加载中...
共找到 39,810 条相关资讯
Operator: Hello, and welcome to the uCloudlink Group Inc. Third Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star and then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. To withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Daniel Gao, Investor Relations of uCloudlink Group Inc. Thank you, and over to you. Hello, everyone. Thank you for joining us on uCloudlink's third quarter 2025 earnings call. Daniel Gao: Earnings release and our earnings presentation are now available on our IR website at ir.ucloudlink.com. Joining me on today's call are Mr. Zhiping Peng, Co-Founder and Chairman of the Board of Directors, Mr. Chaohui Chen, Co-Founder, Director, and Chief Executive Officer, and Mr. Yimeng Shi, Chief Financial Officer. Mr. Chen will begin with an overview of our recent business highlights. Mr. Shi will then discuss our financial and operational highlights for the quarter. They will all be available to take your questions in the Q&A section that follows. Before we proceed, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be materially different from the results, performance, or expectations projected or included by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements, risk factors, and details of the company's filings with the SEC. The company does not assume any obligation to revise or update any forward-looking statements as a result of new information, future events, changes in market conditions, or otherwise, except as required by law. Please also note that uCloudlink's earnings press release and this conference call include discussions of unaudited GAAP financial information and unaudited non-GAAP financial measures. uCloudlink's press release contains a reconciliation of the unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures. I will now turn the call over to Mr. Chen. Chaohui Chen: Thank you, Daniel. And good morning or evening, everyone. Amid a complex macroeconomic and trade environment, we remain disciplined in our execution while maintaining operational profitability. This balanced approach allows us to successfully navigate these external challenges and reinforce the resilience of our business while also laying the foundation for long-term value creation. We remain profitable and continue to generate stable margins, with total revenue of $21.1 million and net income of $9.3 million during the quarter. Our global ecosystem is gaining momentum as it grows in scale and global user adoption. Likewise, our 1.0 international data connectivity services business continues to grow with full-speed 5G network coverage across 91 countries and regions. As we continue to gain market shares and reinforce our leadership position in the global long-term sector, we remain focused on overcoming the world's first three fundamental digital divides through transformative connectivity solutions. Firstly, we are eliminating the global connectivity divide by breaking down international roaming barriers and providing seamless network access worldwide. Secondly, through our patented Cloud Sync and HyperConn technologies, we tackle the single multi-network divide by enabling intelligent and optimized connectivity across multiple networks. Lastly, most innovatively, we are bridging the emotional digital divide with our AI-powered technology, creating entirely new and meaningful connections between humans and their pets. Building on this mission, our strategic investment in R&D and marketing expenses to accelerate innovation, enhance user experience, and speed up commercialization of our three new growth engines are yielding strong results. Our three new product lines, GlocalMe SIM, GlocalMe IoT, and GlocalMe Live, saw remarkable year-over-year MAU growth during the quarter, increasing 382.3%, 188.2%, and 593.3%, respectively. Feedback has been overwhelmingly positive, reflecting how our solutions directly address market demand and validating our investment strategy. I will now review the highlights for each of our key business lines. We will start with our GlocalMe Live business. In 2025, the average monthly active terminal reached 3,903, representing an increase of 48.2% year-over-year. Within our broader GlocalMe Live portfolio, which includes our industry-first Unicore Plus, Unicore Pro, and Long Plug MAT, grew by 369.3% excluding platform year-over-year, reflecting strong user adoption across these innovative plans. Building on this solid foundation of product excellence, I will now highlight the significant progress we made with our flagship product, Petfone. Designed to bridge the digital divide between humans and their pets, Petfone is already gaining momentum after its initial commercial launch in September 2025 in Hong Kong and across the Middle East, where it has already generated orders for approximately 40,000 units. As we continue to expand our distribution channels and partners, at the IFA 2025 in Berlin, Petfone was recognized as an honoree in the communications and connectivity category of the inaugural IFA Innovation Awards. We also received the Best of IFA Year 2025 distinctions from Yanko Design, Home Klugus, and Mercedes Reviews. Following the showcase of our solutions at IFA Berlin 2025, we are now in advanced discussions with several major retail channels, including one key partner. Furthermore, we successfully entered into a partnership with a leading online pet retail platform in North America, where initial product shipments have already begun. With the strategic foothold being established across Hong Kong, the Middle East, North America, and Europe, we plan to establish a new operational structure and raise additional capital to accelerate our global expansion of our pet tech business. We also plan to develop PetTech as a standalone application that extends beyond smart hardware and builds a comprehensive systematic platform, integrating social entertainment, live streaming, and a comprehensive pet ecosystem. The initial version of this new app is expected to launch in 2025. Our GlocalMe IoT business maintained its strong growth trajectory, with user adoption and revenue contribution showing substantial year-over-year improvements. In the third quarter, average demand active terminal for GlocalMe IoT recorded a year-over-year increase of 580.3%. We secured orders for in-car infotainment systems, while our initiatives in the security camera sectors are now fully deployed and entering a phase of expansion to broaden partnerships across several high-growth verticals. Having established an initial presence in this key sector, we plan to expand our solutions into additional industries in the future. Turning to our GlocalMe SIM business line, over the past nine months, GlocalMe SIM has surpassed 400,000 cumulative cards sold, including OTA SIM, eSIM, and eSIM Trio, a game-changing solution demonstrating clear technology leadership in the industry. The eSIM Trio was named as a Best of IFA Year 2025 by Mark Ellis Reviews, further highlighting its innovation and market recognition. This momentum has fueled our growth, driving a 269.5% year-over-year increase in average monthly active terminals during the third quarter. The eSIM Trio solution has continued to gain strong traction following the wider spread distribution of 10,000 trial units under a pilot program. It generated positive user feedback and had more than 75% in user registration and more than 30% in active engagement, validating both our carrier partnership model and product market fit. Our carrier cost insurance program has also made significant progress. We have completed pilot negotiations with multiple operators and expect to commence joint testing and pilot initiatives in the coming quarters, laying the groundwork for future larger-scale carrier partnerships. Lastly, our GlocalMe mobile fixed broadband business remains stable, with growing order momentum expected to provide a stable foundation for our future growth. The launch of our MiFi Go G40 Pro and the cutting-edge MiFi Go G50 MAX are expected to serve as growth engines for the coming quarters. The MiFi Go G40 Pro is a revolutionary upgrade and a milestone product enabling users to stay connected through one single device and one account. The product began deliveries by the end of the quarter and is the world's first device to support eFry Wi-Fi and connect SIMs across several usage scenarios such as home, airports, office, and cafes. With the MiFi Go G40 Pro, we are transforming portable connectivity from an international travel-only solution into a true multi-scenario companion. Powered by our patented AI HyperConn technology, it seamlessly serves users through one single intelligent device and one account regardless of where they are. HyperConn, our industry-leading solution, also lays the foundation for larger-scale product iteration and future upgrades. Furthermore, we will launch the MiFi Go G50 MAX with sky-to-ground 5G satellite integration and AI-driven network switching, further solidifying our innovative leadership in the mobile fixed broadband industry. This device also enhances network quality through AI-powered real-time congestion detection, delivering a faster and more reliable user experience. Looking ahead, we are entering the next phase of expansion where we will scale our global user base, further diversify our revenue streams, drive innovation across our ecosystem, and sustain a healthy financial performance. The launch of MiFi Go G40 Pro and cutting-edge MiFi Go G50 MAX, combined with the launch of Petfone, the strong validation of the eSIM Trio pilot, and the robust expansion of our IoT solutions, provides us with several robust growth engines going forward, laying a solid foundation for future growth. Having successfully navigated external challenges, we are confident in our ability to scale our user base, extend our global partnerships, and deliver growth in the coming years as we continue to innovate and bridge digital divides for users worldwide. We are confident that we have the right strategy in place to generate sustainable growth in the coming quarters. For the first quarter of 2025, we expect total revenues to be between $22 million to $26.5 million, representing a decrease of 15.4% to an increase of 1.9% compared to the same period of 2024. For the full year of 2025, we currently expect revenue to be in a range of $81.3 million to $85.8 million. The company is revising its guidance in light of the persistent macroeconomic challenges and global trade headwinds, which have set and may continue to have a broader impact across the industry. I will now turn the call over to Mr. Shi. Yimeng Shi: Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for 2025. Average daily active terminal (DAT) and average monthly active terminal (MAT) are important operating metrics for us. They measure customer usage trends over the periods and are reflective of our business performance. In 2025, our EBITDA was $332,674, of which $21,484 was owned by the company and $311,190 was not owned by the company, representing an increase of 3.8% from 2024. During 2025, 57.3% of DAT were from uCloudlink 1.0 international data connectivity service and 42.7% were from uCloudlink 2.0 local data connectivity service. In September 2025, the average daily data usage per terminal was 1.7 gigabytes. Starting from this quarter, we are disclosing our average daily active users (DAU) and monthly active users (MAU), which represent the average number of unique users engaging with our connectivity service on a daily and monthly basis, respectively. We believe these metrics will better reflect the progress we are making in driving user engagement across our different business lines and how we are managing and monetizing our user bases as we scale up. Growth in average DAUs and MAUs follows similar patterns, with strong momentum. Average MAUs in the third quarter were 761,586, representing an increase of 11.9% from 680,609 in 2024. Average MAUs from GlocalMe IoT, GlocalMe Sync, and GlocalMe Live business lines saw increases of 593.3%, 188.2%, and 382.3%, respectively, from the same period last year. Average MAUs from GlocalMe mobile and fixed broadband business decreased slightly by 0.8% year-over-year. On September 30, 2025, the company had 201 patents, with 168 approved and 33 pending approval. The proof of SIM card was from 32 MNOs globally as of 09/30/2025. Total revenue for the third quarter of 2025 was $21.1 million, representing a decrease of 16% from $25.2 million in the same period of 2024. Revenue from service was $17 million in the third quarter of 2025, representing a decrease of 1.4% from $17 million in the same period of 2024. Revenue from service contributed 80.6% of the total revenue during the third quarter of 2025, compared to 68.6% in the same period last year. Geographically speaking, during the third quarter of 2025, Japan contributed 33.2%, Mainland China contributed 35.1%, North America contributed 15.4%, and other countries and regions contributed the remaining 16.3%, compared to 46.6%, 27.8%, 12.8%, and 12.8%, respectively, in the same period of 2024. Our gross profit was $11.3 million in 2025 compared to $12 million in the same period of 2024. Overall gross margins in 2025 further rose to 53.6% from 48.4% in the same period of 2024. The gross margins on service were 36.6% in 2025 compared to 60% in the same period of 2024. Excluding share-based compensation, total operating expenses were $11 million or 32% of total revenue in the third quarter of 2025, compared to $10 million or 39% of total revenue in the same period of 2024. Net income in 2025 was $9.3 million compared to $3.4 million in the same period of 2024. Adjusted EBITDA was $1.4 million in the third quarter of 2025, compared to $1 million in the same period of 2024. For the third quarter of 2025, we recorded an operating cash outflow of $0.9 million compared to an operating cash inflow of $2 million in the same period of 2024. For the third quarter of 2025, our capital expenditures were $0.5 million compared to $1.1 million in the same period of 2024. We maintained a solid balance sheet with cash and cash equivalents of $28.5 million as of 09/30/2025, compared to $30 million as of 12/31/2024. With that, operators, let's open it up for Q&A. Operator: Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we will pause momentarily to assemble the roster. We have the first question from the line of Vivian Zhang from Diamond Equity Research. Please go ahead. Vivian Zhang: Hello? Thank you for taking my question. So firstly, could you share with us the sources of this $9 million in other income and how it was identified? Was it a one-time payment? Yimeng Shi: Yes. As we disclosed, the $9 million is about $9 million of gain from the fair values of other investments. That's a change in fair values. Vivian Zhang: Okay. I see. So the next question is, can you elaborate on the reasons for the decline in product sales? Yimeng Shi: Yeah. In the third quarter, the sales product decreased by $4 million in total, and this split into two parts. One part is $2.6 million sales decrease from the product related to data, which is a very low-margin product. So for the third quarter, for this very low-margin product, the sale amount was quite low compared with last year's. And the second part is the sales terminal decreasing by $1.1 million, which is, as we mentioned, a Japanese customer delayed their two MPB's orders. One is related to the 5G portable WiFi, and one is related to the 4G mobile WiFi hotspot. And this order, we expect, will be coming in the fourth quarter. So that's a delay, a little bit of a delay in terms of periods. But as we disclosed, the MA DATs and MATs, DAU and MAUs, are all increasing compared with last year's. That means that the number of the terminal other than mobile broadband, the volumes, the new business, our GlocalMe Live, our GlocalMe IoT, and GlocalMe SIM sold are increasing dramatically compared with last year's. This operation metrics show a couple of times growth compared to the same period last year. But the revenue contributions in terms of proportions are small to account for, as we in terms of the pricing, the terminal, the live series product pricing is quite small proportions compared with 5G portable WiFi. So that's quite a much difference. So even we see more volumes of a new product terminal to their market, but convert to the revenue, the revenue is smaller, but our users' numbers grow, as we disclosed, we overall have 10% more than 10% of the user number in terms of the MAU increasing compared with last year's. So we believe this will contribute to our future growth in terms of service next year for this growth of user spaces. Thank you. Chaohui Chen: Yes. I have some more comments because the hardware, because of tax and I think the trading headwind, so the customer, I think, thinks more hyped about microeconomic and the decision will be the decision material will be longer than normal. Normally about thirty days now go to maybe two months. That's why it caused the delay, but the orders are coming. So that's first. And the second, hardware, I think it's because the high-value hardware, like 5G, our ship volume is delayed. That caused the impact of the total revenue number. But fortunately, we have more user numbers like for SIM, eSIM, and this live product, then we are generally even the hardware cost is lower. So it's smaller. But I think the contribution for the data will increase in the future because at month three and the year, they have to pay the same usage for the data. Vivian Zhang: Okay. Got it. Thank you. That makes sense. And my last question is that the Mainland China revenue from Mainland China has grown a lot and become the largest market. So what are the main drivers behind that? Yimeng Shi: Yes. As we disclosed, in the uCloudlink 1.0 revenue in the International Data Connectivity Service, it is increasing over this year. The main driver is from the Chinese outbound traveler contributing to using our roaming brand in service. So that's the main driver for our uCloudlink 1.0 business growth this year. So since the pandemic COVID-19, the Chinese outbound travel business is in recovery over the past couple of years. So our revenue related to this part is on the recovery trend. So we believe this growth from this traveling sector is on the growth track in the future as well. Chaohui Chen: Comment. So about Chinese revenue increase, there are three reasons. The first is our 5G market share is higher, and 5G, our revenue including the total revenue in China, our percentage is much higher than last year. That means our 5G quality and leadership were recognized by the users. So here, because in China, 5G is more popular. Once the people use the 5G, they do not want to use the 4G. And we are the leading. We cover 91 countries, and it's far more advanced than the other carrier, and speed side also is far more fast. And the coverage is much better. So that's the much here for 5G, we are higher growth faster the first. Second, we have more products available in China. We are first to launch our traditional 5G. We are in the leading to get more market share and more good technology for 5G. But we have more products like live and like our SIM card and our eSIM Trio. This new product, so we can cover more business. In the history, we have not entered this park. Like for the roaming market, we only occupy the WiFi. Currently, we have using, we have 80% of the new market we never touched before. So we believe in the future, I think our market share in China will keep increasing. And our SIM card and eSIM Trio, we have gained more share in one person or two persons in the outbound travel market. And finally, I think the last point is about in China, I think we should be more mature and have more revenue in quarter three if without, I think, I want the total, I think, Chinese people travel outside in the summer, stay up from like in Japan, like us earthquake rumor and also like some unstable economic situation. So, you know, they are still in the September, still in the July and June, is the most difficult period. I know the trade war with the U.S. All this impact. So I think once this economic situation becomes more stable, I think we will get more market share in this part. Vivian Zhang: Okay. That answered my last question. I want to ask about the trade tensions that appear to have eased recently. So what other, like, potential impacts do you anticipate on the market and the company? Is it likely to contribute to a recovery in sales? Yimeng Shi: Yeah. If you look at this trade war, I think it will, I believe there is some limited impact on our business. Especially for our new business, say, Petfone and new launch. We will have a new launch in the U.S. market cooperation with a leading pet online retailer. The land is we know is a big land, Chewy. So our new product solutions have entered into the U.S. big channel. Say, Walmart. Walmart, and other famous channels as well. So when more and more Tier 1 channels have our product on the shelf, I believe the U.S. market shares we sold more for that into the U.S. market. And the U.S. market's revenue contribution will gain and grow in the future. And thus, we believe the U.S. market will grow in the future. Chaohui Chen: Yes. So yes, more on the comment about these questions. The first, our traditional mobile broadband business. So I think we can see it is tougher from the microeconomic and also the trade war. But I think now that it is stable and we see the customer now is, I think, our customer in Japan, in China. So for the mobile broadband business, now the order is coming in the fourth quarter. So we can see now the best period is over. From the current situation, we believe it will go better. That's from our traditional mobile business. For the new business, it's going very well. So with most of our new product launch in Q3, for example, our Petfone launched in September. And our G40, our account warranty-wise account as in the market scenario market purpose and market scenario device also the new function we launched also end of the third quarter. So majorly, in the third quarter, new product, new solution launched in this quarter. So I think the feedback and from the end user and from the channel is quite positive as our mentioned, it is culture in the information. So we get that big order for Petfone. So the fourth order is 40,000. It's 40,000 units. So it's much bigger than our expectation. So that's the first. Our SIM card gets feedback from the end users. Quite very positive. I just mentioned we about 10,000 pilot. We get a very good feedback for the quality and the convenience. And in technology with Plu, we are in a leading position. This is innovation super thing for the people for a permanent second scene. We prove this concept. And also, we get a very positive operation data. Now resistor rate is about 75 and active rate is about more than 30%. That means these very high percentage of the user in our we increase in our future DAT MAU we are adding more value to our business. So I think also IoT, you can see we have faster growth. Even the smaller LaFoundation is smaller, but every month, we have more than 30% increase. Every month, if not less. So it's now for the CarPlay market and the camera market. So we almost cover all the bigger tier one player. So we believe we will get more, you know, fast growth in the coming months. So I think most of the platform for a SIM and for the, you know, our live product and IoT or these new three new product lines get a very good potential. So I believe in the coming quarter, we will get a better revenue than Q3 and Q2. And this year, we believe the once we because we have an investment in the marketing and R&D. We spend that's why you can see this year compared with last year. We spent more than CNY 3,000,000 more than last year. In marketing campaign. And R&D. And this will generate, I think, good increase in the future. Vivian Zhang: Okay. I see. Okay. Thank you for the detailed information. That's all my questions. Yimeng Shi: Okay. Thank you. Operator: We have the next question from the line of Theodore O'Neill from Litchfield Hills Research. Please go ahead. Theodore O'Neill: Thank you. Thank you very much. I just want to follow up on the Petfone. The 40,000 unit order, is that going to the U.S.? Yimeng Shi: No. As we disclosed in the PR, among sales, 11 Middle East Tier 1 channel ordered 30,000 units of Petfone into the Middle East market. That's account for 70% of the 40,000 units. Yes, the remaining is also to the U.S. market. But I believe more Petfones units will be sold to the U.S. market when we co-launch a campaign with Chewy's and Walmart, these Tier 1 channels, in the near future. Chaohui Chen: Yes. We believe that is the biggest, you know, pet market. And we also believe that I think, we I think we've breached the digital gap between the people and the pets. This concept, I think, is far more than just a tracker, just CCTV, just a single to monitor and manage the pet. We provide a mutual. But the problems we need to, think more education for this opportunity like iPhone many years ago. We believe iPhones changed the mobile Internet in the world. And then now people to convince people and let people know that dog and pet can use the, you know, the phone and the social like a people. So and we we will we are very confident about that, but we need to get more campaign and more marketing spending in the U.S. and the rest of the world. That's why we would try to separate these businesses to try to continue because the initial data for the just one more than one month get this about 40,000 order I think 30 is coming from the Middle East and another 10,000 come from the U.S. All these data, I think, give us confidence. We want to more and have it invest in R&D side and also in marketing campaign in the U.S. and worldwide. Theodore O'Neill: Thank you. Yimeng Shi: Thank you. Theodore O'Neill: My next question is about the in-car infotainment system. It's in your press release. You say you've secured orders for that. Was wondering if you could give us any more detail on those orders and what the future might hold for your business there. Yimeng Shi: Yes. So in-car infotainment, so majorly I think for traditional as an oil car this in-car infotainment majorly it comes from the Chinese provider. We almost cover all these providers. That means their new generation all use our solution. We already integrated our solution into these providers. They majorly provide in the North American, Latin American, and also the Middle East and the Europe market. So I think we almost cover all the providers from the number one, number two, almost number 17. So we already finished that initial presence. And in back with them, we can see the fast growth for in-car for like a CarPlay, like the in-car infotainment. I think this will give us a huge increase in future revenue in the future. Theodore O'Neill: Thank you very much. Yimeng Shi: Thank you. Operator: This concludes our question and answer session. I would now like to turn the conference back to Daniel Gao for any closing remarks. Daniel Gao: Thank you once again for joining us today. If you have further questions, please feel free to contact uCloudlink's Investor Relations through the contact information provided on our website or speak to our Investor Relations firm, Christensen Advisory. We look forward to speaking with you all again on our next quarterly call. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending the presentation. You may now disconnect. Chaohui Chen: Thank you. Thank you. Bye-bye.
Operator: Good morning, and welcome to the Lucid Diagnostics Inc. Third Quarter 2025 Business Update Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Matthew Riley, Director, Investor Relations. Please go ahead, sir. Matthew Riley: Thank you, operator, and good morning, everyone. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics Inc., along with Dennis McGrath, CFO. The press release announcing our business update and financial results is available on Lucid's website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update, press release, and the conference call all include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the SEC. For a list and description of these and other important risks and uncertainties that may affect future operations, see Part 1, Item 1A entitled Risk Factors in Lucid's most recent annual report on Form 10-K filed with the SEC and any subsequent updates filed in quarterly reports on Form 10-Q and subsequent Forms 8-K. Except as required by law, Lucid disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or events, conditions, or circumstances on which the expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I would now like to turn the call over to Dr. Lishan Aklog, Chairman, and CEO of Lucid Diagnostics Inc. Dr. Lishan Aklog: Thank you, Matt, and good morning, everyone. Thank you for joining our quarterly update call today. As always, I'd like to thank our long-term shareholders for your ongoing support and commitment. Our team is extremely excited and remains singularly focused on driving this enterprise towards its substantial commercial potential and enhancing our long-term shareholder value. Since our last update, of course, the most significant event was the MolDx CAC or Contract Advisory Committee meeting that was held on September 4. The meeting went extremely well. There was strong consensus among the experts on this live on-the-record call that really reinforced our confidence that we are in the final stages of securing a positive Medicare coverage policy outcome. We will obviously have more on this later. The meeting led directly to a successful subsequent financing in September. I think it gives us plenty of runway to successfully navigate these final steps and accelerate EsoGuard's commercialization once Medicare coverage is secured. So let's, as always, start with some key highlights related to our commercial execution. In the third quarter, our test volume was 2,841 tests, and our revenue is approximately $1.2 million. Both the revenue and the volume are in line with the last quarter, with the second quarter of 2025. Our volume is within the target range that we articulated of approximately 2,500 to 3,000 tests per quarter that we need to maintain our ongoing engagement with commercial payers. We are pleased that the team continues to be successful at maintaining this volume while focusing on transitioning our targeting to include Medicare patients as well as securing event-based contracted guaranteed revenue opportunities, which we will discuss a bit further later. We are really excited that we have been able to strengthen our market access leadership team to drive payer engagement and secure broader commercial insurance coverage and expanded patient access. We strengthened and scaled our market access infrastructure ahead of these reimbursed milestones such as Medicare. The team is going to focus on market access for our commercial payers and broad reimbursement as well as governmental affairs issues. I will be highlighting our team. We are really excited to have a best-in-class team join us. We are excited to be holding our very first firefighter esophageal cancer prevention summit event next week. Extremely excited about this. As many of you know, we have a strong partnership with fire departments across the country that's extended over several years. They have developed a really long-standing relationship with leaders in the firefighter community across the country, particularly those focused on cancer prevention in these groups. It's been a really gratifying opportunity to help firefighters as they have discussed before. Firefighters have an increased risk of esophageal cancer, a 62% increased risk, and an elevated risk of dying as well. We will talk a little bit more about this a little bit later. As we have discussed, we are continuing our momentum to drive Medicare testing. If you recall, about up to 50% of our 30 million target population are, in fact, Medicare-eligible patients. We have historically not focused on this target population, as we have been focused more on maintaining our volume to drive engagement with our commercial payers, as we have discussed repeatedly in the past. In anticipation of Medicare, we have now implemented measures and incentives to our commercial team to start targeting Medicare patients to drive our Medicare volume towards and perhaps exceeding the portion of the 50% of the target population. We are in the early stages of this. The initial target, the initial group from a subgroup of our commercial team, had initiated this a few months ago. But we are starting to see some success. This is also important because if you may recall, once we get Medicare coverage, we will be able to submit claims going back one year. So we are looking to maximize the amount of that look-back revenue that we can receive once we secure that Medicare coverage. Now let's discuss some of our recent strategic accomplishments. Again, the most important one, of course, is the Medicare Contract Advisory Committee that was held in September. The results of that were extremely positive. The panel of clinical experts unanimously endorsed EsoGuard Medicare coverage, and they cited strong clinical evidence, guideline support, and real-world experience. As we stated repeatedly, we believe this is the important final step towards securing Medicare coverage. In a moment, we will provide some additional context on this process, a little bit of an update of some additional information we have received related to what we expect to be an upcoming draft LCD. Finally, as we have announced and Dennis will discuss a little bit further later, we were able to strengthen our balance sheet with an underwritten public offering of common stock that netted approximately $27 million in proceeds. This significantly bolstered our balance sheet. Dennis will discuss in more detail the end of the quarter with $47 million in pro forma cash. We were encouraged. This is a fully marketed offering that reflected really strong interest and confidence, particularly boosted by the positive CAC meeting. There was broad institutional and meaningful insider participation in the offering, and it extends our runway through 2026, well past many concrete reimbursement milestones. We believe it also mitigates our financing overhang and the risk from some other external factors. It provides us sufficient resources in addition to accelerating our commercial efforts once we receive Medicare approval. Before turning it over to Dennis, I want to provide some updates related to and a little bit more detail on reimbursement and also on our commercial efforts. Let's start with reimbursement. As we announced back in September, we have recruited a world-class market access team led by Danielle Shelfo. She brought in two of her long-term colleagues, John Lincoln and Cynthia Hyer. Together, they have over 75 years of combined experience, as you can see here, at major diagnostics companies with a focus on precision medicine as well as payer strategy across some of the more respected names in the industry. They really bring strong relationships in the commercial payer space. This is going to be extremely important for us to start securing coverage and reimbursement across major insurers as we proceed and secure Medicare. So we could not be more excited about having Danielle, John, and Cynthia join our team, and their work will really be central to executing our national coverage strategy for EsoGuard. So let's talk a little bit about a more detailed update on Medicare. We believe the next steps following this CAC meeting are the publication of a draft local coverage determination that would be a positive response to our request for reconsideration of coverage of EsoGuard under the existing local coverage determination. As I said repeatedly, we are very confident that we are very close and in the final stages of this based on the public CAC meeting as well as our ongoing conversations with the MolDX team. That confidence was strengthened following a recent meeting of the California Clinical Laboratory Association. If you recall, our laboratory is located in Orange County, California. We are members of the CCLA. There was an important meeting following our CAC meeting, a general meeting, where MolDx leaders were present. The meeting, which is a public meeting, further corroborated our confidence that the meeting went well. Our CAC meeting was a topic of conversation. Dr. and one of his colleagues from Meridian were there. The meeting was extremely positive. It just simply highlighted and reinforced the positive feedback that we believe came out of the CAC meeting. It was also important to note that this is the first time that we heard directly from a medical director, one of the medical directors at Meridian, who shared the same positive feedback that the leader of MolDx did as well. So again, very confident that we are heading towards that we should be expecting a draft LCD soon. Once that draft LCD is published, we believe the following steps from that are fairly routine. There will be a mandatory 45-day public comment period. Following that, there will be a publication of a final local coverage determination from that official notice of EsoGuard coverage. Again, to reiterate, once we get final LCD coverage, that will allow us to submit claims dating and getting paid for claims dating back for a full year. So, again, that's the process. Now, we feel like we are in good shape. We are eagerly anticipating the publication of a draft LCD soon. I could talk a little bit about some of the experiences we have had in our ongoing conversations with payers. If you recall, on our last call, those of you who participated, we are pushing full steam ahead on commercial payers. We are not just waiting for Medicare coverage. That activity has really accelerated substantially with the expansion and strengthening of our Market Access team. One thing that we have noticed in addition to just simply a series of meetings with a variety of commercial payers, even over recent weeks that have gone extremely well, is that we have an opportunity to link EsoGuard coverage to existing guidelines for endoscopy. Now, we saw that in the inclusion of non-endoscopic biomarker testing such as EsoGuard in the NCCN guidelines that were published earlier this year. Those guidelines were directly linked to a recommendation, the language in that guideline that followed the existing GI guidelines for endoscopic screening of esophageal precancer. Of course, reiterated what the guideline in the NCCN guidelines reiterated what the GI guidelines say, which is that non-endoscopic biomarker testing, of which EsoGuard is the only one, is an acceptable and equivalent alternative to endoscopy. What's interesting is we have seen that now in more aggressive and more involved conversations with commercial payers. That actually manifests itself in an update and a guideline to the UnitedHealthcare guidelines that were published this summer on endoscopy, guidelines for endoscopy, and particularly guidelines for endoscopy as it relates to screening for Barrett's Esophagus. In that guideline, there actually is specific mention of EsoGuard and its role in identifying patients for EGD and specifically stating that patients who are EsoGuard positive are appropriately indicated for EGD. We believe this is actually a strong advantage in these conversations with commercial payers. In that EsoGuard is not standing alone, but it's linked to guidelines that already cover it's our endoscopy guidelines that are already covered by payers. So being able to link to those guidelines that are already covered really gives us a great starting point in our conversations. In fact, the UnitedHealthcare language is sufficiently strong, we have had conversations with medical directors there that we feel confident proceeding directly to contracting discussions with UnitedHealthcare. So lots of activity on the commercial side. We have a team that's really operating on all cylinders, and we look forward to starting to convert positive policy coverage for commercial payers, actually in advance of us securing Medicare coverage, final Medicare coverage. As I mentioned earlier, we have continued our momentum and that we are focused on driving Medicare as well as our event-based contracted testing. So let's flesh out some of those details as well. As I mentioned, we are really excited to host our very first firefighter esophageal cancer prevention summit. This is the culmination of, as I mentioned, a long history and strengthening our relationships with fire departments across the country and testing the firefighters for this deadly cancer that has increased incidence in this population. This event that we are hosting will have 60 attendees, and these include a variety of members of the firefighter community, including fire service leaders and those that are directly involved in decision-making about hosting contracted firefighter testing events, as well as survivors with those families, and physicians who are within the space. It's really focused on shaping and advancing the prevention of cancer through early detection in the fire service and highlighting EsoGuard's role for preventing the second most deadly cancer that these firefighters face. From a business impact point of view, we are confident that this will help us continue to bolster what's already a very strong pipeline of contracted Check Your Food Tube events targeting fire departments. We have steadily been able to increase the number and the size of the pipeline of our contracted event-based testing throughout 2025, and we continue that momentum to continue and expand and accelerate through events like this. So with that, I'm going to pass it on to Dennis for our financial update. Dennis McGrath: Thanks, Lishan, and good morning, everyone. The summary financial results for the third quarter were reported in our press release that has been distributed. On the next three slides, I'll emphasize a few key financial highlights from the third quarter, but I encourage you to consider these remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q. With regard to the balance sheet, cash at quarter-end September 30, was $47.3 million. During the quarter, as Lishan mentioned, we completed a CMPO with proceeds just under $27 million. The quarterly burn rate was $10.3 million, which is slightly better than the average burn rate for the four preceding quarters of $10.5 million and exactly the same as the prior quarter. The burn in the third quarter included $7.2 million from ongoing operations and $3.1 million from the quarterly MSA with PAVmed. You will recall at the end of last year, we refinanced our convertible debt into a $22 million five-year note, interest only at 12% with a $1 conversion price, which is held by long-term shareholders. The fair value of the convertible notes and the amount of $22.3 million at quarter-end is really the only other substantive change from the previously reported balances at the end of the second quarter. The fair value decrease of $3 million reflects a mark-to-market quarterly adjustment in parallel with common stock price changes between the periods. The fair value decrease also drives a corresponding income pickup of $2.3 million reflected in other income in the P&L. Shares outstanding, unvested RSAs as of last week, are approximately 138 million. The GAAP outstanding shares as of September 30 of 130.9 million are reflected on the slide as well as on the face of the balance sheet in the 10-Q. GAAP shares do not reflect unvested restricted stock orders. At present, PAVmed continues to be the single largest common shareholder of Lucid Diagnostics Inc. with ownership of approximately 23% of the common shares outstanding. Although PAVmed no longer has voting control of Lucid, PAVmed together with the board and management still have significant influence over Lucid with approximately 28% voting interest. Lucid has convertible preferred securities whereby the preferred shareholders are incentivized to delay conversion of the preferred shares and the common shares until 2026, namely the second anniversary from closing. If all of the preferred shares outstanding were converted into common shares as of today, there would be an additional 49.6 million common shares outstanding. Next slide. With regard to the P&L, this slide compares this year's third quarter to last year's third quarter and year-over-year on certain key items. I trust you'll review the information on my comments in light of the cautionary disclosure on the bottom of the slide about supplemental information, particularly non-GAAP information. One additional high-level summary comment, if you were to place the sequential second and third quarters side by side, you would see they're nearly identical. On a GAAP and a non-GAAP basis, relatively the same test volume, same recognized revenue, the same OpEx levels, both GAAP and non-GAAP, the same burn rate. With that, and for consistency, a few comments on the normal things that I do touch upon. With over 2,800 tests for the third quarter, we invoiced over $7 million and recognized revenue of $1.2 million reflecting a 4% sequential revenue increase and a 3% year-over-year increase. With new investors once again joining us for the call, it's worth repeating what we've communicated in past quarters about revenue recognition. A key determinant in how revenue is recognized at this point in our reimbursement journey is the probability of collection. Therefore, due to the fact that we are in this transitional stage of our reimbursement process means revenue recognition for the majority of our claims submitted to both traditional government or private health insurers will be recognized when the claim is actually collected versus when the patient report is delivered, invoiced, and submitted for reimbursement. As you will see in our 10-Q, it's called variable consideration in the jargon of GAAP's ASC 606 revenue recognition guidelines. Presently, there is insufficient predictive data to reflect revenue from all of our quarterly test volume at the point where the test report is delivered to the referring physician. For billable amounts contracted directly with employers or through concierge medicine that are fixed and determinable, will be recognized as revenue when our contracted service is delivered. Generally, that means when the report is delivered to the referring physician. It's important to note that pending Medicare approval decision impacts about 40% of our addressable patient population, and therefore, will have a significant impact on our future revenue recognition analysis. Furthermore, for tests performed on Medicare patients with dates of service within twelve months of the final positive Medicare policy, will also get paid within a reasonable time frame after the final policy is issued. On a non-GAAP basis, our non-GAAP loss for the third quarter of $10.3 million is relatively flat sequentially and slightly better than the trailing fourth quarter of $10.5 million. The non-GAAP net loss per share of $0.10 is flat sequentially as well as better than the trailing April average loss of $0.16 per share. On a GAAP basis, net loss and EPS are just about the same as the non-GAAP metrics, namely $10.3 million loss and a net loss per share of $0.10. Next slide. With regard to our operating expenses, this slide is a graphic illustration of our operating expenses after eliminating non-cash expenses for the periods reflected. Non-GAAP operating expenses of $11.5 million are lower than the average $11.6 million for the last four quarters. Let me close with a few reimbursement highlights for the third quarter. In this most recent completed quarter, third quarter, we billed 2,841 tests reflecting about $7.1 million in pro forma revenue. During the third quarter, we recognized revenue of about 17% of that amount or $1.2 million. Of that amount, about 49% was from claims submitted in prior quarters with the longest dated item from twenty-four months ago. Of the claims submitted in the third quarter, about 76% have been adjudicated. 24% are pending. Out of the 76% that have been adjudicated, about 38% resulted in an allowable amount by the insurance company with an average around $1,600 per test, which bumps up against the Medicare rate. Obviously, the majority of tests are out of network. Of those denied, most fit into one of three buckets: A, medically not necessary or deemed medically not necessary, or B, require a prior authorization, or C, required additional medical records. The balance are deemed to be non-covered. With that, operator, let's open it up for questions. Thank you. Operator: Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. And if you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Mark Massaro with BTIG. Please go ahead. Mark Massaro: Morning, Mark. Hey, good morning, guys. Thanks for taking the questions. So, yeah, it's super interesting that you guys mentioned the CCLA meeting recently. Because I just wanted to get a sense, you know, obviously, there are a couple of significant leaders of Medicare contractors present. I'm just curious if you could share a little bit more about any dialogue you might have had. And then related to that, assuming you get a positive draft LCD, is it your opinion that the final, which would likely happen thereafter, I would think, would be probably a formality or at least consistent with the draft? Dr. Lishan Aklog: Yes, great. Thanks, Mark. Yeah, let's talk about the California meeting. Just to be clear, this is a regular meeting that's held by the California Clinical Laboratory Association, CCLA. We attend this meeting, actually Danielle, our new head of market access attended this meeting, and it was a general meeting. It's basically an opportunity for the leaders of MolDx contractors to engage in an open conversation. So everything that was stated was stated in public. It was not private one-on-one conversations. That's frankly why we found it to be very positive in that a significant amount of time was actually spent based on audience questions on us and our CAC meeting. It was twenty or thirty minutes of a two-hour meeting dedicated to that. The responses from the head of MolDx were very direct, very consistent with the internal conversations that we've had, and very positive. They were all sort of reaffirming of our general perspective on how things are going and sort of the paradigm under which he's operating. I mean, he explicitly upon questioning by third parties, described the meeting, described the purpose of the meeting, said the meeting went well, conversations went nicely, and he explicitly said that we got the information needed to move forward with drafting policy. So we couldn't have asked for more. He did add a few things that were also quite positive and encouraging. He got a little bit in the weeds on how they view this process. He spent some time on how important guidelines are and how important it is from their perspective to align with guidelines when at all possible to maintain so they don't put physicians in a difficult position with contrary opinions between the LCDs and existing guidelines. He also talked about the whole history. We've talked about this in previous meetings about how he wrote this policy to be non-covered, but still was explicit as to what would be required for coverage. So that would allow the reconsideration process, which is what we're in right now, to occur more quickly. That the companies like us could understand well in advance what the expectations are with regard to converting a non-coverage policy to a coverage policy. He said, you know, if we ask him to do this, and we won't come back and just say it's non-covered, just kidding, and require more evidence. So that was really great. What was frankly, again, most of that was reaffirmation although there was some level of specificity, particularly in public comments that were extremely encouraging. What was rather new was that one of the medical directors at Meridian, which is one of the other MolDx participating Medicare contractors, was also present and also commented. She really corroborated very similar sentiment with regard to the meeting and with regard to the entire process. So that's a very good sign. As we've discussed before, the MolDx process is designed to bring the four Medicare contractors together. We believe that one of the purposes of the meeting, the public meeting, was in fact to provide the MolDx director with the information on the public record that the other MAC leaders could use to come to a consensus on proceeding with the draft policy. Noridian is the most important of the others because our laboratory is located in a Noridian jurisdiction. So, yeah, it was a bit unexpected. It was a regular scheduled meeting, and it was frankly other people who were asking, you know, the industry stakeholders and others who initiated the conversation. It was great to see that spontaneously both medical directors were just extremely positive about where things are. So, it really puts us makes us feel confident about where this is heading. So, yeah, the second question, Mark, was around once the draft gets issued, the process between the draft and the final. Yeah, we really do feel that that's a formality for a variety of reasons. The draft policy was has already is basically a reconsideration of an existing final policy. So the vetting of the body of the coverage determination, the specific criteria and other language in there, everybody's already signed off on that. That already went through a public comment period. We are happy with the language of the final. So this reconsideration is just simply flip it from non-coverage to coverage. I think I might have mentioned in previous meetings that part of our submission for reconsideration is literally a red line of the existing final LCD. The proposed red line just simply removes the term non-covered and maintains everything else. It obviously adds additional data, our data in the summary of the evidence, but the actual policy itself is identical. So because we're not asking for a reconsideration of the substance of the policy just to flip it, we believe that the public comment period will be a formality. There's strong support for this, not just obviously from us, but from other stakeholders. We expect there'll be support from trade associations and from others, patient associations and so forth. Just like there was the last time. So we really do view that the process, the public comment period, the process of converting the draft to a final to, in fact, be a formality. It's one that has a certain time window when it takes some time to move from A to B. But it's a we would I think that's the right word, Mark, formality. Mark Massaro: Okay. Great. That's very helpful and good to hear. I know you guys indicated just today that you feel confident that you're getting very close. I recognize I don't think there's any clock per se. But would it be reasonable to think that, you know, perhaps by year-end 2025, we might see a draft? I mean, what's your latest thinking on timing? Dr. Lishan Aklog: I think our thinking hasn't changed. I mean, you and others have projected that. We think that's a reasonable estimate. It's really about workload. There was some thought and concern that the shutdown could have influenced that process and, you know, and slowed down the process of issuing LCDs. We have no reason to believe that was actually the case. LCDs continue to get issued. It's important for people to remember that MolDx and Palmetto, the underlying MAC, are private contractors. So there was no and I believe they explicitly stated at this, even at the CCLA meeting that the shutdown did not slow them down at all. There was a period of a few weeks when the coverage advisory group at Medicare at CMS proper was furloughed, but they were brought back rather quickly. They were issuing NCDs and LCDs along the way. So, it's just sort of a pipeline workflow issue. We think there's a this is a fairly straightforward reconsideration because the data has been in their hands now coming on a year. The CAC meeting was universally positive. So this is just a workflow issue, and we think that that's a reasonable timeline. Mark Massaro: Alright. And then maybe just one more for me. Since the you know, since the last call in the CAC meeting, I'd be curious if you could perhaps expand on any dialogue you've had with any commercial payers. Are you seeing anything move there, or do you think it's more of a wait and see on the Dr. Lishan Aklog: Yeah. Definitely. Yes. So I think I made the point during our last call that prior to I would say in the first quarter or second quarter of this year, we were of the thought that for the most part, with, you know, the occasional Highmark policy issued in the second quarter. That for the most part commercial payers would wait until Medicare. Our thinking on that has changed quite a bit over the last couple of quarters. Fact is that for example, the Highmark policy moved forward quickly because we had the data. It's important to remind people that the package of data that we submitted for the reconsideration for Medicare wasn't completed until the fourth quarter of last year. So we weren't really out there talking to commercial payers with a full dataset until the first half of this year. So the answer to your direct question is yes, we have a lot of meetings going on, a lot of activity. We're fully engaged with larger payers and smaller payers. We are seeing positive movement. So the meetings are going well. The specific points of discussion around the clinical evidence both CV and CU as well as healthcare economics, which does come into play on the commercial side, are positive. Those conversations are very much strengthened by the published guidelines, particularly an important factor for commercial payers. So, moving forward well. Now we have our team has really beefed up and is pursuing these aggressively. So I would not I would expect frankly that we'll be we'll start seeing positive coverage policies from payers, small and large, sooner rather than later as we await the Medicare process to come to conclusion. It would maybe be a good time to emphasize one of the points I made during my prepared comments which is that one of the things that we're learning as we navigate the commercial side is we have to remind ourselves that payers already let me just back up, that EsoGuard fits within a paradigm. It's not a test that's done in isolation. It fits in a paradigm of screening for Barrett's Esophagus for precancer that obviously includes endoscopy. It includes confirmatory endoscopy. It includes surveillance endoscopy in people who have been found positive. It includes ablation. We have to remind ourselves that all of those are covered right now by payers. So, this updated guideline by United was really encouraging, not just in of itself, but a reminder of how we fit within that paradigm. We're not going to payers and saying, here's a new test that's sort of coming out of the blue. We want you to cover it. We're saying, here's a test that fits in entirely with the new paradigm that you've already accepted and that has as it relates to endoscopy, and has obviously substantial advantages both in terms of cost and in terms of invasiveness to the patient. So we're not starting from ground zero, we're starting from that baseline. The fact that United included in its latest update of its guidelines for endoscopy for Barrett's Esophagus screening. The fact that they one of the considerations with regard to covering an endoscopy is that the patient has a positive EsoGuard test. Really was an eye-opener for us and has given us confidence of pushing those dialogues a bit more aggressively. In that case, just going straight to see if we can secure a contract. Mark Massaro: That's all great to hear. Thanks, guys. I'll hop back in the queue. Dr. Lishan Aklog: Yeah. Great. Thanks, Mark. Operator: Thank you. The next question comes from Kyle Mikson with Canaccord Genuity. Please go ahead. Kyle Mikson: Good morning, Kyle. Hey, guys. Thanks for the questions. Dr. Lishan Aklog: Hey. Good morning. So just on your point there, Lishan, about the shutdown, you know, not slowing down LCDs, draft LCDs. I'm just curious with it potentially ending here. Do you think there could be, like, an acceleration or, like, this, like, rubber band effect to maybe complete the draft now? Dr. Lishan Aklog: Perhaps. I think the fact is I don't think it will slow down by it. The sort of the CAG group was out for a couple of weeks. The reason that's relevant is that although these policies are finalized by the contractors, there is a sort of a rubber stamp. I'll even just call it an administrative process that has to happen at CMS proper to get these things published and so forth. So sure. I think the fact that the shutdown is ramping up will, you know, make sure that things are operating full steam at CMS when it comes time to actually process finalize the administrative processes that are necessary to post the draft LCD. Kyle Mikson: Okay. That's great. And then, you know, maybe in mid-2026, let's say, when you let's let's assume you have coverage for Medicare. What should the commercial channel mix kind of look like? You know, you have concierge, you have test centers, have, like, different panels here. They're just curious how that's gonna change from this point to Yeah. To then, basically. Dr. Lishan Aklog: Right. So we've been operating in anticipation of that. We described it in a little bit more detail on our last call about the fact that we are making a concerted and prospective push to drive the portion of our population that have Medicare that are Medicare. Yeah. That are Medicare-eligible patients. So that process has already started. The goal is at least 50%, which is about approximately what the target population is in terms of Medicare. That process is going well. We're turning the boat. Our reps have been focused primarily on just getting volume and on these other channels, as you said, concierge, employers, and fire departments and things like that. All of that is continuing. But there's been a concerted push by our commercial team to start the process of driving the portion of patients that are from where we are right now, which is about 10% to 15%. Ultimately towards at least where it is based on the target population. We're certainly hopeful that by mid-year, in addition to that, transition happening with regard to the target population that we'll start seeing the fruits of our efforts on the commercial side as well. Kyle Mikson: Yeah. I think just to that was helpful. Maybe just to clarify, is there any maybe change in the call point or, like, a, you know, greater emphasis on the call point for the reps or maybe, you know, new reps, let's say. Dr. Lishan Aklog: That's what I was kinda getting at, just given it's the call center No. I think I think yeah, the answer is yes. Yeah. So we're encouraging and we're incentivizing reps. We're actually starting with the more experienced reps and less of the new ones to shift their emphasis to calling on practices and helping those practices identify Medicare patients that would qualify for testing. So, that process is and we're seeing it bear fruit. There's also I'm glad you followed up, Kyle, because there's another aspect to this as well, which are health systems. Health systems are challenging in a variety of ways, but obviously the yield, once you can secure a health system, is, you know, can be high. Medicare is a barrier has been a barrier to many health systems. You just can't initiate a conversation of coming in. We've had some successes where that hasn't been the case. But the anticipation of Medicare coverage has actually agreed to SCIDs in terms of us being able to engage with health systems. So we're expanding that. So we've made some adjustments to our team. We've actually brought in some more experienced director-level folks who have experience calling on health systems with regard to GI technologies. We're looking to see the, you know, bear the fruits of that. The fact that Medicare believe Medicare coverage is imminent has helped drive those conversations. Kyle Mikson: Perfect. And then just a quick housekeeping question, maybe for Dennis. The cost of goods per test increased to, like, $600 per so. It's like a 5% increase quarter over quarter. You know, anything in the quarter that would have elevated COGS or actually we kind of think about that going forward? Is that gonna I feel like you kind of thought that was gonna decrease over The variable cost Dennis McGrath: has remained unchanged. The cost of EsoCheck is in the $50 range, and the cost to process through the lab the variable cost to process a test through the lab is still unchanged in the $120 to $125, so less than $200. The rest are fixed costs. They could adjust upper pretty consistent quarter to quarter. Kyle Mikson: Perfect. Thanks, guys. Operator: Thank you. The next question comes from Anthony Vendetti with Maxim Group. Please go ahead. Anthony Vendetti: Good morning, Anthony. Good morning, Anthony. Morning, Dennis. Good morning, Lishan. So just as a reminder, how many commercial payers right now cover EsoGuard? And Dr. Lishan Aklog: We have. And then maybe go ahead. And then I have a follow-up. Yeah. We have one positive policy, which is Highmark New York. That policy was issued in the second quarter. We're in the process of engaging with them on contracting. We billed 400 plus, and I would say our pipeline of conversations active conversations with commercial payers, small and large is in the order of dozens. Anthony Vendetti: Okay. Great. Okay. And you've billed 400 of them now. So they're aware. It's a lengthy process. It's just it's just Mhmm. I know it's it's Dr. Lishan Aklog: Yeah. Exactly. That goes back to the basically, the pattern with the stance we've had for the last couple of years, which is that we need to do enough volume so that we can engage, we can submit claims, we can get denials, we can appeal denials and make the case for transitioning now that we have the data to formal positive policy, so they're not stuck in out of network. Anthony Vendetti: Sort of a nuisance strategy. Right. Okay. And then can you talk about the Dr. Lishan Aklog: the ordering behavior from the physicians that use EsoGuard? And for the ones that are your, let's say, higher volume users, what the repeat ordering kind of rate do you if you track that? Yeah. We don't track that sufficiently to report it, but we know what's going on in the field clearly. There is just no issue with that. When we engage with a physician that's able to order the test that buys into the paradigm, that understands the guidelines, that understands the opportunity, have an impact on their patients. It's sticky business. So really, we don't spend a lot of time focused on that because ultimately we know that when we put our foot in the gas and we go out and try to drive when we have sufficient coverage to justify throwing more commercial firepower at this. That they'll respond. We know that for years now with engagement with the physicians. This is not a difficult call point to walk in and educate the physicians and make the case. Once we do, we have good with that. In fact, some of that's actually we've been making some tweaks to that, which still is a fundamentally solid call point process. One of the things that's just out of just interest that we're doing is we're leveraging more and more leveraging our nurses, the clinical team that we deploy to do cell collection, both for these check your food tube events, but also at physician practices. If you recall, we do these things we call satellite listed test centers where our nurses will show up on a regular basis at a physician's office and do tests. We actually had one recently where they did 30 tests in a when I said that theoretically, it's actually it actually is happening in real life. One of the things that we've done from an account maintenance point of view and relationship point of view is to actually take our nurses who are obviously clinical experts and are able are very conversant in the underlying clinical medicine to be much more directly engaged with these accounts at the beginning. Also on an ongoing basis. So that role has expanded. It's been really quite gratifying. Anthony Vendetti: Okay. And then last question is when you actually get a referral for an EsoGuard test, if they offer it at the site, but they actually get a referral What's the conversion rate from referral? To actually getting the test done? Dr. Lishan Aklog: Just to be clear, these are not really one-off referrals. Let me just clarify that first. When we partner with a system, and those are slightly different, I'll talk about both, it's really programmatic. It's establishing an esophageal precancer detection cancer prevention program within your practice or within your health system. We work together with them to help them find the patients, to interrogate their electronic health records, to do events with if it's a GI practice with their local primary physicians, if it's a primary care practice, again we do patient events and so forth. So it's really a partnership. It's not sort of one-off if a physician is sort of thinking, I test this patient or not? It's much more programmatic. As you might imagine, especially at the health system level, that's quite even more involved and it can be quite sophisticated. I mean, it's, you know, Hoag Health System, for example, has 200 primary care physicians that work with a cadre of gastroenterologists. Working, you know, the system that we're building there is designed to bring all of those folks in the mix. So what drives these folks is the negative predictive value. The fact that they know that if a test is negative, they can rule it out. If a test is positive, those patients will get referred for endoscopy. Now the health systems are very motivated in particular. The GIs are motivated because it drives patients to endoscopy and the ones who come to endoscopy have a higher yield. I think your narrower question is actually much more straightforward, which is that what is the yield of a patient who gets referred in terms of making its way through the process is extremely high. Patients who get referred for EsoCheck cell collection and the EsoGuard test that number is well over ninety percent in terms of people who actually follow through and get their cell collection, whether it's us or whether it's someone we've trained within the practice or the health systems, we do both. Or at one of our health events. We've also reported previously, and this is actually central to our clinical utility portion of our clinical evidence that patients who are positive, so remember EsoGuard negative patients don't need anything further done because they have a high negative predictive value. The positive patients are referred for confirmatory endoscopy. The patient compliance with that is eighty-five percent, which is double the compliance of patients who get referred for endoscopy without EsoGuard. So the patient knowing that they have a positive biomarker test is a very strong impetus, provides them a very strong impetus to go and complete the process and get their endoscopy. So they can be put in the appropriate follow-up plan, whether it's surveillance or treatment. Anthony Vendetti: Okay, great. Thank you so much. I appreciate all the color. I'll hop back in queue. Dr. Lishan Aklog: Yep. Sure. Thanks, Anthony. Operator: Thank you. The next question comes from Mike Matson with Needham and Company. Please go ahead. Mike Matson: Morning, Mike. Hey. Good morning. Lishan Dennis Good morning. Good morning. This is Joseph on for Mike today. Dr. Lishan Aklog: Yes. Hi, Joseph. Hi. Hope you guys are doing well. So I understand, how you guys feel about positive coverage for EsoGuard. Obviously, the CAC meeting was overwhelmingly positive. But just looking at this potential, I guess, like, when you look back period, for claims, you know, once you get positive, coverage, I'm just trying to level set Dennis McGrath: the one-year look-back period with Joseph: just now engaging or increasing Medicare patients. You know, while I don't think it's the case, I think maybe some investors could see that and view maybe Lucid being closer to one year for reimbursement rather than a couple of months. So that I guess that central question why engage Medicare patients now or increase that rate versus maybe starting to do that, you know, last quarter or two quarters ago? Dr. Lishan Aklog: Let me answer that at a high level. Maybe Dennis has some additional thoughts. I just want to make sure it's clear. Getting Medicare patients now first of all, they're Medicare Advantage patients, which are, you know, can pay because they could be a private insurance or are paying that. So that's one element of it. But, the you know, now that we didn't trigger this until just before the CAC meeting. Now that we have a pretty good, high level of confidence as to when this is going to happen, it's important, you know, that we feel the pipeline and try to maximize as much of that look-back as possible. So, I'm not sure to be characterizing it as a delay in reimbursement really is how we would look at it. Dennis, do you have any thoughts on that? Dennis McGrath: I think, Joseph, what you're aiming at is since the CAC meeting was so overwhelmingly unanimous among all the clinicians, and the receptivity by the MolDX leadership was strong. It certainly has emboldened us to be more aggressive in our pursuit of those areas where our more Medicare-rich population should think of Texas, Florida, and North Carolina. That's an expression of our confidence that we're in this zone of Medicare approval. That zone is the twelve months prior to final. Your question was, if an investor thinks it's more than a year from now, the question would be why are we pursuing Medicare patients today? The focus when under that theory we wouldn't get paid right now. Well, our confidence is just the opposite, that we are in the zone of approval. What we are now intentionally pursuing in terms of our patient pool is an indication that we are expecting draft I don't know, any day to what the expectations were. Right? Set by many of the analysts out there. That what we are incurring, we will get paid. Based upon that expectation. That's what's driving our behavior. Dr. Lishan Aklog: Now that I understand the question, thanks, Dennis, for clarifying it. Yes. The Medicare patients that we're bringing in today, expect to get paid on. Joseph: Okay. Yep. Crystal clear. Thank you. Then I guess just to follow-up, and then I'll ask my second question. Are you now ramping total test volume or just increasing the mix of Medicare patients and kind of still keeping that total test volume, more or less, you know, moderating? Then just on your study with the NIH looking at asymptomatic GERD patients, can you just remind us how many patients are in that study and maybe the expected readout timeline for that? I guess really, the central question, how you expect, results from that study to drive, adoption in that asymptomatic population. Dr. Lishan Aklog: Yeah. Okay. So, the answer to the question is that we are not increasing our target volume. We're not increasing the headcount of personnel. A few here and there, but for the most part, we're keeping our headcount flat. But we're changing the nature of our headcount. So the nature of our sales team, as I mentioned, we're bringing in more experienced directors. That's really designed to be so that we can be scalable at the time we put our foot on the gas. So we're trying to maintain our test volume while shifting the portion that Medicare and that are direct sort of physician practice call points during this window between now and Medicare coverage. So this is really about building something that is easily scalable once we decide time is right to put our foot in the gas and to start investing in an increased expanding our commercial team accordingly. So that's what we're doing. It's a little bit of like I say, sort of fixing the engine while it's running. So we're still doing plenty of larger healthcare events, which have supported our volume over time. Many of those are now being converted to contracted events, where we expect to get paid. But we've taken a portion of our commercial team, the more experienced ones, and trained them and have initiated an actual program to have them go to be incentivized to go find to go engage with practices to drive Medicare. As I said, we're seeing those. We saw one recently where one of our reps on the East Coast engaged with a practice started initiated one of these satellite testing programs where our nurses will come. On the very first meeting, the very first one of those, there were 30 patients and 28 of them were Medicare. So we know that we can actually that this process can work. That we've trained them appropriately, and we're going to shift them, but not in a way that we're still very cognizant of our burn. We're still maintaining our stance of trying to keep our burn flat and not get ahead of ourselves until we know that we have coverage and that we can justify putting additional resources to drive both volume and revenue and Medicare revenue in particular. I think your question, just to confirm, your question was about the NIH study for Is that correct, Joe? Joseph: Yes. Dr. Lishan Aklog: Yeah. Yeah. So that study is going well. Actually, it's enrolling pretty well. There are actually two parallel studies. There's that one and there's also one that's being run by the VA, which is also enrolling extremely well. So, we don't have a target date for the readout. The NIH study had, I think it was six hundred to nine hundred was the target sample size. It's based a bit on what the positivity rate is, so it could range somewhere I think it's actually gonna be on the lower end of that. I expect the VA will read out much more quickly. They just have a knack for, you know, for rapid enrollment. So I don't have a target date, but those studies are going extremely well. Look, at the end of the day, that we view the output of those studies as a longer-term market expansion opportunity. We're not dependent on the results of this data to drive to make substantial inroads into the existing target population. Remember the 30 million target population that we're pursuing now. That's the core population that includes symptomatic patients. We're driving that based on existing guidelines. ACG and AGA guidelines, as we articulated in the NCCN guidelines. In all of those, you're referring to typically symptomatic patients. So, we're excited about this study. Just to be clear, it's an opportunity to expand that 30 million target population to likely closer to 50 million in terms of long-term commercial opportunity. But we're not dependent on the read of this study for our near-term significant commercial opportunity that happens in the near term. Joseph: Of course. Okay. Well, I appreciate you taking our questions. Dr. Lishan Aklog: Yeah. Thanks. Thanks, Joseph. Operator: Thank you. The next question comes from Ed Woo with Ascendant Capital. Please go ahead. Morning, Ed. Hi, Ed. Ed Woo: Yes. Congratulations on all the progress. Dennis, I think earlier you mentioned that the variable costs of these tests are about $200. Has there been any significant inflation impact on this cost? Dennis McGrath: Or do you think it'll be pretty steady going forward? We think it's pretty steady. That pricing piece of check particularly is over a large manufacturing level. So I'm not expecting it to change very much. I think we've got a good economic number at this point. We $50 the inflationary impact will be negligible. As far as the last buys that are consumed during the processing of the test. Don't expect that the a significant needle mover, particularly when you think about, you know, a $2,000 test and a $200, and I'm rounding up from a $185. You've got some a lot of room in terms of absorbing costs. By the way, while we're at it, there's also, in the future, an opportunity to get those costs down, especially the laboratory portion of it. There's opportunities with automation to get it down. We're just not pursuing that yet. Until we get back to talk to them. AI is another tool that can be used in various aspects of the process of running the assay that can lower costs over time. Ed Woo: Great. Well, thanks for answering my questions, and I wish you guys good luck. Dr. Lishan Aklog: Thank you. Dennis McGrath: Thanks, Ed. Operator: There are no further questions at this time. I will now turn the call over to Dr. Lishan Aklog for closing remarks. Please go ahead, sir. Dr. Lishan Aklog: Great. Thanks, operator, and thank you all for taking the time and for your attention this morning. We really, as always, appreciate the thoughtful and informed questions by our covering analysts. It gives us an opportunity to provide additional color along the way. So hopefully, you got a sense that we're it may feel like we're in a bit of a holding pattern here, but that's really a function of our fiscal discipline with regard to holding our burn. We remain very confident that we're in the near-term processes for securing Medicare coverage. Not a matter of when, it's a matter of if the CCLA meeting was just a sort of another confirmation and validation of that confidence. As we've talked about in several specific ways, we are working to lay the groundwork for a growth phase once we secure Medicare coverage. So, hopefully, that was clear. So with that, we appreciate your time. We encourage you to keep abreast of our progress. Please follow our news releases and follow-up on these calls as well through our website and social media. Feel free to reach out to us if you have any specific additional questions. So thanks again, and everybody have a great day. Operator: Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and good morning to our investor community. Thank you for joining On 2025 Third Quarter Earnings Conference Call and Webcast. With me today on call are On's Executive Co-Chairman and Co-Founder; Caspar Coppetti; and CEO and CFO, Martin Hoffman. Before we begin, I will briefly remind everyone that today's call will contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current expectations and beliefs only and are subject to certain risks and uncertainties that could cause actual results to differ materially. Please refer to our annual report on Form 20-F for the 2024 fiscal year filed with the SEC on 4th of March 2025 for a detailed explanation of such risks and uncertainties. We will further reference certain non-IFRS financial measures such as adjusted EBITDA and adjusted EBITDA margin. These measures are not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS accounting standards. Please refer to today's release for a reconciliation to the most comparable IFRS measures. We will begin with Caspar followed by Martin, leading through today's prepared remarks, after which we are looking forward to opening to the call to a Q&A session. With that, I'm very happy to turn the call over to Caspar. Caspar Coppetti: Thank you, and a very warm welcome, everyone, to our third quarter 2025 earnings call. It is great to be back on this call with all of you and to give you an update on On's global success, which is driven by the exceptional heat around the On brand, our product innovation pipeline and our accelerating profitability. Today, we're thrilled to share another outstanding quarter for On. Our mission to ignite the human spirit through movement is resonating worldwide and across multiple categories. It is powered by an innovation engine that continues to unlock human potential and create champions on the world's biggest stages. This quarter's performance is the direct result of our premium strategy in action, delivering incredibly strong growth and record profitability. Net sales in the quarter approached CHF 800 million, growing 24.9% year-over-year on a reported basis and by 34.5% at constant exchange rates. Through our commitment to premiumness, a commitment that runs from our products through our entire value chain and driven by our pursuit of operational excellence. We have also delivered exceptionally strong gross profit and adjusted EBITDA margins. Behind the results is a story of global momentum, how constant innovation, community building and culture relevance are coming together to elevate the On brand as the benchmark for performance and design in premium Sportswear. This success is exceptionally broad-based with significant growth contributions from across our portfolio, in performance and lifestyle footwear and apparel, proving the global appeal of our brand. The spirit of On was everywhere this quarter. from the crowd lining up for the openings of our new stores in Tokyo, Palo Alto or Zurich to the thousands of people who came to see how LightSpray products are manufactured during Berlin Marathon. To athletes winning major titles across our entire portfolio of sports from track and field to trail running to triathlon and tennis, On strongly connected with audiences around the world. Of nowhere was this connection and energy fell more strongly than in Asia Pacific, our fastest-growing reach. The momentum there is extraordinary, was the fourth consecutive quarter of triple-digit constant currency growth. In September, Tokyo became our showcase as the city hosted this year's World Athletics championships. On's new Ginza store is one of the crown tools in our retail collection and the world cams provides the perfect opportunity to Express On's innovation and ambition. [ Georgi Bemis, Ditashi Kambucci and Bella Vitiker ] claimed On's first-ever track and field gold medals. These successes matter. Consumers are increasingly watching how brands perform in competition. And On is exceptionally well positioned. The On proof point for our advanced footwear technologies came 10 days ago when [ Helber ] [indiscernible] won the New York City Marathon against the stacked field of Olympic and world chains. Breaking the 22-year-old course record by almost 3 minutes. We're incredibly proud that she chose to race in the Cloudboom Strike LightSpray. This win clearly demonstrates that our newest technology is being trusted and adopted by the world's best athletes in the most iconic races. Pictures like these define what we mean by athletes-first versus innovation. Our strategy is clear. Technology is proven at the highest level of competition and then refined to deliver the best experience for every type of run. This elite credibility flows directly to our core performance running franchises, Cloudsurfer, Cloudmonster and Cloudrunner. These are the engines that have won millions of fans and driven our significant sustained growth in the run category. 2025 has been a testament to this strategy. We successfully reenergized the Cloudsurfer franchise. First was the Cloudsurfer 2 in the spray and now with the new Cloudsurfer Max this summer. The commercial momentum is immediate and clear. The newly launched Cloudsurfer Max ranked among the top 5 selling models with key run specialty partners in its very first month. This sets the stage for 2026. We are already seeing a strong order book for the new Cloudrunner 3 and Cloudmonster 3, launching in Q1, while Fall/Winter '26, we'll see the launch of the new [indiscernible] Max showcasing a significant lead in engineering and foam innovations. And on top of that, on most groundbreaking technology, LightSpray will help redefine the category and elevate our entire running assortment. In Spring/Summer '26, we will bring this championship level technology to everyday runners for the first time with the LightSpray Cloudmonster Hyper. This is our innovation process in action, continuously and obsessively making the best possible products that push the limits of performance. Of course, On's mission goes far beyond running. We are witnessing a unique moment where performance and innovation are key drivers for fashion and the cultural side guys. On is uniquely positioned to both drive and benefit from this trend. This quarter, our collaboration with Zalando introduced the Cloudstone Moon lending on design innovation was refined expressive style. In tennis, our partnership with Roche Feder has already connected the sport to a much broader audience. This quarter, we welcomed the music artist Burner boy to our tennis lifestyle brand, who is resonating strongly with the young demographic. These cultural moments are accelerating our connection and traction with Yum!, aspirational consumers, including teams cementing on as a global symbol of modern performance in style that resonates deeply with both her and him. To summarize, as ever, On is carving its own path. Our premium strategy is working, and we are executing on our vision with precision and discipline. Our relentless focus on innovation has built a durable multidimensional growth engine, an engine that is built for the long run. Fueled by our accelerated global brand heat and awareness, the foundation for our next chapter of premium growth is stronger than ever. With that, Martin will share more on our strategic and financial highlights in the quarter and our significant raised outlook for the year. Martin Hoffmann: Thank you, Caspar. By staying true to our vision in executing this discipline, we are delivering remarkable, consistent success. This is expiring to experience. Whether on the road to track, the trail or the court, in the term or in the streets, whether on the feed or on the body, On has become a true toe-to-head partner in our customers' lives. That connection makes our entire team incredibly proud and grateful. What sets us apart is our premium position. Our vision is and will remain to be the most premium global sportswear brand. Premium is an emotion formed in the minds of our sands. We earn it by consistently exceeding their expectations in the moments that matter. They know premium where they find it because they see it. This quarter, Tokyo protect vision to life. The atmosphere was electric. It was 3 years since my last visit and in that time, the team has more than doubled in size and even further elevated how we show up in this vital market. What I saw in Japan was the clearest expression yet of On's premium strategy, a brand that feels completely at home in a culture defined by craftsmanship, precision and design excellence. At Harmony is perfectly captured in our new flagship store in Ginza. It opened a record demand, delivering the highest monthly sales across our entire retail set in October. The space embodies what premium means for On, performance elevated through design and delivered with care and consistency. While Japan's set the tone, the broader Asia Pacific region demonstrated the sheer scale of what's possible. Across China, Korea and Southeast Asia, we are connecting with a new generation of younger deeply design conscious customers, proving the global appetite for On's premium performance approach. We saw this again in Bangkok, where our first store opened to the highest daily sales of any store opening in our history. The global demand is a direct result of our customer strategy. Our community is growing but also deepening becoming more diverse, more active and more connected across all our verticals. While brand awareness is accelerating, the clearest metric of our success is loyalty. Engaged fans are returning at higher rates and crucially buying across more categories, embracing the full breadth of our product universe. [ Parallel ] is an important driver of this evolution. It's fundamentally reshaping how people view and enter our brand. It's becoming a key acquisition channel attracting a growing share of first-time customers by also building lasting value as apparel shoppers buy more frequently and with bigger baskets. We are also seeing a clear shift towards younger customers in apparel highlighting a sizable and well-defined long-term opportunity. Importantly, we are not building apparel as an add-on to our footwear business, but as a company within the company. Serving the same communities, but with a unique product offering and customer experience. As a result, apparel is driving incremental high-value growth across all our channels. Operating at this level with such broad-based strength sets an incredible high standard, and it requires flawless execution. This is where our focus on operational excellence and technology is delivering profound results. We are transforming the way we work. We have structurally reduced lead times and enhanced how we plan and run the business with intelligent tools powering our integrated planning. We are building a faster and more agile company that is a stronger partner for suppliers, retailers and consumers. More and more AI becomes a core component to how we operate across all areas of the business and engage with our fans. All of this is deeply rooted in our culture of innovation and excellence, and it's the daily passion of our amazing team that makes all of this work. from the cheering zone at the Marathon in New York with a LightSpray innovation lab from case shows to the shop floors of front specialty partners. Their energy is what sets us apart. Thank you so much, team. Our incredible brand momentum and precise execution continued through Q3, delivering another exceptional set of results. We achieved record net sales of CHF 794.4 million, growing 24.9% year-over-year on a reported basis and 34.5% at constant currency. This outstanding top line growth fueled record profitability. The gross profit margin of 65.7% and adjusted EBITDA margin of 22.6% and nearly 50% year-over-year adjusted EBITDA growth. Our DTC channel once again delivered exceptional growth while driving superior profitability. Net sales reached CHF 314.7 million, an increase of 27.6% year-over-year on a reported basis and 37.5% at constant currency. Our success is driven by strong synergies between our e-commerce and retail ecosystems. Omnichannel customers are more loyal and deliver materially higher lifetime value. Validating our seamless premium experience. This experience is proud to life in our flagship stores. A recent highlight for me was the opening of our new Zurich flagship. A celebration of our Swiss heritage in a stunning downtown location. Alongside our new stores, our established fleet continues to excel. We saw standout contributions in Q3 from key locations, including [ Capstead ]in Tokyo, Miami and the Champs [indiscernible] in Paris, proving the productivity and longevity of our retail investments. Our brand strength is mirrored in our wholesale channel. Net sales reached CHF 479.6 million increasing by 23.3% year-over-year on a reported basis and by 32.5% at constant currency. This performance reflects sustained elevated demand from our key account partners. The enthusiasm for our future pipeline is clear. The fall/winter 2026 sell-in has kicked off with ongoing strong momentum. And our building order book for 2026 already reflects our partner's deep confidence in our rentless innovation. Turning to our regional development. In the Americas, net sales reached CHF 436.2 million growing 10.3% year-over-year on a reported basis and by 21% at constant currency. This quarter was a pivotal test of our premium strategy as our U.S. price increases came into effect. The results confirmed our view. Demand remained incredibly strong for our premium offerings, clear validation of our brand's pricing power and the impact of our full price strategy. This gives us tremendous confidence heading into the holiday season where our premium positioning and unwavering commitment to full price selling will be a significant competitive advantage. Europe, Middle East and Africa delivered an outstanding quarter with net sales reaching CHF 213.3 million up 28.6% year-over-year on a reported basis and 33% at constant currency. Our performance highlights the breadth of the brand heat in the region. We are seeing exceptional demand in the U.K., which has firmly established itself as one of our largest global markets. Incredible momentum in newer markets like France and Italy, and the sustained reacceleration in growth across the German-speaking region. Asia Pacific continues its phenomenal growth, delivering net sales of CHF 144.9 million, up 94.2% year-over-year on a reported basis at an incredible 109.2% at constant currency. APAC is now approaching 20% of our total sales. What was once a new frontier has become a major engine for the brand. The remarkable demand is broad-based. With continued triple-digit growth in Greater China, South Korea and Southeast Asia, amplifying the success we see in Japan. This increasing regional balance is a core strength, a direct reflection of our global strategy and proof of our ability to drive high-quality growth across all markets. Moving to performance by product. Both remain our core engine of growth. Net sales from this category reached CHF 731.3 million, an increase of 21.1% year-over-year on a reported basis and 30.4% at constant currency. This access confirms our expanding role in the lives of our sales across every part of their day. In performance, the Cloudmonster continues to win new fans. And our latest innovations like the Cloudsurfer Max and Cloudboom Max are off to exceptional starts, driving strong results in key sporting goods and run specialty distribution. Meanwhile in lifestyle, the Cloudtilt, Cloud and the Roger continued to see tremendous demand. This combination of elite performance products and the distinctive edge in the Lifestyle segment is what sets on a part. Our apparel category is rapidly establishing itself as a significant stand-alone growth pillar. Net sales reached CHF 50.1 million an increase of 86.9% year-over-year on a reported basis and an amazing 100.2% at constant currency. This performance was kept by a major operational milestone as we sold over 1 million apparel units in a single quarter for the first time. This success is rooted in a global and multichannel expansion. With a meaningful and balanced increase in apparel share across all channels and regions. Now we will move down the P&L. We delivered an outstanding 65.7% gross profit margin, up 510 basis points year-over-year. This result is materially ahead of our expectations. And reflects the power and momentum of our premium brand position. Yet, it is important to understand the components of this result, as it also includes some temporary and one-off factors that should not be extrapolated. First, the quarter includes a positive onetime adjustment of approximately 200 basis points. This relates to lower-than-anticipated freight and other costs. Throughout half year 1, we saw these lower costs emerging, partly from successful negotiations and scale benefits, but we prudently continue to accrue at our higher prior levels. Now in Q3, we have confirmed these efficiencies are sustainable and are updating our cost assumptions. This onetime adjustment therefore, represents the release of those accruals related to the first half of the year. Second, the timing lag between our U.S. price increases and the full impact of additional U.S. tariffs led to a slightly positive margin effect in Q3, which should be considered a temporary benefit. Third, the current devaluation of the U.S. dollar compared to the Swiss franc since early April, drives a positive gross profit margin impact of approximately 100 basis points. Crucially, even after accounting for these effects, our underlying gross profit margin is significantly above our communicated long-term target. This is the result of the structural strength of our business and the great work of our team. Our increasing DTC share, our premium positioning, durable operational efficiencies and economies of scale. These structural effects are expected to be sustained are expected to be reflected in our future results. We also delivered an outstanding Q3 adjusted EBITDA margin of 22.6%, up 370 basis points year-over-year, corresponding to an absolute adjusted EBITDA of CHF 179.9 million. SG&A, excluding share-based compensation, was 47.1% of net sales in Q3, up from 46% in the prior year. reflecting a deliberate decision to invest in future growth through marketing and our global retail expansion. Importantly, we are funding these strategic investments largely through our operational efficiencies. Our focus on excellence has structurally improved our distribution cost baseline, which continues to decline as a percentage of net sales. This demonstrates our flexibility to thoughtfully reinvest in high-return areas that fuel our long-term brand growth. While the current FX environment positively impacted our gross profit margin, negatively impacted SG&A and ultimately, also our adjusted EBITDA margin. Moving to our balance sheet. We continue to demonstrate exceptional capital efficiency. Capital expenditures were CHF 20.5 million or 2.6% of net sales, an improvement of 3% in the prior year. As of the end of Q3, our inventory stood at CHF 380.6 million. As in Q2, inventory volume grew faster than value. Ensuring we are fully prepared for Q4 by reflecting our new operational efficiencies. The proof of this new efficiency is in the results. Our cash conversion cycle improved again year-over-year. This disciplined working capital management, combined with our strong operational performance, fueled substantial operating cash flow of CHF 157.3 million in Q3. As a result, our cash balance grew substantially, ending the quarter in an exceptional strong position at CHF 961.8 million. With that, let's look ahead. The consistent success, our strategic focus and exceptional execution has delivered throughout the year, fuel our confidence to deliver a strong finish to the year. Our brand momentum is undeniable, and the first weeks of Q4 have already shown our strategic gains. Alongside major athlete victories, including [ Solvay lobes ], Ironman World Championship win in Kona and Jaana [indiscernible] becoming the youngest tennis champion at the Swiss indoors since 1989. We have created moments that continue to elevate the brand globally. We launched the Cloud solo, our first ever co-created product with LOEWE and introduced a new capsule collection with Sky hike Farms standard around the Cloud VI. We entered the GCC market with the opening of our first store in Riyadh, Saudi Arabia, just yesterday and opened our first store in Seoul, securing a beautiful ultra-premium location in the Hyundai Mall. We were thrilled with our performance during Golden Week in [ China ] and our global holiday campaign. Gifting movement is off to a great start, confirming our momentum as we head into the end of the year. This is how our vision comes to life. Winning in performance elevating our brand and showing up in a credible, consistent and aspirational way of our ever-expanding communities. Therefore, we are raising our 2025 guidance across all 9 items. We now expect constant currency net sales to grow by 34% year-over-year, well ahead of our previous guidance of at least 31%. At current spot rates, our constant currency growth guidance implies reported net sales reached CHF 2.98 billion. Alongside this top line raise. We now expect a gross profit margin of around 62.5%, a meaningful increase versus our previous guidance of 60.5% to 61%. As outlined before, this new ambition reflects our commitment to full price sales during the holiday season. Sustainable structural efficiencies rooted in our elevating premium positioning, economies of scale, and increasing DTC share as well as the current FX, tariffs and freight cost environment. On adjusted EBITDA, the exceptional gross profit generation allows us to do three things at once. Absorb material foreign exchange headwinds on our more Swiss franc heavy cost base simultaneously accelerate strategic investments into our brand, technology and innovation pipeline and to raise our profitability forecast for the year. We now expect an adjusted EBITDA margin of above 18%, a clear step up from our previous guidance of 17% to 17.5%. Looking beyond 2025, the proven impact of our strategic building blocks and clarity of our long-term strategy provide us with the baseline for continued exceptional momentum. This is first supported by the strength of our product pipeline, validated by our existing order book, driving a trajectory well ahead of the targets outlined at our Investor Day in October 2023. As you will recall, we communicated our goal to top up net sales by 2026, implying a 26% net sales constant certainty growth CAGR over the 3 years. We are on track to complete the first 2 full years of our 3-year plan with in excess of 33% constant currency growth each year. This sustained and material overachievement gives us the confidence and visibility to update our long-term outlook as we look ahead to the final year of our plan. We now expect a 3-year constant currency CAGR from 2023 to 2026 to reach at least 30%. This implies at least 23% growth in 2026. Based on our current outlook for 2025. This isn't just about exceeding targets. It's a testament to the unparalleled momentum of our brand. the strength of our strategy and the incredible dedication of our entire team. We are not just meeting expectations. We are redefining what's possible in the sportswear market. As we look at our midterm profitability ambition, the significantly higher gross profit margin achievement expected for this year provides us with a strong baseline and increased confidence in our ability to exceed our stated gross profit margin target for 2026 despite the full impact of tariffs next year. Importantly, this allows us to continue to invest meaningfully into the brand, fueling our global momentum by driving even more progress around new technologies and AI. And ultimately, to build an even stronger foundation for continued growth in 2026 and beyond. In line with our established guidance cadence, we will provide a formal guidance update in March when we share our Q4 and full year results. To summarize, we are thrilled with the continued strength of our brand. We head into the holiday season with high momentum and conviction in our plan, which allows us to look beyond the immediate horizon towards our next phase, where as we like to say, to 3 months. Again, a huge thank you to our teams around the world for their incredible execution and for making all of this possible. And with that, Caspar and I are happy to take your questions. Operator: [Operator Instructions] First question comes from the line of Paul Lejuez of Citi. Paul Lejuez: Curious if you could talk about the traction that you're seeing in apparel with any detail that you can give about regional acceptance of that product? And curious how it's performing in DTC versus wholesale accounts? And then just within your wholesale doors, you talk about 1% carry apparel? And any opportunity long term that you think? And when you think about the percent of accounts that carry our footwear, what percent ultimately will cover include apparel. Caspar Coppetti: Thank you, Paul, for the question. We're very excited about the apparel performance. As you've heard on the call just now. We sold over 1 million items now in Q3 for the first time. And apparel excesses together account for about 8% of our total business. That's a new record, and we're well on track of hopefully getting quickly into the double digits there. So traction is really strong. What drives this is we're really executing on all fronts. So on the distribution side, our own stores play a very important role because we need to be able to showcase the breadth and the beauty of this product. So if you've been to any of our newly opened flagship stores, you'll see that come to life. But we're also doing that, for example, at department stores, wherever we have shop-in-shops we usually lead with apparel, and it's a great way to tell the brand story. As we break down a bit into which parts of apparel are seeing the most traction, happy to give you a bit of color there. We have an exceptional strong running, training and tennis business in apparel. And within running we clearly see that whenever we do something from the performance side, so we work with our athletes and we bring some of these latest material innovations to broader audiences that resonates very well. In training. It's all about winning with [indiscernible]. And so the sweet spot there for on seems to be where we have light resistance works, so you had the gym or you're in a class and On brings performance innovation like [ Sensetech ] that we're rolling out now across the lines, but we're also bringing a bit more elevated aesthetic that resonates with our affluent customer. And then, of course, tennis maybe category even a bit underestimated, just a tennis look whether it's actually the performance here or athlete to air and competition like [ Chovanec ] [indiscernible], the Brazilians are crazy about it. All the way to the lifestyle looks, and you've probably seen what we've done with [ Burna Boy ] just now bringing the tennis lifestyle to wider audiences. All these things resonate extremely well. Over time, we will definitely attack in additional categories there, bringing it more to movement and stuff that can be worn every day, always with the performance and innovation core. And we also have a very strong jacket business that is mostly reflected in our outdoor and running collections. Unknown Executive: Maybe just at a point here because I think it's very important for where we are taking our business model. We said it on the call that really the way we look at apparel as a company in the company and it follows a slightly different distribution model approach. It will be much more heavy, which doesn't mean we are not working with great wholesale partners, as Caspar just said, but retail will play a much stronger role in the physical presence of of apparel. And as a result, our apparel business is expected to drive also superior margin profile into the brand. So we are not only adding additional customers, but also additional profitability. Operator: Your next question comes from the line of Jay Sole of UBS. Jay Sole: Great. My question is just is the growth was obviously very strong in the quarter. At the same time, the gross margin expanded a lot. And the same time your inventory looks very lead. Can you just talk about how you balance driving top line growth versus protecting margins, your premium position, maintaining that scarcity model and just delivering an algorithm, I think it's right for the brand for the long term. but also in a way that is -- allows the company to grow without having any operational issues. Unknown Executive: I mean I think this is the result of the amazing work that the team is doing and that we pretty amplified capabilities in the organization across every part. And so we are really able to manage all the three areas that you mentioned in sync. I mean I think on the gross profit margin is just super important to understand that the premium business that we are building is the driver behind the gross profit margin. And of course, building a premium business also requires incredible discipline in your inventory management in order to protect the high share of full price sales. So this is the essence of what we are building. And you have already seen the power of that business model coming to life in the last 2 years with our gross profit margin expanding constantly. And this has really been the result of the pricing power, the full price discipline, a more DTC focused channel mix, operational improvements and then also economies of scale. And now in the last months, this has really amplified given the power of our team, our strong team that we have in Vietnam working with the factories. And so we have now really achieved a new level on gross profit margin that we also consider sustainable. And that's, I think, a great place to be given the environment around tariffs. So we are fully in control of our future. We will digest our -- the tariffs and still be well above our long-term target. And at the same time, we can reinvest into the business. We can invest into the brand into technology. But we are fully in control on pricing on doing the right things and also investing into the product. So this is the power of that premium position that we are building. Operator: Your next question comes from the line of Alex Straton of Morgan Stanley. Alexandra Straton: Thanks so much for all the calls and nice results. Maybe just on the 2026 initial guidance, a 23% rate. Was that a constant currency number? And then can you just elaborate a little bit more on how you kind of get confidence there by region and channel I'm just curious if any geographies or channels or categories should decelerate more than others or what the kind of composition of how you're arriving there is? Unknown Executive: Thanks for the question, Alex. Yes, it's a constant currency number. So also the 30% that we gave as a CAGR at a constant currency. I mean I think it's important and we had it in the script already to always be clear on what is our strategic aspiration. And this is to become the most premium global sportswear brand. And -- so the first focus of what we are building is to increase our addressable market. I mean about 75% of the people in our markets don't know about on. So increasing brand awareness, is a key first step. But we are not using a shot can approach to do this, but instead, we are extremely conscious about the different communities and customer groups we are targeting. So if you take [ Burna Boy ] and Zalando, they speak to a Gen Z customer. If you take Helene [indiscernible] , she builds credibility with all kinds of runners. [indiscernible] Fonseca drives a hype in the brand in Brazil, and I could go on forever. But what is most important is that we are not fishing in the same pond as everyone else, instead, one is really expanding the market of sportswear because in the end, our products give our fans an identity that is really rooted in the innovation and the design that we are bringing to the product. And so we are bringing fans into our shoes and into the apparel that have basically not used sneakers or performance-inspired apparel before. And so ultimately, we are becoming a bigger part of the life of our consumers. And I think it's very important that this strategy is to set ourselves apart from everyone else in the industry. And it also clearly defines on what we are doing as a next step going into '26 when it comes to products, channels and regions. So there's -- out of that strategy, it's very clear. If you look on the product side, you can expect a firework of innovation. So we mentioned it on the call early next year, we will update two of our key franchises, the Cloudrunner, the Cloudmonster. Lightspray will become big and it will really revolutionize running. And then we still have a few surprises further down the road for next year. And then you already see the success of apparel and how this is really incremental to the business. Then in retail, we are continuing to add about 20 to 25 stores on an annual basis as we have done this year. At the same time, we are heavily investing into our wholesale partners. So really, if you will experience on in the physical space in a year from now, it will look very elevated to where it is today. And all of this will drive strong growth in each of our region because that strategy will be working in each of our regions. And of course, we could not give such a strong outlook for next year if we would have doubts about the growth opportunity that we have in our largest regions, Americas. So this is fully embedded in there. And so I think this is the confidence and the strategy that is sitting behind the outlook and the strong increase that we have given on the 3-year plan. Operator: Your next question comes from the line of John Kernan of TD Cowen. Unknown Analyst: This is [ Krista Zuber ] on for John. Just one on gross margin. You raised the fiscal '25 gross margin expectation it kind of implies a modest expansion for 4Q against your toughest year ago compare. Can you walk us through the various sort of tailwinds, headwinds that support the outlook into 4Q? And separately, I think in the release, you mentioned favorable product costing benefits in 3Q and kind of what is the long-term outlook for that line item. . Unknown Executive: Yes. As I just said, I think it's super important to understand that a big part of the upside that we have seen in Q3 or the strong margin that we have seen is really based on the power of the business model that we have built, and we consider this to be long term. If we look into Q4, I think there is still upside in the margin. We put some prudence in here. And then going into next year, that sustained uplift will still be there. And it will help us to more than offset the additional impacts that are expected from the tariffs to come into the P&L. And on top of that, we are benefiting from the current FX environment from the current freight environment. which will drive additional margin into the gross profit. But really, the important piece is that we have taken a big step above our target that we communicated by improving the business that we have built. Operator: Your next question comes from the line of Sam Poser of William Trading. Samuel Poser: Real quick. The -- you said at a conference that you said that the U.S. that you might tone down the U.S. growth, how much of what's going on right now of sort of with the really strong growth in APAC and EMEA. How should we think about the U.S.? And how much is that sort of more controlled growth. It sounds like you're going to do going forward reflected in the gross margin and the outlook for the gross margin? Caspar Coppetti: Thank you, Sam. That's a very thoughtful question. Look, executing a premium strategy takes a lot of discipline. And the comment that we've made repeatedly also on these calls is that we're not chasing growth by adding especially wholesale doors that don't make any sense. We're also not chasing growth by discounting. And I can maybe give you a bit of color around the U.S. We're very happy to see that the price increases that we've done now in July of this year have been very well received, and we see continued demand growth, implying that our affluent consumers are not price sensitive. So I think that's a very important fact as a lot of people seem to be concerned about the tariff impact. Secondly, our global brand tracker for the U.S. shows that it's one of the regions where we've been the most awareness and we're also gaining with relevance, especially with high income teens and affluent demographics, combined with a high relevance in running. So all the things we do around running, [ Miceli ] [indiscernible] being in the New York City Marathon, these things translate into more demand from consumers. And thirdly, as you have heard on the call, Q3 saw less season sales. I mean you always have a very small percentage anyway, but we saw even less than we had last year. And we're going into this holiday season with a full price strategy. So we have no discounts coming up. And that's against the backdrop of a very price competitive environment. So we're really staying true to the discipline that the premium strategy demands. Samuel Poser: Then when we think about your initial look at '26 and the raise of the 3-year plan, is that would that sort of mean on an FX-neutral basis, that ongoing sort of ongoing double-digit growth in the U.S., but significantly higher growth in Asia and EMEA. Unknown Executive: I mean will -- it includes strong growth across all the different regions. As I just said, a lot of the things that we are building they will amplify the opportunity that we have as a brand, the reach that we have as a brand in all the different regions. So our assumption is based on the continued strong growth of the U.S. And so it is on a continued strong growth of Europe and Asia Pacific. I mean just take apparel, for example, this is a global story. Apparel is as much underpenetrated in the U.S. as it is in Asia Pacific and the growth opportunity is massive in each and every region. We will expand on retail in all the different regions. And then at the same time, we will not change the philosophy that Caspar just mentioned on expanding wholesale. So we still have about 60% of the key account doors from Foot, Dick's and Shady where one is not yet present. And so that's a multiyear opportunity. But again, very much with a focus on building the brand in a very meaningful and controlled way. Operator: Your next question comes from the line of Wendy Liu of JPMorgan. M. Liu: Congrats on the excellent quarter. I have two questions. One is in APAC, very impressive triple-digit growth. You mentioned super digit in Greater China, South Korea. I was wondering if you could share how much of that comes from space versus same-store sales growth or like-for-like growth? And then secondly, just a quick clarification question. I think you had your raised guidance implies a mid-20s growth in Q4. We know the tough comps here, but I just wanted to track what are the considerations behind this outlook, which still looks pretty conservative. What are you seeing in trigonal market since October. Unknown Executive: Okay. I think in Asia Pacific, we talk about very different markets. Japan is a market where we ended in 2015. We have a strong presence with our wholesale partners. We are very carefully expanding with additional retail stores as we just have opened the one in Ginza. But this is a playbook of growing brand awareness and being where the customer is shopping. If we are looking at most of the other regions, and I include China in that I think on is very much at the beginning of the journey. And here, we see massive same-store growth. And at the same time, we are extremely disciplined in opening additional stores. So the 20 to 25 store numbers that I gave earlier, that was a global number. So it includes China, which means -- we take the same approach as in every other region to very carefully go from one city to the other to build the brand in the right way and to really make sure that there's also a strong performance credibility. And I think that approach just hits an environment where the demand for premium sportswear brand is incredibly high. And we could easily sell more product there, but we see this as a multiyear journey. If we I think if we look into Q4, and we already gave some color in the prepared remarks. It's always very important to understand what does the holiday season mean for on. For us, the holiday season is a moment to connect with our brands about the right gear for the season that we are in. It's to shop for gifts. But it's absolutely not the moment for us to drive sales through discounts. And as Caspar said before, our commitment to full price sales is first and foremost, the commitment to build the brand long term. So when we look into Q4, we had a very strong start into October and into November. We spoke about China single days for yesterday 111 and we have seen incredible momentum in Tmall. Our traffic there has been up by more than 250%. And again, it's a full price environment. We achieved our apparel target much earlier than the end of 11/11. And if we're looking into Americas, we had a very strong holiday season last year and we are now expecting that region to be in line or even slightly accelerated in terms of growth compared to what we had seen in Q3. So there's a lot of momentum on a global level. Operator: Your next question comes from the line of Aubrey Tianello of BNP Paribas. Aubrey Tianello: I wanted to ask about profitability. Your EBITDA margin guidance for this year puts you a year ahead of schedule versus your 2026 target. How should we be thinking about the progression of EBITDA margin longer term now that you're surpassing some of these targets, especially, Martin, with your comment that there's structural improvement on the distribution expense line. Martin Hoffmann: Yes. I think -- it's always important to recall the philosophy that we have when it comes to managing our business around profitability. So for us, it's a person for most about investing into the business, investing into long-term growth, which means investing into brand building, into building capabilities, the team technology. And, at the same time, drive additional profitability year-by-year. And we keep on doing this unless there is a moment where ourselves just exceeds expectations, and we can't invest into the business in a meaningful way. And this is a bit what we have seen now in Q3, we were really sales came in much stronger than expected and has driven together with a strong gross profit margin, a high profitability. So our philosophy of approaching that profitable growth has not changed. And so we will approach next year very much with the same mindset. So how can we invest into the brand? How can we maybe accelerate some of the trends that we are having that will continue to drive growth well beyond 26%. Given the fact that we have a stronger gross profit, we have a solid sales outlook, and we have an improved distribution line. And at the same time, how can we drive profitability beyond the outlook that we gave 3 years ago. So this is the mindset that we are approaching '26 first and then we'll give a precise outlook in March. Operator: Your next question comes from the line of Rick Patel of Raymond James. Rakesh Patel: You touched on the opportunity with the younger consumer. Can you expand on that? Like what do you define as a young consumer? And how big is that business today? And then can you unpack your go-to-market strategy to acquire these consumers as we think about categories and geographies? Caspar Coppetti: Yes. So we entered the space with running and the running categories is typically a bit older. At the same time, we entered the running category with an entry prevention technology, which made it even older, right? And so really over the last, I would say, about 6, 7 years, we have gained a lot of traction with the young consumers. The -- working with generational talent like Zalando has, of course, helped a lot. And you've seen recently, we started a collaboration with [ Bernard Boy ], to add something more on the -- something that is appealing to male teens as well. So if you're going across high school in the U.S., especially in a more affluent neighborhood, you'll see the cool kids wearing one, right? That's a relatively new phenom. That's not something we're chasing. It's not that we depend on the market. But it's, of course, very inspiring that we were able to connect to this younger target group. And this start gives us a very long -- very strong LTV. You may have also seen that we have launched a kids line. That is going phenomenally well. It's really hard to keep it in stock. Of course, for the small children, it's the moms and dads buying the product. So we basically leveraging that appeal. But then we have also a kids line, so basically young teams, where we are also seeing very, very strong results. Operator: And that concludes our question-and-answer session for today and also the conclusion of our session. Thank you so much for attending today's call. You may now disconnect. Goodbye.
Kersten Zupfer: Thank you for joining the quarterly Regis earnings call. We will begin shortly. Good morning, and thank you for joining the Regis First Quarter 2026 Earnings Conference Call. I am your host, Kersten Zupfer, Executive Vice President and Chief Financial Officer. I am joined today by our interim Chief Executive Officer, Jim Lane. All participants are in a listen-only mode, and this conference is being recorded. We will be answering questions at the end of the call. Please type your question in the chat feature at any time throughout the call. I would like to remind everyone that the language on forward-looking statements included in our earnings release and 8-K filings also apply to our comments made on the call today. These documents can be found on our website, www.regiscorp.com/investorrelations. With that, I will now turn the call over to Jim Lane. Jim Lain: Good morning, everyone, and thank you for joining us for Regis Corporation's first quarter fiscal 2026 earnings call. I'm pleased to share our progress as we continue advancing our transformation and strengthening the foundation for sustainable, profitable growth. As we begin a new fiscal year, our priorities remain clear. We are focused on the holistic transformation of our Supercuts brand and optimizing and growing sales and profitability in our company-owned salon portfolio. I continue to be inspired by the level of engagement across our franchise and corporate networks. Our franchisees, field leaders, and corporate teams are energized and aligned around both the path we have created and the actions we are taking. The unity is a powerful driver of our progress. For 2026, consolidated same-store sales increased 0.9%, marking another period of growth that was driven by both pricing actions and improved execution at the salon level. Adjusted EBITDA for the first fiscal quarter was $8 million, up from $7.6 million a year ago, a $400,000 improvement. This improvement reflects the benefits of greater revenue contribution from company-owned salons, disciplined cost management, and increasing operational efficiencies. We also generated $2.3 million in positive operating cash flow, a $3.6 million improvement versus last year's first quarter and the fourth consecutive quarter of positive cash from operations. These results reflect continued progress on the fundamentals of growth, improving profitability, and cash generation. Our modernization of Supercuts continues to gain traction. Same-store sales were up 2.5% for the first fiscal quarter. Participation in our loyalty program grew from 36% in the prior quarter to 40% in fiscal Q1. We're reinforcing brand relevance and consistency across every touchpoint—in salon, online, and through marketing—all designed to drive guest traffic and retention. Compliance with brand standards is steady, and franchisees are increasingly embracing the new model. Transparency in pricing, service consistency, digital integration, and salon presentation adoption is progressing, though full system alignment will take time. We've also completed a comprehensive customer research study that's now informing an evolved brand story and creative direction, sharpening how Supercuts will differentiate within the industry. Next month, we'll begin pilots that improve digital interaction on our website and app, removing friction and enhancing the guest experience. Execution discipline remains high, and our teams are committed to delivering transformation with precision and focus. Turning to our company-owned salon group, this remains a central focus and long-term value driver. We are now three quarters into owning and operating over 300 salons acquired earlier this year. For Q1, we delivered month-over-month gains in traffic and same-store sales and adjusted EBITDA of $1.6 million, which is trending in the right direction as operational discipline strengthens. We've implemented a new status pay plan and embedded a productivity-driven operating model. Most importantly, stylist productivity is improving, which has a positive impact on their earnings and contributes to improved stylist retention. As performance stabilizes, we expect our company-owned salons will increasingly serve as a center of excellence, testing, learning, and sharing best practices that can benefit our broader franchise network. In support of these two priorities, we are advancing several key secondary initiatives aimed at positioning Regis for durable system-wide growth, strengthening our people and culture, and driving technology and digital acceleration across the business. Together, these efforts are designed to enhance our operational performance, reinforce our brand leadership, and create sustainable long-term value for all stakeholders. Our portfolio brands, we are extending key elements of the Supercuts transformation, including online booking, transparent pricing, and loyalty integration. Rather than waiting for later quarters, we've accelerated this work because the benefits are clear and immediate. We're also piloting brand-specific initiatives designed to strengthen performance across the portfolio. Technology continues to be a critical enabler of transformation as well. We're stabilizing and optimizing our POS and booking platforms while assessing broader modernization opportunities across the enterprise. Our partnership with Forum Three, the expansion of our digital and AI initiatives, will help us harness data more effectively to drive marketing efficiency, guest engagement, and operational simplicity. And lastly, our people and our culture are critical to the overall success of our company. At the heart of this is the stylist—the face of our brands and the core of our guest experience. A thriving stylist community drives guest loyalty and business growth. Insights from our recent qualitative research are helping us better understand what fuels stylist engagement and retention in today's styling industry. We're also focused on deepening connection and communication across the organization, ensuring every employee, field leader, and franchise owner understands how their efforts ladder up to our broader goals. Regis thrives when our franchisees thrive, and that alignment remains fundamental to our success. In summary, we are off to a solid start to fiscal 2026. Our results reflect continued progress on the fundamentals of improving profitability and generating positive cash flow. We are steadily advancing the transformation of Supercuts and our company-owned salons. We are executing with discipline, driving stronger alignment across our teams and franchise partners, and building real momentum behind the strategic priorities we have outlined. While there's more work to do, we are encouraged by the progress and the clear signals that our actions are taking hold. I want to thank our teams, our franchisees, and our stylists for their commitment and resilience. Together, we are building a stronger, more modern, and more unified Regis, positioned for long-term growth and success. With that, I'll turn the call over to Kersten for a deeper look at the financial results. Kersten Zupfer: Thanks, Jim. Our fiscal 2026 first quarter results include the results of the 281 company-owned salons that we acquired from Align in December 2024. As a reminder, our results for this quarter reflect contributions from the acquired company-owned salons, but prior year results do not. As Jim shared, our first quarter results reflect meaningful progress enhancing Regis' financial performance and advancing key initiatives to position Regis for sustainable growth. For the first quarter, we delivered same-store sales growth, a 177% increase in operating income, and our fourth consecutive quarter of positive cash from operations. Total first-quarter revenue was $59 million, an increase of 28% or $12.9 million compared to the prior year. This increase was primarily driven by increased revenue from company-owned salons resulting from the acquisition of Align in December 2024, as well as an increase in same-store sales of 0.9%. This increase was partially offset by lower non-margin franchise rental income and royalties due to fewer franchises. As of 09/30/2025, we had a net decrease of 757 franchise locations compared to 09/30/2024. Approximately 300 of these locations are related to the Align salons that converted from franchise to company-owned. Sequentially, we had 54 fewer franchise locations compared to the prior 2025. The 443 net franchise closures year over year, excluding the Align salons that converted to company-owned, primarily involved underperforming stores that had significantly lower trailing twelve-month sales volumes than our top-performing locations. The performance gap between these closed stores and our highest-performing units was approximately $350,000, underscoring the strong potential within our system and highlighting the opportunity we have to further enhance profitability margins and cash flow generation as we continue executing our transformation strategy. We continue to believe fiscal year 2025 was the last year of closures in this order of magnitude. In terms of profitability, we reported GAAP operating income of $5.9 million, an increase of $3.8 million compared to $2.1 million in the year-ago quarter. This increase was primarily driven by operating income contribution from the acquired company-owned salons, partially offset by lower royalty revenues. In addition, our continued focus on disciplined cost management led to lower G&A expenses, further supporting the improvement in operating income. Income from continuing operations was $1.4 million compared to a loss from continuing operations of $1.8 million in the year-ago quarter. The year-over-year improvement was driven by an increase in company-owned salon revenue, which was partially offset by lower royalties and an increase in net interest expense. The increase in both operating income and income from continuing operations reflects growth in same-store sales, disciplined cost management, and momentum in our core business. Turning to our adjusted results, as a reminder, our adjusted results exclude stock-based compensation expense. We believe this provides a clearer view of our underlying business performance. A reconciliation of our GAAP to non-GAAP results is included in our press release. For the first quarter, our consolidated adjusted EBITDA was $8 million, an increase of 4.3% compared to $7.6 million in the prior year quarter. The $400,000 improvement was primarily driven by the EBITDA contribution from the acquired company-owned salons. Our adjusted G&A was $10.4 million in 2026, up from $10 million in the year-ago quarter. The slight increase resulted from G&A associated with our additional company-owned salons, partly offset by lower G&A expenses resulting from our continued focus on disciplined cost management. Adjusted EBITDA for our Franchise segment was $6.4 million in the quarter, a $1.6 million decrease compared to $8 million in the prior year quarter. This decrease was primarily due to lower royalties and fees in the current period, which were partially offset by lower G&A expenses. As a result, franchise adjusted EBITDA as a percentage of franchise revenue was 16.5%, down from 17.6% in the year-ago quarter. Adjusted EBITDA for our company-owned salons segment improved by $1.9 million year over year to $1.6 million for the quarter, primarily as a result of an increased number of company-owned salons. Turning to cash flows, for the three months ended 09/30/2025, we generated $2.3 million in cash from operations, which is an improvement of $3.6 million compared to a use of cash by operations of $1.3 million in the prior year period. The increase in cash generation was driven by a net increase in advertising funds and income generated by company-owned salons. As a reminder, when evaluating our reported cash flows, we believe it is important to understand that cash flows are derived from two sources: unrestricted cash from operations, which is available for general corporate use, and restricted cash related to our ad fund, which is sourced from the contributions made by our salons, both franchise and company-owned. AdFund Cash is designated specifically for marketing purposes and not available for corporate use. For the first three months of fiscal year 2026, our total reported cash from operations of $2.3 million is comprised of $1.1 million in cash generated for the ad funds, which is restricted, and $1.2 million in cash generated from our core operations, which is unrestricted. Importantly, the business continues to generate positive cash from operations, providing a strong foundation for growth and financial flexibility. For fiscal year 2026, we anticipate a meaningful increase in unrestricted cash generated from our core operations compared to fiscal year 2025. This expected improvement is supported by continued operational strength, a full year of acquired company-owned salon results, and the absence of one-time expenses we experienced last fiscal year. Additionally, working capital improvements are expected to further enhance cash generation from our core business. Ad fund cash, which is designated specifically for marketing purposes and not available for corporate use, built up over fiscal year 2025 as we moderated spending to focus on executing our business transformation strategy. Our marketing plans for fiscal year 2026 anticipate deploying this accumulated ad fund cash to support initiatives aimed at driving growth. As a result, we expect unrestricted cash generated from operations to be higher in fiscal year 2026 compared to 2025. Total reported cash from operations may be lower than the prior year due to the planned usage of AdFund cash. In allocating capital, our priorities remain the same: we invest in the business to support growth, maintain disciplined debt management, and evaluate potential strategic opportunities. Turning to our balance sheet, in terms of liquidity, as of 09/30/2025, we had $25.5 million of available liquidity, including capacity under our revolving credit agreement and $16.6 million in unrestricted cash and cash equivalents. As of the end of the first fiscal quarter, we had outstanding debt of $124.8 million, excluding deferred financing costs and the value of warrants plus accrued paid-in-kind interest. As a reminder, in accordance with GAAP, our balance sheet includes approximately $211 million of operating lease liabilities related to our franchise salon leases. These leases have a weighted average remaining term of less than five years, and the associated obligations are serviced directly by our franchisees. Provided that the franchisees continue to meet their lease payments as they historically have, we believe these amounts should not be considered part of our debt position when evaluating our financial leverage. We expect these liabilities will continue to decrease over time as the leases mature and as we further reduce our use of franchise leases. Finally, we have received questions from shareholders about the potential to refinance our existing debt. Given the terms of our agreement, the economics of refinancing do not support such a move in the near term; it would not be in the best interest of our shareholders. Although our current interest rate is higher than market levels, the impact of certain terms outweighs any interest savings from refinancing. We will continue to assess refinancing opportunities as our debt agreements mature and market conditions evolve. In summary, our fiscal year 2026 first quarter results reflect meaningful progress in strengthening Regis' financial profile. Our adjusted EBITDA and positive operating cash flows demonstrate the benefits of operating leverage and the contributions from the Align acquisition, while our balance sheet and liquidity position provide flexibility to support our strategic initiatives. This concludes our prepared remarks. We will now open the call to any questions. Good morning. We did have a few questions come through the chat. I will read the question for you, Jim. Can you please provide more details about pricing actions you have taken and impact on traffic, if any? Jim Lain: Yeah. Thanks, Anthony, for that question. This is Jim. So in terms of pricing, what we do on an annual basis is provide our franchise system. We actually contract with a third party, and we go out into 200 DMAs in North America and do a competitive pricing survey. We distill that information, summarize it, and send it to franchisees. Franchisees own pricing within their salons. We do not dictate that as a franchisor, and they'll take action on that. That was submitted to the franchisees in early October and late September, early October, and they have been working on that. Since in terms of Q1, we did see franchisees begin to take further pricing actions even prior to the survey coming out. The survey just tends to have franchisees act that maybe haven't acted or don't have as good a field based on the breadth of the area that they own. In our corporate salons, we can be far more—we can handle those price changes as we see fit. Oftentimes, minimum wage increases, which we are experiencing in some of the states where our corporate salons are positioned, will be a driver of taking price, and anywhere else that we feel that there is an based on the local competition and what they're doing. In terms of the same-store traffic sales trends, Anthony, you asked that question as well. Any notable differences in the operating area? We're not seeing anything significant when you look across the country or even within our corporate salons. We don't see anything significant there that would cause any change in direction or focus. It's typical to see the seasonality in our business. Put back to school as an example in July and August. And the expected seasonality that we're going to see in our business as we head towards Thanksgiving and Christmas. Kersten Zupfer: Thanks, Jim. We did have a couple additional questions come in specifically. Can you talk about traffic trends at Supercuts Smart Style, if any? Jim Lain: Yeah. Jason, that came in. I the question. In terms of traffic trends at Supercuts, we're—you know, we are seeing, as you saw, you can see that the improvements we're seeing from a same-store sales standpoint and the focus that we have there. We do see good continued improvements in that arena. Smart Style, we have opportunity. And as you heard me say during the narrative, there are some things that we're working on right now to address traffic and performance in that SmartStyle brand, which is our second largest brand, obviously. So there is a focus there to work in that arena. Kersten Zupfer: And then next, William Charters submitted a number of questions. I think, to make this a little bit easier, we'll just go live and have William Charters ask the questions live if that's okay. Operator: William, the operator, will allow you to ask questions. Just take your phone off of mute, please. William Charters: Okay. Can you guys hear me? Yes. Yep. We can. Okay. Okay. Great. Yeah. Good morning. Yeah. And great quarter. I guess the question I have is, you know, you talked about the 54 stores that were sequentially shut. That annualizes about, you know, 200 or down 50% from the previous year. Is that kind of the way we should look at it this year? Store closures are reduced by half, and it's about 200? Kersten Zupfer: Yeah. You're right. We did close 54 locations in the first quarter. Jim Lain: Know, I'm not going to provide guidance per se on the number of salons we expect to close. However, we do not expect it to be at the levels of the last few years. I mean, generally, our salons close at the end of their leases, and the last few years, we've had a large number of leases that came to their end of their lease life. So, you know, we do our best to predict store closures. We use key metrics such as unit volume and rent per percent, but there's, you know, often situations that we can't predict, such as, you know, the landlord requiring a significant rent increase. That would no longer make it profitable. So, you know, I don't want to give guidance for those reasons, but I think you're headed down the right path, William. So, hopefully, that's enough to answer your question. William Charters: Okay. Yeah. That makes sense. And then, you know, the big beautiful bill that 45 b FICA tax tip credit. And if I just took some numbers, like, if your average store for the franchisees—I'm just trying to get to the health of the franchisees—of, like, $300,000 per store, and 20% of that revenue was actually for tips, and you multiply that by 7.65%, which is the FICA tax, you'd do, like, $4,600 to store and, you know, roughly with about 3,600 stores, it's $16 million, you know, to all of the franchisees. Is that right? Is that the correct math, you know, generally speaking? And I know it wouldn't help your company-owned stores because you already have a very large in a well. Jim Lain: Yeah. William, this is Jim. Thank you, and glad to have you on. Your math is correct. That is a significant positive impact. It's actually been something that the beauty industry has been working on for the better part of thirty years. It's something the restaurant industry has enjoyed since 1993, and unfortunately, no parity with our industry. But with the big beautiful bill, as you suggest, and stated, that is now something that our franchise owners are going to enjoy. And as per your math, there is significant material impact to their profitability. In fact, right now, just this week, Monday, as you know, I'm a member of the board of directors for the ISBN, and I sit on a subcommittee of the ISBN board myself and senior leaders from both Great Clips and Sport Clips, and we are working on providing important guidance to owners because the next step of this is ensuring that owners understand how do I do this in terms of when tax time comes here in the spring. So we're ensuring that they have good guidance on that so that they do enjoy the full benefit. So much more to come on that, but it's something that we're heavily engaged with and are going to drive to ensure that everyone enjoys the benefit. William Charters: That's great. Great to hear that. And then, with G&A, previously, you've given kind of, like, annual guidance on G&A and where it's going. Do you plan to—can Kersten, can you give us any more insight into G&A for this year? Kersten Zupfer: Yeah. No. You're right, William. We have in the past, and didn't in the script, but on an annualized basis. We expect G&A to be in the range of 40 to 43, which includes G&A associated with the Align transaction. William Charters: Okay. That's great. Yeah. That'll help me a lot. And then in the company-owned stores, do those all consist of aligned stores now? Do you have any other straggler company-owned stores that, you know, really are just leases that are waiting to roll over, or have all those been charged off? I mean, when I look at the company-owned revenue and expenses, am I looking at Align at this point? Kersten Zupfer: We do have a handful of company-owned salons. You know, there's the select salons in Chicago. And maybe a couple more. So it's primarily the salons acquired by Align and then a handful of others that, you know, are generally good salons for us. William Charters: Okay. And then you spoke in the prepared, Mark, about launching some new designs and stuff like that. Is it actually, like, a prototype store? Is it kind of like a super SuperCut Select that we're going to see? And maybe we could even visit? Or how is this going to be rolled out? Jim Lain: Yeah, William. Good question. Actually, your connection to Supercuts, like, we have leaned into SuperCut Select. It has been successful for us. In terms of the work that we've done, gosh, now for, you know, a good amount of over the course of this past quarter or two in terms of developing the product, we're actually working with an outside professional design service that's helped us with this. And to also ensure that it connects to all the brand—the transformative brand work that we're doing that I spoke to in my narrative today. We want to make sure that the look and the feel of the salon connect to where we're going in terms of the stylist and the customer, and how the brand is identified. That work is very close to wrapping up. Right now, actually, a step that we've taken is ensuring the materials are sourced appropriately. We want this salon to be value-engineered. We want it to be, you know, affordable. In fact, we're looking at ways that you can enhance a current salon by adding the key elements, if you will, of what the new prototype will look like. So you don't necessarily have to do it all at one time. You can add key elements over the course of time and eventually get to the final prototype. I anticipate that construction will start in early 2026. And we'll most certainly advise more specifically as we get—I want to make sure that we've got materials at the right cost, that cost us a little extra time. That's okay. Affordability for our franchisees is the real important component here. But I'm really pleased and excited. You know, I've been in this industry a long time. I really like what we've created, and I think it's just going to truly embody what the future of Supercuts will be. William Charters: Okay. Great. And then the last thing, just the CEO search. Update. You know, when do you—when does the board expect to have a decision on that? Jim Lain: Yeah. It's a fair question, and I'm asked often. I'm continuing in the interim role, obviously. And as the board continues to evaluate prospects, and certainly those prospects include me. Heavily engaged and focused and working very, very closely with the board. And I anticipate that they'll make a final decision in the coming months. And I'm pleased with the approach that they're taking to ensure that we have the right leader in place for the organization. William Charters: Great. Well, that's all the questions I have. Thank you, guys. Kersten Zupfer: Thanks, William. Thanks, William. We have one other question that came through on the chat. It relates to the refinancing. When you say no debt repayment in the near term, what does the near term mean? The make-whole requirement expires next June. So as it relates, as I mentioned, yeah, we're looking very closely at this, and the economics right now don't make sense. But, you know, as it continues to mature, like, beyond June, as you mentioned, economics do get better. So believe me, we continue to evaluate this and monitor the capital market closely, and, you know, we'll address this as soon as it makes sense to do so. Kersten Zupfer: With that, I think that ends the end of our Q&A session. Thank you for your interest in Regis Corporation. And if you have any questions, please reach out to the mailbox investorrelations@regiscorp.com, and we are happy to answer those. Have a great morning. Thank you.
Operator: Hello, and thank you for joining Arcos Dorados Holdings Inc.'s third quarter 2025 earnings webcast. With us today are Luis Raganato, our Chief Executive Officer, and Mariano Tannenbaum, our Chief Financial Officer. Today's webcast is being recorded and will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation that is also available in the Investors section of our website ir.arcosdurados.com. To better follow the presentation, please note that you can set your view to full screen on the webcast platform. Additionally, you can submit your questions at any time during the presentation using the Q&A function at the bottom of the screen. After we conclude our opening remarks, we will answer your questions. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in today's earnings press release and conference call presentation as well as the unaudited financial statements filed today with the SEC on Form 6-K. I will now turn the call over to our CEO, Luis Raganato. Luis Raganato: Thank you, Dan. Good morning, everyone, and thank you for joining us. Today, we will take you through Arcos Dorados Holdings Inc.'s third quarter 2025 results, which included balanced US dollar revenue growth with solid profitability. We successfully navigated challenging consumer dynamics in a couple of our largest markets, as well as persistent input cost pressure, especially in Brazil. As I mentioned in August, we are focused on exceeding guests' expectations in today's business while modernizing and improving our growth processes to support higher returns on investment and to ensure Arcos Dorados Holdings Inc. maintains its leadership position well into the future. In the near term, operating conditions remain challenging, but we believe we are well-positioned to resume more normalized top-line and EBITDA growth across the business when the consumer and macroeconomic environments improve. Let's move now to the key highlights of consolidated results for the third quarter. Total revenue reached $1.2 billion, a new high for a single quarter, with balanced US dollar growth across the three divisions. System-wide comparable sales rose 12.7%, in line with blended inflation for the period. Comp sales growth was particularly strong in SLAD, specifically Argentina, and in selected NOLAD markets such as Mexico and the French West Indies. Overall check growth drove the result, more than offsetting a low single-digit decline in guest traffic versus the prior year. Marketing and digital have been an important differentiator for the McDonald's brand throughout the Arcos Dorados Holdings Inc. footprint. This has allowed us to protect or expand market share almost without exception in the markets where we operate, which should help us sustain strong performance over the long run. We generated more than $200 million in adjusted EBITDA in the third quarter. This result included the net impact of a federal tax credit in Brazil. Excluding this impact on the quarter's results and the recovery of social contributions from the prior year period, US dollar adjusted EBITDA declined by about 3%, mainly due to continued food and paper cost pressure. We opened 22 restaurants, with more than half of the quarter's capital expenditures invested in new restaurant growth. With all remaining restaurants under construction, we are on track to deliver this year's 90 to 100 openings guidance. Let's take a look at a few of the initiatives we used to generate sales growth in the quarter. Digital channel sales rose more than 11% versus the prior year and generated 61% of system-wide sales in the quarter, with continued strength in delivery and self-order kiosks. Dan Schleiniger: Industry-leading service that only we can offer. Digital sales growth was strongest in Brazilian SLAD, where Argentina capitalized on a modernized restaurant base and a tech-savvy consumer to drive growth. The loyalty program is now available in seven countries, and we expect it to be offered in about 90% of all restaurants by the end of 2025. The program had 23.6 million members at the end of the third quarter, growing by nearly 50% versus 2024. As the program grows in membership and active users, we expect it to help support more sustainable top-line growth in the long term. Marketing in the quarter focused on brand strength across all platforms. We deepened the emotional connection with the brand and created memorable experiences for families with the Hello Kitty and TinyTown licenses. The value platform offered good value for money to guests and remains a strategic priority given the operating environment. Several markets leveraged the McCrispy chicken platform to introduce new sandwiches and bundles in this key growth category. The dessert category also supported guest traffic with locally relevant macrame flavors and the popular Hello Kitty license. Finally, we leveraged the exclusive regional sponsorship agreement with Formula One to drive sales and strengthen brand love in several markets. Over to you, Mariano. Mariano Tannenbaum: Thanks, Luis. And good morning, everyone. Brazil's total revenue grew 4.9% in the third quarter, including a sequential improvement in comp sales performance. We believe this is an early indication that the worst is over in Brazil in terms of sales growth, especially since guest volumes were down slightly less than during the second quarter. Importantly, according to third-party measurements, we maintained significant market share leadership in Brazil through the first nine months of 2025, despite the challenging environment for the entire restaurant industry. This is a testament to the dynamic approach we have taken in Brazil with competitive pricing designed to balance sales growth and profitability. Digital channels in Brazil accounted for almost 72% of system-wide sales, with notable strength in delivery and self-order kiosks. Additionally, 30% of Brazil's system-wide sales involved Meumeki loyalty program members. NOLAD's total revenue rose 6.1% in US dollars, with strength in Mexico, Costa Rica, and the French West Indies. In fact, Mexico's comp sales rose 6.3%, or 1.8 times the country's inflation rate, and two to four times higher than the main competitor's brands. In NOLAD, Costa Rica and Puerto Rico are seeing excellent guest engagement with the loyalty program, which is also being piloted in Mexico. We expect the program to drive higher digital sales penetration and guest frequency in 2026. US dollar revenue rose 4.9%, supported by comparable sales up 1.3 times the division's blended inflation in the period. Argentina's sales growth remained strong in the quarter, and the division's sales also benefited from good performance in markets like Colombia and Uruguay. Digital sales penetration in SLAD was 61.5% during the third quarter, supported by a strong performance from the loyalty program, which was available in Argentina, Colombia, Ecuador, and Uruguay. Third-quarter profitability remained solid despite below-inflation comparable sales growth in Brazil and NOLAD. And as Luis mentioned, the quarter's result included the net impact of a federal tax credit in Brazil. Let me take you through the details. We generated more than $200 million in adjusted EBITDA, which included the net benefit of $85.6 million related to a federal tax credit in Brazil. The credit, which also includes $39.6 million in interest, arose from the treatment of certain government-related tax incentives for the period 2016 to 2023. We expect the $125.2 million net credit to have a positive cash impact since we plan to use it to offset federal tax obligations beginning in 2026. We expect to recover the taxes over the next five years. As a reminder, last year's result included a $5.6 million recovery related to social security contributions in Brazil. Excluding these impacts from both periods' results, adjusted EBITDA declined by about 3% in US dollars due to modest margin pressure. The main margin headwind in the third quarter was elevated food and paper costs. The domestic price of beef in Brazil rose significantly at the end of 2024, but we were able to leverage our supplier relationship and significant purchase volume to delay the impact of the price increase until the first quarter of this year. By generating operational efficiencies during the third quarter, we were able to partially offset the food and paper cost pressures with greater labor productivity as well as leverage in occupancy and other operating expenses. This translated into stable margin performance sequentially in the third quarter, and we expect to capture additional efficiencies moving forward. NOLAD's margin included improved payroll and lower royalties, more than offset by margin pressure from food and paper, occupancy and other operating expenses, and G&A. SLAD has been the bright spot all year, generating strong quarterly adjusted EBITDA growth in US dollars and margin expansion in each of the 2025 quarters. Adjusted EBITDA grew more than 30% versus the prior year, supported by a 2.2 percentage point margin expansion. Increased payroll productivity, leveraging occupancy and other operating expenses, and the lower royalty rate more than offset food and paper cost pressure. Our balance sheet is strong, and as I mentioned, in the coming years, cash flows are expected to benefit from the gradual utilization of the federal tax credit in Brazil. At the end of the third quarter, the net debt to adjusted EBITDA ratio was a comfortable 1.2 times. Dan Schleiniger: We believe this, together with the extra flexibility provided by the new syndicated revolving credit facility, gives us plenty of room to support our medium-term growth plans. Through 2025, we opened 54 restaurants, including 34 in Brazil, with more than half the period's CapEx invested in openings. By the end of the year, there should be more than 2,500 restaurants in the Arcos Dorados Holdings Inc. footprint. We are revising every element of our development process with a focus on identifying and implementing initiatives designed to improve operational efficiency and generate more consistent returns on investment from each of these assets. Performance has been strong this year in Argentina and Mexico, SLAD and NOLAD's largest markets, and we believe this is sustainable going into next year. As Luis mentioned, we believe we are well-positioned to return to healthier sales growth in Brazil moving forward. With our three largest markets aligned, operational profitability and cash flow generation should also improve. We know this is the best way to create shareholder value, and we have the entire team working toward that goal. Back to you, Luis. Luis Raganato: Thanks, Mariano. Let me wrap up with a few final thoughts. As you have heard before, one of the pillars of the Recipe for the Future platform is youth opportunity. Part of providing first-time formal job opportunities to young people is making sure they have a positive experience in that first job. This is why it is so satisfying to be recognized by Great Place to Work as one of the top employers or to see Arcos Dorados Holdings Inc.'s corporate reputation continue to climb the rankings in several of the markets where we operate. All six pillars of the Recipe for the Future platform are good for business and good for the social, environmental, and economic impacts we make throughout Latin America and the Caribbean. Since beginning my tenure as CEO four and a half months ago, I have worked to refocus the team and the company on three big priorities: optimizing the performance of today's business, maximizing the return on investment from capital expenditures, and ensuring the company is preparing itself for the long term. With that mindset, we are pushing to have a solid finish to the year while positioning ourselves for a stronger performance next year. We are excited about our marketing plans for the remaining seven weeks of 2025, and we believe next year's plan is among the strongest ever. One spoiler I can give you is that next year's marketing calendar includes McDonald's sponsorship of the FIFA World Cup, which is the most popular and impactful sporting event in all the markets where we operate. Notably, next year's World Cup will include Arcos Dorados Holdings Inc.'s three largest markets: Argentina, the defending champion; Brazil, the winningest team in the tournament's history; and Mexico, one of the three host nations. Last week, we reviewed the plans for 2026 with the team, and each of the country-level managing directors, divisional presidents, and corporate leaders is targeting sustainable top-line growth and improved operational efficiency to drive profitability, generate free cash flow, and create shareholder value. Thank you for joining today's call. Dan, back to you. Dan Schleiniger: Thanks, Luis. We will now begin the Q&A session. You can submit your questions using the Q&A function at the bottom of the screen. Please limit yourself to one or two questions so that I can read, understand, and convey them to our speakers. We will now pause briefly to compile your questions. Okay, great. We have a few questions to get through here in the queue already, and we'll start with Alessandro Chameli from Sao Muyo. He says, good morning. Just a question on the tax benefit and EBITDA. If I adjust out the tax credit from EBITDA, it was down year over year. Was that related to food and paper costs? Could you give some color on that? Thank you. And I'll start with you, Mariano, on that one. Mariano Tannenbaum: Okay. Thank you. Good morning, everyone, and thanks, Alessandro, for your question. We can see that we have margin contraction mainly related to food and paper and mainly related to the increase in beef costs in Brazil of 35% year over year. Increases in NOLAD, there's also some G&A increase mainly related to timing and appreciation of the Argentine peso and the Brazilian real. These forces were partially offset by a very relevant increase or better payroll of 60 basis points year on year. This better payroll, and we can see this increase in payroll mainly in the three divisions: in Brazil, NOLAD, and SLAD. We're very, very pleased with those efficiencies. And also, there are gains in occupancy and other operating expenses of 20 basis points and royalties on 10 basis points approximately. Dan Schleiniger: Great. Thank you. We now have three questions from Eric Wong from Santander. I'll give this next one to you, Luis. And Eric asks, in Brazil, how has the company's market share evolved in the previous quarter? And how has competition been moving given it's still a challenging macro backdrop in the country? Further goes on to ask, does management foresee potential additional initiatives to boost revenues, or is the balance between market share protection and/or gain versus protection at comfortable levels? Again, over to you, Luis. Luis Raganato: Alright. Thank you, Eric, for the question. Good morning, everyone. First, let me give you a little bit of context. Traffic in Brazil remained and remains challenging, especially due to factors related to disposable income. Consumer confidence is still down, and out-of-home consumption is negatively impacted. We believe, in general, consumers, particularly lower-income consumers, are being more rational with their spending power, and this has had an impact in reduced guest traffic in the sector in general. So for this reason, it was very important to remain focused on offering a compelling value proposition with competitive pricing and try to deliver a great experience through all the channels. Our customers today are omnichannel, so we have to deliver that excellent operation in all of them. And what we have seen regarding our competitors is that the industry in general continues to focus on promotion activities. They have been more transactional, trying to just drive traffic. We are on a more comprehensive plan that complements actions targeted to increase traffic and shield our market share with those options that aim to build the love for the brand. For example, we have just launched by the end of the third quarter, the beginning of this fourth quarter, EconoMeki in Brazil, which is a national value platform where guests can get a four-item menu for 22.9 reais, or about $4.2. And we also have actions like Formula One. Today, we have implemented a co-branded initiative with Red Bull, for example, that makes the brand more aspirational, and those are the actions that aim to keep on improving our revenue in a more healthy way. According to Crest, regarding the question that was asked about our market share, our visit share remains strong, near record highs, and maintaining a positive gap versus our other main competitors. We are comfortable with that position. The main goal in Brazil is to recoup margins, so our main focus is going to be on that. And we think that we are in a position of strength to capture the rebound of the economy when it starts to come back. Dan Schleiniger: Yeah. Thanks, Luis. Thank you. The second question from Eric that we'll take here is given the potential for dividend taxation in Brazil starting in 2026, does the company see any potential impacts on its operations when it comes to the repatriation of results from the Brazilian entity to the parent company or the holding company? And so I'll give that one over to you, Mariano. Mariano Tannenbaum: Perfect. Thanks, Eric, for the question. Well, first of all, this taxation has not been approved yet. But we can mention that we deal with similar rules all over the countries we operate. We have a very efficient cash management structure, and on top of that, we have a very relevant expansion plan in Brazil. But if the law is approved, we will comment on that later. Dan Schleiniger: Thank you. Mariano Tannenbaum: Great. Thanks, Mariano. Now I'm actually going to take Eric's third question and combine it with a question that we received from Ferdinand Mendez of JPMorgan. First from Eric, entering 2026, if the softness in consumer conditions in both Brazil and, to some extent, Mexico persists, how does management think about expansion? Would it be an opportunity to perhaps scale down openings and accelerate the renovations, especially in Mexico, for example? So on some level, that's associated with what's going into 2026. One question is on the side of renovations. Ferdinand asked a similar question with a different punch line. Also, what are your initial thoughts on pricing versus affordability in 2026? Are you considering a strategy to gain market share in 2025? Will you be able to recover pricing in 2026? So maybe what we should do is focus on what we're seeing for 2026, and then we can talk about the expansion side after that. Over to you, Luis. Luis Raganato: Okay. As I mentioned, my focus or our focus for the pricing in 2026 is that we're going to remain close to our customers, having a compelling value proposition, trying to shield our market share, and we're going to be laser-focused on trying to capture any opportunity that we have to improve our margins. The objective for next year is to expand the EBITDA margin versus this year. And regarding the growth plan, let me first tell you that our growth plan is aligned with our long-term vision, which is to unlock McDonald's full potential in the region. It already incorporates market opportunities and funding strategies to support this expansion, but let me tell you that we're going to be flexible. If conditions change, we are going to be flexible to adjust the pace and the focus of investments, not just in Brazil and Mexico, but in the whole region. As we have done in the past, we're going to prioritize the most profitable markets and restaurant formats. In fact, as I said in our call in August, we're in the process of revisiting every element of our development process because we are convinced that in order to increase our cash flow generation and create more value for our shareholders, we need to ensure that every dollar we invest brings the best possible return. And regarding the non-investments, we're going to accelerate or defer as needed to preserve cash. As you know, the guidance for 2026 is going to be given in the first quarter of next year, as we have done historically. Dan Schleiniger: I think I covered the two points. Yeah. Thanks, Luis. Next question for you, Mariano, staying with Ferdinand Mendez from JPMorgan. Should we expect lower input cost pressure in Brazil already in the fourth quarter given the recent beef trends? Mariano Tannenbaum: Perfect. Thank you, Ferdinand, for the question. Let me elaborate a bit on the gross margin of the paper costs in Brazil that were mainly impacted by beef inflation, which remains the primary pressure point. In the last twelve months, they have increased more than 35%, as I already mentioned. However, we believe that the second quarter was the lowest point of the year, and we're confident that we will continue to recover gross margin going forward. In addition, let me point out that the current appreciation of the Brazilian real is also positive for our imported products, so we also can see an improvement related to the appreciation of the currency. And, of course, all the tools that we actively use in order to mitigate impacts like the ones we saw in beef through pricing, mix, supply negotiations, our scale, operational efficiencies, and so forth. On top of that, what we can say is that overall and the early, very early numbers that we are seeing for the last quarter, we are seeing some signs of improvement in beef costs. For sure, we are not expecting additional pressures as we have seen in the last twelve months. Dan Schleiniger: Thanks, Mariano. We have a few questions from Alvaro Garcia from BTG. I will start with a bigger picture question he has on Brazil. He says you're clearly not losing market share, so I wanted to get your take on consumer weakness. What are your thoughts on the impact of sports betting or GLP-one drugs might be having on your sales? And I'll give that one to you, Luis. Luis Raganato: Okay. Yes. As I said, we were seeing an impact in consumption, and as I said, it's related to the disposable income and mainly in lower-income consumers. The bets, for sure, are having a big impact on the purchasing power in general, but mainly in lower-income socioeconomic levels. And the GLP-one today regarding that, we're not seeing yet an impact in consumption due to this kind of treatment in the region. And we really do not believe that it will have a material impact in the future. Dan Schleiniger: Okay. Thanks, Luis. The next question from Alvaro, and this one will be for you, Mariano. Double-checking on the $125 million tax credit in Brazil, can you share how those savings might be phased over the next five years? And is $125 million the fair number of gross savings to use going forward on federal tax benefits in Brazil? Mariano Tannenbaum: Perfect. Thanks, Alvaro. Yes. $125 million is the fair number, and the credit will be readily compensated with federal taxes over the next five years. We are currently building our compensation strategy, of course, in full compliance with the law, but we can assume it will be evenly distributed in the next five years. Dan Schleiniger: Great. Thanks, Mariano. And Alvaro has another question, and this one I'll give it to you, Luis. A bigger picture question on chicken. Can you please provide an updated view on how you see your mix shifting towards chicken in a heavy beef-loving market like Brazil and Argentina? Luis Raganato: Yeah. Thank you, Alvaro, for the question. As you know, under the umbrella of the McDonald's brand, we have different categories, like beverages, desserts, and chicken, that are today and are going to be very important. For us, an inflection point for the category was the launch of the McCrispy chicken platform that has sandwiches that are excellent regarding quality, that were greatly accepted by our customers, and that are gaining share quarter after quarter. The growth will be, and it's being gradual, but it will be consistent. We're giving, but it's going to be relevant for us in the near future. We do have room for innovations. For example, we have every year windows that we bring innovation with, for example, spicy chickens, which is a flavor that is very well accepted in the region. Or, for example, in this quarter, in Brazil, we launched the chicken bacon ranch, and that is going to be important for us, not only in the top line, as you're seeing and saying in the question, but it's going to be important for us in the bottom line. Important to say that we still have a huge opportunity to keep on growing with a category like McNuggets, which is an asset for us and that, within the chicken category, is a strength for our business. So for sure, this is going to be a strategic pillar in the coming years. Dan Schleiniger: Okay. I'm sorry to do this to you, but we actually have three more questions. Alright. I'm gonna give you, and it's gonna be a combination of questions. First from Thiago Bertolucci at Goldman Sachs. Thiago asks, could you please expand on your same-store sale foot traffic performance in Brazil, Mexico, and Argentina? And in Brazil, how did traffic share evolve? Aligned with that, we have from Alejandro Fuchs at Itau, the first question is for Luis, same-store sales in Brazil. Could you provide some thoughts on the competitive environment today and how have other markets in NOLAD performed, especially against Mexico? So I think another same-store sales question related to that. And from Inca Investments, they asked if we can comment on recent sales trends. Are you seeing a recovery so far in the fourth quarter? So maybe a little bit of the third-quarter performance in terms of same-store sales with the three biggest markets, and then a little bit of recent trends as well. Luis Raganato: Perfect, Dan. Bear with me. I'm going to start with Brazil because I already said a few things. As you know, even though we did see a challenging situation in the market because we know for a fact that the QSR market is down in visits, we managed to deliver positive comp sales. And even though there isn't a lot of room for higher pricing, we're working through a combination of pricing and mix to increase average check because we need to offset that volume decline that is related to the market. And we need to offset the pressure that we have in margins. So the contribution to sales in the market came more from average check than volume. We are seeing that that is improving in the beginning regarding traffic. In the beginning of this quarter. And we're doing that because we're trying to reach a balance between sales growth and profitability. And to give you a little bit more color about what is happening in the different channels, the strongest channel was delivery in Brazil. That kept on growing in sales supported by positive guest traffic. Front counter remained roughly flat, which is very good because it is proof of how aspirational our brand and the on-premise experience continues to be important. And very relevant too, the research centers' channel is recovering as a result of better operational execution, right pricing, and relevant innovation. For example, we had the Hello Kitty under the Hello Kitty platform and licensing the Happy Meal, we did have some innovation with Sandasia and McFerris. So in this channel, we still have room to grow and improve it, and the goal is to achieve pre-pandemic volume. So regarding NOLAD and Mexico, as I said in Brazil, we think that we are in a position of strength and ready to capture any rebounding economic activity. Regarding Mexico, the economy remains under pressure with high uncertainty levels, and this is driven by external and internal factors. In NOLAD, talking about external factors, we have the potential tariff policies that could be implemented, or internally, there have been some conversations about proposed reforms. If any of this happens, we don't see that it's going to materially impact our business. But despite the uncertainty that I was talking about, the food service sector shows resilience, and from our business perspective, we were able to deliver 6.3% growth in comparable sales. This was driven by growth in guest traffic that we know outperformed the sector. Regarding the channels, the research centers were the main growth engine. All the other channels had a solid performance, which is very good for us. And what is happening in Mexico, and the improving performance that we're having is that, besides the launches and the innovations, we are adding operations improvement that has been going on for the last years. And everything is being worked on under the umbrella of a brand campaign that is called Mexico Mencanta. All this is bringing a very strong improvement in brand attributes and market share gains. According to internal research, we know that the market share gap versus our main competitor is almost three times more in comparable footprints, and we are consolidating our leadership position in the industry. And now I will go to Argentina. Argentina was the main driver of the division results, the SLAD division results. The context remained during the third quarter challenging due to the macroeconomic instability. This instability had a negative impact on the levels of uncertainty, and it had a negative impact on private consumption. What was notable in the quarter is that despite the ongoing devaluation that we had during the quarter, inflation remained stable at almost 2% per month, and this indicates that we do have limited pass-through to consumer prices. But despite this, the good news is that our business remains solid and continues to show strong performance. The local team has done a terrific job. They were able to capitalize on last year's investments to try to maintain themselves close to their customers. The market share gained, we were able to maintain the market share this year, but the market share that we gained last year also helped us drive strong results. We were able to maintain the gap of more than three times the market share of our main competitor. And in Argentina, even though the market will remain disciplined on pricing, they will also be focused on capturing every opportunity to improve margins. And I think part of the question, Dan, was about the trends in this quarter. Right? Dan Schleiniger: Yeah. And, actually, I'll add one more because Thiago's second question is associated with that as well. He says, what are your general expectations for the fourth quarter performance in Brazil? And what gives you confidence in sequentially better trends? So Luis Raganato: Okay. Alright. First, I mean, we're going to be finishing this year even though we've had challenging macroeconomic and social situations across the region in a position of strength. Shielding and protecting our leadership position with excellent brand scores. And as you know, going into this fourth quarter, historically, the second half of the fourth quarter is the strongest part of the year. We are excited about the marketing plans that we have for the remaining weeks. We think that these actions will help us push for a solid end of the year. The whole team is working on that. Specifically in Brazil, sales performance stabilized between the second and the third quarter, and we believe we can improve on those results in the fourth quarter. In NOLAD, NOLAD continues to see a challenging environment. We were seeing this in several markets, like, for example, in Panama. Panama faced a challenging comparison this year with strong sales growth during the first half of the year. What made it more challenging was the social unrest in the country. We see that the situation is normalizing, but so far, we have not seen the rebound we expected for the QSR industry. A similar situation in Costa Rica, which has also been dealing with a weaker consumer environment and reduced industry volumes. And what we see in NOLAD is that Mexico has been very resilient. It's going to have a good end of the year, and we believe we're taking the right steps in the rest of the markets to resume more normalized growth. And regarding that, SLAD's results have been strong all year, and we believe it will end the year with another strong quarter. And I think with that, Dan, it covers everything. Dan Schleiniger: Hey. Thank you, Luis. Very much. But as I said, it's a long list of questions here. Maybe you want a glass of water, but there's one more for you before we switch back to Mariano. Okay. And this one is also from Thiago from Goldman Sachs, where he asks, how has McDonald's value gap evolved versus food away from home and versus other burger QSRs in Brazil? Where is it today, and where do you want it to be? And Jeronimo Guzman from Inca Investments asked a similar question. How much pricing have you taken in Brazil as a result of input cost pressures? What's been the impact on traffic? And how are you thinking about pricing going forward to protect margins versus traffic? You know, again, I think this is the pricing question between the two of them. Luis Raganato: Okay. So I already talked about the main objective that we have in Brazil. Again, we're going to try to be close to our customers. We already launched a national very convenient value platform called EconoMeki. In that context, we're going to shield our market share, but we aim to improve our margins. So in this context, we increased prices above inflation this year. We did it with the goal to mitigate the margin pressure that we had in Brazil. And having said that, we maintain promotions and affordable prices to try to remain affordable. According to internal research, in the brand attribute value for money, we have reached a record high this year. And so far, we were able to maintain our market share, as I said, to maintain the gap versus our main competitor. And, again, we believe that we are in a position of strength and ready to capture the rebound of the economy. Dan Schleiniger: Great. Thanks, Luis. Back to you, Mariano. Question from Alejandro Fuchs at Itau. Now with more cash flow generation expected and the flexibility of the new MFA in terms of CapEx, how do you feel about the possibility of buybacks as a priority capital allocation? Mariano Tannenbaum: Okay. Thank you, Alejandro. Well, in 2025, our board declared already a 24¢ per share dividend, which was declared in March. And we have been paying dividends in the last few years. But having said that, the board of directors will always consider options such as buybacks based on what they believe is best for the company and its shareholders, considering our capital allocation priorities, available cash, of course, and expected cash generation. So this is on the table, and the board will decide if this is the right path to go, given that we will have more cash generation for sure next year. Dan Schleiniger: Great. Thanks, Mariano. Had another question from Jeronimo Guzman from Inca, which I think Luis has already answered. Just regarding NOLAD, can you comment on maintaining strong comp sales in Mexico? And on the flip side, what's driving lower sales in the other markets? I think Luis already covered that. So I'm gonna move now to Bob Ford, who has sent us four questions. And back to you, Mariano. Bob's first question: Can you explain the source of the tax credit in Brazil and the rate at which you expect to monetize it over the next five years? Mariano Tannenbaum: Okay. Thank you, Bob, for the question. Well, we cannot go into all the specifics, but the case is based on the treatment of SMEs subsidies within the federal tax calculations. And as I already mentioned, in terms of monetizing it over the next five years, we don't know yet for sure, but our best estimate is that this credit will be evenly monetized in the next five years. That's our best estimation right now. Dan Schleiniger: Great. Thanks, Mariano. The next one is a two-parter. And I'll give the first part to Luis, and then I'm gonna come back to you, Mariano, on this one. Can you provide an update on your promotional strategy in Mexico, Luis? And sources of margin pressure in NOLAD given Mexico's strength. That one, I'll move over to you, Mariano. Luis Raganato: Alright. Thank you, Bob. Hello. How are you? As I said, in general, but specifically in Mexico, we're probably going to be prudent about pricing. We want to be close to our customers by taking care of margins. So in Mexico, we have three engines of traffic growth. The first one is desserts, which we're taking care of with right pricing and with the right operational execution. Then having innovations like, for example, Hello Kitty or the cream of shake, which I don't know if you know that, but it's a very historic and very famous McDonald's character. That launch surpassed our expectations in the market. So desserts are one of those engines. Then we do have the value platform. The value platform is divided into two. We have one that begins pricing at 99 pesos and another one that is called Tres Portres. That is being very effective and with good margins, and we're trying to take care of the promotional activities because at some point, we needed to be more prudent, taking into consideration margins. And then another engine of traffic is the Happy Meal licenses. Like I said, August Hello Kitty was very important, and Tiny Town in September, those two months were the strongest for Mexico in the quarter. With that, Mariano, I pass it to you so you can talk about margins. Mariano Tannenbaum: Perfect. The question is sources of margin pressure in NOLAD. They were mainly in food and paper costs. So even though Mexico is growing well above inflation, in terms of food and paper, we have seen some pressures during this third quarter, and that also applied to other NOLAD markets. And also, there was a timing effect on G&A that we expect to normalize in the coming quarters. Dan Schleiniger: Great. And, actually, with you, Mariano, and you were Bob's third question is what is your outlook for key input costs in Brazil and other markets? And where do you see additional operating efficiencies? I think you've covered the input cost piece in Brazil. Maybe you want to touch a little bit on other markets and then talk about where we see some additional efficiencies. Mariano Tannenbaum: Perfect. Yes. Well, I already mentioned, as you said, what's going on in Brazil. In other markets, what we are seeing is that we are very pleased with efficiencies that we are observing in payroll in the three divisions. 60 basis points. If you recall, Bob, last year, we have seen important minimum salary increases in many of our markets, such as Panama, Puerto Rico, Costa Rica, Mexico, some of the SLAD countries. And payroll was a source of pressure during 2024. What we are seeing in 2025 is that with the implementation of a scheduling system and the efficiencies that we implemented, we have seen a recovery and even much better payroll than what we had last year. So we are very pleased with those results. Then in occupancy and other, we have been seeing some improvements there even though sales are below inflation. We have seen improvements in this line related also to better deals negotiated with third-party operators. So we are making delivery also more efficient. So we are seeing as sources of operational gains the payroll line and the other and occupancy line as well. And as I mentioned in a previous question, not from you, but from, I think, Jeronimo, what we are seeing in the fourth quarter is that the pressures that we have seen in gross margin are much less now than what we have seen in the last twelve months. So with a better outlook in gross margin, I think we will be able to leverage on the gains, and margins will improve as long as sales continue to improve, as also Luis mentioned. Dan Schleiniger: Great. Thanks, Mariano. Final question from Bob Ford is how do you expect the World Cup to impact traffic, and are there global McDonald's marketing campaigns and/or regional efforts that you can comment on? I'll give that one to you, Luis. Luis Raganato: Alright. Thank you, Dan, Bob. What you can expect is a positive impact from the FIFA World Cup event. It's very popular and very important for the whole region from Mexico to Argentina, Brazil, and all the geographies. So what you can expect is a positive impact on brand attributes like favorite brand and brand awareness. And you can expect a positive impact on traffic. What happened and what is different today is that comparing with the World Cup in 2022, is that today, the delivery channel is a strength for us. So during the games, we're going to be able to be at home with our customers when they will be enjoying the games. And we're going to have, for sure, marketing campaigns throughout the whole period and more. That, for sure, we're going to surprise you with. Alright? That's all that I can tell you. But, yes, the impact is going to be positive. Dan Schleiniger: Great. Thanks, Luis. And I think we have time for one more. This one is from Jeronimo from Obam, and he asks, at what point do you believe operating leverage after a long stretch of very strong top line will convincingly lead to a higher level of margins? Especially taking into account further improvements in digitalization and other efforts. And maybe you both want to take this, but I'll start with you, Mariano. Mariano Tannenbaum: Perfect. Thanks, Jeronimo. Well, as our strategy has been to grow sales at or above inflation, and we have done this consistently. Although in some quarters, like the third quarter of this year, has been tough in Brazil and in NOLAD given external factors as economic conditions and consumer situation, we think that by doing that, we will be able to leverage on all the operational efficiencies that we have been working on. As, for example, I just mentioned in payroll and other, you know, or other occupancy expenses. So as we are seeing, for example, pressures in gross margin, we have been working a lot in the company in every single cost line to bring efficiencies to the business. We are doing that, and I think for 2026, we are pretty comfortable that this strategy will yield, you know, at the end of the day, better margins, better cash flow, focusing also on efficiencies in our investments. The company will have an improved free cash flow, and with that, we will be able to return to shareholders and invest in the business for all the opportunities that we have. Luis Raganato: Yeah. And, Mariano, if you let me add, when we talk about digitalization, and that is part of your question, and we're talking about not only customer-facing but back office. We have just implemented it, and we finished the implementation by the end of last year. A new scheduling system with the whole company that is bringing already efficiencies. And you can see that in our payroll line that it's helping us to mitigate, for example, the cost pressure that we have in food and paper. And just to finish this part of the question and the Q&A, I want to just make sure that you understand that our focus, my focus, the team's focus, is to try to deliver sustainable top-line growth and improved operational efficiency to your point. Because the main focus for the whole team is to drive profitability. We're working on the returns on investments, working in every line of the P&L because the main goal is to generate free cash flow to create shareholder value. So with that, Dan, I pass it to you. Dan Schleiniger: Thanks, Luis. And that actually was the last question that we have here in the queue. So that brings us to the end of the Q&A session. Thank you once again for your interest in Arcos Dorados Holdings Inc. and for joining today's webcast. We look forward to speaking with you again in March on our fourth quarter 2025 earnings webcast. Until then, stay safe, and have a great holiday season, everyone.
Operator: Good day, and thank you for standing by. Welcome to the Advanced Flower Capital Inc. Q3 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Gabriel A. Katz, Chief Legal Officer. Please go ahead, sir. Gabriel A. Katz: Good morning, and thank you all for joining Advanced Flower Capital Inc.'s earnings call for the quarter ended 09/30/2025. Joined this morning by Robyn Tannenbaum, our President and Chief Investment Officer, Daniel Neville, our Chief Executive Officer, and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our 10/28/2025 press release and is posted on the Investor Relations portion of the Advanced Flower Capital Inc.'s website at advancedflowercapital.com along with our third quarter 2025 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current view with respect to, among other things, market development, the company's anticipated conversion to a BDC, financial performance, and projections in 2025 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to Advanced Flower Capital Inc.'s most recent periodic filings with the SEC, including our quarterly report on Form 10-Q filed earlier this morning for certain conditions and significant factors that could cause actual results to differ materially from these forward-looking statements and projections. During today's conference call, management will refer to non-GAAP measures, including distributable earnings. Please see our third quarter earnings release uploaded to our website for reconciliation of the non-GAAP financial measures with the most directly comparable GAAP measures. Today's call will begin with Robyn providing information about our recent shareholder vote to convert to a business development company. Daniel will then provide an overview of our portfolio and pipeline. Finally, Brandon will conclude with a summary of our financial results before we open the lines for Q&A. With that, I will now turn the call over to our President, Robyn Tannenbaum. Robyn Tannenbaum: Thanks, Gabriel, and good morning, everyone. We appreciate you joining us this morning to discuss Advanced Flower Capital Inc.'s third quarter earnings. Before turning to our earnings, I want to touch upon Advanced Flower Capital Inc.'s planned conversion from a mortgage REIT, the current structure under which we operate, to a business development company or BDC. As a reminder, in August, Advanced Flower Capital Inc. announced its intention to convert to a BDC as this structure will enable Advanced Flower Capital Inc. to originate and invest in a broader array of opportunities, which would include both real estate and non-real estate covered assets. On 11/06/2025, shareholders approved the two proposals related to our plan to convert from a REIT to a BDC. The first proposal was to approve a new investment advisory agreement with our external manager to allow us to operate as a BDC in accordance with the Investment Company Act of 1940, and the second was to approve reduced asset coverage requirements under the 1940 Act. We were pleased with the strong engagement from our shareholder base, with over 61% of outstanding shares represented by proxy at the special meeting, and over 94% of those votes cast in favor of both proposals. This broad shareholder support validates the rationale for Advanced Flower Capital Inc.'s evolution and long-term growth strategy. We thank our investors for their support and for their continued investment. We anticipate that the conversion to a BDC will occur in 2026, and Advanced Flower Capital Inc. will continue to operate as a REIT until that time. The conversion remains subject to the approval of certain matters by Advanced Flower Capital Inc.'s Board of Directors. Upon completion of the conversion, Advanced Flower Capital Inc. will continue to trade on the NASDAQ under our existing ticker, AFCG. As a BDC, the investment universe for Advanced Flower Capital Inc. will expand, allowing the company to lend to operators with or without real estate collateral. Additionally, as of August 2025, our board has approved an expanded investment mandate that includes direct lending opportunities outside the cannabis industry. We see credit opportunities in other private and public middle market companies beyond cannabis that have the potential to generate attractive risk-adjusted returns. By broadening our opportunity set, Advanced Flower Capital Inc. will be better positioned to diversify its exposure across industries and credit risk profiles. In short, we view this as an important and value-enhancing step for the company and for our shareholders going forward. Now I'll turn it over to Daniel to discuss our portfolio and pipeline. Daniel Neville: Thanks, Robyn, and good morning, everyone. I'll begin with an overview of our results, followed by an update on our portfolio. For 2025, Advanced Flower Capital Inc. generated distributable earnings of $0.16 per basic weighted average share of common stock. Additionally, the Board of Directors declared a third quarter dividend of $0.15 per common share outstanding, which was paid on 10/15/2025, to shareholders of record as of 09/30/2025. As we have discussed, while we have made progress reducing our exposure to underperforming credits, we continue to actively manage these positions to protect and maximize recovery value. Our earnings may continue to be affected by the underperformance of some of these legacy loans and any realized losses we take on assets. On a positive note, in the third quarter, Private Company J paid off its term loan ahead of maturity at par plus accrued interest. The principal amount of the payoff was $23,200,000. Over the third quarter, a subsidiary of Public Company S also paid off their term loan. During the quarter, we redeployed that $10,000,000 of capital into the new issue at a significantly higher yield than the existing paper. In total, we've received $43,000,000 of principal repayments since the end of Q2 and will seek to redeploy that capital into attractive risk-adjusted opportunities under our expanded investment mandate. Turning to portfolio management, I would like to touch on a few of our underperforming loans. We have continued the liquidation process for Private Company A, and the receivership recently directed the distribution of $5,400,000 to Advanced Flower Capital Inc. agents, of which $4,200,000 went to Advanced Flower Capital Inc., with the balance going to syndicate partners. Regarding Private Company K, two of the three Massachusetts dispensaries have signed purchase agreements approved by the court and have submitted for regulatory approval to effectuate the sale. The third dispensary is expected to be under LOI in the coming weeks. We expect these sales to be completed sometime in 2026. As we discussed last quarter, Private Company P's loan was moved to nonaccrual status as of 06/01/2025, as the company did not pay interest due on July 1. As a result, we called an event of default and accelerated the loan. In November 2025, we reached a mutual release and settlement agreement with Private Company P and certain other parties. In connection with the settlement, we will be paid a settlement in the amount of $13,300,000, less certain fees and expenses. Advanced Flower Capital Inc. will finance $6,000,000 of this settlement via a new term loan to Private Company T at a 10% interest rate. Closing of the settlement and the related loan is expected to occur in the fourth quarter. At the time of the settlement, the nonperforming loan with Private Company P had a carrying value of approximately $15,300,000. As a result of the settlement, we anticipate that Advanced Flower Capital Inc. will realize a taxable loss of approximately $4,000,000 on the loan once the transaction is complete, which will impact earnings in the fourth quarter. This loss was fully reserved as of 09/30/2025, and is already reflected in our book value. Given the uncertainty regarding the timing of repayments and recovery of loans currently on nonaccrual, the Board continues to evaluate the company's distributable earnings on a quarterly basis to determine the appropriate quarterly dividend. Given the anticipated approximately $4,000,000 taxable loss associated with the loan to Company P, we do not anticipate making a distribution to shareholders in Q4 2025. Year to date, the company has distributed $0.53 per common share. The Board remains committed to returning capital to shareholders in a manner that aligns with long-term value creation, and we expect the Board to reevaluate and set the company's go-forward dividend and distribution policy in conjunction with the company's transition to a BDC in Q1 2026. Lastly, we wanted to take a minute to touch on a subsidiary of Private Company G, which is Justice Grown. In the New Jersey action, we have filed a motion to dismiss on multiple grounds, which is pending in the district court in New Jersey. We have also appealed the court's initial prediscovery preliminary injunction ruling. The appeal is fully briefed and awaiting oral arguments or a ruling by the Third Circuit Court of Appeals. We are also pursuing our rights under the shareholder guarantee and the parent guarantee through separate actions in federal and state courts in New York, respectively. As a reminder, our loan to Justice Grown matures in May 2026 and is secured by the vertical assets in New Jersey, including an owned cultivation dispense facility and three dispensaries, two of which are owned. In Pennsylvania, we are secured by three dispensaries and an owned cultivation facility, which is currently not operational. We remain extremely focused on realizing maximum value from these underperforming loans. Looking ahead to 2026, we have three sizable loans maturing, which would provide an influx of capital to Advanced Flower Capital Inc. that we can use to redeploy as a BDC across both cannabis and non-cannabis assets. We believe that expanding our investment focus beyond real estate companies is an important step to deliver value for our shareholders. Our team is working hard to source lending opportunities to middle market companies outside of the cannabis industry and has already built a pipeline of approximately $350,000,000. We are actively evaluating these opportunities, which we believe can generate attractive risk-adjusted returns for our shareholders. Now I'll turn it over to Brandon to discuss our financial results. Brandon Hetzel: Thank you, Daniel. For the quarter ended 09/30/2025, we generated net interest income of $6,500,000 and distributable earnings of $3,500,000 or $0.16 per basic weighted share of common stock and had a GAAP net loss of $12,500,000 or a loss of $0.57 per basic weighted average share of common stock. We believe providing distributable earnings is helpful to shareholders in assessing the overall performance of Advanced Flower Capital Inc.'s business. Distributable earnings represent the net income computed in accordance with GAAP, excluding noncash items such as stock compensation expense, any unrealized gains or losses, provisions for current expected credit losses, also known as CECL, taxable REIT subsidiary income or loss, net of dividends, and other noncash items recorded in net income or loss for the period. We ended 2025 with $332,800,000 of principal outstanding spread across 14 loans. As of 11/03/2025, our portfolio consisted of $327,700,000 of principal outstanding across 14 loans. As of 09/30/2025, the CECL reserve was $51,300,000 or approximately 18.7% of our loans at carrying value, which was inclusive of the approximate $4,000,000 reserve on our loan to Private Company P that Daniel mentioned previously. Additionally, we had a total unrealized loss included on the balance sheet of $31,200,000 for our loans held at fair value. As of 09/30/2025, we had total assets of $288,700,000, total shareholder equity of $169,300,000, and our book value per share was $7.49. Lastly, on 10/15/2025, we paid the third quarter dividend of $0.15 per common share outstanding to shareholders of record as of 09/30/2025. With that, I will now turn it back over to the operator to start the Q&A. Operator: Thank you. One moment for our first question. Our first question will come from the line of Aaron Thomas Grey with Alliance Global Partners. Your line is open. Please go ahead. Aaron Thomas Grey: Hi. Thank you very much for the questions. First question for me, you referenced a potential pipeline I think you said $350,000,000 outside cannabis. Just clarification quickly, that's separate than the $416,000,000 pipeline, I imagine, that you referenced in the presentation? And then secondly, can you maybe just give some color in terms of some of the opportunities that you're seeing there? And then also the yields you might expect and whether or not they would be different than the target yields you've had historically within cannabis? Thank you. Daniel Neville: Sure. Dan, do you want to take that one? Daniel Neville: Sure. So on the first, thanks for the question, Aaron. On the first question, that is inclusive, the approximately $415,000,000. That includes $60,000,000 on the cannabis pipeline and the balance on the non-cannabis pipeline. I'd say, on the cannabis side of things, we are still looking and evaluating opportunities. But there are fewer and fewer that we think are interesting on a risk-adjusted basis given the lack of progress on the federal side of things. And I think until we see progress on the federal side of things and equity capital coming back into the industry, there will probably be a limited opportunity set for us on the cannabis side, and we'll see continued growth on the non-cannabis side of the pipeline and portfolio. Secondly, regarding the set, I would say that the yields or target IRRs that we're seeing are a bit below what we're seeing in cannabis. I think it's still something that likely is in the low double-digit range, although we're still evaluating and that'll be an average. There will be some that are below, some that are potentially above. And in terms of our targets that we're looking at, we went from a very limited investment mandate in cannabis, only cannabis, only real estate covered in cannabis. And so we are looking at this from an industry-agnostic perspective, and opening the pipeline wide open to see what the opportunities are out there. And we're really focused on just finding opportunities, again, industry-agnostic, that generate strong risk-adjusted returns. We have a big focus on capital preservation and are looking for stable industries that have some element of consistency or recession resistance in the overall business models. And so I think that's where we're at today. Over time, I think we will develop a little bit more of a niche and a focus in certain areas. We're throwing the gates wide open to all the opportunities out there. Appreciate that color, Daniel. Second question for me. So yeah, as we think about the deal selectivity, you know, and how that could potentially change, given your broader scope here, it would seem to get, you know, tighter and tighter selectivity in terms of the deals we're looking at. You'll already see that in the deals that we've looked at and what's been kicked out of the pipeline already. And so, I think that given the broader investment mandate, given the broader universe, there's just more opportunities to look at and more to be selective. And I think as you've seen over the last really year and a half, two years, as well, we've been more selective on the cannabis side relative to what we'll actually do and what we'll actually underwrite. And so I think you'll see that on both sides of the portfolio, really. Okay, great. Thanks for the color. I'll go ahead and jump back into the queue. Thanks, Aaron. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Pablo Zuanic with Zuanic and Associates. Your line is open. Please go ahead. Pablo Zuanic: Thank you, and good morning, everyone. Also, questions regarding the diversification. So just, first of all, in terms of timing, when you start when you can start redeploying the cash, are we talking about timing, like, of January or April 1? If you can just clarify that. I don't know how much visibility you have on that. And then in terms of the numbers that you provided, just to clarify, so maximum, you would deploy $60,000,000 in '26 in non-cannabis loans you can just verify that. Thank you. Daniel Neville: So thanks, Pablo. So I don't think that we've given guidance to answer your second question first. I don't think we've given guidance. I think what Daniel was saying is that the non-cannabis pipeline plus the cannabis pipeline got to the $400,000,000 number Aaron was referencing and that the active cannabis pipeline is $60,000,000, but we haven't given any guidance as to what we would deploy in 2026. I think we're actively evaluating opportunities. We have capital currently. If we see an opportunity that we like, whether it's in cannabis or non-cannabis, to invest. But remember, we are operating as a REIT. Right, currently. So deals would need to have real estate coverage or fit within our guidelines. And in terms of conversion to a BDC, that would be in the first quarter. And we haven't given a specific date when that will occur. Right. Okay. Thank you. Then just in terms of skill set, I understand it's on the credit side, and, obviously, you have that skill set. But, you know, in cannabis, you know all the players, you know the industry well, you have a wide network. I just wonder how easy or difficult it is to replicate that in new industries. And I guess related to that, although it's a totally separate question, when we are talking about stable industry recession-resistant business models, I guess, you know, those are not growth industries, and I wonder how much capital they need. But if you can just clarify those two things, I realize there's two separate questions there. Thank you. Daniel Neville: So I think from a relationship standpoint, if you look at what we've done in cannabis from an underwriting standpoint, what we're underwriting is real estate, but we're also operating we're also underwriting the underlying operating businesses in cannabis. So I think we have that underwriting expertise from a deal flow perspective. Right? We built this from scratch in cannabis, and I think that what we're targeting is both direct deals and sponsored deals, and it's incumbent on us to build that pipeline. So I think that's your first question. Then in terms of industries, I think, as Daniel said earlier, and he can expand on this, we're casting a wide net. Right? And there's not a deal that I'm going to talk about at this moment, but we're casting a wide net. We're looking at industries. We're looking at how various macro factors would impact those industries, and that would be part of our diligence. But I would just say at this point, we're casting a wide net. In terms of industries. I don't know if there's anything you want to add to that, Daniel. Daniel Neville: Yeah. I'd just say, look. The cannabis industry didn't really exist on the legal side of things till five years ago. Right? So you know, you look at the team that exists, you know, three of the four members of the investment committee scaled Fifth Street Asset Management to a $5,000,000,000 asset in debt, $10,000,000,000 of transactions on the direct lending side of things outside of BDCs. You know, I, myself, had a career as a generalist on the buy side for ten years prior to stepping into the cannabis industry and investing across the capital stack. And our head of underwriting, which we hired last year, had zero experience in cannabis and had done fifteen years in direct lending and other regular way industries. And so I think the cannabis side of things provides a greater degree of difficulty in terms of the business model. Right? It's agriculture, it's manufacturing, it's distribution, it's retail. And there are very other sub-elements within there. And certainly, getting security and structuring the loans and doing it on a direct basis is more difficult than other way industries. But I think taking our skill sets from our past life, taking some learnings from the cannabis side of things, on the structuring, the underwrite, and the portfolio management side of things, will certainly be useful skill sets outside of the cannabis industry. I think in terms of the commentary about target industries, I'd say, look, we're just we're looking for stable businesses. I mentioned, you know, some element of recurring revenue, some element of recession resistance. You know, we're not looking for industries that are hyper-cyclical like, I think you've seen in the cannabis side of things. We're a lender. We only get paid as lenders. We don't get paid for the upside. And so we're looking for stable businesses that provide good credit quality that protect our capital and provide attractive risk-adjusted returns. And we're casting a wide net, and there's a lot wider universe to look at out there outside of just cannabis and real estate covered, which has been our historical focus. Pablo Zuanic: Yeah. No. That's good. Thank you. Look. And just one more on the BDC, and maybe it's too detailed for the call, but is there any changes you want to highlight in terms of the fee structure with the external investment advisor for moving to a REIT a BDC or not such a big deal? Daniel Neville: I think that that was pretty well laid out in our proxy, and I don't want to speak out of turn since I don't have it in front of me. So I'd direct you or any investors that have questions on that to look in our proxy. Pablo Zuanic: Okay. Thanks. As 61% of our investors voted, I'm sure they've seen that and 94% voted for it. So that's where to find that information. Thank you. And look. Totally understood your very cautious stance on cannabis. But you know, at the federal level, let's say that, you know, these changes with hemp derivatives happen. Right? Some people have sized that market at $20,000,000,000. Not let's say that number is true. Right? And whether that flows to the cannabis industry at the federal level, and then, you know, you have potentially Virginia, Pennsylvania on the reg side and Texas on the rec side. I realize we don't have visibility on date, but things could get pretty good even without changes at the federal level, you know, in a year's time. Or am I, am I putting too rosy a picture here, Daniel or Robyn? Daniel Neville: I'll let Daniel take this one. Daniel Neville: Yeah. Look. It seems like we've been hearing reform is a few weeks away for the last three or four years. And so I think on our side of things, we've seen the reality of that. And the reality is that there's been no equity capital raised or very little equity capital raised into the cannabis space over the last two to three years. Very capital-intensive industry. And for the last two or three years, it's been financed by debt. Whether that's straight debt, or that's the accrual of unpaid tax liabilities. And so as a lender, when there's no equity capital coming in, and no equity cushion, in a capital-intensive business, you have to be very selective and careful in your underwrites and very much pick your spots. And I think that we're still in the cannabis business. Right? It's part of our investment mandate. We're still actively looking at opportunities. And we still have a pipeline. We still have a sizable loan book in the cannabis side of things, both performing and underperforming portions of the book. And so we're still active. We're still involved. But I think our hurdle to deploy fresh capital into the cannabis space on a go-forward basis is going to be very, very high. Absent some progress on the federal side of things. And seeing equity capital flow back into the space. Pablo Zuanic: Thank you. And one last one, and you know, I realized you're not going to guide into 2026. But, you know, made it very clear, no dividend in the fourth quarter based on the board decision. BDC structure, the benefits, we probably start seeing them by the second quarter. So I guess for an analyst, we should probably model zero dividend for 2026. I don't know if you want to make any comments on that. Maybe you can't. Daniel Neville: I don't think we've given that guidance. So I think we gave a fact, which is what the board has decided on the fourth quarter. Right. Pablo Zuanic: Okay. No. That's good. Thank you. Thank you. That's all. Daniel Neville: Thanks, Pablo. Operator: Thank you. And I would now like to hand the conference back over to Daniel Neville for closing remarks. Daniel Neville: Thank you all for joining us today, and have a nice afternoon. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by and welcome to Innoviz Technologies Ltd.'s Third Quarter 2025 Earnings Call. Our presentation today will be followed by a Q&A session. I must advise you that the call is being recorded today. I would now like to hand over the call to our first speaker today, Ada Menaker, VP of Investor Relations and Corporate Development. Ada, please go ahead. Ada Menaker: I would like to welcome you to the Innoviz Technologies Ltd. Third Quarter 2025 Earnings Conference Call. Joining us today are Omer Keilaf, Chief Executive Officer, and Eldar Cegla, Chief Financial Officer. I would like to remind everyone that this call is being recorded and will be available on the Investor Relations section of our website at ir.innoviz.tech. Before we begin, I would like to remind you that our discussion today will include forward-looking statements that are subject to risks and uncertainties relating to future events and the future financial performance of Innoviz Technologies Ltd. Actual results could differ materially from those anticipated in the forward-looking statements. Forward-looking statements made today speak only to our expectations as of today, and we undertake no obligation to publicly update or revise them. For a discussion of some important risk factors that could cause actual results to differ materially from any forward-looking statements, please see the Risk Factors section of our Form 20-F filed with the SEC on 03/12/2025. Omer, please go ahead. Omer Keilaf: Thank you, Ada, and good morning to everyone joining us today on the call. The third quarter marked another strong period for Innoviz Technologies Ltd. from a financial and business perspective. Since the last earnings call, we made meaningful progress. Recently, we announced that a major commercial vehicle OEM selected us for future sales production of level four autonomous trucks. This agreement, alongside our level three and level four automotive wins, and the recent ramp of the Innoviz Smart for non-automotive applications, showcases Innoviz Technologies Ltd.'s expanding momentum across all segments of the LiDAR space. From a financial standpoint, the quarter continued to build on the first half trajectory. We generated $15.3 million in revenues, and year-to-date, we generated $42.4 million, approximately 2.3 times more than in the same period of 2024. We are expecting to meet all of our targets for the full year. Cash burn in the quarter was $14 million, and we expect this number to decline sequentially in line with our guidance for declining year-over-year burn. On the production side, we are very pleased with the ramp at Fabrinet. In line with our plans to ship an order of magnitude, in Q3, we shipped significantly more LiDAR units than in Q2. Our labs achieved the key automotive standard certification for LiDAR testing, which drives meaningful value for our customers, and we can now avoid costly and time-consuming external testing. These significant achievements confirm that we are well-positioned to ramp Innoviz Technologies Ltd. to scale our operations to meet growing demand and customer SOPs. Critically, we see that the LiDAR market continues to consolidate. The number of relevant automotive LiDAR players is declining. We believe that there are few competitors remaining that offer manufacturable technologies that meet OEM performance requirements. The winner-take-most scenario that we have envisioned for quite some time is emerging, as we expect to see even fewer companies participating in the space over time. As these competitive dynamics develop, we are gaining traction across multiple end markets and delivering on our mission to be the world's premier large-scale supplier of best-in-class LiDAR solutions for autonomous driving and beyond. Our growing number of engagements across diverse segments underscores the strength and versatility of our technology. With that, let's jump into the details, starting with our recent trucking agreement. In September, we announced that we were selected for series production of level four autonomous trucks by a major commercial vehicle OEM. Under the terms of the engagement, Innoviz Technologies Ltd. will provide LiDARs for the customer's level four class eight semi-trucks. We are already shipping units to support the OEM's data collection trucking fleet. Over the past several months, we have made significant progress on this collaboration with respect to meeting the customer's requirements and making software modifications to the platform. Next week, I will be traveling to the US to meet with companies on the East and West Coast, and I have several sessions scheduled with the OEM's management to discuss technical and business details. We expect to be able to share the name of the customer in the coming weeks, and we are tremendously excited about this partnership. It is a validation of our technology and a milestone that reflects our ability to scale across different sectors. It demonstrates that our Innoviz Two platform meets the stringent requirements of the heavy trucking industry and cements our position in the autonomous trucking market. We are confident that our time-of-flight LiDARs, which can now provide a range of up to 450 meters as well as short and mid-range capabilities, are ideally positioned to gain additional wins in the trucking space due to their resolution, range, reliability, and availability. As with many customers, we hope this is the start of a collaboration that will lead to expansion over time. The trucking agreement we just discussed highlights a shift in gears in the industry that we have noted over the past year. The race to roll out level four solutions is heating up significantly. Customers are rushing to bring solutions to the market, and to do this, they need a full set of validated auto-grade and manufacturable LiDARs to enable true autonomy. Aside from Innoviz Technologies Ltd., we believe few of our competitors have proven to be equal to the task. Plans to deploy level four robotaxis around the world are accelerating, with several programs featuring Innoviz Two scheduled for SOPs around the corner. The ramp-up in our collaboration with VW and MOIA in support of the rollout of the ID.Buzz across multiple locations is going well. We are receiving excellent feedback from our customers on our devices' performance in their programs. As level four plans speed up, we are also progressing on a variety of level three programs targeted for SOPs in 2027 and beyond. In the third quarter, we continued to support the top five OEM with whom we announced an SODW over the summer. As part of our automotive development and validation effort, we are gearing up for our fourth round of winter testing in Northern Europe, where our sensor will undergo another round of comprehensive validation under a variety of extreme winter conditions such as rain, snow, and fog. This testing is a critical component of enabling automation, proving that LiDAR technology provides sufficient redundancy under all conditions. To provide you with more color on our level four collaboration with VW and the critical role that our LiDAR plays, I recently spoke with Christian Senger, the CEO of VW's Autonomous Driving Mobility and Transport Group, which is spearheading the level four ID.Buzz urban autonomous driving project. Here is our conversation, the full version of which will be available on our website. Hi, Christian. It's really great to see you here in Israel. Christian Senger: Absolutely. Christian, what would you say is MOIA's contribution to the transformation happening in urban mobility? Omer Keilaf: Fully autonomous mobility becomes now really real. And our ID.Buzz, driven by the turnkey solution from MOIA, enables large professional fleets to transport people and goods in urban environments. We are combining this self-autonomous vehicle with a self-driving system here with Mobileye and the MOIA AV ecosystem. Christian Senger: Interesting. What would you say is the ID.Buzz's most important component that allows you to be safe and reliable? Omer Keilaf: It all starts with safety first. This vehicle has 27 sensors and nine LiDARs from Innoviz Technologies Ltd. Three long-range, as you know, and six short-range. The combination of all sensors in a strong compute platform gives the performance to understand the world. Christian Senger: The ID.Buzz has 27 sensors. What would you say is the role of the LiDAR in providing reliable safety and performance operation? Omer Keilaf: LiDAR with more than 350 meters of range gives us the range we need for highway speed, and we have the precision to identify objects in the manner we need. The great thing about LiDARs is they are really good, with no difference in day and night. We have great results when it comes to rain. Even in foggy conditions, it helps, especially the cameras, to understand the environment better than without it. Christian Senger: What would you say leads to a successful partnership with Innoviz Technologies Ltd.? Omer Keilaf: We are creating together subsystems that have never been there before. And I think what is really special about what we do is not only high-end performance, but it's also industrial scale, fully automotive grade. And what I really love in our collaboration is the openness and fast reaction. I think we are bringing both sides enormous competency to create these new products. Christian Senger: Christian, me and Innoviz Technologies Ltd. are profoundly proud to be part of this amazing project. Thank you very much. Omer Keilaf: It's a great honor. Omer Keilaf: I would like to thank Christian, VW, MOIA, and Mobileye for their partnership. Collaborating with such talented and committed teams as we advance the industrialization of autonomous mobility is truly a privilege. While the automotive space is our main area of focus, let me touch on our progress with the Innoviz Smart, which we introduced over the summer. Innoviz Smart is based on the Innoviz Two platform and optimized for non-automotive use cases. We have already been able to engage with a variety of diverse customers. We have also completed our first perimeter security installation after ongoing significant testing, and we are expecting to install dozens more by the end of the year. The Innoviz Smart was compared to a security solution that has been widely adopted around the world over the last several years. A team of professional auditors tested the pre-existing solution by emulating different types of intrusions. Four out of ten times, the team avoided detection. They were able to reach the fence and penetrate it by using several easy tricks that took advantage of the system's underlying weaknesses. Under the same conditions, the auditing team was not able to evade a solution based on Innoviz Smart at all. After such experiments, we have seen customer interest in replacing these camera and radar-based solutions with an Innoviz-based one. As we expand our presence in the non-automotive space, we are benefiting from a shorter path to the market and lower acquisition costs for these applications that come from engaging through distributors and integrators. In all, we are continuing to broaden the scope of use cases that we are addressing, and we are in discussion with a number of companies interested in exploring our solution, the Innoviz Smart. Our traction here validates our approach of first engaging the high-volume automotive end market and, after developing an auto-grade production-ready product, entering the established industrial market. As we talk about our business momentum, it's important to highlight the advantages of our time-of-flight technology that underpin our success. After evaluating a variety of approaches, including taping out and testing our own FMCW chip, we are now more confident than ever that time-of-flight will remain the way forward in automotive LiDAR for the foreseeable future. Our time-of-flight LiDAR has demonstrated excellent range, resolution, and field of view, as well as reliability, durability, and availability, which meet the requirements of the automotive OEMs versus competitors using FMCW. We offer a 450-meter range with high pixel rate density and better performance in adverse conditions such as rain, fog, and dust. Our LiDAR uses a mature, auto-grade qualified supply chain. Especially in autonomous driving, where the sensor needs to be ready to support a variety of edge cases and have proven durability and reliability, time-of-flight has established its advantages versus other technologies. After many years of testing and experimenting, including OPA, 1550, and FMCW LiDARs, it's clear to us that 905 time-of-flight is the customer's preferred solution. The industry can only scale on the solid ground of a proven, mature technology, and 905 time-of-flight has the capabilities, manufacturability, and cost profile that meets customer needs in mission-critical applications. Some customers who are publicly committed to using FMCW are now expressing interest in transitioning to time-of-flight due to what we believe are the disadvantages of FMCW. As we ramp the Innoviz Two at Fabrinet and continue to strengthen our in-house capabilities, we are also looking ahead. We are now happy to unveil the Innoviz Three. The Innoviz Two was revolutionary, offering a new technology and meaningful improvement in many aspects, including cost, range, resolution, etc., a major step forward compared to the Innoviz One. The performance of the Innoviz Two advanced rapidly since its introduction. The platform enabled us to develop the Innoviz Two short to medium range and the Innoviz Smart, which were evolutions of the Innoviz Two. We believe that Innoviz Three will again revolutionize the industry. It will allow us to reach a better cost structure while enabling a 60% smaller form factor for easier integration into different vehicle locations, like in the cabin and behind the windshield, something many of our customers have requested. It will also offer better performance and power consumption. Like the Innoviz Smart and short range, Innoviz Three will enable us to develop new variants of the LiDAR to better serve different and new automotive and non-automotive applications. As we just discussed, we believe that time-of-flight will remain the way forward for the foreseeable future. The Innoviz Three will therefore be based on proven, reliable, and manufacturable time-of-flight technology. LiDAR is an extremely complex and demanding field. Innoviz Technologies Ltd. has successfully demonstrated the ability to meet the most stringent requirements of the automotive industry. Installation behind the windshield adds another level of complexity, and I am confident that Innoviz Technologies Ltd. will be the one to overcome this hurdle. You can expect to learn more about this groundbreaking device at CES. Now let's move on to our outlook. Driven by the ramp of our production line and NREs, we continue to expect more than a twofold increase in our revenues year-over-year for 2025 to $50 to $60 million. We continue to see a growing contribution from LiDAR sales versus NREs in our revenue mix. At the beginning of the year, we guided for $20 to $50 million in NRE bookings. Since we had booked more than $20 million in the first half of the year, last quarter, we increased our NRE booking guidance for 2025 to $30 to $60 million. I'm happy to tell you that we are already within this range today. As you recall, we started the year with $80 million in NRE payments planned. With the expansion of existing NRE plans and the addition of new programs, our NRE payment plans are now above $110 million to be paid between 2025 and 2027. As we recognize revenues for these NREs, we are continuing to expand our production capabilities, meet customers' milestones, and pursue new opportunities across different end markets. And with that, I'll turn it over to Eldar to talk about our financials. Eldar Cegla: Thank you, Omer, and good morning, everybody. In the third quarter, Innoviz Technologies Ltd. saw continued financial and operational momentum. Revenues were $15.3 million. Year-to-date, we generated $42.4 million in revenues, 2.3 times the $18.2 million in revenues generated in the same period of 2024. We ended Q3 with approximately $74.4 million in cash, cash equivalents, short-term deposits, and marketable securities on the balance sheet, and we have no long-term debt. Cash used in operations and capital expenditures in the third quarter was approximately $14 million, and we expect this number to decline sequentially, consistent with our expectation for lower year-over-year cash burn. Our strong balance sheet and operational improvements will provide us the runway to cross customers' programs into 2027. Now turning to the income statement. Our Q3 revenues of $15.3 million were 238% up year-over-year, supported by NREs as well as sales of LiDAR units. Gross margins in the quarter were approximately 15% and approximately 26% year-to-date. Margins will continue to be somewhat variable going forward based on the timing of our product ramp and fluctuation in NRE payments based on customers' milestones. Our operating expenses for Q3 were $18 million, a decrease of approximately 30% from $26 million in Q3 2024. This quarter's operating expenses included $2.4 million of share-based compensation compared to $4.2 million in 2024. Research and development expenses for Q3 were $12.4 million, a decrease from $19.7 million in Q3 2024. The decrease is primarily related to the allocation of costs related to sales of NRE and the operational realignment in Q1. The quarter's R&D expenses included $1.3 million of share-based compensation compared to $3 million in 2024. I'm very proud of our achievements this year to date and look forward to the opportunities ahead as we introduce the Innoviz Three and secure additional automotive and non-automotive design wins. With that, I'll turn the call back to Omer for his closing remarks. Omer Keilaf: Thank you, Eldar. Before I wrap up the call and open for Q&A, I wanted to recap some of our recent developments. We reported record year-to-date revenues while continuing to meaningfully lower our annual cash burn. We've been selected to supply LiDARs for a major global trucking OEM's series production of level four autonomous trucks. Our Innoviz Smart is gaining traction in a variety of applications, including perimeter security and ITS. Testing indicates that platforms based on our LiDAR platform outperform leading solutions. Our solution provides safety and security in a perimeter defense application. As in automotive, this is yet another case where our technology can save lives. We continue to make progress with level three and level four automotive programs. We are unveiling our next-generation revolutionary Innoviz Three, which will enable us to meet mission-critical safety requirements across a variety of new and existing end markets. It is based on industry-leading time-of-flight technology, offering better performance and cost with a smaller form factor. Over the past quarter, we grew our shipments by an order of magnitude, demonstrating the manufacturability and production readiness of our platform. In all, we are tremendously proud of our progress as we work toward our goal of becoming the world's premier large-scale provider of best-in-class LiDAR solutions for autonomous driving and beyond. With that, operator, let's open it up for the Q&A. Operator: To ask a question, press 9 on your telephone keypad and wait for your name to be announced. The first question is from Mark Delaney with Goldman Sachs. Mark, please go ahead. Mark Delaney: Yes. Good afternoon, good morning. Thank you very much for taking the questions. I was hoping you could start with an update on the L3 development program for consumer vehicles with the top five auto OEM that you'd previously announced. And do you think needs to happen for that to become a series production award? Omer Keilaf: Sure. So over the last quarter, we were working on the SODW based on what we've signed on in the previous quarter. And we delivered on several of the items, which we are still in discussion with the customer. And we are pending for the following stage of their process. Generally, there are still technical and commercial discussions to be completed before it turns into sales production. Mark Delaney: Any sense on timing as to how long that may take to all come to completion? Omer Keilaf: I would say it's in a very developed stage. Trying to guess on how long it will further take is tough, but I would say it's in a very developed stage. Mark Delaney: Okay. That's helpful. Another question was on the competitive environment. Omer, you mentioned the declining number of competitors you're now seeing. Can you zoom in on that? Has Innoviz Technologies Ltd. seen recent changes in the competitive landscape and number of business opportunities that are available? Given that one of your merchant LiDAR competitors recently reported that it's facing financial pressure and then also in light of the current geopolitical backdrop. Thank you. Omer Keilaf: Yeah. Definitely. I think that, in general, we see that when we are approaching programs, what we see in terms of competitive offers we have from others is obviously limited due to the, let's say, consequences of either geopolitical or the other solution and capable of fulfilling the needs and timeline. And therefore, you know, we expect we see that in reality, the competitive landscape for automotive LiDAR solutions is very limited. And so this is what we are reflecting here, and saying that we expect it to continue. Mark Delaney: Thank you. I'll pass it on. Operator: Thank you. Our next question is from Colin Rusch from Oppenheimer. Please go ahead, Colin. Colin Rusch: Thanks so much, guys. Can you talk a little bit about the incremental investments you might need to make into sensor fusion with some of your partners as you kind of proliferate some of these applications? It seems like having some visibility into the software element of this could be useful for you. But just want to get a sense of how you're thinking about that as a market opportunity evolves. Omer Keilaf: Sure. So I think here, I would split the market between automotive and non-automotive. The task of sensor fusion is somehow different, and the software opportunity also is, in a way, also in terms of commercialization and monetization, different types of opportunities. When talking about integrating into platforms such as Mobileye or NVIDIA, where we see, in several cases, where the OEM wants the platform player to take ownership of the sensor fusion, our work with the customer is related to, obviously, providing them the details and doing the test with them. There is a certain software component that we provide as a license for working with the overall software stack, which will include also a certain software layer coming from us. Primarily in terms of doing some LiDAR management, weather conditions, range detection, degradation, or things that are related to the LiDARs itself. And in some cases, we provide some, I would say, higher layers of the application. When talking about non-automotive applications, this is where there are different layers related to background removal and compression, object detection, classification. This depends on the application itself. Some of this, we are doing ourselves. Some of that, we are doing with partners. And in these programs, the business model also involves a certain support and maintenance because some of these programs, or I'll say most of these programs, are 24/7 operations. It's a different operational mode of the sensor. Unlike a vehicle, where it drives at certain utilization, it means that it's a longer working hours in terms of the number of hours that we need to work. So there is a certain element of recurrent revenues coming from support over several years. And we are working with different customers to understand their needs. And, you know, I elaborated earlier about a specific use case, which is the security perimeter security. I was literally blown away with how this sector is underserved. And, you know, it's not, I would say, you would expect that such a domain will have a solution that will be hermetic. You know, we are all aware of situations in different places around the world, seeing that even the best solutions that are used in different cases that are super expensive, you'll see how easily they are compromised and powerful being hermetic. And we see that when we show our solution to different customers, they are literally really, again, blown away. It's really the only way I can express it. And I think there is a lot of work to be done to integrate our solution into the different VMS, the video monitor systems, used by the common control panels. So I think this is where I expect to see a very nice development in the coming months. Adding to it also, tolls, ITS, and really some other things that I hope that we'll be able to share in the coming months. Colin Rusch: Excellent. And just as a follow-up with the next generation product and as you start to scale up volumes, if you have seen some of the maturation of the supply chain, can you talk a little bit about the potential cost reduction trajectory that you're expecting here over the next couple of years and how that may impact your opportunity to address even larger pockets of demand? Omer Keilaf: Okay. No. I can talk about generally, LiDAR will continue to reduce cost. It will come through, you know, revolution, parts in technology where we keep doing so. And, you know, Innoviz Three relies on the new technology development that allows us to benefit from further cost reduction. Silicon-based processing unit, I think that what I've just kind of described can also be described by a CD drive. You know? There are many electronics that used to cost a lot at some point in time, and today, they are really priced at the tens of dollars. And there is nothing fundamentally more expensive in LiDAR than these kinds of technologies that maybe, you know, twenty years ago, cost thousands of dollars, then hundreds of dollars, and then lower. Eventually, there's nothing fundamentally different. And, therefore, I do expect that as the technology will continue to evolve, you will eventually need to have investments to do the right ROI in terms of cost reduction. I wouldn't do a $10 million investment now to save $10 in the bill of material. It's not yet the time where the volume justifies it. But you can imagine that as the volume would grow, these kinds of opportunities are available to us. And we are no longer in a stage where we're talking about whether the technology can be enabled. We are in an industrialization stage, where we need to do integration of discrete electronics into more chips. These are primarily, I would say, execution and R&D, just maybe without the R part of it. Straightforward processes that were done in other markets before starting Innoviz Technologies Ltd., I was working on several other industries such as mobile, and in these areas, we've done the same. So I expect to see LiDAR grow cheaper and cheaper, and eventually available even to consumer applications. Colin Rusch: Excellent. Thanks so much, guys. Operator: To ask a question, please raise your hand using your mobile or desktop application or press 9 on your telephone keypad and wait for your name to be announced. Our next question will come from Ittai Kidron from TD Cowen. Ittai, please go ahead. Ittai Kidron: Great. Thank you. Good afternoon, everybody. I was hoping you can walk us through more of what you're seeing in some of your level three and level four with automakers, and specifically, maybe talk about what you think it will take to accelerate sourcing decisions. What are automakers looking for at this point to make those decisions? And then broadly, in the next few years, have you talked to automakers and looked at the market, how you're seeing level three, maybe level four penetration play out in the industry? Omer Keilaf: Yeah. Sure. I mean, obviously, that's the question that comes up many times with investors. And the way I like to address it is, you know, when you look at the Chinese market, then you could look at it as kind of the crystal ball of where the automotive market is heading. And the western OEMs are aware that Chinese cars are becoming more technologically advanced. They are fast-moving. They are equipped with advanced features, and they understand that they need to keep the differentiation going forward. I think there is a lot of evidence seeing that level four is coming to fruition. You see many players trying to move faster, understanding that it's going to be a point where seats are going to be taken around the table. Eventually, cities are going to be populated with robotaxis, and there will be a limit due to congestion of family cars that could actually be allowed to operate. And the race has begun because several of these players are rolling out. And therefore, we do see a sense of urgency coming from others. In terms of level three, I can also share that some of the discussions we're having right now with customers are also looking at the opportunity related to urban level three. You might be aware that today, most of the level three applications are touch highway. Some OEMs are seeing the highway as a good first step, but some of the OEMs are looking to add an urban experience, knowing that that is what their customers are really interested in. So, I mean, obviously, we are in discussions with OEMs around several concepts. Innoviz Technologies Ltd. is a very innovative company, and we talked about Innoviz Three as a new platform where we can design around different variants. So it hangs on kind of, like, one of the things that we are working on. So, definitely, I expect to see level three urban or highway at some point in time growing very fast in the West. Level four is definitely already coming. Ittai Kidron: Very helpful. And as a follow-up, back to the Innoviz Three, can you talk a little bit more about some of the performance improvements that you're targeting? And also just remind us when the start of production is expected for that platform. Thank you. Omer Keilaf: Yeah. Sure. So I think the next challenge related to level three is where we're seeing some of the customers. I can take it into two different paths. One is the highway, and the other one is the urban. Both of them are actually related to the design of the vehicle. Right? Because when you talk about the highway, then some OEMs want to add the LiDAR behind the windshield. And, you know, LiDAR by itself is a very complex and challenging technology, even if you don't put it behind the windshield. Putting it behind the windshield adds another magnitude of challenge and difficulty because it adds restrictions and constraints related to the size, power consumption, and also the integration into the windshield, which adds its own kind of integration challenges. So, you know, this is kind of something that, as I said earlier in the call, seeing these challenges, we are obviously working to show the customers that with Innoviz Three, we can overcome these additional challenges by building a product that has a certain buffer related to the performance, significant volume reduction, 60%, and power consumption reduction. There are several additional nice design perspectives that we included in Innoviz Three, which we believe will give us even additional advantages related to this specific challenge. And this is why I said earlier, there are only maybe two large companies that ever got to a level three on the road. You know, many have announced level three, but I think Innoviz Technologies Ltd. has probably provided a solution for the best level three today available. And I believe that we will be the one solving this problem as well, taking it into a level three urban. So, again, it's a design discussion. It's also related to cost because it requires more than one sensor. You don't want to use nine LiDARs as much as we would like, obviously. So it means that you do need to take into consideration design cost, and this is where another good design of the LiDAR and a good understanding also of the different use cases, as well as a good discussion between a LiDAR developer and the OEM, is needed. So these are the two I would mention. Other than that, there are level three programs where we have already integrated, whether it's in the roof or in the grill, and the first one that is expected to launch is in 2027. Ittai Kidron: That's very helpful. Thank you. Operator: Our next question is from Jash Patwa from JPMorgan. Jash, please go ahead. Jash Patwa: Congrats to the team on all the progress this quarter. I wanted to start with a question on the level four commercial OEM win. Could you maybe share any details around the SOP timeline, the number of LiDARs per unit, and the overall volume opportunity you expect as part of this platform? Thanks, and I have a follow-up. Omer Keilaf: Sure. So we said that we expect to announce an announcement with the customer in several weeks, where we are planning to share more information, and we want to be respectful towards the OEM while we are working on this announcement. There are going to be multiple sensors per vehicle, but, you know, I do want to be, again, want to wait for it. And it's in the next few weeks, so we prefer to wait at this point. Jash Patwa: Makes sense. Thank you for that. And then curious if you could give us a preview for expectations into 2026 in terms of revenue and gross profit. How should we think about the contribution from the ramp of the contract wins under the Mobileye Drive platform and some of the ongoing development work with large automakers? Just wondering if you could give us a sense of what the strategic priority for the company looks like in 2026. Thank you. Omer Keilaf: I think, obviously, we'll talk about the guidance in the next quarter, but other than that, of course, we are expecting growth with the deployment of vehicles, level four vehicles, whether it's coming from Volkswagen or other customers of Mobileye that we are working with. And we expect Mobileye also to grow their customer base, which we are already selling LiDARs to customers that are currently in those discussions. And, you know, obviously, we're waiting to see them mature into a program. And other than that, you know, we have different customers. I will be this truck that we were awarded that is going to be deployed and the top five OEM on how, of course, things will develop. And I think the Innoviz Smart is where we are very excited around. We see where our solution really unlocks opportunities because when you think about the LiDARs that are currently available in the market, which are from also geopolitical elements, are also very strong in those areas as well. And when you look at the available solutions for non-automotive, they are relatively limited in their capabilities. Being able to share and sell our long-range, high-resolution automotive grade unlocks several applications that were not available. I think security is where we see an amazing fit because we have an extraordinary product that solves problems that other LiDARs, as far as I am aware of, are incapable of. With the geopolitical element giving us a big advantage, I think we'll continue to grow in these markets, and there are still other OEMs that we are in discussion with. I mean, we talked about, you know, the top five or etcetera, but there are actually other OEMs and level four platforms, which, as I said, once we announce the award we got from a truck, one of the largest truck companies in the world, it invoked discussions with other truck companies and other level four platforms. There are RFQs being drafted. I believe it's, I think we have a good fit for many of them. Jash Patwa: Appreciate all the color, Omer. Thank you, and good luck. Operator: Thank you very much. Omer Keilaf: There are no further questions. I'm handing the call back to Omer for closing remarks. Omer Keilaf: Thank you very much. Thank you very much for joining our call. Next week, I'll be traveling to the US, meeting with different customers on the East and West Coast. I'll be in New York for the Barclays York conference. Happy to meet you there. And, of course, CES is coming along. It's always, for us, an innovation celebration opportunity. It's a national holiday at Innoviz Technologies Ltd. We're going to show our new technologies, and we look forward to meeting with you. Thank you very much.
Operator: Thank you for standing by, and welcome to the GLOBALFOUNDRIES Inc. Third Quarter of Fiscal 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you'll need to press 11 on your telephone. 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Eric Chao, Investor Relations. Please go ahead, sir. Eric Chao: Thank you, operator. Good morning, everyone. And welcome to GLOBALFOUNDRIES' Third Quarter 2025 Earnings Call. On the call with me today are Timothy Breen, CEO, Niels Anderskouv, President and Chief Operating Officer, and Sam Franklin, interim CFO. A short while ago, we released GF's third quarter financial results which are available on our website at investors.gf.com along with today's accompanying slide presentation. This call is being recorded and a replay will be made available on our Investor Relations webpage. During this call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are available in today's press release and accompanying slides. Please note that these financial results are unaudited and subject to change. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as believe, expect, intend, anticipate, and may or by the use of future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks and uncertainties described in our SEC filings including in sections under the caption Risk Factors in our annual report on form 20-F and in any current reports on form 6-K furnished with the SEC. In terms of upcoming events, we will be participating in a fireside chat at the UBS Global Technology and AI Conference in Scottsdale on December 2. In addition, we are looking forward to hosting a public webcast investor webinar at 10 AM Eastern Time on December 3. technical, and strategy update on the opportunities for GF across the rapidly evolving physical AI market. We will begin today's call with Tim providing a summary update on the current business environment and technologies, Niels will then discuss our recent design wins, highlights, and traction across the end markets, after which Sam will provide details on our third quarter results and fourth quarter 2025 guidance. We will then open the call for questions with Tim, Niels, and Sam. We request that you please limit your questions to one with one follow-up. I'll now turn the call over to Tim. Timothy Breen: Thank you, Eric, and welcome, everyone, to our third quarter 2025 earnings call. Before I begin, I wanted to express my sincere gratitude to John for his service and contributions to GF. We wish him the best. GF delivered a strong third quarter. With revenue, gross margin, operating margin, and earnings per share at the high end of the guidance ranges. For the fourth consecutive quarter, we saw strong double-digit percentage year-over-year revenue growth both in our automotive and communications, infrastructure, and data center end markets, which together represented 28% of our total third quarter revenue. We expanded third quarter gross margin both sequentially and year-over-year which is representative of our relentless drive to growing profitability. With the strength of our differentiated product portfolio, which is highly suited to secular growth markets, the richer mix of high-growth businesses and the clear value proposition of our global footprint, GF is laying a strong foundation for a future of robust profitable growth. GF is truly a global company. I recently had the privilege of visiting customers and employees across The US, Asia, and Europe, including at our marquee global technology summits in all three continents. Having met with over 100 current and prospective customers, from across the end markets we serve, The feedback has been consistent, and unequivocal. GF brings a unique combination of differentiated technologies that meet the needs of today's secular trends including the scaling of AI in the data center, and the proliferation of AI into the physical world. As well as the need to deliver those technologies from a resilient global footprint. Let me address each of these exciting areas. Firstly, scaling AI in the data center with optical networking. After years of R&D, capacity investments, and deep innovation with customers, GF is carving out a strong position in the optical market at exactly the right time. Recent commentary by hyperscalers, GPU makers, and other players in the data center ecosystem have emphasized the need for silicon photonics in scale-up, scale-out, and scale-across networking. The OCP Global Summit last month highlighted a growing shift towards pluggable silicon photonics and co-package optics as alternatives to traditional copper interconnects over the next several years where legacy technology is simply unable to meet the increasing demands in data transmission speed, bandwidth density, and power efficiency. Propelled by this expected transition, we estimate our serviceable addressable market for optical networking will grow by a CAGR of approximately 40% through 2030. We expect GF to be a key participant in this substantial growth and are highly encouraged by our early track record of success in many applications that support optical networking. Including our silicon photonics platform, as well as our high-performance silicon germanium, and FDX technologies. In Q3 alone, we won three optical networking designs with new customers worth over $150 million of projected lifetime revenue. With the first tape-out for one of these designs already completed in the quarter. Silicon photonics alone is on track to reach over $200 million of revenue in 2025, close to doubling year-over-year. As the market continues to require higher and higher performing pluggable optical transceivers, and its co-packaged optics adoption meaningfully ramps from 2027 we envision silicon photonics to become a billion-dollar plus run rate business for GF before the end of the decade. To support this growth, we will continue to partner with our customers and make the necessary investments to grow our scale as well as adding organically or inorganically new complementary capabilities. With gross margins significantly above our target model, we expect long-term growth in silicon photonics to provide a tailwind to GF for years to come. The second significant and rapidly evolving secular trend is the advent of AI capabilities being deployed across a broad range of applications in the physical world. Based on discussions with our customers, we believe the ongoing data center AI build-out is merely a prelude to the next step of the AI revolution. Real-world applications in the physical space. From autonomous vehicles and drones to next-generation medical devices, and ultimately humanoid robots, we expect the marriage of artificial intelligence with real-time sensing control, and compute capabilities to unlock new previously unthinkable applications accelerate demand for GF's essential technologies. The technical demands of this next phase of AI align with GF's deep technical strength in developing feature-rich technologies that play a critical role across multiple applications. Which is further complemented with our recent investment in MIPS which will accelerate the development of real-time processor IP. In the world of physical AI, the market will need vast amounts of feature-rich, low-power, connected chips that are secure and cost-effective. We believe everything that moves will become autonomous, Everything that senses will be intelligent, and many devices that think will also actuate in the real world. GF's product portfolio enables us to play a critical role in this coming revolution. For efficient power management, our FTX and FinFET platforms are specifically designed to support always-on, ultra-low leakage, edge devices can run longer and more reliably. For robotics and real-world object manipulation, our BCD and BCD HV platforms offer a power-efficient architecture that is ideal for motor and joint control as well as battery management. Lastly, for intelligence, sensing, detection. Our recently launched UX platform, as well as our established FDX and FinFET capabilities, enable accurate multimode sensors with capabilities across radar, ultra-wideband, imaging, and audio. By coupling all of these technologies with a range of embedded nonvolatile memory solutions, including ESF, MRAM, and RRAM, can go further to enable smart, secure processing in a range of physical applications. Across all of these GF served applications, we believe the emerging physical AI opportunity will become more than an $18 billion SAM for GF by 2030. Our momentum with customers is accelerating in edge and physical AI applications. The proof points are already in motion. And in the third quarter, we secured several additional design wins across applications such as AI-enabled glasses, AI-enabled hearables, AI-enabled home appliances, and AI-enabled software-defined vehicles. The last theme that remains top of mind for our customers is the critical importance of geographically diversified semiconductor supply. Recent geopolitical conflicts, tariffs, and export controls are a consequence of an increasingly fractured and deglobalizing world. As a remedy, governments have sought to encourage industry players to reassure or onshore their sourcing of essential chips. It is now common for customers to require, not request, non-China, non-Taiwan supply chains. And is now also becoming increasingly common to specifically require US-based manufacturing. As many of our customers have now publicly stated, partnering with GF in reshoring technologies to The US has become core to their supply strategy. By aligning our investments to our customers' requirements, we are positioning GF to gain share from this secular trend. Given our unique and advantaged global footprint, across The US, Europe, and Asia. In June, with support from half a dozen leading customers, including Apple, AMD, SpaceX, Qualcomm, NXP, and several other leading technology companies we announced that we broadened the envelope of our investments to $16 billion in order to expand US manufacturing and advanced packaging capabilities in our facilities in New York and Vermont. With support from federal, state, and local governments, we have established a world-class semiconductor ecosystem in The US rich with employee talent, as well as diverse suppliers, customers, and OEMs. Notwithstanding the ongoing section 232 assessment in The US, the structural reshaping of global supply chains is well underway. And we believe that GF is at the forefront of supporting this transformation. As our customers increasingly seek to mitigate geopolitical risks, and enhance their supply chain resilience, GF is helping them navigate trade complexities and optimize their sourcing decisions. An excellent recent example of the progress we are making is our announcement with Silicon Labs to manufacture its wireless SoCs on GF's new ultra-low power platform out of our Malta New York fab. Beyond The US, we have also announced plans to invest an additional $1.1 billion in our Dresden fab. Supported by incentives from the German federal government and the state of Saxony, under the framework of the European Chips Act the investment will allow us to increase production capacity to more than 1 million wafers a year in Dresden by 2028. Making it the largest site of its kind in Europe, approaching Gigafab scale. Driven by the needs of key European customers such as NXP, Infineon, Ormovio, and Bosch, we are well placed to meet our customers' requirements of EU-based manufacturing from our world-class site. We believe we are only in the early stages of this opportunity. And see strong validation of our decade-long strategy to build and scale flexible manufacturing capabilities across our fabs, an area where GF has always been a leader for the industry and intends to continue to do so well into the future. In conclusion, at GF, we are committed to being a trusted partner to our customers utilizing our differentiated chip technologies and global manufacturing capacity. We believe we are well positioned to benefit from the long-term trends driving our industry. Years of work and preparation have established a solid foundation for us to capture these inflection point opportunities all made possible by the dedication of our global team. With that, over to you, Niels. Niels Anderskouv: Thank you, Tim, and welcome to everyone on the call. GF's portfolio of diverse and differentiated solutions are enabling us to win more with our customers and serve the defining secular trends of our time. In the third quarter, we secured nearly 150 new design wins across our end markets. More than 50% growth from the same quarter a year ago. Over the last four quarters, over 90% of our design wins awarded on a sole source basis to GF, a consistent proof point of the depth of our customer partnerships and the value of our essential chip technologies. One example of our strong and expanding portfolio of solutions includes our recent technology agreement with TSMC, for 650-volt and 80-volt gallium nitride technology. This strategic move will accelerate GF's next generation of GaN products allowing us to serve an expanded set of customers across a broader range of power applications in markets such as data center, industrial and automotive. GF is well suited to capitalize on this opportunity and serve The U.S. Market. Given our existing 200-millimeter GaN capabilities in Burlington, Vermont. We plan to qualify the licensed GaN technology at our fab in Vermont with full production set to begin in 2026. We've made significant strides in our strategy to diversify the business and accelerate the growth of our highest margin product platforms. I'm encouraged about the expansion in the number of end applications we serve including in exciting areas such as optical networking, satellite communications, quantum computing, software-defined vehicles, and smart glasses. Given the importance of differentiated technology, enhanced features, and the performance requirements from our customers, these fast-growing markets support accelerating growth and improvements to our product mix, supporting margin expansion. While we have more room to grow and diversify, our progress is already evident in our business results. We have organically grown our automotive end market more than tenfold in the last five years. It now comprises around a quarter of our wafer revenue and we expect automotive to approach $1.5 billion of annual revenue in 2025. We have line of sight for automotive to become a multibillion-dollar business for us through the end of the decade. We're very encouraged by the strength of our leading silicon photonics products, and see strong double-digit growth as it nearly doubles in revenue in 2025 compared to 2024. Application of our silicon photonics portfolio within our communications infrastructure and data center end market is not only margin accretive today, but accretive to our long-term gross margin objectives. As we expand our capacity to meet demand and as the demand for silicon photonics grows, we expect to benefit from additional mix tailwinds. Lastly, we've seen strong momentum for fast-growing satellite communications applications which we expect to contribute approximately $100 million of revenue in 2025 to our communications, infrastructure and data center edge market. Up from de minimis revenue in 2024. The portion of SATCOM served on our NXS platform is a margin accretive product thanks to its differentiated features cost profile and efficient scale, despite having an ASP per wafer lower than our corporate average. The semi launch is expected to grow 150%, and Satcom subscribers set to double in the next five years. We expect the semiconductor SAM for this opportunity to be over $1 billion through the end of the decade with GF as an anchor supplier. Within the end market we serve, GF is well positioned to capitalize on several key satellite inflections and we are making continued progress towards transforming the mix of our business towards the fastest growing and both profitable platforms. With that, let me walk you through the key highlights for the quarter, by end part. Automotive represented approximately 18% of the quarter's total revenue. In the third quarter, we continued our strong momentum in Automotive, winning new design wins for 12 unique customers. Highlighting the breadth and depth of our diverse product portfolio third quarter design wins and new tape outs included advanced image sensors, body and chassis NGUs, high-performance audio amplifiers, advanced tire monitoring sensors, Ethernet switches, and motor controllers on our FinFET FTX 40 ESF free and BCD high voltage platforms. Customers across the value chain continue to choose GF for our performance at the highest order grade standards and strong long-term partnerships. In Q3, we signed an MOU with Hyundai Motor Group that leverages GF's deep semiconductor expertise to equip next-generation vehicles with smarter assistance increase connectivity and enhanced power efficiency. Smart mobile devices represent approximate 45% of the quarter's total revenue. In Q3, we secured our first design win for the newly launched Civic platform, with strong engagement with multiple leading fabless art companies. Developed and manufactured in our Burlington, Vermont fab, Civec is our highest performing silicon germanium platform to date, and is capable of addressing several key markets, including smartphones, wireless infrastructure, optical networking, satellite communications, and industrial IoT. For smartphones, the platform enables low noise amplifiers that reduce power consumption by maintaining ultra-low noise and reducing battery drain. Also in the third quarter, we secured our first North flash memory design win for mobile with a leading Chinese fabless company to enable next-generation mobile and barebones. A decision driven specifically by GF's global footprint and the flexibility it provides to our customers. Lastly, build upon our momentum with a recent design win for micro LED display backplane at SAPIEN, for project with a leading provider of next-generation smart glasses. Home and industrial IoT represented approximately 15% of the quarter's total revenue. Announced at our Global Technology Summit in Asia, GF partnered with Aegis, leading player in smart sensors, to produce the latest generation of smart sensors on GF's VCD platform in Singapore. This will enable next-generation application optimized intelligent sensors with best-in-class size, weight, power and cost of cartridges. These direct time of flight sensors are used to gauge depth, a critical feature for next-generation home automation, robotics, and artificial AI applications. We also achieved a milestone with our long-time customer and partner Silicon Labs. Shipping more than 10 million Wi-Fi units built on our 40 LP platform. This platform features low leakage in standby mode, to support power-efficient, always-on intelligent devices and is an integral part of GF's portfolio of advanced technology presenting at applications delivering exceptional signal to noise ratio performance to ensure accurate data capture. Communication infrastructure and data center represent approximately 10% of the quarter's total revenue. I'd like to highlight three new optical network design wins in the third quarter. These include a significant design win with Coherent, a new engagement with a top three US TIA driver supplier and a win with a leading China-based vendor to serve that fast. Growing market. Collectively, these programs deepen our position in next-generation optical interconnects that are critical to AI data center growth. In SATCOM, we continue to build on our success with new wins with global players. During the quarter, we added a digital beamforming win for a Japan-based satellite program as well as an additional ground terminal low noise firing. Overall, the progress we're making across optical networking, satellite communication and quantum computing reflect the strength of our product portfolio and the trust our customers place in us. With these partnerships and our expanding pipeline, I'm confident we are well positioned to capture the long-term growth opportunities ahead. I'll now pass the call over to Sam for a deeper dive on our financial results. And guidance. Sam Franklin: Thank you, Niels. For the remainder of the call, including guidance, other than revenue, cash flow, net interest income, and third quarter CapEx, I will reference non-IFRS metrics. Are included in today's press release and accompanying slides. As Tim noted, our third quarter results came in at the high end of the guidance ranges we provided in our last quarterly update. We delivered third quarter revenue of $1.688 billion flat over the prior quarter and a 3% decrease year-over-year. We shipped approximately 602,100 millimeter equivalent wafers in the quarter, up 4% sequentially and up 10% from the prior year period. Wafer revenue from our end markets accounted for approximately 88% of total revenue. Non-wafer revenue, which includes revenue from reticles, nonrecurring 12% of the total revenue for the third quarter. Let me now provide an update on our revenue by end markets. Smart mobile devices revenue increased approximately 10% sequentially and decreased approximately 13% from the prior year period. The year-over-year change was principally driven by one-time pricing adjustments made in the prior quarter with a limited number of dual source customers. Going forward, we expect to gain a larger share of wallet with these customers. Automotive revenue decreased approximately 17% sequentially and increased 20% from the prior year period. The sequential change was the result of customer shipment timings consistent with the prior year period. Year-over-year revenue gains in our automotive end market were driven by share and content expansion. And we remain on track to grow automotive revenue in the mid-teens percentage range for 2025. Home and industrial IoT revenue decreased approximately 14% sequentially and 16% from the prior year period. This was principally driven by a year-over-year reduction in wafer revenue associated with aerospace and defense applications as certain products reach end of life, with new applications now taping out and expected to move into production in 2026. Finally, communications infrastructure and data center revenue increased approximately 2% sequentially and 32% over the prior year period. With improved visibility into our fast-ramping networking and SATCOM businesses, we now expect full-year 2025 revenue in this end market. To grow in the low twenties percentage range. Up from the high teens outlook indicated on prior earnings calls. For the third quarter, delivered gross profit of $439 million which was at the high end of our guided range and translates into approximately 26% gross margin. Notwithstanding flat sequential revenue, gross margin expanded sequentially and year-over-year approximately 80 and 130 basis points, respectively. Gross margin expansion remains a key focal area for GF. And we believe we're beginning to see the benefits associated with a shift towards a more accretive product mix and increased revenue from non-wafer technology services. R&D for the quarter was $111 million and SG&A was $68 million. Total operating expenses of $179 million were up marginally quarter over quarter and represented approximately 11% of total revenue. We delivered operating profit of $260 million for the quarter and an operating margin of 15.4%. Which is at the high end of our guided range and 180 basis points above the prior year period. Third quarter net interest income was $18 million and we incurred income tax expense of $46 million in the quarter. We reported third quarter net income of $232 million an increase of approximately 1% from the prior year period. As a result, based on a fully diluted share count of approximately 559 million shares, we reported diluted earnings of $0.41 per share for the third quarter. Which was at the high end of our guided range. Let me now provide some key balance sheet and cash flow metrics. Cash flow from operations for the third quarter was $595 million. CapEx for the quarter was $189 million or roughly 11% of revenue. Adjusted free cash flow for the quarter was $451 million, which represented an adjusted free cash flow margin approximately 27% in the quarter. At the end of the third quarter, our balance sheet remained strong. With our combined total cash, cash equivalents, and marketable securities at approximately $4.2 billion. Our total debt was $1.2 billion and we also have a $1 billion revolving credit facility which remains undrawn. Next, let me provide you with our outlook for 2025. We expect total GF revenue to be $1.8 billion plus or minus $25 million. Of this, we expect non-wafer revenue to be approximately 13% of total revenue. We expect gross margin to be approximately 28.5% plus or minus 100 basis points which reflects the sequential and year-over-year growth in gross margin. Excluding share-based compensation, we expect total operating expenses to be $210 million plus or minus $10 million. We expect operating margin to be in the range of 16.8% plus or minus 170 basis points. At the midpoint of our guidance, we expect share-based compensation to be approximately $63 million of which roughly $16 million is related to cost of goods sold. We expect net interest other income for the quarter to be between $4 million and $12 million, and income tax expense to be between $40 million and $62 million. Which translates to an effective tax rate of approximately mid to high teens percentage for the full year 2025. Based on a fully diluted share count of approximately 559 million shares, we expect diluted earnings per share for the fourth quarter to be $0.47 plus or minus $0.05. Finally, a brief update on our capital allocation activities. GF continues to generate strong consistent adjusted free cash flow. While retaining healthy balance sheet fundamentals. In 2025 alone, we have significantly reduced our outstanding debt, continue to optimize our capacity footprint by technology transfers, and completed critical acquisitions to enable future growth. Such as the recently closed MIPS transaction. Looking ahead to 2026, we expect to continue with our objectives to reinvest in the business as well as planning for a systematic approach to returning an appropriate portion of free cash flow to shareholders. In closing, I want to express my appreciation to our employees worldwide for their dedication and execution that helped deliver this quarter's strong financial performance. Over the last few years, I've had the privilege of leading our business finance and operations functions. Working with exceptional team members from around the world. And I remain focused on executing a smooth transition for our finance and operations functions and partnering with Tim and Niels to advance our long-term strategic objectives. With that, let's open the call for Q&A. Operator? Operator: Certainly. And our first question for today comes from the line of Ross Seymore from Deutsche Bank. Your question please. Ross Seymore: Hi guys, thanks for letting me ask a question. I wanted to ask one long-term one and a shorter-term one. On the long-term one, you went into great details about your silicon photonics business, but I just wanted to ask two follow-ups on that. First, what do you believe to be the core differentiation of what GF offers versus any other foundry peers? And second, what sort of capital and CapEx needs to be applied if you're going to quintuple that business over the next five years? Timothy Breen: Very good. Thank you, Ross. So maybe start with the first one. I mean, just to recap, right? This is GF's core play in the data center. We've talked about two sets of data center priorities. One, of course, being power that we've spoken a bit about. In our GaN announcements, but then networking, optical networking specifically being the secular trend that we see the industry now fully adopting both the pluggable optical transceivers and the transition to co-packaged optics. In many ways, GF was early in developing silicon photonics We've been doing this for now more than a decade. As a result, we believe we have best-in-class device performance, really focusing around the electrical optical to electrical, excuse me, signal conversion. We do that through innovation around device structure, around material, increasingly around packaging and especially as we make the transition to co-package optics, some of the innovation we've been driving around how those packages get put together will play, I think, a critical role in that rollout and that adoption. I think the other aspect of differentiation is the ecosystem we have been building around it. To enable design support for our customers and also to enable critical components. For example, our announcement with Corning around the detachable fiber connector, a very important part of how can you make these devices both hyper-performing, but also serviceable, maintainable in those data center contexts. So I think we're very bullish about the adoption story. We're very bullish also about differentiation. I'm going to let Sam comment about the CapEx. Sam Franklin: Yeah. Hey, Ross. Just a quick follow-on there as far as the CapEx is concerned. Look, we've been on a bit of a journey as you know from a capacity and a CapEx point of view for really the last five years. We began that journey at roughly 2 million wafers of capacity a year and we set ourselves a near-term target to get to 3 million wafers of capacity. As we've gone through that, obviously the demand environment has changed slightly. And so over the course of the last couple of years, you've seen us moderate some of that CapEx in and around the 10% of revenue versus that sort of broader model target of roughly 20%. So looking out to 2026, obviously, it's a little bit too soon to guide CapEx specifically, but you can infer from what Tim's saying around the opportunity that we see within silicon photonics that we'd expect to see a pickup in CapEx going into next year, call it the midpoint of that range that we've trended in over the course of the last few years as well. So hopefully that helps. As we think about it beyond 2026, obviously, foundational principle of why we invest in our capacity is tied to customer demand. And so if it's to be seen around the ramp in demand for silicon photonics and the continuation of the customer partnerships that we've certainly seen during the course of this year. It would justify incremental CapEx. It is a highly value accretive end market for us. Timothy Breen: And maybe, Ross, if I can just add a little bit more color on the nature of that CapEx for Photonics wafer production These are highly valuable wafers. So from a wafer volume point of view, it's relatively small from wafer value point of view, relatively high. And so very CapEx efficient when it comes to adding wafer capacity. Some of the CapEx that Sam alluded to will also be around packaging capacity because that goes alongside, especially the co-packaged optics transition. So that will be both of those will be featured in 2026. Great. Thank you for those, guys. I guess as my follow-up in the shorter term, question is just in the fourth quarter, just want to talk about the end market and what you're assuming sequentially in your revenue guide. You gave the full year guidance for automotive and comm data center, so those ones seem to be quite obvious. But I guess what I'm getting at is the smart mobile device side of things. How are you seeing that in the fourth quarter? How did the ASP cuts lead to any unit share gains? And when do you think that segment could return to year-over-year growth? Sam Franklin: Sure, Ross. So I'll kick off there and then I'll let Tim and Neil add any other commentary in terms of the long-term opportunities that we're seeing in smart mobile more specifically. But you hit the nail on the head as it relates to some of those dynamics that we saw in the third quarter. And the way we think about our business, Ross, it's really on a year-over-year basis. And look, we've continued to see very strong year-over-year growth from an automotive point of view in the third quarter. Comms infrastructure and data center was up 32%, and we've also had a high contribution associated with wafer from non-wafer revenue services. So, you know, all said and done, we're seeing the right momentum in growth as it relates to the end markets where we see most of that accelerated opportunity. Now look, the balance on that and again, I'll talk more specifically around the fourth quarter, but in the context of the full year is that you can infer that from a mid-teens expected full-year growth in automotive that sequentially we'd expect quite a strong ramp going into 2024 excuse me, going into Q4. Which is quite consistent with the 2024 sequential ramp that we saw last year as well. Similarly, as it relates to comms infrastructure and data center, we provided that updated guidance now in the low 20s range, so you can infer what sequentially that looks like. Now the you like the offsets as it relates to smart mobile devices and IoT more specifically, For the full year IoT, we expect to be down about mid-single digits. That's really a function of some of that aerospace and defense revenue that we saw falling out and we commented in the prepared remarks. And then as it relates to smart mobile devices, clearly a function of some of those one-time pricing adjustments which are in the rearview mirror now. But that will contribute to quite a low double-digit percentage decline on a year-over-year basis. So that's how we think about it full year and you can infer from what that means, quarter to quarter dynamics. And then I'll let Tim and Neil's comment on the longer term where we see those opportunities. Timothy Breen: Yes. Thank you, Sam. I think on the longer term, Ross, for Smart Mobile, we're very focused on where we can be the most differentiated. And so I'd say we see great traction in areas like audio, haptics, advanced display, advanced imaging areas where GF technologies play a key role, both by the way in the handsets of today but also engagements like we mentioned in areas like smart glasses, that form factor becoming increasingly viable I think from a high volume perspective. And so we see longer-term good traction in Smart Mobile in those differentiated areas. And I think that's true also in the IoT space. Obviously, you've got a broad set of end markets contained with IoT, but you see good traction in medical. You see good traction in industrial. And even in consumer, some of the announcements we've made including companies like Silicon Labs, again, indicating good long-term growth in those markets as well. Ross Seymore: Thank you. Operator: Thank you. And our next question comes from the line of David O'Connor from BNP Paribas. Your question please. David O'Connor: Great. Good morning and thanks for taking my question. Maybe a question on the onshoring side of things. So firstly, congrats on the expanded partnership there with Silicon Labs. After the Apple deal last quarter seems to be increasing demand and traction for The U.S. Onshore manufacturing that's starting to come true now. Maybe could you just talk about what that pipeline actually looks like? And then related to that, just your ability to support additional really high volume wins out of the, Altafab. Thanks. Timothy Breen: No, thank you for that question. Obviously, it's a trend that we have been quite public about the engagement from customers over the last couple of quarters now. Just for those keeping score, we've had eight specific customer announcements regarding U.S. Onshoring. If you just do a rough cut of how much that customer set spends in terms of silicon in our addressable market, you're talking about between $15 billion and $20 billion of total spend. And so these are large representative customers that have significant opportunity to reassure capacity to The U.S. And from that point of view, we see a very strong share gain opportunity for GF. And they're coming for the footprint, but they're also coming for the differentiated technology. So we see that as very very strong. There's a significant pipeline on top of that to your question. A lot of other customers saying, look, what can we do? When can we do it? And that's again, match of capacity and footprint being very important. I think from a timing point of view, we're talking about ramps in 2027 largely and beyond. And this is a secular shift that's durable. And so obviously, we're going through those product design wins, product qualification cycles that are U.S. Is a large part of this and obviously very visible But actually the story is also replicating in areas outside The U.S. Think our announcements in Dresden a couple of weeks ago for our relatively smaller expansion investments we're making there are still backed by significant Europe for Europe, let's say, customer demand, key players like Infineon, like NX like Ormovio, like Bosch, all kind of publicly supporting the investments we're making there to build that fab to even further scale. And obviously, with that comes very accretive economics for that fab. And we're even seeing examples outside that in Singapore. And I think one that we mentioned in the prepared remarks even Chinese fabless companies looking to have their own version of a diversified supply chain. The NOR flash win that we had, we mentioned for Q3, is a good example of that moving to Singapore. So I think the story of supply diversification is just extraordinarily clear globally and only picking up in pace. Sam Franklin: You have a follow-up, David? David O'Connor: Yes, do. Thanks for that color, Tim. Maybe one on the technology side. On the gallium nitride on the GaN side of things. So you know, TSMC recently exited that GaN business. And at the time, citing kind of low profitability and just the competition there was quite intense. Can you maybe talk about your GaN strategy how that is kind of different? And how are you addressing these concerns? Thanks, guys. Yeah. No. Thank you for the question. Maybe I'll start, and then Niels can add a little bit of color as well. Look, we're very excited about GaN. From a simple technology point of view, this is a way of achieving significant improvement in power density, significantly reduced losses in switching and power conversion. If you think about where that matters, of course, of the areas that matters most is in the data center, right? When you're talking about enormous amounts of power consumption based on the build-out, GaN plays a critical role in that market. Of course, it also plays a broader role in critical infrastructure. It plays a role in automotive. And so it actually has plenty of uses. And even longer term plays a role in radio frequency and high-performance communication. From a secular trend point of view, it's a great technology fit. From a customer traction point of view, we also see customers very much focused on sourcing that technology in The U.S. Again, differentiation from GF. We're building that in Burlington, Vermont. A fab that is well track good track record in various complex technologies. And one that customers trust to deliver in the future. So think our strategy is quite different than TSMC, and it's a case of us focusing on where we're a natural athlete and they're focusing on where they are. And I think this is a good win-win. For both of us. Niels Anderskouv: Yes. Maybe just to add to that, and you may recall from of the previous earnings calls, our strategy on GaN is very focused around highly reliable safe, high-quality devices and obviously in data centers that crucial. To ensure there's no downtime In addition to that, we are actually focused on the technology in a very similar fashion to the PCD technologies, meaning we are not just going for the discrete device implementation, but we're adding technologies around the discrete devices that enable us to get more differentiated and higher performing and more reliable solutions to the market. So very, very very focused strategy from our side, lots of customer interest like like Tim said. And The U.S. Footprint is really just the cherry on the top. Operator: And our next question comes from the line of Chris Caso from Wolfe Research. Your question please. Chris Caso: Yes, thank you. Good morning. The first question would be on gross margins and utilization. And obviously, you haven't stepped up here in the fourth quarter. But how should we think about that as we go into the New Year that typically you see some seasonality as you go into the March. And it ultimately, you know, I think what drives the gross margins gonna be getting utilization rate up Could you give some common commentary on where you see that going as you go into next next year. Sam Franklin: Yeah. Hey, Chris. Sam here. Happy to to give that. I'll probably start with the third quarter dynamics, and then I think that's a good layup into how we're thinking about the fourth quarter as well. So look, taking a step back, third quarter gross margin up 80 basis points quarter over quarter, up about 130 basis points year over year. Now that's on a declining revenue profile on a year-over-year basis flat revenue on a quarter-over-quarter basis. So we set out with a very clear mission at the start of this year, which was notwithstanding some of the consumer-driven environment, focusing on improving profitability, consistent free cash And that's really what you're seeing come through in the flow generation third quarter. Actually, all the more notable as well, Chris, given the fact that The 2024. Yeah. We still had about 40 million to $50 million of underutilization payments falling through at that point. So call that roughly two to three points of margin benefit in the third quarter of last year that we didn't get in the third quarter of this year. So it's very much a case of where we been focusing on opportunities to improve the profitability structure within the business and also continuing to mix into accretive end markets. And what you're seeing is is really a reflection of that starting to come through Obviously, we've increased and had some incremental benefit come through from our non-wafer technology services. That's also a strong leading indicator in terms of where we see future production ramp as well as we kind of develop those projects from a mask, a radical, non-recurring engineering perspective. As well and and really kind of embarking on those new projects with customers. Little bit of benefit came through, from D and A, which we talked about at the start of this year. And and utilization has has been probably the the lowest of the contributors towards that margin dynamic. You know, we started out this year in roughly the low 80s. We've been trending around the kind of mid-80s for the last couple of quarters, you know, possibly a minor pickup in the fourth quarter. But again, just switching to the fourth quarter, what you're seeing is roughly three points of incremental benefit on a year-over-year basis. At the midpoint of that guide. And actually from a guide to guide perspective, about three points as well. And again, that's really a confluence of those initiatives that we focused on from continuing to improve the mix dynamics, focusing on productivity, improving the cost structure of the business and obviously taking a modest benefit from a utilization D and A perspective. Did you have a follow-up, Chris? Chris Caso: I did. And it's a question with regards to the mobile business. And, you know, obviously, we've seen at least the potential for, some consolidation in, in in that business on the RF side. Some of that consolidation would affect some of your customers. You know, what's your thoughts on that going forward of the potential effect of consolidation on among your customers in the mobile business. Timothy Breen: Yeah. Thank you, Chris. And, you know, I I presume you're largely referring to the announcements by Skarworks and Cordova. Obviously, we're not to comment on that merger itself. But look, I'd say for both companies, we have a very long track record of serving both of them. And those partnerships go back even before GF was GF. In some parts of our business. And it's partly because of technology leadership They're obviously, you know, leaders in the RF field and have been key partners for us in building and deploying our roadmaps. And so that's been a very tight collaboration in the case of both those companies. I think both of them also increasingly focused on supply security, U.S. Manufacturing and so on. So I think all the ingredients for strong relationships, strong future business are there with both companies. Don't think that will change whether they're one company or two companies going forward. Operator: Thank you. And our next question comes from the line of Harlan Sur from JPMorgan. Your question please. Harlan Sur: Yes, good morning. Thanks for taking my question. Many of your customers are coming off the bottom of the nearly two-year-long down cycle. Right? But not seeing that sort of early cycle kind of strong recovery trajectory profile, but instead, seeing a return to a more normal kind of seasonal profile in their businesses. You guys are already starting wafers for the March given your manufacturing lead times. I think normal seasonality is for the team is for revenues to be down about 10%, 12% sequentially. Is that how you are seeing the shipment profile early next year? Or maybe could it be down slightly more sequentially just given non-wafer revenues potentially kind of normalizing back to that sort of 10, 11% of the mix? Sam Franklin: Yeah. Hey, Harlan. Sam here. Just have to take the, the first part of that question. And and look. I think one of the dynamics that you need to keep in mind, particularly when you look at our businesses the diversification that we have across the portfolio today. And actually increasing diversification. You take automotive, content for a data center, that continues to contribute a larger piece of the overall revenue stack. And so the point there being that there's no single cyclical trend that actually is the determining factor in terms of where we see the revenue profile in the business. Now it's a little bit too soon to go into guiding the 2026 at this point. I think you've heard from our customers that they're expecting, as you say, that kind of typical seasonal range, which which you outlined on the call. Maybe just to cover off a little piece your second part of your question, which is around the non-wafer revenues. Look, this has been a healthy tailwind as we've gone through this year. We signaled it on prior calls. Some of that really is a function of where we see customer dialogue and the timing of new engagements on new products for our customers, the timing of engineering services as well. And so that's what you're seeing starting to come through really in the third quarter. And obviously, we guided 13% expectation of revenue in the fourth quarter as well. So really a function of those activities. But more broadly, this plays very much to the increased suite of services that as GF we're able to offer our customers and clearly as we think about 2026 and beyond and continuing to integrate MIPS into the business and the offering that they have in terms of expanding suite of services for customers those non-wafer technology services become an increasingly important component of the business. Did you have a follow-up on Thanks for that. Harlan Sur: Yeah. I did. So thanks for giving us an update on the diversification efforts. Obviously, geographical diversification, supply chain is extremely important for your customers. With that in mind, can you guys just give us an update on your TriNet for China strategy? I think you guys announced your partnership with Zen Semiconductor in China last quarter. The GF team, I think, has had very strong success within the domestic China automotive markets, for example, with your differentiated technology And for your non-China customers, obviously, they want local supply to ship to their China customers. Right? So what's the timeline for transferring, qualifying, ramping production? Of the manufacturing processes at DENSEMI And is the business model royalty based, or are you splitting profits Any any insights here would be very helpful. Timothy Breen: Yeah. Thank you, Harlan. So, look, we've we've spoken, you know, on a few different calls about about China for China and how we've been addressing that. Again, as a recap, our strategy has been specific technologies where there is strong local manufacturing desire from our customers. To make those available locally. In in Guangzhou, as you as you mentioned. That technology is typically in the microcontroller space, automotive imaging, increasingly also technologies in the power space, relevant for that local automotive build-out and beyond. I'd say customer traction has been very, very strong. We spoke briefly in the prepared remarks about our Global Technology Summit. We do three the third of which was in Shanghai with very, very strong customer traction. Interestingly, not just from those multinational companies serving the China market, which perhaps was where we started this engagement, but more and more from also local Chinese players who are looking for both manufacturing in China, but also that diversification for their global exports. Outside China. So if anything incrementally more bullish on the China story for us in terms of demand. Just as a level set, remember, our direct China business today is probably low in the nearly lowest amongst peers, for larger semiconductor companies. And so net net, we see China as especially quite a good upside for us over time. Obviously, led by saying these are automotive technologies, so they go through product development cycle, a qualification cycle, but customers are excited about that. And obviously, we're supplying them already out of our global footprint in the meantime while that ramp is still taking place. Harlan Sur: Perfect. Thank you. Operator: Thank you. And our next question comes from the line of C. J. Muse from Cantor Fitzgerald. Your question please. C. J. Muse: Yes. Good morning. Thank you for taking the question. I guess first question on non-wafer revenues. Based on your guidance that business is going to grow 20% in 2025. Curious if you can give a little more color on what's driving that incremental growth And if you could kind of help us understand whether we should, assume similar type of growth into calendar '26? Timothy Breen: Yes. Thank you, C. J. No, it's a great question. And Sam sort of touched briefly on this. And let's talk what is in non-wafer revenue so we're clear on what goes in there. That consists of reticles for masks, for tape-out and non-recurring engineering, increasingly other technology services licensing. It's starting to also be where you're seeing the IP revenue starting to layer in. Sam mentioned MIPS is a driver of that. So look, I think there are some good tailwinds leading to that generally growing. Part of that is higher number of design wins. We spoke about that leads to higher of tape-outs, which tends to positively improve our non-wafer revenue. And then, of course, acquisition of MIPS now starting, I'd say, starting to impact that as well. So I think that is a good trend, and we'll broaden that category going forward in years to come. C. J. Muse: Great. Thank you. And then I guess maybe follow-up on Ross's question around smartphones or smart mobility, sorry. As you think about calendar twenty six and you reflect kind of the reset to pricing, but the hopeful gains in unit volumes. Is that a business that can turn and grow now in calendar twenty six? Or are there still kind of headwinds that we should be thinking about? Timothy Breen: Yeah. No. No. It's a great question. I think let's let's let's break it down into those two pieces. Pieces. As we said on the pricing side, this is dual source business that we took proactive steps to reset pricing with customers in order to gain more share. The calculus there is that's more profitability for GF and it's a win-win us and our customers. So that reset is done and that reset is now in place for the duration of some of those contracts and those contracts now still extend out several years. So we don't expect another kind of step down on the pricing side. And you said, we do expect increased volumes relative to baseline for that. So I think on that dual source component, which is a limited part of that business, that dynamic is there. But then I think what you're seeing on the rest of mobile is, you know, two factors. Right? One is the ramp of more differentiated solutions, what we're doing in the RF front end, Neil talked about Cibic, right? Is an incredibly interesting and exciting silicon germanium technology. Strong customer traction, right? How do you improve performance of low noise amplifiers, power amplifiers in the future? Are the technologies that that, you know, are difficult to do but where GF has a strong track record, and that's just one of the several technologies we're bringing to the mobile market going forward. And of course, a lot of things have cellular connectivity and so the technologies have broader applications as well. So we're very much focused on that differentiation. That will be a mix tailwind over time in mobile. And those new form factors that I spoke about as well, things like smart glasses, increasingly good traction. Too early to call, 2026? But definitely, we think this market, you know, we have plenty of plenty of room to grow and plenty of areas to play within different differentiated technologies we have. Maybe the last comment, some of the customers we've talked about in the onshoring story are also significant players in the handset. And although those ramps largely kind of '27 and beyond as we've talked about, They're obviously, you know, based on diversifying their supply and building a more global sourcing strategy for them. So that'll also be a longer-term, I think, tailwind for our mobile business. C. J. Muse: Thank you. Operator: Thank you. And our next question comes from the line of Krish Sankar from T. B. Cowen. Your question, please. Krish Sankar: Yes. Hi, thanks for taking my question and congrats on the silicon photonics win. Two questions. First one, wafer shipments are up 4% Q o Q despite revenues. And this is for the full year, they're still tracking around 13% shipment on flattish revenues. I'm just trying to figure out what does that imply for ASPs, both blended ASPs and ASP x mobile, and then I have a follow-up. Timothy Breen: Yeah. So that's maybe, you know, a good build on what I just talked about in terms of the pricing dynamics. And so it is very much that story of very specific customers where we proactively chose to make price changes from a share of wallet perspective and increase overall profit dollars to GF and obviously in a way our customers are supportive. That is the vast majority of the dynamic on pricing affecting both the quarter and the full year. Trajectory Even within mobile outside those customers, actually we see mix being a tailwind. As we ramp additional high margin or higher margin differentiated technologies. And across all of the other end markets, that's where we have very much sole source business. And so pricing has been largely stable. And maybe also worth adding that this is the in-year pricing, but even the pricing that we're winning new designs on and as Niels mentioned year on year we're winning significantly more designs. Pricing is very stable. You know, customers are happy to pay for the value of what they're really looking for. Looking for differentiated technology. They're looking for time to market. They're looking for supply security. They're looking for capacity, and they're willing to put, you know, put put the right price on that So we feel the overall price environment remains actually very constructive. Constructive. And Krish, maybe just to add one point to that. I think, you know, critical dynamic you need to continue to focus on is the margin structure within the business. Actually, the correlation I think between where some of the pricing movements versus where the margin is, we sort of dispelled some of that focus around pure ASP. And so from our point of view, the fact that we've incurred some of those trends associated with a limited number of customers in Smart Mobile and still grown margin year over year quarter over quarter I think is a good proof point there to focus on. Krish Sankar: Got it. Very helpful. Then a quick follow-up. On the Silicon Labs' expanded partnership. Is this a share gain thing where SLAB is moving more wafers to global foundries from another foundry, or is it more new chip designs? How to think about that? Timothy Breen: Yeah. It it's it's absolutely a share gain. You know, Silicon Labs, you should ask them about their sourcing strategy. But what they've been clear about with us is that they are very keen to have strong U.S. Sourcing footprint for their business. Today, they do source from other foundries. I think over time, you'd expect that to diminish and given what we're offering them. And again, it's not just The US sourcing sourcing, it's also very strong focus on their technology platforms. Literally, everything they make is our technologies that we support and invest in. And I think it's not just a capacity partnership, it's also a technology partnership. Krish Sankar: Thank you very much. Operator: Thank you. And our next question comes from the line of Joseph Moore from Morgan Stanley. Your question please. Joseph Moore: Great. Thank you. You've addressed a lot the opportunities geopolitically. And I know you have a lot of capacity headroom overall. Can you give us a sense for for that by region and to the extent that you get Silicon Lab type deals in The US or in Europe? Know, do you have capacity to continue to grow those businesses? Do you have space if you need to spend more money to to grow? I think Malta was space constrained at one point. Can you just give us an update on on how that utilization is is by region? Timothy Breen: Yeah. Maybe I'll talk about, you know, how we think about capacity and then maybe Sam can talk a little bit more tactically about utilization. Joe, our footprint utilization, meaning our floor space utilization we still have significant upside or room to grow within our current four walls. In some of our sites, obviously, we're up against the headroom there like in Dresden where we start to make small investments to expand the footprint, converting in that case to our former test facility. Using that space and so on. Malta has significant floor space to grow. So I think we have very I'd say, short time to market for that growth because we're again, we're not building new fabs to get all of that growth started. And what you also have to bear in mind is that we have significant probably the highest we've ever had in terms of level of government incentive programs to support that new CapEx. For sure, in The U.S, but also that's what we expect in Germany, and we will continue to have similar you know, positive support levels in Singapore as we have had in the past there as well. I think it's very, very capital efficient, very short time to market. And with that government support alongside. That said, we're tough on ourselves. We scrutinize every dollar of incremental CapEx. Heavily. Is it based on real demand that we have line of sight of? And is it in those areas that are highly kind of differentiated from a technology point of view. So silicon photonics will definitely prioritize those kind of areas when it comes to the investments overall, we're very disciplined in how we think about adding capacity. Sam Franklin: Do have a follow-up, Joe? Joseph Moore: Yeah. I do. Thank you for that. I I think, you mentioned, the sort of categories of non-wafer revenue. You talked about expedite fees. I'm curious, are you seeing a lot of that at this point? Are there any of the data center markets giving you expedites or just anything new that you see on that front. Timothy Breen: Yeah. So no. Expedite is a is a portion of non-wafer revenue. I'd say, if anything, we do see a little bit more desire for expedites across different markets. I think we also see, you know, specific capacity corridors closer to utilization, which is a great sign of demand for those differentiated differentiated areas. Are we in an extraordinary kind of scarcity situation across every part of the business not yet. But I think you are seeing increasing tightening across those those very differentiated corridors. Niels Anderskouv: If I may add just just on the design win side, talked about in in this quarter and the previous quarter, you know, up 100% in previous quarter, up 50% of the number of design wins. That directly translates into tape outs. You continue to see the number of tape outs coming up, meaning the radical revenue going into non-wafer revenue as well. We expect to continue to grow. This is obviously a good sign for future growth of revenue. Joseph Moore: Great. Thank you very Operator: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Eric Chao for any further remarks. Eric Chao: Thank you, Jonathan. Thank you for joining. Look forward to seeing you at the UBS Conference on December 2, and please do tune in to our investor webinar on December 3. Focusing on physical AI. 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: Ladies and gentlemen, thank you for standing by. The conference will begin shortly. Ladies and gentlemen, thank you for standing by. Welcome to Gilat Satellite Networks Ltd.'s Third Quarter 2025 Results Conference Call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded on November 12, 2025. By now, you should have all received the company's press release. If you have not received it, please view it in the News section on the company's website, www.gilat.com. I would now like to hand over the call to Ms. Jody Berfman, of Alliance Advisors IR. Ms. Berfman, please go ahead. Jody Berfman: Thank you, Hilla, and good morning, everyone. Thank you for joining us for Gilat Satellite Networks Ltd.'s earnings conference call for 2025. With us on the call today are Mr. Adi Sfadia, Gilat's CEO, and Mr. Gil Benyamini, Gilat's Chief Financial Officer. Before turning the call over to management, I would like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. Potential risks and uncertainties could cause actual results to differ materially include global economic conditions, reductions in revenues from key customers, delays or reductions in U.S. and foreign military spending, acceptance of our new products on a global basis, and disruptions or delays in our supply of raw materials and components due to business conditions, global conflicts, weather, or other factors not under our control. The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis only as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. Further information on these factors and other factors that could affect Gilat's financial results is included in the company's filings with the Securities and Exchange Commission, including the latest quarterly report on Form 10-Q. In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful and differ from GAAP. These non-GAAP measures should be considered supplemental to corresponding GAAP figures. With that, I would now like to turn the call over to Gilat's CEO. Please go ahead, Adi. Adi Sfadia: Thank you, Jody, and good day to everyone. Thank you for joining us today to discuss Gilat Satellite Networks Ltd.'s 2025 results. Please note that we are posting a PowerPoint presentation on our website with all the data we will discuss today. The 2025 was a strong quarter for Gilat and showed strong revenue including solid organic growth and adjusted EBITDA performance. Our competitive edge across the satellite communication landscape and success in next-generation satellite programs is clearly translating directly into new orders and growing opportunities. During the quarter, we announced a $66 million private placement from institutional and accredited investors. This demonstrates the confidence of the investment community in Gilat's strategy and performance, providing additional strength to support our next phase of growth. At the end of the quarter, we had a very strong cash position. An example of our efforts to create a competitive edge is our first-to-market integration of AI into our network management system. This marks an important step in bringing AI-driven automation and intelligence to satellite network operations, allowing customers to manage their network with greater efficiency and insight. This reflects our commitment to innovation and our active role in shaping the future of intelligent platform solutions. We expect to introduce additional AI capabilities as we progress with the roadmap development. Third-quarter revenues reached $117.7 million, a 58% increase year over year. Adjusted EBITDA was $15.6 million, 46% above the same quarter last year. Now on to the business review. Gilat Defense continued to invest in sales, marketing, and R&D resources to support business development. Gilat Defense is front and center, actively engaging with customers across North America, Europe, and Asia Pacific. Our unique advantage lies in the combined strengths of Gilat, Data Pass, Wavestream, and Stellar Blue. This collaboration enabled us to deliver comprehensive Satcom solutions that support the full spectrum of defense operations. During the quarter, Gilat Defense received over $14 million in orders through a prime contractor for its DKAT terminals from the U.S. Army and the Department of Defense, broadening our presence across key defense programs. In Israel, Gilat Defense strengthened its relationship with the Israeli Ministry of Defense through a new multimillion-dollar contract for the delivery and integration of satellite communication systems and services. With a robust pipeline, trusted partnership, and proven execution, we are well-positioned to capture additional opportunities as global demand for secure satellite communication continues to rise. Turning to our commercial business, the third quarter delivered strong results driven by new wins, continued adoption of our next-generation platforms, and steady execution across major programs. These results reflect both the rapid evolution of the satellite communication market and Gilat's ability to deliver the technology and performance our customers require. Operators worldwide are investing in flexible multi-orbit ground networks that can seamlessly support fixed broadband, mobility, and government applications. Gilat's SkyEdge platform remains central to this transformation, combining scalability, reliability, and advanced network management via virtualized software-defined ground infrastructure. During the quarter, Gilat received $42 million in orders from leading global satellite operators for SkyEdge IV for use across multiple applications, mainly in-flight connectivity. These systems will expand the worldwide deployment of our platform and strengthen Gilat's position as a preferred choice for next-generation connectivity in a multi-orbit environment. Demand continued to build for Gilat's IFC solutions as airlines and system integrators expand adoption of our technology for next-generation aircraft connectivity. Recently, we received an order of approximately $7 million to supply IFC equipment. This order demonstrates the growing trust of leading aviation partners in Gilat to deliver reliable high-performance connectivity for IFC. During the quarter, Gilat signed a strategic partnership agreement and received an initial order for SkyEdge IV from a leading satellite operator in the Asia Pacific region, supporting both fixed and cellular backhaul connectivity. Together, these wins highlight strong market confidence in our technology and reinforce our position as a key enabler of multi-orbit broadband connectivity worldwide. Gilat was awarded more than $60 million in orders from a leading satellite operator for its Stellar Blue's Sidewinder ESA IFC terminal. With about 300,000 community flight hours and about 350 terminals already deployed, the Sidewinder continues to set new benchmarks in performance, reliability, and experience. Production is ramping up, and we expect increased deliveries with improved margins in the coming quarters. Gilat's Stellar Blue continues to collaborate closely with its partners to secure new fleets and expand its global reach. The growing pipeline in our commercial business continues to benefit from demand momentum and expanding customer adoption across key markets. The combination of major satellite operators' awards, growing IFC demand, and the integration of Stellar Blue testifies to Gilat's leadership in next-generation connectivity, positioning us well for continued growth into 2026. Gilat Peru delivered strong results this quarter, marked by an additional award of $25 million for an expansion project from Pronatel. This is on top of the $60 million projects awarded to us that was reported at the beginning of the quarter for a quarterly total of $85 million. The new awards will extend high-speed connectivity to additional public institutions, including schools, health centers, and police stations, as well as public Wi-Fi hotspots, further advancing Peru's digital inclusion goals. The impact of this project goes beyond connectivity, supporting access to education, healthcare, and public safety while creating the infrastructure needed for future broadband expansion. The project implementation is progressing on schedule, and we continue to anticipate additional large RFPs and follow-on orders for network expansions and renewals in the coming quarters. The experience and expertise gained in Peru are also being applied globally, allowing us to replicate successful models and accelerate digital inclusion programs in other markets. I am pleased to say that we continue to have a strong backlog and a healthy pipeline of opportunities in all divisions. On the strength of our results year to date, improved visibility, and business momentum, we are resetting our full-year guidance. We are narrowing our revenue range to between $445 million and $455 million for a higher revenue growth rate of approximately 47% at the midpoint. We have also narrowed our adjusted EBITDA guidance range, now targeting $51 million to $53 million for a higher growth rate of approximately 23% at the midpoint. Demand across our key markets is accelerating, and the strategic initiatives we have implemented are delivering measurable results. Gilat Defense continues to develop opportunities as governments expand investment in mission-critical secure satellite communications. Our focus remains on converting the growing pipeline into new awards in the United States and allied countries. In the commercial division, we are seeing broader adoption of our multi-orbit SkyEdge IV platform as operators scale their next-generation networks and invest in advanced broadband and IFC applications. Gilat's Stellar Blue is making steady progress as production increases and new fleet wins are secured, further strengthening our position in the global aviation connectivity market. In Peru, project execution remains on track, and we continue to expect additional RFPs and follow-on awards from Pronatel and other public programs. The operational expertise developed in Peru continues to serve as a foundation for similar digital inclusion initiatives globally. In summary, we delivered another strong quarter, validating our diversified growth engines across defense, commercial, and Peru. Gilat is actively strengthening its competitive edge through technological leadership in multi-orbit connectivity and the integration of SkyEdge IV and AI. With a growing backlog, a robust pipeline of opportunities, particularly in the IFC market, and a strong balance sheet, Gilat is well-positioned for sustained profitable growth and continued leadership in the global Satcom market. And with that, I will hand over the call to Gil Benyamini, our CFO. Please go ahead. Gil Benyamini: Thank you, Adi. Good morning and good afternoon to everyone. Before I dive into the numbers, I would like to remind everyone that our financial results are presented both on a GAAP and non-GAAP basis. I will now walk through our financial highlights for 2025. As Adi mentioned, we delivered a strong third quarter, demonstrating continued execution across our strategic priorities and building momentum into the remainder of the year. In terms of our financial results, revenues for the third quarter were $117.7 million, representing 58% growth from $74.6 million in Q3 2024. Importantly, our organic growth quarter over quarter was 19%. In terms of revenue breakdown by segment, Q3 2025 revenues for the Commercial segment were $73 million compared to $33.8 million in the same quarter last year. The 116% growth was primarily driven by the in-flight connectivity vertical, reflecting both the contribution from Stellar Blue and organic expansion. Q3 2025 revenue for the Defense segment was $24 million compared to $31 million in the same quarter last year. The decrease primarily reflects the transition from mature programs to new programs and initiatives that are currently in phase. We secured a number of meaningful orders and awards that are expected to convert to revenues over the coming quarters. As a reminder, our defense business is inherently project-based, with deliveries and revenue recognition occurring over time. Looking ahead, we expect to see growth in this segment as these newer programs continue to scale. Revenues for Peru in Q3 2025 were $20.6 million, more than double the $9.8 million in Q3 2024. The increase was driven by higher revenues related to the new upgrade projects in four of the six regions in which we operate, as well as increased equipment deliveries. Our GAAP gross margin in Q3 2025 was 30% compared to 37% in Q3 2024. The decrease is primarily attributable to lower margins at Stellar Blue as production ramps up, as well as the amortization of purchased intangibles related to the acquisition. GAAP operating expenses in Q3 2025 were $27.2 million compared to $20.9 million in Q3 2024. The increase was primarily driven by the addition of Stellar Blue and the amortization of acquired intangible assets. As a result, GAAP operating income in Q3 2025 was $7.5 million compared to GAAP operating income of $6.7 million in Q3 2024. GAAP net income in Q3 2025 was $8.1 million or a diluted income per share of $0.14 compared to GAAP net income of $6.8 million or diluted income per share of $0.12 in Q3 2024. Moving to non-GAAP results, our non-GAAP gross margin in Q3 2025 was 32%, compared to 38% in Q3 2024. Non-GAAP operating expenses in Q3 2025 were $24.7 million compared to $20.2 million in Q3 2024. Non-GAAP operating income in Q3 2025 was $12.8 million compared to $8.3 million in Q3 2024. The non-GAAP net income in Q3 2025 was $11.8 million or a diluted income per share of $0.19 compared to a net income of $8.1 million or income per share of $0.14 in Q3 2024. Adjusted EBITDA in Q3 2025 was $15.6 million compared to an adjusted EBITDA of $10.7 million in Q3 2024. Moving to our balance sheet, we strengthened our balance sheet and liquidity during the last quarter. In September 2025, the company raised $66 million from leading institutional and accredited investors in Israel. In January 2025, we secured a $100 million credit line from a bank consortium, of which $60 million was used to finance the acquisition of Stellar Blue. The company also generated more than $28 million in cash from operating activities during this quarter. As a result, as of September 30, 2025, total cash, cash equivalents, and restricted cash were $155 million or approximately $94.6 million net of loans compared to $5.5 million on June 30, 2025. DSOs, which exclude receivables and revenues of our terrestrial network construction projects in Peru, were 63 days, similar to the previous quarter. Our shareholders' equity as of September 30, 2025, totaled $391 million compared with $316 million on June 30, 2025. Looking ahead, reflecting our strong performance and visibility into the remainder of the year, we are narrowing our guidance range and raising the guidance midpoints for both revenues and EBITDA. Revenues are now expected to be between $445 million and $455 million, representing year-over-year growth of 47% at the midpoint. The adjusted EBITDA is expected to be between $51 million and $53 million, representing year-over-year growth of 23% at the midpoint. That concludes my financial review. I would now like to open the call for questions. Operator, please go ahead. Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Press star one if you wish to ask a question. If you wish to cancel your request, please press star two. Your questions will be polled in the order they are received. Please standby while we poll for questions. The first question is from Ryan Koontz of Needham. Please go ahead. Ryan Koontz: Great. Thanks for the questions. Really nice quarter, guys. Congrats. Wanted to ask about Stellar Blue and how we should think about that trajectory. Where are we now on gross margins at this point in time? And what sort of improvements do you think you can make in gross margin over the coming quarters? And as well as I also want to ask about the product cycle for this version of Sidewinder. How long do you think that lasts before you really need kind of a next-generation product in production? Thank you. Adi Sfadia: Hi, Ryan. Thank you for the greetings. So Stellar Blue is progressing very nicely. Production is ramping up. We are still behind the targeted gross margin in the first phase of production. We incurred higher expenses than we originally expected. We do believe that during next year, we will see significant improvement in the gross margin that will be combined with orders for line fit on top of the retrofit that we are delivering today. As you can see, we announced $60 million orders, which also included orders for line fit units. We believe that once we start delivering those units, we will see significantly better gross margins. In parallel, the cost reduction efforts are starting to bear fruit, not as fast as we would like, but we see the seeds of it. We believe that next year we will see even a higher reduction in costs. In terms of revenues, it was close to $30 million this quarter. And overall, Stellar Blue was slightly losing. We expect them to be profitable starting Q4. On the next-generation product, we have not announced anything yet. But we are definitely working both on several new programs that will mean once we are ready, we will introduce several new ESA terminals. Our focus today is on the Ku, new version, and also targeting Ka version. And of course, as everyone, we are considering also a version to include Ku and Ka with introducing LEO in Ka, it might be also an appealing offering as well. Ryan Koontz: That's great. Really nice to hear that. And on the Peru front, you talked about these $85 million in orders. Is most of that incremental to your ongoing kind of maintenance contract there? Or is that also a renewal of that maintenance ongoing rate? Adi Sfadia: Yes. The $85 million awards that we received during the last few months are upgrades for additional projects. So it's on top of the existing business that we have with Pronatel. It's not a renewal. Those projects, the original projects, are about to be renewed in four to seven years' time. It depends on every region when it shifts to operation. And those projects include both upgrading the network and maintenance contracts until the end of the period. So some of them are for four years, some for five years, and some for more. We do expect several other projects not necessarily related, but some are also related to those projects in the coming few quarters. It will be renewals of smaller projects in scope and renewals of the services that we provide to operators on top of the networks that we built in Peru. In addition, in Peru, we expect that the government will release several new RFPs in the coming few quarters. It's delayed for more than six months. But we do expect them to be released in the coming few months. Next year is an election year in Peru, so we do expect it to be released. So the awards will be announced before the election. But again, in Peru, we cannot control the government, so we are waiting. Ryan Koontz: Got it. Really helpful. And then on the defense, any impact you are seeing on bookings or product acceptance from the shutdown in the last forty-five days? Adi Sfadia: To be honest, yes. As everyone, we see we are not getting orders because of that. We do not believe that anything is canceled. It's just delayed in new orders. And probably might cause a small delay between the quarters in 2026 because there is a lead time from the day we get the orders, but we do not consider it now as a big impact on our guidance and forecast. Ryan Koontz: Got it. And Gil, any impact from FX from the shekel versus dollar in the quarter? Gil Benyamini: Hi, Ryan. So no, this quarter, we hardly had any impact. We do hedge the shekel. Looking forward, so this effect if we encounter it, it will only be in the second half of 2026. Ryan Koontz: Got it. I think that's all I got for now. Thank you, guys. Adi Sfadia: Thank you, Ryan. See you soon. Operator: The next question is from Louie DiPalma of William Blair. Please go ahead. Louie DiPalma: Adi and Gil, good afternoon and congrats on the guidance raised and the recent awards. My first question is how many Stellar Blue Sidewinder aircraft are online now? I believe last quarter you indicated there were 225 planes flying with the system. I was also wondering, how is the antenna performing in the field in terms of connecting with the OneWeb constellation? Is the performance similar to what Starlink is achieving? Thanks. Adi Sfadia: Hi, Louie. Today there are slightly more than 350 aircraft connected. We deliver more units, but connected is 350 units. With more than 300,000 flight hours. The feedback that we are getting both from the customers and from the airlines is that performance is very good. They are very happy with the performance with a very stringent SLA. The antennas, the OneWeb constellation, it's limited by the modem. So we are bringing give or take close to 200 megabits per second on OneWeb. We can bring more, but it depends on the satellites. And I think that it's more than what you need in the aircraft. So I think that the service is at least in part better than Starlink's. Louie DiPalma: Excellent. And my second question, you discussed on the earnings call two different SkyEdge IV orders that you won that were each worth more than $40 million. Are you able to provide the applications for these awards? And are there others in the pipeline just because these awards seem much larger than your traditional SkyEdge IV? Thanks. Adi Sfadia: Yes. In general, as you know, the SkyEdge IV is a multi-application platform. So with the same platform, you can sell several applications. The main application for the orders is in-flight connectivity. So it's to increase the existing customer deployment globally with SkyEdge IV in-flight connectivity application. Louie DiPalma: Great. But for those orders, they do not, they're not on the same planes as the Stellar Blue Sidewinder, right? Adi Sfadia: Can be on the same plane. Okay. You know, the Sidewinder is a multi-orbit antenna. So on, for example, on the FCS, the old Intelsat, the old Gogo, you have today we start with both the flat modem and one web modem. Louie DiPalma: Right. Yes. That seems like a in the future for you to definitely add Gilat modems to a future successor OneWeb constellation since it seems superfluous to have two different modems on the same plane. Adi Sfadia: Yes. The industry wants to have virtualized or several waveforms that will run on the same hardware, something that everyone wants and then Gilat has the ability of course to deliver like that based on the roadmap and the relevant customers. In addition, this quarter we announced that we signed a strategic agreement with an Asian Pacific operator for SkyEdge IV. So we added another customer to the SkyEdge IV platform. And over there the focus will be fixed application and I would say especially cellular backhaul. Louie DiPalma: Great. And my third question for the $60 million Stellar Blue order, you mentioned how for some of the installations, it will support I think you said line fit. Correct. But what is the timing of when the factory installations with Boeing will start? Adi Sfadia: So we are broadcasting. We expect to get some of the certification before the end of the year. That will allow in-aircraft installation and some at the beginning of next year. We will be able to have a full installation towards mid-next year. Louie DiPalma: Great. So by the middle of 2026, that's just there. Excellent. And on my fourth and final question, as it relates to the Stellar Blue milestones, I believe one of the milestones, the second one, was about attaining $100 million in new Stellar Blue backlog by the end of 2025. And I know you received that $60 million order, but do you expect that milestone to be hit? Adi Sfadia: This is a good question. The milestone is until give or take mid-December. We are in advanced negotiation to get a very large order from one of our customers. And we want the order as soon as possible. So there is a decent chance that we will need to, we will be able to achieve the milestone and pay the earn-out. It still needs to comply with several commercially customer commercially requirements and relevant gross profits and things like that. But in general, we are on track. Louie DiPalma: Okay, great. Thanks for the answers. Operator: The next question is from Chris Quilty with Quilty Analytics. Please go ahead. Chris Quilty: Thanks, guys. Had a couple of questions. Revenues were down sequentially and obviously you're ramping production, but is that more timing of orders or is there a seasonality component? And should we expect revenues to continue to ramp? And is there seasonality in Q4? Adi Sfadia: In general, we are delivering mainly the terminals, but there are some auxiliary and avionics that is one time per quarter. So it might create some bumps during the quarters. In general, the last quarters' production is stable. We managed to overcome the supply chain issues that we had with one of the components. So we do expect to ramp up production in Q4. We can deliver around 70 to 80 units per month and we are on track to reach that. I believe that next year we'll be able to deliver slightly more than that. Chris Quilty: Good. And I think you had originally talked about 100 a month earlier this year. Is that the target for '26? Adi Sfadia: Something like that, yes. Subject of course to backlog and orders, but something like that is what our target for next year. Chris Quilty: Got you. And I think when you acquired Stellar Blue, it had about 1,000 in backlog. Is the backlog up or are you working down the backlog from here? Or I should say maybe where do you expect as you exit the year with large orders that you expect to close, would the backlog be up or down from that? Adi Sfadia: It was slightly below 1,000 units in backlog. And we are give or take now at the same level that we were because we received a large order at the beginning of Q3. If the order that we are now negotiating will mature, I believe that we'll end up the year with an even higher backlog than we entered the year. Chris Quilty: Got you. And again, I know the original target was exiting the year with 10% EBITDA. I'm assuming you're not going to hit that because you're behind with the component issue. But since you just raised EBITDA guidance, where across the portfolio did you make up the difference for Stellar Blue coming up a little bit short? Gil Benyamini: Yes. So we do have a very nice growth that we see in the commercial and also on the Peru side. They outperform our EBITDA expectation. On the defense, as we said at the beginning of the year, we significantly increased our investment in increased sales and marketing and the R&D investment in order to support future business development. And it seems on track. We saw very nice orders this quarter. We hope that the shutdown will end soon and we'll see also additional orders as we expect Q4 to be strong in booking as well. And we expect to see revenue growth also next year. Chris Quilty: Okay. You mentioned commercial and specifically cellular backhaul, has been sucking wind for the past year, was it just a good quarter? Or do you see that trend in cellular backhaul starting to gather steam? Adi Sfadia: It was a relatively small order on cellular backhaul. The main growth on the commercial side is the IFC business that we have and slightly on the fixed side, but the main growth engine is IFC. Chris Quilty: Gotcha. And back to Stellar Blue. Sorry. There's the third earn-out is based upon the four strategic wins. Have you closed any of those? Or is the fourth quarter large order associated with that? And how do you feel still on track for those events? Adi Sfadia: So up until today, we haven't closed any strategic deals. The large order is not associated with a new strategic deal. It comes from existing customers. We started several negotiations with customers that can be considered a strategic deal. Remind everyone that the strategic deal is something like, for example, an additional line fit agreement with a minimum commitment of at least $35 million with a significant gross margin. And we are in initial stages of discussion. So I can't predict right now if a contract will be signed until mid-June next year. But no doubt strategic deals will increase significantly our addressable market. So it's something that we invest a lot in and our efforts are on that. Chris Quilty: Quick question. I know you did a 6-K when you filed for the replacement, but I didn't see a 6-K when it closed. Is it fair to assume that all the terms in the original K were the same for the close? Gil Benyamini: Yes. The money received, $66 million, net of slightly below $1 million of costs. Chris Quilty: Right. And just to confirm if you could give it later, but what was the closing share count? I just want to confirm that. And I guess the other question was CapEx was up kind of big in the quarter. Was there anything specific going on there? Gil Benyamini: So the closing share count is a little bit above 64 million. And what was the second half? Sorry, I didn't hear it clearly. Chris Quilty: CapEx. The CapEx. Gil Benyamini: So, I mean, CapEx is going as usual. I mean, it's within the original planning, a little bit higher than last year, but as expected. So no real news over there. Chris Quilty: Got you. And then maybe final one for you, Gil. I mean, obviously, this was a Stellar Blue drag on the gross margins, which kind of ticked down below 30% for the first time in a while. Where do you expect to sort of, I could say, exit Q4, but if we look at maybe 2026, I know you're not providing guidance, are we back more at the mid-thirty percent gross margin? Is that product line picks up? Gil Benyamini: Yeah. I believe that this would be a fair statement. Also, we have a burden in the gap of about 2% in our gross margin of depreciation of the backlog. So this will be gone sometime during the first half of 2026 or maybe even before. And then we'll get these 2% in the gap as well. So I think that the mid-30s are a fair statement. And of course, as more line fits and the cost reduction efforts kick in, we may see even higher gross margins looking further. Chris Quilty: Very good. Thanks, guys. Great results. Gil Benyamini: Thank you, Chris. Operator: Please standby while we pause for more questions. There are no further questions at this time. Mr. Benyamini, would you like to make a concluding statement? Gil Benyamini: Yes. I want to thank you all for joining us on this call and for your time and attention. We hope to see you soon or speak with you on our next call. Thank you very much and have a great day. Operator: Thank you. This concludes Gilat Satellite Networks Ltd.'s Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Good morning, everyone. And welcome to the Abeona Therapeutics third quarter 2025 conference call. At this time, all participants are in a listen-only mode. The floor will be opened for questions following the presentation. If anyone should require operator assistance during this conference, please press 0 on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Gregory Gin, VP of Investor Relations and Corporate Communications at Abeona Therapeutics. Greg, the floor is yours. Thank you, Jenny. Gregory Gin: Good morning, and thank you for joining us on our third quarter 2025 results conference call. During this call, we will refer to the press release issued this morning, announcing the financial results, which is available on our corporate website at www.abeonatherapeutics.com. We anticipate making projections and forward-looking statements during today's call, which are made pursuant to the Safe Harbor provisions of the federal securities laws. Forward-looking statements are based on current expectations and are subject to change. Actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those outlined in our Form 10-Ks and periodic reports filed with the Securities and Exchange Commission. These documents are available on our website at www.abeonatherapeutics.com. Now joining me today with prepared remarks are Dr. Vishwas Seshadri, Chief Executive Officer; Dr. Brian Kevany, Chief Technical Officer; Dr. Madhav Vasanthavada, Chief Commercial Officer; and Joseph Walter Vazzano, Chief Financial Officer. After the prepared remarks, we will conduct a Q&A session. With that, I will now turn the call over to Vishwas Seshadri to lead us off. Vishwas Seshadri: Thank you, Greg. The 2025 was marked by significant operational progress as we continue to scale the ZivaSkin commercial launch to meet growing patient demand. While our first patient treated has shifted to 2025 due to optimization of a product release assay, our conviction in our ability to achieve our 2026 launch goals remains steadfast based on trends in patient demand, treatment center expansion, and market access. We are seeing growing patient demand for ZivaSkin, the first and only autologous cell-based gene therapy for the treatment of adult and pediatric patients with recessive dystrophic EB or RDEB. We also continue to strategically expand our qualified treatment center or QTC network. The activation of a highly recognized EB center, Children's Hospital Colorado, brings our total activated centers to three. Furthermore, we've established a strong foundation with broad market access, which is essential for sustained commercial success. In summary, despite the temporary delay in the first patient treatment, we are well-positioned for launch success in 2026. Before we dive deeper into our commercial launch progress and momentum, I now hand the call to our Chief Technical and Scientific Officer, Dr. Brian Kevany, to briefly highlight the release assay optimization. Brian Kevany: Thanks, Vish. And hello, everyone. As we continue the ZivaSkin launch, we remain dedicated to maintaining the highest standards of quality in the manufacturing of personalized drug products for each patient. During the third quarter, a full batch of drug product was manufactured following a patient biopsy but could not be released due to a performance issue in one of our release assays. Assay retesting using established gold standard USP sterility methods confirmed the sterility of the product, but unfortunately, those test results were not available until after the lot's expiration date, so they could not be used to release the lot. As a proactive measure to ensure product quality, we temporarily paused collecting additional patient biopsies so that we could conduct a thorough investigation, run additional tests, and further optimize the new release assay. Following successful completion of optimization, validation, and the necessary regulatory submissions, we resumed biopsy collection in November 2025. We now anticipate patient treatment starting in 2025. I will now hand the call over to Chief Commercial Officer, Madhav Vasanthavada, to discuss our commercial launch progress. Madhav Vasanthavada: Thanks, Brian. Hello, everyone. Our launch momentum continues to accelerate on multiple fronts. Patient demand continues to build, our relationships and trust with qualified treatment centers have grown stronger, and patient access to ZivaSkin across all payer types has continued to broaden. On our second quarter call, we mentioned more than a dozen initial patients were identified at the first two qualified treatment centers. Of these patients, we have already received ZivaSkin product order forms, or ZPOFs, for 12 patients. A ZPOF is an informed consent generated by the QTC physician after the patient has been consulted, a treatment decision has been made, and the patient and their families have decided to move forward. Insurance prior authorizations have been obtained for several patients already, and we expect these patients to be biopsied over the coming months as and when full financial clearance is in place. We are happy to also report that demand for ZivaSkin continues to grow. The number of identified eligible patients at our QTCs who are motivated to initiate the treatment process has now more than doubled to approximately 30 patients, up from the 12 plus mentioned on the second quarter call. At the same time, the broader pool of potential ZivaSkin candidates at non-QTC referral sites continues to increase as our field force and promotional activities generate more ZivaSkin awareness in the marketplace, and many of these referral sites have initiated patient referrals to the qualified treatment centers, which is exactly what we were hoping for. Regarding QTC activation, we are delighted that Children's Hospital Colorado is our newest ZivaSkin qualified treatment center. Children's Hospital Colorado has an expert multidisciplinary team with years of EB experience, and their commitment to onboarding ZivaSkin speaks to their belief in the benefits this therapy can bring to RDEB patients. Activation of Children's Colorado brings the number of ZivaSkin qualified treatment centers to three, alongside Lurie Children's Hospital of Chicago and Lucile Packard Children's Hospital of Stanford. We are also in active discussions with several EB centers across the US to strategically expand the geographic footprint of ZivaSkin even further. These centers are advancing through the various stages of site onboarding, and we'll continue to announce new centers as they are activated. Finally, regarding market access, we have seen a steady cadence of positive coverage decisions from both national and regional commercial health plans in the six months since approval. Importantly, policies covering ZivaSkin have been published by all major commercial payers, including UnitedHealthcare, Cigna, Aetna, Anthem, and the majority of Blue Cross Blue Shield plans, all collectively covering more than 80% of all commercially insured lives. Now on the government payer front, for Medicaid, we are happy to report that ZivaSkin now has received baseline coverage across all 51 state Medicaid programs in Puerto Rico, effective 10/01/2025. Moreover, multiple state Medicaid programs have already published policies covering ZivaSkin, signaling that payers recognize the value ZivaSkin brings to their patients and the healthcare system. As another major highlight, CMS has established a permanent product J code for ZivaSkin that will go into effect on 01/01/2026. We believe that this product code will simplify claims and reimbursement processing between our QTCs and all payer types and will further support hospital adoption for ZivaSkin. In summary, we are very encouraged by the growing patient demand, patients actively progressing toward treatment, continued growth of the QTC site network, and a favorable market access landscape for ZivaSkin. And we are looking forward to a strong start in 2026. With that, I'll now pass the call over to our Chief Financial Officer, Joseph Walter Vazzano, to discuss our financial results. Joseph Walter Vazzano: Thanks, Madhav. I would like to remind everyone you could find additional details on our financial results for the three and nine months ended 09/30/2025, in our most recent Form 10-Q. Starting with our financial resources, we had cash, cash equivalents, restricted cash, and short-term investments totaling $207.5 million as of 09/30/2025. This robust cash position provides us with significant financial flexibility as we execute on the ZivaSkin commercial launch. The current cash position, without accounting for anticipated revenue from ZivaSkin, is expected to be sufficient to fund current and planned operations for over two years. Turning to the statements of operations, research and development, or R&D spending, for the three months ended 09/30/2025 was $4.2 million compared to $8.9 million for the same period of 2024. This reduction was primarily due to cost capitalized into inventory and the reclassification of selected costs, such as engineering runs and other production costs, to selling, general, and administrative expense, or SG&A, following ZivaSkin's FDA approval. SG&A expenses were $19.3 million for the three months ended 09/30/2025 compared to $6.4 million for the same period of 2024. This increase reflects the reclassification of R&D expenses as noted, along with increased headcount and professional costs associated with the commercial launch of ZivaSkin. Our net loss was $5.2 million for 2025, or negative 10¢ per basic and diluted common share, compared to a net loss of $30.3 million in 2024, or negative $0.603 per basic and diluted common share. In terms of upcoming investor relations activities, we plan to participate in the Stifel 2025 healthcare conference tomorrow. With that, I'll pass the call back to Vish for additional remarks before opening the call for Q&A. Vishwas Seshadri: Thank you, Joe. Turning briefly to our pipeline, we have two key updates. First, our gene therapy program for X-linked retinoschisis, ABO503, has been selected to participate in the FDA Rare Disease Endpoint Advancement (RDEA) pilot program. This selection will provide opportunities for enhanced communication with the FDA to accelerate the development and validation of product-specific novel efficacy endpoints for the program. Second, we have strengthened our management team with the appointment of Dr. James A. Gao as the Senior Vice President, Head of Clinical Development and Medical Affairs. Dr. Gao brings over twenty years of industry experience and is a recognized expert in gene therapy, especially in ophthalmology, which will be valuable as we advance our pipeline. In closing, while the first patient treatment has shifted to 2025, we are encouraged by the doubling of identified patients from 12 product order forms, the expansion to a third QTC, and the broad and rapid payer coverage across commercial and government plans. This progress underscores the high value proposition of ZivaSkin for the RDEB community. With that, I will now open the call for Q&A. Jenny, please open the Q&A session. Operator: Thank you very much. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your phone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For anyone using speaker equipment, it might be necessary to pick up your handset before you press the key. Please wait a moment whilst we poll for questions. Vishwas Seshadri: Thank you. Operator: Our first question is coming from Maury Raycroft of Jefferies. Maury, your line is live. Amin: Hi. Thank you for taking our questions. This is Amin on for Maury. A couple of questions from us. You mentioned receiving ZivaSkin product order forms for 12 patients. What's the expected timeline for these patients to receive treatment at this point? And I have a follow-up. Vishwas Seshadri: Yeah. Thank you for that question, Amin. I'll request Madhav to take that one. Madhav Vasanthavada: Hey. Thanks, Amin, for the question. So these patients, as I mentioned, the product order form is the first step. And after that, there are insurance discussions that have been ongoing between the qualified centers and the payers. For many of these patients already, we have a prior authorization. Some of them have already been scheduled for biopsy in November as well as in 2026. So we expect that if all paperwork goes through the administrative process in the coming months, we will treat these patients. Vishwas Seshadri: Okay. Helpful. Amin: Thanks. So thanks, Madhav. The only point I want to add there, Amin, is that as Madhav mentioned, these 12 patients are at various points in their journey. To generalize how much time it'll take for these 12 patients to come all the way through the funnel into treatment, it's a hard thing to do at this point in time. But what we believe is as we start to treat patients, this is going to normalize. So metrics in terms of time taken from a ZPOF to various time points in the journey, we'll have a better idea having been through that process for a bunch of patients, which we should have in the first quarter of 2026. Amin: Okay. Thanks. And of the 12 ZivaSkin product order forms, how many are from patients who were referred to QTCs versus patients already being treated in these sites? And what's your timeline estimate for achieving profitability at this point? Is that bumped by a quarter based on the current delay? Madhav Vasanthavada: Yeah. On the topic of the first question, the vast majority are at the QTCs, Amin, and there are patient referrals that already have been initiated. And those patients will go through the consult process as well. But for the 12 patients that we've talked about, the vast majority are homegrown, you know, the patients at the QTCs. Yeah. And also, Amin, to your second part question, which is how does it impact the time to profitability? We don't see a significant impact. I think in the past, we have guided that in the first half of 2026, we should be a profitable business, and that continues to be our projection. So we do not see the first patient treatment shifting to quarter four significantly impacting that time frame. Thanks. Operator: Okay. Thank you very much. Our next question is coming from Kristen Kluska of Cantor Fitzgerald. Kristen, your line is live. Rick Miller: Hi. This is Rick on for Kristen. Thanks for taking our questions. To start out, are you still planning on shutting the plant down in December for the routine maintenance? And if so, what's the timeline around reopening there? Vishwas Seshadri: Yeah. No. Thanks for that question, and it's a great question. Yes. We do have a shutdown which starts approximately, you know, the second week or mid-December and takes about a month. Brian, you can add some color if I missed the timing or anything else to add there? Brian Kevany: No. That's accurate. Yeah. And this is really a mandated FDA requirement to have this type of shutdown at the end of the year for general maintenance and recalibration of equipment. But, yeah, mid-December to early January is the current schedule for the shutdown. Rick Miller: Okay. And on the temporary pause while you were working on the optimization, were there any biopsies that were collected but not yet sent to manufacturing before the temporary pause and reoptimization? And if so, will you be able to just sort of move into manufacturing with these, or will you need to re-biopsy any patients? Vishwas Seshadri: Yeah. The answer is no. We paused on collecting any further biopsies when this happened. Not from any regulatory action or anything, but our own abundance of caution to avoid patients, you know, giving their biopsies and especially until we solved this problem, we were not we didn't know what exactly the problem was, how long it'll take for us to resolve it. So we didn't take any chances there. Rick Miller: Okay. Thank you. Operator: Thank you very much. Our next question is coming from Stephen Willey of Stifel. Stephen, your line is live. Josh: Hey, good morning. Thanks for taking our question. This is Josh on for Steve. Is there maybe any color you can share related to the current lead time between receiving these ZivaSkin product order forms following initial patient identification efforts, and do you anticipate this to maybe come down over time as patient demand continues to increase? Madhav Vasanthavada: Yeah. I can take that, Josh. So, yes, we do expect this will reduce over a period of time. Like I mentioned earlier, some of these patients, even though the ZPOFs, we received a couple of months ago, they're already scheduled for biopsy collection starting next year. And we have resumed biopsies already. So as more and more patients come through and the processes at the qualified centers, and the payer policies with payer policies coming through nicely, we expect this overall time to reduce. At this point, when we mentioned on our second quarter call, it's about a three-month process is what it takes, you know, from the time that you have a patient identified, consulted, prior authorization, you know, from a clinical standpoint and any agreements that take place. And as more and more patients go through the queue, we should expect that process to come down, and we'll guide more in terms of what we are seeing over a period of the next quarter or so. Vishwas Seshadri: Yeah. And the only other thing I would add there, Josh, is that the very first few patients at the time when their prior authorization and letters of agreements were going through, the policies were not published by some of these payers. They have come in more recently. So that's the basis why we believe that for the future patients coming through the funnel, that time should reduce because the policy is already in place and we don't need exceptions for the patients. Madhav Vasanthavada: Right. I'll just say that this is nothing new about ZivaSkin. I mean, right, I mean, any cell and gene therapy that has launched goes through these kinds of processes. And the centers that we are working with are super experienced about working with cell and gene therapies. So we got a good team in place. We've got a good market access team on our side in place. And the receptivity that we're getting from insurance companies and the willingness for the payers to work with centers to expedite this process is there. So as more and more patients go through for a given payer, that time for agreements will also we expect that to come down. Josh: Okay. Appreciate the color. Thank you. Operator: Thank you very much. Our next question is coming from Ram Selvaraju of HC Wainwright. Ram, your line is live. Ram Selvaraju: Thanks so much for taking my question. Firstly, I was wondering if you could give us some additional granularity on what you the attrition rate, if any, to be among those patients for whom ZPOFs have been received. You know, before you go through the entire biopsy, cell graft engineer, and subsequently administration of the graft. You know, just give us a sense of, you know, of those initial 12 patients. Just taking that number as an example. How many do you anticipate are going to go successfully through the entire treatment process? Madhav Vasanthavada: I would say it's a pretty high level of conversion, Ram. These patients, because these are the patients that the physicians obviously, you know, these are motivated patients, they want to move forward, which is why we have the ZPOF already come through. And insurance clearances and those processes are work we are working through those. So we expect now with this release assay optimization also behind us, we expect as biopsies come through to be able to treat these patients. Of course, these are engineered cell therapies, right, that we are talking about. But our success rate has been, from a clinical trials perspective, has been pretty high. So for those reasons, we expect that these patients will have a pretty high level of conversion rate now that we have these ZPOFs already in place for these patients. And the fact that when we mentioned a little over a dozen patients identified at these 12 ZPOFs already shows that none of the patients that were identified, almost none of the patients that were identified early on actually said that, no, I'm not interested in getting ZPOF. I think that to me is a pretty, pretty strong metric. And as more patients get into this funnel, and as patients get treated, you can already see the word-of-mouth and the data percolating, which only motivates additional patients to come through the process. Vishwas Seshadri: And I just wanted to add one more color to that, Ram. If you look at the number of patients that have been identified just organically within the QTC that Madhav mentioned has more than doubled to about 30 patients or so. We're not even adding the referred patients. So if you add that, the last call we had mentioned close to 50. That number has gone way north, and we are not even talking about that right now. And in some ways, from that big pool of identified patients, the QTCs are acting as kind of gatekeepers and giving us the ZPOFs because they also want to regulate how much they can treat and, you know, the first 12 patients are earmarked as the highest priority. And so we do not anticipate attrition because it's for them it's not easy to get the flood either. So this is going to be just a matter of conversion. Ram Selvaraju: Okay. That's very helpful. And then with respect to the prior authorization process or prior authorization protocol that you are seeing with respect to payers. Can you maybe describe for us what that looks like? And I'm in particular in situations involving RDEB patients with large chronic open wounds that have persisted for an extended period of time. What is the prior authorization requirement, if any, specifically in those types of patients that's being mandated by payers at this time? Thank you. Madhav Vasanthavada: Yeah. So the prior authorization process, Ram, essentially it's I can break it into two steps. One is a clinical prior authorization, and then the other is the financial, you know, discussion that takes place after a patient is clinically given a green signal from the insurance company. The prior authorization most payers, especially for these types of therapies, tend to follow the inclusion exclusion criteria of the clinical trials. And then there are some payers who also cover it, you know, to the label. Right? So in terms of the requirements, it's often pretty straightforward. Make sure that the patient has recessive dystrophic EB, which means the genetic testing or confirmation of the mutation of the collagen seven a one gene that they have recessive dystrophic EB. In our clinical trial, there were certain wound size requirements. We are seeing most of the insurance companies now, for example, UnitedHealthcare, covering the label, meaning no real requirement on the size of the wound for these patients. Some payers have age six years and above, but our FDA label is broader, right from birth. So certain payers have those policies in place. But when you do have a payer that, let's say, it's a five-year-old patient that requires a treatment, we are seeing that with the letter of medical necessity, you're able to overturn that. Because you're able to explain as to what the impact ZivaSkin is bringing, and we are successfully overturning those initial PA denials that typically happen. So that's the process that takes place. And once you have that clearance, then the next step is the financial agreement between the payer and the qualified center. Ram Selvaraju: And no meaningful step edits? Correct? Madhav Vasanthavada: No. We have not seen any step edits. Thank you. Operator: Thank you very much. Just a reminder there, if you have any remaining questions, you can still join the queue by pressing star 1 on your keypad now. Our next question is coming from Jeffrey Michael Jones of Oppenheimer. Jeff, your line is live. Jeffrey Michael Jones: Good morning, guys, and thanks for taking the questions. Can you comment on, of the 12 patients in process, how many have had their biopsies done today? And have any of those doses passed the revised sterility release criteria? Or with the new assay rather? Vishwas Seshadri: Which you want me to take that? Jeffrey Michael Jones: Sure. Yeah. I think as of this point, we announced that we have resumed biopsy. Right? We have biopsied a patient. But we're not guiding how many are going to be biopsied within the time window for this year versus how many will spill over because that's an ongoing process that hasn't settled down. So it's too early. We're gonna be talking about that in our next quarterly call. Jeffrey Michael Jones: Okay. Can you remind us then in terms of revenue recognition from the time that you dose these patients, how long until revenue recognition? Vishwas Seshadri: The revenue is recognized when the product is applied on the patient from an accounting standpoint. Obviously, the cash flow has these two accounts payable that's involved. That's different for different, you know, it's governed more by trade policies with each site. But for reporting purposes, the revenue is recognized the day of administration. Jeffrey Michael Jones: Great. Appreciate it, guys. Thank you. Operator: Thank you very much. Our next question is coming from James Francis Molloy of Alliance Global Partners. James, your line is live. Matt: Hi, guys. Thank you for taking our questions. Matt on for Jim today. Just one from us. Of the 30 patients that are slated to receive ZivaSkin, how many are on background VYJUVEC currently or have failed VYJUVEC? Madhav Vasanthavada: We don't have visibility into that, Matt. I don't we would never have visibility into that, but we expect the vast majority would be on VYJUVEC and or on FILZOVEST. Because that's what we hear from the patient community. That these patients require, you know, there's an unmet need for multiple, you know, treatment options. We hear that from patients as well as from physicians across the board. So we would expect those patients and from an access standpoint, that only helps us, right, because these patients have their copies of genetic records and other letters and background already in place. So that physicians can provide that information to the payer because they have received prior other gene therapies. But we don't know the actual, you know, exact count. Matt: Got it. Thank you guys for taking our question. Operator: Thank you very much. And our next question is coming from David Bautz of Zacks Small Cap Research. David, your line is live. David Bautz: Hey. Good morning, everyone. Just one for me this morning. So UMass was a center in the phase three study and, of course, noticed that they are not signed up as a QTC yet. I'm curious if there's any hold up there or why they are not listed as a QTC or if they haven't signed on yet. Vishwas Seshadri: Yeah. I can take that question. Good morning, David. Different sites have different reasons. I don't want to call out specific reasons for specific sites. Sometimes sites would intend to onboard and activate with us, but there could be financial constraints on how the site is faring. Sometimes, you know, the types of trade policies that we're willing to accept may not be fitting within their framework. Right? So there's multiple different reasons why a given site may not be onboarded yet with us as a ZivaSkin site, but we're not going to be discussing specific sites' hurdles on why they haven't been activated despite the fact that they've got experience with handling ZivaSkin. I hope that gives some color to the types of reasons. David Bautz: Yeah. Actually, that's great. I appreciate it. Operator: Thank you very much. Well, we appear to have reached the end of our question and answer session. So I will now like to turn the call back over to Vish for closing comments. Vishwas Seshadri: Thank you very much, Jenny, and I really appreciate everyone joining us today for the call. And we look forward to talking to you soon. Bye-bye. Operator: Thank you very much. This does conclude today's call. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation. Goodbye.
Operator: Good morning. At this time, I would like to welcome everyone to Creative Realities, Inc.'s 2025 Third Quarter Earnings Conference Call. This call will be recorded and a copy will be available on the company's website at cari.com following its completion. Creative Realities has prepared remarks summarizing the interim results for the quarter along with additional industry and company updates. Joining the call today is Rick Mills, Chief Executive Officer, and George Sautter, Chief Strategy Officer and Head of Corporate Development. Mr. Sautter, you may proceed. George Sautter: Thank you, and good morning, everyone. Welcome to our earnings call for the third quarter ended September 30, 2025. I would like to take this opportunity to remind you that remarks today will include forward-looking statements. The words anticipated, believes, expects, intends, plans, estimates, projects, should, may, propose, and similar expressions or the negative versions of such words or expressions as they relate to us or our management are intended to identify forward-looking statements. Actual results may differ materially from those contemplated by such statements. Factors that could cause these results to differ materially are set forth in our Form 10-K and other filings with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today. And we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our public filings and in our earnings release that was issued this morning. We believe the use of certain non-GAAP measures such as adjusted EBITDA and several other important KPIs represent meaningful ways to track our performance. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities. Rick Mills: Thanks, George. Morning, everybody. Appreciate everybody joining today's call. We also want to take this moment to welcome all the team members from Cineplex Digital Media who are joining the call for the first time. As many of you are aware, we completed the purchase of Cineplex Digital Media or CDM just last week on November 7. This was a tremendous effort by everyone here involving a great deal of due diligence, strategic analysis, and, of course, the arrangement of appropriate financing to get the transaction across the finish line. I'll speak about this more in a moment, but in a nutshell, we just couldn't be happier with this acquisition. This is the one that we believe allows us to leapfrog the competition in North America. Doubling the size of the company puts us on an accelerated growth trajectory to significantly improve bottom-line results. And as many of you know, we've talked about this transformational acquisition for the past year and a half and it has finally come to fruition. But first, let me give you an overview of the quarter. We posted revenue of $10.5 million in Q3, versus $14.4 million in the prior year period. While gross profit was $4.8 million as compared to $6.6 million in 2024. A $2 million order slipped from the third quarter into the fourth quarter negatively impacting our results. However, we do not believe this revenue has been lost; it's just been delayed. As we have discussed previously, we often do not control the sales cycle or the cadence of deployments by our customers. And working with our target enterprise customers can involve delays. Our pipeline still remains strong, and we believe that we are close to converting significant engagements that will reward our shareholders for their patience. However, we also recognize the need to improve the rate of conversion. Yesterday, we announced the hiring of a Chief Revenue Officer, Dan McAllister. Dan joins CRI this coming Monday with a clear mandate: improve our new customer acquisition velocity across North America. Dan and I will be working hand in hand to reorganize our sales force and reorganize our go-to-market strategy with a shared vision: grow our recurring revenue, and push opportunities through the pipeline quicker. With that said, our third-quarter consolidated gross margin was 45%, roughly in line with last year's 46%. As of December 30, 2025, we had an annual recurring run rate or ARR of $12.3 million versus $18.1 million at the end of the third quarter in 2024. Adjusted EBITDA was $800,000 for the third quarter versus $2.3 million last year. Now let's talk a little bit more about our acquisition. We purchased CDM for $70 million Canadian, approximately $50 million US, after many months of due diligence and negotiation. The business is a great addition to Creative Realities. And as I first discussed on a call following our announcement, the company is a leader in providing data experience-based digital marketing solutions across North America. Over 60% of the revenue is recurring, and approximately 84% of sales are based in Canada. CDM posted revenue of just under $56 million Canadian dollars in 2024 and is on track to deliver 25% top-line year-over-year growth in 2025. It operates in more than 6,000 locations that it has signage deployments in, approximately 30,000 endpoints including such well-known brands as Scotiabank, RBC, AMC Theatres here in the US, and, of course, Tim Hortons in Canada. And it was recently made the exclusive partner for the North Carolina educational lottery retail deployment. This in itself was a huge win: a $54 million deployment over a ten-year period. In addition, with the acquisition of CDM, we acquired Canada's largest mall retail media network, which will generate over $32 million Canadian or $25 million US approximately, of advertising sales revenue this year. This digital out-of-home or Dooh media network has over 750 screens with exclusive representation and revenue sharing across 95 shopping destinations. These locations include 76 out of the 100 most productive Canadian shopping centers, nine out of the 10 busiest malls in Canada, and we serve approximately 750 million visitor or shopper visits annually. And by the way, this is the first and only mall network certified by the Canadian Out of Home Marketing and Measurement Bureau or what is referred to as COME. All in all, through this transaction, we have more than doubled the size of the company, significantly increased our operations outside the US, and opened new avenues for accelerating growth going forward. CDM serves thousands of QSR restaurants, financial and retail establishments across Canada. Combine that with our US coverage, it immediately places us in a strong position to take advantage of the explosive growth going on in retail media networks across North America. From a technology standpoint, these CDM customers bring a strong opportunity for CRI's broad product portfolio of solutions to improve the customer purchase experience. Driven by digital hardware installation, the management of retail media networks, and professional support services. By the way, in addition, CDM has a creative agency of record credentials. They do very high-end quality content all around content design and creation. In addition, while CDM currently licenses certain software applications from third-party providers, the combination with CRI including our ReflectVue, and complete and Clarity CMS platforms, as well as our AdLogic ad server and AdLogic CPM Plus our CMS and AdTech platforms, will provide significant synergies to accelerate growth across the business. Overall, we believe CDM will rapidly develop and elevate our data science and content capabilities while adding the scale we need to thrive in an increasingly competitive, rapidly expanding marketplace. Given CDM's large customer base and operating footprint, we expect that our unified organization will see higher top-line performance and improved bottom-line results in the quarters to come. As previously disclosed, the acquisition is anticipated to provide synergies of at least $10 million across North America on an annualized basis by 2026. This is really a reflection of the operating efficiencies, margin enhancement opportunities, and the adoption of our CMS and ad tech platforms throughout the CDM customer base. Taking these synergies into account across the new combined company, and based on CDM's business for the twelve-month period ending September 30, 2025, we calculate our purchase price to read somewhere between three and four times the adjusted EBITDA of CDM. On a forward-looking basis, we anticipate total company revenue to exceed $100 million in 2026, with an adjusted EBITDA margin in the high teens. Once all the synergies are realized, we expect adjusted EBITDA margins will exceed 20% and free cash flow generation will be significant. We financed the CDM acquisition through a combination of debt and preferred equity as George will discuss shortly. He'll go into the details. Simultaneous with the transaction, the company increased the size of its board from four to seven individuals, appointing three new directors. I want to take this time to welcome Dan McGrath, who is the Chief Operating Officer of Cineplex, along with Tom Ellis and Mike Bosco from North Run Capital. These individuals, each with unique capabilities and expertise, will help lead us through our next phase of expansion across North America and potentially overseas. It's an exciting time to be here, and we can't wait to see what the future holds. We continue to have an extremely large pipeline of opportunities under consideration, including new potential business opportunities due to the acquisition of CDM. I'll go through our market outlook in more detail in a moment, but we are on track with our previously announced deal with a large QSR chain that has over a thousand locations across more than 25 states. We completed the pilot program in select locations during the third quarter and are in the process of rolling out nationally in Q4. We are delivering turnkey solutions along with consulting, content strategy, the hardware deployment, and then, of course, ongoing day two service all powered by our proprietary CMS platform Clarity. Our AdLogic ad server and CPM Plus programmatic applications also continue to see increasing traction and interest from existing and new customers. As a reminder, historically, we've already delivered up to 50 million ads daily via this advertising platform. I believe this technology will play a key role in driving top-line growth going forward, particularly now with CDM under our belt. With all our advances and proprietary platforms, the future looks very bright for the new much larger Creative Realities. We expect revenue to accelerate, backlog to grow, and margins to improve, putting us in position for much better results in 2026. I'll turn it back over to George, to share some additional comments on our financials. George Sautter: Thank you, Rick. An overview of our financial results for 2025 was provided in our earnings release and Form 10-Q, which included the condensed consolidated balance sheet as of 09/30/2025, the statement of operations, and statement of cash flows for the three and nine months ended 09/30/2025. And a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended 09/30/2025 as well as the preceding four quarters. While Rick reviewed our operational results in detail, let me provide a couple of points of context relating to the balance sheet. Cash. As of 09/30/2025, the company had cash on hand of approximately $300,000 versus $600,000 at the end of the second quarter of 2025. As previously mentioned, our consolidated balance sheet reflects minimal cash on hand as the company has a sweep instrument to apply cash against the revolving debt facility to further manage our interest expense. Debt, our gross and net debt stood at approximately $22.2 million and $21.9 million respectively, at the end of the third quarter as compared to $20.1 million and $19.5 million respectively, at the end of 2025. At the end of the third quarter, our leverage on a gross and net basis was 7.56 times and 7.646 times, respectively, versus 4.53 times and 4.4 times at the end of 2025. Please be reminded that the Q2 and Q3 2025 debt balances reported herein contain the settlement of the contingent liability from the merger of Reflex Systems in 2022. Since the end of the quarter, as Rick discussed, our balance sheet has changed significantly due to the acquisition of CDM. We financed the transaction through a combination of debt and preferred equity including a three-year $36 million senior term loan with Birch. Merchants Bank and $30 million of convertible preferred equity with a $3 conversion price provided by Billet's affiliates of North Front Capital. With this financing in place, we have a total of $39.9 million in debt as of 11/07/2025, and retain a credit facility of $22.5 million with availability of $17.7 million. I will turn it back to Rick for any additional comments. Rick Mills: Thanks, George. Just a few updates, and then we'll go to Q&A. But number one, we have been notified by a very large QSR that they have chosen CRI as a result of a competitive RFP process. We are in the process of finalizing the contract and expect to make an announcement in mid-December at the latest. They have over 4,000 locations in the US alone, and our drive-through pricing was one of the key deciding factors as they have not rolled out digital drive-through yet. And so we expect a large expansion with that customer in 2026. Our largest c-store customer, we've talked about before, has begun a test utilizing their current in-store screens and updating the configuration of those screens and configuring it into a retail media network utilizing our AdLogic ad serving technology. So they're running our CMS. Now they're running AdLogic. Assuming the test is successful, the 8,000 in-store screens in approximately 2,000 locations would grow significantly as the rest of the screens would be added to the retail media network. We expect that decision in April 2026. Assuming they move forward, this would result in an additional $1 million in annual recurring SaaS from that customer alone. We remain well-positioned in the digital transformation landscape and look forward to delivering further improved operating results. With that, we'll now move to the Q&A portion of the call. Please go ahead, operator. Operator: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please standby while I compile the Q&A roster. And our first question comes from the line of Jason Kreyer of Craig Hallum. Your line is now open. Jason Kreyer: Great. Thank you, guys. Hey, Rick. I was just wondering if you can provide some feedback on what you've been hearing from customers and partners and stuff since you announced the CDM acquisition a few weeks ago. And any enthusiasm that's built up in the channel? Rick Mills: Yeah. Jason, great question. So comment, all the customers have been very positive. And certainly appreciate how it gives us tremendous scale. And as you may or may not know, I flew 10,000 miles in one week to literally visit virtually every customer of CDM in the week prior to the closing. So the CDM customers understand the acquisition. No issue. I will tell you the one area you mentioned used the term the channel. In the competitive landscape, among our industry, I will tell you this was a very large statement. And everybody has acknowledged CRI is absolutely now one of the top two, three, four digital signage integrators in North America, period. So a lot of acknowledgment around that. As you know or folks on this call know, we have always stated this is all about get scale, go big, go home. Well, guess what? We've got scale and we went big. And we're glad to be here. Jason Kreyer: Appreciate that. You've had a lot of success in QSR. So maybe you can just talk about how you go to market in Canada following the acquisition. I'm curious when you think about that, like, do you lead with existing CDN customers in Canada? Or do you feel like there's an opportunity to lead with existing CRI customers that have somewhat of a footprint in Canada? Little bit of both. Rick Mills: There's certainly some CRI customers that have a footprint in Canada. You better believe we are already knocking on their door. Right? Number two, we believe there is a tremendous opportunity for our to lead with our drive-through opportunity. For a number of customers throughout Canada. Canadian QSRs generally speaking, have not gone digital at all. And so we have a tremendous opportunity to take these QSR customers in Canada to go digital. Today, we service a portion of a number of QSRs in Canada, specifically A&W. Also Dairy Queen of Canada. Also, we do all the content for Tim Hortons. So certainly three rich opportunities there alone but we do expect to reach out to what I would call the tier two QSR operators throughout Canada those folks with 500 to 1,500 locations. So that's really a strategy that we are embarking upon virtually immediately. Lastly, for me, we've talked the last few quarters about the retail media opportunity. We've talked about how scale matters there. You know, can you reframe that opportunity now with CDM in the fold? How this increases your scale? How this increases your capabilities, and if you feel any differently about CRI's ability to win in that market. Rick Mills: Yes. The answer clearly is just yes. But let me tell you why. We now you know, before we we all have always had the credibility of having a very qualified ad tech stack. Number one. Number two, that has delivered millions of ads on a daily basis. So we've always had that credibility. Now what we bring to the market or to the table is we can look customers in the eye and say, yes. We understand about how to run a retail media network. We own one. We own the largest retail mall retail media network in Canada. We're delivering over $32 million Canadian in ad sales. We understand the entire ecosystem from A to Z, mister customer. So it brings a whole new level of credibility. Oh, by the way, it brings some of the retail media expertise which CDM has a lot of. Because of running those networks in Canada. So we expect to bring that expertise down in front of our US customers. And gain traction quicker. Jason Kreyer: Thanks a lot, Rick. Appreciate it. Rick Mills: Thanks, Jason. Operator: Thank you. One moment for our next question. Our next question comes from the line of Brian Kinstlinger of Alliance Global Partners. Your line is now open. Brian Kinstlinger: Hi, guys. Thanks for taking my question. While it's only been a month since you announced the acquisition, I'm curious if you've learned anything more about the state lottery pipeline and RFPs when those might be completed, and maybe if you could size that opportunity collectively. Rick Mills: Sure. Great question, Brian. Number one, as you know, we talked about North Carolina lottery. That alone was $54 million approximately $8 to $10 million of hardware, and then the rest is SaaS over a ten-year period. So number two, the opportunity. What we had heard early is there were about 10 or so states in the US that were planning RFP. We sense currently have received our first RFP from down here in the US, and expect to participate in more. We believe the opportunity in lottery is robust. Brian Kinstlinger: Okay. And then can you talk about your go-to-market strategy in US malls? As you leverage CDM's position in Canada? Rick Mills: We are currently talking with a couple of mall-like properties that have the ability to expand our retail media network from Canada down into the US, Brian. We expect over the next two quarters to engage with a number of the mall ownership properties here in the US. You know, think folks like a Westfield like a Simon, that we would engage with. We have not had meaningful discussions yet, but we expect to do that. One of just one general note throughout the US mall, there is nobody that has been able to construct a mall network that is as successful as our Canadian mall network in Canada. No one's been able to put it together in the US. We expect to be able to bring some of that knowledge and potentially participate in that in the US over the next year or two. Brian Kinstlinger: Okay. You we heard comments on QSR and retail. One vertical I hear about is stadiums. So maybe you can provide an update on how that's materializing, if at all. Rick Mills: You know, our stadium business continues to grow. This is year three. 2026 is year three that we've been in that vertical market. Really going hard. We have a couple of signature wins that are waiting for signatures as we speak. We expect 2026 to be our best year. You know, everything on my DNA tells me that is gonna that business vertical is gonna be up between 30-40% in 2026 alone. Brian Kinstlinger: Okay. My last question, I wanna make sure I understand. There was a lot of discussion of different sized customers, potential wins, things you've already won, I heard a thousand store location. I thought I heard a QSR. They had a 4,000 store location. Then I heard an 8,000 store. It sounds like three separate ones. I can only assume that 8,000 is Seven Eleven. You talked about specifically last quarter. Am I right there were three separate opportunities? And what of those have been signed versus not signed? I was confused. And then last one, customer specific. Icebox. Is that moving forward this quarter? So those are four different customers, I think. Rick Mills: Yeah. So, you know, the Icebox network was, as we talked about, was the $2 million that got pushed from Q3 to Q4. Because of a funding snafu. We are literally still waiting to launch that. We're waiting on a daily basis for them to resolve that so we can launch that network. Number one. Number two, yes, you were correct when you talked about the 8,000 screens in Seven Eleven. Yeah. So we have dramatically worked with them to move approximately 8,000 screens into a true retail media network test. And that test started in October, runs through March. Assuming it's a success, they will turn all the rest of the screens utilizing our ad tech and our ad serving tech and that will grow our SaaS revenue relatively significantly. The third one I talked about was another it's another QSR win. We've got we received the verbal. We are in daily discussions. Contracts are going back and forth, lawyers, red lines, etcetera. We expect that contract to be signed by mid-December. And at which point in time, we would make an official announcement. I still do not wouldn't do not anticipate getting permission to articulate the name. It's you know, that's always a challenge in our industry. But that particular one is the conversion of a number of their 4,000 locations that have already gone digital. They will be migrating all of that to our platform. And most importantly, out of all their locations, they have less than a handful of digital drive-throughs, and that's the number one area of growth for them in 2026. So we expect that alone to add some significant revenue in 2026 assuming the franchisees have the desire to buy a digital drive-through for their location. So a number of things going on there. Brian Kinstlinger: Okay. Thank you. Rick Mills: Thanks, Brian. Operator: Thank you. One moment for our next question. Our next question comes from the line of John Hickman of Ladenburg Thalmann. Your line is now open. John Hickman: Hi, John. Hey. I'm intrigued with this new Chief Revenue Officer. What exactly I mean, or it's no secret that you've had trouble. It should be. But is it the sometimes the addition of new customers has been slower than you thought. Can you elaborate on what you think this guy can do to push customers like, over the goal line to actually sign with you? Rick Mills: First and foremost, John, that was most gracefully said and articulated. Yes. We've had a challenge getting them across the finish line. I need somebody who can really be a strong closer out there as a Chief Revenue Officer who really owns the revenue number. This business is now at over $100 million. You know, there's not enough of Rick Mills as the CEO founder to go around. I need help. And so I really this is an individual I've spent eight, nine months back and forth. We originally met in June time frame. George and I were together and had a meeting with the fella and really were intrigued and spent a number of months in conversation. He has been in and around our industry for twenty years. Knows a bunch of customers a bunch of a bunch of even industry professionals. You know, when you bring on somebody like a Chief Revenue Officer, you expect them to bring in some of the industry professionals. So we expect a lot of a lot of in potential inbound customer opportunities. The ability to convert some of these customers who are who have been lingering just haven't got them across the finish line. And the CRI sales organization. We have approximately somewhere between forty and forty-three customer-facing individuals. So it's a dramatic expansion of our sales effort. John Hickman: Okay. Okay. All my other questions. Got answered. By the previous questionee. So thank you. Rick Mills: Thanks, John. Operator: Great. Thank you. One moment for our next question. Our next question comes from the line of Howard Halpern of Danfox Brothers. Line is now open. Howard Halpern: Hi, guys. Rick Mills: Hey, Howard. Howard Halpern: How does having now, you know, a little bit of a content creation team help across your existing, you know, customer base? Rick Mills: You know, Howard, I would tell we've always had content creation. We had a relatively smaller team as part of CRI. And our predominant content creation and content management was focused on QSR, and c-store. With the Cineplex team now they're adding at least they have 15 people in just in content creation alone. Do high-end agency work. They will actually go and do a photoshoot. They will do high-end agency of record type. Content. And we expect to chase that. Our content business, I think, in 2026 will I think we've budgeted somewhere between $5.5 or $6 million US. For content. And over the next couple of years, we expect to drive the content team. Ultimately, the goal is to get it to about $10 million over the next twenty-four months. So we expect content to grow. Howard Halpern: Okay. And with the funding that occurred, through the transaction, you're comfortable with you know, with the growth potential and the capital you have in place? Rick Mills: Yes. That matter of fact, our wonderful partners at North Run Tom Ellis, Mike Bosco, one of the key elements of discussion about them making the investment was making sure we had enough cash and available credit facility to run this business and grow this business. And that was a key tenet of them even making the investment. And I'd have to defer to George if George is on the line. But I believe, George, don't we have about $17 million or $17.5 million available today. George Sautter: That's correct, Rick. Rick Mills: Yeah. So lots of headroom to run the business on a go-forward basis. Thanks, George. Howard Halpern: And just one final one, more of a numbers question. What entering 2026, the end of this year, what do you anticipate combined companies' ARR to be? Rick Mills: We expect as we enter the year the combined ARR is a combination of ARR plus our ad revenue, which we indicate is ARR-like. Those two will exceed $40 million US combined. Howard Halpern: Okay. Okay. So that's good higher margin revenue going into 2026? That sounds great. Rick Mills: Very much so. And, you know, that's why we're very bullish on our adjusted earnings targets. Howard Halpern: Okay. Thanks, and keep up the good work. Rick Mills: Thank you. Operator: Thank you. I'm showing no further questions at this time. I'll now turn it back to Rick Mills for closing remarks. Rick Mills: Okay. Let me conclude this call by thanking all the shareholders, clients, partners, CRI employees, all the CDM employees who logged in for the first time. For all of the continuing effort, commitment, and support as we continue to grow the CRI platform. But it will be fun work. You know, the next four months, we have a lot of integration due, a lot of hard work. And we look forward to speaking with you again next quarter. Goodbye. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to the IHS Holding Limited Third Quarter 2025 Earnings Results Call for the three-month period ended September 30, 2025. Please note that today's conference is being webcast and recorded. At this time, I'd like to turn the conference over to Robert Berg. Please go ahead, sir. Robert Berg: Thank you, operator. Thanks to everyone for joining the call today. I'm Robert Berg, of Investor Relations here at IHS. With me today are Sam Darwish, our Chairman and CEO, and Steve Howden, our CFO. This morning, we filed our unaudited condensed consolidated interim financial statements for the three-month and nine-month periods ended September 30, 2025, with the SEC, which can now be found on the Investor Relations section of our website. We issued a related earnings release presentation and supplemental deck. These are the consolidated results of IHS Holding Limited, which is listed on the New York Stock Exchange under the ticker symbol IHS and which comprises the entirety of the group's operations. Before we discuss the results, I would like to draw your attention to the disclaimer set out at the beginning of the presentation on Slide two, which should be read in full along with the cautionary statement regarding forward-looking statements set out in our earnings release and 6-Ks filed as well today. In particular, the information to be discussed may contain forward-looking statements. By their nature, forward-looking statements involve known and unknown risks, uncertainties, and other important factors that are difficult to predict and that may be beyond our control, including those discussed in the risk factors section of our Form 20-F filed with the Securities and Exchange Commission and our other filings with the SEC. As a result, actual results, performance, or achievements or industry results may be materially different from any future results, performance, or achievements or industry results expressed or implied by these forward-looking statements. We'll also refer to non-IFRS measures, including adjusted EBITDA, that we view as important in assessing the performance of our business, ALFCF, that we view as important in assessing the liquidity of our business, and consolidated net leverage ratio that we view as important in managing the capital resources of our business. A reconciliation of non-IFRS metrics to the nearest IFRS metrics can be found in our earnings presentation, which is available on the Investor Relations section of our website. And with that, I'd like to turn the call over to Sam Darwish, our Chairman and CEO. Sam Darwish: Thanks, Rob. Good morning, everyone, and welcome to our third quarter 2025 earnings results call. I'm pleased to report that we've delivered another quarter of strong results, ahead of expectations, with strong performance across all our key metrics: revenue, adjusted EBITDA, and ALFCF, while at the same time continuing to delever our balance sheet. This performance again underscores the effectiveness of our strategy, which is centered on driving organic growth, enhancing efficiency through continued cost controls, and maximizing cash flow generation. The operating environment is also providing a tailwind, particularly from favorable foreign exchange movements but also from a strong fundamental telecom market performance, especially in Nigeria and Brazil. Given the strong year-to-date performance, we are again raising our full-year 2025 outlook for revenue, adjusted EBITDA, and ALFCF. Steve will take you through the details shortly, but the headline is clear. Our top-line momentum is strong, our focus on profitability is yielding results, our cash generation is accelerating, and we continue to delever the balance sheet as planned. Let me walk you through the quarter's highlights, which saw our strongest quarterly financial performance since 2023. Despite a large naira devaluation in quarter one 2024 and with us selling our Kuwait and Peru businesses over that period, revenue came at $455 million ahead of plan, with constant currency revenue growth of almost 9% driven by CPI escalators, colocation lease amendments, and new sites. Adjusted EBITDA came at $261 million with a margin of 57.5%, an increase of over 6% reflecting our ongoing commitment to cost control and driving profitability. ALFCF came at $158 million, a very strong result driven by targeted actions to enhance cash generation. And total CapEx came at $77 million, up 16% year on year, reflecting the quarterly phasing of CapEx predominantly in Nigeria. During the third quarter, we also continued to advance our deleveraging efforts, reducing our consolidated net leverage ratio to 3.3 times, down 0.6x year on year and well within our three to four times target range. This improvement has been further supported by the initial $175 million of proceeds received from the Rwanda disposal shortly after quarter end. Liquidity remains strong, over $950 million, again excluding the Rwanda proceeds received in October, which will take it to well over $1 billion. So looking ahead, our priorities remain clear: First, maintain our focus on reducing debt while driving continued organic growth across the business. Second, remain disciplined in how we allocate capital, and as we near the lower end of our leverage target, consider introducing dividends and/or share buybacks. Third, accelerate efficiency gains by integrating more technology and AI into our operations. Fourth, proactively identify and pursue the most attractive organic growth opportunities in response to strong customer demand, prioritizing opportunities with the highest returns. And finally, further disposal activity remains under consideration, and we are continuing to assess additional value-creative disposal opportunities. We remain excited by the substantial opportunities for organic growth across our markets, especially Brazil and Nigeria. Our expanded partnership with TIM in Brazil, up to 3,000 new sites, highlights how well-positioned we are to take advantage of the ongoing rollout of 5G within our footprint. In Nigeria, carrier tariff hikes and strengthening naira are underpinning our growth story. With robust demand across our footprint, we're set for sustained growth and strong returns. As we move forward, we'll stay disciplined, building the business, boosting free cash flow, and strengthening the balance sheet, all with a clear focus on delivering shareholder value while we continue to grow. With this in mind, we expect to share a comprehensive update on our capital allocation priorities at the full-year 2025 results. So we look forward to sharing that with you soon. And with that, I'll hand it over to Steve. Steve Howden: Thanks, Sam, and hello, everyone. Let's take a look at Slide eight, where we show our 3Q 2025 performance. We're really pleased with our third quarter results, which again came in ahead of expectations with positive operating and financial progress supported by the continued favorable macroeconomic environment in Nigeria. As we look at the results, please note the year-over-year comparisons are impacted by some items. Firstly, the Kuwait disposal in December 2024 means there's no meaner contribution this year. For context, Kuwait added $13 million of revenue and $8 million of adjusted EBITDA in the third quarter of last year. Secondly, we saw tenancy churn of 2,576 sites, following an updated agreement with our smallest key customer in Nigeria, Nine Mobile. Under this agreement, they began vacating sites in 2025 in exchange for a contractual commitment to settle portions of their historic overdue balances through till July 2027. To be clear, we expect this to have only a limited financial impact over the coming years. And then thirdly, there's the ongoing impact of the near-term site churn linked to the renewed and extended contracts with MTN Nigeria in August. In terms of the results, year-over-year Towers and Tenants both decreased approximately 4% reflecting the impact of the Kuwait disposal while tenant count also reflects the Nine Mobile tenancy churn we just addressed. Excluding the impact of these two items, we added 1,652 net new tenants year on year. Lease amendments increased by more than 2,800 driven by continued incremental demand for ancillary services. On a reported basis in the third quarter, revenue was 8.3% up despite a 3% inorganic revenue headwind from the Kuwait disposal. Organic growth was approximately 7%, driven by almost 9% constant currency growth and favorable movements in FX as the naira continued to appreciate against the dollar. As a reminder, the naira average FX rate was N601 to the dollar in 2024 and was N1,523 to the dollar in 2025. Following the end of the quarter, the naira has continued to appreciate. As previously mentioned, adjusted EBITDA came in ahead of our expectations, ranging between approximately $14.30 and NIS $14.70 to the dollar, increasing more than 6% year on year despite no longer owning our Kuwait asset which contributed $8 million back in the third quarter of last year. Adjusted EBITDA margin was down 100 basis points year over year reflecting a now normalized cost level in our Sub-Saharan African segment and higher power generation costs, albeit the margin was up 20 basis points versus last quarter. Meanwhile, ALFCF increased by more than 80% versus third quarter 2024, with the comparison again distorted by a very different interest rate profile quarter to quarter in 2025 versus 2024, which emanates from the November 2024 bond refinancing. As a reminder, following that refinancing, our bond interest payments are now primarily due in the second and fourth quarters of the year, whereas in 2024, they were more evenly spread. Our level of CapEx investment increased by approximately 16% in the quarter, largely driven by our Nigeria segment reflecting the phasing of maintenance CapEx and augmentation CapEx for colocation and lease amendments. Finally, our consolidated net leverage ratio is 3.3 times, down 0.6x versus the third quarter of last year. And as Sam mentioned, we're well within our target range of three to four times, and expect to be at the low end of the range by the end of 2025. The 3.3x does not yet reflect the sale of our Rwanda business that closed this past October and therefore excludes the initial payment of $175 million that we received post quarter end. Slide nine shows the components of our 3Q 2025 revenue on a consolidated basis, where you can see how the business delivered organic growth of almost 7% with more than 8% growth on a reported basis despite the impact of the Kuwait disposal. From a constant currency perspective, revenue grew approximately 9% driven primarily by CPI escalations, new colocations, new lease amendments, and new sites. Continued positive signs of the fundamental underlying tenancy growth continuing across our key markets. Our revenue from power indexation declined due to falling diesel prices during the period, the associated fall in diesel costs largely offsets this impact, resulting in minimal effect on our adjusted EBITDA and cash flow. And that was more than offset by FX tailwinds mostly from Nigeria. The right side of the page shows the organic growth rates of each of our segments for the quarter, with our Nigeria segment having grown 5% despite the near-term churn from MTN Nigeria after last year's renewal and LATAM growing more than 11%, which is mostly Brazil. As Sam mentioned, we recently signed a new site agreement with TIM that aims to build up to 3,000 sites over five years in Brazil with an initial minimum deployment of 500 sites over two years across multiple regions of the country. An exciting development which will help underpin our growth in the LATAM segment over the coming years. On Slide ten, you can see our consolidated revenue, adjusted EBITDA, and adjusted EBITDA margins for 3Q 2025 as we've already discussed, and specifically in 3Q '25 our adjusted EBITDA was $261 million and our adjusted EBITDA margin was 57.5%. Continuing the trend of higher margins we've seen in recent quarters. On Slide 11, we show our adjusted leverage free cash flow. In the third quarter 2025, we generated ALFCF of $158 million, an 81% increase year on year reflecting actions taken to improve free cash flow generation and the lower interest payment in the quarter. As previously said, our ALFCF cash conversion rate was 60.4%. On to CapEx and in the quarter CapEx of $77 million increased 16% year on year primarily reflecting the phasing of maintenance CapEx and augmentation CapEx in Nigeria. And as Sam said, we will update you on our next phase of capital allocation strategy at the full-year 2025 results. On the segment review on Slide 12 and I'll start with Nigeria. Revenue in the Nigerian segment was $268 million in the quarter. During the quarter, we added over 220 new colocations. And lease amendments continue to be an important driver of growth as we integrated over 1,750 new lease amendments since June, with our customers continuing to add additional equipment to our sites. This helped lead to organic growth of 5% year on year despite an approximate $8 million reduction in revenue from the approximately 510 vacated tenants and 980 vacated lease amendments related to the ongoing 1,050 MTN Nigeria site churn. On a reported basis, revenue increased approximately 11% year on year driven by a combination of healthy MNO activity and FX tailwinds. Third quarter 2025 segment adjusted EBITDA in Nigeria was $170 million, a 7% increase from a year ago. Primarily reflecting the increase in revenue I just mentioned. Segment adjusted EBITDA margin was down 230 basis points to 63.3% primarily reflecting an increase in cost of sales and admin expenses reflecting an adjustment associated with the updated agreement with Nine Mobile. As well as increases in the cost of diesel and electricity. With costs also enhanced by the appreciation of the naira. From a macroeconomic perspective in Nigeria, trends remain encouraging. The naira continued to appreciate against the dollar including post quarter end. And USD liquidity remains available. Inflation eased for the sixth consecutive month to 18%, its lowest level in more than three years. And real GDP grew again in 2025 both year on year and quarter on quarter. And the Central Bank cut interest rates by 50 basis points to 27%. These are all positive signs that monetary policy is gaining traction though still more work remains. Nigeria's FX market was a tailwind for our business through the quarter with an average naira to dollar rate of 1,523. Although current levels are lower. Overall, the country continues to make macroeconomic progress and investor confidence appears to be returning. In our Sub-Saharan African segment, revenue increased 13%, while segment adjusted EBITDA decreased just over 1% year on year. This revenue growth was driven by new tenants and colocations, and partially offset by lower revenues from FX resets. The year-over-year decline in adjusted EBITDA reflects an increase in cost primarily driven by increases in regulatory fees. And that's due to a regulatory free cost accrual release in 2024 compared to a more normalized cost level in the third quarter of this year. In our LATAM segment, towers and tenants grew by 68.9%, respectively, versus third quarter 2024 as we added over 300 collocations and 280 new sites during the year. Which helped lead to 11% organic growth year on year. On a reported basis, revenue increased by 13% year on year. Driven by that continued tenant growth and lease amendment activity as well. In Brazil, our second largest market with 8,506 towers, macroeconomic conditions were favorable in the third quarter as the Brazilian real appreciated against the U.S. Dollar. And the Brazilian Central Bank held rates steady with the benchmark select rate at 15%. Moving to LATAM profitability, segment adjusted EBITDA increased by almost 22% while segment adjusted EBITDA margin increased 560 basis points versus 2024 which mostly reflects a reduction in expenses from various cost-saving initiatives. On Slide 14, our capital structure and related items. At 09/30/2025, we had approximately $3.9 billion of external debt and IFRS 16 lease liabilities. And that's broadly stable with last quarter. Of the $3.9 billion, approximately $2.2 billion represents our bond financings. And our weighted average cost of debt remained 8.3% following the 100 basis point reduction we saw last quarter stemming from the high-interest debt that we paid down in Nigeria and Brazil. Following the end of the quarter, we closed the Rwanda transaction and therefore our 3Q balance sheet and consolidated net leverage do not yet reflect the $175 million of initial proceeds that we have received. Cash and cash equivalents were $651 million as of September 30, bringing our total liquidity to $951 million of which $300 million is the undrawn group RCF. In terms of where that cash is held, approximately 18% was held in naira at our Nigeria business, though we have continued to upstream since the quarter end. Consequently, our consolidated net debt was less than $3.3 billion at the September. Our consolidated net leverage ratio was 3.3 times, down 0.1 times since June and down 0.6 times year on year. We expect leverage to be at the low end of our target three to four times net leverage ratio by the end of the year with our position now supplemented by the cash proceeds that we received from the Rwanda disposal post quarter end. And on to Slide 15, as Sam mentioned at the beginning, given the strong performance across our business in the third quarter, and our continued positive view on the remainder of the year, we're again raising our full-year 2025 guidance. We now expect revenue in the range of $1.72 to $1.75 billion and that's a $20 million uplift from our previous guidance. We expect adjusted EBITDA in the range of $995 million to $1.015 billion. That's a $10 million uplift. We expect ALFCF in the range of $400 million to $420 million and that's a $10 million uplift as well. While total CapEx remains unchanged in the range of $240 million to $270 million including an assumption of 600 new sites. Our consolidated net leverage ratio target of three to four times still remains unchanged as of now. Our guidance continues to show solid revenue growth in 2025 versus 2024, especially when excluding the impact of our disposals as well as very strong growth in adjusted EBITDA and ALFCF. Our year-to-date performance has been ahead of expectations driven by strong operating and financial performance. Our new guidance factors in strong constant currency growth assumptions and now reflects a more favorable FX environment. The new guidance implies an organic revenue growth rate of 10% at the midpoint. The stronger FX assumptions I'll outline shortly provide translation tailwinds that support our reported numbers. However, this benefit is partly offset by a lower contribution from FX resets, which is reflected within organic revenue. We are also now assuming a lower benefit from power indexation driven by lower diesel prices although as a reminder, given our power prices will also fall these movements will have limited impact on our adjusted EBITDA and ALFCF. Our guidance is inclusive of the contribution from the company's Rwanda operations up until the completion of its disposal on 10/09/2025. Moving to FX. The bottom of the slide shows the average annual FX rate assumptions in our 2025 guidance. For the full year, we're now assuming a rate of dollars to the U.S. Dollar compared to our previous assumption of N595 to the dollar. And that includes an assumption of N5500 flat for the fourth quarter. We are also now using stronger FX assumptions to varying degrees. For other FX rates on this slide. Helping to support our expected 2025 overall financial performance. This now brings us to the end of our formal presentation. We thank you for your time today. And operator, please now open the line for questions. Operator: Thank you. Our first question for today comes from Richard Choe of JPMorgan. Your line is now open. Please go ahead. Richard Choe: Hi. I wanted to ask about your carrier customers in Nigeria. Now that they have been able to have the quarters of the tariff increases and hitting their financials, what are their or have they communicated to you their kind of CapEx plans for the long term? With the new rates in place? Steve Howden: Hi, Richard. So a few points on that. So firstly, what we're seeing from the likes of MTN Nigeria, from Airtel Nigeria, is really strong financial results as you might expect having passed through the 50% carrier increase or carrier tariff increase. So MTN Nigeria reported a couple of weeks ago, their 63% up on revenue, EBITDA even more than that and they're at a 53% margin now. Airtel Nigeria not too far behind, 56% revenue growth and a 57% margin. So both those carriers really strong, really healthy. In terms of CapEx, they both spent a reasonable amount over the past few quarters and particularly around densification coverage and quality of service. They're starting to say that some of that CapEx has now been spent and it moderated a little bit into Q4. But we've obviously seen quite a tick up in business. We've had a good number of quarters in terms of colocations. You'll see from our earnings material, put on another 1,700 lease amendments in Nigeria as well. And you'll remember that we're still pushing through the big air rollout that we agreed eighteen months or so ago. So we have seen some of that benefit and we'll continue to see a bit of that benefit as we exit the year. And some into next year as well. In terms of their longer-term plans, not at this stage, but obviously, we're pretty familiar with what they're thinking about for next year given it goes to our plans and we'll obviously cover the impact of that on guidance at our year-end call. But that's we're pleased with where we are. Richard Choe: And not trying to look too far ahead, but it seems like the opportunity in Brazil is pretty significant. I guess, also kind of keeping in mind wanting to be mindful of the capital allocation. How much should we expect kind of the firm's willingness to invest in Latin America as the growth driver over the next few years? Steve Howden: Yes. Definitely right to call that out and something that we've obviously put a little bit of spotlight on. Throughout the pullback on capital allocation, over the last couple of years. Brazil, particularly on the tower side, was one area that we really wanted to continue growing. That thesis very much continues. People have seen the announcement around our new rollout with Tim. That's 500 sites in the next couple of years, but up to 3,000 sites in totality. So I think that really underpins growth forecast that we've always had with that market. We hope to add some more around that as well. And Brazil will continue to be an avenue for growth CapEx for us, particularly on the tower side. So we're really positive about that market. Sam Darwish: Richard, this is Sam. If I may add, we've never frozen the growth in Brazil. And at the moment, despite global headwinds, Brazil's economy remains solid. And GDP is up 0.3%. The real is stronger today at 5.3% to the dollar and the telecom sector is growing 6% to 7% year on year with margins nearing 50%. I mean, it's an amazing performance even stronger than what we have here in The United States in terms of growth and margins. With again currency strengthening against the dollar. And as the carriers densify 5G networks and grow their coverage, our infrastructure sites sit at the center of that growth. They're benefiting from both volume expansion and higher tenancy efficiency. Again, this is evidenced by what we just announced the 3,000 tower build with TIM over the next few years. And potentially other rollout projects that could be announced in the future. So we are very excited about Brazil. I mean, have been and we remain excited about Brazil. Richard Choe: Seems like a great market longer term. Thank you. Operator: Thank you. Our next question comes from Michael Rollins of Citi. Your line is now open. Please go ahead. Michael Rollins: Thanks and good morning. Wanted to follow-up on your comments about maybe updating capital allocation and possible returns to shareholders with the year-end results. Can you give us an update on how you're thinking about dividends versus buybacks? Versus financial leverage? And within that context, I don't believe you shared a number, but where does leverage sit pro forma for the completed transactions that were done early in the fourth quarter, but not included in the end of 3Q leverage ratios? Then I may have one other follow-up. Thanks. Steve Howden: Hey, Mike. Take that altogether. The last point on pro forma leverage is about 0.1 down. So 0.1 reduction on leverage. And as we've been saying for a quarter or two now, we expect our leverage to be times to 3.1 times by the end of the year. So we're very much on track to deliver that. That obviously goes into the wider capital allocation question, which we said earlier on the call, we will update fully at the year-end results in terms of what we intend to do. Just to put a little bit more color around that, so we're really thinking in three buckets. We just started on the previous question to talk about some growth CapEx. So we're looking at that as to whether we think there's some really attractive return opportunities across our markets. I would expect us to possibly do a little bit more growth CapEx in the last couple of years, but moderately so. Keeping in mind, our focus continues to be on profitability and cash flow generation. But we are seeing lots of potentially good growth around the business. So potentially moderately moderate change that portion. Debt, as I just said, will be at three times plus or minus by the end of the year. We think that's a pretty good jump-off point to be thinking about different types of capital allocation. That may include reducing our three to four times target range, but we'll cover that at the year-end. And from a debt perspective, we're pretty focused on some nearer-term dollar maturities and we've got some bonds due at the end of next year, some bonds due at the end of the following year. And a bilateral USD term loan due 2027 as well. So that's kind of in our thinking around debt. But we feel pretty good about the balance sheet where it's going to be by the end of the year, and then continuing to delever organically, if you like, after that. And all of that leaves kind of plenty of opportunity, let's say, to think through some direct shareholder returns and whether that's dividends or share buybacks. I don't want to go into that at this stage. We'll cover that at the year-end results. But certainly, there's ample room for that given the cash generation of the business. Michael Rollins: Then probably just a final point, to be clear, we are not assessing outbound acquisition opportunities at this point in time. So we won't be buying anything. Michael Rollins: That's very helpful. And just one more if I could. For investors that are trying to compare your financial prospects with other tower companies around the world, can you give us an update on just how to think about the annual financial algorithm in terms of the underlying organic top line that you would expect your business to deliver on average in any given year? And how that can translate into EBITDA and ALFCF per share growth. Thanks. Steve Howden: Yes. So in each of our quarters, we try to provide something that we think is helpful to folks from a top-line perspective, which is our growth bridge. We show on there, it's Page nine in this quarter's investor press. And that gives us a headline growth. It gives you what we call organic growth. And it gives you a constant currency growth as well. And the reason we differentiate is that power obviously doesn't pass through to EBITDA, so we just highlight that. And the differences around that in revenue. So that gives people a lot of different ways that they can look at our revenue. And then in terms of how that flows down into EBITDA, really the only, I would say, nuances between the revenue growth and EBITDA growth from a mechanism point of view is the power item I just mentioned. Which doesn't affect EBITDA because it's one for one, it's a pass-through. And then obviously FX, if it affects revenue, to some extent, it will affect EBITDA, which is smaller to a smaller extent. But otherwise, people should just track our EBITDA margins as a good way to flow through to EBITDA. And then moving on to ALFCF, probably the only other area of difference other than just tracking through is our interest rate profile, which we've spoken about quite a bit this year. It's low interest in Q1 and Q3 and high interest in Q2 and Q4. Because of the way our bond interest is phased. But other than that, nothing out of the ordinary. Michael Rollins: Thanks very much. Operator: Thank you. Our next question comes from Gustavo Campos of Jefferies. Your line is now open. Please go ahead. Gustavo Campos: Hi, hello. Yes, thank you very much for the presentation and congrats on the results. I had just a few questions here. If I just do some rough calculations here on the Rwanda sale, if I understood correctly, it's $275 million cash payment. And then you obviously need to make an adjustment on the underlying EBITDA given, I think, like Rwanda has historically contributed $30 million to $40 million EBITDA on an annual basis. I thought it would be a 0.2x effect on the capital structure pro forma. On your net leverage. Do that Yes. Get to these results. Right? Steve Howden: Yep. Yeah. So the consideration is coming in over a period. So we've received $175 million in October. And the balance 100 is due to come in over the next couple of years. So in the pro forma impact I gave you, I'm talking about today's pro forma impact using $175 of proceeds. The balance will come in later and will be additive and that's the difference between your 0.2 and my 0.1. Gustavo Campos: Okay. Understood. Yeah. For that clarification. And when are you expecting the additional $100 million? Steve Howden: So it's up to two and three years away. There's two tranches. You'll see it written in all of our disclosure last quarter and this quarter. So $70 million out of it comes in the next two years. The balance comes in three years. It could come sooner. Those are out of date. Gustavo Campos: Understood. Understood. Thank you very much for that. I also wanted to clarify here on your guidance review, is it correct to is my understanding correct that the guidance was only because of FX basically? Or was there some other factors being incorporated here? Are you just assuming stronger local effects for the end of the year? Steve Howden: Yes. I mean, it's obviously year-to-date performance through Q3 but then yes, for the balance of the year, effectively it's FX. Gustavo Campos: Oh, okay. Okay. Thank you. And, also, I just wanted to clarify on your debt reduction strategy. You mentioned that you are focused on the front-end bonds and maybe your dollar term loan. Are you planning to call the 26s and the twenty-seventh bond? I we understand that you know, for example, the 20 sevens are already callable. That's and the 20 eights are already callable from December 2025. Right? So should we be thinking about this callable date, or should we think about, you know, maybe some redemption closer to maturity? Any visibility on your three front-end bonds would be very helpful here. How we should think about your capital allocation strategy? Thank you. Steve Howden: Yes. So you're right. Some are callable now, some are not callable yet. That mix of timing obviously goes into our thinking in terms of what we end up doing. So I don't want to comment on things we haven't done at this point in time, especially on the bond side of things. But you're right in your thinking around the different time periods and the different instruments that we are focused on. So you will hear from us on that as soon as it's ready. Gustavo Campos: Okay. Yes. Thank you very much. I was final clarification from my side. Could you please give some quick review again on why did your sites in Nigeria drop by 500 towers? Quarter over quarter. I understand that there was, like, I think you mentioned on the call the MTN site churn, and you also mentioned the Nine Mobile. I'm just trying to understand how much of an impact those two factors had? And should we expect that maybe more materialization of this impact in the future or that's it if that's like the one-off? Steve Howden: Yes. So we said earlier in the call that the MTN churn impact is about $8 million in the quarter versus this time last year. That gives you an idea of where we're up to with them. As and when we churn tenants, we will assess whether we think that the sites have a good opportunity for other colocations or other tenants to go on them. So you will see an element of us rationalizing towers if we think that that's not the case. And that's really what we are seeing there. So as we go through the MTN churn and a bit of and the Nine Mobile churn, we will tidy up the tower base as well. That's obviously so that we save the cost and running CapEx of monitoring of operating those towers if we haven't got a tenant on. Sam Darwish: Hi, Gustavo. This is Sam. I mean, this MTN churn is part of is a one-time thing, part of the renewal of the MLAs that we have done with them last year. I mean, it was announced last year with details in terms of how many sites are they moving from as part of kind of like long-term consolidation for them. So this just happened as we renewed the MLAs by another eight, nine years, if I remember correctly. One more thing I do want to add about Nigeria is that Nigeria is also firing on a lot of cylinders at the moment as a country. The current Nigerian administration has done in our opinion a great job in stabilizing and improving the economic outlook of the country as they've increased reserves and they strengthened the currency while reducing red tape for businesses among other fundamental actions. So we are also upbeat about Nigeria at the moment. Gustavo Campos: Understood, Sam. And thank you very much for the recap here. So we should basically be done here with, like, reduction of sites in this quarter. Like, this was, kinda, like, the last quarter where we saw some reduction in insights. Is that correct? Sam Darwish: Yes. It's part of the number that was agreed with them last year. Gustavo Campos: Okay. Yeah. Thank you very much. Go ahead. Thank you. Operator: Our next question comes from Stella Cridge of Barclays. Your line is now open. Please go ahead. Stella Cridge: Hi there. Good morning all. Many thanks for all the updates so far. And there's just a couple of follow-up. So, after you received the Rwanda proceeds, the cash balance would be quite high. I was just wondering, going forward, what do you reckon would be the kind of cushion that you would like to maintain in terms of how much headroom you've got to actually reduce gross debt with the cash, that would be great. And I just would like to get a sense in terms of, you know, capital structure. Your bonds recently have made up, you know, quite a chunk of the overall capital structure but over two-thirds. Is that kind of the right level for you? Or would you like to kind of have a bit more of an equal balance between bonds and loans, just great to get some color on that. Thank you. Steve Howden: Hi, Stella. So on the cash balance that we really look at the group cash balance as being the key sort of let me say, cash buffer that we're always monitoring. And there, we like to was $150 million to $200 million, at any one time at the group level. We're actually materially higher than that at the moment. But that's kind of how we monitor it and otherwise within the businesses themselves, the opcos. We run them based on their own working capital and CapEx requirements. So mainly the one at group that we focus on. So that's kind of how we think about things. And your second question on bonds, to be honest, we'd like to have term loans and bonds at any one time. There are periods in time as we go through cycles where the bond markets are open and doing well. There are periods when they're not open and not doing so well. Within our capital structure. So we like to keep a balance of both of those types of instruments. So we have a good track record and history with our bondholder community. And we also have a really strong pool of banking relationships as well. So we like to have both. In terms of the absolute mix, 85 percent dollar-denominated debt back close to 61%. And then fixed floating, we're just over two-thirds fixed at the moment, and fixed is obviously more preferable providing the rates are good. Stella Cridge: Super. Thanks. Operator: Thank you. That brings us to the end of the IHS Holding Limited third quarter 2025 earnings results call. Should you have any more questions, please contact the Investor Relations team via the email address investorrelations@ihstowers.com. Management team, thank you for your participation today, and wish you a good day. You may now disconnect your lines.
Operator: Hello everybody, and welcome to the Perion Network Ltd., Third Quarter 2025 Earnings Conference Call. Today's conference call is being recorded, and an archive of the call will be posted on the company website. The press release detailing the financial results is available on the company's website at www.perion.com. Before we begin, I'd like to read the following safe harbor statement. Today's discussion includes forward-looking statements. These statements reflect the company's current views with respect to future events. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, including those discussed under the heading risk factors and elsewhere in the company's annual reports on Form F-20. That may cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements anticipated or implied by these forward-looking statements. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. As in prior quarters, the results reported today will be analyzed both on a GAAP and a non-GAAP basis. While mentioning EBITDA, we will be referring to adjusted EBITDA. We have provided a detailed reconciliation of the non-GAAP measures to their comparable GAAP measures on our earnings release, which is available on our website and has also been filed on Form 6-K. Hosting the call today are Tal Jacobson, Perion's Chief Executive Officer, and Elad Tzubery, Perion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobson. Please go ahead. Tal Jacobson: Good morning, and thank you for joining us at the Perion's earnings call for 2025. This quarter, we continue to strengthen our foundation and execute our long-term strategy. Our focus remains clear and disciplined, and the results we are sharing today reflect solid progress across all parts of our business. We are building for sustainable growth for this year and for years ahead. This quarter we demonstrated progress across all aspects of our business, delivered strong financial results, announced new products, initiated new partnerships to support our global expansion, and won industry awards. Our key growth engines, CTV, digital out of home, and retail media continue to expand and present healthy growth. We are also expanding our share repurchase program to $200 million, adding $75 million to the current program, pending regulatory approvals. This decision was made after a deep analysis of our future capital needs that will support our growth and it reflects our confidence in Perion's long-term value for investors and our ability to continue to generate cash. On the innovation front, we introduced three strategic products under the Perion One vision: Outmax, which unifies all our performance-driven AI algorithms for media outcomes, across CTV, social, and open web. This includes the Greenbills algorithms and our new performance CTV capabilities. By unifying all our AI algorithms for media outcomes under one product, we enable our global sales team to accelerate growth, with a simple yet powerful holistic solution. Soda, our AI for Publisher, is our new next-generation supply path optimization for smarter monetization. That strengthens our supply-side technology. And our new digital out of home player which completes the full stack marketing operation system for digital out of home and retail media. It is designed to drive tremendous value for our digital out of home partners in a high margin and recurring revenue for Perion. We also advanced strategic partnerships across retail media and digital out of home, extending our reach throughout the U.S., Europe, and Asia. We continue to gain recognition in our industry with multiple awards, further validating our technology leadership and impact in performance-driven advertising. These achievements highlight how Perion executed by focusing on today while building a strong foundation for sustainable profitable growth in the future. All this progress aligns with one clear direction: our vision of becoming the platform of choice for modern CMOs and their teams. While CROs rely on Salesforce and CTOs on Jira, CMOs still lack a unified platform that connects media, data, and our Perion One strategy is the answer for this gap a multi-channel AI-powered platform that brings together creative, data, and media to deliver measurable business outcomes. A marketing operating system for modern marketers. Every product we develop and every partnership we form brings us closer to making Perion One, the central system for marketing performance. As we continue our journey towards this vision, we wanted to better understand how CMOs view the challenges they face today. So, in partnership with advertiser perceptions, we surveyed CMOs across North America and the findings were revealing. Research results proved that there is a strong need to solve the fragmentation between marketing and finance. Highlighting the growing needs for the unified solution Perion One provides. This validates why our mission matters. Helping marketers connect creativity and data to measurable outcomes. And bridging the divide between CMOs and CFOs. You are welcome to view the full research report on perion.com website. One of our new strategic partnerships is with Albertsons Media Collective, a leading retail media network in the U.S. According to eMarketer, retail media in the U.S. is a $60 billion opportunity growing at double-digit annual rates. This partnership gives Perion a strong foothold with one of the largest grocery retailers in the U.S. By combining Albertsons first-party data with our retail media technology, we deliver Commerce Connect measurable campaigns that align perfectly with where the market is moving. A great example is Splimo Water. A brand that wanted to drive product sales among Albertsons shoppers on the go. The campaign delivered over 5.5 million impressions and achieved a 5.5% sales lift. This demonstrates how Perion's technology directly connects ad exposure to measurable business outcomes. Let's take a look. Campaigns like Plymouth Water demonstrate how our creative, data, and technology excellence translate into real business performance. OutMAX takes that principle further, unifying all our outcome-driven AI algorithms under one solution. A solution designed to maximize outcomes by connecting creative intelligence with real-time optimization. Represents the next step in Perion's evolution: OutMAX is built to power results across every media environment. transforming AI-driven algorithms and insights into measurable, scalable growth. OutMAX, unifies optimization across CTV, social, and open web. And that also includes the Green Bits technology that we acquired earlier this year. What sets OutMAX apart from all other solutions? OutMAX continuously learns where the performance truly happens. The algorithm analyzes multiple signals such as device, time, and context to identify the most effective audience and inventory combination in real-time. It then reallocates budgets toward those high-performing segments driving stronger ROI, and more efficient media investment. By connecting insights across CTV, social, and open web, OutMAX creates one continuous optimization loop. Improving results for advertisers, enhancing Perion's scalability and growth potential. We've already seen strong validation through recent case studies. Outmax optimized YouTube campaigns for Ford, using carbon award bidding improving viewability by 12 points, lowering CPMs by 22% and cutting collarbone intensity by 33%. Demonstrating how the Outmax algorithm delivers better results through advanced AI. We're continuing to strengthen our supply-side technology with the launch of SODA, our AI monetization engine for publishers. SODA combines Perion's multi-format bidder technology, with an AI real-time algorithm. That optimizes every impression path. This drives higher yield reduced waste, and provides better ad delivery. Both for the publisher and for advertisers. What's most exciting is that SODA makes Perion an embedded technology partner within the publisher stack. I'm confident that this will expand our recurring high-margin revenue base. It's a clear example of how we're executing and translating innovation directly into growth and operating leverage. Another major milestone is the launch of the Perion digital out of home player. This completes the full stack marketing operating system for digital out of home in retail media. The digital out of home player extends our full stack supply-side technology, giving media owners and digital signage partners a single platform to manage both direct and programmatic campaigns. It replaces fragmented legacy systems with a dynamic hardware-agnostic solution improving efficiency, transparency, and control across global signage networks. The new Perion Digital Out of Home Player is designed to drive tremendous value for our Digital at Home partners. And a high margin recurring revenue for Perion. This new product broadens our total addressable market, by integrating with the digital out of home media owners and retailers. It has the potential to generate high margin and recurring software income. Through embedded deployments over time. It also strengthened our role as a technology partner of choice within the digital out of home and retail media ecosystem. Another important step in connecting the supply side and the Perion ONE platform. As we look ahead, it's important to remember that everything we're delivering today is part of a broader, long-term transformation. After laying the foundation in 2024, spent this year activating the PERION-one vision. Unifying our technologies and brands under one platform. And streamlining our operations for improved efficiency and scalable growth. The next phase, beginning in 2026, is about scaling the platform. We are expanding Perion One across more channels, deepening adoption with global brands, and increasing recurring high-margin revenue streams. Powered by AI, automation, and self-service capabilities. Each step brings us closer to our vision, a single, platform that delivers better performance faster decisions, and long-term value for marketers and shareholders. To conclude, our message to investors is clear: Perion is executing on its strategy. And building for long-term value. We operate in high-growth areas, supported by a proven track record of profitability and positive cash flow. We have a global team with deep, high-growth experience. Focused on building technology and accelerating our global go-to-market strategy, for the AI-first era in advertising. With that, I'll now turn it over to Elad Tzubery, our CFO. Who will walk you through the financial results for the third quarter. Thank you, Tal. And thank you all for joining us on the call today. Our third-quarter results mark another strong step forward in Perion's strategic transformation. Elad Tzubery: We are now seeing the tangible impact of the structural, operational, and technological foundation we've built over the past twenty months. During this quarter, we achieved our first year-over-year revenue and contribution ex TAC growth since 2024. This is a milestone that reflects our disciplined execution and it's a direct result of our enhanced organizational structure, our continued adoption of the Unified Perion One platform, and a strong go-to-market strategy. Importantly, our adjusted EBITDA increased 63% year over year to $12.1 million. This reflects the early results of our efficiency initiatives that are expected to fully materialize in 2026. Our core growth engines, CTV, retail media, and digital out of home are also among the strongest growing channels and verticals in 75%, 40%, and 26% respectively. We also continued to execute our capital allocation plan with discipline. During the quarter, we repurchased 800,000 shares for $7.5 million. Due to our confidence in Perion's long-term growth and the strength of our cash generation, we have approved in principle an expansion of our share repurchase authorization by an additional $75 million, a total amount of $200 million. It reflects the balance between returning capital to shareholders and continued investment in innovation and in strategic opportunities to strengthen our core businesses and drive sustainable growth. Looking ahead, we are firmly establishing the infrastructure for sustained growth in 2026 and beyond. This is supported by operational efficiency, scalable technology, and disciplined capital allocation. Moving on to our key financial metrics for the third quarter. Revenue accounted for $110.5 million representing 8% year-over-year growth. Contribution ex TAC came in at $51 million up 7% year over year, maintaining a healthy 46% margin. Notably, this marks the first time since 2024 that we've achieved year-over-year growth in both revenue and contribution TAC. This is a testament to Perion's growing ability to deliver measurable outcomes for our customers as well as the strong performance of our core growth engines and our disciplined operational execution. We believe our revenue contribution excluding TAC represents a more accurate measure of our top-line performance than revenue alone. Adjusted EBITDA this quarter was $12.1 million. This represents a 63% year-over-year increase, Our ex TAC margin was 24% signifying an encouraging margin expansion. Non-GAAP net income was $12.5 million. Resulting in a non-GAAP diluted earnings per share of $0.28. Cash flow from operations was $5.9 million bringing our year-to-date total to $20.1 million. This further demonstrates the strength of our underlying business model and our consistent stability to generate cash. Our growth engines continue to be the cornerstone of Perion's future growth. Both CTV and digital out of home channels are growing at a fast rate. They are continuously outpacing the overall market growth on an annual basis as projected by eMarketer. This positions Perion as a high-growth player in two of the most dynamic segments in digital advertising. CTV continues its strong growth trajectory, with revenue up 75% year over year driven by sustained demand for our advanced formats. Looking ahead, we expect CTV revenue to continue outpacing the market supported by the ongoing shift from linear to connected TV and growing customer adoption of our performance CTV solutions. Our digital out of home channel remains a highly strategic entry point into new markets. We continue to leverage its differentiated capabilities to position Perion for sustainable, profitable growth through cross-selling and product synergy. We recently launched our digital out of home player, an advanced solution that completes our full stack marketing operating system for digital out of home and retail media. The digital out of home player strengthens our customer stickiness and recurring revenue streams, making our business model more predictable and scalable across this fast-growing channel. Our retail media market vertical continued to demonstrate strong momentum with revenue up 40% year over year. Retail media remains one of the fastest-growing verticals in advertising. Projected to expand at a 14.7% CAGR through 2029. As new and existing customers continue to adopt our retail focus solutions, we are well-positioned to capture market share and outpace market growth. Our third-quarter channel mix demonstrates the growing portion of CTV and digital out of home. These two channels combined represent 37% of revenue versus 28% in the same quarter last year. Digital out of home increased by 26% year over year reaching 22% of revenue up from 19% last year. This reflects the continued global momentum with new partnerships across APAC, the U.S., and EMEA. CTV increased by 75% year over year, representing 15% of revenue compared to 9% last year. The significant growth is a testament to increasing customer adoption of our full-funnel solutions offering. Web revenue declined by 11% year over year due to a continued trend of lower advertiser appetite for standard display and video formats. It is important to note that the comparison to 2024 is skewed due to the discontinuation of lower margin activities in late 2024 as previously announced this year. Search increased by 9% year over year representing 21% of revenue and continues the search business stabilization. While in this quarter, we enjoyed strong growth across each of our core growth engines, Perion's platform is built to be channel agnostic. This structure enables us to seamlessly adapt as advertisers spend naturally shifts across channels. This flexibility allows us to capture growth wherever demand emerges, and helps to increase advertiser spend and retention. Contribution ex TAC in the third quarter grew by 7% year over year to $51 million representing a stable margin of 46%. As we move forward with our unified platform, we expect to grow our revenue contribution excluding TAC at a faster pace compared to total revenue. This measure better represents our top-line performance than revenue alone. Adjusted EBITDA for the third quarter grew 63% year over year to $12.1 million representing 24% of contribution TAC and 11% of total revenue. This significant margin expansion reflects our improved operational leverage. The efficiency initiative we've implemented this year continues to bear fruit and drive improved profitability. We continue to further optimize our cost structure to align with our unified operating model. We expect to benefit from these improvements throughout the remainder of 2025 and into 2026 as these efforts gain momentum. On a GAAP basis, our third-quarter net loss was $4.1 million or $0.10 per diluted share. A non-GAAP basis, net income improved year over year to $12.5 million compared to $11.9 million in 2024. This represents a non-GAAP diluted earnings per share of $0.28 this quarter compared to $0.23 per diluted share last year. Representing a 22% year-over-year increase. In 2025, cash generated from operating activities was $5.9 million and our adjusted free cash flow was $4.8 million. Looking ahead, we are confident that we will maintain a strong cash flow conversion rate of over 70% in 2025. As of September 30, our balance sheet includes $315 million in cash, cash equivalents, short-term bank deposits, and marketable securities. Our strong cash position gives us the financial flexibility to support the broader capital allocation framework, pursuing our diversified growth strategy while continuing to return capital to shareholders. During the quarter, we continued to execute our share buyback. Due to regulatory volume restrictions, our repurchase activity was limited leading to the repurchase of 800,000 shares for a total amount of $7.5 million. As of 09/30/2025, we have repurchased a cumulative total of 10.4 million shares for $94.2 million. This continued buyback commitment underscored our confidence in Perion's long-term value proposition. As of today, during the fourth quarter, we already purchased an additional 1 million shares and we expect to complete the current plan by the end of this year. We are pleased to announce the principal approval of the expansion of our previously authorized share repurchase program. Our confidence in Perion's future allows us to expand the program by an additional $75 million. This increased the total program from $125 million to $200 million. The overall program represents an estimated shareholders implied return of nearly 50% since initiation. We believe our current share price is not reflective of the value and opportunities we have at Perion. The share buyback program alongside disciplined investments in organic growth and in M&A opportunities is the best use at present for our excess cash. Turning to our financial outlook. We are reiterating our full-year 2025 guidance with revenue at $430 million to $450 million and adjusted EBITDA at $44 million to $46 million. The progress we made in Q3 from returning to year-over-year growth to expanding profitability underscores the strength of our transformation and the resilience of our model. As we continue consolidating our operations into the Perion ONE platform, we are confident that we have established a strong foundation for sustainable growth and profitability heading into 2026. With that, I'll now turn it back to the operator to open the line for questions. Thank you. Operator: If you wish to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen, or if you've dialed in, please press 9. We'll take our first question from Andrew Marok with Raymond James. Please unmute your line and ask your question. Andrew Marok: Hi. Thanks for taking my questions. Maybe one for Tal and one for Elad. Tal, if you could dive into some of the CTV strength drivers we saw in Q3 with the 75% growth. I know you had mentioned some spend shifts or budget shifts last quarter, out of Q2 into the second half. But any more specificity there would be appreciated. And then maybe, on the guidance range, given that you're reiterating the guidance range, it does seem like a fairly wide range for Q4. I guess, what should we be inferring from that in terms of what you're seeing to date in either October or expectations for the holiday season? Thank you. Tal Jacobson: Yeah. Thanks for the question. So, absolutely, on CTV, I think what we see is that our performance CTV together with our new algorithm GreenBits, which we now call OutMAX, are really performing well. You know, we're seeing a healthy pipeline and deals from our customers, and that's what drove the significant growth that we're seeing. Elad, do you want to answer the guidance? Elad Tzubery: Yeah. Sure. In terms of the guidance, the quarter right now, it's generally in line with our expectations. So far, as we are entering an important holiday season. We feel very good with our ability to deliver within this range of guidance. And we already increased the guidance at the beginning of the year in May, and it was important for us, of course, to make sure that we are delivering on everything that we are saying and maintaining the guidance as is, of course. But we do feel very confident in our ability to meet those numbers. Because as we see, overall, we do not see right now any slowdown, I would say, in spend. Of the advertiser. It's just a change in terms of timelines of how the budgets are getting or spending within the month. Yeah. So I'll just add to that that, as I have said, you know, we did raise our guidance within the year, and ever since then, we continue to build strong momentum. And as I had said, the quarter is in line with our expectation, but we're waiting for the shopping season to see how that's gonna evolve. Andrew Marok: Understood. Thank you. Operator: We'll take our next question from Eric Martinuzzi from Lake Street. Please unmute your line and ask your question. Eric Martinuzzi: Yeah. I kind of wanted to revisit the Q4 growth just based on the projections here. That growth rate would be versus the growth you had in Q3. You know, I realize we're early in the holiday spending season. Is it just conservatism that that sequential growth rate would be down? Elad Tzubery: Yes, Eric. Thank you. I would say it's a bit conservative as well. As we mentioned, Q4 is obviously the peak of the year in terms of advertising budget. You know, just before the holiday season, it was important for us to be cautious. Eric Martinuzzi: Okay. And then for I know you haven't you're not addressing 2026, but right now, there's an expectation for double-digit growth there. I think the Street consensus is at 11% growth in 2026. Should that be coming down based on what you're seeing for Q4? Elad Tzubery: No. Not at all. We haven't provided yet the outlook for 2026. We are providing it as usual at the end of the year. What I can tell you, by the way, is that we are aiming for next year to capture much, much more market share and we actually believe that we will be able to beat next year as well the street expectation. And our growth engines will continue to outperform the market, and I believe that it will drive our growth going forward. And we are as much as we are focusing on the efficiency and we start to see this in terms of the numbers starting already for this Q, we are also investing in our current business to allow us to scale and to grow much faster also for next year. Eric Martinuzzi: Understand. And congratulations on the return to growth here in Q3. Elad Tzubery: Thank you. Thank you. Operator: Our next question comes from Jason Helfstein with Oppenheimer. Unmute your line and ask your question. Jason Helfstein: Thanks, everybody. So I guess kind of following on to what you just said, you know, it sounds like you're having more success now selling the package of services across the different disciplines. There has been a pretty significant investment in sales and marketing to kind of get here. Just how are you thinking about investment needed, particularly as we go into next year on sales and marketing? Is it still like, another heavy lift or can you harvest? And then, obviously, the implied, you know, kind of web business, I think, is down something like 11% year over year. Give or take our math in the quarter. But it's still, you know, roughly half of revenue. So obviously, you know, CTV, digital out of home, some of the other areas are gonna grow so meaningfully faster than that. Just how are you thinking about like, you know, those, you know again, the puts and takes there. Right? Web declining, everything else. Or display, really, declining, and everything else really growing is where just thinking out over the next, like, two years. Thank you. Elad Tzubery: Yeah. Absolutely. Thanks for the question. So I'll divide it into a few parts. One, we think that web and search is gonna be totally aligned with human behavior as AI agents or AI chatbots are growing, you know, less and less web search is gonna happen. And with this whole trend of zero clicks on Google, I think less traffic is gonna go on web. But that only means that a lot of the budgets are gonna shift towards closed gardens, right, meta TikTok, Google, YouTube. Out of home and CTV, which is exactly why we bought GreenBits. That's exactly why we bought Hive Stack, and this is exactly why we're investing in those areas. Just because we think this trend is gonna continue. But we do think our algorithm OutMAX, our CTV, and out of home is gonna outpace the growth of the market going forward. So that should show good growth in the next year or the year after that. In terms of sales of marketing, you know, before Elad is gonna go, a bit on the numbers, but certain marketing is now so much easier since we have PerionOne. We're seeing more and more and increasingly big number, and it's increasing by the day of customers that are using more than one of our products. So we do have algorithm with CTV. We have CTV with out of home customers. So we're seeing synergies, even faster than what we could have imagined. At this time of stage within the transformation. But it also helps us with marketing since we're spending marketing very focused on driving new customers to the platform. You know, we're seeing great success there. Elad, do you want to add anything to that? Elad Tzubery: I would add about the sales, the SME investment that we are planning to do also for next year. To increase our ability to tap into more and more customers into the platform. So first of and, of course, foremost, we will going to increase, of course, our margin marketing budget as well as we are going to the market. We want to get a spread as possible we are going into 2026. As Tal mentioned, '26 and '27 are years that we are aiming to scale. Perion One, as much as possible globally. As part of the transform as part of the changes also with the agreement, we are increasing also the a bit the sales team just to get more and more reach points towards more customers and to be able to showcase the Perion One capabilities into more customers. So, definitely, this is an area that we're going to increase our investments next year. And also around, let's say, R&D as well. Is something that we are planning to increase both also of our resources around invest yeah. About R&D in order to make sure that we are expediting our road map coming to the streets, to our customers with more and more solutions and ability to spend more within this platform. Operator: Our next question comes from Jeff Martin with Roth. Please unmute your line and ask your question. Jeffrey Michael Martin: Great. Thank you. Was curious. You mentioned that there was a clouded comparison on web versus last year due to some low margin business that was exited. Could you give us an apples-to-apples comparison and then pair that with how web trended relative to your expectation? I know the last two quarters, you've talked about a bottoming out of that a little earlier than expected. So just curious how that trended in the quarter relative to your internal expectations. Thanks. Elad Tzubery: Yes. So thanks for the question, Jeff. Actually, web acted exactly as we expected. I would say even a bit better than our original plans. As I said, if you remember on February's call, we announced that we are closing some of our previous technology that we did to web, but they were although we would very, very low margin. And they were defocused. For a premium one strategy. when we are comparing Q3 to Q3, a major part of the decrease that you see in the work is because of this of those business lines that we started we are shutting down. Web comparing to our expectation is actually did better if we are removing those terminated business. Jeffrey Michael Martin: Great. And just one more if I could. You've talked in the past about expanding the TAM. Dramatically. Just curious if you could give us an update on you know, timing of that and how it's trended, so far this year. Thanks. Tal Jacobson: Yeah. Sure. So when we bought GreenBits, you know, we got into YouTube and Meta. Which is something that we never had the capability to do. So now every advertiser that spends money on YouTube Google Ads, and Meta, can actually work with us. And to trade us. Now, we're in a process of integrating this into more social platforms and more and more, DSPs. So that will continue to increase our TAM. And you're gonna see more and more growth out of that part, out of new channels, Hopefully, next year, you're gonna see more channels than just, web and CTV and out of home. Jeffrey Michael Martin: Thank you. Operator: Our next question comes from Laura Martin with Needham. Please unmute your line and ask your question. Laura Anne Martin: Hi, guys. Need to ask the AI question. So I'm merely interested in how you're using AI internally. Because it sounds like you're still hiring people and it's our thesis that if you're a tech company, you're using AI and not people. So can you talk about internally how you're using new tools with AI to replace people. And then secondly, I wanted to drill down, follow-up on some of my competitors' questions on web. I know, Tal, you think sort of that the open web is gonna share too, and that's why you've gone into digital at home and CTV. But then, Elad just said that a lot of the 11% decline in the quarter was attributable to actions you took in February therefore, the declines would have been much less, which implies to me, Tal, that by February, we anniversary those, let's call it, self-harm that you decided to do. And that we could maybe return to growth in the open web, it sounds like? So could you, talk to me about how much of this web decline you think is structural? Because it sounds like it's a lot less than the 11% decline that you reported in the web business in the quarter. Thank you. Tal Jacobson: Yeah. Alright. Thanks, Laura. Sure. So two things. So as you said, I think you're absolutely right. With time and automation, the amount of people we would hire is gonna be lower. But as we build this company for scale, you know, there are two parts where we do hire people. One, R&D, to continue to build AI-driven products. Because AI is everything, and we're becoming more and more of a technology company than anything else. And on the other part is sales. So which sales should bring our new platform into more clients. So those are the areas where we look to hire more people. Everything else, you know, we hired the new COO six months ago just for that to transform all our internal operations to be AI-driven and more efficient. So less and less manual work, more and more automation to AI, that's on the internal part. Now within when we built we're building Perion One, also within that, everything is AI-driven. Even all everything that we build within R&D is now supported with AI. So can actually say that 100% of our R&D work is supported now with AI. So that's on the AI part. On the web part, I'll just say generally, and then I'll let Elad answer his part. I'll just say, you know, in terms of human behavior, I do not think editorial web websites growth in the future. are gonna see a huge And that's what we call web. Having said that, we did a few things within in-house, like releasing SODA and other products for web, And since we're such a small part of the web, globally, you know, even though it can grow within us, it doesn't necessarily mean that humans are gonna use more and more editorial websites. As a general trend out of that. I don't think that's gonna be the future. Elad, anything you want to add to that? Elad Tzubery: I can just add is to make sure that I was clear. The expectation that we had when shutting down those businesses that we will that the web will continue to decline more. In mind, Laura, we are channel agnostic. In a way. And it's like that our growth engines are But it also allows us in a way to tap on the opportunity that's that out of home and CTV, of course. related also to, to web. I'm not expecting, by the way, going to the future that I will see an increase in web that dramatically. But on a year-over-year comparison, as we will continue to increase the overall spend that will come to the system. I believe that also, the web will capture some of those spend yet. Was that answer answering your question? Laura Anne Martin: Well so I think a lot of what would help me is of the 11% decline, you said that most of it was this decision you'd made in February. Was it 8% of the 11%? Like, would have only been down 3% in web if you hadn't taken the actions yourself in February. How much of the 11% decline was your actions in February? Elad Tzubery: No. Actually, more closely towards, 13% was related to our action. So overall, otherwise, I would see the web is increasing. It's at roughly 2%. Laura Anne Martin: Okay. Well, that answer I like a lot. So thank you. That's perfect. Elad Tzubery: Thank you. Thank you. Operator: Our last question comes from Jason Kreyer with Craig Hallum Capital Group. Please unmute your line and ask your question. Jason Kreyer: Good. Thank you, guys. Just one for me. So you'd highlighted how Soda and the out of home player create more predictable revenue streams. Wondering if you can just size up those opportunities give a little more detail on how you monetize those solutions. Thanks. Tal Jacobson: Yeah. Thank you, Jason. And first of all, welcome. Very happy to have you with us. So in terms of SOTA and the digital out of home player, the thing is we're trying to be the operating system, the marketing operating system, within the tech stack of the inventory part. Right? So what Perion One is the operating system for marketers SOTA and the digital home player is the operating system for the inventory. Part, and we wanna be as implemented as possible within their tech stack. So SOTA for out of home and web publishers and, obviously, the digital home player, can get a bigger chunk of all the spend that's going through the screens, what it means is a lot of the time when digital out of home screen owners the budget that we're seeing to them is the programmatic part. But when we implement the digital home player, we can actually benefit from all the budgets that are going through that. And that means direct and programmatic. That actually increases our TAM quite dramatically. And it does once that's gonna be deployed in big scale, that will provide us better visibility and predictability into our revenue streams. Did that answer your question? Jason Kreyer: Yep. That's perfect. Thank you. Tal Jacobson: Thank you. Operator: This now concludes the question and answer session. I'll now hand back to Tal Jacobson for closing remarks. Tal Jacobson: Thank you everyone for joining us at the Q3 earnings call. We're happy to show we're making good progress on our Perion One vision and I hope to see you everyone, at our next earnings call. Thank you. Operator: This concludes today's call. Thank you everyone for joining. You may now disconnect.
Operator: Greetings, and welcome to PolyPid Ltd.'s Third Quarter 2025 Conference Call. At this time, participants are in a listen-only mode. As a reminder, this call is recorded. I would now like to introduce your host for today's conference, Yehuda Leibler from ARX Investor Relations. Mr. Leibler, you may begin. Yehuda Leibler: Thank you all for participating in PolyPid Ltd.'s third quarter 2025 earnings conference call. Joining me on the call today will be Dikla Czaczkes Akselbrad, Chief Executive Officer of PolyPid Ltd., Jonny Missulawin, PolyPid Ltd.'s Chief Financial Officer, and Ori Warshavsky, Chief Operating Officer US of PolyPid Ltd. Earlier today, PolyPid Ltd. released its financial results for the three months ended September 30, 2025. A copy of the press release is available in the Investors section on the company's website at www.polypid.com. I would like to remind you that on this call, management will make forward-looking statements within the meaning of the federal securities laws. For example, management is making forward-looking statements when it discusses anticipated timing of the pre-new drug application or NDA meeting of the US Food and Drug Administration or FDA, the planned NDA submission, DPLEX 100, the expected submission of the European marketing authorization application, the potential regulatory and commercial pathways for DPLEX 100, including leveraging its fast track and breakthrough therapy designations, the company's ongoing partnership discussions, market adoption, reimbursement assumptions, company's commercial manufacturing readiness, US market access study, utilization of DPLEX 100, regulatory inspection readiness, and the expected cash runway to fund operations well into 2026. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond the company's control, including the risks described from time to time in its SEC filings. The company's results may differ materially from those projections. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. I encourage you to review the company's filings with the SEC, including, without limitation, the company's annual report on Form 20-F, filed on February 26, 2025, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. PolyPid Ltd. disclaims any intention or obligation, except as required by law, to update or revise any financial projection or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, November 12, 2025. With the completion of those remarks, it is my pleasure to turn the call over to Dikla Czaczkes Akselbrad, CEO of PolyPid Ltd. Dikla? Dikla Czaczkes Akselbrad: Thank you, Yehuda. On behalf of our team at PolyPid Ltd., I would like to welcome everyone to our third quarter 2025 earnings conference call. The past quarter was significant for PolyPid Ltd. as we progress with our objective to bring DPLEX 100, our late-stage product candidate for the prevention of surgical site infection, to the market. We are pleased to report that our pre-NDA meeting with the FDA is scheduled for early December and is expected to be held as an in-person meeting at the FDA office. This important meeting is designed to align with the agency on the data package format and requirements for our NDA submission, representing a key milestone. We remain on track to submit the NDA for DPLEX 100 in early 2026, leveraging both our Fast Track and Breakthrough Therapy designations. In parallel, we are preparing for submission of the European Marketing Authorization Application, which is expected to follow the NDA. During the quarter, we successfully completed the Israeli Ministry of Health Good Manufacturing Practice (GMP) inspection, marking our fourth consecutive successful inspection and an important step forward in achieving commercial readiness for DPLEX 100. The successful completion of this inspection ensures we can manufacture commercial product for the European market once DPLEX 100 is approved in Europe, as well as serve as a real-life test of our readiness for an FDA inspection of our facility, which we expect will follow the NDA submission. We continue to advance our strategic discussions with potential US partners with an established hospital sales infrastructure, building also on the strong momentum of our positive Phase III trial results. And now, in the second quarter, this discussion has progressed during the third quarter. We also recently completed a new US market study based on the presentation of the SHIELD II results. The study provided important validation of DPLEX 100's commercial potential. The results were very encouraging, confirming strong interest from both surgeons and hospital pharmacy directors. Taken together, the third quarter marked continued progress across all fronts: regulatory, commercial, and manufacturing. As we move steadily towards the next phase of positive growth pipeline, including our innovative in oncology, obesity, and diabetes. With that, I will now turn the call over to Ori Warshavsky, our Chief Operating Officer, US, who will provide additional insights on the market access study findings and our commercial readiness efforts. Ori Warshavsky: Thank you, Dikla. As Dikla noted, this quarter was pivotal in strengthening our commercial readiness for DPLEX 100. The completion of the GMP inspection and our ongoing work with hospital stakeholders brings us closer to launch readiness. Last month, our medical team participated and presented data in two major US medical conferences: the 2025 American College of Surgeons Clinical Congress, which gathers surgeons from multiple disciplines across the US and internationally, and IDWeek, the key annual conference for infectious disease specialists. The response from both surgeons and infectious disease specialists was remarkably consistent. Both groups expressed the need for innovation and new tools to prevent SSI and were impressed by the SHIELD II trial design and the 58% reduction in surgical site infection demonstrated by DPLEX 100. As Dikla mentioned, we also recently completed a new US market access study that included both surgeons and hospital pharmacy directors from leading academic and community hospitals who are contributing members or heads of the pharmacy and therapeutic committee, also known as the P&T Committee, review process at their respective hospitals. The results were very encouraging and in line with our expectations in terms of both clinical perception and commercial potential. I would like to share a few key highlights from the study. Among surgeons, DPLEX 100 was viewed as more valuable than currently available SSI prevention measures, primarily due to its strong efficacy, safety profile, and ease of use in the operating room. Most surgeons indicated that their hospitals are likely to add DPLEX 100 to formulary at launch, with 80% saying they are extremely likely to use it for their next eligible patients once available, and an average expected utilization of approximately six out of every ten eligible cases, particularly for high-risk patients undergoing colorectal or abdominal surgeries or those with comorbidities like obesity or diabetes. Hospital pharmacy directors echoed this enthusiasm. Based on the clinical profile, 70% reported a high likelihood to add and stock DPLEX 100. When asked if a new technology add-on payment or NTAP designation, which provides extra reimbursement to hospitals, would change their response, pharmacy directors anticipated that the formulary coverage would be even higher, and the overall hospital adoption outlook would look even more favorable. DPLEX 100 was widely seen as a promising new SSI prevention agent addressing a significant unmet need. Altogether, we believe these results are a significant vote of confidence and tangible support for both the clinical and economic potential of DPLEX 100. With that, I will now turn the call over to Jonny Missulawin, our Chief Financial Officer, to review our financial performance. Jonny Missulawin: Thank you, Ori. Turning to our financial results for the third quarter of 2025, research and development expenses totaled $5.3 million, down from $6.2 million in the third quarter of 2024 and $6 million in the same quarter last year. This decrease reflects the completion of the SHIELD II Phase III trial. General and administrative expenses came in at $1.8 million compared to $1.2 million in the third quarter of 2024, while marketing and business development expenses were $400,000, up from $200,000 in the same period last year. The net loss for the quarter was $7.5 million or $0.37 per share, an improvement from the net loss of $7.8 million or $1.22 per share in 2024. Looking at the nine months ended September 30, 2025, R&D expenses totaled $17.6 million compared to $15.8 million in the prior year period. G&A expenses increased to $5.4 million from $3.3 million last year, and marketing and business development expenses rose to $1.4 million from $700,000 last year. The increase in G&A and marketing and business development expenses were primarily due to non-cash expenses related to performance-based options or PSUs, following the successful SHIELD II Phase III trial, which triggered the vesting of the PSUs. Net loss for the nine-month period was $25.7 million or $1.72 per share, compared to $20.5 million or $3.82 per share for the same period in 2024. From a balance sheet perspective, as of September 30, 2025, PolyPid Ltd. had $18.8 million in cash, cash equivalents, and short-term deposits, up from $15.6 million at year-end 2024. We continue to expect that our current cash balance will fund operations well into 2026. Notably, during the quarter, we made significant progress reducing our debt by decreasing current maturities from $6.5 million to $2.4 million. We remain focused on maintaining financial discipline while advancing our key strategic initiatives towards NDA submission and commercial readiness. With that, we will now open the call to your questions. Operator? Operator: Thank you. If you wish to ask a question, you need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11. We will take our first question. Your first question comes from the line of Chase Knickerbocker from Craig Hallum. Please go ahead. Your line is open. Chase Knickerbocker: Good morning. Thanks for taking the questions. Maybe just first on the Israeli Ministry of Health's successful inspection. Could you maybe just walk us through any findings that you did see there? And I would just like to know, kind of to get your thoughts on your general confidence heading into that likely FDA inspection next year, now that you have had multiple successful inspections from several regulatory bodies. I mean, just kind of walk us through your confidence in any additional items that you do need to address before the FDA inspection or anything else that they would look for that would not be a part of these prior inspections. Dikla Czaczkes Akselbrad: Good morning, Chase. Thank you. So, yes, we have passed this Ministry of Health inspection. Actually, this was the fourth consecutive inspection that we had. The Israeli Ministry of Health is recognized by the European authorities, so this also serves as commercial validation for the European authorities. And once we get the approval, we can start selling. As in every GMP inspection, obviously, there are always comments and things that are suggested for improvement. This has been and is an ongoing focus of ours to always improve our facility, always improve our QC laboratory, and the way that we are managing this process. There was not anything specific that I can point out that we got a comment on in a specific area. It was an ongoing discussion. Nothing that is critical, obviously, otherwise, we would not have passed. But we are very confident in our ability to pass. We have people here with overall years of experience working in GMP facilities in aseptic facilities, but, you know, to be honest, having confidence in this aspect. And from that, there is a list of things that the team is working on to make sure that we pass this at first. And this is a real important effort for us. So we are highly confident, but, you know, this is an ongoing effort. We have to maintain this high standard all along, not just for the inspection, but also afterwards for the actual commercial manufacturing. Chase Knickerbocker: Got it. Helpful. Thanks. Maybe just ahead of that FDA, the pre-NDA meeting in December. Any specific items that you can call out that are particularly crucial to reach alignment with the agency ahead of the NDA filing that you would call out for investors? Dikla Czaczkes Akselbrad: So we expect to review the data package, the submission format, the label, and our goal is to get agreement with the current clinical CMC data support NDA filing and clarity on any remaining requests before the rolling submission. A successful meeting will set the stage for an early 2026 submission, obviously, with priority review potential and their designation. So there is nothing specific, just the regular clearance that you would want to get from the FDA for an NDA. Chase Knickerbocker: Got it. And then just last for me. Now that you have been able to do quite a bit more survey work and speak with relevant stakeholders in the market, any additional thoughts on pricing as we look forward? Ori Warshavsky: Yeah, I can take that one. So we have done over the last month or so, we had quite a lot of touchpoints with stakeholders both formally through market research and less formally in the conferences, and really across the board, very strong interest in the product. From the point of view that there is a need, there is a need for innovation, there is a need for something new to reduce the infection rates from where they are. We tested, I mentioned before, we tested both the willingness to prescribe, the willingness to put the product on formulary, whether it is on formulary and stocked or not stocked, and the impact on NTAP. And across the board, it sounds like premium pricing is something that we can reach. I do not want to give specific numbers because we are in discussion with partners, and this is all part of the activities that are ongoing on the partnership front. But from the prices that we tested before and we have seen, we see now that we can stretch that even higher. There is room and willingness to use this. There is a very strong understanding of the impact of SSI, what it does from just the direct cost of length of stay, but also I heard recently of surgeons that have in their annual review and in the kind of bonus payment, in fact, is or reduction in infection is part of it. So there is really a nice driver there, which will allow us to stretch higher the pricing piece. Chase Knickerbocker: Got it. Thank you. Dikla Czaczkes Akselbrad: Thank you, Chase. Operator: Thank you. We will take our next question. Your next question comes from the line of Brandon Folkes from H.C. Wainwright. Please go ahead. Your line is open. Brandon Folkes: Hi. Thanks for taking my questions and congrats on the progress. Maybe just sort of at a high level, post the partnership, how quickly do you expect to grow the PolyPid Ltd. pipeline? With you manufacturing DPLEX, can you just help us think through the evolution of PolyPid Ltd. in 2026 and 2027 through being a manufacturing partner, but then also redeploying capital into the pipeline going forward? And maybe just one more from me. In terms of the FDA filing in early 2026, anything that you need or any sort of answers coming out of that pre-NDA meeting that could extend that timeline? Just sort of how are you feeling about that meeting and sort of anything that may come out of that versus that guidance. Thank you. Dikla Czaczkes Akselbrad: Thank you, Brandon. So I will start with your second question. In terms of our readiness for submission and where we stand, all the modules are ready for submission. The CMC and the nonclinical module are finalized, and the clinical module is being completed. We will incorporate, obviously, any FDA feedback after the December meeting and then start the rolling submission early 2026. We do not expect anything in particular. I can tell you that in the last year or so, we had a handful of correspondence with the FDA on specific aspects that we wanted to clear, specific that we wanted to make sure that we are on the right path. But, obviously, having the meeting early December and us wanting to submit in early 2026, there will be some things that will need to be incorporated based on the feedback and the meeting, but we do not expect this to be substantial. We will obviously update once we get the FDA minutes on the actual meeting, whatever we can update at this point. But there is nothing that we expect on that. As to your question on I would even broaden it a little bit, our vision for PolyPid Ltd. and our vision for the DPLEX platform. The way we see it, obviously, a US partner on the abdominal indication is very important. But our platform and our SHIELD II is a validation to our approach and to our ability to bring product in that format. We have our younger program, which will need to accelerate on this, and we have already been working on them, whether it is in the oncology space or in the obesity, diabetes space, but we also see DPLEX growing farther behind the abdominal indication. And that is also something that is a potential growth. Operator: Thank you. Once again, if you wish to ask a question, please press 1. We will take our next question. Your next question comes from the line of Bupalan Pachaiyappan from ROTH Capital. Please go ahead. Your line is open. Bupalan Pachaiyappan: Good morning, everyone, and thanks for taking our questions. So firstly, with respect to market research, you guys just described, it is pretty exciting. And I just need some additional thoughts on that. So firstly, can you talk to us about the sample size of your market research study? And then in that, specifically, the percentage of those who participated in the research, they were involved in the decision-making process. And within that market research question, I also wanted to know whether you had an option to sort of assess the preliminary thoughts on utilizing DPLEX 100 in the gynecology and urology area. Can you hear me? Ori Warshavsky: Yes, we can hear you. Go ahead, Bupalan. Bupalan Pachaiyappan: Yeah. And then what pricing point would make them comfortable to utilize DPLEX 100 in the US formulary? That is the first question. Ori Warshavsky: Yeah. So all good questions. So in terms of the study itself, first, it is a qualitative study. The study was split into two. There were 10 surgeons, general surgeons, colorectal and gynecology surgeons. That is one. And then there were 10 pharmacy directors, both from standalone hospitals and network hospitals. Everyone who participated in this study was either running the P&T process or a contributing member to the process. So that was by design. The purpose of the study was to have people who are on a formulary. And then you were asking about the second part again. I lost my thought. Dikla Czaczkes Akselbrad: Maybe before that, I would just add, Bupalan, that this is not our first market access study. We have done several in the past, and besides for the pricing that we saw a higher price in this and a premium in reference to the NTAP, all were much in line. Now it is very detailed. It is actually we use the actual data that we saw in SHIELD II. Obviously, everything is blinded. They did not know the actual product, but it was very detailed in terms of referring to the specific product and the specific result that we had in SHIELD II. Bupalan Pachaiyappan: Alright. That is very helpful. And then second, I understand you are advancing your partnership discussions in the US. And this may be some sort of hypothetical questions or sort of I am just thinking out loud. So I wanted to know, let us just say there is a global firm that wanted to commercialize DPLEX 100 in the US as well as in the Ex-US regions. And, obviously, on existing arrangement with Advance Pharma, so I wanted to know if this existing arrangement would, in any way, provide some sort of barriers or impediments to forge a partnership with a global player? And will there be any sort of, like, a buyback clause with the Advance Pharma agreement? Dikla Czaczkes Akselbrad: So, no, there is nothing in the Advance agreement. Advance is our exclusive partner for Europe, but nothing out of that is part of this arrangement. US, Canada, all the rest of the world, it is not covered by this arrangement. If one of the partners, if it is a global partner, they would want to include Europe as part of the discussion. We will need to see if this is feasible. But it is not something that we plan on pursuing at this stage. Bupalan Pachaiyappan: Alright. Great. And one final question from us. Obviously, DPLEX 100 will be manufactured in Israel. And as you are well aware, there is a push within the US for domestic manufacturing. And, also, its connection with most favored nation pricing. So maybe can you talk to us about potential challenges or barriers that PolyPid Ltd. needs to overcome to commercialize DPLEX 100 in the US? Thank you. Dikla Czaczkes Akselbrad: So, yeah, first, I should mention that our current facility, and we have indicated this along the years, is not our end goal facility. It will not be sufficient for the peak sales. This facility is built in a way that it should be sufficient for the first five years of commercial launch. And we have already started planning and evaluating what should be our next facility or expanded facility, and we are taking into consideration. So the trend in the US around local manufacturing is something that we are taking into consideration. We are thinking about the expansion of the facility. Bupalan Pachaiyappan: Alright. Congratulations again. Thanks for your time. Operator: Thank you. There seems to be no further questions. I will now hand back to Dikla for closing remarks. Dikla Czaczkes Akselbrad: Thank you for joining PolyPid Ltd.'s third quarter 2025 Earnings Conference Call. This has been a highly productive period as we execute on our regulatory strategy and move closer to our goal of bringing DPLEX 100 to patients and clinicians worldwide. With our pre-NDA meeting scheduled for early December, and our NDA submission on track for early 2026, we are confident in our path forward. At the same time, we are making important progress in partnership discussions and commercial partnerships while advancing our manufacturing readiness to support a successful launch upon approval. We look forward to sharing further updates on our regulatory and commercial milestones in the months ahead. As always, we thank our team members, partners, and shareholders for their ongoing support and commitment to our mission. Operator, you may now close the call. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Today's conference call will start momentarily. We thank you for your greetings and welcome to the Loar Holdings Inc. Third Quarter 2025 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ian McKillop. Thank you. You may begin. Ian McKillop: Thank you, Rob. Good morning, everyone. And as Rob said, welcome to the Loar Holdings Inc. Q3 2025 Earnings Call. This morning are Loar's Chief Executive Officer and Executive Co-Chairman, Dirkson R. Charles, Executive Co-Chairman, Brett N. Milgrim, Treasurer and Chief Financial Officer, Glenn D'Alessandro, as well as myself, Ian McKillop, Director of Investor Relations. Please visit our website at loargroup.com to obtain a slide deck and call replay information. Before we begin, we'd like to remind you that statements made during this call, are not historical in fact, are forward-looking. Further information about important factors that could cause actual results to differ materially from those expressed or implied on the forward-looking statements please refer to our latest filings with the SEC available through the Investor Relations of our website. Also as a reminder, during the call, we will be referring to adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, and free cash flow conversion, each of which is a non-GAAP financial measure. Please see the tape and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliations. To begin the prepared remarks this morning, I'll pass it over to Dirkson R. Charles. Dirkson R. Charles: Thanks, Ian. So my mates at Loar and I, we get up every day to create shareholder value over the long term. When we went public, we added a plethora of new partners to join our journey in building our aerospace and defense cash compounder. I got up this morning thinking about one such partner who we know is totally, totally aligned in our approach of building our business over years and decades as opposed to a quarter at a time. He was the one that told us we are boring. I did not name him on the call, so it was interesting when we spoke to him after the call. He said, Dirkson, Brett, was I not the one that called you boring first? Of course, the answer is yes. He then reminded us about the importance of intellectual property. How could we quote him without saying who he was? It is his IP after all. As you all know, we love IP. Here's the good news. We're going to be boring today. We're going to name the whole of the patent over the adjective that truly describes us. He has been with us since we went public, which is going on two years now. And along the way, he has continued to invest more in us. So before we name him, to respect his IP, let's remind everyone what it means to be boring. It means we're about to tell you that we beat, we're raising our guidance, but more importantly, generated strong cash flows. In addition, to telling you we continue to improve our margins while achieving record sales, adjusted EBITDA, and adjusted EBITDA margins during the quarter. We're then going to give you guidance in 2026 that we're doing with the Heather rule in mind. Given that we do not want to sacrifice Ian, which means we're only going to tell you what we believe we can meet or beat. I'm going to get started with my remarks but first let me name the person that called us boring. His name is Steve. Good morning, Steve. Good morning, all. We are about to be super boring, so here goes. I'm Dirkson R. Charles, Founder, CEO, and Co-Chairman of Loar Holdings Inc. As always, we'll keep our remarks brief. So let's start by reminding you who we are. Loar Holdings Inc. is a family of companies with a very simple approach to creating shareholder value. First, we believe that providing our business units with an entrepreneurial collaborative environment to advance their brands will generate above-market growth rates. Since our inception in 2012, through the end of calendar year 2024, we have grown sales and adjusted EBITDA at a compound annual growth rate of 37% and 45% respectively. Over the long term, we expect to increase sales organically at a double-digit percentage with the last three years 2022, 2023, and 2024 achieving organic sales growth of 18%, 14%, and 15% respectively. With adjusted EBITDA growing at a faster rate, we execute along four value streams. First, we identified pain points within the aerospace industry and look to solve those problems through organically launching new products which we believe over the long term will create one to three percentage points of top-line growth annually. Over the next two years, we expect that new product growth will be closer to 3% as we qualify new parts, sell existing products to new customers, and just dive deeper into our mission of solving our customers' pain points. As you all know, we track this pipeline of opportunities monthly. It represents a list of opportunities across our portfolio that are derived from listening to our customers to identify their pain points to determine how we can help. It is created from sharing ideas, best practices, customer synergies across the group to the high degree of collaboration that we foster across our business units. This list, as you can see, has grown by $100 million since our last call and represents over $600 million in sales over the next five years. As you can see, the beauty of the list is it is a living, breathing entity that continuously grows. We also focus on optimizing the way we manufacture, go to market, and manage to enhance productivity. Each year we'll identify initiatives that will allow us to continually improve our performance with a focus on one or two major initiatives each year that will improve margins. Over the next couple of years, we are looking to enhance the way we mine, gather, and utilize data. This means enhancing our management ERP and other systems and processes to improve our leverage of data to drive the improvement in our cash flows. In addition, across our portfolio of companies, we'll achieve more price than our cost of inflation. Each year, the result is a continuous improvement in margins year over year with on occasion a temporary dilution as a result of acquiring business with dilutive margins or incurring costs as a result of being a public company. All of which we have experienced over the years. But regardless of these temporary headwinds, we continue to improve our margins. Most importantly, we are committed to developing and improving the talent of all our mates, because our success is solely a result of their dedication and commitment. To all our mates, thank you so much for your commitment and hard work. I will now turn it over to Brett N. Milgrim to walk you through the key characteristics of our portfolio. Brett N. Milgrim: Thanks, Dirkson. Everybody, I think you've seen this slide, we've had it in all our presentations. So I don't want to belabor it, but the reason this slide is in there is really just to remind people that we have a very consistent and very attractive business model as highlighted by all the boxes on the bottom of the page that we apply all our parts to. And those parts cut across a very broad and very diverse set of end markets, customers, and virtually any platform that you can think of that flies. And the way that ultimately manifests itself is in the strong performance that we've had that is consistent, reliable, and dare I even say boring. Ian McKillop: Excellent. Thank you, Brett. Over the last thirteen years, we brought together a unique set of capabilities and products that are highlighted here. We go to market with more than 20,000 unique products, none of which makes more than 3% of our annual revenue. Whether it's sensors or switches, water purification systems, de-icing technologies, human interface device systems, or one of our many other products, we are an essential supplier across the aerospace and defense industry. Our customers have come to depend on our highly proprietary products, quality, on-time performance, and engineering capabilities to ensure they are able to maximize their production and aircraft operations. I'll now pass it over to Glenn D'Alessandro to walk through the financials. Glenn D'Alessandro: Thank you, Ian. Good morning everyone. Let me start by discussing sales by our end markets. This comparison will be on a pro forma basis as if each of our businesses were owned as of the first day of the earliest period presented. This market discussion includes the acquisition of Applied Avionics in Q3 '24 and Beadlight in Q3 '25. We achieved record sales during Q3 '25. In total, sales increased to $127 million which is a 15% increase as compared to the prior year. This increase was driven by strong performances in commercial aftermarket, commercial OEM, and defense. Our commercial aftermarket sales saw an increase of 19% in Q3 2025 versus Q3 '24. This is primarily driven by the continued strength in demand for commercial air travel and an aging commercial fleet. We continue to see strong commercial aftermarket bookings. Our total commercial OEM sales increased by 11% in Q3 2025 as compared to the prior year period. This increase was driven by higher sales across a significant portion of the platforms we supply along with an improving production environment for commercial OEMs. The increase of 70% in our defense sales was primarily due to strong demand across multiple platforms and an increase in market share as a result of new product launches. Defense sales will continue to be lumpy given the nature of the ordering pattern of our end customers for our products. Let me recap our financial highlights for 2025. Our net organic sales increased 11.1% over the prior year. Our gross profit margin for Q3 2025 increased by 380 basis points as compared to the prior year period. This increase was primarily due to our operating leverage, the execution of our strategic value drivers, as well as a favorable sales mix. Our increase in net income of $19 million in Q3 2025 is primarily due to a tax benefit as a result of the enactment of the One Big Beautiful Bill Act, higher operating income, and lower interest. Adjusted EBITDA was up $11 million in Q3 '25 versus Q3 '24. Adjusted EBITDA margins were a record 38.7% due to our operating leverage, the execution of our strategic value drivers, and a favorable sales mix. This was partially offset by additional costs with being a public company including Sarbanes-Oxley compliance and additional organizational costs to support our reporting, governance, and control needs. We did not see a material increase in these types of costs going forward. We believe the run rate of these costs is fully reflected in our Q3 '25 results. From 2020 through 2025, we will have increased our EBITDA margins by 710 basis points. We have achieved this growth through the following: operating leverage, winning new profitable business, executing on productivity initiatives, and from value-based pricing. In Q3 2025, our margins grew by 190 basis points from the prior year to a record 38.7%. This was achieved even with the negative impact of costs related to Sarbanes-Oxley from being a public company as well as the dilution of margins from our most recent acquisition, Beadlight. We are excited to share our most recent view for calendar year '25. This view is in excess of what we told you thirteen weeks ago. Our confidence rests in the great strides we have made executing on our value drivers in the first nine months of 2025 and the strength of our proprietary portfolio. Primarily, we are ahead of our plan on value pricing and productivity initiatives. In addition, we have not seen any material in demand on any of our end markets and expect no meaningful impact on our end markets as a result of the tariff environment. The one end market to note is total commercial aftermarket. Given the strength we have seen in the first nine months of 2025, we are increasing our outlook to low double-digit growth from high single-digit growth. Commercial OEM and defense are in line with our prior outlook. These market assumptions along with our continued execution of our value drivers will allow us to exceed the following metrics for calendar year '25 versus our previous outlook. Net sales were up $1 million, adjusted EBITDA is up $1 million, net income is up $5 million, diluted earnings per share is up $0.05, adjusted earnings per share is up $0.10. We see a further reduction in our interest expense by $1 million. All other assumptions are consistent with our previous outlook. Let me now turn the call back over to Dirkson R. Charles to share our outlook for '26. Dirkson R. Charles: Thanks, Glenn. Look, we are extremely excited to share our initial, I'll say it again, initial view for calendar year 2026. But as a reminder, we can share such a detailed forecast so early in the year because of the substantial proprietary content of our product and service portfolio. Combined with our record backlog as of the end of 2020, both of which allow for tremendous visibility into 2026. This view is on a pro forma basis assuming we own all of our business units since the beginning of 2025. So with that said, we expect commercial OEM and aftermarket growth will be low double digits in 2026. With the strong backlogs at the commercial aircraft producers, we see another year of double-digit growth. With regards to our assumptions about monthly production rates, for the Boeing 737 MAX and A320 family of aircraft, we have assumed that monthly production will average thirty-eight and fifty-four during 2026 respectively. This is between a 15% to 20% reduction from the OEM skyline projections that they all talk about. This is how we adjust for any supply chain challenges, destocking, that inevitable part of the complicated ecosystem of making parts for aircraft. So let's meet and exceed. Commercial aftermarket growth again will be driven by the continuing secular growth rate of air travel combined with an older in-service fleet as OEM production continues to not meet demand for aircraft. It is noteworthy that the average age of the passenger fleet worldwide is a record fourteen plus years currently. Given that airlines have learned to affordably maintain aircraft for longer combined years, we expect that with the production of aircraft not covering retirements and plus a secular growth, that the aftermarket will stay strong for quite a period of time. We also see strength in general aviation with Q3 2025 departures setting a record at over 1 million. How do we say it? We love the aftermarket. While our defense end markets will be up mid-single digits as we come off a fantastic year of growth. As we have always said, growth in the defense end market will be choppy. So up, down, up, down over the long term, lots of cash. So we think about it. These market assumptions along with our continued execution of our value drivers will allow us to meet or exceed the following for calendar year 2026. Net sales between $540 million to $550 million, adjusted EBITDA between $209 million and $214 million, adjusted EBITDA margin of approximately 39%, once again demonstrating our ability to continually improve margins. Net income between $80 million and $85 million, adjusted EPS between $0.98 and $1.03 per share. In addition, we expect capital expenditures of approximately $17 million, full-year interest expense $25 million, effective tax rate will be approximately 25%, depreciation and amortization of $15 million, non-cash stock-based comp of $17 million with the fully diluted share count of 97 million shares. Please note that all of the amounts I've just outlined for you relating to calendar year 2026 performance assume no additional acquisition and does not include the previously announced pending acquisition of L and B, Frans and Motors. However, as we have noted previously, our drumbeat is to complete one or two acquisitions each year. But we just cannot predict the timing of such acquisition. One last metric I will share. Related to calendar 2026. We expect operating cash flow minus capital expenditures greater than 125% of our net income assuming no additional acquisition. With that operator, let's open up the line for questions. Operator: Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Kristine T. Liwag with Morgan Stanley. Please proceed with your question. Kristine T. Liwag: Hey, good morning everyone. Dirkson R. Charles: Good morning. Good morning. Kristine T. Liwag: Congratulations on your record margin in the quarter despite the two headwinds that you called out, including the dilution from the recent deal. I guess, can you provide more color now with what the operating and integration playbook looks like thirty, sixty, ninety days after a deal? Are there some heuristics operationally that you could call out? And where do you usually find low hanging fruit? Dirkson R. Charles: So, good morning, Kristine. So it varies by the business that we acquire, right? Some businesses require, put it this way, a lot of handholding, others just require strategic direction. Specifically, to Beadlight our recent acquisition, great business, great team, great leader in Gina. It's more about in this case, the first thirty, sixty days which is always the case, I should start there. Is listen and observe first. We don't believe that we're smarter than the folks that have been running the business for years. Right. So we listen and watch and learn first. And help wherever they come to us initially. In Beadlight's case, it's more about top line synergies. Right? We have embedded Beadlight with our short business. So Gina actually reports to President at Short. To incorporate the outreach to customers in a synergistic way. At Short, as you know, we make seat belts and restraints for effectively the same customers that Beadlight is selling to. So in the case of Beadlight, it's more about the synergy with customers and focusing in that manner, which we have started with really have a tremendous runway ahead of us in terms of opportunity. Kristine T. Liwag: Great. That makes sense. And then with your commercial aerospace OE outlook for next year, Dirkson, can you provide some color regarding the underlying production rates that underpin those assumptions? Dirkson R. Charles: Yeah. That is that I think what I outlined was the production numbers that we are dealing to thirty-eight and fifty-four that's Boeing and Airbus respectively. That's what we're looking at. Now I will tell you that varies tremendously by part. That's the net net net of everything that we've seen and touched across the group. So we can have a track liner at one number and we can have a water purification system at another number just driven by what's in the pipeline, what customers are expecting, those types of things. But on the average, we're looking at 38 for the max and 54 for the A320 family. Kristine T. Liwag: And for the wide bodies too? Dirkson R. Charles: For the wide bodies, I would say it this way. The discount isn't as great. I think we discounted the 15% to 20% on the narrow bodies, on the wide bodies versus skylines about 10%. And just keeping in mind, the way we think about it is really going back to our rule of engagement when we give guidance, which is the header. We want to make sure especially at this early stage, I mean, we're in November predicting what's going to happen to the 2026, which is thirteen plus months away. We just want to be conservative. Kristine T. Liwag: Great. Thank you very much. Operator: Our next question comes from Sheila Karin Kahyaoglu with Jefferies. Please proceed with your question. Sheila Karin Kahyaoglu: Good morning guys and congrats on a great quarter. Dirkson R. Charles: Thanks, Sheila. Maybe if I could ask on the same light as Kristine. But just focusing on Defense. Your Defense growth has been superb this year. Your guidance is for about 5%. Why the deceleration? And maybe can you talk about, yes, what's driving the deceleration, whether domestic or international? Dirkson R. Charles: So first of all, I'll say it this way, lessons learned been doing this for three decades. And when you have a defense market that one year is up, as we've seen it somewhere between 16% to 20%. It usually is time for it to be rationalized, right? It should be a mid-single-digit-ish growth rate on the defense side. I'll give you a little bit of specifics. Ground vehicles were strong in 2025. I will tell you as we put together our budget, is a month or so ago now, we looked at terms of our product and ground vehicles and we said, to ourselves that that's a slowdown. We didn't have the backlog at the time. To support it. But what I would tell you today, Sheila, if we were building that forecast today, probably come up with a different result. But since that time, we've seen improved bookings for ground vehicle product. Sheila Karin Kahyaoglu: Okay. Got it. So just normalization of the market and being conservative. Dirkson R. Charles: Correct. Sheila Karin Kahyaoglu: Cool. And then Dirkson, at the beginning, you gave some introductory comments that the new product growth now could be 3% versus your, I think, 1% to 3% historically. Can you talk about some of the areas where you're making particular headway, whether it's an end market, a certain OEM, or, you know, is it a synergy with Beadlight as you pointed to? Where are you seeing that new product growth coming from? Dirkson R. Charles: So this was a little sensitive. Because you're not the only one listening. And I don't want to share information that would make it harder to compete in the market get people focused. But I know there's two things that we talk about quite a bit. Happy to share, because these are two of the reasons why it is improving and we do see it. So one, is on brakes. We are getting certification on PMA brake applications. We've gotten five done this year, most of those within the last three, four months. And in the pipeline, but for the government shutting down, we're probably a little bit ahead. We have another four or so certifications to get. That's one of the reasons that we're going to see higher growth rates over the next couple of years because we're now getting into that business. So that I can talk to. The other one I can speak to is as we think about so that one's aftermarket. I'll give you one that's OE. As we think about the cockpit door barrier, I think we've told folks that got that certified this year, started producing in May on the Airbus platform. We're going to see more of that content growth next year and in the years to come. Because we're exclusive and the majority of the Airbus narrow body aircraft. Those two alone would get us as I said, I didn't say 3%, I said closer to three than one. Those two alone get us closer to 3% than one. Sheila Karin Kahyaoglu: Got it. Okay, great. Thank you so much. And also as Steve said, I don't know why anybody would listen to a boring call like this. So exactly. You could share with us all you want. Thank you. Operator: Our next question comes from Kenneth George Herbert with RBC Capital Markets. Please proceed with your question. Kenneth George Herbert: Good morning, Ken. Dirkson R. Charles: Yes. Hi, Ken. Kenneth George Herbert: Hey, Dirkson. And Glenn, good morning and Ian. Maybe just to start, you did nudge up slightly the aftermarket expectations for this year. Curious if you can talk about what's specifically driving that or how we think about sort of volume versus price in the aftermarket growth this year? Dirkson R. Charles: It's all across our products. I can't think of any one that stood out in terms of driving the aftermarket growth change. It's really across all the products. And it's volume driven not price. We're just seeing well, I guess I'll put it this way. When we put together a guide as we always do, we think of it in such a way to make sure that we meet or exceed, I think you know that. So it's actually what's not surprising to us that it's low double-digit growth. Just like we're starting out this year, thinking it's low double-digit growth. Commercial aftermarket, I got to tell you is extremely strong. I know some folks we talk to worry about it slowing down. I got to tell you Ken, don't see it. So going back to your question, volume driven not price and it's across all of our product offerings. Kenneth George Herbert: That's great. Thank you, Dirkson. And as we think about the initial outlook for 2026, again up sort of low double, similar contributions as we think about the volume and price mix in 2026 on the aftermarket? And then under that, I guess, we think about '26, are you seeing any acceleration or deceleration underpinning that by end market from '25 to '26? Dirkson R. Charles: No. But you can no. I don't see anything. So I guess I should say it this way, right? So across all the end markets, I see this, I see over the last three years or so, that as we think about the mix of what drove growth, that I would put it in this way, volume price, then new business. That's probably the last three years. The next two or three years, I would rank it this way. New business, volume, and then price. So to answer your question, don't see any slowdown on volume, don't see any risk in terms of any long-term destocking. No, that said, I know we're talking about 26%, but does remind me as we think about I hate guiding for thirteen weeks. Which is what you guys force us to do. We get to this point in the year. We're talking about the 2025. I will tell you Ken, I am seeing more noise from customers. By the way, we love them. From customers in terms of cosmetically managing their balance sheets, and managing working capital. And there's a lot of push-pull within our system as to the timing of deliveries. It's all timing. It's all proprietary products, all those things. I would say that about 2025. But in terms of 2026, fairly strong across all the end markets, talked about military, just trying to normalize what we think about what 2026 should look like. Kenneth George Herbert: Great. Thanks, Dirkson. And appreciate all the detail. Dirkson R. Charles: If that's the last question, operator. Operator: Yes, it is. Would you like to do closing comments? Dirkson R. Charles: Yes, I can close it up real quick. First of all, big thank you to everyone that has taken the time to hear our story again today. Believe me, believe me when I say we continue to be excited about building our aerospace as cash compounder. We call it Loar Holdings Inc. Looking forward to speaking to you all again in late February 2026. Just to give you a date this time. Thank you. Thank you very much. And by the way, thank you everyone for calling in on time. Love you guys. Thank you. Operator: This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.
Operator: Good morning. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to Valens Semiconductor's Third Quarter 2025 Earnings Conference Call and Webcast. All participant lines have been placed in a listen-only mode. Opening remarks by Valens Semiconductor Management. I will now turn the call over to Michal Ben Ari, Investor Relations for Valens Semiconductor. Please go ahead. Michal Ben Ari: Thank you, and welcome, everyone, to Valens Semiconductor's Third Quarter 2025 Earnings Call. With me today are Gideon Ben-Zvi, Chief Executive Officer, and Guy Nathanzon, Chief Financial Officer. Earlier today, we issued a press release that is available on the Investor Relations section of our website under investors.valens.com. As a reminder, today's earnings call may include forward-looking statements and projections which do not guarantee future events or performance. These statements are subject to the Safe Harbor language in today's press release. Please refer to our annual report on Form 20-F filed with the SEC on February 26, 2025, for a discussion of the factors that could cause actual results to differ materially from those expressed or implied. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy. We will be discussing certain non-GAAP measures on this call, which we believe are relevant in assessing the financial performance of the business, and you can find reconciliations of these metrics within our earnings release. With that, I will now turn the call over to Gideon. Gideon Ben-Zvi: Thank you, Michal. Hello, everyone, and thank you for joining us. Before we begin with the rundown of our Q3 highlights, I would like to take a moment to acknowledge our leadership transition. As you know, this will be my last earnings call. As of tomorrow, Johann Stalinger will assume the role of Chief Executive Officer of Valens Semiconductor. Johann brings over 25 years of leadership experience in global IT companies and a track record of driving growth, innovation, and successful exits. As I step down from the CEO position, I will continue to be a Board member of the company. And now, let's discuss the business highlights. We are pleased to report a strong third quarter well above our initial expectations. We delivered revenues of $17.3 million, significantly above our guidance range of $15.1 million to $15.6 million, as customer demand exceeded expectations in the ProEV market, marking the sixth consecutive quarter of growth for our company. Looking ahead to Q4 2025, we expect revenue to be in the range of $18.2 million to $18.9 million, setting us up for a seventh straight quarter of growth. For the full year of 2025, we expect revenue to be in the range of $69.4 million to $70.1 million. GAAP gross margin for Q3 2025 came in at 63%, better than the guidance, and adjusted EBITDA loss was $4.3 million, above the guidance range. I'll begin our quarterly discussion with a review of our cross-industry business unit, which covers Industrial Machine Vision, medical, and the traditional professional audio-video, where our customers have reported better-than-expected demands. In ProEV, we are succeeding with our strategy of first targeting high-end products and allowing the rest of the market to follow. Adoption of the VF3000 chipset continued to grow, underscoring the demand for long-range distribution of uncompressed 4K video. The VF3000 remains the only solution available that delivers HDMI 2.0, high-fidelity audio, Ethernet, USB 2.0, control signals, and power over a single category cable at distances up to 100 meters. One notable trend in Q3 was the growing adoption of matrix solutions. These are increasingly being used to deliver high-resolution video in command and control centers, museums, and live events. Several market leaders have launched state-of-the-art matrix products powered by the VF3000, including Extron's DTP3 Crosspoint, Kramer's MTX3, and Atlona's 4K HDR switcher. We also had exciting news from the field regarding our USB 3 extension solution, the VX6320. A major player that had previously been designing with a competing technology has now engaged us in four new designs based on the VX6320. We expect continued strong interest in this product moving forward. Staying with the cross-industry business unit, let's turn to Industrial Machine Vision. In July, we announced our VA7000 chipset, the series originally developed for automotive, is powering the market's first end-to-end camera-to-processor, MiP A5 platform from T3 embedded. This solution provides the industry's first product-ready path to implementing the standard in AI-based embedded vision systems. We are observing strong momentum for MiPi A5 from within the ecosystem. Companies are impressed by A5's superior performance. Next quarter, we're excited to showcase the MiPi offering alongside customers and partners at ITE in Yokohama, Japan, an important region for Industrial Vision Systems. We continue to expect Industrial Machine Vision to become an increasingly meaningful part of our revenue mix in the coming quarters, with initial revenue anticipated by the end of 2026 and strong growth potential in the years that follow. I would like to conclude the discussion of our cross-industry business unit with an update on the notable progress we are making in medical endoscopies. You have heard us speaking about disposable endoscopy several times; it is time to be explicit. Recently, we announced some exciting news. Three OEMs launched the first V7000-based endoscopies on the market, including the first disposable colonoscopy with 4K video resolution. As a reminder, the VA7000 chipset is the first on the market with built-in electrosurgical noise cancellation. To explain how important this innovation is, I would like to cite the International Standard Governing safety and performance requirements for medical endoscopies. Quote, "The short interruption of illumination or image display shall not be considered unacceptable degradation for endoscopies equipment." That is to say, the official standard governing safety and endoscopy procedures allows for video loss. And the reason is simple: until now, there have not been endoscopies that could flawlessly handle electromagnetic interference while supporting the highest resolution sensors. Valens technology offers a solution for endoscopy vendors that provides a seamless video experience, and that's the main reason why we're seeing such strong market fit both for single-use and reusable medical endoscopies. In the medical world, there are two major trends: reducing the use of invasive surgeries and shifting toward single-use medical devices. Valens solution addresses both of these emerging needs by enabling high-resolution video transmission and allowing for surgical procedures to be performed without electromagnetic interference. We will be showcasing the medical offering next week at the medical trade show taking place in Düsseldorf, Germany, and we anticipate considerable interest driven by the growing momentum this solution is generating across the market. Our goal over the next year is to secure additional design wins and continue supporting existing ones, always with the aim of ramping into mass production starting in 2027 to 2028. This market represents a long-term growth opportunity. It's known for its high barrier to entry, but stickiness tends to be strong once you're in. Now, I would like to turn to the automotive industry. A reminder, our opportunity in automotive is dominated by the VA7000, which offers high bandwidth and best-in-class EMI immunity. It is the first chipset on the market to comply with the MiPi A5 standard for high-speed sensor connectivity. Late last year, we announced three design wins with leading European OEMs for this solution, gaining a strong foothold for A5 within the global OEM community. To drive A5 forward, ensure it is the key connectivity standard in the automotive industry, we collaborate with multiple silicon vendors, validating interoperability as the A5 solution comes to market. The impact was clear in Q3 as another A5 provider announced the standard for design win. This makes A5 the first automotive standard to secure design wins across more than one silicon vendor. Another important milestone for MiPi A5 came from Sony Semiconductor Solutions, which announced the upcoming release of the IMX828, the automotive industry's first image sensor with a built-in MiPi A5 interface. According to Sony, the camera brings a number of benefits to OEMs and Tier 1s, including reduced cost, compact bolt size, suppressed heat generation, reduced camera module power consumption, and improved resistance to error due to external noise. Having an integrated product is a pivotal milestone for any standard, and this is why Valens partnered with Sony from the early stages of this product development, ensuring that the camera met the A5 specification and was interoperable with our VA7000 chipset. When Sony markets this chip to its customers and partners, it is highly likely that the Valens VA7000 will be involved on the receive side. MiPi A5 also received another major endorsement by a leading player in the automotive industry, Samsung Electronics. We were proud to announce strong market interest from global OEMs. In addition, last quarter, Samsung is supporting the MiPi A5 standard, reflecting we will fabricate our new generation of A5 solution at Samsung Foundry. Here is what Samsung Corporate VP, Foundry Technology Planning stated about MiPi A5: "OEMs are demanding a next-generation connectivity solution that can ferry them to higher levels of ADAS and autonomous driving. And MiPi A5 offers the key technical breakthroughs necessary to achieve this." It's clear that the momentum around MiPi A5 is building all around the world. We continue to be engaged in several evaluation processes with multiple OEMs, each at different stages of development. This sustained activity highlights the growing strengths of the MiPi A5 ecosystem and its acceptance as an emerging industry standard. We remain confident in our leadership position in MiPi A5, supported by three design wins with leading European OEMs and a strong partnership with Mobileye. With that, Guy, please go ahead and discuss our financial performance in more detail. Guy Nathanzon: Thank you, Gideon. I'll start with our third-quarter results and then provide our outlook for the fourth quarter and full year of 2025. We generated quarterly revenue of $17.3 million, exceeding our guidance range of $15.1 million to $15.6 million. This compares to revenues of $17.1 million in Q2 2025 and $16 million in Q3 2024. Cross-Industry Business (CIB) accounted for $13.2 million or approximately 75% of total revenues, while automotive contributed $4.1 million or approximately 25% of total revenues this quarter. This compares to Q2 2025 revenues of $12.8 million from CIB and $4.3 million from automotive, which represented 75% and 25% of total revenues, respectively. In Q3 2024, revenues from CIB were $9.4 million, and $6.6 million were from automotive, or approximately 60% and 40% of total revenues, respectively. Q3 2025 gross profit was $10.9 million compared to $10.8 million in Q2 2025 and compared to $9 million in Q3 2024. Q3 2025 gross margin was 63%, compared to our guidance range of 58% to 60%. This compares to a Q2 2025 gross margin of 63% and 56.4% in Q3 2024. On a segment basis, Q3 2025 gross margin for the CIB was 69.1%, and gross margin from automotive was 43.2%. This compares to Q2 2025 gross margin of 67.8% and 50.5%, respectively, and for Q3 2024 gross margin of 70.3% and 36.8%, respectively. The increase in gross margin of the CIB compared to Q2 2025 was due to a change in product mix. The decrease in Q3 2025 in automotive gross margin compared to Q2 2025 was due to product versions mix and certain operational expenses related to manufacturing line transition. Non-GAAP gross margin in Q3 was strong at 66.7%, which compares to 67.2% in Q2 2025 and 60.7% in Q3 2024. Operating expenses in Q3 2025 totaled $19 million compared to $18.2 million in Q2 2025 and $21.3 million in Q3 2024. Research and development expenses in Q3 totaled $10.8 million compared to $10.2 million in Q2 2025 and $10.3 million in Q3 2024. SG&A expenses in Q3 were $7.4 million compared to $8.9 million in Q2 2025 and $10.7 million in Q3 2024. The decrease compared to Q2 2025 is mainly due to income from a certain batch production incident in the amount of $1.5 million recognized for insurance claim payments. Change in annual liability in Q3 was an expense of $700,000 compared to an income of $800,000 in Q2 2025 and an expense of $300,000 in Q3 2024. The change compared to Q2 2025 is mainly due to reassessment of the earnout amount to be paid to the Acronym's shareholders. GAAP net loss in Q3 2025 was $7.3 million compared to a net loss of $7.2 million in Q2 2025 and a net loss of $10.4 million in Q3 2024. Adjusted EBITDA in Q3 2025 was a loss of $4.3 million, better than the guidance range of a loss between $7.4 million to $6.8 million. This compares to an adjusted EBITDA loss of $4 million in Q2 2025 and an adjusted EBITDA loss of $5.1 million in Q3 2024. GAAP loss per share for Q3 was $0.07 compared to a GAAP loss per share of $0.07 for Q2 2025 and a GAAP loss per share of $0.10 for Q3 2024. Non-GAAP loss per share in Q3 2025 was $0.04 compared to a loss per share of $0.04 in Q2 2025 and a loss per share of $0.03 in Q3 2024. The difference between GAAP and non-GAAP loss per share was mainly due to stock-based compensation, change in earnout liability, depreciation and amortization expenses, and certain batch production incident income. Turning to the balance sheet, we ended Q3 2025 with cash, cash equivalents, and short-term deposits totaling $93.5 million and no debt. This compares to $102.7 million at the end of Q2 2025 and $131 million at the end of 2024. During Q3 2025, the company allocated $3.6 million for the share repurchase program, totaling $23.4 million between January 1, 2025, and September 30, 2025. Currently, there is no active share repurchase program. Our working capital at the end of Q3 2025 was $98.9 million compared to $106 million at the end of Q2 2025 and $133.6 million at the end of 2024. Our inventory as of September 30, 2025, was $11 million, a slight decrease from $11.5 million on June 30, 2025, and down from $11.2 million on December 31, 2024. Now I would like to provide our guidance for the fourth quarter and full year of 2025. We expect Q4 2025 revenue to be in the range of $18.2 million to $18.9 million, marking the seventh consecutive quarter of growth in revenues. We expect gross margins for Q4 2025 to be in the range of 58% to 60%. And we expect adjusted EBITDA loss in Q4 2025 to be in the range of $4.6 million to $4.2 million loss. For the full year 2025, we expect revenue to be in the range of $69.4 million to $70.1 million. The midpoint reflects growth of approximately 20% compared to the annual revenue of 2024. I'll now turn the call back to Gideon for his closing remarks before opening the call for Q&A. Gideon Ben-Zvi: Thank you, Guy. Across each of our target markets, Valens Semiconductor is well-positioned for growth, supported by our cutting-edge technology and robust balance sheet. We remain focused on executing our long-term strategy and advancing on our path towards profitability. On a personal note, I would like to say that it has been a privilege to lead the Valens team over the last 5.5 years. I'm confident that in his position as the next CEO of Valens, Johann will accelerate Valens' growth and strengthen its position as a leader in high-performance connectivity across industries. With that, we will now open the call to answer your questions. Operator? Operator: Thank you, ladies and gentlemen. At this time, we will begin the question and answer session. If you wish to cancel your request, please press 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Please ask your question in a loud and clear voice. Your questions will be called in the order they are received. Please stand by while we poll for your questions. The first question is from Quinn Bolton. Go ahead. Neil Anthony Young: It's Neil Young on for Quinn Bolton. Thanks for letting me ask a question. So I wanted to ask about the gross margin across the two businesses. Guy Nathanzon: Specifically within automotive, which dropped sequentially. So last quarter, you talked about the optimization of product costs within automotive. This quarter, it looks like the sequential drop was due to product versions mix and certain operational expenses related to line transition. I was wondering if you could give a little more detail on what that is. Is this a one-time event? Should we expect this to carry over in future quarters? And then maybe for Q4, kind of walk us through the puts and takes in gross margin for the guide. It seems like it came in a little bit softer than I would have thought. Thanks. Guy Nathanzon: Sure. Hi, Quinn. So we truly believe that this was like a kind of a one-time event related to the mix of different versions of the product during the quarter and related to a one-time expense related to a transition of a certain manufacturing line. And we believe that in the next quarter, that should be improved again. Neil Anthony Young: Okay. So it should maybe return to what it was in Q2? With an auto? Or a smaller step up? Guy Nathanzon: We still I'll be a little bit cautious here. And I will try to avoid providing an exact answer. But it should be improved. It's still early to say what would be the pace of the improvement. Neil Anthony Young: Okay. Thanks. That's very helpful. And then the cross-industry business revenue came in, definitely above what I would have expected. So I know earlier in the year or last quarter when you guys were talking about your guide, there were some concerns around the impact of tariffs. Was that not as bad as previously feared? Sort of what's driving the strength in CIB or more specifically in Pro AV? And should we expect it to grow at a higher rate sequentially than auto in Q4? Thanks. Gideon Ben-Zvi: Hi. Thank you, Quentin. Thank you for the question. We see that the tariff influence is becoming milder, and this is the reason that companies are less reluctant to make new orders, and they know that they can ship what they buy. It's not yet the situation that the market is clear and the atmosphere is clear. It's improving. And as we all read the same press, it's changing daily. But the whole atmosphere around tariffs is far more relaxed, not relaxed to the level before it all started. Neil Anthony Young: Great. Thank you. Operator: The next question is from Suji Desilva from Roth Capital. Suji Desilva: Hi, Gideon. Guy, best of luck in the transition, Johann, best of luck in the new role. So team, the ProAV upside in the quarter, can you give some color on where that is coming from and how sustainable that is? Gideon Ben-Zvi: Sure. ProAV is a very big part of the CIB. And ProAV is mainly much, and there's conference rooms and projectors. It's all one mix. And it comes from all of them. It doesn't come particularly from one. I might say that one niche which is starting to become bigger is the conference room camera. This is a subsegment that might have an entry is this one. But other than that, it's the stuff we know for years, and the market is getting back to what it used to be, and this is the ProAV recovery. I don't think I have a lot more color to put than that, but I believe that this covers where the ProAV is back to. Suji Desilva: Okay. Alright. Thanks, Gideon. My other question, maybe a bigger picture question. Can you talk about the factors that are pacing or gating MiPi broader MiPi adoption, you know, maybe across non-auto and auto just to understand, you know, what you think is kind of left in '25 and '26 to help kind of accelerate that adoption? Gideon Ben-Zvi: You know, MiPi A5 is, I repetitively say, a company like Valens cannot win in points. We can win in knockout. MiPi A5 gives the advantages, the advantages are very blunt. This is correct for automotive and for medical and for industrial. Where people have serious influence of electromagnetic, when electromagnetic is strong and changes the whole ecosystem, this is where we are. And this is part of what the new world has more cameras, it has more resolution, more bits per pixel, more, and they require more bandwidth, and these bandwidth makes the whole system to be more fragile. And when it's more fragile, MiPi A5 is the solution. And that's exactly where we are, and this is the reason for those wins. I am not sure I did answer exactly your question. So if it's not, don't hesitate to elaborate. Suji Desilva: No, Gideon, that was the color I was looking for. I mean, there is sort of up to date. It sounds like bandwidth and higher resolution video is one of the catalysts that's happening, secularly in the market. Right? Just understand. Suji Desilva: Great. Alright. Thanks, guys. Operator: The next question is from Dave Storms of Palmgate. Please go ahead. Dave Storms: Good morning, and thank you for taking my questions. Just wanted to start with the gross profit margin guide in Q4. Year-to-date gross profit margin is tracking around 63%. And you're obviously guiding between 58% to 60%. Is this an expectation that the mix is going to change? Is this typical seasonality? Is this being judicious in the face of the macro environment? Any color here would be great. Guy Nathanzon: Sure. So in the beginning of the quarter, we're trying to estimate the next quarter results based on product mix. And the combination of the revenue drivers. And the result is what we've provided as the guidance. Dave Storms: Understood. Appreciate that. And then just wanted to turn to the medical segment. Great to see if they had the three product launches. Curious as to what the pacing may be around for further product launches and what the logistics look like for expansion there. Gideon Ben-Zvi: Okay. I believe that both of us are not medical doctors, but I try to get this both to the same point of view of a medical doctor. There are stages when the doctor penetrates with the camera in order to see what is in, and then he started to solder or to burn or to do anything. At this time, all the frames are lost. And he's blind, and he uses the memory he had before to see the figures correctly. And the reason for that is because if there is no any resistance of electromagnetic, there is no EMC. The EMI is celebrating, the influence is very high. What we do enable is the continuity of the surgery without losing frames. And this is one of the reasons that it is adopted in the industry. And the other reason is the pressure to move to a single-use endoscopy. This reason is originated by the tendency that's like, is it same as minimal invasive surgery responsible for maybe more than fifty percent of the infections in hospitals. And both the try to move from single-use endoscopy in one end and to have a more resilient system on the other hand and the result third reason, which I'll mention in the second, drive to look for solutions that have immunity against electromagnetic, the doctor would not have lost frames and the cost will be cheaper and enable single-use endoscopy. The third is a little bit more abstract, I'll try to explain it over the phone. Is the distance between the lens and sensor. When they are remote, the surgery sees the what's inside a rebutting like through a stroke. When they are connected, it opens up so we can see a larger picture. And this is a third motivation for why to move from traditional endoscopy to this new endoscopy that enables both a bigger picture, both cheaper and electromagnetic resilience. So the doctor can do whatever he wants without losing frames. Dave Storms: That's great color there. Thank you. Operator: I repeat, if you have a question, please press 1. There are no further questions at this time. Mr. Ben-Zvi, would you like to make your concluding statement? Gideon Ben-Zvi: Yes, thank you. I would like to thank you all for joining us today for our 2025 earnings call and for your continued support and interest in Valens Semiconductor. I hope to meet you again in our next earnings call. Goodbye. Operator: Thank you. This concludes the Valens Semiconductor conference call. Thank you for your participation. You may go ahead and disconnect.
Operator: Good day. Thank you for standing by. Amanda Cray: Welcome to Autolus Therapeutics plc Third Quarter 2025 Financial Results Governance Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message by seeing your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your first speaker, Amanda Cray, Executive Director of Investor Relations. Please go ahead. Amanda Cray: Thank you, Olivia. Good morning or good afternoon, everyone. And thank you for joining us on today's call. With me are Chief Executive Officer, Dr. Christian Itin and Chief Financial Officer, Rob Dolski. I'd like to remind you that during today's call, we will make statements related to our business that are forward-looking under federal securities laws and the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These may include, but are not limited to, statements regarding the status of the ongoing commercial launch of Obe-cel in the U.S., Autolus Therapeutics plc's manufacturing, sales, and marketing plans for Obe-cel, market potential for Obe-cel, the status of clinical trials development, and/or regulatory timelines and market opportunities for our other product candidates. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations and reflect our views only as of today. We assume no obligation to update any such forward-looking statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks identified in today's press release and in our SEC filings, both available on the Investors section of our website. On Slide three, you'll see the agenda for today's call. As usual, Christian will provide an overview of our operational highlights, Rob will then discuss the financial results, and Christian will conclude with upcoming milestones and closing remarks. We'll then take questions. With that, I'll turn it over to Christian. Christian Itin: Thank you very much, Amanda, and let's move to slide number four. Welcome, everybody, and thank you for joining us at the third quarter financial results. We had a very good quarter, and I think we're off to an excellent launch with Obe-cel in the U.S., treating or targeting patients with relapsed refractory ALL. We managed, in the first nine months, to achieve broad market access and coverage and established reliable product delivery. We also believe that there is a significant opportunity to grow the CAR T market in this indication, and we're very pleased with the feedback we're receiving from physicians using the product and the interest expressed in conducting investigator-sponsored trials in frontline settings in ALL as well. We're now at the point where we have achieved a significant amount of stability in our operation and our ability to deliver product in a timely and high-quality manner. And we're now actually focusing on optimizing our operation and really leveraging the investments that we've made in our infrastructure and our systems and have now an opportunity with a lot of data that we collected along the way in these first nine months to optimize our process and with that, drive efficiencies going forward. Importantly, in parallel, we're expanding the opportunity that we believe we have with Obe-cel and are looking to build a pipeline in a product and are working on three current indications. The first one is in pediatric ALL where we're initiating a potentially pivotal study, a phase two study in lupus nephritis, also with an intent to drive towards a label, and an exploratory phase one study in progressive multiple sclerosis. In short, we're focusing on driving market share in ALL, improving the margins, and expanding beyond ALL. Moving to slide number five. Quick view on the performance that we have to date. In our launch of Obe-cel in the U.S., we have achieved $21.1 million in net sales in the third quarter, and we have deferred revenue of $7.6 million, indicating that there is a good number of products currently sitting at the centers at the end of the third quarter, not yet infused and ready for infusion in the fourth quarter. The nine months ended September 30, we achieved $51 million in sales for the product. When we look at how we're executing on product delivery and patient access, we're tracking very well. We had, at the beginning of the year, told you that we're targeting to authorize 60 centers by the end of this year. We achieved that goal. So we're at 60 centers today. And we will keep adding additional centers to fill out the geographic gaps that we're having across the U.S. and with that, minimize the travel distances for patients to access therapy. The manufacturing success rate is well above 90%, and we have attained patient access for more than 90% of U.S. covered lives. So this gives us a very strong foundation, both from a rollout perspective, but also from a dynamic perspective as we're looking into the fourth quarter and into 2026. Moving to slide six. We believe there's a significant opportunity to increase the penetration and grow the CAR T market share. When we look at the level of CAR T use before our product entered commercialization in 2024, we're seeing about 15% market share for CAR T therapies in this indication. When we look in the treatment centers, the 60 treatment centers that we're active in now, which actually cover the vast majority of the relapsed refractory ALL patients, we believe that the market share within that group of 60 centers at this point is probably around 20%. This gives us an opportunity for substantial growth within the centers that we're already present in and the footprint we already built. This is about relationship building and deepening those relationships to really drive the uptake further and actually drive towards the types of levels of uptake that we've seen a few years ago, BLINCYTO achieve in this particular indication. The importance, I think, of the experience the physicians are making with the product really cannot be overstated. The actual hands-on experience is critical here. And we believe that the way that we're seeing the product perform and also what we're seeing being reported or planned to be reported at ASH from the Rocket Consortium indicates that there's a very positive experience that the physicians are making with the product consistent with the experience that we have gained through our development and, in particular, also within our registration study, the Felix study. Moving to slide number seven. We're going now focusing we had a quick look at the launch. We're now focusing on the key approaches here that we're looking to optimize our operation and really improve the overall margins and efficiency. When we look at slide number eight, first, a quick look at changes that we have made within the leadership team. We have three new key members in the team that joined us over the and during the course of the third quarter. First off, Miranda Neville, who some of you may actually have met in the past, has been actually with the company for about five years. And initially worked on the planning and setup of the nucleus facility. Then actually took over the overall program team for Obe-cel and drove the program through the registrations and getting us the approvals in the U.S., in Europe, and also in the UK. And now actually returns back to product delivery in the role of chief technology officer leading the entire team. Cynthia Pigina has taken over from Brent Rice as the U.S. chief commercial and country manager and has an extensive set of experience in oncology, in immunology, but most importantly for us, in cell and gene therapy. She has extensive experience launching products in this space and we believe is extremely well positioned to actually grow the opportunity for Obe-cel from here forward. And then, Patrick Milveni, who's taken over from Andrew Mercika as the chief accounting officer reporting into Rob Dolski, Patrick joins us from Horizon Pharma where he's been going through the very significant growth that that company went through and also increasing complexity and belief is a has an excellent background to really help us actually go through the next phase of optimization and also of growth for the company. Now I would like to sort of highlight also the three members of our team that actually handed over the responsibilities to Miranda, Cynthia, and Patrick. Dave Brochu, who's been the chief technical officer, handing over to Miranda, has done an excellent job building our product delivery team, building also the nucleus facility, taking it into operation, and launching the product. It was a huge accomplishment to actually go through that entire growth phase. And building that entire part of the operation from the ground up. And there's a huge thanks that goes to Dave for that incredible achievement. Brent Rice, predecessor of Cynthia, has done a fantastic job building a very strong commercial team and the systems required, and actually executed an excellent launch of the product. And getting us really rolling, now, I think, in a way that is quite remarkable and gives us, I think, a great outlook as we're sort of looking into 2026 now under the leadership of Cynthia. And, also, Andrew Mercyca had built, obviously, a lot of the infrastructure pieces for a corporate side perspective that Patrick's now taken over. And, also, great thanks going to Andrew as well. So with that, I'd like to move to slide number nine. And just a few thoughts, in terms of the ability to really drive efficiencies and cost savings. I think where we are is that have now built a very strong foundation through the strong launch performance, with a highly reliable product supply. That's been the critical piece that we had to actually build and establish this year. And frankly, has been a very significant challenge for most companies launching cell therapy and in particular CAR T products. Having established that, now gives us an ability also with all the learnings that come out of that experience to really streamline the processes. The training wheels can go off, and we can now focus on making sure that we're just simple, that we're as simple as possible, as straightforward as possible in terms of the processes that we run. Take those processes that we decided that are necessary, optimize them, and automate them to the extent we can. And importantly, innovate. And one of the two key areas that we're planning to and we're focusing to innovate on is really on manufacturing where there's a lot of activity going on. On technology and on automation, but also on the biology side. And on market access, to make sure that we can actually increase the geographic footprint for the product and the ability to actually serve a substantially larger group of patients going forward. So with that, I'd like to go to slide number 10. And we're now actually moving forward looking at the opportunities to expand the potential for and realize the potential of Obe-cel in additional sets of indications. With that, heading to slide 11, a quick overview of clinical trials that are ongoing to expand the use of Obe-cel in additional sets of indications. Starting with the pediatric B ALL study, called CATALUS that is ongoing. We are reporting the phase one portion of that trial at ASH. And we also have just received, a few weeks ago, an RMAT, basically, designation for the program as well. We're in the process of starting up the phase two portion of this trial, and we're excited about the opportunity and, obviously, the opportunity to share the initial experience from our phase one. The second study is the Carlyle study, in severe systemic lupus patients. We had initial data presented at ACR, and I'll briefly talk about that in the upcoming slides, and we're planning for an oral presentation at ASH with a slightly expanded dataset. Lupus nephritis is the focus for our first pivotal study. In autoimmune disease. The study is called LUMINA. And we expect to have the first patient in the study before the end of the year. And then finally, our exploratory phase one study in progressive multiple sclerosis called BOBCAT, BOBCAT started in the third quarter, and we had our first patient dosed in October. Now in addition to the internal studies, we're obviously are gonna support the investigator-sponsored trials. Exploring the use of Obe-cel in frontline settings, but also are obviously, will follow the real-world experience that the ROCCAT consortium is collecting for Obe-cel in relapsed refractory adult ALL, and it's truly a reflection of the real-world experience of our customers collected by them and analyzed by them. So with that, we're going to slide number 12. And just a few words on the data that we actually presented at the conference in Chicago, just at the October. We did present the experience that we had with the product at the 50 million fixed dose level that we have evaluated in six patients. These patients are patients with very advanced disease, very high SLED I scores at inclusion, very significant impact on their kidney function. We have at least six months of follow-up with the patients that we reported on, and we have seen that five out of the six patients achieved DORIS remission, We have 50% of three out of six achieved a complete renal remission. And we have no evidence of new disease activity up to forty months of follow-up and the patients do not receive any lupus-directed therapy. Also, obviously, when you have a, you know, a DORIS remission, your the steroid levels that patients may receive are at or below five milligrams per day. The safety profile with the product was very positive. The patients had no ICANS, no high-grade cytokine release syndrome, no DLTs at fifty million cell dose level. PK and biomarkers, we showed a quick B cell depletion after infusion. We saw then obviously that after at the point when the CAR T cells stopped persisting, that the B cells started to recover, and we do see a predominance of naive B cells and reconstitution more of that data, is expected to be shown at ASH. When we look in terms of now the next steps with the study, there are two directions that we're gonna go, that we're sort of exploring further. One, is actually at fifty million cell dose, adolescent patients aged 12 to 17. A lot of for a lot of these patients with early onset of lupus, they have a particularly challenging course of the disease. And there's a very significant medical need. In fact, when you look at the population, the highest medical need is in the youngest patients. So this will be explored at fifty million cell dose, which is obviously equivalent to, as you may remember, the pediatric level that we would use and just translate it into a fixed dose level. And we're also exploring, one additional dose level, on the adult side to sort of round out the experience. In the SLE patients. The recommended phase two dose is already defined as 50 million cells. Moving to the next slide, slide 13. This is a more detailed look at the safety, for the product. And as you can see, it's a very good safety profile. No ICANS. We only had observed one grade one or grade one CRS, in half of the patients. A short period of neutropenia following lymphodepletion, which was resolved by day twenty two. And no high-grade infections that we have observed in the patients and not unusual for patients that have significant kidney involvement. We have seen patient five patients with transient hypertension, three had pre-hypertension of the five. When we now look on slide 14, this is a view of the I scores and the progression of the SLADE I scores over time looking at each individual patient. And what we're looking at, if you look at the screening, bars, which are on the left-hand side of the respective charts, you can see that every one of these patients had a significant kidney component. This is the blue part of the bar. And then the other colors actually relate in part to increased DNA binding, as well as low complement, which is the black and yellow. And the other colors are linked to other forms of autoimmune manifestation and inflammatory processes, whether this would be mucosal ulcers, rashes, arthritis, alopecia. That we have seen in these patients. So as you can see, these patients have not just actually a renal component, they have a multitude of disease manifestations, And you can see as these patients progress over time, these manifestations actually are very quickly reduced. And we then actually see, with a bit of a lag also in a the majority of the patients, a reduction of the renal signal as well. So all very encouraging. What's important is, again, none of these patients actually had any form of relapse or 15. This is a quick look at the DORIS assessment, and you can see that five out of six patients had a median, achieved a DORIS remission with a median onset of five months. And, again, in terms of the steroid dose, that by month six, all patients had steroid tapered to less than or equal of five milligrams per day. And no other medic no other, lupus medication, of course. Now when we look at the upcoming data presentations on slide six, 16 in oncology, pediatric ALL poster presentation phase one experience from the CATALYST study, adult ALL first, an oral presentation from the Felix trial looking at the impact of the product cell phenotype, so the actual features of the product, and the linkage to the longer-term outcome in these patients. And then second, a poster, which is looking at CAR T cell persistence at month three and the ability to actually predict outcome based on that data, for these patients, the longer-term outcomes. Again, experience from the Felix, from the Felix study. On the autoimmune side, as mentioned, we have an oral presentation for the CARLyle trial. And we just wanna highlight the fact that the ROCCAT consortium has several presentations, one of which looks at the patient characteristics toxicity response after real-world administration of both Obe-cel and brexicel alongside the same time horizon. Centers, which at least to my knowledge is probably the first time we're seeing basically data collection of two CAR Ts in the real-world setting in parallel. With that, we're heading to financial results and, heading over to Rob. Rob Dolski: Thanks, Chris. And good morning or good afternoon to everyone. It's my pleasure to review our financial results for the 2025, I'll be moving in the slide deck to slide number 18. In the third quarter, product revenue for the three months ended 09/30/2025, was $21.1 million, compared with $20.9 million in the second quarter. Our deferred revenue balance at the end of Q3 was $7.6 million compared to $2.1 million in Q2. As a reminder, the deferred revenue balance represents products delivered to the authorized treatment centers but not yet infused for the purposes of revenue recognition in the P&L. Moving on to cost of sales in the third quarter. That amount totaled $28.6 million. As we've discussed previously, this amount includes the cost of all commercial product delivered to the authorized treatment centers, including the product delivered but not yet administered to patients. Essentially, the manufacturing costs related to that deferred revenue I just mentioned. Additionally, cost of sales includes any canceled orders in the period, patient access program product, inventory reserves or write-offs, third-party royalties for certain technology licenses, as well as idle capacity. Our expectation is to see cost of sales improvements as volumes increase and as we improve efficiencies in our own manufacturing operations, as Chris spoke about earlier. Moving on, our research and development expense was $27.9 million for the three months ended September 30, 2025. That's compared to $40.3 million during the same period in 2024. This change was primarily driven by the commercial manufacturing-related employee and infrastructure costs that have shifted from R&D into our cost of sales and inventory accounting. Our selling and general and administrative expenses increased to $36.3 million for the three months ending September 30, 2025. And that's compared to $27.3 million in the same period 2024. This increase was primarily due to the salaries and other employee-related costs driven by increased headcount supporting our commercialization activities. Our loss from operations for the three months ending September 30, 2025, was $71.6 million, as compared to $67.9 million for the same period in 2024. And finally, net loss was $79.1 million for the three months ending 09/30/2025, reduced from a loss of $82.1 million for the same period in 2024. Our cash, cash equivalents, and marketable securities at 09/30/2025 totaled $36.067 billion as compared to $588 million at the end of December 2024. This decrease was primarily driven by net cash used in operating activities and also impacted by a delayed cash receipt of approximately $2.12 billion in our R&D tax credit from the UK HMRC. We continue to believe that with our current cash, cash equivalents, and marketable securities, we are well capitalized to drive the launch and commercialization of Obe-cel in relapsed refractory adult ALL and to generate data in the two pivotal trials in lupus nephritis and pediatric ALL as well as the exploratory phase one trial in MS. I'll now hand back to Christian to wrap up with a brief outlook on expected milestones. Christian Itin: Thanks, Rob. Moving to Slide 20. We expect two, I would say, key data points from our key trials, at ASH related to the pediatric study and the SLE Carlyle study. Also, there's the additional two presentations I already mentioned, coming from the Felix study. We then actually are in the start-up, obviously, of two additional trials, the LUMINA trial in lupus nephritis, our phase two study. And the ALARIC trial in patients with light chain which we're doing in collaboration with Both of those programs expected to have their first patient before year-end. So with that, moving to slide 21, the focus is clearly for us to drive market share in adult ALL, improve margins, and expand beyond ALL. And with that, I think we're ready to open up for questions. Operator: Thank you. And wait for your name to be announced. To withdraw your question, simply press 11 again. As a reminder, please limit yourself to one question and one follow-up. You may get back into the queue for additional questions if time permits. Please stand by while we compile the Q&A roster. Now first question coming from the line of Asthika Goonewardene with Joyce. Your line is now open. Asthika Goonewardene: Hey, guys. Good morning. Thanks for taking my question. I got a simple one. Can you maybe just talk just a little bit about the patient flow that you're getting in here? And the anticipated patient flow going forward. What proportion of these patients do you think are patients who might have been who were in the near term were planned to give Ticartis and or maybe had a treatment decision changed by the physicians to give Obe-cel? Thank you. Christian Itin: That's it. I'm not quite sure whether we can have whether we have that level of resolution. What we do know is, first of all, that we have a good proportion of patients that, clearly, were not initially considered for CAR T therapy, and this is I think we're seeing part of that. We're seeing expansion already of the prior market penetration in the space. Overall, we see, I think, very consistent access of the product and I think very consistent use across the centers. And we're looking forward to all obviously getting, with the additional centers that are opened, you know, so preparing running through this quarter, but also preparing for 2026. And, I'm very excited with the dynamic we're seeing, and I think, we'll have a nice, I think, reception of the additional data that we're expecting at ASH, including the real-world experience with the program. Operator: Thank you. And our next question coming from the line of Gil Blum with Needham and Company. Your line is now open. Gil Blum: Good morning, everyone, and thanks for taking our question. Just maybe a quick one on competitive positioning for Obe-cel. Pediatric patients. Is this a similar concept to what we're seeing in the adult relapsed refractory patients? Meaning differentiating on safety or are you thinking about this? Thank you. Christian Itin: Yeah, thanks, Gil. Good question. So I think that the first part, I think, is to look at the actual patients that are eligible, pediatric patients that are eligible for CAR T therapy. And one of the key groups of patients that are actually not eligible for CAR T therapy are high-risk patients. So, the patient population that we're focusing on is certainly, in the high-risk patients as well. What we do obviously know, and you've seen that, from our prior publications going all the way back to the CARPAL study, in 2019, is that we do have, obviously, also in children, very good safety profile and a very good efficacy profile. Think having consistent, reliable access to product is absolutely critical with pediatric patients. And expanding the access to patients or high-risk patients I think is particularly important that's the group that currently has very limited options. So that's kind of the key focus for the program and, you know, is frankly reflected also by, frankly, the physician interest. That, we have seen and received and were behind the decision that we took here also to move into the pediatric setting, understanding that there is a very significant need that they see for a product with the properties that they see for Obe-cel. Gil Blum: Thank you. Very helpful. Operator: Thank you. Thanks, Gil. Our next question coming from the line of Salim Syth with Mizuho Group. Your line is now open. Salim Syth: Great. Congrats on the progress, guys. Christian, Rob, maybe just I'll ask one and then the follow-up as well. I guess the first one, just I'm thinking about 3Q over 2Q performance of Obe-cel. Was there something in particular that drove the more or less flattish, especially since ATC has ticked up quite meaningfully quarter over quarter? Are you starting to see some seasonality in the business with holidays, etcetera, and you know, how does this relate all to 4Q's or pent-up demand there? I know there's deferred revenue. So that's a question one. And then just on the follow-up question on gross margins. Rob, curious how you're handling D and A in the COGS. We learned from Iovance this quarter that they had loaded a bunch of DNA into their COGS. They are now stripping it out. To at least optically improve gross margins. Curious how much of your COGS is DNA or how you're exactly handling that? Thank you. Christian Itin: Alright. Well, thanks a lot. First off, questions related to sort of the sales numbers. And possible seasonality, in the fourth quarter. So as you remember, as we went through the second quarter, one of the things that we reported on is the fact that CMS had changed from precedence in terms of their reimbursement policy. And that required us to actually change our trade policy, adjust that, and it did lead to a reduction of patients enrolled in the second quarter, which meant that as we went into the third quarter, we had a limited amount of product waiting to be infused and ready to go. And so we had an impact from that CMS decision and sort of the subsequent workup of that. In the second half of the second quarter. But also going through the first half of the third quarter because, obviously, the patients that were not involved, they had not yet been manufactured, And, obviously, that, you know, had contributed to the performance that we were seeing, for the third quarter as well. And we did highlight that also at the Q2 call that this is likely going to be the dynamic we're seeing. What is obviously very encouraging is when you look at the deferred revenue is that, obviously, we have had a very healthy amount of patients that actually got manufactured for and were active that were ready also then for infusion into the fourth quarter. So that's you know, kind of, I think, tells us we're kind of behind that impact you have from CMS, which was sort of bridging, between the second and the third quarter. In terms of seasonality, in the fourth quarter, I think, you know, this is gonna be our first fourth quarter we're gonna be running. And so at this point, I don't think we can easily judge, what the impact what it look like, if there is impact, and what it would look like. We're obviously going now into the Thanksgiving week, in a short in a short while. ASH conference, which also impacts a number of the physicians that we're working with, but also then, obviously, the Christmas break. I think at this point, it's hard to it's hard to actually estimate. And, you know, we'll need to sort of actually go through that and actually gain that experience. I don't think there's something that's easy to sort of actually sort of estimate or adjudicate at this point. With that, I'm handing over to Rob for the growth margin question. Rob Dolski: Yes. So, Salim, thanks for the question. So currently, with respect to any kind of depreciation amortization, it's kind of very typical accounting treatment. So you absolutely see depreciation from the nucleus, the manufacturing facility. Flowing through cost of sales, There are, you know, kind of noncash stock-based comp. That's also in there, as well as, some commercial milestone amortization that occurs in the cost of sales line. So we haven't broken that out. I think it's certainly as we look into next year, you know, we are already starting to think about you know, how do we adjust or how do we think about communications for next year. And so might be something that we can think through a little bit more, but right now, it's it's kinda presented at very typical standard way. Salim Syth: Okay. Thanks so much, guys. Christian Itin: Thank you. Operator: Thank you. And our next coming from the line of Yanan Zhu with Wells Fargo Securities. Your line is now open. Yanan Zhu: Great. Thanks for taking our questions. Was wondering if you could talk about share the CAR T share growth a little more. As you alluded to in your prepared remarks. Where do you think the share growth will come from in the current kind of treatment landscape, in B ALL. And also if you could comment on any frontline consolidation use that you see in the real world. And maybe, as a follow-up, in terms of autoimmune diseases, you give us an updated thinking on the lay of land based on new data from various CAR T players as well as bispecifics players. And how does that affect the positioning of Obe-cel? Going forward. Thank you. Christian Itin: Okay. Thanks, Yanan. I think these are three questions, so I'll try to tackle those, in one go. So first of all, the question of growth, where the where can growth come from? I think what's important to understand is that when we look at the CAR T penetration at this point in time, in the relapsed refractory adult ALL setting, at the centers that we're already present in, it is at approximately 20%. To put it differently, the majority of the patients at this point are not yet receiving CAR T therapy. And that gives you a significant opportunity for growth in the current centers that we're already active in. And that has to do, obviously, in a change of practice because, obviously, these patients get treated today, typically without a transplant or other, sort therapeutic modalities. And so there is a significant opportunity to keep growing the centers to gain experience, for the physician to get comfortable with the treatment modality, and to grow from there. Into the broader set that's captured in our label and that is currently, at this point, many of these patients receiving other types of treatment. Obviously, what's very helpful here is the fact that the product is well manageable. It has obviously a good safety profile. It's well manageable. And that builds confidence. So the experience that we think actually well, one of the key elements of experience is obviously the safety versus the immediate experience. But the second part is also that these centers have obviously started treating, the early centers starting treating patients in the, you know, first half of this year. They now start to actually get a feel for the longer-term outcome of these patients and efficacy, not just the responses, but also the longer-term outcome. And we also believe that that, visibility for those centers and the physicians of their own patients reaching longer-term outcomes I think, will actually have a reinforcing effect. And so those are the key parameters that we're working on, and it's not just the way that we're thinking about it. It's also when you look at the ROCA data or also then we'll see the actual presentation. You'd start to get a good sense of indeed that that's actually also reflecting very much of what the physicians are seeing and how they're thinking about the product. Those physicians that actually have already gained substantial experience are thinking actually already quite a bit beyond the current setting, and they're considering running, investigator-sponsored trials in the frontline consolidation setting. So that's already happening, which tells you something about what the perception is of these physicians the product actually should go in their view. What we do not see, and I wouldn't expect to see, is actually any form of frontline use for an extended period of time because, obviously, we do not have data in frontline setting nor do we have the label in frontline setting. So it's not something that we expect to see. For the upcoming period ahead of us. And, you know, certainly with more experience and potentially changes in guidelines, that may change over time, but that will take time to develop. And then the last question is related to the competitive landscape in autoimmune disease. I think it was very interesting. To see the data that was presented in the, at the ACR conference. I think encouraging that there's been obviously, there's a good overall I think, shared view around the data that indeed the CAR T irrespective of the nature of the CAR T therapies, do give a positive outcome, a bright positive outcome for patients with autoimmune disease. However, when you look at the data more closely, you do see there's a lot of differences within the datasets. There's differences in terms of the patients and the severity that the patients actually have for their respective disease. And then we see differences in safety. We see flares coming up in independent programs and so on. So it's worthwhile taking a closer look and actually look at that look at the data and keep following the data as it evolves. But I well, the sense that we have from our own dataset is that we're actually stacking up very well with our data. Both on safety as well as in efficacy, and believe we're very well positioned in the indications that we've chosen to move into. In terms of other modalities beyond CAR T, there's very little data that was actually published. I would expect to see more data emerge during the course of the year. And it'll be interesting to see where some of that data lands. I would assume part of it will certainly be our programs that are looking to position against monoclonal antibodies and try to sort of basically go into that space. As you remember, the way that we're positioning our product is actually after the patients have gone through monoclonal antibody therapy and sort of relapsed, and have recurring disease after that. And so it is a more advanced group of patients that we're looking at, the patient that has actually at this point, no approved treatment options. So it is a it's a different form of severity and level of severity that we're actually developing in, and so we may see different modalities at slightly different places as we see it today with, you know, going starting with steroids going to antimalarials, going to monoclonal antibodies. We see that whole range and then the calciomerin inhibitors we see that whole range, actually evolve and deposition across the severity grade and the development of the disease. We're focusing on the most severe patients where we think we can have a profound impact. That's the initial approach. And then, obviously, once we have data in that setting, we'll certainly consider to broaden out. Yanan Zhu: Great. Thanks for all the insights. Christian Itin: Thank you very much. Operator: Thank you. And our next question coming from the line of James Chen with Deutsche Bank. Your line is now open. James Chen: Hi. This is Sam on for James. I'm just wondering if you can provide more color on the data you're expecting at ASH? Christian Itin: Yeah. Happy to do that. Hi, Sam. Thanks for joining. So I did mention on the pediatric ALL study, that is obviously the phase one experience. So we have, you know, around 20 patients' worth of data in that dataset that we're gonna be presenting, in a poster. Obviously, it has longitudinal data, response data, safety data. So I think it'll give us a good view, I think it'll be, I think, very clear by we decided to actually move forward into, into the second stage of that study, the phase two stage of that study. With regards to the Carlyle study, the Carlyle study, obviously, we had, the data presented and a poster of ACR that I just referenced earlier in the prepared remarks. We're gonna expand on that data, certainly look at additional pharmacodynamic recovery data, etcetera, to sort of actually round out the picture and, I think, tell frankly, through one, the impact on the disease, but then also the ability of the immune system to reset without, obviously, the disease to recur. So that's gonna be a key part of the focus of that presentation. And then when we're looking at the product profile, versus, longer-term outcome. Obviously, an analysis we've done where we look at a range of product parameters to see which one of these product parameters actually are tracking with long-term outcome, and I think that's gonna be an interesting, oral presentation because it obviously has substantial dataset behind it. And with that, I think, you know, meaningful meaningful, I think, learning things from that, from that analysis. And then, the final part is, obviously, the when you actually induce a response in the, in the ALL patients, you obviously would like to know whether it would or would like to have early information or indication about the likelihood that the patient will remain in remission going forward. And so the teams and the physicians have been looking at various parameters to see what might actually track, and one of the areas that they thought was interesting is to actually look at the persistence of the product at three months and act as sort of an indicator. And so we'll need to see obviously, we'll there's more analysis there is being conducted, but that's gonna be a part of the focus of a particular poster presentation. So those, think, are the key parts of the presentation. And then, as I pointed out, please go have a look, at the presentations from the Rocket Consortium I think very insightful, and I think, give you a good sense for what the actual reception is of the product and why it resonates the way it does. James Chen: Thanks very much. Operator: Thank you. And our next question coming from the line of Matt Phipps with William Blair. Your line is now open. Operator: Matt, we can't hear you. Please check your mute button. Alright. I will go to the next person. Can I please requeue? If you can? And our next question coming from the line of Clara Dunn with Jefferies. Your line is now open. Clara Dunn: Hi. Good morning. Thanks for taking our question. So one for me. So you mentioned the potential pivotal studies in pediatric ALL. So just wondering whether you've had any regulatory dialogue or what kind of interactions have you had with the FDA in terms of this pivotal trial, and would be the requirement for the trial to be pivotal? Thank you. Christian Itin: Yeah. Thanks a lot, Clara, for joining. Much appreciated. Yes. Of course, we had we reviewed the Phase I data with the agency, and reviewed with them the trial design, which is a trial design that we have developed with COG, the Children's Oncology Group, the leading oncology group in the U.S. And there's been agreement that, you know, this first of all, that the medical need in the high-risk patients, obviously, is significant. And that it would be it would be beneficial to actually have a product that actually could include these patients in therapy. Provided a therapeutic option. So very clear conversation around the patient population, the type of data that we need to have, as well as the size of the study. So very consistent, and it was only after we had those conversations and we had clarity on the path forward that we actually communicated, that indeed this what we're gonna do, which I think is what we did for the first time at the Q2 call. Clara Dunn: Okay. Thank you. Operator: Thank you. Next in queue is Matt Phipps from William Blair. Your line is now open. Matt Phipps: Hi. Can you hear me now? Christian Itin: Yes. We can. Matt Phipps: Great. Sorry for the technical issues. This is Madeline on for Matt. Thanks for taking the question. For the pediatric opportunity, do you have any rough timelines at this point for completing the pivotal cohort? And then related to that, what do you think is the sort of the total market opportunity across both adult and pediatric ALL patients? Thank you. Christian Itin: Thanks, Madeline, for joining. So the, with regards to the pediatric opportunity, we do believe that the, when you look at the current sort of medical needs segment, it's about a thousand patients all in. Between Europe and U.S. So it's about 500 in the U.S. And, there is a, you know, a good proportion of these patients are in the high-risk category and are currently not being treated. Or not being not actually having direct access to CAR T therapy. So we'd expect that we'd be able to sort of capture and support that part as well as having an opportunity to sort of actually broaden out, the, the use of the product more broadly across the population. I think at this point, I think it's not quite straightforward to give you a number. What we're seeing in general is think there's an opportunity for a few 100 patients that could be actually reached. Through that type of a label. In terms of the study itself, we're starting up the phase two portion of the study. We have certainly, the phase one seen a good, rate of enrollment, and we hope that that will continue, and we expect that that is something we can actually build on in the phase two, so that you know, we should actually be in follow-up period or get into the follow-up period in 2027 and know, hopefully have data maybe at the '27 or early twenty eight. Matt Phipps: Thank you. Operator: Thank you. Our next question coming from the line of Shyam Kotadia with Goldman Sachs. Your line is now open. Shyam Kotadia: Hi there. Shyam here from Goldman Sachs on behalf of Roger. So I'm just had a, a question on Obe-cel dynamics for for the remainder of '25. So you mentioned already the CMS coding impacts that impacted 03/2025. So I just wanted to get a bit more color. Were you expecting revenues to be flat quarter on quarter? Or was this above your expectations? And therefore, given that the CMS lag was expected to be resolved in 04/2025, how should we think about Obe-cel sales 4Q? Should we still expect to see some upside to 3Q? Or Would it likely be broadly flat? So that's the first one. And then a follow on, going forward, you've mentioned that you're entering a new phase of growth. So how should we think about capital trajectory for 2026? Thank you. Christian Itin: Thanks a lot for joining, and thanks for the question. So in terms of the Q3, dynamic, we did highlight already at the Q2 call that we expect it to have, an impact in terms of the recovery from the CMS event and actually going through that. And we did guide to I think relatively flat trajectory at that point in time because we did know that there clearly was a lag in patients that were actually coming into the third quarter, which obviously will have, I was clear that would have an impact on the overall dynamic in the third quarter? We saw that actually in the second half of the quarter actually being fully reversed and actually the second half of the quarter actually running at the expected clip. For Q4, I don't think we're going to give guidance on Q3 four. The basic reason, as I mentioned before, is that the the first time we're going through the end of the year stretch. With, you know, certainly, you know, Thanksgiving week, which leads to a slowdown typically at the clinics. Ash tends to have an impact, then, the holiday season. So it's something that I think we just need to experience. We don't think that we have a good a good way to handicap that at this point. And give a good sense around that, what what to expect at this point. We're still in the first year of launch. There's a steep learning curve. And I think the fourth quarter certainly will be, will be important to sort of understand the dynamic we're seeing there in the market, which is too early to call. Shyam Kotadia: Thank you. Operator: Thank you. Our next question coming from the line of Simon Baker with West Charles and Company Redburn. Your line is now open. Simon Baker: Thank you for taking my question. One related two-parter, if I may, please. Just going back to the question of revenues and deferred revenues. Well, you said it was the deferred revenue balance was about $7.6 million. Could you just give us any idea as to how typical that is, if there are any if any factors in there. I'm just trying to get an idea of is this simply the effectively the timing of a of the back end of the quarter just from when you book it, which gets into the next, or whether there are any other factors within that. Just in really from a modeling perspective. And then related to that, clearly, this stage, the cost of cruise line is understandably noisy. But I just wonder if you could give us an idea of the of the underlying sequential trends here. Are you is it too early to be seeing an underlying improvement in gross margin? And over what time period do you expect to see an improvement in the gross margin? Christian Itin: Yes. Very good question, Simon. I'll start and then I will hand hand over to Rob to sort of add to that. So first of all, with regards to revenue and deferred revenue, obviously one of the, I think, characteristics of this type of a therapy is that, you obviously have quite a time period between the inclusion of a patient and apheresis of a patient and the actual dosing. And what that does is that as you get towards the end of the quarter, you obviously continue to actually include patients. You manufacture for those patients. The products actually get released and then get shipped to the centers. Typically, when the product is at the centers, there's still you know, scheduling to be done to get the patient in. You may have situations where the patient may have picked up an infection. If that's the case, then the patient first needs to sort of get rid of the infection before you could actually, start the lymphodepletion and then the treatment. So there is a gap. There is a lag. Between, and depending on the condition of the patient, you may have a set of products that actually are shipped but not yet dosed. And so, these sit basically at the center and they're in the process of scheduling the patient or managing the patient through the crisis the patient may have experienced before the patient actually can receive the product. And it's only when the patient actually gets the product infused and in fact, know, I would with the first and then the second infusion, that in fact the full payment actually becomes true, and the revenue will be recognized in our numbers. So that's why there is a lag there. And while you have a buildup towards the end of the quarter, you have a good proportion of product that is either still, you know, finishing manufacturing or has already finished manufacturing, has been shipped, and it's that portion of the ones that are finished and shipped and received at the centers that go into the deferred revenue bucket. So that's dynamic. And I think that's the dynamic we're just going to see and it's sort of a reflection of sort of the continuous flow of activity that we see you know, quarter into from one quarter into the next quarter. The COGS, to your point, obviously, are noisy, and that's true. And, obviously, one of the key elements, particularly as you start as you launch, is that you launch, obviously, initially have a number of patients going through your manufacturing setup that is not, obviously, anywhere close to the setup, that you actually designed for the larger opportunities. In other words, there is a significant portion of the infrastructure that is not actually utilized for commercial supply. Particularly early on in the launch and into you know, and early on is still, you know, certainly within the first year of the launch. And as you obviously then keep on growing the opportunity and you run more product, through the facility, that's actually where you're you're sort of your overhead cost, your overall cost for the facility obviously gets divided by a larger number. You see a decrease over time. So that's one dynamic. So volume is one of the key drivers that actually will reduce sort of the actual cost of goods. Line overall and improves the ratio between revenue and cost of goods. The other part is actually the improvements in the actual operations itself. So in other words, in very simplistic terms, you know, there work that goes in, which are work hours, and there is materials that go in. And then there is some operating cost in terms of running the clean rooms. But time and the cost of materials are key elements. Cost of materials obviously is one of the drivers that you actually drive down and you get more efficient. But one of the biggest elements that you actually look at and you look to improve on is the time you spent per product released. And that has a lot to do with experience with optimizing your operating model, and actually really take all the experience we've now gained and take that and actually create, develop a more efficient operating model over time. And so that's a significant improvement you're gonna run through, and we are going to run through. And that gives us an ability to actually reduce on a per batch basis the actual cost that is driven by actually producing this particular batch in terms of the work and the materials that go in. So those are key parameters that impact. So we expect to actually see, as we're increasing, sales during the course of next year, we actually expect that we also see a decrease in the ratio of COGS that we have or cost of sales versus what we're seeing in the first year of launch. So that's the dynamic we're looking at. And I'm handing over to Rob to sort of add on, maybe some of the more technical accounting points. Rob Dolski: Yeah. Thanks, Christian, and thanks, Simon. The other thing I might add, think Christian covered it very well. But I think you made the point. These are three quarters, three data points, and I would say that there's still a little bit of noise, and we've gotta get to a more steady pattern, so to speak. So to the CMS issue into the Q2 Q3 quarters that Christian talked about, the CMS really impacted the end of the Q2, early Q3. You actually saw that play through from a treatment perspective, even in some of the deferred revenue balance there. Right? So that's a difference between the finish that we have in the Q3. With Q3, that deferred revenue, we've recognized a much larger quantity. In fact, really quarter to quarter, the main difference in our gross margin was driven by the amount of deferred revenue. That we had to recognize the cost for. But that's also gonna, you know, kinda give us a nice load, so to speak, with sales and gross margin going in to Q4. We still have to play out the rest of the year and you know, again, Krishna mentioned going through the first time with the holidays in Ash So I just think that we need we need some more time and data point here to really see more of a smoothing effect in more of these quarter over quarter dynamics. Simon Baker: Right. Thanks so much. Christian Itin: Thanks a lot, Simon. Operator: Thank you. We'll now turn the call back over to Dr. Christian Itin for any closing remarks. Christian Itin: Well, thank you very much for joining us today. We're really looking forward to seeing you, either at ASH through one or the other of the many data updates, or then, at the latest early in the year in San Francisco. I hope you're doing well, and looking forward to connecting with you in one of those venues. Operator: 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 the Q4 2025 TransDigm Group Incorporated Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jamie Stiemick, Director of Investor Relations. Please go ahead. Jamie Stiemick: Thank you, and welcome to TransDigm's fiscal 2025 fourth Quarter Earnings Conference Call. Presenting on the call this morning are TransDigm's President and Chief Executive Officer, Michael J. Lisman, Co-Chief Operating Officer, Joel Reiss, and Chief Financial Officer, Sarah L. Wynne. Also present for the call today is our Co-Chief Operating Officer, Patrick Murphy. Please visit our website at transgem.com to obtain a supplemental slide deck and call replay information. Before we begin, the company would like to remind you that statements made during this call which are not historical in fact, are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the company's latest filings with the SEC available through the section of our website, or at sec.gov. The company would also like to advise you that during the course of the call, we will be referring to EBITDA specifically EBITDA as defined, adjusted net income, and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measure and applicable reconciliation. I will now turn the call over to Mike. Michael J. Lisman: Good morning, and thanks for calling in today. First, I'll start off with the usual quick overview of our strategy. Second, make a few comments about the quarter. And third, discuss our fiscal 2026 outlook. Then Joel and Sarah will give additional color on the quarter. To reiterate, we believe we are unique in the industry. In both the consistency of our strategy in both good times and bad as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle. To summarize, here are some of the reasons why we believe this. About 90% of our net sales are generated by unique proprietary products. Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period have typically provided relative stability in the downturns. We follow a consistent long-term strategy. First, we own and operate proprietary air businesses with significant aftermarket content. Second, we utilize a simple, well-proven value-based operating methodology. Third, we have a decentralized organizational structure and unique compensation system closely aligned with our shareholders. Fourth, we acquire businesses that fit this strategy and where we see a clear path to private equity-like returns. And lastly, our capital structure and allocations are a key part of our value creation methodology. Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market. To do this, we stay focused on both the details of value creation as well as careful allocation of our capital. As you saw from our earnings release, we closed out the year with a good quarter. During the fourth quarter, we saw healthy growth in the revenue for our commercial aftermarket channel, robust growth in our defense market channel, and finally, as expected, our commercial OEM revenues returned to a growth position following the brief destocking trends we saw last quarter. For the full year, our fiscal 2025 revenue and EBITDA as defined margin surpassed our most recently published guidance. Commercial aerospace market trends remain favorable. Air traffic continues to steadily progress and airline schedules remain fairly stable, with takeoffs and landings growing in the 3% to 4% ballpark year over year. In the commercial OEM market, there is still much progress to be made for OEM rates. And our results continue to be adversely affected by OEM performance. Airline demand for new aircraft remains high and the OEMs have long backlogs. OEMs are working to increase aircraft production to meet this demand, but the recovery to date has been bumpy and will likely remain so. Our EBITDA as defined margin was 54.2% in the quarter. Contributing to this solid Q4 margin is the continued growth in our commercial aftermarket along with diligent focus on our operating strategy, which is allowing margin performance to expand across all segments. Additionally, we had strong operating cash flow generation in Q4 of over $500 million and we ended the quarter with a cash balance of over $2.8 billion and over $2 billion pro forma for the Simmons acquisition. We expect to steadily generate significant additional cash throughout fiscal 2026. Next, an update on our capital allocation activities and priorities. During our full fiscal 2025 and continuing into October, we are pleased to have allocated approximately $7 billion of capital in the aggregate, across M&A and return of capital to our shareholders. Specifically, these activities included the acquisitions of Servotronics, Simmons Precision Products, and approaching $300 million of other small tuck-in acquisitions, as well as a special dividend of $90 per share and $600 million of share repurchases. The dividend of $90 per share was our largest to date. As you know, we are continuously assessing our capital allocation options and we were very pleased to return this capital to our shareholders. The recent share repurchases including $100 million in October, are rooted in the same targeted returns math we have consistently applied over the years. Regarding the current M&A activities in the pipeline, we continue to actively look for opportunities that fit our model. As usual, the potential targets are mostly in the small and mid-sized range. As always, we will remain disciplined around our approach to M&A. Additionally, acquisitions are by their nature hard to predict. So consistently with past practice, I will not be saying too much on what is currently active in our funnel. The capital allocation priorities at TransDigm are unchanged. Our first priority is to reinvest in our businesses, second, do a creative disciplined M&A, and third, return capital to our shareholders via buybacks or dividends. A fourth option, paying down debt seems unlikely at this time, though we do still take this into consideration. We are continually evaluating all of our capital allocation but both M&A and the capital markets are difficult to predict. We exited fiscal 2025 with a sizable cash balance. And our recent capital allocation actions still leave us with significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future. Now moving on to our outlook for fiscal 2026. This guidance incorporates the recently acquired Simmons Precision Products business, which we are very excited to now own. But which comes into the TransDigm fold at a profitability level below that of our typical acquisition. The guidance assumes no additional acquisitions or divestitures during the year. Our initial guidance for fiscal 2026 is and follows and can be found on slide seven in today's presentation. The midpoint of our fiscal 2026 revenue guidance is $9.85 billion or up approximately 12% over the prior year. As a reminder and consistent with past years, with about 10% or so fewer working days than the subsequent quarters, fiscal 2026 Q1 revenues, EBITDA, and EBITDA margins are anticipated to be lower than the other three quarters of 2026. This revenue guidance is based on the following market channel growth rate assumptions. We expect commercial OEM revenue growth in the high single-digit to mid-teens percentage range, which is highly dependent on the evolution of the production rates in the commercial OEM environment. Commercial aftermarket revenue growth is expected to be in the high single-digit percentage range. And defense revenue growth in the mid-single-digit to high single-digit percentage range. The midpoint of our fiscal 2026 EBITDA as defined guidance is $5.15 billion or up approximately 8% with an expected margin of around 52.3%. This guidance includes an additional 200 basis points of margin dilution from recent acquisitions compared to fiscal 2025. Additionally, some commercial OE and defense mix headwind in the range of a half percentage point to a full percentage point is further reducing our margins versus fiscal 2025. Adjusting for these two dilutive factors, the margins would have increased more versus fiscal 2025 and in line with the margin improvement we would typically expect on our base business. We anticipate EBITDA margins will move up throughout the year with Q1 being the lowest and sequentially lower than '25. The midpoint of adjusted EPS expected to be $37.51. We believe we are well positioned as we enter our fiscal 2026. We'll continue to closely watch how the aerospace and capital markets develop and react accordingly. We are pleased with the company's performance this year in 2025. Our team successfully navigated the challenges of uneven demand, our commercial OEM market throughout the year to deliver a healthy EBITDA defined margin. Looking to our new fiscal year, we remain focused on our value drivers, cost structure, and operational excellence. We look forward to fiscal 2026 and expect that our consistent strategy will continue to provide the value you've come to expect from us. Now let me hand it over to Joel Reiss, our TransDigm Group Co-COO, to review our recent performance and a few other items. Joel Reiss: Good morning, everyone. I'll start with our typical review of our results by key market category. For the remainder of the call, I'll provide commentary on a pro forma basis compared to the prior year period in 2024. That is assuming we own the same mix of businesses in both periods. The market discussion excludes the recent acquisition of Simmons Precision Products. In the commercial market, we'll split our discussion into OEM and aftermarket. Our total commercial OEM revenue increased 7% in Q4 and was down 1% for the full year fiscal 2025 compared with the prior year periods. As we anticipated, commercial OEM revenue in the fourth quarter returned to positive growth as we supported higher build rates. However, overall, the commercial OEM revenue performance for the full year was softer than we originally expected for fiscal 2025. The year-over-year decline in commercial OEM revenue was primarily driven by the negative impact of OEM build rates that resulted from the Boeing strike and production ramp-up challenges at Airbus. Bookings in the quarter were up compared to the same prior year period. Commercial transport bookings growth was up over 20% for the fourth quarter. The bookings levels for OEM commercial transport show that the market is recovering from the various disruptions seen over the past year or so. But as we have said before, this recovery could be a bit bumpy and uneven on a quarterly basis at the OEMs and our Tier one and Tier two customers rightsize inventory levels. We are encouraged by the progress of the 737 MAX production line as well as the FAA's approval for Boeing to increase its production rate. Our operating units are well positioned to support the higher production rates as they occur. The commercial OEM guidance we are giving today contains what we believe is an appropriate level of risk around the production bill rates for the 2026 fiscal year. Our fiscal 2026 commercial OEM revenue guidance range of high single-digit to mid-teens percentage growth contemplates reasonable risks around the Boeing and Airbus rates. Now moving on to our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 11% in Q4 and 10% for the full year compared with the prior year period. Sequentially, total commercial aftermarket revenues were up 5% in Q4. This quarter, all submarkets within the commercial aftermarket experienced positive growth. Our commercial aftermarket excluding our bizjet submarket was up 13% driven by solid growth in freight, interiors, and engines. Bookings across all submarkets were up compared to the prior year period, and POS at our distributors grew in double digits on a percentage this quarter. For the full year, the 10% revenue growth for commercial aftermarket was in line with our original expectations. Each of the submarkets performed about as expected with strong performance from our interior submarket and from the operating units with higher engine content within the passenger submarket. Our operating units continue to monitor market share and competitive losses and we see no material change in this space from either USM's or PMAs. As Mike already mentioned, we expect 2026 commercial aftermarket revenue growth in the high single-digit percentage range. Regarding how commercial aftermarket revenue is likely to progress throughout the fiscal 2026, Q1 is expected to be the lowest quarter of the year on a sales dollar basis as there are roughly 10% fewer working days than in other quarters. Now shifting to our defense market. Defense market revenue which includes both OEM and aftermarket revenues grew by approximately 16% in Q4 2025 compared with the prior year periods. We have seen strong growth in defense driven by new business wins and strong performance by our teams in both domestic and international markets. Q4 defense revenue growth was well distributed across our businesses and customer base. Although we saw similar rates of growth in both the OEM and aftermarket components of our total market with aftermarket running slightly ahead of OEM. Defense bookings for the quarter and full year significantly surpassed the comparable prior year periods and support our 2026 guidance for mid-single to high single-digit revenue growth. Additionally, this quarter, we saw continued growth in the US government defense spend outlays. As we have said many times before, defense sales and bookings can be lumpy. We know the bookings and sales will come, but forecasting them with accuracy and precision, especially on a quarterly basis, is difficult. We anticipate capital expenditures of about $300 million in fiscal 2026. About two-thirds of our capital expenditure spending is our new business and productivity-driven projects. Typical payback for cost reduction projects is just a couple of years. We have over 150 new automation projects planned for the year. We continue to see the cost of automation technology decrease year over year. We are a high mix, low volume manufacturer and our continued success taking on new automation tasks and assembly, machining, polishing, painting is exciting. As a result of our continued focus on productivity, in both the factory and offices, we anticipate our headcount will remain roughly flat despite the increase in commercial and defense OEM work content during the year. We also had good continued success winning new business this year. I can't get into specifics, but several operating units have been awarded content on the F-47, and we believe this will be an excellent platform for us. Hopefully, in upcoming quarters, I'll be able to provide more specifics. To highlight a few new business programs I can talk about, in September, the US Army placed its first large production order for Airborne Systems' glide modulation canopy. Marking a major milestone following nearly two years of successful test and evaluation. This product represents a significant technological advancement over the current generation system used by the US Army and Air Force. This new product allows jumpers to more precisely target landings and can confined areas. The initial order value at $5 million begins the full transition to the new canopy in all future procurements. Airborne will deliver the first canopies in February 2026 to the US Army Military Free Fall School, where all new jumpers will be trained on this new upgraded system. In August, the UK Ministry of Defense awarded a $30 million contract to Urban DQ for an advanced aerial delivery system. This new system, termed Privet, enables the RAF's ATLAS A400 aircraft to airdrop a rigid pole boat up to 40 meters long and weighing up to 12 tons. In addition, Oxitrol West has reached an agreement with Rolls Royce to supply its complete sensor suite on the Trent XWB 84 enhanced performance engine for the A350-900. This agreement encompasses OEM supply and power by hour support to operators. Ensuring that the proven reliability of our sensors continues to contribute to the success of all XWB engine variants. We are making good progress integrating our two most recent acquisitions. Servotronics and Simmons Precision. Both integrations are being led by experienced EVPs. We have augmented the existing teams with seasoned individuals from other TransDigm operating units to accelerate their progress. It's still early, but our experience to date indicates that these are going to be two very good additions to TransDigm. Lastly, I'd like to finish by recognizing the strong efforts accomplishments of our operating unit teams during fiscal 2025. It was a good year. And we are pleased with the operating performance they delivered for our shareholders. As we enter our new fiscal year, our management teams remain committed to our consistent operating strategy, and servicing the strong demand for our products. With that, I'd like to turn it over to our Chief Financial Officer, Sarah L. Wynne. Sarah L. Wynne: Thanks, Joel, and good morning, everyone. I'm going to review a few additional financial matters for fiscal 2025 and then our expectations for fiscal 2026. First, a few additional fiscal 2025 data points. On organic growth, taxes, and liquidity. In the fourth quarter, our organic growth rate was approximately 11% and all market channels contributed to this growth as previously discussed by Mike and Joel. On taxes, at GAAP, adjusted tax rates finished the year within a slightly better than their expected ranges. On cash and liquidity, free cash flow which we traditionally define as EBITDA less cash interest payments, CapEx, and cash taxes, was roughly $2.4 billion for the year, slightly above our expected estimate of $2.3 billion. Below that free cash flow line, investment of networking capital consumed approximately $330 million on a full-year basis, and the final net working capital ended the year roughly in line with historical levels as a percentage of sales. We ended the year with approximately $2.8 billion of cash on the balance sheet or approximately $2 billion when pro forma'd for the completion of the Simmons acquisition. At year-end, our net debt to EBITDA ratio was 5.8 times, up from the 5.9x at the end of last quarter after returning capital to our shareholders via a $90 per share dividend. While we don't target a specific amount of cash that we like to have on hand, we have sufficient capital available through both cash on hand and as well as incremental debt capacity to support all potential M&A in the pipeline. Over the course of fiscal 2025, we did a fair bit of proactive financial. We pushed out our nearest term maturities 2027 to 2028. Additionally, we reduced the interest rate on two of our loans. We also raised $5 billion to fund the aforementioned $90 dividend paid out in September. Our EBITDA to interest expense coverage ratio ended the quarter at 3.2 times, which provides us with a comfortable cushion versus our target range of two to three times. We continue to be comfortable operating in the five to seven net debt EBITDA ratio range, a go-forward strategy capital deployment has not changed, and we continue to seek the best opportunities for providing value to our shareholders through our leverage strategy. Our capital allocation strategy is to both proactively and prudently manage our debt maturity stacks by keeping the nearest term maturity far out. In addition, approximately 75% of our $30 billion gross debt balance is fixed through fiscal 2029. This is achieved through a combination of fixed-rate notes, swaps, and collars. Next, on the fiscal 2026 expectations, I'm going to give some more details on the financial assumptions around interest expense, taxes, and share count. A special note that all of my comments and data here include the acquisition of Simmons. Net interest expense is expected to be about $1.9 billion in fiscal 2026, and this equates to a weighted average interest rate of approximately 6.3%. This estimate assumes an average SOFR rate of 3.8 for the full year. On taxes, our fiscal 2026 GAAP cash and adjusted tax rates are all anticipated to be in the range of 22% to 24%. On the share count, we expect our weighted average shares outstanding to be 58.5 million shares in fiscal 2026. With regards to liquidity and leverage for fiscal 2026, as we would traditionally define our free cash flow from operations at TransDigm, which again, is EBITDA as defined, plus cash interest payments, CapEx, and cash taxes, we estimate this metric to be close to $2.4 billion. After paying for the Simmons acquisition, assuming no additional acquisitions or cancel market transactions, we would end the year with around $4 billion of cash on the balance sheet, which would imply a net debt to EBITDA ratio of approximately five times at the end of fiscal 2026. We will continue to watch this ratio along with the cash interest coverage ratio as we actively pursue options for maximizing value to our shareholders through our capital allocation strategy. In summary, we think we remain in good position with adequate flexibility to pursue M&A or return cash to our shareholders via share buybacks and or additional dividends during the course of fiscal 2026. With that, I'll hand it back to Jamie, our Director of Investor Relations. Jamie Stiemick: Before we open the line for Q&A, I ask everyone in the queue to consider your fellow analysts and ask one question only so we can get to as many people as possible given that it is our Q4 call and there's a lot of material to cover today. Operator, can you please open the line? Operator: Thank you. And our first question comes from Scott Mikus of Melius Research. Your line is open. Scott Mikus: Good morning. Good morning, Scott. Good morning. Mike, when Kevin was CEO, the company opened up the M&A aperture by expanding into test and measurement businesses. Although they were still primarily aerospace-related. You're still early in your career and could be leading TransDigm for quite a while. Is there a possibility that under your tenure, TransDigm takes a more serious look at acquisitions outside of aerospace and defense? Or you're still comfortable that you can hit your 20% IRR target? So we did two branches outside of the core leg aerospace hardware business, under Kevin, CalSpan and Raptor. Both its early innings, but it seems so far so good. So we're looking for additional things potentially in that space as they experience the dates generally been a positive one. Over time, well, let's focus on today. As we sit here today, in terms of what our M&A group, what I'm spending time on from an M&A standpoint, it's not branched out materially from anything that you'd expect to see. Which is leg is the similar to what we've always targeted in the past, aerospace and defense components businesses. That's where the vast majority of the focus is. In the fullness of time, could you continue to potentially branch out and look at things under the umbrella, similar to test and measurement that aren't right down traditionally our fairway. That could be the case, but we're not there yet. As we sit here today, the focus is more of where it's always been. Okay. And then you talked about the strengths in orders. In the aftermarket, were there any noticeable trends among the four submarkets there, whether it's freight interior, bizjet, helicopter, passenger? Just any pockets of strength or pockets of weakness you saw? This is Joel. I'll take that. I don't think we've seen any dramatic changes we got out of the quarter. Certainly, business, for interiors picked up more this year. It kinda lagged the year before. As we highlighted in the comments, engine has been strong for us all year as it was last year. And, I think freight, struggled the year before also, was pretty solid for us this year. Alright. Thank you. Thank you. Operator: And our next question comes from Robert Stallard of Vertical Research. Your line is open. Robert Stallard: Thanks so much. Good morning. Morning. Just a couple from me. On the 2026 guidance. First of all, on defense, that's a big slowdown for '26 versus what you've recently experienced for 2025. So I wondering if you could give some more clarity on that. And then on the aerospace aftermarket, are you assuming a normal level of TransDigm pricing as you move into '26? Thank you. So on the defense side, I've hopeful we're being conservative on it. We had good solid bookings last year and good growth across the various aspects of the company. Defense is lumpy for us, and so unlike the commercial aftermarket with relatively quick book and ship, a little bit less predictable on the defense side, so we're gonna generally be a little bit more conservative there. We've had two solid growth years in a row in defense, and think we like where we're sitting today. On the commercial aftermarket side, I think we're planning to make any change in how we approach pricing. Our goal is to offset the inflationary increases that we see and put a bit of real price on top of that. I'm not sure we're gonna just similar to what we've done in past years, not looking to make any change. That's great. Okay. Thank you very much. Thank you. Operator: And our next question comes from Ken Herbert of RBCCM. Your line is open. Ken Herbert: Yes. Hi. Good morning. Mike and Sarah, appreciate the comments on the margin dilution from the recent acquisitions. Two questions really. First, how do we think about the ability to get the recent acquisitions up to sort of TransDigm margins? Do they have that capability in and what's the time frame to think about that? And then second, just wanted to confirm excluding those, I think you've typically talked about sort of 50 to a 100 basis points of annual margin expansion. Is that what we would normally expect, obviously, aside from the dilution of the acquisitions? Yeah. Ted, it's Mike. I'll lead off, and then Sarah can chime in if I miss anything. If you exclude the two dilutive factors, the acquisitions and also the OEM mix shift, you do get at an underlying margin improvement trend for our base businesses that is squarely between the brackets of what you guys would expect of the percent, percent and a half kind of range. When you adjust those two things out. So we are seeing exactly the kind of margin improvement year over year we've come to expect and you've come to expect. With regard to the two acquisitions, Simmons and Servotronics, the margins came into the fold at a low level, but these are great products. We're very excited to own both businesses. In the fullness of time, we see nothing fundamentally different about these two businesses versus what we've acquired in the past that should prevent us from being able to march the margins upward. The exact timeline over which that happens is varied and obviously, it doesn't happen overnight. But there's nothing different about these businesses that should prevent us in the fullness of time from getting the margins up to where we like them to be. Great. Thanks, Mike. Thank you. Sure. Operator: And our next question comes from Kristine Liwag of Morgan Stanley. Your line is open. Kristine Liwag: Hey, good morning, everyone. You guys touched on your contract award for the F-47. Was wondering, can you give more color on your content in this program and how does this compare to your content on other fighter programs, like the F-18, F-22, F-35? Look. I'm not sure that we can comment on how successful programs will be. Ultimately, the DOD awarded Boeing the fighter jet as the next generation, fighter. We take it seriously, and our teams have been actively working to win good content on the planes. Successful it'll be? I'm hopeful it'll be great. Exactly where it's gonna end up, we have no idea. Well, great. Well, I'll just on we've historically not disclosed which specific op units won which content and that level of detail. But it seems like it's gonna be a really good program for us. As Joel said in his prepared comments. Great. Well, thank you. I guess, like, you know, the origin of that question is just really understanding, you know, with the focus on your contracting styles and defense, you know, it's a positive surprise to know that you've been winning more contracts, like, for something like the F-47. So it's really more just to try to understand what your conversation with customers are like, you know, and kind of confirm that, you know, you're not in a no-fly zone type environment for new defense contracts? No. Absolutely not. Yeah. I think actually across the company, think we had more new business awards in the defense market last year than we did on the commercial side. We develop good solutions. But I think this is the key as customers come to us because we can generate product for them that solves a problem that they can't solve or we solve better than someone else. These are competitive awards. And, I think we like where we stand. We work to come up with good very good solutions that generate value for our customer. Thank you very much. Operator: Thank you. And our next question comes from Myles Walton of Wolfe Research. Your line is open. Myles Walton: Thanks. Good morning. Was wondering if we could chat about the CapEx and headcount comments you made. CapEx looks like it's set to double over the last couple of years. And you mentioned some of the automation investment, but I guess how much of that is automation to facilitate better productivity versus higher output and is it more military or commercial? And the headcount, can you just clarify, are you saying flat headcount inclusive of the additional heads from Simmons, which closed after the quarter? So I'll take the latter part. Yeah. We're so we look at everything in this case on a pro forma basis. So adding the headcount in from Simmons as we kind of look out at the growth we expect to see for commercial and defense OEM during the year. We don't think we'll have to add. And so that's not that it's no one, but relatively few people. Across the company, and still handle the volume growth, the high single-digit to mid-teen growth within the commercial OEM and on the defense side. When it comes to the CapEx question, I know specifically which is defense and which is commercial. Our operating units look at projects depending on need and where we can get an excellent return. It ends up being a combination. Sometimes it's to handle more capacity. Sometimes it's a way to basically drive out cost. It's just capacity, though, we're typically not thinking of that as productivity. We ultimately should be able to do the work we're doing today, but with fewer people with higher yields that we have today, were to in-source work that potentially is being done on the outside. Okay. And just one quick follow-up on cap on cap flow. What is the working capital investment or source that you're expecting in 2026? Yeah. For '26, I'd expect similar to prior years, which is, as I'm percentage of sales, you know, around two two and a half, 3%, somewhere around there for next year. Okay. Thank you. Thank you. Operator: And our next question comes from Sheila Kahyaoglu of Jefferies. Your line is open. Sheila Kahyaoglu: If I could ask on the commercial aftermarket. Mike, if you want, commercial aftermarket, 11% in the quarter. Accelerated from the 6% in Q3. So how much of that was an engine hold up whether it was at distributors or whatnot? And as we think about 26%, how do we think about passenger versus freight, engines, and interiors? So, you know, we do a bottoms up, you know, forecast each of our op units, you know, same kind of approach we've used in the past, our operating units, you know, look at this on a customer by customer basis. They try to get information around inventory and demand. And that basically builds up what becomes the guidance that we provide. You know, if I was looking at, like, the takeaways, not the guidance that we give them, but kind of the takeaways back. On the freight side, I think we continue to expect to see good steady growth, kind of what we saw this year, the available cargo tons were up, you know, in the 3% to 4% year. Per year. I think most folks are thinking that's gonna be the same. I mentioned interiors. Interiors, saw refurbs kinda kick in on the U.S. Regionals. I think the general feedback that we're hearing is that we expect that to continue. But with Asia and the Middle East becoming a bigger piece of reefer, Engines have had two solid years of growth. I think our teams are optimistic but probably a bit conservative around how that's gonna continue to go. On the passenger side, we had a strong 24 and, obviously, a bit weaker 25. We think that'll rebound a lot. That was on the avionic side and don't see a reason that won't continue. And biz jet, I think we expect kinda more of the same. Perfect. Awesome. Thank you very much. Operator: Thank you. And our next question comes from Gavin Parsons of UBS. Your line is open. Gavin Parsons: Thanks guys. Good morning. Good morning. If you look at your OEM kinda underlying volume, you know, the organic basis revenue is up kinda 15, 20% from 2019. But do you feel like on a volume basis, you're pretty aligned with OEMs at this point? You're talking about the commercial OEM market are realigned with their build rates? So no more inventory destock. Is that the fundamental issue you're trying to get at, Kevin? Yeah. Thanks. Okay. I think as we sit here today, Joel can chime in. I don't see much headwind coming in the way of further inventory destock as we said last quarter, we expected this to be a temporary phenomenon that lasted for a quarter or two. We saw the blip last quarter. We don't expect much more of a headwind coming into this year. So the growth rate in commercial OEM side should be sort of what we gave in the guidance, high single-digit to mid double-digit. We put probably a wider bracket around that than you typically would do mainly just because of the way the ramp-up has been challenged so far to date. We always try to be appropriately conservative, and we've been stung a bit in the last two years by unforeseen events, and we don't wanna get out over our skis here on the commercial OEM side this year. On the 200 basis points of M&A dilution, maybe you can correct my math here, but it seems like you're assuming very little margin contribution from M&A? Do you mean margin contribution by M&A? You're talking about Well, to get to 200 basis points. Yeah. Yeah. We are we are expecting very low lower than lower than our average acquisition margins coming in for those two. Okay. Appreciate it. Yep. I think that's where Gavin, they're just they're each coming into the fold as we said in the prepared remarks that probably a lower margin than you'd typically see of the average TransDigm acquisition. But in the fullness of time, we think these businesses have great potential and that's gonna improve and ramp up significantly. Got it. Thank you. Thank you. Operator: Our next question comes from Seth Seifman of JPMorgan. Your line is open. Seth Seifman: Thanks very much and good morning. Morning. So I guess following up on the issue of underlying margin expansion, and the mix headwinds you talked about for this year that limit the underlying margin expansion. Given increasing production rates for over the next several years, it seems like that's a headwind to the underlying margin expansion that's going to persist or potentially accelerate. And so at least for the next couple of years in this decade, the underlying margin expansion potential in the business is limited by a differential between OE and aftermarket growth rates as it is this year. I wouldn't say it's limited. I think we still expect to get year-over-year margin improvement. If historic we've kind of bounded it in the percent, percent and a half range, We'll see where things go with the OEM ramp-up here and how that compares to future commercial aftermarket growth as well as what happens on the defense side. But the margin should continue to improve year over year going forward. Depending on the OEM if it continues to outgrow aftermarket and defense, you could see a bit of a headwind, but we're talking about something that usually amounts to a couple tenths of a point. It's not something that swings you negatively mature so much so that year-over-year margin improvement is not seen. We should still see it to be crystal clear. Great. Thanks. And just a quick clarification. I think you mentioned earlier in the call, $300 million of other small tuck-in M&A. Is that extent stuff that remains organic? Or is there an inorganic component of the sales that's coming in '26 from that additional M&A? It's a mix across a range of our op units. It's really a mixed bag of different op units that are doing small tuck-in bulk on acquisitions for their specific businesses. Some are at XDENT, but several of them are not. And these we basically fold in as part of our planning process. They execute the deals during the year. Okay. Very good. Thanks very much. Operator: Thank you. And our next question comes from Scott Deuschle of Deutsche Bank. Your line is open. Scott Deuschle: Hey, good morning. Mike, can you share any detail on the average contract duration at Simmons? Just trying to get a sense for the timing at which future pricing actions layer into results. Yeah. I still think we're in the early innings of what this is. I think they've got kind of typical range of contracts that you'd expect to see over the bulk of our business which when you look at it, it looks businesses, some relatively short and some life of program. I don't think this dramatically different from we'd expect to see from any acquisition we do. Okay. And Joel, just to follow-up on Myles' question, we expect this decoupling of sales growth from headcount growth to continue beyond 26? You make additional automation investments, or should those realign more closely? As we exit 26? Thank you. I think we're hopeful that if we continue to drive automation projects, we're still in the early days of doing artificial intelligence within our within the office side. Think we're optimistic that we can hold headcount certainly below the rate that our sales increase goes. How successful we are. I mean, our operating unit team's focused on productivity is one of our three value drivers. And they work hard to drive our sales per employee higher each year. So they certainly are focused on how to best do that. Thank you. Thank you. Operator: And our next question comes from Gautam Khanna of TD Cowen. Your line is open. Gautam Khanna: Yes, thanks. Good morning, guys. Morning. I just had two quick ones. One, I was curious if you could give us an update on the sell-in versus sell-through, how the distributors that you own, what they saw on aftermarket. I may have missed it. And then secondly, I just wanted to get your broader thoughts on the war secretary acquisition reform speech that he gave last week how is that at all? Do you think it would impact TransDigm? Thank you. Yes. So on the distribution point of sale, it was up more than our underlying commercial aftermarket. A couple reasons. Within our point of sale and distribution, it does overweight a little bit more to engine than base TransDigm. So you kind of reset it, the numbers would look about the same. It's just the mix of what the products are. We also, had allowed inventory to drop a bit within the distribution channel the end. We finished the year with about a half a year less of inventory in terms of half a month. Sorry, of less of inventory at the channel at the September than where we were the previous year. That was probably a one or two-point impact to CAM last year. When it comes to the secretary's comments, I think we're optimistic. You know, we approach defense as a commercial manufacturer. We invest the time and effort the money to develop new products. To qualify products, We bid them as firm fixed price contracts where we take the risk if something goes on. So I think we think we're well positioned and hopeful similar to what we've done this year with other defense wins is that have the ability to develop good solutions for customers and generate real value. I think as you guys know, we're not doing the big cost plus work here. We're fast, nimble at the op unit level. Easy to work with, and mostly selling commercial type solutions. Yeah. Appreciate the answer. Thank you very much, Gus. Thanks. Thank you. Operator: And our next question comes from Ronald Epstein of Bank of America. Your line is open. Ronald Epstein: Hey, yeah. Thanks, Two. A follow-up. The first one, yes, just following up on the last question, Gautam's question, and also Kristine's I think trying to get at so if you can say, so F-47 is the first major new program we've seen in a while. Woods, if you can answer this. Was your experience, you know, bidding for the work on it any different than it was on any previous programs? I mean, I think the fear out there is, and you probably understand this, that somehow that the DOD is doing things that are gonna make things somehow less profitable or something like that. Mean, the bidding process sort of you would expect it? Or was it somehow different than it was in the past? I think the way our obviously, we have a multitude of op units who are all participating in awards like this. And frequently interact with the primes and others. On the defense side. And the process was similar to what we've seen in the past and didn't play out with any big changes versus what we'd expect. Alright. Good to know. Good to know. And then maybe just as a follow-on and your people have been talking about this. You know, there is a case out there that somehow that TransDigm just won't grow their aftermarket business like maybe some peers will because guys don't have enough engine exposure, that somehow you're too big to do M&A, and have it be meaningful. How would you respond to that? Mean, someone confronted you with that and said, You know what? You guys are just getting too big, and, you know, nothing's really gonna move the needle. That is sort of the bear case. Right? How would you respond to that? I think we're the type who just puts our heads down and goes out and finds ways to create value. That's it. The proof's in the pudding. The results we drive here as a team and not hand waving responses. We'll just put our heads down and go to work. Got it. Got it. And if I may, is it safe to infer from that, like, if an environment you got into that something just wasn't working you'd make some changes. Right? Well, we're always we're gonna do we're gonna operate the business to go and create value and do what we can to drive prudent long-term value for our shareholders with whom we're closely aligned. Got it. Cool. Alright. Thank you very much. Thank you. Operator: And our last comes from João Santos of Stifel. Your line is open. João Santos: Hey, good morning. Thanks for fitting me in. Just, just on defense. On defense, just a lot of talk about new missile programs and drones. You guys have highlighted your good positions on the Predator and the Patriot. Just know, where do you fit on some of these newer, lower-cost programs? Is that an opportunity for TransDigm recognizing you're not gonna be on the lowest, smallest end, but how about some of these new programs on the medium size and cost range? Thank you very much. Yeah. Wanna provide any specifics because I don't know what we can or can't say on some of these similar like the F-47. We've got some really solid wins. On some of the programs you're referring to. Again, I mean, they're looking for good, highly engineered products that solve problems. That provide features that other folks can't. We have a lot of engineers I mean, roughly what 15% of our entire corporation are on the engineering side, designing and developing products. So I think we've got some really solid wins that hopefully we'll be able to talk to in upcoming quarters and some of the programs you were referring to. So I think we like our opportunities there. Thank you. Thank you. Operator: This concludes our Q&A session. I would like to now turn it back to Jamie Stevens for closing remarks. Jamie Stiemick: Thank you all for joining us today. This concludes the call. We appreciate your time, and enjoy the rest of your day. Operator: This concludes today's conference call. Thank you for participating and you may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Third Quarter 2025 Results Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. I would like to remind everyone that this conference call is being recorded today, November 12 at 11:00 A.M. Eastern Time. I would now like to turn the conference over to Candace Brule, Senior Vice President, Capital Markets and Corporate Affairs. Please go ahead. Candace Brule: Thank you, operator. Good morning, and welcome to Hudbay's 2025 third quarter results conference call. Hudbay's financial results were issued this morning and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investor Events section of our site, and we encourage you to refer to it during this call. Our presenter today is Peter Kukielski, Hudbay's President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Eugene Lei, our Chief Financial Officer, and Andre Lauzon, our Chief Operating Officer. Please note that comments made on today's call may contain forward-looking information, and this information by its nature is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR plus and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. Dollars unless otherwise noted. And now I'll pass the call over to Peter Kukielski. Peter Kukielski: Thank you, Candace. Good morning, everyone, and thank you for joining us for today's call. The third quarter was a quarter of resilience for Hudbay as we demonstrated the company's strong operating capabilities and the benefits of our diversified operating platform as we faced mandatory wildfire evacuations in Manitoba and temporary operational interruptions in Peru. The agility of our teams and continued dedication to driving efficiencies and reliable performance helped to minimize the impacts to our operations due to these external events. This has allowed us to maintain the low end of our consolidated copper and gold production guidance ranges for 2025, and we have been able to significantly improve our consolidated cost guidance for the second time this year, which is truly remarkable given the circumstances. We continue to take steps to reduce long-term debt while reinvesting in high-return growth initiatives across the organization. We are delighted to have secured Mitsubishi as a premier long-term partner for our Copper World project this quarter, enabling us to unlock significant value in our copper growth pipeline. This transaction further solidifies our financial strength and significantly reduces our share of future equity contributions for the development of Copper World. We look forward to continuing to work with Mitsubishi under this strategic partnership as we advance Copper World towards a sanction decision in 2026 and first production in 2029. Hudbay's unique diversification in copper and gold, coupled with our relentless commitment to cost control, enables us to maintain industry-leading margins and deliver strong and stable cash flows. Slide three provides an overview of our third-quarter operational and financial performance. Our operations in Manitoba showed remarkable resilience against unprecedented wildfires, prioritizing the safety of our people and communities. In Peru, the team navigated regional social unrest and temporary interruptions to deliver gold productions far exceeding quarterly cadence expectations. And in British Columbia, our team made progress with the SAG mill conversion project, called the SAG II project, to enhance mill throughput and drive future cash flow generation. In light of temporary operational interruptions and production deferrals, our diversified asset portfolio delivered consolidated copper production of 24,000 tonnes and consolidated gold production of 54,000 ounces in the third quarter. Consolidated copper and gold production was lower than the second quarter, primarily due to the impact of the wildfire disruptions that persisted in Northern Manitoba for the majority of the third quarter, as well as the temporary production interruption in Peru for nine days during the quarter. In addition, mill maintenance and increased processing of lower-grade stockpiles at Copper Mountain contributed to low quarter-over-quarter production. Consolidated silver production was 730,000 ounces, and zinc production was 548 tonnes in the quarter. Adjusted EBITDA was $143 million in the third quarter, a decrease compared to the second quarter, primarily due to temporary operational interruptions I mentioned, as well as lower sales volumes as a result of a delayed 20,000 dry metric ton copper concentrate shipment in Peru with high gold content valued at approximately $60 million. This shipment was expected to be sold in September, but ocean swells at the port prevented it from being loaded and shipped until early October. Cash generated from operating activities was $114 million in the third quarter, and operating cash flow before change in non-cash working capital was $70 million. Adjusted net earnings were $0.03 per share in the third quarter after adjusting for various non-cash items on a pretax basis, including a $322 million impairment reversal related to Copper World, a $15 million contingent payment received from a non-core asset sale, and various mark-to-market adjustments. During the third quarter, we continued to demonstrate industry-leading cost performance with consolidated cash costs of $0.42 per pound and consolidated sustaining cash costs of $2.90. These costs increased compared to the prior quarter, primarily as a result of lower gold byproduct credits in Manitoba, partially offset by strong gold production in Peru. While we have reaffirmed our consolidated full-year production guidance for all primary metals, we are anticipating strong production in the fourth quarter. We now expect consolidated full-year copper and gold to be near the low end of the guidance ranges. We believe our ability to maintain our initial production guidance in the face of the recent operational interruptions is remarkable, and I am extremely proud of the team. With the strong cost performance at all our operations year-to-date, and increased exposure to gold byproduct credits, we have further improved our full-year consolidated cash cost guidance to a range of $0.15 to $0.35 per pound of copper from the previously reduced range of $0.65 to $0.85 per pound. We are also improving our consolidated sustaining cash cost guidance range to $1.85 to $2.25 per pound of copper from the original guidance range of $2.25 to $2.65 per pound. Along with these operating cost improvements, we are also expecting total capital expenditures to be $35 million lower than the original guidance, primarily due to deferring certain expenditures to 2026. This includes $15 million in reduced sustaining capital expenditures as a result of the temporary operational interruptions and $20 million in lower growth capital expenditures that have been deferred to 2026. Turning to Slide four, we continue to further reduce debt during the quarter despite lower consolidated free cash flows. Our Peru and Manitoba operations generated positive free cash flow in the quarter despite the temporary production interruptions. This was offset by our continued investment in optimizing our British Columbia operations with the planned stripping activities. Consolidated free cash flow would have been positive if the excess copper concentrate inventory in Peru was sold in September. To continue our prudent balance sheet management, we repurchased and retired $13.2 million of senior notes. Unsecured notes through open market purchases at a discount to par during the third quarter. Following the quarter end, we repurchased and retired an additional $20 million in senior unsecured notes, reducing our total principal debt levels to $1 billion. Since the beginning of 2024, we have reduced total debt and gold pre-liabilities by approximately $330 million. We ended the quarter with total liquidity of $1.04 billion, including $611 million in cash and cash equivalents and undrawn availability of $425 million under the revolving credit facilities. As of September 30, our net debt to EBITDA ratio was 0.5 times. We expect liquidity to be further enhanced upon closing of the Copper World joint venture transaction, which is anticipated to close in late 2025 or early 2026. Our strengthened balance sheet will allow us to continue to prudently reinvest in our portfolio of attractive high-return brownfield and greenfield opportunities to drive production growth and long-term value creation. Taking a look at our Peru operations on Slide five, we delivered steady operating performance despite facing temporary interruptions due to social unrest. The operations produced 18,000 tonnes of copper and 26,000 ounces of gold during the third quarter, as well as 577,000 ounces of silver and 195 tonnes of molybdenum. Eugene Lei: Countrywide protests Peter Kukielski: that began early in the third quarter temporarily impacted the transportation routes, leading to limitations of supplies and concentrate transportation. To manage through these limitations, we adjusted mine sequencing to prioritize Pampacancha mining activities and blend stockpile ore in the mill feed. In late September, the social unrest escalated across Peru, and along with other mines in the southern mining corridor, our Constancia mine was impacted by local protests and legal blockades. The safety of all our personnel is our top priority, so we suspended operations on September 22 as a precaution. During the temporary downtime, the team performed preventative maintenance at the mill and on certain mining equipment. Since the restart of mining activities on October 3, and milling of activities on October 5, Constancia operations have normalized. I'm extremely proud of our resilient team in Peru and the way they continue to navigate the dynamic environment. Quarterly copper production was lower than the prior quarter, primarily due to lower ore milled as a result of this temporary operational shutdown, while gold production was higher due to stronger head grades from a larger contribution of the mill feed coming from Pampacancha. The fourth quarter is expected to be the strongest copper and gold production quarter this year in Peru. Production in the month of October totaled approximately 9,000 tons of copper and 17,000 ounces of gold, reflecting optimal mill ore feed with continued strong ore contribution from Pampacancha and lower stockpiled ore being processed. We remain on track to achieve full-year copper production guidance in Peru, while gold production is now expected to be above the top end of the 2025 guidance range. Mill throughput averaged approximately 70,000 tonnes per day in the third quarter, lower than the second quarter due to low ore mines and the temporary operational shutdown. Bills copper grades decreased by 9% compared to the second quarter as a result of the stockpiled ore feed, partially offset by higher grades from Pampacancha. Milled gold grades significantly increased with a higher portion of ore feed from Pampacancha, where the gold grades are meaningfully higher than in the other ore sources. Mill recoveries of copper were impacted by the nature of stockpile feed, while gold and silver recoveries were in line with metallurgical models. The road blockades along the transportation route reopened midway through the quarter, allowing us to reduce site concentrate inventory levels and replenish supplies. Eugene Lei: However, Peter Kukielski: as I mentioned earlier, ocean swells at the port later in the quarter impacted sales volumes, with a 20,000-ton copper concentrate shipment being deferred to early October. Cash costs were $1.30 per pound during the third quarter, decreasing from the prior quarter with higher gold byproduct credits and lower plant maintenance costs as planned. With cash costs continuing to outperform the low end of the cash cost guidance range, we are reaffirming our full-year cash cost guidance in Peru. Moving to our Manitoba operations on Slide six. I want to first thank the regional operating team for all their efforts in safeguarding the company's assets and completing an efficient orderly resumption of operations. I can't imagine what our employees and their families had to endure during these unprecedented wildfires, and we will continue to do our part to support the rebuilding efforts in the communities and the provinces. And I will say again how proud I am of the continued resilience demonstrated by our Manitoba team and the successful restart of operations in late August following the lifting of mandatory evacuation orders. The operations produced 22,000 ounces of gold, 800 tonnes of copper, 500 tons of zinc, and 102,000 ounces of silver in the third quarter, lower than the second quarter due to the two-month wildfire evacuation that deferred gold production. A business interruption insurance claim has been submitted to compensate for a portion of the wildfire-related downtime. Total ore mined at Lalor reduced by over 50% during the quarter due to the temporary operational interruption. Gold grades increased by 9% compared to the second quarter, while copper, zinc, and silver grades were in line with the mine plan expectations. Consistent with our strategy of allocating more Lalor ore feed to New Britannia to maximize gold recoveries, the New Britannia mill achieved average throughput of approximately 2,003 tonnes per day over the operating period in the quarter. Gold recoveries were a record 92%, reflecting the increase in gold grades. The Stall Mill Experienced A Greater Throughput Impact From The Wildfire Shutdown As The Lalor mine prioritized mining from the gold zones over base metal zones to ensure a consistent feed to the New Britannia mill. The team focused on process optimization and enhanced gold recovery initiatives, enabling record gold recoveries of 73% at Stall in the third quarter. Gold cash costs for the third quarter were $379 per ounce, decreasing compared to the second quarter, primarily due to the higher byproduct credits and the recovery of secondary gold products as a result of mill tank clean outs. While the Manitoba operations were previously tracking within the 2025 guidance ranges despite the significant impacts from wildfire evacuations, we are now expecting to be slightly below the low end of the gold production guidance range as a result of a week-long power outage in October from severe winter storms that further deferred gold production. With year-to-date cash costs continuing to outperform the low end of the cash cost guidance range, we are reaffirming our full-year 2025 cash cost guidance range in Manitoba. Given the strong cash cost performance to date in Manitoba, Hudbay will continue to prioritize primary gold production over byproduct zinc production in 2025, and full-year zinc production is now expected to be below the low end of the guidance range. Looking at our British Columbia operations, on Slide seven, we continue to focus on advancing our optimization plans at the Copper Mountain mine. This includes a ramp-up of mining activities to optimize ore feed to the plant and implementing site improvement initiatives that mirror Hudbay's best-in-class operating practices. In the third quarter, the British Columbia operations produced 5,200 tonnes of copper, 4,800 ounces of gold, and 51,000 ounces of silver. Production decreased compared to the prior quarter, primarily because of restricted mining efficiencies and lower grades as higher waste stripping continued. The waste stripping activities are part of the continued execution of the accelerated stripping program intended to bring higher-grade ore into the mine plan in 2027. During the third quarter, we made significant progress on the key mill improvement project, completing the initial phase of the SAG-two mill conversion in July. The subsequent ramp-up demonstrated positive contribution for SAG two during the quarter, with several days achieving 50,000 tonnes per day of mill throughput in September. The team continued to optimize the circuit as planned through the remainder of 2025, with the final phase of the project involving the conversion of an interim feed arrangement to a permanent configuration. Construction remains on target for completion in December 2025. In late September, the primary SAG mill, which I will refer to as SAG one, required unplanned maintenance due to localized damage to the feed head. After completing the repairs in mid-October, SAG-one restarted at a reduced rate. Under enhanced monitoring controls, SAG-one throughput will continue to ramp up over the course of the fourth quarter. Together with the completion of the final phase of the SAG-two project, Hudbay expects mill throughput to ramp up towards 50,000 tonnes per day by mid-2026. Total ore processed in the third quarter was 6% higher than the second quarter, reflecting the completion of the first phase of the SAG two project. Partially offset by planned and unplanned maintenance. During the third quarter, copper recoveries were 77% and gold recoveries were 59%, both lower than the prior quarter due to the processing of lower-grade stockpile material. British Columbia cash costs were $3.21 per pound in the quarter, higher than the prior quarter, largely due to lower copper production and lower byproduct credits. Fourth-quarter production is expected to be impacted by lower mill throughput from reduced levels at SAG-one in October, which together with a higher portion of ore milled from low-grade stockpiles this year is expected to result in full-year copper production in British Columbia to be below the low end of the guidance range. Cash costs continue to track well versus the guidance range, and therefore, we are reaffirming full-year cash cost guidance in British Columbia. Turning to Slide eight. As I mentioned briefly in my opening remarks, our Copper World project in Arizona achieved a significant milestone this quarter with the announcement of our 30% strategic joint venture with Mitsubishi. We welcome Mitsubishi's world-class expertise as we work together to advance this high-quality copper project and unlock significant value for all our stakeholders. This strategic partnership validates the attractive long-term value of Copper World as a top-tier copper asset and endorses the strong technical capabilities of Hudbay. Mitsubishi is acquiring its 30% stake for an initial contribution of $600 million. This deal will provide $420 million in cash once it closes and $180 million within eighteen months of its closing. These proceeds will be used to fund the remaining feasibility study and pre-sanction costs in addition to initial project development costs for Copper World. Mitsubishi will also fund its prorated 30% share of future capital contributions. This valuation is highly attractive to Hudbay as it implies a significant premium to consensus net asset value for Copper World. As a result of the JV proceeds and future capital contributions, Hudbay's estimated share of the remaining capital contributions has been reduced to approximately $200 million based on pre-feasibility study estimates. It also defers our first capital contribution to 2028 at the earliest and significantly increases the levered IRR to Hudbay to approximately 90%. With the recent achievement of our stated balance sheet target, we have successfully completed the key elements of our prudent financing strategy as part of our 3P plan. We are very well positioned to build one of the major copper mines in The United States while continuing to maintain a strong balance sheet to reinvest in other growth opportunities across our portfolio while continuing to delever. Eugene Lei: Copper World feasibility activities are underway Peter Kukielski: and we are on track for the completion of a definitive feasibility study in mid-2026. We have accelerated detailed engineering, certain long-lead items, and other de-risking activities with the additional $20 million in growth capital expenditures announced in August. We continue to expect to make a Copper World sanction decision in 2026. As part of our long-term growth pipeline, Slide nine summarizes the threefold strategy we are executing in Snow Lake as part of the largest exploration program in the company's history in Manitoba. The first objective is to execute near-mine exploration at the Lalor and 1901 deposits to enhance near-term production and further extend mine life. We completed the development of the initial exploration drift at 1901 earlier this year, and the development of the haulage drift is underway. Positive initial step-out drilling from the exploration drift was achieved earlier this year, and during the third quarter, some additional zinc development ore was delivered for processing at Stall. Activities at 1901 over the next two years will focus on exploration definition drilling, ore body access, and establishing critical infrastructure for full production in 2027. Exploration activities will also target additional step-out drilling to potentially extend the ore body as well as complete infill drilling to convert inferred mineral resources in the gold lenses to mineral reserves. The second strategic focus area is on testing satellite deposits within trucking distance of the Snow Lake processing infrastructure to identify potential additional ore feed to fully utilize the available processing capacity. With our significant Snow Lake land package, we have an attractive portfolio of regional deposits, including the Talbot, Eugene Lei: Rail PENN2 Watts Peter Kukielski: Three Zone, and WIM deposits. The most advanced of these satellites is the Talbot deposit, which I'll discuss further on the next slide. And the third strategic focus is on exploring our large land pack for a new potential anchor deposit to significantly extend the mine life of our Snow Lake operations. We are conducting the largest geophysics program in our history in Snow Lake, consisting of 800 kilometers of ground electromagnetic surveys and an extensive airborne geophysics survey. In July, we commenced exploration drilling at the Talbot Copper Zinc Gold Deposit. Talbot is located within tracking distance of the Snow Lake processing facilities, making it an ideal deposit to potentially provide supplemental feeds to our store mill. The current phase of the drilling program includes four drill rigs intended to complete 10 holes by the end of the year. After completion of the initial three holes, we are pleased to see that the core logging has confirmed the continuity of the Talbot copper gold mineralization at depth and look forward to receiving the full assay results later this year. This drilling will determine the future scope requirements for a pre-feasibility study, which we intend to initiate in 2026. In January 2026, we expect to kick off Phase two of the Talbot drilling program focused on infill drilling to support the pre-feasibility study. Concluding on Slide 11, this quarter demonstrated the benefits of Hudbay's diversified operating base, our unique copper and gold exposure, and our resilient operating capabilities. Our continued focus on cost control enables us to maintain industry-leading margins and deliver strong and stable cash flows. Once Copper World is in production, we expect our annual copper production to grow by more than 50% from current levels. This will reinforce our position as one of the largest Americas-focused pure-play copper producers with a well-balanced and geographically diversified portfolio of assets. Our expected production will be weighted approximately one-third in each of Canada, The United States, and Peru. And the significant increase in copper production from Copper World will further enhance Hudbay's exposure to copper, with more than 70% of consolidated production and revenue expected to be derived from copper. Hudbay's existing strong operating platform in Tier one mining jurisdictions and resilient balance sheet offers significant upside potential for further value creation at higher copper and gold prices. We will be able to prudently advance Copper World while also being able to invest in many other high-return growth opportunities to unlock value across the portfolio and create meaningful value for all our stakeholders. And with that, we are pleased to take your questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question is from Lawson Winder with Bank of America Securities. Please go ahead. Lawson Winder: Thank you very much, operator, and good morning, Peter, and then hello, Eugene and Andre. Nice to hear from you guys today. I wanted to ask first about Copper Mountain. So the construction decision, can we expect that to occur in mid-2026? And then just thinking about spending around Copper World this year, or in 2026, do you expect any pre-construction spending that could occur in advance of the completion of the feasibility study and a construction decision? Thank you. Peter Kukielski: Good morning, Lawson, and thanks for the question. So the first part of your question is, yes, we do expect to complete the feasibility study in mid-2026, and we expect the construction decision in 2026 as well. One of the comments that we made during my comments was that we did authorize an additional $20 million this year to get ahead of some of the long-lead items and engineering items associated with the critical path of the project. We also expect to be spending a fair amount of money, pre-sanction money, I guess you would call it, in order to keep things moving and to make sure that we address the critical path properly. So yes, the answer to your question in short is absolutely, we will spend on developing the project in conjunction with doing the feasibility study. Now remember that we are following an integrated project development approach, which means that the engineers, constructors, etcetera, are all in an integrated team. And so we are able that way to advance certain elements of the project ahead of others where there's risk. So 50% roughly engineering will be completed before the end of the feasibility study, but in some areas as much as 70% will be completed. So we are very much taking sort of a holistic approach to make sure that we address the critical path and spend on the right things even before the FID decision. Lawson Winder: Okay. That's helpful. And then just a clarification, the $20 million, will some of that be in 2025, or will all be in 2026? Eugene Lei: Hi, Lawson, it's Eugene here. So the original budget for this year for Copper World was $90 million, and we increased that to $110 million as part of that decision to make some long-lead items. If you look at the slide that we show in terms of the total funding, there's approximately $150 million in total spending from 01/01/2025, until the sanction decision expected in mid-2026. So you would have from the money that we've outlined, there's a total of $150 million. We expect to spend about $100 million of that this year and with about $50 million remaining in 2026 to be in a position to sanction Copper World along the timelines that Peter outlined. Lawson Winder: Okay. Yes, that's very helpful. Thanks for highlighting those numbers. I just noticed them yet. And then same question, but I just wanted to ask about CapEx. So you deferred $35 million sustaining CapEx into 2026. The original budget for this year was about $365 million. So should we think about sustaining CapEx in 2026 as $365 million plus the $35 million from this year, or are there some other puts and takes there we should be considering, and what are they? Andre Lauzon: Hi, it's Andre. So there is some of it, like some of the CapEx, there is a little carryover, but a lot of the CapEx were actually deferrals related to the wildfires in Manitoba and some of the tailings, some of the blockades in Peru. So those things are just kind of offset, and there's not an increase, it's just the mine plan is just continuing. So Manitoba restarted their operations and ramped back up, but they're not developing at a rate that's higher than what they did historically. So it's just a sliding of a lot of that. Eugene Lei: So to break that $35 million down for you, Lawson, it's $15 million in deferrals and sustaining capital, but that's not additional capital. So you don't add you don't just add it to 2026, as Andre mentioned. And then of the remaining $35 million, $20 million relates to growth projects that were deferred that will be deferred in 2026. So that's not new capital. Again, that's capital just that will just be not spent in 2025 and spent in 2026. Lawson Winder: Yes, that's super helpful. And then just ultimately what I was trying to get at is like a good baseline for sustaining CapEx for any year then. Would be basically this year's guidance of $365 million plus or minus, say, 5%? Like is that is that fair? Andre Lauzon: We haven't finished all the budgeting for the year, but that's a fair amount. I think every year there's in Peru, depending on the year, whether there's a tailings dam raise or not, the capital will fluctuate by between $20 million and $30 million. And in Manitoba, it's been very stable at this level. And in BC, while we're continuing the stabilization program, it's going to be at this level until 2026, as we've kind of mentioned on a three-year plan basis. So I think your assumption is fairly consistent. Lawson Winder: Okay. Thank you all very much. I appreciate it. Operator: The next question is from Ralph Profiti with Stifel Financial. Please go ahead. Ralph Profiti: Thanks, operator. Good morning. Peter, it's been sort of surmised that some of the issues in Peru are around informal mining and regulations therein. I'm just wondering, can you discuss a little bit about informal mining practices in and around Maria Reyna and Cuballito? Is this a significant issue that may need to be considered when we talk about the Consulta Previa process? Peter Kukielski: Hi, Ralph. It's a great question. Look, actually, there's been a fair amount of informal mining around Maria Reyna in Caballito for a long time since actually since before we acquired the mineral rights for the assets. I would say that the informal miners do not constitute a material impediment to our ability to get permits or go through the Consulta Previa process or get access to exploration. In fact, a lot of the work that we've done with the community is to try to prepare the communities to be able to support us with drilling themselves. And it would make sense that it might be the informal miners who actually do some of the work for us. So in general, I would say that to answer your question, informal miners are absolutely not an impediment to getting the Consulta Previa done. It's just more complicated right now given the social environment in Peru, change of government, etcetera, etcetera, to get the government to conduct the Consulta Previa process to get everybody together and to ultimately get the nod that the surface rights were required without coercion or anything like that. What I would say about Peru also is that there's no difference today to the way it's been for the last twenty-five years, and the term that I would use to characterize is stable instability. I've spoken many times about the time that I've spent in Peru with the pendulum swinging left and right and left and right. And the one thing that stays the same is or two things that stay the same in the fiscal environment, but also the bureaucracy. And what's really important is that stable bureaucracy to get things done, but the timelines are very, very difficult to predict, especially now with elections coming up next year. And the equation of the informal miners, how that plays into the broader social environment, but I don't think there's any direct impact on the prior consultation process. Andre Lauzon: There were small-scale miners on Pampacancha prior to our permitting and accessing it. They are a stakeholder. And we've successfully navigated that in the past. Ralph Profiti: Great. Thank you for that clear understanding. That's it for my questions. Eugene Lei: Thank you, Ralph. Operator: Next question is from Orest Wowkodaw with Scotiabank. Please go ahead. Orest Wowkodaw: Hi, good morning. Maybe just shifting gears to Copper Mountain. The asset seems to be underperforming your expectations since you acquired it. Can you give us a sense of the SAG mill issue that's that you disclosed here most recently, is this now going to negatively impact '26? And I'm wondering if we should already start thinking about the low end of the Copper Mountain production guide for 2026 based on this issue. Peter Kukielski: Thanks, Orest. So the first thing that I would say is that we are highly confident that Copper Mountain was the right asset to purchase. We believe strongly that the skill set that Hudbay brings to bear will ultimately be fully realized in value at Copper Mountain. Like we said, it's a three-year optimization or stabilization and optimization. We're sort of two years into it. There's a good year to go. There's a lot of work to be done. And there will be some puts and takes. Think Andre always explained it as being when you renovate a house, find a few things. When you pull the sheet rock off the walls, etcetera. But we'll get there. But Andre, maybe you can provide a little bit more color. Andre Lauzon: Yes, yes, yes. No, as you're saying, was thinking that TV show Love It or List It and we love it. We love it and there's there and it is very much it's a journey. And so I'll talk to the event there, Orest, and your specific question. But I would say if I start with is there's been tremendous progress throughout the course of the year that the team has done an excellent job on navigating a whole number of challenges and opportunities and in terms of ramping up the mine. And the mine was understripped and there's smaller benches and they're working through a lot of that. And so the we've seen steady progress in that. We delivered SAG two ahead of schedule or on schedule back in July and ramping that up where initially when we envisioned this, we weren't even going to turn it on until the end of the year. So and it's proved to be fruitful around that optionality as we we got into this the SAG one incident, if you will, that was described by Peter earlier on in the discussion. And so what it appears to have happened with that that example is and we've done a lot of investigation, there's more investigation to understand is is just it was a premature liner wear and it's the same set of liners and it and wasn't wearing the same as what we had thought previously. It's the same tonnage and it appears that our operational excellence in terms of we introduced something called a mill slicer to to really run a real stable efficient operation. And what we ended up seeing, which we didn't anticipate was a little bit more selective wear rather than wear throughout the liners. And they caused that incident. It caught us a little bit by surprise. They've repaired it. We've gone through in a very cautious, meticulous ramp up process. We're ramping up to date. We're We're almost at the level right now of where we were call it the average of prior to Q3. So it's a ramp up. Is there a bit of an impact to next year? A little but but not significant. And so the unknown for us is like the ramp up on SAG two. On the combined of SAG two and SAG one exceed our permit capacity for for Copper Mountain. And so we were cautious in the wording. As you know, we are we're generally conservative 50,000 tonnes a day. Orest Wowkodaw: Okay. Thanks. Good luck. Andre Lauzon: No luck needed, but it's got a lot of hard I but I appreciate the kind words. Operator: The next question is from Marcio Farid with Goldman Sachs. Please go ahead. Peter Kukielski: Thank you. Good morning, everyone. So just on obviously, you've adjusted the minus sequence in the third quarter. Marcio Farid: Towards the high-grade Pampa Chunk deposit. Just trying to minimize the impact from the interruptions, right? But just trying to understand, mean, mentioned on the release that October, the ramp-up at Constancia has been quite well. Just trying to understand if you're confident that you can back get back on track throughout the fourth quarter of the year. At Constancia? Thank you. Andre Lauzon: Sure. This is Andre. I'll take the question as So absolutely confident as I saw in the press release, the month of October as we disclosed is the highest copper production for the year. From we're into the high-grade cycle, the team is done an excellent job I could never imagine them running with three shovels and producing at the levels that they have at Pampacancha and thoroughly impressed by the team. And so Pampacancha is going at a very, very high rate could finish it potentially by the end of the year. Which was the original plan by the way. So the team is has basically caught up. And so that cadence is why we're seeing high copper grades through to the end of the year as well as the high gold. So as Pampacancha has really contributed to us exceeding the high end of guidance on gold for Peru. Peter Kukielski: Marcio, it's Peter. It's as Andre says, we are highly confident in our ability to get the ball out of the park Constancia for the remainder of the year. Marcio Farid: Great. Can I just follow-up on Manitoba as well? Gold grades have been quite strong. Just trying to understand if you can maintain and sustain that level at around five grams per tonne. What does the mine plan look like for Manitoba? Thank you. Andre Lauzon: Yes. So I'll add and if you can add, if I missed something there. So Manitoba like again resilience, the team unfortunately with the wildfires going into the year, we were on track to exceed gold at the high end of guidance. And that's why despite being down for two months with the evacuations, we're still in really, really good shape. And the team has ramped up We are in a high-grade cycle right now, I won't say the grade because you'll project it to the end of the year, but we are in a very high-grade cycle of both copper and gold right now and the mill is we to that extent, we have to slow down the grade because the grade was a little bit high. But overall, very confident in the grade to deliver to the end of the year. And Peter Kukielski: I would add, Marcio, that the average grade that in the mine plan is four point five four point six grams per tonne. Which is the basis for for our mine plan. And we expect to average those grades through the fourth quarter and throughout 2026. Yes. Marcio Farid: Great. Thank you. Eugene Lei: Welcome. Operator: The next question is from Martin Poirier with Veritas Investment Research. Please go ahead. Martin Poirier: Hi, thank you. Some of my questions have been answered, but in terms of the Q4 for BC, Peter Kukielski: are you expecting to be lower than Q3? Because a couple of moving Andre Lauzon: parts. I think you have lower grade and the throughput, I think it should be higher because now you have the second mill. So I'm just trying to understand that. Andre Lauzon: Sure. Sure. Right. It kind of answered the question. The reason why we're we're saying we're right at going to be at the low end of copper guidance is because it is dealing with that situation that I described on the ramp-up. So that the incident that happened at the SAG-one mill was right at the end of Q3. So there will be compensating effects like SAG-two is compensating for SAG one, but the throughput is built into that projection of achieving that low end of copper guidance. So a consolidated basis. On a consolidated basis. So that's why we're telegraphing that BC was going to be below the low end. On its individual guidance is because of that incident. Otherwise, were we would have been in a good spot. So the ramp-up is ongoing right now. We're quite pleasantly surprised and pleased with the team on how quickly they're ramping up But there is an impact in the quarter and that's why we're telegraphing to the low end of copper guidance consolidated Martin Poirier: Yes, I understand that. But you expect it to be higher or lower than Q3? Andre Lauzon: Like it's a so we are running SAG two. In Q3. So and SAG SAG1 was running at its typical capacity. It's not running at full capacity. Right now. It's still we're in the ramp-up mode. And so it's not going to be close, but it's probably a little little bit less. But the grade is in this quarter is different than in Q3. I'd say the grade compensates for it because we're mining a lot of low-grade stockpiling in Q3 and and we are seeing a bit higher grades than normal right now. So they kind of balance each other off. It's not our strongest one from BC, and that's why we telegraphed it to the bottom. End. Martin Poirier: Great. Thank you. That's very helpful. Operator: The next question is from Fahad Tariq from Jefferies. Please go ahead. Fahad Tariq: Hi, thanks for taking my question. Just coming back to Pampacancha, in the fourth quarter, how should we be thinking about mining rates? Like is it going to be similar levels to the third quarter? That was my understanding from the answer to the previous question. Andre Lauzon: Yes. Yes. Fahad Tariq: That's fair? Okay. And then the remaining feed should we assume that the Constancia pit is the remainder versus being stockpiles? In the fourth quarter? Andre Lauzon: We're back mining in Constancia. So it's a mixture of the two whatever makes the most sense. But yes, we're back in a Constancia for the remainder. Fahad Tariq: Okay, great. And then just unrelated, but switching gears to Manitoba. Can you just let us know how much you expect to receive from the insurance claim related to the wildfires? Andre Lauzon: It's a bit premature to give you a number. But as you know, we have good coverage that covers both property and business interruption. And business interruption has a thirty-day standard deductible. So we're really grateful that there wasn't any significant damage on a property basis. And given our proactive defenses defense activities. And so we're we submitted the claim and we'll we'll give you we'll get you a number of in 2026. But premature to give you an exact number today. Fahad Tariq: Okay. Fair enough. Thank you. Operator: The next question is from Stefan Ioannou with Cormark Securities. Please go ahead. Stefan Ioannou: Thanks very much. Maybe a tough one to answer, but just we think about growth and the next steps for Hudbay, should we just assume in the near term all hands on deck are going to focus solely on Copper World? Or should we start to think about maybe more news or thought or consideration given to other projects or assets in the company's portfolio? Peter Kukielski: Good morning, Stefan. Thanks for the question. So the one thing that we've tried to make very, very clear is with having retired the 3P plan now, having procured the joint venture partner for Copper World, we are now in an extremely strong position to be able to fully fund Copper World as well as to continue to pursue high-return low-risk brownfields production improvement projects across the portfolio. So I think what you'll see is that talked today a little bit about the exploration efforts that are underway. We with advancing 1901, etcetera, etcetera. We've got the pebble crushing circuit in Peru next year. Bunch of these things. So I think you can be assured that we will continue to invest in the portfolio as well as to continue pushing Copper World. Remember Copper World is one single integrated team and we are a decentralized organization with different business units who will continue to pursue. There are other projects. Eugene Lei: Stefan, if I could add to that, we're in a really enviable position with our strong balance sheet and cash balance where we're we're going to be able to build Copper World with very little capital till 2028. We're going to be able to build Copper World, reduce our leverage, delever, and allocate capital to other business units so that we're able to reinvest in building up additional production capacity in Manitoba, in BC, in Peru, and advance even Mason. So I think it's a really enviable position where coming out of the decade, we will have built Copper World, have lower debt, and invested in all the other areas and built up our entire business. And was the benefit of bringing in this joint venture partner to fund a significant portion of the Copper capital was because we saw so much opportunity within our portfolio to invest to grow the other parts of the business as well. And it's pretty exciting and us to be in this position to be able to do that. Stefan Ioannou: Okay, great. Great. That's very helpful. Thanks very much, guys. Eugene Lei: Welcome. Operator: This concludes the question and answer session. I'd like to turn the conference back over to Candace Brule for any closing remarks. Candace Brule: Thank you, operator, and thank you, everyone, for joining us today. If you have any further questions, feel free to reach out to our Investor Relations team. Thanks, and have a great day. Operator: Ladies and gentlemen, this concludes the conference call for today. You may now disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Ladies and gentlemen, welcome to the LEG Immobilien Q3 2025 Conference Call and Live Webcast. I am Mathilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Frank Kopfinger, Head of Investor Relations. Please go ahead. Frank Kopfinger: Thank you, Mathilde, and good morning, everyone, from Düsseldorf. Welcome to our call for our 9 months 2025 results call, and thank you for your participation. We have in the call our entire management team with our CEO, Lars von Lackum; our CFO, Kathrin Köhling; as well as our COO, Volker Wiegel. You hopefully realized that we changed the format of the presentation slightly. You have now a more condensed section in the front part of the presentation, and you have all information as in the past in the appendix. You find the presentation document as well as the quarterly report and documents within the IR section of our homepage. Please note that there is also a disclaimer, which you'll find on Page 2 of our presentation. And without further ado, I hand it over to you, Lars. Lars Von Lackum: Thank you, Frank, and welcome from my side as well. A brief overall comment and just repeating what Frank just said. All adjustments to our financial disclosure were made to present our financial updates in a sharper, more straightforward way and allow for a more focused discussion on the main levers of our business. You can still find all the details included in our financial disclosures so far in the new appendix of today's presentation. With this, I turn to the highlights slide. The key highlights and messages are certainly the following. After the first 9 months, we are fully on track for our 2025 guidance, i.e., we aim for an AFFO growth of 10% this year. For 2026, we guide for an additional growth of 5% in AFFO. We stick to AFFO as our core KPI, i.e., cash generation remains our core principle in this environment. At the same time, we have included FFO I as part of our guidance for 2026. We remain constructive on valuation and expect a positive valuation result of 1.5% to 2% for the second half of the year. Disposals remain one key lever to bring down our LTV to the target line of 45% in 2026. We have already sold more than 2,200 units for around EUR 100 million so far and remain very positive to see signings until year-end based on the current state of our sales pipeline. The last highlight for this quarter is certainly Moody's. Moody's just recently confirmed our Baa2 rating and revised our rating outlook to positive. We regard this as a recognition of our efforts to protect our balance sheet via noncomplex measures and the cash-focused steering of our group. Let me now move to Slide 6 and our financial highlights for the 9 months. We continue to show strong growth, which is driven by the seamless integration of the 9,000 units portfolio of BCP as well as by organic growth. Our net cold rent grew dynamically by 6.8% or EUR 44 million, respectively. Strong top line growth in combination with a tight cost control led to a strong EBITDA margin of 79.2% for the first 9 months. Based on that, we feel comfortable to reach the increased guidance for the EBITDA margin of 77%. The same holds for the AFFO, which we expect to come in between EUR 215 million and EUR 225 million. We are aware that the 3.1% like-for-like rental growth looks a bit lighter than our target range of 3.4% to 3.6%. However, we are very confident that we will reach the target range for the full year in Q4, and Volker will give you some more details on the reasons in a minute. Let's move on to Slide 7. For some of you, it might be a bit of a déjà vu as we have shown the same slide in our H1 call. We are of the opinion that this simple chart reflects our core KPIs and the thinking behind it in the most transparent way. We continue to believe in cash, i.e., cash remains king in the current environment. Therefore, AFFO remains our core KPI. At the same time, we never stop prioritizing profitability. Therefore, we are including FFO I additionally in our guidance. The impact of the drastically rising state budget deficits and rising debt ratios to interest rates is more than uncertain. The response of national banks to these fiscal situations is equally unknown. The few green shoots seen in transaction markets might continue to grow, but substantial risks remain. In this environment, we do not want to organically start to lever up by increasing investments. We have decided to remain in a fully self-financed position. We continue to spend more than EUR 35 per square meter. This is still one of the highest levels in LEG's history, excluding the peak years of 2020 to 2022. Therefore, we invest more than 40% of net rental income into our portfolio via maintenance or CapEx. We consider this to be significant, and those investments will support future rent growth. All of this is fully self-financed, and we do not need to take up additional debt. It is the most rational strategy to maneuver in this environment. We expect to achieve a further growth in cash generation, especially the 10% AFFO growth in 2025, and we guide for another 5% growth in AFFO in 2026. And with this, I hand it over to Volker for a detailed view on our operations. Volker Wiegel: Thank you, Lars, and good morning to everyone also from my side. On Slide 8, we provide more details on the rent growth per square meter realized in the first 9 months of the year. In-place rents per square meter increased on a like-for-like basis by 3.1% to EUR 6.99. The 3.1% can be broken down into 1.7% from rent payable increases, while modernization and reletting contributed 1.4%. The like-for-like rent growth was solely driven by the free financed units with an increase of 3.6%. At year-end, we will have achieved also here our target of more than 4%. The like-for-like vacancy rate according to EPRA definition, remained at a very low level of 2.5%. In 2026, we will have an adjustment of the cost rent again and accordingly, rent growth will gain momentum. We expect also bigger locations to see rent table updates like Gelsenkirchen, Duisburg and Düsseldorf in Q1 or early Q2. You have the list, as always, in the appendix on Slide 25. Let me now explain why we are so confident to reach our 2025 rental growth target of 3.4% to 3.6% despite having only reported a 3.1% increase as of Q3. Let's move to Slide 9. You can see the rent increases we put through in each quarter in 2024 and 2025. In Q1 2024, we put through strong rent increases. This was also a function of underlying rent table publications, reletting activity and modernization activity. After 3 quarters in 2024, we had implemented 87% of the rent increases realized until year-end. Contrary, in Q4 2024, the rent increase put through was rather low. This year, rent increases are split more evenly throughout the quarters. This is mostly due to the publication date of new rent tables. Given the previous year pattern, we will have a significantly stronger Q4 than last year, which will get us into the target range. Slide 10 gives you more insight into our investments. Here, we are also fully on track for our per square meter goal of more than EUR 35. Our total investments into the portfolio increased by 10% in the first 9 months of the year. The absolute amount was roughly EUR 292 million, which corresponds to EUR 26.16 per square meter. This per square meter investments increased by 6%. The fact that the portfolio size increased with the full takeover of the BCP led to a higher increase in absolute numbers than on a per square meter basis. The cap ratio remained unchanged. The recurring CapEx, which is relevant for the calculation of the AFFO increased by 7%. The decline in new construction investments is decisive for the lower growth rate in comparison to the overall investments and adjusted CapEx, respectively. Let me briefly comment on disposal on the next slide. We are satisfied with the progress if we consider the transaction markets activity, especially for bigger portfolios and volumes remain soft. In total, we did already sell around 2,200 units for around EUR 190 million so far. All of them have been transacted at or above book value. We expect more to come in, in coming weeks and expect transaction activity at our end to ramp up towards year-end. Rest assured that once we sign bigger deals, we would inform you via a press release to keep you up to date. And with that, I hand over to Kathrin. Kathrin Köhling: Thank you, Volker, and good morning from my side as well. Let me walk you through our AFFO development on Slide 12. In the first 9 months, the AFFO increased by 19.3% to EUR 181.3 million. This was mainly driven by higher net cold rents, whereas around EUR 20 million were due to organic growth. The acquisition of BCP contributed another EUR 37 million, offsetting the impact from disposals, which was EUR 13 million. Furthermore, we saw positive contributions from our value-add business and remained very cost disciplined in both operations and administration, which had a positive overall effect of EUR 7.1 million year-on-year. While the average interest cost in our group remained low at 1.59%, net cash interest in absolute terms rose by EUR 5.9 million as total debt has increased due to the consolidation of BCP and of course, also due to the general rise in interest from new financings. On the investments, the rise in spending is in line with our guidance. In terms of subsidies for the full year, we still expect to come out at the lower end of our original guidance range of EUR 20 million to EUR 25 million. In financial year 2026, subsidies should come down to around EUR 10 million, also due to the fact that there will be no more new construction activities. For more details, we provide an AFFO table in the appendix on Slide 16. Coming to Slide 13 and LEG's financial key figures. Following the EUR 400 million redemption of our convertible, which was due on September 1, all our maturities for 2025 have been addressed. And the same applies to all of our debt maturing in 2026. This includes the EUR 500 million straight bond, which represents roughly half of next year's maturities. As of today, we have a pro forma cash position of cash, cash equivalents, signed financing agreements, including prolongations and disposal proceeds of well above EUR 1 billion. This brings us well into 2027 when our next bond matures in November 2027. As usual, we present a detailed maturity profile for the next 10 years on Slide 31. At the reporting date and after the redemption of the EUR 400 million convertible bond, our liquidity position was EUR 448 million. Furthermore, we had and still have undrawn revolving credit facilities of EUR 750 million as well as an unused commercial paper program of EUR 600 million. Our average interest rate stood at 1.59%, nearly unchanged year-on-year with an average maturity of 5.6 years. The LTV stood at 48.3%, given that the dividend payout of around EUR 125 million took place in early July. Year-on-year, however, we stand at a minus 20 bps. We are now heading towards our LTV target of 45% set for next year. As usual, we provide important financing KPIs and bond covenants in the appendix on Slide 32. Of course, the ICR is next to the LTV, a very important KPI for us. Our bond covenant ICR slightly increased quarter-on-quarter and now stands at a very strong 4.5x. And all the other bond covenants are also with ample headroom. Very recently, Moody's confirmed our Baa2 rating and revised the outlook from stable to positive. And now I'd like to hand over to Lars for the guidance. Lars Von Lackum: Thanks a lot, Kathrin. Let me now come to our guidance for 2026. We expect the AFFO to grow by 5% on the back of a rent growth of 3.8% to 4%. So rent growth is to increase by around 40 bps over 2025 and reflects the positive contribution from the cost rent adjustment for our subsidized units. We expect the EBITDA margin to improve towards peak levels of 78% again. We continue to invest significantly into our portfolio, i.e., more than EUR 35 per square meter, so quite in line with this year's investment. On LTV, we expect to reach our target of around 45% in 2026. This will be driven by a mix of further valuation effects as well as disposals. Certainly, faster disposals can shift the time line forward by when we achieve the 45%. On this positive note, I come to the end of my presentation. We, as a team, are happy to answer your questions. Frank Kopfinger: Thank you, Lars. And with this, we begin the Q&A session, and I hand it over to you, Mathilde, to guide us through the Q&A. Operator: [Operator Instructions] The first question comes from the line of Marios Pastou from Bernstein. Marios Pastou: So I've got two questions from my side. So firstly, given your renewed confidence in achieving planned disposals and expectations to reach your LTV target next year, what drove your decision to remain focused on AFFO as your key earnings KPI rather than revert back to FFO I? And then secondly, on a similar topic, if I look at 2026 guidance, I see AFFO is up 5%, but FFO is flat to 1%, even though your investment plans are stable year-on-year. So what is driving the difference between these 2 growth trajectories? Lars Von Lackum: Marios, thanks a lot for your questions. So just to start off, so why have we decided to stick to AFFO instead of making FFO I again our core KPI? It is really the macro environment, especially the uncertainty around budget deficits from different states, including the German one. And I think we've seen during this year what the announcement of the new budgets being planned to be spent on infrastructure and defense did to the interest rate, especially long term. And those uncertainties are mainly the reason why we thought to be well advised to stick to our self-funded strategy. So we remain focused on AFFO and keep cash as our core metric going forward. So that is why we were sticking to AFFO, although we are expecting substantial additional disposals in Q4. With regards to the difference FFO I to AFFO, happy to hand over to Kathrin. Kathrin Köhling: Yes. So there is obviously a range that we are giving out for next year, and it's -- and the numbers on the FFO side are much bigger than on the AFFO side. So let's see how the ranges play out next year. And also please keep in mind that this year, we were still doing new developments on owned land, which ended up in the AFFO line and not in the FFO line. And as we are now done with our new developments, this will not take place next year. Marios Pastou: Okay. Very clear. So there's no specific adjustment being made between the 2 numbers that is causing this difference? Kathrin Köhling: No, we didn't change the KPI definition or anything else. Operator: The next question comes from the line of John Vuong from Van Lanschot Kempen. John Vuong: Just on the like-for-like rental growth guidance, it comes in higher next year, which I understand to be coming from the cost rent adjustment on subsidized apartments that happens every 3 years. Just try understanding the underlying trend of like-for-like, what's the impact of this adjustment to your like-for-like? Volker Wiegel: It's about 40 to 50 bps. John Vuong: Okay. That's clear. And then just correct me if I'm wrong, but the 2026 AFFO and FFO guidance are excluding any disposals, while the LTV guidance is including disposals. What's the rationale for this? Lars Von Lackum: As always, John, we will have not included any disposals because as long as we have not signed those, it would be just guessing. So therefore, from our perspective, it's not worthwhile now including disposals which have not been signed. Certainly, for 2025, also to be transparent, there will be no increase in really the transfer of ownership. So 2025 numbers will not be impacted by the additional sales expected for Q4 2025. John Vuong: So the 45% LTV that you aim to achieve in 2026, that's excluding disposals? Lars Von Lackum: No, it's including disposals, but those transfers of ownership signed in Q4 being transferred in 2026, certainly contributed to reduce LTV to 45%. Operator: We now have a question from the line of Bart Gysens from Morgan Stanley. Bart Gysens: Thank you for the very clear kind of expiry profile and cost of your debt. Can I just ask what is the cost of debt that you are assuming for 2026 in your guidance to get to this level of AFFO and FFO? Kathrin Köhling: While -- I'm happy to take your question. While I don't know how markets are developing next year, I can for sure tell you about the financing that we just did. So the financings that we -- where we already got the money, you already have in the 1.59%. The financings that are still outstanding and will come mostly in Q4 this year and Q1 next year are around EUR 600 million, and they are refinanced by 3.8% to give you an idea around that. And for the remainder of the year, of course, we will continue our opportunistic refinancing approach. So there will be more financings to come, especially when we regard what 2027 has in the basket for us. So -- but this will be totally dependent on market developments. Bart Gysens: But I assume that given you provide a guidance for '26, that implies a certain number that you've assumed what your debt will cost, right? And I appreciate that's a bit a range, but can you be explicit on what you think that number is to get to this range of FFO? Kathrin Köhling: I already gave you the biggest part of it, the EUR 600 million. And for the remainder, we, of course, have forward curves behind that. But I hope you understand that I'm not giving out exact numbers on specific line items of our P&L. Operator: [Operator Instructions] We now have a question from the line of Manuel Martin from ODDO BHF. Manuel Martin: Two questions from my side. Let's do it maybe one by one. The first one is on the upcoming disposals. Could you give us maybe some color on what could we expect in terms of how many disposals, where they are located, which quality so that we have a bit of impression of what could come there? That would be the first question out of two. Lars Von Lackum: Manuel, very happy to take that question. So certainly, we are currently in the midst of selling the plot in Gerresheim Düsseldorf, which we've bought from BCP. We made progress there. We have now a preferred bidder with whom we will approach the city of Düsseldorf. And that's certainly a substantial part of the disposals to be expected. Secondly, with regards to the BCP portfolio in the Eastern part of Germany, we made substantial progress across all 3 cities. So Halle, Leipzig and Magdeburg, we are in exclusivity there with different bidders, and we are hopeful to also sell half of the portfolio within Q4. And then there are other portfolio disposals across the current earmarked 5,000 units portfolio, which we are currently marketing, that will also contribute. So overall, expectation is that we are going to sign around EUR 100 million to EUR 200 million of additional disposals in Q4 until the end of this year. Manuel Martin: Okay. Okay. That's clear. Second and last question, the other side of the medal, in terms of possible acquisitions, do you see opportunities in the market? Or what's your feeling what could come in regard of acquisitions? And what would be possible for LEG given the high LTV? I could imagine that there might be also some constraints when it comes to acquisitions. Lars Von Lackum: Definitely, especially as we strive firstly to get LTV down now to 45%. So that will only be a small portion. Currently, we are only looking into bolt-on acquisitions in different locations, but it is nothing bigger what we currently plan with regards to acquisitions. If there might be an outwhelming opportunity, and that definitely will then include also equity with our depressed share price that might be quite a stretch. So our focus is currently on getting disposals done and perhaps realize the one or the other bolt-on acquisition, but not on bigger acquisitions so far. Operator: [Operator Instructions] The next question comes from the line of Kai Klose from Berenberg. Kai Klose: I've got one quick follow-up question. When you indicate the LTV to be at around 45% by the end of next year, could you indicate where you expect the ICR to land? Kathrin Köhling: Kai, thanks for your question. We are not giving out a guidance for the ICR for next year, but we're looking at the 4.5 where we are currently standing at, it's super strong. It might decelerate a little bit, but we are well above any numbers that we should worry about. So that definitely will be a strong number next year as well for us. Operator: Ladies and gentlemen, that was the last question. I would -- sorry to interrupt. We have a last minute registration coming from the line of Rob Jones from BNP Paribas. Robert Jones: Sorry, just two quick ones. Kathrin, just on the guidance, AFFO versus FFO. I appreciate that the FFO guidance range for '26 is wider. But why is it wider than the AFFO guidance? And then secondly, Lars, if I think about your assets that you've got marked for sale, I appreciate you're expected to make significant progress in Q4 this year with regards to some of those disposals. But if I take the 5,000 units and if you were able to sell them at your price expectations and let's imagine that asset values didn't move, can we get down to 45% LTV or if you've got either more stuff to add that needs to be sold to that disposal program? Or is it a case that if asset values are up a couple of percent next year, like they will be this year, then actually you get to 45% LTV anyway? Lars Von Lackum: Thanks a lot for your questions, Rob. I'll start with the second question. So with regards to the current assets, it is really that we -- for the time being, we are sticking to those 5,000 units. But as we make transparent, we will do a full portfolio review over the coming 2 months. And then certainly, we will earmark most probably additional units for sale. How much that will be? Let's wait and see how that portfolio revision will look like. But it might be that we are then also being willing to offer additional units. For the time being, we are currently marketing those 5,000 units and expectation is that we make strong progress on those within the next 6 weeks. Kathrin Köhling: With your first question on the wider guidance range on the FFO, this is, of course, due to the investments. And you know we are focusing on the AFFO. AFFO is also the basis for our dividend. So we really try to spend as much money as needed, but not spend more. And therefore, the capitalization ratio can vary a little bit between the years and depending on what we are exactly doing. So it's much harder to say where we will land up with the FFO when you're focusing on the AFFO. And therefore, we have the wider guidance range. Operator: We now have a question from the line of Jonathan Kownator from Goldman Sachs. Jonathan Kownator: Just following up on some of the nitty-gritty accounting. But just on subsidies, I understand that the amount you're guiding to EUR 10 million is going to be lower for 2026. You're also saying that you will have less work for your own balance sheet that you're doing. So how we expect the capitalization to evolve? And also, if you can give perhaps a bit more context on the subsidies, that would be helpful. Lars Von Lackum: Yes. So to start off with the second part on the subsidies, Jonathan, with regards to subsidies, nothing here is being impacted by new developments. As you know, we are finalizing new developments. And for those, certainly subsidy values become due as soon as you finalize that construction. So that will be lower next year and will certainly be a headwind which we need to cope with. So for overall this year, that's something like EUR 20 million, and it will be substantially lower next year. And that's with regards to 2026, certainly something which we need to cope with if we look into the subsidies on the one hand side, but also interest rates because you heard it from Kathrin that with regards to the EUR 600 million, which we are now drawing, that now kicks in. That's 3.8% instead of the current average yield of 1.6%. And that's certainly something which also is a headwind. And that is the reason why in combination with the uncertainty around the capitalization rate, we've been opting for a wider range for the FFO I EUR 475 million to EUR 495 million. Jonathan Kownator: And so just following up on that, your new development business, I think you've wind down essentially. So does that mean that the EUR 10 million in 2026, this is effectively the last year that you're getting these subsidies? Lars Von Lackum: So for new developments, it's the last year that we are getting subsidies for new construction. But certainly, with regards to all the work we are doing on the energetic side with regards to, for example, changing heat systems, heating systems from fossil-based to renewables, that certainly will have a subsidy impact, and that's something which we are expecting for next year to come. Jonathan Kownator: And so maybe let me rephrase. So for 2026, the EUR 10 million guidance you're giving, does that still include new development or then it's just about energetic modernization? Lars Von Lackum: 2026, no new developments. 2025 is last year of new developments, new developments with subsidies. Next year, no new developments anymore, Jonathan. Jonathan Kownator: Okay. And so are we expecting also the own work capitalized to drop then in 2026? Lars Von Lackum: I think you're making a reference to a line item, which is not being impacted by the new developments, but it's strongly impacted by our craftsman services units. So that is something which is not to be put in the same basket. Yes. Operator: The next question comes from the line of Nico Hagemann from Deutsche Bank. Nico Hagemann: In regard of the current selling of the Glasmacherviertel in Düsseldorf, I ask you to give us some color on this in terms of the competition of this deal? Lars Von Lackum: The competition is incredibly high. It took us 2 rounds to finally decide for one consortium. And with that, we are now approaching the city of Düsseldorf. So therefore, even if the city would not agree to the current consortium, which we do not have any indication as of today, meetings still need to take place, and there would be runners up also with competitive pricing. So therefore, we are confident to find a way to sell that plot over the coming weeks. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Frank Kopfinger for any closing remarks. Frank Kopfinger: Thank you, and thanks for your questions. And as always, should you have further questions, then please do not hesitate and contact us. Otherwise, please note that our next scheduled reporting event is on the 5th of March next year when we report on our full year results. And with this, we close the call, and we wish you all the best and hope to see you soon on one of our upcoming roadshows and conferences. Thank you, and goodbye, everybody. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.