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Operator: Ladies and gentlemen, welcome to the Semperit Publication of Q1 Q3 2025 Results Conference Call. I am [ Sandra ], the course Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Stanek, CEO. Please go ahead, sir. Manfred Stanek: Thank you very much. Ladies and gentlemen, welcome to our results presentation for the first 3 quarters of 2025. Joining me today is our CFO, Helmut Sorger. We are well aware that today is a particularly busy day for publications with numerous Q3 reports being released. That's why we are all the more pleased that you are taking the time to learn more about our progress. Helmut and I will guide you through the presentation, which is available on our website and then open the floor for your questions. I would like to start with Slide 3, the overview. On this page of the slide deck, you will find a brief summary of the highlights. Let me start with the positive developments in the third quarter. We continued to build momentum with EBITDA improving to EUR 21.3 million. That's a 92% increase versus Q1 and 9% growth versus Q2. Year-on-year, EBITDA was up by almost 29% and the margin climbed by 2.8 percentage points to 13.1% despite revenue growing only slightly by around 1%. This clearly shows that the measures we implemented earlier in the year are paying off. Our order situation is now above 2024 levels following the subdued development we saw in the first quarter. This gives us confidence as we move into the final weeks of the year. At the same time, we have defined additional cost savings initiatives, which will reduce our annual cost base by another EUR 10 million. These actions are essential to strengthen our resilience and improve profitability going forward. However, we must acknowledge that challenging market conditions still weigh on overall performance for the first 9 months. EBITDA stands at EUR 52 million, down 18.6% year-on-year, and the margin is 10.8% compared to 12.6% last year. On a positive note, earnings after tax returned to positive territory in Q3, reaching EUR 2.8 million compared to a loss of EUR 2.5 million in the comparable quarter 2024 and losses in the first 2 quarters this year. The third quarter marks a clear turnaround and reflects the progress which we are making. Finally, based on the development so far, we have specified our outlook for the full year. We expect operational EBITDA to come in at approximately EUR 78 million. Just to remind you, that is EBITDA before costs for our ERB digitalization project. Turning the page, you see the shift in revenue and EBITDA year-on-year for our 2 divisions, Semperit Industrial Applications and Semperit Engineered Applications, showing graphically the impact of some of the latest economic trends. After Engineered Applications muted first quarter, we now see a much more balanced split between revenue and EBITDA across our 2 divisions, approaching the distribution which we saw last year. Revenue stands at 42% for SEA and 58% for SEA, while EBITDA is 59% for SEA and 41% for SEA. This demonstrates that the recovery in SEA engineered applications is well underway and that our portfolio is returning to a more balanced state. Let's turn to the Industrial Applications division at Slide 5. Here, we see a continuation in margin recovery since the final quarter of 2024 to nearly 20% in the third quarter on the back of cost reduction, better capacity utilization and sales excellence initiatives. Overall, challenging market conditions persist, but the order situation has improved compared to last year, mainly driven by the hoses business. Sales in the first 3 quarters remained broadly stable with a slight year-on-year decline of 1%, primarily due to lower volumes. EBITDA decreased by 8.3%, but the margin held firm at a resilient 18.7%. In hoses, demand remained subdued, especially in the OEM segment, while direct customer business improved as inventory destocking ended. Order intake and backlog are above last year's levels. For profiles, construction activity is still weak. That said, early economic indicators suggest signs of stabilization, although we do not expect a short-term recovery. We are countering this with targeted cost savings and sales excellence initiatives. Turning to Slide 6 to the Engineered Applications division. Following a slow start to the year, the division gained noticeable traction from the second quarter onward as clearly illustrated in the chart on the top showing the development of quarterly sales and margins. We can see a continuous improvement since Q1, although the weak start of the year could not be fully offset over the course of the first 3 quarters. Sales for the first 3 quarters totaled EUR 282.2 million, representing a 7% decline year-on-year, mainly driven by project delays in belting and liquid silicon rubber tooling during Q1. EBITDA amounted to EUR 26.3 million with a margin of 9.3% compared to 12.1% in the previous year. Encouragingly, the order situation has improved compared to last year. Looking at the business units, our Form business, which encompasses various product market combinations recorded a slight increase in sales. Demand was mixed. Mountain applications, industrial and European handrails performed strongly. Transport was stable, but we see delays in larger infrastructure projects like high-speed rail and budget shifts towards defense. The Chinese handrail market remains challenging due to weak infrastructure investment and high local government debt in China. Importantly, both order intake and backlog in the Form business exceeded last year's levels. As you know, Belting, our conveyor belt business started the year under pressure from project postponements and uncertainty around the U.S. tariff policy. As a consequence, we did adjust capacity. In Q2, orders clearly picked up, but lost some momentum in September, leading to a slight slowdown towards the end of Q3. Still, intake and backlog for the first 9 months are above last year. Currently, we are operating at full speed and full capacity to process all orders on time and ensure reliable delivery until the end of the year. Finally, our liquid silicon rubber business, respectively, Rico, posted stable revenues compared to last year, but managed to increase EBITDA. Order intake in parts production developed satisfactorily overall, although demand varied by product group. Call-offs from the health care sector increased mobility continued at a high level. Declines were seen in segments like the construction industry. The order situation in the tool shop has improved, and this has also laid a good foundation for future capacity utilization in the production of liquid silicon rubber parts. And with this, I would like now to hand over to Helmut, who will take us through the financials. Helmut Sorger: Thank you, Manfred, and also a very warm welcome from me. Let me start with the financial highlights in the first 9 months on Slide #7. As already announced, we defined and began implementing yet another cost-saving measure beginning of the year. These initiatives reduced our annual cost base by another EUR 10 million on a run rate basis -- annual run rate basis. By the end of September, we had already achieved savings of EUR 4.1 million. In this context, allow me to just remind you of the extensive actions we've already taken since 2023. We responded very early. And together, the new measures, we will have removed around EUR 30 million in overheads in the last 2.5 years. This has certainly helped us counter inflation, support margins and significantly improve our operating leverage. You'll clearly see the impact once market demand picks up a little bit. We maintained our free cash flow at a stable level at EUR 22.3 million, and we clearly see Q3, the cash flow generation gaining clear momentum. We have a stable balance sheet. Our net financial debt-to-EBITDA ratio is at 1.5. Clearly below our internal threshold of 2.5. Turning to our key transformation project, one ERP, which is in a really, really hot stage right now. We had the technical go-live on November 1. We have a system, and we are officially in cutover. Big thanks to the team, the efforts that went into it. It clearly shows there's still some pioneering spirit left in Semperit that will certainly leverage with the continued rollouts. This will give us one system for the entire group. help us be efficient in back-office processes, and we are looking forward to the rollouts of the next plans in the next 3 years. Not to say the least, we also managed to pay a dividend of EUR 0.50 per share. That's EUR 10.3 million total to our shareholders on April 30. While this may feel like a while ago, it remains an important element in how we allocate capital and reflect our commitment to delivering value. On the next slide, we summarize the main items of the P&L and other key financial indicators in comparison to the last period. As you'll recall from our last call, we suggested using the first quarter as proof of our operating leverage. Just to remind you, sales in the first quarter were down 14%. EBITDA was down 52%. To give you the Q3 in a side-by-side comparison, in Q3, sales were up just slightly 1%, but EBITDA plus 29% operating EBITDA even 34%. This is kind of a situation where we say an small incremental change in volumes and utilization goes directly into the bottom line. As Manfred has already told, revenues recovered in Q2, Q3, improving overall trajectory despite the soft start. EBITDA also benefited from our cost measures, partly offsetting the volume decline. Over the course of the first 3 quarters, we recorded a moderate decline in revenue of 4.6%, while EBITDA came in at EUR 52 million, which is still down 18.6% compared to last year. Operating EBITDA reached EUR 55.6 million. This includes the EUR 3.5 million in project cost for our digitalization initiative ERP. Earnings after tax came in negative at EUR 8.4 million. This reflected the overall development, but also had the EUR 3.3 million impairment of our customer base at Rico and EUR 4.2 million in negative currency effects. Our free cash flow, as I mentioned before, remained stable. This primarily due to our disciplined CapEx management. We tried to shift CapEx projects into future years when they were not entirely essential. Not to mention, at last, we also use the effective method of factoring in order to cash in on our accounts receivables. Turning the page and plotting the last 12 months industrial revenues against the industrial EBITDA margin. After a margin decline from 14.8% in Q4 2024 to 12.5% in Q2 '25, largely due to the stronger margin base in early '24, we now see a clear upward trend in Q3. This improvement reflects mainly the impact of our cost reduction efforts, but also good procurement and control of the sales prices. As I've emphasized before, these measures play a key role in stabilizing margins, especially in a challenging market environment. When looking at the year-on-year EBITDA bridge on Slide 10, the decline in volumes could not be fully offset by price/mix effects and other measures. However, you can already clearly see the impact of our latest cost-saving initiatives, which contributed EUR 4.1 million in savings by the end of September. Cost of materials, services and energy increased slightly year-on-year, while the change in inventory continues to play a role in the overall pictures. It reflects the normalization of our stock levels. Project costs related to our 1 EP digitalization initiatives amounted to EUR 3.5 million, and that brings our operating EBITDA to EUR 55.6 million. Over the page, we present the constituent parts of our working capital management with an improvement compared to the situation a year ago. In total trade working capital as a percentage of last 12-month revenues was down at 16.7% after 18% at the end of the September last year. Compared to the end of the year, we see a slight increase, which is mainly due to the normalization of inventory levels and certainly an uptick in production activity. The bridge chart for year-on-year net financial debt development on Page 12 shows that free cash flow of EUR 22.3 million comfortably covered both our growth-related CapEx of EUR 7.1 million and the dividend payment of EUR 10.3 million. At the end of September, our net financial debt-to-EBITDA ratio stands at 1.5x, slightly up compared with 1.2x at the end of the year last year, but a very solid and conservative level and well within our financial framework. Let's take a look at our financial position at the end of the third quarter on Slide 13. Cash and cash equivalents stood at EUR 86.6 million, a decrease of 31% compared to year-end '24, but this was primarily due to the repayment of the Schuldschein loan with a nominal value of EUR 31 million that happened in July. As a result, our financial liabilities were reduced to EUR 199.1 million. Most importantly, our EUR 100 million revolving credit facility remains undrawn, giving us additional financial flexibility. As already mentioned, our leverage remains at a very solid level with net financial debt-to-EBITDA ratio of 1.5, and our equity ratio is stable at 47%, underscoring the continued strength of our balance sheet. Let me conclude with our capital allocation priorities on the next page, cash usage, which you're already familiar with. Rather than going into detail for each component, the key message is that we managed to keep normal investments under tight control. Maintenance CapEx amounted to EUR 18.6 million in the first 3 quarters, while growth investments totaled EUR 7.1 million. Given the current market environment, we believe it's prudent to pull this lever, which is fully within our control. We paid a dividend of EUR 0.50 per share on April 30, totaling EUR 10.3 million. With this, I've come to the end of my part of the presentation, and I would like to hand back to Manfred for his concluding remarks. Manfred Stanek: Thank you very much, Helmut. Let me wrap up with the outlook and a few key takeaways for the months ahead. Order intake continues to trend positively year-on-year. This was also true for October. Nevertheless, market conditions remain challenging. In the Industrial Applications segment, the host business is benefiting from the completed inventory reduction, while profiles are showing early signs of stabilization. In the Engineered Applications segment, the picture is mixed. Strong performance in mount applications and handwheels in Europe, plus a clear rebound in belting and liquid silicon rubber after a soft first quarter. At the same time, some areas remain under pressure and the Chinese market is still tough. Based on our earnings performance so far, we fine-tuned our full year outlook. For 2025, we now expect operating EBITDA of around EUR 78 million. Project costs for ERP will be about EUR 5 million. As for CapEx, we are looking at roughly EUR 40 million. As we've already said, we can flex our investments to match market conditions. Looking ahead, seasonality will continue to play a role in 2026 with a slower start and a stronger second half. We are planning for that. Thanks to our lean structures, strict cost discipline and ongoing innovation, we are confident we can capture above-average gains even from a modest market recovery. Looking ahead to the midterm, we see strong structural growth drivers in place, including the German infrastructure program, rising EU defense budgets and reconstruction efforts in Ukraine. These are tailwinds alongside other factors that will further support demand. And to wrap up, our investment case remains strong, market leadership, innovation and a resilient business model with high operating leverage. When demand rebounds, we are positioned to benefit disproportionately, and our platform sets us up for sustainable growth. And now Helmut and I are available for any questions you might have. Operator, if you would please start with the Q&A procedures. Operator: [Operator Instructions] Our first question comes from Markus Remis from ODDO BHF. Markus Remis: Congrats on the strong profit improvement in the third quarter. I would have one question related to the earnings walk-down that you displayed in the third quarter. If I compare the first 3 quarters, and the first 2 quarters in the third quarter, it appears that there was quite an impact from the change in inventories. If you could break that down, why does it seem more pronounced than in the prior quarters? If you can shed some color on it. Helmut Sorger: Markus, yes, absolutely. I mean, we had, if I remember correctly, about EUR 7 million in the first half. Change in inventories now is, of course, a buildup that we have. We had to play catch-up with production since, as you're aware, in July and August, we have our planned standstills. So there are 2 moments in time when we basically need to optimize working capital, but also make sure that we generate enough product to furnish the market. And the better utilization rates, the higher rate of work in progress that we had in Q3 contributed to this positive turning of the change in inventories due to the better absorption of the fixed cost part. Markus Remis: Is it fair to assume that there is a bit of a countering effect in the final quarter? Helmut Sorger: Yes. Markus Remis: Okay. And then on the guidance, thanks for keeping this refined target. I'm surprised, I have to admit that you're pinpointing a specific number, still adding this approximately. What gives you the high confidence that you will be that close to that number? And if I may add, for the fourth quarter, given that we saw a further increase in the order intake and the order book, is it fair to assume that revenue momentum, top-line growth will pick up compared to the third quarter? Helmut Sorger: Let me start with the guidance, why the pinpointed guidance, because it's the best we know. And since the market at the moment is not the bottleneck, Manfred has told you we have pretty good order activity in Q3 and also throughout Q2. So we are playing a game of catch-up now, where basically we are utilizing all the capacities that we have available according to current staffing levels. So the exercise is a forecasting exercise where basically the bottleneck is our production capacity. And we certainly have confidence in our plants and confidence in our people that we will not have breakdowns and be able to furnish all the goods out of our doors to our customers. Of course, it has some caveats in there. December is always a month coined by weather effects, but also delays in shipping that might occur. So basically, invoicing, we try to do until the last day of the year, literally, we did that last year, and we want to continue that. But of course, this is what we have as an internal forecast that we share with you again. So there are no adjustments that we make or any room for safety that we want to do. If everything works to plan, we can deliver the 78 or maybe a little bit more. If we have standstills or there are breakdowns in the supply chains, or we have bad weather so that the trucks can't come to our plants in December, it could be a little bit less. But we are from the moment, from our forecasting, determined to get there. Markus Remis: Do you want to add something to the activity? Manfred Stanek: No, we have the orders in-house, so it's up to us to produce. We don't see any additional bottlenecks. So we are very confident to ship that in the next 7 weeks. Helmut Sorger: Your question about ordering activity in Q4, it's above last year. But it's not the wall that's coming and approaching us. So we don't see the big uptick and OEM business on the whole side, I mean, I'm sure you're following the figures that Volvo heavy equipment is publishing, Caterpillar as well. I mean, they see a flattish development. But what plays for us now is that the overstocking effects are out of the system, and this is a great help. Markus, I hope that answers your question. Markus Remis: Very clear. Then I would have one regarding the remarks regarding the 2026 seasonality. So typically, the industrial business is stronger in the first half, at least that's what it was for many years, looking at the old, if I may say, so, reporting structure. Now, if I look at the comparison base, Q1 will be the weakest quarter. So my sense would be also now, with better-filled order books that the Q1, Q2 shouldn't be that bad. Is your statement basically a reference to further buildup of momentum of order momentum in the first half, and that will then cater an even stronger second half? Is that a fair angle? Helmut Sorger: I would not go that far. I mean, for this year, our guidance was clear: first half difficult, second half better. I think that's what we're experiencing right now. For next year, I think we just need to see in our Performance Commodity business, you're absolutely right that the first half of the year is stronger than the second half because in the second half, we have 2 plant standstills for maintenance. So this is a very natural explanation. We need to repair machinery, equip machinery. For the project business, which is impacting the building business and Rico, it's more the uncertainties and also the peak cycle of investments and investment proposals that the big mining companies do. So here, we experienced that the first quarter was weaker due to the uncertainties in the economy, and also waiting and seeing in the project business. And I don't rule that out for next year at all. Manfred Stanek: Yes. Additionally, in the Belting business, we had a maintenance shutdown planned for December. We have now pushed this maintenance shutdown into January because production is so strong this year. So there will be, at least in the Belting business, a weak month in the month of January. So this also plays into our forecast. Markus Remis: And then the last question before I get back into the line. You've again lowered the investment budget to EUR 40 million now. If I look at the beginning of the year, it still stood at EUR 60 million, you have maintenance by which I find remarkable, given that maintenance should be more of a, I would say, nondiscretionary in nature. Can you elaborate a bit on the pushback or on the reduction? And also in the last call, you said that the decline from EUR 50 million to EUR 60 million would then be compensated by a higher budget in 2026. Could you give us some sort of brackets for CapEx next year? Helmut Sorger: Let me explain. Our maintenance CapEx comprises maintenance, smaller growth projects, and automation. So there's clearly some discretionary room that Manfred, [ Gerfried ], and I have in approving this when it comes to a situation. Remember the first quarter and even the second quarter when Semperit was basically barely cash positive. So then you can be assured we will not spend on CapEx that can be shifted into future periods when we are not earning money. Now the situation has turned. The free cash flow has improved. But of course, for CapEx projects, you run out of time because the year ends. It's basically we try to push whatever is not safety critical, whatever doesn't have a payback of less than 2.5 years, I think our cutoff was. And we are definitely, you see with the strategic growth CapEx, we are committed to our strategic growth CapEx. So we have not cut back any on this. But there's certainly a line that you can walk when you replace machinery, whether you want to push that equipment another year by doing a sound maintenance, which then goes into OpEx and then replace it at the future point in time with, of course, risks of machine breakage, but some of our machinery have been with us for decades. In that time, machinery was still good and overbuilt. So I think we can joke aside, take that risk to a certain degree. But we are certainly committed to maintaining our industrial base. This is our obligation, and this is our responsibility here. But you won't see higher CapEx next year because, I mean, there's just a certain amount of projects that we can do a year with our engineering program. Markus Remis: Right. So higher than what's like EUR 60 million or again EUR 40 million? Helmut Sorger: I'm just saying the backlog, the shortage of this year won't be on top of the normalized maintenance CapEx. I think we've told you before is about EUR 35 million, EUR 30 million to EUR 35 million. The rest would be automation projects and the rest would be strategic investments. Markus Remis: Okay. So if I say EUR 50 million is like the run rate of depreciation, that's kind of... Helmut Sorger: And we are a bit less than that and compensate with strategic investments that was committed. Operator: The next question comes from Volker Bosse from Baader Bank. Volker Bosse: I would have two questions. First question is on the specified guidance, EUR 78 million before project costs. You mentioned also the EUR 5 million for the one ERP. Is that all or are these all project costs this EUR 5 million which you want to exclude of the EUR 78 million or are there further project costs which has to be taken into account? So basically, you guide for EUR 73 million reported EBITDA and EUR 78 million operating EBITDA or adjusted EBITDA. Did I get the message right? Helmut Sorger: Yes. It's just the project expenses. That's a very quick answer. And the reason for it is we are implementing as for public cloud from our friends at SAP. And since this is Software as a Service, it's only very limited potential to capitalize that. So basically, the implementation expenses have to go through the P&L. So we exclude specifically these expenses for comparability, nothing else. Volker Bosse: Okay. That's all what you have in mind. Perfect. Got the message. And the second question is also on the order intake. You speak about positive order intake despite challenging market environment. Could you give a bit more granularity if you speak about order intake from a regional perspective or in general, what are the underlying trends by region? Can you break it out to get your picture of the world, so to say? Manfred Stanek: Yes, I can take this and maybe you can complement, Helmut. So when I go in my mind through the different businesses, I cannot really say that I see a trend per region. We see a strong order -- not a strong -- better than last year order intake definitely in all regions, I would say, with the exception of China, where we have a very big handrail business and the local towns and communities in China are not investing currently because they have a very high debt -- but other than that, we see a good order intake throughout all our businesses all around the globe. What would you say, Helmut? Helmut Sorger: Yes. I mean the exception of China, as I mentioned before, which is basically domestic sales of handrails in China have tanked, as we explained in the management report. But our form business is able to compensate that with new PMCs, strong performance in mountain applications, very solid order intake in industrial mining, filtration membranes, mixmerals. So the niche business of our SEA comes into play here that we can say, okay, they are moving at the moment, all in the right direction apart from and this is a big handrails in China. Manfred Stanek: Yes, exactly. And in the Belting business, for example, we strategically made a shift when it comes to our customers away from coal mining towards copper mining and towards the minerals, which are supported by the electrification. And for example, in the last month, two months, we have seen that almost the entire order intake is also coming from those new minerals and not from the old minerals. So we're also very pleased how this order book is developing. Operator: [Operator Instructions] The next question comes from Marc-René Tonn from Warburg Research. Marc-Rene Tonn: Just coming back to the EBITDA outlook at first. I think when my math is correct, I think with the EUR 78 million for the full year, you're basically targeting a Q4 result in the magnitude of Q3. I think seasonally, probably sales will be lower than compared to the third year. So if I'm not mistaken, or are you expecting anything different than that, which would mean another margin improvement for that quarter on a stand-alone basis, potentially supported by cost savings. Is this the right way to look at it? Or is there, let's say, anything else you would expect like higher sales, which will contribute to that? Helmut Sorger: No, I think you're spot on with your analysis. I mean the cost savings, basically the EUR 4.1 million with the main momentum buildup in Q2, Q3, they should contribute it fully or they will contribute fully in Q4. Inflation is basically digested. So most of the wage increases have already happened. So this is basically just the run rate. What we are going to see is good productivity in Q4, knocking on wood that equipment holds up. And on the dark side, of course, to manage working capital becomes more challenging. You mentioned EBITDA. But of course, if you're fully booked and you need raw materials and you have work in progress, of course, our eyes are fully on working capital and making sure we're not overshooting on this one. This is the challenging part in managing the upturn, if I may add here. But it's still -- it's Q3 that we need to replicate, but we have, as Manfred has mentioned before, basically capacity available until shortly before Christmas when we have our plan standstills. Marc-Rene Tonn: And just, let's say, what I understand correctly, I mean, if we would see -- let's keep our fingers crossed, this will materialize, let's say, a more pronounced increase in revenues in the second half of next year, you are confident that you will, let's say, be able to build capacity with new hires just in lot of... Helmut Sorger: The machines are not the problem at the moment, labor because we are staffed, of course, to market demand or to needs, but we are already improving in our hoses business by hiring here. And of course, other businesses like our liquid silicone business is highly automated. So I mean, labor is not really the restriction here. Marc-Rene Tonn: Perfect. And perhaps lastly, I think you mentioned in earlier calls, some price pressure, I think was in belting at the time when, let's say, with weaker demand and you already mentioned the mix in the customer structure you are targeting there with the focus shifting from coal to metals. Is there also, let's say, a different, let's say, kind of price pressure? Or is, let's say, the competition basically following you so with no major, let's say, relief on the pricing side there? Manfred Stanek: Well, I think the only thing that we see is Chinese competition has become stronger outside of the U.S. Exports from China to the U.S. have declined strongly. But at the same time, the entire decline was compensated to exports in other regions. I now mean macroeconomically. And we also see that in our regions outside of the U.S., a stronger Chinese competition, which puts a pressure on prices, but that's just something we have to deal with. Operator: The next question comes from [ Sara Hellman ] from Neways. Unknown Analyst: So my question would be, since the Chinese demand for handrails has been so weak, if there are any visible changes for the next quarters coming? Manfred Stanek: For the demand for Chinese handrails, well, we see a shift. We sell less to the OEMs, and we sell more to the aftermarket sales to the service market because there are less newer handrails, but the handrails which are installed are being changed at a higher rate. This has a little bit of a negative margin impact for us. But still, part of this business is compensated through the aftermarket service, compensating less OEM sales. That's how I would see that. Helmut Sorger: And if I may add, of course, if budgetary restrictions with the provincial governments are very tight, of course, they're inclined to use cheaper handrails because, I mean, they still need the handrails. And of course, we have products in our portfolio that satisfy those needs... which is basically also for aftermarket business and a cheaper alternative. Of course, we'll see some margin impact. I mean, of course, if the price point is a different one, you see different revenues and you see percentage margin is comparable, but in absolute terms, margins are lower. But we are very confident that in SEA, we can compensate the temporary decline with new PMCs, with new business. In fact, Manfred more than compensate that. Operator: We have a follow-up question from Markus Remis from ODDO BHF. Markus Remis: Yes. It's actually 2 follow-ups. Firstly, can you give us an idea of the current capacity utilization that you're running? I appreciate it's worse over the business unit, but a better understanding here would be helpful. And related to that, how much growth can you digest before your cost base will have to be inflated again. So the next not Okay. So no what we call in Germany don't fix the cost in the next quarters. Helmut Sorger: It's interesting that you asked because we just had a management call at 1:00. And the Executive Board was very adamant to congratulate everybody on the call. That's top management about 170, 180 people. Congratulate them on the efforts with regard to cost reduction because it's really not the fact we're carving out now. I mean it's the tough ones where we had to cut out performance too. But we made them aware that when business picks up, they need to be very vigilant that higher overheads are not introduced because it comes through the back door. You don't have everybody on staff anymore. The work needs to be done. So you're playing with the thought to use third party for some time, and then you have the great idea you replace third party with employees, with full-time employees. And then all of a sudden, you get back to where you started. So everybody is cautioned. We try to be minus 1. If it takes 2 to do the task, we have one, and what's going to help us? I mean, this is clearly not a sustainable situation under normal circumstances, but what's going to help us is the ongoing digitalization initiatives. So we basically moved ahead, reduced overheads for back-office functions for other key functions and we'll replace that with digital workflows. And one ERP will be a great help because we'll have one system, unified processes and of course, need less people for doing the tasks. But you're absolutely right. It needs to be managed, but we are confident that we can manage the uptick without adding overheads. Manfred Stanek: And to your first question, it's a little bit difficult to answer because we don't calculate an overall capacity utilization. It's different between the businesses. But I would say that we are roughly at around 70% of installed capacity. Helmut Sorger: So belting fully booked at the moment, which is good, hoses, we are operating basically to the shift system. So we are basically at capacity with a 15-shift model, but we can go back up to a 21-shift model. So there's plenty of machinery in our park once we start it. And of course, don't forget, we have our project DH5, which is basically almost fully automated hose factory that we plan on bringing online as well, which is online already, but utilizing fully. And in the form business, we are pretty well booked in mountain applications, fully booked in compression molding and have some spare capacities when it comes to the project business for railway systems because, of course, railway projects were stopped for temporarily. Markus Remis: Okay. That's very helpful. And last question relates to, say, the sphere of U.S. tariffs, U.S. dollar impact. Firstly, is it correct to assume that the entire effect is suggested in the financial result, do I remember correctly? Helmut Sorger: We have some impact, of course, also in revenues. That was not the major impact. But of course, we have a dollar cash pool. I mean, we have EUR 100 million business in the U.S. just for the legacy businesses or including Rico. So we have some effects. And I think the cash effect of that was about EUR 2 million and EUR 4.2 million was the overall FX effects, majority of it being the U.S. dollar. Markus Remis: Okay. And on the impact of tariffs on your overall trading conditions on volumes not being shipped into the U.S. from your peers. So volumes diverted or back into European markets. Anything you can tell us about these conditions? Helmut Sorger: Not so much really because, I mean, you clearly saw the effect of the U.S. foreign trade regime change in our Q1 results when basically all the projects in Belting came to a halt where we should have produced. So this was a major impact. I think our estimate was about EUR 8 million on this, but it's probably right now in hindsight. The impact in the other businesses is basically a little impact on margin. But on volumes, so far, not really. It's more a margin impact that you somehow have to split or take over the customs duties, particularly with long-length hoses where we have the plan to build up the local production in the U.S. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Stanek for any closing remarks. Manfred Stanek: Okay. Thank you very much. Thank you for your time and participation. We still have several weeks to go. But we all know no time tends to fly. So we already wish you now a wonderful holiday season. And of course, we remain available for any questions at any time, and we will speak again in this circuit at the latest when we present our full year 2025 results on March 18. Well, it sounds a little early to wish you a happy holiday, but I don't think we will hear each other again. So please allow me to do so. Helmut Sorger: Okay. All the best. Thank you. 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.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining Fincantieri 9 Months 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Folgiero, Chief Executive Officer and Managing Director. Please go ahead, sir. Pierroberto Folgiero: Good afternoon, ladies and gentlemen, and thank you for joining us today to discuss Fincantieri's 9 months 2025 results. We are pleased to present another solid set of results, building on the positive trajectory of the first half of the year. Revenue growth remains robust across all segments, supported by favorable market tailwinds while increased operational efficiency in Cruise and higher contribution from the defense business keep driving margin expansion at the group level. Our underwater segment is growing according to plan and continues to deliver premium margins, strengthening its position as a key value and profitability driver for the group. We also enjoy exceptional visibility on our long-term business outlook, backed by a record high backlog that provides a strong foundation for future growth. Finally, our initiatives to improve working capital dynamics are supporting our rapid deleveraging trajectory, enhancing both financial flexibility and capital efficiency. Let's now move to Page 4 for a brief summary of the financial and commercial highlights of the period. Revenues grew by 20.5% year-on-year to EUR 6.725 billion, supported by strong contribution from all business segments, in particular, Shipbuilding. We also achieved a significant increase in profitability with EBITDA posting an impressive double-digit growth of 40.4%, reaching EUR 461 million. EBITDA margin improved materially to 6.9% compared to 6.3% at year-end 2024 and 5.9% in the first 9 months of 2024. This substantial and rapid growth is particularly noteworthy given that operate in a heavy industry sector with low by rhythms. Our net debt came in at EUR 1.65 billion, slightly better than EUR 167 billion recorded at year-end 2024, with a net debt-to-EBITDA ratio of 2.6x, improving compared to the ratio of 3.3x recorded at the end of 2024. Turning to Page 5. Our commercial performance was remarkable in the first 9 months of the year. We recorded an order intake of EUR 16 billion, rising by 88.4% compared to the previous year and higher than record value achieved in the whole of 2024 with a book-to-bill of 2.4x. The backlog reached EUR 41 billion, increasing 32.3% compared to the end of 2024 with a total backlog reaching a record level of EUR 61.1 billion, approximately 7.5x 2024 revenues. This gives us an exceptional visibility on the long-term business outlook and revenue stream and represents a key part of our strategy. With delivery schedule all the way to 2036, we can turn to our supply chain partners and agree on terms, which favor both parties, thanks to the long-term commitment and higher volumes we can guarantee. Let's move to Page 6. 2025 represents the consolidation and progress of our vision and strategy. We confirmed our guidance for year-end as a demonstration of our ability to set an ambitious trajectory and to deliver it. Revenues for 2025 are expected to reach approximately EUR 9 billion. EBITDA margin is foreseen in excess of 7%, building upon the material increase in profitability already recorded across all our business segments in the first 9 months of this year. The deleveraging part is well ahead of our 2023-2027 business plan target, and we confirm the net debt to EBITDA to remain between 2.7 and 3x in full year results. Finally, we expect positive net income at the end of the year. Let's move now to Page 7 for some insights on the commercial opportunities ahead. Our order intake continues to benefit from a solid pipeline with further tangible commercial opportunities valued at approximately EUR 26 billion, supported by our strong market positioning and favorable dynamics across all business segments. Cruise maintains its extraordinary momentum with a vertical increase in order across all product segments. Last September, we signed a contract with TUI for the design and construction of 2 vessels belonging to the intuition class, confirming once again our strong relationship with all world's most prominent cruise operators. In defense, a preliminary agreement was signed with Greece for the transfer to the Atlantic Navy of 2 vessels of the Italian Navy. Hence, we expect this to ship to be replaced with new orders to the Italian Navy in the near future. Demand in the offshore and specialized vessel segment remains solid, with several new orders finalized during 2025 through our subsidiary, Vard, including the contract for 2 hybrid SOVs for North Star, confirming our leading position in this market. Lastly, in the underwater segment, we are seeing the tangible benefits of our strong commercial positioning, also thanks to Vard's solution for top tier navies and to a broad portfolio of products with application in defense, commercial and use as we can see more in detail on Page 8. A clear example of excellence in our unmanned management system and underwater business is the SAND Marine drone, an unmanned surface vessel designed for a wide range of missions. Enhanced by the onboarding integration of the large system, which enables the deployment of underwater unmanned vehicles. In the field of offshore subsea infrastructure protection, we signed an agreement with Jan De Nul for the design and supply of an advanced system developed by Remazel for the transport and laying of rocks on the seabed to protect cables and pipelines called rock dumping. More recently, we signed an agreement with Defcomm, supporting Fincantieri in developing and integrating deployment capabilities for autonomous surface vehicles on its naval units. Finally, last October, we presented DEEP, an integrated and cutting-edge solution for the protection, development and maintenance of critical underwater and port infrastructure. The system consists of a network of underwater sensors for early warning, a command and control center, a team of autonomous underwater vehicles and an AI-based platform for data analysis and processing. These high-tech solution and partnerships showcase our positioning as an orchestrator in the underwater domain. Moving to Page 9. You can see how our commercial efforts are translating into an impressive order book. The first 9 months of the year, we secured a significant number of new orders, further consolidating Fincantieri's expansive global reach across all business segments and ensuring deep visibility up to 2036. In the first 9 months, we delivered 19 units from 9 shipyards. And as we speak, we have a full slate of deliveries scheduled up to 2036 with more to come. One prototype ship we expected to deliver at the end of 2025 will be delivered at the beginning of 2026, being a highly technological project for which we want to ensure the utmost quality of delivery. Now I will hand the call over to Giuseppe, who will discuss our financial results in more detail. Please, Giuseppe. Giuseppe Dado: Thank you, Pierroberto, and good morning, ladies and gentlemen. I'll move on to Page 11. On the order intake, which was at EUR 16 billion greater than the whole of 2024 with a book-to-bill at 2.4x revenues. This indicates a very strong and sustained growth of Fincantieri Commercial pipeline, fueled by demand across all our core business segments. In shipbuilding, in particular, we posted EUR 4.6 billion in orders that is more than twice the first 9 months of 2024. Also in offshore and the other segments, orders were robust and accounted for almost EUR 2 billion. On Page 12, of course, the very high order acquisition brings us again to a record high backlog of EUR 61.1 billion, which stands at over 7x full year 2024 revenues and a backlog of EUR 41 billion with a soft of EUR 20.1 billion. In this backlog, Cruise accounts for 34 units, defense, 29, underwater 4, submarines and offshore 33 vessels for a total of over -- of roughly 100 units with a clear and deep visibility for the years to come with deliveries, as we mentioned before, deliveries up to 2036. In the first 9 months of this year, we have so far delivered 19 units from 9 different shipyards. On Page 13, on financial revenues, a little in excess of EUR 6.7 billion, up 20.5% year-on-year. Here, we have a strong contribution coming from the Shipbuilding segment, which posted a 22.7% growth. And this growth is across cruise and defense, but particularly in defense, we grew 38.5%. This is partly -- this growth is partly driven from -- by the contract that we finalized in the first quarter of 2025 for the sales of 2 multipurpose combat units to the Indonesian Navy. Shipbuilding roughly accounts for 68% of all group revenues, and offshore, which accounts for 14% of total revenues, rose as well by almost 13%, and this reflects the sustained growth trajectory of recent years, underpinned by the progressive development of the group's order backlog. Underwater revenues came at EUR 386 million, also driven by the consolidation of bus submarine systems in the first quarter of 2025 and the ramp-up of the construction of the first submarine for the Italian Navy, which is going to be delivered in 2029. Finally, Equipment, Systems and Infrastructure revenues are stable year-on-year at EUR 927 million. This is despite the reclassification of the subsidiary Seaonics to the offshore and specialized vessel segments. Let's turn to Page 14 with the EBITDA, which is up 40.4% versus the first 9 months of last year and reached EUR 461 million. EBITDA margin grew to 6.9%, steadily improving from 6.3% reported at year-end 2024 and 5.9% reported in the first 9 months of 2024. Shipbuilding recorded an EBITDA of EUR 316 million, increased by 33% versus the previous year with an EBITDA margin of 6.5%, up 0.5 percentage points compared to the same period of 2024. And this is thanks to 2 drivers mainly results of the operational efficiency initiatives deployed in the cruise sector and the growth in the defense business, which, as you know, is characterized by higher profitability. The Offshore and Specialized Vessels EBITDA reached EUR 57 million, increased by 21.4% compared to the EUR 47 million at the end of September of 2024 and EBITDA margin of 5.4% was roughly 5% in the first 9 months of last year. The underwater delivered an EBITDA of EUR 67 million with a margin of 17.3%. This confirms the sectors -- the segment's premium profitability. In the Equipment, Systems and Services and Infrastructure segment, EBITDA increased by almost 37% compared to the first 9 months of 2024, reaching EUR 68 million with an improving EBITDA margin at 7.4%. This is mainly driven -- the improvement is mainly driven by the Mechatronics and the infrastructure business. Finally, on Page 15, net working capital and net debt. As of the end of September, we posted a net debt of EUR 1.6 billion roughly, in line with the [ EUR 1,648 million ] recorded at the end of the first half of 2025 and slightly better than the 2024 year-end figure, which was EUR 1.668 billion. The leverage ratio improved to 2.6x, and this is significantly lower than the 3.3x of year-end 2024. In this matter, we continue to work on the optimization of net working capital, which stands at negative EUR 465 million, and it's stable compared to year-end 2024. We have an increase in inventories and advances and trade receivables that more than offset the increase in trade payables and the decrease in work in progress, construction contracts and client advances. With that, I will now hand the call back to Pierroberto for his closing remarks. Pierroberto Folgiero: Thank you, Giuseppe. Let me now summarize some key takeaways on Page 17. We have delivered strong operational and financial results, which provide full visibility on achieving our year-end targets. Margins improved solidly year-on-year, supported by higher operational efficiency in Cruise, a greater contribution from defense and the continued strong performance of our underwater business. Cruise, we benefit from deep backlog visibility up to 2036, enhancing profitability and cash flows, thanks to working capital optimization, capacity saturation and increased procurement efficiency. At the same time, the current global geopolitical environment is creating significant growth opportunities in defense, which we are well positioned to capture. We are consolidating our position as a leading orchestrator in the underwater domain, expanding both our product offering and business development capabilities, also through targeted acquisitions and strategic partnerships. Finally, as we speak, we are working on the new business plan to be approved by year-end that will lay the foundations for the next phase of growth and value creation. The strong results achieved in the first 9 months of 2025 allow us to confirm our guidance for the full year 2025. Revenues at approximately EUR 9 billion, EBITDA margin greater than 7%, net debt-to-EBITDA between 2.7 and 3x and positive net income. With that, we are now open to take your questions. Operator: [Operator Instructions] The first question is from Emanuele Gallazzi with Equita. Emanuele Gallazzi: Three questions from my side. The first one is if there is any news from the U.S. market, I'm referring to, let's say, both the constellation program and the new opportunity in both civil and the naval shipbuilding. The second one is on Cruise. If you can just give us a sense of the current profitability for the business? And also considering the strong momentum on the order intake, would you say that last orders have a better profitability embedded? And third one is on the net debt. Given that you are already at 2.6x net debt on EBITDA in the last 12 months, are you, let's say, more confident to be at around 2.7x by year-end? Or is there something on, for example, net working capital we should consider for the fourth quarter? Pierroberto Folgiero: On the U.S.A. question, thank you, Emanuele, for your intervention. On the U.S.A. question, there are no significant information to be shared. We continue to pursue the strategic market of U.S. as a very important investment, very valuable contribution to the renaissance of shipbuilding in U.S. And we strongly believe that Fincantieri long-term mentality, which led our investment, again, 20 years ago. But this long-term mentality will pay back very soon. What about Cruise and profitability of Cruise? Yes, we are experiencing a level of interaction with our partner shipowners, a level of interaction that is giving us the perception of better profitability. More in general, I strongly believe that this big wave and multiple wave of awards will create the preconditions for a stronger execution, first of all, simply because our business is since ever a business of saturation. The more you can achieve saturation in your infrastructure, the more you can optimize the common cost and fixed cost. One and two, this very profound, very long-term aggregation of job and orders creates another very important precondition, which is the ability to negotiate, I would say, repetitive contracts with vendors, giving to vendors extensive visibility and therefore, apply a level of prices and entrepreneurship in general, which is higher and higher. So there's good momentum in Cruise. Let me summarize, creates very good conditions with the clients, but most importantly, saturation in the employment of the infrastructure and optimization of the pricing and the relationship with the supply chain with the mentality of having a long-term alliance rather than a pure commercial play. Moving to the debt. I would rather leave the floor to Giuseppe, but I believe it is very linear. Giuseppe Dado: Well, the answer straightforward is yes, we're very confident on stay where we are and close year-end between 2.6, 2.7 ratio. So in the lower part of our guidance, very confident. Operator: The next question is from Antonio Gianfrancesco with Intermonte. Antonio Gianfrancesco: I have 2. The first one is about future margin expansion because looking back over the last couple of years, Fincantieri demonstrated strong execution and efficiency reflected in a strong margin improvement. Now looking ahead, I would like to understand the main factors that could lead to a faster margin expansion in the coming years. I mean, it is fair to say that most of cruise efficiency work has been done and that faster margin expansion will be more linked to a better business mix with a greater contribution from Naval and underwater activities? Or do you think that there is even more space also in the Cruise business? The second one is more specifically on defense underwater business. The market there remains extremely supportive. And I imagine your pipeline of potential new orders is quite strong. So I would understand in which geographical areas there is greater push to convert briefly the higher defense budget into actual investments and therefore, the greatest likelihood of orders in short to medium term. Pierroberto Folgiero: Thank you, Antonio, for your questions. With respect to the first, we still reiterate and we still believe that we have 2 engines in terms of enhanced profitability. The first engine is the continuation of the activities and efforts we are injecting in the cruise business, which is a business of volumes, which is a business in which the enhancement of margins is strongly dependent on the circulation, again, of the infrastructure and fixed cost. And as I just finished to say, your ability to negotiate with the supply chain with a long-term deal rather than with an opportunistic deal. So I believe that this engine is still on. It is still pushing forward. Then as you properly said, there is a second engine, which is the engine of the revenue mix, which is an engine whereby the improving the marginality kicks in as soon as the defense revenues will go up. So I think there are still both the opportunities there, and it is our, I would say, relentless effort to make it happen. And the new business plan will be the place in which these dynamics will be factored in. Moving to your second question, which is more on defense, which are the geographical areas in which we feel the commercial temperature "up and up." I would say there are 3 concentric circles. The first one is Italy, where the Italian Navy is accelerating as the rest of the armed forces, the cycle of investment and contractualization. So according to the existing, I would say, public planning of future investment in naval defense, there are expected in short term, several possible awards, namely the Destroyer, namely the [ PPA program ], the LSS logistic ships program, the LXD, which are lending platforms. So there is a very clear road map of acceleration for the Italian Navy, let me say, which is the first circle. Then there is a second concentric circle, which is Europe. As you may know, the SAFE program is a facility for EUR 150 billion, which is reserved to nations, which already secured an allocation of this EUR 150 billion, which is secured to nations according to 3 criteria to be verified. One is the ability to spend money within 2030. The second one is that at least 2 nations have to collaborate, i.e., European Union is pursuing defragmentation. Condition #3 is that 65% of the content of the supply chain of the ship of the Armament system has to be produced in Europe. So this is happening. So it's EUR 150 billion. There are many navies that are discussing, I would say, each other, including with us. And so we believe that the 2030 condition, which is, again, 1 of the 3 compulsory conditions, but the 2030 condition will be a big push for this defense market to accelerate because basically, the European Union wants to -- wants nations to invest in defense and is prepared to give money if you are doing it now in the short term. Then there is a third concentric circle, which is the export outside Europe. And as several times specified, we are very focused on 2 regions, in 2 extra European regions. One is the Middle East and the other one is Southeast Asia. In Middle East, we have a lot of presence already. We have very good credentials. And therefore, we are very active in very important nations such as Emirates and Saudi -- and Saudi Arabia, having domestic ambition, but also international ambitions. Middle East and Southeast Asia. We are, as you know, very well, very happy with the flag we put in Indonesia, which is an emblematic example of what is the level of attention to the naval, I would say, environment of that part of the world. But the same is Malaysia, the same is Thailand, Philippines, Vietnam. So there are several programs going on. I would say, in Southeast Asia, Fincantieri is very well positioned to pursue them. Obviously, with the level of velocity, with the level of speed that is typical of the procurement cycle of the public administration, i.e., there are no bleeds overnight. It's a business for farmers. It's not a business for hunters, but you have to be there. You have to take care of the soil, pour the water and look after the small opportunity until it becomes a large award. We are very satisfied with our international expansion with our commercial internationalization process, which is leading us to have a very, very, very detailed and ramnified presence all over the world. Operator: The next question is from Marco Vitale with Mediobanca. Marco Vitale: I have a couple of follow-ups on the Defense segment. The first concerns the underwater business. You were mentioning that you're making a lot of efforts to expand the product portfolio in this division. Are you targeting also export opportunities for the system you are putting now into the market? Or do you expect this to be specifically devoted for your domestic customer? Second question is about -- we read about memorandum of understanding signed between Emirates and Angola to cooperate on the say, defense and Navy upgrade program. Do we expect this to provide you with additional growth opportunities for your export segment considering the JV that you have with the main defense conglomerate of the Emirates? Pierroberto Folgiero: Thank you, Marco, for your question. Number one, underwater product, whether there is an -- sorry, an export opportunity or not. Absolutely, yes. I would say that the new navies that are looking into new international navies that are looking into the opportunity of expanding in naval base, those navies are particularly interested also in new technologies, in new attributes, I would say. So by the way, the more your new technology is validated by the National Navy, the better it is. So this is the old school, I would say. But in the new industrial environment, it is true also the contrary, i.e., that new navies, international navies are more than happy also to shortcut and become themselves the partner of choice for those new technologies, also depending on the specific characteristic and requirements of the missions that these new drones or new technologies are expected to perform. So there is a lot of demand. The market is very, very "sparkling" and we feel very well positioned because we can associate the traditional products and the new attributes and new products in a way that is maximizing the sum of the parts. Moving to your second question, the Emirates agreement with Sub-Saharan Africa, I would say, at large. We were kind of pioneer in the idea of joining forces with Abu Dhabi in order to go to Sub-Saharan Africa and to other regions. The joint venture we put together with EDGE or better one of the most important tasks and objectives of the joint venture we put together with EDGE was exactly this one, i.e., to join forces where we contribute our industrial capabilities and strength. They join their industrial capability and strengths and behave as an export platform in geographies in which the Abu Dhabi perspective, the Abu Dhabi geopolitics, the Abu Dhabi ability to financially support the defense capabilities and defense industrial base is very strong. So whenever Abu Dhabi is working and cultivating government-to-government relationship in the defense, our joint venture with EDGE, which is called MAESTRAL is naturally involved because this is the core strategy for Fincantieri and for EDGE in order to address those markets. Operator: The next question is from Gabriele Gambarova with Intesa Sanpaolo. Gabriele Gambarova: The first one is on, again, on underwater on the Philippines and the Polish opportunities. Is there an idea of when the award may take place? And what is your, let's say, competitive advantage, I mean, in your perspective? I mean, is it possible that you could, say, provide better delivery times apart from the product? I mean, everybody knows it's very, very strong. But are there other, let's say, aspects that may position you better than the competition? So this is number one. The second is on Rheinmetall, the move they made that they announced this, let's say, purchase of the Lürssen shipyard. So I was wondering what's your opinion on that? And the third one, if I may, is on Norway. There was the award of the Frigate contract that chose the Type 26. I understood, this is my interpretation that there was also politics, let's say, played a role there. I was wondering if you got some feedback, some comments on the products you submitted that is the constellation. Is it too young as a platform or something similar? I mean, any lesson learned from this experience would be interesting. Pierroberto Folgiero: Thank you very much, Gabriele. On Poland, obviously, we depend on the public announcement of the "procurement officer" of the nation of the government, of the Polish government. Our latest news are the same, i.e., that the process is expected to be very fast. There is a lot of, I would say, preparation work already performed in the last months. So my information is that it's a short-term development. It is not a long shot. I believe that our offering is very robust. First of all, from the technical perspective because we have extensive experience and the summary we offered is very well proven. But most importantly, I believe that it's better to go fast because this opportunity can be financed with a SAFE facility. And in order for it to happen, it's very important that the process is finalized very, very soon. So I strongly believe that the access to SAFE will obviously create kind of advantage of European players against non-European players for the bid. So technical expertise and reliability to "financeability", it's SAFE. Point number three is delivery time, as you hinted before. I totally agree with you that in the new defense environment and space, it is so important that you can be faster than expected and you can be -- you can, in a sense, cut corners in order for the asset to be at sea sooner rather than later. So also in that respect, we are putting together very, I would say, very, very solid ideas that can truly procure that there is a strong differentiation of our offering vis-a-vis the others. Moving to your second question, what's my gut feeling about what's my gut feeling on Rheinmetall and Lürssen. I think it's always good news when Europe gets more and more focused on the defense industrial base. This is exactly what nations are, I would say, constantly and consistently asking to players, to industrial players. So I'm very happy to see that Germany is -- which is a very important country, so focused on defense, so focused also on naval defense. I think that the involvement in the shipbuilding is not, I would say, downhill exercise. I think it's a very different business model with very different constraints with very different, I would say, dynamics from many respects in terms of supply chain, in terms of labor, in terms of appetite for risk, in terms of dependence on external parties' infrastructure. So it's a totally different exercise. But at the same time, I believe that Rheinmetall is a very sophisticated company, and they will find their way to become knowledgeable about such a different business. Moving to Norway and the partnership with U.K. I 100% agree with you. It's a very clear example of geopolitical exercises rather than business exercises, which is the name of the game because when you sell defense, you don't sell a product. It's not a commercial game. It's a very serious geopolitical story. So our interpretation is that Norway is taking a view, which is a kind of, I would say, geopolitical view that U.K. is a partner in the defense and not only a supplier of ships. That's our interpretation of the tender. And I think that's what consistently happened throughout the -- our process. That's it. We have Fincantieri, we have very well-proven frigate platform, which is much more fashionable in the Mediterranean Sea. Operator: The next question is from Michele Baldelli with BNP. Michele Baldelli: I have a couple of questions. The first one relates to the Greece order. Can you elaborate on the timing that we may see it in your P&L, if you can share it with us? And the second question relates -- I know that there could be a business plan presentation, therefore, more details around it. If you can anticipate something around the expansion CapEx plan. How do you see the defense capacity going on in the next few years? And what steps will you do? Pierroberto Folgiero: Thank you, Michele. On your question with respect to your question on Greece, I think it's not possible nor appropriate to give details because it's a commercial prospect we are working on. What I can tell you is that this is the result of a long-term effort to create the partnership between Italy and Greece. This long-term effort has been pursued by the Italian institutions. The Italian Navy, first line, Minister of Defense, the Minister himself. So I believe it's a very strong and very win the stone kind of partnership. There are a number of next steps very clearly agreed by the parties, which are being managed in accordance with expectations in terms of timing. I think that the -- I don't want to give too many details, but I think that the signature will be obviously in 2026. And this signature will be, I would say, a big achievement for Fincantieri because you know that once the Italian frigates will be sold and delivered to Greece, at the same time, the Italian Navy will place an order for 2 new frigates. We call it FREMM EVO, the evolution model, so the latest of the family. So new order intake for 2 frigates will take place at the same time. So it's very good news. On your second question about the expansion of capacity, I think that the business plan disclosure will be the right time to give all the relevant details, which will be directly proportional to the market we see in front of us in terms of awards in the defense. What I can anticipate today is that we have a lot of elasticity and flexibility. So what we discovered in these months of preparation, what we discovered is that the system of shipyards of Fincantieri is a formidable tool source of flexibility in moments like that. So we have, I would say, kind of production footprint that can truly move and get along with the priorities of the market in a way that is, for a big part, seamless. What seamless means with the same existing infrastructure, with the same existing footprint, we can build much more. Working on the production techniques, methodologies, small investment in incremental equipment, but we can do a lot with the same infrastructure, which means that we can pursue this growth in defense without the necessary time lag for the new investments to happen. So that's what I mean by having a versatile system of shipyards and being able to be flexible and very responsive to market demand. So we can increase a lot our construction hours in defense with the same existing installed infrastructure. That's what I would like to anticipate today. The rest of the, I would say, disclosure and unveiling will be done with the numbers in the right location. Operator: Gentlemen, there are no more questions registered at this time. The floor is back to you. Pierroberto Folgiero: Thank you very much. Thank you very much for your attendance. Giuseppe Dado: Thank you. Bye-bye. Pierroberto Folgiero: Thank you. Bye.
Operator: Good morning, ladies and gentlemen, and welcome to the B3 Earnings Results Presentation for the Third Quarter of 2025, where Andre Milanez, B3's CFO, will discuss the results along Fernando Campos, Investor Relations Associate Director. [Operator Instructions] As a reminder, this conference is being broadcast live via webcast. The replay will be available after the event is concluded. Fernando Tavares de Campos: Hello. I'm Fernando Campos from B3's Investor Relations team, and it's a pleasure to welcome you to another earnings event where Andre Milanez, B3's CFO, and I will analyze the results of the third quarter of 2025. Andre will start by providing an overview of the quarter. Andre? Andre Milanez: Thank you, Fernando. Well, the third quarter once again reaffirmed the strength and efficiency of our business model. Even in a challenging period for the equities and derivatives markets, we saw a 2% revenue growth compared to the same period last year, growth that was driven by areas that demonstrate robust resilience even though -- even in tough macroeconomic scenarios, such as the ones we have been going through. I would like to highlight the solid growth of 21% in Fixed Income and Credit, 18% in Data Analytics and Solutions, and 13% in Technology and Platforms, results that reflect our ability to capture opportunities in areas adjacent to our core business. Our expenses during the quarter remained below the inflation for the period, proving the effectiveness of our budget management and commitment to efficiency. Net income reached BRL 1.3 billion, and earnings per share were up to BRL 0.24 per share which represented a 12% increase compared to the third quarter of last year, growth that was boosted by our buyback program executed during the period. Now Fernando will detail the operational performance, and I'll come back later with more financial highlights. Fernando? Fernando Tavares de Campos: Thank you, Andre. Regarding markets, I will start with the derivatives, which had a revenue that totaled BRL 888 million, a 7% decrease compared to the third Q '24, reflecting mainly the depreciation of the dollar against the Brazilian real, which impacted revenues from FX and foreign currency interest rate products. The ADV totaled BRL 9.3 million, an 80% decrease compared to the third quarter last year due to the lower activity in interest rates in BRL and FX markets, a result of the reduced volatility during the quarter. On the other hand, RPC revenue per contract grew 11%, in line with the volume reduction. For another quarter, OTC derivatives showed strong performance with growth in both issuances and outstanding volumes. Now talking about fixed income, which remains a highlight of our revenue, showing strength in challenging scenarios. The segment's revenue grew 21% compared to the same period last year with the corporate debt market consolidating itself as the main financing alternative for Brazilian companies and the search for interest-linked assets gaining even more relevance in this challenging scenario. In equities, despite the high interest rate environment impacting the ADTV, which totaled BRL 22 billion, a 6% decrease compared to the same period last year, there are some highlights mainly in BDRs, which saw volumes growing by impressive 41% in the period. Alongside ETFs and listed funds, these instruments represent 16% of the cash equities market ADTV in the third quarter in '25 versus 14% in the same period last year. The small margin recovery that we saw quarter-on-quarter was not enough to offset the volume decline, resulting in a 10% decline in the segment's revenue, which totaled BRL 518 million. Highlights of the other segments include in the Data Analytics Solutions, growth in the vehicle financing and 18% in increase in revenue from platforms and analytics with a strong presence of recurring revenues, especially in the Credit, Loss Prevention and Insurance verticals. In Technology and Platforms, the funding industry continues to expand, mainly related to the fixed income and reflected in an increased use of our technology solutions and the registration and custody of fund quotas, strengthening our market support services. Now Andre will talk about B3's financial performance and strategic advances. Andre? Andre Milanez: Thank you, Fernando. Well, as I did mention in the beginning, our expenses remained under control, growing below inflation, even with the impact of the annual adjustment of salaries and benefits as well as increased IT spending during the quarter, which were partially offset by reductions in third-party services and reversal of legal provisions. This reinforces our discipline and ongoing pursuit of efficiency and more predictability in terms of our expense behavior. Our recurring EBITDA reached BRL 1.7 billion in the quarter, 1% above the third quarter of '24 with a 69.5% margin. In financial results, we successfully completed a BRL 2.6 billion debenture issuance with a very competitive cost of CDI plus 0.45% per year and a 5-year term, which allowed us to early redeem the seventh issuance with a positive impact in terms of net present value even considering the nonrecurring effect that we had in the quarter of around BRL 23.5 million as a result of the early redemption that was recognized in the period. The distributions for the quarter, they totaled BRL 1.3 billion with BRL 875 million in share buybacks and BRL 403 million in interest on capital. Year-to-date, we have already repurchased 125 million shares, representing around 2.5% of the share capital and around 1/3 of the 2025 buyback program. In our innovation agenda, we have launched the Tesouro Selic B3 Index, a benchmark for treasury financial bills performance and the Gold Future Index, tracking the Gold Future contract, new offerings that expand our portfolio of solutions and reinforce our commitment to the market. Finally, we advanced in our strategy as an infrastructure for the credit journey, announcing the acquisitions of Shipay and CRDC, both acquisitions strengthening our presence in the trade receivables market. The acquisition of Shipay was completed in October, while CRDC's acquisition is still pending regulatory approval. Thank you for your trust and partnership on another quarter for our company. Operator: The floor is now open for questions. [Operator Instructions] Our first question comes from Kaio Prato with UBS. Kaio Penso Da Prato: I have one question on top line that -- actually, I would like to divide in 3 subsegments, if I may, please. First is on Platform and Analytics. It grew almost 20% year-on-year, and you mentioned that it was driven by Credit and Insurance vertical, if I'm not wrong. But I just would like to get a sense if you can share a little bit more details on that? And if we can consider that this level should be more sustainable going forward. The other line that showed strong performance, in my view, was Market Support Services that grew almost 30% in the year. So I'm not sure if this has some relation with the all-time high IBOVESPA that impacts the funds or not. If you can share more details on that and also how sustainable it could be going forward? And finally, the third is on securities lending. So this line also showed an interesting evolution on this type of revenue this year, almost 16% this quarter. Year-to-date, the growth is also good. So you mentioned in the press release about some operational improvements. If you can talk a little bit more about these improvements, what happened here would be good as well. Andre Milanez: Thank you for joining, Kaio. I'll start drawing some comments on securities lending, and then I'll pass on to Fernando to give you more details on the other revenue lines. But in securities lending, we have been working in several initiatives to help to unlock liquidity in that product. And I think what we have been seeing in terms of revenue as a result, it's already the beginning of some of those initiatives paying off and helping. I think we're still believe we're far from where we want to be in terms of where that product and that market should be, but we can also already see some improvements given some of those initiatives that we have been working with the market. So I think, one, potentially to highlight, we have been working very closely with the brokers to use the -- what we call the intermediation account after some improvements we've made on our platform to basically allow more of the retail position to be used as part of the sec lending product. That has helped to expand the volumes here. The automatic renewal of contracts another feature that was introduced also helps. More recently, we have initiated -- we launched the liquidity pool, which is aimed to increase liquidity and transparency, especially for the local buy-side participants. They are now more present on the screen of those products. And there's still a lot to be done. I mean we're still working in potential different models that could help to unlock volume from foreigners on that market. But I think what you're starting to see in terms of the revenue is a result of some of those initiatives that we have been introducing and have been taken in order to increase volume and liquidity for that product. Fernando Tavares de Campos: So talking about market supporting services here, I think the main impact comes from the development of the fixed income fund industry. And there, it's basically there was an increase in AUM of those funds that we charge Custody fees on it, so that is volume, and there was a price adjustment that we implemented on this fund called Custody. So that's basically the main reason. So this can be -- we can see -- I'm not sure -- I cannot predict in which level, but we can see that there is still room to grow here. Talking about Platform and Analytics in the vehicle and real estate, we do have a better scenario for loans in the auto vehicle industry, which has a positive impact, a direct impact on the revenues in that segment. And on the -- when you go to the analytics, which was the former Neoway, Neurotech, they exist, but they've been merged with us. I'd like to highlight 3 different segments in their -- in those business. First one, Loss Prevention. Loss Prevention basically grew because of the commercial efforts. So I think we have a nice set of products that it's easier to sell now. And I think we are developing a lot of products that are super interesting to the market. And I think the commercial efforts here are paying off. In Credit, Credit and -- I think here new products as well, so the development of new products, but also it's benefiting from products that are related to the auto vehicle finance that I mentioned before. So given that we are seeing a strong increase in that segment, there is a direct demand for products for Credit -- for Analytics, Credits that are related to it and Insurance as well, it's been positively impacted by the vehicles industry here. Andre Milanez: And just to finalize, Kaio, I think this is a good example to demonstrate that the investments and efforts that we have been putting into increasing potential avenues of growth for the company and diversification are starting to show better results, but also that there's still a lot that can be also done in the core business in terms of new features, product development, improve of liquidity. So that's why our strategy remains investing a lot in our core business to ensure that we continue to bring innovation and capture the growth that we will be seeing in the market, but also investing in other avenues of growth for the company and diversifying in the areas adjacent to our core business. Operator: Our next question comes from Yuri Fernandes with JPMorgan. Yuri Fernandes: Fernando, Milanez, I have a question regarding taxes in Brazil. We are seeing a lot of noise on a potential fintech tax to be debated in the coming days or weeks. And I'm not sure like if we should expect any impact for B3 from that? And if yes, if there are any measures that B3 could take to mitigate part of the impact on this potential headwind? And then I have a second question is just regarding markets, especially equities and derivatives that I think are the 2 lines that were a little bit more like luster this quarter. Especially on equities, we see a kind of a bottom, right, on individuals when we try to estimate the turnover velocity for retail, we also see new at very low levels. So, maybe if you can give us an outlook here if this is really the bottom with the, I don't know, Brazilian index getting back to all-time highs, like you are seeing better outlook for retail. So if you can comment just on if the bottom is here and what is your view for 2026 regarding those lines? I think derivatives is more about pricing than volumes per se, but I would appreciate any outlook you could provide. I know it's hard. These lines are volatile, but with lower rates, if you can give us some color would be good. Andre Milanez: Thank you for your question, Yuri. Let's start with taxes, which is always a tricky subject for us Brazilians. But we had a provisional measure that could potentially represent an increase in our taxation with the increase on the social contribution from 9% to 15%. As you know, that ended up not being approved by Congress. So it lost -- it expired before it became into force. But then we have a similar discussion now that was included together with the taxation of fintechs on bets in a project that is being discussed, if I'm not mistaken, at the Senate at this stage. So there is a chance that, that could be approved. We have been working to try to not have that approved because we do believe that we shouldn't be part of those measures to try to equalize banks and fintechs. We are not a bank. We are not a fintech. But there is a chance that, that could go through. What we have been doing and we were doing before that working in other measures that the company could try to take in order to at least try to partially offset potential impacts coming from those measures. They are not directly related, but were things that were -- how can I describe that? Maybe they were already in the books, and we decided to accelerate some of those given that context, but they would not be able to completely offset any negative impacts that could potentially come from that increase in taxation if that gets approved, which I would say, at this stage, seems that there is a good chance of that not going through. So we have to continue to monitor that very closely and try to work with policymakers and the industry to try to not have that being voted and approved. Regarding the ADTV and ADV, this is always a very tricky question. If you look besides the, let's say, the more very short term, there has been some stability on volumes around the '23, '24 mark. I mean, in some months, you will get slightly higher volume and others slightly lower, but they have been hovering around that level. Our impression is that this is kind of where we will stay until there is a trigger to pick up -- to see some pickup in activity. And that trigger potentially is interest rates coming down or a heavier and stronger allocation coming from foreigners, which has in part -- is in part what has been driving the appreciation that we have been seeing on the main index. So potentially for next year, we could see some improvement on volumes. But I think in order to see that really coming more strongly and in a more sustainable way, we will need to see interest rates coming down, right? So I think it is -- it can be positive for next year. The outlook can be positive, but to really see a recovery -- a more strong recovery and sustainable -- new sustainable levels, I think we also need to see interest rates coming down in order to achieve that. And in relation to the ADV, I mean, I think we are coming from a very high comparison base also last year. We saw some reduction on the Bitcoin future volumes as a result of the increase in margin requirements. We also -- if you recall, there was a lot of volatility on the interest rate curve last year that helped to see a lot of activity on derivatives trading for interest rates. But I think we might -- as we approach the beginning of another easing cycle, we could see some pickup also in volatility for the interest rate, which always benefits our derivative business. So I think in both cases, the outlook seems positive, even though not ideal given the reasons that I mentioned. Operator: Our next question comes from Renato Meloni with Autonomous research. Renato Meloni: I wanted to explore a little bit the pipeline of new products. And more specifically, I'm curious about how you're looking at the development of predictive markets globally. And if this is something that you would be interested in implementing, if there is space to implement this, if it's close enough to your business? And if there are any regulatory hurdles that you foresee that? Andre Milanez: The question is about prediction markets, right? Renato Meloni: Yes. Pipeline of products in general, but more specifically about predictive markets and your view there. Andre Milanez: Thank you, Renat, for the question. Look, we -- as we have been discussing, I mean, we remain very active in the pipeline of new products. As you know, we've launched several derivatives this year, not only derivatives, a lot of indices, ETFs, a new trading platform. So continuously bringing innovation and new products to ensure that the needs of our clients are being properly served and met remains one of our key priorities. We have also been testing new products and more innovative products as well. In terms of what we still have on the pipeline for this year, we should be launching still derivatives linked to the VIX -- Brazilian VIX Index, an index that we started to -- that we launched and started to publish last year. So it has been a year that the index is up and running, and we are planning on launching the derivatives based on that index. It is also on the pipeline to launch the options on Bitcoin. We already have the futures, a lot of ETFs and now the options as well. We will continue to advance in other types of products such as the zero-day expiry options, digital options and these sort of things, products that we are still -- or are starting to discuss with the regulators. As you know, for this -- for any products that we want to launch, we need to seek regulatory approval for that. And prediction markets could potentially be also on that agenda. I think we have already started those discussions, but they will come potentially after some of those initiatives that I did mention to you, such as the zero-day expiry options, the digital options, et cetera. But this is something -- definitely something that is in our agenda to explore and to discuss. Renato Meloni: Does the regulator see this as a positive? Does it have any considerations on you launching predictive market products? Andre Milanez: I think there is -- there are sometimes different opinions and views regarding this kind of products. But there's also -- I mean, we need to look at what has been happening not only here but outside Brazil. This is definitely a global trend that cannot also be ignored. So I don't think they have a definite view. But of course, they have concerns about this kind of products and things that we will work together with them to assess whether this can be addressed or mitigated in order to launch these kind of products. But that's the beginning of those discussions. So we don't have a clear view still around those products as of yet. Operator: Our next question comes from Eduardo Nishio with Genial Investment. Eduardo Nishio: Andre, Fernando, two questions from my end. The first is on expenses. You had a great result this quarter, basically flat expenses. Is that a trend that you will try to take for next year, if there is any major investments or initiatives for next year that we have to put into account, of course, excluding the revenue-linked expenses, your thoughts on that. And also an update, if you can, on competition, particularly the 2 local new exchanges, if you can give us a time line, testing, results. Anything you can share with us would be great. Andre Milanez: Thank you for your question, Nishio. Glad to hear from you. Look, regarding the expenses, right? So -- as we have been saying since the beginning of the year, this year, we have been working in order to better plan our expenditure throughout the year and therefore, have less volatility and give more predictability around the behavior of our expenses. We do have some seasonality, but not at the level that potentially we have seen in recent years. So part of our efforts this year was to work on how to better plan that kind of spending throughout the year. And I think we have been so far successful in achieving that objective. The reason why you're seeing -- so this quarter revenues almost flat in relation to last year is because we had a very -- last year, you had a much heavier second half of the year in relation to the first half. It's natural that the second half is slightly higher because that's where we get the annual adjustments on our salaries and other things, but it didn't have to be as volatile as it has been in recent years. So I think for this year, you can expect us to deliver the guidance that we gave, which is going to be a growth slightly above the inflation. And going forward, that remains our target and our commitment, trying to deliver cost growth around inflation, slightly above or slightly below. It's difficult to grow much lower than the inflation given the nature of our cost structure, given that we continue to invest in new initiatives in product development, in expanding our portfolio. So the mantra here has been to be able to continuously find efficiencies in our core business, in our mature products in order to generate funding for us to continue to invest in new initiatives, in expansion of portfolio and achieving that without necessarily having to grow our cost base much above inflation. So that has been the way we have been working in relation to that. And regarding competition, look, I don't have a lot of updates time line. I mean we have the information that we hear from market participants, both, initiatives are talking about potentially being launching by the second half of next year. I think they have been progressing. We don't have a lot of visibility in relation to our infrastructure, et cetera. But I think they are still working and trying to progress. That's -- I don't have a lot of news that I can share with you at this stage. Operator: Our next question comes from Pedro Leduc with Itaú BBA. Pedro Leduc: Question this quarter, especially in September, I believe that you guys performed some adjustments on the market incentives for market makers, HFTs. I believe you did some fine-tuning on the way -- I'm not going to say that you price, but the way your programs there work with different types of participants. From the outside, I know it was only just 1 month, but we see a different behavior there on the revenue per contract in equities. We also saw some volumes as a backfire maybe. Can you talk to us a little bit on how you saw this happening on the ground and maybe what we can expect its consequence to be also on the fourth quarter onward? Fernando Tavares de Campos: Thank you, Pedro, for the question. So from what we look, and I mentioned this on the last call, we didn't expect a lot of impact. We thought that -- from the back test that we run, we thought that the impact would be neutral, and that's a little bit of what we saw. I know that there is some -- I think the volumes are low because the market is kind of -- it's a challenging scenario for macro -- in the macro scenario, but we haven't seen a significant impact from the changes that we did mainly on the market maker programs. And we did dug a lot deeper on that. We are entering the ticket -- from ticket to ticker, to -- from stock to stock to try to understand the impacts of it. And we haven't seen a different performance on the volumes of tickers that we incentivize from the ones that we don't. So in our understanding that's a sign that there wasn't a direct impact from the changes in market making programs in the volumes. All the other products, all the other changes, I think they are being -- they were implemented. They are successful. Like I said, we didn't saw a lot of impact on the margins, but we have received positive feedback from clients. And we -- I think it made our operational leverage even clearer. So we are able to share more of that -- more volumes with the market. So I think that's pretty much it. Pedro Leduc: Any particular comment on the revenue per contract or trading margins that we're seeing in equities? Andre Milanez: So for the future, I mean? Pedro Leduc: Yes, a little bit on what happened this quarter sequentially and for the future. Fernando Tavares de Campos: So yes, sure. So on the margin -- on the trading margin in equities, we did see a performance that was kind of similar to what we saw. We just had lower volumes. So we had a little bit more prices. And like I mentioned, this will be more visible from now on that we have this kind of discount per institution. So -- and that's a trend that we should see. On the RPC, we didn't make significant adjustments on any contracts on this quarter. So I think here, we have an impact from the -- like it's -- yes, on the mix and we did havean impact from the lower -- the devaluation of the USD against the BRL. This has an impact on the FX contracts and the interest rates in USD contracts. So that impacts. But on all the other things, I think, are performing the way that we thought it would. Operator: Our next question comes from Daniel Vaz with Safra. Daniel Vaz: Just trying to put a context here. We are right now maybe with a weaker dollar, right, the context is of a renewed emerging market appetite, at least for now. So we started to hear, again, some companies maybe preparing for an IPO or for any follow-on given this renewed interest in the emerging markets or Latin markets. So -- however, on the other side, the local funds remain a lot under pressure. We see a lot of outflows on the industry and retail also, I think someone mentioned the turnover velocity is very low because the appetite is pretty much shifted toward the tax-exempt, right, fixed income instruments. So my question is, it seems likely that some of the IPOs could be -- could end up listing abroad as we've seen in the past, like Nubank, for example. So is B3 prepared for this next window, maybe '26 or '27, I don't know, of IPOs, if there is any window? And any meaningful progress or new initiatives that could serve like a silver bullet to attract these listings, like the key listings, mainly on the tech, whatever, to the local markets, like to your market instead of going like to NYSE, to NASDAQ? Andre Milanez: Thank you for the question, Daniel. Look, we are ready for -- to receive these companies when there is a window of opportunity here. With conversations that we have directly with some of those issuers, potential new issuers with investment banks, I would say there are around potentially 100 companies that could be candidates for an IPO within 12, 18 months. Some of those are already ready when the opportunity presents itself, others working to get ready to be prepared. And I think as we have been saying, listing abroad, it's potentially going to be an alternative for a few companies, companies that have -- there are not, I would say, Brazilian companies, but that I have a level of international exposure that is very high or companies that are tech companies. That has been the case not only for Brazil, but for other jurisdictions as well. So you see big English companies, German companies deciding to have their primary listing in the U.S. I think that's natural given the size and the relevance of the U.S. market. And it will be -- it will make sense for some very specific companies that have those attributes that I did mention. In those cases, of course, we will work to have a dual listing or to have BDRs and try to have some of that volume in Brazil. But those are going to be exceptions and not the general rule. I think for the vast majority of the Brazilian companies, the listing in the local market, in the domestic market, it's what will make more sense. We've seen companies that during that very specific window that we had between -- around 2021, regretting that decision, some of them coming back. We had the example of a tech education company that ended up delisting in the U.S. and redomicile their listing here. We have also been working very close with the regulators in initiatives that could try to make the access to the capital markets easier. We have the so-called FÁCIL program starting next year. I believe that can also be an interesting opportunity for small-sized companies. I think in the beginning, we will see that potentially helping companies that want to access the local DCM market, but that could potentially be also an interesting alternative when conditions are more favorable for an IPO for the equities market for these companies to access the ECM market using that new regime for the small companies to use that regime. So I think we are very, very confident with that, I think the main question remains when that window of opportunity will present itself. And then in order for that to become a reality, there are primarily external factors, economic factors that are completely outside of our control and the control of the companies. But we are very -- looking at that very closely. We are very close to these new issuers, but I think that's how we are seeing that moment in that environment. Operator: Our next question comes from Antonio Ruette with Bank of America. Antonio Gregorin Ruette: So my first question goes on M&A. You mentioned in the past that you already did your -- the 2 big acquisitions that you needed to make that was Neoway and Neurotech. I would like to ask if you still believe that that's the case. And how do you see M&A today? Could we continue to see small acquisitions? Or are you considering that -- that's -- there's is a line of business and that maybe you would benefit from a big one? And also a second question here, I would like to follow up on the question I did last quarter on the electronic trading of fixed income. I'd like to ask if you guys did any improvement in that sense on platforms or in order to bring more volumes to your platform, Trademate. Okay, that's it for me. Andre Milanez: Thank you, Antonio. So the first question -- sorry, was regarding... Fernando Tavares de Campos: M&As. Andre Milanez: M&As, right? Sorry. Look, I think that remains being the case. I think the 2 large M&As that were in our radar, in our pipeline were executed. As I have been saying, the big focus since then has been on execution of that strategy, particularly on data. M&A remains a potential alternative that we could use to achieve some of our -- or to deliver some of our strategic objectives that we have. There is always a consideration if we should maybe for -- if we want to increase our offering and offer a new product, a new service, there is always a consideration if there is room for us to develop that internally to do a partnership, if -- sometimes to do an M&A. That remains being the case. So in the 2 recent cases of these smaller sized acquisitions, those were capabilities that the company didn't have and that we understood that it would make more sense for the company to acquire those capabilities rather than trying to develop that internally. We have been doing a lot of -- besides M&As, a lot of partnerships as well. And I think that will remain being one of the alternatives that we will have to achieve our strategic objectives. But at the moment, there is not a large size M&A or at least not of the size of what these 2 companies were on the radar. Regarding the Trademate our platform, we have been seeing improvements on that, especially on the government bond market. We have been breaking record after record in terms of volume. I think the last time that we reached the record was the end of last week or beginning of this week. There is still a lot to be captured in terms of how much of the trading activity is happening on screen is electronified, but we are starting to see progress. This is already represents -- I don't recall from the top of my head now the percentage, but it has been increasing. Besides the platform, we have also been investing in liquidity provider programs, market making programs also to increase liquidity on the platform. It's a journey. It will take some time, but we will starting to see improvements on that. So that remains being one of the areas also of focus for us. Operator: Our next question comes from Tito Labarta with Goldman Sachs. Daer Labarta: Two questions also. One, a bit of a follow-up, I guess, on the previous question on M&A because you did do 2 small acquisitions, Shipay and CRDC in the quarter. I think maybe you answered it, but I guess these are more capabilities that you wanted to fill in. Any other color you can provide on what the opportunity you see with those 2 acquisitions are? And then my second question on the Bitcoin futures, you made some changes to the product. I think you mentioned to try to improve liquidity, it did impact trading volumes, I guess, in the short term. But -- yes, just how do you think about those changes? Do you think the Bitcoin futures can become more relevant? You talked about Bitcoin options, something that you can also begin to offer just thinking about that opportunity and what potential upside that could bring? Andre Milanez: Thank you for your question, Tito. As I said, I think those 2 companies were -- we identified as part of our discussions and our strategy on the receivables market. Shipay particularly was a company that we had already been working on a partnership. And given how things were progressing and the potential that we were seeing on that, we thought it would make more sense to have that company with us. It brings features that we plan to offer as part of our solution for the credit receivables, especially on payments, which will also be an important feature when this new market is working. But we also have seen potential opportunities of leveraging from that -- from those skills and capabilities in order to launch new products or improve or add new features to existing products of the company. I think it's -- the biggest focus now has been on the receivables market on that, but we also see potential for that acquisition to help generating -- to generate value in other parts of our business as well. And with CRDC, which is, by the way, we just need to recall that this is yet subject to regulatory approval. On the case of Shipay, that has already been achieved. But in the case of CRDC, this is still ongoing, still pending. But on CRDC, we saw there besides some of those solutions that they already have and that will complement our offering on trade receivables, they also have a capability of reaching a part of potential clients or players in that market that we are not used to deal with. So the commercial association and CRDC will help to increase the reach that our solutions will have, especially with small and midsized companies, commercial stores, et cetera. So that's where CRDC fits into that strategy. As I said, in the previous response, M&A remains being a way of us achieving some of our strategic objectives. It is not a strategy per se, but a way of achieving some of those. And as a result, that remains on the radar for the company. But at the moment, small-sized acquisitions to -- as add-ons or additional features to some of the initiatives that we have been developing. Fernando Tavares de Campos: On Bitcoin futures, like we mentioned, we did some adjustments on collateral requirements on the second quarter asked by the regulator. So obviously, this had some negative impact on volumes. But we think -- we still consider the product a success. It's part of the strategy of having a more, a full set of products for the retail, retail-oriented products in derivatives, which Andre mentioned before. We do have products, derivatives on other cryptocurrencies. And we -- it is still a big part of what we plan to do with this retail-oriented products portfolio in derivatives. So I think that's pretty much it. Operator: Our next question comes from Brian Flores with Citi. Brian Flores: We have seen that non-listed markets, Data and Technology, as you mentioned, it's central to your diversification strategy given the high volatility of listed equities. So I just wanted to see if you could recap what new product rollouts could we see, particularly for digital assets, crypto-based products? And also, if you could elaborate a bit on what are the margin expectations of these new ventures compared to the current portfolio? Fernando Tavares de Campos: So Brian, can you repeat the first one? So what can we do to enhance the other segments there besides markets, that's it? Brian Flores: No. Basically, the diversification strategy, right? We have seen that non-listed markets and also Data and Technology are very key to the whole diversification strategy. So just wanted to understand which new products we could see, particularly on digital assets and crypto. And if you could elaborate on the margin profile of these ventures. Fernando Tavares de Campos: Sure. So on Data -- on crypto, I think we have already -- I don't think we have any other futures plan in the upcoming months. We think we have 3, the 3 largest contracts -- the 3 largest cryptocurrencies we have the future here. So I think that's in crypto by itself, the [indiscernible] derivatives, I don't think we have anything planned for the near future. Regarding Data, Data, it's a set of small initiatives. So we don't have like a big super bullet of products in many of the segments that we have. And when you break down the growth, it's a lot of small things that we are doing. So we are working really close with clients to develop products and solutions to them to kind of customize solutions for those. Obviously, when you look at midterm or longer term, I think we're going to have the data that we have are going to cross paths with the AI discussions that we are seeing. So it's something that we are already looking at our strategic planning how those paths will cross at some point in the future, how can we monetize and enhance all the data that we have as a source for AI tools. I don't think we're going to see that on the short term, but it's the discussions that we are having within the company that can be really huge in the few -- in the long term. So that's a little bit tough. What we're seeing on the short term, I think it's the development of products really close -- working really close with clients, which has been the -- what's been supporting this impressive growth that we are seeing in Data and Analytics in the last quarters. Andre Milanez: And Brian, this -- I think it's worth for you to understand that we are not selling data here. We are actually selling data solutions that are helping clients to resolve problems, right? So we have certain verticals that we have been working on Sales and Marketing, Loss Prevention, Credit, Insurance. There are several examples of those solutions that we have been developing, leveraging from the data that we end up producing as part of our core business on the trading, on the fixed income market, on the infrastructure for financing unit, all of those business activities that we have ended up producing a lot of data and in some cases, unique data, and we are leveraging on that to deliver data solutions that can add a lot of value to our clients. So there's a lot of potential to continue to expand not only on the portfolio of new products and solutions, but also on the penetration of those solutions amongst client segments, et cetera. And that goes beyond the traditional set of clients that the company typically has, right? Regarding margins, the standard or the average for the industry is typically margins around 30% to 40%. That's where we will aim at, at some point. But in the near and the short-term, we are basically deciding to invest more growth at the expense of profitability, but ensuring that this business or that business unit is generating cash, right? It's not burning cash. We don't want to see growth at the expense of generating losses or burning cash. But we are, at this stage, not really trying to maximize profitability. We do believe that there is still a lot of potential for growth before we can start to work in maximizing profitability on those businesses, on those initiatives. Operator: Our next question comes from Carlos Gomez-Lopez with HSBC. Carlos Gomez-Lopez: Congratulations on your EPS growth. So 2 very brief ones. First, on the ForEx, you mentioned that you have been hurt by the appreciation of the real versus the U.S. dollar. Could you quantify that to the extent that you can? I'm sure you have done studies. How much do your earnings move with ForEx moves? And can you mitigate that if you expect that the real is going to strengthen further? And second, in terms of your buyback, you still have, I believe, it's 65% of your program open. The stock is now at BRL 14. You tend to be quite savvy in terms of choosing between paying dividends or IOC or buying back stock. What's your inclination today? Fernando Tavares de Campos: So Carlos, thank you for your question. Regarding your first question, the FX. We have close to 15% of our revenue that are linked to the USD. We do have the derivatives contracts that I mentioned, which moves -- the prices of those contracts are linked to the USD. So when there is a strengthen in the real, you're going to see the prices dropping. And we have the part of the market data that we sell to vendors that are also linked to USD. So that comprised of close to 15% of our total revenues -- 10% to 15% of our total revenues, but we do have a debt that are -- that is linked to the USD, and we do have a cash flow hedge account that kind of offset those impacts on the revenue per se, not on the prices. So Andre can talk about the second question. Andre Milanez: So regarding the buybacks, right, when we announced the buyback program last year, I mean, we were in an environment where the share price was extremely depreciated. We have been executing a lot of the buyback. And basically, as we have always been saying, we will move the proportion more towards buybacks or dividends, depending on market conditions, on share price, on multiples, level of discount compared to our peers. That's what's going to be driving, and this is very dynamic. So having said all of that, I think we -- I don't expect us to execute the whole buyback program, given that the share price has responded a little after we've announced the buyback program at the beginning -- at the end of last year, but we will execute -- continue to execute buyback. Basically, if the share price goes down, we will accelerate the execution of the buyback. If the share price appreciates, we will slow down until there is a point where potentially we will stop buying back shares and the difference is going to be delivered back to shareholders through dividends. So that's how we have been managing that, and that's how you should expect to continue to see us dealing with that equation between buybacks and IOC and dividends. Carlos Gomez-Lopez: We understand that, and we think that's exactly right. So the question is at BRL 14, are you still buying? Or this is a level in which you are more inclined to give more dividends? Andre Milanez: No, we're still buying at that level. Less shares at a lower pace, but we're still buying. And you can see that on the results that we publish every month. So you can track our -- the execution of our buyback program... Fernando Tavares de Campos: Monthly... Andre Milanez: Monthly... Fernando Tavares de Campos: On our website. We do have all the volumes and all the prices and the average price there. So you can -- it's super easy to track. Carlos Gomez-Lopez: Very good. And finally, on the ForEx, so I understand the impact on the revenues and you say that you have that hedge. So on your operating margin, is there in the end, a net impact of the foreign currency or it's on the top line? Fernando Tavares de Campos: It's basically on the top line. Carlos Gomez-Lopez: All right. So your net income should not be too much affected by where the currency goes. Fernando Tavares de Campos: No. Operator: This concludes today's question-and-answer session. I would like to invite Andre Milanez to proceed with his closing statements. Andre Milanez: Well, I just wanted to thank you all for your trust and support. We remain committed and focused on our clients on delivering what they need, bringing innovation and new products to the market. That remains being our focus. I would also like to invite you all to our Annual Investor Day, our B3 Day. which will take place on the 16th of December. So more than welcome to join us on a moment where we will discuss a little bit of the strategy of the company, present to you some of the achievements that we have seen during the year and talk a little bit about the future and how we are seeing the development of our market and our company. So it's a very interesting opportunity to be with us. So we're more than welcome to join us on the 16th of December. And with that, I finish this call. I hope to see you all soon. Bye-bye. Operator: That does conclude B3's presentation for today. Thank you very much for your participation, and have a nice day.
Operator: Good day, and thank you for standing by. Welcome to the PyroGenesis Third Quarter 2025 Business Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Steve McCormick, Vice President of Corporate Affairs. Please go ahead. Steve McCormick: Thank you, Liz, and good morning to everyone. I'm Steve McCormick, Vice President of Corporate Affairs for PyroGenesis, and thank you for joining PyroGenesis 2025 Third Quarter Financial Results and Business Update Conference Call. On the call with me today is Mr. Andre Mainella, the company's Chief Financial Officer; and Mr. Peter Pascali, the President and CEO of PyroGenesis. The company issued a press release on Tuesday, November 11, 2025, containing the financial results and the business update for the third quarter ended September 30, 2025, which can be viewed on the company's website at pyrogenesis.com. If you have any questions after the call or would like any additional information about the company, please e-mail the Investor Relations department, and we will try as best as possible to answer questions that are of a public nature and which are allowable by financial market regulations. The e-mail address is ir@pyrogenesis.com. We will shortly provide prepared remarks reviewing the operational and financial results for the third quarter. But first, a reminder that this discussion may include forward-looking information that is based on certain assumptions, which are subject to risks and uncertainties that could cause actual results to differ materially from historical results or from results anticipated by the forward-looking information. The forward-looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today's date. There can be no assurance that this forward-looking information will prove to be accurate, and undue reliance should not be placed on this information. PyroGenesis disclaims any obligation to update any forward-looking information or to explain any material differences between subsequent actual events and such forward-looking information, except as required by applicable law. In addition, during the course of this call, there may also be references to certain non-IFRS financial measures, including references to EBITDA, modify EBITDA and backlog, which do not have standardized meaning under IFRS and therefore, may not be comparable to similar measures or information presented by other companies. For more information about both forward-looking information and non-IFRS financial measures, including a reconciliation of EBITDA and modified EBITDA, please refer to the company's management discussion and analysis, which, along with the financial statements, are available on the company's website at pyrogenesis.com and on the SEDAR website at sedarplus.ca. Finally, a reminder that PyroGenesis follows Canadian generally accepted accounting principles or GAAP, where revenue is accrued not on sales but on a model that reflects a percentage of the work completed for a given project during the reporting period. And this can vary based on both the nature of the projects in-house and on a client's own scheduling and logistical decisions, both of which can impact project milestones and the company's ability to book revenue from 1 quarter to the next. As stated in previous reports, the company's revenues are likely to be a regular quarter-to-quarter based on the project timing as stated above or sometimes due to cash on hand and is continuously fluctuating economic landscape, clients can face their own cash flow and CapEx scheduling challenges, which can have an impact on PyroGenesis revenue. I'll start off the business overview with a quick review of some of the company's top line results for the quarter, followed by a summary of some of the key business activities that occurred during the quarter before turning the call over to our CFO, Andre Mainella. Later in the call, the company's President and CEO, Peter Pascali, will answer a series of investor questions that have been submitted during the quarter. Starting with revenue. For the third quarter of 2025, the company exited the quarter with revenues of $3.25 million, which represents a decrease of 18.7% year-over-year. For gross margin, for the quarter, gross margin was at 24% versus 42% a year previous. While lower than average, on a 9-month basis, the company's margin remains ahead of 2024 and currently sitting at 35% compared to 31% in the 9 months for the previous year. Andre will provide additional details regarding these numbers later in this call. As always, to provide context for margins using comparison to some of the industries that the company serves or supports in the aluminum sector, second quarter margins are being reported at 10.4%. Aerospace and defense is at 11.6%. Iron and steel is at 25%. The mining -- the metal mining industry is showing 38% margin for the quarter, as is industrial machinery and components also at 38%. In general, across much of heavy industry in Q3, continuing tariff costs, higher energy prices in Europe and demand swings, especially in the Far East have contributed to higher input prices for many of these industries as commodities face shifting global ties and as energy sectors work to bring more electricity and renewables capacity online while phasing out coal. Now on to backlog. PyroGenesis backlog stands at $51.6 million, showing continuing strength in the company's order book. For those that need clarity on backlog, backlog is defined as signed or awarded contracts and outlines future revenues for the company that will be added to the financial results over subsequent quarters as projects are started, or as product milestones are reached on a percentage of work completed basis. A management's opinion, a strong backlog helps to show the strength of the long-term outlook, while also illustrating the wide variety of different types of contracts that the company can secure or what the company often refers to as its multi-legged stool identity. So backlog shows the minimum future revenue for the company as these projects progress towards completion. And now on to some key production highlights for the second -- for the third quarter, excuse me. Please note that projects or potential projects that were previously announced, but which do not appear in this summary update or within the MD&A or outlook should not be considered at risk. Noteworthy developments can occur at any time based on project stages and the information presented is a reflection of some of that information on hand for some, but not all projects. Projects not mentioned may not -- may simply not have passed milestones worthy of discussion or had their project status changed since the last reporting quarter. Starting with a brief reminder of the company's business strategy. PyroGenesis leverages expertise in ultra-high temperature processes to create technology solutions for heavy industry and defense. From early stage pilot to full commercialization, the company's technology solution set is concentrated under three business verticals: energy transition, materials production and waste processing. These three verticals were recently reframed to better match the company's offerings and to account for changes in the business landscape. As PyroGenesis has evolved over the past 5 years, new technologies were introduced, certain industry terminology became more identifiable and normalized and future opportunities for the company within each business vertical became clearer. So first, for the energy transition vertical, which provides primarily, plasma-based fuel switching solutions to help heavy industry electrify their high-temperature processes, modify their energy mix and lower emissions. In August, the company announced the signing of a contract with Constellium, one of the world's largest aluminum transformation and recycling companies. For the purchase of plasma torch technology and related components to be implemented and aluminum remelting furnace. This contract marked the launch of the Phase 2 industrial implementation portion of the two companies' collaboration agreement from April 2024, which outlined Constellium's stated plan to use PyroGenesis plasma torches and associated processes as potential replacement heating sources in aluminum remelting furnaces at Constellium's aluminum cast houses. In September, the company announced a $1.2 million contract with a European cement industry customer for the supply of a plasma torch system for use in a calcination furnace. A calcination furnace, also known as a calciner, can be used for various steps in the cement process, including for high-temperature processing of limestone, quicklime and trona to produce lime, clinker and soda ash, all of which can be key components of cement contributing to its binding properties strength and durability. Fossil fuel combustion and CO2 released during the calcination process are major sources of emissions in the cement industry. In fact, approximately 40% of greenhouse gas emissions in cement production comes from the combustion of fuel needed to generate the heat required in the calcination process. Switching to the materials production business vertical, which encompasses the development of chemical-free material production systems and the production of in-demand materials for manufacturers. During the quarter, the company issued a series of announcements regarding its fumed silica reactor pilot plant known as the FSR. For those who are unfamiliar, fumed silica is one of the most widely used industrial materials and can be found in thousands of products, including cosmetics, toothpaste, pet litter, powdered food, milk shakes, instant coffees, pharmaceuticals, paints, inks, thermal insulation batteries, just to name a few. It is often used as a thickening agent or to stabilize and improve the texture consistency and flow of end product. The fumed silica reactor was designed by PyroGenesis to produce commercial-grade fumed silica from courts in a single eco-friendly system, while eliminating the use of the harmful chemicals used in the conventional production method. PyroGenesis has been engaged to develop and build the FSR for HPQ Polvere Inc., a subsidiary of PyroGenesis Client HPQ Silicon Inc. PyroGenesis has a 50% interest in Polvere and an exclusive arrangement to be the sole supplier of equipment relating to any future commercialization of this process. A sequence of developments during the quarter help move the FSR closer to commercialization. In early July, the company announced improved quality, purity and consistency of the material across multiple production cycles of the pilot plant. These results were verified by a leading global fumed silica manufacturer, who had previously requested, tested and verified first-stage material samples produced in the FSR pilot plant under the terms of a letter of intent. Later in the month, the company announced the confirmation from a third-party analysis of those previously announced results, further validating the key technical metrics for material samples generated by the pilot plant. And in September, the company announced that the August performance trials and modifications to the pilot plant resulted in a 3x increase in material surface area and significant progress across a number of essential product parameters. These results were provided by a global manufacturer of fumed silica who conducted analysis on the fumed silica sample materials submitted by PyroGenesis after the latest series of operational tests. With these results, the surface area of fumed silica produced by the reactor met the requirement for several of the commercial grades of fumed silica products, while also showing total elimination of carbon impurities. Also in July, the company announced the receipt of a contract for titanium metal powder produced by PyroGenesis next-gen plasma atomization process. from a European engineering and material science firm specializing in the additive manufacturing industry. The client had previously received and tested samples of PyroGenesis metal powder, and the contract marks the first commercial order with this customer. The order is for a Ti-64 coarse cut titanium powder. And finally, to the waste processing vertical, which provides for the safe emission-free destruction, remediation and valorization of industrial, chemical, agricultural and municipal waste on land and at sea. In July, the company announced a $600,000 contract with one of the world's largest integrated environmental services companies for the engineering and testing of an advanced waste management solution, targeting both nonrecyclable plastics and other forms of hazardous liquid waste in Europe using PyroGenesis plasma gasification technology as the platform. And finally, also in July, the company announced the completion of a previously announced $9.3 million coke oven gas valorization and hydrogen production project. For Tata Steel, one of the world's largest diversified steel producers. The systems developed by PyroGenesis subsidiary, Pyro Green-Gas, are in continuous 24-hour day operation at the Tata Steel facility in Kalinganagar, India, and the newly reformed hydrogen produced by the system is being reused by other applications around the facility. To read about these and other updates and events, as well as some of the many ongoing projects not discussed on this call, please refer to the corresponding section of yesterday's news release or to the management discussion and analysis document in particular, the outlook sections of each. I'll be back at the end for some final thoughts. But at this point, I'd like to turn the call over to the company's Chief Financial Officer, Andre Mainella, to provide more details about the third quarter financials. Andre? Andre Mainella: Thank you, Steve, for the detailed overview. And thank you to the listeners for joining the call. Now I'd like to continue with a review of PyroGenesis financial for Q3 2025, while providing a little more insight into the main revenue and expense items. For Q3 2025, PyroGenesis recorded revenue of $3.3 million, a decrease of $0.7 million when compared with the $4 million recorded in Q3 of 2024. The main product line response for this was torch sales, which decreased by $0.6 million. This was due to the reduced project activity and resulting from the completion of several significant projects in the prior year that did not repeat in the current period and also to 2025 projects, which are still in their early stage. In the biogas upgrading product line, revenue was up $0.3 million as the company continues to make progress on a significant gas desulfurization project. For year-to-date revenue, it closed a $9.3 million, down by $2.2 million versus 2024. This decrease is explained by the same reasons of the quarter and further extending to our revenue decrease in system supply to the U.S. Navy. The biogas upgrading category offset this decrease by adding $3.2 million of revenue in the 9-month period, which is $2.3 million more than it did for the same period of 2024. We expect that the improvements in revenue as project stages advance with more momentum and greater revenue being recorded in the coming quarters. As of November 11, the date that these financial payments were released, our backlog of science and/or awarded contracts stands at $51.6 million, and is expected to be recognized into revenue over the next 3 years. It's important to note, the majority of this backlog is in foreign currency, with greater than 80% being in U.S. dollars. Gross profit for the quarter is $0.8 million or $3.2 million year-to-date, and this represents a gross margin of 24% and 42%, respectively. The Q3 margins are affected by the current project stages and therefore, the nature of expenses being incurred. Employee compensation decreased and more reliances placed on external subcontractors. These stages also incurred additional material costs, which generated lower margins. This is a reverse of what occurred in the prior quarter, whereby project stages generate higher margins with small incremental direct costs. We also want to mention that the company continues to control costs and product sourcing on an ongoing and proactive basis as seen in the past years. Now let's turn to operating expenses. Selling, general and admin expenses totaled $2.6 million in Q3 2025 and $5 million for 2025 year-to-date. In Q3 of 2024, provisions for credit losses were recorded, and a portion of those expenses were reversed in that quarter due to these accounts receivables being collected. SG&A expenses decreased across additional categories as we continue to monitor costs, the largest of these favorable quarterly variations were once again seen in employee compensation, $400,000, professional fees down $250,000, as well as insurance, other expenses and depreciation. For the year-to-date SG&A, we experienced the same anomaly with the comparative figures. But again, if we exclude the impact of the credit reversal, which was $3.3 million in 2024, the year-to-date SG&A expenses are actually down by $2.6 million. And once again, the main drivers for these reductions are employee compensation due to less headcount, share-based compensation, professional fees, along with insurance and other expenses. Again, we've continued to execute our cost optimization across all categories and improved sourcing. Net R&D expenses for Q3 2025 totaled $0.2 million and is comparable to Q3 of 2024. Year-to-date, closed at $0.9 million and quite comparable to the $2.7 million we had for 2024. The company continues to benefit from client funded R&D projects, which qualify for SR&ED tax credits, while further supporting and developing new technologies. Next, let's look at the quarterly net financial cost, which is $245,000 for the quarter. This expense is well within expectations. The interest expense and accretion expense on the secured loan issued in May 2025, are new for the current quarter, but offset similar expenses from the prior convertible loan, which is now fully reimbursed. 2024 also was negatively impacted by an expense for the balance due on the business combination. The year-to-date financial expense before considering net financial income is also well within expectations of $800,000 to $900,000 for the 2025 and 2024 year-to-date periods. The fair value adjustments of strategic investments resulted in a minimal expense in both the current quarter and comparative 2024 period. This was based on the decrease of the share price of HPQ common shares, which directly affects the value of the investment and also the fair value of the warrants owned by PyroGenesis. Moving on to our comprehensive loss, which, as a result of the items discussed is a loss of $2.5 million compared to $3.9 million loss in 2024, a favorable variation of $1.4 million. Now, although sales and gross profit were lower, the lower SG&A expense generated a smaller loss from operations and was further improved by less net financial expenses. On a year-to-date basis, the loss is $3.1 million greater than 2024 due to the noncash loss from change in fair value of strategic investments, and the fact that 2024 had a $1.2 million gain from a legal settlement. The improved quarterly comprehensive loss leads to an improvement in both EBITDA and modified EBITDA by $1.1 million. Now this metric helps investors to better understand the financial performance of our operations, while excluding elements outside of our control and other noncash items. This wraps up the financial portion of Q3 2025. I'll now hand it back to Steve. Thank you. Steve McCormick: Thanks so much, Andre. We will now proceed with a series of prepared answers to questions that were submitted to the company during the quarter. To answer those questions is Mr. Peter Pascali, President and CEO of PyroGenesis. Go ahead, Peter. Photis Pascali: Thanks a lot, Steve. I've got a finally got a speaking role, ladies and gentlemen. Thank you very much. And what I'm going to be doing here is answering a series of questions that we see frequently or specifically came up recently. Question number one, what can you tell us about the super high temperature torches, the 4.5 megawatts and 20-megawatt torch specifically that were announced a couple of years ago? Well, for those that are new to the story, back in August 1, 2023, we announced a contract for a 4.5-megawatt plasma torch for a client, who is a prime contractor for the U.S. government, as well as for public and private customers in aeronautics and defense industries. The project is moving along quite nicely. Both the engineering and fabrication have been completed. The torch is undergoing assembly. I saw it recently at our factory. It's about 6 to 7 feet long. And we actually plan to deliver the torch and have it tested at our client facility in early 2026. As for the 20-megawatt torch, that contract was announced just a little bit over a year ago. It's for the same client, it's about a 3-year project, and it's also progressing and is in the engineering and electrical design phase as we speak. We also noted that at the time of the announcement and based on our own research, this 20-megawatt torch -- plasma torch has never been produced commercially. So this is a huge leap in power and performance for us or for anyone for the industry. Back in 2020, a 900-kilowatt torch was our highest output. So well, since that time, in just 5 years, we've advanced the torch power by more than 20 times with this particular project. Question number two, what can you tell us about the hazardous refrigerant destruction system that was sold to New Zealand? So again, as background, back in late 2022, early 2023, we announced the sale of one of our large, what we call SPARC systems. SPARC stands for Steam Plasma Refrigerant Cracking technology. It's a system used to safely destroy hazardous and end-of-life synthetic refrigerants such as CFCs, HFCs and HCFCs from -- typically from air conditioners and fridges. The sale was to an organization in New Zealand has been passed with the collection and disposal of these type of refrigerants. It's important for New Zealand as there currently is no existing method on the island. So these hazardous materials must be stored before being shipped to, I think, Australia, for disruption. The client built a stand-alone facility to house our SPARC system, which has been under construction for a while. And the project is now nearing the end. We have actually people on site right today, as I'm speaking, in New Zealand, doing the final assembly and commissioning. And the goal is to process the first batch of hazardous refrigerants before the year-end, year-end 2025, that is. Question number three, what is going on with the titanium metal powders business line? There hasn't been any news in quite a while. Also, you were recently certified for your coarse cut powder, but what has come about with respect to the fine cut? So first thing I'll say about that is that some investors have noticed that we haven't put out any project news just generally in a little bit. And the reason is, and I'm going a little bit off side here, but a little bit is due to the private placement we're currently in. This is a private placement that's been publicized. I think I'd put in roughly $3.5 million. I think that -- I think I bought the speaking role basically. I mean, I'm allowed to speak now after I put in $3.5 million, it seems. But anyway, that financing hasn't yet completed. And the regulators don't particularly want you putting out news of any sort while you're doing a financing because they are a concern that some people may be trying to get the audience excited about the stock and this news might affect people in a positive way. So unless something is really, really material. I mean really significantly material, which we will have to press release right away. It's found upon issuing news during this period of time. So having said that, we haven't issued a general news for that reason. It's not that we're going quite or anything. As for the titanium powders in general, you can rest assured there's been a lot of activity which hopefully we'll be announcing over the next little bit. We get a lot of comments and questions, particularly after having been named an official supplier to a very large global aerospace leader. And then the question why there hasn't been any follow-up news. Again, as a side point, you may notice that we don't use their name in public announcements. It's important to note that we don't appear to be -- it's important that we -- it's important to them that we don't use their name and appear to be writing their coattails to generate publicity. So the current themselves have the very strict control over the use of their name. And to do so repeatedly, we've been -- we'd have to continue to get approval from them every time, and it just takes too long. So to avoid using their name altogether, we don't use their name. Specifically, we use a general description that way we don't need to get approval. As for what's happening since being certified by them, aerospace companies are -- they're very large companies, and they have multiple divisions and business groups. Each with their own protocols and has taken several months as a newly appointed supplier to have our official status circulated across the customers' various lists and project hubs and such. And certification, certification is not guarantee orders. It just puts us in a really good position to get them. It puts us on the list of approved suppliers. For each project that requires the metal powder and RFQ, or request for quote is issued, just to give you a sense of what happens. And with the certification allowing us to bid on the project against other companies. 3D printed metal parts are still in the very early days of use even with this global leader. And as such, usage grows, we are -- and as such as usage grows, we're going to be in an excellent position to service them. In fact, we recently received our first RFQ from them for a potential powder order, and we've responded and we hope to have an announcement very soon. Regarding coarse versus fine cut. Yes, our fine cut powder is still in the certification path. Our coarse power got approved. But the fine powder is still in the certification path. And some of you may remember that the fine cut was originally intended to be the first powder qualified with this customer. However, they changed the technical specification of the powder requiring all suppliers to meet the new specification and so it set the process back a bit. Without getting too technical, the allowable properties of the metal was made is significantly different, and each supplier of the metal because they each use different technology had to figure out a way to adapt to the change. We eventually figured this out for our next-gen system to meet this requirement. In the interim, the popularity of coarse cut powder has grown quite a bit over the last years. To a point where the two cuts may have -- have almost equal demand, which is significant for us because it means that the fine cut is not like the best cut and the other one we just had on the side store. Now in a powder run, we have equal demand -- a demand for equal amounts. So it's a lot better for us when we start getting orders and doing powder runs. And a printer hardware has actually improved to allow for coarser grades of material to be used as effectively as the finer grade. So it's not as important to being certified with fine cut as it once was regardless. We'll be providing another round of samples of our fine cut powder to the customer shortly for final testing and analysis and if everything goes as it has before, it should end up in a positive fashion. I guess it goes without saying we've also been knocking on the doors of several other potential clients and for those we also hope to have announcements very soon. How is the overall energy transition movement going -- sorry, question number -- whatever question number 4. How is the overall energy transition movement going specifically with respect to what looked like an opportunity with the mining and iron ore sectors, but which seems to have cooled? This is actually an excellent question because it speaks to a number of things that I'm quite passionate about. So the issue with the iron core business is that it fluctuates a lot and quite dramatically. Demand goes up and down as do prices. It's a very volatile industry based on the ebbs and flows of global steel demand, supply issues, geopolitical disruptions. And with that volatility, those companies' willingness to spend. So they will often slow or stop their capital expenditures in tune with the wider volatility. Keep in mind, these are gigantic sprawling global companies that have been around for a century or more. They play the long game. So a few year cycle where they slowed down their capital spending means nothing to them, it's just a blip. For those investors a little new to the company, it was the iron-ore industry that first kicked off with us the potential for widespread use of plasma in industrial furnaces. That was the first time we got a taste of how our torches could be deployed in this particular fashion. The iron ore business has a process called palletization that uses a furnace to heat their small or pellets and testing was done back around 2020 or so for the use in those furnaces. And we subsequently signed contracts with leading global or firms to trial our plasma torches and one customer is still conducting tests on a live furnace in their facility. At that time, we really had no idea that this was an indication of a broader industrial movement for decarbonization. And this is what the -- this is a key aspect to the question being asked. A key aspect of my answer. The pelletization furnace opportunity was somewhat of an isolated pursuit for us, but what it really did was it showcase to other industries and ourselves that plasma was really in a general sense, an alternative to gas burners. And as you can see, that's been a real kicker for us over the recent past year, in particular. And these other industries, especially aluminum and cement have surpassed the iron ore pelletization opportunity simply because they have more individual processes that can utilize -- that can utilize plasma. Our recent -- our largest energy transition contracts have been announced with the giants of the aluminum sector, Norsk Hydro, Constellium to name two. GE Vernova also figures in that. And this year has seen the rise of the cement industry and their various processes, especially calcination, which is a high-temperature process of raw materials like limestone, processing raw materials like limestone also have visibility for us. So we still see great opportunities in the iron ore and the broader mining sector. But until they get it together and move into their next cycle of spending, aluminum and cement and also chemical and steel will have really shown what's possible in heavy industry in so far as plasma torches are concerned. And hopefully, we'll have announcements on this shortly. But this speaks to something that some of our long-term investors or people who follow the company have heard me say, one of the unique things about PyroGenesis is this multi-legged stool approach that we have. So when you look at PyroGenesis, which you're looking at are some multiple uses independent of each other, uses of plasma torch. So it's like a multi-legged stool. And when one slows down, we have the other ones that we can rely on. And so in a sense, you're -- we're derisking the company by having that approach. And when you look at PyroGenesis, essentially what you're looking at is a mini fund of plasma opportunities. And the reason I bring this up here because this is how it speaks out, the iron ore pelletization are slowing down on their capital investments. But because we have a small tool the other ones, Constellium and Norsk Hydro are kicking off and showing great opportunity. I think I answered that question. I can't remember what the question was. Anyways, question number 5. It's been noticed in recent news releases that you are highlighting the term defense to go along with heavy industry? Is that purposeful? And can you elaborate? So yes, it was definitely purposeful. Over the past few years, interest in our technology from the defense and military industries has increased considerably to the point where identifying this as a unique target market is definitely justified. In fact, their interest encompasses an array of our offerings, including opportunities across waste destruction and specifically chemical warfare agents, high-temperature propulsion and protection and titanium metal powders, believe it or not. Obviously, there could be a lot of secrecy involved in defense applications. So very often, we'll have to be discrete and how we discuss these opportunities and any contracts that appear, but we see this as a major leg for the company moving forward. As we have indicated in the outlook section of the Q3 earnings documents, we recently signed a teaming agreement with a major defense contractor for the potential sale of chemical weapons destruction systems. There's more to this, and we hope to explain more in the near future, but confidentially -- but the confidential cause will probably prohibit any significant detailed descriptions, but we will communicate in as much detail as we can, how this progress is. Question number six. You are presenting at an industry event in March based on the speaker abstract, it appears that finding for a project that Pyro did in conjunction with two major aluminum companies will be presented. Can you shed any light on this? Yes, the two aluminum companies that they're talking about is our Alcoa and Rio Tinto. And it's quite interesting how this gets around. Yes, one of our top engineers will be attending the annual conference of the Minerals and Metals Society or TMS. TMS, by the way, is one of the oldest organizations in heavy industry, I think dating back to like the 1870s. He will be part of a group revealing the results. It will be a group of himself, Alcoa and Rio Tinto, revealing the results of major test campaign we conducted for use of plasma in aluminum melting and casting furnaces. And as I said, this is what we did, the three of us together, PyroGenesis, Alcoa and Rio Tinto. Two of the biggest aluminum companies in the world. Executives from those companies will be at the TMS conference, and one of them will be presenting the findings on behalf of the group. We've written a technical paper. It will be released, I believe, the day before the event, which runs between March 15 to March 19 in San Diego. It's all very exciting for several reasons. But effectively, we have a gag order on the specifics. We can't talk about it. They want it to be done at that time. And unfortunately, we don't want to spur the presentation. But the abstract is available on the tms.org website, if you want to go find out a little bit more about yourself, but it won't give you enough of the details, but I think there's a positive statement, a general positive statement about something in there, but it won't give you the huge details. But this is what the question is referring to. And we're very proud to be part of that group, and we're very happy with the results. Question six. The film silicon reactor project has built up a lot of momentum, but are you confident you can reach the targeted material surface areas that are the minimum standards for commercial fumed silica? If it does succeed, how will it roll out, will you sell your systems? Or is there a license agreement involved, et cetera, et cetera, et cetera? Okay. I believe HPQ came out with a press release this morning talking about some recent results. I really hope so because it's not going to be shortly. So definitely, it's been a momentum, and I'm definitely confident about the future results. I believe our method for producing fumed silica is one of the best things we've ever developed. Period. It's really, really good. And my hats off to my engineers and the group, having done it quite in a record time. We're getting great results. We're getting great attention. As for the future, look, all options are on the table for commercialization. The flexibility of the technology and its design allows us to consider multiple approaches. It's too early to say which one will eventually be the primary approach, but you can be certain that the choice will be about maximizing shareholder value for sure. We have our -- I think what came out was our test Series 7 test results. And if not, they will be coming out very soon. General question, question number, I think we're on number 8 or so. We typically are asked this question over and among some other silly questions. And yes, there are silly questions in the world. You can go to some of the websites that ask these questions and you can see them. But we often get questions with respect to when they hear about our torches or large orders, what is our production capacity? And do we have the resources? And when do we have to buy -- build a new full manufacturing plant to scale and things like this. And we outsource a lot of our manufacturing. And we do it in such a way that nobody really knows what they're doing, then we assemble it somewhere either at our facility or most often at our clients' facility. To give you an example on DROSRITE, one of our business lines, I can't remember the last time we built a DROSRITE system in Canada. I mean all the ones that we shipped to Saudi Arabia, I think there's about 7 to 10 were all built somewhere else and shipped to Saudi. So given that kind of strategy with respect to manufacturing, our current facilities can serve us for a long time. We can go into -- I believe we haven't done the numbers, but hundreds of millions of dollars would not surprise me before we start talking about expansion. personally, and I think my Board is on side with me on this, we don't particularly like engaging our own manufacturing facilities because there's this pressure to keep it full all the time. And the ebbs and flows of industry, it's better to use other people's manufacturing capabilities, particularly when there's manufacturing availability space out there. It works well for us. Anyways, overall, with respect to questions answered, we received and continue to get a lot of questions on specific projects. But because of the phases they're in, we cannot provide a comment yet. I mean, but keep your questions coming in, and we'll try our best when we see there's a common question to try and answer it. If it's confidential, we haven't press released it, we'll try to incorporate it in one of our future press releases if the question is frequent enough. But I want to again, thanks to everyone who submits questions, keep sending them in. If we don't respond to you, it's because you've asked a question where the answer can't be shared with just one person. And as I said, we'll try and remedy that. If it's asked enough, we'll try and structure it into a press release on the subject or oftentimes, it's where capital markets prohibit us from responding for one reason or another. So that's it for the question-and-answer period. I thank you for attending this call. And now I'll turn the call back over to Steve. Thanks, Steve. Steve McCormick: Peter, thanks so much. It's great to hear you and to get some insight on the projects that are happening. So in closing, on behalf of the Board and on behalf of Peter, the company would like to express its continued confidence in its strategic path. As Peter stated in yesterday's news release, centering the company on innovation is the correct strategy. Being a small cap or a microcap company in the industrial technologies sector certainly presents its challenges, but the company firmly believes that this innovation first approach drives the type of bold decisions that lead to development of advanced technologies that we believe have a long future ahead from producing titanium powder and fumed silica to creating hyper powered plasma torches for ever more demanding industrial and now aerospace applications to designing systems that safely eliminate a growing range of hazardous materials to protect both people and the environment. These are breakthrough technologies that are built on more than 34 years of research effort, and we are not stopping. For Q4, buoyed by the recent financing, the company is focused on delivering a strong finish to the year and setting the stage for 2026. So stay tuned for more information over the coming days and weeks. We look forward to providing you with additional updates in the very near future. And a reminder, as Peter said, to e-mail any questions you may have about the company and its projects to our Investor Relations department, using the e-mail address ir@pyrogenesis.com. I want to thank you again for listening in, and have a good afternoon. Operator, please end the call. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Alcon Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Dan Cravens. Please go ahead, sir. Daniel Cravens: Welcome to Alcon's Third Quarter 2025 Earnings Conference Call. Yesterday, we issued a press release, interim financial report and presentation. You can find all these documents on our website at investor.alcon.com. Joining me on today's call are David Endicott, our Chief Executive Officer; and Tim Stonesifer, our Chief Financial Officer. Our press release, presentation and discussion will include forward-looking statements, including statements about our future outlook. We undertake no obligation to update forward-looking statements as a result of new information for future developments, except as required by law. Our actual results may differ materially from those expressed or implied in our forward-looking statements and as such, you should not place undue reliance on any forward-looking statements. Important factors that could cause our actual results to differ materially from those in our forward-looking statements are included in our Form 20-F, earnings press release and interim financial report, which are all on file with the Securities and Exchange Commission and available on their website at sec.gov. Non-IFRS financial measures used by the company may be calculated differently from and may not be comparable to similar measures used at other companies. These non-IFRS financial measures should be considered along with but not as alternatives to the operating performance measures as prescribed per IFRS. Please see a reconciliation between our non-IFRS measures with directly comparable measures presented in accordance with IFRS in our press release. For discussion purposes, our comments on growth are expressed in constant currency. In a moment, David will begin by recapping highlights from the third quarter. After his remarks, Tim will discuss our performance and outlook for the remainder of the year. Then David will wrap up, and we will open the call for Q&A. With that, I'd now like to turn the call over to our CEO, David Endicott. David Endicott: Good afternoon, everyone, and thank you for joining us. We entered 2025 knowing that it would be a year of building toward the second half, and the third quarter reflects that progress. While there's still work ahead, we're encouraged by the momentum we're seeing in equipment and ocular health. I'll begin with surgical equipment, where we're seeing clear signs of strength with Unity VCS. As expected, the launch is delivering on its promise of greater efficiency and workflow optimization in vitreoretinal and cataract procedures. Surgeons are responding positively to the introduction of 4D Phaco technology. Unlike traditional systems, the 4D Phaco tip moves in a unique multidirectional pattern that enables more efficient lens removal while delivering significantly less energy into the eye. This motion combined with real-time fluidics is designed to enhance chamber stability. The result is greater control and confidence for surgeons and greater efficiency for the hospital or ASC. Importantly, as we articulated in the past, we're being deliberate in pacing installations so that surgeons can observe these significant gains in efficiency. We're investing heavily in training, clinical support and workflow integration so that each site can fully realize the benefits of Unity. This approach is helping us build durable momentum and strong customer advocacy and reflects our long-standing commitment to customer-backed innovation with the surgical community. We're also gearing up for the launch of Unity CS, the stand-alone cataract version, which will be widely available in the coming months. Together, Unity VCS and CS represent a step change in Surgical performance, and we're excited about the momentum heading into next year. Turning to implantables. PanOptix Pro is proving to be a meaningful differentiator. It builds on the success of Clareon PanOptix, but now with 94% light utilization and half the light scattered compared to its predecessor. These enhancements reflect a significant advancement in optical design by providing more uninterrupted light distribution and greater image contrast. Importantly, the launch of PanOptix Pro is beginning to stabilize market share dynamics in the U.S. Trifocal IOL category. Now turning to contact lenses. I was pleased with our results this quarter as we continue to outpace the market. Our toric modalities, in particular, delivered double-digit growth in the quarter and are expanding access for astigmatic patients. It's important because studies show that more than 40% of patients are astigmatic, yet less than half are fitted with toric lenses, representing significant growth opportunity. These lenses feature our proprietary 8 and 4 design, which helps reduce eyelid interaction and allows these lenses to settle quickly. And for wearers, this means clear, stable vision and exceptional comfort. This enhances the patient experience as well as supports practice growth and retention for eye care professionals by expanding access to more astigmatic patients. Now moving to ocular health. I'm very pleased with the continued strength of the Systane family of artificial tears, which delivered high single-digit growth in the quarter. We continue to see encouraging momentum in the adoption of our multi-dose preservative-free formulations led by Systane Pro, which we launched in January. These formulations are helping us meet the growing demand for preservative-free artificial tears. We're also encouraged by the early performance of Tryptyr, which we launched in August. Unlike traditional prescription dry eye drops, Tryptyr is the first and only prescription drop that stimulates natural tear production as early as day 1. This mechanism of action directly and rapidly addresses the core problem in dry eye disease rather than supplementing for evaporation or treating the resulting inflammation. This makes Tryptyr a meaningful advancement for both prescribers and patients. While it's still early, the breadth of initial uptake has been very encouraging, prescribable trialing is high, and we're seeing adoption from both ophthalmologists and optometrists. To support access and streamline the patient experience, we partnered with an easy-to-use digital pharmacy platform to simplify fulfillment. This collaboration is helping patients start the therapy quickly and conveniently, which is especially important in the early stages of launch. Now more broadly, our commitment to innovation and clinical excellence was on display at the recent ESCRS and AAO conferences. We supported over 40 studies reinforcing the value of our technologies across cataract and refractive care. I'll take a few moments now to highlight 3 topics. First, there was new data on Vivity AT-IOLs showing strong patient satisfaction in complex cases like early AMD and mild corneal irregularities. These findings reinforce Vivity's differentiated value proposition in the premium IOL segment. Second, there were time and motion studies that demonstrated statistically significant efficiency gains with Unity VCS compared to the legacy systems. With cataract volumes rising and incidence of retinal disease increasing, demand for ophthalmic care is outpacing the supply of eye care professionals. These results demonstrate that Unity helps address this imbalance by enabling more efficient procedures and supporting higher patient throughput. Finally, a head-to-head study comparing WaveLight Plus and SMILE Pro revealed that WaveLight's ray tracing technology significantly outperformed SMILE in visual outcomes. Using a 3-dimensional digital twin of the eye, WaveLight Plus achieved 20/12.5 vision or better in 98% of the cases versus 82% with SMILE Pro. It also delivered superior precision, astigmatism correction and contrast sensitivity. These results underscore the potential of personalized LASIK to set a new benchmark for refractive surgery and reinforces Alcon's leadership in ophthalmic innovation. Moving now to market dynamics. Global cataract procedure volumes grew approximately 3% in the quarter, which is an improvement, but remains below historical averages. Additionally, global AT-IOL penetration was up 130 basis points. In Vision Care, we estimate that the global contact lens market grew approximately 4% in the quarter with a strong U.S. market partially offset by weaker growth internationally. And before I pass it to Tim, I'll briefly comment on our proposed acquisition of STAAR Surgical. We continue to view the transaction as attractive and believe that Alcon is best suited to maximize the value of their implantable polymer lens. And we believe that the ICL is complementary to our refractive laser business. So we like this deal, but it isn't essential to our long-term growth plan. Last week, we published a presentation expressing our perspective on the upcoming shareholder vote. We believe our offer represents an attractive premium across multiple measures and creates value for both Alcon and STAAR shareholders. So to wrap up, despite a soft first half, we're encouraged by recent signs of improving market conditions and the robust performance of our recently launched products. Our innovation pipeline is strong, our execution is focused, and our teams are energized. I want to thank our associates around the world. Your dedication and passion continue to drive Alcon forward. I'm proud of what we've accomplished together and excited for what's ahead. With that, I'll turn it over to Tim, who will walk you through the financials. Timothy Stonesifer: Thanks, David. Our third quarter sales of $2.6 billion were up 5% versus prior year. In our Surgical franchise, revenue was up 5% year-over-year to $1.4 billion. Implantable sales were $432 million in the quarter, up 2% versus the prior year period. As David mentioned, we've been very pleased by the surgeon response to the U.S. launch of PanOptix Pro, which is beginning to stabilize share dynamics in an increasingly competitive market. In consumables, third quarter sales of $745 million were up 5%. This growth reflects improving global cataract procedure volumes as well as price increases. As David mentioned, while procedure volumes in the U.S. improved during the quarter, they were still not back to historical rates. In equipment, as we expected, we saw a significant acceleration in the third quarter with sales of $243 million and growth of 13%, driven by the launch of Unity VCS. Turning to Vision Care. Third quarter sales of $1.2 billion were up 5%. Contact lens sales were up 5% to $707 million in the quarter, primarily driven by product innovation and price increases. This growth was partially offset by declines in legacy products, including DAILIES AquaComfort Plus, where we've limited our promotional activity. In ocular health, third quarter sales of $462 million were up 6%. Growth was led by eye drops for dry eye and glaucoma, including Systane, Rocklatan and initial sales of Tryptyr, which we launched in August. There was also some pressure resulting from the divestment of certain eye drops to Ocumension in China, which we will lap in the fourth quarter. Now moving down the income statement. Third quarter core gross margin was 62.9%, down 50 basis points year-over-year, mainly driven by incremental tariffs. Core operating margin was 20.2%, down 60 basis points, driven by lower gross margin, sales and marketing investments behind new product launches and increased R&D investment. Third quarter interest expense was $51 million, broadly in line with last year. Other financial income and expense was a net benefit of $3 million. The average core tax rate in the first 9 months of the year was 17.4%, down from 18.5% in the prior year due to higher discrete tax benefits in the current year. Core diluted earnings were $0.79 per share in the quarter, down $0.02 versus last year. Turning to cash. We generated $1.2 billion of free cash flow in the first 9 months of the year compared to $1.3 billion in 2024, primarily due to increased capital expenditures. Our robust cash generation has enabled us to return $550 million to shareholders in the first 9 months of the year, comprised of $384 million in share repurchase and $166 million in dividend payments. Regarding tariffs, we incurred $57 million of tariff-related charges in the first 9 months of the year. Of this amount, $38 million was recognized in cost of sales, and $19 million was recorded on the balance sheet for product not yet sold. As we enter the fourth quarter, we expect to see a step-up in tariff-related charges and cost of sales. Given tariffs are capitalized into inventory and only recognized in cost of sales when the inventory is sold, this creates a timing lag between when the tariff is paid and when it affects profitability. Due to our inventory cycles, we will start to see the full financial impact in Q4. We continue to expect a full year impact of approximately $100 million to cost of sales, and we expect to offset this primarily through foreign exchange as well as operational actions. Now moving to our outlook. Our outlook assumes that aggregate eye care markets grow low single digits for the remainder of the year. Exchange rates as of the end of October hold through year-end and the current tariff structure remains in place. Based on these assumptions and our year-to-date performance, we are reaffirming our full year guidance across all metrics. Sales remained on track at $10.3 billion to $10.4 billion with constant currency growth of 4% to 5%, and we continue to expect acceleration in the fourth quarter driven by new product launches. R&D is expected to finish toward the high end of our 8% to 10% of sales range, which also reflects the impact of recent acquisitions, including Aurion. Our core operating margin outlook remains 19.5% to 20.5%, and nonoperating expense is unchanged at $185 million to $205. We maintain our core average tax rate guidance at approximately 18% and our core diluted EPS range of $3.05 to $3.15, reflecting flat to 2% constant currency growth. Looking to 2026, while we won't formally guide until February, I'd like to share some color around expected headwinds and tailwinds. On tailwinds, we expect continued acceleration from new product launches, including Unity VCS and CS as well as Tryptyr, PanOptix Pro and Precision7 among others. These innovations should enable Alcon to grow faster than the market. And at the same time, we'll maintain disciplined cost management so that sales growth outpaces SG&A, driving margin expansion through operating leverage. On headwinds, although we've operationalized some mitigating actions, we expect a net incremental impact from tariffs of roughly $50 million to $100 million in 2026 versus 2025, which reflects an evolving sales mix as well as our inventory cycles. And with regards to investment, in 2026, we'll see the full year impact of Aurion and initiate the Phase III clinical trial early in the year. Combined, these are expected to pressure core operating margin by an incremental 40 basis points. Beyond that, we remain focused on disciplined execution and are confident in our ability to deliver sustainable growth and long-term value for shareholders. Finally, I'd like to extend my heartfelt thanks to associates across the organization for their dedication and hard work. And with that, I'll turn it back to David. David Endicott: Thanks, Tim. To wrap up, I'm encouraged by the progress we saw across the business in the third quarter. The successful launch and growing adoption of Unity VCS, the strong reception for PanOptix Pro and the early promise of Tryptyr, all underscore the strength of our innovation engine. As we discussed at our Capital Markets Day, we remain intently focused on the long term. The markets we serve are resilient, underpinned by powerful demographic and technological trends. We're investing behind operational excellence and R&D so that Alcon continues to lead our industry. And our long-term vision is anchored in a steady flow of new products, a commitment to innovation and a deep understanding of our customers. With our global reach, dedicated teams and rich pipeline, I'm confident that Alcon is well positioned to accelerate growth, expand patient access and deliver sustainable value to our shareholders. And with that, let's open our line for Q&A. Operator: [Operator Instructions] And our first question will come from Anthony Petrone with Mizuho Group. Anthony Petrone: Congratulations here on the quarter. One on Unity and one on just the underlying U.S. market. So on Unity, it looks like the cycle is sort of getting started here. The company has commented in the past that 10% of the base, that 30,000 base is sort of how to think about this cycle, but it could be more front-end loaded. So maybe just a little bit on the shape of what that S curve will look like into 2026. And then the underlying surgical market in the U.S., it's still below normal levels. What were the trends in October when you think about underlying cataract volumes, for instance? And what is the early view on how this is going to shape up into 2026? David Endicott: Yes. Thanks, Anthony. Just a little bit on the cycle. I don't have a lot different anything to say really here than what we've said at either the Bernstein conference or the times we've talked about this. We have a 30% or so -- or sorry, a 30,000 unit base that you stretch out over 10 years and you kind of come up with an average, and it's obviously a little more delayed in the back end and a little faster in the front end. But again, we'll see that kind of take shape as we go. We'll give you a good sense of where we are. I think we put out on our website not too long ago, an estimate of the shape of several of those first couple of years. So I would refer back to that because that really hasn't changed and we're kind of right on track with what we expected this year. So we feel fine about it. And I would think about it kind of off of what we've given already. On the U.S. cataract market, the quarter in the third quarter, at least was improved, obviously, in the U.S. a fair bit. It was improved overall a fair bit, too, globally. So I guess it was 1% growth or so. It was flat in the U.S. last quarter. Total this year, obviously, was 3% in the cataract procedural market. So significant move up relative to front half of the year. But again, I think we're careful right now about what one data point doesn't make a trend. And so let us get into the beginning of the year next year, give you a better number when we look and guide. We'll have a good sense of the full fourth quarter. And I think look, if we're seeing what I think we said, which I've said before is kind of regression of the mean, the historical levels should be somewhere around 4%, U.S. something around 3%. So we'll see. But I guess that's been our historical view and remains what we believe long term is the trend. Operator: Our next question comes from Ryan Zimmerman with BTIG. Ryan Zimmerman: David, on the STAAR transaction, you guys put out, I think, pretty pointed comments about your views about it. I guess what I would ask is if it were to fall through, even after this new go-shop period, you highlighted a number of alternative ICL offerings in the market, either coming or in the market. Why wouldn't one of those fit your needs? And I guess, what, in your view, makes STAAR's technology attractive other than they've been in the market, they've had success for some time. David Endicott: Well, let me say that I don't have a lot to add to my prepared remarks because obviously, it's a sensitive period, and I'd encourage anybody really who is interested in detail around this transaction to have a look at what we posted online. I think we like their product. We like their team a lot. I think it would be a good complementary business to us. As I said in my notes, I think it fits nicely with our laser business. Same customer, same -- we have bigger geographies. We can take care of this, I think, more efficiently. But there are a limited number of proven ICLs. This is a proven one. It's been in the market a while. I think it has very -- the material is unique. It's a columnar material. And I think directionally, a lot of people who've used these products and used other people's products, I think, look at it and say, okay, this is well known. And with elective procedures, you want well known. So what you don't want is to be experimenting with new things. Now that doesn't mean somebody can't come up with a great product. It just means it's going to take some time to establish it. The challenge for STAAR is obvious, which is as kind of a stand-alone single product company, they're just going to have a difficult and very unlikely path to profitable growth. So ultimately, their shareholders will make a choice between a return to the unaffected share price and a long journey with activists in control of that company, or they can take a certain and generous premium from us. But either way, we're going to be in a good place. So we'll figure that out when we get there. But I think directionally, we're -- we hope that this gets done. But as I said in the notes, if it doesn't, we've got a great plan. Ryan Zimmerman: Okay. Very helpful. And then the second one for me. I could be wrong, correct me if I'm wrong, but I think you folded your Hydrus sales force into the broader cataract sales force or something to that effect. Maybe just talk to us about kind of where you stand in surgical glaucoma today and kind of what happens from here? I mean you've moved earlier in the treatment cycle with the BELKIN product and some of the drops, but kind of where you -- what your outlook is on surgical glaucoma, I think, would be appreciated. David Endicott: No. Look, we're bullish on this. I mean -- and I'm going to reframe what you said a little bit, not because it could be understood that way, but it isn't that -- that's not the circumstance. We have actually expanded the number of people that are going to be selling Hydrus. So we have our in-theater group is selling both IOLs and Hydrus now. And remember, that's -- we had a certain number of Hydrus folks, but they didn't do any IOLs, and we had a whole bunch of IOL folks who didn't do any Hydrus, which didn't make any sense to us since they're talking to the same person in the same OR at the same time. So what we've really done is we've said, let's consolidate that group, make it bigger. And then what we're doing with the Voyager and Valeda product is we're creating a new expanded group to add reps into the clinic to go after glaucoma specialists in the clinic where they're treating SLT and in the retina space where they're treating AMD. So we've actually expanded in these areas. And again, I've said this before, which is we have some really nice white spaces here. We've got glaucoma, we've got retina, we've got refractive. We are moving towards those spaces, not away from them. So I would be -- I wouldn't misinterpret our intention here. We are going to get bigger in both spaces, both -- especially in interventional glaucoma, which we continue to believe is the way of the future. Operator: And we'll go next to Graham Doyle with UBS. Kavya Deshpande: This is Kavya, on for Graham. Just a couple, please. First is, do you expect to exit the year at a 7% plus top line growth? Why isn't that a good starting point when we're thinking about next year? And then second question is just on equipment again. So at a recent conference, you outlined targets for next year implying 50% volume growth. Is that a sensible starting point for next year for the half of equipment that is driven by Unity? David Endicott: Look, I think we're not going to comment too much on next year until next year. And I think the reason we give a range, of course, is because these are assumptions we're making about the trajectory and the market, and we'll see. So I think the obvious opportunity here is to be at the high end of that. If it doesn't happen, it won't be a surprise to us. We're looking to just try and do as much as we can right now and think about the long term. So we've been very careful about Unity VCS, in particular, because it really, at this point, is so far in front of every other piece of equipment that's in its class. We just don't have to rush because the worst-case scenario is somebody is going to buy one of our other pieces of equipment. So I think what you're going to see next year in equipment is a robust year. I think it will accelerate from this year for sure. But I wouldn't want to venture a percentage guess until we really get through this year and get into a place where we're really guiding with some certainty around the assumptions. So let me do that for you in February. Operator: And we'll go next to Tom Stephan with Stifel. Thomas Stephan: Great. First one, just on Unity. I know it's early, but can you talk a bit about, I guess, how placements are trending relative to initial expectations? And then maybe how the order book is building compared to those expectations as well? David Endicott: Sure, Tom. I mean, it's kind of as expected. I think we gave some expectations recently at a conference. I think we're on those. Our order book, we don't comment on directionally. It's been very healthy. We could ship a lot more if we chose to. We are being clear about our intention to train these very carefully and make sure people realize the benefits of them. I mean the basic idea here is we're trying to get more efficiency in the OR. And to do that, you have to work with both the surgeon and the staff. And what you have to really do is begin to think about, well, if I did 20 cataracts in a day, could I do 21 and how would I do that? It has to do a lot more with the turn of the room, the priming of the machine, the transfer of settings, so everything moves smoothly, the priming of the handpiece. There's a great deal of detail in this. But what we're getting and what we demonstrated at the data we showed at the Academy is we're getting more surgeries in a day, and that's a beautiful thing for the surgeons and for the patients who need the surgery. So I think we're patient on this. I can tell you that we're right on track with what we expected, and our order book is very strong. Thomas Stephan: Got it. That's great. And then, Tim, maybe for you. I appreciate the comments on kind of the inputs to margins next year between tariffs, Aurion, et cetera. But -- can you touch a bit on sort of how we should be thinking about underlying op margin expansion next year? I think in the past, you've talked about 150 bps. 2H '25 by our math is tracking towards closer to 50 to 75 bps, 4Q closer to 100 bps. Just curious if there's any refined thinking on sort of what models should be contemplating on underlying op margin expansion going into next year? Or what gives you the confidence in that 150 bps plus? Timothy Stonesifer: Yes. Listen, I think there's no doubt that this year has been challenging. It's been an unusual year for us, right? If you look at the revenue growth of 4% to 5%, that's been below what we have typically delivered in prior years. We've got the tariff pressures, which is a new pressure point. We've got the Aurion investment. We had 7 launches this year. So we've obviously put more marketing and sales and our product launches to make sure that those are successful. So given all of that, that's what you're seeing this year and the margin pressure. I still believe if you normalize it and you look at historical improvements, we're kind of in the 150, 200 basis point margin improvement. I believe we can continue to do that. And if you assume that, then we do have incremental pressure, as I said in my prepared remarks, on tariffs. We do have some incremental pressure on a full year of Aurion. So -- but net-net, we'd expect to continue to get nice margin expansion next year. Operator: Our next question comes from Matt Miksic with Barclays. Matthew Miksic: A question on tariffs. You mentioned the capitalized tariff expense moving through the P&L. I know you're not giving a ton of color on '26, but on the gross margin line, any directionally the effect of that, should we expect kind of a flatter gross margin offset by some of the other operating changes you're making? Or does the FX kind of offset that in the gross profit line? And then just one quick follow-up on IOLs? Timothy Stonesifer: Yes. Listen, we'll give you more color on '26 when we get to the February call. But when you think about gross margin, again, we're going to have an incremental $50 million to $100 million of pressure that's going to show up in your gross margin line for next year. And that's basically driven by that we've got a full year impact of the margins. We're not going to have the FX benefit that we had this year, but we do have a lot of operational actions that are going to help mitigate some of that pressure. So I sort of think about it in that $50 million to $100 million range. And then there are going to be some other things that you're going to see in the gross margin, Ryan. You're going to see a mix impact, you're going to see some other things. So we'll give you more color in '26 when we get there. Matthew Miksic: Okay. And then just there are some -- competition has been one of the challenges, maybe volume growth has been another. It seems like things are kind of improving here a little bit. Competition, as you know, is expected to kind of heat up a little more next year. So given that this year was a tough year, is next year kind of an easier year? Or do you expect this kind of battle on those 2 fronts to continue through launch of PanOptix Pro and additional data on Vivity, or other factors that could kind of help you move the needle on or kind of stabilize share and maybe move the needle on volumes? David Endicott: Yes. Matt, let me give you some context, I think, that may help. I mean, look, I think, as I've said in the past, the next couple of years are going to be very difficult competitively. I think there's just -- it's just not going to be a big growth driver for us because there's just a lot of entrants, as you correctly point out. Now that said, let me make a couple of really positive remarks. I think we've lived also through some slower market, which I think is not a sustainable idea for a long period of time because there's just too many cataracts out there. The second one is that the AT-IOL penetration was up 130 basis points this year -- or sorry, this particular quarter. And it's been up consistently in some really important markets, the U.S. and others. And that's partly due to the competitive selling that's going on out there. More docs are trying it, more people. But that actually benefits us quite a lot in markets, where we have the majority of the AT-IOLs. So in the U.S., where we still have the vast majority of the AT-IOLs that's really what helps us is the penetration moving up. You stabilize share and penetration moves up, we look pretty good. So think about that dynamic a little bit as an offset to what is going to be price pressure and share pressure in most markets. Last point I'll make is we are in the process still of launching PanOptix Pro around the world. We haven't had any really competitive time in Europe and in Japan and a few other places where we're just getting Pro going. We won't get PanOptix Pro until next year in Europe. So we're seeing -- I think we see it in Japan right now. I mean our reception has been so strong in the U.S. We've had to kind of delay a few launches just to make sure that we got the right amount of inventory to go in with. So we're excited about what the next series of products does. And even in that vein, we just got Vivity onto the Clareon material in Europe. And that's having a nice impact, I think. So we've got that. We've got a few other products. We'll talk more about product flow and implantables next year. But I do think that somewhere between the products that we are -- we have and are launching the AT-IOL penetration and some improvement in the market, it's going to be tough because there's going to be a lot of competition, but I think we'll weather through it. And I think we have a solid performance this quarter. I'd like to see us somewhere right around market growth going forward. Operator: And David Saxon with Needham & Company has our next question. David Saxon: David and Tim, maybe, I'll start on the contact lens market. So I think the U.S. kind of drove that 4% growth. So would you consider the U.S. market kind of in that normal 4% to 6% range? And then what's driving that international weakness? And then relative to the DACP comments, I mean, I'm guessing kind of you're in the later innings of converting that base. So maybe talk about how you think about the mix benefit you could see going forward relative to what you've seen historically? David Endicott: Yes. Really good questions, David. Thank you. A couple of comments on the global market. Look, it's -- globally, it's still at the normal -- in the normal range, just at the low end of 4%, right? We've always said it's kind of mid-single digits. And the U.S. was considerably better than that and the international market considerably lower than that. But I think really what's happening internationally is Japan is really struggling and has for a while. I think it was negative. It might have been flat. I can't remember quite right off the top of my head. But that's a big market. And Europe, to be fair, Europe wasn't super strong either. So I think it was below kind of historical averages. So I mean, I think some of that is just a little bit of product, I would just say, lack of new product flow in those markets. We're just getting some things in those markets right now that we're excited about. So I think we should see -- I expect to see kind of normal market growth going forward. But the U.S., I think, in particular, has -- the 6% growth that we saw in the U.S. was a nice effort, but you see -- still see some of that being given back in a significant amount of price rebating to consumers. So my sense of where we're going is that the branded products that do really well are going to build the international market. The branded products in the U.S. that have been around for a stretch will continue to do well. But I think you've got some newer ones in there that are fighting on price that may hold some of the share movement that we have back just a little bit as we go forward. On DACP, the mix is certainly benefiting us on a on a gross margin basis, it doesn't really help us a ton on a share level, but it does help us at the margin level. So we're trading that into P1. We're trading it into DACP -- or sorry, the DT1, but the overall share in the U.S. in DAILIES is challenged by competition significantly and price competition, in particular. David Saxon: Okay. And then maybe just on Tryptyr. I mean, per IQVIA, it seems like the TRxs are kind of ramping more gradually than what we saw with another launch a couple of years ago from a competitor. So maybe just talk about that launch, how it compares to kind of your internal expectations and how we think about -- how we should think about that ramp heading into next year? David Endicott: Yes. Look, Tryptyr is going really well. As I said in the notes, the eye care community is very excited, and we're pleased with the amount of trial and uptake across the potential prescribing base. Perhaps most encouraging is that patients are playing back the unique efficacy of this mechanism. It's not a supplement to lipid layer. It's not an anti-inflammatory, which, again, it's going right at the kind of basic mechanism to create tears, and that is the very core of the disorder. So I mean, we're very excited about what's happening there. I think you got to be careful with the audited data because the audited data source does not capture the third party that we're using to manage the initial uptake of the product. So we're -- we've got a platform that has been used by several companies in eye care. If you go back and you look at some of those launches, you'll find a number of companies that do this work. But there's a digital prescribing platform that helps patients get access to new prescription products, which makes the sample easier, the prior auth easier, the prescription adjudication easier, and it actually delivers it to home to their homes. So it's a pretty cool deal. And a number of folks have used it. So it's very commonly understood by the ophthalmology community, and they're taken to it quite rapidly. None of those prescriptions, and that's the majority of what's going on is captured in that audited data you're using. So just be a little cautious about what's in there right now. Operator: And moving next to Veronika Dubajova with Citi Group. Veronika Dubajova: I will keep it to 2, please. One, just want to get your flavor, obviously, lots of questions around Unity and whether that's tracking in line with expectations, but there is a number of other products driving growth this quarter. So just would love to get your high-level thoughts on, one, how you feel about the Tryptyr uptake relative to what you were looking at and hoping for this early on? And I think, David, you've touched upon Pro, but maybe just a similar question. And if I can relate to that, I might have missed it, but what your PC-IOL market share in the U.S. was in the third quarter and how that moved sequentially? And then one for Tim. I guess if I look at the full year guide, the exit range for the fourth quarter is still pretty wide. I think technically, mathematically, the guidance implies 5% to 9% organic sales growth for the fourth quarter. Tim, I'm just curious if you have a point there where you feel more comfortable given everything that you see at this point in time. David Endicott: Veronika, let me try and break your 2 questions into the 4 that you asked. Just kidding. Veronika Dubajova: Fair enough. David Endicott: Look, the Tryptyr growth I just commented on, it's been -- it's better than expectations for us out of the gate. I think we've got a lot of trial, and I think we're just kind of excited about the patient response right now because we knew the product was going to have a little bite to it. But what's exciting to hear is that this thing really works. And when you talk about efficacy that works, all eye drops have a little bit of that bite to them. So we're excited about that balance that we're hearing back from the patients and the doctors that says, this is really working, and we like what we see. There's more to come. We're early, so I should be a little careful about that and circumspect on it. But I think in terms of uptake and breadth of prescribing and all the things that we look at metric-wise, doing very well. On Pro, I would just say PanOptix Pro has done really well, better than we expected in many ways because we -- at some level, we had a certain amount of consignments we thought would take over. We kind of ran out of them, I think, somewhere along in the third quarter and couldn't ship some to the Japan market, which we were trying to get on a little bit sooner. I think we're just getting them out now. So I think we've been excited about the people who -- once they've tried it, they really like it, and they're describing back to us exactly what we had hoped for, which is, look, less light scatter and less -- and more light usage. So a little bit of kind of clarity at distance seems to be the common language we're hearing. So the qualitative is good. The stability of the share quarter-to-quarter, we had -- it's very hard to read this because remember that there was a recall by one of our competitors in the second quarter. It bounced back in the third. You've got a little bit of noise in there from some slowdown in some of the other competitors. So -- but generally speaking, our share is very good. It's well above -- we have the vast -- well, we have a significant majority of the PC-IOL market and the majority of the whole of the AT-IOL market. I'll just add one other thing, which is we grew share all over the world in toric, and we grew share all over the world in just normal monofocal business. So when you look at the kind of unit volumes for us right now, we look solid all over the implantables business. PC-IOL is still going to be just balance a very significant competitive fight all over the world. We just like our chances better today, and we're doing well. Q4 exit rate, I'm going to leave that to Tim. Timothy Stonesifer: Yes. Veronika, thanks for the question. Yes, it is a wider range than we typically have. I would say the thing that's a little different this year is the challenge we've had in calling the markets as well as the new product launches and how those are going to do. So I would say our base case is sort of at that midpoint. If markets are a little bit softer and launches don't go as well as we anticipate, then that would be at the lower end. If the markets come back roaring back and the launches continue to do really, really well, that's how you get to the higher end. But the base case is really more towards the midpoint. Operator: And our next question comes from Larry Biegelsen with Wells Fargo. Larry Biegelsen: Maybe Tim or David, can you help us with a framework for your equipment growth because there's a lot of components there. So we can make an assumption on the phaco and vitrectomy placements based on the color you provided at Baird, which I think showed an incremental 1,200 placements in 2026. So can you confirm that those -- that's about the phaco and vitrectomy is about half of equipment sales? And how is the rest of equipment sales trending in '25 and '26? Just so our estimates aren't complete guesses. And I had one follow-up. David Endicott: Well, look, on the mix, the mix is moving around right now. I would say the mix is -- we really haven't tried to sell much cataract right now. So I'm not sure I can give you a lot of direction on it right now, Larry. We've sold mostly VCS units this year. We sold a few CS lately. But we sold for a period of time, we had an orientation that there was going to be a much higher demand for CS than VCS. We are finding out, particularly in a number of markets that people really want both machines because they're -- it creates an efficiency that I think is unique. I don't have a really good number for you to give you right there. The remainder of the equipment, I would just say, is really pretty positive. I mean we've got -- we're just getting started with Valeda. I think I'm encouraged about that. That's all going to be new for next year. The Voyager thing is really, I think we've just kind of gotten the most of the world kind of glaucoma specialty, world kind of technically on to this notion that you should start with SLT. That was job one that we did this year. I think you're going to see a real uptake of Voyager as we move into next year. We've had a pretty good run of it this year. But I think as we convert a new sales force to do both of those next year, you should see Valeda and Voyager do well and contribute quite a little bit. And then I think lastly, I would say that the -- our biometer still does well, our microscope does well. We've got some new stuff coming that we'll talk about in January. So I'd probably say we're going to have a good year next year in equipment. Timothy Stonesifer: You hit refractive? David Endicott: I did -- WaveLight Plus. Yes, good point. And WaveLight Plus, I think what was most exciting about WaveLight Plus this year has been the ability to kind of refresh the market on how important LASIK is and importantly, how much we can improve it. So when you talk about the percentage that we can get to 20/12.5 or better is really unique. And obviously, we're targeting one of our competitors that has a competitive procedure. But frankly, you just can't do better than the installed base of LASIK machines we've got once you get our new WaveLight Plus product in. So that's done pretty well and a little bit better than expectations this year. Again, relatively small part of our business, but really cooling on the front edge of what we're trying to do in cataract and refractive. Larry Biegelsen: That's helpful. Just one follow-up on contact lenses, David. Is there any consumer element here? If we look at kind of the year-over-year change in growth, I know at Baird, you talked about just less price, but there's been a pretty big change in the last year or 2 in the contact lens market growth. In Japan, you just talked about a lack of new product flow. But is there a consumer element here where consumers are stretching lenses, buying less bulk? Anything else you can add? David Endicott: I mean I'd have to think about that a little more than I have, but I think there is always some -- we've always known that there was some consumer effect in here. Whether or not it's really affecting this market, I mean, the data would be -- it just depends on what data you're looking at. I mean I think if you think about the moving annual total on the contact lens market as of third quarter was 5%, so right in the center of what we would call the normal range, mid-single digits. It's been 4% for a couple of quarters. That is easily explainable by the lack of price that went into the market this year relative to prior years. And we were catching up. We had a lot of inflation through COVID. Almost everybody took a significant amount of price in '23 and '24. And I think '25, people just, I think, are taking a little bit of a breather, give the consumer some room. But typically, as we've kind of regressed it, you don't see a lot of change in consumption or trade up. We looked at it in the '09 recession. We've looked at it before and tried to correlate it with consumers. It's not highly correlated, let me say it that way, but I wouldn't say it's not correlated. Operator: Moving on to Jeff Johnson with Baird. Jeffrey Johnson: One maybe follow-up question on Unity. I know you've gotten a lot of questions on it so far, David. But again, referring back to the chart that you put up at our conference, you did talk about some volumes there. We've kind of beat that to death today. What kind of price premium are you recognizing on VCS and do you expect to recognize on CS relative to CONSTELLATION and CENTURION in the past? At one point, we had heard it was going to be 20% to 30%. Then we heard maybe it was coming in a little lower than that. Just how should we model maybe or think about the price premium on the newer technology? David Endicott: Well, look, I mean, VCS' list price, I think, is $185,000. We've given some discounting, but not much. And I think you can do the math off of the base 2 products. There is a premium to the box itself and there's a premium to the packs as we go through it. It does depend on how big the customer is and what they're buying and what the commitments are and how long the contracts are. So it's a little tricky. But early on, I would just say that the ASP on the product is exactly or better than where we expected. So we don't see any challenge with pricing right now. So I would be thinking about it as pretty much as we've described in the past, probably a 10% to 20% premium on the procedure. Jeffrey Johnson: All right. That's helpful. And then just over on Tryptyr, can that product be profitable next year? Or will DTC spending maybe push profitability on that product into 2027? And when it's being sold today through BlinkRx, when you get it on to fully reimbursed commercial plans, do you start recognizing more revenue? And maybe that's an ignorant question, and it's something I should know, but the pricing on BlinkRx is pretty aggressive right now, and that's a good thing. But when you go to a fully reimbursed on the P&L, will you start recognizing even more than revenue per patient or per box of vials? David Endicott: Well, look, first on the profitability in DTC, I mean, we won't begin to run DTC on Tryptyr until we have sufficient reimbursement for patients that it makes good sense. So I don't know -- and I haven't really looked at the product level P&L. But what I'd say is that we don't really expect to be fully reimbursed at kind of peak until '27. So I would be thinking modestly about DTC for next year, and I would -- maybe it happens, maybe it doesn't, really just depends on the pace of reimbursement. Through the third party we're using, which you've correctly identified, I would say just we do pay them for their service, and we will recognize more revenue once it comes into our hands, but that is -- that's just -- that's more of just exiting that relationship and taking up in a normal way once we get through the kind of heavy lifting that they do to get the reimbursement, the prior auth, all the work that they do to kind of get this available and then ship it to the patient's home. So all that is a service that is very useful in the early days, but helpful, not forever. Operator: And we'll go next to Young Li with Jefferies. Daniel Cravens: Young, are you there? Gary, we can move on to the next... Operator: Okay. Jack Reynolds with RBC. Jack Reynolds-Clark: I had a couple, please. The first is on PC-IOL penetration. Could you talk about the penetration in the U.S. versus Europe and I guess, versus APAC, if you've got that data as well? And are you kind of -- how are you seeing pricing develop in Europe? And then kind of coming back to cataracts, kind of more generally, because I actually dropped off the call when the Q&A started. So I think I missed a bit of your first answer. But could you just reflect kind of on what you think drove the weakness earlier in the year? Kind of do you have any better visibility on what the cause of that was? And then therefore, kind of what's driving the kind of the more positive Q3 kind of beyond kind of the mean reversion aspect? Is there anything kind of fundamental driving that? And then what are you seeing so far in Q4? David Endicott: Yes. I -- let me start with PC-IOL penetration. The U.S., I think, was 120 or 130 basis points up. APAC, I don't remember, and EU, we generally don't break those down. But I think what I would say is that Japan, EU, very strong. APAC generally very strong, better than the U.S., I'm sure. And what you see, I think, in the offset is China wrapping around on a large volume influx from our VBP win last year. So on a quarter-on-quarter basis, they were down quite a lot in penetration, but I wouldn't overread that. That was -- that's really just holding back. So what you're seeing, I think, is a good bit of competition and promotion driving the market to use more PC-IOLs. And that's a good thing for everybody. And so we're excited about that. On the pricing -- what was the pricing question? Jack Reynolds-Clark: Pricing in Europe. David Endicott: Pricing element in Europe. The pricing element in Europe is obviously probably the lowest in the world or near it. So I think we watch that very carefully because it probably portends pricing around the world, but only once you get all of the players in as you do in Europe. So my sense is that it's probably bottomed out, but it's hard to know. What I think is good news is that pricing around the world has held pretty stable. And I think our -- as we introduce new products, we are able to get a little price. So if you think about Pro on PanOptix, we're obviously bringing it in at a slight premium to PanOptix, which gives us some flexibility around the core pricing model that we have. So I think stable but generally declining over time will be the answer. Jack Reynolds-Clark: And then just on the cataract volume piece, kind of any color you could share there? David Endicott: I mean, look, I mean, there's 1,000 ideas on cataract volume and what it is. Look, here's what we're certain of. There are some certainties that we can say. One is there's way more cataracts today than there was last year. And there are fewer surgeons in the world, at least in the United States and in Europe than there were last year by a little bit. So there is a productivity challenge that has generally improved every year, and there was a pause in productivity. Now why was there a pause in productivity? I don't know. The short version is it could have been staff. It could have been consumers didn't want to go in. I don't think so. It could be a general younger docs taking over for older docs who sold their practices. That's definitely part of it, could be private equity dynamics that have taken over practices in the U.S. We've kind of collected a lot of those ideas, thrown them into a bucket and said, look, this is going to revert to the mean generally because there's too many cataracts to deny that kind of service, we will figure out a way. It will be more days in surgery by the surgeons and probably people picking up their in-office work as a consequence. That could be a collaboration with other professionals, other kinds of eye care professionals. And -- but there's going to have to be a pickup in productivity. I think that's naturally driven by the folks who own these practices and naturally driven by the private equity group. So I think it comes back to the mean, and I would -- one day, we'll know the secret answer to that one, but I've been trying at it for about 2 years, and I've been wrong. So I'll just give you the bucket of it and let you pick. Jack Reynolds-Clark: Okay. That's great. And then can I just squeeze on one last one. On Unity, so I'm not going to ask about placements, but I was wondering, in the accounts where you have made a placement, are you seeing kind of higher pull-through of consumables? Kind of are you seeing that kind of that efficiency gain being utilized by surgeons? David Endicott: I don't have that data. So I'm not sure. I wouldn't expect it to be higher per se because in the beginning, especially in the first -- what has it been 6 months, 9 months, we're getting these guys trained and moving. If anything, it's probably a little bit slower. But I think what you get to when you get up to speed is a faster throughput for the facility. So I think we're in a good place in the long run, but I wouldn't worry too much about it in the near term. Operator: And we'll go next to David Adlington with JPMorgan. David Adlington: Firstly, just on PanOptix Pro, I just wondered what sort of price premium you're actually achieving, if that's in line with your expectations and whether you'd actually changed your PanOptix pricing at all? And then secondly, just on -- just wanted to check if there have been any stocking in either PanOptix Pro or in Ocular Health? David Endicott: When you say stocking, you talking about the third quarter? David Adlington: Yes, exactly. David Endicott: Yes. No, not to my knowledge. I think the -- on the price premium, there's a slight price premium. I think I don't really know the answer to that one. There's a -- we've gone out, I think, with a belief that we can do that. Obviously, the customers will speak and we'll find out. We're kind of -- we're still only maybe what are we 6 months into this thing. So we'll see whether that pans out or not, so to speak. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Dan Cravens for closing comments. Daniel Cravens: All right. Well, thank you, everybody, again, for joining us today. If you have any follow-up questions, feel free to reach out to Allen Trang or myself for investor questions or our corporate communications team for any media questions. Thanks again. Operator: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Experian's Half Year Results for the 6 months ended 30th September 2025 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Brian Cassin, Chief Executive Officer. Please go ahead, sir. Brian Cassin: Well, thank you very much, and hello, everybody, and welcome to our first half results presentation. I'm joined today by Lloyd, who will run through the financials after my initial overview, and then we'll open it up for Q&A. So we delivered very good first half results at the top end of our FY '26 guidance range, and we are on course to meet our medium-term framework objectives. Revenue, margin and cash performance were all strong, supported by significant strategic progress. Just turning to some of the financial highlights. Organic revenue growth accelerated from 8% in Q1 to 9% in Q2, averaging 8% for the first half. Including acquisitions, total constant currency revenue growth reached 12% with all acquisitions performing well. North America performance was strong and broad-based, accelerating to 12% organically in Q2, driven by client wins, client expansions, consistently improving lender activity in B2B and good results in Consumer Services. Fiscal conditions in Latin America, particularly Brazil, remain constrained by high interest rates and consumer indebtedness. The growth in H1 reflects continued excellent Consumer Services progress. And while the UK&I delivered low single-digit growth overall, Ascend Sandbox adoption among B2B clients has been excellent with U.K. Consumer Services driving growth through new products and market expansion. And EMEA and Asia Pacific delivered a solid mid-single-digit growth, supported by innovation initiatives and our stronger positioning in key markets. Revenue growth translated into EBIT margin delivery at the upper end of our expectations, up 50 basis points at constant currency and 30 basis points at actual rates. Margin expansion in North America, UK&I and EMEA and Asia Pacific offset lower LatAm margins, which was primarily driven by acquisition mix. EBIT strength flowed through to double-digit benchmark EPS growth, and we've raised the interim dividend by 10%. Cash flow growth was very strong with our leverage ratio now standing at 1.8x. I'll just touch on some of the strategic highlights in the half. The Ascend platform adoption continues to accelerate. In addition, earlier this year, we introduced new cash flow attributes and analytics in North America, and we're seeing very good client demand and B2B achieved organic revenue growth in the half of 8%. Consumer Services delivered 9% growth, reaching over 208 million free members. We continue to add more breadth and depth to our products and all of our key metrics, organic traffic, engagement continue to trend positively, reflecting the successful positioning of this business as a financial partner for our members. Our recent acquisitions are on track, delivering cost synergies and new product opportunities. We also recently completed a small fraud acquisition in the U.K., which further enhances our product portfolio and strengthens our position in nonfinancial services verticals. And finally, cloud migrations in North America and Brazil, excluding North America Health, are on track, and we expect dual run costs to peak this financial year. Our strategic progress reflects our consistent commitment to our dual-sided strategy across B2B and consumer, which is unique and which has expanded our growth potential and created new value opportunities across our priority ecosystems. We're now entering a new and exciting era driven by AI, and we're strongly positioned to take advantage of the opportunity this brings to our business. The starting point for this is our data. These data sets are vast, complex. They're constantly being refreshed. They are subject to expansive and stringent regulation, and they need to be accurate all the time. The job of creating these data assets is a huge and complex operational exercise, which relies not just on process, but also on proprietary intellectual property and significant industry expertise. They simply cannot be replicated and they cannot be accessed unless permissioned by us. Our strategy has always been not only to sell data, but to build solutions on top of our data that provide action and insight to improve client outcomes and reduce cost. Almost all these solutions require our data as a foundational input, and this is a source of huge competitive advantage to us that will grow over time. And we have a long and successful track record of doing this. The evidence is everywhere in our current solutions and our history of innovation and business expansion, PowerCurve, Ascend, the expansion of our verticals and the huge growth in our consumer businesses are all examples. Broadly, this expansion of our opportunity set have been driven by the increasing use of data to automate critical business processes to make better decisions, create better client outcomes and to lower operational costs. AI will accelerate this trend, and it is and will continue to expand our opportunities. Despite decades of investment, many client processes remain siloed, inefficient and costly. And this is particularly true when it comes to leveraging data, which, of course, has to be solved to leverage AI at scale, and this is where Experian excels. The opportunity for us remains huge, and the excitement for us is that the AI will accelerate the speed with which we can bring disruptive new products to market. Our data, our products, our platforms, our product development capability and our industry footprint gives us a strategic position that most companies will kill for, and we intend to leverage that to accelerate our growth. Now we've built strong foundations over many years to put ourselves into this position as this slide demonstrates. And just over the past few years alone, we've been proactive across the entirety of our B2B and consumer businesses in leveraging AI use cases to enhance our product sets and also to penetrate new growth areas. And we haven't just been talking about it. We already have AI products in the market. A good example of this is the Patient Access Curator product, which is driving our growth in health and redefining the process of insurance discovery. Platforms like Ascend and Activate have been specifically developed to be modular and to bring all of our data and capabilities together in one place. This, of course, is a perfect setup to allow our clients to take the maximum advantage of data at scale, both our data and their data and for us to easily introduce new functionality, both AI and conventional for our clients to test and learn and quickly implement and then put into production. Very good example of this is Model Governance, an AI-first solution, which virtually eliminates vast amounts of work related to comply with regulatory and internal improvement requirements for credit model evaluation and approval. Clients building models in Ascend can now access this module, which saves huge amounts of time and expense in what are time-consuming operationally complex but mission-critical functions. And there are many more products in development. For Ascend alone, we expect to have agentic solutions covering 5 major categories of activity this year, each category representing an agglomeration of many different capabilities or activities bundled together. And we have more than doubled that number of categories in production for '26 and beyond. I want to bring this to life for you with a Tier 1 client example. The client here is a long-term data partner of Experian, a very large global financial services provider. And we've taken them on a journey, which started with really our data and the value of our data. It then migrated into the integration of our data and our software. They used to be just a client that consume bureau data and other data sources. They also use legacy Experian software as well as competitor software and in-house systems. And these are all now moving on to the platform. Initially, they acquired our data quality tools, which helped them to actually enhance the decisioning systems by ensuring consistency and usability of their own data as well as ours. They then took the Sandbox to help them actually accelerate the insights and analytics that they can derive from that data across the entire product life cycle. And now they're looking at how to deploy models like AI Model Risk Manager. And this strategy really gives us the ability to enable more modules for clients in a managed way. It's a convergence strategy, which creates incredible performance and value for clients. And of course, it opens up new value pools for us. We showed them the value of bringing all of these capabilities into one place. They saw the benefits of this in not only just reducing the number of vendors or in-house systems, but the power of data in one place can bring to them. And this led naturally into a much longer partnership type arrangement with increased tenure, in this case, from 3 to 5 years and a substantial revenue uplift over the term of the contract period. And we can continue to grow from here by bringing new value to the table using the platform in situations like this. So AI is already helping our revenue growth and margin today. It's driving productivity improvements. It's speeding up and reducing the cost of new product development, and it is the fuel for our future investment. As we look at our addressable markets, the constraint we historically face was the time it took to develop new products to market and the time for these products to gain acceptance and adoption. And it often needs a catalyst to create conditions for change. And we believe that AI is that catalyst and that we have a huge amount of white space that is now more accessible to us than ever before. So we see continued opportunities both internally through improving productivity and many new product opportunities. In short, we're very excited about the opportunities this brings, and we're positioning our business to capitalize and we intend to take full advantage of the opportunity this presents to us. Now many of the new products that I've referenced contributed towards our successful H1. As just illustrated, Ascend platform momentum continues. The range of capabilities in the platform will continue to expand, and it now encompasses AI, data, analytics, marketing and credit services together with complex decisioning. And our progress with clients has been strong. And as the chart here shows, we've seen rapid adoption. We recently introduced new Cashflow Scores and Analytics. These combine credit data with AI-powered real-time cash flow data and categorization. This innovation strengthens predictive power scores and results in higher approvals with enhanced model accuracy. Client demand is strong here, too, and our pipeline is expanding rapidly. And we've also integrated ClearSale in Brazil, and we're commencing the launch of new products with the ClearSale acquisition, but also new propositions like Serasa+. This introduces reusable identities and has applications across both B2B and B2C. In Consumer Services, we're focused on delivering deeply personalized experiences by leveraging experience data assets. At the center of this strategy is EVA, which is already is an agentic assistant providing not only guidance, but also taking actions on behalf of consumers. Confirm Your Home uses Experian North America property data to provide home value and mortgage insights. It forms the hub for our new home vertical and leverages data from our B2B housing business. Over 2 million interactions have been initiated with EVA on our consumer services platform. And just 2 other quick examples to highlight are the Serasa+ in Brazil I just mentioned, which has consumer applications and will provide secure log-ins to third-party digital properties using Serasa credentials and the enhanced UK&I refi feature, which supports debt consolidation for consumers. And these are all small examples of the extensive product innovation road map, which is designed to drive higher consumer engagement, greater efficiency for our clients and extend us into new monetizable value pools. So let's now turn to our H1 regional performance. North America delivered strong momentum with Q2 strength driving 10% H1 organic revenue growth. Financial Services, excluding mortgage, was fueled by new client wins and client expansions amid a steady and consistently improving lending environment. In Financial Services, clients can now access credit, clarity and cash flow data through a single integration, which unlocks new potential with significant wins in a growing list of prospects. The Ascend analytical platform saw continued progress with new clients for Ascend Marketing, further Sandbox adoption and rising interest in the fraud sandbox. The Experian AI assistant has also driven cross-sell opportunities with deepened client relationships. Verticals delivered strong growth. In Health, Patient Access Curator is transforming how the industry understands a patient's insurance picture to reduce claims denials and accelerate payments. It's positioned Experian as the market leader with a first-to-market AI solution performing substantially ahead of existing products. The milestone partnership we previously discussed in Auto has expanded availability of our vehicle history reports across dealer networks, strengthening earnings quality through a long-term agreement and reinforcing our track record for innovation-led wins. And in targeting, Audigent is off to an excellent start, driving momentum in audience targeting and activation. So now I'd like to provide some comments on the recent changes to the U.S. mortgage market. The FHFA's recent decision to introduce Score Choice into the conforming mortgage market has introduced new competition and a market opportunity for VantageScore. Like many -- like in any of our markets, we believe the primary value lies here with the data as the score cannot be generated without the data. And there has been much debate on this issue of where value resides score or data, but I'll summarize it with an important data point. Roughly 50% of all mortgages in the U.S. are acquired by the GSEs. In determining whether to buy a loan, the GSEs are reliant on the data that we and the other bureaus provide. By contrast, the GAs do not rely on the FICO Score in their buying decision. They don't need it. In fact, just last week, Fannie Mae removed the minimum 620 FICO Score requirement from its desktop underwriting system and official selling guide. And just to quote Fannie Mae's selling guide, credit scores are not an integral part of that risk assessment because they perform their own analysis of the credit report data. While scores are used to help the borrower communication, pricing adjustments on the secondary markets, it's clear that VantageScore can also easily enable these use cases. Now up to now, VantageScore has not been approved for use in mortgage, largely due to inertia more than anything else as VantageScore outperforms the FICO Score currently used in the mortgage market. Where VantageScore has been used in unsecured lending and in card, auto and other nonmortgage categories, it's actually already captured substantial share, and we estimate this to be around 30% for lending originations based on our internal data. Now that it is approved for mortgage, we expect that VantageScore will gain share in the same way that it's done in unsecured lending. And we will be facilitating lender and consumer choice through the Experian Score Choice bundle and by making VantageScore available in the Ascend Sandbox. We expect this to be a long-term opportunity for Experian with a shift to VantageScore driving millions more scorable consumers and ultimately greater mortgage origination activity. As this happens, we expect our profitability to be further enhanced. But to be clear, we do not need a shift to VantageScore to protect our position in the value chain. That resides in our data and the GSEs and every industry participant knows that it is the data that matters. Now turning now to Consumer Services. Organic revenue growth for the half was 8% or 12% excluding data breach. Membership, Marketplace and Partner Solutions all contributed favorably in the half. In Membership, we're delivering new value to deepen engagement and drive upsell from across our ecosystem. We saw particular strength in marketplace as lenders compete for prospects with clients leveraging Activate to deliver credit and personal loan offers, improving their efficiency. Activate was robust across both cards and personal loans, supported by our popular No Ding Decline card feature and expanded panel. And insurance too has continued to make good progress. Turning now to Latin America. Over the past few years, we've built a superior product portfolio in Brazil, and we continue to make good strategic progress. While high interest rates and consumer indebtedness have tampered B2B growth, progress in Consumer Services has been strong. We're particularly excited by the prospects arising from the integration of ClearSale with our credit risk B2B platform. We've built a healthy pipeline for new blended fraud and credit risk products. Prospects for Ascend Analytics are also strong, alongside an encouraging outlook for our SME segment driven by client growth and upsell into advanced solutions. Despite high interest rates and election uncertainty, we're well positioned to strengthen market leadership in H2 and beyond. 18% growth in Latin American Consumer Services is a strong result, driven by our expanded opportunity and diversification around financial empowerment and leveraging our strong brand presence in Brazil. Limpa Nome performed well as consumers manage rising indebtedness. Our Q3 credit fair will further support Brazilian consumers to manage their finances. And our credit marketplace is scaling rapidly and contributed meaningfully in this half. New payroll loan offers will deepen our marketplace further to serve the 40 million-plus Brazilian eligible -- Brazilian consumers. Progress also continues in Insurance as we continue to add new large insurance -- insurers to our panel. UK&I delivered 1% organic revenue growth, which was led by Consumer Services. While not yet fully reflected in revenue performance, B2B new business achievement was good. Ascend Sandbox proof-of-value is converted into major wins and uplift renewals with leading financial institutions, including a Tier 1 enterprise partnership. More proof-of-concepts are pending and new module introductions are planned. COVID aside, U.K. Consumer Services grew at its fastest rate in a decade. We've transformed this business with an enhanced consumer experience, new features like refi for debt consolidation and by leveraging EVA. The enhanced analytics we deliver through the Activate platform has led to exclusive credit offers on our platform, and this drove strong marketplace performance. Turning now to EMEA and Asia Pacific. Organic revenue growth delivered 6% and another -- which was another solid year of progress with total revenue up 35%, including the acquisition of illion. The illion acquisition integration is on track. It drove the 480 basis points regional margin uplift. And our combined bureaus in Australia now offer a strong and differentiated consumer data asset. We've introduced the Ascend Data Hub and Ascend Ops to Australia to leverage our pre-acquisition leadership in decisioning. And with the combined bureau data now available, we have really good interest in the Ascend Sandbox. We've also advanced our technology and back-office integration while streamlining legacy and noncore portfolio elements. Regionally, organic H1 progress spanned our geographies, supported by new product introductions and leveraging our global solutions. So with that overview, I'm going to hand over to Lloyd for the financials. Lloyd Pitchford: Thanks, Brian, and good morning, everyone. As you've seen, we delivered another very strong performance in the first half with total revenue growth of 12% at constant rates and 13% at actual rates. This was driven by organic revenue growth of 8% at the top end of our guidance and a further 4 percentage points from acquisitions. Benchmark EBIT margin from ongoing activities progressed well, up 50 basis points at constant rates and 30 basis points at actual rates. EBIT growth was 14% at both constant and actual rates. And this converted well into EPS growth with 13% at constant rates and 12% at actual rates. Operating cash flow grew 25%, reflecting a 77% conversion in the half. And our growing capital base continues to generate very high post-tax returns on capital employed of around 16.5% for the half year. As Brian mentioned, we announced an interim dividend of $0.2125, which is up 10% on the prior year. And finally, we continue to be very strongly financed with our net debt-to-EBITDA ratio at 1.8x. Turning to our medium-term framework. We're in the second year of delivery against this medium-term framework and continue to execute confidently and well on our strategic plans. And financially, we continued last year's momentum with high single-digit organic growth, strong organic margin progression and the benefits of capital discipline and deployment all being delivered in this half year. And if you look back over a longer time horizon and our performance here over the last 6 years, you can see we've delivered consistently strong financial results across all of our key financial metrics. Since FY '20, we've grown half 1 revenue at an 8% compound annual growth rate. Benchmark EBIT has grown 9% compound; benchmark EPS, 10% compound; and operating cash flow at 17% compound. And this highlights the quality and consistency of the strategic execution over this period as our business scales. Looking at more current trends, organic revenue growth was at the upper end of the expected performance range for the first half. All our regions contributed to half 1 growth with North America at 10%, 4% in LatAm, 1% in the U.K. and Ireland and 6% in EMEA and Asia Pacific. By quarter, organic revenue growth strengthened from 8% in Q1 to 9% in Q2, supported by a onetime volume true-up in the North America Consumer Services business, which added 1% to group growth in the second quarter. Looking at organic revenue growth across our segments. Here on the left-hand chart, you can see B2B organic revenue growth was 7% in Q2 with good growth across both financial services and verticals and was underpinned by client wins, cross-sell and new product innovations. North America was the key driver, growing at 11% for Q2 with 12% growth in Financial Services, 15% in Automotive and 10% in Health. Financial Services growth, excluding mortgage, was 12% with mortgage growth of 41% on modestly lower volumes. On the left-hand side is the Consumer Services trend in total and excluding -- sorry, on the right-hand side, Consumer Services trend in total and excluding our Data Breach business. As the elevated Data Breach comparable fell away in Q2, consumer growth rebounded to 12% globally in Q2 and 13% in North America. And in the yellow diamonds, you can see the strength and consistency of the underlying consumer growth, excluding Data Breach. Turning now to EBIT margin. And last year, in the first half, we added 70 basis points to margin. And this year, we delivered 100 basis points of organic constant currency margin expansion, primarily due to broad strength across the North America business. Organic margin progression has been driven by broad-scale productivity improvements as our businesses scale. We're also seeing tangible benefits from AI deployment across our business. Organic headcount is broadly flat this year, thanks to these productivity programs, whilst organic revenue grew by 8%. And we see many exciting applications of AI in our business, which can continue to drive productivity. Including acquisitions, total EBIT margin from ongoing activities increased 50 basis points at constant rates and 30 basis points at actual rates to 28.3%. On a regional level, North America's EBIT margin added 90 basis points from broad expansion across the portfolio. U.K. and Ireland added 60 basis points and EMEA and Asia Pacific expanded 480 basis points due to the addition of illion. Latin America margin contracted by 240 basis points, largely due to the temporary effect of the integration of acquisitions. And when considering our segmental margins over a longer-term time frame, here you can see that the B2B margins have been relatively consistent at around 30% since FY '20 despite the temporary dilution from recent acquisitions and cloud transformation dual run costs. As previously indicated, the dual run costs peak this year and will trend down from FY '27. And the margin from our recent acquisitions will trend to group average margin over around 3 years. Consumer segment margins have expanded from 21% in half 1 2020, reaching 30% in the first half this year, which has resulted from scaling our audience to over 208 million members and the growing breadth of our consumer propositions. Turning now to EPS, where last year, we delivered 8% growth in half 1. And this year, we've delivered double-digit growth of 12% at actual rates. Benchmark continuing EBIT grew 15% at constant currency due to strong revenue growth and 50 basis points of margin expansion at constant rates. The combination of interest expense reflecting acquisition funding and a slightly higher tax rate resulted in 13% EPS growth at constant currency and 12% at actual rates. So over a 2-year period since we began our medium-term framework, the increase in first half EPS is over 20%. Taking a look now at our usual reconciliation to statutory results. Our benchmark profit before tax grew 13% at actual rates, driven by revenue performance and good margin progression. Acquisition-related expenses increased to $32 million due to the acquisitions of ClearSale, illion and Audigent, and there was little change in the fair value of consideration on prior acquisitions and restructuring-related costs were $3 million for the half. The above items resulted in a statutory profit before tax and noncash items of just over $1 billion, representing a 12% growth at the half, which is broadly in line with the growth in benchmark PBT. Noncash items included an increase in amortization of acquisition intangibles and financing remeasurements were $92 million favorable versus a $93 million adverse in the prior year. And this swing was principally driven by remeasurements on Brazil intragroup funding, resulting in a statutory profit before tax of $975 million or 36% growth on last year. So now turning to cash flow and return on capital. On the left-hand chart shows our long-term operating cash flow and conversion metrics. As you can see from the slide, we delivered strong growth on half 1 operating cash flow, growing at 17% compound rate since FY '20. This half year, we generated around $900 million of operating cash flow at a 77% conversion rate. A key part of our framework is to continue to use our cash generation to invest in high return on capital growth opportunities. And on the right, you can see our disciplined use of capital, where we've significantly grown our capital base to around $10 billion whilst delivering consistently high post-tax returns, this year at 16.5%. Turning to capital investment. We are significantly progressed with our cloud transformation program and well on the way to our expected position of over 85% of processing in the cloud in our U.S. and Brazil businesses outside of health by this year-end. As we approach the latter stages of the program, we expect to benefit from the reduced dual run costs and lower change-related capital investment. And this will allow us to expand our innovation and AI investment activities to drive future growth, all within the financial envelope of our medium-term framework. And as we materially complete our cloud technology program, we're very strongly financed. Our key leverage measure of net debt to EBITDA was 1.8x at the half year. Our fixed debt level stands at around 60% at the half year, and we have an average tenure of 5 years remaining. And our average interest rate is 3.5% in the half. Our benchmark net interest expense guidance for the full year remains at around USD 190 million. So turning now to our full year modeling considerations, which relate to ongoing activities. Based on the strength of our half 1 performance, we now expect organic revenue growth for the full year to be around 8% at the top end of our previous guidance range. And we continue to expect a 3% inorganic contribution from completed acquisitions. Based on recent FX rates, we now expect FX to be a 1% tailwind to both revenue and EBIT growth. And beyond these points, we don't expect any other changes to our guidance. So with that, I'll hand you back to Brian. Brian Cassin: Great. Thanks, Lloyd. So in closing, we've started the year with good momentum with strong H1 financial progress across revenue, margins and cash flow generation, and we now expect to deliver at the top end of our FY '26 guidance range. We've advanced strongly across B2B and B2C, scaling key initiatives and future growth investments. Our recent acquisitions have performed well and have integrated well, and they've strengthened our market position and give us the opportunity to unlock new avenues of growth. We're driving AI initiatives across the business with a clear ambition to lead the next wave of data-driven intelligence solutions, and our cloud transformation is on track to peak this financial year. All of this puts us on track to deliver on our medium-term financial framework. We're very well positioned to sustain our growth and to continue to generate high returns. So with that, I'm going to hand it over to the operator for your questions. [Operator Instructions] Operator, over to you. Operator: [Operator Instructions] And now we're going to take our first question, and it comes from the line of Scott Wurtzel from Wolfe Research. Scott Wurtzel: I guess maybe first one, just on the guidance and great to see you guys raise to the top end of the revenue guide. But with margins staying flat, can you just maybe talk a little bit about where you're maybe investing a little bit more in the business with that incremental revenue growth? And then I guess as a follow-up to that, maybe your view on sort of the structural margins within the B2B business as we kind of get through these dual running costs and lap the impact of the recent acquisitions? Brian Cassin: Lloyd? Lloyd Pitchford: Yes. So I think you said with flat margins. Margins are up 30 basis points. Scott Wurtzel: I meant reiterating the guide, yes. Lloyd Pitchford: Okay. Sorry, I understand. So look, I think we're really confident in the margin outlook for the business. You've seen -- when we put our medium-term framework together, obviously, we didn't have acquisitions to forecast at that time. Organic margin last year was up 90 basis points. First half this year is up 100 basis points. So that tells you that we have a lot of capacity to be able to reinvest and to be able to deliver on the margin commitments that we've got. You look out for the full year, we've reiterated the 30 to 50 basis points, again, very confident in that. As you look out beyond this year, the dual run costs move from a headwind to a tailwind. So that 100 basis points will come back over about 4 or 5 years. We also get back the dilution that we've had from the recent acquisitions. So last year, that was 20 basis points, this year, 30 basis points. So what you can see is that the margin outlook embedded in our medium-term framework is very well underpinned. And that gives us a lot of flexibility, and we said this at the time we outlined our medium-term framework to ensure that we're continuing to invest and innovate. And as Brian said, we see an exciting future as AI really fuels the opportunity of the value embedded in the proprietary data that we have, and we're going to be investing strongly behind that. And we can do that whilst confidently delivering our framework. Operator: And the question comes from the line of Andy Grobler from BNP Paribas. Andrew Grobler: Just a couple, if I may. The first one on productivity. Lloyd, you mentioned that you could see tangible benefits from AI from a productivity perspective. Could you kind of quantify what you're seeing now and how you expect that to move over the next 2 to 3 years as that develops? And then secondly, on mortgage, there's clearly a lot going on in that market at this time. What do you think is the time frame for the market, i.e., the resellers to move to the new system? And also, what are your expectations in terms of how long it takes VantageScore to be kind of fully utilized within that market? Lloyd Pitchford: Yes. Andy, so on productivity, I mean, like everybody, we're just seeing an acceleration of the availability of tooling that can really drive productivity across the group. We have a lot of people in producing product and the ability to be able to increase capacity without adding people in that because of the use of coding deployment, auto coding generation. But looking more broadly across administrative functions, support functions, customer support functions, all of them are showing the benefit of the deployment of new tooling. And that's -- as I mentioned in my remarks, we grew 8% organically in the first half and headcount -- organic headcount was broadly stable. So that kind of shows you the potential in the group. We clearly have a lot of capability in the company is what we do to be able to deploy AI tooling, and that benefits our clients, but also benefits inside the company. So I expect that to continue, and that's going to give us a lot of flexibility, as I said, to be able to deliver on our financial framework, but also to increasingly invest in product innovation and in AI deployment for our customers. Brian Cassin: And Andy, just coming back on to the mortgage market. Yes, there is a lot going on. On the reseller point, I think there's no kind of one answer because I think the reseller market consists of quite a lot of different players, some big ones, some small ones. Probably the big ones are able to cope with the operational changes quicker than the smaller ones. But even that's going to take a bit of time. It's difficult to be precise. I think it will differ based on reseller to reseller. But they will have to change operational processes. Obviously, in a new structure, they'd be calculating the score. They've never done that before. There's lots of requirements around that, which is ensuring that you actually have completely synced up between the actual data and the score. You have audit requirements around that for the GSEs and for their clients. You have billing that you have to set up. You have to set up processes around ensuring that you can answer any consumer disputes that come because today, those consumer disputes around the score data will come to the bureaus. If you split between the actual data and the score between bureau and resellers, you probably have a lot of customer confusion about where that liability relies. So there's quite a lot to do. And I suspect that there will be different time scales for different resellers, but we don't expect this to be very quick. I think sometime in '26 and I say, some will be quicker than others. So hopefully, that answers that question. The second part was VantageScore adoption. I think just reiterate points, I think, that have been made ad nauseam. FICO Score has been the only score available for use for 30 years. So it is embedded in the system in the way that I described when I referenced the GSEs. So it's used across the system. But I think people can move. We've seen that -- we've seen some people move from FICO to VantageScore pretty quickly in other areas. Some will take longer. So I think over the next few years, you are going to see people move. Obviously, those will be individual decisions made by lenders and so on and so forth. But I think over the next few years, you're going to start to see some of that shift. Operator: Now we're going to take our next question, and it comes from the line of Annelies Vermeulen from Morgan Stanley. Annelies Vermeulen: So 2 questions as well. Just coming back to AI. I just wanted to understand a bit better on how that develops into pricing of your products to customers? As you make -- as you embed more AI in these products, is that something you can price for? You mentioned that it's also reducing the cost of developing new products. So equally, is any of that being passed on to customers? I'm just wondering if there's any risk of pricing pressure as a result of AI and how you think about that? And then secondly, just on marketplace in North America, it sounded like growth was pretty broad-based across credit and insurance marketplaces. Is there anything particular to call out in terms of the driver of that in H1, audience expansion, adding more lenders? And perhaps as part of that, could you update on your expansion into home insurance and how that's progressing? Brian Cassin: Just on the first question, I think we see AI as -- the new products that we've introduced have actually all been new functionality. So if you look at Patient Access Curator and Health, that's a new process, which really improves the insurance discovery solution for our clients. And because of the performance of that product, we're able to actually to get premium prices for that. I referenced Model Governance, which would be embedded in the Ascend platform. Again, when you look at the value equation, Model Governance is a hugely complex exercise, a lot of people involved in that, very important from a risk and compliance perspective, very costly. The extent that we automate that and take out significant costs for our clients, that also represents revenue upside opportunities. So we're in the sort of early stages of that, but actually, the evidence that we've seen so far is that this is revenue additive. In terms of the productivity benefits, we have seen those. I think what that means is that 2 really important things. One, we can build more stuff. And secondly, we can actually build more stuff, which gets to market quicker. And I think -- but there's 2 aspects to that. One is actually building the product to a point which people can pilot and test and two, making it operational. And overall, we just see that cadence of new product introduction and the ability to get them to market quicker, leveraging these capabilities is what we're focused on. Clearly, all clients will do an economic assessment of the value that's provided by any solution. That's not going to go away. People don't just accept solutions because they've got AI labeled on them. They will evaluate whether it's better, faster, cheaper or enables them to take -- bring -- take cost out of their own system or give them a better outcome. So that evaluation continues, and we expect that to be no different in the new world. But we're excited about what that does for us given the big footprint of developers we have across the business. We introduced a huge number of products every year. I think that cadence is going to improve, and I think that's really a positive. Lloyd Pitchford: And I'll touch on marketplace. So just lending more generally in the U.S., I think we're in our third quarter of sequentially improving lending position. And you can see that in the performance of the Core Financial Services business outside of mortgage. The place that first showed up was very strong growth in Financial Marketplace inside the Consumer business, and that continues to grow very strongly. And Insurance continues to grow well even outside of the one-off catch-up that we had, which I think was helpful in the quarter, but it also reflects that the Insurance business was actually a bit better than we thought it was with the volumes that we reported last year. Brian referenced in his remarks the launch of HomeHub. So just like we launched the AutoHub where people can claim their car and then we use all of our data assets to help consumers around their car owning journey, the principle is the same around the HomeHub, including home insurance. So we'll be bringing all of the assets that Experian has around home, to bear in the direct-to-consumer market. And we'll tell you a bit more about that as that product launches analytics. Operator: Now we'll take our next question, and it comes from the line of Simon Clinch from Rothschild & Co Redburn. Simon Alistair Clinch: I just got 2 questions here. The first one, I just wonder if you could just clarify your assessment of the 30% market share that VantageScore has in certain parts of the market. I just want to make sure I understand exactly what you're referencing to there? And then my second question to follow up would just be on -- it's very interesting that the launch of the Cashflow Score recently. And I'm just kind of curious as to where we are in terms of the -- I guess, the bundling or even integration of consumer permission data sets with Core Credit and how that's going to really feed the innovation pipeline going forward? Because to me, that seems to be one of the more unique opportunities for Experian. Brian Cassin: Great. Okay. Well, look, on the 30% market share actually comes from our assessment of our internal data. Obviously, we don't cover whole market, but we have a very big market share, and we expect actually that, that will be replicated across the other bureaus. So that's across all unsecured lending, across auto, across card, personal loans and so on and so forth. The biggest penetration is actually in card, which obviously is the biggest category and also in fintech. So for example, in fintech, VantageScore has over 50% market share across all fintech categories. So I think you can see that where there has been competition available, people have adopted alternative scores. And so I think you turn back then to the mortgage market where VantageScore has not been available for 30 years and now is. So I think it'd be a pretty reasonable assumption to say that VantageScore will gain market share. I think on the cash flow score point, we're very excited about this product. And I think this is kind of following what we've seen really across other territories when open banking was introduced, which is, one, consumer permission data has a role to play. The role is really an enhancement in addition to core bureau data is not a replacement. So the really powerful solutions combine the 2. And therefore, we are in a fantastic position to develop this market and to be the leading player. And frankly, we've got the best solution in the marketplace. And I think we're going to win in this category, and we're going to win very big. And the reason is because only we can really do that combination and the attributes and scores we've developed have been really leveraging consumer data that we've had access to at scale. That has a lot of resonance in the marketplace, and we're seeing a lot of client interest in this. Operator: And we take our next question, and it comes from the line of James Rose from Barclays. James Rosenthal: Two, please. The first one is how you think AI could affect your medium-term model. I think on one side, you've got productivity evident now, which could push you above the 30 to 50 bps or if you kept the margin profile the same, presumably revenue growth could go up if you've got faster product development or more products coming to market. So I just wonder how you think it could sort of move the needle in sort of longer term? And then secondly, I notice your -- the point you just made that you're now enhancing credit data with your Cashflow Analytics. Equifax have made some comments around offering TWN in credit reports. Just wondering whether you think there's a need to counter that and to start building your own sort of employment and verification data a bit more rapidly? Brian Cassin: Okay. Lloyd, do you want to answer the first one in terms of... Lloyd Pitchford: The medium-term model. Yes. I think, James, clearly, AI is a rapidly developing area. I think on the one hand, it's almost impossible to forecast all the different avenues. What you can see in the way that we've been performing is we have a lot of flexibility. And I think that's going to be important. We can't forecast out exactly how it will develop over the next 3 or 4 years, but we have financially a lot of flexibility to be able to continue to deliver good margin progression as our business scales and continue investment to make sure that we win in this new field. We have just huge embedded value in our proprietary data sets that AI will accelerate the monetization of, and we plan to invest to make sure that we can do that, and we can do that while still adding margin. Brian Cassin: Yes. And on the -- just on the sort of employment data, I mean, as you know, we have been building our employment verification business over the last few years. And we've gotten to some significant scale in that. But I think that the main point really is just that people continue to innovate. All bureaus continue to innovate and offer solutions to their clients that they think might add additional value. The Work Number flag is one example of that. There are many others. So I think -- but I think when we look at the cash flow and the uptake on the cash flow, the interest that we've seen on that, I think that's very significant. It's obviously really significant for people at the lower end of the borrowing spectrum, more thin file and less prime customers. But nonetheless, we think it's a very significant new innovation, and we're excited about it. Operator: [Operator Instructions] And now we're going to take our next question. And the question comes from the line of Ben Wild from Deutsche Bank. Ben Wild: Two for me as well, please. There's obviously a huge range of discussion on AI and its potential impact on your business. But specifically on the Consumer Services platform, you talked consistently over many years about building a platform that's focused on supporting consumers and enhancing their financial lives. I know that you talked about your own internal AI assistant, EVA. But how do you think about protecting your consumer audience as consumers increasingly adopt competing AI tools? And how do you think about integrating your offer with some of these tools such as ChatGPT? And as an adjunct to the question, are you seeing any impact on active user intensity as ChatGPT penetration grows, for example? Second question is on -- again, on the consumer platform, sorry. If you look at consumer reviews for the Experian app, many consumers flag that access to FICO Scores is an important differentiator versus some of your other very large platform competitors. How important is it to retain the FICO Score offering consumer services? And is your thinking on that point evolving in light of recent events? Brian Cassin: Okay. Well, thanks for the question. So I'll deal with them one by one. So first of all, I think on the -- first point to make, I think, on the metrics that we're seeing across our consumer business continue to trend very positively. That includes organic search traffic, which has actually increased this year, and that's really in contrast to a lot of other properties. And the reason is because of the strength of the brand. We generate a lot of traffic from our brand. That continues. That's been enhanced by the investment that we put in our brand over many years. And we think that, that is a very important point as we think about how channel distribution is going to change over time. What we've seen is a really significant increase in traffic from the AI platforms in excess of 1,000% growth over the last year. But the traffic coming from there is still very small, but it is obviously going to be a very important channel going forward. And we'll be focusing a lot of our efforts on making sure that we have the same level of visibility and profile there, which we do actually. And that's really down again to the strength of brand plus also the content and so on and so forth. So I think that's a future opportunity for us as we think ahead. On the EVA capability, I think this where this really sort of makes a big difference because that capability is able to do things which other AI agents will not be able to do. And specifically because it will be built around capabilities that will have deep access to our data and also enable them to take actions, for example, like freezing your credit report or retrieving your score or so on and so forth. So we've seen really significant engagement on that, over 2 million interactions so far. So I think we're pleased with that, and I think we'll continue to build out those propositions. So all in all, I think as we look forward, we're excited about where that goes because we think the strength of our brands, the capability on the platform continues to position us as a winner in the longer term. On the FICO Score thing, yes, that is a part of our offer. We've had that for a long time. It was introduced over 10 years ago. I think since we introduced that, there's many, many more -- much more value that we provide on that platform. So the reliance on that as a value proposition, it's still important, but it's not as important as it was, and we'll continue to evaluate all those propositions as we go forward. Operator: Ben, any further questions? Ben Wild: No. Not for me. Operator: [Operator Instructions] And now we have another question, and it comes from the line of Simon Clinch from Rothschild & Co Redburn. Simon Alistair Clinch: Sorry for sneaking just one final one in. Just a very quick one, Lloyd. Just on share repurchase, you basically -- as far as I can see, you pretty much completed your guide for the year. Just how do we think about capital allocation in the back half of the year? Lloyd Pitchford: Yes. So we obviously update on capital allocation really once a year in May. You've seen the strength of cash generation. We finished the half at 1.8x. If we don't do any further acquisitions for the rest of the year, we'd finish the year at about 1.5x. We expect to do some other acquisitions. We've got a good pipeline. But you can see with this level of cash generation, we have a lot of financial flexibility for capital allocation. So we look forward to updating you in May. Operator: Dear speakers, there are no further questions for today. And I'd like to hand the conference over to your speaker, Brian Cassin, for any closing remarks. Brian Cassin: Great. Well, thank you. So that concludes today's session. Thanks, everybody, for joining us. Hope you all have a good day, and we look forward to speaking to you again in January for our Q3 update. Lloyd Pitchford: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
Operator: Hello, everyone, and welcome to Yatra's Fiscal Second Quarter 2026 Financial Results Call for the period ended September 30, 2025. I'm pleased to be joined on the call today by Yatra's CEO and Co-Founder, Dhruv Shringi; and CFO, Anuj Sethi. The following discussion, including responses to your questions, reflects management's views as of today, November 12, 2025. We don't take any obligation to update or revise the information. Before we begin our formal remarks, let me remind you that certain statements made on today's call may constitute forward-looking statements, which are based on management's current expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially. For a description of these risks, please refer to our filings with the SEC and our press release filed earlier this morning on the IR section of our website. With that, let me turn the call over to Dhruv. Dhruv, please go ahead. Dhruv Shringi: Thank you, and good morning, everyone. Thank you for joining us on this conference call to discuss our second quarter and first half of fiscal year 2026 earnings. Let me start by briefing you first on the operational performance for the period under review, after which our CFO, Mr. Anuj Sethi, will brief you on the financial performance in detail. As you would have seen from our results and presentations that have been uploaded, it has been a remarkable quarter for Yatra as we have not only delivered strong financial and operational performance well ahead of guidance, but also celebrated 19 incredible years as one of India's most trusted travel brands. For second quarter of fiscal year '26, our revenue grew 48.5% year-over-year to INR 3,508 million, which is approximately $39.5 million. Adjusted revenue grew significantly year-over-year as well. Our growth in the quarter was fueled by resilient demand and consistent execution across both our corporate and consumer platforms. This also reflects the momentum we have gained in our corporate business and the higher-margin Hotels and Packages business as well as continued momentum in the MICE segment. Notably, our profitability metrics underscore our disciplined execution. Adjusted EBITDA surged 218% year-over-year to INR 212 million or USD 2.4 million, and profit for the period increased significantly to INR 98.8 million or USD 1.1 million versus a loss of INR 0.3 million or USD 0.1 million in the prior year, well ahead of our earlier guidance. The corporate travel market is expected to reach around USD 20 billion by FY '27. However, online penetration in this segment remains low at just about 20% in FY '24 compared to almost 45% for the overall travel market in India. This indicates substantial headroom for digital adoption across the corporate travel industry. Online penetration is accelerating, driven by rapid adoption of digital booking platforms and the uptake of self-booking tools and integrated expense management solutions. In the lodging space, branded hotels and curated packages are witnessing increasing demand from both leisure and MICE travelers, supported by improving supply, better service standards and a growing preference for experiential stays. Overall, this large and expanding market, coupled with increasing digital penetration presents a significant opportunity for Yatra, particularly in the underpenetrated corporate segment. Our Corporate Travel segment represents a meaningful part of our overall business and delivers strong momentum for Yatra. In Q2, we onboarded 34 new corporate clients, collectively adding an annual billing potential of INR 2.6 billion or USD 29.5 million. On the B2C front, we continue to make good progress in rationalizing our cost of acquisition and finding avenues to scale profitably. Bookings, which were impacted in the previous quarter due to macro events have now started to show signs of recovery. Additionally, the recent reduction in income tax and GST rates in India is expected to further boost travel consumption and discretionary spending, supporting a stronger growth outlook in the quarters ahead. On the technology front, we continue to enhance our digital platforms to deliver a more seamless and intelligent travel experience. Our Diya AI, our generative AI-powered travel assistant now enables seamless flight and hotel search bookings, streamlining the entire travel journey from planning to payment. We have also introduced a new user interface designed for hotels with a transparent per room per night pricing model, along with upfront display of taxes and fees to eliminate surprises for users. The optimized interface is designed to improve usability and drive higher conversion rates. Additionally, our best price guarantees customers can be assured to access the lowest available hotel rates on Yatra. If they find a lower price elsewhere, we match it or offer a better rate for the same booking. In sales and marketing, we celebrated our 19th year with a big outing fest, a high-impact sales campaign that was amplified across digital, social, outdoor and print platforms. As part of our broader brand-building efforts, we also strengthened our corporate travel presence on LinkedIn, driving greater visibility and engagement among enterprise customers. As part of our ongoing efforts around restructuring, the company believes it has a viable structure to pursue. While some hurdles remain, we are actively navigating processes across jurisdictions. The time line is uncertain due to complexity, but we are fully committed. This transition is key for Yatra and its shareholders, aligning us with the market and unlocking value. We'll share more updates as we move forward. As we look ahead, we see strong sustained growth opportunities driven by rising digital adoption across both leisure and corporate travel segments. Yatra is well positioned to capture this growth through our expanded corporate client base, enhanced technology offerings and a growing share of high-margin hotels and MICE business. We remain committed to disciplined cost management, profitable scaling and delivering long-term value to our shareholders while strengthening our competitive edge in the globally -- in the global travel ecosystem. Thank you, everyone. And I'll now request our CFO, Anuj Sethi, to brief you on the financial performance for the quarter under review. Anuj Sethi: Thank you, Dhruv. Good morning, everyone. For the second quarter of financial year 2026, on a consolidated basis, our revenue from operations grew 48.5% year-on-year to INR 3,508.7 million or equivalent to USD 39.5 million, driven by continued momentum across key segments, including robust growth in our Hotels and Packages business and a meaningful contribution from MICE segment. Our adjusted margins performed strongly across segments. Air ticketing adjusted margin increased 14.7% year-on-year to INR 1,016 million, equivalent to USD 11.4 million. Hotels and Packages adjusted margin rose 28.6% year-on-year to INR 514.5 million or USD 5.5 million -- USD 5.8 million and Other Services adjusted margin grew 25.1% year-on-year to INR 95 million or USD 1.1 million, underscoring the strength of our diversified business model. Adjusted EBITDA surged 217.7% year-on-year to INR 212 million or USD 2.4 million. As a result, profit after tax increased significantly to INR 98.8 million or USD 1.1 million versus a loss of INR 0.3 million or USD 0.1 million in the prior year. In terms of segment performance, our ticketing passenger volumes declined 3.5% year-on-year to 1,329,000. However, our gross air bookings grew 11.7% year-on-year to INR 14,811.4 million or USD 166.8 million, and our adjusted margins rose 14.7% year-on-year to INR 1,016 million or USD 11.4 million, with adjusted margin percentage improving from 6.7% to 6.9%. In the Hotels and Packages segment, the hotel room nights grew by 9.4% year-on-year to 504,000. Gross bookings increased 40.4% year-on-year to INR 5,141.6 million or USD 57.9 million, while the adjusted margins expanded to 28.6% year-on-year to INR 514.5 million or USD 5.8 million with the adjusted margin percentage at 10% compared to 10.9% in the previous year. Total gross bookings across all segments increased 16.2% year-on-year to INR 20,504.8 million or USD 231.0 million. On the liquidity front, cash and cash equivalents and term deposits stood at INR 2,207.8 million or USD 24.9 million as of September 30, 2025. With this, I would like to hand it back to moderator and open the floor for the question-and-answer session. Thank you. Operator: [Operator Instructions] We have the first question on the phone lines from Scott Buck with H.C. Wainwright & Co. Scott Buck: I was hoping you might be able to provide a little bit more color around corporate travel trends that you're seeing in the India market. And maybe how much of your momentum there is driven by just kind of industry tailwinds versus your market share gains? Dhruv Shringi: Good morning, Scott. Scott, to answer your question, I think today, the corporate travel market in India is growing approximately at about 8% to 9%. We are growing almost at like 2x of that rate. The reason we are growing that much faster than the industry is because what we've seen over the last few years now, last couple of years, at least, is that there is an increasing drive on the part of corporates in India to adopt digital technology to automate their business processes. And as part of that being the market leader in this segment, our teams, along with their own execution capabilities are growing at a rate which is faster than the market. So market itself is growing, you're right, but within the market as well, given the technology solution that we offer, we are able to gain market share as well. Scott Buck: Great. I appreciate the added color there. And Dhruv, I'm curious, how are you guys thinking about M&A and the potential to accelerate the MICE business even more through acquisitions. Is that on the table? Dhruv Shringi: So we continue to evaluate opportunities, Scott. At this point of time, I think it's hard for me to give any more direct color on that. But just as an organization, if you look at the track record that we've had over the last few years, we've successfully made some acquisitions that we've been able to integrate within the Yatra platform. So we continue to evaluate these kinds of opportunities. Scott Buck: Perfect. And then last one, I know you touched on it in the prepared remarks. But the restructuring efforts, can you give us a little more color on maybe where you are? Are you waiting for regulators at this point? Or are there more steps that you need to complete on your end. Dhruv Shringi: I think there are a few more steps that we need to complete at our end, but along with [ MDs ], given the nature of this work in tandem with the regulators as well, we are hoping that in the near term, we can give some more concrete information, right? But given that there are multiple jurisdictions, multiple regulators involved in the process, the time line is slightly uncertain, but we are quite confident that we are moving in the right direction with this. Scott Buck: Okay. Perfect. I appreciate the added color guys. And congrats on all the progress. Operator: [Operator Instructions] I can confirm that does conclude the question-and-answer session here. And I'd like to hand it back to Dhruv for some final closing -- I apologize. We do have a question on the line from Aman Jain with PMB Securities. Unknown Analyst: I just wanted to check specifically on the consumer business, how profitable is it vis-a-vis our corporate travel business. And how do you see it trending? I understand in the last quarter or probably in Q4, you guided that we should be bottoming out around Q1, Q2 in the consumer business and then we should start picking it up. How is it trending now, the consumer business? And what percentage of your overall business does consumer contribute now? Dhruv Shringi: So the consumer, let me just work backwards. The consumer business now is accounting for about 1/3 of our overall gross bookings. And in terms of the trending of the consumer business, the consumer business has definitely bottomed out, and we've seen profitability improve over there. We would expect a gradual kind of increase in the consumer business as well. While we would expect the corporate business to grow between 13% to 20%, we would expect the consumer business to grow in the mid- to high single digits. And this growth that we're looking at in the consumer business is all profitable growth only. We are not looking at doing any negative cost of acquisition. So whatever growth rate we are projecting out here on the consumer business, that is all going to be incremental and accretive from a bottom line point of view. Unknown Analyst: Very good. Next is just on the call on the previous question, you mentioned towards your effort towards streamlining the corporate structure. You said you are doing some approvals. Can you just throw some more light exactly where we are and how do you see it progressing. By when do you see it to be completed? Dhruv Shringi: It's hard to give an exact time line on that, but it remains a key priority for us as an organization. As you might be aware, we have -- our corporate structure entails entities in Cayman Island, Cyprus and Singapore. So it is a multi-jurisdiction transaction that has to go through. So to that extent, there are multiple regulators that will get involved in this process. That's the reason why it's difficult to give an exact time line on this. But I think from a commitment point of view, the organization is fully committed to this. Unknown Analyst: Should we expect it to be completed in an year's time or it could be longer? Dhruv Shringi: As I said, it's hard for me to give a time line to this. But if I was to give it my best estimate, I don't think it should take as long as a year. I mean that's my best estimate of it, but it's all obviously subject to regulatory approvals across the different jurisdictions. Unknown Analyst: And how do you -- how are you planning it. Will it involve a delisting of the U.S. company, merger with the Indian company? I mean, merger with the Yatra Online. How exactly are you envisaging it currently? Dhruv Shringi: I think it will be a bit premature to talk about that at this stage. When we have the exact plan, which is signed off by all regulatory elements, we will publish that out for shareholders. I think it will be difficult for me to really articulate that at this point. Unknown Analyst: Okay. But so my key takeaway is it should take less than a year, but that is the best estimate. There is no commitment from your side. Operator: [Operator Instructions] We have a follow-up question from Aman. Unknown Analyst: I will take my liberty here. As you are aware, the other listed Indian OTA in the U.S. is MMT. And the valuation gap is quite considerable to MMT versus what we trade at. Any plans on how can we fix it? Dhruv Shringi: See, I think in terms of the U.S. entity, the holding company today, as you rightly pointed out, trades at a meaningful discount to peers. Part of it is also driven by the much smaller market cap and the lack of liquidity. One of the ways that we are trying to solve for or rather the key way that we are trying to solve for is to introduce some kind of a fungibility because in India, the entity is trading at a much better multiple than where it's trading in the U.S. So that's the entire reason for taking on this exercise of trying to streamline the corporate structure and put in place some kind of a fungibility to the shares. That's definitely one way that we are looking at doing it. And in India, we've been -- based on the strong performance that we have, interacting with analysts, large amount of investor community, and that's what's driving the momentum behind the stock in India. Unknown Analyst: Okay. Just for my clarity, what exactly do you mean the fungibility. Dhruv Shringi: By fungibility, I mean the ability of a U.S. shareholder at some point to get the same price or similar price to what exists in India. Unknown Analyst: Okay. So does that mean getting the Indian shares? Dhruv Shringi: Yes. As I said to you earlier as well, Aman, that's something that once the plan is concrete, approved and adopted by the Board, we will share that out transparently with all shareholders. Operator: I can confirm that does conclude the question-and-answer session here. I'd like to hand it back to you for some final closing comments. Dhruv Shringi: Thank you, moderator. I'd like to thank all of you for joining the call today. If you have any further questions, please reach out to our IR partners, ICR. Thank you for your time. Operator: Thank you. This does conclude today's conference call with Yatra. Thank you all for your participation. You may now disconnect, and please enjoy the rest of your day.
Operator: Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to the Samsonite Group 2025 Third Quarter Results Conference Call. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Mr. William Yue, Vice President of Investor Relations. Thank you. Please go ahead, sir. William Yue: Thank you very much, operator, and thank you very much, everyone, for joining the call. We have the pleasure today of our CEO, Kyle Gendreau; and our CFO, Reza Taleghani with us, and our CEO, Kyle Gendreau, will start off with a few remarks. Thank you very much. Kyle Gendreau: Okay. Thanks, William. Thanks, everybody, for joining from Hong Kong. I realize we have a time change. So sorry, this is at 10:00 New York Time, if I'm getting the times right. But thanks for being with us. So I'm on Page 5. And I think the way I would start with title sums up really well, strong momentum in the business supported by innovative products, which you'd expect from us. But importantly, all regions in our core brands -- actually, all of our brands are delivering sequential improvement in Q3 versus Q2. We've seen clear sales momentum in Q3, our net sales decline for the quarter. Constant currency is 1.3%, coming off of the Q2 that was down 5.8%. Encouragingly, net sales growth was positive in the month of August, September and October in all regions and brands, as I said, are seeing sequential improvement in constant currency growth Q3 versus Q2. If I take one lens, the one market that's continuing to have some challenges on the wholesale side with wholesale buy-in, consumer sentiment and lower inbound tourism in North America. We'll cover North America in a little bit of detail as we're going through. Our net sales would have increased in the quarter by 0.3%, just adjusting for North America. Our Q3 benefited from growth in our overall direct-to-consumer business and both our -- and also our non-travel sales had positive growth -- noticeable positive growth. Clearly, sequential improvement on those, and we continue to see sequential improvement on our travel net sales. Our direct-to-consumer sales consolidated up 3.5% period-over-period. Our DTC e-commerce was up a little over 10% -- our owned company stores were up 1.1% off the back of store openings and building momentum. Our DTC mix today is -- in Q3 is 42% versus 38.9% last year. We'll cover that in a little more detail later, but we continue to move in that direction, similar to what we saw in Q2. Our overall wholesale channel net sales declined 4.5% period-over-period, with sales for our traditional, I call it, brick-and-mortar wholesales down around 7% due to more cautious purchasing by a few of our key wholesale customers, particularly in the U.S. that are driving a lot of this. But this was partially offset by meaningful growth in our e-retailer sales, up 12.3% in the quarter. And then lastly, I talked about non-travel. I've got a slide in my deck, and Reza, I think, has one in his as well, but our non-travel sales were up almost 7% in the quarter as we continue to focus on this opportunity, which is white space opportunity for us, becoming a more meaningful percentage of our overall business, as you know, but really a very strong trend there. I think one of the real highlights of the numbers as well beyond improving sales trend is the gross margin story. Our gross margins expanded in the quarter with impacts from tariffs really well managed. Our Q3 gross margin was 59.6%. That's up 30 basis points to last year. And importantly, up 60 basis points to the prior quarter. And when you think about the full effect of tariffs going in at the beginning of Q3, it speaks to kind of our tremendous ability to navigate and mitigate tariffs. Our U.S. business is around 1/3 of our business, but well managed. You can see it in the overall gross margin of the business. I can't thank our sourcing teams enough. What they've done to navigate is tremendous. What our teams on the front end have done and the relationships and the partnership we have with our suppliers really speaks to our scale advantage and the ability to manage the gross margin of this business well. And it trends into Q4 looking just as strong. We do expect sequential improvement in our sales in Q4 relative to Q3. We believe we're capitalizing on the growth in travel, which continues. We have really amazing products. We'll talk about a few that we've launched in the midst of the quarter, like Paralux that you can see to the right of this page. And we have a positive sales trend leading into Q4. Last 3 months have been strong. The first month of Q4 is a positive growth story. And there's good momentum leading into holiday. A lot of Q4, as you know, depends on holiday. But I would say the early reads from -- across our markets are feeling good on the holiday story. But a lot happens in the next 4 or 5 weeks, but we're well positioned on that front. And as you know, we're really very positioned really well for profitable long-term growth. I'll cover it in my outlook as well, but the medium and long-term growth prospects for our business and our competitive advantage on product innovation, real strength on advertising and really being able to capitalize on the underlying growth in travel that continues and seizing the white space on the non-travel opportunities, which we've shown over the last couple of quarters and for sure in this quarter, really underpins kind of the strength and our ability to continue to deliver medium- and long-term growth for the business. Next slide, from a brand perspective, you can see each -- every one of our brands delivering improvement over last quarter. Importantly, Samsonite improved from roughly down 5% to down 4% in Q3. But when you peel into that, Europe is positive 1.3%; Latin America, positive 8%. Tremendous performance shift in Asia with building momentum in the quarter, down 4% versus down 9% in Q3. And our North America business, again, largely driven by wholesale customers and some of the buying behaviors and cautionary approach was down 10%, just a bit better than what it was in the previous quarter. A real tremendous shift to TUMI's trajectory. We were performing down 2% to 3% for the first half of the year. Q3 shifted to positive 5%. Importantly, it came from across all of our regions, particularly in Asia, which was up 7.1% and Europe, up 6.3% off the back of initiatives pushing the business, new store openings and a consumer group in this higher income class that has shown more resilience in Q3 than the rest of our consumers. And North America, importantly, was up 3.3% in the quarter. And if I call out China specifically, where we have a laser focus within our Europe business, that was up 10% in Q3 for the TUMI business. So really solid performance, good trends as we move into the back half of the year. And American Tourister had a really quite dramatic shift. That was at the start of the year, and we talked about this in the last two earnings calls, a consumer group that's under strain more than others, particularly in the U.S. market, but around the globe, that consumer was moving more cautiously. We saw a really meaningful shift in improvement, largely off of what we've done to shift the product offering within the brand, particularly in Asia, particularly in India, which shifted to positive 3% growth for American Tourister. And as you know, that's our biggest market for American Tourister in the globe and really sequential improvement, noticeable improvement from where we were in the first half of the year. And I think we're set up well as we finish the year and go into the start of next year. Page 7 is a slide we've looked at before. And I just want to drive the point. And for me, this company is hitting an inflection point that we've been talking about coming. As we exit Q3 and step into Q4, you can clearly see the shift. But importantly, if I go back to this revenge travel period '21 to '23, where our business was up 23% against an industry that was up 3.8%, tremendous growth. We were 6x growth in industry off the surge of travel that came back. Global air traffic is still projected to grow. This business correlates really well with air travel. I have a slide that you've seen before a little later in the deck. 4% growth in global air traffic really underpins the resilient of consumer spending on travel. Maybe they're not spending the same way. I think that's had some impact on our business, but the sheer travel numbers continue to grow and the outlook continues to be very positive. We've continued to invest in this business on product innovation, new product innovation, capitalizing on the white space within non-travel and pushing the advertising and elevating the advertising stories of the business. So we're continuing to invest in marketing spend, changing the lens on the way we spend these dollars to really go after not just existing customers from a loyalty perspective, but to deepen our relationships and broaden our relationships with new customers. And we're seeing clear traction on that front and investing there. I believe we're about to get the benefit of replacement cycle in this industry for the same reason that revenge travel slowed down at the end of '24 in the first few quarters of 2025. I'm certain that we're going to see the inverse of that as consumers continue to travel at a very good pace. As you know, and I presented this, I think, in the past, over 52% of travelers replace their luggage every 2 years. Non-traveler bags, 73% of travelers replace that every 2 years. And so we're now at a moment in the cycle where we're 3 to 5 years past that surge in travel. And I think we're starting to see the benefit of that in our numbers as well, which I was anticipating. We also believe consumers in this environment in many markets around have shifted towards value and have shifted to e-com. We can clearly see it in our own e-com numbers, both our direct-to-consumer e-com and wholesale. And I think importantly, because of our scale advantage, we're well positioned to capitalize on that. Our brands can hit price points -- competitive price points across all of our markets across particularly Samsonite and American Tourister, and we've been doing that. That's fueling some of our story. And we -- and as you know, we're investing in this in a strong digital platform, both digitally and importantly, on the wholesale side as well. And it's delivering. And you can see it in our numbers in Q3. And I think we're really set up for medium-term growth on both of these avenues as we move forward. We're focused on profitable long-term growth. When you think about what I'm focused on as a leader, it's really around getting this business back to its normal growth profile. We have a long history of delivering outsized growth against industry, and I think we're heading there. And importantly, we've continued to strategically invest in our business. Even as we face headwinds, we're pushing the business to really strengthen our competitive advantage in the marketplace from a leadership platform capabilities and scale advantages to continue to move us forward. We're continuing to win through product innovation. We've got some really exciting stuff that we've launched across all brands, a lot in the pipeline as we move into the start of next year. We're really laser-focused on amplifying and elevating brand awareness. As you know, we're leaders, our three core brands are leaders in the market in their own rights individually. But collectively, we're looking to amplify and really push more efficient, more effective marketing and have a vision to increasing this as we move forward. And we're really set up to do that to, again, cultivate customer loyalty, but importantly, continue to attract new customers to our business. And so you should be seeing and feeling that in our marketing messages today and as we move forward. We will capitalize on the growth in travel. The forward view for global travel continues to be strong and as a leader with really the most trusted brands in the space, we will capitalize on that growth. I say it again, this white space around non-travel, there's tremendous opportunity. I've got a slide that talks about market size and what our shares are. We have tremendous opportunity to grow the non-travel business, of which we've been doing consistently for a long period of time. I think we can accelerate what we're doing here on the non-travel side, and you'll hear and see some of that in the numbers that we're showing today. And we're strategically growing DTC really through enhanced e-commerce platforms across the globe and across land -- brand and really disciplined store openings and expanding our retail footprint in the markets that it makes us -- sense for us to do. It provides this really unique competitive advantage to us that we're executing wholesale, but we're executing perfectly digitally and pushing ourselves on the digital side. And we have a foundation of retail stores, almost 1,300 stores globally that consumers can interact with us. And these are direct owned stores that we can have this deep relationship with our consumers. And we'll continue to do that. And I think over time, our DTC mix continues to slow but steadily increase in the business at the right pace. And we remained strictly disciplined on overall cost structure. You can see that in our overall numbers. Obviously, gross margin is an art and a scale that we have, and we manage gross margin for a long time really well. But how we manage the rest of our cost structure, Reza will talk through that as well. Even as we face some headwinds over the earlier quarters of this year, -- the cost structure has been really well managed, and it's well entrenched in who we are as a business. I think this is a new slide. It's a slide that we use internally quite a bit, but we operate in a really highly attractive fragmented global bags and luggage business. I'm on Slide 9. If you look to the right, global luggage. This is what you typically think of us as when you think about us today. It's roughly 64% of our business is travel luggage. We have a 19% share in what in '24 was a $22 billion business that grew at a CAGR growth of 2010 to '24 by 3%. And that's with the COVID years. The reality is take the COVID years out, it looks more like what the forward indicators are for this industry, 2024 to 2029, 6% CAGR. And as you know, we have the ability to outpace this growth. And that's the way to think about this space. So we have a growing industry. We have meaningful scale and we have the ability to continue to grow and attract consumers into that -- into our family of customers. To the right of the page is bags, global bags. This is excluding luggage and excluding handbags, which is not us, right? This is the rest of the bag business, what people are carrying around and moving backpacks, duffles, crossbodies, things that we see every consumer in the world traveling with. That has very similar underlying growth dynamics. You can see the 10% to 24% impacted a bit by the COVID years and the forward indicator is not so different than luggage, 5% growth. And importantly, our market share here is 3%. We've been growing high single, low double-digit growth for a period of time in this space, and we have clear ability to continue to expand with collections that we've launched and been launching. I think my next page I will show you a few of those that shows that we have tremendous ability to grow share in this bucket. And it's a larger bucket with plenty of opportunity for both ongoing growth and just gaining share. And just as a reminder, in this 2010 to '24 period, if you blend the two, we -- our CAGR growth in that time period was 8.2%. That's including COVID years. That is almost 3x the industry growth that we saw in that same time period. So it speaks to kind of our ability to leverage our scale to move across these two big categories of the market we operate in. Our growth, we've covered this before, has historically been really strongly correlated to travel. And the outlook for travel remains tremendously strong. If you take a 5-year forward view, travel growth expected to be around 4%. If you shorten that up a little, I think it will actually be a little more. If you look to the left of the page here from where we are to 2019 levels, call this pre-COVID, we're up 22% in sales against the global passenger growth in that time period, including COVID, that's up 8%. So you can see this tremendous outpace that we have in growing against an industry that continues to grow. The chart on the right, we've shown before, okay? The red line is travel industry. You can see the impacts of COVID. But the real impacts are really where we are now, which is this revenge travel that I covered that we really overperform. And the forward indicators. The most important page here is the forward indicators for global passenger travel, 4% growth. And we're importantly at this inflection point that we're getting back on course. The history clearly shows we outperformed this industry, and we're pivoting into positive growth again is the way I would describe it in -- at the end of Q3, in Q4 and for sure, in the years to come. And we should do better than what the industry underlying growth is like we have for the last decade. On Page 11, non-travel category, 14% CAGR for us, 2020 to '25, right? So I just showed you a number where the industry growth was something like 2%, and we had 14% growth here. We've gone from $480 million to $912 million. We've talked about this for several years. There's real opportunity to continue to grow in this space. We delivered close to 7% growth in Q3. And we're focused, and it's across all of our brands, brands like Gregory that are largely non-travel, High Sierra which has a meaningful piece of travel. But TUMI, Samsonite and American Tourister are all delivering meaningful growth in this space and plenty of opportunity to gain share and continue to grow. As a team, we're laser-focused on really further penetrating what I would label is a big business of us, a $1.4 billion to $5 billion business, but under-penetrated from a category perspective, that I know we can do more. And in this Q3 period, we're up 270 basis points as a percentage of our sales, approaching 36% of our sales non-travel. I think when I started a long time ago, it was something like 12% of our business, right? So this is really meaningfully moving. And again, in a huge market that's got tons of potential for us. On Page 12, what does it look like? I think you know this. A good example of Samsonite Better Than Basic designed and developed in our U.S. team performing really well. This has a whole collection of backpacks, duffles, cross bodies that is performing tremendously. It's what you see consumers moving with today. Ecodiver in the middle of the page. This has been a home run, started in Europe. It's a home run all across the globe. The whole collection of duffles, backpacks, more unstructured travel goods that consumers are traveling with today. It's a top three collection in Europe overall, and it's penetrating the rest of the world over the last couple of years in a meaningful way. American Tourister take the cab and underseater. There's this huge wave of underseater bags within Europe as discount airlines put pressure. This underseater category, we're hitting with all of our brands, and there's so much more to go. And this American Tourister bag has been a tremendous success. And when you think about American Tourist, you think about bright colorful luggage, but this non-travel capacity we have in backpacks and duffles is tremendous, and the teams around the world are doing great stuff. Gregory, you get it. This is Gregory, which is super technical mountain bags. As we come off the mountain and we really penetrate into everyday bags, that make you feel like you're on the mountain, but you're in an urban setting and more lifestyle approach products with Gregory. Gregory is delivering significant double-digit growth this year for us, and it's got tremendous room to grow. Samsonite Paralux, this is a collection that we launched. I have a slide on it. This is the backpack component of this. This has been a huge success. This is a 2-in-1 backpack, where you can separate that backpack and you have a bag that you can take with you for the day and the travel component of that backpack that you can use is effectively your underseater has been a huge success, a Red Dot award-winning collection. And then TUMI's, Celina part of the-- TUMI Voyageur collection, really an amazing bag, big part of TUMI's journey and so much more to go on TUMI from a collection perspective. Think about owning totes and business bags and what TUMI is known for, there's real opportunities to drive further that space, particularly in the women's category. Just a little call out. We were -- and we've been here before, this is -- Business Travelers Award, where Samsonite was rated #1; TUMI was #3 on the list. No surprise, Samsonite is #1. This is a survey with 95,000 global travelers voting in a panel of 20 experts. And importantly, when you think about scale and the ability for us to innovate and bring products to be recognized as #1 business traveler luggage is meaningful. And you'd expect that from us. And I'm just sharing that this is with [Technical Difficulty] push in the business to really demonstrate this amazing product development, this focus on functionality, focus on sustainability and creating inspiring bags that people want to travel, and this award speaks to that. On Page 14, we've had a very successful, I would say, ahead of our expectations launch of Paralux Collection. I think I indicated we're working on this. This launched in September of 2024. It's a collection that really brings the best of our innovation from a sustainability perspective, the bag is largely sustainable. Almost every inch of this product incorporates sustainable materials. It's built for self-repairability, another real sustainable attribute. This is a bag that you can replace the wheels at home. We can help you do that very easy. And it's built to last, and it's built with superior design functionality. It's become one of my favorite bags to travel with from a carry-on perspective. It's got front access, a mid- access. It's really designed perfectly for the way consumers think about traveling and ease of travel when you're moving through airports and in hotels, what the bags deliver is tremendous. And it was recognized. We won two Red Dot awards for this, both on sustainability design and overall design. And again, it's exceeding our expectation. And I would argue it's just getting going. I think it's been a really successful collection. And it speaks to the power of a globally launched product with cohesive high-impact media campaigns across all of the regions of the world. This talks about scale advantage when we put ourselves together to deliver on a really amazing product. You should expect more of that from us as we move forward. And TUMI is really on the run. You can see the shift in performance as we stepped into Q3. We continue to focus on elevating this brand on all fronts. It's a very product-centric and communication strategy-focused business, okay? This is around delivering performance luxury products and then really meaningfully elevating the messaging to consumers on what we offer here and what this means. We had a 50-year anniversary for TUMI. Even that surprised me, I hadn't fully appreciated TUMI was 50 years in the making. It's hard to find brands in our space that are 50 years -- and it was driven. It was well presented the signature TUMI Red that you can see on the left, incorporated in some of the product materials as we are launching our 50-year messaging to consumers. We launched 19-degree light as part of this 50-year, really a testament to the innovation that continues to be deep in the brand TUMI, both on travel bags and non-travel bags, very successful line. Clear focus on lightweight that TUMI has been needing and waiting for it, very well received by consumers and more to come, is what I would say as we go into next year. And then just lastly, TUMI's Icons Tested” campaign as we talked about the icon of TUMI and what it means to travel with the TUMI that fits the true definition of performance and luxury, how it comes together. This we launched in September. We've already had 56 million impressions off of a campaign that I think has been well received, both focused on men's, non-travel, women's non-travel and talks about the true DNA of what TUMI is all about when you think about performance luxury. So we're quite excited and more to come on the TUMI's journey as well. We've opened some amazing stores for TUMI around the world. I just wanted to give you a few of these. South Coast Plaza in California, just a tremendous store. I think we talked about the TUMI store in Shanghai, this flagship location in the bottom left. That's been a tremendous success, really distinctive TUMI. When you get into that store, you feel the brand in a meaningful way. Chengdu, China. So when you see China moving and the types of stores that we're opening within this region, really amazing in Beijing, China as well. This speaks about the power of this direct-to-consumer model and the strength of the brand as we show up not just -- on digitally, not just with amazing product, but on a footprint that consumers really embrace kind of what the brand is all about. So with that, I will hand over to Reza and I'll come back with outlook right at the end. Reza Taleghani: Thank you very much, Kyle. We're on Slide 18, just looking at the overall results, and some of this Kyle has covered, but just to go through it. Overall, Q3, we're reporting sales that are down 1.3%, a meaningful improvement from the first half. The first half, as you'll recall, was down 5.2%. So we are seeing that sequential improvement that we had indicated on our last call. Very importantly, this gross margin improvement, not only are we maintaining gross margins despite the tariff headwinds, but we're actually 30 basis points better year-over-year. And as you'll recall, gross margin last year was running at record levels for most of the year. So we're very, very pleased with what we've been able to do on the gross margin front. Adjusted EBITDA, obviously, the sales have been down, and therefore, that's working its way into the adjusted EBITDA numbers. So we're reporting $143 million of adjusted EBITDA in the quarter. If you're looking at the margin levels, we have had 43 net new stores that have come in year-over-year. So that obviously has a cost implication that works its way into that margin. So the margin has been impacted between the sales being lower. We have some incremental stores that have some SG&A associated with it. And so we're looking at 16.3% from an adjusted EBITDA margin for the quarter. And adjusted net income at $64 million as well, just looking at the total flow-through of that. Again, I think the important point on the sales is the last 3 months have been positive, and we're feeling pretty good about where the business stands right now. On Slide 19, just to give you a sense in terms of how everything is performing by region. Net sales did improve sequentially in every region since the last quarter. So as we mentioned, we had a North America business that has been under strain, but even that is looking better quarter-over-quarter. Just to go through the numbers. Asia has had a meaningful improvement, so roughly flat in Q3. And as you can see, the first half of the year, Q1 Asia was down 7%, Q2 was down 7.6%, and we're looking at about 30 basis points down for Q3. So a meaningful improvement, largely on the back of TUMI as well, although all brands are performing. North America down 4.5%. Obviously, as Kyle mentioned, the wholesale customers from the Samsonite brand impacting that number and that consumer sentiment point that we have been talking about earlier in the year continuing a little bit. Europe returning to positive. We're feeling pretty good about the Europe business, although the travel statistics and the inbound tourists are a little bit lower than what we've expected in the past few years. Reporting Europe up about 1% in Q3 and Latin America up 1.2% in the quarter. Largely, if we didn't have -- you'll see it on a subsequent slide, if Mexico weren't caught up in some of these tariff issues and some consumer confidence and wholesale buying issues in Mexico, that would have been the normal double-digit growth that you would expect from Latin America in the quarter as well. On the next slide, we can get into it a little bit at a country level just to give you a sense in terms of the individual drivers. If I'm looking at net sales in North America, you should be aware that TUMI really had a good improvement quarter after quarter. So TUMI was positive 3.3% in Q3 in North America as compared to down 3.3% in Q2. So that's a meaningful shift that we saw quarter after quarter. The Samsonite brand still under pressure in North America, but it is getting a little bit better, and it's largely drawn off of the cautious buying that we're seeing from our wholesale customers. Net sales in Asia, roughly flat, and we're seeing sequential improvement in net sales of TUMI. TUMI was up 7.1% in Q3 versus up 5.2% -- versus a 5.2% decrease in Q2. So very meaningful shift in terms of what we're seeing in the TUMI business in Asia off the back of the initiatives that Kyle outlined. Strong growth of the brand in China, 10% growth in China in Q3 alone. So we feel very good about TUMI globally. Sequential improvement in net sales of Samsonite brand in Asia. So if you're looking at it quarter after quarter, Q2 Samsonite brand was down about 9%, Q3 down 4.3%. So getting a little bit better as we get enter the back half of the year. And then meaningfully, you saw the shift that we saw in American Tourister overall. That was -- a lot of it was due to Asia, but specifically India. And so if you're looking at Q3, India improved 8.5% growth in Q3 from down 2.7% in Q2. So really meaningful improvement in terms of the sequential improvement that we saw in that market as well. Going on to the next slide, we can touch on Europe a little bit. Europe sales up about 1% in Q3 as compared to down about 1% in the previous quarter. Both Samsonite and TUMI are delivering positive net sales growth in that region. The specific markets where we've seen improvement, we've seen France and the U.K. help drive a lot of that sequential improvement. But overall, most of the countries in Europe are performing relatively well. I would tell you that Germany has started to come back a little bit as well, but we were pleased, especially with these two specific markets in Europe. The net sales growth in Latin America improved 1.2% in the quarter. Again, I think this Mexico point is very important as you look at Latin America, excluding Mexico, it would have been up 13.2% in the quarter as compared to Q3 of 2024. So Mexico is under pressure as we look at that Latin America market overall. On Slide 22, gross margin stability is really a key. It has been all year, but I think we're very proud of where we ended the quarter as well. So Q3 gross margin, 59.6%, 30 basis points higher than the 2024 number of 59.3%. Some of that is driven by mix effects. As we have said over the course of the year, the teams have been very disciplined in terms of maintaining the promotional activity and the cadence. Obviously, we're still trying to make sure that we don't miss on sales and pursuing that, but we have been very disciplined in terms of what we're looking at on the promotional side. And really, the actions taken to mitigate tariffs have been tremendous. We've talked about this the last -- since the April tariffs on the last couple of calls, we've been talking about this, but you can actually see that with tariffs in full effect right now, if anything, we've actually improved our gross margin. So the mitigation efforts have been very successful. Those included partnering with our suppliers to manage the cost, reengineering product in the medium term to make sure that we hit those price points while making sure that we hit the business specific gross margin targets that we have for all the brands. And we do anticipate being able to continue that going forward as well. On the next slide, just some of the other financial highlights that bear mentioning coming out of the quarter. We're on Slide 23. Overall, Q3 distribution and G&A expenses were $339 million. That's up 5.1% compared to last year. But bear in mind that we do have 43 net new company-owned stores over the past 12 months. So that's working way into the cost structure. Advertising spend, 6.1% of net sales in the quarter. So that was $53 million in total. That's about $3 million lower than what we had last year. It's roughly about the same number. We do anticipate increasing advertising as we enter really next year, but you may see a little bit of an increase going into Q4 as well. We want to make sure that we're investing behind the brand, especially now that we have all of these really great product introductions coming in. We want to make sure that the marketing is supporting that as well. Operating profit of $139 million in the quarter, that compared to $133 million in the previous period in 2024. Strong adjusted free cash flow, $64.7 million. So continuing to generate free cash flow. This business has always had a great track record of doing that. And then a net debt position of $1.2 billion. When we get to the balance sheet, I'll touch on the fact that we had this refinancing that we just announced last week as well, so we can get through that a little bit in terms of extending all of the maturities. That net debt position is after returning almost $300 million of capital to our shareholders as well, so $279 million in aggregate between our share buyback program last year as well as the dividend. Our net leverage ratio was right around two turns, which is our long-term target for the company. And then liquidity at the end of the period, we were at $1.3 billion of liquidity. Post the refinancing that we did, that did improve a little bit as well. On Slide 24, the DTC sales mix, Kyle touched on this a little bit. Overall, if you're looking at it year-over-year, the wholesale is down about 2% as we increased our DTC mix. So our DTC mix is now 42% in aggregate. If you're looking at it in terms of the component parts of it, our own e-commerce channels have grown to 11.8% of the total number of sales that compared to 10.5% last year. Our retail, our own store fleet is delivering -- is now about 30% of the mix of that as compared to 29.3%. I know we oftentimes get the question as to what is our store strategy. But what we usually say is that we're trying to keep that portion of the pie that comes from the retail fleet the same. So it should be around 30% going forward. And most of the DTC growth going forward should come from e-commerce. The other point that I'll just raise is if you're looking at the breakdown of that wholesale pie, wholesale includes e-tailers for us. So it includes Amazon as well as Mercado Libre and the other etailers that you see around the globe. The portion of that 58% that comes from the e-tailers is now 9.2%, that's a full point better than where we were last year as well. So even that wholesale portion, you're seeing us push the e-commerce channels as well. On Slide 25, looking at travel versus non-travel, Kyle just showed you where the huge opportunity is in terms of trying to expand our presence and stretching our brands into non-travel. Non-travel growth, if you're looking at it sequentially from last year versus this year, non-travel growth up 6.7%. So we have a meaningful investment in this category. So now non-travel represents 35.6% of our total sales. Just compared to last year, we were just shy of 33%. So that 6.7% growth is meaningful and an area that we're going to continue to invest in. So just looking at it on a year-to-date basis on Slide 26. Obviously, as I mentioned, the first half was down 5.2%. Q1 was down 1.3%. That blends to we are just around down 3.9% year-to-date. Obviously, going to the back half of the year I am going into Q4, we're hoping that, that continues to improve as we get to the back end. Kyle will touch on that in his outlook. Gross margin year-to-date remains very strong. Again, 59.3% year-to-date. And we do expect as Asia starts to grow back to its normal clip and TUMI, which is performing, that will also further help the gross margin story for us. Adjusted EBITDA is down $77 million year-over-year. That's largely due to the fact that the sales are obviously lower. And there's a little bit of gross margin that's declined year-to-date between last year versus this year. And that's partially offset by a little bit of lower advertising as well. And year-to-date net income, $187 million as well. Looking at the balance sheet. Again, we have a very strong balance sheet. We feel very good about where we stand. Again, I have a specific slide dedicated to the refinancing, which is on the next one. But just on this slide, we are very well positioned to capitalize on long-term growth prospects. We have significantly delevered coming out of COVID, but we have a lot of financial discipline, and we expect that deleveraging story to continue. Ample liquidity at $1.3 billion and net leverage stands just right around two turns of net leverage. On Slide 28, I want to just spend a minute in terms of talking about this refinancing that we did. Basically, we refinanced all of the corporate debt that we had on the balance sheet at Samsonite. This is important because it was massively oversubscribed, showing the strength of our balance sheet overall and the interest in Samsonite. The importance is all of the debt maturities have now been extended. So our core pro rata facilities, our Term Loan A and revolving credit facility now have a maturity of 2030. The Term Loan B has been set to a maturity of 2032, so going out 7 years. And our senior notes, the Eurobonds that we had talked on the last few calls that were coming due beginning of next year have now refinanced to 2033 as well. If you look at the component parts, we were able to actually reduce pricing on the pro rata facilities, the Term Loan A, the revolving credit facility by removing the CSA that was there. So that's a 10 basis point improvement in pricing there. The Term Loan B, we were able to also reduce the margin on that by 25 basis points as well. So we're now at SOFR plus 175 basis points. Obviously, the bond markets are very different than where they were when Kyle initially executed the Eurobonds, but we still were very pleased with the outcome of 4.38% on that piece of debt as well. And you should be aware that we're also entering a number of swap transactions that should also help us in the near term in terms of managing the overall financing. The net-net of all this is basically we've extended the maturities and the interest expense is about the same with where it was previously. And we did improve liquidity by another $40 million as well as a result of this. On Slide 29, just looking at CapEx. Again, I mentioned that we had 43 net new stores year-over-year. Again, we're very disciplined on how much CapEx we spent. Year-to-date, we're at $54 million of CapEx, which is a slight improvement over where we were last year. Most of the CapEx goes into the retail fleet, as you can see, so $33.8 million of that is going into the stores. The breakdown of that is about $17 million is going into remodels, about $3 million into fixtures. And then new stores is about $13 million of CapEx. Again, very disciplined about how we're choosing to spend the additional CapEx that we have, but we are investing in stores because we believe in the opportunity there as well. I went through that very quickly to leave time for questions, but let me turn it over to Kyle for outlook, and then we'll open it up for questions. Kyle Gendreau: Okay. Thanks, Reza. So -- and importantly, and I think you can sense it from my tone and what we've been delivering, we remain really confident on the long-term tailwinds that support our business. Although the current macroeconomic environment still is uncertain and there's plenty of inflationary pressures around the world that could weigh on consumer demand, particularly in the U.S., as you've heard from us, we expect to drive medium- and long-term sales growth really against very strong product launches, strong and elevating advertising campaigns, capitalizing growth in consumer demand for travel. It continues. Travel is one of the areas that consumers continue to prioritize and seize again on the opportunities around non-travel underpenetrated geographies, and channels across our business. All of these things we're very focused on and continuing to invest behind. With positive constant currency sales growth in the recent months, we expect some level of improvement in our constant currency net sales growth in Q4 relative to Q3. Q4 is expected to continue to benefit from global travel demand, strong product launches like Paralux, which really launched at the end of Q3 that's carrying into Q4 and this elevated advertising campaigns that you're seeing and feeling from us, not just on a product like Paralux but across our business. I think that said, consumer demand remains challenging to predict. I think that hasn't really changed tremendously. And it's -- and we have a sequentially tougher period to comp in Q4 off a stronger demand that we felt at the end of last year. But early reads into Q4, particularly with a positive start with a strong October and strong momentum into holidays make me feel convinced you'll see sequential improvement in the quarter for us and as a business. You can feel it in the messaging, the tone and just the recent trends that we've seen. We believe our scale advantages, supplier relationships, tariff mitigation efforts will continue to enable us to maintain a strong gross margin profile like we just delivered in Q3. And if you listen to how we talk about kind of the shifts of mix effect as we grow TUMI at a faster pace, as Asia gets back to delivering in normal course of growth that Asia is capable of delivering, this margin has strength behind it. We've managed through the bumps of tariffs perfectly, and there's opportunities for this to continue to expand in the medium and long term from a mix perspective. We continue to leverage this asset-light business model, as Reza just talked about when we look at the balance sheet and our ability to return cash to shareholders, deleverage our balance sheet on a go-forward basis. And as Reza just went through, and we successfully just reset and optimized our corporate debt structure, something that was significantly oversubscribed when we went to market, which delivered a great result that provides kind of stable balance sheet and stable liquidity for this business as we look forward to the next 5 years. And lastly, we continue to prep -- I would say, we're well prepared for dual listing in the U.S. We've been closely monitoring global economic backdrop and our own trading conditions, and we are encouraged with recent results, improvements in our trends in our own business. The Board and I firmly believe and the management team believe that dual listings in the right -- is the right thing for this company and to enhance shareholder value over time. And we're sitting in a ready position to do that. And we intend to complete this dual listing in 2026, considering the constructive environment that we're seeing. So with that, William, we'll open up to questions. William Yue: Thank you, Kyle. Thank you, Reza. Operator, we can go into Q&A now. Thank you very much. Operator: [Operator Instructions]. We are now going to proceed with our first question. And the questions come from the line of Erwan Rambourg from HSBC. Erwan Rambourg: I wanted to thank Reza. I don't know if I will speak to you again, I mean, hopefully, in the future, but just wanted to say thanks for everything and best of luck. Three questions, if I can. I think you make a good case in terms of correlation between travel trends and sales having broken down post COVID and more recently, with a bit of a digesting period. When do you think you can reconnect to growth that would be similar or maybe even slightly above the growth of travel? Is that as early as next year, you think? So that's the first question. The second question is around, I think Reza mentioned the ad spend ratio should maybe pick up a bit in Q4 and into '26 to support the comeback of the business. Where do you see that ad spend ratio more sustainably? And then last question. I think, Kyle, you said that you were confident that Q4 could show sequential improvement despite the world not being that easy. Where do you see that improvement coming from, whether it's region or brand sequentially? Kyle Gendreau: Okay. Thanks, Erwan, and thanks for the call out on Reza. I might just make a statement because others might have a thought on Reza as well. Reza and I have been together for 7 years doing some amazing stuff with this company, so I can't thank Reza enough as well. We're in a good position as a business. We've transformed a lot, particularly through COVID and positioned it well. But we're well placed on the finance side. Reza has got an amazing team around him. That we won't miss a beat. We'll obviously start a search on that, and we'll be thoughtful, just like I was thoughtful when I brought Reza into the fold with me 7 years ago. But we're well placed. The team's well trenched the finance team super solid. As you can tell, I'm laser-focused on delivering growth in the business and driving strategy and nothing changes in that arena. This business is well rooted with deep teams around us, but I agree and thanking Reza. I haven't quite congratulated him on that because I'm slightly annoyed with him -- I'm just ready. But that's -- but that's normal, but we've done some great stuff together -- we spent a lot of time together. So thank you. On the returning to travel trends, I think we're -- as I said, I feel like we're in this inflection point right now off of the back of what we've seen from kind of surge in travel and the dip that we felt off the back of that and consumer sentiment. But we're seeing some good trends right now as we're looking at the months fall. I think we're not too levels that are normal for us. But I have an indication and inkling that next year will look more normalized for us from a growth perspective, and I think start to really show that correlation. If you go back 15 years and see how perfectly correlated we are and our ability to actually outgrow the industry. And I think we start to trend into that as we get into next year, particularly as we get into Q2 as we're comping kind of a different period. And momentum feels good as we're going into holiday. I think the Q4 kind of trend that you asked as your third question, I think we generally see it kind of across the mix. The only market that I would say, continues to be challenged and largely because -- it's a meaningful wholesale business in North America, where we see very good sell-through. We're looking at sell-throughs of our October numbers of our month of October and month to date September sell-throughs that are quite high, quite surprising, actually. It speaks to consumers moving consumers moving ahead of holiday. We can see that in our November, Decembers. So I think you'll see sequential improvement across all of our business, just like you saw in Q3, you'll continue to see that across each of our brands. I expect Samsonite maybe to improve at a faster clip. That was kind of at a different point in Q3 than maybe what you saw in TUMI and American Tourister, but I expect that to kind of catch up. And we're seeing generally growth across all of our regions and some consistent improving trend way, which speaks to me, and it helps support kind of my comment on the front. We're really at this inflection point where everything is kind of reshifting and correlating back to the trends that we typically see in our industry. From an ad spend perspective, I just want to make sure we interpret right. I think we're -- we've been leaning into advertising. But Q4 from a percentage basis, will probably look like what we've been doing roughly year-to-date, maybe even as a percentage, just a bit lower. But overall, we're in and pushing. And so for the full year, we'll probably be just shy of 6%. I think the natural place for this business, and we've talked about this before, is somewhere around 6.5%. And I think as we really continue to build momentum, don't put it past us to push it forward. But if you're thinking next year, I think we bring it up to kind of what the normal trends are for us that I think is the right levels if we're really driving new consumers to the business. And excitement to the business, really effective efficient spend, but probably in that mid-6% range is the natural place to be. Operator: We are now going to proceed with our next question. And our next question comes from the line of Chris Gao from CLSA. Chris Gao: So I have three questions. So firstly, is regarding the China trend. So we have been seeing very exciting sequential recovery of TUMI brand Samsonite brand, which is also similar with some of the luxury brand data points that have been reflecting a recovery in China. So the first question is how do you see the sustainability of China's -- China markets recovery in the next few quarters? And also for the TUMI brands recovering, which reached 10% in the third quarter, how much is coming from retail space expansion and how much is coming from the same-store sales. And also -- the second question is also related with China, it is about the latest update. So how do you see the Double 11 trends in China right now? And also regarding recent China recoveries consumer profile, do you see the recovery is more boosted by the existing customers coming back? Or it is mainly coming from your new customers' recruitment? So this is the second question. And the third question is regarding the cash deployment. Since we have been seeing Samsonite adding on liquidity after the refinancing of senior notes and credit facilities, and recall that last year, Samsonite has launched a tranche of buyback. Is this something that we'll continue to consider going forward? And also dividend side have been continuously improving the dividend payment in the past 2 years. So do you also consider any dividend payout ratio increase? So these are the three of my questions. Reza Taleghani: Why don't I start with the China stuff and then Kyle, -- China -- you can take it from there. Kyle Gendreau: Yes. Reza Taleghani: So overall, as you can tell, we definitely are seeing a shift in China. Again, this year, China compared to last year, we felt pretty good about it, but the first half of the year was a little bit slow. So when you were looking at China, so Q2, China was down about 6%. And China now, we're still a little bit down, but we're approaching flat in Q2 or it's down about 2% right now. But we are anticipating Q4 and we can already see the early reads of it. Obviously, we've seen a little bit of Double 11 already. We've already seen October as well. We're firmly in positive territory right now with China. It is all brands, but I will be honest, TUMI has really outperformed. So you saw the 10% number that we just shared. To answer your question about where it's coming from, actually, you'll be surprised -- maybe you'll be surprised to hear this. If you're looking at TUMI overall, the total number of net new stores year-to-date in all of Asia is actually 0. So all of it is -- now there are obviously certain locations where you exit and you add another one, and we're getting -- we're trying to get some larger square footage stores in the region. But this is really just -- so it's not through additional store expansion. It's actually coming from the existing store footprint as well as those new locations really delivering. In terms of who the customers are, it's a mix. So we do -- especially for brand TUMI, we do have some greater data in terms of being able to get some loyalty information from those customers. So you are seeing existing customers come back, but we are also seeing new customers being introduced to the brand as well, especially in China, making some really meaningful investments in advertising and brand behind some local influencers has helped us in that regard. Obviously, the new product introductions have been great. You've been with us for a while, so you'll recall that last year, we were talking about one of the initiatives we had was around 19-degree light. So trying to make sure that we have a lightweight product that really resonates with that international consumer. Those are the kinds of things that we've been doing to make sure that we can address the product needs, but also investing behind it with real brand advertising as well. So overall, again, I think we feel very good about our China business at a macro level across all the brands, but TUMI has been disproportionately doing well, as well. Early reads on Double 11, we don't have the final numbers in yet, early reads have been very positive. We've been pleasantly surprised in certain cases, candidly, in terms of how well it's gone. So I think that should work its way into the Q4 numbers as well. Let me see what the other question you had -- the new customer -- cash distribution. So what we've said is the dividend policy, we generally look at about a 40% payout ratio, you should expect us to do that. That's about $150 million in terms of cash use. So expect that going forward. Nothing has changed in terms of our approach with share repurchase. We're opportunistic around it. As you migrate to a U.S. listing, we are mindful that we have certain shareholders where from a tax perspective, it's much more efficient to return capital to them via share repurchase as opposed to dividends. So we will revisit that with the Board. But actively right now, we've completed the $200 million that we were out to do that we're holding those shares in treasury. We'll decide what to do with that at the time of the listing. And then going into next year, we'll decide whether we will look at that opportunistically as well. It will probably end up being some sort of mix between the dividend and share repurchase, but that hasn't been determined yet for next year. Kyle Gendreau: Cash flow for the business remains tremendously strong. This kind of asset-light model that we talked about continues to deliver and to our ability to have some share buyback opportunistically pay dividend and continue to deleverage the balance sheet is something that we're very capable of doing. Even in a year where we're maybe trending down low single digit for the full year. The business generates a tremendous amount of cash flow. So all of that will stay in place. Chris Gao: Okay. Can I follow up with one question. That is about the pricing. So the background of tourists -- can we ask about the magnitude of price increase in U.S. for the third quarter and also help it to trend in the next few quarters? And also, if there could be any price increase in other regions, could you please also update us as well? Reza Taleghani: Yes. We haven't disclosed the level of price increases in the U.S. market. What we've said is it's been a combination between price increases, working with our suppliers. The other thing you should bear in mind as it relates to tariffs, a large portion of the landed cost of the product in the U.S. is freight, which has actually been working in our favor. So through a combination of those three, actually, it's more than that, but largely those we've mitigated it. The other point that I'll just raise is usually buy luggage every probably 3 years or so, it's not a regular good that you're regularly seeing what the price is. So the end consumer -- the actual price increases are really going to have a negligible impact. So it's not going to be like there's a sticker shock that my $200 carry on all of a sudden is $500. Kyle Gendreau: And we're constantly redesigning product and reengineering products. So it becomes kind of a neutral story when you think about a period of 2 or 3 years because we're able to reengineer a lot of what we've been doing and a lot of what you've seen in markets like Asia and China where the consumer is doing a little bit of trade down, but within brand, we're able to reposition products to hit price points that deliver margin. And that's really what drives our business. So this is a business that you just kind of tack on price increase and off you go. This is around reengineering constantly to hit the right margins, to hit the value that consumers are looking for in the products. And there are no pending pricing. Most of everything we did on tariffs was done as we exited Q2 because we had full visibility to it. So there's nothing from a price increase perspective kind of baked in our business for Q4. And next year will be just a function of normal course if there are some on a normal course basis. Operator: We are now going to proceed with our next question. And the questions come from the line of Anne Ling from Jefferies. Kin Shun Ling: Just a couple of questions. First, regarding the margin, like I understand that in terms of having a stronger growth from TUMI, which is the higher-margin business and also more retail. So we have a pretty good GP margin. But I think we also have some store expense. So therefore, like our -- we have some pressure in terms of our OpEx on top of like -- top line growth was slightly negative. So my question will be like moving forward, when will we start to see like same-store sales growth start to have positive operating leverage. Maybe you can share with us some guidance in terms of like what we should be looking at in terms of the adjusted EBITDA margin. When will we be going back to the high teens level that you think that you previously mentioned. That's my first question. And my second question is on year 2026. Any like initial feel about like -- should we be going back to the mid-single-digit top line growth trajectory from that on? Reza Taleghani: Why don't I start with the margin point. If you look at it on a percentage level, if you're just looking at our cost structure and always -- keep in mind, every time we talk about EBITDA margins, we should always look at advertising and then the rest of the cost structure as well because advertising is a lever that we move up and down, and we just finished saying that as you're entering next year, you should expect us to be increasing the advertising point as well. So if there's an increase that's coming as a result of sales rebounding, we will reinvest some of that behind advertising in the brand. But generally speaking, if you're looking at the -- so we had about a little over 40 stores, so 43 net new stores on an LTM basis that are adding a little bit to the cost structure. During that period of time, revenues have been down. So naturally, there's a deleveraging that's happening. You have some increased costs from new stores coming in. There's also just the normal wage increases, rent inflation and things like that, that you're looking at. If you're looking at it just in terms of the percentage increase, even including those stores, you're up about 4% or 5%. I think it's like 4.8%, if I remember correctly or thereabouts year-over-year. So it's not like something that's really out of whack. Usually, what happens is as soon as you return to sales growth and even just a couple of points of sales growth, you start to see the operating leverage come back. But again, you have to look at that in terms of at what point do we start to reinvest in advertising and increase that by whether it's 0.5% or thereabouts. So we haven't given guidance next year as yet for -- in terms of where we're going to be on sales or margins. We typically do that off of the year-end numbers in our normal course. So you should expect from March. What I will say is just the general trends, that Kyle said in his remarks, the trends are very favorable going into next year. We do feel good about two really big things. There's the overall macro level points in terms of what you expect travel to do, and Erwan asked the same question as well. And we're seeing that we are -- now that we've come out of that revenge travel kind of pull forward of demand that, that correlation is coming back again. So you have just the normal trends of the industry that are happening. But don't underestimate the fact that we are entering into a replacement cycle for next year as well. So you're coming up on that 3-year, 4-year period that where a lot of bag replacement happened post-COVID, and it's that natural replacement cycle should benefit us as well. So I think the combination of those two make us feel pretty good about going into 2026. But I think you should just expect formal guidance when we finish out the year. Kyle Gendreau: And I think for '25 our Q4, you guys know our Q4 is often our strongest EBITDA margin quarter for us, and that still looks the same for us as well. So if you look at our year-to-date EBITDA margin, that will step up for the full year off the back of what typically very good EBITDA margin in Q4 that we can see will be delivering. So it gives you a good sense for it. And I think just to close the loop by, as we talk about advertising, I think Erwan asked the question. we are planning on leaning in to push advertising, which will do the same as driving sales. It will really allow kind of a lot of our brand and growth strategies to really accelerate for us. But that comes with kind of the short-term meaning on the overall margin as we lead into advertising. And so we should expect that a bit from us as well. But I think it's exactly the right thing to do as the business starts to move. And as I think I said during Erwan's question we start to get into some normal correlation to travel for next year is how we're feeling, but as we look with a slightly easier comp, which will also help next year as well. Thanks, everybody. We really appreciate the call. Any questions, you know how to get a hold of William and Alvin. And we'll be out and about meeting people as well over the next few weeks. William Yue: Great. Thank you very much, Kyle. Thank you very much, Reza. Thank you very much, everyone, for joining the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you, and have a good rest of your day.
Eduardo Galvan: In a world that's always on transformation, CI&T Inc is your go-to tech transformation specialist, helping you navigate opportunities and co-create solutions at every step of your technology journey. We get things done quickly, efficiently, and at scale. By combining the best human expertise with the power of our very own AI platform, CI&T Flow, we grow and boost your business value. Our mission? To design and develop tech solutions that drive. When it comes to navigating change, we turn challenges into possibilities, leading the way to a brighter future. We are right by your side, innovating together, and pushing you forward. That's what we do. Our deep know-how covers the entire tech development cycle, from strategy to AI, customer experience, software development, cloud, and data services. Navigate technology change with CI&T Inc to reach new heights. Navigate change with CI&T Inc. Eduardo Galvan: Good morning. Welcome to CI&T Inc earnings call for 2025. I am Eduardo Galvan, Investor Relations Director at CI&T Inc. Joining me on today's call are Cesar Gon, Founder and CEO; Bruno Guicardi, Founder and President for North America and Europe; and Stanley Rodrigues, our CFO. This event is being recorded, and all participants will be in a listen-only mode during the company's presentation. After that, there will be a Q&A session. If you would like to submit a question, please send it via email to investors@cint.com. The presentation is available on the company's Investor Relations website, and the replay will be available shortly after the event is concluded. Some of the matters we will discuss on this call, including our expected business outlook, are forward-looking statements. They are subject to known and unknown risks and uncertainties, which could cause actual results to differ from those expressed on this call. We caution you not to place undue reliance on these forward-looking statements as they are valid only as of the date when made. During this presentation, we will comment on certain non-IFRS financial measures to evaluate our business. Please refer to the reconciliation tables of non-IFRS measures in the earnings release for more details. Our agenda for today includes an overview of our quarterly highlights, followed by some of our business cases. We will then talk about our people and our financial results. At this time, I will pass it on to Cesar Gon to begin our presentation. Cesar, please. Cesar Gon: Thank you, Galvan. Good day, everyone. As we celebrate thirty years, I would like to highlight our winning operating model built on four pillars: It starts with three decades of experience shaping a world-class talent ground. Our teams use this expertise to co-create AI agents and digital solutions that solve real client problems. We deployed this combination of talent, proprietary technology, and methodology using a unique delivery model to win and expand clients. With every engagement, the learning accelerates, expanding our knowledge, refining our tools, and propelling our growth. And we are amplifying this flywheel by dogfooding AI across our operations. As we look back, it's remarkable how CI&T Inc has evolved through each major tech shift. From the early Internet and e-commerce to mobile, to cloud, and now artificial intelligence. At every stage, we've helped clients adapt and turn technology into business impact. Today, the same spirit continues with CI&T Flow, our AI management system. With an unprecedented level of adoption, we are combining leading large language models with our proprietary tools and data to create thousands of AI agents and prepare our clients for the inevitable agentic world. Across the industry, there is still a gap between AI ambition and real results. Most enterprises have not yet turned AI investments into meaningful impact. A recent MIT study titled the GenAI divide highlighted that 95% of GenAI projects are failing to deliver measurable financial results. That gap created strong demand for partners who can turn experimentation into scalable business value. This is where CI&T Inc stands. Built to help the 5% who are making AI work and to expand that group. It's a challenge tailor-made for our model and a major opportunity ahead. Now let me turn to our quarterly earnings highlights. Revenue reached another historical record of $127.3 million in the third quarter of 2025, representing 12.1% organic revenue growth at constant currency year over year, above our guidance. This also reflects a 13.4% year-over-year increase in reported revenue. Our adjusted EBITDA margin was 18.5%, showing healthy and sustainable profitability. Finally, our adjusted profit margin was 8.9%. This quarter marks CI&T Inc's fourth consecutive quarter of double-digit organic revenue growth. Our AI strategy is effectively bridging the GenAI divide for our clients, transforming their AI investments into tangible efficiencies and high-impact solutions. These AI-powered offerings have expanded our sales pipeline, increased our wallet share with clients, and reinforced our role as a key partner in their digital and AI transformation journeys. Now let's explore some inspiring client stories that showcase the diverse and powerful applications of AI. Bruno Guicardi: Ford partnered with CI&T Inc to expand its Wings platform across South America. Using CI&T Flow, our AI management system, the team analyzed 4,800 minutes of meetings and 50,000 lines of code, cutting delivery time by two months. Rollout in Argentina was completed in just ten months. Beyond speed, AI enhanced quality and accuracy, transforming how the project was delivered and reflecting local market needs. This success shows how deep business knowledge and advanced technology can create real impact at scale. Stanley Rodrigues: CI&T Inc is supporting Terranist Energy, a renewable energy company in Singapore, to enhance the technology behind its solar operations. We are modernizing their legacy systems, building a new Azure cloud platform, and providing real-time monitoring for continuous performance. Together, we are ensuring clean energy runs smarter, faster, and more efficiently, powered by data and innovation. Bruno Guicardi: Porto adopted CI&T Flow, our AI management system that enhances software development. In just a few weeks, development teams became 38% more efficient, reduced task time by 18%, and fixed 79 legacy code issues in one day. Test coverage grew across the process, increasing both quality and confidence. Together, Porto and CI&T Inc show how AI can simplify and strengthen digital transformation. Lucas Lincoln Morison: At CMG Financial, we are rebuilding how mortgage technology gets built. And that requires a fundamental shift in mindset. The traditional model is about output: how many developers, how many hours, lines of code? We need partners focused on outcomes: what actually gets delivered, what business value gets created. CI&T Inc understood that before we even had to explain it. They are not selling us seats; they are delivering results. And that's the kind of partner you need when you are trying to transform, not just maintain. First, they bring us capabilities we do not have, both emerging technologies like their FlowAI platform, deep financial services expertise, and real financial services experience across domestic and international markets. The model that worked in 2023 will not work in 2025. We need partners who are as comfortable with AI-generated code as human-written code, who measure success by outcomes, not hours, and can help us figure out what right-sized teams can look like in an AI-first world. CI&T Inc has shown us they can make that shift. Now, it's about scaling it. Bruno Guicardi: The New York Stock Exchange was packed on October 15 for our biggest Impact AI event yet. Leaders from top global brands shared how AI is driving real results, from scaling beyond pilots to reimagining customer experience. AI is not the future; it's the now. And the ideas born here will keep shaping enterprise transformation. Everyone's talking about artificial intelligence. We asked a different question: who's creating real impact? Together with Funda Sound, Dom Cabral, CI&T Inc launched the AI Lighthouse Awards, Brazil's first index measuring how companies use AI responsibly and at scale. It's more than an award; it's a benchmark guiding organizations toward ethical, human-centered innovation. Backed by data, research, and voice from Brazil's top business leaders, the initiative sparked nationwide coverage, reaching over 600,000 people through Forbes and other top media, and positioned CI&T Inc as a leading voice in Brazil's AI transformation. Eduardo Galvan: Together with the Costa Foundation, CI&T Inc partnered in the charity bike ride 2025 across Wales, turning every climb into a chance to make a difference. Gustavo Farias: Each ride helps children in coffee-growing communities get closer to education, safety, and opportunity. In August, CI&T Inc was an official sponsor of the Lean Summit 2025. On the main stage, CEO Cesar Gon joined Jose Roberto Ferro to discuss what truly transforms organizations: practice. The event also marked the launch of the Portuguese edition of Managing on Purpose, featuring a forward written by Cesar. We joined the Gartner Summit in London. Bruno Guicardi: Where leaders from around the world came together to talk about what's next in tech. On stage, our team shared how CI&T Inc is helping companies turn AI into real business value. With CI&T Flow, our AI management system, we showed how one of our clients in banking unlocked over 200,000 hours in just nine months using AI across their process. Because when AI connects every step of the journey, it stops being a tool and starts driving real transformation. Cesar Gon: Now I would like to invite Bruno to provide insights into our strategy and the evolution of our offering. Thank you, Cesar. It's a pleasure to be here. Bruno Guicardi: We ended the quarter with more than 7,800 scientists, a strong 16.3% growth year over year, ensuring we have the talent to meet the growing demands of our clients. Our people strategy begins with an advanced hiring process. We have built a systematic engine to attract and onboard the right people. It begins with our partnerships with top technical universities, which provide a large high-quality pipeline of young talent. Simultaneously, our reputation as a next-generation technology firm committed to a career-long development makes us a desirable destination for experienced professionals. Finally, we utilize an AI-enabled screening process to quickly identify the best candidates, and we prioritize filling open positions with our own internal talent whenever possible. This creates a robust and efficient hiring model. The direct result of our hiring process is the ability to scale our workforce quickly, supporting our revenue pipeline. Our robust training and development programs drive internal employee satisfaction and retention, leading to a healthy voluntary attrition rate of 10.9%. Now, let me discuss our delivery model, which is central to delivering AI value for our clients. Before extending these capabilities externally, we ensured mastery of AI internally, developing a systematic playbook for driving AI adoption. We have achieved an impressive 85% adoption rate of AI tools across our entire organization. This highlights our capability to effectively integrate new technology at scale. This widespread adoption has significantly fueled the growth of CI&T Flow. Over the past eighteen months, the number of agents our teams have created and are using to deliver value to our clients has increased 15-fold. Today, our system operates at substantial scale, with 4,700 active agents executing tasks across our business, from simple automations to highly complex workflows. Leveraging our extensive network of AI agents, we've developed compelling solutions that address our clients' critical needs. To give you a concrete example, our Data Modernization Studio features a set of AI agents designed to streamline and modernize data pipelines. This end-to-end approach encompasses data assessment, quality checks, and script generation, ensuring seamless integration into modern data architectures. Our solution significantly automates the transformation of legacy systems into advanced data platforms. By utilizing GenAI, we generate code, create technical documentation, and produce visual data lineage diagrams, therefore significantly reducing manual effort and risk. Through our Data Modernization Fast Track, we convert isolated data islands into comprehensive data intelligence systems, expediting the process from assessment to post-migration. This approach overcomes the time and resource challenges of traditional migration, enabling our clients to quickly unlock the full potential of their data. As we continue to innovate with generative AI, we're witnessing a shift in the market towards more flexible, value-based pricing models. Clients are seeking greater predictability and a clearer connection between their investments and business outcomes, presenting us with an opportunity to monetize the value created by our AI-driven approaches. To align with this shift, we are actively experimenting with new engagement models such as fixed price and output-based contracts, which better align our compensation with the successful outcomes we deliver for our clients. We anticipate a gradual transition to these models over time. With our AI management system, we are unlocking entirely new revenue streams. The large scale of opportunities driving our growth today were not feasible just a few years ago. Clients turn to us for our advanced AI capabilities, which empower them to address their most ambitious and complex challenges, whether it involves modernizing legacy systems, predictive platforms, or creating new AI-native business models. The direct result of our AI value proposition is our ability to consistently grow and capture market share. The value we deliver to our clients translates directly into the strong financial performance we provide to our shareholders. To guide you through our financial profile in detail, I'll now hand it over to Stanley. Thank you, Bruno, and good afternoon, everyone. Stanley Rodrigues: Let me walk you through our third quarter 2025 financial performance. Our revenue in the third quarter was $127.3 million, an increase of 13.4% compared to the same period last year, fully organic. On a constant currency basis, revenue grew 12.1% year over year. Looking at the year to date, our revenue reached $355.4 million, a 12.8% increase over the nine months at constant currency. As Cesar mentioned, this quarter marks CI&T Inc's fourth consecutive quarter of double-digit organic revenue growth, demonstrating the resilience and solidity of our business model. In 2025, our revenue from Latin America experienced a remarkable 35% year-over-year growth. In North America, revenue increased by 6% compared to the same period last year. Starting this quarter, we are reporting the performance of our Europe and Asia Pacific regions together under the designation New Markets. We are pleased to announce that both regions have recorded sequential growth in the third quarter of 2025. Focusing on industry verticals, we particularly highlight the strong performance in financial services and retail and industrial goods, which grew by 51% and 11% respectively in the third quarter compared to the previous year. These sectors have been actively pursuing digital transformation and modernization. In the financial services sector, companies are increasingly investing in AI-driven analytics to enhance customer experience, streamline operations, and improve risk management. Similarly, retailers and industrial goods are adopting AI technologies to better understand consumer behavior, optimize inventory management, and enhance supply chain efficiency. Our strategic cornerstone for growth continues to be our disciplined land and expand approach. This strategy has resulted in a predictable and stable revenue base characterized by exceptional logo retention and long client tenure. We have 10 clients each generating over $10 million in revenue. This cohort has seen a reported revenue increase of 19.5% in 2025 compared to the same quarter last year. Another solid indicator of our expansion with our large clients can be seen by the growing number of clients each generating $5 million to $10 million in revenue annually, from 11 clients in 2024 to 15 clients in the last twelve months. This illustrates our capacity to compound growth from within our established client base. In 2025, we achieved an adjusted EBITDA of $23.5 million, marking a 7.5% increase from the previous year. The adjusted EBITDA margin stood at 18.5%, reflecting a one percentage point decrease from the third quarter of 2024. This decrease is largely attributed to our anticipated upfront investment in expanding our workforce, with an increase of over 1,100 employees during this period, supporting our pipeline and revenue growth trajectory, combined with an unfavorable FX rate in the comparable period. We've maintained a disciplined approach towards our operating expenses. This is evident in our reduced SG&A as a percentage of sales. For the first nine months of 2025, we generated $46.5 million in cash from operating activities, translating to a robust 72% cash conversion rate from adjusted EBITDA to operating cash. This strong cash conversion provides us with the flexibility to reinvest in strategic initiatives to foster growth. In 2025, our adjusted net profit reached $11.3 million, marking a 10.6% increase compared to the same period in 2024, with an adjusted net profit margin of 8.9%. Our adjusted diluted earnings per share for the quarter was $0.09, demonstrating a notable 16.4% increase from last year. In summary, we have successfully achieved double-digit organic revenue growth on a consistent basis while maintaining solid profitability metrics and strong cash generation. Additionally, we are actively executing our share repurchase program, further enhancing shareholder value. At this point, I would like to invite Cesar back to the stage to share our business outlook. Cesar Gon: Thank you, Stanley. For 2025, we project revenue to be between $130.4 million and $132.6 million. The midpoint of this range represents a year-over-year growth of 16.8% on a reported basis and 12.5% at constant currency. For the full year of 2025, we are maintaining the midpoint of our revenue guidance while refining our expectations. We anticipate organic revenue growth at constant currency to be between 12.5% and 13% year over year. Additionally, we are reaffirming our adjusted EBITDA margin guidance, which we expect to be in the range of 18% to 20%. This guidance reinforces the strong pace of organic revenue growth reported throughout the year, above the industry average, and positioning us well for continued expansion as we move into 2026. This outlook also reflects the effectiveness of our growth initiatives, a robust commercial pipeline, ongoing expansion with our largest clients, and the evolution of our AI-boosted offerings. In closing, I want to extend my heartfelt gratitude to all CI&T Inc employees around the world. Your dedication to innovation and to delivering exceptional value to our clients remains the driving force behind our progress. This concludes our presentation. We will now open the floor for questions. Thank you. Operator: Okay. Operator: We will now begin the question and answer session. I'll announce each participant's name. Once you hear your name, unmute your line and ask your question. Then when you're done, please mute your line. First question comes from Luke Morrison from Canaccord. Hi, Luke. Please go ahead. Lucas Lincoln Morison: Hey, guys. Nice results and thanks for taking the question here. So I just want to double click on the new engagement model slide that you presented. You know, it first came out at your Analyst Day. You showed it here again. Just maybe help us think, like, how should we be thinking about the scalability of those models from here? Where are you seeing the earliest traction or client readiness, and what needs to happen operationally or contractually for those newer constructs, particularly flow or agent-based consumption, to represent a more meaningful share of your revenue mix over time? Operator: Thank you. Cesar Gon: Thank you, Luke. Great to see you. I can start, and Bruno can complement me. As you mentioned, we see the future of our industry evolving from time and material-based pricing models to more value-based pricing models, with a closer link to the business outcome. But we see this happening in a gradual way. So it's also an opportunity to monetize the intellectual property that will be embedded in every single engagement in the future agentic architecture. So what we are doing now is proactively introducing this approach to our clients and getting encouraging results with our main clients. In terms of timeline, I see this as a midterm opportunity. Gradually, we will translate, and this is an amazing opportunity to translate gradually our superior performance into not only margins but also scalability, and also giving our clients a more flexible, more powerful set of options in terms of pricing models. So we are not giving concrete outlook right now, but I think along the next six to twelve to eighteen months, we will have this as a relevant part of our P&L and the way we are seeing the future in our commercial and pricing models. And maybe just to complement, Luke, on your question around the education that clients require on their side to buy those models, right? So of course, the consumption basis is actually where most of the ramp-up of that education needs to happen, and it's not easy. So it's going to go to procurement, and they have to learn a new way to buy, right? So that will take some time to happen. But there are other models that also tap into that ability to automate work, which is kind of output-based models where we can have a fixed price by unit of software developed. We have even fixed price of overall engagements because of the tools that we have that we can map those engagements and can be really assertive in terms of what we will deliver. So there are models that are very easy to buy, that any procurement area could buy just right now. They do not require any education, right? So when there is this new thread here with the consumption-based, with IP-based consumption, that would take some time. But all in all, I think we will move very quickly in the next, to Cesar's point, twelve to eighteen months towards those models. Operator: Excellent. Very helpful. Maybe just a quick follow-up here. So just regarding your guidance, the guidance for Q4 implies continued sequential acceleration in growth as we exit the year. I know it's early, you're not guiding to next year, but just help us think about the durability of that growth. How do you view the cadence of that sustainable growth as we enter 2026? And are there any factors we should be keeping in mind around seasonality or demand normalization as we enter next year? Cesar Gon: Sure. We are based on our outlook for Q4, I think, basically on the consistent performance of the nine months of 2025, combined with a very solid commercial pipeline. And what is, I think, a good data point is now we are having a strong sales conversion. I grant this to our differentiation based on our AI strategy, CI&T Flow, the kind of efficiency, and even the whole positioning regarding the adoption of AI. So basically, a consistent track record, a solid pipeline, with a stronger sales conversion when compared to last year, for example. Operator: Thank you, Luke. Our next question comes from Gates Schwarzman from TD Cowen. Gates, please go ahead. Gates Schwarzman: Hey. Thanks for taking my questions. Gates Schwartzman with TD Cowen on for Bryan Bergin. Just wanted to touch on gross margin. It looks like it ticked down 30 bps sequentially. Just curious if you could talk a little bit about the underlying trends there. What are the drivers in terms of gross margin? And particularly, how should we think about what levers you guys have moving into fiscal 2026 that you can pull to bode well for margin expansion and support EBITDA growth? Also, any sort of color on the actual underlying FX impacts on EBITDA margin or gross margin would be greatly appreciated. Stanley Rodrigues: Gates, thank you for the question. This is Stanley here. Well, first of all, Gates, we are very confident in our ability to deliver this full-year guidance of EBITDA margin, so 18% to 20% adjusted EBITDA margin for the full year. We've been delivering those robust profitability metrics out of a bunch of initiatives, efficiency gains. Of course, we are scaling SG&A throughout the years. Every quarter we deliver lower SG&A as a percentage of revenue. And that will not change. We will continue that towards the future, right? So combining that with the fact that we are delivering those robust profitability under this benchmark organic growth path showcases our capacity to balance very well this investment in the AI opportunity and also this cost discipline that we've been managing the company. So we're scaling our business in this very solid manner. And this will not change. Of course, we are not guiding 2026 yet, but we do not have any factor that would mean that this will change. Gates Schwarzman: Understood. And just a follow-up, wanted to touch on demand trends. Obviously, tariff-related volatility has brought a lot of uncertainty in the environment. Can you touch on maybe how that's impacting your various verticals and then also touch on the US versus Latin America dynamics? Have clients started to gain any comfort with the tariff-related volatility? And subsequently, have you seen any sort of recovery in terms of discretionary spending or smaller, more strategic spend? Cesar Gon: Sure. Hi, Gates. I can get this one. I think we are growing sequentially in our regions. Of course, Latin America is stronger now, 12.5% growth sequentially, 35% year over year, driven basically by fast AI adoption among not only companies but users. North America is also getting good traction now with 5.4% sequential growth. And even new markets now are growing with 4.8% sequentially. So basically, we see two main sources of demand, and we see the overall environment improving, certainly driven by the evolution of the AI momentum. That is, as I mentioned, very strong in Brazil and more up in the US. And we can see by our commercial activity evolving and giving us a very strong commercial pipeline for next years and giving us a lot of confidence that we will continue in a growth trajectory at a very good pace. But as a way to qualify demand, I see two groups. One is basically a demand for foundational spending, let's say, that's large-scale projects to upgrade legacy technology and accelerate cloud and data migration. I think this is huge now. And, of course, we are extensively using AI and flow agents in this, let's say, foundational engagement. And there is another very welcome source of demand that is direct AI investment. I see relevant budget allocation moving from traditional IT to AI-specific solutions. So around, let's start with the low-hanging fruit of hyper-efficiency in the software development life cycle, but going for customer experience journeys, like how you move for more conversational commerce or AI-boosted chatbots, especially in Brazil, using WhatsApp, for example. And we see more broad programs like AI force transformation engagements. This is when the client wants to design a strategy and a roadmap to accelerate their AI adoption. And finally, we are seeing a growing number of use cases using GenAI to optimize or label-intensive or data-intensive business processes. So it's real. It's an amazing AI momentum, and I think we are very well positioned to continue to capture this opportunity. Operator: Thank you, Gates. Our next question comes from Maria Clara Infantozzi from Itau. Claudia, please go ahead. Maria Clara Infantozzi: Hi, everyone. Thanks for the opportunity here. I just wanted to double click on the improvement of pipeline to sales conversion topic. Cesar, can you give us more color on this? Is there any region that is calling more attention, maybe any specific client vertical that is worth highlighting? And what is the pricing strategy behind those new contracts? Are they all coming from output-based, or do you still sell time and material? And lastly, if you could please provide us a view on how you perceive the competitive environment, it would be great as well. Thank you. Cesar Gon: Sure. Thank you for your question, Maria Clara. I think in terms of vertical, I need to highlight financial services. It's 51% year-over-year growth expansion and 15% sequentially. So it's a combination of landing new clients and expanding our main financial services clients. Also, we see a lot of growth in retail industrial goods, particularly in the auto industry where we are very well positioned and expanding in the US. It's more about expanding our wallet share in this everyday way, do so with a portfolio. And then we also have the good news of tech and telco that were year over year stable, but sequentially now is a 19% expansion. So it's very good news. Other consider our five main verticals, three are expanding and two are stable. We see consumer goods and life sciences stable on a sequential basis. So regarding your question about pricing models, it's a mix. Our strategy is not a radical move from time and material to other models, but to offer our clients a mix of models, and we can combine creatively these models in the best interest of them. So it's more of a mix game of some time and material, some consumption basis, some piece outcome-based, and other models. We are inventing because this is a moment where we are really discovering the best way to play this new game in the AI agent world. So and a lot of engagements also extend from just build for build and run engagements, and we need different pricing models to support this shift. So this is basically, I think, a long-term game. But it's inevitable that AI will reshape the way pricing and business models operate in our industry. And I think it's a major opportunity for us to improve, not only margins but scalability of our business. And your last questions were regarding the competitive environment. Overview, how you see competition? Yeah. I think we did an amazing job over the last three years. Introducing CI&T Flow in July 2023 and transforming every CI&T Inc engagement into an AI engagement. We mentioned a lot the massive reskilling of 8,000 people. And I see CI&T Inc really ahead of our competitors. I know that everyone is trying to figure out how to play in this new moment of the industry. But what we get from our clients is, I think, we are ahead, and in my perspective, we are accelerating. Maria Clara Infantozzi: Thank you so much for your exercise. Operator: My pleasure. Thanks, Claudia. Our next question comes from Puneet Jain from JPMorgan. Hi, Puneet. Puneet Jain: Hey. Thanks for taking my question. Very nice quarter. So this year, you are all set to grow in, give or take, in low teens. Despite significant headwinds like tariffs and whatnot. As we think about next year, I know you're not providing the guidance, but should we expect growth rates to accelerate next year from current levels? Cesar Gon: Thank you, Puneet. Thank you for your question. Unfortunately, we are not anticipating 2026 yet. But as I mentioned, we are very confident in our future growth based on the evolution of our commercial pipeline and better sales conversion. By now, it's more about delivering a strong Q4, and in the next call, we will be very happy to really give you our guidance for next year. Puneet Jain: That's fair. And can you talk about your hiring plans? Like, the skills of people you hire, experience level, and should we expect revenue growth to continue to outpace your headcount growth? And what would that mean for margins over the near term at the EBITDA margin level? Bruno Guicardi: Take this one. Puneet, our strategy has always been to develop our own people. Right? So think of ourselves as a teaching organization, as a learning organization. We're very proud that I think we've learned faster than the average market. I think the achievements around what we are at with Flow and our adoption and the results we're creating for our clients is proof of that. So we continue our strategy to hire from the base of the pyramid and promote from the inside and give opportunities for people to grow with us. Right? So and to invest in our people and invest that give the people the opportunity to develop themselves to, you know, to reskill, to upskill. And to move on to different roles and different profiles. I think that will be an absolutely critical ability going forward as the industry will transform. All those roles will transform. People will do things, you know, in a completely different way. They do now, you know, two to three years from now. So that ability to be always learning and not try to hire for a job description because those job descriptions will be very fluid from now on. It's the ability that we continue to hire for potential, continue to hire for the ability to learn and to grow. That's our strategy, and I think it'll be a winning strategy going forward. Puneet Jain: Good. Thank you. Operator: Thanks, Puneet. Our next question comes from Leonardo Olmos from UBS. Please go ahead. Leonardo Olmos: Hi, everyone. Thank you for taking my question. Congrats on the numbers. Very good revenue beats. Just want to make sure we don't have anything misunderstood here. So you for the full year 2025, you reinforce the midpoint of revenue growth guidance, but you beat Q3's figure. So that could assume, and I'm probably wrong here, but that could assume Q4 is going to be slightly slower than you anticipated. Maybe you advanced some revenue to Q3, I don't know. How should we read this? I know you just said in a previous answer, I'm not going to talk about 2026. I get that, but I just don't want to leave a wrong impression here on this shift between the quarters. Cesar Gon: Thank you, Leonardo. I think it's basically we are guiding keeping the pace, keeping our goal for the year. Last quarter, we raised the midpoint. So we are, of course, leaving some room to beat again the number, and we are very confident. I think it's a strong year with an amazing exit rate for projecting 2026. So it's basically keeping our pace, making sure we leave room to even accommodate some surprising FX moves. We are not expecting, but we need to be conservative in terms of projecting FX. But at the end, we are really projecting a solid Q4. And, again, a very good exit rate for projecting next year. Leonardo Olmos: Thank you, Cesar. Just if I could do a second one. It's another question related to how well you did and what's going to be ahead, okay, that is a risk. Top client, right? Top client now when you round up gets to 12% of total sales almost was amazing right. Congrats on that. I'm sure this is something to celebrate because in the past we saw how large clients can impact all IT service peers. So, do you think about that especially about don't know, should we should you diversify, should you not? And how what do you expect in terms of what we heard in the media a couple of months ago that these top clients supposedly are going to reduce third party? Is that other part of third party personnel? It's good. Talk a little bit about top client. Thank you. Cesar Gon: Sure. I think we are in good shape. Gradually, we have been growing and diversifying our portfolio of clients. I think top one is a massive victor of our value prop. And you saw sequentially it grew 13%. But our top 10 clients are growing consistently too. So we sequentially, 11%. Our top 10. If you exclude top one, it's still a strong 10% growth in our top 10. If you look only at the x top 10, it's a 7% sequentially in growth. So I think it's a very solid evolution. To give you another data point, eight of our top 10 clients are growing sequentially. So regarding specifically our top one, as you know, is a very large financial service organization with dozens of different businesses, and we are very proud to be involved in different parts of their business strategy. And we continue to expand in different areas. I think it's due to our ability to demonstrate efficient, superior results across the board. And we see this engagement will continue to grow, but, of course, at a slower pace. But it's part of what we were anticipating. And we have now a lot of new avenues for growth. So it's part of the game. We work with very large clients, and when they see the concrete results of engaging with CI&T Inc, they tend to concentrate a lot of demand on us. But we manage, I think, in a good way this kind of expansion. So I think we are in good shape. If you look at it in a more long-term perspective, four years ago, we were top 10 kind of 67% of our revenue. Now it's 43%. So it's gradually as we evolve. We will continue to diversify the revenue source, but I think we are in good shape. Leonardo Olmos: Yeah. No. Very good. Point. The numbers talk by themselves, right? Very good. Just a quick follow-up, sorry to abuse my time. How should we think about revenue in these top one clients or maybe top 10 as a whole? How recurring is it? How can we see it so recurring? I get that you maybe won't grow like 70% year on year, but how recurring is that? Cesar Gon: Historically, it's very recurring revenue. Annually, we disclose our net revenue retention, and it's always a sound number. I think the business model, the kind of engagement is the same. If you are investing in AI and in digital and you are leveraging real concrete results, you will increase your investment. So it's an equation of success instead of a project-based model. So as we continue to support our clients to expand their strategy, I think we are in good shape to continue expanding, having a very high level of recurring revenue with them. Leonardo Olmos: By design. Very good. Cesar Gon: My pleasure. Operator: Thank you, Leonardo. So that concludes our Q&A session. Thank you all for attending our event today. I'll now invite Cesar Gon to proceed with his closing remarks. Cesar? Please. Stanley Rodrigues: Sure. Cesar Gon: Thanks, Bruno, Stanley, Eduardo. You all for joining us today. And to all CI&T Inc employees around the world, I'm very proud of what you accomplished this quarter, what we could do as a team. Congratulations for another record quarter. Let's keep it pushing. And a special thank you to our clients for choosing CI&T Inc in such an important moment in the industry. We are helping you, Mr. Client, to co-create the future in this exciting moment of AI-driven innovation. So everyone stay well. See you soon.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Celcuity Third Quarter 2025 Financial Results Webcast and Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. I would now like to turn the conference over to Apoorva Chaloori with ICR Healthcare. Please go ahead. Apoorva Chaloori: Thank you, operator, and good afternoon to everyone. Thank you for joining us to review Celcuity's Third Quarter 2025 financial results and business update. Earlier today, Celcuity Inc. released financial results for the third quarter ended September 30, 2025. The press release can be found on the Investors section of Celcuity's website. Joining me on the call today are Brian F. Sullivan, Celcuity's Chief Executive Officer and Co-Founder, Vicky Hahne, Chief Financial Officer, as well as Igor Gorbachevsky, Chief Medical Officer, who will be available during Q&A. Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties, which are outlined in today's press release and in our reports and filings with the SEC. Actual events or results may differ materially from those projected in the forward-looking statements. Such forward-looking statements and their implications involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected. On this call, we will also refer to non-GAAP financial measures. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful for investors' understanding and assessment of the company's ongoing core operations and prospects for the future. You can find the table reconciling the non-GAAP financial measures to GAAP measures in today's press release. And with that, I would now like to turn the call over to Brian F. Sullivan, CEO of Celcuity. Please go ahead. Brian F. Sullivan: Thank you, Apoorva. Good afternoon, everyone, and thank you for joining our third quarter operating and financial update conference call. The past few months were busy and fruitful ones for Celcuity. We made significant progress achieving a number of clinical and regulatory milestones while also significantly bolstering our balance sheet. These achievements lay the groundwork for us to potentially establish Get It Solicit as a new standard of care second-line therapy for patients with HR-positive, HER2-negative, advanced breast cancer. Amongst the key clinical and regulatory milestones achieved, first, we released top-line data results from the PIK3CA wild-type cohort of the Phase III VICTORIA-one study and then subsequently presented detailed efficacy and safety results for this study at a late-breaking oral presentation at the European Society for Medical Oncology, or ESMO, Congress. We also presented at this ESMO Congress updated clinical results from the phase one portion of a clinical trial evaluating getetelicib in combination with darolutamide and then with metastatic castration-resistant prostate cancer. And third, we completed enrollment of the '6 or during Q2 'twenty-six. And fourth, the FDA accepted our request to submit our new drug application or NDA under their real-time oncology review program. Brigadatilissa based on the results from the PIK3CA wild-type cohort of the VICTORIA-one trial, and we expect to complete the submission this quarter. And then fifth, to strengthen our balance sheet we completed concurrent offerings of convertible notes, common stock, and prefunded warrants which resulted in net proceeds of approximately $287 million. We also amended our term loan facility within Novartis Capital Partners and Oxford Finance to increase the total term loan facility size to $500 million including $350 million in committed capital and up to $150 million at the mutual discretion of Celcuity and its lenders. Future draws of committed capital under the facility are subject to the achievement of certain milestones. The most consequential milestone of the quarter for Cuity was, of course, the release of positive data from the PIK3CA wild-type cohort of the VICTORIA-one trial. And we've discussed previously the historic nature of the results and the new milestones they achieved HR-positive HER2-negative advanced breast cancer. But to recap, median progression-free survival, or PFS, for the gadgets elicit triplet which is gadgetolitinib, palbociclib, and fulvestrant. Was 9.3 months. Compared to only 2 months for fulvestrant. Which is a 7.3-month incremental improvement in median PFS. The hazard ratio was 0.24. For the gadgetolitinib doublet, is gaditalisib and fulvestrant, median PFS was 7.4 months versus 2.0 months with fulvestrant. A 5.4-month incremental improvement in median PFS. And the hazard ratio was 0.33. These results set several new benchmarks in HR-positive HER2-negative advanced breast cancer. The hazard ratios for both again, if those are triplet and doublet are more favorable than have ever been reported by any Phase III trial patients with HR-positive HER2-negative ABC. The 7.3 and 5.4 months incremental improvements in median PFS with the gonadotilus and triplet and doublet over fulvestrant, respectively. Are higher than have ever been reported by any Phase III trial for patients with HR-positive HER2-negative advanced breast cancer receiving at least their second line of endocrine therapy. And gaditalisib is the first inhibitor that targets the PI3K AKT mTOR pathway to demonstrate positive Phase III results in patients with its HR-positive HER2-negative PIK3CA wild-type breast cancer whose disease progressed on or after treatment with a CDK4six inhibitor. As a follow-up, reported among other things, to the release of the top-line data in July, additional data were released at a late-breaking oral presentation in October at ESMO. Now in this presentation, that the objective response rate of the genitilus triplet was 32% compared to 1% with fulvestrant, and the median duration of response was 17.5 months, and that the objective response rate of the gadgetolitinib doublet was 28% and the median duration of response was 12.0 months. Median duration of response for fulvestrant was not determinable because there was only one objective response. And these results also established new benchmarks. The median duration of response and the incremental improvement in the objective response rate relative to control the getetelicit triplet and doublet are the highest reported for an endocrine therapy-based regimen. In second-line, HR-positive HER2-negative advanced breast cancer. Additionally, the results demonstrated the clinical benefit of the gantalizumab regimens was consistent across patient subgroups. And one patient subgroup of note patients enrolled in The United States and Canada, achieved median PFS of 19.3 months with a gadathilicit triplet and 14.9 months with the gadatholizumab doublet. The ESMO presentation also provided detailed safety results that showed the gadathalisib triplet N doublet were generally well tolerated in the trial with mostly low-grade treatment-related adverse events. Study treatment discontinuation due to treatment-related adverse events was reported in 2.3% of patients treated with again, least a triplet, and 3.1 months of patients with the gadatholicit doublet. Now in the presentation of results from the PIK3CA wild-type cohort, of the VICTORIA-one study at ESMO, additional data from a Phase 1b clinical trial that evaluated gabatolizumab patients with HR-positive HER2-negative advanced breast cancer was included. And the analyses reported efficacy data from patients who were treated with the same drug regimen evaluated in the VICTORIA-one study. Ganatolizumab combined with fulvestrant and palbociclib. Now these patients were included from the escalation arm B, and expansion arms B, C, and D of the phase 1B study. Median PFS and the Objective Response Rate, or ORR, assessed in subgroups of patients according to their PIK3CA status. For the 30 analyzed patients with PIK3CA mutant tumors, median PFS was 14.6 months, and the ORR in response of valuable patients was 48%. For the 60 patients with PIK3CA wild-type tumors, median PFS was 9 months, and the ORR in response to viable patients was 41%. Now let's turn over to our VICTORIA-two study, which is a phase three clinical trial evaluating genitelisib plus a CDK4six inhibitor and fulvestrant as first-line treatment for patients with HR-positive, HER2-negative, advanced breast cancer who are endocrine therapy resistant. We dosed the first patient for this study in late July, and enrollment is ongoing. We believe the positive results from the PIK3CA wild-type cohort of our VICTORIA-one study are as well for the potential efficacy of gadathalicit triplet they induce in this patient population. Now let's turn to our Phase III clinical trial that is evaluating getasilisib in combination with darolutamide in men with metastatic castration-resistant prostate cancer. We presented detailed data the Phase I portion of the study at a poster presentation at ESMO. And in this portion of the Phase III study, 38 patients were randomly assigned to receive standard doses of genafilisib in either 120 milligrams of genifilisib in arm one or 180 milligrams of genifilisib in arm two. Among the 38 patients enrolled, 61% had received one line of prior systemic therapy, 39% had received at least two or more lines of prior therapy. The Phase I data set utilized in August 15, 2025, data cutoff and median duration follow-up was 9 months. The six-month radiographic PFS or RPFS rate was 67%, And the median radiographic progression-free survival for patients was 9.1 months from both arms combined. For patients treated with 120 milligrams of getitalisib, the six-month RPFS rate was 74%, and the median RPFS was 9.5 months. For patients treated with 180 milligrams of genitulisib, the six-month PFS rate was 61% and the medium RPFS 7.4 months. And these results compare favorably to historic results for patients with MCR PC who were treated with an androgen receptor inhibitor as second-line treatment. The combination of geta darolutamide were generally well tolerated in the trial with mostly low-grade treatment-related adverse events. No dose-limiting toxicities were observed in either arm. The only grade III treatment-related adverse events for patients from both arms combined included rash, in about 5.3% of patients, stomatitis in 2.6% of patients, and pruritus in 2.6% of patients as well. No grade three hyperglycemia was reported. Additionally, though patients discontinued the study treatment due to an adverse event, Now as we near what we hope is an FDA approval for get 2026, our efforts to prepare for the potential launch of have ramped up per our strategic launch plan. Foundational to these efforts was the additional cash we raised and the enhanced financial flexibility of $500 million term loan facility provides us. We began laying the groundwork for a potential Get Us With Sub launch 18 months ago, and we've since made significant progress building the organization internal systems required to operate as a commercial states company. As planned, once the VICTORIA-one wild-type data was in hand, our commercial launch preparation efforts significantly accelerated. Except for the field sales force, we've mostly completed hiring of the individuals needed to execute the launch. And we're very fortunate to have attracted an incredibly talented group of individuals have a strong track record of successfully launching novel oncology therapeutics. Our sales management and customer operations groups have defined our regional and sales territories and our go-to-market objectives for each one. Medical science liaison and KOL engagement teams have done a great job of exchanging scientific information with key opinion leaders and community practice leaders and obtaining important insights and feedback from them. Now key efforts today include extensive outreach across the country to the payers and population health decision-makers in various treatment settings, including health systems integrated delivery networks, and community oncology practices that will play a key role in providing oncologists access together to listen to their patients. We've made strong progress engaging with these decision-makers and we're very pleased with the feedback and enthusiastic response these efforts have yielded. We're also very encouraged by the results of research we have fielded to gauge the willingness of community and academic oncologists to prescribe Ganaxlica should it get approved. And these results make us optimistic about the possibility of establishing geditsilicit as the new standard of care. The second-line setting for HR-positive, HER2-negative, advanced breast cancer in the wild-type patient population. Now in light of this feedback, we believe obtaining majority market share on the setting is not only achievable but potentially too conservative. Based on analysis of published epidemiological data, estimate there are 37,000 patients in The US with HR-positive HER2-negative advanced breast cancer who've progressed after treatment with a CDK4six inhibitor. Now using internal duration of treatment estimates and pricing assumptions can consistent with currently available novel therapeutics for breast cancer, we estimate the total addressable market for Ogedegylus in the second-line setting is $5 billion to $6 billion. And given the significant penetration our research is suggesting we can achieve we believe it's reasonable to estimate that a second-line wild-type indication or second-line indication in general for get us to listen can potentially generate peak revenues of $2.5 billion to $3 billion. The progress we've made to date is encouraging and exciting, We look forward to providing you updates over the next few quarters. We believe the resources we've raised will enable us to advance multiple potential blockbuster indications in breast and prostate cancer while also aggressively preparing and potentially launching gabapalizumab commercially should we receive FDA approval. Gadasolizumab is well positioned to address critical needs in the second-line space, with its unique mechanism of action and potential first-in-class and best-in-class safety and efficacy profile. I'd like to now hand the call over to Vicky to review our finances. Vicky Hahne: Thank you, Brian, and good afternoon, everyone. I'll provide a brief overview of our financial results for 2025. Our third-quarter net loss was $43.8 million or $0.92 per share compared to $29.8 million net loss or $0.70 per share for 2024. Our non-GAAP adjusted net loss was $37.2 million or $0.78 per share, for 2025 compared to non-GAAP adjusted net loss of $27.6 million or $0.65 per share for 2024. Research and development expenses were $34.9 million for 2025 compared to $27.6 million for 2024. Of the approximately $7.3 million increase in R&D expenses, $5.6 million was related to increased employee and consulting, $3.2 million of which related to commercial headcount additions and other launch activities. The remaining $1.7 million increase was primarily related to supporting our ongoing clinical trial. General and administrative expenses were $7.9 million for 2025, compared to $2.5 million for 2024. Of the approximately $5.4 million increase in G&A expenses, $4.9 million increase was related to increased employee and consulting expenses. Of this increase, $4 million was related to noncash stock-based compensation. The remaining $500,000 of the $5.4 million increase primarily related to professional fees, expanding infrastructure, and other administrative expenses. Net cash used in operating activities for 2025 was $44.8 million compared to $20.6 million for 2024. We ended the quarter with approximately $455 million of cash, cash equivalents, and short-term investments. As Brian mentioned earlier, in July 2025, we conducted a concurrent public offering of 2.75 convertible senior notes due in 2031, common stock, and a prefunded warrant offering. The net proceeds from the combined offerings were $2.287 billion after deducting underwriting discounts, commissions, and the company's offering expenses. In September 2025, the company entered into an amendment to its existing senior secured term loan facility with an affiliate of Innovatus Capital Partners and Oxford Finance and certain of its affiliates. The amendment increases the total term loan facility size to $500 million including $350 million in committed capital and up to $150 million at the mutual discretion of Celcuity and its lenders. In connection with the release of the positive top-line data from the PIC three CA wild-type cohort of the VICTORIA-one phase three clinical trial, Celcuity achieved the term D milestone and was eligible to draw an additional $30 million under the term loan facility. In connection with the amendment to the term loan facility, the term D loan was disbursed, and Celcuity received net proceeds of $27.8 million. The upsized facility strengthens Celcuity's ability to manage its capital structure efficiently while providing additional funding to support commercial launch preparations, for getatolizumab and other strategic initiatives. Also triggered by the release of the positive top-line data was the seventy-five-day expiration date for warrants that were issued pursuant to a private placement that closed on December 9, 2022. Warrants that were exercised generated cash proceeds of $12.8 million. We expect cash, cash equivalents, investments, and drawdowns on our current debt facility to fund operations through 2027. I will now hand the call back to Brian. Brian F. Sullivan: Thank you, Vicky. Operator, could you please open the call for questions? Operator: Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. If you would like to withdraw from the polling process, please press star then the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your first question comes from the line of Maury Raycroft from Jefferies. Please go ahead. Maury Raycroft: Hi, congrats on the progress and thanks for taking my questions. You're welcome. You're planning on having additional data at the San Antonio Breast Cancer Symposium Conference. Maybe talk about what the main focus of the presentation is going to be. And do you anticipate sharing more detailed subpopulation data related to ESR1 wild type and mutant in the near future? Brian F. Sullivan: Thanks, Maury. You know, we'll present the data when it's presented. Typically, these presentations that follow the detailed initial presentation include additional subgroup analyses for efficacy, additional data that might relate to certain safety or quality of life aspects of the study. And we expect to follow that approach with the data we released in San Antonio. Maury Raycroft: Okay. Understood. And maybe a question just related to the frontline setting. Wondering if you can comment on whether enrollment in Victoria two has been positively impacted by the second line data. And is there anything additional you could say on timelines? And also wondering if you're considering expanding to first-line endocrine-sensitive patients with the current formulation. Brian F. Sullivan: Well, thanks for the question. No. Enrollment's on track. I mean, certainly, investigators who are participating in the VICTORIA-two study were very excited about the results. And I think that, of course, would impact the visibility for their patients and the credibility of the study itself. So we think it will have a favorable effect. As far as additional Phase III studies, I mean, certainly we have a long-term life cycle development plan. And, you know, over time as we make progress, in fleshing that out or making some decisions about timing and approach, we'll announce those, but we're not ready to do that yet. Maury Raycroft: Got it. Okay. Thanks for taking my questions. Brian F. Sullivan: You're welcome. Operator: Your next question is from the line of Andrew Berens from Leerink Partners. Please go ahead. Amanda: Hi, everyone. This is Amanda on for Andy. Thanks for taking our question. So for the real-time oncology review submission to the FDA, you're guiding to completing that in the fourth quarter. We're just kinda trying to figure out the wild-type submission will be completely separate from the mutant submission. Are there any implications to this, Do you also expect the mutant submission to be real-time oncology review? Any color would be helpful. Thanks. Brian F. Sullivan: Sure. So we're on track, as I indicated, with the submission for the wild-type cohort completed by the end of this quarter. And we've had specific conversations about the approach that we're taking with this NDA and the RTOR submission, and that was ultimately approved by the FDA, reflected that we'll just be submitting and seeking an NDA for the wild-type population. So we're in sync with the FDA on that front. We would, depending on the data, request a real-time oncology review for the mutant data. But it's always a function of the data. You know, these real-time reviews are typically only granted when, you know, the data is very, very clear. And the potential for a new standard of care is possible. And so we hope that's the case, but, until we have the data, we can't necessarily commit to that. Amanda: Got it. Thank you. Operator: You're welcome. Next question is from the line of Tara Bancroft from TD Cowen. Tara Bancroft: Hi, good afternoon. Thanks for taking the questions. So I'm hoping you can maybe expand a bit more on what you believe the eventual duration of therapy will be, especially in the commercial setting for the triplet based on the data that you've seen so far? And then separately, I'm wondering if you could tell us what assumptions would go into your pricing strategy, and what are some good comps to look for there? Thanks. Brian F. Sullivan: Sure. Okay. As far as the duration of therapy, I mean, there are a couple of ways to think about that. Because there we did find variation in the outcomes, according to region. And, you know, in The US, for instance, we reported that PFS was 19.3 months, you know, which was, you know, significantly longer than the intent to treat. And so we have an internal estimate of what we think is reasonable yet. We will do some further analysis before we might share that externally, and that'll be a function of providing additional subgroup analyses over the coming months. As far as assumptions for pricing, there have been drugs launched recently, that are novel therapeutics, you know, targeting, in this case, the PFK pathway. I think the wholesale acquisition cost for one therapeutic or several therapeutics that are in this HR-positive, HER2-negative space. Are in the range of, let's call it, $25,000 plus or minus. And so, you know, that's a reasonable benchmark. You also have to factor in potential discounts that would be associated with the distribution of the drug. Oral drugs typically will have probably closer to a 30% discount, you know, gross to net of 70%. Discount. And then medical benefit drugs like Gheta would probably only have a 20% discount. So you could potentially get a better price in this market just by virtue of being a medical benefit on a net basis. With the same wholesale acquisition cost price. We're doing research in this area now. We haven't made a final decision on our pricing approach. But for purposes of trying to estimate what the addressable market value is, we think it's reasonable to use the numbers that I just shared. Tara Bancroft: Great. Thank you. That's very helpful. Operator: Your next question comes from the line of Brad Canino from Guggenheim. Please go ahead. Brad Canino: Just one question for me. What is the plan to bring gedotolitinib to patients outside The US? Thanks. Brian F. Sullivan: Sure. I think we've discussed in other calls, or at least we've mentioned that we expect to commercialize in The US and as I discussed on the call and then find a partner or partners to commercialize the drug ex-US. And we are holding off finalizing, or really moving forward with intense discussions on that. Until we have our mutant data available. And until we've submitted, what we hope is an sNDA, for the mutant population. And coincident with the submission of the SNDA for the mutant population if all goes according to plan, we would soon after expect to file an MAA to the European medical authorities. That would comprise both mutant and wild-type patient data. Additionally, we've also been working with the Japanese Health Authority to identify their requirements for submission that makes sense to us. We think we're aligned with them, on an approach. And so we're moving forward, on a regulatory path that will allow us to stay on track with as rapid commercialization as possible. Even without a regular or rather a marketing partner. And we would expect to start engaging those discussions once, you know, I would say the middle of next year once our data was available and regulatory submissions were on their way. Operator: You're welcome. Next question is from the line of Stephen Douglas Willey from Stifel. Please go ahead. Dara Azar: Hey. Can you hear me? Brian F. Sullivan: We can. Dara Azar: Hey. This is Dara Azar on for Steve. Brian, you announced plans to develop Geratolosib for endocrine-resistant frontline well before the Victoria one readout. I'm curious as you're thinking around the type of frontline population to be enrolled change at all now that you have phase three data from the wild-type population, you have this interesting signal from phase one b subgroup analysis. And I'm assuming you have KOL feedback, investor feedback. So what is your philosophical view around the need to conduct endocrine-sensitive trial in the frontline setting. Thank you. Brian F. Sullivan: No, thank you for the question. Well, I mean, we believe that there's an important opportunity to help patients delay their progression for even longer than is possible with the current CDK foursix letrozole regimens. And we base that view on the data that we obtained in our phase 1b study in treatment-naive, underconsensitive patients. Now standard of care CDK4six, liposome regimens, the three of them, offer patients, at least as reported in this in their phase three studies, about 25 months plus or minus median PFS. In our Phase Ib study, which again, 41 patients, single-arm study, so you have to caveat it, but meaningful enough population that it's probably not a random result. But we reported, about 48 months medium TFS. So that we think, helps establish or certainly provide preliminary, evidence. That this pathway is important, an important driver in treatment-naive hormone receptor-positive breast cancer. And in effect, kinda confirms our hypothesis and certainly helps demonstrate that this pathway, the PAM pathway, is really one of three driver pathways promoting breast cancer. The PAM pathway CDK4six and endocrine therapy or ER pathway. And so we think there's a very, very strong rationale to develop this drug for that population. It's a long study given the potential progression-free survival of both the control and study arm. And probably a fairly sizable number of patients as well. And so, again, we are wanting to step back as you suggested, given the results we have here. We really saw a profound, effect in wild-type patients. And, and be, you know, very thoughtful about how we would design that study and in light of the current study. Endocrine-resistant patients. So yes, we believe it's an important opportunity to help patients further. Represents probably two-thirds of women who are treatment-naive in the metastatic setting. And so, you know, it, we think would be an important thing for us to do. And, we think there's a lot of strong rationale to do it. And over time, you know, we will provide updates on our thoughts on that. Operator: Hello? Next question comes from the line of Oliver McCammon from LifeSci. Please go ahead. Oliver McCammon: Thanks for taking my question. I'm just curious if you can speak to the potential impact of a favorable overall survival trend in the second and third-line setting. And also curious if you can speak to caveating that, we've seen interim OS data so far. essentially what role these data could play in the regulatory process as well. Thanks again. Brian F. Sullivan: Sure. And so, in conjunction with the primary analysis, our stats plan typically is required, but our stats plan performed an interim OS analysis to demonstrate or hopefully to reveal what, if any, effect you might have on overall survival for these patients. The requirement from a regulatory standpoint is that you don't show any evidence that you're reducing a patient's likelihood of survival, i.e. you have to have a hazard ratio that's below one. And in the case of interim analysis, for our study, you know, the hazard ratio was, I think, 0.69 for the triplet and about the same for the doublet, which, again, we believe is a favorable trend. And we think that that you know, supports our submission for drug approval. Supportive of that. As far as the impact of an overall survival positive readout, certainly we think impactful. But that's a it it tends it has been a very high bar to beat. In a second-line setting. There hasn't been a drug yet the second-line setting that has shown an OS advantage. And that's because of the nature and heterogeneous nature of the patients and the subsequent drugs they receive. But we'll see. I mean, certainly, we look forward to reporting out those numbers. But when you have a study of our size with the sample size, you have a relatively small number of events that you're using to characterize what is only a certain effect size. And so it's a high bar to beat with a small sample size, but we'll see. And certainly, if successful, it will be very impactful. Operator: Thanks, Ken. Your last question comes from the line of Chase Richard Knickerbocker from Craig Hallum. Please go ahead. Jake: Hi, guys. Thanks for taking the questions. This is Jake on for Chase. In light of this administration's focus on domestic manufacturing, could you just remind us where data is manufactured? Brian F. Sullivan: Sure. We have several sites for manufacturing, and we have an approach that we think allows us to have flexibility in how we manufacture, where we manufacture the drug. We haven't really announced where we're manufacturing the drug. But based on our kind of inventory approach, and also our approach of finding second sources, you know, we're basically in taking the steps necessary to make sure our supply chain is as bulletproof as you can make it. Operator: Great. Thank you. There are no further questions at this time. I would like to turn the call back to Brian F. Sullivan for closing comments. Sir, please go ahead. Brian F. Sullivan: Well, thank you for attending our call, and I look forward to providing further updates in the future. Goodbye. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to SoundThinking's Third Quarter 2025 Earnings Conference Call. My name is John, and I will be your operator for today's call. Joining us are SoundThinking's CEO, Ralph A. Clark, and CFO, Alan R. Stewart. Please note that certain information discussed on the call today will include forward-looking statements for our future events and SoundThinking's business strategy and future financial and operating performance. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict and may cause actual results to differ materially from those stated or implied by those statements. Certain of these risks, uncertainties, and assumptions are discussed in SoundThinking's SEC filings, including its most recent annual report on Form 10-Ks and other SEC filings. These forward-looking statements reflect management's beliefs, estimates, and predictions as of the date of this live broadcast, 11/12/2025, and SoundThinking undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. In addition, our comments on the call today contain references to non-GAAP financial measures such as adjusted EBITDA and key business metrics such as annual recurring revenue. Non-GAAP measures should be viewed in addition to and not as an alternative for the company's reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures, as well as of the key business metrics referenced in management's reasons for including the non-GAAP measures and key business metrics, may be found in the press release. And finally, I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at ir.soundthinking.com. And with that, I will now turn the call over to Ralph. Thank you, Ralph, and you may begin. Ralph A. Clark: Good afternoon and thank you for joining SoundThinking's Q3 2025 Earnings Call. I will start by providing some high-level commentary on our financial results and then share exciting updates about our strategic investment and growth initiatives. Our key highlights for this quarter include expanded deployments of our core ShotSpotter technology, accelerating adoption of our AI-powered investigative tools, and growing traction in the healthcare security market following California's AB 2,975 weapons detection mandate. We've also seen meaningful progress in our international expansion efforts with our Uruguay deployment serving as a compelling proof point for broader Latin American market opportunities. Our third-quarter revenues were lower than we had expected at $25.1 million due to the absence of our ShotSpotter renewal in Puerto Rico and the delay of a statewide Crime Tracer booking we had targeted to close early in the quarter. During the third quarter, we took ShotSpotter Live in two new cities, one university, along with two expansions of existing customers. And while our pipeline continues to expand, reflecting healthy demand across both existing and new markets, we are not where we need to be in terms of sales execution. Converting that demand into bookings remains a top priority. We've already begun realigning our sales organization, refreshing our go-to-market playbook, and tightening accountability around forecasting and conversion metrics. To ensure sales leadership continuity, we've asked our former Senior Vice President of Sales to step back in on an interim basis as we launch a national search for a permanent leader. These tests are delivered as necessary and they're designed to translate a strong pipeline into sustained predictable growth. Early indicators give us confidence that changes are taking hold. We're seeing stronger pipeline hygiene, better deal qualification, and clear visibility into near-term opportunities across ShotSpotter, SafePoint, and Crime Tracer. Just as importantly, the field and customer success teams are much more aligned around a unified sales motion that emphasizes value realization and renewal momentum. We expect these operational improvements to drive more consistent conversion as we move through Q4 and into 2026. We are seeing very encouraging signs in customer health and retention. Retention is coming in better than expected this quarter and year, and that's not luck. It's a direct result of being intentional around customer success engagement and measurable satisfaction. Our latest Net Promoter Survey produced an NPS score of plus 70, up four points from last year, with over 90% satisfaction in critical partnership areas like data and analytics, customer success, and technical support. Those numbers speak for themselves. Our customers trust us. They see SoundThinking not just as a technology vendor, but as a mission-critical partner helping them save lives, build community confidence, and deliver results they can defend publicly. That trust is also being strengthened by how we're using AgenTik AI inside the business. We're not experimenting with AI for headlines. We're using it in practical, measurable ways. We've built an agentic customer success application that ingests and analyzes a wide range of internal and external data sources. Everything from city council meeting minutes and local press coverage to community sentiment. This helps us anticipate what our customers are dealing with politically, socially, and operationally and allows our customer success team to get ahead of issues before they become renewal challenges. In simple terms, AI is helping us move from reactive to proactive partnership. In shortening response times, improving renewal predictability, and deepening alignment with each city's local context. That's the kind of disciplined innovation we're known for. Practical, ethical, and measurable. It's one more way that we're differentiating SoundThinking as a trusted data-driven partner delivering real-world impact and sustained loyalty over time. Looking at our strategic initiatives and key developments during Q3 2025, I'm excited to share several significant milestones that underscore our position as a leading integrated public safety technology platform. First, let me highlight a major product advancement with the upcoming launch of Crime Tracer Gen 3 scheduled for general availability next week. This next-generation investigative platform represents a quantum leap in AI-powered law enforcement technology, integrating over 1 billion law enforcement and public records and documents across 2,000 plus agencies. The platform's revolutionary features include voice-enabled AI chatbot capabilities for natural language searches, AI document summarization that condenses lengthy reports into actionable insights, and enhanced case folder functionality that creates a centralized collaborative workspace for investigations. Early customer feedback has been exceptionally positive, with agencies particularly excited about the platform's ability to transform fragmented data systems into unified actionable intelligence. SafePoint continues to gain tremendous momentum following California's AB-2,975 mandate, which requires automated weapons detection systems in all general acute care and psychiatric hospitals by 03/01/2027. This legislation has created a substantial addressable market opportunity and we're seeing accelerated interest in our SafePoint weapons detection technology as a result. We've been actively supporting hospitals through the compliance planning process, providing comprehensive risk assessment frameworks and implementation roadmaps. The response has been overwhelmingly positive, with multiple pilot programs already underway and a robust pipeline of opportunities developed as hospitals prepare for the 2027 deadline. And we recently successfully booked another 26-lane opportunity with a nonprofit hospital in Florida just this past month, demonstrating the strong product market fit our SafePoint solution represents. Our Data for Good initiative has expanded significantly and is now actively operating across multiple cities, including Miami Dade County, Springfield, Illinois, and San Francisco. This program enables secure sharing of gunfire and crime data with community violence intervention groups, public health departments, and local nonprofits addressing the critical gap where up to 80% of gunfire incidents go unreported to 911. This program has been instrumental in building community trust and demonstrating our commitment to holistic public safety solutions that extend beyond traditional law enforcement applications. Our Data for Good platform is a perfect extension to our work in New York City and complements Mayor-elect Mandani's vision on elevating community response, including community violence interruption resources to bring to bear in New York City. On the Dronex first responder integration front, we've made solid progress partnering with several drone providers as we enable drones as first responder capabilities in response to ShotSpotter alerts. The integration ensures that drones can be automatically dispatched to the exact location of a gunfire incident, delivering real-time aerial intelligence to officers on the ground, such as identifying victims who need an EMS intervention along with providing valuable situational awareness to arriving officers. We've seen the real-world impact firsthand with a recent incident in Pueblo, Colorado, where a ShotSpotter alert initiated a drone response that led to the quick recovery of shell casings that were still warm enough to be seen thermally. The combination of ShotSpotter and drones extends the value of ShotSpotter by delivering a powerful use case demanded by forward-leaning law enforcement agencies. Our PlateRanger ALPR technology, a partnership we began about a year ago, now has already evolved beyond simple license plate recognition to become a comprehensive vehicle intelligence platform. Enhanced features include a smartphone-based plate capture for mobile deployments, interdiction analytics that identify suspicious movement patterns, and retrospective search capabilities that enable investigators to track vehicle histories across multiple jurisdictions. When integrated with Crime Tracer, this creates a powerful investigative workflow that can uncover criminal networks and accelerate case resolution. Let me close by addressing the status of the Chicago gunshot detection RFP, which we bid on in April. Since our last earnings call, we've participated in a live fire demonstration in early September for the shortlisted RFP respondents. This is a great opportunity to put an exclamation point on what we believe was a strong RFP response that perfectly matches our demonstrated capabilities with the technical and operational needs of the city of Chicago as reflected in their published RFP. In addition, we are pleased to note the subject of acoustic gunshot detection was actively discussed over two days during the recent Chicago budget hearings. Superintendent Snelling once again publicly reaffirmed his support for any technology and tools that enhance CPD's ability to respond to gunfire incidents. It was also highlighted that a specific line item is included in the Mayor's budget proposal for 2026 for gunfire detection technology and follow-on remarks confirm that the RFP process is coming to a conclusion. As we focus on closing 2025 with growing momentum into 2026, we'll continue to focus on driving deeper penetration into existing customer accounts, expanding the mid-sized and smaller municipalities, growing non-ShotSpotter SafetySmart recurring software revenue, and delivering operational leverage as we scale. As a result of our temporary sales execution challenges and resulting sales motion headwinds that have unexpectedly impacted a few but consequently large contracts being pushed out, we are lowering our full-year revenue guidance range from $111 million to $113 million to approximately $104 million and lowering our adjusted EBITDA guidance range from 20% to 22% to 14% to 15%. Alan will review this in greater detail, but we still remain confident in our medium to long-term prospects as we transition through what has been a challenging 2025. I'll now turn the call over to Alan to discuss our financial results for 2025 as well as guidance for the full year 2025 in greater detail. Then we'll be happy to take your questions. Alan R. Stewart: Thank you, Ralph, and good afternoon, everyone. As Ralph mentioned, our third quarter 2025 results are behind our expectations due to delays in several large contracts that we had hoped to have completed prior to the end of the quarter. That said, our cash generation, positive adjusted EBITDA, and continued growth in all of our products reflect our ongoing strategic initiatives, operational efficiency measures, and our commitment to delivering value to our shareholders. Revenues were $25.1 million, representing a 4% decrease from the $26.3 million in 2024. It is worth noting that our 2024 third-quarter revenue included approximately $2.8 million related to the City of Chicago. Gross profit was $13 million or 54% of revenue compared to $15.2 million or 58% of revenue for the prior year period. Our adjusted EBITDA was $3.5 million compared to $4.5 million in 2024. As a reminder, adjusted EBITDA, a non-GAAP financial measure, is calculated by taking our GAAP net income or loss and adjusting out interest income or expense, income taxes, depreciation, amortization and impairment, restructuring costs and losses including unrelated fixed asset disposals, stock-based compensation expenses, and adjustments to our continued consideration obligations. Our operating expenses were $15.7 million or 63% of revenues, down from the $16.3 million or 62% of revenues in 2024. Our operating expense for the third quarter declined both from 2024 and was also lower than 2025 even as we invest in AI modeling and tools to enhance the capabilities of our platform product solutions. As a reminder, we expect operating expenses will continue to grow less than the revenue growth rate even with our additional costs. Breaking down our expenses, sales and marketing expenses in the third quarter were reduced to $5.8 million or 23% of total revenue compared to $7.2 million or 27% of total revenue in the prior year period. Our R&D expenses were $4.1 million or 16% of total revenue compared to $3.4 million or 13% of total revenue in the prior year period, reflecting our increased expenses related to our AI investments. G&A expenses for the quarter were $5.8 million or 23% of total revenue, compared to $5.7 million or 22% of total revenue for the prior year period. G&A expenses increased primarily related to the additional internal and external efforts associated with compliance with our SOX 404 requirements. As a reminder, we expect our G&A expenses to grow less than our revenue on a percentage basis as our company grows. Our GAAP net loss was approximately $2 million or a loss of $0.16 per basic and diluted share for the quarter based on 12.8 million basic and diluted weighted average shares outstanding. This compares to a net loss of $1.4 million or a loss of $0.11 per basic and diluted share based on 12.7 million basic and diluted weighted average shares outstanding for the prior year period. Deferred revenue as of 09/30/2025 was largely in line at $43.9 million compared to $43.5 million at the end of Q2 2025. We ended the third quarter with $11.8 million in cash and cash equivalents compared to $9 million at the end of Q2 2025. We repurchased 160,271 of our shares at an average price of $12.43 for approximately $2 million in 2025. On a year-to-date basis, we have repurchased 225,334 of our shares at an average share price of $13.15, approximately $3 million. Currently, we have approximately $36 million available on our line of credit as we only have approximately $4 million in debt outstanding, all of which is on our line of credit. As we close 2025, we remain focused on execution and long-term value creation. We are encouraged by our pipeline visibility for the rest of 2025, the strong renewal rate of our customer base, expanding strategic partnerships and integrations, increasing momentum into 2026, and our ability to generate consistent cash flow while investing for future accelerated growth. Now turning to the guidance for full-year 2025. We are reducing our full-year revenue guidance range from $111 million to $113 million to approximately $104 million. This shortfall is primarily attributed to delays in three expected bookings and deployments. The first relates to 18 agencies within a new state representing approximately $2.5 million in revenue. While this deployment has been delayed, we remain confident it will proceed in the near future. The second relates to an expected CapEx ShotSpotter deployment in Brazil. This initiative was expected to contribute another $2.5 million in the second half of the year. However, due to recent governmental changes, tariff-related impacts in Brazil, the timing and certainty of this deployment are unknown at this point. The third factor relates to our ShotSpotter renewal in Puerto Rico. We saw a $1.4 million reduction here again due to governmental changes. But similar to Crime Tracer rollout in the new state, we expect this to move forward although on a delayed basis. In total, these three items represent approximately $6.4 million in revenue that was originally expected to be recognized in 2025. It's also important to note that approximately 70% of the revenue related to the three items mentioned above would have flowed through to our adjusted EBITDA, which means we would have been at or near our original adjusted EBITDA percentage guidance. While we believe these are temporary setbacks, we remain optimistic about the long-term value of these potential contracts and our ability to execute well on the ones that get booked. We continue to monitor these developments closely and will provide updates as visibility improves. We are now lowering our full-year 2025 adjusted EBITDA margin guidance range from 20% to 22% to 14% to 15%, which also takes into account potential costs associated with tariff changes and the investments we are making in AI modeling and tools that we are incorporating in our products and our internal operational use. Now turning to our guidance for the full year 2026. We are expecting our growth to continue into 2026 and are setting our 2026 revenue guidance range from $114 million to $116 million. We are setting our full-year 2026 adjusted EBITDA margin guidance range from 18% to 20%. Overall, we remain optimistic with the progress we have made on each of our strategic initiatives and operational performance of the business. And with that, we're now happy to answer your questions. Operator, will you please open the line for Q&A? Operator: Thank you. One moment please while we poll for questions. And the first question comes from the line of Richard Baldry with ROTH Capital Partners. Please proceed with your question. Richard Kenneth Baldry: Thanks. Just looking from a high level, if your 2026 revenue guidance is about $2 million above what had been your guidance for '25, I'm sort of perplexed that the margin guidance is lower than what you would have expected in 2025. You're about two points below. So can you talk about sort of what the changes are there? Is it revenue mix, gross margin mix, and something else? Alan R. Stewart: Yeah. So this is Alan, and it's a great question, Rich. I think at this point when we look at the revenue guidance, there's a couple of things that are not in there at all. One is Chicago. The other one is that the $2.5 million in Brazil CapEx. If either of those come in, then not only revenue would go up, but the EBITDA on a percentage basis would go up as well. I think we're just trying to be more perhaps conservative in terms of where we expect that adjusted EBITDA to be. Richard Kenneth Baldry: Okay. And the implied revenue guidance for the fourth quarter would be sort of down from where you were in the third quarter. With sort of the delays that you had, I would have thought some of that would have come in and you'd see a pretty good sequential bump. So is something else missing from the December causing that? Alan R. Stewart: Yes, this is Alan again. And I think at this point, we expect it to be relatively flat. And if it is flat, then we would exceed the $104 million. The reason again, because we did not expect some of these delays in Q3, I think we're trying to be appropriate in the fact that we're still working on some of these delays. And although we know they're going to come in, we just don't know the timing. Particularly the large Crime Tracer deal of $2.5 million in Puerto Rico, although making progress on both of those, the timing is a bit unknown at this point. So we'd rather make sure that we can set a number that we can meet for sure. Richard Kenneth Baldry: I guess, can you then maybe talk about tying together the inability to close of what you thought was on the time frames and your desire now to change your leadership in the sales side? Do you think there's some new methods, things you can put into improve that process? Do you think you have to wait until someone permanently new is in there? Or do you think that under the interim leadership, you can sort of scrub that better? Ralph A. Clark: Yes. So this is Ralph. I think we're pretty encouraged by the recent changes that we're seeing. And let me just state that to our sales execution or pull-through conversion of a very strong pipeline, it was that we made some changes organizationally. We changed the playbook and frankly, we kind of took our eye off the ball on, I'll call it, the point execution with respect to ShotSpotter. Asking our sales organization to be much more consultative and trying to sell the full product suite to customers. And where we saw the uplift in our solutions beyond ShotSpotter, we're frankly going into brand new buying centers. So we're trying to be super intentional and kind of going back to our original playbook. Being a little bit less perhaps, and it pitched the entire product suite when there might just be an interest in ShotSpotter for an example. And changing the organization as well. So earlier this year, we're asking we had more salespeople carrying more things in their bag. They had to get trained up on it. And it just didn't work out very well. So now we're kind of going back to say, okay, fewer things in the bag, focusing on those opportunities and let those opportunities kind of pull through as they naturally should and being a lot more intentional I'll call it, kind of sales force hygiene and forecasting. So we're still early on the process. We're encouraged about some of the recent changes that we're going to be working on this through the remainder of the year and early next year. And at the same time, look at bringing on a new permanent Senior VP of Sales. We're incredibly grateful for Gary to come back in to this role and help right the ship, so that we can finish out the year on a pretty decent basis. And switch gears away from sort of the government-centric stuff to the SafePoint more commercial area. Can you talk about the magnitude of pipeline there? Maybe broadly speaking, how much that could move the dial on growth rates or revenues in 2026 or forward? Just sort of get a gauge for how much that can offset sort of some of the challenges on the other side? Ralph A. Clark: I'll try to say this and hopefully I won't sound too giddy, but we're incredibly excited about the opportunity in Point, particularly around the hospital vertical. It just has extraordinarily strong product market fit. And you'll notice over the past couple of quarters, we've announced some fairly substantial deals with SafePoint that were in the kind of $400,000 to $500,000 plus types of bookings. And we're seeing a lot of those opportunities kind of line up for us. So although I won't give you a specific number, I will say that we're incredibly constructive around the growing pipeline, our ability to execute to that growing pipeline. We don't have a sales motion problem in SafePoint at all. I think that's a business that's going to be fairly substantial for us over the medium to long term. And again, we're even seeing traction outside of California AB 2,975. So when that thing begins to kick in, that's going to be a real, we believe significant tailwind for that business. Operator: And the next question comes from the line of Mike Latimore with Northland Capital Markets. Please proceed with your question. Jeremy Scott Hamblin: Hi, this is Vijay Devar for Michael Ademore. Couple of questions. One, how many end enterprise security deals are in the pipeline for the gunshot detection technology? Ralph A. Clark: We'll have to circle back. This is Ralph. We'll circle back to you. That's a really good question. I don't have the number off the top of my head, but it's a fairly good strong list of I would say new customer opportunities for gunshot detection. You're saying gunshot detection, I presume. I heard gunshot detection as opposed to weapons detection. But we have a strong pipeline of new customers as well as some expansions that are on the books that we're having some good conversations around and not to be discounted is the unlock we expect to see internationally where we have a fairly strong, I would say pricing leverage internationally. And we're seeing some early successes in Uruguay as we spoke about earlier. Along with our more recent deployment in Nidoroy, Brazil. And I think the Brazilian opportunity specifically is something we're incredibly excited about. Jeremy Scott Hamblin: Okay. Sure. Sure on this. First thing, so I can back on this question. No. What percent of the pipeline is that, I mean? Okay. And we can discuss that in later. But how are the sales cycle for sales point change now versus a couple of quarters ago? Ralph A. Clark: Yes. So the thing that we see around this is Ralph again, that we see around the sales cadence with SafePoint versus traditional ShotSpotter. Those deals appear to be happening on a much faster cycle time. I think the sales cycle time we can think about with respect to SafePoint is more in the kind of twelve-month category. Whereas ShotSpotter is kind of twelve to eighteen months. And the reasons for that are pretty logical when you step back and think about it. When you're dealing with SafePoint, you're typically dealing with commercial enterprises. In our particular case, hospitals and casinos is a great example. So they operate in a very different fashion. When you're talking about ShotSpotter, the sales process becomes a lot more complicated because you have buying centers, are the police departments, You have decision makers that need to weigh in that represent elected officials elected officials aren't necessarily driven by ROI stuff. They're driven by sometimes optics and politics a little bit as we know. From our experience. Funding sources come in from different places. So we're in a position where we basically have to weave all those things together without alienating anybody in the process and going through city council meetings where communities can appropriately weigh in and the like. So that's just a much more complicated process. But I will say, and it's important to note offsetting that that longer sales cycle is the stickiness that we have been able to appreciate and take advantage of over on that acoustic gunshot detection side. Those customers tend to stay with us a very long time, think in terms of decades. Jeremy Scott Hamblin: Thank you. I appreciate that color. Operator: And the next question comes from the line of Trevor Walsh with Citizens. Please proceed with your question. Trevor James Walsh: Great, thanks. Hey Ralph and Alan, thanks for taking the questions. Maybe Ralph, just to kind of dig in a little bit more some of the comments that you made around the go-to-market changes. It just seems a little bit reactionary to the three deals specifically that you mentioned as affecting kind of where the results came in on the top line for the quarter and in the guide, which have the each of those have their own intricacies and kind of special, I guess, cases. So are you seeing something else I guess, in terms of execution more broadly that's leading to these changes? It just seems like these deals, again, are a little bit more specific and wouldn't necessarily need to have a complete reworking of the sales team for you're just that are having nuances around delay. So can you maybe just what's kind of more going on there? Ralph A. Clark: No, I appreciate you asking that question, Trevor, because maybe I wasn't clear about that. The sales conversion challenge I'm talking about are additive to the three deals that Alan spoke about. Those are it's kind of apples and oranges. So yes, even with those sales deals that Alan spoke about, we still have to recognize or acknowledge that we have some sales that to the three deals. execution challenges that we're addressing. So that was something on the edge. So additive So not a part of the three deals. So sales execution bit doesn't have anything to do with our large CapEx deal in Brazil. It doesn't have anything really to do with our Crime Tracer deal in the kind of quasi state thing that we were that we're talking about. And of course, the Puerto Rico renewal is a Puerto Rico renewal that has nothing to do with the way we're kind of organized from a sales point of view. Or what our playbook is. I think when you step back and look at the thing that the bit that I was talking about, it's really around we would expect it have been I personally expect it to be much further along, I would say, on the shop Spotter domestic side outside of those three deals. So I think we had spoke earlier about trying to get to like 100 square miles going live. We're going to be less than that this year. And that has a revenue impact. Got it. Okay. Does that answer your question? Trevor James Walsh: Yes, absolutely. That's super helpful. You. Yeah. Okay. So maybe just, another follow-up, different topic. When you on the commentary in your prepared remarks, for, integration with DFR initiatives, Can you just maybe give us a flavor, you might not have hard stats, but just what how much of that is current ShotSpotter customers, and then versus maybe influencing the pipeline of those new customers that you spoke about with DFR that they're, you know, working on in tandem and, like, how much is that, I guess, influencing more of that new customer pipeline as far as customer wanting to integrate with their DFR initiatives kind of at the same time? If that makes sense. Yes, that's a great question. I'll do my best to answer it. Ralph A. Clark: Let me first say that we have a history of integrating with systems outside of SHOT Spotter. So the DFR happens to be the sexy thing today. But for years, we've been integrating with real-time crime centers. We've been integrating with LPR. We've been integrating with fixed cameras as well. ShotSpotter alert goes off to be able to pan, tilt and zoom a camera. To that specific location. Has been a game changer. And it's really a one plus one equals three. Frankly, a DFR is just a new version of that. So in instead of sending an alert to a fixed camera, we're now essentially sending it to a mobile camera And we're taking a, I'll call it an open standard approach here We'll integrate with anybody that the customer has as a part of their DFR We'll send them a digital alert and allow them to direct that DFR response to that specific lat long The incident I spoke about earlier, and we have experienced with all the major drone platforms today. The one in Pueblo, California, I think was a brink a DFR platform. You went to ICP, you would have seen a bird stop in our booth and we work with others as well. So we're completely agnostic because I think it's all about making the customer win. And helping them be more effective. Trevor James Walsh: Great. Terrific. Appreciate the color there. And then maybe just one final one for you, Alan. It Can you just explain or is there any additive comments around kind of why the gross margins broadly just slipped a little bit in the quarter? I'm wondering if it's specifically related to the three deals that were expected or if there was something else kind of at work? Thanks. Alan R. Stewart: That's a great question. I think the gross margins did go down related to the deals. That is basically the primary reason. But I would also well, if you take a look, although the gross margin went down, the cost of goods sold also went down because we are controlling our costs appropriately. It went down from $12.1 million Q2 down to $11.5 million in Q3. So if we see things reduce a little bit in revenue, we are doing everything we can to adjust the costs related to that. So you not only saw that in cost of goods sold going down, but the same thing in the total operating expense going down from $16.7 million in Q2 down to $15.7 million in Q3. So we're being very intentional when we see things get a little bit delayed and what we can do from an operating or other cost basis to improve the ultimate bottom line. Trevor James Walsh: Okay, great. I'll hop back in the queue. Thanks all for taking the questions. Operator: And the next question comes from the line of Max Michaelis with Lake Street Capital Markets. Please proceed with your question. Max Michaelis: Hey guys, thanks for taking my questions. First one for me just around 2025 and 2026 guides. I know you have previously given sort of an ARR outlook. I was wondering if that $110 million what that stands at now for the projected end of 2025 ARR? Was also wondering if you could provide any color around 2026 ARR expectations? Alan R. Stewart: Yes. So this is Alan. We generally give the ARR guidance in our Q4 earnings report, that will be in February. So we intend to do the same thing again coming into 2026. And if you think about it, one of the main reasons for that is just two of the large projects that we're talking about $2.5 million for Crime Chaser and the Rico to be $2.8 million that moves that a lot. So we need to make sure that we get an accurate number and we'll know more of that by the time we do our Q4 earnings report. Max Michaelis: Okay. And then I was just wondering if you could just help clear up some confusion I have around the Crime Tracer and the delays around that. I'm pretty sure in a few questions ago, you said didn't really have anything to do with the go-to-market strategy and some of the reworking that you've done with the sales team. But can you kind of help me understand sort of the pain points around that deal and the main cause of that delay? Ralph A. Clark: Yes. So this is Ralph. I'll answer it and Alan jump in and add in correct as appropriate. But this is a quasi state level deal. We have some experiences with this with respect to Crime Tracer. These are very, very large transactions. Not at the local agency level, but more at the state level. So when we first acquired the company, we closed Tennessee, that was a 7-figure deal. Then I think eighteen months later, we closed a very large transaction with the state of Massachusetts. Recently, we closed a deal with Utah. There's another state that we're not naming right now, but it's not the entire state. It's a number of agencies within this very large state. That we're looking to close a deal. And it's essentially like herding a lot of cats into the process here because you have kind of one funder basically and kind of one buyer, but there's an 's number of agencies that are participating around this particular acquisition. And I think I'll just say we were recently spending some time kind of walking the halls of the state capital here meeting with a number of Senator and representatives within this particular state. To reaffirm their support for the solution. The funding is there. So that's incredibly positive. We just have to kind of work through the, I'll call it the bureaucracy of getting a deal done because this isn't a muscle that gets used a lot in terms of having more than 10 agencies all work together and collaborate together and agree on the same terms and conditions. To get a deal done. So just this has taken a long time. And so that's where that is. I don't know, Alan, do you add any additional color? Alan R. Stewart: Yes, Alan. The only thing I would add is this is something that they want very much and have wanted. We thought actually we were going to close this around Q2. This particular state had some other costs that came in that had them take a look at some of their priorities. We're still a very, very high priority to get this contract done when I say very high, I'm liking the top two priorities for this entire state that they're dealing with these types of things. So we expect it to happen just it's just being a little delayed. Max Michaelis: All right. Thanks guys. Operator: And the next question comes from the line of Jeremy Hamblin with Craig Hallum Capital. Please proceed with your question. Jeremy Scott Hamblin: Thanks for taking the questions. So sorry to harp on this, but I want to come back to the guidance change. And it looks like about an $8 million change in revs, but also about an $8 million change in EBITDA. And understand the three key contracts that didn't come through from a timing perspective, but even if we're thinking about a kind of 70% flow through, I wanted to just understand what else creates kind of that spec function gap to the roughly $8 million reduction in EBITDA. Is that just R&D costs are a bit higher or color that you might be able to share on that? Alan R. Stewart: Yeah, thanks Jeremy. This is Alan answering the question. I think part of it is if you look at the actual profitability that we thought we're going to get with those, Puerto Rico is already deployed. Right? So the actual cost turn that back on almost 100% of that revenue goes the bottom line. The Crime Tracer deal is the actual gross margins that we produce with that when we go live in a large deal like this are significantly high. And then the CapEx deal was something that this is like $2.5 million which otherwise would have been a five-year $500,000 services deal. And you know our gross margins internationally are significantly higher and we would have gotten most of that money to the bottom line because we would have been actually selling them some of the sensors. So the revenue itself comes with a very very high adjusted EBITDA that we would have expected to cover the bottom. Jeremy Scott Hamblin: Okay, got it. Wanted to touch on Puerto Rico a bit more. As you noted, kind of prior customer kind of in a halted period, and just in terms of you have the infrastructure deployed I know this you know, the process of getting it extended has dragged on here. But in terms of how you would expect that let's just assume that you get that back turned on in 2026, would there be a catch-up payment that would occur and let's just say it doesn't happen in Q4, but it does in Q1, would you receive kind of back revenues for the second half of 2025 that we're missing or how do you expect us or how do you think that that's going to get treated as you go through this process? Alan R. Stewart: This is Alan and I'll answer then Ralph can add it correct. At this point and what we have historically seen with Puerto Rico is they do not backdate to the an earlier date based on when we get the actual contract signed. So we really cannot expect. But I would say the second point here is the cost to them is going to be going up. So basically, because some of these things are costing us some time and money as well. It is likely that they're going to have to pay a little bit more to get the same solution. Yes. Alan, if I could just add something. What makes Puerto Rico a little bit different than other customers is other customers might be delayed in getting a renewal that they intend on doing. We know they're going to do it. They have a history of doing it. So we won't turn the system off for them. We've turned the system off from Puerto Rico. So they're not getting any alerts right now. And that's another reason why they would not be backdating excuse me, we would not have any catch-up revenues in this situation because they're not receiving the service. As of the end of Q2. Jeremy Scott Hamblin: That's helpful color. And then just switching gears, I want to come back to Chicago, exciting potential there. And know this has been really elongated process with twists and turns. In terms of the engagement that you have, is presumably a potential decision is getting made I assume that you're not actively engaged with the mayor's office, given that kind of status, but do you have a sense for where you think there might be a resolution on whether or not this moves forward? I mean, are you thinking by next spring that you'll have an answer and if we don't have an answer by then it's not happening? Ralph A. Clark: Yes, so I think something is definitely happening and I think we were quite encouraged to see that during the budget discussions, there was specific commentary, Q and A going back and forth that determined a couple of things. One, we determined that there is a line item in the budget, in the Mayor's budget for acoustic gunshot detection technology. So that's encouraging, I think. There's also a lot of discussion about the need for this type of first responder or acoustic gunshot detection technology to be lit up as quickly as possible. And during the course of two days of discussions, it was acknowledged by an executive within the mayor's organization that they have fairly much completed the work on determining their recommendation for the vendor. And now that has to go through the of going through the Chief Procurement Officers and then being presented to the Mayor where the Mayor excuse me, not the Mayor specifically, but the Mayor's Office signs off on it and it moves forward. And they suggested a couple of different testimonies that we're coming close to the conclusion. And then lastly, the most important thing for me or anybody really around wanting to be involved with Chicago and helping them create safer spaces for the communities in Chicago. It was really nice to see Snelling reaffirmed publicly when asked to question directly about his feelings about was asking about ShotSpotter, but his answer was he is in very strong favor of any tools and or technology that can help them do a better job responding to gun violence. So he's not backing away. From that. So all those things are pretty encouraging. And now we wait. Jeremy Scott Hamblin: Great. Last one for me. Just in terms of the platform growing, having a lot more services that you're offering between CrimeTracer and the base SSTI, ALPR capability etcetera. In terms of thinking about your R&D spend, right, which has ticked up this year and wanted to get a sense for is that something where as these services have more AI tools, you're likely having to hire some more engineers to support that. Should we expect similar growth next year in terms of what your R&D budget looks like? Alan R. Stewart: Yes, this is Alan. I'll answer then Ralph can correct. I think at this point, and we've been talking about this for a year, we went into the year fully expecting to spend a significant amount more in all the AI initiatives, which goes into the R&D aspect. Specifically, can also know about how we just released the CrimeTracer Gen 3. That is a very great upgrade for us in that particular product. That required some of our AI and other R&D personnel. And also what we are doing in terms of SafePoint literally month by month the product improvement is occurring and that's because we're investing in the improvements not just the algorithms and software side of things, but other aspects of the actual SafePoint product as well. But those require personnel either in the AI for the algorithms or in the R&D for the complete product development. Ralph A. Clark: Yeah. No. I was just and you should just add like the AWS spend with running the algorithms on some of these specialized processors and the opportunity we have to maybe in source that on-prem and be able to save some money. And still be able to do the work that we're doing with AI. Alan R. Stewart: Yes, that's a great addition. I mean at this point, we are spending more on personnel, but also our costs related to that are in the millions at this point. And we do believe that we can do some of that internally and save some money. Your other question, was, do we expect to continue to have R&D go up year over year. It may go up a bit, but we think it's going to go up far lower than the actual revenue that it's producing. Jeremy Scott Hamblin: Great. Thanks for the color. Appreciate the detail. Operator: There are no further questions at this time. And I would like to turn the floor back over to Ralph Clark for any closing comments. Ralph A. Clark: Great. Hey, thanks a lot, John. I want to thank everyone for joining us today. Your engagement and thoughtful questions really do demonstrate the strong interest you have in our strategic vision and the market opportunities we're pursuing. And I also want to take a moment to thank my leadership colleagues and work employees colleagues for their strong dedication and hard work. And certainly none of this would be possible or meaningful if it wasn't for the work that we're doing with customers and our community partners. And we do value their continued trust and collaboration. We're going to continue to remain committed to making communities safer through technology, transparency, and innovation that address real-world public safety challenges. And we're going to focus on executing our strategic vision and delivering shareholder value. And thank you all very much and looking forward to some of the one-on-one discussions we're going to have here in a bit. Have a good evening, everyone. Operator: And thank you, ladies and gentlemen. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Good morning, ladies and gentlemen, and welcome to the MDxHealth S.A. Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation this morning, there will be a question and answer session. To ask a question, you may press star and then one on your touch-tone phone. To withdraw your question, press star and two. As a reminder, this call is being recorded. I would now like to hand over the conference to John Fraunces from LifeSci Advisors. Thank you, and over to you. John Fraunces: Before we begin, I would like to remind everyone that the company will make forward-looking statements during today's call. Whether in prepared remarks or during the Q&A session, these forward-looking statements are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the Risk Factors section of the company's filings with the Securities and Exchange Commission, specifically in the company's annual report on Form 20-F. I'll now turn the call over to Michael McGarrity, Chief Executive Officer. Michael McGarrity: Thanks, John. And thank you all for joining us for our third quarter 2025 earnings conference call for MDxHealth S.A. With me today is Scott McMahon, Interim Chief Financial Officer. We've been very consistent in our message and mission that MDxHealth S.A. is driven by three core operating principles: focus, execution, and growth. We are excited to report results that are consistent with that internal mandate. From a focus perspective, we continue to identify high-value differentiated assets as demonstrated by our recent acquisition of the Exosome Diagnostics business, further positioning MDxHealth S.A. with the most comprehensive industry-leading menu of precision diagnostics in urology. From an initial elevated PSA to and through each point along the diagnostic pathway of prostate cancer, MDxHealth S.A. can deliver clinically actionable diagnostics for clinicians and patients. With respect to execution, every operating group within our company has supported our growth with an uncommon discipline as evidenced by the following. Our sales organization has delivered a compound annual growth rate of 45% over the last four years while significantly reducing our sales and marketing expenses as a percentage of revenue. This reflects our team's steadfast commitment to building trust and accountability with our urology customers, allowing us to confidently invest in additional growth opportunities. Our laboratory operations group has also kept pace with the increasing scale of our business while improving our gross margin profile through optimal efficiency and productivity. From a customer experience perspective, our entire team knows that we are only as good as our customers think we are. The emphasis we place on the customer experience has, in fact, become foundational to our culture. There is nothing we do not metric and manage to help improve upon the customer experience. And through these efforts, I believe we are now resetting the industry gold standard for turnaround time from sample to result, which is clearly one of the most important patient and clinician-driven metrics. And finally, as it relates to growth, we are confident that MDxHealth S.A. will continue to deliver market-leading growth driven by focus and execution, coupled with a very sound and disciplined new product and acquisition strategy. As we go forward, we also expect to achieve sustained top-line growth while advancing operating profitability. Following our first adjusted EBITDA profitable quarter in Q2, delivered again in Q3, as well as achieving positive adjusted EBITDA on a year-to-date basis. I would now like to highlight the results from our third quarter that we believe reflect our focused execution and growth. Q3 revenue of $27.4 million represents 18% growth over 2024, even with our decision to forego focus on our previously planned germline offering, and adjusted EBITDA came in at $1 million. Our total OpEx is essentially flat for Q3 and year-to-date over 2024, up a mere 1% on 20% year-to-date top-line growth while absorbing material acquisition-related expenses. We successfully closed on the transformative Dx acquisition, and at the end of Q3, we began the integration from an operational Salesforce perspective. And this process will be our highest priority throughout Q4. We strengthened our laboratory operation with now three labs and will focus on installing and advancing our quality and operating discipline goals with the team from ExoDx in the Massachusetts facility. Finally, our total use of cash for Q3 was less than a million dollars. We are confident in completing the integration of the ExoDx acquisition in this fourth quarter. The integration will be focused on the following key operational areas of the business. For the commercial operation, our diligence of the ExoDx opportunity led us to execute a strategic expansion of our sales organization from 50 direct sales reps among six geographic regions to now 60 direct sales reps across eight regions. This expansion was informed by a detailed review of the customer base and ordering patterns by urologists and large urology groups and was specifically designed to optimize cross-selling opportunities of our combined customer base. As I noticed when we announced the acquisition, this strategy mirrors the growth thesis of our GPS acquisition, leveraging the potential to drive growth through our now expanded menu and customer base. We are conducting cross-training of sales reps and integrating into the newly formed regions. Through this acquisition, we are confident that our best-in-class sales team will continue to execute on our growth strategy demonstrated by our track record of consistent and sustainable sales rep productivity and fortified by the high-performing and high-quality sales reps we retain from ExoDx, slotting them opportunistically to further drive growth in customer engagement. Lastly, on the commercial customer front, we will be converting our select customers over to ExoDx throughout Q4 and would expect to discontinue Select by year-end. We are confident, as we have noted, that the ExoDx test provides optimal and clinically actionable results for patients and clinicians while providing additional ease of use. We will strive for seamless integration and provide an update at the beginning of the year on our progress and what we expect to be a successful transition. We are also focused on our laboratory operational integration. With our expanded laboratories operations in California, Texas, and now Massachusetts, we will focus on efficiencies designed to advance our continuously improving gross margin, as well as advancing our information systems to drive additional operational efficiency, all while maintaining our relentless focus on performance metrics that achieve operating excellence and improve customer experience. Finally, we are integrating our client service and revenue cycle management teams to best serve our patients, customers, and payers as we strive for world-class service standards within the industry. Based on prioritizing the successful integration and customer engagement, as well as conversion of Select to ExoDx, we have set aside our entry into the germline market. While we had expected material revenue from germline in the 2025 revenue guidance of $108 million to $110 million, we will revisit and reevaluate the germline opportunity as we enter 2026. Finally, as part of the ExoDx acquisition, we commented on the broad IP and clinical scientific data in multiple cancers, including prostate. We will be actively evaluating strategic opportunities from this platform both within MDxHealth S.A. as they apply to our urology focus and through partnering opportunities as they may present themselves. We now believe and are confident that no other company is better positioned to improve the patient journey through prostate cancer diagnosis and treatment and that our results continue to reflect our success in bringing value to this patient population. I will follow up with closing comments and a view forward, but first, let me turn the call over to Scott McMahon for a review of our financial and operating results for our third quarter. Scott? Scott McMahon: Thank you, Mike. To follow on Mike's remarks, we are very pleased to report strong performance in 2025. Q3 total billable volume was approximately 33,000 tests, of which approximately 13,000 were tissue-based and 20,000 were liquid-based tests, representing total unit growth of 37% versus the prior year quarter. Volumes for our tissue-based tests, which include ConfirmMDx and GPS, increased approximately 18% over the prior year period. Volumes for our liquid-based tests, which include SelectMDx, ResolveMDx, Germline, and the newly acquired ExoDx, increased approximately 65% over the prior year quarter. Revenues for the third quarter ended 09/30/2025, increased by 18% to $27.4 million versus $23.3 million for the prior year quarter. Tissue-based tests made up 76% of revenues for Q3. Moving below the revenue line, our gross profit for the quarter was $17.9 million, an increase of 25% as compared to $14.3 million for 2024. Gross margins were 65.2% compared to 61.2% for Q3 2024, an increase of four percentage points primarily attributed to our test mix and improved efficiencies in our operations. Our operating loss for the quarter declined 57% to $2.6 million compared to $6.1 million for 2024, primarily driven by our growth in sales and gross profit. Our net loss decreased 28% to $8 million compared to $11.2 million for the prior year. Adjusted EBITDA for the quarter was a positive $1 million compared to a negative $3.8 million for 2024. Note that a reconciliation of IFRS to non-IFRS financial measures has been provided in the tables included in this press release. Cash and cash equivalents as of 09/30/2025, were $32 million. This concludes my overview of the results. I will now turn the call back to Mike. Michael McGarrity: Thanks, Scott. We believe our Q3 results reflect the reputation we are building for excellence in focus, execution, and growth. And so as we look forward, we are committed to excellence in the following operating principles. Discipline in our capital allocation is reflected in the linear decline in cash used in operations, with Q3 almost breaking even with respect to total use of cash. Absolute dedication to the patient and customer experience by every single part of our organization. The highest expectations for continued growth driven by our sales channel to meet or exceed expectations, defined by performance over time. With a culture of recognizing execution through an incentive compensation plan that rewards sustainable growth. Our culture of quality first and customers always will ensure our building reputation for excellence in operating discipline, commercial execution, and most importantly, the patient and customer experience will continue to fuel our growth in a sustainable way. We are very proud of our growing reputation for meeting or exceeding expectations and delivering on our commitments to patients, customers, and the market. Whether in the sales force, laboratory operations, revenue cycle management, client services, patient advocacy, quality and regulatory, our entire MDxHealth S.A. team operates under the mission that there is a patient and family on the other side of every sample we receive. That is what drives our customer base to trust MDxHealth S.A. as their laboratory partner for critical diagnostic tests that inform patient pathways. We will continue to strive to deliver on our commitments, growth, and value while positioning MDxHealth S.A. as the leading growth precision diagnostics company focused solely on our high-growth target urology market. And as always, carry a great deal of responsibility to provide value to all of our stakeholders, including patients, customers, payers, and shareholders. Thank you for your interest in and support of MDxHealth S.A. Now I'll turn the call back over to the operator for questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phone. 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 2. At this time, we'll pause momentarily to assemble our roster. We have the first question from the line of Dan Brennan from TD Cowen. Please go ahead. Dan Brennan: Great. Thank you. Thanks for the questions. Maybe just the first one, just on Exo in the quarter, it looks like, you know, given the liquid volumes, really had a strong liquid quarter. Just wondering if you can give us any color on the contribution of Exo in the quarter. And then, b, related to that, there's some moving pieces, obviously, with your product portfolio as we move as we exit the year, you're exiting germline. You're deemphasizing Select, but now you have Exo in there. We would net those all out to still be a positive contributor such that, like, you should see upside to revenues. You guys aren't baking anything in right now, maintaining the guide. Is there conservatism in that? Or anything you can help on that would be really great. Michael McGarrity: Yeah, Dan. I got the question. So just to be clear, to take a step back, we had as we had discussed, not expected material contribution from germline in the first half of this year. We did, however, signal and expect material contribution from germline in Q3 and Q4. As we entered into the process on the ExoDx acquisition, it became clear that that would likely lead to a successful outcome. We adjusted that focus knowing that we would need to require all of our resources, focus, and attention. The closing of the deal, which happened at the end of Q3, so part of your question is, no material contribution from Exo. And that is an offset. So without any contribution from what we expected from germline, and a Q4 contribution from Exo, we're confident that we can meet or exceed our revenue guidance. That informs our view there and hopefully answers your question, which I understand. So we are very clear that the transition, the liquid growth in Q3 was candidly driven by our germline. I'm sorry. Our resolve business continues to accelerate. And, you know, we did see we announced the deal in August, didn't close till September. So we really were focused on managing. I communicated when we announced the acquisition that I wasn't going to comment on our strategy for Select and Exo in the market out of respect for our customers and sales reps that we're working that. And confident that we navigated through that, you know, weird period for lack of a better term, with a lot of competitors running around and making assumptions. That we held off. So we believe that our results for the year in Q4 will reflect our original thesis on the opportunity ahead of us with the Exo acquisition. And the offset of germline, we believe, is the right strategy to ensure very, very successful integration of an expanded sales organization with territory adjustments, cross-training, and maintaining the customer base while we move customers away from Select and onto Exo. So hopefully, that answered your question. And, yeah, we think it's a we think we made the right decisions there, and obviously, we'll look forward to reporting support for those. Dan Brennan: Okay. And then maybe any color just on GPS. Obviously, such a big driver of revenue for the company just given the reliance on that. Just wondering how you know, what you could characterize how GPS did in the quarter, you know, we were tracking volumes up significantly over the last couple of quarters. Just any color on how it came in? Any color on price or volume or just what the environment's like? And then, you know, what do you have kinda baked in as we think about GPS for the, you know, for the fourth quarter? Michael McGarrity: Yeah. So we you know, our tissue reported 18% growth. You know, we feel that that's significantly ahead of the market growth, and we're very confident that our performance continues there. With no material change to the economics. And remember, that is Confirm and GPS. In Q3, we did you know, I usually don't comment on seasonality. We did in our customer channel checks throughout the quarter see a little bit of a patient flow directed slowdown in the number of biopsies. But again, we wouldn't tend to apologize for 18% growth on the tissue side. So business is going as we anticipated, and feel confident in both. I think the comment I would make is the mix shift that you saw with tissue and liquid we view as very encouraging. In other words, our tissue is awaiting a revenue. We've been running about 80%. The last two quarters, it was up to about 85% of revenue. And what you saw in Q3 was a little bit of a flip of that really driven by the strength of the resolved growth. And yet the margin held at the 65%, which is I've said on the last couple of calls, is ahead of our expectations. I've been reluctant to set that as the view forward, but obviously, it shows confidence that we're seeing really good execution efficiencies in our COGS and gross margin profile across our menu, both liquid and tissue. So we believe that's sustainable as well. Dan Brennan: Great. And maybe just a final one just back to, like, the first point. So presumably, whatever the Exo contribution is, given the fact you're holding the guide, is the assumption that that contribution is around the same level, you know, is around the same level as the germline test and the Select test, or has something changed in your assumptions for the rest of the business? Michael McGarrity: The former, not the latter. We are still very, very confident in not only the core Exo business that we acquired. It's early. And as we go forward over the next, you know, two or three quarters, we'll comment on what we see as a real opportunity there. With the expanded sales organization. And a renewed focus on that part of our market opportunity because I don't want to say we had walked away from it, but we were clearly challenged. And as I've commented, our focus for the first half of the year was really leading toward the tissue. I think our result business is just really going based on, you know, our sales rep focus, but also a little bit of peer-to-peer. You know? Help there. We're probably on our fifth generation of that test. It's the best test, we believe, on the market unequivocally. So we really see balanced growth throughout the menu with just an adjustment in our strategy that lines us up where we expected to be for the year. Dan Brennan: Okay. Great. Thank you. Michael McGarrity: Thanks, Dan. Operator: Thank you. We have the next question from the line of Andrew Brackmann from William Blair. Please go ahead. Andrew Brackmann: Hey, good afternoon. Thanks for taking the questions. Mike, you mentioned the analysis that you did of your customer base and that's informing some of the sales team expansion here. Any additional color you can maybe give on that analysis, how you're viewing the opportunity across the combined customer bases here, and how we should be thinking about the total opportunity size? Thanks. Michael McGarrity: Yeah, Andrew. So probably what you would expect. Right? I mean, we try not to overcomplicate it, but what we did was we looked at their customer base, and we had pretty good information. I'll just say a little bit different than the GPS. That was a carve-out asset acquisition. This was an acquisition of the business. So between signing and closing, we got a lot of work. And the customer base, the crossover. And what we really looked at was growth trends within an area of the business. The view of a sales town, historical ordering trends, and then crossover mix of our menu within our target customer base. And that informed the expansion, which we think was the right number, prudent. It strengthens our focus. So we expect to drive that same productivity now over a little bit larger sales organization while still being able to carry our P&L forward all the progress we've made the full P&L. From an OpEx absorption and productivity across the sales organization. Andrew Brackmann: That's great color. And then just on the integrating client service and RCM initiatives here, on the operations front. Can you maybe just sort of talk to us about the opportunity that's there? On the RCM, why'd you choose to do this now, and how we should sort of think about the potential downstream effects? Thanks. Michael McGarrity: Yeah. I guess I called that out just because, you know, what we retained and crossed over from the business were the key operating parts of the business. Right? Salesforce set aside, we were, you know, we saw we'll recognize synergies there based on the size of the sales organization they were carrying and what we elected to take over. And we ran a really high quality, which was important to us, to me. Really looking at each rep, each territory, each customer base. My comment there is just the three key parts of the business that we have to be and plan to be very successful integrating into our operating business. Is the laboratory operation, which is with us now. The client services group, and the revenue cycle management group. So my comment stands to be integrating those so that we're all working the same process focus and execution and expectations that we can predict and protect the business as well as we have over the last number of quarters and years. And that'll be the sole focus in Q4. So when we come back at the beginning of the year and provide guidance for 2026, it will be informed across all of the aspects that drive the P&L. Right? The top-line unit growth, our coverage and cash collections, and then how we support our customers through our client service group, with a menu that is more advanced than some of our competitors. With, you know, four tests being ordered in a different mix set by certain customers as well. So all that is what we're focused on for Q4. And that constitutes the new people and parts of the organization that are coming over that we expect in a quarter or two to be fully integrated. Just as we've made progress over the last couple of years, our group that I hope I pointed to, with the growth not being linearly offset by our spend on the OpEx side. And that's what we anticipated over the last number of quarters. And we've had 1% OpEx expansion over the last year on 20% top-line growth. That we expect to continue. And those are the groups that we gotta make sure that we integrate so they're operating at the same efficiency levels that we have. Andrew Brackmann: Okay. All helpful. Thanks, guys. Michael McGarrity: Thanks, Andrew. Operator: We have the next question from the line of Bill Bonello from Craig Hallum. Please go ahead. Bill Bonello: Hey, guys. Thanks a lot. Few follow-up questions here. So first of all, if we're doing our math right, it looks like maybe on the tissue side that the ASP was down about 7%. Or so sequentially. I guess, does that sound about right? And, you know, if so, is that a function of mix between the tests? And if it's not a function of mix, sort of what's driving that move? Michael McGarrity: Yeah. I mean, Bill, we don't report our ASP by test. And we see variability each quarter. So as we go forward, we don't see a material change in our view of really, you know, our entire menu consolidated or how we think about our payer mix and we'll continue to report on that each quarter. But I don't view that as anything notable. Bill Bonello: Okay. Because, Mike, even if I, you know, just look at the total, you know, total tests and total revenue, you know, the ASP was down, you know, quite a bit year over year and sequentially as well. And so it's just it's a little confusing. There's that much fluctuation from quarter to quarter? Michael McGarrity: Yeah, Bill. We are very, very conservative on our revenue cycle management estimates. You know, as you run in the lab model. So we just we don't I don't have any additional comment on that. Bill Bonello: Okay. And then, I guess, it just sort of wanna come back to the guidance again because I'm much like Dan, I think we had, you know, we had sort of assumed that the guidance would go up when you close the acquisition and, you know, shame on us for not realizing you had that much germline baked into the initial guidance. But at the time you announced the ExoDx acquisition, you talked about assuming it would add, you know, at least $20 million of revenue next year. Has anything changed on that front thus far? Michael McGarrity: Nothing has changed. And if you view that offset as that we expected $5 million or a little bit more in germline in the second half, that would be a good assumption. As we don't guide to products, but we wouldn't have communicated. We saw an opportunity there if we didn't intend to focus on it and execute and deliver. Yep. We don't feel that's the right use of our focus particularly over the next couple quarters. So you're reading it right and absolutely zero change on our view of the opportunity of the contribution from Exo as we go forward. Bill Bonello: That's helpful. And I know you're not gonna give 2026 guidance and, you know, you might not even answer this, but I'll ask it anyway. You know, when we when you first sort of put that out there, the way we had thought about this was, gosh, you're sort of a 20% grower, and we tag, you know, $20 million or whatever, you know, the actual number is on top of that from the acquisition. It sounds like maybe that's the wrong way to be thinking about it, and we should sort of be thinking $20 million and we net out $10 million of kind of lost germline and so net net maybe the real add is sort of $10 million to whatever the basic growth rate is? Or how are you kind of thinking about that? Michael McGarrity: Well, I think I had a really smart analyst once telling me, don't guide to the following year until it's time to guide the following year. But I think what I said was we expected we expected been Dan. That's I think I think I stand by our view. That that we made, that we expected the Exo business could contribute $20 million or more in 2026. That was a view, not guidance not intended to be guidance, I should say. And that view is unchanged. And I also said that I expected it to accelerate our revenue growth from 20% to close to 30%. Again, that was our view. It wasn't intended to be guidance. When we provide guidance at the beginning of 2026, I think our view from today is that those are reasonable in the ballpark assumptions of how our business builds. Bill Bonello: That is particularly helpful. I appreciate that. And as always, we appreciate your prudence. Michael McGarrity: Thank you, Bill. Operator: We have the next question from the line of Mark Massaro from BTIG. Please go ahead. Mark Massaro: Thanks, guys. I enjoyed that discourse in the last round of questions. But I think, you know, I'd like to maybe ask this one, which is, you know, Mike, I understand that the Exo test is certainly an attractive test. You've got many other attractive tests in your bag. And, you know, I wanted to just get your temperature on the germline test. I recognize that you'll reevaluate that next year. But my sense is that you saw something in the marketplace, whether it was the competitive environment or just demand. But yeah, I mean, can you just maybe give us a little more why why are you sort of setting this test aside? Michael McGarrity: Yeah. I got the question for sure, Mark. So just to be clear, we see that as a market opportunity that makes sense for our business, our offering. Right? We have competitors, noncompetitors, partners. If you look at, you know, you can name them probably better than I, but everybody from Exact Sciences to a couple of our competitors offer that. So having that but candidly, you know, in a non-materially differentiated way, the way we anticipated which we have I think, a good track record for, is when we have our sales organizations. Our sales organization, and I'll speak to it individually, our sales reps that I think have built access, influence, and sway. Please take that as a respectful term, but that's how you build. And everything I say about our organization being focused on the customer experience, that's how we've built that. So our assumption and thesis on that was it's an offering that makes sense. If you look at our resolve test, I mean, everybody's got a resolve or I'm sorry. The UTI test is not unique. What we've been able to do with that business is driven by, yes, we think the best test for complex infections in our patient population within urology. We've continued to innovate that test. I think we're on our fourth or fifth generation. But when that started to go was when we really pushed it to our sales organization. We elected not to push that into our sales organization. So our view of what we could accomplish and achieve in that was somewhat extrapolated by our experience. And the way we see customer adoption go from zero to material contribution and growth of a product that is not maybe as proprietary as Confirm, GPS, and Exo. So that was our view. We just chose not to have our reps spend time on that in the first half as I noted. For the reasons I stated. And we made a late decision to forego it in the second half, but per the math, the implied math question, if you made the assumption that we expected it to contribute the delta between where you might thought we'd be with $5 million and Exo in Q4. And not taking up guidance. To be clear, that's the question. I get it. Yeah. That's a good assumption that we feel like if we roll that out at the beginning of Q3 to our sales team, that we'd be able to drive that type of adoption. We just you have to remember we have sales reps now that need to be cross-trained, adjusted to modest. But every time you adjust territories, as a former sales rep, they're always viewed as material. Not like with the GPS when we doubled our sales organization, but we deemed that that was the appropriate way to cement our investment in this asset. And we don't see the germline market as going away. And as I noted, we'll revisit that. So that's a fair answer to your question. Mark Massaro: Yeah. Yep. That's great. So, yeah, gross margins were really strong, over 65%, up about 400 bps in the quarter. I wanted to ask if we take Exo and just sort of, like, annualize it out, do you expect Exo to be accretive to gross margins in 2026? And then another way to think about it is 65% a level that you feel comfortable with executing against, or are there some mix factors that we should be thinking about for next year? Michael McGarrity: I anticipated that question coming from you, Mark. And I think we'd like a full quarter of Exo. I had said that our expectation was it would be neutral to accretive to gross margin. We have no reason to change that view. I think we want to see as a quarter or two of mix. And, you know, as I referred, integrating there'll be all the financial integration as well. Right? Working capital, revenue cycle management, you know, as we fully come over in Q4, different payer mix, different collection profiles. We believe that maintaining our guidance reflects confidence that that all holds together. But again, I'd try I'd probably wait till the beginning of the year so that I can give you a clear view, you know, an informed fact-based view of 2026, you know, all that. I'm just saying, give us a quarter and a half or so to get this locked. I've said I did we that the gross margin's running ahead of has run ahead of our expectations. I'm beginning to think that we can see that continue, but we'll lock that at the beginning of the year. Mark Massaro: Okay. And that's helpful. And then one last one for me. When we think about your new commercial team, you know, was this as simple as you know and just correct me if I'm wrong. Was this as simple as taking your 50 direct reps and adding 10 from Exo? Or was there some other MDxHealth S.A. reps that might have been impacted and perhaps you added more than 10 from Exo, and then can you speak to the experience and tenure of the Exo reps and just, you know, what early indicators are you seeing from those newer folks? Michael McGarrity: Too early to comment on the last part of your question. But the front part of your question, really no comment on that. We wouldn't comment on specific people within our organization pre-acquisition or post-acquisition. The net acquisition was ten direct reps. And when we look at our sales organization individually and collectively, we, you know, we really went through that process. We analyzed and credit to our commercial team. This I can share, we put every one of their sales reps through our process as if we were hiring a new rep. So I won't speak to them individually out of respect for those that came over, those that didn't. And our sitting sales organization going into the acquisition. But I will say that we were in a really tight process there. So that gives us confidence. And we learned a lot from the GPS acquisition. I was very open about that. That was more complicated than we anticipated. It took longer than we anticipated. So we're trying to take that experience and apply it here so that we really when we provide our view for the beginning of next year, we'll be informed with granted only a quarter. But we're working on that right now. Mark Massaro: Great. Thanks very much. Michael McGarrity: Thank you, Mark. Operator: Thank you. We have the next question from the line of Thomas Flaten from Lake Street Capital. Please go ahead. Thomas Flaten: Afternoon. Appreciate you taking the question. Hey, Mike. Just to confirm, so with the new 10 reps coming over, was this a question of adding two new white space territories, or were you splitting and sub-segmenting existing territories or maybe a combination of both? Michael McGarrity: Yeah. We really don't have white space pre-acquisition. Right? We've designed our number of reps. It's designed to cover the full geography of the US. I would say it was probably more a function of, you know, putting strength on strength, right, from my I wanna wear you out with my striker experience. Right? But add strength to strength. And, so we looked to do that, but we're also opportunistic where we saw as you would expect, strengthen a customer base in a particular territory where maybe we hadn't been performing as well as we expected. So that was all part of our calculus there. It's not complicated like you wouldn't understand it, but it was complicated to make sure that we went through the exercise. So that we didn't have it. So, yes, the embedded question was did territories change? Yes. When you go from 50 to 60 and you're fully covered without white space, yeah, there were territory adjustments. Thomas Flaten: Got it. And not as Michael McGarrity: No. I'm I realized this question is probably a lot early. Given how early it is since the acquisition closed, but any negative feedback or pushback from docs making the switch from Select to Exo? I don't know how you've been messaging that to docs that you're in process of doing that. Michael McGarrity: Too early to comment, but we're confident that that will not create friction or tension on our customer base. And then please take this that way. But if someone informed by the customers that already converted involuntarily from Select to Exo. It's just a better test today. Thomas Flaten: Got it. Appreciate it. Thanks. Michael McGarrity: Thank you, Thomas. Operator: Thank you. Ladies and gentlemen, this concludes our question and answer session. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to Journey Medical Corporation's Third Quarter 2025 Financial Results and Corporate Update Conference Call. At this time, all participants will be in a listen-only mode. Participants of this call are advised that the audio of this call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of this call will be available approximately one hour after the call for approximately thirty days. I would now like to turn the call over to Ms. Jaclyn Jaffe, the company's Senior Director of Corporate Operations. Please go ahead, Jaclyn. Jaclyn Jaffe: Good afternoon, and thank you for participating in today's conference call. Joining me from Journey Medical Corporation's leadership team are Claude Maraoui, Co-Founder, President, and Chief Executive Officer, and Joseph M. Benesch, Chief Financial Officer. Joining for the Q&A portion of the call will be Ramsey Alloush, Chief Operating Officer and General Counsel. During this call, management will be making forward-looking statements including statements that address, among other things, Journey Medical Corporation's expectations for future performance, operational results, financial condition, and the receipt of regulatory approvals. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Journey Medical Corporation's most recently filed periodic reports on Form 10-Ks and Form 10-Q. The Form 8-Ks filed with the SEC today and the company's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes non-GAAP financial measures that Journey Medical Corporation believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure to net loss, the most directly comparable GAAP financial measure, please see the reconciliation table located in the company's earnings press release. The content of this call contains time-sensitive information that is accurate only as of today, Wednesday, November 12, 2025. Except as required by law, Journey Medical Corporation disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Claude Maraoui, Co-Founder, President, and Chief Executive Officer of Journey Medical Corporation. Claude Maraoui: Thank you, Jaclyn, and good afternoon to everyone on the call today. The 2025 was another period of solid execution for Journey Medical Corporation as we delivered 21% year-over-year revenue growth. I am pleased to report that Amrozi, our best-in-class oral treatment for the inflammatory lesions of rosacea, contributed $4.9 million to our top line in Q3, an increase of 75% compared to Q2. Our legacy and core products including QBREXZA, Accutane, Amzeeq, and ZILXI were essentially flat sequentially compared to the 2025. On a year-over-year basis, revenue for this product group in the aggregate declined 16% mainly due to the impact from Accutane generic competition. Overall, we grew our product revenues by more than 16% compared to the same period last year, while our operating expenses rose just 9%. This highlights the leverage that we are beginning to generate with the launch of Amrozi and our established dermatology commercial infrastructure. We believe that this leverage will continue to increase as Amrozi sales ramp has significant growth potential and our operating expenses are expected to remain relatively consistent. EBITDA continues to improve and we continue to expect that Journey Medical Corporation will become sustainably EBITDA positive in the fourth quarter. AMROCI achieved third-quarter total prescription growth of approximately 146%, with 18,198 prescriptions in Q3 compared to the second quarter of this year with 7,394 prescriptions in Q2. As we have shown strong execution on our commercial plan. As is typical with pharmaceutical product launches, contracts are initially negotiated broadly with the three major GPOs: Ascent, MSR, and Zynq. And we have been very successful in the first phase of our payer strategy. As we previously announced in July, over 100 million of the 187 million commercial lives currently have access to Amrozi. Our market access team has successfully contracted with two of the three largest GPOs, and as we continue to pursue our strategy to broaden access further, we believe that contracting with the remaining GPO for Amrozi will be completed early next year. We are very pleased with our GPO contracting progress so far. However, downstream health plan formulary adoption and implementation takes time, up to three quarters on average once contracts are secured, which is standard for most drug launches. While some plans have immediately begun covering Amrozi prescriptions, many will take time to implement coverage and formulary adoption. In the interim, our patient co-pay assistance program is bridging the gap. As time progresses and as drug coverage increases, we expect reliance on our co-pay assistance program to decrease. Physician feedback, which has been a key driver in Amrozi's strong initial launch, continues to be very positive, with prescribers noting that their patients are doing exceptionally well on treatment. The feedback emphasizes Amrozi's clinical benefits, notably that Amrozi's early onset of efficacy in as little as two weeks of therapy. In line with this feedback, initial refill rates for Amrozi have come in strong. During the third quarter, refills and new Amrozi prescriptions were tracking at a one-to-one ratio. We believe that this metric indicates both prescriber and patient willingness not only to try Amrozi but also to continue on therapy beyond an initial prescription. In addition to anticipated continued growth in new prescriptions, we expect that the ratio of refills to new prescriptions will also increase, which should help accelerate total prescription growth. Another key performance metric that we use to measure our launch traction is unique dermatology prescribers. On our last earnings call, we noted that approximately 1,800 prescribers had written a prescription for Amrozi out of 3,200 oral rosacea treatment writers that we are targeting during the first phase of the launch. Today, I am pleased to report that the number has increased by approximately 50% to over 2,700 unique Amrozi prescribers, demonstrating substantial progress toward this objective and a key driver of initial product adoption. As our commercial team continues to recruit new Amrozi writers, we have now begun to focus on developing the base of prescribers that have already written an Amrozi prescription into consistent writers. In addition to our activities in the field, we remain active at key dermatology medical conferences across the United States to build awareness and momentum behind the Amrozi brand. To illustrate, we presented data from Amrozi's Phase III clinical trials at the SDPA 2025 Summer Dermatology Conference in June. These data highlighted that Amrozi provides consistent relief of key rosacea symptoms with no adjustments needed for patients based on body weight. Additionally, Amrozi's proprietary formulation of a modified release 40-milligram dose comprised of 10-milligram immediate release and 30-milligram extended release, which is the lowest strength oral minocycline approved by the FDA, contributes directly to the safety, efficacy, and tolerability, making Amrozi a best-in-class rosacea therapy. More recently, we presented pooled Phase III data in a podium presentation at the 2025 Fall Clinical Dermatology Conference in Las Vegas, showcasing Amrozi's favorable safety profile results and superior efficacy compared to Oratia, the most widely prescribed oral rosacea treatment. Our pooled results featured data from a robust study population of 653 patients, which was impressive, and our statistically significant superiority to Oratia was well received. The fall clinical meeting was well attended this year with over 1,800 prescribers at the conference. As key opinion leaders and dermatologists focused on what's new in dermatology treatment, we believe that Amrozi's podium presentation gained significant visibility at the conference. Reflecting on the year so far, Amrozi is off to a great start, and our focused dermatology commercial team is executing at the highest level. As a result, we believe that the ground is prepared for Amrozi to become a standard of care in the treatment of rosacea and for the product to generate significant revenue and cash flow for the company. And with that, I'll now turn the call over to our Chief Financial Officer, Joseph M. Benesch, who will review the financial results of the third quarter. Joseph M. Benesch: Thank you, Claude. And good afternoon to everyone. Now, I will take you through our financial performance for 2025. Total revenues for the quarter were $17.6 million, representing a 21% increase compared to $14.9 million in 2024. This growth reflects incremental net product revenue related to the successful U.S. commercial launch of Amrozi, which has continued to meet our expectations since its introduction. Turning to margins, gross margin was 67.4% in the third quarter, compared to 69.4% in the same period last year. The decrease from quarter to quarter primarily reflects the favorable non-operational adjustments and product mix that benefited Q3 2024. More importantly, we continue to see steady quarter-over-quarter gross margin improvement in 2025, from 63.5% in Q1 to 67.1% in Q2, and now 67.4% in Q3. This ongoing improvement is driven by higher revenues from Amrozi and QBREXZA, both higher margin products, combined with lower overall inventory period costs. SG&A expenses totaled $12.1 million, up approximately 6% from $11.4 million in 2024. This increase reflects additional operating activities tied to the launch and commercialization of Amrozi. SG&A for the quarter also includes non-cash stock compensation expense of $1.9 million compared to $1.5 million in the prior year quarter. We reported a GAAP net loss of $2.3 million or $0.09 per share, basic and diluted, for 2025. This compares to a GAAP net loss of $2.4 million or $0.12 per share, basic and diluted, in the same period last year. On a non-GAAP basis, both EBITDA and adjusted EBITDA improved from the prior year quarter. EBITDA improved by $500,000 from a loss of $1 million in 2024 to a loss of $500,000 in the current quarter. We achieved positive adjusted EBITDA of $1.7 million for 2025, compared to $300,000 for 2024. We ended the quarter with $24.9 million in cash and cash equivalents as compared to $20.3 million at December 31, 2024. Looking ahead, we remain focused on disciplined expense management and margin expansion as we continue to scale Amrozi's commercial footprint to strengthen our product portfolio. With this focus, we believe we are well-positioned to deliver improved profitability and sustained revenue growth over the coming quarters. Thank you very much. I will now turn the call back over to Claude. Claude Maraoui: Thank you, Joe. We delivered strong results in the third quarter, with Amrozi already making a positive impact on our business. Total prescriptions for Amrozi more than doubled from Q2 to Q3, and the fourth quarter is already off to a strong start. The number of Amrozi prescription writers is now at its highest level to date, and we expect to develop the current prescriber base into consistent writers over the next several months. With the positive physician feedback that we have received so far, we believe that Amrozi is starting to gain brand recognition as the preferred oral solution for the treatment of rosacea. We have executed well in terms of our early payer strategy, and the focus remains on increasing access to Amrozi, as well as enlisting more of the downstream health plans to adopt formulary coverage for Amrozi in order to drive more covered prescriptions. All of these activities are key steps in developing Amrozi into the standard of care treatment for inflammatory lesions of rosacea, and we believe that we are on track to accomplish this. Based on the initial strong momentum we are seeing with Amrozi's launch, we are confident that Amrozi can reach its full potential in the rosacea treatment market. We continue to believe that Amrozi can achieve peak annual net sales of over $200 million in the United States and over $300 million globally. Meanwhile, financially, EBITDA for the company continues to improve from quarter to quarter, and we expect to become sustainably EBITDA positive in the fourth quarter of this year. We set out to make 2025 a transformational year, setting up the company for potential strong growth and cash generation, and our progress indicates that we are delivering on that promise. As such, I believe that we are well-positioned to continue executing on our core objectives: to improve the lives of patients, offer dermatology healthcare providers innovative treatment options, and create long-term value for our shareholders. Thank you. Operator, we are now ready to open the lines for Q&A. Operator: Thank you. We will now begin the question and answer session. To ask a question, if you are using a speakerphone, and you would like to withdraw your question, and our first question for today will come from Brandon Folkes with H.C. Wainwright. Please go ahead. Brandon Folkes: Hi, thanks for taking my questions and congratulations on all the progress. Can you just talk about how you view the usage of your patient assistance program on Amrozi at this stage of the launch? And when you talked about it improving, do you see an improvement in Q4 or sort of in 2026? How should we think about that aspect of the Amrozi launch? Claude Maraoui: Sure. Hi, Brandon, it's Claude. So first of all, I think it's important to take a look at the progress we're making here commercially with Amrozi in particular. Again, you take a look at revenues from Q2 to Q3, we've increased that by 75%. So we certainly like how things are being directed. Additionally, when you take a look at the strength of the commercial organization being able to create demand, we've gone from approximately 7,400 prescriptions in Q2 all the way up to about 18,200 prescriptions in Q3. So our focus is really to drive demand as quickly and continue to grow that month over month, quarter over quarter, and we're successfully doing that. Now where the co-pay assistance program comes into play, we've talked about the three major GPOs. We now have two of these GPOs onboard. We certainly expect the last one to come on board in early 2026. I think you're going to see additional value for that in terms of payers reimbursing for the claims as they come in. Our co-pay assistance program will have less balance in terms of more reimbursements will come as time continues. It takes about two to three quarters for that to adjust with each GPO. Then the PBMs and the downstream health plan. So we are patiently waiting for that time to go. It's just the way the healthcare system has worked it works out and we see that continuing. More so I would tell you in 2026 where I think you'll see some significant gains in less reliance on the co-pay program. Brandon Folkes: Great. Thanks very much. And maybe one just follow-up. You touched on the growth of Amrozi and breadth of prescribing obviously grown with the unique prescribers. It looks like depth of prescribing is growing quite nicely as well. So can you just talk about sort of the focus between breadth and depth of prescribers in Q4 and maybe in 2026 as well? What's going to be the focus? Where do you see the most significant growth for Amrozi near term in terms of depth or breadth of prescribing? Claude Maraoui: Well, I'll tell you, I think it's a combination of what you're mentioning here. We focused in on 3,200 physicians at the beginning of our launch. Again, brand new launch only two quarters deep into it so far. As I mentioned, we're up to 2,700 plus unique prescribers. And those are brand new physicians breaking a twenty-year habit of being reliant on Oratia. That was the only product that was indicated orally for inflammatory lesions. Now that Amrozi is here, I think our commercial team has done a great job building awareness that Amrozi is here. Talking about the great benefits from the Phase III clinical trials. If I may, just highlight two things. One, we're showing a superiority in IGA success over a sixty percent greater than what Oratia demonstrated. And then when you take a look at inflammatory lesions, Amrozi is showing approximately a thirty percent better inflammatory lesion reduction. So I think that message is penetrating well. Physicians, dermatologists, HCPs, and so forth are trying it on new patients right now. And as those patients come back in for their second visit to the dermatology community, they're seeing that those results from Phase III are actually happening in their own practices with their own patients. That's going to help build reinforcement, take those physicians that are writing maybe one or two prescriptions to doubling that and tripling that and so forth. So I think you'll see a snowball effect taking place there. And those are really new patients. I think you're going to see the fact that as there's more confidence that's built with the dermatology community, our sales organization, marketing organization will be asking for switches as well from Oratia over to Amrozi. And again, that takes time and just a little history to start to happen and I think that will take place. There's about 14,000 dermatologists. We're only at 2,700 right now. We're focused on a core. But naturally, we are calling altogether in our universe more than 5,000. So you'll see that number expand as well. And we're going to get more out of the ones that have been trying it. And waiting to observe their patients coming back in. So the NRx to TRX ratio is going to benefit from this as well. So right now, it's about one to one. In October, we're seeing about one to 1.2. And we expect that to go up to hopefully one to three and maybe even more than that, Brandon. So there's a lot of variables in play here. Which really gives us great potential for fantastic success and becoming the standard of care in time. Brandon Folkes: Great. Thanks very much, Claude, and congrats on all the progress. Claude Maraoui: Thank you. Operator: The next question will come from Scott Henry with AGP. Please go ahead. Scott Henry: Thank you. Good afternoon and congratulations to the whole team on the Amrozi launch. It's been very impressive so far. Just a couple of questions. And I know I ask about this a lot. Revenue per script looked like it was about $380,000 in Q2. About $275,000 in the third quarter. Do you think the third quarter is probably a pretty good reflection? Or was there any stocking or destocking that could maybe move that number around? Just trying to get a sense of how we should think about that net revenue per script. Claude Maraoui: Sure. Always a good question. Always a fair question, Scott. Gross to net is going to continue to vary. As reimbursement for the product, it's just very early. We're only two quarters into it and it's just dynamic at this point. As I mentioned, we are going to be getting a third GPO into play here early in 2026. And I think we'll see some nice improvements with that once that takes place. And that's just part of the system. We have to give it a little bit of time. And that's really why we aren't giving any particular guidance to gross to net at this point in time. So I don't think I can give you any further precision on that than what you're coming up with right now. But again, it's going to vary from our co-pay assistance program. It will be used less as there's better reimbursement from managed care companies. Scott Henry: That's helpful. I appreciate that color. I don't know if any of the other team members want to did you want them to mention anything? Yeah. Was just going to ask Joe or Ramsey if you wanted to add anything to that. Ramsey Alloush: Well, I think just in summary, the more reimbursement we get, like you said, the less on the co-pay program. And, you know, we'll just we just can't give a number right now. Scott Henry: Okay. Fair enough. That's that's helpful. And then sort of a bigger picture launch question is we're trying to always trying to get an idea of what the launch curve looks like. And from my perspective, it looks like at worst, it's a consistently growing launch curve, but probably more likely an accelerating launch curve. How do you view the launch curve based on the four or five months you've had? And any any thoughts on that? All indicators are pointing to a very positive launch. Claude Maraoui: We're meeting our internal expectations for sure. I like what the sales force is doing out there. Again, those key indicators adding additional prescribers on board our focus on 3,200 physicians to start. We're well on our way to attaining that. I would expect that we will get there. And then we'll expand from that. So that's just one part of it. And I think the ratio between one new prescription to one refill will expand as well. And in time, think about it, we're getting 700, 800, 900 new prescriptions on a monthly basis now. Those are new patients coming into the market each and every single month coming onto the Amrozi brand. And if they continue getting those refills and getting expanding more than that first refill to two or three, you can see that potential momentum really accelerate. So time will tell. We're definitely moving in the right direction here. Scott Henry: Okay, great. Final question just quickly. Among the other products, Accutane, you mentioned the generic competition. I think you just saw the Q come up. It looks like it did about $2.8 million in the quarter. Do you think that's starting to base out? Or is there some more another leg down? How should we think about that Accutane franchise? Claude Maraoui: Yes. I would tell you that Accutane is off to a good start here in Q4. I think that when we're looking at it, we're in a good position right now. We believe it's stable. You never know what the other generic competitors do if they really play with price again to drive that down. And potentially take more market share. But all indications, we just had a nice uptick. We received October numbers right now. It's looking like it's stabilized from our vantage point right here. It's got a great name to it, lots of recognition. And this is a highly promotional sensitive area here. And I think with our team speaking to dermatologists about this keeping it in front of their mind I think we're in a good spot right now. So that's what I would say. Scott Henry: Okay, great. Thank you for taking the questions. Operator: Your next question will come from Thomas Flaten with Lake Street Capital Markets. Please go ahead. Thomas Flaten: Hey, good afternoon guys. Thanks for taking the questions. You may have mentioned it and I probably missed it, but did you mention at all, Claude, what your retention rate has been of those 2,700 prescribers I think. You're So we continue to gain and we've got it split out obviously for the ones that are writing one to five and then five to 10 and so forth. All the way up to 20, 30, 40 etcetera. Scott. So but we didn't break it down, but it's a wide array. And obviously, as we bring on new prescribers, they fall in the lower buckets and over time they get to move into the secondary and tertiary and so forth. So no no specific guidance on that yet. Yes. No, what I was trying to get at was you know, for if there are those that might have trialed it a couple months ago and not come back to it, I'm just curious if there are any learnings for why those doctors haven't rewritten prescriptions either for the same patient or for other new patients? I see. So far If you have any learnings from that from those docs. no real key learnings in that front of it. What we are seeing, I guess, to to my point of view is we're getting trial. For new patients, for for doctors that have not initially tried it. So they're starting to dip their toe in the water. And then I think you have a month or until they get to see those patients back. You have the representatives going in doing the regular call schedule, reminding the doctors, dropping off samples, talking about our co-pay program. Our managed care coverage and so forth. Like I said that number continues to evolve and we really see a lot of patient excuse me, HCPs that are writing more than one. But that takes about three months or so and then they start to catapult to the next level. Physician feedback has been exceptional. They really like the way the product is is working. They like the side effect profile. Again, it's really just habit breaking of Oratia that they've been used to for so long. Haven't gotten any critical feedback on the product. That's great. And then just one final one, if if I may. QBREXZA was down year over year, but up sequentially, but less than it was in Q3 'twenty four. What impact has the launch of Amrozi had on how you manage around QBREXZA what's the overlap of those 3,200 with QBREXZA writers? How are you trying to ensure that QBREXZA also maintains a good clip of growth? Claude Maraoui: Yes. So fortunately for us, in terms of QBREXZA, we are in a real good position. We're seeing prescription growth compared to last year even with the new entrant, the new competition that came in early this year. So prescription wise, we are right on schedule and we're going to have good single digit growth year over year. Again with QBREXZA. The overlap with Amrozi is working out just fine. Because right now, you've got QBREXZA in a P2 position because Amrozi's here now and that's going to be first and foremost. We've been calling on these doctors. We've had this product QBREXZA since 2021. ZILXI, which is part of our portfolio, was also gave us a great segue into introducing Amrozi. But those are the same doctors. Our called on universe hasn't necessarily changed. So we're still reaching the physicians with the right frequency in a way that's been targeted. Our sales force is compensated heavily on QBREXZA. It's currently our number one revenue generator for the quarter for Q3 for example. And that will eventually become our number two revenue generator as Amrozi continues forward. But we're in a good spot with it and I think the competition has just increased the noise level of hyperhidrosis and we've benefited from that. Thomas Flaten: Got it. Appreciate it. Thanks guys. Operator: The next question will come from Mayank Mamtani with B. Riley Securities. Please go ahead. Mayank Mamtani: Yes. Good afternoon, team. Thanks for taking my questions and congrats on a strong quarter. So on this ratio of paid scripts, how do you expect this to evolve with some of the payer updates you shared today? And I'm obviously just trying to reconcile sequentially revenue growth versus the TRx growth. And it looks like in October, your month over month on TRx is about roughly 15%. So yes, if you could maybe just give us some color on how to think about sequential revenue growth versus sequential TRx growth? And then I have a follow-up. Ramsey Alloush: Yes, sure. In terms of, as you're mentioning, of covered claims, look, we're executing well against our market access plan. We are seeing some solid progress month over month. Claude had mentioned that early next year, we'll have the third of the three large GPOs contracted with. And it very much is a top-down approach. And there are multiple layers between GPOs, PBMs, and the downstream health plans, right, and each one operates on its own schedule. From our side, everything we can control is on track. Our market access team does have the strong relationships. There is value proposition for Amrozi that's resonating in payer feedback has been positive. So overall, pleased how these things are developing. It's exactly what we'd expect at this stage of launch. And as more plans and formularies adopt, you'll start to see that revenue that shift in revenue. Generation as well. Claude Maraoui: Yes. Mayank, I just want to add just want to add one thing here. Our focus right now is to continue to generate. You were asking about the prescription and the payer relationship, if you will. We are going to continue to drive prescriptions and each and every passing day we expect to make more incremental gains on the payer front. And then early next year, I think we're going to see a larger access, which will mean better reimbursement for the company. So time is going to be our friend. Over time here over the next few quarters. But it does take a little while. Mayank Mamtani: Yeah. No, I totally hear you. And then on the duration of therapy that you've seen so far, I know you gave this refill to NRX one to one ratio, but is there any real world data you have on persistence? And we have this concept of long term response Eurasia. So I was just curious if you have learned anything in the real world on how what the duration of therapy would trend? Claude Maraoui: It's a great question. It's a difficult question to give you anything with hardcore data. Anecdotally, what we continue to hear is that they are seeing and appreciating the results the patients have, the feedback from patients has been very good. In terms of getting refills, we're seeing that. I think in another five, six months we'll be able to give you a more precise answer. But every indication looks like refills are going in. We're able to capture refill data internally with in fact our co-pay program as well as just reading the prescription numbers from Symphony and IQVIA. So all trends are positive. But we're hoping to see three to four refills at least through a twelve-month period. You also have to take into effect rosacea. We have a very quick effect. As little as two weeks patients are seeing very good results with Amrozi. Obviously, it varies. Some people will take longer, some people will be at two weeks. But depending on how the flare-ups are, how long the rosacea stays calm until the next flare-up is another part of this that we're learning and keeping a close eye on. Mayank Mamtani: Understood. And lastly for Joe on the financial piece, your expectation for OpEx growth next year based on how launch is progressing and it does seem you're tracking high single-digit year over year this year. Is that a similar trend expect next year? Just thinking about operating leverage also. Thanks for taking my question. Joseph M. Benesch: All right. Thanks. Yes. So really, the key is leveraging our current infrastructure. The increase in expenses, any incremental expense should be more than offset by increases in revenue. Like we said in our prepared remarks, we expect to remain relatively consistent from period to period and into 2026. So as revenue grows, we think the leverage in our operating results will continue to come through. And any increase in revenue should support a higher revenue base also. Thanks. Operator: And this will conclude our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, good afternoon. I would like to welcome everyone to Flutter Entertainment's third quarter 2025 update call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 a second time. Thank you. And I would now like to turn the conference over to Paul Tymms, Group Director of Investor Relations. You may begin. Paul Tymms: Hi, everyone, and welcome to Flutter's Q3 update call. With me today are Flutter's CEO, Peter Jackson, and CFO, Rob Coldrake. After this short intro, Peter will open with a summary of our operational progress, and then Rob will go through the Q3 financials and updated guidance for 2025. We will then open the lines for Q&A. Some of the information we are providing today, including our 2025 guidance, constitutes forward-looking statements that involve risks, uncertainties, and other factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors are detailed in our earnings press release and our SEC filings. In addition, all forward-looking statements are based on current expectations, and we undertake no obligation to update any forward-looking statement except as required by law. Also, in our remarks or responses to questions, we will discuss non-GAAP financial measures. Reconciliations are included in the results materials we have released today, available in the Investors section of our website. I will now hand you over to Peter. Peter Jackson: Thank you, Paul. I'm pleased to report a good third quarter. The continued momentum in both our U.S. and international businesses during Q3 saw over 14 million average monthly players engaging with our products, driving revenues 17% ahead year over year and adjusted EBITDA 6% higher. While we reported a net loss for the quarter, this is driven by the non-cash impairment charge following the regulatory changes in India and the previously communicated payment to Boyd for improved U.S. market access terms. Customer-friendly sports results in September and October, which, as we've previously outlined, are transitory in nature, mean we are reducing our full-year outlook 2025 by $280 million in adjusted EBITDA. But the underlying business is performing well. And I'm really pleased with the strong positioning of Flutter's core business as we continue to execute in the final quarter of the year. Before I provide an update on the Q3 performance of the U.S. and international businesses, I'd like to share how we're strategically positioning FanDuel to capture the emerging prediction markets opportunity. I'm very excited to announce our expansion into this market with the launch of FanDuel Predicts in December. We will immediately unlock a significant incremental addressable market by offering a compelling sports product to the vast majority of the U.S. adult population in those states currently without sports betting. Entertainment and financial prediction markets will also be available. Flutter is exceptionally well-positioned to capitalize on this opportunity through our strategic partnership with CME Group, combined with FanDuel's nationwide brand presence, market-leading sports betting expertise, and two decades of our own experience operating the Betfair exchange. FanDuel Predicts will also accelerate the acquisition of customers into the FanDuel ecosystem ahead of the state legalization of sports betting. Furthermore, the strength of our world-class pricing and risk management capabilities is at market-making opportunities we continue to assess. We believe the sports prediction opportunity lies solely in those states currently without sports betting access. As we can clearly see, prediction markets are having a negligible impact in the states where FanDuel Sportsbook is already available to customers. The opportunity to extend the FanDuel footprint into these new states is significant. And our aspiration is to be the clear market leader. Our investment will therefore be meaningful while maintaining the disciplined approach that has served us so well since the inception of sports betting in the U.S. In summary, I believe this is a hugely exciting opportunity for FanDuel and one that we will seize. We have successfully demonstrated that we have the capabilities to win in sports betting and iGaming, and I firmly believe this will also be the case for prediction markets. This is all in addition to our existing regulated business. In the long term, we firmly believe that it is state-regulated sports betting and iGaming that remains the most valuable long-term opportunity in the U.S. The importance of having the best quality sports betting product combined with the ability to price increasingly complex sports products accurately cannot be overstated. These are both areas where Flutter and FanDuel excel. And as demonstrated by international precedent, long-term success in the U.S. gaming sector will be achieved by those operators with scale positions and the highest quality sports betting product. Turning now to our existing business in the U.S., we maintained our clear position as the number one online operator in both sportsbook and iGaming. AMP growth of 8% year over year is encouraging, driven by strong iGaming AMP growth of 30% and accelerating sportsbook AMP growth of 5%. From a revenue perspective, we delivered growth of 9%, led by exceptional iGaming performance, where our revenue was up 44% year over year, delivering 27% GGR market share in Q3. We added over 500 new slots titles during the quarter, with our proprietary Flutter gaming platform enabling faster content delivery. Exclusive content continues to drive customer engagement, including new Wonka and Samurai titles, and the latest Huff and Puff installment, Puff and Lots of Puff, was our most successful game launch to date, setting record engagements in GGR levels. With population penetration currently well below long-term expectations, we see significant runway for growth in existing states with further state legalization of further incremental opportunity. In Sportsbook, while September and October have been impacted by customer-friendly NFL sports results, we are clear that this is just the normal ebb and flow of sports outcomes. And we maintain our absolute conviction in our pricing accuracy. The NFL has a very concentrated schedule, and this drives intense customer engagement and a small number of events. Average handle on an NFL game is typically five times that of an NBA game, increasing to more than 10 times the standalone games. This can result in greater variability in the short term, as we've seen in recent history. But we are confident that our reported margin will revert to expectations in the longer term. The start of the NFL season consistently sees heightened levels of competition in the market. In Q3 of this year, it was even more pronounced than in previous years, with September characterized by an exceptionally high level of competitor generosity. These dynamics temporarily impacted FanDuel's NFL handle growth and same-game parlay penetration in the opening weeks of the season, as we deliberately chose to not match these uneconomic offers. This disciplined approach helped deliver an NGR market share of 47% in September. While market competitive intensity has moderated from the NFL season start, it still remains at elevated levels. FanDuel's scale as the number one operator in the U.S. has subsequently enabled us to take action to strengthen our market leadership. We responded in a strong but disciplined way at the start of Q4, with increased investment in customer acquisition and retention. And we've been very pleased with the momentum that this has driven. The NBA season launched in late October, and we're off to a good start. Customer engagement, handle, and same-game parlay penetration are all tracking strongly in the early weeks of the season, giving us confidence that growth this season is shaping up well. We're also excited to see what our new strategic NBA partnership with Amazon Prime can unlock, including a range of merchandising product integrations. Our International division delivered a good performance with revenue 21% higher year over year, including the benefit of our Snai and Betnafnail acquisitions. We delivered organic iGaming growth of 10% with strong performance in Turkey and CSAIL's Italian online business. Organic sportsbook performance was encouraging against a strong prior year sportsbook performance, which benefited from the Euros and more favorable sports results. In Italy, we launched My Combo and CSAIL, the only four same-game parlay products available in the market, in time for the start of the Italian soccer season. Customer engagement has been strong, with over half of sports customers placing a MyComboVet during the first seven rounds of the season. The integration of Flutter Studios into the SEA Italian online platform has enabled in-house content to be offered to our Italian customers with a strong pipeline of future content. The SNAI integration has also been progressing well. We've enhanced the iGaming proposition, optimized retail gaming machines and commission structures, and increased customer acquisition volumes by deploying CSAIL's proven retail sign-up program. The migration of SNAI online customers to the SEA online platform remains on track for H1 2026, keeping us well on course to deliver our synergy targets while bringing our leading platform capabilities to SNAI customers. In the UK and Ireland, the successful migration of Sky Bet onto our shared Flutter UK platform has enabled the delivery of new products and improvements for our Sky Bet customers. This included the launch of our highly popular SuperSub offering and the new Squad Bet proposition, powered by our next-generation pricing capability. There's been much speculation around potential gaming tax increases in the upcoming UK budget. We remain engaged with policymakers and expect decisions to be based on economic merit, taking into account the industry's substantial contribution to UK tax revenues and employment. We await the outcome in the budget later this month. However, should taxes increase, Flutter's unmatched scale and market-leading position will help to mitigate the impact we have demonstrated historically. In Brazil, an expanding portfolio of games and improved general delivered record iGaming revenues. On Sportsbook, we remain focused on integrating Flutter's in-house pricing capabilities and generosity functionality to materially elevate the overall customer proposition ahead of the World Cup next year. Outside of performance during the quarter, the sudden registry change in India was extremely disappointing. Flutter has invested significantly in India for the last number of years, responsibly delivering innovative skill-based games to Indian customers. Zhengli will now only offer free-to-play content as we assess our medium-term options in the market. Looking ahead, I'm extremely excited about expanding our U.S. portfolio to include FanDuel Predicts, and I'm confident that our market leadership and diversified international business positions us well for the remainder of the year and into 2026. I'll now hand you over to Rob to take you through the financials. Rob Coldrake: Thanks, Peter. Group revenue increased by 17% and adjusted EBITDA grew 6% in the quarter, driven by excellent organic iGaming growth and the benefits of our recent acquisitions. Group net loss was $789 million for the quarter, compared to $114 million in the prior year. This was primarily due to three significant one-off items. First, a non-cash impairment charge of $556 million related to our Zhengli business following the legislative change in India that meant we had to cease real money operations there. Second, the previously communicated $205 million payment to Boyd for revised U.S. market access terms, which will deliver approximately $65 million in annual savings going forward. Third, increased amortization costs related to our recent acquisitions and business transformation. These were partly offset by a $27 million year-over-year benefit from the Fox auction fair value adjustments. Adjusted earnings per share grew 29%, while loss per share increased $3.91 from $0.58 in Q3 2024, due to the impact of the mainly non-cash items I have just outlined. Turning to the U.S., revenue was 9% higher with exceptional iGaming growth of 44%, offsetting a sportsbook revenue decline of 5%. This led to adjusted EBITDA of $51 million compared with $58 million in the prior year. Sportsbook performance reflected the competitive dynamics Peter mentioned, with customer-friendly sports results and heightened competitor generosity as the NFL season starts. We are pleased with the momentum in the business at the start of Q4. Handling AMP growth has been strong, and the NBA season has started positively. In international, revenue of $2.4 billion reflected growth of 21%, with our acquisitions contributing 18 percentage points of this increase. On an organic basis, iGaming performance was very strong, particularly in Turkey and Italy, with sportsbook performance reflecting tough prior year comparatives from the European Championships. Adjusted EBITDA increased by 10% year over year to $505 million, demonstrating the resilience of our diversified portfolio. I'm really pleased with the progress we're making across our $300 million cost transformation program, and we continue to identify further efficiencies beyond our original targets. The delivery of the UKI technology replatforming, the redesign of our UKI organizational structure, and the excellent progress we are making on the SNAI integration are all good examples of our disciplined approach to driving incremental efficiencies. Operating cash flow reduced by $81 million, and free cash flow reduced by $87 million year over year, reflecting the Boyd payment for improved U.S. market access terms. Our leverage ratio was 4x or 3.7x including SNAI on a pro forma basis, and we remain committed to our medium-term target of 2x to 2.5x. We continued returning capital to shareholders with share repurchases of $225 million in the third quarter, and a further $245 million repurchased in the fourth quarter. This completed our authorized program for 2025, bringing the total cash return to shareholders to $1.12 billion since inception, representing 2% of our issued share capital. The program will continue into 2026, with a Q1 2026 repurchase of up to $250 million as we make good progress towards our total commitment to return $5 billion over the coming years. Moving now to the outlook for 2025. Q4 has started very well and is in line with our expectations on an underlying basis. We've seen an impact from customer-friendly sports results in the initial week of the quarter, and we're therefore updating our full-year guidance to reflect the following factors: first, trading performance in Q3; second, the impact of sports results in Q3 and Q4 to date across both our U.S. and international businesses; third, increased Q4 investment in U.S. sportsbook, which has already strengthened our leadership position; fourth, our strategic investment in FanDuel Predicts as we launch this exciting new product; fifth, the cessation of real money gaming in India; and finally, tax costs associated with the Illinois wager fee. In aggregate for the group, this represents a decrease of $570 million in revenue and $380 million in adjusted EBITDA, with group revenue and adjusted EBITDA now expected to be $16.69 billion and $2.915 billion respectively, at the midpoint representing 19-24% year-over-year growth. Additional information on 2025 guidance is available in today's release, including additional income statement and cash flow items. Finally, as Peter outlined, we are very excited about the prediction markets opportunity and plan to invest meaningfully to harness the growth we believe that this can deliver. At this early stage, we anticipate an incremental EBITDA cost of $40 million to $50 million in Q4 2025, and between $200 million to $300 million in 2026. We will closely monitor returns with a priority on building value for the future while also maintaining the flexibility to accelerate investment where performance warrants. With that, Peter and I are happy to take your questions, and I'll hand back to the Operator to manage the call. Operator: Thank you. And we'll now begin our question and answer session. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question and one follow-up. Again, it is star one if you would like to join the queue. And our first question comes from the line of Jeff Stantial with Stifel. Your line is open. Jeff Stantial: Hey, good afternoon everyone. Thanks for taking our question. Maybe just starting off on the $200 to $300 million planned investment next year for FanDuel Predicts. Peter, could you just maybe talk a little bit more on the return algorithm for this product, meaning are you planning to acquire users with similar payback thresholds as sports casino or adjust to reflect some of the higher uncertainty for this product? And then when you think about LTVs and return on that spend, does strategic positioning ahead of eventual traditional sports betting regulation and cross-sell opportunity factor into that calculation? Are you restricting just to gross profits from the prediction wagering? Peter Jackson: Hi, Jeff. Look, we're very excited about FanDuel Predicts. The ability to take their sports product into the half of America that you can't currently avail as the selling products, I think, is something which is tremendously exciting. And the ability to partner with CME and leverage all of the expertise they have, we've had and built over the years with the Betfair exchange, I think, means we're going to be a very audible investor. And we have to put money behind it. Now from a customer acquisition perspective, we are going to maintain a very disciplined approach as we always have done since operating in the U.S., and we will be carefully monitoring the CAC to LTV dynamics. Ultimately, we do want to see as many states passing legislation to introduce sports betting as possible, and then we'll be able to migrate those customers onto sports betting. But look, I think it is important that we put strong behind this. I think we've got an incredible brand. We're going to have a great follow-up in the launches in December. And I think we'll have the market-leading product by the time we get to Q2 next year. Jeff Stantial: That's great. Thanks for all that color there. And then maybe shifting gears over to some of the higher, I think you call it rational competitor generosity that you saw early on in the NFL season as moderated, though it's still elevated here. Just I guess, could you add a little bit more color? How widespread was this across multiple operators? What do you see as sort of the rationale, I don't know, from some of your peers on raising spend this year specifically? And then thematically, I guess, how do you think about the risk that the broader industry maybe starts to drift more irrational in a type of prisoner's dilemma type exercise, you know, following some of this spend? Thanks. Peter Jackson: Yes. We've historically seen a lot of generosity at the beginning of the season when customers are trying to reactivate their customer bases and get them back onto the platform. And look, this year, we saw a heightened level. And there was a lot of irrational behavior. It's not the first time we've seen it. We can all call out the difference of competitors in the past who have spent a lot of money trying to acquire customers. What's most important is to have the best product in business, and that's what we have. Best pricing for customers. So look, when we look at the performance into Q4, we're very comfortable with the level of customers we've on the platform. We're comfortable with the level of sort of same-game parlay penetration that we're seeing as well. So people are having they spend a lot of money, but they haven't really managed to move the needle themselves. At some point, people will realize that it's not worth pursuing these offers because it doesn't deliver for them. Thanks very much. Operator: And our next question comes from the line of Paul Ruddy with Davy. Your line is open. Paul Ruddy: Hi, Peter and Rob. Thanks very much for taking the question. And just if you wouldn't mind, would you be able to give us just a little bit more color on trading in September and into Q4 in the U.S., please? And then just secondly on Predictive Markets, on the investment next year, would you expect it's a tricky question because you don't have full oversight maybe. But would you expect that investment to be the entire investment, i.e., you'll do all the unregulated states within that next year? Thank you. Rob Coldrake: Yes. Hi, Paul. I'll pick up on this. First part of the question. Maybe Peter will pick up on the Predictive Markets investments. So as Peter mentioned, we did see a lot of competitive action at the start of the new NFL season with some very uneconomic offers in the market. We maintained our discipline, our investment posture as we tend to do. So that there was some handle and SGP share that we lost the first couple of weeks of September. But we were pleased with the way that we managed through September and subsequently our performance into October. If you look at September share data, we actually took 47% of the NGR share in September. I think which reflects maybe some of the value that others were getting for some of the investment that they made. We have seen a moderation of that competitive intensity, but it still remains a little elevated, I would say, from normal levels. But we're really pleased with our momentum into Q4. We've got a record number of AMPs on the platform. We've got double handle growth, and we've got a really strong sports and bet mix with the NBA season starting well. So we're quite pleased with our momentum. Peter Jackson: Paul, with regards to the sort of investment levels around prediction markets, we'll know a lot more next month when we launch the product and we see how much traction we gain. I'm excited to think about all of that marketing that currently lands nationally for customers who can't avail of the sports betting product. Suddenly, get a better download FanDuel Predicts and find that they've got access for the sort of sat in California or wherever they are. We think that the figures that we quoted for investment next year, it will be more sort of back-end loaded towards the launch of the football season. But as we've done historically, we're going to be prepared to invest at levels whilst we continue to see great returns and paybacks. We'll know a lot more in the first couple of quarters next year once we get some traction and see what the LTVs look like. How they compare with our experience of operating Betfair globally. And I think that will really help inform how hard we can push. Paul Ruddy: Okay. Thanks very much. Really helpful. Operator: And our next question comes from the line of Ed Young with Morgan Stanley. Your line is open. Ed Young: Good evening. My first question is on prediction as well. You've talked in the release about extensive engagement with regulators and tribes, tribal lands being ring-fenced, also they're not offering the product should the state regulate. I think it's probably further along than many expected to be able to get access to the whole U.S. in one form or another. Can you perhaps give a little bit of color to the extent you can on the nature of those conversations and how they developed? And does it give you any more optimism in terms of the liberalization path for other states to regulate sports betting going forward? And then second of all, just to get a bit more color perhaps on the NBA. You talked Amazon, but that's clearly forward-looking, you've talked about much better engagement. You see much more happy with the performance this year. Can you just give a little bit of color on what lies below that? Is that the nature of the sort games in the leagues this year in terms of unpredictability? Or was it product upgrades that have driven that change in performance related to last year? Thanks. Peter Jackson: Hi, Ed. Well, let me take the Prediction Markets one, and then Rob can talk a little bit about the NBA. We have obviously been having extensive engagement with stakeholders. As we get close to launching the FanDuel Predicts Markets product. As you well know, sitting in the UK, as a prediction market, it's not in the same ballpark as a fully-fledged sports betting product. Breadth of product offering, generosity, and a bunch of other things are nowhere near as good. So pragmatically, this is the financial predicts policy has been very exciting for the half of America who can't currently access sports betting. If you're sat in a state and you're getting close to passing legislation, you won't want to miss out on the tax dollars. So look, we hope that this does accelerate some of the legalization of states that were previously in the pipeline for launching sports betting, because ultimately that's what we'd like to see as many states having that as possible, because I think that means consumers will get a much better offer. Rob Coldrake: Yes. So picking up on the second part, question around the NBA, there's a few things that we're finding very positive and exciting. One is we're definitely seeing an enhanced handle from where we were at this point last year. And as I alluded to, kind of double-digit growth in the season so far. It would also appear the new television deals that are out there are getting good traction. There's some data showing that the viewing figures are up. Our new partnership with Amazon Prime, we're very excited about the integrations that are working well for us. From a financial perspective, we've seen significant improvement in the NBA parlay handle mix year on year. So, I don't think over 1,100 basis points improvement year on year, which is flowing through into a healthy product mix as well. I think the other thing as well is just engagement with the product. I think at one point last year, there was potentially less engagement with the NBA product. There seems to be excellent engagement with the NBA this year. I think if the, you know, the 100 or 80 to 100 matches so far as reading the stat yesterday, half of them have gone down. There's been five points between them in the last kind of few minutes of the game. There's some really good engagement around it, which is good to see. Operator: Thank you. And our next question comes from the line of Jordan Bender with Citizens. Your line is open. Jordan Bender: Hey, everyone. Good afternoon. Thanks for the question. You still have the 2027 targets out there, and prediction markets, obviously, weren't in those numbers when you provided. So as we start to layer in the prediction market and the capital outlay that's going to happen over the medium term, is there any kind of sense on your end of do you feel any worse or better about the EBITDA and margins that you laid out during your Investor Day? I guess my follow-up or the second question here, would you look to get FanDuel traders involved in prediction markets? And I guess, does this present an opportunity just given the volume that you're seeing? Rob Coldrake: Let me pick up on the 2027 guidance point, Jordan, and then Peter can pick up the second point. So we're obviously not providing any updated guidance for 2027. Building on what Peter said earlier about prediction markets, we're incredibly excited about it. The additional TAM that that's opening up for us. We need to see how the investment next year plays through, but from my perspective, it will be a very good scenario if we invest more than we planned because that will be demonstrating that we're seeing good returns on that investment spend. We're quite excited about where that can go. A couple of other things probably just to bear in mind, we've done the Boyd deal this year, which delivers some cost of sales savings through to '27. We finished 2024 with a larger business, but we also had some tax increases. So there's a number of things in the mix, but if you take a step back from the detail, probably the thing that I'm most excited about is the prediction market opportunity. Peter Jackson: So, Jordan, in terms of being a market maker for prediction markets, there's a lot of complexity to do to be a market maker on a CFTC regulated DCM. I think but if you look at what's required for that, I mean, the ability to price complex correlated outcomes accurately is something that we do every day in our core business. Look, it is something that we're actively evaluating. But in the immediate term, our focus is the B2C launch of FanDuel Predict next month. Jordan Bender: Understood. Thank you very much. Operator: And ladies and gentlemen, we ask that you now please limit yourself to one question, so we may take as many questions as possible. Our next question comes from the line of Jason Tilchin with Canaccord Genuity. Your line is open. Jason Tilchin: Good afternoon. Thanks for taking my question. Yet another one on Prediction Markets. I'm just curious from a product perspective, you're viewing the ability to take learnings from Betfair operations overseas versus maybe what you're planning to do differently based on the different product features that have resonated in the U.S. market with traditional markets to date? Peter Jackson: Hi, Jason. Yes, look, we were able to get a bunch of the team who've been working on the Betfair exchange for years involved in developing the products we have. We'll be launching in December for FanDuel Predicts. So we can take the learnings and expertise from Betfair. We can clearly have a very good understanding of what U.S. consumers want through the experience of FanDuel. And we'll be launching an exciting product next month, and we've got some fast follow features we'll be bringing. And I'm very confident by Q2 next year, we'll have the leading products in the market. Operator: And our next question comes from the line of Shaun Kelley with Bank of America. Your line is open. Shaun Kelley: Hi, good afternoon everyone. Thank you for taking my questions. Peter, whoever wants to take it, wondering if you could give us a little bit more color on how you're underwriting the revenue side of the prediction market formula. I think we all know there's going to be some J curve and early investment involved. But just how are you thinking about the fee structure here? That environment seems like it's very dynamic in the U.S. So how price sensitive do you think customers are going to be? And just how are you kind of thinking about the top line function and maybe your cost structure that sits underneath it? I'd obviously should be much better given the lack of state-level taxes, obviously. Thanks. Peter Jackson: Well, Shaun, one of the nice things about offering prediction markets, as you see with the Betfair Exchange, is you're not subject to the vagaries of sports results. You're right, it is a commission-based structure. So we'll launch in December. We'll get early indications of how customers are behaving. But we're excited to see how we can build out the lifetime value models. That will make sure that we can maintain a disciplined approach to acquisition in the market. Shaun Kelley: Thank you. Operator: And our next question comes from the line of Bernie McTernan with Needham and Company. Your line is open. Bernie McTernan: Great. Good afternoon. Thanks for taking the question. Just a follow-up. Peter, twice you mentioned that you expect the product to improve by Q2 to have a market-leading product. So just want to get some more specificity there in terms of what kind of product you're launching with and then the major improvements we should expect in the coming months. Thank you. Peter Jackson: Bernie, I don't want to tell my competitors everything we've got planned, right? But look, we're very confident in our ability to deliver a winning proposition. I mean, I think in the short term, we'll have a great product offering available to consumers. Obviously, we're not going to be ready for the start of the NFL this season, but we're really focused on making sure that when we get to the 2026 NFL season, we'll have a very compelling offer for customers. And look, I think we've been able to increment and deliver exciting features on our sportsbook, and I think we'll be able to do the same for prediction markets. We've a clear roadmap. And some of the stuff that people love, like the player props and things, that they see in the sportsbook, will be available next year. Operator: And our next question comes from the line of Barry Jonas with Truist Securities. Your line is open. Barry Jonas: Hey guys. Nevada just put out a notice saying you've surrendered your gaming license in the state due to FanDuel Predicts. Can you talk about the ramifications here? And are there further risks we should monitor for current or future state gaming licenses now, or was Nevada really the main risk? Thank you. Peter Jackson: Sorry, Barry. We, you know, we as I've stated, we have had conversations with different stakeholders over time, and Nevada was amongst that. And we did have a license in Nevada, but we didn't have any retail or B2C operations there. We were supporting Boyd as part of our legacy arrangement. Look, once we're it's sad to have to surrender the license, but that's what we've done. Nevada is protecting their interests. We need to protect our interests. And FanDuel Predicts will allow us to go after the half of the market that we haven't previously been able to go after. Barry Jonas: Thank you. Operator: And our next question comes from the line of Clark Lampen with BTIG. Your line is open. Clark Lampen: Maybe for the sake of variety, I'll switch it up and ask a question about iGaming. Your growth accelerated a little bit this quarter, 45% in the U.S. Just curious how you guys think about product differentiation beyond what you've already done with exclusives and the rewards framework? And then maybe bigger picture, where do you think about whether it's U.S. or for the full business, iGaming revenue mix going? Thanks a lot. Peter Jackson: Look, I don't think we should underestimate how important some of those pieces are exclusivity of content and I mean, I think the third installment in the Huff and Puff series was the most successful one we've had to date, and we're very excited about it. The reward programs, which have been key for us in other markets, and I think we're demonstrating how important it is in the U.S. market. And also work we've done from a jackpot perspective. So some of the stuff is really hard to replicate. And so the team did a brilliant job executing. And there's loads more improvements and changes to deliver. And it's not just in the U.S. market as well. We're taking our capabilities. I know that the team here in the U.S. is spending time with our colleagues in Italy and in Central and Eastern Europe. So we're sharing best practices around the world. And that's what's allowing us to stay ahead of our competitors. Operator: And our next question comes from the line of Jed Kelly with Oppenheimer. Your line is open. Jed Kelly: Hey, great. Thanks for taking my question. Just as we look out to next year, obviously, with prediction markets, but has anything changed in the underlying earnings power that you see ex-prediction markets over into next year? Anything with promotional velocity, taxes that you just sort of could touch on? Thanks. Rob Coldrake: Yes. Let me pick up on this, Jed. I mean, as we mentioned earlier, we've got some really good momentum in the business at the moment, and our focus is on exiting 2025 with the strongest business possible. We've got a real level of confidence that we'll continue to grow into 2026, both in the U.S. and internationally. We're not taught on this call much about our international business yet, but we're really confident about the growth profile that we've got there next year. Especially from an EBITDA perspective with some of the transformation initiatives that we're delivering. So there's not anything that is particularly front of mind. Obviously, the prediction investment will be incremental to what we previously looked at. But as we've said earlier, we're very excited about that and what that will potentially mean for us in 2027 and beyond. No significant changes to 2026. Jed Kelly: Thank you. Operator: And our next question comes from the line of Brandt Montour with Barclays. Your line is open. Brandt Montour: Thanks, everybody. So my question is on the fourth quarter. Sort of sportsbook investment. Could you give us a sense for if that's all NFL or if that was NFL and NBA? I think the more important point would be, if you do see good returns on that investment, would you be looking to sort of keep that going or is your number one priority to sort of get back to the levels that you were at prior? Rob Coldrake: Thanks, Brandt. I think the point we'd say is we've got flexibility and agility around where we invest, particularly from a generosity perspective, and, you know, we can tweak and be agile with that as we move from week to week depending on what we see in the market. As we've said on a number of occasions previously, we've got a disciplined set of economic parameters that we invest to in terms of paybacks, ROIs, and CACs. That model has worked very well for us consistently, and that's not something that we're going to materially diverge from. As we said earlier, the start of Q4, we've seen some very compelling opportunities to invest and lean in and potentially where some others went in very hard early in September. Retraced a bit. But as we said, we are seeing some elevated levels of generosity in the market. So we're very confident with our posture, what that will deliver, and the size of business that we'll exit 2025. We do anticipate, as Peter said earlier, that in the medium to longer term, the generosity in the market will moderate, and that's what we've experienced in many other markets around the world historically. That's what we'll see at some point in time. And in the meantime, we're very confident with our generosity posture. Brandt Montour: Thanks. Operator: And our next question comes from the line of Ben Shelley with UBS. Your line is open. Ben Shelley: Hi, thanks for taking my question. Could you share any early learnings the measures you took in Illinois and the impact on player behavior there? And how does this guide your response to strategy on potential tax hikes going forward? Rob Coldrake: Yes. Hi, Ben. I can pick up on Illinois. So obviously, with the structure that was introduced in Illinois, as you'd expect, we're seeing a reduction in the number of bets there. But increasing handle per bet. When we look to the September data, Illinois is definitely behaving in line with other states, so we saw no impact on our Q3 numbers. However, we do still kind of monitor this very closely, we're looking at the market data closely at the start of Q4 and what that may or may not mean. When you take a step back and approach this higher level, we definitely feel that this is another lever or tool that we've got in our armory to potentially mitigate taxes in high-tax jurisdictions moving forwards. We're hopeful that the regulatory landscape potentially accelerates with some of the prediction developments as well as we discussed earlier. But yes, this is certainly something that we'll have in our toolkit moving forward and we'll consider elsewhere where appropriate. Ben Shelley: Thank you. Operator: And our next question comes from the line of Ryan Sigdahl with Craig Hallum. Your line is open. Ryan Sigdahl: Hey, good afternoon, guys. Curious if you're willing to comment kind of on the initial product launch and predictions if that will include parlays. Your largest competitor in the U.S. that's forthcoming also in prediction markets that they're going to have some prepackaged stuff just to help on the liquidity side. But curious if you're willing to comment on what offerings you're going to have on the Parlay side? Peter Jackson: Hi, Ryan. Look, we are not going to launch Parlays next month when we launch FanDuel Predicts. But you can expect us to fast follow with this early next year. Operator: And our next question comes from the line of John DeCree with CBRE. Your line is open. John DeCree: Hi. Thank you. Another one on iGaming. It's probably harder to discern, but curious if you've seen any more competitive, aggressive behaviors in the promotional environment for iGaming in the U.S., probably easier to see during NFL season, but curious, you had great results in the quarter. But was that equally as competitive as sports betting? Peter Jackson: Hi, John. We you don't quite see the same sort of externalities driving iGaming as you do sports. Where obviously you have season launches and big games and stuff like that? We've heard a lot from competitors about how focusing particularly on the direct casino space, which is something that we've been focused on for a while. But the team have been focused on what they can control. Is things like lots of exclusive content, which we're very excited about. It's not just Huff and Puff. We've got Wonka and Samurai titles. We've got Vegas, Matt, Blackjack in Q3. So there's lots of stuff that we focused on. We've had 500 new titles in the quarter. If I look at the business, we've got AMP growth 30% year over year. So I think people are trying to focus on this, but I think the team has got really good momentum in the business. And I think there's exciting plans in the pipeline. John DeCree: Thanks, Peter. All very helpful. Operator: And our next question comes from the line of Robert Fishman with MoffettNathanson. Your line is open. Robert Fishman: Good afternoon. Back to the competitive landscape in the U.S., do you think the new partnership with ESPN and DraftKings will change any future competitive dynamics? And are you looking to pursue any other media partnerships, any update would be welcome with your Fox relationship and the equity stake there? Thank you. Peter Jackson: Hi, Robert. Yes, as you'd expect, I mean, I don't think there are many partnerships that emerge in the U.S. market that we haven't looked at. And as a scale player, if we want to do these deals, we've got the resources to make them happen. We've been very pleased with our Amazon partnership, the tip-off of the NBA season, the odds integration and stuff that you can do from a consumer perspective, and also you see on the screen, I think, worked really well are going to resonate very well. But ESPN struggled to get their best product to work. We've seen a number of these media deals struggle because of the quality of the product. We have the best product in the market, and we think that's what stands us in best regard in terms of continuing to grow and be number one in America. Operator: And our next question comes from the line of Joe Stauff with Susquehanna. Your line is open. Joe Stauff: Thanks. Peter, I was wondering if you could comment on the viability of the Parlay product on FanDuel Predicts and whether or not you guys expect to use it to hedge maybe any of the local concentrated bets that you might have in your sportsbook? Peter Jackson: Yeah. Hi. Hi, Joe. Look, we were excited about the launch of FanDuel Predicts. I think as I stated, we're going to make the parlay product available early next year. I don't think you should underestimate quite how hard it is to bring parlays to life on these platforms, and they can only really be delivered in a prepackaged way. You're never going to get the same degree of choice or depth of markets. And that's one of the challenges and why the prediction markets are not in the same ballpark as a sports betting product. I don't think that there will be the right type of depth of market for us to be hedging, and I'm not sure it's something we necessarily want to do either. We've got real confidence in our pricing and our platform. And that's not something that I'd be anticipating us doing. Joe Stauff: Thank you. Operator: And our next question comes from the line of Chad Beynon with Macquarie Group. Your line is open. Chad Beynon: Afternoon. Thanks for taking my question. Wanted to ask about I guess, the swift, message or decision in India in the seizing of that market? I know you've seen openings and closings in different markets in your time. Does it feel like the parliament is vehemently against this industry? Or are they just looking to better protect the consumer? And if we see movement to the black market, something opens up in the next couple of years that's just more in line with what they want. Thank you. Peter Jackson: Chad, I can give you a bit of perspective on this. Look, we're frustrated at the speed with which the bill that emerged came into law. Yeah. And I yeah. I would hope that in that sort of timeframe you talk about, we might get some more sort of legal clarity around the extent to which some of these games of skill may be able to come back. They had had seventy years worth of constitutional protection in India. It's not that long ago that we saw Black Friday in America and look where we are today. Look, we're going to maintain the Jungli products on a free-to-play basis, and we'll see what happens. Doing all the lobbying and legal challenges that you'd expect us to. Chad Beynon: Thank you. Operator: And our next question comes from the line of Estelle Weingrop with JPMorgan. Your line is open. Estelle Weingrop: Hi, good evening. I've got one question on the UK. Please. How do you see the underlying market at the moment? I mean, sportsbook revenue remains negative year on year. Clearly, you're lapping some tough comps there, plus the Euros related comps, but iGaming also slowed quarter to a low single-digit number ex-FX. How should we look at the quarters ahead for both sports and iGaming assuming broadly normalized sports results? Thank you. Rob Coldrake: Yes. Hi, Estelle. I think in summary, we're pleased with the momentum that we've got in the UK. As you said yourself, there's quite a lot of results in the mix because we had a very favorable Euros in Q3 last year. Which is impacting the comps on the sportsbook revenue. In gaming, we were 7% up. We've got some good new content there. But we've lapped some of the pricing initiatives that we had in last year. But we're feeling really confident we've completed the migration of our Sky Bet platform now onto our UKI platform. When we did a similar transition with Paddy Power a few years ago, it really benefited the business and it acted as a real catalyst for growth in that business moving forward. So we're hoping and anticipating the same will happen with Sky Bet. They've already been able to launch a number of new products into Sky Bet this season. We've got super sub products on the sportsbook now. We've also got squad back in there. Which is something that's being powered off of our outcome-based pricing. So we're really encouraged. We're the market leader in the UK. We've got an exceptionally strong business, and we're very confident about what 2026 will bring. Estelle Weingrop: Thanks. Operator: And our final question comes from the line of Monique Pollard with Citigroup. Your line is open. Monique Pollard: Hi, afternoon. Thank you for taking my question. It was just one on the commentary that you gave in the quarter about the lower than anticipated parlay mix at the start of the NFL season. So, I wonder if you could comment please on sort of what was going on there. As you said, it was transitory in nature. And related to that, how the YourWay product is going? Thank you. Rob Coldrake: Yeah. Hi, Monique. Let me start on the parlay, next part of the question, maybe Peter can pick up on YourWay and what we're doing around outcome-based pricing. But as we've mentioned on a couple of occasions at the start of the season, there were a lot of quite uneconomic offers in the market of promotional spend, and a number of those were same-game parlay-based offers. We won't name them by name, but I think people are aware of some of the very generous offers that were in the market. As I mentioned earlier, these handle driving measures don't always convert revenue. I think that transpired to be the case for some of our competitors to have these offers in the market at the start of the season. We did see a moderation of that later into September and also into October. Actually, when we look at our parlay mix now, in NFL and in NBA, we're really pleased with it. I alluded to the numbers earlier. So I think we're in a good position, and we're very pleased with our product mix. Peter Jackson: Yes. And look, Monique, from a sort of YourWay perspective, you know, look, it's now available for all of our customers this season, including those in Canada. And the more sophisticated approach we have to pricing is helping improve an increase in bets cash downs, year to date, which is making a big difference. You've got to remember, it's a very fundamental sort of rewrite. So there's now a set matrix of, that's why it's called can be a basis of every eventuality that can occur. And so as the game is progressing, it means we've got a much broader array and set of products that consumers can select from. And it even means that whilst the game is playing, we're updating and changing the odds of which team we think is going to win the Super Bowl. If you think about what that's requiring on a Sunday when you get a full slate of games going on, that's very, very complex. And so there's a bunch of sort of we can do around sort of daily specials, which we do in an automated way. Big improvements around sort of cash out and reductions in suspension. So it's improving speed of pricing updates. It's reducing latency. So we're excited. And of course, there's also the trials we've been doing around AI-powered conversational stuff. So look, there's a lot of excitement around where it will take us. Monique Pollard: Understood. Thank you. Peter Jackson: So I think we've reached the end of the questions. And thank you very much, everybody, for joining the call. We spent a lot of time talking about prediction markets today. We've put a lot of effort into getting to this position we're going to be able to launch this product next month. Huge thanks to the team who've worked on this, but particularly to those folks who've been involved in the very constructive dialogue with lots of our regulators. Nick? Always said that we would never do anything to damage our existing businesses. Nevada is a little bit different. We don't have B2C operation there. But we're very excited about the launch prediction markets product next month. And we're excited about what we've got coming down the line from a product perspective. But of course, it's not just we're seeing in the prediction markets. I'm very bullish about the existing business we have in the U.S., strong growth in iGaming and, of course, benefiting from the diversification we have internationally. A lot to be excited about into Q4 going into 2026. So thank you very much, everyone. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Greetings. And welcome to the 374Water Third Quarter 2025 financial 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. At this time, I will hand the call over to Jim Siccardi, Senior Vice President of Investor Relations at 374Water. Please go ahead, sir. Jim Siccardi: Thank you, operator. Before we begin the formal presentation, I would like to remind everyone that statements made on this call and webcast may include predictions, estimates, and other information that might be forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of this date of the presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release results of any revisions to these forward-looking statements in light of new information or future events. Throughout today's discussion, we will attempt to present some important factors relating to our business that may affect our predictions. You should also review our most recent Form 10-Q and Form 10-K for a more complete discussion of these factors and other risks, particularly under the heading "Risk Factors." Your host today, Interim President and Chief Executive and Board Director, Steven Jones, and Chief Financial Officer, Russell Klein, will present results of the operations for the third quarter ended 09/30/2025. A press release detailing these events crossed the wire this afternoon at 04:01 PM Eastern Time and is available in the Investor Relations section of the company's website 374water.com. With that, I will now turn the call over to 374Water's Interim President and CEO and Board Director, Steve Jones. Steven Jones: Thank you, Jim. Good afternoon, everyone, and thank you all for joining us today. We very much appreciate the support, collaboration, and constructive feedback from shareholders. Your active engagement demonstrates your commitment to 374Water's mission. Before we begin, I'd like to take a moment to introduce myself to those of you whom I have not had the opportunity to meet yet. Last month, I accepted the board's request to serve as interim president and chief executive officer in addition to my role as a director of the company. As Interim CEO, I'm focused on leading the 374Water team on its continued commercialization of our proprietary supercritical water oxidation technology, or AIR SQUO, as we like to call it, and accelerating conversion of our growing pipeline of opportunities, including the further development of our waste destruction services business. My goal is to turn our immediate opportunities into profitable deals and deliver value to you, our shareholders. I was asked to assume this role due to my extensive experience as an operating executive with expertise in the waste and environmental services spaces and in the development of own and operate on-site business models employed in the industrial gas and chemical sectors, which is very similar to 374Water's waste destruction services model, which you've heard us speak about in the past. Previously, I was Chief Executive Officer of Covanta Holding Corporation. That company is now owned by private equity and renamed ReWorld Waste. ReWorld is a world leader in developing, building, owning, and operating waste facilities and providing environmental and clean tech services. I led Covanta through a rapid growth phase focused on owning and operating waste destruction facilities and acquiring environmental services companies providing waste and wastewater services to third-party customers. Prior to that, I was with Air Products, which was an early adopter in owning and operating on-site facilities at customer locations globally, a model which will be an important part of 374Water's strategy going forward. This role with 374Water is an opportunity to step into a company that I firmly believe has significant value creation potential and incredible demand for facilities and services. I appreciate the board's confidence, and I'm excited to lead the 374Water team on this journey. With that, let's jump in. As many of you know, 374Water is an industrial technology and services company providing innovative solutions for the destruction of solid and liquid organic waste across the industrial, municipal, and federal markets. Waste like PFAS, the forever chemical, our airflow technology is designed to efficiently destroy a broad spectrum of non-hazardous and hazardous organic waste, producing safe, dischargeable water streams, safe mineral, safe net gas, and recoverable heat energy in the process. It has the potential to assist our customers in meeting discharge requirements, reducing or eliminating disposal costs, and reducing other risks. Our flexible strategy includes several commercial options for our customers. First, the provision of waste destruction services, or we sometimes like to call WDS. I think of this as the own and operate business model I spoke about in the industrial gas industry a few minutes ago. Second, we get involved in capital sale of equipment to our customers. And third, potential lease options that would include the opportunity for 374Water to also provide long-term operating and maintenance services to our customers. So this is another form of recurring revenues. I want to be clear, and I have to be clear with our business development team on this issue. I prefer the waste destruction services model as it produces stable, recurring revenues and higher EBITDA margins for 374Water. We're targeting the waste treatment market, which, including the destruction of PFAS and other frack or chemicals, is roughly $450 billion. Most companies couldn't even imagine an addressable market of that size. It presents a significant growth opportunity for us over the next few years. The size of the market and the urgency related to dealing with issues like PFAS destruction creates significant demand for our facilities and services and should generate a strong profitable revenue stream for the company for the foreseeable future. Moving on to our operational highlights and business update, I'd like to discuss some of the team's many accomplishments. During the third quarter, we signed a waste destruction services collaboration agreement with Crystal Clean, a leading provider of environmental and waste management solutions. We're excited about working with Crystal Clean at their Oregon, Ohio location as we introduce our waste destruction services business at a transfer of storage and disposal facility. These are a lot of times you'll hear these. They're called TSDF facilities in the industry. We expect our waste destruction services business to address growing across the wide array of market verticals and waste streams. And this agreement serves as a model for future collaborations to create a network of TSDF partnerships with companies like Crystal Clean and other similar companies that work in this space. We expect that this is the first of many similar arrangements in the industrial waste space, as this is a large market segment that is underserved. In Q3, we successfully deployed our AIRSPRO technology to a Colorado School of Mines and Department of Defense project aimed at comparing technology solutions for the destruction of PFAS contaminated waste. We treat PFAS impact sediment from the Peterson Space Force Base. We believe this initiative demonstrates our ability to destroy PFAS impacted waste streams as a treatment option for DOD installation. Note, we're awaiting the final report on this project so we can provide additional technical details to the marketplace. We also successfully completed a commercial scale field demonstration at Clean Harbors' Detroit facility as part of a DOD project. For six weeks, we executed PFAS destruction of multiple concentrated waste streams at a commercial PSCF site using an AirSplug six unit. Once again demonstrating the effectiveness, scalability, and versatility of our technology. This project represented a major step forward in our effort to provide the DOD with commercial PFAS treatment options for a variety of scenarios and waste types. We expect this project to open up a number of DoD projects for us in the future. More recently, we secured an order from the city of Olathe, Kansas for the sale and employment of an Airscope six unit and the related pretreatment and dewatering system. Olathe will use the airscope process at its wastewater treatment facility and assess its potential as a sustainable alternative to traditional sludge management practices and disposal methods, like landfill application and landfill disposal, which are becoming more difficult to utilize for these types of customers. Olathe will deploy the system to treat various waste streams over a six-month period, after which they will determine the potential to further scale 374Water's technology at their facility. We recently began processing an award by the state of North Carolina for waste destruction services to destroy Inquist, film forming foam, or better known as AFFF in the market, utilizing our airflow technology. In the first phase, and we're in this process now, we'll process a thousand gallons of AFFF from North Carolina. And as I mentioned, we're doing that now. If selected for the second phase, we could treat up to an additional 28,000 gallons of AFFF. With millions of gallons of AFFF in the US, and even more globally, if you think about Europe, needing to be eliminated or destroyed, this award is an opportunity to show the market that our technology can be the solution for AFFF liability and returns that are advantageous to the company. As you know from prior calls, we are preparing for our AirSquope six system deployment to the Orange County Sanitation District, or OCSAN, in California. And we expect to complete our factory acceptance test in the fourth quarter. We continue to be focused on late Q4 2025 or early Q1 2026 to start up this unit. We have undertaken certain system upgrades to the Airflow six unit over the last month or so to improve system performance and ensure our successful completion of the factory acceptance test. Things like improving our waste reactor and our aerosol unit and adding a heating block to the process, all of which will lead to improved performance and throughput for the AirSlow six unit. OCSAN is firmly committed to working together with 374Water on the evolution of aerosol technology to address their ongoing treatment needs. Also note that during the quarter, we took several initiatives to strengthen our balance sheet and support long-term shareholder value. Most recently, we fortified our balance sheet from our at-the-market or ATM facility, which resulted in gross proceeds of approximately $7 million, extending our cash runway into 2026. Also note that certain officers and directors purchased shares of 374Water in the open market in the third quarter, further evidencing their positive view of the company. Talk about hitting two very important milestones that will greatly impact revenue in 2026. The commencement of the first phase of our award by the state of North Carolina, pursuant to which we will be providing waste destruction services related to AFFF, and the sale of their spoke six unit to the city of Olathe. I believe that both of these awards provide validation to our alternative business models, whether waste destruction services, a capital sales equipment, or a lease of an air squirrel unit to a customer. Taken together, along with our anticipated start-up at OCSAN, we now have a line of sight towards 2026 revenue that is expected to be in the $6 to $8 million range. That is a 50% to 100% increase over our expected 2024 revenues. And, you know, that this does not include additional opportunities in our pipeline that we're working on to monetize during fiscal year 2026. So I believe we're setting ourselves up for a very successful 2026. Finally, on a more personal note, I'd like to formally welcome Jim Siccardi, who is on his first 374Water earnings call. He was our Senior Vice President of Investor Relations. Jim has been in investor relations for over twenty years and has focused his entire career on driving shareholder value, strategic growth, and market expansion within the energy, natural resource, and industrial sectors. Jim is an expert at developing relationships with investors and will work to raise awareness of 374Water and our related market opportunities. Expect to hear more from Jim as we further advance our business plans at 374Water in 2026. Now with that, I'll turn the call over to Russell. Russell Kline: Thank you, Steve. As Steve mentioned, we are aggressively pursuing our three-pronged business strategy: waste destruction services, capital sale equipment, or lease of equipment based on customer business needs. Based on internal assumptions and modeling, we estimate our mobile AIR Squad one unit has the potential to generate more than $2 million in annual revenue as the mobile fleet will generate higher tipping fees due to the nature of on-site waste destruction services. We will naturally increase the size of this mobile fleet as the market expands. Also based on our internal assumptions and modeling, we estimate our air SCO six unit has the potential to generate $3 to $5 million in recurring annual revenues with attractive operating margins. We plan to initially utilize the AERSQL six units at TSDFs to provide waste destruction services. We also plan to utilize a modular solution in building these types of air school units in order to both lower our capital cost and be quicker in delivering these units to our customers. Once ready, we plan to utilize AirSquad 30 units at TSDF partner facilities to dramatically increase our waste destruction capacity, decrease operating costs, and increase revenues. It's important to note the revenues I just highlighted are based on non-hazardous waste tipping fees. We expect that tipping fees associated with processing hazardous waste with our AirSquare units will be materially higher and will increase returns on these assets. We are excited about the waste destruction service opportunity to drive shareholder value. For 2025, revenue increased to $760,000 compared to $81,000 in the prior year. Our business has been focused on the development and commercialization of our AirScore units to fulfill ongoing projects. Revenue generated was primarily from waste destruction services. The approximate $679,000 increase is primarily due to an increase in our service revenues of approximately $643,000 from the completion of waste destruction service projects and $36,000 in equipment capital revenue. Total operating expenses increased 64% to $4.6 million for the three months ended 09/30/2025 compared to $2.8 million in the prior year period. The increase was primarily due to a material increase in commercial activities, including deployments and projects to be delivered. We are focusing our resources on the manufacturing and operations side of our business from a cost standpoint. There was a $900,000 increase in compensation and related expenses, an increase of $300,000 in research development, and an increase of $800,000 in general and administrative expenses. Net loss for the three months ended 09/30/2025 was $4.3 million as compared with $2.7 million in the prior year. Cash and cash equivalents as of 09/30/2025 was $900,000 as compared to $10.7 million as of 12/31/2024. As of 09/30/2025, working capital was $1.9 million compared to $4.5 million as of 09/30/2024. In September, the company entered into a $600,000 short-term promissory note, which we expect to repay in January 2026. Based upon our current cash position, including the $7 million raised from the ATM facility that Steve mentioned earlier, and expected billings and related collections, we project adequate cash to support our business plans into Q2 2026. To deliver on the planned business growth, we will require additional capital and are actively pursuing additional capital raising opportunities to fund waste destruction services and our strategic growth initiatives. The company is currently actively engaged with potential investors and possible strategic partners to fund these capital needs. Looking to the remainder of 2025, our revenue projection is $4 million based upon year-to-date activity and expected project milestones for the fourth quarter. As discussed, we have completed our DIU project and our Petersen Space Force Base DoD work, which were both recognized in Q3. Importantly, we continue to make progress in our Orlando biosolids destruction project and our OCCN factory acceptance test and deployment to California. In addition, as noted earlier, we have begun processing the North Carolina AFFF at our facility in Orlando. Finally, we expect to recognize a portion of the revenue related to the capital sale of equipment to Olathe later this year. Based on current and anticipated future demand, and the fact that we are beginning to convert our commercial pipeline into actionable backlog, we project revenue to be in the range of $6 to $8 million in calendar 2026 with growth in both waste destruction services and capital sale of equipment. One final item I would like to highlight: The company recently filed a proxy statement with the Securities and Exchange Commission in connection with the company's upcoming special meeting of shareholders to be held on 12/15/2025. The purpose of the special meeting is to request that stockholders approve amendments to the company's certificate of incorporation to effect a reverse stock split of our common stock. As many of you know, in July 2025, we filed a Form 8-K highlighting for investors that the company's stock listed on Nasdaq had been trading for less than $1 per share for more than thirty consecutive trading days and, therefore, the company was not in compliance with the bid price requirement of the NASDAQ listing rules. The company must regain compliance by 01/12/2026. The company's goal is to meet the NASDAQ requirement by executing on normal business operations, but if we are not successful, the board felt it was appropriate to request shareholder approval to effect a reverse stock split at the board's discretion to ensure that we maintain our Nasdaq listing. If the reverse stock split is approved and we maintain a trading price above $1 for at least ten consecutive trading days, then we expect to maintain our listing on NASDAQ. The board of directors of 374Water believes it's important to remain listed as a publicly traded company on Nasdaq. Among other things, our Nasdaq listing will greatly increase the company's access to capital markets, like use of our ATM, which has been important to our ability to obtain sufficient working capital to finance our ongoing operations. A reverse stock split will also improve trading liquidity by increasing the price per share of our common stock, which could enable a broader range of institutions, which may have a minimum level of price restriction, to be able to add 374Water to their portfolios. It also allows the company to potentially pursue alternative financing options as we grow our business. The board and management team remain fully confident in 374Water's long-term prospects and view this measure as one of several potential steps to strengthen the company and position it for future growth. I will now hand the call back to Steve for his closing comments. Thank you. Steven Jones: Thanks, Russell. I appreciate it. I've been asked by many of you where I'll focus my attention in the immediate future. And I think there's two specific areas I'd like to drive improvement. First, I believe we need to continually improve on the throughput of our airflow unit. The ability of our airflow technology to effectively destroy PFAS is well known now in the marketplace. However, as a company, we need to continue to drive improvement by using tools many other larger companies use, like Lean Six Sigma, so we can process more PFAS materials through our units. We're spending a great deal of time and energy improving in this area right now and are currently making several important upgrades for our escrow units. As I noted previously, we've had great results with the destruction efficiency. A lot of times, it's nondetectable or 99.999% destroyed. And now we need to go up that continuous improvement curve as it relates to throughput, making sure that we can process increased volumes of materials. Higher throughput means higher EBITDA margins. Second, we need to focus our resources. We're not a very large company. We have about 50 employees or so at this stage. And as I've said, there's a vast market for destruction of PFAS and other very organic waste out there in the marketplace. So we need to focus our business development efforts on those opportunities that have the highest likelihood of success and the greatest return on capital for our shareholders. I'll be spending my time working with the business development team, and I started it already, to focus on those opportunities where we could be most successful and get the highest returns. Recently, I had the opportunity to speak with one of the employees on a trip down to our Orlando facilities. It was very exciting. I was really impressed with the talent and the passion of our team. And they're very dedicated to making 2026 revenue in that $6 million to $8 million range on a combination of waste destruction services and capital sale of equipment to our customers. This is a 50% to 100% increase in revenues over our current 2025 revenue expectations. So we're growing fast. Operator: If you would like to ask a question, please press star then 1 on your telephone keypad. You may press star and then 2. The first question that we have comes from Rob Brown of Lake Street Capital Markets. Please go ahead. Rob Brown: Good afternoon, and congratulations on all the progress. Thank you. Maybe first on the TSDF facilities, you've got the first one kind of going now. How is the pipeline in that segment? I know it's a large segment. What are sort of the steps to getting that pipeline going? And I assume it's one of the main areas that is worth focusing on. But what's the pipeline there? Steven Jones: Yeah. So there's a lot of TSDF facilities in the US. And then also many, many more material processing facilities. TSDF is so I operated a few of the I've I operated a lot of these when I was at ReWorld. Yes. Yeah. Basically, deals with recra, so hazardous waste material. And so we're in discussions with a number, maybe a majority, I'd say, of the TSDF operators in the US right now about putting airflow units on their site. And so Crystal Clean was the first one. We have discussions underway with others. And I've and I know a lot of the operators since I operated in this space. So I've reached out to my network to see who's interested in utilizing our technology to destroy PFAS. There's not a lot of good options that are out there at this point in our technology. Like I said, is very efficient in destruction. And so we're going through that process now. So business development team and I've been kind of riding them recently. Is I've been making sure that they're following up with the various TSDS owners across the US and seeing who wants to partner with us in this process. Ultimately, I see us as a TSDS being a host customer. And, again, it's a lot like the industrial gas business model. The own and operate on-site business model. Where we're gonna put one of our units on their site. They'll probably have some access to the unit for their own PFAS needs. And then we'll also bring PFAS in from, let's say, the federal government Department of Defense, AFFF, for example, and we'll process AFFF through the air squirrel unit. So, like I said, there's a number of opportunities that are out there. And that's in the hazardous side. On the nonhazardous side, as companies and, again, there's you know, it's there's public companies like Clean Harbors, for example, and there's a lot of companies out there that play in the space as a ReWorld, my old company, as they start to look at how they're gonna destroy nonhazardous material, they can also use our airscope technology at these material process facilities. And there are a lot of those in the US. I mean, it's a very large market. So that's what we're going through right now. We're basically looking at the various leads. And as I said, what I really wanna focus on is those opportunities that are close to seeing and it will lead to the highest internal rate of returns. So return on capital for our shareholders. Rob Brown: Okay, excellent. And then I guess second question on the North Carolina contract. I know you're doing the first phase, but how is that phasing set up and what's the timeline on sort of the second larger phase? Steven Jones: So the first phase is about tons or excuse me, thousand gallons of AFFF. We're in the process of putting that through the unit now. We started that last week. Or two weeks into it. Once that's processed, North Carolina is and they have representatives from UNC. I think also NC State. Who are out periodically at our facility and they're taking samples and doing various technical readings. They'll take that back and start to get some thought to how they get rid of the 28,000 additional gallons that they want to process. So that's how it'll play out. I'm not sure exactly what the timing of their decision-making will be. But like I said, we're in the process now of destroying AFFF, and it's working well. Rob Brown: Great. And I guess last question on the '26 outlook, good growth there. How do you sort of see the mix of business in that number between the Waste Services and the Capital sale? Russell Kline: So why don't you answer that? You're probably closer to the mix. In 2026. Thanks, Steve. And, Rob, thank you for joining us in a few questions. For 2026, we have a mix between our launch and expansion with waste destruction services and then the capital sale that we recently announced for Kansas as well as expected capital sale for another project that we have out for bid. And then as Steven mentioned earlier, there are other opportunities that we are actively pursuing that we would look to build into 2026 as we continue to progress in those discussions. Steven Jones: And I brought this up. Sorry to jump in. I brought this up a services business. So waste destruction services business is gonna provide higher EBITDA margins and then ultimately a valuation for the company. It does require more capital because you own and operate the asset. Sale of capital equipment will bring in cash more quickly. But it doesn't if you got to sell and the sale of equipment business, which I've run in both of these types of businesses in my career, at both Air Products and also at Covanta slash now ReWorld. A simple equipment business, you got to sell equipment every year. And the margins aren't as high, and the valuation of sales for the company is not as high either. So, ultimately, my vision is we push this company towards waste destruction services. But we will meet the customer where they sit. Because there are certain customers you think about municipalities that are gonna want to own their own asset. And in those cases, I think the play is and we wanna have an O&M agreement, an operating and maintenance agreement, operate the equipment for them, maintain the equipment for them, much like, if you remember GE's turbine business. Right? You bought the Turbine, but you signed up for a services agreement. And so that's my vision on if we go down the sales route, how we get more recurring revenues with customers who actually own the equipment versus my preferred case, which is, 374Water owns and operates these airflow units. Rob Brown: Okay. Great. Thank you. I'll turn it over. Steven Jones: Thank you. Appreciate the questions. Thank you. Operator: The next question we have comes from Michael Matheson of Sidoti. Please go ahead. Michael Matheson: Congratulations on the revenue you got. Steven Jones: Thanks, Michael. Appreciate that. We've been working hard. We've been working hard. So coming back to waste destruction as a service, because I tend to agree with you that that's gonna be a much higher source of profit for the company going forward. Can you just give us a little bit of detail on the Crystal Clean deal, particularly the revenue sharing agreements, things like that? Steven Jones: So I am reluctant to provide commercial terms on our earnings calls. I will tell you about the deal, but I prefer not to get into details. Because I don't want my competitors to know what that or future deals, those we do deals with, to know what the terms and conditions are. This is my view on a waste destruction services project. We're gonna have a host customer, and in this case, it's Crystal Clean. And as the host customer, they deserve some benefit. And they can take it in a lease payment, and they can take it in a revenue share, or they should take it in lower cost to utilize the Airstream unit. And I talked to another I talked recently to another TSDF operator who has multiple sites along the same lines. And so I'm indifferent in how they wanna take their host fee, if you will. But that's how it'll play out. It'll be one of those three buckets. It's a bag of money. And however they wanna take it is fine by us. Ultimately, what we need is a site where we can bring in our own PFAS-laden material and think mostly, the government trying to get rid of their AFFF. There's a large, large market there, and I mentioned it during my prepared remarks, whether it's in the US or even outside the US, there's a large market there. So to the extent that we can bring AFFF in and process it at an air squirrel unit at a host site, is gonna be, I think, very valuable to us. So that's how those deals are gonna be structured. They're very much like industrial gas business. And I mentioned I spent a number of years at Air Products. We call these types of deals piggyback deals, which was basically, we put our facility on a customer site. They took some of the output from the facility. We took some of the output from the facility. It's the same concept here. And if you look at returns in those types of business, EBITDA margins are much higher than sale equipment and the company valuations, and you guys should all can run them. Valuation model on Air Products and look what it trades for. On a PE basis. Those types of companies are much more highly valued in the marketplace than a simple sale of equipment company. Michael Matheson: Great. Thank you. Just looking to the growth of 374Water going forward, you mentioned you have about 50 employees now. How many of those are salespeople? Steven Jones: So this is a great question because I just asked this question. Again, I'm new. So I asked this question the other day. 80% of our employees fall into I'll call it, market-facing, organizations. Okay. 80% of the employees, and this includes both number of employees and the cost of the employees. Because I think there's been a view out there that we're somehow top-heavy or our burn rate's too high. But 80% of employees are focused on either operations, manufacturing, R&D, or business development. Which shows you that we are focused on delivering into the marketplace. Right now, I say on a business development standpoint, and I'd like to add a few people here, we probably have about seven business developers that are out there trying to sell our technology. I think we could probably use a few more to penetrate the market faster. Is my personal view. Michael Matheson: Great. Thank you. Very helpful. My last question just looks to your 2026 guidance. It looks to me that in Q3 year-to-date, you've hit breakeven gross margin essentially. When I did some back-of-the-envelope arithmetic, it looked like the midpoint of your revenue guidance, about $7 million, that might be pretty close to hitting operating income breakeven for 2026. Does that feel feasible, or would we be better to look to 2027? Steven Jones: So a lot depends on the pace of the rollout of the technology in the business plan. You know, as you know and I've mentioned this. It's a very large amenable market. There's a lot of possible deals. And we're gaining traction, and that's why we spent a lot of time on this call already talking about the several types of business models and deals that we were able to land already. The pace of these contractual arrangements and the type of deals we undertake will have a big impact on that timing you're asking about. Also, as we load up our manufacturing and operation and I just mentioned 80% of the people working that market-facing group. So as we sell more units or we do more waste destruction services, that fixed cost there will get loaded up higher. And that will all positively affect the overall timing of when we go cash flow positive. So I think it's tough to say right now. I think from where I sit today, I hope would be that we become cash flow positive in the 2027 time frame. But it's a tough question to answer at this juncture. But you can see how I'm thinking about it. We gotta load up our system with more and more deals. And that's why I've said I'm focusing the business development team on deals that are closer in and have a higher return on capital for our shareholders. Michael Matheson: Great. Thank you. That's all very helpful. So I'll just wish you good luck for next quarter. Thanks again. Steven Jones: Thanks. I appreciate that. Operator: Thank you. There are no further questions on the conference call. We will now turn to the webcast questions. Russell Kline: First webcast question asked can you provide us some additional color on the third quarter performance by 374Water? Steven Jones: Sure. Yes. The sales are accelerating very nicely. I think you've picked that up in my prepared remarks. Year over year, or I should say quarter over quarter. So quarter three 2024 versus quarter three 2025. Revenues were up significantly, but admittedly off a low base. With that in mind, we're confident in meeting this 2025 revenue target of approximately $4 million. And that's I think that's really good performance by the team. You saw me introduce 2026 guidance. Which is funny because we had a discussion. But normally, I wouldn't, you know, other times I've done this, other public companies that I've run. I wouldn't get guidance this early. But I thought being a new CEO and from what I've seen so far, it probably makes sense to give the guidance at this time of the year. So the guidance of $6 to $8 million of revenues for 2026, that range think that range is very good. It's 50% to 100% higher than our expected 2025 revenues. So I think this shows investors that we believe our technology is taking hold. And the customers are valuing our offering. So we're getting really good traction in the marketplace. I won't go through what I did in the prepared remarks, which was these various deals. I think I was already clear that, you know, my preference would be to have more of a service business than a sale of equipment business. For obvious reasons because returns are higher. And you'll see me pushing in that direction as we move forward. I just think that's a more valuable we'll get a higher multiple in the marketplace with a service-based deal than a sale of equipment-based deal. So it's all very promising, I think, and a very promising sign to investors that things are moving in the right direction. We also had another recent deal that we won. I'm gonna be a little coy like I was last I spoke previously to some folks about this. We're gonna have a press release coming out, so I don't wanna say a lot about that. But we have another deal that we were awarded over the weekend and we'll be announcing that in the near term. So again, I've been pleased with what I've seen so far as we take what is a very large pipeline of opportunities and start to turn that into revenues and then ultimately, EBITDA. Russell Kline: Our second webcast question asks, you've been interim CEO for a little over a month. Do you have any additional observations other than what you've spoken to previously or on this call? Steven Jones: Sure. I think first off, we have a first-class team of employees. And I mentioned, I think they're really dedicated in making 374Water a success. Focused on ensuring our technology is effective in the destruction of organic by PFAS. And we've had amazing, extraordinarily good destructive results so far. Also note, I think there's some confusion in this area, and I mentioned this a little bit already, is that we're trying to focus most of our resources on that market-facing part of the organization. And I mentioned that a little bit already. We're also focused on continuous improvement. I mentioned Lean Six Sigma. I'm a green belt from my Air Products days. And that's I think that's a good tool to be able to drive additional throughput through our airflow units. And one of the things that we've been doing over the last couple of weeks is making some changes to our reactors in order to drive more throughput through this reactor. So we made some changes to our reactor. We got a heating block in one case. In order to be able to increase the throughput through those units. More throughput, as I said earlier, means more EBITDA. And so that's a key observation I've had so far that we have to do better in that area. So I think that they're the main points that I'd like to bring up. I will say that around pricing, this is a new market. And so we're undertaking a pricing study now. We're just getting ready to kick that off. So that we can develop an economic model. And we've started to put the economic model together that allows us to toggle or alter a number of factors related to value, like pricing, so that we can get the highest internal rate of returns on our project. And so in short, I want to focus on those projects that are bringing the greatest value to our shareholders. And at the same time, as I said, focusing on continuous improvement, particularly around making sure that our units the throughput in our units continues to increase as time goes on. Russell Kline: And our last webcast question asks, what is your view of the PFAS destruction market? Steven Jones: Well, it's a massive market. As we've talked about. The waste destruction market alone is $450 billion, and most companies would be jealous of that kind of amenable market. And PFAS is part of that market. And then second, there are verticals within that market, and there are solutions or business models for different verticals. So if you think about industrial wastewater players like Crystal Clean, or Clean Harbors, or Reolia, or ReWorld, which is my prior firm, and dozens of other players in this space, they can all be customers of 374Water. They collect liquid waste from their customers. That's what I did when I was at ReWorld. And we needed a vehicle to disrupt or destroy the organics like PFAS. So that's one vertical, and it's a big vertical. But then there's also another massive vertical, which is the municipal market. Customers we've been actively involved with already, like the Orlando water reclamation folks. And OC Sand. Or the new project for wastewater treatment plant in Olathe, Kansas. You can look at our recent press release around that. These customers have biosolids and sludges that contain PFAS. And they need to deal with the issue. Their previous solution was putting the stuff on the land, and there's a lot of legislation now coming out that prevents that from happening. And so we have a solution for them, and we're talking to many of the municipalities in that vertical. And then finally, the federal, state, and local governments all have large stockpiles of AFFF. And they cannot use that material anymore for firefighting, and it's gotta be destroyed. And so there's a large market here, and I've mentioned Europe, probably also even Asia. We haven't even explored Asia yet. That have similar PFAS issues that need to be addressed. And there aren't many folks out there like us that have a technology that has such effective destruction. And can be used to deal with these three different verticals. So one of the things I'm doing with our business development team, and somebody asked this question earlier, is we're getting a lot more organized around those three verticals. And the pricing may differ in those verticals. And that's why I'm going through a pricing exercise now to figure out what's the right pricing in each of those verticals and what does our competitive landscape look like. And again, driving so that we get the highest returns that we can on our airflow technology so that we drive up our multiple for our customers. Actually, the multiple for our investors. Sorry. Operator: Thank you. At this stage, there are no further questions. I would now like to turn the call over to Mr. Jones for closing remarks. Please go ahead, sir. Steven Jones: Thank you, operator. I would like to once again thank each of you for joining our conference call today. We look forward to continuing to update you on our ongoing progress and growth. If we're unable to answer any of your questions, please reach out to Jim Siccardi or our IR firm, MZ Group. We'd be more than happy to assist. This concludes our third quarter 2025 update call. Thank you for your participation. Operator: Thank you, sir. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Thank you for standing by. My name is Rochelle, and I will be your operator today. At this time, I would like to welcome everyone to the Absci Corporation Q3 2025 business update. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I will now turn the conference call over to Alexander Khan, VP Finance and Investor Relations. Please go ahead. Alexander Khan: Thank you. Earlier today, Absci Corporation released the financial and operating results for the quarter ended 09/30/2025. If you have not received this news release, or if you would like to be added to the company's distribution list, please send an email to investors@absci.com. An archived webcast of this call will be available for replay on Absci's Investor Relations website at investors.absci.com for at least ninety days after this call. Joining me today are Sean McClain, Absci's Founder and CEO, and Zachariah Jonasson, Chief Financial Officer and Chief Business Officer. Andreas Busch, Absci's Chief Innovation Officer, will also join for Q&A following prepared remarks. Before we begin, I would like to remind you that management will make statements during this call that are forward-looking within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appears in the section titled Forward-Looking Statements in the press release Absci issued today, and the documents and reports filed by Absci from time to time with the Securities and Exchange Commission. Except as required by law, Absci disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward-looking statements, either because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast on 11/12/2025. With that, I will turn the call over to Sean. Sean McClain: Thanks, Alex. Good afternoon, everyone. Thank you for joining us for our Q3 business update call. Today, we will be sharing updates about our pipeline, including interim phase one results for ABS-101, acceleration of ABS-201 development in androgenetic alopecia or AGA, and expansion of ABS-201 development in a second indication, endometriosis. Interim results from the first cohorts of our ongoing ABS-101 phase one trial in healthy volunteers demonstrated extended half-life as compared to first-generation anti-TL1A competitor programs but not versus next-generation programs. There was also no apparent impact of ADA on PK, and the overall safety profile was favorable with no serious adverse events reported to date. The phase one trial is on track to complete in 2026. Our progress developing ABS-201 for androgenetic alopecia is ahead of plan as we expect to initiate a phase 1/2a trial in December with an interim proof of concept readout anticipated in 2026. Additionally, we are excited to announce that we are developing ABS-201 in endometriosis and expect to initiate a phase two proof of concept clinical trial in 2026. Preclinical and clinical data support the prolactin receptor mechanism in endometriosis, where we believe ABS-201 has the potential to be a safe, effective therapy for the estimated ten percent of women globally who suffer from this debilitating disease. Our development plans for endometriosis are synergistic with our already planned ABS-201 phase 1/2a clinical trial in AGA, which is on track to initiate next month. Given the significantly greater opportunity for value creation, we have made the strategic decision to prioritize ABS-201 development in endometriosis. This is in addition to ABS-201's ongoing clinical development for androgenetic alopecia. Therefore, we will seek a partner for ABS-101 and no longer pursue additional internal clinical development for this asset beyond the completion of the phase one clinical trial. The decision to reallocate our pipeline priorities reflects the rigorous discipline we employ in allocating our capital and resources. We believe our strategy to advance ABS-201 through human proof of concept in both AGA and endometriosis will maximize the value created using our current balance sheet. Both indications are characterized by significant unmet need and poor standard of care. There is biological and clinical rationale for the prolactin mechanism in both indications. Our strategy leverages shared phase one development, which enables faster, more efficient clinical trial development, and both indications offer multibillion-dollar market opportunities. Looking ahead, we are excited to execute on the dual development of ABS-201, leveraging its best-in-class profile targeting two proof of concept readouts in the next twenty-four months. A phase 1/2a proof of concept interim data readout in AGA in 2026 and a phase two proof of concept interim data readout for endometriosis in 2027. Taken together, this strategy represents our strongest value creation opportunity for patients and shareholders alike. Zach will speak in more detail on our strategy for endometriosis later in the call. Turning now to our clinical development plans for ABS-201 in androgenetic alopecia. We have accelerated our clinical development timeline and expect to dose our first participant next month in our phase 1/2a study. On December 11, we will host a KOL seminar to discuss the anticipated clinical development path, market opportunity, and differentiated profile of the ABS-201 program. We also plan to disclose additional human ex vivo data that further supports the mechanism of action underlying this program. We designed ABS-201 to unlock a potential new category of therapy for AGA, which we believe could offer efficacious, durable, convenient hair regrowth. This condition, better known as male and female pattern hair loss, affects approximately eighty million adults in the US alone and has seen little therapeutic innovation in nearly thirty years. In preclinical studies, ABS-201 has shown high potency, low immunogenicity, extended half-life, and improved manufacturability. We believe it offers an alternative to current treatments such as minoxidil and finasteride, which have variable or limited efficacy, low compliance, and in some cases, serious side effects. Based on the body of evidence from in vitro and in vivo studies, we believe that a simple, infrequent course of just two to three injections of ABS-201 could deliver durable, multiyear hair regrowth. Today's standard of care treatments have limited efficacy and require frequent once or twice daily administration, leading to poor compliance. Our KOL network of leading dermatologists has indicated compliance for topical as well as oral minoxidil can be poor in practice, either because of side effects or the inconvenience of lifelong daily administration. A recent study showed that over eighty-six percent of AGA patients who tried topical minoxidil discontinued treatment. Our own market research underscores that consumers value durable efficacy and prefer a treatment that works with infrequent administration. For these reasons, we believe ABS-201 has the potential to be a dominant new category of therapy offering convenient, durable hair regrowth. Given this differentiated profile, straightforward clinical development path, and the massive multibillion-dollar market opportunity, we plan to develop ABS-201 through later-stage clinical development and potentially commercialization. As we advance the development of ABS-201 for AGA, we are thrilled to welcome Doctors Rod Sinclair and David Goldberg to our KOL advisory board. Doctor Sinclair is a professor of dermatology at the University of Melbourne and the director of Sinclair Dermatology. He is a world-renowned expert in hair loss, with over three decades dedicated to research, clinical practice, and patient advocacy. He has more than a thousand publications, including contributions to major dermatology textbooks. Doctor Goldberg brings nearly forty years of clinical dermatology experience. He is a clinical professor of dermatology at the Icahn School of Medicine at Mount Sinai and has led pivotal research studies in dermatology and hair loss, including the original minoxidil trials. Doctor Goldberg has published more than 200 academic papers, contributed to over 15 textbooks on hair restoration and dermatology, and served on the boards of the American Academy of Dermatology and the American Society of Dermatologic Surgery. We invite you to join our virtual seminar on December 11, where Doctor Sinclair, Doctor Goldberg, and other top KOLs will discuss the ABS-201 program. We are also progressing several additional programs that we aim to partner prior to clinical development. ABS-301, this is a potential first-in-class antibody targeting an undisclosed immuno-oncology target identified through our reverse immunology platform. Early data suggest potential in squamous cell carcinoma and other indications. ABS-501, this is a potential best-in-class anti-HER2 antibody identified using our zero-shot de novo AI models. These AI-designed leads displayed novel epitope interactions, increased or equivalent potency to trastuzumab in preclinical disease models, efficacy against a trastuzumab-resistant xenograft tumor in an in vivo model, and good developability. Beyond these, we have innovative early-stage programs in our pipeline that we plan to reveal at a later date. With that, I will now turn the call over to Zach to walk through our strategy, partnerships, and outlook and to provide an update on our financials. Zachariah Jonasson: Thanks, Sean. As Sean mentioned, we continue to sharpen our strategic focus, and in so doing, we made decisions recently about which internal programs to advance versus partner. Our decisions continue to be based on careful assessment of the potential risks and return for each program given our available resources. Broadly, I am happy to report that we continue to execute on our strategic objectives, including advancing ABS-101 through an interim phase one readout, expediting the initiation of our ABS-201 phase 1/2a trial for androgenetic alopecia by approximately one quarter, expanding ABS-201 development into endometriosis, and progressing our portfolio of discovery partnership programs. We also continue to expand our AI platform capabilities, which, in addition to enabling our own preclinical R&D programs focused on challenging targets, has helped generate partnership interest in our platform. Accordingly, we continue to anticipate signing one or more drug creation partnerships, including with a large pharma company by year-end. As Sean discussed earlier, we will be focused on partnering ABS-101 and do not currently plan to develop the program ourselves into phase two. We remain engaged with multiple potential large and mid-cap pharmaceutical companies regarding a potential partnership transaction, some of which are focused on first-in-class indications outside of IBD. As discussed, we have decided to prioritize the clinical development of ABS-201 for two potential multibillion-dollar indications: androgenetic alopecia and endometriosis, each characterized by high unmet need and poor standard of care. We see strong scientific and business rationale for developing ABS-201 in both of these indications. Moreover, our planned phase 1/2a clinical trial in AGA will provide safety, tolerability, and PK assessments that will support phase two clinical development in endometriosis. The phase 1/2a proof of concept trial in AGA will be a randomized, double-blind, placebo-controlled study. The primary endpoints will be safety and tolerability. Secondary endpoints will include PK, PD, immunogenicity, target area hair count, target area width, target area darkening and pigmentation of hair, as well as patient-reported outcome measures. The trial will enroll up to 227 healthy volunteers with or without AGA. The single ascending dose or SAD portion of the trial will test approximately four to six IV dose groups for safety, tolerability, PK, and PD. The SAD portion of the trial will be followed by approximately three to four subcutaneous multiple ascending dose groups in healthy volunteers with androgenetic alopecia. The MAD portion of this clinical trial is powered to demonstrate human proof of concept for the use of ABS-201 to treat androgenetic alopecia by stimulating significant hair regrowth. We believe that if this trial is successful, it will position the program for accelerated registrational trials. Ahead of initiating the phase 1/2a trial, we are excited to share that we have generated additional ex vivo human data supporting the durable, condition-modifying hair regrowth mechanism of ABS-201. Preliminary data from experiments using human scalp biopsies shows the ability of ABS-201 to transition hair follicles into the anagen growth phase and to counteract suppressive catagen effects of prolactin. This study also shows ABS-201's ability to promote the proliferation of hair follicle stem cells, as indicated by upregulation of corresponding markers, as well as reduce hair follicle stem cell apoptosis. We look forward to sharing more about this study and its results at our upcoming KOL seminar on December 11. As Sean mentioned earlier, in addition to treating androgenetic alopecia, we believe ABS-201 will be effective in treating endometriosis, a second multibillion-dollar market opportunity characterized by high unmet patient need and poor standard of care. Endometriosis is an inflammatory disease defined by endometrial-like lesions found outside the uterine lining. Symptoms include pelvic pain, heavy bleeding, infertility, and ovarian cysts. It is a chronic, painful condition that significantly impacts the quality of life of these patients. Moreover, there is currently no therapeutic or surgical cure for this disease, which is prevalent in an estimated ten percent of women worldwide, including an estimated nine million women in the US alone. During our R&D Day last year, we discussed how members of our R&D team initially discovered the prolactin receptor inhibition mechanism for hair regrowth during animal studies investigating prolactin inhibition as a treatment for endometriosis. Based on additional preclinical research, including our own in vivo animal studies, as well as recent human clinical proof of concept data reported for the HMI-115 program, we believe ABS-201 has significant potential to become a best-in-class, efficacious, and safe therapeutic treatment for endometriosis. ABS-201 was designed using our AI platform to antagonize the prolactin receptor and thereby block prolactin signaling. Scientific data support the dual role of prolactin signaling in endometrial lesion formation as well as associated pain. Prolactin and prolactin receptors are overexpressed in the endometrium of patients with endometriosis. Furthermore, while prolactin supports endometrium formation and individualization, regulated expression of prolactin and its receptor have been found in ectopic endometrial lesions. Prolactin receptors are also present in sensory neurons and can sensitize these neurons, potentially leading to increased pain perception. The prolactin pathway is distinct from sex hormone signaling, further differentiating it from current therapeutic mechanisms of action for treating endometriosis. Preclinical data have shown that prolactin receptor antagonism suppresses postoperative pain in female mice and inhibits endometriosis interna formation. A recent preclinical study in a homologous mouse model of endometriosis shows that ABS-201 treatment improves pain-related outcomes, similarly to GnRH modulation. Mice treated with ABS-201 demonstrated greater locomotor activity and distance traveled as compared to placebo-treated mice, indicating reduced pain-like behavior. ABS-201 also significantly lowered inflammatory cytokines in the peritoneal fluid, which have been shown to be elevated in endometriosis patients. These results support our development of ABS-201 as a potential therapy for endometriosis-associated pain. Additionally, recent positive top-line results from a phase two trial of HMI-115, a competitor anti-prolactin receptor antibody in endometriosis, provided human proof of concept and derisking of the mechanism of action. We believe that ABS-201's profile exhibits best-in-class potential when compared to the HMI-115 antibody. For example, ABS-201 exhibits superior PK and bioavailability in NHP studies, which we expect to translate to better efficacy in humans via sustained target engagement in relevant endometrial tissue. ABS-201 also has a three to four times longer half-life in NHPs as well as a higher concentration formulation, both of which should enable more convenient dosing for patients. We plan to initiate phase two clinical development of ABS-201 in endometriosis in 2026, using the safety and tolerability data generated from the SAD portion of our phase 1/2a androgenetic alopecia study. Based on this timeline, we expect to share an interim readout from the phase two trial in endometriosis in 2027. With respect to ABS-301 and ABS-501, our immuno-oncology and oncology programs respectively, we continue to believe that these programs are better suited for development by a large pharmaceutical or biotech company. Accordingly, we intend to seek partners for these programs prior to clinical development. We continue to utilize our growing AI platform capabilities to create an early-stage pipeline focused on indications characterized by high unmet medical need. Our unique ability to address difficult-to-drug target classes has enabled us to pursue new opportunities for creating novel and differentiated therapeutic programs in our internal pipeline as well as in our drug creation partnerships. Turning now to our financials. Revenue in the third quarter was $400,000 as we continue to progress our partnered programs. Research and development expenses were $19.2 million for the three months ended 09/30/2025, as compared to $18 million for the prior year period. This increase was primarily driven by the advancement of Absci's internal programs, including direct costs associated with external preclinical and clinical development. Alexander Khan: Selling, general, and administrative expenses were $8.4 million for the three months ended 09/30/2025, as compared to $9.3 million for the prior year period. This decrease was primarily due to a decrease in personnel-related expenses. Cash, cash equivalents, and marketable securities as of 09/30/2025 were $152.5 million, as compared to $117.5 million as of 06/30/2025. We believe our existing cash, cash equivalents, and short-term investments will be sufficient to fund our operations into 2028. We see additional upside to this forecast based on potential nondilutive cash inflows that could come from new platform collaborations with large pharma and/or an asset transaction associated with any of our wholly-owned programs, such as ABS-101. As a reminder, we still anticipate signing one or more drug creation partnerships, including with a large pharma company before the end of this year. With our current balance sheet, we believe we are well-positioned to execute on our strategy, including delivering potential proof of concept readouts for ABS-201 in both AGA and endometriosis. We are also resourced to progress our early-stage pipeline and to advance new partnership discussions related to our AI drug creation platform, wholly-owned asset programs, or both. With that, I will now turn it back to Sean. Sean McClain: Thanks, Zach. I want to thank our Absci team for their relentless drive, tenacity, and belief in our mission to achieve the impossible. This is a pivotal moment for Absci Corporation. As you heard today, ABS-201 is moving into the clinic with real momentum, and we are expanding its potential beyond hair regrowth into endometriosis, a major disease area where innovation is long overdue. Together, these efforts underscore the potential of the prolactin receptor mechanism and demonstrate our commitment to translating generative AI protein design into clinical realities. We have made deliberate choices to focus our resources where we see the greatest opportunity for transformational impact and value creation. By refining our focus on ABS-201, we are leaning into the data, the science, and the market opportunity where Absci Corporation can lead. Looking ahead, the momentum is unmistakable. The ABS-201 phase 1/2a trial in AGA begins in just a few weeks, putting us on track for interim efficacy and proof of concept data in the second half of next year. We are expanding ABS-201 into endometriosis with a phase two trial anticipated to initiate in Q4 2026. We anticipate closing at least one new large pharma partnership this year, and I invite you to join our ABS-201 KOL event on December 11. Details are on our IR website. Absci Corporation is executing with precision and agility, translating AI-designed biologics into real clinical impact. What truly excites me is the potential ahead. We are energized by what is next and confident in our path to deliver meaningful value for patients, partners, and shareholders alike. Thank you for your continued support. Operator, let's open the call for questions. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Vamil Divan with Guggenheim Securities. Please go ahead. Vamil Divan: Hi. Great. Thanks for taking my questions. So I just have two, if I could. One, I understand what you are saying about the TL1A program and looking to partner it out. I am wondering if you have any more details you can share just in terms of what you saw in terms of the half-life, or anything else in the trial? And then second, on just the endometriosis side, it is interesting news there. So looking forward to seeing, hearing, and learning more about that. But I am just curious right now if you can maybe just get some sense of the competitive landscape as you are thinking about sort of designing a Phase II trial in that indication? Or how that would look and how you know, just generally how you design it and the right comparison to think about. Thank you. Sean McClain: Yeah. Absolutely. Thanks, Vamil. Yeah. So, you know, we took a really hard look at ABS-101. You know, we were, you know, in general, really happy with the, you know, the safety profile that we saw. We were able to have a half-life that was extended past what we saw with first-gen competitors. But we fell short of second-gen. And we were exploring some really exciting first-in-class indications we could have gone into. And we compared that to taking ABS-201 into endometriosis. And just given the competitive landscape we were seeing in IBD, we saw it made a ton of sense to take the capital we would be investing into ABS-101 phase 2a study and reinvest that into ABS-201 in endometriosis. And we did this for a few reasons. One, there is a big unmet medical need here. The standard of care is really poor. There is not a lot of competition in the space. Additionally, the mechanism has been ultimately derisked with the HMI-115 data that came out, showing proof of concept for this particular mechanism. So we see this as a derisked mechanism. And, again, the standard of care is pretty poor here, and we really believe that we have the opportunity to potentially deliver a disease-modifying treatment there. And with that, I will hand it over to Zach to talk a little bit more about the phase two trial design for endometriosis. Zachariah Jonasson: Yeah. Thanks, Sean. And just to echo a couple of points Sean made, we do not see the endometriosis indication as much less competitive than you see in Crohn's. That certainly was a factor in our decision here. Moreover, the cost of these trials is a fraction of what a full phase two proof of concept study in the IBD space would be. So we think there is a significant ROI on resourcing this strategy for development in endometriosis. We will talk more about the specific trial design, but I think what we are really excited about here with the ABS-201 mechanism is that there is a potential not just to address pain, but also to be disease-modifying. And so we are currently engaged with our KOLs and have a draft study design that we will share more about in the New Year. Vamil Divan: Okay. Thank you. Thanks. Operator: Your next question comes from the line of Brendan Smith with David Cohen. Please go ahead. Brendan Smith: Hi, guys. Thanks for taking the questions. I appreciate it. So maybe if just a quick one first. On actually, just the profile for 101, and apologies if I missed it here. But can you confirm if any of the potential partners you had been in touch with prior to now have already seen the data or if that is kind of now the plan over the next few weeks? I am just wondering on initial feedback there. And then maybe quickly on 201. I know you have talked a bit about endometriosis versus alopecia, but just wondering if there is ever or there are any maybe even at a high level thoughts on market segmentation just given 201's mechanism and any considerations on how you are thinking about enrollment for that? Thanks. Sean McClain: Yeah. Great. Thanks. So to address the first question, since this data has just recently come in, we have not had the opportunity to share this data with our partners yet. We plan to share that with them in the coming weeks. Then additionally, as I mentioned previously, we have been exploring other first-in-class indications that we believe there is strong biological rationale for this, and it actually expands the buyer universe for ABS-101. And we have been exploring that prior to this call, and those discussions have been going quite well. And I will hand it over to Zach to answer the second question. Zachariah Jonasson: Yeah. Thanks, Brendan. As I mentioned, we will release more details about the trial design for endometriosis. But I will comment that, you know, we will be looking to enroll patients that are confirmed to have endometriosis and that we will be looking to enroll patients that have a significant amount of pain. And I think one of the challenges in the study with HMI-115, I think they had some enrollment issues around exclusion criteria that we will be careful to address in our trial. And I think we have got some leading KOLs advising us here, so we feel very confident and excited about moving that program forward. There is a very large unmet medical need there. And I think a very large opportunity based on what we saw from the HMI trial, you know, with a nice proof of concept on the mechanism. As you know, the trial there in the high dose saw a statistically significant reduction in pain and dysmenorrhea. And so I think that is a nice readout for us, derisking the mechanism. And the mechanism also looks safe in that trial setting. So we feel very confident about bringing ABS-201 into development for that indication. Sean McClain: Yeah. And I would also like to just loop in Andreas Busch, our Chief Innovation Officer, into this question. He had experience at Bayer actually developing an antibody, which is now HMI-115, for endometriosis. And so Andreas, do you have anything else to add here? Andreas Busch: Yeah. Sure. Thanks, Sean. I think it may be relevant to point out here that the drug innovation around molecular receptor antibodies started around endometriosis and not hair loss, and the hair loss observation was actually the serendipitous finding at the time. Again, it is very clear, very well validated that prolactin has a dual mechanism in endometriosis, both in promoting and generating the lesions as well as in sensory neurons, where it clearly affects the pain and the pain sensation. And in preclinical experiments, it was nicely shown that prolactin antibodies in our experiments now at Absci as well as previously in Bayer's hands that it can indeed affect both pain, as Zach has indicated before, as well as reducing the lesions. I also want to point out that there is a significant unmet medical need based on the fact that there are not any non-hormonal treatments around in endometriosis. There is, of course, the approved GnRH antagonist treatment, which has the typical side effects of estrogen reduction. And there is a significant need for non-hormonal safe approaches in endometriosis, and this is what all data of prolactin receptor antibodies so far have shown by safety both in preclinical experiments as well as in human genetics where women with complete knockout of prolactin receptors have been shown to be perfectly healthy and even being very easily able to bear children. Brendan Smith: Thank you, Sean. Operator: Your next question comes from the line of Shen LeMun with Morgan Stanley. Please go ahead. Shen LeMun: Hi, Sean, and hi, team. Hope everyone's well. Sean, just to gauge your confidence on the data that you do have of being able to partner 101 out. And what are you looking for in a partner? Sean McClain: Yeah. Absolutely. It is a great question. So what we are looking for in a partner is one, the domain expertise in the particular indication that we are looking to go into and have the ability to actually develop it in that particular indication and ultimately be able to take it through approval. And so again, I think we have a much bigger buyer universe with the different indications that we are looking at here. And, you know, we are excited to engage in those discussions. Zach, if you have anything else to add on the partnering front? Zachariah Jonasson: I would just add that as Sean mentioned, we have done some work on a first-in-class indication for ABS-101, and we have had some engagement already on that indication. We will be continuing those discussions as we move towards the end of the year and into early next year. But we feel pretty excited about the potential to partner this asset with a pharma that will be exploring first-in-class type indications. Shen LeMun: Sure. Thank you. And just on 201, just to sort of gauge your feeling on how easy the trial is going to be to recruit. That should be a fairly facile process, but I could be wrong. And then just, you know, maybe sort of the cost to getting it to sort of proof of concept status. And how long do you anticipate a patient would need to be on drug to potentially reach the outcome that you are looking for? Sean McClain: Great. Zach, do you want to take the first two questions and then Andreas hand it over to you for the third? Zachariah Jonasson: Yeah. Absolutely. And just to clarify, when you asked the question, are you referring to endometriosis or AGA? Shen LeMun: Oh, sorry. Alopecia. Sorry. Zachariah Jonasson: Yeah. Okay. Perfect. We feel very confident in the ability to recruit for that trial. We have multiple sites in Australia, including a major KOL who will be speaking at our KOL event on December 11, who are heavily engaged in recruiting and are confident that we will recruit that trial on time. And in terms of when we would expect to see efficacy, we are looking to have an interim readout that will be in the early part of the second half of next year. And that is going to look at a thirteen-week time point. We are obviously measuring safety and tolerability through the SAD, and we will see that data well before the second half. But in the second half for efficacy, we would look at that thirteen-week readout. We expect to see significant hair growth in the terminal area hair count relative to baseline. We will be doing additional measures of efficacy at the twenty-week and the twenty-four-week as well. Shen LeMun: Got you. Thank you. Operator: Your next question comes from the line of Gil Blum. Please go ahead and provide the company you are with. Gil Blum: Good afternoon, and thanks for the update. So maybe a quick one on TL1A. Just to understand the features here. So the half-life was not as much as a second-gen asset, but you mentioned that the ADAs did not affect the PK. Where do you think that fits the asset as it was an indication? I mean, is this one of the reasons you are looking at alternative indications? And I have a follow-up. Zachariah Jonasson: Hi, Sean. You may be on mute. Gil, I can take that question. We looked at the profile, and in full disclosure, we are still waiting for data to come in on the highest dose patients before we have a final read on what the half-life looks like. But in our assessment, the molecule looks safe, well-tolerated. We did not see an effect of ADA on PK as well. But we do think it has an additional advantage, which will be getting better measurements around, which is tissue distribution, which potentially could lead to better efficacy in a number of indications. And this is one of the areas that has gotten us focused on a couple of newer indications where the molecule could be first-in-class. Gil Blum: Okay. That is helpful. And as it relates to endometriosis, just to clarify, are we looking initially at a subcu dose or also IV first? Sean McClain: Yeah. So the plan would be subcu in the phase two, very similar to how we are planning on running the AGA trial. As we mentioned previously, we are at 200 mgs per mil, and we will do the SAD portion in IV and then go to the subcu in the MAD and then, same with the endometriosis trial as well. Gil Blum: So you will use subcu initially in endometriosis? I just want to make sure I understand. Sean McClain: Yes. In that phase two trial, we plan to use subcu. Gil Blum: Okay. And maybe the last point that I just want to make sure, so focus remains both on AGA and Endo, not Endo taking the lead here. Is that correct? Sean McClain: 100%. I would say that they are co-leads. Our main focus this next year is to get the phase two readout in AGA. And then the year following, it would be endometriosis. So, the plan is still full steam ahead on AGA. Nothing has changed on that front at all. Gil Blum: Okay. Thank you for taking our questions. Andreas Busch: Maybe it is important also to add that, of course, the phase two trial in endometriosis takes full advantage of the phase one trial in AGA. Zachariah Jonasson: Yeah, this is Zach. To put a finer point on that, it is a very capital-efficient development plan since the phase two trial in endometriosis will leverage all the safety data we generate in the phase 1/2a trial in AGA. Operator: Your next question comes from the line of Ryan Chang with JPMorgan. Please go ahead. Ryan Chang: Hey, guys. Thanks for taking our questions this evening. As we think about the timing of the interim data and also the start of the phase two endometriosis trial next year, will you want to wait for the interim data for alopecia before you start the endometriosis trial? Just curious if there is any read-through between the two items. Sean McClain: So, obviously, we are going to have to get the SAD safety portion before going into the phase two study. But assuming the phase one SAD data looks good from the AGA trial, we plan to march full steam ahead in terms of going into endometriosis. And we do not plan to wait to see the AGA readout before starting that phase two. Ryan Chang: Got it. And maybe just one quick one about what we have seen so far from Hope Medicine's 115, specifically in endometriosis. How much read-through do you see from 115 to the 201 program so far? And how are you using the data that they have seen to your own advantage? Zachariah Jonasson: Absolutely. You know, we look at the trial design was not the best, so there are definitely some learnings there. And you can be assured we will have a well-structured design trial that is adequately powered. But the key point that we take away from that trial that I think is very encouraging for proof of concept in endometriosis is the following. One, the first point being they saw in their effect size, they saw a dose response during treatment, during the twelve weeks of treatment. And a statistically significant response in pain at the high dose. And this is in dysmenorrhea, so this would be the primary endpoint or one of the primary endpoints we would look at in our trial as well. So we find that to be very encouraging. I think there are some learnings from, as I mentioned, the way they structured and designed the trial, where we will be sure to power correctly and make sure we design for entrance requirement with a little more rigor. But we think it is a, like I said, a very encouraging proof of concept that derisks the mechanism. Ryan Chang: Great. Thank you. Operator: Next question comes from the line of Devin Deckert with KeyBanc. Please go ahead. Devin Deckert: Hey. Thanks, guys. Just wondering if the ex vivo results you mentioned with 201 are better than expected or generally in line with what you thought. And then could 201 be expanded to additional indications? Thank you. Sean McClain: Yeah. Regarding the ex vivo data, obviously, when you are dealing with human biopsies, a lot of things can go wrong. And from what we saw just from the biomarkers that were upregulated, the stem cell growth that we saw that was driving the hair shaft production as well as the melanin production for repigmentation. All that was really, really exciting to see and get validated the mechanism in a really fantastic way, and it lines up really nicely with what you are seeing in the stump tail macaque data as well as the mouse shaving study that we did. And so we think it just ties together everything really nicely. And this was an n of three different patients, and you saw the same response across all three patients. And so we were just really pleased with what we saw, and I think that gives us really strong confidence going into the phase two study. Zachariah Jonasson: And I will add to that up to your second question. We do see potential additional indications for 201. We are not ready to speak about those today. I think we are laser-focused on driving that program through the phase 1/2a for AGA as well as the phase two for endometriosis. Devin Deckert: Got it. Thank you. Operator: Again, if you would like to ask a question, press 1 on your telephone keypad. Your final question comes from the line of Kripa Devarakonda with Truist. Please go ahead. Kripa Devarakonda: Hey, guys. Thank you so much for taking my question. For the ENDO program, the 201, can you remind me if you expect to be able to target all endometriosis patients or if there are any restrictions or subgroups that you would expect to target? And I know it is really early, but when you think about drugs that are standard of care that have been commercialized in endometriosis, what do you see as the hurdles in this space as you take 201 forward? Thank you. Sean McClain: Yeah. That is a great question. Zach, I will hand it over to you and then to Andreas. Zachariah Jonasson: Yeah. Terrific question. I think a couple of points here. One is we are looking to address patients that are on GnRH and potentially displace GnRH therapy. That therapy has sort of unwanted side effects for reduction in bone mineral density. It does show some efficacy, but we think trying to place a new option in the arsenal that is more effective and does not have a side effect profile like that could be game-changing for these patients. So that is our mission. In terms of how we recruit and segment the trial, that is something we will comment on later next year as we get closer to the start of the trial. And, Andreas, if you would like to add something, please feel free. Andreas Busch: Yeah. I mean, so these are two different aspects. One is, you know, what do we believe where it will work versus what is the design of the trial. So from the scientific rationale, there is only reason to believe that the prolactin receptor antibody should work in every endometriosis patient. Because we do know that in endometriosis patients, you do have an increased prolactin receptor as well as prolactin expression in the endometriosis lesions as well as in sensory neurons. Therefore, having an effect on both the reduction of lesions as well as on the pain aspect. And this, of course, is going to be a sex hormone-independent effect, which is critical so we can, with all rational applied, say there should not be any female patient with endometriosis who should not be potentially treated with a prolactin antibody. Kripa Devarakonda: Okay. Thank you so much. Operator: That ends our Q&A session. I will now turn the call back over to Sean McClain, Founder and CEO, for closing remarks. Please go ahead. Sean McClain: Yeah. I just want to first thank our team at Absci for all of the hard work they have put into not only getting 201 into AGA but now expanding into endometriosis. And I want to thank all of our investors and analysts for all the support. We are really excited about what is ahead, and we have some exciting catalysts over the next twenty-four months. So look forward to another exciting year. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. A member of our team will be happy to help you. Please stand by. Your program is about to begin. Welcome to the Cellebrite DI Ltd. Third Quarter 2025 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star 0. I would now like to turn the call over to your first speaker today, Mr. Andrew Kramer. Mr. Kramer, the floor is yours. Andrew Kramer: Thank you so much, operator. Welcome everybody to Cellebrite DI Ltd.'s third quarter 2025 financial results call. I'm joined today by Thomas E. Hogan, Cellebrite DI Ltd.'s CEO, David Barter, Cellebrite DI Ltd.'s CFO, and Marcus Jewell, our CRO. This call is being recorded, and a replay of the recording will be made available on our website shortly after the call along with a copy of our prepared remarks. Please note, a copy of today's press release and financial statements, including GAAP to non-GAAP reconciliations, is available on the Investor Relations website at investors.cellebrite.com. In addition to the press release, we posted a separate investor presentation that provides an overview of our business and our recent financial performance. I'd like to also remind everybody that the slides in your webcast viewer are placeholders only. There are no actual slides to accompany our prepared remarks. We also publish supplemental historical financial information for each quarter of 2025 and for the past two years on our Investor Relations website. Additionally, unless stated otherwise, our discussions of the third quarter 2025 financial metrics as well as the financial metrics provided in our outlook will be done on a non-GAAP basis only and all historical comparisons are with 2024. In addition, I'd like to remind you that today's discussion will contain forward-looking statements including, but not limited to, the company's business operations and financial performance. All forward-looking statements are subject to risks and uncertainties and other factors that could cause matters expressed or implied by those forward-looking statements not to occur. They could also cause the actual results to differ materially from historical results and/or from forecasts. Some of these forward-looking statements are discussed under the heading Risk Factors and elsewhere in the company's annual report on Form 20-F filed with the SEC on March 18, 2025. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. And with that being said, I'll now turn the call over to Tom. Thomas E. Hogan: Thanks, Andy, and thanks to all of you for joining us this afternoon. I'll be a bit briefer this quarter than I was last quarter, but I want to start by thanking the many of you that reached out with kindness and support after our last quarter's call. I'm pleased to share that not only do I remain cancer-free, I've resumed my mountaineering passion and climbed a significant peak last month. And the doctors tell me that I should plan to die of a heart attack in my late eighties, which I guess is a good thing, but gives me lots of runway to help propel this important company. Let's go. First, I'm proud of the job the team at Cellebrite DI Ltd. delivered in the third quarter. Our results were both solid and balanced. ARR grew 19% over the twelve-month period, Subscription revenue grew 21%, led by strong performance in our US state and local segment, and our Latin America region. Adjusted EBITDA exceeded expectations growing 20% year on year with margin expansion of 60 basis points. We continue to tune our business to optimize top-line growth while driving increased scale in operating efficiency to deliver meaningful levels of profitability and a very healthy free cash flow. Good companies grow, good companies expand margins, great companies do both, which is exactly what we did. We were also pleased with our third-quarter performance in the U.S. Federal segment. As we foreshadowed in our last call, we do not expect a full return to normalized growth until calendar 2026 but we did deliver year-to-year growth in the quarter which included the expansion of several marquee clients and confirmation of our view that growth in this sector will resume as budgets are fully distributed. I think it's fair to say the flywheel in US federal has begun to move. I want to highlight some important metrics and milestones that contributed to the quarter and positioned Cellebrite DI Ltd. for continued growth and leadership. First, we finished Q3 with approximately 47% of our installed digital forensics license base converted to our insights offering. As a refresh for everyone, we set a target for 2025 of 50% conversions, from a 2024 baseline of 20%. Our year-to-date progress clearly positions us to meet or exceed that target and importantly, it's a strong proxy for the value of the industry's most complete suite of digital forensics. Second, we continue to see more customers turn to Cellebrite DI Ltd.'s cloud and SaaS offerings to efficiently and securely manage their digital forensics and investigative workflows. ARR for our SaaS and cloud-based solutions grew three times faster than total ARR. Guardian is rapidly emerging as the industry standard for the storage, and collaboration of sensitive evidential artifacts. The number of Cellebrite DI Ltd. customers using Guardian more than doubled year over year while ARR grew triple digits and 100% plus for the fifth consecutive quarter. And this is all before we launched Guardian Investigate in the first quarter of next year. Third, our strategic focus on the global defense and intelligence sector is starting to pay dividends. In the third quarter, we continued to expand our business in the D and I sector as multiple global intelligence and military agencies increased their Cellebrite DI Ltd. investment to support high-priority use cases across anti-terrorism, border control, and overall military responsiveness and readiness. In particular, I'd highlight our DNI expansion in Europe over the past several quarters as an early proof point validating our intensified go-to-market focus. As we look ahead, we're centered on four core growth vectors. First, we're focused on asserting our leadership and breadth in providing unlock and access solutions across the wide range of OEM phone providers and operating systems. Our unlock offerings are now attached to more than 45% of the Insights and legacy forensics installed base, reflecting healthy quarterly expansion and sustained demand for this critical capability. Last quarter, we highlighted our clear leadership on Android phones. We extended that leadership this quarter, with the addition of industry-first capabilities, and even broader coverage across the Android universe. As we finished 2025, we are equally excited about our leadership opportunity in iOS, with pending and added enhancements. We believe the choice will be clear for any customer looking for unlock strength across multiple platforms combined with industry-leading capabilities for extraction, decryption, and decoding. Second, we are accelerating innovation in AI, and digital investigations with the upcoming launch of Guardian Investigate. This new SaaS AI-powered solution is designed to transform the entire investigation life cycle. Enabling investigative teams to build stronger case narratives, collaborate seamlessly in a secure, unified workspace, and drive AI-enabled insights and analytics and workflow across a diverse set of data sources including smartphones, computers, call detail records, open source intelligence, and case files. Guardian Investigate will launch in early 2026, and we couldn't be more excited. Guardian Investigate is the logical extension of our twenty-year history of leadership in forensics. We are well positioned to empower hundreds of thousands of investigators, detectives, analysts, and prosecutors in their mission of prevention, exoneration, and prosecution. Third, we expect a resurgence of growth in calendar 2026 across the US federal sector. After navigating spending headwinds, and leadership changes, throughout the first half this segment returned to growth in the third quarter. We remain cautious on the federal fourth quarter given normal government seasonality, combined with the shutdown the past six weeks, but we view both as transitory and believe the strategic spending we enjoyed in our third quarter are harbingers of a strong rebound in 2026. Our conviction in this segment is grounded in three areas. First, the release of targeted funding combined with pent-up 2025 demand should elevate investments in our unlock and insights solutions. Second, achieving FedRAMP authorization to operate with DOJ sponsorship, in early 2026. Should unlock a large opportunity for us to leverage our Guardian offerings across US federal agencies. And third, assuming Keryllium is closed by year-end, this asset has tremendous product fit across the US federal space. Our final growth vector is the pending close of Keryllium, which we believe will expand both our TAM and our value proposition particularly across global defense and intelligence agencies and the private sector. Keryllium's arm-based virtualization software is already enabling some of the world's most sophisticated DNI agencies to harden their cyber defenses by more efficiently and effectively identifying vulnerabilities across a broad range of digital devices. What has us super excited is the consistent surfacing of new and powerful use cases across both the private and the public sector. We're addressing CFIUS requirements real-time and expect to complete our purchase of Keryllium later this quarter. And as a reminder, our current results and guidance do not contemplate Keryllium results or performance. As we step back and consider the big picture, the macros remain strong. Crime and geopolitical risk is not going away unfortunately. The application and sophistication of technology in the pursuit of crime grows weekly, and budgets for labor to protect public safety remain constrained at best. The deployment of advanced technologies like Cellebrite DI Ltd. remain the best path to make our nations, our communities, and our businesses safer. We're focused on sprinting through the tape, over the next six weeks but we couldn't be more enthusiastic about 2026 with the confluence of the release of several new value-generating assets between the fourth quarter of this year and 2026. We'll reserve 2026 guidance for our February call and plan to remain prudent when it comes to setting expectations. Nevertheless, our confidence in the reacceleration of our top-line growth in 2026 builds every week along with our commitment to continued stewardship with respect to spending margins, and free cash flow. That ongoing discipline not only delivered a third-quarter beat on the bottom line, but also triggered a raise on our full-year 2025 EBITDA target. Dave will talk more about this in just a minute. Finally, I want to sincerely thank the roughly 1,250 strong Cellebrite DI Ltd. operatives, which are our people. And our customers who place huge trust in us every day. It's an honor and a privilege to serve all of you. I was excited about the prospects and the mission of this company when I joined as an executive chairman in 2023. I can tell you with absolute conviction I am more enthused about our future today than when I joined two and a half years ago. I believe the best is yet to come, we continue to innovate internally and tap much further and deeper into the enormous power and potential of AI complemented by disciplined and targeted acquisitions, and strategic partnerships. We're confident the combination of strong execution with a growing and mission-critical TAM will drive material value creation for our customers, our employees, and our shareholders. With that, I'll turn it over to Dave. David Barter: Thank you, Tom. I'd like to briefly share highlights from the third quarter. ARR grew 19% to $440 million. Sequentially, ARR increased 5% which is a healthy improvement from our sequential ARR growth rates in Q1 and Q2. The year-over-year increase reflects increased spending by our existing customers. The Americas represented 55% of total ARR, while EMEA represented 33%. And Asia Pacific represented 12%. In terms of growth rates by geography, The Americas grew 21% with our U.S. State and local government and Latin America teams leading the way. Turning to revenue. We generated third-quarter revenue of $126 million which increased 18% from the prior year due to primarily subscription revenue growth of 21%. Approximately 89% of total revenue was associated with our subscription-based software solutions. Our gross profit increased to $106.5 million represents a gross margin of 84.5%. This reflects ongoing investment in our cloud infrastructure, as we continue to roll out Guardian, and invest in the federal ATO process. Third-quarter adjusted EBITDA of $37.7 million increased 20% over the prior year and the margin expanded to 29.9%. Our third-quarter operating leverage reflects thoughtful capital allocation across our organization. Including disciplined hiring activity in the quarter. Ended the third quarter with 1,236 employees. We reported third-quarter net income of $36.9 million or $0.14 on a fully diluted basis. Overall, our weighted average diluted shares outstanding increased by a little more than 1% from the second quarter levels. We continue to thoughtfully manage our equity incentive programs in ways that we believe will be minimally dilutive on a go-forward basis. Turning to the balance sheet. We ended September with $595 million of cash, cash equivalents, and investments. Free cash flow for the third quarter was $30 million. For the trailing twelve months, free cash flow was $140 million or 31% on a margin basis. Compared with $102 million or 27% margin in the prior twelve-month period. Let's shift gears and take a look at our expectations for Q4 and the full year. Which to be clear, do not include any contribution associated with the Keryllium acquisition. Which is not yet closed. We anticipate our fourth-quarter ARR will grow sequentially in the mid-single digit. We've left our full-year outlook unchanged with a range of $460 million to $475 million. This reflects the traditional seasonality of our business in the second half of any year. Given the volume of expiring agreements, the overall strength of our pipeline, and the uncertain timing of the near-term spending by US federal agencies. We expect fourth-quarter revenue in the range of $123 million to $128 million. We expect our Q4 adjusted EBITDA in the range of $35 million to $38 million or approximately $28 million to $30 million on a margin basis. Looking to our full-year results, we've increased the midpoint of our revenue outlook and now anticipate 2025 revenue in the range of $470 to $475 million which represents growth of 17 to 18%. We have increased our full-year 2025 adjusted EBITDA range and now expect $124 million to $127 million or approximately 26 to 27% on a margin basis. And finally, I'd like to reiterate our view that 2025 will be an excellent year for free cash flow. Given the strong cash flow from operations year to date, and relatively minimal capital intensity, we expect the company's free cash flow margin will be approximately 30%. Before we move to Q and A, I wanted to share some perspective on our 2026 planning. As Tom noted, we have multiple growth vectors. We're also mindful of the challenges we experienced this year in regard to the timing and magnitude of spending. In the US federal customer segment. Thus, the initial 2026 outlook we will share in February will be prudent with a foundation grounded in the historic seasonality of our business, our RPO, our contractual backlog up for renewal, the expansion opportunity on those renewals, and the near-term opportunities to expand with existing customers on multiyear contracts. We will also apply the same methodology that delivered a high level of forecast accuracy. Last quarter. It's important to note we have multiple ways to grow free cash flow by approximately 20% with 2% dilution. This will allow us to be very thoughtful in terms of how we set our initial outlook. We are optimistic that we will be able to increase our outlook over the subsequent quarters as our team executes and captures the market opportunity in front of us. Let's take a quick look at the primary growth drivers across our platform that can serve as a foundation for an initial baseline target for healthy ARR growth. First, winning new logos and increasing price or mix on existing operators is expected to generate several percentage points of growth. Second, we see solid expansion ahead for Incyte, as we move into the home stretch. For upgrades, drive broader adoption, extending our reach into new user groups, and upsell advanced unlock solutions and automation offerings. We believe these dynamics should support growth of at least high single digits on a percentage basis in 2026. Our third growth driver involves Guardian and Pathfinder. The cornerstones of our digital investigation and analytics offerings. We anticipate healthy Guardian demand within our existing core markets, expansion into the US federal sector, Australia, and other select international markets, and sales of Guardian into the enterprise. In addition, we see further new business expansion combined with stronger renewal rates for Pathfinder. Success on these fronts is expected to contribute mid-single-digit percentage points of ARR growth. In addition, we are excited about the growth prospects for selling Keryllium solutions into our customer base across defense, intelligence, and enterprise verticals. Beyond the initial ARR gained from Keryllium once the transaction closes, anticipate an incremental contribution of at least a couple percentage points to our ARR growth rate. And finally, we remain optimistic about the steps we're taking to drive improved retention rates minimizing churn as we evolve our pricing and packaging centered on AI and cloud capabilities and attractive multiyear terms. In terms of 2026 revenue growth, we believe our revenue growth rate will slightly trail our ARR growth rate. This reflects the continued growth of our cloud-based solutions and assumptions for relatively flat nonrecurring hardware and professional services revenue. In terms of revenue seasonality, we have historically generated approximately 55% of our revenue in the second half of the year. From a profitability perspective, we plan to thoughtfully allocate capital support Cellebrite DI Ltd.'s ongoing expansion in 2026 and beyond. As a reminder, our EBITDA margin is lower in Q1, and steps up over the course of the year. Also expect our AI investments across go-to-market, product, and the G and A functions will lead to new levels of automation and scale in yielding moderate headcount expansion. This will produce operating leverage to drive incremental improvement in our adjusted EBITDA margin. And enabling us to maintain a 30% or greater free cash flow margin. In terms of our guidance philosophy going forward, we plan to set our 2026 outlook using tighter ranges supported by bottoms-up forecasting while continually assessing the full-year targets based on the most recent quarter's results and near-term visibility. We're excited about our prospects to drive durable, profitable growth and strong free cash flow next year. Finally, since joining Cellebrite DI Ltd., I've been very fortunate to spend a good deal of time with current and prospective shareholders. A frequent topic in recent engagements relates to the overhang associated with the Sun Corporation, our largest shareholder, who owns 40% of the company's shares. I've had an opportunity to spend time with some members of Sun's management, as well as some of their investors. Overall, I view these relationships as very positive. With that said, we are increasingly optimistic about opportunities that could emerge over the coming quarters and years. For Sun to reduce its stake in an organized, structured, and thoughtful way. That we believe will deliver value for shareholders of both Sun and Cellebrite DI Ltd. I'd like to close by reiterating our view that Cellebrite DI Ltd. remains well-positioned to deliver another year of healthy growth, strong profitability, and excellent free cash flow with a minimal amount of dilution to shareholders. Our team is focused on closing out the year on a strong note while also putting the plans in place that we believe will enable us to expand customer relationships and increase shareholder value in 2026. Operator, that concludes our prepared remarks. We're ready for Q and A. Operator: The floor is now open for questions. At this time, if you have a question or comment, at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions. To provide optimal sound quality. Additionally, we do ask that you please limit yourself to one and one follow-up. Thank you. Our first question comes from Jeffrey Van Rhee with Craig Hallum. Your line is open. Please go ahead. Jeffrey Van Rhee: Great. Thanks, guys. Congrats on a good quarter. And thanks for the color on the outlook. Two or three quick ones here, I could. Just, Tom, in terms of the path forward to cloud adoption over time as a percent of ARR, are there any internal goals or any thoughts you can give us on how you see that percentage of ARR that gonna be cloud evolving over the next, say, two, three years? David Barter: Jeff. It's Dave. How are you doing? Thanks for the question. Jeff, we're continuing to work with our customers as they make their transition. We actually have customers that are 100% cloud. We have many that are in the hybrid stage, and then we certainly still have some making the transition. Right now, we just have a very proactive bent of working with our customers. Many of our, you know, our products, as you know, are already in the cloud, and everything new that we're doing is in the cloud. And so from that standpoint, it's an ongoing partnership as we support them and keep pressing forward with adoption. Marcus Jewell: Yep. And on Corellium, you called it out as one of the three or four key growth drivers. I know you signed that new reseller relationship. Just any color in terms of what you saw both things you were able to get across the finish line and maybe more so what's building in the pipeline there? David Barter: Yeah. Sure. Hi. It's Marcus. Marcus. Yeah. Look. We've got good initial momentum. We now have a significant pipeline, which we built, like an 8-figure pipeline. And that is spread equally across the cohorts that we said, which would be defense intelligence and the global 2,000. To date, we have processed two orders, and Q4, we expect to transact some more. Thomas E. Hogan: Yeah. I changed up. To underscore caller. This is Tom. And I keep reminding people this business was roughly a $15 million ARR Carillon's core business. And I don't and I love you know, lots of numbers shouldn't be lost on people that the pipe we already see. As Marcus mentioned, is double-digit millions of achievable pipe. And so and that's before we've even closed the transaction. So you know, again, we just keep building more enthusiasm. And I also referenced, you know, we've uncovered use cases that we didn't necessarily anticipate or plan. You know, nine to twelve months ago when we started this conversation with Keryllium and so the you know, and I guess the positive is you know, the was there a modest contribution from reseller in the quarter? Yes. But it's you could argue it's almost immaterial. So we didn't hit these numbers on the back end of Keryllium back, you know, backdoor reseller stuff. So it was largely you know, a core Cellebrite DI Ltd. production. But the active and real, know, sort of TAM and pipeline is very encouraging. Yep. Got it. And then just lastly, as it relates to the 2026 plan, thanks for the insights on those four primary growth drivers. Sort of just looking at the swag of the range that you gave there, sort of looks like 20%-ish. ARR, but just curious if you'd be willing to provide any bounds around that or any expanded insights just in terms of what you think about growth prospects for next year? Thanks. Thomas E. Hogan: Yeah. I know it's tempting to answer that. Jeff, and we'd love to help help you out and throw you a number and a bone. And but we just we really want to reserve that until we close the year and put a bow around the opportunity. But what we are doing, which I think is atypical at this stage, at least historically for us, is we are sort of going public with a level of confidence that you will see an excel whatever the growth is this year, we do have confidence that that growth rate will accelerate in 2026. We're just not prepared today to put a number on it. That's what you'll get in February. But growth is going up. And that's against, by the way, you know, it also gets overlooked. You know, the law of big numbers, the denominator in the baseline has gone up this year. So we're gonna accelerate our growth against a bigger baseline. And but that's all we really are ready to share at this point. Operator: Our next question comes from Brian Essex with JPMorgan. Please go ahead. Brian Essex: Hi, good afternoon. Thank you for taking the question and congrats from me well on the solid results. Maybe to follow-up to Jeff's question to start, and then I have a follow-up. On Keryllium, Tom, I think you noted that you're addressing CFIUS issues in real time. How significant are those issues? And are there any contingency plans for a case where you might hit a roadblock there in terms of, you know, maybe tucking that into the Cellebrite DI Ltd. Federal business. Just wondering what that process looks like in what the risk is to close at this point. Thomas E. Hogan: Yeah. You know, nothing's 100%, so I can't write a check that I can't cash on that front. But I would tell you if you put a gun to my head, you know, I'd say it's, you know, 98% odds that we'll get this done. And I think that will similar odds that we'll get it done this quarter, we're in the final stages. I will say there was more inspection than we anticipated combined with all the chaos in government, and the shutdown didn't help some of the case managers and people involved in just coordinating input across DOJ and DOD and all the people that care. Was a little bit tougher, given what's been happening the last six weeks. The other positive, if you're a full person, is if this stuff wasn't powerful and if it wasn't relevant to these agencies, they wouldn't care so much about making sure the IP was protected. So, you know, the bad news is they ran us through the ringer a little bit more than we expected, but it's because stuff really does matter to agencies that you care about that keep us safe. But we're you know, I hate using sports metaphors, but we're on the one-yard line. And we have high confidence that we'll push it over the line here in the next four to six weeks. Brian Essex: Got it. That's super helpful. And then maybe just a follow-up on Cellebrite DI Ltd. Federal. Any sense of what the contribution was there in the quarter and progress there with regard to, like, building that out to better penetrate the federal vertical? I understand that shutdown's a headwind and but was we'd love a little bit of color around you know, where the efforts are focused there and how they're positioned to as you kind of, like, head into fiscal twenty-six? Thomas E. Hogan: Yeah. The good news is just to you know, I know it's a lot of babble when we go through these scripts. But know, the first half was tough. We sorta held the line. It certainly didn't deliver the growth that we had historically, which is what you know, which was the headwind for our full year. And even better. It wasn't just growth. The good news is we got back in growth mode in Q3. We nailed a couple of very strategic clients, and I'll let Marcus add some color. Because I think it's fair to use those wins as sort of a proxy for product fit and momentum and trust in the US federal space. But, Marcus, why don't you add some color? Marcus Jewell: Yeah. Sure. So it was actually a very strong quarter for federal, the team executed particularly well. I'll draw attention to a couple of deals that you guys know. These are all in the public domain. You don't have to search too hard to find the names, but I won't do them an injustice and talk about them specifically, but I'll talk about a large agency which does protection services, placed an in excess of $11 million order with us. Which was a big expansion on previous years, including some new products. And we're very confident that that was also a share-taking opportunity for us. And then another agency following up very is very well known in the market and protects a lot of us, We have our largest expansion year with them that we've ever had. So between 30-35% expansion on the base and then investigating new products. And interestingly, taking us for the first time into the cloud. So we talked about this cloud journey. We're now seeing federal customers be a lot more aggressive in the movement to the cloud. Which bodes exceptionally well for our ATO process with FedRAMP. Where we'll be taking advantage with the only cloud-enabled solution high in the market in the forensic segment. So good execution, and we feel a lot more to come. The other thing I would add before somebody asks is we've talked I think we talked in the last call about a very large client that we expected to renew in the '26. And we expected that renewal rate to go up significantly the numbers and performance in US Fed in the third quarter did not include any of that. So that is still in the hopper and still something that we expect to win and close in the '26. Which is material. Operator: Our next question comes from Tomer Zilberman with Bank of America. Please go ahead. Tomer Zilberman: Wanted to ask about federal and your thoughts around the performance of the quarter. Mostly wanting to ask you know, how do you differentiate the growth this quarter from potential budget flush as it was their fiscal year-end versus maybe the more secular underlying recovery that you're talking about? And then I have a follow-up. Marcus Jewell: Yeah. I mean, you know, budget flush is a thing, but, I mean, remember, we're on the mission side. So, you know, the products that we have have to be used. And we're not, like, we're not selling licenses for word processors, so we don't really, unfortunately, see budget because we're mission-critical and we're program-driven. So I would like to think it's down to solid execution and a good product market fit. Has driven all of our gains in that sector. We didn't really see because of the shutdowns and slowdowns normal, what we call UFIRS, which I'm sure you're familiar with the unidentified funding requests. They were not a part of it. They were just solid execution into three or four of our key clients. Tomer Zilberman: Got it. Got it. As a follow-up for Dave, I appreciate your commentary around your discussions with Suncor. Know, it's been an ongoing conversation the last few years. Just wanted to ask, as you speak with the other side, have you gauged any sense of urgency in terms of where that goes, or do you foresee this being a long-term kind of trend? David Barter: I don't see urgency. I think going back to my prepared remarks, I see them being very organized, structured, thoughtful. Obviously, Sun Corporation owned 100%. It's come down over 55%, and so I think it is you'll find them again, measured and thoughtful. And rational. And, and I think that's you know, what we're hoping to communicate to everybody. Thomas E. Hogan: Yeah. We I mean, obviously, that stuff that we don't have full control or you could argue even limited control over. But you know, the devil's in the details of your question when you say long term. Are you you know, is your expectation, the question about a sell-down over five years or over know, five months or but you know, I think to Dave's point, you know, they've been pecking away for years. Our guess is they'll continue to peck away, and it and and I don't since I don't have control or insight to specifics, but I would expect to see my guess is you'll see some more sell-down over the more the nearer future than, say, a five-year horizon. Operator: Our next question comes from Louis De Palma with William Blair. Please go ahead. Louis De Palma: Tom, David, Marcus, and Andrew, congrats on the EBITDA guidance raise. Thomas E. Hogan: Thank you. Louis De Palma: How should investors view the positioning of Guardian Investigate relative to Pathfinder? And are you still working on a SaaS version of Pathfinder? Thomas E. Hogan: Yep. Great question. It's really a good question. Because it's really important to our value prop and our strategies as we go forward. Pathfinder will persist. Think of Pathfinder as either on-prem or VPC-based analytic engine. That is optimized for processing correlations and analytics and insights when you have multiple phones and the data sources we control. Now fast forward to Guardian Investigate. Which is an evolution from a lot of capability around the examiner forensics into the world of the detective and the investigator to provide very not only robust case management capability, but also the ingestion and the ability to drive work streams and collaboration across a broad range of different data sources, some of which we control and we create, and some of which are created by other vendors in the ecosystem. And then complement that Guardian Investigate with a cloud-based that's contrasted with Pathfinder as a VPC product, a cloud-based very intensely AI-enabled analytic engine that can now prosecute and interrogate all the data that we surface, that sits in Guardian Investigate and the data that we're able to pull in and combine with to drive what we think would be the most insightful analytic engine in the world of investigations. Marcus Jewell: Yeah. And I can I'll follow on from Tom there and add that the way the simple way to think about it is Pathfinder is from multiple extractions of multiple phones into the hundreds. Whereas when you look and investigate, that is a multiple data source. So you actually need the horsepower and the number of our customers answered the question on cloud or on-prem the nature of what they do with multiple phone extractions in the hundreds or dozens or even thousands they need that on-prem power, they wanna be off the cloud to do it. So there is going to be two variants. One is going to be cloud-based, one is going to be on-prem. And the two actually need to work with each other and that they are not duplicative and or replace each other at all. Louis De Palma: That makes sense. So there likely will be customers that subscribe to both Pathfinder and Guardian Investigate. Right? Marcus Jewell: 100%. I mean, Guardian Investigate is actually one of the industry's first forays into multi-data source. For instance, being able to ingest CDR records with and then cross-reference those to the cell phone is very powerful. And so that will be a functionality that would be pervasive within Investigate. And would be additive to the deep work that we do in the cell phone extraction on Pathfinder. They're completely competitive. Operator: Our next question comes from Bhavin Shah with Deutsche Bank. Please go ahead. Bhavin Shah: Great. Congrats from me as well, and thanks for taking my questions. I guess first just maybe a little bit on the defense and intelligence kind of vertical. Can you just talk about the pipeline there? And how maybe how the go-to-market strategy and the sales cycles for this vertical compare to your core kind of buyers buying centers? Marcus Jewell: Yeah. So, great, great question. Obviously, defense and intelligence has been strong for a number of years in The US. The US previous in previous regimes was kind of policing the world in a number of areas. What we've now seen is some threats coming in from from all over the world particularly in in Eastern Europe, as as you know. We're seeing the NATO spend increase to the 2% commitment, and that is driving you know, warfare is now not only physical. It's it's it's predominantly digital. So what we're now seeing is in Europe, I take this this pipeline in Q4, my top four largest deals will actually all be defense and intelligence out of Europe. What we've now done is we are collaborating across all of my regions. We have a new single leader that we'll be appointing for DNI to actually drive that strategy forward. And we're very happy with where we are and where we're being brought into it. Our accreditations in that space are second to none. The fact that we have ATO and heading to FedRAMP High puts us at a completely different level to the competition. We have a number of people that are ex I won't say both Rx, but let's say they did things in the military which kept us safe. And they are very well connected. And we are we are exceptionally grateful to the customers giving us a shot there, and we're very excited about the potential that we have on a global basis. Bhavin Shah: That's very helpful there. And maybe just as a follow-up for David, you talked about the EBITDA strength. And in your prepared remarks, you kind of noted disciplined hiring. How much of that maybe lower than expected hiring is a function of volatility in the federal business versus kind of efficiencies you might be getting from GenAI or other areas. Then as you talk about targeting accelerating ARR growth next year, how does hiring play a role there? David Barter: That's a great question. Right now, I think we are the disciplined hiring, I think, from a capital allocation, really, we think about what's going into product. You heard about investigate. You've heard about just the other AI initiatives that are going across all products. And those are prioritized and that's what we're going after. We have a very detailed go-to-market model with Marcus that we run. So I'd say our I think we have our hiring model. I think we have our AI initiative. That are driving efficiency across our business. And I guess that is the discipline framework that we use to guide how we're doing. And so I think we have a long-term orientation around our business, around how to capture and fulfill long-range model, and that kind of work works its way back into our hiring decisions. Thomas E. Hogan: Yeah. I would add that our ramp of headcount growth has been on a steady decline. The last three years because of improved efficiencies and much of which is AI-enabled, and that will continue in 2026. And I would tell you that of the modest growth, roughly half of it is going into our go-to-market organization so that Marcus can respond to interest levels and opportunities across you know, both the public and private sector around the world. So, but it's a healthy story. Marcus Jewell: Yeah. We're able to express in sales an increase in quota carrier ratios to the back-office functionality that you see in the go-to-market line. So we're always increasing that ratio of actual people to deal with customers away from back office. And we see that there to continue for a sustainable amount of time. Operator: Our next question comes from Shaul Eyal with TD Cowen. Please go ahead. Shaul Eyal: Thank you. Good afternoon, and congrats on a strong set of results and outperformance. My question is on the competitive landscape. So Cellebrite DI Ltd. operates in a market being characterized by high barriers of entry. What can you tell us on the current competitive landscape? And are you seeing have you seen any newcomers, into new adjacencies in the current market? Thank you. Thomas E. Hogan: Yeah. I'll take that one. First to get to the end of your question, there's no to your point about barriers to entry, that's a very real observation. And as a result, you know, we would not be able to call out or point to any there's always start-ups and pop-ups in every industry, but there's no material new entrants from a competitive perspective. So we continue to see the same people. We have good we respect our competitors. They're good companies, but I gotta tell you, we sorta like our hand in how we stack up right now. And as some of the things I alluded to sorta hit the shores over the next ninety days, our view is that our competitive positioning is going to increase very quickly. So same competitors, good companies, but like where we sit. Marcus Jewell: Yeah. I'll add. You know, we feel very comfortable. Again, we have some strong competitors. We respect them a lot. But as I said, I think with Tom, we agree we have a winning hand here. I would say that what we do have is the ability to manage and the workflows and the data, puts us in prime position. There are a number of AI entrants. If anyone went to IACP, you would see them. But for me, open up not only potentially partnership but M and A opportunities, for us, but again, we back our own AI ability to understand. It's a difficult industry to break into from just customer intimacy. And also from understanding the sensitivity of the data. It's not it's very hard to trust people that are coming in with a new AI algorithm written in VibeCode that he thinks is gonna take it apart. That's not what our customer base is gonna do. And so we're comfortable with our position to expand it. Yeah. Thomas E. Hogan: And that's a double pile on, but given the sensitivity of what we do, who we help, and what their mission is, the brand and the track record and the proven capability of the limited vendors in this space are a big deal. This isn't some back-office trivial thing that people are willing to take flyers on. It's important to them that they deal with people they have dealt with for twenty years that have delivered, that are focused and committed to the space and that they trust. Marcus Jewell: It's hard to outsell when it's called to celebrate rapport. When they go to court. And they say, I've celebrated a phone, that's very hard to undo. That's become, you know, in the mindset of our customers over a number of years. Operator: Our next question comes from Mike Cikos with Needham. Please go ahead. Mike Cikos: Great. Thanks for taking the questions here guys to help. Echo my congratulations on the strong results, the reiterated ARR guide and then the confidence that you guys are imputing as far as that top-line reacceleration for the year. So congrats on that. I just wanted to unpack a couple of items here. But great to see that US Federal returned to this growth dynamic. I don't wanna be dismissive I believe you guys called it out a couple of times in the prepared remarks. But the strength that you saw out of US State And Local As Well As Latin America. Can you kinda unpack that a bit more as far as what you saw from those two segments, the durability of growth from where we stand here and maybe potentially size up what the contribution was if we're trying to stack rank drivers of outperformance. Sorry. Know a lot to unpack, but again, it was a solid quarter for execution, and I just wanted to highlight that. Marcus Jewell: Yeah. Sure. Sure. Great question. And my SLG leader will be she'll be very thankful that you're giving us some props because they continue to execute consistently and to a certain extent is a gift that keeps giving. So what are the drivers? You know, the crime type in The US, continues to be digitally driven. So what I mean by that is there are a number of cases and investigations that require the unpacking of phones. Most agencies we sell to still have a backlog of cases and a backlog of phones, and that means that our driver is not limited by that. Now, unfortunately, that's crime, but that is what we need. That is what we see. There is no end in sight. We also saw even through the shutdown, grant budgets were available. So the government was actually working hard to get the grants out because these grants matter. Because they know that a number of people rely on them to meet their objectives in case reduction and solving crimes. So that was the driver there. And there's no end in sight. We're very comfortable with our competitive position there. I've got a good team. And Nicole and team continue to execute exceptionally well. So thank you to her and Zach for what they do. LATAM is great. I mean, LATAM is the is an example of again, high crime units, very well connected at a national level, a solid team which works very well with partners and sell the end-to-end solution. So if you looked at the perfect way to execute, then my goal as a CRO is to get everyone to be in the same boat as Latam with our end-to-end solution. They truly believe in the C2C and deliver the C2C, the case to closure, and execute incredibly well. We are also very well collected politically. With a number of senior sellers that have been in that region for a number of years. Is actually very hard to compete against. So two great teams, and thank you for reflecting that, but we don't see their growth rate slowing. Operator: Our next question comes from Eric Martinuzzi with Lake Street. Please go ahead. Eric Martinuzzi: My question has to do with the use of cash. You finished the quarter real strong. The cash balance, it's close to $600 million. Now I know you've got a check to write when Keryllium closes. Thomas E. Hogan: 179, but still, we'll leave you with a substantial balance here. Just curious to know your priorities as far as internally focused, maybe more m and a. What's the use of cash? Post parelium? I'll let Dave take a first pass at this, and then I might jump in and add color. But, Dave, why don't you take it? David Barter: But, yeah, let me maybe just round out one data point. So, currently, you're right. That will be a significant piece of cash when that closes, which works incredibly excited about, but that's a $150 million, not a $170 million. And so I think when we look at it, you know, again, looking forward to getting them on board. Obviously, we'll continue to invest. And so you're right. Over call it, two quarters of the normal OpEx cash that we would be we would keep. So call it a $150 to a $160 million. We are maintaining a little bit of surplus cash. You know, we do look at this as a pretty interesting opportunity both in terms of companies like Keryllium that are rapidly scaling. We also see some other adjacencies, and so I think we're gonna continue to maintain some flexibility so we continue to grow the business. Operator: Our next question comes from Jonathan Ho with William Blair. Please go ahead. Jonathan Ho: Hi. Let me echo my congratulations as well. You know, with your insights conversions ahead of schedule, you know, what does that mean for you from a future ARR and upsell perspective particularly if these customers fully utilize the suite and maybe start to renew. Marcus Jewell: Yeah. It's a great question. I mean, it means that we are expanding our cross-sale opportunity. The important thing for Incyte Incyte was the first position to allow us to get to our case to closure, which then means storing and then analyzing and workflowing the data. So most of our customers wanted to get the initial work done to get onto a much more modernized extraction and review technology, which they now have. So we now see the expansion potential going across into our Guardian and our Pathfinder platform. But it does also open up in the DNI, and this is why DNI is such a key part for us. Where Insight is fully not fully tapped. And we do see with our triage functionality, working in the field in different use cases, a TAM expansion for insights into the DNI on a global basis. So we've got a nice vector to continue. We're not through the base yet. We still got work to do. In 2026, and then we'll be moving in. And we already have thoughts about our next version of Insights clearly, which is going to be moving decoding into a different format to enable our customers to do even more even quicker and increase their productivity again. So, in the end, it's part of the journey and there will be a ton of insights coming along at some point. Thomas E. Hogan: Yeah. And the other thing I would add to that, it's not very sexy, but unit growth. I mean, those macros I talked about, almost any agency you go talk to today, they've got huge case backlogs. And crime, unfortunately, for all of us, as I said, it ain't going away. And the use of digital was in the 90% range. It's eventually gonna be pushing a hundred. And so, you know, there's unit growth opportunity in even where we've migrated people to Incyte, you have pricing power, have unit growth, plus all the cross-sell plus the acquisitions plus plus plus. So you know, there you know, and not all fuels and contributes to you know, the optimism, I think, you're hearing about our opportunity to maintain our growth and to accelerate it actually into 2026. There's also one thing if I could pile in on this. We're breaking the link between the number of operators and the number of licenses. I mean, previously, there was it was an operator could only extract so many phones. Our automation and workflow tools allow that process to be automated. And so the actual number of licenses per user can increase pretty dramatically and start eating into those backlogs. As we get into 26. 20 It. And I know we're at the end here, but the other thing that creates an opportunity that we don't talk a lot about is the, at least, the cloud and storage economics around Guardian is we collect more and more petabytes of information, assuming that we thoughtfully price and package that offering, that becomes another ramp of growth of profitable growth for the company that did not exist know, a few years ago. Operator: This concludes the Q and A portion of today's call. I would now like to turn the floor over to Andrew Kramer, for additional or closing remarks. Andrew Kramer: Thank you very much. Angela, and thank you very much to our analysts and our shareholders prospective shareholders for their participation today. If you do have questions, feel free to reach out to Investor Relations. There are a number of virtual and in-person engagements that we have scheduled over the coming weeks. And we look forward to speaking with you at that time. You very much. Operator: Thank you. This concludes today's Cellebrite DI Ltd. Third Quarter 2025 Financial Results Conference Call. Please disconnect your line at this time, and have a wonderful day.
Operator: Good afternoon, and welcome to the INNOVATE Corp Third Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference call over to Neel Sikka with Investor Relations. Please go ahead. Neel Sikka: Good afternoon. Thank you for being with us to review INNOVATE's third quarter 2025 earnings results. We are joined today by Paul Voigt, INNOVATE's Interim CEO; and Mike Sena, INNOVATE's CFO. We have posted our earnings release and our slide presentation on our website at innovatecorp.com. We will begin our call with prepared remarks to be followed by a Q&A session. This call is also being simulcast and will be archived on our website. During this call, management may make certain statements and assumptions, which are not historical facts, will be forward-looking and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements involve risks, assumptions and uncertainties and are subject to certain assumptions and risk factors that could cause INNOVATE's actual results to differ materially from these forward-looking statements. The risk factors that could cause these differences are more fully discussed in the cautionary statement that is included in our earnings release and the slide presentation and further detailed in our 10-K and other filings with the SEC. In addition, the forward-looking statements included in this conference call are only made as of this date of this call and are stated in our SEC reports. INNOVATE disclaims any intent or obligation to update or revise these forward-looking statements, except as expressly required by law. Management will also refer to certain non-GAAP financial measures such as adjusted EBITDA. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. At this point, it is my pleasure to turn things over to Paul Voigt. Paul Voigt: Good afternoon. We are pleased to report our third quarter 2025 financial results and we'll provide you with an update on our 3 operating segments. INNOVATE delivered consolidated revenues of $347.1 million and adjusted EBITDA of $19.8 million in the third quarter of 2025. INNOVATE's path to long-term value creation continued in the third quarter. Advancements toward our targets across all segments are ongoing as demonstrated by our third quarter results. We made progress across each operational area and our commitment to performance remains strong. I am proud of the positive energy and momentum our teams have generated. Before we review our segments, we would like to provide an update on our strategic alternatives and recent refinancing transactions. The company has engaged Jefferies & Company and initiated a sales process for DBM in accordance with our senior note requirements and HC2 Broadcasting Holdings has engaged a banker and is exploring strategic alternatives in accordance with the spectrum debt requirements. We believe the market is ripe for an asset like DBMG given their positioning to take advantage of the positive macro environment in the U.S. with continued commitments from companies to reinvest in the U.S. market, along with strong growth expected around data centers. We also see significant activity in the spectrum market that we believe has a positive impact on options for our Spectrum business. We, of course, are still highly focused on our strategy of exiting our Life Science businesses. While this strategy has taken longer than expected, we remain steadfast in our ability to ultimately realize the value of these businesses. With that, let's turn to our quarterly review of our segments. To start the review of the subs and Infrastructure, DBM Global achieved revenues of $338.4 million and adjusted EBITDA of $23.5 million. During the quarter, DBM has seen gross margin compression year-over-year of approximately 510 basis points to 13.6% and adjusted EBITDA margin compression of approximately 200 basis points to 6.9% year-over-year. Despite the year-over-year decrease in margins, we remain impressed by the performance of DBMG, evidenced in growth of our adjusted backlog, which has increased by approximately $500 million to just over $1.6 billion since the end of 2024. In fact, we have already added $431 million to the adjusted backlog for 2 newly awarded projects since the end of the third quarter. We remain highly impressed with DBM's global revenue performance through the first 9 months of 2025. Despite a challenging macro environment for project sales in 2024, along with project timing shifts, DBM has delivered strong year-to-date results, supported by disciplined execution and a robust backlog. Revenue for the year-to-date stands at $836.4 million, reflecting DBM's ability to secure and execute complex projects across its diversified portfolio. As we talked about earlier, DBM's backlog remains extremely strong. We are optimistic about several key project awards expected in the fourth quarter, which would not only boost our adjusted backlog but also enhance visibility into the coming quarters. These sales, along with the anticipated awards represent significant opportunities in both commercial and industrial sectors, reinforcing DBM's leadership position and growth trajectory. Our world-class management team remains focused on margin discipline and operational excellence as we prepare to execute these projects. While we anticipate EBITDA to come in slightly below 2024 levels, we are encouraged by the momentum building for 2026, driven by the growing adjusted backlog and improving market conditions. The majority of the work across the platform is primarily associated infrastructure, data centers and advanced manufacturing. We expect this trend to continue. Conversely, when looking at the Northeast region of the United States, we are seeing the commercial market showing some positive signs with a few sizable projects starting to move forward. Turning to Life Sciences. MediBeacon continues to hit key milestones as we previously expected. On October 21, 2025, MediBeacon received full regulatory approval from China's National Medical Products Administration for its Lumitrace injection, a non-radioactive, non-iodenated fluorescent agent. This approval completes the regulatory package required for the commercial launch of MediBeacon Transdermal GFR system in China, which combines the Lumitrace injection with the TGFR monitor and TGFR sensor. This approval unlocks access to a critical health care market as chronic kidney disease is estimated to affect 11% of China's 1.4 billion people, representing approximately 154 million potential patients who may benefit from improved diagnostic tools. MediBeacon's commercial and clinical development partnership with Huadong Medicine established in July 2019 will support the introduction of the TGFR system into clinics across China, where it's expected to become an important tool for physicians managing kidney health. In addition, MediBeacon's transdermal GFR system was highlighted in the August cover of the Journal of the American Society of Nephrology. JASN is one of the most respected peer-reviewed kidney journals in the world. The peer-reviewed article in the journal included data that demonstrated the transdermal GFR system point-of-care methodology for the assessment of kidney functions in patients with normal to impaired kidney function and for a full range of skin color types. R2 delivered another solid quarter with top line revenue of $3.1 million in the third quarter of 2025 compared to $3 million in the third quarter of 2024. R2 also has year-to-date revenues of $9.4 million, representing an approximate increase of 65% over the same period from last year. This momentum was fueled by the increased demand outside of North America, which surged 206% in the top line revenue for the 9 months of 2025 compared to 2024, with an associated 392% increase in system sales for the same comparable period. R2 now carries a backlog of approximately 70 units globally. With this sizable backlog, growing consumable revenue associated with a continually increasing installed base and opening new markets in Bolivia, the Netherlands and Belgium, we expect R2 to end the year strongly. We are happy with their progress and growth despite industry-level challenges in this market. Our 2 providers love Glacial Skin for their device unique ability to deliver control cooling for inflammation reduction, skin brightening and pigment correction, all without any downtime. Along with providing stunning results for patients, Glacial Skin devices deliver impressive business outcomes for providers. In the third quarter of 2025, patient treatments grew 102%, while average monthly utilization per provider increased 24% compared to the same period last year. Glacial Skin's rising brand awareness is proving to be a powerful sales driver with social media engagement growth outperforming industry competitors by 3,687% -- supporting the surge for the 9 months of 2025, R2 saw year-over-year increases of 88% in patient provider searches and 127% in website users. Our confidence in R2's significant market opportunity remains strong, and we are highly content with the company's accomplishments. Over the last year, we have been particularly impressed by the advancements R2 has achieved. Moving to Spectrum. Third quarter revenues was $5.6 million and adjusted EBITDA was $1 million. Spectrum strengthened its content portfolio this quarter with several exciting new network launches. The August 1 debut of Lionsgate' MovieSphere Gold Channel was a success with HC2 Broadcasting serving as one of the principal distributors. In October, we introduced Sports First, a dynamic sports news channel now reaching 45 U.S. markets. Looking ahead, Black Vision, a new entertainment network, will be distributed exclusively by HC2 Broadcasting, both over-the-air and via streaming platforms. These additions underscore our commitment to delivering diverse, high-quality content and expanding our reach in key audience segments. Spectrum continues to face a challenging advertising environment with softness in ad sales persisting through the third quarter. However, new network launches are underway and fourth quarter ad sales are showing signs of strength. We continue to make meaningful progress in next-generation broadcast technology through its collaboration with a large mobile carrier. Over the past 3 months, the team has worked closely to optimize the software and service performance. We will conduct extensive trials for major enterprise customers that will showcase the technology's unique capabilities during live sporting events. We are also actively exploring broader applications with hospitals, government first responders, utilities and automotive manufacturers. Our petition to the FCC seeking voluntary conversion of LPTV stations to 5G broadcast continues to receive strong support from industry stakeholders during the common period. However, progress on the next steps has been temporarily delayed due to the ongoing government shutdown. With that, I'll turn it over to Mike for a review of our financial and capital structure. Michael Sena: Thanks, Paul. Consolidated total revenue for the third quarter of 2025 was $347.1 million, an increase of 43.3% compared to $242.2 million in the prior year period. The increase was primarily driven by our Infrastructure segment, which was partially offset by a decrease in our Spectrum segment. Net loss attributable to common stockholders and participating preferred stockholders for the third quarter of 2025 decreased to $9.4 million or $0.71 per fully diluted share compared to $15.3 million or $1.18 per fully diluted share in the prior year period. Total adjusted EBITDA was $19.8 million in the third quarter of 2025, an increase from $16.8 million in the prior year period. The increase was primarily driven by our Infrastructure, nonoperating corporate and Life Sciences segments, which was partially offset by our Spectrum segment. At Infrastructure, revenue increased 45.4% to $338.4 million from $232.8 million in the prior year quarter. This increase was primarily driven by the timing and size of projects at DBMG's commercial structural steel fabrication and erection business and a slight increase at Banker Steel, which had increased activity subsequent to the comparable period on certain large commercial construction projects as several projects progressed into more advanced phases of fabrication and erection during the current year period. These increases were partially offset by the industrial maintenance and repair business due to increased activity in the comparable period on certain large commercial construction and industrial maintenance projects that have since been completed. Infrastructure adjusted EBITDA for the third quarter of 2025 increased to $23.5 million from $20.9 million in the prior year period. The increase was primarily driven by the increase in revenue and gross profit at DBMG's commercial structural steel fabrication and erection business, which had increased activity subsequent to the comparable period on certain large commercial construction projects and an improvement in gross profit at Banker Steel and a decrease in recurring SG&A expenses, primarily due to a decrease in compensation-related expenses and consulting fees. These increases were partially offset by the decrease in revenue and gross profit at the industrial maintenance and repair business due to increased activity in the comparable period on certain large commercial construction and industrial maintenance projects that have since been completed. As of September 30, 2025, reported backlog was $1.5 billion and adjusted backlog, which takes into consideration awarded but not yet signed contracts, was $1.6 billion compared to reported backlog of $1 billion and adjusted backlog of $1.1 billion at the end of 2024. DBMG ended the quarter with $104.1 million in principal amount of debt, which is a decrease of $40.6 million from the end of 2024, primarily driven by its refinancing and a decrease in their credit line. As a reminder, the credit line balance tends to fluctuate based on the timing of DBMG collections. At the end of the third quarter, the balance dipped due to collection timing. However, we anticipate it to increase by the end of the year to support net working capital needs as the backlog expands. At Life Sciences, revenue increased 3.3% to $3.1 million from $3 million in the prior year quarter. The increase in revenue was attributable to R2, primarily driven by increases in Glacial Spa unit sales and Glacial FX unit sales outside of North America as well as an increase in consumable sales in North America. The increase was mostly offset by a decrease in Glacial FX unit sales in North America and a decrease in consumable sales outside of North America. Life Sciences adjusted EBITDA losses decreased for the quarter, which was primarily driven by a reduction in compensation-related expenses at Pansend. At Spectrum, year-over-year revenue decreased $800,000 to $5.6 million and adjusted EBITDA decreased $700,000 to $1 million. The decreases were primarily driven by the termination of certain customers in the current period and the downturn in the direct response advertising market. Nonoperating corporate adjusted EBITDA losses were $2.1 million for the third quarter of 2025, a $700,000 improvement from the third quarter of 2024. The decrease in losses was primarily driven by a decrease in nonrefinancing-related legal fees due to legal matters settled subsequent to the comparable period as well as slight decreases in other professional expenses, insurance expense and employee-related expenses. At the end of the third quarter, the company had $35.5 million of cash and cash equivalents, excluding restricted cash compared to $48.8 million as of December 31, 2024. On a stand-alone basis, as of September 30, 2025, our nonoperating corporate segment had cash and cash equivalents of $1.9 million compared to cash and cash equivalents of $13.8 million at the end of 2024. As of September 30, 2025, INNOVATE had total principal outstanding indebtedness of $700.4 million, up $32.1 million from $668.3 million at the end of 2024, driven by the indebtedness refinancing transactions at our nonoperating and Life Sciences segments, which was partially offset by the decrease in Infrastructure's outstanding debt. With that, operator, we'd now like to open up the call for questions. Operator: There are currently no questions. I would like to turn the floor back over to Mike Sena for closing comments. Michael Sena: Yes, sorry. We appreciate everyone's time this afternoon and look forward to providing you updates on our initiatives in the future. Thank you.
James Carbonara: Good day, everyone. Welcome to the Dolphin Entertainment, Inc. third quarter 2025 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Carbonara, Investor Relations. The floor is yours. James Carbonara: Thank you, operator. Good afternoon. Before we begin, I would like to remind everyone that during the course of this conference call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual results. Please refer to cautionary text, forward-looking statements contained in the earnings release published today as well as the most recent SEC filings and reports. During the call today, management will also discuss non-GAAP financial measures including adjusted operating income or loss. The company believes that these will provide helpful information for investors. Reconciliation to the most comparable GAAP measures are provided in the earnings release. Now I would like to turn the call over to Bill O'Dowd, Chief Executive Officer of Dolphin Entertainment, Inc. Bill, please go ahead. Bill O'Dowd: Thanks, James, and welcome, everyone. As usual, I will start by reviewing key financial and operating highlights from our third quarter and then Mirta will provide a more detailed financial overview before we open it up for Q&A. Well, this is the first quarter where we can have a true year-over-year comparison after the super group was finished being assembled with the acquisition of L on July 1. We have long talked about the benefits of cross-selling within the group. How did we do? Dolphin delivered another record-setting quarter in Q3, with revenue rising 16.7% year-over-year to $14.8 million and operating income turning positive with $300,000 despite almost $600,000 of non-cash amortization expenses related to our historical acquisitions. Furthermore, the first nine months of 2025 have now surpassed the first nine months of 2024 in revenue despite the Blue Angels generating over $3.4 million in revenues in 2024. In fact, Q3 2025, this most recent quarter, is the second-highest revenue quarter in Dolphin's history, behind only the Blue Angels fueled $15.2 million in 2024. Equally important, as I just mentioned, the quarter's results were entirely organic. The same agencies delivered this outstanding year-over-year revenue and operating income growth. That same agencies that we had at this time last year. This healthy organic growth is the primary driver behind our continued margin expansion, with adjusted operating income of a little more than a million dollars or 6.9% of revenue, which is up from 4.5% in just Q2. This performance reflects both the consistency and strength of our core subsidiaries and the growing scalability of our cross-selling operating model. Another point worth highlighting is how clean our financial statements have become. In Q3, the last of our warrants expired earlier this year, we recorded the last of our contingent consideration from our acquisitions, and thus below the line, we are down to just one fair valued convertible note and our interest expense. I remember investors telling me that our P&L was too complicated. In addition to simplifying our P&L with only two line items below the line, the elimination of warrants puts, contingent consideration, and virtually all fair valued convertible notes removes the constant fluctuation up or down in our net income or loss from what would be expected based on our operating results. We knew this day would come, and here we are. In short, with our below-the-line expenses being reduced to effectively just our interest expense, we now show clearly the operational performance of the business. And it was obviously a fantastic quarter. That operational performance continues to be driven by the collective power of our agencies. Every Dolphin subsidiary brings something unique to the table, but together, they create something far greater than the sum of their parts. This unified strength across entertainment, lifestyle, influencers, sports, and digital, our ability to cross-sell these services and our reach across pop culture continues to be the engine of our growth. We also continue to advance our ventures and productions portfolio with a particular focus on not expanding our cost base. In Q3, our anticipated feature film Youngblood premiered at the Toronto International Film Festival to overflowing screening rooms followed by a historic collaboration with the Los Angeles Kings in what we believe is the first major promotional partnership between the NHL and the feature film in over two decades. We are actively negotiating sales opportunities for Youngblood now and hope to be able to announce our selected distribution partner before the end of the calendar year, if not in just a few short weeks. Stepping back, our third quarter results represent another key milestone in Dolphin's long-term trajectory. Revenue is at record levels, margins are expanding, and our balance sheet is stronger than ever. As a longtime believer in Dolphin's vision, I have continued to invest personally, having purchased a little over 2% of our outstanding shares since just April. Furthermore, I have entered into a new 10b5-1 plan that extends my buying program through December 2026. I continue to believe our stock price undervalues the company's proven performance, strategic positioning, and the significant growth still ahead. Thank you for your time and attention today, and with that, I will turn it over to Mirta for her deeper dive into the financials. Mirta A. Negrini: Thank you, Bill, and good afternoon. Total revenue for the quarter ended September 30, 2025, was $14.8 million, an increase of 16.7% from $12.7 million in the same period last year. Operating income was $308,296 for the quarter ended September 30, 2025, compared to an operating loss of $8.2 million for the quarter ended September 30, 2024. Adjusted operating income was approximately $1 million for the quarter ended September 30, 2025, as compared to an adjusted operating income of $492,620 for the same period in 2024. Operating expenses for 2025 were $14.5 million including depreciation and amortization of $589,388 and non-cash expenses of $127,365. This compares to operating expenses of $20.8 million in 2024 including depreciation and amortization of $606,136,782 and non-recurring or non-cash expenses of $8 million. Net loss for Q3 2025 was $365,494 including depreciation and amortization of $589,388 and non-cash expenses of $177,365. This compares to a net loss of $8.7 million for 2024 including depreciation and amortization of $636,782 and non-recurring or non-cash expenses of $8 million. Diluted loss per share for both basic and fully diluted shares in 2025 was $0.03 per share based on 11,770,195 weighted average shares compared to net loss per basic and fully diluted shares in 2024 of $0.80 per share based on 10,930,286 weighted average shares. With that, I will now turn it back to the operator to open the floor for questions. Operator: Certainly. The floor is now open for questions. If you have any questions or comments, press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we hold for questions. Your first question is coming from Allen Klee with Maxim Group. Please pose your question. Your line is live. Allen Klee: Yes. Hi. This is the best quarter I have seen since covering your stock considering everything. So congratulations. Starting with the organic growth of 16.7%, could you explain how you think about organic growth, what were the key drivers of that, and how you think about that maybe going forward? Bill O'Dowd: Sure. Thank you for the kind words at the start, Allen. I would agree with you. I know Q1 last year was phenomenal because of Blue Angels. But this quarter would be the strongest in history except for that one-time event by a large margin, and it feels good as we just built on top of Q2. You know? Q2 was the biggest revenue quarter, I think, in history, if excluded Blue Angels. So we feel the momentum and it is organic. As I was mentioning in my prepared remarks, it is the first time since we have had the super group finished that you could just compare apples to apples. It is the same companies we had a year ago and the companies we have now. Without any one-time events. No movie released in the quarter or no jolt of revenue or expense one way or the other, you are just comparing side by side and 16.7% revenue growth. Obviously, you can see what happened in the operating income. Our adjusted operating income, what we measure ourselves by going over $1 million for the quarter, that is simply our operating profit and adding back the amortization costs. Gets you to over $900,000 of that. So we feel very strong, and it is all growth at these companies. And a big driver of that is the cross-selling that they are doing. They are working with each other. So we just feel we have great momentum. And, you know, across seven companies, some are going to be doing better than others in any given quarter. But most of them are firing well and are going to continue that into Q4. And so it is just a really good feeling. The Better Mousetrap, we hope to build when we uplifted to Nasdaq of building the super group of entertainment marketing companies and using their growth as a base and that they should be able to cross-sell with each other. We should get more clients. We should get different types of clients. We should add, you know, share of wallet from the clients we already do have. It is happening. And then from that base, able to go into ventures like Youngblood and have that optionality of a Blue Angels or a Youngblood. It is only fuel this. Imagine if the Blue Angels came out in this quarter, right? We would have had revenue over $18 million. So yeah, it feels great, and the growth is for all the right reasons that you want to see growth. Right? It was brick by brick across all the companies, not a one-off. Allen Klee: That is great. For 42 West, overall, I think the fourth quarter is a seasonally strong quarter, and you have a bunch of festivals that you participate in in the fall. Could you comment on, and I know it is like your clients win you could get paid more. So how does it look for the events that you are involved in? Bill O'Dowd: Yeah. You know, we have a good lineup of films this year. You know, it is still a little too early to know how long or how well they could perform through festival season or through award season. What I will say though is that 42 West is one of the companies doing very well for us. They had a fantastic end of summer into the fall season. September was a very strong month. October was equally strong, if not stronger, for them. And it is just carrying into Q4, which is, as you said, a very strong quarter typically for 42 West in particular. And we feel bullish about Q4 this year. Based upon 42 West being our biggest subsidiary and them having a very strong start to the quarter. So the momentum we had in Q3 will carry into Q4 for sure. Allen Klee: That is great. And with the door, you highlighted Jesse Bernstein rejoining and just disrupt agency. Could you comment a little on kind of what those both those things represent? Bill O'Dowd: Yeah. The door, you know, our PR firms are doing well and the door is one of them. Thank you for that. Yeah. The door is growing anyway as well, but one of the strategies they are employing are aqua hires, you know, making strategic hires of more senior publicists that already have a handful of clients that are with them. Jesse is one of them. He came back to the door where he had been working up till a few years ago. And so he is a known commodity, somebody that the team loves. And he brings a book of business with restaurants. And, you know, as we rebuild that practice, the door is really diversified. Since COVID. You may remember that was the one of our agencies that took the hardest hit in COVID by far. Think anyone that represented restaurants in New York and LA Chicago and COVID is going to be pretty affected. And they just built back a beautiful business Lois and Charlie, and the whole team at door. So Adrian Jefferson joining in January with Disrupt is a key milestone for that agency as well, and Jesse joining this summer. You know, the door's revenue is significantly up year over year and just getting stronger. And what a great diversity of clients inside that company. I mean, that is the company that can represent everything from John George and his restaurant empire to, you know, Adidas and to Haagen Dazs and PayPal. I mean, they have just had some signature clients throughout the year. And so it is a special agency within our group for sure. Allen Klee: Great. With Shore Fire Media, I do not know if I have ever asked this, but does it also kind of you have some powerful clients that are doing well. How does or how do you think about or does that how does that help you, and then how do you just think about how they are performing? Bill O'Dowd: Well, you know, it is a good example. You made me think we say powerful clients. It is hard not to, you know, on one hand, Shore Fire has got hundreds of clients. And they are very proud of their breadth and depth. And then it is hard not to think of Mr. Springsteen when you say powerful clients. Right? So, you know, there is a good example of cross-selling and working together. Right? You know, the film Springsteen Road to Nowhere was obviously worked on by both Shore Fire and 42 West. And just those types of collaborations are occurring on far less high-profile projects with great frequency between our companies. Shore Fire's breadth though, as you said, is just very strong. I mean, we put out the Grammys press release today 35 nominations across our companies, 30 from the Shore Fire alone. And how many different categories my goodness. They are just such a leader in that. And you know, you read the press release and you are like, man, they have got clients that do everything. I learned a fun fact from the Shore Fire team that Tobias Jesso, who is up for songwriter of the year, works with, you know, big name artists like Justin Bieber. He is six foot seven, I said, oh, he could play small forward on our company team. But the growth of Shore Fire, you know, we have talked about it a lot over the years, and there is a company that, you know, has really grown in size since they joined Dolphin in December 2019. And just has such a beautiful management team layers deep, by the way. I think Marilyn Labrady would be the first to tell you that as the founder and CEO. And again, 42 West, Shore Fire, the door have just had such a strong year, each of them. And it really drives us when our PR firms are doing well it is great to see them recognized. I mean, March was awesome with the number one agency in the country by the Observer, and that is not in entertainment, that is in any field. That really validated what this group of PR firms can do, but we it seems like every other week we are being recognized. It is quite a humbling and rewarding fall for us, and those awards mean something within the industry, that have a couple more, three, four more this fall, is really a tribute to what I think the professionals in the industry recognize, which is that these firms individually are best in class in the industries they serve, whether it be movies and TV for 42 West or music and Shore Fire and hospitality and lifestyle in the door and, you know, impact with Elle, but collectively, you know, they are unique in the industry. There just is not another group like this across all of pop culture, and it is nice to get the awards, and I am sure for Wall Street, nice to see these numbers. Allen Klee: Thank you. And just to make sure I heard right, you were hoping for Youngblood to be able to announce something before the end of this year. Bill O'Dowd: Yeah. And I am being conservative with that. We had a young Youngblood, you know, I was with Emerson Davis earlier today. She runs our studio development and production for Dolphin and been with me for almost twenty years, if you can believe it, Allen. And a new mother, how about a shout out to her four-month-old daughter, Carter? Who Emerson brought to Toronto for the film festival where we premiered Youngblood. I give Carter all the credit. I do not think she was more than two months old, and she did not cry once. I do not know how that is possible. But if you met Emerson, you would think it might be possible because Emerson is so cool, calm, and collected. But we had great screenings at Toronto. You can get caught up in fever, you know, where people go crazy for films that it is an overreaction, but and so we tried to mute our response because we did not want to get ahead of our skis, as they say. But, you know, we had overflowing screening rooms. I had not personally seen that at a buyer screening. And you know, we had good reception coming out of Toronto. We announced our partnership with the LA Kings and the NHL. After that, we shot additional footage which was so cool. At an LA Kings game. Not to give anything away, but people will read between the lines. And if Youngblood made the NHL and perhaps which team he might be playing for, at the end of the movie. But you know, that was really cool. And the reception to that is, you know, that is just not something that happens with independent films. You know, studios may be able to typically strike a partnership with the league, but, you know, it just does not happen. And as we put in our for independent films and as we put in our press release, I mean, we are unaware of any other example for over two decades. So we are very proud of that. And, you know, the film is now completed. As of last Friday with the additional footage in. And the reception has been very rewarding. So I do believe, you know, we will say by the end of the year, I think it will happen much sooner. And be able to announce a distributor for Youngblood, you know, relatively shortly. And with a release date. So exciting for us, and, you know, we will knock on wood for success with Youngblood for sure. Allen Klee: That is great. And then just kind of thinking about how you are thinking strategically. You are doing great. But it is a balance between dropping results to the bottom line and investing also at the same time for growth. Bill O'Dowd: Is affected. We have not been. So I we will not hide behind the and we do not need to hide behind. Our results are so strong. Behind anything that just is not the case with us. We have been unaffected and we are relatively unaffected by tariffs. So, you know, a little bit of impact in the first half of the year with our board game clients. And others that get a lot of their things from China. But we have been blessed that way and knock on wood, it stays that way. In terms of the first one, yeah, it is always the classic balance act, right, of investing in an affiliate program, for example, at TDD. And setting yourself up for hopeful success in 2026. While managing, you know, to the growth we have already experienced. Last year was a milestone for us because we achieved adjusted operating income for the first time in the calendar year last year. And we are proud of that. Now, Blue Angels is certainly a part of our business, so we are not apologizing for having Blue Angels at all. But if we did not have Blue Angels in 2024, we would have just almost made adjusted operating income. We would have been just short. And when I got on the call about it, which was already tremendous growth from the year before, you know, I said, you know, I really did believe that 2025 would be our first full year of adjusted operating income without any ventures or films involved. And, well, you can see the results. I am highly confident that, you know, through Q3, it would take an absolute collapse and or something in the month of December for that not to be true. So, you know, we judge ourselves by that metric. You know, it is a proxy for cash from operations, you know, like how are we doing. And, you know, we feel very good about it. And so we think we have struck the right balance this year. We are going to be rewarded in, you know, maybe even some here in Q4, but certainly by Q1. With some of those investments that we have made. And yet, we still grew along the way. And so once those investments come in, then, you know, all bets are off. And then, of course, you may remember and for those who are looking at our company and our stock, we have some real cash catalysts for the next three years that will fall into this cash flow for us. You know, we are now one year from now, we are out of our New York leases. You know, when you buy companies, you buy their leases. Right? So we have got three companies with offices in New York still. We only need one lease. So we will save some money there a year from now. Next year, this time, two years from now, we are out of our LA leases. That is the most expensive lease. Excited about that and the cost savings that will come from that. Again, we just do not need that much space in a post-COVID world. And then third, you know, we are less than three years out. You know, it will come on before we know it. You know, our only commercial bank loan will be paid off principal and interest on September 29, 2028. That will free up well north of $2 million of cash a year. Just on that. That plus the leases should free up north of $3 million for sure a year. Again, if we do not grow at all. So that is an extra $750,000 of cash a quarter, obviously, plus. So as we achieved adjusted operating income this quarter, of a million dollars, you know, that would just add to that. So, you know, it is the biggest reason why we think we are so undervalued. Today. And I just started a 10b5 plan to buy stock and send a signal to the market. I am buying every week because I believe in the company. The results that we are posting, not the ones we will post in the future. And so I bought 2% of all outstanding shares since April, and I am still buying. So, you know, I think that sends a pretty strong signal. I hope it would. Allen Klee: No. I would agree. In my entire career, you are the only company I have ever known that has CEO is entered one of these plans for buying the stock. I have had plenty for selling, but no, it is quite and is it is the term of it, like, a certain amount? Like, each time, or is it, you know, if we need to know those. Yeah. Yeah. Bill O'Dowd: I had to learn too, Allen. So we set it up to be $5,000 a week and, you know, I have extended it or sorry. It is technically entering a new one. All the way through December. So, you know, $5,000 a week may sound like one thing, but when you say, well, that is $260,000 a year, you know, that hopefully, that is making a statement. And from April '25 through at least December '26. So I had never thought of it this way before, but, you know, quick math tells me that is over $400,000. And just making a statement. And we are feeling very bullish about what we have done already. And then what we are going to do with this continued growth. So very exciting for us. Allen Klee: This is great. Oh, okay. That is it for my questions. Congratulations. Nice results. Good talking to you. Bill O'Dowd: Thank you, Allen, very much. Operator: There are no additional questions in queue at this time. I would now like to turn the floor back over to Bill O'Dowd for his closing remarks. Bill O'Dowd: Well, thank you. And thank you, those who are on the call and on the webcast and those who will listen in the future. You know, I think our excitement is well heard at this point about the company, and the commitment we have made, myself personally, with that 10b5-1 plan. And then we just decided to let the numbers do the talking. They speak for themselves, and I am very proud. I am very thankful I am very grateful to the leadership at each of the companies. They are the ones who are receiving these awards, and they are the ones that are collectively working together to post these numbers. And if any one company is going through a tough time or a particularly challenging quarter and no one's in a dramatic situation. But just if they are off, we have, you know, other team members that pick them up and overperform and use and you balance across seven companies. And it is diversified revenue, and it is diversified client base. It is highly or I should say, very much what you want. And we are very proud of 16.7% year over year with the same agencies. And the adjusted operating income that is doing what it is doing. So we see a very clear trajectory. We know what is going to happen in a year, and in two years, and in three years, and we are very excited to be here. So always great to have a good Q3. We live with these numbers for the next four and a half months. And be very proud to introduce them to anybody new to our company. During that time period. But we also expect a strong Q4. Hopefully, we can judge me on that statement at the March. And look forward to talking to everybody then. So thank you very much for your time today. Operator: Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation. James Carbonara: Thank you. Bye bye.
Operator: Greetings. Welcome to the BioRestorative Therapies Third Quarter 2025 Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Stephen Kilmer, Investor Relations. You may begin. Stephen Kilmer: Thank you. Good afternoon, everyone. Let me start by pointing out that this conference call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All forward-looking statements are based on BioRestorative Therapies' current beliefs, assumptions, and expectations. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from those implied by such statements. No forward-looking statement can be guaranteed. For details on factors, among others, that could affect expectations, see Part 1, Item 1A of our annual report on Form 10-K for the year ended 12/31/2024 filed with the Securities and Exchange Commission. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. BioRestorative Therapies undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, other than as required by law. On the call today representing the company are Lance Alstodt, BioRestorative Therapies' President, Chairman, and Chief Executive Officer; Francisco J. Silva, Vice President of Research and Development; and Robert Eugene Kristal, the company's Chief Financial Officer. With that said, I'll now turn the call over to Lance. Lance Alstodt: Thanks, Stephen, and good afternoon, everyone. Welcome. On behalf of the management team and everyone at BioRestorative Therapies, I would like to thank you for your interest in our company. For those of you who are shareholders, we appreciate your continued support. As you can see from the press release we issued just a short time ago, we continue to execute well across all areas of our business in the third quarter. We have a lot of exciting things to look forward to as we move through the last couple of months of the year. With that said, I'd like to ask Robert Eugene Kristal, our CFO, to provide a brief overview of our third-quarter financial results. Robert Eugene Kristal: Thanks, Lance. Good afternoon, everyone. To streamline the presentation of the financial results, all the numbers I will refer to have been rounded, so they are approximate. Third-quarter 2025 revenues were $11,800 and consisted entirely of royalty revenue. This compares to revenues of $233,600 in Q3 2024, the vast majority of which came from biocosmeceutical sales in connection with our exclusive supply agreement with Cartessa. The overall year-over-year decrease in Q3 2025 revenues was driven by the timing of orders for the developing biocosmeceutical revenue stream. The company's third-quarter 2025 loss from operations was $3.7 million compared to $2.3 million for the comparable period of 2024. The company's third-quarter 2025 net loss was $3 million or $0.33 a share compared to a net loss of $1 million or $0.13 per share for 2024. The company ended the quarter with cash, cash equivalents, and marketable securities of $4.5 million with no outstanding debt. This did not include the gross proceeds of approximately $1.1 million from the company's recent financing, which we completed subsequent to the quarter end. With that, I'll now turn the call over to Francisco. Francisco J. Silva: Thanks, Rob. For the benefit of those who are new to BioRestorative Therapies, I would like to take a moment to summarize our development programs. Our lead clinical-stage candidate, BRTX-100, is a novel cell-based therapeutic engineered to target areas of the body that have little blood flow. The product is formulated using autologous, or your own, cultured mesenchymal stem cells collected from a patient's bone marrow. The safety and efficacy of BRTX-100 in treating chronic lumbar disc disease is being evaluated in our ongoing Phase II prospective, randomized, double-blinded, and sham-controlled study. A total of up to 99 eligible subjects will be enrolled at up to 16 clinical sites across the United States. Subjects included in the trial will be randomized two to one to receive either BRTX-100 or placebo. Enrollment in the Phase II study is starting to accelerate, and we expect to be able to share more data as appropriate. In February, we announced that the BRTX-100 program for chronic lumbar disc disease was granted Fast Track designation by the FDA. This was a major milestone achievement, which has enabled us to work more collaboratively with the FDA as we continue to advance our lead clinical program towards a Biologic License Application (BLA) approval. In that regard, through the Fast Track designation, we are anticipating that the FDA will grant us a Type B meeting to discuss a potential accelerated BLA approval pathway for the BRTX-100 program for the treatment of chronic lumbar disc disease. Moving to our core preclinical metabolic program, ThermoStem, we are developing a cell-based therapy candidate to target obesity and related metabolic disorders using brown adipose tissue-derived stem cells, which are then used to generate brown adipose tissue (BAT) as well as exosomes secreted by the brown adipose stem cells. BAT is intended to mimic naturally occurring brown adipose depots that have been found to regulate metabolic homeostasis in humans and is involved in weight loss. The global obesity market is projected to exceed $100 billion annually by the end of the decade, driven by unprecedented demand for GLP-1 therapies. BioRestorative Therapies' ThermoStem program is uniquely designed to address this demand by, one, providing an alternative to chronic GLP-1 injections through a regenerative cell-based solution; two, mitigating tolerability issues such as muscle mass loss or potential cardiovascular risk, some of the most pressing concerns associated with GLP-1 therapies; and three, creating licensing and partnership opportunities. With respect to the last point, we are pleased that our previously reported substantial discussions with an undisclosed commercial-stage regenerative medicine company regarding a potential license agreement for our ThermoStem metabolic disease program are continuing. While we cannot provide interim progress updates nor provide any assurances that this will come to a mutually acceptable agreement, we are committed to closing the loop as soon as practical. As awareness of the promise that our ThermoStem-derived brown adipose-derived stem cells hold for the treatment of obesity-related metabolic disorders continues to grow, it is important that this potentially game-changing opportunity is well protected, both for us and any current or future potential licensing partners. Accordingly, we have been methodically building a comprehensive patent portfolio with issued patents that cover both U.S. and international markets. The most recent example of that came this past October when we announced a major intellectual property milestone. The Japanese Patent Office issued a notice of allowance for our ThermoStem platform. The newly allowed patent provides broad protection terms for allogeneic, off-the-shelf brown adipose-derived stem cell technology. These claims are materially stronger than previously granted patents, covering not only the therapeutic cells themselves but also multiple methods of encapsulation and delivery, including alginate microcapsules, cellulose hydrogels, polymer membranes, and advanced scaffolding systems. With that, I will turn the call back over to Lance. Lance Alstodt: Thanks, Francisco. As you can see from what Francisco and Rob just reviewed, we had an exciting and productive third quarter. While the progress continues, we are carefully managing our resources as we advance our two core development programs. Before I close, I want to highlight two transformative developments that we believe reshape BioRestorative Therapies' commercial and clinical trajectory. First, our biocosmeceuticals business continues to gain a lot of momentum. Over the last several months, we have rebuilt and strengthened our commercial infrastructure, including supply chain, sales coverage, distribution, and customer engagement. A major part of that strategy was bringing in the right commercial leader. As many of you saw in a recent press release, we welcomed Crystal Romano as our Global Head of Commercial Operations. Crystal is a known commodity to us and to the aesthetics community. She helped lead commercial execution efforts as President of Cartessa, and she understands the physician office and medical spa channels exceptionally well. Having someone with her product experience, account relationships, and hands-on operating background gives us tremendous confidence in her ability to execute and drive scalable revenue growth. The enthusiasm that we are seeing and that from what I am seeing in the field, combined with Crystal's leadership, positions this business for meaningful revenue contribution as we scale. For a company in our position, having a commercial business capable of generating revenue alongside our clinical programs is strategically important, and we believe it can become a very material contributor in 2026 and beyond. Second, and equally as exciting, we believe that enrollment in our Phase II BRTX-100 clinical trial is approaching completion. Each month, we move closer to a fully enrolled study and a more statistically powerful data set. While the data remain blinded, the initial trends continue to mirror our earlier clinical signals, including significant improvement in pain and function for patients suffering from chronic lumbar disc disease. Completing enrollment would be a major milestone for the company, and it positions us exceptionally well heading into a potential Type B FDA meeting in December. As enrollment completes, we intend to present additional data from a larger patient population, and we are optimistic that the results will be consistent with the encouraging trends observed so far. Simply put, the pathway to a potential Phase III and ultimately a BLA has never been more visible. In addition, I want to highlight the strength of our recent financing. Following the end of the quarter, we closed a fully subscribed financing that was priced above market. Senior leadership, including myself and several of our existing investors, participated in the round. We believe that level of participation reflects continued confidence in the direction of the company, belief in the value of our clinical and commercial strategy, and alignment with long-term shareholder interests. Importantly, the financing strengthened our balance sheet and ensures we have the resources needed to advance our short-term clinical and commercial milestones while continuing to manage our cash efficiently. We also remain, as Francisco said, in subsequent discussions with a commercial-stage regenerative medicine company regarding a potential license of our ThermoStem metabolic program. As you mentioned, we are not providing interim updates on that. We remain committed to closing the loop on that process as soon as practical. We believe that the strength of our expanding intellectual property portfolio further enhances the value of that platform. We have also been able to access that cell line and that platform for use in our biocosmeceuticals, so we are starting to cross-fertilize our cell-based therapy technology into commercially developed products as well. Taken together, accelerating our clinical progress, a growing commercial engine, ongoing licensing discussions, and a strengthened balance sheet, we believe BioRestorative Therapies is well-positioned to deliver meaningful value creation in the quarters ahead. I thank you for your time. With that, concluding our introductory remarks, we are happy to take any questions you may have. Holly, if you wanted to open it up for some questions, I would be happy to do that. Operator: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one to ask a question. One moment, please, while we poll for questions. Your first question for today is from Michael Okunewitch with Maxim Group. Michael Okunewitch: Hey, guys. Thank you for taking my questions today. Congrats on all the great progress. Lance Alstodt: Thanks, Michael. Michael Okunewitch: I guess just with the changes to your leadership and seeming increased focus on this biocosmeceuticals business, just talk a little bit about how significant that overall cosmeceuticals opportunity is? And then is this something that you would be able to tap on your own, or would you need more Cartessa-like deals to penetrate this market? I would just like to get a better understanding of how you view the market dynamics here. Lance Alstodt: Sure. No, I appreciate the question. It is going to be a substantial focus for us going forward. We are really positioning the company as a hybrid where we are taking opportunity and advantage of near-term revenue opportunities along with the longer-term clinical outcomes. I think there is no one like us in the MicroCap biotech space, which I think provides for a very differentiated profile and one that is extremely interesting for both investors as well as success to shareholders. In terms of the opportunity, this is a $63 billion market opportunity. This is a huge and growing market, the biocosmeceutical space. We are a biotech company, and there are not many biotech companies that are fully focused on developing this market. Many companies are marketing companies that are sourcing material that I would describe as low dilution, low quality. We are able to manufacture, formulate, test, quality test, and release products coming directly from our lab using different cell lines and different variabilities. We are approaching this market originally with an exclusive distribution agreement with Cartessa. We have been working with Cartessa to broaden that scope outside of Cartessa's distribution capabilities. That is part of the reason for having Crystal in place. We have more of a three-pronged approach. We are going to add additional distributors on board, so not just Cartessa, but many others. Those distributors we have relationships with through Crystal's large rolodex of account relationships. We will also be selling directly into the med spas and aestheticians, that professional channel, where we will be able to capture that margin that we would have otherwise not been able to capture by selling directly into Cartessa. So that is an exciting accretive opportunity for us. Crystal has a tremendous amount of relationships within that professional channel as that was her calling effort as part of Cartessa. So we are excited to really get that underway. I will tell you, based on some of the calls that I have had with her, I am very confident and optimistic that this is a business that we are going to put the wheels on track very soon and be able to demonstrate some meaningful wins within the first couple of quarters of her being here. I would also like to discuss potentially the idea of going direct to consumer with a branded product that we have been discussing and talking about from a business plan perspective, understanding the logistics and the resources that are required in order to do that. I think this three-pronged approach gives us a really broad approach to this large and growing market with probably one of the best, if not the best, most potent exosome-based secretomes that are out there. The beauty about our business and our manufacturing capabilities is the ability to work with the customer to customize, whether it is a branded product or a white label product, to their specifications and to their customer networks. Dialing up and dialing down the potency, adding different types of peptides, adding different types of growth factors, etcetera. This is going to be something that we should all keep our eyes on. Obviously, it is a little bit too early to give specific guidance in terms of the revenue ramp. I still maintain the idea that we will see some lumpiness in this business as we are starting out. There may be quarters where we have an outsized revenue number and some quarters in the very beginning where it looks like a miss, but it is really just about the developing business and reaching a broader group of customers. We are excited about this, and we will talk more about this going forward. Michael Okunewitch: And then I would like to follow up on that, just talking a little bit about how this impacts the overall business strategy, how you are balancing these now two sides of the business, and also some potential synergy there. So is your focus on biocosmeceuticals shifting any resources away from clinical development, or is this truly additive? And then are there any potential synergies in biocosmeceuticals from having the credibility of a legitimate biotechnology company? Lance Alstodt: Yes. So the cross synergies, I would describe, have to do with the cell lines that we are using for clinical purposes. As you know, we are not commercializing our cell lines domestically as they are governed under the FDA from a BLA license perspective. But we are able to use aspects of those cell lines to develop products for topical use only, for cosmetic use only. I expect that the end users will use these products for topical use only. I do not know whether or not they will use it off-label for regenerative purposes. We do not condone that, but I believe that will be also an aspect of the end user's application. In terms of resources, we can manage the resources within this space entirely with the people that we have today. We may add some additional folks on the quality side and on the manufacturing side. We are going to see a lull in the utilization of our lab as we fulfill our enrollment obligation under our Phase II protocol. Then there will be some time of delay between a Phase II and a Phase III. Our expectation is that during that time frame, we can really capitalize on full utilization and focus within the biocosmeceutical program. Michael Okunewitch: Alright. Thank you for the additional color, Lance. I really appreciate the update. Lance Alstodt: Thanks, Michael. Operator: Your next question for today is from Jonathan Matthew Aschoff with ROTH Capital. Jonathan Matthew Aschoff: Hi. How are you doing? I was wondering on BRTX-100, can you help us understand when we may see the subsequent data release? Will it still be blinded, or will it be the final data since it sounds like you are almost enrolled? Also, can you help us out with any maybe numerical enrollment update? Lance Alstodt: On the numerical side, I will say we are more than three-quarters enrolled. We have more than 10 patients in late-stage screening, which could come in for harvest within the next couple of weeks. If you do the math, we are getting really close. I do not know if we are going to get it just under the wire in terms of the year-end, but to the extent that it is built into January, I think that is a very realistic and pragmatic target for us to hit from an enrollment perspective. As far as data, we are going to keep the data blinded because we have a strategy as it relates to communication with the FDA under our Fast Track designation, looking to accelerate the BLA process. Our hope would be to get directly into a Phase III study from a pivotal perspective as opposed to doing two Phase III studies, as most companies do two Phase III studies. We have such a large and robust data set in connection with our Phase II with 99 patients. The idea would be to keep that data blinded and report on higher numbers with more data on a blinded perspective as we continue to attend and ask to present our material at certain conferences, certain industry-related conferences. In terms of the FDA and regulatory strategy, I think it is important that people understand that getting a Phase III pivotal while we are still completing the Phase II, which is kind of part of the ask in this upcoming Type B meeting, is game-changing for us. It would basically shave off about three years of time on the calendar and significant costs related to doing another Phase III. If that were the case, then we would want to keep our data related to our Phase II blinded and do the appropriate follow-up in our protocol to a 24-month follow-up. That being said, it is really important to note that if the FDA does give us that green light, what they are doing is they are saying our safety profile is pristine. They are not going to allow us to move forward with a bad safety profile. Today, we have no material adverse events, no dose-limiting toxicities. Everything is really clean. It is an autologous product. We are very comfortable with that. They will be looking at a subset of data with respect to efficacy. That green light from them would be tremendous. It would be a major value-enhancing inflection point and would be sort of an acknowledgment that we do not have to unblind the data; we are going to go forward in this pivotal study. If for some reason they decide, like many other biotech companies, we have to do two Phase III studies, that would put us in a position where we would consider unblinding the data after a 12-month follow-up and then report on that data effectively 12 months from the last patient that was enrolled. Like I said, we are expecting enrollment to be complete in the very near term. Jonathan Matthew Aschoff: Alright. So it is enrollment completion, then a Type B meeting where you will figure out if it is one or two Phase III studies. That Type B looks like... Lance Alstodt: I think we are going to continue to enroll patients. In December, we hope and expect, you know, the FDA has been a little bit slow to react just given the shutdown. We expect that we will get on the calendar sometime before the end of the year and have that Type B meeting. It is unclear whether we are going to have a definitive response from the FDA. We will be able to learn a lot. We will be able to review what a Phase III protocol looks like and get some buy-in. Part of the Fast Track designation process is to really sit down with the FDA and explore ways in which we can accelerate that BLA. Jonathan Matthew Aschoff: Okay. And what is going on with the cervical trial? Lance Alstodt: Getting that clearance is important. I think that is very meaningful in terms of keeping our pipeline robust. We have not dedicated resources to developing it. We have a protocol. We have an agreed-upon protocol with the FDA, but it is not as if we are starting to go out and recruit sites and recruit patients just given the financial constraints. I think this is something that we want to mark, that we have experience getting multiple INDs approved. It is my belief that our focus should really be around the lumbar spine. If we can get the BLA approved, then it is our expectation that people will be really taking advantage of the broad application of that product in a variety of different avascular zones. But I think we tie that more to a company that has more robust capital resources down the road. I think it shows and demonstrates our strong regulatory capabilities and clinical capabilities by getting approved INDs in a variety of different applications. Jonathan Matthew Aschoff: Okay. You know, lastly, do you think you are done booking biocosmeceutical revenues this year, or do you think we might have a recurrence of something in April that might look a little like the second quarter was? Lance Alstodt: I do not know about the second quarter because it could be. I mean, now, I do not have the visibility. I know that some products have been sold since Crystal has been on board, but it is probably nascent relative to what I think the opportunity looks like as we begin to scale and she gets her feet under her. Jonathan Matthew Aschoff: Okay. Thank you very much, guys. Lance Alstodt: Thank you. Operator: Once again, if you would like to ask a question, please press 1 on your keypad. We have reached the end of the question and answer session. I will now turn the call over to Lance for closing remarks. Lance Alstodt: Thank you, Holly. I appreciate everyone's time. I think this is a really positive quarter for the company in terms of our clinical progress. Again, I am really excited about the development and some of the very meaningful changes that we have made in terms of bolstering our commercial program. I think there is more to talk about next quarter in that regard. Obviously, this upcoming discussion that we hope to have with the FDA should provide us with additional clarity on the regulatory pathway. Thanks again for your participation. We look forward to talking to you soon. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.