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Operator: Hello, and welcome to Kayne Anderson BDC, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to turn the conference over to Andy Wedderburn-Maxwell, Senior Vice President. Andy Wedderburn-Maxwell: Good morning, and welcome to Kayne Anderson BDC, Inc.'s Third Quarter 2025 Earnings Call. Today, I'm joined by Doug Goodwillie and Ken Leonard, co-CEOs of KBDC; Frank Karl President; and Terry Hart, CFO. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q and supplemental earnings presentation are available on the Financial section of our website at kaynebdc.com. Now I'd like to turn the call over to Doug Goodwillie. Douglas Goodwillie: Thank you, Andy, and everyone for joining us on the call today. I'll begin by providing a high-level summary of our third quarter performance and share some thoughts on the broader market backdrop, both as it relates to the public market environment and what we're seeing in our private credit market generally. I will also walk through our strategic positioning and provide an update on our capital deployment activities. Before turning the call over to Frank Karl, to go over our portfolio makeup and performance. Finally, Terry Hart will conclude with details on KBDC's financial results. After the close yesterday, we reported another quarter of solid results as we continue to grow our portfolio and execute on our strategy. Net investment income rose $0.03 per share to $0.43 per share, representing a 10.5% annualized return on equity and net income was stable at $0.35 per share. During the quarter, we distributed our $0.40 per share regular dividend, resulting in a dividend coverage ratio of 108%. Our NAV at quarter end was $16.34, a small $0.03 decline quarter-over-quarter due in large part to a few marks in the portfolio. At quarter end, our estimated spillover net investment income was $0.16 per share. In the quarter, we had $296 million of gross new private credit investments. We funded a total of $274 million, of which $248 million represented new investments and $26 million represented existing previously unfunded commitments. This is an increase of 48% in private credit fundings over Q3 2024 fundings of $185 million. As highlighted on our last earnings call, the pickup in origination activity that we saw towards the end of Q2 has continued through Q3 and into Q4 of 2025. Our average spread on new floating rate loans in the quarter was 568 basis points over SOFR, a 28 basis point improvement over the second quarter. The majority of transactions reviewed in Q3 had spreads over SOFR in the 500 to 600 basis point range. M&A-related financings have also become more frequent in Q3 and Q4 as the health of the market improves. We believe that the spread compression that affected the middle market in late 2024 and early 2025 has plateaued. While we are not seeing broad-based spread widening yet, we continue to be pleased with the spread premium that our market broadly and especially our portfolio generates relative to the larger credit markets. Turning to the broader public market environment, BDC share prices saw notable pressure [indiscernible] as investors reevaluated their risk appetite over rising concerns regarding the potential pace of dividend rate cuts, continued spread compression in certain markets, concerns over credit quality and the potential negative impact that AI could have over the software sector. These fears have been exacerbated with a few high-profile bankruptcies that touched numerous financial institutions and created splashy headlines regarding systemic risk in the private credit space more broadly. For the sake of clarity, KBDC has no direct or indirect exposure to these situations. I would also like to highlight, unlike most public BDCs, we have no exposure to highly levered financings in the software sector. While public market sentiment is one thing, our perspective of the current credit market landscape tells a different story, one of strong fundamentals and continued resilience in the core middle market. We've been in regular dialogue with our portfolio companies and our underwriting and credit monitoring teams, and we do not see any signs of broad-based stress in our assets. Our portfolio remains high quality, senior secured and well diversified. Importantly, our nonaccrual rate dropped from 1.6% of fair value to 1.4% and remains well below historical averages for the sector. While financial regs regularly comment on the potential for a risk-reward dynamic in private credit that has become less favorable than in years past, we still see an environment where experienced investors in the middle market can earn near double-digit loan level returns for senior debt risk. Said differently, in a world of relative value, we continue to believe that our space offers a compelling value proposition versus other investment asset classes. Turning to a short reminder regarding our positioning and strategy. At KBDC, we've built a portfolio designed to perform across market cycles. With approximately 94% of our investments in first lien senior secured loans where we are the agent or coagent 80% of the time, we are structurally well positioned to protect capital and generate consistent income even in uncertain markets. You will note that the percentage of first lien loans has declined from 98% in prior quarters. This is due to our 11% fixed rate investment in the SG credit asset-backed platform. As a reminder, that investment closed in early Q3 and is not included in first lien senior debt. With our strong origination network and ability to underwrite and lead investments, we continue to find attractive deployment opportunities. Most importantly, we remain highly selective when deploying capital, which we think is evident in our portfolio statistics and credit performance. During the third quarter of 2025, repayments of private credit loans totaled $74 million, down from $83 million in the same period of 2024. Consistent with our strategic focus and supported by continued strength in the broadly syndicated loan markets, we further executed on our plan to reduce exposure to lower yielding BSL assets. Specifically, we sold down $113 million of BSL positions in the quarter and have continued this portfolio repositioning. Our goal remains to actively wind down the small remaining BSL portfolio of $67 million and redeploy that capital into higher-yielding private credit opportunities in Q4 and potentially into early Q1 2026. When considering all new fundings and repayments in Q3 net investment activity for the quarter was approximately $87 million. This increase raised our debt-to-equity ratio to approximately 1.01x, above our second quarter 2025 debt-to-equity ratio of 0.91x. As previously mentioned, our long-term target leverage range is between 1x to 1.25x, so we have some balance sheet capacity there to be able to maximize earnings in future quarters. Lastly, in September, we closed a privately placed offering of $200 million of unsecured notes. Given the strength in the private placement market in Q3, with spreads near their tightest levels compared to the public markets, we felt this was an opportune time to continue to diversify our sources of funding. This will be discussed in the financial results section further. I will now pass the call over to Frank Karl to discuss our portfolio. Frank Karl: Thank you, Doug. Turning to our portfolio composition. As of September 30, 2025, KBDC's portfolio included 108 individual portfolio companies, representing fair market value of approximately $2.3 billion of investments. We have another approximately $277 million of unfunded commitments comprised of a mix of revolvers and delayed draw term loans for total commitments of approximately $2.6 billion. Since September 30, 2025, KBDC has closed or is in the final closing process on $129 million of new commitments, highlighting the continued improvement in market conditions previously touched on by Doug. Investments in KBDC's portfolio, excluding those on our watch list, have weighted average leverage of 4.4x, interest coverage of 2.4x and loan to enterprise value of approximately 43%. Our portfolio did decline in a number of companies by 6%, mainly due to our rotation out of the broadly syndicated loan portfolio, which were generally smaller than average hold size such that total investments still increased. We continue to have a highly diversified portfolio with an average position size of approximately 0.9% of fair value, and our top 10 investments represent only approximately 20% of our portfolio. Outside of the specific credit statistics associated with our portfolio, our investments are well structured, 94% of our portfolio is invested in first lien securities, as Doug mentioned, this number declined from 98% in prior quarters because of our classification of the SG credit investment. 99% of our private middle market investments are backed by private equity sponsors, additionally, all of our core first lien private middle market investments have financial covenants. 96% of our debt investments are floating rate, which mirrors our liabilities where the vast majority of our debt funding utilizes floating rate borrowings as well. The only fixed rate investment in our portfolio is the SG credit loan to close in early Q3, that has an 11% fixed coupon. Credit performance across the portfolio remains strong to date with only 1.4% of total debt investments at fair value on nonaccrual, representing only 5 positions out of those 108. Lastly, we've built this conservative portfolio with a healthy weighted average yield of approximately 10.6% on fair value of investments excluding nonaccrual. This yield has been achieved with borrower level leverage levels that are considerably lower than that of many of our peers and while we continue our rotation out of BSLs and into higher spread private credit loans. At the end of the third quarter, we still had approximately 3% of our portfolio invested in broadly syndicated loans, which we intend to trade out of by year-end or shortly thereafter. As Doug mentioned, there has been something of a wave of negative media coverage surrounding private credit and BDCs over the last few months. Over time, we've seen headlines attempt to call the top of the cycle or identify the next canary in the coal mine. While no lender gets every credit decision right, we believe that deep experience is critical to consistently originating loans that are repaid with interest. Our strategy has remained steady, investing in senior secured loans to middle market businesses. That consistency is rooted in the senior teams, 14 years at Kayne Anderson and more than 2 decades of prior experience across direct lending platforms, making ours one of the most tenured partnerships in the middle market. Signs of a bubble would show elevated leverage levels, lower investment quality or deterioration in terms, none of which we have seen in our market to date. By maintaining a consistent focus on core middle market companies with strong free cash flows, operating and resilient industries, we believe we have mitigated certain credit risks, particularly in a higher rate, more challenging macro environment. We view our current nonaccrual as largely idiosyncratic rather than indicative of broader credit issues. We continue to closely monitor potential impacts from tariffs and based on recent conversations with sponsors and management teams, most of our portfolio companies, again, which are domestically focused, both in terms of revenue and supply chains have experienced minimal financial impact from these tariff-related policy changes. Looking ahead, while we anticipate some continued market volatility, we are encouraged by the notable increase in investment activity in the third quarter, although overall M&A activity has been somewhat slow to rebound. We've observed a meaningful, if anecdotal, uptick in M&A-related financings brought to investment committees in September representing 72% of all investment opportunities reviewed. Our strong and long-standing private equity relationships continue to support a healthy pipeline of opportunities, offering attractive risk-adjusted returns. We believe our portfolio is well positioned to maximize earnings as we complete our rotation out of the remaining broadly syndicated loans and modestly increased our leverage toward the middle to upper bound of our target range of 1x to 1.25x in line with our peers. With that, I'll turn it over to Terry Hart to discuss KBDC's third quarter 2025 financial results. Terry Hart: Thanks, Frank. Let's first review results of operations. During the third quarter, we earned net income per share of $0.35 and net investment income per share was $0.43 compared to $0.40 in the prior quarter and $0.03 above our dividend. We were able to increase net investment income from the prior quarter through higher interest income resulting from rotations out of lower-yielding broadly syndicated loans into middle market loans and our investment in SG Credit as well as interest income related to realization activity. Total investment income for the third quarter was $61.3 million, as compared to $57.3 million in the prior quarter. As mentioned, the increase to investment income was primarily driven by portfolio rotations and the impact of net additions to the portfolio during the third quarter. Our portfolio yield was unchanged quarter-over-quarter and PIK interest remained relatively low at 3.5% of interest income for the quarter. Additionally, during the third quarter, we had approximately $1.4 million of accelerated amortization of OID and prepayment fees related to realization activity. Total expenses for the third quarter were $31.3 million compared to $28.6 million for the prior quarter. The increase was primarily the result of higher average borrowings on our credit facilities and increased base management fees as a partial fee waiver was in effect during the second quarter. During the quarter, our incentive management fee was reduced by the 12-quarter look-back incentive fee cap. During the third quarter, we had a small realized loss of approximately $22,000 mainly related to the sale of several broadly syndicated loans, and we had net unrealized losses on the portfolio of $5 million compared to unrealized losses of $3.5 million in the prior quarter. The unrealized losses were largely the result of negative fair value changes related to our investments in Score Sports, Siegel Egg, and Trademark Global, partially offset by positive marks on ArborWorks and our broadly syndicated loan portfolio. Additionally, we had $0.4 million of deferred income tax expense related to unrealized gains on equity investments held in our taxable subsidiary. As of September 30, total assets were $2.3 billion and net assets were $1.1 billion, as of that date, our net asset value was $16.34 per share, a decrease of $0.03 from $16.37 per share as of June 30, was comprised mainly of $0.08 per share related to net unrealized losses, partially offset by $0.03 of net investment income in excess of our dividend and $0.02 related to accretive share repurchases during the quarter. At the end of the third quarter, we had debt outstanding of $1.153 billion and our debt-to-equity ratio was 1.01x which is an increase from 0.91x at the end of the second quarter. During the third quarter, we had higher utilization of our credit facilities resulting from robust origination and from share repurchases of $13.9 million pursuant to our $100 million share repurchase program. During the month of October, KBDC repurchased its shares valued at approximately $17 million at an average price to NAV per share of 85%. We expect that accretive share repurchases will be an additional use of leverage, moving us towards the middle or upper end of our debt-to-equity range of 1x to 1.25x. As Doug mentioned earlier, on September 9, we closed a $200 million offering of senior unsecured notes to provide KBDC additional liquidity and credit facility flexibility. In connection with the transaction, we entered into interest rate swaps to more closely align the interest rates of the notes with our predominantly floating rate investment portfolio. We were very pleased that the transaction was significantly oversubscribed, which tightened final pricing. The notes were funded and issued on October 15. Now turning to our distributions. On November 4, the Board of Directors declared the regular dividend for the fourth quarter of $0.40 per share to shareholders of record on December 31, 2025. As of September 30, our undistributed net investment income was approximately $0.16 per share. For the fourth quarter, we anticipate modest excess net investment income above our base dividend, reflecting the continued strategic rotation out of our lower-yielding broadly syndicated loan investments into middle market loans and additional accretive share repurchases. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Douglas Harter with UBS. Douglas Harter: Great. I'm hoping you could talk a little bit more about the investment in SG credit, just kind of thoughts about whether there's potential for growth in that investment and how to think about any upside beyond the coupon you mentioned? Frank Karl: Thanks, Doug. This is Frank. I appreciate the question. Part of the structure of our deal with those guys did include an unfunded delayed draw term loan commitment, which will be used to finance new investments and grow the book over time. So there's sort of a built-in, we're expecting more funded dollars as part of that debt investment. And then we did disclose in the Q, we do have a call option to purchase the majority of the equity in that business going forward. The terms are not disclosed. We won't discuss them here, but I think the short story is we think there's a lot of growth potential in asset-backed lending and particularly the types of asset-backed lending that these guys are doing. So we are expecting it to be a growth engine and a larger piece of our business going forward. I think we talked about the last call, I mean we're not expecting this to be a huge portion of the portfolio, but larger than it is now, certainly. And we know the growth prospects are there. Douglas Goodwillie: And Doug this is Doug Goodwillie, just adding one thing. In addition to what Frank said, just to clarify, we do own through our investment at close, 22.5% of the equity of SG Credit as it stands today. Douglas Harter: And then just you mentioned that you saw increased fees related with -- or interest income related to the repayments -- yet prepayments were down. Just hoping you could kind of flesh that out a little bit for us? Frank Karl: Terry, do you want to take the start there? Terry Hart: Yes, sure. We had 2 repayments that were driving those additional interest income from accelerated OID, but we also had some prepayment penalties or fees that were associated with that realization as well. And so the combination of those 2 items, whenever you -- whenever there's a realization prior to its stated maturity you get to bring forward all of that OID. So it was a combination of those items that resulted in. It was around $1.4 million of additional income related to those realizations alone this quarter. Operator: Your next question comes from the line of Kenneth Lee with RBC Capital Markets. Kenneth Lee: One question I had was you mentioned in the prepared remarks that you're seeing some recovering the M&A activity, but perhaps a little bit slower to recover. I wonder if you could provide a little bit more color around that. Any thoughts as to key drivers that are potentially holding back some of the M&A activity you're seeing within? And I assume this is within the core middle market segment. Kenneth Leonard: Yes. Thanks, Ken. I think for us, in the core middle market, in terms of the platform itself, we've seen pretty strong continued investment activity and are pleased with that. In addition, with rates lowering I think that's going to continue to help M&A activity as it goes forward. So we're sort of speaking broadly in terms of overall M&A activity, which has been modest relative to quarter-over-quarter increases. But I think for the Kayne Anderson Private Credit platform and KBDC, I think we've seen very nice activity. In addition, we've also seen spreads elevate in the third quarter modestly over the first half. In addition, the pipeline we have for the fourth quarter looks very strong, consists of all new platforms right now, and those platforms are -- have weighted average spreads that are consistent with what we've seen in this uptick in the third quarter. So I think our general feeling is we're not making large macroeconomic predictions about the M&A market, but we think is SOFR comes down, we'll continue to see an uptick. But we've been very pleased that from a platform perspective, we'll be at or near a record year in terms of volume. Kenneth Lee: And just one follow-up, if I may. I wonder if you could just share any of the latest thoughts you may have about dividend coverage, especially given the outlook for rates there? Kenneth Leonard: Yes. Sure, Ken. For the fourth quarter, we anticipate a modest excess net income -- net investment income above our base dividend, and this reflects the continued ramp of our portfolio and share repurchases as we operate in our target leverage range of 1x to 1.25x. We're also expecting to finish that strategic rotation out of our lower-yielding broadly syndicated investments into these core middle market higher-yielding loans, and that will take place in the fourth quarter or potentially roll over into that first quarter of 2026. We believe our dividend yield and dividend coverage will more accurately reflect our steady state operations once KBDC is operating within its target leverage with the portfolio fully invested in middle-market loans. We also believe that we're well positioned to maintain our current base dividend rate for the foreseeable future despite the spread compression and reference rate headwinds that are affecting the broad market. While none of us are really immune to reference rate declines, we feel very good about the current spreads in our market, which have outperformed the upper middle market in many of our competitors. And we feel very good about that continuation into the fourth quarter. Additionally, I'll add that we've been active in our share repurchase program, which we saw in the third quarter was accretive at these lower price levels, and that's going to continue into the fourth quarter. And then finally, we have spillover income of $0.16 to provide a buffer to our dividends during 2026, if needed. So we feel very good about our positioning here. Operator: There are no further questions at this time. I will now turn the call back over to Ken Leonard for closing remarks. Kenneth Leonard: Thank you, everyone, for joining today. We appreciate it. We're pleased to have reported a strong quarter and are also pleased with the continued strong performance heading into the fourth quarter. We continue to think our value lending philosophy and our long tenure in the private credit sector will differentiate KBDC as a conservatively focused, strong risk/reward oriented BDC. Thanks again, everyone, for joining today. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to TeraGo's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. TeraGo would like to remind listeners that the company's remarks and answers to your questions today may contain forward-looking statements that are based upon management's current expectations. All such statements are made pursuant to the safe harbor provisions of and are intended to be forward-looking statements under applicable Canadian securities legislation. When relying on forward-looking statements to make decisions with respect to the company, you should carefully consider the risks set forth in the Risk Factors section in the 2024 Annual Information Form, which is available on www.sedarplus.ca and also consider other uncertainties and potential events. Except as may be required by Canadian securities laws, the company does not undertake any obligation to update any forward-looking statement as a result of new information. We would also like to remind listeners that TeraGo uses certain non-GAAP financial measures to arrive at adjusted results to assess its business and to measure overall performance. TeraGo believes that these financial measures provide readers with a better understanding of how management views the company's overall performance. I will now turn the conference over to TeraGo's Chief Executive Officer, Daniel Vucinic. Sir, please proceed. Daniel Vucinic: Thank you, and good morning, everyone, and welcome to our third quarter 2025 earnings call. Today, we are pleased to share how we are further accelerating our value creation strategy. In the third quarter, our team continues to have a disciplined focus on our customers, operational efficiency and positioning the business for the future. We are seeing better gross margins, higher average revenue per account, ARPA, reductions in operating expenditures, superior deal level economics and a more efficient approach to capital investments. Our revenue reflected a strategic decision to allow unprofitable customers to churn as part of our disciplined approach to profitability and long-term value creation. At the same time, Terago's focus is on the larger end of the SME clients that have multisite locations, which is validated by our continued growth in ARPA. Those larger client deals typically have longer sales cycles and in today's economic uncertainty environment, those larger deals are taking a little bit longer than what we would want. However, we are encouraged by our growing sales pipeline. Following quarter end, we successfully completed a transformative series of financing transactions, including new term debt, and equity financings that have strengthened our capital structure and provided the flexibility to pursue growth opportunities across 5G private wireless networks and next-generation fixed wireless connectivity. With a stronger foundation, we remain focused on execution and creating long-term value for our stakeholders. TeraGo is a critical player in the Canadian communications landscape. We are uniquely positioned by owning 91% of the millimeter wave spectrum, national backbone network with 400-plus wireless hubs, covering 26 million population of Canada and passing 11 million homes. There really is no one like us. Being the largest millimeter wave spectrum owners, TeraGo continues to work closely with ISED to drive competition, investment and innovation. Millimeter wave spectrum is becoming increasingly important as demand for high-capacity, low-latency connectivity continues to rise. ISED's recent millimeter wave consultation is proposing to repurpose the lower 26 gigahertz band, previously called the 24 gigahertz for flexible use. A flexible use decision would mean that millimeter wave spectrum could be used for both mobile and fixed wireless services. In fact, service providers in the U.S. are increasingly leveraging millimeter wave technology to enhance mobile connectivity in densely populated areas such as stadiums, concert arenas, urban areas. The extremely high capacity and ultra-low latency of millimeter wave spectrum makes it ideal for supporting large crowds where conventional mid-band or low-band networks often experience congestion. As per ISED, spectrum is a critical input for wireless service providers. Flexible use of millimeter wave spectrum will enable providers to increase network capacity, address growing traffic demands and enable new applications such as ultra-low reliable low latency services and advanced automation across industries. Canada is, in fact, at a pivotal moment where productivity continues to lag behind other similar economically developed countries and the current trade wars certainly add significant pressure to this. Millimeter wave spectrum in a 5G private wireless network offers significant opportunity for industry verticals like manufacturing to automate operations and leverage robotics. This requires a high level of bandwidth, high network performance, ultra-low latency and a robust and secure network. We are encouraged by the progress ISED is making with their March 6, 2025, 5G millimeter wave consultation on the 26 gigahertz and 38 gigahertz bands. We look forward to their decision on the millimeter wave spectrum and including next steps towards a future auction. With that said, I will turn it over to our CFO, Raj Sapra. Raj? Rajneesh Sapra: Thanks, Dan. Good morning, everyone. I will go through briefly over our Q3 2025 financial results presentation, which is available on our website. Turning to Slide 4 of the presentation for a look at our KPIs. Our average revenue per customer account, or ARPA, for our connectivity business was $1,241 in Q3 2025 and 1.6% increase compared to $1,221 for the same period in 2024. ARPA levels continue to improve as a result of changes in customer base and product mix. Our churn was 1% compared to 0.9% for the same period last year. The company continues to review, modify and improve its customer experience practices to increase customer engagement focus on mid-market and large-scale customers as well as implementing new strategies for customer renewals and retentions. Turning to Slide 5 to go through our broader financial highlights. Total revenue for Q3 was $6.4 million as compared to $6.5 million from same period in 2024. The decrease was primarily driven by increased churn stemming from management's continued initiatives to optimize the customer base by discontinuing service to unprofitable accounts. This was partially offset by an increase in revenue from new customers, which were installed in the current period. As noted in the MD&A, the company has a strong backlog of approximately $96,000 in monthly recurring revenue, equivalent of $1.2 million in annual revenue, contributing positively to the company's revenue going forward. Adjusted EBITDA was $971,000 in Q3 2025, an increase of 3% despite the lower revenues compared to $944,000 from the same period in 2024. The company continues to strive for profitable revenue and driving efficiencies in the business. Net loss for Q3 was $2.4 million compared to a net loss of $3.3 million for the same period in 2024. Turning now to Slide 6 to the balance sheet. We ended the third quarter of 2025 with $1.3 million in cash and cash equivalents. In the third quarter of 2025, we generated approximately $1.1 million in cash from operations, comprising of almost $1 million from business operations and a small portion from positive working capital movements as compared to Q3 2024. As was noted in our Q2 earnings call, during the third quarter, the company completed the sale and leaseback of its 7 telecommunications towers for gross proceeds of $1.35 million. As part of the transaction, the company entered into a tower space license agreement with a 10-year term, allowing continued access to the tower sites for the operation of its telecommunications equipment and service our customers. As Dan alluded at the top of the call, subsequent to the quarter end, we completed a comprehensive recapitalization of the business, aggregating approximately $46 million. This included a new 3-year senior secured term loan facility of approximately $30.5 million, all Canadian dollar designated and concurrent equity financings through a private placement and rights offering totaling approximately $15.9 million. The recapitalization resets our capital structure, extends our maturity profile and provides financial flexibility to grow and pursue opportunities for the business. With that said, I would like to turn the call back over to Dan. Dan? Daniel Vucinic: Thanks, Raj. Our comprehensive strategy is enhancing value for our clients, employees and shareholders. TeraGo is uniquely positioned to drive innovation and increase investments in its next-generation offerings for businesses. That wraps up the prepared remarks for us today, and now we can open up the call for questions. Operator, back to you. Operator: [Operator Instructions] Your first question for today is from David McFadgen with Cormark. David McFadgen: A couple of questions. Has ISED given like publicly said when they're going to make a decision on the lower 26 band or 24 gigahertz band in terms of being able to use it for mobile? Daniel Vucinic: So my last conversation with them is that they're actively working on this file coming up with a decision. However, they're not at liberty to announce any kind of timing just yet as part of that. Rajneesh Sapra: And just to add to that, the consultation, which ISED put forward in March proposed to flex use. That was their starting goalpost. Daniel Vucinic: Yes. And we're predicting and this is kind of our prediction that they will come out with a decision sometime in the first half of 2026, but we will see. David McFadgen: Okay. Okay. So it's probably a '26 event. Okay. All right. And then I was just wondering -- so what are the primary drivers behind the ARPA increases? Is it just onboarding new customers at a higher level? Or maybe you could comment on that? Daniel Vucinic: Yes. A combination of TeraGo is going up customer segment. So given our different types of products and services and our national reach as well as our connectivity with other partners, we're providing a full managed services to those clients in addition to our fixed wireless access. So this is where we are getting a larger wallet share of those customers. So the average revenue for those accounts are going up. And then the traditional smaller accounts that are more unprofitable as per our press release, we've been letting them churn out. So the combination of both continues to drive the ARPA up. David McFadgen: Okay. All right. So you said in your prepared remarks that it seems like it's taking a bit longer to sign up new customers. Maybe you could just comment on the length of the sales cycle now versus previous. Daniel Vucinic: Yes. So usually, now that we're -- we have been going up customer segment, bigger ARPA means bigger deals and bigger deals traditionally take longer. Now with this uncertainty, that is kind of their decision-making is stretched out a little bit further. So it's been a couple of quarters per se. So something that would maybe take 6 months to close is maybe taking more towards 12 months. But the good news is we are seeing recently like lots of more activity and more engagement with clients. So that's a good sign and more opportunities in the sales funnel. So over the next couple of quarters, we are expecting to close more business. And this new equity injection as well is helping us to invest to grow as before. As we talked about, we've been mostly sweating existing assets. So now with the equity, we will be launching next-generation fixed wireless products as well as expanding our hub reach as well. Rajneesh Sapra: Yes. And just to add to that, what Dan said, larger deals, procurements, looking at our financials, and I mean, David, you were asking us every call what's happening with the renewal of the facility. So there was a dark cloud of uncertainty on our debt facility and capitalization of the business. So that was also playing a bit of a part in that because we were trying to get that refinance. Now it's behind us and all guns blazing focus on the business as well and try to drive some of these large deals to closure. David McFadgen: Okay. So now that the company has been recapitalized, obviously, in a much stronger financial position, do you expect CapEx to increase? Or it's going to be primarily success driven like before? Rajneesh Sapra: Look, I mean, there is no difference in our approach in terms of getting the ROI on anything we spend. Every dollar we spend, we're looking for a return on investment, will be success-based. However, having said that, we're looking at new technologies. So any time we get a new customer, we have the opportunity to apply new equipment, migrate some of the customers from the older one to the new, but it's going to be success-based. The other thing -- and I'll just add, I know you didn't asked, but I will add anyways, our real estate cost footprint, we're looking at that as well from -- from profitability of the hubs as well as equipment consolidation where we can kind of employ new technologies and consolidate our customers into less number of antennas/radios and cut some rental costs as well over the next year or so. So there's a bunch of things we're looking at. But the DNA of the business here is that every dollar which goes out has got to be ROI associated with it. Operator: At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Vucinic for closing remarks. Daniel Vucinic: Thanks again, everyone, for joining us on our call today. I'd like to thank our customers, shareholders who continue to support the company. I'd like to thank everyone at TeraGo who continue to do an outstanding job, and we look forward to providing an update on our progress on our next quarterly earnings call. Operator? Operator: Thank you for joining us today for TeraGo's Third Quarter 2025 Earnings Call. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the TAG Immobilien Publication of Interim Statement Q3 2025 Conference Call. I am George, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Martin Thiel, CFO. Please go ahead, sir. Martin Thiel: Yes. Many thanks, and good morning all, and a very warm welcome from our side. Many thanks for dialing in for our Q3 results. As always, let's start on Page #3 of the presentation, which shows a comprehensive overview about our results in the first 9 months and also gives a first outlook on the guidance for 2026. Let's start with the operational development first in the first 9 months of 2025. FFO I in the first 9 months of 2025 came in at roughly EUR 136 million compared to the previous year, that's a 4% increase. And that's important to point out that this increase was mainly driven by a higher EBITDA contribution from our rental business in Germany and in Poland, which increased by 6% year-on-year. Looking at the sales result in Poland, we had a result that was more or less on the previous year level, so a little bit reduced EUR 34 million was the sales result compared to EUR 38 million in the previous year. But as already stated in the previous conference calls, we expect that in the fourth quarter of this year, we will have a large number of apartments handed over. And as you know, as the result is realized when we hand over the apartments, we expect a quite strong increase in the fourth quarter 2025 for the sales result in Poland. But very positive, the development in the sales number. You see this on the right side, we sold in the first 9 months, 1,973 units in Poland that compares to 1,435 units in the 9-month period in the previous year and especially the third quarter was a very strong one. I will come back to this a little bit later. Looking at the LTV development, it's quite strongly down at 42.3%, also driven by a capital increase that we conducted in August 2025 already to partially finance the Resi4Rent acquisition, we issued 7% of the share capital, total net gross proceeds at EUR 186 million, but also the operational development was quite helpful in reducing the LTV. Of course, fair to look at a kind of pro forma LTV post the closing of the R4R acquisition. This pro forma LTV would stand at 46.1%, so even after the acquisition, the LTV is down compared to the beginning of the year and already very close to our LTV target of 45%. So in a normal course of business, we would expect that we quite quickly, perhaps in the first 1 or 2 quarters of 2026, already at the LTV target of 45%. Looking at the guidance, firstly, for 2025, we increased the FFO I guidance to EUR 174 million to EUR 179 million. If you look at the result that we have achieved in the first 9 months, that should be all on a good way. As always, we expect in the fourth quarter of a year, a little bit more maintenance in the German business, so therefore, perhaps the Q4 result in FFO I is a little bit weaker than in previous quarters or will be a little bit weaker, but clearly better results than expected in 2025 for the total year on a per share basis, taking into account the higher share count after the capital increase, FFO I guidance is then more or less unchanged. For 2026, we expect a quite strong increase. So the guidance range for 2026 is between EUR 187 million and EUR 197 million. It assumes a closing of the R4R portfolio at the beginning of the second quarter or at the end of the first quarter. I will come back to this a little bit later in more detail. So this is a quite strong growth that we predict in the FFO I, 9% in absolute amounts, 4% on a per share basis. Even stronger is the growth that we expect in the FFO II guidance. So firstly, we also increased a little bit the FFO II guidance for 2025 following the increased guidance in FFO I. But if you look at the results that we predict for the Polish sales business in 2026, where we expect nearly 50% growth, you see that the increase in FFO II that we expect for 2026 will be quite material. So the new guidance stands between EUR 279 million to EUR 295 million. That's an increase of 19% in absolute terms and still on a per share basis of 14%. As we already announced, we want to increase the payout ratio for our dividend for the first time for a dividend paid for the financial year 2026. So this is a dividend that is paid out then at the beginning of 2027. And the new payout ratio is set at 50% of FFO I compared to 40% of FFO I for the guidance for this year. And this translates into a quite strong growth in the dividend of nearly 30%. On Page 4, you'll find more details on the financial performance and the German portfolio. I don't want to discuss with you every figure, but perhaps interesting at the bottom of the page that we have begun also to acquire in Germany again. So yes, it's still a quite small number. So 367 units acquired until end of October 2025, but perhaps there's more to come in the next week. So we are finding opportunities, yes, on small sizes on one side. But if I look at the average acquisition multiple or a gross yield that we achieved around 10%, so these are really high-yielding assets, quite attractive portfolios, still vacancy rate in these portfolios, locations that we know very well in Eastern Germany. So we're happy that we acquired also some units in Germany. And yes, of course, we have to invest into these properties, but not massively. So therefore, we see opportunities in the German market as well, although clearly, as already mentioned in the previous calls, the main capital allocation is currently happening in Poland. Let's jump to Page #7 of the presentation, where you'll find more details on the FFO I development. I think I already mentioned the main highlights of increase by 4% year-on-year. Just as an explanation, if you look at the table, you'll find also one-offs that we eliminate. In this case, we're eliminating gains, in a negative number is EUR 1.9 million. So just as a background, you find also more details in the interim report. We’re eliminating subsidies that we received for modernization work. So therefore, we have, for the first time since longer ago also already one-offs that we eliminated here. Let's go to Page #8. Page #8 shows you the development of FFO II, which is based on FFO I plus the Polish sales business. As said, the third quarter was already a good one. So the adjusted net income from sales in Poland came in at EUR 17.6 million compared to EUR 11.6 million in the second quarter. And I think the first quarter was even lower. But once again, we expect now for the fourth quarter as a result of high handovers, a quite strong result. So therefore, we are very confident that we achieve our full year guidance for the sales result in Poland. Page #9 shows development of the EPRA [NTA/NAV] also on a per share basis. We still had a growth in the third quarter despite the capital increase conducted obviously below the NTA, but this impact was not meaningful. You see this on the chart. So the dilution effect on a per share basis was EUR 0.35, that means the net profit that we achieved during the first 9 months was far higher than this smaller dilution effect. You see that we had in the first half a positive impact on the NTA per share from the portfolio revaluation of EUR 0.69. If you remember the numbers, we had in Germany a value increase of 1.4% in the first half of 2025. If you ask us what is the expected valuation result for a second half 2025, I mean, obviously, as of today, we have not a precise number, but we expect that the value uplift in our German portfolio should be very similar to what we have seen in the first half. So something around 1.4% like in the first half of 2025 is that's a good estimate. And that's, yes, of course, on one side, still a small value increase, but important that we are now seeing the third valuation in a row in Germany where values are growing again. And that's, of course, helpful not only for the NTA, but should also support the LTV development at year-end 2025. Then I'm on Page #11 of the presentation that shows the maturity profile. And what I wanted to explain here is our quite strong cash position that we had at the end of the third quarter. So in total, the group had available nonrestricted cash of EUR 1.35 billion, which is, of course, for us, quite exceptional high. But out of this EUR 1.35 billion, roughly EUR 565 million is then designated for the purchase price payment of the Resi4Rent portfolio, which is still outstanding. And we have a larger maturity next year, which is the EUR 470 million convertible bonds maturing in August 2026. So we have the cash already in the balance sheet, and we will use part of our cash position to repay these convertible bonds. So a kind of normalized cash position after payment of the purchase price for the Resi4Rent portfolio and after the repayment of the convertibles is around EUR 300 million, EUR 350 million. And that's still a good cash position, but it's good to have it because we still want to grow and want to continue to grow, especially in the Polish rental portfolio and the cash will be, of course, the basis for this. Let's come to the German business, and I'm now on Page 13 of the presentation. Quite good development that kicked in, in vacancy reduction. So as always, in the first quarter of the year, we had a slight increase in vacancy, so we started the year at around 3.9%. Now here, we present also the vacancy rate from October, which is already down to 3.6%. And when we look in our business in the last days and weeks, how this develops, we clearly expect further vacancy reduction until year-end. So therefore, the German portfolio, which should perhaps not be a surprise, is still performing very well. Looking at the like-for-like rental growth in Germany, that was a little bit reduced compared to the previous year in the first 9 months. So 2.3% in the basis like-for-like rental growth and 2.6% in the like-for-like rental growth, including vacancy reduction. But as I said, firstly, we expect a stronger impact from vacancy reduction in the fourth quarter. And secondly, regarding the basis like-for-like rental growth, it's not a trend that this is going down in the future. So therefore, we should also see here an improvement in the fourth quarter of 2025. There's simply also kind of seasonality in there depending on certain rent increase you do in a quarter or do not in a quarter. It's clearly on an increasing path and the guidance for 2026, which I explained a little bit later, will also confirm this. Let's look at the Polish business, and I'm now on Page 15 of the presentation that summarizes the Resi4Rent acquisition. I mean, we have presented this back in August when we signed the contract, but perhaps some [indiscernible] that are necessary regarding the closing. As you perhaps know, with the press release after the signing in mid-August, we announced that we expect the closing to happen at the end of the third quarter or in the course of the fourth quarter 2025. And basically, there's just one main condition for the closing, which is the approval by the Polish antitrust authority. We have to accept that the Polish antitrust authority extended the process for looking at this project, this is something where we have not really a chance to accelerate this. So that's still all on a good way, so we expect the approval to happen, we expect the closing to happen. But as it is the first transaction of this kind in the Polish rental market, so there has not been an acquisition of this size before as it is basically the first time that the Polish antitrust authority needs to look at such an acquisition and at such a market, the Polish antitrust authority told us that they now want to conduct their own market research. So that means they will reach out to other landlords, they will do some investigations around customer behavior, and that should take some time. So therefore, as a base case, at the end of the first quarter 2026, beginning of the second quarter 2026, the approval and the closing of this transaction should happen. Let's look at Page #16. So after the acquisition closes of the Resi4Rent portfolio, we are almost at our strategic target that we announced some time ago. So close to 10,000 units will be the rental portfolio size at the end of 2026, but that does not mean that we are stopping now the growth in our Polish rental business. So we already have units under construction, and we want to start additional construction of around 2,300 units in the course of next year, so in the course of financial year 2026. And as construction takes roughly 2 years, we will finish them in the course of 2028. So that means we will continue to grow in the Polish rental sector even behind the acquisition of the Resi4Rent portfolio because we simply see the market is attractive. We have a great team and a good platform there. We have a good cash position, as already mentioned before. So a large part of this 2,300 units that we want to start to construct next year is basically already financed from the cash that we have on the balance sheet. And therefore, the further growth in the Polish rental sector is clearly a target for us. Page 17 shows the operational development of the Polish rental portfolio to keep it short, that's still very good and strong. So the vacancy in the units that have been on the market for more than 1 year is still at a low 2.4% and the like-for-like rental growth is still at a very good 3.4%. So that means rents in our Polish portfolio are still growing despite the really exceptional growth that we have seen in 2022 and 2023, and that gives us, of course, confidence for the further development of this portfolio. So that was the rental business in Poland. Then a quick look on Page #18 regarding the sales business and look especially at the sales results. So as already mentioned, the number of units sold in the first 9 months and especially in the third quarter of 2025 was higher than in the previous period or in the previous quarter, so we sold 815 units in the third quarter compared to 566 in the quarter before. And it means another quarter or another number of units sold in the fourth quarter like in the third quarter would bring us more or less exactly to a full year's guidance of 2,800 units. And we also see that the sales volume is increasing. So it's not only the pure number of units sold that is stronger, also the sales volume saw a quite strong increase. So if you add up the first quarter, first 3 quarters of 2025, we are at a sales volume of EUR 327 million that compares to EUR 261 million in the previous year. And we are very happy about this, that we simply observe still quite strong margins. So we're selling in Poland still at gross margins and expect also this to happen in 2026 above 30%. So sales prices remain on high levels, and that creates quite exceptional results in the Polish sales business today and in the next year. And that brings us more or less to the guidance for 2026, which is shown on Page #21. So firstly, a look on the FFO I guidance for 2026. As I said, an increase by 9% in absolute terms and by 4% on a per share basis. The range that we set for FFO I guidance is quite broad this year. So from EUR 187 million to EUR 197 million, so EUR 10 million and the reason for this is simply the estimate that we needed to do for the Resi4Rent closing. So the guidance assumes that the Resi4Rent closing is happening at the 31st of March, that would be exactly the midpoint of the guidance. So if it happens a little bit earlier, so more in the beginning of the first quarter, then we would be more at the upper end of the range. If we close more towards the end of the second quarter, then we would be more or less more at the lower end of the range. So therefore, the little bit broader range in the FFO I guidance. But again, still despite the little bit delayed closing, an increase 9% in absolute terms, 4% on a per share basis. Strong increase, as said from -- in the net income from sales in Poland that we expect. So nearly 50% increase as a result of higher handovers next year and as I said, high sales prices and good margins that we currently achieve in Poland and also the joint ventures that we have in Poland now since, I think, 3 years create for us a quite nice service income that also add up to this good development. On FFO 2, it's a quite strong increase, 19% in absolute terms, plus 14% on a per share basis. And as already mentioned at the beginning, you should also expect a quite strong increase in the dividend on a per share basis. So an increase that should add up to 30%. Page 22 of the presentation explains in more detail the development in the expected FFO I for 2025, which we also increased a little bit today and the expected FFO I for 2026. And as said, the Resi4Rent acquisition is not effective in for full year. You see this year that we assumed the closing for this purpose of the 31st of March 2026. So that's, of course, a main driver for the overall FFO I development, but also the existing German business and the existing Polish rental portfolio, which will grow as discussed strongly in the future contribute to this development. And finally, a look at Page 23, where you find the key assumptions, the underlying assumptions that we expect for our guidance for 2026. Of course, also the EBITDA in more or less all businesses are expected to increase, so quite strongly if we look at 2026 numbers. Just to mention 1 or 2 things. So firstly, we still expect further vacancy reduction in the German portfolio. So whatever we exactly achieve at year-end 2025 will not be the end of the development, so there is further potential in the portfolio. As you see, we expect that also the like-for-like rental growth in Germany should be better next year compared to this year. So perhaps not surprising trend that the rents in Germany are increasing. Rental growth in Poland should still be above 3%, so we still see growing rents there in Poland and not only rental business, but as mentioned, especially the sales business is running very well. So when we look into, for example, the sales number of the sold units that we expect next year, we expect that we sell around 2,900 units, and that should be even on the basis of a little bit higher prices. So the sales volume that we expect in Poland 2026 should be close to EUR 0.5 billion. That's it from my side and a quick overview about our 9-month results and the guidance for financial year 2026. Many thanks so far for listening. But now I'm, of course, very happy to take your questions. Operator: [Operator Instructions] Our first question comes from Marios Pastou with Bernstein. Marios Pastou: I've got 2 questions from my side. Firstly, on the FFO II for next year, I see that's being supported by quite a significant ramp-up in the level of target handovers. Are you able to mention how many of these handovers are already presold and fixed? And then secondly, on the delayed closing of the acquisition in Poland, is there any risk that they place additional requirements on the deal for it to close or that it potentially gets delayed beyond your expectations? Any further comments here will be helpful. Martin Thiel: Yes. To answer your first question, first, it's absolutely correct, so we expect quite strongly increased number of handovers next year. So as shown on Page 23, this number of units should be around 3,200 units, so including what we handover in joint ventures compared to 2,100 for this financial year. So that's, of course, the main driver of the increase. The presale ratio is quite high, so that should be today almost at around 80%. So we have very high visibility on our results for next year. And as you know, it's more only technical risk is that, as always, a larger part of the handover should be in the fourth quarter next year, and we need to hand it over until the 31st of the financial year to realize the profit in the balance sheet and the P&L. So if it's handed over on the 1st of January, then it would be next year. But economically, we have a quite high visibility on that result for 2026 already. And regarding the Resi4Rent closing, I mean, we're very confident that this closes and why are we? In fact, we are, yes, on the one side, after the acquisition, Poland's largest landlords with roughly 9,000 units, but if you look at the overall market, we are a very small part. So we have 1.2 million rental apartments roughly in Poland, out of which we own 9,000. So that means we are far away from dominating the market. We are far away from a situation where we can set prices. We are really price taker and we are competing really against a large number also of private landlords. So therefore, all the arguments on our side. But what we have to respect, as already mentioned, is that it takes time that the Polish antitrust authority basically says, well, this is the first transaction of this kind. We have never looked at the rental market before. We need to or we want to do our own market research. And this is something where we not have the influence on the timing. But the estimate that we've given, so something around 31st of March 2026 should be the best estimate that we have as of today. Marios Pastou: And then just sorry, as a slight follow-up to my first question. If you're now kind of looking at selling around 3,000 units or just below 3,000 units for next year, could we then think of around that level being a good kind of sales and handover assumption beyond 2026? Martin Thiel: Yes. Perhaps we are even a little bit more optimistic because we see a very good development in the Polish sales market. I mean, as you know, the overall fundamental data is quite excellent in this market. But now if interest rates are going down in Poland quite significantly, we see simply more buyers coming back to the market for more people, let's say, more affordable also again to buy apartments. So as of today, if you look after 2026, we're even more optimistic that this number is potentially also something we can increase. Operator: The next question comes from Andrew McCreath with Green Street. Andrew McCreath: Two questions from my side, please. Firstly, on capital allocation, how are you thinking about this with respect to both the build-to-rent and build-to-sell platforms in Poland? Are you seeing better relative returns in build-to-sell right now? And then my second question would be on the dividend. So announced back in August, your intention was to increase this to at least 50%. And today, of course, you've confirmed this. Does this decision to bump up to 50%, therefore, mean that you aren't seeing much in the way of further acquisition opportunities? And then also perhaps just a bit more color on why 50% given your pro forma LTV? Martin Thiel: Yes. thanks for the questions. Perhaps I'll start with the second one. So we are currently -- which is a little bit related to the first one. So we currently pay out or want to pay out 50% FFO I for the dividend for financial year 2026. That's correct. That means we are paying or we have the payout ratio defined in relation to FFO I. So that means we are keeping the full sales results in the balance sheet. And that simply helps us to grow and to grow more or less in two businesses, firstly, in the state business; and secondly, perhaps strategically even more important for us to grow in the rental business. So 50% FFO I is, in fact, as I say, a smaller part of the total cash flow that we generate here and that's how it should be. So with an increased payout ratio, we are not hurting our ability to grow and we are not hurting our LTV target. So that means in a kind of base case, so we construct apartments on our own, we don't need really additional equity. I mean the equity issuance that we did this year in August, that was clearly on the back of, let's say, exceptional acquisition like the Resi4Rent portfolio with EUR 565 million. But this dividend policy allows us really to grow. And regarding capital allocation, I mean, on TAG level, we are supporting quite significantly the growth of the rental business because here, you need or you cannot finance debt in full, it's very clear, so you need additional funds or kind of equity proportion for the construction of the apartments. Whereas in the sales business, this business is to a very large part, financed via customer prepayments. And the business, as you can see from the numbers, is generating a lot of cash surplus. So therefore, just to give you an additional comment, as of today, there's no single shareholder loan in our sales business, meaning in our subsidiary, ROBYG. This company is really funding the full growth on its own and is able to grow. So therefore, we are not shrinking or limiting the sales business. We're very happy if this business is growing as well, but it's doing this based on its own cash flows. Operator: The next question comes from John Wong with [indiscernible] Kempen. Unknown Analyst: Just on that Resi4Rent delay, when you're talking about that the antitrust authorities conducting their own market research, what do they consider as the market? And what's the risk that they consider institutional market in isolation? Martin Thiel: Exactly that's the purpose of the market research that the antitrust authority is conducting that they simply want based on their own research, an overview of how does this rental market in Poland look like? So how many landlords are on the market? Is there a differentiation between the landlords? Are there really different segments? Or is it one rental market? In the end, the view of the customer is the deciding one. So that's the purpose of this antitrust approval. So if the customer tenant is looking for an apartment, is there only one type of landlord he normally rents from? Or is it a broad market? And the second option is the case, right? So we know from customer service that, of course, most important for the choice of the customer is the price of the apartment, location of the apartment, standard of the apartment. So a decision is more or less never really based on from whom am I renting for and if you look at Internet platforms and you cannot even select offers based on who is renting out the apartments. But this is something that you can read currently in reports issued from [indiscernible]. In fact, the antitrust authority and we have to accept this says, okay, that's all good. We see this, but we have not investigated that on our own. So therefore, we have to accept that this takes them sometime weeks and therefore, the approval and the closing of the Resi4Rent transaction is postponed. Unknown Analyst: And just at the -- looking at the development start for build-to-rent, it's quite a significant step-up compared to what you historically have been -- have had under construction. At the same time, you said that there's scope for more units in the build-to-sell segment. So just trying to understand, are you growing your overheads? Or was the platform underutilized? And how should we think about the run rate of developments per annum for both segments? Martin Thiel: Yes, the platform is definitely able to do this. So an additional 2,300 units construction start in the rental business compares units under construction that we had in total, for example, when we have taken over ROBYG, was, I think for sales business, was between 6,000 and 7,000 always units, and it's not far away from that today. And yes, we have in 2022, 2023 after we also sold at that time with lower number of units reduced the number of employees, especially construction department, and we have increased this in the past month. But it was never a change in overhead or as already mentioned, we have never weakened our margins by doing that. So the platform has definitely the potential to do this. So we are not concerned that with this new construction start, we are, how should I say, overstretching the capability of the platform. Unknown Analyst: And just on run rate, how should we think about it in, say, '26, '27 in terms of new development starts? Martin Thiel: Yes. If you want an outlook for the rental business, firstly, we decided to give this year by year. But as we said, we want to grow further. So perhaps 2,300 units construction start is a little bit more the upper end on what could be a future run rate. So if you ask us for a base case, let's assume that perhaps around 1,500 units, perhaps a little bit more is a good estimate for something that we can start every year. And again, this number of units could be financed purely from the cash surplus that we get from the sales business, plus, of course, from the now really growing cash flow from the existing rental portfolio plus then some additional debt that we get back from TAG level without hurting the LTV target. That's for us important. We have a very visible growth opportunity based on cash flows that we produce in the portfolio already based on financing assumptions that are not aggressive, and we know that the LTV is not going up while we carry out this plan. Operator: Our next question comes from Thomas Neuhold with Kepler Cheuvreux. Thomas Neuhold: I have two. The first is on the Polish build-to-hold portfolio. If I compare Q3 figures with Q2 figures, obviously, you reduced the number of units, which you want to build quite significantly. I was just wondering, did you move units from build-to-hold to build-to-sell? Or did you just reduce the speed of the rollout after the acquisition you just did recently? That's the first question. Martin Thiel: Yes, indeed, with some projects, we beat it a little bit because although the cash position is quite good to be too aggressive to start construction with a lot of units. And then on top of that, the acquisition without having the financing in place, that could have been perhaps a little bit too, too aggressive. But now, more or less, the plan to grow the portfolio is still unchanged. It's a time shift of some months. But overall, it has not really changed. Perhaps it's a little bit more, as I said in the answer before, what we want to start in 2026 compared to what should be the run rate in the future, but the plan is clearly to grow the rental portfolio further. Thomas Neuhold: And my second question is on the 2024 FFO I guidance. If I do a simple math, that implies an FFO of EUR 39 million to EUR 43 million in Q4. You achieved EUR 45 million last year in Q4. So I was just wondering, you mentioned there's a certain seasonality and modernization spending. Is this seasonality stronger this year? Or is this just a conservative guidance? Martin Thiel: [indiscernible] obviously comfortable to be more on the lower end or more on the conservative side. But also to make clear that there should be a little bit more maintenance in the fourth quarter. So therefore, the range EUR 174 million to EUR 179 million makes us -- is really something that we absolutely believe in and it should not be – but not be aggressive. And so therefore, we think it's appropriate to set the guidance in this range. Operator: The next question comes from Sheetal Jaimalani with Deutsche Bank. Martin Thiel: Can you hear me? Thomas Neuhold: It's Thomas. Actually, one -- two questions on the German business. I mean you referred to attractive acquisition opportunities, and I think you mentioned yields of 10%. What would be the maximum amount you would allocate here? I mean, let's assume there would be an opportunity to acquire a large German portfolio. Martin Thiel: Yes, then we would also do more. But is this a very realistic case that in such years, you find large portfolios. And again, to be fair and to be fully open, the 10% growth yield is, of course, a little bit -- needs to be seen in relation to some additional modernization work that we need to spend. So after the modernization work, perhaps we are ending up at a sustainable growth yield to call it like this of perhaps 8%, which is still good. But the situation in the German acquisition market is that you find such opportunities, but more in the smaller sizes. If there would be something larger on the market, we are happy also to take this opportunity, always having in mind that we have good growth perspectives in Poland and you know our growth yields there, but we did not, how should I say, stop the acquisitions in Germany. We are not saying that we only want to acquire in a certain size, it's really dependent on the market. So if you ask me for a realistic estimate, yes, we will continue to acquire in the course of 2026. If we have a chance to buy something larger, happy to do it. But you should expect more something in the sizes of some 100 units per quarter. Thomas Neuhold: And the second one is on the Poland rental business. I mean, you plan to grow further through constructions. I mean, how about acquisition opportunities like we saw with your recent portfolio acquisition? Martin Thiel: That's definitely also in a future an option. Resi4Rent acquisition was, of course, regarding the size, exceptional. So a portfolio of 5,320 units in Poland is not on the market every quarter. But as already mentioned in the past, we are not the only larger landlord in Poland. If you look at other larger landlords, like Resi4Rent, for example, most of them have an investment horizon of perhaps 5 or 7 years. So in some cases, also private equity backed, they will exit at some point in time. And yes, we will definitely look at such portfolios and also happy to acquire in the future. If then the pricing fits, that's another question. But generally, we are very open to further acquisitions in the Polish rental market as well. Operator: Our next question comes from Celine Soo-Huynh with Barclays. Celine Huynh: Can I ask you two questions, please? The first one is about -- you raised the capital in August for the transaction closing now in end of March, best case. What are you planning to do with the cash until it gets deployed? So that would be my first question. And then my second question is, can you tell us what you have assumed regarding the rolling of the convertible bond maturing in August? And also if there is any scrip dividend assumption into your FFO I and II guidances? Martin Thiel: Firstly, you're correct, we raised the capital for the acquisition. So the capital increase plus the bond issuance already in August. This cash is currently on the balance sheet in our bank account. That's the reason why we have the strong cash position. We've already converted this into zloty because we need to pay the purchase price in zloty. So there's no foreign currency exchange risk into that. Good news is that currently, we get on deposits in zloty interest income of around 4%. So that reduces a little bit the earnings impact from the delayed closing. Better situation regarding cash for the Resi4Rent portfolio and for the convertible bonds maturing in August 2026, and we are simply repaying this convertible bond from the existing cash position. So as I mentioned, the cash position -- strong cash position that we currently have will be reduced in 2026 by, firstly, the purchase price payment of Resi4Rent and secondly, the repayment of the EUR 470 million convertible bonds in August. And after that, we still have a cash position of around EUR 350 million, which we then use for the further growth in the Polish rental portfolio. And then regarding the last question, we have based our guidance for financial year 2026 on the current number of shares outstanding. If we again opt for a scrip dividend will be decided in March, so we will give you a guidance with the full year figures. But if you look at the impact from the last -- from this year's scrip dividend, that would not change our per share guidance. So it's not that meaningful. Let us decide, please, in March where we stand there, if we say it makes sense to support a little bit the growth further by another scrip dividend or if we change back to a full cash dividend, that's not decided already. But again, the impact is not that material. Operator: The next question comes from Manuel Martin with ODDO. Manuel Martin: Two questions from my side, please. On the Polish business as it is growing continuously, have you thought about zloty hedging one day because for the time being, I think TAG is unhedged. Might it make sense to do that one day? And if yes, at which point? Martin Thiel: Firstly, perhaps to explain our financing structure in Poland. The Polish sales business is fully financed in zloty. So on the one side, of course, a main financing or main financing is coming from customer prepayments, which are obviously in zloty. Secondly, we have local bank loans also issued on the Warsaw Stock Exchange, some bonds in zloty. So that's fully financed in Polish zloty. Regarding the rental portfolio, it's financed in euro. In absolute terms, even after the Resi4Rent portfolio acquisition, I think the total debt, which is allocated then to the Polish rental portfolio is around 10% of our total debt. So that's not -- but it's still a manageable portion. For now, every zloty that is earned in Poland stays in zloty and is reinvested. This will change in some point of time. So at some point of time, the rental portfolio will be even more meaningful. That will be the point in time where we transfer cash from Poland to Germany, for example, to pay out a higher dividend for our shareholders. And at that time, which is perhaps not 2026, we will look into hedging strategies for this cash flow. But as we are a long-term investor in Poland, we don't need to hedge any equity portions or other things at one point in time right now, it's more about the future cash flows that we will then start to hedge in the future. Manuel Martin: And second question from my side. The potential value increase of the TAG portfolio in the second half of the year, this plus 1.4%, is this including CapEx measures? Or is it -- or is this what we might see as a value increase coming from the market? And do you have any view on that for the time being? Martin Thiel: Yes, this includes the CapEx impact like in the figures before, so the 1.4% that we had in H1, I think it was 0.9% in H2 last year is the like-for-like value increase so after CapEx measures. If you eliminate that, the pure valuation result that is in the P&L is a little bit lower. So it's not perhaps 1.4%, it's more 0.9% or 1.0%. So that's not a super huge impact, but it includes CapEx. Operator: The next question comes from Kai Klose with Berenberg. Kai Klose: Three quick questions, if I may. The first one is on Page 15 of the 9 months report. The impairment losses were in 9 months, EUR 3.5 million. So EUR 1.5 million in Q3, so a little bit higher. Is this mainly -- I assume it's mainly for the German portfolio, but maybe you could explain what is the reason for the slight increase Q-on-Q? Second question is on Page 17. We had quite a strong increase in other services for the joint venture in Poland. Could you remind us, is this now more or less completed? Or can we expect any more or significant contribution in Q4? And last question is on the government grant of EUR 3.4 million, this was EUR 1 million in H1. Could you also remind us what can we expect for full year and maybe beyond for this item? Martin Thiel: Thanks for the questions. First, to explain the volatility in impairment losses. Firstly, that's more or less purely from the German portfolio. We are always doing in the third quarter of a year an update, so compare what we have seen in the past 9 or 12 months in reality compared to our estimates, and therefore, there's always an adjustment. I think this year, it's a little bit up. Last year, if I remember well, it was a little bit down. So there's a slight volatility always in Q3. But overall, if you compare that on an annual basis, and this is also true for the definitely next year to come, there's overall not an increase in impairment losses in German portfolio. I mean, to the contrary, I think this number is getting a little bit better year-by-year. So that's more technical as we do this update every year at the end of the third quarter. The other services in Poland indeed contain the services that we do for the joint ventures in the sales business. What are we doing here? So we own normally 50% of the joint venture company, and we do, in addition, the full construction work, we're doing the full planning process. We're doing the sales. We are doing the customer service. And for all this, we get then fees. There's some volatility based on the number of apartments sold in the JV. So if we sell more in 1 quarter, obviously, the service fee is higher. But also here, perhaps it makes more sense to analyze that the full year figure -- so what we have already seen 2024 and what we will see in 2025 is perhaps a good estimate for the years to come. Perhaps to give a general flavor of the size of our joint venture business, we are selling all that -- in the sales business, I would say there's between 20% to 25% of the total sales business currently within JVs and the remaining part, so 75% to 80% is really for the [indiscernible] part. And regarding the government grants, that's difficult to predict because this is then coming once we really receive the approval from the government. This is mostly related to subsidies for modernization work. And as I explained during the presentation, if this happens, we are eliminating this from FFO I because as we are capitalizing the expenses, it makes no sense, although it would be, of course, some positive impact, but it makes no sense conceptually to include this grants or the subsidies in FFO I. So whenever it comes, we will eliminate this from FFO I. Kai Klose: And just a second question, where do I see the elimination in the FFO calculation? Martin Thiel: In the FFO bridge. So you'll find this in our interim report. And if you look in the presentation on Page 7, you also see this elimination. Operator: [Operator Instructions] Our next question comes from Simon Stippig with Warburg Research. Simon Stippig: First one would be on Page 5 of your presentation. You show the Polish portfolio overview and more precisely on the rental business, you show your gross asset value of EUR 700 million -- almost EUR 730 million. So in regard to that, my question would be what's your LTV on that portfolio, your gross debt? And I would also be interested in the debt split. So how much of the debt is, for example, in shareholder loans? Martin Thiel: Well, to give you the figures here on the Polish rental portfolio, we have bank financing of EUR 119 million and the remaining part is then shareholder loans. And we are deciding for shareholder loans because in the meanwhile, it is cheaper for us to issue on TAG level bonds and then to grant to our subsidiary in Poland, this proceeds of shareholder loans because the margins that we have in our bonds today are lower than the margins that we get from bank loans in Poland on the rental business. Just to give you the dimensions. So currently, a 5-year TAG bond is trading at a margin of around 120 basis points. That's more or less exactly the margin that we get from German banks. Perhaps German banks are a little bit cheaper, but difference is not that huge anymore. Polish bank loans would be margins of perhaps EUR 180 million to EUR 200 million. So therefore, we are financing that to a larger part for this economic reasons from group perspective by shareholder loans. And if we then grant the flows to the financing for the Polish rental portfolio via shareholder loans, as I explained or if we put in some equity into our subsidiary in Poland, that's more or less completely tax driven. So at the moment, I think we have roughly EUR 200 million of equity remaining part of shareholder loans and as I said, EUR 190 million of bank loans. Simon Stippig: And for 2026, you -- do you plan any net investments from Germany into Poland due to your ramp-up in the rental portfolio? Or you cross finance that only from your sales business in Poland? Martin Thiel: Yes, we use also part of the existing cash from that. So if I simplify this a little bit, what we have as cash position in the balance sheet as of today is enough to finance the construction work for the rental portfolio in 2026 and 2027. Simon Stippig: And last question would be in regard to FFO. I think it's Page 7. There you show on a quarterly comparison from Q2 to Q3 and also 9 months '25 to '24, you AFFO decreased materially. I think it's EUR 16 million on a 9-month period basis. And then obviously, you have higher modernization CapEx, but could you comment on that? What are you using it for? Is that a run rate for the future in regard to CapEx? That would be much appreciated. Martin Thiel: Well, I mean we are now on a level where modernization CapEx for basically energetic modernization of the buildings in Germany has reached a level that we expect it to continue in the future. So we have ramped that up more or less year-by-year. It's not a linear function. So also this CapEx has a kind of volatility depending if we start new projects or if we do it a little bit later or earlier. But we are now simply on a level that we basically already predicted when we published our decarbonization strategy back in 2021. So you should not expect, how should I say, a very strong growth in the years to come. Operator: Ladies and gentlemen, this was our last question. I would now like to turn the conference back over to Martin Thiel for any closing remarks. Martin Thiel: Yes. Again, many thanks for dialing in and for listening to our call. As always, if there are any questions left, please feel free to contact us. Happy to answer that any time. Have a good day, and hope to see you soon on conferences or at the latest in March next year for our full year results. Many thanks. 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, ladies and gentlemen, and thank you for joining us today. Welcome to Natura's Third Quarter 2025 Earnings Call. [Operator Instructions] Joining us today are Mr. Joao Paulo Ferreira, our CEO; and Silvia Vilas Boas, our CFO. The presentation we'll be referring to during today's call is already available on our Investor Relations website. I'll now hand things over to Mr. Joao Paulo Ferreira. Mr. Ferreira, you may proceed, sir. João Paulo Brotto Ferreira: Good morning, everyone. I'd like to start today's call by acknowledging our weak performance this quarter. The results were disappointing, falling short of expectations, both in sales and profitability, even though part of the challenges we faced were deliberate and planned. The main challenges we faced this quarter were: first, G&A. The drop in revenue put pressure on our margins. And while selling expenses were down, total G&A spending stayed above last year's level, driven by the structural investments we have been making. We decided to keep these strategic investments moving forward, including the new consultant network online store as the benefits expected in 2026 are significant. The second challenge was the macroeconomic slowdown, especially in Brazil, where consumer spending was hit harder than we had anticipated. We are not satisfied with our revenue performance in the region. The adjustments we made to our portfolio weren't enough to capture emerging demand trends, largely because the Avon brand wasn't yet ready to respond. That brand could have benefited from the current scenario. And speaking of Avon, I'd like to mention the third challenge. We've continued to see revenue decline for the brand, driven by a slow pace of innovation and new product launches. In the meantime, while we are preparing for its relaunch in the first half of 2026. Finally, challenge #4, they have to do with the final impacts of Wave 2, especially in Argentina. This quarter, the main operational challenges came from Argentina as the major commercial changes affected consultants coming from the Avon network more than we had anticipated. This led to a real drop in revenue in the country made worse by the unfavorable FX movements. Mexico also saw a decline in revenue, though it continued to show steady month-over-month improvements. Finally, in Brazil, the closure of the Interlagos plant caused temporary disruptions in Avon product availability, impacting sales. Despite these challenges, we are confident we'll see progress in the coming quarters. Our business in Mexico is already showing signs of recovery, and Argentina is on track to stabilize by early 2026. In addition, we're moving ahead with structural efficiency initiatives made possible by the post Wave 2 simplifications and harmonization. As a result, we reaffirm our commitment to expanding recurring EBITDA margin in full year or fiscal year '25 versus a full fiscal year 2024, which should translate into stronger profitability as early as Q4 2025. Lastly, our corporate streamlining efforts advanced with the sale of Avon Central America and Dominican Republic and the signing of the agreement of the sale of Avon International. Starting in 2026, once the transformation cycle is complete, our focus will shift towards sustainable growth and delivering returns to our shareholders. I'll now hand things over to Ms. Silvia Vilas Boas, who will walk you through the details of our financial performance for the quarter. Silvia Vilas Boas: Thank you, JP. Good morning, everyone, and thank you for coming. Before going into the detailed financial results, I'd like to emphasize 2 essential points that JP has already mentioned. First, this quarter has disappointed and frustrated our expectations. Later on, I'll give you more details about it, why? Second, the point regarding corporate simplifications. They are extremely relevant to the company, but they do end up making the comparability of our financial statements very difficult. For that reason, we have included a pro forma in the earnings release to facilitate the analysis. In this presentation as well as in the release and the supporting Excel available in the Investor Relations website, we have already provided adjusted and comparable basis. This means that we show the numbers for 2024 and 2025 already excluding Avon International and Avon CARD. In addition, we consider the results reported by the holding company, both in 2024 as well as in the first half of 2025. Only the third quarter of this year already fully reflects the results of Natura Cosmetics after the merger of the holding on July 1. We know that these adjustments have been recurrent and make the analysis more challenging. But as I said, they are important steps in simplifying and they're close to the end. With the conclusion of Wave 2, we're only missing now the sale of Avon International in Russia. Another important point, as agreed this quarter, the release contains a new disclosure of information we presented during Natura Day. This includes the opening of the operational income statement for Brazil and Hispana in addition to other indicators that will facilitate the understanding of the business and the monitoring of the execution of strategy. After analyzing the new openings, we rely on your feedback to continue evolving. Now let's move on to Slide #5 to detail our revenue performance in Brazil. In the third quarter, Brazil, in the consolidated period, had a revenue drop of 3.7% year-over-year. When we look at the brands, Natura Brazil posted a flat revenue versus the same period last year, but it's important to note the sharp slowdown from the low double-digit growth we recorded in Q2 this year in the Natura brand. This movement mainly reflects the slowdown in consumption that affected the region from June onwards, as we have mentioned before, impacting our performance. Avon Brazil recorded a drop of 17.3% in the quarter. This result was influenced by 3 main factors: the adverse macroeconomic scenario impacting purchasing power, the absence of recent innovations in portfolio, a point we have reiterated as the brand prepares for the relaunch scheduled for the first half of 2026, which will bring a renewed portfolio aligned with the new positioning. And due to temporary operational impacts resulting from the closure of the Interlagos plant completed in October. All production was migrated to Cajamar, which impacted the availability of products. Our inventories are in the process of being rebalanced to reverse the last operational impact, which impacted the Avon brand in Brazil. The Home & Style category fell 9%, in line with Q1 '25, but below Q2 '25, which had been driven by an optimistic campaign in the opportunistic campaign in the category. Regarding the channel's performance, it's important to emphasize the reduction in the number of consultants and their productivity is concentrated in the less productive consultants who are more sensitive to credit restrictions. The most productive consultants continue to grow year-over-year. Finally, regarding the non-VD channels, both the digital channel and the retail channel continue to grow at a healthy pace, but still with low penetration in total revenue, emphasizing the role as important levers for the future growth. Moving on now to Slide #6, which details Brazil's profitability. We can see in the left column of the chart that we went from a recurring EBITDA margin of 23.1% in Q3 '24 to 16.2% in this third quarter. The decline is mainly explained by the deleveraging of G&A impacted by the market slowdown and the maintenance of strategic investments. These investments include the project of new integrated planning, which we mentioned frequently on Natura Day, very important project, which will allow from greater demand accuracy to inventory efficiency. Digitization tools to improve the journey, both for customers as well as consultants and investments in innovation, which includes the relaunch of the Avon brand, which will take place in the first half of '26, which brings us exactly to JP's point. These investments that were already underway are fundamental levers to support growth and results from 2026 on. And therefore, we made the decision not to stop these projects. It's worth mentioning that the initial setup and cost for these projects are concentrated in our main market, which is Brazil, impacting G&A. These very same projects will subsequently be implemented in Hispana at a substantially lower cost than in Brazil. In addition, we had a drop in gross margin of 300 bps year-over-year, as shown in the second column on the slide. This margin, however, remains at a healthy level, and the drop is mostly explained by the strong basis for comparison. As evidence that this gross margin is healthy, figures for the first half of 2025 in Brazil showed a gross margin at levels close to this quarter, but with an EBITDA margin around 21%, reflecting a greater expense efficiency in a period of strong revenue growth. However, we are displeased with this quarter's results, and we need to make our company simpler and more efficient. The sharp slowdown we have experienced has made it even more urgent to anticipate structural actions to reduce expenses, which will lead us to less dependency on the macro scenario and a more agile and efficient organization. Now moving on to Slide #7. Let's analyze Hispana's performance. The region posted a revenue drop of 3.9% in constant currency and 24.9% in BRL. Excluding Argentina, the drop in constant currency was 1.6%, which measures the impact we had in the region due to integration made in July. The Natura brand in the region grew 12.3% in constant currency, but showed a drop of 12.2% in BRL, greatly impacted by the adjustment of hyperinflation. In addition, Wave 2 and general slowdown in consumption in the country brought more pressure to revenue. However, when we look at the performance of Hispana, excluding Argentina, we see the Natura brand growing in high single digits in constant currency. This represents an acceleration when compared to the low digits we had presented in the second quarter of '25. This acceleration is explained by Mexico's performance, which showed sequential operational improvements each month in Q3 until revenue stabilization year-on-year in September. Other countries maintained the good performance presented in the first half of the year. Moving on to the Avon brand. Revenue fell 27.2% in constant currency and 41.9% in BRL, also impacted by hyper and Natura impacted by the integration in Argentina in July and slowdown in consumption in the country. In addition, Avon has also been pressured by the total migration of the physical magazine to hard cover to digital distribution. This, which happened in June impacted the third quarter of '25. Although to a lesser extent than Natura, Avon showed a sign of recovery in performance, excluding Argentina, reducing its decline in the quarter to 15.4% in constant currency versus 20.5% decline recorded in Q2 '25. Finally, the Home & Style category also had strong impact from integration in Argentina and continues to be under pressure by the integration in Mexico, but it's more relevant. The category recorded a drop of 35.9% in constant currency, 48.7%, BRL. The channel's decline after Wave 2, along with the trade adjustments in the integration process led to this sharp decline. Now moving on to Slide #8. In terms of profitability, Hispana presented an EBITDA margin of 4.5% in the third quarter of this year, implying a drop of 100 bps year-over-year, as shown in the chart. This performance is the result of opposing forces. The gross margin benefited from the accounting effect of hyperinflation in Argentina, which, on the other hand, significantly pressured our revenue as we detailed in the previous slide. In addition, the start of capturing efficiencies unlocked in our expenses in the region's integration process was still preliminary and not enough to offset the drop in revenue, leading to a deleveraging of SG&A. Looking specifically at G&A in this quarter, there was an impact from expenses with terminations. It is important to note that they are not included in the transformation costs as they're not related to the Wave 2 process, although they also aim at organizational efficiency for the company. Excluding this impact, general and admin expenses at Hispana would have shown a similar drop to revenue, even with part of these expenses linked to the BRL, which appreciated against Hispanic currencies during the period. Finally, it's worth noting that excluding Argentina, the EBITDA margin improved year-on-year, reflecting the recovery in revenue in Mexico and good performance of the more mature integrated countries. Moving now to Slide #9. Now we're going to look at our results in a consolidated way. We see revenue declining 3.8% in constant currency and 13.1% in BRL, reflecting the slowdown in Brazil, temporary challenges of Wave 2 in Hispana as well as the appreciation of BRL against Hispanic currencies and strong impact of hyperinflation accounting on our Argentina revenue. In terms of profitability, we presented a drop of 350 bps year-over-year on a consolidated basis or 360 bps when we look only at the Latam operation. The 10 bps difference between the 2 performances is explained by corporate expenses, which we previously called holding expenses, which decreased 27.7% year-on-year and therefore, accounted for 60 bps for the consolidated revenue versus 70 bps in Q3 '24. Looking at Latam's profitability here, once again, the G&A issue stands out, which explains all the variation in the EBITDA margin year-over-year and forces the urgency of concluding the setups of our restructuring investments and taking structural actions to unlock efficiencies throughout the organization. Now moving on to quarter's total net income on Slide #10. Our last line was once again impacted by noncash and nonrecurring accounting effects related to our discontinued operations, which are available for sale. This quarter, we recorded a loss of BRL 1.8 billion. This figure mainly reflects the impairment of BRL 2.8 billion in the book value of Avon International, excluding Russia. This loss was partially offset by a gain of BRL 1 billion due to the maintenance of Avon's trademarking and the rights in Latin America as detailed in the material fact dated September 18. It is important to note that the impairment of BRL 2.8 billion is explained by the intention to sell the operation for [ GBP 1 ] and its book value, as shown in the second quarter was BRL 2.8 billion. Regarding net income from continued operations, we posted a loss of BRL 119 million in the third quarter. This represents a worsening when compared to the profit of BRL 301 million recorded in the same period last year. This change is the result of revenues and profitability under pressure. As I have already commented, a worsening of the financial results explained by the unfavorable effect of the exchange rate hedge of our debts in dollars. However, these effects were partially offset by lower tax expenses given the reduction of our EBT in the quarter. In Slide 11, we look at our firm cash flow the 9 months of 2025, it totaled BRL 301 million, which represents a reduction of BRL 81 million when compared to the same period of the previous year. This reduction was driven by 2 main factors. First, operational worsening of results, which, however, was almost entirely offset by the tax line. And second, the deterioration of our working capital, which worsened by BRL 37 million. Analyzing the working capital dynamics, we see a significant improvement in receivables, reflecting the tighter credit we have implemented. This, however, is offset by the worsening in the line of payments and other assets and liabilities. Finally, it's worth noting that our inventory line worsened by BRL 65 million year-on-year, explained by revenue that was lower than expected in this third quarter. Regarding free cash flow, the year-on-year worsening was BRL 172 million. This difference is explained by the BRL 81 million reduction in the firm's cash flow. And the remainder is mostly attributed to currency effects on our cash position. Moving on to Slide 12. My last slide, the one on indebtedness. In this quarter, our net debt was practically stable, BRL 4 billion which reflects the firm's cash flow -- neutral cash flow. In the quarter, the payment of debt interest around BRL 90 million. However, our leverage goes from 2.18x in the second quarter of '25 to 2.53x this quarter. Why is this happening mainly due to the deterioration of EBITDA reported in this quarter in the year-on-year comparison. Finally, it's worth remembering that EBITDA for the fourth quarter of 2024, which is used in the calculation basis for EBITDA for the last 12 months, had a negative impact of BRL 564 million from these strategic projects previously led by the holding, mainly related to Chapter 11 of API. So excluding this effect, the net debt EBITDA metric would be 1.87x in the third quarter of 2025. This is our adjusted leverage number. By the end of the year, we expect to end the 12-month period within our optimal capital structure position between [ 1 and 1.0x ] leverage. Before giving the floor back to JP, I want to highlight that the continued recovery in Mexico, the gradual improvement in Argentina's performance and the capture of benefits from the tactical reductions that we implemented in the third quarter will be the factors that will make it possible to an improvement in margin already in the fourth quarter. And finally, the expansion of the recurring EBITDA margin for the whole of '25 versus fiscal year '24, which reiterates our commitment, which we made to the market at the beginning of the year. I give the floor to JP and then I'll turn -- come back for the questions-and-answer session. João Paulo Brotto Ferreira: Thank you, Silvia. Before we move on to the Q&A session. I'd like to wrap up the presentation with my closing remarks. As to 2025, I'd like to echo Silvia's comments and reaffirm the expansion of our recurring EBITDA margin for the year. I'd also like to reiterate that this was the last year we reported transformation costs and adjusted EBITDA. We remain confident that we are well positioned to deliver on the ambitions outlined at Natura Day starting next year. Mainly strengthening and expanding our leadership in Brazil and Argentina, driven by the modernization of our direct selling model, strengthening our business in Mexico, accelerating our growth in D2C channels and in the hair care category, reigniting the Avon brand, implementing a more agile business model designed to capture the new strategic opportunities I just mentioned. And finally, realizing the returns from the structural investments we discussed today driven -- or driving gains in efficiency, profitability and cash conversion. That concludes my remarks. Thank you very much. We will now move on to the Q&A session. We'll now begin the Q&A session. Operator: [Operator Instructions] Danni Eiger, sell side analyst from XP, asks the first question. Danniela Eiger: I'm just going to ask this one. We see a very challenging macro context, especially in Brazil, but you also mentioned Argentina. And we see other players going through similar situations, that it seems there's not a lot of room to handle all of that. And it looks like that you've taken the initiative to move in terms of expenses efficiency a bit more tactical, but evolving into structural adjustments. Actually, I'd like to explore what else can be done? So first, in terms of structural initiatives, if you can provide some order of magnitude in the key areas would be nice. And when the structural project will be concluded. And on the other hand, what else can be done? I don't remember if it who -- which of the 2 of you mentioned the adjustment on the offers that was not enough. JP, I think you were the one who mentioned. Are you looking at other possible adjustments in portfolio or pricing or somehow in your product offer for a more challenging reality for a longer challenging time? I think Avon is being rebuilt sort of say, but in Natura itself, what are you still looking in terms of opportunities? And also in terms of credit, you talk about credit restriction, it makes sense given the default contact at more elevated levels. Maybe you could use Emana Pay, maybe a bit -- overall the leaders kind of fostering Emana Pay. And if you have some kind of flexibility of using that as a driver or others that I haven't thought about what's in your hand to deal with a more challenging scenario besides expenses. João Paulo Brotto Ferreira: Let me start by addressing your question about the revenue consumption and then Silvia will field the question about expenses adjustments. Well, we do not foresee any major changes in consumption. We don't detect any trends that will shift the current scenario. Well, having said that, there's always something we can do the first lever credit. We used to be more restrictive as far as credit goes. That's why delinquency is under control, that will impact the work that our consultants do. But in reality, credits, payments and collection we have in our pay system are top quality. So once you migrate the portfolio to the pay gradually, we'll be able to provide credit more efficiently. That's why we're speeding up the migration. The portfolio to the pay, which in turn, will improve the efficiency of our consultants, and there's more. There are regional opportunities. The consumption behavior we have in the Northeast and in the state of Rio Grande do Sul, and we are monitoring that management at the micro level, at the regional level to determine what's more interesting in each one of these markets and then adjusting the portfolio. And the categories that are more profitable at this time of the year, and we are focusing on those segments. Well, having said that, Avon could be a very important lever for this -- at this point in time, but the portfolio is not appropriate unfortunately. In summary, yes, we can make adjustments to try to boost capture at this point in time, especially in Brazil, as well as in Argentina. Over to you now, Silvia. Silvia Vilas Boas: Danni, thank you for the question. Let me address G&A that was the problem we had in profitability. I'd like to give you more color. As to what we've done so far and what we will still do. Well, this G&A level is not going to be the standard level for the company. This is key. Well, having said that, the book value of G&A dropped quarter-on-quarter. As a percentage of the revenue, we don't see that progress. The slowdown in Brazil was above what we expected. Here's what we started to do when we detected that slowdown. We reviewed our portfolio to shutdown projects that would start this year, we froze all vacancies. We cut on discretionary expenses but that was not enough. That's why we are taking structural measures that are relevant to simplify the organization even further. These measures will bring benefits as of 2026. When we look at G&A in Brazil, we see important impact on projects. As I said and JP said, we decided not to stop. These are projects that had already been going on and they are very important to enable future growth and future returns as of 2026 and they still impact G&A. One of them is integrated planning. We've talked about this project on our Investors Day. It's a complete review that will bring benefits. Efficiency gains in inventory, a very important project that is supposed to -- that we expect to conclude later this year. Other projects related to the digitalization of the consultants journey and the customer's journey, it's also a very important project because the consultant digitalization will allow us to promote direct sales, the non-VD channels and finally, innovation. Innovation impacted G&A this quarter. These are important investments especially when we consider the new Avon portfolio. The kickoff will take place in the first half of 2026. Well, in Minas Gerais, our G&A level has been high. We've had that nominal improvement when compared to Q3 and Q2. We expect to capture additional benefits based on the technical measures that were implemented in Q4 and that urgency to make those structural changes so that we can be prepared for the market. Danniela Eiger: Let me just ask you a follow-up as far as pricing. Do you consider reviewing prices because of those giftable category? There's a tough competition for pricing, not only comparing cosmetics and cosmetics, but maybe jewelry, chocolates, now considering about the seasonality, is there room to maybe make some price adjustments? João Paulo Brotto Ferreira: We always look at the price dynamic comparing the market overall competition. As you said, competition is not always in the same category, but we try to make adjustments and we will make some adjustments, but they are marginal ones, even though they're absolutely relevant. Operator: Our question comes from Luiz Guanais from BTG. Luiz Guanais: It's Luiz, here. I think 2 questions on my side segueing piggybacking on the previous answer, JP, if you could further explore the top down scenario in the market in different segments where Natura does business. How do you see the trend for the end of the year and early next year, if there's any sign, even if it's a small sign for some inflection in categories, consumer categories? And the second question also segueing to Danni's question is how much room we have for price forwarding or -- thinking about next year, if we could expect some room for price increase for the categories that you do business in? João Paulo Brotto Ferreira: Well, let me address the market. The market has been slowing down throughout the year, and it's been growing a little lower inflation. The market used to be growing well above inflation rates. And basically, the main driver is the price. Volumes are flat, slightly negative in the beauty category, the more discretionary categories. These are important categories for us. We haven't seen any major inflection signs. I think the slowdown has been halted. That's the impression we get. But these categories are very elastic to available income and prices. So we have to keep on monitoring what will happen to available income. The government is planning to boost income especially for next year and that -- if that happens, that will be helpful. We'll have to wait and see. We've always tried to adjust prices to work on our margins. And we don't see any problems in doing that, especially when you have a leading brand like we do. We have to determine what the price adjustments are not only list prices, but also through innovation. Our pipeline is very strong for next year, a very innovative one for that matter. So I'm confident we'll be able to implement habits to recover margins through prices as well. Operator: The next question comes from Ruben Couto from Santander. Ruben Couto: Can you elaborate on your expectations on your consultants network. I think there's the journey effect of those less productive consultants in Hispana, is at a different stage in Wave 2? What can you expect from your consultants base, not only at year's end, but also for next year? Are you trying to increase the number of consultants maybe by benefiting from the macro situation in Brazil, the macroeconomics, but do you remain focused on productivity? There's no room for boosting the number of consultants to offset that slowdown. João Paulo Brotto Ferreira: Yes, there is room for growth in the number of consultants. The number was indeed affected by the churn of small consultants, which was also affected by credit restrictions. We see a lot of room to restructure our number of consultants in Hispana as well as Brazil. This is one of the growth vectors for the coming years, for sure. Operator: Our next question is from Rodrigo Gastim, analyst for Itaú BBA. Rodrigo Gastim: Major question that remain for me was what, in your opinion, was this diagnostics for a gross margin in Brazil. JP made a few comments in the beginning, but I would like to explore. We see the macro slowed down, but the growth of the quarter was a bit below the market growth. You mentioned it yourself that you were displeased with the results JP. Question is, if you could go back in time 3 months, would there have been something you could have done differently in terms of revenue. How much in terms of gross margin? I would like explore and understand that a bit more. But now on the micro side, the initiatives for revenue and gross margin were this combo fall short on the third quarter? And the second question in line with the first one. When you look at Brazil margin, the year-over-year drop when you look at a more stable operation in top line in terms of -- with a more stabilized macro condition. What is the ambition in terms of profitability for Brazil, looking at EBITDA margin? Those are the 2 questions. João Paulo Brotto Ferreira: You know we want to defend our leadership and even expand our market share. Year-to-date, the Natura brand has been performing well despite being under our expectations even in Q3 but we keep on working to get to that goal. We won't be able to expand share this year for the Avon brand. In the short term, the levers I mentioned before, could have been moved even more substantially to bring in even more revenue, mostly credit we've been speeding up that migration to pay, which will give us more credit alternatives. If we were to -- if we had moved more quickly, we'd be able to adjust the activity in the channel. And assortment by region, as I said, they have different effects . But looking back I think we could have done little bit better. Silvia will address profitability. Silvia Vilas Boas: Rodrigo, thank you for your question. Let me start with gross margins in Brazil. Gross margin was down when compared to last year. Q3 2024 was very strong, but the gross margin was healthy for Brazil despite this drop when compared to last year. What do I mean? It's healthy. When you look at the first half of the year, our gross margins were at the same level and profitability was around 21% in Brazil. That margin can yield good profitability for Brazil. Looking ahead as far as profitability goes, this is what we said during Investors Day. Profitability has always been strong in Brazil, and we are going to keep delivering on those track record. There are no reasons for the contrary. When we look at 2026, despite all the efficiencies of the structural transitions, you'll be completing the projects this year will allow us to have additional gains in that sense. Rodrigo Gastim: That was very clear, Silvia. Let me just double check on it. Let me make sure I understand it. Margins for Brazil last year, you have a strong comparable basis. If you could explain why? What pushed that margin up last year when compared to Q3 and revenue was used for operational leverage. What would be a reasonable level for Brazil, just to make sure I understand that right? Silvia Vilas Boas: Rodrigo, when we look at Q3 last year, the impact was very favorable because of FX movements in a business that had been growing extensively in categories that had higher contribution margins. Operator: Vinicius Strano from UBS asks the next question. Vinicius Strano: I have 2 questions. Let me focus on to Natura Brazil. What are the categories that are impacted the most? To better understand what the mix importance is down the road. Looking at Avon now, how are you going to invest in to revitalize the brand? What type of repositioning is? What are the main KPIs are expected results or any expected deliveries, that would lead you to discontinue the brand in the long run. And the last question, it's about Avon International. What's the visibility we have in terms of cash evolution? Do you expect closing it for early next year with no need for additional cash inflows? João Paulo Brotto Ferreira: The market has been shrinking basically in all its categories, mildly, slightly in the beauty categories. So makeup, facial products and perfumes, it's not a big difference, but daily use segments and beauty segment have been shrinking considering that beauty slightly a bit higher contraction and our business has a bit more items of beauty rather than daily use. In terms of Avon, I can't reveal all the details of the relaunch of Avon, but I can confirm there's a lot of room in the market where this brand really fits in a very well-defined audience. But to that end, the brand has to be repositioned and the portfolio has to be redesigned. I unfortunately cannot share any more details. But of course, we expect to start growing again. The profitability has improved significantly after integration. So the Avon brand has positive contribution margin in all of the reports after Wave 2. So we want to go back to growing even more profitably. If that does not happen, we'll assess possible scenarios at the right time. Okay. So Silvia, Avon International? Silvia Vilas Boas: Vinicius, Avon International, the plan moves forward as planned. The expectation is to conclude the sale in the first quarter of '26. Now regarding the cash situation, the Avon International team is executing the plan and capturing benefits from the restructuring movements of the first quarter. So there's no expectation of additional cash inflow for Avon International. Operator: Our next question is from João Pedro, Citibank analyst. João, I have sent you a comment so that you can open your microphone. Our next question comes from [ Luiz Guanais ], Goldman Sachs analyst. Irma Sgarz: I have 2 more quick questions. Based on the comments of the release, it looks like you see room for greater growth in Mexico. Obviously, there's a whole issue on recovery after Wave 2. But in terms of market share, do you see that maybe there, there's greater room than in other markets. If you could go into detail a bit more, which categories and how you intend to grab this market share in Mexico and especially? And if you could just explain a bit more what you're thinking in terms of innovation, which was a topic that you highlighted significantly in Natura Day, June, July, I guess. If you could speak to how you are protecting this area, shielding this area during this moment where you're seeking greater efficiencies throughout the organization as a whole. João Paulo Brotto Ferreira: Well, yes, it's true. Mexico is the geography in which we have the largest market share upside because we are the most under-indexed when compared to other countries. There's a very direct and simple driver that starts now, and that's the Natura penetration on the inherited direct sales channel from Avon, a very large channel compared to what we had. And now we have direct access with the Natura brand. So the brand can now go to many more households. That can be translated into an important productivity gain. And on top of that, there is investment to make the brand even more known in that region, just like it is in other countries. And once there's more awareness, we can invest in the brand, and that's a virtuous cycle. And finally, direct sales is not that important in the country. That's why we are expanding our online as well as the store chain using franchises even. So there's a lot of room for growth in the coming years. As to innovation, mostly products that can be innovation, can be commercialization or digitalization, but I would like to focus on product innovation. We have analyzed our pipeline for launches in the coming 3 years. It's been very well defined for '26 and '27, we're very positive about these products, and there's room for some minor changes in 2028 portfolio. And we reviewed the entire innovation pipeline, focusing on those items that can bring in more revenue. And we want to make sure that these high-return launches receive all the necessary resources so that they can perform well. Irma Sgarz: So it's only fair to conclude that you are focused on fewer SKUs and rather focusing on those that can generate more impact, right? So you're focusing on those products? João Paulo Brotto Ferreira: Yes, that's right. Yes, you are correct. We're focusing on high-return launches and reducing the total number of launches. Operator: Alexandre Namioka from Morgan Stanley asks the next question. Alexandre Namioka: Let me just follow up on Avon. The one to the last slide you mentioned the resumption of the Avon brand as of 2026. Back on the Investors Day, I had the impression you were not that confident about this new relaunch of the brand. What makes you more confident now? Do you believe that these structural investments will be enough? Or do you have to invest in marketing even more maybe to reignite that brand as of next year? João Paulo Brotto Ferreira: Alexandre, we have a team working on this launch and in the weekly reviews we have for this project, I see greater and greater enthusiasm. The work that's being done is innovative and even refreshing to say. It is a highly promising path, and I'm stoked. It's fair to say that we have not been able, have not managed to do this up until now. The -- so this confidence does not come from extrapolating concrete results. It's fair for us to wait for this to come into reality, but I am very enthusiastic about it. The necessary investments are the regular business investments, but allocated in a completely different way they are today. So the necessary resources are not excessive. They're in line with the size of the business. But in our opinion, they'll be much more efficient and much more productive. In this case, different than in other topics, we'll have to wait and see if our enthusiasm will come to fruition. Operator: Our next question is João Pedro, Citi analyst. Joao Pedro Soares: Can you hear me now? João Paulo Brotto Ferreira: Yes, loud and clear. Joao Pedro Soares: I do apologize for the tech issue. JP, the point is when I look at the company's top line in Brazil, it looks -- it doesn't look mismatched or disaligned with the Investor Day proposal back to Alexandre's question. The Natura brand apparently gaining market share and Avon is truly reflecting our investments. But when we look below these lines, we see a misalignment or seemingly disalignment between costs and expenses. I'd like to explore and exploit a bit more to understand when you are back to investing in the Avon brand, this will suffer a penalty. There should be some increase in the R&D expenses. There's a phasing seasonality in expenses, which is somewhat challenging to understand. So how do you see this better alignment of the cost and expense structure to reflect the strategy that you yourselves have designed to focus more on the Natura brand. Is that point clear, I hope. And the cash conversion for next year, whether EBITDA or some other operating metric for us to understand the sustainable level of cash conversion for the Latam operation. Silvia Vilas Boas: João, thank you for your question. And you're right, our income state is not balanced due to that G&A impact. As I said, it has to do with different drivers, be it them from Wave 2 or the fact that we are concluding the project this year that will only yield results next year or the deleveraging. I'm certain that G&A level will be significantly lower next year than the one we had this year. They may come from the capture of the results of the projects or the benefits of this organizational simplification. G&A is misaligned, and we expect it will go back to the right level as of next year. On top of that, in profitability, there are some opportunities to be captured in selling coming from the combination of Mexico and Argentina businesses as well as from other countries. Marketing, as you said, we're not considering investing more in marketing than what the business can absorb. JP mentioned or talked about Avon specifically. Investments will be gradual once we see progress in those plans implemented in 2026. Profitability, of course, we want to expand profitability in 2026 when compared to 2025, just like we've done in the past 3 years. On to cash conversion. On the Investors Day, I showed you that we had above 50% cash conversion in 2024. Historically, before those acquisitions, the company had above 60%. With the end of that transformation cycle and the simplification cycle, we're going back to having a company that is very similar to the company we had before the acquisitions. That is to say we expect to go back to the same cash conversion level we had before. Operator: This concludes the Q&A session. Natura's third quarter 2025 earnings call is now concluded. The Investor Relations team remains available to address any additional questions. Thank you. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to KalVista Pharmaceuticals' 2025 Third Quarter Financial Update and Operating Results Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your first speaker, Ryan Baker, Head of Investor Relations. Please go ahead. Ryan Baker: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss KalVista Pharmaceuticals' 2025 Third Quarter Financial Update and Operating Results. Please note, we'll be making certain forward-looking statements today. We refer you to KalVista's SEC filings for a discussion of the risks that may cause actual results to differ from the forward-looking statements. On the call with me today from KalVista are Ben Palleiko, Chief Executive Officer; Nicole Sweeny, Chief Commercial Officer; Brian Piekos, Chief Financial Officer; and Dr. Paul Audhya, our Chief Medical Officer. Ben will begin with a review of the company's progress during the 3 months ended September 30, including an overview of EKTERLY's early launch, both in the U.S. and abroad as well as other regulatory updates. Paul will give an update on recently presented data from our KONFIDENT-KID trial in HAE for children ages 2 to 11, as well as new patient satisfaction data. Nicole will review the company's commercial progress to date, and Brian will cover the company's financial statements for the most recent quarter. We will then open the call for questions. With that, I will now turn the call over to Ben. Benjamin Palleiko: Thank you, Ryan, and thank you, everyone, for joining us today. And I want to wish a Happy Veterans Day to all my fellow veterans listening in. We are highly encouraged by EKTERLY's first 3 months on the U.S. market. Adoption has been steady and linear, with real-world utilization tracking as we expected. The takeaways are clear. Demand for EKTERLY is strong. It is being used to treat a significant number of HAE attacks, and it is meeting the expectations of people living with HAE for a highly efficacious and safe therapeutic alternative. We continue to believe that EKTERLY will evolve to become the foundational treatment for HAE. In addition, we are executing on our mission to bring EKTERLY to people living with HAE globally. The German launch is now underway with initial uptake validating the ex-U.S. interest in EKTERLY. The approval footprint continues to grow, with a recent approval in Australia, adding to the existing authorizations in the U.S., U.K., EU and Switzerland. In parallel, we continue to evaluate optimal strategies to expand access in geographies where we won't launch on our own. In addition to the collaborations we've previously announced, we anticipate that we will be completing more agreements later this year and in early 2026. We also continue to generate important new data to help educate the HAE community generally, as well as to demonstrate the real-world benefit of EKTERLY to people living with HAE. Last week, during the American College of Allergy, Asthma and Immunology Meeting, we provided a report on the high satisfaction rates for patients in KONFIDENT-S who had switched to sebetralstat from injectable on-demand therapies. Additionally, interim results from our KONFIDENT-KID trial showed sebetralstat enables early, effective and safe treatment of HAE attacks in children ages 2 to 11. Paul will provide more detail on all of that in a minute. We've also continued to grow the key capabilities of the company, demonstrated by the recent hires of Bilal Arif as our Chief Operating Officer; and Linea Aspesi as Chief People Officer. Both bring decades of experience that will make them important contributors as we work to evolve KalVista into a leading rare disease company. Finally, with our recent convertible note offering, we are fully financed through profitability, allowing us to remain sharply focused on executing the EKTERLY launch while evaluating additional growth opportunities. I will now turn the call over to Paul, who will update you on the latest data from KONFIDENT-S and KONFIDENT-KID. Paul Audhya: Thanks, Ben. I'm pleased to highlight that we continue to generate and publish important insights from our ongoing clinical trials, further building the case for EKTERLY across various patient segments. Starting with our late-breaker ACAAI, we provided a significant update on our registrational KONFIDENT-KID trial for sebetralstat in children with HAE aged 2 to 11. With 36 children enrolled, this is the largest trial ever conducted in the pediatric HAE population, and we are incredibly proud to have fully recruited it almost a year ahead of schedule. This speaks to the high level of unmet need for these children and their caregivers. A remarkable finding from the interim analysis is the extent to which this group of children is experiencing attacks. As of June 6, 2025, 65 attacks were treated by 26 children, translating to an attack rate of 0.8 attacks per patient per month. This far exceeds the historical understanding of attack frequency in this population. We believe that the high-attack rate in KONFIDENT-KID reflects an accurate unmasking of the true disease burden that was previously hidden by the difficulties associated with administering and receiving injectable treatments. The invasive and burdensome nature of intravenous and subcutaneous on-demand treatment creates a powerful disincentive for children and their parents to seek treatment for anything but the most severe attacks. We believe that this has led to significant underreporting of attacks. The availability of an oral on-demand treatment fundamentally lowers the barrier to treatment. This allows for a high-attack rate to be documented because children and their caregivers are no longer faced with the choice of enduring the trauma of an injection versus riding out a potentially worsening attack. Returning to the results. Treatment was rapid, with caregivers or the children themselves administering sebetralstat ODT in a median of 30 minutes. This option where children can actually treat themselves is a totally unique feature of KONFIDENT-KID and increases the importance of the results as the inability to self-treat attacks by children is such a major issue with injectables. The median time to symptom relief was a rapid 1.5 hours in the dosing group who experienced the vast majority of attacks. Crucially, there were no treatment-related adverse events or reports of difficulty swallowing the orally disintegrating tablets formulated for kids. These results further highlight EKTERLY's potential to expand to people of all ages living with HAE. We expect to submit the NDA for pediatrics in Q3 of 2026. Turning now to our long-term open-label extension, KONFIDENT-S. We continue to amass a large volume of data collected under conditions that mimic real-world utilization. For October 31, the trial has accumulated over 2,700 attacks treated with EKTERLY. Notably, this includes 59 laryngeal attacks, 560 attacks in patients receiving long-term prophylaxis and 584 attacks treated by adolescents. The highest number of attacks treated by an individual participant is 118 over 23 months. As our patient experience has grown, we have observed key changes in dosing behavior. We focus on patients who reached 30 treated attacks, representing about 1/4 of confidence participants. We noted a clear trend. The proportion of patients using a second dose of EKTERLY within 12 hours fell from 22.5% during the first attack to just 13.5% by the 30th attack. In the same group, the use of conventional injectable therapy dropped from 8% at the beginning of the trial to 0% by attack 30. We believe these marked reductions in the use of a second dose or conventional therapy reflect patients' growing assurance in EKTERLY's reliability. We plan to present this important data in more detail at an upcoming scientific congress. Coming back to ACAAI, we presented new treatment satisfaction data from KONFIDENT-S in participants who had switched from injectable on-demand treatments to sebetralstat. The median satisfaction score for attacks treated with sebetralstat was 2, or very satisfied on a 7-point scale, ranging from minus 3, which was extremely dissatisfied to 3, which was extremely satisfied. Overall, 84% of attacks treated with sebetralstat were rated by participants as ranging from satisfied to extremely satisfied, with the vast majority being either very or extremely satisfied. The high-satisfaction scores reported by patients who have successfully transitioned from injectable therapies to sebetralstat speak to the impact of having a simple, effective and reliable oral on-demand treatment readily available. So what are the implications? We know that a patient's decision to switch medication is often a direct measure of their unmet need or dissatisfaction with their current regimen. Therefore, as patients achieve a high level of satisfaction with EKTERLY, the probability of them seeking to switch therapies in the future is expected to decrease. This supports EKTERLY's role as a foundational therapy for HAE for the long term. To conclude, the breadth and depth of our clinical data, coupled with a high level of patient satisfaction is translating into early commercial momentum. We're seeing strong uptake and growing confidence among the prescribers as awareness of EKTERLY continues to build. To discuss how the launch is unfolding, I'll now pass the call to Nicole. Nicole Sweeny: Thanks, Paul. I'm pleased to share that the U.S. launch of EKTERLY continues to accelerate with sustained demand and growing enthusiasm among prescribers and patients. In less than 4 months since launch, we have received 937 start forms, representing more than 10% of the HAE community. This level of early engagement is strong by any launch standard and reflects an extraordinary level of community adoption. Importantly, this demand is broad-based. We are seeing rapid uptake across all HAE patient segments, including prophylaxis users as well as adolescents. People are switching from all on-demand therapies, but the greatest number have been from FIRAZYR and icatibant as expected, given their market share. Also, as we expected, the earliest and greatest number of those switching to EKTERLY have been high-burden patients who experienced frequent attacks, whether or not they are on prophylactic therapy. Provider activation is also expanding rapidly. We have 423 unique prescribers and continue to add 3 to 4 new prescribers each day. Awareness levels are exceptionally high with 100% of Tier 1 HCPs and 95% of all-target HCPs reporting awareness of EKTERLY. These metrics reflects both the strength of our field execution and the enthusiasm of the medical community for EKTERLY. As prescribers gain more experience with EKTERLY and hear from their patients who have switched, their confidence continues to rise. Launch to date, repeat prescribers account for 75% of all EKTERLY start forms, a strong indicator of familiarity and trust in EKTERLY's profile. This provider enthusiasm is matched by a strong depth of utilization in patients. Though the data is early, patients that are refilling their prescriptions, including those on QuickStart and paid therapy, are doing so every 3 to 4 weeks. For context, most injectable on-demand therapies average only 3 to 4 refills per year. This level of refill frequency is a clear indicator of growing real-world reliance and confidence in EKTERLY. Note that the majority of these refills are driven by patients with a high disease burden. They report experiencing 2 to 4 attacks per month, despite generally also being on prophylaxis therapy, which indicates the lack of adequate disease control. Refill quantities are consistent with this level of burden and higher than our initial expectations. That all said, as adoption expands beyond to the highest burden patients, we expect refill patterns to normalize in line with the broader HAE community with both a lower frequency of refills and a lower volume of refill quantities. As demand continues to build, payers are actively moving towards formal coverage for EKTERLY. Since approval, patients have been able to leverage medical exception to gain access to EKTERLY. The medical exception approval rate and time to ped shipment are consistent with our expectations less than 6 months following approval. It is very encouraging that we have seen medical exceptions approved by all PBMs, and all large payers for both commercial and Medicare cases. We continue to advance formal access with multiple regional and national payers already establishing EKTERLY policies. The majority of policies are ped label, which is consistent with other branded on-demand therapies. As expected, the minority of policies require a step through icatibant, which patients are able to move through quickly as most HAE patients have experienced with generic icatibant. Our market access team is currently engaged with PBMs and remaining national payers, with an aim to formalize access in early 2026. At this point in the launch, we are encouraged to see access to EKTERLY growing as payers recognize the need for EKTERLY as part of an overall HAE treatment plan. Outside the United States, we are seeing early signs of momentum as we expand the reach of EKTERLY. Following EMA approval, we launched in Germany in mid-October and recorded first-day commercial sales, an immediate validation of both prescriber enthusiasm and the strength of EKTERLY's differentiated oral on-demand profile. In the U.K., with approval now received, we are advancing pricing and reimbursement discussions with NICE in preparation for a first half 2026 launch. And in Japan, we continue to progress towards a PMDA approval and launch in the first quarter of 2026 with our partner, Kaken Pharmaceutical. Taken together, accelerating utilization, repeat prescribing and growing favorable access provide a clear signal. EKTERLY is quickly on its way to becoming the foundational therapy for HAE treatment. What initially began with the highest burden patients is now expanding in only a few short months across the broader HAE population as physicians gain confidence and patients increasingly choose EKTERLY for their attacks. I'll now turn the call over to Brian to review our financial performance. Brian Piekos: Thanks, Nicole. Our full financial results were included in the 10-Q filed after the close yesterday. So, I'll provide a few highlights for the 3-month period ending September 30. We are pleased to announce sales of EKTERLY were $13.7 million for the launch period through September 30, which includes the $1.4 million recorded in July and previously reported. Subsequent to the July period, our specialty pharmacy partners stocked additional locations and built inventory in a disciplined manner, supporting the growing patient demand. In the initial 3-month launch period, we are seeing the average number of cartons per shipment on the high end of our expected range, which aligns with utilization among high-burden patients, the core of our early adopter base. When looking at gross to net, I'd note it came in towards the low end of our expected range this quarter, driven largely by lower co-pay utilization typical for this time of year. Shifting to expenses. Total operating expenses for the period were $59.7 million, consisting of approximately $12 million in R&D expenses and approximately $46.5 million in SG&A expenses. Looking ahead to the remainder of 2025, we expect SG&A expenses to remain relatively consistent as we continue to invest in EKTERLY's global launch. Importantly, with our recent convertible note financing, our cash position is sufficient to fund operations through profitability. With that, I'll turn the call back to Ben for closing remarks. Benjamin Palleiko: Thanks, Brian. The early momentum and rapid growth we described today reinforce our belief that EKTERLY is positioned for long-term success as market awareness continues to grow. Our near-term focus is on aggressive and disciplined execution, scaling in the U.S., expanding access globally and reinforcing confidence in the role of EKTERLY across the treatment landscape. We continue to believe that oral on-demand therapy should broadly displace the injectable options and that EKTERLY will be the clear market leader based upon the breadth and depth of the data we have generated that shows EKTERLY can benefit all people living with HAE regardless of their attack location, frequency or severity. We are and will remain the only company that has demonstrated in a clinical trial setting, the effectiveness of our therapy for treatment of HAE attacks in accordance with modern treatment guidelines that call for patients to consider treating all attacks and to treat early. Through our gold standard design clinical trials and our many publications of the data, we've established a strong position as a patient-focused organization that is dedicated to improving lives, and I expect our reputation will continue to strengthen based upon our early success and our most recent data updates. With strong execution, a clear strategic runway and fully funded path through profitability, we believe we are well on our way to establishing EKTERLY as a foundational therapy for HAE and to generating long-term growth for the company. With that, we'll open the call for questions. Operator?[Operator Instructions] Our first question coming from the line of Maury Raycroft with Jefferies. Maurice Raycroft: Congrats on the great quarter. Maybe to start off, wondering if you could talk more about trends for types of patients who are switching to EKTERLY early on, particularly the high-burden patients? Are you putting percentages on how the 937 start forms break down? And how could these trends change over time? Benjamin Palleiko: Maury, thanks for joining today, and thanks for the question. Nice to talk to you. I guess I'll start and maybe Nicole will add some other details. What was really important here when we launched EKTERLY was we always presumed that the most rapid adopters would be the people living with HAE who have a very high treatment burden. And we've talked about this for a long time, and I think there's been substantial questions in some quarters about whether that patient population exists and also how severe their attack rates are. What we found through the third quarter was that that actually those people do exist and they are transitioning just as we would have expected. Roughly half of all the patients who have switched to EKTERLY to date self-report an attack rate of 2 or more attacks per month, which we consider to be high burden. And that accounts for, obviously, a fair amount of prescriptions, but also those people refill at higher rates and in larger quantities as well. So clearly, the discovery we've made here is that, that group really does exist that they actually aren't well controlled on prophylaxis and that their needs are being met by EKTERLY. In the longer run, obviously, we expect that number to decline, right? That's a fairly small portion of the population. And as we broaden out EKTERLY's reach, all those items will go down, the refill rates will decline and the number of cartons per refill will also go down. But for now, that group seems to be getting a lot of benefit from EKTERLY just like we anticipated. Nicole Sweeny: Yes. And just to add some further color on the patient base. As Ben was describing, these are patients with a high burden of disease who are also on prophylaxis and continue to have unmanaged HAE. In terms of the product that they've been switching from, we see broad adoption or broad switching across all of the on-demand therapies. The vast majority of patients are switching from Berinert to icatibant, which is very much in line with our expectations as in advance of approval, we often heard about the shortcomings of a subcu injectable. But again, very exciting and encouraging to see just the broad adoption across all of the different on-demand treatments. Maurice Raycroft: Got it. Helpful perspective there. And then maybe one follow-up. Just for the 937 new starts, are you seeing more on what proportion is converting to drug? And are you breaking down paid versus free drug at this time? Nicole Sweeny: Yes. So from an access standpoint, we are very encouraged by the continued increase in paid. Week-to-week, we see the paid rate continue to grow. And we've seen successful use of the medical exception, both in terms of consistency over time, as well as I should add more recently as the EKTERLY policies have started to come into play, we're seeing clarity in terms of path forward for patients to gain access to EKTERLY. So overall, at this point in time, certainly, our paid and the access dynamics are unfolding as we'd expect. Benjamin Palleiko: And Maury, for perfect clarity because I don't know if this is where we're going, all those start forms reflect prescriptions. Those are people who are actually switching to EKTERLY. A start form is inherently tied to a prescription for that person to switch. Operator: Our next question coming from the line of Stacy Ku with TD Cowen. Stacy Ku: Congrats on a great quarter. So the first is just a follow-up. Are you willing to talk a little bit more about these refill rates or maybe disclose on average number of doses for these high-burden patients? And maybe help us compare that to where you would expect things to normalize, especially given your work with claims data? And of course, as it relates to payer willingness to treat these high-burden patients, maybe talk about the quantity limits that you're seeing for chronic use of EKTERLY? So that's the first question. And then the second question is just maybe as we look to the commentary, you're kind of trying to highlight for us around those patient bolus dynamics that you're seeing. Just help us understand what that means for the remainder of the year versus what we've seen in Q3? And of course, I'm putting you a little bit on the spot here. As we look to next year, again, still really early days, we totally understand that. But just your level of comfort around consensus as we think about the 937 patient start forms that you've already grabbed in '25? Benjamin Palleiko: Thanks, Stacy, for all the questions. We'll work our way around the room here to answer them. So on the first one, you asked about refill rates. Our presumption going into this when you look at claims data is that the average person with HAE is refilling about once every 3 to 4 months. And that will normally be with FIRAZYR or icatibant is typically sold in pack of 3s. So, that will typically be at least 3 doses and maybe multiple packs because actually, I think the average rate of refill is higher than that. What we've seen to date, driven again by this high-burden population has been refill frequencies of probably kind of 1/3 that off frequent, maybe once a month or even more frequently than that. So, these people are very high or have, in some cases, very high-attack rates and so they're refilling quite frequently. And they are, when they refill, typically refilling with multiple cartons at a time. So it's many more doses than we would expect on average. As I said in the last answer, that's because of the subpopulation that has come to EKTERLY early. As we go over time, certainly, we'd expect those rates to normalize more towards what you see in the icatibant type marketplace where you've got refills that are multiple months apart and probably, on average, volumes will be lower. In terms of quantity limits, actually, you don't you take it from here, Nicole? Nicole Sweeny: Sure. I'm glad to step in. Quantity limits are certainly the norm for the current branded on-demand treatment. And it is something that we're seeing and expected to see with EKTERLY. Having said that, to date, the quantity limits that we're facing with EKTERLY, again, very consistent with the other products and have not created impediment to a patient continuing to gain access to EKTERLY. And historically, there are means to overcome quantity limits should we end up in that situation on a patient basis. Also, just to transition to your question regarding demand for the remainder of the year, certainly, we recognize going into the holiday season, there are time out of office for physicians and for staff as well as just a very busy time for all of us. So, we do anticipate potential disruption to demand in the remainder of 2025. Benjamin Palleiko: And then do you want to talk to some of the financials? Brian Piekos: Yes. On consensus, Stacy, what we see, there's quite a range in the consensus. I think over a three-fold gap, we understand the challenges of modeling this new prescription that is an on-demand therapy. It is challenging. It's far more complicated as we change our fiscal year now to a calendar year basis, and I'm not sure all the estimates have caught up to that. And so I think that dispersion in estimates is warranted as we kind of really figure out what utilization will look like over the long term. Stacy Ku: Yes. Understood. And then just to confirm, a carton is 2 doses, correct? Benjamin Palleiko: Yes. Operator: Our next question coming from the line of Paul Matteis with Stifel. Matthew Ryan Tan: This is Matthew on for Paul. Congrats on all the progress. I guess I just wanted to better understand with the multiple cartons per shipment, do you think there's any stockpiling behavior within the patients just given how convenient it is to have this oral and the storage is easier? And I guess, how do you see that evolving in the future? Benjamin Palleiko: Actually, we don't know. Actually, we don't know. We got put on mute by accident for a second there. People don't have to tell us what's happening. Given that the self-reported attack rate among these folks is quite high, we do think there's obviously a high level of utilization there. But I don't know that we could allocate between how much they're storing it up like as they probably should really to have in places where they can access it when they have attacks versus actually using it. Again, stepping back a little bit, whether it's because of initial -- some kind of initial stockpile, although again, these refill rates have been pretty consistent or usage. Like I said, as we expand further into the population, we do expect the overall attack rates to normalize more towards what you see in the population as a whole. That means that, again, usage will probably be less on average. Refills will be less frequent on average, and the volumes per refill will come down to some extent. But even people that don't really have high attack rates, when they do refill, seem to be refilling at higher levels than we expected, that's probably maybe more indicative of stockpile than I think the really high-attack rate folks. I don't know if you have anything to add? Nicole Sweeny: Yes. Just a reminder that the treatment guidelines do -- that physicians have developed both in the U.S. and around the world do encourage that patients keep product on hand to treat multiple attacks, 2 to 3 attacks. And so that is something that is fairly common in terms of practice here with patients in the U.S. Operator: Our next question coming from the line of Joe Schwartz with Leerink Partners. Joseph Schwartz: It's great to see that according to our math, the rate of PSF has stayed fairly constant through your first couple of updates so far. Do you expect this relatively linear PSF growth rate to continue? At what point, either months into the launch or overall penetration-wise, do you expect PSF growth to taper off? And then ex-U.S., it was great to see the German launch is underway. What is the price you agreed upon in Germany, and how does that compare to the U.S.? Benjamin Palleiko: Yes. Thanks for the questions. So the PSF rates have been quite consistent as we've indicated through the first, now 4 months of the launch. As Nicole said a few minutes ago, we do -- the fourth quarter here, especially the November, December as we get to the holidays is definitely a time when we wouldn't be surprised if the numbers slow a bit, right? I mean, people just are not going to be going to their physicians for this type of thing over the holidays. So, we would expect that there will be some slowing in the fourth quarter, really just driven by the kind of seasonality of the thing. As we get into 2026, again, we think the fundamentals on demand are really good, right? People seem to be still getting these appointments at a quite a consistent clip. Inexorably, over time, the rate of start forms will slow down to some extent just as we get deeper into the patient population. But at this point, we really don't have enough information to give an indication of whether that's earlier or later in 2026. But the clip we are on now, while we're quite happy with it, certainly, we wouldn't really expect it to be this fast paced all 2026. So, that's the first part. Nicole Sweeny: Certainly, German price, that's something that is not disclosed at this time. We're early in the days of launch there, and we'll be in ongoing negotiations and discussions with German authorities. So, that's something certainly we could revisit in the new year. Joseph Schwartz: Okay. What about other European countries in '26? What are the plans there? Nicole Sweeny: Certainly. We certainly have approval in the U.K., and so that is something we're in active discussions with NICE and planning for a launch in the first half of 2026 as well as moving out to some of the other larger countries in Europe towards the end of 2026. Operator: Our next question coming from the line of Jon Wolleben with Citizens Bank. Jonathan Wolleben: Congrats on the progress. When you guys talk about kind of normalization of these rates, wondering if you could talk a little bit about your expectations for how many patients do you expect to ultimately be trialing EKTERLY because the high burden makes sense now, but do you think that this is going to be broad across people with low burden as well? Or is it going to be a majority of these high-burden patients over time? And then in the prepared remarks, you mentioned that gross net towards the low end of your expected range. I was hoping you could just remind us of what that expected range is. Benjamin Palleiko: Sure. I'll do the first part. Again, Jon, we do fundamentally expect oral therapies to displace the injectables. I think we've fairly conclusively shown that EKTERLY offers all the benefits of the existing HAE therapies with much better equivalent efficacy in all likelihood, right? We haven't -- it has been shown head-to-head, but I think people generally accept that the safety has been pristine so far. There's really no advantage to anyone using -- continue to use an injectable or an IV therapy. So on a fundamental level, we do expect orals to overtake the injectables over time. And so there's a sort of high level how the market evolves in our viewpoint. That does -- to your point about whether the rate slows as you move into lower usage people, that's certainly likely. There's definitely just like there's a very high burden population, we presume a commensurate very low burden population that may be less inclined to move over time. To date, we have seen people across the board switching to EKTERLY. I mean, again, we said -- we've seen certainly the high population be through the third quarter, half of those folks. But the other half are much more of a distribution of attack rates. So the urgency may not be as high as we move deeper into the market, but we do think the fundamentals are that people will switch over time. I mean, a lot -- there's certainly a lot of folks who we believe are still a little bit and see how it's working for someone they know before they switch. Some of these folks will have tried ORLADEYO before and maybe not have a satisfactory response. And so we do anticipate there could be a little bit of initial caution about another oral therapy. But again, given the anecdotal reports we've seen so far and just the commentary we've heard from physicians who've talked to their patients, we think people are exceedingly satisfied right now. And we do believe that, that will play through over time, and that will bring these people who may be less motivated for whatever reason, right, initially to move, to switch over to EKTERLY in a timely fashion. I don't know if you want to add anything on that. Nicole Sweeny: Yes, I would just offer that building upon Ben's point, anecdotal feedback as well as market research we've conducted with patients, we see very high satisfaction ratings, both with patients who have a high burden of disease as well as patients with a more moderate or lower burden of disease. And that satisfaction relates specifically to EKTERLY as well as with our patient support services that received high marks in terms of supporting patients to gain access. Brian Piekos: And with respect to gross to net, Jon, like other specialty medicines, we expect to see gross to net to be on average, upper teens, low-20s. Operator: Our next question coming from the line of Serge Belanger with Needham & Company. Serge Belanger: Congrats on the quarter. First question, I wanted to go back to your initial focus on high-burden patients. Is that just a function of the market or the docs that you -- prescribers that you have initially targeted? And are they using these higher burden patients as leveraging them to get experience with the product and familiarity? Secondly, when prescribers are writing patient start forms or prescriptions, are these PRNs or are they limiting them to a certain number of boxes or cartons? Nicole Sweeny: Sure. So in terms of the high-burden patients, these are the patients that spend most of their time in with their physician. So, these are individuals that are typically on prophylaxis and have HAE that is largely uncontrolled. And so given the high need that they have, they're very much on the physician's radar. Having said that, these are also the patients who are most informed. So in advance of approval, they're actively seeking new treatments. And with the approval of EKTERLY, we know that they made appointments and went into their physicians' offices to discuss. So, I will say that it's a bit of the patient demand due to the burden of the disease as well as certainly significant awareness on the physician side that they need to support those patients. And yes, I think to some extent, your point, it enables them to test EKTERLY in some of the most difficult cases to really validate that what the profile we saw in the clinical trials really playing out in the real world, which we know has increased confidence of physicians as we see the majority of start forms that are coming from repeat prescribers. Just in terms of how they write the prescription, typically, a prescription is written for PRN, so that, that allows the flexibility for the patients to gain access to refills at the frequency and the magnitude of which they need. That's historically how it's been done with the other on-demand treatments and what we see with EKTERLY today. Serge Belanger: Okay. Great. One quick one for Brian, just on inventory. Out of the $13.7 million that was reported this quarter, how much of that was inventory? And did you exit the quarter at steady state on that front? Brian Piekos: Yes. We're seeing, obviously, with the first 2 months of launch, inventory build coming in by the specialty pharmacies, particularly as they add additional locations as the launch gained momentum. We think our specialty pharmacy partners are performing in a disciplined manner with a view of growth. It's not steady state. It's going to continue building in front of expected demand. Operator: Our next question coming from the line of Debanjana Chatterjee with JonesTrading. Debanjana Chatterjee: Congrats on the quarter. So, can you talk a little bit more about how your insurance negotiations are progressing and how we should think about the cadence of payers coming online in the first half of next year? Nicole Sweeny: Sure. Absolutely. Leading into launch, we anticipated that it would take roughly 6 months to both drive demand and for payers to assess EKTERLY and establish policies. What we're seeing at this point in time is that, yes, we are leveraging medical exception on a consistent basis to gain access, but we're also seeing some of the regional and national payers create policies for EKTERLY that are largely favorable. Looking towards the end of this year and into the early part of next year, we are planning to, I would say, wrap up discussions with some of the larger payers and PBMs with an aim to have policies in place again, early in 2026. Debanjana Chatterjee: Sure. And a quick follow-up. So, you've also mentioned that in the early quarters, revenues can be a bit bumpy as refill rates stabilize. So, can you talk about how we should think about revenue trajectory in the immediate like next couple of quarters? Brian Piekos: I mean, it's a hard question as we just talked about. We continue to expect initial fills to come through. We've talked about that as adoption expands, the burden of disease on patients will, on average, go down. That will impact both initial fill amounts as well as refill rates. This is an on-demand therapy. We're going through a holiday period. It's really hard to understand exactly kind of the nature of the revenue to kind of comment on what trajectory should look like. Operator: And there are no further questions in the queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
Espen Nilsen Gjøsund: Welcome to SFL's Third Quarter 2025 Conference Call. My name is Espen Nilsen, and I'm Vice President of Investor Relations in SFL. Our CEO, Ole Hjertaker, will start the call with an overview of the third quarter highlights. Then our Chief Operating Officer, Trym Sjølie, will comment on vessel performance matters, followed by our CFO, Aksel Olesen, who will take us through the financials. The conference call will be concluded by opening up for questions, and I will explain the procedure to do so prior to the Q&A session. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. Please note that forward-looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include, but are not limited to, conditions in the shipping, offshore and credit markets. You should, therefore, not place undue reliance on these forward-looking statements. Please refer to our filings within the Securities and Exchange Commission for a more detailed discussion of risks and uncertainties, which may have a direct bearing on operating results and our financial condition. Then I will leave the word over to our CEO, Ole Hjertaker, with highlights for the third quarter. Ole Hjertaker: Thank you, Espen. We are pleased to announce our 87th consecutive dividend as we continue to build SFL as a maritime infrastructure company with a diversified and high-quality fleet. For the third quarter, we reported revenues of $178 million and an EBITDA equivalent cash flow of $113 million. Over the past 12 months, EBITDA amounts to $473 million, reflecting the continued strength and stability of our operations. In recent quarters, we have taken decisive steps to strengthen our charter backlog, securing long-term agreements with strong counterparties and deploying high-quality assets. At the same time, we have made substantial investments in cargo handling and fuel efficiency upgrades across our fleet while divesting older and less efficient vessels. Our Chief Operating Officer, Trym Sjølie, will elaborate on this later. As part of our fleet renewal strategy, 5 57,000 deadweight ton dry bulk vessels built between 2009 and 2012 have been sold with the final vessels delivered in the third quarter. In addition, 8 older Capesize bulkers were redelivered to Golden Ocean and 7 2002-built container ships were redelivered to MSC during the second and third quarters. These actions, combined with our efficiency upgrades have materially improved the operational and fuel efficiency profile of our fleet, delivering tangible benefits to both SFL and our customers. We have also advanced our commitment to cleaner technology with 11 vessels now capable of operating on LNG fuel, including 5 newbuildings currently under construction. During the third quarter, we announced new 5-year charters for 3 9,500 TEU container vessels on charter to Maersk, adding approximately $225 million to our charter backlog from 2026 onwards. These vessels will be upgraded with advanced cargo handling and fuel efficiency features in line with our larger containership fleet. Turning to the Offshore segment. The drilling rig Hercules remained idle also in the third quarter. While we continue to evaluate strategic alternatives for Hercules, we remain optimistic about securing new employment for the rig in due course. Hercules remains warm stacked and can be mobilized on relatively short notice. So it is difficult to provide timing guidance at this stage. With the announced $0.20 dividend, SFL has now returned approximately $2.9 billion to shareholders over 87 consecutive quarters. This represents a dividend yield of over 10% based on yesterday's share price. Our charter backlog stands at $4 billion with 2/3 contracted to investment-grade counterparties, providing strong cash flow visibility and resilience amid current market volatility. Over time, we have consistently demonstrated our ability to renew and diversify their asset base, supporting a sustainable long-term capacity for shareholder returns. Our solid liquidity position, including undrawn credit lines and unlevered vessels at quarter end ensures that we remain well positioned to continue investing in accretive growth opportunities. And with that, I will now hand the call over to our Chief Operating Officer, Trym Sjølie. Trym Sjølie: Thank you, Ole. Our current fleet is made up of 59 maritime assets, including vessels, rigs and contracted newbuildings. Over the last 12 months, we have sold 22 of our older vessels at an average age of more than 18 years. This has reduced the fleet average by about 2 years to a new average age of less than 10 years per vessel. We have a diversified fleet of assets chartered out to first-class customers on mostly long-term charters and the majority of our customer base is large industrial end users. Our backlog from owned and managed shipping assets stands at approximately $4 billion, and the fleet following Q3 is made up of 2 dry bulk vessels, 30 container ships, 16 large tankers, 2 chemical tankers, 7 car carriers and 2 drilling rigs. Our backlog is mainly derived from time charter contracts. And from Q3 onwards, we have 4 container ships left on bareboat leases, the rest on time charter. The charter revenue from our fleet was about $178 million, and we had a total of 4,748 operating days in the quarter. Operating days is defined as calendar day less technical off-hire and dry dockings or stacking for the rigs. Following several quarters with high number of ships in dry dock, this quarter, we had 2 vessels in dry dock at a cost of around $3.8 million. The 2 vessels in dry dock were 1 car carrier and 1 tanker. Our overall utilization across the shipping fleet in Q3 was about 98.7%. Adjusted for unscheduled technical off-hire only, the utilization of the shipping fleet was 99.9%, a very high availability. In August, our car carrier SFL Composer had a collision in Denmark when approaching Golden [ Ocean ] pilot station going in for a special survey dry docking at Farahead. The collision happened when an overtaking container vessel struck the port quarter of the SFL Composer. There were no injuries to personnel nor pollution as a result of the incident. And furthermore, the vessel was empty of cargo in preparation for upcoming dry docking. She went straight into Farahead after the incident and completed her dry docking as well as damage repairs in a total of 34 days. We are fully covered for the extra time required for repairs by our loss of hire insurance as well as the damage repairs less USD 200,000 in deductible by our Hull & Machinery insurance. It is likely we will recover part of the deductible following the outcome of court proceedings, alternatively a settlement with owners of the other vessel. The current commercial and regulatory environment means that energy efficiency and emissions reduction is fundamental to SFL's ability to attract and retain first-class charters. Our toolbox includes energy efficiency measures, operational optimization and not least new low-emission fuel technology. We have taken significant strides in optimizing and renewing our fleet to meet these challenges by installing scrubbers, energy efficiency devices and investing in new tonnage with dual fuel capabilities. By modernizing and enhancing our fleet, we position ourselves for growth, either by providing new vessels with modern technology or extending the life of existing ones. On the container side, we have, over the last 2 years, upgraded 13 container vessels with 3 more to come by carrying out major upgrades to cargo systems, energy saving technologies, propeller enhancements or replacements and Hull modifications like [indiscernible]. The upgrades amount to almost USD 100 million, fully or partly funded by our charterers and have been instrumental in securing new charters or charter extensions. On notable vessel acquisitions, we have since 2023, bought 2 dual-fuel chemical tankers and taken delivery of 4 LNG dual-fuel newbuilding car carriers. We also have 5 16,000 TEU dual-fuel LNG container vessels on order for charter to a leading European container operator. I will now give the word over to our CFO, Aksel Olesen, who will take us through the financial highlights of the quarter. Aksel Olesen: Thank you, Tim. Starting with our financial performance. This slide illustrates how our diversified portfolio of vessels contributed to an adjusted EBITDA of $113 million for the quarter. Starting on the left, our container vessels remain the largest contributor at $82 million, supported by long-term charters with leading counterparties such as Maersk, Hapag-Lloyd and MSC. Our car carrier fleet added $23 million compared to $26 million in the second quarter as SFL Composer underwent a scheduled dry docking. The Tanker segment generated $44 million, benefiting from 17 vessels on long-term charters, further supported by strong underlying tanker market. Dry bulk contributed with $6 million, down from $19 million as over the last few quarters have divested certain dry bulk carriers as part of our overall fleet renewal strategy. And finally, revenue from our energy assets of $24 million came mainly from the LINUS, which is on a long-term charter contract to ConocoPhillips until May 2029. Altogether, these operations produced $179 million in gross charter hire, including profit share income. After accounting for net operating expenses for about $66 million, we arrived at an adjusted EBITDA of $113 million, which highlights the strong underlying cash generation capacity of our diversified fleet of maritime assets. We then move on to our income statement. SFL delivered solid operational results in the third quarter, supported by stable charter hire income and disciplined cost control. Total operating revenue for the quarter was $178 million, including $1.8 million in profit share. Vessel charter hire contributed with approximately $154 million, reflecting strong utilization across our shipping fleet, while the rigs contributed with approximately $26 million. Total operating expenses were $69 million compared to $86 million in the previous quarter, reflecting the recent divestments of vessels and fewer dry dockings during the quarter. After accounting for depreciation and financing costs, net income for the quarter was $8.6 million or $0.07 per share. Turning to our balance sheet. Our financial position remains strong and well capitalized. We ended the quarter with approximately $278 million in cash and cash equivalents, supplemented with approximately $40 million of undrawn credit lines, giving us total liquidity of approximately $320 million. On the financing side, we made ordinary loan repayments of $56 million during the quarter. We have remaining capital expenditures of $850 million remaining on 5 container newbuildings expected to be funded through pre- and post-delivery financing, in addition to approximately $25 million on our existing fleet relating to efficiency and general upgrades. Looking at the capital structure, our book equity ratio stands at approximately 26% at the end of the third quarter. Let me close with a quick summary of SFL's position today. We currently own and operate 59 maritime assets across key shipping sectors, including container, car carriers, tankers, dry bulk and offshore energy units. The diverse asset base gives us balanced exposure to multiple markets and long-term counterparties. At quarter end, we have $278 million in cash and cash equivalents, reflecting a strong liquidity position and prudent financial management. Our fixed rate charter backlog now stands at approximately $4 billion, offering excellent visibility on future cash flows and earnings. These contracted revenues underpin both our dividend capacity and our ability to reinvest in modern fuel-efficient vessels. And finally, the Board has declared a quarterly dividend of $0.20 per share, marking our 87th consecutive quarterly dividend, a track record that very few companies in our industry can match. And with that, I give the word back to Espen, who will open the line for questions. Espen Nilsen Gjøsund: Thank you, Axel. We will now open for a Q&A session. [Operator Instructions] We have our first question coming in through the chat. Do you guys expect Hercules to be leased in the new year? And the Gulf of America [ our ] Continental Shelf Oil and Gas Lease Sale 262, also referred to as lease sale BBG 1 under the Big Beautiful Bill Act is scheduled for December 10, 2025. Is that going to affect the Hercules lease potential? Ole Hjertaker: Thank you. I think the best way to maybe explain that is that we are, of course, looking for all opportunities out there for the Hercules. However, referring specifically to the Gulf of Americas, this rig is a harsh environment, a specialized harsh environment drilling rig equipped to drill in winter season in the Northern Hemisphere. And the last campaign it was in Canada, where it was drilling partly during -- going into the winter season. So there are a lot more rigs that can work in a more benign environment weather-wise like in the Gulf of Americas. And therefore, do not need the specifications and the features that the Hercules represents. So we have predominantly focused the marketing effort in the areas where this rig has unique capabilities and where there are relatively few rigs competing. And that includes the North Sea and specifically the Norwegian Continental Shelf. It's typically west of Shetland in the U.K. region. You have Canada, which also have very harsh environments. And you have certain areas in southern part of Africa like Namibia and potentially also South Africa. So we have focused the marketing effort there because there's relatively less competition, and there are fewer rigs that can do that work. Espen Nilsen Gjøsund: Thank you, Ole. We will take our next question from Sherif Elmaghrabi. Sherif Elmaghrabi: Ole, just maybe to start off with a follow-up. It's very helpful commentary around where the Hercules might work. But I'm interested also in the type of work, are you considering well intervention opportunities for the Hercules? Or do you feel that that's something that might preclude you from drilling work? Ole Hjertaker: No, we are looking for any opportunity to bring the rig out to work. So it could be well intervention or it could be exploration drilling. What we also did, and this is back in 2023 after we took the rig back, that rig had been working as an exploration rig for many, many years. And we did some upgrades to the rig to make it feasible also for development drilling where you have the potential for longer contracts. So we -- our focus is to bring the rig back to work and produce positive cash flow. And exactly what work it's going to do doing that, there we are more flexible. Sherif Elmaghrabi: And then shifting to the tanker fleet. Most of your fleet is fixed past next year. But for those rolling off, given the sustained strength we're seeing in tanker spot rates and the order book, of course, is it too soon to think about securing long-term work for these vessels? Ole Hjertaker: Yes. It's too soon. The vessels that run off first have 2-year options attached. So there is a possibility for the charterer to extend that charter. While saying that, there is also a profit share feature relating to those vessels, and these are 4 LR2 product tankers that have been on now almost 4 years on charter to Trafigura. And the profit share feature, and this is in case the vessels are being sold, these vessels would be significantly in the money. So it's too early to have an opinion on what could -- how that could -- what that could transpire into. But we believe there is significant value beyond the book value embedded in those vessels linked to the profit share. Espen Nilsen Gjøsund: We now have another question that we've gotten through the -- we got through the system here. It's from [ Harris Shannon]. Can SFL please provide any updates on the implementation of the $100 million buyback? Aksel Olesen: Sure. Just to briefly comment on that. So we have about $80 million remaining on the buyback. And so far this year, we've bought back equivalent of $10 million of share at an average price of approximately $7.98 per share. Espen Nilsen Gjøsund: We have another question from [ Climent Molins ]. Unknown Analyst: Today, we've seen some news on the office mentioning they may pause their attacks on commercial shipping in the Red Sea. If this truly holds, how fast do you think container ships operator will -- how long do you think it will take for them to go back to the region? Ole Hjertaker: Thank you. I think for now, it's a little bit of a wait-and-see procedure. There have been periods in the past where the [ Hoodie] said that they were going to put sort of an ease to it and then suddenly, they started attacking vessels again. We are very -- of course, always very concerned with the safety of the crew and the vessels. And while you can get insurance coverage for the -- to take vessels through there, we are in close dialogue with our customers. And that is one good thing with working with, I would say, sort of blue-chip counterparties like work and others is that they are as concerned in doing this as we are. So I think there is a risk evaluation that will go on now. everybody noticed the sort of the statement. But we also, as I said, seen that they changed their minds. So I think it's going to be a relatively sort of slow, call it, rollback in activity through the Red Sea. I think for some of the countries around that, like Egypt, who have seen a massive decrease in canal fees, I mean, they certainly welcome it. So hopefully, we will see some more efficiencies in the fleet from that. From our perspective, in SFL, since we have our vessels on time charter, long-term time charter, we don't make -- this will not transpire into a higher time charter rate. But when -- if and when our vessels move back into the Red Sea and you have shorter travel distances, we expect to see a reduction in operating expenses because one of the effects of the trading where many vessels that used to go through the Red Sea now go around Africa means that these vessels have had to run at higher speeds through the sea and therefore, have had higher engine loads and thereby been using more lubrication oil, for instance, and other factors than normal. So that's, I would say, more the direct effect on us if this actually materializes and if that trade goes back to normal. Espen Nilsen Gjøsund: Okay. We have another one coming into the system from [indiscernible]. Do you have purchase obligations in any of your charter contracts? And if yes, can you share any details? Aksel Olesen: Yes. In terms of purchase obligation, that's something more in the past. I think the most recent ones are the 7 MSC vessels that were called or delivered back to MSC at, I believe, quarter end Q2. And then we have 4 more remaining in the associate that are on long-term bareboat to MSC. As we have mentioned on previous calls, we have kind of transformed the business from bareboats where you have various customers that have these purchase obligations to now run the ship on a time charter basis where we maintain and keep the upside in the residual value of the vessels. So predominantly, we own the residual. And in some instances, as Ole mentioned, we also have a profit sharing on those vessels where we take a significant part of the market upside as well. Espen Nilsen Gjøsund: Another question from [indiscernible]. What is the outlook for new transactions outside of the Container segment? Ole Hjertaker: Yes. we are segment agnostics. So we look at opportunities, I would say, across the maritime space. What we look for are opportunities where we can charter, I would say, more commodity type, not too specialized type vessels to very strong counterparties. So we've done deals in addition to the container segment, we've done car carrier deals with very strong counterparties. We've done tanker deals with very strong counterparties. We have relatively few dry bulk vessels left, but it's definitely a segment we would like to do more business in. But it's all down to structuring the right deals with the right return characteristics that fits our sort of threshold. So we are constantly looking for opportunities. We're using our network to explore what we can do, but we cannot give specific guidance on how much we will invest in any specific segment. We will announce deals if and when they materialize. And what we've seen in the past is that we don't have a stable investment sort of per quarter type investment profile. We try -- some quarters, there are fewer investments and then some quarters, there are no investments. And then in other quarters, there are higher investments. So I think this is balancing well out over time, but we definitely have investment capacity for new transactions currently. Espen Nilsen Gjøsund: As there are no further questions from the audience, we would like to thank everyone for participating in this conference call. If you have any follow-up questions to the management, there are contact details in the press release or you can get in touch with us through the contact pages on our web page, www.sflcorp.com. Thank you for joining.
Operator: Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Tidewater Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to West Gotcher, Senior Vice President of Strategy, Corporate Development and Investor Relations. Please go ahead. West Gotcher: Thank you, Liz. Good morning, everyone, and welcome to Tidewater's Third Quarter 2025 Earnings Conference Call. I'm joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Financial Officer, Sam Rubio; and our Chief Operating Officer, Piers Middleton. During today's call, we'll make certain statements that are forward-looking and referring to our plans and expectations. There are risks, uncertainties and other factors that may cause the company's actual performance to be materially different from that stated or implied by any comments that we're making during today's conference call. Please refer to our most recent Form 10-K and Form 10-Q for additional details on these factors. These documents are available on our website at tdw.com or through the SEC at sec.gov. Information presented on this call speaks only as of today, November 11, 2025. Therefore, you're advised that any time-sensitive information may no longer be accurate at the time of any replay. Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures can be found in our earnings release located on our website at tdw.com. And now with that, I'll turn the call over to Quintin. Quintin Kneen: Thank you, West. Good morning, everyone, and welcome to the Tidewater Third Quarter 2025 Earnings Conference Call. I'll start as usual by providing some highlights of the third quarter, updating you on our current view on capital allocation and then discussing the offshore vessel market and our outlook on vessel supply and demand. West will then provide some additional detail on our financial outlook and give you our 2026 guidance. Piers will give you an overview of the global market and global operations, and then Sam will wrap it up with our consolidated financial results. Third quarter revenue and gross margin nicely exceeded our expectations. Revenue came in at $341.1 million due primarily to a higher-than-expected average day rate and slightly better-than-anticipated utilization. Gross margin came in at 48% for the quarter, about 200 basis points better than our guidance. The primary factor driving the increase in average day rate was the benefit of our fleet rolling on to higher day rate contracts. Additionally, fleet utilization continued to benefit from the substantial drydock and maintenance investment we've made over the past few years, driving meaningful uptime performance compared to our expectations. During the third quarter, we generated $83 million of free cash flow, bringing the first 9 months of 2025 total free cash flow to nearly $275 million. Free cash flow generation we continue to demonstrate alongside balance sheet and liquidity enhancements we completed during the third quarter provides us with a substantial degree of confidence in our ability to deploy a significant amount of capital over time to drive shareholder value. Based on the estimate for 2026 that West is going to cover shortly, absent any cash used in M&A or share repurchases, we will be ending 2026 with close to $800 million in cash, which, while we like the pace of cash flow generation, we would find unacceptable from an allocation of capital perspective. We currently retain our $500 million share repurchase authorization, representing approximately 18% of shares outstanding as of yesterday's close. As discussed on last quarter's earnings call, we see this share repurchase authorization as a long-term program that we will lean into based on competing capital allocation opportunities we have before us. In this regard, we did not repurchase any shares during the past quarter due to these competing priorities. Our current leverage position is such that we feel comfortable in potentially using a substantial amount of cash in an M&A transaction and are comfortable adding leverage to the business provided that we have confidence that the near-term cash flows provide the ability to quickly delever back to below 1x net debt to EBITDA, very similar and consistent with what we have done in our prior acquisitions. Importantly, given our current balance sheet, future cash flow generation and liquidity position, M&A and buybacks are not necessarily an either/or proposition. However, how certain M&A discussions progress and whether or not they ultimately come together can shift our cadence and immediate tactics in executing share repurchases. But I don't want to leave you with the impression that we are limited in the long run on our ability to execute on both. Much of the commentary for offshore activity during 2025 has been on the pace and amplitude of the recovery from a relatively muted period of tendering for near-term offshore drill projects. We believe there are a number of factors that have precipitated this white space dynamic, not the least of which have been macro uncertainties, OPEC production and a relatively tepid commodity price environment and supply chain bottlenecks for critical offshore infrastructure. By all accounts, including observations by the drilling contractors, recent public commentary and conversations with our customers, it appears that the next few quarters represents a shoulder period of drilling activity ahead of an uptick towards the end of 2026, with increasing conviction on the state of drilling activity into 2027 and beyond. We believe this to be a reasonable expectation given our conversations, but also more broadly evaluating expected total global hydrocarbon demand projections and what appears to be a hydrocarbon supply curve that will be in a slight surplus in 2026, moving to a meaningful deficit thereafter. This should result in capital expenditures to bring on new production ahead of the shortfall, providing further confidence to the uptick in drilling activity that appears to be developing as evidenced by the recent tendering activity for offshore drilling units. In the intervening period, Tidewater is in the advantageous position compared to many in the offshore sector and that we are the beneficiary of a wide variety of offshore activities, all of which remain robust. Production support is a critical piece of our business, comprising roughly 50% of what we do today. This base level of demand remains steady and is supported by current commodity prices. The continued proliferation and deployment of incremental FPSO units is providing additional vessel demand. FPSO support has always been a component of our business, but the volume of units that are delivering and expected to deliver over the coming years is fairly unique in the history of the offshore industry. In addition, many of these FPSOs are being deployed into frontier areas that have limited shipping infrastructure and are in challenging weather and wave conditions, which should ultimately disproportionately benefit our larger vessel classes. On the EPCI and Offshore Construction segment of our business, our observation has been that backlog for these projects usually have a few years of lead time before converting into vessel demand. We've seen that backlog begin to convert into a meaningful increase in demand. And based on customer conversations, that demand is set to further strengthen in 2026 and in 2027. These demand drivers are important components of our business and help mitigate some of the near-term softness we see in the drilling market. In the longer term, the structural growth in these markets will continue to put added strain on vessel supply. And when drilling activity growth does resume in earnest, vessel supply will be that much more constrained by the growth in these other sectors, providing even more leverage to vessel owners than what we saw in the 2022 to 2024 period. As important as these factors are, particularly in straining vessel supply and a drilling recovery, in the near term, these factors don't adequately offset the absence of additional drilling activity to provide us the ability to aggressively push up day rates. However, we do expect this nondrilling demand to help us retain our utilization and day rates next year. To the extent drilling activity comes in a bit stronger than what we are guiding today, we would expect some additional benefit to our 2026 financial performance. We continue to believe that tight vessel supply will remain a tailwind for the sector and that the structural limitations that impact new build investment decisions will limit any significant new build vessel programs for the foreseeable future. In summary, we are pleased with the cash flow that our business is generating. We are optimistic about the long-term outlook for the offshore vessel industry and remain exceptionally well positioned to drive earnings and free cash flow generation over the coming years. Additionally, we are in the fortunate position of having a significant amount of capital to deploy, and we remain committed to deploying this capital to its highest and best use for our shareholders. And with that, let me turn the call back over to West for additional commentary and our financial outlook. West Gotcher: Thank you, Quintin. At the end of the third quarter, we had $500 million of share repurchase authorization outstanding. Our share repurchase capacity is a function of the refinancing that we completed during the third quarter of 2025. Under the bonds, we are unlimited in our ability to return capital to shareholders, provided our net debt to EBITDA is less than 1.25x pro forma for any share repurchase. Under the new revolving credit facility, we are also unlimited in our ability to repurchase shares provided that net debt to EBITDA does not exceed 1x. Under the revolving credit facility metric, to the extent that we exceed 1x net leverage, we still retain the flexibility to continue returns to shareholders, provided the free cash flow generation is in excess of cumulative returns to shareholders. Our net debt-to-EBITDA ratio at the end of the third quarter was 0.4x. Specific discussions of these limitations can be found in the respective agreements filed with the SEC. Our philosophical approach to leverage remains consistent. Whether it be for M&A or share repurchases, our litmus test is that so long as we can return to net debt 0 in about 6 quarters, we are comfortable to proceed with a given outlay of capital. From time to time, we may exceed this threshold only for M&A, depending on the visibility and durability of the acquired cash flows, but this is our general approach. This approach is important to keep in mind as we navigate the opportunities before us and also informs how we evaluate a combination of M&A and share repurchases. Our intention is not to use leverage for leverage sake, but rather to efficiently deploy capital while maintaining the strength of our balance sheet. We remain opportunistic on share repurchases, and we'll look to execute share repurchase transactions when suitable M&A targets are not available. Turning to our leading-edge day rates. I will reference the data that was posted in our investor materials yesterday. Broadly, our weighted average leading-edge day rate for the fleet was down marginally in the third quarter compared to the second quarter, primarily a function of our midsized PSVs in West Africa and larger PSVs in the North Sea. Rates for these vessels were resilient elsewhere around the world. We did see a nice uplift in our largest class of anchor handlers with contracts in Africa and the Mediterranean and a bit of a movement up in our smallest PSVs. During the quarter, we entered into 34 term contracts with an average duration of 7 months as we look to a strengthening market as we progress into the back half of 2026. Turning to our financial outlook for the remainder of 2025, we are narrowing our full year revenue guidance to $1.33 billion to $1.35 billion and a full year gross margin range of 49% to 50%. We've narrowed our range for the remainder of the year with the revenue outperformance in the third quarter bringing up the low end of the range, and we've lowered the high end of the range due to a few projects ending earlier than anticipated in the Americas and as we expect a bit more idle time in West Africa as we close out the year. We now expect utilization to be roughly flat sequentially as the benefit we expected from lower drydocks is now offset by the lighter-than-anticipated activity I just mentioned. The midpoint of our revenue guidance range is approximately 99% supported by year-to-date revenue plus firm backlog and options for the remainder of the year. Turning to the 2026 outlook. We are initiating a full year 2026 revenue range of $1.32 billion to $1.37 billion and a full year 2026 gross margin range of 48% to 50%. We anticipate a relatively consistent quarterly cadence of revenue generation and margin profile throughout the year. Our expectation is for a relatively even year with the potential for uplift depending on the strength of drilling activity picking up towards the end of the year. Our firm backlog and options represent $316 million of revenue for the remainder of 2025. Approximately 78% of available days for the remainder of the year are captured in firm backlog and options with our larger and midsized classes of vessels retaining slightly more availability to pursue incremental work as compared to our smaller vessel classes. Looking to 2026, our firm backlog and options represent $925 million of revenue for the full year, representing approximately 69% of the midpoint of our 2026 revenue guidance. Approximately 57% of available days for 2026 are captured in firm backlog and options. Our full year revenue guidance assumes utilization of approximately 80%, providing us with 11% of capacity to be chartered if the market tightens quicker than we are anticipating. Our largest class of PSVs retain the most opportunity for incremental work, followed by our midsized anchor handlers and small and midsized PSVs, largest anchor handlers. Contract cover is higher in the earlier part of the year with more opportunity available later in the year. The bigger risk to our backlog revenue is unanticipated downtime due to unplanned maintenance and incremental time spent on drydocks. With that, I'll turn the call over to Piers for an overview of the commercial landscape. Piers Middleton: Thank you, West, and good morning, everyone. First off, as both Quintin and West have mentioned, our overall long-term outlook for the offshore space remains very positive for the OSV market. And while we have some short-term headwinds to navigate through, our and the industry's expectations are that as we get to this time next year, we will start to see that expected uptick in drilling demand that everyone has been so vocal about, which layered on to the record EPCI backlog should bode well for OSV day rates in the latter half of 2026 and into 2027. OSV supply growth is expected to remain very moderate, supporting market dynamics overall with the OSV order book of 134 units according to Clarksons Research, still representing roughly 3% of the current fleet, reflecting limited capacity for supply growth. Newbuilding activity in the OSV space continues to be subdued, and we see no signs of significant new supply entering the market in the foreseeable future. Turning to our regions and starting with Europe. We saw continued pressure on day rates, mainly in the U.K. However, utilization across the whole region compared favorably to previous quarters as our teams worked hard to keep the boats working in the U.K., Med and Norway. Uncertainty over the U.K. energy profits levy remains. However, market chatter suggests that the U.K. government may soften its approach to the next budget on the 26th of November, which, if this happens, will be an unexpected shot in the arm for the region as we go into 2026. The longer-term outlook for both Norway and the Med remains positive with our teams now working on several multi-boat tenders all to start during 2026. Any awards, however, are not expected until the early part of next year, with much of the work kicking off in the latter half of Q2 2026. In Africa, we continue to see pressure on day rates, which as we mentioned last quarter, was in part because of the slowdown in drilling in Namibia, where we have been very active over the last 6 or 7 quarters, supporting operations with our largest 900 square meter class of PSV. With the anticipated slowdown in drilling, the team has been focused on winning work elsewhere in the world, and we can expect to see a few vessel movements out of Africa over the next few quarters as we mitigate against some of the expected softness in the first half of 2026. Longer term, we still remain very bullish for the region with recent announcements of Total lifting force majeure in Mozambique, Shell announcing they are returning to Angola after a 20-year absence to restart deepwater exploration with all the Orange Basins to still be developed, we remain very confident that the region will bounce back very quickly once all these pieces fall into place. In the Middle East, vessel demand and day rates continue to strengthen in the quarter, driven mainly by the EPCI contractors operating in the Kingdom as well as additional incremental demand in Qatar and Abu Dhabi. As we have mentioned previously, this is a very fragmented market, which makes it much harder to drive rates aggressively. However, we continue to see supply constraints in certain vessel classes. And as demand has been increasing, the team has been doing a great job pushing day rates during 2025. And with no significant slowdown in demand in sight, we expect day rate momentum to continue into 2026 and beyond, especially with the recent news that Saudi Aramco plans to start reactivating some of the rigs that they had suspended last year. In the Americas, we had a solid quarter with day rate and utilization improvement primarily came from our operations in the Caribbean and Brazil. The Gulf of America and Mexico both continuing to be flat demand. Brazil or Petrobras specifically, is likely to face some short-term headwinds in 2026 as the NOC is rethinking its offshore logistics model and financial strategy as Brazil enters into an election year in 2026. Longer term, we don't expect any slowdown in drilling or production demand in Brazil. However, we may see some Petrobras specific projects moving to the right as the politics around the election push start times close to the end of 2026 or even the beginning of 2027. Lastly, in Asia Pacific, Q3 saw a solid jump in both day rates and utilization as projects in both Australia and Asia continued on from Q2. We have seen some pressure unnecessarily in our view in Australia on day rates with competitors. But more broadly in the region, day rates for our larger class of vessels have held up well. And looking out into 2026, we see some positive signs of various drilling projects coming back to the region from Q2 onwards after a bit of a hiatus during the majority of 2025 caused by various political machinations in certain areas. Overall, we're very pleased with how Q3 has turned out and how our teams are focused on delivering strong results even with the short-term white space headwinds to contend. So even with the short-term headwind, we remain very optimistic on the long-term fundamentals for our business, still being very much in the shipowners' favor for some time to come. And with that, I'll hand it over to Sam. Samuel Rubio: Thank you, Piers, and good morning, everyone. At this time, I would like to take you through our financial results. My discussion will focus primarily on sequential quarterly comparisons of the third quarter of '25 compared to the second quarter of 2025, including operational aspects that affected the third quarter. As noted in our press release filed yesterday, we reported a net loss of $806,000 for the quarter or $0.02 per share. Included in the net loss was a $27.1 million charge related to the early extinguishment of our debt, which will be discussed later. For the third quarter, we generated revenue of $341.1 million compared to $340.4 million in the second quarter, essentially flat quarter-over-quarter, but about 4% higher than our expectation. Third quarter average day rates of $22,798 were 2% lower versus the second quarter. We saw a nice increase in active utilization from 76.4% in the second quarter to 78.5% in the third quarter, due mainly to the decrease in idle and drydock days as we saw a lighter drydock load in the back half of the year compared to the first half of the year as expected. Gross margin in the third quarter was $163.7 million compared to $171 million in the second quarter. Gross margin percentage in the third quarter was 48%, nicely above our Q3 expectation, but below our Q2 margin of 50%. The margin outperformance versus our expectation was primarily due to higher-than-expected day rates and utilization, combined with a decrease in operating costs. Lower operating costs were driven primarily by lower crew salaries and travel costs, combined with lower supplies and consumables expense due to fewer idle and repair days, offset somewhat by higher R&M expense. The margin decrease versus Q2 was due to an increase in operating costs. Operating costs for the third quarter were $177.4 million compared to $170.5 million in Q2. The increase in cost is due primarily to an increase in salaries and travel, R&M and consumables with continuing FX impacts also contributing. Adjusted EBITDA was $137.9 million in the third quarter compared to $163 million in the second quarter. The decrease is due to the previously mentioned lower gross margin as well as a sequential lower FX gain. G&A expense for the third quarter was $35.3 million, $4 million higher than the second quarter due to an increase in professional fees. We are projecting G&A expense to be about $126 million for 2025, which includes about $14.4 million of noncash stock-based compensation. For 2026, we are projecting our G&A costs to be about $122 million, which includes approximately $13.4 million of noncash stock-based compensation. We conduct our business through 5 operating segments. I refer to the tables in the press release and segment footnotes and results of operations discussions in the 10-Q for details of our segment results. In the third quarter, as mentioned, we saw overall revenues decrease slightly sequentially. However, results varied by segment with our APAC, Middle East and Americas revenue increasing. These increases were offset by decreases in Europe and Mediterranean and African regions. Gross margin versus the previous quarter increased in 4 of our 5 regions with our Europe and Mediterranean regions seeing a decrease of about 12 percentage points. The increase in the Middle East region was due to increases in average day rates and utilization, while operating expense was essentially flat versus Q2. The increase in the Americas region was due to increases in average day rates and utilization, offset by a 2% increase in operating expenses. The improvement in utilization was primarily due to fewer drydock idle and mobilization days. The increase in the APAC region was primarily due to a 7-point increase in utilization and a 5% increase in average day rates, offset by higher operating costs, primarily driven by higher salaries due to movement of some Southeast Asia vessels into Australia. The increase in utilization was primarily due to lower idle and repair days. Africa's gross margin percentage was marginally higher versus the previous quarter and the decrease in our Europe and Mediterranean region was driven by an 11% decrease in day rates, combined with a 6 percentage point decline in utilization as well as an increase in operating costs. The cost increase was primarily due to higher R&M and higher fuel expense due to lower utilization. The decrease in utilization was due to higher drydock and repair days as well as an overall weaker spot market compared to a very strong Q2. We generated $82.7 million in free cash flow this quarter compared to $97.5 million in Q2. The free cash flow decrease quarter-over-quarter was primarily attributable to lower cash flow from operating activities, lower cash proceeds from asset sales. For a while now, I have mentioned that we had received -- we had not received payment from our primary customer in Mexico. Although we did not receive payment from them prior to the end of the third quarter, subsequent to the quarter end, we did receive a payment of $7.4 million, and we expect to receive additional amounts prior to year-end. Our outstanding AR balance at the end of September before the payment was made represented approximately 17% of our total AR and other receivables. We will continue to monitor and assess the situation closely. As we communicated on our previous call, we successfully refinanced our 3 previous secured and unsecured debt instruments to a single longer tenured unsecured structure, and we also entered into a senior secured 5-year credit agreement, which provides for a $250 million revolving credit facility, a $225 million increase over previous revolving credit. As part of the refinancing, we recognized a charge of $27.1 million or about $0.55 per share related to the early extinguishment of the previous debt instruments. As a result of our new debt structure, we will only have small debt repayments that are related to the financing of recently constructed smaller crude transport vessels. We have no payments until 2030 on our new unsecured notes. We incurred $17.6 million in deferred drydock costs in Q3 compared to $23.7 million in the second quarter. In the quarter, we had 943 drydock days that affected utilization by about 5 percentage points. For the year, we're projecting drydock costs to be about $105 million, which is down about $2 million from our prior call. The decrease is due to the net effect of changes in timing of our various 2025 projects with some push to 2026. In addition, we see savings generated from projects completed for the remainder of the year. For 2026, we are projecting drydock costs to be $124 million. Included in that number is $21 million in engine overhauls and $7 million of carryover projects from 2025. We are expecting drydock days to affect utilization by 6 percentage points. In Q3, we incurred $5.1 million in capital expenditures related to ballast water treatment installations, DP system upgrades and various IT upgrades. In addition, we exercised an option to purchase a vessel that we had been operating in our fleet for the past several years under bareboat lease. This purchase option was significantly below market value and allows us to keep a high-quality young vessel in our own operated fleet. The purchase option is reflected in the financing section of the cash flow statement. For the full year, we project capital expenditures of about $30 million, which is down $7 million from our previous forecast. Similar to our drydock projects, the cost savings are due to timing of projects that will be done during drydocks deferred to next year. For 2026, we are projecting capital expenditures to be approximately $36 million, which includes the $7 million carryover from 2025. In addition to this year, we have 2 other vessels under a leasing arrangement that we intend to purchase in 2026 for approximately $24 million. In summary, Q3 was another strong quarter from an operations and execution standpoint. We delivered both strong financial results and free cash flow. Our balance sheet is in an excellent position, and we are well positioned to continue to drive earnings and generate meaningful free cash flow in the future. The industry long-term fundamentals remain very strong, and we remain very optimistic about the opportunities that lie ahead for Tidewater. With that, I will turn the call over to Quintin. West Gotcher: Thank you, Sam. Liz, would you please open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Jim Rollyson with Raymond James. James Rollyson: Quintin, if I kind of take some of your comments around how the market is shaping up at this stage for '26, I'm curious your thoughts on -- it seems like the production support end of the business is steady to growing with your comments about FPSOs kind of over the next coming years. The construction market has been steady to strong. And really, it's been the rig market that's kind of been the differentiation between you guys having the pricing leverage you had before and not. And I'm curious, as that starts to return, but you're seeing the production support market continue to grow. Do we need to get back to the same rig levels we were at, at the peak in '24 to get your pricing back? Or does that actually come a bit sooner because you've soaked up some capacity into the production market since then, do you think? Quintin Kneen: Jim, thanks for the question. And I think you summed it up really well. No, because of the increasing activity in both FPSOs and EPCI and Subsea broadly, I would expect that we would get there sooner. So -- and there's also been vessel attrition over the intervening 2 years that I think will help us get there sooner regardless. But no, I would love to see the drilling activity get back to where it was in '24 because I think that's going to give us the ability to push day rates again at that $3,000 and $4,000 a day per year level, which is really what we need in this industry to get back to earning our cost of capital. We need a couple of years of that. James Rollyson: Right. Okay. That's helpful, and that's what I figured. And then if I read between the lines and some of your comments, you talked about capital, where capital flows between buybacks, between M&A potential. And obviously, this quarter, you guys built a lot of cash and didn't buy back anything and you didn't really buy anything. But I'm assuming kind of the way you operate that the lack of share repurchases in this quarter maybe suggests that you're at least looking at some M&A opportunities that you're kind of holding some dry powder for. Not that I expect you to tell me who you're buying, when that's happening or anything like that, but I'm just curious, is that an accurate read that at least you're pursuing some things that could happen and maybe that's why you didn't do any share repurchases this quarter? Quintin Kneen: Jim, a very thoughtful and great question. Allow me to say that we had material nonpublic information during the quarter, but I just have to leave it at that. James Rollyson: Okay. Appreciate that color and good job, and look forward to how things play out as we go into '26. Operator: Your next question comes from the line of Fredrik Stene with Clarksons Securities. Fredrik Stene: And appreciate all the detailed commentary as always. I wanted to dive a bit into the guidance for 2026, and I must say that I was a bit surprised that you gave it during the third quarter since you gave it at the fourth quarter for last year, but clearly positive to see that you have confidence enough in next year to guide at this point. With that as a preface, I wanted to ask if you could help me with a bit of granularity when it comes to which regions would be of course more exposed to open capacity, which regions are well covered, et cetera, when we think about this 69% midpoint revenue number that you gave, West, and the 57% of available days that were booked. Is there any sort of regional discrepancies going into next year, some regions to watch closer when we try to assess whether or not you'll hit that guidance or even outperform? Quintin Kneen: Listen, thanks for the question. I'm going to give a quick response, but then I'm going to hand it over to West and Piers because they've got more detail on that. But as it relates to the guidance timing, we just think it's appropriate at this point in the year to give people guidance. And if we can give people guidance at this point in the year that is somewhat firm, we're going to do it. This year, we have a little more confidence than we had last year. And I think that we could characterize this year's guidance as kind of a base case. We're hopeful to see that upside in the latter part of '26, but we are very confident that we could deliver a year in '26 that was at least as good as '25. And so we wanted to get that information out. But as to the regional breakup, let me pass it over to Piers because he's got more detailed knowledge. Piers Middleton: Fredrik. Yes, I think that looking at it, we have -- Africa has a little bit more exposure towards the second half of '26, which is not unusual when we look out into -- for most years. And then Asia is a little bit more on the nearer term as we go into '26 as well. There's a little bit more exposure there, which again, as I sort of mentioned, we've got a number of things we've got in the -- we're working on at the moment. So maybe that changes as we work through things, but that exposure is primarily Africa and Asia as we look out through the year. Elsewhere, we've got fairly solid coverage, I would say, as we go into 2026. Fredrik Stene: All right. And just as a follow-up to that one. You're talking about 69% from firm revenues and options. Are you able to give a split there or at least give some color on whether or not it's sensible that most of those options will be exercised given whatever price that are priced at. Piers Middleton: I don't have the split on firm and options at hand at the moment. So -- but I would say we've got options which we do have the ones which were done a while ago. So we're very confident they will get -- will taken when they come. Fredrik Stene: Just one super quick one at the end here, which doesn't really relate to any market. But in your 10-Q, you're talking about a case, call it, the Venezuela case where you are potentially owed around $80 million. And to my understanding, there's potentially a verdict by year-end. How should -- is this something to care about? Is there a chance that you'll be able to collect that money if it's going in your favor? Any commentary would be super helpful as more cash is obviously a positive. Quintin Kneen: Fredrik, it's Quintin. The timing on these types of cases is so difficult. I mean this has been going on for 12 years now. So yes, we do feel that we're getting really close. But trying to call it whether it's the end of this year or the first half of next year, I would tell you, is really difficult. I would say that most people are thinking it's going to settle [indiscernible] Operator: Your next question comes from the line of Josh Jayne with Daniel Energy Partners. Joshua Jayne: Quintin, you alluded to it a little bit in the answer to the last question, but I'm going to go ahead with that anyway about confidence level. So as we sat here a year ago, there was a lot of questions about domestic energy policy in Saudi, and we just changed presidents and offshore white space. All of those went on to, I think, impact offshore activity over the course of '25. Do you get a sense that customers have a better sense of the playbook today and are more confident in the next 12 months, maybe more so than you were a year ago? Maybe just elaborate on that a little bit more would be great. Quintin Kneen: I do just because we've had a year of dealing with this volatility and uncertainty, and we're getting a sense for which regions it impacts and what it doesn't. But also, we've gotten a real good view on OPEC and how they're releasing excess barrels into the market and how they're managing price expectations as they do that. So yes, I think that operators broadly have a better sense for where they want to go and how deep they want to go in particular regions. But let me look it over to Piers and Piers, you may have some other commentary to like add. Piers Middleton: Yes. Josh, I think when we speak to our customers at the moment, they do seem to have a little bit more of a view as to where they think this is going to go. And you can start seeing that in some of the conversations and what you probably heard from the drillers in terms of second half of '26. We're seeing a lot more tenders and pretender type of discussions at the moment across all of our regions. So there's definitely a good undercurrent of noise coming out in terms of giving us that sort of positive outlook as we go into the second half of '26. I mean you mentioned Aramco, I mean they've already come out. I mentioned briefly about reactivating rigs they had suspended last year. So that's a very positive sign from that side. We're seeing a lot more activity in places like the Med and obviously, the Caribbean as well. So it's very positive in all the conversations we're having at the moment. So yes, customers seem -- they seem to have plans in place and they're starting to move on those plans, which I think is a positive sign for us. Joshua Jayne: And then you talked about the 34 contracts that were signed over the course of the quarter for an average term of 7 months, the general consensus view has been we do see some uptick in rig activity in the second half of 2026. And just when I think about the timing, is that intentional on your part? Or is the duration of those contracts? Or is that just sort of where the market is today, what customers are willing to sign? Maybe just speak to that a little bit more. Piers Middleton: It's really sort of where the market is today. I mean we've -- and I think I mentioned this on the last call, when we've had this sort of some expected softness or the white space that we talk about, we've obviously been chasing little bit of utilization. So some of those contracts are just to get us through into the second half '26. And I think the thing which we're very conscious of is keeping utilization up at the same time, making sure we don't overcommit to longer term because we believe in this uplift in the market in the second half of '26 and into '27, and we don't want to be locking in something which we think is a little bit subscale today. So some of the contracts we're signing now about just giving that cover and getting us into the second half of '26 is how we sort of been focusing in terms of commercial strategy. Joshua Jayne: And then maybe if I could just squeeze one more in. I'd love to get your thoughts on just the newbuild fleet today. You highlighted the number of vessels, but then also just the ongoing attrition that happened over the last 2 years. Could you just frame that against the attrition that you're expecting over the next 12 to 24 months and your expectation if the number of vessels that are on order today all ultimately get built? West Gotcher: Josh, it's West. I'll give a little bit of view and Piers or others want to chime in, that's fine. What we've seen over the past, I guess, a couple of years now is a handful of orders from folks in different parts of the world. For the most part, these are not coming from legacy industrial participants. You see some orders from, if you will, new entries into the industry. You do have some new builds that are -- that have been ordered down in Brazil against contracts, which we think is -- makes sense, especially given the rates that those reportedly have been won at. But as of today, again, it's roughly 3% of the fleet across both PSVs and anchor handlers that have been ordered. Now what does that mean? That matters as it relates to net new build additions or net incremental supply. And as we look out over time in an industry where the assets are 20- to 25-year live, that would tell you every year, you'd lose roughly 4% to 5% of the fleet. It doesn't always work out as elegantly as that because not all vessels are built kind of pro rata over time. But over the course of a few years, you would expect dozens, if not more, vessels to reach that 20- to 25-year life, at which point they should otherwise attrition. Now if you're in an economic environment such that spending a considerable amount of money to keep a vessel going, that's possible that, that can happen. But there is a finite life for a lot of these vessels. And so what we see is less new build activity or less new build vessels on order than what attrition would tell you would lead to net new supply once these vessels start to deliver. Now whether they ultimately deliver, I don't think there's any reason to believe they won't. If they're in a shipyard today and they're being built and they have the financing to do that, presumably, they should deliver. The question is on what time frame. A lot of these vessels haven't been built in a long time. And so there's some muscle memory that has to be put back in place at the shipyards. But I think it's fair to assume that they do indeed deliver. But against that attrition dynamic in our mind, does it create a net new boat? And if it doesn't, then we're still in as good of a place as we've been. Operator: Your final question comes from the line of Greg Lewis with BTIG. Gregory Lewis: Quintin, I realize you mentioned the non-tier public information around potential M&A. But beyond that, could you give us any color like as we think about potential opportunities? Clearly, you -- the company has a diversified fleet. It's interesting because I think some people like anchor handlers better than PSVs. As you think about the world evolving offshore, which it clearly looks like it's going to over the next 5 years, do we kind of have a preference for specific asset types? Or hey, we think asset prices are attractive. And if it's on the water, we want to buy it type view. Quintin Kneen: Greg. So I will tell you that similar to some commentary I've made in the past. I mean we've been real focused in the Americas. And I will say that South America to us is probably more interesting than North America at this point. The vessel class, I would say large PSV is definitely a real preference, medium and large anchor handlers, not the extra large anchor handlers, but the medium and large anchor handlers for sure, too. I'm not looking really to stretch too far out of that right now, but we could. I mean I do like the Subsea market, but there's a -- you really need scale to get into that market appropriately. And so we'd have to really think hard about stretching further than the typical PSV and anchor handlers, but it's certainly a possibility based on the core competencies of managing vessels, managing crews and managing customers and things like that. Gregory Lewis: Okay. And I appreciate that you -- in a market like West Africa, which is a key basin, you have there's a lot more medium sized than large vessels in your fleet. But I guess any kind of color on the kind of the -- what is keeping the larger vessels pricing stronger relative to the medium/small vessels? Is that mix of work? Is that scarcity of vessels? Any kind of commentary you can have around that? Piers Middleton: Greg, it's Piers. It's -- I think just on the larger PSVs, I think it's a combination of all those. I mean it's -- they're always the go-to vessels that our customers want to get, size matters if they can get it. I wouldn't say there's a little bit of a scarcity and we have some -- we have obviously a very large fleet of those vessels around the globe. But I think when you're doing an EPCI contract or you're doing a drilling program in particular, there's definitely a need for as large PSVs you can get to put as much space on. So it definitely works to our advantage to have that fleet. You mentioned Africa. I mean, you just go through these waves occasionally where there's a little bit of a slowdown in activity. But we've been able to -- we are being able to -- there's enough work out there where we can reposition some of our larger PSVs into different regions. So it gives us that option and people prepared to pay to mobilize vessels to different places to support drilling and construction projects as well. So I think it's a combination of all the things that you mentioned in terms of what's allowing us to keep rates high enough, but could go higher always, of course, and that's where we're hoping to get as we go into the next half, next year, as Quintin mentioned. Gregory Lewis: Okay. And then I guess it's on the last caller, I'll just ask one more. Around next year's guidance, thank you for that. I think somebody else mentioned that, that was great to see. I think it kind of shows you your kind of outlook on the market. But I guess I just had a couple of questions around that. One is, if we kind of think about -- I remember about, I don't know, maybe 1.5 years ago, you kind of -- we had some hiccups around maintenance and we've kind of been thinking about potential impacts to utilization. I guess, as we think about utilization for next year, are we kind of carrying through some cushion for those kind of always unexpected unplanned downtimes. And then just one other question, and I apologize, I was late dialing on. It seems like myself included, everybody expects a stronger half -- the back half of next year versus the front half. Any kind of view on how we think maybe the revenue shakes out in second half versus first half? West Gotcher: So I'll start with the first part, Greg. We -- in the prepared remarks, we said the quarterly cadence of revenue next year, we actually see it to be fairly even. So it's not necessarily a back half weighted outlook. We did say, however, to the extent drilling comes back in a little bit stronger than what we currently are able to see, and that may influence the back half higher from what we've guided to. But right now, what we indicated was that the quarterly progression will be fairly even. In terms of down for repair time, as we've talked about. If you've noticed the past 3 quarters or so, we've continued to have better uptime performance than what we saw about 1.5 years ago, as you mentioned. And so 3 quarters is better than 1 quarter in terms of establishing a trend and seeing the fruits of the investments and all the work that have gone into the wherewithal of our vessels. And so for next year, we didn't dive into it specifically, but I do think we have a bit more confidence in the operational wherewithal of the vessels at this point in time. Operator: That completes our Q&A session. I will now turn back over to President and CEO and Director for closing remarks. Quintin Kneen: Liz, thank you. Thank you, everyone, and we look forward to updating you again in February. Goodbye. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, ladies and gentlemen. Thank you for standing by. Welcome to Hesai Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference call is being recorded. I will now turn the call over to our first speaker today, Yuanting Shi, the company's Head of Capital Markets. Please go ahead. Yuanting Shi: Thank you, operator. Hello, everyone. Thank you for joining Hesai Group's Third Quarter 2025 Earnings Conference Call. Our earnings release is now available on our IR website at investor.hesaitech.com as well as via Newswire services. Today, you will hear from our CEO, Dr. David Li, who will provide an overview of our recent updates. Next, our CFO, Mr. Andrew Fan, will address our financial results before we open the call for questions. Before we continue, I refer you to the safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also note that the company will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under GAAP in our earnings release and filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. With that, I'm pleased to turn over the call to our CEO, Dr. David Li. David, please go ahead. Yifan Li: Thank you, Yuanting, and thank you, everyone, for joining our call today. Let's start with an overview of this quarter's progress. Q3 was a quarter of powerful momentum and exceptional execution with net revenue surging nearly 50% year-over-year and a landmark milestone achieved, we produced over 1 million LiDAR units in 2025 alone and are the first to do so globally. We've also led the long-range automotive LiDAR market for 7 consecutive months, capturing an impressive 46% share in August, 1.5x the second player and 2.4x the third according to Gasgoo. Our profitability performance is even more remarkable. After turning solidly profitable ahead of schedule in Q2, we kept the momentum going in Q3, delivering a record quarterly GAAP net income of RMB 256 million and a 9-month GAAP net income of RMB 283 million, achieving our full year target of RMB 200 million to RMB 350 million, well ahead of schedule. This milestone further reinforces our undisputed financial leadership in the LiDAR industry. With robust growth and solid profitability working hand-in-hand, we're building powerful long-term momentum and creating sustainable value for our shareholders. Now let's dive into our Q3 business highlights. Starting with our progress in the ADAS market. Firstly, for ADAS, LiDAR is no longer optional. It's rapidly becoming a standard feature. As a result of our product leadership and strong client relationships, we are proud to announce our new design wins from both of our top two ADAS customers across all their 2026 models, achieving 100% LiDAR adoption. On top of that, select facelifted versions of Zeekr's flagship models are now rolling out with Hesai LiDAR as a standard feature. Looking ahead, a growing number of best-selling models across our diverse client base are slated for SOP with Hesai in the second half of 2025 and throughout 2026, further cementing our position as a LiDAR partner of choice. Beyond this, we are excited to see China taking decisive steps towards higher-level autonomous driving. In September, the MIIT introduced conditional approval for L3 vehicle production for the first time. This was quickly followed by a public consultation on the new mandatory safety standard for L2 systems. Together, these regulatory developments are clearing the runway for a new era of smarter, safer autonomous driving in China. As regulations take shape, one thing is clear, a higher-level autonomous driving system cannot tolerate a single point of failure, making safety redundancy not just important, but essential. At the same time, LiDAR sensors must be factory integrated rather than retrofitted, pushing automakers to future-proof their platforms for tomorrow's L2 and L3 capabilities. The trend is accelerating even as software capabilities continue to evolve, pioneering OEMs are already launching multi-LiDAR vehicles in 2025. These models featuring 2 to 5 LiDARs are winning consumer recognition and achieving strong sales results. To gear up for the new era of L3 autonomous driving, we launched our Infinity Eye B LiDAR solution in April. It pairs our forward-facing long-range ETX LiDAR, a new benchmark with the world's longest detection range, with FTX blind-spot LiDARs, offering the industry's widest field of view. Most excitingly, I'm thrilled to share that this quarter, ETX landed yet another design win, this time with a top 3 domestic new energy vehicle automaker, one of our valued existing customers, paired with multiple FTX units for full 360-degree blind-spot coverage. Mass production is slated for late 2026 or early 2027. These developments reaffirm a principle we've always stood by. The cost of LiDAR is nothing compared with the priceless value of human life. As the auto industry moves toward higher-level autonomy, LiDAR content in new vehicles is ramping up fast. We now expect 3 to 6 LiDARs per L3 vehicle, representing a system value of roughly USD 500 to USD 1,000 per car in the long run. This trend is massively expanding our addressable market and supercharging the long-term growth potential of our ADAS business. Beyond our progress in ADAS, our Robotics business is becoming an increasingly powerful growth driver, fueled by expanding autonomous driving fleets. As core technologies advance rapidly, autonomous driving companies worldwide are approaching a tipping point towards scaled operations, and we're proud to be a key enabler of this transformation. In China, the latest generation of autonomous driving fleets are adopting ADAS LiDAR solutions alongside optimized chips and vehicle design to lower total BOM costs and accelerate commercialization. Spearheading this shift, we've recently signed new deals with Pony.ai, Hello Inc. and JD Logistics. And I'm excited to share that for some of their models, all LiDAR units, up to 8 main and blind-spot LiDARs will be supplied entirely by Hesai. Internationally, we have also made strong progress. Many overseas robotaxi companies continue to favor mechanical spinning LiDARs for their performance and stability, making them less price sensitive and creating meaningful opportunities for us. We are proud to share that we have signed new LiDAR supply agreements with leading global autonomous driving companies, including Motional and others across North America, Asia and Europe. These large-scale programs represent deals worth tens of millions of dollars, with strong follow-on potential as deployments expand. As our partners move toward large-scale operations in the coming years, this marks a defining milestone for the autonomous driving industry. Building on these operational milestones, September marked a historic moment for Hesai as a public company. We successfully listed on the Main Board of the Hong Kong Stock Exchange, becoming the world's first LiDAR company with dual primary listings in both the U.S. and Hong Kong. This was the largest IPO in the global LiDAR sector, raising USD 614 million after the greenshoe option, with strong support from global institutional investors and industry leaders. The offering underscores confidence in the long-term potential of the LiDAR industry and in Hesai's ability to deliver at scale. More importantly, it strengthens our financial foundation, enabling us to invest in innovation and capture new market opportunities. To wrap up, our strong Q3 results are a powerful testament to Hesai's momentum and execution. The successful completion of our Hong Kong IPO marks a bold new chapter for Hesai. We are witnessing the dawn of an AI-driven fourth industrial revolution, an era that promises unprecedented gains in productivity and human well-being. As we look toward the decade ahead, Hesai is rising to this moment, evolving into a full spectrum technology infrastructure builder that redefines how cars and robots perceive and interact with the world. With that, I will now turn the call over to Andrew to share more details on our financial performance and outlook. Andrew, please go ahead. Peng Fan: Thank you, and hello, everyone. Before we get into our financial performance this quarter, I'd like to start with a key milestone for Hesai as a public company. In September, we completed our dual-primary listing on the Main Board of the Hong Kong Stock Exchange under the ticker, 2525. Through this global offering, Hesai has become the world's first LiDAR company to be listed in both the U.S. and Hong Kong capital markets. The market response to our Hong Kong debut was exceptional. The public tranche was nearly 169x oversubscribed, while the international tranche attracted demand of more than 14x the available shares. In total, we raised USD 640 million after the greenshoe option, further strengthening our balance sheet and improving trading liquidity. These resources have greatly enhanced our capacity to invest in innovation, expand production and drive operational excellence. We are now in a strong position to capture growing opportunities in the global LiDAR market and extend our leadership as adoption continues to accelerate. I will now walk through our Q3 financial and operational performance. To be mindful of the length of our earnings call today, I encourage listeners to refer to our earnings release for further details. Q3 was another outstanding quarter, delivering record-breaking results across the board. Total shipments reached 441,398 units, up 229% year-over-year, while net revenue surged 47% to RMB 795 million or USD 112 million, marking our sixth consecutive quarter of robust year-over-year growth. This powerful momentum fueled by the surging adoption of our category-defining ATX amid the industry's rapid shift toward LiDAR as a standard feature along with a 14-fold year-over-year rise in robotics LiDAR shipments across expanding applications underscores the strength and scalability of our business model. Our gross margin remained healthy at 42%, driven by economies of scale and continued gains in manufacturing productivity. Just as importantly, we're now embedding AI across R&D, operations and customer support, unlocking new efficiencies and strengthening the foundation of a lean optimized expense structure. You may have noticed that today's prepared remarks are being delivered through AI-generated voices. While the pronunciation isn't perfect yet, it's a small but meaningful example of our commitment to wholeheartedly embrace AI across the organization. We believe that for companies today, embracing AI is just like embracing digital transformation 20 years ago. It's the key to building greater competitiveness for the future. Since Q2, we've deployed an intelligent assistant across a wide range of daily workflows, cutting costs, shortening cycles and improving quality. This AI-driven approach has already delivered tens of millions of RMB in savings across travel, documentation, hiring, testing, coding and more. As a result of our adoption of AI and other cost control measures, total operating expenses declined year-over-year in Q3, keeping us on track to achieve RMB 100 million in OpEx savings in 2025 compared with last year. Building on our strong momentum, we delivered a record net income of RMB 256 million or USD 36 million in Q3, bringing our 9 months total to RMB 283 million or USD 40 million. We've already hit our full year profit target of RMB 200 million to RMB 350 million, 1 quarter ahead of schedule. This achievement reflects the scale and efficiency our business has reached, where growth is now translating directly into earnings. Higher volumes drive better unit economics, which in turn fuels more growth, creating a self-reinforcing cycle of profitability and innovation. It's worth noting that Q3 net income included gains from equity investments of RMB 148 million or USD 21 million. Excluding these gains, quarterly net income would have remained strong at RMB 108 million or USD 15 million. Taking this into account, we are raising our full year GAAP net income guidance for 2025 to a range of RMB 350 million or USD 49 million to RMB 450 million or USD 63 million, and we expect full year net income, excluding these gains from equity investments to stay within our earlier guidance range of RMB 200 million to RMB 350 million. For the remainder of the year, we expect to carry forward the strong momentum we have built. For Q4, we're projecting net revenues of between RMB 1,000 million or USD 140 million and RMB 1,200 million or USD 169 million, representing a year-over-year increase of 39% to 67%. To wrap up, our successful listing on the Hong Kong Stock Exchange marks an exciting new beginning for Hesai. We're growing faster, scaling smarter, and executing stronger than ever with accelerating revenues, solid margins and a proven profitability. We're building competitive advantages that will keep compounding over time. We are more energized than ever to seize the opportunities ahead. This concludes our prepared remarks today. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from Tina Hou from Goldman Sachs. Tina Hou: Congratulations on a very strong result. So my question, the first one would be related to the pricing side of things. As we go into the last quarter of this year and enter into price discussion with customers next year. So just wondering if you could give us any color in terms of what kind of pricing we're looking at for next year, considering everything, the annual price cut, competitor dynamics. That's number one. Number two is in terms of the volume. So just wondering if management is seeing next year, the OEM customers are going to accelerate the adoption of LiDAR. And in your view, when will be sort of the starting point or the takeoff point for mass market models to start having LiDAR as a standard option? And I guess related to that, if there is any color you can give us in terms of your 4Q as well as 2026 guidance or any kind of color on volume, it would be really helpful. Peng Fan: Thank you, Tina. So I understand your question. I will try to cover the -- our, like guidance or forecast or color for the current year and also year 2026. Let's talk about the 2025 year, full year guidance first. On revenue side, our Q4 revenues are expected to reach about RMB 1.0 billion to RMB 1.2 billion, bringing full year 2025 revenues to approximately RMB 3.0 billion to RMB 3.2 billion, representing a year-over-year increase of nearly 50%. This strong growth is driven by the rapid adoption of LiDAR in passenger vehicles and the expanding use of the robotic LiDAR across new applications. Volume and ASP. During the first 3 quarters of 2025, we shipped about close to 1 million units in total. We expect the shipments to continue accelerating throughout the year with 4Q shipments reaching approximately 600,000 units as a seasonal high. The ATX LiDAR is expected to account for roughly 80% of total deliveries in Q4 in terms of volumes. It has a market price of around $200 with discounts offered to major customers on our pricing strategies. The stronger-than-expected demand for ATX has accelerated its replacement of the AT128 LiDAR among our OEM customers in the second half of 2025. Meanwhile, several automakers have adjusted their second half production schedules for vehicle models equipped with AT128, leading to softer demand for the product. As AT128 is priced at several times of the price of ATX, this shift in product mix has resulted in a relatively lower blended ADAS ASP for year 2025. Margin-wise, the blended gross profit margin is expected to remain healthy at around 40% in Q4. We are raising our full year 2025 GAAP net income guidance to RMB 350 million to RMB 450 million. Excluding gains relevant to equity investments recorded in Q4, normalized full year GAAP net income remains within our previous guidance range of RMB 200 million to RMB 300 million. On the non-GAAP metrics, you should add an additional RMB 120 million for stock-based compensation. Looking ahead for year 2026, we see it as a true inflection point. On one hand, we anticipate strong demand for ADAS LiDAR in passenger vehicles with our LiDAR shipments expected to reach at least 2 million to 3 million units or potentially even higher if L3 adoption becomes an industry-wide trend. On the other side, we do anticipate a potential decrease in blended ASP. That's mainly due to three things: one, a shift in product mix towards our ADAS LiDARs, which have a relatively lower unit price, but we will see higher deliveries and revenue share; two, the modest volume-based pricing for our large order strategic customers; three, the standard annual decline for downstream customers. That being said, there is reason to be optimistic. We expect a strong positive catalyst to emerge in year 2026 and 2027. First, L3 vehicles deployment in China will drive multi-LiDAR setups, pushing LiDAR content per vehicle to USD 500 to USD 1,000. We've already landed a flagship L3 program with a renowned customer and more exciting deals are in the works. Second, our overseas ADAS business is expected to start contributing, marking the beginning of global ADAS LiDAR mass production. Third, our Robotics business continues to gain momentum across diverse applications and customers, and it typically carries a higher ASP and margin compared to ADAS. Fourth, we are also exploring new growth engines, and we'll share more updates as things progress. On the profitability front, we expect gross margins to remain relatively stable in 2026 compared with 2025, supported by continued cost optimization across product and ASIC design, supply chain and manufacturing. At the same time, growing adoption of multiple LiDAR in ADAS is expected to help offset pressure on blended ASPs. In short, we expect to enter 2026 with a clear path towards a double-digit year-over-year revenue growth, accelerated shipments, a stable margin profile and potential new growth engines. Detailed guidance will follow in the coming quarters. Altogether, this sets the stage for sustained growth in the years ahead. Tina, hopefully, this covers your questions about our guidance in the next... Yifan Li: And I just want to say that was actually, Andrew. It's not a robot, and I am not a robot. Operator: Your next question comes from Tim Hsiao from Morgan Stanley. Tim Hsiao: This is Tim. Congratulations on the robust results and steady project wins. I've got two questions. The first one about the competition because we noticed that the competitors in China launched new products to undercut Hesai's ATX product. So how should we think about the peers, the mainstream product like EMX versus the key volume driver of the Hesai, i.e., ATX? The second question is about the technology because we noticed lots of discussions over the past few months about the SPAD SoC system and chip lately. So how should we think about the advantage of SPAD-based digital LiDAR? So I also want to get some updates from the management. Yes, those are two questions from my side. Yifan Li: Thank you, Tim. Let me try to give you a little more insight on both competition and our view on some of the upcoming technologies. The first one is competitive products. It's a very competitive market, and we're facing -- always facing very strong competitions from quite a few players, and you name one of them. It's a great product, and they always have great technology. But I do want to bring your attention to maybe zoom out a little bit. And what I'm trying to help you understand is that our strategy is that we have a very structured time line to release each generation of product, right? And in the mechanical LiDAR era was like a Pandar128. It was really the king of the world. We don't have to go there. Then AT128, I think it's fair to say, looking back, it is the LiDAR that defined the automotive LiDAR industry. We shipped the largest volume and was also relatively expensive with a higher ASP than the competitors. And most importantly, people believe that's the highest quality, highest performing by a large margin product, super successful, right? That's Gen 2, right? Then Gen 3 is ATX. And the ATX, I think by now, it's fair to say it's another complete victory on the market that we received way more contracts than any of the competitors, and we're shipping a much larger volume. And I think everyone believes that this is a much higher performing and as reliable as any Hesai product to the highest quality standard. So again, that's Gen 3, that's ATX, that's clear, right? So -- and of course, we also have our own time line to release the next generation. But as a company that has enjoyed the highest market share and the most premium brand and product, we don't want to have to rush things just because competitor released a product after us, that shouldn't be the strategy. The strategy is that you have a certain rhythm or pace and you put everything -- all the good things into the product based on the timing you have. So -- and that's the biggest reason that when somebody released a product like half a year or a year after us before our next generation, there always some interesting features. But in the end, if you zoom out and look at the overall results, we -- at least so far, we always had the greatest achievement on performance, volume, definitely margin. And in the end, it's really always the most well-rounded and the best-performing product on the market. So hopefully, we'll be able to continue the trend. We will never know what we don't know in the future. But so far, leveraging our semiconductor technology, our manufacturing capability, our strong brand power and the super trusted relationship with almost all of the top OEMs in China. In China, we believe we'll be able to continue that. Even though every generation, we will have a price decline because that's the nature of such a market. We also continue to innovate to keep the gross margin as you continue to see, right? And so that's what we see. Hopefully, that gets the first question out of the way. Now Tim, you also mentioned a very interesting question, which is the second one is on SPAD. SPAD stands for Single Photon Avalanche Diode, right? I'll give you a little more insight that's beyond pure competitive advertisement. A, we're actually the first one to use SPAD technologies on any automotive LiDAR for all the competitors we know. We shipped the first fully solid-state automotive LiDAR for near-range blind detector, FT120, I think, since 2, 3 years ago, not in large volume, but it is a fully automotive grade product that's on cars globally, right? And then we also acquired SPAD technology companies out of Switzerland because we believe they have interesting technologies and we look at them, we feel like it will be a good addition to us. We actually did that. However, having said that, we wanted to be objective and rational about what SPAD can and cannot do today. One of the things is that if you use off-the-shelf SPAD technology and you simply integrate them, one of the challenges you face is actually noise. And when you look at any LiDAR with noise, the challenge you face is that it will have a higher chance of false trigger because SPAD is great, but it's too sensitive. You need to be able to mitigate that. And that's, I think, the biggest question and the challenge for the industry today. And I think everyone is trying to find a solution. But today, if you look at the long-range SPAD, people always tell you with a high sensitivity, there's always a higher chance of false trigger, which is actually very bad for LiDAR as a safety product. You don't want your product to experience that type of problem. And we're diligently working on that. We have our in-house solution, hopefully to be able to address that. But our strategy isn't always just try to buy off-the-shelf components that is the latest and just put it in. Our goal is to incorporate whatever is mature enough as a safety component. And then put in latest and the greatest. That has to be in that order. Your reliability, safety has to be first. You don't want to be sacrificing your reliability. You don't want to increase the chance of false triggering for such a thing as a LiDAR. We always try to explain to the market. It's almost like your invisible airbag. Just to make it simple for people to understand, you probably don't want to sacrifice the chance of a new airbag when you know there is challenge of false triggering and you definitely want to be able to solve that. And we do believe that will be solved. We do believe SPAD has a lot of great new features and also more room on cost that will be eventually adopted, and we're also diligently working on that. But I just want people to be more informed on the pros and cons of such an interesting technology that everyone is carefully evaluating. Operator: Your next question comes from Jeff Chung from Citi. Ming Chung: David, this is such a great result and congratulations with the excellent earnings. So I have a question on L3 for David. So any sign for the improvement of the product mix and LiDAR per car? And any view on the Level 3 legislation in both China and Europe? And I also got a question for Andrew. So it looks like the 4Q guidance is really optimistic in the sense that in the best case scenario, revenue should up 50% Q-on-Q and the core earnings should up 100% Q-on-Q. Could you share with me the views of why you're so confident on this? Peng Fan: Jeff, okay. Let me first cover these two questions. For the legislation in relation to L3, we are thrilled by China's decisive push towards higher-level autonomous driving. As regulations evolve, safety redundancy becomes non-negotiable and the LiDAR must be factory integrated rather than retrofitted, driving automakers to future-proof platforms for L3 capabilities. The market is moving really fast. Leading OEMs are already rolling out multi LiDAR vehicles in year 2025. Huawei's AITO M9 with 4 LiDARs, AVATR 12 with 4, Zeekr 9X with 5 and NIO ES8 with 3, all received strong customer demand and proving that demand for smarter, safer vehicles is real. So we see tremendous upside in LiDAR content growth. As L3 adoption accelerates, the number of LiDAR units per vehicle is expected to increase to 3 to 6 or even more, along with the trend towards upgrading main LiDARs to high-end models like our ETX. This could lift the total LiDAR content per vehicle to around USD 500 to USD 1,000. Beyond the numbers, every additional LiDAR unit directly enhances safety, underscoring the irreplaceable value of our technology and the critical role we play in shaping the autonomous driving future. We are seeing customers increased discussion for L3 applications and, of course, more LiDARs. We have signed a flagship program featuring ETX and multiple FTX already and more contracts on the way. Stay tuned for future developments. We will share more details when available. Yifan Li: Thank you, Andrew. And this is David. I wanted to also give you a little more insight on how I think about this problem. Obviously, we're talking about price. We're talking about the total dollar amount on each of the vehicles. But I think in the end, what's deciding a dollar amount is really the value it creates, right? So -- and that is rapidly changing from Level 2 to Level 3, right? In the Level 2 era, we're looking at an airbag, right, or a seat belt. Then of course, it's important. Of course, it's saving lives. But if you look at airbags, it's also saving lives. It has a certain price expectation people have. You're not going to be willing to pay $10,000 for airbag, even though it's life-saving. So for such a function, in the end, we feel like below $200 is the right range, and we're at there. That's why I think feel -- this is the biggest reason penetration rate is exponentially growing. Everyone wants that, and they feel like it's a good value buy. Having said that, Level 3 is a completely different game, especially when people think about Level 3, I think people are already remotely thinking about Level 4. Maybe I'll talk about Level 4 just to give people some ideas on how I think we should think about the problem. Again, we think about value creation. What is value creation? For cars, other than safety, the value creation is the time the machine gives back to us, right? And if you buy a Level 2 car, at most, it gives you an hour or 2, a day back to you, right? But for Level 2, it doesn't even quite give it back to you. They ask you to have your hands on the steering wheel. So that's why it's great as a life-saving device, but it's of limited value. If you look at Level 4 or aka robotaxi, you are literally looking at maybe 20 hours per day of the utilization of such a product. By the way, I quote this from one of the great leaders of the industry who isn't a big fan of Hesai. It's from Elon Musk. He said that, which I agree that the change for such a level will allow the utilization of the machine to be maybe 10x. And if you think about it, if you're creating something that has potential to have a 10x of the traditional value, you naturally are able to afford much better sensors, much better driving system, computation and everything, so that you can be the best in creating such a product. So that's the way I look at Level 3 and especially Level 4. And the total dollar amount on a car, maybe not 10x, but people's tolerance is much higher because it's creating roughly 10x of the value, if not more, comparing to the Level 2 system we used to be on. And that's why people should be more excited about the total content and the value create as a complete sensor suite. Operator: Your next question comes from Jesse Lo from Bank of America Securities. Peng Fan: Sorry, Operator, hold on for one second. Let me finish Jeff's second question regarding some additional color on our 2025 full year guidance. Jeff, as we said in the script, we are very confident that our full year numbers will fall in the range, but I'm not assuring that -- assuring you that we will reach the high end of the range. So let's take the low end of the range, for example. We are basically guiding that our Q4 revenue will be above RMB 1 billion, comparing to roughly 800 million in Q3. If that achieves the additional net profit comparing to Q3 will be roughly RMB 80 million pretax. If you look at our first 9 months results in this year, our total or accumulated net income is about 256 -- sorry, it's USD 283 million. As we mentioned in the earnings release, we actually have a one-off investment gain from an equity investment, which is roughly RMB 150 million. So if we exclude that, our normalized first 3 quarters earnings is roughly RMB 130 million, so if we add another RMB 180 million to that, it already adds up to more than RMB 350 million net income in year 2025. So that's why we are relatively confident that our full year revenue and profit will fall in the range that we just mentioned. Okay. Operator, let's move on to the questions from BofA. Yu Jie Lo: My question is on -- could you share some color on BYD's 2026 LiDAR order given that it is quite a debatable topic, more specifically on the timing of the LiDAR adoption on this mass market model and also the Hesai's wallet share? And second, how do we think about the pricing strategy of such customer given its much higher vehicle sales? Peng Fan: Okay. We are pleased to see the leading domestic automakers actively accelerating their efforts to make intelligent driving mainstream. Their commitment exemplified by BYD's move to equip its models priced above RMB 100,000 with LiDAR and deployed its God's Eye ADAS systems. This creates massive market demand and accelerates consumer adoption, which benefits the entire ecosystem and raises awareness across the industry and consumers. With this trend, we are proud to be a key partner of BYD. We have gone into mass production with BYD since Q1 2025 and are supplying LiDARs for BYD's models launching in year 2025. This year, we are taking a strong share of BYD's LiDAR supply with our AT128P and ATX, with ATX leading in volume. Our partnership extends across double-digit vehicle models with an exciting wave of new SOPs rolling out through year 2025 and 2026. We will share more details on this customer, their new models and autonomous driving plans once they are ready to make an official announcement. Compared to automakers, Hesai has been investing in LiDAR R&D for 10 years, starting with more complex L4 applications. This has enabled us to accumulate extensive experiences and achieve superior product performances. Meanwhile, by leveraging our years of investments in ASIC technology, we have achieved excellent cost control while maximizing economies of scale through a broad customer base. We believe proactive collaboration between automakers and LiDAR companies helps create a win-win situation. In summary, Hesai serves as an index to the overall autonomous driving industry, and we are excited to see BYD leading the way in making intelligent driving more accessible while strengthening our partnership with them. Operator: Your next question comes from Aaron Wang from Jefferies. Weijie Wang: My question is about Robotics side. Given the increasing demand in robotic area in the coming years, could management share more color on our robotic shipments in 2026 and also in the next few years, and also the proportion of different end markets and our product mix in this segment? Peng Fan: Our Robotics business, which generally enjoys higher ASPs and margins is contributing strongly to the company's overall financials with the growth momentum accelerating. For the robotaxi part, Hesai is the largest robotaxi LiDAR supplier in the world, holding roughly 60% to 70% market share. Our main LiDAR and blind-spot products are widely used by all the top robotaxi players in China. Companies like WeRide, Baidu, Apollo Go, DiDi, Pony and Hello have all adopted our technology. Traditionally, robotaxi operators relied on mechanical spinning LiDARs for small fleet testing and operations. But recent trends in China show an urgent need for scalability. By using our flagship ADAS LiDARs, customers can achieve a better balance of sensor prices and performances, enabling faster fleet growth and helping them move closer to profitability. Spearheading this shift, we have recently signed new deals with WeRide, Pony and Hello Inc. Excitingly, for some of their models, up to 8 LiDAR units per vehicle, main LiDAR and blind-spot LiDARs will come entirely from Hesai. At the same time, we have signed new LiDAR supply agreements with leading global autonomous driving companies, including Motional across North America, Asia and Europe. These programs represent tens of millions of dollars in deals with strong follow-on potential as their partners scale up. The difference is that global players tend to favor high ASP mechanical spinning LiDARs for their performance and stability, making them less price sensitive. Regardless of LiDAR type, the gross profit from our robotaxi business is calculated as fleet size times number of LiDAR per vehicle times ASP times gross margin ratio. With cost reductions and large-scale commercial deployments, we expect the fleet sizes of leading players to grow exponentially in the coming year, driving significant profit growth for Hesai, whether they use mechanical or ADAS LiDARs. The other robotics applications beyond the robotaxi, we have seen huge opportunities in non-auto applications with intelligent robots rapidly gaining traction, our proven strength in high-performance, scalable LiDAR positions us to take the lead. Since starting production of our JT Robotics LiDAR, we shipped around 40,000 to 50,000 units every quarter in year 2025. This new product serves as a wide range of robotics applications. Home, factory and agricultural robots are clear front runners, freeing people from routine work and creating real value from day 1. In the long run, we believe the robotics market could have a TAM several times larger than ADAS. You can only drive one car, but in the future, 10 robots could be working alongside you. We anticipate that Robotics LiDAR volume could double in year 2026 versus 2025, and we plan to share updates on developments along the way. Operator: Your next question comes from Chunsheng Xie from Huatai Securities. Chunsheng Xie: My question is about the major customers for next year. Could you please share which OEMs will be the key customers for the ADAS products? And what kind of the demand scale or volume you are expecting for the next year? Peng Fan: In the ADAS spaces, we are also seeing very strong momentum from a number of key OEMs. Based on our current visibility, we expect the following OEMs to be among our top ADAS customers in year 2025 and very likely in year 2026 as well. They are Li Auto, Xiaomi, BYD, Leapmotor, Zeekr and Great Wall Motor. Of course, these names are not ranked in particular orders. Meanwhile, more major customers are also kicking off SOPs with us extending into year 2026, including Geely and Chery. These customers are rapidly advancing in intelligent driving with some of them expanding LiDAR adoption across more vehicle lines as a standard feature preparing for L3 capabilities with market LiDAR configurations. These companies are not only leading players within China's rapidly evolving smart EV sector, but also represent a diverse range of vehicle platforms from high-end to mass market vehicles, providing a rich foundation for our technology adoption and expansion. Operator: Your next question comes from Sia Huang from SPDB International. Jiaqi Huang: This is Sia. I've got just one question regarding our overseas update. And for the project with the top European OEM customer, is everything on track? And could you please also share more color about the overseas update in terms of other potential customers and design wins? And how do we expect the contributions of overseas revenue for the next 2 to 3 years? Peng Fan: Beyond our success and solid base in China, we are also stepping up our game internationally, both in ADAS and Robotics. On the Robotics side, recently, we have further strengthened our leadership with new LiDAR supply deals across North America, Asia and Europe, covering everything from robotaxi, robotrucks to robovans and factory automation. For example, we are proud to be the exclusive supplier for Motional's next-generation all-electric robotaxi. And as we shared earlier, we also signed a multiyear deal worth over USD 40 million with a leading U.S. robotaxi company, with deliveries running through 2026 and room for more as their fleet grow. In ADAS, momentum is just as strong. As you all know, we have already secured an exclusive design win with a top European OEM and several more are now in the sourcing and negotiation stage for their global programs with European players clearly setting the pace. As competition heat up, global OEMs are doubling down on autonomous driving and safety is something they are never compromised on. There is now a clear consensus across the industry that LiDAR is becoming the airbag for autonomous driving, especially for L3 and above. And once these global OEMs make up their minds, they move decisively. So give them a little time to gear up their AD versions, both ICE and EV, and we believe more LiDAR deals will follow soon. Now for the global OEMs China JVs, things are also moving faster. They are right at the front line of the ADAS race. We have already won design win programs with five major JVs, Volkswagen, GM, Audi, Toyota and Ford and several are already in SOP. A recent highlight came in September when Audi E5 Sportback featuring Hesai LiDAR standard configuration hit the market and racked up over 10,000 orders in just 30 minutes. That's a huge commercial validation and sets the stage for global expansion ahead. Another exciting part of our strategy is backing Chinese OEMs in their global push. We will be the LiDAR supplier for models heading overseas with mass production kicking off in year 2026. We can't share more for now, but stay tuned. Updates are on the way. All in all, these wins reflect the growing trust and recognition we have earned from customers worldwide. Looking ahead, we will keep building on our strengths and serve an even broader range of partners across regions and across industries. Operator: Your next question comes from Lou Jia from BOCI. Jia Lou: Congratulations on the excellent results. My question is related to our new business initiatives. At our Hong Kong listing event, management mentioned that for the next decade, Hesai will be more than just a LiDAR company. So could you share with us more about the potential new areas beyond the LiDAR, Hesai is considering expanding into in the future? Yifan Li: Thank you for this, very exciting question, David, I'll probably take it. I think there are a few things that are super, super interesting and worth exploring and has a lot of potential and the extremely large TAMs that we feel like we are best positioned for. I'll go through some of the things that's on my list. I think the first thing is still sensing itself because not only for robots and also for cars, we're -- especially for cars, we're looking at safety. And for safety, you're never satisfied just by 99% or even 99.9%. You always try to find the failed cases and you try to build a better product to make things safer. And we feel like on the sensing side alone, there are still many, many things we could do to bring safety to the next level, including a longer range, higher density and being able to recognize different materials, being able to measure speed, we're using all different working principles to help our robots and vehicles be able to sense the surroundings better. And that alone is a much bigger market than just the LiDAR TAM we see today considering the importance of such a task. And number two is the best sensing capabilities plus AI. Today, we actually have the capability to do perception software stack, and we actually work with OEMs for that. But today, we're not directly charging them for it. It's because the value we provide is only really part of someone else's software stack. But a lot of the robotics applications, a lot of the sensor applications, we actually see the possibility of having AI capabilities on the already the best sensing hardware we built, essentially making -- number one was making the sensors see better, and number two is making the sensors think better. And that's actually happening and a lot of our software capabilities are being used on that. And number three is along the lines of number two, when you have the software capability, AI capability on top of the best sensing capability, you are no longer being limited by cars. You're looking at a lot of opportunities in the general definition of space sensing. And I won't be able to give you more details on this little part, but we definitely see a lot of customer demand, directly from customers in being able to fully sense and capture the 3D world around us. Think about how cool would that be if you are able to record the 3D world with the product we provide, right? So those are the things. And of course, last but not the least is we've been talking about sensing so far. But the truth is that we really did sensing because sensing was the most critical part of the physical AI 1.0 for cars. For 2.0, we're not only building the LiDAR sensors for the robots. There are just so many infrastructure technologies that we feel like we are uniquely positioned to be able to do because we're super proven and good at high-end sensing semiconductor capability, manufacturing capability, the product iteration and quality capability as a whole, and we feel like there is a very good chance we'll be able to leverage that into more infrastructure business that's beyond sensing. And I'd like to conclude with one of the new quote, I learned from the great Mr. Jensen Huang, I think he said something like in the future, anything that moves will be autonomous. And I'd like to add to the second part that anything that is autonomously moving is likely to need the best sensing capabilities from us. Thank you. Operator: This concludes our question-and-answer session. I'll now hand back to management for any closing remarks. Yuanting Shi: Thank you once again for joining us today. If you have any further questions, please feel free to contact our IR team. This concludes today's call, and we look forward to speaking to you again next quarter. Thank you, and goodbye.
Operator: Good day, and welcome to the BrainsWay Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Ritchie with LifeSci Advisors. Please go ahead. Brian Ritchie: Thank you all, and welcome to BrainsWay's Third Quarter 2025 Earnings Conference Call. With us today are BrainsWay's Chief Executive Officer, Hadar Levy; and Chief Financial Officer, Ido Marom. The format for today's call will be a discussion of recent trends and business updates from Hadar and Ido, followed by a detailed discussion of the financials. Then we will open up the call for your questions. Earlier today, BrainsWay released financial results for the 3 months ended September 30, 2025. A copy of the press release is available on the company's Investor Relations website. Before I turn the call over to Hadar, I would like to remind you that this conference call, including both management's prepared remarks and the question-and-answer session, may contain projections or other forward-looking statements regarding, among other topics, BrainsWay's anticipated future operating and financial performance, business plans and prospects and expectations for its products and pipeline, which are all subject to risks and uncertainties, including shifting market conditions resulting from geopolitical, supply chain and other factors as well as the use of non-GAAP financial information. Additional information regarding these and other risks are available in the company's earnings release and its other filings with the SEC, including the Risk Factors section contained in BrainsWay's Form 20-F. Finally, please note that the company's 6-K will be filed tomorrow at approximately 6:00 a.m. Eastern Time in accordance with the SEC's operating schedule. I would now like to turn the call over to Hadar. Hadar Levy: Thank you, Brian. Welcome, everyone, and thank you for joining us today. We are excited to announce record quarterly revenue of $13.5 million reported in the third quarter of 2025. This represents a 29% increase compared with the same period last year. In addition, we shipped a total of 90 Deep TMS systems during the quarter, representing a 43% increase compared to the same period last year. This brings our total installed base to more than 1,600 systems across the globe. With our quarterly results continuing to trend towards the higher end of expectations and improved visibility into the remainder of the year, we are raising the midpoint of our guidance for the full year 2025, including increasing our revenue guidance to a range of $51 million to $52 million, which is up from our previous guidance of $50 million to $52 million. We now expect to report operating profit in the range of 6% to 7% of revenue, up from the previous guidance of 4% to 5% and adjusted EBITDA in the range of 13% to 14% for the year, up from the previous guidance of 12% to 13%. Let me now take a deeper dive into our performance and why we believe our long-term growth is being built into the current execution of our strategy. As I have mentioned previously, we made the decision approximately 2 years ago to focus our attention on selling to large enterprise customers who value our technology and high level of customer service to support their Deep TMS systems. To this end, we have structured multiyear lease agreement, which in turn provide us a steady foundation from which to grow our business and maintain gross margin every year. As a result of our team's dedication to this sales model, we have transitioned the majority of our sales over with approximately 70% of our recent customer engagement being lease agreements. And I want to highlight that the customers are aligned with this type of engagement as we have had a high rate of customer retention with many customers deciding to extend and even expand their agreement out several years. And this outcome really highlights the scalability of our business. And while perhaps the initial focus each quarter is on the revenue numbers, internally, we also find value in looking at our book-to-bill ratio for the quarter, which was 1.3x indicating that bookings were solidly above our billing. And our remaining performance obligation under existing customer agreement was $65 million at the end of the quarter. These are just a couple of metrics, which we believe reflects a strong market demand momentum and give us confidence in our forward visibility and revenue trajectory. I am proud of how effectively our team has executed our business model to date. Let me take a minute to walk you through our strategy, which includes 3 main key pillars, which we believe are our key to driving long-term growth: one, further elevating market awareness of Deep TMS and its clinical impact; two, advancing our R&D road map to unlock new and expanded treatment indication; and three, broadening patient access through global expansion and health system integration. At the core of these initiatives is our regulatory approvals and clinical data, which continued to set Deep TMS apart and allow us to lead the market. Most recently, we announced that the U.S. FDA has granted an expansion of the treatment protocol for the Deep TMS system to include an accelerated protocol for major depressive disorder or MDD treatment. As a reminder, the traditional Deep TMS protocol involves a 4-week acute treatment phase with 1 session on each day of treatment. This is compared to an accelerated protocol, which involves a significantly shorter acute phase, taking place over several treatment days. This is a very exciting development for us in the treatment centers using our systems, as we believe the accelerated protocol has the potential to improve convenience and thereby make Deep TMS substantially more appealing to prospective patients. As a reminder, Deep TMS is the only TMS modality cleared by the FDA and with peer-reviewed published clinical evidence for a broad range of indications, including depression, anxious depression, late life depression, OCD and smoking addiction. We are also supporting the evaluation of accelerated protocol for these other indications. For example, the U.S. NIH recently awarded approximately $2.5 million in 5-year grant for the clinical study evaluating the mechanism of action and potential efficacy of the accelerated Deep TMS protocol to treat alcohol use disorder or AUD. This study will be conducted by research team led by Dr. Claudia Padula and Dr. Michelle Madore of Stanford University and the Palo Alto Veterans Institute of Research. This study, which is posted on clinicaltrial.gov for any of you that would like to review the details, will utilize our novel Deep TMS 360 system, which has been designed to provide more comprehensive and uniform stimulation of the neurons in the targeted brain regions. The accelerated protocol being evaluated in this study is similar to the accelerated protocol for MDD, including an acute phase taking place over several treatment days as compared to the traditional protocol, which is several weeks. Moving on to our investment initiatives. As previously announced in late 2024, we identified a new opportunity to generate shareholder value by making minority interest investment in mental health providers as well as other enterprises that we believe are complementary to our business. This strategy allows us to tap into the market we know well, building additional market awareness, R&D road map, data analysis capabilities and expanding access to Deep TMS while avoiding stepping into an operational role outside of our core focus of Deep TMS. To support us in this initiative, Valor Equity Partner made a $20 million strategic equity investment in our company. This investment provided us with the capital needed to quickly move ahead with this strategy on a broader, more meaningful scale. We are pleased with the rollout of this initiative to date, which most recently included our third and fourth investment in 2025. This recent strategic investment have come quickly on the heels of our first 2 agreements with Stella Mental Health and Axis. This collaboration is already making meaningful contribution as utilization of Deep TMS system at those clinics is up over 50% from the start of our relationship. During the third quarter, we also announced an initial strategic investment in Neurolief LTD, a developer of the world's first wearable noninvasive multichannel brain neuromodulation platform that is designed for use at home. This agreement includes a milestone-based funding for up to an additional $11 million of convertible loan over 2 tranches, along with an option to fully acquire the company. These strategic investments are an exciting new part of our story, and we look forward to helping each business grow initially through the additional fund the investment provide, but also through strategic counsel as they look to navigate faster and larger growth. We look forward to identifying additional investment, and we'll keep you updated on these initiatives. This is a truly exciting time in our history as we continue to identify ways to drive long-term shareholder growth. As we just heard, there is significant momentum in all aspects of our business, so much so that it is too much to cover on this call. Therefore, we will be hosting a virtual Investor and Analyst Day on December 1 to further discuss our operations, clinical, regulatory and financial progress. Additional details will be announced shortly. With that, I will now turn the call over to Ido for his review of our third quarter 2025 financial results. Ido? Ido Marom: Thank you, Hadar. As Hadar noted, Q3 2025 was another record quarter for BrainsWay with revenue of $13.5 million, representing a 29% increase compared with the $10.5 million reported for the same period last year. During the quarter, we placed 90 Deep TMS systems, bringing our total installed base to more than 1,600 systems as of September 30, 2025. Gross profit for the quarter was $10.2 million, up $2.4 million from $7.7 million in the prior year period, while maintaining a strong gross margin of 75% compared with 74% for the same period last year. This stability continues to reflect the strength of our recurring revenue model and disciplined cost management. Turning to operating expenses. Sales and marketing totaled $4.7 million compared to $4.1 million in Q3 2024, an increase of approximately $0.6 million, driven by targeted investment in commercial expansion and marketing programs. Research and development expenses were $2.4 million compared to $1.8 million last year, an increase of $0.6 million, primarily from our ongoing clinical trials and development activities. General and administrative expenses were $1.8 million compared to $1.5 million in the prior year period, an increase of $0.3 million due in part to additional legal fees and due diligence costs related to new investments. Operating profit was approximately $1.3 million, which is a $1 million increase compared with the $0.3 million reported for the same period last year. Adjusted EBITDA increased to $2 million from $1.1 million in the prior year period. Net profit for the quarter was $1.6 million compared to $0.7 million in the same period of 2024, demonstrating the operating leverage in our model as we scale. From a balance sheet perspective, we ended the quarter with $70.7 million in cash and cash equivalents, up $1.1 million from $69.6 million at year-end 2024. This increase was driven primarily by very strong collection during the quarter despite deploying $7.3 million for our minority equity investment as part of our strategic initiative. Remaining performance obligations grew to $65 million, a 37% year-over-year increase, providing strong visibility into future revenues. Cash flow from operations in the quarter was positive, further reinforcing the strength of our recurring model and high collection efficiency. Our capital structure remains debt-free, giving us significant flexibility to pursue strategic growth initiatives, including the investment program Hadar outlined earlier. As Hadar mentioned, after a strong third quarter and increased visibility for the remainder of the year, we have raised the midpoint of our guidance for the full year 2025, which includes revenue guidance of $51 million to $52 million, up from our previous guidance of $50 million to $52 million. This guidance represents a year-over-year growth rate of 24% to 27%. We also expect operating profit in the range of 6% to 7% of revenue, up from our previous guidance of 4% to 5% and adjusted EBITDA in the range of 13% to 14% for the year, up from our previous guidance of 12% to 13%. The increased operating and adjusted EBITDA margins reflect the increased scale of our operations. This concludes my remarks, and I will now turn the call back to the operator to please open up the call for questions. Operator? Operator: [Operator Instructions] The first question comes from Jeffrey Cohen with Ladenburg Thalmann. Jeffrey Cohen: Congrats on the quarter. So I guess, firstly, could you talk about the accelerated protocol and give us some sense of current treatments that are taking on the accelerated protocol and what you may expect over the coming quarters? Hadar Levy: Yes. I think the accelerated protocol is a really big news for patients around the world that is basically shortening the acute phase protocol from 4 weeks to only 6 days in which we are increasing the dosage, the amount of treatments per day to 5 treatments per day. The demand so far looks pretty good. And I think that, that's what's really driving the demand for the growth of the company. Jeffrey Cohen: Okay. Got it. And then secondly, could you talk about minority equity investments? Congrats on the handful already this year. But what might we expect as far as the pipeline and other investments over the coming quarters? Hadar Levy: Yes. So we have a full hand of pipeline of this minority investment that we are speaking and exploring the option to collaborate with them. We still need to check the box on part of our due diligence process to make sure that this growing enterprise are growing, they are profitable. They have the right management team and that we believe that they can execute upon their business plan. So the goal before the end of the year is to sign at least one more. And there is a handful of additional opportunities for 2026 that looks very promising. Jeffrey Cohen: Got it. And then lastly for us, could you give us an update on Neurolief as far as any activity currently going on in Japan and EU and then talk about U.S. timing or anticipated activities here. Hadar Levy: Yes. I think we're all anticipating to -- for Neurolief to receive the FDA clearance toward the end of the year. We're hoping there won't be some additional delay with that, but things might look a little bit slow due to the current situation with the FDA administration. But we're hoping to get this FDA clearance for the end of the year. Once we get clearance for that, they're ready to market their -- to distribute their device through different channels. It could be VA, it could be IDNs. And obviously, TMS clinics through BrainsWay customers. But the most promising one that we're waiting for is FDA clearance towards the end of the year. Operator: The next question comes from Carl Byrnes with Northland Capital Markets. Carl Byrnes: Congratulations on the quarter. I'm just curious what you're seeing in terms of system placements from the minority partners thus far. And then again, looking at adding 5 or so partnerships per year, what we should expect potentially in terms of incremental system placements? And then I'll jump back into the queue. Hadar Levy: Yes. Each one of these minority investment is providing us with a business plan. And based on their expectation, they are planning to expand and to grow in between to an opening up additional 10 to 15 new clinics every year. Obviously, the first year is always the most challenging one to make sure that they've got all the necessary setup. But once they got the funding and they got everything they need, they should deliver on that, either by merger and acquisitions or opening some de novo clinics. So that's pretty aligned with our expectations. We're not sharing the data of current installed base that we received from our minority investment, but I can only share with you that aligned with our expectations. I did share a very important fact that with the most early investment that we've made with both Stella Mental Health and Axis, both of them grew their utilization rate more than 50% since inception, since the collaboration with us. And that's the most important sign. It means that they like the technology, they're utilizing this technology, and they're expanding, which is pretty aligned with our expectations. Operator: [Operator Instructions] The next question comes from Ram Selvaraju with H.C. Wainwright. Raghuram Selvaraju: Congratulations on the quarter. I wanted to ask about, first of all, how you think you will alter metrics reporting going forward in general, if we can expect greater granularity on, for example, what you expect to be growth in total installed base, what you anticipate to be performance with respect to some of the individual minority investments and so on? And also, I wanted to ask a couple of specific questions about where we are currently. Firstly, if you could elaborate on where you are with respect to the upgrade cycle across the installed base. And how you expect that to play out over the course of the coming quarters, that would be very helpful. And then if you can offer us any granularity regarding the state of the international business and geographically speaking, where you expect the bulk of growth to come from as we look ahead to 2026? Hadar Levy: Yes. Great. Thank you for the questions, and I'm hoping I won't forget anything. So in terms of the metrics or KPIs that we are measuring, I think it's going to be a mix of some very relative KPIs. It will be a number of systems that we are shipping on a quarterly basis, and we can -- we see some very consistent growth on that. It will be also the additional indications that we're also selling on top of the traditional one, it could be the OCD, the H7 or the H4 for addiction. That will be another important KPI, the book-to-bill ratio and most important, again, like is the new initiative with this minority investment that we most probably going to share much more information and trajectory on the Analyst Day meeting on December 1. So I promise to give you a bit more details about some of those metrics and how you can all try and measure the progress of the company in 2026 and beyond. For your questions about the international growth. So we continue to strength our distribution channels, mainly, mainly, mainly in Asia Pacific and in Europe. So I do expect a very strong trajectory from Japan, China, South Korea, Taiwan, Thailand, all this region and India, of course, all these regions continue to grow their demand and increase awareness in this market, but also in the main countries in Europe, like Germany and France and Spain and Italy, we're seeing some constant demands in those markets. And last but not least, also the Israeli market is also growing in a very nice way. So overall, I think that the international growth is pretty aligned with our expectations. I believe there is a chance for us to even expand faster with the additional indication that we currently cleared in those area, which is beyond the mental health, mainly some of them relates to addiction, some of them relates to neurology indications that we're seeing some good results in these areas. But that's a very, very promising target, market targets for the company for 2026 and beyond. Raghuram Selvaraju: And just one other quick one, if I may. Maybe this is more for Ido. Do you have any plans to alter the way in which you report revenue, particularly given the minority stakes that you are acquiring, if you're going to break out revenue coming from those sources or any other changes that you anticipate with respect to top line item reporting? Ido Marom: Yes. So those minority investments won't impact our top line revenue. We are still -- need to examine that with our auditors for the financial statements at the end of the year. But right now, those investments will be written either in their fair value or as an equity under the operating profit. So it's not part of our top line. Operator: This concludes our question-and-answer session. I would like to turn the conference over to Hadar Levy for any closing remarks. Hadar Levy: Great. Thank you. I would like to thank all the investors, analysts and other participants for their interest in BrainsWay. With that, please enjoy the rest of your day. Goodbye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.
Operator: Good day, and welcome to the BrainsWay Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Ritchie with LifeSci Advisors. Please go ahead. Brian Ritchie: Thank you all, and welcome to BrainsWay's Third Quarter 2025 Earnings Conference Call. With us today are BrainsWay's Chief Executive Officer, Hadar Levy; and Chief Financial Officer, Ido Marom. The format for today's call will be a discussion of recent trends and business updates from Hadar and Ido, followed by a detailed discussion of the financials. Then we will open up the call for your questions. Earlier today, BrainsWay released financial results for the 3 months ended September 30, 2025. A copy of the press release is available on the company's Investor Relations website. Before I turn the call over to Hadar, I would like to remind you that this conference call, including both management's prepared remarks and the question-and-answer session, may contain projections or other forward-looking statements regarding, among other topics, BrainsWay's anticipated future operating and financial performance, business plans and prospects and expectations for its products and pipeline, which are all subject to risks and uncertainties, including shifting market conditions resulting from geopolitical, supply chain and other factors as well as the use of non-GAAP financial information. Additional information regarding these and other risks are available in the company's earnings release and its other filings with the SEC, including the Risk Factors section contained in BrainsWay's Form 20-F. Finally, please note that the company's 6-K will be filed tomorrow at approximately 6:00 a.m. Eastern Time in accordance with the SEC's operating schedule. I would now like to turn the call over to Hadar. Hadar Levy: Thank you, Brian. Welcome, everyone, and thank you for joining us today. We are excited to announce record quarterly revenue of $13.5 million reported in the third quarter of 2025. This represents a 29% increase compared with the same period last year. In addition, we shipped a total of 90 Deep TMS systems during the quarter, representing a 43% increase compared to the same period last year. This brings our total installed base to more than 1,600 systems across the globe. With our quarterly results continuing to trend towards the higher end of expectations and improved visibility into the remainder of the year, we are raising the midpoint of our guidance for the full year 2025, including increasing our revenue guidance to a range of $51 million to $52 million, which is up from our previous guidance of $50 million to $52 million. We now expect to report operating profit in the range of 6% to 7% of revenue, up from the previous guidance of 4% to 5% and adjusted EBITDA in the range of 13% to 14% for the year, up from the previous guidance of 12% to 13%. Let me now take a deeper dive into our performance and why we believe our long-term growth is being built into the current execution of our strategy. As I have mentioned previously, we made the decision approximately 2 years ago to focus our attention on selling to large enterprise customers who value our technology and high level of customer service to support their Deep TMS systems. To this end, we have structured multiyear lease agreement, which in turn provide us a steady foundation from which to grow our business and maintain gross margin every year. As a result of our team's dedication to this sales model, we have transitioned the majority of our sales over with approximately 70% of our recent customer engagement being lease agreements. And I want to highlight that the customers are aligned with this type of engagement as we have had a high rate of customer retention with many customers deciding to extend and even expand their agreement out several years. And this outcome really highlights the scalability of our business. And while perhaps the initial focus each quarter is on the revenue numbers, internally, we also find value in looking at our book-to-bill ratio for the quarter, which was 1.3x indicating that bookings were solidly above our billing. And our remaining performance obligation under existing customer agreement was $65 million at the end of the quarter. These are just a couple of metrics, which we believe reflects a strong market demand momentum and give us confidence in our forward visibility and revenue trajectory. I am proud of how effectively our team has executed our business model to date. Let me take a minute to walk you through our strategy, which includes 3 main key pillars, which we believe are our key to driving long-term growth: one, further elevating market awareness of Deep TMS and its clinical impact; two, advancing our R&D road map to unlock new and expanded treatment indication; and three, broadening patient access through global expansion and health system integration. At the core of these initiatives is our regulatory approvals and clinical data, which continued to set Deep TMS apart and allow us to lead the market. Most recently, we announced that the U.S. FDA has granted an expansion of the treatment protocol for the Deep TMS system to include an accelerated protocol for major depressive disorder or MDD treatment. As a reminder, the traditional Deep TMS protocol involves a 4-week acute treatment phase with 1 session on each day of treatment. This is compared to an accelerated protocol, which involves a significantly shorter acute phase, taking place over several treatment days. This is a very exciting development for us in the treatment centers using our systems, as we believe the accelerated protocol has the potential to improve convenience and thereby make Deep TMS substantially more appealing to prospective patients. As a reminder, Deep TMS is the only TMS modality cleared by the FDA and with peer-reviewed published clinical evidence for a broad range of indications, including depression, anxious depression, late life depression, OCD and smoking addiction. We are also supporting the evaluation of accelerated protocol for these other indications. For example, the U.S. NIH recently awarded approximately $2.5 million in 5-year grant for the clinical study evaluating the mechanism of action and potential efficacy of the accelerated Deep TMS protocol to treat alcohol use disorder or AUD. This study will be conducted by research team led by Dr. Claudia Padula and Dr. Michelle Madore of Stanford University and the Palo Alto Veterans Institute of Research. This study, which is posted on clinicaltrial.gov for any of you that would like to review the details, will utilize our novel Deep TMS 360 system, which has been designed to provide more comprehensive and uniform stimulation of the neurons in the targeted brain regions. The accelerated protocol being evaluated in this study is similar to the accelerated protocol for MDD, including an acute phase taking place over several treatment days as compared to the traditional protocol, which is several weeks. Moving on to our investment initiatives. As previously announced in late 2024, we identified a new opportunity to generate shareholder value by making minority interest investment in mental health providers as well as other enterprises that we believe are complementary to our business. This strategy allows us to tap into the market we know well, building additional market awareness, R&D road map, data analysis capabilities and expanding access to Deep TMS while avoiding stepping into an operational role outside of our core focus of Deep TMS. To support us in this initiative, Valor Equity Partner made a $20 million strategic equity investment in our company. This investment provided us with the capital needed to quickly move ahead with this strategy on a broader, more meaningful scale. We are pleased with the rollout of this initiative to date, which most recently included our third and fourth investment in 2025. This recent strategic investment have come quickly on the heels of our first 2 agreements with Stella Mental Health and Axis. This collaboration is already making meaningful contribution as utilization of Deep TMS system at those clinics is up over 50% from the start of our relationship. During the third quarter, we also announced an initial strategic investment in Neurolief LTD, a developer of the world's first wearable noninvasive multichannel brain neuromodulation platform that is designed for use at home. This agreement includes a milestone-based funding for up to an additional $11 million of convertible loan over 2 tranches, along with an option to fully acquire the company. These strategic investments are an exciting new part of our story, and we look forward to helping each business grow initially through the additional fund the investment provide, but also through strategic counsel as they look to navigate faster and larger growth. We look forward to identifying additional investment, and we'll keep you updated on these initiatives. This is a truly exciting time in our history as we continue to identify ways to drive long-term shareholder growth. As we just heard, there is significant momentum in all aspects of our business, so much so that it is too much to cover on this call. Therefore, we will be hosting a virtual Investor and Analyst Day on December 1 to further discuss our operations, clinical, regulatory and financial progress. Additional details will be announced shortly. With that, I will now turn the call over to Ido for his review of our third quarter 2025 financial results. Ido? Ido Marom: Thank you, Hadar. As Hadar noted, Q3 2025 was another record quarter for BrainsWay with revenue of $13.5 million, representing a 29% increase compared with the $10.5 million reported for the same period last year. During the quarter, we placed 90 Deep TMS systems, bringing our total installed base to more than 1,600 systems as of September 30, 2025. Gross profit for the quarter was $10.2 million, up $2.4 million from $7.7 million in the prior year period, while maintaining a strong gross margin of 75% compared with 74% for the same period last year. This stability continues to reflect the strength of our recurring revenue model and disciplined cost management. Turning to operating expenses. Sales and marketing totaled $4.7 million compared to $4.1 million in Q3 2024, an increase of approximately $0.6 million, driven by targeted investment in commercial expansion and marketing programs. Research and development expenses were $2.4 million compared to $1.8 million last year, an increase of $0.6 million, primarily from our ongoing clinical trials and development activities. General and administrative expenses were $1.8 million compared to $1.5 million in the prior year period, an increase of $0.3 million due in part to additional legal fees and due diligence costs related to new investments. Operating profit was approximately $1.3 million, which is a $1 million increase compared with the $0.3 million reported for the same period last year. Adjusted EBITDA increased to $2 million from $1.1 million in the prior year period. Net profit for the quarter was $1.6 million compared to $0.7 million in the same period of 2024, demonstrating the operating leverage in our model as we scale. From a balance sheet perspective, we ended the quarter with $70.7 million in cash and cash equivalents, up $1.1 million from $69.6 million at year-end 2024. This increase was driven primarily by very strong collection during the quarter despite deploying $7.3 million for our minority equity investment as part of our strategic initiative. Remaining performance obligations grew to $65 million, a 37% year-over-year increase, providing strong visibility into future revenues. Cash flow from operations in the quarter was positive, further reinforcing the strength of our recurring model and high collection efficiency. Our capital structure remains debt-free, giving us significant flexibility to pursue strategic growth initiatives, including the investment program Hadar outlined earlier. As Hadar mentioned, after a strong third quarter and increased visibility for the remainder of the year, we have raised the midpoint of our guidance for the full year 2025, which includes revenue guidance of $51 million to $52 million, up from our previous guidance of $50 million to $52 million. This guidance represents a year-over-year growth rate of 24% to 27%. We also expect operating profit in the range of 6% to 7% of revenue, up from our previous guidance of 4% to 5% and adjusted EBITDA in the range of 13% to 14% for the year, up from our previous guidance of 12% to 13%. The increased operating and adjusted EBITDA margins reflect the increased scale of our operations. This concludes my remarks, and I will now turn the call back to the operator to please open up the call for questions. Operator? Operator: [Operator Instructions] The first question comes from Jeffrey Cohen with Ladenburg Thalmann. Jeffrey Cohen: Congrats on the quarter. So I guess, firstly, could you talk about the accelerated protocol and give us some sense of current treatments that are taking on the accelerated protocol and what you may expect over the coming quarters? Hadar Levy: Yes. I think the accelerated protocol is a really big news for patients around the world that is basically shortening the acute phase protocol from 4 weeks to only 6 days in which we are increasing the dosage, the amount of treatments per day to 5 treatments per day. The demand so far looks pretty good. And I think that, that's what's really driving the demand for the growth of the company. Jeffrey Cohen: Okay. Got it. And then secondly, could you talk about minority equity investments? Congrats on the handful already this year. But what might we expect as far as the pipeline and other investments over the coming quarters? Hadar Levy: Yes. So we have a full hand of pipeline of this minority investment that we are speaking and exploring the option to collaborate with them. We still need to check the box on part of our due diligence process to make sure that this growing enterprise are growing, they are profitable. They have the right management team and that we believe that they can execute upon their business plan. So the goal before the end of the year is to sign at least one more. And there is a handful of additional opportunities for 2026 that looks very promising. Jeffrey Cohen: Got it. And then lastly for us, could you give us an update on Neurolief as far as any activity currently going on in Japan and EU and then talk about U.S. timing or anticipated activities here. Hadar Levy: Yes. I think we're all anticipating to -- for Neurolief to receive the FDA clearance toward the end of the year. We're hoping there won't be some additional delay with that, but things might look a little bit slow due to the current situation with the FDA administration. But we're hoping to get this FDA clearance for the end of the year. Once we get clearance for that, they're ready to market their -- to distribute their device through different channels. It could be VA, it could be IDNs. And obviously, TMS clinics through BrainsWay customers. But the most promising one that we're waiting for is FDA clearance towards the end of the year. Operator: The next question comes from Carl Byrnes with Northland Capital Markets. Carl Byrnes: Congratulations on the quarter. I'm just curious what you're seeing in terms of system placements from the minority partners thus far. And then again, looking at adding 5 or so partnerships per year, what we should expect potentially in terms of incremental system placements? And then I'll jump back into the queue. Hadar Levy: Yes. Each one of these minority investment is providing us with a business plan. And based on their expectation, they are planning to expand and to grow in between to an opening up additional 10 to 15 new clinics every year. Obviously, the first year is always the most challenging one to make sure that they've got all the necessary setup. But once they got the funding and they got everything they need, they should deliver on that, either by merger and acquisitions or opening some de novo clinics. So that's pretty aligned with our expectations. We're not sharing the data of current installed base that we received from our minority investment, but I can only share with you that aligned with our expectations. I did share a very important fact that with the most early investment that we've made with both Stella Mental Health and Axis, both of them grew their utilization rate more than 50% since inception, since the collaboration with us. And that's the most important sign. It means that they like the technology, they're utilizing this technology, and they're expanding, which is pretty aligned with our expectations. Operator: [Operator Instructions] The next question comes from Ram Selvaraju with H.C. Wainwright. Raghuram Selvaraju: Congratulations on the quarter. I wanted to ask about, first of all, how you think you will alter metrics reporting going forward in general, if we can expect greater granularity on, for example, what you expect to be growth in total installed base, what you anticipate to be performance with respect to some of the individual minority investments and so on? And also, I wanted to ask a couple of specific questions about where we are currently. Firstly, if you could elaborate on where you are with respect to the upgrade cycle across the installed base. And how you expect that to play out over the course of the coming quarters, that would be very helpful. And then if you can offer us any granularity regarding the state of the international business and geographically speaking, where you expect the bulk of growth to come from as we look ahead to 2026? Hadar Levy: Yes. Great. Thank you for the questions, and I'm hoping I won't forget anything. So in terms of the metrics or KPIs that we are measuring, I think it's going to be a mix of some very relative KPIs. It will be a number of systems that we are shipping on a quarterly basis, and we can -- we see some very consistent growth on that. It will be also the additional indications that we're also selling on top of the traditional one, it could be the OCD, the H7 or the H4 for addiction. That will be another important KPI, the book-to-bill ratio and most important, again, like is the new initiative with this minority investment that we most probably going to share much more information and trajectory on the Analyst Day meeting on December 1. So I promise to give you a bit more details about some of those metrics and how you can all try and measure the progress of the company in 2026 and beyond. For your questions about the international growth. So we continue to strength our distribution channels, mainly, mainly, mainly in Asia Pacific and in Europe. So I do expect a very strong trajectory from Japan, China, South Korea, Taiwan, Thailand, all this region and India, of course, all these regions continue to grow their demand and increase awareness in this market, but also in the main countries in Europe, like Germany and France and Spain and Italy, we're seeing some constant demands in those markets. And last but not least, also the Israeli market is also growing in a very nice way. So overall, I think that the international growth is pretty aligned with our expectations. I believe there is a chance for us to even expand faster with the additional indication that we currently cleared in those area, which is beyond the mental health, mainly some of them relates to addiction, some of them relates to neurology indications that we're seeing some good results in these areas. But that's a very, very promising target, market targets for the company for 2026 and beyond. Raghuram Selvaraju: And just one other quick one, if I may. Maybe this is more for Ido. Do you have any plans to alter the way in which you report revenue, particularly given the minority stakes that you are acquiring, if you're going to break out revenue coming from those sources or any other changes that you anticipate with respect to top line item reporting? Ido Marom: Yes. So those minority investments won't impact our top line revenue. We are still -- need to examine that with our auditors for the financial statements at the end of the year. But right now, those investments will be written either in their fair value or as an equity under the operating profit. So it's not part of our top line. Operator: This concludes our question-and-answer session. I would like to turn the conference over to Hadar Levy for any closing remarks. Hadar Levy: Great. Thank you. I would like to thank all the investors, analysts and other participants for their interest in BrainsWay. With that, please enjoy the rest of your day. Goodbye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.
Operator: Good afternoon. This is the Chorus Call operator. Welcome to IGD's Conference Call presenting results for the First 9 Months of 2025. [Operator Instructions] I will now turn the conference over to Mr. Roberto Zoia, CEO of IGD. Mr. Zoia, you have the floor. Roberto Zoia: Good afternoon to all of you. We released a press release and the presentation as well was released a couple of years ago. So let me start diving into a presentation, and then we'll leave room to your questions, of course. Let me start with Page 2 in the deck of slides. Well, we'd like to remind you that the path we outlined with our business plan is heading in the right direction. And over the last 9 months, we secured a loan for 600 -- Green-secured loan for EUR 615 million. And we have recently issued a EUR 300 million Bond, and we had already stated after the first funding that we would have monitored the market to catch the right window. And so in 10 months, as you could see, we've refinanced almost EUR 1 billion. So we think it's a good result, indeed, considering that both transactions enabled us, and we'll see more in detail as we proceed through the presentation to increase our maturity profile and decline the average cost of debt. Of course, we keep disposing of our assets in Romania, 3 assets were disposed for EUR 14 million, and we have already negotiations at an advanced stage always in Romania. With the rationale we've already disclosed, we're going to focus on a single asset basis, maybe it's long negotiations, but they are providing the expected results. So I am confident that even the last 40 days from now to year-end, that might be surprises because we have advanced negotiations ongoing. And also from the operating side, not on one-off, but on the recurring basis, results are very positive as to our portfolio on a like-for-like basis, end of September, we are up 3.8% versus September last year. EBITDA, core business EBITDA, always on a like-for-like basis is up 2.9%. And first and foremost, we had excellent results for our funds from operation, landing at EUR 31 million. Last but not least, let me say, is an excellent signal for each and everyone is the performance of our group net profit. And for this quarter, we started with about EUR 10 million in the end of June, we are at now EUR 17.6 million. And we are talking about -- we are down EUR 32 million, and we have a positive delta of EUR 50 million overall. So an excellent result was achieved. From an operating standpoint, tenant sales are up, and they're up 1.3%, and that is very important because this is really supporting us when we go and renegotiate contracts with tenants. And we had meaningful upsides for new contracts and relettings. Footfalls are also faring very well, they are up 3.7%. And that is much higher than the CNCC average. And of course, they are monitoring about 300 shopping centers. So the footfalls result is definitely driven by some anchor tenants that we have placed in some of our shopping center shopping malls. Primark in Livorno that is really attracting a lot of visitors. And we introduced Action into one of the shopping centers do. That is now turning out to be a very meaningful traffic generator, and it was placed in Ravenna and Casilino, Rome, with very, very interesting results. Also very interesting is the up -- 1.6% of the hypermarkets that are owned by IGD. So in our portfolio, most of our hypermarkets were downsized versus the main shopping area. And they are starting to grow in a very interestingly, I will say. If we move to Page 5, if everything is always very consistent performance wise. We have tenant sales that are growing, footfalls that are growing and occupancy as well. Over 1 year, we've grown 1% in occupancy. We have a time from here to 2027, we want to get to 98%. We're now at 96%. So time after time, quarter after quarter, we are achieving the growth. We're also working very hard on extending our contracts. You see in 4 quarters. We've been stopping at 2 years as far as our WALB is concerned. But many contracts are now due. And tenants had a break option rolling 12-month rolling, keeping 2 years, retaining 2 years, those who have all contracts for 1 year, the new contracts will be 3 years long. And from now to 2027, we want to get to 2.5 years WALB. Upside for Italy, up 1.3%. 8.3% of the malls total rent was either renewed or relet. The average of upside is 1.3%. We're up 0.3%, and its net after inflation and then you have to add inflation to it, which is also reflected in our assessment and evaluation. So world occupancy and upside are also heading in the direction that we had already identified in our business plan. On Page 6, you can see a few pictures. I mentioned Action as a new brand, they are really doing exceptionally well, especially as far as footfalls are concerned. They are a wonderful attracting brand. We focus very much on La Piadineria for food. They are currently very, very successful among young visitors, among young people. And then Mini Market, Arcaplanet, and Douglas are also really driving the performance. Page 7. And again, one of our lines of action mentioned in our business plan, we want to focus on digital transformation. We've completed 11 apps or the main shopping centers in 2025. And this digital system is really enabling us to increase profiling activities to deepen the knowledge of our customers, like clients and to come up with ad hoc promotion based on customer classes. So we're very much focusing on this. We call it IGD ecosystem, and it goes hand-in-hand with leasing activity, and we started excellent relationship with the big chains. And we came up with other apps as well already applied in 28 shopping centers, rolled out in 28 shopping centers to really increase and improve the relationship between owners and tenants. So we constantly have an ongoing dialogue with tenants for the events we organize at the shopping centers. We get their turnover every day. So we have this ongoing relationship, which is excellent because retailers have finally understood that they save time. Everything is -- where we keep track of everything and they're using these platforms really well. It's a good time also for real estate. I mean, retail real estate, you saw the results for the first 9 months they were really outstanding, meaning that a retail asset class was the top asset class, the #1 and transaction-wise, was much better than logistics and offices. So somehow, it's a close second -- sorry, hospitality is a close second. And in the past, we did have volumes, but it was either high street buildings or supermarket and hypermarket was over the first 9 months of 2025. We see comeback of shopping centers, for instance, the Veneto one, the small ones, the 2, Bennet purchased or the 2 in Rome, but eventually, we had a big transaction in the Oriocenter transaction, EUR 470 million in 1 single transaction where there's a partnership. We have launched ourselves when we first created our 2 funds. It's industrial players with financial players interacting. So if Orio, Percassi bought it back. They have built promoted and managed. So it's a big property asset manager. And of course, they work with a more financial players such as Generali. And therefore, this was indeed one of the main transactions in retail real estate. And I think this is really a good introductory factor for further development going forward. The same thing we see in Romania. Romania, we know is a very small country, transaction-wise also, but you see that retail -- practically, the retail transactions accounted for half of the overall real estate transactions. And therefore, there's a certain appetite for retail real estate in Romania, too. Let's move to Page 9, some financial highlights. We are still focusing on our goal to reduce our Loan to Value. In the first 9 months, we reduced our Loan to Value by 40 basis points, landing at 44%. And then a few more detailed pieces of information we keep reducing our cost of debt as well. Let me remind you that last year, full year, we were at 6%. Now we are at 5.3%. And post new bond issue, estimating the EUR 300 million issued on November 4. In that case, too, we would have a positive impact landing so that we land at 5.1% weighted average interest rate. And that will generate benefits for 2026 as well. So in the first 9 months, 90 basis points, that is really -- I hope it really meets the expectations everybody had vis-a-vis IGD. And very interesting as well, I'm on Page 10 now. The net rent -- net rental -- if you deduct the net rental income of disposed portfolio, food portfolio in the first few months of 2024, EUR 5.2 million. And then you start to see the erosion coming from -- of revenues coming from the disposals of Romania, but they were offset -- net rental income wise they were offset by a growth, both in Italy and Romania with -- so the changes, the delta versus 2024 is still positive, up 3.8%. So net rental income from freehold landing at EUR 75.9 million on the EBITDA wide. We -- it's slightly lower the increase because we have some costs that we have to cope with in the last quarter when we had some items to the deal with on the -- an offset on the receivables and payables side, but still EBITDA -- core business EBITDA is nonetheless growing, up 2.9%. And then on Page 12, you see our financial position. We cost saving over the first 9 months that goes from EUR 52.1 million to EUR 43.6 million. So we have a cost on nonrecurring items or charges on the one hand, but also and mainly, that will be very useful for 2026 and 2027, a financial management, where we saved EUR 8 million that will then, of course, have a positive impact on our FFO figures. Page 13, FFO. This positive EUR 8 million from our financial position coming from last year, helps us offset missed revenues deriving from disposed assets. And on the one hand, we have a delta in the consolidation scope. So we lost EUR 5.3 million of revenues, but improving our net financial position and improving our average cost of debt and improving our EBITDA delta from core business. So these two items add up to EUR 10 million. So they more than offset the EUR 5.3 million we lost due to the portfolio disposals. We had over the same time frame, so we improved our core business and our financial position on a like-for-like basis. So they more than offset the effects of our disposals. So this makes us say, we are -- we should speed up in actions in Romania. So because in addition, on the one hand, yes, we missed out on revenues, but we will improve our financial position, group net profit. Last year, we had to write down or impair our third stake and not having that charge or burden. Now we are a machine producing profit that could be more or less strong depending on the years, but our core business is really generating profits, both from an FFO wise and also from a revenue standpoint. So the group net profit landed at EUR 17.6 million, and we had to expense with the repayment of the bond in February, all the ancillary costs they have to be expensed, but they were more than offset by the operating results. I think that our new issuance, and I'm on Page 15, now the new bond issued is telling us a lot. And what do I mean by this? I mean that first of all, we are back to the capital market. And if you remember, on the -- in 2023, we performed a transaction, the last useful day at very, very costly conditions while this issuance, I really told us that market appreciated how we managed our financial position over the last year. We had orders for over EUR 1.35 billion, so more than 4x the book we were offering, that is to say we offer EUR 300 million. And that, of course, generated a cost compression we came up with a guidance at 4.7%. That was then closed at 4.45% as annual coupon. What is the benefit? It's a strategic advantage or edge, if you want. I don't -- I said I don't like to say -- I'd like to have 100% secured debt or 100% bank debt. So now we really have offset our funding sources because EUR 300 million come on the market. And we also have rebalanced secured and unsecured loans. As you see in the following slide, we are -- we have more than EUR 630 million of freed up of unencumbered assets because, of course, in case of issuance, we wanted to free up assets and we know that rating agencies like this very much. We have extended our debt maturity profile because the facilities that we have closed. Now we have added 1x per year without cliffs from 2029 and 2030, and we have improved our maturity profile. On Page 16, you see that despite of disposals, our NFP went down, Loan to Value went down too. The average cost of debt went down. And ICR, the interest cover ratio went from 1.8x to 2x. And we get net debt on EBITDA went from 7.9x to 8.1x. So with the improvements we have achieved, thanks to disposals, we should be back to a more appealing figure, let's say. And then on Page 17, you see the Group's’ Maturities Profile, the maturity we have in 2029 has now shifted to 2030. And just look at the slide and you will have a perception -- a clear perception of the work we have done so far. We're working on maturities from here to 2028. The banking is the bank loan dates back to 2022. And the idea, the objective here is to attack that funding, extend the maturity because it's also the most expensive instrument and so try and fine-tune our margin for 2026 to further cut it. You see between 2026 and 2027, we have no meaningful maturities, and we're already working on the 2028 financing. So we will extend the maturities there too. But I am confident that we will have a further decline of the average cost of debt. So we've extended maturity. You probably read that Fitch confirmed our ratings, both corporate and issued bond as well. So it's an investment-grade bond that was issued based on Fitch's Rating. And it could be improved based on the comments made by the 2 rating agency. Also thanks to the -- as we've cashed in money, so we are going to free up bonds, and we will get to EUR 776 million of unencumbered assets, as you see on Page 18. Let me say once again, market we are 37.1% and unsecured is 39.09%, almost 40% of total IGD assets, it would be, let's say, 40% of the debt breakdown on the right-hand side of the slide, both the refinancing in February and the bond were classified as were rated as green. So that's why we're very much focusing on ESG factors so that our assets are as much as possible at the level that banks and the market considered as green assets and green funding or financing, 82% of our portfolio is certified with a minimum of very good rating. We are talking about the BREEAM certification. And then we have excellent as well. And this is something that we feel is a priority. We committed to it. We're also very much working on photovoltaic systems. We signed a major contract with Edison, and Edison is investing and through our lease contract, we acquire energy from them at fixed prices and low costs that has a twofold benefit. So we're not using capital for that, and we have clean energy, renewable energy, and we have 3 cases already. We've seen that installing photovoltaic-type panels is very much appreciated in parking places, it's appreciated by users, just because in the summer, it's a shade against the sun. And in the winter, it protects them against the rain or snow. So this is another target in our business plan that we very much see priority. And [indiscernible] building energy management systems. We can work out consumption, we can see peaks when there's no need for air conditioning or lighting, the system works automatically to achieve energy savings. In the first 4 months, we had 20% saving on the used energy. So that was also a goal in our business plan that is to say, using AI to reduce energy consumption. And we are really investing heavily in this. And it will be the leitmotif also going -- our light motive also going forward. And then of course, we have some annexes. Should there be any specific questions, we gave you a breakdown of tenants and how they are placed in our portfolio, how they are we make a comparison between them and our merchandising mix locally and internationally, and then WALB & WALT, number of contracts we have. So we put in a lot of material that you can look at. I'm not going to go into it, but I'd rather answer your questions and have a dialogue with you now if you need any further info. Thank you very much. Operator: [Operator Instructions] First question comes from the line of Arianna Terazzi with Intesa Sanpaolo. Arianna Terazzi: You are moving really fast in executing our business plan. So first of all, I think you have the right pace to really beat the guidance you gave us for FFO. So could you elaborate on that? And then for 2026, financing and funding, what are your expectations as far as average cost of debt is concerned for the next year? Roberto Zoia: Good question. And as you could see, we are up EUR 31 million. Our guidance is 39 for the business plan. And given the time we are going through, so every day, there's a factor coming into place, it could be tariffs, it could be something else. So it's not easy for me because a part of it is really hyped and would like to take the guidance up because it's in the figures. But we said, let's be cautious. Let's see how this quarter performs goes and then maybe we'll come back and increase our guidance. And if you look at FFO for the last 3 quarters in the worst-case scenario, we should anyway be higher than EUR 39 million. I don't want to officially increase our guidance. I'm not in favor of that, but I'm more than confident that we can do better than those EUR 39 million, so 39, sorry. As to the cost for average cost of debt for 2026, it will further decline. Without the refinancing of 2028, we would land at 5.1%, which is what we wrote post issuance, bond issuance. It's clear. However, that started from January 1, 2026. We have to really focus on our 2028 maturity to have an expansion of that maturity and at the same time, to achieve a reduction in cost of debt. But we are talking about EUR 150 million. So if we compare it to the EUR 800 million, even if it were 50 basis points, it would still be 10, 15 at the end of the day basis points. But the objective I gave the target I gave all of my teams is to get below 5% with our average cost of debt because the EUR 300 million were placed with a coupon for 4.45% because if you think 4.45%, it's a 2.2% spread. We have financings that are almost 3%. So there's room that 70, 80 basis points for further negotiations. Of course, it's only one chunk of our debt because the bond will be carrying forward on its own for the next 5 years. But the objective for 2026 is to go below 5%. The guidance, of course, you can interpret it as you wish. I'm very optimistic and very confident. Now we are -- guidance is EUR 39 million, but we are very close to 40%, let's say. Operator: The next question comes from the line of Simonetta Chiriotti with Mediobanca. Simonetta Chiriotti: I have a question on the market. You said that the market is quite buoyant right now volume-wise, and -- could you elaborate on the transactions that they given some interesting signs as far as valuations are concerned as well or appraisal, what are the expectations for full year 2025? And also looking ahead to next year going forward? And in a more buoyant market scenario, how about your project somehow dispose of assets within your consolidation scope? Can it be really fulfilled? Roberto Zoia: Thanks for the question. Today, it's clear that, as I said before that. If we look at our market comps on rates that are eventually finally, normal or aggressive, we have audio center for actually it's the shopping center. It's a major shopping center in North of Italy, you name it. But we could see both in small transactions for small shopping malls in the Veneto region and the Bennet transaction. We've seen that we start to see a little bit of decompression, if I may say. Up until a year ago, every time people approach the shopping malls you would think of double digits. Now it's starting to go down. So my perception is we had early November, so I don't have the visibility yet over the full figures, but I think there will be an adjustment because rents will grow structurally. And also the market is so big that which should be somehow deflate or decompress or even stay flat with a 10 basis point decompression with revenue increase. But bear in mind that we have not yet seen a very strong decline in discount rates. Above and beyond what the ECB did, they did a lot of reduction. But if you look at discount rates for December and June, we have not yet seen a real decompression of the discount rate, which I hope that I am confident will materialize going forward. So the bouyant market, as we think Simonetta, and I am confident that it will lead to a slight decompression. And recently, I have met some players. We know that retail in Italy together with Spain is probably Italy and Spain are the countries that are performing best. In Spain, transaction, the later transactions were made at a very high price. So even some very big players are saying maybe it's worth going to Italy, where I still have a pricing benefit vis-a-vis Spain. And at the same time, we are aware that there are 150 basis points between Italy and Spain. So and that even splitting that in half, 75%, it would mean excellent returns for Italy anyway. This is what we get from looking at the market. Portugal and Spain are the ones that are faring best retail-wise, then comes Italy better, much better than France and Germany. And therefore, also players who, in the past, were most skeptical about this asset class, if it's a retail are changing their mind. I think there can be an excellent -- well, a good result in 2025. And at the same time, this can have a further impact in 2026. We looked and were contacted, true that -- that would be more interest in putting assets on the market, in the market and cashing in without contributing liquidity into our sync, but there are still players who think that a partnership with IGD where we are 51% and they are 49%, still, they would still have very interesting dividends. So we have this ongoing open negotiation table with very, very frequent meetings. It's a project that players, especially industrial players like very much and they still want to retain assets also from -- under a different legal form. And also for the juice fund, the one with the 6 supermarket, we've started to look around because for us, too, it could be interesting right now at this moment in history to dispose of part of the assets that belong to that portfolio. And for us, it would mean recovering equity that it's now blocked in the fund. So it's a highly dynamic market. We're very careful looking around. We are focusing on disposing of Romania, but also very much focusing on strengthening and growing alliance inc., which could be a turning point not to be committed to huge investments, but to increase to benefit from an LTV perspective to benefit from the leasing network. So we are definitely working a lot on the alliance project. Operator: The next question comes from the line of Federico Pezzetti with Intermonte. Federico Pezzetti: I have a couple of things I'd like to ask. The first one in Italy, we saw a speeding up of the like-for-like growth for you from 3.2% of H1 to 4.5% now. So a strong acceleration in Q3. Could you elaborate and give us more details on the drivers behind this growth? And then the second thing I wanted to ask is you talked about uplift that are still there, not as strong as in 2024, but we still see uplift. So what do you see for the coming quarters? Could you elaborate that a bit give us some color on that as well for uplift? And then also early still, but I'd like to ask for some hints on dividends, maybe looked on the expectation the market consensus has so [indiscernible] and could you -- maybe you could elaborate on that? I'm just trying to see. Andrea Bonvicini: No, it's okay. It's always worth to give it to try. I'm an open book as Mr. Zoia, so they're trying to at least at on me here, cloudy and all the coworkers, but I'd like to be an open book for you anyway. There's indeed a very strong acceleration on the like-for-like side and it's driven by two main factors. First of all, the upside, we achieved a very meaningful one. And then it's the occupancy factor. When I give you a net rental income on a like-for-like basis, I have two levers. First one is the revenue growth. And the second one is that I occupy if I have occupancy in certain spaces. I no longer have to share common expenses for the property. So from -- if in 2026, we can cover another extra 1% of vacancy, that indeed will an immediate impact on the like-for-like growth. It's clear that 4% is a lot, but let me remind you that in our business plan, we gave you 16%. So it's somehow it's the objective, the goal, the 4% on a yearly basis, which is driven by revenue growth and also occupancy growth. So for 2026, we are all super committed to retain that 4% to get to add up to 16% in 2020. The upside is really paying off. We made sacrifices for Prime and Action to having anchor tenants. It often means making investments, but we've seen that most retailers, when they are close to attractive tenants they are willing to somehow pay something extra. And I'm very happy. We had a peak in Q3 similar to the Q3 2024. But having this 3% above inflation in a year in which macroeconomic tensions that did play a role, as we all know, on everything. So I think that was an excellent result we achieved. Last but not least, on dividend, it's clear that as we are EUR 17 million group net profit, that is mainly driven by Italy and a CQ part. It's true that in the last quarter, we have to expense ancillary charges for the last bond. So ancillary charges for the early repayment, we will have to expense them for the early redemption. So the profit is going to be slightly less than what you saw for the quarter. But should it be EUR 20 million, I'm just saying figures to say something, 70% of whatever is mandate or 14 divided by 110, would be around 13%, so not far from 15%, which would be a magic figure would be -- would be 50% more than the 10% and we had last year. So Federico, unless there are any specific situations or holdups, it's clear that the mandatory is very close to 15 because 15x 110% is EUR 16.5 million. So EUR 16.5 million and roughly, we are in that space already. So today, as I said before, I really hope, and I am confident that our FFO will be higher going forward. And so above and beyond the dividend policy, you know that I have mandatory, 70% mandatory on the exam operation. Italian net rental income and some write-ups if there be. And we also have to bear in mind that we have Loan to Value to refer to. And I keep saying that, and I'm reiterating it today. I don't want to waste money indeed. In the past, probably to generous when there were no conditions to be so generous. Of course, we want to pay out the highest possible dividend, but also bearing LTV always in mind. That's why we are saying the objective for 2027 is getting to 40%, and that would put us in a comfort zone. If we get to 40% of LTV in that case, of course, we can have a dividend policy on FFOs and therefore, have a different approach. I'm not saying that we can -- well, we would be willing to increase our dividend by 50%, but we have to bear in mind what LTV is like, of course, if there is -- there will be nice surprises in Romania between now and year-end or the 2 months before the new year. In case we cash in some money, we would further reduce debt. We would be better off and therefore more prone to paying out dividends. But be assured, rest assured that the company, the shareholders have a common shared goal going back to paying a sustainable dividend, good dividend. But now going from making an effort to reduce our LTV of one point and then pay out 2 more points on dividends that you have -- you then have to recover with a lot, lot of effort. So it will very much depend, and here, I'm going back to Simonetta's question as well, it will very much depend on finding good year-end valuations and good prospects for -- a good outlook for 2026 valuations, and that will give us better room for dividend payout. When you say 0.15, indeed, we are somehow in sync. This is something I have in my DNA as well because it's more or less 70% of what we have our mandatory figures. Operator: The next question comes from the line of [indiscernible] with Banca Akros. Unknown Analyst: I'm referring to the last question you asked. And this year we got to 44%. What would be the ideal level? Roberto Zoia: Sorry, I could not hear whether it was FFO or -- and there, it's a question about getting to EUR 20 million. And looking at tenants, could you elaborate on the trends that you are witnessing as far as the tenant sales are concerned? Well, the question was for LTV. In our business plan, we gave a target for 40% for IGD, and also, if I look at our peers, European peers as well, it's a figure that keeps us in the market in a comfortable way. So to this -- how do we get to 40%, we have disposals. I can confirm that we are at EUR 14 million, we put in EUR 20 million in our business plan -- that means we need to have a similar -- another similar transaction, EUR 5 million, EUR 6 million roughly within this year and therefore, hitting the target of EUR 20 million. And there too, I am very confident because I see a very lively market, buoyant market. So I confirm the goal to get to EUR 20 million, we've already done EUR 14 million , LTV 40% going to product categories. For the first time, in this presentation, we are on Page 25 of our slide because I got a lot of questions on, for instance, apparel clothing. You see we broke down the merchandising mix with cloth, everything was put together. Instead here, we break it down better. If we look at clothing in general. So with average surface not specialized, we are below 30%. It's clothing on the right-hand side, it's 28.3%. And IGD's portfolio is not made up of 300 stores where we're having 30% of clothing is a lot. We have a lot less. Our biggest shopping centers have 120, 130 stores. So clothing, we try to reduce it over the years to the benefit, for instance, of sportswear, why is that? Because today, if I think of JD Sports, for instance, [indiscernible]. And they're not the [indiscernible] because it's really, really only sport, but it's sportswear. JD Sport more specifically, they have appealing turnovers, revenues, and we're working on that with them as well. What is really working is perfumes and health and beauty, so to say, because they are really doing well, electronics -- consumer electronics is finally picking up again. We have 2 resizing Actions so forth, but electronics, we've resized, but they are really promoting physical sales, and that can be seen in the figures they make and also they tell us the [indiscernible] MediaWorld, and they tend to really focus on physical sales. Considering that the cost -- considering the delivery cost they apply on online sales. The service is provided. And so electronics is doing really well. You've seen with the new openings. Of course, we have to be -- always have to be cautious because food courts should not be done everywhere with too much offering, but while we have shopping centers with a very big catchment area where you have lots of houses, offices that have evening entertainment. So we're really focusing on that. And the big chains such as Piadineria and KFC. And you know that funds took [indiscernible] upstakes are also Piadineria these players, funds took up stakes in them, so they're really focusing on their business and then health and beauty, jewelries as well we've seen very interesting results with jewelries as well. And jewelries, normally, at year-end, they help when there's variable revenues that they sell a lot during the last quarter of the year. And then services, we are also strengthening them, enhancing them. What's also interesting is that they are working a lot on the leading side on entertainment, other than movie theaters and cinemas because for -- if you go out in the evening, normally would only go to the cinema, but we've really seen that in Livorno, where it's open until 11:00 p.m. we have McDonald's, they have a sizable revenues. And there are different types of entertainment that is not necessarily a cinema or a movie theater. And they have the same level of attraction somehow and combining restaurants and entertainment. And it could be 2 meals or 1 meal and 3/4, if you're not work in the evening, then they cannot somehow keep the area retaining. I hope that's the color you were expecting. And if it would be the right mix between local and international tenant. You see in key tenants, you go from Iniditex for instance, international tenant. We have 10 stores data, for instance, Unieuro is between Italy and France, somehow. And then the big ones also in the light of the piece of info we got last night is OVS, which has everything now OVS -- means OVS, Open, Golden Point, Casanova, Sasha, you name it, Piombo. So it's a lot too. And for us, they are a partner. They are also performing really well. So we have to try and find the right balance with them as well. They were talking about OVS. OVS, we have a preferred relationship. In all of our shopping malls, we are super happy to have them. And they are doing really well because the OVS format managed to somehow be placed halfway between Primark and Zara, which somehow is already seen as medium high versus H&M or [indiscernible]. OVS is an excellent brand because they found the right balance and with their different lines such as Piombo and Golden Point? And then [indiscernible]. So within OVS, you get to have the average clothing bracket, and we have some shopping centers with OVS delivering very interesting tenant sales. Operator: [Operator Instructions] Mr. Zoia for the time being, there are no more questions in the queue. Roberto Zoia: Very well. I would like to thank you all for joining us today. And for any question or doubt or meeting or insight, I'm available 24 hours a day, 7 days a week. So if you need to have more info, please do not hesitate to contact me. Thank you very much, and have a good afternoon. Operator: This is the chorus call operator. The conference call has come to an end. You may disconnect your phones. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Yochai Benita: Welcome, everyone, and thank you for joining us on Bezeq's 2025 Third Quarter Earnings Call. I'm Yochai Benita, CFO of the Bezeq Group. Joining us from the senior management team today, we have Mr. Tomer Raved, Bezeq's Chairman; Mr. Nir David, Bezeq's Fixed-line CEO; and Mr. Ilan Sigal, CEO of Pelephone and yes. Before we start the call, I would like to direct your attention to the safe harbor statement on Slide 2 of our presentation, which also applies to any statement made during today's call. We would like to inform you that this event is being recorded. Following the presentation of our results, we will have a Q&A session. With that said, let me now turn the call over to Tomer for his opening remarks. After his introduction, I will continue the presentation of our group's financial highlights, followed by Nir, who will discuss Bezeq Fixed-Line results; and Ilan, who will cover the results from Pelephone and yes. I will conclude the presentation with Bezeq International results. Tomer, please? Tomer Raved: Thank you, Yochai, and good afternoon, good morning, everyone. Let's start on Slide 3. We continue to record stable and healthy growth across all of the group's strategic business segments, consistently meeting and beating our forecast. I am proud to announce that we have reached our 2.9 million home passed target and have completed our network deployment across the vast majority of Israel. Accordingly, starting 2026, we expect to see a gradual decrease in CapEx. This is a historic milestone that will enable us to be fully prepared ahead of the AI revolution that will transform the economy, society and the quality of life of every Israeli citizen. During this quarter, we continued to deliver significant growth in core revenues and double-digit growth in adjusted EBITDA and adjusted net profit that were also positively impacted by the yes, improved valuation. Excluding the yes valuation impact, adjusted EBITDA still grew by a healthy 4% this quarter. We continue to focus on new strategic initiatives in Bezeq Fixed-line, Pelephone and yes, which further strengthened the Group's core pillars. On the regulatory side, there was further progress in the process for the removal of structural separation with the MOC publication of a call for public comments. We are hopeful that the MOC will complete its process by year-end as planned and that we can start merging yes into Bezeq Fixed line and further enhance value to customers, operational efficiency and leverage our NIS 1.2 billion significant tax asset. Moving to the next slide. Our tech and business road map is on track to reach our midterm KPI, including at least 40% fiber take-up and consistent ARPU growth across all verticals, while leveraging our leading position in 5G and TV. On Slide 5, you can see a good snapshot of our financial highlights for this quarter, both in top line as well as in profitability metrics. Core revenues grew by almost 2% and now represent 93% of our total revenue. After adjusting for the change in yes valuation, adjusted EBITDA grew 4%, in line and actually slightly above the group's targets. Turning to Slide 6. Let me point out that even in a year with a volatile geopolitical situation, our core business continued to perform well with outstanding growth in every KPI this quarter. Total fiber subscribers as of today reached 969,000. 5G subscriber plans reached 1.36 million and cellular ARPU grew over 4%. Yes, ARPU is actually a highlight for this quarter, up 1% year-over-year and stable ARPU at NIS 189. We are pleased to see the improvement in the macroeconomic environment, the ceasefire in the region and the return of our hostages. These tailwinds, together with the group's strong performance are generating growing interest from investors in the Israeli, European and U.S. capital markets. We will continue to work to create significant value for our customers, employees and shareholders. I will now turn the call over to Yochai, who will elaborate further on the group results. Yochai Benita: Thank you, Tomer. Moving to Slide 7. We show a 1.7% increase in core revenues due to higher core revenues across all key group segments. Adjusted EBITDA grew 13.8% and adjusted net profit grew 56% due to the increase in the valuation of -- after excluding the impact of the updated valuation, adjusted EBITDA increased 3.9% and adjusted net profit was up by 0.1%. Turning to the next slide, we show the 9 months trends, which were similar to Q3 revenues and profitability. Free cash flow was impacted by Bezeq Fixed Line assessment -- tax assessment paid in the first quarter of 2025 and tax refund received in the corresponding period. Moving to the next slide, we show our operating expenses. Salary expenses decreased 8.9% due to the sale of Bezeq Online and its deconsolidation as of Q2 2025. We recorded decreases in operating expenses and depreciation expenses, mainly due to the change in yes valuation. Other expenses were impacted by higher provision for legal claims and employee retirement at Bezeq Fixed line. The next slide shows our quarterly operational metrics. Broadband retail ARPU continued to grow year-over-year. In addition, we recorded increases in telephone ARPU as well as in yes ARPU year-over-year due to fiber growth. Compared to the previous quarter, cellular subscribers grew by 16,000 and TV subscriber grew by 3,000, representing the second consecutive quarter of growth. Slide 11 highlights our balanced capital structure with net debt at NIS 4.6 billion and a coverage ratio of 1.3x. The decrease in coverage ratio was due to the increase in adjusted EBITDA as a result of the change in yes valuation. We remain committed to maintaining our high credit rating. Moving to the next slide on our 2025 outlook remains unchanged, and we are forecasting adjusted EBITDA of NIS 3.85 billion, adjusted net profit of NIS 1.45 billion and CapEx of NIS 1.75 billion. I will now turn the call over to Nir, who will share more detailed results from our Fixed line operation. Nir? Nir David: Thank you, Yochai. We continue to deliver strong results in the third quarter, reflecting the successful implementation of our multiyear strategy focused on the core actives and the acceleration, infrastructure -- acceleration, investment in advanced infrastructure nationwide. Turning to Slide 13. Fixed line core revenues increased 2.2% to NIS 991 million, driven by higher revenues from transmission and data communication, broadband and cloud and digital services. Broadband fiber customers reached 969,000 today and ARPU rose 3.8% year-over-year to NIS 136. We recently expanded our IRU agreements with Gilat Telecom. Together with partner agreements, this represent another significant milestone in our growth strategy, enabling us to better leverage the potential of our fiber networks and to expand our customer base nationwide. On the following slide, we show Q3 financial highlights. Adjusted EBITDA rose 0.5% due to higher core revenues, partially offset by lower telephony revenues. Adjusted net profit was down 10.5% to NIS 214 million, mainly due to higher depreciation and financing expenses. Free cash flow was down 3.1%, mainly due to timing differences in working capital. Turning to the next slide, we show continuous fiber deployment reaching out targets of 2.9 million homes passed with over 969,000 active subscribers in our fiber network today, representing 65% of total broadband subscribers and resulting in a take-up rate of 34%. Moving to the next slide, we show the take-up trends. Retail subscriber take-ups reached 616,000 and also fiber take-up reached 355,000 today. Fiber subscriber representing 62% of total retail subscribers. Turning to the next slide. Broadband revenues were up 1.6%, driven by growth in ARPU and fiber subscriber. Transmission and data revenues grew 4.7% to NIS 310 million and cloud and digital revenues grew 5.7%, driven by higher revenues from virtual exchange and cloud services. With that, I will now turn the call over to Ilan to discuss Pelephone and yes. Ilan Sigal: Thank you, Nir. Moving to Slides 18 and 19. Pelephone delivered strong quarterly financial results together with sustained growth across key performance indicators. Service revenues grew 4.4%, reaching NIS 381 million for the highest service revenues in a decade. Adjusted EBITDA grew approximately 6% to NIS 202 million for the highest adjusted EBITDA in 2 years. Revenue and profitability growth were driven by continued growth in postpaid subscribers, including 5G subscriber plans as well as high roaming revenues. 5G postpaid subs plans grew by 33,000, reaching 1.36 million subscribers today. 5G Max subscribers reached 115,000 today. Moving to the next slide, we show 5G postpaid subscriber plans reaching 1.36 million subscribers as of today, representing 59% of postpaid subscribers and Q3 service revenues showing consistent growth over the last few years. The next slide shows Q3 key operational metrics. We posted the highest ARPU in 6 years, reaching NIS 48, up 4.3% of NIS 2 year-over-year. Turning to yes on Slide 22. Yes has demonstrated consistent increase in revenues and subscribers along with significant growth in all profitability metrics, which have been driven by comprehensive efficiency and renewal initiatives and the completion of strategic transactions and measures we undertook. Revenues increased 1.3% to NIS 321 million due to higher revenues from the TV and fiber bundle. Pro forma adjusted EBITDA rose 69% to NIS 59 million, driven by an improvement in operations, including growth in subscribers and revenues and the reduction in expenses resulting from the completion of transactions and strategic initiatives. Total TV subscribers increased by 3,000 this quarter, representing the highest quarterly increase in total subscribers since 2022. We posted quarterly growth with 12,000 net fiber subscribers, adds reaching 111,000 as of today. Moving to the next slide. Pro forma adjusted net loss improved by 97% due to higher revenues and streamlining of expenses -- streamlining of expenses. On the next slide, I would like to highlight that this is the second consecutive quarter with a sequential increase in total TV subscribers outrose NIS 2 year-over-year growth due to higher revenues from the fiber plans. We should continue growth in IP subscribers reaching 489,000 today, representing 86% of total subscribers. With that, let me now turn the call back to Yochai. Yochai Benita: Thanks, Ilan. Moving on to Bezeq International on Slide 25. ICT businesses revenues grew 8.7% to NIS 281 million, mainly due to higher revenue from the sale of business equipment as well as cloud activity. As a result, profitability metrics grew with adjusted EBITDA up to 2.6% and adjusted net profit up to 14.3% to NIS 16 million. We are continuing with our streamlining plan, including the implementation of the employee retirement agreement for the years 2025 through 2027. Finally, I would also like to mention that we will be attending the TMT conference this week in Barcelona. In addition, we will be attending the UBS Global Media and Communications Conference on December 9 in New York. For those attending, we look forward to meeting you there. With that, I will open the Q&A session. Yochai Benita: [Operator Instructions] Chris Reimer: Chris Reimer from Barclays. Yochai Benita: First question from Chris from Barclays. Chris Reimer: Yes. Yes. I wanted to ask about the guidance, the near-term 2% growth in adjusted EBITDA. How should we be looking at that in terms of the strong impact from the revaluation of yes. Tomer Raved: Yes. So the -- as I mentioned this quarter, the growth of the EBITDA of 14% if you exclude the yes impact, we're talking about 4% growth. We talked and we are targeting to be around the 2% EBITDA CAGR in our midterm targets. But given the successful growth in our core revenues and ongoing efforts driven by Bezeq, yes and Pelephone, we're obviously trying to overachieve these numbers. You saw this year, we upgraded our guidance twice and we are very confident of being at this number, maybe slightly above. But we are going to continue and push for at least 2% or more growth in EBITDA CAGR. And I would also share that in this coming March, we will share a revised midterm guidance as a result of our very successful business initiatives across the group. Chris Reimer: Yes. That's good color. And also just touching on, yes, you announced the extension of the satellite -- using their satellite. I'm just wondering how does that correspond to a positive impact on the segment? Yochai Benita: Okay. So as you mentioned, we did announce that we will keep some satellite business, but it will be very small compared to what we have today with lower cost structure. So what we communicated of a significant saving starting the first quarter of 2026, we still see it as part of our forecast. So there is no material change from our view in this respect. Next question is Siyi He from Citi. Siyi He: I have 2, please. The first one is really follow up on the topic on Yes. And we see that yes ARPU has stabilized this quarter. Just wondering if you can give us how do you think the yes ARPU could develop given that the fiber take-up continues to grow up? Should we expect this which the ARPU will trough from now on? And the second question, just if you could give us some updates on the HOT Mobile offer. I think the news said that you just raised the offer by like NIS 100 million. Just wondering if you can give us some update on how that's been progressing and your thoughts on the pricing. Tomer Raved: Yes. I'll touch quickly. Siyi, thanks for joining. The TV market is extremely competitive. Yes, has a very unique and premium offering. And while the TV stand-alone ARPU continued to go down as expected, slightly better -- slightly lower than expected, but still a very competitive market with fiber, the accompanied ARPU and now it's significant, has stabilized and growing gradually, as you can see. So with the growing take-up on fiber from yes, you would expect the offsetting the decline in TV stand-alone offerings to basically stay stable and slightly grow as a result of the fiber offering and additional offerings that yes has opened up like advertising and others that you'll hear about soon. Ilan Sigal: I'll add only one thing that, yes, second quarter that we are gaining more customers, 3,000 this quarter and last quarter, 1,000. In a competitive market, we are enabling to grow in our subscriber base. So also impacting the ARPU. Tomer Raved: And on the question of Hot Mobile, so we submitted an offer on the process, NIS 2 billion. We submitted a revised indication of NIS 2.1 billion. We are in touch with Altice and the representative as part of the process for the past 2 months. We did update the Street today on the revised offer, and we will update the Street on any other development there. We are focusing only on the mobile unit. We believe the value to the Israeli cellular market will be very significant, especially to the networks if this consolidation happens. Yochai Benita: Thank you. Siyi. Next question is from Christina Michael from UBS. Christina Michael: Can you hear me? Yochai Benita: Yes, we can hear you. Christina Michael: Following up from the previous question, how do you see the competitive dynamic in general in the market? And if there are any other specific actions you are taking in response to the competitive dynamics and increased competition in the market? Ilan Sigal: What market? Yochai Benita: Which market are you referring? Christina Michael: The mobile market. Yochai Benita: The mobile. Okay. Tomer Raved: Yes. I'll touch and Ilan, please further elaborate. The competitive -- the Israeli market in cellular is very competitive with very low ARPU compared to the world, given the reforms that happened 10 years ago. ARPU stand around the NIS 45 to NIS 50 across the street or in euros at EUR 12 to EUR 13, much lower than Europe. So we've seen a recovery in ARPU over the past 2, 3 years, thanks to the 5G offering. We expect to continue and see this trend happening. There are 4 MNOs and 20 MVNOs, very competitive market. We believe consolidation supports a better network development. Most markets are 2- or 3-player market. This is a 24-player market. So we are glad to see the market recovering, but Israel is still behind on cellular speed, #70-ish in the world, while it's #7 on Fixed line broadband. So we believe this type of transactions will support basically the country network and evolution into 5G and 6G. Ilan Sigal: I'll just add, the 5G network is still in the baby steps, we are around 33% of the antennas nationwide are 5G. And we believe that the nation needs to be 100% very fast. So -- and also, the market is very competitive, as Tomer said, 23, 24 players and a lot of MVNOs and the pricing is very down -- is very low. So that's the market and we believe it will be still very competitive in the next few years. Yochai Benita: Okay. Thank you. So if there are no further questions at this time, just a minute, we do have another question, Sabina. Sabina Levy: First of all, congratulations on the quarter. You've mentioned previously the long-term guidance. And I just was wondering whether it takes into the consideration also potential developments in the regulatory landscape, like you've mentioned that the Ministry of Communications might decide regarding the structural separation. So I was wondering if it's in the numbers. And also, maybe you can provide us some additional color regarding the potential impact of AI implementation considering the cost base and potential savings and maybe streamlining measures in the company. Tomer Raved: Yes. Touching quickly on AI, and I promise you, you'll hear a lot more both from Nir and Ilan very soon on AI initiatives. But we play de facto 3 roles basis the infrastructure for AI. So everything that's going on with higher bandwidth speed, data center connectivity locally and globally, we are part of, given we are the incumbent. We adopted a lot of AI tools. We are ahead of the world, both in Pelephone and especially in Bezeq Fixed line. And we see cost savings and better customer service as a result. And you will also see a lot of AI solution at the customer premise. We're already offering cyber solutions, device management solution and more to come. That's on AI. You'll hear a lot more about this from us in the coming weeks. Regarding the regulatory front, we've seen a lot of activity on the regulatory front. Earlier this year, they talked about the wholesale and the removal of structural separation happening later in this year. They have been very active in the past 2 months with hearings and RFIs across both. And they set a target date to decide on structural separation structure and removal by end of this year. We are in active conversation with them, and I think the rest of the Street is as well, and we expect them to make a decision by year-end. Sabina Levy: What about? I asked about if it's reflected maybe risk-adjusted in the long term -- in your long-term guidance or aspirations. Tomer Raved: We did not -- sorry, yes, Sabina, we did not take into account any of the regulatory impacts on the long term, especially not structural separation. It's not in our guidance. Sabina Levy: So can we assume that in case there will be developments in this front in the next coming months, you will provide us more color at the annual report? Tomer Raved: Yes. We will provide more color when we have better visibility. And as you know, the 3 main impact, of course, the significant value to the customers on the service and on the price. So while putting revenues aside, there is a NIS 1.2 billion tax asset that will be used over a course of 8 to 10 years, very significant free cash flow impact as well as potential cost savings as a result of the Bezeq & yes merger. But we will provide specific numbers, hopefully, during the annual statements. Yochai Benita: Next question is from Omri Lapidot from [indiscernible]. Omri Lapidot: Yes. [indiscernible] Omri Lapidot. I want to add on the previous questions regarding the company's forecast and whether or not you are taking into account in the forecast, yes, revaluation. If I look at the EBITDA margin for the medium term, in my eyes, it seems like it didn't take it into account. It seems like the yes, revaluation added like, I don't know, NIS 400 million in adjusted EBITDA yearly. How can we think about it? Tomer Raved: I'll respond and Yochai feel free to add. We did not take into account any impact from -- yes in our initial guidance when we issued it in March. As a result of company better performance and the yes revaluation in Q2, we revised guidance and then did it again because there were 2 impacts on the yes revaluation. So both were taken into account in the revised guidance or in the second revised guidance, and that's one of the primary reasons for the revised guidance. So it's already in there, but we are not taking into account any future revaluation of yes into the guidance. I hope that makes sense. Yochai Benita: Okay. Thank you, Omri. If there are no further questions at this time, I would like to thank you all for taking the time to join us today. Should you have any follow-up questions, please feel free to contact our Investor Relations department. We look forward to speaking to you on the year-end 2025 earnings call. Thank you.
Operator: Greetings, and welcome to the Workhorse Group Q3 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Stan March. Please go ahead, Stan. Stan March: Kevin, thank you. Good morning to all of you, and I'd like to welcome you to Workhorse's 2025 Third Quarter Results Call. Before we begin, I'd like to note that we posted our results for the third quarter, which ended on September 30, 2025, via press release and filed the associated 10-Q with the SEC last evening after the market closed. This morning, we posted the accompanying presentation so you can find the release and the accompanying presentation in the Investor Relations section of our website. We'll be tracking along with the presentation during this call. Joining me on today's call are Rick Dauch, our CEO; and Bob Ginnan, our CFO. And for today's agenda, you can find that on Slide 3 in the presentation. Following my brief opening remarks, I'll hand it over to Rick, who'll give you an update on our Q3 performance and business operations as well as our proposed transaction with Motiv. Bob will then walk us through the financial results for the quarter, and Rick will then follow wrapping it up and then go to questions. On today's call, you can find in our presentation, our disclaimers found on Page 4 and 5. Some of the comments that are going to be made today are forward-looking and are subject to various provisions, risks and uncertainties. And you can find that full disclaimer in our 10-Q and in today's press release. You can -- on Slide 5, you can also find references about the proposed transaction with Motiv where you can find additional information related to that proposed transaction. And with that brief introduction, I'll now turn the call over to Rick. Rick? Richard Dauch: Thanks, Stan. Hello, and thank you for joining us on the call this morning, everyone. We're excited to be here with you today to discuss our third quarter results and provide an update on our proposed strategic transaction with Motiv. Let's start with our Q3 results on Slide 6. During the quarter, we made good progress executing on our product road map, scaling sales to targeted fleets with new orders and deployments and expanding our product portfolio. We completed the sale of 15 trucks in a combination of Class 4 and 5/6 versions. These results reflect the hard work and resilience of the Workhorse team in a challenging commercial electric vehicle environment and reinforces a strong operating performance and positive customer feedback of our W56 platform in the field. Growing customer demand for our W56 step van continues to advance our position as a segment leader in the EV Class 5/6 transition. We're building reliable, safe and capable trucks, proving the performance of winning business and earning customers' trust every day. During the quarter, we also maintained our financial discipline, taking continued decisive actions to reduce both operating and overhead costs and strengthening our near-term financial position. Despite continued challenging market conditions, we continue to make meaningful progress here at Workhorse and are focused on finishing 2025 on strong footing. We are actively engaging with logistics providers and service fleets to build additional order interest through our national dealer network. We announced the availability of the Utilimaster Aeromaster body on our all-electric W56 strip chassis. This new offering expands and brings new flexibility to the W56 platform, combining the trusted durability of the industry-standard Utilimaster step van body with the benefits of Workhorse's proven electric chassis. The W56 also remains fully eligible for the California hybrid and zero-emission truck and bus voucher incentive program, or HVIP vouchers, of $85,000 per truck and higher for medium-duty Class 6 vehicles. At the same time, we maintained our ongoing financial discipline, prioritizing cash conservation and expense reduction. In the third quarter, our operating expenses decreased $1.2 million on a year-over-year basis through disciplined cost management with even more impressive results year-to-date. I'm also excited to share that we showcased our W56 step van at the FedEx Forward Service Provider Summit in Orlando, Florida in September, marking Workhorse's third year participating in the event. Our W56 step vans and service with FedEx Express and FedEx Express independent service providers have collectively logged tens of thousands of miles on daily deliveries routes nationwide and are operating at a 97% or greater uptime availability. Lastly, we, of course, announced our proposed transaction with Motiv during the third quarter. Now let's turn to Slide 7 to touch on the proposed transaction. In August, we announced a definitive agreement to combine Workhorse with Motiv Electric Trucks, bringing together 2 veteran EV innovators to create a stronger force in North America's medium-duty electric truck market. This combination positions us to accelerate growth, expand our product lineup and capture greater share in the commercial EV space. For our shareholders, it represents a chance to participate in the upside of a unified, well-capitalized company built for long-term success. In addition, we also completed 2 transactions with entities affiliated with Motiv's controlling investor, including the sale-leaseback transaction of our Union City facility for $20 million and a secured convertible note financing for $5 million. These transactions have strengthened our near-term financial position and continue to support Workhorse's operations. Looking ahead, and as part of this transaction, the combined company is expected to be able to access up to $20 million in additional debt financing post close to fund our go-forward strategic execution. The transaction is expected to close in the fourth quarter of 2025, subject to Workhorse shareholder approval and other customary closing conditions, including the debt financing commitment. With our shareholders' approval at our annual meeting tomorrow on November 12, we will be positioned to drive sustainable growth and create long-term shareholder value. And now I'll turn it over to Bob to discuss our financial results and recent steps we have taken to strengthen our near- and long-term financial position. Bob? Robert Ginnan: Thanks, Rick. Turning now to Slide 8 for the highlights from the quarter. As a reminder, our financial statements have been adjusted to reflect the March 2025, 1 to 12.5 reverse stock split. Sales, net of returns and allowances, for the 3 months ended September 30, 2025 and 2024, were $2.4 million and $2.5 million, respectively. The decrease in sales of $100,000 was primarily due to lower sales of approximately $2.3 million related to delivery of fewer trucks in 2025 compared to the same period in 2024, offset by an increase of $2.2 million related to the recognition of 7 vehicles from deferred revenue. Cost of sales for the 3 months ended September 30, 2025 and 2024, were $10.1 million and $6.6 million, respectively. The increase in cost of sales of $3.5 million was primarily a result of an increase in inventory excess and obsolescence reserve of $3.3 million. Selling, general and administrative expenses for the 3 months ended September 30, 2025 and 2024, were $7.8 million and $7.7 million, respectively. The increase in SG&A of $100,000 was primarily driven by a $3.6 million increase in consulting and legal expenses due to the proposed Motiv merger, offset by a $2.9 million decrease in employee compensation and related expenses, a decrease of $200,000 in marketing and trade show related expenses and a decrease of $300,000 in IT-related expenses. Research and development expenses for 3 months ended September 30, 2025 and 2024, were $1.1 million and $2.3 million, respectively. Decrease in R&D expense of $1.2 million was primarily driven by $300,000 decrease in employee compensation and related expenses due to a lower headcount, a $500,000 decrease in prototype part expense and a $300,000 decrease in consulting and professional services expense. During the third quarter, we took additional steps to reduce costs and conserve cash, which resulted in operating expenses that decreased by $1.2 million year-over-year compared to the same time last year. We reduced operating expenses by $17.5 million. Net interest expense for the third quarter of 2025 was $200,000 compared to $3 million for the 3 months ended September 30, 2024. Difference was primarily driven by higher financing fees related to the 2024 notes recognized in the prior year period compared to the current period. Net loss was $7.8 million compared to $25.1 million in the same period last year. I also want to point out during the third quarter, the company recognized a gain on the sale of assets of $13.8 million, primarily related to the sale leaseback of our Union City, Indiana facility. Additionally, we recognized a gain of $4.8 million related to deferred revenue upon termination of the Tropos Assembly Services Agreement. Slide 9, balance sheet highlights. Now turning to Slide 9 to discuss our balance sheet. As of September 30, 2025, the company had $38.2 million in cash and cash equivalents as well as restricted cash compared to $4.6 million in the same period last year, primarily increased due to the benefits from funding totaling approximately $25 million for Motiv's controlling investor, including a $20 million sale leaseback transaction and a $5 million secured convertible note financing, both of which were completed at the execution of the merger agreement. As a reminder, at the closing of the merger, all remaining indebtedness and other obligations to Workhorse existing senior secured lender, including all warrants currently held by that lender, will be repaid and/or canceled with the only remaining secured indebtedness of the combined companies being the $5 million secured convertible note held by Motiv's controlling investor, which may convert to equity in connection with the post-closing financing. We will continue to strengthen our financial position by generating additional purchase orders and revenue from customers as well as maintaining our financial discipline. Looking ahead, we are focused on executing on our product road map and completing our transaction with Motiv and we are confident in our ability to continue to deliver value to our shareholders. With that, let me turn it back over to Rick. Richard Dauch: Thanks, Bob. Let me take a moment to outline our near-term priorities shown on Slide 10. A top priority for Workhorse, as we've emphasized on this call, is completing the proposed transaction with Motiv. Over the past few months, both teams have been working diligently to plan for and ensure the combined company is positioned to grow and succeed. The proposed transaction remains subject to shareholder approval. In parallel, we continue to focus on strengthening our financial position and driving greater operational efficiencies, including growing purchase orders and customer demand, prioritizing cash conversion and reducing our operating costs. We are also continuing to expand and enhance our product portfolio, including finalizing our plans for the W56 140-kilowatt production launch in 2026. This new vehicle has a range of around 120 miles and has about a 10% lower acquisition price. Looking ahead, the combination with Motiv will further broaden our product lineup and accelerate our shared product road map. And we're currently developing the plans to integrate our portfolios and R&D technology to deliver even greater value and a broader portfolio of vehicles to our customers over the next 2 to 3 years. Before we wrap up, we'd like to remind you that our 2025 Annual General Meeting -- Shareholder Meeting is tomorrow on November 12. In order for Workhorse to complete the proposed transaction with Motiv and for our shareholders to participate in the potential upside of the combined companies, we need Workhorse shareholders to vote for the transaction in addition to the other 8 proposals up to vote in connection with the meeting. We look forward to our future with Motiv and remain confident in our ability to deliver meaningful value to our shareholders. We hope you share our excitement for what lies ahead as we combine our strengths to capture new opportunities and lead in the commercial EV transition. That said, this call is to discuss our earnings results for the third quarter, so we won't be taking questions on the Motiv transaction at this time. Thank you all for joining today's call. Now I'll open it up for questions. And Kevin, I'll turn it back over to you. Operator: [Operator Instructions] Our first question is coming from Ben Sommers from BTIG. Benjamin Sommers: So kind of on the W56 step van and kind of being eligible for those state-level incentives in California, kind of curious just more broader market outlook. How you're seeing state-level incentives across the U.S. kind of panning out in different states and what you think the opportunities are beyond California for the step van? Richard Dauch: Great question. So we are -- we worked with the CAR group and a couple of other people in the EV space to make sure the HVIP vouchers are competitive. Out in California, that was successful, and we saw immediate pickup in orders from the FedEx ground guys out there. And right now, we're -- but every truck we're building between now and the year has already got a purchase order and HVIP voucher tied to it. We are seeing some good movement in the state of Washington and the State of New York in terms of vouchers, and we have turned our efforts to those 2 areas, those 2 states for sure. So -- and then I'd like to say, too, is that we talked about having our truck down the last 3 years at the FedEx conference for the ground operators. We have one site in California now that's operating more than 20 W56 step vans. Once we get a truck in the hands of a ground operator and they see the reliability of our truck averaging 97%, 98% uptime, we're seeing repeat orders from multiple FedEx ground operators. Benjamin Sommers: Awesome. And then just kind of curious on costs as we ramp closer towards production of this vehicle, how should we be thinking about that trending in '26 as we get prepared for the production launch there? Richard Dauch: I'm going to ask Bob to answer that question. Robert Ginnan: Okay. So I think if you look at the costs from 2 elements, there's obviously the bill of material cost, which we continue to focus on bringing that down through engineering and supply chain. But also as we -- as the production increases, you'll see an improvement in the labor cost as we get into a regular cadence on the lines there. So we look to see improvements in both areas as we go forward. Richard Dauch: Yes, and we're starting to see -- obviously, we haven't had a lot of volume so far. And so to get the manufacturing right, we built 3 or 4 trucks now perfectly. We had no post-production touch-ups and some of that. So our guys are starting to get a handle on how to build the chassis and more importantly, the cabin body. That's a pretty complex assembly operation there. We also have de-escalators in our purchase contracts when we hit certain volumes down the road. We're far from those volumes now, but they're built into the contracts, and that will lower the bill of material costs. We know we have to move closer and closer to be almost on parity with ICE. That's going to take a couple of years, and it's going to require us to get to certain levels of volume, especially on batteries to lower the cost. Yes, one thing I'd say, too, is that once we do get trucks in the field, based on the data we're having right now, both at FedEx and Ground, we're seeing somewhere between a 55% to 65% total cost of operation reduction. No fuel costs, obviously, new trucks, very -- no spare parts and uptime, again, 98%. So we think that's a good selling point when we're out there talking to fleets. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Rick for any further closing comments. Richard Dauch: Appreciate your patience with us. It's been a tough 4 years in the electric vehicle transition market. Those things we can control, we're doing our best to do that. And we think the merger with Motiv gives us even a bigger opportunity to lower the operating cost of the company, expand the product portfolio, give us a better opportunity to be successful long term, and we think it's the right thing for shareholders. We appreciate your support, and have a great day. Thank you. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today. Richard Dauch: Thanks, Kevin. Operator: Take care, everyone.
Operator: Good afternoon, and welcome to Occidental's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Jordan Tanner, Vice President of Investor Relations. Please go ahead. Jordan Tanner: Thank you, Rocco. Good afternoon, everyone, and thank you for participating in Occidental's Third Quarter 2025 Earnings Conference Call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Sunil Mathew, Senior Vice President and Chief Financial Officer; Richard Jackson, Senior Vice President and Chief Operating Officer; and Ken Dillon, Senior Vice President and President, International Oil and Gas Operations. This afternoon, we will refer to slides available on the Investors section of our website. The presentation includes a cautionary statement on Slide 2 regarding forward-looking statements that will be made on the call this afternoon. We'll also reference a few non-GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in the schedules to our earnings release and on our website. I'll now turn the call over to Vicki. Vicki Hollub: Thank you, Jordan, and good afternoon, everyone. I want to take a moment to recognize Veterans Day and express our deep gratitude to all veterans and their families for their service. Today, I will address our recently announced sale of OxyChem, outline the strategic rationale and highlight our third quarter performance. Richard will provide details on our oil and gas operations, and Sunil will review our third quarter financials, fourth quarter guidance and considerations for the year ahead. The sale of OxyChem is a pivotal step in our transformation. The decision was driven by the scale, quality and diversity of the oil and gas portfolio we have built over the last decade. Since 2015, we have more than doubled our total resource potential and our production, going from total resource of 8 billion barrels of oil equivalent to 16.5 billion barrels of oil equivalent and from production of 650,000 BOE per day to over 1.4 million BOE per day. We now have a higher-quality portfolio with Oxy's lowest-ever geopolitical risk as we have shifted the percentage of our oil and gas production from 50% domestic to 83% domestic. And our portfolio has a development runway of 30-plus years that includes high-return, short-cycle, higher-decline unconventional assets complemented by solid return, lower-decline mid-cycle development opportunities in our conventional oil and gas assets. Our substantial oil and gas runway, along with our demonstrated expertise in maximizing resource recovery, created the foundation for accelerating value to our shareholders through the divestiture of OxyChem. The proceeds will be used to immediately strengthen our balance sheet, allowing us to significantly deleverage and achieve our principal debt target of less than $15 billion. This will reinforce our financial resilience and agility to navigate changing market conditions. With greater financial flexibility, we can broaden our return of capital program and accelerate shareholder returns. This will enhance our approach to delivering value to our shareholders by increasing cash returns and continuing to rebalance enterprise value through net debt reduction. Our strengthened financial foundation will enable us to accelerate the development of our industry-leading oil and gas portfolio by focusing capital on our Permian unconventional assets, including unconventional CO2 floods, along with our Gulf of America waterfloods and in the future, our Baqiyah gas and condensate discovery in Oman. We're excited about all the opportunities ahead to apply our subsurface expertise for greater resource recovery and the opportunities to advance our various low-decline enhanced oil recovery projects, particularly our CO2 EOR projects. Now turning to the third quarter. Our teams delivered another strong quarter of operational performance, generating $3.2 billion in operating cash flow and $1.5 billion in free cash flow before working capital. Notably, we exceeded last year's third-quarter operating cash flow despite WTI prices that were more than $10 per barrel lower in the third quarter of this year. Our team's continued focus on cost management and efficiency improvements also led to our lowest quarterly lease operating expense per barrel across our full oil and gas segment since 2021. This ongoing improvement in portfolio and operational performance underscores the quality of our resources and the exceptional caliber of our teams who continue to bring forward value by delivering more with less. In the third quarter, our oil and gas business produced approximately 1.47 million barrels of oil equivalent per day, exceeding the high end of our guidance range. The Permian Basin contributed 800,000 BOE per day, which is the highest quarterly Permian production in Oxy's history. The Rockies also posted outstanding results, thanks to strong new well performance and stable base operations. Additionally, our Gulf of America assets outperformed the high end of guidance, benefiting from favorable weather and achieving the highest uptime in our operating history. Our Midstream and Marketing segment delivered another incredible quarter, generating positive adjusted earnings and surpassing the high end of guidance. Our teams expertly navigated market volatility to maximize margins through strategic gas marketing, helping to offset challenging gas price realizations. Higher sulfur prices in Al Hosn further contributed to the quarter's results. As shown in our third quarter results, we remain focused on generating free cash flow at lower oil prices and maintaining flexibility in our capital and development programs to support near- and long-term value creation. Richard will now provide more details on our third quarter operational highlights and how we are positioned to generate stronger returns and higher free cash flow. Richard Jackson: Thank you, Vicki. I appreciate the opportunity to share the progress we are making in our operations and how we are positioning our plans going into 2026. In all parts of our oil and gas business, we are making significant advancements through a focus on 3 key areas: resource improvement, cost efficiency and operating ability to generate free cash flow across a range of oil price scenarios. Today, I will focus on our Permian operations, where there have been several meaningful updates across these 3 areas. I look forward to sharing more from our other teams in future calls. First, let me begin by highlighting our strong third quarter results. As Vicki noted, domestic production exceeded guidance with strong contributions from all business units in the Permian, Rockies and Gulf of America. This strong performance and record results were achieved while sustaining our outlook for lower capital and improved operating costs for the year. Compared to our original 2025 guidance, we have reduced capital expenditures by $300 million and operating costs by $170 million. We appreciate our team's continued efforts to exceed expectations. Importantly, this performance is part of our continued track record of cost efficiency. We recently highlighted that since 2023, we have realized $2 billion in annualized cost savings across our U.S. onshore operations, driven by continuous operational improvements in drilling, completions and operating expense categories as well as a value-focused supply chain management approach. We are seeing similar improvements across all of our operating teams and look forward to these efficiencies continuing into 2026. Building more on Vicki's introductory comments, we have made important progress in our organic oil and gas resource improvement across the portfolio. Today, I will focus on the Permian as it plays an essential role in our near- and long-term results. We have recently expanded our Permian resource base by 2.5 billion BOE, which now represents approximately 70% of Oxy's total resources of approximately 16.5 billion BOE. We achieved this organic resource expansion through subsurface characterization and the application of advanced recovery and technologies. Our deep Permian resource is both low cost and provides operational flexibility to support free cash flow across a wide range of oil price scenarios. When combined with our ongoing cost efficiencies and technical recovery advancement, this places the Permian as a core value driver for Oxy's future. To start, in the Delaware Basin, we continue to be a leader in new well performance across both our primary and secondary benches. Importantly, our secondary bench wells outperformed the industry average by 10% when compared to all benches, primary and secondary in the basin. In addition to improving productivity, these secondary benches also enable us to efficiently utilize existing infrastructure that was built to support our primary development. As a result, we have extended our resources through increased secondary bench development while lowering our overall development costs, leading to a 16% lower capital intensity since 2022. Additionally, over the last few years, we have significantly transformed our position and performance in the Midland Basin. Today, these development projects are incredibly competitive in our Oxy portfolio. This process began with a basin-wide subsurface characterization initiative and targeted development program to more fully understand the resource potential in the basin. We then strengthened our acreage position and achieved the scale needed for operational efficiencies through the CrownRock acquisition. Today, the combined Oxy and legacy CrownRock teams are delivering industry-leading well costs and performance, driven by both continued operational improvements and refined subsurface designs. Since 2023, our new wells have shown a 22% increase in 6-month cumulative oil production per 1,000 feet, while the industry average has declined about 5% over the same period. We have also reduced well costs by 38% since 2023. These step changes have created an expanded deep bench opportunity, allowing us to organically add top-tier Barnett resources across 115,000 acres in our Midland and Central Basin Platform operating areas. Again, we highlight that our new well performance in the Barnett is outperforming the industry average by 18% since 2020. Another resource opportunity and key differentiator for Oxy is the expansion of enhanced oil recovery into our unconventional shale. As a leader in conventional CO2 EOR, we are leveraging our decades-long investment and expertise into these assets. Since 2017, we have advanced unconventional EOR in our Permian, U.S. Permian and Rockies business units, completing multiple demonstrations where we have achieved positive and consistent results. These projects have delivered over 45% oil uplift, but we believe with continued optimization, our commercial projects have the capability to deliver up to 100% production uplift. We are now moving into commercial development with 3 initial projects and a current pipeline of 30 more ready for development. These mid-cycle projects offer low decline rates and competitive returns. Our unique and sizable Permian Basin CO2 infrastructure gives us an advantage as we scale these developments over time. Today, this represents a resource opportunity of over 2 billion BOE. We also continue to advance our existing conventional EOR assets with approximately 2 billion BOEs of undeveloped resources with low development costs, these mid-cycle projects are also meaningful as part of our future resources. Recent improvements in cost structure, including $80 million of our 2025 domestic operating cost reductions continue to improve the returns and investment priority within our portfolio. Beyond CO2 EOR, we are progressing a suite of complementary recovery technologies, including infill drilling, precision well placement and spacing, next-generation frac and other methods of EOR. We believe our ability to organically expand our low-cost resource base through subsurface characterization, continued cost efficiency and advanced recovery technologies give us a competitive advantage to deliver long-term value. As we look ahead to 2026, we continue to actively manage our operational scenarios for a disciplined approach for resilient free cash flow even if in challenging oil price environment. Our approach begins with a focus on operational and cost efficiency over activity reductions to preserve future free cash flow and to maintain optimized activity across our assets. A key part of this approach is working closely with our service company partners to capture supply chain savings, improving value for both parties. Beyond that, we selectively defer multiyear facilities and construction projects, allowing us to invest opportunistically in these projects when conditions are more favorable. We also regularly review and optimize our operating expense activities to enable us to scale and time activities for maximum free cash flow. Finally, we evaluate capital and development activity adjustments, always with a focus on achieving the most efficient capital to cash flow outcome. At much lower oil prices, capital flexibility becomes critical, and we remain committed to investing wisely, preserving optionality and delivering value through efficient execution. As we enter 2026, we are targeting a $55 to $60 WTI plan with flexibility to adapt to market conditions while continuing to improve cost efficiency to deliver our free cash flow needs without impacting operational performance. Looking ahead, we have a deep portfolio of short-cycle, high-return and mid-cycle low-decline assets that can deliver strong cash flow. We are focused on sustaining momentum by driving cost efficiency, advancing recovery technologies and optimizing our operations. Lastly, I'd like to thank all of our teams for their continued performance and especially safety as we look to end the year strong. I also look forward to working closer with many of you for the first time or again in my new role. Thank you for your time today, and I'll now turn the call over to Sunil for the financial discussion. Sunil Mathew: Thank you, Richard. In the third quarter, we generated a reported profit of $0.65 per diluted share. Strong operational performance and a continued focus on capital efficiency enabled us to generate approximately $1.5 billion in free cash flow before working capital. We had a negative working capital change, primarily driven by the timing of semiannual interest payments on our debt and payments within our Oil and Gas segment. During the quarter, we repaid $1.3 billion of debt, bringing our total year-to-date debt repayment to $3.6 billion and reducing Occidental's principal debt balance to $20.8 billion. Our strong financial performance can largely be attributed to higher volumes across our U.S. portfolio, which more than offset slightly lower-than-expected production from our international assets. New well and base production outperformance in the Permian and Rockies as well as higher uptime and favorable weather in the Gulf of America enabled us to exceed the high end of guidance across all of our domestic oil and gas assets. This production outperformance and the continued focus on delivering operational cost efficiencies led to lower domestic lease operating expenses in the quarter, notably outperforming guidance at $8.11 per BOE. Part of the outperformance also reflected the timing of certain offshore production engineering activities, which shifted into the fourth quarter. In the Midstream and Marketing segment, we continue to capture value through optimizing our gas marketing positions out of the Permian Basin and higher sulfur pricing in Al Hosn. Both were significant catalysts in the segment, generating positive earnings on an adjusted basis of $153 million, above the midpoint of guidance. Looking ahead, we are increasing our full year guidance for our Oil and Gas and Midstream and Marketing segments as a result of our strong third quarter outperformance and improved expectations for the fourth quarter. In Oil and Gas, we are raising our fourth quarter total company production guidance from last quarter's implied guidance to a midpoint of 1.46 million BOE per day. This is driven by the expectation for continued strong performance across all 3 domestic assets, which should more than offset impacts from a scheduled turnaround at Al Hosn also in the fourth quarter. Other Midstream and Marketing pretax income guidance assumes that our teams will capture gas marketing optimization benefits from the wider Permian to Gulf Coast spread observed already in the fourth quarter. We expect full year pretax income from the segment to come in approximately $400 million above our original guidance, largely due to those gas marketing opportunities and stronger-than-anticipated sulfur pricing from Al Hosn. Due to continued softness in the global chlorovinyl market, our third quarter OxyChem pretax income came in below guidance at $197 million. We are guiding to $140 million for the next full quarter. Beginning in the fourth quarter, OxyChem will be classified as discontinued operations. We are in the process of evaluating the potential impact of OxyChem's classification on our fourth quarter adjusted effective tax rate, and we will provide a further update early next year. Total company capital spend, net of noncontrolling interest of approximately $1.7 billion was in line with our expectations for the third quarter, and we expect to remain within our previously guided range for 2025 capital. As Vicki shared, the OxyChem transaction marks a significant milestone for our company as it will strengthen our financial position and enhance our ability to return capital to our shareholders. The all-cash nature of this transaction will enable us to accelerate our debt reduction efforts and achieve our post-CrownRock principal debt target of less than $15 billion. Of the roughly $8 billion in transaction net proceeds, we plan to use approximately $6.5 billion to reduce debt. Our initial focus is on the $4 billion of debt maturing in the next 3 years. This includes $1.3 billion of term loans maturing in 2026, which we can call at par and for the remaining $2.7 billion, we may largely use make-whole provisions to ensure certainty. Beyond that, we will be opportunistic, taking into consideration redemption prices and the impact on our maturity profile. This will meaningfully improve our credit metrics and is expected to lower our annual interest expense by more than $350 million while providing a very manageable near-term debt maturity schedule. The remaining $1.5 billion in net proceeds will go to cash on the balance sheet. By significantly lowering our debt burden and building cash on hand, we will create a stronger, more resilient balance sheet. With the achievement of our post-CrownRock principal debt target, Oxy will be positioned to broaden our return of capital program and adopt a more flexible framework for delivering value to our shareholders. We will be opportunistic with the share repurchase program. Our decisions and priorities will be driven by a range of factors, including the macro conditions, commodity prices, market valuation relative to Oxy's intrinsic value, cash on the balance sheet and the timeline to August 2029. We plan to resume the redemption of the preferred in August 2029 when the preferred equity becomes callable with a lower redemption premium and does not have the $4 per share return of capital trigger. Now I would like to share how we are approaching our capital program for 2026. Last quarter, we discussed the potential to allocate capital to mid-cycle conventional oil assets. We are planning to increase investment in the Gulf of America waterflood projects and in Oman, given both projects' high oil weighting and favorable base decline rates, combined with the enhanced economics in Oman following our Mukhaizna contract extension. Approximately an additional $250 million could be allocated to these areas as capital rolls off in our LCV portfolio. Considering the recent commodity price volatility and oil market outlook, we are evaluating multiple capital scenarios across our U.S. onshore portfolio. With the OxyChem sale, our U.S. onshore capital will comprise an even greater proportion of the total company investment program, which provides flexibility should the macro environment deteriorate. As Richard mentioned, we have an incredible runway of high-quality oil and gas opportunities and sustained momentum in delivering value through greater capital efficiency. We plan to reallocate up to $400 million to these short-cycle, high-return projects, primarily in the Permian. Any additional allocation of capital next year will be undertaken in a thoughtful manner with an eye to the oil market, given oversupply concerns. The quantum of that reallocation will depend on the macroeconomic environment, and we plan to share more on our 2026 capital budget during our fourth quarter call, pending Board approval. I will now turn the call over to Vicki for closing remarks. Vicki Hollub: Thank you, Sunil. As we highlighted, the OxyChem sale represents more than just a business decision. It marks the final major milestone in the strategic transformation that we've been pursuing for years. With this step, we are accelerating opportunities to extend our advantaged low-cost resource position and leveraging integrated technologies to deliver differentiated recovery and superior value. We are confident that these actions will further strengthen our competitive position. With that, we'll now open the call for questions. And as Jordan mentioned, Ken Dillon is joining us today for the Q&A session. Operator: [Operator Instructions] And today's first question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Vicki, maybe the first question is for Sunil, actually. It's on the capital guidance that you just talked about there, the soft outlook. If I'm doing the math correctly, so you dropped about $300 million from the beginning of this year, so you $7.2 billion. But $900 million was chemicals, as I understand it for next year. And I believe this year was $450 million on DAC. So that's about $1.35 billion. I'm trying to kind of get to the range for next year. So if you add back the $650 million you talked about, are we in the ballpark to think that spending next year should be down about $700 million on your -- based on your remarks, Sunil? Sunil Mathew: Yes. So Doug, you're right on the way you're approaching it. Like you said, midpoint for CapEx guidance for this year is $7.2 billion. Chemicals was $900 million. So you back out that, you're at $6.3 billion. Like I mentioned, we are going to increase CapEx in the Gulf of America waterflood projects and Oman, which is around $250 million, which will be largely offset by the roll-off of capital in our low-carbon venture portfolio. So you're back to the $6.3 billion. And with respect to U.S. onshore, like I mentioned in my prepared remarks, we are looking at potentially investing up to $400 million. So you start with $6.3 billion, and it could be somewhere between $6.3 billion to $6.7 billion, depending on the macro environment. And the other thing I would highlight is, like I said, with this increased spending in U.S. onshore, a proportion of U.S. onshore CapEx as a percentage of the total CapEx will increase. What that means is a lot more flexibility if the macro is going to become more unfavorable. And so that is one important thing. And I think like Richard said in his prepared remarks, the way we think about capital allocation for U.S. onshore, if you were to adjust our capital program, I mean, first, we look at our efficiency, both operating efficiency and what we're seeing in the market. Second is potentially how we can defer some of our facility spending. And the last thing would be in terms of activity. So I think from a capital point of view, you're looking at somewhere between $6.3 billion to $6.7 billion with a larger proportion of U.S. onshore CapEx where we have a lot more flexibility. Douglas George Blyth Leggate: The Street is obviously very smart, Sunil, because it's sitting at $6.5 billion right now. So that's really helpful. My follow-up, if I may, is for Richard. I'll take advantage and also wish him congratulations for your new role, Richard. I'm thinking a Permian field trip might be in the offing, but we'll take that one offline. My question is, you did say you've added 2.5 billion barrels of resource mostly in the Permian. You've obviously got -- it looks like sector-leading drilling per lateral foot cost now. And clearly, the breakevens in the Barnett are coming down. So my question is you haven't given us a resource -- drilling backlog or a breakeven for the sustaining capital for the portfolio. So I wonder if you could address those. Where does this leave your drilling inventory? And what would you say is the sustaining capital breakeven at this point for the portfolio? Richard Jackson: Doug, this is Richard. Great to hear from you and appreciate that for sure. Always enjoy our Permian visits. Let me start just sort of addressing generally why resources. I think for a long time, we've been trying to characterize our strong unconventional resource base. And the way to do that was to talk about drilling inventory and think about breakevens against that. I think as we look forward, as we're explaining today, we're so much more than that. We have our big opportunities in our conventional assets and just felt like moving to more of a resource explanation was a better representation of what we are and the value that we have. If we sort of break down that 2.5-billion-barrel Permian add, most of that -- much of that is coming from continued unconventional shale improvements. And in our view, this is technology. This is using our subsurface characterization to continue to fine-tune our design, especially around the secondary benches, which we felt like was important to point out in this highlight. It includes things like the Barnett where we had an existing position. Much of that Barnett resource runs into our Central Basin platform where we've operated in our enhanced oil recovery business unit for a long time. And so much of that continues, and that would be a direct translation to the drilling inventory that we've disclosed previously. But the other piece is the EOR. And we highlight the unconventional EOR today, but also across our conventional position. And so in total, we just felt like that was the right way to think about it. In terms of the Barnett, obviously, a big piece of that becoming competitive in our portfolio is the drilling cost improvement and just very pleased with the progress by the teams in the Midland Basin for what they've been able to do, but we're seeing that across all of our basins. I think we highlight in one of the slides about a 14% total reduction in well cost across all of our unconventional drilling, same in the Rockies. So in general, that's improving our resource base. And so I think going forward to the breakeven, we'll continue to characterize that resource base with a breakeven. I think we've talked about our projects for the year, our annual programs are all less than $40 breakeven. And so on a project basis that we expect that to continue. And like we've shown in the past, it's always improving the resource, expanding it, yes, but improving is the most important component of it and cost is a big part of that. Operator: And our next question today comes from Arun Jayaram with JPMorgan. Arun Jayaram: My first question is maybe on Slide 16. Perhaps for Richard, I was wondered if you could maybe give us more details on the demonstration pilot. It looks like in this example, you're highlighting CO2 injection around 3 years after initial production from the well. But I was wondering if you could just talk about the applicability of this on older wells that may have been completed 6, 7 years ago. And maybe just a little bit about the math around the 2 billion BOE resource opportunity, that would be helpful. Richard Jackson: Yes. Great. I appreciate that question a lot. The example we're highlighting on that slide in the Midland Basin, it was with CO2. These wells were originally online in about mid-2015. So your question is perfect. While they apply to historic wells like we're showing here, they also apply to more recent vintage as well, and I'll walk through that math in a second. But just a little bit on that pilot. Again, that's about a 45% uplift. We had 5 injection cycles that were completed over those 3 years, we stopped and saw this 45% uplift. If we modeled out continued cycles of CO2 injection, this is where we get to the 60% and even 100% production uplift. And so that's where that comes from. If we look at the 2 billion barrels, if you think about recovery factors in the 8% to 12% with unconventional, if you look at this 45% to 100% uplift, now you're talking about reaching recovery factors in the 15% to 20%. So that is likely a little bit more for the oil and perhaps a little bit less for the gas in an oil reservoir. But if you look across the derisked unconventional acreage where we have this opportunity, that's how we began to account for the 2 billion barrels of unconventional EOR. As I mentioned, we've got 3 projects that we'll be working into commercial development over the next couple of years. Those are really spread between New Mexico, Texas, Delaware and the Midland Basin. So again, it's sort of an approach that can be applied to multiple areas. And then based on this technical work, we have another 30 development-ready projects across these basins that will be ready to develop. And so again, as we think about the role of mid-cycle low decline cash flow in our outlook, we believe these can be very meaningful as we look forward into future years. Arun Jayaram: Great. That's helpful. My follow-up is Sunil mentioned that you could redirect $250 million of capital from the reduction in LCV capital back into the Gulf of America for waterfloods in Oman. I was wondering if you could provide some thoughts on the -- what you believe these waterflood projects can do to your productive capacity in the Gulf of America. Maybe just thoughts on Gulf output as we think about 2026. Kenneth Dillon: We now have 2 waterflood projects, FID and GoA. These will result in improved recoveries of nearly 150 million BOE and significant reductions in decline rates over time. Potentially, these could lead to GoA declines going from 20% today to 10% in 2030 and 7% by 2035. So a significant impact on the base. First up is at the King Field, which is a tieback to Marlin. There will be a dump flood, which requires very limited facilities. That will be on stream in Q2 next year. This will lead to a potential extension in field life of around 10 years. At Horn Mountain, we've used the latest OBN seismic with our in-house developed tools to place the first injectors. 2 will be drilled in Q1 2027. And in parallel, facilities will be installed in Horn Mountain, leading to a target injection date of Q2 2027 and an expected response date during late summer 2027. We've been ready to go for some time and all the long lead items have now been placed. Returns expected to be in the 40% to 50% range for these projects. So overall, last time I talked about improving well performance, this time talking about lower decline. And as you can see, we've had improved reliability, both on rotating equipment and general facilities. We were aided by the weather a bit, including, I would say, being able to get through a lot of fabric maintenance work in this time period. So overall, still working on next year's plan. Part of that is tying the construction activities for the waterfloods to the planned maintenance required offshore so that we only take the platforms down once and have multiple staggered turnarounds. Operator: And our next question today comes from Neil Mehta with Goldman Sachs. Neil Mehta: This is an important time for STRATOS as you guys are ramping this project up. And so as the rubber hits the road, I just wanted to understand what the gating items are and early thoughts around start-up activities. Kenneth Dillon: Yes. Overall, the STRATOS Phase 1 start-up is proceeding well. Since we last talked, we've commissioned the central processing unit with water. Another major milestone was achieved that was starting up the process compression facilities, which are required for CO2 injection. Siemens Energy team, I have to say, including the CEO and the execs have been incredibly supportive of the project. This is a large complex machine, which basically started up first time. We've now started loading the first fills of pellets and chemicals and continue to start up the other unit operations. So the next up are the centrifuges and then after that is the calciner, and these are the 2 remaining unit operations before we export the CO2. We continue to optimize each of the units during start-up as we always do. And while that does cost us some time now, it will pay tremendous dividends going forward. Priorities are to learn for long-term capture efficiency and uptime. So overall, we expect to be circulating KOH this quarter and injecting CO2 in Q1. Neil Mehta: Okay. And I had a couple of questions around just return of capital as the follow-up. And so I think following the OxyChem sale, I think investors definitely recognize the value in improving the balance sheet, some of the concerns that we heard was about the legacy liability. So I guess this will be the first time you have an opportunity to maybe address that and help people get comfortable around that. And then while I know that you can't knock out the preferreds until August 2029, is there an opportunity to opportunistically repurchase shares before them to help alleviate some of those concerns. I just want to give you an opportunity to address both of those. Vicki Hollub: Okay. With respect to the return of capital, we definitely want to take out the -- all that we can, the $6.5 billion of debt first. And then beyond that, we are going to opportunistically buy back shares. And we -- and it has to make sense. It's a value calculation for us to determine whether to do that or whether it's best to take down some more debt or put more into the business. But one thing with respect to the use of cash, I want to make very clear to everybody, and that is that we're not going to aggressively put lots of extra barrels into an oversupplied market. So when we're talking about the possibilities here on the call, I want you to understand that we definitely have plans to be very flexible in that. And I think Richard may have an opportunity later to share more on what that's going to look like. But we are going to stay within our means in terms of using the cash that we have, but not taking down too much cash off the balance sheet. We'll try to maintain about $3 billion to $4 billion on the balance sheet as we go forward. And the legacy liabilities with respect to OxyChem, the bulk of those liabilities are outside the operating areas that were purchased. And there's very little cash being spent or any necessary activities beyond what's already happening within those assets -- operating assets that were bought. Everything else is outside. It made no sense to -- for those liabilities to go. And what they're costing us is right now somewhere in the neighborhood of $20 million or so on an annual basis. The liability that's the largest, of course, prosaic, but that prosaic it's going to be spread over 20 to 30 years. So this is going to take a lot of time to develop that and to work that. And so this really has minimal impact on us to maintain these. It's really not material to what we do. And the repo -- the Berkshire, you want to talk about the Berkshire, Sunil? Sunil Mathew: Sure. So Neil, like again, I mentioned in my prepared remarks, now that we've got a debt target below our goal of less than $15 billion. And as Vicki outlined, we're going to be opportunistic with respect to share repurchase. It's going to be driven by the macro conditions, where our stock price is trading, cash on balance sheet because our ultimate goal is to start or resume the redemption of the preferred once we get to August 2029. So what you're likely to see is as we get towards August of 29, we're going to start building up cash on our balance sheet. So there is no formula as such in terms of share repurchase, but we're just going to be opportunistic, considering or keeping in mind that by August 2029, we want to build cash on the balance sheet. Operator: And our next question today comes from Paul Cheng with Scotiabank. Paul Cheng: Sunil, can I just clarify that in your 2026 CapEx, you're saying that you're going to redirect, say, $250 million from the LCV into the Gulf of America and Oman? So that means that LCV we're not going to spend any money at all? And also that, I think for Richard, can you talk about the $400 million that on the quick payback onshore project, what kind of production contribution we should expect for 2026? The second question is exploration. With your resource, it seems like you are finding more ways to get resources from the onshore market. So if that means that exploration will remain sort of like not the most important aspect for your program over the next several years? Sunil Mathew: So Paul, with respect to LCV CapEx for next year, we think it's going to be around $100 million as we roll off capital with the completion of STRATOS. Richard Jackson: Yes. I'll pick up a bit of the scenarios with the potential $400 million that Sunil talked about. I mentioned in my remarks sort of a target initial plan of $55 to $60. And what that means is really, if you think about continuing activity this year, that would be up to that $400 million that Sunil talked about. So actually flat in terms of resources that we would go from this year into next year. In terms of what that makeup for next year might look like for EOR, it's actually -- it's light. It's about $100 million between EOR and unconventional EOR. And so it's fairly light next year. And it's actually pretty capital efficient as we look in the out years because we're not drilling wells, we're using CO2 in terms of the recovery. But I also want to highlight, we work scenarios below the $55 plan. And that's one of the advantages of the allocation of capital into the U.S. onshore. We have plans that go below $50 to be able to adjust to really carry Oxy in total in terms of cash flow to meet a breakeven and obviously cover our uses of cash. So we have that mapped out. We've done it in the past. That's why we wanted to go into some detail on the thought process of how we react to lower oil prices. Obviously, we like to work through efficiency first, but we do have that activity flexibility in our operations, especially in the U.S. to adjust in lower oil price scenarios. Kenneth Dillon: And then following up in GoA, we are -- we've already started deferring some exploration from next year into the following years. And in Oman, these are not really big exploration. These are step-out wells very close to our existing facilities, which can be brought online incredibly quickly. Operator: And our next question today comes from James West at Melius Research. James West: So Vicki, maybe a bigger picture question for you. A lot of moving parts the last several years with Oxy, lots of changes in the portfolio. You've been busy is the key here. With the OxyChem sale, are we going into now a quieter period, maybe a harvesting type of a period? Vicki Hollub: Absolutely. And I'm thankful to be at this point finally. Yes, we've gone through -- there was a lot, as you said, going on, but this is where we wanted to be, and this is where we needed to be. So we've done everything that we set out to do with respect to being mostly a U.S. company with very high-quality, high-margin assets and assets that can sustain over the long term. And we think that our portfolio is so much differentiated from anybody else because we not only have the high return but high decline shale, it's complemented and will be complemented in the future by the conventional assets and conventional EOR, along with unconventional EOR. And when we look at where our portfolio stands today of the -- our production, where we -- our total development, 45% is conventional and 55% is unconventional. Going into the future, we have a ratio of -- looks like about of the total $16.5 billion that we have in resource, about 65% is unconventional, 35% conventional. But the beauty of the unconventional is what Richard talked about, and that is the fact that in the unconventional, we are going to be able to do -- use CO2 for enhanced oil recovery in the unconventional. It's going to recover, we believe, up to the same amount as primary production. So we'll get 100% of what we got before. So we're doubling our total recovery from the unconventional. So that will be actually low decline as well over time. So we think that versus a pure shale player or versus those that have assets that are difficult to manage internationally and in foreign countries, we think that we're much better positioned with this portfolio. So yes, we're done with anything that's -- any big acquisitions or anything like that. Operator: And our next question today comes from Matt Portillo at TPH. Matthew Portillo: Maybe just a question to start out on the DJ. You highlighted in Q3 strong well performance drove upside to your production figures. I was curious if you could just maybe comment on in the Rockies, if you've changed anything on the completion or spacing design? Or what's really driving the outperformance there? Richard Jackson: Yes. Thanks. A big part of that beat really the last couple of quarters has been our base production. And so a lot of work we've talked about in the past, we've been doing around artificial lift, even using some analytics to improve our efficiency on that. So that was the biggest part of it. We have had better new well performance as well. I wouldn't call it major changes. We just continue to tweak sort of our subsurface designs and our flowback. The base actually -- the production operations that support the base also help our new well production. And so a lot of that new well beat is just better uptime on some of our processing facilities. Matthew Portillo: Great. And then maybe just a follow-up on the inventory. I was wondering if you might be able to comment on your views around your DJ inventory and how you might be able to flex capital in kind of a lower commodity price environment, just thinking through kind of the remaining locations left and obviously, some of the upside that you've highlighted here in the Permian, how you can flex capital between those 2 basins? Richard Jackson: Yes, that's great. Yes, we've been largely working in the DJ around an optimized activity set. We've had a couple of rigs and one frac core. And so that's been a big piece of it, continuing to show efficiencies, like I said, on well costs earlier. I think in the Rockies, as we look to the future, excited about the Powder River Basin. We continue to make progress there. We sort of have been working similar to the way I've described the Midland Basin, where we -- first, we're sort of proving out the productivity of the wells really in the '23, '24-time frame. And then in '25, we've had a partial rig year where we flexed the rig up to the Powder River Basin. We've had really drilling record after drilling record up there. We've improved about more than 25% versus the last year in terms of drilling performance. So that was a bigger part of it. And so now really, as we look to '26 and beyond, we have that opportunity to flex from the Rockies to the Powder River Basin. And so again, I don't really see an increase in capital, just more optimization in terms of that portfolio for the Rockies with that. Operator: And our next question today comes from Neal Dingmann at William Blair. Neal Dingmann: My question is just on the low Permian well cost that you all showed for maybe for Richard. Is the larger projects contribute to that? Or what was the main driver of that exceptionally low cost? Richard Jackson: Yes. Great question. We've been on this mission in the last couple of years to really relook at both the operational efficiency of our operations and working, like I mentioned earlier around our contracts and service contracts. And so it's really been a bit of both. I'd say the scale in the Midland Basin certainly helped. We were able to combine really the best of the best from Oxy and our CrownRock -- legacy CrownRock team and really just worked on that piece of it. But the scale certainly helped. So I do agree with that. But from an efficiency or from a contract standpoint, I think we were also entering a period where we made sure we were getting the right contracts for the right type of work. And so we've done a lot of work on that. We're fairly short right now in terms of contract term. And so we're working hard with our partners there to kind of think about how it looks going into 2026 and making sure we got those 2 pieces put together correctly. Neal Dingmann: Great point. And then just a follow-up, Richard, you talked a lot on the conventional EOR today and the amount of possible recoveries there. I'm curious, what type of returns? I assume the returns around some of that incremental upside would be very positive, I would think, correct? Richard Jackson: Yes. We highlighted 25% to 35% kind of where we're at today. And so if we're able to increase the uplift like we're talking about, those are only going to get better. So the goal, obviously, is to be competitive in our portfolio. And so the teams will be working on that. And that -- again, that's the beauty of the portfolio that we have. It's not so much the expansion, but it's the competition to make sure that we're putting capital where best placed for the returns that we want. Operator: And our final question today is coming from Leo Mariani with ROTH. Leo Mariani: I really appreciate all the details on '26. You certainly talked about the range of capital, $6.3 billion to $6.7 billion. Very helpful. Can you give us just some high-level indications of what would you kind of expect production to do in that range? Is that kind of a maintenance range for production maybe at the lower end and maybe you see a modest amount of growth at the high end? What can you kind of tell us about kind of associated production? Sunil Mathew: So in terms of production, you would be looking something close to flat to potentially up to 2% growth. Leo Mariani: Okay. That's very helpful. And I guess any specific areas that largely kind of unconventional that kind of provides the growth for next year? Is that kind of the flex piece is really that $400 million, which I guess is mostly unconventional Permian? Sunil Mathew: That's right. So the growth will be largely driven by unconventional Permian. Richard Jackson: Right. And as I mentioned, the flex down will go after efficiency first to maintain activity, but in position to be able to cut activity as required based on the macro. Operator: Thank you. And that concludes our question-and-answer session. I'd like to turn the conference back over to Vicki Hollub for any closing remarks. Vicki Hollub: Before we close, I want to express sincere appreciation to the entire OxyChem team for their steadfast commitment to safety and operational excellence. Their achievements have contributed significant value over the years, and we're confident that OxyChem will continue to thrive under new ownership. So thank you all for your questions and for joining our call today. Operator: Thank you. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Operator: Good day, and welcome to the Spectral AI Inc. Q3 2025 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sara Prendergast, Assistant General Counsel. Please go ahead, ma'am. Sara Prendergast: Thank you, Nick. Good afternoon, everyone, and thank you for joining us for Spectral AI's 2025 Third Quarter Financial Results Conference Call. Our speakers for today will be Dr. DiMaio, the company's Chairman of the Board; and Vincent Capone, the company's Chief Financial Officer. Before we begin, I'd like to remind everyone that during this call, certain statements made are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including statements regarding the company's strategy, plans, objectives, initiatives and financial outlook. When used in this call, the words estimates, projected, expects, anticipates, forecasts, plans, intends, believes, seeks, may, will, should, future, propose and variations of these words or similar expressions or the negative versions of such words or expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside companies control that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. As such, listeners are cautioned not to place undue reliance on any forward-looking statements. Investors should carefully consider the foregoing factors and the other risks and uncertainties described in the Risk Factors section of the company's filings with the SEC, including the registration statement and the other documents filed by the company. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. With that, I would like to turn the call over to Dr. DiMaio, Spectral AI's chairman of the Board. John DiMaio: Sara, thank you very much, and good afternoon to everyone. We appreciate you joining us today for our third quarter financial results conference call. I am quite pleased to discuss with you our results of operations through the third quarter of 2025. As I've mentioned on previous earnings calls, I follow a mantra here at Spectral AI of Finance, Focus and finish. I believe we are moving forward in all three phases as we complete our 2025 calendar year. Following our FDA submission in the second quarter of 2025, we continue to work on developments in our DeepView system. I'd like to address additional developments in the third quarter of 2025 as following: number one, finance. Our cash balance has stayed flat at $10.5 million from the second quarter of 2025. We continue to monitor our operating efficiencies and had a number of stock option and warrant exercises that contributed to the continued high level of cash reserves at our company. On top of that, as announced in October, we completed an additional registered direct offering of our common stock adding $7.6 million of additional cash reserves to the company's balance sheet. With total cash on hand at the end of September 2025 of over $10 million, a closely managed spending rate and the additional funding from our registered direct offering, Spectral AI has a significant financing in hand for the foreseeable future that enables us to continue our work on our product commercialization efforts, including the planned U.S. launch of our DeepView system next year. Number two, focus, which is the FDA submission. Our FDA submission, which was submitted in June of this year was a very big milestone in our company's development. I am proud of our team for their hard work and dedication in meeting that very important time line. The submission is obviously a key driver in the evolution of our business. We continue to have further interactions with the FDA on our de novo application, albeit somewhat slowed with the current U.S. development -- U.S. government shutdown that we're all experiencing. We continue to move forward with the de novo application full speed ahead as we have stated. Number three, finish. Lastly, finish is what we continue to focus on as we look to our BARDA partners to bring the DeepView system and the device to the commercial marketplace. We continue to focus on releasing next year and preparing to launch the commercialization strategy that we have discussed and will continue to refine as we move to that milestone. We continue to have a very broad application and indications that we seek in addition to burns for which we have a CPT 3 code and additional indications that will broaden the marketplace. We've had outstanding support from the burn community and at burn conferences with our abstracts being presented at national forums and publications and international publications. This further solidifies what's happening with our system in addition to the support that is receiving from the burn and the wound community at large. I thank you again for your attention to our company. And with that, I will turn things over to our Chief Financial Officer, Vince Capone. Vince? Vincent Capone: Thank you, Dr. DiMaio. Thank you all for joining us this afternoon. We issued our earnings release this afternoon, which contains additional details of our operating results, and we will be filing our Form 10-Q with the SEC later this week as well. With that in mind, I will focus my remarks on select highlights and key items. Our research and development revenue in the third quarter of 2025 was reduced to $3.8 million from $8.2 million in the third quarter of last year. This reduction reflects our anticipated reduced reimbursements under the BARDA Project BioShield contract, which was awarded to the company in September of 2023. In the third quarter of 2025, following our FDA de novo submission, we have incurred less direct labor clinical trial and other reimbursed costs from the prior year's quarter. Gross margin decreased to 42.7% from 44.8% in the third quarter of last year due to a lower percentage of direct labor as a percentage of our total reimbursed costs under the BARDA Project BioShield contract from the prior year's quarter. General and administrative expenses for the third quarter of 2025 were $5 million as compared to $4.6 million in the third quarter of 2024. This increase reflects increased third-party adviser and consulting costs and an increase in non-billable work that is not related to the BARDA Project BioShield contract. The company reported a net loss in the third quarter of 2025 of $3.6 million as compared to a net loss of $1.5 million in the prior year's third quarter, again reflecting the reduced research and development revenue and the higher general and administrative expenses from the prior year third quarter. Even with a $2.1 million increase in the net loss for the third quarter of 2025 as compared to the third quarter of 2024, the company is reporting a net loss of $8.6 million for the first nine months of 2025 as compared to a net loss of $7.4 million for the first nine months of 2024, reflecting our focus on managing our overall cost structure. At September 2025, we had 27,251,034 shares outstanding. Moving to our balance sheet. As Dr. DiMaio has previously noted, as of September 30, 2025, cash and cash equivalents totaled $10.5 million up from $5.2 million on December 31, 2024. Our cash balance has remained consistent since June 30, 2025. This is primarily due to the exercise of stock options and warrants in the third quarter of 2025 and our continued management of our operating expenses through the third quarter of 2025. Please note that this cash balance does not include the gross proceeds of $7.6 million of additional funding the company received in connection with our registered direct offering in October 2025. With our large cash reserves, our focused approach on managing our operational costs and expenses, we believe this level of funding is sufficient to provide the company with the necessary capital for the foreseeable future. For 2025, we are reducing our revenue guidance from $21.5 million to $18.5 million. The reduced revenue guidance reflects the anticipated reduced work on our BARDA Project BioShield contract since the submission to the FDA and some timing effect from the U.S. government shutdown, which we believe will be largely made up within the first half of 2026. Also note that our guidance does not include the contribution of any sales of the DeepView system for the burn indication in the United Kingdom or in Australia. Thank you for your time and attention today. And with that, operator, let's open up the call for questions from our analysts. Operator: [Operator Instructions] And your first question today will come from Ryan Zimmerman with BTIG. Unknown Analyst: This is Izzy on for Ryan. So Vince, I heard your commentary about the impact of the government shutdown and how that played into timing. But I was hoping you could provide a little bit more color around exactly what has been impacted and just confirm that everything is still on track for that expected first half '26 approval? Vincent Capone: Sure. Izzy. Thanks for participating on the call. Yes, Izzy, we continue to see our FDA submission. We don't see any holdups in our FDA submission into 2026. Actually excited this week if we can get the government to lift the shutdown. But some of our conversations with BARDA, some of the conversations we have with their teams and the team involved with the continued development of our DeepView system, some of that has been delayed and ultimately, we just see it as a timing issue for the most part, understanding that nothing has changed with the delivery of what we hope and anticipate that we will get FDA clearance of our device in the first half of 2026 and also the continued work through the BARDA contract, which I'm sure you're aware, that runs through the end of the first quarter of 2026, at least the base phase. So no, other than that, I mean, it's just really a general slowdown in work with our BARDA partners. I hope that answered your question. Unknown Analyst: Yes, it does. It's helpful. And I know it's early to think about guidance for 2026, but you did mention the expectation that some of this revenue will be made up next year. So I was curious if you could provide even some qualitative commentary about the cadence or pacing of that for next year. Vincent Capone: Sure. As well, Izzy, ultimately, we have always projected that 2026 will be, in general, a down year on revenue from where we were in 2024 and in 2025. Our current forecast shows relatively flat between 2025 and 2026. There might be a small reduction in overall revenue. Still working through that and obviously, there's a number of assumptions built in there. But I would anticipate 2026 to look -- from a revenue standpoint, probably somewhat lower than it is in 2025, but I don't know that materially it will be much different. But that's a turn year for us as we look to commercialize the device and then we see '27 and obviously, '28 to be significant years for the company's growth. Unknown Analyst: That's helpful. And then last one for me. I know there are several units that are placed in international markets. I was curious what some of the feedback has been from those sites and how you're using that to inform your preparations for the U.S. launch? John DiMaio: Yes. If you mind, I'll take that question. Thanks for that question, which, of course, for me, as a clinician, is terribly important. The answer is the feedback we've gotten from the units in the -- outside the U.S. have been overwhelmingly positive. The comments include that it's easy to use, very helpful and even a number of papers and abstracts have been in publication or published to document this in addition to the verbal feedback that we've gotten as well. So the answer is you've also used some of that feedback in terms of certain changes or minor adjustments in the device that we plan to incorporate with the next iteration in our Phoenix device. So in summary, we have been -- the device has been very positively received. It's been easy to use with both physicians and nonphysician health care providers and has really facilitated the care burn patients outside the United States. Operator: And the next question today will come from Carl Byrnes with Northland Capital Markets. Carl Byrnes: Congratulations and thanks for the question. I'm just wondering how your communications with the FDA have been progressing? And has there been any additional requests or outstanding items with respect to the filing or has it been a relatively clean and clear exchange? And then I have one quick follow-on. John DiMaio: Yes. Thank you. This is Dr. DiMaio. Thanks for that question because as you say, this is the second part that I mentioned, the focus of FDA. And the answer is we've had very, very frequent and good communications with the FDA. There are obviously certain adjustments and questions that they have for us and additional matters. I would be -- probably couldn't or shouldn't discuss those publicly, that would probably violate some of the FDA's requirements. But suffice it to say, we've had very good communications One of the most important aspects is the statistical analysis plan or the SAP, which, of course, is the guts of the artificial intelligence algorithm, and that's been very favorably received. And so that was what I was personally most concerned about, and that seems to have gone very, very well. Our data science team has done an outstanding job. There's some other testing we'll be looking at, whether there's additional human factors studies or additional reliability testing that we're discussing with the FDA right now, and we're getting clearance and clarity on that. And once we complete that, we anticipate we'll move ahead forward. But in summary, we've got good interaction. We provided additional information, and we literally have calls scheduled in the next couple of weeks with the FDA for further clarification. Carl Byrnes: Great. Perfect. Excellent. That's -- and just one quick follow-up. With respect to Snapshot, is there any update on the development of the handheld module? John DiMaio: Good question. So thank you for that question as well, the handheld. And the answer is a big yes. Additional development is going on that. As you know, that's primarily a military project sponsored by the military, and we have got good feedback that they have like the preliminary design of the handheld device and is currently going through testing and environments that the military requires us to perform, including high temperatures and low temperatures as well. And so we have gotten and we are seeking additional support, which is -- we plan to be forthcoming from the U.S. military to continue to develop that device for military use. In a parallel fashion, we're having discussions to have the same form factor or simpler form factor for the military for civilian use, and that's active as well. So the answer is that we are moving forward with the military as the background of the basis to be able to develop a civilian application with a very similar device. But I want to emphasize to you as well as anybody else that we do anticipate at least in the short or midterm to have the cart-based device, because, of course, that's what BARDA has paid us to do. It's very easily used in the burn units. It's larger in the operating room, in the emergency room and so forth and we see the handheld unit as complementary or additive and not necessarily replacing the cart-based device. As well, please know that we plan for the cart-based device to be the basis for a 510(k) application for the handheld device. So there's similar technology, similar camera, et cetera. So it will simplify the progression of our technology from cart-based to hand based. Carl Byrnes: Great. Very helpful. And again, the handheld is funded through MTech and DHA. Correct? John DiMaio: That's correct. Yes, sir. I've been deemphasizing that not to deemphasize it because of the military per se, but also emphasize that we're looking at the civilian market as well. But yes, the current diversion is funded by division, the Department of Defense called MTech and DHA. That is correct. Operator: The next question will come from John Vandermosten with Zacks SCR. John Vandermosten: Great. I'd like to start out with just getting a sense of your commercialization preparation activities and ask if you're planning to hire perhaps a Chief Commercial Officer or Chief Operations Officer? And then also along that same line, what efforts are being made, I guess, in terms of market access, distribution, marketing and launch execution over the next few months coming up on the target action date? John DiMaio: John, that's a great question and I appreciate it. And of course, that's the third half, which is finished. So in no particular order, we already have a person who is a commercialization person right now on board, and he's working to process all this as well. We have in the budget for 2026, four more people, four more FTEs that we're talking about bringing on board shortly to be able to have Salesforce and other parts of what we call professional education as well. Please note as well that the BARDA budget includes some of those costs, which helps us defray some of the costs in the initial stages of commercialization. The next part of that, of course, is that we're talking about the burn community, which as you know from our research studies, there's 137 burn units in the United States, and there's a large number that are participating in our research trials so I would think or argue that we have got a very good leg up on the community for which we intend to do. The first sales are quite well aware of the technology and are quite excited about getting it in their hands as soon as it's federally clear from the FDA. And lastly, and maybe as importantly, is that the BARDA contract, once we get FDA clearance includes clauses to help begin the placement of these devices and the burn centers and beyond. So in answer, I think we have a very good foundation with people, funding in place to start the commercialization rollout, and we will be ramping up as well to make that happen. John Vandermosten: Okay. That's good. And you had several presentations at the European Burn Association. And I was wondering how they were received by the audience and who the audience was? I know it was in Europe. I think it was in Germany. Is this allowing you to push further east, I guess, from the U.K. to get more health groups interested in using the device? John DiMaio: Yes, sir, John. Again, another great question. Thanks for that. And so the answer is that there were burn meetings both in the U.K. and in Germany, of which members of the burn communities there as well as members from the U.S. burn community participated. We had presentations at all those meetings. And again, not because I'm prejudiced, we had outstanding reception from those presentations and a big, big request, how soon will they be in those areas. Again, we already have units placed in the U.K. And literally today, we had discussions about expanding into the European market, both Western and Eastern and those discussions are forthcoming. We plan to progress further with getting clearance from UKCA and CE Mark as well. The current device in the U.K. is going to be upgraded and based upon what we've learned in the U.S. market and from the FDA. So in summary, yes, we do plan to expand into the U.K. and parts of Europe and maybe even beyond that. But our primary focus for right now, of course, is the U.S. But yes, the secondary and tertiary focus will be outside the U.S. John Vandermosten: Okay. Got it. And last question for me is on the Spectral IP transaction. I know that has been announced, and I haven't seen anything and wanted to know if that was -- or what the status of that was? John DiMaio: Vince? Vincent Capone: Thank you, Dr. DiMaio. Yes, I'll take this one. John, good to hear from you. Thanks for participation today. Yes, the Spectral IP and the SIM IP transaction that's currently working through the SEC. And I would anticipate that those filings will be reviewed with an eye towards my understanding as of today is that I would expect that transaction to close probably in the first quarter of 2026. And I would expect that you'll see something in our financials probably in the first quarter of 2026, reflecting that transaction. Operator: That concludes our question-and-answer session. I would like to turn the conference back over to Dr. DiMaio for any closing remarks. John DiMaio: Thank you again for your participation and continued interest In Spectral AI. We are very pleased with the progress, as I described with the three Fs, and we continue to make remain optimistic about our prospects for growth. We continue to work hard on the three principles that I outlined, and we look to have further announcements on our progress with these goals in the very near term. I thank everyone on the call and wish you a very good evening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Nathan Coe: Good morning, everyone, and welcome to Auto Trader's results for the 6 months ending 30th of September 2025. I'm joined by our COO, Catherine; and our CFO, Jamie, who will both be presenting and joining me for Q&A. You will have seen the announcement regarding Catherine moving on to become CEO at Moonpig. We are very pleased with Catherine and wish her the best as she embarks on the next chapter of her career. Catherine has been a pleasure to work with and has had a real impact at Auto Trader. She will be missed, but she leaves behind a strong team with bench strength that is both broad and deep. So we have a little worry that we will carry on uninterrupted. Our disproportionate focus on internal development over external hiring serves us well at times like this. Catherine is still with us for some time, and we will announce her leaving day in due course once we have worked through a smooth transition plan. Now on to the results. Overall, we are pleased with the progress that we've made through the period. Our profit was marginally ahead of expectations, and we have made significant progress against our strategic priorities. As expected, we have been impacted by the fast speed of sale of vehicles, but the team has delivered well on those areas that are within our control. I'm confident that the actions we are taking today will underpin growth for many years to come. Our market position remains strong with record levels of buyers and retailers using Auto Trader. As we saw last year, there has been a further increase in the number of unique vehicles advertised on our platform and high levels of engagement with those vehicles. This underpins our core proposition for buyers as we provide full choice and transparency and clearly, retailers have benefited from more vehicles moving through a similar number of advertising slots. Our annual product and pricing event in April this year went well, underpinned by the first features under our Co-Driver AI umbrella. There is significant future potential in this area as we make more AI-powered solutions available and accessible to both retailers and car buyers. We are uniquely placed to do this due to our strong brand, deep integrations with the industry, and our real time proprietary data. The first features of Co-Driver have seen strong engagement with over 10,000 retailers already using the tools. It's important to note that AI doesn't just enable us to increase the richness of the car buying experience on Auto Trader, but it does extend the opportunity across all our retailer product areas which includes advertising, data, digital retailing and now Co-Driver. We've also dramatically accelerated the adoption of Deal Builder, growing customers, stock and deals since our change in approach earlier in the year. Deal Builder will no longer be an optional add-on product available on a selection of cars, it will be the default experience for retailers and car buyers on Auto Trader. Catherine will cover this in more detail later. With a car market that will grow over the long term, our strong market position, we're comfortable that we can continue to grow through delivering meaningful improvements to the buying and retailing of cars in the U.K. Auto Trader has never been short of growth opportunities, which remains as true today as it has ever been. I wanted to thank everyone at Auto Trader and our customers, shareholders and wider stakeholders for their continued trust and support. We'll start with some of the highlights during the period. Group revenue grew 5%, operating profit grew 6% and basic EPS grew double digit at 11%. Our largest revenue area, retailer revenue, grew at 6%. This is made up of strong forecourt numbers and a 5% increase in ARPR, mostly driven by the price and product event in April 2025. AI has been a big focus for many investors recently, given its potential to significantly alter consumers' online behaviors. I'll speak to this in more detail later. However, we are confident that on any platform, we are well placed to provide the best car buying experience for users. The transaction is high value, complex and occurs over a 3-month period, not one session. The reasons car buyers choose Auto Trader come from our singular focus on the U.K., our category-defining brand, well-invested technology and the rich tools we provide both car buyers and retailers, which are all made possible by retail -- by real-time data, pardon me, at a vehicle level that only we have access to. These unique characteristics are why our market position has been not only maintained but strengthened when new platforms have emerged such as Google, iOS and Android. Now to Deal Builder. I am very proud and pleased with the progress that we've made since we changed our approach midway through the year on Deal Builder. Adoption has dramatically accelerated as we make this journey the default experience on Auto Trader. We've added 4x as many retailers this half than we did in the previous 6 months. We know from years of development and live testing that Deal Builder deepens our engagement in car buying and selling. It delivers better conversion for retailers and a more connected and empowered journey for time-poor car buyers who want to do more online when it suits them with a brand they trust. At our full year results in May, we presented this slide for the first time to better show how market dynamics not previously seen before had impacted our financial results. We have 4 charts here, which I don't intend on going through in great detail, but it is a picture of a more stable market. The key points to note are, last year, demand or visits were strong. Supply was constrained, used car prices had come down, which all resulted in an acceleration in speed of sale. This meant more unique vehicles sold through roughly the same number of slots, which doesn't benefit our business model. This year, however, demand does remain healthy. Supply is gradually coming back and used car prices have been robust, even increasing from the levels seen last year. As a result, speed of sale has not accelerated as it did last year. So the headwinds we were facing have subsided somewhat. However, we would caution too much optimism in the near term as speed of sale was still one day quicker in October. I'll briefly cover the financial results, which Jamie will cover in more detail next. Group revenue increased by 5%, with core Auto Trader revenue also increasing by 5%. Group operating profit increased by 6%. Auto Trader operating profit increased by 5% to GBP 208 million. And Autorama halved its operating losses to GBP 1.4 million. Noncash acquisition-related costs was GBP 6.5 million. Group operating profit margin increased to 63% and Auto Trader's operating profit margin remained at 70%. Basic EPS, as mentioned earlier, grew double digit at 11% and cash generated from operations was up 7%. We returned GBP 162.2 million of cash to shareholders through GBP 100.2 million in share buybacks and GBP 62 million in dividends. Finally, we are declaring an interim dividend of 3.8p per share. Now on to our operational results. The average number of cross-platform visits was up 1% to 83.3 million per month, and we continue to account for over 75% of all time spent across our main competitor set. The average number of retailer forecourts advertising with us was up 1% to 14,080. Average revenue per retailer was up 5% to GBP 2,994, mainly due to our product and pricing event implemented on the 1st of April 2025, which was underpinned by Co-Driver. Live car stock was up 2% to GBP 457,000, with this increase being due to an offer, which ran at the beginning of the 6-month period, and we delivered 3,687 new lease vehicles. Finally, the average number of full-time equivalent employees in the group decreased slightly to 1,249. In previous years, we would have covered our cultural KPIs in half year results. However, we've decided to do this now at each full year results. The KPIs and initiatives that sit behind them remain as important as they've always been. However, covering them annually better aligns with our annual employee survey. The KPIs on gender, ethnicity and GHG emissions are all included in the press release and the appendix of this presentation. As it relates to culture, it is worth noting that we have entered a new lease and are halfway through investing significant capital in a new home campus for Auto Trader, which will provide a great environment for our people to do their very best work in a space that facilitates both how we work and the other elements of our culture. I'll now hand over to Jamie to talk us through the financials in more detail. Jamie Warner: Thanks, Nathan, and good morning, everyone. I'll start by focusing on the core Auto Trader financials. Starting with revenue. Total Auto Trader revenue increased 5% to GBP 296.3 million. Trade revenue increased by 6%, with the largest component of this being retailer revenue, which also grew by 6%. Also within trade revenue, we've seen an increase in both Home Trader and other trade revenue. Consumer Services revenue decreased by 9%. Within this, private revenue generated from individual sellers was down year-on-year due to a lower number of listings compared to a strong prior year, and Motoring Services revenue was flat. Revenue from Manufacturer and Agency customers increased 13% year-on-year due to manufacturers supporting their franchise networks on both new and used car advertising. As mentioned, Retailer revenue increased 6% year-on-year. The average number of Retailer forecourts on our platform increased to 14,080, a 1% year-on-year increase and average revenue per retailer increased by 5% to GBP 2,994 per month, with more detail given on the following slide. Here, the chart on the left shows the components that contribute to the movement in ARPR compared to the prior year. As you can see, ARPR growth was driven by the price and product levers with a small headwind from stock. We delivered our annual pricing event for all customers on the 1st of April 2025, which included additional products and a like-for-like price increase, which contributed GBP 89 to ARPR growth. Product contributed GBP 64. Most of this growth was from our Co-Driver product, which is included in retailer advertising packages in April 2025. Prominence, which includes upsell to our higher-level packages, was not a contributor to the product lever in the first half. We continue to review our package staircase and have recently created an offer to incentivize customers on to higher levels, which has had good levels of uptake. This offer converts throughout the second half and will inform how we evolve these packages in H1 of next financial year with the aim of returning prominence to long-term growth. Turning now to stock. You'll see on the right-hand side of the chart that the number of live cars advertised on Auto Trader increased 2% year-on-year. Used car stock also increased by 2%, although much of this was driven by a stock offer, which we ran at the beginning of the financial year. Excluding this stock offer and private listings, which do not impact ARPR, the live stock increase was just under 1%. The stock lever was marginally lower due to a slight reduction in underutilized slots, which typically occurs when we run this type of offer. Total Auto Trader costs increased 3% to GBP 90.4 million. Salary costs increased by 6% to GBP 42 million due to higher average salaries and a small increase in the number of Auto Trader FTEs. Share-based payments increased by 1% to GBP 6.9 million. Marketing spend decreased by 21% to GBP 8.9 million due to the timing of campaigns, and we expect a greater level of marketing in the second half of the year. Other costs, which include data services, property-related costs and other overheads, increased 6% to GBP 22.9 million, primarily due to property costs for our new head office and other IT-related expenses. Depreciation and amortization increased by 31%, again, related to the cost of our new head office. As a reminder, we fully expense our technology, research and development costs, hence, our low levels of CapEx and depreciation. In addition to our investment in cloud-based and AI services, we have around 400 people in product and technology who are continuously improving our platforms and developing new products for consumers and retailers. Operating profit increased by 5% to GBP 208 million during the period, and operating profit margins remained consistent at 70%. Our share of profit generated by Dealer Auction, the group's joint venture, increased 17% to GBP 2.1 million. Having covered Auto Trader, the main part of the group, we'll briefly cover Autorama results. As a reminder, the Autorama acquisition is part of our strategy to bring attractive new car offers to car buyers on Auto Trader and to make new cars a more important part of our proposition. Autorama revenue was GBP 21.4 million, with vehicle and accessory sales contributing GBP 16.5 million and commission and ancillary revenue contributing GBP 4.9 million. Vehicle and accessory revenue relates to vehicles that flow through our balance sheet, which is not our focus for future growth. Total deliveries grew 16% to 3,687 units. As can be seen from the chart, this growth was driven by cars and importantly, more of that growth was driven by the Auto Trader platform, which saw a 6x increase in delivery volumes. Average commission and ancillary revenue per delivery decreased to GBP 1,329, reflecting the changing vehicle mix during the period. We delivered around 750 vehicles, which were temporarily taken on balance sheet, the cost of which was taken through cost of goods sold. This was a year-on-year increase driven by just over 300 extra vans, which were taken to support van volumes as they were slightly lower in the first half. Excluding the cost of goods sold, cost of GBP 6.2 million represented a 25% year-on-year reduction with all lines seeing a decrease. The Autorama segment made an operating loss of GBP 1.4 million, which is a significant reduction on last year as a result of the accelerated integration into the main Auto Trader business and platform. With group revenue up 5% and a reduced Autorama loss, we saw group operating profit increased 6% to GBP 200.1 million and group operating profit margins increased to 63%. As we grow, the strong cash generation of our business leaves us well placed to return surplus cash to shareholders. Cash generated from operations was at GBP 215.4 million. Now to briefly review net bank debt and capital policy. During the period, the group drew down GBP 15 million of its revolving credit facility and held cash and cash equivalents of GBP 20.2 million. Cash generated from operations was largely used to pay tax or return to shareholders through a combination of dividends and share buybacks. The group's long-term capital allocation policy remains unchanged, continuing to invest in the business, enabling it to grow, while returning around 1/3 of net income to shareholders in the form of dividends. Following these activities, any surplus cash will be used to continue our share buyback program and to steadily reduce gross indebtedness. That concludes the financials. I'll now hand over to Catherine to talk through progress against our strategic priorities. Catherine Faiers: Thank you, Jamie, and good morning, everyone. We have made good progress against each of our 3 strategic focus areas. These areas are closely interconnected. Our platform and our digital retailing capabilities build on the strength of our marketplace and deepen our relationships with both retailers and car buyers. Our marketplace continues to grow, and we have seen a record number of car buyers and retailers using Auto Trader. This means we are also building our unique data advantages through the growth in observations and actions that we capture. Whether it is consumer behavior and interactions or retailer actions and pricing movements, we continue to extend our data lead in this area. We have successfully executed our annual pricing and product event, which included the Co-Driver product, a set of AI-enabled features designed to drive retailer performance and efficiencies in the advertising journey. This product has seen strong engagement from retailers and the features that surface on the Auto Trader app and website have been well used by buyers. We continue to scale Deal Builder, enabling consumers to do more of the car buying journey online. At the same time, we are launching the Buying Signals product for retailers, which will provide a greater level of actionable insight to drive their performance. This year, we launched Co-Driver, a suite of transformational AI tools that utilize our unparalleled vehicle data and consumer insights to significantly improve the consumer and retailer experience. Our first Co-Driver suite is available to all retailers and includes Smart Image Management, AI-generated descriptions and vehicle highlights. As of September, over 100 retailers have used Co-Drivers to create 1 million high-performing used car and van adverts to optimize over 12 million vehicle images, and we've seen over 85 million buyer interactions with the vehicles highlights on Auto Trader. Whilst Auto Trader has been working with and delivering AI products for over 10 years, Co-Driver is the first retailer product, which has leveraged generative AI. As detailed in our FY 2025 full year results at the end of May, we decided to make Deal Builder part of our core proposition to retailers and the consumer experience for car buyers. This will enable us to increase the speed of retailer onboarding, accelerate the level of buyer adoption, materially increase the number of deals being delivered through Auto Trader and strengthen the competitive moat for our core business. As can be seen on the right-hand side chart, this decision has enabled us to scale the product faster from June onwards than in previous periods. Retailer acquisition during the period was 4x greater than the preceding 6 months, resulting in 4,000 retailers live with the product at the end of September. We also saw a significant increase in the volume of listings with Deal Builder, ending September with 128,000 adverts live. This was over 160,000 live adverts at the end of October, a 25% increase in the month. Consumer engagement has also grown considerably with 52,000 deals in the period compared to 23,000 in the previous year. The feedback on the product continues to be positive from both retailers and car buyers with deals converting twice as effectively as a regular Auto Trader lead and over half of all deals being submitted outside of traditional working hours. We are also launching a new product called Buying Signals, which leverages our unique consumer data to surface both high-intent buyers and their preferences to our retailers. Across multiple inquiry types, we have used an AI-powered buyer propensity model to apply a flag for the retailer, indicating how likely the buyer is to buy the vehicle, how local the buyer is and the type of vehicles that they are interested in. This will enable retailers to prioritize the next best action with different car buyers. The goal of this product is to drive improved conversion for retailers and to close the gap between the journey on Auto Trader and the consumer experience that the retailer forecourt, complementing the Deal Builder journey. Over time, these buy propensity models will also inform our own marketing, remarketing and optimization activities for our products and experiences. I'll now hand back to Nathan to discuss the broader AI trends we are seeing and our outlook for the remainder of the year. Nathan Coe: Thank you, Catherine. The popularity of LLMs, chat-style interfaces and agents is at the forefront of investors' minds as it relates to most businesses, and that includes marketplaces. For years now, we have used AI technology in our in-house products and platform, which informs our perspectives on this technology shift. Before we talk about Auto Trader, it is worth saying that we believe top-of-funnel research and discovery for all products, including cars, will be disrupted by these new interfaces. AI platforms reduce the need to visit multiple websites and summarize what is essentially static content very effectively. Top-of-funnel content has never been a big focus for us. And when we have experimented with it, the direct benefit to our core was unclear. For this reason, it is not a risk that concerns us as we wholly focus on the point where people want to browse and purchase real available inventory. In terms of Auto Trader then, we have 4 observations to make. Firstly, the opportunity to use AI to enhance the car buying experience and the tools we provide retailers on Auto Trader is clear and something that we have been doing for a long time now. The recent developments in AI technology, particularly LLMs, provides even greater runway for this across our advertising, data, digital retailing and Co-Driver product streams as well as our consumer experience. Secondly, brands really matter. Car buying is an incredibly complex, high-value purchase. It is almost never online only, typically involves multiple transactions, is regulated and usually takes place over 3 months, during which the selection of vehicles changes constantly. To navigate this, people use Auto Trader. Over 75% of marketplace activity happens on our site and most people come directly to us. 49% from apps, 29% from our URL or searches for Auto Trader, 18% from organic search with only 4% being paid for web traffic. This brand position doesn't just come from a trademark, it comes from the deep and rich experience we provide car buyers. It's not just about a wide selection of vehicles, it's about making sure that selection is real, available, described to a high quality, easy to navigate, comparable and not fraudulent. But this is just the listings. People need a lot more than just listings. They need a lot of high-quality real images, comprehensive and accurate descriptions, price flags, dealer ratings, valuations, checks on the vehicle, part exchange quotes, finance and so on. This is why people seek out Auto Trader, and we believe these tools will continue to be important to a car buying transaction moving forward. Thirdly, as these platforms grow, we will ensure new and existing users of Auto Trader can reach us there. We've taken this high-level approach in similar situations in the past, and it has served us well, whether it was the rise of Google when fears of disintermediation were raised, iOS or Android. In all these cases, our market position strengthened and our audience grew. This is because these platforms grow by providing the best experience to their users. For the reasons mentioned earlier, when it comes to cars in the U.K., that is what we do. There will be a myriad of technical, commercial and strategic decisions along the way, including the depth of experience and protection of our data, but these are not new decisions to us. Finally, we are confident that our deep real-time vehicle data and rich tools for car buyers and retailers will remain essential to what is a large and complex transaction. The vast majority of that data is not available on the public Internet. Agents may, over time, provide users with automated or semi-automated assistance for carrying out varying tasks on the Internet, but they too will require sources of high-quality real-time data, where they'll face similar constraints to search engines. In fact, most of these interfaces for that sort of data use the search engines we know today. For that reason, we expect that AI agents, like other client technologies, will either remain top of funnel and generalized or they'll look to provide direct integrations using standard web technologies customized for their environments. Interestingly, this is exactly what ChatGPT recently announced with their Apps SDK, and we expect others will be soon to follow. These integrations allow greater control over the experience and data that we provide such that it can bring the best of what LLMs do together with what we do best, providing another way for users to find and engage with Auto Trader. Again, there will be many decisions to make along the way, but we feel very well placed to make those. Finally, we know the landscape will evolve, and you can have confidence that we will stay abreast of these changes. We'll continue to be fully engaged in the technology and we'll maintain the ability to move both strategically and quickly when required. Now on to the outlook or not. Right, on the outlook, there is actually not a great deal to say as those of you who have read the announcement are aware, other than that the first half has pretty much played out as we expected. So our outlook for the remainder of the financial year 2026 remains the same as it was at our full year results. All that for that short sentence. Right. We'll now move to the Q&A, which Jamie will manage, and we'll take questions from analysts in the room. Jamie Warner: Yes. So we'll wait the mic and start down the front and then work our way back as usual. William Packer: It's Will Packer from BNP Paribas. Three questions, please. Firstly, thank you for the very useful comments on AI and how you're positioning yourselves. Could you help us think through investment requirements in the next 12 to 24 months. Should we interpret your comments as you're well invested and you -- the kind of formula we've seen in recent times of flattish margins or slight expansion depending on the top line is the right formula? That's question one. Secondly, could you help us think through the dynamics around the integration risks and opportunities with ChatGPT? Am I right in thinking that you have a choice in that you do have a significant inventory lead versus your nearest competitor. Some of the classifieds don't, so you'd think the hand is more forced, you can choose. And in the event that you do decide to integrate, how should we think about the split of economics versus the current status quo? My take would be you're not paying very much to Google compared to some other segments. So is there a risk that the economics deteriorate in that environment? And then finally, you've got a prominence offer. That's something which is -- we haven't heard too much about in the past. Could you think us through -- could you help us think through what that means for the upside on prominence and how that will flow through in due course? Jamie Warner: I can take the first one. So as both Nathan and Catherine mentioned, we've been investing in much of this technology for a long period of time, previous product iterations and most recently, Co-Driver. So I think there's still much work that we can do from both retailer products, consumer experiences, tools internally to help us find greater levels of efficiency and productivity. But you're absolutely right, I think we feel like because these investments have been happening for a long period of time, there's no -- certainly in that 18- to 24-month window you mentioned, no change from a guidance on margin perspective, consistent margins in the Auto Trader segment. I still think we believe at a group level with Autorama, profitability or losses improving and hopefully into profitability, the group margins can actually continue to expand. Nathan Coe: And on the second question around the integration risks and opportunities, I think that there's probably a few things that I'd say. As I said, we think that they'll go for reasonably structured integrations. The idea we've heard and seen some notes about talk of them scraping the Internet to get real-time data. We just don't think that's going to happen. I mean that technology is very, very old and nonperforming. And indeed, ChatGPT's SDK suggests that they're going to go for something more structured. What comes with that structure is a pretty great deal of control and transparency about how your data is used, what depth of experience that you provide. So you're able to manage the risks and opportunities as it turned out when we've been with Google, we've made decisions to open up our site to a certain level, but not necessarily fully. There will be those sorts of decisions. When it comes to iOS, we open up everything, but it is within a native app. So when I talked about the strategic commercial tactical decisions, they tend to sound very, very technical, but they are quite important. The SDK has not launched in Europe yet. So we haven't had a detailed look at exactly what that looks like, but we would go for something more structured, and we suspect they would as well because those platforms, and I think this is where the opportunity is, and it relates to your economics point is Google only became really, really successful because it provided and prioritized the most relevant results for users. That's going to be the true for any interface. So we think we can do that for car buying. And we think for that reason, they'll want to work with us. If they were to compromise something like that for the sake of some form of rent that they collect, that would seem to be a bit inconsistent with the pattern that has played out with these platforms. But does that mean around an app that we do, there might not be -- might be paid positions or there will clearly need to be some economics. Yes, we would expect that to be the case. But again, that is no different to Google. And by and large, most people come directly to Auto Trader. I think that is also the point that we're not getting much of our traffic at all about what, 18% plus 4% paid. So around 20% of our traffic is coming through those more generalized search engines. Most people wanting to buy a car kind of know where they need to do that. And I suspect that will still be true in the future. What we hope though is as more and more users start to use these interfaces, actually the use case for Auto Trader can appeal to people that perhaps might not have otherwise found us, that might have found the search by make and model a little bit intimidating and ChatGPT and those other kind of tools can hand off into a structured search like us, which feels like an opportunity that we don't necessarily have today. Of course, we can do it on our own site, but that is only for people that are coming to Auto Trader. Catherine Faiers: Dominance and offer. So I think we talked at the full year results about how we were doing a lot of work and imagining that in the next year or so, we would look to evolve the packaged staircase. Again, typically, we've done that every 3 to 4 years. And we're coming to a time again where we think that is the right thing to do. So you're right, we are in market with a bigger and more attractive prominence offer than we would typically have run in the past. It's had good uptake from retailers. And over the coming months, we'll be in the process of converting those retailers through to fully paid. One of the reasons for making the offer a bit bigger and more attractive is really to learn and to test the value response uplift that we're seeing and the different levels of retailer adoption, all with the view that it will inform the structure and the makeup of the packages that we look to try and then roll retailers into at some point during next financial year. Gareth Davies: Gareth Davies from Deutsche Numis. Two from me. The first with a couple of parts on Deal Builder. 2,000 onboards since, I think Catherine emphasized, June. But just kind of understanding how that's built up, should we assume it was kind of pretty straight line through that period? Or were there any sort of stumbling blocks initially that you've got through? And has that ramped into August, September? And then I think you said 25% increase in adverts in October. I mean, can we be as simple as thinking that means we're up to 5,000 by the end of October? Or is that being too simplistic? And how are you feeling sort of overall in terms of getting everyone you need on Deal Builder by the sort of March, April time line you need? So that's question one. And then the second one, you confirmed guidance for the year just in terms of the minutia. Can you talk a little bit on stock and a little bit on dealer forecourts because I think stock feels that it's sort of stubbornly at 28, 29 days. How are you feeling on that at the moment? And then dealer forecourts feels like it's running a bit stronger than I certainly expected. Catherine Faiers: Yes, sure. So on Deal Builder, we have been talking on webinars and in the trade press about being around 6,000 retailers now and about 160,000 or so live adverts. So those numbers are -- they're out there. You talked about whether the growth has been linear or not, I think we've talked before about looking, particularly for the independent retailers that work through our portal system, we've been onboarding them in waves. So it's definitely not been a linear line from June through to October. There's been waves of retailers. We've defined cohort segments that have similar attributes or similar ways of working with us and then have been onboarding them in a more scaled way than we were able to do prior to June. We're getting to the point where we are a good way through all of the independent retailers that work through our portal system. And so growth from this point onwards will be more influenced by the technology API integrations that we're putting in place with the tech partners out there in the automotive industry. So we'll continue to see, I think, a slightly inconsistent patterns of waves when we complete a tech integration with a dealer management system partner, suddenly a new cohort of retailers will become addressable, and we'll look to get those onboarded pretty quickly. So I imagine it will continue to be quite lumpy between now and March. We're hopeful that we will have made really good progress by March. I imagine, as is typically the case with the integration work that we do, I imagine we will have a tail of retailers that will need to work to get over the line beyond March, driven principally by that tech integration work, not work on our side, but work for the third parties integrating with the API that they will need to do. Jamie Warner: And on the more detailed kind of guidance for stock and forecourts, I mean I think we've been pleased the stock has improved through the half. I think at full year results, we gave the April number for the stock lever, which is sort of materially down and then obviously only marginally down for the first half. We haven't quite got into positive territory. So September was still marginally negative. And I think we are -- don't -- are probably a little bit cautious on just what the outlook looks like for these remaining 5 months or so. The fourth quarter, the first quarter of the calendar year is always slightly volatile. January is generally a very strong sales month, and it's not always easy to source stock. So I think that's why we're sort of holding that guidance at marginally down for the year. Similarly, forecourts almost sort of shown an opposite trend where obviously, the stocks got better. And if you look at the growth rates on forecourts, it is -- I think we're pleased that it was as positive as it was in the first half, but the growth rates are trending down. So we've exited the half slightly lower than the 1% growth we delivered in the first half. And again, I think in the round, holding that guidance of flat forecourts seems reasonable. Joseph Barnet-Lamb: It's Jo Barnet-Lamb from UBS. Firstly, a couple on sort of product-driven ARPR into next year. So firstly, on Deal Builder, you've obviously giving it away for free at the moment. I think you'd articulated previously, you're then going to sort of do an upsell sort of thing through next year, and that sort of, therefore, becomes a tailwind for product. So could you talk a little bit about Deal Builder into '27? You've probably got a more formulated views as to how you're going to do that. So any more color you can give us there would be great. Then secondly, on Buying Signals, which you're sort of -- is sort of being rolled out at the moment. And I think you said you're going to start commercializing that in H2. Any more color you can give us on sort of the scale of tailwind that, that's going to give product in H2 would be great? And then a final one. There's something in the release relating to a property -- Autorama property sale. Is that right? Can you give us some color on what that's about? I presume it's just getting rid of an old Autorama building, but any color you can give us there would be great. Catherine Faiers: So Deal Builder and Buying Signals and how and when we'll look to monetize both of them. You will have seen how we've positioned and talked about the product is that the 2 very much come hand in hand. So as part of Deal Builder, we are evolving, I guess, the value currency that we use to talk to retailers and evolving that to very much be anchored around the deal. And the positioning for Buying Signals is that you get all of this insight, rich insight about the buyer, their intent to purchase that vehicle, their preferences that they've been looking at and engaging with on our platform. You get all of that rich data as part of the deal. So they have become really how -- the combination of the 2 products has become how Auto Trader works for retailers. We're looking to monetize certainly the first wave of both of them because I think they're both products that have multiple iterations and life cycles for the business as part of the rate event next year. And we have -- we've been pretty open when asked by retailers in forums and webinars and have been talking about that being the case. So first wave of monetization likely to be from April next year for both combined as a package for retailers. Joseph Barnet-Lamb: And that will be as part of the pricing, but it won't be tiered. It will be a sort of bundled. Catherine Faiers: Yes, very likely to be part of the overall rate event for all with no tiering. Jamie Warner: Yes. And just to add to that, because you're asking about the second half, whether there's any second half product. The second half product I think where consensus is slightly higher is really all coming from prominence and that conversion of the offer is where that kind of product lever growth comes from. So just on the building in Hemel Hempstead, I'm delighted someone's made it to the notes in the back of the account, which might be your first questions for me. So when we acquired Autorama, they owned the building in Hemel Hempstead. You will have noticed from the accounts and the FTEs that we report that as we've kind of integrated into the main Auto Trader business and platform, the FTE numbers come down. We weren't actually -- weren't actively looking to market the building at the time. Opportunistically, someone came and said through an agent that they were looking for property space and just made sense because the building is probably bigger than we require. So we've taken a space almost next door that's smaller and fits better for us. It's just on a lease basis, and we're obviously then disposing of that asset, which I think is likely to go through in the next couple of weeks. Unknown Analyst: It's [ Kieran Darling ] from Citi. Firstly, maybe just on -- could you give us your thoughts on kind of the pros and cons of the stock-based offering you guys have at the moment? Has there been any internal debate around rather moving to an all-you-can-eat model makes a lot of sense, particularly in the context of, I guess, underlying retailers are becoming more technologically efficient and innovative and therefore, maybe that's a headwind permanently? And two, I guess, just in terms of OpenAI and a potential launch of a competitive app or I mean, could you just break down in terms of your visits, how much comes through the app versus desktop and just how much of a moat that is for you guys? And then thirdly, I guess, just in terms of speed of sale, how should we think about it going into next year in terms of comps as it gets easier, how much of a potential tailwind could that be for you guys? Jamie Warner: Yes. I'll take the first one, and Nathan can manage the second one. So I mean I think we said this at the last set of results. Obviously, the slot-based model where speed of sales has been running quicker has generated this small sort of headwind. And I think we have been doing an exercise and looking at other charging models. And obviously, we're fortunate enough to have a number of peers and everyone seems to have slightly different variations and nuances. All you can eat is always a slightly more challenging one because the nature of retailer customers is you have some customers with 4 to 5 cars and up to the biggest customer on an individual site will have 4,000. So that -- not completely insurmountable, but that makes it a little bit more complex just to run pure all you can eat. But I think we have been doing an exercise of looking at unique listings and there are many different kind of variants that you can do. And so we have been doing that work. I think at the moment, especially as the kind of speed of sale and market headwinds are not as prominent right now as they were this time last year, we still think that if you get supply easing up a little bit or speed of sale staying flat year-on-year or slightly decelerating, that should be positive with the charging model that we've got. But it's not lost on us that, you don't just want to sit there and say, well, everything will be fine, it will come back. So we are doing the piece of work. And I think it's not something that we would never consider. But I think at this point in time, especially where we are in the sort of cycle, we're reasonably comfortable with the model that we've got. Nathan Coe: Kieran, I got the second bit of your question. The first bit around OpenAI and competitors, can you just, sorry, go through that one again. Unknown Analyst: I think it's a more general point around potential competitors coming in terms of utilizing OpenAI technology. Nathan Coe: Yes. Right. No problems at all. So if I take your first question, I think OpenAI is another window to the Internet that uses kind of a highly efficient text prediction to kind of summarize answers and give people the next step that they might want to go to. And when it was Google, it's all around a page rank algorithm. What we found with Google is that their desire is to provide high conversion rates to their users to satisfy them to give them relevant. So Auto Trader tends and over time as SEO and those new releases have gone in, Auto Trader has tended to just do better and better and better. And that's not really down to our own SEO activities, although that's clearly part of it. It's because they want to get around people being able to gain those systems to just give users what's the best answer for the task. So our biggest protection, I think, is the fact that with that depth of data, our brand, people look for us, but it's not -- it isn't about the trademark, it's actually around what people know that they can get there, and it's all founded on data. So I'd say that's probably our biggest defense is we don't see a world where we really feel like we'd be threatened in terms of providing the very best car buying experience. You've got to believe that people will be willing for some degradation to never ever come to Auto Trader. I think apps have always been a really big strength to us. And I think we've always said that most of our traffic, as I laid out, about 80% of it is coming direct to us. The difference between traffic coming direct to our URL and apps is it cannot be intercepted. It is literally a direct connection. So it is about half of our visits, probably an even bigger percentage of the activity that you see when you go a bit deeper into the funnel looking at vehicles. And yes, I mean, it's an area we're always going to invest in. Some people might say we always talked about 10% of marketing being -- 10% of our audience coming from marketing. And I mentioned before, the difference is actually marketing with apps. So we do that very actively because it's a different sort of marketing. So yes, we think it is a big strength. But at the end of the day, we've just got to be the best place to buy a car, and that's hard to do in the U.K. because it requires loads and loads of data, and we've got a lot of that and other people don't. Jamie Warner: We have a question down here, Giles. Giles Thorne: It's Giles Thorne from Jefferies. First question, I guess, for Catherine, Buying Signals, was that always part of the product road map for Deal Builder? Or is it something that was introduced or accelerated when you changed your commercial approach? Secondly, coming back to this idea of the April 2026 pricing event, how transformational would you describe Deal Builder and Buying Signals is for your customers, for retailers? And thirdly, maybe back to Nathan and perhaps you're going to reference again some of your prepared materials. But as you've seen this agentic AI debate suddenly materialize in a very quick and aggressive fashion, which elements of it do you think are most misrepresented, misunderstood? I don't know, you tell me. Catherine Faiers: I take the first one. So on Deal Builder and Buying Signals, Buying Signals is built, the product was enabled because we've, for many years, been investing in building a buyer propensity model, which takes all of the sales observations data that we get from retailers, takes all of the consumer interactions and observations that we see on Auto Trader and then looks at how you connect those 2 sets of observations to know what types of behaviors or patterns do you need to see from a consumer to mean that they're very likely to convert to a sale on a retailer's forecourt. So that model and that logic has been years in the building and creating. So I think definitely Buying Signals was always a product that we had in mind that we were planning to build and launch. The timing of us testing, piloting, really, really robustly testing that model, the connection with deals anyone that submitted a deal, any buyer is clearly very likely to be pretty high intent when we talk about levels of intent. So you've immediately got a very identifiable cohort of consumers that you know are going to be very high intent. What Buying Signals does is then for consumers that might just have submitted an e-mail lead or in time buyers that we might just have seen interacting on our platform, but that haven't left any digital footprint with a retailer, we're able to predict for retailers which of their stock units are more or less likely to sell and how fast they're likely to sell. So step one is the connection to Deal Builder and delivering up, serving up a level of intent and a greater level of understanding, which we're already seeing from retailers will change like the next best action they then take with that buyer. But in the future, the evolution of this product should be to enable retailers much more actively to manage their forecourt based on all of the observed leads and deals that they would have been getting in the old world, but also every interaction that's happening on our marketplace and giving them some sense of what that really means for their forecourt. So it makes sense, I think, and the timing is right to bring it together as part of Deal Builder and to make it part of that proposition for launch. But in the future, there's lots more we can do with the buyer propensity model and that buyer signal thinking and logic to deliver more value to retailers. Nathan Coe: On the AI, I mean, we do use the technology quite a bit, but I'm going to pretend that we're right at the center of OpenAI. We do work very closely with Google and Gemini. I think as it relates to -- the first thing I would say is that when you speak to -- listen to the people that are building this technology, you tend to get quite a balanced view. I personally think and whether it's the founder of OpenAI or one of the founders of OpenAI, they do tend to give a pretty balanced view about, this is about token prediction and text prediction. There's not really a semantic understanding of the content that the models are doing, but they work very effectively because they basically say, we don't really care how you get to it. But if you can predict an output very accurately, then that's a good thing. It doesn't matter so much how you get to it. I think like 2 observations of things that I think have been a bit oversimplified is, the first I would say in relation to agentic is that there is quite a big difference between general models and what general models can do and what agents might be able to do. And those agents need to be quite specialized in order to do jobs and someone needs to do the specialization. I'll give you a really simple example. We could not use an open model to do something as simple as categorize images and write descriptions on Auto Trader. We had to augment the model, train it ourselves. And that's not even really particularly agentic. That is still a generalized model. But even that task itself, using a general model wouldn't work for it. Now do we think agents can do lots of stuff for users over time? Yes, absolutely, but they'll need to be more and more specialized. And the idea of you just being -- these general models are going to solve the whole world's problem. I don't think anyone really believes that's possible. And agentic AI itself technically is still a bit of a way to go before you see that playing out, although in some fields, it is. The second thing I would say is actually all around the real-time aspect of things. The models are trained every 6 to 9 months. Maybe that increases and they do kind of hoover up the Internet, all the information it can get to on the Internet and use that to create better and better predictions. That is very compute heavy as we can see and NVIDIA's share price suggests is true. What they don't do and don't necessarily need to solve is accessing real-time information because in order to do that, well, what they do there is they partner with search engines, ChatGPT, with Bing, Google and Claude, with -- sorry, Gemini and Claude with Google. And that's because that's a job that has been done well and replicating that, you'll run into exactly the same issues there. So for real-time data, what they do is they use their big model that's very, very intelligent to make better queries of a search engine and then bring it back and summarize it. When you come to really granular data like even listings and the data that's on Auto Trader, you probably need a level deeper than that because you can't get that through a traditional search engine. So that is why we think ending up working with one of those platforms and allowing people to access Auto Trader there is probably the way that it will go. But we can't offer any guarantees around these things. But I think it's very easy to see it as a big blob and extrapolate out. But technically, a lot of the engineers will say, well, no, that scenario is just not going to play out. And there are a few examples of it. Giles Thorne: I want to get the transformation... Catherine Faiers: Transformation, do you want to take that, Deal Builder and Buying Signals. Giles Thorne: Are you going to do bigger than normal? Nathan Coe: So it is in relation to the event. Yes, something like that. I mean, I think 1st of April pricing event, it's obviously a very live conversation internally. As Catherine explained, I think we feel like the product set of Deal Builder in itself and buying signals should particularly over a longer period of time, generate a lot of value for customers. But we still haven't quite landed at what the -- what percentage we're not going to communicate to customers until January. I mean, historically or certainly in the last 3 or 4 years, we've done 3% to 4% on price, 2% to 3% contribution to the product lever. There's nothing here that suggests would be outside of those ranges. And generally, if you say the last 3 or 4 events that we've done have been -- I think we feel like they've been good ones, then hopefully, this is another good one. Lara Simpson: It's Lara Simpson from JPMorgan. Sorry, I just wanted to come back to stock. I know it's been a big talking point. Firstly, I suppose, on the speed of sale, you said it was still 1 day faster in October. Were you surprised by that acceleration? Because it feels like a lot of the forward indicators, it should start to stabilize because we're talking about slower demand, supply coming back, but then the speed of sale keeps disappointing. So were you surprised? And then you've obviously reiterated the guidance. Interested on the stock lever guidance. What are your assumptions of speed of sale? Because I feel like in October, we should be getting to easier comps. Are you assuming that speed of sale stabilizes or slows or the status quo maintains? And then just a quick question on Autorama actually. A bit of the top line beat was actually from the vehicle and accessory sales, up 20%, I think it was. Has there been any positive surprise there? Because I thought longer term, we should be scaling down that line from a P&L perspective. So just interested on that. And if what you've seen in H1 has changed any of your strategy for Autorama, particularly in terms of the top line moving parts and then the profitability of that business? Jamie Warner: Yes. I mean I can take all of them. So look, I think stock -- I mean, if you think about the stock lever specifically. So we've guided it to be marginally down for the full year and it really is marginally down in the first half, that's implying similar in the second half. I think generally, the assumption around speed of sale is certainly what was set out at the full year is that when you hit this point, it gets to be more consistent, and a day quicker. I think in the round, it does feel more stable generally. So I think we're not expecting speed of sale to accelerate in the second half. That would probably be contrary or a downside to that guidance, yes. And I think there still is slightly -- if you look more medium term or into next year, a hope and belief that supply does start to improve as you get better flow of vehicles, better registrations coming out the back of the pandemic. I think we're just being a little bit cautious on whether we're going to see that in the second half or not. And as I mentioned, that fourth quarter is always a slightly unpredictable one. From an Autorama perspective, I think you're absolutely right that the vehicle and accessory sales is not part of the long-term strategy, and we still have a belief that over time, that will reduce or disappear. It was really a tactical decision that there were -- like I said, we took extra 300 vans that passed through the balance sheet. They didn't sit there for very long. And just because the van volumes have been slightly lower, we felt that, that was a sensible thing to do. The long-term strategy is still 100% seeing more volume delivered from the Auto Trader platform for users that are already there. And we're seeing some positive signs of that, albeit off a low base, but the Auto Trader volumes are growing or have grown pretty strongly in this first half. It is, as you'd imagine, heavily skewed towards cars over vans. And so this is -- some of what you're seeing in the first half is -- we're wearing a bit of a yield hit from that changing mix, which I think will probably play out a little bit in the second half. But if we continue to grow those volumes, we're still very optimistic in terms of hitting profitability and then hopefully seeing good growth and getting to the 20% to 30% margins that we set out when we acquired the business. It's very much part of -- there are a number of products that fit into the new car suite. It's very much part of that. Thanks, everyone, for joining us.
Operator: Good day, and welcome to Westport's Q3 2025 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 speaker, Mr. Ashley Nuell, Vice President of Investor Relations. Please go ahead. Ashley Nuell: Good morning, everyone. Welcome to Westport Fuel Systems conference call regarding its third quarter 2025 financial and operational results. This call is being held to coincide with the press release containing Westport's financial results that was issued yesterday after markets closed. On today's call, speaking on behalf of Westport will be Chief Operating -- or Chief Executive Officer and Director, Dan Sceli; and Chief Financial Officer, Elizabeth Owens. Attendance on this call is open to the public, but questions will be restricted to the analyst and an institutional investor community. You are reminded that certain statements made on this call and our responses to certain questions may constitute forward-looking statements within the meaning of U.S. and applicable Canadian securities laws. And as such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, I'll turn the call over to you, Dan. Daniel Sceli: Thank you, Ashley, and good morning, everyone. To start, I want to welcome Elizabeth Owens to her first conference call following her appointment as CFO at Westport. We are thrilled to have her at the helm. And for her first CFO conference call, I'm happy to have Elizabeth run through some financial details first, and then I'll cover some of our business and strategy updates afterwards. Over to you, Elizabeth. Elizabeth Owens: Thank you, Dan. First, I want to say thank you for welcoming me to my first conference call as CFO of Westport. It's an honor to serve shareholders in this new capacity. Now getting into the details of our Q3 results. Westport reported revenue of $1.6 million for the quarter. Our reported revenue this quarter reflects the expected decline from the $4.9 million reported in the same quarter of last year based on some changes I'll address in a moment. On an upward trend, however, it was great to see Cespira increased its revenue by 19% over the same period last year to $19.3 million in the quarter. As you know, our heavy-duty segment was utilized to capture revenue generated by a transitional service agreement, or TSA, in place to facilitate the transition of Cespira to a stand-alone organization. As intended, the TSA concluded in the second quarter of this year, and we, therefore, did not record any revenue related to it this quarter. Revenue this quarter was representative of our continuing High-Pressure Controls & Systems segment, which produced $1.6 million in comparison to $1.8 million in the same quarter last year. Our adjusted EBITDA for the quarter was negative $5.9 million as compared to the negative $0.8 million reported for the same quarter of last year. The change was primarily driven by lower gross profit related to the divestiture of the light-duty business, partially offset by lower operating expenditures. Our net loss from continuing operations included some extraneous items. The net loss from continuing operations of $10.4 million for the quarter is compared to a net loss from continuing operations of $6 million for the same quarter last year. This was primarily the result of an increase in operating expenditures in research and development and SG&A, a decrease in profit of $0.2 million compared to the prior year and a negative impact from a swing in foreign exchange impact by $3 million. Further on this topic, for the 3 months ended September 30, 2025, we recognized foreign exchange losses of $1.3 million as compared to a foreign exchange gain of $1.7 million for the 3 months ended September 30, 2024. The loss recognized in the current period primarily relates to unrealized foreign exchange losses resulting from the translation of previous U.S. dollar-denominated debt in our Canadian legal entities. Additionally, this quarter, we incurred onetime costs of approximately $1 million for severance and restructuring. Looking ahead, we expect more cost reductions on a relative basis in the near future as we adjust to become a smaller organization after the divestiture of the light-duty segment. Looking at our specific business units, High-Pressure Control Systems -- High-Pressure Controls & Systems revenue for Q3 of 2025 was $1.6 million, a slight decrease over Q3 of 2024. As Dan mentioned, we are in the process of moving these production lines in the facility in Italy that was part of the divestiture of the light-duty business to sites in Canada and China. Prior to the move, our team worked to increase inventories to ensure our customers experience minimal impact from the move. Construction at these facilities is ongoing through the fourth quarter with the majority of the capital spending to be wrapped up by the end of this year. The facilities in China as well as our Canadian site are anticipated to be producing initial product late this year. Gross profit for this business was largely unchanged, increasing slightly as a percent of revenue was driven by the higher margin with respect to engineering services revenue. Moving on to Cespira. It generated $19.3 million in Q3 2025, up 19% from the same period last year, driven by higher volumes. Gross profit was negative $1.1 million for Q3 2025 as compared to negative $0.2 million in Q3 2024. Gross profit continues to be negative as Cespira needs higher volumes to achieve a positive margin on a per unit basis for its systems sold. Regarding liquidity, as of September 30, 2025, our cash and cash equivalents totaled $33.1 million with only the EDC term loan remaining and reflects a significant increase in cash from the sale of our light-duty business. Net cash used in operating activities from continuing operations was $4.5 million, a significant improvement over $11.7 million used in operations in the same quarter last year. The improvement is primarily a result of decreases in working capital partially offset by an increase in operating losses. Proceeds from the sale of the Light-Duty business drove improvements in net cash provided by investing activities of continuing operations. We recorded $14.5 million in Q3 2025 as compared to $9.4 million in Q3 2024. Capital contributions to the Cespira joint venture of $11 million were also made in the quarter. As a reminder, in Q4 2024, we received proceeds of $9.6 million from the sale of shares to Volvo related to the formation of the Cespira joint venture and on the sale of our investment in Weichai Westport Inc. Net cash used in financing activities of continuing operations was $1 million compared to $4.4 million in Q3 2024. Our outstanding debt currently sits at $3.9 million with a maturity date of September 2026. To date, in 2025, we have reduced our debt and have strengthened our balance sheet and helped to reduce the complexity of our corporate structure. Our business is focused on the right markets for us, and we are continually looking at ways to streamline our operations. With that, I will pass the call back to Dan. Daniel Sceli: Thank you, Elizabeth. As our CFO noted, our third quarter results reflect the continued execution of the transformation we began earlier this year, anchored by our commitment to sharpen Westport's focus, strengthen our financial foundation and position the company for growth. The successful completion of the Light-Duty segment divestiture marked an important milestone in simplifying our business and concentrating on our core heavy-duty and alternative fuel systems. Operationally, our third quarter performance highlights the early benefits of our disciplined approach. While revenue declined as an expected outcome to the Light-Duty divestiture, we achieved a stronger gross margin of 31% in Q3 2025 compared to 14% in Q3 2024, driven by higher margin engineering services revenue, and we demonstrated tighter cost management year-to-date versus the prior year. As noted by Elizabeth, adjusted EBITDA results were impacted by the Light-Duty divestiture, partly offset by decreased operating expenditures, providing a more efficient and focused underlying business. We also remain disciplined in strengthening our balance sheet, ending the quarter with $33.1 million in cash and less than $4 million in debt while keeping cost efficiency and operational agility at the forefront. This solid financial position enables us to execute our strategic priorities and engage more proactively with OEM and fleet partners who are increasingly seeking affordable, low-carbon solutions. The Cespira joint venture continues to play a central role in Westport's growth strategy during the quarter. Deliveries increased year-over-year, supported by aftermarket sales growth as supply chain constraints continue to ease. This progress reinforces our belief that Cespira provides a scalable, high-impact platform to accelerate the adoption of the HPDI systems in the key markets worldwide. We continue to make progress on Westport's strategic transformation. Westport is taking the necessary steps to execute on a new focused and integrated competitive strategy. The divestiture strengthened our balance sheet and provided liquidity to begin to fund our growth through new system and related market expansions, including North America and our recently announced CNG solution when combined with the on-engine HPDI fuel system. We are in the process of evolving a new, more focused Westport that we can support and drive into more sustainable transportation industry. We recognize that we're operating within an evolving macroeconomic environment, which is enabling us to capitalize on renewed market momentum, especially as it relates to the use of natural gas as a transport fuel in the North American market. CNG has gained acceptance as an alternative to diesel fuel for long-haul trucking in North America, driven by its affordability and abundant supply. Westport's innovative and proprietary CNG solution hope to set a new standard for high-efficiency performance while delivering superior economics. As I mentioned last quarter, Westport will be focused on the following key drivers. On-engine, Cespira is pursuing strategic market expansion via technological leadership in heavy-duty transportation and truck OEMs. Off-engine, high-pressure controls and systems complement the energy transition regardless of the powertrain and a variety of financial initiatives. Westport's goal for Cespira is to deliver demonstrated volume growth over the coming year, driven by expanding into new geographies and adding new OEM customers. Cespira is seeing success here, delivering revenue growth of almost 20% in the third quarter and recently adding a second OEM customer in the form of a customer truck trial with a leading OEM utilizing Cespira's-HPDI components. The trial will include several hundred sets of key components and is designed to assess the [Technical Difficulty] is also expected to form the basis upon which the OEM will decide whether to make a further investment toward commercializing the system. Regarding our High-Pressure Controls & Systems business, we are currently developing components that are critical to performance and reliability. As a reminder, we are selling into 3 primary markets: China, Europe and North America. Following the close of the Light-Duty transaction, we have focused on moving our manufacturing to Canada and China. Both facilities are in the final stages before start of production, and we anticipate both to be online at the end of the year. The global truck market continues to expand and is expected to reach 1.95 million units in 2025. The long-haul truck market has historically struggled to decarbonize. Fleets around the world are focused beyond just reducing emissions and now prioritizing the total cost of ownership, natural gas is affordable, infrastructure is ample, and RNG production is growing at a fast pace. We are ideally positioned for this. What sets Westport apart from our competitors is our ability. We have solutions that can meet growing demand, delivering a total cost of ownership that is compelling to customers. We are optimistic about the company's future as well as that of Cespira. We have strengthened our balance sheet through the sale of our light-duty business and made a strategic return to our roots by developing innovative new technology to transform the Heavy-Duty market. In addition to new growth opportunities, we are making difficult economic decisions to enhance future shareholder value through planned reductions of 60% in CapEx and 15% in SG&A in 2026. Regardless of the unknowns or uncertainties ahead, we are paving our own path in the transportation industry that we believe will truly make a difference. Thank you to everyone who joined the call today. Your continued support is important to us. We continue to move through 2025 with purpose to create value for our shareholders. Thank you again. Operator: [Operator Instructions] And our first question will come from the line of Eric Stine with Craig Hallum. Eric Stine: Just wondering, can we start on the new OEM development with Cespira. I mean, just if you could provide a little more detail there? I know that, that OEM needs to go through a number of steps to make the decision about moving towards the development agreement and then beyond that, a commercial agreement. But what are kind of the signposts that we should look for over -- whether it's over 2026 and beyond? And how do you kind of envision this playing out as Volvo obviously wants more OEMs than just their use of HPDI? Daniel Sceli: Yes, absolutely. And I'll just remind everybody listening that in this industry, the OEMs are very, very protective of their commercial strategies. And so we are completely unable to talk about the who and any specifics and that's not going to change, unfortunately. We'd love to be able to talk about it, but that's the business we're in. This is a typical development, not unlike what we went through with Volvo originally, trialing the technology on trucks. The development programs going forward, to be more [indiscernible] we're almost 10,000 trucks in 31 countries. But it is a development cycle that will follow their standard path in the industry. And -- so we think we're going to start to get some feedback from that OEM probably mid-'25. And we'll be talking about it at that point, I hope that we're in a position to communicate that we're moving to the next phase. Eric Stine: Got it. And yes, that's what I was getting at. Is this typical, but also because you've got Volvo in the market, is it something that potentially is shorter than what you've seen in the past? And it sounds like, yes. Okay. Maybe sticking with the joint venture, any -- I mean, any thoughts on additional OEMs? And again, I know that the nature of this business is you can't give details, names, et cetera, but just maybe what that pipeline looks like. And I also know that Volvo is looking at growth with their HPDI truck in other markets? I think you mentioned India, South America last quarter. So maybe an update on that as well. Daniel Sceli: Sure. Well, we continue we continue to talk to all the OEMs about HPDI through Cespira. And clearly, volume is the key to getting this business to the place where we all want it to be. We've got the interest of many OEMs. I think we're at a point where we don't have to prove the technology anymore. And simply, when does the timing fit for the OEM in terms of their specific markets and their business cases. So the technology is proven, the performance is proven and Volvo continues to expand its reach where they want these trucks. I did mention India and South America. Those are beachheads that are being opened up. And we expect continued volume increases, at least that's what we're hoping for. One of the big tickets will be in Europe, the legislative changes to the system. And biogas being credited for the emissions standards in Europe is a really big deal that we're hoping will come in the next year. Operator: One moment for our next question. And that will come from the line of Rob Brown with Lake Street Capital Markets. Robert Brown: On the Cespira joint venture, you made a capital contribution in the quarter. Does that sort of set you for a while? Or what's the capital needs over the next sort of 12 months there? Daniel Sceli: Yes. So I think we've talked about this a number of times over the last at least 18 months here. There was -- there's always been a 3-year build-out setting this business up to be completely stand-alone. So the joint venture was always structured to have about a 3-year build-in of capital contributions to get it set to stand-alone. And obviously, we're in year 2 of that now. So yes, there's additional capital will be needed next year. Robert Brown: Okay. I guess -- and then on the High-Pressure Controls business, when do you expect to have that fully -- the manufacturing fully moved out of Italy and under your operations? Daniel Sceli: Sure. Well, it's all out of Italy now completely. We're in the process now of installing the equipment in both our Cambridge site and our Chinese plant site [Changzhou] and expect to have both those facilities up and running by year-end. . Robert Brown: Okay. Great. And will you have a, I guess, lower revenue run rate during that period? Or do you have a stock that can carry through? Daniel Sceli: No, it will be a bit lower revenue. And I mean there is some stock, but there's -- it will be a bit lower revenue. And then I mean the underlying theme here is that we want further -- the Chinese market is the biggest market for hydrogen components today. And it was very important for us to manufacture it locally for a couple of reasons. One, geopolitically, it's just a lot easier to make it there and for that market than it is to ship it in from Europe. Two, cost, right? We can be a lot more competitive out of a Chinese plant. And then of course, the North American market is starting to turn on natural gases, as we've talked about. It's a pendulum swing that we're very excited about. And we want to be in a position to take advantage of that market from a Canadian site. Operator: Our next question will come from the line of Chris Dendrinos with RBC Capital Markets. Christopher Dendrinos: I wanted to ask on the CNG solution announcement here. I think it was last week at this point. What's the timing look like for potential deployment there? And does your partners, Cespira, need to, I guess, move trucks over to the United States? Or I guess, how does that sort of, I guess, time line look for potential development? Daniel Sceli: Yes, sure. The intention isn't for trucks to come from Europe to North America at all. We're developing a CNG solution that is what we call the off-engine side of the thing. The on-engine, the Cespira's HPDI on-engine stuff is fully developed and ready to go. And so what this CNG strategy in North America will do for Cespira is bring additional volume. What it does for Westport, the -- what we call the back of cab system, the storage system for CNG combined with our high-pressure controls and our AFS engine control system is -- it's a full package that can be deployed into North America. The initial steps are going to be demonstration fleets. We're going to have trucks built with the CNG systems that fleets are going to run and trial. And certainly, our anticipation is that they'll be screaming for commercialization. Once we're through the demonstrations and have it proven out, we'll be working with the OEM to build out a commercialization plan. Again, the on-engine side is fully developed with HPDI. It's just a matter now of certifying a back of cap and doing the EPA certification, which is just simply miles on trucks. Christopher Dendrinos: Got it. And then maybe just shifting gears a little bit to the engineering revenue that you all recognized in the quarter. I mean, is that sort of an ongoing, I guess, revenue stream? Or was this sort of a onetime, I guess, recognition this quarter? Daniel Sceli: Well, yes. So in our High-Pressure Controls business, we are paid for a lot of development work for the hydrogen systems from our OEM customers. And so that's an ongoing thing. And we'll be spending R&D money over the next 3 years and the customer pays for it at start of production. So we have a bit of a run here of cash out for R&D before we get the customers' payment to cover it. But it's an ongoing part of this business. These are very complex components that the customers, the OEMs look to us to develop the technology for them. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Dan Sceli for any closing remarks. Daniel Sceli: Thank you. Well, it's a pleasure always to share our story with our investors and the market. Thank you for your participation, and have a great day. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Peter Hoetzinger: Good morning, everyone, and thank you for joining our earnings call. We would like to remind everyone that we will be discussing forward-looking information under the safe harbor provisions of the U.S. federal securities laws. The company undertakes no obligation to update or revise the forward-looking statements, and actual results may differ from those projected. Throughout our call, we will refer to several non-GAAP financial measures, including, but not limited to, adjusted EBITDA. Reconciliations of our non-GAAP measures to the appropriate GAAP measures can be found in our news releases and SEC filings available in the Investors section of our website at cmty.com. With me today are my co-CEO, Erwin Haitzmann; and our Chief Financial Officer, Margaret Stapleton. After our prepared remarks, we'll open the call for questions from analysts. We announced solid third quarter results yesterday afternoon. Net operating revenue was $154 million, driven by strength in the East and Midwest regions as well as in Canada, offset by weakness in the West region and in Poland. The quarter started out really well. EBITDAR in July was up 7%. August was even better with EBITDAR up 22%, but September saw a sharp year-over-year decline due to the following onetime effects. In September of last year, Colorado received a $1 million breakup fee from Tipico. Also in September of last year, Mountaineer had a bonus accrual for $0.5 million reversed. In this September, Poland had extra costs but no revenue from a closed casino. As such, you can attribute the EBITDAR decline in Q3 all to Poland and the onetime effects in September I just mentioned. Adjusting for those, Q3 EBITDAR would have increased by about 5%, beating consensus estimates and demonstrating the continued operating momentum across various segments of our business. Not bad at all, definitely better than it looks at first sight. During the third quarter, play from our high value and core customers continued its long-term growth trend, but we did not see further improvements from our low-end customers. The upper customer segments continued to perform well, showing 8% growth, helping to offset a 9% decline in the lower-end segments. Therefore, total rated GGR was essentially flat. Retail play increased by 4%, resulting in a 2% GGR increase across the U.S. portfolio. Visitation statistics show a similar picture, visits by high value and core customers increased 4%, while visits from low segment players declined. Before I hand it over to Irwin, let me come back to Poland for a second. From now on, no license expirations are coming up for at least 3 years. So Poland should be at its normalized EBITDAR run rate for many quarters to come. In any case, however, we remain committed to divesting our Poland operations and we'll provide updates on the divestment process in the coming months as appropriate. Now over to Erwin for more color on our individual properties and markets. Erwin Haitzmann: Thank you, Peter, and good morning, everyone. Let me start with our results for the third quarter beginning in Missouri. Our Century Casino and Hotel Caruthersville, which just celebrated its first anniversary, continues to exceed expectations. Gaming revenue grew strongly across all segments. High Value up 82%, core, up 29% and retail up 22%. In total, gaming revenue was 29% higher than last year, and EBITDA increased 35% to $6.1 million, up from $4.5 million. Rent expense rose about $1.1 million, reflecting the VICI lease that funded the new property and operating margins remain high. It is worth noting that with our new land-based facilities, we're now reaching new markets. This is particularly evident in the significant increase in customers leaving 75-plus miles from Colorado Springs. Colorado Springs has been an outstanding success, modern, efficient and exceptionally well received by our guests. Our thanks to the entire team for a fantastic first year. Now to Century Casino and Hotel Cape Girardeau. Cape delivered $6.1 million in EBITDA, only slightly below last year's record quarter. The property continues to perform very well against competition from Illinois. Sports betting launches in Missouri on December 1. And in partnership with BetMGM, we will open a BetMGM branded sportsbook-owned property and BetMGM will launch its online sportsbook using our skin. We expect sports betting to elevate Cape's profile and create new revenue streams for the property. Now moving to Colorado. At Cripple Creek, EBITDA was $1.8 million, flat year-over-year. In the quarter, our high-value and core segments grew while pace in retail declined. Retail play now represents about 30% of total gaming revenue. We believe that Chamonix may capture a larger share of the retail market still driven by the novelty effect. At Central City, rated play was up 6%, but total revenue was down 4%, again, due to fewer retail players. EBITDAR came in at $1.2 million, up 20% on a comparable basis as last year's EBITDA of $2 million included a $1 million onetime payment from Tipico. At both Colorado properties, we have replaced live table games with electronic table lounges, which generate about the same revenue at significantly lower cost. That's a solid win for both operations. Now to the East. At Mountaineer in West Virginia, EBITDAR was $4.4 million, flat to last year. Apples-to-apples, though, EBITDAR was up $0.5 million as last year's EBITDAR was inflated by the reversal of a $0.5 million bonus accrual. Performance across the board was steady and parimutuel handle rose 26%, driven by improved scheduling and race mix. At Rocky Gap in Maryland, EBITDAR increased 7% to $4.9 million as we expected our first clean quarter without weather disruptions since the beginning of the year. Growth came from high-value players, while other segments held steady. Now to the West and the Nugget Casino Resort in Reno Sparks. While the Nugget had a standout August, mainly due to our signature Best in the West Nugget Rip Cookoff, overall, the quarter was still challenging. We experienced a record EBITDAR for August of $4.1 million, the highest single month result in nearly 3 years, but that was offset by a weaker July and September. Throughout the quarter, we enhanced marketing programs to grow both local and destination play. We are also building out our 2026 concert season. Tickets for Brooks and Dan in April are already selling extremely well. We began converting unused space into an additional 11,000 square feet of convention space, a 10% increase in square footage to be completed by year-end. The additional space will first be used by a major group event that is booked for January 2026. At the Nugget, we're executing on a clear repositioning strategy, shifting away from low ADP players who are no longer profitable and focusing on core players in Reno Sparks and Northern California. In sync with the enhanced marketing to play in the core segment, we are working on further improving the F&B offerings. It takes time, but we are seeing -- we are starting to see the results already. Now to Canada and Europe. In Alberta, slot coining was up 5.8%, total revenue up 1.6% and EBITDA up 11.1% to $5.4 million. Growth was broad-based, supported by disciplined cost management. Century Downs in St. Albert led the way with St. Albert benefiting from this year's upgrade of the facade. In Poland, we're nearing the end of a challenging period marked by license delays and relocations. The main headwind this quarter was the closure of our Wrocław Hilton Casino, which contributed an EBITDA of $1.3 million last year versus a negative $0.5 million this quarter. Our relocated Wrocław Casino is ramping up well and the second Wrocław location will open in January 2026, further strengthening our position there. All current licenses, as said before, are valid through 2028, so we expect stable operations going forward. With that, back to you, Peter. Peter Hoetzinger: Thank you. And before we cover a few balance sheet and capital items, let me explain what led to the filing delay of a couple of days. As described in the 8-K we filed with the SEC yesterday, we discovered an error during impairment testing for goodwill and ROCE GAAP that required us to restate our 2024 10-K and the 10-Qs for the first 2 quarters of this year. The correction of the error will reduce our goodwill balance with an offsetting increase in net loss less the tax impact. The estimated impacts are described in the 8-K. This does not change our revenue or adjusted EBITDA for any of the periods being restated. We are finalizing our review of the amended financial statements and anticipate filing these with the SEC within the next 5 business days. All right. Now back to the balance sheet. Our cash and cash equivalents at the end of the quarter were $78 million compared to $85 million at the end of Q2. That includes $5 million we spent in CapEx and $1.5 million we spent on the share buyback program. We also paid the annual table games license fee of $2.5 million in West Virginia as well as about $1 million in closing costs in Poland. So all in, we were about flat in cash from operations. Total principal amount of debt outstanding was $339 million, resulting in net debt of $261 million. At the end of the quarter, our net debt-to-EBITDA ratio was 6.9x. On a lease-adjusted basis, the ratio was 7.6x. Let me also note here that we have no debt maturities until 2029. And there is no need for significant CapEx this year or next. This year, we'll spend a total of $18 million, of which we have spent $15 million already. As we look ahead, we are very confident in our business prospects. Last year was a transitory period for us, but now we see a clear path forward to higher EBITDAR and cash flow for 2026 and beyond. Now it's all about harvesting what we have invested last year. When you sort through the noise I mentioned at the beginning of the call, we are encouraged by the trends in our business. While we recognize the level of economic uncertainty, we are more confident in the long-term prospects of our company than we were at any point last year. While the fourth quarter has just started, it's worth noting that the positive customer trends have continued into October, including improved play from both core and retail customers. Preliminary results for October show EBITDAR up well over 20% compared to last year. And as we head into next year's tax season, we believe that our core customers around the country will benefit from the tax bill passed by Congress this summer, including new deductions for tips and overtime and an additional deduction for seniors as well as larger standard deduction for all taxpayers. As you know, we are in the midst of a comprehensive strategic review process. At this stage, no decisions have been made, and there can be no assurance that the review will result in any transactions or particular change. We do not intend to make further public comments on the process unless and until the company's Board of Directors approves a specific course of action, which we do not expect before Q1 of next year. With that, I ask for your understanding that we will not take questions on this topic in our Q&A session as we cannot share any incremental information at this time. All right. That concludes our prepared remarks. We'll now open the call for Q&A with the analysts. Operator, go ahead, please.[ id="-1" name="Operator" /> [Operator Instructions] And our first question will come from Jeff Stantial with Stifel. Daryl Young: This is Don Young on for Jeff Stantial. Maybe starting off on the strong results in your Canada portfolio. Can you sort of expand a bit on what's driving that broad-based growth? And as you continue to evaluate the broader portfolio, do you view these as more noncore with the increasing U.S. exposure? Or do you see real synergies with the broader portfolio? Erwin Haitzmann: Thank you. I think I'll take that question. Starting the other way around. With regard to your second question, we see a little bit of synergy, but it's more incremental. So it is probably to be seen as a stand-alone conglomerate of operations the Canadian properties that we have. Concerning the drivers, we have -- the one visible driver is that St. Albert, where we redid the facade outside completely, and that had a really good impact. And the rest of it is just, I think, very motivated management that's really continuing to sharpen the pencil, looks on the cost side, looks on the revenue side. And we have recently been up there. We have a very motivated crew that is really eager to perform well. It's good to see. And I think we have some more upside also given the macroeconomic situation in Canada, which seems quite far less impacted or has been impacted than in the United States. Daryl Young: Great. That's helpful. Turning to the Nugget. Can you give us an idea of how you're thinking about timing for the group and convention business to normalize? And to sort of put some numbers around it, how many more room nights can this add? And then on some of the new entertainment programming, can you help us think about how you're underwriting that uplift and how confident you are that this will attract those visits and corresponding gaming revenues that you're underwriting? And then that's all from us. Erwin Haitzmann: Okay. So you're asking about the timing of the improvements as we see it, the impact it will have on room nights and the impact and the progress of the consult, correct? Daryl Young: Yes. Erwin Haitzmann: Yes. Okay. With regard to the timing, it's hard to say. But as I mentioned earlier and Peter mentioned as well, we already see in October that a number of the things that we've been fine-tuning on the marketing side is starting to take effect. And we are confident that we should see the full impact of what we are continuing to refine -- I mean already now, but certainly going into 2026 as well. And we're looking on the one hand, on the revenue side of the casino -- but combined, but also independent from that, we are also focusing on the retail side of the hotel business as a separate exercise because there continue to be -- there's a market segment that comes to the Nugget just to stay in the hotel, and they may not -- may or may not be gambling at all. It's not necessarily connected. And in that same context, also, as mentioned earlier, we have decided that we continue to focus more intensely on the F&B side, possibly expand the offer, but certainly also continue to work on upgrading at least 1 or 2 of our outlets. It's hard to quantify with regard to room nights, but it's -- let's put it like that. We have 3 segments for the hotel. The one is the casino side, which is mainly comped and that is intertwined with what we do with our overall comping program and how much we give back to our customers. The second one is the convention and group business. And we said earlier that smaller groups, we can do short term, but the larger groups have quite a long lead time. We're now talking about as far as 2030, 2031 with some of the larger groups. As it looks now, we think that the group business in 2026 will be either the same or better than in 2025. And the third one is the retail business, which we market also separately, and we have seen an increase in the retail segment already in '25, and we believe that more can be done in 2026. Concerning the concerts, we have learned that to give you numbers last year in 2024, the concert stand-alone made a profit of around $850,000. This year, the concerts are making a loss of about $300,000. So the reason for that is twofold. First of all, we just couldn't book what we wanted to book. It's not so easy. It depends when you target an act. It depends on what their route is and whether they are in that part of the United States, whether you can book them at the price that one would be willing to pay. But oftentimes, it's not even a price question, they are just not there. And obviously, I'm not willing to travel east-west without intelligent planning. So we've not been very successful and lucky in that respect. The second thing is that -- so that led to the result that we couldn't get as many country acts as we wanted to. In 2026, we think that will be better. And the second thing that we have learned is that we thought in order to reduce the risk of the -- which is quite high in the concerts when you cannot sell the tickets, we rather book acts that cost a little bit less than, for example, Stew so. And that probably was not a good decision. So we are now turning back into trying to book maybe fewer acts, but very good acts like books and done. So with that, we think we can fix the concert side. And we see that -- our goal is that the concepts stand on their own. But from at least half of the concepts, we see a very positive overflow into the hotel, casino and F&B business. [ id="-1" name="Operator" /> Our next question today will come from Jordan Bender with Citizens. Jordan Bender: You're seeing -- it sounds like you're seeing some pretty good success from the ETGs that you put in Colorado. Do you think this strategy -- if a strategy you would look to implement across any of your other U.S. assets, just given the cost side helps margins at the end of the day? Erwin Haitzmann: Yes. However, not necessarily by replacing -- completely replacing table games with ETGs. So we do have ETGs in other casinos are parallel to those. We still keep the nice game. But in Colorado, it was just a question of the -- it was just so obvious that it's smaller operations, it wasn't worth keeping the few tables. But in the larger casinos, we do have ETGs on the one hand and table games on the other hand. And as we see it now, we'll keep that also. Jordan Bender: Great. And on the follow-up, I think you mentioned you bought shares back in the quarter. I'm just curious where your balance sheet sits today, where the cash balance sits, how do you kind of think about buying back shares here versus continuing to pay down debt as we head into '26? Erwin Haitzmann: Absolutely. Peggy, why don't you take that question, please? Margaret Stapleton: We're currently analyzing the stock buyback versus paying back debt and have not made any real decisions on how to proceed into 2026. [ id="-1" name="Operator" /> We'll take our next question from Ryan Sigdahl with Craig-Hallum Group. Ryan Sigdahl: 20% or greater than that EBITDAR growth in October, improved play from the core and retail players, if I caught that right in the prepared remarks. Can you elaborate, I guess, on specifically, is that pretty broad-based across the portfolio? And then as you look to November and December, are there any weird comps or anything to be aware of on the plans for this year where that's not a good assumption to kind of continue throughout the rest of the quarter? Erwin Haitzmann: We don't see anything that -- anything unusual that would impact the one or the other way the fourth quarter. But with regard to the customer trends that Peter mentioned that led to the 20% plus in October, we just hope that the consumer sentiment continues to improve because that has impacted us negatively in the lower end of the database in anybody's guess, but I think there is at least a hope that the consumer sentiment will improve during the next, hopefully, remaining 2 months of this year. Peter, would you like to add to that? Peter Hoetzinger: Yes. I think the one and only difference we'll see is that last year, in the first week of November, we did open the Caruthersville land-based -- the new land-based facility. So in the year-over-year comparison, that one property from the first week of November on will probably not have the same growth rates that we have seen over the last 12 months. But with all other properties, also I don't see any abnormalities. Ryan Sigdahl: Great. Then just on the Nugget, July, September were weaker. Curious, I guess, think going back year 2, it was the convention business was building. It was going to really be inflecting kind of middle to late this year into '26. I guess, is there a reason did you have any cancellations? Or curious, I guess, the weakness in July and September as my view, I guess, could have been partially incorrect, but was that the convention business was going to really start to ramp up here? Erwin Haitzmann: Yes. The weakness in September mainly came from the fact that we -- as I mentioned earlier also that in '24, we had 2 powerful, very good concepts. One of them was Chase and Eldion and in September, we didn't have any. Then also in September, we had what is called a bingo blow a large bingo event in September, which now -- which we didn't have this September. And with regard to the conference business, there was also less conference business in July and September of '25 as compared to '24. But that was -- that couldn't be changed in the short term. [ id="-1" name="Operator" /> And we'll move next to Chad Beynon with Macquarie Group. Chad Beynon: I wanted to ask about Caruthersville. You touched on the growth that you continue to see in the operating leverage of that property. Are you still on track to hit the returns that you originally laid out on the construction CapEx? And then secondarily, where do you expect most of the growth to come from? Will it be that further out customer in the neighboring states? Or are there still opportunities in the closer in catchment area? Erwin Haitzmann: Yes, we -- first question, yes, we are on track with regard to what we expected. And secondly, we think that growth will come both from the geographically closer and further away group of people with more potential in the 75-plus miles. We think that we can reach out even more into that segment than we did so far. So more growth from the more distant areas, but still growth from the closer areas as well. Chad Beynon: Okay. Great. And then going back to the weakness that you saw in the retail customer, which it appears based on the 20% growth in October, that's abated. Do you know why this -- is there any evidence in terms of that this will remain stable? Anything else to point to in terms of why it fell off during the period? Was it -- could it have been weather-related, comparable related, local CPI or unemployment? Just any evidence that will give us confidence that retail could improve here in Q4 and beyond? Erwin Haitzmann: Yes, it's hard to say, but we believe that it has to do with the insecurity around tariffs and the impacts that tariffs may possibly have to the consumers. And that is a worry that typically is more prevalent in the lower end of the database. And we see that also in places like Rocky Gap, for example, where the household income of the catchment area is significantly lower than in other markets that we are active in, that certainly has a strong effect. I'm not as good as others to speculate about the increasing consumer sentiment going forward. But if we had to say something, we would think it looks -- there is a friendly outlook, but you probably could make a better judgment on that. Chad Beynon: Okay. Great. And are there initiatives or cost improvements that you could make if this customer remains volatile? Erwin Haitzmann: There's always a possibility to look for more and tighten the be further. But I think if it's not -- I don't think that it will get any worse than it was in the worst month of this year. And we've maneuvered through them well. And I think if necessary, we could do that again. There is always, as I said, if you keep looking and then there's always a way to save more. The danger always is that you don't go too far in what you are doing. [ id="-1" name="Operator" /> Our next question comes from Connor Parks with CBRE. Connor Parks: Maybe another capital allocation one, maybe separate from the debt paydown versus share repo discussion. Just in the context of the cash on the balance sheet and some of the EBITDAR growth you've seen this year with all the CapEx rolling off to Missouri. I guess, how are you weighing the reinvestment plan at this point? Is there anything maybe outside of nugget you mentioned that you would like to build or reinvest in or any low-hanging fruit type projects in Missouri again that you're weighing at this point in time? Erwin Haitzmann: Yes. Let me start out and then hand over to Peter and Peggy. We will -- we're thinking about doing a little bit of facade upgrade also in the Canadian -- 2 of the Canadian properties. That is not a large CapEx item, but there is some CapEx. And as I said earlier in St. Albert, it was very beneficial for the revenues and for the business there. We may spend a little bit of money in connection with food and beverage at the Nugget. And that would be probably it apart from the routine upkeep and then investment into mainly slot products of our properties. Peter, can I hand over to you? Maybe you would continue want to expand on that some more. Peter Hoetzinger: Yes, sure. Connor. We don't expect any significant or large moves, not on the stock buyback front and also not on the paydown of the debt currently because, as you know, we are in the midst of the strategic review process. And it will depend on the outcome of that. We could sell something, then we would have significant amounts of money to pay down the debt. We could do some other transaction that is still up in the air. So until we have concluded that process, you won't -- you will not see any significant stock buybacks or pay down of debt. Connor Parks: Great. And then maybe as my follow-up, you've mentioned in this quarter and in prior quarters, the expected uplift potential in regional gaming around the benefits from the upcoming tax season. I guess have you provided any barriers or try to quantify any of these benefits around customer bases, spending habits or anything of that matter for any of the areas of which you operate in? Erwin Haitzmann: I wouldn't have to make a guess here. It's hard to say. Peter back over to you, do you think you could quantify? Peter Hoetzinger: No, not really see it. As Erwin said before, mostly the low ADT players, the lower segments of our database are impacted by that. And depending on which property, it's about maybe 15% to 20%, 25% of our customers are in that lower segment. But in general, we are making steps to move away from that and to move towards mid-tier and upper tier customers in our marketing approach and in everything we are doing. So that should lessen that impact. But I agree, we don't want to quantify that not enough hard facts that we have [ ever ]. [ id="-1" name="Operator" /> And that is all the time we have. If we did not get to your question, please reach out to the company using the Investor Relations page at cnty.com. I will now turn the call back to Mr. Hoetzinger for closing remarks. Peter Hoetzinger: Yes. Thanks, operator, and thanks, everybody. We appreciate you joining our call today. I will talk again when we present the 2025 full year results. Until then, thank you, and goodbye. [ id="-1" name="Operator" /> This does conclude today's conference. Thank you for attending.
Operator: Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to the QuickLogic Corporation's Third Quarter Fiscal 2025 Earnings Results Conference Call. As a reminder, today's call is being recorded for replay purposes through November 18, 2025. I would now like to turn the conference over to Miss Alison Ziegler of Darrow Associates. Miss Ziegler, please go ahead. Alison Ziegler: Thank you, Bon, and thanks to all of you for joining us. Our speakers today are Brian Faith, President and Chief Executive Officer, and Elias Nader, Senior Vice President and Chief Financial Officer. As a reminder, some of the comments QuickLogic makes today are forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future profitability and cash flows, expectations regarding our future business, and statements regarding the timing, milestones, and payments related to our government contracts, statements regarding the use of the company's ATM program, and statements about our ability to successfully exit Central. Actual results may differ due to a variety of factors, including delays in the market acceptance of the company's new products, the ability to convert design opportunities into customer revenue, our ability to replace revenue from end-of-life products, the level and timing of customer design activity, the market acceptance of our customers' products, the risk that new orders may not result in future revenue, our ability to introduce and produce new products based on advanced wafer technology on a timely basis, our ability to adequately market the low power, competitive pricing, and short time to market of our new products, intense competition from competitors, our ability to hire and retain qualified personnel, changes in demand or supply, general economic conditions, political events, international trade disputes, natural disasters, and other business interruptions that could disrupt supply delivery of or demand for the company's products, and changes in tax rates and exposure to additional tax liabilities. For more detailed discussions of the risks, uncertainties, and assumptions that could result in those differences, please refer to the risk factors discussed in QuickLogic's most recently filed periodic reports with the SEC. QuickLogic assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates of any new information or future events. In today's call, we will be reporting non-GAAP financial measures. You may refer to the earnings release we issued today for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements. We've also posted an updated financial table on our IR webpage that provides current and historical non-GAAP data. Please note QuickLogic uses its website, corporate Twitter account, Facebook page, and LinkedIn page as channels of distribution of information about its business. Such information may be deemed material information, and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. A copy of the prepared remarks made on today's call will be posted on QuickLogic's IR webpage shortly after the conclusion of today's earnings call. I would now like to turn the call over to Brian. Go ahead, Brian. Brian Faith: Thank you, Alison. Good afternoon, everyone, and thank you all for joining our third quarter 2025 conference call. We have made very significant progress since our August conference call. Last quarter, I stated that we focused considerable engineering to accelerate storefront design wins for our strategic RadHard FPGA and expand our served available market to very high-density eFPGA hard IP designs targeting advanced fabrication nodes. I'm proud to say our engineering team has executed beautifully, and we are realizing these goals. We expect to begin recognizing storefront revenue in early 2026, and that it will provide a meaningful contribution to total 2026 revenue. The interest from large defense industrial base entities or DIBs in the SRH test chip we funded is notably higher than I anticipated. We have significantly expanded our ability to address the lucrative markets for very high-density, discrete FPGAs and ASICs that require large blocks of eFPGA. New contracts and engagements are for much larger blocks of eFPGA and on advanced fabrication processes. The value contribution of eFPGA in customer designs has grown substantially. Our penetration in commercial market sectors is expanding, and with this progress, the rate of new contract closure is accelerating to the point that license revenue may surpass NRE revenue for the first time this quarter. We believe these trends will accelerate going forward. Before I get into the tangible data that support these points, I want to take a moment and provide some color for the revenue guidance Elias will share in his presentation. Based on our backlog and forecast provided to us by our customers, we are targeting total revenue of $6,000,000 for Q4. The majority of the contracts that support this outlook are already on the books or have been forecasted by customers to be awarded during the coming weeks. However, a contract valued at nearly $3,000,000 for a commercial application targeting an advanced fabrication node has been forecasted by the customer to be awarded late in the quarter. If this contract is awarded on or very near the date forecasted, we will be able to recognize a large portion of that revenue in Q4, and with that, realize our $6,000,000 objective. We have a very high level of confidence in winning this contract, but note that it could push into Q1 2026, and that would result in lower Q4 2025 total revenue. Due to this, Elias will present an unusually wide guidance range. And now let's walk through our accomplishments. In early August, we delivered design files to GlobalFoundries to fabricate our SRH FPGA test chip using its 12 LP process. This test chip was designed to meet the requirements of certain large DIBs that have programs in development today that are good candidates for this device. We expect delivery of test chips in early Q1 2026 and believe we will have our SRH dev kit ready for shipment to customers shortly thereafter. This initiative was financed by QuickLogic and is independent from our contract with the US government. Our decision to invest the money and resources to develop this test chip was based on our belief that it is critical in our quest to secure strategic design wins and accelerate our storefront business model. Since our last earnings conference call, I have personally met with a number of the DIBs that worked with us through the development process, and I cannot emphasize enough the potential of our SRH storefront initiative. In prior meetings, all I had to show were PowerPoint presentations, and now with a test chip in fabrication, the level of enthusiasm is palpably higher. As a matter of fact, we already have commitments for SRH dev kit orders that we expect to receive by the end of this month. I see this as our first tangible step towards the hundreds of millions of dollars in potential storefront business we can win in the coming years. The importance of demonstrating our SRH FPGA test chip goes well beyond the storefront designs we believe it will enable us to secure. FPGA is the number one spend category for semiconductor devices by the defense industrial base, and custom ASICs are a close second. Together, we believe these two categories make up roughly half of the DIB semiconductor TAM. We expect many of the new strategic designs that require various levels of radiation hardness will use either discrete FPGA devices that we can storefront or eFPGA hard IP we can license in new ASIC designs. By delivering a discrete SRH FPGA test chip fabricated on 12OP process, we are demonstrating the broader capability of our eFPGA hard IP for ASIC applications that will meet program requirements ranging from radiation tolerant to strategic RadHard. There are three very important points I want to highlight here. First, DIBs are already using GlobalFoundry's 12 o fabrication process for radiation tolerant and SRH ASICs. Second, government contracts require the use of onshore fabrication for strategic programs when devices are available. As it stands today, we will be the only source for strategic RadHard FPGAs and SRH eFPGA hard IP that is fabricated in the US by a US company. Third, in my meetings at large DIBs, engineering managers have clearly stated that being able to design with our Aurora FPGA user tools for both our SRH discrete FPGAs and our eFPGA hard IP and ASIC designs is a huge plus. During our last conference call, I stated that Q3 would mark the low point for revenue recognition for our US Government SRH FPGA contract this year. Funded by the current tranche, revenue recognition from the contract will rebound significantly in Q4. Beyond that, we anticipate an increase in quarterly revenue recognition in 2026 that will be funded by the next tranche. During our last conference call, I forecasted the award of a mid 7-figure contract from a DIB during Q4 that targets Intel 18A. Unfortunately, there has been a delay in funding that pushes this contract into 2026. We are highly confident that we'll be awarded this contract, but at this juncture, our customer has limited visibility on the timing of funding. While we await funding for this 7-figure deal, it is worth noting that we have already been awarded multiple contracts by this strategic customer during 2025. We delivered customer-specific eFPGA hard IP for this customer's first Intel ATNA test shipped last April. We expect to receive our allocation of test ships from this contract during Q1 2026 for our internal verification and characterization. We were subsequently awarded a mid 6-figure contract for a second Intel ATNA test chip. We delivered customer-specific eFPGA hard IP for this test chip during Q3. In addition to these Intel ATNA test chip contracts, during our last conference call, I announced this customer awarded us a contract for a $1,000,000 feasibility study that we are scheduled to deliver next week. We are anticipating a follow-on order in the coming weeks associated with this feasibility study that will enable the customer to tape out a very high-density Intel ATNA proof of concept device during the second half of 2026. The architectural changes we implemented in this feasibility study can be leveraged across all advanced fabrication nodes, which we define as 12 nanometers and below. With these changes, we can now address the lucrative markets that require very high-density eFPGA blocks in ASIC design and very high-density discrete FPGAs. This significantly expands our SAM for eFPGA hard IP and discrete devices, including our SRH FPGA, chiplets, and other storefront opportunities. We initiated our digital proof of concept chiplet program earlier this year as a strategy to accelerate our storefront chiplet initiative. Internally, we refer to this as POC. With the support of our large strategic partners, we have leveraged our existing eFPGA hard IP and readily available third-party IP to move forward rapidly and with minimal investment. In line with the forecast I shared in our last conference call, we completed the initial phase of the digital FPGA chiplet POC where the eFPGA IP is connected to UCIE IP and the necessary interface logic for the IPs to communicate. This digital simulation of the POC is available now and can be further developed to meet different customer requirements. Together with our ecosystem partners, we are engaging with prospective customers in the defense aerospace, industrial, and commercial markets. We plan to move forward with the next phases of the FPGA chiplet POC once external funding is committed. This phase will include incorporating additional IP, such as programmable GPIOs, AXI bus, DSPs, data converters, and interfaces such as PCI Express, to meet specific customer requirements. We are optimistic that our POC initiative will lead to storefront revenue in 2026. On October 2, we announced a new $1,000,000 EF hard IP contract for a high-performance data center ASIC that will be fabricated on TSMC's 12 nanometer process. In this ASIC, our eFPGA hard IP will be the primary IP in the design. This contract is a great illustration of our success in several of the points I mentioned earlier. The need for larger blocks of eFPGA, the increasing value contribution of eFPGA in customer designs, winning contracts for designs targeting advanced fabrication processes, and our growing success in commercial market sectors. We will soon announce the expansion of our involvement with a DIB that specializes in cybersecurity for strategic and tactical weapon systems. This DIB designs secure system-on-chip processors that leverage the enhanced security that only eFPGA can provide. Running these processes in hardware is inherently more secure than software solutions. With eFPGA at the heart of the designs, the hardware can be altered to respond to new threats and updated algorithms. We are proud to have been chosen as a trusted supplier of eFPGA hard IP for these designs. Last April, we announced an eFPGA hard IP contract with a new defense industrial base customer valued at $1,100,000 that will be fabricated on the GF12LP process. This application utilizes a large block of our eFPGA hard IP for critical functions, which is a trend we are seeing, particularly in designs targeting advanced fabrication nodes. With the cooperation of this DIB and its end customer, we are leveraging the large eFPGA core into a new 7-figure contract we expect to announce in the coming weeks. In the scope of this new contract, we will be provided with test chips that we will incorporate in an evaluation kit. The evaluation kit will be compatible with common third-party development environments used by both 12 o p test chip or our eFPGA hard IP in an ASIC. We anticipate having evaluation kits available in late 2026. With that, I will turn the call over to Elias for his presentation of financial data. Elias Nader: Thank you, Brian, and good afternoon, everyone. Total third quarter revenue was $2,000,000 and aligned with the midpoint of our guidance. Total revenue was down 52.5% from Q3 2024 and down 45% compared to Q2 2025. Rounded to the nearest $100,000, new product revenue in Q3 was $1,000,000 and mature product revenue was $1,100,000. New product revenue was down 73.1% from Q3 2024 and down 67.3% compared to Q2 2025. Mature product revenue was up from $700,000 in 2024 and up from $800,000 in 2025. Non-GAAP gross margin in Q3 was a negative 11.9%. This compared with non-GAAP gross margin of 65.3% in Q3 2024 and 31% in Q2 2025. The primary reasons for the lower Q3 gross profit margin are unfavorable absorption of fixed costs due to lower revenue and the fact that $300,000 of R&D cost were allocated to COGS. Non-GAAP operating expenses in Q3 were approximately $2,900,000. This was approximately $300,000 below the midpoint of our outlook due to the COGS allocation I just mentioned. This compares with non-GAAP operating expenses of $3,300,000 in 2024 and $2,500,000 in 2025. Non-GAAP net loss was $3,200,000 or $0.19 per diluted share. This compares to non-GAAP net loss of $900,000 or $0.06 per diluted share in Q3 2024 and a non-GAAP net loss of $1,500,000 or $0.09 per diluted share in 2025. The difference between our GAAP and non-GAAP results is related to non-cash stock-based compensation expenses, impairment charges, and restructuring costs. Stock-based compensation for Q3 was $800,000. Stock-based compensation was $1,200,000 in Q3 2024 and $800,000 in Q2 2025. Impairment charges were $300,000 in Q2 customers accounted for 10% or more of total revenue. At the close of Q3, total cash was $17,300,000 inclusive of utilization of $15,000,000 from our $20,000,000 credit facility. This compares with $19,200,000 inclusive of usage of $15,000,000 from our $20,000,000 credit facility at the close of Q2 2025. Net of approximately $200,000 raised with our ATM in July, cash usage during Q3 was approximately $1,900,000. This was primarily driven by tip-outs and wafer costs associated with our internally financed SRH FPGA test chip. In addition to these one-time costs, there were also expenditures related to revenue contracts and repayments for finance tooling and equipment. Now moving to our guidance and outlook for our fiscal fourth quarter, which will end on December 28, 2025. Based on backlog and customer forecast, we are targeting total revenue of $6,000,000 for Q4. Many of the contracts that support this outlook are already on the books or have been forecasted by customers to be awarded during the coming weeks. However, the customer for a contract valued at nearly $3,000,000 for commercial application has forecasted the award late in the quarter. If this contract is awarded, on or very near the date forecasted, we will be able to recognize a large portion of that revenue in Q4, and with that, realize our $6,000,000 objective. We have a very high level of confidence in winning this contract but note that it could push into Q1 2026. And that would result in Q4 revenue of $3,500,000. Due to this, our guidance range for total Q4 revenue is $3,500,000 to $6,000,000. At $3,500,000, we expect total revenue to be comprised of $2,500,000 in new product revenue and $1,000,000 in mature product revenue. At $6,000,000, we expect $5,000,000 in new product revenue. Based on the anticipated Q4 revenue mix, non-GAAP gross margin for the fourth quarter is expected to be approximately 45% at $3,500,000 of revenue and 68% at $6,000,000 of revenue. At the low end of the range, the primary reason for lower gross profit margin is attributed to less favorable absorption of fixed costs. Taking the range of our Q4 outlook into consideration, our full year 2025 non-GAAP gross profit margin is expected to be 38% plus or minus 5%. Our Q4 non-GAAP operating expenses are expected to be approximately $3,000,000 plus or minus 5%. With this, we are modeling full year 2025 non-GAAP OpEx would be approximately $11,300,000. Please note that given the nature of our industry, we may occasionally need to classify certain expenses to COGS versus OpEx, or capitalize certain costs. These classifications are related to labor and tooling for IP contracts with customers. This may cause variability in our quarterly gross margins and operating results that will usually balance out on the operating line. After interest and other income, at the low end of the revenue range, we forecast a Q4 non-GAAP net loss of approximately $1,900,000 or $0.11 per share. At the high end of our revenue range, we are projecting a non-GAAP net profit of approximately $600,000 or $0.04 per share. The main difference between our GAAP and non-GAAP results is related to non-cash stock-based compensation expenses. In Q4, we expect this compensation will be approximately $800,000. This is the same as Q3 2025 and down slightly from Q4 2024. As a reminder, there will be movement in our stock-based compensation during the year, and it may vary each quarter based on the timing of grants. Even at the low end of our revenue guidance range, we anticipate cash flow in Q4. However, the timing of payments from our US Government contract could negatively impact this outlook. Given the fact that we raised approximately $2,000,000 using our existing ATM in October, we're well prepared for any delayed payments associated with the US government contract. Thank you. With that, let me now turn the call over to Brian for his closing remarks. Brian Faith: Thank you, Elias. We have logged considerable progress during the last few months, and we are leveraging that progress to produce tangible results. Earlier, I talked about those results, and now I would like to take the next few minutes to help you understand the industry trends that are driving these results. With that understanding, I think you will appreciate what is driving the increased interest in FPGA technology, and why more companies are incorporating larger blocks of at the core of new ASIC designs. The overarching trend in both commercial and DIB designs is smart systems. Smart systems rely on algorithms for their intelligence. Algorithms can be processed much faster and with much lower power consumption in hardware than software. Hardware processing is also inherently more secure against cyber threats than software. The challenge here is that algorithms must be updated over the lifecycle of the product. This means hardware must be programmable so it can adapt to changing algorithms. This has led to the need for larger blocks of eFPGA at the heart of ASIC designs versus past use cases where small blocks of eFPGA were more commonly used as programmable connectivity bridges. This means both the need and the value proposition for eFPGA are increasing. Sophisticated smart systems designs typically target advanced fabrication nodes. This means higher fixed costs and longer design cycles for ASICs. To favorably offset these higher fixed costs, ASIC designs must deliver longer life cycles than in the past. Designs that employ eFPGA can adapt to changing algorithms, evolving functional requirements, and external changes that are not evident during the design cycle. This flexibility lengthens the lifecycle of ASIC designs and provides program managers with the confidence to move ASICs to production more quickly and with lower risk. This shortens design cycles and lowers development costs. Last but certainly not least, there are many programs in development today that must be compliant with rigorous environmental requirements ranging from radiation tolerant to strategic RadHEART. Our internally funded development of an SRH FPGA test chip is designed to address the full range of these requirements and accelerates our ability to pursue design wins. By using the same onshore 12OP fabrication process that DIBs have used for SRH ASICs, we are optimizing our chances of winning discrete FPGA designs we can storefront and contracts for eFPGA hard IP that customers can incorporate in designs. Further enhancing our position is the fact customers can execute designs with our Aurora user tools for both. The fact this investment by QuickLogic has been received very well by strategic DIBs is underscored by the commitment we have for SRH dev kit orders that we anticipate receiving by the end of this month. Before I turn the call over for Q&A, I want to take a moment to recognize Veterans Day and express my heartfelt gratitude to all those who have served our country. This day has personal meaning for me, as several members of my family have served, and I have deep respect for the sacrifices made by veterans and their families. It's something we honor at QuickLogic, especially as we develop technologies that contribute to our nation's defense and security. Operator, I would now like to open the call for questions. Operator: Thank you. We will now be conducting a question and answer session where selected analysts will be invited for questions. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. Our first question comes from Quinn Bolton with Needham. You may proceed with your question. Neil Young: Hey, everyone. It's Neil Young on for Quinn Bolton. Thank you for letting me ask a question. First question I wanted to ask, hey. That's you know, like I said, on for Quinn. Sorry about that. So what is the or what impact is the government shutdown having on your business? Based on the prepared remarks, it sounds like you've seen some delays of projects. Have you seen any cancellations? And then, you know, given the ongoing shutdown, although it is allegedly supposed to end soon here, what gives you confidence in a rebound of the US strategic radiation Arden FPGA program in 4Q? Then I have a follow-up. Thanks. Brian Faith: Yeah. I think, firstly, let's zoom out. Programmable logic has been a big part of the defense industrial base for decades, and that's not changing. It's pervasive across, like, 75% of defense systems. And as I mentioned earlier, a very large percentage of the total semiconductor spend by the DoD. So that demand is not going away. The question is, as you get down to the nuts and bolts of these programs, is the funding gonna be there based on the budgets and whatnot? So I think that from the programs that we have today on contract, we're not seeing any delays with those. Elias did mention in his conversation about the cash usage for the quarter, or I should say net cash gain in the quarter. We did use the ATM in October sort of as anticipation in case there was something like this that happened as far as funding goes. So if there's a delay in funding, then we have no issue with that. If there's no delay, then we'll have a good positive cash flow for the quarter. Aside from that, if you look at other contracts coming down the pipe, I mean, you could find this all publicly that a lot of the new RFIs or RFSs or RFT that were coming out from the government for various development programs. Some of those were actually paused. And I think that's largely because some of those workers that were driving that were put on furlough. Again, I don't anticipate those going away permanently. It's more once the government's funded and people get back from furlough, these are gonna be full steam ahead. So you might see a delay in some of those new programs but not the ones that we're fully executing on today. I just don't see that change because this is not an experimental technology. There are actual programs of record that need this today. And moving forward on that. Does that answer your first question? Neil Young: Yeah. Very helpful. Thank you. And then the second question I wanna ask. So sounds like storefront revenue in 2026 is supposed to have a meaningful step up. If possible, I was wondering if you can maybe size the range of storefront revenue you think is possible. And then know, if not, maybe could give us some idea of what could drive upside to your internal you know, on the other side, perhaps drive downside to those expectations? Thanks. Brian Faith: Sure. I'll start with the what, and then I'll answer with the why. So on the what side, I mean, I would say significant for us is gonna be the 10% or thereabouts of total revenue. Without giving the exact number because we haven't put numbers out for 2026 yet, we think that the storefront revenue associated with these developments that we've been talking about is gonna be meaningful, meaning it'll be in that 10% range. And, yes, I do think next year's revenue will be notably higher than this year's total revenue. As you get into why do I feel like that, think if you go back to my opening remarks about the strategic radar initiative, I cannot tell you how many meetings I've had in the last quarter since the last conference call face to face with these DIBs. That see what we're doing, they like the fact that we've done this tape out that we talked about. And, you know, even as of today, lots of calls and emails asking for when they can get their hands on this. And so when you start to see people pulling for the technology and you know the projects that are under development public projects. Right? Strategic defense system is going under a major modernization. That's all public knowledge. And then if you throw into that this notion of hypersonics and golden dome, a lot of these programs are gonna need some level from strategic strategic radar down to radiation tolerant. The part that we've got in the fab now is designed to address those needs. So as we get it out, we start moving to these orders for dev kits. We start getting those out. Hopefully, by the end of Q1, I think we're gonna be a prime a real prime spot to monetize that and start turning talk that I've had for two and a half years into actual revenue and bottom line contribution. But it's not just one here. We're talking about all the major DIBs that we've been talking to. I think there's good demand for that. So that's why we think it's gonna be meaningful for next year. Does that answer your question? Thank you. Neil Young: Yes. Thank you very much. Great. Operator: You're welcome. Our next question comes from Richard Shannon with Craig Hallum. You may proceed with your question. Richard Shannon: Great. Thanks, Brian and Elias, for taking my questions. Quality of the audio here is pretty poor on my end, so hopefully you can hear me. Apologize. You can't hear. We can hear you just fine. Okay. Let's go. I guess at least one of us can. Lot of detail on the call here, and it's really interesting stuff going on here. Let me ask a kind of a big picture high-level question here. With your new initiative on the GF 12 LP process or initiative here. I guess, how do we think about the opportunity for FPGAs versus ASICs, it would include your hard IP in here. And are the dynamics here for timing for each of these markedly different than the other? Brian Faith: Well, I'd start by saying for 12 o p, that is a very commonly used process by the defense industrial base. Think the heritage of that is that that was the most advanced process that GlobalFoundries had, and GlobalFoundries is US owned and operated. So if you wanted to have something that was manufactured onshore by a US company, that was sort of the most advance you can get. Global has since come out with 12 o p plus, which is in it more advanced version of 12 o p. But if you think about what's involved in doing an ASIC or an SOC, you need lots of IP available, and you need lots of test data characterization on all that IP in order to feel comfortable to move forward with that on your ASIC. And in terms of the defense community, it's very risk-averse community as they should be. As they're designing these systems. There's a wealth of IP on 12 o p that there is it's today, it's known, it's understood, the characterization data, and the government, again, this is all publicly findable, the government has been, you know, helping people do ASICs on 12 o p. A lot of IP is available. There's government-funded multi-project wafers and all those things to encourage development on that node. So from that standpoint, I think you're gonna see TOFO p a lot. You've seen it in the past. You're gonna see it in the future. So then the question for us is, okay. We have our IP on 12 o p. Now we can build devices from that, or we could build or we could license that for people doing their own ASICs. And I think we've already talked about IP licenses that we have on ASICs. And you've heard timing on that. So people will start to be taping out those and going to production hopefully in the next few years. So there's a near-term license opportunity. There's a back-end royalty opportunity for us on that. And we definitely plan to monetize that to several million dollars a year. On the device side, that gets interesting because we've obviously taken our commercial total PIP, and we've done a RadHard implementation of that. So the goal behind that is to do this strategic RadHard FPGA and having taped that out. If you fast forward to when we could do that actual product dive for production on that, once that's out, that's gonna be a significant step function increase in the revenue potential for us personally because devices of that nature are always gonna have a much higher ASP than what a royalty contribution would be. So I think total p is critically important for us. And it's sort of a land and expand strategy on that now where we wanna license it to as many people as we can. We wanna have this strategic router FPGA capture. For revenue, and that's, I think, the basis of what could be hundreds of millions of dollars in revenue. I know if I answered your question. It's an entirety. If I didn't, just tell me. Richard Shannon: Did for the most part. I'm just trying to circle around this a bit here from a very high level. Might ask another pretty high-level question here, Brian, which is comparing the opportunity you're you've now undergone with GFS 12 LP, or how do you compare the opportunity to what you've been doing with RadHard with other foundries you've announced with I guess, a total perspective over, I'll let you pick a time frame. But how do you see the relative size of each of these opportunities for Brian Faith: By the other founders, you're referring to Skywater and Honeywell or somebody else? Richard Shannon: Those are the ones. Yes. Okay. Brian Faith: So I think without getting into programmatic details, I think that the 12 l p opportunity for us is a larger opportunity. Because it has the strategic pattern FPGA it also has IP licensing as an option. And one of the nice things, and I you know this, is that as you get smaller process technology, you get denser transistors you get more capability, you can stuff in a die, and there's gonna be higher value. To that. And we enumerate that as far as, like, where we're taking our eFPG architecture, but the same is true at 12 nanometer and 12 o p. The more transistors and functionality we can stick on that dye, the higher the value of the part's gonna be. And I think, again, the interesting part about 12 o p here is that we can get a lot of capability running on our FPGA. 12 o p. And maybe somebody doesn't even need to do an ASIC now. For 12 o p. That's huge. If we can start helping people address the needs of admission without having to go off and do a custom ASIC, you're talking about saving a customer or the government literally tens of millions of dollars in years of development. Cost and time. And that's the real benefit, I think, to getting our FPGA on 12 nanometer given that it's strategic at heart and so capable of a node. Now as you've talked about those other foundries, those are older process geometries that they've talked about. And so there's gonna be a difference in what you can do on the die. There's a difference in what you can do capability-wise. Not bad. It's just different. But I think the bigger bucket of revenue for us is gonna be what we're gonna be able to do at 12 nanometer on these for the time being. And I don't wanna get into more details on that just because that's a little too much programmatic information if I go further. Richard Shannon: Yep. I get that. Just that high level here is very helpful to think about. Brian, thanks for that. You mentioned expecting orders for your new dev kits here, I think, the end of the end of this month and delivering those sometime next year. Can you give us a sense of how many dev kits and how many customers do you expect to ship that to? And then what's kind of the design cycle once customers get that in hand in terms of their next steps? Brian Faith: So I'm not gonna give numbers. Probably not surprised to hear that. But it's gonna be enough that it will be a significant revenue number so not just the rounding. Number on the income statement. And we've you know, Elias talked about the money that we spent in Q3 on that. We've intentionally bought enough DAI that we can provide enough for these customers that wanna test these things out both in terms of dev kit and on just raw devices themselves on their own boards. Now the way this works from an evaluation perspective again, this is a very cautious and risk-averse community that we're talking about. They're gonna wanna do their own testing on these things, and that generally takes you know, a couple quarters to go off and do all of your exercising of your design and the different environmental tests that need to need to be done on those devices. You've probably read the TRL levels, technology readiness level. You know, we wanna get customers as quickly as possible to t r l five. And t r l five is where they can actually say that they've taken the part and they've run it through the rigorous testing that's representative of the environment that they're gonna operate in. And so we hope to be able to support our customers to get through that at some point. Through the middle of next year, and then at that point, start intercepting actual programs of record with us. And moving into you know, pretty late stages of the design, hopefully, with them. And again, that's why time is so critical. That's why we took the leap of faith to do their own design and to fund our own tape out knowing that MPWs don't come along very often, we wanted to make sure that we're on one that still gave us enough time to have the part come out, verify it, and get into the hands of the DIB. So they can start playing with it in their own labs. Not just trust our own data. Richard Shannon: Okay. Great, great perspective there, Brian. Last question. I'll jump out of line. A lot of irons in the fire that you have going on here, which is great to see here. And QuickLogic, obviously, is a fairly small company here. Seems like it might need a bit more support to a broad range of customers coming your way here very soon. How do we think about the spend levels we need to see next year, you know, whether it comes through OpEx or stuff that gets allocated to COGS here. How do we think about where could go if things go really well and you get a lot of attention? Lot of, lot of activity in these dev kits you're sending out. Brian Faith: So I'll start answering, and I'll ask Elias to chime on those. So from an engineering perspective and the go-to-market team perspective, you know, we obviously have identified certain critical hires. Some of them, you could find on our website today, and these are all about getting the right resources to get the devices out into the hands of the DIB as soon as possible. I mean, you can find that on our website. Engineering, field application engineering, and so on. As we move from test chip to actual product chip, there will be more expenses. There will be other things that need to be paid for. And I think that we have a good line of sight on what those are gonna be. And it's not gonna be outrageous for next year. I think it's gonna be very mindful of where we are. Financially as a company, and tied in with getting these customers on board with test jobs so that any investments we do make coming from the perspective of knowing what our customer wants, knowing the problem that our solution solves, and in some cases, even perhaps getting funding from customers to co-invest in these things so that they have skin in the game and it offsets the upfront cost for QuickLogic to get it to market. Elias Nader: Yep. Correct. And in fact, Richard, if I may add like, example, we have three new hires we're looking for. All engineers. And as such, you know, OpEx is definitely headcount moderating. So I don't anticipate even with all the additions that Brian is describing, probably we'll be looking at probably 3 and a half million of OpEx per quarter probably next year, but starting in Q2 or so. I think for now, we're okay with about under three. Richard Shannon: Okay. That's great detail, I will jump the line. Thank you. Brian Faith: Thanks, Richard. Operator: Before our next question, as a reminder, if any analysts like to ask a question, our next question comes from Rick Neaton with Rivershore Investment Research. You may proceed with your question. Rick Neaton: Thank you. Hi, Brian, and hi, Elias. Elias Nader: Hello, Rick. Rick Neaton: I'd like to understand your Q4 guidance. Are you proposing an either-or situation where we're either gonna have 3 and a half million plus or minus or 6,000,000 plus or minus? Is that what you're saying? Elias Nader: Yes. Because there's an issue with timing. Right? So if the order comes in, for example, to complete it to 6,000,000, it would come in late in the quarter. And we may be able to recognize certain portions of that revenue. But if it comes in and we're not able to deliver in that quarter, let's just say it comes in on the day of our close, of the day after, it's definitely Q1 at that point. So it's almost a timing issue, Rick. And that's why we went to great pains to identify the difference between 3 and a half million revenue and 6,000,000 revenue, and really it's one order. And as such, it's all about timing. So it's very difficult to answer a question now to someone saying, okay, would you be able to recognize a 100% of it? And the answer is clearly no. If it comes in in Q4. So that is why Brian and I agreed if that's the case and we anticipate that order coming in, let's just hope it does. At least in Q4, we at least have the possibility of beating the high end of the range. Rick Neaton: Thank you for that explanation. Sure. What do you forecast as your share count for 2025? Elias Nader: Well, $1,717,090,252 thousand shares. That's all I've outstanding right now. Rick Neaton: Okay. One final question. Elias Nader: Yeah. Rick Neaton: Yeah. No. That's fine. So that's your ending share count would be $17. Three months ago, you described your expected revenue decline for 2025 with the adjective modest. And now your Q4 guidance suggests 2020 to 30% decline in annual revenue from 2024. What changed since August to cause what I would describe as a significant double-digit percentage-wise revenue decline? Brian Faith: Rick, that's the challenge with having large IP contract values. And when we're talking $3,000,000 type ASPs for these. So I think in the call, mentioned one clearly is in 2026. So that goes from this year into next year. And then some other smaller ones that contribute to that, but again, when you have $3,000,000 IP contracts, if they don't happen in the year the fiscal year, there's gonna be a big change in percentage-wise from the revenue levels that we're at today. Once that becomes more of the norm and we get more of these higher value contracts, like, we're talking about now, that starts to smooth out some of that lumpiness. But when we're at the stage where we are now, there's almost unavoidable if something moves out that's gonna materially impact the percentage of that. Rick Neaton: Okay. Thanks for that explanation. And thanks for having me on the call. Brian Faith: Thanks, Rick. Of course. Operator: This now concludes our question and answer session. I would like to turn the floor back over to Brian Faith for closing comments. Brian Faith: Yeah. I want to thank everybody for joining us today. Hopefully, we'll connect with some of you at one of our upcoming events, including the Craig Hallum Alpha Select 101 Conference in New York on November 18, the semiconductor-focused annual New York summit also in New York on December 16, or the Annual Needham Growth Conference in early January 2026. Thank you, and have a good day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
Operator: Please stand by. We're about to begin. Good afternoon, everyone. My name is Beau, and I will be your conference operator today. At this time, I would like to welcome everyone to NEXGEL's Third Quarter 2025 Financial Results Conference Call. At this time, I'll turn things over to Mr. Valter Pinto, managing director of KCSA Strategic Communications. Please go ahead, sir. Valter Pinto: Thank you, operator. Good afternoon, and welcome, everyone, to NEXGEL's third quarter 2025 Financial Results Conference Call. I'm joined today by Adam Levy, Chief Executive Officer, and Joseph F. McGuire, Chief Financial Officer. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks, uncertainties, and other factors. For a detailed discussion of some of the ongoing risks and uncertainties in the company's business, I refer you to the press release issued this evening and filed with the SEC on Form 8-K, as well as the company's reports filed periodically with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless otherwise required by law. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliation of the non-GAAP to GAAP financial measures and certain additional information are also included in today's press release. With that, it's my pleasure to turn the call over to Mr. Adam Levy. Adam, please go ahead. Adam Levy: Thank you, Valter. And thank you everyone for joining us today to discuss our third quarter 2025 financial and operating results. For the 2025, we reported revenue of $2.9 million, flat year over year and slightly higher sequentially. While our revenue remained steady during both periods, gross profit margins improved year over year, coming in again in the low forties for the third quarter, and our adjusted EBITDA loss trend to $354,000 continued to narrow sequentially from a loss of $500,000 in Q1 to $419,000 in Q2, and now in Q3. Consistent performance in contract manufacturing consumer branded products while maintaining discipline and consistently improving our operational efficiencies were key factors in these results. I'll now provide an update on both our contract manufacturing and consumer branded product businesses. Starting with contract manufacturing. This segment of business has played a pivotal role in our growth, led by increased demand from existing customers as well as the successful onboarding of several new global corporations. For the third quarter, contract manufacturing revenue totaled $907,000, a slight increase year over year and sequentially. Our performance in contract manufacturing is led by our ongoing relationship with Cintas, which remains strong, and our SilverSeal product continuing to be included in their wound care kits and cabinets for businesses throughout the country. We began shipping initial orders to Cintas in Q4 of last year, and reorders for deliveries have continued each subsequent quarter and remain strong and steady. This partnership reflects the consistent value our advanced hydrogel technology brings to Cintas' customers and underscores our commitment to long-term recurring commercial relationships. The institutional review board study conducted under FDA guidelines and funded by our partner Innovative Optics is complete, and we are waiting on final data to be published. This 30-patient clinical trial evaluated the use of our hydrogels when applied prior to laser hair removal treatments. The primary goal of the study was to assess its efficacy in reducing the release of carcinogenic plume during these procedures. We have been in contact with the journal and do expect publication before year-end. As many of you know, in May, we signed an agreement with iRhythm, a publicly listed company on the Nasdaq and a leading digital healthcare company that creates trusted solutions that detect, predict, and prevent disease, to supply our hydrogels as part of their Zio ECG heart monitoring system. Zio is a single-use ECG heart monitor that provides a continuous single-channel recording for up to fourteen days. The monitor is worn on the patient's upper left chest, and it features NEXGEL's advanced hydrogel. After the conclusion of the fourteen-day monitoring period, the patient simply removes the device and mails it back to iRhythm for analysis. We anticipate iRhythm's first direct orders from us this quarter. The integration of our hydrogels into iRhythm's Zio Heart Monitor showcases another impactful application for our skin-friendly dermatologically safe technology. We look forward to growing this relationship as iRhythm scales their product. There are many other opportunities we are actively pursuing. Our new customer pipeline remains robust, with several of them now approaching launch. We expect contract manufacturing and white label to continue being a major driver of our expansion and success moving forward. Turning our attention to our consumer products segment, revenue remained stable year over year and sequentially. During the quarter, there were some unforeseen logistical delays that affected the movement of inventory, which delayed some of our product launches until late September. These have all been resolved, and we anticipate a very strong fourth quarter including these new products. In late Q2, heading into Q3, we began to see strong performance from the first of Silly George's new product launches, we previewed earlier this year. In addition to the continued growth of our core lash, we introduced an expanded beauty line of five new shades of lip gloss. While we only launched our new lip gloss in very late September, the launch has gone well so far, and we are looking forward to seeing how this product does as we head into the holiday season along with our other new product offerings. Similarly, Kenco Derm will double the size of its product portfolio with the launch of new products expanding into solutions for eczema, tapping into an even larger market opportunity for the brand that is leveraging its strong reputation as a leader in sensitive skin care. We expect these new products to hit the market in the next few months. Metagel has expanded its product line with the launch of several new offerings, including the Silver Seal wound and burn kit and the moist burn pads. These products are doing extremely well on Amazon, and we look forward to their continued growth. We have also just received approval from Health Canada to sell SilverSeal in that territory. Lastly, we could not be more excited about our expanding partnership with Stada, a European leader in consumer health. Building on the strong performance of HistoSolve, we recently amended our agreement to broaden the collaboration considerably. Together with Stada, we are planning to soft launch one new product in December with several more slated for early 2026. Gluticin, a digestive enzyme for gluten sensitivity, will be the product soft launched in December with a full marketing and promotional plan for January. This next phase of the partnership includes the planned launches of additional digestive enzyme formulas and skin solutions targeting scars and stretch marks, products we're now positioned to bring to the North American market. As you all know, Stada provided $1 million in non-dilutive financing that is now on our balance sheet to support the upcoming product launches and marketing initiatives, a show of confidence in our partnership. Before I turn the call over to Joseph F. McGuire for a review of our financial results for the third quarter, I would like to discuss our outlook for the fourth quarter and full year. For the fourth quarter, we do expect revenues to increase sequentially, and Q4 will be a record quarter for the company. However, conservatively as we sit today, I expect full year 2025 revenues of between $12 and $12.5 million, with the higher end of the range taking into account a strong consumer branded products holiday season. As I have said many times, for me, even more important than top-line growth is a path to profitability. In the third quarter, we narrowed our adjusted EBITDA loss to $354,000, and with the sequential growth that I expect in Q4, I see that narrowing even further to very close to adjusted EBITDA breakeven. Thank you to our shareholders for your ongoing confidence in our team and mission. Your support remains essential as we continue to execute our growth strategy and build long-term value together. I would now like to turn the call over to Joseph F. McGuire, our Chief Financial Officer. Joseph F. McGuire: Thank you, Adam. Today, I'll review our key financial results for the 2025. For the 2025, revenue totaled $2.9 million, flat as compared to $2.9 million for the 2024. Contract manufacturing and branded product revenue remained stable year over year. Cost of revenues totaled $1.7 million for the third quarter 2025, as compared to $1.8 million for the 2024, a decrease of 5.2%. The decrease in cost of revenues is primarily due to a decrease in materials and finished products, and a decrease in amortization and depreciation offset by an increase in commission and contract fees and an increase in equipment production and other expenses. Gross profit totaled $1.24 million for the 2025, slightly higher than gross profit of $1.16 million for the 2024. Gross profit margin for the 2025 was 42.4%, an increase as compared to 39.3% for the 2024. Selling, general, and administrative expenses totaled $1.96 million for the 2025, as compared to $1.94 million for the 2024. The slight increase year over year is primarily attributable to increased compensation and benefits, fair-based compensation, and professional and consulting fees, offset by a decrease in advertising, marketing, and Amazon fees. EBITDA loss, a non-GAAP financial measure, totaled negative $550,000 compared to negative $533,000 for the 2025, and negative $577,000 for the 2025. Adjusted EBITDA loss, a non-GAAP financial measure, totaled negative $154,000 compared to negative $419,000 for the second quarter 2025 and negative $500,000 for the 2025. Net loss attributable to NEXGEL stockholders for the 2025 was $653,000, as compared to a net loss of $693,000 for the 2024. As of September 30, 2025, the company held a cash balance of approximately $938,000 and a restricted cash balance of $920,000, related to receiving $1 million in non-dilutive capital from Stada to support upcoming product launches and marketing efforts. As of November 10, 2025, NEXGEL had 8,143,133 shares of common stock outstanding. I would now like to open the call for questions. Operator? Operator: Thank you very much, Mr. McGuire. Ladies and gentlemen, at this time, if you have any questions, please press 1 at this time. And if you find your question has been addressed, you can always remove yourself from the queue by pressing 2. Once again, 1 for questions. We'll go first this afternoon to Nazibur Rahman with The Maxim Group. Nazibur Rahman: Hi, everyone. Thanks for taking my questions. I just have a few. First, I just want to start on the logistical delays you mentioned. Could you elaborate a little bit more on that? Like, how many days worth of sales did it end? And, I guess, how much could those sales have been worth? I guess I'm trying to get a sense of what the underlying demand could have been or the impact. Adam Levy: So hi, Nazibur. It's good to hear from you again. So the total delay was varied on different products. A lot of it had to do with stuff getting stuck in customs and trying to create new ways of getting the product into the country because everything was sort of held up with the new regulations and changing. It probably impacted the existing products not too severely. But where it really mattered was we were hoping for a late August early release on the lip gloss as it results. It was only released on September 27, right at the very end of the quarter. And that happened with a couple of products. So, you're probably talking about $100,000 to $200,000, maybe depending on what it would've done during that period of time. So, not devastating, but it was frustrating at the time. Nazibur Rahman: Got it. Thanks. And just kinda going off that. So I think on the call, you said you expect you revised down to $12 to $12.5 million for the full year. Obviously, the last couple quarters have been flat. I guess what kinda gives you confidence in that number now, especially, like, the top end of that number? Are you seeing any tailwinds or any data points that would suggest you could get there, or is it more just the seasonality you expect? Adam Levy: No. Actually, this is a great point, which is we appear to be and we are flat from third quarter last year to third quarter this year. But understand in third quarter last year and fourth quarter last year, we launched with two new customers on the contract manufacturing side that were quite large. So Q3 of last year was a record for us because Owens and Minor was onboarded. And for example, and I'll use this just as an example with round numbers, in Q4, we had very, very large sales, call it $400,000 from the initial orders of Cintas. Well, this year, the initial orders of Owens and the initial order of Cintas are replaced by repeat orders at about 50% of the size and volume. The reason we're flat is because the rest of the business is still growing, the rest of the customers are still growing. So without onboarding anybody new in Q3, yes, we're gonna have that drop, we maintained where we are. Well, in Q4, but we still have the growth offsetting it of the rest of the products. And we'll be shipping some new customers, like iRhythm. So we already kinda know that the fourth quarter will be a very large contract manufacturing quarter and will be up. What we're not as sure about is how big are the new products and the existing products gonna do during the holiday season. That's always the wildcard with the economy and everything else. So that's really, you know, we know it's gonna be fourth quarter is always the strongest. We know sales will also increase there. Just how much is difficult to tell. Does that answer the question? Nazibur Rahman: Got it. That was helpful. And one last question, if I may. I know previously you talked about AbbVie and the restarting device. I know AbbVie took a large impairment charge on the recycling device recently. Do you know if they're still planning on launching a product and just what's kinda going on with that? Adam Levy: So it's really puzzling and very frustrating. On October 24, I received an email from AbbVie saying that they put in the RF and that we'd be receiving our first PO shortly, which I was hoping to announce on this call. And then I've heard from others that they've actually taken that charge. So I'm not sure where AbbVie stands. It might be the worst case of one hand not knowing what the other hand is doing that I've ever seen. But it is a frustrating situation trying to get to the bottom of it, but I am very concerned about it. And, honestly, I really don't know. Nazibur Rahman: Okay. Understood. Thanks for taking my questions. Adam Levy: Sure. Operator: Thank you. And just a quick reminder, everyone. Star one for questions today. We'll go next now to Kirtan Patel, private investor. Kirtan Patel: Yes. Hello? So what is the current order book like from the contract manufacturing side? Adam Levy: So it's strong. I don't wanna get into too much detail as to what it is, but all of the existing continue to order. We're seeing growth, you know, along the CAGRs of their growth of their medical devices across the entire segment. We've got a pretty robust and full pipeline of potential new customers, some of whom will be onboarding this quarter, next quarter. So we're very bullish on how our contract is going to grow over the next two or three quarters. At least we have visibility that far out. Kirtan Patel: Got it. And do you still have a strong cash position to be able to fulfill those orders? Adam Levy: Yes. Yeah. And contract manufacturing orders are something that we do very well. We built our inventory raw material side for the contract manufacturing in Q3. So now Q4 is where we start to recoup some of that money, reduce that receivable somewhat, reduce that inventory somewhat by shipping the products and then collect the receivables. So Q4 has generally been a very strong cash sort of position for us because you do get all of those direct-to-consumer sales that you get paid very, very quickly. And we have built inventory for what we think will be a strong quarter. So as we move through that inventory, that'll help our cash position even further. Kirtan Patel: Got it. And from your last quarter, are you still expecting to achieve a positive EBITDA by the end of the year? Or has that changed? Adam Levy: Yeah. We think so. If not, it's gonna be super close. But we think it's really gonna depend on the consumer products. We think that, you know, we were hoping to chop more off. I'll be honest with you. I was hoping to chop more off in Q3 than we did. But with what we see coming is a very strong fourth quarter in contract, as well as if we can get a very good quarter in terms of consumer products in Q4, I think we have a chance to get there. We'll see. Kirtan Patel: Got it. Thank you. And that's about it. Thank you so much. Adam Levy: Sure. Thank you. Operator: Thank you. And just a final reminder, ladies and gentlemen, any further questions this afternoon, please press 1, and we'll pause for just one moment. And, gentlemen, it appears we have no further questions this afternoon. So that will bring us to the conclusion of today's NEXGEL third quarter 2025 financial results. We'd like to thank everyone for joining us this afternoon, and wish you all a great remainder of your day. Goodbye.