that we're working through it. We have the shareholder vote. We're working with the regulator. As you know, we previously were licensed under Bluemont in the U.K., so we have a good relationship with PRI, but we're working through that process. . I'd say that Just has got a good track record of issuing PRT on a consistent basis in the U.K., I think in the year before we acquired them about GBP 5 billion of origination. So we would expect to hopefully be able to continue that and scale it with our capital -- but as for performers, it will have to wait until we're further along in the process. Operator: One moment for our next question. And that will come from the line of Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: Ever since the framework agreement to build new nuclear capacity in the U.S. was announced. The biggest question we've been getting from clients is -- to the extent that Brookfield alongside LPs will invest capital in nuclear project development, what kind of downside protection would you be seeking -- and is that investment likely to occur in a discrete nuclear strategy or in the DGTF strategy? . Nicholas Goodman: Cherilyn, thanks for the question. So I'd say, first of all, I'd say that it's out it's been bought within Westinghouse. So the transaction that is being done is being done between Westinghouse and the U.S. government and the U.S. government is buying as the equity investor, $80 billion of nuclear facilities. Our role within that is to help deliver the facilities and then provide, as you know, the services that we provide, which is the fuel rods, the fuel and then the servicing of the facilities going forward. So the end result will look very much like the Westinghouse business that we have today, which is to service and provide the fuel to the nuclear reactors, and it's really scaling Westinghouse as a global nuclear champion, but it will be done through Westinghouse which is owned by BGTF 1. Cherilyn Radbourne: And maybe just extending that to the plans that are being evaluated in South Carolina, maybe you can elaborate on how that might be structured? Nicholas Goodman: Yes. So again, we're in a process there, and it's very early days. But what I can tell you is, as we think about the growth in the space, we are focused on downside protection. So anything that we would do in the space where we're looking to get involved in either bringing Westinghouse services or Brookfield Capital and would be structured in a way to provide strong downside protection. . Operator: One moment for our next question, and that will come from the line of Kenneth Worthington with JPMorgan. . Kenneth Worthington: You've talked in the past about 2025 being a transition year for carry. You've talked about the improved outlook going through 2030. Given what continues to be -- continues to look like a better M&A environment and a better realization environment with better valuations. Can you talk about how carry generation is shaping up for 2026 -- and then maybe wrapping the follow-up in the same question. As we think about realizations, how are -- how is the outlook developing for realization on balance sheet versus realization in the Brookfield funds as you think about the intermediate term outlook, I guess, I'll be vague like that. Nicholas Goodman: Thanks, Ken. So I'll just say that the outlook for carry hasn't changed. So this year, as we said, would be a bit of a bridge year and it's played out in that direction, largely consistent with last year. And with the monetizations that we have in the pipeline, either those that are progressed or that we plan on launching and through the end of this year or into the early part of next year, therefore, which should close in 2026. We do still see the potential for a step up in carried interest in 2026. So that is still continuing to step up in 2026 and then again into '27 and a strong year in '28. So that's the outlook, the expectation of what we can achieve in the next 3 years really hasn't changed from what we presented at Investor Day and we're still optimistic and we still believe that it is a very healthy transaction market and the strong capital markets is supporting that activity. As it relates to the split between the balance sheet and what's being done in the funds. As you know, we operate completely independently of each other. So we continue to advance the monetizations in the fund. It's a globally diversified portfolio of many assets in many geographies, so it has the ability to be a bit nimble around where assets are ready to trade and where the capital is there and the appetite is strong. On the balance sheet, we're talking about the office and retail assets in the U.S., and I can tell you that the capital markets are stronger now even than when we had our last call when we talked about the strength of the markets. We had very successful financings in the quarter at spreads and all-in rates we couldn't have achieved even a month ago, and that all lends itself very favorably towards increasing transaction activity. We've been able to dispose of a few smaller assets, which don't make a dent in the numbers, but they do show that appetite for acquisition activity is returning. So as that picks up, we expect to see continued activity into next year. Operator: One moment for our next question. And that will come from the line of Bart Dziarski with RBC Capital Markets. Bart Dziarski: Just wanted to ask on real estate. So within the LP, the NOI really ticked up this quarter. So $465 million versus, I think, last year is about $80 million. So apologies if I missed this in the prepared remarks, but anything to call out there in terms of the drivers of that step up? Nicholas Goodman: Hi, Bart. Yes. So listen, the performance of the LP portfolio is the running returns that we earn plus it's the disposition gains that we earned. So during the quarter, we benefited from disposition gains from monetization and that's what's driving the increase, sorry, in the FFO during the quarter. . Bart Dziarski: Okay. Got it. And then just a follow-up on carry. With regards to target carry framework that you have, could you help us kind of understand if there's a pickup that will -- like will the target carry increase once your Oaktree pickup deal closes? And if so, maybe a rough frame as to how much that could increase. Nicholas Goodman: So we will own more of Oaktree target carries represents the kind of the annualized carry that's compounding for us. On the carry eligible capital that we manage. So yes, when we do acquire Atrium, we have more carry eligible capital, it will pick up, but it won't be material. It won't be a significant adjustment to the numbers that we have today. Operator: One moment for our next question. And that will come from the line of Sohrab Movahedi with BMO . Sohrab Movahedi: Okay. I just wanted to go back to the earlier remarks about broadly speaking, the 3 types of economic environments that could play out. I think Bruce was talking to that. And I understand the implications of those from an investing perspective. Is any one environment of those three better than the others from a fundraising perspective? Nicholas Goodman: Listen, I think, Sohrab, we've been through a pre severe cycle in just the last 5 years, and we've experienced a few environments in a very short period of time. And I think through all of that, demand for alternatives has stayed strong. And I mean specifically real asset alternatives and essential service investing. So I think as it plays out -- the ones that we framed for you should still attract strong demand from the clients into the assets that we have, they've proven their durability the founder place in investment portfolios and investors now appreciate and like the characteristics of the income and the returns that they generate. And so I think that irrespective of where we end up demand for real assets will stay strong. Sohrab Movahedi: Okay. I appreciate that. I just wanted to see if there's a likelihood in a scenario, some of the targets that would have been discussed, let's say, at the Investor Day could actually get upgraded. Nicholas Goodman: Sure. I mean, listen, if you go into the environment of sort of lower nominal yields then I do think real assets have the potential maybe to become even more attractive in that scenario. So maybe it could be an upside. But not to the extent that we've changed our plans today, we continue to drive the business and think that the growth outlook is incredibly strong already. . Operator: And one moment for our next question. That will come from the line of Dean Wilkinson with CIBC World Markets. Dean Wilkinson: Nick, I guess, when you look at growth of the business over time, do you hit a point where you start to worry about the law of large numbers? I mean the ability for you to put out capital is seeming to exceed the rapid rate that you're growing, BN and BAM and everything together, is there a point where that sort of flattens out? Or do you think that those opportunity sets are going to continue to grow quicker than you can actually grow the underlying business? . Nicholas Goodman: I think it's exactly that. When we look today at the trends going on in the market and the amount of capital that is needed to deliver in the areas of the infrastructure renewable power we see that being a significant growth. And I think today, the scale of the opportunities are significant. I say the quality of the opportunities are probably the best we've ever seen. And so the ability to earn returns while deploying large amounts of capital is a great place to be, and I don't think we foresee in the short term any shortage of opportunities to deploy and probably even in the medium and long term. Operator: One moment for our next question. And that will come from the line of Jaeme Gloyn with National Bank. Jaeme Gloyn: Thanks, and sorry, I jumped on late, so I apologize if this was addressed. But in the Wealth Solutions business, just looking at the annuities distributable earnings from annuities stepped down a little bit quarter-over-quarter, year-over-year. hoping you can kind of talk through a little bit of the moving parts there. and as well as the -- looks like a 10 basis point step down in the yield on investments in that portfolio. Nicholas Goodman: Yes. I would say there's nothing significant. The year-over-year performance. We continue to drive strong earnings. We may have had some one-off small movements in the portfolio of the earnings, but nothing significant. The portfolio continues to perform incredibly well. The drop-down in the spread, which we touched on briefly earlier, is really just a product of capital coming in inflows coming really being parked in cash until we invest them. And the point I made earlier was that we're being very patient and waiting for the right real asset investment opportunities and getting the right time to put the capital to work and it will come. And as we put that capital to work, you'll start to see the spread increase again back towards long-term targets. Operator: That is all the time we have for question and answers today. I would now like to turn the call over to Ms. Katie Battaglia for closing remarks. . Katie Battaglia: Thank you, everybody, for joining us today. And with that, we'll end the call. . Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for your patience. We will begin in about two minutes. Again, we thank you for your patience. We'll start in less than two minutes. Thank you. Greetings, and welcome to the Eagle Point Income Company third quarter 2025 financial results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. It is now my pleasure to introduce your host, Darren Daugherty. Thank you. You may begin. Darren Daugherty: Thank you, operator, and good morning. Welcome to Eagle Point Income Company's earnings conference call for the 2025. Speaking on the call today are Thomas Majewski, Chairman and Chief Executive Officer of the company, Dan Ko, Senior Principal and Portfolio Manager for the company's adviser, and Lena Umnova, Chief Accounting Officer for the adviser. Before we begin, I would like to remind everyone that the matters discussed on this call include forward-looking statements and projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from such projections. For further information on factors that could impact the company, the statements and projections contained herein, please refer to the company's filings with the Securities and Exchange Commission. Each forward-looking statement or projection of financial information made during this call is based on the information available to us as of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law. Earlier today, we filed our third quarter 2025 financial statements and investor presentation with the Securities and Exchange Commission. These are also available in the Investor Relations section of the company's website eaglepointincome.com. A replay of this call will also be made available later today. I will now turn the call over to Thomas Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company. Thomas Majewski: Thank you, Darren, and good morning, everyone. Glad you're joining the call with us today. Eagle Point Income Company had a positive third quarter. Our NAV increased, and we covered our distribution from both net interest income as well as recurring cash flows. The scale and experience of the Eagle Point platform remain key advantages as we seek to capitalize on opportunities in a dynamic market environment for CLO investing. For the quarter, the company generated net investment income, less realized losses, of 26¢ per share. This was made up of $0.39 per share of net investment income and offset by 13¢ of realized capital losses. Recurring cash flows totaled $17 million or 67¢ per share, and this is consistent with the prior quarter's $18 million or $67 per share. Recurring cash flows exceeded our regular common and total expenses by 5¢ per share. NAV rose to $14.21 per share as of September 30, and that's up from $14.08 per share at the June. The increase reflects our continued portfolio performance, net investment income coverage of our common distribution, improving market conditions, and disciplined capital management. Our GAAP return on equity for the third quarter was 3%. During the quarter, we deployed $60 million into new investments. The new CLO equity we purchased during the quarter had a weighted average effective yield of 16.6%. The company's ability to invest in both CLO debt and CLO equity in both the primary and secondary markets allows us to assess relative value opportunities wherever they present themselves. Backed by Eagle Point's deep expertise in the CLO market, we believe this approach positions us to deliver attractive returns and long-term value for shareholders. We completed three resets and four refinancings of our CLO equity positions during the quarter. These actions lowered the debt costs in those CLOs and in the case of the resets, extended the reinvestment periods. Which continue to enhance our portfolio's weighted average remaining reinvestment period and long-term earnings power. During the third quarter, we issued $35 million of preferred stock through our at-the-market program. In light of recent Fed rate cuts, earlier today, we announced the scheduled redemption of 100% of our 7.75% Series B term preferred stock. This redemption allows us to further optimize our capital structure and reduce financing costs. Positioning the company to enhance earnings power for our common shareholders over time. Also during the quarter, we repurchased $21 million of common stock at an average discount to NAV of 8.3%. This resulted in NAV accretion of 7¢ per share. Today, we announced that our board increased our common share repurchase authorization to $60 million from $50 million, which had been previously announced in June. Since June, through October 31, we've repurchased in total $33 million of common stock and an average discount of 8.8% to NAV, creating $0.11 per share of NAV accretion for our shareholders. These actions reflect our ongoing commitment to enhancing shareholder value while maintaining prudent leverage and balance sheet flexibility. We plan to continue to be aggressive in buying back shares when they are trading at a discount to NAV. Since our last earnings call in August, the Fed has cut interest rates twice. Our CLO debt portfolio, which makes up the majority of our holdings, is directly indexed to short-term rates and will earn lower coupons as a result of the Fed rate cuts. Earlier today, we declared three monthly distributions of $0.11 per share for the '26. This is a reduction from our previous monthly distribution of $0.13 per share and reflects largely the impact of the Fed rate cuts. The company's board considers numerous factors when setting the monthly distribution level, including cash flow generated from the company's investment portfolio, GAAP earnings, and the company's requirement to distribute substantially all of its taxable income. We believe this new distribution level is aligned with the current interest rate environment and the company's near-term earnings potential. CLO debt is a floating rate asset, it is expected that our earning power will move around as benchmark rates move. Just as it increases when rates are rising. That said, we believe junior CLO debt continues to offer compelling risk-adjusted returns compared to comparably rated corporates, given its low credit expense and premium yield. I'll now turn the call over to Senior Principal and Portfolio Manager Dan Ko, for an update on the market. Dan Ko: Thanks, Tom. I'll provide a quick update on both the loan and CLO markets during the third quarter. The S&P UBS Leveraged Loan Index returned 1.6% for the quarter and continued to perform well through October, returning 0.3% for the month. There were five leveraged loan defaults during the quarter, and as of September 30, the trailing twelve-month default rate stood at 1.5%, up from 1.1% as of June 30 but well below the long-term average of 2.6%. The widely reported First Brands default caused most of the increase in the default rate but had a minimal impact on the broader CLO market. First Brands accounts for only 25 basis points of our portfolio on a look-through basis, and we do not view it as an indication of widespread credit weakness. Note that our CLO double B's benefit from par subordination, so the loss from September stood at 41 basis points, which is well below broader market levels. With rates expected to fall further, defaults should remain muted as loan issuers will have much lower interest costs. In addition, corporate fundamentals across the loan market remain resilient, with issuers generally continuing to grow revenue and EBITDA despite the effects of inflation, tariffs, and rates over the past year. During the quarter, approximately 6.8% of leveraged loans or roughly 27% annualized were prepaid at par. In general, loan issuers continue to be proactive in tackling their near-term maturities and the maturity wall, as we have mentioned on prior calls, continues to be pushed out. In terms of CLO new issuance, we saw $53 billion of volume during the quarter. This was up slightly from $51 billion in the second quarter. Reset and refinancing activity for the third quarter was $69 billion and $36 billion respectively. Both of which represented significant increases from the prior quarter. CLO debt spreads remain resilient despite the many bouts of volatility that we have observed in the third quarter. Although lower base rates weigh on the earnings power of our CLO debt portfolio, we view the yield and low credit expense offered by CLO BBs as very attractive relative to comparably rated fixed income instruments. Meanwhile, our CLO equity exposure provides a partial offset to lower rates, as it is less rate sensitive. Returns are largely driven by spreads, not base rates. In many respects, lower rates can be constructive for the asset class easing interest costs for loan issuers and supporting continued credit stability. While also seeing increased LBO activity that contributes to new loan supply and wider loan spreads. As of September 30, we had $52 million of cash in undrawn revolver capacity available for investment and common stock repurchases. Providing ample liquidity to act on the best relative value opportunities and deliver long-term value for our shareholders. With that, I'll hand it over to our adviser's Chief Accounting Officer, Lena Umnova, to walk through our financial results. Lena Umnova: Thank you, Dan. For the third quarter, the company recorded net investment income less realized losses of $7 million or 26¢ per share. This compares to NII and realized gains of $0.39 per share for the last quarter and NII and realized gains of 57¢ per share for the third quarter of last year. Including unrealized portfolio gains, GAAP net income was $11 million or 43¢ per share for the 2025. The company's third quarter net income was comprised of investment income of $16 million and unrealized gains on investments of $5 million. Partially offset by financing and operating expenses of $6 million, realized losses of $3 million, and unrealized losses on certain liabilities recorded at fair value of $1 million. Additionally, other comprehensive income was $1 million for the third quarter. We paid three monthly distributions of 13¢ per share during the quarter, and earlier today, we declared three monthly distributions of 11¢ per share for the first quarter of next year. As of September month-end, the company had outstanding preferred equity securities which totaled 35% of total assets less current liabilities. This is at the top end of our long-term target leverage ratio range of 25 to 35%, where we expect to operate the company under normal conditions. The company's assets coverage ratio at quarter-end for preferred stock calculated in accordance with investment company requirements was 285%. This is comfortably above the statutory requirement of 200%. As of September month-end, the company's NAV was $356 million or $14.21 per share. An increase versus $14.08 per share as of June month-end. During the quarter, we repurchased over 1,500,000 shares of our common stock for the total amount of $21 million. At the average discount to NAV of 8.3% per share. This has resulted in NAV accretion of 7¢ per share. We would like to highlight that all repurchased shares were retired. Looking at our portfolio activity during the month of October, the company received recurring cash flows on its investment portfolio of $17 million. I would like to highlight that some of the company's investments are still expected to make payments later in the quarter. As of October month-end, net of pending investment and settlement, the company had $55 million of cash and revolver capacity available for investment and other purposes. Management's unaudited estimate of the company's NAV as of October month-end was between $13.94 and $14.04 per share. I will now turn the call back over to Tom who will provide closing remarks before we take your questions. Thomas Majewski: Thanks, Lena. The third quarter demonstrated our focus on actively managing our portfolio and executing our strategy across shifting market conditions. We were selective in finding the best relative value opportunities between CLO debt and equity. We also remained active with our share repurchase program aggressively buying back stock, which we believe is undervalued. The board increased the program giving us more to keep buying our own stock at a discount. It's a great investment for the company. Periods like this often reward patient, well-capitalized investors and we believe the company is well-positioned to continue generating solid risk-adjusted returns and building long-term value for our shareholders. We appreciate your continued support. Thank you for your time and interest in Eagle Point Income Company. Lena, Dan, and I will now open the call to your questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. Participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, while we poll for questions. Our first question comes from the line of Erik Edward Zwick with Lucid Capital Markets LLC. Please proceed with your question. Erik Edward Zwick: Hey, Eric. How are you? Thomas Majewski: Hey. Thanks. Good morning. Good to talk to you again today. Wanted to start just looking at slide 26, and it seems, you know, in the most recent data for revenue and EBITDA change for below-grade companies that it's we've seen a little bit of a pickup here. And then if we kind of, you know, take the Fed cuts and reductions and so forth that we've already seen and maybe extrapolate the futures curve a little bit. It seems like, you know, kind of profit for companies are trending in a positive direction. So just curious, you know, what that means for your expectations in terms of, you know, credit quality going forward. There certainly are some concerns in the market today and some unknowns in the macroeconomic, but you know, wonder if you kind of put that together and relay some thoughts on future credit quality. Thomas Majewski: Yeah. A very good question. And on this page, which looks like page 26 in the deck, you can see data going back over a decade going back to 2012. And generically below investment grade companies should be growing at a faster rate than the economy. That's just kind of the nature of the beast. They're levered. They're growth-oriented. In many cases, sponsor-backed. If you look at the last few quarters, in general, you can see a positive revenue trend. And a positive-ish EBITDA trend, not as good as the revenue trend is a little bit of a spread there. But overall, that's what we like to see. This goes through Q2, which does include some of the tariff-related behavior. Q3 data is still kind of being finalized right now. But overall, you know, we view this as directionally credit positive. You know, these numbers I don't want to say they can never be big enough if they were both if the 6.3 and 4.3 were double, we wouldn't object for sure. If they were triple, we might wonder what's going on. But overall, the growth of these companies is very much moving back into the right direction. We certainly had a little bit of shock earlier in the year. But the takeaway here, you know, if top line and bottom line are growing, you know, those are credit positives. You know, broadly for the companies we deal with. Dan Ko: And if I might add, this is Dan Ko speaking. As long as these kinds of companies continue to grow revenue and EBITDA, we haven't seen defaults pick up materially. And if anything, as maybe the growth rate increases, we'll likely see defaults start to slow down, which we've seen in some of the research that we're seeing, the outlooks for next year, kind of seeing default rates come down. We've even seen the percentage of kind of LMEs relative to last year kind of come down. And so generally, with lower rates should lower the interest cost for a lot of these companies. So from a credit standpoint, should be at least some tailwinds going into next year. Erik Edward Zwick: That's all great to hear. And then on the next slide, slide 27, there's been a noticeable increase in annual trading volume really since 2020, maybe, notwithstanding 2021. And it looks like '25 is on pace to be a record if I extrapolate into the fourth quarter, from the first three quarters. So one, I guess, maybe a two-part question. One, what has driven that increase over the past call it, you know, five plus years? And two, what does that mean for your business in managing Eagle Point Income Company? Dan Ko: Sure. So in terms of trading volumes, I think some of that has to do with the fact that there are just more eyes on CLOs. I think people have recognized just the premium yields that you can receive as well as the low credit expense for CLO debt relative to kind of other fixed income asset classes, rated fixed income asset that are out there. So I think people have seen just the data on how well it's performed. And so we're seeing a lot more activity within the CLO space. There are more entrants kind of looking at buying CLO debt as well as equity, which has kind of increased the competitive landscape of being kind of the established player in the space certainly helps in that, you know, we're a top counterparty for nearly all the desks that are out there, both on our debt and equity standpoint. And then for your second part of your question, some of that I guess, of the increase is really due to, I guess, the advent of ETFs that have come along kind of over the past couple years or so. So a lot of the I think the investment-grade trading activity is probably related to ETF. Some of the non-investment grade as well. But, ultimately, we think that the additional liquidity that we're seeing within the market, I think, is good. In that it allows us to be able to take kind of views on investments to buy and sell. And the bid-ask typically for a lot of these tranches has kind of tightened. So just an easier way for us to kind of express views on our positions. Erik Edward Zwick: Thanks. And last one for me. Just making sure I'm following your thoughts correctly reducing the dividend. Going into Q1 of next year. Safe to assume you know, I think you mentioned, yes, primarily due to the Fed rate cuts that we've seen and maybe some more coming. Safe to kind of assume that you feel the earnings power of the portfolio is likely to trend down somewhat here from this level? That you were reported in the most recent quarter? Dan Ko: Yeah. I mean, it has something to do obviously, the rates is a driver of that for the CLO debt portfolio. But, you know, we are making some rotations within the CLO equity portfolio to kind of increase earnings and to offset some of that. As well as some other higher-yielding investments. So we do we change the dividend rate to what we see as kind of the near-term kind of a rate that can be supported. But, obviously, many factors kind of go into determining that each quarter along with the board. But at least for Q1, we think that that's kind of the appropriate level. Erik Edward Zwick: Thank you for taking my questions. Dan Ko: Of course. Thank you. Operator: Our next question comes from the line of Timothy DeGasino with B. Riley Securities. Please proceed with your question. Timothy DeGasino: Yeah. Hi. Thank you. Kind of piggybacking off that last question in terms of what asset rotation, it seems quarter over quarter, dealer debt decreased. Fine. That kind of breaks the trend of the past four quarters of, you know, like, more CLO debt assets. It also seems like you're sounds in those investments. So it's obviously sad to see kind of the higher yields go away, but it's also good to get par back a lot sooner than we had anticipated, certainly when we bought some of these at a discount. And so we have seen a little bit of a buildup in cash as we announced that some of that cash is gonna be used to pay down the EICBs. Later this quarter. So that's kind of I guess, why we have a little bit of a little more cash than usual. But, also, it's kind of finding the right kind of relative value in investments. CLO double B's are by no means kind of a sector that we're trying to exit. But trying to pick our spots given that most of the paper that we think that's interesting today is actually less new issue, but probably more refis and resets. But they do come with a little bit of kind of hair in the portfolios. They're not as squeaky clean as new issue is. But you can pick up 50 to 100 basis points potentially, so kind of picking our spots, then also kind of trying to pick our spots for CLO equity as well as kind of other sort of higher-yielding investments. Timothy DeGasino: Okay. Great. And then just as a follow-up to that for on the cash component. You mentioned paying down the fees. Is that the primary focus to pay down the fees with the cash or will you also be looking to buy back common shares? Just trying to understand, you know, like, where we could see the cash flow more towards it. Is it gonna be paying down the Visa 100% and taking buying back some common? Or will you really just be focused on paying down the bees? Thank you. Thomas Majewski: Yeah. I mean, it's really to focus on the bees, and we haven't publicly announced any sort of share buyback. I'm sorry. I'm sorry. We have announced a share buyback. I apologize. Yes. I mean, so we'll be using it for both. That we'll pay back the bees and then, you know, we've said in the script that we'll aggressively pay look to buy back the common. So we'll be using it for ultimately for both. Timothy DeGasino: Okay. Great. Thank you so much. Thomas Majewski: Thank you. Operator: Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your question. Christopher Nolan: Hi. Thanks for taking my questions. On page 22, you have the largest industry concentration is software and technology. How much of that might be AI or data center related, please? Dan Ko: Not a ton, to be honest. Most of this is kind of enterprise software. So kind of software that's really embedded in a lot of companies' operations. And so it's, you know, stickier credits. It's harder for companies to pull out the software that they're using on a daily basis because you've assisted the replace or the cost of replacing, meaning both just the actual cost but also just the time and effort that goes into replacing the software is very costly. So it's been generally, one of the higher industry concentrations within the loan market. And has generally performed well over the past several cycles. Christopher Nolan: Great. As a follow-up, just following up to the most recent question talking about investing in the double B's. When you're looking at deals to invest in, is there particular industries that you're looking to get more exposure on? Or does each CLO seem to have a broad-based industry composition? Dan Ko: Yeah. I mean, most CLOs have very similar industry concentrations than the loan market. And that CLO managers are generally buying kind of what the market has put before them. You know, you might see, you know, a little bit of tweaks here and there, and maybe a certain manager decides not to buy any kind of oil and gas names because they've been burned in the past. But it's kind of hard to avoid some of the higher, like, you know, technology and healthcare. Those are typically the two highest concentrations within the loan market. So but most people are not materially kind of off index, if you will. Christopher Nolan: Great. Thank you. Dan Ko: Thanks for your questions. Operator: Thank you. And we have reached the end of the question and answer session. Therefore, I'll now turn the call back over to Thomas Majewski for closing comments. Thomas Majewski: Great. Thank you very much, everyone. We appreciate your interest in Eagle Point Income Company. We continue to work very hard for shareholders. The biggest thing continuing to aggressively buy back our stock using the buyback program. Good to get their call of the preferred use at the highest rate. We'll get that done this year and continue to optimize the company's balance sheet and continue to look for the best investments for the company. So we appreciate your time and effort and time and interest, and we appreciate joining us today. Thank you very much. Operator: Thank you. And ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for joining us and welcome to the Better Home & Finance Holding Company's Third Quarter 2025 Results Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press 9 to raise your hand and 6 to unmute. I will now hand the conference over to Tarek Afifi, Corporate Finance at Better. Tarek? Please go ahead. Tarek Afifi: Hello, everyone. And welcome to Better Home & Finance Holding Company's third quarter earnings conference call. My name is Tarek Afifi, on Better's Corporate Finance team. Joining me today is Vishal Garg, Founder and Chief Executive Officer of Better. In addition to this conference call, please direct your attention to our third quarter earnings release, which is available on our Investor Relations website. Also available on our website is an investor presentation. Certain statements we make today may constitute forward-looking statements within the meaning of federal securities laws that are based on current expectations and assumptions. These expectations and assumptions are subject to risks, uncertainties, and other factors as discussed further in our SEC filing that could cause our actual results to differ materially from our historical. We assume no responsibility to update forward-looking statements other than as required by law. During today's discussion, management will discuss certain non-GAAP financial measures, which we believe are relevant in assessing the company's financial performance. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. These non-GAAP financial measures are reconciled to GAAP financial measures in today's earnings release and investor presentation, and when filed in our quarterly report on Form 10-Q filed with the SEC. Amounts described as of and for the quarter ended 09/30/2025, represent a preliminary estimate as of the date of this earnings release and may be revised upon our quarterly report on Form 10-Q with the SEC. More information as of and for the end of the quarter ended 09/30/2025, will be provided upon filing our quarterly report on Form 10-Q with the SEC. I will now turn the call over to Vishal. Vishal Garg: Thank you, Tarek, and welcome to our third quarter 2025 earnings call. This has been a pivotal quarter with significant developments for Better as the leading AI home finance company. We have rapidly evolved from a dominant direct-to-consumer business into a platform powering the entire home finance ecosystem, both for consumers directly and increasingly through our growing list of institutional partners. Partners include both local mortgage lenders and financial institutions, and we empower them with our Tinman AI platform to serve their customer needs better. In summary, over the last couple of months, we announced three new partnerships, which we see as deeply validating and believe will meaningfully expand our market reach across the home finance landscape and drive profitability as we track to breakeven adjusted EBITDA by Q3 2026. We are already pacing to fund $500 million in monthly volume as a result of the growth through these partnerships, and that momentum is accelerating rapidly. In the next six months, we are comfortable that this will double to at least a billion a month in funded loan volume. Our progress comes mostly from our soft launch during which we have marketed the power by Better solution to only a small fraction of our partner's customer bases and seen great success. This partnership represents the most significant opportunity in Better's history. Excitingly, thanks to our strong unit economics and best-in-class experience, powered by Betsy and Tinman, our pipeline of additional partners continues to expand rapidly. We expect to share further updates on these partnerships and additional ones in Q4. Our pipeline of Tinman AI platform clients keeps expanding as the industry is seeing what our platform could deliver. We are in late-stage conversations to land partners in some of the biggest, most strategic verticals in consumer finance. Examples include one of the top home improvement lenders, two of the top servicers in the country, one of the top personal lenders, and an additional mid-sized bank. Additional partnerships will add an additional 10 million American homeowners to whom we can algorithmically qualify market mortgage and home equity products. All of these events validate our strategy of diversifying our distribution channels, as our AI-driven platforms, Betsy and Tinman, deliver the lowest unit costs while providing the best experience for both customers and partners. This gives us strong conviction that our peak volumes in this rate cycle should comfortably exceed those achieved in the last rate cycle when we originated approximately $60 billion in one year, almost $5 billion a month. We have built a platform that is AI-first. We are one of the few players, if not the only one in the US, with a single full-scale tech stack. All in one place, all in one flow, and entirely API-able via our proprietary MCP server, the only one in the mortgage industry, to AgenTeq AI, which allows us to deliver a better experience at lower cost, scale faster than anyone else, and really continue to define the future of this $15 trillion industry. Better is the network for the largest tangible asset class in the US: residential real estate. On one side of this network are the end consumers directly, and on the other side are consumers using the Tinman AI platform similar to that of merchants on platform networks like Stripe, Visa, and Mastercard. On the other side, our investors seeking to buy cash flow-producing assets secured by US residential real estate. We are the matching, processing, and fulfillment engine in between the two sides of this network. Our engine is called Tinman, which uses machine learning to triangulate consumer attributes, property attributes, and the unique criteria of over 40 institutional investors on the platform, including the GSEs, the FHA, and the VA. We have built a multisided matching engine, something that simply cannot exist outside of what we have built inside Tinman. To contrast, most fintechs operate on a single path and distribute the product through securitization. With Better, the result for the consumer is a significantly higher approval rate and generally lower interest rates, which because Tinman matches consumer and property-specific attributes across a broad cross-section of the investors on our platform, on a single loan-by-loan basis. Further, despite Better being balance sheet light and not taking any credit or prepayment risk, the default rate of our mortgages is one-third that of the industry average on over $100 billion of originated volume over the past nine years. So the proof is in the pudding. Our deep proprietary data moat has been instrumental in training our AI models and powering our platform. Betsy, our generative AI home finance agent, built on top of Tinman, has learned from over 12 million recorded phone calls, 6 million approved customers, 600,000 funded loan documents, and almost 5 billion pages of property and consumer data information. All in one place, all in one end-to-end platform, with all of the things that were done by humans on those data all in one place. And recorded through the platform. We believe that this is something that does not exist anywhere else in mortgage lending or even broadly in consumer finance. Today, we are at feature parity between Betsy and the bottom 80% of human loan officers. Betsy communicates across voice chat, text, and email, with consumers nearly instantly to compute various scenarios and learns how to better understand consumers' needs every day through every interaction. What's more is Betsy can handle millions of consumer conversations at the same time, enabling infinite scalability without adding additional headcount. As consumers learn to adopt and integrate their consumer finances and transact with an AgenTeq AI, Betsy is not just a voice agent or chatbot. Betsy can perform the functions of a human loan officer, processor, underwriter, and closer. Betsy is the user interface, helping consumers step by step through their homeownership journey, performing hundreds of thousands of consumer interactions per month, and remarkably good at detecting fraud throughout the entire platform. Additionally, Betsy has mastered finding ways to get an approval with the lowest possible interest rate across our network of investors with the lowest post-closing defect rate in manufacturing a mortgage, approximately 19 times lower than the industry average. In fact, as of September, no human underwriter is allowed to decline a loan in our system without checking with Betsy first as to the alternatives that are available to restructure the loan so that the consumer can be approved and move forward in their homeownership journey. We believe this is a first across lending in the United States. Since we launched Betsy, our lead-to-lock conversion rate has increased by approximately 84% from 3.3% to 6.1%. This has been transformative to our platform in driving incremental volume and revenue through our platform, and it's still very early days. As we scale Betsy at near zero marginal cost, we expect to further improve our unit economics through cost efficiencies on a per-loan basis. During the quarter, Betsy performed approximately 700,000 customer interactions and our AI underwriting approved over 61% of locked loans, with a clear path to 75% in the near future and 90% after that. Our loan officer productivity in terms of funds per month increased to over three times the mortgage industry median. We have been heads down over the past few years honing our technology and optimizing the business for efficiency. With Tinman and Betsy, we removed the traditional constraints to growth in the mortgage industry, which is typically throttled by a lack of specialized licensed labor, whether it's loan officers, processors, appraisers, or underwriters. We can now grow infinitely with AI and with a single unified tech stack at the core. There's almost no better use case for AI to disrupt the market than the massive and antiquated mortgage market. The majority of the mortgage market still operates on what was built in the 1990s, where eight different separate systems were integrated through dated middleware, old-school FTP servers, and disparate databases. What's more, this dominant platform, which has over 80% market share, only allows one person to work in the loan file at any time, a file that costs the mortgage industry more than twice as much as Better to make. AI was designed to disrupt industries like this and yet fails in most cases due to the lack of a singular database architecture, causing huge latencies for any LLM to intermediate data and capture context quickly between disparate systems. Further, the lack of a unified interface prevents LLMs from being able to handle every single task required to fulfill a mortgage. Those limitations do not exist in Tinman. Tinman shines as a brand new modern tech stack with AI in action delivering real tangible measurable results in a multitrillion-dollar industry at a fraction of the cost. I often think back to when we were building our AI platform. One of the point solutions CEOs said to the then CEO of Fannie Mae that he thought Better was trying to boil the ocean. And here we are. We have gotten the ocean hot. And it's starting to drive tangible results in a way that is groundbreaking for the industry. With some macro green shoots in our favor and momentum in winning new partnerships, we believe we are in a position to scale rapidly, profitably, and with AI infinitely. When you look back at the last time rates declined, Better grew its volume by over 100 times over a five-year period and over 10 times over a two-year period in 2020 and 2021. We are positioned to do it again. This time, more efficiently and much more profitably. And we believe we can achieve significant market share as this next cycle unfolds. Betsy and Tinman is our flywheel. That flywheel is turning. The opportunity is massive, and we are ready to monetize. I'll now turn to our third quarter results. Starting with growth, we continue to propel opportunities independent of broader economic and mortgage market conditions. In 2025, on a year-over-year basis, we grew funded loan volume by 17% to approximately $1.2 billion, and revenue by 51% to approximately $44 million, driven by funding more loans, both through our D2C channel and our Tinman AI platform. By product, year-on-year funded loan volume growth during the quarter was driven by home equity volume increasing by 52% year-on-year, refinance loan volume increasing by 41%, and purchase loan volume increasing by 5%. We have been rapidly growing our home equity business, taking share in a market that is coming back quickly as Americans are sitting on $35 trillion of home equity, the largest untapped asset class in the country. We've grown to an approximately billion-dollar-plus quarterly run rate origination in Q3 2025, compared to approximately $100 million in Q3 2023 just two years ago when we launched. Our model does not require us, unlike many others, to take any credit, prepayment, or liquidity risk. Because we can sell HELOCs onto the investor marketplace we have built. We do not rely on securitization. And we are able to mimic what we have done in the mortgage space in HELOCs, allowing investors to buy and bid on loans at a loan-by-loan level, which is unique in the industry. There are incumbents in the home equity space who have started to create their own version of our investor marketplace. But today, that marketplace only comprises a very small portion of their volume and revenue. Whereas for us, the marketplace is 100% of volume, and 100% of revenue, in the HELOC space. During the quarter, we broadened our already high approval rates for HELOC products by launching AI-driven HELOC underwriting for small business and self-employed borrowers, making approvals possible using bank statements only. This product opens the door for 36 million self-employed and small business owners who have traditionally been underserved by traditional underwriting methods in the mortgage and HELOC space. Another example of how we are using AI to widen use cases and enable home finance for more American families to help them save more money. Turning to cost efficiency. Total net revenue in Q3 grew 51% year over year, while expenses remained flat. Demonstrating our ability to scale revenue at lower marginal costs. We continue to adjust our cost structure to be leaner in overhead, building adequate resources to support the ramp of our new partnerships, which we expect to drive transformative growth in 2026 and beyond. With the goal of reaching adjusted EBITDA profitability by the end of Q3 2026. While our initial goal was to achieve further expense reductions this quarter, the team was focused on launching our three new transformational partnerships and engaging with additional partners in our pipeline. As a result, the intensity of our cost-cutting was somewhat muted compared to the vigor we've had in prior quarters. Looking ahead, as we get these partnerships up and running, and to scale, we expect these anticipated cost savings to materialize in 2026. With Tinman AI technology, we automate time and labor-intensive components of the mortgage process, consistently reducing our cost to originate to approximately half of the industry average. I'll now turn to quarterly business developments. Unit economics in our direct-to-consumer channel continue to improve with revenue per fund increasing to $8,300. The labor cost to fund continued to decrease to $2,500 and CAC per fund to $3,200, by the implementation of AI in every aspect of the sales and operations workflow. Resulting in a net contribution margin of $1,772 per fund compared to $1,064 per fund last quarter, an approximately 64% increase quarter on quarter. We have not seen these types of contribution margins since, like, 2021. We expect to continue to lower the cost to originate as we increase conversion, lower CAC, and improve labor costs. And while our DTC business has always been at the forefront of pushing the envelope of what technology can do in the mortgage industry at its core, we are making great advancements in broadening the use of Tinman through our partnerships. We are very excited to have recently announced three new partnerships that we see as deeply validating the Tinman AI platform and believe will meaningfully expand our revenue and drive to profitability in the year ahead. First, we partnered with a top five US personal financial services platform, which currently serves over 50 million customers. Under this agreement, our partner will offer home financing products to its end customers using the Tinman platform on a fully white-labeled solution, and we will earn revenue on a per-funded unit basis. Essentially, this is mortgage broker in a box. For financial institutions across the American landscape. We are focused on financial institutions that have large banks of customers. 10 million, 20 million, 50 million customers, and we believe that these financial institutions who have traditionally been limited, especially post the global financial crisis, in being in the mortgage business or offering mortgage business mortgages to their customer base, will dive right in with our mortgage broker in a box Tinman AI platform. We brought this fit partner from being just a fintech to a fintech plus mortgage broker. There will be no upfront tax spend required by Better as our partner will programmatically feed customer data into Tinman. From there, Tinman will manifest offers delivered through our partner's app, which has tens of millions of monthly active users all nearly instantly and updated daily. We expect transformative volume potential from this partnership as we scale into their vast customer base. Second, we entered into an agreement with a top five US nonbank mortgage loan originator. By migrating from the incumbent solutions that they've traditionally had for years, if not decades, onto Tinman, our partner's loan will dramatically scale ability to surface eligible customers for HELOC and HELOANS within their customer base. They'll also be able to mine their MSR book of over $300 billion to offer HELOCs and HELOANS to those customers on a programmatic basis in a way they've never been able to do with the incumbent HELOC solutions that are available to them today. The initial focus will be on home equity products, and we believe there's great potential over to help the partner unlock new ways to monetize its extensive customer base. In a way that has not been done before. It's important to note that we are not just processing customers who raise their hand and ask for a home finance product. Rather, we are fully integrating Tinman into both of our partners' customer data loads and CRM systems. This allows us to algorithmically mine customer data attributes and property data attributes for these customers, match them to products and investors on the Tinman platform, and use our AI to recommend the most applicable offer directly to the customer. We are also completely agnostic to the user interface, be it an iPhone app, or a human loan officer in a branch. We serve all of them. Third, we partner with Finance of America, an industry-leading reverse mortgage lender with access to millions of senior customers who are typically home equity rich but cash flow disadvantaged. Together, we are launching the first HELOC and HELOAN product offerings to their customers powered by our Tinman AI. What's more, leveraging Tinman, we have developed a senior second lien HELOAN product that specifically addresses the debt-to-income challenges that limit traditional HELOC products from being offered to seniors and that you typically see securitized by the incumbent players. Together, we believe these new partnerships demonstrate our evolution in powering the home finance ecosystem as a full suite platform and software well beyond our direct-to-consumer origins. These partners are now live, and we look forward to sharing updates on our subsequent earnings calls as these partnerships ramp. In addition to our newest partnerships, we continue to make great progress growing our existing Tinman AI platform Neo powered by Better, local loan officer teams across the US experiencing rapid growth. The Tinman AI platform approach to local retail mortgage loan officer teams is similar to how Amazon opened its D2C model to a third-party seller marketplace. Similarly, Better is enabling retail mortgage lenders to build their business on the Tinman platform. And in doing so, we provide the compliance and licensing engine, loan origination system, and capital markets marketplace. We have near zero customer acquisition cost on this channel, and as partners fund loans on our platform, we earn a platform fee and a share of profits. We've grown this channel from zero just nine months ago to now approximately 40% of our total revenue. The Tinman AI platform enables retail loan officer teams to originate more loans, serve more families, and lower their cost of funds, dramatically increasing their profitability and throughput versus traditional platforms that these loan officer teams have been on for decades. These officers are transitioning from dated expensive tech stacks where origination of a loan could cost over twice as much as Tinman to Tinman where the cost is just a fraction of that, at approximately $3,000. Savings go straight to their bottom line, allowing them to reinvest in their customers, offer lower rates, and close more deals within their local markets. Further, we've designed an optimization path to retain customers entering through the direct-to-consumer channel, who we might otherwise lose to an outside local loan officer. By identifying customers who would benefit from more personalized local support, we connect them early on with a partner loan officer instead of losing them to competitors later on in our direct-to-consumer flow. This approach significantly boosts conversion rates amongst these customers and in turn strengthens our overall unit economics. During the third quarter, we funded approximately $483 million in funded loan volume for 1,148 families on the Tinman AI platform, an increase of 13% respectively compared with the prior quarter. And coming back to our multipronged distribution, we are also serving the customer by powering banks, credit unions, and other large mortgage originators that are seeking to license our Tinman AI software to either enter or reenter the mortgage business. As our Tinman AI platform approach is like Amazon's third-party marketplace model, you can think of our Tinman AI software channel as Amazon's AWS software model. A lot of banks and credit unions are taking a refreshed look at the mortgage space as a regulatory environment is becoming increasingly favorable. However, bank origination of mortgages has largely been unprofitable given their high cost to originate. This is where our Tinman AI software comes in. Our Tinman AI software essentially provides mortgage in a box, enabling banks to not only use our software but also gain access to underwriting resources and sales resources if they so desire. And while the broader software industry charges clients on a per-seat basis, we have a disruptive pricing model of charging on a per-funded loan basis, or outcome as a service, which is very similar to what a lot of the leading AI companies in Silicon Valley are doing. Over time, we expect this channel to be the most profitable of our three channels with SaaS-plus level margins since most of the costs associated with this initiative have already been spent on developing Tinman internally for our direct-to-consumer business. Our existing bank partner on the Tinman AI software platform is ramping as we power its mortgage origination business from click to close across multiple products and across multiple channels. And we expect revenue from this partnership starting in Q4 2025, with SaaS-level margins. Our overall partnership pipeline is robust. We are focused on aligning with companies that are leaders in their respective verticals, those with large customer bases and where the Tinman AI platform clearly outperforms legacy systems. Our strategy is simple yet powerful: capture a leading player in each vertical, empower them to scale their mortgage business and home equity business with Tinman, and then expand outward across the ecosystem as others follow suit. Land and expand. Verticals that we are interested in include fintechs, BNPL providers, traditional mortgage lenders, and servicers. Each of these verticals represents hundreds of billions of dollars in annual mortgage originations. So by first securing a partner who is a leader in their vertical, we establish credibility, create momentum, and open the door to broader adoption across that vertical. Looking ahead, the opportunity has never been more exciting. We continue to make great progress towards our goals of driving increased volume and revenue, balanced with ongoing expense management and improved efficiency. We remain focused on enhancing our go-to-market strategy with growth being our North Star, alongside continued expense management and channel diversification. We all with the goal of reaching breakeven on an adjusted EBITDA basis by 2026. Our path to adjusted EBITDA profitability will be multifaceted, driven by volume growth in both our direct-to-consumer and Tinman AI platform channels, unit economics or per-loan contribution margin continuing to improve as we further lean into AI efficiencies, the scaling of higher-margin partnership channels, including Tinman AI platform and Tinman AI Software, pricing improvements, and continued corporate cost reductions. While our unit economics are already profitable at the contribution margin level, increasing volume will allow us to offset additional corporate expenses. Note that these growth opportunities come with varying levels of expansion and profitability profiles and will change based on the broader macroeconomic trajectory. As a result, our path to adjusted EBITDA breakeven is unlikely to be linear on a quarterly basis. We do not anticipate the same level of burn reduction each and every quarter. During the third quarter, we had an adjusted EBITDA loss of approximately $25 million, down from $27 million last quarter and $39 million one year ago. In particular, for the three large partnerships we signed, we had a significant amount of resources in sales, operations, and technology dedicated to launching those partners that were not revenue generative but will create significant growth in the years ahead. As these partnerships launch and start to generate revenue and contribution profit, we expect burn to come down more dramatically in the coming quarters ahead. 2026. Now to touch briefly on our balance sheet and capital positioning. We ended 2025 with $226 million of cash, restricted cash, short-term investments, and assets held for sale. In addition, we continue to maintain strong relationships with our three financing counterparties, which provided a total capacity of $575 million as of September 30, 2025. We expect that our recently announced partnerships will require us to increase those warehouse lines meaningfully to accommodate the expected funding demand. On capital positioning, we rightsized the capital structure earlier this year, retiring approximately $530 million of convertible notes for a $110 million cash payment and a $140 million note, generating $211 million of positive equity. As announced in our 8-Ks, our CFO, Kevin Ryan, will be concluding his time with us. We are so grateful for everything Kevin has done for this company, taking us public, rightsizing our capital structure, and building out our finance and accounting function. We wish him the very best in his new endeavor and are excited about the strong candidates in consideration for the CFO role. We hope to share the outcome of our new CFO search with you soon. In the UK, we were pleased that Birmingham Bank grew its loan book by 44% in the third quarter sequentially. Versus 2025 as we have implemented our technology stack into the bank and, in doing so, enable the bank to become the fastest-growing specialist mortgage lender in the UK. With respect to our non-core UK assets, we continue to exit those positions and expect these divestitures to continue to benefit our adjusted EBITDA through the remainder of 2025. Turning to our outlook, the Tinman AI platform loan volume continues to grow rapidly, and we expect over $600 million of AI platform originations in Q4. This would be growth of over 24% versus Q3. For the full year 2025, we expect total funded loan volume to increase year over year driven by tailwinds from growth initiatives, including Tinman AI platform, offset by continued macro pressure and the loss of our Ally business, a roughly $1 billion headwind. We expect further improvements to adjusted EBITDA losses for the full year 2025 versus the full year 2024 through a combination of AI-driven improvements in conversion rates, efficiency gains, and continued corporate cost reductions. In the medium term, while we expect D2C to continue to grow nicely, we expect it to become a smaller part of the total revenue mix as our partnership channels scale faster. We spent the past three years building for this moment. Our platform is proven. The housing cycle is turning. Our AI is scaling, and our partnerships are just beginning to ramp. About a year ago, we met the NEO Home Loans team, and I saw firsthand the experience they were able to deliver in a branch or over a Zoom call. And I thought to myself, how can we make this accessible to everyone? How can we take this four seasons experience that the Neo team delivers and deliver it at a four points price to the average consumer? That got us thinking about the experience of being in a branch or on a Zoom call, with someone with ten, twenty, thirty years of experience with a deep knowledge base, someone who's done billions of dollars of loans and one who can walk you through every aspect of the process that is life's biggest financial transaction. One, American families are still fundamentally insecure and unknowledgeable about. We'll be launching the AI mortgage adviser in a prerelease. And you can sign up to join us at better.com/tinman. Please take a look and let us know what you think. Tarek Afifi: Hello. Ryan Grant: My name is Ryan Grant. How are you doing today? Vishal Garg: Woah. Am I talking to an AI or is it you, Ryan? What happened here? Ryan Grant: Hey. It's actually me. Ryan's AI mortgage adviser. Kind of like having Ryan's brain and Better Mortgage's tech all rolled into one. Ready to help you anytime. What can I do for you today? Woah. Woah. Woah. Vishal Garg: Like, what did you do with Ryan's brain? Like, Ryan Grant: Think of it like this. I get it. It sounds wild. Basically, I'm Ryan's expertise combined with AI tech. So I can help you anytime with mortgage questions, calculations, and advice just like he would. But instantly and around the clock. No worries. Ryan's still around. But I'm here to make things easier for you. What would you like to know or talk about? Vishal Garg: Okay. I mean, that's interesting. Like, you tell me a little bit about yourself? Like, do you have a lot of experience doing this, or do they just get, like, some guy off the street? Ryan Grant: I'm built on Ryan's experience. He's personally funded nearly $2 billion in mortgages and helped thousands of homeowners. So I bring all that know-how plus Better Mortgage's smart tech to guide you through your mortgage journey with confidence and clarity. Think of me as Ryan's brain. But always ready to help you anytime you need. What's your biggest question or goal with your mortgage right now? Vishal Garg: I mean, I think rates are coming down, and I got this mortgage two years ago. And I think I can save some money. Right? Ryan Grant: That makes sense. Refinancing to save money is a smart move if rates have dropped since you got your mortgage. To see how much you could save, I'd need to know your current interest rate, your remaining loan balance, and how many years you have left on your mortgage. Can you share those details? Vishal Garg: Yeah. No. So I think I have $500,000 left on my mortgage. I got it two years ago, literally, like in September '23. And I think like, you know, I don't remember exactly what my rate was, but it was like, in the 7% something range. Maybe you can help me, like, figure that out. Like, yeah. Ryan Grant: Got it. You have about $500,000 left and your loan started around September 2023 with a rate around 7%. I can help estimate your savings based on that. Do you happen to know your current monthly principal and interest payment? If not, no worries. I can estimate that too. Vishal Garg: Yeah. I know. It's like on autopay, so I don't know exactly what it is. So, yeah, if you have an estimate, that would be really great. Ryan Grant: Your current loan is about 7% with a $500,000 balance and twenty-eight years left. And your monthly payment is roughly $3,398. Oh, that's close. Got it. Let's start with the option that gives you the lowest monthly payment by paying points upfront. This option lowers your interest rate, so your monthly payment goes down. But you'll pay some cash at closing. Sound good? Vishal Garg: Yeah. Yeah. Let's find out. Sure. Ryan Grant: The lowest monthly payment option with points. Your new rate would be about 5.13%. Your monthly payment would drop to around $2,722, saving you about $676 each month when it comes with points costing about $12,907 upfront. Would you like to hear about the par rate option with lower closing costs too? Vishal Garg: Yeah. Yeah. Why not? Like, you know, I'm not sure if I've got just $12 lying around. Ryan Grant: The par rate option means no points upfront. So your closing costs are lower. Your rate would be about 5.99% with the monthly payment around $3,053, still a bit lower than your current payment, saving about $345 each month. It's a bit higher monthly, but you keep more cash at closing. Sound like something you want to explore more? Vishal Garg: Yeah. No. Like, isn't there a way, like, I heard, like, you can just roll the closing cost into, like, the mortgage, like, at closing? Is that possible here? Ryan Grant: Yes. You can often roll closing costs into your new loan balance, which means you don't pay them out of pocket at closing. That usually comes with a slightly higher interest rate, like the par rate option I just mentioned. So your monthly payment might be a bit higher, but you keep your cash upfront. Does that sound like a good fit for you? Vishal Garg: Yeah. No. I think I'm gonna go with a lower monthly payment. Like, $700 a month of savings is like a lot more than $350 a month of savings. So I think that will be really good for my cash flow. So what do I need to do next? Like, does this work? Ryan Grant: Great choice. Saving about $700 a month can really help your cash flow. The next step is to start your refinance application so we can lock in that lower rate and get the process going. Could you please spell your first and last name for me? Vishal Garg: Yeah. Yeah. Wait. Wait. Wait. Can I talk to the real Ryan too? Like, or is it just gonna be me and you all the time? Ryan Grant: I totally get wanting to chat with the real Ryan. He's a great guy. I'm here to help you anytime with quick answers and guidance. If you ever want to connect with Ryan directly, I can help make that happen once we get your application started and things are moving along. Sound good? Vishal Garg: Sounds great. Alright. Listen. You know, I'll get the application going, and then why don't we, like, set out some time to talk to the real Ryan? It'll be interesting to see whether he knows as much as you do. Ryan Grant: That sounds like a solid plan. To get started, could you please spell your first and last name for me? That way, I can set up your application, and we'll be on our way. Vishal Garg: Okay. It's Vishal Garg. Why don't I do the rest of this online, and then we'll, you know, connect later? Alright? Talk soon. Bye. Operator: Thanks, Vishal. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press 9 to raise your hand and 6 to unmute. Your first question comes from the line of Owen Rickert with Northland. Your line is open. Please go ahead. Owen Rickert: Hey, Vishal. Thank you for taking my questions here. I guess quickly, can you just dive a bit deeper into the three recent partnership announcements and how you expect each of these to ramp as we head into 2026? Vishal Garg: Sure. So with respect to the large financial services platform, we expect that to ramp over time, over the next six months, specifically as we increase the penetration of their users in their app that see the offers from us and the number of users every day that they drop into Tinman to surface offers for. And those offers will be sent via stories in their app, notifications, text messages, things like that. And so we're just gonna increase those. And we've created a specific pod for this partner because it's such a large partner. And we need to staff into that pod. And so, while we expect the overall size of the partnership to manifest itself into, you know, multiple billions of dollars a month, it's going to take a bit of time for us to also ramp up and see what labor is gonna be required, what percentage of that partner's customers are comfortable talking to an AI, what percentage of that partner's customers need to talk to a person. So we're working all of that out. With respect to the other partnerships, the large mortgage originator, we're gonna start first with their direct-to-consumer team, then we're gonna start rolling it out to the team that does MSR and MSR recapture. And then from there, we're gonna start rolling it out to their loan officer teams all around the country to market HELOCs and HELOANS too. And so there's gonna be a ramp in that regard as well over the next six months or so. And then, with Finance of America, we are launching the HELOCs and HELOANS first to their customer base, then to their partner originators, and then across to their wholesale channel. And so, I think that is also gonna take, you know, another three to six months to fully ramp up. As well as the second, you know, the reverse second lien HELOC product, which we are rolling out in beta right now, which we're going to then ramp up across their entire network. Owen Rickert: Got it. Thank you. And then secondly, you did hit on this pretty early on in the prepared remarks, but how would you characterize the future partnership pipeline right now? And what does that look like today? And maybe how has this pipeline evolved over the last few months? Vishal Garg: I think as our partners are able to see how fast we're able to implement some of the earlier partners that we have now launched, the quality of the user experience, the ability to, you know, get approved for a mortgage programmatically, the ability to take something that traditionally has been very passive and sold passively by these partners and then have that be done in an active algorithmic way, the partner pipeline has really quite frankly exploded. And so we are seeing a lot of demand. The other thing just from a macro perspective, the largest incumbent solution has been forcing, has been going through an SDK change and has been forcing reintegrations with all of its partners, for its clients. And so it's been an interesting moment where a lot of people are very, very frustrated with the incumbent solutions that are out there and are looking for something new. And so I think, you know, it's sort of like, luck is when preparedness meets opportunity. And I think, you know, we're pretty thankful to be in the position that we're in now. Owen Rickert: Great. Thanks, Vishal. Operator: Your next question comes from the line of Brendan McCarthy with Sidoti. Your line is open. Please go ahead. Brendan McCarthy: Great. Good morning, Vishal. Good morning, everybody. I really appreciate the demo there with Ryan. I thought that was great. I just wanted to start off circling back to the new partnerships, particularly the one with the top five US personal financial services platform. Can you give us detail on what the ultimate volume opportunity is like there? You know, 50 million customers is obviously a huge number. Just curious as to what you think the addressable market is in terms of volume. Vishal Garg: Yeah. So, I mean, if you go and try GPT and type in what is the mortgage penetration rate for a financial institution in the United States with 50 million customers, it will tell you that, you know, it ranges from 10 basis points of that customer base to 15 basis points of that customer base. So let's use, like, you know, a low average 12 basis points. You multiply 12 basis points by 50 million, that gives you 60,000 originations a year. 60,000 originations times an average balance of, like, $400,000 gives you about $24 billion. So I don't know exactly what the number is. I'm not committing to that number, but that's sort of, you know, if we were able to just do it in an average passive manner at some branch, what we think we can achieve could be multiples of that if we're able to sort of algorithmically mine and surface offers directly to consumers in their mobile app. Brendan McCarthy: Understood. That's very helpful. Thank you for that. And next question, just looking at the guidance, you know, really implying strong growth there, I think, from, you know, the 500 million monthly loan volume run rate to about a billion. It's just really a step up there. What's really underpinning that outlook? Is it, you know, just strictly the partnerships? Is it a growth in D2C? Is there any interest rate assumptions there? Just curious as to what's underpinning that. Vishal Garg: No. We're assuming interest rates stay the same. And, yes, I mean, as you can see in D2C, we have been focused on making more money per loan in D2C rather than growing volume, though volume has grown pretty substantially, especially if you take out, you know, on a quarter-on-year basis, if you take out the Ally volume that we had last year, you know, organic growth has been over 50%. And, you know, when you layer that on, if there's a rate cut, I think, you know, D2C is going to fly. But other than that, like, we're just assuming that the rates stay the same. And so the numbers I've given you and I've indicated assume the interest rate environment doesn't change. Brendan McCarthy: Great. Great. Thanks. That's all for me. Operator: Your next question comes from the line of Kartik Mehta with Northcoast. Your line is open. Please go ahead. Kartik Mehta: The press release indicated that you anticipate about a billion dollars of loan volume in the next at the end of six months because of these partnerships. Does that assume that each of these partners will be fully ramped or get fully integrated? Or are you anticipating the ramp to take longer? So, really, the billion dollars could be a lot more once the partnerships are fully integrated. Vishal Garg: I think it could be a lot more once they've fully integrated. Kartik Mehta: And then just, you know, the per funded contribution margins increased significantly. The one volatility is in the CAC. So I'm just curious, what's your anticipation for CAC as we move through 2025 and then 2026? I'm assuming they'll start trending lower as the partnerships become a bigger part of the loan volume. But I wanted to get your perspective on that. Vishal Garg: Yeah. I mean, with the partners, there's no CAC. Right? There's, you know, no upfront CAC. The D2C CAC remains quite high. It, you know, purchased, you know, which remains a challenge in this market environment. You're spending money this quarter to book loans in six months, twelve months, eighteen months, when the consumer actually buys the house and books a loan. I think one thing that may be underappreciated about Better is over the past three years, we've given out over a million preapprovals to consumers, and those consumers have not been able to find a house or it's been too expensive for them to find a house. And so that CAC, you know, that you see there is elevated because for all the consumers that are not able to find a house or that they want to buy, you know, basically, we eat that CAC in that specific quarter, then when that consumer finds the house they want to buy, then when they come through, then, you know, it shows as lower CAC. So the mortgage industry CAC acquisition cost problems are even further compounded by the long gestation cycle of, you know, consumers on the Internet and when they get preapproved and when they actually find a house. So, you know, we do expect as rates, if rates come down, that, you know, the CAC will come down materially across the board for purchase or for refi. I mean, just to give you some context, when in the last rate cycle, when rates were coming down, our CAC on a refi was $1,000 a loan. And so there's a lot of positive convexity in the CAC as consumers, you know, as the rate environment changes and consumers' propensity to get preapproved and then actually fund increases. Kartik Mehta: Perfect. Thank you very much. I really appreciate it. Operator: Your next question comes from the line of Bose George with KBW. Your line is open. Please go ahead. Frankie: Hey, good morning guys. This is actually Frankie on for Bose. Nice to see you. Start with, can you just walk through the ways in which AI efficiencies increase revenue per funded loan? In slide 16, you noted that this will be driven through enhanced sales and operational performance. Vishal Garg: Yeah. So I think what you'll see is our revenue per loan is continuing to grow up. Right? And I think the reason for that is Betsy's able to supplant the loan officer whenever the loan officer is not able to, you know, either pick up the phone, answer a question, turn around a new preapproval based on, you know, data that the consumer has provided. You know, Sunday afternoon, 04:00, they want to put in an offer that they saw. You know, Betsy's there for them in a way that, you know, traditionally, your human loan officer isn't able to be. So that's enabled us to, one, you know, make our competitive pricing, and, you know, slightly less competitive and, you know, increase the gain on sale. Number two, as our volumes are going up, and, you know, it allows us to not have to staff up with many people. I think as you can see, like, on a year-on-year basis, volume and revenue went up substantially over 50%. And expenses actually, you know, stayed the same. And, therefore, the burn came down substantially by, like, about 35, 40%. And so that's sort of how Betsy's allowing us. It's allowing us to be more responsive, which means lower discounts, superior service, really build a service offering for consumers. And then on the flip side, you know, not have to hire as many people as we scale volume. And automate the processes, like processing loans, underwriting loans, closing loans, that traditionally have been done by people. Frankie: Great. Thank you. That's very helpful. And then can you just help us understand what types of incumbent solutions you're replacing in your partnership? Is it both the LOS system and POS system? Vishal Garg: Yes. So we have integrated with a number of POS systems that are out there. Where, let's say, if our client wants to keep the POS that they're using today, that's fine with us. You know? We'll take all of the other stuff. We generally do replace the incumbent LOS. And in many cases, we replace the POS, the LOS, the pricing engine, the CRM system, the document generation engine, the notary, you know, and closing engine, and the warehouse, you know, the warehouse software. So when the client signs up with us, we might replace as many as eight to 10 different systems that the client has. Frankie: Awesome. Thank you. That's all for me. Operator: Your next question comes from the line of Mikhail Goberman with Citizens JMP. Your line is open. Please go ahead. Vishal Garg: Hi, Mikhail. You're on mute. I think you have a question. Mikhail Goberman: I was. Sorry about that. Thank you. No problem. Good morning. Thanks for taking the question. If I could ask about expenses and I appreciate the comments prepared remarks about the expenses and how you're planning to deal with the partnerships with regard to that going forward. I believe you mentioned a target for the first quarter of next year. Is there any sort of a number or run rate that we can put on that? Vishal Garg: No. I think we, you know, we're hoping that, you know, within the next six months, we get to a billion dollars a month origination run rate. I think, you know, we're hoping that we continue to have scale in our expenses. We're hoping that we continue to drive a lot of corporate cost reductions forward. We've been really busy this last quarter, so I think I personally wasn't able to pay as much attention to some of the, you know, legacy contracts and things like that that we need to kind of continue to still beat out, you know, three or five-year contracts that we signed back in 2020, 2021 that we're, like, working to sort of, you know, reset, with more AI-driven type solutions. I think there's still a lot of cost savings left. Which is why we continue to drive to, you know, achieving profitability. While, you know, growing scale at the same time, you know, by Q3 2026. Mikhail Goberman: Great. Appreciate that. And if I can fit in one more, just your general thoughts on the stability and strength of the mortgage industry in general given where we are with interest rates and sort of wobbles, I guess, you could say, with the economy a little bit. Just your general thoughts on the borrower and the consumer and how the whole system is developing going forward. Thank you. Vishal Garg: Yeah. No. I think, look. I really believe that we're headed into a recession. I believe that, you know, that's gonna result in a couple of things from a macro standpoint. I think there's, you know, you would think that heading into a recession, purchase mortgage would be disadvantaged. But there's millions of people who have wanted to buy a home over the past four, five years who missed out on the 2019 to 2021 rate environment. And they have been building up their savings, and they're looking and, you know, many of them who have owned equities in the past couple of years, they have been building up wealth to go and buy a home. So I think that you're gonna see purchase mortgage origination stay at sort of where they are. You might not have, like, the boom that you did in 2020 and 2021. If we have a real recession. And then on the flip side, you know, there's like 20 million people that can start to save money as rates go below 6%. If we do actually enter into a recession. And I think that that's pretty significant. And then lastly, in the current period, let's assume we just stay in this sort of muddled medium inflation, 6% plus interest rate environment, you know, home equity origination is still such a small number compared to what they were pre-global financial crisis, you know, or where they are, you know, relative to the total size of home equity that people have in their homes, which is now, I think, $22 trillion of capital home equity, according to the latest TransUnion report. And I think for us, you know, we have both the secular tailwinds of a very competitive business model in D2C that we are now, you know, continuing to improve the conversion rate on. I think as you might have seen, like, in the earnings release, like, we talk about the conversion rate going from 3.3% over 6%, like an 81% increase. Right? That's just, like, grinding out, like, putting the AI in places where the humans are not able to do as good of a job. Right, to satisfy the consumer, just keep on grinding away at that. And so that, I think, is super meaningful. And will continue to drive both unit economics and growth in the D2C channel. And then when we're taking on partners that we're taking away from incumbent platforms, they are, quite bluntly, we're stealing market share. And so, you know, and then that's the fastest-growing part of our business. And so, you know, the mortgage market stays the same, if it's whether it's a trillion and a half in originations, 2 and a half trillion in originations, of course, we'd love it to be 2 and a half trillion in originations. But, you know, where we're moving partners from incumbent solutions that are, you know, built in the eighties, nineties, February, onto our tech stack, they're, you know, we're relatively agnostic to the cycle. And if the cycle comes our way, then that's even better. Mikhail Goberman: That's great color. Thank you very much. Operator: Your final question comes from the line of Doug Harter with UBS. Doug Harter: Hi, Doug. Thanks. Vishal, I was hoping you could talk about, as you're guided to getting back to breakeven and to profitability, what type of volumes do you need to accomplish that? Vishal Garg: I think depending on the mix, you know, I think we get to a billion plus, and, you know, we have a good shot at it. Obviously, the margins in our partnership business are higher than that in our D2C business. But, you know, even D2C is getting to a place where the margins are pretty healthy on a contribution margin basis. But, yeah, you know, I think we get to a billion plus. And then, you know, depending on the mix, we get to beyond that. I think, per month, I think you have a very, very, very good business that's driving towards breakeven. Doug Harter: And then can you talk about is there different revenue that you're generating with partners for home equity origination versus a traditional first lien mortgage? Vishal Garg: I think home equity originations, I mean, the, you know, the loan amounts are much smaller. But the gain on sale is higher. And, you know, between the gain on sale and the fees, you know, you're making, you know, on the mortgage side, you're making maybe $8,000 a loan. In the home equity side, you're making, like, $6,500 a loan. I think it's very important to remember in both of these cases, we're not retaining mortgage, the MSR, we're not taking credit risk, we're not taking prepayment risk. We're not taking any of those risks. In home equity, we have yet to scratch the surface on what scale looks like. There are other people in the home equity market selling their loans at 107 or booking a gain on sale at 107. We're at 103 and a half. So there's a long way to go in bridging that gap. But, you know, when those people are booking those loans at 107, they're taking principal prepayment risk. They're taking credit risk. They're, you know, booking residues, all that sort of stuff. If you like comparing apples on apples basis on a pure marketplace basis, I think we're getting a pretty good deal, but I think we probably still have another point or two that we can squeeze out on our home equity originations. Doug Harter: Great. Appreciate it, Vishal. Thank you. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending and you may now disconnect. Vishal Garg: Thank you, everyone.
Operator: Greetings. Welcome to the PDS Biotechnology Corporation's Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. At this time, we will turn the conference over to Tom Johnson with LifeSci Advisors. Tom, you may now begin. Tom Johnson: Thank you, operator. Good morning, everyone, and welcome to PDS Biotechnology Corporation's third quarter 2025 results and Clinical Programs Update Call. I am joined on the call today by the following members of the company's management team: Dr. Frank Bedu-Addo, Chief Executive Officer; Dr. Kirk Shepard, Chief Medical Officer; and Lars Boesgaard, Chief Financial Officer. Dr. Bedu-Addo will begin with an overview of the company's recent progress and its clinical development program. Mr. Boesgaard will review the financial results for the quarter ended September 30, 2025. Dr. Shepard will then join the call to help address questions from covering analysts. As a reminder, during this call, we will make forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any statements should be considered in conjunction with the cautionary statements in our press release and risk factors discussed in our filings with the SEC, including our quarterly reports on Form 10-Q and our annual report on Form 10-Ks. Cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Now I would like to turn the call over to Dr. Bedu-Addo. Frank? Frank Bedu-Addo: Thank you, Tom. And good morning, everyone. It's our pleasure to speak with you again and to provide this brief update on our progress in advancing our clinical programs. During our 2025, and recent weeks, we continued to advance PDS0101 over first-line HPV and HPV16 positive recurrent and/or metastatic head and neck cancer. In August, we announced completion of our VERSATILE-002 trial, with the final data further supporting the durable clinical benefit of PDS0101 in this patient population. The strength of this final data and of the data in subanalysis we announced in September led to our strategic decision to seek an amendment to our VERSATILE-003 trial to include progression-free survival as a primary endpoint in addition to median overall survival. Our rationale for taking this step will be the focus of today's call. Let's begin. Last August, we announced final top-line survival data from the VERSATILE-002 phase two clinical trial. As you will recall, the VERSATILE-002 trial evaluated PDS0101 plus Keytruda or pembrolizumab in patients with HPV16 positive head and neck cancer. The final data showed median overall survival was 39.3 months in patients with a combined positive score or CPS of greater than or equal to one. The lower limit of the 95% confidence interval was 23.9 months, and the upper limit was not yet estimable. Importantly, the progression-free survival was 10.3 months among patients with CPS greater than or equal to one. This PFS result is notable considering the fact that over 62% of patients in the VERSATILE-002 study had low CPS of one to 19. These patients have historically had significantly lower PFS results. A total of 53 patients were enrolled in the VERSATILE-002 trial. Unlike the VERSATILE-003 phase three trial, the primary endpoint for the VERSATILE-002 trial was objective response rate, or ORR. The VERSATILE-002 study included nine sensitive patients who discontinued the study after the primary endpoint of ORR was reached and were therefore lost to follow-up. To understand the potential impact of these nine patients on PFS and MOS, a sensitivity analysis was performed in 2025 prior to our presentation at ASCO. Our statistical experts obtained the survival records and disease progression status for these nine patients. The resulting censoring analysis showed no negative impact on either PFS or MOS. The VERSATILE-002 trial is the first of patients in the recurrent and/or metastatic head and neck cancer population to report a median overall survival of almost 40 months. The PFS and survival results also have important implications for the current design of our phase three VERSATILE-003 trial. In the current trial protocol, median overall survival is the primary endpoint, and progression-free survival is the secondary endpoint. However, even before our final readout of VERSATILE-002, a key concern external to PDS Biotechnology Corporation was the fact that MOS relies on the occurrence of death events. The concern being that if a drug works well enough to prevent patient death, it may take a long time to get to the critical data readout. With the further increased final MOS readout from VERSATILE-002, this concern was further exacerbated. To hopefully address the potential of extended trial duration while also abiding by the FDA's recommendation to use MOS, median overall survival, as a primary endpoint, we have amended the protocol to convert PFS to a surrogate primary endpoint. As announced, we have requested a meeting with the FDA to discuss the described amendment to the current trial protocol to include PFS as a surrogate primary endpoint independent of median overall survival, which will continue to remain as the primary endpoint for full approval. Our request to meet with the FDA to propose an amendment to VERSATILE-003 is based on careful consideration of the final data from VERSATILE-002. We believe the robust PFS data now presents us with an important opportunity to potentially shorten the time to regulatory submission while maintaining median overall survival as the endpoint for full FDA approval. Importantly, we believe this approach may also accelerate the availability of this promising treatment to the rapidly growing population of HPV16 positive patients in dire need of effective treatment. Treatment with PDS0101 currently enrolled patients in our VERSATILE-003 phase three trial will continue during the temporary pause of the trial. We believe that the industry is waking up to the realization that HPV positive head and neck cancer is rapidly becoming a real problem. Several industry publications just in the last few months have reported on this developing situation. Some of you might be familiar with independent market research published by Delvin Insights on the oropharyngeal cancer market published this month. The article states that they performed interviews with KOLs at leading cancer research centers and based on a quote from the publication, with declining rates of head and neck cancers related to alcohol and tobacco, HPV has become the principal etiologic factor in oropharyngeal cancer, redefining prognostic outlooks, and informing the development of tailored therapeutic approaches. End of quote. Based on established research, over 90% of HPV positive oropharyngeal cancers are HPV16 positive. We are therefore confident in the potential of our HPV16 tailored approach and the potential of PDS0101 to ultimately provide a well-tolerated treatment without chemotherapy as an option for the growing population of HPV positive patients who currently have no effective therapies for this deadly disease and who will soon become the majority of head and neck cancer patients. Elsewhere in our pipeline, we announced that the National Cancer Institute or NCI presented new clinical data at the 2025 Society for Immunotherapy of Cancer, SITC, annual meeting. The NCI presented three abstracts highlighting emerging clinical and translation findings from PDS Biotechnology Corporation's novel investigational immunotherapy platforms, including PDS0101, our lead phase three clinical stage HPV targeted immunotherapy, and our tumor targeting IL-12 fused antibody drug conjugate, PDS0101 ADC. The presented translational biomarker studies demonstrated the unique immunological properties of PDS0101 and PDS0101 ADC leading to antitumor immune responses and the predictability of clinical responses. PDS0101 combination immunotherapy was observed to induce broad immune activation and quantitative measurements of various blood analytes predicted clinical benefit with good accuracy. PDS0101 ADC monotherapy in patients with advanced solid malignancies was observed to increase blood frequencies of stem-like memory and effector CD8 and CD4 T cells that had self-renewing properties. We believe the data presented at SITC further validate the scientific underpinnings of our immunotherapy platforms and confirm that our development approach is achieving the intended immunological and clinical effects. These findings provide a deeper understanding of how our immunotherapies are generating such promising results in advanced cancers. Earlier in the quarter, we announced that the colorectal cancer cohort of the phase two clinical trial with PDS0101 ADC met the criteria for expansion to stage two following positive stage one results. This trial is also being led by the National Cancer Institute. Our phase two clinical collaborations with the National Cancer Institute, MD Anderson Cancer Center, the Mayo Clinic, as well as our preclinical collaboration with NIAID allow us to focus our resources on our VERSATILE-003 phase three clinical trial while progressing development of our pipeline via these investigator-led studies. Now I will turn it over to Lars for a review of our results for 2025. Lars? Lars Boesgaard: Thanks, Frank, and good morning, everyone. We reported a net loss of $9 million or $0.19 per basic and diluted share for the three months ended September 30, 2025. That compared to $10.7 million or $0.29 per basic share in the prior year's quarter. The decrease in net loss was primarily due to lower operating expenses. Research and development expenses were $4.6 million for the three months ended September 30, 2025, compared to $6.8 million for the prior year period. The decrease was primarily due to lower manufacturing and clinical expenses and personnel costs. General and administrative expenses were $3.6 million for the three months ended September 30, 2025, compared to $3.4 million for the prior year period. The increase was primarily due to higher professional fees, which were partially offset by lower personnel costs. Total operating expenses were $8.1 million for the three months ended September 30, 2025, compared to $10.2 million for the prior year period. Net interest expense was $900,000 for the three months ended September 30, 2025, compared to $500,000 for the prior year period. The increase was primarily due to lower interest income from our cash deposits. Our cash balance as of September 30, 2025, was $26.2 million, which compared to $41.7 million as of the beginning of the year. Yesterday, we completed the sale of $5.8 million of our common stock or prefunded warrants as well as $5.8 million accompanying warrants for gross proceeds of approximately $5.3 million. And with that, operator, we can open up the call for any questions. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question at this time, you may press 1 from your telephone keypad. A confirmation tone will indicate your line is in the question queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And our first question is from the line of Mayank Mamtani with B. Riley Securities. Please proceed with your questions. Mayank Mamtani: Yes. Good morning, team. Thanks for taking our questions and the update. So on the VERSATILE-003 protocol pause, can you touch on how you plan to handle the patients that are already enrolled and assume that they will make it to this new PFS analysis that now you are going to propose to the agency? If you could just give us an update logistically on how patients enrolled will be included there? And then also, what is the new sample size? I believe you might be having some awareness of what the new protocol size would look like, and I was also curious what the net cost savings would be for you as a result of that? Frank Bedu-Addo: Well, Mayank, thanks a lot for your question. So I think as we mentioned in the script that we just read through, we are going to continue to treat those patients who have already been enrolled on the trial, on the study trial. In terms of incorporating them into the trial as a whole, these are not significant amendments, but these are part of the discussions that we will be having with the FDA. In terms of the new size, we have not disclosed that publicly yet. We do not want to do any of that until we have actually sat down with the FDA. We have made certain proposals to the FDA. But the anticipation and the hope here is that we will address some of those concerns by getting to those clinical trial readouts earlier than the currently designed trial will allow us to get there. Right? But I will hand over to Kirk and see if he has anything to add to that. Kirk Shepard: No. Nothing to add, Frank. As you said, these discussions will take place soon. We think they are very reasonable amendments that we are asking for. We are also very happy that in reviewing these amendments and strategy for the study that the steering committee that we have as well as our investigators are with the program. They believe very much in what we are doing. And the emphasis here, as Frank said, is that these patients will be continued to receive drug on the protocol during the pause. Mayank Mamtani: Thank you. And are you able to share any information on what the expected PFS would be under control, Keytruda? It's obviously much lower than what we see relative to the OS, as you said. But just was curious what you are seeing in, have recently published on PFS control and, obviously, that feeds into your analysis for what you would power the phase three study for. Thanks for taking your patience. Frank Bedu-Addo: So Mayank, I think just I'll just reiterate something that Kirk just mentioned. These amendments and the work that's going into what we have suggested to the FDA is something that has been thoroughly discussed with the experts and principal investigators. And is very strongly supported by those experts in the field. And, also, what we are proposing is nothing unusual in terms of clinical trial design. So the goal here is to make sure that not only is it very well supported by investigators and experts in the field, but also that it is nothing unusual regarding the FDA regulations. Everything we are suggesting should abide by the regulatory guidelines. Right? So we are making sure we stick with that. And in terms of the VERSATILE-003 trial, Mayank, just to make sure I address exactly what you asked, could you just repeat the last part of that section? Mayank Mamtani: The PFS for the control arm that you have incorporated, and if that has changed relative to your prior assumption, you know, when you initially started the study. Frank Bedu-Addo: Correct. So the PFS, as you know, in the KEYNOTE-048 study as well as the LEAP-10 study, it was 3.2 months for CPS greater than one, in the KEYNOTE-048 study, and it was 2.8 months in the LEAP-10 study. Now these studies were predominantly we assume the LEAP-10 study was predominantly HPV negative. That hasn't been published yet, but we know that the KEYNOTE-048 study was predominantly in HPV negative patients. We know that there are two studies that have been published that actually compared HPV16 positive patients with HPV negative and other types of HPV infected head and neck cancer patients. And so we know from those studies that the prognosis if you have HPV16 positive head and neck cancer, appears to be worse than if you have HPV negative or other types of HPV positive head and neck cancer. Right? And so at this point, we are conservatively assuming that the PFS in the control arm is going to be around the three-month range, which has been reported for KEYNOTE-048. And also in the LEAP-10 study, which was 2.8 months. Thank you. That's a big delta. So lastly, there's been a lot of strategic interest in the head and neck cancer space. A lot, obviously, more on the bispecific or ADC side of things. And, you know, including at ESMO. Any thoughts on how you're looking at, you know, the broader landscape, especially, you know, on the HPV positive side where there's not a whole lot going on? Thanks for taking the questions. Frank Bedu-Addo: Right, Mayank. As you mentioned, there is quite a bit of work going on also with ADCs and so forth in head and neck cancer. But as you may know, those are really primarily targeted to HPV negative patients. As I just mentioned, it appears that there is becoming that realization now in the industry that HPV positive head and neck cancer is becoming a really serious medical problem. Right? Just in the last few months, we've had several publications report on the growing incidence of HPV positive head and neck cancer. And this independent market research report I mentioned specifically stated that HPV negative was a traditional head and neck cancer caused by tobacco and alcohol, are on the decline, in the new phase of head and neck cancer is HPV positive head and neck cancer. Right? So as I mentioned, we are very confident in the approach we've taken to focus on HPV16 positive head and neck cancer. Which, again, in oropharyngeal cancer, for example, over 90% of these HPV positive oropharyngeal cancers are HPV16 positive. Right? We've shown on our slide the growing projection from some of the top medical journals, such as Lancet, showing the significant increase in the prevalence of HPV16 positive head and neck cancer. And so we are very encouraged with the results we've seen today. And we are also very encouraged that this growing population of patients will hopefully have a therapy that specifically addresses this growing type of head and neck cancer, which it appears from the expert reports could potentially be the dominant type of HPV. Of head and neck cancer in the next decade. Right? So we continue to be pleased with the approach we've taken to really target and focus on HPV16 positive head and neck cancer. The majority of the majority of studies and drugs being developed in head and neck cancer are not focused on HPV positive head and neck cancer. Operator: Thank you. Our next question is from the line of Joseph Pantginis with H.C. Wainwright. Please proceed with your question. Joseph Pantginis: Hey, guys. Good morning. Thanks for taking the questions. So two questions, if you do not mind. On VERSATILE-002, can you remind us or inform us or what have you the patients that have had such long-term survival, have they seen any additional therapeutic interventions? I do not believe they have. And then second, on VERSATILE-003, since you're looking at PFS, can you tell us about the conduct of that study with regard to physician training and awareness since you obviously have a lot more sites than VERSATILE-002? With regard to being able to adapt to and not make calls early based on potential pseudo progression of the tumors from the cancer immunotherapy? Thanks. Frank Bedu-Addo: Hey, Joe. I'll start, and then I'll hand over to Kirk. Now in terms of what patients may go on after they come off the VERSATILE-002 trial, it is important to remember that at that stage, the patients are checkpoint inhibitor resistant. And in HPV positive disease, this is published. The median overall survival is only three to four months. Right? So we have to bear that in mind in this discussion. Once you become checkpoint inhibitor resistant, in HPV positive disease, your median overall survival is three to four months. And, therefore, if you come off PDS0101, and go on to some other therapy, and all of a sudden, you see prolonged survival, then very likely it's only reasonable to assume that that prolonged survival came from was a result of the therapy, PDS0101 therapy. Right? Because it is very well established that if you're checkpoint resistant, you are not going to have long survival. Right now, if patients come off the VERSATILE-002 trial, there is no FDA approved therapy for checkpoint resistant patients. And so they will very likely go into any investigator choice chemotherapy. And that's the most likely therapy that anybody who comes off PDS0101 will go on to. Right. In terms of the VERSATILE-003 design and investigators being trained, how they look at things like pseudo progression, that's something that's very important in an immunotherapy and some of the discussions that have been had with our steering committee. So I'll hand over to Kirk to address that question. Kirk Shepard: Yes. Thank you, Frank. First of all, just a comment on the answer as far as the subsequent treatment after the protocol. You're correct. I mean, there's really nothing. It's tragic that for those who are ICI resistant, that really there's been nothing really to show that they have any survival benefit, or even a high response rate. So unfortunately, we're comfortable with the fact that after the protocol, most likely any effects would be from our drug, PDS0101. Regarding the PFS, that's a good question because it's very important as we look at these patients that the investigators are trained as far as the response. And, also, this will be reviewed, as you know, by a central review from experts who will be reading the scans, etcetera. We've discussed this a lot, so people are sensitive to the fact that there may be pseudo progression. With patients who are still clinically well, and yet not determined yet as far as a response, we will continue to follow them. This is very important and different than the VERSATILE-002 because in VERSATILE-002, remember, the primary was ORR as far as response rate. And after the patients had a response, some of them were not followed any further. We will be following these patients all along not only for the response, but also for safety. So, we're comfortable now with the training we've had and the discussions we've had with the steering committee that we will be able to properly judge these patients as far as PFS. And also, we're very fortunate that with the current site accruals that we have, a lot of the sites are returning who were on VERSATILE-002. So they've been trained before. They are also familiar with the drug, and we're very happy to know that a number of them want to be a part of now the VERSATILE-003. So we have a good core of sites that have had experience with the drug as well as judging these responses. Thanks for your question. Joseph Pantginis: Appreciate all the feedback. Thanks a lot. Operator: Thank you. At this time, I'll hand the floor back to Frank for further remarks. Frank Bedu-Addo: Thank you, operator. So thank you to all for your time today. We are excited based on the strong VERSATILE-002 results and our Fast Track designation about the potential for PDS0101 in head and neck cancer. Our engagement with multiple leading clinical investigators and oncology institutions has validated our approach and the long-term opportunity that we believe our HPV targeted immunotherapy represents in the HPV16 positive head and neck cancer indication. We look forward to keeping you updated on our progress and thank you very much again. Operator: Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to Edgewell Personal Care Company's Fourth Quarter and Fiscal Year 2025 Earnings Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Chris Gough, Vice President, Investor Relations. Please go ahead. Good morning, everyone, and thank you for joining us this morning for Edgewell Personal Care Company's fourth quarter and fiscal year 2025 earnings call. Chris Gough: With me this morning are Rod Little, our President and Chief Executive Officer, and Fran Weissman, our Chief Financial Officer. Rod will kick off the call, then hand it over to Fran to discuss our 2025 results and full-year fiscal 2026 outlook. We will then transition to Q&A. This call is being recorded and will be available for replay via our website www.edgewell.com. Also, please refer to our website for a separate press release detailing the company's plan to divest its feminine care business. During this call, we may make statements about our expectations for future plans and performance. This might include future sales, earnings, advertising and promotional spending, product launches, brand investment, organizational and operational structures and models, cost mitigation, and productivity efficiency efforts, savings and costs related to restructuring and repositioning actions, acquisitions and integrations, impacts from tariffs and other recent developments, changes to our working capital metrics, currency fluctuations, commodity costs, inflation, category value, future plans for return of capital to shareholders, our planned disposition of our feminine care business, and more. Any such statements are forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995, reflecting our current views with respect to future events, plans, or prospects. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended 09/30/2024, as amended 11/21/2024, and as may be amended in our quarterly reports on Form 10-Q filed with the SEC. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances except as required by law. During this call, we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website. This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. With that, I'd like to turn the call over to Rod. Rod Little: Thank you, Chris. Good morning, everyone, and thanks for joining us on our fourth quarter and fiscal 2025 year-end earnings call. Before we begin, I would point you to another important press release we issued yesterday afternoon detailing our intent to divest our Feminine Care business. This divestiture is a key step forward as we continue to transform Edgewell Personal Care Company into a more focused, agile, and consumer-driven personal care company. We believe that by focusing our attention and resources on the categories where we have clear competitive advantages and strong momentum—shave, sun and skin care, and grooming—we are positioning Edgewell Personal Care Company to deliver sustainable growth, stronger margins, and long-term value for our shareholders. Together with changes we have made in the US commercial organization, including elevating our talent pool, we are actively strengthening our portfolio, building a better and more durable business. I'll spend most of my time this morning addressing the actions we're taking in our core businesses and provide a clear roadmap for how we are evolving Edgewell Personal Care Company for the future. Now turning to our performance. In Q4, we generated organic net sales growth of 2.5%. This result was in line with our expectations. In both international markets, where we saw expected acceleration, and in North American markets, where relatively flat sales performance demonstrated significant progress towards stabilizing the business. Importantly, we've seen improvements in both consumption and market share performance in North America on a value and a unit basis and are encouraged to see that business begin to stabilize. Although we continue to drive strong productivity savings, earnings were significantly impacted by several transient items related to inventory, trade, and foreign exchange. Fran will discuss this in detail shortly. As we close out fiscal 2025, I want to acknowledge that it's been a difficult year. We faced significant external pressures: tariffs, foreign exchange volatility, geopolitical tensions, and consumer uncertainty that impacted our financial performance and stressed our global supply chain. We faced internal challenges as well, including weaker than expected sun care seasons in North America and parts of Latin America and a slower than expected recovery in fem care. However, we still delivered strong results across several important areas of our business, including international markets, our innovation program, and productivity. We believe this performance is durable and provides a solid foundation moving forward. Let me give you an update on these drivers. First, durable international growth. Our international markets, representing approximately 40% of our global sales, delivered strong growth for the fourth consecutive year, with strengthening share across shave and sun. Europe generated its third straight year of growth, and Greater China delivered double-digit growth. We believe our international markets are poised to deliver mid-single-digit growth again in fiscal 2026. Second, compelling innovation. We are committed to delivering consumer-led, locally designed innovation across our portfolio. In fiscal 2025, we expanded Billy to Australia, Bulldog entered premium skincare across Europe, in Japan, we took Schick into premium skincare with the launch of Progista, and we broadened Cremo's range in The United States and Europe, driving significant sales growth. In sun care, we saw strong growth in Hawaiian Tropic as a result of a successful marketing campaign, updated formulations, and on-trend branding. Across all markets, we're seeing the benefits as approximately 70% of our measured markets in the quarter are now growing or holding market share compared to less than 50% one year ago. We are implementing our learnings from Europe and Asia globally and are excited about our multiyear innovation roadmap. Third, productivity through supply chain optimization. In fiscal 2025, our team delivered over 270 basis points in gross savings, and we expect approximately 310 basis points in fiscal 2026, inclusive of tariff mitigation. Building on our foundation of productivity, efficiency, and service, we are navigating tariffs in a dynamic global environment by reducing complexity, improving customer service, shortening lead times, and lowering inventory across the value chain. In fiscal 2026, we will further optimize our North American Wet Shave business and manufacturing footprint, streamlining operations, reducing duplication, and unlocking working capital. By investing in blade excellence and embracing next-generation automation and digital tools, we are building a more agile, resilient, and customer-focused supply chain. These actions will enable faster responses to consumer demand, drive innovation, and position us for sustained margin improvement. Importantly, these operational enhancements will not only deliver meaningful productivity savings but will also support reinvestment in our core brands and innovation pipeline, strengthening our leadership in a highly competitive market. These increased investments in fiscal '25 and '26 position us to achieve productivity savings in fiscal 2027 and beyond at a pace that exceeds recent years. While we believe these areas of strength are enduring and foundational, it is unlocking the potential of our North America commercial business that represents a significant opportunity for our company. As we shared last quarter, we are executing a bold transformation in The U.S., focused on returning the business to profitable, sustained top-line growth over time. In the last year, we have conducted a thorough strategic review and identified our core strengths as well as key areas that have hindered performance. Our category positions are structurally attractive. We are a leader in sun care, a fast-growing upstart in men's grooming, and have a unique branded and private label position in shave. Our brands have established solid awareness and are backed by robust product delivery capabilities. We have strong technical know-how and capabilities, owned assets, and a deep R&D bench. And we run the business with a commitment to discipline across operations, cost management, and capital deployment. Our transformation plan is based on leveraging our strengths while addressing the three key areas of opportunity identified in the strategic review. First, our portfolio expanded to include a wide variety of SKUs, some of which did not deliver optimal margins or performance. We are now sharpening our focus on our strongest offerings. We are recommitting to our shave business, where we have a differentiated position across branded and private label underpinned by solid brand awareness and excellent product performance. While we recognize that it takes time to rebuild distribution and share, our immediate focus is to begin stabilizing performance and setting the foundation for future growth. Second, our approach to marketing investment prioritized certain tactics that, while effective in the short term, did not fully support sustainable growth and led us to underinvest in core brands. To address this, we are taking decisive action to increase investment in our five focused brands: Schick, Billy, Hawaiian Tropic, Banana Boat, and Cremo. By shifting our strategy towards sustained brand building and a balanced marketing mix, we are committed to restoring brand equity, driving deeper consumer engagement, and positioning our portfolio for durable growth. Third, our U.S. structure was too complex, creating duplication, slow decision-making, and underinvestment in key capabilities. We simplified our structure to enable faster decisions, greater investment in growth capabilities, and increased ownership and accountability. We've implemented significant organizational redesign. We launched a streamlined U.S. commercial organization, bringing together a new, talented, proven leadership team, and we are ramping up new teams dedicated to improving our capabilities in insights and analytics, brand building, and revenue growth management. As we look ahead to fiscal 2026, this is a year of transition and solidifying foundations for longer-term growth. We anticipate that we will begin to realize the benefits of this ongoing work in the form of stabilization of our North America business as we simultaneously set the stage for renewed growth in 2027 and beyond. So this leads me to our outlook for the full year. As we look ahead to fiscal 2026, we believe our plan is balanced and achievable. We also anticipate the macro environment will remain challenging, with muted category growth and the consumer continuing to be cautious around discretionary spending. We also expect increased inflation stemming from the current view of tariffs. Fran will provide all of the details shortly, but I would like to summarize the key pillars of our plan. First, our top-line expectation is for a return to organic net sales growth driven by continued mid-single-digit growth in international markets and a more stable profile in the North America business. Second, gross margin is expected to increase, driven by productivity gains that are partially offset by inflation headwinds, inclusive of $25 million or nearly 55¢ in pretax earnings per share of headwind from tariffs, net of our mitigation efforts. These mitigation efforts have proven to be more challenging as many of the tariff items, like steel, aluminum, and certain chemicals, cannot be sourced elsewhere, at least in the near term. Although we've already implemented pricing in certain international markets, broadly speaking, the U.S. market today has not been conducive to price increases. We will continue to actively pursue further mitigation efforts to lower the impact beyond fiscal 2026. The commercial pricing in The U.S. would have to play a role to fully offset. To be clear, our outlook does not assume this offset, so if it were to occur, it would represent potential upside to this outlook. Third, our plan includes significant investment in both trade spend as well as advertising and promotional dollars to support the changes in The U.S., fuel key brands in international markets, and drive increased household penetration and brand awareness. These investments, in part, are expected to be funded by the gross margin gains I just outlined. Fourth, we will prioritize free cash flow generation through working capital improvements while capital allocation will emphasize debt repayment. Finally, I am truly energized by the outstanding team we have assembled. We have record-high engagement scores across the organization in a dynamic U.S. commercial organization led by a refreshed leadership team that is already executing effectively. This group brings together exceptional talent and proven expertise from leading companies, positioning us for success. Our team is highly motivated, and their achievements, as well as their compensation and mine, are directly tied to the value we create. So to wrap up, fiscal 2025 was a year of challenge and transformation. While both external and internal pressures impacted our results, we exited the year with momentum, a step up in sales and share trends, and a revitalized brand portfolio. We've reshaped our structure, sharpened our strategy, and built a foundation for growth. As we enter fiscal 2026, we're focused on execution, margin recovery, and delivering sustainable shareholder value. And now I'd like to ask Fran to take you through our results and outlook for fiscal 2026. Fran? Fran Weissman: Thank you, Rod, for outlining the significant progress and transformation underway at Edgewell Personal Care Company. Building on the actions and momentum Rod described, I'd like to further provide details on our financial performance and the operational changes that are positioning us for sequential improvement and sustainable growth. Fiscal 2025 was a challenging year, underpinned by both external pressures such as tariffs, currency volatility, and geopolitical uncertainty, and internal headwinds, including a softer than expected sun care season and slower recovery in feminine care. Despite these pressures, we still delivered strong results in key areas. Our international markets continued to expand, innovation gained traction across our portfolio, and our supply chain optimization efforts drove meaningful savings. We also made decisive transformational choices that fundamentally reposition Edgewell Personal Care Company for long-term value creation. By streamlining our portfolio, including the anticipated divestiture of our Feminine Care segment, and simplifying our U.S. commercial organization, we have sharpened our focus on categories and brands where we hold clear competitive advantages. These foundational changes, coupled with a disciplined increase of marketing investment, set the stage for sustainable growth and margin recovery. As we enter fiscal 2026, we are executing a clear roadmap focused on sequential improvement, stabilizing our North America business, continuing to drive growth in our international markets, unlocking margin improvement, and investing behind our strongest brands and capabilities. Building on this, our fourth-quarter results reflect both our progress and some of the challenges we faced. While our top-line performance was in line with expectations, driven by solid growth in international markets and key categories, our bottom-line results fell short, impacted by several transitory headwinds. These included higher than anticipated year-end inventory adjustments in our Mexico plant, higher trade promotions driven by channel and category mix, mainly in Wet Shave and Sun, as well as the unfavorable currency and tariff-related pressures, which together weighed on earnings for the quarter. I'll now walk through the details of our financial performance and the factors that shape these results. Organic net sales increased 2.5% this quarter, as strong performance across international markets and robust growth in sun care, skin care, and grooming offset declines in North America wet shave. International organic net sales grew 6.9%, broad-based across all segments and in line with expectations, driven by both volume and price gains. We delivered growth in all key markets, with Oceana and distributor markets experiencing double-digit growth, while Europe delivered mid-single-digit growth. As Rod mentioned earlier, North America demonstrated sequential improvement with organic net sales declines of 60 basis points, driven by meaningful growth in the quarter in Sun Care, Wet Ones, and grooming, partially offset by Wet Shave. Wet Shave organic net sales declined approximately 1%, as growth in preps, men's and women's systems was more than offset by a decline in disposables. International Wet Shave grew 6% with both price and volume gains, reflecting continued category health, solid distribution outcomes, and strong in-market brand activation. This growth was offset by declines in North America, driven by challenged category and channel dynamics. In The U.S., razor and blades category consumption was down 80 basis points in the quarter. Though our market share improved sequentially, declining 50 basis points overall, our branded value share was flat in the quarter, while unit share increased 90 basis points. The Billy brand achieved 90 basis points of share growth and continues to perform well at retail, now holding a 15 share at Walmart and 13 share at Target. Sun and Skin Care organic net sales increased 11% with robust growth across each business. Wet Ones grew nearly 25% while sun and grooming each grew 9%. While Sun Care Sales In North America increased 10% in the quarter, the combined effect of end-of-season closeout sales and higher than expected adjustments related to trade and returns mix added additional pressure to our gross margin. In The U.S., sun care category consumption grew over 6% in the quarter, as end-of-season weather improved with sales peaking later than a typical season. Final seasonal replenishment orders were boosted by higher online orders and end-of-season closeout performance. Our value share improved sequentially and was essentially flat in the quarter, while unit share increased by 60 basis points. Grooming organic net sales growth of 9% led by over 28% growth in Cremo and over 9% growth in Bulldog were partially offset by declines in Jack Black. Wet Ones organic net sales increased about 25% and our share was approximately 68% as we cycled supply disruption in the prior year and have fully returned to normalized operational levels following the fire in our facility in the prior fiscal year. Fem Care organic net sales increased 1%. We saw continued positive consumption and market share trends across the portfolio. Consumption in the category was up 3.5%, though continues to be mostly driven by 5.5% growth in pads where overall penetration is the lowest. The categories where we compete more heavily, namely tampons and liners, consumption was up 2.7% and 60 basis points, respectively. Overall, the category remains promotional. Our value share improved sequentially and was down 20 basis points, while unit share increased 30 basis points. Now moving down the P&L. Adjusted gross margin rate decreased 330 points or down approximately 210 basis points in constant currency, versus our expectation of only slight declines on a constant currency basis. This shortfall was largely driven by unanticipated year-end transitory items, including higher than anticipated inventory adjustments related to our plant consolidation wind-down procedures in Mexico, increased trade mix including increased closeout sales, and sun care returns, and slightly unfavorable net inflation, tariffs, and pricing. A&P expenses were 9.4% of net sales, up from 8.5% last year, in line with our expectations as we rephased some spending for Sun Care out of Q3 and into Q4. Adjusted SG&A was 19.7% in rate of sale compared to 20.5% last year. This was primarily driven by lower incentive compensation expense, and the favorable sales leverage partly offset by higher people and consulting expenses and unfavorable currency impact. Adjusted operating income was $40.3 million or 7.5% of net sales compared to $56 million or 10.8% of net sales last year, reflecting the impact of lower gross margins, FX headwinds of 100 basis points, and incremental brand investments. GAAP diluted net loss per share was $0.06 compared to income of $0.17 in 2024, driven by the goodwill impairment charge. Adjusted earnings per share were $0.68 compared to $0.72 in the prior year quarter. Currency headwinds drove an unfavorable $0.19 impact on adjusted EPS in the quarter as the unfavorable transactional currency hedge and balance sheet remeasurement impact within our other income and expense were only partially offset by translational currency tailwinds to operating profit. Adjusted EBITDA was $59.4 million inclusive of $11.2 million unfavorable currency impact, compared to $78.9 million in the prior year. Net cash provided by operating activities was $118.4 million for fiscal 2025 compared to $231 million last year, due to the lower earnings and higher working capital build this year. We continued our quarterly dividend payout, declaring a $0.15 per share dividend for the fourth quarter, and we returned approximately $7 million to shareholders via dividend. We had already achieved our target of approximately $90 million in share repurchases for the fiscal year by the end of Q3. Now let me turn briefly to our full-year results. Organic net sales for the year decreased approximately 1.3%. Our right-to-win portfolio grew about 1%, fueled by nearly 13% growth in skincare, and our grooming brands grew over 9% for the year. Sun care, highlighted by a weaker than anticipated core sun care season, declined approximately 4%. Our right-to-play portfolio declined about 2%. International markets' organic net sales increased 3.5%, nearly equally driven by both volume and price gains. North America organic net sales decreased about 4%, driven by both volume declines and increased promotional levels net of pricing. Adjusted gross margin rate decreased 110 basis points year on year or 20 basis points at constant currency. We generated productivity savings of 270 points, which were more than offset by core inflation inclusive of tariffs of approximately 150 basis points, unfavorable mix of approximately 75 basis points, increased promotional level net of pricing of 45 basis points, and 20 basis points of unfavorable absorption. A&P expenses were 11.1% as a rate of sale, an increase of 80 basis points over the prior year as we continue to invest behind our brands. Adjusted operating profit decreased $48 million or approximately 18%, and adjusted operating margin for the year was 9.9%, down approximately 200 basis points in rate of sale. The decrease in adjusted operating margin was attributable to gross margin rate decline, higher brand marketing investments of $15 million, and the unfavorable impact of currency of $21 million. Now turning to our outlook for fiscal 2026. Our fiscal 2026 outlook does not reflect the planned divestiture of our Feminine Care business. Starting in Q1 2026, results from Feminine Care will be reported as discontinued operations. Following the transaction, we also expect to incur certain stranded overhead costs, which for fiscal 2026 will be substantially offset by income from certain services to support the transition of the business following the completion of the transaction. For context, we expect the impact of the Feminine Care business on an annualized basis to be approximately $0.40 to $0.50 in adjusted EPS and $35 million to $45 million in adjusted EBITDA, net of transition income. We will update our outlook to reflect the remaining business after the transaction closes, which is anticipated in 2026. Importantly, as part of our ongoing transformation, we are committed to reducing stranded overhead costs over the longer term. Our ambition is to fully align our cost structure with our streamlined portfolio. As we look forward to fiscal 2026, our expectations include a return to organic top-line growth, gross margin accretion, as well as a step up in investments through higher A&P spend, where we are leaning into focused brand activation. This is expected to result in essentially flat adjusted EBITDA growth at the midpoint of our outlook. This outlook incorporates several headwinds, including a net tariff impact after mitigation efforts of approximately $25 million, higher SG&A spend year over year due to lower bonus and incentive compensation in fiscal 2025, partially offset by favorable currency. We expect EPS to be down versus fiscal 2025, as the annualized effective tax rate returns to more normalized levels. This outlook also contemplates a meaningful improvement to free cash flow, underpinned by favorable working capital management and improved operational efficiency. For the fiscal year, we anticipate organic net sales growth to be in the range of down 1% to up 2%, excluding 150 basis points of currency tailwind. We expect mid-single-digit growth in international markets and flat to slightly down performance in North America. In terms of phasing, we expect Q1 organic sales to be down 1% to 2%, driven by lower international sales due to the impact of sales phasing within our distributor markets in Japan, and for Q3 to be the strongest quarter in the year. As we look to adjusted gross margin, the environment surrounding tariffs continues to evolve and has added significant challenges to the global supply chain. Our outlook for fiscal 2026 assumes current tariff rates hold and there are no material changes in the inbound or outbound flow of materials and finished goods. Our fiscal 2026 outlook reflects the growth impact of tariffs of $37 million or $25 million net of direct mitigation efforts. As we stated earlier, we are not in a position to implement broad-scale price increases to mitigate the full impact of tariffs. However, we have neutralized the impact in gross margin through a combination of core productivity efforts, direct cost mitigation through expanded sourcing efforts, footprint optimization, and vendor negotiations, as well as strategic pricing in key categories. More specifically, we anticipate 60 basis points of year-over-year total gross margin rate accretion or 20 basis points at constant currency. This includes approximately 310 basis points of productivity savings and tariff mitigation, 60 basis points of price gains, and 40 basis points favorable FX, partially offset by approximately 270 basis points of COGS inflation inclusive of tariffs and negative mix and other costs. In terms of phasing, half-two gross margin rate will grow versus prior year, as the full impact of pricing, tariff mitigation, and productivity initiatives will be at run rate. Looking ahead to Q1, we expect gross margin to decline 270 basis points as higher inflation, inclusive of tariffs, trailing absorption charges from 2025, and other transitory operational cost increases are only partially offset by productivity savings and favorable FX. With increased investments in our brands, we expect A&P to increase in both dollars and rate of sales, with the latter increasing by 70 basis points to approximately 11.8%. Adjusted operating profit margin is expected to decrease approximately 50 basis points as gross margin improvement is more than offset by higher A&P and higher SG&A. Adjusted EPS is expected to be in the range of $2.15 to $2.55. This EPS outlook reflects only the impact of expected share repurchases that are needed to offset current dilution and assumes an effective tax rate of 21% to 22%. Adjusted EBITDA for fiscal 2026 is expected to be in the range of $290 million to $310 million, which is approximately flat to prior year at the midpoint. In terms of phasing, we expect to generate about two-thirds of adjusted EBITDA in half two, and three-quarters of our full-year adjusted EPS in half two of the fiscal, primarily reflecting higher taxes and interest expense in half one, with Q1 adjusted EPS below prior year. Free cash flow for the year is expected to be in the range of $115 million to $145 million, including expected improvements in working capital. And finally, we remain committed to a disciplined capital allocation strategy and intend to continue to focus our efforts on reducing debt leverage in the near term. We will continue our dividend and share repurchases primarily as an offset to dilution. In the near term, the net proceeds from the Feminine Care divestiture after taxes and transaction costs will be directed towards strengthening our balance sheet and reducing debt, while also supporting continued investment in our core brands, capital expenditures to drive innovation and productivity, and funding future growth initiatives. Chris Gough: Initiatives. Fran Weissman: Over the longer term, we believe this divestiture creates optionality in pivoting our portfolio to categories where we have a competitive advantage. Our intention is to evaluate targeted M&A to ensure that we continue to add scale that creates sustainable value creation. For more information related to our fiscal 2026 outlook, I would refer you to the press release that we issued earlier this morning. And now, I'd like to turn the call over to the operator for the Q&A session. Operator: We will now begin the question and answer session. Before pressing the keys. The first question comes from Olivia Tong with Raymond James. Please go ahead. Olivia Tong: Great. Thank you. Good morning. I wanted to ask you first about the outlook, which is a wider range than normal, which is logical against the current backdrop and the changes you've made. And it looks like EPS might be at a loss in Q1 might be on the table. And so can you talk about a few things, underlying category growth assumptions, your market share assumptions, and how you think about segment results? Presumably, Sun and Skin should grow, but Wet Shave perhaps not. So that's number one. And then your level of flexibility to maintain appropriate goals that you discussed? Thank you. Rod Little: Good morning, Olivia. Thank you for joining us this morning. Look, I'll say as we look at the 2026 plan, I would say it's balanced and achievable. I think we feel really good and confident in our ability to deliver this plan. It's a strong bottom-up build. It's based on realistic assumptions. So overall, from a category growth perspective, we effectively have the category growth assumption for 2026 in all of the key combinations right around where we've been over about the last six months. So it's a low single-digit rate on average when you aggregate it out across our categories. As we said in the script, we're growing share now in seven growing or holding in 70% of our category country combinations. That's a significant improvement versus a year ago. Don't have that changing. We have our share result assumptions where we are now going forward. So effectively holding share versus where we are today, and I would say we have more flexibility in this plan certainly than we've had in the last couple of years if we face some headwinds. We'll be able to deal with that in how we've built and profiled this plan. Fran, I don't know if you'd add anything else. Fran Weissman: Yeah. I think just to address the phasing question specifically, you know, we expect a stronger half two as we've stated, two-thirds of our EBITDA is expected in the second half. That's well in line with our historical trends. Fiscal 2025 had more unusual flighting as it was more fifty-fifty. So softer performance in Q3 and Q4 at the back end of fiscal 2025. But we're confident, with a number of factors. As Rod has said, you know, the combination in the half '2 of productivity mitigation at run rate, pricing in both international and US markets are more disproportional between Q2 and the second half. We've got innovation and brand investment also coming into the second half. So more specifically, in Q1, yes, we do expect EPS to be at a loss. That's a combination of some of the margin pressures that we're facing as well as some of the rate flighting. But as we look ahead to half two, we're really confident in our run rate productivity and mitigation efforts. And really the sales growth and the investment profile that moves ahead. Rod Little: Yeah. And, Olivia, I would just add to the segment question you asked. One example of what I think is different in this year's plan is how we thought about Sun Care. The season we just finished, I think most people would agree, was not a great Sun season, particularly in the peak of it as we got into Q3. We're not planning on a basis where we expect a great recovery for a sun season next summer. In fact, we're planning for a very similar season, which I think is realistic and more conservative than where we've been. So we've got Sun at low single digits. We've got Shave at flat to slightly growing as a segment, and then grooming is the one leading the way more in line with trend to where we've been. Thank you, Olivia. Thanks. Thanks, Olivia. Operator, next question, please. Operator: The next question comes from Nik Modi with RBC Capital Markets. Please go ahead. Nik Modi: Thank you. Good morning, everyone. Rod, you've been pretty busy making a lot of changes, big changes over the last few years. Obviously, with the FemCare sale. So I just wanted to kind of get your thoughts high level on like what's the North Star here, you know, for the strategy, for the portfolio? I mean, is there intent to maybe look at more maybe M&A as asset values come down in this current environment? So just we'd love to just get through higher-level thoughts on this, where you're really trying to point the arrow here. Rod Little: Nick, Thank you. Yeah. Look. There's a lot going on here. Right? If you try to parse out everything that's happening, there are a lot of moving parts. What I will tell you is in many ways, this is the moment where our strategy execution really comes together in a very different way than where we've been over the last couple of years. We are focused on winning in shave, grooming, sun, and skin. That's the focus from a category perspective. We have global scale, IP know-how, technology, and the right to win and be successful in those four categories. That's where we sit today with the fem sale off to Essity. It's a better portfolio. It's a more efficient, more focused portfolio. So focus on those categories is where we are. We believe those categories are structurally attractive. Shave is the category that is viewed probably most negatively within that set. We don't see it that way. It's a structurally attractive category with high margin and very few players. So strategically, with what we have in place, we have a right to win and be successful in shave, and you've seen us do that internationally. We're now set up to do that domestically here in The U.S. with the new team and the investments we're making. I would say the other part of our strategy that's coming to life here beyond the financial flexibility and the optionality the sale of Femcare and those proceeds give us, we are making a big investment in our shave footprint and basically setting ourselves up for the next ten to twenty years in that category with a new highly automated manufacturing plant. We're consolidating four locations in North America into a single scale, highly automated plant. That will produce better blades than come out of any factory in the world. It's gonna be a best-in-class site. And so this gives us significant financial flexibility as we go forward in addition to the simplification and speed elements that it gives us. So when you put it all together, I've talked about the category focus, we're global in terms of our category plays now. And we've got much better optionality and financial flexibility than at the end of the day, is leading to reinvestment in our brands with a better focus on the consumers we serve, give them better products and better messaging, and just a better experience with our brands. Long-winded answer. But that's what we're up to. And, Fran, I don't know from your perspective what you'd add to that. Fran Weissman: Yeah. I think that's all the right points, Rod. And I think what I'll refine specifically around the Wet Shave optimization, you know, this has been a multistaged approach across North America, and the large portion of these costs and CapEx are already captured in 2025. You know, our decision to expand these efforts in '26 will result in additional investments. But by the end of '26, we're actually almost 90% through those total costs. And as we look ahead, we'll have accelerated productivity and cash flow from that. Nik Modi: Great. Thank you. Rod Little: Thank you, Nick. Operator, next question, please. Operator: The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead. Chris Carey: Good morning. Rod Little: Good morning, Chris. Just Good morning. The productivity number this year or this quarter, excuse me, was I think the lowest you have ever disclosed. Can you just expand on that a bit? The gross margin for the year came in quite a bit below expectations, laid out only a few months ago. And, you know, you're gonna start gross margins quite negative in the year with hope for some recovery through the year. So I think getting a bit more confidence on your ability to use productivity as an offset would be helpful. And then I think you said that there's some pricing coming in the back half of the year. Relative to the comment that you made around for us? I mean, really, not much pricing in North America. Can you just, you know, square those what I'm trying to do here is, you know, establish some confidence that you know, you can see some improvement in the gross margin. Rod Little: Through the year. Thank you. Thanks. Hey, Chris. Let me just make a broader comment around the profile, and then Fran can get into the gross margin details. We have a second-half oriented plan here as it puts forward. I want you to know, like, we've been through this at great levels of detail, and we're very confident in the profile we put forward. And some of what drives the gross margin delivery and the rate delivery is a higher expected sales growth in the second half of the year. In international, it's more around distributor timing. It's more around how we ship the sun season year over year. With a very specific point in Japan where we've got pricing going in in the spring. There that obviously helps that, you know, that gross margin line. And then in North America, it's a very second-half oriented plan mostly because we know planogram changes that are happening. In total, they're gonna be positive. Additive to us as we get into that spring season when planograms reset. That's also when we launched the new brand campaigns and put most of our incremental A&P spend in, which is significant on the year. In that timing to drive the growth. So some of it is some of the margin improvement is just driven by volume absorption that comes in the second half of the year. But, Fran, I know there's more going on. Fran Weissman: Yeah. So just to reference your first question about productivity specifically in Q4. We anticipated the productivity, it came in line with our expectations. So we knew that Q4 was going to be slightly less than the first half. And some of that is just natural phasing that happens with the initiatives that we put through and implement. But overall, we've 250 basis points of productivity efforts over the last few years. And as we look ahead to '26, we still believe that we will deliver at its core 260 basis points and with mitigation. The core issue is not productivity. I think those elements have come in larger 110 basis points. I think we double click in terms of Q4, as we expected. There were two major factors that really put some headwind into Q4. You know, 50% of that was wind-down procedures around our Mexican plant consolidation where we had larger than expected inventory adjustments. That was transitory. We do not expect that to continue for next year. And the other piece was just higher, you know, trade promotions, and some of that was due to just the closeouts and the mix that we had around and channel dynamics, and that led to, I think, the biggest drivers in terms of Q4 gross margin. But productivity, as we look ahead, will be equally phased, with slightly more in the back half, and that's really driven off of tariff mitigation. Tariffs are going to be disproportionately in the first half. And the mitigation efforts, while we have that all in place, will just come to run rate more towards the second half. Rod Little: Okay. Thank you. Thank you, Chris. Operator, next question please. Operator: The next question comes from Peter Grom with UBS. Please go ahead. Peter Grom: Great. Thank you. Good morning, everyone. So I'll know we'll get more of an update on guidance, excluding fem care the road, and you did provide some helpful context last night and this morning. But just on the proceeds from the transaction, I think you mentioned that it will be used to pay down debt and strengthen the balance sheet. So I'm just curious, like, how quickly do you plan to deploy the proceeds? And then just high level, how could this impact earnings per share once the acquisition closes? Yeah. So good morning. Rod Little: Peter. Look, on the sale, we expect it to close sometime out in early calendar 2026. Have proceeds at that point. We would plan to put everything we get from the sale, the net as well as all the operational cash flow we generate this year towards debt reduction. We're very focused on debt reduction and getting our leverage ultimately down towards that three-time zone. We've talked about two to three being the long-term target. That's important for us. We'll be looking at M&A along the way as Fran said. There's a very high bar for that. Anything we would do would be value-creating. We'll be very disciplined there. We haven't done anything in a couple of years. But in parallel, we'll be doing that. In terms of the timing and the amount of the flow-through, Fran, I don't know if you'd add anything there. Fran Weissman: Yeah, I mean at this point our best estimates after we've netted taxes and transaction fees is that there's about 80% of the proceeds that will be converted into cash. And as Rod mentioned, that will be focused in the near term on debt pay down. Peter Grom: Great. Thank you so much. Thanks, Peter. Rod Little: Operator, next question please. Operator: The next question comes from Susan Anderson with Canaccord Genuity. Please go ahead. Susan Anderson: Hi, good morning. Thanks for taking my questions. I guess maybe just in the sun and skin category, you talked about higher promotions in sun as well. Maybe I guess how are you thinking about category going into next year? How are the inventory levels in the category at retail? And then think it can be healthier next year help the competitive environment, I guess, with some new brands coming in? And then also just curious if you have any new innovation there coming next year. Thanks. Rod Little: Yeah. Hi. Good morning, Susan. Thank you for the sun-focused question. We look at think as we look back to the season just completed, it was not a great season. It was very promotional from the start, as you rightly point out. With some competitors going very deep discounts every day. Across the set. And so it was, I would say, a higher than normal level of promotional intensity all year. The weather was not great. And below average in total. And we ended the year not wanting to take any of that drag into next year. So inventories are clean. The thing that we believe is transitory is just making sure we go into. We landed the and as part of the Q4, year very clean with any inventory positions, any returns, accrual adjustments, that's all in line we're very clean as we go into next year. I can't predict the level of promotional intensity for the year ahead. What I will tell you if the promotional environment remains, we'll match it. We're not gonna be outspent or beat on that front. As I said to a question earlier, we've not planned for a great sun season. So we've been very conservative in planning for a season that looks a little bit like last year. And I will say gives us confidence in the category is Hawaiian Tropic was the fastest-growing brand in the set out of the top 10. Behind an amazing activation and campaign, better product formulations, better innovation, and a new campaign that was put against it. As we look to next year, we're gonna go into year two of that campaign. Very confident in the brand, the distribution we're getting on that brand. And on Banana Boat, which was a laggard for us, we have a new campaign coming. The same team that built the HT campaign is gonna launch a new campaign on Banana Boat, and we're investing more behind both brands as we go into the set. So I think we're set up for a very good sun season here in The U.S. We've been more conservative in our planning and outside The States, you know, we have some growing more to that mid to high single digits. Fran? Fran Weissman: Yeah. I think overall, as Rod stated, we're expecting low single-digit growth in '26. And I think a little bit more context around where that growth is coming from. In international, we expect that to be the growth engine for us. As, you know, we have the combination of higher volumes and pricing, and it's really driven by strong regional execution. In Europe, we're accelerating Hawaiian Tropic. In Latin America, we're expanding distribution and enhancing in-store activation and really focusing on everyday sun protection, especially with Hawaiian Tropic Beauty Care. And in The U.S., as Rod said, we're more in line with the category trends, that's low single-digit growth. And our focus is gonna be on Hawaiian Tropic, with distribution gains and promotional support. Innovation in Banana Boat is ahead, and we've got an enhanced promotional strategy to really capture early season share and drive trial with our products. Susan Anderson: K. Great. Thanks for all the details there. Good luck this year. Fran Weissman: Thanks. Thank you. Rod Little: Thank you, Susan. Operator, next question please. Operator: There are no more questions in the queue. I would like to turn the conference back over to Rod Little for any closing remarks. Rod Little: All right. Thank you, everybody. We appreciate your time, attention, and for those that invest in us, your continued investment. And we look forward to talking to you in early February. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Please standby. Operator: Good day, ladies and gentlemen, and welcome to the Third Quarter 2025 Earnings Conference Call for Venus Concept Inc. At this time, all participants have been placed in a listen-only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay. Before we begin, I would like to remind everyone that our remarks and responses to your questions may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in our earnings press release issued today on the Investor Relations portion of our website. Operator: I would now like to turn the call over to Mr. Rajiv De Silva, Chief Executive Officer of Venus Concept. Please go ahead, sir. Rajiv De Silva: Thank you, operator. And welcome, everyone, to Venus Concept's Third Quarter 2025 Earnings Conference Call. I'm joined on the call today by our Chief Financial Officer, Domenic Della Penna. Let me start with an agenda of what we will cover during our prepared remarks. I will begin with a brief review of our third quarter results and operating developments in the recent months. Following that, Domenic will provide you with an in-depth review of our third quarter financial results as well as an update on our balance sheet and financial condition. With that agenda in mind, let's get started. Detailed in our press release issued today, we delivered 2% growth in sales of energy-based devices or EBD on a year-over-year basis in Q3, driven by strong execution from the team in a continued challenging environment. We are encouraged by the team's continued focus on customer engagement and support as well as improving sales efficiency by prioritizing core products in the US, including BlissMax and VersaPro. While we were pleased to see signs of stabilization in EBD revenue trends, our total revenue results declined high single digits year over year in the third quarter, driven by softness in the hair restoration side of the business. Customer financing pressures, economic uncertainty, and tight credit markets continue to present challenges for robotic system adoption in the Venus Hair business. However, third quarter sales trends were further impacted by an additional level of uncertainty related to the time to close the definitive agreement to sell the Venus Hair business to MHG Co. Limited, which we announced on June 6. Turning to a review of key developments since our last earnings call. On November 10, we announced 510 clearance for the Venus Nova, the first product clearance from the company's new focused R&D strategy discussed on our earnings calls over the last year. Importantly, the development and introduction of our new Venus Nova is consistent with the company's turnaround strategy implemented in 2023 and our Venus AI strategic initiative, which reflects our strong commitment to growing our global brand, focusing on emerging technologies and services, and partnering with customers to build smarter practices and customizable treatments. Venus Nova is a next-generation multi-application platform designed to redefine noninvasive treatments for the body, face, and skin through integrating our best-in-class technologies of adaptive electrical muscle stimulation, or EMS, our proprietary MP squared combining multipolar radiofrequency with pulse magnetic fields, and advanced VariPulse technology. Together, it delivers a powerful comprehensive solution for body contouring, muscle conditioning, skin treatments, and wrinkle and cellulite reduction. Venus Nova is uniquely positioned to enhance body transformation journeys, including for those taking GLP-1 medications and experiencing skin laxity, facial volume loss, and body contour irregularities. We expect GLP-1 usage to grow to more than 32 million patients globally by 2030, and we are excited to offer our innovative comprehensive technologies to support and address the unmet needs of our existing and future customers. We anticipate the US commercial introduction of Venus Nova to contribute to the company's long-term growth profile as we further penetrate the multibillion-dollar body and skin market in the years to come. We are targeting sequential growth in the fourth quarter, fueled in part by a limited commercial launch of this innovative new body and skin system in December. Our product portfolio will continue to evolve to deliver more than just leading device performance, shifting towards a focus on total practice performance from the moment the patient enters the clinic to post-treatment management. This new product launch, along with our improving balance sheet and financial support from Madryn Asset Management LP, further enhances the company's foundation and brings us closer to achieving our longer-term goals. Two other notable items I wanted to discuss before I turn the call over to Domenic. Our balance sheet and capital structure transformation carried on in the third quarter through multiple transactions, including amendments to increase available financing capacity under our existing bridge loan facility and debt-to-equity exchange transactions totaling $11.5 million in converted debt. We continue to appreciate the support of Madryn as we continue our turnaround. Finally, with respect to the pending sale of Venus Hair to MHG Co. Ltd., as announced on June 6, the transaction was expected to close in 2025, subject to the satisfaction or waiver of certain closing conditions, including an internal reorganization of the hair business into Meta Robotics LLC. Since we announced the signed definitive agreement, we have worked steadfastly to meet the closing conditions of the transaction. Unfortunately, we have experienced challenges with our counterparty in bringing this transaction to a conclusion, and I sought the assistance of the Delaware court to aid in this respect. We will continue our dedicated pursuit of closing this important strategic transaction and look forward to sharing updates with our investment community as appropriate. We continue to believe this transaction strengthens Venus Concept by allowing us to focus on our global medical aesthetics business and continue to believe that MHG represents an ideal acquirer of the Venus Hair business given their capabilities in the aesthetic medical field, including a presence in the hair transplant market, as well as the strategic investments in next-generation medical industries. In closing, we delivered solid results in Q3, and we are encouraged to see stabilization in sales of our energy-based devices. We made material progress towards improving our balance sheet and financial condition, which Domenic will review in detail shortly. We also expect that the proceeds from the sale of the Venus Hair business will further enhance our balance sheet and financial condition and provide valuable capital to fund strategic growth initiatives. Our priority remains in ensuring that we are as well-positioned as possible to return to growth. We are actively working on evolving our portfolio and look forward to improving growth fueled in part by the launch of Venus Nova in December. Longer term, we believe that the increase of GLP-1 usage by consumers is an exciting catalyst for the industry and a chance for Venus to highlight the complementary benefits of our body technology, specifically skin tightening, to our customers that are on weight loss applications. We are managing our cash burn through disciplined cost management and making targeted investments to support our long-term growth. We intend to continue the ongoing evaluation of strategic alternatives to maximize shareholder value. With that, let me turn the call over to Domenic for a review of our third quarter financial results and balance sheet. Domenic? Domenic Della Penna: Thank you, Rajiv. For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for 2025 on a GAAP basis. All growth-related items are on a year-over-year basis. We reported total revenue of $13.8 million, down $1.2 million or 8% year over year. The decrease in total revenue by region was driven by a $1.1 million or 12% decrease year over year in United States revenue and by a $200,000 or 3% decrease year over year in international revenue. The decrease in total revenue by product category was driven by a 12% decrease in products systems revenue, a 15% decrease in products other revenue, and a 5% decrease in services revenue, offset partially by a 9% increase in lease systems revenue. Total revenue from the sale of energy-based devices, or EBD, increased 2% year over year to $9.5 million. For the avoidance of doubt, EBD sales exclude system sales from the Venus Hair Restoration business. The percent of total systems revenue derived from the company's internal lease programs, Venus Prime and our legacy subscription model, was approximately 27% in 2025 compared to 23% in the prior year period. Cash sales represented approximately 73% of total systems and subscription revenue in the third quarter, of which cash sales in the U.S. were 82% of U.S. systems and subscription revenue compared to 76% last year. Turning to a review of our third quarter financial results across the rest of the P&L. Gross profit for 2025 decreased $1.1 million or 11% to $8.8 million compared to 2024. The decrease in gross profit is primarily attributed to lower revenue in the Venus Hair business impacted by a delay in the pending sale and the effects of customer uncertainty about the economic environment and tighter third-party lending practices, which negatively impacted capital equipment sales. Gross margin was 64% of revenue in the three months ended September 30, 2025, compared to 66.1% of revenue in the three months ended September 30, 2024. The decrease in gross margin is primarily attributable to the impact of U.S. tariffs on our devices imported into the U.S. market and, to a lesser extent, higher device system cost of goods sold tracing to manufacturing overheads spread over a lower volume base. Total operating expenses increased $1.2 million or 7% to $18.3 million. Approximately one-third of the year-over-year increase in operating expenses was driven by legal and other professional fees incurred to support the sale of the Venus Hair business, which did not impact the prior year period results. Excluding these expenses, third-quarter operating expenses increased 4%. The modest increase in operating expense reflects our continued progress in cost containment and streamlining of our operations in the face of an inflationary economy. Operating loss was $9.5 million compared to $7.2 million in 2024. Net interest and other expenses were $12.5 million compared to $2.2 million in 2024. The year-over-year change in net interest and other expenses was primarily driven by an $11.3 million non-cash loss on debt extinguishment compared to $500,000 last year and a $200,000 non-cash loss on disposal of the subsidiary, offset partially by lower interest expense on outstanding borrowings, which totaled $1 million in the third quarter compared to $1.7 million last year, buoyed by our progress on debt extinguishment. Net loss attributable to stockholders for 2025 was $22.6 million or $12.14 per share compared to a net loss of $9.3 million or $13.1 per share for 2024. Weighted average shares outstanding for 2025 and 2024 give effect to the company's one-for-eleven reverse stock split effective March 3, 2025. Adjusted EBITDA loss for the third quarter of 2025 was $7.8 million compared to an adjusted EBITDA loss of $5.9 million for 2024. As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in the earnings press release. Turning to the balance sheet, as of September 30, 2025, the company had cash and cash equivalents of $5.9 million and total debt obligations of approximately $30.1 million compared to $4.3 million and total debt obligations of approximately $39.7 million, respectively, as of December 31, 2024. We have made significant progress towards improving our balance sheet and financial condition over the first nine months of 2025. We announced amendments with our primary lender, Madryn Asset Management, which increased our financing capacity under our existing bridge loan facility. We appreciate the support of Madryn as we continue to enhance the financial profile of the business. We exchanged a total of $29 million subordinated convertible notes held by affiliates of Madryn Asset Management LP for shares of its Series Y preferred stock, including $6.5 million exchanged in the first quarter and second quarter, and $11.5 million exchanged in the third quarter. We also raised gross proceeds of $3.9 million in multiple equity capital market transactions from existing and new investors. Lastly, with respect to our financial outlook for 2025, given the company's active dialogue with existing lenders and investors, ongoing evaluation of strategic alternatives with various interested parties to maximize shareholder value, and current market conditions impacted by trade disruptions, the company is not providing full-year 2025 financial guidance at this time. We are targeting sequential growth in the fourth quarter, fueled in part by a limited commercial launch of our Venus Nova innovative body and skin system in December. With that, I'll turn the call over to the operator to open the call for your questions. Operator? Operator: Thank you. The floor is now open for questions. We are currently showing no additional questions in the queue. This does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines or log off the webcast and enjoy the rest of your day.
Operator: Good morning, and welcome to the PAVmed's Third Quarter 2025 Business Update Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Thursday, November 13, 2025. I would now like to turn the call over to Mr. Matt Riley, PAVmed Senior Director of Investor Relations. Please go ahead. Matt Riley: Thank you, operator, and good morning, everyone. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of PAVmed, along with Dennis McGrath, Chief Financial Officer of PAVmed. The press release announcing our business update and financial results is available on PAVmed's website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update, press release, and the conference call all include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in this disclaimer and our filings with the SEC. For a list and a description of these and other important risks and uncertainties that may affect future operations, see Part 1, Item 1A, entitled Risk Factors in PAVmed's Most Recent Annual Report Forms 10-Ks filed with the SEC, and any subsequent updates filed in the quarterly reports on Forms 10-Q and subsequent Forms 8-K. Except as required by law, PAVmed disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions, or circumstances on which the expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statement. I would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of PAVmed. Lishan Aklog: Thank you, Matt, and good morning, everyone. Thank you for joining our quarterly update call. I would like to thank our long-term shareholders for your ongoing support and commitment. Before we delve into our recent operational highlights, as I have in the last couple of calls, I want to just remind you that over the past now eighteen months, we've been taking some really critical steps to stabilize PAVmed's corporate structure and balance sheet. We did a restructuring of debt in the early part of this year. And we've been working on that. But there's still work to be done on that front. We have a couple of additional steps we think we're going to be able to consummate in the very near future, whereby following that, we think PAVmed will be fixed and we'll be back to the original proposition where PAVmed will be really well positioned to operate per our vision as a diversified commercial life sciences company. With multiple independently financed subsidiaries operating under a shared services model, it'll give us the opportunity to start building that portfolio beyond our two major main commercial subsidiaries right now. So, let me just talk about that briefly. I'll provide a brief overview of PAVmed's portfolio. PAVmed is a vehicle to deliver innovative medical technologies, and we continue to operate under a shared services model. And as our subsidiaries succeed, particularly Lucid, PAVmed should also succeed. So let me just start with Lucid. Lucid's obviously our main asset. It's a publicly traded diagnostic company. And it's on the cusp of a transformative milestone, particularly Medicare coverage. It continues to succeed at raising its own capital, including this past quarter. And in that, it has sufficient runway to accelerate its commercialization once Medicare coverage is secured. I'll talk more about Veris in much more detail later. But Veris is our digital health company that offers a cancer care platform to enhance personalized care for cancer patients who are initiating and undergoing systemic treatment with chemotherapy and immunotherapy. We made a big move earlier this year where we were able to secure financing that's allowed us to bring our project plans forward to develop the key implantable device, and an FDA submission is planned for next year. As we talked about on previous calls, we have started to make some effort to bring other technology within our portfolio, as well as others that we have access to. And we are in the process of organizing around that and seeking to raise capital around that. And this sort of final steps of our restructuring that I mentioned earlier we think will put us in a very strong position to be able to continue to build these subsidiaries, to finance them, and to pursue very promising assets across the life science sector that we're actively pursuing. One of those technologies which we mentioned in a press release earlier this year was an exciting technology that involves a licensing agreement, a partnership with Duke University and the University of North Carolina. And it's an Endoscopic Imaging Technology for esophageal pre-cancer that can provide real-time detection of dysplasia, or advanced precancer, with the potential to completely transform the way that's treated and to do so at the same time as a diagnostic procedure. We're partnering with Dr. Adam Wax at Duke, who pioneered this technology, and Dr. Nick Shaheen from UNC, who's working with him closely. This fits within our partnership model, the same one that we launched Lucid and Veris. We are in the final stages of finalizing the license agreement and looking for building a team around this technology and a pathway towards the early stages of product development, finalizing regulatory strategy, and really just sort of getting this project, which we're really excited about, off the ground. Let's get into the operational side of things. I do encourage you to, as always, to listen to yesterday's Lucid Business Update Call for greater detail on some of these areas. But the main takeaway for Lucid is that we are now better positioned than ever to capitalize on EsoGuard's large market opportunity, a large clinical opportunity. And their near-term milestones, which we believe will ultimately positively impact PAVmed as PAVmed remains the largest shareholder of Lucid. EsoGuard revenue was $1.2 million for the quarter, and tests were just over 2,800. Both of those are in line with last quarter. Our volume has been consistent with the target range of 2,500 to 3,000 tests that we've articulated that we are seeking to maintain to facilitate our engagement with commercial payers while we await Medicare coverage. The big highlight, as we talked about on our Lucid call, was that Medicare contractor meeting that was held in September. It was wildly successful. The experts unanimously endorsed Medicare coverage for EsoGuard. This is really the final step towards what we believe is near-term Medicare coverage for that test. We also raised capital and strengthened the balance sheet for Lucid, an underwritten public offering of just under $27 million in proceeds. And so, as I mentioned earlier, the extensive runway through 2026 was a very strong investor interest and confidence, including institutional investors and insiders, and bodes well for Lucid's ability to execute on its strategic plan. So let's move on to Veris. So the most important development this past quarter was that we launched the commercial phase of our strategic partnership with OSU. If you may recall, we've got a long-standing working relationship with OSU where we completed a pilot study. The study was very successful. The technology was found to be valuable to their patients, meeting all objective measures and predefined performance criteria. And so we are in the commercial phase. We are finalizing EHR integration, but we've already started to proceed with building the commercial side of things with the initial three departments within OSU's James Cancer Center, now launching this in a broader patient population beyond the pilot. And the agreement targets 1,000 patients in the first year that will be enrolled in the registry. We've also, after completing our financing, fully relaunched the development work on the implantable physiologic monitor and to work towards the 2026 FDA submission. We've locked down or restarted or locked down new vendors for that product development, and it's actually going quite well. And Veris is sufficiently capitalized to fund that development all the way through FDA clearance and subsequent commercial launch. So that's going really extremely well, and we're looking forward to getting that wrapped up in 2026. So beyond that, now that Veris is stabilized, it's well-capitalized, the implantable is on its way, we've gotten a really solid proof of concept with regard to our commercial partnership with OSU. We are working on executing an expanded strategy for Veris. We're not necessarily going to wait for the implantable to do so. So, we have an opportunity now that we have the template from OSU to expand our commercial offering to include other academic medical centers. And as part of that, we are incorporating the lessons that we've learned from our engagement with OSU as we launch engagement with other centers to provide value-added to these centers, an offering that goes beyond simply remote patient monitoring. And the economics and the business model around that. So, one of the things that we've learned over the past year is that clinical support services are really important. Ohio State has a call center, and we've learned how to interface with them so that the alerts that come from the platform are processed in an efficient way. But many centers don't have that, don't have call centers. And any type of digital health tool can actually be somewhat overwhelming to the personnel with regard to alerts and so forth. So, we've hired our first full-time physician assistant, and we're looking to build a clinical support team around that to provide such clinical support services as a value-added service to our commercial partners, whereby our team will be able to provide varying levels, a menu of varying levels of clinical support to triage alerts that come through the system. And to make the process of incorporating our platform much more efficient and consistent with the personnel needs that these centers have. So that's a really important additional value-added offering that we're looking to provide. Another one is, really, we're seeking to transform Veris beyond just remote patient monitoring to actually become a modern-day AI-based company where we can provide AI-based clinical decision tools that help these physicians just manage their care patients better, manage them more cost-effectively, improve outcomes, improve the economics of healthcare delivery, and so forth. And we've had a very intense internal process where we've mapped out what we intend to do. And we are looking to build the stratification tools that will provide such input AI-based input to the practitioners, and we're looking to partner with OSU to build and train such a decision tool that will be ultimately fully integrated within the platform. And again, provide value to the center beyond the simple billing around remote patient monitoring. So with that, I'll hand the call over to Dennis for an update on our financials. Dennis McGrath: Thanks, Lishan, and good morning, everyone. Our summary financial results for the third quarter were reported in our press release that has been distributed. On the next three slides, I'll emphasize a few key highlights from the third quarter. But I encourage you to consider those remarks in the context of full disclosures covered in our quarterly report on Form 10-Q as filed with the SEC. As a couple of reminders, as our financials, particularly the income statement with year-over-year comparisons, will, this last quarter, illustrate periods before September 10, 2024, with Lucid's operating results being consolidated into the PAVmed results. Versus the presentation of the 2025 periods they are without Lucid's operating results being consolidated into the PAVmed financials. We do present some supplementary information in footnote four of the 10-Q that will help with some of those comparisons. So with regard to the balance sheet, you'll recall from our investor update call since this time last year that the company was engaged in a multistep to regain compliance with Nasdaq listing standard for minimum equity, which it did in February. And also position the company for longer-term financial stability. The two key components were deconsolidating Lucid from PAVmed consolidated finance statements and restructuring our debt whereby we exchanged about 80% of our outstanding debt for a new series C preferred equity. The slide reflects the balance sheets where the third quarter and second quarter of this year, both after deconsolidation which again occurred in 2024. So a couple of key things to point out each of these balance sheets. First, the cash burn rate of $900,000 for the third quarter reflects the various operating costs, including approximately $500,000 outside contractor development costs associated with the implantable device, which had been funded by the two Veris-related financings, namely $2.4 million in the first quarter and $2.5 million in the second quarter. Support the development and FDA submission of Veris's implantable device. Secondly, the equity method investment balance of $32 million as of September 30 reflects the 31.3 million Lucid shares mark to market and reflects a $4.4 million sequential reduction consistent with the change in Lucid stock price. This amount was previously eliminated from PAVmed's balance sheet prior to the deconsolidation for most of the quarterly periods in 2024. Note, there's plenty of information in the 10-Q and 10-K on both the debt exchange series C preferred stock, and the equity method treatment of PAVmed's investment in Lucid shares. At present, PAVmed continues to be the single largest shareholder of Lucid Diagnostics with ownership of approximately 23% of the common shares outstanding. Although PAVmed no longer has voting control, Lucid PAVmed, its board, and its management still have significant influence over Lucid with a 28% voting interest. Shares outstanding today including unvested restricted stock awards, are approximately 29.7 million shares. The GAAP quarter ending outstanding shares of 23.1 million are reflected in On the slide as well as on the face of the balance sheet in the 10-Q. GAAP shares do not reflect unvested RSA amounts. Additionally, we issued 25,000 series C preferred shares as part of the debt restructure at the beginning of the year. To date, approximately 4,300 series C have been converted to approximately 11 million common shares. If the balance were converted at the contractual $7 conversion price, an additional 20.5 million common shares would be issued. Next slide, please. Similar to the past presentations, this P&L slide provides some GAAP and non-GAAP year-over-year quarterly and annual comparisons. As cautioned earlier in my comments, there are some significant differences in how the information is compiled between comparative periods given the changes in PAVmed's financial control have boosted. Importantly, the GAAP construct for deconsolidating Lucid on September 10 of last year somewhat blurs the historical understanding of the information for PAVmed as a standalone entity, and GAAP does not allow the presentation for prior periods on the face of the financial statements to be similarly adjusted. Although as mentioned, there is some supplemental information in the footnotes. On a pro forma basis and purely for illustrative purposes on the slide only, the Veris revenue and the Lucid management fee income are combined collectively more than $3 million a quarter to visually align PAVmed's income sources versus its operating expenses. For SEC reporting purposes, the MSA income is a below-the-line item. Furthermore, for the third quarter, you see on the slide and in the 10-Q a GAAP net loss of $6 million before NCI and before preferred dividends. This includes a noncash loss of $4.4 million for the change in fair value of the equity investment. And together with the preferred dividend stock-based comp reconciles to a non-GAAP loss of $446,000. Basically, the equivalent to the incremental contractor development cost for the Veris implantable device. Happy to answer any detailed questions on the slide in the Q&A, but think it's more informative to look at the third quarter standalone information presented in this slide and in and the full third quarter information presented in our press release that shows the company baseline bias of operating at cash flow breakeven and incurring incremental PAVmed expenses for development activities that are offset by dedicated funding. So in the third quarter, you see a non-GAAP loss of $446,000 which has been funded in part by the NIH grant proceeds of $1.1 million since the end of last year, and $4.9 million of PAVmed Veris financing earlier this year. Non-GAAP operating expenses for the last four quarters have averaged approximately $4.4 million with very small variation from quarter to quarter. Next slide, please. With regard to non-GAAP operating expenses, on the slide, you see a graphic illustration of our operating expense over time as presented in more detail in our press release. The non-GAAP OpEx since the Lucid deconsolidation last year has been nearly flat for the last four quarters. OpEx increases moving forward are likely to be tied directly to the R&D efforts to get the Veris implantable device submitted and cleared by the FDA for which the recent Veris-related financings are supported. With that, operator, let's open it up for questions. Operator: Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the following process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. At this time, there are no questions. I will now turn the call over to Dr. Lishan Aklog. Please go ahead. Lishan Aklog: Great. Thank you, operator, and thank you all for joining today. Let me just restate something that I stated earlier that PAVmed was founded to be an engine of innovation that's capable of ingesting groundbreaking technologies and advancing them. And although Lucid is really in a great position and Veris is progressing well, our ability to consummate this broader vision has been constrained by capital markets and structural challenges. It's taken a series of steps which Dennis has outlined over a period of time to address these. And we really feel like we are now poised to complete that work, we can reignite the broader vision and continue to pursue the next Lucid, the next Veris. And we really have some excellent prospects, some of which we've talked about, the Duke technology and others waiting in the wings for us to finally transition back to the original vision of PAVmed. We look forward to that, and we look forward to continually continuing to address those opportunities and finalize this restructuring that has put us in a position to expand those horizons. So with that, oh, actually, it looks like we have somebody back in the Q&A. Should we bring him in? Yeah. Let's go back to the operator. I believe we have one question around the Q&A that we'd like to address. Operator: We do have one question. It does come from Anthony Vendetti from Maxim Group. Please go ahead. Anthony Vendetti: Great. Thank you. Hi, Anthony. Good morning. Dennis McGrath: Hi, Dennis. Lishan, I was wondering if you could just talk about where you exactly are with the implantable monitor. Are there any other clinical steps necessary other than, you know, completing the OSU trials and so forth? Or... Lishan Aklog: Yeah. Yeah. Let me just jump in if that's okay, Anthony. So the development of the implantable, remember, the implantable is an implantable device that allows the physician to implant an intracardiac cardiac implantable cardiac monitor in conjunction with a port at the time of the beginning of therapy. Although we have part of our strategic partnership with OSU involves them being the first site and them doing the initial pilot work once the implantable is cleared. The development work actually is unrelated to our relationship with OSU. So we, with the financing that we secured earlier this year, we have relaunched the development that had been on pause when we were awaiting access to capital to do so. And that relaunch actually included us transitioning to a new development and manufacturing partner who has extensive experience with making such implantable devices such as stimulators and others. And so, we've transitioned. We've launched that product development work with this new partner, going extremely well. And, you know, there's a variety of just bread and butter engineering work that's required to get us to a final to complete that part of the development work and get us into a position to submit to FDA. You had mentioned, you had asked about the, I think, clinical trials. So one of the things that we have been doing was we've had an ongoing engagement with FDA over many, many meetings to establish first our preclinical requirements of animal studies that have been ongoing and will continue to be ongoing as part of this work. And that was already previously locked down. The final step, which I think we talked about in our last call, was to get a final sign-off from FDA on any clinical work we would need to do. Since the predicate, this is a 510(k). Since the predicate here is an existing implantable cardiac monitor, the clinical requirements were actually quite modest. And we did eventually work with the FDA to establish that the only clinical data we'd need is what we refer to as a skin study. So instead of having to implant the device to perform this study, we can actually just stick it on the skin and measure its ability to detect primarily the cardiac rhythm. And show that it's equivalent to the predicate. So it's a pretty straightforward simple, small study that'll be required as part of that. That's not the rate-limiting factor. Frankly, the rate-limiting factor between us and a submission is all of the development work, the traditional biocompatibility, packaging, things like that, that are things that typically use up the clock. Anthony Vendetti: Okay. Great. So this should, it sounds like with the predicate, it should be, I'm not saying anything with the FDA's routine, but should be relatively routine versus if you were using a version device. Lishan Aklog: Yeah. Yeah. I mean, it would, I think it's fair to say that the path is very clear. The requirements are clear. It's just we just need to execute on it. I think there's very little uncertainty as to what's required. There's really good guidance from FDA on what they expect for these kinds of devices. So we have a very carefully tuned regulatory strategy that's designed to really leverage this predicate carefully. And there's always opportunities in the future to seek additional indications, expanded language, and things like that. So we're pretty happy, we're extremely frankly with the path that we have ahead of us and expect it to be straightforward. Anthony Vendetti: And I know the focus is on that and OSU, but is it too early to start having commercialization conversations with other cancer centers, or are you going to wait a little bit longer until even though, like you said, it should be relatively straightforward with the FDA? Are you going to start having those conversations? Lishan Aklog: So that was what I was trying to... Yeah. That was, sorry. I interrupted, Anthony. That was what I was hinting at earlier. So let me just kind of restate it a little bit more directly. So the answer to your question is yes. When earlier in this year, you know, as we were able to finally secure some capital to develop this, our strategy had been one of just sort of sticking to the OSU partnership, you know, getting a bunch of commercial experience there and waiting until the implantable to broaden our commercial activity. We've shifted that strategy. So that's no longer, we really do believe given how well things have gone with OSU, that we are in a position starting in the first quarter after we've had some volume at OSU to start looking to expand at other centers. And the key factor there, you know, it's not like we haven't had ongoing conversations and solicited other centers. We just didn't do it very aggressively because we knew that we had limited capital for commercial expansion over the last couple of years. But one of the things that we learned will be key in that is one of the things I mentioned, is to offer not just the software platform, ultimately, not just the implantable, which is economically a very attractive thing for them. But to offer some additional value-added, have a bit of an expanded vision for the offering from Veris. And one of those things includes offering clinical support services. As I mentioned earlier, to really streamline and make more efficient the process of using our platform. Hospitals, cancer centers, including cancer centers, are pretty overwhelmed. The clinicians are pretty overwhelmed. They're understaffed. And although there's clear clinical value in the data and having those continuous data that is sent to them to monitor their patients, often they're strapped for personnel time to be able to interpret these alerts and so forth. And, you know, it's put within while we were soliciting other accounts, it became clear that us being able to centralize that and offer clinical support services, it was essentially to be able to triage alerts. So if there's an alert on our system that says, you know, the patient's temperature is rising or they're reporting certain symptoms that may be consistent with a complication of chemotherapy, to be able to offer the account value-added service that they can kind of select from a menu to have a clinician, our clinician, be the frontline to check in with the patient and sort of sort it out and then pass the baton on to the clinical team. Lots of interest in that. And so we're going to start building that. We have our first PA who's going to be working closely with OSU on that. And we think there's a real opportunity and a real revenue opportunity around that as well. And then the other thing which we're going to not wait for the implantable on and we're going to start working on our AI-based tools that can provide value-added both from a clinical point of view and economic point of view for the client. That we do expect to work closely with OSU on because those products, as I assume you know, require clinical data to train models and so forth. So for us to build a risk stratification tool that can predict which patients on a particular chemotherapy or immunotherapy are at risk for rehospitalization or for complications. That's extremely valuable, but that will require training with data that we would expect to we'd be able to partner with, that we're planning on trying to partner with on that. So all those activities are going to start gearing up in the first quarter even before we have the implantable. Anthony Vendetti: Okay. Great. Great. Great. No. That's great clarity. I appreciate that. And then lastly, is the letter of intent for the endoscopic imaging technology. And I know LOI sometimes, you know, doesn't result in a definitive agreement. But do you have some exclusivity with this LOI? And what's the timing do you believe that it could lead to a definitive agreement? And then would you first take that in, it sounds like because it's, you know, in the PAVmed press release, would that first go into the PAVmed portfolio and then would there be a plan to eventually shift that to Lucid Diagnostics? Lishan Aklog: Great. Lot to unpack there. So just let me know if I missed anything. So the first answer to your question is that now this LOI will translate into a licensing agreement. And it's forthcoming very, very soon. We're in the final stages of ironing out that language. So we expect to sign the definitive license agreement for this technology very, very, very shortly. That will be within a subsidiary, a separate subsidiary of PAVmed to advance the technology through some additional development work and then ultimately through an FDA submission and clearance. That work will begin immediately upon us signing the license agreement. There's development work to be done that will be done at the laboratory where this technology is being developed at Duke. To try to make some adjustments to sizing. Just maybe a little bit of background, we haven't spent a lot of time on this. This is technology that has actually been used in humans. One of our longtime colleagues and partners, Dr. Nick Shaheen, is a PI in our studies and the head of Lucid AB. Is the clinical gastroenterologist who's been working with Duke on this. So they've used this in humans and have demonstrated its efficacy in being able to detect dysplasia at the time of a diagnostic endoscopy. There's additional design work to kind of, so from a form factor point of view and how it sort of snaps together with the endoscope and so forth, that will be supporting at Duke. And once that has been completed, we'll transition it into a commercial product development pathway and then ultimately submit. We do have a regulatory. We've finalized our regulatory strategy around how to pursue this. We are convinced this is also a 510(k). It'll likely require a small clinical study. But nothing, you know, nothing too large or resource-intensive. So that's the plan. So it's coming. We're going to get this thing done. It's just, yeah, dotting i's and crossing t's on the documents. Anthony Vendetti: Understood. Perfect. You sorry. You had mentioned the relationship with Lucid. Sorry. I forgot. Lishan Aklog: Yeah. So look, the, you know, obviously, Lucid is in the space. These are patients that EsoGuard will be finding, right, who will be undergoing a confirmatory endoscopy based on a positive EsoGuard test that will require an endoscopy to determine whether they're a true positive and if they're true positive, where they are along the spectrum for further follow-up, right? So clearly, the work of Lucid is linked to the application of this technology. We've decided for the time being to keep it separate. Lucid has plenty on its plate. It's super late kind of positioned as a molecular diagnostic company. Lucid, there's an agreement with between Lucid and PAVmed for a modest equity position in the subsidiary. So Lucid will have upside on that. And then when it's near commercialization, we'll decide, you know, sort of what the right pathway for it. If there's synergies that make sense at the time with Lucid, we'll pursue that. If it's a distraction to Lucid, we'll pursue it separately. Anthony Vendetti: Okay. Great. Thanks for all that color. Appreciate it. Lishan Aklog: Great. Thanks, Anthony. So with that said, let's wrap things up. Just would like to again encourage you to remain connected to us and our progress. So follow our press releases and these quarterly update calls. Subscribe to our email alerts and just contact us by phone if necessary. So thank you very much, and everybody have a great day. Operator: Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation and you may now disconnect. Have a great day.
Operator: Good morning, and thank you for joining the Lument Finance Trust Third Quarter 2025 Earnings Call. Today's call is being recorded and will be made available via webcast on the company's website. I would now like to turn the call over to Andrew Tsang, with Investor Relations at Lument Investment Management. Please go ahead. Andrew Tsang: Morning, everyone. Thank you for joining our call to discuss Lument Finance Trust's Third Quarter 2025 Financial Results. With me on the call today are James Peter Flynn, our CEO, James Anthony Briggs, our CFO, Greg D. Calvert, our President, and Zachary Halpern, our Managing Director of Portfolio Management. On Wednesday, November 12, we filed our 10-Q with the SEC and issued a press release to provide details on our recent financial results. We also provided a supplemental earnings presentation, which can be found on our website. Before handing the call over to James Peter Flynn, I would like to remind everyone that certain statements made during the course of this call are not based on historical information and may constitute forward-looking statements within the meanings of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, in particular the Risk Factors sections of our Form 10-Ks and Form 10-Qs. It is not possible to predict all or identify all such risks, and listeners are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to update any of these forward-looking statements. Further, certain non-GAAP financial measures will be discussed on this conference call. Presentation of this information is not intended to be considered in isolation nor as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC. In 2025, we reported a GAAP net income of $0.01 per share and distributable earnings of $0.02 per share of common stock. In September, we declared a quarterly dividend of $0.04 per common share with respect to the third quarter. I will now turn the call over to James Peter Flynn. Please go ahead. James Peter Flynn: Thank you, Andrew. Good morning, everyone. Welcome to the Lument Finance Trust earnings call for 2025. We appreciate everyone joining us today. Starting out, just taking a look at where the market stands. The economy has remained resilient through this period of shifting monetary policy into political and uncertainty. On October 29, the Fed funds cut the Fed funds rate by 25 basis points to a range of 3.75% to 4%. But at the same meeting, the Fed made clear that additional cuts remain far from a foregone conclusion leaving lingering uncertainty in the near term punctuated by the ongoing geopolitical volatility and the fast-moving trade and tariff policy shifts in the US. Additionally, we now are dealing with the economic drag from the recent federal government shutdown, and uncertainty about the future negotiations as we look to reopen the government hopefully, in the coming days. The multifamily sector fundamentals remain constructive. Rent growth is modest and stable. Occupancy remains strong. New supply, as we've discussed in past calls, is slowing meaningfully. All conditions that support balance and potential rent recovery over the medium and long term. Affordability challenges in the single-family market, among many other factors, also continue to sustain multifamily demand and credit quality at the asset level. We review the recent Fed funds cut as a cautionary positive development for multifamily lending as lower short-term index rates should, in general, help improve our borrowers' ability to meet their outstanding debt obligations as they work towards completion of their business plans. Meanwhile, the CRE CLO market continues to remain open for issuers. Year-to-date issuance now exceeds $25 billion reflecting a healthy level of liquidity and investor confidence. This rebound compared to the prior year supports our outlook for the company's potential to return to the securitization market as a repeat issuer in the future subject to market and pricing conditions, of course. On the asset management side, we remain focused on actively managing the portfolio. Our team is closely engaged with our borrowers, proactively seeking positive resolutions, modifications, extensions, and REO strategies where appropriate. On a weighted average basis, the portfolio credit ratings were relatively stable quarter over quarter, and reserves remain consistent with reasonable expectations. We continue to prioritize capital preservation and disciplined risk management across every position. From a liquidity and financing standpoint, we continue to maintain a conservative liquidity posture this quarter holding ample unrestricted cash to preserve flexibility while resolving legacy credits and working towards refinancing of the portfolio. Loan payoffs totaled approximately $49 million and those proceeds were primarily used to reduce securitization liabilities. As we've alluded to in prior quarters, the company has been very focused on putting new portfolio financing in place that provides us with flexibility to more effectively manage our capital as we work through legacy credit challenges. Last week, we entered into a new repurchase agreement with JPMorgan providing the company with up to $450 million in aggregate advances. With this warehouse capacity now in place, last week, of securities issued, by our 2021 CRE CLO notified that the company intends to redeem the associated notes and preferred shares later this month. Closing the JPM facility was a critical step in repositioning our existing portfolio and subject to market conditions, enabling us to take advantage of new financing. Our near-term focus is clear. Driving value through active asset management, resolving legacy positions efficiently, and executing our financing strategy. Looking ahead, we intend to redeploy capital into a core lending strategy focused on middle-market multifamily. We believe this disciplined approach will position the company well as the market stabilizes and new opportunities emerge. Our manager's origination and asset management expertise remain a key differentiator, and we are confident that our focus, prudence, and flexibility will translate into lasting shareholder value. With that, I'd like to turn the call over to James Anthony Briggs, who will provide details on our financial results. James Anthony Briggs: Thanks, Jim. Morning, everyone. Last night, we filed our quarterly report on Form 10-Q and provided a supplemental investor presentation on our website which we will be referencing during our remarks. The supplemental investor presentation has been uploaded to the webcast as well for your reference. On pages four through seven of the presentation, you'll find key updates and an earnings summary for the quarter. For 2025, we reported net income to common stockholders of approximately $700,000 or $0.01 per share. We also reported distributable earnings of approximately $1 million or $0.02 per share. There are a few items I'd like to highlight with regards to the Q3 P&L. Our Q3 net interest income was $5.1 million, a decline from $7 million recorded in Q2. The weighted average coupon of our loan portfolio remained relatively flat sequentially. The average outstanding UPB of the portfolio declined, and principal loan repayments were used to pay down a portion of our secured financings, contributing significantly to the reduction in net interest income for the period. Additionally, the reversal of certain accrued interest and the non-recording of interest on nonaccrual loans contributed approximately $800,000 to the decrease. Our total operating expenses, including fees to our manager, were down slightly quarter on quarter as we recognized expenses of $3.1 million in Q3 versus $3.2 million in Q2. The reduction was primarily attributable to fewer fees paid to our managers sequentially. The primary difference between reported net income and distributable earnings is primarily attributable to $345,000 of depreciation on real estate owned. As of September 30, we had seven loans risk-rated five. All of these loans are collateralized by multifamily assets. Greg will provide a bit more detail in his remarks on those loans. With respect to our allowance for credit losses, we evaluated these seven risk-rated five loans individually to determine whether asset-specific reserves were necessary. After analysis of the underlying collateral, we recorded a provision for credit losses of approximately $900,000. We also charged off approximately $200,000 of reserves recorded in prior quarters against the allowance for an asset that went REO in Q3. Our general allowance for credit losses decreased to $5.7 million from $6.6 million in Q2 with the decrease driven primarily by a decrease in portfolio balance largely offsetting the specific reserve increase. We ended the second quarter with an unrestricted cash balance of $56 million and our investment capacity through our two secured financings was fully deployed. The CRE CLO securitization transaction we issued in 2021 provided effective leverage of 72% to our loan assets at a weighted average cost of funds of SOFR plus 179 basis points. The 2023 LMS financing provided the portfolio with effective leverage of 77%, at a weighted average cost of funds of SOFR plus 325. On a combined basis, the two securitizations provided our portfolio with effective leverage of 74% and a weighted average cost of funds of SOFR plus 230 as of quarter-end. As Jim previously mentioned, noteholders in our 2021 CRE CLO were notified that we intend to redeem the associated notes and preferred shares later this month. The company's total equity at the end of the quarter was approximately $230 million. The total book value of common stock was approximately $670 million or $3.25 per share, decreasing sequentially from $3.27 a share as of June 30. We'll now turn the call over to Greg D. Calvert to provide details on the company's investment activity and portfolio performance during the quarter. Greg? Greg D. Calvert: Thank you, Jim. During the third quarter, LFT experienced $49 million of loan payoffs. As of September 30, the total loan portfolio consists of 51 floating rate loans with an aggregate unpaid principal balance of approximately $840 million, a weighted average floating rate of SOFR plus 355 basis points, and an unamortized aggregate purchase discount of $1.9 million. The weighted average remaining term of our book as of quarter-end was approximately months, assuming all available extensions are exercised by our borrowers. 100% of the portfolio was indexed to one-month SOFR, and 90% of the portfolio was collateralized by multifamily properties. As of September 30, approximately 40% of the loans in our portfolio were risk-rated at a three or better compared to 63% this prior quarter. Our weighted average risk rating quarter over quarter remained flat at 3.5. During the period, we transitioned two loans with an aggregate UPB of $44.1 million from a five rating as of June 30 to a four or better rating as of September 30. As of September 30, we had seven loan assets risk-rated five with an aggregate principal amount of approximately $86.4 million or approximately 10% of the unpaid principal balance of our quarter-end investment portfolio. Of these, four were risk-rated five in the prior quarter and these included an $11.9 million loan collateralized by a multifamily property in Kelonte, Michigan, a $10.3 million loan collateralized by a multifamily property in Colorado Springs, a $13.7 million loan collateralized by a multifamily property in Cedar Park, Texas, and an $8.2 million loan collateralized by a property in Des Moines, Iowa. All of these loans risk-rated five were in monetary default as of quarter-end. The other three loan assets that were risk-rated five this quarter included a $10.3 million loan collateralized by a multifamily property in Clearfield, Utah, a $15 million loan collateralized by two multifamily properties in Philadelphia, Pennsylvania, and a $17 million loan collateralized by two multifamily properties in Tallahassee, Florida. Of these three five risk-rated loans, one was in maturity default, and the other two were in monetary default as of quarter-end. As of September 30, our REO comprised four multifamily properties. Three of these properties are located in San Antonio, and one is located in Houston. As of quarter-end, these properties had a weighted average occupancy rate of approximately 73.5%. Our priority is achieving positive asset management outcomes and maximizing our recovery values. With that, I will pass it back to James Peter Flynn for his closing remarks and questions. Jim? James Peter Flynn: Thank you, Greg. I'd like to thank our guests for joining. And at this point, I would like to open the call to questions. I look forward to hearing from you. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Your question comes from Chris Muller with Citizens Capital Market. Please go ahead. Chris Muller: Hey, guys. Thanks for taking the questions. So I guess on the risk ratings, do you guys feel that you've addressed the bulk of the issues in the portfolio at this point? Or are you kind of going through things and we could see some further downgrades coming forward? James Peter Flynn: So I think we have a good handle on the portfolio. We know what all of the assets are, and feel very comfortable with where the risk ratings are today. Obviously, subject to market conditions or things changing, that could change. But from our standpoint and from our active management of all of these assets, we feel that we've identified all of the known issues. And if conditions continue in each of the markets as they stand today, there's no expectation that there would be further change. As we all know and we look around at the market and things that are going on, obviously, any kind of market conditions are subject to change, but we certainly feel like we've done a deep dive in the portfolio across the board. Chris Muller: Got it. And then maybe on the flip side of that, how are you guys thinking about portfolio growth in the coming quarters? Is the primary focus going to be on asset management? Or could we see some new loans coming on, especially given the new financing? James Peter Flynn: Yeah. Look. I think the new financing certainly gives us more flexibility to add assets, having a little more clarity and certainty around where we feel the portfolio stands, will provide us with certainly more of an opportunity to look to add to the portfolio. We've been certainly very focused on asset management and cash preservation and liquidity to make sure that we positioned ourselves for, frankly, where we feel we are today. So, yeah, certainly, we hope that things remain and that gives us an opportunity to put more assets on the books in the coming quarters. Chris Muller: Got it. And I'm going to squeeze one more in. Is there anything you guys can share on timing for expectations for REO sales? And can you just remind me, is there any financing against that REO or is it held unlevered? James Peter Flynn: So today, the REO could—I'll answer the second part first—today, we've consistently held the REO that we have. This is also true at the manager unlevered. We do have flexibility to put some financing against the value of those assets through debt providers and facilities, both that we entered into with JP, and or potential other providers. So to the extent we are planning to hold an asset, and in most cases, our REO sales are wholly dependent on our view of the overall credit of the asset. So typically, in these situations, when you've had deterioration and you're taking an asset back, there's some very regular upgrades and improvement in management that usually needs to occur in the three to six-month period at a minimum. And then go forward from there as more of a value judgment. And because of the team we have in place and the size and scope of the sponsor for LFT, we've typically decided it's better to at least perform those actions on behalf of the LP shareholders and perhaps then some to create more value. So the timing for the REOs is very asset-specific. We may dispose of some quickly in that kind of three to six-month period as we just kind of clean up the asset, make sure it's as occupied as it can be, and then perhaps sell. But typically, our REO team that as their job manages assets takes a look at these and feels like there's some pretty good opportunity for improvement and value. And those might be a bit longer-term hold. And that's where we would look to some of our providers to give us some leverage against those, on a value basis. Relatively low levered, lower than a traditional new loan for sure. Chris Muller: Got it. That's all very, very helpful. I appreciate you guys taking the questions. Operator: As a reminder, if you wish to ask a question, please press 1. Your next question comes from Greg Bennett, an investor. Please go ahead, Greg. Greg Bennett: Could you—is there any change in your relationship with your sponsor, Orix USA? I understand they acquired a company called Hilco. And Hilco, I think, does lending asset-backed lending. But could you describe if there's any conflict? James Peter Flynn: Yeah. I can speak to that. First, no. There's no change in the relationship between Orix and Lument. The acquisition of Hilco is—they are an asset-backed lender. Their business model does not really overlap with LFT in any material way with the first mortgage bridge lending business. So I don't think there's a major conflict there. They do have some asset-backed real estate lending. And, of course, their parent Orix is a large lender. And so in terms of expanding the overall footprint of our real estate lending business across the parent company, Lument, and LFT, I do expect that to continue to expand. Which is a positive for LFT and for the whole company. But I don't think there's any reason to think that the Hilco acquisition would have a material impact and certainly not a negative impact on LFT. Greg Bennett: Okay. Second question. On real estate owned, if you—if the value of that real estate owned actually increases over what the amount that is owed, and you sell it, do we reap the benefit of that or does some of that go back to the previous owner or lender? James Peter Flynn: Yeah. So let me clarify one thing on the REO that to the extent that those are currently held in the securitization, they technically still have leverage against them in the pooled concept. I know I said earlier, but looking forward, as an example, when we call FL1 or if we were to call our second securitization and bring those on balance sheet, that's where we would use the other credit facilities to put leverage on those. And then answering your question, once it's REO, meaning we foreclose and we own it, any increase in value would go to the shareholders of LFT. So the LFT corporate. Greg Bennett: Okay. On the new financing, with JPMorgan, it said something about SOFR Plus to be determined. And I guess I was trying to understand—you mentioned on the call that you're planning on redeeming the 2021 CLO. I think that's what you said. And I think that's SOFR plus $1.75. Am I correct? James Peter Flynn: The 2021? Correct. It's been delevering. So it changes kind of every time a loan pays off, the cost changes because it goes to pay down the debt. James Anthony Briggs: Yeah. As Jim mentioned during the remarks, it's at SOFR plus $1.79. And the important thing to note there, it's at a leverage of 72% as well. Greg Bennett: Yeah. I guess, why would you pay that off versus the 2023 unless, I guess, it's still in the investment period? James Peter Flynn: So the strategy is for us to reenter the securitization market. The size of FL1 provides us a better opportunity to enter that in a meaningful way. It's an order of operations. I mean, we've been working toward the refinance of our portfolio that includes FL1, that includes LMS, that includes our term loan. So this is the first step that unlocks close to $170 million of equity at FL1. That can be redeployed in a different vehicle whereas LMF is under $70 million. So there's significantly more capital trapped in FL1. And to give you a context of the securitization market, leverage in that market today is in the high eighties. Greg Bennett: And you're in the seventies. Is that correct? James Peter Flynn: That's correct. Greg Bennett: So is the cost of funds from a new agreement with JPMorgan? It's SOFR plus we don't know what. Is that— James Peter Flynn: It's dependent on the asset. So that's why it's a—there's not a set spread. It's an asset-by-asset look. But it's in the broadly speaking, the high one hundreds to the low two hundreds over depending on the asset. Greg Bennett: Okay. So can you use—you have a term loan, I think, coming due in '26. A corporate debt matures in 2026. Can you use the JPMorgan line to retire that debt? Or not? James Peter Flynn: I mean, indirectly, we can in the sense that it provides—the JPMorgan line provides us with leverage and liquidity that is fungible. Meaning we can pay off the term loan with it or reinvest or otherwise. So the direct answer is no, not directly. The indirect answer is yes. The purpose of this vehicle is to provide us with flexibility and liquidity across the platform. As far as the term loan goes, we have not—we are talking to our term loan provider, and we're still discussing the potential to either pay that off, partially pay that off, or refinance that term loan. So that decision has not been made yet. Greg Bennett: Okay. Thank you very much. Appreciate it. Operator: As there are no more questions, I will pass back to James Peter Flynn for any closing remarks. James Peter Flynn: Okay. I want to thank everyone for joining us. We are certainly excited about the progress we've made here. Look forward to the upcoming quarter and speaking to you again soon. Thanks all for joining. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. This is the operator. Thank you very much for standing by. Today's conference call will begin momentarily. Thank you very much. Again, this is the operator. Today's conference call will begin. Please stay on the line. Thank you very much for your patience. Good morning, ladies and gentlemen, and welcome to the Sound Point Meridian Capital's Second Fiscal Quarter Ended September 30, 2025, Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, this call is being recorded on Thursday, November 13, 2025. I would now like to turn the conference over to Julie Smith, Head of Investor Relations. Please go ahead. Julie Smith: Ladies and gentlemen, thank you for standing by. Sound Point Meridian Capital refers participants on this call to the investor webpage at www.soundpointmeridiancap.com for the press release, investor information, and filings with the Securities and Exchange Commission and for a discussion of the risks that can affect the business. Sound Point Meridian Capital specifically refers participants to the presentation furnished today on the Form 8-Ks with the SEC and to remind listeners that some of the comments today may contain forward-looking statements. And as such, will be subject to risks and uncertainties which, if they materialize, could materially affect results. References are made to the section titled Forward-Looking Statements in the company's earnings press release for the period ended September 30, 2025, which is incorporated herein by reference. We note forward-looking statements, whether written or oral, include, but are not limited to, Sound Point Meridian Capital's expectation or prediction of financial and business performance and conditions, as well as its competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties, and assumptions, which, if they materialize, could materially affect results, and such forward-looking statements do not guarantee performance. And Sound Point Meridian Capital gives no such assurances. Sound Point Meridian Capital is under no obligation and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. In addition, historical data pertaining to the operating results and other performance indicators applicable to Sound Point Meridian Capital are not necessarily indicative of results to be achieved in succeeding periods. I will now turn the call over to Ujjaval Desai, Chief Executive Officer of Sound Point Meridian Capital. Ujjaval Desai: Thank you to everyone joining us today. And welcome to the Sound Point Meridian Capital earnings call for the fiscal second quarter ended September 30, 2025. We would like to invite you to download our investor presentation from our website, which provides additional information about the company and our portfolio. With me today is our Chief Financial Officer, Kevin Gerlitz, and his successor, Dan Fabian. And after our prepared remarks, we'll open it up for questions. We are pleased to report results for the second fiscal quarter ended September 30, 2025. Kevin Gerlitz: For the quarter, we generated net investment income or NII of $11 million or $0.54 a share. And recorded a net realized loss of $0.05 per share on exited investments. We paid distributions of $0.75 per share during the quarter. The shortfall in NII relative to common distributions was primarily driven by continued spread compression within the CLO collateral portfolios and lower participation in loan accumulation facilities during the quarter. Net asset value or NAV per share ended the quarter at $16.91, down from $18.50 as of June 30. During the quarter, we deployed approximately $9.2 million across two warehouse investments, purchased three new issue equity positions with an amortized cost of $14 million, weighted average GAAP yield of 15.3%. And purchased 12 new equity investments in the secondary market with an amortized cost of $31.6 million and yield of 14.2%. We also sold two equity investments with an amortized cost of $4.5 billion, refinanced the liabilities of seven equity investments. We ended the quarter with one active loan accumulation facility and two unfunded commitments totaling $3.5 billion. As of quarter end, our CLO equity portfolio's weighted average GAAP yield was 12%, versus 12.9% in the prior quarter reflecting continued loan repricing throughout the quarter. Our portfolio remained highly diversified with 94 CLOs managed by 27 managers with exposure to over 1,600 loan issuers across more than 30 on a look-through basis. We believe our diversified strategy enhances dividend stability and downside protection through evolving market conditions. With that, I'll now turn the call over to Kevin for a more detailed review of our financial highlights for the quarter. Kevin Gerlitz: Thanks, Ujjaval, and hello, everyone. As Ujjaval mentioned, the quarter ended September 30, 2025, we delivered net investment income of $11 million or $0.54 per share. For the quarter ended September 30, we recorded a net realized loss of $925,000 and an unrealized loss on investments of $27.4 million. Total expenses during the quarter were $9.2 million. The GAAP net loss for the quarter was $17.2 million or a loss of $0.84 per share. Moving to our balance sheet. As of September 30, total assets were $541.3 million, net assets were $346.2 million, and our net asset value stood at $16.91 per share. The fair value of our investment portfolio stood at $535.2 million while available liquidity consisting of cash was approximately $3.7 million at the end of the quarter. As of September 30, the company had outstanding debt that totaled 35% of total assets. During the quarter, we declared monthly cash dividends of $0.25 per share payable in October, November, and December. Based on our share price as of September 30, this represents an annualized dividend yield of 17.3%. On November 5, we announced monthly distributions for calendar Q1 2026 of $0.25 per share unchanged from our previously announced Q4 2025 monthly distributions. As of October 31, 2025, our estimated net asset value per common share was $16.17 per share. Finally, on November 5, in connection with my planned retirement, the board of directors appointed Dan Fabian to succeed me as chief financial officer of the company, effective December 31, 2025. Dan joined Sound Point Capital Management earlier this year as global chief financial officer and brings more than twenty years of experience in the global asset management industry. I am confident that Dan's leadership and expertise will be a tremendous asset to the company. I'll now turn the call over to Dan for a brief introduction. Dan Fabian: Thank you, Kevin, and hello, everyone. As Kevin just mentioned, my name is Dan Fabian, and I currently serve as global chief financial officer at Sound Point Capital Management, where I lead our global finance team comprising of tax, fund accounting evaluations, as well as our risk and core technology functions. Prior to joining Sound Point, I served in a number of senior positions in asset management, most latterly as president and chief operating officer at Alcentra, where I directed firm-wide operations spanning across six credit investment strategies. I'm excited and look forward to working closely with the leadership team and Board of Sound Point Meridian Capital and stepping into this role to support the company in the years ahead. I'll now turn it back to our CEO, Ujjaval, to provide an update on the CLO market. Ujjaval Desai: Thanks, Dan. Before opening up for questions, I want to give a quick update on the overall market environment for corporate loans and CLO equity. The U.S. leverage loan market is expected to maintain steady new issue supply over the next twelve months supported by a gradually improving M&A pipeline and renewed large-cap sponsor activity. Primary institutional issuance rebounded to $44 billion in Q3 2025, the highest quarterly total on record. As deal flow normalized following media disruptions. Recent large financings, including Dayforce's $5.5 billion Term Loan B backing Thomas Bravo's $12.3 billion LVL signal a more active pipeline of buyout and corporate transactions heading into 2026. While isolated credit events such as the First Brands Group's bankruptcy have attracted market attention, we view these developments as idiosyncratic rather than systemic. Overall, credit fundamentals remain healthy, supported by steady corporate earnings, conservative new issue leverage, and continued access to refinancing capital. The broader loan market continues to demonstrate resilience with default rates still below long-term averages and robust investor demand anchoring secondary pricing. In the CLO market, AAA spreads are poised to tighten further as incremental demand builds from an expanding investor base. In addition to traditional bank and insurance buyers, new vehicles such as CLO ETFs have become meaningful participants attracting sustained inflows and growing total assets above $36 billion across more than two dozen funds. This broadening demand base continues to underpin robust pricing for senior CLO tranches and supports expectations for additional spread tightening in 2026. Meanwhile, the path of interest rates remains uncertain. With market expectations pointing toward a range-bound SOFR environment in the near term. Table-based rates are constructive for both sides of the CLO capital structure, supporting continued demand for AAA tranches sustaining higher cash flows for equity investors. Through active rotation, we have increased structural optionality in the SPMC portfolio positioning it to benefit from future refinancing opportunities. Approximately 70% of the portfolio will exit its non-call period by year-end 2026, providing optionality to refinance debt at lower spreads. A reduction in debt cost may significantly offset the loan spread tightening seen year to date and increase the equity arbitrage into 2026. Which we view as a welcome development and reprieve from the challenged technical environment we have experienced in 2025. With that, we thank you for your time and would like to open up the call for Q&A. Operator? Operator: Ladies and gentlemen, we will now begin the question and answer session. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your first question comes from the line of Gaurav Mehta from Alliance Global Partners. Please go ahead. Gaurav Mehta: Thank you. Good morning. I wanted to ask you about the loan investment opportunity. Can you discuss what you guys are seeing in the market for primary and secondary opportunities? Ujjaval Desai: Hi, Gaurav. Thanks for the question. Just to clarify, you asked about the underlying loan market? The opportunities that you're seeing in the market to deploy capital both in primary and secondary markets? Gaurav Mehta: Okay, sure. So I think as we discussed in the past, we have been a lot more focused on investing in the secondary market this year. The primary market arbitrage for CLO equity has been challenged because, as we have discussed, the loan spreads have tightened significantly. The liability spreads have also tightened, but not as much. And so the arbitrage has been a little bit constrained this year. And so our focus has been mostly on the secondary side. And we have and we continue to invest heavily in the secondary and have picked up very interesting paper in the market. The primary market arbitrage is slowly getting better. Still not quite there. And, you know, I think as the loan market continues to the pipeline loan market continues to improve, as a result of M&A activity in the loan market. We think that should provide some stability to spreads. We have seen spreads the tightening in spreads has stopped now. On the loan market side. And so as new issues come on board, that should certainly help improve the environment for new issue equity. But so far, this year, the focus has mostly been on the secondary side. And we are we do see good value in the equity markets and still solid yields can be obtained. In the secondary market, less so in the primary. Gaurav Mehta: Okay. Thanks for that color. Second question on your comments around refinancing opportunity. Is that you mentioned more than 70% of the portfolio has refinancing opportunities. So do you think that that's enough to offset the yield compression that you're seeing in the market and should we expect the yields to remain stable because of that refinancing within your portfolio? Ujjaval Desai: Well, it's, I think we post in our presentation a table that you can see that shows the change in spread in the portfolio in the last twelve months. About 36 basis points have been lost. And then if you look at on the liability side, the 70% of the portfolio that is resettable in the next twelve months, the savings on that is about 41 basis points on that portion, assuming of course, that the market stays where it is, which is a big assumption. It could go tighter, it could go wider. But as using today's market conditions, you see a 40 basis points tightening in our liability cost on 70% of the portfolio. So that more or less offsets most of that change. It's not going to be perfect obviously. But there is significant optionality there. Which, you know, obviously, have to wait for the non-call periods to be over. For us to, to get that savings. We have done quite a few resets already this year. And, you know, there's still a lot left for next year. Gaurav Mehta: Okay. So assuming the market remains stable, that 41 basis points in saving, that can take you back to where the spreads were in September '24? Ujjaval Desai: I mean, not on its own. Not quite. 41 is on 70% of the portfolio, so that just doing the math, it's, like, high twenties versus 35 basis points change. So it's, you know, it should be close, but not you know, there are a lot of variables obviously. We're not going to predict where things are going to go from here. But that optionality certainly makes a significant dent in the spread tightening we've seen on the portfolio side. Gaurav Mehta: Okay. Thank you. That's all I had. Ujjaval Desai: Okay. Great. Thanks. Operator: Your next question comes from the line of Mickey Schiff Schleien from Clear Street. Please go ahead. Mickey Schiff Schleien: Yes. Good morning, Ujjaval. I'm a little confused about the comments. I want to make sure I understand. At the beginning, you said I think you said that the supply of capital would keep the loan market imbalanced, and you expect pressure on loan spreads to continue. But then later on, I think you said it stopped. So let me just back up. How would you describe the balance of supply and demand in the loan market and what is your, you know, sort of medium-term outlook for loan spreads? Ujjaval Desai: Sure, Mickey. So I think what I was talking about was the year to date we have seen a significant imbalance in supply demand for loans. And that's what I was talking about. So it was a statement for sort of what happened in the first nine months of the year. And that resulted in effectively not much new supply of loans, but significant demand for loans. From CLOs and other investors. That resulted in significant spread tightening. In the loan market. As you've seen in every single market, credit equities everywhere else. What's changed recently is there's been a lot more activity in the new issue loan market. And from talking to various sources, capital markets folks, bankers, there seems to be an increased pipeline of M&A activity that the banks expect early next year. So if that pipeline materializes then that should result in a lot more loan supply. And that's what I'm talking about. The dynamic where if you have that loan supply that then brings the supply demand into balance and that's certainly helpful for us. So that's kind of what we feel is going on in the loan market. And because of that, we think the spread tightening in the loan market has suddenly paused. Obviously, there is a scenario where the market continues to be super benign and the demand for loans continues to outpace supply and loan spreads tighten further. But that's but if that happens obviously that should bode well for our liabilities as well. And because both markets go hand in hand. And so we can then monetize that tightening by tightening our liabilities further. But what we are showing in the table I talked about earlier is basically kind of a static picture of where the portfolio is today. And based on the market conditions today, if we were able to reset those liabilities, that's the savings I was talking about the 40 basis points on 70% of the portfolio. Mickey Schiff Schleien: Okay. I understand. That's helpful. One follow-up question, if I can. For a couple of quarters now, NII per share for your fund is running about 20¢ below the distribution. Which was raised not too long ago. Could you walk us through what factors the Board considered in keeping the dividend stable? Ujjaval Desai: Sure. So I think the NII so there are, you know, obviously, various factors here. The NII drop has been because of spread compression in the underlying portfolio which we talked about. And so that has been that has been the main driver for that change. I think where we are and again, this is the point of that table is that the liabilities can be tightened which then boost our dividend yield once we can do the liability resets, right? So what we want to do is have kind of a knee-jerk reaction to one side of the equation, which is spread tightening on the asset side. Because it goes hand in hand with spread tightening on the liability side. But with a slight bit of delay. So that's what we're trying to manage to that to make sure that we don't just react to one side. The other side of the equation is very important too. Obviously in maintaining our arbitrage. And we are as the table shows every quarter we're going to make a meaningful dent in reducing that cost. Assuming the market stays where it is today. And so that's what we are effectively on a projected basis we feel very comfortable keeping the dividend where it is and that's why the board decided to keep it at $0.25 a month. We're not that far behind in terms of our sort of dividends paid out versus yield earned and you can see that from our presentation. We're running about $0.30 behind on a cumulative basis. So we could certainly catch up a chunk of that once the liability tightening can be accomplished through resets. Mickey Schiff Schleien: I understand. So it's really more of a timing thing. Those are all of my questions this morning. I very much appreciate you taking them. Ujjaval Desai: Of course, Mickey. Thanks. Operator: Your next question comes from the line of Eric Zwick from Lucid Capital Markets. Please go ahead. Eric Zwick: Thank you. Good morning. Most of my questions have been asked and answered at this point. But just looking at that page 10 and those estimated cost savings that you've mentioned you, your expectations for continued investor interest could cause further compression. Maybe just to kind of look at it from a different perspective, you know, in the past when interest rates have gone down, we've typically seen some spread widening. And if you believe this over curve, in your expectations for fed fund cuts, we could see, you know, base rates coming down further, which could potentially maybe erode the opportunity for you to realize some of those cost savings, particularly out maybe later in 2026. So just how much confidence do you have in your ability to extract the cost savings there to offset the, you know, kind of live or asset side compression that you've already seen? Ujjaval Desai: Eric, thanks for the question. I think, look, it's really hard to predict where the market is going to go. And, you know, we're not sort of experts in predicting rates right now, but there's certainly pressure on rates from both sides given the inflation dynamic as well as the labor market conditions. So we'll leave that as is. But in terms of the impact on our markets, clearly what we're saying is that if the market stays where it is certainly we can maximize these savings here. If the market goes wider you have two things going on. One the optionality to reset these liabilities is a go-forward optionality. So if you can't reset them immediately, we will be able to do them next time the market tightens. So it does create timing, but it's not a one-off option. So that's one thing. The second thing is that if liabilities do not tighten from here in that scenario, the assets will cheapen as well. And if that happens, we will be able to take advantage of that in two ways. One, our underlying portfolios, the portfolio managers that manage the CLOs we invest in we believe are top-tier managers who are very actively managing their portfolios. And to the extent there's any volatility, they can take advantage of cheaper assets to build par and improve the deals. And then as you know, we ourselves trade our portfolio quite actively and take advantage of any market volatility, any dislocation we see. Historically, I would say in the last sort of since inception of the CLO market, CLOs tend to do quite well CLO equity, particularly when there is volatility because of the optionality and the structure. And the reason why CLOs have had a challenging time this year is because of lack of volatility because spreads have gotten one way. So if there is any volatility, I think that certainly can be a helpful factor in the medium to long term. Certainly, will mean that our resets will get delayed a little bit if spreads widen out. But, I think it's more of a short-term impact. We're much more concerned on medium-term improving the outlook for the portfolio. Eric Zwick: That that's helpful, I appreciate the commentary. So it sounds like, you know, you're confident in the longer-term arbitrage opportunity still exists and there just may be some kind of short-term dislocations in terms of, you know, maybe assets repricing faster than you have the ability to liabilities, but over time, the opportunity remains, which is good to hear. So, that's all that's all I have for today. Thank you for Ujjaval Desai: No. I think they just to confirm that. Yeah. I think that the reason why we you know, this mismatch exists is because assets can reset loans can reset in six months while CLO liabilities are non-call for two years. So that's six months versus two years. That's the timing mismatch. And of course, it's very hard to predict where that goes going forward. But I think there are a lot of tools that we have that can be used to make sure that or a medium to long term the portfolio does well. Notwithstanding short-term kind of fall that you will see from market movements. Eric Zwick: Understood. Thank you. Kevin Gerlitz: Alright. Thanks, Eric. Operator: Your next question comes from the line of Tim D'Agostino from B. Riley Securities. Please go ahead. Tim D'Agostino: Hi. Thanks for taking the question. Just one for me on net asset value per share. Seems like there's a pretty substantial decline in the quarter. Looking at the balance sheet, obviously, you added the preferred b line and the repo. But I guess, you just provide more color on some of the drivers behind that decline quarter over quarter? Thank you. Ujjaval Desai: Sure. So the decline again, all roads lead to the same, fact, which is that spreads have tightened in the underlying loan market and liability spreads haven't tightened as much. So if you think about a portfolio of CLO equity, that's already in the ground, existing portfolio, if loans get repriced, the income component goes down. And that reduction is not matched by any liability tightening because that's still months away. What happens is that you get less income for equity and that is then that means there's less, sort of yield. Again, assuming liabilities stay where they are. End up with less yield. And that means the NAV of the portfolio keeps dropping because the CLO equity is marked based on discounting future cash flows at a required market yield, which hasn't really changed. This year. So the yield for CLO equity is still more or less what it was at the beginning of the year. But the cash flows have dropped. So that results in the mark to market sort of all these equity positions dropping. And we've seen that sort of, you know, if again, just rough math, if you have a 30 basis points or let's say 36 basis points in the last year, of spread reduction in the portfolio. That 36 basis points because of the leverage in the CLO structure means 400 basis points of drop in income per year. And that can result in 10%, 12% drop in the equity price. And so that's what we have seen. That's offset by the income we generate in the portfolio itself, but the NAV is going to be impacted. So that's it's all linked to the same factor and that's where the NAV is down. In the last quarter. Tim D'Agostino: Okay. Great. Thank you so much. Ujjaval Desai: Of course. Operator: Thank you very much. There are no further questions at this time. I would like to turn the call back to Ujjaval Desai, CEO for closing comments. Sir, please go ahead. Ujjaval Desai: Great. Well, thank you everyone for listening in today. I appreciate your support and your questions, and we'll look forward to seeing you again next quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Third Quarter 2025 Earnings Conference Call. My name is Chuck, and I will be your operator for today. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Winna Huang, Head of Investor Relations at Canadian Solar. Please go ahead. Winna Huang: Thank you, operator, and welcome, everyone, to Canadian Solar's Third Quarter 2025 Conference Call. Please note that today's conference call is accompanied by the company's slides, which are available on Canadian Solar's Investor Relations website within the Events and Presentations section. Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President of Canadian Solar subsidiary, CSI Solar; Ismael Guerrero, Corporate VP and President of Canadian Solar subsidiary, Recurrent Energy; and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will go over some key messages for the quarter. Yan and Ismael will review business highlights for CSI Solar and Recurrent Energy, respectively, and Xinbo will go through the financial results. Shawn will conclude the prepared remarks with the business outlook after which we will have time for questions. Before we begin, I would like to remind listeners that management's prepared remarks today as well as their answers to questions will contain forward-looking statements that are subject to risks and uncertainties. The company claims protection under the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of risks and uncertainties can be found in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented during the call will be provided on both a GAAP and non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors additional information to enable further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now I would like to turn the call over to Canadian Solar's Chairman and CEO, Mr. Shawn Qu. Shawn Qu: Thank you for joining our third quarter earnings call. Please turn to Slide three. In the third quarter, we delivered 5.01 gigawatts of solar modules in line with our guidance range. In our energy storage business, we achieved a record quarterly shipment of 2.7 gigawatt hours. Total revenue reached $1.5 billion, landing at the high end of expectations. Gross margin was 17.2%, exceeding guidance, primarily due to strong contribution from energy storage shipments. We also achieved a higher share of module deliveries to the profitable North American market. Our solar module factory in Mesquite, Texas, which has now successfully ramped up, contributed meaningfully to both shipment volume and margin. Absent nonrecurring expenses from the previous quarter, operating expenses normalized and we reported net income attributable to shareholders of $9 million or a net loss of $0.07 per diluted share due to the impact of paid-in-kind of our preferred shareholder of Recurrent. Now please turn to slide four. The solar industry is at an inflection point, and anti-involution policies in China are gradually taking effect. Market conditions have stabilized following the most challenging phase of the solar downturn. A complex macro environment presents both challenges and opportunities. This year, during the anniversary celebration of Canadian Solar's twenty-fourth birthday, I reflected on how we have grown with technology innovation, business model evolution, and global diversification. Today's shifting geopolitical landscape allows us to once again differentiate ourselves through our resilient combination of strategy and execution. Most notably, we are making strong progress in our US manufacturing investments. Phase one of our solar cell factory in Indiana is expected to begin production in 2026, while phase one of our lithium battery and energy storage factory in Kentucky is on track to start production by 2026 year-end. These factories will strengthen our US supply chain, support domestic energy security, and reinforce our long-term commitment to the American market. At the same time, we are planning adjustments to our US business to comply with the One Big Beautiful Bill Act. We are progressing smoothly, and I remain confident we will be able to successfully position ourselves to continue servicing our US customers. The rise of AI-driven data centers is fueling unprecedented global electricity demand. As I have emphasized in my public speeches over the past two years, the most flexible and cost-effective solution for powering data centers is solar plus storage. In contrast, traditional energy sources such as natural gas and nuclear power require long construction cycles and have limited scalability. We are now working closely with multiple data center customers to develop deeply integrated solutions. This requires advanced system engineering where our technical expertise provides a strong competitive advantage. I'm also pleased to share the significant progress we have made in our emerging business segments. Residential energy storage is on track to become profitable in 2025. We have seen strong growth for our residential energy storage product in Japan, Italy, and the US, and we are expanding into new markets like Germany and Australia. This marks a major milestone for our energy storage strategy and demonstrates how we are successfully broadening our revenue base beyond utility-scale applications. Recurrent, our solar and energy storage project developer and operator, will continue to balance the growth of our operational project fleet to generate recurring cash flow and selective sales of project asset ownership to manage near-term cash flow. Given the current market conditions, I have asked our team to check the balance a little bit more toward sales of project assets in order to accelerate cash recycling and reduce debt. With that, I will now turn the call over to Yan Zhuang, who will provide more details of our CSI Solar business. Yan, please go ahead. Yan Zhuang: Thank you, Shawn. Please turn to slide five. In 2025, module shipments totaled 5.1 gigawatts, in line with expectations. Earlier deliveries to two energy storage projects shifted volumes from the fourth quarter into the third. This led to our largest quarter to date, with 2.7 gigawatt hours of storage shipments. Revenue was $1.4 billion, and gross margin decreased by 730 basis points to 15%. The sequential decline was driven by margin changes seen in both the solar and storage businesses. In solar, incremental upstream price increases and underutilization raised unit costs, while module pricing in most global markets remained low. In storage, second-half margins reflect contracts signed at more normalized levels, and the volatile tariff environment drove incremental cost increases. Without last quarter's impairments and benefiting from internal cost controls, operating expenses decreased sequentially from 15.3% of revenue to 12.3%, and we delivered $39 million of operating income. Please turn to slide six for an update on our energy storage businesses. In the third quarter, we recognized revenue on 2.7 gigawatt hours of storage solutions. Our deliveries reached countries across North America, Europe, the Asia Pacific, and Latin America. As of October 31, our contracted backlog, including long-term service agreements, increased to $3.1 billion, supported by newly signed projects in North America and Europe. We continue to build momentum in our established markets while entering new ones. In Canada, we signed supply and twenty-year long-term service agreements with APA Power for the Elora and Hadley projects. Together, they total more than 2.1 gigawatt hours and are among the largest energy storage facilities under development in Ontario. Also in Ontario, we contracted to deliver a fully integrated energy storage solution and turnkey EPC services for the 1.6 gigawatt hour SkyView two energy storage projects. This marks our largest SoftBank delivery to date. Once completed, SkyView two will be one of the largest battery storage facilities in the nation. As a proud Canadian company, we are honored to help drive our country's clean energy transition. Across the Atlantic, we just signed a battery supply agreement and twenty-year long-term service agreement in Germany with KEON Energy, a leading storage developer. As demand expands across both our existing and newly entered markets, we expect to continue scaling our backlog and diversifying its global footprint. In addition to our established utility-scale storage solutions, we continue to expand our offerings and strengthen our capability in both CMI and residential storage. Notably, the residential storage segment is gaining momentum and has turned profitable this year. Building on the strong growth we have already achieved in Japan, Italy, and the UK, we will be launching our new three-phase solution to drive further expansion in markets such as Germany. We also plan to enter Australia in the first half of next year. In the US, we have successfully introduced the second generation of our residential energy storage solution, which better caters to the needs of the market and is demonstrating strong initial performance. In the CMI storage segment, where we see promising market growth potential, we continue to refine and diversify our portfolio to better serve emerging opportunities. Though smaller in scale, these segments have proven to be profitable, and we expect them to contribute more meaningfully next year. With that, I will hand the call over to Ismael Guerrero, who will provide an update on Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead. Ismael Guerrero: Thank you, Yan. Please turn to Slide seven. In the third quarter, we generated $102 million in revenue. We monetized over 500 megawatts of projects, including two high-margin sales: a battery storage project in Italy and a hybrid project in Australia. Gross margin was 46.1%, a sequential increase of 137 basis points, primarily driven by the contribution of more profitable project sales. During the quarter, we closed $825 million in construction financing and tax equity for the 600 megawatt hours Desert Bloom storage and 150 megawatt Apollo solar projects, all parts of our multi-project partnership with Arizona Public Service. These assets are under construction and are expected to begin operations in 2026. In the US, in addition to what we have in construction, we have already safe-harbored 1.5 gigawatt peak of solar and 2.5 gigawatt hours of battery storage projects. By the summer of next year, we expect to have safe-harbored at least 3 gigawatt peak of solar and 7 gigawatt hours of battery storage projects, giving us significant visibility over our execution pipeline for the next four years. Until our IPP business scales further, near-term profitability will continue to depend primarily on global project sales. As maintaining financial discipline remains our top priority, we will balance the growth of our operating portfolio and project assets with selective project ownership sales to prudently manage cash flow and debt levels. Looking ahead to 2026, we expect to increase the level of project ownership sales, enhance cash recycling, and reduce leverage. Now for an update on our pipeline, please turn to Slide eight. As of September 30, we have interconnection rights for approximately 8 gigawatts of solar and 15 gigawatt hours of storage globally, excluding operating projects. Our total development pipeline now includes 25 gigawatts of solar and 81 gigawatt hours of storage capacity. The reduction in the solar pipeline reflects a natural rebalancing. Some projects progress into more advanced stages while others were removed. At our current scale, our focus is increasingly on executing our high-quality pipeline rather than expanding it. For example, in the UK, we recently received government approval for our solar and battery storage projects in Lincolnshire, UK. This project is planned to be an 800 megawatt PV plus a 1,000 megawatt hour battery storage project, making it the largest co-located project in the UK to date. We are proud that Pilbara will connect to the grid through a substation that was previously used by a decommissioned coal plant, continuing to support the UK's decarbonization goals while providing reliable and sustainable energy to the communities it will serve. Over time, energy storage continues to emerge as a key growth driver. Not only are battery energy storage systems becoming increasingly cost-effective, but they are also profoundly reshaping energy markets, from grid stabilization and peak shaving to enabling renewables to integrate at scale. Notably, data centers are now placing ever-greater demands on power infrastructure, requiring round-the-clock reliability and often cleaner integration. In response, the opportunity set for longer-duration, higher-specification battery storage is expanding rapidly. We have started to dip our toes into the data centers business through regional JVs with data center experts, mainly in Spain and the US. We see significant synergies with our core expertise, as land acquisitions, interconnection processes, permitting, and community engagement are four of our core competencies that are crucial to the successful and timely deployment of data centers. Furthermore, powering data centers with clean and reliable electrons is one of the key bottlenecks to data center development, where we have significant expertise to bring to the table. In Spain, we already have 112 megawatts of projects with interconnections and land secured in Barcelona, Bilbao, and Madrid, plus an additional 40 megawatts with interconnections in Madrid waiting to secure land. Finally, our operations and management (O&M) business also continues to grow healthily. This quarter, we earned two internationally recognized certifications from TÜV Rheinland: ISO 9001:2015 and ISO 45001:2018. These certifications affirm that our power services meet globally recognized standards for quality and workplace safety. Today, Recurrent has over 14 gigawatts of solar and storage projects under O&M contracts across 11 countries. Now, I will hand the call to Xinbo Zhu to review our financial results. Xinbo, please go ahead. Xinbo Zhu: Thank you, Ismael. Please turn to Slide nine. In the third quarter, we delivered 5.1 gigawatts of solar modules and 2.7 gigawatt hours of energy storage systems. With contributions from accelerated storage shipments, total revenue reached $1.5 billion. Gross margin was 17.2%. The sequential decline primarily reflected the absence of one-time benefits recorded in the second quarter and the normalizing margins in both solar and storage manufacturing businesses. Operating expenses decreased sequentially to $222 million, reflecting lower shipping costs from reduced module volumes and ongoing internal cost reductions. Net interest expense declined to $29 million, driven by higher interest income. We recorded a net foreign exchange loss of $17 million, primarily driven by the appreciation of the Chinese yuan. Net income attributable to shareholders was $9 million, or a net loss of 7¢ per diluted share. This result included a positive $35 million HLBV impact, equivalent to 51¢ per share, from tax equity arrangements tied to certain US projects. The 20¢ per diluted share preferred dividend impact brought the total diluted loss per share to shareholders to 7¢. Please turn to Slide 10 for cash flow and the balance sheet. Net cash used in operating activities was $1.112 billion, compared with an inflow of $189 million in the second quarter. The difference was primarily driven by changes in working capital, notably a decrease in inventories during the prior quarter. Total assets grew to $15.2 billion, with project assets rising to $1.9 billion. Solar power and battery energy storage systems remain steady at $2 billion, as we pace the construction activity to manage leverage at the group level. Capital expenditures totaled $265 million, primarily related to US manufacturing investments and existing capacity expansions. This implies a larger CapEx outlay in the fourth quarter, and we expect to end the year slightly below our full-year guidance of $1.2 billion. Looking ahead to 2026, we continue to refine CapEx plans amid an uncertain policy environment but currently expect spending to remain at levels similar to this year. Most investments will continue to target the US market. Total debt increased incrementally to $6.4 billion, mainly due to new borrowings tied to project development assets. We closed the quarter with a cash position of $2.2 billion. Now let me turn the call back to Shawn, who will conclude with our guidance and business outlook. Shawn, please go ahead. Shawn Qu: Thank you, Xinbo. Please turn to slide 11. For 2025, we expect module shipments to be in the range of 4.6 to 4.8 gigawatts as we continue to maintain disciplined volume management. For our energy storage business, we expect shipments between 2.1 to 2.3 gigawatt hours, which include approximately 600 megawatt hours delivered to our own project. This guidance reflects the shift of certain volumes from the fourth quarter into the third, with Recurrent delivering its largest quarter of project sales this year. We project fourth-quarter revenue to range between $1.3 to $1.5 billion. We expect the gross margin to be between 14 to 16%. For the full year of 2026, we project total module shipments of 25 to 30 gigawatts, including approximately one gigawatt to our own project. Energy storage shipments are expected to range between 14 to 17 gigawatt hours. We will continue to focus on profitable solar markets and drive growth in our storage business. While we will continue to develop solar and energy storage projects, financial prudence remains our top priority. Accordingly, Recurrent Energy will increase project ownership sales in 2026 to recycle more capital and manage the overall debt level. With that, I would now like to open the floor for questions. Operator? Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And our first question for today will come from Colin Rusch with Oppenheimer. Please go ahead. Colin Rusch: Thanks so much, guys, and congratulations on all the progress. On the project sales, can you talk a little bit about the strategy of timing and leverage that you guys are going to deploy in these sales? You obviously have a great land position, nice interconnection queues, and certainly, potentially can leverage some of those positions into data center deals. And, also, you potentially can monetize these things earlier in the process and generate a little bit better returns in select areas. Just want to get a better sense of where you're coming out in terms of timing and, you know, kind of relationships that are going to come out of some of these sales. Shawn Qu: Yeah. Colin, we are still working on the 2026 AOP. So I don't have the quarter-by-quarter recurring project sales number in my hand right now. We target to get that down by February. So when we talk in March, in the March earnings call, we'll be giving you more details. However, we have enough COD operational projects for sale, so we don't have to sell projects early. I say projects early, I assume you mean sometimes sell at NTP or even before NTP. But before NTP, you don't get the value, right? Or they leave too much money on the table. So if we can sell after COD, we can not only get the value of the project development but also project financing. Because Canadian Solar, especially Recurrent, is also an expert in the tax equity financing deal in the US market. And there's a value there. So we do have enough projects, you know, we have a budget, like, roughly how many projects we will, you know, how many megawatts of project ownership we're going to sell each year. But for next year, I guess, we have enough COD projects for sale. And that's the US. We also sell projects in other markets, for example, in Latin America and also in Australia. Now, Ismael, do you have anything to add? Ismael Guerrero: Just to say it. Great, Shawn. You, Colin. Nice to talk to you. Colin, we have a very strong pipeline and very mature. So we are seeing good opportunities to sell with good margins. We are likely going to take them. That's the overall underlying reason. Colin Rusch: Okay. Perfect, guys. And then, you know, thinking about the battery manufacturing and the supply chain, can you talk a little bit about the maturity of your relationships with suppliers to deliver input materials into the US? You know, obviously, 70% of the supply chain is in China, and, you know, the vast majority is still in Asia. And so shifting things into North America is a pretty substantial effort. I just want to get a sense of, you know, how easily that's coming along for you guys and any sort of risks that we should be thinking about as you start to ramp up that capacity? Shawn Qu: Actually, there are a lot of supply chain, also suppliers outside China these days. So we have good selection, good choice for both solar and for energy storage. So we will, as you know, the OBPBA has some requirements of the material nonmaterial assistance level for both storage and for solar. And there's also the domestic content booster, right? 10% booster for both the energy storage and solar. And we have calculated that. So just pay those, I know, percentage requirements, we think we will be able to meet those requirements in 2026. No problem. I think 2027 the number will go up 5% also. I think it's roughly 5% each year. And we should be able to manage that stack. So we'll be able to meet the OBPBA requirement. And, also, if we do, if we make both cell and module in the US, we will be able to meet the domestic content rule as well. As I said, we will start production of our own solar cell in the US by, we'll ramp up. So by March. So throughout Q2, second half of next year, we should have reasonable volumes already. And those volumes will, you know, will come with the domestic content, the 10% domestic content, the boost. And for solar and for energy storage, our plan is to start the battery cell and pack manufacturing in the US at the same time. So I said, in my speech, that we expect to start production in December. So in 2027, we will have, we'll be able to provide the energy storage project, which also meets the domestic boost requirement, domestic content, you know, requirement, to settle customers, to enjoy the 10% ITC boost. Colin Rusch: Okay. Thanks so much, guys. I'll pass it on. Operator: The next question will come from Philip Shen with ROTH Capital Partners. Please go ahead. Philip Shen: Hi, everyone. Thank you for taking my questions. First one is on margins. I think your A-share subsidiary reported a 7% gross margin in Q3, but you guys reported a 17% gross margin today. So I was wondering if you could help us bridge that gap. Thanks. Shawn Qu: I don't think we reported seven. Oh, do we? No. Okay. Seventeen. Seventeen. Oh, well, 17% is just it's for CSI Q. Together. CSI Q, right? That's all of 15. And the CSI Solar has a different pack, you know, different mix. Yeah. Ismael just commented that the project sales in Q3 were with 46% gross margin. Philip Shen: Okay. So is the project business that really supported and offset the manufacturing 7% gross margin. Is that right? Shawn Qu: From actually, solar may be low, but solar plus the energy storage. 15% for all the manufacturing. But all the manufacturing, the gross margin in Q3 is over 15%. Now if it's only a module, it's low. It's below 10 because the, where we don't get much mark, you know, margin. Philip Shen: Okay. Thank you, Shawn and team. Moving on to the next question. As it relates to your 2026 guide, you gave us some color there, which is great. And you continue to talk about the ramping of US manufacturing. But how and can you give us color on how you're able to do that even though there's still substantial FIAC risk? As it relates to either ownership or just meeting the OBPBA requirements. Could be challenging. Thanks. Shawn Qu: Yeah. Philip, I answered this question in the last earnings call. Philip, we believe we can meet the requirement, the OBPBA requirement, by doing certain adjustments. Philip Shen: Okay. And then as it relates thank you, Shawn. As it relates to the ADCVD reserve or, you know, with the auxin case, there could be meaningful retroactive duties and was wondering, you know, can you quantify how much exposure that might be? And as a result, you know, do you think you know, you might need to reserve for that situation on the balance sheet? Thanks. Shawn Qu: Yes. It could be. I would say also could not be, right? So the court process is still moving along. And there'll be a long it'll be quite a while before there's a final decision. If it goes to the appeal, like, appeal court. And I have discussed it with our external lawyer and also the auditor firm. We don't think we need to book any reserve at this moment. Philip Shen: Great. Really appreciate taking the questions. I know some of them are a little bit touchy, so appreciate it. Thank you. Operator: Thank you. The next question will come from Brian Lee with Goldman Sachs. Brian Lee: Hey, guys. Thanks for taking the questions. Maybe just a follow-up to Phil's question. I know you guys are wanting to see the ADCVD process through the litigation and the case is still pretty early on. But in the event that you did have to, you know, accrue a liability or reserve some amount of funds for a potential, you know, negative decision, can you help to kind of quantify the range? I guess, you know, back of the envelope math suggests it could be well over a billion dollars if we, you know, estimate your US shipments over the past couple of years. I guess, first, is that the right way to think about it? And then second, how would you, again, just playing devil's advocate, hypothetically, if you had to do that, what would be your sort of funding strategy to finance that amount just given, you know, the cash burn and the high degree of net debt you have right now? Shawn Qu: Well, Brian, I guess you're also talking about the auxin case. And as I said, when I answered Philip's question, we don't think that we have to make a reserve. Therefore, there's no, like, no. I just I don't have to do any back-of-the-envelope at this moment. This is what my lawyer told me. This is what my audit firm told me. So I don't want to speculate here. Why don't you ask the petitioner to speculate how much money they can get or how much they will be able to get for the US government? Brian Lee: Yeah. No. I mean, I think there are published research around the potential value of the claim here. I don't know how accurate they are, but I do think there is a published number, which, again, counts into the billions of dollars. But I'll take that offline. I guess maybe just a bigger picture question. You know, we're all just trying to gather more detail. You know, we know there's no finite answer, but it'd just be helpful if you could elaborate, let's say, on the FIAC question as well. You know, you're obviously telling your customers, you know, your actions you contemplate taking to make sure you're FIAC compliant. Is there any insight into those conversations you can provide to give the financial community the same level of confidence around, you know, what steps you may be taking to make sure that, you know, your US manufacturing investments are going to be justified? Shawn Qu: Well, it's OBPBA has very simple and clear rules which say, you know, a big picture, it requires 75% from now from not from the APOC. And no more than 25% from the FPOC if there's two partners, right? If there are if there's only, like, one plus one partner. If there are two partners, two shareholders, from the IPE countries, the two together should take no more than 40%. So there are very clear rules there. So when I said, we will make adjustments to meet the OBPBA, so I think it's quite clear. It's something like a five-year, you know, like, grade five student or no. As long as you are structured yet, with these percentage numbers, then you are OBPBA compliant. What else do I have to tell you? Brian Lee: Okay. No. That's helpful color. And then last question for me, I'll pass it on, is on the asset sales, it sounds like that's definitely going to ramp up in 'twenty-six. Which is a bit of a reverse from the past couple of years as you've been moving toward this IPP model. It sounds like it's focused on cash generation and delevering. Can you quantify kind of what volume, megawatts, megawatt hours you anticipate monetizing through asset sales as opposed to keeping on the balance sheet for '26? And what kind of delevering potential that might result in for the balance sheet next year? Thank you. Shawn Qu: Well, as I said, we'll continue to build the IPP portfolio. However, given the current market condition, we are going to keep the balance a little bit. To be a little bit more cautious. And, also, as I said, when I answered Colin's question, I haven't brought my, you know, I let my board approve my 2026 AOP any operation plan yet. So I will give you more details in March because, typically, our board approves the AOP in February. So what I can say now is that given the current market situation, we are going to be a little bit more cautious. And I also said we have enough operational projects, high-quality projects, which we can, we can, like, cash in. But, see, every year, we always sell some projects. And Ismael mentioned that he sold some high gross margin projects. That helped to boost our gross margin in Q3, right? Overall gross margin. So I don't have the number yet. But I will let you know what I can let you know now is that we will be a little bit more cautious. So we are going to recycle more cash. Brian Lee: Okay. Understood. Thank you, Shawn. I'll pass it on. Operator: The next question will come from Alan Lau with Jefferies. Alan Lau: Thanks, management, for taking my question. This is Alan from Jefferies. Would like to know there's a lot of questions on your priorities already. So we'd like to have a more overview on the market demand in 2026. What do you think the US installation on solar and energy storage separately? Thank you. Shawn Qu: Okay. I will not ask Yan to share his thought. You're asking for the installation demand in the US in 2026, right, on both storage and solar? Yan Zhuang: Yeah. I think so the demand is there, right? And, also, the OBPBA compliant, you know, the safe harbor actually made the storage pipelines there. So I think for 2026, the storage project will be there. And the solar as well, the safe harbor also helped to actually preserve a lot of demand. But on the solar side, I think the cell supply can be a bottleneck for the total demand. So although we have a good solution, but does not mean everybody has that. So I think I hope the US will continue to maintain the similar level compared to this year. That's what I hope. But I do not see any significant growth. But on storage, I think, next year, the US will continue to be strong. That's my view. Alan Lau: Thanks, Yan. So I think the investors' focus is concentrated or overwhelmingly concentrated on ESS. So we'd like to know what type of growth rate are you looking at, like, is it like, 20, 30% growth or 50% or even China? I think people are talking about even more aggressive growth rates. And then with that growth, how much do you think it's coming from AIPC demand? Yan Zhuang: Hello? So you're talking about growth globally or US, China, Sorry. It's mainly US. Mainly US. Mainly US. I think that the data center work, yeah. Worldwide, you talked about data center worldwide, you know, more than half of the data centers built in the US, you know, but I think we see a very strong future demand in our portfolio, data center-related storage demand. But I think in terms of start installation construction, next year, it's not yet. It's not yet. It's gonna be you gotta wait for a little longer time. So for next year, the storage growth will still come from the safe harbor projects. So these are regular storage projects. Solar, as I said, I'm expecting flat. That's my hope. But storage, are you talking about growth rate? I don't have the number, but you can check the industry report. They vary a lot. The industry reports. On average, I think, there's a growth. I know. It's, 10-20% growth. Yeah. I remember I saw some reports number. Alan Lau: I see. So for demand ESS demand related to AIPC, you think can probably ask 2026. Right? And then, like, what type of installation you think will be more relevant? Like, is it like, two to four hours of system that is for clipping the peak demand or you are seeing even longer hours acting as some off-grid solution or, like, the main power supply for the AIPC? Like, what type of backlog do you see from or request from clients that you're seeing? Yan Zhuang: I think for regular storage, to conventional storage projects that you're talking about mostly, in the US is actually ship load shift peak shift. So it's rather like, three, four hours. Around four hours. But for data center, to begin with, I think my knowledge okay, it's more like two, three hours. It's mainly for smoothing out the load. That's what I, you know, our study shows. And so so it's like course of course, the longer term, for longer term, the storage project for data centers will progress into longer and longer periods of storage. The cost is also going up. So the challenge is how do we control cost while increasing the length? The duration. But to begin with, the most important application for data center storage is smoothing out the load, you know, smooth out the curve. So that's the most important starting point. Alan Lau: I see. So to confirm, like, it's more like there are some rules in ERCOT, maybe, like the etcetera, requiring more stability on the load. So the demand you are seeing at least for now, as it starts to cope with that request on the grid. Right? Instead of having long-duration ESS for supplying as the main power supply of the AIPC. Right? Is this understanding correct? Yan Zhuang: Well, I think, as I said, right, for the longer term, you know, it will progress. Right? But to begin with, I told you, it's more like smoothing out the load. So to stabilize the supply. And so so that's my answer. Alan Lau: That's good. That's good. And then finally, we'd like to ask on how much of the fourteen to seventeen gigawatt hours of shipment that's going to be in the US. Actually, we have well diversified our portfolio, our backlog. So I would say around two-thirds will be outside of the US. Out of the total guided volume next year. Yan Zhuang: I see. I see. That's pretty diversified. Thanks a lot for answering my question. Yeah. But also also a small it's small in China. And mostly it's between outside of China, outside of the US. So that's the kind of distribution. Alan Lau: I see. Definitely. Definitely. I'll pass on. Thank you a lot for having that level of clarity on the question. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead. Shawn Qu: Well, thank you very much for everyone to come to our call. And also, thanks for, you know, continuing the support. And if you have any questions, I would like to set up a call. Please contact our investor relations team. Take care, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the NextPlat Corp 2025 Third Quarter Earnings Conference Call. Certain statements made during this conference call constitute forward-looking statements. These statements include the capabilities and success of the company's business and any of its products, services, or solutions. The words believe, forecast, project, intend, expect, plan, should, would, similar expressions, and all statements which are not historical facts are intended to identify forward-looking statements. These forward-looking statements involve and are subject to known and unknown risks, uncertainties, and other factors, any of which could cause the company to not achieve some or all of its goals, or the company's previously reported actual results. Performance, financial or operating, including those expressed or implied by such forward-looking statements. More detailed information about the company and the risk factor forward-looking statements that may affect the realization is set forth in the company's filings with the Securities and Exchange Commission, the SEC. Copies of which may be obtained from the SEC's website at www.sec.gov. The company assumes no and hereby disclaims any obligation to update the forward-looking statements made during this call. Joining us on the call today are David Phipps, Chief Executive Officer and President, Amanda Ferriero, Chief Financial Officer, and Barut Norkut, Vice President of Healthcare Operations. I'll now turn the meeting over to David Phipps for his opening remarks. Good morning, and welcome to NextPlat Corp's Third Quarter 2025 Earnings Call. Thank you for joining us. David Phipps: Objective today is to highlight many of the changes that we've undertaken in the third quarter, many of which will be more fully realized on a sequential basis starting in 2025 and throughout fiscal year 2026. Although our results of operations for the third quarter 2025 are not what we would have liked, we believe that our efforts resulted in favorable operating expenses and cash outflows. An improvement in our pharmacy and e-commerce revenue and profitability. Operationally, improvements were evident late in the third quarter and have continued into the fourth quarter. A positive trend we expect to continue. After I recap the developments in the third quarter, Barut Norkut will discuss activities in our Healthcare segment. Amanda Ferriero, our CFO, will discuss our financial results. Then I will provide some concluding high-level remarks on our long-term objectives and developments, which we believe will positively drive the business forward. After that, we will then conclude the conference call by responding to questions that were submitted by our shareholders. Before I start, I would like to comment on our latest leadership updates. First, I wish to thank Cecile Munnik for her efforts as CFO leading our financial team and for her support during our transition to our new CFO, Amanda Ferriero. I also wish to welcome Barut Norkut as Vice President of Healthcare Operations who is joining us on this call today. Now, in terms of the business as we discussed with you during our last earnings conference call, and in our recent CEO shareholder updates. Our team has been busy implementing a series of actions designed to improve operations, reduce costs, and grow the business. As I stated earlier, although overall results for the third quarter do not reflect the full impact of our efforts, we did see meaningful improvements to operating metrics in September and we believe they will be more fully clear in our results for the fourth quarter and into next year. For those of you that are new investors in our company, I'd like to review NextPlat Corp's business model. This is built around three core segments. Healthcare services through our PharmCo Rx pharmacies, communications products and services through our global Telesat, Orbis and Satcom, and Outfit of Satellite subsidiaries, and our e-commerce development program supporting the sales of US-produced products into the Chinese market. Provided an extensive review of these segments in our recent shareholder letter released on October 8. You can find this on our website. I'd like to now provide a further update on our progress since that date. Most of which is reported in more detail in our quarterly interim financial report on Form 10-Q, which we have just released. Our Healthcare segment, we're continuing to see improvements resulting from our cost reduction efforts, and additional investments in business development. To illustrate these improvements, Amanda will provide the third quarter to second quarter review of the financial results. Overall, we're realizing significant revenue and profitability improvements from our business development initiatives started in the second quarter. This is highlighted by new contracts with a state prime contract holder and expanded business within the 340B space. Our leadership team has been successful in reengaging with a number of important clients who have, for various reasons, reduced business with us over the last few quarters. These efforts have already contributed to improved prescription volumes late in the third quarter, and into the early part of the fourth quarter. Barut Norkut will provide more insight into our health operations in a moment. In our e-commerce and communications segment, these are the most recent highlights. During the quarter, our e-commerce segment continued to see robust sales for satellite-based connectivity and IoT products, through our various e-commerce sites, as well as high-margin recurring revenue, which continues to run at record levels. We are continuing to expand our portfolio of cutting-edge connectivity products, and we grow our customer, consumer, and enterprise base with new and existing relationships. Operator: Relationships. David Phipps: Recent highlights here are the selection of GTC as the exclusive distributor for personal messaging and tracking products by a leading global satellite network operator for countries in the Nordic region. And the initial sales of Starlink products in the US through our Outfit for Satellite Unit. Sales of OPKO Healthcare branded human health and wellness products in China continue to show good sell-through despite lingering challenges of limited inventory levels. We are currently experiencing record sales volumes of OpCo products during the current 11/11 event, the world's largest sales event. In September, we also launched our Florida Sunshine range of nutraceutical products in the UK and the EU, and we began processing orders via Amazon Shopify e-commerce storefronts. Launching a new brand in new markets always takes time. And therefore initial sales are very modest as expected. But we are excited to be preparing the launch of an AI-driven marketing campaign for Florida Sunshine in partnership with an experienced healthcare brand marketing firm and to advancing our storefront on Alibaba's Tmall store in China. Now we've been approved to sell in the country. Now I'd like to turn the call over to Barut Norkut for her update. Barut Norkut, over to you. Operator: Thank you, David. Barut Norkut: As David noted in his opening remarks, our third quarter financial results reflect continued weakness across several areas. That said, we began to see a meaningful turnaround during the quarter, most notably in our 340B line of business. This momentum has continued through October, and we expect it to carry into the fourth quarter. To date, we have reduced our employee headcount by 50 since the start of the year, resulting in approximately $200,000 in monthly payroll savings inclusive of new hires added during the year. We expect payroll expenses to continue to decrease throughout the remainder of the year. Our 340B business has delivered a strong and sustainable rebound, driven by targeted service improvements and stronger customer engagement. Former clients have returned, new covered entities have joined us, and together, these factors have produced meaningful gains in both volume and revenue. In October, we dispensed more than 1,600 340B prescriptions, a significant increase, resulting in over 140% rise in monthly 340B contract revenue when compared to our lowest month earlier in the year. Our retail prescription business is also gaining momentum, with volumes up 27% from the low experienced earlier in 2025, supported by the new government pharmacy service contract and more consistent operational performance. These improvements have strengthened confidence among both existing and new clients as delivery times have shortened and customer response rates have improved significantly. Collectively, these advances have enhanced efficiency, customer satisfaction, and overall reliability, positioning us well for continued growth through the fourth quarter. Looking ahead, our focus will be on optimizing inventory levels and purchasing intervals to improve working capital efficiency. We also implemented key personnel changes in logistics to enhance performance and reduce delivery costs. These actions are expected to generate more than $1,500,000 in one-time cash savings through the return of excess inventory to our supply. While there is still work ahead, we are encouraged by the progress achieved and the solid foundation we're building for our future growth. The initiatives now underway are creating opportunities to further enhance efficiency, expand our capabilities, and strengthen long-term financial and operational performance. That concludes my remarks. Back to you, David. Operator: Thank you, Barut. David Phipps: At this point, I will turn the call over to Amanda to discuss our financial results for the three and nine months ended 09/30/2025. Over to you, Amanda. Amanda Ferriero: Thank you, David. Good morning, everyone. It's a privilege to join you today for my first earnings call as Chief Financial Officer. I will now walk through our consolidated financial results. For the third quarter ended 09/30/2025, we reported total revenue of $13,800,000 compared to $15,400,000 in the prior year quarter, representing an 11% decrease. The decline was primarily driven by lower contribution from our Healthcare Operations segment, which experienced a decline of approximately $1,500,000 while our e-commerce segment experienced a modest decrease of about $100,000. Within our Healthcare Operations segment, pharmacy prescription revenues increased by approximately $400,000 or 5% to $9,500,000 for 2025 when compared to the prior year period. This improvement was driven by higher reimbursement rates per prescription which offset the decline in total prescriptions filled, about 96,000 this quarter versus 128,000 a year ago. However, comparing 2025 to 2025, prescription volume increased by roughly 5,000 prescriptions resulting in a revenue increase of $1,300,000 or 16%. Our 340B contract revenue for 2025 decreased to $600,000 from $2,500,000 in the prior year quarter. This was due to transitions of certain covered entities to other pharmacy partners and their exit from the program or in-house sourcing. When comparing Q3 to 2025, 340B contract revenue declined by approximately $400,000. In e-commerce, revenue totaled $3,700,000 compared to $3,800,000 in the prior year quarter, a modest 4% decline. The decrease was mainly related to lower hardware sales which were partially offset by favorable foreign currency impact. Gross profit margin for the quarter was $2,700,000 compared to $3,600,000 in the prior year quarter. That represents a gross margin of 19.9%, down from 23.2%. The decline reflects softer performance in both segments, primarily due to reduced 340B contract revenue in Healthcare Operations and increased airtime costs in our e-commerce business following the expiration of a legacy service provider contract at the end of 2024. As we described earlier in this call, operational changes instituted during the third quarter have led to efficiencies and improvements that resulted in significant cost reductions. Total operating expenses decreased by nearly 40% to $4,700,000 compared to approximately $7,800,000 in 2024, which is excluding a non-recurring impairment charge of $3,700,000 in the prior year. Salaries and wages declined by approximately $800,000 due to lower stock-based compensation, reduced executive compensation, and a leaner workforce. Professional fees also decreased by about $1,800,000 reflecting lower legal and consulting costs. During 2025, we began repurchasing our common shares under the authorized share repurchase program. A total of 130,549 shares were repurchased and are being held as treasury stock. We ended the quarter with $13,900,000 in cash and working capital of $18,900,000. While we continue to experience net cash outflow during the quarter, we expect to significantly reduce our cash burn going forward as a result of the operational improvements mentioned earlier. In summary, while the quarter reflected some top-line pressure, our results demonstrate continued progress in streamlining our cost structure, improving efficiency, and preserving liquidity. As we look ahead to the fourth quarter, our focus remains on disciplined expense management. As David and Barut mentioned, we're advancing several initiatives aimed at achieving lasting cost savings. We all remain fully committed to improving operational efficiency and strengthening our financial foundation. I encourage you to review our financial statement as contained in our quarterly report on Form 10-Q filed with the Securities and Exchange Commission. That concludes my remarks on the financial results of the business. Back to you, David. Thanks, Amanda. David Phipps: At this point, I would like to provide some closing thoughts. Our progress against our refocusing and cost-cutting efforts had only a slight impact on the third quarter, which still largely reflects the ongoing state of the business without the benefits of the many positive developments discussed today. As such, we would review Q3 results as the low point in our business and believe that going forward, our efforts will begin to make more meaningful sequential impact across multiple operational metrics starting in the fourth quarter and continuing through next year as we advance towards our goal of achieving operational breakeven in 2026. In the shorter term, our efforts include continued emphasis on growth of profitable business lines through commitment of capital to marketing and sales efforts. We continue to add new contracts in both our communication and healthcare segments that will come online during Q4 2025. Although we see continued progress in our 340B and long-term care business, development efforts with new contracts coming online. We see opportunities for continued improvement here. Finally, we have further committed to invest in critical areas of the business. Some specifics here include adding to our sales team during the fourth quarter, enhancing our business development efforts, and as previously mentioned, recruiting the long-term care sales team so that we can capitalize on the opportunities we see in this part of the market. That concludes our formal remarks. We can now conduct the Q&A portion of today's call. We have again asked investors and shareholders to submit their questions in advance. And we would like to thank all of you who did. Question number one. What are the current plans for the buyback? Do you intend to increase the level of activity and pace? At this point in time, the program is still available. And as such, we continue to monitor the market. Please note, as we have said, we intend to be prudent in terms of deploying our available cash for the repurchase of shares. As we do have other critical investments we intend to make as described earlier today. As is our policy, we will provide an update on this program in our fourth quarter report. Question number two. How does the additional 180-day extension from Nasdaq change your plans to increase the stock price to regain compliance? We are pleased to get this extension, but in the very short term, it doesn't really change plans. We remain focused on improving our financial results, which will be critical for investors' confidence in our company. We do believe, however, starting early in the New Year, that we will have opportunities to be more proactive in engaging with new investors and we're looking at a number of events and activities. Question number three. Have your views on China changed given the lingering uncertainties? As we have said previously, tariff-related challenges are something we are dealing with. However, for non-US made products like OpCo, there are still opportunities. When we get inventory into China, it sells quickly. So even when you factor in high marketing costs, we're still able to generate very attractive margins. In terms of expanding our efforts with the optical animal products, the slow approval process is frustrating. But we continue to see strong demand overall for OpCo products. And we intend to still pursue these products as soon as we get approval. After Florida Sunshine, our Tmall store has now been approved. And we'll be shipping our first batch of products as soon as we clear some import certification requirements. Question number four. Can you comment on the status of the ongoing lawsuits? Cannot comment specifically on the ongoing litigation other than to say that as of today, we have resolved two of the matters and are working with counsel to resolve the final matter as quickly as possible while protecting the long-term interest of our shareholders. That was the final question that we received from investors. Thank you all again for submitting. Please remember that you can submit your questions on our Investor Relations email which is investors@nextplat.com or with our IR contact listed on our press releases. Michael Gretman, at mike@mwgco.net. That concludes our earnings conference call. We look forward to continuing to share with you our progress in the weeks and months ahead. Have a nice rest of your day. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's fourth quarter and full year fiscal 2025 results. All participants have been placed in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Additional instructions will be given at that time. Now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings. Jeff Harkins: Thank you. Good morning, everyone, and thank you for joining us. With me on the call today are Denise Paulonis, President and Chief Executive Officer, and Marlo Cormier, Chief Financial Officer. Before we begin, I would like to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-Ks and other filings with the SEC. Any forward-looking statements made in this call represent our views only as of today, and we undertake no obligations to update them. The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website. Now I would like to turn the call over to Denise to begin the formal remarks. Denise Paulonis: Thank you, Jeff, and good morning, everyone. Fiscal 2025 was a meaningful year for the company, highlighted by strong operating and financial performance in the context of a rapidly changing and uncertain macro environment. We are pleased to report both Q4 and full-year results that exceeded our expectations. For our fourth quarter, we delivered comparable sales growth of 1.3%, 100 basis points of gross margin expansion to 52.2%, adjusted operating margin of 9.4%, and a 10% increase in adjusted diluted earnings per share to $0.55. On a full-year basis, we delivered $3.7 billion in revenue, positive comparable sales, gross margin north of 51%, and adjusted operating margin of 8.9%, which is up 40 basis points to the prior year and above the high end of our guidance range. Adjusted diluted earnings per share came in at $1.9, representing 12% growth compared to last year. Our core strategic pillars drove customer engagement and sales, contributing approximately 260 basis points of comp sales growth for the full year. The business also generated strong cash flow from operations, of $275 million, which we deployed towards investing for growth, further strengthening our balance sheet with $100 million of debt pay down, and returning value to shareholders through more than $50 million of share repurchases. These results are a testament to the executional excellence across our organization and demonstrate the underlying strength of our business model. We have resilient customers, defensible categories, and strategic initiatives built to drive growth and increase profitability. Touching on some of the strategic highlights of the year, we advanced the business through several important initiatives. We maintained our leadership position in color, delivering growth of 7% in fiscal Q4 and 4% for full year 2025. We delivered on our promise of customer centricity, driving strong growth in our licensed colors on demand consultation service, by delivering standout education and advice. We extend our reach and fuel digital growth with the expansion of our marketplace strategy, adding Uber Eats to our already strong roster of partners, including DoorDash, Instacart, Amazon, and Walmart. We delivered a continuous pipeline of product innovation, adding new powerhouse brands like K18 at BSG, and expanding our partnership with Sauce Beauty, as well as adding newness in color from Wella and IroIro at Sally. We launched a comprehensive Sally brand refresh, which we are now calling Sally Ignited, designed to transform the business from a trusted beauty supplier to a modern dynamic beauty powerhouse. We generated an incremental $46 million of benefits through our Fuel for Growth program in fiscal 2025, building our cumulative run rate benefits to $74 million. Of that cumulative total, approximately $42 million flowed to the bottom line, with the remaining $32 million being reinvested in the business. And lastly, we are responsible stewards of capital focused on building long-term value for all of our stakeholders. Entering fiscal 2026, we have proven our ability to navigate a complex and dynamic external backdrop. And we will continue to execute leveraging the power of our competitive and structural advantages, our global scale, our compelling value proposition, and the strong fundamentals of our business to drive top-line and bottom-line growth. Throughout the year, our teams will focus on actioning at four key growth drivers: understanding and activating the customer, unlocking and harvesting digital value, differentiating with product assortment and innovation, and accelerating new growth pathways. I'll discuss each of these. Our customer activation strategy is focused on acquisition, retention, and share of wallet. Much of our success is rooted in our customer-centric capabilities. We've always been intensely focused on delivering unmatched levels of education, service, and advice. Today, we are deepening our understanding of customers beyond the transactional view. By leveraging our rich customer data, advanced analytics, such as our enhanced media mix model, and robust customer research, we can better target high-potential segments. This will enable us to improve customer engagement across touchpoints, that include performance marketing and personalization at both Sally and BSG, as well as refresh brand marketing, and our licensed callers on demand offering at Sally. On the performance marketing front, we are refining our paid search, social media, PR, and influencer strategies, informed by our enhanced media mix model to acquire new customers and drive sales growth. When it comes to personalization, we are focused on expanding our personalization experiences across all customer touchpoints, deepening our customer insights to drive the richness of the personalization decisioning, and targeting and strengthening our omnichannel communication and customer connection. A great example of our refined marketing campaigns is our plan for holiday at Sally. We're bringing elevated marketing to our stores and digital channel that has contemporary, unified look and feel designed to resonate with today's beauty consumer while staying true to Sally's brand heritage. Our holiday messaging platform, "skip save while you skip the salon," was created based on our latest customer data and insights. And represents a tactical shift from the buying bulk promotions of recent quarters. Additionally, at Sally, we are embedding licensed colors on demand, or LCOD, into our brand marketing strategy to reinforce our key pillars of expertise and accessibility. Our leading indicators offer a compelling view of the lifetime value of our LCOD customer. Twelve-month spend is almost 2x higher than non-LCOD customers, including about two additional transactions per year. New and reactivated customers comprise more than 50% of the LCOD customer base, and the number of consultations at fiscal year-end was averaging a record 5,000 plus per week. Additionally, our licensed colors are strengthening their knowledge of the care category and beginning to test care consultations where we're seeing positive early response. Moving now to our digital strategy. On the Sally side, there's a clear opportunity to build on the momentum of our marketplaces. Success. Which continues to be a key driver of e-commerce sales at Sally US and Canada. In fiscal Q4, Sally US and Canada's e-commerce sales increased 34% over the prior year and comprised 9% of total sales. Our teams are focused on unlocking greater digital value through marketplace expansion, leveraging our speed to market delivery capabilities, and strengthening our digital foundation. This will include website and app enhancements, that feature an elevated beauty persona, modern navigation, a more seamless customer journey designed to drive increased engagement and conversion. On the BSG side, mobile app usage accounts for a significant portion of our digital traffic. With increasing reliance on our app for education and transacting. We are targeting 2026 for a substantial update to the BSG app and e-commerce platform designed to deliver improved user experience and enhanced personalization. We believe this will fuel long-term benefits including higher conversion, increased retention, and engagement, and enhanced brand loyalty. We're also in the early stages of developing an exclusive digital ecosystem designed to expand BSG's relationship with a stylist and increasingly integrate into their businesses. This will include a centralized hub for education, community, and services, one that will enable us to leverage data to continuously create incremental value for both our stylists and brand partners. Turning to product assortment and innovation. For the Sally segment, we are focused on driving multi-category performance, by continuing to bring in new brands and products while expanding and nurturing categories beyond color. The most obvious opportunities exist in the strategic categories of care and nails, where we already have a strong presence and authority. In addition, we added fragrances as a new category in our top 1,000 Sally US stores in November. We're also leveraging our higher margin own brand offerings and have a number of initiatives on deck for fiscal 2026. First, we are refreshing and relaunching some of our key brands, including Texture ID, Inspired by Nature, and ION Semi Brace. And we're bringing infrared innovation to the market with a dynamic collection of ION styling tools. We believe that building momentum with our higher margin owned brands will enable us to drive increased customer retention and frequency at Sally, fueling long-term growth and profitability. For the BSG segment, we are pleased to serve as a trusted and valued resource. To our BSG stylist who are always seeking the latest and greatest in trends and innovation. With our ability to reach nearly every stylist in the US and Canada, we provide a valuable platform for brands to grow. And we have found that one great brand begets another. Of note, innovation drove upwards of 30% of BSG's total hair care sales in fiscal 2025. For perspective, that's up approximately three times from just a few years ago. In fiscal 2026, we have another exciting lineup of innovation coming. Key trends include glossing, bonding, smoothing, molecular repair, and scalp care. And we will be in stock with highly desired brands like Briogeo, Color Wow, Danger Jones, K18, Moroccan Oil, Schwartzkopf, and Unite. In addition, we see incremental opportunities for BSG to build upon its strong track record of expanding its distribution rights. This can take shape by partnering with existing brands, pursuing opportunistic acquisitions, and adding new brands, all strategies we successfully actioned in recent years. Lastly, looking at our strategy for new growth pathways. For our Sally business, we view Sally Ignited as a true game changer for our platform going forward. Sally Ignited is a comprehensive initiative encompassing both physical and digital refreshes, category and brand expansion, and immersive experiences focused on discovery and community. We see a tremendous opportunity to supercharge a fundamentally better store experience, especially as we double down on multi-category expansion, continue to deliver a relentless flow of innovation, and lean into momentum in areas like LCOD and marketplaces. Our mission is to ensure that the Sally brand emotionally connects with our customers while creating a discovery-focused omnichannel, specialty beauty experience, all enabling us to more effectively compete in today's product-obsessed beauty marketplace. At the end of fiscal 2025, we had completed 30 store refreshes. The stores are modern, on-trend, open, warm, and inviting. With a new layout that increases the ease of wayfinding. We've continued to see customers spending more time in-store and cross-shopping categories at an increased rate. Key indicators, including UPT, and ATV, are trending above the rest of the fleet. We are planning to bring Sally Ignited to an additional 50 locations throughout the remainder of fiscal 2026. Because these refreshes are mostly occurring in stores that were previously slated for updates or relocation, the investment is not incremental to our planned capital spending for the year. Looking further ahead, we continue to have conviction in the opportunity to refresh up to 1,500 stores for approximately two-thirds of the Sally fleet. Sally's strong brand equity and sixty years of heritage certainly provide a powerful foundation from which to build. In fact, we are incredibly proud that just last month, Sally's was ranked as the number three beauty retail brand in the prestigious Alice Partners consumer sentiment index for 2025. Turning to our BSG business. We're looking at new category expansion. We're focused on expanding BSG's addressable market by entering adjacent product categories, either organically or through acquisition. We recently began testing a couple of brands in the skin and spa space, while pursuing aesthetician. More to come on this in the coming quarters. Now moving to an update on our Happy Beauty initiative. Which currently has 20 stores. We've leaned into Happy Beauty as an indie brand headquarters, known for on-trend brands and key categories such as skincare and fragrance. Leading up to the holiday season, we recently completed key merchandising updates and implemented new marketing tactics, including increased influencer engagement and messaging, highlights indie brands, test before you buy, dupes, and value. We're putting a lot of energy behind the holiday selling season, and believe that coming out of that period we'll be better positioned to understand the trajectory of the concept and the optimal path forward. Underpinning the top-line growth drivers I discussed is a core discipline focused on profitability unlocks. In fiscal 2025, we generated meaningful operating efficiencies through our Fuel for Growth program. This work is ongoing and encompasses merchandising, sourcing, supply chain, best cost location, and non-trade spend. We have carried out deep dives and are continuing to extract value. In the first two years of the program, we generated cumulative run rate gross margin and SG&A benefits of $74 million, above our original expectation for $70 million, and we expect to capture cumulative run rate savings of $120 million by the end of our current fiscal year. Key levers we're focused on include SKU optimization, further supply chain optimization, promotion, and pricing. The expected benefits will continue to be an important contributor to gross margin and bottom-line profitability in fiscal 2026. Looking further ahead, we're committed to delivering significant value for our customers, associates, and shareholders. Our focused strategies and consistent execution position us to achieve compounding growth while the strength and flexibility of our balance sheet will enable us to remain disciplined capital allocators. As part of our long-range planning, we are introducing financial targets to reflect our three-year planning horizon ending with fiscal 2028. On an annual basis, we expect to generate net sales growth in the range of 1% to 3%, adjusted operating earnings growth of 3% to 5%, adjusted diluted EPS growth of at least 10%, including approximately 50% of free cash flow going to share repurchases, capital expenditures in the range of $90 million to $120 million, and free cash flow of approximately $200 million. Our foundation is strong, and our focus is clear. Our fiscal 2025 performance underpins our confidence that we have the strategy, capabilities, and team in place to scale and win with significant runway for growth and value creation. I'll turn the call over to Marlo to discuss the financials. Marlo Cormier: Thank you, Denise, and good morning, everyone. We concluded the year with strong business momentum, enabling us to deliver fourth quarter and full-year results ahead of our expectations on the top and bottom line. Our performance reflects our disciplined execution and commitment to long-term value creation. Turning to the details of the fourth quarter. Consolidated net sales increased 1.3% to $947 million, which included 40 basis points of favorable impact from foreign currency translation, while operating 38 fewer stores compared to the prior year. Consolidated comparable sales increased 1.3%. On the selling side, we saw strong growth in our core category of color, our digital marketplaces, and from our Sally e-commerce site. At BSG, color also performed well. And extended distribution and new brands drove another quarter of positive comp sales. Global e-commerce sales increased 15% to $105 million and represented 11% of total net sales. We maintained our strong margin profile in Q4, with gross margin expanding 100 basis points to 52.2%. The year-over-year improvement is primarily attributable to higher gross margin in both business segments driven by the benefits of our Fuel for Growth program. We expect to maintain our healthy margin profile in fiscal 2026, and anticipate we can continue to offset potential cost of goods impacts related to tariff increases through cost sharing with vendors, sourcing optimization, and modest price increases on select products. Looking at expenses, Q4 adjusted SG&A totaled $405 million. That's up $14 million to last year, reflecting higher labor costs, bonus expense, rent expense, and IT costs. Partially offset by $7 million in Fuel for Growth benefits. In total, we captured an incremental $13 million of pretax Fuel for Growth benefits to both gross margins and SG&A in Q4. Enabling us to deliver an incremental $46 million pretax benefits full year fiscal 2025. This translates to $74 million of cumulative run rate benefits since we initiated the program in fiscal 2024. Of that amount, gross margin benefits totaled $32 million coming from the optimization of our supply chain, vendor partnerships, and promotional efficiencies. SG&A benefits totaled $42 million coming from transportation efficiencies, outsourcing, and reductions in non-trade spend. Approximately $32 million was reinvested in the business to support our strategic initiatives, with $42 million flowing to the bottom line as profit or to offset inflation. We anticipate delivering an additional $45 million in run rate savings in fiscal 2026, with about two-thirds coming from gross margins and a third from SG&A. By the end of fiscal 2026, we expect that our cumulative run rate savings will be approximately $120 million. Returning to the P&L. Pleased to report that bottom-line results exceeded our expectations driven by gross margin expansion and cost reduction. Adjusted operating margin came in at 9.4%, and adjusted diluted earnings per share was $0.55, a 10% increase over the prior year. On a full-year basis, we delivered adjusted operating margin expansion of 40 basis points to 8.9%, adjusted diluted earnings per share growth of 12% to $1.9. Moving to segment results. Sally Beauty net sales increased 1.4% to $542 million, which included 80 basis points of favorable impact from foreign currency translation while operating 33 fewer stores versus a year ago. Comparable sales increased 1.2% with comparable transactions flat and average ticket up 1%. For the global Sally Beauty segment, color increased 8% while care declined 7% compared to the prior year. E-commerce sales increased 23% to $47 million and represented 9% of segment net sales for the quarter. In addition, e-commerce sales for Sally US and Canada grew by 34%. Gross margin in our Sally segment increased 90 basis points to 61.3%, driven primarily by higher product margins from the benefits of our Fuel for Growth program. Segment operating margin came in at 15.9%. Looking at the BSG segment, net sales increased 1.1% to $406 million, which included 10 basis points of unfavorable impact from foreign currency translation while operating five fewer stores versus a year ago. Comparable sales increased 1.4% with comparable transactions up 6% while average ticket was down 4%. From a category perspective, color increased 5%. Care was up 1%. BSG e-commerce sales increased 8% to $58 million, representing 14% of segment net sales for the quarter. Gross margin at BSG expanded 100 basis points to 40%, primarily reflecting higher product margins from the benefits of our Fuel for Growth program. Segment operating margin was strong, coming in at 12.6%, up 160 basis points to the prior year. Turning to the balance sheet and cash flow. We ended the year in strong financial condition with $149 million of cash and cash equivalents and no outstanding borrowings under our asset-based revolving line of credit. Inventory levels totaled $988 million, down 5% versus last year. Entering fiscal 2026, we remain focused on driving process improvement to enable faster inventory turns and improve working capital productivity. Fourth quarter cash flow from operations totaled $121 million, while free cash flow totaled $78 million. In Q4, we utilized excess cash to repay $21 million of term loan debt, bringing our net debt leverage ratio at year-end down to 1.6 times. We also deployed $20 million of cash to repurchase 1.7 million shares of stock under our existing share repurchase program. On a full-year basis, we generated $275 million of operating cash flow and $216 million of free cash flow, allowing us to repay nearly $120 million of term loan debt and repurchase more than $50 million of our shares. Turning to our fiscal 2026 guidance. On a full-year basis, we expect the following: consolidated net sales in the range of $3.71 to $3.77 billion, which includes approximately 50 basis points of favorable impact from foreign currency rates. Comparable sales flat to up 1%. Adjusted operating earnings of $328 million to $342 million, adjusted diluted earnings in the range of $2.02 to $2.10 per share, which assumes that 50% of free cash flow goes towards share repurchase. Capital expenditures are expected to be approximately $100 million. And free cash flow is expected to be approximately $200 million. In addition, we expect our store count to be approximately flat, including about 40 new stores, 40 store closures, and 50 relocations. For our 2026, we expect the following: consolidated net sales in the range of $935 million to $945 million, which includes approximately 40 basis points of favorable impact from foreign currency rates. Comparable sales to be approximately flat, adjusted operating earnings of $75 million to $80 million, and adjusted diluted earnings in the range of $0.43 to $0.47 per share. In summary, we are pleased to finish the year strong and look forward to making meaningful progress in fiscal 2026 toward the long-term financial targets Denise outlined. We appreciate your time this morning. Now I'll ask the operator to open the call for Q&A. Operator: Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from Oliver Chen with TD Securities. Oliver Chen: Hi, Denise and Marlo. On the quarter, you just had, would love to hear about what were some of the key factors that helped drive the upside at both at each division. And then as we think about the comp complexion this quarter, did ticket run similar to what you expected in terms of the negative ticket trends at BSG relative to the positive ticket trends at Sally. And then would just love to hear your thoughts on your comp guidance relative to occupancy leverage. What do you see happening in terms of your ability to leverage some of the fixed costs with the comp outlook? Thank you. Denise Paulonis: Good morning, Oliver. We are very pleased with performance in Q4. In terms of factors that drove the performance and drove the upside, I think what's really notable in the quarter is the strength of color in both of our businesses. So in the quarter, color was up 7% overall, 8% in Sally, and 5% in BSG, really speaking to the strength of the DIY kind of pro product, in our Sally segment and then the importance of the brands that we carry on the BSG side. And I think underlying that, the other things that we saw of strength, marketplaces continued to overperform on the Sally side of the business, which we are pleased to see. Innovation, in BSG helped to drive care back into positive sales growth territory, which we were pleased to see as well. And then finally, customer activation. The strength of the LCOD program with, you know, 5,000 to 6,000 consultations a week and a nice conversion rate in there, was a real benefit, comp by personalization. So thrilled with the outcome, and I think there's a lot of things there that are positive momentum that will continue with us into fiscal 2026. When we think about the ticket, particularly, I think you commented on the ticket in BSG. It was not surprising at all to us, that ticket was down and transactions were up. The behavior that we're seeing from that stylist is they still have a fairly healthy book of business. But they continue to buy what they need when they need it. So they're more likely to come in more frequently and pick up those items, which then in turn makes it for a little bit different lower basket. But in total, you know, delivering a little over 1% sales growth, 1.4% comp growth on the BSG side, the relationship with that customer is still extremely healthy. Then, Marlo, maybe you'll talk a little bit about the occupancy leverage, SG&A, for the coming year? Marlo Cormier: Yes. So for the coming year. In Q1, you know, the top line is a bit under pressure from some of the government shutdown, so we'll see a little bit of deleverage there. But as we go through the year, we'll see that leverage improving, and on a full-year basis, we would expect leverage to be fairly similar to last year. Oliver Chen: It'd be helpful to ask you a bit about the consumer environment because it's pretty bifurcated as we see with more pressure in the middle and low. And as you called out, sentiment and government shutdowns on people's minds as well. How is that interplaying? And what might drive comps better than your guidance that feels somewhat conservative, but I know there's a cautious optimism in terms of what you're seeing with the top line. And then second question on the long-term outlook, on your net sales growth of 1% to 3% to operating earnings growth of three to five? Are the leverage points we should think about in that algorithm? Thank you very much on the margins. Denise Paulonis: Absolutely. So let me start with on the consumer front. I think what we've seen today is that the Sally customer is resilient. Continues to respond well to a lot of the key initiatives we have in play, like licensed colors on demand, marketplaces, innovation. We also see the stylist business being nice and stable. Certainly, look forward to them having a very positive holiday season. Underneath all of this, I'd say in particular on the consumer side, we are seeing consumers remain choiceful. That's not new news. And for us, choiceful means continuing to spend in the core color category, but spending a little lighter in styling tools and leaning into value a bit more. We did see a bit of a slowdown on the low-income customer coming into our stores as we've navigated through the forty-plus days of the government shutdown. At this point, we hope that that's transitory behavior. We're certainly watching and monitoring what is happening with that consumer base. But I think if we step back, we just feel really good about the momentum in the business with strategic initiatives driving over 250 basis points of comp this past year. And those continuing into the new year. So focused on innovation, performance marketing, personalization, licensed colors on demand. If we said what could help a little bit more and drive a little bit outsized growth, we always have the potential on the BSG side for expanded distribution, tuck-in M&A that continues to expand our reach, with brands existing or new brand partners that is out there. You know, we're also excited with the work that we're doing on Sally Ignited. We're starting to understand with Wabak just in a few stores today what things we're learning that we can lift and shift. So for example, putting a thousand Sally stores our fragrance assortment kinda coming into holiday. So I think those are things that could trend positive. You know? But we think with what we just witnessed with the government shutdown, it's prudent in the way that we're thinking about Q1, but feel great momentum for the full year. And then, Marlo, do you want to comment a bit on the sales to profit equation, I think, Oliver asked about? Marlo Cormier: Yeah. And I think you were asking to the longer term. And so I think the growth on the top line, on top of that, where we see additional leverage coming and additional growth opportunity the bottom line is certainly through the continuation of our Fuel for Growth program. We have, you know, most of the heavy lifting will be done through the end of fiscal 2026, but it's the muscle memory that will remain within our organization and continue as we go forward. So we'll continue to optimize and leverage the capabilities of our Fuel for Growth program. For incremental opportunities to drive savings for both reinvestment and flow through to the bottom line. And then on top of that, our own brand performance continues to drive those results. Oliver Chen: Thank you. Best regards. Operator: Our next question from Susan Anderson with Canaccord Genuity. Susan Anderson: Hi, good morning. Thanks for taking my questions. I was wondering if maybe you can give us an update on the Sally store remodel program. How I guess, where are you at with the store remodels? Have you completed any beyond the Orlando market? And then maybe if you could just talk about where they're performing versus the core in the Orlando market, and then also if you've completed the ones outside. Thanks. Denise Paulonis: Sure. Happy to provide an update there. So as of this quarter, we kind branded our Sally brand refresh as Sally Ignited. And we think it's a great representation of how our reacting when they're coming into our new stores. Just as a reminder, what are we really doing? It's a physical and digital refresh. It really is about creating a more immersive experience that lets get more discovery in community. The store update in particular really has a new layout. Nail is displayed in a rotunda that's very dramatic as you come into the store. There's a discovery bar to help you in hair color choices. It's fixtures built for a purpose to shop as a specialty retailer rather than a supply store. And there's a cash wrap in the sense that really helps our associates deliver the high-quality service that customers have come to expect with us. Where we are today, at the end of the fiscal year, we had about 30 stores open, which included the full Orlando market as well as a handful of stores in other locations throughout the country. We're doing both of those models because Orlando will let us test kind of a full marketing program tied with the new program. And then when you think about the drop-in markets, we'll have a great ability to read APT results against specific changes that we're making in the stores to understand what's working, what we might do differently. We plan for 50 stores, fiscal 2026 that will let us continue to extend that reach and test and try. Great news is that's within our capital program for the year, because we would have been doing remodels or relocations in a number of stores, and we're really doubling down on Sally Ignited. Specifically on what we're seeing. We love that we're seeing customers have higher dwell time and shop cross-category when they come into the store, which is a great part of the design that we were looking to do. So that hair color customer exploring a nail, that textured hair customer looking and thinking differently about styling tools is what we were trying to drive. In turn, we are seeing UPT as well as ATV. So our units per transaction and our average transaction value higher than the rest of the fleet. That's very encouraging to us and what we hope we'll continue to see as the test progresses. You know? And I'd be remiss not to say, you know, we are working to lift and shift things that we're finding that are working quite quickly into some of our core fleet. A great example of that is the expansion of fragrances into a thousand stores in Sally here for the holiday. Susan Anderson: Okay. Great. Interesting. And then I wanted to maybe follow-up just on the strong growth in color at Sally. I think you had said that you are seeing, I guess, more new low-income consumers coming in. I guess, know, one, are you seeing more people do their hair themselves, and is that guess, you think being driven by just their wallets being stretched and you know, wanting to save some money on that front? And, I guess, are these new consumers as well to Sally? Are they just coming back? And then, you know, while they're in the stores, I guess, you seeing them pick up other products in the stores when they do come in to buy color? Denise Paulonis: Yeah. So we love what's happening with color. In Sally. I'd say the great thing is that we are seeing new reactivated and existing customer growth. When we think about the new customer growth, we think there's an extra benefit from licensed Colorist On Demand. When that customer can get support from an expert to get confidence in what is really a high-stakes category that going to go purchase and take on in your own DIY endeavor. We're seeing that customer come in, and that is fueling some of the growth in the model there's no doubt about that. You know, secondarily, when you think about the customer and them trying to manage their budget, no matter what income level you are, doing your hair in a salon all the time is a very expensive proposition. We recently did a survey, and out of the 61% of customers who told us they color their hair, it was quite fascinating that 25% of them do it just DIY. 25% of them split their time between DIY and salon. So think about that as they might get a big update at the salon and they might do touch-ups at home. And with only that remaining 11, 12% that actually said I only go to a salon. So our ability to have them understand how we can help them get that better out things like our in-store support and our LCOD, we think is driving people into the store, complemented by a great lineup of products and really easy accessibility. Susan Anderson: Yeah. Great. Thank you so much. Good luck with this holiday. Operator: Our next question comes from Simeon with Morgan Stanley. Laureen Ng: Hi, this is Laureen Ng on for Simeon. Thanks for taking our question. Our first one is on the longer-term outlook you provided this morning. Just curious as your fuel for growth initiatives wind down this year, what gives you confidence for achieving that longer-term outlook for the EBIT dollar growth of 3% to 5% range? Denise Paulonis: Oh, yes. Yeah. The longer-term algorithm that we've set forward, you know, certainly, you're seeing this fiscal '26 is on the path to that. Again, a big part of that is our growth drivers on the top line, which will help flow through to the bottom line. But then also adding to that is the full further opportunities within our Fuel for Growth program. Which we've got more runway on our supply chain optimization, further opportunities within our vendor negotiations, as well as the combination of own brand penetration continuing to increase. Laureen Ng: Okay. Great. Thank you. And then just a shorter-term question. On the Sally side, it looks like transactions are still a little bit soft. Can you help us understand how you're thinking about maybe traffic versus ticket? For 26 as it relates to the Sally segment and maybe how your initiatives are positioned to reignite growth for both in '26? Denise Paulonis: Yeah. Transactions in the Sally segment in the fourth quarter were pretty much flat, and our 1.5% sales growth came from a contribution of AUR and ticket coming into the stores. That's actually an improvement from what we've seen of late where traffic had been a bit more particularly on that lower-income consumer side of the business. Looking ahead, into 2026, we expect all the metrics will improve and continue to grow, right, in driving transactions will really be things around our performance marketing and attracting new customers into the fleet, the strength of our personalization and how we continue to enable and fuel that customer insights to really drive customer frequency. And then when we think about the basket itself, this focus on cross-category shopping is a primary effort that we have going on within our stores that I think is complemented nicely by new innovation coming in and the continued driven the continued success in our digital strategy that we've had of late. Laureen Ng: Okay. Great. Thank you. Operator: Our next question comes from Sydney Wagner with Jefferies. Sydney Wagner: Hi. Thanks for taking our question. Can you just share a little bit more about your expectations for category growth? That are underpinning that long-term net sales growth range? Curious kind of what trends and innovations you maybe are expecting to drive the category. And then maybe just an update on the promotional environment. What you saw during the quarter, and maybe what you're expecting into 2026. Thank you. Denise Paulonis: Yeah. So when we think about the long-term growth of the business, we believe color is still going to be at the core of both of our businesses. And we would anticipate continued nice growth in that space. You know, when we look beyond, you know, we're looking to have in the Sally business, care and nails really continue to gain traction. Nail and what we're working on in the Sally Ignited stores is quite dramatic and quite exciting for us and what we're delivering. And on the BSG side, the innovation flywheel, particularly on the care side of the business, is quite strong. But I think the part that's exciting in our long-range plan is how we're working on further category expansion. So when we think about that on the BSG side, we're starting to test into Skin and Spa, which not only can be bought by our existing beauty professionals that are coming into the store, but can expand our base to talk more to estheticians and what they need for their business. And on the Sally side, you know, the opportunity to understand how cosmetics, fragrance, men's grooming can play a larger role in the box and online is gonna be an important part of that category side of growth as well. So all good things that are underpinned by our ability to activate the customer, harvest digital value overall, and then our new growth pathways can help us advance that as well. And then your other question on promotional levels and what we saw in the fourth quarter. In general, I'd say levels for us were fairly similar year over year at both businesses. A little bit of nuance underneath that. You know, Sally running more promos but shorter days. So that idea of, if this is important to you, there is an expiration time on when you can come in and get a certain offer is been something we've been working on. And then BSG ran a little bit heavier in promo, but a part of that as well was strength of what we've been able to do with a lot of our brand partners in terms of preparing for the holiday selling season as we were approaching into the quarter. So we felt good about that. I think one thing that's really interesting that we're doing in Q1 here and the holiday on the Sally side is trying to move the customer a little bit more on the emotional reason to shop with us. So we've historically done more buying the bulk promotions, buying save promotions. And the holiday message platform that we have out there now, which is save while you skip the salon, is really the emotional appeal to say, how can you get the outcomes that you want when your budget might not be able to be perfect to be able to afford all of that? We're really looking to see how that resonates with the customer and are excited about it. Operator: As a reminder, if you'd like to ask a question at this time, please press 11 on your touch-tone phone. Our next question comes from Olivia Tong with Raymond James. Olivia Tong: Great. Thanks. Good morning. Great to hear your confidence in providing the long-term targets. So can you talk about the underlying category growth assumptions embedded in those targets, your market share assumptions? And then how you think about the contribution of existing doors versus some of the newer categories and doors that you're expanding into or entering? And then specific to Q1, the guide is a little bit lighter than we had expected and would be a deceleration versus Q4. You also expect things to improve as the year progresses. So can you talk about the headwinds that you're seeing in Q1 and then how you plan to build over the course of the year to give you the confidence despite the volatile backdrop? Thank you so much. Denise Paulonis: Yeah. Maybe I'll actually do this in reverse order. So I think first and foremost, when we think about Q1, I want to reemphasize we feel great about the underlying momentum in the business. What we've seen in terms of licensed colors on demand, innovation, performance marketing, personalization, we think are all very strong. For the full year, when we think about what underpins that, we assume that the consumer behavior and spending would be very similar to what we saw in 2025, which is choiceful, but resilient. And we still think that that's the case. You know, we are realistic that we do expect that we will have seen some incremental pressure on lower-income consumers in Q1 from the government shutdown. Right? Just the fear of the nature of when I'm getting that paycheck, you know, has an impact on lower-income consumers. And so, you know, we're hoping that we're gonna be past that very soon, but it's reflected in the expectations for the quarter. You know? And I think importantly, the model has really proven resilient with the hair color category at the core. It's really a staple category rather than the discretionary category. So strength there, and we'll remain nimble to respond to changes as the customer starts moving into the selling season. I think on the top line, what the other important part to note is that we move into Q2. We actually are up against an easier compare to last year. So while it's our smallest quarter, recall last year, there were a lot of transitory events whether that was the announcements around tariffs, the very high flu season that hit our stylists quite hard. So we expect Q2 to be a stronger category, because of what we're lapping there. And then the back half of the year to be, you know, on trend and on the base of the business. So I think what we're just doing is we're watchful about how that consumer is spending through this government shutdown period, which is what you're seeing in our Q1 expectation. And your bigger question, I think, was about long-term growth. And what is supporting our long-term growth drivers and that 1% to 3% top-line growth. And our guidance suggests that we'll be on the low end of that range as we move through the year. I talked about on the call, the four key pillars that we're really focused on, which is understanding and activating the customer, unlocking and harvesting digital value, you know, differentiating with products assortment and innovation, which includes category expansion. And then accelerating new growth pathways, which importantly is our Sally Ignited program as well as Happy Beauty. You know, when I think about where we are in the cycle of these different initiatives, I think the thing to think about is all of these are proven track record in what we delivered in FY 2025 with about 250 basis points growth coming of those from comp. In terms of pacing and how we see the progression of impact right, I think what's important to think about is, as we go into '27 and '28, what customer activation can do for us. And this understanding of the customer, being able to respond to that, incorporating how artificial intelligence can help us on that curve, we think the impact in personalization, performance marketing, and our LCOD campaign. I can't overstate the opportunity that we see there and what we're working on and delivering. And then secondarily, I would say is the other big opportunity as you look to the later years within that long-term guidance range. You know, we're already working on how to work how to think about this. So in BSG, we're sampling into Skin and Spa. We're excited about seeing how our customer reacts to that and that ability to attract a new aesthetician customer. And how we might be able to grow that business meaningfully as we look to future years. And then in the Sally side of the business, you know, we think that there's a lot more runway in the nail portion of the business the way that our Sally Ignited stores bring nail to the forefront in terms of what a new customer can experience coming in. We think there's a lot there. And then we expect that we will also start to more meaningfully play in categories like cosmetics and fragrance. In Sally, as well as men's grooming. So that's going to be some things that are gonna go on our growth curve. We expect that we will continue to extremely strong performance in color. It is the core of what we do and the expertise that we have. And then with these other categories of providing underlying growth, our confidence in that 1% to 3% top-line growth is quite solid. I think there's a lot of things underpinning that just for the Sally business as well that when you think about the global scale we have, as well as sticky customers, and great high NPS scores. And we think we're really on the path here to giving those customers what they want and being rewarded in return. Olivia Tong: Great. Thank you. Just one follow-up on what's on BSG. You had mentioned how stylists are buying closer to demand just in time. Imagine you're pretty adept in terms of providing to them. So can you talk about what you're doing to support that given that you have that footprint and capability to do that? Denise Paulonis: Absolutely. So I think the great thing and the strength here is with 1,300 stores across the country, our stylists can easily access us and then we can easily support them. So in addition to being able to come directly into the stores, we do offer two-hour delivery. So if you're engaging digitally and need that product right away, we're there and offer that service for you as well as buy online, pick up in store. For our customers who buy in larger quantities, our full-service portion of our business is still there, to actively serve our customers, and pull through. I think what we're excited about is to make things even easier for our customers a little bit later into 2026, we're actually relaunching our app. And our stylist is heavily engaged in the app. If you ever sat behind, you know, got your haircut, they're on their phone, all the time. It's how they place their orders. It's how they write down what they need. It's they think about how they're gonna serve their customers. Our ability to have that app be more intuitive, faster for them to be able to build a basket so that whether they want to buy online, pick up in store, whether they wanna come shop in store, whether they want us to deliver that product to them, we can handle that in all the ways that we need to. But that idea of supporting speed to market to that is very important to us. Olivia Tong: Great. Thank you. Best of luck. Operator: That concludes today's question and answer session. I'd like to turn the call back to Denise Paulonis for closing remarks. Denise Paulonis: Well, thank you for joining us all today, and thank you to our teams around the world for delivering a strong quarter and a strong year. But most importantly, supporting our customers and helping them get the looks that they love what they like to achieve in their own personal life. So thank you to everyone, and an early happy holidays. And we'll talk to you again next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Crescent Capital BDC, Inc. Third Quarter Ended September 30, 2025, Earnings Conference Call. After the speakers' remarks, there will be a question and answer session. Please note that Crescent Capital BDC, Inc. may be referred to as CCAP, Crescent BDC, or the company throughout the call. I'll start with some important reminders. Comments made over the course of this conference call and webcast may contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in forward-looking statements for any reason, including those listed in its SEC filings. The company assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. I'll now turn the call over to Dan McMahon. Thank you. Dan McMahon: Yesterday after the market closed, the company issued its earnings press release with some thoughts on the market, touching on our portfolio, and our forward earnings outlook. In terms of third quarter earnings, we reported net investment income of $0.46 per share, unchanged from the prior quarter, translating into an annualized NII yield of 9.5%. Earnings continue to remain in excess of our dividend with 110% base dividend coverage for the quarter. Net asset value was $19.28 per share as of September 30, compared to $19.55 per share as of June 30. The quarter-over-quarter decline was primarily due to unrealized and realized losses stemming from certain portfolio companies that have demonstrated weakened operating outlooks due to tariffs. Let me now discuss what we are seeing in our market and our positioning. With respect to the macroeconomic environment, the U.S. economy has largely remained resilient. While we have been seeing signs of some slowing momentum amid mixed labor and economic data, we believe that the Federal Reserve's recent rate cuts combined with greater clarity on tariff policies may lead to near-term growth in LDL activity. On new investment opportunities, our private credit platform continues to maintain lead roles in the majority of our transactions. Given our focus on the core and lower middle markets, we believe we drive better structural protections than deals in the more competitive upper middle market or BSL replacement segment. Our segment focus provides us with the opportunity to lead our transactions and drive the documentation. We are focused on strong cash flow generation, tight EBITDA definitions, as well as enhanced monitoring rights, which allow us to be proactive versus reactive as we think about our approach to portfolio management. While we have no exposure to first brands and Tricolor, these recent bankruptcies highlight governance issues that we seek to avoid by working with well-established private equity sponsors. We've established our private credit business by partnering closely with our long-standing sponsor relationships to uphold strong governance and oversight across our portfolio companies. Let's shift gears and discuss the investment portfolio. Please turn to Slide 13 and 14. We ended the quarter with approximately $1.6 billion of investments at fair value across a highly diversified portfolio of 187 companies, with an average investment size of approximately 0.6% of the total portfolio. Our top 10 largest borrowers represented 16% of the portfolio as we are believers in modulating credit risk to position size. We have maintained an investment portfolio that consists primarily of first lien loans since inception, collectively representing 90% of the portfolio at fair value at quarter end. Additionally, we have positioned our portfolio to focus on domestic service-oriented businesses and, in our view, mitigate concentrated risks associated with tariffs, shifts in government spending, and other policy changes. Finally, our investments are supported by well-capitalized private equity sponsors, with 99% of our debt portfolio in sponsor-backed companies as of quarter end. We have partnered with our sponsors to invest in well-capitalized borrowers with significant equity capital beneath us. We note that the weighted average loan to value in the portfolio at the time of underwriting is approximately 40%. Moving on to our dividend. For the fourth quarter, our Board declared a regular dividend of $0.42 per share, which represents a 9.12% annualized dividend yield based on NAV and today's closing stock price, respectively. This dividend is payable on January 15, 2026, to stockholders of record as of December 31. This marks our thirty-ninth consecutive quarter of earning our regular dividend at CCAP. Before I turn it over to Henry, I'd like to take a moment to discuss our outlook for CCAP's earnings potential and base dividend in light of recent rate cuts and potential further easing in 2026. Looking ahead, we anticipate that a lower base rate environment may gradually reduce portfolio yields and place some pressure on net investment income. Given the largely floating rate nature of direct lending portfolios, we believe several factors position CCAP well to address base rate-driven earnings headwinds. To start, in 2025, our net investment income once again exceeded our base dividend with 110% coverage. On the liability side, approximately half of our borrowings are also floating rate, allowing funding costs to adjust downward to preserve our net interest margin. We have several additional levers that may help offset potential earnings pressure on lower base rates and support future growth. First, we ended the quarter with net debt to equity of 1.20x, below the upper end of our 1.3 times target range. This provides us with flexibility to leverage Crescent's attractive origination pipeline and enhance earnings through prudent portfolio growth. Crescent's private credit platform has been active with over $6 billion of capital committed to new and add-on investments on a trailing twelve-month basis, including over $1.7 billion during the third quarter. Being associated with Crescent's private credit platform provides ample opportunity for CCAP to reinvest in attractive private credit investment opportunities. Second, a more accommodative rate environment should serve as a tailwind for new deal activity. Lower borrowing costs are expected to support renewed M&A refinancing volumes, creating opportunities for attractive reinvestment and additional fee income. We are optimistic that over time, we may see higher levels of non-interest-related income as compared to this third quarter, driven by a pickup in origination and structuring fees on new investments, as well as accelerated amortizations on realizations. Third, our spillover income remains a meaningful source of earnings support. At approximately $1.1 per share, this balance provides a cushion as we navigate the current rate outlook. And finally, we have a demonstrated record of alignment with shareholders. Since inception, each of our portfolio ramping initiatives, both when we established CCAP in 2015 and listed CCAP in 2020, were supported by our fee structure during the respective ramps. Additionally, we have committed substantial advisor support for accretive non-dilutive growth opportunities, including our two public acquisitions. As I noted last quarter, our positioning has and always will be for the long term. And today, we are comfortable with our dividend level. With that, I will now turn the call over to Henry. Henry? Henry Sahn Chung: Thanks, Jason. Please turn to Slide 15 where we highlight our recent activity. Gross deployment in the second quarter totaled $74 million, as you can see on the left-hand side of the page. During the quarter, we closed seven new platform investments totaling $51 million. Even as spreads have tightened, our focus remains on high-quality companies with strong credit profiles. These new investments were loans to private equity-backed companies with a weighted average spread of approximately 530 basis points. The remaining $22 million came from incremental investments in our existing portfolio companies. The $74 million in gross deployment compares to approximately $80 million in aggregate exits, sales, and repayments, resulting in net realizations of approximately $12 million for the third quarter. Our portfolio activity resulted in net realizations during the quarter due to several commitments to new portfolio companies that slipped into the fourth quarter. Turning back to the broader portfolio, please flip to Slide 16. You can see that the weighted average yield of our income-producing securities at cost remained stable quarter over quarter at 10.4%. As of June 30, 97% of our debt at fair value were floating rate, with a weighted average floor of 77 basis points. The weighted average interest coverage of the companies in our investment portfolio at quarter end remained stable at 2.1 times, demonstrating durability and strength within the earnings at our underlying portfolio companies. As a reminder, this calculation is based on the latest annualized base rates each quarter. Please flip to Slide 17, which shows the trends in internal performance ratings. Overall, we have seen stability in the fundamental performance of our portfolio, resulting in consistency in our risk ratings and a weighted average portfolio risk rating of 2.1. On the right-hand side of the slide, you'll see that one and two-rated investments, representing names that are performing at or above our underwriting expectations, increased modestly from 86% to 87% quarter over quarter, continuing to represent the lion's share of our portfolio at fair value. As a percentage of those investments at fair value, non-accruals improved from 2.4% as of June 30 to 1.6% as of September 30, driven by a change of control and recapitalization, as well as the sale of an investment that has previously been on non-accrual. This was partially offset by two new non-accrual investments during the quarter. The overall portfolio continues to demonstrate resilient business fundamentals, supported by the fact that the vast majority of our borrowers experienced steady revenue and EBITDA growth year over year. We have seen weakness in certain watch list investments that are facing operating challenges resulting from tariff impacts. Two of these investments, one which exports goods to the U.S. from Europe, the other which sources a meaningful percentage of its inventory from overseas, negatively impacted NAV this quarter, collectively accounting for $0.15 per share in unrealized losses. As a reminder, in May, we highlighted that our initial tariff analysis identified 4% of our portfolio may face direct operating impact from tariff policies. We do not believe this exposure has increased in any meaningful way since our initial review, and outside of the select portfolio companies highlighted, the portfolio impact from tariffs remains muted. We continue to monitor closely for potential adverse impact in the portfolio stemming from trade policy and believe our aggregate risk is manageable, particularly as the portfolio further diversifies. More broadly speaking, we have continued to take a preemptive and rigorous approach to our watch list, recognizing that there are a variety of approaches to how managers think about these categorizations. It's worth noting that as of the end of the third quarter, as a percent of total investments at fair value, CCAP's watch list, which we define as three, four, and five-rated investments, was 13% as compared to non-accruals of 1.6%, so a gap of over 11%. Based on an analysis of our public peers, this gap is approximately 5%. We do not wait until there is default for moving an investment down the risk scale. We strive to be transparent about the health of our portfolio with the market, and one of the ways we do so is by taking a preemptive approach towards how we classify our watch list investments. With that, I will now turn it over to Gerhard. Gerhard Pieter Lombard: Thanks, Henry, and hello, everyone. Yesterday evening, we reported net investment income of $0.46 per share, which is in line with the prior quarter. Net income for the third quarter was $0.19 per share, compared to $0.41 in the prior quarter. The quarter-over-quarter change primarily reflects higher net realized and unrealized losses. The tariff-impacted investments that Henry noted accounted for the majority of the change in realized and unrealized losses during the quarter. While these items impacted results this quarter, they represent isolated credit events within an otherwise stable and well-diversified portfolio. Turning to the balance sheet. As of September 30, 2025, our investment portfolio at fair value totaled $1.6 billion, consistent with the prior quarter. Total net assets were $714 million, and NAV per share was $19.28, a decrease from $19.55 at the end of the second quarter. Let's shift to our capitalization and liquidity. I'm on Slide 19. In light of the continued tightening in credit spreads, we're actively pursuing opportunities to optimize the pricing, tenure, and diversification of our financing sources, leveraging more constructive dynamics in the private placement market. In October, we priced $185 million of new senior unsecured notes broken down into three tranches. First, $67.5 million due February 2029, second, $67.5 million due February 2031, and third, $50 million due May 2029. The notes will be issued in two closings. The first and second tranches totaling $135 million will be issued on February 26, and the third tranche will be issued in May 2026. The proceeds from these respective issuances will be used to repay the majority of our existing debt maturing in 2026. Pro forma for this activity, over 90% of total committed debt now matures in 2028 or later. So we're pleased with our progress here. The weighted average stated interest rate on our total borrowings was 5.99% as of quarter end, down from 6.09% in the prior quarter, due primarily to a 50 basis point spread reduction in our SPV asset facility, which we rightsized during the second quarter and discussed on last quarter's call. Our quarter-end debt to equity ratio was 1.23 times, or 1.20x on a net basis, unchanged from the prior quarter, within our stated target range of 1.1 times to 1.3 times. With $240 million of undrawn capacity subject to leverage, borrowing base, and other restrictions, and $28 million of cash and cash equivalents as of quarter end, we have sufficient liquidity to selectively fund further investment activity while maintaining a debt to equity ratio inside our target range. The third and final previously announced $0.05 per share special cash dividend related to undistributed taxable income was paid in September. As Jason noted, for 2025, our Board has declared our regular dividend of $0.42 per share. While our existing variable supplemental dividend framework remains in effect, CCAP will not pay a Q4 supplemental dividend as the measurement cap exceeded 50% of this quarter's excess available earnings. And with that, I'd like to turn it back to Jason for closing remarks. Jason Breaux: Thank you, Gerhard. In closing, as we enter the last two months of the year and look towards 2026, we believe CCAP remains well-positioned with respect to our experienced investment team, high-quality, diversified portfolio, and strong capital structure. We remain optimistic about the long-term prospects of the company given our positioning as a leader in the core and lower middle market with access to the breadth and resources of the broader Crescent platform. And we are focused on continuing to deliver a stable NAV profile and attractive total economic return in excess of the public BDC space. Thank you all for joining us today and for your interest in CCAP. I'll now turn the call over to the operator for Q&A. Operator: We will now open for questions. Your first question comes from the line of Robert Dodd with Raymond James. Please go ahead. Robert Dodd: Hi, thanks for all the color on kind of the earnings outlook and the dividend question. So, I mean, digging into that, I mean, as you said, spillover about $1.10. So you have that as a cushion if necessary. But, I mean, obviously, that eats away NAV if you dip into that. I mean, what do you think between your liability side, sort of the leverage activity fees, etcetera, what do you think the probability is that you have enough levers to actually keep NII coverage as a dividend at 100% or more? Or do you think spillover is going to be necessary consumed during 2026? Jason Breaux: Hey, Robert. Jason here. Thanks for the question. We certainly think that the levers will be available to us on a go-forward basis here. I think for the immediate near term, we do believe that we are going to cover our base dividend with NII. I think we are certainly going to be tactical about how we think about generating incremental NII to support our base dividend. And as noted on the call, we've got an availability to certainly increase the size of the portfolio. We do think that there is the potential for increased non-interest-related income that can be driven from a pickup in activity relative to a more subdued line item for non-interest-related income. And then lastly, as noted, I think we've always tried to do the right thing and support CCAP and support our shareholders. And so between all of those levers, we're focused on covering the dividend. Robert Dodd: Thank you for that. So I'll just give him some notes. On the couple of assets that got marked down, the tariff question to Henry's point, I don't think that the tariff exposure has increased, but has the ability of the exposed companies to handle the tariffs deteriorated because the exposure doesn't seem to have gone up, but some of them have been marked down fairly significantly on a tariff issue that's, I want to say, been known about all year because it hasn't. But, you know, it wasn't a new surprise this quarter. Is there something that's changed in the ability to cope on specific tariffs or anything like that? Henry Sahn Chung: Yes. Robert, this is Henry. I'll take that. The short answer is, in aggregate, no. Nothing has changed there. We've actually been, on a broader portfolio perspective, pleased with how management teams have responded with respect to either enacting price increases, repositioning supply chains, or exercising customer power that they have over their suppliers to be able to address potential pressures from tariffs. We highlighted the two names that we saw pronounced reduction in near-term operating outlooks because while overall in the portfolio we certainly seen resilience, those two companies, at least in the near-term outlooks, are going to have to have a longer road in terms of being able to exercise all those levers to get back to what I would say is more historical levels of profitability. So in order to summarize that, I would say that for the broader portfolio, it's certainly the case that we have seen management teams and sponsors able to respond proactively to the actions, outside of specific portfolio companies where our view is that that outlook is going to be longer term. Robert Dodd: Got it. Got it. Thank you for that. One more, if I can. You focus, obviously, on core loan middle market, you know, middle market is what it used to be. But the tone this quarter from other BDCs seems to be that the competition in the core and lower market has heated up to the spreads, etcetera, has heated up at kind of an accelerated rate as we go through as we've gone through this year. Can you give us an economy? What do you think is the state of the market? You're still covenants, but are they as tight as they were? The spreads aren't necessarily where they were. Obviously, everybody's seen spread compression, but to some degree, has it exceeded your expectations for what you normally see in your core market? And when do you think that changes if it does? Jason Breaux: Robert, Jason here. Thanks. I would say we've certainly all seen spread compression this year across the middle market, whether it's lower, core, or upper. It's certainly been exacerbated in the upper where you're really competing with the broadly syndicated loan market. And quite frankly, you can get single B type spreads in that market in the 300s. Where we're operating, I would say not a significantly notable pickup in increased competition from actual new competitors. I think there's certainly competition for deals because of lower volumes, certainly in the first half of the year. And so that has resulted in some spread compression in our end of the market as opposed to new entrants. What I would say is that I think that we're still seeing transactions, high-quality private transactions in the lower and core in the S plus 450 to 500 range versus what you might see in the upper mid in the low 400 range. And importantly, different leverage structures. Right? So in the upper mid market, you might see deals getting done at the low 400 at one or two turns more leverage than what you might see in the lower and core. So from a risk-adjusted standpoint, we like where we're investing. I do think from a spread standpoint, we have some optimism that with the demonstrated rate cuts by the Fed, we are seeing increased pipeline activity, increased dialogue. And so now we've said this before, but we do have some optimism around a real pickup in activity in 2026. Henry Sahn Chung: Just to add to that, across the platform, as you know, Robert, CCAP is a small part of Crescent's broader private credit platform. We've been actually quite active with a lot of activity coming in recent quarters. We've adjusted around $6 billion total over the last twelve months that have been deployed across private credit here. That's where we're picking our spots. Certainly being competitive on the rate side, but we are not really willing to compromise on how these businesses are capitalized and our corresponding documentation that goes with it. So, with that, you know, there's I think there's a strong case here for in the near term, expecting that opportunity set to be larger over the next twelve months than it was over the prior twelve months. Which I think kind of feeds to your original question as well, which is thinking about levers here to continue to drive attractive reinvestment and consistent investment income here. Robert Dodd: Got it. Thank you. Operator: Thank you. Your next question comes from the line of Mickey Schleien with Clear Street. Please go ahead. Mickey Schleien: Yes. Good afternoon, everyone. Sticking to the issue of spreads, looking at page eight of your presentation, it was, I'd say, gratifying to see that spreads on your new investments increased quarter to quarter. Could you help us understand what drove that increase? Henry Sahn Chung: Yeah. So thanks for the question. This is Henry. We've actually been able to, I'd say, over the last five quarters here, kind of hold the origination spreads at around that 500 basis points over so far. Baseline. It's gonna be a mix of incremental activity from our existing portfolio, a strong source of our origination on a quarter-to-quarter basis, add-ons at the existing portfolio companies, as well as just opportunities that we're seeing within our specific market segments that kind of tie closer to that $4.75 to $5.25 over so per band. So as you kind of think about where we play in the market as well as add-ons being a large, you know, can it be anywhere from a third to a half of our origination on a quarter-to-quarter basis. Those two dynamics are certainly providing us the ability to maintain spreads here even in this market. Mickey Schleien: So would it be reasonable to say that the spread expansion quarter to quarter did not include taking on excessive risk? Henry Sahn Chung: Yes. I would absolutely agree with that. We're very conscious to stay within our lane in terms of where we're underwriting with respect to security. So we haven't deviated from this focus on top of the capital structure. Everything we do historically and today remains sponsored by portfolio companies, and we're not it's never been our ethos to stretch for yield by either taking on leverage beyond what we think is prudent or expanding to company types that are outside of our comfort zone. Mickey Schleien: I understand. That's helpful. Staying with the presentation, but switching to Page 15. New equity investments represented 20% of this quarter's new investments. Could you describe what those new equity investments were? And what did you see that made them interesting to you? Henry Sahn Chung: Yeah. So those new equity investments are actually tied to restructurings of portfolio companies where we recapitalize part of the capital structure into both the debt and equity component. So when you think about the breakdown there, the majority of what you'll see on that page is tied to the recapitalization and change of control that we did with two portfolio companies during the quarter. Mickey Schleien: Okay. So I guess it's new in sort of quotation marks. Another question on investing. I noticed your investment in Family Dollar, which is interesting. What is your thesis there? We're getting such mixed messages on the health of the consumer, particularly at the low end of the spectrum. So wanted to understand what your thinking is there. Henry Sahn Chung: Yes. That loan was actually done with an equity investment that we have in an asset-based lender called White Hawk. This is a group that we've been investing in and alongside going back to 2017, across multiple vintages. Historically, they were called Great American Capital Partners. And selectively, we have participated in co-investment opportunities alongside them from time to time. So if you kind of look back at our history, some notable that would fall down a category in the past include Amyris as well as BJ Services, and Family Dollar is one of the more recent ones that we've done with them. You think about the investment thesis there, given that their focus is on asset-based lending, that is an asset-based loan where the primary collateral there is not the ongoing operations of the business. So we're not underwriting necessarily consumer demand for that specific type of retailer, but more so the hard assets that underpin the loan there. So it's something that we've done in spots historically over the last eight years or so. Never a large percentage of the portfolio, but that investment would be part of that categorization. Mickey Schleien: Okay. That's interesting. We've seen other BDCs do really well in that space. Just one final question, if I can. It's more of a, I guess, a philosophical question. It's a small position. Referring to I don't know if it's CECO or SACO. I don't know. How do you pronounce it? It's valued above par, but it's on non-accrual, which is unusual. What is the valuation reflecting there? And just philosophically, if you could explain the approach. Henry Sahn Chung: Yeah. So CECO is a third-party logistics provider. That company we actually restructured at the beginning or in the first half of the year, and the valuation that you see reflects its position in the capital structure as the priority revolver. As far as the accrual status of the loan goes, what that reflects is just the ultimate view here in terms of recovering the initial cost basis in that loan. CECO, in particular, is operating in one of, I would say, the hardest-hit subsectors that we've seen, which is party logistics, following the Liberation Day announcements. And as a result, there's a fair amount of near-term operating uncertainty with the business, just in terms of operating performance given some of the revenue headwinds that it's seeing both on the rate as well as the volume side. So as a result, we made that determination just based on the latest near-term outlook that we had. To the extent that changes here, it's something that we'll reevaluate. We really want to make sure that we're conservative in terms of factoring in the near-term outlook, especially for businesses that are kind of at the front lines of potential macro headwinds like a business like CECO. So that's what you'll see as far as that particular line item goes. Mickey Schleien: Thank you for that. That's helpful. Those are all my questions this afternoon. Thank you for your time. Operator: Thank you. Your next question comes from the line of Christopher Nolan with Weidenberg Thalmann. Please go ahead. Christopher Nolan: Hi, thanks for taking my questions. Are there any non-recurring items in earnings this quarter? Gerhard Pieter Lombard: Non-recurring items. Yes. Hi. I'll take that question. Certainly, in the revenue top line, I think Jason mentioned this earlier in the response to your question. Our sort of fee income is running a little bit lower than sort of the, I would say, maybe at a third, about one third of sort of the historical run rate. We only have about any of fee income, sort of non-interest fee income in revenues this quarter. But other than that, there's nothing that I would call out that's material from a non-recurring perspective. The sort of core interest income, meaning sort of cash income, PIC income, the amortization of OID, unused fees, and what we view sort of the distribution recurring distribution from the 97% of total top-line revenue. So nothing out of the ordinary or non-recurring that I would call out there. Christopher Nolan: Great. And then following up on the earlier how you guys are holding the line in terms of yields on new investments. Are you seeing more PIC or OID as components of the overall weighted yield for these deals? Henry Sahn Chung: This is Henry. I can comment on that. Now within our deals, the PIC component is something that we just deemphasized from the beginning. So I think a short answer on PIC is no. We've certainly seen deals out there where there's more PIC either in the form of PIC that can be toggled or just PIC premium that's added on the coupon at the beginning in order to deliver yields in excess of market. But as far as what we're originating, PIC is not a material component of the spreads underwrite for this quarter and just overall in terms of where we invest. On the OID side, I would say that OIDs generally have been tightening. You know, about a year ago, OIDs were probably kind of in the one and a half to a point of the original deal, and now that's probably 25 basis points tight of where we've seen. So that component along with just market pricing as a whole has tightened a bit. But OID is always kind of one of our upfront deal considerations that we consider as we're thinking about our investments here, and like spreads, we've seen some modest tightening there. Christopher Nolan: And I guess the final question is, it's more broad-based in terms of the lower middle market and middle market sectors. Sure, tariffs have been a headwind, but energy costs have gone down as well. And given the lower interest rates, do you think this is going to help company EBITDA multiples on deals that you're going to see or not? What's your thoughts on this? Henry Sahn Chung: Yeah. I think in the near term, it can potentially be a tailwind on both of those fronts. What we're seeing across our portfolio just in terms of free cash generation despite some of the tariff headwinds is that with lower borrowing costs, interest coverages are the highest we've seen in really two years since the prior rate hiking cycle began. And with the higher interest coverages kind of across the board, you have the ability potentially for borrowers to be able to service a larger quantum of debt, which allows buyers to justify larger purchase multiples. While we haven't seen that dynamic in a broad-based fashion yet, a lot of the multiples and businesses that we've seen trade in this market have really been amongst kind of the highest quality assets that have been out there. We can certainly see that being a potential tailwind coming in the coming quarters here as we see broader M&A volumes increase. Christopher Nolan: Great. Thank you. Operator: There are no further questions at this time. I will now turn the call back over to Jason Breaux for closing remarks. Jason Breaux: Okay. Thank you, operator. Thank you all for your time and attention here today and your support of CCAP. We appreciate it, and we look forward to speaking with you all again soon. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, good morning, and welcome to SuperCom Ltd.'s Third Quarter 2025 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the appropriate key. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. This call is broadcast live over the Internet and is also being recorded for playback purposes. Joining me from SuperCom Ltd.'s leadership team is Ordan Trabelsi, SuperCom Ltd.'s President and Chief Executive Officer. I'd like to remind you that during this call, SuperCom Ltd. management may be making forward-looking statements, including statements that address SuperCom Ltd.'s expectations for future performance or operational results. Forward-looking statements involve risks, uncertainties, and other factors that may cause SuperCom Ltd.'s actual results to differ materially from those statements. For more information about these risks, uncertainties, and factors, please refer to the risk factors described in SuperCom Ltd.'s most recently filed periodic reports on Form 20-F and Form 6-K and SuperCom Ltd.'s press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes EBITDA, a non-GAAP financial measure that SuperCom Ltd. believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure to net loss, a comparable GAAP financial measure, please see the reconciliation table located in SuperCom Ltd.'s earnings press release that accompanies this call. Reconciliations for other non-GAAP financial measures and comparable GAAP financial measures are available there as well. The content of this call contains time-sensitive information that is accurate only as of today, November 13, 2025. Except as required by law, SuperCom Ltd. disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to SuperCom Ltd.'s President and CEO, Ordan Trabelsi. Thank you, Operator. Ordan Trabelsi: And good morning, everyone. Thank you for joining us today. Earlier this morning, we released our financial results for the third quarter ended September 30, 2025. You can find a copy of the press release in the Investor Relations section of our website at supercom.com. We continue to deliver strong operational performance and strategic momentum across key markets, building on top of our record-breaking first half of the year. Since mid-2024, we have secured over 30 new electronic monitoring contracts in the US alone, including entry into 12 new states and 14 partnerships with regional service providers. These wins reflect growing demand for advanced scalable EM and validate our ability to rapidly expand our US footprint. Importantly, many of these new partnerships involve replacing incumbent vendors. A recurring theme that speaks to the strength of our Pure Security platform and the trust it continues to earn from agencies seeking modernization. We've seen this in states like Virginia, Utah, and Alabama, where multiple agencies have transitioned from legacy systems to SuperCom Ltd. technology within a short time span. In Alabama, for example, we recently launched our third and fourth deployment in less than a year. In Utah, a second sheriff agency selected our platform to overhaul its GPS tracking program after evaluating competing technologies. And in Virginia, another service provider fully transitioned its GPS operations to SuperCom Ltd., marking our second reseller partnership in that state this year. These examples illustrate a growing trend. As agencies seek more reliable, flexible, and cost-effective solutions, they increasingly turn to SuperCom Ltd. for both technology and long-term partnership. Our ability to serve both direct government agency contracts and third-party service providers gives us the versatility to operate effectively in varied regions and support distinct program structures. In addition to these wins, our US presence is reinforced by the continued success of Leaders in Community Alternatives (LCA), our wholly-owned subsidiary in California, which recently secured a five-year reentry service contract valued at up to $2.5 million. LCA remains an important part of our integrated offering, supporting rehabilitation and compliance outcomes alongside our core EM technology. Since our acquisition of LCA, we've secured over $35 million in new contracts in California alone. While our progress in the US has been substantial, we've also continued to expand our presence internationally. We strengthened our presence in Europe with an award of a $7 million national electronic monitoring project in Germany, Europe's largest economy. This milestone marks a strategic foothold in a highly advanced public safety market, achieved by displacing a vendor that had served the German government for more than twenty years. We see this award as a clear validation of our competitive edge and execution capabilities on a global stage. Our leadership in domestic violence electronic monitoring continues to grow. We now support nine nations with domestic violence programs across the US, Europe, and other regions. Governments increasingly rely on our PureTrack and PureChoose Shield technologies to support victim protection and offender accountability. Beyond new market entry, we're also seeing our proven track record lead to deeper engagement in existing territories. A key growth pattern for SuperCom Ltd. has been our ability to enter new countries as a single project and expand into multiple programs as trust and performance are established. In Europe, we've seen this in countries such as Sweden and Latvia, where initial deployment has evolved into broader national coverage. We're now seeing a similar pattern play out in the US. We have entered states like Utah, Kentucky, Virginia, and more with pilot or regional projects and have since expanded into additional counties and service areas. This repeatable expansion model remains a key driver of our long-term growth strategy. Our ability to replicate our expansion model efficiently also ties into how we operate at scale, especially in the US. A core operational advantage for us in the US is our cloud-based centralized platform, as well as integrated inventory management and 24/7 support. This centralization enables us to support nationwide deployments efficiently from a unified infrastructure in one language. In contrast, European projects often require country-specific servers, local language customizations, and decentralized support models, which introduce additional complexity, local partner support, and increased costs. As a result, we can launch new programs in the US more rapidly and cost-effectively, whether at the county level or statewide, enabling faster time to revenue and higher margin potential. This operational advantage supports not only organic growth but also potential expansion through other means. In parallel, we continue to evaluate strategic acquisition opportunities in the US market, targeting established local service providers can help us accelerate our market penetration, enhance vertical integration, and unlock operational synergies. A proven example is our acquisition of LCA in 2016, which, as I said earlier, has contributed to over $35 million in project wins in California alone. And as we scale, we see meaningful potential to replicate this success in additional regions in the US. Alongside these expansion strategies, we remain focused on addressing the core challenges facing modern justice systems. Our solutions directly address some of the most pressing challenges facing criminal justice systems worldwide, including high recidivism rates, prison overcrowding, excessive costs, and unsafe communities. By providing modern scalable alternatives to incarceration, our technology helps governments improve supervision, enhance public safety, and reduce the long-term burden on public safety and correctional systems. Tackling these systematic challenges requires continuous innovation, and that's where our technology leadership plays a central role. Our sustained investment in innovation has been key to our success. Over the years, we've invested more than $45 million in R&D for electronic monitoring solutions alone, enabling us to develop one of the most advanced and versatile electronic monitoring platforms in the world. This ongoing commitment to innovation is powered by our stellar research and development team, a group of highly skilled electrical engineers, software developers, product managers, QA personnel, and other domain experts who continue to push the boundaries of what's possible in public safety technology. Their contributions are a core reason why SuperCom Ltd. continues to win competitive tenders globally, often displacing long-standing legacy providers. As our capabilities advance, so does our ability to capture share in a rapidly growing market. The electronic monitoring market is projected to reach $2.3 billion by 2028, with approximately 95% of that opportunity concentrated in the US and Europe. Notably, the US market is estimated to be more than six times the size of the European market, making it particularly attractive as a driver for long-term growth. As more jurisdictions adopt electronic monitoring as a core public safety strategy, SuperCom Ltd. is well-positioned to capture this growing demand through our proven solutions and expanding footprint. I'll now turn to the financials, reviewing our performance for the third quarter of 2025 compared to the same period last year, 2024. In the third quarter of 2025, we achieved continued profitability and margin expansion, driven by operational efficiencies and improved cost structures. Our revenue for the quarter came in at $6.2 million compared to $6.9 million in Q3 of last year. We delivered significantly improved profitability across all key metrics. Gross profit actually increased this quarter to $3.8 million, with gross margins expanding to 60.8%, up from 45.6% a year ago. This marks one of the highest quarterly gross margins in our history, driven by disciplined cost management, operational automation, and reduced reliance on third-party service providers. It also reflects a favorable revenue mix, with a growing share of higher-margin international project phases and US programs also contributing to the results. As we continue to bring more work in-house and streamline deployment and adoption processes, we're seeing operating leverage as well as margin expansion. Operating income surged to $640,000 this quarter, up from around $30,000 in Q3 of last year, with operating margins increasing to 10.3%. EBITDA doubled to $2.2 million from $1.1 million in 2024, reflecting EBITDA margins of 34.6%. Net income reached $700,000, a turnaround from a net loss of $400,000 in the prior year. And non-GAAP net income surged to $1.9 million, up from $350,000 last year. Non-GAAP EPS came in at $0.39 compared to $0.17 in 2024. And now let's have a look at the nine-month performance of 2025 compared to the same period of 2024. Revenue was $20.4 million compared to $21.3 million in the first nine months of 2024, reflecting a modest decrease due to revenue mix and timing of contract launches. However, despite the lower top line, we delivered strong improvements in margin and profitability. Gross profit actually increased to $12.5 million, up from $10.7 million, with gross margins expanding to 61% compared to 50.1% last year. Operating income nearly tripled to $3 million, with operating margin improving to 14.7%, up from 5.3% last year. EBITDA reached $7.2 million, a 56% increase from $4.6 million in the prior year, reflecting an EBITDA margin of 35.4%. Net income more than doubled to $6 million from $2.5 million in the first nine months of 2024, supported by our improved cost structure, disciplined execution, and the positive impact of certain non-operational financial gains recorded during the period. Non-GAAP net income increased to $9.3 million, with net margin more than doubling to 45.7%. And non-GAAP EPS for the period was $2.17. We also made progress in strengthening our balance sheet. In the past two years alone, we reduced our net debt by nearly $25 million. This was achieved through a combination of strategic debt-to-equity exchanges, executed at premiums of up to 100% or more above market price, and amendments to our senior debt agreement, which extended maturity to December 2028 and lowered the interest rate significantly. In parallel, we raised over $16 million in gross proceeds, including $6 million for a registered direct offering completed in 2025 and an additional $10.2 million for warrant exercises. These steps in unison contributed to a stronger cash position and enhanced our financial flexibility to support future growth opportunities, including new project appointments, continued investment in technology, and potential M&A activity. As of September 30, 2025, working capital stood at $41.8 million, up from $26.1 million just a year ago. Book value of equity tripled to $40.8 million, up from $13.3 million a year ago. And cash and cash equivalents surged 111% to $13.1 million, up from $6.2 million a year ago. While current margins reflect the favorable mix of projects and contracts, they're not yet at a steady-state level. That said, we believe our progress in streamlining operations, automating processes, and improving launch execution is sustainable and positions us for long-term margin resilience and expansion as we scale. Before closing, I'd like to highlight the broader transformation that continues to define SuperCom Ltd.'s trajectory. Since implementing our new strategic roadmap in 2021, we've consistently strengthened the business across revenue growth, profitability, and balance sheet health. We find the results even more compelling when viewed over a multi-year horizon. Revenue more than doubled from a five-year consistent decline, reaching $11.8 million in 2020 to four years of continued growth, reaching $27.6 million in 2024. As of the first nine months of 2025, we reached $20.4 million in revenue, reflecting continued scale relative to previous years. Gross profit grew by 140% from $5.6 million in 2020 to $13.4 million in 2024, and gross profit for the first nine months of 2025 reached $12.5 million, closely aligned with the 2024 full-year figure. GAAP net income turned from a loss of $7.9 million in 2020 to a $660,000 profit in 2024 and has since surged to $6 million in the first nine months of 2025. Non-GAAP net income improved by over $10 million, turning from a loss of $1.7 million to a $6.3 million profit, and stands at $9.3 million year-to-date in 2025. EBITDA has improved from $2.8 million in 2020 to $6.3 million in all of 2024 and has already reached $7.2 million in the first nine months of 2025. These improvements were achieved while navigating macroeconomic headwinds, a global pandemic, supply chain disruptions, rising interest rates, and a regional war, and they underscore the strength of our operating model, technology differentiation, and long-term execution strategy. Furthermore, they underscore the essential role of our solutions, which is resilient through market cycles. And as we continue to scale, we believe this foundation positions us well for long-term value creation. In closing, we are proud of our execution this quarter and the trust our customers continue to place in us. I'd also like to thank our global team for their dedication and performance. Their expertise, commitment, and hard work continue to drive our success. As we look ahead, we remain focused on leveraging our momentum to expand strategically, deepen customer relationships, and continue delivering innovative solutions that improve public safety outcomes around the world. With that, I'll turn the call over to the operator to open for questions. Operator? Operator: If you wish to ask a question on today's call, you will need to press star then the number one on your telephone. If you are using a speakerphone, please pick up your handset before entering your request and speaking on the call. If your question has been answered and you wish to withdraw your question, you may do so by pressing star 2. One moment for the first question. Your first question for today is from Matthew Evan Galinko with Maxim Group. Matthew Evan Galinko: Hey, thanks for taking my question. I'd like to start with the market opportunity in Germany. Sounds like a nice first step into that market. Is there an opportunity to expand there and what would the process look like to expand within that market? Ordan Trabelsi: Good question. And we announced the win in Germany just a couple of months ago. It's a great win and a very lucrative market. The project already that we won has four different types of projects in it, including alcohol monitoring, GPS monitoring, domestic violence, and house arrest. And like we've seen in many other nations in Europe, once we enter with an initial project, and we do good work, and that's what we typically do, we have an impeccable record for our deployments, we end up winning more projects and expanding the existing ones. So while it's our first one in Germany and it's valued at a budget of $7 million, just like we've seen in the past, we expect this to potentially grow in numbers and to grow in scale as it adds additional capabilities from our ongoing growing product offering. Matthew Evan Galinko: Great. Thank you. Second question is, I think you mentioned a service provider in the US that completely switched their GPS tracking over to SuperCom Ltd. products. Can you maybe expand a little bit on is that a repeatable opportunity and how do you see that sort of engagement with the service provider versus M&A like you know, with an LCA? Ordan Trabelsi: Great question. And, we actually had 14 service providers just this year that signed on, and, the model in the US is so fragmented. It's not like in Europe, where it's just a national project. There are many different counties, and each has its own programs, multiple programs in each county. And what's beautiful is that there are these service providers who become mini experts in the field, and they've tried all the technology. And then we come to them. We show them our technology. And they're able to quickly evaluate just how much, you know, more advanced and superior it is in many aspects to what they've tried. So in many of these service providers, it's actually completely replaced the technology they have with our technology. Sometimes it's all immediately. Sometimes it's in process, but they swap out from live offenders. They bring them back in to swap the technology because the advantage is so significant that they want to go through that. Now when you go directly to an agency, and some of the larger agencies have the personnel in-house to run these programs, they know how to put the bracelet on, to write the report, to run the technology. Then we sell directly to that agency. When it's a service provider, they aggregate five, 10, 20, more agencies, and so that's an advantageous angle as well. Both of them are valuable. Are great strategies for expansion, and both have been working very well for us. Matthew Evan Galinko: Great. Thanks. And final question for me before I jump back in the queue. It looks like your debt position declined by about $2 million in the third quarter. I know you mentioned historically doing those debt-to-equity swaps, but I'm curious if you can talk about if there was another one in the third quarter? Ordan Trabelsi: As we discussed in the past, we strategically with our lenders have been doing conversions of debt to equity. It's a small ones, and then in aggregate, they become meaningful to the company as you've seen over the last few years. And we typically do that at a premium, and that helps reduce our debt balance. As described. And you see that as well in the numbers as you follow the quarters. And one thing I wanted to add about your question with the service providers, another thing that's unique in the US that we're doing because we're already in nine countries around the world with our domestic violence solution, and we have a very strong small bracelet with long battery life. It becomes very effective to put on people and ensure that after someone hits his wife, for example, he doesn't come anywhere close to the victim. And our technology does a great job in that. And many other vendors have struggled with this. In the US, of course, like any other place, there is domestic violence, and the fact that we can offer this with such a high level of experience and seamlessness allows our service providers to add a whole new solution to everything they're offering today. So that's also something else that helps us with these service providers together with the normal GPS and house arrest that you've been asking. Matthew Evan Galinko: Thank you. Operator: Your next question is from Gregory Mesniaeff with Kingswood Capital Partners. Gregory Mesniaeff: Yes. Good morning, guys. Couple of questions. When you kind of analyze your revenue number of $6.2 million, if you break that down by geography, how does that compare to a year ago? It seems to me, correct me if I'm wrong, that your US business has been quite strong, and it appears to me that the softness has come from other geographies in the world. Can you kind of give us some color on that? Ordan Trabelsi: Yes. It's a great question. In Europe, most of our revenues are still from Europe and other geographies outside the US. And that's where our focus was originally. We won over 50 national programs around the world with our Pure Security suite. And these projects are multiyear projects and have various phases. Some phases are more deployment and then scaling, and then afterwards, additional add-ons and changes and so forth. So many different projects are running at the same time around the world. And we need to, when we report the financials, we aggregate the revenues from each of them. And that, you know, can mix differently in different quarters. It's not a consistent monotonous growth or monotonous decline. It's just one quarter, there could be more of this project and less of the other ones. So the volatility that you would see, between the quarters, a lot of that comes from those projects. In the US market, which is newer for us, we have a strong base in California that we've been running for years. And then over the last twelve months, we signed over 30 new contracts. And some of them, some start small. Some of them start at a medium size, but they typically continue to grow and add more and more units. And what's beautiful with the market is that almost everything is recurring revenue per unit per day. Now the majority of our business is recurring revenue, but there are still components that are not, especially in Europe. In the US market, those numbers will grow and grow. And over time, because the US market is six times that of Europe, we expect more recurring revenue to be the prevailing part of our revenues, and we've the more consistency upon the quarters together with improved margins. So we continue to grow in Europe and around the world, but the US is becoming and will become in the future based on our expectations and plans a more consistent and predictable element for our total revenues and our financials. Gregory Mesniaeff: Great, Ordan. Thank you. And, if I could expand on that just a bit. As you win contracts in the US, what are typically their time spans? Compared to similar wins in, say, Europe. You had mentioned that the US opportunities have been much more recurring in nature, which is a good thing. But if you could just kind of give us some idea of how long what's the typical length of one of these contracts? And, also, what is the renewal rate that you've been seeing on them as a on a percentage basis? Thanks. Ordan Trabelsi: Okay. Great. Great questions. And let me try to structure it in a way. First of all, in the European market, these are national projects with long bid cycles. And with a competitive process for RFPs, and that could take from four months to twenty-four months or even more sometimes to win these. And, usually, the projects are structured at a five-year span, nine-year span, something like that, between five and ten years. And, typically, the incumbent vendor wins it over and over again. I mean, we displaced the incumbent vendor in Sweden. They were there for twenty-four years. Since then, we won two more projects in Sweden. When we displaced the incoming vendor in Israel, they were there for over twenty years. When we displaced the incumbent vendor in Germany right now, they were there for twenty years. So even though the initial contract is for five years, or ten years, you typically see the incumbent winning again and again. Now for someone to come and displace them, you have to have a significant value proposition that's more advantageous than what they have today. And that's exactly what we've been doing with SuperCom Ltd. in Europe. We've been coming in, displacing long-term incumbents, showing that there's a better way to do things with newer technology, and that's helped us enter the market and then expand. And, naturally, once you win one project or two, you have an easier time winning the next projects. So in Europe, when there's projects coming out in countries where we already exist, we have a much higher likelihood to win them than it was originally. And, originally, we had in our expansion, roughly a 65% win rate in Europe. Now that's the European market. In the US market, you have a mix. You also have, of course, these large RFPs like for ICE, and you have it for some state-level contracts. And some counties are very large. Some county projects in the US are $30 million, $40 million, $50 million alone. But there are also many smaller counties and many smaller programs, and then you could start with them, especially if it's with a service provider. It's not a government RFP. It's a private company at the end, and they sign a contract with you. And the idea is they continue running with you indefinitely. The contract just continues to renew. And they run with you for many years just like in Europe because once comfortable with you and they approach with you and they like the technology, then there'll have to be a big change for them to teach everyone brand new technology. So in the US, it's faster to deploy, especially with the smaller programs. We're able to deploy them faster. Might even start with fewer units and then grow the amount of units, whereas in Europe, you start with a large amount pretty quickly on. And over the years, because we've been deploying so many programs, you have such a high win rate, and we've been expanding so fast. We've reached very fast deployment rates. Some of our projects in Europe, we deploy within a few weeks, and we're able to manufacture very fast and deploy very fast and do it with an impeccable record of doing it seamlessly without causing issues, whereas some other vendors take a much longer time for the deployment. That's one of our advantages. But in the US market, almost everything is recurring. They usually charge per unit per day. So it'd be $4, $5, $3.5. Depends what services are included. And they like their technology. They start with you, and then you see the numbers. Right now, we're doing the US with over 30 contracts in over 12 different states because we're just putting the seeds in different states. And you can see that after a deployment, shortly afterwards, there's another deployment in the same state. And then in some states, already a third and fourth deployment. I think that speaks to the satisfaction of the customers and to the work that we're doing there. So there's a mix, and it's a little bit different between Europe and the US. But the US, as the projects grow in size, just like they did in Europe, then you also see the RFPs in the larger project sizes. But we'll hopefully, as we do continuously, the speed of the deployment will continue to improve as we get better and better at doing more deployments. Gregory Mesniaeff: Okay. Great. So is it fair to say that as more and more of your revenues come from the US, your revenue volatility should decrease over time? Ordan Trabelsi: Yes. That's a great statement. And, also, over time, the margins should expand. So predictability, margin expansion. As I said in the prepared remarks, everything in the US is on the cloud. Everything's in English. We have inventory management centralized, a 24/7 monitoring center that's centralized. You can imagine that's much more simple than having a server farm in Sweden, another one in Denmark, another one in Finland, another one in Germany, with local partners in different languages and different inventory management systems in different regions. So the US has a lot of advantages in that regard, and we're very excited that we're able to expand so effectively into the US market with our technology. Gregory Mesniaeff: Got it. Thank you. Operator: Your next question is a follow-up question from Matthew Evan Galinko. Your line is live. Matthew Evan Galinko: Hey, thanks for taking my follow-up. Just wanted to touch on operating expenses for a moment. It looks like R&D has been steady for a pretty long time. As well as, you know, sales and marketing has been pretty level. I'm just wondering as you continue expanding in the US market, should we expect to see operating expenses pick up at all to help support that effort? Or if you put more spending into boots on the ground in the US, would that help to accelerate kind of your uptake into the US market? Ordan Trabelsi: Good question, and it depends on how much growth you're talking about. The beauty in this market and in our industry is that the contribution margin of each additional bracelet into an existing region is extremely high. It's just that there's fixed costs from running these operations. In that server farm, on the cloud, with inventory management, with the 24/7 support. And so now that we're in the US market and we have a good hold, adding additional units doesn't require a lot of additional costs. Our sales team is still fairly small, and maybe there could be some expansion to it. We've won most of these projects around the world based on our technology. We come to technology first, less, leveraging some relationship that other vendors might have. And we come with new technology that works and that's been resilient and successful in many other projects around the world, and that's how we enter these new markets. So there could be some expansion, but minimal to our operating expenses in order to achieve the continued plan that we're seeing. And in terms of research and development, doing very well. We already put over $45 million in technology. We're far ahead of most of our vendors in almost all aspects. And we continue to invest to maintain and make sure that we are ahead of them. And even if a competitor comes with a brand new technology that they spent tens of millions of dollars on, it's still gonna take them five to six years to get that operational to the level that a large contract would take. They wanna see it first run in smaller projects for a year or two. And then another project, another project, and only afterwards, they'll take it on to larger projects. And we're already in the large projects. Some of our projects, like Romania, over 15,000 units. So we're in a very good place with our technology. We continue with every new project to add more capabilities. We continue to add more seamless integration. We're able to bring a lot of the things that are serviced that our local partners do. We're able to bring a lot of that in-house. We're able to bring all the technology that third-party vendors have developed in-house. We're able to optimize to make the promise more seamless, to have lower cost, and also to make things much more efficient as we continue to deploy and improve our product offering. Matthew Evan Galinko: Great. Thank you. Operator: Once again, if you would like to ask a question, please press 1. Your next question for today is from John Mason with Aegis Co. John Mason: I guess in terms of the rep sorry. Can you hear me? Ordan Trabelsi: Yes. Yes. John Mason: Okay. Great. In terms of the revenue year over year, I know, you know, you've been winning all these contracts in the US. Like, when do you expect to, you know, sort of return to growth year over year on a quarterly basis, as those contracts sort of start to flow in? And I know you mentioned the, you know, they're essentially seeds at this point. But, you know, I guess, one, when do you expect that to inflect? And then, I guess, b, is it essentially that there's turnover on the European market or, like, lower usage? Like, what is causing that kind of year over year decline? And I have a second question. Sorry. But Okay. Ordan Trabelsi: Good question. Good question. So we don't really we're not really losing customers, essentially. As I said, many of these customers stay for a very long period of time. And as you see, we continue to announce more wins in the same region, either with the same government or with sister agencies in the same government. So it's not that we're losing customers. It's that some projects that are not recurring have phases where they're more heavy and they have more deployments, more expansion, more work. And then there are phases that require less work. And then until they again purchase more equipment and more expansion and more capabilities and more units, in the US market, that's less of a metric because everything is pretty much recurring per unit per day, and that helps you just consistently grow. Just like with any software as a service model. We lease our equipment, but a lot of it is software on the cloud, and that's the model that's prevailing in the US. As I said, the US is six times the size of Europe. So over time, we expect that our financials look very much in that way. Currently, there's still some volatility, and it's because of the mix of different projects and different stages that some have recurring revenue and some have purchases and other one-time items, and that can create naturally some volatility. Now we don't give specific guidance and I said that some of them are seeds, but some of the projects in the US are also larger. It's just that any project that's in a new territory, and all of these are brand new, we see as a seed that can grow into many different plants or very large trees. Just like when we started in Europe, the projects were Lithuania of $100,000 or Latvia of $100,000. And now we're talking about projects that are $7 million, $33 million. And there are others that we're bidding on that are also fairly large. So, it's just a process. We entered the US just a year ago. We've been doing great, and we've won many different projects, and we're winning against incumbents that are in the US market for a very long period of time and have very strong relationships. And we're still able to come in brand new with our technology and displace them. And I think that speaks volumes to the potential that we'll see going forward. And, so over time, we hope that everyone will see the benefits of our progress. John Mason: Right. Thank you. And then last question, I guess, you know, I think there's been quite a buildup of accounts receivable or trade receivable on the balance sheet. And I know, obviously, it's a testament to the increased book value growth. But I guess, how do you see the cadence of release of that? Right? I think it's been a pretty big drag on free cash flow. I think you've reported operating cash flow on, like, a semiannual basis. But, yeah, would love to know kind of how you expect that to flow through and when you expect to see that free cash flow. Ordan Trabelsi: Yes. Good question. It's not, and I don't know if you followed SuperCom Ltd. historically, but there was a period of time where we were working in Africa and South America. And over there, collections are sometimes delayed. And it was more of a matter to look at here. We actually don't have that in the US market and the European market. Things are timely. If we do see expansion to And the amount of to our AR, it's because sometimes you have percentage of completion in these projects. The time and effort to recognize revenues is different from the time when you get paid. So there's the misalignment in timing with percentage of completion projects, which is mainly coming from the, again, the long multiyear project deployments of the national scale in the European market. But we don't see an issue there. They're paying on time. We don't have any we haven't had to have bad debt or anything of that sort in a significant manner like we had in Africa. And, sorry, South America. And, when you look at the bad debt that's done on an annual basis, that's typically from the e-gov business, from old debt from those regions, not from the electronic monitoring business in the US and Europe. And one of the reasons why we expanded and shifted into this market was because of the very good collectability and predictability with these customers. John Mason: Got it. Thanks. I think that's all my questions. Thanks so much. Ordan Trabelsi: Thank you. Operator: Your next question for today is from A. J. Hoffman, a private investor. A. J. Hoffman: Hey, man. Congratulations on everything. I may have missed this earlier. But did you state a win rate so far for all these contracts you're getting in the US for the ones where the bids have closed? Is it as high as Europe? Is it lower? And yeah. Ordan Trabelsi: That's a good question. We haven't yet assessed in the US. We've been doing very well. It's probably higher than Europe, but we haven't assessed it because we're still looking at such a large variety of projects in different sizes. So we're gonna wait till we have more, a consistent flow and size of projects before we start to do analysis. But so far, as you see, we're announcing many wins in many new states with many new resellers with direct agencies. And we have very good feedback from our customers. A. J. Hoffman: And as far as scalability in the United States, have you guys calculated what your let's say, after you launch everything, after you put everything on the ground and you're expanding inside of that state, maybe to different municipalities, and at that point, all you're doing is adding, you know, just bracelets to the equation. What is the breakeven for putting that bracelet on somebody to recouping the cost of that bracelet? Like, is it one quarter? Is it a year to recoup your cost? Can you break that down for us so we can kinda understand the longevity of these contracts versus when ROI is complete on actually assigning the bracelet to somebody? Ordan Trabelsi: A great question, and I would love to share that with you. But for competitive reasons, we don't share that specific number. As you can imagine, there are 10 other players in the industry, and everyone is trying to understand the cost structure and the exact prices per bracelet, that the competition and all the customers as well. So we at an aggregate level, you could see from my financials, when there's a new project, a large one, there's cash that's outlaid to manufacture them. And then over the lease, we bring it back. But the margins, especially the additional contribution margins for additional bracelets, are high. And, over time, we expect to see margin expansion in our business as we continue to have the same cost leverage for high revenues. A. J. Hoffman: Thank you. I can appreciate that response. Final question. There have been rumors circulating that you guys have been approached for a buyout. I'd take it with a grain of salt, but is getting bought out something that you guys are considering? Ordan Trabelsi: I don't know where these rumors come from, but I'll share, and I've shared before that we've been approached by a variety of strategics or financial firms to acquire us. Our decision of the board, as always, will be what is best for the shareholders. So I can't get into any specifics on that, but I have shared that that is a situation that has occurred to us. And it's natural considering our performance in the market. We have a very high competitive rate. We're expanding very nicely in our technology. I believe it's highly coveted by other players and could perform very well to help disrupt the criminal justice industry. A. J. Hoffman: Awesome, man. I appreciate your answers. Ordan Trabelsi: Thank you very much. Operator: At this time, I will pass the call back to Ordan for closing remarks. Ordan Trabelsi: I want to thank you all for participating in today's call and for your interest in SuperCom Ltd. Please contact us directly if you have any additional questions. We look forward to sharing our progress with you on our next conference calls, filings, and press releases. Thank you very much, and have a good day. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.