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Operator: Good afternoon, and welcome. Thank you for joining us to discuss Fluent, Inc.'s third quarter 2025 earnings results. With me today are Fluent's Chief Executive Officer, Donald Huntley Patrick, Chief Financial Officer, Ryan Macnab Perfit, and Chief Strategy Officer, Ryan Schulke. Our call today will begin with comments from Donald Huntley Patrick and Ryan Macnab Perfit, followed by a question and answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will also be made available following the call on Fluent's website. To access the webcast, please visit the Investor Relations page at www.fluentco.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call will contain forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements made during this call only speak as of the date hereof. Actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with the company's business. These statements may be identified by words such as expects, plans, projects, could, will, estimates, and other words of similar meaning. The company undertakes no obligation to update the information provided on this call. For a discussion of the risks and uncertainties associated with Fluent's business, we encourage you to review the company's filings with the Securities and Exchange Commission, including the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During the call, management will also present certain non-GAAP financial information relating to media margin, adjusted EBITDA, and adjusted net income. Management evaluates the financial performance of the company's business on a variety of indicators, including these non-GAAP metrics. The definitions of these metrics and reconciliations to the most directly comparable GAAP financial measure are provided in the earnings press release issued today. With that, I'm pleased to introduce Fluent's CEO, Donald Huntley Patrick. Good afternoon. Thank you all for joining our call today. Donald Huntley Patrick: I'm here together with Ryan Schulke, our Chief Strategy Officer and company co-founder, and Ryan Macnab Perfit, our Chief Financial Officer. Our strategic momentum continues to accelerate, establishing an industry leadership position in commerce media. However, as we expected, our third quarter financial results demonstrate a challenging environment due to timing delays onboarding the new partners who are fueling our transformative pivot into the rapidly growing commerce media industry. On a segment basis, commerce media solutions revenue in the third quarter grew over 80% year over year, while increasing its portion of contribution to consolidated enterprise revenue from 16% in Q3 2024 to 40% in Q3 2025. As Fluent expanded its position in the commerce media industry. As of 09/30/2025, our commerce media solutions business surpassed an annual revenue run rate of over $85 million as we grow our market share based on the consumer value we are creating for our partners and advertisers. Q3 Commerce Media Solutions finance results would have been even more impressive in the quarter if not affected by two factors I'd like to call out. Number one, some new partner wins launched on our platform later in the quarter than anticipated and, therefore, had less impact on our revenue and gross profit for the quarter. These wins will impact full quarters moving forward. Number two, consistent with the industry, we saw some advertiser pricing and budget pullback in the later part of Q3. This appeared tied to advertiser-specific issues, which you are seeing continuing in early Q4. Our positive Commerce Media Solutions growth trend was not enough to offset our owned and operated marketplaces decline, which remained near 50% year over year, exacerbated by strong advertising and regulatory headwinds. That being said, we are very pleased with the growth of ecommerce media solutions. And as commerce media solutions becomes a bigger piece of our consolidated revenue pie, expect enhanced results and profitability to closely follow. Contributing to our enthusiasm for commerce Media Solutions, we announced several new and expanding partnerships in the quarter with leading industry partners like Databricks, and top-tier brands, including Authentic Brands Group, the world's leading sports, lifestyle, and entertainment brand owner. Partnerships like these are the cornerstone of our commerce media solutions growth. Our marketplace credentials continue to be validated by a stable of iconic global brands who are choosing to partner with us. Our growing list of world-class partners recognizes the fundamental value we are creating in building consumer loyalty. As we consistently exceed our partner's revenue and our advertisers' return on ad spend expectations. Lastly, during the third quarter, we completed a $10.3 million equity raise that included new fundamental institutional investors and insiders, which significantly strengthened our balance sheet and provide us with additional capital to continue investing in the growth of our commerce media solutions. Slide four reiterates just how excited we are about the commerce media solutions and the tremendous upside that is presenting us for our business. Commerce Media Solutions has a current annual run rate of over $85 million, up from $80 million a quarter ago, and we expect this growth to continue as we capture a larger share of the market. Taking a step back for a moment, what's most important to the business and for our shareholders is ultimately having our financial scorecard reflect our strategic vision. As such, and as we have identified as a core milestone in our strategic plan, we expect our financial pivot will deliver trend line shift in Q4, where Fluent's gross profit is expected to grow by double digits quarter over quarter for the first time in ten quarters resulting in positive adjusted EBITDA. I want to reemphasize that our enthusiasm for ecommerce media position is numbers validated. Our current second half momentum is expected to deliver triple-digit revenue growth year over year, a testament to our commerce media solutions platform capability that is earning us world-class brand partnerships. We believe this will result in strong Fluent enterprise and a double-digit year-over-year revenue growth in 2026 as our overarching shift in mix strategy begins to drive improved consolidated results. As you can see by the graphs on slide five, commerce media solutions made up 40% of our total revenue in the quarter, up from 16% in third quarter 2024 and 4% in 2023. Looking ahead, we see the opportunity to better leverage our owned and operated business and the strong brand equity we built in the marketplace over the last decade. As a springboard, for more aggressive growth for our commerce media solutions. More specifically, as the marketplace continues to evolve, we are beginning to see a convergence between our owned and operated in commerce media capabilities the commerce media marketplace. Creating differentiated opportunities with our partners and advertisers that we are uniquely qualified to address. Commerce Media Solution provides highly engaged and extremely valuable audiences for advertisers. The convergence of owned and operated rewarded experiences, and commerce media is enabling us to build unique proprietary demand for our partners while enhancing our competitive advantage. An example of this convergence during Q3 is that we were able to deepen our penetration with two existing owned and operated advertising verticals into the commerce media marketplace, which quickly grew past 40% of our commerce revenue. Building unique supply and demand increased our commerce media competitive moat, and rationalizes the continuing value of our owned and operated marketplace. We expect that Commerce Media Solutions revenue will surpass owned and operated in 2024 as the main driver of consolidated revenue, supported by increased activity in commerce media, around the holiday season. We entered several new and exciting partnerships in the quarter, which will be key drivers both of our commerce media solutions and our consolidated revenue growth. Our partnership with Databricks allows us to enhance and expand our data collaboration capabilities, which we expect to significantly enhance the performance of our commerce media solutions. As a part of this partnership, we also welcome the board to key leadership hire in Virginia Marsh, who joined Fluent as head of data and agencies to drive and support the ongoing growth of our data collaboration capabilities. Also in the quarter, we expanded our existing partnership with Authentic Brands Group, a leading sports, lifestyle, and entertainer brand owner generating over $32 billion in global annual retail sales. Through this broader agreement, Fluent will support post-purchase monetization for additional brands such as Reebok, Vince Camuto, Volcom, Champion, RVCA, DC Shoes, and more, with the goal of adding millions of annual transactions to our growing commerce media partner network. Another one of our many partner integrations is our strategic partnership with Rebuy Engine, a leading ecommerce personalization platform for Shopify brands. This partnership opened an expansive network of over 12,000 active ecommerce brands on the Shopify ecosystem, which is a new channel and business opportunity for us. Our integrated solution, Revi Monetize powered by Fluent, continues to perform well as this partnership scales across the Shopify platform. In fact, we saw more than 1 million ad unit sessions in September alone, representing a 79% increase on a month-over-month basis. This channel provides a catalyst of upside as we cultivate new business relationships where we did not previously have access. Before turning the call over to Ryan, I would like to provide a quick update on our outlook. As we move through the fourth quarter and close out 2025. Regarding our future, we believe this is just the beginning. As we aggressively scale our commerce media business, we see an exciting emerging market development before us. I'll provide a thumbnail sketch today that will further delineate in future earning releases in 2026. I referenced the industry-wide strategic convergence before us, where the commerce media, the rewarded owned and operated marketplaces continue to evolve and merge. And where our loyalty marketing strategy can create competitive advantage for Fluent. We believe we are uniquely differentiated in the space to win big, by leveraging what we've learned and perfected in our rewards grounded owned and operated properties, premium pricing, high intent audiences, and CRM-driven optimization. Although it's early, this converging marketplace has the potential to significantly accelerate Fluent's consolidated business growth. We look forward to updating you further as we progress. Thank you, Don. Thanks to everyone for joining us today. I'll now provide a review of our third quarter results. Total consolidated revenue was $47 million in 2025, Ryan Macnab Perfit: compared with $64.5 million in the prior year. However, commerce media solutions grew 81% to $18.8 million compared with $10.4 million in 2024. Commerce Media Solutions has demonstrated continued momentum with the annual revenue run rate from this business now exceeding $85 million and its revenue representing 40% of our total consolidated revenue in 2025, compared with just 16% in the third quarter last year and 4% in 2023. Commerce Media Solutions continues to grow at a rapid pace, which is our expectation as we invest in and scale this business. With the bump in consumer spending that we see around the holiday season, we expect CMS to overtake our owned and operated business in 2025 as the main driver of consolidated revenue. This will be a key inflection point for Fluent. Owned and operated revenue decreased 52% from the prior year, and we expect the year-over-year decline of roughly 50% to continue into Q4 as we focus more of our effort and capital on commerce media growth. Media margin in the third quarter was $12.8 million, which represents 27.2% of revenue compared to $18.2 million or 28.1% of revenue last year. Commerce media solutions media margin in 2025 was $4.6 million or 25% of the Commerce Media Solutions revenue, compared with $3.5 million or 34% of revenue in 2024. As we mentioned in our second quarter call, margins were compressed in Q2 due to a strategic choice to offer more flexible pricing structures to win new partners and penetrate into new placements beyond post-transaction. We saw this strategy start to pay off in the third quarter as Commerce Media Solutions gross profit margins increased sequentially to 22% as compared to 18% in 2025, or an increase of roughly 400 basis points. As we continue to monetize these new opportunities, we expect commerce media gross margin to return to the high twenties over time. On a GAAP basis, total operating expense in 2025 totaled $14.7 million compared with $17.2 million in 2024. Interest expense in the third quarter decreased to $711,000 from $1.3 million in the prior year period based on a lower outstanding loan balance and lower interest rates. We reported a net loss of $7.6 million in the third quarter compared with a net loss of $7.9 million in the prior year period. Adjusted net loss, a non-GAAP measure, was $6.5 million equivalent to a loss of 23¢ per share, compared with an adjusted net loss of $3.7 million or a loss of $0.22 per share in 2024. Adjusted EBITDA in 2025 was a loss of $3.4 million compared with an adjusted EBITDA loss of $71,000 in 2024. We believe we are in a good position with the growth and seasonality of Commerce Media Solutions to achieve adjusted EBITDA profitability in the fourth quarter of 2025, and as we continue to drive our shift in revenue mix to focus more on CMS, we expect adjusted EBITDA to be positive for the full year 2026 as well. Shifting now to our balance sheet. We ended the quarter with $9.2 million in cash and cash equivalents, and an additional $710,000 in restricted cash. During the quarter, we successfully completed a private placement in excess of $10 million, including both fundamental institutional investors and insiders, representing shareholder confidence in our long-term strategy. This transaction provided us with the working capital to support the continued growth of our commerce media solutions business and our strategy to drive revenue growth and adjusted EBITDA profitability in 2026. Our total net long-term debt was $26 million at 09/30/2025 compared with $35.6 million at 12/31/2024. We had an outstanding principal balance of $22.6 million on our credit facility with SLR Credit Solutions. This facility provides us with a $20 million term loan and a revolving credit facility of up to $30 million that matures on 04/02/2029. We will continue to strategically utilize debt as a source of capital as our scales. Donald Huntley Patrick: This has been a very exciting year to date for Ryan Macnab Perfit: Fluent as it pertains to our commerce media solutions business. Looking ahead, we believe that we are ideally positioned with a clear and defined strategy, a proven growth catalyst, and the liquidity to continue investing in commerce media solutions to capture additional share of this rapidly growing market. In addition to the enhanced revenue, margin performance, and cash flow that we anticipate as commerce media solution scales, we remain confident in our expectation that we will achieve positive adjusted EBITDA in 2025 as well as full-year double-digit consolidated revenue growth and full-year adjusted EBITDA profitability in 2026. With that, we will now open the call up for questions. Operator: Thank you. And wait for your name to be announced. Our first question comes from the line of Maria Ripps from Canaccord Genuity. Donald Huntley Patrick: Hi. This is Matt on for Maria. Thanks for taking our questions. Just wanted to ask about the rebuy partnership. I mean, the momentum you're seeing in commerce media more broadly is encouraging and that seems like you're seeing some strong results early from rebuy. Don, I think you said 1 million ad unit sessions in September, I believe. Could you just expand upon some of the trends you're seeing with earlier client cohorts in terms of retention and wall share post tracks? Post transaction inventory. And then as we think about, like, ad load on these sort of, you know, post transaction pages, is there opportunity to expand that over time, or is it pretty static? And I just have a quick follow-up. Thanks. Yeah. Hey, Matt. Thanks for your question. I'll hit rebuy first, and then we can get to your ad load questions. So what's really exciting is we're only five months into We signed this in June. You know, and it we a lot of the first part was around the tech integration the marketing integration. So we're quite excited by the momentum that it has, and it is now one of our top five media partners across our entire network. So it has been expanding and it's been expanding aggressively. So we're quite excited about the opportunities. As you know, you know, that also opens up the Shopify ecosystem. Us. So, you know, it it that they are our main channel in which to get access to over 12,000 merchants that they work with. On the Shopify ecosystem. So it's a phenomenal partnership. Very early days. It is expanding rapidly. As you talked about. And and we see even deeper expansion and other solution expansion with these with rebuy as we head into 2026. So I would tell you from a from a standpoint of where we're at, we're quite excited, and it's very early days in a very large market that we did not have access to previously. And the trends, you know, they have a lot of small merchants small merchants that, you know, do less train you know, under a million transactions annually, where our enterprise sales group goes after, obviously, you know, a large large enterprise brands that do, you know, millions of transactions annually. So us for us to work through rebuy, it's a very efficient channel. And a very successful channel for us. Does that answer your question, Matt, around trends? Or in rebind? Yeah. Yes. Very helpful. Thanks. Operator: Yeah. And then I didn't understand if you just expand a little bit, you had a question around ad Donald Huntley Patrick: load. And expansion of ad load. So can you just expand on that? Yeah. I I I guess I was just is is there an op opportunity to sort of add more, like, you know, add impressions on the post transaction page, or are they pretty saturated already? Ryan Macnab Perfit: You know, with with with with with how how you guys are approaching it now? Donald Huntley Patrick: Yeah. Understand the question. That's a good it's a good one. So, ultimately, it comes down to consumer experience. And each each partner we have obviously has a different type of experience that gets to post transaction. So, for example, if you were a consumer on one of our one of our media commerce partners and you already were served something around loyalty. You already were served a survey, etcetera. We will then tend to lower that the number of impressions that we that we extend to them in a post transaction spot. If they're not served at, we might serve you know, two or three type of impressions. So it really comes down to the consumer experience on our partners' site. And I think it's one of our competitive advantages where we're really we really understand how to curate a consumer experience that's meaningful and effective. That's long term drives loyalty for that for that consumer on that property. So it's very, very partner specific. Where we are making expanding our ad our ad serving is outside of post transaction. So we are doing things around pre checkout areas. We're starting to put some some we have a number of different solutions that are going out, before that post transaction, and you'll hear us talk a lot more about that expansion of our solution of our a very adjacent solution set. In the commerce market as we get into 2026. Ryan Macnab Perfit: Got it. Thanks. Looking forward to that. That was very And then just just really quick on the Authentic Brands partnership. Is this is this a, like, a greenfield win net new for Fluent, or does scaling this relationship essentially mean that you'll be you'll be taking share from other other other providers? Donald Huntley Patrick: Yep. We another great question, Matt. We had a number of authentic brands originally. And a number of the other they have a, obviously, a portfolio of brands. Some of their other brands with the largest competitor. So in this specific example, winning the Offend brands was a conquest over over the largest competitor in the marketplace. Ryan Macnab Perfit: Got it. Got it. That's good to hear. Thanks very much, guys. I'll jump back into the queue. Donald Huntley Patrick: Thanks, Matt. Operator: Thank you. One moment for our next question. Our next question comes from the line of Patrick William Sholl from Barrington Research. Ryan Macnab Perfit: Hi. Thanks for taking the questions. Patrick William Sholl: I was just wondering if you could talk a little bit the ad pullbacks that you talked about in the prepared remarks. Was that specific to the commerce media segment? Or more broadly? And then, like, could you just maybe talk about like, some of the industries affected and what if that macro driven or what could be driving that? Yep. Donald Huntley Patrick: Hey, Pat. Thanks the question. So I'll start at the highest level and then I'll kind narrow it down deeper. For the most part, for all of 2025, our our partners have been what I'll call more conservative and more short term in sort of their thinking process. Obviously, they've, you know, Ryan Macnab Perfit: all had to deal with tariffs, the impact of tariffs, the lack of visibility in their businesses, and and what would really come Donald Huntley Patrick: So for the most part of 2025, we saw a very know, more of a shorter term thinking around budgets and and moving things around in order to in terms of where the efficiency of that channel existed. So we've seen that repeatedly, you know, in in in with our with our partners, they quite honestly said, you know, what if they had one strategy and then new tariffs came in at a different country that they were involved in, obviously, they had to sort of pivot and move and and so we in general, that's what we've seen throughout the course of the year. Specific to my comment on the earning script, and this kind of led us to a different a very what we're really excited about on the strategic path here is there's been some traditional advertisers that have been in commerce media for a while. And there were specific things that were going on in their industry. And that require that basically had them pull back some budgets or lower pricing as we saw in the later part of Q3 and early part of Q4. So it was very specific to their business and the industry that they they existed in. One of the things we've talked about and one of the things we're really excited by, Pat, is, you know, the word convergence and and how we're kinda looking at that business. So know, we've we launched commerce media knowing that our owned and operated properties provided us great competitive advantage with that first party data asset. And our performance marketing expertise of curating audiences and building those audiences in a meaningful and effective way. Because of some of this pullback, we have now started bringing our owned and operated advertisers who have not advertised before on commerce media into commerce media. So not and we've been able to teach them how to buy show them how their ROAS works, and really get them to scale. And the number we gave in the earnings was over 40%. Ryan Macnab Perfit: Of our Donald Huntley Patrick: monetization in Q3 was tied to these new proprietary advertisers that we're bringing onto our network. So we're quite excited by that. Obviously, the supply of our media is is proprietary. They're three-year contracts, and we provide a unique proprietary supply for advertisers. Now we're able to provide go to our media partners and say we have now have a unique and competitive and differentiated audience to connect and make it a more meaningful experience to you. So it's still very early days around that, but but we're very excited about how that owned and operated advertisers can start to purchase in a meaningful way a pre and, quite honestly, a premium pricing way to drive a differentiated marketplace for ourselves. Patrick William Sholl: Okay. And then on the 2026 outlook, Ryan Macnab Perfit: could you Patrick William Sholl: maybe sort of talk about, like, what you're seeing in terms of, like or what what you feel needs to happen with in the o and o segment assuming that you're continuing to grow at a really solid clip, within commerce media, but what needs to happen within the O and O segment to to hit the profit trends and, you know, perhaps also the the revenue growth. So I guess, you know, double digits is a is a wide range. Donald Huntley Patrick: Yeah. Ryan Macnab Perfit: Yep. So we've we've stated, you know, we've grown commerce media Donald Huntley Patrick: obviously doubled it from 24 to 25. We believe will double it again in from 25 to 26 based on the wins that we've had in '25 and our pipeline and things that are coming on board early twenty twenty six. So that is is, you know, Ryan talked about in his comments, that shifting of the mix and being the majority of our business is the core driver to our consolidated earnings, both consolidated revenue growth and back to profitability. The owned and operated business has declined significantly 50% year over year. And we, in our forecast, anticipated to continue to decline. Although we are seeing we're starting to see some You know, it it it exhibits some stability. It was negative 3% when you looked at Q2 to Q3. And we think this convergence that we've talked about where we can bring our We've seen similar type of trends so far in Q4. advertisers, unique advertisers on will help provide some of that stabilization. But for the forecast, and the guidance that we're giving you, we continue to project that that owned and operated business will decline. Patrick William Sholl: Okay. And and then back to the the commerce media side, talked about the high 20% margin range from its current level. Operator: Guess, Patrick William Sholl: how quickly do you sort of do you anticipate, like, achieving that that type of level? Mean, like, you bring on new partners and you might have, like, a minimum guarantee or a lower initial but I guess, yeah, just over the longer term, how does that sort of blend higher? Donald Huntley Patrick: Yeah. You know, from from a from a macro perspective, Pat, we've obviously you've seen an increase from from Q2 to Q3. We anticipate, and we are seeing an increase a similar increase from Q3 to Q4. The margins have been lower margin drivers have been what we talked about. New solutions that we brought on that we're scaling. We also have provided some short-term incentives to get some partners onto our platform. And in terms of, you know, implementing different revenue splits or bonuses. And then the last piece that's affecting that is I'll call the mix of what I'll call enterprise channel, which is working directly with these brands. And then also the like, Rebuy is a channel partnership, and we obviously have lower margins in that because, obviously, they're they're they're sharing those margins with us as a channel partner. So some of it's mix, but a lot of it has to do with that that scaling that we have around those new solutions. And eliminate and and the the short-term incentive start to start to wear off. So we see us getting into 20 in the late twenties continue to incrementally increase on a quarter by quarter basis. Operator: Okay. Thank you. Donald Huntley Patrick: Alright. Thanks, Pat. Operator: Thank you. One moment for our next question. Our next question comes from the line of William Joseph Dezellem from Tieton Capital Management. Patrick William Sholl: Thank you. When when one goes on the Dick's Sporting Goods website, it and you complete the purchase, it is powered by Fluent. So my question for you is is did we read that correctly? First of all, is DICK'S Sporting Goods now a a client that you've not referenced in your release here? And, secondarily, if that's accurate, when when did that relationship begin? Donald Huntley Patrick: Yep. Thanks, Bill. Thanks for the question. So, you know, we're often not allowed to disclose our partners without their approval from a marketing perspective. But you are absolutely right. DICK'S was one of the large enterprise clients that we brought onto our platform in Q3. And Ryan Macnab Perfit: know, Donald Huntley Patrick: as you know, Dick's and the other ones that we brought on, they're they're iconic world-class brands. We're really proud to work with them. I also wanna thank you for supporting Dick's Sporting Goods and Florida at the same time, Bill. Dickson specifically is a really exciting win for us back in twenty four. They ran a RFP, and they did not select Fluent. They selected the largest competitor in the market in '24. In '25, they came back to us. And said they weren't happy. They weren't getting the results or partnership they wanted. And they came to us in less in in a in a very short time. So getting that type of win back and having proved out our value proposition with that is in a very, obviously, a very exciting opportunity for us and one we can continue to leverage with our brand. You know, we are working with some of the largest and most sophisticated brands in the in the world. And, you know, we're quite proud that, like, a validation of a dick's coming after choosing someone else coming back to us really reinforces our leadership position in Fluent. And also the leadership position we have in commerce media that we built in a in a very, very short time frame. And Have you been on any other other websites for us? Bill? William Joseph Dezellem: Possibly a few, but let's stick with this one for a moment if if I may. Good. So when did when did this actually convert over It sounds like it converted from your largest competitor to you all. When did that conversion take place? Donald Huntley Patrick: It took place in September. So came on the end of at very '3. William Joseph Dezellem: So that did not have a great influence on the on the third quarter results then. Donald Huntley Patrick: That's right. I mean, most of, you know, the commerce media business did grow 80%. As you know, we've clearly we've clearly signaled that we we expect it to grow over over 100% for the year, and we believe we are still expected to get there. There's some fluctuations quarter by quarter, and that's a good example of a fluctuation The you know, they came on if they came on in in July or August, it would have a bigger impact on our financials. A delay that is primarily again, we have to match up to what our partners need and and their timing around how they can implement in their in their tech road map Ryan Macnab Perfit: know, Donald Huntley Patrick: getting live in in September was was certainly affected Q3, but going forward for the life of contract now, we have them every single quarter. William Joseph Dezellem: That's helpful, Don. And clearly, DICK'S is a is a high volume a high volume retailer Donald Huntley Patrick: But William Joseph Dezellem: we don't have a an understanding or a perspective of how their volume would match up relative to the rest of your business. So maybe just taking what they did in the last year, with the with the competitor, if they were to repeat that in the next twelve months? What proportion of your Media Solutions business would would they represent? Donald Huntley Patrick: Yeah. They'll that's a good question. They'll be a top five partner for us from from a session standpoint. So between rebuy and DICS, you know, we've added two you know, top five partners in that in the quarter scaling. Rebuy obviously came on in June, but really scaled throughout the throughout the third quarter. William Joseph Dezellem: Okay. That's that's helpful. And then you you kind of addressed this, I think. But the 80% growth that you had in the third quarter in in Commerce Media Solutions didn't match with triple digits that you've talked about. And and did you essentially just say that was simply a timing of not having a couple couple clients come on as quickly as you had anticipated? Donald Huntley Patrick: Yes. When if you take a step back, it will you know, quarter by quarter will fluctuate based on the timing of when things go live on our platform. And, you know, we we we anticipate as being continuing to double from 24 to 25. And as I said, we feel very good about doubling again in '26. William Joseph Dezellem: That's that's helpful. And and then the 400 basis point sequential gross margin improvement in that business, that was simply tied to the roll off of some initial incentives with some some larger customers is that is that what we understood your earlier comments to to explain. Donald Huntley Patrick: Yeah. It came it came from what I'll call all three bills. The first is, obviously, we had some other commerce media solutions that were we're investing in and scaling. And, obviously, much like the post transaction business when we started it, you know, the margin was lower. And as we scaled, it got got to higher margins. So some of that was new solutions that that started to show better margins. Some of it was some of these incentives that we put in place. And then, you know, even though rebuy has grown significantly and is a top five, you know, overall, the mix of of, you know, what I'll call channel partnerships versus William Joseph Dezellem: And and then given that some of these new Donald Huntley Patrick: Enterprise. The enterprise mix was larger in Q3. William Joseph Dezellem: CMS solutions or that you're ramping kind of not in the post post transaction arena. You must have some pretty meaningfully frankly, pretty exciting expectations for those if if what you were doing on the front end was enough to And then to influence the margin negatively in Q2, swing more favorably in Q3. Is that correct? Or are we reading too much into that? Donald Huntley Patrick: You're right. You're right about your assumption, Bill. We we can again, we'll we continue to see you know, we we look at the margins overall but we also look at the margins when they need solution. In terms of what's the target If it's below, it's an investment If it's, you know, if that we have very strict margin restrictions in terms of how we look at the businesses and and scale the businesses. So, you know, we consciously maybe make investments in certain areas, either to get to critical mass or win a large brand that we know we can leverage, and and leverage to get more business from. William Joseph Dezellem: Okay. And I realize I'm taking probably more time than than I should here. But but if if that's the case and you're able to scale that, quick here, from Q2 to Q3, Would the implication be that in '26, these new solutions that, hopefully, you'll be talking more about in future quarters, that those will be needle movers in '26 Yes. But we also will add other Ryan Macnab Perfit: adjacent solutions also, Bill. Donald Huntley Patrick: So the answer is yes. The ones that we've started that were scaling will be needle movers in 2026. Absolutely. Ryan Macnab Perfit: But we'll also you know, we we are we are in a Donald Huntley Patrick: fortunate position that as as we've talked about, commerce media is exploding in growth, there's lots of lots of tailwinds. Ryan Macnab Perfit: And our our ability to drive superior results Donald Huntley Patrick: compared to our competitors with our partners, you know, obviously, we're able to start to move into other solutions for them and help them, which makes us more strategic and also obviously allows us to to drive better revenue, better margins. So know, we we we're gonna balance those two as we as we go and and we balance them in 2025. Balance them again in 2026. William Joseph Dezellem: So, Don, then if if we read that forward, we would be we need to expand our horizon and not be so narrow-minded as thinking that commerce media solutions is really primarily or totally a post transaction business. You're building a lot around that is what you're saying, and that this is gonna we need to be broader in our thinking in terms of of what you're going to be doing for your your customers in that division. Donald Huntley Patrick: Yeah. It's absolutely right. Bill. It's it's a broader opportunity in a in a much larger share of the market. We you know, post transactions where we got in, it was it quite honestly is the hardest place to get access to because it's the most valuable place for a commerce partner when when consumer has their credit card out and buying. It's also the most valuable piece for our advertisers. So we got into the right spot. We've been able to prove our results and get our brands, and we are gonna now leverage that into adjacent solutions by leveraging you know, the technology investment and the data investment that we've already built up over the years. So it we we it will allow us to be stickier with our Ryan Macnab Perfit: our Donald Huntley Patrick: with our partners and also more valuable and strategic. William Joseph Dezellem: Great. Thank you. I I have a couple of more questions, if I may. First of all, is that the owned and operated essentially stabilized as you pointed out this quarter. Sequentially. And that sounds like it's continued in the fourth quarter. Ryan Macnab Perfit: What are the dynamics that William Joseph Dezellem: are leading to this this positive change? Yep. Yep. You know, it's it's always a a number of factors Donald Huntley Patrick: Bill, you know, that that business has obviously been hampered by the FTC. Settlement and our limited ability to get to the media. Or the diversified media platforms are very concentrated. Number one was those platforms have been relatively stable, which has helped us. But I think the more important play here in the strategic play is the convergence that we've been talking about. We've been able to bring we've been able to help bring you know, our our owned and operated advertisers that have not previously been an advertising commerce media. We've been able to bring them in, and that also allows us to leverage our our relationship across both owned and operated and commerce media with these advertisers. So and that has that clearly allows us to be looked upon as a more strategic partner for them, which allows us to to manage across those two different platforms more effectively. So I think a lot of it has to do with obviously, the platforms. But more importantly, we're able to now provide proprietary demand for our and exclusive demand to our to our media partners at the same time having that you know, media partners and providing exclusive supply to these advertisers. So it's that flywheel that we believe is the core of the assets of the owned and operated business that we've leveraged to get into it. We've said it's a huge competitive advantage to us. It has proven out so far from us being able to deliver better results. And now we're starting to see the flywheel around how we how we can provide even more differentiated solution and marketplace. William Joseph Dezellem: Congratulations on that. One one additional question, please. So the nine months adjusted EBITDA as listed in the release, is a negative $9 million. But you've said that the full year is going to be positive. So the implication are we doing this right? The implication is that the fourth quarter adjusted EBITDA needs to be at least $9 million plus. Donald Huntley Patrick: Yep. I Bill, I think you read it wrong. We said that our Ryan Macnab Perfit: Q4 adjusted EBITDA will be positive. William Joseph Dezellem: Okay. You've not said that the full year will be positive? Next year full year will be positive. Yes. Donald Huntley Patrick: We said in 2026, the full year, that will be positive. Yes. Driven by triple-digit growth in commerce media, and and really shifting. We're at we're at the point where, you know, it it's gonna be greater than 50% of our business. And that commerce media growth will now start to drive the consolidated results of the William Joseph Dezellem: Great. Thank you for clarifying, Meyer. And congratulations on the turn that's happening. Donald Huntley Patrick: Yep. Thank you, Bill. Operator: Thank you. At this time, I would now like to turn the conference back over to Donald Huntley Patrick for closing remarks. Donald Huntley Patrick: Thank you. We remain bullish about our prospects and are very excited about the momentum we're generating as we lean into a significant Ryan Macnab Perfit: what we believe is a mega growth opportunity Donald Huntley Patrick: in commerce media. As for the numbers, we want to emphasize for clarity. We expect Fluent to achieve consolidated double-digit revenue growth in 2026. Driven by triple-digit growth in commerce media solutions as well as adjusted EBITDA profitability in Q4 2025 and full-year adjusted EBITDA profitability in 2026. Thank you for joining our call today. We look forward to updating you on our progress in the next earnings release. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and thank you for standing by. I would like to welcome everyone to the Aterian, Inc. Q3 Earnings Report. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, just press star then the number one on your telephone keypad. Now I would like to turn the call over to Devin Sullivan, Managing Director of The Equity Group. Please go ahead. Devin Sullivan: Thank you, Mark, and thank you, everyone, for joining us today to discuss Aterian's third quarter 2025 earnings results. On today's call are Arturo Rodriguez, our CEO, and Joshua Feldman, the company's CFO. A copy of today's press release is available in the Investor Relations section of Aterian's website, www.aterian.io. Before we get started, I would like to remind everyone that remarks on the call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are based on current management expectations. These may include, without limitation, predictions, expectations, targets, or estimates, including regarding our anticipated financial performance, business plans, and objectives, future events and developments, and actual results that could differ materially from those mentioned. These forward-looking statements also involve substantial risks and uncertainties. Arturo Rodriguez: Some of which may be outside our control and that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties, among others, are discussed in our filings with the SEC. We encourage you to review these filings for a discussion of these risks, including our annual report on Form 10, as well as subsequent filings with the SEC. You should not place undue reliance on these forward-looking statements. These statements are made only as of today, and we undertake no obligation to update or revise them for any new information except as required by law. This call will also contain certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past performance, and facilitate period-to-period comparisons of our core operating results. Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of these indications are also included in our earnings release, which is available in the Investor Relations portion of our website. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We are unable to provide a reconciliation of non-GAAP and adjusted EBITDA margin to net income margin, the most directly comparable financial measure on a forward-looking basis without unreasonable efforts. Devin Sullivan: Because items that impact this GAAP financial measure are not within the company's control, and or cannot be reasonably predicted. With that said, I would now like to turn the call over to Arti. Please go ahead. Arturo Rodriguez: Thank you, Devin. And thank you, everyone, for joining us today. On today's call, I will be covering one, a brief overview of our Q3 results, two, a discussion of the tariffs' impact on our business, and an update on the proactive moves we continue to make to navigate this environment. Following my remarks, our CFO, Joshua Feldman, will walk through our third quarter financial results in greater detail. Generally speaking, tariffs and the trade policy beginning earlier this year impacted our business and industry, as well as consumer decision-making. These US policies made it difficult to navigate considering the speed they were implemented in and the magnitude of the tariffs themselves. Faced with these strong and ever-shifting headwinds, we responded with an aggressive, thoughtful strategy that we believe mitigated the impact that tariffs have produced, and most importantly, put us back on the path of stabilizing our business. As a result, we delivered on the improved performance we promised. Our results for 2025 improved across multiple metrics when compared to 2024, and we remain confident in our ability to deliver on our guidance. Let's look at what transpired in Q3. Net revenue was $19 million, a significant decline from Q3 2024, however, represented just a 2% decrease from the previous quarter. We also saw our Q3 2025 contribution margin improved by over 700 basis points from Q2 2025, back to over 15%. Our adjusted EBITDA loss improved by over 80% versus Q2 2025. The actions we took to rationalize our fixed cost and align our marketing spend to our new pricing reality have paid off. However, more work is needed, which I will address later in my prepared remarks. The net revenue decline from Q3 2025 to Q3 2024 was driven by two main factors. First, strategic price increases to offset tariff costs led to reduced run rates. This is especially acute in areas where we found our products to be one of the highest-priced offerings. We saw this in particular in two key product areas, humidifiers and steam mops. To this, our primary competition specifically in our dehumidifier and steam mop space is Amazon 1P, meaning Amazon buys from brands directly and sells it as an online retailer. And in those segments, we saw that Amazon did not raise prices significantly, if at all. As such, our best seller ranks were impacted and reduced. This led to slower unit velocity and made our products the higher-priced offering for most of the quarter. We believe we will continue to see our products being the highest-priced offering through 2025 before pricing becomes more competitive in 2026, specifically for dehumidifiers as the peak summer season is behind us. As for the steam mops, we have seen competition begin to raise prices. And as such, we believe our offerings will be more competitive early in 2026. The second factor contributing to the decline in revenue is a general slowdown in consumer spending. In several of our tariff-affected categories, particularly those where competition comes mainly from other third-party sellers, we maintain best seller rankings comparable to last year's levels. Yet have seen fewer units sold. This suggests that an issue lies not with our competitive position, but with reduced overall consumer demand likely due in part to uncertainty surrounding tariff trade policy, pricing pressures, softer market conditions, or a shift in discretionary spending. Regardless, we are very confident our core products and brands are still very strong and viable. And continue to have tremendous opportunities in marketplaces in the US and abroad. Now to the actions we announced in May. As reflected in our Q3 results, we continue to believe that the actions we took with respect to cost reductions, resourcing, product launch strategy, and pricing adjustments were correct. Here's an update on those six key points to that plan. First, the fixed cost reduction plan. As part of our immediate response to tariffs, we announced the fixed cost reduction initiative targeting $5 to $6 million in annualized savings. Today, we believe we have secured approximately $5.5 million of those savings, of which $3.8 million is primarily coming from headcount reductions we implemented in May and the remaining $1.7 million from vendor savings initially taking effect through the rest of 2025 with a more significant impact starting in 2026. In parallel, our team is actively leveraging AI to enhance productivity. Our focus for AI continues to be on creating operating leverage and scale for future growth, rather than immediate headcount reductions. For example, we have successfully implemented AI in our customer's experience operations, which has significantly improved service quality metrics even with a smaller team. This implementation has led to Aterian's tech and customer experience teams being recognized as a 2025 recipient of the Genesys Orchestrator's Innovation Award. This CX transformation led to a 30% improvement in service level performance during seasonal peaks and up to a 20% improvement in talk time across brands. Email handle times also dropped even as voice support launched with no headcount increase, highlighting scalable gains in efficiency and productivity. Our experienced agents now handle more complex interactions across new voice and chat channels, improving key metrics and significantly reducing our total cost of ownership. Ultimately, we are hearing, listening, and addressing our customers better and faster than we have before. Finally, we continue to see how AI deployed into our data platform along with some of our third-party tools can unlock efficiencies and insights to our operations. We see this as a continued area of opportunity for Aterian in finding ways to create savings and efficiencies. Two, accelerate resourcing. The financial incentive to move manufacturing out of China is less urgent the November 2025 agreement between China and the US, that reduced incremental tariffs to 20% from 30%. We continue to explore opportunities to diversify our supply chain when doing so can produce a material and substantial benefit. We still see opportunities to source from outside China in categories which are not only expected to benefit from the reduced 2025 incremental tariffs, but also are still affected from the 2017 section 301 tariffs. Which on average are an incremental 25% for certain of those products. For example, beverage refrigerators from China would be subject to approximately a 48% tariff. As such, we think opportunities to locate better sourcing for this product is prudent. We are currently reviewing our 2026 ordering plans and will provide better updated targets as part of our Q4 2025 reporting. Number three, pausing on launches in certain new categories. As far as the tariff moves, we paused new category launches from China in Q2 particularly hard electronic goods. However, now that the reciprocal tariffs have been reduced and appear to be stable, we are restarting new product launches in the hard electronic goods space for 2026. With a much more focused approach. Number four, strategic pricing adjustments. As we said earlier, we implemented price increases to mitigate the effects of the shifting cost structure related to tariffs. Although we have defensively raised prices first in many categories, we do not foresee the need to take significant additional price increases across our portfolio. What we do believe is that our current competitors will eventually increase prices including Amazon One P. As a result, our products should be priced more competitively in 2026 leading to improving run rates, assuming no material changes to consumer purchasing habits or additional changes to tariffs. New product launches in low tariff regions. We believe our push into consumables is still a strong strategic objective. Many of the items we are exploring can be sourced predominantly in the US and carry higher contribution margins in our broader product portfolio. Which over time will drive a higher overall profitability. Further, the US sourced nature of these products will limit our exposure to the continued risk related to tariffs and the uncertainty they can produce. Today, we have launched Squatty Potty wipes, which are receiving great reviews and just recently, we launched a line of Talos skincare under a healing solution brand. That are crafted from nutrient-rich 100% grass-fed tallow. Initial reviews for these products have been positive as well. We will continue to expand consumable product launches in the coming months, all sourced from primarily the US or tariff nations with acceptable levies. With the stabilization of our operations substantially in hand, our focus has returned to growth. This will be our primary and most pressing objective for 2026. And be defined by thoughtful decision-making, patience, and a goal of complementing this growth with sustainable profitability. Over the past quarter, we expanded our foundation of key marketplace channels by adding Home Depot, Best Buy, and Bed Bath and Beyond. This adds to our core US digital sales space, including walmart.com, target.com, eBay, our direct branded websites, and, of course, Amazon. In the past few months, we have also continued to expand our products offering in Amazon UK and expect to announce a few more sales channels over the coming months. As mentioned earlier, we have started to launch consumable products being led by our Squatty Potty wipes, and healing solution, Talos. Both products are receiving high review scores and are really great quality products. However, I want to reconfirm. These will be long-term plays. We have been very prudent in not overspending on marketing to allow us to further stabilize the overall business while still investing acceptable amounts to allow these products to grow. Over time, the contribution margin of consumable products will improve the company's overall profitability. In closing, we continue to deliver on our promises. Though the tariffs have impacted our run rates and velocity over this past several quarters, the swift actions we have taken have steadied Aterian. However, we still have a lot of work in front of us. We believe top-line growth is our biggest challenge, and we are committed to addressing it thoughtfully and profitably. We will continue to expand our marketplace channels here and abroad, in order to broaden our reach and meet consumers where they shop. Our push into consumables is off to a good start, providing a solid foundation to drive sales of our current products. And expand our consumer portfolio beginning in 2026 to deliver both higher sales and enhanced margin. The events of 2025 created a fundamental shift in our business and industry. Causing the significant progress we made in 2024 to seem like a distant memory. We are looking forward to 2026 with a renewed sense of optimism. And a shared goal to build a growing profitable company supported by great products, great people, and commitment to delivering long-term value to all our stakeholders. I want to thank our team, and their dedication and tenacity, to our shareholders, thank you for your continued support and patience. We believe the best is yet to come for Aterian. And with that, I will turn it over to Josh. Joshua Feldman: Thanks, Arti. Good evening, everyone. As Arti mentioned, Q3 was an important step forward for the business and a reflection of our ability to meaningfully address the disruption from this year's tariffs. When comparing our results to Q2 2025, revenue was broadly stable, contribution margin improved from 7.8% in Q2 to over 15% in Q3, and our adjusted EBITDA loss narrowed to just over $400,000 from a loss of $2.2 million in Q2. These results underscore the benefits of our cost reduction and our more disciplined approach to marketing and pricing in light of the new tariff environment. The improvements show that the actions we have taken this year are having a real impact on our results and strengthening the foundation of the business. We remain focused on driving profitable growth, maintaining cost discipline, and protecting liquidity as we navigate the current environment. I will now walk through the Q3 results and our financial position in more detail. Net revenue for 2025 declined 27.5% to $19 million from $26.2 million in the year-ago quarter, primarily reflecting the reduction in consumer demand as we increased pricing to mitigate the impact of tariffs on our cost of goods sold. Our launch revenue was $200,000 during Q3 2025, compared to $600,000 in Q3 2024. While we have postponed our Asian-sourced product launches for 2025, we plan on restarting these launches in 2026. We are also focused on consumables sourced in the US. Overall gross margin for the third quarter decreased to 56.1% from 60.3% in the year-ago quarter. The year-over-year decline was primarily related to product mix, impact of tariffs on our cost of goods sold, and a $400,000 charge relating to product remediation costs. Our overall Q3 2025 contribution margin as defined in our earnings release was 15.5%, a decrease from 17% in Q3 2024. Our contribution margin decrease primarily relates to the reduction in gross margin. Looking deeper into our contribution margin for Q3 2025, our variable sales and distribution expenses as a percentage of net revenue decreased to 42.8% as compared to 43.3% in the year-ago quarter, primarily due to product mix and a decrease in logistics costs. Our operating loss of $2 million in 2025 increased from a loss of $1.7 million in the year-ago quarter, primarily driven by reduced sales volume and contribution margin compared to the prior year period. Our third quarter 2025 operating loss included $700,000 of non-cash stock compensation expense and $400,000 of product remediation costs. While our third quarter 2024 operating loss included $1.8 million of non-cash stock compensation expense. Our net loss for 2025 of $2.3 million increased from a loss of $1.8 million in the year-ago quarter, primarily driven by the reduction in sales volume and contribution margin. Our adjusted EBITDA loss of $400,000 as defined in our earnings release decreased compared to an EBITDA gain of $500,000 in 2024. This change was primarily driven by lower sales volumes stemming from tariff-related price increases as well as a decline in gross margin. Moving to the balance sheet. At 09/30/2025, we had cash of approximately $7.6 million compared to $18 million at 12/31/2024. Most of this reduction occurred in the first half of the year. However, due to our fixed cost reductions and our pricing strategy, we significantly reduced the cash used in operations during Q3. Borrowings on our credit facility went from $6.9 million as of the end of 2024 to $6.2 million at the end of 2025. The credit facility balance is down $500,000 in the year-ago quarter. At 09/30/2025, our inventory level was at $17.2 million, up from $13.7 million at the end of 2024 and up from $16.6 million in the year-ago quarter end. Increased inventory levels are a result of lower expected demand for our seasonal air quality products resulting in a higher proportion of our working capital being tied up in inventory. As we noted in last quarter's call, we expect a reduction in this long inventory which we purchased in advance of tariffs over the next six to nine months. We also anticipate a working capital benefit in 2026 as we draw down this inventory to meet anticipated customer demand. As we look ahead to 2025, our focus remains on strengthening the business while positioning for renewed growth in 2026. The combination of targeted cost savings, US-sourced product launches, focused marketing, and disciplined cash management gives us confidence in our ability to navigate the ongoing tariff environment. We are maintaining our initial guidance of net revenue for the six months ended 12/31/2025, of $36 million to $38 million and adjusted EBITDA of breakeven to a loss of $1 million. This compares to net revenue of $34.8 million and an adjusted EBITDA loss of $4.7 million for the six months ended 06/30/2025. Importantly, based on our liquidity position, the cost-saving measures, and our focus on preserving cash, we believe we are well-positioned to navigate the current environment without raising additional equity capital for the foreseeable future in support of our day-to-day operations due to the expected working capital benefit. While tariff volatility is affecting the entire industry, Q3 showed that the actions we have taken to strengthen our balance sheet, streamline our cost structure, and sharpen execution are working. We have built a healthier foundation and our focus as we look to 2026 is returning to a sustainable top-line growth. Looking ahead, we are taking a disciplined and targeted approach, expanding our marketplace presence across key channels, leaning into consumables like Squatty Potty flushable wipes, and our tallow-based skincare line, continuing to use AI to drive efficiency and improve the customer experience. Over time, we believe these initiatives will support more durable growth and improve profitability. Our goal remains to be to build a stronger, growing, and profitable Aterian. I want to thank our team for their execution and our shareholders for their continued support. With that, we will open up the lines for questions. Operator: We will now begin the question and answer session. Again, if you would like to ask a question, just press star then the number one on your telephone keypad. And your first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Brian, please go ahead. Brian Kinstlinger: Hi, good evening. Thanks for taking my questions. I am wondering if you could dig into your new channel partners. So first, what percentage of revenue in the third quarter were sales through the Amazon channel versus other platforms? And then what are the early trends you are seeing on the new e-commerce sites? Which sites are you seeing more success versus maybe more challenges? Or measured approach? You have got a Home Depot, I think Best Buy, Bed Bath and Beyond, Target, Walmart. A lot of big names, some trying to assess, you know, where that success is coming from, if any, right now. Arturo Rodriguez: Yeah. And, Brian, how are you doing? And it is a good question. So you know, we are looking at it in the sense of we want to get the core channels up. And I think for the most part, we got all the big players in place. Some of those channels that we are launching, we are launching early. Such as Home Depot. We are getting it ready to understand how it works a bit better and how the marketing is going to work on that. But that is really a setup. So the reality, Home Depot has been a very tiny amount of sales for the period. Because that is really an investment and setup for next season's dehumidifier season, right, where we do think that can play a significant role in us regaining some of that market share. Through other channels. Best Buy will know more about it during Q4 because the reality is we put our PureSteam steam mop on that one. As part of a drive to sort of see how that channel will work during a holiday period. So we are still learning a lot about each of these channels. I think a lot of our focus is now about thinking about how to really merchandise them because I do think certain of our products will do really well in a Best Buy, something like as I mentioned earlier, the steam mop or some of the newer living products like the kettle. As opposed to Home Depot where I think predominantly that is going to be a dehumidifier or environmental appliance channel. So far, Amazon is still predominantly, you know, probably over 95% of our revenue for the quarter. But I would say that these are things that we are lining up to help us really start hitting the gas for in 2026, especially as we ramp up some of the marketing of those channels now that we feel comfortable with merchandising. Brian Kinstlinger: Great. That is super helpful. And then when I look at launch revenue, I think it was a quarter of a million dollars in the quarter. How is that tracking to your plans? And then moreover, how should we think about the bear and bull case in light of your comments about carefully deploying capital for marketing for launches? Arturo Rodriguez: Yeah. I will grab that, Josh. Yeah. So good question, Brian. You know, listen. The wipes are a bit different than some of our other products. Right? As we might have said in the past, you know, a lot of our Squatty Potty products are actually sold 1P. Right? We sell it wholesale to Amazon. So the wipes are no different. They are being sold to Amazon wholesale, so you do not get the same top-line dollar that we would theoretically see if we were selling directly. And so the numbers are probably a little bit muted there. At the same time, with all the noise going on with tariffs, we did hold back a little bit on the marketing dollars. And even to that, you know, Amazon does not let you necessarily do promotionals within the first thirty days of certain launches. The ones we standardly do. Right? You can do buying programs and other items like that, but there are limitations. So we knew going into this, this is going to be kind of a slow step. Some of the marketing that we kind of held back were more kind of, like, focused, more social-based marketing that I think we will reengage into 2026 since we will just get a natural kind of uplift as Q4 because of the holiday shoppers. In some aspects, we had to repivot some of the launch plans because of the tariff impact. That said, you know, end of the day, quality product is going to sell. It has got 4.6-star reviews, so we are very, very happy about how that is being how it is performing from a customer experience perspective. I think as we kind of get through the holiday period, we are going to continue to see that grow over time. This is a long-term play. You know? And that is why I kind of emphasize this. That this market is going to continue to grow for us, and we are going to continue to expand even recently, we just put it on to Walmart and Target. That was not on the day one kind of ramp up. We wanted to give Amazon kind of, like, a thirty-day exclusive there. And so we are going to start putting that in other channels. So I do see those numbers expecting to grow probably in Q2 in 2026 more than you see now. But keep in mind that, you know, the mix is a little bit different. It is more of a wholesale place, so the number is probably not as big as you would think. Brian Kinstlinger: Great. My last question is you were clear with the changes in tariffs in China you are not in a race to get out anymore. Especially in certain SKUs. Depending on, again, the tariffs. But how quickly can you adjust sourcing once you do identify new sourcing as necessary for a SKU, for example, you talked about refrigeration and the high tariffs in China there. How quickly can you find new sourcing? Arturo Rodriguez: It depends. I like, you know, our manufacturer for the beverage refrigerator, they do have facilities outside of China that actually manufacture that good. So in that case, Brian, it is just about making sure the good is still the same quality that we have gotten in China. And so we are very fortunate in that particular case. We are looking at sourcing that from outside of China, which will reduce the tariff impact significantly in that good. The dehumidifiers, you know, we did get out of China this year or a good second half, portion of those. But with the tariffs where they are today, you know, there is a question we are going through. Like, where should we source that? Should we go back to China? Because I think in some aspects, the margins may actually be slightly better assuming the tariffs hold. And so it really depends on the manufacturer partners you pick. And the size of those and how flexible and strong they have in sense of additional capabilities outside of China. Unfortunately, in some cases, like a lot of our kitchen appliances, which still we have been able to raise prices on, like, the new living products, for the most part, they are sourced in China, so we are making it work that way. But, really, where we are really focused on is our bigger, more cost goods, like a beverage refrigerator, like a dehumidifier. We do want to create optionality. And so it is about really making sure the manufacturers you partner with have that. And so it gives you some opportunities to sort of move as this continues to be volatile. Brian Kinstlinger: Great. Nice work on the changes and pivots to the business. Arturo Rodriguez: Thank you, Brian. Appreciate that. Operator: Again, if you would like to ask a question, just press star then the number one on your telephone keypad. There are no further questions at this time. We will now turn the call back over to Mr. Sullivan. Please go ahead. Devin Sullivan: Thank you, Mark. As usual, as part of Aterian's shareholder perks program, investors can sign up at aterian.io/perks. Participants have the ability to ask management questions during our earnings calls. I want to thank all of our Perks participants for their loyalty and their participation in the program, as well as for their questions. Management has picked a few of the more popular questions from the Perks program as well as from some other sources, and so I will read those now. Our first question, does the company have any plans to leverage its relationships with the big box retailers through which it sells merchandise, like Target or Walmart, to jointly spend on advertising? And then sort of, in addition to that, have you considered selling your products either in-store or online at places like Sam's Club? Arturo Rodriguez: I will grab that, Josh. Is that right? Thanks, Devin. Listen. Over time, we do believe big box retail is an important opportunity and strategic goal for Aterian, you know, including opportunities with the club stores. However, earlier this year with the unpredictability of tariffs, it made it difficult to progress that plan in 2025. We have put some products out there. We have PureSteam steam station going to Walmart this year and also our portable vacuum sealer from Living going to Walmart. So we have had some success there. But with the unpredictability of tariffs throughout the year, you know, the kind of process had to be put on hold and we had to refocus on the core business. But I definitely think over time, especially from a long-term perspective, there is a tremendous amount of opportunity for our brands to be in big box retail, including the club stores. Devin Sullivan: Okay. Great. The next question, does the company have any plans to break into the Amazon market in the EU and the UK, like the company has already done with MercadoLibre? Arturo Rodriguez: You want me to try that? Thanks, Josh. Listen. We already sell in the UK and EU through our Photo Paper Direct brand. The amount of revenue related to that is relatively small to the rest of the business. We already have sales there. What we have done in 2025, especially with the tariffs, we have started expanding that. We are bringing a lot of our core SKUs, what we like to call internally our marquee SKUs. That includes our steam mop, some of our irons, our kettle, you know, our hand blenders. We have been moving them to be sold both in the UK and EU. We have made good progress in the UK this year, and we are kind of excited to see how that is going to go for Q4 because it will be the first time, I think, we have a lot of these products lined up for the holiday season in the UK. Though it is obviously not as big as the US, but certainly, you will see an uplift. And so I think we are really bullish on the UK. EU will probably use more of a 2026 expansion for those marquee products and SKUs just because there is a little bit more compliance and, you know, tax slash legal things to go through as a company to make sure you are okay to sell there. But, certainly, we are quite bullish about the UK, and we are quite pleased with some of the progress, which we will be able to report in the Q4 2025 earnings. Operator: Great. Thank you, Arti. The next question. Devin Sullivan: What is the status of the share repurchase program? Arturo Rodriguez: Hey, Devin. As we mentioned in the prepared remarks, obviously, the tariffs had a big impact on our business this year. We had to change our pricing strategy, our marketing strategy, and because of the uncertainty of the tariffs, we decided in May to suspend the share repurchase program. And so while we believe we have stabilized the business, barring no other changes in tariffs, we do still think the prudent measure is to preserve capital. So we will, you know, assess the program going forward, but right now, we are going to stick with the suspension. Devin Sullivan: Okay. And our last question. Can you provide any insight regarding sales by the CEO and the CFO? At the same time, they are being compensated in shares? Arturo Rodriguez: Sure. So a large portion of the executive compensation does include restricted stock units. To tie, you know, the compensation to company performance. When these shares do vest, it does trigger an immediate tax liability. So the executives or we either cover this tax liability in cash or we go out and sell shares to cover the taxes. So this is specifically denoted on the form fours that are filed with the SEC. In the past two years or so, current management has not sold any shares outside of this sell to cover the tax liability. In addition to that, the board and executive management are subject to stock ownership guidelines that require us to hold a set amount of shares. And as such, again, a large portion of our realized compensation is tied to the performance of our stock. Devin Sullivan: Great. Thanks, Josh. That ends the perks question part of the call. We would like to thank everyone for their participation today. And, have a good rest of the evening, and we look forward to speaking with you in conjunction with our fourth quarter financial results. Thank you, everyone. Good night. Operator: That concludes today's call. You may now disconnect.
Operator: Good afternoon, and welcome to the Jefferson Capital, Inc. Common Stock's Third Quarter 2025 Conference Call. With us today are David Burton, Founder and Chief Executive Officer, and Christo Ryolov, Chief Financial Officer. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company's plans, initiatives, and strategies and the anticipated financial performance of the company, including, but not limited to, sales and profitability. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties are further disclosed in the company's most recent filings with the Securities and Exchange Commission. Shareholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made here and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements except as required by law. Also, during this conference call, the company will be presenting certain non-GAAP financial measures. Reconciliations of the company's historical non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's earnings press release. And now I'll turn the call over to Mr. David Burton. David Burton: Thank you, operator, and thanks, everyone, for joining our investor call. Let's dive into the financial performance highlights. In the third quarter, we again generated strong results for shareholders. Our collections were $237 million, up 63% versus 2024. We continue to perform well versus our underwriting expectations. We generated the largest third-quarter deployments in the company's history with $151 million invested, up 22% versus 2024. Our estimated remaining collections were $2.9 billion, up 27% year over year, driven by our continued deployment performance and attractive returns. Revenue for the quarter was $151 million, up 36% versus the prior year period. We delivered a sector-leading cash efficiency of 72.2%, driven in part by strong collections from the Conn's Portfolio purchase, which we completed in the fourth quarter of last year. We generated strong cash flow, with LTM adjusted cash EBITDA of $727 million, which in turn improved our leverage to 1.59 times, a level which positions us well for future growth and creates significant strategic optionality. Adjusted EPS for the quarter was $0.74, and the Board of Directors has declared a common stock dividend of $0.24 per share. Next, on October 28, we completed an amendment of our senior secured revolving credit facility, increasing capital commitments to $1 billion and reducing pricing. This is an important milestone which positions us well for the significant market opportunities ahead, and Christo will provide additional detail on the upside in his prepared remarks. Finally, we are very excited about the previously announced BlueStem portfolio purchase, which we believe solidifies our leadership position as a strategic acquirer of a wide spectrum of dislocated consumer credit assets. We expect the transaction to close later in the fourth quarter, and I'll share additional detail further on in the presentation. Next, I'd like to offer a brief market update and cover some of the macroeconomic indicators to provide better context for why we remain bullish on the investment opportunity for our business. I'll start with delinquency trends, which remain elevated across all non-mortgage consumer asset classes and create favorable portfolio supply trends for our business. An important component to better understand the state of the consumer is the current level of personal savings. During the pandemic, consumers accumulated abnormally high savings as a result of the unprecedented levels of government stimulus. By 2022, the excess savings had been depleted, and in fact, the current level of personal savings at $1.1 trillion is lower than the long-term pre-pandemic average from January 2013 through December 2019, and the reduction in personal savings in real terms is even more substantial when considering inflation. This suggests that consumers have a more limited ability to absorb unanticipated temporary financial hardships, which is an important driver for delinquency and charge-off volumes. Next, regarding the insolvency market, we've seen a well-pronounced increase in the number of insolvencies both in the US and in Canada from the pandemic trough in 2021, which in turn has fueled a resurgence in supply of insolvency portfolios. Insolvency evaluation and servicing requires highly specialized expertise, a robust data set to develop accurate forecasts, and a technologically advanced servicing platform, and we remain one of the very few debt buyers in the US and by far the largest debt buyer in Canada that can take advantage of this opportunity. Finally, this backdrop is also underpinned by a low level of unemployment, which supports the expected liquidation rates on our existing portfolio and gives us confidence in underwriting new purchases. All of these trends point in one direction: elevated levels of consumer delinquencies and charge-offs, which we are seeing across all consumer asset classes, and which we believe create a long runway for a robust portfolio supply over the coming quarters, coupled with continued strong collection performance on the existing book and on any future portfolio purchases. Moving on, I'd like to review in more detail some key performance trends for the quarter. Our collections were $237 million, up 63% year over year, driven by strong deployment growth in 2023 and 2024. The Conn's portfolio purchase represented $50 million of collections for the quarter. Our collection performance continues to reinforce the accuracy of our underwriting models. A key trend in collection performance has been the increase in legal channel collections. Jefferson Capital, Inc. Common Stock utilizes the legal channel in instances where we believe the account holder has the ability but not the willingness to pay. We've achieved a number of important process improvements, specifically in the US, have significantly compressed the timing from placement of the account to filing of the suit, which in turn has accelerated suit volumes. The inventory of suit-eligible accounts has increased given the significant growth in deployments over the past three years. So over time, we expect to see continued growth in legal collections. Our portfolio purchases for the quarter were $151 million, up 22% year over year. Year-to-date deployments were $451 million, up 24% versus the same period in 2024. Returns remain attractive, and we remain confident in the deployment landscape. As of September 30, we had $316 million of deployments locked in through forward flows, which is an important building block of our deployment strategy for the coming quarters. Our estimated remaining collections as of September 30 were $2.9 billion, up 27% year over year, with ERC related to the Conn's portfolio purchase comprising $179 million of the total. Our ERC is relatively short in duration due in part to the lower average account balances in our portfolio, with 61% of our ERC expected to be collected through 2027. We expect to collect $894 million of our September 30 ERC balance during the next twelve months. Based on the average purchase price multiples recorded thus far in 2025, we would need to deploy approximately $456 million globally over the same timeframe to replace this runoff and maintain current ERC levels. I would note that as of September 30, we had $273 million of deployments contracted via forward flows for the next twelve months. Moving on to slide seven, I'd like to review in more detail another core pillar of our business model and a critical building block of our differentiated return profile: our best-in-class operating efficiency. We seek to own the high-value-added aspects of the purchasing and collection process, including proprietary portfolio and consumer payment performance data, advanced analytical and modeling capabilities, certain proprietary technological capabilities, and the collection processes and techniques that we believe create both a competitive advantage for the company as well as a significant barrier to entry. In contrast, we seek to outsource the aspects of the collection value chain that we view as commoditized or operationally intensive and do not produce a competitive advantage, such as running large domestic call centers. We utilize champion-challenger performance measures to allocate portfolio segments to the best servicers, and our internal collection platform is required to compete for market share against our external vendors in both the agency and the legal collection channels. Our mostly variable cost structure provides flexibility to scale deployments depending on market conditions. The benefits of our relentless pursuit of operating efficiency are evident in our efficiency metrics relative to the rest of the sector. As I mentioned, our cash efficiency ratio for the quarter was 72.2%. It was aided by collections on the Conn's portfolio purchase, which carry lower cost to collect, given the significant portion of paying accounts in the Conn's portfolio. When excluding the Conn's portfolio collections and expenses, the cash efficiency ratio would have been 68.8%, which remains materially higher compared to other public companies in the sector. Our leading operational efficiency is a powerful competitive advantage and, coupled with the strong returns on our differentiated investment strategy, supports consistent, attractive shareholder returns. Next, I wanted to provide an update on the previously announced BlueStem portfolio purchase, where we are acquiring a portfolio of credit card assets from affiliates of Bluestem Brands. The portfolio was originated by Bluestem to finance e-commerce purchases of home goods and consumer products and consists of small balance revolving credit card receivables for which new purchases have been suspended. The transaction does not include a back book of charged-off receivables. Similar to the Conn's portfolio purchase, the transaction is structured with a cutoff date, in this case, June 30, 2025. Jefferson Capital, Inc. Common Stock will pay a gross purchase price of $303 million to acquire receivables with a face value of $488 million as of the cutoff date. At closing, the gross purchase price will be adjusted for interim portfolio cash flows net of servicing expense. Assuming, for illustrative purposes, that the deal closes on December 1, we expect the net purchase price to be $195 million, and that number would be lower if the transaction is completed further out. Given the significant portion of paying accounts and the short duration of the assets, we expect the half-life of the ERC to be less than one year. Unlike the Conn's portfolio purchase, Jefferson Capital, Inc. Common Stock is not acquiring any employees or physical facilities. Instead, the portfolio will be serviced by CardWorks Servicing going forward. $20 million of the purchase price will be held in escrow to secure implementation obligations relating to the servicing transfer. Jefferson Capital, Inc. Common Stock does not intend to pursue ongoing originations through the Bluestem platform, and the transaction does not include any Bluestem retail operations or assets. We expect closing in the fourth quarter of this year, subject to customary conditions, including an HSR approval. I believe the Bluestem portfolio purchase positions us well for a wide spectrum of opportunities involving dislocated consumer finance portfolios. A number of nonbank consumer credit originators are facing challenges, and a consumer finance business is one that requires significant scale to support profitability. A portfolio sale is frequently the value-optimizing option, and liquidity upfront is paramount, particularly in any lender-driven processes or where the decision has been made to cease new originations. The potential buyer universe in these situations is limited, given the significant operational complexity, risks of portfolio deterioration related to a servicing transfer, and the potential for disruptions related to that servicing transfer. These opportunities remain episodic in nature, and as such, they require a particular set of circumstances; they are difficult to predict from a timing perspective. As it is not possible for us to induce this type of transaction, Jefferson Capital, Inc. Common Stock remains uniquely positioned to react to these opportunities as they arise. We have specialized capabilities in hard-to-value and hard-to-service asset classes, particularly in small balance portfolios, which have given us an edge in both the Conn's and the Bluestem transactions. These capabilities are hard to replicate as they are underpinned by over two decades of data, coupled with our proprietary analytics. We have the deep operational experience to manage the servicing transfer at close and also to improve servicing efficiency as we manage the portfolio runoff. And finally, we have a low-cost funding structure with ample capital availability, which allows us to offer speed and certainty of close, critical transaction components for the seller in situations where business disruption is rapidly eroding the value of the assets. With that, I'd now like to hand over the call to Christo for a more detailed look at our financial results. Christo Ryolov: Thank you, David. Taking a closer look at the financial details for the third quarter, revenue was $151 million, up 36% year over year. Changes in recoveries rounded to $0 for the quarter, reflecting the accuracy of our modeling and our execution against the under forecast. Operating expenses were $80 million, up 59% year over year, corresponding to an increase in collections of 63%. Court costs increased to $14.9 million, or 66% year over year, as a result of the trends in increased legal channel volumes that David reviewed in his comments. This is an upfront expense to support future collections through the legal channel, and the accelerated time to suit put forward these expenses to the current core. We expect court costs to remain at this level, given the increased inventory of suit-eligible accounts resulting from the significant overall portfolio growth over the past several years. We also recorded $8.8 million stock-based compensation expense from vesting of restricted shares related primarily to the company's 2018 award plan. As a reminder, there are 6.4 million shares of restricted stock, which are subject to a three-year time vesting requirement in equal increments from the date of the initial public offering. These shares are legally issued, and the company includes them in the share count for the adjusted EPS. The related expense is a noncash item, which does not reflect any new awards post-IPO, and as such, we treat the expenses as an add-back. Adjusted pretax income was $54.8 million for the quarter, up 30% year over year, resulting in an adjusted pretax ROE of 51.7%. We realized a material level of collections on portfolios purchased in 2023 to 2024, including the Conn's portfolio purchase, which in turn drove a near doubling of adjusted cash EBITDA to $206 million for the quarter. Finally, for the third quarter, Jefferson Capital, Inc. Common Stock recognized portfolio revenue of $22.4 million, servicing revenue of $1.9 million, and net operating income of $16.5 million related to the Conn's portfolio purchase. Our credit profile remains strong and positions us well for future opportunities. As of September 30, our net debt to adjusted cash EBITDA improved to 1.59 times following the Conn's-related uptick last December as a result of strong collections for the quarter. This leverage ratio is significantly better than our publicly traded peers. Over the long term, our target leverage ratio is in the range of two to two and a half times. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality, and pay our quarterly dividend. On October 27, we completed an amendment of our senior secured revolving credit facility, which achieved a number of capital structure objectives and substantially improved the terms. We increased the aggregate committed capital by $175 million to $1 billion and added two new lenders to the bank group. We refreshed the tenure of the facility to five years, an effective two-and-a-half-year extension. We improved pricing by 50 basis points across the grid and eliminated the credit spread adjustment, an aggregate interest expense savings on the drawn balance of 60 basis points. We also reduced the nonuse fee rate for unutilized commitments by five basis points. Finally, we implemented a handful of housekeeping borrower-friendly changes to better align the credit agreement with public company precedent. The facility was undrawn at September 30, and in addition, we had $42 million of unrestricted cash on the balance sheet to supplement our liquidity needs, including the expected closing of the BlueStem portfolio purchase. We have earmarked $300 million of the RCF capacity to repay our 2026 bonds in May 2026. Given the maturity was fully prefunded with a $500 million unsecured issuance earlier this year, and at this point, we are not taking on any market risk. We plan to keep the bonds out as long as possible to take advantage of the attractive 6% coupon. This strong liquidity profile is a critical component of our value proposition to sellers who value certainty of close in periods when portfolio activity increases, but the funding markets could be constrained or unavailable. With regard to our capital allocation priorities, our primary focus remains on deploying capital to purchase portfolios in the track its risk-adjusted returns. The fourth quarter typically offers an elevated level of deployment opportunities, and we're well positioned with capital to respond. Our board has declared a quarterly dividend of 24¢ a share, which represents approximately a 5% annualized yield. The dividend offers an attractive component of shareholder return, which is not available from other public companies in the sector. It also reinforces long-term discipline around investment returns. We will evaluate share repurchases at the appropriate time while also aiming to maintain trading liquidity in the stock. And finally, we have a long history of successful M&A. We intend to remain disciplined and opportunistic. Now we'll be happy to answer any questions that you may have. Operator, please open up the line for questions. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of John Hecht with Jefferies LLC. Please go ahead. John Hecht: Thanks very much for taking my questions. On another good quarter. A lot of good stuff going on. First question, just as, you know, as you guys have diversified channels, and geographies, is there any you know, yeah, I guess, any details on the seasonality of collection that you've discovered that that are worth noting, or is it pretty much consistent across the board? David Burton: John, there was a little bit of background noise there for a second. Would you mind repeating that question? John Hecht: Sorry. Can you hear me? David Burton: Yes. Yeah. John Hecht: Okay. Yeah. The question is, you know, you've diversified your channels as sources and geographies. And is there any you know, differences in seasonality of collection across those channels or geographies that's worth pointing out. David Burton: Sure. So I think the most notable and pronounced seasonality is really kind of twofold. One is sort of global, and the other one is more US-centric. The US-centric one is relates to the seasonality relating to tax season refunds where collections are most elevated between the months of February and April. And the global characterization from a seasonality perspective affects deployments where historically, the fourth quarter has been the largest quarter for deployments. And that is fairly universal across all our geographies. I will note that many of the banks in Canada have a year-end that doesn't coincide with the calendar year. But even in Canada, the nonbank institutions tend to have a calendar year-end. And so we tend to see increases in deployments in the fourth quarter across all our geographies. John Hecht: Okay. Very helpful. Thanks. And then you you guys mentioned the the core cost because of the the activity going on in that channel, the core costs were elevated in the quarter. Sounds like that's gonna know, at least continue for some period of time I guess, you have any granularity for how we should think about that expense in the coming quarters? Christo Ryolov: Yes, John. Thanks. I think probably the best way to think about this is if you take we reported $15 million of court costs for the for the quarter. I'll think of this as as as maybe slightly higher elevated level for the fourth quarter and then run rate for, you know, 2026. The aggregate amount of call cost for 2026 would be based on run rate from this score. John Hecht: Okay. And then last question is yeah, you guys have obviously comms and now Boostem to accretive transactions. Anything worth noting just from a pipeline perspective? David Burton: Let's see. I think the thing I would note is we have looked at more transactions in the, you know, active or performing category this year, I think, than any other year. I suspect part of that is because after conducting the Conn's transaction, there was a general awareness about our capabilities. To value and close complex transactions. And I suspect that that's helped us be identified as a suitor for more opportunities like that. I will say that these are not opportunities that we prospectively can create. And rather we, like, respond to them. And And there tends to be a complex set of circumstances. That, you know, drive those processes sometimes involving, you know, lender decisions. And so that also makes them probably more speculative in terms of whether or not they're going to close. And so you know, all of that is to suggest that we expect to look at more of those transactions But the certainty around whether or not those will be transactable is is is all you know, that's very speculative at this point. But you know, we hope to report at some point in the future that we've been successful at acquiring portfolios that are similar to a Bluestem or Conse. John Hecht: Great. Thank you guys very much. David Burton: Thank you, John. Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Please go ahead. Mark Hughes: Yes. Thank you. Good afternoon. Crystal, the comms portfolio, the operating income if I remember properly, it was $20 million last quarter. $11 million this quarter, Was there any seasonal fluctuation with that, or is that just the timing of the runoff of the portfolio, the collections on the portfolio and $11 million is kind of the starting point from here. Christo Ryolov: Yeah. This is very much the reflective of the runoff of the portfolio. We've discussed previously, we expect the financial impact of that transaction to largely be contained within this year. And driven by the relatively short duration of the of the portfolio as previously discussed. Mark Hughes: Very good. And then the mix on the portfolio purchases, David, you talked about more insolvency paper. Anything else you'd highlight Credit card, utilities, anything else that you are seeing any noteworthy trends in the quarter? David Burton: Yeah. I think the only noteworthy trend really was the continuing growth in insolvencies. And there have been elevated opportunities across all the asset classes. But as you may remember, know, insolvencies had kind of trended down pretty continuously through kind of the '21. And since then, they've been kind of growing more quickly in 2024 and five. Than they were previously, but that growth began before '24. Mark Hughes: And one final question, if I could. The stock-based comp, $9 million in this quarter, what should we think about 4Q and into next year? Christo Ryolov: So we have disclosed that the aggregate amount is $87.3 million. And that'll be over 2.74 years. So if you take that as as 11 quarters, and divide that gives you around $8 million a quarter. And that number is Thank very much. Thank you. Mark Hughes: Okay. Appreciate that. Thank you. David Burton: Thanks, Mark. Operator: Our next question comes from the line of Bose George with KBW. Please go ahead. Bose George: Hey, guys. Good afternoon. Actually, when we think about the earnings contribution from Bluestem, should the cadence of those cash flows look a lot like what we saw from Conn's? Christo Ryolov: Yes. The the it has a similar kind of short duration. A pretty rapid pace of collections. So while not know, exactly the same, it would take a similar shape. Bose George: Okay. Great. And then on the cash efficiency side, is that is that gonna be similar? So this could know, essentially be sort of boost the cash efficiency as this comes in as well? David Burton: Absent anything else happening, the answer to that would be yes. But keep in mind that the Conn's portfolio will continue to diminish in its overall contribution to our overall collections. While the Bluestem portfolio will begin increasing after closing. So you've got kind of two offsetting impacts. But both of the portfolios are enhancements to our cash efficiency ratio. Bose George: Okay. Great. And then actually, there's one more. There's been obviously a lot of noise in some asset classes like auto in the market. Are you seeing anything, you know, in terms of opportunities as a result yet? David Burton: So there is a you're you're right to point out that there is a lot of activity in auto with more rapid increases in delinquencies, particularly in the non-prime sector. And so we are seeing more opportunities in auto generally, but in particular, the nonprime. Bose George: Okay. Great. Thanks. Operator: Our next question comes from the line of David Scharf with JMP Capital Markets. Please go ahead. David Scharf: Hi. Good afternoon. Thanks. Congrats all around. Lots to digest. Wonder if I can maybe just follow-up on the last question on the efficiency ratio. You know, Dave, just maybe to help investors or myself kinda get a clearer picture of sort of the margin potential. For the business. If if we exclude cons in obviously, Bluestem going forward and just focus on that call it 8%. Can you give us some maybe directional color on whether that has been increasing? Or whether the increase in legal collections, which is a more expensive channel, will will probably keep that at that level for a while. David Burton: Great great question, David. And let me see if I can be helpful here. Putting cons and bluestem aside, you would have seen continued improvement in our cash efficiency ratio on kind of a consecutive basis. And that was occurring despite kind of lower overall collections from our insolvency business as a percentage of our total. And insolvency collections carry with them a much lower cost to collect compared to distressed. And so I would expect two impacts as we move forward when excluding both cons and Bluestem. And that would be I would expect for us to produce continuous efficiency gains in our cash efficiency ratio as we continue to implement a myriad of strategic initiatives that are precisely designed to deliver efficiency improvements. And we have had a myriad of those underway this year and are have made the anticipated progress. But every year, we put together a host of what those initiatives should be for the for the coming year. And so I would expect that to be continuing. The other aspect would be that our mix of collections for insolvencies I would expect to kind of increase. Pretty much sort of on the margin, not some kind of a massive overall increase, but that will also contribute to some an overall improvement in our cash efficiency ratio. David Scharf: Got it. That that's helpful. It it sounds like it it's clearly been improving even without the performing cons in there. Hey. Another topic you know, you you you talked about the existence and difficulty in timing. Whether actions take place of of other portfolios like like Conn's and Bluestem Fingerhut. But curious, are there any other asset classes that you're starting to take a closer look at? I actually received an email today from you know, word of a private student loan portfolio of charge offs being for sale. And I know those are higher balanced than your core focus on small balance accounts, but you know, I'm curious if the student loan market is one you're maybe gonna revisit or if there's anything else that's showing up. Particularly since your IPO and you become more visible? David Burton: Sure. So first of I appreciate that question. Student loans in particular is something that the company has a fair amount of experience in. We haven't been an active purchaser of private student loans for some time. In part because there was a fair amount under the last administration of speculation around whether or not student loans broadly would become something that becomes subject to, you know, forgiveness. And even though that wouldn't in any eventuality, likely be the case for a private student loan versus a a US Department of Education originated student loan. The consumer could change their payment priority or payment preference and we wouldn't want some type of exigent you know, government regulatory change. To kind of impact the our own anticipated expected return. So you know, for that certainly with the new administration had kind of sort of quieted down. That discussion, although more recently, there's been some recent resurgence of discussion about student loan forgiveness. So I I I still have apprehension about making any material deployments in the private student loan space. Until that kind of noise subsides. All of that being said, there also has been some discussion more recently that the federal government has begun some consideration about their own consideration of selling their student loan which is something that I don't think has ever been considered or undertaken before. And so that kind of a transaction would likely create the kind of certainty that would give us the kind of encouragement to deploy. And I think we're one of the few companies have both the data the analytics, and the capability for actually underwriting and executing against private or federal government student loan portfolio. David Scharf: Got it. No. Clearly, a lot's in flux right now. Maybe just one more if I can squeeze in. Returning to Bluestem, just wanna make sure I understand. And the you know, illustrative example you you gave about sort of a net purchase price, of a $195 million. It the transaction were to close on December 1. Would that approximate the receivable balance that would be booked at that time? David Burton: No. No. No. There's a substantial discount to what the then face value. And I think the ratio would be sort of. David Scharf: Oh, no. Not the face value, but it's a $195 where the actual purchase price. David Burton: Yes. That yes. Sorry. A little bit. We've got got mostly in translation here. The transactional capital to see at the significant discount to face value but the receivable balance you book on our balance sheet would be approximated by the purchase price. David Scharf: That's okay. So so it would be about a $195 million of finance receivables on on your balance sheet. And then as we think about the pace of liquidation, it looks like the gross purchase price of $303 down to $195 at December 1. Does that imply a $107 million of collections during what time frame? From from June 30 to December 1? David Burton: Yeah. So the cutoff date is June 30. And in the example that we provided for the $195 million, that was a example of a December 1 closing date. And that doesn't imply a $107 million of collections because there's there are collections happening, and then there's also receivable balances that are changing. But I think the best way to think about it is the original kinda gross purchase price against the then total receivable balances of as of June 30. David Scharf: Oh, got it. Got it. Perfect. Thank you. Operator: Our next question comes from the line of Robert Dodd with Raymond James. Please go ahead. Robert Dodd: Hi, guys, and congrats on the quarter. On sticking with Bluestem for well, the the the concept of Bluestem slash cons. I mean, what mean, obviously, you you you priority for deploying capital, number one, is to buy put. Portfolios. But, I mean, how would you if if you had your wishes, what kind of mix would you like to be acquiring of lumpy but performing portfolios versus non Obviously, the performing applies much for you. You get the collections much quicker. It's great ROI. But then you have to find another one. And and so what's the what's the balance of of where you like that to be going forward? David Burton: Yeah. So I I may answer the question a little differently than you've asked it, but I hope it kind of gets at least the way we think about deployments. From a risk-adjusted return standpoint. And as you've sort of noted and we've discussed, we deploy capital in a bunch of geographies. Across a number of asset classes. And we we seek each year to widen that funnel. And the purchase of performing portfolios like cons or Bluestem, are just another demonstration of using our capability to deploy capital at attractive risk-adjusted returns. And so I look at active or performing portfolios as just another expansion of our funnel of opportunities. And we're largely agnostic across that funnel of opportunities because we have underwriting models to be able to forecast accurately. And then, you know, onboard and and execute against that forecast. Across all these asset classes, geographies and active or nonperforming portfolio. So you know, it it of course, it's nice to be able to deploy a lot of money against an attractive risk-adjusted return opportunity. And so you know, active portfolios are helpful in that regard because you can put a lot of money to work in a single transaction. But whether it's retail installment loans or credit card or auto. You know, I I think we are quite happy underwriting and executing against any of those kinds of opportunities. And would be at the ready to deploy our capabilities for any attractive opportunity across a number of asset classes. And so I I you know, small balance, of course, is creates a further kind of competitive advantage because not as many folks have the data or the platform that is able to underwrite and execute against those. So that certainly is maybe more attractive to us or at least would would have maybe even less competition than you know, a large balance credit card portfolio. But even that, I think I don't think any of our public competitors have deployed capital against a performing credit portfolio, for example. Large balance, small or small balance. So I think this whole category of the ability to make an attractive investment in performing portfolios is something that is unique to Jefferson Capital, Inc. Common Stock. Amongst our peers. Robert Dodd: Oh, I I I agree with you, and I appreciate that that color. Thank you. You're kinda tying on to that. I mean, if if Bluestem works out as a big right, you're at 1.5 times leverage now, roughly, ahead of Bluestem. But, you know, given how fast Conn's liquidated and and lowered your leverage after an initial peak. Mean, the outlook is is, prospectively, you know, your your your leverage will be you know, down again. This time next year, we'll be looking, you know, well unless there's a lot of other moving parts, obviously. But, you know, it it's realistic that that your leverage could be even even further below the low end of your your target. By the time Bluestem gets onboarded and, you know, it's six months to its life if it performs anything like Conk. So what what do you guys get your thoughts there? I mean, obviously, you know, there's the dividend. But what else would you look at given, you know, the potential outlook for leverage? Not a bad thing. Over the next, you know, twelve to eighteen months, maybe. David Burton: So great question and a great observation that we obviously are operating below our target leverage and that's before we get an accelerated amount of cash flow that we would derive from the Bluestem purchase once it closes. I I just wanna kinda flag for you, Robert, that we also have a bond maturing in the middle of next year. Mhmm. For for $300 million. And we would plan to utilize our revolver for that and why that doesn't increase our net debt. It it does show demonstrate our utilization of our existing capacity. Under our billion-dollar revolver, which we just upsized and for which we had nothing drawn on. At the and so we would certainly hope and the primary focus would remain deployment against portfolios in our geographies or potentially in a new geography. And and we are you know, we certainly have available to us you know, potential changes to the dividend or share repurchase or whatever as Christo referred to in his in his prepared remarks. And then, you know, lastly, you know, we've had a history of doing disciplined M&A. That have all worked out quite well for us. And so we've we find ourselves in an environment and with a capacity to consider really all of the above. As a means to to optimize shareholder returns. Robert Dodd: Got it. Thank you. David Burton: Of course. Operator: This now concludes our question and answer session. I would like to turn the floor back over to Mr. David Burton for closing comments. David Burton: Thank you. Looking forward, we're excited about the growth prospects for our business for the remainder of this year and beyond. We have built an outstanding platform. Over the past twenty-three years, and we are in a great position to capitalize on opportunities as the market continues to evolve. Thank you all for attending today's investor earnings call. We look forward to providing a further update on our fourth-quarter investor call next year. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: I'm extremely sorry about that. I'm going to start the script right now. Welcome to The Glimpse Group's Q1 Fiscal Year 2026 Financial Results Webinar. [Operator Instructions]. As a reminder, this conference is being recorded. The earnings release that accompanies this call is available on the Investors section of the company's website at [ https://ir.theglimpsegroup.com/ ]. Before we begin the formal presentation, I'd like to remind everyone that statements made on today's call and webcast, including those regarding future financial results and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's regulatory filings for a list of the associated risks. We would also refer you to the company's website for more supporting industry information. I would now like to hand the call over to Lyron Bentovim, President and CEO of The Glimpse Group. Lyron, the floor is yours. Lyron Bentovim: Thank you, Jenny, and thank you, everyone, for joining us. I'm pleased to welcome you to The Glimpse Group's Q1 Fiscal Year 2026 Financial Results Investor Call for our quarter ended September 30, 2025. While revenues were down as we guided and expected during the quarter, we made significant strategic progress in advancing the potential IPO spin-off of our subsidiary company, Brightline Interactive, while making substantial deliveries on key contracts and expanding the traction of our AI software product, Foretell AI. Specifically, Brightline made an initial successful delivery on a multimillion-dollar annual spatial core contract with the Department of War entity. Brightline is also in advanced discussions regarding multiple significant DoW opportunities. While these discussions have been impacted by the government shutdown and continuing resolution, we still expect these to materialize into contracts during calendar year 2026. Our AI software license product, Foretell AI, our AI roleplay simulation, providing intelligent conversational simulations in immersive environments has been gaining traction in both the education and health care segment. While early in its commercialization, the level of enterprise interest in Foretell AI and the accelerating pace of new licenses and annual license renewal is encouraging. Our goal is for Foretell AI to eventually become a fundamental base for Glimpse's revenues. Our other businesses continue to perform well. For example, we recently signed several contracts with one of the world's largest oil service companies, aggregate contract value in the mid-6 figures for the development of 3D brand environments and animation and corporate presentations. Regarding the Brightline IPO spin-off, our immediate strategic focus is driving a potential IPO and spin-off of Brightline as its own independent publicly traded company, a pure-play stand-alone, well-capitalized providers of AI-driven spatial computing, cloud-based operational simulation middleware to the DoW and large enterprises, enabling real-time data orchestration and training of digital twins, robotics, drones and autonomous systems. In October 2025, we initiated the IPO spinout process, engaged Lucid Capital Markets, LLC as our investment banking partner and an experienced securities counsel. While there is no guarantee of success, we expect the process to play out over the coming months with a potential Brightline IPO in the first half of calendar year 2026. Current Glimpse shareholders in parallel to their new holding in a spun-out Brightline will also maintain their holdings in Glimpse. In addition to our core immersive businesses, which are increasingly driven by traction in our Foretell AI software product, we believe that there are considerable value creation alternatives for Glimpse to pursue as a clean, healthy NASDAQ-listed technology company. We are in the initial stages of reviewing such potential alternatives. With that, I will turn it over to Maydan Rothblum, Glimpse's CFO and COO, to review the financial results. Mean? Maydan Rothblum: Thanks, Lyron. I will limit my portion to a summary review of our financial results. A full breakdown is available in our 10-Q and press release that were filed before market -- after -- sorry, market close today. Please note that I may refer to non-GAAP measures. For the calculation of non-GAAP measures, please refer to the MD&A section of our 10-Q filing. As discussed previously, we expected fiscal year '26 revenues to be choppy by quarter as demonstrated by our results in this quarter. Q1 fiscal year '26 revenue of approximately $1.4 million, reflecting a 43% decrease compared to Q1 fiscal year '25. That's for the period ending September 30, 2024, revenue of approximately $2.4 million. The decrease reflects timing of Department of War contracts and the U.S. government budgetary delays and our divestiture of noncore entities. Gross margin for Q1 fiscal year '26 was approximately 72% compared to approximately 68% for fiscal year '25. We expect our gross margins to remain in the 65% to 75% range. Adjusted EBITDA loss for Q1 fiscal year '26 was $0.92 million compared to $0.46 million loss for Q1 fiscal year '25, reflecting the lower revenues in this quarter. The company is currently operating at an adjusted EBITDA breakeven level at approximately $10 million of annual revenue, which is equivalent to our fiscal year '25 revenue. The company's cash and equivalent position as of September 30, 2025, was approximately $5.56 million with an additional $0.66 million in accounts receivable. We continue to maintain a clean capital structure with no debt, no convertible debt, no preferred equity. And as of October 2025, no contingent liabilities after making the final performance payments relating to Brightline's acquisition in 2022. Since there are many moving parts currently in play, we will not be providing revenue guidance for the remaining of our fiscal year ending in June 30, 2026. I'd now like to pass it back to Lyron for some closing remarks, after which we will begin our Q&A session. Lyron? Lyron Bentovim: Thank you, Maydan. This quarter was marked by the formal initiation of the value creation initiatives we previously discussed, initially led by the potential IPO spin-off of Brightline and then to likely be followed by other initiatives. This process will play out during our fiscal year 2026, and we will keep you updated to the degree possible as we progress. In parallel, we expect our business to continue to grow with a focus on Foretell AI software licenses. Thank you all of you for your interest and support of The Glimpse Group. And now I'll turn it over to Jenny for some questions. Operator: [Operator Instructions]. Okay. We don't appear to have any questions on the phone lines. I'll then hand over to Lyron to see if there have any questions submitted via the webcast. Lyron Bentovim: No, there is no questions on the webcast. So I would take this opportunity to thank each and every one of you for joining our earnings conference call. We look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions, please reach out to us directly. Thank you, and have a great day. Operator: Thank you very much. This does conclude today's webinar. Thank you for your participation, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to Endeavour Mining's Third Quarter 2025 Results Webcast. [Operator Instructions]. Today's conference call is being recorded, and a transcript of the call will be available on Endeavour's website tomorrow. I would now like to hand the call over to Endeavour's Vice President of Investor Relations, Jack Garman. Jack Garman: Hello, everyone, and welcome to Endeavour's Third Quarter 2025 Results Webcast. Apologies for the slight delay getting started. Please note our usual disclaimer. On the call today, I'm joined by Ian Cockerill, Chief Executive Officer; Guy Young, Chief Financial Officer; Djaria Traore, Executive Vice President of Operations and ESG; and Sonia Scarselli, EVP of Exploration. Today's call will start with Ian presenting the highlights followed by Guy walking through the financials. Djaria will present our operating results by mine, and Sonia will provide an exploration update before handing back to Ian for his closing remarks. We'll then open the line up for questions. With that, I'll now hand over to Ian. Ian Cockerill: Thanks very much, Jack. Hello, everybody. And again, as Jack said, apologies. Unfortunately, me and the team were here in Dakar today, and unfortunately, Orange decided to do some unscheduled maintenance on the line, so hence the delay. But glad to say we're back up and running. As I said, we're dialing in today from Dakar having just returned from our Sabodala-Massawa mine with the Board. We had a very productive trip and it was pleasing to see the strong and consistent performance specifically from the BIOX plant. Q3 2025 has marked another quarter of solid operating performance for Endeavour. As previously guided, production was a little lower with costs a little higher than the prior quarter with operational performance set to improve going into Q4. Our strong year-to-date production leaves us well positioned to achieve the top half of our production guidance with 82% of the low end of the range already achieved. Meanwhile, our year-to-date all-in sustaining costs of $1,365 per ounce is on track to achieve our guidance, accounting for the impact of the higher gold prices on royalty costs. Looking ahead, we're focused on our organic growth pipeline. On Slide 7, you can see our performance so far this year. We've maintained a low lost time injury frequency rate significantly below the industry average, and we had no loss time injuries during the quarter, and we continue to strive to zero harm. We've produced 911,000 ounces year-to-date, and with a strong Q4 outlook, we're well positioned to achieve the top half of our production guidance. Our year-to-date all-in sustaining cost of $1,362 per ounce is on track to achieve the full year guidance. We have seen approximately $103 per ounce impact on royalty costs from the higher realized gold prices compared to our guidance gold price of $2,000 per ounce. Accounting for this, our all-in sustaining cost is in the middle of the guidance range, with Q4 performance expected to be an improvement on Q3. Turning to Slide 8. Our year-to-date performance has significantly improved this year compared to last year, following the startup of our 2 projects in Q3 2024. We've produced 170,000 ounces or 23% more so far this year, and our all-in sustaining margin is 90% higher than last year, aided, of course, by the strong gold price. While our margin has improved significantly, thanks largely to the gold price, it is important to highlight that our all-in sustaining costs remain firmly in the first cost quartile despite the gold price driven increases in our royalty costs and amongst the best of our peers year-to-date. While we expect to see all-in sustaining cost increases across the sector in the near term, we will continue to focus on controlling what we can control, delivering productivity initiatives and the development of our low-cost pipeline projects, which will more than offset any cost increases in the medium term. Firstly, through our Tier 1 Assafou project, which continues to advance on track with the environmental permit now approved and the definitive feasibility study exceeded in early 2026. We're making good progress towards first gold in H2 2028. Secondly, we're accelerating our exploration program, primarily at our cornerstone mines, but also through our greenfield programs, we're expanding our pipeline to strengthen our long-term organic growth options, and we'll be announcing our new exploration strategy in the coming weeks. On the financial side, our solid Q3 performance underpins significantly improved free cash flow, which is expected to increase materially in Q4 and into next year. Year-to-date, we generated a record $680 million. And over the past 12 months, we generated nearly $1 billion another record that's equivalent to a 19% free cash flow yield from the start of Q4 last year. This cash flow has supported our balance sheet strength, and we've seen improvements in our net debt and leverage which remains comfortably below our target. We also significantly reduced our gross debt, paying down the balance of our RCF during the quarter. With solid operational performance and strong cash flow generation, we continue to increase shareholder returns, returning $233 million so far this year, already exceeding our minimum commitment. And with the announcement of our H2 dividend in January, we expect to return the minimum of $346 million to shareholders for the complete year. In January, we'll also announce our updated shareholder returns program. We expect to significantly increase returns and continue to be sector-leading throughout the upcoming Assafou build phase. With strong momentum built over the last 12 months and an even stronger outlook, we're well positioned to continue delivering sector-leading organic growth and sector-leading shareholder returns. On Slide 10, our strong year-to-date operating performance, coupled with strong prices translated into a 110% increase in adjusted EBITDA compared to the same period last year, to more than $1.6 billion. Our adjusted EBITDA margin also increased by 10 percentage points to a very healthy 55%. We translated this performance into stronger free cash flow, as you can see on Slide 11. For the first 3 quarters of the year, we generated $680 million of free cash flow, and over the last 12 months, generated $948 million or the 19% free cash flow yield from the start of Q4 '24. As we look forward, we expect stronger operational performance in the coming quarter coupled with reduced seasonal taxes and higher gold prices. This will underpin even stronger free cash flow generation. On Slide 12, you can see that given our strong operational and financial performance, we've continued to increase our shareholder returns. During the quarter, we paid our record H1 2025 dividend of $150 million, which we supplemented with $83 million of share buybacks so far this year. Total returns paid having come to $233 million, exceeding the $225 million minimum dividend. And with our H2 '25 dividend to be announced in January, which will be a minimum of $112.5 million we expect to return that minimum $346 million to shareholders this year, and that's before any supplemental dividend for H2 or any buybacks for Q4. On Slide 13, we've returned over $1.4 billion to our shareholders over the last 4.5 years, 83% higher than our minimum commitment over the period. And that's equivalent to 72% of our free cash flow generation over that period, demonstrating our commitment to returning supplemental cash to our shareholders. Looking ahead, we'll be unveiling our updated shareholder returns program early next year, covering the next growth phase, and we expect to outline significantly higher minimum commitments going forward and maintain the sector-leading returns that you all become used to, through our upcoming growth phase. On the growth side, our outlook compares very favorably against the consensus growth outlook for our peers, and that does not include some of the brownfield opportunities that we are advancing, which can supplement this outlook possibly even further. A significant part of this growth is expected to come from our Tier 1 Assafou project in Côte d'Ivoire, which you can see on Slide 15. The Assafou project continues to advance with a definitive feasibility study tracking for completion in Q1 '26. We were very pleased to receive the environmental permit approval in September which we believe is a significant milestone towards full project approval with the last major approval being the exploitation permit, which we expect towards the end of Q1 next year. On Slide 16, you can see we continued to accelerate exploration, and we've made good progress at Sabodala-Massawa, Houndé and Assafou. We're also looking at other Tier 1 gold provinces to strengthen and diversify our long-term organic growth outlook. Our aim is to have multiple potential development projects, each competing for internal capital that extend our pipeline even beyond Assafou. We completed the first transaction with Koulou Gold in Côte d'Ivoire last year, and just recently, we completed the second transaction with East Star Resources in Kazakhstan, a relatively modest $5 million investment over a 2-year period to identify potential Tier 1 targets in one of the world's most prolific and under-explored gold provinces. Sonia will take you through this in a little bit more detail later on. But before I hand over to Guy to go through the financials, I just wanted to touch on our commitment to ESG and our social license to operate. Sustainalytics has improved our score and reiterated our low score rating, which again positions us as the best rated gold producer in the sector, recognizing our long-term work on ESG. We're also proud to see recognition for the work we're doing reflected in our host countries with national honors, including Best Mining Company in Senegal and Best Company Committed to Local Content in Burkina Faso and congratulations to Ity's General Manager, Drissa Soro, for winning the National Award of Manager of the Year in Côte d'Ivoire. These recognitions highlight our deep commitment to developing and promoting local talent, boosting local economies and empowering our host communities. And with that, let me pass you over to Guy to talk you through our financial results. Guy, over to you. Guy Young: Thanks very much, Ian. Moving straight into our quarterly financial results. Without going through all of the details on Slide 19, I'll just pick out some of the key line items that I will come to later on in the slides. Our production in Q3 was slightly lower and our costs slightly higher than Q2, in line with our mine sequence and as noted in each of our quarterly presentations this year. This resulted in slightly lower earnings whilst operating cash flow before working capital improved by 33% and free cash flow improved by 59%, benefiting from seasonally low withholding and income taxes as well, of course, as higher gold prices. Turning to Slide 20. Our operational performance remained solid during Q3, and we are on track to achieve the top half of our production guidance with costs adjusted for the impact of higher gold prices on royalties also within the guidance range. Production declined during the quarter due to lower grades processed across the portfolio, coupled with the impact of the wet season, which reduced throughput at Houndé and Lafigué specifically, and was exacerbated by the acceleration of production in H1 at Houndé to derisk our annual production targets. Our all-in sustaining margin decreased slightly, despite the higher gold prices, due to lower grades processed, lower mining and processing productivity as a result of the wet season and the impact of higher gold prices on royalties. Moving to Slide 21. Our adjusted EBITDA decreased quarter-over-quarter due to the lower production at slightly higher costs, while the impact of the higher gold prices was lessened by the realized losses on financial instruments related to the settlement of the gold collar. Our operating cash flow increased by 22% quarter-over-quarter, shown on Slide 22, mainly due to the lower withholding and income tax payments as well as the higher gold prices. The majority of our income taxes and all of our withholding taxes have now been paid for the year with less than 15% of total taxes outstanding and to be paid in Q4. With improved production and costs expected, coupled with lower cash taxes and higher gold prices, we're extremely well positioned to deliver stronger operating cash flow in Q4. If we turn to Slide 23 now, and compare Q3's operating cash flow with Q2, improvement was driven by, firstly, a $97 per ounce increase in the realized gold price to $3,247 per ounce, inclusive of the impact of the realized losses on gold collars, a decrease in cash operating expenses as a result of lower production and a stockpile build, lower income taxes paid due to the timing of payments in the region, generally being more weighted towards Q2 and the timing of withholding taxes, which are typically paid in Q2 and Q3, but were expedited this year, reflecting an improvement in the efficiency of the upstreaming process internally and with the West African Central Bank. These increases were offset by lower gold sales related to lower production and a working capital outflow related to inventory and receivable buildup that I'd like to walk you through in more detail now. Slide 24 shows the two key drivers of the working capital increase of $85 million in the quarter, being inventory and receivables. The majority of the inventory increase, both in the quarter and year-to-date is due to stockpile increases at Sabodala-Massawa, Lafigué and Ity. Stockpiles have increased at Sabodala-Massawa as we have mined and stockpiled the exceptionally high-grade Massawa North zone deposit, which we expect to start processing in the second half of next year. At Lafigué and Ity, we've also been accelerating mining activity to build stockpiles and are expecting to see continued improvement from the plants, which will draw down on these stockpiles starting in Q4 of this year. The increase in receivables is entirely due to higher VAT receivables and exacerbated by a foreign exchange revaluation of more than $20 million year-to-date. In Burkina Faso VAT refunds continued to be delayed this year, except for an offset arrangement of $23 million in Q3 that is reflected in financing activities in the cash flow. We are actively looking at opportunities to resolve this through various factoring solutions to help expedite the receipt of these refunds that should see a reduction from next year. In Côte d'Ivoire, VAT refunds are processed quarterly. And at our new Lafigué mine, the setup of the administrative process to claim these VAT refunds has been slow. We've started to receive VAT reimbursement claims in Q3 and we expect this to now start accelerating into next year. In Senegal, where we have monthly VAT refunds, they continue as usual with a slight buildup related to the start-up of the BIOX plant and additional VAT being paid. We expect this to normalize from early next year. While we expect the full year working capital outflow, we should start seeing progressive improvements in both our inventory and receivables from Q4 and will further accelerate this improvement into 2026. In terms of our free cash flow shown on Slide 25, we continue to generate strong free cash flow in Q3, delivering $166 million, $61 million higher than the prior quarter due to the lower cash taxes and higher realized gold prices I've already touched on. As mentioned, we expect free cash flow to grow in Q4 with the improved operational performance, lower taxes and higher gold prices. Moving now to Slide 26. The strong free cash flow generation has allowed us to strengthen our balance sheet and reduce our leverage to 0.21x net debt to adjusted EBITDA, comfortably below our target of 0.5x. Given our strong cash flow outlook, our low leverage positions us well ahead of our upcoming growth phase to be able to deliver our organic growth projects and continue paying sector-leading shareholder returns. As I've mentioned in the past, we are not looking to build up a net cash position as we can comfortably meet our strategic objectives with leverage below 0.5x. On Slide 27, we are pleased to have materially reduced our gross debt through the full repayment of our revolving credit facility during Q3. We paid down $472 million quarter-on-quarter and reduced gross debt by 38% to $678 million. We expect this to be reduced further over the coming years, as we progressively pay down our Lafigué term loan in line with the amortization schedule. Finally, moving on to net earnings on Slide 28 and focusing on just the key items impacting the quarter. We incurred $49 million loss on financial instruments, which included $69 million realized loss on gold collars which was partially offset by an unrealized gain on the outstanding gold collars for Q4. The final delivery into our gold collar program will be 50,000 ounces at the end of this quarter, which based on prevailing gold prices should support improved cash flows in 2026. Our income tax expense was significantly lower during the quarter. This is due to lower taxable profits and lower withholding taxes recognized. Our deferred tax expense was also higher due to movements in foreign exchange on the opening deferred tax balances and the accrual of FY '25 withholding taxes. Adjustments were limited during the quarter as the unrealized gain on gold collars was largely offset by other expenses and foreign exchange on our deferred tax balances. We reported another strong quarter of adjusted net earnings per share of $0.66, albeit slightly below the prior quarter, largely due to the lower earnings from operations and a higher realized loss on gold collars. Thank you. And with that, I'd like to hand over to Djaria. Djaria Traore: Thank you, Gary. During quarter 3, I'm pleased to report that we maintain our industry-leading safety record, with a loss time injury frequency rate of 0.05. Unchanged from quarter 2, 2025 or most importantly, we had no loss time injury. While our safety performance position us among the safest mining companies globally, we remain vigilant and we reject complacency. We continue to focus on training to foster the strong safety culture that we have across the business. Moving on to Slide 31. Quarter 3 marked another solid quarter of operating performance, which contributed to a strong year-to-date production of 911,000 ounces and puts the company on track to achieve the top half of our production guidance range. On cost, we're pleased with the year-to-date performance with all-in sustaining cost of $1,362 per ounce, which has been impacted by $103 per ounce of higher royalty due to higher gold prices than our guidance set at $2,000 per ounce. Adjusting for these impacts, our all-in sustaining cost is firmly in the middle of the guidance range. Across the portfolio, all the assets are on track to achieve the production guidance. With Houndé and Sabodala-Massawa, expected to achieve the top half of the range, while Lafigué is expected to achieve the lower half. On cost, it is Sabodala-Massawa, Houndé and Lafigué are on track, with Lafigué expected to land near the top end and Mana expected to be above the top end of the range. Despite this at the group level, we are well positioned to achieve our guidance range when accounting for the impact of royalties. I will now run through the mine-by-mine details, starting with our mine of Ity on Slide 32. Production decreased quarter-on-quarter as expected. We processed a lower grade ore from the Le Plaque and Ity pit in line with the mine sequencing. All-in sustaining costs increased, driven primarily by lower gold sales volume, higher royalties due to increased gold price and higher sustaining capital. Ity is on track to achieve its 2025 production and cost guidance, and we are evaluating opportunities to reduce mining costs through development of the Ity Donut, which should provide us efficiencies by deploying a hybrid mining fleet within an expanded optimized pit over the coming years. Let's now turn our mention to our Houndé mine on Slide 33. Houndé had a very strong start of the year as we have accelerated high grade into to H1, to derisk the impact of the wet season. And as expected, production decreased quarter-on-quarter. On cost in quarter 3, we saw an all-in sustaining cost decrease, driven primarily by lower sustaining capital as wet stripping requirement eased. Houndé is well positioned to deliver production in the top half of the guidance range with costs well in line. As we have highlighted previously, looking ahead to the next year, we expect we will continue stripping the Vindaloo main pit Phase III cut back and mining lower grade from Kari West and Vindaloo, which will result in high cost for the first half of the year. We should progressively improve as the stripping concludes, giving access to higher grade ore. Moving now on to Mana on Slide 34. Production declined slightly in quarter 3 as we mined and processed lower grade from Wona underground deposit. While the cost increased slightly due to the lower grade, lower production and sales and higher gold price impact in royalty costs. At Mana, we are pleased with our production performance but there is still work to be done on cost. Importantly, we have now completed the changeover of our underground contractor, and we expect to start realizing some of the productivity benefits including a significant increase in development rate and total development meters next year, driven by expected improvement in equipment availability as well as the operating efficiencies by using a single underground contractor, which we expect will drive unit cost improvement into next year. At the same time, we are improving the underground mine power stability, through the installation of a transformer and the automation of our on-site power plant to smooth switching between the grid and self-generated power. Combined, these initiatives will allow us to increase our reliance on the lower-cost grid power for the underground from early next year, which should also support cost improvement. For the year, Mana is well on track to achieve the production guidance, but costs are expected to be above the guided range due to the reliance of self-generated power for the underground and higher sustaining capital as we are accelerating development in the Wona deposit to gain access to higher grid more quickly. At Sabodala-Massawa on Slide 35, production decreased only slightly in quarter 3 as lower grades were processed through the CIL plant, despite higher throughput recoveries for the CIL plant and higher grades as well as recovery through the BIOX plant. On all-in sustaining costs increased largely due to the impact that the unusually long and heavy rainfall had on mining and processing productivity, as well as higher royalty costs due to higher gold prices. It's pleasing to see the technical review at Sabodala-Massawa starting to positively impact performance. Following the acceleration of mining activity at Massawa central zone, we are now mining consistent higher grade, which came in at over 4 grams per ton for quarter 3. And on recovery in the BIOX plant, we were pleased as well to achieve an average of 82% for the quarter, which is a significant improvement from where we started last year, and well on track to achieving our life of mine target of 85%. Recovery improvement has been driven partly by increased and better quality fresh ore from Massawa Central Zone, but also better feed consistency, which allow us to optimize flotation control and flotation tail leaching. We expect to drive more improvement as we optimize the gravity circuit later this year into next year. Looking ahead to quarter 4, we expect higher production from the CIL plant due to improved throughput and grades while our production from the BIOX plant is expected to remain consistent, position us to achieve the top half of the production guidance with costs in line with guidance. Looking ahead to next year, we will continue to drive the technical review forward to outline on incrementally improved production outlook as we accelerate underground development to drive further production improvement over the coming years. Lastly, turning to Lafigué on Slide 36. Production declined during quarter 3 as we saw lower throughput, though a 35% higher year-on-year and reduced grade mine and process from the main pit, as mining activity shift towards stripping to accelerate access to more higher grade to support the processing plant, which is now consistently running above design nameplate. All-in sustaining cost increased but mainly due to lower gold sales and higher royalty costs due to gold prices. As we move into quarter 4, we are expecting grade and cost to improve, and Lafigué is tracking towards the lower half of its full year production guidance with the all-in sustaining cost near the top end of the range due to the lower level of production. I will now hand over to Sonia to walk you through our exploration highlights for the quarter. Sonia? Sonia Scarselli: Thank you, Djaria. I'm pleased to be joining the quarterly webcast to provide you with an update of our exploration activities at some of key properties. This is also a timely update as we expect to announce our new exploration strategy for the next 5 years later this quarter. The new strategy will underpin our continued sector-leading organic growth Sabodala-Massawa on Slide 38, we are advancing the 2 high priority exploration targets called Makana and Kawsara. In Makana, we are accelerating the resource definition of the 2 high grade non-refractory mineralized deposits. This could potentially support the near-term mine plan in Sabodala-Massawa and affecting some lower grade feed and improving production. Kawsara is a potentially large non-restructuring resource located approximately 35 kilometers South of Sabodala-Massawa and can support a significant increase in the endowment and provide increased life of mine optionality, maiden resources reports are expected next year. Moving to Houndé on Slide 39. We have increased our exploration budget as we continue to drill high grade intercept at Vindaloo deeps deposit. The target looks to be very large and very high grade and could support a material improvement in the mine plan. We expect to have a maiden resource for Vindaloo Deep in Q1 2026. Elsewhere in the operating portfolio, we have completed the drilling the holes in Mana to delineate the continuation of the Wona underground deposit. At Ity we are developing several early-stage opportunities along the Ity trend in Lafigué. We expect to start drilling on several near mine targets early next year. Moving now to Slide 40 and our Tier 1 Assafou project. During Q3 2025, we completed a 23,000-meter drill program at the Pala Trend 2 and Pala Trend 3 targets located a few kilometers to the west of the main Assafou project. Drilling successfully expanded the mineralization over a 3-kilometer strike length along the similar Tarkwaian - Birimian contact to the one at the Assafou deposit, on the southwest side of the Assafou basin. We expect to complete the definition of maiden resources for the Pala Trend targets later in Q4. And finally, on Slide 41, I want to give you a bit more color on our new joint venture with East Star resources that Ian mentioned earlier. While our new exploration strategy will prioritize existing operation, we will also be increasing our greenfield exploration spend, focused on strengthening and diversifying our exploration pipeline to support our longer-term organic growth. While we expect most of this growth to come from our existing West African portfolio, we are also entering into some highly prospective Tier 1 gold provinces with low exploration maturity and where we have an early mover advantage. We are taking a low-risk and low-cost venture approach, giving us the ability to leverage our joint venture partners a technical expertise and their knowledge of the operating environment in this region. We signed a joint venture with East Star Resources, a Kazakhstan-based gold and base metal explorer targeting 2 highly prospective belts in Northern and Central Kazakhstan within the highly prospective Central Asian Orogenic Belt, the hosts multiple Tier 1 gold deposits. We will invest $5 million over a 2-year period to earn 51% interest in the joint venture company that will be operated by East Star who are well integrated in the country, and have been operating there for over 5 years. From day 1, we will have control over the exploration program through our Board and technical committee seats. We expect to continue to leverage local exploration vehicles in a highly prospective Tier 1 gold provinces to expand that exploration pipeline and ensure that we have a multiple high-quality organic growth project that will compete for capital with each other and will underpin continued portfolio pipeline and production growth. With that, Ian, back to you. Ian Cockerill: Thank you, Sonia. With our strong operating momentum and the supportive gold price environment, we're well positioned to build on our year-to-date performance through the remainder of this year and into 2026. The high quality of our portfolio and the resilience of our business ensures that we are well positioned to sustainably deliver both sector-leading organic growth and sector-leading shareholder returns. We look forward to talking to you in January when we come back with the Q4 results, and we're very, very looking forward to seeing how they turn out. It's looking promising. And with that, let me hand you back to the operator for Q&A. Operator: [Operator Instructions] And the questions come from the line of Wayne Lam from TD Securities. Wayne Lam: Maybe at Sabodala, just wondering if you may be able to give us a bit of color on what you're seeing in terms of the stability of the government on the ground there? And are you in discussions on any potential renegotiation on the mining code in country? Ian Cockerill: Wayne, thanks. Look, in terms of stability of the government, having spent the last week in the country, you get a good sense just being in the streets, in the towns, talking to people, I'm not seeing anything abnormal here. There are some current discussions going on at government level around what they're doing. We are not in any negotiations with regard to change in mining codes in the country. Would I suspect that they will come? I think we've seen elsewhere in West Africa there is a tendency to want to modify. Bear in mind that the mining code in this country goes back to 2013. So it probably -- it's fair to say it's likely to be due for renewal. So if it comes would I be surprise? No. But the dialogue between ourselves and government I think, is fairly good. And I think if there are going to be any changes, there's certainly going to be well telegraphed, and I would sincerely hope that we will have a high degree of input into what goes into them. But I don't see any immediate change in the immediate future. Wayne Lam: Okay. Great. And then maybe just wondering on the recent JV signed with East Star. Can you just talk about the strategy going forward regionally for the company? Just given Endeavour's long-standing history, of operations in West Africa, are you still keen on expanding within the countries where you operate? Or are you now looking to diversify out into other developing regions globally? Ian Cockerill: I think the answer as I mentioned previously, Wayne, we still see good potential in West Africa. We're really sort of doubling down, particularly on our brownfield exploration, I think -- you can see what Sonia mentioned about specifically at places like Sabodala, highly, highly prospective piece of real estate. We just got to go and look for it. So we are certainly not walking away from West Africa far from it. But we do recognize that looking forward and bear in mind, exploration is a long-term game. This is not something that we're doing for the next quarter. The reason why we're expanding and taking sort of baby steps outside of West Africa is we're actually looking longer term. We're looking for the mines we will develop in the 2030s that's sort of time horizon that we're looking at. And our focus is going to be on those areas that we think are highly prospective, relatively under-explored where we believe that our unique exploration expertise can be applied and we can be equally successful over the next decade as we've been, if you look back over the past decade in terms of cost-effective discovery of ounces of gold. Operator: We are now going to take our next question and the questions come from the line of Richard Hatch from Berenberg. Richard Hatch: Yes, two questions. Firstly, just following on from the previous question around tax and royalty regimes in West Africa. It has been a theme amongst some shareholders, just questions around that. And I guess you've got your stability agreement in Senegal and Burkina has already moved on that. But what about Côte d'Ivoire, what are you kind of hearing or you're seeing in Cote d'Ivoire? And how should we think about changes to royalty regimes in Côte d'Ivoire, tax and royalty regimes in Côte d'Ivoire. That's the first one. Guy Young: Hey Richard, Guy. Richard in Cote d'Ivoire, I think a relatively well publicized discussion continues between the Chamber of Mines on which we're obviously represented and the state. The state's primary focus appears to be, amongst other things, on the royalty rates. It's important to us, obviously, predominantly with regards to Assafou because that's the sites which we'd like to start developing but for which we don't have any signed convention. So that's the key aspect for us. In terms of Ity, in particular, we do have, as you know, stabilization clause in which we would rely to avoid any near-term increase in royalties till such time as we're looking for permit renewal. Lafigué, we would hope to be signing a convention relatively soon, at which point we'd be able to confirm. But there is no doubt there is ongoing and upward pressure from all of the states, including Cote d'Ivoire, particularly in terms of that royalty rate. Richard Hatch: Understood. I'll ask my second one, but just to be clear, you can go forward with Assafou construction without having that convention signed? Or would you prefer to have it before you go forward? And then the follow-up, sorry, was how significant is a significant hike in the dividend. So if I look at $225 million, I mean, a significant hike could be 30%, but that takes it to $300 million. So it's $300 million like a fair number, a rule of thumb? Or could it be more? Or how do we think about the significance of significant? Ian Cockerill: Richard, in terms of the numbers that you've spoken of, you may say that we couldn't possibly comment at the stage. Guy Young: Richard, we will, of course, be coming up with some more directional numbers very early next year. It's just a question, so significance is obviously a subjective term and the qualitative one of that open to interpretation. It's just that we do need to get to the end of our annual planning process. We need to take some views on gold pricing, reassessing cash flows, making sure we understand where we think the actual numbers are going to land. But in any of the scenarios, we see some significant -- apologies capacity for us to improve the current scenario, which we believe is relatively set for leading anyway and is only upside from here. But it won't be long, and we'll be able to provide you with a lot more quantitative directions. Operator: We are now going to take our next question and the questions come from the line of Ovais Habib from Scotiabank. Ovais Habib: Congrats on a good quarter and really glad to hear that production is tracking towards the top end of guidance. Ian, a couple of questions from me. I just wanted to start off with Assafou. Exploitation permit approval in DFS looks like they're on track to completion in Q1. Ian, there was a lot of drilling completed over the last couple of quarters, and Sonia did mention that mineralization extends over a 3-kilometer strike length and remains open. Obviously, that looks like there's a lot more further upside over here. Is this drilling going to be included in the PFS? And is there any change or a scope change in the PFS that we should expect? Ian Cockerill: A great question. Thank you. Look, I mean we've actually addressed this issue previously. At some point, you actually have to sort of close off the reserve because you've got to do it against your published reserve and resource statement. We've taken the view that the numbers that we used in the PFS, which was 4.1 million ounce reserve would be the number that we would use for the study. But we're cognizant of the fact that there is potential upside from there. Having said that, it's our belief that the 4.1 million ounces is more than enough against which we can do a realistic study, the final feasibility study. But we will make sure that whatever design we come up with and that we finally go with has in-built flexibility and that would be the assumption that over the life of this project, there will be scope to expand the throughput over and beyond the 5 million ton a year, which is the design profile that we're using for the initial study. So we've decided to fix our view at that level, but the design will be flexible. We will not sort of bottle ourselves in. We'll leave lots of room and shape and capacity in the design. If we wish to increase capacity, we could do so and it's not going to make life difficult for ourselves. That's the approach that we've decided to take. Ovais Habib: And then just moving on to exploration. The new 5-year exploration strategy is expected in Q4. Are we going to get a resource start rate like we did previously? And maybe a part-two to that is where is kind of the low-hanging fruit that you would be targeting in the near term? Sonia Scarselli: Thanks a lot for the question. As I mentioned, the strategy will be presented on the fourth -- the next quarter. However, just looking at the next 5 years where we play. We will definitely double down in our existing operation. We have a pipeline of brownfield and greenfield that have been identified, that will move forward, especially the brownfield in the short term and greenfield will be progressed in the next 2, 3 years, to really keep building on that pipeline. In parallel, we're really looking to expand the portfolio. That's why we are looking at this low-cost entry strategy of joint venture with partnership and juniors in different countries. But definitely, in the short term, we have identified a strong pipeline for a brownfield in our existing areas and hoping applying new technologies and new data sets to actually continue to expanding on that. Ian Cockerill: As we did previously Ovais, it would be the intention that we will be setting ourselves internal targets for achievement. So that we'll be doing as well. Ovais Habib: And just in terms of brownfields that you talked about brownfield targets is the Ity Donut concept still in -- on the plate right now and that's going to be your focus going into 2026? Ian Cockerill: Look, it's a plan, absolutely. I mean, there's -- you've seen the plans. We're busy doing the engineering studies. We're looking at the implications, what is meant by this. I think as we said previously, one of the real issues that we have at Ity is a very, very tight site. The Ity Donut requires a fairly high degree of ground movement. And the question is, where best do we put all the -- particularly the waste material? And that's what's requiring some very careful thought requiring us to do some fairly rapid condemnation drilling to make sure that in terms of waste par positioning, we're not putting on any future ore reserves and sterilizing stuff that we could go into in the future. But it's absolutely a very important part of organic growth opportunity potential within the group. Operator: We are now going to proceed with our next question. And the questions come from the line of Fahad Tariq from Jefferies. Fahad Tariq: Ian, I just wanted to come back to your first answer on Senegal. There's a Bloomberg article just this morning talking about the government seeking to perhaps change its mining code by the end of the year given the debt crisis in the country. Your answer said you don't see an immediate change in the immediate future. Can you maybe just comment on that? Like is it based on discussions that you've had with the government or the team has had with the government? Ian Cockerill: Look, Fahad we've not had any discussions with government around the change. We also saw that comment. I think there's a huge difference between an aspiration and ability to deliver. And I think being realistic, there's no ways that the government may want to have a change in the mining code. But I do believe that it's not really going to happen. I mean, at Sabodala, our current mining code extends to 2040. So any changes to the existing 230 mining code are unlikely to affect us at Sabodala in the short term. So it's -- there's always lots of commentary. In fairness, as I think Guy mentioned earlier, all jurisdictions are looking at ways of increasing their take with the higher gold price received. And let's be frank, that's not unique to countries where we're mining. Every country around the world is looking at ways of grabbing extra tax dollars. So if you're asking me, is there going to be a change by the end of the year, I would say that's not going to happen. If you were asking me what is the trajectory? I think it's fair to say that the trajectory, like in all countries is likely to be higher, but over the longer-term time line of which I'm afraid at this stage, I can't actually define. Fahad Tariq: That's helpful. And then just switching gears to exploration. Philosophically, is there a prioritization of mines that are, let's say, around the 10-year mine life and you want to maybe extend those mine lives, for example, Houndé and Ity? Or is it really just based on where you're seeing the most geologic potential, and that's where the exploration focus and the rigs will be? Ian Cockerill: I think it would always be great if you had a short mine life, and there was lots of potential and you could focus there, that would be the logical thing to do. But your exploration focus is absolutely going to be where you believe is the maximum potential. We're very fortunate that in our portfolio, we have some great potential. And historically, there's been perhaps insufficient emphasis on the underground potential. And if you look at Sabodala, Ity, Houndé, all three of those mines have been fabulous mines within the portfolio that got really good underground potential. And we've recognized this that this is a great internal upside potential for the group. We are increasing our focus on underground exploration, but importantly, also bringing onboard people into the group who have got extensive underground mining, planning, execution capability. So we're preparing ourselves that a future within Endeavour is not just going to be open cut. It will be open cut as well as appropriate and commercially viable underground operations as well. Operator: We are going to proceed with our next question and the question comes from the line of Marina Calero from RBC Capital Markets. Marina Calero Ródenas: I have two questions on my side. The first one is a follow-up from previous questions on the JV agreement announced today. You're clearly looking to diversify into new regions. Can you comment where else you're seeing potential at the moment? And as an extension of that, how much capital are you looking to invest in these type of agreements going forward? Ian Cockerill: Yes. Marina, again, I think previously, we flagged that we certainly have an interest in the Tethyan belt. So clearly, that's why Kazakhstan has been flagged as being high potential. Let me reiterate what I said earlier, which is areas of high prospectivity, the potential for Tier 1 deposits as well as being relatively under-explored where we can apply our previously acquired expertise and knowledge. And also perhaps our familiarity with specific geology, which is why we've also said that parts of sort of Northern-South America are highly prospective. It's the same geology as we're exploiting in West Africa. So those are the areas of focus. So it is -- it's not just a shotgun approach to expanding our exploration portfolio. It is a very deliberately focused program, where we believe our approach to exploration, our ability to have a higher probability of success we believe that we can actually repeat the success that we've had over the past decade. And going forward, do the same, generate more greenfield ounces and prepare ourselves for the next mines post-Assafou. Marina Calero Ródenas: And I have one more question for Sonia. On the non-refractory targets that you're drilling at Sabodala-Massawa, can you give us a bit more color on that and when we could see those coming into the mine plan? Sonia Scarselli: So for the Kawsara, we are still completing the drilling campaign that has two aspects, one on a very high grade part of the resources. It was infill drilling to really get to next year to an inferred resource. But in parallel, we are also doing the exploratory drilling to really understand the full expansion of the resource. So what we see today is an expansion of potential over 5 kilometers where the mineralization continues. That's why we are working with the team and fully understand the resource size will impact and where it will be scheduled on the mine plan. On the other opportunity, Makana, this is brownfield opportunity nearby our CIL facility plant. So we will accelerate in 2026 the drilling campaign to get into indicated resource. So the goal is to actually accelerate to the mine plan as we get into 2027 and display the lower-grade resources. Operator: We are now going to proceed with our next question. And the question comes from the line of Anita Soni from CIBC World Markets. Anita Soni: I just wanted to ask a couple of CapEx-related questions. On the fee gain, I think the CapEx has been shifting from sustaining to non-sustaining. And I think -- can you just give me some color on that? I thought you said was it related to just a focus on the different kinds of stripping that you're doing? And then should we then assume that, that sustaining capital will catch up next year? Is that a good assumption or not? Guy Young: Anita, Guy. I'll try this, and if Djaria wants to add anything. Yes, you're absolutely right. There is a slight change in the Lafigué CapEx split. So there's another $10 million in our nonsustaining that is effectively associated with a revision to our stripping plant. So we're increasing some stripping at the main pit that's effectively allowing us better access in the short term to fresh ore and ounces. We will push stripping into nonsustaining from sustaining if the pushback or the strip itself is both ahead of life of mine strip ratio, as well as accessing ore that's going to be mined over multiple years. So in this particular case, those criteria being met, and consequently, is moved from sustaining to nonsustaining. I think over the longer term, we don't have any fundamental shifts in our expectation for total CapEx at the site, this is a question of short-term changes to mine plan. Anita Soni: Okay. So the strip ratio is higher than life of mine and so it moved from the sustaining to... Guy Young: In this particular strip. Anita Soni: And then secondly, on Sabodala-Massawa, the processing costs dropped this quarter. And I'm just wondering, is that a function of something that's, I guess, more sustainable? Or is that really just a function of the higher contribution of the CIL or which I presume is slightly cheaper than the BIOX? Guy Young: Anita maybe I can chat to you offline just to understand exactly the quantums you're looking at. It's fair to say, though, from a broader trend perspective, yes, our processing cost at Sabodala have benefited from some improvement in recoveries, which we touched on earlier in the call. The other impact that you're likely to see having started to come through in our '25 numbers and arguably going to be a bigger contributor into 2026 is the solar investment. Our solar investments, which started coming online, this year is an investment to which we've been very proud of, not only for its ESG credentials, but the fact that it does have a fundamental improvement to our operating costs. So as the solar has ramped up, it's starting to contribute to a growing proportion of our overall power consumption. And that, I think, again, as a long-term trend, should be underpinning sort of the improvements you're seeing in processing costs at Sabodala. Operator: [Operator Instructions] And the question comes from the line of Mohamed Sidibe from National Bank Capital Markets. Mohamed Sidibe: Guy, I think you mentioned that the goal is not to stockpile cash as you're advancing through the next year. Could you maybe help us understand what's the minimum amount of cash you would like to hold while advancing the build at Assafou in order to better understand maybe your capital return profile for your capital allocation priorities? Guy Young: No problem. I'm afraid I'm not going to be able to give you even through the backdoor sufficient quantification to kind of reverse engineer the shareholder returns. But what I can just point to, which I think we've discussed before is in terms of minimum cash requirements, we fundamentally look to hold sufficient liquidity at both mine sites as well as offshore. And when we look at those numbers, we tend to look at $150 million of liquidity offshore. And we also like to keep around $15 million, $20 million of liquidity at mine site. I do keep trying to underline, the liquidity point here. So if we hold it in cash, that's fine, but it doesn't necessarily have to be in cash, it just needs to be liquidity availability. So I would reiterate the point made during the presentation itself. We have no stated short- or medium-term ambition to be holding cash piles. However, though cash piles as you would expect, form part of the capital allocation and ongoing capital allocation, and we will look to, of course, provide the right levels of liquidity and balance sheet strength. But equally, we will continue to focus on shareholder returns and CapEx, cash CapEx requirements of the business for organic growth. So there isn't a substantial amount of cash requirements or liquidity at either an offshore or a site level. Mohamed Sidibe: All right. Great. And then maybe if I could follow up on the working capital side of things, you noted that you expect a big part of that to be coming on and flowing out in 2026. Should we expect this to be mostly coming out in 2016? Or would some be seen in 2027 as well? Just wanted to think about the amount and levels into next year. Guy Young: Sure. Just to make sure I understood. You're talking about the unwind profile? Mohamed Sidibe: Exactly the unwinding of the inventory and accounts receivable. Guy Young: Okay. Perfect. So I think from a stockpile perspective, which is arguably the most material number. Yes, we see going particularly into 2026, partly as a result of the mine plans, the ability to start unwinding. And in particular, as I mentioned, it's likely to be happening at Lafigué as well as Sabodala. Sabodala, as we start blending slightly differently and looking to change our process plant feed, we should see North Zone materials starting to become consumed in H2 of '26. Lafigué, it's the same point. We've got a plant that is currently managing to produce well above nameplate capacity. And as a result, we've stockpiled in order to be able to ensure that, that plant is filled through 2026. So whilst I think the trajectory is better for 2026, I think it would be presumptious to assume that we'd be able to consume all of our stockpiles. Clearly, there are going to be stockpiles consumed over life of mine. But there is an improving trend between '25 and '26 as I've described. I think slightly more difficult to answer is on the VAT. Where we have higher degrees of confidence is in and around Cote d'Ivoire and Senegal. Cote d'Ivoire is associated with Lafigué. Lafigué having just come online and as it turns out simultaneously, the state of Cote d'Ivoire implemented a new administrative process and an online automated process in the same year. Those two things did end up slowing down our ability to submit and claim VAT reimbursements. The quarterly nature will not change. So I expect us to be able to stabilize the level, which is slightly lower than where we are now. And then that should -- and that would be in 2026. And then that would flatten in terms of overall movements unless the nominal amount changes. In Senegal, we remain on track. It's a monthly process. So that's just a question of lead time and the nominal amount if it goes up, associated with costs, it might increase slightly, but that I expect to remain relatively flat. The big unanswered one and very difficult to answer one is Burkina-Faso. We don't see Burkina-Faso as a counter-party risk, which is why we don't account for it as such. So our ECL associated with our VAT receivables is focused entirely on timing. The Burkina Faso state has always remained true to its word, and when it owes us money, it pays us. The question is around timing because they're under their own cash constraints. So we don't see the counter-party risk, but we remain cautious in terms of being able to commit two timing. And consequently, we're looking at alternatives where we might be able to look into some kind of factoring that allows us access to the cash. Failing that, arguably, this is going to a slightly longer-term issue, but not which -- not one which we believe is insurmountable. We'll continue to work on it between '25 and '26, we should see some improvement. But thereafter, we'll have to wait and see whether the success of the factoring program can be repeated. Operator: And the questions come from the line of Felicity Robson from Bank of America. Felicity Robson: At Mana, you're expecting costs above the top end of the guide in part due to higher power costs and issues around grid stability. How can we think about the cost profile going forward there, please? Djaria Traore: Thank you, Felicity. I think as we previously mentioned last quarter, we know that we do have issue around cost at Mana, and we do still have a lot of work to do. We've mentioned that there are two or three key elements here is the reliance still on the self-generated power. Hence, we are currently improving some of the initiatives, one of them being the transformer that we'll be setting up. So normally, by the beginning of next year, we should be seeing an improvement, at least on the power cost because what that will allow us to do with that transformer is to be able to then use the grid on the underground mining. So that's one thing. I think on the quarter 3, what we've seen as well is that one-off cost due to the transition from two contractors to one contractor now, which we're very comfortable with. So with that, that means that there is a lot of productivity initiatives that we'll be putting in place. But one thing is for sure for Mana, I think what we've seen quarter-on-quarter is that in terms of production, which are stable. Mana is still contributing to the gold production as overall, is still generating cash. So I think for now, we just need to continue putting together some initiatives in order to reduce the costs at Mana. Operator: Thank you. That will conclude today's Q&A session and today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for joining AutoCanada's conference call to discuss the financial results for the third quarter of 2025. I'm John, your moderator for today's call. Before we begin, I'd like to remind everyone that today's discussion may include forward-looking statements, which are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. I encourage you to review AutoCanada's filings on SEDAR+ for a discussion of these risks, the fourth quarter news release, financial statements and MD&A. [Operator Instructions] I'd like to remind everyone that this conference call is being recorded today, Thursday, November 13, 2025. Now I'd like to turn the call over to Mr. Samuel Cochrane, Interim Executive Officer of AutoCanada Inc. Please go ahead, Mr. Cochrane. Samuel Cochrane: Good evening, everyone, and thank you for joining us. This quarter marks an important transition for AutoCanada. As many of you know, Paul Antony has stepped away from his role as Executive Chair. I want to begin by recognizing Paul's leadership and contributions over the past several years and thank him for his commitment to AutoCanada's information and personal mentorship to me. I'm honored to step into the role of Interim CEO at such a pivotal time. My focus is to complete the transformation in the coming weeks and then quickly pivot the business' attention towards operational excellence to ensure a successful 2026. The key to 2026 is to build back volumes on our lower cost base by focusing on the fundamental elements of servicing our customers. Turning to the results. Recent trends continued from a top line perspective as we manage through several overlapping factors. Revenue from continuing operations was $1.2 billion compared to $1.4 billion in the prior year, reflecting softer performance across new and used vehicle sales, parts and service and F&I. As expected, ongoing store restructuring and continued softer demand in certain brands contributed to in-quarter revenue pressure. Additionally, the year-over-year comparison was particularly difficult as Q2 2024 TDK outage shifted some business into Q3 2024, creating an unusually tough comp. Despite these headwinds, the underlying progress of our transformation continued. Adjusted EBITDA from continuing operations was $58.1 million compared to $63.1 million last year, with margins up year-over-year at 4.8%. While volumes are lower, disciplined cost control helped offset a large part of the impact and allowed for continued margin expansion. Our cost transformation remains firmly on track and we plan to be wrapped up in the next couple of weeks. As of September 30, we've achieved roughly $100 million of our $115 million 2025 annual run rate savings target, driven by head count optimization, tighter expense and inventory management, consumer efficiencies and process improvements. The benefits of this leaner structure are already visible in our expanded EBITDA margin and normalized operating expenses, which are down more than 20% year-over-year. Bright spot again this quarter order was our Collision business, which continues to deliver consistent high-quality growth. Collision revenue grew 19% year-over-year, driven by higher demand, new OEM certifications and increased insurance referral activity. Subsequent to the quarter, we expanded our network with the acquisition of Doug's Place Strathcona, further strengthening our presence in Edmonton. On the strategic front, we continue to advance the sale of our U.S. dealerships. To date, we've received approximately $37 million in proceeds, net of working capital, with another $12 million expected to close before year-end. The remaining transactions are on track to close through the first half of 2026, bringing total anticipated proceeds to around $130 million, near the top end of our previously stated range. These proceeds will be used to reduce debt and enhance balance sheet flexibility. At the end of the quarter, our total net funded debt-to-bank EBITDA ratio was 3.4x, trending towards our long-term target range of 2 to 3x. We're entering the final stretch of 2025 with a more stable financial position and a simpler, more efficient operating model. Our short-term priorities are clear: deliver the remaining cost reductions, complete the U.S. divestitures and pivot the business towards operational excellence with a focus on the customer. Beyond that, we're beginning to plan for Phase 2 of our turnaround, a shift toward disciplined profitable growth. As part of our next phase, we will focus on expanding gross profit across a leaner, more durable cost base. Planning for our 2026 dealership operational strategy is already underway, and it's clear, there's significant opportunity ahead. In the near term, we will also continue expanding in Collision, where we see a low-risk path to sustained double-digit returns on capital. With just a 2% share of the Canadian dealership market and a 1% share in Collision, the long-term growth runway remains substantial. I'd also like to take a moment to acknowledge the leadership changes announced earlier today. As part of strengthening our operational foundation for the next phase of growth, we promoted 3 outstanding leaders. Mikel Pestrak to Interim President, Dealership Operations; Art Crawford, President, Collision Operations; and Cynthia Hill, General Counsel. Each has been instrumental in driving meaningful progress within the business and will play a key role as we execute our strategy. At the same time, Brian Selman and Jeff Thorpe have stepped down from their executive roles as part of a planned transition and will remain with the company as senior advisers through early 2026. I want to personally thank Jeff and Brian for their many contributions and continued support during their transition. Their leadership has been instrumental in positioning AutoCanada for long-term success. These leadership changes are about continuity and momentum and ensuring we have the right team and structure in place to carry the business into its next phase of disciplined, profitable growth. Our approach will be focused and returns driven. We are determined to make AutoCanada the best and biggest operator of dealerships and collision centers in Canada, and we will stay true to that focus. Before closing, I want to thank our employees across the country for their commitment during this period of change. Their dedication and adaptability have been essential to everything we've achieved. I also want to thank our OEM partners for my warm welcome and their continued collaboration and support. This quarter reflects meaningful progress across the business and the path forward is clear. The cost structure is leaner, the balance sheet is stronger, and the team is aligned behind a common purpose. We're well positioned to finish this year strong and build momentum into 2026. With that, we'll open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Ty Collin from CIBC. Ty Collin: Maybe to start, so it sounds like the time line for closing the remaining U.S. dispositions has been pushed out a little bit. Can you maybe just help us understand what's behind that delay? And what's your level of confidence in the time line and the proceeds that you laid out in your comments? And maybe you can remind us, are there definitive agreements in place for the remaining 4 dealerships that were not announced earlier this year? Samuel Cochrane: Yes. Thank you. Thanks for the question. So I'll start by saying the confidence remains high in the proceeds and it's really just a timing issue. One surprise getting into the automotive industry is actually how long it takes to sort of buy and sell these assets, just went from LOI to APA to OEM approval. It has been a process and especially in the U.S.. It's just taken a while, but still have high confidence to get it across the line. We do have one still -- one is under definitive agreement. That's the one that we expect to close this year, and the others are close to that stage, and we'll close in Q1, at the latest Q2 next year. Ty Collin: Okay. Got it. That's helpful. And then switching gears, I appreciate that growth has been deprioritized a little bit as you're going through this transformation process. But why was the same-store performance down so sharply versus the market in Q3? And can you be a little more specific about what's driving that? And would your expectation be that Q3 is going to kind of be the worst of it in terms of growth versus the overall market? Samuel Cochrane: Yes. Thanks for the question. There's a few things happening in Q3. And I mentioned on my script, there's the CDK impact in the comp. There's also softness in certain brands. But honestly, just over 70% of the impact on gross. So that's car volumes and fixed ops traffic is really from the restructuring activities and all the things that we have done to get the cost out, whether that's reducing marketing spend, reducing inventory and reducing head count are all things that are going to lead to softness in growth. And yes, I mean, listen, the cost out has had an impact on our volumes, right, in units and traffic in our service bays. But with the cost out coming to an end in the coming weeks, we are pivoting the business back to focus squarely on the 3 pillars of our dealership operations: new cars, used cars and fixed operations. The job ahead is pretty clear, and that's what I meant by common purpose is to grow our volumes in these areas at the lower cost base by focusing on building our talent internally. So we got to improve training. We've got to continue to recruit high-quality talent and make sure they're integrated well into the team. We've got to focus on the customer and get our CSI scores backed up. And doing some basic other things in the dealership like tracking and improving sales to service bay retention to drive traffic in our fixed operations, right, drive appointments in our service bays, doing a better job sourcing used cars from internal sources. You really make the money on the used car after buying it, right? So used GPUs were lower this quarter is because we go get better at sourcing internally. We've got to increase that as our percentage of cars and buy less from rental cars or buy less from auction and have more sourced early, ensuring we have the playbooks that we've built implemented at the dealership level with the right training to drive new car velocity in the stores. And finally, we are piloting AutoTrader again that we just turned that on a couple of weeks ago in about 1/3 of our dealerships as we're trying to look to pivot the business back to growth. Now listen, these aren't giant investments. It's really attention and strategy. So I do expect the cost out to remain out and build back the volumes and really just pivot the focus of the business back on just the fundamentals. And with that myopic focus on the core business, I am confident this team can build those volumes back over 2026 at a leaner cost base. I hope that gives you enough color there, Ty. Ty Collin: Yes. Yes. I know that's really helpful. Like maybe just one sort of follow-up to that. I mean how -- you outlined a lot of steps there, a lot of things to kind of refocus on. I mean, how long do you think it will take to kind of get your growth to a point where it's more in sync with the overall market again? Samuel Cochrane: I see now it's stabilizing. So you asked whether Q3 was the trough. Yes, I do believe it's sort of bottoming out here, and we're actually wrapping up those restructuring activities in the coming weeks, which is exciting. And I expect it to take about 2026. By the end of 2026, I expect to exit 2026 with the volume built back at the leaner cost base. Operator: Your next question comes from the line of Luke Hannan from Canaccord Genuity. Luke Hannan: Sam, I wanted to just follow up on the earlier line of questioning on the U.S. dealerships sales. So if I heard you correctly, it's $37 million in proceeds that you've recognized to date from those U.S. sales, $130 million total. It sounds like most of that cash in the door is going to be weighted towards the early part of next year. Is that fair? Samuel Cochrane: Yes, that's correct. I think about another $12 million we expect this year and the rest next year. Luke Hannan: Got it. Very helpful. And then I wanted to follow up too on used GPU. I mean it was down significantly this quarter. Is there anything specific or onetime to call out there? Is that environment related the internal process related. Can you just shed some more light on what exactly happened in the used business specifically that would have impacted GPU this quarter? Samuel Cochrane: So we really just got to buy cars better and buy them at a better price. So we can sell them at a better profit. It's almost that simple. And we've got to do a better job of that going forward. In the quarter, we still need to drive volume through the dealership. So we're buying cars from auction or buying cars from other sources. That just give us less profit to make on the sale, right? We still make profit on the back end on F&I. And obviously, we try to retain in the service shop. So it's still worth doing. But to get that used GPU up, which we will and we will do. We got to buy cars better and source internally better, and that's what we're going to work on moving forward. Luke Hannan: Okay. And then if we move to the Collision business for a moment here, it's mentioned in the press release, there was an in paint-less dent repair and that had a mix impact or specifically a margin impact. What exactly drove that? Are you seeing that normalize now? What can you share on that front? Samuel Cochrane: Yes, that will normalize, and it's interesting that business. It really depends on the severity of the storms. So what happened last year is there was really severe storms. And there wasn't -- there was too much work to do, so we had to sublet a lot of the work out. And obviously, that sublet work out is at less margins. So that is normalizing, and we do expect that to get better. Now in the future, if there's another severe storm season, you will see better revenue and we still want that business, but we're going to get it at a lower margin because some of that work has to be sublet out. Does that make sense? Luke Hannan: It does. That's helpful. I also wanted to follow up and ask about the consumer backdrop, I guess, the Canadian consumer backdrop because correct me if I'm wrong, I don't think you touched on it in your prepared remarks. I know that as of Q2, the thought was that the second half of the year, you were cautiously optimistic when it came to consumer health and buying trends. How did that play out during the quarter? And then what are you seeing to date? Samuel Cochrane: Yes. So listen, I think the consumer remained resilient, and the Canadian consumer remains relatively strong. I think better off than if you would have asked me earlier, January, February, earlier in the year when the tariffs we're making noise into March and April as well. So I think I remain cautiously optimistic about the consumer, and we have a budget out now from the federal government, and we're sort of digesting that. But I remain cautiously optimistic heading into '26 that the consumer will remain robust. So that's good. And then interest rates have obviously come down a bit and that should provide a bit of help as well. Luke Hannan: Last one, and then I'll pass the line here, on M&A. So it sounds like, again, by the end of Q1, early part of Q2, that's when the U.S. dealership sales will happen. By that point, you have also generated some more cash, too. I imagine you'll probably be closer to 2x net funded debt to EBITDA. Is that the point at which you would begin to start looking at M&A again as far as the use of capital? Samuel Cochrane: Yes, I think that's a good way to think about it. I think, yes, when we get down around 2, that's when we have better flexibility in the balance sheet to do M&A and continue that growth story. In the near term, I do -- there' more opportunities on the collision side of the business. A little bit of work still to do on the dealership side of the business to build those volumes back at that leaner cost base and really earn that right to go and acquire. But yes, that is correct. Somewhere in that range for sure. Operator: Your next question comes from the line of Sabahat Khan from RBC Capital Markets. Sabahat Khan: Great. Just kind of conceding on the line of the kind of the top line trends and the outlook as we head into sort of 2026, I guess. Clearly, it sounds like there's some comments on maybe just kind of buying cars better. And how much of the sort of this top line performance in the quarter do you think is more just kind of things you could have done better operationally versus maybe just a macro backdrop needing to be maybe in a better place? Just some thoughts on that, please. Samuel Cochrane: Yes. No. I said it earlier and I'll say it again, I think about 70% of the impact this quarter. I wouldn't say things we could have done better. I would say it's prioritizing our focus, right? The focus during the first part of this year was getting the cost out and restructuring the business and building that base. And now we're pivoting that focus to building back those volumes. So to answer your question, I think about 70% of the impact this quarter can be built back over 2026, as we pivot our attention back to the core fundamentals of our business, right, selling new cars, selling used cars, and servicing and fixing cars. Hopefully, that answers your question. And I think we'll exit 2026 with that built back up. Sabahat Khan: Great. And then just your comments earlier on sort of building out the collision side. Is that something you expect to dedicate more capital to going forward than you have in the past? Maybe more sort of just resourcing it from a people perspective, how are you sort of building up that strategy as we move forward? Samuel Cochrane: Yes, I'll provide more details in the new year. But what I want to get across is in terms of acquisitions in the near term, call it 3 to 5 months, you're likely to see more deals on the collision side. And that's because there's still work to do on the dealership side in terms of building back those volumes on a leaner cost base and working hard to kind of earn that right to get back to acquisitions and obviously, a little bit of deleveraging still to do. So all those factors are playing into it. But I just want you to know that collision is going to be the near-term focus for M&A. And we have a great team there and they showed success. I mean that business, looking back to 2019 was losing money. Art Crawford came in here and built a great business that's doing, I don't know, over $20 million of EBITDA this year, right, and growing. So a fantastic job to him and his team, and I got the honor to be at their conference this year, and it's a really high functioning team, and they've earned the right to do more M&A. So we look forward to doing that. Operator: Your next question comes from the line of Maxim Sytchev from National Bank Capital Markets. Maxim Sytchev: Sam, maybe the first question for you. I mean, obviously, I appreciate that when you adjust the platform, there's a temporary impact on the revenue generation. But when we start thinking about normalizing volumes, I mean, what gives you the confidence that you will not have to scale sort of SG&A or OpEx accordingly? Because, I mean, we have gone through a number of these repeat cycles in the past were we kind of concentrate on the volumes back up and then SG&A comes back. So what is different right now in the operating structure of the business that gives you the visibility and the confidence to achieve that? Samuel Cochrane: Yes. Thanks for the question. So the biggest thing is we gave guidance around $115 million of cost out. The real opportunity on the cost out was likely large -- is larger than that. However, it's not true run rate, right? We do expect to reinvest that into our business. So that $115 million number you're looking at is the true run rate savings and there are other activities we did to free up dollars that we need to now go invest. That investing does keep the $115 million out, but it frees us up to sort of move resources where we be more targeted. For example, we're training AutoTrader back on in a pilot, right? So that's a targeted investment where we're trying to drive more traffic through our dealerships and get more leads in used. We're going to have to look at targeted investments we can make with certain sales spiffs maybe in the service bay, right? So there's things that we're going to have to invest in to drive back that growth and focus on training, right? Training and driving our CSI score up. So there are investments to make, but it's -- that $115 million is net of those. So that gives me a lot of confidence. And then just talking to the GMs across the country. They've been in the car business. They've been doing this. Some of them 10, 20, 30, 40 years. They know what to do, right? So we just got to make sure we free up the resources turn the business focus back on those fundamentals and start to drive growth. I got a lot of confidence in it, Max. Maxim Sytchev: Yes. No, that's good to hear. And I guess -- so like in terms of operating leverage, and I don't know if you have thought about this sort of like in a kind of rule of thumb dynamic, but let's say if the revenue is up 5%, how much, I guess, of a margin accretion should we expect kind of on a prospective basis in a normalized environment so that we can start thinking about, again, the -- not necessarily the blue sky dynamic when it comes to the EBITDA margin, but what should be the normalized margin in, let's call it, 2026? How do you -- how should we frame that? Samuel Cochrane: Let's think about it at least from an EBITDA margin for now, right? We are 4.4%, I believe, for the year, 4.8% in the quarter. So the key is to maintain that margin and grow it while growing the top line, right? I'm not going to give guidance on the exact percentage that's going to drop at this point. But that's the goal. Maxim Sytchev: Okay. Okay. That's great. And then in terms of the Collision strategy, so do you mind maybe talking a little bit around more of a medium-term outlook on that front? I mean, obviously, you have great leadership right now to drive the strategies there. But yes, maybe some incremental thoughts on that would be great. Samuel Cochrane: Yes. I think, Max, on Collision, we love that business. We think it's one of our key pillars of growth. We have a great team, and we have great assets there. And we believe in our strategy of the OEM certifications. People buy a car, they want to fix like it was built. And if you don't fix it like it was built, like who has that liability. There's tons of trends pointing in that direction. You can even look at the OEC,,OEconnection, deal that Francisco Partners just bought, RepairLogic, like that, like the trends are going that way, and we feel like we're in a good spot to continue to grow there. But in terms of like more broadly laying out the path for Collision, give us a bit of time on that to bring that to you. Operator: Your next question comes from the line of Chris Murray from ATB Capital Markets. Chris Murray: Yes. Maybe asking the question about the consumer in a slightly different way. Just bringing up F&I for a second. One of the things that happens as we get into these downturns is that F&I has to kind of adjust, although you seem to have held on to the retail unit average, not badly, but the gross profit percentage has dropped pretty significantly. Just wondering if you're seeing -- what you're seeing in sort of consumer behavior take up on F&I, if you're seeing sort of changes in mix or changes in what people will pay for in either new or used. And any color that way that maybe gives us some help on under-understanding sort of some buying process. Samuel Cochrane: So thanks for bringing up F&I. I mean you might have noticed that we've promoted 2 people to sort of help in this period of Phase 2 of building back the volumes. Art Crawford on the Collision side has proved themselves zero to nothing and then Mikel Pestrack on the F&I side, his performance has been very, very strong. So thanks for bringing it up. And his consistency in delivering results has been great. And I look forward to working with him on the broader business. Trends we're seeing underneath that, a little bit here and there, like credit turndowns and these sort of things, but nothing really large to note at this time. The consumer does remain robust, at least considering what we thought it was going to be earlier in the year, which is good to see. Chris Murray: Okay. The other question I had -- and look, you guys have made some acquisitions in the used vehicle side of things. I guess part of the strategy was always about building up used relative to new sales, really about driving F&I and maintenance business and things like that and parts and service and really having stickier customers, if you will, more of a life cycle approach to running the dealership. Now that you've taken out these costs, I'm starting to wonder about -- you've made a lot of comments about building back volume. Is this more -- is there a change in strategy we should be thinking about how you're building back that volume or what you're targeting in that volume? Is it sort of a return to more new volume versus used? Just sort of how we're thinking about the broader strategy as we go into next year? Samuel Cochrane: No, I think if you look back to any strategic documents of this company in the past, there's really 3 key things to focus on. I mean outside of the Collision, they're growing well, and we're all happy with that. We're happy with the Dealership business as well. The cost is up. We saw that, right? Leverage ratio is down, adjusted EBITDA margins up despite the softness on the top. We're actually still seeing that cost out is sticking and it's solid. So what's the strategy going forward to build back those volumes? I talked a bit about it earlier. It's really driving -- it's not a focus on just one of just use or just new or just fixed operations, it's really all 3 of them. And we really got to just focus and wake up every day focused on increasing our service bay occupancy, right? Tracking our new sales. Right now, we don't track. We sell a new car, we don't track the retention to the service bay. We should start tracking that and making that a key KPI and maybe even incentivizing people based on that, right? I want people who buy new cars from our dealerships being retained by the service bay, right? We got -- and that's going to drive more, right? And then we also have to buy used cars better. That's going to drive more traffic into our dealerships. Sometimes people come in for a used car, they'll buy a new. We should also retain the used cars that we sell in our service bays. So it's really -- it's the same strategy, just refocused on it after a long year of restructuring activities. And I just want to thank all the employees for being so resilient and adaptable through this change. And I know they're ready to just refocus on the core business. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to Sam Cochrane for closing remarks. Samuel Cochrane: Thank you, everyone, and looking forward to seeing you in the new year. All the best. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Endeavour Mining's Third Quarter 2025 Results Webcast. [Operator Instructions]. Today's conference call is being recorded, and a transcript of the call will be available on Endeavour's website tomorrow. I would now like to hand the call over to Endeavour's Vice President of Investor Relations, Jack Garman. Jack Garman: Hello, everyone, and welcome to Endeavour's Third Quarter 2025 Results Webcast. Apologies for the slight delay getting started. Please note our usual disclaimer. On the call today, I'm joined by Ian Cockerill, Chief Executive Officer; Guy Young, Chief Financial Officer; Djaria Traore, Executive Vice President of Operations and ESG; and Sonia Scarselli, EVP of Exploration. Today's call will start with Ian presenting the highlights followed by Guy walking through the financials. Djaria will present our operating results by mine, and Sonia will provide an exploration update before handing back to Ian for his closing remarks. We'll then open the line up for questions. With that, I'll now hand over to Ian. Ian Cockerill: Thanks very much, Jack. Hello, everybody. And again, as Jack said, apologies. Unfortunately, me and the team were here in Dakar today, and unfortunately, Orange decided to do some unscheduled maintenance on the line, so hence the delay. But glad to say we're back up and running. As I said, we're dialing in today from Dakar having just returned from our Sabodala-Massawa mine with the Board. We had a very productive trip and it was pleasing to see the strong and consistent performance specifically from the BIOX plant. Q3 2025 has marked another quarter of solid operating performance for Endeavour. As previously guided, production was a little lower with costs a little higher than the prior quarter with operational performance set to improve going into Q4. Our strong year-to-date production leaves us well positioned to achieve the top half of our production guidance with 82% of the low end of the range already achieved. Meanwhile, our year-to-date all-in sustaining costs of $1,365 per ounce is on track to achieve our guidance, accounting for the impact of the higher gold prices on royalty costs. Looking ahead, we're focused on our organic growth pipeline. On Slide 7, you can see our performance so far this year. We've maintained a low lost time injury frequency rate significantly below the industry average, and we had no loss time injuries during the quarter, and we continue to strive to zero harm. We've produced 911,000 ounces year-to-date, and with a strong Q4 outlook, we're well positioned to achieve the top half of our production guidance. Our year-to-date all-in sustaining cost of $1,362 per ounce is on track to achieve the full year guidance. We have seen approximately $103 per ounce impact on royalty costs from the higher realized gold prices compared to our guidance gold price of $2,000 per ounce. Accounting for this, our all-in sustaining cost is in the middle of the guidance range, with Q4 performance expected to be an improvement on Q3. Turning to Slide 8. Our year-to-date performance has significantly improved this year compared to last year, following the startup of our 2 projects in Q3 2024. We've produced 170,000 ounces or 23% more so far this year, and our all-in sustaining margin is 90% higher than last year, aided, of course, by the strong gold price. While our margin has improved significantly, thanks largely to the gold price, it is important to highlight that our all-in sustaining costs remain firmly in the first cost quartile despite the gold price driven increases in our royalty costs and amongst the best of our peers year-to-date. While we expect to see all-in sustaining cost increases across the sector in the near term, we will continue to focus on controlling what we can control, delivering productivity initiatives and the development of our low-cost pipeline projects, which will more than offset any cost increases in the medium term. Firstly, through our Tier 1 Assafou project, which continues to advance on track with the environmental permit now approved and the definitive feasibility study exceeded in early 2026. We're making good progress towards first gold in H2 2028. Secondly, we're accelerating our exploration program, primarily at our cornerstone mines, but also through our greenfield programs, we're expanding our pipeline to strengthen our long-term organic growth options, and we'll be announcing our new exploration strategy in the coming weeks. On the financial side, our solid Q3 performance underpins significantly improved free cash flow, which is expected to increase materially in Q4 and into next year. Year-to-date, we generated a record $680 million. And over the past 12 months, we generated nearly $1 billion another record that's equivalent to a 19% free cash flow yield from the start of Q4 last year. This cash flow has supported our balance sheet strength, and we've seen improvements in our net debt and leverage which remains comfortably below our target. We also significantly reduced our gross debt, paying down the balance of our RCF during the quarter. With solid operational performance and strong cash flow generation, we continue to increase shareholder returns, returning $233 million so far this year, already exceeding our minimum commitment. And with the announcement of our H2 dividend in January, we expect to return the minimum of $346 million to shareholders for the complete year. In January, we'll also announce our updated shareholder returns program. We expect to significantly increase returns and continue to be sector-leading throughout the upcoming Assafou build phase. With strong momentum built over the last 12 months and an even stronger outlook, we're well positioned to continue delivering sector-leading organic growth and sector-leading shareholder returns. On Slide 10, our strong year-to-date operating performance, coupled with strong prices translated into a 110% increase in adjusted EBITDA compared to the same period last year, to more than $1.6 billion. Our adjusted EBITDA margin also increased by 10 percentage points to a very healthy 55%. We translated this performance into stronger free cash flow, as you can see on Slide 11. For the first 3 quarters of the year, we generated $680 million of free cash flow, and over the last 12 months, generated $948 million or the 19% free cash flow yield from the start of Q4 '24. As we look forward, we expect stronger operational performance in the coming quarter coupled with reduced seasonal taxes and higher gold prices. This will underpin even stronger free cash flow generation. On Slide 12, you can see that given our strong operational and financial performance, we've continued to increase our shareholder returns. During the quarter, we paid our record H1 2025 dividend of $150 million, which we supplemented with $83 million of share buybacks so far this year. Total returns paid having come to $233 million, exceeding the $225 million minimum dividend. And with our H2 '25 dividend to be announced in January, which will be a minimum of $112.5 million we expect to return that minimum $346 million to shareholders this year, and that's before any supplemental dividend for H2 or any buybacks for Q4. On Slide 13, we've returned over $1.4 billion to our shareholders over the last 4.5 years, 83% higher than our minimum commitment over the period. And that's equivalent to 72% of our free cash flow generation over that period, demonstrating our commitment to returning supplemental cash to our shareholders. Looking ahead, we'll be unveiling our updated shareholder returns program early next year, covering the next growth phase, and we expect to outline significantly higher minimum commitments going forward and maintain the sector-leading returns that you all become used to, through our upcoming growth phase. On the growth side, our outlook compares very favorably against the consensus growth outlook for our peers, and that does not include some of the brownfield opportunities that we are advancing, which can supplement this outlook possibly even further. A significant part of this growth is expected to come from our Tier 1 Assafou project in Côte d'Ivoire, which you can see on Slide 15. The Assafou project continues to advance with a definitive feasibility study tracking for completion in Q1 '26. We were very pleased to receive the environmental permit approval in September which we believe is a significant milestone towards full project approval with the last major approval being the exploitation permit, which we expect towards the end of Q1 next year. On Slide 16, you can see we continued to accelerate exploration, and we've made good progress at Sabodala-Massawa, Houndé and Assafou. We're also looking at other Tier 1 gold provinces to strengthen and diversify our long-term organic growth outlook. Our aim is to have multiple potential development projects, each competing for internal capital that extend our pipeline even beyond Assafou. We completed the first transaction with Koulou Gold in Côte d'Ivoire last year, and just recently, we completed the second transaction with East Star Resources in Kazakhstan, a relatively modest $5 million investment over a 2-year period to identify potential Tier 1 targets in one of the world's most prolific and under-explored gold provinces. Sonia will take you through this in a little bit more detail later on. But before I hand over to Guy to go through the financials, I just wanted to touch on our commitment to ESG and our social license to operate. Sustainalytics has improved our score and reiterated our low score rating, which again positions us as the best rated gold producer in the sector, recognizing our long-term work on ESG. We're also proud to see recognition for the work we're doing reflected in our host countries with national honors, including Best Mining Company in Senegal and Best Company Committed to Local Content in Burkina Faso and congratulations to Ity's General Manager, Drissa Soro, for winning the National Award of Manager of the Year in Côte d'Ivoire. These recognitions highlight our deep commitment to developing and promoting local talent, boosting local economies and empowering our host communities. And with that, let me pass you over to Guy to talk you through our financial results. Guy, over to you. Guy Young: Thanks very much, Ian. Moving straight into our quarterly financial results. Without going through all of the details on Slide 19, I'll just pick out some of the key line items that I will come to later on in the slides. Our production in Q3 was slightly lower and our costs slightly higher than Q2, in line with our mine sequence and as noted in each of our quarterly presentations this year. This resulted in slightly lower earnings whilst operating cash flow before working capital improved by 33% and free cash flow improved by 59%, benefiting from seasonally low withholding and income taxes as well, of course, as higher gold prices. Turning to Slide 20. Our operational performance remained solid during Q3, and we are on track to achieve the top half of our production guidance with costs adjusted for the impact of higher gold prices on royalties also within the guidance range. Production declined during the quarter due to lower grades processed across the portfolio, coupled with the impact of the wet season, which reduced throughput at Houndé and Lafigué specifically, and was exacerbated by the acceleration of production in H1 at Houndé to derisk our annual production targets. Our all-in sustaining margin decreased slightly, despite the higher gold prices, due to lower grades processed, lower mining and processing productivity as a result of the wet season and the impact of higher gold prices on royalties. Moving to Slide 21. Our adjusted EBITDA decreased quarter-over-quarter due to the lower production at slightly higher costs, while the impact of the higher gold prices was lessened by the realized losses on financial instruments related to the settlement of the gold collar. Our operating cash flow increased by 22% quarter-over-quarter, shown on Slide 22, mainly due to the lower withholding and income tax payments as well as the higher gold prices. The majority of our income taxes and all of our withholding taxes have now been paid for the year with less than 15% of total taxes outstanding and to be paid in Q4. With improved production and costs expected, coupled with lower cash taxes and higher gold prices, we're extremely well positioned to deliver stronger operating cash flow in Q4. If we turn to Slide 23 now, and compare Q3's operating cash flow with Q2, improvement was driven by, firstly, a $97 per ounce increase in the realized gold price to $3,247 per ounce, inclusive of the impact of the realized losses on gold collars, a decrease in cash operating expenses as a result of lower production and a stockpile build, lower income taxes paid due to the timing of payments in the region, generally being more weighted towards Q2 and the timing of withholding taxes, which are typically paid in Q2 and Q3, but were expedited this year, reflecting an improvement in the efficiency of the upstreaming process internally and with the West African Central Bank. These increases were offset by lower gold sales related to lower production and a working capital outflow related to inventory and receivable buildup that I'd like to walk you through in more detail now. Slide 24 shows the two key drivers of the working capital increase of $85 million in the quarter, being inventory and receivables. The majority of the inventory increase, both in the quarter and year-to-date is due to stockpile increases at Sabodala-Massawa, Lafigué and Ity. Stockpiles have increased at Sabodala-Massawa as we have mined and stockpiled the exceptionally high-grade Massawa North zone deposit, which we expect to start processing in the second half of next year. At Lafigué and Ity, we've also been accelerating mining activity to build stockpiles and are expecting to see continued improvement from the plants, which will draw down on these stockpiles starting in Q4 of this year. The increase in receivables is entirely due to higher VAT receivables and exacerbated by a foreign exchange revaluation of more than $20 million year-to-date. In Burkina Faso VAT refunds continued to be delayed this year, except for an offset arrangement of $23 million in Q3 that is reflected in financing activities in the cash flow. We are actively looking at opportunities to resolve this through various factoring solutions to help expedite the receipt of these refunds that should see a reduction from next year. In Côte d'Ivoire, VAT refunds are processed quarterly. And at our new Lafigué mine, the setup of the administrative process to claim these VAT refunds has been slow. We've started to receive VAT reimbursement claims in Q3 and we expect this to now start accelerating into next year. In Senegal, where we have monthly VAT refunds, they continue as usual with a slight buildup related to the start-up of the BIOX plant and additional VAT being paid. We expect this to normalize from early next year. While we expect the full year working capital outflow, we should start seeing progressive improvements in both our inventory and receivables from Q4 and will further accelerate this improvement into 2026. In terms of our free cash flow shown on Slide 25, we continue to generate strong free cash flow in Q3, delivering $166 million, $61 million higher than the prior quarter due to the lower cash taxes and higher realized gold prices I've already touched on. As mentioned, we expect free cash flow to grow in Q4 with the improved operational performance, lower taxes and higher gold prices. Moving now to Slide 26. The strong free cash flow generation has allowed us to strengthen our balance sheet and reduce our leverage to 0.21x net debt to adjusted EBITDA, comfortably below our target of 0.5x. Given our strong cash flow outlook, our low leverage positions us well ahead of our upcoming growth phase to be able to deliver our organic growth projects and continue paying sector-leading shareholder returns. As I've mentioned in the past, we are not looking to build up a net cash position as we can comfortably meet our strategic objectives with leverage below 0.5x. On Slide 27, we are pleased to have materially reduced our gross debt through the full repayment of our revolving credit facility during Q3. We paid down $472 million quarter-on-quarter and reduced gross debt by 38% to $678 million. We expect this to be reduced further over the coming years, as we progressively pay down our Lafigué term loan in line with the amortization schedule. Finally, moving on to net earnings on Slide 28 and focusing on just the key items impacting the quarter. We incurred $49 million loss on financial instruments, which included $69 million realized loss on gold collars which was partially offset by an unrealized gain on the outstanding gold collars for Q4. The final delivery into our gold collar program will be 50,000 ounces at the end of this quarter, which based on prevailing gold prices should support improved cash flows in 2026. Our income tax expense was significantly lower during the quarter. This is due to lower taxable profits and lower withholding taxes recognized. Our deferred tax expense was also higher due to movements in foreign exchange on the opening deferred tax balances and the accrual of FY '25 withholding taxes. Adjustments were limited during the quarter as the unrealized gain on gold collars was largely offset by other expenses and foreign exchange on our deferred tax balances. We reported another strong quarter of adjusted net earnings per share of $0.66, albeit slightly below the prior quarter, largely due to the lower earnings from operations and a higher realized loss on gold collars. Thank you. And with that, I'd like to hand over to Djaria. Djaria Traore: Thank you, Gary. During quarter 3, I'm pleased to report that we maintain our industry-leading safety record, with a loss time injury frequency rate of 0.05. Unchanged from quarter 2, 2025 or most importantly, we had no loss time injury. While our safety performance position us among the safest mining companies globally, we remain vigilant and we reject complacency. We continue to focus on training to foster the strong safety culture that we have across the business. Moving on to Slide 31. Quarter 3 marked another solid quarter of operating performance, which contributed to a strong year-to-date production of 911,000 ounces and puts the company on track to achieve the top half of our production guidance range. On cost, we're pleased with the year-to-date performance with all-in sustaining cost of $1,362 per ounce, which has been impacted by $103 per ounce of higher royalty due to higher gold prices than our guidance set at $2,000 per ounce. Adjusting for these impacts, our all-in sustaining cost is firmly in the middle of the guidance range. Across the portfolio, all the assets are on track to achieve the production guidance. With Houndé and Sabodala-Massawa, expected to achieve the top half of the range, while Lafigué is expected to achieve the lower half. On cost, it is Sabodala-Massawa, Houndé and Lafigué are on track, with Lafigué expected to land near the top end and Mana expected to be above the top end of the range. Despite this at the group level, we are well positioned to achieve our guidance range when accounting for the impact of royalties. I will now run through the mine-by-mine details, starting with our mine of Ity on Slide 32. Production decreased quarter-on-quarter as expected. We processed a lower grade ore from the Le Plaque and Ity pit in line with the mine sequencing. All-in sustaining costs increased, driven primarily by lower gold sales volume, higher royalties due to increased gold price and higher sustaining capital. Ity is on track to achieve its 2025 production and cost guidance, and we are evaluating opportunities to reduce mining costs through development of the Ity Donut, which should provide us efficiencies by deploying a hybrid mining fleet within an expanded optimized pit over the coming years. Let's now turn our mention to our Houndé mine on Slide 33. Houndé had a very strong start of the year as we have accelerated high grade into to H1, to derisk the impact of the wet season. And as expected, production decreased quarter-on-quarter. On cost in quarter 3, we saw an all-in sustaining cost decrease, driven primarily by lower sustaining capital as wet stripping requirement eased. Houndé is well positioned to deliver production in the top half of the guidance range with costs well in line. As we have highlighted previously, looking ahead to the next year, we expect we will continue stripping the Vindaloo main pit Phase III cut back and mining lower grade from Kari West and Vindaloo, which will result in high cost for the first half of the year. We should progressively improve as the stripping concludes, giving access to higher grade ore. Moving now on to Mana on Slide 34. Production declined slightly in quarter 3 as we mined and processed lower grade from Wona underground deposit. While the cost increased slightly due to the lower grade, lower production and sales and higher gold price impact in royalty costs. At Mana, we are pleased with our production performance but there is still work to be done on cost. Importantly, we have now completed the changeover of our underground contractor, and we expect to start realizing some of the productivity benefits including a significant increase in development rate and total development meters next year, driven by expected improvement in equipment availability as well as the operating efficiencies by using a single underground contractor, which we expect will drive unit cost improvement into next year. At the same time, we are improving the underground mine power stability, through the installation of a transformer and the automation of our on-site power plant to smooth switching between the grid and self-generated power. Combined, these initiatives will allow us to increase our reliance on the lower-cost grid power for the underground from early next year, which should also support cost improvement. For the year, Mana is well on track to achieve the production guidance, but costs are expected to be above the guided range due to the reliance of self-generated power for the underground and higher sustaining capital as we are accelerating development in the Wona deposit to gain access to higher grid more quickly. At Sabodala-Massawa on Slide 35, production decreased only slightly in quarter 3 as lower grades were processed through the CIL plant, despite higher throughput recoveries for the CIL plant and higher grades as well as recovery through the BIOX plant. On all-in sustaining costs increased largely due to the impact that the unusually long and heavy rainfall had on mining and processing productivity, as well as higher royalty costs due to higher gold prices. It's pleasing to see the technical review at Sabodala-Massawa starting to positively impact performance. Following the acceleration of mining activity at Massawa central zone, we are now mining consistent higher grade, which came in at over 4 grams per ton for quarter 3. And on recovery in the BIOX plant, we were pleased as well to achieve an average of 82% for the quarter, which is a significant improvement from where we started last year, and well on track to achieving our life of mine target of 85%. Recovery improvement has been driven partly by increased and better quality fresh ore from Massawa Central Zone, but also better feed consistency, which allow us to optimize flotation control and flotation tail leaching. We expect to drive more improvement as we optimize the gravity circuit later this year into next year. Looking ahead to quarter 4, we expect higher production from the CIL plant due to improved throughput and grades while our production from the BIOX plant is expected to remain consistent, position us to achieve the top half of the production guidance with costs in line with guidance. Looking ahead to next year, we will continue to drive the technical review forward to outline on incrementally improved production outlook as we accelerate underground development to drive further production improvement over the coming years. Lastly, turning to Lafigué on Slide 36. Production declined during quarter 3 as we saw lower throughput, though a 35% higher year-on-year and reduced grade mine and process from the main pit, as mining activity shift towards stripping to accelerate access to more higher grade to support the processing plant, which is now consistently running above design nameplate. All-in sustaining cost increased but mainly due to lower gold sales and higher royalty costs due to gold prices. As we move into quarter 4, we are expecting grade and cost to improve, and Lafigué is tracking towards the lower half of its full year production guidance with the all-in sustaining cost near the top end of the range due to the lower level of production. I will now hand over to Sonia to walk you through our exploration highlights for the quarter. Sonia? Sonia Scarselli: Thank you, Djaria. I'm pleased to be joining the quarterly webcast to provide you with an update of our exploration activities at some of key properties. This is also a timely update as we expect to announce our new exploration strategy for the next 5 years later this quarter. The new strategy will underpin our continued sector-leading organic growth Sabodala-Massawa on Slide 38, we are advancing the 2 high priority exploration targets called Makana and Kawsara. In Makana, we are accelerating the resource definition of the 2 high grade non-refractory mineralized deposits. This could potentially support the near-term mine plan in Sabodala-Massawa and affecting some lower grade feed and improving production. Kawsara is a potentially large non-restructuring resource located approximately 35 kilometers South of Sabodala-Massawa and can support a significant increase in the endowment and provide increased life of mine optionality, maiden resources reports are expected next year. Moving to Houndé on Slide 39. We have increased our exploration budget as we continue to drill high grade intercept at Vindaloo deeps deposit. The target looks to be very large and very high grade and could support a material improvement in the mine plan. We expect to have a maiden resource for Vindaloo Deep in Q1 2026. Elsewhere in the operating portfolio, we have completed the drilling the holes in Mana to delineate the continuation of the Wona underground deposit. At Ity we are developing several early-stage opportunities along the Ity trend in Lafigué. We expect to start drilling on several near mine targets early next year. Moving now to Slide 40 and our Tier 1 Assafou project. During Q3 2025, we completed a 23,000-meter drill program at the Pala Trend 2 and Pala Trend 3 targets located a few kilometers to the west of the main Assafou project. Drilling successfully expanded the mineralization over a 3-kilometer strike length along the similar Tarkwaian - Birimian contact to the one at the Assafou deposit, on the southwest side of the Assafou basin. We expect to complete the definition of maiden resources for the Pala Trend targets later in Q4. And finally, on Slide 41, I want to give you a bit more color on our new joint venture with East Star resources that Ian mentioned earlier. While our new exploration strategy will prioritize existing operation, we will also be increasing our greenfield exploration spend, focused on strengthening and diversifying our exploration pipeline to support our longer-term organic growth. While we expect most of this growth to come from our existing West African portfolio, we are also entering into some highly prospective Tier 1 gold provinces with low exploration maturity and where we have an early mover advantage. We are taking a low-risk and low-cost venture approach, giving us the ability to leverage our joint venture partners a technical expertise and their knowledge of the operating environment in this region. We signed a joint venture with East Star Resources, a Kazakhstan-based gold and base metal explorer targeting 2 highly prospective belts in Northern and Central Kazakhstan within the highly prospective Central Asian Orogenic Belt, the hosts multiple Tier 1 gold deposits. We will invest $5 million over a 2-year period to earn 51% interest in the joint venture company that will be operated by East Star who are well integrated in the country, and have been operating there for over 5 years. From day 1, we will have control over the exploration program through our Board and technical committee seats. We expect to continue to leverage local exploration vehicles in a highly prospective Tier 1 gold provinces to expand that exploration pipeline and ensure that we have a multiple high-quality organic growth project that will compete for capital with each other and will underpin continued portfolio pipeline and production growth. With that, Ian, back to you. Ian Cockerill: Thank you, Sonia. With our strong operating momentum and the supportive gold price environment, we're well positioned to build on our year-to-date performance through the remainder of this year and into 2026. The high quality of our portfolio and the resilience of our business ensures that we are well positioned to sustainably deliver both sector-leading organic growth and sector-leading shareholder returns. We look forward to talking to you in January when we come back with the Q4 results, and we're very, very looking forward to seeing how they turn out. It's looking promising. And with that, let me hand you back to the operator for Q&A. Operator: [Operator Instructions] And the questions come from the line of Wayne Lam from TD Securities. Wayne Lam: Maybe at Sabodala, just wondering if you may be able to give us a bit of color on what you're seeing in terms of the stability of the government on the ground there? And are you in discussions on any potential renegotiation on the mining code in country? Ian Cockerill: Wayne, thanks. Look, in terms of stability of the government, having spent the last week in the country, you get a good sense just being in the streets, in the towns, talking to people, I'm not seeing anything abnormal here. There are some current discussions going on at government level around what they're doing. We are not in any negotiations with regard to change in mining codes in the country. Would I suspect that they will come? I think we've seen elsewhere in West Africa there is a tendency to want to modify. Bear in mind that the mining code in this country goes back to 2013. So it probably -- it's fair to say it's likely to be due for renewal. So if it comes would I be surprise? No. But the dialogue between ourselves and government I think, is fairly good. And I think if there are going to be any changes, there's certainly going to be well telegraphed, and I would sincerely hope that we will have a high degree of input into what goes into them. But I don't see any immediate change in the immediate future. Wayne Lam: Okay. Great. And then maybe just wondering on the recent JV signed with East Star. Can you just talk about the strategy going forward regionally for the company? Just given Endeavour's long-standing history, of operations in West Africa, are you still keen on expanding within the countries where you operate? Or are you now looking to diversify out into other developing regions globally? Ian Cockerill: I think the answer as I mentioned previously, Wayne, we still see good potential in West Africa. We're really sort of doubling down, particularly on our brownfield exploration, I think -- you can see what Sonia mentioned about specifically at places like Sabodala, highly, highly prospective piece of real estate. We just got to go and look for it. So we are certainly not walking away from West Africa far from it. But we do recognize that looking forward and bear in mind, exploration is a long-term game. This is not something that we're doing for the next quarter. The reason why we're expanding and taking sort of baby steps outside of West Africa is we're actually looking longer term. We're looking for the mines we will develop in the 2030s that's sort of time horizon that we're looking at. And our focus is going to be on those areas that we think are highly prospective, relatively under-explored where we believe that our unique exploration expertise can be applied and we can be equally successful over the next decade as we've been, if you look back over the past decade in terms of cost-effective discovery of ounces of gold. Operator: We are now going to take our next question and the questions come from the line of Richard Hatch from Berenberg. Richard Hatch: Yes, two questions. Firstly, just following on from the previous question around tax and royalty regimes in West Africa. It has been a theme amongst some shareholders, just questions around that. And I guess you've got your stability agreement in Senegal and Burkina has already moved on that. But what about Côte d'Ivoire, what are you kind of hearing or you're seeing in Cote d'Ivoire? And how should we think about changes to royalty regimes in Côte d'Ivoire, tax and royalty regimes in Côte d'Ivoire. That's the first one. Guy Young: Hey Richard, Guy. Richard in Cote d'Ivoire, I think a relatively well publicized discussion continues between the Chamber of Mines on which we're obviously represented and the state. The state's primary focus appears to be, amongst other things, on the royalty rates. It's important to us, obviously, predominantly with regards to Assafou because that's the sites which we'd like to start developing but for which we don't have any signed convention. So that's the key aspect for us. In terms of Ity, in particular, we do have, as you know, stabilization clause in which we would rely to avoid any near-term increase in royalties till such time as we're looking for permit renewal. Lafigué, we would hope to be signing a convention relatively soon, at which point we'd be able to confirm. But there is no doubt there is ongoing and upward pressure from all of the states, including Cote d'Ivoire, particularly in terms of that royalty rate. Richard Hatch: Understood. I'll ask my second one, but just to be clear, you can go forward with Assafou construction without having that convention signed? Or would you prefer to have it before you go forward? And then the follow-up, sorry, was how significant is a significant hike in the dividend. So if I look at $225 million, I mean, a significant hike could be 30%, but that takes it to $300 million. So it's $300 million like a fair number, a rule of thumb? Or could it be more? Or how do we think about the significance of significant? Ian Cockerill: Richard, in terms of the numbers that you've spoken of, you may say that we couldn't possibly comment at the stage. Guy Young: Richard, we will, of course, be coming up with some more directional numbers very early next year. It's just a question, so significance is obviously a subjective term and the qualitative one of that open to interpretation. It's just that we do need to get to the end of our annual planning process. We need to take some views on gold pricing, reassessing cash flows, making sure we understand where we think the actual numbers are going to land. But in any of the scenarios, we see some significant -- apologies capacity for us to improve the current scenario, which we believe is relatively set for leading anyway and is only upside from here. But it won't be long, and we'll be able to provide you with a lot more quantitative directions. Operator: We are now going to take our next question and the questions come from the line of Ovais Habib from Scotiabank. Ovais Habib: Congrats on a good quarter and really glad to hear that production is tracking towards the top end of guidance. Ian, a couple of questions from me. I just wanted to start off with Assafou. Exploitation permit approval in DFS looks like they're on track to completion in Q1. Ian, there was a lot of drilling completed over the last couple of quarters, and Sonia did mention that mineralization extends over a 3-kilometer strike length and remains open. Obviously, that looks like there's a lot more further upside over here. Is this drilling going to be included in the PFS? And is there any change or a scope change in the PFS that we should expect? Ian Cockerill: A great question. Thank you. Look, I mean we've actually addressed this issue previously. At some point, you actually have to sort of close off the reserve because you've got to do it against your published reserve and resource statement. We've taken the view that the numbers that we used in the PFS, which was 4.1 million ounce reserve would be the number that we would use for the study. But we're cognizant of the fact that there is potential upside from there. Having said that, it's our belief that the 4.1 million ounces is more than enough against which we can do a realistic study, the final feasibility study. But we will make sure that whatever design we come up with and that we finally go with has in-built flexibility and that would be the assumption that over the life of this project, there will be scope to expand the throughput over and beyond the 5 million ton a year, which is the design profile that we're using for the initial study. So we've decided to fix our view at that level, but the design will be flexible. We will not sort of bottle ourselves in. We'll leave lots of room and shape and capacity in the design. If we wish to increase capacity, we could do so and it's not going to make life difficult for ourselves. That's the approach that we've decided to take. Ovais Habib: And then just moving on to exploration. The new 5-year exploration strategy is expected in Q4. Are we going to get a resource start rate like we did previously? And maybe a part-two to that is where is kind of the low-hanging fruit that you would be targeting in the near term? Sonia Scarselli: Thanks a lot for the question. As I mentioned, the strategy will be presented on the fourth -- the next quarter. However, just looking at the next 5 years where we play. We will definitely double down in our existing operation. We have a pipeline of brownfield and greenfield that have been identified, that will move forward, especially the brownfield in the short term and greenfield will be progressed in the next 2, 3 years, to really keep building on that pipeline. In parallel, we're really looking to expand the portfolio. That's why we are looking at this low-cost entry strategy of joint venture with partnership and juniors in different countries. But definitely, in the short term, we have identified a strong pipeline for a brownfield in our existing areas and hoping applying new technologies and new data sets to actually continue to expanding on that. Ian Cockerill: As we did previously Ovais, it would be the intention that we will be setting ourselves internal targets for achievement. So that we'll be doing as well. Ovais Habib: And just in terms of brownfields that you talked about brownfield targets is the Ity Donut concept still in -- on the plate right now and that's going to be your focus going into 2026? Ian Cockerill: Look, it's a plan, absolutely. I mean, there's -- you've seen the plans. We're busy doing the engineering studies. We're looking at the implications, what is meant by this. I think as we said previously, one of the real issues that we have at Ity is a very, very tight site. The Ity Donut requires a fairly high degree of ground movement. And the question is, where best do we put all the -- particularly the waste material? And that's what's requiring some very careful thought requiring us to do some fairly rapid condemnation drilling to make sure that in terms of waste par positioning, we're not putting on any future ore reserves and sterilizing stuff that we could go into in the future. But it's absolutely a very important part of organic growth opportunity potential within the group. Operator: We are now going to proceed with our next question. And the questions come from the line of Fahad Tariq from Jefferies. Fahad Tariq: Ian, I just wanted to come back to your first answer on Senegal. There's a Bloomberg article just this morning talking about the government seeking to perhaps change its mining code by the end of the year given the debt crisis in the country. Your answer said you don't see an immediate change in the immediate future. Can you maybe just comment on that? Like is it based on discussions that you've had with the government or the team has had with the government? Ian Cockerill: Look, Fahad we've not had any discussions with government around the change. We also saw that comment. I think there's a huge difference between an aspiration and ability to deliver. And I think being realistic, there's no ways that the government may want to have a change in the mining code. But I do believe that it's not really going to happen. I mean, at Sabodala, our current mining code extends to 2040. So any changes to the existing 230 mining code are unlikely to affect us at Sabodala in the short term. So it's -- there's always lots of commentary. In fairness, as I think Guy mentioned earlier, all jurisdictions are looking at ways of increasing their take with the higher gold price received. And let's be frank, that's not unique to countries where we're mining. Every country around the world is looking at ways of grabbing extra tax dollars. So if you're asking me, is there going to be a change by the end of the year, I would say that's not going to happen. If you were asking me what is the trajectory? I think it's fair to say that the trajectory, like in all countries is likely to be higher, but over the longer-term time line of which I'm afraid at this stage, I can't actually define. Fahad Tariq: That's helpful. And then just switching gears to exploration. Philosophically, is there a prioritization of mines that are, let's say, around the 10-year mine life and you want to maybe extend those mine lives, for example, Houndé and Ity? Or is it really just based on where you're seeing the most geologic potential, and that's where the exploration focus and the rigs will be? Ian Cockerill: I think it would always be great if you had a short mine life, and there was lots of potential and you could focus there, that would be the logical thing to do. But your exploration focus is absolutely going to be where you believe is the maximum potential. We're very fortunate that in our portfolio, we have some great potential. And historically, there's been perhaps insufficient emphasis on the underground potential. And if you look at Sabodala, Ity, Houndé, all three of those mines have been fabulous mines within the portfolio that got really good underground potential. And we've recognized this that this is a great internal upside potential for the group. We are increasing our focus on underground exploration, but importantly, also bringing onboard people into the group who have got extensive underground mining, planning, execution capability. So we're preparing ourselves that a future within Endeavour is not just going to be open cut. It will be open cut as well as appropriate and commercially viable underground operations as well. Operator: We are going to proceed with our next question and the question comes from the line of Marina Calero from RBC Capital Markets. Marina Calero Ródenas: I have two questions on my side. The first one is a follow-up from previous questions on the JV agreement announced today. You're clearly looking to diversify into new regions. Can you comment where else you're seeing potential at the moment? And as an extension of that, how much capital are you looking to invest in these type of agreements going forward? Ian Cockerill: Yes. Marina, again, I think previously, we flagged that we certainly have an interest in the Tethyan belt. So clearly, that's why Kazakhstan has been flagged as being high potential. Let me reiterate what I said earlier, which is areas of high prospectivity, the potential for Tier 1 deposits as well as being relatively under-explored where we can apply our previously acquired expertise and knowledge. And also perhaps our familiarity with specific geology, which is why we've also said that parts of sort of Northern-South America are highly prospective. It's the same geology as we're exploiting in West Africa. So those are the areas of focus. So it is -- it's not just a shotgun approach to expanding our exploration portfolio. It is a very deliberately focused program, where we believe our approach to exploration, our ability to have a higher probability of success we believe that we can actually repeat the success that we've had over the past decade. And going forward, do the same, generate more greenfield ounces and prepare ourselves for the next mines post-Assafou. Marina Calero Ródenas: And I have one more question for Sonia. On the non-refractory targets that you're drilling at Sabodala-Massawa, can you give us a bit more color on that and when we could see those coming into the mine plan? Sonia Scarselli: So for the Kawsara, we are still completing the drilling campaign that has two aspects, one on a very high grade part of the resources. It was infill drilling to really get to next year to an inferred resource. But in parallel, we are also doing the exploratory drilling to really understand the full expansion of the resource. So what we see today is an expansion of potential over 5 kilometers where the mineralization continues. That's why we are working with the team and fully understand the resource size will impact and where it will be scheduled on the mine plan. On the other opportunity, Makana, this is brownfield opportunity nearby our CIL facility plant. So we will accelerate in 2026 the drilling campaign to get into indicated resource. So the goal is to actually accelerate to the mine plan as we get into 2027 and display the lower-grade resources. Operator: We are now going to proceed with our next question. And the question comes from the line of Anita Soni from CIBC World Markets. Anita Soni: I just wanted to ask a couple of CapEx-related questions. On the fee gain, I think the CapEx has been shifting from sustaining to non-sustaining. And I think -- can you just give me some color on that? I thought you said was it related to just a focus on the different kinds of stripping that you're doing? And then should we then assume that, that sustaining capital will catch up next year? Is that a good assumption or not? Guy Young: Anita, Guy. I'll try this, and if Djaria wants to add anything. Yes, you're absolutely right. There is a slight change in the Lafigué CapEx split. So there's another $10 million in our nonsustaining that is effectively associated with a revision to our stripping plant. So we're increasing some stripping at the main pit that's effectively allowing us better access in the short term to fresh ore and ounces. We will push stripping into nonsustaining from sustaining if the pushback or the strip itself is both ahead of life of mine strip ratio, as well as accessing ore that's going to be mined over multiple years. So in this particular case, those criteria being met, and consequently, is moved from sustaining to nonsustaining. I think over the longer term, we don't have any fundamental shifts in our expectation for total CapEx at the site, this is a question of short-term changes to mine plan. Anita Soni: Okay. So the strip ratio is higher than life of mine and so it moved from the sustaining to... Guy Young: In this particular strip. Anita Soni: And then secondly, on Sabodala-Massawa, the processing costs dropped this quarter. And I'm just wondering, is that a function of something that's, I guess, more sustainable? Or is that really just a function of the higher contribution of the CIL or which I presume is slightly cheaper than the BIOX? Guy Young: Anita maybe I can chat to you offline just to understand exactly the quantums you're looking at. It's fair to say, though, from a broader trend perspective, yes, our processing cost at Sabodala have benefited from some improvement in recoveries, which we touched on earlier in the call. The other impact that you're likely to see having started to come through in our '25 numbers and arguably going to be a bigger contributor into 2026 is the solar investment. Our solar investments, which started coming online, this year is an investment to which we've been very proud of, not only for its ESG credentials, but the fact that it does have a fundamental improvement to our operating costs. So as the solar has ramped up, it's starting to contribute to a growing proportion of our overall power consumption. And that, I think, again, as a long-term trend, should be underpinning sort of the improvements you're seeing in processing costs at Sabodala. Operator: [Operator Instructions] And the question comes from the line of Mohamed Sidibe from National Bank Capital Markets. Mohamed Sidibe: Guy, I think you mentioned that the goal is not to stockpile cash as you're advancing through the next year. Could you maybe help us understand what's the minimum amount of cash you would like to hold while advancing the build at Assafou in order to better understand maybe your capital return profile for your capital allocation priorities? Guy Young: No problem. I'm afraid I'm not going to be able to give you even through the backdoor sufficient quantification to kind of reverse engineer the shareholder returns. But what I can just point to, which I think we've discussed before is in terms of minimum cash requirements, we fundamentally look to hold sufficient liquidity at both mine sites as well as offshore. And when we look at those numbers, we tend to look at $150 million of liquidity offshore. And we also like to keep around $15 million, $20 million of liquidity at mine site. I do keep trying to underline, the liquidity point here. So if we hold it in cash, that's fine, but it doesn't necessarily have to be in cash, it just needs to be liquidity availability. So I would reiterate the point made during the presentation itself. We have no stated short- or medium-term ambition to be holding cash piles. However, though cash piles as you would expect, form part of the capital allocation and ongoing capital allocation, and we will look to, of course, provide the right levels of liquidity and balance sheet strength. But equally, we will continue to focus on shareholder returns and CapEx, cash CapEx requirements of the business for organic growth. So there isn't a substantial amount of cash requirements or liquidity at either an offshore or a site level. Mohamed Sidibe: All right. Great. And then maybe if I could follow up on the working capital side of things, you noted that you expect a big part of that to be coming on and flowing out in 2026. Should we expect this to be mostly coming out in 2016? Or would some be seen in 2027 as well? Just wanted to think about the amount and levels into next year. Guy Young: Sure. Just to make sure I understood. You're talking about the unwind profile? Mohamed Sidibe: Exactly the unwinding of the inventory and accounts receivable. Guy Young: Okay. Perfect. So I think from a stockpile perspective, which is arguably the most material number. Yes, we see going particularly into 2026, partly as a result of the mine plans, the ability to start unwinding. And in particular, as I mentioned, it's likely to be happening at Lafigué as well as Sabodala. Sabodala, as we start blending slightly differently and looking to change our process plant feed, we should see North Zone materials starting to become consumed in H2 of '26. Lafigué, it's the same point. We've got a plant that is currently managing to produce well above nameplate capacity. And as a result, we've stockpiled in order to be able to ensure that, that plant is filled through 2026. So whilst I think the trajectory is better for 2026, I think it would be presumptious to assume that we'd be able to consume all of our stockpiles. Clearly, there are going to be stockpiles consumed over life of mine. But there is an improving trend between '25 and '26 as I've described. I think slightly more difficult to answer is on the VAT. Where we have higher degrees of confidence is in and around Cote d'Ivoire and Senegal. Cote d'Ivoire is associated with Lafigué. Lafigué having just come online and as it turns out simultaneously, the state of Cote d'Ivoire implemented a new administrative process and an online automated process in the same year. Those two things did end up slowing down our ability to submit and claim VAT reimbursements. The quarterly nature will not change. So I expect us to be able to stabilize the level, which is slightly lower than where we are now. And then that should -- and that would be in 2026. And then that would flatten in terms of overall movements unless the nominal amount changes. In Senegal, we remain on track. It's a monthly process. So that's just a question of lead time and the nominal amount if it goes up, associated with costs, it might increase slightly, but that I expect to remain relatively flat. The big unanswered one and very difficult to answer one is Burkina-Faso. We don't see Burkina-Faso as a counter-party risk, which is why we don't account for it as such. So our ECL associated with our VAT receivables is focused entirely on timing. The Burkina Faso state has always remained true to its word, and when it owes us money, it pays us. The question is around timing because they're under their own cash constraints. So we don't see the counter-party risk, but we remain cautious in terms of being able to commit two timing. And consequently, we're looking at alternatives where we might be able to look into some kind of factoring that allows us access to the cash. Failing that, arguably, this is going to a slightly longer-term issue, but not which -- not one which we believe is insurmountable. We'll continue to work on it between '25 and '26, we should see some improvement. But thereafter, we'll have to wait and see whether the success of the factoring program can be repeated. Operator: And the questions come from the line of Felicity Robson from Bank of America. Felicity Robson: At Mana, you're expecting costs above the top end of the guide in part due to higher power costs and issues around grid stability. How can we think about the cost profile going forward there, please? Djaria Traore: Thank you, Felicity. I think as we previously mentioned last quarter, we know that we do have issue around cost at Mana, and we do still have a lot of work to do. We've mentioned that there are two or three key elements here is the reliance still on the self-generated power. Hence, we are currently improving some of the initiatives, one of them being the transformer that we'll be setting up. So normally, by the beginning of next year, we should be seeing an improvement, at least on the power cost because what that will allow us to do with that transformer is to be able to then use the grid on the underground mining. So that's one thing. I think on the quarter 3, what we've seen as well is that one-off cost due to the transition from two contractors to one contractor now, which we're very comfortable with. So with that, that means that there is a lot of productivity initiatives that we'll be putting in place. But one thing is for sure for Mana, I think what we've seen quarter-on-quarter is that in terms of production, which are stable. Mana is still contributing to the gold production as overall, is still generating cash. So I think for now, we just need to continue putting together some initiatives in order to reduce the costs at Mana. Operator: Thank you. That will conclude today's Q&A session and today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Power Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. I would now like to remind that this call is being recorded on Thursday, November 13, 2025. I would now like to turn the conference over to Steven Hung, Head of Investor Relations for Power Corporation. Please go ahead, sir. Steven Hung: Thank you, operator. Good morning, everyone, and thank you for joining our third quarter financial results call. Before we start, please note that a link to our live webcast and materials for this call have been posted to our website at powercorporation.com under the shareholder report tab. Also, Power Corporation released a new financial supplementary package that can be found on our website as well. Please turn to Slide 2. I would like to draw your attention to the cautionary note regarding the use of forward-looking statements, which form part of today's remarks. Please also refer to Slide 3 for a note on the use of non-IFRS financial measures and clarifications on adjusted net asset value. To discuss our results today, joining us are President and CEO, Jeffrey Orr; and our EVP and CFO, Jake Lawrence. We will begin with opening remarks followed by Q&A. With that, I'll turn the call over to Jeff. Robert Orr: Okay. Thank you, Steve, and welcome, everyone. Thanks for joining us this morning to discuss the results from the latest quarter. Very strong quarter for Power and the whole group with 3 components really on display here, strong earnings growth from the company's value creation on evidence from our strategic investments both at Power and at IGM and then very strong cash flow and buildup of our cash positions. So all elements of what we're doing, I think, on clear display this quarter. From an earnings point of view, it was a very clean quarter. Obviously, it was good conditions, markets were strong, very, very positive environment in which we operate. But notwithstanding that, I think it demonstrated the earnings power of both the Great-West Life and IGM's earnings-driven businesses. And fundamentally, those businesses are growing. They're in good shape. They continue to build their businesses, but they also earn in a clean quarter, it was really demonstrating what kind of earnings power has been created there. On the value creation from the strategic investment side, as I said, both Power and IGM have portfolios of companies that are much higher growth and that are basically valued more on NAV than earnings. And in this quarter, 2 of those companies announced transactions, the Wealthsimple and Rockefeller transactions that demonstrated not just the quality, but the magnitude of the value creation that can be created in that part of the portfolio. And finally, from a cash flow point of view, a strong -- we've returned a lot of capital. That's an element of our strategy as well, and we stepped up our share repurchases on the back of a strong cash flow coming into the company, including from the Great-West Life buyback, which we started to participate in and notwithstanding the pickup in the buyback activity, the cash position of Power Corp had quite a material jump over the quarter. So then I'll just flip forward to Page 7 and just talk a little bit about the 2 transactions that were announced this fall. So Rockefeller, as I think you're well aware, it was an investment that was made. I think it was in the spring of 2023, some 9 quarters or so ago. In U.S. dollars, IGM invested $620 million or $835 million, as you see at the bottom of the left-hand page there in Canadian dollars. So Rockefeller welcomed a group of new shareholders into the capital stack, and those are all kind of prominent family investors, Mousse is in effect of the Chanel family, it is their -- the Chanel company, basically, the Wertheimer family and the Heilbronn run Mousse that's their family office. Progeny is the Hemingway family for the West Coast of the U.S. at Abrams Capital, sort of Boston. So they joined Viking and the Rockefeller family and in effective with IGM, the Desmarais family, if you want to put it from an ultimate control here. So you've got a group of prominent wealthy families that are in behind what's going on at Rockefeller, but a very significant jump in value is the main point here I want to make, as you can see on the bottom of the page for IGM. And then Wealthsimple continues to experience tremendous growth that crossed recently $100 billion in assets and continue to really grow their franchise, grow the number of clients. You're just succeeding on all fronts at this point. They had announced a very successful financing round that was led by GIC and Dragoneer. Two, obviously, very credible investors, but also included some very other prominent investors that you can see at the bottom of the right-hand side there. And our group participated for $200 million, $100 million each for Power and IGM of the $550 treasury. And then once again, at the bottom right, you see the value creation. Power has got its own investment and across the group, including IGM, principally, you can see the value pickup from just the last quarter. We had marked it up last quarter, but then the financing was done at an even higher mark. So nice to see those 2 transactions validating the value creation that we see in our portfolio of strategic investments. Page 8, I won't really go through with just kind of a summary of financially how we've done. And with that, I'm going to pass the microphone over to Jake. Jake? Jake Lawrence: Great. Thanks, Jeff, and good morning to everyone joining us. I'm going to begin my remarks on Slide 10. And -- as Jeff just commented, we're pleased to report strong results for the third quarter of 2025. Our adjusted net earnings from continuing operations were $863 million, and that's an increase of 25% year-over-year. When we look at the results on a per share basis, Q3 adjusted net earnings were $1.35, up 26% from last year and the slight uptick versus the overall earnings reflects our buyback activity. Before turning to the operating company results, I just want to remind everyone that our ownership in Wealthsimple across the Power, Complex is consolidated at Power's Corporation level. And therefore, the fair value increase in Wealthsimple will not appear in our P&L results. Now moving to our operating company results and beginning with Great-West, whose contribution to Power's adjusted net earnings was up 16% year-over-year. The positive results were supported by Great-West sixth consecutive quarter of base earnings in excess of $1 billion, and including double-digit growth in our U.S. business, Europe and really notably a strong quarter in the Capital and Risk Solutions business. IGM's contribution to Power's adjusted earnings were up 23% year-over-year, as we saw strong growth in IG Wealth and Mackenzie net flows. The quarter ended with record high AUM and AUA, which were up 14% year-over-year and increased 7% quarter-over-quarter. The results also saw a strong earnings contribution from China AMC, while Rockefeller, which Jeff just spoke to, their earnings in the quarter were positive. Slightly offsetting these results this quarter was GBL's contribution of Power's adjusted net earnings, which was a loss of $11 million. The lower contribution in the quarter was due to a fair value loss of GBL Capital as well as higher operating expenses and lower gains on disposals of investments. Last week, GBL also announced a significant divestment of the GBL cattle portfolio, and the net earnings of the quarter reflect the estimated transaction value on their assets. Moving to our alternative investment platform. Sagard's’ contribution this quarter with a loss of $11 million. It was down from positive earnings of $106 million last quarter. The decrease was primarily driven by higher carried interest expense associated with the fair value increase at Wealthsimple as well as the impact of acquiring the remaining economic interest in Performance Equity Management, which they increased up to 100%. Power Sustainable reported an improved contribution driven by lower net carried interest expense as well as lower acquisition costs. Looking at our corporate operations and other segments, we reported an improved contribution, and that was driven primarily by the positive impact of FX gains relating to foreign currency translation on cash balances. Meanwhile, operating expenses were higher due to an increase in long-term compensation expenses and some increased advisory fees. Overall, we are pleased with our group's strong third quarter results and expect continued momentum to end the fiscal year in Q4. Turning to the next page, Slide 11, looking at our net asset value. we reported net asset value per share of $72.24 as of September 30, 2025. I want to remind the group that 83% of our Power's gross asset value continues to be driven by our earnings-based businesses, specifically Great-West and IGM. Second, during the quarter, we experienced strong adjusted NAV growth, which was up 25% compared to the same period last year and up 12% to the prior quarter. Driving that change were increases at all of our publicly reported operating companies with IGM up 25%, followed by Great-West 22%, while GBL rose 18%. The net asset value of Sagard increased 40% year-over-year, and that was driven by the fair value increase in Wealthsimple I've mentioned. Meanwhile, Power Sustainable saw a slight reduction in NAV, and that's related to some asset sales that we announced earlier this year that generated cash for the corporation. On our cash balance, we ended the quarter at $1.9 billion. We see about $1.5 billion available when we factor in dividends to be paid and dividends we've yet to receive. And as many will have seen, we remained active in our NCIB program. During the quarter, we repurchased 3 million shares worth about $170 million. And to date, we purchased 7.4 million shares. We continue to be well positioned to deliver a strong return of capital, as Jeff noted upfront, and year-to-date to October 31, we've returned over $2 billion to shareholders through a combination of share buybacks and dividends. And with that, Jeff, I'll turn it back to you. Robert Orr: Okay, Jake. Thank you. So I will move us forward to Page 13. Just a couple of comments about Great-West Life. They continue to meet or exceed the medium-term objectives that they announced -- objectives that they announced several years ago and continue to have strong earnings growth. I thought it was really pleased to see, and Jake mentioned, it was across virtually all the geographies. And as well, if you look at it from a business segment point of view, retirement wealth asset management, insurance, et cetera, as you look through the different components of it, it was strong across the board. And it was also coupled with very high cash generation. I mentioned before that Great-West Lifeco is doing -- being very clear as to how the earnings in each of those areas turn into cash generation. And then you're seeing that at the top of the house as the cash continues to build up the Great-West Lifeco level. The company announced, again, a buyback earlier this year and then came up with recent announcement that they're increasing and extending the buyback programs. And as you know, Power Corp has decided to participate pro rata in those buybacks now. So just all good news across the Great-West, really great momentum in the businesses. IGM as well, then turning to Page 14. Jake mentioned strong AUA and AUM growth, its markets, but it's also flows. It was really nice to see that both IG Wealth and Mackenzie had very strong flows. And those earnings are also turning into strong cash positions, financial position of IGM, cash position continues to grow and they have increased their buyback activity as well as a consequence. So the earnings businesses here really, really doing well. I'll just turn you to Page 15 and just use this slide to focus on the strategic investment portfolio of IG, it is -- there are 4 businesses there. They're very high quality businesses, and they're growing very strongly. I talked about Wealthsimple and Rockefeller earlier, you see just there the year-over-year growth in AUA and in client assets at the 2 franchises. But on the asset management side as well, China AMC is growing its assets strongly. They're growing their market share. The company is doing extremely well. That's been against the backdrop of mandated fee decreases. So the earnings haven't kept pace, but the earnings have been growing in spite of those fee drops. And so, but the health of the business, the growth of the business and the position of the business continues to be extremely strong. And then Northleaf, in a very difficult fund raising environment for alt managers, doing a really nice job in building up their AUM with some very strong fundraising and performance year-over-year. So very high-quality portfolio, not currently contributing a lot to IGM's, net earnings. But over time, as these businesses continue to grow and mature, we have 4 very strong quality businesses that we hope and expect will start to contribute earnings in the years ahead as they get to being in a more mature state. A couple of comments on GBL then on Page 16. We did have mentioned that a new CEO was announced in the spring Johannes Huth and he has come in and got a very strong track record in his time with KKR, where he was there for I think it was 25 years. The basic strategy is the same, which is ultimately to rotate out of the public portfolio over time. And then with the proceeds that would come from that, combined with an increased focus on private investments and coupled with a return on capital, the return on capital being evidenced through the strong increase in the dividend that they announced earlier this year as well as strong buyback activities. There has been a significant transaction that Jake mentioned. As Johannes and the team have focused on the private capital, there is in GBL Capital, a portfolio of investments in other people's funds that was part of the previous strategy and decision was made that was not strategic. So the transaction that Jake mentioned was a $1 trillion -- that would be nice, EUR 1.7 billion that was disposed of at about a 9% discount when you do secondaries in this -- in private alts, you're typically discounting them. That was actually a pretty good price, 9% discount was not a big discount. They went out and announced a series of transactions with different buyers and disposed of a big chunk of that GBL portfolio of other people's funds. So good move and more capital coming into GBL. So good lots of activity there. We continue to watch GBL with interest as under the new leadership. And then a couple of words on the alternative platforms at Power, ongoing fundraising on Page 17 of $2 billion since we last spoke. So continued good progress there. And you've got on this page the overall AUM in Canadian dollars. We've got $49 billion committed capital, of which $39 billion is funded. And what I really want to do then is turn Page 18 and talk about Sagard continue to use in addition to fundraising strategic transactions, acquisitions, partnerships to build their franchise. And they announced in September the Unigestion acquisition as well as what Jake mentioned buying in the minority interest of Performance Equity Management. So what they've done here is they've created under one umbrella, a solutions business, if I can put it that way. It's alternative private equities that are focused on primary equity positions, secondaries, co-investments effectively mix all that come up with asset solutions for different client bases, be they retail, family offices, institutional investors that are looking for portfolios. So this part of the business is really thinking of it as putting together packages of alternative assets for different parts of the market. And I guess somewhat analogous, if you want, in the public space to multi-asset type products versus individual fund sleeves, think of it that way, and they've combined this under one business, which has got USD 23 billion of investments. It's focused primarily in the mid-market as opposed to in the larger market, and they now have capabilities, both investment and distribution across North America and Europe. And so it's a whole new area for Sagard and quite an exciting development that they have done. In addition, they did announce as well a strategic partnership with Baird. May not be known to all of you, but Baird is a significant U.S. wealth manager over $500 billion in U.S. in client assets, and they're looking for more alts. And so they entered into a partnership, took a 5% interest in Sagard and they're going to work on products with Sagard to bring into their retail and wealth channels. So a lot's happening at our platform. Page 19, continue to -- I mentioned earlier, you just see here our return of capital to shareholders over the last several years. And I think on the right-hand side, you see the increased buyback activity up to the end of October. Pleased to see the discount narrowing. We can always get into a good discussion. I suspect we will continue to have a discussion about the discount. We're just very pleased to see that there's, I think, increased recognition on behalf of investors as to what we have across the portfolio and how we can drive value from all the different components of our portfolio as well. I suspect some of that. But who knows, you'll maybe tell me some of that is also a reflection of strong cash flow we have in some of the buyback activity that we are doing. You've got on Page 21, the returns that we've generated over various periods, going back to the last year, 3 years, 5 years and roughly since we announced the reorganization a couple of weeks after that at the end of 2009. So we're pleased to see strong performance. I would not expect to see 55% TSRs every year that's a reflection of a number of factors in the last year, but we do think we can create if we execute on our strategy, mid-teen type returns over time, that would be our objective. And then finally, as a roll up on the last slide around 22. Just again, to summarize, a really strong quarter, everything working well, very clean. There wasn't a lot of noise in the quarter, but also good markets, interest rates cooperating. It was just a good quarter where everything worked well. Not every quarter is going to be as clean as that markets go up and go down, and that's fine. From our perspective, it's fun to enjoy a quarter where everything is working well, but it doesn't change anything that we're doing. We're just executing the same strategy we have been for the last several years. I take quick -- frankly, more satisfaction and just seeing the continued progress of the businesses across Great-West Life at IGM, the progress they're making and that steady progress, not up 1 quarter, down 1 quarter. It's just pleased with the steady strengthening of our franchises. The management teams are in great shape. And then I look to the rest of the portfolio, the strategic portfolio, the NAV portfolio, we sometimes call it, and continued strong progress. So great quarter. We'll enjoy it when everything is working, but everybody just got their heads down here and continue to execute on what we've been telling you for the last several years. So with that, I will end my comments. And operator, you can open up the mics or the call to questions. Operator: [Operator Instructions] Our first question is from Graham Ryding with TD Securities. Graham Ryding: Can you just confirm the Alt AUM growth $2 billion in the quarter, was that fundraising? Or is that market performance? Robert Orr: That is fundraising, and that is committed. Wealthsimple as well. Thank you. Okay. I was about to say it was all fundraising, Graham, and I've got a hook here from Jake. So that includes some of the market increase in the Wealthsimple position as well. It's a combination of both, Graham. The Wealthsimple increase we've obviously shown and then the net position would be from fundraising primarily. Graham Ryding: Okay. So half and half roughly? Jake Lawrence: Probably a bit more towards Wealthsimple and then the rest towards fundraising. Graham Ryding: The 5% stake from Baird into Sagard, I think you've done something similar in the past. Did they put in actual capital here? Or is this a commitment for a certain level of AUM? How does that sort of structure look? Robert Orr: They put capital in. And I won't go into all the details, but there are some adjustments to what the ultimate position can be based on distribution performance on themselves, but they put capital in at the full value -- the current value 4.5%. Graham Ryding: And then maybe what's your ownership stake going forward in Sagard? And then can you give an update on the AUM growth and the flows that you've seen from other wealth channel partnerships that you've done in the past. I think you did something similar with BMO last year, just maybe an update on any traction from flows from those sort of wealth partnerships. Robert Orr: Our equity position in Sagard at about 45% right now following these transactions. And I don't have in front of me here a summary of the flows that have come through retail channels. We can try and pull that information together, but I'd be misleading you or I don't have numbers in front of me. I think what you we'll see though, because it's not just a Sagard. I'm going to broaden your question out, Graham. We've got activity going on, for example, at IGM, where IGM has got Northleaf and they're also working with other parts of the all platforms across Power and other suppliers. And the Mackenzie is doing retail funds. And IGM is putting alts into their different shelf programs. You've obviously got empower looking at it. Like across the group, you've got the phenomenon that's happening in the industry where you're taking alts and putting them into retail products and high-net-worth products. And they tend to go through a long period where not a lot of flows happen. You're putting structures together, you're educating advisers, you're getting on shelves, you're going through the different control mechanisms on different wealth platforms to get on. So it's kind of a long lead time and then the sales start to pick up and then at a certain point, the hope is they take off. And we're starting to see that. So the meaning -- the numbers -- I think if you added it all up, I'm just foretelling because I've seen the numbers all in pieces, I haven't kind of seen them all together in one spot. I don't think they're hugely material at this point, but the growth of them is really starting to accelerate. So I'm foretelling what I think the story is, but we'll try and figure out whether we can pull together some numbers for you and for others, obviously, we'll disclose it to everyone. Jake Lawrence: [indiscernible] the only thing I'd add on is we expect that trend to continue. We're seeing good coordination across the group with Sagard credit product and Wealthsimple. We've also seen access to the Empower shelf or at least announcement that Sagard will ultimately be going on that. So we do think retail funds will be a big component of growth moving forward. Operator: The next question is from Jaeme Gloyn with National Bank Capital Markets. Jaeme Gloyn: First question, just a refresh on the dividend strategy. Obviously, a great year this year from an earnings growth perspective and cash flows. How should we be thinking about that dividend, I guess, maybe in the next quarter and obviously, how does share repurchases factor into that capital allocation decision as well? Robert Orr: Thank you. Good question, Jaeme. So what we do typically the fall is where Great-West Life and IGM would go through their 2026 budgeting process, get a good handle on where they think they're going. They will then come and come to the Board in early February or mid-February, when we have the Q4 results and would recommend dividends levels for 2026. Power then takes that looks at those 2 dividends as the 2 kind of steady sources of cash flow, and we then look at our expenses, what our net cash flow will be from those dividends and set our dividend as a consequence of having that information. Other sources of cash that we might get from either disposing of an alt position or getting returns or cash flow from our alts positions or participating in buybacks that Great-West Life may be having or other sources of cash Occasionally, we do some fundraising. We recently did some preferred shares that market opened. Those, what I would call more episodic sources of cash are what fund our buyback programs. And then we look at that cash in the context of investments we might have committed to or other opportunities, and we set our buybacks in the context of that cash position. I don't know if that explained it. We look to the dividends from IGM and Great-West Life as lesser expenses as the main driver of our dividends and other cash flows go into a bucket, which we then use to source the buybacks. Does that answer your question? Jaeme Gloyn: Yes. And then maybe quite a different question just in terms of the capital allocation outlook for the business, obviously, Empower and funding the organic and inorganic growth of the operating companies is something that's top priority, but seen some dislocations in other financial services. I'm just wondering if there's any updated or refreshed view on, let's say, the verticals that you have in place today versus maybe where you might want to take that in the future. Robert Orr: Well, let me go to what I think our capital allocation priorities are and then try and tease out what the last part of that question is because I'm not totally clear on what it was you were asking there, Graham. But from Great-West Life's perspective, I think the U.S. continues to be at the top of the list of capital priorities. Empower continues to grow its franchise. It continues to grow its market share in the DC business and then the rollover opportunity into the wealth management business is really even an even stronger growth, and I didn't mention, but Great-West did point out that their wealth management Empower personal wealth across the USD 100 billion mark in the last quarter. If I bring you back to 4.5 years ago, it was $20 billion. it jumped to $40 billion when they bought Personal Capital, which was combined with Empower Personal Wealth, but that's grown from that level up to $100 billion here. So that's a tremendous. We're very pleased with the progress that, that business is making. And if there were further opportunities to make acquisitions, that would be capital priority, number one, we would look to grow across the Great-West Life portfolio. If we had synergistic transactions in any of the markets, we like the balance currently. But if there were synergistic transactions, we would do so and there's some capital needed to grow the business, but most of their businesses are pretty capital light. So the position they find themselves in is those earnings are generating a lot of cash and a lot of capital, and that's growing at the top of the house and notwithstanding the desire for acquisitions, they're not going to sit on a big, big chunk of cash earning whatever it's earning in current rates. So that's why the buybacks are there. So that's a little bit -- I just tried to share with you how Great-West life thinks about capital allocation, IGM. From MacKenzie and IG Wealth, not necessarily acquisition opportunities there, but they do have their strategic portfolio, and they've got some high-growth businesses. So one could see over time some of those businesses requiring more capital. So that will be something that they would monitor in the strategic portfolio, but they also are building up strong cash now and have stepped up their buyback activity. So that's what -- those 2 companies, those are the capital priorities. And now if you could be a little more clarity on the last part of your question there, when you talked about other verticals, I wasn't sure what you meant. Jaeme Gloyn: Yes, from like an OpCo perspective with Great-West and IGM life, life insurance asset management, it's a financial services business. Is that still the focus? Or would you entertain other verticals perhaps outside of those 2? Robert Orr: We're in the financial services business here. And those -- I think I've explained what they would do. I think the priority would be in-market transactions, occasionally to get into new markets we have made investments. So Rockefeller was not a business that we were in. China Asset Management was not a business we were in. Those are brand-new areas in financial services that in the past years we've made. And we've done those on a, I would say, on a disciplined step-by-step basis as opposed to jumping in with a lot of capital. So it's -- would we ever entertain other areas? The answer would be sure, we would. But our priority is building around the franchises that we have, that would be the priority. But it would be financial services. Just very, very clear. Jake wants to add something here, Graham. Jake Lawrence: Sorry, Jaeme. My apologies. Jaeme. Just even -- I don't know if the question is triggered by where our cash balance sit at $1.9 billion and available at $1.5 billion. I'd say one of our unique characteristics or a competitive advantage of Power is just the willingness to take a long-term view and approach to building the company. And so we won't -- I don't think Jeff or myself feel cash burning in our pocket that has to be deployed. And it's not as obvious. But even during this year, we've had opportunities to deploy within the existing platform. So as part of the Unigestion transaction to maintain our ownership position, we'll be allocating some capital towards that, Jeff obviously mentioned earlier in his remarks, we're going to be participating in the Wealthsimple. We did participate in the Wealthsimple primary. So there are places where we can allocate our capital towards at the end of the day, within the existing footprint and not needing to go into necessarily new operating companies. Robert Orr: But we are -- the last point, we are in the business of looking at opportunities. So we have what our priorities are, but we get shown a lot of opportunities. So we'll continue to look at them, of course. Operator: The next question is from Bart Dziarski with RBC Capital Markets. Bart Dziarski: Jeff, I wanted to follow up on the NCIB question in terms of how you guys are thinking about that from a pacing perspective going forward. So $2.1 billion year-to-date, that includes dividend, but very healthy capital return. And you obviously have some kind of intrinsic value model internally that you keep buying back stock because there's value embedded there. So should we expect that pacing to continue? Do you think it will ramp up or... Robert Orr: Yes. Just in terms of our buyback activity, we do look to -- the -- we are driving earnings and cash flow off the alternative asset management platforms over time. It's not kind of steady on some of those distributions, but we create earnings there. We have some positive net cash flow from our dividends received less our expenses. So there's different sources of cash. We like to sit on some liquidity, but we also don't want all that cash just to build up on an indefinite basis. So we jump into the market, and we have been for the last 4 years in effect, turning what are non-earning assets from a steady earnings point of view into contributing to EPS growth and dividend growth by shrinking the capital base. So if you think about that as a tool, it's a tool to take some of the earnings -- from the non -- some from the distribution -- I should say from the non-earnings part of the portfolio. The NAV and by shrinking the capital base and buying it back. We are increasing our earnings per share and increasing our ability to pay dividends per share. I think I mentioned might have been before you picked up coverage somewhere in the last year, I mentioned that we had -- because of the buybacks up until about a year ago, I don't can't remember 3 quarters or 4 quarters ago, we had calculated we had about $72 million, $73 million of extra cash flow available to pay in dividends that we wouldn't have otherwise had, had we not done the buybacks. So there's -- that's one way of thinking about our buybacks. Now the second part of your question, there's not a formula, maybe Jake, I'll ask you to comment on your own thoughts. But we don't have a formula. We like to be in the market on a steady basis. We might ramp it up, sometimes ramp it down, but our cash doesn't come in on a steady basis. It might come in. All of a sudden, we get a bunch of cash. And we're not going to go out and kind of blow it all just because we just had a quarter where we had a bunch of cash come in, we like to be in the market on a steady basis. Jake, anything you would add to my comments? Jake Lawrence: Yes. Bart, tactically, how -- one way to think about it, and we gave a bit of this guidance heading into 2025. There's probably right now about 3 layers to the buyback program. The first layer is, as Jeff alluded to, we've been active for about 4 years now and roughly the same balance in the past few years of around $400 million of buyback activity. We obviously want to offset option dilution as well. So that would be the second layer. And then with Great-West announcing additional NCIB volumes, both with their Q2 and Q3 results and our intention or communication around Q2 of participating in that, that produces extra cash. And so that last piece is the one that we'll want to be thoughtful about how much of the buying we are any given day in the market. But we obviously have that core $400 million plus offsetting dilution and then doing some additional activity on top of that with the proceeds from the NCIB for Great-West. Bart Dziarski: And -- then on Sagard. So we saw the nice tick up in the Wealthsimple valuation Q-on-Q, I think up 50% on your -- on your LP. Would that drive a fair value increase at Sagard? I think it was flat, if I'm not mistaken. And then Sagard also announced [indiscernible], so another positive transaction. Like would the -- should the mark have increased? And if not, what would drive maybe factors going the other way? Robert Orr: You take that, Jack? Jake Lawrence: Yes, we don't -- as I know upfront, Wealthsimple, you may have missed it, Bart. We don't take it through the P&L. It has increased our NAV in the quarter, and that's been reflected. In terms of Unigestion, that's scheduled to close in the first half of 2026. Obviously, we announced it during the quarter and wanted to raise it on the call. We expect once it closes, it will obviously -- we'll look at what that means for the valuation of Sagard in due course and where the business has traveled between now and closing and make an assessment of its value at that point. Robert Orr: And just to underline the Wealthsimple position, again, we consolidate it. We do own more than 50%. Across the group, we own more than 50% of the outstanding shares at Wealthsimple, principally at IGM and at Power Corp. We consolidated. So we don't mark it up when there's an increase in the value. What we do get, though, as a present is there's some carry that the Sagard team has on overseeing that position. So we flow through the negative impact of the compensation carry in our P&L, but not the markup. So the more Wealthsimple goes up in value, the more losses we report. And you can -- I'm not going to make a comment about the accounting industry at all because that wouldn't be fair, but it is a bit ironic here. Is the more the thing goes up, the more we report losses, but that's just the way it is. Economically, obviously, we're very, very pleased with the NAV growth. Bart Dziarski: Okay, because that's what I was asking because there's an expense that goes through and you would think the GP, Sagard gets a benefit from the higher value, which ultimately drives higher future carry. So is it a wash on the valuation of the GPU? Or am I missing something? Jake Lawrence: We don't value the GP every quarter, Bart. But you're right, their accrued carried interest has increased, but it's not a -- it's not like Great-West or IGM, where we're marking it every quarter. Robert Orr: We don't mark it up, but there is a liability that goes through the compensation because there's a share of that carry that obviously goes to the Sagard management team. So that we show through a liability, but all the increase in the carry and the increase in the capital that we have in Wealthsimple does not get marked up. All that gets marked up is the employees' share -- managers at Sagard's share of the carry. Bart Dziarski: Yes. It's a positive from those [indiscernible]. All right. And then just on the GBL transaction, they -- looks like they did a secondary with Carlyle, and I think it's like a 9% discount to NAV. So GBL earlier this year announced they took a stake in Sagard plus they committed to future funds. And then I think as part of this transaction with Carlyle, they exited some of the Sagard positions. So is that a change in strategy by GBL with regards to its commitment to Sagard? Or obviously is something else driving that? Robert Orr: Two comments, they did not dispose of their position in Sagard, so -- and nor have they -- and they continue to be committed to the product. So that has not changed. I'm not sure. So just correct you on that one. And second, the transaction to dispose of the positions in the GBL Capital was through various transactions to different buyers. I'm not going to comment on who they are, but it was not you may have become aware of one piece of it, but there were multiple transactions to multiple buyers that they announced. Operator: We have a follow-up from Graham Ryding with TD Securities. Graham Ryding: The follow-up question just on the buybacks at Great-West. So is it reasonable to assume that if there's no sort of obvious inorganic opportunity for Great-West that they will continue to be active on buybacks? And should we also then assume that you're going to continue to look to participate in future NCIBs to sort of maintain your ownership position? Robert Orr: That would be my expectation. With the current business mix that they have as they grow, they're creating more cash than they're putting capital back in or put another way, the earnings are turning into a lot of cash generation. And I think just building up that cash is not a very attractive alternative. And so if there weren't inorganic opportunities, I think it's reasonable to assume that we continue to do buybacks. I mean those are decisions we'll make in the future, but that would be a reasonable assumption. The background on our participating, I'll just restate it, you probably know it. Initially, we didn't -- we said we're not interested in selling Great-West Life shares. They came to us and said, look, we would be great rather than us going out and trying to buy all of this from the market and also shrinking our outstanding. We'd like to grow our float, not -- the market value of our float, not shrink it. And so would you participate pro rata? When you think about it, you're still -- basically, you're getting cash back and you're still taking in 68% or roughly 68% of the earnings in the dividend. So it doesn't really change anything, and it will help grow our earnings per share. And given a constant payout ratio, that will translate into higher dividends, higher earnings. So it would be great if you could support us in this with our objectives. So we took that back. And after considering it, we decided all right, that makes sense. We'll participate pro rata. So I don't see that changing at this point, Graham. So I think your -- the answer to your question is, yes, that's a reasonable assumption, both on continued buybacks and our participation, but that's -- obviously, we'll make those decisions through time. Operator: The next question is from Doug Young with Jarden Capital Markets. Doug Young: Sorry, I got on the call late, so these are repeated. I apologize. But I want to kind of continue with the buyback question that Graham just asked, a bit differently. Like what are the limits on the amount that Great-West can buyback and Power can buyback, like what are the constraints given -- I mean, you own 70% of power -- sorry, 70% of Great-West, there's limited float and that becomes a challenge for some people when they look at the structure. So I'm just -- like how do you think about that? Robert Orr: So the last part of my question, if you picked it up in terms of our participation went to the issue of float. And it's a trade-off because if you sit on -- as Great-West Life, if you sit on too much cash earning 2% or whatever you're earning, you're not going to have your earnings grow as quickly. You're not going to have your ROE go up as quickly. You've got too much lazy capital. So all things being equal, your share price is going to drop or not grow as fast. It's a better way to put it, all things being equal, if you're growing the business. So the number of shares is one part of the float, but times the share price is how you get to the size of the float. And so as they're shrinking their share base, they're increasing their earnings per share, which all things being equal, is increasing their share price might even get reflected in a higher multiple over time. When you do that math, I think you get to saying we keep doing buybacks, and that's the page you're on. But that's the equation. It doesn't mean that you're buying shares back, you're going to have a lower value of your float. In fact, probably is going to be the opposite. Doug Young: So it doesn't sound like you see any limitations on either the power level because I mean Great-West is sitting on over $4 billion, $5 billion of excess cash that we can see plus what's in the U.S. and then debt capacity. So there's a lot of capacity there left to continue. Robert Orr: That was their assessment and our assessment as well when they decided to jump into the buybacks. But obviously, we'd love to do -- if we could get an opportunity to do an acquisition, we'd love to do that and slow the buybacks down. That would be a good thing to announce if we could -- if we got that opportunity. Doug Young: And the second, just obviously, an impressive list of value creation changes last 6 years. There's a laundry list. Some of it maybe was lower-hanging fruit. Some of it was tougher to get at. And as you look out going forward, like there's obviously -- Wealthsimple is creating value. Sagard is becoming more topical. Like what are you and the management team focused on? Like what's that next 5 years look like in terms of like the buybacks are here, but what are some of the other items that you're kind of looking at? Robert Orr: I won't get into specifics on what else we might look at. I would tell you, I'll just restate what we -- how we think about it. We have -- the bulk of our assets are in businesses that are currently leading franchises that are at a more mature stage, but growing nicely and producing a lot of earnings and cash flow. That would be Great-West portfolio, IG Wealth, Mackenzie. But we also are very long-term focused. And so we have through our fintech strategy that we launched in 2015 that gave rise to the position in Wealthsimple through IGM, ultimately taking a position in Personal Capital, which ended up getting acquired by Great-West through acquisition of China Asset Management, the Wealthsimple itself through the opportunity to buy in Rockefeller and then turning and saying we want to be part of the alternative asset management space through Sagard, Power Sustainable, Northleaf came to IGM. There's 7 or 8 examples in the last 10 years of the group putting in a limited amount of capital, but meaningfully, it's still like 15%, 20% of the portfolio into investments that are going to not create earnings in the short term, but looking 5, 7, 10 years out, could be really meaningful contributors to value creation and ultimately, to earnings. So we try and do a balance between supporting and investing and growing our current leading franchises, but also seeding a portfolio of investments that, as you look 5, 10 years down the road are going to be really meaningful contributors. And they won't all turn out that way, and they won't all work, right? I mean when you're doing it, you're buying in the businesses at earlier stages, higher risk, there's higher potential. Some of them will decide to take control positions in. Others we may not. I'm not going to get into what we're going to do. I couldn't do that even if I wanted to, Doug. But I think that philosophy is important to understand. And what's great right now is that I think for a period of time, people were just kind of ignoring it and saying, well, come talk to me when you've got some evidence that, that's working. But as some of these things have been held for a number of years, they're coming to fruition, and I think it's creating evidence of how much value that they can create and will create. And ultimately, these businesses, every business goes through a phase where if it grows quickly, it's investing, investing, investing. And at some point, they turn into cash flow and earnings. And so I would expect that some of the assets that we have in these businesses right now and turn into a reflection of what our earnings power will be 5 years down the road or 7 years down the road as they get to more mature phases. So I don't know if I answered your question. That's a bit to told you what the approach to investment is, and that won't change. I don't think. Operator: There are no further questions. I'd like to turn the conference back over to Mr. Steven Hung for any closing remarks. Steven Hung: Thank you for joining us today. Following the call, a telephone replay will be available later this morning, and the webcast will be archived on our website for 1 year. We look forward to our next update on Q4 results. This concludes the call, and have a great day. Operator: Ladies and gentlemen, this concludes your conference call for today. Thank you for participating. You may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to the TELA Bio Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Louisa Smith, Gilmartin Group. Please go ahead. Louisa Smith: Thank you, Kelvin, and good afternoon, everyone. Earlier today, TELA Bio released financial results for the third quarter 2025. A copy of the press release is available on the company's website. Joining me on today's call are Tony Koblish, Chief Executive Officer; Jeff Blizard, President; and Roberto Cuca, Chief Operating Officer and Chief Financial Officer. Before we begin, I'd like to remind you that during this conference call, the company may make projections and forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including, without limitation, the company's annual report on Form 10-K and quarterly reports on Form 10-Q, which identify the specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, statements regarding product development and pipeline opportunities, product potential, the impact of various macroeconomic conditions identified in our filings, like changes in surgical procedural volumes, the regulatory environment, sales and marketing strategies, capital resources or operating performance. With that, I'll now turn the call over to Tony. Antony Koblish: Thank you, Louisa, and good afternoon. Thank you for joining TELA Bio's Third Quarter 2025 Earnings Call. Q3 '25 marked another important step forward in TELA Bio, as we continue to execute on expanding our commercial footprint, improving our operating discipline, and strengthening our patient-centric culture. We reported revenue of $20.7 million for the quarter, representing 9% growth over the prior year. Growth was fueled by stronger adoption across our existing customer base and augmented by the addition of new accounts. This reflects growing demand for our OviTex reinforced tissue matrix and OviTex PRS portfolios, and contributions from our expanding commercial presence in Europe. International sales grew 9% over the prior period, driven by increased traction in the U.K. and early progress from the commercial launch of the OviTex IHR in Europe. Over the last few months, we have placed deliberate focus on strengthening our operational foundation. We invested in our sales organization, from which we expect stronger commercial performance going forward. We continue to demonstrate financial prudence in our sales and marketing spend, which improved as a percentage of revenue from 89.7% in Q1 to 83.5% in Q2, and further to 73.6% in Q3. Additionally, we have strengthened the capabilities and expertise of our Board to provide valuable strategic insights through our next phase of growth. And finally, as announced this evening, we have reinforced our balance sheet to eliminate any concerns around financing and allow us to focus squarely on execution and growth. With these foundational elements now in place, we're poised to reaccelerate under the right leadership and the right playbook. Before turning the call over to Jeff, to review upgrades in the commercial organization, I'd like to point out some key highlights and milestones we reached in the third quarter that detail TELA's expanding presence in the soft tissue restoration market. As mentioned on our last call at the American Society of Plastic Surgeons -- Plastic Surgery meeting, OviTex PRS, was featured in 3 scientific abstract publications. These presentations contributed to a growing and meaningful body of clinical evidence, now more than 50 published or presented works on OviTex and 10 on OviTex PRS, representing over 1,100 patients in peer-reviewed publications and ongoing data collection in more than 2,500 patients. I'm also pleased to share that 2 sites have now been activated and the first patient has been enrolled in our hiatal study, Evaluating Clinical Hiatal Hernia Outcomes using OviTex or ECHO. Together, these milestones reflect the continued expansion of our real-world data, which strengthens surgeons' confidence and support and broader adoption and reinforces the clinical validity of our technology. In the third quarter, we achieved a significant commercial milestone surpassing 100,000 implantations of OviTex and OviTex PRS combined globally. This achievement further underscores our growing impact and continued progress across the soft tissue repair and reconstruction market. We continue to expand our market presence both in the U.S. and abroad. In Europe, we advanced awareness through the targeted surgeon engagement, including a July Cadaver lab with 30 key surgeons, and made meaningful progress with the U.K. NHS value-based procurement initiative, securing NHS finance sign-off in September. In the U.S., we further strengthened our national reach through new and expanded contracts that made our portfolio available across a diverse range of health systems from some of the nation's largest and most innovative networks to community hospitals, broadening our market access in the quarter by an additional 835 hospitals. We recently announced 2 additions to our Board of Directors, welcoming Betty Jo Rocchio and Bill Plovanic. Betty Jo will provide critical insights into our market access strategy given her decades of experience in advancing clinical excellence and supply chain optimization at large health care systems and group purchasing organizations. We are also fortunate to have Bill on board. His experience as an investor, combined with his direct experience running publicly held MedTech companies, will help drive long-term shareholder value and enhance communication with our investors. I would now like to turn the call over to Jeff, who transitioned from our Board to serve as President in June. Since that time, he has been instrumental in refining our commercial strategy and building a more patient and results-focused culture within our sales organization. Jeff brings the exact combination of operational expertise and strategic vision needed for this moment. He will provide commentary on our third quarter and our optimism for the future. Jeff? Jeffrey Blizard: Thanks, Tony. I'm pleased to report on the important progress we've made in strengthening our commercial organization and executing against the strategic priorities that we outlined on our last earnings call. While our Q3 results came in lower than we hoped, we still achieved a new global quarterly revenue record of $20.7 million, which marks TELA's third consecutive quarter of sequential growth in 2025. This momentum reflects the durability of demand for our product lineup of soft tissue repair solutions. Q3 was a quarter dedicated to building a stronger foundation, and we've now positioned TELA for sustainable long-term growth. Over the last 3 months, we revamped our commercial field leadership, and we recruited some of the top medical device representatives across the U.S. These individuals bring strategic business acumen, deep clinical expertise, and a shared commitment to our mission of improving patient outcomes. With these hires in place, we closed the quarter having reached our 2025 budgeted commercial headcount target of 76 territory managers. Another key highlight in Q3 was our continued alignment with our strategic partner, Advance Medical Solutions and their LIQUIFIX fixation technology. AMS expanded its clinical support team in the field. They worked side-by-side with our representatives to drive patient identification, utilization, and surgeon adoption through multiple evaluations. Their investment, combined with our commercial focus, led to our best revenue quarter ever with LIQUIFIX, highlighted by 126% growth year-over-year with the user base. This reinforces the value of our partnership and the opportunity ahead. As we enter Q4 and look ahead to 2026, I'm increasingly confident in the strength and capability of the team that we're building. Since joining TELA in June, we've been committed to equipping our commercial organization with the best tools, resources, incentives, and compensation structures needed to fully unlock our team's potential. At the same time, the investments that we're making in medical education, market access and data analytics are expanding our competitive advantage and positioning us to become a market leader in hernia and plastic and reconstructive surgery. We now have the right leadership in place. We are attracting high-quality talent, and we are winning by being present at the bedside, supporting our surgeons to help them drive optimal clinical outcomes for their patients. With that, I'd like to turn the call over to Roberto, to review our financial results. Roberto Cuca: Thanks, Jeff. Revenue for the third quarter of 2025 increased 9% year-over-year to $20.7 million, with revenue from OviTex growing 6% and OviTex PRS revenue growing 12% from the prior year period. OviTex unit sales grew 22% for the quarter, while PRS unit sales grew 3% for the quarter. Gross margin was 68% for the third quarters of both 2025 and 2024. Gross profit was $14 million in the third quarter of 2025, compared to $12.9 million in the same period in 2024. Sales and marketing expenses were $15.2 million in the third quarter compared to $16.5 million for the prior year period. This decrease was mainly due to lower compensation costs, consulting, and travel expenses, which were offset by higher commission expense on an increased revenue base. General and administrative expenses were $3.9 million for the third quarter compared to $3.7 million in the prior year period. R&D expenses for the third quarter were $2.3 million compared to $2.1 million in the prior year period. Total operating expenses were $21.5 million in the third quarter compared to $22.2 million in the prior year period, and $23.2 million in Q2 2025. Loss from operations was $7.6 million in the third quarter compared to $9.4 million in the prior year period. Net loss was $8.6 million in the third quarter compared to $10.4 million in the prior year period. We ended the third quarter with $29.7 million in cash and cash equivalents, reflecting cash consumption of $5.7 million in the quarter. For the reasons that Jeff just outlined, we now expect revenue for the full year 2025 to grow at least 16% over 2024. While we don't typically provide color on the coming year this early, since we are in the middle of budgeting for 2026, we did want to provide investors with directional expectations for next year revenues. Specifically, we are confident that revenue in full year 2026 will grow at least 15% from 2025. After we've completed our budget process, we will update our expectations and provide appropriate additional information at the latest on our 4Q '25 earnings call. Finally, let me touch on some enhancements to our balance sheet that we made today. First, this afternoon, we announced the refinancing and upsizing of our debt facility from $40 million to $60 million. A second tranche of $10 million is available in the future on a payment of trailing 12-month revenues of $100 million. Second, we also completed a $13 million equity offering. Between the 2 transactions, we will add approximately $26 million in incremental net cash to our balance sheet and have access to an additional $10 million debt tranche in the future. This is a significant bolstering of our financial resources that we believe provides us with more than enough financial firepower to reach profitability. With that, I'll hand the call back to Tony, for closing remarks. Antony Koblish: All right. Thank you, Roberto. Before we move to questions, I wanted to share another patient case that exemplifies the transformative impact of our OviTex platform and our mission to move the soft tissue repair market beyond traditional synthetic mesh. A recently published case report underscores the real-world impact of OviTex reinforced tissue matrix in a challenging abdominal wall reconstruction scenario. A 48-year-old man suffering from severe pancreatitis and abdominal compartment syndrome was initially treated using a standard of care temporary abdominal closure device. However, he failed to decompress, which necessitated multiple returns to the OR over an 8-week period. At that time, his surgical team believed that without attempting a different intervention, the patient would not recover. They then introduced OviTex in combination with negative pressure therapy to support a staged abdominal closure and the patient decompressed in a period of 1 to 2 weeks. The reinforced tissue matrix demonstrated early tissue integration and remodeling with minimal inflammation. At 44 weeks, full abdominal wall reconstruction was successfully completed with remarkable functional and cosmetic results. The patient is now 4 years post reconstruction and leading an active lifestyle with no evidence of recurrence. This case exemplifies how OviTex can help achieve life-changing outcomes for high-risk patients, reinforcing the value of our technology in addressing even the most complex soft tissue challenges. Stories like this illustrate exactly why we do what we do and why our confidence in the long-term potential of our portfolio remains so strong. Each successful patient outcome reinforces the strength of our clinical foundation and validates the strategy and execution that are driving our momentum. As I reflect on Q3 and our progress this year, I'm encouraged by the trajectory we're on. We've taken decisive steps to position TELA for durable growth and an opportunity to meet or exceed expectations. We have new executive leadership in place who are initiating key strategic changes to our commercial organization and are backed by a strong record of execution at their prior organizations. We have added experienced strategic thinkers to our Board, who bring deep expertise in clinical and GPO access, corporate governance and street-facing communication support for the next phase of our growth. Across the organization, we have instilled a culture of operational efficiency that is already showing evidence of its impact and improvements to OpEx leverage and cash burn reduction. And finally, we have strengthened our balance sheet through a comprehensive financing initiative that will eliminate uncertainty about our runway and allow us to focus purely on delivering consistent execution and capturing growth opportunities. With these foundational elements in place, we are positioned to move forward and drive results. I'd like to thank the entire TELA Bio team for the incredible dedication and passion they bring every day to drive our mission. I also want to recognize our surgeon and hospital partners and most importantly, the patients who are at the center of everything we do who inspire us to keep redefining what's possible in soft tissue repair and reconstruction. This is a pivotal time for our company and our industry, and I'm energized by what we're building together. With that, I'll now ask Kelvin to open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Caitlin Roberts of Canaccord Genuity. Caitlin Cronin: Maybe just to start through the rationale for the debt refinancing and the equity raise at this time. I mean, how comfortable do you guys feel now with your cash runway? Roberto Cuca: Thanks for the question, Caitlin. We feel super comfortable about our cash runway. The rationale for the debt refinancing was that the previous facility would have begun amortizing in June of 2026. And so we wanted to get ahead of that and replace it and if possible, upsize it. And as part of that process, we got some inbound requests from investors who wanted to support the company. And so we provided some access to a small size equity raise, which we completed today as well. So between the 2, on top of the $30 million that we ended the quarter with, we're adding about $26 million in net capital. And we believe that with the addition of the potential $10 million tranche on hitting our revenue target is much more than enough to get us to profitability. Caitlin Cronin: Just talk through the lower guidance for 2025, and then also the early 2026 growth expectations and what you've really baked into the 15% for next year. Roberto Cuca: Sure. So let me start with next year. As I mentioned in the prepared remarks, we don't usually provide color on the coming year this early since we're really in the middle of the budgeting process. But we understood that with the resetting of the fourth quarter expectations, we needed to provide some base for investors. So we took a look at our expectations for additional hiring of reps and the pacing of that built in some cushion in case things don't go quite the way we're expecting to and felt confident that, that 15% growth number for the full year of 2025 is something attainable for us. The goal is to improve on that, but that's what the budgeting process, the internal budgeting process will help us understand. Operator: Your next question comes from the line of Frank Takkinen of Lake Street Capital Markets. Frank Takkinen: Congrats on all the progress and congrats on the financing. I was hoping to start with maybe some more details around the sales force. Happy to hear you guys hit, I think, your hiring goal already at 76 territory managers. I think, Roberto, you were touching on some hiring next year, but maybe going a little bit deeper into kind of sales force hiring for next year would be helpful context. Roberto Cuca: Jeff? Jeffrey Blizard: Thank you, and I appreciate the question. So as we were budgeted for 76, we are continuing to fill our pipeline. Our goal is that we'll be at 90-plus in Q1. Our time to hire has shortened. We've opened up our recruiting philosophies, our criteria. Our national recruiters now know the candidates we're looking for and top-tier medical device representation. We're looking for sound clinical adaptability as well as really the strategic thinking that we ask our territory managers to have. This time to hire has been shortened in some markets to 1 day. We put a full panel interview together, get candidates in and by day's end, we actually have an offer, and we have candidates signed by close of day. This has found us some of the best people to help support our organization to grow. So our priority is to constantly add and continue to have a bench between our account specialist team that's in place now. We promoted one last quarter to get to the 76 total, and we will constantly focus on that team as part of our bench. Roberto Cuca: [00:20:23] Yes, Frank, what gives us confidence here is that even if you look at the third quarter and you assess the reps, the cohort of reps that have been with us for a minimum of 6 months, that group of 50, 52 reps performed very well in Q3 and hit virtually 100% of what their targets and quotas are. So where we fell short was in those regions that were struggling to hire. Those positions and leadership roles have been upgraded already. We have dynamite new leaders in place, as Jeff discussed already, and that's really propelled us forward to fill in that 76. You recall, our plan was to have that 76 on board by around Q2. So now that we've got this momentum, we've got leadership that's solidified across all of our selling regions, it makes sense to continue on and drive towards that 90 to 95, low 90s for next year. And that cohort of 50, 52 reps is driving about $1 million on an annualized basis. Even with the criteria of being on board for 6 months. So the faster that we can get a bigger cohort of reps on board, the faster we can drive them to that $1 million annualized target, it allows us to have confidence in driving growth for next year. That probably circles back a little bit to Caitlin's question as well. Frank Takkinen: Maybe just one more on the breakeven profile in light of some of these investments as well as the financing. Roberto, maybe it would help to kind of refresh how you guys are thinking about breakeven. I think you were previously in that kind of high $20 million per quarter to support that. Maybe any color on that would be helpful. And then I'll hop back in queue. Roberto Cuca: Sure. Thanks, Frank. So yes, we continue to think that high 20s is the place where we can achieve breakeven. The goal is to keep OpEx reasonably flattish, notwithstanding the growth in the sales force. One of the ways we expect to do that is by drawing for that growth from our account specialist ranks such that there's not as much of an incremental expense for the additional PMs. But we'll be revising all of our expenses, and Jeff and his team have been digging in on pretty much every dollar that supports the sales force and the selling process and thinking how we can be more efficient with those dollars. Jeffrey Blizard: Yes, Frank, there's been a massive improvement in sales force efficiency down from almost 90% of sales to a little over 70% of sales just in the 3 quarters of this year. So we expect that efficiency to continue as well. Operator: Your next question comes from the line of Michael Sarcone of Jefferies. Michael Sarcone: I guess can you provide a little more color if you're talking about roughly flattish growth in '26 or consistent growth in '26 versus '25, but you're also talking about increased productivity for reps. So I guess, can you talk about kind of the moving pieces there as we're looking out to '26? Antony Koblish: Yes. Well, I think it's all dependent on having the heads filled, right? That's what's best to us this year and last year. So I think we're giving ourselves some room to operate to make sure that we get the right talent in the right seats at the right time. And like Roberto said, we will reevaluate and have an update for you on all things related to '26 on our next earnings call. Michael Sarcone: Tony, I guess, just a follow-up on the sales force. You've implemented some enhanced training programs and you're expecting a faster ramp to productivity. Can you give us any update on what you're seeing for newer classes of reps in terms of kind of the ramp curve versus older classes? Antony Koblish: Yes. Sure, Mike. I'm going to introduce a new player here in the Q&A. Jeff's #2 man, Jim Hagen, has joined us for some Q&A, and this is a good opportunity for you to get to know him. Jim Hagen: Mike, yes, to your question on what are we doing with recruiting class, the enhanced training program and time to competency. Step one is we -- as Jeff talked about in his opening remarks, we refined the hiring profile with our recruiters. And so we're actually getting candidates more in the mold of what we want to drive our growth faster on the top line. Our training team has taken them in, has built a support network around them to drive them deeper clinically. And I think part of the early proof point we had for our latest class coming through, we test everybody ahead of coming in-person for training. Collectively, that group, which really represented the first wave of new hires under our new profile, had the all-time highest scores in our classes. I think the next wave of recruits coming in are just as impressive to us. So I think the infrastructure we're putting in place around our field team, the number of people we're bringing in with high caliber gives us confidence that next year is set to that minimum growth target that Roberto referenced. Operator: Your next question comes from the line of Matthew O'Brien of Piper Sandler. Samantha Munoz: This is Samantha on for Matt. I guess, first, we wanted to touch on guidance as well, but more of the 2025 focus. It kind of implies a minimal, maybe a little upside sequentially in Q4, which I think you've talked about historically has been a stronger sequential growth quarter. So I guess if could you just talk a little bit about what's baked into Q4 specifically? Roberto Cuca: Sure. So we said that we expect that growth will be at least 16% year-over-year. We are -- Jeff and Jim have been getting up to speed on the sales force and moving them forward, getting some efficiencies in place. There's some potential upside from that, particularly with the hiring of the reps up to 76, which finally took place. And some of the hiring for next year is going to be taking place this year to put ourselves in place for a strong next year. So that also can be an additional source of growth. So there has been a little bit of turnover in the sales force, and so this accommodates for that as well. But we expect that we feel comfortable that we'll be hitting that 16%. And as I said, there is some room for upside from that number. Antony Koblish: Yes. And I think we're giving ourselves a little bit of room, right? In Q3, there was a heck of a lot of strengthening and upgrade work done within the commercial leadership team. So at the regional director level and those types of players, we wound up upgrading 3 or 4 of those positions. So I'm not going to say that's disruption because it's improvement, but we definitely have to make sure that those guys are allowed to get their people in place. That's where a lot of the rep shortfall in terms of hiring did reside in those weaker regions, which have been upgraded. So we're just giving ourselves some room to make sure that we get the right people in place and that we continue to transition towards a stronger and stronger organization, which our main focus being around starting '26 with the best possible team. I'll close that question around the sales team sentiment. This is the most excited I've seen in the commercial organization. We have an incentive for quarter close in Q4 that touches all the right buttons for -- not only for them and their individual franchises, but also for the physicians, the programs and the patients they serve. We've put programs that really mirror the business and where we're headed and optimizing outcomes, making that key focus. So for us, selfishly, this is the most excited I've been as a leader of the sales organization to come to year-end, and we'll hopefully have a strong Q4 announcement that reflects really the energy and pace that we're going to attack the business. Operator: There are no further questions at this time. And with that, I will turn the call back to Anthony Koblish, CEO, for closing remarks. Please go ahead. Antony Koblish: All right. Thank you, Kelvin. I really appreciate the efforts of our team. I want to thank them for jumping in and embracing this patient-centric culture. I see the difference. It's working. And I want to thank all of our supporters, both in the financing and in the investor community and all those who have an interest in seeing us succeed in bringing next-generation technologies that are woefully needed to the soft tissue reconstruction space. So with that, thank you, and we'll see you next time. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Good afternoon, and thank you for joining us for the GameSquare Holdings 2025 Third Quarter Conference Call. On the call today, we have Justin Kenna, GameSquare's CEO; Lou Schwartz, President; and Mike Munoz, CFO. [Operator Instructions] Before management discusses the results, I would like to remind everyone that certain statements in this call may be forward-looking in nature. These include statements involving known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. For information about forward-looking statements and risk factors, please refer to our 10-Q for the quarter ended September 30, 2025, which will be available on the company's website or with the Securities and Exchange Commission. I will now turn the call over to GameSquare's CEO, Justin Kenna. Justin, please go ahead. Justin Kenna: Thank you, and good afternoon to everyone joining us on today's call. As we have mentioned on prior calls, 2025 is a defining year for GameSquare as we pursue a strategic transformation that we believe will mark the foundation of our next phase of long-term growth. While much of this progress has taken place behind the scenes, our third quarter financial results demonstrate that GameSquare has never been in a stronger strategic, operational or financial position. Over the past year, we have executed a deliberate strategy to optimize our business model, rationalize our portfolio and build a differentiated end-to-end platform that is both scalable and resilient. Significant actions during the year include divesting our remaining stake in FaZe Media, winding down Frankly Media and acquiring Click Management. Taken together, these operational moves have sharpened our focus, improved efficiency and created a more powerful and unified platform that is purpose-built for scale with multiple durable revenue streams working together. Simultaneously, we have fortified our financial foundation. With the launch of our digital asset treasury strategy in July of 2025, we successfully raised approximately $18 million to invest in a yield-focused Ethereum model. This strategic initiative enhanced our balance sheet, unlocked scalable treasury yield and accelerated our Web3 market growth. Our digital asset treasury strategy is a critical milestone that underscores our belief in deploying innovative financial approaches to drive long-term shareholder value. While our transformation is ongoing, we believe our third quarter results are an important inflection, showcasing the financial opportunity of GameSquare's model. I'm confident we are entering the next chapter of GameSquare's growth supported by a stronger platform, sharper strategy, expanding our TAM and a fortified balance sheet. So with this introduction, I want to review our operating performance, the Click acquisition and our treasury management strategy. Our priorities this year remain focused on achieving profitability, streamlining operations and driving higher-margin revenue opportunities across our core media technology and Esports businesses. During the third quarter, there were several important actions we took to execute against our 2025 operating plan. First, gross margin for the third quarter expanded sequentially by 20 percentage points to 49.4% and is up even more when compared to the second quarter gross margin of 15.3% when including Frankly. This supports our efforts to improve profitability in the back half of the year, and we reported a pro forma EBITDA loss of approximately $200,000 when including a full quarter of Click compared to a loss of $3.5 million in the second quarter. I'm pleased to report that GameSquare reported $5.9 million in net income from continuing operations in the third quarter of 2025. Improvements to profitability reflect the second quarter divestiture of FaZe Media, the wind down of Frankly Media in the third quarter of 2025 and the recent launch of our DAT strategy, as we noted in September, we discontinued the operations of Frankly Media, a legacy programmatic advertising solutions provider. The closing of Frankly reflects our strategic shift towards optimizing our business model by exiting noncore, lower-margin operations. This decision also aligns with our goal of eliminating operating losses and cash burn while concentrating on high-growth areas such as agency, media and technology. In addition to divesting FaZe Media and discontinuing Frankly, we also consolidated Sideqik, a technology-enabled CRM solutions provider to brands and marketers into Stream Hatchet, a business intelligence suite that offers game publishers, brands and IP holders with unparalleled insights to navigate the complexities of the emerging content form. The consolidated business provides a comprehensive offering of technology and managed services to global brands, game publishers and marketers. The consolidation is expected to reduce annual operating expenses of $1.25 million. During the third quarter, we acquired Click Management, a leading talent management firm founded in Australia with a growing U.S. presence, Regularly named as one of the top digital creator agencies by Business Insider and recently awarded Best Talent Management Agency by industry body AiMCO, Click closed over 545 commercial deals globally in 2024 with an annual revenue of $12.4 million and has assembled one of the largest English-speaking gaming rosters with approximately 75 active talent. For the second half of 2025, GameSquare expects Click to contribute $14.5 million of annualized pro forma revenue and approximately $1.2 million of annualized pro forma EBITDA. In addition, the company expects revenue and cost synergies to materially increase Click's EBITDA contribution for the remainder of 2025 and 2026. Talent is at the core of today's creator economy and bringing Click into the GameSquare family accelerates our long-term strategy. Together, GameSquare and Click will expand the company's reach into creator-led brand partnerships and activations, accelerate growth opportunities within GameSquare's media agency and experiences ecosystem and drive immediate cost and revenue synergies by integrating Click through our GameSquare's existing platform. Click is quickly contributing to our revenue growth and profitability, and I look forward to providing more updates on Click's success in future calls. GameSquare has created a differentiated end-to-end platform with an ecosystem of assets that now includes data and analytics through Stream Hatchet, a talent network through Click, agency services through Zoned and GameSquare Experiences and owned and operated IP through FaZe Clan Esports as well as partnerships with Paramount, Barnes & Noble College and the Boys. We believe this differentiated and end-to-end platform enables deep partnerships with top game publishers and global brands. Our reach into gaming and Gen Z audiences is unmatched. And as brands compete for share in a challenging economic environment, we are confident in our ability to grow organically, supported by recent partnerships and a robust sales pipeline. Highlights during the third quarter include: Stream Hatchet was named the official data and insights partner for the 2025 Esports World Cup, and they signed a new managed services contract with Ubisoft. GameSquare Experiences produced the 2025 100 Thieves Summer Block Party. Zoned launched a Fortnite Got Milk? with Dairy MAX campaign. FaZe Clan Esports expanded its record sponsorship deal with Rollbit and GameSquare was named the Agency of Record for the World and Anime Coin Foundation as well as new partnerships with Rekt Brands and Barnes & Noble College. These wins plus many more demonstrate the growing value of our commercial relationships, audience reach and product offerings. Partnerships with Rollbit, Anime Coin and Rekt Brands also reflect the initial success of our Web3 growth strategy as crypto native partners value our audience access and our creative capabilities. This quarter also marks the first period where our results reflect the digital asset treasury strategy launched on July 1, 2025. Our goal is straightforward: to build one of the most sophisticated yield-generating Ethereum treasuries of any public company and to do so alongside a high-performing operating platform. Unlike pure crypto plays, our model is designed to compound value while buffering against volatility. We are pursuing a 3-pronged crypto-native growth strategy, which includes: one, an Ethereum-based treasury strategy through Dialectic's onchain yield platform in which we're generating above-market yields month-on-month; two, a financialized art and culture strategy that looks to acquire culturally significant digital assets that we can also generate yield on; and three, -- and finally, a Web3 operating strategy, leveraging GameSquare's creative agency and Esports businesses to help crypto-native organizations grow global audiences while also adding high potential digital assets and yield opportunities to our treasury. Our DAT strategy is focused on driving above-market yields. And as the program matures, we continue to expect to reach high single-digit figures. The cash flow and appreciation from our yielding strategies are intended to fund additional repurchases, return capital to shareholders through buybacks and reinvest in our operating business, creating a self-reinforcing cycle of growth across both pillars of our company. We have built a dedicated onchain platform supported by best-in-class infrastructure and guided by proven leaders in the crypto and DeFi space. This includes the team at Dialectic, who bring deep expertise in structuring, managing and optimizing institutional-grade onchain portfolios. Our strategy is also supported by seasoned advisers such as Ryan Zurrer of Dialectic, Robert Leshner of Superstate and Rhydon Lee of Goff Capital, all of whom have been instrumental refining our portfolio construction, risk management and yield generation strategies. This platform allows us to actively manage our ETH holdings in real time, identify high conviction opportunities and move capital efficiently across strategies. Importantly, the systems we put in place are built for scale, enabling us to increase capital deployment as our treasury grows while maintaining robust oversight and compliance controls. Although still in its early days, our onchain strategy has already begun to generate meaningful results with over $600,000 of yield in the last 2 months of the quarter. At the end of 2025 -- at the end of the 2025 third quarter, we held 15,618 ETH with an original cost basis of $55.5 million, almost all of which was in our onchain yield strategy with Dialectic with an unrealized gain of $9.3 million in the third quarter. We own 8 crypto funds for a total value of $6.9 million, which we expect to start contributing to our yield strategy here in the fourth quarter. And we own $3.8 billion of Altcoins, primarily in Anime and Rekt coin. Recent efforts to support our digital asset treasury strategy have also helped improve our balance sheet. At September 30, 2025, we had approximately $82 million of cash and digital assets, no debt outstanding and shareholders' equity of $79 million. Our balance sheet has never been stronger. And we also reduced our accounts payable to $18 million at September 30, 2025, compared to $27 million at December 31, 2024. We started allocating the proceeds of our yielding strategies to buying back our stock. On October 3, we announced the repurchase of 833,124 shares at an average price of approximately $0.72. Following this transaction, we have $4.4 million remaining under our current authorization. Given the current stock price, we intend to continue to use funds generated by our treasury strategy to opportunistically repurchase our common stock. As you can see, GameSquare has never been in a stronger financial position. This strength provides significant flexibility to pursue strategic initiatives, invest in our operating platform and return capital to shareholders. Before I turn the call over to Mike, I want to review the progress of our Annual Meeting and shareholder vote. Since July -- since the July 2025 stock offerings, many of GameSquare shareholders are new and include retail and foreign holders. This has created a difficult environment to get shareholders to vote. I want to stress to shareholders listening today that your vote is important no matter how many shares you hold. In addition, it is important to note that our challenge is getting shareholders to vote. In fact, shareholders who have voted have currently voted in favor of our proposals by a wide margin. We just need more shareholders to vote in order to reach a quorum. Our third quarter performance demonstrates that our transformation is real and is gaining momentum. Every structural upgrade, every acquisition, every divestiture is calibrated to create real shareholder value. But the continued success of our long-term strategic plan is contingent on governance that is modern, agile and ready to guide the company. By voting for our director nominees and proposed resolutions, you are endorsing a bold future. You enable a streamlined corporate structure capable of faster decision-making, you validate the leadership team's vision, you ensure we have the flexibility to pursue capital raises, strategic partnerships and growth initiatives without encumbrances. IFS, an industry-leading independent proxy advisory firm, has recommended that GameSquare shareholders vote for the company for proposal. Insiders and major shareholders, including the Jones and Goff families, members of management and Board, Ryan Zurrer and Robert Leshner have all voted in favor of the company's proposals, demonstrating their continued confidence in the company's strategy and long-term potential. We are entering a new chapter of GameSquare. The Click acquisition accelerates our access to top-tier talent and brand relationships. The corporate simplification and governance modernization paved the way for smarter capital allocation and greater strategic optionality. Our cash and onchain reserves gives us the strength and optionality in uncertain markets. Together, we will build a GameSquare that is nimble, profitable and positioned to dominate at the frontier of gaming, creators, media and onchain innovation. So with this overview, I'd like to turn the call over to Mike to review our 2025 third quarter financial results. Mike? Michael Munoz: Thanks, Justin. Our reported results for the third quarter reflect the wind down of Frankly, approximately 3 weeks of Clicks results and the contribution of our onchain yielding strategy. Comparing our 2025 third quarter reported results to the prior year, total revenue was $11.3 million compared to $9.3 million. The 22% year-over-year increase in revenue was primarily driven due to growth across our technology, agency and owned and operated IP segments. Reported gross margin for the 2025 third quarter was $5.6 million or 49.4% of sales compared to $4.2 million or 45.3% of sales for the same period last year. The 4.1 percentage point improvement in gross margin reflects ongoing efforts to improve profitability and the initial contribution of our DAT strategy. In addition, reported gross margin was materially higher than the 15.3% we reported for the 2025 second quarter, which included Frankly and demonstrates the powerful adjustments we have made to our financial model. Adjusted EBITDA loss for the 2025 third quarter was $0.6 million compared to a loss of $0.9 million for the same period last year and a total loss of $3.2 million for the 2025 second quarter or $3.5 million for the 2025 second quarter as historically reported, which included Frankly. Higher profitability and gains from our debt produced $5.9 million in net income from continuing operations compared to a net loss of $3.9 million for the same period a year ago. On a pro forma basis, which includes a full quarter contribution from Click Management, revenue was $15.5 million and pro forma adjusted EBITDA loss was $0.2 million. We believe the pro forma improvements to sales and EBITDA demonstrate the progress we are making, getting to scale and improving profitability. At September 30, 2025, we had cash and cash equivalents and debt assets of $81.5 million. During the third quarter, we used our robust liquidity to eliminate all outstanding debt. We have also reduced accounts payable by $8.9 million or 33% from December 31, 2024, primarily due to elimination of legacy payables associated with prior acquisitions. We ended the quarter with $78.7 million of shareholders' equity compared to $12 million at the beginning of the year, which reflects the success of our July equity offerings. As you can see, GameSquare has a strong financial position with excellent liquidity to pursue strategic initiatives, invest in our operating platform and return capital to shareholders. So with this overview, I'll turn the call over back to Justin. Justin Kenna: Thanks, Mike. The progress we are making is encouraging. We've improved our margins. We streamlined our cost structure. We rationalized our platform. We reinforced our balance sheet and added a new growth engine in Click. Alongside this, our digital asset treasury strategy gives us strategic capital flexibility and a differentiated return profile. The result is a business that looks fundamentally stronger than it did just 3 months ago and a company that has never been better positioned to scale. Our balance sheet is healthy and our strategic priorities are fully funded. Operational momentum across media agency technology and onchain innovation continues to strengthen. We are winning new mandates, deepening publisher and brand relationships, scaling creator partnerships and executing a yield strategy that is already contributing to shareholder value. Turning to our guidance. On a pro forma basis, we continue to expect second half revenue of $36.8 million and adjusted EBITDA of $2.9 million. We are on track. Looking into 2026, we expect to experience over 20% annual organic revenue growth while maintaining strong gross margin. With the foundation we have built and the efficiency now embedded in our operating model, we are targeting high single-digit to low double-digit adjusted annual EBITDA margins as our business scales. We are excited to enter the next phase of our corporate history as we focus on sustainable growth and operating leverage. As you can see, 2025 is shaping up to be a transformational year, and I'm excited by the opportunities we are pursuing to create sustained value for our shareholders. So with this overview, Lou, Mike and I are happy to take your questions. Operator, please open the call to questions. Operator: [Operator Instructions] The first question comes from Greg Gibas with Northland Securities. Gregory Gibas: Nice to see the share repurchases. Could you, I guess, discuss your stance on how aggressive you expect to be or your proclivity to buy back shares with the stock trading below your debt assets and cash? Justin Kenna: Yes. We have approval, Greg, to buy up to $5 million worth of equity. We did our first tranche of $600,000. So it's roughly $4.4 million available and certainly down at these prices. And as you mentioned, where we're trading from an NAV standpoint, we're going to continue buying stock. So we will be aggressively pursuing that share buyback. We believe we're extremely undervalued. And I know that shareholders are frustrated, and we equally share that frustration. We certainly believe with the results in Q3, the cleanup of balance sheet, we're on the precipice here of really hitting profitability here in Q4 in a major way. And we know how undervalued we are, we going to put our money where our mouth is, and we think it's a great use of yield funds. So I think if you look at it that way, Greg, it was sort of 2 months of yield was around $600,000 of free cash flow, and we've used that to buy back shares. We're now another 1.5 months along with sort of increased yield from that. So we're in a position here to be able to go about sort of buying back shares into tranche 2. But I think about it as those yield proceeds, which is sort of still kind of profit to shareholders, we're going to be using that to buy back stock, and we will continue to do so. Gregory Gibas: Great. That's helpful, Justin. I think last quarter, you mentioned how tariff uncertainty impacted timing of several large deals with global gaming companies. Wondering if you could maybe characterize the environment, how it's trended into Q3 and whether you're continuing to see any macro-related pressures maybe ease or become a little bit more favorable. Justin Kenna: Yes. I think we've seen activity pick up for sure. Certainly, back part of Q3 into Q4, Q4 has been extremely busy for us, which is great. We're expecting our largest quarter as we've indicated and seasonality kind of reflects that within our business. But I do think that the sentiment has been pretty positive. We've seen a lot of uptick from our major sort of brand partner and publisher partner relationships. I would say in terms of some of the comments around tariffs and some of those companies that were headquartered in China, they are ongoing, but they are not deals that have closed. So I wouldn't necessarily say that there's been improvement there. But certainly, just from an activity standpoint, I mean, our pipeline is stronger than it's ever been. We've got a huge amount of RFP flows. We're signing up clients and expanding relationships. We mentioned Rollbit, Dairy MAX, there's a number of others and certainly more news to come. So I think activity in general in our market is certainly really healthy at present. Gregory Gibas: Got it. And I guess if you could just maybe provide a little bit more color on the 20% organic revenue growth expectations for next year. Kind of the primary drivers there, if you could discuss those that give you confidence in the 20%? Justin Kenna: Yes, for sure. And we will come out with more detailed guidance prior to year-end. We're going through planning currently and finalizing the models for next year. I would say that 20% organic growth. So I think the easiest way is a starting point, Greg, to think about it is if you look at that back half, those back half numbers, so call it, roughly $36 million in revenue. If you annualize that, you're at $75 million, 20% on $75 million starts to give you an idea. I think that's pretty conservative in terms of where we're going to get to. And certainly, we expect from an EBITDA perspective, as mentioned, that our EBITDA margin of that revenue would be high single digit to low double digit. So hope that gives you a bit of an idea. In terms of where that's going to come from, a couple of areas. So we've been working on sort of streamlining our agency business, so our creative and strategy team at Zoned with our live events team at GSX and those guys work together incredibly well. We're seeing -- I was talking to our staff the other day and something I'm really proud of is the fact that we don't lose clients. So we've got really high retention of clients. We've got more locked-in revenue going into next year than ever before, which is really pleasing. And those contracts are expanding, right, because of -- and that's really the model at work, right, which is the more that we can do with Epic Games and Paramount Jack in the Box, they realize the additional services we have, whether that's data, media, content, et cetera. We're expanding those relationships, which is really pleasing. So we've got that core there. In terms of sort of outsized growth, I think there's a number of areas we're really excited about. Creative deployment is certainly one. We talked about sort of bringing in Click. The core part of their business is managing talent. We've got sort of 75 to 80 active talent currently. But we're going to be aggressively pursuing creative deployment strategy that we think could be really lucrative, certainly building off some of the positive work that we've done within kind of the publisher managed services space this year. We sort of mentioned we brought over a couple of guys who have brought in some major game publisher creative deployment deals with Capcom and Ubisoft, and that's going to be roughly a $6 million kind of revenue business for us this year. We are putting in some work there, and we'll come back with more details around it. But we believe that could be a $20 million sort of revenue business for us next year. So yes, certainly, I think our agency business, I would expect outsized growth. I would say the 20% growth there would be extremely conservative. And certainly, our talent management and creative deployment areas, certainly areas we expect growth. Again, I think 20% is conservative, but there are certainly areas on top of that for outsized growth and certainly some interesting opportunities in new markets like MENA and throughout Asia and other opportunities that we think represent significant upside. Operator: The next question comes from Jack Vander Aarde with Maxim Group. Jack Vander Aarde: Covered a lot of ground. So where do I start for questions. Looking at the 2H pro forma guidance, just to help get a read-through on this -- on the fourth quarter we're in. Do I interpret this correctly if maybe I just back out the 3Q pro forma numbers from this press release and that bridges to the fourth quarter and some of those is the 2H pro forma guide. Is that as simple as that? Or is there anything else to consider? Justin Kenna: Yes. So I think if you look at the numbers, Jack, from Q2 to Q3, as we sort of mentioned, there's cleanup with Frankly, we bought in Click and we've continued to get efficient. I think we've shown real discipline in getting our costs under control while we start to really grow our revenue. So as we put together our model for the back half of year guidance, we're actually slightly ahead of where we wanted to be within Q3. So yes, that is what you do to get to the $36 million. You would take off the kind of $15.5 million to $16 million of pro forma revenue for Q3. And obviously, you get to sort of $21 million-ish of revenue in Q4. And then if you look at from an EBITDA perspective, and the reality is we had a $3.5 million loss in Q2, right? So there were things that needed to be unwound and continuous improvement. It's very difficult to go from $3.5 million loss to a $3 million profit within 1 quarter, but we made that $3 million jump, right? We were very close to breakeven. From a pro forma perspective, it's a $200,000 loss. So from a $3.5 million loss, that's a $3.3 million improvement. It's not quite that, that is required for the next period, but pretty close to. And we expect a lot of that to come from increased deal size, deal flow in our largest quarter of the year, which Q4 seasonally represents. Jack Vander Aarde: Got it. That's helpful. And then I'm not sure if Dialectic and the guys from there are on the line at all, but maybe you can help answer this question. So the Ethereum treasury strategy, that was obviously a huge development change, transformation of the business since you last reported. So it's generating above-market yields. That's great. Now crypto assets are obviously notoriously volatile. Does Dialectic or the whole team there, do you guys have a strategy or a sense of what happens in a flat to down market? I'm just curious to know if there's -- if they have a strategy there that they're deploying just in case to understand because it is a big dollar amount of assets. Justin Kenna: Yes, they do. And so do we. So I think that, one, just from an insurance perspective, Dialectic have a great sort of risk management strategy and one of the more buttoned up teams within the market. We are continuing -- I think firstly, what I'd like to say is we're not in the Tom Lee game of just acquiring and stacking Ethereum, right? We're not in an arms race to own the most amount of Ethereum. For us, right now, it's a cash management strategy, right? And we are generating higher than market yields. And through some of the recent volatility, the yields have actually performed really well. So Ryan and his team are incredible and they are generating above-market sort of returns for us. We are going to be opportunistic. We do have a strategy, and we do have a strategy to divest and we have been doing so. We mentioned buying back shares and cleaning up our balance sheet and using those funds in an intelligent way to grow the business, and we'll continue to do so. I think the positive right now in terms of the current dip is the fact that we don't need to raise capital. We don't need to go and sell Ethereum. We believe longer term that Ethereum is going up in price. But for us, really, it's purely in terms of our Ethereum strategy, what we're holding, it's a cash management strategy. We're generating not only higher than market yields, but a much higher yield than we would be if we were holding it in cash. So we're generating return of the Ethereum. We do have a strategy around different price points and when we'll continue to derisk and how we're going to use those funds and so forth. I think the positive for us right now is we don't need to liquidate. We can be patient. We don't need to raise money. We're certainly frustrated around our share price. And so we'll absolutely use those yield proceeds to buy back the stock. But yes, we're not in the business of just stacking Ethereum. And I think there's some misconceptions around that, that we're going to raise more money to buy more Ethereum and leverage the company. We don't need to do that, right? We have an operating business that's hitting profitability and it's going to be generating cash here in the near term. We have a yield strategy that's also generating cash. And I think this is a really smart diversified offering that longer term is going to drive real value for shareholders. Jack Vander Aarde: Okay. Great. I appreciate the color there. And then maybe just one more, and I'll hop back in the queue. On the positive side as well was the biggest surprise to me was the gross margin result. I did a double take on that actually to make sure it was real. So 49 -- over 49% in the quarter, which is just -- it doesn't even -- it's night and day compared to historical results. Was I guess one of the fill in the blanks for me would be, what does Click -- I got the Click revenue and kind of adjusted EBITDA target from you guys. What is Click's gross margin? Is it going to dilute that? I mean, are we expecting these 40%, 50% gross margins? Or does Click kind of bring things down? Just it's such a difference in a good way, but I just want to understand. Justin Kenna: Yes. I can kick off with that, and then Mike can give a bit more color around sort of Click's margins and moving forward. I would say this is sort of a beautiful kind of match in terms of this quarter was the first quarter that, Frankly, was pulled out, and we had a higher than normal margin quarter. I wouldn't expect 50% to continue. But this is -- it's the new norm in terms of our margin with a full handle, right? I would say 40%, Jack, is probably the right way to think about our normalized margin as a business. Obviously, that can fluctuate to your point around the mix of business moving forward. So for example, I touched on the creative deployment business. That's one that we believe there is a lot of low-hanging fruit and some quick wins for us there, profitable, scalable, but probably slightly lower margin, right? You're in your 20%, 25% type margin there with the creative deployment business. But we do expect sort of outsized growth within our agency business and there's some really healthy margins there. So the mix will fluctuate a little bit with this kind of diversified portfolio, but it was a higher margin quarter than just taking Frankly out. But certainly in the 35% to 45% range moving forward, I would expect if we're performing well, we'll have a full handle on it, and we'll certainly -- if we really have outsized growth in certain areas with lower margins, we'll inform the market. But we would expect it to be on a normalized basis with Frankly coming out, which was single-digit margin, right? So it was a really low-margin business and was burning cash, and that's why we divested it. So I think about it as 40%. But yes, Mike, I don't know if you want to add anything in terms of margin moving forward. Michael Munoz: Yes, I think you covered most of it. I think Click's margins generally fall around the 35% range. They're pretty similar to some of the other entities in the Agency segment. Obviously, the DAT yield has 100% margin. So more DAT yield will improve our blended margin. But yes, I think the biggest change, obviously, from Q2 is the removal, Frankly, which there's a lot of top line there, but very little margin and it brought down our blended margin substantially. Jack Vander Aarde: Okay. Great. And then just one more. I'm not sure if the 10-Q is out. I'm just kind of looking for the segment revenue breakout. Just maybe high level wise, what was the mix kind of like? Was it in terms of agency teams and staffs in advertising? Is that how you're reporting? Michael Munoz: Yes, that's how we're reporting. So we'll have -- you'll see an owned and operated IP segment, which is essentially what teams, agency, SaaS and Managed Services and yield, which is our DAT. So you'll see those 4 segments. The 10-Q isn't on file yet. We're filing tomorrow post market close, but those segment tables will be there. Of our reported results, the -- of $11.4 million, $3.7 million was from owned and operated IP, $5.4 million was from agency, $1.7 million from SaaS and Managed Services and $600,000 from yield, $600,000. Operator: This concludes the question-and-answer session and GameSquare's 2025 Third Quarter Financial Results Conference Call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Greetings. Welcome to the Aytu BioPharma Fiscal 2026 Q1 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Robert Blum with Investor Relations. You may begin. Robert Blum: All right. Thank you very much, and good afternoon, everyone. As the operator indicated during today's call, we will be discussing Aytu Biopharma's fiscal 2026 first quarter operational and financial results for the period ended September 30, 2025. Joining us on today's call is Aytu's Chief Executive Officer, Josh Disbrow; and Ryan Selhorn, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session. I'd like to remind everyone that today's call is being recorded. A replay of today's call will be available by using the telephone numbers and conference ID provided in the press release issued earlier today or by utilizing the link on the company's website under Events and Presentations. Finally, I'd also like to call to your attention the customary safe harbor disclosure regarding forward-looking information. The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations and future potential operating results of Aytu Biopharma. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the SEC. Aytu undertakes no obligation to update or revise any of these forward-looking statements. With that said, let me turn the call over to Josh Disbrow, Chief Executive Officer of Aytu Biopharma. Josh, please proceed. Joshua Disbrow: Thank you, Robert, and welcome, everyone. I'm excited to be speaking with you on the heels of a very positive and highly productive first quarter. Let's jump into the high-level highlights. First off, net revenue for the quarter was $13.9 million. This was above our expectations as our ADHD portfolio has really continued to perform well. In fact, the ADHD portfolio net revenue was essentially up 10% compared to the year ago period when excluding the onetime commercial rebate benefit we received a year ago. ADHD revenue was also up on a sequential basis. At a time when investors perhaps had expected a pullback in ADHD sales due to the threat of a generic launch and our shifting focus to EXXUA launch preparations, we are actually experiencing net revenue growth. This is quite impressive and really reinforces our long-held belief on the added stickiness and positive economic benefits that are inherent in our Aytu RxConnect platform through which I'll remind you, approximately 85% of our branded ADHD prescriptions are dispensed. I'll dive into this more in a moment. But first and perhaps even more important is that the EXXUA launch remains on track to occur by the end of calendar '25. With significant advancements being made to ensure success, including KOL engagement, sales force training, product positioning, messaging, campaign development and pricing, payer assessments and integration within RxConnect. We continue to believe EXXUA is a game-changing opportunity for Aytu and the past few months have really reinforced that belief. Let's dive into our EXXUA launch execution initiatives in more detail. First off, we're finalizing product manufacturing, labeling, serialization and shipment to the company's third-party logistics provider with the initial shipments on track for delivery in December of '25. In many ways, this has been the biggest gating item to launch and it remains on track. We are nearing completion of sales force training and have our formal launch meeting scheduled to take place in January of '26. That said, leading up to the launch meeting, our reps are and will continue to be in the field talking with and preparing physicians and setting up appointments, et cetera, with the full sales force launching products stocking, following launch stocking and the launch meeting. The product positioning, preparation of the promotional campaign, inclusive of promotional materials, refinement of physician messaging and development of patient support materials is also nearing completion. We are implementing a comprehensive promotional program, whereby we're establishing a clear positioning for EXXUA based on its attributes, the competitive landscape and ultimately where we believe we can win with the product. We have completed refinement of the sales territory alignments with physician targeting also essentially complete. We are maintaining a sales force of approximately 40 people, the same as what we have had historically with ADHD, but have altered some territories to ensure maximum reach while also aligning with where market access is expected to be strongest and prescribing potential is expected to be the highest. Remember, for government payers, major depressive disorder has nearly universal coverage as this condition is a federally mandated protected class, whereby MDD prescriptions must be covered. This government segment represents approximately 30% to 40% of MDD covered lives depending on the geography. So with the 30% to 40% of the antidepressant category covered by virtue of this protected status, we are aligning sales territories appropriately to ensure optimal patient access with respect to both government and commercial payers. Further to that point, we've also established product pricing that is in line with or at a premium to other unique psychiatric treatments. We are also finalizing integration of EXXUA into our Aytu RxConnect patient access platform. We expect to drive distribution through and dispensing from our RxConnect network pharmacies as we do now with our ADHD portfolio. This will enable us to gain strong insights on reimbursement and coverage rates to help guide selective and smart payer contracting, which we will consider as the product launch gets underway. Employing RxConnect will also help ensure minimal friction with new prescribers of EXXUA as it relates to coverage and the typical barriers they face when prescribing new brands. And the final key launch activity has been the ramp-up in our key opinion leader engagement. EXXUA has a long history of peer-reviewed publications. And that was added to recently by yet another peer-reviewed article discussing gepirone and the class of 5HT1 agonists. Further, we recently attended our first medical conference, the Neuroscience Education Institute Fall conference in Colorado Springs. The response to EXXUA was tremendous. Led by our Senior Vice President of Scientific Affairs, Dr. Gerwin Westfield, we will continue to be proactive in our broader education of EXXUA to the medical community and engagement with the scientific community. Finally, as most of you likely saw, we were successful in getting the EXXUA method of use patent for EXXUAs extended to September of 2030. The patent extension further expands upon the new chemical entity exclusivity period. Beyond the 2030 date, we are engaged in discussions to expand upon the existing intellectual property through various potential life cycle management approaches, which might extend exclusivity beyond 2030. This is all to say we are laser-focused on the successful commercial launch of EXXUA as we focus on positively impacting the lives of an estimated 21 million Americans with major depressive disorder. Our entire team is beyond thrilled as we collectively believe EXXUA is quite simply transformational for Aytu. Turning back quickly to the ADHD portfolio. As most of you know, there has been a long since negotiated Paragraph IV settlement agreement with Teva, whereby they were allowed to enter the market with a generic to Adzenys back on September 1. As we sit here today on November 13, more than 2 months after they were eligible to have entered, they have yet to launch. We talked about this during our last earnings call. But to quickly summarize, it's been our long-standing belief that the impact to our ADHD franchise, even if Teva does enter, will not be as significant as you might see with other products sold via traditional retail distribution. The reasons for this are multifold, but include: one, the fact that, again, approximately 85% of our ADHD prescriptions run through our RxConnect platform, not through regular way retail like CVS or Walgreens. This system is quite unique and dramatically alters the normal way in which generics might try to compete on pricing and spread. Two, the ADHD category is already a highly genericized market with minimal switching. Opportunities have existed for many years to prescribe and fill alternatives like generic Adderall XR, yet we've held a consistent share of the market for multiple years. Third, the gross to nets on our ADHD portfolio are already below what industry observers might expect when generics typically enter the market. Price erosion has already largely occurred by virtue of the fact that we discount significantly to overcome patient pricing objections in a highly genericized market. This is to say that the substitution impact and transition to a generic price -- a generic market and subsequently to a generic price is not nearly as high as you might see in other situations. And fourth, we launched our own authorized generic of Adzenys on September 2. This AG will serve as an important offensive tool in what we believe will help us maintain a material share of the Adzenys market, irrespective of a potential generic entry by having a truly equivalent version of a product available that is sold as a generic. And importantly, our AG is already off to a very good start, representing a significant share of the prescriptions after just 2 months on the market. We know it's still early. But we continue to believe that anyone's projections of a worst-case scenario for a broader impact to our ADHD franchise are unlikely, but clearly we will continue to monitor things. One more quick note before I turn it over to Ryan to review the financials in more detail. As some of you may have seen, on October 31, the FDA put out a communication regarding their position on fluoride-containing drugs and some potential regulatory action. This has been anticipated for some time. And we've communicated this to you during past calls. We continue to monitor the situation, but note importantly that Aytu has not received any direct communication from the agency seeking action on our fluoride products. Even in the event FDA ultimately pursues any action, it's important to note that this is a very small portion today of our overall business. During the quarter, fluoride products amounted to only about $300,000 in revenue. And importantly, our infant drops product line represents only approximately $1.4 million when looking at the trailing 12-month period ending September 30. So any potential impact will not have a sizable impact on our financials given that any agency action would likely center only on the fluoride liquid drops for the youngest patients. Also importantly, following the FDA's October 31 communications on fluoride supplementation, the American Dental Association issued yet another press release that clearly supports supplementation and the association doubled down and continue with the recommendation to continue with fluoride supplementation in areas where fluorinated water either doesn't exist or has inadequate levels of fluoride. Again, we'll continue to monitor the situation. With that, let me turn the call over to Ryan to go into more detail on the financials. I'll then make a few closing comments and look to address any questions you might have. Ryan? Ryan J. Selhorn: Thank you, Josh. Let's jump right into it. Let's start on the revenue line. Net revenue for the quarter was $13.9 million compared to $16.6 million for the prior year. As mentioned in the press release, the year ago quarter included a onetime benefit due to an accrued rebate liability settlement related to the ADHD portfolio of $3.3 million, which resulted in an increase in the Q1 fiscal 2025 net revenue of $3.3 million. We highlighted this item last year as well. Excluding the rebate on an apples-to-apples basis, net revenue would have actually increased 5% compared to the year ago quarter. Breaking net revenue down, the ADHD portfolio net revenue was $13.2 million compared to $15.3 million in the prior year period. Excluding the rebate, the year ago quarter would have been $11.9 million, highlighting net revenue increasing for our ADHD portfolio of about 10% on an equivalent basis. The increase is attributable partially to product price increases during the past year and improved gross to net, offset by a decrease in total prescriptions. The pediatric portfolio was $0.7 million for the first quarter compared to $1.3 million last year. The change in net revenue is attributable to manufacturing delays with one of our suppliers, which we are in the process of being resolved as well as multivitamin product returns and a broader deemphasis in marketing toward the pediatric portfolio in anticipation of the recent actions by the administration and the FDA. Gross margin was 66% during the quarter compared to 72% last year. Again, the rebate here flowed entirely through the gross profit line as well. So on an equivalent basis, gross margin during the year ago period would have been 65%. So we actually saw gross margin improvement from the year ago period when excluding the rebate. Turning to OpEx. Operating expenses, excluding amortization of intangible assets and restructuring costs, was $10.2 million in the first quarter compared to $11.2 million in the prior year period. This $10.2 million figure also includes about $100,000 in depreciation and stock compensation. So the cash OpEx number is about $10.1 million. The decrease is primarily a result of continued cost reduction efforts and improved operational efficiencies as part of the company's overall strategic realignment, offset by increased EXXUA launch investments. When you look at the modeling of expenses going forward, we anticipate that our baseline total operating expense level, inclusive of amortization and depreciation, will remain at about that $10 million per quarter. Then added to that, we will have an incremental investment of about $10 million on the launch of EXXUA this fiscal year. So all in, that is about a $50 million OpEx number for the fiscal 2026. Importantly, of the $10 million of EXXUA investment this year, about $6 million of that is sort of onetime items, such as training development, commercial and medical affairs consultants and campaign and marketing materials development. The bulk of this spend will be in our December and March ending quarters from a onetime perspective. Going forward, we will certainly adjust our spend as the ramp of EXXUA continues, but think of our exiting the fiscal year at about $11.4 million quarterly normalized run rate with about $0.5 million of that in noncash expenses. Assuming gross margins in this mid to high 60% range, that puts our breakeven at about $17.3 million of net revenue per quarter all in, including EXXUA spends. Cash breakeven would be $16.6 million per quarter. For the quarter, we reported a net income of $2 million or $0.21 net income per share basic compared to net income of $1.5 million or $0.24 net income per share basic in the prior year period. The fiscal 2026 and fiscal 2025 first quarter results were impacted by derivative warrant liability gains of $3.8 million and $2.9 million respectively, primarily due to a change in the company's stock price. And as mentioned earlier, the prior year first quarter benefited by $3.3 million due to the rebate liability adjustment, which directly increased net income. I'll touch on the warrant liability in a moment. But this is largely due to the prefunded warrants issued in the EXXUA transaction. Finally, adjusted EBITDA was a negative $0.6 million for the first quarter of fiscal 2026 compared to a positive $1.9 million in the year ago period. The change primarily relates to the benefit we received in the year ago period from the rebate as well as EXXUA launch investments, which took place in the first quarter of this year. Now turning to the balance sheet. Cash and cash equivalents were $32.6 million at September 30, 2025. This compares to $31 million at June 30, 2025. A couple of other small notes on the balance sheet. We continue to pay down some higher interest liabilities during the quarter, namely the Tris fixed payment arrangement. You will see that the other current liabilities line went from $3.4 million in June to $0.2 million this quarter. This has resulted in a substantial decrease in interest expense from $1 million in the prior year quarter to $0.5 million in the current year quarter. While we don't anticipate $0.5 million of savings each quarter, we should see continued savings throughout the fiscal 2026. The rest of the balance sheet is pretty much in line with where it was last quarter. Circling back to my comment on the derivative warrant liability gain. As you may recall, the financing transaction we completed in connection with the EXXUA acquisition was basically a straight common stock deal, but it did have prefunded warrants issued due to ownership percentage blockers. This does cause gyrations to the income statement based on the movement of our stock price, which creates gains or losses to the derivative warrant liabilities line each quarter. On the balance sheet, those warrants are treated as liability until they are converted to common shares, at which time they will move to additional paid-in capital. During the quarter, there were 935,000 prefunded warrants exercised, which effectively added $2.1 million to [ APIC ]. As we sit today, there are 10.2 million common shares outstanding, plus an additional 9.4 million prefunded warrants outstanding, which effectively puts us at 19.6 million shares outstanding. Before I turn it back over to Josh, to reconfirm what we communicated last September -- late September during our call at year-end, let me spend a few minutes walking through some of the assumptions we have on EXXUA for the remainder of the year. To be clear, there have been no changes to what we mentioned during the last call. I simply want to make sure anyone that missed it has the information handy. So as discussed, we plan to launch EXXUA in the fourth quarter of calendar 2025, which is our second fiscal quarter of 2026 or the December 2025 ending quarter. This will be the initial product load-in. We would not expect there to be any significant revenue to report during the second fiscal quarter. The launch will continue into the March 2026 quarter where we expect to see some initial ramp in revenue, but the real story is expected to occur during the June 2026 quarter and beyond. From a gross margin perspective, as a reminder, we have a 28% royalty on EXXUA in addition to a true-up on cost of goods sold. Just think of it in essence as a 31% cost of goods sold or 69% gross contribution margin. We do anticipate some fixed expenses to be incurred in cost of goods sold following the launch. However, the upfront fee, post-launch fee and any milestone payments will be reported as an intangible asset and amortized to the operating expenses starting once we launch the product. As I noted earlier, from an OpEx perspective, we expect to invest approximately $10 million in the initial launch of EXXUA here in fiscal 2026. This was well defined in the plans heading into the product acquisition and financing that we conducted. And we expect this puts us in a good cash position as EXXUA begins to ramp as we exit fiscal 2026. As always, happy to go over any details during Q&A. With that, Josh, let me turn it back over to you. Joshua Disbrow: Thanks, Ryan. I want to make sure we leave time for questions. Let me wrap up here quickly and then I'll turn it over to you for questions. Simply put, we are on the cusp of bringing to market what we believe is a game-changing opportunity for major depressive disorder. Every physician survey conducted, whether by us or independently, has shown almost universally that once available, physicians have patients for whom they will prescribe EXXUA due to its effectiveness in treating the symptoms of depression without inducing critical side effects such as sexual dysfunction and weight gain. As I've said in the past, nowhere in the package insert are the words sexual dysfunction mentioned, a claim virtually no other MDD pharmaceutical treatment can make. We think this is critical. Further, EXXUA is weight neutral and doesn't increase anxiety to additional product features we and our survey prescribers view as extremely valuable and also distinct from many other treatment options. And while we think the peak sales for this product are extremely high. The reality is that even if this does a fraction of what many of the competing products in the market do or if we receive just a fraction of the scripts written that our ADHD drugs have, this is a huge opportunity for Aytu and for our shareholders. The coming months are very exciting for Aytu. We're laser-focused on the launch and success of EXXUA and look forward to getting this into the hands of physicians in the months to come. As always, I want to thank everyone participating on today's call. We'll now be happy to answer any questions. Operator? Operator: [Operator Instructions] Your first question for today is from Thomas Flaten with Lake Street Capital. Thomas Flaten: Congrats on the quarter. Josh, I was wondering if you could comment on how significant or maybe how many territories were affected by the realignment? And then part 2 of that question is, how are you thinking about the incentive comp plan post EXXUA launch? Joshua Disbrow: Yes, good questions. Thank you -- just writing those down. Thanks for those questions, Thomas. How many territories affected? In whole or in part off the top of my head, it's probably no more than about 1/3 of the territories have been maybe altered or reshaped. We have gone denser in some areas where we fully expect substantially better coverage than we have for ADHD meds and actually really favorable coverage. So I think of it as probably about 1/3 in one way, shape or form. Some were modestly affected a few ZIP codes here or there. Others were more materially affected, but probably in that range. In terms of IC very rich IC plan still being finalized. But we will certainly incentivize very, very heavily around EXXUA, activating new psychiatrists, getting new offices set up and then obviously rewarding for going deeper within those prescribers as well. So incentivized to get them turned on and initially utilizing EXXUA and then obviously, incentives to get repeat prescribing as they identify more and more patients. So we will be hyper focused. As we've said in the past, this will be a strict psychiatry play. So we'll be in offices that are housing psychiatrists and psychiatry nurse practitioners and PAs. And that's really where the density of the prescribing for the brands in this category happens. So that's the right place to be. Thomas Flaten: And then if I may, one more. What have you been doing prelaunch with respect to payer engagement? Is that something you've been doing? And what expectations do you have for coverage improving beyond the kind of protected Medicare component of it? Joshua Disbrow: Yes. Good questions. So for us, first, second and third, around anything related to particularly commercial payers for us is wait and see. We're not going to proactively contract so as to jeopardize best price that we'll have afforded to us on the government side. As you know, with the mandate to cover antidepressants, we'll have, we think, a pretty wide open field, particularly in at least a handful of states. And we'll be able to have access -- open access with the standard 23.1% rebate to the Medicaid plans in particular. So as we think about that and we think about the portion of the business that that is likely to represent, call that 30% to 40% depending on the geography, we want to be very judicious in how we think about contracting on the commercial side so as not to reset that best price. So that is all to say, we have done assessments. We do have had some light engagement with commercial payers. We are reluctant to do anything at the outset until we get a sense for exactly what coverage rate looks like, exactly what the lay of the land is, and we'll have that access through RxConnect. And so that having been said, if you look at precedent products, a good one of which is Auvelity marketed by Axsome Therapeutics, as you know, that product enjoys 100% coverage on the government side and, last we checked, in the range of 70% coverage on the commercial side. And that's with what we perceive to be very limited direct contracting, perhaps with one PBM. And so using that as a bit of a guidepost, we will be very judicious. But we would still, out of the gate, expect enormously better coverage for EXXUA than we have for our ADHD meds and of course, just higher price points in general when you look at net pricing by virtue of the coverage on both the commercial and the government side. So hopefully, that answers your question. But we are not one to go out and announce a bunch of deals with payers that frankly may not be worth the paper they're written on. We'd rather take it one step at a time, utilize the RxConnect mechanisms to optimize reimbursement on the pharmacy front while obviously minimizing the co-pay and the hassle on the patient front. So that's how we'll approach it. Not to say we'll never contract. We'll certainly look at it, but we'll be very judicious. But I want to make sure we approach it in the right way. Operator: Your next question for today is from Naz Rahman with Maxim Group. Nazibur Rahman: Congrats on the progress. I understand you haven't initiated the full launch yet. But thus far, how much of your target prescriber market have you reached out to? And what kind of feedback have you gotten from that prescriber market thus far? Joshua Disbrow: Yes. Good question. I would say probably second question first, which is nearly universally positive when you look at the doctors that are -- that we're most actively engaged with. The sweet spot for us in terms of targets is psychiatrists in our footprint that are already comfortable with our products and with RxConnect. And when you overlay sort of those 3 criteria, you get an overwhelmingly positive response. In terms of the percentage of the market that we've reached out to, still relatively small by virtue of the fact that we're trying to be hyper focused in the areas where we know we can be successful. Again, these are physician customers that are already fans of ours. They already prescribed Adzenys and Cotempla in many cases to the tunes of hundreds of prescriptions a week or -- sorry, a month or a quarter and thousands over the course of a year. And so that's really where we want to start. And we think by really kind of tripling down and not trying to spread ourselves all over and try to be all things to all people, let's be very focused and very concentrated with who we think will be the most likely to prescribe. And these are doctors, again, in our geographies, like our products, utilized our pharmacy partners. They also prescribed the newer products like Auvelity and Trintellix and Spravato. And so you put all those things together and we think that's going to lead to a relatively highly accelerated launch and then we'll expand out from there. Nazibur Rahman: That was helpful. And based on the feedback you have gotten thus far from limited physicians. Have you been able to build out what a target patient profile might look like or what kind of patients that these physicians might initially treat or attempt to treat with EXXUA? Joshua Disbrow: We have and this is part of our communications and part of our materials. But it's a younger patient in the prime of their life seeking to improve their life. And by virtue of that, minimize the side effects they may be experiencing on current medications. So we would rightly be targeting patients that have been on a therapy or 2 or 3 and remain dissatisfied largely due to the side effects they're experiencing with respect to sexual dysfunction and weight gain. And before they would go to another therapy that maybe has less incidence of sexual side effects, we would insert ourselves in there and say for that younger patient -- when I say younger, 18 to 50, I just turned 50, so I'd like to think of myself as still in that demographic. Those are patients ideally suited to be switched from an SSRI or an SNRI that again might be working to some degree, but it's leaving them dissatisfied from a side effect perspective. So that's the type of profile that we'll be starting with. Again, we want to be very specific. We don't want to go in and ask a physician for all of his or her patients. That's not realistic. It's not going to be really allowable by virtue of just the market dynamics and just the standardization of care given that 99 times out of 100 patients will start on SSRI or SNRI and the payers, by the way, will require that. And so we'll be looking for that switch after that. And honestly, even if we get the switch after that switch or after the switch after that, that is a huge funnel of patients to be starting with even if we're talking third, fourth, fifth, sixth or even later line. So just such a big market opportunity with 340-plus million prescriptions annually. And at the price point that we would anticipate netting. That's a huge opportunity for us even if it's used much later line. Operator: [Operator Instructions] Your next question is from Ed Woo with Ascendant Capital. Edward Woo: Yes. Congratulations on all the progress. My question specifically is on your supply chain. How quickly and flexible are you to ramp up if demand is greater than you expect? And what is your leverage opportunity -- margin opportunity to get if you do get to a certain scale in terms of your margin expansion? Joshua Disbrow: I'll take the first one, Ed, and hand the second one to Ryan in terms of margin expansion. I would say, generally speaking, we have flexibility. We are working through a contract manufacturer. But there is enough supply produced for, I would say, an outsized forecast even versus what we have as a base case. So we could -- we have enough produced sitting in bulk; not yet packaged, but sitting in bulk. That's multiples higher than our first 24-month forecast. And our first 24-month forecast, I wouldn't call conservative. So we have adequate supply to scale as needed. There's also API already in hand to enable us to accelerate production of sort of a second run. So plenty of product to get us started, plenty of product to ramp, again, by multiples in the event that we need to. And in terms of opportunities for margin expansion, maybe, Ryan, you can just share generally how the margin works and kind of the sales level at which we would potentially start to see a reduction in royalty. Ryan J. Selhorn: Yes, absolutely. So as I mentioned, we have a 28% royalty. So that's not obviously related to the manufacturing of the product. But that will drop down to 24% once we hit about $1.3 billion in active sales. The actual cost of the product is only about -- we're projecting about 2% of the net revenue per product per unit. So it's pretty small to begin with. If we were to size up the batches, there's a little bit of efficiency. But it's not an expensive drug to produce in the out-front. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to management for closing remarks. Joshua Disbrow: Thanks very much, everyone, for joining us on today's call. Very excited about the progress we're making as we are on the precipice of launching EXXUA. The next time we'll talk will be in February, at which time we fully expect to be in the field, having announced our full commercial launch. So until that time, we'll be very busy getting things ready and again, continue to have a high level of excitement around this opportunity to help these many millions of patients fighting major depressive disorders. So with that, thanks again for joining. And we look forward to updating you after our second quarter wraps up on our quarterly call in February. Thanks very much and have a good evening. Operator: This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.
Janaína Storti: [Interpreted] Good morning everyone. I'm Janaína, I'm from relationship with the customers at Banco do Brasil. Our event is going to be conducted in Portuguese with simultaneous interpretation into English. You can choose 3 options of audio, Portuguese, English and original. And in order to start and in order to share our numbers here, we have our CEO, Tarciana. She's online from Berlin. And here in our studio, we have our CEO and our Vice President of Agribusiness and Family Agriculture, Gilson Bittencourt. In order to start, we have a very brief presentation of our results and numbers that we've recorded so that we will be back. We are now going to play the video. Tarciana Gomes Medeiros: [Interpreted] Hello, everyone. It is a satisfaction to be here with all of you from Berlin. And in order to be here with you with more transparency and to show you our -- as we have highlighted on the opportunities, 2025, we have had some adjustments and also our strategy, we are going through this turbulence. It's very important to know that our resilience has been allowed for us to absorb our regulatory changes that brought to us very important alterations in the way we do the credit risk. In order to talk about this, we always have the opportunity to show the practice, the force and the strength of more than 120,000 employees in order to have all of these. So we've started 2025 with a very positive perspective. So we have had also a very typical scenario, so that we deep dive into some scenarios. We also had some static and operational opportunities that we have also shared with all of you. Even though with this adverse scenario, we also have our -- every business in order to be able to deal with delinquency in relevant regions. More than knowing these challenges, we also engaged the construction of a very structured solution and that we also had the addition of MP 1314 capacity to generate businesses and the net value. We've achieved BRL 26.4 billion. This is an example, which is our performance. Since our -- performance and our reliability considering this growth, we have the principal capital in 11.16% considering all of this. Our ambition is to reach 20% of the market participation, which is going to be pretty fair. And this credit has provided a very relevant change which is positively considering the credit and contributing for the credit and for the -- it's also important to talk about the resilience of our capital, which is 11.16% considering the level that we've judged for a very fair for Banco do Brasil, BRL 17.9 billion, which has been very important. This has been very important considering the delinquency, this elevation is very important considering soybean and corn. And also farmers who also adopted different opportunities. We also see some reflexes considering the agribusiness. This is also provided by them. They are also responding to this the MPs reached 10% considering the interest rate. If we do not take into this account, then delinquency would be 6%, even though in the third quarter, we have had different businesses that impacted all of these. On October 10, we also had this opportunity. We took decisions that were responsible and to have the correction of the production and decided, we advanced in technology innovation and specialized relationship. To offer the best experience, we shared with you Investor Day and other opportunities and we will continue to involve all of that with the clear objective to prepare Banco do Brasil to a new cycle of growth and generate value to shareholders. We will keep strong with those values that are Banco do Brasil base. Now I'll pass the floor to our team to dialogue with the market. Janaína Storti: [Interpreted] Okay. So we return here. And first, I'll pass the floor to [indiscernible] to comment something about guidance and the first numbers of MP 1314. Unknown Executive: [Interpreted] Good morning. Once more, I would like to thank the presence of all the analysts here on this meeting. The press they are watching. And I would like to say to you about our guidance that both reviewed line and to talk about how currently, we are renegotiating Agro on BB Regulariza Agro on the MP 1314. So when you look at our guidance, we brought to you 2 lines reviewed, the cost of the credit and adjust profit, last trimester when we talked that the guidance of profit were very bold of this year. And we reviewed and we brought to present to the market. So when we saw the first trimester, some issues appeared. And then I would like to share with you, we had a necessity to have a provision of BRL 1.3 billion for a specific case, the companies of retail. And it's important that we have an increase on RJ that -- with that we had the challenge to elevate provision. And at last, we got waiting compass of the produce provider, the addition and the [indiscernible] of the Law 1314. There was a process of [indiscernible] that took longer than we wait. So we started to operate 24 days ago. And that gave the necessity to have a higher provision. And by consequence, profit provision that's lower because of those predictions. So we adjust 2 lines, the cost of the credit. We are adjusting between BRL 59 billion an BRL 62 billion and that just profit between BRL 18 billion and BRL 21 billion. Talking about the Law in 13, 14 here, the bank, we have BB Regulariza Agro. And it's very important to show you how we are working after starting to operate to now. We have BRL 11.4 billion in loans currently on the analysis area. From that [indiscernible] are from supervised sources. It's important to mention that until now, we achieved BRL 5.4 billion in negotiation. Our slide is not updated. We just updated this number. We have BRL 5.4 million of approved operations. It's just like we predict. And our focus here is to have approximately BRL 24 billion of the total of proposals. So we are working to achieve it. We contact 75% of the clients. There are the constituency of the debt, and we have reinforced the producers that's the best way to negotiate. The Law 1314 brings the opportunity to regulamento the debt in 9 years. We are now analyzing and give deadlines according to the characteristics of the producer, the provisions of the operation and analyzing case by case. And it's interesting to mention that in this program, we are also keeping the insurance and try to find new ones. So it's very secure. And I believe that it's important to you to know what's the consequence of this regularization. So we have 33% on the Central West region focused on the corn and soil culture, followed by Southeast regions and South region, 21%. So what we are receiving of operation to control resource, 92% are on South region. Janaina, I pass the floor to you. Janaína Storti: [Interpreted] [Operator Instructions] Renato is now here with us online, so I call him to make the first question. Renato Meloni: [Interpreted] Thank you for this space. Because of the change with the guidance review and the application of the results, how that impacts the recovery that you mentioned, especially in agro for the next year? Is there any change? And inside agro, we saw that we had an increase on the first trimester and do not evolve accorded projection, so that's it. Unknown Executive: [Interpreted] Well, Renato, thank you for your question. Good morning to you all. First of all, the compass of provision of the stage is similar to our expectation of evolution of BB Regulariza Agro. So you have a natural provision of those stages but the producers, they are trying to reach the bank to renegotiate. So it's very likely, very strong working to that. The Stage 2 operations would be regulated and you have that to the next stage. So nothing changed in the perspective of weighted loss and the perspective of solution that's imposed and we retrofit the model to have those evaluations. The good news is that regardless the renegotiation or not, those credits are provisioned according to its loss. And it's related to your question. We plan to bring this issue of the Law 1314. So this transition between the stage could happen on the way around. So we can benefit our flow of weighted loss. So operationally, renegotiation are very related. They're achieving [indiscernible] of daily expenses aligned of what we thought at first to reach BRL 24 billion. So the challenge is to execute that. So naturally those values could flow to protection of other portfolios or to accelerate our recovery. It's important to highlight that we are working strategically in 2 fronts. The first one, new operation, we trained -- so we prevent the necessity of provision. And on the second strategy, we are working with the producers that have the most critical cases to revert the risk. So it's important. We mentioned that we are working in a strategic way. So in 24 days, we achieved the speed of what we are waiting in 60 days. So the network is focused to work the reversion of that in agro. The trajectory of default of Agro, of course. We have that on the video. October was a month where default pressured a lot because of this waiting compass that we saw the producers for a structured solution, the -- we got that. The performance is showing that's very good. And our challenge is to trace. We have a very high ambition to regulate the full balance. So we intend to deliver that because on the fourth trimester is a lower flow, so it can engage and [indiscernible]. Janaína Storti: [Interpreted] Yes, exactly this matter of the deadline flow on the fourth trimester is lower. So we have a structured solution available and traced along wafer clients. So we hope that it will control the flow of the fourth trimester. So we have an inflection for the first trimester of 2026. Next question. Tiago Binsfeld: So my question, I guess, is on the revised guidance. I understand the issues with the rural portfolio continue to impact results. But I guess first is how much confidence do you have in the new guidance? And then even looking at the implied range, right, we estimate between BRL 3 billion to BRL 6 billion in net income for 4Q. So it seems like things could still get worse from here. So I mean, just in terms of the visibility that you have in terms of the deterioration in the agribusiness portfolio and if you may need even additional provisions from here, how much comfort do you have in that? If you can just help us understand at least some when these things can stop deteriorating to some extent. I think you mentioned 1Q maybe get better, but help us think a little bit about 4Q, just given all the uncertainty there. Marco Geovanne da Silva: Thank you, Tiago. Our confidence is very high. The reason we decided to change this guidance was because we saw these producers waiting for the implementation of this provisional measure, the 1314. And because of that, delinquency picked up. So one of the reasons we decided to revise it probably if we decided not to revise it, we would be delivering something close to the bottom of the range of the guidance we had on the Street. So we try to be more accurate in terms of how far these provision charges would go depending on how fast we are able to renegotiate with the producers, okay? So we believe -- we do believe we will be delivering something in line around the BRL 20 billion net profit for '24. So this would imply, how can I say, a good profit. And the reason why I decided to say in my -- in the videocast that I recorded that I wouldn't want to be firm saying that there will be an inflection point because we saw October numbers, but as Tarci mentioned here, we are speeding up the restructuring of those loans that are defaulted with our clients. So as long as we continue performing the number of the volume that you have just seen of restructuring loans in November and December, we are confident that we will be able to deliver this new guidance we're showing you, okay? Tiago Binsfeld: Great. If I can maybe just follow up? Just thinking about 2026, a very, very high level, right? I mean, should things begin to inflect in 1Q and you should see improvement throughout 2026. Is that the best way to think about it? Marco Geovanne da Silva: Yes. We will have the chance to discuss '26 when we disclose the full year numbers. But we are still working on our budget, but definitely, we're expecting for '26 a lower volume of provisions and moving towards something close to the mid-teens ROEs, okay? Of course, it will depend on how successful we are on restructuring these loans. We will probably continue this negotiation throughout January and February. But I'm certain that once we disclose the full year numbers in February, we will have a very keen estimate regarding the guidance for '26, but definitely, you should expect lower provisions for '26 considering this level of BRL 60 billion, we are already accounting for '25. It's important to remember that so far, we have already accounted BRL 60 billion of provisions in our P&L and in our equity book. and we are still delivering something close to BRL 20 billion of net profit. And this confirms the strength of Banco do Brasil on generating revenues to protect us from this extremely difficult situation in the agri book. Janaína Storti: [Interpreted] Our next question from Marcelo Mizrahi from Bradesco. Marcelo Mizrahi: [Interpreted] So first of all, I would like to congratulate you for the courage and transparent you're facing this hard moment with a lot of commitments. So we can't complain. So [indiscernible] I would like to congratulate you, not only Banco do Brasil has the best release. So the commitment is very good. So related to the question looking ahead, looking at this rich material that you put available, this harvest curve of credit, when you look at it, individual person MP, ME as the bank classifies, we saw the harvest of last year and this year. So I ask, when we look at some indicators of credit that were previous, the wallet 1590 from Agro has an expectation of -- so it caused my attention. So the harvest issue, I'm concerned. In each moment, you are seeing default of other segments. So the individual fiscal person were affected, has to do rural producer, but that's what it is. Those are the problems of the bank. We are talking with the people that are on agribusiness. So I'd like to know from you how you are seeing the default of other segments besides Agro, the 2/3 of the bank on this dynamic? So about peak of default in Agro in the first trimester. As I understood, I think we should have an improvement. So I would like you to talk about the default of the business people, the transparency of the governmental programs, we need to understand it and besides it, how to think the growth of the bank wallet? We have seen the wallet this trimester had a contraction. We have the credit card something to focus and it has a high default. So how to leave the situation that the bank are in and how do you -- you are dealing with it? Unknown Executive: [Interpreted] Well, we've pushed about and addressed about the agribusiness. It is related to our capacity of our execution, the BB. As for individuals, one of the third of our client base as you've mentioned, we do have a very strong pack considering the products for individuals that we have the transition considering the agribusiness change. So this delinquency is related to what is coming from our farmers and producers, which is different from other harvests that is different. As you've mentioned about the market that has been approaching that delinquency is not only for farmers, it is also about the difficulty and the capacity of payment of products and producers as individuals. And the bank as it is in this productive chain, this is quite strong, and we do have this additional impact. So the harvest from '24 and '25, they are correlated to this performance, considering our customers, farmers and producers that represent not that much for the PS, but they represent 1/4 of the delinquency considering the PS client base and also considering credit card, as you've mentioned. And here, we also have a disclaimer that there is a constantly -- as you are aware of, and it is the lower documents our client base and the interest rate or the number of installments considering the operations of credit cards are -- they are all very low. So we have this timeline and also the capacity from farmers, so we also have the delinquency considering credit card. The good news is that in this specific case, delinquency, we have been controlling and we are taking some measurements, very restrictive measurements in order to reduce the risk of this client base. Even though considering this situation, we are very low considering the average delinquency considering the financial market. So it's important to have this considering the client base and also having very inferior delinquency [indiscernible] and the market due to this characteristic of our client base. So having this migration considering legal and corporations, we have government programs. And it's important to be able to tell about this differentiation because the bank has a very strong role if legal. So we have had a recent period, and we don't have this concentration considering these due dates. So we also have the payments in the harvest. So the guarantee client base, it is in such a rhythm that is quite normal in order to have this processing. And we also have this in order to be able to fulfill all of this. And even though we have this delinquency and even considering the '24 harvest, the adjustment was quite strong, considering all the models. And we have a very clear redirection and for the receivables. So with that, naturally, we will be able to have a better result for this portfolio and finding out what we see as a clearer result considering this. And perhaps this is not very strong right now and considering the harvest that you are seeing now. But when we take into consideration the short harvest is and the performance is just giant. So we have this very short delinquency that is less than short. So this takes a little bit of time, but we are truly confident considering this. So we have delivered this very confidently in this portfolio. So this is what you can expect from now on, given the quality and the origination of all of this. So when you see the legal and corporations, this has got a very good impact. And this is absolutely provisioned. Janaína Storti: [Interpreted] Have we answered all the questions, yes. So it was a very specific question about legal corporations. Okay. Unknown Executive: [Interpreted] Yes, correct. Probably, we could also take into consideration the next harvest, as [indiscernible] he's here with us, is our pretty new Vice President and it's really important to share this information. Most part of the delinquency comes from the cost of this harvest, which foray into '25. And as we are being very rigid, but we are also very attentive, not only being very -- only attentive, but being very effective to this. This also reflects considering the results of the rates and our expectation for the next year also, we do have the growth considering April to September, we will have a result considering this whole work that we have had, considering the credit analysis and using our methodology of credit analysis, not only about the hurry process, but also very structured and also the farmers who have a very tough pay bill benefit. But it's pretty robust, and it's important to take this into consideration. The BRL 4.3 billion, so all the producers and farmers who were suffering considering the difficulty of cash flow and also these 2 actions, whether it's the new operation or this new program. We have this expectation for 2026. We will have this pretty low and it's going to be even better. Janaína Storti: [Interpreted] Thank you so much. Okay. So our next question. Unknown Analyst: [Interpreted] The capital topic, as we saw. I would like to understand what you're seeing ahead? The 80% thinking about growing the wallet don't grow so much. And you recently reduced your payout to 30%. So how do you look ahead the capacity to keep payout next year? Unknown Executive: Mario, thanks so much for your question. Our commitment is with the sustainability of the results of the Banco do Brasil. So considering, we think that's good, we improved and revert this flow and bring our main capital over Level 11. So it's a great one. So have a radar next year, one of them at the end of CGPL, renegotiation program of the small business, so which will reduce 6% base data of debt. So everything that's happening with the reduction of the recurrent results. What's happened in the Agro that reduced the growth of the capital in organic way. So we will keep 30% of payout for next year. And of course, depending how much we can renegotiate it and reinforce on capital, we'll evaluate the possibility to return with the results that we consider that's what Banco do Brasil deliverers. We can talk about the extraordinary payments of debt. So for now, that's our policy, 30% of payout. So next year, we have severity on the capital that's come from the provision for BRL 966 million. So we'll consider that and we have another potential adjustments that will come. So we have -- we are being very conservative, being sure that capital-based fundamental to support the growth of the wallet. So next year, we will still grow the natural personal wallet loan, public loans and the work loans where we are vice leaders, we are going to bring more recurrent results. And just to mention, 6 bps micro small business program, 25 bps from the second phase and we returned 1 bp from hybrids in July's counting. The impacts that we got on the trimesters, we have 4 bps ahead, so always in July, and we had operational risk faced in 4 years, 10 bps per year. So around 100 bps impacting next year. Just reminding, and Mario, it's not clear to everyone. It's important to clarify that each renegotiated real based on the Law 1314 the same now on the main capital basis is the same effects of CGP so we neutralize those impacts. Currently, we have 7, 8 bp of CGP. So it's on the ambition that we got. So we will overcome, auto has less capital. Janaína Storti: [Interpreted] So I'll call next question that comes from Daniel Vaz from Safra. Daniel Vaz: [Interpreted] I like to focus on Agro, talking about the growth of the wallet, but if you broke [indiscernible] and the original dropped 12%. So it seems that even you have this control, the renegotiation program now by the law and the 4B of the NDS, I think that's the [indiscernible] wallet. It's on a level that we saw in the latest year. So it's a reflection of the capacity of payment of the producer. So the due dates that they got the wallet progression, we have a decrease of the concentrate default. So it's 8%. Naturally, this was classified in Stage 1. So it got worse consented. So we transferred to Stage 3 of the next trimesters. So I'd like to hear from you how do you look for the help of this [indiscernible] wallet? And imagine, the first trimester, if you are able somehow to talk about this wallet and saying that's going to warm up, if you're comfortable or not with this -- I'm sorry, if it's going to cool up, this wallet. Unknown Executive: [Interpreted] Thank you for your question. So it's a very good point. This extended wallet when we didn't have solution for this segment. So what we are going to do? We are going to work on this wallet to be transferred to a line to the rural producer. So this portfolio will flow for renegotiated. It will keep the risk of it will be reduced because it's going to be related to the capital payment of the producers. So we are not comfortable with that. We have a portfolio that's elevated, and we need to work with it. And the big difference is that now we have a solution, an adequate solution to offer to our clients. So we can adequate this operation along with recovery of the capacity of payment for rural producers. So to be objective we hope to have a solution that's more effective, including to deal with the balances that are inside of this portfolio. So about perspective. So Daniel this portfolio is the most default one but the central point for renegotiation is this audience that was having the debt with the bank because of price problems and did that for 2 years via MP 1314 and understand the situation. When you're going to charge only the interest rate, the expectations to put due dates on this point. So this producer can restructure its payment flow. So it will restructure and reduce the full important factor. Even we have a decrease of high of the Safra plan, our expectation related to Agro portfolio is to keep on this rate of 400B. How we are going to do that part of this decrease that are happening on the new contracts are going to be done on the law. So around BRL 20 billion, BRL 24 billion, our expectation related to the fees, so it's BRL 28 billion. So part of what we are not hiring in Safra, we are keeping. So it's near 400, a little bit down or up. So what tends to ensure profit on this portfolio. Unknown Analyst: [Interpreted] If I can make a follow-on on this question. Do you think that this program of BRL 24 billion, you're going to ask for more line for the government thinks that the probated BRL 60 billion, the focus is inside this pool? Two parts, these free resources don't have a limit. So how much each institution are available to do it? Unknown Executive: [Interpreted] So we are dealing BRL 24 billion as a target. But if you have a space to extend it, there is no restriction. If we had more producers and you can help them to structure the payment flow, we are doing. So regarding the controlled flow BRL 12 billion, BRL 4.3 billion, we are working on a perspective that's very interesting. Starting on the state that's the most difficult one that [indiscernible] have BRL 4 billion, we are only being questioned about it. We are monitoring if we achieve BRL 4.3 billion, so we are going to talk with your peers. So for now BRL 4.3 billion, it's what we have from deman. Janaína Storti: [Interpreted] Our next question from [indiscernible]. Unknown Analyst: [Interpreted] Thank you for the partnership. I would like to understand 1314 and the first quarter. I would like to know about the [indiscernible] average payment term considering that because that has to be adequated and negotiation is key, but what is the measurement considering that because we need to increase this to 2, 5 or 10 years. I would like to understand to what extent is this going to be taken? If you could please just talk me through this. How does it work? Because this is in Stage 2 or 3? And how is it going to be just like this provision. And also the interest rate, how does the interest rate work on this matter? I'd like to understand a little bit better from this. And also the agribusiness, as you've mentioned on a podcast that you had a discount and negotiation. So it is clear, but what is not very clear for me is that in the fourth quarter it is different, and it's the same level considering the third quarter. But the message that you were conveying you're having this disbursement and everything might be very clear to BRL 3 million to BRL 4 million, and I would like to know more about this and the government? So why having this pretty high provision? Could you please talk me through this? Unknown Executive: [Interpreted] Thank you very much for your question. Well, first, we don't have any overall solution. Every case is taken into consideration. We have a technical body that takes assessments considering our customers, and we are just leveraging all these assets, considering artificial intelligence and all the modeling. And we try and we identified a real need of farmers. And these assessment is that from order to our credit team that assess the need of the due date, the period of time and the flow -- and the cash flow considering the capacity of farmers. So there is nothing single. So we need to have a technical analysis and we then find a need considering the farming in order to have a negotiation with all of us. So that we take into consideration the current measurement and also the risk management in short and long term. We did call like this structure the realization in order to have sustainable solution in the long term. Even though you've seen this provisioning process and what is being expected effectively. So we measure the risk regardless why this is being materialized or not. So then our balance is going to be quite ready considering the sustainability -- future sustainability. So then it's also about the stage. So that's why we don't have an immediate effect considering the flow or the balance that is expected because we conduct the assessment, the hiring is -- we have a 50% of operations renegotiated. That is we have the value and we have the adjustments, we have our framework considering the credit management and risk and considering the hiring. So then -- we then take into consideration the producer and also the opportunities for the banking in a long and short term. So the producers will have this payment term. We will have the possibility to keep operating with them and being able to have the best businesses. So that's why you see places that you don't have this expectation of this reversion. So our focus here is to contain this delinquency flow. And also, we are able to deal with this in conservatorship we reevaluate the configuration of these customers. So each one of these phases. And eventually, we see that the producer is then clear. We naturally just have a reclassification in each and every stage, but that is according to a very rigid evaluation and assessment. So once the risk is solved considering the agribusiness activity, so then we don't have this process that is needed considering this reversal of provision. But what can also happen considering this faster that speed that produces considering the capacity of their payment. If they are in this stage #3, we then have this reclassification, that is because of the renegotiation, so then these operations will then irrigate our financial margin, but this is according to a very conservative analysis and having as the focus of the offer legalization in the long term. And he will be able to provide more information about it. So 2 very important aspects is that in an year, we have the interest rate. So for the next year, we will have the return of these farmers. And even considering their capacity of effective payment, it's not that it's only 1 year period of time, but the second aspect that is important to highlight is that it's not only any demand that we are including this renegotiation. We are dealing with this criteria. The timelines are every 9 years. So considering the payment capacity, we are not having viability. So this is the criteria. And we are prioritizing the farmers who have delinquency -- short delinquency. So we are just taking those who will be able to have an individual analysis, having a better capacity considering this flow. So it's not that we are only going to renegotiate anyhow, but we have the timeline. We have 6 or 9 years. So each and every situation is being taken into consideration, considering the recovery and the generation of cash flow. So these are very critical. Look, it's important to be taken into consideration 5.5% that were approved, almost 100% is going to be feasible. So 100% is going to be formalized considering this. So we also have 11.4 bps and this is not going to be taken aside, but we also have the support demand, but they haven't been analyzed. So these [indiscernible] that we just analyzed that we had. So we are showing this data, 5.4 is practically effective. So once we have these rules restricted, and we have everything proper, we have the numbers. And so then the process is going to be somewhat slow due to these requirements and the numbers they are lower, but everything is being taken into consideration, not to happen or what you've mentioned about the delinquency. This is not our responsibility. Janaína Storti: [Interpreted] So next question from [indiscernible] from XP. Unknown Analyst: [Interpreted] We talked about Agro. So it's important to talk about the natural person segment. When you look to the excel that you published from 2014 from now on, we have the highest default of the series. I would like you to comment that and when you look to the portfolio growth in agro and legal entities, we have decreasing on the portfolio and natural personnel. So I'd like to understand the exception of tax income next year, what kind of comfort could you give that to this moment of the default of those in 2026? Marco Geovanne da Silva: [Interpreted] Good question. And it's important for you to look at the [indiscernible] as a point -- just a point thing is we grow in credit card in terms of volume and increase of default of credit card, and we have a contended effect coming from nonnatural person field from Agro. So they're waiting contacts work for everything. So those negotiations are happening. So naturally, we are resolving this matter. Looking at '26, our bet since we started to see this risk severity of the rural portfolio, we needed to focus on those lines that brought more return and spread, adjusted by risk. That's what we did. So it's very good growth of natural personal portfolio. The trend is to keep growing. We have minimum wage adjustments and availability that's higher. So we have an opportunity to grow on the lower risk level and the laws of the workforce. So BRL 11 billion, and we have BRL 11 billion now available. So we have a big space to keep growing. Bringing more return to the bank to help us to go through this phase, delivering results to our shareholders. And we have a possibility that's important, we are segmenting inside our credit card strategy that the high income where we got more results. So this default we consider as normal and simple. So we bet that '26, I'm sure it's going to be a natural personal portfolio. Janaína Storti: [Interpreted] So thank you, Geovanne. It's important to reinforce that this growth of this portfolio happened because of the workers law. That's the line of credit that Bank do Brasil has 90% of the structure on this line. So it's important to understand there's still space for growth on this workforce credit line will have a share of 20%. That's a share that we understand that's more adequated to Banco do Brasil. And on the other hand, on the third trimester, there seasonality of default natural personal portfolio. That's a historical series. This Agro issue that Geovanne mentioned is punctual in default this month, we have November and December, receiving the third payment ex Agro is -- will be regular on this next 3. Our next question comes from [indiscernible]. Unknown Analyst: [Interpreted] Once more congratulations. Talking about the Agro issue, it was bad, it was good and latest years were very good and now is passing through an adjustment that's very strong. If you take the historical series of view, 5.3% of default for the segment. We never saw it. So maybe it's not 0.5%, but 5.3%, it's a very high number. I would like to hear from you the change that you are implementing, a structural change to have something more predictable, sustainable on the next cycles, if you could explore this point in terms of warrants, equalization and the RJ things, how we are going to promote it to have a sustainable product? Marco Geovanne da Silva: [Interpreted] Thank you for your question. I will start and then pass to Prince. You talked -- you mentioned very well, historical, we never faced a situation like this one. Last time we faced it, even like this on the Agri sector, it was necessary to have a capitalization in 1994. And what we are doing now at this moment, we are passing through the severe scenario for this portfolio and we learned a lesson. We are partners of agribusiness. And it was important to review some of our practices. And the first one as [indiscernible] mentioned, the new hiring contracts is the matter of fiduciary transfer. The new titles that enter because of the agribusiness increase, they adapt in its systems, bringing this new warrant modality but Banco do Brasil is still on the traditional model based on harvest. So it was very clear for us to change very quickly. And one of the effects that we are facing this moment, it's a little bit of the reduction of the release of the new harvest because the process got feedback from our clients. And we have that explained to turn that in a more safe environment, so we can understand the farmers. They are understanding we depend on the -- when you register this fiduciary transfer. And at the same time, we are still having results with it. So we're looking at 2026. We are going to have a soft process. So if you can add something else? Unknown Executive: So first, the issue of the origin, as Geovanne mentioned, we have this practice of the field origin -- to know our clients to understand the productive capacity and the generation of income. Parallel to that point that we observe, your relation with clients from lazy clients. So we are very proud. Some adjustments in process were -- the cost of production. Other point, we are investing on the follow-up. So to identify the risks in a preventive way. So it's leveraged by new technologies. So we are connecting our historical basis of performance of agribusiness. I talked to you about it. We have cataloged that since 1960s. So with new resources via reference and evaluation with AI, so can identify the deviation of productivity, risks from the climate. So with that, we can manage productivity of our clients foreseeing if they can have a difficulty of payments in the future, presenting previous solutions to reduce the risks on this business. So we are also investing very hard on the post production following. We have a default related to commercialization, mainly in periods where doing commercialization, there is a depression of prices. Just like the previous harvest, so we need to be very aware of the stocks that we have as warrant so we can converge in incomes and these incomes will go to the bank for payments for operations. And we keep going on the process of negotiation. The bank shows its historical partnership with rural producer, launch BB Regulariza Agro, that's a solution that don't access on the market. So the big solution of the negotiation of the rural producer, it's available in our support channels through BB Regulariza Agro. And eventually, those cases where many times, we don't have even the negotiation itself. It's a goal for the court. And so we are defending our interest in because we believe that it brings an interruption of the relation and difficulty of the activity of the producer. But are still here very strict, defending our interesting. And next trimester, you're going to observe that we should protocol some requirements of bankruptcy exactly so we can stabilize those process and the ones that try to contract this mechanism in a legitimate way. Janaína Storti: [Interpreted] Next question, Pedro Leduc from Itau. Pedro Leduc: [Interpreted] Changing the topic about MII, 5% of increasing 3% to 3%, the components were more than 20% by part of the treasury, the clients who didn't grow so much. PVMs in a higher Selic, more work days. And on the client part via mix spreads. I would like to -- you to comment how we should see this MII line consolidated behavior for next year because we have a derisk on the natural person portfolio, so it should permit decrease and delinquency situation with Selic decreasing pressure on the treasury part? Just to understand how we are configurating the MII trajectory, seeing the portfolio for 2023. Marco Geovanne da Silva: [Interpreted] Thank you for your question, Leduc. We are aware. So we are expecting the cohort of interesting rates. So we don't believe that such a drastic reduction like the increase, and it came from a capture. We have an exposition of LCM. On the short term, the Selic drops down, in a certain way is going to facilitate and this gain of this match between pre and post capture of portfolio on this moment. So that's why it's important to accelerate this generation. We are generating volumes on the spread level that's higher. So to protect when the spread drops with the decrease of the interest rates. On the other hand, it's a good environment for economy. And a possibility for it to expand this volume of credit, the volumetry will be important to help to support this financial margin. In terms of treasury, we took advantage of this moment of high Selic. Our delinquency were very high. So I call the change of the mix, focus of the lines of work and those are fundamental to support this maintenance. Janaína Storti: [Interpreted] Our next question comes from Carlos. Unknown Analyst: We'll try English. So also to change the subject. Can you discuss the tax rate, which was very low, it was negative this quarter? So for the year, you have paid 9%, obviously, the profitability is low and you have interest on capital. But what do you expect for this year and for next year? And next, I would like to also have your comment about how much longer you will have the economic plans provisions? Marco Geovanne da Silva: Thank you, Carlos. Definitely, the reason for this low tax rate has to do with the increase in provision charges we accounted. So our profit before taxes was very low due to these incurred losses we have accounted. And for this reason, we had to recognize a much higher volume of tax credits -- deferred tax assets. And that's why our tax rate dropped significantly, showing revenue in that particular line. So we used to estimate an average tax rate around 15%. With this new regulation regarding expected losses and given the scenario we have for the agri book, you should expect to see a different tax ratio looking forward. So we don't have an estimate right now, but definitely, as long as we continue accounting higher incurred provision -- incurred losses, we would have this benefit in our tax ratio because the framework has changed completely with this new regulation for 966, okay? So looking forward, you should expect a lower tax ratio. And the second question regarding the economic plans, it's important to emphasize here that there was a recent ruling from the Supreme Court, extending the time for clients to negotiate with banks, all banks, not only Banco do Brasil regarding the economic plans. And there is a due date. So for the next 2 years, all clients must negotiate with the banks. And we believe that with this new ruling from the Supreme Court, we have a final due date that will happen within 2 years to end -- to cease this kind of provisions that we account for economic plans. Unknown Analyst: So that is June 2027, I think? Marco Geovanne da Silva: It will be '27. It was negotiated in '25. So we have -- and this negotiation was done through the federation of banks because this is something that reaches all banks, okay? It will happen '26 up to '27. That's when we have the final due date for all clients that were, how can I say, impacted by the economic plans can negotiate with banks the return of their money, okay? Unknown Analyst: But again, it is until the middle of '27 and you expect this level of provisions all the way there? Or should it fall off until then? Marco Geovanne da Silva: Well, in terms of provisioning, we don't know exactly because many clients they have already died. It's something that we're trying to figure out what is the size of these provisions. We have already reinforced some volumes, but you should expect keeping up this track in terms of provision charges. We don't expect a huge increase in that volume, okay? Janaína Storti: And Carlos, for this year, the effective tax rate should be on a low single digit, okay? [Interpreted] Our next question comes from Gustavo Schroden. Gustavo Schroden: [Interpreted] I would like to get into the question that information about that there is a limit considering renegotiation and I truly understand the funding for this negotiation, the outcome. They are really for the improvement of the capital index considering the KPA that you have mentioned for every real that you have negotiated, you then have an improvement, considering for instance, BRL 1 in the capital. I understand that there is a limitation that they would be available and we had [indiscernible] that could be used for this program considering these provisions. So I just would like to know and confirm whether this is correct? If there is any limit considering this improvement of capital via BTAs because it's probably -- it is required to have a funding and it's important to have this relief considering this bank capital. And the second question, when -- how would be this sentiment considering the [indiscernible] RJ and above 90 days, but I truly believe that there is a different agreement considering credits and the program of the renegotiation, I would like to understand whether these credits -- whether this RJ -- whether this can be renegotiated and how would this be transitioned? How would this be -- or whether this if it is not contemplated, and I would like to know, considering the potential losses? Unknown Executive: [Interpreted] Thank you for your question. You understood well. We have close to BRL 24 billion that we can renegotiate. And we will generate capital benefits because of -- should be the tax credit stock that we can use. It optimized the funding that also repassed in conditions to the clients. But as Bittencourt mentioned, there's no limit. This funding, it's under the bank. And obviously, we are going to put in your measures of financial cost, the possibility of this funding to be able to overcome this balance. So the balance could be passed. There is no limitation. What we have is the limitation of our balance of -- take that renegotiation to transform it in capital. That's it. And we are prepared to have conditions, competitive conditions to offer to our clients, doing all our RLM management, so we can offer beyond BRL 24 billion as we commented at the beginning is our first target, but not only the last one. So related to judicial recovery, we have a limitation. It's not something mandatory for us to do this renegotiation inside the process of judicial recovery. So what we guide our producers is that to get in context so we can negotiate and make them to leave the judicial prosecution and then they can adhere to the conditions of the law. We are not offering to problematic loans. We are offering to the producers that want to have payment capacity and sustainability of their activity on long term. So Bittencourt, if you can complementary topics. Gilson Bittencourt: [Interpreted] We have cases of producers that have in judicial prosecution, how they can leave that and renegotiation inside the bank. Those are specific case. This gain of capital is for the free resources. Controlled resources not be applied. Related to it, the monetary Board established, you just can use their own resources of the bank, but there is an expectation on the next days. We will have RCA resources so to extend the resource and a lower resource. And one aspect from the free resources, 30% of those operations that were approved are post fixed fees. It's not common rural credit, but a partner of rural producer of the bank put this opportunity. So we can contract with a prefixed fee or viable one linked to CDI. So this BRL 35.4 billion are for this model. So we can control that in a more effective way, and it shows to the producer that this expectation of the reduction of Selic fee will give to the producer contributing. So then can have a capacity of payments on the next year. So we are working on a long-term overview of a partnership. Unknown Executive: [Interpreted] And just to finish, Today, this portfolio has 75% of central provisions, very adequate to the loss estimates that we had. So those producers in RJ that are willing to negotiating with us, we have an open door to adhere to the new provisional measure. Remembering that we had a big elevation of RJ going to BRL 6.6 billion trimester. And the guidance review was this one, had an increase. So just to it was 1B 20, 1B 300. So we are building this coverage level because of the risk and the time that those operations to be defined and decided. To conclude, those operation, their recent judicial recovery, they don't have a plan -- approved plan. So they go to a default. And the weighted loss is very high. So we make an additional provision as a prevention. Follow-up. We are in the middle of November. We have an indication to show how the number of judicial recovery are and how it's going to be. It's still increasing, but we are expecting a calling because of the availability of the law. So we are investing on negotiation, and we talk with the market, not different on other banks because with this solution, we have a powerful tool to offer to our clients so we can solve the business, the commercial negotiable way. Janaína Storti: [Interpreted] So going to the end of our live our last question from Nicolas Riva from Bank of America. Nicolas Riva: I have a question on your presence in the international bond market. So in October, you called the last AT1 that you had in the global market. So -- but you still have a number of senior bonds outstanding maturities in the next few years. So I wanted to ask you about your plans to keep a presence or not in the international bond market and your plans regarding the refinancing of the senior bonds? Marco Geovanne da Silva: Thanks, Nicolas. We do plan to continue touching the international markets. The reason for calling the AT1 is because we have now a new kind of funding here domestically that is cheaper. So that's the reason we decided just to reduce our interest costs in terms of our funding, okay? But we do aim at continuing this relationship, especially in the senior front, but for now, we don't see any new issuance happening, okay? Janaína Storti: [Interpreted] Well, so we finish here a Q&A session. In September of this year, we had our Investor Day. It happened in New York. And it was a reinforce of our commitment with transparency. And here, to reinforce even more commitment and to get close to the capital markets, we have this live with APIMEC and I have here with me, Ms. Lucy Sousa, the President of APIMEC that is going to deliver the seal of conformity. Lucy? Lucy Sousa: [Interpreted] Vice President, Director, [indiscernible] professional, my colleagues, analysts, investors, it's with a great satisfaction that APIMEC delivered this award seal 31 years of recurrent meetings in the hybrid or online format. We highlighted during this period of transparency, the contingency of information and the partnership and the support of our association and the analysts and the other professionals of investments. Congratulations to you. Tarciana Gomes Medeiros: Thank you. It's an award for attendance, it's an APIMEC award, 31 years in which we have our meetings, and I believe the important work of APIMEC. So thank you to your team that makes APIMEC such an important association in the capital market. It's a spectacular work. Thank you, and I'm very proud to receive this award. Janaína Storti: [Interpreted] Thank you, Tarciana. We show a lot of success in copying the lane and all the professionals of Banco do Brasil shareholders. Thank you. Thank you, guys. So we conclude our live, and I'm available, the team's available to enclose additional clarification and see you soon. Thank you, guys. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good afternoon, ladies and gentlemen, and thank you for joining us today. Welcome to The Arena Group's Third Quarter 2025 Earnings Conference Call. I would now like to turn the conference over to Morgan Fitzgerald, Investor Relations and Social Media. Ms. Fitzgerald, you may begin your conference. Unknown Executive: Thank you. Hosting the call today are Paul Edmondson, Chief Executive Officer; and Geoffrey Wait, Principal Financial Officer. Before we begin, I'd like to note that some of the comments made during this presentation may include forward-looking statements. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning the company's business strategy, future revenues, market growth, capital requirements, product introductions and expansion plans and the adequacy of the company's funding. The company cautions investors that any forward-looking statements made in this presentation or that the company may make orally or in writing from time to time are based on the beliefs of, assumptions made by and information currently available to the company. Such statements are based on assumptions, and the actual outcomes will be affected by known and unknown risks, trends, uncertainties and factors that are beyond the company's control or ability to predict. Accordingly, investors should use caution in relying on forward-looking statements, which are based only on known results and trends at the time they are made to anticipate future results or trends. Certain risks are discussed in the company's filings with the SEC. The company disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. In addition, reference will be made to the non-GAAP financial measure, adjusted EBITDA. Information regarding reconciliation of this non-GAAP measure to the closest GAAP measure can be found in the press release that was issued this afternoon on our Investor Relations website at investors.thearenagroup.net. With that, I'd like to turn the call over to CEO, Paul Edmondson. Paul, the call is yours. Paul Edmondson: Thank you, Morgan, and thank you, everyone, for joining us here today. Q3 was another profitable quarter for The Arena Group, one that we believe highlights the strength of our model, the discipline of our operations and the resilience of our business amid ongoing industry-wide traffic headwinds. As a result, we delivered margins that surpassed industry averages. However, before we dive deeper, I want to acknowledge that this is The Arena Group's first earnings call in nearly 2 years. We've heard from shareholders that they value this form of communication, and we've listened. Going forward, we intend to continue these calls and combine them with additional channels, including video, social and other platforms to share our story with even a broader investor base. The Arena Group has undergone quite the transformation in a relatively short period of time, transforming our operations, strengthening leadership, stabilizing our balance sheet and sharpening our strategic focus. We're confident and eager to engage directly with the investment community to communicate our progress with transparency and consistency. With that, I'd like to turn the call over to our Principal Financial Officer, Geoff Wait, to discuss our financial results. Geoffrey Wait: Thank you, Paul. Good afternoon, everyone. In the third quarter, we delivered profitable results with strong margins. Our third quarter revenue was $29.8 million compared to $33.6 million last year. The third quarter 2024 results include a $3 million onetime increase to net income from a licensing agreement. Our net income this quarter rose to $6.9 million, up from $4.0 million a year ago, and adjusted EBITDA increased to $11.9 million compared to $11.2 million last year. Therefore, we maintained a healthy efficiency, holding gross margins above 50%, even with traffic volatility. We believe this reflects the scalability and resilience of our entrepreneurial publishing model and variable cost structure. Profitability expanded meaningfully again this quarter. Net margin improved to 23.2% and EBITDA margin improved to 39.9% compared to 11.9% and 33.3% in the same quarter last year. This demonstrates the continued diversification of our revenue streams into higher-margin opportunities. Importantly, our profitability metrics this quarter outpaced sector norms with net margin and EBITDA margin both higher than industry averages. From a shareholder value perspective, our trailing 12-month income from continuing operations of $30.5 million, divided by 47.6 million shares outstanding as of September 30, equates to earnings per share of $0.64. This represents a price-to-earnings ratio of over 7.0x based on the share price of $4.87 as of NYSE American market close on November 10. Overall, these results highlight the flexibility of our cost base and our ability to consistently deliver profit and cash flow even in a challenging digital media environment. These consistent profits have led to strong cash generation and continued improvements to our balance sheet. We generated $12.1 million of cash from operations during the third quarter. And after fully repaying our revolving credit facility, we have now reduced our leverage by more than $10 million in total debt year-to-date and amassed a cash balance of $12.5 million, strengthening our liquidity position. With trailing 12-month EBITDA above $50 million, net debt below $100 million and leverage under 2x, our balance sheet is solid and our capital structure is flexible. We remain focused on further optimization and are actively pursuing the refinance of our outstanding debt. Now, back to Paul for an update on our operations. Paul Edmondson: Thanks, Geoff. In the third quarter, like many digital publishers, we faced significant headwinds and traffic volatility from algorithmic changes in the industry. These updates impacted organic traffic in many categories, most notably lifestyle and sports. However, we moved quickly to address them, executing a structured plan to optimize content signals, site experience and technical SEO. I'm pleased to share that recent data shows stabilization of traffic across our verticals and significant recovery for our e-commerce-related content. Our entrepreneurial publisher, or EP, model creates flexible cost bases that enable strong performance across a range of traffic scenarios. And we believe the steps we've taken will strengthen our long-term audience quality and reach, which is important for the success of our EPs. Parade, Athlon Sports, TheStreet and Men's Journal continue to represent popular brands in our portfolio that produce sought-after content and continue to reach over 100 million users per month in the aggregate. In short, we believe our diversified model and variable cost structure allowed us to translate adaptability into strong financial performance, maintaining solid profitability and cash generation throughout the quarter. Regarding our portfolio expansion, we continue to execute on our disciplined M&A strategy, acquiring the digital assets and IP of 2 properties, ShopHQ and Lindy's Sports. We spent a total of $2 million on these transactions funded with cash. These expand our e-commerce and sports portfolios, deepen our brand ecosystem and add new monetization opportunities. ShopHQ was recently relaunched, is generating revenue, and we expect to be accretive for profit in 2026. Lindy's will launch later this month, and we also expect it to generate profits in 2026. We remain focused on targeting at least one high-value profit-driving acquisition per quarter, deals that enhance our IP, strengthen our brands and align with our scalable operating model. Lastly, on strategy. Our EP model continues to thrive, drive efficient content creation, expanding our reach and allowing us to scale without the heavy fixed cost typical of traditional media. We will look to expand this model into video and social commerce opportunities. We're also accelerating our evolution towards data, AI and e-commerce, leveraging our IP and portfolio of brands to build higher-margin scalable revenue streams. Today, we're registering more than 40,000 new users each day. And in Q4, we'll launch a proof of concept that connects user behavior and data across ads, newsletters and articles to the most valuable user activity. This initiative, powered by Encore, which is our new centralized intelligence system that unifies our proprietary data with advanced LLM technology, represents a significant opportunity to link audience intent directly to commerce outcomes, as well as curate our audience for advertisers and establish deeper, more direct relationships with our users. Ultimately, it allows us to turn engagement into measurable reoccurring value for both our partners and our business. We're excited about the path ahead and look forward to sharing our progress. In summary, the third quarter reflected the continued execution of our transformational strategy. We delivered solid financial results with consistent profitability in a dynamic environment, strengthened our balance sheet and continued our transformation into a data and brand-driven company. Most importantly, we believe that we've proven that our model is durable, adaptable and built for sustainable growth. We're proud of the progress we've made, and we're energized by the opportunity ahead. Now, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] And our first question comes from the line of Mark Argento with Lake Street Capital Markets. Mark Argento: Congrats on your first inaugural call, exciting. Just a couple of quick questions from us. One in particular, I know -- and obviously, Google switching the algorithms created a lot of volatility. You guys seem to weather the storm nicely there. You talked about kind of more of a stable environment as you move into Q4. Are we working off of a lower base? Or do we -- are we going to start to see some kind of trend back to kind of where it was kind of going into all the change? Maybe just walk us through kind of what the changes were and how you guys have successfully managed through. Paul Edmondson: Mark, this is Paul. Thank you so much for the question, and thanks for joining today. We appreciate it. And this is obviously a pretty important question for our business going forward. In terms of what we see is, it's -- for any digital publisher that's been out there and experienced as we've been over many, many years, it's not uncommon to see algorithmic updates in our business. And it really comes to how you sort of tackle them. Whenever we see these kinds of challenges, we really do focus both on the content signals we're sending, the technical SEO. And getting back to your question, the second part of what we're seeing here for Q4 is, we have and expect to see growth in one of the areas, which is our e-commerce content. That's the kind of stuff where we cover deals and things like that. That's performing well. And I expect that to be stronger in Q4 than it was in Q4 of 2024. On our news-related content, we are off, I would say, a lower base than our peak in Q2, but we have seen that stabilize. And we put a number of things and a number of tests and a number of technological improvements out there to adapt to it, and we're seeing some positive results. So things have stabilized, I would say, stabilized up from the bottom, and I'm optimistic that we're going to find some additional lift. Mark Argento: How do you guys -- and I know everything has kind of been a little real time, but do you guys think you've taken share, so to speak, in the various categories? Or when it's all set and down, what do you think this did to the overall industry? Are you guys are that beneficiary, although it created a little top line volatility, but you're able to manage through? What -- how are you thinking about where you guys are sitting relative to maybe some of your competitors? Paul Edmondson: It's a really good question. It's hard to know exactly where every competitor is and how they've reacted to it. I think when we go out and talk to and see what's happening in the industry, I think we've weathered it better than most, I think, when we're still generating cash, which is really important and key to our business. I like the improvements that we've made. I like the way the team has tackled it. I like how we've really engaged and unified in the company to whenever you see these kind of headwinds and made some really good results. So I feel good about our team and the progress we've made in adapting to the environment. I think when you look about the industry as a whole and the broader thing, every company has a different dynamic and how they handle and tackle these things. So it's hard to say. Mark Argento: That's helpful. And then, just touching on the margin a little bit, obviously, impressive [ and it ] speaks really to your variable cost model. But just so I can better appreciate it, we can better appreciate it, so effectively, you got to have your cost -- your input costs are really pegged to the revenue line in terms of content generation costs. And so, overall top line revenues are down. Your cost of content are going to kind of be able to be real-time dynamic there versus having more of a traditional fixed overhead type component. Is that -- was that an accurate statement? And are you guys able to weather the storm or the content machine -- engine, so to speak, able to weather this volatility? Geoffrey Wait: Mark, this is Geoff. Thank you for that question. I think that we do have a cost structure that allows us to perform at a variety of traffic levels. And you can actually see that if you look past into the past few quarters and how consistent we've generated gross margins above 50%. I think that this is an element that differentiates our business from a lot of others that are out there in the industry in that we have tied our largest cost element, which is cost of content directly to revenues, and that has enabled us to continue to drive profit and cash in a challenging environment. Mark Argento: Last one for me in terms of the balance sheet. Obviously, you guys have been generating some cash and paying down some debt. I know you had been talking about the refi. Where are you in the process there? Is that something that -- is that still a 2025 potential event? Or are we looking out until next year at this point? Geoffrey Wait: So our plan as it relates to the refinance is, we want to approach this from a position of strength. We view this as an opportunity for the business, not as a necessity. And therefore, we want to make sure we secure the most favorable terms possible as we execute a refinance process. It remains a priority, and we're actively evaluating several options that will deliver the greatest value to our shareholders. Over the last few months, we've had quite a bit of interest from the banking community and have engaged in active discussions with traditional banks. These banks by nature are conservative, and some feedback we've received is that 4 consecutive quarters of profitability is good, and they want to see that, but they could use a few more quarters, and they have interest but maybe need a few more quarters of results before they can close on a big deal like this. We continue to actively pursue this, and we have the flexibility to consider multiple structures and options. In addition to traditional banks, we believe there are other markets that would have offerings that would still be at more favorable terms than what we have currently that we can move forward with. But as I mentioned, our priority is really to identify the option that adds the most value for our shareholders. We intend to proceed deliberately, focused on long-term value creation rather than short-term expediency. Mark Argento: That's a thorough answer, Geoff. I appreciate that. Congrats, guys, on dealing with the volatility, and welcome. It's exciting that you're starting to do these calls. Operator: Our next question comes from Kevin Rendino with BC Partners. Unknown Analyst: First, I want to echo what Mark said. This conference call is refreshing, and we missed hearing from Arena on a quarterly basis. So thanks for doing this and making this part of your regular quarterly events that you're going to be doing after earnings. It's awesome. And the other thing is, it's -- congratulations on all you've done in the last year. For you to have achieved the EBITDA and after-tax profitability in this environment, it shows how strong your model is and how different you are than everybody else who -- many of them have gotten crushed this quarter. So I actually learned more about how strong your business is this quarter than I did in the last 2 or 3 because I wasn't expecting this. So kudos to that. My real question is -- those are statements. My question actually is on the ShopHQ acquisition. I kind of want to talk more about that. That feels like a complete asset-light model where -- it feels like an enormous opportunity that's based upon traffic that you can drive without the cost of holding inventory, like you're not getting the wholesale, but you're getting part of the sale. And it seems to me if you do that right, the upside is considerable. Can you just talk about specifically how you plan on running that business, what it is and how it's going to flow through the model? Paul Edmondson: Kevin, this is Paul. Thank you so much for that. Thanks for joining today, and I really appreciate the kind words about the environment and how the team has weathered it. It means a lot to everybody here in the team. So thank you. ShopHQ, it's a really, really great question. First off, we bought the assets of ShopHQ. We thought it was a tremendous value. It came with millions of e-mail addresses and data that is really, really valuable. The primary way we've relaunched the business, it's largely a drop shipping business. We're not taking inventory, those types of things. We've fired it up. We are driving sales today based off that newsletter list that we had, and we are continuing to fill out the products. Where we have talked a little bit about our Encore project and the AI technology that we're using and our data business is we're really combining those 2 things together, and we're going to be using our funnel where -- we mentioned earlier, we're getting about 40,000 e-mail addresses a day, and we think there's an opportunity to grow that. We're creating first-party user data profiles. And now, we have intent -- not just intent, we actually have transactional data. And so, this is where we're really focused on right now in terms of a proof of concept getting to market this quarter that ties our audience into transactions and allows us to actually move products through not only our affiliate model that we do so successfully today, but also directly through the ShopHQ platform. The other thing that is fascinating about ShopHQ is, that is an audience -- while it's older, they're an audience that is used to transacting off of video. And you'll see a number of experiments that we're going to be putting on where we will be using social media, YouTube, Facebook, those types of video experiences and driving transactions, which is a really unique asset in and of itself is to have a brand that people are used to transacting by being introduced to products through video. And I think everybody -- you can look at whether it's Instagram or TikTok or all the other places that people are continuing to shop, and I do view that as a really, really strong asset and an ability to move our variable cost model into social selling as well. So I know that's a lot of things there, but we love the video aspect. We love the social selling opportunity. It's going to generate cash for us in 2026, and it's a really meaningful data asset for us. Unknown Analyst: Are you essentially -- what -- just last one on this one. Are you essentially taking a commission off the overall sale? And what are the expenses that you're putting into this business? What are the expenses of running this business? Yeah, the people, is it -- yes, go ahead. Geoffrey Wait: That's a great question. So one of the most important things whenever we do an acquisition is to make sure that it fits with our DNA of running a really asset-light scalable model. And ShopHQ also fits that really beautifully. So the arrangements we have with our drop shipping partners offer us a share of the gross revenue. So we receive a share at protected margins. And we do have some personnel that came with it, a small number, less than 10, and they do things like procurement that we didn't have within the existing company, capabilities we didn't have. And then, the rest of the costs are largely variable. We will be doing marketing activities to make sure we have the right audience flow into the platform and make sure that we're selling the product that we want to sell. But we can grow this in a very real way without additional capital investment. Unknown Analyst: And you start with what margin do I want to make on this business, is that correct? Geoffrey Wait: Correct. So this will be probably a comparable margin to our news business or our media businesses and a little bit lower margin than our publishing -- performance marketing and publishing revenues. Unknown Analyst: It should be significantly higher revenues -- revenue growth anyway, right? Geoffrey Wait: That's correct. Operator: Our next question comes from the line of John Fichthorn with Dialectic Capital. John Fichthorn: I echo the previous comments of congratulations on the resilience in a very difficult environment. To start with, I guess, some balance sheet questions. You talked a little bit about the debt and the refi. How does that impact your share repurchase announcement? Are you able to -- it doesn't look like you did in the last quarter. So you have to wait until the refi is done before you begin that. And then, I'll [ return with ] some follow-ups. Geoffrey Wait: John, this is Geoff. Thanks for joining the call and for your support here. As it relates to the stock repurchase program, we continue to focus on deploying capital where we think it can generate the best return for the company. In the last several months, we announced several acquisitions, which do create a little bit of nonpublic information, which can make it challenging for us to trade in the stock. In addition, we also fully repaid our revolving credit facility, and we thought that was the best use of capital for us during the third quarter. We do believe that our stock continues to be undervalued, and we continue to monitor our stock performance and our capital availability and intend to make repurchases when we have capacity and when we believe our equity is undervalued. So we haven't made any purchases yet, but I think that is something you may see in the future. John Fichthorn: So what's the hurdle rate look like for you guys in M&A? You've said 1 a quarter. But you must be looking for something specifically in terms of leverage to your existing business or accretive to earnings. Can you give us an idea of what you're looking at for? Geoffrey Wait: Absolutely. As I mentioned, we want things that really fit in with the operating model that we have, and we're focused on a few things. Number one, we believe that this is a great time to be a buyer of digital media assets, and we intend to be active in that market, as well as others. We look for extreme values that can offer profit accretion and payback within 12 months and have great ROI. So you'll continue to see us active in the M&A space and doing some different things going forward as we continue to expand and grow the business. John Fichthorn: Super. So you mentioned on the call that effectively, the core business has stabilized post kind of algorithmic earthquake. And you've added a couple of M&A deals. And e-commerce seems to be stable and looking up. So it sounds like sequential growth on the top line and obviously, therefore, on the bottom line would be something to expect. Am I doing my math right based on what you said? Geoffrey Wait: Yes. So I think that's a fair expectation. I do want to touch a little bit. We won't be giving any specific financial guidance. We may provide at times directional guidance going forward. But I do think that, that aligns with our view of the business right now. John Fichthorn: To be clear, that is directional guidance. So up next quarter is a fair assumption? Geoffrey Wait: Yes. John Fichthorn: Excellent. I'm proud that I was able to narrow you down to an answer on that one. So I'm curious, as you look at your business, you have both the EP rollout across content verticals and now you have this commerce business that's growing and you've got M&A opportunities. If I were to break those apart, are you still -- should I still think of the biggest growth driver is adding kind of entrepreneurial publishing to areas or the growth in those areas where you've just started that? Or is the primary growth driver, in your opinion, in the near and medium term likely to be in converting the existing traffic that you've got into e-commerce buyers? Paul Edmondson: John, this is Paul. Thank you so much for the -- thanks for the question. So in terms of the opportunity and where the growth can come from, I think we've been a little bit of an outlier in terms of audience. And again, we talked a little bit about it already. I do think that there is opportunity there. I do like the changes that we've made, and I do like -- it's hard to speak about algorithmic changes and what's happening out there. But I do think we're positioned well. There's other parts of our business on audience, too, that are pretty interesting. I like what we're seeing in some of our businesses, too, on social. We're finding our footing there in terms of our ability to produce content that users really love. We've got -- there's a lot of things that are happening on the distribution front as well, as you think about multi-platforms and where our business can go. But probably, I think the most interesting opportunity that sits in front of us right now is with all the new users that we're registering every single day. That's a pretty significant new change to our business. So we mentioned 40,000 e-mails a day. That's quite a pipeline of users and data. And the ability to tie all those things together, make really good decisions about getting content in front of them, e-commerce opportunities, curating our audience, which is something we put out a little press release that we did with Index Exchange out there pretty recently. So I think we have a number of potential growth levers out there. We will continue to look at M&A properties where there's opportunities with audience because we're seeing values that we like. We really like the Lindy's acquisition that we did. That's very akin to what we have with Athlon Sports today in terms of the preseason annual business that they do. We are just running the digital components of that, again, very asset-light. So I think we see a lot of opportunities for growth. John Fichthorn: Awesome. Last question is, how do you -- how would you measure success as you build this bridge from commerce buyers to content consumers and you attempt to monetize them with AI? I'm just kind of curious how you guys internally think of success. What does success look like? Is it a percent of people that you're able to convert from one to the other? What -- how do you think about it? Paul Edmondson: It's a little bit of a math problem. I look at the success of 2 things. Like the simplest thing out there is CAC, like what can we acquire a customer for and those opportunities to do it. And on the e-commerce side, I think that's a really interesting metric for us because you're starting to use our reach and our media properties and then translating that to commerce opportunities. On the AI and the LLM technology side, there's just been incredible advancements. We have our own first-party data that's growing rapidly. We have a number of partners. We are working on all kinds of marriages between the 2 in order to identify segments of our audience and split them up and being able to transact on direct products, affiliate offers, and like I said, curating our audience for programmatic buyers as well. So I circle back on all those things. And I think like when you really look at that success, being able to take a consumer, move them through the funnel and transact, and there's 3 or 4 different outcomes we like on that back end. So we're tracking them all and establishing metrics for them. But I want to circle back to one thing, which I think is tremendously important for our business and for us and for the culture that we're developing here, which is, everything that we do has to generate cash and generate profits. And that's where when you look at our business and you think about how we are acting as a company today, we are really focused on taking and doing these things within our means and no additional debt. I think it's put a lot of discipline in us as a company. I think it helps our -- frame our opportunities. It helps us move to things that are both actionable and real opportunities to deliver. And that near-term focus is something that we're really looking for results sooner than later type things. I hope that's helpful. John Fichthorn: Awesome. Love it. Once again, great job weathering a difficult environment. Operator: And we have a question from the line of Jon Old with Long Meadow Investors. Jonathan Old: I echo everyone else's comments. Just quickly, I wonder if you could give us an update on how TravelHost is doing. And then, just thinking through M&A, if we go -- if we -- obviously, every deal is going to be different. But if we can do one of these a quarter for $1 million, what does the average deal look like, say, in 3 years? I know you've talked about ROI, getting your capital back in a year. But what is the 3-year or even 5 year -- what is the maximum -- at maturity, what does a deal like that do on average? Obviously, they're all going to be different. Paul Edmondson: Jon, this is Paul. Thanks for joining today. Thanks for the question. Love to talk about TravelHost. TravelHost is -- it was a business largely went to [indiscernible]. Again, we bought the assets of that business at a value that we really like as a company. We've relaunched it. We put it onto our platform, onto our technology. We piped all that content through to our syndication partners. Right now, it's just about breakeven in a really short period of time. And we're -- as we think about the health of our properties on the digital side, we think that there continues to be really good upside in and around that brand and the opportunity. So it's pretty close to where we hoped it would be right now. And again, we'll look for that to move beyond breakeven to generating profits in 2026. On the acquisition front, I think there's a couple of things. When you look at our capital structure and what we can -- again, what are the opportunities, we're really focused on deals that don't require additional debt right now and that have tremendous upside. When we -- I'll give you an example of the types of things like Athlon was part of a purchase when we bought Parade. I don't know if it was really any meaningful values put to that business, but it generates millions of dollars a year in top line today and profitable for us in a meaningful way. So we're going to continue to look for that kind of value and where we can get brand value, then apply our special sauce and our technology and our expertise to getting multiples of what we pay for it. On the 3 to 5-year range, I think it does make sense that as the company grows, as we continue to have more cash, we're going to be looking at those opportunities in terms of Geoff talked a little bit already is, it's the capital -- classic capital allocation. Do we pay down debt? Do we buy things? Or do we repurchase our stock? And we're just going to really -- again, the culture and the type of thing that we're really trying to build inside the Arena Group is one that's just focused on really, really great value for shareholders and for everybody that participates in the Arena Group. So we're going to continue to have that kind of discipline. Speaking about 3 to 5 years from now, that's quite a ways out there for us. But I'd say that we'd like to continue to hold these types of -- the type of culture and again, the type of being a buyer that has a lot of discipline. Jonathan Old: Okay. And just a quick follow-up. At any given time, in terms of your M&A strategy, I mean, how many deals are you looking at? Anything -- what's sort of the TAM, so to speak? What are the -- are there just years of opportunity ahead of you to -- I mean, obviously, you turn some down, but I mean, you have a whole host of stuff that you're looking at all the time. Paul Edmondson: Yes. That's a great follow-up question. The amount of opportunity that's out in the marketplace right now is -- it's a lot. And we have a pretty quick process in which we can get through things. Geoff mentioned earlier, we look at things pretty quickly and say, hey, can we get our capital back in 12 months is one of the things that we look at inside of it. We try to make these decisions really, really quickly. There is -- to quantify that, I would put us in the handful of new opportunities a week. And some of those things come with a whole bunch of properties. Sometimes it comes with the company just wanting to offload 1 or 2 things or trying to find a home for something. We're seeing a range from digital media businesses that are traditional brands to other types of product companies that are out there that sort of straddle the digital world and the retail world at this time. But the pipeline of things to look at is, I would say, it's robust. Operator: And that does conclude our Q&A session. I will turn it back to Paul Edmondson for final comments. Paul Edmondson: Thank you, everybody, for joining our Q3 call. We really appreciate the time everybody invested here to learn a bit more about the Arena business. We'll be back for Q4. And thanks again, everybody, for joining today. We appreciate it. Operator: And thank you for participating in today's conference. You may now disconnect.
Janaína Storti: [Interpreted] Good morning everyone. I'm Janaína, I'm from relationship with the customers at Banco do Brasil. Our event is going to be conducted in Portuguese with simultaneous interpretation into English. You can choose 3 options of audio, Portuguese, English and original. And in order to start and in order to share our numbers here, we have our CEO, Tarciana. She's online from Berlin. And here in our studio, we have our CEO and our Vice President of Agribusiness and Family Agriculture, Gilson Bittencourt. In order to start, we have a very brief presentation of our results and numbers that we've recorded so that we will be back. We are now going to play the video. Tarciana Gomes Medeiros: [Interpreted] Hello, everyone. It is a satisfaction to be here with all of you from Berlin. And in order to be here with you with more transparency and to show you our -- as we have highlighted on the opportunities, 2025, we have had some adjustments and also our strategy, we are going through this turbulence. It's very important to know that our resilience has been allowed for us to absorb our regulatory changes that brought to us very important alterations in the way we do the credit risk. In order to talk about this, we always have the opportunity to show the practice, the force and the strength of more than 120,000 employees in order to have all of these. So we've started 2025 with a very positive perspective. So we have had also a very typical scenario, so that we deep dive into some scenarios. We also had some static and operational opportunities that we have also shared with all of you. Even though with this adverse scenario, we also have our -- every business in order to be able to deal with delinquency in relevant regions. More than knowing these challenges, we also engaged the construction of a very structured solution and that we also had the addition of MP 1314 capacity to generate businesses and the net value. We've achieved BRL 26.4 billion. This is an example, which is our performance. Since our -- performance and our reliability considering this growth, we have the principal capital in 11.16% considering all of this. Our ambition is to reach 20% of the market participation, which is going to be pretty fair. And this credit has provided a very relevant change which is positively considering the credit and contributing for the credit and for the -- it's also important to talk about the resilience of our capital, which is 11.16% considering the level that we've judged for a very fair for Banco do Brasil, BRL 17.9 billion, which has been very important. This has been very important considering the delinquency, this elevation is very important considering soybean and corn. And also farmers who also adopted different opportunities. We also see some reflexes considering the agribusiness. This is also provided by them. They are also responding to this the MPs reached 10% considering the interest rate. If we do not take into this account, then delinquency would be 6%, even though in the third quarter, we have had different businesses that impacted all of these. On October 10, we also had this opportunity. We took decisions that were responsible and to have the correction of the production and decided, we advanced in technology innovation and specialized relationship. To offer the best experience, we shared with you Investor Day and other opportunities and we will continue to involve all of that with the clear objective to prepare Banco do Brasil to a new cycle of growth and generate value to shareholders. We will keep strong with those values that are Banco do Brasil base. Now I'll pass the floor to our team to dialogue with the market. Janaína Storti: [Interpreted] Okay. So we return here. And first, I'll pass the floor to [indiscernible] to comment something about guidance and the first numbers of MP 1314. Unknown Executive: [Interpreted] Good morning. Once more, I would like to thank the presence of all the analysts here on this meeting. The press they are watching. And I would like to say to you about our guidance that both reviewed line and to talk about how currently, we are renegotiating Agro on BB Regulariza Agro on the MP 1314. So when you look at our guidance, we brought to you 2 lines reviewed, the cost of the credit and adjust profit, last trimester when we talked that the guidance of profit were very bold of this year. And we reviewed and we brought to present to the market. So when we saw the first trimester, some issues appeared. And then I would like to share with you, we had a necessity to have a provision of BRL 1.3 billion for a specific case, the companies of retail. And it's important that we have an increase on RJ that -- with that we had the challenge to elevate provision. And at last, we got waiting compass of the produce provider, the addition and the [indiscernible] of the Law 1314. There was a process of [indiscernible] that took longer than we wait. So we started to operate 24 days ago. And that gave the necessity to have a higher provision. And by consequence, profit provision that's lower because of those predictions. So we adjust 2 lines, the cost of the credit. We are adjusting between BRL 59 billion an BRL 62 billion and that just profit between BRL 18 billion and BRL 21 billion. Talking about the Law in 13, 14 here, the bank, we have BB Regulariza Agro. And it's very important to show you how we are working after starting to operate to now. We have BRL 11.4 billion in loans currently on the analysis area. From that [indiscernible] are from supervised sources. It's important to mention that until now, we achieved BRL 5.4 billion in negotiation. Our slide is not updated. We just updated this number. We have BRL 5.4 million of approved operations. It's just like we predict. And our focus here is to have approximately BRL 24 billion of the total of proposals. So we are working to achieve it. We contact 75% of the clients. There are the constituency of the debt, and we have reinforced the producers that's the best way to negotiate. The Law 1314 brings the opportunity to regulamento the debt in 9 years. We are now analyzing and give deadlines according to the characteristics of the producer, the provisions of the operation and analyzing case by case. And it's interesting to mention that in this program, we are also keeping the insurance and try to find new ones. So it's very secure. And I believe that it's important to you to know what's the consequence of this regularization. So we have 33% on the Central West region focused on the corn and soil culture, followed by Southeast regions and South region, 21%. So what we are receiving of operation to control resource, 92% are on South region. Janaina, I pass the floor to you. Janaína Storti: [Interpreted] [Operator Instructions] Renato is now here with us online, so I call him to make the first question. Renato Meloni: [Interpreted] Thank you for this space. Because of the change with the guidance review and the application of the results, how that impacts the recovery that you mentioned, especially in agro for the next year? Is there any change? And inside agro, we saw that we had an increase on the first trimester and do not evolve accorded projection, so that's it. Unknown Executive: [Interpreted] Well, Renato, thank you for your question. Good morning to you all. First of all, the compass of provision of the stage is similar to our expectation of evolution of BB Regulariza Agro. So you have a natural provision of those stages but the producers, they are trying to reach the bank to renegotiate. So it's very likely, very strong working to that. The Stage 2 operations would be regulated and you have that to the next stage. So nothing changed in the perspective of weighted loss and the perspective of solution that's imposed and we retrofit the model to have those evaluations. The good news is that regardless the renegotiation or not, those credits are provisioned according to its loss. And it's related to your question. We plan to bring this issue of the Law 1314. So this transition between the stage could happen on the way around. So we can benefit our flow of weighted loss. So operationally, renegotiation are very related. They're achieving [indiscernible] of daily expenses aligned of what we thought at first to reach BRL 24 billion. So the challenge is to execute that. So naturally those values could flow to protection of other portfolios or to accelerate our recovery. It's important to highlight that we are working strategically in 2 fronts. The first one, new operation, we trained -- so we prevent the necessity of provision. And on the second strategy, we are working with the producers that have the most critical cases to revert the risk. So it's important. We mentioned that we are working in a strategic way. So in 24 days, we achieved the speed of what we are waiting in 60 days. So the network is focused to work the reversion of that in agro. The trajectory of default of Agro, of course. We have that on the video. October was a month where default pressured a lot because of this waiting compass that we saw the producers for a structured solution, the -- we got that. The performance is showing that's very good. And our challenge is to trace. We have a very high ambition to regulate the full balance. So we intend to deliver that because on the fourth trimester is a lower flow, so it can engage and [indiscernible]. Janaína Storti: [Interpreted] Yes, exactly this matter of the deadline flow on the fourth trimester is lower. So we have a structured solution available and traced along wafer clients. So we hope that it will control the flow of the fourth trimester. So we have an inflection for the first trimester of 2026. Next question. Tiago Binsfeld: So my question, I guess, is on the revised guidance. I understand the issues with the rural portfolio continue to impact results. But I guess first is how much confidence do you have in the new guidance? And then even looking at the implied range, right, we estimate between BRL 3 billion to BRL 6 billion in net income for 4Q. So it seems like things could still get worse from here. So I mean, just in terms of the visibility that you have in terms of the deterioration in the agribusiness portfolio and if you may need even additional provisions from here, how much comfort do you have in that? If you can just help us understand at least some when these things can stop deteriorating to some extent. I think you mentioned 1Q maybe get better, but help us think a little bit about 4Q, just given all the uncertainty there. Marco Geovanne da Silva: Thank you, Tiago. Our confidence is very high. The reason we decided to change this guidance was because we saw these producers waiting for the implementation of this provisional measure, the 1314. And because of that, delinquency picked up. So one of the reasons we decided to revise it probably if we decided not to revise it, we would be delivering something close to the bottom of the range of the guidance we had on the Street. So we try to be more accurate in terms of how far these provision charges would go depending on how fast we are able to renegotiate with the producers, okay? So we believe -- we do believe we will be delivering something in line around the BRL 20 billion net profit for '24. So this would imply, how can I say, a good profit. And the reason why I decided to say in my -- in the videocast that I recorded that I wouldn't want to be firm saying that there will be an inflection point because we saw October numbers, but as Tarci mentioned here, we are speeding up the restructuring of those loans that are defaulted with our clients. So as long as we continue performing the number of the volume that you have just seen of restructuring loans in November and December, we are confident that we will be able to deliver this new guidance we're showing you, okay? Tiago Binsfeld: Great. If I can maybe just follow up? Just thinking about 2026, a very, very high level, right? I mean, should things begin to inflect in 1Q and you should see improvement throughout 2026. Is that the best way to think about it? Marco Geovanne da Silva: Yes. We will have the chance to discuss '26 when we disclose the full year numbers. But we are still working on our budget, but definitely, we're expecting for '26 a lower volume of provisions and moving towards something close to the mid-teens ROEs, okay? Of course, it will depend on how successful we are on restructuring these loans. We will probably continue this negotiation throughout January and February. But I'm certain that once we disclose the full year numbers in February, we will have a very keen estimate regarding the guidance for '26, but definitely, you should expect lower provisions for '26 considering this level of BRL 60 billion, we are already accounting for '25. It's important to remember that so far, we have already accounted BRL 60 billion of provisions in our P&L and in our equity book. and we are still delivering something close to BRL 20 billion of net profit. And this confirms the strength of Banco do Brasil on generating revenues to protect us from this extremely difficult situation in the agri book. Janaína Storti: [Interpreted] Our next question from Marcelo Mizrahi from Bradesco. Marcelo Mizrahi: [Interpreted] So first of all, I would like to congratulate you for the courage and transparent you're facing this hard moment with a lot of commitments. So we can't complain. So [indiscernible] I would like to congratulate you, not only Banco do Brasil has the best release. So the commitment is very good. So related to the question looking ahead, looking at this rich material that you put available, this harvest curve of credit, when you look at it, individual person MP, ME as the bank classifies, we saw the harvest of last year and this year. So I ask, when we look at some indicators of credit that were previous, the wallet 1590 from Agro has an expectation of -- so it caused my attention. So the harvest issue, I'm concerned. In each moment, you are seeing default of other segments. So the individual fiscal person were affected, has to do rural producer, but that's what it is. Those are the problems of the bank. We are talking with the people that are on agribusiness. So I'd like to know from you how you are seeing the default of other segments besides Agro, the 2/3 of the bank on this dynamic? So about peak of default in Agro in the first trimester. As I understood, I think we should have an improvement. So I would like you to talk about the default of the business people, the transparency of the governmental programs, we need to understand it and besides it, how to think the growth of the bank wallet? We have seen the wallet this trimester had a contraction. We have the credit card something to focus and it has a high default. So how to leave the situation that the bank are in and how do you -- you are dealing with it? Unknown Executive: [Interpreted] Well, we've pushed about and addressed about the agribusiness. It is related to our capacity of our execution, the BB. As for individuals, one of the third of our client base as you've mentioned, we do have a very strong pack considering the products for individuals that we have the transition considering the agribusiness change. So this delinquency is related to what is coming from our farmers and producers, which is different from other harvests that is different. As you've mentioned about the market that has been approaching that delinquency is not only for farmers, it is also about the difficulty and the capacity of payment of products and producers as individuals. And the bank as it is in this productive chain, this is quite strong, and we do have this additional impact. So the harvest from '24 and '25, they are correlated to this performance, considering our customers, farmers and producers that represent not that much for the PS, but they represent 1/4 of the delinquency considering the PS client base and also considering credit card, as you've mentioned. And here, we also have a disclaimer that there is a constantly -- as you are aware of, and it is the lower documents our client base and the interest rate or the number of installments considering the operations of credit cards are -- they are all very low. So we have this timeline and also the capacity from farmers, so we also have the delinquency considering credit card. The good news is that in this specific case, delinquency, we have been controlling and we are taking some measurements, very restrictive measurements in order to reduce the risk of this client base. Even though considering this situation, we are very low considering the average delinquency considering the financial market. So it's important to have this considering the client base and also having very inferior delinquency [indiscernible] and the market due to this characteristic of our client base. So having this migration considering legal and corporations, we have government programs. And it's important to be able to tell about this differentiation because the bank has a very strong role if legal. So we have had a recent period, and we don't have this concentration considering these due dates. So we also have the payments in the harvest. So the guarantee client base, it is in such a rhythm that is quite normal in order to have this processing. And we also have this in order to be able to fulfill all of this. And even though we have this delinquency and even considering the '24 harvest, the adjustment was quite strong, considering all the models. And we have a very clear redirection and for the receivables. So with that, naturally, we will be able to have a better result for this portfolio and finding out what we see as a clearer result considering this. And perhaps this is not very strong right now and considering the harvest that you are seeing now. But when we take into consideration the short harvest is and the performance is just giant. So we have this very short delinquency that is less than short. So this takes a little bit of time, but we are truly confident considering this. So we have delivered this very confidently in this portfolio. So this is what you can expect from now on, given the quality and the origination of all of this. So when you see the legal and corporations, this has got a very good impact. And this is absolutely provisioned. Janaína Storti: [Interpreted] Have we answered all the questions, yes. So it was a very specific question about legal corporations. Okay. Unknown Executive: [Interpreted] Yes, correct. Probably, we could also take into consideration the next harvest, as [indiscernible] he's here with us, is our pretty new Vice President and it's really important to share this information. Most part of the delinquency comes from the cost of this harvest, which foray into '25. And as we are being very rigid, but we are also very attentive, not only being very -- only attentive, but being very effective to this. This also reflects considering the results of the rates and our expectation for the next year also, we do have the growth considering April to September, we will have a result considering this whole work that we have had, considering the credit analysis and using our methodology of credit analysis, not only about the hurry process, but also very structured and also the farmers who have a very tough pay bill benefit. But it's pretty robust, and it's important to take this into consideration. The BRL 4.3 billion, so all the producers and farmers who were suffering considering the difficulty of cash flow and also these 2 actions, whether it's the new operation or this new program. We have this expectation for 2026. We will have this pretty low and it's going to be even better. Janaína Storti: [Interpreted] Thank you so much. Okay. So our next question. Unknown Analyst: [Interpreted] The capital topic, as we saw. I would like to understand what you're seeing ahead? The 80% thinking about growing the wallet don't grow so much. And you recently reduced your payout to 30%. So how do you look ahead the capacity to keep payout next year? Unknown Executive: Mario, thanks so much for your question. Our commitment is with the sustainability of the results of the Banco do Brasil. So considering, we think that's good, we improved and revert this flow and bring our main capital over Level 11. So it's a great one. So have a radar next year, one of them at the end of CGPL, renegotiation program of the small business, so which will reduce 6% base data of debt. So everything that's happening with the reduction of the recurrent results. What's happened in the Agro that reduced the growth of the capital in organic way. So we will keep 30% of payout for next year. And of course, depending how much we can renegotiate it and reinforce on capital, we'll evaluate the possibility to return with the results that we consider that's what Banco do Brasil deliverers. We can talk about the extraordinary payments of debt. So for now, that's our policy, 30% of payout. So next year, we have severity on the capital that's come from the provision for BRL 966 million. So we'll consider that and we have another potential adjustments that will come. So we have -- we are being very conservative, being sure that capital-based fundamental to support the growth of the wallet. So next year, we will still grow the natural personal wallet loan, public loans and the work loans where we are vice leaders, we are going to bring more recurrent results. And just to mention, 6 bps micro small business program, 25 bps from the second phase and we returned 1 bp from hybrids in July's counting. The impacts that we got on the trimesters, we have 4 bps ahead, so always in July, and we had operational risk faced in 4 years, 10 bps per year. So around 100 bps impacting next year. Just reminding, and Mario, it's not clear to everyone. It's important to clarify that each renegotiated real based on the Law 1314 the same now on the main capital basis is the same effects of CGP so we neutralize those impacts. Currently, we have 7, 8 bp of CGP. So it's on the ambition that we got. So we will overcome, auto has less capital. Janaína Storti: [Interpreted] So I'll call next question that comes from Daniel Vaz from Safra. Daniel Vaz: [Interpreted] I like to focus on Agro, talking about the growth of the wallet, but if you broke [indiscernible] and the original dropped 12%. So it seems that even you have this control, the renegotiation program now by the law and the 4B of the NDS, I think that's the [indiscernible] wallet. It's on a level that we saw in the latest year. So it's a reflection of the capacity of payment of the producer. So the due dates that they got the wallet progression, we have a decrease of the concentrate default. So it's 8%. Naturally, this was classified in Stage 1. So it got worse consented. So we transferred to Stage 3 of the next trimesters. So I'd like to hear from you how do you look for the help of this [indiscernible] wallet? And imagine, the first trimester, if you are able somehow to talk about this wallet and saying that's going to warm up, if you're comfortable or not with this -- I'm sorry, if it's going to cool up, this wallet. Unknown Executive: [Interpreted] Thank you for your question. So it's a very good point. This extended wallet when we didn't have solution for this segment. So what we are going to do? We are going to work on this wallet to be transferred to a line to the rural producer. So this portfolio will flow for renegotiated. It will keep the risk of it will be reduced because it's going to be related to the capital payment of the producers. So we are not comfortable with that. We have a portfolio that's elevated, and we need to work with it. And the big difference is that now we have a solution, an adequate solution to offer to our clients. So we can adequate this operation along with recovery of the capacity of payment for rural producers. So to be objective we hope to have a solution that's more effective, including to deal with the balances that are inside of this portfolio. So about perspective. So Daniel this portfolio is the most default one but the central point for renegotiation is this audience that was having the debt with the bank because of price problems and did that for 2 years via MP 1314 and understand the situation. When you're going to charge only the interest rate, the expectations to put due dates on this point. So this producer can restructure its payment flow. So it will restructure and reduce the full important factor. Even we have a decrease of high of the Safra plan, our expectation related to Agro portfolio is to keep on this rate of 400B. How we are going to do that part of this decrease that are happening on the new contracts are going to be done on the law. So around BRL 20 billion, BRL 24 billion, our expectation related to the fees, so it's BRL 28 billion. So part of what we are not hiring in Safra, we are keeping. So it's near 400, a little bit down or up. So what tends to ensure profit on this portfolio. Unknown Analyst: [Interpreted] If I can make a follow-on on this question. Do you think that this program of BRL 24 billion, you're going to ask for more line for the government thinks that the probated BRL 60 billion, the focus is inside this pool? Two parts, these free resources don't have a limit. So how much each institution are available to do it? Unknown Executive: [Interpreted] So we are dealing BRL 24 billion as a target. But if you have a space to extend it, there is no restriction. If we had more producers and you can help them to structure the payment flow, we are doing. So regarding the controlled flow BRL 12 billion, BRL 4.3 billion, we are working on a perspective that's very interesting. Starting on the state that's the most difficult one that [indiscernible] have BRL 4 billion, we are only being questioned about it. We are monitoring if we achieve BRL 4.3 billion, so we are going to talk with your peers. So for now BRL 4.3 billion, it's what we have from deman. Janaína Storti: [Interpreted] Our next question from [indiscernible]. Unknown Analyst: [Interpreted] Thank you for the partnership. I would like to understand 1314 and the first quarter. I would like to know about the [indiscernible] average payment term considering that because that has to be adequated and negotiation is key, but what is the measurement considering that because we need to increase this to 2, 5 or 10 years. I would like to understand to what extent is this going to be taken? If you could please just talk me through this. How does it work? Because this is in Stage 2 or 3? And how is it going to be just like this provision. And also the interest rate, how does the interest rate work on this matter? I'd like to understand a little bit better from this. And also the agribusiness, as you've mentioned on a podcast that you had a discount and negotiation. So it is clear, but what is not very clear for me is that in the fourth quarter it is different, and it's the same level considering the third quarter. But the message that you were conveying you're having this disbursement and everything might be very clear to BRL 3 million to BRL 4 million, and I would like to know more about this and the government? So why having this pretty high provision? Could you please talk me through this? Unknown Executive: [Interpreted] Thank you very much for your question. Well, first, we don't have any overall solution. Every case is taken into consideration. We have a technical body that takes assessments considering our customers, and we are just leveraging all these assets, considering artificial intelligence and all the modeling. And we try and we identified a real need of farmers. And these assessment is that from order to our credit team that assess the need of the due date, the period of time and the flow -- and the cash flow considering the capacity of farmers. So there is nothing single. So we need to have a technical analysis and we then find a need considering the farming in order to have a negotiation with all of us. So that we take into consideration the current measurement and also the risk management in short and long term. We did call like this structure the realization in order to have sustainable solution in the long term. Even though you've seen this provisioning process and what is being expected effectively. So we measure the risk regardless why this is being materialized or not. So then our balance is going to be quite ready considering the sustainability -- future sustainability. So then it's also about the stage. So that's why we don't have an immediate effect considering the flow or the balance that is expected because we conduct the assessment, the hiring is -- we have a 50% of operations renegotiated. That is we have the value and we have the adjustments, we have our framework considering the credit management and risk and considering the hiring. So then -- we then take into consideration the producer and also the opportunities for the banking in a long and short term. So the producers will have this payment term. We will have the possibility to keep operating with them and being able to have the best businesses. So that's why you see places that you don't have this expectation of this reversion. So our focus here is to contain this delinquency flow. And also, we are able to deal with this in conservatorship we reevaluate the configuration of these customers. So each one of these phases. And eventually, we see that the producer is then clear. We naturally just have a reclassification in each and every stage, but that is according to a very rigid evaluation and assessment. So once the risk is solved considering the agribusiness activity, so then we don't have this process that is needed considering this reversal of provision. But what can also happen considering this faster that speed that produces considering the capacity of their payment. If they are in this stage #3, we then have this reclassification, that is because of the renegotiation, so then these operations will then irrigate our financial margin, but this is according to a very conservative analysis and having as the focus of the offer legalization in the long term. And he will be able to provide more information about it. So 2 very important aspects is that in an year, we have the interest rate. So for the next year, we will have the return of these farmers. And even considering their capacity of effective payment, it's not that it's only 1 year period of time, but the second aspect that is important to highlight is that it's not only any demand that we are including this renegotiation. We are dealing with this criteria. The timelines are every 9 years. So considering the payment capacity, we are not having viability. So this is the criteria. And we are prioritizing the farmers who have delinquency -- short delinquency. So we are just taking those who will be able to have an individual analysis, having a better capacity considering this flow. So it's not that we are only going to renegotiate anyhow, but we have the timeline. We have 6 or 9 years. So each and every situation is being taken into consideration, considering the recovery and the generation of cash flow. So these are very critical. Look, it's important to be taken into consideration 5.5% that were approved, almost 100% is going to be feasible. So 100% is going to be formalized considering this. So we also have 11.4 bps and this is not going to be taken aside, but we also have the support demand, but they haven't been analyzed. So these [indiscernible] that we just analyzed that we had. So we are showing this data, 5.4 is practically effective. So once we have these rules restricted, and we have everything proper, we have the numbers. And so then the process is going to be somewhat slow due to these requirements and the numbers they are lower, but everything is being taken into consideration, not to happen or what you've mentioned about the delinquency. This is not our responsibility. Janaína Storti: [Interpreted] So next question from [indiscernible] from XP. Unknown Analyst: [Interpreted] We talked about Agro. So it's important to talk about the natural person segment. When you look to the excel that you published from 2014 from now on, we have the highest default of the series. I would like you to comment that and when you look to the portfolio growth in agro and legal entities, we have decreasing on the portfolio and natural personnel. So I'd like to understand the exception of tax income next year, what kind of comfort could you give that to this moment of the default of those in 2026? Marco Geovanne da Silva: [Interpreted] Good question. And it's important for you to look at the [indiscernible] as a point -- just a point thing is we grow in credit card in terms of volume and increase of default of credit card, and we have a contended effect coming from nonnatural person field from Agro. So they're waiting contacts work for everything. So those negotiations are happening. So naturally, we are resolving this matter. Looking at '26, our bet since we started to see this risk severity of the rural portfolio, we needed to focus on those lines that brought more return and spread, adjusted by risk. That's what we did. So it's very good growth of natural personal portfolio. The trend is to keep growing. We have minimum wage adjustments and availability that's higher. So we have an opportunity to grow on the lower risk level and the laws of the workforce. So BRL 11 billion, and we have BRL 11 billion now available. So we have a big space to keep growing. Bringing more return to the bank to help us to go through this phase, delivering results to our shareholders. And we have a possibility that's important, we are segmenting inside our credit card strategy that the high income where we got more results. So this default we consider as normal and simple. So we bet that '26, I'm sure it's going to be a natural personal portfolio. Janaína Storti: [Interpreted] So thank you, Geovanne. It's important to reinforce that this growth of this portfolio happened because of the workers law. That's the line of credit that Bank do Brasil has 90% of the structure on this line. So it's important to understand there's still space for growth on this workforce credit line will have a share of 20%. That's a share that we understand that's more adequated to Banco do Brasil. And on the other hand, on the third trimester, there seasonality of default natural personal portfolio. That's a historical series. This Agro issue that Geovanne mentioned is punctual in default this month, we have November and December, receiving the third payment ex Agro is -- will be regular on this next 3. Our next question comes from [indiscernible]. Unknown Analyst: [Interpreted] Once more congratulations. Talking about the Agro issue, it was bad, it was good and latest years were very good and now is passing through an adjustment that's very strong. If you take the historical series of view, 5.3% of default for the segment. We never saw it. So maybe it's not 0.5%, but 5.3%, it's a very high number. I would like to hear from you the change that you are implementing, a structural change to have something more predictable, sustainable on the next cycles, if you could explore this point in terms of warrants, equalization and the RJ things, how we are going to promote it to have a sustainable product? Marco Geovanne da Silva: [Interpreted] Thank you for your question. I will start and then pass to Prince. You talked -- you mentioned very well, historical, we never faced a situation like this one. Last time we faced it, even like this on the Agri sector, it was necessary to have a capitalization in 1994. And what we are doing now at this moment, we are passing through the severe scenario for this portfolio and we learned a lesson. We are partners of agribusiness. And it was important to review some of our practices. And the first one as [indiscernible] mentioned, the new hiring contracts is the matter of fiduciary transfer. The new titles that enter because of the agribusiness increase, they adapt in its systems, bringing this new warrant modality but Banco do Brasil is still on the traditional model based on harvest. So it was very clear for us to change very quickly. And one of the effects that we are facing this moment, it's a little bit of the reduction of the release of the new harvest because the process got feedback from our clients. And we have that explained to turn that in a more safe environment, so we can understand the farmers. They are understanding we depend on the -- when you register this fiduciary transfer. And at the same time, we are still having results with it. So we're looking at 2026. We are going to have a soft process. So if you can add something else? Unknown Executive: So first, the issue of the origin, as Geovanne mentioned, we have this practice of the field origin -- to know our clients to understand the productive capacity and the generation of income. Parallel to that point that we observe, your relation with clients from lazy clients. So we are very proud. Some adjustments in process were -- the cost of production. Other point, we are investing on the follow-up. So to identify the risks in a preventive way. So it's leveraged by new technologies. So we are connecting our historical basis of performance of agribusiness. I talked to you about it. We have cataloged that since 1960s. So with new resources via reference and evaluation with AI, so can identify the deviation of productivity, risks from the climate. So with that, we can manage productivity of our clients foreseeing if they can have a difficulty of payments in the future, presenting previous solutions to reduce the risks on this business. So we are also investing very hard on the post production following. We have a default related to commercialization, mainly in periods where doing commercialization, there is a depression of prices. Just like the previous harvest, so we need to be very aware of the stocks that we have as warrant so we can converge in incomes and these incomes will go to the bank for payments for operations. And we keep going on the process of negotiation. The bank shows its historical partnership with rural producer, launch BB Regulariza Agro, that's a solution that don't access on the market. So the big solution of the negotiation of the rural producer, it's available in our support channels through BB Regulariza Agro. And eventually, those cases where many times, we don't have even the negotiation itself. It's a goal for the court. And so we are defending our interest in because we believe that it brings an interruption of the relation and difficulty of the activity of the producer. But are still here very strict, defending our interesting. And next trimester, you're going to observe that we should protocol some requirements of bankruptcy exactly so we can stabilize those process and the ones that try to contract this mechanism in a legitimate way. Janaína Storti: [Interpreted] Next question, Pedro Leduc from Itau. Pedro Leduc: [Interpreted] Changing the topic about MII, 5% of increasing 3% to 3%, the components were more than 20% by part of the treasury, the clients who didn't grow so much. PVMs in a higher Selic, more work days. And on the client part via mix spreads. I would like to -- you to comment how we should see this MII line consolidated behavior for next year because we have a derisk on the natural person portfolio, so it should permit decrease and delinquency situation with Selic decreasing pressure on the treasury part? Just to understand how we are configurating the MII trajectory, seeing the portfolio for 2023. Marco Geovanne da Silva: [Interpreted] Thank you for your question, Leduc. We are aware. So we are expecting the cohort of interesting rates. So we don't believe that such a drastic reduction like the increase, and it came from a capture. We have an exposition of LCM. On the short term, the Selic drops down, in a certain way is going to facilitate and this gain of this match between pre and post capture of portfolio on this moment. So that's why it's important to accelerate this generation. We are generating volumes on the spread level that's higher. So to protect when the spread drops with the decrease of the interest rates. On the other hand, it's a good environment for economy. And a possibility for it to expand this volume of credit, the volumetry will be important to help to support this financial margin. In terms of treasury, we took advantage of this moment of high Selic. Our delinquency were very high. So I call the change of the mix, focus of the lines of work and those are fundamental to support this maintenance. Janaína Storti: [Interpreted] Our next question comes from Carlos. Unknown Analyst: We'll try English. So also to change the subject. Can you discuss the tax rate, which was very low, it was negative this quarter? So for the year, you have paid 9%, obviously, the profitability is low and you have interest on capital. But what do you expect for this year and for next year? And next, I would like to also have your comment about how much longer you will have the economic plans provisions? Marco Geovanne da Silva: Thank you, Carlos. Definitely, the reason for this low tax rate has to do with the increase in provision charges we accounted. So our profit before taxes was very low due to these incurred losses we have accounted. And for this reason, we had to recognize a much higher volume of tax credits -- deferred tax assets. And that's why our tax rate dropped significantly, showing revenue in that particular line. So we used to estimate an average tax rate around 15%. With this new regulation regarding expected losses and given the scenario we have for the agri book, you should expect to see a different tax ratio looking forward. So we don't have an estimate right now, but definitely, as long as we continue accounting higher incurred provision -- incurred losses, we would have this benefit in our tax ratio because the framework has changed completely with this new regulation for 966, okay? So looking forward, you should expect a lower tax ratio. And the second question regarding the economic plans, it's important to emphasize here that there was a recent ruling from the Supreme Court, extending the time for clients to negotiate with banks, all banks, not only Banco do Brasil regarding the economic plans. And there is a due date. So for the next 2 years, all clients must negotiate with the banks. And we believe that with this new ruling from the Supreme Court, we have a final due date that will happen within 2 years to end -- to cease this kind of provisions that we account for economic plans. Unknown Analyst: So that is June 2027, I think? Marco Geovanne da Silva: It will be '27. It was negotiated in '25. So we have -- and this negotiation was done through the federation of banks because this is something that reaches all banks, okay? It will happen '26 up to '27. That's when we have the final due date for all clients that were, how can I say, impacted by the economic plans can negotiate with banks the return of their money, okay? Unknown Analyst: But again, it is until the middle of '27 and you expect this level of provisions all the way there? Or should it fall off until then? Marco Geovanne da Silva: Well, in terms of provisioning, we don't know exactly because many clients they have already died. It's something that we're trying to figure out what is the size of these provisions. We have already reinforced some volumes, but you should expect keeping up this track in terms of provision charges. We don't expect a huge increase in that volume, okay? Janaína Storti: And Carlos, for this year, the effective tax rate should be on a low single digit, okay? [Interpreted] Our next question comes from Gustavo Schroden. Gustavo Schroden: [Interpreted] I would like to get into the question that information about that there is a limit considering renegotiation and I truly understand the funding for this negotiation, the outcome. They are really for the improvement of the capital index considering the KPA that you have mentioned for every real that you have negotiated, you then have an improvement, considering for instance, BRL 1 in the capital. I understand that there is a limitation that they would be available and we had [indiscernible] that could be used for this program considering these provisions. So I just would like to know and confirm whether this is correct? If there is any limit considering this improvement of capital via BTAs because it's probably -- it is required to have a funding and it's important to have this relief considering this bank capital. And the second question, when -- how would be this sentiment considering the [indiscernible] RJ and above 90 days, but I truly believe that there is a different agreement considering credits and the program of the renegotiation, I would like to understand whether these credits -- whether this RJ -- whether this can be renegotiated and how would this be transitioned? How would this be -- or whether this if it is not contemplated, and I would like to know, considering the potential losses? Unknown Executive: [Interpreted] Thank you for your question. You understood well. We have close to BRL 24 billion that we can renegotiate. And we will generate capital benefits because of -- should be the tax credit stock that we can use. It optimized the funding that also repassed in conditions to the clients. But as Bittencourt mentioned, there's no limit. This funding, it's under the bank. And obviously, we are going to put in your measures of financial cost, the possibility of this funding to be able to overcome this balance. So the balance could be passed. There is no limitation. What we have is the limitation of our balance of -- take that renegotiation to transform it in capital. That's it. And we are prepared to have conditions, competitive conditions to offer to our clients, doing all our RLM management, so we can offer beyond BRL 24 billion as we commented at the beginning is our first target, but not only the last one. So related to judicial recovery, we have a limitation. It's not something mandatory for us to do this renegotiation inside the process of judicial recovery. So what we guide our producers is that to get in context so we can negotiate and make them to leave the judicial prosecution and then they can adhere to the conditions of the law. We are not offering to problematic loans. We are offering to the producers that want to have payment capacity and sustainability of their activity on long term. So Bittencourt, if you can complementary topics. Gilson Bittencourt: [Interpreted] We have cases of producers that have in judicial prosecution, how they can leave that and renegotiation inside the bank. Those are specific case. This gain of capital is for the free resources. Controlled resources not be applied. Related to it, the monetary Board established, you just can use their own resources of the bank, but there is an expectation on the next days. We will have RCA resources so to extend the resource and a lower resource. And one aspect from the free resources, 30% of those operations that were approved are post fixed fees. It's not common rural credit, but a partner of rural producer of the bank put this opportunity. So we can contract with a prefixed fee or viable one linked to CDI. So this BRL 35.4 billion are for this model. So we can control that in a more effective way, and it shows to the producer that this expectation of the reduction of Selic fee will give to the producer contributing. So then can have a capacity of payments on the next year. So we are working on a long-term overview of a partnership. Unknown Executive: [Interpreted] And just to finish, Today, this portfolio has 75% of central provisions, very adequate to the loss estimates that we had. So those producers in RJ that are willing to negotiating with us, we have an open door to adhere to the new provisional measure. Remembering that we had a big elevation of RJ going to BRL 6.6 billion trimester. And the guidance review was this one, had an increase. So just to it was 1B 20, 1B 300. So we are building this coverage level because of the risk and the time that those operations to be defined and decided. To conclude, those operation, their recent judicial recovery, they don't have a plan -- approved plan. So they go to a default. And the weighted loss is very high. So we make an additional provision as a prevention. Follow-up. We are in the middle of November. We have an indication to show how the number of judicial recovery are and how it's going to be. It's still increasing, but we are expecting a calling because of the availability of the law. So we are investing on negotiation, and we talk with the market, not different on other banks because with this solution, we have a powerful tool to offer to our clients so we can solve the business, the commercial negotiable way. Janaína Storti: [Interpreted] So going to the end of our live our last question from Nicolas Riva from Bank of America. Nicolas Riva: I have a question on your presence in the international bond market. So in October, you called the last AT1 that you had in the global market. So -- but you still have a number of senior bonds outstanding maturities in the next few years. So I wanted to ask you about your plans to keep a presence or not in the international bond market and your plans regarding the refinancing of the senior bonds? Marco Geovanne da Silva: Thanks, Nicolas. We do plan to continue touching the international markets. The reason for calling the AT1 is because we have now a new kind of funding here domestically that is cheaper. So that's the reason we decided just to reduce our interest costs in terms of our funding, okay? But we do aim at continuing this relationship, especially in the senior front, but for now, we don't see any new issuance happening, okay? Janaína Storti: [Interpreted] Well, so we finish here a Q&A session. In September of this year, we had our Investor Day. It happened in New York. And it was a reinforce of our commitment with transparency. And here, to reinforce even more commitment and to get close to the capital markets, we have this live with APIMEC and I have here with me, Ms. Lucy Sousa, the President of APIMEC that is going to deliver the seal of conformity. Lucy? Lucy Sousa: [Interpreted] Vice President, Director, [indiscernible] professional, my colleagues, analysts, investors, it's with a great satisfaction that APIMEC delivered this award seal 31 years of recurrent meetings in the hybrid or online format. We highlighted during this period of transparency, the contingency of information and the partnership and the support of our association and the analysts and the other professionals of investments. Congratulations to you. Tarciana Gomes Medeiros: Thank you. It's an award for attendance, it's an APIMEC award, 31 years in which we have our meetings, and I believe the important work of APIMEC. So thank you to your team that makes APIMEC such an important association in the capital market. It's a spectacular work. Thank you, and I'm very proud to receive this award. Janaína Storti: [Interpreted] Thank you, Tarciana. We show a lot of success in copying the lane and all the professionals of Banco do Brasil shareholders. Thank you. Thank you, guys. So we conclude our live, and I'm available, the team's available to enclose additional clarification and see you soon. Thank you, guys. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good afternoon, everyone, and welcome to the Cibus Third Quarter 2025 Results Conference Call. [Operator Instructions] And please note, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Carlo Broos, Chief Financial Officer. Sir, please go ahead. Carlo Broos: Thank you, and good afternoon. I would like to thank you for taking time to join us for Cibus' Third Quarter 2025 Financial Results and Business Update Conference Call and Webcast. Presenting with me today is Peter Beetham, Co-Founder, Interim Chief Executive Officer, President and COO; and Greg Gocal, Co-Founder and our Chief Scientific Officer. Before we begin the call, I'd like to remind everyone that statements made on the call and webcast, including those regarding future financial results and future operational goals and industry prospects are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to Cibus' SEC filings for a list of associated risks. This conference call is being webcast. The webcast link along with our press release and corporate presentation are available on the Investor Relations section of cibus.com to assist you in your analysis of our business. And with that, I would now like to turn the call over to Peter. Peter Beetham: Thanks, Carlo, and good afternoon, everyone. This past quarter has further focused our commercialization and production activities. I clearly see our company as a coiled spring, ready to deliver gene-edited traits for years to come. Today, I am excited to share the significant commercialization momentum we have generated since implementing our streamlined strategic focus. The progress we have made in just the past few months validates our decision to focus on our highest value near-term revenue opportunities. As we've discussed previously, we are primarily focused on our weed management traits, bringing herbicide-tolerant crops to new markets and providing great options for farmers, while we also achieved early revenue for our biofragrance business. The progress that our talented team has been able to make within our focused strategic framework is remarkable, and I believe the results speak for themselves. What you'll hear today demonstrates our drive toward our commercial goals. When we announced our streamlined focus in July this year, we committed to you that this would help solidify our path to our near-term revenue opportunities. Today, I'm pleased to report that we're delivering on that commitment. But before diving into our results, I want to take a moment to emphasize some recent exciting news about our Board. We strengthened our Board with 2 appointments this quarter. In September, we welcomed Kimberly Box as a new Board member. Kim brings exactly the kind of leadership we need as we move into this commercialization phase. She has deep experience in technology operations, strategic transformation and scaling innovation into global markets. Experience gained while employed at Hewlett-Packard in executive roles over 30 years. And, just last week, we appointed Craig Wichner. Craig's deep expertise as a recognized leader in regenerative and sustainable agriculture, including farmland investment management as the Founder and Managing Partner of Farmland LP brings valuable perspective as we advance towards commercialization. Both directors will play key roles in supporting our commercialization efforts and long-term value creation. Now, let me start with the headline accomplishments for the quarter and year-to-date. We have now signed 7 Rice customer agreements in the USA and Latin America, now representing approximately 5 million to 7 million addressable acres for our Rice herbicide tolerance traits, HT1 and HT3, and if fully developed, represent an opportunity to capture over $200 million in potential annual royalties. The expansion of our customer base, including additional customers in Latin America and our recent positioning for entry into the massive Asian markets via India, showcase the commercial opportunities driven by our technology and the value proposition we can deliver to seed companies worldwide. Now let me move to our priority pipeline traits and programs. I'll begin with an update on our Rice herbicide tolerant traits, HT1 and HT3. These 2 traits, as I mentioned, continue to represent over $200 million in potential annual royalty revenues across our initial target geographies. These traits are progressing on schedule toward targeted initial commercial launch in Latin America beginning in 2027, followed by expansion to the United States in 2028 and then Asia closer to 2030. Every quarter, we are moving closer to that pivotal revenue expansion inflection point. Our year-to-date commercialization progress in Rice has been exceptional. This is especially true within Latin America, where we now have 5 Rice customer agreements signed. Latin American markets have historically lacked access to advanced weed management solutions in Rice, representing a transformative opportunity to Cibus to deliver significant value to farmers while building our commercial foundation ahead of our U.S. and Asia targeted launches. Recent examples include our agreements signed in August, expanding our Latin American customer base through a partnership with Centro Internacional de Agricultura Tropical or CIAT, which works with the Latin American Fund for Irrigated Rice or FLAR and participates in the Hybrid Rice Consortium for Latin America, HIAAL. Cutting through this web of acronyms, I want to emphasize that through this important collaboration, we have the opportunity to make our HT traits available to rice farmers across Latin America. FLAR will be a great partner and has a great track record that includes launching rice varieties in 17 countries. Further, we signed a collaboration agreement in August with Semillano, then more recently with [indiscernible]. Both of these are important Colombian rice seed companies, marking continued momentum in this strategically-important geography. Then, just last month in October, we began collaborating with strategic growth advisory firm, AgVaya, to develop a comprehensive strategy for establishing Cibus' access to seed companies in India. This is tremendously exciting because India is the world's second largest rice producer and the world's largest exporter with approximately 120 million acres under cultivation. This collaboration will focus on enabling joint development and commercialization relationships for advanced herbicide and sustainability traits, creating opportunities for Indian rice seed companies and public agencies to integrate our cutting-edge gene editing solutions. So, when you step back and look at what we've accomplished just in 2025, the commercial traction is undeniable. We've expanded our Rice program to a global platform spanning 3 continents and targeting the world's most important rice growing regions. We've built relationships with both large multinational seed companies and regional leaders and we're on track to initiate our first field validation trials in Latin America by year-end with delivery of initial Cibus HT traits to our Latin American customers anticipated in Q4 2025. What's enabling our customer momentum is our standardized Rapid Trait Development System or RTDS that allows us to edit customers' elite germplasm and return it with specific traits in approximately 12 to 15 months. RTDS represents a fundamental breakthrough in agriculture's innovation, offering the industry a dependable, time-bound model for trait development using gene editing that seed companies have never had access to before. Our RTDS is becoming recognized as an essential extension of seed company breeding programs, and that recognition is translating into expanding commercial partnerships. I'll shift now to an update on our partner-funded and supported sustainable ingredients program. I'm pleased to share that we achieved critical milestones this quarter with the successful completion of pre-commercial pilot runs for 2 biofragrance products, validating our technology is ready to expand to full commercial scale. This positioned us to receive initial payments, offsetting related R&D expenses in Q4 2025, representing our first proceeds from this program. This is a monumental milestone for our entire team who have been working tirelessly. And this is yet another element supporting our conviction that our business represents a coiled spring showing great promise. From there, we're positioned for targeted expansion throughout 2026 as we advance our Rice traits toward full commercialization during the subsequent years in 2027, 2028 and beyond. Our biofragrance program demonstrates the versatility of our capabilities in creating value beyond crop productivity traits. We're generating strong interest in the consumer-packaged goods industry for bio-based fragrance products that can replace expensive natural extraction processes or less preferred synthetic alternatives. We believe the long-term opportunity in this area is immense. Now, let me move to regulatory, which we believe is a key catalyst for acceleration of the global growth of gene edited products and continues to improve. The EU regulatory process for new genomic techniques remains active and on a path to completion. Key legislative language has now been agreed upon with final text being refined across remaining amendment categories and anticipated to resolve within the next few months. Beyond Europe, our positive determination in Ecuador, ongoing approvals across North and South America and progressing regulatory clarity in India and parts of Asia are creating a foundation for global market access. The California Rice Commission's approval of our field research proposal marks the first time that gene edited rice has been authorized for planting in California, another important validation of how our technology is synergizing with the broader regulatory environment. So, turning briefly to our operational progress. We've made significant progress on our commitment to disciplined capital allocation. We successfully completed the consolidation of our Oberlin, California facility into our San Diego location during Q3. These and other actions are driving us toward our target of approximately $30 million in annual net cash usage for 2026. This capital discipline extends our runway while ensuring we are resourced to capture the revenue opportunities ahead of us. We continue to allocate resources to our highest value programs while maintaining the development momentum required to hit our commercialization targets. And with that, I will now pass the call over to Greg to discuss our opportunity pipeline traits and programs. Greg? Gregory Gocal: Thank you, Peter. I'll keep my remarks focused on the key technical milestones we achieved this quarter that support both our priority programs and our broader opportunity pipeline. On the Rice platform, I'd emphasize that the enhanced editing efficiency we've achieved is directly enabling the customer expansion Peter described. We're not only signing agreements, we're actually delivering edited, elite germplasm back to customers on predictable timelines. That technical execution is what's driving the partner interest we're seeing, and it's validating our industrialized breeding approach. Using our RTDS, we are changing the way plant breeders think about the future of trait development. The unprecedented speed of our technologies to edit elite genetics will only accelerate with our continued improvement and strategic use of AI/ML technologies. Turning briefly to our opportunity pipeline. I want to highlight 2 significant technical validations this quarter. First, in our North American field trials, our HT2 herbicide tolerance trait validates the path for developing not only for that chemistry, but for any chemistry in this family. For sclerotinia resistance in canola, bioassays for plants bearing 2 of our modes of action demonstrate enhanced resistance. It's important to remember that both HT2 and Sclerotinia resistance have broader potential application to crops like soybean. Further, these results position both traits well for potential partner development. Our HT2 trait is being offered to seed licensing partners for funded, continued development opportunity. Second, we completed our second year of field trials for our Pod Shatter Reduction trait in Winter Oilseed Rape, showing promising performance in several customers' elite germplasm. For the 2026 field season, we're pleased to see implementation of the U.K. legislation, enabling our gene-edited trait germplasm to be growing like conventional germplasm as we seek funded partnerships for continued development. Finally, the soybean platform continues to generate partnership interest as we seek to access a 125-million-acre opportunity. The key message I want to leave you with is this. Our RTDS platform is proving its value across multiple crops and increasingly complex traits, whether it's delivering Rice traits to 7 different customers, scaling up biofragrance production or validating next-generation herbicide tolerance traits in canola, we're demonstrating the versatility and commercial potential of our technologies. This technical foundation, combined with our growing regulatory track record, positions us exceptionally well to advance high-value traits through partnerships while maintaining focused execution on our priority revenue drivers. And with that, I'll hand the call over to Carlo for a financial update. Carlo? Carlo Broos: Thank you, Greg. Looking at our financials for the third quarter. Our cash and cash equivalents as of September 30, 2025, were $23.9 million. Taking into account the impact of implemented cost-saving initiatives and without giving effect to potential financing transactions that Cibus is pursuing, we expect that existing cash and cash equivalents is sufficient to fund planned operating expenses and capital expenditure requirements into early in the second quarter of 2026. I'd note that our commercialization focus has enabled us to streamline our expenses and operations significantly. We have reduced operating expenses by almost $5 million in the first 9 months of 2025 across our SG&A and R&D spending. Moving to our operating results for the third quarter. Revenue for Q3 was $615,000 compared to $1.7 million in the year ago period. This decrease reflects timing of partner-funded program activities. Research and development expense was $10.8 million for Q3 compared to $13 million in the year ago period. This $2.2 million decrease is primarily due to cost reduction initiatives that we have implemented as part of our streamlined operational focus. Selling, general and administrative expense was $5.2 million for Q3 compared to $7.7 million in the year ago period. The $2.5 million decrease is primarily due to cost reduction initiatives. Royalty liability interest expense was $9 million for Q3 and in the year ago period. This is due to the recognition of interest expense on the royalty liability. Nonoperating income net was nominal for Q3 compared to income of $7.7 million in the year ago period. The decrease in income is driven by the fair value adjustment of the company's liability classified common warrants in 2024. Net loss was $24.3 million for Q3 compared to $201.5 million in the year ago period. The significant year-over-year improvement reflects the $181.4 million noncash goodwill impairment charge taken in Q3 2024. As Peter mentioned, we successfully completed consolidation of our Oberlin facility during Q3 2025, and our Roseville facility consolidation remains on track. These actions, along with the reduction in force completed in July, demonstrate tangible progress toward our goal of reducing annual net cash usage to approximately $30 million by 2026. This disciplined approach to capital allocation extends our cash runway while positioning us to capture the significant revenue opportunity ahead with initial revenues beginning in 2026 and meaningful commercial expansion thereafter. With that financial overview, let me turn it back to Peter for closing remarks. Peter Beetham: Thank you, Carlo. Let me close with the key message I want you to take away today. The gene editing revolution in agriculture is happening now, and Cibus is positioned like a coiled spring at the forefront of this transformation. As I have mentioned previously, crop seed genetics are the engine room of the world's food and feed production. The fact that we are prioritizing Rice is exciting, not only as an extraordinarily large potential annual royalty for shareholders, but a much needed advancement for helping to improve productivity of a major crop that helps to feed billions of people. When we look at what we've accomplished just so far in 2025, 7 Rice customer agreements spanning 3 continents, successful biofragrance scale-up with an initial payment for our pre-commercial product, and we believe a clear path to approximately $200 million in potential annual royalty revenue from Rice traits alone. Our commercial traction is tangible. We have traits moving into customer germplasm, and we continue to see positive field trial results. We're operating in an increasingly favorable global regulatory environment. And we have commercial launches beginning in 2027 with initial revenue starting in 2026 with biofragrances. This isn't a distant aspiration. This is the reality of our near-term commercial opportunity. Our streamlined business focus is working. We remain laser-focused on executing our right commercialization timeline, scaling our sustainable ingredients revenues and building the foundation for sustainable cash flow generation. We're displaying disciplined capital management, extending our runway and positioning Cibus to capture significant value as gene editing becomes one of the standards for agricultural innovation. I'd like to thank you for your support, and we look forward to updating you on our continued progress next quarter. Operator, we're now ready to take questions. Operator: [Operator Instructions] We'll go first this afternoon to Laurence Alexander of Jefferies. Kevin Estok: This is Kevin Estok on for Laurence. I guess my first question is around, I guess, what the chances were for potential R&D sharing or bespoke R&D projects in 2026? Peter Beetham: Thanks for the question, Kevin. This is Peter. I'm going to start this -- answer this question, then quickly hand it over to Greg because I think there's some wonderful opportunities in this space. I think the key message here is that, as I just mentioned in my closing remarks, the gene editing is happening now. It's not about the technology coming of age, it's actually come of age. And what we're finding now is the real catalyst behind getting to commercial products is regulatory with tailwinds from a regulatory standpoint. And so, we're seeing a lot of inbound interest in regarding partnerships on expanding beyond our current focus, which is rice, canola and soybean and our productivity traits. So, I believe there is significant opportunity in 2026 to expand some of our R&D collaborations. Greg? Gregory Gocal: Thanks, Peter. I think we have, as Peter said, a lot of opportunity. The opportunity is not only in the platforms that we're focused on today, but also well beyond that. We've developed really, I think, a unique approach within the industry of starting with single cells that we edit and regenerate to whole plants. We have that capability for a broad variety of crops, and we've developed many platforms in our past. Further, we've also got multiple traits that we believe are primed for development. For instance, our HT2 trait as well as various modes of action for Sclerotinia resistance that show really great promise in controlled environments and we're working through validating those in the field. So, thanks for the question, Kevin. Kevin Estok: Understood. And I guess my second question, you guys -- I read your commentary about sort of the EU regulations. And I guess I was just -- obviously, we're kind of getting towards the end there, but things have moved a little bit slower than originally expected. And I guess I was wondering what your thoughts were on sort of when you think that will finally be finalized. Peter Beetham: Thank you, Kevin, for the question. This is Peter. I like the fact that you think it's a little bit slower because for people in the industry, this last year has been accelerated beyond what we expected. It's exciting for us in that the fact that Europe for many years -- for literally over 2 decades has been recalcitrant to understanding how to get regulatory through for genetically-modified organisms. What's been exciting for us on the gene editing front, which is different is that from 2018, they've made a concerted effort to bring forward legislation. And that legislation was voted on last year in 2024. And this 2025 has been the year where they've been working on the final text. And we believe, based on our understanding through industry groups in Europe as also some of our seed company partners is that by year-end, they'll have completed that text. And so that final text will start the process of implementation across Europe. And that's a really exciting moment, not just for us, but the whole industry. Carlo Broos: Can I fill in like a few seconds, Peter? Kevin, sorry, this is Carlo. I'm from Europe. So, I always like these questions, of course. I was not at Euroseeds this time, but we had a few colleagues over there. And it was quite remarkable. I think almost all the seed companies were realizing that new breeding technologies and gene editing is to come. So, I think it was a theme #1 at Euroseeds this year just a few months ago. So that makes me super excited just realizing what that will mean for us. Operator: We'll go next now to Matthew Venezia of AGP, Alliance Global Partners. Matthew Venezia: So, firstly, when we look at the major rice markets that you guys are going to be selling in Latin America, U.S. and India, how should we be looking at the acres that you have accessible, the total addressable market and kind of what is put into the calculation of your total addressable market in these markets? Peter Beetham: Matt, thank you for the question. This is Peter. Yes, look, we're super excited about the AgVaya collaboration. I think that this is a group that has years of executive experience in large multinationals and building businesses in the seed and trait business in India. And I think we've been very fortunate to work with these guys to really map out our opportunity in India. India has over 120 million acres of rice. It is the second largest exporter of rice in the world. It's a market that we believe we can access through this sort of collaboration with AgVaya. Again, we're looking at this in the -- to build relationships with seed companies, bring in material and get it back to them so that we can launch towards 2030, 2032. As you understand, we do collect royalties. So, our estimated trade fees around this will be in alignment with what we've seen and talked about in Asia, which can be $1 to $2 per acre, a little bit more. That's exciting for us because I think there's an opportunity to really expand that. And I'm going to hand it to Greg because he's just actually come back from India where he talked to a number of seed companies. Gregory Gocal: Yes. Matt, I'm really, really excited about what -- I mean, we're on the beginning of a path with our -- with Indian seed companies, working with AgVaya, who's helping us with those relationships and helping us develop our presence within India. There is massive demand for rice, but also massive demand for potentially other crops there. In some areas in India, you're rotating rice twice a year. So, it becomes like some of the markets within Latin America. So excellent question. Yes. Matthew Venezia: And in Latin America and the U.S., how many acres are addressable through the current customers that you have right now for Rice? Peter Beetham: So, Matt, thank you for the question. As we mentioned in our remarks, this last quarter, we've signed on some additional seed companies in Latin America. We're up to 7 total, 2 in the U.S. and 5 now in Latin America. And that allows us to really address that market. What we're saying right now is between 5 million to 7 million. So we've increased it by a couple of million acres from where we were last quarter in Latin America. And that takes us again over this $200 million annual royalty goal and objective we have. Matthew Venezia: Got it. And then lastly from me, obviously, canola Pod Shatter Reduction, that was not a trait that panned out right away the way that you thought. Why are HT traits different from PSR? And why are they easier to fit into breeding programs for seed distributors and seed companies? Peter Beetham: Thanks, Matt. That's a great question. What we've known in this industry for many years is that weed management or herbicide tolerant traits are really like the operating system for many crops. So when a farmer plants seed every year, they need to control their weeds, and they either use selective herbicides or non-selective herbicides. And what is really well known now is that that business model is really well understood. In fact, on the GMO side of the business, they're still collecting about $4 billion of annual royalties on a trait that was developed in the '90s. What we're able to do is bring novel traits to the marketplace to give farmers options to control their weeds. And so I believe that herbicide tolerance or weed management solutions have a lot of traction quickly into the market. And that is one of the reasons we're signing up a number of companies in both U.S. and Latin America. And as we mentioned in our remarks, HT2, another herbicide tolerance trait, we had great field trials this year. We reported on those early. And that's in canola, and that is in North America. So, there are basis for planting crops. And I think that trait is not only multiple geographies but multiple crops. A little different to Pod Shatter in that Pod Shatter Reduction is more confined to smaller geographies, and the option now we are looking at is further in the U.K. and Europe for our Pod Shatter trait in 2028. Gregory Gocal: And to add a little bit to Peter's comments on weed management. So, weed control systems are an operating system for farmers. It's an expectation in developed agriculture that you have a weed control package to enable cultivation even on smaller acreages I mean, like Latin America and India. Weeds take away water, nutrients and sunlight away from plants that reduce yield. And so, we -- I mean, we are not a chemistry company. but over our history, we've been able to develop gene-edited weed control solutions for at least 4 groups of chemistry, and I believe there's even more potential beyond that. So, we're excited with where we are, and we believe that there's strong value for both seed companies, growers and our shareholders in the weed control traits we're developing. Operator: We'll go next now to Sameer Joshi with H.C. Wainwright. Sameer Joshi: It's good to see there has been some initial commercialization of biofragrances. Should we expect sort of ramp-up quickly in 2026 on this and get to double-digit millions? Or should we expect sort of single-digit million revenues from this in 2026? Peter Beetham: Thank you, Sameer. This is Peter. I really appreciate your question. Biofragrance, we're excited to run through our pre-commercialization scale up this year and has been very successful. We see opportunity beyond the 2 fragrances that we have scaled. And so, we do see a ramp-up in 2026. We see that the total opportunity in the $20 million to $40 million revenue range. But for -- early on, that will be -- it will be in the single-digit millions. But it is just the tip of the iceberg in our minds. The fragrance market is over $65 billion, and this area is looking for alternatives, particularly for the natural fragrances out there. So, there's an opportunity, I think, that could expand beyond that. Sameer Joshi: Understood. And then, as I understand, the cost-cutting efforts included focus on HT1 and HT3, but there are pipeline traits that you have available for partnership. And there was some announcement in October about the HT2. So, I was just wondering, are there any money being spent still on these pipeline traits? Or -- and should we expect that to reflect in the R&D or some other line on the income statement? Peter Beetham: Sameer, thank you for your question. I think that you've captured this fairly well. I think that -- with regards to our expanded pipeline traits in crops like HT2, we're excited with the field results this year. We are in discussions and looking for partners for this area. Right now, it's not a lot of resource. For us, we've developed that trait. We've been able to do the edits very efficiently, and we're excited to sort of think through the next steps with -- again, this is a multi-crop, multi-geography trait. So, I think this is exciting for 2026. Sameer Joshi: Understood. And then last one from me. The AgVaya relationship that is being developed, and I think Greg mentioned other crops as well. So, it's relationship with seed companies in India, but how about the regulatory environment? And what kind of requirements do you have to meet in order to sell in India? Gregory Gocal: Excellent question, Sameer. This is Greg. So, one of the people who I had the opportunity of meeting was the former Minister of Agriculture in India. And as I think you realize from some press releases over the last 6 months or so, the first gene-edited rice has been planted in India. So, there's a lot of appetite for traits in India. And because of that, we're excited with the acceptance, but also with the demand for -- in the first instance, our HT1 and HT3 traits there. Operator: We'll go next now to Austin Moeller at Canaccord. Austin Moeller: So just my first question here on the biofragrance products. So, will those be hitting store shelves in 2026 in a pilot capacity and then scaling up into 2027? And then, how much should we think about the ramp in '27 being in terms of revenue? Peter Beetham: Thanks, Austin. This is Peter. I'll answer the first part of this question and hand it off to Carlo. We are working with an, as yet undisclosed CPG, with regards to fragrances and getting into products. So, there's -- what our role is with regards to Biofragrance is the scale-up that we've already done on a pre-commercialization step this year and going through to a full commercial scale next year. That will be included in various formulations is our understanding. We don't know exactly which products will end up in next year. We have some guidance on that, which we've given the market. And we look forward to announcing when those products actually hit the shelves. Carlo Broos: Peter, the only thing I would like to add because you specifically asked about '27, that's still single digit, but then we take off. Austin Moeller: Okay. And do you have any specific updates you can provide on the European parliament? Peter Beetham: Yes. Thanks, Austin. Let me start. I'm going to dive into what's happened in the last couple of months because I think we've talked about the history of the EU regulatory, but the trialogue as they call it, which is the discussion around the Parliament, the Council and the Commission has gone very well with the Danish leading that -- the council discussions. They are working on a number of areas, what they call the amendments to the legislation for the final text. And we've been very encouraged with where they've ended up, particularly on some of the detail around how many edits and how many genes within a plant genome are acceptable. It all matches everything that we do internally here at Cibus. And beyond that, labeling and patent discussions have also gone well. So, they're very close to, I believe, final text. The next 4 to 6 weeks are going to be very interesting to watch as they move through that. The next country who will take this on is Cyprus. If it does flow over into Q1 2026, which we don't expect today, they are also very supportive of completion based on the understanding of how the amendment should be changed. Operator: We go next now to Alex Hantman at Sidoti. Alex Hantman: Just given the current cash position and runway into early Q2 '26 that you mentioned, could you talk a little bit about kind of the size and range of non-dilutive, dilutive financing options you're exploring? And what milestones do you expect to achieve with the next [ period ]? Peter Beetham: Thanks, Alex, for your question. This is Peter. I think that I'm going to let Carlo answer most of that question. But to start with, we have made a lot of great progress with regards to our near-term revenue opportunities. A combination of that with the catalyst of the tailwinds, we believe, from the regulatory front allows us to be well positioned to look at strategic alternatives of financing the company. And at this stage, we don't have anything more to report on it than that. Carlo Broos: Yes, I think correct, Peter. I think all options are still on the table. Like in the past, right, it is not any different at the moment. I think most important is that we progress so well on our milestones. And I think that's what investors want to hear to continue to support us in the near-term. What you said on the burn, I think you've seen that very spot on. I think quite impressive. A couple of things we did. So, we implemented RIF just after summer, but we did much more than that. So, there's also streamlining facilities. We've shut down the Oberlin facility, some other cost saving initiatives, all to get ready for that $30 million annualized net burn next year. But I think most important is that we continue strongly to deliver on the milestones. Alex Hantman: Great. And congrats again on the biofragrance side, initial payment. I had a question on the trait side. Can we get an update on automations and improvements on the real-time -- real delivery system? I think we heard a little bit about AI and ML technologies from Greg, but just curious about from edit to stable trait line technology these days. Gregory Gocal: Yes. So, excellent question, Alex, and really proud of what the team has been able to accomplish and is continuing to, in our facilities, we're always pushing to become more efficient. So, efficiency is improving editing frequency, which I'm really impressed with for Rice over the last year, it's increased by an order of magnitude. The regeneration frequency for our key crops, really impressed by the improvements there. And to your point, in terms of automation, so we're a semi-automated process, but a lot of the really repetitive mundane tasks we're able to do with robotic assistance, which really enables our team of scientists to focus on the hard problems and the more repetitive tasks are handled by robots, both for some of our cell culture process, but also for a lot of the liquid handling. And then, because we've been around for a quarter of century, we're able -- we have a lot of data in the editing space, in the what to edit space where -- and also with what you've seen generally for structural biology and intelligence there in terms of predicting and helping support some of the edits and accelerating the what to-edit space so that we're making the right choices as we move edits into our production pipeline. So, excellent question, Alex. Operator: And gentlemen, it appears we have no further questions this afternoon. Dr. Beetham, I'd like to turn things back to you, sir, for any closing comments. Peter Beetham: Thank you, and thank you all for joining us on today's call. As I've said in the past, I continue to be so proud to be part of the Cibus team. As you've just heard, we've made excellent progress this past quarter with a renewed focus and streamlined business. What I hope you've heard is that gene editing is happening now, and it's delivering across multiple sectors. As Greg just mentioned, some of the incredible things that are going on in the company with regards to the understanding of what to edit with AI and ML as well as automation for us to be time-bound and predictable for our seed company partners, delivering back their elite genetics is really going to drive our near-term revenue. So, we're excited to be leading this charge in the ag industry. And we do see these near-term revenue targets like herbicide tolerance in Rice, a clear path to that market, which is fantastic. You think about the focus with regards to the different geographies we're targeting. This is a huge commercial expansion of trait royalties. That's why we see ourselves as a coiled spring. But finally, we clearly see the seed industry also recognizing the global harmony of regulatory. As Carlo mentioned, our team just coming back from Euroseeds, understanding that this is a tailwind behind our expanded business opportunities, and we really look forward to a great year in 2026 and beyond. So, again, thank you for joining. Thank you for your support and time today. Operator: Thank you, Dr. Beetham. Again, ladies and gentlemen, this will conclude the Cibus Third Quarter 2025 Results Conference Call. Again, thanks so much for joining us everyone, and we wish you all a great remainder of your day. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Nyxoah Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Pearson Dennis. Please go ahead. Pearson Dennis: Thank you. Good afternoon, everyone, and I welcome you to our third quarter 2025 earnings call. Participating from the company today will be Olivier Taelman, Chief Executive Officer; and John Landry, Chief Financial Officer. During the call, we will discuss our operating activities and review our third quarter 2025 financial results released after U.S. market closing today, after which we will host a question-and-answer session. The press release can be found on the Investor Relations section of our website. This call is being recorded and will be archived in the Events section on the Investor Relations tab of our website. Before we begin, I'd like to remind you that any statements that relate to expectations or predictions of future events, market trends, results or performance are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These forward-looking statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon current available information, and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these forward-looking statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our Form 20-F filed with the Securities and Exchange Commission on March 20, 2025. With that, I will now turn the call over to Olivier. Olivier Taelman: Thank you, Pearson. Good day, everyone, and thank you for joining us for the third quarter 2025 earnings call. Since FDA approval on August 8, our U.S. launch activities following FDA approval of Genio have generated strong enthusiasm across the ENT and sleep communities. Physicians welcome the long-awaited optionality now available to their OSA patients and the end of a single solution market. During the recent International Surgical Sleep Society, ISSS meeting, our Genio Symposium and educational event drew a full room of clinicians eager to engage with real-world case discussions and share perspectives. These discussions reflected what we continue to observe globally. Clinicians value choice in treating Obstructive Sleep Apnea and our differentiated bilateral patient-centric design resonates strongly with both surgeons and sleep physicians. We were particularly encouraged by conversations with physicians familiar with Genio's clinical performance in Europe as well as the strong clinician results demonstrated in the DREAM study. Many providers highlighted the opportunity to tailor treatment based on individual patient needs and expressed appreciation for our approach to chronic disease management, patient feedback integration and multidisciplinary care pathways. Finally, our first commercial Genio implant in the U.S. completed as early as September represented an important milestone for our teams and partners, already generating [ USD 231,000 ] in revenue during the third quarter and ahead of our expectations. Early surgeon feedback has emphasized streamlined patient management, close collaboration between ENTs and sleep physicians and strong patient follow-up engagement. While still early, this reinforces our confidence that Genio is well positioned to serve U.S. OSA patients with a compelling new alternative. We are navigating the critical steps of early commercialization and the momentum we are generating in training physicians, obtaining value analysis committee approvals and securing coverage from major public and private payers is extremely encouraging. In our initial launch strategy with 25 territory managers, we are focused on the initial 125 of the top 400 high-volume hypoglossal nerve sites, representing roughly 75% to 80% of the total HGNS volume. We are actively tracking a number of leading indicators to measure our early progress. Since launch until end of October, we can report that out of the 125 targeted accounts, 111 surgeons have already successfully been trained on Genio. Second leading indicator, 102 value analysis committee submissions have been completed, of which already 35 approvals have been received. Reimbursement has been secured with Medicare and 10 private payers already, including UnitedHealthcare, Blue Cross Blue Shield and Cigna. 63 prior authorizations were submitted, 21 approvals have been already received with a 100% success ratio. In all of these approvals, the CPT Code 64568 was accepted. 15 implants were already successfully performed across 9 accounts in the first 12 weeks. Beginning on the road since the launch and interacting with surgeons, I've been incredibly encouraged by feedback I'm hearing. Surgeons are enthusiastic to finally have second HGNS option to offer to their OSA patients. They commented that Genio is unique and differentiated as a solution, which resonates very well with patients seeking therapy. They highlight the powerful and symmetric tongue protrusion achieved with bilateral stimulation. They report that the Genio procedure is efficient with procedure times up to 60 minutes on average. In conclusion, first interaction with Genio was positive. Surgeons are excited to incorporate the Genio solution into their daily practice. On the reimbursement side, we have made significant progress. Our Genio Access Program provides dedicated support to our customers for prior authorizations. Each territory manager works with a dedicated case manager who interfaces between the clinical team, patient and sales team. The program includes a reimbursement outline and communication portal for real-time tracking. To date, we have achieved 100% approval on all our prior authorization submissions through our Genio Access Program, including with 10 key private payers such as UnitedHealthcare, Blue Cross Blue Shield, Health Care Service Corporation, Anthem and Cigna. In addition to providing this direct support to our customers, we are also seeing progress with commercial payer policy decisions. Health Care Service Corporation or HCSC operates Blue Cross Blue Shield plans in Illinois, Texas, Oklahoma, New Mexico and Montana. HCSC and Blue Cross Blue Shield of Michigan has updated the hypoglossal nerve stimulation medical policies to already include CPT Code 64568 as a reference procedure code. While coverage of hypoglossal nerve stimulation was already established, the inclusion of this code provides additional clarity for providers and payers, which the company expects will help reduce administrative barriers and streamline patient access. HCSC and BCBS of Michigan represent over 26 million members across 6 states. We continue engaging with additional commercial payers and expect continued progress on coverage decisions in the coming call -- in the coming quarters. Looking ahead, our priorities are clear. We will continue expanding our U.S. commercial organization, adding territory managers to deepen coverage of high-volume implanting centers. Training programs are scheduled through year-end with a strong pipeline of surgeons requesting implant slots. Beyond the U.S., we are focused on driving deeper penetration in Germany and in the United Kingdom, where we maintain a strong presence. And in the Middle East, where we owe exclusive status as the only available HGNS solution while selectively expanding into additional geographies with strong demand for differentiated technology. This is an exciting time for Nyxoah. We have the team in place, we have surgeon demand, we have payer coverage and most importantly, we have patients choosing Genio. In the fourth quarter, we are focused on execution, training more surgeons, activating more accounts and treating more patients. With that, I will now turn the call over to our CFO, John Landry, for a financial update. John Landry: Thank you, Olivier. We recorded revenue of EUR 2 million in the third quarter of 2025 compared to EUR 1.3 million in the third quarter of 2024, an increase of 56%. Gross margin in the third quarter of 2025 was 60.5% compared to 62% in the third quarter of 2024. Total operating loss for the third quarter of 2025 was EUR 24.4 million versus EUR 15 million in the third quarter of 2024. This was driven by the acceleration in the company's commercial investments in the U.S. in preparation for post-FDA commercial launch. Our cash position, including cash, cash equivalents and financial assets was EUR 22.5 million at September 30, 2025, compared to EUR 43 million at June 30, 2025. I'm excited to share, as we announced earlier today, that we secured up to $77 million of capital to bolster our balance sheet and help drive the commercialization of Genio in the U.S. This financing includes a private placement of equity of approximately $25 million, which included existing strategic investors, Cochlear and ResMed as well as our Chairman and management team members. It also includes a convertible bond, which can provide us with up to $52 million in 2 tranches with the first tranche of $26 million available upon closing of the convertible note. The second equally sized tranche can be drawn down at the company's discretion for the 30 days, starting 7 months after the closing of the transaction. We believe the proceeds of this transaction in conjunction with currently available capital provides us with cash runway into the first quarter of 2027. For the fourth quarter of 2025, we expect global revenue to be between EUR 3.4 million and EUR 3.6 million. With that, I'll now turn it back over to Olivier for some closing remarks. Olivier Taelman: Thank you, John. As we close, I want to remind everyone what truly defines Nyxoah. The future of sleep medicine will be defined by those companies who understand and continuously learn for their patients. With Genio, we are not treating sleep apnea as a onetime event. We are managing a chronic condition. Our system learns from every breath every night, turning data into insights and insights into better outcomes. We will be integrating the power of AI and self-learning in our next generation of Genio, developing a therapy that adapts, evolves and becomes more personal over time. It's not just about features of a device, it's about creating an ecosystem that empowers patients, physicians and health care payers to manage sleep apnea smarter, simpler and more sustainable. At Nyxoah, everything we do starts and ends with the patient, and we will continue to empower them to effectively manage their OSA through our technology. We believe that our focus on innovation, supported by clinical evidence drives progress and that the winners will be the patients who finally get their night back through good sleep quality. And at Nyxoah, we are excited that we can finally offer this to patients in the United States. With that, I would now like to open the lines for Q&A. Operator: [Operator Instructions] Our first question comes from Ross Osborn with Cantor Fitzgerald. Ross Osborn: Congrats on the progress. Excited to see the U.S. launch going well right off the bat. So maybe starting off and more on the qualitative side, could you provide some feedback that you're hearing from docs as well as their patients on why they're choosing Genio versus other options? Olivier Taelman: Definitely, Ross, thank you for the question. So first of all, as I was mentioning, physicians are extremely excited that they have optionality so that today, they can offer their patients the Genio solution as well, and this is resonating extremely strong. Second thing that we are hearing as well that is always coming out is the fact that we offer a bilateral stimulation solution that is really expecting the anatomy of the hypoglossal nerve and that is also resulting in an option to treat patients also with more complex airway obstructions. So those are the 2 main things that keep coming back and that you are hearing first. Ross Osborn: Okay. Great. And then lastly, and apologies if I missed this, where do you stand on your sales force build-out? Olivier Taelman: So as I was already earlier communicating, so we do a focused launch on the top 400 implant accounts in the U.S., so the high-volume HGNS sites. With our current sales force, we are covering the first 125 out of these 400. We will further scale by adding every quarter up to 15 territory managers that would represent them another 75 implant sites. So if you do a little bit calculation behind after [ 4 quarters ], we would be able to cover all of these 400 high-volume implant sites. Speed a little bit further, and we will end up with a sales force of 85 people. Operator: [Operator Instructions] Our next question comes from Adam Maeder with Piper Sandler. Adam Maeder: Congrats on U.S. launch. A couple for me, if that's okay. And maybe just to start, Olivier, I think I had a bad connection. So I just wanted to double check the number of implants that were done in the U.S. in Q3. Can you just give us that number again as well as the U.S. revenue in Q3? Olivier Taelman: Yes, definitely. So we did 15 implants spread over 9 different accounts, and they were all done in the month of September. And we did [ EUR 231,000 ] in revenue. John Landry: Just to be clear, Adam, that 15 was through the end of October. Sorry about that. 15 was through the end of October. And the [ EUR 231,000 ] was through the end of September for euro-denominated revenue. Adam Maeder: I got it. Okay. And then I guess just kind of a related question. But as we think about models for Q4 and U.S. launch, I appreciate, John, you gave us EUR 3.4 million to EUR 3.6 million outlook for the overall business. Any finer point you want to put on U.S. versus OUS at this point? John Landry: Yes. I appreciate the question, Adam. At this point, we're not going to break out the U.S. versus international in terms of guidance. We're still in the early phases here of the account activation ramp in the U.S. And that Q4 guidance really reflects the continued acceleration of U.S. implants as more accounts complete VAC approvals and prior authorizations, more surgeons are trained and we also see sustained growth in both Germany and the U.K. Adam Maeder: Okay. Understood. And just one last one, if I may. Olivier, if I heard correctly, did you say the device is going to become potentially more proximal over time? Did I catch that remark correctly? And if so, maybe just walk us through the appeal of going proximal versus distal? Olivier Taelman: Adam, I think you must have misheard it because I never talked about proximal versus going more distal when it comes to the use of our device. So I want to be very specific on this. We have a specific positioning where we place the [ pedals ] on the nerve, and that is also very well adapted, if I can refer to this. So it's very clear that there are no changes at all that we are making. So maybe what you heard was when we were talking about the next generation that we are developing of product where, of course, we keep putting the patient at the center and then we are talking about integrating self-learning into our device becoming smarter and more autonomous, so that patients also can get more control about their technology. Operator: [Operator Instructions] Our next question comes from Suraj Kalia with Oppenheimer. Suraj Kalia: Olivier, John, can you hear me all right? Olivier Taelman: Yes. Nice to hear you, Suraj. Suraj Kalia: Perfect. Olivier, I'll ask both my questions together and pardon the background noise. I'm in the airport. So Olivier, of the current implants, admittedly, they are very -- relatively a smaller quantity, right? Can you give us an idea of where the initial appeal is? Is it women? Is it CCC? Is the lack of IPG target? Is it supine, non-supine? Again, with this initial cohort of implants, have you all seen any pull-through specifically in one category? And if I could just also lump in my second question quickly, Olivier, of the 100-plus sites that you are targeting, I appreciate you walking us through in terms of CPT codes and whatnot that are getting through prior auth. Olivier, how is Genio being slotted from a logistical perspective? Because most sites of these high-volume sites have these "Inspire Days", right? And obviously, the push is on to ramp up Inspire V and put more. And is Genio slotted on Inspire Days? Or are you all seeing it separate at least from a logistical perspective? Congrats on the progress. Olivier Taelman: I will try to answer as completely as I can, Suraj, because it was quite a long question, and to your point, the sound quality wasn't as good as I would hope it to be. So first of all, I do want to emphasize how with Genio, we are totally differentiated from a pacemaker platform technology. And this is also determining the choice of physicians. So I think the first part of the question was why Genio and who is using Genio and what is about female, male and further differentiation. I do think that it's clear what we are seeing is that it's a real combination of male and female. So it's not that our technology is only [ revolved ] to treat one or the other. It's clear that it applies and appeals very well with both male and female. What we're also seeing is that the average age is quite young. I mean, young defined as 52 to 54 years old and also people who are really consciously working with their health in the sense that they do value the power of not needing resurgery when a battery is depleted, not needing resurgery to benefit from the latest integrated software upgrades. And they embrace also the implant for life concept, knowing that once an implant is done, they are protected regardless of what sleep position they are, they are protected regardless if the airway obstruction is a little bit more complex. So this I would like to point out. Second, I was hearing also the CCC aspect in your question. It is clear that in our label, CCC is not a contraindication. It's under the warning, but it's also not yet on label because that's where we are waiting for the ACCCESS study data outcome where we closed enrollment and what we expect to show next year around this period because we need to do a 12-month follow-up. So CCC is not contraindicated. It's under the warning and it can be chosen for a physician at physician discretion, but it's not on label. So I want to be very clear on this. And then last, when we also talk about Genio and compared to also the logistics in the hospitals. So once we are working through the VAC committee, it's clear that we see that in the high-volume accounts. Of course, we breaking the monopoly that is currently there by giving options of choice. And we're also hearing through market research, a very encouraging sign that physicians are seeing this as becoming a market where it will end up in a 50-50 or even with some maybe playing out in our favor. So a lot of enthusiasm, a clear differentiation versus pacemaker, a clear differentiation in patients choosing the implant for life approach with no need for resurgery going forward and no differentiation between male, female. It's at this moment based on the numbers and the experience we build in the U.S., we see that both are really benefiting and choosing for Genio. I hope that answers your question. Operator: [Operator Instructions] Our next question comes from Jon Block with Stifel. Jonathan Block: John, maybe the first one for you. Just to level set, like as we build out and refine our models, are these the KPIs that you're going to be providing on a quarterly sort of consistent basis? In other words, should we be focusing on the number of surgeons trained, the number of accounts that have implanted, the VAC figures? Is that the expectation that these will be the metrics and transparency with it every 3 months or so? John Landry: For the short term, Jon, yes. I think over the short term, maybe in the near term, midterm, we'll provide these metrics. As we become a more material revenue generator, we'll probably likely drop one of them, potentially the value analysis committee packages that are submitted. We'll probably do that. We'll obviously continue to provide updates on reimbursement and surgeons trained. But I think the one that over time will probably drop is value analysis committee. So we want to give everybody a sense as to the progress we're making based on these KPIs. And then as we become a revenue generator, we'll evaluate these going forward. Jonathan Block: Okay. And the second one is sort of a 2-parter. Maybe the first one, because we were sort of flip-flopping between September and October. So September, John, [ EUR 231,000 ] implies, I don't know, 10 to 11 U.S. implants in the month of September. And then is the number of implants total 15 through October? Do I have that correct? John Landry: Yes, 15 implants were done through the end of October. Correct. Jonathan Block: Okay. So maybe you just want to talk about why the number of implants sort of get cut in half from September to October. Maybe that's just a stocking dynamic and how they go out to the facilities, but help us out there, please. And Olivier, more of a high-level question for you. I'm just curious, as you take a step back, and obviously, you've been waiting for the U.S. launch for quite some time now. What was the biggest surprise in your view from the U.S. launch over the past couple of months? Olivier Taelman: Yes. No, thank you, Jon, for the questions. And I think I can handle part 1 and [ part 2 ] because they're a little bit linked to each other. So when you say what was the biggest surprise, I never thought that we would advance so fast from a surgeon training all the way to a surgeon implant and knowing that we -- in between, we had to get the VAC approval and we get to have a preauthorization submission followed by a preauthorization approval by the payer before we could do an implant. So that was for me a very positive surprise that we can move fast, and we see that we are -- continue moving fast. And then the first part of the question, I think it is related to this. So if you see -- and why didn't we do more implants in this time frame, it has simply to do with the fact that we see on average when there is a preauthorization submitted, it takes like 2 weeks to obtain an approval. Once you have an approval, it takes another 2 weeks before we generate revenue. So in total, we're talking about roughly 4 weeks. So if we then start looking when we did the submissions because they are depending on the VAC committee approvals, that is also the phasing and then that will be answering the question, why not more implants were done yet in the month of September and October. Although I would like to remind everyone that the sales team is doing extremely great. And if you can say that we already have 9 centers where active implants took place in 7 weeks post approval, I think this is a very encouraging result, and I want to applaud my team for this. Operator: [Operator Instructions] Our final question comes from David Rescott with Baird. David Rescott: Congrats on the launch. I wanted to follow up on a couple of points you made relative to the Q4 guide. First, on pricing, I believe the math again, based on the 10 to 12 implants or so in the quarter versus the reported U.S. number puts you at that [ $20,000 to $25,000 ] ASP. So just wanted to confirm that, that on a U.S. dollar basis was correct. And when we think about this number for Q4, again, we can see what's been done in October. And so that puts a bigger number in the November, December time frame. So how do we think about that kind of November, December cadence to hit what this implied guide is for Q4, assuming that the step-up is more based on the U.S. number? John Landry: Yes. Sure, David. Thank you. Thanks for the question. So from an average selling price perspective, we're right in the ZIP code of [ $25,000 ] from an average selling price for our implants. There's not exactly one-for-one correlation with the revenue that's booked. We have -- as we do in Europe, we defer a small piece of the revenue when we ship because we spread out the disposable shipments over the course of the year. So a portion of it that we spread out over time. So there's that delta. And then in terms of the guide, we don't necessarily -- we're not breaking out U.S. versus international here for the fourth quarter to get to EUR 3.4 million to EUR 3.6 million. But as we look at our number of cases we've done in October, as we look ahead to where we're going for cases that need to be performed in the months of November and December in order to fulfill that demand for those cases, we would expect our U.S. revenue to grow from October to November and then from November again to December. So that's how we're thinking about it and get the visibility into the number of cases that we expect here in the remaining 60-ish days of the quarter here. David Rescott: Okay. I guess on more of the P&L side, I think gross margins were in the low 60s this quarter. I'm guessing some of the rollout is impacting that. But maybe can you give us a sense for, into the fourth quarter, into 2026, how we should be thinking about this contribution from the U.S. rollout maybe impacting the gross margin line as you scale up and more broadly roll out? John Landry: Sure, absolutely. So as we think about gross margins, long term, we have an opportunity to get our gross margins into the 80% range. And I think it's really a multipoint program to get there. One is we have our next-generation Genio 2.2, which will enhance the patient experience from an activation ship perspective as well as a disposable patch perspective, but also significantly reduce the cost. So that's more of a tailwind in '26, early '27, but that will be a meaningful step-up in gross margin from there. The other item is in terms of volume, as we scale our production volumes of our implant, we have different volume breakpoints in our contract manufacturing agreement. So as we drive volume, we'll see those continue to reduce over time. And then just overall working through supply chain and logistics as we're in the early stages of that right now. And as those systems mature and we work through the flow of goods throughout the entire supply chain channel, that will help be the final leg of the stool to get us up to that 8-plus percent gross margin range. So in the near term, i.e., fourth quarter this year and '26, probably not many drivers in the way of moving gross margin up from where we are today. I'd expect that more towards tail end of '26 going into '27. Operator: And pardon, this is Kevin, the operator. We did have some just recently queue up. Did you want to go ahead and take that question? John Landry: Yes. Operator: [Operator Instructions] Our next question comes from Paige Chamberlain with Wolfe Research. Paige Chamberlain: I just have a couple on reimbursement. I appreciate the updates in the prepared remarks there. I guess ahead, I'm just wondering if you can help us frame how to think about the phasing of unlocking wider spread reimbursement in the U.S. and how that progress should flow into our build of the U.S. commercial ramp? And second question, I'll lump it in here. On a similar note, obviously, there have been some changes and moving parts around coding in the HGNS space, 64568 is the code you guys are using now. I'm wondering if that is still the code that is intended to be used in the long term. Olivier Taelman: Thank you. And also refreshing hearing a new voice during the analyst call. So thank you for the question on reimbursement. So first of all, to your point, the CPT Code 64568, which is a recognized code by Medicare for OSA indication. It is the same code used currently for HGNS therapy being Genio or being the alternative therapy, and it's providing a clear pathway for reimbursement with both Medicare but also commercial payers. So going forward, we do think that this will be the coding that will be further used. And since we are only launching since August 8, that is also the only code that we are using and have been using because it's the code that fits best also our technology, and we're also now seeing that this is the coding also where the latest innovation is used for HGNS. So for us, this was a big win because we knew also that this was still a question that could only be answered once you submit a reimbursement file and you also actually receive payment. And it's, of course, very rewarding for us to see that we did not only receive payment through Medicare, but also through private payers, as I was mentioning. John Landry: Yes. And I'd really like to point out and recognize our market access team is doing a tremendous amount of work and doing a great job with our Genio Access Program to help work through this initial process. And I think the HCSC and Blue Cross Blue Shield of Michigan, where we have 64568 is a reference procedure code. I think that's just sort of the start of it. I think over time, we'll have more and more of these payers included, including the 64568. It's a reference procedure code, which will help facilitate the process. I think the thing that's very encouraging to us to see right now is that from a cycle time perspective, from a preauthorization perspective, we're seeing roughly a 2 business week cycle time from the time of submission to approvals. And then on the back end, once the implants are done, we're seeing another 2-week cycle time roughly for the facilities and physicians to get paid. So it's been pretty consistent, and we're really very excited about that and look forward to seeing that continue. Olivier Taelman: And maybe to close on this one as well if you see and look at the future of [ Nyxoah ] go forward. So sometimes it's nice to be second because there was a lot of work done already, and I think HGNS is already extremely well recognized through payers. So we do not need to do the work on the heavy lifting with every single payer step by step because they are familiar with HGNS and what it can do in the treatment of moderate to severe OSA. Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to Olivier for any further remarks. Olivier Taelman: I would like to thank everyone for participating. Thank you for the good questions. As I was mentioning before, it's the most exciting time for the company. We have been waiting and working hard to get to FDA approval. We obtained it and our focus is launching, continue launching, opening more sites, treating more patients. And this is, in fact, why we were in this business and what we want to do offer this solution to seriously impact patients' lives. So thank you, and good afternoon, good evening, everyone. Operator: Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Greetings. Welcome to the TSS, Inc. Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I will now turn the conference over to your host, James Carbonara. You may begin. James Carbonara: Thank you, operator, and good afternoon, everyone. Joining me on this call are Darryll Dewan, President and CEO; and Danny Chism, the company's CFO. As we begin the call, I would like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are accurate only as of today, November 13, 2025. TSS expressly disclaims any obligation to update, amend, supplement or otherwise review any information or forward-looking statements made on this conference call or the replay to reflect events or circumstances that may change or arise after the date indicated, except as otherwise required by applicable law. For a list of the risks and uncertainties that may affect the company's future performance, please refer to the company's periodic filings with the SEC. In addition, we will be referring to non-GAAP financial measures. A reconciliation of the differences between these measures and the most directly comparable financial measures calculated in accordance with U.S. GAAP is included in today's press release. With that, Darryll, I will turn the call over to you. Darryll Dewan: James, thank you very much. Good afternoon, everyone. Thank you for joining us today for our third quarter 2025 earnings conference call. The past 1.5 years and especially the past couple of quarters have been transformational for TSS as we scale our business and rack integration and strengthen our position as a leading integrator of AI and high-performance computing infrastructure. Through the first 9 months of '25, we delivered exceptional growth with revenues up 88% and adjusted EBITDA up 59% compared to the same period last year, and we generated positive cash flow from operations of $18.5 million. These results highlight both the strength and momentum of our business. That said, our third quarter revenues were down year-over-year, primarily due to lower revenues from procurement services. This business segment contributed over $30 million in revenue this quarter, but the exceptionally high revenue attainment in Q3 of last year created an unusual challenging year-over-year comparison. As we have discussed in prior calls and filings, procurement can fluctuate wildly from quarter-to-quarter, depending on the timing, the size and the revenue recognition method of the customer order. These effects can create quarterly variability, but they do not reflect changes in customer demand or the underlying strength of our business outlook. Year-to-date, revenues from procurement services have more than doubled. The bulk of our procurement business is with the Department of Defense. In the last 30 days, we have felt the impact of the government shutdown. Early in the shutdown, when its duration was uncertain, processing of certain deals stopped, although we remained optimistic we would close more business in Q3 and Q4. Now with Congress voting to reopen the government after a longer-term shutdown, the question is how long will it take to process the pipeline of paperwork on deals that were in motion. There is ample demand, and we do not expect deals to be lost in this process. However, without any information on the timing of closing of these jobs, we are going to be slightly more cautious about our Q4 forecast in this business segment. So now let's turn to our Systems integration business, where we provide AI rack integration services for many of the world's largest AI data centers. We delivered another quarter of solid revenue growth of 20%, fueled by growing demand for AI-enabled infrastructure. This segment continues to be a key driver of our higher-margin revenue and demonstrates the expanding footprint of TSS in AI and high-performance computing solutions. We opened up our new facility in Georgetown in May of this year after a very rapid build-out. We accelerated the build-out based on customer demand. While the full suite of capabilities was ready in June, we learned in Q3, there was more service and systems process work needed to complete before our primary OEM customer is ready to move larger volumes of racks to us. These improvements range from reworking certain shop floor process, integration with our ERP system with our customers, hiring of additional resources than previously believed would be needed, even working through physical security additions given the value of customer-owned equipment flowing through our 4 walls. These steps were all addressed in Q3. As a result, our rack volume processed in Q3 were well below what we had expected. It is important to note, however, this is not the result of a lack of customer demand, but rather more of a timing issue. I consider it a quarter of delay in ramping with significant learning by us along the way. Our constant focus is to deliver the best service possible to our OEM customer, and we are fortunate to have customers who truly view us as a partner and are very active participants in determining our operational requirements. I will elaborate further in a moment, but let me say we are seeing Q4 rack volumes significantly greater than we saw in Q3. On the cost side, we are again asked by our primary OEM customer to add more electricity capacity to the building to serve the next generation of chip technology. We have reached a point where the amount of equipment on site from our utility has caused higher monthly fixed charges irrespective of usage. There were some significant unabsorbed costs in the quarter as a result. Danny will provide more detail. But we must continue to make these investments to position ourselves to meet the trending demand of customers. In our Facilities management business, which includes our modular data center operations, revenues declined 19% year-over-year, but were sequentially up 7%. This segment represents the smallest portion of our overall business, approximately 4% of total revenue in the quarter, but it continues to drive and deliver high-margin contribution. We believe this business can grow. We're making strategic investments in it and are seeing early signs of new demand. We expected one more significant delivery in Q3, but that was delayed due to supply chain issues. We expect that business to flow in Q4. The AI data center market is expanding at a very rapid pace, well noted in all the business news. Over the past 2 years, our growth, operational excellence and deep relationships with key partners have positioned us extremely well to capitalize on this first wave of AI-driven investment. It seems to be accepted that we are in using my favorite metaphor, the first quarter of the AI game. There has been so much focus on AI training infrastructure and hundreds of billions and trillions of dollars being spent. Broad focus is beginning to shift to how AI infrastructure will evolve to include competing technologies serving various purposes. The market is seeing new blends of traditional, hybrid and edge systems. With our new facility purpose-built for AI integration, meaning very dense computing with extreme cooling requirements, we at TSS are well positioned to support the architectural evolution. We will continue to invest in facilities and expertise to meet the growing demand for the infrastructure to support new racks and systems that are designed for high-density compute and more efficient cooling and power consumption, aligning with our partners and industry trends. Certainly, the extended focus in AI is toward how we will ultimately be deployed and how those investing in AI software technology as well as required infrastructure will profit from their investments. This second quarter of innovation is extremely exciting. We expect it will bring new opportunities to the company. We at TSS have to remind ourselves how far we've come in a short period of time. Financial stability and strength to invest further in our capabilities and people is critical to our customers. Over 18 months, we have grown dramatically in terms of revenue, but also importance and our OEM customers want to see we have the wherewithal to invest alongside them. The successful completion of our recent secondary offering strengthening our balance sheet and provides us with additional capital to pursue and invest in strategic new opportunities and services that enhance shareholder value and improve consistency of revenue growth. As for the remainder of '25, we are on track for what we believe will be a record year for the company. We expect to set a strong rebound in adjusted EBITDA in Q4, reflecting higher rack volumes in SI. Given the lower Q3 revenues in SI and procurement, combined with the investments we made in additional electrical power to fuel continued future growth, we now expect full year '25 adjusted EBITDA outlook of 50% to 75% growth compared to '24. I will comment further on 2026 outlook in a few moments. At the same time, we're actively exploring strategic acquisitions, new partnerships and portfolio expansion, particularly in AI, edge computing and modular, which we believe can drive new and potentially faster organic growth in quarters and years ahead. Despite this speed of innovation and adoption, we believe we are still in the early days of AI and demand for high-performance computing and hybrid systems continues to accelerate. Our capabilities and partnerships are expanding, our pipeline is strengthening, and we are successfully executing the business strategy that has driven our success while planning and investing in a strategy that will drive our future. We are scaling our operations and positioning the company to capture a meaningful share of the rapidly growing and complex AI infrastructure market. With that, let me turn the call over to Danny for a more detailed discussion of our financial results. Danny? Daniel Chism: Thanks, Darryll. I'll start with a look at the income statement for the quarter and year-to-date period, then provide a few brief thoughts on the balance sheet and liquidity. Consolidated total revenue in the third quarter of '25 was $41.9 million, down from $70.1 million in the same period last year. As Darryll mentioned, the decrease was primarily driven by variability in our procurement service line with non-procurement revenues up $1.2 million, or 13%. Revenue from procurement services totaled $31.1 million, compared to $60.5 million in the year ago quarter. Revenue in this segment is driven primarily by purchases from the federal government. As a reminder, revenue in this segment reflects a mix of gross and net deals with revenue recognized based on whether we modify the product or act solely as an agent. Revenue from Facilities management totaled $1.6 million, down 19% from $2 million in the same quarter last year. Facilities management continues to have strong strategic potential despite remaining our smallest segment. As Darryll mentioned, we see new opportunities emerging and expect to see a year-over-year increase in Facilities management revenues and gross profit in Q4, driven by discrete projects we foresee in the quarter's pipeline. Revenue from systems integration totaled $9.2 million, up 20% from $7.6 million in Q3 2024, driven primarily by the continued integration of AI-enabled racks for our largest customer. As Darryll mentioned, this growth was lower than we originally planned for the quarter. However, we expect this segment's revenue to grow substantially in Q4 and in 2026. Consolidated gross margin was 11.1% this quarter, roughly unchanged from 11.3% in the third quarter of last year. In the current quarter, we first started allocating the operations-related depreciation of our Georgetown facility to cost of revenues impacting the margin reported in the current quarter. Breaking our gross margin down by segment. Based on recorded GAAP values, procurement gross margins improved to 8.3% in the current quarter from 6.1% in the prior year quarter. When viewed using the non-GAAP gross value of all transactions, which we see as more of an apples-to-apples comparison because it puts gross and net deals on an even playing field, gross margins improved from 4.7% in the prior year quarter to 5.3% in the current quarter. Facilities management gross margins improved from 37% in the year ago quarter to 55% in the current quarter. As a result, gross profit from the FM business increased to $881,000 from $726,000 this quarter last year, even on 19% less total revenues. Systems integration gross margins decreased from 45% in last year's -- in the year ago quarter to 13% in the current quarter. As mentioned a moment ago, we first started allocating operations-related depreciation to this segment in the current quarter, accounting for 11 percentage points or about 1/3 of the overall decrease in margins in this segment. Additionally, in anticipation of higher volumes in future periods, we made incremental investments in CapEx this year beyond our original expectations. This is reflected in our $1 million operations-related depreciation expense this quarter. Looking forward, we expect operations-related depreciation in future periods to be at roughly this level as this represents a full quarter's depreciation of the new factory. It will increase in future periods if and when we make further investments, which we would make primarily with line of sight on any such investments further enhancing revenues and earnings. We also significantly ramped up the available electrical power in the building, which was 12 megawatts during Q3 2025 and now stands at 15 megawatts compared to just 6 megawatts when we first moved into the new Georgetown facility in May. This compares to only 2.7 megawatts we had available in our prior Round Rock facility. We anticipate the enhanced power availability will enable us to integrate future generations of rack technology, further driving incremental revenues in future periods. During Q3 2025, electrical power costs were just over $900,000 with almost $800,000 of that being fixed costs regardless of the power actually consumed. We anticipate revenues in future periods will more than offset the incremental power costs. But in the current quarter, we estimate only about 20% of those costs were recouped through charges to our customer. Our contract with the City Power Company stipulates the quarterly fixed power costs of the 15 megawatts currently available to us will increase to approximately $866,000 quarterly beginning in the fourth quarter plus the variable rate of power actually consumed. SG&A expenses of $5.2 million in the third quarter of 2025 increased 35%, or $1.4 million over this quarter last year. Just over half of that increase relates to noncash stock compensation with the remainder related to higher headcount and related compensation costs to support the growing scale of the organization, combined with higher accruals for incentive compensation tied directly to the year-to-date improvements in sales and earnings. Also included in the current quarter are incremental costs for the 2025 annual audit and ongoing SOX 404(b) implementation. Depreciation and amortization expenses not allocated to COGS were $328,000, up only about $120,000 compared to $208,000 this quarter last year. The increase is related to amortization of our ERP implementation costs, along with depreciation in other assets related to the overall growth of the business. In the third quarter of 2025, we reported an operating loss of $931,000 compared to operating income of $3.8 million in the year ago quarter. The change was driven primarily by the $3.3 million decrease in gross profit, including the impact of higher ops-related depreciation and power costs discussed a moment ago, combined with the $1.4 million increase in SG&A expenses. Even after absorbing the cost of incremental operations-related depreciation and power expansion, we continue to expect operating income for the full year to exceed last year's operating income of $8.2 million. Interest expense decreased to just under $1 million in the third quarter of 2025, compared to $1.3 million in the year ago quarter. The decrease was due primarily to the lower factoring costs on our receivables, which scales directly with gross billings. Looking ahead to the fourth quarter, we expect interest expense on the bank debt to tick up as the $5 million borrowed in the middle of Q3 will be outstanding for the full quarter plus higher factoring costs related to what we expect to be additional revenues in Q4. Most of the Q3 interest on the bank loan was capitalized into construction costs during the quarter. Because construction was completed in Q3, Q4 will show a full quarter of just over $400,000 of interest expense related to the outstanding debt plus any cost from the factoring of our receivables. The net result of these key items is a net loss for the third quarter of 2025 of $1.5 million and a diluted loss per share of $0.06, which compares to net income of $2.6 million and diluted EPS of $0.10 in the year ago quarter. Adjusted EBITDA, which excludes interest, taxes, depreciation, amortization and stock-based compensation, was $1.5 million compared to $4.3 million in the prior year quarter. Now let's take a brief look at the year-to-date results. For the 9 months ended September 30, '25, total revenues were up 88% to just under $185 million, compared to $98 million in the year ago period. By segment, procurement revenues increased by 100% and Systems integration revenues increased by 78%. These increases were somewhat offset by a 32% year-to-date decrease in revenue from Facilities management, primarily due to the timing of discrete projects and a smaller decrease in ongoing maintenance revenues. Gross profit for the first 9 months of 2025 increased 39% to $21 million, including the effect of absorbing $1.6 million of operations-related depreciation in the current year-to-date period, which we did not see this period last year. SG&A costs were 74% of gross profit in the 2025 year-to-date period, compared to 62% in the same period a year ago. Just over 1/3 of the increase in SG&A is related to noncash stock compensation for the year-to-date period. After a $650,000 increase in net interest expense, year-to-date net income was $3 million, compared to $4.1 million in the first 9 months of 2024. Year-to-date diluted EPS was $0.11 in the current period, compared to $0.16 last year. Now taking a quick look at the balance sheet. As of September 30, 2025, we had $70.7 million of unrestricted cash and cash equivalents, plus another $5 million of restricted cash securing our bank loan, up from just $23.2 million at year-end 2024. [Audio Gap] $3 million from a stock offering, which we anticipate will allow us to make strategic investments to grow and diversify our business, as Darryll mentioned. And year-to-date, we've drawn down $16.3 million on our construction loan, including $5 million in the current quarter when we exercised the accordion feature on our bank loan. Combined with $18.5 million of cash flow from operations, these sources of cash funded the $32.2 million of CapEx year-to-date, primarily for the build-out of our state-of-the-art integration facility in Georgetown, Texas, along with $4.9 million of treasury stock repurchases pursuant to employees' net settlement upon investing in restricted stock and option exercises. Net working capital significantly improved from $1.3 million at the end of 2024 to $34.3 million at September 30, 2025, primarily reflecting the capital raise just mentioned and operating cash flows, net of cash used to fund long-term capital assets and treasury stock repurchases. Due to the conversion of our debt to a term loan in July 2025, $5 million of cash that is a deposit securing our loan was reclassified from a current asset to a noncurrent asset restricted cash. As of September 30, 2025, we met all obligations to receive $6.8 million of tenant improvement funds from our landlord, reimbursing us for CapEx we've already invested to date. We anticipate receiving those funds this month, further enhancing our liquidity and working capital. For the first 9 months of 2025, we generated net cash inflows from operations of $18.5 million, compared to $36.9 million provided in the first 9 months of last year. The most significant driver of the change was a $5.3 million paydown of accounts payable and accrued liabilities in the current year-to-date period compared to a $37.6 million increase in payables year-to-date 2024, partially offset by higher cash flows in the current period related to outstanding inventory balances and deferred revenues. With that, I'll turn the call back over to Darryll for some closing thoughts. Darryll Dewan: Danny, thank you very much. In summary, while we are pleased with the overall trajectory of our business, year-to-date revenues have more than doubled, highlighting strong underlying demand. Our balance sheet is stronger. Our pipeline is growing. Our customer relationships are deeper. We're not satisfied, and we know we've got work to do. Our investments in our facility and people have positioned us well to capture more share of the accelerating demand of the AI marketplace and high-performance computing infrastructure, and we're exploring new ways and paths to accelerate even more quickly. The additional funds we raised this quarter enable us to move quickly to act on opportunities they arise and invest strategically for our long-term growth and diversification. A press release went out a little while ago announcing that Vivek Mohindra has joined our Board. We are very excited about Vivek joining. Vivek is a visionary industry. He has led strategy at Dell Technologies, and he currently serves as Strategic Advisor to the Chief Operating Officer and Vice Chairman of Dell, focusing on the trends and direction of the AI infrastructure market. As you know, Dell is leading the industry, providing solutions to modernize data centers and is committed to delivering AI innovation. Vivek will be an incredible resource for us as we work towards broadening our capabilities and our customer base. Turning to our outlook for Q4 and '26. As I said earlier, as a result of the lower rack volumes and incremental investments we made in Q3, our annual EBITDA growth may be modestly lower than we previously guided. Again, ramping a new facility is imperfect, and I'm pleased we are now seeing volumes climbing quickly. Based on the current pace of rack volumes in SI, we expect full year 2025 EBITDA growth of 50% to 75% over last year. This still represents a very healthy quarter -- fourth quarter for an SI, although it also reflects a more conservative approach to procurement as we wait to see how the government gets back to work. As the Q4 strength carries us into the New Year, we expect organic growth to result in another record year in 2026, and we are providing initial guidance of 40% to 50% organic growth on EBITDA year-over-year, compounded on top of what we expect already to be a record year this year. This guidance reflects strong but realistic growth in annual rack volumes and modest growth in procurement. We will actively pursue inorganic options, including strategic acquisitions, partnerships and portfolio expansion to drive future performance beyond this level. And we recently raised capital will help us specifically give us the ability to seize such opportunities. As always, we appreciate your support, and we thank you for your time today. I'm very proud of our team, and we remain committed to executing our game plan. Thank you for joining us on this journey. Operator, we can now open the call up for questions. Operator: [Operator Instructions] Our first question comes from Kris Tuttle with Blue Caterpillar. Kris Tuttle: Congratulations on all the work that you did this quarter. I know that the financial results were not what you wanted, but you accomplished a lot in the quarter with the new facility. A couple of questions. One of them is just in terms of what you're seeing in your end markets, that is the customers you're delivering the servers to. There's been a lot of discussion around a shift to more inference away from training and more enterprise demand from companies other than the hyperscalers. So I'd be interested in your commentary around that. And then the second question is, I apologize for not getting this, but congratulations on your new Board member, but you also mentioned that, that was something you expected to help you grow and diversify your customer mix. And obviously, you have a pretty good customer in Dell already. So maybe you could give some additional color on that. Darryll Dewan: Yes, happy to, Kris. Good to hear from you. Thanks for the questions. On your first question, it's -- we've been blessed that we've been very focused on the more complex, larger CSP solution providing. And that demand has not gone away. But we are experiencing and we expect to see more enterprise activity. And we're starting to see some of that as we speak. The AI industry and how the technology is moving from GenAI to agentic, the whole transition is underway. I think like I said earlier, we're still kind of early in the game to really understand what that end user customer is going to do, but there's clearly an uptick in the interest and demand on technology. So that's number one. Number two, as it relates to Vivek, if you look at his background coming from McKinsey and Freescale and M&A and venture world, Vivek presents an incredible experience level that frankly goes beyond his current assignment with Dell. There's no inference in between what we're doing here. If you can read between the lines, we're very serious about expanding our routes to market. We've done some preliminary planning with Vivek already, and we're going to do more soon. And I think what this really underscores is very candidly, we've been talking about growing and doing some strategic things. We've tried a couple of things. We are now positioned better than ever to take the steps to go make that happen. And I'm excited about Vivek helping us not only with our current customer but beyond. Kris Tuttle: Okay. All right. Great. Well, listen, like I said, a lot accomplished this quarter. It's all about the numbers. So I'll follow-up with you later on, and I'll get off the soapbox here and let other people ask questions. Operator: The next question comes from [ Chris Benjamin ], private investor. Unknown Attendee: I've been a shareholder now for the better part of a year. And I realize that basically, you're a Dell client. What I'd like to know is you've mentioned in your conference call that you have clients, how many clients do you have would be the first question. The second question I have is that related to the first question, when you -- if you win a new client, why don't you announce or make a public announcement that you have a new client on board, I think that would help the stock price. And the last question I have is, do you plan on any more capital raises? Darryll Dewan: Chris, good questions. The first one on -- if I can answer that is we really -- we have other clients. We don't really talk about our clients even though they're non, if you will, other than Dell. And we've got multiple lines of our business. If you recall, we've got our rack integration business, the systems integration business. We have the modular business, and we also have the procurement services business. We do a lot of business in procurement services directly with a channel partner, if you will, who's related to Dell, but it goes to an end-user customer. And still quasi, if you will, not quasi. It is a Dell transaction. The facilities management business, the modular data center business, we actually work with other OEMs. And -- but we don't talk about it. We don't -- I mean, it's a good question why we don't broadcast it. We really don't broadcast a whole lot of anything to be quite blunt. We just stay focused and try and do our job. I mean that's right now where we're at. But at the same time, as we strategically grow and do the things we're talking about doing, i.e., M&A or joint ventures or expanding, you will hear more about that activity. That's in the game plan. So I don't know if that answers all your questions, but I think I did. You're talking about Dell and new customers. We will definitely speak more loudly as we grow and gain new routes to market. Unknown Attendee: I appreciate that. I realize that -- well, as far as the stock price is concerned, it just seems that -- and I know I'm just an individual investor, but I've got a couple of thousand shares. It just seems that someone else is pushing the stock price around. And if there was just more talk on your side, just announcing anything, maybe it would just help the total lack of information coming out of the company with the exception of your quarterly conference calls. And the only other question I have was, do you plan on any more capital raises? Darryll Dewan: Right now, the answer to that is no. We think we're well positioned with what we've done for the short period. Eventually, maybe. But right now, we don't have any plans. And I've said before that I'm very conscious of our investor base. And the last thing I want to do is dilute our investors. But at the same time, we want to grow and we want to take strategic -- make strategic decisions to grow. And the converse is if we didn't do what we're doing here, we go out of business, period end of story. So we wouldn't even have a story. So I think where we're going is we could raise more money, but there's nothing planned at the moment. And by the way, going back to your question, if I can add one more thing about speaking more loudly, we would love to do that, and we plan to do that. And I don't think any of us sit here during the day and let's go figure out how we can -- we don't worry about the stock price. We worry about the long game and what we're trying to do to create value. Operator: We have a follow-up question coming from Kris Tuttle with Blue Caterpillar. Kris Tuttle: One thing I just neglected to ask about is, could you talk about your -- the mixed vendor rack integration that you do? I know it's a small part of the business today, but could you talk about what it was in the quarter and what your expectations are for that going forward? Darryll Dewan: Sorry, Kris, your questions, you expired to the number of questions you could ask. Call back next quarter. Kris Tuttle: Jump back on, but I felt like I got a little tiny bit of a window here. Darryll Dewan: I'm not sure I understand what you mean by the mix of the... Daniel Chism: Mixed vendor. Darryll Dewan: ...vendor. Kris Tuttle: Rack integration, where it's a -- it's not all Dell, it's other stuff. So it's -- I think it's a small part of the business today, single-digit millions, but something we talked about when I was down there. So maybe I'm mistaken, but you had that business that seemed like an interesting part, small though it is, that could expand. Darryll Dewan: Yes. We don't talk about it because it's really kind of confidential to the company. I mean it sounds like I'm trying to hide behind a wall, but I mean we just don't talk about it. And it's as you know, this facility is a very secure facility. It's very tight with our existing customer, and we don't want to do anything that would jeopardize our relationship in that way, and we don't. So the configuration services business is a little bit more in the multiple providers, but largely, it's all done with the teamwork and collaboration with our customer, our key customers. So there's not much else going on in terms of the other technology that you're asking about. Daniel Chism: Yes. The other one, Kris, that I'd point out, when you think about, particularly with the AI rack integration, there aren't that many companies -- that many computer OEMs out there doing that, right? So while we deal primarily with one customer, we are integrating racks that end up at many different companies. So we're directly contracting with them, but yet our -- what we touch, what we integrate ends up in a lot of different places. So there's actually a little more diversification just by virtue of that, even though we have to formally disclose that our business is technically with one customer. Kris Tuttle: Yes. That's helpful. I didn't mean to put you guys on the spot, and that is helpful. Operator: [Operator Instructions] The next question comes from [ Brad Stevenson ] with Breakout Investors. Unknown Executive: So I had a couple of questions. I saw -- you talked about operational requirements or unforeseen operational requirements in Q3 that affected your rack volumes. Can you -- I guess a couple of things around that. Could you elaborate a little bit more about what that means? Is it just strictly related to -- I would assume it's not strictly related to power availability, but maybe something else. But then kind of a second part to that question, do those volumes get pushed into a future quarter? Or were they handled somewhere else? Or do you know? Darryll Dewan: So 2 parts to your question. The first part is it's a little embarrassing to say this, but it's fact. We -- its power did play into it. We needed more juice, and we made that investment in Q3 to get out in front of things. Number two is as we were integrating our ERP system here, the ability to better manage and tightly manage our inventory and reporting did play a factor. So we've got that fixed, and that did get in the way of volume. Third is we had a lot of new people, and we were -- we just fixed that by hiring a Director of Operations that reports to Todd Marrott, our Chief Operating Officer, to expand his management team. And that's been -- we've got a new fell on Board, and he's done a phenomenal job in a very short period of time. Another piece, which we didn't have -- soon enough, if you will, was a communications vehicle where we put everybody that needed to be in the room at the same time. And we relied a little too much on the presumption that everybody that needed to know knew, and they didn't. That's a nice way of saying, now we've got that fixed. We do a daily morning and a daily afternoon session with all the people involved, not only with our company, but our key customer, and that's proven to be phenomenally beneficial. So it's like the old story, the little things make the big things. It wasn't one thing, but we needed to improve and we've taken steps to go do that. So we lump that into procedures and process improvements, and we're good. So it's a learning opportunity for us. And unfortunately, it did get in the way of some volume. And where that volume went and went -- I can't tell you where it went, but it didn't come to us. I can tell you that much. And we're going to do everything we can to prevent that from happening again. Unknown Executive: Okay. Well, that's good news. That's solves things that can be corrected, right? Darryll Dewan: Yes. And I'll say that I know you're going to probably probe at this one, and we were having a conversation about how far you're going to let me talk today. We will do more rack opportunities and integrations in Q4 than we've ever done before. So we're on the right track. Unknown Executive: Awesome. I appreciate that. That's great color. I was -- I want to say pleasantly surprised that you -- I think I heard you give guidance for the full year 2026, 40% to 50%. Darryll Dewan: You're right. Yes, sir. Unknown Executive: And so -- of course, in my brain, it caused me to automatically think has visibility gotten that much better? Or what would you say would allow you to be able to forecast that far out now? Darryll Dewan: If you go by segment, the answer to your question across the board is yes. We're very good and we've improved significantly on our communications and our visibility in each business segment. And so the answer is yes. I mean I can -- there's no magic to it other than we've got a little bit -- we got a lot more visibility going on. And I think if you go to a month ago when marquee customer did their analyst meeting in New York City, they raised their guidance, their pipeline. You've heard their executives talk about the visibility they have in the number of customers that are buying servers and ultimately racks. And I think it's going in the right direction for all of us, and we're happy about that. Unknown Executive: Awesome. And then I've got one more. The equity raise using it for expansion for growth outside of Dell, I think, is the general theme there. Do you see or kind of fast forward or looking at your crystal ball, do you see a time when we're going to -- when you'll release a PR telling us, hey, we've done this deal or that deal, and this is what some of this money is being used for. Will we get that kind of an answer to that? Or will we just sort of see it over the course of quarterly results on a go-forward basis? Darryll Dewan: That's a very good question. And the answer in a short answer is yes. And we expect -- we expect to make things happen sooner than later. There's multiple different paths that we're exploring M&A in a way that's complementary to what we do today. Joint venture is another discussion. And expanding into areas that -- I don't want to give away too much here, but expanding into ways that we can leverage what we do to the benefit of our current customer also to others, to the end user customer directly is of interest to us. So we're going to map that plan out. I'm pleased that -- I mean, I'm very excited. We are very excited about Vivek joining the Board. He's a great addition to the Board that we have today. We're blessed that we've got a good team. And Vivek brings an exceptional amount of focus on the strategic planning part and understands our industry. So there's things we can do. There's things we shouldn't do. And someone once told all of us that you start off by building a strategy by deciding what you're not going to do. And there are certain things we know we're not going to do. I know we're not going to put somebody on the moon. So we can go plan from there. But we're very serious about doing the expansion, as we talked about to get new routes to market, new revenue. And I would expect that you'll see something sooner than later. Unknown Executive: Okay. Great. Great. And then do you -- I said that was my last question, but your answer caused me to have a follow-up on that. Do you see being able to use the current facility for others, maybe for some of that expansion besides Dell? Or is that going to have to take place in another location? Or do we know that yet? Darryll Dewan: It really depends -- good question. It really depends on what the opportunity is. Remember, we also have the other facility in Round Rock that you're probably going to ask another question, what do you plan to do with it? Well, we can sublease it, and we're talking to people about doing that. And I have a feeling that we're going to use some of that space to broaden our go-to-market footprint. So we're not rushing out the door to go rent that out and sublease it. But more than likely, it would involve doing something somewhere else. Unknown Executive: Okay. Well, I appreciate that, and that's -- those are great answers. I'm going to go through -- I didn't have time to go through your 10-Q and all that yet, but I'm going to do all that and then send you a whole bunch more questions probably, but I appreciate it. Daniel Chism: You couldn't consume 40 pages of detailed documents in an hour? Come on, Brad. Unknown Executive: I mean, well, AI does help with that. You can't -- yes -- but yes, I like to read it myself, so. Operator: The next question comes from David Bastian with Kingdom Capital Advisors. David Bastian: So looking at your guide here, kind of what you're saying about the fourth quarter and then about 2026, it seems like you're basically saying the run rate on this facility is somewhere in the $5 million to $7 million of EBITDA per quarter. Am I interpreting you correctly? Darryll Dewan: Yes. David Bastian: Okay. And I guess, does that represent running mostly at full capacity? I think a lot of us were expecting this is kind of going to be our first quarter to see what full capacity look like. Obviously, there's been a few weeks of delays here, but you're talking about Q4 and the guidance you're giving suggests that, that is going to be what we're seeing here once that quarter is finished. Darryll Dewan: No. It's not full capacity. I'm not being feisty with you. I'm just trying to answer your question. David Bastian: No, I just want to understand how much -- go ahead. Daniel Chism: No, Darryll's point is spot on. We've got significant additional capacity that we could grow into. David Bastian: Okay. So yes, because I mean again, the 40%, 50%, are we thinking about that as growth off of this full year or off of Q4? Again, just to make sure I'm not misinterpreting what you're saying here. Darryll Dewan: Full year. David Bastian: Full year. Okay. And so then based on that, if you guys are going to go do M&A, are there opportunities in the market right now that are available to you that would be accretive to -- if you're around $25 million to $30 million of EBITDA next year on what is right now, roughly $300 million, $350 million market cap. I mean that's -- are there opportunities out there that are accretive for you guys at that valuation? Or do you think you can grow that incrementally by doing M&A here? Darryll Dewan: What I've learned, David, is that there's a lot of work that needs to go on to do a deal. It's not easy, but it's doable, and it happened all the time. So we're prepared for that. And the answer to your question is yes. We've got some line of sight. And yes, accretive and yes, exciting. And it's -- I think going back to a comment earlier, it's the little ones that add up. I mean, a little bit here, a little bit there, given the size of our company and the money we've raised, I think it's -- there are some -- there's a couple that are really exciting to us. So the answer is yes. Operator: I would now like to turn the floor back to management for any closing remarks. Darryll Dewan: Okay. Thank you, everybody. It's Darryll. I think what I want to say is over the period of time recently, we've taken some very methodical steps intentional and designed to position us to scale and grow. As many of you know, we uplisted on NASDAQ. We raised money. We've had some very powerful people to our Board. We've invested in our facility and infrastructure. And we're playing the long game, but we're playing to win. And what we're trying to do is make sure that we're as open as we can be in these calls. But I just want to make sure that everybody knows that we are very optimistic about our future. We're very focused on execution. At the end of the day, it doesn't matter if you don't put points on the board as we know, as we're sitting here today having this conversation. We've got a long-term view, but we know that we're growing, and we need to keep ahead of what's going on in the marketplace, and we need to move quickly. So we're very committed to that. And I just want to make sure that everybody on the call knows that we thank you for your support and glad you're coming on this journey with us. So thank you for your time. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon, and welcome to Vinci Compass Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this call will be recorded. I would now like to turn the conference over to Anna Castro, Investor Relations Manager. Please go ahead, Anna. Anna Castro: Thank you, and good evening, everyone. Joining us today are Alessandro Horta, Chief Executive Officer; Bruno Zaremba, President of Finance and Operations; and Sergio Passos, Chief Financial Officer. Earlier today, we issued a press release, slide presentation and our financial statements for the quarter, which are available on our website at ir.vincicompass.com. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and outside of the firm's control and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our 20-F. We will also refer to certain non-GAAP measures, and you'll find reconciliations in the release. Also note that nothing on this call constitutes an offer for sale or solicitation of an offer to purchase an interest in any Vinci Compass fund. On results for the third quarter, Vinci Compass generated fee-related earnings of BRL 77.1 million or BRL 1.22 per share, FRE margin of 32.3% and adjusted distributable earnings of BRL 73.1 million or BRL 1.16 per share. We declared a quarterly dividend of $0.15 on the dollar per common share payable on December 9 to shareholders of record as of November 24. With that, I'll turn the call over to Alessandro. Alessandro Morgado Horta: Thank you, Anna. Good evening, and thank you all for joining our call. We appreciate you joining us. We hit important milestones for Vinci Compass this quarter. Before we start discussing our quarterly results, I would like to take a moment to highlight some important recent milestones. In October, we hosted our second Investor Day in New York. It was a great opportunity to catch up with analysts and investors, reinforce Vinci Compass long-term vision, showcase the strength of our integrated platform and provide greater transparency into each of our business segments. During the event, we shared how we are positioning the firm to capture growth across our core strategies, driven by disciplined capital allocation, innovation in product development and continued focus on delivering value to our clients and shareholders. The strong engagement and positive feedback from participants reaffirmed investors' confidence in our differentiated model and growth prospects in Latin America. On the same day, we also discussed the acquisition of Verde, a transaction that represents a significant milestone in our strategic expansion. This transaction further strength Vinci Compass' position as a leading alternative investment platform in Latin America by combining forces with the region's leader in global and local asset allocation with an exceptional investment track record. The transaction was very well received by the local community as well as global clients and our shareholder base. We had the opportunity to discuss the Investor Day and the Vinci transaction in-person with analysts and investors in the following days that week in New York, and the feedback was very constructive. We feel our constituents recognize the strategic and cultural alignment between the 2 firms and the long-term value creation potential for this combination, leaving us very excited and confident about the future. We remain on track to close the transaction by the end of November. Although we had an exciting start of fourth quarter with the Investor Day and the Verde transaction, the work hasn't stopped since. We are already executing on the priorities we outlined such as accelerating regional expansion, capturing the secular growth opportunity in private credit and expanding FRE margins through revenue stream leverage and operating cost discipline. In SPS IV, we secured not only our first offshore commitment, but also the first Brazilian pension plan commitment in the history of our opportunistic capital solution funds, a clear evidence of our outstanding ability to penetrate long-standing relationships to distribute proprietary funds across different channels. Bruno will unpack the fundraising pipeline in a moment, but we are very encouraged by the depth of interest we are encountering, particularly from foreign investors tracking our upcoming second closing. Shifting to our third quarter results, we crossed the 30% FRE margin threshold in the third quarter. Delivering a 32% FRE margin, the highest level year-to-date. This reflects both the potential for margin expansion from platform growth we have been discussing with you and our disciplined cost execution. This quarter, we began to see the impact from cost reduction initiatives carried out this year throughout the firm, combined with the operational leverage resulting from the strong fundraising in our funds over the past few quarters. We have been extremely focused on driving efficiencies since closing the combination with Compass, and we are very satisfied with the results, which are now starting to flow through the income statement this quarter. This progress is the result of the thorough work of all management teams and the Executive Committee as we approach the final stage of integrating both companies. As we have discussed, we see substantial opportunity to expand our margins and efficiencies represent only a portion of that. The most meaningful driver is platform growth, whether organically or through acquisitions. We are on the path to achieve our 38% FRE margin target by 2028 as discussed at the Investor Day, supported by additional cost reduction initiatives in the pipeline, substantial fundraising across all segments and the expected closing of Vinci in 2025. Shifting to the macroenvironment, broad-based asset appreciation and an easing rate bias across emerging economies continue to create a constructive environment for our platform. Brazil should benefit even more than its peers, supported by the potential of a future political shift that could reinforce fiscal responsibility and by a likely Selic cutting cycle beginning in the coming months. With lower rates and better anchored inflation expectations, we see further room for a re-rating of local assets, which has already begun. Across the region, Mexico and Chile are meaningfully ahead in their easy cycles. Mexico has cut from 11.25% to 7.50% over roughly 18 months with further reductions expected. And Chile is already below 5% with its cycle well advanced. This creates differentiated asset allocation deployment and capital gains opportunities across Latin America. Reinforcing this environment, several countries are moving or are expected to move toward more market-friendly policies, including potentially Chile and Brazil as well as Colombia and Argentina, which is already undergoing Milei's pro market shift. In Argentina, specifically, authorities are taking meaningful steps to reverse years of persistent fiscal deficits. These dynamics are also reviving the case for international portfolio diversification. We believe the trend of global investors seeking exposure beyond the U.S. has further to run, supporting our fundraising, offering attractive risk-adjusted opportunities and potential currency diversification. Turning to Credit. The segment is building momentum as expected with Latin America investors and increasingly global allocators. Our LatAm corporate debt strategy raised over BRL 1 billion in the quarter with 30% coming from investors outside the region, underscoring both strong international appetite and the reach of our distribution across Europe and the U.S. Our forestry vertical is also drawing strong international interest, especially from European development finance institutions. We aim to convert this attention into capital subscription for our Lacan IV fund in the fourth quarter of 2025 and into 2026. Our positioning as a leading provider of nature-based solutions in Latin America and the ability to scale through planted forest, while capturing higher quality carbon credits and biodiversity co-benefits, position us to pursue a significant addressable market across DFIs, global corporations, institutional investors and family offices. Recent international announcements in support of Brazil's forest programs underscore rising global capital flows into conservation and nature-based solutions. Moving on to Global IP&S. Our third-party distribution business continues to deliver strong results with TPD alternative and liquid funds as key growth drivers. Within that, semi-liquid funds are standing out by pairing sophisticated products with retail-friendly features. We are seeing very strong receptivity in retail channels and expected continued traction as we broaden distribution. Private debt and middle market strategies continue to attract sophisticated investors, and we plan to expand our middle market funds offering. Altogether, we delivered BRL 19 billion in capital formation and appreciation in the quarter, bringing AUM to BRL 316 billion. In U.S. dollars, AUM reached just a tad below $60 billion at a record $59.4 billion. To wrap up, our opportunity set has never been stronger. Structural tailwinds in alternatives and emerging markets are accelerating and Vinci Compass is the reference partner in our region. More investors across channels are adopting private market solutions than ever, and we expect this trend to continue in the medium term. We are investing behind this demand with scalable products, disciplined risk management and a growing distribution footprint. Looking ahead, our platform is built for this environment and positioned to capture the generational shifts underway in the global economy and markets, compounding value for our clients and shareholders. Thank you again for joining us. With that, I'll turn it over to Bruno. Bruno Sacchi Zaremba: Thank you, Alessandro, and good evening, everyone. We are thrilled to share that we delivered BRL 19 billion in capital formation and appreciation this quarter. Global IP&S and Credit were key growth drivers, and we believe we are still in the early innings of a significant growth opportunity across all of our asset classes. We laid out this opportunity in detail during our Investor Day. Starting with SPS IV, we achieved important milestones this quarter, our first offshore commitments and the launch of the offshore vehicle. With the fund live and seeded, follow-on offshore commitments tend to accelerate. Our pipeline includes several foreign investors, and we expect to sign additional commitments by year-end. We also secured our first Brazilian pension plan commitment to the strategy, which we expect will catalyze additional allocations from other local institutions. Our track record is a key driver to new commitments. The first vintage, SPS I, which recently returned additional capital to investors from a successful exit, is currently delivering a DPI of 1.9x and a gross IRR of 25%, both in Brazilian reals. Further validation comes from SPS III, which distributed during October over 9% of total commitments. This vintage is still within its investment period, which ends only in the fourth quarter of 2026 and has already started to return meaningful capital to LPs. Still in private credit, we received additional commitments in our senior secured lending product in Peru, PEPCO II. We expect further commitments over the coming quarters in both [ PEPCO II ] and [ FAIPERU ] Peru, our semi-liquid confirming and factoring fund. Our long-standing presence in Peru, together with our position as the largest fund in that market gives us a clear edge to keep capturing opportunities. In addition, to deepen engagement and showcase the full breadth of our regional platform, we hosted Peruvian institutional investors for a roadshow at our Brazil offices. We have also introduced [ COPCO I ] to our Colombian LPs, our first secured lending fund in Colombia. Pension funds and insurance companies are increasing allocations to local currency alternative strategies, giving regulatory frameworks and COPCO I is designed to meet that demand. The vehicle will have a 10-year term and is expected to launch in the first half of 2026. In Brazil, our liquid credit strategies are also showing strong growth. Infrastructure debentures, structured credit and corporate liquid credit funds all displayed strong investor interest and raised over BRL 500 million in the quarter. Our diversified product lineup widens our addressable base and drives demand across different credit sub-strategies. In equities, we continue to see outflows from our Brazilian domestic equity funds, reflecting a more risk-averse stance among local institutional investors. This trend is driven by the ongoing shift in their portfolios from equities to local inflation-linked government bonds, whose yields remain near historical highs and have not compressed this year despite the rally in the equity markets. Shifting to Global IP&S, AUM reached more than BRL 241 billion, supported by approximately BRL 8 billion of inflows. As Alessandro noted, we're encouraged by the reach of our TPD business and more importantly, the depth of coverage from our client relations team. We expect to continue raising capital in this vertical, although we believe most TPD alternative inflows that charge upfront fees were recognized by the end of September and thus should have a more limited impact in the fourth quarter. On the liquid side, we see room for additional traction by year-end. A highlight in TPD alternative this quarter was a $300 million commitment from a Latin American institutional investor to a global private equity fund managed by a world-class GP represent in the region. This is an exceptional commitment that underscores the growing appetite for alternative among LatAm institutions as highlighted in all of our recent communications. Lastly, in Private Equity, as we work towards the first closing of VIR V expected in the first half of 2026, we're very encouraged by the interest from LPs to re-up in the fund. On the VCP front, the team is highly active in origination with a pipeline of 40-plus active opportunities and 4 transactions in advanced negotiations to deploy VCP's IV dry powder. In terms of portfolio performance, VCP III companies delivered solid operational results. In the second quarter of 2025, aggregate EBITDA grew 16% year-over-year. We are particularly excited with our portfolio company, Agibank, as it continues to deliver very strong KPIs, expanding revenues year-over-year by 50%. In VCP IV, Arklok has been increasing revenue by 30% year-over-year, another company we have been very excited about. These results reinforce the health of our portfolio and our conviction in disciplined deployment of VCP IV. Our distribution teams are executing exceptionally well across channels, and October got off to a constructive start for the fourth quarter of 2025. We're also preparing to navigate Chile's pension reform as benchmarks and target date frameworks finalize. Our client-facing group will have a fund 2026 as our product slate is quite full. We have private credit products being launched across the region. We have our UCITS equities funds and several closed-end funds across other strategies such as Private Equity and Real Assets. In addition, on top of our TPD funds, which continue to exhibit strength as global allocation grows, Global IP&S will launch a series of new discretionary allocation products, allowing LatAm investors to have a diversified exposure to portfolios of semi-liquid funds across developed markets. This will lower entry tickets while helping investors with optimal allocation to their portfolios. All this alongside a nascent cyclical improvement in the region with higher demand for allocations from both local and currently under allocated global LPs. On the operations front, AI adoption is now mainstream at Vinci Compass with roughly 80% of our team using AI in their daily work to enhance productivity, client service and risk management. As we discussed internally, we want to lead the transition into an AI-enabled workplace, and Vinci Compass needs to sponsor this change, so it's done safely and addressing the specific needs of our groups. This agenda is accelerating, and we expect it ultimately to be felt by investors through better overall decision-making and execution, positively affecting risk-adjusted returns. We entered the fourth quarter with clear visibility and strong momentum, and the pipeline of opportunities allows us to build on these results into 2026. With that, I'll hand it over to Sergio to walk through the financials. Sergio Passos Ribeiro: Thank you, Bruno. Starting with our AUM, we ended the quarter with BRL 316 billion, representing an increase of 4% quarter-over-quarter. Capital formation and appreciation totaled BRL 19 billion, partially offset by a negative FX impact of BRL 6 billion. We had significant inflows coming from Global IP&S, getting close to BRL 80 billion in the quarter. A portion of those inflows came from TPD alternative, generating BRL 18 million in advisory fees recognized onetime as upfront fees. We expect another meaningful though smaller contribution from this line in next quarter, reflecting the time of commitment signings. In addition, we recognized success fee in our real estate advisory business and BRL 4.5 million in corporate advisory. On a management fee basis, we posted BRL 202 million in the quarter. We expect to continue delivering consistent growth, supported by an active fundraising pipeline and to further enhance our revenue mix as we scale our recurring fee earning base. Total fee-related revenues were BRL 238 million in the quarter, while fee-related expenses were BRL 161 million. This translated to BRL 77 million of FRE and a 32.3% FRE margin, our highest in 2025. The increase in the FRE margin is a result of operating leverage from revenue growth, some transaction costs that stopped impacting us this quarter, combined with cost reduction initiatives we have been working on since the beginning of the year, which have started to pay off now. Delivering what we set out to do is in our DNA, and we remain focused on further compounding growth with efficiency. Performance-related earnings were BRL 1.7 million in the quarter, coming primarily from equity funds. As a reminder, most of our Brazilian open-end funds crystallized performance fees semiannually in June and December. So the first and the third quarters typically show lower performance fee recognition. This is the first quarter that we highlight our investment-related earnings or IRE. We introduced this metric in our Investor Day, and our objective is to be the most transparent as we can and highlight the realized and unrealized gains from our commitments in proprietary funds. IRE is an important value driver in our business model, designed to compound growth and create long-term shareholder value through our GP commitments. IRE in the third quarter was BRL 5 million with listed REITs contributing to realized income and positive markups in funds supporting the unrealized component. Finally, putting it all together, adjusted distributable earnings totaled BRL 73 million or BRL 1.16 per share, representing a 28% increase year-over-year on a nominal basis and 7% growth on a per share basis. This quarter underscores durable fee power and an improving margin profile, validating our disciplined approach to growth, expand and allocate capital, leaving us well positioned for continued progress in the fourth quarter and 2026. With that, I would like to close our remarks and open the call for questions. Once again, we'd like to thank you for joining our call. Please, operator, you may proceed with the questions. Thank you. Operator: [Operator Instructions] Our first question comes from William Barranjard with Itau BBA. William Buonsanti Barranjard: I have a question here regarding one of the things you mentioned during the call, the first Brazilian pension plan to commit in the SPS IV, right? And you also said that this first commitment should unlock further ones from this type of project, right? So I wanted to dive a little bit here. So how fast do you think this new demand could come? And also what kind of cross-sell opportunities this opportunity creates, right? But more importantly here, how big do you think this pocket is these new opportunities for you guys? Alessandro Morgado Horta: William, that's Alessandro. Thank you for your question. That's true. That's the first pension fund commitment to SPS at all, right? Not just in the Fund IV, but overall, the whole history of SPS. Of course, we expect that would be an opportunity for raising money for this type of clients since, as you know, Vinci Compass main source of funds comes from institutional investors, both local investors, Latin America institutions and of course, international ones. We do expect further commitments for this strategy still in Fund IV, but we cannot predict exactly the size of it. But this strategy due to the uncorrelated nature and really very low penetration on the portfolios of this type of investors, both local institutions and international institutions, both as first for SPS, we expect this to gain an important space on the overall AUM of the vertical. William Buonsanti Barranjard: Okay. And if I could ask another one regarding your FRE margins, right, improved a lot quarter-on-quarter. Just wanted to hear from you if we should use this new level as the base for the next quarter or if there's any other effect that might decelerate this improvement, maybe lower advisory fees in the next quarter. How should I think about the evolution from here? Bruno Sacchi Zaremba: Okay. William, this is Bruno. Yes, there's some seasonality as well on the expense line. So we usually have a second quarter that's a little bit stronger in terms of expenses. The third quarter is a little bit lighter from a seasonal standpoint. However, we did have some aspects of the combination in terms of costs that flowed through the numbers during the past 3 quarters and started to reduce a little bit in the third. So looking forward to the fourth quarter and beyond and obviously not considering the Verde acquisition because that's going to change a little bit the number. But thinking about Vinci standalone, we should be able to see margins on the 30s going forward, right? So probably the fourth quarter would be a little bit smaller than that, but still above 30%. We hope to be able to reach the 30% for the year. I think we are within that distance at this point. I think it's a possibility. And then looking forward to '26, probably we should see margins in general above 30% without the combination with Verde. With Verde, we're going to have a big impact. The expectation is to close the transaction by the end of November. So they will impact only 1 month of the fourth quarter. But starting in the beginning of next year, once we have them on board for the full year, the impact should be of several hundred basis points. So this this -- let's say, 30% to 31% will push towards probably at least the mid-30 level. So that's the expectation that we have once we have Verde on board. But we expect the continuation of better numbers in the margin level going forward. Operator: Our next question comes from Lindsey Shima with Goldman Sachs. Lindsey Shima: We saw exceptionally strong Global IP&S inflows this quarter. Just wondering about how much of this was related to the TPD alts? And then you mentioned that there should be a small percentage of the upfront fees in next quarter. But how should we think about this line kind of going forward and then IP&S inflows more broadly in the future? Bruno Sacchi Zaremba: Okay. So this is Bruno again, Lindsey. Good to hear from you. So TPD was very good this quarter, as was the case of the second quarter as well. The alts this quarter, we had BRL 2 billion positive impact. There was this big check that we mentioned from a regional player into a U.S.-based closed-end funds, which was very relevant. And although the fourth quarter is looking like it's going to be a little bit slower, mainly on the outside, the liquid side started the quarter pretty strong. So the volume in the first month was similar to what we had in the third quarter on a monthly basis. And I think even more so, when you look at this picture for TPD in general over the medium and long term, I think the picture is quite constructive. We have in Chile and Mexico, which are 2 markets that are important for us, of course, we have very strong tailwinds from increased contribution to the local institutional plans. We have, in general, more interest from high-net-worth individuals into mainly alternatives. So this is also going to be a driver for medium to long-term growth. And finally, in Brazil, we are starting from a very low base. The penetration of this type of allocation is still very small, o we expect this also to be a positive tailwind for TPD in the medium and long term. So far, fourth quarter flows continue to be strong. And medium to long term, we continue to be quite optimistic about the business line in terms of flows. Alessandro Morgado Horta: And Lindsay, that's Alessandro. I would like to add on top of what Bruno said, very, very quick comment. In Global IP&S and TPD alts specifically, we are seeing some, I would say, rotation of portfolios from our institutional clients in LatAm, especially moving from more traditional alts to new verticals for them, of course, where we do have a very good managers and products. I can give you an example like secondaries. So this is also providing a very interesting opportunity in terms of allocation. And another point is that we are looking to the future, as we mentioned during the call, we see an opportunity for more discretionary allocation of funds and SMAs in alts on behalf of the same type of investors, ones that do not want to allocate directly, but would like us to pick up the best managers and strategies for them. Operator: [Operator Instructions] The Q&A session is over. I would like to turn the floor back to Mr. Alessandro Horta for the closing remarks. Alessandro Morgado Horta: I'd like to thank you all once again for your continuous interest and support. This was a very important quarter in which we were able to demonstrate the planned improvement in our FRE margin, and we remain optimistic that we will continue to deliver in line with the expectations we outlined at our Investor Day in New York. So thank you again, and have a good evening. Operator: This does conclude today's presentation. We thank you all for participating and wish you a very good evening.
Operator: Welcome to the Applied Materials Fourth Quarter of Fiscal 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Mike Sullivan, Corporate Vice President of Investor Relations. Please go ahead. Michael Sullivan: Good afternoon, everyone, and thank you for joining today's call. With me are Gary Dickerson, our President and CEO; and Brice Hill, our Chief Financial Officer. Before we begin, I'd like to remind you that today's call includes forward-looking statements, which are subject to risks and uncertainties that could cause our actual results to differ. Information concerning these risks and uncertainties is discussed in our most recent Form 10-Q and other filings with the SEC. Today's call also includes non-GAAP financial measures. Reconciliations to GAAP measures can be found in today's earnings press release and in our quarterly earnings materials, which are available on our Investor Relations website at ir.appliedmaterials.com. And with that introduction, I'd now like to turn the call over to Gary Dickerson. Gary Dickerson: Welcome back, Mike. Applied Materials delivered fiscal fourth quarter results above the midpoint of our guidance to complete another record year. 2025 was our sixth consecutive year of growth. And over this period, we have grown revenue and earnings at annualized rates of approximately 12% and 20%. These results are made possible by our passionate and dedicated employees around the world. Over the past 12 months, we have built new capabilities, strengthened our product portfolio and streamlined our organization to prepare for the opportunities ahead. Applied is in a tremendous position to benefit as AI computing fuels secular growth in semiconductors and wafer fab equipment. As this is our year-end call, I'll begin with a brief review of our performance in 2025, then I'll provide our latest market outlook. And finally, I'll describe how our inflection-focused innovation strategy enables us to extend our leadership in the most valuable and fastest-growing areas of the market as next-generation technologies ramp in volume production in 2026 and beyond. Looking back at fiscal 2025, while it was a growth year for Applied, our growth rate was tempered due to increased trade restrictions and an unfavorable market mix. Over the past 12 months, multiple trade rule changes have reduced the size of our accessible market in China. Overall, China declined to 28% of our total systems and service revenues in fiscal 2025 and to 25% for our fourth quarter. In 2026, we expect wafer fab equipment spending in China to be lower, and we are not anticipating significant changes to market restrictions. In the areas of the market where we can operate, we are competing well and maintaining market share. Outside of China, the fastest-growing areas of the market in 2025 were segments where Applied had low or no share. In leading -edge foundry/logic, investment was more oriented toward advanced lithography. We believe this is a positive leading indicator for process equipment demand in 2026. NAND, where historically Applied has lower market share, is on track to approximately double in 2025, even though it remains a relatively small portion of the wafer fab equipment market. In DRAM, where Applied has strong process technology leadership, overall spending is tracking to be approximately flat for calendar 2025. Nevertheless, we strengthened our leadership position in DRAM, growing revenues from leading edge customers by more than 50% over the past 4 fiscal quarters. As we look ahead to 2026, we expect the spending mix to play more to Applied's strengths with leading-edge foundry/logic, DRAM and advanced packaging being the fastest-growing areas of the market. I recently returned from an extended trip to Asia. My discussions with customers and partners reinforce my view that opportunities for the semiconductor industry and Applied Materials have never been greater. Our customers are engaging with us to ensure we are ready to support significant production ramps in the coming years. AI has reached a tipping point that is accelerating investment in next-generation computing infrastructure and advanced silicon. Today, we are seeing a virtuous cycle of innovation and demand. Advances in performance, energy consumption and cost of AI computing open up new AI applications that in turn, significantly increase demand for AI compute capacity. Recent third-party forecasts predict that the semiconductor industry will grow at a compound annual rate between 10% to 15% over the next 5 years, driving a healthy increase in wafer fab equipment spending. We expect 2026 to be another growth year for Applied with our revenue being weighted toward the second half of the calendar year. AI computing is not only fueling growth, but also reshaping the semiconductor road map and changing the way chips are designed and manufactured. Foundational semiconductor technology plays a critical role in increasing performance and bringing down the cost of AI in the data center and at the edge. Today, major technology inflections are underway in 5 key areas: leading-edge logic, high-performance DRAM, high-bandwidth memory or DRAM stacking, advanced packaging for heterogeneous integration and power electronics. At Applied, our core strategy is inflection-focused innovation. We partner with our customers to see technology inflections early. We focus our research and development on the most critical and valuable challenges on their road maps using deep co-innovation engagement models, and we create highly differentiated solutions by connecting our broad portfolio of capabilities and technologies. The 3 products we recently launched at SEMICON West are great examples of how this strategy works. Our new Xtera epitaxy system enables higher-performance gate-all-around transistors for 2-nanometer and beyond. Xtera creates void-free source, drain structures that provide higher transistor speeds that are especially critical for AI computing. The Xtera system integrates epi, cleaning and etch, resulting in a 40% improvement in uniformity and 50% lower gas usage compared to traditional epi. Kinex is the industry's first integrated die-to-wafer bonder. Hybrid bonding enables significant improvement in performance, power consumption and costs for both complex multi-chip packages and die stacking. Kinex is a 6-step integrated system with onboard metrology that provides higher accuracy bonding, smaller interconnect pitches and higher yields for new logic and memory packaging architectures. PROVision 10 is designed to improve yield in 3D devices and further extends our leadership in eBeam metrology. eBeam metrology is critical for 3D devices as it can see through multiple layers of 3D chips and provide multilayer images to identify defects in buried structures. This system is the first to use cold field emission technology for metrology, which increases image resolution by 50% and imaging speed 10x compared to conventional thermal field emission technology. Overall, Applied is very well positioned at the most valuable technology inflections and in areas of the market that will grow fastest as AI is deployed on a large scale. The process tool of record positions that we have established over the past several years give us confidence that we will extend our strong leadership position in logic, DRAM and packaging as advanced technology nodes ramp in volume production. Another key theme we consistently hear from our customers and our customers' customers is that co-optimization of the technology stack is more critical than ever. We are expanding our deep multiyear co-innovation engagements that focus on system technology co-optimization. Our high-velocity co-innovation model provides chip makers and chip designers much earlier access to next-generation process technology to accelerate their new chip and system architectures. This is a core value proposition of Applied Materials Equipment and Process Innovation and Commercialization platform or EPIC. Construction of the platform's flagship facility, the EPIC Center in Silicon Valley is on track, and we are excited to begin operations next year. Our co-optimization strategies extend well beyond R&D. As our customers race to bring these complex new device architecture inflections to market, we are providing advanced service solutions that help them rapidly transfer new technology into their pilot lines and then rapidly optimize device performance, yield and cost in volume production. In 2025, our core service business delivered another year of double-digit growth with more than 2/3s of our service revenue generated from subscriptions. In AGS and across Applied, we are rapidly adopting AI and digital tools. This enables us to drive higher velocity and productivity, innovate the way we work and streamline our organization to meet the opportunities ahead. Before I hand over to Brice, I'll quickly summarize. Fiscal 2025 was our sixth consecutive year of growth even as trade restrictions and an unfavorable market mix trimmed our growth rate for the year. As we look ahead, large-scale AI adoption will drive substantial investment in AI computing infrastructure, including advanced semiconductors and wafer fab equipment. Applied's inflection-focused innovation strategy positions us for another record year in 2026 as we gain share at the highest value technology inflections in the fastest-growing areas of the market. As next-generation technologies ramp in volume production over the coming years, we will extend our leadership in logic, DRAM and packaging. Brice, over to you. Brice Hill: Thank you, Gary, and thanks, everyone, for joining today's call. I am pleased that Applied delivered record annual revenue, gross margin dollars, operating profit and earnings per share in fiscal 2025. Looking ahead into 2026, I believe we are in great position to benefit from favorable market trends. Based on growing demand for AI data center capacity, we forecast that leading-edge foundry/logic, DRAM and high-bandwidth memory will be the fastest-growing areas of the semiconductor equipment market. We have strong leadership positions in these segments today, and we have targeted our R&D investments to create new products and technologies that will enable even faster and more energy-efficient transistors, chips and systems and drive growth for Applied. In addition, we have been working closely with our customers to better understand their longer-term demand expectations and align our supply chain and manufacturing slots to meet their needs for advanced capacity. Based on our conversations with our customers and other industry players, we are preparing our operations and service organizations to be ready to support higher demand beginning in the second half of calendar 2026. Next, I'll briefly summarize our fiscal 2025 results versus fiscal 2024. Revenue grew 4% to $28.4 billion with growth across all of our segments. Semiconductor Systems revenue was up 4%, growing even as the impact of trade restrictions significantly reduced our access to the market in China. The impact of these restrictions was equivalent to around 10% of the China market in fiscal 2024 and more than double that amount in fiscal 2025. On a global basis, we generated record foundry systems revenue, along with record DRAM sales outside China, and we posted record revenue in both Taiwan and Korea. Applied Global Services revenue grew 3% to a record $6.4 billion. The recurring parts, services and software portion of AGS grew by double digits in the year, while the 200-millimeter equipment business declined. We grew display revenue by 20%. I am pleased that we increased non-GAAP gross margin by 120 basis points to 48.8%, the highest level in 25 years. We shipped a richer mix of advanced systems and increased prices broadly, helping to more than offset cost increases. Non-GAAP operating expenses grew 5%, primarily driven by a 10% increase in R&D investments. At the end of the year, we announced actions to reduce headcount and enable us to scale Applied more productively as we capture the growth opportunities we see in 2026 and beyond. We continue to shift spending to strategic areas, adding people in fields like advanced analytics that are critical to the speed and efficiency of our R&D programs and operations. Non-GAAP earnings per share increased 9%. We generated nearly $8 billion in cash from operations. Free cash flow of $5.7 billion included elevated capital spending of $2.3 billion, over half of which was used in building the new EPIC Center in Silicon Valley, which will open next year and become the most advanced collaborative semiconductor equipment and process innovation facility in the world. We distributed approximately $6.3 billion to shareholders. We paid $1.4 billion in cash dividends and the quarterly dividend per share was increased by 15% during the year to $0.46. Operating income from Applied Global Services more than covered the dividend payment. We allocated $4.9 billion to our share repurchase program and reduced shares outstanding by more than 3%. Turning to fiscal Q4. We delivered revenue and non-GAAP EPS above the midpoint of guidance. China revenue declined to 29% of total company revenue, which is in line with our longer-term average and well below a peak of 45% in the first quarter of fiscal 2024. Non-GAAP gross margin was at the midpoint of guidance and up 60 basis points year-on-year, while non-GAAP operating expenses were slightly higher than our expectation and up 3% year-on-year. Turning to the segments. Semiconductor Systems and AGS revenue exceeded our expectations for the quarter, while non-GAAP operating margin for both segments declined along with revenue on a year-on-year basis. Lastly, Display revenue exceeded our expectation for the quarter and was up 68% year-over-year. Next, I'll share several reporting changes we are making that will help us drive further efficiency gains and also give investors more visibility into our semiconductor and services businesses. First, as of Q4 fiscal 2025, our display business is being reported in corporate and other. There is no change to our display strategy. Next, as of Q1 fiscal 2026, we are moving our 200-millimeter equipment business from Applied Global Services to Semiconductor Systems. This change will increase our operational efficiency and enable investors to see all of our semiconductor systems revenue in one place. Also, as a result, Applied Global Services will consist entirely of recurring revenue. This will make it easier for investors to track our subscription-like growth in services. Finally, as of Q1 of fiscal 2026, we are fully allocating corporate support costs to our businesses. This change will have the effect of reducing Semiconductor Systems and AGS operating margins, but also give our teams better visibility and opportunity to optimize these costs. Now I'll share our guidance for Q1, which includes the reporting changes I just outlined. We expect company revenue of $6.85 billion, plus or minus $500 million and non-GAAP EPS of $2.18, plus or minus $0.20. Within this outlook, we expect Semiconductor Systems revenue of around $5.025 billion. AGS should generate revenue of around $1.52 billion. Corporate and other revenue should be around $305 million composed primarily of display revenue. We currently expect non-GAAP gross margin to be approximately 48.4% in Q1 and remain at that level until volumes ramp to support higher demand beginning in the second half of the calendar year. Non-GAAP operating expenses should be around $1.33 billion, which is up only slightly from fiscal Q4 because the actions we recently took are mostly offsetting the increase we normally see in Q1 due to the timing of annual merit increases and equity compensation expenses. Finally, we are modeling a tax rate of around 13%. In summary, our customers are indicating to us that wafer fab equipment spending is likely to accelerate beginning in the second half of calendar 2026. In addition, we see a positive fab equipment spending mix developing for Applied. AI data center investments translate to strong demand for our most enabling products in leading-edge foundry/logic, DRAM and high-bandwidth memory, along with advanced services that help our customers accelerate ramps and yields. Thank you for listening. And now Mike, let's begin the Q&A. Michael Sullivan: Thanks, Brice. [Operator Instructions] Operator, let's please begin. Operator: Certainly. And our first question comes from the line of C.J. Muse from Cantor Fitzgerald. Christopher Muse: I guess, Gary, the world has clearly changed since NVIDIA reported August 26 and discussed $3 trillion to $4 trillion in AI infrastructure spending. Curious, given your trip to visit with clients over the very near term, how your conversations have evolved in the last few months? How has your visibility changed? And how are you preparing your supply chain for this likely tremendous growth? Gary Dickerson: C.J., thanks for the question. Yes, I have been spending a lot of time with customers and just came back from a long trip to Asia. And I would say, I was meeting with the R&D leaders and CEOs of our largest customers. And just like you said, AI is the biggest focus for all of our customers. It's driving the WFE mix to segments driven by AI, including leading-edge foundry/logic and DRAM, where Applied has strong #1 positions. And Applied is in deep, high-velocity co-innovation relationships with all of these different customers. We have very high share. If you look at the transistor for gate-all-around or backside power in leading-edge foundry/logic, we have very strong visibility and co-innovation relationships with customers over 4 technology nodes, a decade out in the future. So very high visibility in terms of our positions in leading-edge foundry/logic and in DRAM and high confidence we're going to outperform as those advanced chips ramp going forward in the future. The other thing that I heard and we've been seeing over the last couple of months is a major improvement in customer demand visibility. So customers, just like you said, they're planning large ramps of advanced factories, and they want to make sure our supply chain operations and service teams are ready to deliver. So we're getting more than 1-year visibility, in some cases, 2 years visibility with a number of these different customers because as we talked about in the prepared remarks, in the second half of '26, we will see significant ramps for these advanced factories. And again, customers want to make sure that especially our supply chains are ready to deliver. And of course, the improved visibility is critical to our ability to ensure on-time delivery to customer needs. But I'd say that's, C.J., the biggest thing that's changed in the last couple of months. Christopher Muse: Very helpful. And then maybe, Brice, you announced the headcount reduction over the last quarter. I'm curious how we should think about that and the implications to gross margins and OpEx into first half calendar '26 perhaps versus second half given the ramp that you've talked about? Brice Hill: So on the reduction, if you look at our Q1 spend in our guide, you'll see that we don't have the uplift that we typically have in Q1 for our annual pay raises and the share-based compensation increases that typically happen. So you'll be able to quantify the rough change in that quarter from that perspective. And just to highlight, that was a year's long program that we worked on to increase velocity and productivity across the company. And for the balance of 2026, we'll add back some skills that we need to fill in for the company. So it was really a wholesale evaluation of all the staffing model we have across the entire company. Gary Dickerson: Yes. C.J., maybe I'll add one -- another aspect to this. In strategic planning, we had a big focus on innovating the way we work, including AI and digital technologies and driving, like Brice said, higher velocity and productivity. That's really at the foundation of how companies compete. So huge focus, especially on velocity across all of Applied Materials and then streamlining our organization to optimize future performance. And as we went through these changes, we also wanted to make sure, as I talked about, we see significant demand coming from our customers. So we wanted to make sure as we're doing this overall company and workforce optimization to improve the performance of Applied, we're also ready to meet those major customer ramps in the second half of '26 and then going forward. Operator: And our next question comes from the line of Krish Sankar from TD Cowen. Sreekrishnan Sankarnarayanan: Gary, my first question is, as you mentioned, you're clearly gaining share in new technologies like gate-all-around and backside power delivery. But when I look at your leadership products, it feels like PVD is moving to ALD, on the CVD, CMP and etch side, besides the usual U.S. and Japanese competitors, there's increasing domestic China competition. So I'm kind of curious how to think about the momentum in those leadership products over the next 2, 3 years as you see increasing competition, both globally and from China? And then I have a follow-up for Brice. Gary Dickerson: Okay, Krish. There's a lot in that first question, but thank you for the question. So we have very strong positions, gate-all-around backside power. Besides being #1 in process equipment for leading logic and foundry, we're also #1 in DRAM and advanced packaging, especially for high-bandwidth memory. And those are the most important segments for AI energy-efficient computing. And leading-edge foundry/logic and DRAM will be the fastest-growing segments in '26 and for the next several years. And Krish, we're performing well across all our products. Again, I am extremely confident that we will grow share, especially in these segments that are enabling AI energy-efficient computing. Again, we have deep relationships with all of these different customers across multiple technology nodes. We see strong demand for our products, increasing demand for integrated systems for transistors, wiring and now Kinex for packaging. So all of that, I'm very optimistic about. And I'll come back to your PVD comment in just a minute here. The biggest change we've seen in our competitive position in the near term is trade restrictions. We used to serve the entire global WFE market before restrictions were implemented. By '24, 2024, we were restricted from serving around 10% of China's WFE market, mainly in leading-edge logic and the domestic NAND market. And then in the last month of 2024 and the first month of 2025, the restrictions significantly increased for us, and we could no longer serve China's DRAM market and some of the ICAPS market. So our impact grew to well over 20% of the China WFE market, which I think everybody knows that the WFE market in China has been elevated this year and also over the past few years with China approaching 40% of total WFE. So this change in restrictions was a very big impact, especially in 2025. And non-U.S. equipment companies don't have the same restrictions. And so restricted customers can buy from those companies even if they would rather buy from Applied. And we've put a lot of time and studied this topic very carefully. And what we can see is that where we can compete, we are doing very well. And then if I look at China going forward, our business has returned to normalized levels. We talked about kind of mid-20s on our semi business, our systems and AGS. And looking ahead, we don't anticipate significant new restrictions. In fact, we believe that our share in China ICAPS, where we can compete was flat from 2024 to 2025. And that's across, Krish, all of our different leadership products. And we think we can continue to hold and have an opportunity to even gain share going forward. And I say this because we have several major ICAPS new products coming for China and non-China that add to the strong products we have today enabling us to enter new ICAPS markets and also better compete in cost-sensitive areas of the market. So we will increase our ICAPS addressable market opportunity in China and worldwide. And again, where we can compete, I'm actually very optimistic with our position. And then back to PVD, your question on PVD. So I'll tell you, Krish, PVD is doing great where we can compete. We grew PVD in '25. We have a positive outlook in '26 and into the future. And I talked earlier about AI, PVD is enabling low-resistance wiring, and that's critical for faster and more energy-efficient chips. And with advanced chips, you have hundreds of miles of wiring in a single chip. And if you could imagine, that long wire keeps getting thinner and thinner and moving data through that wire at high speed with low power is incredibly hard, almost like magic, and Applied is the clear leader in wiring innovation. So Krish, we see strong demand for PVD, strong growth in 2026 and into the future. We're also innovating. I talked about that pipeline of innovative products. We have new PVD innovations, specifically for ICAPS beyond all of the other things that we're doing that will help us in performance in that particular segment. And then the last thing, on the leading edge, we are -- we do have an increase in demand for the integrated products, including selective ALD and selective moly, which we just had some big wins in the most critical applications. So long answer, Krish. Sreekrishnan Sankarnarayanan: Gary, no, it's extremely helpful and very informative. Just a quick follow-up for Brice. Brice, how do you think about the impact of this 200-millimeter movement from AGS to semi? Is there a way to quantify it for Q1? Or how much was it in FY '25? Brice Hill: Yes. It's approximately $125 million, Krish, for Q1 and approximately the same number in Q4. So we're moving that from our services business to our equipment business, and we think that will be easier for us to manage and easier for investors to understand those 2 different reportable segments. Operator: And our next question comes from the line of Vivek Arya from Bank of America Securities. Vivek Arya: You mentioned you expect fiscal '26 mix to work in your favor. You also mentioned the significant growth in the back half. I'm curious, do you think there is a potential for WFE to grow high single digit, close to double digit next year and for Applied to outperform that because you do seem to have better visibility and you also expect the mix to work in your favor. So I'm just hoping that if you could give us some sense of what the market could be doing? And how is Applied positioned with respect to that market? Brice Hill: Vivek, it's Brice. Thanks for your question. We do expect strong growth in '26, led by leading edge and DRAM. The headwind that we have, we do still expect some digestion in China and in ICAPS. So it's kind of a similar situation relative to 2025. But we think leading edge will be very strong. DRAM will be very strong. These are pulled by the headline of the AI solutions in those spaces. And then a little bit of digestion on the ICAPS side, but we do think it will be a growth year. Vivek Arya: On the clarification side, Brice, how much of the $600 million BIS headwind is in Q1 and the rest of the year? And if I could squeeze in the real question for Gary. One of your peers suggested an $8 billion or so, I think, WFE for every $100 billion or so in data center build-out. Do you agree with that number? Do you have a different number? And how do you see the mix within that $8 billion playing to Applied's strength? Brice Hill: Okay, Vivek. So starting with the affiliate rule that came out and affected our Q4 and then was suspended. So we had shared that $110 million would be affected in our Q4. We didn't ship that in Q4, but we will ship that in Q1. So the first answer is that's included in our guide for Q1. And then the $600 million is still a good estimate for what's in the rest of 2026. And we didn't share any linearity for that. And in fact, it's still being closed in terms of delivery dates, et cetera. So I would think of that as through the rest of the year. And then on the WFE per gigawatt, we spent some time thinking about this. We think the best way to think about this is about 15% of leading-edge wafer starts and DRAM wafer starts are allocated towards AI data center solutions. So if you think about capacity planning, that's growing at a mid-30 CAGR across the industry. So today, 15% of those 2 end markets growing at mid-30s. And so for companies that are planning capacity for 2 and 3 years out, they make that projection and that much WFE should be allocated towards data center. So we can talk more about that in a follow-up, but I think that's a good way to think about how much is being allocated. Gary Dickerson: Vivek, you asked about what does that mean the AI demand mean for mix and for Applied. So I talked about this earlier that the 2 fastest-growing segments for '26 and going forward are leading-edge foundry/logic and DRAM, including high-bandwidth memory. And in both of those cases, again, we're clear #1. We're gaining share, high visibility in gate-all-around, and that will become clear as those advanced factories ramp in the latter half of '26. Again, we have very strong visibility, very strong positions. And the same thing is true with DRAM. And I think longer term, if you look at gate-all-around backside power, we're positioned to capture more than 50% of our served market. So I have high confidence that we are gaining share in gate-all-around. I mean that's all of the discussions I had with these R&D leaders when I was in Asia in the last month. And then DRAM, high-bandwidth memory, we're in really great position there. We've gained a significant amount of share over the last several years. As FinFET ramps, we have strong leadership in FinFET. That's going to be adopted in DRAM, 4F-square. We also are in a great position. And then in HBM, future generations will adopt hybrid bonding, where we also have clear leadership. We announced Kinex at SEMICON West. So the mix is definitely working in our favor, and we're well positioned going forward. Operator: And our next question comes from the line of Stacy Rasgon from Bernstein Research. Stacy Rasgon: For the first one, Brice, this second half lift in demand. So what does that imply for the trajectory in the first half? Like are you thinking revenue stays kind of in this ballpark until we hit the second half? Or does it grow a little bit and then it grows a lot? And maybe even if you wanted to quantify like second half versus first half split or something like that. But like how do we think about the first half relative to the second half given the lift in the second half? Brice Hill: Yes. For the semi business, Stacy, and thanks for the question. For the semi business, we think it will be flattish until we see that growth. We will see a little growth in the AGS business. We expect that, as we've shared, to be growing at low double digits, and that's fairly continuous growth through the course of the year. But for the semi business in the short term, it will be flattish. Stacy Rasgon: Got it. Until like Q3, I guess, you're thinking or? Brice Hill: Yes. For us, it will really be our Q4 and our Q1 of next year. So that's when the calendar -- that's when it matches the calendar. So we'll see a -- we expect a significant uplift there from leading edge, especially. And until then, it will be slower growth. Stacy Rasgon: And I guess for my follow-up, you sort of mentioned gross margins kind of staying in this range until we see that lift. So do you expect like a material lift in gross margins when that material lift in revenue comes through? Or like how do we expect like the gross margin trajectory on the back of those revenues as that comes through second half of next year? Brice Hill: Yes. The 48.4% guide for Q1 is good for this level of business. And I'll just highlight in Q1, we're also expecting a normal share from a China shipment perspective. So it should be -- for the whole company, it should be in the order of 29% and less than that for AGS and our semi business. So that level without a significant uplift in the business, that's good for this size business. And then when we do get to the second half, added volume will help with cost improvements. And then over time, we continue to work on our pricing and cost programs. So you can see with the 120 basis point uplift that we had in 2025, most of that was driven by price improvement. And so we'll continue with that program, but it takes time to affect the margins. Gary Dickerson: Stacy, this is Gary. One thing I'd say in terms of margins, I do think that we will be able to drive sustainable improvements in margins over time. I mean one thing in the industry, you see a tremendous amount of profits being generated with the AI demand throughout the entire ecosystem. And so our customer profitability has improved significantly. And as I mentioned earlier, also, we're enabling these incredible innovations. I mentioned the hundreds of miles of wiring in an advanced chip. I mean, again, for AI, this is incredibly valuable. So as we continue to work with our customers, enabling those innovations that are critical for AI, bringing new products to market, I believe that we can sustainably drive our margins higher going forward. Operator: And our next question comes from the line of Timothy Arcuri from UBS. Timothy Arcuri: Brice, I'm trying to understand China a little better. So all these affiliates were banned and then they got reinstated. And the way that China usually operates is that they -- when they were rushing to get in front of the ban and now -- I would think that they're going to come back and they're going to just try to get as much equipment as they can as fast as they can. So is the add-back not going to be more than 600? And in fiscal Q1, like are you taking slots away from the other customers to give to them? I guess I'm trying to figure out how we don't add more than 600 back the way that these Chinese customers typically operate. Brice Hill: Thanks for the question, Tim. So yes, for the first quarter, 110 is in the quarter. Those tools are built and will ship. For the balance, we weren't building those tools. We didn't know we would be able to ship them. And so it's going to take time to do the supply chain and actually make the builds and we'll have to finalize the date with the customers. So they may have interest in working that process as quickly as possible. But I would just say the good way to think about this is cycle time, and we'll spread it through the year. Timothy Arcuri: And then I guess, Gary, I wanted to go back to PVD. So this is like 1/3 of your systems revenue per Gartner. So it's a super important piece of your business. And it does seem a little bit like ALD is eating into this franchise a little bit. I know it's super important. It's been growing. But how do you sort of protect that franchise from -- you have one franchise you're very strong in and one where your share is not as high. And do you think that we're all kind of maybe too concerned about the degree to which ALD is eating into PVD? Gary Dickerson: Tim, thanks for the question. I absolutely think you're too concerned. Again, as I mentioned, I just spent a lot of time in Asia with our R&D leaders for our top customers. And we have deep visibility into their technology road maps for 4 generations. And I can tell you, again, we have high confidence. PVD is going to continue to ramp. I mentioned the hundreds of miles of wiring in an advanced chip. And we have innovations that are really amazing innovations, and we are the leader in wiring. So if you think about an AI server, again, how you move the data at a very high speed with low power is enormously important. That's within a chip, chip to chip. There's so much innovation that's happening there. But I don't know where this comes from on the ALD eating PVD share, that type of thing. All I can say is that we have extremely high visibility. We have unique technologies, including PVD, and we have unique ability to combine technologies and integrated platforms. One of those integrated platforms, we combine selective ALD together with PVD and 5 other technologies. That's part of what's enabling those hundreds of miles of wiring. And Applied is really unique in being able to deliver those kinds of innovations. And that is enabling 50% improvement in resistivity. It's a $1 billion business for us every year. And so that is going to continue. And again, deep visibility into every -- the N+1, N+2, N+3, N+4 technology nodes. Another innovation that we just won with leading foundry/logic companies is integrating selective moly with PVD into an integrated platform for the most critical applications for our customers. So again, Tim, very high visibility. I agree with you. It's a great business. It's going to keep growing in '26 and keep growing as we go forward. Operator: And our next question comes from the line of Atif Malik from Citi. Atif Malik: Welcome back, Mike. Brice, I'm just trying to understand the China commentary you're expecting China to kind of stay at this mid-20s level for the silicon products into next year. So if the assumption is that the domestic China spending is coming down next year, why wouldn't this number be lower than mid-25% and if the rest of the China is growing? I'm just trying to understand the moving pieces. Brice Hill: So for Q1, that just happens to be what's in the mix. But we do expect it -- if we do have the digestion that we're expecting in China, then we will see it lower during the course of the year. And that will be more than offset -- to get a growth here, that will be more than offset by the strength in leading edge and DRAM that we highlighted earlier. And we'll just admit, I think we've been wrong for 2 years in a row forecasting a digestion related to China, and it's been stronger each year. So we could be surprised on the upside as we go through. But right now, Gary mentioned this a few minutes ago, China has been almost 40% of WFE. It's been elevated. They've been investing heavily to get to self-sustainability from a production perspective. So it's -- we don't have as good a visibility because of a large number of customers there and continuing creation of new customers. So it's not as easy to forecast as the rest of the mature market. Gary Dickerson: Yes Atif, the one thing I would say also, longer term, what we think is that ICAPS remains about 1/3 of WFE, and then you have memory and leading-edge foundry/logic. So China is really mostly an ICAPS market and there has been this elevated spending over multiple years. We think that -- if you just look at end market demand, we think that moves back into that ZIP code over a longer period of time. Now when that happens, hard to anticipate exactly when that's going to happen, but that's what we think about over a longer period. Atif Malik: And then, Gary, one for you. You visited several customers. Are your memory customers constrained by shell capacity? I mean why are we talking about a second half inflection or the first half? I mean I understand the first half is being dragged lower by China. But is there a situation where the memory guys are constrained by shell capacity that explains why second half is going higher? Brice Hill: Well, I can take the question, Atif. So first, we would say that factory schedules, of course, matter. So each company -- each customer has their own schedule for installation and ramp and qualification and the like. Our information on the macro level, we had several people asked this question, but our information on the macro level suggests that there is factory capacity from a space perspective to ramp across the industry. And then you'll just have to ask each customer. That's a macro answer. You'll have to ask each customer for their situation. But we don't think the capacity is limiting the ramp at this point. Operator: And our next question comes from the line of Charles Shi from Needham & Company. Yu Shi: I have a follow-up on China. You did mention outside of restrictions, you are not losing share. But your U.S. peer, the closest one, reported much stronger China revenue growth this year. I think they are probably growing at 20% year-on-year. You're probably declining more than 10% year-on-year. So just really trying to reconcile how are you not losing share? Is there some nuances that we may be missing and that would suggest you actually did not lose share in China despite the numbers would suggest otherwise? Brice Hill: Charles, I'll start on this one. So I think the nuance, we clarified that or we made an adjustment in there and said, if we look at the accounts that we can support, we're holding our share and competing well in China. And if you just take the macro number, we've certainly lost share in China. I think Gary commented that if you go back to 2024, just over 10% of the market was restricted from -- for U.S. companies. And if you go to 2025, it's more than doubled. The restriction has more than doubled. So we've certainly lost share in China because a larger portion of the market is unaccessible -- inaccessible to us. But when we look at the accounts that we can sell to, we feel we're competing very well. Gary Dickerson: Yes, Charles, this is Gary. Yes, I think we have done a lot of work on this. And there's lots of different sources of data that can cross-validate the numbers. And again, when we look at -- we can't comment on other people, their ability to serve global customers that are in China versus domestic customers. Everybody is going to have a little difference in terms of what they're serving in China. Certainly, for us, NAND, the global NAND in China is not a significant business. DRAM, however, which really was restricted at the beginning of our fiscal year, we have very high share in DRAM. If you look at the top -- the leading DRAM companies in this last year, I think our business was up something like 50%. And so for Applied, DRAM going away had a really big impact on us. So again, Charles, I think we have pretty good confidence in maintaining share where we can compete, but there's going to be a different mix for every company. I don't know, Brice, if you want to add anything else. Brice Hill: No, I think that covers it. Yes. The other thing that I would add to that, Charles, is the other part of that is not only the DRAM, but it's the NAND. So if you think about it, what was shipping? You have multinational NAND companies that are in China, and they were presumably pretty strong. And as you may know that in our mix, that's the lowest area for us. So Gary talked about the DRAM impact. The other impact is NAND being strong. And both -- and that equation in the future on a global basis, we think is changing. Operator: And our next question comes from the line of Joe Quatrochi from Wells Fargo. Joseph Quatrochi: I was wondering if you could help us understand just what was the size of the advanced packaging business in fiscal '25? And how did that grow? Brice Hill: Joe, it's Brice. It's a little bit lower than it was in 2024. So 2024 was buoyed by the shipments, the high shipments in the end of the year for HBM. So it's essentially been running at the same level for 2025, minus that extra shipments at the end of that year. And then as we look forward, Gary is going to comment about the changing technologies for advanced packaging over time. We think we're well positioned for that. We still think that business will be growing significantly along with AI data center and all the different packaging capabilities that will be required over time. Gary Dickerson: Yes, Joe. So Applied is #1 in high-bandwidth memory. And so that business was not as strong in '25 as it was the previous year. So that was one thing that impacted our relative growth rate, but it's pretty close to flat year-over-year '25 versus '24 with the HBM coming down versus where it was. What I would say is that we're still on track to what we've discussed before. We've grown the business around $500 million to about $1.5 billion today. And we're on track still to double this business to $3 billion or more over the next few years. And we're in a very good position. As I said earlier, we're #1 in HBM. So as HBM ramps over time, that puts us in a good position. We have a great portfolio of products. And especially, this is -- I mentioned the trip in Asia and meeting with a lot of these R&D leaders. There's an enormous focus for our customers to go to larger packaging sizes so they can connect more GPUs, CPUs and all these different computing components to improve performance and power an enormous amount. And so Applied is extremely well positioned in HBM, and we're also well positioned as these new technologies ramp for the future. So I think high confidence in being able to double this business again over the next few years. Joseph Quatrochi: That's helpful detail. Maybe as a follow-up on the China entity list of $600 million that maybe comes back here. Any help on what the split of that was for like AGS in terms of services? I assume that would basically just kind of turn right back on given you're able to service those customers. Brice Hill: Yes. You're right. There was some AGS in that. We didn't offer that, and I don't have it at my fingertips. So there was a component of AGS, but I think the majority was equipment. Operator: And our next question comes from the line of Shane Brett from Morgan Stanley. Shane Brett: So first question is, you mentioned that your revenue from leading-edge DRAM customers is up 50% in fiscal '25, which is stronger than those customers' DRAM WFE spending to my knowledge. Where specifically are these share gains with these leading-edge customers coming from? And now that you're past extremely tough China DRAM comps, just how do you expect the DRAM business to track in 2026? Brice Hill: Yes. I'll start, Shane. So when you do the year-over-year comparison, it looks flat for us from a DRAM perspective. But what was happening in 2024, we shipped a significant amount of business to China customers. And so we basically had the same business in 2025 without the China customers. So all of that business went to the internationals, and that equated to approximately a 50% growth for them. And we do expect DRAM to strengthen as we go into '26 and should be healthy growth in the -- across the customers for DRAM investments. Gary Dickerson: Yes, Shane, just in terms of where are we gaining? Certainly, I mentioned earlier, high-bandwidth memory, that's one part -- one segment where Applied is clear #1, and that is helping us. The DRAM companies are driving innovation in I/O and Applied, that really leverages a lot of our leadership products in foundry/logic. In fact, they're moving to FinFET going forward. That puts Applied in a good position even to gain more share as we go forward. We have a strong position in capacitor scaling. We have a really strong etch share in DRAM, and we've achieved patterning share gains. So those are a few areas. And again, I would say, going forward, as these DRAM companies adopt hybrid bonding for HBM, as they adopt FinFET, as they adopt 4F-square, the vertical channel transistor architecture in all of those areas, we're positioned to gain share as those new technologies ramp. Shane Brett: Got it. And my second question may be a little bit critical, but your fiscal '25 foundry/logic revenue is up about 3% year-over-year, but your U.S. peers who should be on a level playing field with you are recording extremely strong double-digit growth through the first 3 quarters of the year. Just what's your self-assessment on this performance gap with those U.S. peers? And just how should we have confidence that Applied can outperform foundry/logic WFE in 2026? Gary Dickerson: So foundry/logic includes both leading edge and ICAPS customers. So those 2 things are mixed together. If you look, we had record revenue in Taiwan, record revenue in Korea. And so our performance is extremely strong. And the leading edge, our revenue was up a significant amount. So you have all those things kind of mixed together, I think, in those -- in that data because everybody is combining that. Michael Sullivan: And operator, we have time for one more question, please. Operator: And our final question for today comes from the line of Jim Schneider from Goldman Sachs. James Schneider: Relative to the strength you're expecting in '26 across leading-edge logic and DRAM, can you maybe guess which one might grow stronger than the other and which one might start to recover first? Brice Hill: Sure, Jim. We think leading-edge will be the strongest grower with DRAM second. So that's our forecast. Gary Dickerson: Yes. The one thing I would say, Jim, I think both of them are going to grow at a pretty strong rate. But it really in terms of when we see the revenue depends on fab timing. And so that's why we talked about kind of second half of calendar '26. And those were the discussions I had with a lot of the Asian customers when I was traveling and the dramatic improvement in visibility. So that also you have to take into consideration when you think about the timing of when those ramps will happen. James Schneider: And then maybe as a quick follow-up, gross margins, you're expecting to increase in the back half once you get better absorption on the costs. I understand that. But are there any other underlying initiatives you're doing to improve gross margins operationally that could cause kind of a further tailwind once we get there? Brice Hill: Sure. Thanks for the question. So on the gross margin side, if you look at '25, up 120 basis points from '24, the majority of that really has been improvements in our pricing processes, a good change that we made. We highlighted in previous calls that we revamped our entire pricing program across the company. But we're also working on cost reductions. The cost reductions were offset to some degree by tariff headwinds and by some of the inventory management, et cetera. So the real driver during the year was the price -- process improvements. And those will continue as we go into '26. So at the calendar second half, as we get more volume and you get some time for those to work, we should be able to improve the gross margins. Michael Sullivan: And Brice, would you like to sum up today's call? Brice Hill: Thanks, Mike. I'm excited that the investments we're making in leading-edge foundry/logic, DRAM and high-bandwidth memory give us technology leadership. At the same time, our customers are signaling an inflection in the AI-related fab equipment spending in the second half of calendar '26. I wish everyone a nice Thanksgiving, and I look forward to seeing many of you soon at the UBS Conference in Scottsdale. Mike, please close the call. Michael Sullivan: All right. Thank you. And I'd like to let everybody know that a replay of today's call is going to be available on the IR page of our website by 5:00 p.m. Pacific Time today. In the meantime, thank you for your continued interest in Applied Materials. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good afternoon. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to Virgin Galactic's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Eric Cerny, Vice President of Investor Relations. You may begin. Eric Cerny: Thank you. Good afternoon, everyone. Welcome to Virgin Galactic's Third Quarter 2025 Earnings Conference Call. On the call with me today are Michael Colglazier, Chief Executive Officer; and Doug Ahrens, Chief Financial Officer. Following our prepared remarks, we'll open the call for questions. Our press release and slide presentation that will accompany today's remarks are available on our Investor Relations website. Please see Slide 2 of the presentation for our safe harbor disclaimer. During today's call, we may make certain forward-looking statements. These statements are based on current expectations and assumptions and as a result, are subject to risks and uncertainties. Many factors could cause actual events to differ materially from the forward-looking statements made on this call. For more information about these risks and uncertainties, please refer to the risk factors in the company's SEC filings made from time to time. You are cautioned not to put undue reliance on forward-looking statements, and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call, whether as a result of new information, future events or otherwise. Please also note that we'll refer to certain non-GAAP financial information on today's call. Please refer to our earnings release for a reconciliation of these non-GAAP financial metrics. I would now like to turn the call over to our CEO, Michael Colglazier, and the agenda for today's call that can be found on Page 3 of the earnings presentation. Michael Colglazier: Good afternoon, everyone. We have much to cover today with important progress updates on our SpaceShip program and a company-wide pivot toward operational readiness as we prepare to enter 2026. We remain full steam ahead, bringing our new SpaceShip into service. We continue to make excellent progress across the many elements of the program, and the number of outstanding items on our production checklist continues to decline with each passing week as we knock out the work. I'll start the call highlighting progress within our SpaceShip program, including major milestones being crossed and proof points supporting our flight rate and reusability assumptions. I'll share insights on our preparation for the launch of commercial service in Q4 next year, which is just a short year or so from today. I'll then pass the call to Doug for updates on our Q3 financial performance and a look ahead. Before diving into the details, I'm pleased to share the expected dates for Flight Test and our first spaceflight remain essentially unchanged from our prior forecast, with our Flight Test program expected to begin in Q3 and our first spaceflight in Q4 of 2026. I'll note that we are now using Q3 instead of summer and Q4 instead of fall as we've had feedback from customers and investors in the Southern Hemisphere who point out that fall in the U.S. is actually spring in other parts of the world. Shifting to quarters helps make this more clear. Last quarter, we shared expectations for a modest extension of our critical path due to complexity in manufacturing a large part within our fuselage subassembly. That particular part, the lower skin of our forward fuselage, arrived in our SpaceShip factory earlier this month, well within the time extension we had expected, which is great news. Since last quarter, the fuselage has been and continues to be the pacesetting subassembly that drives the critical path of our SpaceShip program. Our team is focused intensely on resolving the manufacturing and supply chain needs of the fuselage with strong results, and we are currently forecasting the first fuselage to wrap up just a bit earlier than we expected last quarter. Over the last 3 months, we have seen the expected completion dates of our wing and feather subassemblies shift modestly to the right. However, both of these subassemblies remain ahead of the critical path and the shifts, therefore, are not expected to have an impact on our flight dates. I'll share detail around the main issues we've been tackling, how we've resolved them and insights into remaining items on our watch list as we get into the call. On Page 4, we've provided a link to the new Galactic 10 video that released this afternoon as well as links to our recent episodes of our We Build SpaceShip series. These short videos provide an excellent visual rundown of the program's latest accomplishments. Let's start the program update on Page 5 with the structural parts that make up the SpaceShip. You'll recall our SpaceShips are built with 3 major structural subassemblies, the wing, the feather and the fuselage. This page highlights progress on the wing, shown here with our team in the SpaceShip factory fitting the wing skins onto our first shipset. This group of skilled technicians is excited and proud of the work they're doing, and they are showcasing how the investment we put into production tooling is paying off as the precision fit of the SpaceShip parts allows them to advance the assembly process smoothly. The wing in this image, which is destined for our first SpaceShip, will wrap up this phase and come down from this tool in December. Even more exciting, parts for the second wing shipset have already arrived in the SpaceShip factory and will immediately start to load into this wing up tool as soon as the first shipset moves forward. Moving to Page 6. I recently visited Bell Aerospace's facility in Fort Worth, Texas, to see the progress they've been making with our second major subassembly, the feather. Bell's rapid production team has done incredible work, leveraging their expertise in high-temperature composites and tilt rotor assemblies to deliver one of the most unique and important parts of the SpaceShip. The photos on this page show the large feather boom skins finishing assembly and undergoing detailed imaging inspections. On Page 7, I'm very pleased to share the first complete shipset of feather boom skins have all been delivered to Bell's final assembly facility. This is a major milestone, and Bell's top flight manufacturing technicians are already hard at work building the feather assembly that will become part of our first SpaceShip. Just like I described with the wing, the parts that will make up the next feather assembly are fast following. So the second shipset can start assembly as soon as this first feather shipset is sent off to Phoenix, where we will combine with the wing and the fuselage. Moving to Page 8. The major elements that comprise our third major subassembly, the fuselage, have also been making good headway, although as I mentioned before, this part of the ship is driving our critical path. Broadly speaking, the fuselage has 3 major sections: the oxidizer tank, which sits in the heart of the fuselage and carries the liquid oxidizer used by our hybrid rocket motor system to power the SpaceShip. The forward fuselage, which houses our pilots and astronauts and the aft fuselage, which houses the hybrid rocket motor itself. On Page 9, I'm going to start with the oxidizer tank because our rocket systems team just passed a huge milestone by qualifying this new tank for the entire life of our ships. To give a bit of context on this achievement, in our original SpaceShip, VSS Unity, an earlier model tank had been built and qualified for 40 flights. While 40 flights is very impressive for first-generation space vehicles, the 40 flight limit would have imposed substantial downtimes and cost every time it needed to be swapped out, which would have limited our revenue generation capacity. The image on this page shows our next-generation tank during its qualification testing. We cycled this tank 4,000 times and it passed with flying colors. This new tank design is now qualified for the life of our Delta class SpaceShips, which we expect to be 500 or more spaceflights. This is an order of magnitude increase in reusability, and this tank is one of hundreds of parts where we have leveraged our years of R&D and engineering experience to build new SpaceShips with unprecedented durability and reusability. Page 10 shows the first flight article of this new line of tanks in our SpaceShip factory, where it will be prepped and installed within the heart of the fuselage assembly. Big shout out to our rocket systems teams for delivering this major milestone on time for our overall production schedule. Page 11 shows an image of the lower skin of the forward fuselage section. This is one of the largest parts on the SpaceShip. It has been the part driving our critical path, and it required a couple of rounds of process refinement to get right. This first fuselage skin arrived in our SpaceShip factory earlier in November and was unboxed with great excitement. Happily, work on the fuselage can now advance with this part located in the final assembly tool shown here. For those on the call who aren't close to carbon part manufacturing, it's helpful to note that the need to resolve manufacturing challenges like we faced with this fuselage skin is fairly typical, especially when large complex carbon parts are produced for the very first time. While time extensions are not desired, they are not unexpected. And as I mentioned earlier, we had reserved schedule contingency for the part fabrication phase, and we have stayed within that contingency. As the premier company defining suborbital human spaceflight, we will always take the necessary time to work out whatever process or design changes are needed to produce safe, flight-ready parts, and that's what we did here. Our partners at Bell had to resolve some similar manufacturing issues with the big feather skins that we discussed earlier back on Pages 6 and 7. Those challenges have been sorted by the Bell team and the time involved in sorting them extended the forecasted delivery date of the feather assembly to Phoenix from late Q4 2025 to the first half of Q1 2026. This push of the feather delivery into Q1 does not impact the timing of our flight test or our first spaceflight because the fuselage remains the driver of the critical path of our program. On Page 12, I'd like to share a couple of the remaining items on our watch list. You'll see in the graphic, we have 2 skins that make up the forward fuselage, the green shaded upper skin where the windows are located and the orange shaded lower skin that we just spoke about. The oxidizer tank I mentioned earlier is located directly behind the pilot and passenger cabin that is formed by these upper and lower skins. You'll also see we have skins for the aft fuselage located behind the oxidizer tank. The upper skin and the aft skins are currently in production and are expected to arrive in the SpaceShip factory in December. We have applied all the manufacturing process improvements learned over the last several months to the fabrication of these remaining parts. Assuming these parts arrive as expected in December, we'd anticipate our first spaceflight to take place earlier in Q4 of 2026. If these parts need some extra time to resolve, we'd expect our first spaceflight to be later in Q4 of 2026. Moving to Page 13. I'd like to highlight some of the areas within the company where we see additional economic potential beyond our suborbital space business. The first of these opportunities sits within our avionics team. Like the rocket systems team I mentioned earlier, these people are world-class and passionate, and their work plays a central role throughout both our SpaceShips and our launch vehicles. We recently released an episode of We Build SpaceShips that focuses on our avionics efforts, and I encourage you to watch it to better understand the scope of this team's capabilities. We have strategically organized both our rocket systems and avionics teams to take advantage of potential opportunities within commercial space that could benefit from adaptations of our products and expertise. The primary near-term focus for both these teams is bringing our new SpaceShips into service. However, once we are cash positive and have refined our SpaceShip production process, we plan to pursue incremental business opportunities in these areas, leveraging our outstanding talent and IP. The second opportunity I'd like to highlight is connected with our launch vehicle, Eve. An outstanding team of engineers, technicians and pilots were behind a terrific upgrade program for Eve, and they recently returned the ship to the skies above New Mexico, as shown on this page. This group executed on time and under budget while substantially improving Eve's flight interval and inspection program. I'm excited to say our launch vehicle is now capable of flying SpaceShips on successive days, and we're planning to ramp to an average availability of 3 to 4 flights a week. We expect this enhanced capability will support excellent utilization of our first 2 SpaceShips as Eve's ability to launch on successive days provides us with great flexibility to handle weather and unexpected issues, so we can deliver our targeted rate of 125 space missions per year with our first 2 SpaceShips. With this upgrade, Eve will have potential to support additional missions that demonstrate the capabilities of Virgin Galactic launch vehicles. Hats off to everyone involved in this project. I'll close out the program update with a final observation before shifting to our commercial readiness efforts. I continue to see the number of outstanding items on our production checklist decrease as we continue to lock in outstanding supplier delivery dates, resolve manufacturing issues and generally knock out the work. I'm also pleased to see the amplitude or range of potential impacts posed by remaining issues moderating as we get more and more of the work done. This is how almost all major development or construction programs go, and ours is no different. Everyone who has built or remodeled a house knows things get more predictable as progress advances. And everyone who has built or remodeled a house knows that sometimes a few elements take longer than expected, but the majority of work continues to progress while those lagging elements catch up. One measure of progress we've been watching is how many of the structural parts needed to build the first SpaceShip have arrived on the dock in Phoenix. By mid-December, we expect to have approximately 90% of the carbon and metallic parts for the first ship in hand. That is super helpful, and it's allowing our procurement and project management teams to really focus on bringing in the final components and keeping us on track. Moving to Page 14. I'd like to spend some time on our commercial readiness plans. I'm very encouraged to see teams across the entirety of our company begin to pivot to commercial operations. The progress with the shifts is exciting for everyone and the added energy that comes with operational planning is palpable. We're hiring a Chief Growth Officer to lead our consumer launch, our revenue development initiatives. We're interviewing the best of the best of the world's pilots to join our pilot core, and we're planning for the growth of our customer operations teams to take care of both our astronauts and their guests when they are on site at Spaceport America. With all this happening, we remain on track to open in Q1 of 2026, our first tranche of sales opportunities for future space missions. In preparation, we have a full rebuild of our digital presence underway with a particular focus on sales funnel progression and a dedicated astronaut portal. We'll unveil our new digital presence in the new year, although the astronaut portal will always be a special and private experience reserved for those within our community of astronauts. I hosted a customer event in Miami a few weeks ago with people coming in from Europe, Latin America, New Zealand and of course, from Florida and the Eastern U.S. The discussions I had with our customers that evening reminded me yet again how passionate and supportive this group is and how meaningful their journey to space will be in their lives. This group has been incredibly patient and loyal, and they fully appreciate our diligent approach to building their SpaceShips the right way. With that said, they are definitely ready for their space journeys to begin and excitement is building as that moment draws closer at hand. We expect most of our current customers will take their space journey during 2027 as these bolstered flight rate capability, combined with the quick turn time expected from our first 2 SpaceShips should allow us to ramp our capacity fairly quickly. In addition to private astronaut space journeys, we continue to advance the space research side of our business, and you may have seen the recent announcement about our partnership with Purdue University. Scheduled for 2027, the Purdue 1 mission will carry a 5-person crew of Purdue faculty, students and alumni, along with a rack of research experiments. We are excited by the potential of these types of missions as they represent a meaningful opportunity for us to partner with world-class research universities and institutions. Doug, I'll turn the call over to you. Douglas Ahrens: Thanks, Michael. Good afternoon, everyone. I'll start with our financial results for the third quarter and a review of the balance sheet. Then I'll give a preview of our spending assumptions for 2026, leading up to the start of commercial service. I'll wrap up with a recap of our longer-term economic model. Turning to Slide 15. Revenue in the third quarter was approximately $400,000 attributable to future astronaut access fees. Total operating expenses for the third quarter decreased 19% to $67 million compared to $82 million in the prior year period. Net loss improved by 15% to $64 million compared to $75 million in the prior year period. Adjusted EBITDA improved by 11% to negative $53 million in the third quarter compared to negative $59 million in the prior year period. Free cash flow was negative $108 million in the third quarter, within the range of our prior guidance and an 8% improvement compared to the prior year period. Moving to Slide 16 and the balance sheet. We ended the third quarter with $424 million in cash, cash equivalents and marketable securities. During the quarter, we generated $23 million in gross proceeds through our ATM equity offering program. Our balance sheet remains strong in preparation for commercial service planned for later next year. As we build our SpaceShips, spending continues to shift from significant investments in R&D expense to capital investment. For the third quarter, capital expenditures were $51 million, up from $39 million in the prior year period. As we have pointed out on prior calls, our growth in capital expenditures is reflected in property, plant and equipment or PP&E on the balance sheet. At the end of the third quarter, we reported $350 million in PP&E, increasing 67% from the $209 million at the end of 2024. This represents our significant investment in assets such as manufacturing capacity and SpaceShips that we expect to yield tremendous future economic returns. Moving to our projections. Revenue for the fourth quarter of 2025 is expected to be approximately $300,000, primarily related to astronaut access fees. Forecasted free cash flow for the fourth quarter of 2025 is expected to be in the range of negative $90 million to $100 million, in line with our prior guidance. Spending trends have played out as expected. Peak spending on tooling occurred back in the first quarter of 2025. Since then, we have reduced our cash spending each quarter. Looking ahead, we expect continued quarterly reductions in cash spending through the third quarter of 2026 until spending begins to rise with the anticipated start of commercial service in the fourth quarter. We know that strengthen our capital structure is imperative to our success. We will continue to be very prudent with our deployment of capital, primarily for the completion of our new SpaceShips as we march toward commercial service. We also expect to receive cash inflows from customers ahead of their spaceflights. In addition, our ATM equity offering program remains available to further strengthen our balance sheet as appropriate. We're making excellent progress towards delivering the powerful economic model that we have shared with you before and as shown on Slide 17. As we refine our operating plans for 2026 and 2027, we continue to see the economics of the model holding true. With the initial fleet of our 2 SpaceShips capable of an anticipated 125 flights per year in a steady state and using our most recent ticket price of $600,000 per seat, we expect to generate approximately $450 million in annual revenue at high margins and yield approximately $100 million in adjusted EBITDA. Moving beyond that, we foresee significant economies of scale with the expansion of our fleet. By adding a second launch vehicle and 2 more SpaceShips, we expect to grow annual revenue to approximately $1 billion and yield approximately $500 million of adjusted EBITDA. We are very excited about the substantial progress we are making to achieve this highly profitable business model. With that, I'll turn the call back over to Michael. Michael Colglazier: Thanks, Doug. Let's close on Page 18. It's been a big quarter for us. Strong progress is underway in our SpaceShip development efforts, and I'm very proud of how our team has made such a superlative effort to bring us to this point. Everyone at Virgin Galactic, along with the dedicated teams at Bell, Qarbon and our suppliers is hard at work to deliver the dream of accessible spaceflight. It's fantastic to see that dream becoming more tangible and more inevitable as each month goes by. Let's open the call for questions. Operator: [Operator Instructions] And our first question comes from the line of Greg Konrad with Jefferies. Greg Konrad: Maybe just to start, I mean, you mentioned opening the first tranche of sales in Q1 2026. Any other initial observations on size of that tranche or how you're thinking about flight price on reopening? Michael Colglazier: Greg, it's Michael. Price, we haven't said it publicly, but I continue to expect it will be higher than the price -- our last published price, which was $600,000. And I think that is likely to be a trend you will see. So to your second question on volume, I used the word tranche of sales specifically. We'll put a quantity out. We'll sell that at a price and do that assessment as a good kind of yield management, revenue management group would and then reset the price for the next tranche, and I think we'll do that. Our expectations is that will likely stair step itself upward, but we'll do that tranche by tranche. Greg Konrad: And then just as a follow-up, I think you also mentioned majority of the backlog of astronauts winding down in 2027. How are you thinking about the ramp in flight cadence and maybe implications for 2027, just given it seems like end of 2026, a lot of those flights will be moving forward? Michael Colglazier: So our -- in the -- we'll probably continue to use metrics we talked about a long time ago as we were preparing for our first flights. What's the flight per month that we achieve as a company and what's the revenue per flight. And so I'll focus on flight per month here to your question. The ships that we're bringing forward when they arrive at Spaceport America, I'd say the ships themselves and the status of the maintenance team will be prepared for them to meet the cadence we've talked about. So if it's 125 flights a year, roughly, we're talking a 12 flight per month metric. So the machines will be ready to do that. We will choose to, I'd say, ramp our operations in a prudent fashion. So we'll probably start with 1 flight a week, and then we'll move to 2 flights a week, and then we'll move up to 3 flights a week. And I would expect that progression to take place around about over the first 2 to 3 months of operation from our first spaceflight. Operator: Our next question comes from the line of Oliver Chen with TD Cowen. Oliver Chen: Regarding the Q3 2026 flight test plan and also the Q4 commercial launch, how would you prioritize the different risk factors that you're looking at that could yield variability in your expectations given that you called out a few different items? And then on the oxidizer tank and qualification of that, should we understand some implications for how that could positively benefit margins as well as cost savings? And third question, I think you mentioned avionics. Would love your thoughts on what that opportunity may look like and why you could be well positioned there as well. Michael Colglazier: Thanks, Oliver. Doug, I'll start on some of these. So the -- let me go ahead and go phase by phase, Oliver. So I called out on whatever slide that was, the upper skin that is left on our fuselage and some of the aft skins are there. And what's nice is to be able to narrow down like there aren't that many carbon parts that we're actually waiting on to get into our factory. There are some smaller piece parts coming in, but those are the 2 big ones. And I flagged them and just try to be transparent to everybody. We expect those to roll into December and stay on path. We've put all the learnings we've had from our original spars a couple of quarters ago to the fuselage part a quarter ago. So we expect those to come out. Until we've got them in our hands in the SpaceShip factory, we won't have all of that risk removed, but we feel comfortable enough in the variability of those parts to say one way or the other, we still expect our first spaceflight in Q4 of next year. So that's kind of on, I'll call it, the critical path of getting the carbon parts in. We've been having amazing success as we have the parts in the fit and finish of these as they go into our tools are letting us move better and more efficiently than even we had hoped. So that's really good news for us at the assembly level. So I'm not flagging a high degree of risk in the assembly of those parts into the SpaceShip. So that puts us moving towards getting to flight test in Q3. So between finishing the building of the ship and the start of flight test in Q3, we do a lot of ground testing. We are mostly checking all the systems as they integrate onto the ship, are they all working and performing as expected. And we do an important test called a ground vibration test that allows us to check kind of the harmonic resonance of the ship itself before we put it into flight. Those things have variability across each test, but we believe we've allotted enough time within that to handle the variability of any of the individual test or the system test. So we feel good and confident in our Q3 start of flight test. For flight test, you may recall, Oliver, we are talking the primary thing we're looking to do here is dial in the fly-by-wire flight system that our pilots use to control the ships. That's a new upgrade for this class of ships versus our original ship Unity. And we've been doing all sorts of work offline to prepare for that. And we've given ourselves enough flights in the Flight Test Program to move through there. So we believe we are doing both the things off-line in test benches, offline in an integrated fashion in our Iron Bird facility, which we've talked about kind of building a SpaceShip without the skins that we are testing all the mechanical systems and electrical systems on that way ahead of time. Then we'll do a full integrated test in our factory in Phoenix ahead of time so that when we get to flight test, we want to be verifying that everything is working as expected, more -- that's really what we're doing as opposed to learning. Unity's flight test was all about learning. These ships flight test will all be about verifying. So hopefully, that gives you a sense of remaining risk and how we're managing them going forward. You talked about the tank, one of many examples where we have reengineered kind of part by part of the ship to add durability, longevity, which together equals reusability and asset reutilization and takes down the cost, both the variable cost, but especially the fixed cost of creating these SpaceShips. So that tank is one of literally hundreds. One of our Galactic 10 moments, I don't remember 8 or 7, Mike Moses talks about a pneumatic pressure valve. That was qualified to allow us to have a part that now lasts for the life of the ship. Unity's version of that was not at all a life of ship piece, and it took a lot of maintenance and inspections between flights. Almost every carbon part has been rebuilt in this way. So the total of that plays out economically is it allows us incredible reusability, right? You've heard us say 500 flights per ship. That's -- we think the structure of the ship probably will go beyond that, but we're calling it status now. These tanks and these pneumatic pressure valves, the carbon parts as they come out, each one is just kind of checking the box for us that we've designed this the right way. So I think you mentioned, does that give us cost savings? What it does is really validate the economic model that Doug was talking about. I think we put a version of that inside the deck again. But the cost assumptions that we put into that model more than a year ago now, I think, are really kind of validating as we move forward with things like this tank. And lastly, Oliver, you talked about avionics. So these are -- I think you're aware, all the electronic systems that are there. A lot of times in -- these are very well done for aviation, the aerospace, the aero side of aerospace, and I'd say adapted to space. In our case, we are building these ourselves and they are optimized for a space environment. And that means -- when I say optimize, that means they are fit for purpose. They are incredibly robust. They're incredibly durable. They are -- the systems themselves are doubly, triply redundant and they're lightweight. And that combination is what's needed as people are trying to get high, whether that's high into space or very high altitude into things the government would want. I think there's opportunity for us to use our special expertise with that team. That team needs to stay focused on getting our SpaceShips built right now, but I'm excited for letting them loose once we get that done. Hopefully, that answers your question, Oliver. Oliver Chen: Yes, it does. One quick follow-up, Doug, the operating expenses were better than we had expected. Was that in line with your expectations? And you have been on that process of capitalizing. Was that similar to what you were planning to do with capitalizing the expenses? Douglas Ahrens: Yes. So yes, it is -- it's in line with our expectations because the guidance we gave was to be between $100 million and $110 million of negative cash flow for the quarter, and that included an assumption around CapEx that came in line with our expectations. And so yes, you've seen that conversion over time. There's been less OpEx and more CapEx as we've been building out the SpaceShips and we're capitalizing those costs, and that's the trend you're seeing. You'll see that continue for a little bit longer as we wrap up the work in manufacturing, and then you'll see a ramp down in CapEx happening out here in kind of the middle of 2026. And I wanted to just come back to one more thing you asked about the economics of the tank, the oxidizer tank and how that helps us. One of the real benefits is by having a longer life tank, one that lasts the whole life of the SpaceShip is we don't have to replace it during the life of the SpaceShip. So before the tank we had, the previous design lasted about -- it was only qualified for about 40 flights. And this tank sits in the middle of the SpaceShip. So to replace it means opening up the SpaceShip, taking out that tank, putting a new one in, which interrupts commercial service. So it's not so much the cost of the tank, that's a factor, but being able to continue to operate and not have an interruption to do a major maintenance event like that is a big deal. Operator: Our next question comes from the line of Michael Leshock with KeyBanc Capital Markets. Michael Leshock: I wanted to ask on the competitive landscape and potential TAM for research flights. Of course, you have the ISS for microgravity research, but also more financially viable and accessible options like suborbital parabolic flights. Could you talk about the differentiators of your research offering versus peers? And how big do you think that market could get longer term? Michael Colglazier: There are a few things in that category of differentiation. One that's very meaningful, part of what is exciting for Purdue as an example is it's functionally a little laboratory where the scientists and researchers can go along with their experiments. So you can't do that on a sounding rocket, and it's super expensive to try to get up to the ISS on that. So the ability to fly and travel with experiments is very, very meaningful. So that's one. The quality of microgravity environment is one of the things that has been a big differentiator from the scientists that have flown with us in the past, and that continues to be a huge attractive element, especially versus parabolic flights and things like that. It's just an entirely different level. The opportunity for research to be done in a frequent and repetitive nature to build the data set is also incredibly important. And whether that research takes place on our SpaceShips as we go with unprecedented frequency to space or whether it's something that needs to get up to high altitude, which our launch vehicle does on every flight, the ability for us to put experiments and equipment on our ships to build a data set, we will have, I think, unparalleled capability to build those data sets up in ways that just haven't been possible before. And so we think there's a really interesting opportunity for research institutions. So we're very excited about Purdue and dynamics like that where you're really combining not only the science and the research, but just the fascinating interest of alumni groups from an engineering organization like that. So that's a category that I think is very interesting. But also just broadly, there's so many things that I think government research groups have the opportunity to do here. Hopefully, that gives you a little bit of sense there. I think the volume of this will stay in balance with our private astronaut capacity as it pertains to the SpaceShip. But I think our launch vehicles also have capability to do some really interesting testing as well. Michael Leshock: Great. And then I just wanted to ask on weather. Is that a limiting factor for flight cadence? I know you've incorporated weather in all of your projections. But curious if you have any assumptions for how many days per year would be considered launch eligible days on average? Michael Colglazier: Yes. I may not have that number exactly. First, I'll start off one of the joys of flying from Southern New Mexico is it's sunny 85% of the days of the year. So -- and the conditions we need to fly really just need to be good for a few hours of the day. That's usually in the mornings, but we have a degree of flexibility there. So the very location we chose is the first thing that benefits us from weather. There will be weather. It will rain. It will be too windy, -- there will be a monsoon that blows through and we expect that. And one way to give you context to your question, if you look at our flight capability expectations for each SpaceShip, right, we expect each SpaceShip to be able to fly twice a week, so roughly 100 flights a year per. And we have 2 of those SpaceShips. You can say, okay, we have SpaceShip capacity, that's 200. We look at our launch vehicle. We've talked about the launch vehicle ramping up to 3 flights a week. We continue to do work on that vehicle with fantastic results. So we think there may be some upside there, but let's -- for this discussion, just keep it at 3 flights a week. So that the launch vehicle roughly has 150 flight a week capacity, and we've been sharing 125. So that difference there between, let's say, if we were limited to 3 flights a week on the mothership, and we may have upside there. We're giving ourselves 25 flights of yield loss across the course of time in an environment where weather is usually good along the way. Now the real question here is, well, let's say you have a rainy day. So Mike, you're supposed to fly on a Wednesday and the next group is supposed to fly 3 days later, right, Thursday, Friday, Saturday. If it rains on Wednesday, we don't want to just scrub your flight. I'd rather have you go on Thursday or if it rains 2 days, I'd rather have you go on Friday or worst case, I'd rather have you go on Saturday and have the Saturday group go on Sunday. And one of the things that we're so excited about with our launch vehicle Eve is while we believe it will average 3 to 4 flights a week as we ramp that up, we can't actually fly it back-to-back days. So if it is going to rain on a let's say, back to the Wednesday, Saturday piece, it may be that we choose to fly on Thursday and Friday instead of Wednesday and Saturday and then get our ships back on their general maintenance cycles. So we're giving ourselves a lot of flexibility with the capabilities of these ships to work around weather that will inevitably come up. Hopefully, that gives you some context of our stated targets. Operator: [Operator Instructions] We'll take our next question from Louis Raffetto with Wolfe Research. Louis Raffetto: Can you guys hear me? Michael Colglazier: Yes. Louis Raffetto: Great. Maybe just a follow-up on that last question. So the Purdue research mission, is that sort of the typical research revenue? Or is there any reason that would be different from what we've seen previously? Michael Colglazier: No reason you should expect that to be different from our last stated pricing. Louis Raffetto: Okay. And then as we think about cash flow next year, I know you talked about the spend coming down through the third quarter, but then in the fourth quarter, sort of starting to go back up as you start commercial ops. Do you still see a path to positive free cash flow as those ops start back up or startup, excuse me? Douglas Ahrens: Yes. So we've got this downward trend in our spending, which gets us through to the start of commercial service. And then the cash flow positivity will be a function of a couple of things, the timing of that. And the first is the flight rate and then it will be the ticket pricing of what's blended in the manifest. But the key is getting the commercial service, getting 2 SpaceShips in operation. And Michael mentioned that the second SpaceShip would be coming fairly soon after the first one, and we would be able to get to these flight rates that get us to the cash flow positivity within 2 to 3 months after the start of commercial service. And so at that point, depending on what we are doing with the ticket pricing, how the passengers are moving through because we have some tickets from the past that are more like $250,000, and we have more recent tickets at $600,000, depending on how those blend in and that progresses, that will define the exact timing of the cash flow positivity. But the key is the flight rate and it's looking good. Operator: There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.