加载中...
共找到 39,796 条相关资讯
Operator: Ladies and gentlemen, thank you for joining us today. And third quarter 2025 results conference call. At this time, all participants are in a listen-only mode. An audio webcast of this call is available in the Investors section of Compugen's website, www.cgen.com. As a reminder, today's call is being recorded. I would now like to introduce Yvonne Naughton, VP Head of Investor Relations and Corporate Communications. Yvonne, please go ahead. Yvonne Naughton: Thank you, Operator, and thanks everyone for joining us today. Here with me from Compugen team are Eran Ophir, new President and CEO, and David Silberman, our Chief Financial Officer. Michelle Mahler, our Chief Medical Officer, will join us for the Q&A. Before we begin, we would like to remind you that during this call, the company may make projections or forward-looking statements regarding future events, business outlook, development efforts and their potential outcome, the company's discovery platform, anticipated progress and plans, results and timelines for our programs including disclosures of clinical data, financial and accounting related matters, as well as statements regarding our cash position and cash runway. We wish to caution you that such statements reflect only the company's current beliefs, expectations, and assumptions, but actual results, performance, or achievements of the company may differ materially. These statements are subject to known and unknown risks and uncertainties. And we refer you to our SEC filings for more details on these risks including the company's most recent annual report on Form 20-F. The company undertakes no obligation to update projections and forward-looking statements in the future. With that, I'll turn the call over to Eran. Thanks, Yvonne. Eran Ophir: Good morning and good afternoon everyone. I'm delighted to speak with you today as Compugen's new President and CEO. I'm really energized stepping into this role at such a pivotal time for our company. Having led our scientific strategy in my former position as CSO, I've seen firsthand how our science has evolved and I believe we can deliver significant value for patients. So where do we stand today? Our fundamentals are strong, and our strategy is clear. We are pioneers in computational drug target discovery. And we believe that our deep expertise in tissue biology is now gaining clinical momentum. I think that now is a great time to highlight what makes us different in the TIGIT drug development space, and why you should be paying close attention to our differentiated Fc reduced anti-TIGIT programs and their advantages over Fc active anti-TIGIT antibodies. Reflecting on the history of drug development, one can appreciate that indeed choosing the right therapeutic target for Crohn's disease is critically important. But choosing the right drug format which fits that specific target is just as important. We know that anti-TIGIT antibodies with the Fc active format have not lived up to expectation. And most of these programs were discontinued. However, this did not surprise us because Fc Active anti-TIGITs can deplete TIGIT positive effector T cells and Tregs. This is not desired because, one, on efficacy. Three digits present on effector T cells, so similar to the action of anti-PD-one, you run to reinvigorate these exhausted cells and avoid their depletion. Operator: Two, on safety, Eran Ophir: digits present on Tregs depleting peripheral Tregs, could result in immune-mediated side effects. Fc reduced anti-TIGITs like our own COM902 in contrast preserve and reinvigorate the effect T cells, avoid depletion of peripheral Tregs, and therefore have the potential for improved immune activation and a better safety profile. It is notable that as early as Phase II trials, with Fc active anti-digits safety was a concern with high rates of discontinuation due to adverse events. This was also even more evident in the Phase III trial. For example, during recent ESMO meeting, the presenter highlighted that in SCRISPRAPER seven trial, adding Fc active digits to Atezo resulted in these patients only receiving median number of doses of 12 versus 17 in the Atezo only arm. As a result, the patients receiving TIGIT PD-L1 combination received 30% less the PD-one antibody versus control. So safety really impacted the ability to administer treatment and therefore, probably impacted the outcome. We've always advocated for the Fc reduced formats and we believe that the data starting to support our convention. Not all anti-TIGIT antibodies are the same. And we believe the market is missing this. We believe our assets are positioned to capture the upside as new data emerges with readout anticipated from 2026. Provided our conviction proves correct. This moves us to our strategy. Which is rooted in science and focused on patients. We have five key value drivers. Starting on FcReduced TIGIT programs. Comline U2 is one of the only two clinical stage Fc reduced anti-treated monoclonal antibodies currently in clinical development. And importantly, it's fully owned by Compugen. Positive Phase III data from Arcus Gilead was the only other known Fc reduced anti-TIGIT monoclonal antibody is expected in 2026, and could be a real catalyst for COM902. Notably, recent overall survival data from their Phase II frontline gastric cancer study which is the same setting as the Arcos Gilat ongoing PET three trial, was presented at ESMO recently and showed a median overall survival of twenty-seven months versus fifteen months or less for benchmarks. A meaningful signal for the Fc reduced class. Next, is rilfrogostomy, our partner AstraZeneca's Fc reduced anti-PD-one TIGIT bispecifics. With the TIGIT components derived from our RFC reduced high affinity COM902. Interestingly, cooperative bispecific binding might provide even further efficacy into PD-one and TIGIT blockade, while in addition potentially supporting an easier regulatory path. The potential commercial opportunity for Railway is substantial with AstraZeneca estimating non-risk adjusted peak year revenue target of more than $5 billion. We understand that AstraZeneca's ambition is for Wilwood to replace PD-onePD-L1 therapies and to service the backbone for future combination treatment. Their broad development program spanning 11 Phase III trials across lungs, gastrointestinal, and endometrial cancers represent a potential significant value drive for Compugen as we're eligible for regulatory, and commercial milestones and mid-single digit tiered royalties payment. Moving to Fc reduced PVRIG. COM701. Fully owned and the only Fc reduced monoclonal anti-PVRIG antibody in the clinic, which again, we believe is the right Fc format. The biology here is truly differentiated from PD-one and TG points, providing advantages that we believe could translate into clinical benefit for patients with platinum-sensitive ovarian cancer. Positive data our ongoing myo ovarian platform trial could support a broader clinical development program aimed at addressing a significant unmet medical need. And finally, to our Cool and Smart potential first in class antibody program, addressing cytokine biology. GS GS0321, previously COMPAB03, is a potential first in class anti-IL-binding protein antibody licensed to Gilead GS031 represents a novel antibody approach to harness IL-ten fat by biology for the treatment of cancer potentially overcoming the limitations presented by administration of therapeutic cytokines. In represents another potential biodriver for Compugen, as we're eligible to receive $758 million in milestone payments and single digit to low double digit tiered royalties. This program is the most recent example of how our AIML Power Discovery Engine is delivering new opportunities. And behind this, we have early pipeline of what we believe to be truly innovative research programs. As pioneers in the field, we are committed to delivering real breakthroughs not just incremental therapies. And real innovation is never easy. It takes time, persistence, and willingness to tackle the toughest scientific challenges. I believe deeply in what we are doing here and we have the best talent and great tools to do this. I'm truly excited about the potential of our early stage programs. Next, turning to the progress we have made this quarter. The team was at ESMO in Berlin in October where we presented a pooled analysis of our three previously reported Phase I trials reflecting the clinical benefits of COM701 as monotherapy and in combination in patients with heavily pretreated platinum-resistant ovarian cancer. The PURD analysis demonstrated that COM701 was well tolerated showed consistent, durable responses, in patients with heavily pretreated platinum-resistant ovarian cancer. Particularly in those without liver metastasis. Representing patients with lower disease burden and a potentially less immunosuppressive tumor coenvironment. The results of the analysis support the rationale for the ongoing randomized myo ovarian platform trial evaluating COM701 as maintenance therapy in early lines of treatment. The myovirant platform trial is progressing. Sites have been activated across The U.S., Israel, and France including major academic centers and multiple sites from the French oncology Cooperative Group Arcadia Genico, renowned for several recent platinum-sensitive ovarian cancer trials. We now estimate the interim analysis in Q1 2027. We believe Mayo Varian is a significant opportunity to address an unmet need for maintenance therapy in platinum-sensitive ovarian cancer. Next, our partner AstraZeneca which presented new RILVA data at ESMO, as part of two mini oral sessions. AUTOMAT zero one follow-up showed that RILVA was well tolerated with promising efficacy. Confirming its potential in checkpoint naive non-small cell lung cancer. Notably, the drug-related discontinuation rate of only three percent further support differentiation of the Fc reduced BOMA. The Tropion pan tumor03 evaluating combination of ZILVA with DATOA shows promising efficacy and manageable safety underscoring the potential of next-generation IO bispecifics plus ADC. Moving next to zero S0321, our novel antibody approach with Gilead, that leverages cytokine biology. The phase run trial is progressing, as planned and represented trial design at SITC last week. We have strong conviction in our fully owned programs. We are validating partnerships with AstraZeneca, and Gilead providing potential for over $1 billion in milestone plus royalties. Of course, none of this be possible without our highly committed talented team here at Compugen who continuously performs at the highest level of excellence. With that, I will hand over to David for the financial update before we open up the floor for Q&A. Thanks, Eran. I am pleased to say that we are advancing in 2025 with a solid balance sheet. David Silberman: Cash runway assuming no further cash inflows, is expected to fund our operating plans into the 2027. We anticipate using this runway to advance our COM701 platinum ovarian cancer trial MYA ovarian, and to support the progression of ZS ZS0321 in the clinic together with continued investment in our early stage pipeline. Going into the details, I will start with our cash balance. As of September 30, 2025, we had approximately $86 million in cash, cash equivalents short term bank deposits and investment in marketable securities. In October 2025, subsequent to the financial results for the quarter ended 09/30/2025, total of approximately 800,000 shares were sold through the company's ATM facility contributing to a net proceeds of approximately $1.6 million. Revenues for the 2025 were approximately $1.9 million compared to approximately $17.1 million of revenue for the comparable period in 2024. The revenues for the 2025 and 2024 reflect the recognition of respective portions of both the upfront payment and the IND milestone payment from the license agreement with Gilead. Expenses for the 2025 were in line with our plan. R and D expenses for the 2025 approximately $5.8 million compared to approximately $6.3 million in the 2024. Our G and A expenses for the 2025 were approximately $2.2 million and approximately $2.6 million for the same period in 2024. The 2025, our net loss was approximately $6.98 million or $0.07 per basic and diluted share compared to a net profit of approximately $1.28 million or $0.01 per basic and diluted share in the 2024. With that, will hand over to the operator to open the call for questions. Operator: Thank you. Ladies and gentlemen, at this time, we will begin to question and answer session. If you wish to decline from the polling process, please press 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Please stand by while we pull for your questions. The first question is from Stephen Willey of Stifel. Please go ahead. Stephen Willey: Yes, good morning. Thanks for taking the question. Just curious, the extension of the Maya interim analysis from guess the 2026 into the '7. Is that just predicated on enrollment timelines and kinda what you're seeing just from an accrual perspective? Does that have anything to do with the accumulation of PFS events in the study that may be required to trigger the interim? Just curious as to what's kind of happening behind the scenes there. Thanks. Eran Ophir: Sure. Thanks, Steve. So overall, as we know, there are a few factors that determine the initial readout of clinical trials. He's opening the sites, it's the actual enrollment rates, and finally the actual accumulation of events along the trial. And we saw the trial by giving estimation and the more the trial develops you the kinetics and you optimize your prediction. This is exactly what we are doing here. Can say today that we opened most of the sites. Including major academic U.S. Centers and the French Archae Genico Group, It took a bit more time to open, where it's mostly the academic centers, but we are glad to have them on board, and now again most of them are open, And now we expect while opening the sites, and again, and heading the French site also was done because they showed interest and also to support the aggressive enrollment rate that we anticipate. And now this is the time for the start enrollment and see the actual ramp up. Michelle, if you want to add something to add some color? Michelle Mahler: No. Mean you covered everything. So effectively, we had selected a number of sites. We've had additional academic sites wanting to participate. Those do tend to take a little bit longer to open. In addition to that, we had also been consulting with Genico in France when they asked to participate as well. We're trying to reflect our best estimates. Think there's a lot of different factors that impact when one has an interim analysis and we still believe that we will be able to meet the aggressive timelines that we have. Eran Ophir: And finally we also will disclose today that we have cash run into Q3 2027, so we also have the cash to support taking into account this shift in Q1. So to work in a good position, to continue with the Mai trial and to bring value for patients because we think and we believe in this study. Stephen Willey: For taking the question. Operator: The next question is from Daina Graybosch of Leerink Partners. Please go ahead. Daina Graybosch: Hi, thank you for the question. I wonder if we could talk about the upcoming Arcus Gilead readout with Verteger in gastric because it could come early next year. I want to know what you're looking for. Of course, it successful, then that validates your ingrown hypothesis. But is there anything you would see in the outcomes of that trial that would reduce your confidence in your own TIGIT and more importantly in the bispecific Rovigo? Eran Ophir: Thanks, Dana. It's a very good question. So this will be the first Phase III readout for an hep C reduced digit antibody. The data enabled promising, but it was a single arm study, not many patients, but doubling almost doubling the overall survival versus stroke and control was reassuring. And now is the time to see how it evolves in the Phase III and this is of course to be very meaningful for us. But it is only one trial. So, obviously, if it's successful, this reflects directly on the Feet Reduce and what we're saying about the Feet Active the safety issues, potential reduced efficacy issues, And this will show directly that FC reduced R active in Phase III results. But even if this trial fails, Arcos Gila themselves had additional Phase three trials additional DUANs, and AstraZeneca has two additional advantages over the just a single monoclonal Feet Reduce. One is they show that they are bispecific. Has a potential more activity. And actually, they showed up in a very nice ex vivo patient derived material system. And they have a cooperative binding that allow cooperative blockade of PD-one and TIGIT on the stem cell. The result was in that relatively translational system, that it more active than just PD-one and DG blockade. And then, also in some of the trials, there are potential regulatory advantage as the way we see it, looking just the side of all the accumulating Phase III trials, for example, in one of the trials in the believe with the AUTOMATE biliary one, the comparing Rilbe plus chemo. So just And because it's a bispecific, nobody can ask for a contribution of components as far as we understand it. And therefore you don't need to show that TIGIT is active. Yes, we believe TIGIT is active and they have to reduce even if the activity is not sufficient, in this case, have imposed enhanced efficacy due to the bispecific format. And just using it as an alloy safe backbone to combine with chemo to compare versus chemo. This is definitely an advantage of the bispecific. There are some other trials doing the same. They also have some trials doing directly head to head versus pembro and we believe and think that they should have a win there as well, but so they have multiple shots on goal with some advantages of the bispecific indeed. Operator: The next question is from Leland Gershell of Oppenheimer. Please go ahead. Leland Gershell: Hey, good morning. Thanks for the update and taking our question. Just wondering, if you as we look forward to the interim update from my ovarian, could you remind us of any internal threshold or bar you're looking for from that interim with respect to efficacy? Thank you. Eran Ophir: Thank you, So I will start and then over to Michel. Again just to remind everyone, we talk about a study which have forty patients treated with COM701 in maintenance settings compared to twenty patients in placebo. We're relying on solid historical control and internal control. Comparing to placebo. This is not a registration trial. But we are looking we think this trial is well built to allow us to understand if COM701 has a monotherapy signal in this patient population, after seeing a signal in the last line platinum-resistant setting, And then upon success, this adaptive trial design will allow us to build and to continue to move forward either to adding more arms or to potential third approval. And Michel, please add some color on that. Michelle Mahler: Okay. So the clinical trial is an exploratory study to allow us to determine the magnitude of the effect size of COM701. It is very desirable for us to be able to demonstrate single agent activity. An improvement of up to three months above the placebo would be very clinically meaningful. But at the same time, we are looking forward to the totality of the data be able to determine what next best steps would be. Leland Gershell: Great, thanks very much. Operator: The next question is from Asthika Goonewardene of Truist Securities. Please go ahead. Asthika Goonewardene: Hey, guys. Good morning. Thanks for taking my question. So with Calm COM902, this would test to be an unpartnered actually reduced TIGIT antibody in the wake of new data coming up from the people we're watching on ARKIS and making read throughs here. So I know you've licensed the binder to your but does that still give you flexibility to partner nine zero two with a separate company? Can you let us know about any restrictions or financial terms we should take in consideration? Eran Ophir: Thanks, Ashlika. It's a great question. So we license AstraZeneca the right to use COM902 as part of their bispecific PD-one and TIGIT and some other bispecific. But we fully own Commodore nine zero two, We don't have any restrictions. We can either decide to move forward in our own trials obviously upon successful results by others, to be a meaningful driver. Reminds a lot of us that in the days that the FC Active TGI initial deals there were hundreds of millions of dollars of upfront deals. And being the probably only monoclonal Fc reduced digit antibody out there, we believe that readouts in '26 could bring meaningful interest back into TIGIT especially in COM902. And we have again, we fully own it, so it's be fully opportunistic whatever direction we would like to take this Com nine zero. Operator: The next question is from Oladapo Yeku of H. C. Wainwright. Please go ahead. Oladapo Yeku: Good morning, Yaron and David. Thanks for taking my questions. Couple of quick questions. One is when we look at the tolerability profile of COM701, you know, how does that influence its potential use in combination therapies especially in some of the less immune inflamed tumors? And the other question is, when you saw the data from the pooled analysis presented at ESMO, There were some today three or higher treatment adverse ones about sixteen point seven percent or so. So how does how do you plan to improve that safety in combination therapy? Therapies. Michelle Mahler: Sure. So firstly the tolerability of COM701 as a monotherapy is extremely well tolerated. In fact we have any discontinuations due to adverse events, and that pulled analysis? When COM701 was used as a single agent. In the triplet combination groups, in the pooled analysis the adverse events that were seen that were grade three were in in keeping with the same frequency seen in the respective labels for both nivolumab and pembro pembrolizumab. Given the tolerability of COM701 its own, we believe that it is very well set up for being able to be used as a monotherapy or as a combination. With standard of care agents or with other novel agents that are coming through the landscape. Oladapo Yeku: Thank you. For taking the questions. Operator: This concludes the Q and A session and Compugen's Investors Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Greetings, and welcome to the Surgery Partners Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Dave Doherty. Please go ahead. Dave Doherty: Good morning, and thank you for joining Surgery Partners' third quarter 2025 Earnings Call. I am joined today by Eric Evans, our CEO. During this call, we will make forward-looking statements. There are risk factors that could cause future results to be materially different from these statements, as described in this morning's press release and the reports we file with the SEC, each of which are available on our corporate website. The company does not undertake any duty to update these forward-looking statements. In addition, we reference certain financial measures that are non-GAAP, which we believe can be useful in evaluating our performance. We reconcile these measures to the most applicable GAAP measure in this morning's press release. With that, I will turn the call over to Eric. Eric Evans: Thank you, Dave. Good morning, and thank you all for joining us today. My opening comments will briefly highlight our third quarter results, reflect continued execution and consistency with our long-term growth algorithm. Then I will discuss in more detail our recent progress across our three growth pillars: organic growth, margin improvement, and deploying capital for M&A. I'll also provide some additional color on our ongoing strategic portfolio optimization process before concluding with some commentary on our outlook for the remainder of the year. First, let me provide highlights from our third quarter earnings. Net revenue was $821.5 million, up 6.6% year over year. Adjusted EBITDA was $136.4 million, up 6.1% year over year. Adjusted EBITDA margin was 16.6%. Same facility revenue grew 6.3%. These results are a testament to the focus of our colleagues and physician partners who serve our communities with valuable, high-quality, and convenient care. Our team continues to deliver on our mission to enhance patient quality of life through partnership. Starting with our organic growth, in our consolidated facilities, we performed over 166,000 surgical cases in the third quarter. Volume growth in GI and MSK procedures was relatively high, including continued growth in orthopedics, driven by an increase in joint-related surgeries, while ophthalmology procedures were slightly lower this quarter. Growth in total joint surgeries in our ASC facilities continues to be robust, with these cases growing 16% in the third quarter and 23% on a year-to-date basis compared to the same periods last year. Our investments in robotics and physician recruitment continue to position us to capture high-acuity demand. Within our portfolio, we have invested in 74 surgical robots that enable our physician partners to perform increasingly more complex and higher acuity procedures. These investments are also an enabler of our strong physician recruitment team. Through 500 new positions into our facilities, many of which we expect to eventually become partners. In the third quarter, payer mix moved modestly, with commercial payers representing 50.6% of revenues, down 160 basis points year over year, and governmental sources, primarily Medicare, up 120 basis points. While these changes fall within normal quarterly variability, we are also observing softer than expected same facility volume growth in recent months. Although volumes remain positive and generally in line with industry trends, they have trailed our internal expectations, prompting us to adjust our fourth quarter outlook. Given our typical seasonal lift in commercial volumes during Q4, we are monitoring this closely and refining expectations accordingly. Margin performance was stable, with cost discipline and reduced incentive-based compensation offsetting inflationary pressure and weaker than expected volume and payer mix. That said, we continue to drive improvements through procurement and revenue cycle operating efficiencies, which will contribute to margin expansion moving forward. Moving to capital deployment, to date in 2025, we have deployed approximately $71 million in capital for acquisitions, adding several facilities at attractive multiples. We also sold interest in three ASCs at an enterprise value of $50 million of cash plus sold debt, achieving a combined double-digit effective multiple. The most significant of these divestitures occurred late in the second quarter. Our long-term growth algorithm and initial 2025 outlook contemplated deploying $200 million plus proceeds from divestitures for a total of roughly $250 million of acquisitions this year. While we have not reached that level of deployment year to date, and in-year earnings contributions will be lower than originally anticipated, our disciplined approach prioritizes long-term value over short-term gains. Importantly, near and midterm M&A pipeline remains robust, with well over $300 million in opportunities under active evaluation. We are focused on deploying capital strategically in the months ahead and anticipate a return to our normal levels of annual capital investment moving into 2026. Our investments in the Noble facilities remain an important part of our growth strategy, among the highest return opportunities in our portfolio. In the third quarter, we opened two new de novos with nine currently under construction and more than a dozen in the development pipeline. These de novos are primarily focused on higher acuity specialties, with a majority devoted to orthopedics. These facilities typically require 12 to 18 months to build, up to another year post-opening to reach breakeven, given the nature of building scale from the ground up. Over the last nine months, several recently opened de novos have turned profitable, while others are still ramping and have not reached breakeven as quickly as anticipated, primarily due to construction and regulatory approval delays. While this timing creates modest near-term pressure on earnings, these investments are strategically positioned in high growth and are expected to be highly accretive and profitable moving forward. We remain confident that the current pipeline will drive meaningful value creation and reinforce our long-term double-digit growth algorithm. Now I'd like to spend a moment updating you on our portfolio optimization review. As we shared during our second quarter earnings call, we have initiated a strategic portfolio review designed to enhance our flexibility, streamline our portfolio, and self-fund our long-term growth algorithm. Today, we want to provide additional color on the types of assets under evaluation and the objectives of this process. Our focus is on selectively partnering or divesting facilities that can expedite leverage reduction, accelerate cash flow generation, and sharpen our focus on our core ASC service lines. The facilities we are evaluating for this effort are primarily larger surgical hospitals that provide services beyond our short-stay surgical focus. Often, these facilities are more capital intensive and also carry higher levels of finance lease obligations, which adversely impact cash flow conversion. We are currently in active discussions on a small number of assets, which we believe will be accretive to shareholder value and demonstrate the financial benefit to the company, with reduced leverage and increased cash conversion as a percent of EBITDA. Given the timing of these discussions and the long-term value creation it will generate, we will not be in a position to share material details during a December Investor Day. To ensure we provide the most comprehensive and meaningful update on our portfolio optimization efforts, we have made the decision to shift our inaugural Investor Day to 2026. At that event, we will share greater detail on these portfolio optimization efforts, as well as additional details on our long-term growth drivers and outlook for the business. As we look ahead to the remainder of 2025, we are revising our full-year guidance to reflect timing-related impacts of capital activity and the revised outlook for our fourth quarter. We now expect revenue in the range of $3.275 billion to $3.3 billion and adjusted EBITDA in the range of $535 million to $540 million. During our second quarter earnings call, we implied approximately $5 million of adjusted EBITDA pressure tied to slower M&A timing. Today, we are acknowledging incremental impacts from delayed capital investments and lost earnings from the three ASC divestitures in the first half of the year for which proceeds have not yet been redeployed. We remain disciplined and confident in our ability to deploy this capital, supported by a strong pipeline of opportunities that align with our short-stay surgical ethos. Based on the trends we observed in the third quarter, we now anticipate that same facility revenue growth for the full year will more closely align with the midpoint of our long-term target range of 4% to 6%. This adjustment reflects our prudent approach as we monitor recent shifts in surgical demand and payer mix, particularly among commercial patients, which typically increase proportionally in the fourth quarter. While we remain confident in the underlying strength of our business, we believe it is appropriate to take a measured stance heading into the fourth quarter, ensuring our expectations are well calibrated to current market dynamics. While our updated outlook acknowledges some near-term challenges, we are confident in the resilience of our growth algorithm, the significant tailwinds in the ambulatory surgery space, and our ability to execute. We are closely tracking these dynamics and will factor in any near to midterm implications into our 2026 planning, which we intend to review during our Q4 call. Finally, we remain focused on disciplined capital employment, operational excellence, and strategic initiatives that position us for sustainable growth and shareholder value creation well beyond 2025. Before I turn the call back to Dave, I want to take a moment to honor Dr. Patricia Maryland, who recently passed away. Pat served on our board with distinction. Her thoughtful counsel and unwavering dedication to advancing access and equity in health care inspired us all. We are profoundly grateful for her contributions and the legacy she leaves behind. With that, I'll turn the call back to Dave for a detailed financial review. Dave Doherty: Thank you, Eric. Starting with the top line, total consolidated net revenue for the quarter was $821.5 million, up 6.6% from 2024. We've performed over 166,000 surgical cases in our consolidated facilities in the third quarter, representing 2.1% growth. This growth was broad-based across our specialties, with higher relative increases in gastrointestinal and MS procedures, including continued strength in orthopedics. This growth overcame 10,000 surgical cases in 2024 related to facilities that we have since divested. Same facility total revenue increased 6.3% in the third quarter, with same facility case growth of 3.4% and rate growth of 2.8%. Adjusted EBITDA for the quarter was $136.4 million, representing 6.1% growth over the prior year and a margin of 16.6%, essentially flat to last year. Year-to-date adjusted EBITDA stands at $369.3 million, up 7.2% from the prior year, and our year-to-date margin is 15.2%. We ended the quarter with a cash balance of $203.4 million and a revolver capacity of $405.9 million, providing total available liquidity of over $600 million. Operating cash flow for the third quarter was $83.6 million. During the quarter, we distributed $52.5 million to our physician partners and invested $10 million in maintenance-related capital expenditures. There were no unusual transactions or matters affecting operating cash flows other than the change in interest rates on our corporate debt portfolio that we have previously discussed. We remain pleased with the disciplined management of capital deployed for maintenance-related purchases and with cost management controls for transaction and integration costs, which are at levels consistent with 2023 and significantly below the elevated activity we saw in the second half of last year. We have approximately $2.2 billion in outstanding corporate debt with no maturities until 2030. During the third quarter, we completed a repricing of our term loan and revolving credit facility, reducing our rates to SOFR plus 250 basis points. This action positions us to achieve meaningful interest expense savings and improved cash flows going forward. The current floating rate is 4%, and interest payments for the quarter increased by $9 million compared to 2024, primarily due to the favorable swaps that matured earlier this year. Our capital structure remains well-positioned to support our long-term growth algorithm while providing flexibility for future capital deployment. At quarter-end, our net leverage ratio under the credit agreement was 4.2 times and is 4.6 times on a balance sheet net debt to EBITDA basis. This level is consistent with our expectations, reflecting timing on capital deployment. Turning to expenses, salaries and wages were 29.6% of net revenue, flat with the prior year. Supply costs were 25.4% of net revenue, down 70 basis points from last year, reflecting ongoing procurement and efficiency initiatives. G&A expenses were 2.7% of revenue, down from 3.8% in the prior year period, primarily reflecting lower stock-based and incentive-based compensation related to our year-to-date performance. From a capital deployment perspective, to date in 2025, we have deployed $71 million for acquisitions, adding several facilities at attractive multiples. We also completed divestitures of three ASCs in the first half of the year, generating cash proceeds of $45 million and a reduction in debt of $5 million. The largest of which sold at a 15 times effective multiple. These proceeds have not yet been redeployed, which along with the timing of M&A, is reflected in our revised guidance. As Eric mentioned, our de novo continues to be a key driver of long-term value. With recent openings, nine under construction, and more than a dozen in the development pipeline, we are excited about the future of these investments. Our revised guidance reflects a slower ramp on recently opened de novo facilities. Guidance for the full year 2025 has been revised to reflect these timing-related impacts. We now expect revenue in the range of $3.275 billion to $3.3 billion and adjusted EBITDA in the range of $535 million to $540 million. As noted, the revision reflects delayed capital deployment, lost earnings from divested ASCs, and a more cautious outlook on the commercial payer mix and volume in the fourth quarter. We remain disciplined and confident in our ability to deploy capital, supported by a strong pipeline of opportunities aligned with our long-term growth strategy. Same facility revenue growth for the full year is now expected to be closer to the midpoint of our long-term growth algorithm of 4% to 6%, reflecting a prudent approach to the fourth quarter as we hedge against potential softness in both volume and the overall commercial payer mix while still anticipating positive contributions from both case growth and pricing. While we are not assuming this recent shift is an ongoing headwind, we are monitoring these dynamics closely and will consider any potential near to midterm implications as part of our 2026 planning that we plan to discuss in our fourth quarter call. Eric Evans: Finally, Dave Doherty: I want to echo Eric's appreciation for the dedication of our colleagues and physician partners. Their commitment continues to drive our results and positions us for long-term success. With that, I'll turn the call over to the operator for questions. Operator: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be to pick up your handset before pressing the star keys. And, again, that is 1 if you would like to ask a question. And our first question comes from Brian Tanquilut with Jefferies. Brian Tanquilut: Hey. Good morning, guys. Maybe, Eric, as I think about the weakness that you called out in demand or in procedure volumes as we think through Q4. Anything you can point to? I mean, is that specific to certain kinds of procedures or certain classes of procedures, ortho versus GI or geographies? And just kinda, like, what you guys are thinking in terms of what's causing some of that. Is that a referral flow issue? Or just broader macro? Eric Evans: Hey, Brian. First of all, thanks for the question. Obviously, we spent a lot of time looking at this. In Q3, we saw our internal expectations some weakness on our internal expectations, some weakness on both volumes and payer mix. Obviously always a big ramp going into Q4. We looked at that really, really close relatively broad-based, higher government payer mix than we would expect entering Q4 and just a bit softer on the growth. Now look, we still expect the fourth quarter to be a growth on both cases and rate, but below our internal expectations. And some of those things in certain markets you can have a very specific story, but it was broad enough. And apparent enough to us that we had to react to it. We're still looking at that. We don't expect this to be a long-term trend, but it was again, material enough that we wanted to make sure we are prudent in our guide. I wouldn't say it was necessarily any particular specialty. As we think about this across the spectrum, it was just a broader base weakness. Hard to know, right, like what patients show up in a doctor's office. In any given period. We did expect that mix to flip as it always has a little bit stronger. And so we're just we're reacting to the trends we've seen whether that's macroeconomic, who knows. I think we're we're too early to say, but we're certainly seeing enough that we had to react to it. Brian Tanquilut: Yeah. Appreciate that. And then maybe just on the pullback or kinda like relatively low level of spend on acquisitions, is that a matter of just deal timing? Or is that evaluation? I mean, what are you seeing in that in that area, or is that more of a company-specific decision to kinda, like, throttle back a little bit as you also look at divestitures here? Eric Evans: Yeah. Brian, great question. We we continue to be encouraged by our pipeline. We actually we've had relatively strong deal flow. We had a couple we've turned down. We're very, very disciplined in how we think about these opportunities. We're in a very fragmented industry where we still have a preferential position to be partners with independent ASCs. And so we feel good about it. It is a matter of timing, and it is about us being quite disciplined. We don't see any reason we don't get back to our normal M&A flow as we move forward. Operator: Thank you. Of course. And our next question comes from Joanna Gajuk with Bank of America. Joanna Gajuk: Hi, good morning. Thanks for taking the question. Just maybe to follow-up on the payer mix commentary just to make sure. Is it just, you know, volumes commercial volume being weaker relative to government, or you know, anything to call out in terms of, you know, denials, or rate updates from commercial? Because, obviously, we're hearing from other types of providers pressure there. So I just wanna ask that question. Eric Evans: Maybe high level. I mean, always there's always pressure from payers, but there's nothing that we would call out that's systematically different for us. As you know, with an elective commercial business, we have a lot of control over that side of it. We have a lot of visibility. Certainly, that's not an easy process and there are some pressures, but that's not what we're pointing to here. It's just really the commercial flip in growth trend is not as quite as strong as we expected. Grow. Look, I want to be very clear, we're going to have volume and rate growth in the fourth quarter, but we have a very very detailed look into this as we head into the fourth quarter. It's a huge quarter for us and we are just reacting to a trend that's not quite as strong as we would normally expect. Joanna Gajuk: And right, in terms of the magnitude of things, if you can help us. So there's a couple of things. So there's the light in acquisitions, the also mentioned divestitures. Right? And then, obviously, the cautious outlook for the commercial mix and volume. So is there any way to break it out when we look at the annual, say, number in terms of your EBITDA it looks like $20 million or so cut to that midpoint versus the last quarter commentary about being the lower half of the range. So kind of break it down. Can you break it down for us or at least kind of scale from highest to lowest in terms of the impact? Thank you. Eric Evans: If you think about that full $20 million of pressure you're pointing to, I would say the majority of it, let's call it 60% of that is development or capital timing related. What that's related to acquisitions, that's related to not redeploying, money that we we had from divestitures. All that's timing related. Nothing we're concerned about there at all. So kind of the majority of it is that the rest of it is this trend change that we are acknowledging we saw in the third quarter and we're continuing to see as we head into the fourth quarter just being prudent on that slight change in kind of that mix. But it is primarily timing related. And the recent trend change, we don't see it as anything long term. I'll reiterate, this is a business where we expect to continue to be a double-digit growth company over time. But we are reacting to both the kind of fickle nature of M&A this year and this slightly weaker trend entering the quarter. I don't know, Dave, if you'd add any specifics to that. Dave Doherty: Yes. I might just remind folks that on our second quarter call, we did note this slower pace of M&A and how that would have an impact on our full-year guidance. The other thing is, Eric pointed out a little bit earlier, we did divest those three ASCs and what we typically do when you when you have proceeds like that is about $50 million of total net proceeds for us. That gets added to our target for M&A this year. So you were to look at our original guide of $200 million implied for the year, that number now becomes $250 million. And clearly, we've only done $70 million through this morning. So there's just not enough time in the balance of the year despite the fact that the pipeline does remain strong. So to Eric's point, that's a really big component of it. De Novo is reaching breakeven. Difficult to exactly pin down when that's gonna happen, but there were some delays some regulatory pressures that were inside there. Again, that's pure timing. Those have a great trajectory, and again, the best use of capital. And I would say this, on second half or kind of the 40% or so of that guidance drawdown would be related to Q4 volume, particularly related to that all-important mix shift in the commercial framework. As Eric pointed out, it's really just early signs from the late part of the third quarter. And as we obviously marched into the fourth quarter, with good line of sight and good communication with our physician partners, this is just us being prudent in there. So again to Eric's point, 3.4% same facility case growth in the third quarter, pretty strong consistent with where we thought that was going to be. And consistent with what others are seeing in the marketplace. However, inside of that it's just the pace of growth that you would expect to see on the commercial volume side. So we think that gives you about 200 to 300 basis points of pressure in the fourth quarter, still going to be net positive. But what that means for us is our original second quarter viewpoint on how we were going to end the year at the upper end of our long-term guidance range of 4% to 6%. We now are pushing that down by 100 basis points. So we do expect the end of the year same facility revenue to be somewhere at the midpoint of that long-term growth algorithm rate. So still good, still within our range, but lower than the loftier expectations that we had going into the year. So there we go. Joanna Gajuk: Yeah. And if I may just to make sure. And divestitures, any comment on that three ASCs in terms of the quarter or the guidance, but also annualized number? How should we think about it? Thank you. Dave Doherty: Yes. I mean, can assume that we we sold those at a pretty decent multiple. Inside that year, higher double-digit multiples. Is I think how we think about that. We also had the best that we did at the very end of the fourth quarter. And I think in our fourth quarter earnings call, we talked about that having an annual contribution rate of somewhere around $11 million of earnings. So you're jumping over both the divestitures the fourth quarter. We've been doing that all year. So that's going to have a slightly higher impact in the fourth quarter. Because those divestitures occurred in December. Plus these three divestitures that occurred in the middle part of this year. And again, I think it's a double whammy for us Joanna because not only do you lose those earnings, but you haven't redeployed the cash in those accretive earnings that you would that you would like to have which again is just a matter of timing. Joanna Gajuk: Great. Thank you. Operator: You're welcome. And moving next to Benjamin Rossi with JPMorgan. Benjamin Rossi: Hey. Good morning. Thanks for the question. Just picking up that de novo comment you made. It seems like activity there is going to move forward despite maybe a slower ramp on some of these recently opened de novo facilities. I know you just mentioned the construction timing, but could you just walk us through kinda how you're thinking about de novo efforts going into the next year and maybe how we should be thinking about the cadence of openings as you kind of target those nine new facilities and additional dozen in development? And then how are you kinda prioritizing geographies or markets here for your new openings? Eric Evans: Yes, Ben. Appreciate the question. So we are obviously very excited about our de novo growing de novo capabilities. It's a very accretive way for us to put capital to work. It is quite time-intensive. Typically takes, you know, eighteen months to syndicate. Takes another twelve to eighteen months to build and then a year, a year or so to get to cash flow. Flow breakeven. But we love these opportunities. And we do expect we're going to have double-digit of those development in any given time. We continue to have a really strong pipeline with our team talking to physicians. There's a lot of things to like about these. They are primarily higher acuity facilities. A lot of them are purpose-built orthopedic facilities. They offer us the opportunity to kind of reset our discussions with payers because they're often they're moving stuff out of the which is a great position to start from. And with great groups of docs, we have a good visibility of who signed up, what cases they'll bring. So it continues to be a new lever to our growth engine going forward. Obviously, the start-up portion of this is you got to make investments, you got to get to a run rate. And so we're working through that right now. So when we talk about delays, I mean construction has been a little bit challenging at times in certain parts of the country. Certainly, the regulatory delays are around licensing and right now, the government's obviously been delayed in clearing some of those, which creates a little bit of pressure. But ultimately, we're really, really excited about the de novo opportunities. We continue to see that pipeline remain quite strong. Both with health system partners and independent docs. Again, the ones with independent docs provide us opportunities over time to buy up. So there's a lot to like about the ultimate value creation of investing in de novo facilities. Benjamin Rossi: Thanks for the additional comments there. Just as a follow-up, maybe as we're thinking about your typical 4Q seasonality, I think over the last couple of years, there's been some discussion just on health care consumer pricing and benefit design and when you kind of compare your typical patient behavior during the fourth quarter given the deductible reset at the end of the year, how maybe that behavior has changed as we've seen, you know, a higher cost backdrop. Have you seen any signs of that impact being blunted in this kinda higher cost world with any of your patient tracking? Or are you seeing any noticeable changes in how patient behavior is maybe shifting around that deductible reset from, like, the 4Q going into 1Q? Thanks. Eric Evans: I mean, it's hard to comment on that from a macro perspective right now. What I will say is, given the trends we've seen, we're certainly hedging against trying to understand what is happening with that consumer behavior. We are seeing a little bit, as we've talked about and acknowledged, we're seeing a little bit weaker commercial trend this year. Hard to say whether that's around specific plan design. And what we do love about our space and we talk about this a lot, is we're one of the few places where all three parts of the industry, all three major consumers prefer us because of our value position. The patient has a better experience. They have a much lower cost. Obviously the payer frequently, really, really wants, always wants their patients to choose that right place for high value care in physicians. They love our environment because we're a time machine for them and also give them a chance to be an investor and own in our side of the business. So we like our long-term position. We think even if there are changes in plan design, value position positions us well for whatever changes there. So I guess to hedge a little bit on your answer to your question, hard to say at this point. We don't have enough data to say whether that's the case or not, but we're certainly seeing a little softer trend as we said, going into Q4. Benjamin Rossi: Understood. Thanks for your time. Eric Evans: Thank you. Operator: And Matthew Gilmore with KeyBanc Capital Markets has our next question. Matthew Gilmore: Hey, thanks for the question. I wanted to see if there was any additional comments on the portfolio review process. Just curious about your just what you're seeing in terms of the nature and depth of discussions and the pacing just anything to report there. Eric Evans: Yeah. So we'll be, you know, obviously, we're careful how much detail we give on this. As we put in the as we said in our prepared remarks, we are certainly on our way in a couple of markets. We do believe that there's real opportunity for us to move forward on transactions that will create real value acceleration when it comes to free cash flow and deleveraging within that within our portfolio. We are focused, as we said in the comments, a little bit giving you a little bit more detail. We're focused on those markets that are probably farthest from the puck of our short-stay surgery ethos, right? So the ones that maybe are a little broader, where you can make a case that perhaps there's a better natural owner. And we're off and running on those processes. We know they're very valuable markets very valuable facilities within the marketplace they serve. We do expect to have strong interest in those. Part of why we pointed to the delayed Investor Day, obviously, is we want to be a little bit farther along in that. It's important we have more to talk about when it comes to that portfolio optimization work we're doing. But we're quite encouraged with that opportunity, and we do see it as a way to accelerate our balance sheet strengthening, accelerate our ability to self-fund our core ASC growth and move even closer to being a pure play company. So lots of good starts there. Obviously, can't go into details about markets or specific timing. It's a little bit fickle. You can imagine a lot of these assets are going to be in markets where it's going to be local regional systems, many of them nonprofits. That a little bit hard to predict timing, but we're certainly encouraged about the opportunity and believe we have great assets. I'd remind everyone that all of these are high-value assets. We'll We don't have to do anything with them. We're going to be very, very disciplined around making sure that they truly do accelerate what we're trying to accomplish relative to deleveraging and free cash flow. Matthew Gilmore: Got it. I appreciate that. And then as a follow-up, I thought I'd ask if there's any headwinds or tailwinds to think about for 2026. From your comments, it sounded maybe you were gonna wait and see in terms of the payer mix dynamics. But any other high-level things to think about for modeling purposes for '26? Eric Evans: Yeah. I think it's probably too early for us to get into risk opportunities for 2026. We're obviously monitoring this recent trend to see if it's something more systemic. No reason to believe it is, but we'll watch that closely. I mean, I think our core model and our core beliefs doesn't change when you think about our modeling as far as the opportunity we have in this space. So there's nothing I would point out today that's kind of a burning issue. But certainly, we'll be coming back for a lot more detail as we go into our fourth quarter call. One other thing I'd just say, Matt, going back to your portfolio question, the other thing that we are closely looking at in our portfolio optimization opportunities, it doesn't necessarily mean when we have something that we're looking at doing a transaction with that we completely sell out. Another option is that we partner. We partner and we stay in the partnership that's accretive. So there are multiple options we're considering in that portfolio review process. Matthew Gilmore: Got it. Thank you. Operator: Of course. And as a reminder, that is star one if you would like to ask a question. And we'll go next to Ben Hendrix with RBC Capital Markets. Ben Hendrix: Hey. Thank you very much. Just most of the questions have been answered, but just a quick follow-up on that last comment you made about the types of facilities you're looking to partner with. So I guess am I reading that right that you're looking for more partnerships with maybe broad-based facilities with broad-based capabilities, and you may be more willing to kind of retain those specialty facilities like spinal hospitals and facilities like that. Some more color there. Thank you. Eric Evans: I think what I would say, I mean, obviously, we're a partnership company. I would say that we are the markets that we are looking at to accelerate all the things we've talked about are all very attractive markets with, we think, bright futures. And so to the extent that there's a partner where they can bring some of those broader capabilities and we can stay in and be a manager, we're certainly very open to that. And that's going to be probably a possibility in some of these transactions. I don't think that's different necessarily than history. We haven't talked about that that much, but we across the country, have a number of partnerships with health system partners where it makes sense. Although still largely an independent company, we are very, very open to whatever the market dynamics are. I don't know if Dave, would you add anything? Dave Doherty: Yeah. Maybe just a couple of things on this. Just as a reminder, as we look at this portfolio optimization, part of the driver for this is focusing on what's important to our shareholders. So we're going to try to maximize the value of these any optimization efforts which start with are they great assets and can we truly get the value that we believe is out there. It's also gonna be impacted by the ability to reduce leverage and improve cash flow conversion of adjusted earnings which are obviously of paramount importance. So if you do a sale, it's very easy to see how all of those things will manifest. Again, assuming that price is right. If you do a partnership-based model, you will still retain access to a very strong market access to a greater physician base, a greater network of patient catchment area off the backs of that partner and potentially improve cash flows as it comes to a different kind of relationship with commercial payers, and continued management fees that kind of sit inside there. And then importantly, because of the nature of those types of partnerships in order to get there, you'll likely move to an unconsolidated position, which will remove that all-important leverage factor. So all of those things will go into the evaluation process as we think through what makes sense and where it makes sense. Ben Hendrix: Thank you very much. And just one on the slower ramp of de novos, I appreciate it. You mentioned it's mostly timing-related, construction delays, licensing, etcetera. But to the extent that there's any of this volume pressure kind of driving that ramp, what is that contributing to the ECOLA? Thanks. Eric Evans: Yeah. I wouldn't contribute any of that to those delays. I mean, those facilities actually have syndicated partners. We know what cases they plan to bring. It's really just a matter of getting them open and the kind of checking the boxes of all the construction and regulatory things that happen in that process. So that would not be a material driver of any of that trend we talked about. Ben Hendrix: Thank you very much. Eric Evans: Of course. Operator: Our next question comes from Andrew Mok with Barclays. Andrew Mok: Hi. Good morning. You help us understand the timing of this payer mix issue. When did it first emerge, and has it accelerated sequentially into the fourth quarter? And do you have a sense whether this issue is driven more by the ACA exchanges or employer-based coverage sense? Eric Evans: Hey, Andrew. Thanks for the question. Look, we started to see this in the third quarter. I mean, can see that we had some pressure in the third quarter that showed up even though our volumes were strong. We definitely that mix puts pressure on margin accretion and we were flat margin we start to feel that a little bit in the third quarter. Continued in the fourth quarter at a consistent basis to that pressure. So again, I don't want to overread into this. I clearly, we're making an adjustment because we see it, but it's hard to know. You know, we don't necessarily see a systemic at this point. But, you know, again, wouldn't wanna overread to that. And your second part of your question, I'm sorry, was health insurance. Health oh, health insurance changes. You know, look. We ultimately, as a business, because we're elective, we don't really see a ton of health insurance exchange business. A lot of that's ER access points that drive some of that. So you know, could it be could it be some pressure there? It could be, but I don't think that's a material part of our business. So probably not the biggest pressure point. Andrew Mok: Great. And following the guidance revision, can you share thoughts on where you expect free cash flow to land in Q4 and the year? Thanks. Dave Doherty: Yeah. Well, as you know, we give guidance on free cash flow. Having learned that lesson on kind of the intense variability that kind of sits inside there. But cash flow this quarter and all year has been pretty strong on an operating cash flow basis. Think about the third quarter here, nearly $20 million higher than the same time last year. Which is reflective of the improving in underlying cash flow generated by the core business growth and working capital improvements that helped more than offset the $9 million of pressure that we have on the interest cost in the quarter. Those interest cost pressure points will continue into the fourth quarter until we fully lapse those going into 2026. We are in a slightly better position. Remind you that we did do the repricing of our term loan and our revolving credit facility. Those rates are now 25 basis points and 75 basis points improved over the prior loans that we had in place. So that pressure from interest rates will slightly persist into the fourth quarter. However, we do continue to focus and see benefits on working capital from our focus on revenue cycle investments that standardization effort is taking hold and we're seeing the benefits of those. And we continue to see improvement in those that spending on transaction and integration costs. They were a little bit lower than what we had expected into the third quarter. About $5.5 million lower sequentially, $17 million lower than the elevated level of spend in the third quarter. We expect that to continue to improve year over year. Fourth quarter was also fourth quarter of last year was also elevated levels of spending related to that acquisition activity last year. That number should come down and should remain relatively consistent with what we saw in the third quarter. The challenge for us is really just where distributions to our physician partners comes out. That's all a factor of working capital balances that sit at each facility and the nature of those facilities. And the level of ownership interest that we have out there. So I would say operating cash should continue to be relatively stable. Maintenance-related capital expenditures, we're not expecting any material change inside there. And then the distributions that go to our physician partners is the one that is most challenging for you to look at at any particular quarter and fundamentally why we're not going to give guidance for the fourth quarter. Generally speaking, it should continue to improve though. Operator: We'll go next to Sarah James with Cantor Fitzgerald. Sarah James: Thank you. Back in May, you talked about your recruiting mix of surgeons being higher in high acuity ortho and ortho than historical cohorts. So I'm wondering now that they've had a chance to start ramping, are you seeing any benefit from that? How do you think about the timeline of new surgeons ramping, and has the mix continued throughout the year to be higher in the high acuity ortho than your historical cohorts? Eric Evans: Hey, Sarah. Good morning. Thanks for the question. Look, we're really pleased with our position recruiting team's efforts again this year. As we mentioned, we're over 500 physicians recruited to our facilities year to date. That continues to be a big part of our same-store growth story. That mix is about the same as when we talked in May, certainly higher on the orthopedic recruiting than the overall mix, which is really helpful. Sometimes when those new physicians join, your initial mix can be a little higher in Medicare, so that you know, that is true in general. But we're quite happy with the recruitment pace and we expect to finish the year strong. We're seeing this is normally the kind of one of the strongest parts of the year of adding new docs. We're seeing that continue. And as you guys will recall, that's part of our growth engine as these new docs come in. We get, you know, roughly a doubling of their business in year two. We continue to see that kind of movement in year three. It's important that we stay really strong in this area because there always is some level of attrition. You can imagine. So something we're really, really focused on. But, Sarah, that really hasn't changed. We're still certainly more focused on those higher acuity procedures. You continue to see that show up in our total joint count. I'll reiterate that we grew 16% year over year this month to our 23% the quarter in our ASCs. That continues to be a big part of that is finding new physicians to join us and bring those cases to our ASCs. Sarah James: 60% of 23 for the year. Eric Evans: Yeah. Oh, as I said, that's what I say. Month and quarter. Quarter. Yeah. Sorry. Quarter and year. Yep. Sarah James: Perfect. And if I could just double click on that mix comment again. So you mentioned that with new surgeons, and these are coming on with higher dollar procedures, you typically have a higher Medicare mix as they onboard. So how much of an impact did that have on the mix situation that you've been talking about today? Eric Evans: Yeah. That's probably not the big driver. I mean, honestly, the case all the time with new surgeons. And so, you know, I don't think that's that much. I mean, there could be something there, but not a lot. I don't think that's the trend driver. Sarah James: K. Thank you. Eric Evans: Yep. Operator: Moving on to Whit Mayo with Leerink Partners. Whit Mayo: Hey. Thanks. I've only got one question. I know that you guys are just moving into the budget and planning process. But, Dave, do you think maybe about excluding unannounced M&A from the guidance given the challenges of timing factors, etcetera? Just a lot of companies don't include M&A in their guidance. So just wanted to take your temperature on how you're thinking about that now. Dave Doherty: Yes. Yes. Very fair question, Whit. And clearly something that has proven difficult over the past couple of years with very different stories on the level of M&A spend with advanced kind of spend in 2024 and obviously relatively lower in 2025. And it is difficult to predict. The challenge that we have is reiterating the company's long-term growth algorithm, does rely on acquisitions as about a third of our growth will come from inside there. But you can be assured we're asking that same question internally, and we will have an answer for you by the time we give our fourth quarter earnings call. But I appreciate the fact that you're thinking about that the same way that's helpful to know. Whit Mayo: K. Thanks a lot. Eric Evans: Thanks, Whit. Operator: We'll go next to Bill Sutherland with The Benchmark Company. Bill Sutherland: Hey, thank you. Good morning, all. I was just, wanted to get a little more color or granularity, I guess, on the divestments you've done both late last year and then year. Are they all ASCs? And are they just pure sales or they're partnering as well? Dave Doherty: Yeah. Bill, thanks for the question. All of the divestitures that we talked about are ASCs. A couple of them were simply closures that were out there end of relatively small assets that sat inside there. A couple of them were sell downs into deconsolidated positions. Which happens from time to time. And that was basically the nature of those divestitures. Bill Sutherland: Okay, and now in the stuff that you're currently thinking about, or working on, would that include the Idaho hospital? Eric Evans: Hey, Bill. It's Eric. Look. We're not gonna be talking about any specific markets. We're giving guidance on kind of the types of things that we're going to pursue. But as far as specific markets, we won't be clarifying that until we have something specific to announce. Bill Sutherland: Understood. And then lastly, just thinking about why ophthalmology might be softer. Is more of a discretionary kind of procedure? In general? I'm thinking of cataracts and things like that. Eric Evans: Yeah, so Bill, a great question. I would just say if you look at our overall ophthalmology, we did have a amount of our divestiture in ophthalmology. So if you're looking kind of year over year, there's some change there. We still are growing in ophthalmology. We did not mention it as quite as strong as MSK and GI this quarter. Look, we see those variances across service lines. It's still positive. I wouldn't read too much into that at this point. I mean, ophthalmology been a really strong grower for us over the last several years. But your point is one will watch carefully. I don't know, Dave, if you'd add anything to that? Dave Doherty: Yes. Just to clarify, something. You are looking at the consolidated case volume that we saw year. So you are seeing a decrease in the third quarter. That is all attributable to the divestitures. If you were to look at it on the same facility basis, which I know we don't disclose, that growth was actually just under 1% on a same facility basis. So it is growing to Eric's point, but obviously that's lower than our growth algorithm would suggest. And our field checks in that particular market are really isolated to some unique pressure points in select facilities where we had either experienced a retirement, in one case a very high volume doctor, that retired. And then some short-term disability maternity leave, etcetera. Those are short-term in nature. The fundamental operations still make sense, but you've gotta recover from those. So somewhat isolated to those things, again, not fundamental. At this point. Bill Sutherland: That's helpful. Thanks. Eric Evans: You're welcome. Operator: And our final question from today comes from Ryan Langston with TD Cowen. Ryan Langston: Morning. Thank you. How should we think about the capital budget, I guess, the maintenance side? Is there any big step-ups that are going to be required across the portfolio here over the near term or anything else we should be thinking about there? Dave Doherty: Yes. No, there is no major changes that we're kind of expecting. Over the past few years, we have really spent a lot of time with our physician partners to analyze the life cycle of each of pieces of equipment that sit in our facilities, and increased communication with our physician partners on when it makes sense for us to plan for and execute on any maintenance-related capital expenditures. So we feel pretty good about how we budget those and the run rate that you're seeing quite frankly for the past six quarters, should be consistent for the foreseeable future at this point. Ryan Langston: Got it. And then I think I heard you say you've got a 15x sort of all-in multiple for a particular asset. But other than just the, I guess, attractive multiple that you get for some of these facilities you're looking to sell, like, what other criteria do you use to evaluate and then ultimately just make the decision to sell? Thanks. Eric Evans: Yeah. It's a great question. So as we talked about here, one of the criteria we're using right now is looking at facilities that give us the opportunity to delever faster and increase free cash flow faster, right? So those tend to be the larger, more complex facilities that maybe go beyond our core, short-stay surgical ethos. In other cases, it's really market-specific. So we'll look at the overall market, the opportunity to either partner or sell make a decision on whether that's the best natural owner or not. In general, look, we're planning to grow our facilities rapidly in the coming years between de novos and our acquisition plans in so obviously, we're in the business of growing our surgical count, but we'll be opportunistic and thoughtful around the right business decision in any given market. And the ones we sold are a perfect example of that. And Ryan, maybe as the last question, I'll wrap up and say thank you all for your time this morning. Again, I want to say thank you to our colleagues and physician partners. Really, really proud of the high-value care we offer in the marketplace. We're the last independent freestanding at a short-stay surgical company in the country. We play a very important part in the healthcare system. We think we're part of the answer on cost reduction and we're very, very excited about our positioning to continue to grow and deliver value to our shareholders. So thank you again for the time this morning and we'll be back in touch at the end of Q4 call. Thanks. Operator: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Greetings. Welcome to PowerFleet's second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Carolyn Capaccio, of Alliance Advisors. You may begin. Carolyn Capaccio: Thanks, Holly. Good morning, everyone. This presentation contains forward-looking statements within the meaning of federal securities law. Forward-looking statements include statements with respect to PowerFleet's beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions, and future performance and involve known and unknown risks, uncertainties, and other factors, may be beyond PowerFleet's control and which may cause its actual results, performance, or achievements to be materially different from future results, excuse me, performance, or achievements expressed or implied by such forward-looking statements. All statements other than the statements of historical facts are statements that could be forward-looking statements. For example, forward-looking statements include statements regarding prospects for additional customers, potential contract values, market forecasts, projections of earnings, revenues, synergies, accretion or other financial information, emerging new products and plans, strategies and objectives of management for future operations, including growing revenue, controlling operating costs, increasing production volumes, and expanding business with core customers. The risks and uncertainties referred to above are not limited to risks detailed from time to time in PowerFleet's filings with the Securities Exchange Commission, including PowerFleet's annual report on Form 10-K for the year ended December 31, 2025. These risks could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of PowerFleet unless otherwise required by applicable law, PowerFleet assumes no obligation to update the information contained in this presentation and expressly disclaims any obligation to do so, whether a result of new information, future events, or otherwise. Now I'll turn the call over to PowerFleet CEO, Steve Towe. Steve? Steve Towe: Good morning, everyone. It's great to be here this morning with key members of the leadership group to walk you through what's been a statement quarter for PowerFleet. This set of results marks a transition point for the company. It signals the end of an integration period following the two major acquisitions we completed and the start of a new chapter. One focused squarely on accelerating sustainable growth. Just six months into aligning into one global enterprise and to operating level, we're clicking into gear. Starting to deliver expanding revenue growth and healthy business momentum in our key operating metrics. In Q2, our top growth metric, annual services recurring revenue, reached the double-digit growth milestone originally targeted for year-end ahead of schedule. The true strength of growth is how you get there. For us, that means responsibly and efficiently. The extensive synergy programs we aggressively executed are already moving the dial meaningfully. And we're delighted to also post meaningful adjusted EBITDA expansion this quarter both sequentially and year over year. This quarter clearly demonstrates the shape of the future of PowerFleet. Integrated, efficient, and built for profitable growth. Next slide, please. When you step back and look at the quarter, you can see a clear pattern of balanced execution. Services and ARR are growing strongly. Margins are expanding both at the total gross margin level and particularly encouragingly within the services line. This consistent improvement speaks to the strength of our SaaS-led model and our operating discipline. What's also particularly pleasing for this quarter is the return to growth in product revenue inclusive of expanding margins. It underscores the durability of our business and the effectiveness of the actions we took to offset tariff pressures and broader macroeconomic challenges. Together, these results demonstrate a company that's accelerating profitable growth, scaling efficiently while maintaining quality and control. Next slide, please. We felt it was the right time in our evolution to add a high-quality executive as chief revenue officer. With a proven track record in driving SaaS growth at scale. Someone who's led multiple A-player teams and brings deep SaaS enterprise go-to-market experience. It's a crucial role with the major accelerated growth opportunity directly in front of us. It brings executive bandwidth and further high revenue expansion experience to the global team. I'm delighted to welcome Jeff Lautenbach. Jeff, over to you. Jeff Lautenbach: Thanks, Steve. Great to be here. Having spent time with the teams and customers, I've been able to see for myself momentum building across the business. One key element of our future success is North America, and it's been encouraging to walk into a double-digit year-over-year revenue performance in that region. A clear sign of traction and developing brand strength. One of the proof points of our scale strategy was that as PowerFleet grew, we'd see more invitations to large and greater visibility in the enterprise market. That's now happening with a 26% increase in new logo wins as more customers recognize us as a top-tier provider. Our core value proposition—safety, compliance, sustainability, and efficiency—continues to resonate strongly. We've seen a sharp rise in demand within our on-site and in-warehouse safety segment we're delivering real impact. To give you a sense of the traction, one of our largest new deals this quarter came from a major engagement with a global industrial manufacturer. A multibillion-dollar enterprise recognized as one of the world's leading producers of heavy machinery and power systems serving construction, mining, and energy markets worldwide. They're deploying Unity to modernize asset visibility, optimize equipment utilization, and reinforce compliance standards across their international operations. We also notably secured a major North American logistics and fleet management company, one of the world's largest providers of third-party logistics and supply chain services, operating thousands of vehicles in hundreds of distribution facilities across the region. They've selected Unity to enhance operator safety, strengthen compliance, and deliver deeper operational visibility across their nationwide logistics network. Both are multiyear strategic programs with significant expansion runway, indicators of the scale of opportunity ahead and the value our platform is delivering. Next slide. Looking forward, we're seeing strong progress in our strategic partner channels, another key pillar of our growth plan. Global channel bookings increased meaningfully in Q2 from Q1. Particularly with partners like AT&T and TELUS. Where momentum in the North America channel continues to grow at a 32% sequential increase in quarterly pipeline build. More generally, our global cross-sell pipeline activity grew substantially. Notably, we are seeing solid traction with AI video, upselling into our base and that's showing up with a healthy 23% expansion in the video pipeline this quarter. These are encouraging proof points, evidence that our commercial engine is working as designed and that we're building a flywheel capable of sustaining double-digit growth into FY '27. With that, I'll hand it over to David to walk through the financials. David Wilson: Thanks, Jeff. Before running through our regular financial reviews, I'll begin with the headline. Service revenue, excluding legacy Fleet Complete book of business, grew 12% organically year over year. Even as we've continued deliberately exiting noncore revenue streams in the quarters following our combination with MiX, in April 2024. High margin recurring SaaS revenue is the cornerstone of our future. And that progress is clearly visible in our sales mix. With service revenue now representing 80% of total revenue, up from 74% last year. Next slide. Now on to our regular financial review. Starting with a quick recap of the key pro forma adjustments as well as a change in our prior methodology for calculating adjusted EBITDA. One-time expenses. This quarter expenses include $2,100,000 in one-time charges for restructuring, integrations, transaction costs. Excluded from adjusted EBITDA and EPS for ongoing run rates. Amortization impact, Results include $5,800,000 in noncash amortization related to the MiX and Fleet Complete acquisitions, impacting services gross margins by over 5%. Change the calculation of adjusted EBITDA. Following consultation with the SEC, including a detailed review of question 100.04, of the compliance and disclosure interpretations on non-GAAP financial measures, we concluded our presentation of adjusted EBITDA will no longer include an EBITDA adjustment for recognition of pre 10/01/2024 contract assets fleet complete. These amounts reflect certain in-vehicle devices delivered by Fleet Complete prior to the acquisition but invoiced and collected thereafter. This treatment was applicable for a finite transition period and reflects cash received for hardware that will never be recognized as revenue by PowerFleet. The adjustment was intended to align reporting results more with operating cash flows and the change has no impact on underlying economics or cash generation. Now on to Q2. Which was a banner period delivering record top and bottom line performance. Total revenue increased 45% year over year, $111,700,000 including strong organic growth of 9% overall and 12% in strategically important services. Turning to adjusted EBITDA. Which rose more than 70% to $24,800,000. Alongside this strong performance, we also invoiced $1,300,000 in Fleet Complete IVD recoveries which historically were included in adjusted EBITDA, and will continue to flow through operating cash as collected. These results validate the strategic rationale for our M&A program, and highlight the powerful market opportunities emerging through our Unity product strategy. Next slide. Turning to margins. We continue to deliver strong year-over-year improvement. A stronger mix and 77% service gross margins drove a 400 basis point increase in EBITDA gross margins to 68%. Product margins also improved by 640 basis points sequentially, to 31.5%, supported by a rebound in higher margin on-site demand following Q1 tariff headwinds. On operating expenses, we are driving G&A efficiencies, investing in go-to-market and maintaining gross R&D at 8% of revenue. G&A declined to 25% of revenue, three points lower than last year. Reflecting synergy capture operating leverage. We expect G&A as a percent of revenue to continue stepping down by roughly one point per quarter in the second half. Sales and marketing represented 18% of revenue, as we continue to invest in enablement and capacity to support momentum. R&D remained steady at 8% of revenue, or 4% net of capitalized software, as we advance innovation in AI, safety, and compliance. Overall, we're very pleased with our continued P&L progression. Expanding margins, disciplined reinvestment, and strong execution across the organization. Next slide, please. Closing on leverage. Where previously reported leverage ratios have been amended to exclude the previously discussed fleet complete EBITDA add back. We exited Q2 with a net debt to EBITDA ratio of 2.9 times, an improvement of half a turn from 3.4 times at the end of FY 2025. Looking ahead, we now expect to close the year at approximately two and a quarter times compared to our prior guidance of below 2.25 times. Net debt at quarter end was $243,000,000 compared to adjusted net debt of $229,000,000 at the end of fiscal 2025. This represents a $14,000,000 increase or $6,000,000 better than initial guidance of a $20,000,000 increase in the first half. For the year, we are maintaining expectations to exit the year with net debt of approximately $220,000,000 representing a reduction of $20,000,000 in the second half. Finally, and as discussed in last week's 8-Ks, we extended the maturity date of our initial term loan A with RMB by one year to 03/31/2028. With that, I'll hand over to Melissa Ingram to walk through our adjusted EBITDA optimization progress. Melissa? Melissa Ingram: Thanks, David. I want to pause to recognize what we've achieved as a company. After eighteen months of complex work, the integration is complete, with more than $30,000,000 in annualized synergies realized, and that's a real milestone worth noting. To have maintained the level of top-line performance we have, while executing a multi-business integration is no small task. Now with integration behind us, we will move decisively into the next phase, optimization and efficiency. We'll evolve our organizational model to ensure we're structured for long-term efficiency with clear accountability across functions and regions. And we'll continue to optimize our resource mix ensuring the right capabilities are in the right places, balancing internal expertise with flexible external partnerships to stay agile. For embedding automation and AI more deeply, simplify how we work and enhance our customer experience. Across support, service, and operations, advancing further the tools that reduce manual effort, improve response time, and free our people to focus on higher value activities. We will refine how we serve subscale segments, to improve strategic fit and margin contribution, ensuring every part of the business is aligned to sustainable, profitable growth. In parallel, we'll centralize core operating functions further strengthening our organizational centers of gravity and embedding best practices globally. Another area of focus is vendor and partner consolidation. We've made real progress here. Capturing economies of scale and ensuring we're working with strategic partners who can grow with us. On the technology front, we'll complete our core systems rollout and streamline our technical architecture and hosting to enhance speed, reliability, and cost efficiency. All of these initiatives share one goal, to further expand adjusted EBITDA margins and create capacity for reinvestment in sustainable growth. Next slide, please. Looking ahead, I'm very excited about our upcoming AIoT innovation showcase later this week. It's a great opportunity to highlight why PowerFleet is being recognized as a leader in our space. We'll be exploring three lenses, One, the product and solution innovation behind Unity, Two, the customer outcomes we're enabling. The measurable impact on safety, performance, and transformation, and three, the people driving it all. Highly integrated front-foot team delivering at scale. It's a chance for investors and partners to see the strength and momentum of the PowerFleet platform up close. Back to you, Steve. Steve Towe: Finally, I'm also pleased to share that PowerFleet has received another covered industry recognition. We've been awarded the Frost and Sullivan's 2025 North America Product Leadership Award. For context, Frost and Sullivan is a highly respected global research and consulting firm, and this award is their highest recognition. Based on rigorous independent evaluation of innovation, market impact, and customer satisfaction. It's an objective endorsement of the differentiation we built through Unity and the consistency of our customer experience. We're honored to receive it and proud of the team whose work made it possible. Before we open for questions, I want to close by reflecting a little further on what this set of results signals to investors for the future. It marks a fundamental shift. The moment where the power of the combinations we have undertaken, the dramatic eighteen-month integration we undertook, and the operational discipline we've bravely driven into the organization is clearly visible in our results. This quarter gives clear evidence that our unique solution strategy and market thesis is resonating strongly, delivering growth that's sustainable, margins that are expanding, and execution that's consistent across the board. My thanks to all our employees, our customers, and our investors for their continued partnership and confidence. Operator, let's open the line for questions. Operator: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands before pressing the star keys. One moment, while we poll for questions. Your first question for today is from Scott Searle with ROTH Capital. Scott Searle: Hey. Good morning. Thanks for taking the questions, and congrats on the quarter. Great job in seeing the organic SaaS growth break through that 10% barrier to 12%. Hey, maybe to dive in on that front, Steve and Dave, looking at the guidance for this year, I'm wondering if you could provide a little bit of color about how you're thinking about services and organic SaaS growth into the third and fourth quarter of this year. Also as part of that, it sounds like Fleet Complete has got some revenue recognition transition issues going on. So how you're thinking about that, particularly as we start to go '27? And I think Jeff indicated sustainable double-digit growth as we get into fiscal 2027. I'm wondering if you could give us early thoughts on that front. And then I had a follow-up. David Wilson: So, Scott, let me just start with the guidance. So we were pretty clear from the get-go that we expect to be growing sort of 10% organically for Q4. So no change in terms of expectations there. Obviously, we've done a nice job. Increasing the midpoint of the range over time. So you can see that coming through, but again, things have gone well. Things are going well. We're building up momentum. But, you know, this is not a steady state business. So the trajectory is very clear up into the right, but, you know, it's not as if it's just a smooth road all the way. But, we feel good about where we are. Obviously, it's very clear in the numbers in terms of what we're posting. And, again, you'll see that 10% organic growth in Q4 as expected. Scott Searle: Dave, maybe just a follow-up Yeah. Oh, sorry. My apologies. Yeah. David Wilson: No. Got you. Scott Searle: No. Just gonna say on the outlook then in terms of how you're thinking about Fleet Complete kind of being blended into that organic number, and early thoughts on '27, particularly given the build of the opportunity pipeline, it sounds like across the board, you know, both from a carrier partner standpoint, AI video standpoint, and warehouse seems like everything is on the upswing. Steve Towe: Yeah. No. It's it's yeah. But I'll take that one, David. So so look, Scott. I think, you know, we are ahead of schedule. Which is great. Momentum is building. If you look at our internal dashboard from our growth perspective, you know, we're we're ahead of where we wanted to be. And now it's about, you know, that consistency, that rhythm, and driving opportunity that's ahead of us. We've got absolute stellar momentum. We've brought Jeff in and team to help, you know, with that execution. And so, you know, the flywheel will continue to turn. So, you know, we're very optimistic about what we've put out in terms of 2027 previously. You'll hear at the end of the week some more granularity around that. But in general, you know, from a market perspective, from a solution set resonating perspective, from an ARPU expansion perspective, from a wallet share perspective, then, you know, we're in a very, very good spot. I think you can hear the pride that the team has in terms of the numbers. In terms of Fleet Complete, there's there's no kind of revenue recognition challenges. I'll ask David to kind of walk through his note on Fleet Complete again. But, you know, Fleet Complete has has brought those channels, with us. You know, the the the likes of AT&T and Telus. So, you know, we we then don't you know, as of we get into 2027, now don't think about, you know, Fleet Complete all of the parts of the business. It's it's all one, and and the message remains the same. So strong, durable, profitable, double-digit, both SaaS growth and and top line growth in gen. David Wilson: Yeah. Scott, in terms of the Fleet Complete, that's an EBITDA adjustment. So this is basically invoicing that happens, cash that's collected post the close of pre-complete transaction. It's not stuff we recognize historically as revenue. We will never recognize it as revenue. But it does generate significant cash. So the thought was to include that as part of the EBITDA adjustments, just to mirror operating cash flow. Obviously, it's it's a huge economic positive. But that was the EBITDA adjustment for Fleet Complete which based on consultation with the SEC, we will no longer be included. Scott Searle: Great. And as a quick follow-up, just I'm wondering if you could provide some more high-level thoughts in terms of North America. Obviously, it's a pretty dynamic environment from a supply chain perspective. I'm wondering how you're seeing sales cycles the ability to close deals. It certainly seems like the pipeline is building on that front. And Dave also just kind of in this current environment, how you guys are thinking about hedging policy for some of the international markets? Thanks. Steve Towe: So I'll take the first one. So look, I mean, as as Jeff alluded to, he's walked in to a a double-digit growth rate, for North America. We we believe, you know, everything everything being equal now that, you know, customers are buying again. So where we saw kind of some of that product softness with the the tariff decisions, you know, the the strong rebound both in the top line growth, but also in the margin as well. You know, it's testament to the work that we've done. And, you know, what we are seeing is a strong demand and need for efficiency. And for safety and compliance. So, you know, where where customers are needing more optimization. They're needing to be more efficient to what they do, and they need stronger visibility because of these changing times. Our solutions are really resonating. So, you know, I think the, you know, the couple of large wins that Jeff alluded to too are, you know, strategic wins that because of power of the combination, we are now winning that business. At larger enterprise scale. So we feel really good about, the future there. David Wilson: And from a hedging strategy, Scott, from a from an FX standpoint. We do have a portion of our debt in both, shekel. Which has been traditionally a powerful cash generator for us. So we have just south of $30,000,000 of shekel denominated debt. And then for South Africa, we have roundabout $20,000,000 of feds are denominated revolver debt. So we do have the balance sheet sort of hedging from an FX standpoint. Operator: Your next question for today is from Anthony Stoss with Craig Hallum. Anthony Stoss: Good morning, Steve and crew, and my congrats on strong execution. A couple of questions. The up 67% in your warehouse solutions Steve, do you attribute that to or what do you attribute that to? Is it mainly one big customer? Is it across the board? And then also perhaps an update on all your channel partners, AT&T, Telus, and the European giant where they stand training and and launch wise. Thanks. Steve Towe: Yeah. So it's across the board. So I think we are doing a better job in terms of sales execution, number one. I think, you know, the combination of solutions now where customers can get true visibility of what's going on on their sites or in their warehouse but also combine that with what's going on over the road, which is our unique proposition. That's a real game changer for our customers, and I think that's kind of resonating through. And then the evolution really of kind of, you know, more advanced, video technology to save lives in the warehouse. Again, I I would, encourage everyone to tune in on Friday, you'll hear from our customers talking about what those solutions are doing for them and how it's changing the world. So, you know, that's, that's really, I think, positive trend generally. And and that's that's you know, we've done a lot of that in The US, but we're now getting real traction in other markets as well and through those channel partners. So I think, you know, we talked about, you know, the pipeline growth in terms of the channel partners, you know, we talked about the bookings improvement globally. That's all from those partnerships that we've talked about. Whether that's AT&T, TELUS, MTN, And we're still gearing up with a couple of other partners that we talked about earlier in the year for 2027. So, you know, that that just brings real strength and diversity to our, opportunity base. And, you know, we've got some exciting future conversations going on with those channel partners about how we get more integrated into their solution set, how they can take the best of Unity and offer broader new solutions and more innovation to their customers as well. And, again, you'll hear some of that, if you tune in on Friday. Anthony Stoss: Very good. Congrats again, guys. Thanks. Operator: Your next question for today is from Gary Prestopino with Barrington Research. Gary Prestopino: Hi. Good morning, everyone. Hey, Steve. In terms of, you know, great new business awards and all that, but could you maybe tell us how this is starting to shake out in terms of are the majority of the new business awards coming from Unity, or is it products with services attached? Steve Towe: So everything that we sell is within the Unity ecosystem and platform. So there isn't something that that's kinda separate. I think the differentiators really are, you know, adding in the single pane of glass. So the ability for customers to look at, you know, more multiple different devices or sensors or data streams coming into the platform. Being integrate being able to integrate our data into their other third party Again, we've got some good visibility for investors and partners at the event, later this week, and you'll see some demos of that. But it's really, I think, about us expanding from being a point supplier to a mission critical partner. So know, people are looking for connected intelligence. You know? The days of telematics, and and and boxes and hardware, software is really moving now is to you can be a high grade partner in providing connected intelligence that allows us to make real time decisioning. You give us visibility. With your AI capabilities, you were you're able to shortcut where we need to go to make the changes that we need to. And that is done in a seamless integrated way. And I think all of that together is what is ultimately, you know, we're now being seen as a as a different level in terms of the opportunity we can provide to medium large customers. And I think know, that that's where we've seen this real shift, I think, in both who we talk to in the organization, what people are willing pay for our solutions because of the the level of benefit that we provide. And, ultimately, we're now seen as an integrated partner and because of the the increased scale that we've got, the credibility of our offerings you know, have have gone exponentially in terms of where we're now seeing with medium to large enterprises. So it's not one single thing, Gary. I think it's a it's a play out of the thesis and the strategy, which is resonating well. And what's really exciting is we're only scratching the surface at the moment. So if you think about the solutions coming together from the the three companies, know, we're we're only kind of six months into that, and you're already seeing the track and the the the strength of the results and the durability is is of those results coming through. So, again, you know, we've got a lot to do. There's a lot we can do better. We are still a work in progress. But, you know, ultimately, we're very, very confident about the future. Gary Prestopino: Yeah. I guess I guess what I was just trying to get at, Steve, is is you know, your your Unity is device agnostic. So I guess is the traction pretty good with entities that are not using your products? Steve Towe: It absolutely is. It absolutely is. So and and as we said before, you know, a lot of customers have multisource for this stuff. And it's also it's not just kind of the sensors that you would all we would traditionally think about with PowerFleet. These are other IoT sensors that they have in their state. There are the data streams that they have in their state. So people now say, look. You know? And and when we go and talk to CIOs and CTOs and they said, look. We've just got this data mess. Can you simplify this for me? Can you allow us to see the wood for the trees? And then once you're able to do that, you know, can you make sure that we it's usable, it's simple, we can action it? And that's where I think, you know, the power of Unity's unique capabilities really make swift business change. And you know, some sometimes, when we've deployed these solutions and and and our competitors deploy these solutions, it can take you a a decent amount of time to actually start to get the value back. Whereas I think, you know, we are now ahead of break even, you know, within the first twelve months of deployment. We're making meaningful change. We're seeing it customers who we expected to kind of, you know, do second phase rollouts over maybe a twelve, eighteen month period, of shortcutting that to a six to twelve period now because they've they've got the rhythm and because we've been able to simplify, the spaghetti, mess they had in their organization. Gary Prestopino: And then just one last quick question. I mean, in in feedback your customers, I think you had six modules for Unity. As you initially rolled out. Are you developing any further? And and and what what with any feedback from your clients, what what what do you feel like you're missing in that that Unity platform with the modules? If anything? Yeah. I see. Steve Towe: So it's more about enhancing the modules to the next level. So on it sounds like I'm plugging Friday. I'm not mean to. But, ultimately, you will see how the strength of our AI capabilities the data that we can pull, our real time interventions that we make with our customers, that you know, a a topic of safety is a very broad topic, and you'll see just how we're really kinda doubling down on the granularity of what we're able to achieve that So I wouldn't say it's we're expanding kinda horizontally into more different sets of modularity, but the strength of those modules and I come back to this, you know, from from the question we had earlier. To have true visibility of your safety environment across all your employees, whether that's on a site or whether it it's over the road. Is transformational for customers in a number of in a number of ways. So you know, really doubling down on that, you know, the advancement of the data analytics we can provide, the speed and accuracy of those is where we're spending the majority of our time at the moment. Gary Prestopino: Thank you very much. Operator: Your next question is from Dylan Becker with William Blair. Dylan Becker: Gentlemen, appreciate it. Really job here. Maybe, Steve, starting with you, the 12% organic services, obviously, ahead of plan, and it is quite impressive. I wonder if if given kind of the pipeline strength that you guys are seeing, that's it forwarding you the ability to kinda unlock some of that that held back spend around go to market, and maybe if that kinda shifts how you think about the model going forward given the the vast opportunity here. Kind of reinvesting maybe some of that incremental EBITDA growth? Or EBITDA upside that you would see traditionally back into go to market and product development initiatives to feel like, the the market's really kinda resonating relative to the the the solutions you're able to provide at this point. Steve Towe: Yeah. So we talked about we we held back on a $4,000,000 investment. As the tariff challenges here. We have pressed the button on that and that's that's in the sales channels and in kind of customer and account engagement, plus some more, resources into the channel opportunity. And over time, you know, we will we will be good stewards in terms of ensuring that we feel confident about the growth and we can we can stand behind any more investment. But we have the ability to flex the model, you know, dependent on that growth rate and on our confidence levels. And we will flex in the model through 2028 appropriately. Because as you say, you know, as this flywheel starts to turn, as we kind of open up more opportunities, and and, you know, we just get more, I think, exposure into the global markets that we're now, you know, we're now attacking. Then, you know, we will we will, maintain flexibility and optionality to to double down on on go to market investment. Dylan Becker: Perfect. Okay. Thank you. Very helpful. And maybe following up again with you here, Steve, or maybe this is this is for Jeff as well too. Encouraging to see some of the new logo momentum in the business. But if I look at it too, low single digit millions for a Fortune 500 entity, Feels like you're kinda just scratching the surface relative to that opportunity. So if you could kinda help reconcile, obviously, getting more, shots on goal, getting a foot in the door, but maybe also how that kind of breeds conviction in the opportunity to significantly expand within several of those accounts, maybe better line of sight, now that you have built and established that relationship, kind of the opportunity, from a cross selling perspective as well too? Thank you. Jeff Lautenbach: Okay. If I didn't take that one, and I'll follow-up. Yep. So there is great opportunity with with new logo moving forward. We as talked about, we made a pivot, right, from a selling perspective to on-site envision. And the sales organization that's resonating well with the opportunity. You heard about the pipeline increases. We can do so much better moving forward, and there's so much opportunity out there in these markets that are untapped for us. I feel like we're just getting our sea legs underneath us. Relative to the opportunity statement and enabling the field on the new value propositions as we move into these these different market segments, but leveraging the the installed base that we already have. So the customers are there for us to expand. And then from a new logo perspective, it's attacking the verticals too. And that opportunity is there as well. So I'm I'm really optimistic about the opportunity around new logo, especially as we continue to gain skills and progress skills in those areas. Steve Towe: Yeah. Thanks, Jeff. And just to respond around you know, we're scratching the surface on those accounts. You're absolutely right, Jen. There's a five, 10 x opportunity, in those accounts. Both nationally and internationally as well. So we're strengthening our global account model. And you will, hear again, hear from some of the customers that we alluded to earlier in the year about you know, some large scale deployments and and how they're feeling about expansion opportunities with us as well. So, you know, what's exciting is it it's multidimensional. It's you know, if you look around the modularity of the solution, to Gary's point, people can grow in the solution, whether that's you know, in terms of do more of the same with us on a global basis, expanding sites, expanding, you know, the the volume of vehicles that they have with us, or growing different divisions or or territories. So you know, we're we're really, I think, infused by the space we're creating for ourselves, particularly in that kind of large enterprise market. Dylan Becker: Very helpful. Thank you, guys. Operator: Your next question for today is from Alex Sklar with Raymond James. Alex Sklar: Great. Thank you. So Steve or David, I just wanted to follow-up on Dylan's question there on the enterprise momentum and just ask it a little bit differently. But if you go back one to two years in time, can you just help put some context behind how incremental these enterprise opportunities have become for PowerFleet in terms of pipeline mix today? And then with that and and kind of overall brand awareness, how much more room do you have to go on the brand awareness marketing side? Thanks. Steve Towe: Yeah. So I think it's night and day. You know, our exposure our win rates, our abilities to be successful in those large enterprise arenas. You know, heritage power fleet of you know, eighteen twenty four months ago. He's he's unrecognizable from the opportunity and the credibility and the trust, frankly, in terms of, you know, being a mission critical provider and partner to to those enterprise. Markets. I think, you know, we're building brand momentum, so we know, the innovation awards that we get, you know, we're getting, I think, recognized now as a very much a top tier provider, you know, one of the top three in the world. That's really leading in terms of, you know, its innovation and profitable So ensuring that we are, you know, being good stewards of of company's capital and making sure that we, you know, are doing things responsibly. I think is is a very good sign in these times is having a partner does that. And I think, you know, that's always been our mantra, and we continue to excel there. So, there's always more work to do. And, you know, there are market there are markets that we are attacking where, you know, we have less brand presence than than others in the marketplace. But that offers great opportunity for us. So, but overall, I think, know, we are we're in a different paradigm and in a different sphere to to where we were two years ago. And I think, you know, the the upside opportunity there remains fairly immense. Alex Sklar: Okay. Great. And then, David, maybe maybe one for you on the back to base motion. I know we're working through some final send system integration to get precise NRR, but can you help frame directionally what you're seeing from the installed base through maybe end of second quarter October? Where where across kind of retention upsell cross sell? Have you seen the biggest level of improvement? Where are you still kind of pushing hardest to get to kind of some of the aspirational goals? Thanks. David Wilson: So, clearly, if you look at just the acceleration in growth, you know, a huge part of that is NRR in terms of selling more to our existing customers. And to everyone's point, that we're we're early there in terms of the potential, both in terms of the customer demand as well as solutions we're bringing to market. So it is moving positively. If you look back in the last couple of quarters, obviously, we were in terms of our prepared remarks that for MiX, for example, this time last year, we were still actively shedding revenue. In terms of getting the right base and getting rid of distractions a product delivery standpoint and a market focus standpoint. And so that's working well. As you look at the sort of second half of this year, from a Fleet Complete standpoint, there was a similar exercise in terms of shedding some revenue as well. So what I would say is when you look at just the traditional PowerFleet business, excluding Fleet Complete, which is the 12% organic growth from an ARR standpoint, you know, a major part of that is positive net revenue retention. So everything you would expect to see happening in terms of firstly cleaning the book of business, Secondly, the complementary nature of our products. Thirdly, the sort of the pent up demand within customers. Is clearly coming through in terms of the growth that we're posting. What I would say is for the second half of this fiscal year, you can have a bit of a headwind in terms of the Fleet Complete because we did the same thing with Fleet Complete that happened with MiX. In terms of getting the right revenue base in place that's aligned with our future as opposed to holding things pulling on to things as sort of a distraction. And, create friction in terms of where we need to go. So very, very positive. And, things are playing out as expected. Alex Sklar: Okay. Great. Thank you both. Operator: Your next question for today is from Greg Gibas with Northland Securities. Greg Gibas: Great. Good morning, guys. Thanks for taking the questions, and congrats on results. Really nice to see that 23% increase in the cross-sell pipeline. Wondering if you could maybe provide some color on where you're seeing success or solid traction with your cross-sell efforts? Steve Towe: Yeah. So it's it's in warehouse to over the road and and vice versa. So this you know, with the there is a lot of traction in video. And that is, you know, multiple different, videos solutions that are based around safety and compliance. But really kind of, you know, expanding our reach in terms of the breadth of the organizations, whether that's know, from insurance perspective or that's, as I said, compliance whether it's getting true safety visibility or just operational efficiency for the end-to-end supply chain. So it's really that kind of, you know, where we've where we've had strength in one either the over the road or the in warehouse section. It's really kind of transferring those, either way. And, because we have that uniqueness, because we're talking to right people in the organization who care about, the objectives of both of those you know, different parts of the business, that's resonating super strong. Greg Gibas: Great to hear. And if I could, can you maybe characterize the greater demand environment and I guess demand trends as it relates to what you're hearing on pauses on purchasing? Like would you say that that headwind has fully subsided at this point? Steve Towe: I I think, you know, people are still cautious. Right? I mean, the, there's still, you know, dynamics in the macroeconomic conditions that cause people to be very, I think, thinking through just how much capital they're gonna spend and when they're gonna spend it. But, obviously, we you if you look at the rebound we've had from a product perspective, then we are still seeing people making those decisions. And so that really positive. And on top of that, you know, we've been able to, you know, improve price and, improve margin as we go. So I think, you know, there's always a there's always a watchtower on these things and, you know, we continue to be cautious in in in our approach towards things. But we've seen, you know, I think there's a real shift and a and a need for change in organizations, transformation, efficiency optimization. And visibility. And, you know, it's it's kind of where do we sit in the food chain of decisions, in terms being kind of mission critical to businesses. I think that's only improving. Greg Gibas: Great. And I guess one last one if I could. As it relates to the accounting adjustment, you mentioned the 4,000,000 impact on, '25. How much are you guys taking out of '26 that was baked in? David Wilson: Yeah. The number for this quarter was about $1,300,000. So it's probably a percentage point just over of EBITDA margin. That would be the way to think about it, Greg. Greg Gibas: Okay. Got it. Thanks very much. Operator: We have reached the end of the question and answer and I will now turn the call over to Steve Towe for closing remarks. Steve Towe: Thanks, everyone, for joining us today and your continued support. Look forward to updating you on our progress next quarter. Have a great day, and we look forward to our innovation event on Friday. Thank you. Bye bye. Operator: This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. Welcome to Kamada Ltd. third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance, please press 0 from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Brian Ritchie with LifeSci Advisors. Thank you, Brian. You may now begin. Brian Ritchie: Thank you. This is Brian Ritchie with LifeSci Advisors. Thank you all for participating in today's call. Joining me from Kamada are Amir London, Chief Executive Officer, and Chaime Orlev, Chief Financial Officer. Earlier today, Kamada announced its financial results for the three months and nine months ended September 30, 2025. If you have not received this news release, please go to the Investors page of the company's website at www.motto.com. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Kamada. I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation, the company's forms 20-F and 6-Ks which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast Monday, November 10, 2025. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, it's my pleasure to turn the call over to Amir London, CEO. Amir? Amir London: Thank you, Brian. My thanks also to our investors and analysts for your interest in Kamada and for participating in today's call. I'm pleased to report that our results for the third quarter of 2025 were strong, as we continue to generate significant profitable growth. Total revenues for the first nine months of the year were $135.8 million, representing an 11% year-over-year increase. Adjusted EBITDA was $34.2 million, up 35% year-over-year and representing a 25% margin of revenues. We expect to continue generating profitable growth for the remainder of 2025. Based on a positive outlook, we are reiterating our annual revenue guidance of $178 million to $182 million and adjusted EBITDA guidance of between $40 million and $44 million, representing double-digit growth over our 2024 results. We are excited for the growth prospects in our business over both the near and longer term, guided by our four-pillar growth strategy including organic commercial growth, business development and M&A transactions, our plasma collection operation, and the advancement of our pivotal Phase III inhaled AAT program. Our lead product continues to be our anti-rabies immunoglobulin KedRAB, which is being distributed in the US through our collaboration with Kedrion, from which we have a firm commitment to minimum orders for 2025 through 2027, and where the supply agreement with them further extends to 2031. In addition to a significant market share in the US, we continue to grow sales of the product in leading international markets, such as Canada, Latin American countries, and a few Asian markets. Revenue growth for the first nine months of the year compared with the first nine months of 2024 was primarily attributable to the increased sales of GALASIA, our AAT IV product in ex-US markets, mainly Latin America and the CIS region. In addition to our sales in those countries, the product continues to generate royalty income on sales by Takeda in the US and Canadian markets. Our ability to generate significant profitable growth is indicative of the diversity of our portfolio and our successful marketing activities across different territories and medical specialties. Moving on to our anti-CMV immunoglobulin Cytogam. As you may recall, earlier this year, we announced a comprehensive marketing research program for Cytogam, which we believe will help demonstrate the advantages of the product in the prevention and management of the CMV disease. Although CMV continues to be a significant risk factor for organ rejection and mortality in transplantation, for years, no new up-to-date clinical data regarding the benefit of Cytogam were published. To address this, we developed this in collaboration with leading key opinion leaders to explore the advancement of novel CMV disease management. In October, we announced enrollment of the first patient in an investigator-initiated trial included in this program. The trial is called Strategic Health with Immunoglobulin to Enhance Protection Against Late CMV Disease, or SHIELD, is a prospective randomized controlled multicenter investigation study in CMV high-risk kidney transplant recipients. The SHIELD study will investigate the benefits of Cytogam administered at the conclusion of the antiviral prophylaxis to reduce the risk of clinically significant late CMV in kidney transplant recipients who are CMV seronegative and have a CMV seropositive donor. Those patients are at the highest risk of developing late-onset CMV infection, which is associated with the worst transplant recipient health and outcomes. We are very pleased to be working with notable experts in this field, and we believe that the data generated by this study and others planned for this program will support increased product utilization for Cytogam, leading to organic growth. Also, as part of activities to advance growth, following our first biosimilar product launch in Israel last year, which is expected to generate approximately $2.5 million in revenues in 2025, we will be launching two additional biosimilars in the coming months and have several others in the pipeline to be launched in the coming years. We believe that this portfolio will become an increasingly important portion of our distribution business with annual sales of between $15 million to $20 million within the next five years. Moving to business development and M&A, we continue to conduct active due diligence over several potential commercial targets. During 2026, we expect compelling in-licensing collaboration and all M&A transactions will enrich our portfolio of marketed products and complement our existing commercial operation. We anticipate that such transactions will generate synergies with our current commercial portfolio and support our long-term profitable growth. In addition, we are ramping up plasma at our Houston and San Antonio plasma centers. Both facilities support 50 donor beds with a planned peak capacity of approximately 50,000 liters per year each, and are anticipated to be two of the largest collection centers for specialty plasma in the US. A few weeks ago, we announced that the Houston facility already received FDA approval, and we expect the San Antonio site to follow in early 2026. We intend to seek subsequent inspection approvals from the European Medicine Agency, the EMA, for both sites. We are currently engaged in discussions with potential customers to secure long-term sales agreements for normal source plasma. As previously stated, each of those two centers is expected to generate annual revenues of $8 million to $10 million in sales of normal source plasma at full capacity. Turning now to our ongoing pivotal Phase III INNOVATE clinical trial for inhaled alpha-1 antitrypsin therapy. We continue to advance this program with the revised enrollment goal of approximately 180 subjects, and we are on track to complete an interim futility analysis and announce its results by the end of this quarter. With that, I'll now turn the call over to Chaime Orlev for a detailed discussion of our financial results for the third quarter and nine months of 2025. Chaime, please go ahead. Chaime Orlev: Thank you, Amir. As Amir stated at the top of the call, we reported strong results for the quarter and nine months ended September 30, 2025. Total revenues were $47 million in Q3 2025, up 13% compared to $41.7 million in Q3 2024. Total revenues for the first nine months of 2025 were $135.8 million, an 11% increase from the $121.9 million generated in the first nine months of 2024. The increase in revenues was driven by the diversity of our product portfolio, primarily attributed to increased sales of Glacia in ex-US markets, increased sales driven by our Distribution segment, and Varzig sales in the US market. It is important to note that we continue to see double-digit growth even through the expected decline in Glacia royalty income as a result of the reduction in the royalty rate that went into effect during the third quarter. Gross profit and gross margins were $19.8 million and 42% in Q3 2025 compared to $17.2 million and 41% in Q3 2024. For the first nine months of 2025, gross profits were $59.4 million and 44%, compared to $52.9 million and 43% in the first nine months of 2024. The increase in both metrics is in line with the continued improvement of product sales mix and the overall increase in our commercial scale. Operating expenses, including R&D, sales and marketing, G&A, and other expenses, totaled $11.9 million in Q3 2025, similar to the level reported in Q3 2024. Operating expenses totaled $36.8 million in the first nine months of 2025 as compared to $38 million in the first nine months of 2024. The decrease is mainly related to a reduction in R&D expenses, which was related to development project timing changes. Net income was $5.3 million or $0.09 per diluted share in Q3 2025, up 37% as compared to Q3 2024. Net income for the first nine months of 2025 was $16.6 million or $0.29 per diluted share, up 56% compared to the first nine months of 2024. Adjusted EBITDA was $11.7 million in Q3 2025, up 34% over Q3 2024. For the first nine months of 2025, adjusted EBITDA was $34.2 million, a 35% increase compared to the first nine months of 2024. It should also be noted that the adjusted EBITDA for the first nine months of 2025 was equal to that reported for the full year of 2024. For the first nine months of 2025, cash provided by operations was approximately $17.9 million, contributing to the strong cash position of $72 million at the end of the quarter. That concludes our prepared remarks. Operator, we're ready to open the call for questions. Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, you may press star 1 from your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, that's star 1. Thank you. And our first question comes from the line of Annabel Eva Samimy with Stifel. Please proceed with your question. Annabel Eva Samimy: Hi, all. Thanks for taking my question. And great progress on operations. I want to know a little bit about the Cytogam study and how this differs from the clinical data that you've been using for clinical education so far. You know, what this adds to the package. And I guess maybe you can sort of talk about the population that does have this late-onset CMV. Do you now have enough information to cover the totality of the population with the prior, I guess, studies that were conducted? Amir London: Hi, Annabel. Thank you for the question. The main difference between the current treatment population of Cytogam and this SHIELD study is that currently Cytogam is primarily used either prophylactically at the time of the transplantation, especially for high-risk patients, which are donor positive, recipients negative, or as part of treatment if there is actual active disease of patients, you know, a few days or weeks into the post-transplantation. While the SHIELD study is going to test using Cytogam as part of late CMV, after patients have been treated for a few months with antivirals. At that point, the physician starts trimming down the antiviral usage, and that's a risk for a flare of CMV disease for the patient. So this is basically kind of prophylactic usage at a late stage after transplantation, as part of trimming down the antiviral usage. What percentage? I don't remember off the top of my head. I'd like to say around 20%, but I will check this and get back to you. Annabel Eva Samimy: Okay. Great. That was helpful color. Then yeah, I guess I'm also curious about AATD, where you are with enrollment. Clearly, there's an increasing number of programs right now that are under development. Aside from gene therapy, there's some RNA editing options as well. So how is that impacting your enrollment, and are you still on target for the interim study or interim analysis? How's the enrollment completion timeline looking? And top-line data? Amir London: Okay. Good. So enrollment is continuing. As you say, it's an orphan disease. And because, you know, we are studying with the placebo arm, recruitment has been a challenge since the study started and continues to be a challenge. We are at around 60-65% enrollment currently, compared to the reduced sample size for the study. We do see some competition from other studies, but the sites where we are working with active sites are highly committed to the health study. As you said, you know, we will have the futility analysis results before the end of the year. We expect those results, if they are positive in terms of continuing the study, to give kind of strong backwind to the study and allow us to expedite recruitment. We expect to complete recruitment by early 2027, which means top-line results in H1 2029 because it's a two-year treatment. Annabel Eva Samimy: Okay. Alright. That's helpful. Alright. I'll get back into the queue. Thank you. Operator: As a reminder, if you'd like to ask a question at this time, you may press star 1. The next question is from the line of James Philip Sidoti of Sidoti and Company. Please proceed with your question. James Philip Sidoti: Your distribution business, the last two quarters, has really shot up. I think it was 80% growth in the second quarter, 60% growth this quarter. I assume that's because of the addition of some of the new products to that business. Are these stocking orders or are these actual usage? You know, are these the kind of numbers we should expect going forward? Amir London: This is actual usage. We have a kind of a richer portfolio. We've launched additional few products over the last twelve months into the Israeli market. So we have a very rich portfolio currently of distributed products. Biosimilars are just one of those products, as I mentioned on the call. It has a $2.5 million contribution this year, and we're going to launch two additional products over the next few weeks. So you should expect that this level of distribution business to continue and continue growing over the next few years. James Philip Sidoti: Alright. And with the plasma collection centers in Texas, I assume you're collecting some specialty plasma now. Can you just give us a sense of how much you're collecting relative to what you require? You know, are you collecting the bulk of what you need now for your proprietary products, and if not now, when do you think it will be? Selecting enough plasma in Texas to supply your proprietary products? Amir London: Good question. We are ramping up the specialty drug collection. The bulk of the collection now in Houston and San Antonio is still normal source plasma. Because when you open a new site, you first need to approve your normal source plasma collection before you can move into the specialty collection. The specialty comes primarily from the Beaumont site, which was our first site. And that's a site which is dedicated only to specialty plasma. So we are not yet at the point that the majority of our needs come from our own collection, but we're still working with external suppliers and partners that we've been working with for many years. Over time, we will gradually increase our own self-collection, which will allow us to become more and more vertically integrated and self-sufficient in terms of specialty plasma. In any case, we don't expect to be fully independent. We'd like to have also second and third suppliers for each one of the plasma types in order to have a backup plan if needed. Part of our risk management. So this is something which is going to grow over time and over the next few years. James Philip Sidoti: Okay. And then last question for me. I know you said you plan to release some interim data from the clinical trial for the AATD treatment sometime, I would assume, in December. How will you do that? Will it be a press release? Will we have a conference call? How are you going to let the street know how that trial is going? Amir London: Yeah. So just to maybe give a little bit more color around this futility analysis. So it will be conducted by the end of the year. Results will be publicly shared through a press release. The analysis is being performed by an unblinded external DSMB using data available to date. We're analyzing the probability of success of the study efficacy endpoints based on a predefined success threshold. This is going to be a go, no-go futility analysis. Results, as I mentioned, will be published through a PR before the end of this year. James Philip Sidoti: Alright. Thank you. Operator: Thank you. At this time, I'll turn the floor to Brian Ritchie for any questions that come in from the web. Brian Ritchie: Thank you. First question, so can you talk about the performance of Cytogam to date this year, Amir? And related to that, what are the significant growth drivers year to date in the business? Amir London: Yes. So as described in my presentation, we are generating significant profitable growth this year as a result of the diversity of the portfolio. So growth is generated through multiple products, Glacia sales in ex-US markets, mainly Latin America and the CIS countries where we focus on AATD disease awareness and diagnosis, and we are market leaders. As well as growing sales of the product in Switzerland and Israel. VariSync had a strong three quarters in the US market. Our medical and commercial teams are making significant successful efforts in increasing awareness of the importance of using Varizig during chickenpox outbreaks to treat immunocompromised populations who are at risk that were exposed to chickenpox. As I answered this previous question, the Israel distribution business is growing. This includes plasma-derived products, respiratory therapies, and the biosimilars. And this is in addition to the Kedrop KamRab solid, strong sales, Hepagam and Winrow, especially in the US market and the MENA region, Glacia royalties from Takeda, and Cytogam. Specifically regarding Cytogam, as I answered Annabel on the first question, to significantly expand the use of the product, there's a need for up-to-date medical and clinical information. And this was not available when we began marketing the product in late 2021. So we are working thoroughly to generate and later on to publish such medical data in collaboration with leading KOLs. And to this end, we've launched the extensive clinical program, including the SHIELD study, which I described earlier. The growth during this period during this clinical program will be gradual. Specifically, this year, Cytogam sales have been below our plan, partially due to inventory management in the channels, the time it takes to add the product to hospital formularies, as well as fewer transplants performed during H1 in some of the hospitals where the product is used. We are addressing, we have addressed, and we are addressing these issues and expect resumed growth during the next few months. Brian Ritchie: Thanks, Amir. With respect to Glacia royalties, now that those have declined to 6%, can you elaborate on where they'll go next year? Amir London: Yes. As soon as I think everyone knows, starting mid-August, meaning like one and a half months into the third quarter we just ended, the royalties agreement with Takeda reached its second phase, which includes 6% royalties on their net market sales in the US and Canada. This agreement is going to continue until 2040, meaning that we have a very long tail of an additional fifteen years of royalties. And we expect the royalties to be above $10 million in 2026 and continue to grow at a single-digit rate annually thereafter. Important to say that we are planning for this event. This is not a surprise for us. And as demonstrated in our Q3 results, and Chaime mentioned it, and our full-year 2025 guidance, we have alternative revenues and profitability sources. And that results from the diversity of the portfolio and this compensating for the reduction of the royalties moving into 2026 and beyond. Just as an example, one example, Glacia growth in international markets doubled between 2023 and 2024 and is expected to continue growing this year and beyond. And this is just one of the products in our portfolio, which allows us to compensate for the reduction of the royalties and to continue growing the business in a very profitable way. Brian Ritchie: Thanks, Amir. Final question. Maybe you can comment on your current BD activities and the seemingly lengthy timeline to execute a transaction. Amir London: Yes. Of course. So as I mentioned during the call, we continue to conduct active due diligence activities over several potential commercial targets. We expect to secure such a transaction at the early stage of 2026. The time of execution is a little bit longer than what we expected, but this is because we are basically doing thorough due diligence looking for the right transaction for Kamada, which will best fit our capabilities, commercial and operational synergies, and available resources. And I'm confident that similar to the transactions we've done in the past, we would also be successful in selecting and integrating the right assets for Kamada in the current phase of our BD activities. Brian Ritchie: Thanks, Amir. I'll let you give your closing remarks now. Amir London: Okay. Thanks, Brian. So in closing, we continue to invest in our four-pillar growth strategy with continued progress made in organic growth of our existing commercial portfolio, the business development and M&A transactions to support and expedite our growth, expansion of our plasma collection programs, and progression of our AAT therapy program. We look forward to continuing to support clinicians and patients with important life-saving products that we develop, manufacture, and commercialize. And we thank you all for your interest and support. We remain committed to creating long-term shareholder value. We hope you all stay safe and healthy. Thank you very much. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may now disconnect your lines, and have a wonderful day.
Operator: Good morning. And welcome to ARS Pharmaceuticals conference call. At this time, all participants are in a listen-only mode. After the company's prepared remarks, we will open the line for questions. Please be advised that today's conference is being recorded. I'll now turn the call over to Justin Chakma, Chief Business Officer. Please go ahead. Justin Chakma: Good morning, and thank you for joining our Third Quarter 2025 Earnings Conference Call. With me on the call are Richard Lowenthal, our Co-Founder, President, and CEO, Eric Karas, our Chief Commercial Officer, and Kathleen Scott, our CFO. This morning, we issued a press release detailing our financial results and commercial highlights. That press release and the slide presentation which we'll refer to during today's call are available in the Investors and Media section of our website at ars-pharma.com. Before we begin, please note that today's remarks and slide presentation may contain forward-looking statements. Actual results may differ materially. Please refer to our press release and SEC filings for further risk disclosures. With that, I'll turn the call over to Richard Lowenthal. Richard Lowenthal: Thank you, Justin. Good morning, everybody, and thank you for joining us to discuss what has been a pivotal quarter for ARS Pharmaceuticals, driven by the continued momentum of Nephi in the U.S. and around the world. The third quarter marks a true inflection point for our business. As you can see on Slide three, U.S. net product revenue for Nephi grew again quarter over quarter, reaching $31.3 million in Q3, representing a 2.5-fold increase from the prior quarter and exceeding consensus expectations of $28.3 million. This change reflects strong growth in new patient starts and overall demand for Nephi. Surveys among Nephi users indicate that we can expect durable utilization and recurring refill behavior, trends that we expect will continue to build as both coverage and awareness expand. These results show that our multifaceted commercial strategy is delivering results. Later this month, our first analysis of real-world treatment outcomes from the Nephi program will be published in the Annals of Allergy, Asthma, and Immunology with a total of 554 patients treated. Findings show that about nine out of ten patients experiencing anaphylaxis were effectively treated with a single dose of Nephi, which is consistent with outcomes for epinephrine injections where either IM injection or EpiPen require a second dose approximately ten percent of the time to resolve the event. Updated results in 680 patients were highlighted in an oral presentation at ACAAI and reinforced that Nephi delivers equivalent outcomes to injection products in real-world use. On top of a series of case reports also presented at ACAAI by independent physicians, we expect additional peer-reviewed publications in 2026 that will further validate Nephi's clinical experience with injection products. Before Eric reviews our commercialization details, there are two important topics I want to touch on today. First, why Nephi's revenue trajectory isn't accurately reflected in IQVIA script data. And second, what we've learned from recent market dynamics, including back-to-school seasonality. Starting with IQVIA, as we've noted before, the weekly IQVIA rapid data, which are generally available on a paid subscription basis, provide a directional view of prescription activity but are not completely accurate and reliable measures of Nephi's true performance or market share. IQVIA data sets often exclude a number of channels that are central to our business, including certain retail, mail order, and specialty pharma volumes, as well as bulk purchases by institutions and clinics that buy directly through wholesalers. These additional sales are not accurately captured by IQVIA and are variable from week to week and thus cannot be predicted. Turning to market dynamics, during the back-to-school season, allergists and pediatricians experienced a huge surge in patient visits, including checkups and support physicals. That higher patient volume means that HCPs have significantly less time per appointment, typically just five to seven minutes per patient, leaving little to no opportunity to discuss new treatment options or changing prescriptions. That challenge is even greater for patients who still need prior authorizations. As a result, in Q3, we saw a temporary pause in market share growth. Importantly though, we view this as a one-time event. Looking ahead to Q4, market share growth has resumed. Although we anticipate Q4 sales will decrease from Q3 given the overall epinephrine market typically declines about one-third due to seasonality and the holidays. Then as we move into 2026, we expect to return to quarter-over-quarter growth as both market share and overall prescription volumes rise in parallel. To further drive adoption and accessibility, we recently launched our new Get Nephi On Us program at the getnephi.com website. This is an important initiative designed to help patients switch to Nephi year-round with a hassle-free virtual prescriber interaction at no cost to patients if covered by insurance. This program is anticipated to help accelerate sales growth year-round and circumvent the hectic back-to-school season. Eric will share more details. But this program removes much of the patient and physician burden in prescribing Nephi by shifting the prescription, prior authorizations if needed, and patient training to our virtual physician system. Once patients are on Nephi, physicians can more easily manage refills electronically or patients can return to getnephi.com to get additional renewal prescriptions. Together with our broader DTC campaign, this initiative makes it simpler than ever for patients to experience the benefits of Nephi and represents a key driver of long-term adoption. In fact, we already have proof of what hassle-free prescribing can do for Nephi sales. YERNEPI was launched in Germany in late June, where there is a more seamless prescribing experience without additional HCP paperwork. The slope of the market share capture just the first few months has been three times higher than what we've seen in the U.S., showing just how impactful growth can be when administrative burdens are not a barrier. This is also a strong signal for our global growth trajectory. Nephi received approval in Japan in September, with launch anticipated to start in 2025. We expect approvals in Canada by 2026, with launch expected in 2026, and we expect approval in China in 2026. We expect that as these launches begin, they will start to contribute to the total revenue and cash proceeds in the second half of next year as distribution scales across partner regions. On the clinical front, enrollment is ongoing in our Phase 2b urticaria trial, and we are on track for top-line data in 2026. This indication represents a major label expansion opportunity in a 2 million patient market in the United States. Early market research with allergists supports that our nasal spray product, if approved, could be prescribed to more than 60% of all of their CSU patients, irrespective of whether those patients are on antihistamine, biologics, or combination therapy. Finally, in September, we secured an up to $250 million term loan facility, from which we drew down $100 million initially. Strategically, we chose this structure in partnership with our largest shareholder over other capital vehicles to increase commercial investment and further strengthen our balance sheet without dilution. This reflects our confidence and that of our investors in Nephi's durable cash flow profile and long-term potential. Our planned investments are geared towards expanding the current market and improving adherence and refill rates, reengaging lapsed patients, and activating untreated patients, as well as converting the current $2 billion annual U.S. epinephrine market at Nephi's net price. With this financing, we ended Q3 with $288 million in cash, cash equivalents, and short-term investments, giving us even more flexibility to support our evolving commercial initiatives. In summary, we're building momentum across every dimension of our business, from revenue growth and market share growth to access, real-world evidence, and global expansion, all while maintaining a strong balance sheet. I'll now turn it over to Eric to provide more detail on our U.S. commercial performance. Eric Karas: Thanks, Rich. The fundamentals of our commercial execution continue to strengthen, and I'm pleased to share how our strategy is translating into tangible results. Starting with revenue drivers, our $31.3 million in U.S. net product revenue reflects not only traditional retail pharmacy prescriptions captured in IQVIA data but also institutional sales to universities and colleges, as well as retail orders from clinics and hospital networks. This quarter, we've observed modest improvements in gross-to-net retention, with cash prescriptions decreasing from about 20% to approximately 12% of total volume. By offering cash prescriptions through BlinkRx and other directly managed programs and optimizing our co-pay buy-down program at the point of sale, we've gained greater control, which led to favorable gross-to-net performance and improved profitability. Our DTC campaign is also delivering meaningful engagement, as seen on slide four. Consumer awareness has climbed from 20% pre-campaign to 56% as of September, and intent to get Nephi remains high. Approximately 80% of surveyed patients say they are very likely or extremely likely to ask their healthcare provider about Nephi after learning about it. The early lift from the campaign aligns with benchmarks for promotionally sensitive brands, and we believe it will continue to improve as awareness grows. To accelerate greater adoption, we're excited to introduce our Get Nephi On Us initiative, which is part of our direct-to-consumer campaign. As outlined in slide five, this program was designed to simplify access to Nephi. Patients can schedule a quick virtual visit with a prescriber to get started. Once prescribed, Nephi can be shipped directly to their home or picked up at the pharmacy of their choice, typically with a zero co-pay for most commercially insured patients. Importantly, patients are not required to wait for their current auto-injector prescription to expire. They can transition to Nephi immediately without the need for an additional appointment with their HCP. By minimizing hassle, assisting with coverage and the prior authorization, and enabling straightforward auto refills, this program makes it easier than ever for patients to choose Nephi and stay protected. We've incorporated the Get Nephi On Us program into all of our DTC materials, and early survey feedback shows that a majority of patients are open to using the virtual prescriber option. We believe this initiative will encourage consistent prescription switches throughout the year, extending beyond the usual back-to-school period and maintaining growth even during traditionally low-volume months. We are also seeing meaningful expansion in reach and adoption. Turning to slide six, to date, over 18,000 healthcare providers have prescribed Nephi, an 85% increase since August, with 81% of prescriptions coming from top decile seven through ten prescribers. Market share amongst new prescribers is at 10.3%, outpacing existing ones with the same call frequency, signaling faster uptake as new doctors benefit from refined messaging, an easier prescribing experience, and growing real-world evidence. These operational improvements are driving momentum and scaling our efforts. On the pediatric front, our 9,000 pediatricians, where our market share continues to grow. In addition, approximately 6,500 schools have opted into our Nephi Schools program, providing access to emergency doses at no cost. Perhaps most importantly, we're seeing early signs that Nephi is expanding the overall epinephrine market, not just taking share. We're reaching new patient segments, as seen on slide seven. Amongst patients prescribed Nephi, approximately 19% were lapsed patients who had stopped filling prescriptions, and 7% had never filled at all despite being diagnosed. These patients who stayed away primarily due to needle anxiety or device complexity. In total, about a quarter of patients prescribed Nephi are from these new segments. As summarized on slide eight, patient satisfaction is remarkably high. Eighty-seven percent of Nephi's patients report a positive impact on their daily and social lives. Ninety-five percent said they were likely to refill the prescription compared to actual refill rates of around 30% for needle injectors. The current epinephrine market is valued at $2 billion annually at Nephi's net price, growing at 6% to 8% organically prior to Nephi's entry and branded promotion. And this year, we've seen year-over-year growth at 9% and year-to-date growth at 8%. As both Nephi captures share and expands the market through improved refill rates, new patient adoption, and higher devices per patient, the opportunity is significant. In summary, our U.S. launch execution is progressing well, and we are gaining momentum. We are excited about the ongoing investment in direct-to-consumer initiatives, the launch of the Get Nephi On Us program, discussions with payers, and our efforts in the field to increase market share amongst targeted HCPs. We look forward to driving growth. Our commercial infrastructure is optimized to scale sales rapidly through 2026. I'll now turn it over to Kathleen Scott to discuss our financials. Kathleen Scott: Thank you, Eric. We continue to maintain a strong financial position while investing significantly in the commercial growth of Nephi. Looking at our third quarter 2025 financial results on Slide nine, starting with revenue. We recorded total revenue of $32.5 million. As we've discussed, it's important to look at U.S. net product revenue separately from collaboration and supply revenue. Our U.S. net product revenue for Nephi was $31.3 million, representing a near 2.5-fold increase from the prior quarter. We recognized $1.1 million in supply revenue from partners during the quarter. We also earned royalties of $100,000 from ALK related to the launch of YERNEPI in Germany. In accordance with GAAP, these royalties were recorded to the financing liability on the balance sheet rather than our P&L. Turning to our operating expenses, R&D expenses for the third quarter were $2.8 million, primarily related to our ongoing Phase 2b urticaria trial and continued development expenses for Nephi. SG&A expenses were $74.8 million, reflecting our ongoing investment in our national DTC campaign and sales and marketing efforts. While SG&A spend increased with DTC expansion, these are deliberate investments designed to drive durable share growth with spend efficiency improving quarter over quarter. We remain committed to making substantial investments in Nephi to ensure both short and long-term market share capture and brand awareness. Our gross-to-net retention in the third quarter was modestly higher than in the second quarter due to certain channel dynamics. Looking ahead, we expect gross-to-net retention to remain in the low to mid-fifty percent range even with the reduced $0 co-pay program. Net loss for 2025 was $51.2 million or $0.52 per share. Lastly, as of September 30, 2025, we had cash, cash equivalents, and short-term investments of $288.2 million. In September, we secured a senior secured term loan facility with RA Capital, our largest shareholder, and Obern's Life Sciences of up to $250 million, drawing an initial $100 million from this facility, which will be used primarily to accelerate Nephi's commercial growth. The funding will also support our marketing and medical affairs initiatives to generate and disseminate real-world evidence about Nephi's effectiveness. This financing provides several strategic advantages. First, it's an attractive cost of capital at SOFR plus 5.5% with interest-only payments through September 2030, zero dilution, and terms similar to recent commercial stage deals such as Verona Pharma. Second, it comes from high-quality investors who understand our business and are aligned as long-term partners. Third, it maximizes our flexibility for commercial initiatives, including DTC campaigns and real-world evidence generation. Our current cash position is expected to be sufficient to achieve cash flow breakeven without additional equity financing while maintaining the resources needed to fully capitalize on the U.S. commercial opportunity for Nephi and benefit from the continued U.S. growth and expanding international revenue. With that, I'll pass the call back to Richard Lowenthal. Richard Lowenthal: Thanks, Kathy. As we look ahead, we remain laser-focused on our key priorities. First, sustaining and accelerating Nephi U.S. market share growth through the fourth quarter and into 2026. Second, enabling Nephi global expansion through launches in multiple geographies across our partner network. And finally, advancing our clinical stage urticaria program towards a potential label expansion. Our momentum continues to build across every dimension of our business, and we are confident in our path towards long-term growth and profitability. Most importantly, executing our mission of transforming how severe allergic reactions are managed and fundamentally impacting the lives of patients, families, and caregivers. Thank you for your continued support. Operator, please open the line for questions. Operator: Thank you. We'll now begin the Q&A session. Lachlan Hanbury-Brown: Hey, guys. Thanks for the question, and congrats on the quarter. I guess, yeah, first question is maybe just I know there were obviously some high expectations in Q3, and would be curious to hear how these results sort of stack up to your internal expectations heading into the quarter. Hello? Operator: Rich and team, can you please come off mute? Please remain on the line. Lachlan Hanbury-Brown: Awesome. Hey. I saw the first question was just, yeah. I know there was my expectation heading into Q3 with the back-to-school season. I was curious to hear how this performance sort of stacked up to your own internal expectations. And yeah. Richard Lowenthal: Yeah, Lachlan. This is Richard Lowenthal. So I think the performance we've reported, obviously, was better than analysts' expectations, and we met our expectations. I mean, we've spoken a little bit about the difficulties over the summer and doctors' burden and why we are shifting a lot of our attention towards our Get Nephi On Us program, which physicians right now are giving us feedback that they're very, very positive about this approach. So we obviously would have liked to have seen a better performance over the summer. But I think it met our expectations. And I think we learned and adjusted very quickly to avoid the issue of the doctor burden problem that we experienced. And I would just add too, as we stated in the prepared remarks, I mean, the growth of new prescribers and prescribers overall has been strong in Q3 and throughout the summer. As I mentioned also, you know, what we're seeing with that group of doctors too is, I think, just really focused messaging. You know, the real-world data and then some of the programs that we put in place. Is a higher share, so that's very encouraging. And then, you know, the increase that the consumer awareness with our DTC campaign continue to grow through the summer months. Lachlan Hanbury-Brown: Yeah. So maybe on that point about the higher share in the newer prescribers, is that a higher share at a certain time after writing their first script or just an overall higher share among them than the original prescribers? And if so, maybe why are the initiatives that are getting higher share in the new prescribers not driving further share growth in the prior prescribers at the same rate? Eric Karas: Rich, I can take do you wanna take that one? Richard Lowenthal: No. No. You can take it. I don't I think as I mentioned, you know, the focus on kind of, you know, tighter messaging in terms of the unmet need, and not only the attributes of needle-free, but the totality of what Nephi offers. Continues to drive adoption and writing. I think as Rich said, you know, the volume of overall patients and kind of our core went up quite a bit in the summer. That's one of the reasons why, again, the Nephi program was designed to really help the offices and help the patients mean, if you look at our allergists, for example, our top top you know, 4,000, I mean, the share is higher than the average. I think we're seeing that kind of across the board where we have good focus, you know, reach and frequency, a tighter message, really focused market access messaging too. Our sales team is able to kinda see within a doctor's patient base the specifics around where Nephi is covered without a PA. And then really kinda sharing and educating those best practices has really kinda helped us with adoption that we see kind of, you know, with those physicians that I mentioned. Richard Lowenthal: And, Lachlan, let me just correct one thing, because I think your what you stated is not really, the correct perception. The doctors that are prescribing Nephi at the higher tiers continue to expand their use, their market share continues to go up. We also expand the number of prescribers, but new prescribers tend to be trialing. Right? So new prescribers tend to be coming in. They try out Nephi with some of their patients. And once they have positive experience and they're comfortable, they start then expanding. So while we're seeing a good growth of new prescribers, those prescribers are not adding a lot to our market share. But I don't want you to think that existing prescribers are decreasing. They're actually increasing. So when we look at our existing prescribers, they are increasing in market share. And the only reason that market share kinda took a dip over the summer is because the volumes get so large and a large percentage of that volume is renewal prescriptions, which are virtual. So they're not even going to see the doctor. So if we could look at just prescriptions that were at a doctor's office, I think we would have had a much higher market share of those prescriptions. But you have a lot of renewal virtual renewals going on before school starts. And that we will take the advantage of next year, but this year, obviously, we don't have renewals of Nephi yet on an annual basis. So starting next year, we'll start to see the benefit of that virtual prescribing. Lachlan Hanbury-Brown: Alright. Thanks. And maybe final one for me. The institutional sales the point you made was an interesting one. Can you just elaborate on maybe how much volume went through that channel, what the economics are like, how big that opportunity is, know, what you're doing to capture that beyond the traditional retail setting? Richard Lowenthal: Yeah. We're not gonna elaborate on that today because it's inconsistent, obviously. And we are just starting up formal marketing efforts in that area. So we are now shifting some of our attention to market directly to buyers and also to provide both discounts and other incentives to them to start boosting those sales going forward. So it's not consistent enough yet for us to give you any kind of guidance, Lachlan. So we'd rather not give too much detail on that at this point. Lachlan Hanbury-Brown: No. Makes sense. For the questions. Operator: Our next question comes from Josh Schimmer with Cantor. Josh Schimmer: Thanks for taking the questions. Apologies if I missed this in the prepared remarks. But what percent of covered lives now require some form of prior auth prior? What trends are you seeing there? And then for the online prescribing option, what is being done to raise awareness of patients if that is available to them? Thanks. Richard Lowenthal: Yeah. So I'll take the latter part and then let Eric answer the part about the prior authorization and percent of prior authorizations. I think we are advertising already, so we started to incorporate the new program into our DTC. You will also shortly see new TV commercials, which use the same theme, so same background, same theme, but different voice-over and banners. In order to make it very clear to customers that we now have this virtual prescriber option, that we're it's no cost to the patient or caregiver. And, again, with commercial insurance, it's zero co-pay. So I think that is rolling out. I mean, I think virtual ads are already updated. And then, also, we sent out, obviously, an email blast to all of our, everybody on our email list that has been on nephi.com. And, also, several of the large advocacy groups have put this out on their email list, that ARS Pharmaceuticals is now got the promotion going. Is paying for a virtual prescriber if they wanna skip the hassle of a physician visit and also that they can get a zero co-pay now and they can get multiple packs with zero cost. So it's more than just one box. It's multiple boxes. They can get whatever their insurer will tolerate. And just so you know, on that front, almost all insurers will tolerate two boxes in one prescription. Some will accept three. Two packs in one prescription. So we are defaulting to two two two packs in the virtual prescriber prescription. Eric, you wanna talk about PAs? Eric Karas: Yeah. Good morning, Josh. Thanks for the questions. Overall, when you look at the PA required, and this is through kinda commercial, Medicaid, and Medicare. It's about 50%. So that number has come down, as we've also shared too specifically within commercial. About 57% of prescriptions patients don't require a PA. Josh Schimmer: Okay. Thank you. Operator: Our next question comes from Roanna Ruiz with Leerink Partners. Roanna Ruiz: Great. Good morning, everyone. So couple for me. Could you talk about the inventory levels for Nephi in the quarter and how we should think about it exiting for Q4? And secondly, I also noticed you talked a bit about IQVIA being a bit off in tracking Nephi prescriptions. Could you give us a little more detail about what portion of the scripts are flowing through IQVIA versus BlinkRx and other channels? Richard Lowenthal: Yeah. Let me speak to that first, and then Eric can add on it. I think the inventory levels that the distributors are maintaining tend to be between fifteen and twenty days. It fluctuates, obviously, from week to week and period to period. They did they do build inventory for peak periods. And then, what would be normal is that they're gonna reduce down their inventory as the market drops in the fourth quarter. So as we said, that's part of the reason why we expect that the overall sales in the fourth quarter, although we believe we'll do very well, will come down from the third quarter. And part of that is driven by inventory adjustments as well. So that dynamic is pretty fairly normal. But, again, this is a product with some seasonality to it. The distributors are well aware of that. So they do adjust inventory according to that seasonality. But they try they seem to be trying to maintain their inventory between fifteen and twenty days on hand. And, Eric, do you wanna speak to the other part of that? Eric Karas: Yeah. I think, Roanna, good morning. Thanks for the questions. When you look at kind of the distribution of the prescriptions being filled, it's slightly higher kind of on the retail side. I think as we kinda transition more where, had higher, you know, coverage and so forth, doctors started sending patients directly to kind of a the local pharmacies, you know, because that was something easier for the patient to kinda pick it up. And get it right away. It's probably about 50, you know, 5% to 45%. But as Rich mentioned and we mentioned, you know, some of the inaccuracies of, you know, capture rates and some of the other channels that, you know, we're selling medication to is not necessarily tracked in the IQVIA data overall. Richard Lowenthal: Yeah. And it's very inconsistent, Roanna. So we can see that it from week to week or period to period, it's not very consistent what IQVIA is capturing. Roanna Ruiz: Makes sense. A lot. Operator: Our next question comes from Andreas Argyrides with Oppenheimer. Andreas Argyrides: Hey, good morning, guys. Thanks for taking our congrats on the solid quarter here. Couple from us. There was a previous question around prior authorizations. You know, maybe, you know, what are some of the gating factors in reaching unrestricted access? What are your timelines? To add, let's say, CVS Caremark, Aetna, and etcetera, bigger formularies in '26? And how do you anticipate those improvements contributing to growth next year? And then I got one or two follow-ups. Richard Lowenthal: Yep. So, Andreas, I'll start out with the answer on that. So, we continue to work, obviously, with Zinc and Caremark, CVS. We do have some new proposal in with them. So we're very optimistic. What the timing of that, we cannot be sure of right now. We believe that it will be in the first half of next year that they will put it on formulary with preferred status, but we're also working with them to possibly remove the PA requirement even as nonpreferred sooner than that. But we can't really promise because CVS is not consistent in their behavior. And we know that in the past when we had an agreement with Zinc, CVS did not follow through with that. So we are working with them. They seem to be working with us, and Zinc certainly is very, very positive. But we have to just wait until we get through that. But we do have a new proposal in with them, and we are talking fairly regularly with Zinc and CVS groups. On the other side, we also are working with Prime and other Blue Cross companies. That's the other piece that we're focused on. And we are making progress in that regard as well. And also with Anthem, which kind of follows Caremark but is independent of Caremark. Andreas Argyrides: What do you think I mean, so what do you think some of the considerations that these payers look at when they decide to make their decisions? What are some of the data points that you guys are bringing to their attention? Richard Lowenthal: Yeah. Well, they see the market growth. I think they understand the medical value. At least most companies understand the medical value of Nephi. And I think it's just a matter of and it's a little different for different companies. I think it's you know, with CVS, there's a little bit different focus on the revenue that they would generate. For the Blue Cross companies, I think it's just managing their premiums and managing their cost. So they tend to be delaying coverage for that reason even if they recognize the medical value. And then there's a handful of companies that are just not covering for other reasons. But it tends to be just managing their costs, and we need to work through that with them. Andreas Argyrides: Okay. Great. And I know you guys aren't necessarily giving guidance here, but just given the strong momentum in Q3, how are you thinking about Q4 sales and then growth into next year? Thanks. Richard Lowenthal: Yeah. As we said, I mean, you know, Q4 will probably be less than Q3. And I think that's anticipated to some extent even in the analyst estimates. We will continue to grow market share, and again, depending on how well the Get Nephi On Us program does, and how much business that drives, will probably dictate whether we are well above consensus or not. But I think that that program hopefully will solve some of the headwinds that we have been seeing, and then if we can make more progress on access, but that will probably be in the first or second quarter of next year. That will certainly also add to the momentum at that point. Andreas Argyrides: Okay. Great. Thanks for taking my questions. Congrats on the quarter again. Thanks. Richard Lowenthal: Alright. Great. Nice to talk to you. Operator: Our next question comes from Kevin Holder with ROTH Capital Partners. Kevin Holder: Good morning. Thanks for taking our questions. First one for me, I think I know you launched in the UK with ALK a few weeks ago. You know, just some commentary on the adoption there. And is it tracking more towards, you know, the growth trajectory in Germany or close to the growth trajectory in the U.S.? I know a little bit early stages there, but just some commentary would be helpful. Thank you. Richard Lowenthal: Yes. So, yeah, it's a little early to say. It's a little early to say, but what I can tell you is that I think the UK physicians and patients' caregivers are very excited about Nephi. I think we expect a very good performance. And, again, they have a more seamless reimbursement process than the U.S. So we know that they get fairly well covered, very quickly or they are already being well covered. So we do expect adoption. I would expect at least at this stage, again, too early to be sure, I would expect adoption to be more like Germany, more because of the very rapid access that they get in those countries. Kevin Holder: Thank you. That's very helpful. And then just one last one for me. I think in the slide deck, you show that you're targeting 9,000 pediatricians with the ALK U.S. Salesforce. Kind of what is your progress there thus far? And you know, penetrating that market? Eric Karas: Yes. Hey. Good morning. We're seeing a nice increase through the summer months when that team went into the field. Of share. So we track a couple things in terms of overall volume, new prescribers, and that is progressing nicely. Obviously, we wanna kinda see that continue growing at a pace here in Q4 as well. But we're pleased to get to overall about 20,000 physicians. So we're hitting all of those big allergists, the deciles eight through ten, but then we've been able to expand to about another 9,000 pediatricians that also see patients that need epinephrine. Kevin Holder: Great. Thank you very much, and congrats on the quarter. Operator: Our next question comes from Ryan Deschner with Raymond James. Anthony: Hi. This is Anthony on for Ryan. Thank you for taking our question and congrats on the quarter. So we wanted to know how are you thinking about the impact of the virtual program over the next several months? And what's patient demographics do you think will have the biggest impact from this program? Richard Lowenthal: Yeah. I'll start out, and Eric can add to what I say. We are very excited about this program. We've had a prescriber option on our website, but it wasn't very well utilized only because of the fee and because of, again, us not promoting it. Right? We were not advertising it. Feedback I got, I was just at the American College of Asthma Allergy Immunology, is that the doctors are actually looking at this as a really positive thing. Mean, doctors, allergists especially, are exceptionally busy. They're under a lot of pressure to see as many patients as they can. And the time it takes to counsel patients on a new drug and switch them takes up a lot of their time. So by introducing this program not only to the patients and caregivers but to the doctors, the doctors are coming back with a very positive attitude towards it that they can actually talk to their patient and then switch them over to getnephi.com and we would take care of the rest. We would take care of the description, a PA if necessary, training, everything for the patient so that that burden is removed from the doctor. On top of that, patients and caregivers will now have the opportunity to get Nephi without a waiting time. Typical waiting time to see an allergist is three to six months. They don't need to travel down to the doctor's office and sit in the doctor's office. And it's fairly quick, so there's also probably less dropout because you're gonna have a very quick interaction virtually, and then the prescription goes to the pharmacy or gets filled through the mail order system. And it's gonna go really, really quick. So less chance of a patient deciding that they changed their mind or don't wanna go to the doctor. Cancel the appointment for other various reasons, like, for reasons. So we expect it to have some meaningful impact. I mean, how much impact we can tell you. But I think the positive response of the doctors we're getting has been very reassuring because they see it as a way for them to switch their patients without having to take up too much of their time. But I think that's an important aspect in today's world when they're under pressure to see just one more patient each day. Eric, do you wanna add anything? Eric Karas: Yeah. I need a couple points to build on what Rich mentioned. As Rich said, we were just at the college conference, and even before the conference started, we did an advisory board with about 12 physicians. Things that we went through is this program, and the response was very positive. So we will see how obviously, we're watching really closely and we mentioned earlier too, making sure we're promoting this through our DTC efforts as well. Then we've also done market research specifically with caregivers, parents, and patients. And as Rich mentioned, they see this as time savings. Making the product really easy to get. You know, the ease of use, the cost aspect of not having to pay, you know, lower co-pay. And then just over the product overall, I mean, you start thinking about the unmet need and the patients kinda see this again needle-free, the temperature excursions, the simplicity, ease of use. The feedback that we're getting again from across patients and parents about this program has been positive. Anthony: Alright. Thank you very much. Operator: That concludes today's question and answer session. This will conclude today's conference call. Thank you for participating. You may now disconnect.
Elizabeth Shores: Welcome to Exodus Movement, Inc.'s third quarter 2025 earnings call. I'm your host, Elizabeth Shores. Joining us again are Exodus Movement, Inc.'s co-founder and CEO, J.P. Richardson, and CFO, James Gernetzke. During today's call, we may make forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may vary materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described in forward-looking statements at our earnings press release and our most recent Form 10-Q with the Securities and Exchange Commission, available on the Investor Relations portion of our website. We do not undertake any obligation to update forward-looking statements. Now you can feel free to visit our social media accounts on X or Reddit to submit any questions you may have about this quarter for our Investor Relations team after our call. And now our CEO will discuss our developments and our quarter. Take it away, J.P. J.P. Richardson: Thank you, Elizabeth. And thank you, everyone, for joining us this morning. I'm excited about the positive momentum in our business. We had a good quarter, and Exodus Movement, Inc. posted over $30 million in revenue this quarter. That's 51% year-over-year growth as consumers and industry partners continue to get value from Exodus Movement, Inc.'s products. We'll speak more to that value later in this call. Exodus Movement, Inc. is a company of builders. We've described many of the technologies we have built, such as passkeys, in previous calls. These products have laid the foundation for the next great wave of innovation in money. Exodus Movement, Inc. is building completely beyond the boundaries of a crypto wallet. We're building toward a future where people use Exodus Movement, Inc. as an app not just to invest and save their money, but to make payments and transfer money in the broader financial system. It's a future where with one tap, you can send $20 to your mom across the world. A future where you can easily use crypto wealth to buy groceries, all without any crypto complexity. Many of these experiences will be powered with stablecoins. Payments with stablecoins and purchases with cards using stablecoins. Now I'm excited to share with you our acquisition of Grateful that we announced this morning. The tools that Grateful ship will be helpful to us as we work to produce useful products to consumers and merchants across the payment space. Grateful has built a merchant checkout experience built on stablecoins. In addition, we've built the payments app on passkeys and stablecoins to pair with this merchant experience. The Grateful Payments app will go live next month in Argentina and Uruguay. Finally, Grateful is a company of builders themselves. The Grateful acquisition is bringing crypto builders and company founders into the fold at Exodus Movement, Inc. And that's a positive development that we intend to make into a habit. Now shifting gears. Our traditional crypto business and ExoSwap. We've gotten more traction with recent names signed, MetaMask. While some of the notable recent signings are still in the integration phase, we are expanding across the industry with 16 signed partnerships, 10 of which are already producing. We've been tracking these producing partners in our monthly treasury updates. In September, we served 37% of exchange provider volume to ExoSwap industry partners, up from 26% in the previous month. Also on this topic, since there were a lot of questions about MetaMask after the last call, this integration is not yet producing revenue. But MetaMask recently posted on X that they are expecting Bitcoin support soon. And as a result, we are optimistic about the prospects for our white label services with continued traction and success since launch. It's gratifying to see Exodus Movement, Inc. extend our services across the industry. Every new partnership validates our technology and drives benefits from scale. Now let's talk about tokenization. Tokenization is another area where we work consistently to be on the leading edge. Because I strongly believe that tokenization of assets, particularly stocks, is the future of financial markets. We announced that we are exploring a Bitcoin dividend. As those plans have progressed, our team has thought through a number of other crypto-like value-added activities that we could power for our shareholders utilizing our Exod token within our Exodus Movement, Inc. products. But first things first, we are working through the steps for a potential Bitcoin dividend, and James is going to have more on that later. Now we've partnered with Superstate to extend the Exodus Movement, Inc. common stock token to the Solana blockchain. So now Exod is on two blockchains, Solana and Algorand, with more to come. Enabling Solana is only the first step. All of you who know me well know how excited I am to be moving towards an on-chain stock trading. And it's a priority for Exodus Movement, Inc. to be in front when US companies start trading. So I'm excited to see the world of Solana and Exodus Movement, Inc.'s investment community come together. The time is now. Now let's talk about the industry and market briefly. And while the price of Bitcoin and Ethereum crypto assets supported our overall economic environment for the quarter, we see stablecoin and real-world asset tokenization adoption as key catalysts in the Exodus Movement, Inc. world future. I'd like to reiterate once again that Exodus Movement, Inc. is already a leader in key components of this future. Our multichain self-custodial wallet technology, our exchange aggregator that powers swaps across blockchains, and our groundbreaking common stock tokens all demonstrate our deep experience across many different rails. So it remains our long-term goal for Exodus Movement, Inc. to become the last and best app consumers will ever need for their finances. So I'd like to quickly say thank you to everyone that's joining us on this journey. James, over to you to discuss our finances. James Gernetzke: Great. Thanks, J.P. Let's jump in. Okay. So Q3 revenue came in at $30.3 million. That's a 51% increase from a year ago. And one of the items driving this growth is the higher digital asset prices, which we've seen over the last twelve months as we've had a very favorable backdrop for our industry. Three swap volume totaled $1.75 billion, that's an increase of 82% from the prior year quarter. And as B2B swaps contributed $496 million, that's 28% of our quarterly volume. Key drivers to the overall volume increase here included higher digital asset prices and the emergence of very meaningful volume from our ExoSwap partnerships. Non-exchange related revenue increased to over 10% of our revenue. That's the first time that we've seen that in quite some time. This primarily reflects improvements in staking, specifically in Solana staking. And we've also seen traction from our ExoPay product in the United States. From a user front, our monthly active users ended at 1.5 million. That's similar to the end of last quarter and went down 66% from the previous year. Quarterly funded users ended at 1.8 million, and that's up 6% from last quarter and up 20% from a year ago. So as a reminder, QFUs counts funded users. Those are users that have put their money on the Exodus Movement, Inc. platform and that demonstrates the real stickiness of the Exodus Movement, Inc. wallet and the loyalty shown by those users who've trusted us to put their money on our platform. And as we look at the Grateful acquisition, our payment strategy is spearheaded by this acquisition. Grateful is a talented outfit that helps us implement and refine access of our software for mass consumption. Additionally, the benefit of Grateful that gives us is a great deal of flexibility with our go-to-market strategy across jurisdictions, including targeted rollouts and future feature testing. And on to our balance sheet. It remains a source of strength for us. As of September 30, digital and liquid assets totaled $315 million, Exodus Movement, Inc. maintains a debt-free position. While we increased our Bitcoin to 2,123 Bitcoin. With regards to our strategy, the Grateful acquisition provides a beachhead into the traditional payment space that can be augmented through development and successive acquisitions as we broaden our capabilities. Meanwhile, the Grateful team's focus on simple, efficient, and multi-chain payment experience for merchants and customers gives us inroads to pursue new regions and new users in conjunction with our existing multi-chain software. On the dividend front, we filed an information statement on Friday. So as previously reported, we are currently exploring the possibility of issuing Bitcoin dividends to our stockholders. Now we believe that issuing the right to receive a Bitcoin right to receive a dividend in BTC will allow us to leverage a core asset to reward our public stockholders directly and to promote business objectives such as the adoption of Exodus Movement, Inc. products and services, and promoting the advantages of common stock tokens. As part of this process, we are seeking to amend our charter to allow Exodus Movement, Inc. to declare and pay dividends to only our publicly listed Class A common stock. And we believe that this charter amendment will allow flexibility in our capital allocation strategy, potentially maximize the value of any potential dividend through targeted distributions to our Class A stockholders. Given that our founders, sorry, J.P., hold over 96% of our Class B common stock. But any potential dividend remains subject to board approval, and the charter amendment is subject to completion. So for additional information on the charter amendment, please refer to the preliminary information statement filed with the SEC on November 7. Now let's go back to Elizabeth for questions and answers from our analysts. Elizabeth Shores: Alright. Thank you so much, James. As a reminder, if anyone would like to ask a question, you can just click the raise hand button at the bottom of your screen, and we can ask. Alright. We have Andrew James Harte from BTIG. Go ahead, Andrew. Andrew James Harte: Hi. Thanks for the question, congratulations on the Grateful acquisition. I'm hoping maybe you can just unpack a little more. How quickly do you think you can have Grateful integrated into the Exodus Movement, Inc. wallet and platform and any financial details you can share or expectations around Grateful as well would be really helpful. Thank you. J.P. Richardson: Thanks, Andrew. So the Grateful acquisition is super exciting for us. And so to answer your question, we are going to go live with Grateful next month. So going to start in Uruguay, and the reason for that is that down in South America, in during the it's, you know, summer there now or will be summer here shortly in down in South America. And so there's a lot of activity that happens down in Uruguay and Argentina. So Grateful is an Argentinian and Uruguayan team. And so we'll launch there next month. And in addition with the Grateful app. So you'll see merchant services, merchant checkout experiences, and the app itself will all be live next month. And, James, you probably have more on finances. James Gernetzke: Yep. Exactly. So, Andrew, thanks for the question. I would say that you know, we didn't release the amounts, but just so you get an understanding of the size, you know, they are a smaller team down there, and it's not a very large acquisition from a financial perspective. But I think what it really does show is just that as we have been very public about our M&A strategy, as we've talked about as our team has gone out and looked at acquisition targets, that, you know, we have all different types. And, you know, the fact that we saw you know, we really do appreciate and the technology that they've built. They just happen to be very rather early on their journey. They had essentially just gotten to their product launch stage when you know, we started, you know, getting, talking to them in earnest about the acquisition. So from a financial perspective, it's not that large, but from a technology perspective, we think it's going to be pretty impactful. Andrew James Harte: It's really helpful. And then, just as my other question. James, you talked about a larger percentage of revenues coming from non-aggregation sources. I think you called out staking and ExoPay in particular. As we think about the opportunity for that revenue line item to continue growing in these different sources, can you just break down some of the puts and takes in there, and how you see that line item evolving over time? Thanks. James Gernetzke: Yeah. So, you know, I think I've generally been fairly consistent. I think that we'll always see, you know, aggregation, exchange aggregation in particular, be a rather large part of our revenue stack, if you will, to mix technological and finance terms. I look at the aggregator kind of as the glue because, you know, whether you're talking a stablecoin going from, you know, Amazon stablecoin to Walmart stablecoin, that aggregator is kind of the glue going to, you know, power a lot of the different experiences we see in the future. But to your point, I mean, you know, the Grateful acquisition, you know, the stablecoins and the technology and, you know, dealing with merchants and things like that, that's not necessarily going to be swaps. So, I think as we acquire other companies, I think you'll see, you know, and develop, you know, new, more stablecoin and more, you know, payment rails type products, I think you could start to see, you know, there's a lot of other opportunities that aren't necessarily exchange related. But I, you know, but I generally believe that exchange will be a large part of the revenue. Andrew James Harte: Thank you. Appreciate it. Nice quarter, guys. Elizabeth Shores: Thanks for the question, Andrew. And up next, we have Owen Rickert from Northland. Go ahead, Owen. Owen Rickert: Hey, guys. Thank you for taking my question here. What does the monetization model look like for Grateful? Are you guys going to be earning fees on merchant payment volume or stablecoin yield spreads? I guess, you just provide some more color on that? J.P. Richardson: Yes. Absolutely. So short term, we don't care as much about the merchant payment experience in terms of monetizing it. It's more about the utility and getting merchants to realize that if you have a checkout experience with stablecoins, you're going to save a lot of money compared to spending fees on credit card exchanges. So while we'll experiment with some, I think, smaller takes anywhere up to 50 bps, in some cases. The aspect for us is not the merchant experience. The monetization piece that really becomes, I think, interesting is for consumers to actually start holding crypto assets to hold stablecoins to provide yield through stablecoins and to provide other value-added services. I mean, if you can imagine that if you have people all over Latin America and the United States, using a wallet, they're holding their money, they're holding their stablecoins, that opens up a whole suite of monetization capabilities. You could imagine things like mortgages. You can think any sort of loan capabilities. Things like that are really interesting to us to connect consumers with the money that they have with the utility that they will need. So that's how we think about it. And, of course, not to mention that in time in the Grateful app, you know, there's the possibility of even bringing in other experiences like swaps. So if you have stablecoins and you see all of a sudden that you want to buy some Bitcoin or Ethereum, that becomes another value-added service. But the key again is making sure that merchants really understand the utility and convenience and cost savings with stablecoins. That's the really important key here. Owen Rickert: Great. Thanks, J.P. Super helpful. And secondly, I guess, how big is the opportunity in Latin America and potentially other emerging markets for these stablecoin-based payments? J.P. Richardson: Well, it's huge. It's absolutely huge. I mean, everybody down in Latin America, especially in countries like Argentina. Right? We all know the stories of the high inflation of the Argentinian peso. And how many consumers around there want to use stablecoins. They want to use the dollar. And so for us, this presents such a huge opportunity. And I've been told that Tether is actually a household name down in places like Argentina. So given that Argentina is a country of over 100 million, Uruguay is a much smaller country of about 5 million. The opportunity is quite big to really present consumers all across Latin America with an easy and convenient way to hold and store and use dollars as a part of their daily lives. So I think the opportunity is ginormous. Owen Rickert: Great. Thanks, J.P. Elizabeth Shores: Alright. And thank you, Owen. And oh, hey there. We have Kevin Dede from HC Wainwright. Go ahead, Kevin. Kevin Dede: Good morning, guys. Thanks for having me on. J.P., I really appreciated your color sort of from the 20,000-foot perspective. I was wondering if you wouldn't mind maybe adding a little more to that and your thinking about integrating Grateful with stablecoins and that possibility into the wallet for customers in the Western world. Where inflation isn't such a big deal or at least it's not as bad as in Argentina. And then maybe you could talk a little bit about how you'd incentivize your users. Number one, they come to your platform, and number two, to actually use it when most people are pretty satisfied with their credit card. Understand the merchant perspective, but just would love to hear your thinking on how users might approach it. J.P. Richardson: Yeah. This is Kevin, that's a great question. So when you think about like, Gen Z consumers or even younger, Gen Alpha consumers. It's like I have an older son, and I remember when I had a conversation with him, and I said to him, like, yeah. We gotta sign you up for the bank account and, you know, have to direct deposit and, you know, with your job. And oh, and then you're gonna have to he had to write a check at one point in time. And I remember he asked me, said, what's a check? And I was like, wow. There's such a divide between, you know, older generations and younger generations. The Snapchat generation, the I want it now generation. These are the type that want to do all of their banking directly inside of an app, one app. And so that's the opportunity here. And we're not be very clear, we're going to integrate with credit cards and debit cards as well. Because the opportunity is that we want a person to be able to have dollars in their Exodus Movement, Inc. wallet and be able to use them anywhere in the world. That's the key important aspect here is to be able to use it anywhere in the world and not have any friction because what we found, if we go back to Exodus Movement, Inc. for a moment, right, Exodus Movement, Inc. was created to help people manage a portfolio of assets. That's where it started. Right? To manage a portfolio of Bitcoin, Ethereum, Dogecoin, and just any crypto assets. And we saw a future that someday that would involve stocks. And even though at the time, stablecoins were early, we knew that someday that would involve stablecoins. But at the end of the day, somebody just be able to buy Dogecoin at a dollar and then turn it around and sell it for $4 later. Like, while that's cool and it helps make money for us, people want to be able to bring that additional or get utility from that additional value. Right? Like, people buy crypto assets with the intention of being able to get value from them later. So again, for the consumer, that becomes really powerful where you have a one app that has all of your crypto in it. You have one app that has all of your stocks in it. You have one app that has all of your stablecoins, and it's presented in such a way that you're not really thinking about oh, is this stablecoin? Is it on Solana? Is it on Ethereum? I don't know. I don't care as a consumer. I care about the convenience. I care about being able to use my dollars anywhere. I care about being able to take my Bitcoin and sell it right away so that I can buy a new PlayStation or whatever you know, some Gen Z kid cares about. So that's how we think about it. And, again, just be very clear. Exodus Movement, Inc. and Grateful will integrate with debit cards so that you can use these assets at the point of sale. So I just want to be very, very clear on that. Kevin Dede: Yeah. Thanks, J.P. Appreciate it. James, quick one for you. The Grateful deal, was that cash or stock? And did it come with a banking relationship in Uruguay and Argentina? And is that important? James Gernetzke: It was a mix of cash and stock. And, you know, from the importance of the banking relationship, you know, that was not a driving factor. You know, obviously, there are relationships down there, but that was not a driving factor. And just to add some color to what J.P. had been earlier there, Kevin. You know, just as an anecdotal consumer, the other day, I went out, and I went all day and swiped my card, and I got charged 3% every time I did it. So I think that we're seeing a very rapidly changing environment, you know, on just payments in general. And so I think that one of the highlights that Grateful does is it allows us to really broaden our capabilities and address numerous different payment rails and methods where we can add some value. Kevin Dede: Yet so to your point, James, just lastly, you're swiping your credit card and absorbing the 3% fee that used to be charged to merchants. James Gernetzke: Exactly. Kevin Dede: Okay. Thank you for the color, gentlemen. Appreciate it. Elizabeth Shores: And thank you, Kevin, for the questions. If you want to ask a question, you can use the raise hand button at the bottom of your screen. I'll go over and check, and it looks like there are no more questions. So thank you so much again to J.P. and James and our analysts. If you want, you can visit our social channels on X or Reddit to submit your questions for management for the quarter, and our investor relations team is always standing by. Now thanks again for joining us today, and we will see you next quarter.
Operator: Hello, and welcome to Wave Life Sciences Ltd.'s third quarter 2025 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. I will now turn the call over to Kate Rausch, Vice President of Corporate Affairs and Relations. Kate Rausch: Thank you, Operator, and good morning to everyone on the call. Earlier this morning, we issued a press release outlining our third quarter 2025 earnings update. Joining me today with prepared remarks are Dr. Paul Bolno, President and Chief Executive Officer, and Kyle Moran, Chief Financial Officer. Dr. Chris Wright, Chief Medical Officer, Dr. Erik Ingelsson, Chief Scientific Officer, and Dr. Chandra Varghese, Chief Technology Officer, will be available for questions following the prepared remarks. The press release issued this morning is available on the investor section of our website, www.wavelifesciences.com. Before we begin, I would like to remind you that discussions during this conference call will include forward-looking statements. These statements are subject to several risks and uncertainties that could cause our actual results to differ materially from those described in these forward-looking statements. The factors that could cause our actual results to differ are discussed in the press release issued today and in our SEC filings. We undertake no obligation to update or revise any forward-looking statement for any reason. I'd now like to turn the call over to Paul. Paul Bolno: Thanks, Kate. Good morning to everyone joining us on today's call. I would like to first thank those of you who were able to join us for our 2025 Research Day on October 29, where we shared the first-ever demonstration of active and e reductions in a clinical trial. Notably, with a single dose of WVE-007, our inhibiting GalNAc siRNA, we were excited to show highly significant and durable human activity reductions that exceeded levels needed in preclinical models to drive meaningful weight loss and prevent rebound weight gain following cessation of a GLP-1. In addition, we provided an in-depth overview of our recent in RNAi and RNA editing and how we are building on the successful clinical translation of our WVE-007 and 006 programs to advance our pipeline, including our new RNA editing clinical candidate WVE-008 for the treatment of the up to 9 million homozygous individuals living with PNPLA3 I148M liver disease in the US and Europe. We also unveiled how we are harnessing the power of both siRNA and RNA editing to advance an innovative new bifunctional single oligonucleotide construct that is designed to silence one target while simultaneously editing or upregulating another distinct target. All of these clinical and preclinical advancements are made possible by our unique and proprietary chemistry and platform innovations. Just last week, we had the privilege of sharing data on 007 at Obesity Week, where we received significant attention from the patient community, key opinion leaders, and companies with a deep understanding of, and strategic interest in, the obesity space. There was a clear recognition for the need for non-incretin treatment approaches and overwhelmingly positive engagement on 007's potential to induce fat loss, preserve lean mass, and improve cardiometabolic health all without the negative GLP-1 class effects and with the convenience of once to twice a year dosing. There is particular excitement in 007's potential as a maintenance therapy, which would allow patients to transition off chronic incretin therapies while at the same time preventing rebound weight gain, preserving lean mass, and sustaining cardiometabolic health. Reflecting on the rapid progress we've made in advancing 007 in our Enlight clinical trial, we have now enrolled over 70 participants and are well-positioned to deliver data on over 100 participants from the clinical trial sites in Europe and the US in 2026. We began testing WVE-007 in Enlight at our lowest subtherapeutic dose cohort of 75 milligrams in each participant. Then for the subsequent cohorts, 240 milligrams, 400 milligrams, and 600 milligrams, which are in the potential therapeutic range, we have expanded to 32 participants. WVE-007 was generally safe and well-tolerated, and our independent data monitoring committee has approved further escalation to a next higher dose in cohort five. At Research Day, we shared highly significant dose-dependent and durable activin e reductions one month post-single dose of the 007 in the first three cohorts of Enlight, including a 56% reduction for the 75-milligram cohort, 75% reduction for the 240-milligram cohort, and an 85% reduction for the 400-milligram cohort compared to baseline. In addition, we had the opportunity to evaluate our lowest dose cohort out to six months, and throughout the six-month follow-up period, we continue to see sustained reduction, supporting 007's potential for once or twice yearly dosing. The durability and potency we've observed thus far is particularly encouraging, as we expect consistent and robust activity reduction over time is necessary to achieve meaningful weight loss. As we shared at Research Day, Wave's unique spina design and proprietary chemistry enabled the achievement of the potent and durable suppression needed for the inhibiting target. In our DIO mouse model, we demonstrated that weight loss in the same range as semaglutide occurred when Activin E was durably reduced by greater than 70% from baseline. The knockdown we've observed in the 240 and 400-milligram cohorts already exceed these levels. In our preclinical studies, we have shown extensive data supporting 007's unique mechanism of action to drive weight loss in monotherapy, as well as maintenance in combination settings. Specifically, we share data that support 007's ability to double weight loss when added to semaglutide and prevent rebound weight gain following cessation of GLP-1 in DIO mice. Furthermore, we've shown that inhibit e reduction led to adipocyte shrinkage, fewer pro-inflammatory macrophages, less fibrosis, and improved insulin sensitivity in adipose tissues, highlighting mechanisms that could explain the risk reduction for type 2 diabetes and coronary artery disease observed in human genetic data. With robust and durable target engagement in the clinic and comprehensive preclinical data that support both the mechanism of action and impact of our proprietary chemistry, we are incredibly excited to build on this positive momentum. We plan to deliver multiple near-term updates that assess blood-based biomarkers, metabolic health, body composition, and weight loss across multiple cohorts. Beginning this quarter, we'll have the first opportunity to assess the early impact of inhibit e reduction at three months in the 240-milligram cohort. And importantly, in 2026, we'll be able to assess six-month follow-up data from the 240-milligram cohort as well as three-month follow-up data from the 400 mg cohort. In RNA editing, we continue to lead the field with WVE-006, our GalNAc RNA editing oligonucleotide for AATD. 006 has the potential to be the first treatment for AATD that addresses the root cause of the disease with a convenient subcutaneously dosed therapeutic. 006 does not require IV-administered LMPs or complex delivery vehicles like other investigational treatments in development. This profile supports treating individuals living with AATD, including those living with lung or liver manifestations of the disease, or both. Since the approval of weekly IV augmentation therapies to help manage lung disease, the field has focused on keeping serum AAT levels above a minimum threshold of 11 micromolar, in part because ZZ individuals do not produce any M AAT and have limited ability to increase serum AAT levels during an acute phase response or exacerbation. However, with RNA editing, our goal is to restore the MZ phenotype by achieving three criteria: keeping basal protein levels at or above 11 micromolar, driving 50% or greater circulating MA with corresponding decreases in mutant z AAT protein, and most importantly, restoring the physiological response serum AAT protein to acute inflammatory events. In September, we delivered data from our RESTORATION 2 trial demonstrating that we have already achieved these goals with 006. We observed AAT levels of up almost 13 micromolar. We showed 64% of AAT was wild-type mAAT with a corresponding 60% decrease in mutant z AAT protein, and these effects were highly consistent and durable across individuals, supporting infrequent dosing of monthly or less. Most notably, we are able to restore a ZZ participant's ability to respond to an acute inflammatory event with total AAT levels of greater than 20 micromolar just two weeks after a single dose of 006. Encouragingly, the magnitude and four-week duration of this response were also proportional to the levels you'd anticipate in an MZ patient based on natural history. Following our September data, we've had multiple interactions with key opinion leaders in the field who expressed their excitement about these data. In particular, the ability of WVE-006 to restore physiologic AAT production represents a major paradigm shift from weekly IV augmentation therapies. As we look ahead to the remainder of our RESTORATION 2 trial, we are highly encouraged by our initial results, progressing rapidly, and excited to advance a potentially transformational new medicine to individuals living with AATD. Dosing is ongoing in the 400-milligram multidose cohort, and we remain on track to deliver data in 2026. We have also initiated the single-dose portion of our third and final 600-milligram cohort, and we look forward to delivering single and multidose data from the 600-milligram cohort in 2026. Building on our success with 006, we are advancing WVE-008, a GalNAc conjugated RNA editing program for PNPLA3 I148N liver disease as our next RNA editing clinical candidate. Like 006 and 007, PNPLA3 is a compelling target with strong human genetic evidence and a clear translational path to early clinical proof of concept. There are an estimated 9 million homozygous I148M carriers with liver disease across the US and Europe who are at a nine-fold higher risk of dying from their liver disease compared to non-carriers. The PNPLA3 I148M variant is a well-established driver of steatosis, inflammation, ballooning, and fibrosis, and yet there are no approved medicines that directly address this biology. Emerging preclinical and clinical data indicate that simply knocking down PNPLA3 is not the right solution, as loss of PNPLA3 function can worsen the very features we're trying to treat. By contrast, with 008, we aim to correct I148M using our leading RNA editing capability, which is expected to restore PNPLA3 activity and lipid mobilization, reverse steatosis, as well as improve inflammation, ballooning, and fibrosis. We've shared preclinical data that corroborate this approach. We've demonstrated that 008 restores functional PNPLA3 and decreases lipid accumulation. And importantly, we showed that we were able to achieve robust editing, no bystander edits or off-target signals, and achieve high blood-delivered tissue exposure to support infrequent dosing. Clinical planning is underway for our first-in-human study. We will leverage previously genotyped populations to efficiently identify homozygous I148M carriers, and we are on track for a CTA submission in 2026. Turning to DMD and 53 and DMD, which supported WBN-531 as a potentially best-in-class and important new therapeutic option for individuals with exon 53 amenable DMT. We observed a statistically significant and clinically meaningful improvement of 3.8 seconds in time to rise versus natural history, which is the largest effect observed relative to any approved dystrophin restoration therapy at 48 weeks. We also observed the first-ever demonstration of substantial improvements in muscle health exon skipping, including a statistically significant reduction in fibrosis and decreases in creatinine kinase circulating inflammatory biomarkers. Moreover, we saw additional clinical evidence of myogenic stem cell or satellite cell uptake in N531 earlier in our trial, which supports the improvements in muscle health and muscle fiber maturation we observed at 48 weeks. WVN-531 is also differentiated by supporting preclinical evidence, demonstrating even greater access to heart and diaphragm compared to skeletal muscle. We remain on track to submit an NDA in 2026 for accelerated approval of N531 with a monthly dosing regimen. In HD, we are continuing to prepare for a global potentially registrational phase 2/3 study of WVE-003 in adults with SNP3 and HD using caudate volume as a primary endpoint. And we are actively engaged in discussions with prospective strategic partners. Developed using our platform's specificity of stereochemical control and best-in-class chemistry, we designed 003 to be the first allele-selective approach in HD. By reducing mutant huntingtin at the mRNA and protein level, 003 addresses the underlying drivers of neurodegeneration. And by sparing wild-type huntingtin protein, which is critical to central nervous system health, 003 is uniquely positioned to address the full spectrum of HD, from early asymptomatic stage through the onset of symptoms and beyond. In SelectHD, we demonstrated potent and durable mutant huntingtin reductions of up to an industry-leading 46% and preservation of wild-type huntingtin with just three doses. Importantly, we observed a statistically significant correlation between allele-selective mutant huntingtin reductions and slowing of caudate atrophy, marking the first time this correlation has been observed in HD. As a reminder, our own internal analysis of natural history datasets, including TRACK and PREDICTHD, showed that an absolute reduction of just 1% in the rate of caudate atrophy is associated with a delay of onset of disability by more than seven and a half years. This is a staggering number with meaningful implications for health and economic outcomes and provides further evidence supporting the rate of caudate atrophy as a primary endpoint for an efficient clinical trial. These analyses, along with the complete clinical results from our SelectHD trial, were both part of our engagement with the FDA that led to supportive feedback. We remain on track to submit an IND application for this phase 2/3 study in the second half of this year. With that, I'd like to turn the call over to Kyle to provide an update on our financials. Kyle? Kyle Moran: Thanks, Paul. Our revenue for 2025 was $7.6 million, compared to negative $7.7 million in the prior year quarter. The year-over-year increase was attributable to the timing of revenue recognized under our collaboration agreement with GSK. Research and development expenses were $45.9 million in 2025 as compared to $41.2 million in the same period of 2024. This increase was primarily driven by our rapidly advancing inhibitory program and RNA editing programs, as well as compensation-related expenses, including share-based compensation. Our G&A expenses were $18.1 million for 2025 as compared to $15 million in the prior year quarter. The increase was primarily related to share-based compensation and other external expenses. As a result, our net loss was $53.9 million for 2025, compared to a net loss of $61.8 million in the prior year quarter. We ended 2025 with $196.2 million in cash and cash equivalents, compared to $302.1 million as of December 31, 2024. Subsequent to quarter-end, an additional $72.1 million in ATM proceeds and committed GSK milestones extended our expected cash runway into Q2 2027. By contrast, it is important to note that potential future milestones and other payments to us under our GSK collaboration are not included in our cash runway. I'll now turn the call back over to Paul for closing remarks. Paul Bolno: Thank you, Kyle. We are incredibly encouraged by the progress we've made across our pipeline. In the past two months alone, we've rapidly advanced Enlight and delivered robust and durable activin e reductions, and we have achieved the key treatment goals for 006 in RESTORATION 2. Looking ahead, we have a tremendous opportunity to build on our strong momentum as we continue to reimagine what's possible for patients. We look forward to keeping you updated on our progress. And with that, I'll turn it over to the operator for Q&A. Operator? Operator: Thank you. We will now move on to our Q&A session. For those of you who are joining us via Zoom, if you'd like to ask a question at this time, please raise your hand by clicking the raise hand button at the bottom of your Zoom window. Once called upon, please unmute your audio to ask your question. We'll take our first question from Julie with Truist Securities. Please unmute your line and ask your question. Julie: Great. Thanks for the updates and for taking our questions. And it's really great to see a nice dose response of active anemia, knockdown, and weight loss BIO model. Have you looked into what happens to all fat that's mobilized post-acute intervening knockdown? Specifically, have you checked the liver fat liver for fat deposits or, you know, looked at lipid panels for any LDL or triglyceride in these mice? And I have a quick follow-up on honey. Bees. Paul Bolno: Yeah. Thank you, June. And, yeah, one, it was wonderful to see dose responses, as you pointed out, the DIO mouse. It's even better when we got to see DIO. Responses in humans, which is obviously incredibly encouraging. To the point on that you're making on fat, I mean, I think we can comment on positively on, you know, multiple approaches. One, to your point, preclinically, we haven't observed any changes in lipids and deposits in the liver. That's both in the DIO studies we've done, but also in our preclinical toxicology studies. So nothing to suggest that that fat is finding its way to other tissues. I also point back to the clinical genetics, which show these patients actually have a decreased risk of NASH and liver disease. And then most importantly, as we look at the clinical study progressing, as we said on the last update, that we're up to 600 milligrams with an FDA review so that we could start in the US at 600. And they got to review all the safety data that preceded that. And so at that point, again, encouraging not just from a preclinical and mouse perspective, but also a human perspective. And while we get this question, I mean, I think what we have to think about is lipolysis. Breaks up these free fatty acids. And they're used as energy, energy and muscle, energy and heart. And so these are positive findings that have been seen in other heart failure activities. So nothing that we would suggest any concerns from our standpoint. Julie: Great to hear. And on Huntington's, have you had a pre-IND meeting with the FDA and any changes to their comments on the use of MRI as a reasonable surrogate for Huntington's, and any thoughts regarding recent, you know, backtracking by the FDA according to some of the companies that you in your peer group? Thank you. Paul Bolno: Yeah. No. And we appreciate the question. I know there's a lot of discussions about HD. And, yes, I mean, I think we have and we've shared this, have alignment with the FDA on the use of MRI as an imaging endpoint in connection with all of the other clinical data we're measuring. But it's important to note that we're running this as a placebo study as we're using that imaging endpoint as a primary endpoint. I think there is a lot of consternation over the agency's perceived changes of opinion and, you know, to date, we haven't observed that or found that. I think it is important when we think about CAUDA. And I reflect on this relative to some of the discussions that are ongoing, relating to the utility of natural history studies in clinical trials. I think it's important to note that, you know, when we use TRACK and PREDICTHD as the natural history studies for comparison and supporting use of MRI imaging data, those two studies include MRI as a prominent feature. And I do think the recognition is we just reminded people on the call today, and we've shared a number of times, that a 1% change in caudate atrophy can translate to a seven and a half year delay in clinical disability, really does set the stage that small meaningful changes in CAUTI can change clinical outcome measurements. And I think what's important there if we think about other studies that have been done that haven't looked at matching of product volume to patient sizes and natural history. You know, some natural history studies like enroll don't include MRI imaging. Actually, if you have a larger caudate at the beginning of that study, that could actually be attributable to a delay in clinical disability on CH CHDRS and other clinical outcome measurements. So I think it is important that while there's a lot of discussion about the agency, we feel very confident in both what's driving our decision on the utility of MRI imaging, CAUTI, also making sure we run a well-powered, well-designed clinical trial to determine that. Julie: Paul, just a quick follow-up. How variable is the caudate volume within the same Huntington's stage, like stage two and stage three, etcetera, within the same stage, are there variabilities in the coli volume? And how much? Paul Bolno: There can be. I think what we've seen is very steady changes in caudate. And, actually, with the shift in the staging criteria now, actually, caudate's becoming a core component of that staging criteria. And so, actually, you can assess stages and what patients have what change in caudate at each particular stage. I think that's why it's helpful as we think about other studies that are done and trying to benchmark their size of caudate volume relative to that. We could assess that in looking at, you know, those datasets externally. And I think if you had to bias a study towards larger call dates, let's say, that they would be accessible, that could be attributable to actually delaying and slowing clinical progression, not related to dental medicines. I mean, I think what's critical about the data we've generated to date is we've seen the most substantial reductions in mutant huntingtin think looking at target engagement, coupled with changes in anatomical findings, is important. You know, we actually I don't know if people remember, but, you know, the HSG meeting back in October, even the oral small molecule showed a lower reduction in. I mean, I think we looked at the data presented by Novartis on PTC, and then they had less than 20% target engagement and actually had ventricular enlargement and brain volume reduction. So I think looking at target engagement relative to outcomes is gonna be critical, and I think you know, we remain have high conviction on an allele-specific approach to mute Huntington lowering. And I think post all of this have been actively engaged with our potential partners in terms of accelerating the study. Operator: Thank you. We will take our next question from Chen Lee with Oppenheimer. Please unmute your line and ask your question. Chen Lee: Hey. Thanks for taking the question, and congrats on the progress. I have a question on the Obesity Week poster. It just seems like some gene expression changes actually happened pretty early, but some maybe happen later. So I'm just wondering by the time you report initial data in the fourth quarter, what kind of changes in those biomarkers, related to metabolism, inflammation, and fibrosis? You would like to see and maybe which biomarkers are more important. And I have a quick follow-up. Paul Bolno: Thank you. Yeah. I'll let Erik add his thoughts to this, but there is an induction over time. I think what we do see is the rapid engagement of both the target and suppression of protein happens fairly rapidly and is sustained. And as you point out, that change over time drives lipolysis, which we saw in the DIO models. And then along that way, we are going to be able to track various biomarkers of metabolic health that correspond with that. I don't know, Erik, if you want to add to that. Erik Ingelsson: I think that's a good summary. There is a trajectory. I think maybe worth just pointing out that on the Obesity Week poster, those are from liver biopsies. And you know, obviously, these are healthy individuals living with obesity and overweight, so there will not be any liver biopsies. But we, as we have reported, we are able to look at some circulating biomarkers, but we haven't shared exactly what we're gonna look at. Chen Lee: Okay. Got it. And just I'm wondering, based on your, like, preclinical study, when do you think the weight loss can plateau with 007? Paul Bolno: Thank you. Yeah. I think one of the encouraging findings is even out at that study where if everybody has that image in their head of the inhibiting fat loss, which is weight loss, but all driven off of fat. Similar to semaglutide's total body weight reduction. It doesn't appear at that point that we necessarily start to plat versus the GLP-1 as it relates to fat loss. So I think that's going to be while we talk about the early changes in kinetics, I think the opportunity is really to establish that floor. I think people often talk about basically greater than a year on the GLP-1s flat selling. But I think what's nice is we haven't seen that hit set point yet. So I think we'll have an opportunity to continue to see what that curve looks like for Hibany over time, and the study is designed to assess that. Operator: Thank you. We'll take our next question from Salim Syed from Mizuho Securities. Please unmute your line and ask your question. Salim Syed: Great. Congrats on the progress, Paul and team. Just a couple from us. One on alpha one, let's trypsin. Paul just curious to get your thoughts around some of the DNA editor, ATD programs that we've seen some recent preclinical data on. Some discussion there, obviously, being able to reduce 20 micromolar plus, MAAT and just how does that framework you're thinking at all do you need to be in that sort of range for an outside the acute phase response? And then the second question is just on DMD. I noticed in the press release, there's no more reference to the additional exon skipping program CTAs for 2026. Wondering if that was removed, if it's no longer the plan. Thank you. Paul Bolno: Yeah. Start with the first one. I mean, I think as we've learned in trying to benchmark preclinical to clinical data, recognizing a lot of that's driven in the serpent a one mouse model that high copy number. I think the absolute translations, if we were to compare those data, let's say, DNA editing to DNA editing at Beam, think we've seen the corresponding changes if there's so much opportunity to edit transcript. But for that, that don't necessarily think there's going to be substantially more editing than necessarily what we're seeing across potential other editors, on the DNA editing side. I think the opportunity is whether or not that changes the opt target potential, and we've seen that across a number of DNA editing both in AATV and not in AATV that off-target rates are consequential and can be detrimental. Think we've seen bias in our edits that create apparent proteins, and that's challenging. And so I think people are trying to work and address that. And with hepatic turnover, the potential to see that change. So I think all of that is to say, I think we need to see how those others not from, you know, what data they're posting preclinically to differentiate and distinguish the say, them from beam on the DNA editing side, but really how they ultimately translate into human clinical data. I mean, I think at the end of the day, the most important feature is really can you get to m c phenotype levels? And as we've seen, it's not about getting higher. I think the real misnomer in this space is applying the recombinant protein strategy, which is pour more protein into the body because it gets utilized as soon as there's an acute event. I think we have to all remember alpha one antitrypsin is a chronic disease of acute exacerbations. And I think if we think about it in that context, it always comes down to what is the requirement have enough protein so that you have this event. You don't deplete it. I mean, theoretically, you could argue that maybe 11 micromolar was a questionable threshold for replacement because by the time you have your acute event, there's no protein left. To actually protect your lung. And we've had a KOL recently remind us that his biggest fear is a patient who, between infusions, has an acute event, can't get infused, and is now left exposed to the insult in the lung. We have to reframe that whole narrative. As we think about the paradigm shift for RNA editing. Is about rising to meet the need of what's required during those periods of acute inflammation. And as we've shown, we can achieve over 20 micromolar protein during the acute exacerbation. So I don't think this is a competition of, like, us because we're in RNA editing being limited to how we respond. We respond extraordinarily well. We respond with infrequent sub q administration. Have no bystand edits. We have no off-target edit no indels. And so I think long term for treating a chronic disease, I think RNA editing and particularly our approach to RNA editing with our AIMER designs, think, really meet the therapeutic need of patients with these diseases. To your second question, I think, on other axon, don't think there's a fundamental change. We're ready to progress. I think what we wanna see is the progress that we're making on Exxon fifty three and where we're allocating capital. To make sure that we progress on fifty three. And then continue to move other programs forward behind that. So it's less about a formal change and more saying that as we reflect on guidance, I think the key is advancing ex '53, drive that forward. And be prudent on the acceleration of other axons. I think we look forward to '26, and we're gonna share a lot more on this during the year, we are highly encouraged about the progress we're making in space and with reflection that we're seeing from a number of parties. The work that we're doing on potential maintenance where we can wash patients off of GLP ones and support them on a once to twice a year. Sub q therapy that actually prevents rebound weight gain, drives metabolic health, and really becomes, I think, the standard for maintenance has us thinking about 2026 in a really positive way about studies that will continue to drive and support that. We just have to think about the totality of where we're allocating capital. Hence, why collaborations are important to us. So yeah, Operator: We'll take our next question from Steve Seedhouse with Cantor. Please unmute your line and ask your question. Steve Seedhouse: Yeah. Good morning. Thanks for taking the question, and congrats on all the recent progress. I wanted to ask in the AATV study, obviously, that is ongoing. You have that one really profound example of the acute phase response. Are you able to maybe gather more examples of that by protocolizing, you know, AAT assessment if people get sick this winter or if they get their flu shots. Curious if there's anything you can do in the study to supplement that finding. Paul Bolno: That's an interesting question, Steven. Thank you know, it's one of the things that you know, we obviously can identify. So I think corresponding as we saw their CRP levels with changes in AAT levels, give us a way to be able to not miss those opportunities for assessment. We're not changing the protocol design on a prospective basis, but, you know, it your point, as we come into the winter season, the opportunities that we have to be able to capture those events are there. I think what's highly encouraging is at a basal level, we recognize that we believe we are at an MZ phenotype editing capability. So these patients, to your point, should be responding as such and we'll be able to identify. Steve Seedhouse: K. And then just the in light, I was curious if you could clarify or just guide us what proportion of that study enrolled in The US versus ex US? And even if it's sort of relevant, would you expect any different in in the patient demographics or something that would affect the the results. Paul Bolno: Yeah. I'll let Chris join in. So, obviously, the study started ex US, and we provided the update during the last update, that we now had the FDA IND acceptance to begin and begin at the highest dose, so it's six hundred. So proportionately, obviously, in that early setting, it's proportionately x US with the opportunity to come here. I wouldn't expect any changes, but I don't know if Chris No. That's right. So as Paul said, we're just starting up in The US now, so, we're gonna be recruiting patients there, going forward. And know we haven't really changed our inclusion assessment criteria based on region. So you'd expect that, you know, all the subjects here would meet those criteria just like the ones in the ex US. I think it's important so that as we are able to in the future, start analyzing data, I mean, there's the ability to look at the dose cohorts, but also to substantially power it, the ability to look at activity reduction related to body composition change and other, which would allow us to work across cohorts as well as we get to the later data points. So to Chris's point, it is important that, you know, we have cohesiveness in amongst these patients so that we can do better analyses across the study. Operator: Our next question comes from Madison Alsadi with B Riley Securities. Please unmute your line and ask your question. Madison Alsadi: Hi. Good morning, everyone. Thanks for taking our question. A couple from us. On the single AATD patient that experienced the acute phase response, curious if there's any additional insights or observations from that patient that you could comment on? And then secondly, I actually wanted to ask about your bifunctional single nucleotide construct. If you've optimized this construct to avoid any type of intermolecular interference. And if you're seeing any off-target in Dells, basically where you're at in the optimization phase. Thank you. Paul Bolno: Yeah. I mean, I think to the first one, there's no new insights other than, obviously, patient recovered, and we saw, like, very good corresponding relationship between that CRP exacerbation and down. I'd it's important that, you know, to this point, that is the disease. You know, the disease of these infrequent but they happen. There are these acute exacerbations. And so that response rate is what you expect to see in an MZ patient who is protected. But I think they responded exactly as you would anticipate an MZ patient response to occur. I looked at Chandra just to confirm, but, I mean, we did the work. We've shared some of those recent updates, and I think, you know, that was the piece that had me most excited about the fact that, you know, these bifunctional approaches to SI and editing could provide really compelling ways to treat diseases. I mean, as we shared the opportunity to think about things like the combinations and actually watching, you know, PCSK9 reductions coupled with LDL upregulations is a fascinating approach long term to effectively treat cardiovascular disease and with the dystrophies. And so I think the opportunity is seeing each of those behave, and I think that was Chandra's compelling data on knockdown wasn't blocked by editing, and editing wasn't blocked by knockdown. Shows that there wasn't stirring hindrance across. And I don't we haven't seen any because the aimers are specific to the enzyme that they're working on. In Dells or bystander edits, but I'll let Chandra up for a moment. We haven't seen anything to that effect. Chandra Varghese: Yeah. So this is a the platform provides us an opportunity to be highly specific for both engines. So that's the design principles. Taking into consideration how our sphenas react with our Eagle two, you know, highly specific and and see specific knockdown And adding to that with the AIMER that is also highly specific in recruiting it or and we found using our platform, we found a way to combine these two properties to give us exactly what we observed with single entity but with one construct. Paul Bolno: So the best way to think about it is the uniqueness and specificity of each endogenous enzyme is able to exert its own unique endogenous function. So the enzymes are highly specific, for their approach. Operator: Our next question comes from Bill Mohan from Clear Street. Please go ahead and ask your question. Bill Mohan: Good morning, and thanks. I just was hoping you could comment on the recent data from Sarepta's exon skippers that failed to confirm benefit in the confirmatory studies. Obviously, this highlights the unmet need in the space, but at the same time, do you expect any difficulties in maybe, a changing FDA attitude towards dystrophin expression as a proper accelerated approval endpoint. Paul Bolno: Yeah. I think it's critical as we shared data very early on. I'm looking at consistent dystrophin expression across patients. If you remember, one of the key highlights post six month and the forty eight week data, that we shared was not just an amplitude of how much protein. Think there's been a lot of discussion about mean protein levels. I think the narrative that was important for us to make sure people start pushing is how well distributed was that across patients. Because if patients don't have an adequate amounts of protein level, then it shouldn't be unexpected if they don't continue to show benefit because they don't have adequate levels of protection. So the highly consistent distribution we were seeing was important. I think what was most important to us was the fact that we actually did see that translate to statistically significant clinical meaningful improvements in time to rise. We saw those corresponding changes in muscle fibrosis. And I think that is really what was important in driving for us, and we're gonna have the opportunity by the time we file in '26 to continue to follow those patients who are on the open label extension. Study, and the initial patient being treated monthly. To continue to see those clinical improvements. So I think while we haven't seen the any correspondence from the FDA changing on dystrophin. I think we do recognize the importance of seeing clinical meaningful responses. In being an important part of our decision tree. Bill Mohan: Thanks. And it might be a little early for this question. I know there's a lot of clinical derisking left in your inhibiting program, but do you have a view on the pricing dynamic in the obese market where there seems to be this sort of a sustained pricing pressure that we probably wouldn't expect to go away for a while. Paul Bolno: No. And I think that's the unique opportunity that we have with inhibit particularly the modality we're using to drive activity reduction. So we continue to see strong durability looking again beyond six months. So we're through that at the lowest subtherapeutic dose. So, again, highly supportive once to twice a year sub q dosing. And if we think about the global greater than one billion people living with obesity, many of whom don't have access to GLP ones. If we think about the markets, more broadly, the ability to expand where we don't have to manufacturing, let's say, is not as big a challenge as with, the protein therapies. The ability to really drive accessibility we think, is a unique feature. And I think if we imagine a world where patients are even currently being able to transition to a once a year maintenance therapy where they still get the benefits in cardiovascular outcomes as we've seen with human clinical genetics and sustained weight loss. I think there's a really unique opportunity to think about the true global landscape for obesity. And I think, actually, a Galnek siRNA approach with our chemistry that drives durability, is highly disruptive as we think about, the evolving obesity landscape, which is really dominated by similar increase. I mean, the shift from once a week to once a month still doesn't really radically change the environment and the landscape. And so what does is the ability to do this with a once or twice a year drug. I think the other piece that's becoming more and more apparent to us coming out of obesity week is the who's being treated. And as we think about the evolution of patients who and think about this with Medicare and other things picking up reimbursement, Patients who really can't have sustained loss of lean muscle mass, loss of bone, loss of muscle, as they continue to age and have to treat these diseases. The opportunity really to bring medicine that drives fat loss healthy outcomes, but retains lean muscle mass, I think, is both therapeutically relevant, but also as we think about the cost of transition. Operator: Our next question comes from Roger Song at Jefferies. Please unmute your line and ask your question. Roger Song: Great. For the update and taking our question. I'm to see you, at LBQ week as well. So, also a couple of question related to obesity, inhibit program. Just interesting in, in learning a little bit more about the of the weight loss. I know you have the the model. And then so any reason you have for to guide six months versus early on? Or longer, for the substantial weight loss similar to semaglutide. In maybe any insight from the human genetics can give us a little bit more color on that. And then also related to the dose response, yes, in the DIAO, you see the dose response for the weight loss. Just curious about your human dose. How should we think about your step up from two forty to four hundred and six hundred? What's the range of the dose to preclinical? And then is that possible you can dose even higher than six hundred? Is that necessary? Thank you. Paul Bolno: Yeah. Thank you. And I'll have Erik chime in on the other side because I think, you know, he'll have some valuable thoughts about kinetics too. But, you know, I think most importantly, you know, we do look to the modeling of our models. The DIO models translated well for GLP one, so it's been great to see that corresponding positive control as we look to not just weight loss. And I think it's important to think about it as fat loss, so healthy weight loss. So if we think about those kinetics, you know, we achieve in the DIO mouse, model, you know, up to similar levels of total body weight reduction of GLP ones, but it's all fat. And so there is a rate of kinetics on that curve that does appear. To take more time. So that's something in that early time points as we think about you know, these first these three months into the six months. We're gonna learn about the kinetics of inhibiting reduction together. We know we potently lower it, and we're gonna get to see what transpires during that window of time and whether or not the mouse model is reflective of that curve, or is it similar? But I think what we feel more confident about is you get to six months and longer, the ability to see that continue to transition. And I think the opportunity there has been whether or not that plateauing is what's seen, because it does look like you can continue to drive fat loss beyond that point of where you have GLP one weight loss. So I think the ability to kinda follow this over time much like you we all did with the GLP ones, is going to be critical as we understand what that journey looks like. Human clinical genetics gives us kind of a benchmark of what happens with a protective loss of function. From birth. So what happens when you have that? In a lot of ways, it both supports what we've seen in the DIO mouse model and the human study, but it's also really supportive of what we see with these revised maintenance therapies where you kinda have this weight loss and create a set point and then drive that forward. So think it's highly encouraging as we look at those genetics both on an initiation of weight loss, but also as we think about the potential future for maintenance therapy, which is incredibly exciting. I think that in totality, and, Erik, I'd love your opinion on that. As it relates to dose, Roger, you know, I think the ability that we do see this dose responsiveness and in the animal models, I think we're gonna get an opportunity to evolve that as we settle both Chris said on the past call at research day and as we reiterated on this call. You know, we are approved to go higher than six hundred. Whether or not we need to is a different story. But I think the ability to continue to drive a dose responsiveness of not just the totality of fat loss, whether or the kinetics happen faster in a dose responsive way something we'll be able to study in humans over the course of the study. But with that, Erik, I don't know if you wanna add on a couple of points. Erik Ingelsson: Yeah. I think you summarized it very nicely, but I just I guess to double click on a few things, So from the human genetics, then, obviously, we know that if you have a germline you know, loss of function variant from birth, then you have a substantially better cardiometabolic profile and lower type two diabetes and cardiovascular risk. So that's fifty percent. Right? And then we know from the from our in vivo models that if you can achieve more than seventy percent active in e reduction, we see that translate in the mouse models to weight loss and a better is all driven from fat and especially as Paul pointed out, you know, this unit this double effect from semaglutide, the you know, the the prevention of weight regain acid cessation of GLP-one, so all of those effects. And and we do observe that that kinetics looks a bit slower than some agglutide, so that's why we're anchoring on on the six month time point. But, again, this is a novel mechanism where we're work we're learning together on on on the on on the kinetics of this. But we're all just to remind everyone, we're already in that range now in the two forty and the 400. Mg cores. We're in in that range where we would expect this to translate. To better for the metabolic health than in weight loss and fat from fat loss. Operator: Thank you. Our next question comes from Joseph Schwartz with Leerink Partners. Please unmute your line and ask your question. Joseph Schwartz: Hi, guys. This is Ginny on for Joe. For obesity, assuming you have positive early data, how do you envision the next steps in development beyond the NYT study? What could these studies look like, and will you be able to do these on your own, or would you consider strategic partnerships for this program? And would the GSK collaboration affect your ability to pursue anything if there are opportunities? Paul Bolno: Thank you. I'll start with that last one because I think just an important one to get out of the way. Is there there's no inhibition for us to do anything related to inhibit any with GSK. So inhibiting is a wholly owned wave program. And we have full control over that. Not just clinically, but commercially. So it is a wave asset. So past that one. As we think about the opportunities ahead, I think one of the things coming out of obesity week and hence our meetings with a number of KOLs who are incredibly excited about the profile, both not just the driver, of fat loss without lean muscle mass loss and that profile as a monotherapy. Particularly for a substantial number of patients where that we're learning more and more there is concern about anhedonia over time, hair loss, lean muscle mass, loss, meaning muscle and bone. Ability to drive healthy weight loss with an infrequent injection and accessibility, I think, was highly encouraging. So I think that coupled with a huge amount of excitement for what maintenance could look like and a number of interested parties saying, how could we think about these things in conjunction? Give us a number of opportunities as we think forward around what the right strategy is for running these studies irrespective of partnering, we're committed to driving these studies forward. We think that there's a huge need for this and these therapies as we've seen with really the innovation coming in this space from more less frequent administration of incretins and other forms of accretins as opposed to really treating the underlying healthy fat loss. And preservation of lean mass. So with that, I think we're working on planning for running studies in obese patient populations and in and maintenance that we could drive, and we'll get more updates as we think about these studies in 2026. That don't necessarily have us waiting to the completion of enlightenment. I think Enlight is a study that we can envision ongoing that's providing ample safety coverage. We're seeing that now with durability. But we don't have to look at these things in succession that in light needs to complete before we accelerate studies in obese patients and potentially, as we said, in maintenance. So we're actively underway in that. We see that as a huge need. And we're working very quickly with a number of KOLs in the field. To accelerate their studies. Joseph Schwartz: Thanks. That's really helpful. Operator: Our next question comes from Yongshong with Wedbush Securities. Please unmute your line and ask your question. Yongshong: Great. Good morning. So first question on DMD program. I wanted to check if you have had any interactions with the FDA on your forty eight week data and any additional clarity that you are able to provide in terms of how much monthly dosing data you will need to or you will be able include in the package, please? I have a follow-up question, please. Paul Bolno: Yes. I mean, as we provided, we've had updates with the agency that we've discussed our plans on as we think about filing. One, and as you point out, he was generating data, not just OLE data on a monthly basis, but ensuring that we have de novo patients that are treated on a monthly regimen with which we can study. We have, as we said on prior calls, enough patients we believe, based on the existing approvals on both new patients as well as the existing patients to support that filing. And we'll continue to stay engaged with the agency as we advance those discussions towards that filing to avoid surprises. Yongshong: Okay. Then on the Huntington's disease program, very encouraging to see or hear the FDA is open to accelerate approval pathway But you commented on the capital allocation, so I just wanted to ask, would you be able or would you be open to moving them program independently even without a partner, or would you prefer to have a partner before taking the next step? Thank you very much. Paul Bolno: No. Thank you. And I think we've been consistent on this point. So within HD, I think why we have conviction and why we have aligned with the agency is we're running a well-powered placebo-controlled study, and that's the as the design's advancing. I think what we're also having in conversations with potential strategic partners for the discussion is assuring that we're aligned on what that trial needs to look like to make sure it does meet the criteria not just for the accelerated approval, but potentially in design, a full approval of that study. Continues to progress. We have to go back. And so as we get that alignment, that study, you know, we would prefer to progress alongside another collaborator. Operator: Our next question comes from Samantha Simenko with Citi. Please unmute your line and ask your question. Samantha Simenko: Hi. This is Ben on for Sam. Thanks taking the question. Going back to obesity, you shared in the R&D slides on the placebo-adjusted benchmark based on semaglutide was approximately minus 2.5%. Are you expecting you'll see that on the upcoming data this quarter for the two hundred forty milligram three-month data, or is it possible we'll need more time to reach that benchmark just given what you've kinda had described earlier about the kinetics? Paul Bolno: Yeah. And I think that's what we were if we if we go back to that slide on research day, it was really important that what we're anchoring on is the six-month data to that point. So there that curve continues, if you remember, about 4.4%. Out at the five-month time point with batted fat loss for semaglutide. And I think that was key for us is we have the benchmark of fat loss following the GLP ones over time. And I think what we're as we said before, we're gonna learn together is what happens on those rates of fat loss at the early time points. We now have benchmarks, as you said, of what we're benchmarking GLP ones. I think it's really important as it relates to kind of a set point and a you know, what is a target range of fat loss? To really bug it six months and further than the initial six months simply because as we said, anchoring on preclinical data, there does appear to be a rate of kinetics that looks apparently different. And I think it's important for us assess that in humans. So it's why we're not guiding to a specific target number of fat loss in this first three-month dataset. But rather looking at continued engagement and reductions of activity, durability of activity, which is gonna be critical, and other biomarkers of metabolic health as well as body composition. So gonna have a number of features. We're measuring body weight, so it'll be important and not miss. It really is important to look at that kinetics over time. Ben: Thank you. And if I may ask a follow-up question, what is under consideration for initiating the cohort five given the IDMC approved escalation? Paul Bolno: Yeah. I mean, only thing now is given how I mean, we're at 85% reduction in the four hundred milligram cohort and now have a hundred milligram cohort. So some of that is how much more utility we're gonna get from going higher, and we'll have some of that biomarker data to assess. From a safety perspective, we can continue to go up substantially higher. But at the end of the day, it's still about understanding, you know, not, again, leaving active and efficacy on the table, what's gonna drive durability. Also realizing what's gonna be frankly necessary. And, again, that's why we're highly encouraged and, you know, already on planning. What are the next subsequent phase two studies start to look like as it relates to studying this in obese patients as well as maintenance? So we have the coverage beyond what we think we need currently, and it's why we confident about these subsequent studies. Operator: Our next question comes from Luca Izzi with RBC Capital Markets. Please unmute your line and ask your question. Luca Izzi: Hi, team. Thanks so much for taking our question. This is Cassie on for Luca. Congrats on all the progress, and we have another one on inhibiting, and this is circling back on the ex US versus US. You have a single site now in Kishnav, Madova listed on clinicaltrial.gov. But you did mention that you have activated other sites, including The US, at six hundred milligram. So can we assume that the second 2026 update in the six hundred milligram cohort is when we'll start seeing data from The US patients or is that update still going to be data from the Beldoven patients? Thanks so much. Paul Bolno: Yeah. No. Look. We appreciate the question. One, it's on just to make sure, because at one point, you mentioned a like, just make sure that it's not confusion. This is obesity. This is zero zero seven. And it's beyond mobile. We have sites in UK, Moldova, Europe, and the update was moving beyond Europe to starting in the So there's a number of sites that will be generating patients. As we provided on the call, the real shift is from Europe to The US. And as we said, The US is coming online at the six hundred milligram cohort. That's what we shared at research. Hey. Because one, the agency didn't have us restart at a lower dose. We could start at subsequent cohort, which was six hundred. So I think it's obvious from that that would expect that you wouldn't have US patients not at six hundred. So The US contribution would come at 600 a time. Operator: Our last question comes from Leone Inise with Jones. Please go ahead and ask your question. Leone Inise: Hello. Thank you so much for taking our questions. Just looking at your preclinical DIO mouse data you showed at obesity week, do you think the reduction in macrophages is simply due to reduction in adipocyte size, or do you think there are other anti-inflammatory mechanisms involved? Paul Bolno: Yeah. I'll let Erik but it's not just reduction in mac it's shift of macrophage phenotype. So from an anti-inflammatory phenotype to anti-inflammatory But, Erik, I don't know if you wanna add anything. Erik Ingelsson: Yeah. I mean, in addition exactly. So it's a shift from less pro-inflammatory, to more larger proportion anti-inflammatory, as Paul said. He also does it with c with the RNA seq data. But we also see supportive of evidence of that as well. There is a less inflammatory inflammation in both the subcutaneous and visceral fat. So I think something is going on. It is probably partly driven by adipocyte size, but there could be additional mechanisms that are all related to the lipolysis. Leone Inise: Okay. Great. Thank you. And just a quick follow-up on DMD. Do you have any sense of the FDA's opinion on muscle content adjusted rophin versus unadjust unadjusted? Paul Bolno: I think all of the conversations to date across a number of programs have been really exciting. I do think as we look at the new programs that have come in, looking at actually the production of dystrophin in muscle is important realizing the high propensity for fat, making sure to look at that. So there's been nothing from our standpoint that seemed to change, agency's opinion on that. Operator: Thank you. There are no further questions at this time. I will now turn the call back over to Paul Bolno for closing remarks. Paul Bolno: Thank you for joining our call this morning, and we appreciate your continued support. Have a great day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the 908 Devices Inc. Third Quarter 2025 Financial Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you have dialed into today's call, please press 9 to raise your hand and 6 to unmute when it is your turn. To turn the call over to Barbara Russo, Investor Relations. Please go ahead. Thank you. This morning, 908 Devices Inc. released Barbara Russo: financial results for the third quarter ended 09/30/2025. If you have not received this news release, if you would like to be added to the company's distribution list, please send an email to ir908devices.com. Joining me today from 908 Devices Inc. is Kevin Knopp, Chief Executive Officer and Co-Founder, and Joseph H. Griffith, Chief Financial Officer. Before we begin, our commentary today will include the presentation of some non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release, which is available in the Investor Relations section of our website. Additionally, I would like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release 908 Devices Inc. issued today. For a more complete list and description, please see the Risk Factors section of the company's annual report on Form 10-Ks for the year ended 12/31/2024, and in its other filings with the Securities and Exchange Commission. Except as required by law, 908 Devices Inc. disclaims any intention or obligation to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast 11/10/2025. With that, I would like to turn the call over to Kevin. Thanks, Barbara. Kevin Knopp: Good morning and thank you for joining our third quarter 2025 earnings call. I am incredibly proud of the momentum we have built and the progress our team is driving. We are executing the plan, sharpening our focus, and setting the stage for a stronger, more profitable 908 Devices Inc. Revenue from continuing operations was $14 million, down 4% year over year and up 8% sequentially. Growth was driven this quarter by our FTIR devices, which accounted for 42% of revenue as we continue to see very strong demand for our Explorer gas identification device. Another revenue highlight was the U.S. Coast Guard's purchase of 23 MX908 devices for narcotics interdiction efforts and hazardous threat detection. In total, we placed 176 devices during the quarter, growing our installed base 27% year over year to over 3,500 devices. Considering our year-to-date progress, revenues from continuing operations for the first nine months totaled $38.8 million, representing an increase of 16% year over year. Recurring revenue represented 36% of total revenue. Moreover, revenue from our U.S. State and local channel for the first nine months represented 47% of total revenues. Growth in this channel and in our recurring revenues are key parts of our strategy to enhance predictability as this is more run-rate business versus large enterprise device deals, which can be lumpy. We also made excellent progress towards our adjusted EBITDA target for 2025. Our adjusted EBITDA loss was just $1.8 million for the third quarter, an improvement of more than $5 million year over year compared to our previously disclosed adjusted EBITDA for Q3 2024 prior to our transformation. And importantly, the adjusted EBITDA loss reduced by 53% quarter over quarter. I would like to thank our team for their tremendous effort over the past few months as we realize these savings. This is our lowest adjusted EBITDA loss in our public company's history, demonstrating that the structural changes are working and providing a solid foundation for achieving our goal of becoming adjusted EBITDA positive in Q4. Overall, I am pleased with our execution this quarter as we continue to build momentum towards our growth and profitability goals. While our transformed strategy is taking hold, and our Q4 pipeline remains healthy, we continue to gauge the effects from the protracted U.S. Government shutdown in three areas of our business: Joseph H. Griffith: First, Kevin Knopp: demand from state and local customers remained strong, supported by multiyear federal grant programs that remain active. Second, international engagement and order flow remained solid. However, U.S. export licensing requirements may extend delivery timing in some cases. Third, while smaller federal and defense orders have continued to move forward, larger awards have experienced delays due to constrained staffing and contracting authorities. We estimate that approximately $4 million of our Q4 revenue could be potentially impacted by delays in these areas. However, our base case remains that we are on track to achieve our full-year guidance and we view any near-term impact as a timing issue as our strategic alignment remains strong. We believe we are well-positioned as appropriations advance and contracting activities stabilize as we address mission-critical priorities, such as fentanyl interdiction, border security, and chemical threat preparedness. With that context, I would like to turn to our progress on the three strategic focus areas that are propelling us forward, bringing our 908 Devices Inc. 2.0 vision to life. Our first focus is to increase adoption of our devices to address global threats to public health and safety. We equip frontline responders with rapid, reliable chemical identification tools that require minimal training and perform when it matters most. Our aim is to define the benchmark for advanced chemical detection in the field. A clear example is our Explorer device, which is setting the benchmark for advanced chemical detection of over 5,000 gases and vapors. Q3 was another record-setting quarter for Explorer shipments, achieving a 30% quarter over quarter increase in placements. We see Explorer as a strong supporter of our 2026 growth goals as it fills a critical gap in the market for hazardous material response. Firefighters and hazmat response teams have long used a photoionization detector or PID to detect the presence of a subset of gases and vapors. Knowing a gas is present is helpful, but limited. Teams must then rely on their experience and educated guesswork to coordinate a response. With Explorer, changes the game. With Explorer, first responders can not only detect presence, but more importantly, identify and quantify thousands of unknown gases in seconds, informing decision-making and accelerating action. After encountering unknown gases in several recent incidents, the Contra Costa County hazmat team in California purchased four Explorer devices, helping to improve their on-scene response. Facing similar situations, the Kansas State Fire Marshal's office purchased three Explorer devices, and the U.S. Marine Corps CBRE and installation and protection program purchased 17 Explorer devices in the third quarter for potential hazmat incidents and military installations. While the majority of Explorer shipments in Q3 were in the U.S., the need is global. We are seeing early traction internationally in countries such as Italy, Finland, Poland, Taiwan, Korea, and Azerbaijan. We are excited to see the continued growth of this game-changing device as the hazmat teams around the world modernize their toolkit with advanced chemical detection and identification. Civilian hazmat response and military subverting defense missions are distinct but closely related. And our portfolio is purpose-built to serve both markets. As the future of incident response shifts towards autonomous ground robots and unmanned aerial system drones, we are extending our analytical platforms to operate on these emerging frontline technologies. To that end, we are collaborating with multiple partners to demonstrate capability, including most recently the Thales Group, a global leader in aerospace, defense, and security on a next-generation unmanned ground vehicle UGV integration to enhance mission safety and improve situational awareness for operators in the field. As we build momentum with emerging autonomous defense tech integrations, we continue to advance key initiatives with our established partners, including our collaboration with Smith Detection on DoD's AvCAD program. We completed low-rate initial production in late 2024, delivering over 100 component sets to support system builds and government testing in 2025. The program is now concluding a final field validation event, which if successful, is expected to trigger an RFP for a next phase. While timelines have become affected by program changes in the government shutdown, we continue to expect clarity on next steps by year-end. We stand ready to support Smith's detection in the next phase of this important national defense effort. Our second focus area is advancing our next-gen analytical tools portfolio. At our core, we are an innovation-driven analytical instrumentation company. We are committed to the relentless pursuit of higher performance, breakthrough capabilities, and greater simplicity. In July, we announced the launch of Viper, our handheld chemical analyzer, that uniquely combines FTR and Raman spectroscopy into a single seamless workflow powered by our smart spectral processing technology. During the quarter, we shipped one of our first Viper units to a government intelligence agency in Southeast Asia. They selected VIPER to modernize their counter-narcotic and counter-terrorism capabilities, upgrading from a competitor product. This initial unit serves as a pilot and has the potential to extend into a broader deployment across the country, establishing a new enterprise account. We also shipped several purchased Viper units during the quarter to our channel partners, feeding awareness and engagement in the field. Last month, I attended our EMEA Channels Partner Summit, where we had gathered more than 25 partners from across the region to review our latest innovations and compare notes on pipeline opportunities. The enthusiasm for Viper was unmistakable, fueled by a clear shift in NATO preparedness and increased spending among nations along the alliance's eastern flank. Joseph H. Griffith: We are encouraged that Viper Kevin Knopp: like Explorer, will become a ramping contributor through 2026 and a key beneficiary of recent funding improvements. One of Viper's differentiated capabilities garnering interest is its integration with our team leader software. Using Viper's built-in cellular connectivity or Wi-Fi, first responders can upload sample data on unknown solids and liquids in real-time. Using the team leader app, Infinite command, their leaders outside the hot zone can view this data to make rapid informed decisions on the response based on a clear understanding of the chemical threat. Team Leader is currently integrated with all of our FTR devices and is on the roadmap for our mass spec devices. We already have more than 700 users on the team leader platform and over the next year, we plan to add additional compelling functionality. And finally, our third focus area is strengthening our financial position and accelerating profitability. Under our 908 Devices Inc. 2.0 transformation, we set an ambitious target to achieve positive adjusted EBITDA by Q4 of this year, a goal we have been laser-focused on. As I covered at the outset, and as Joe will detail shortly, we are making meaningful progress toward that target. Our facility consolidation and operational scale-up in Danbury, Connecticut are delivering improved productivity and cost structure. For example, our gross margin increased quarter over quarter and reached 58% on an adjusted basis, reflecting the first benefits of those efforts. Over the long term, we expect further margin uplift as we insource precision machining following our acquisition of the assets of the KAF manufacturing. Importantly, our products continue to command premium pricing due to their innovation and market differentiation, a trend we expect to maintain. And as we build more value in our team leader offering, we intend for it to become an incremental contributor to recurring revenue. Further, we concluded the quarter with approximately $112 million in cash and marketable securities with no debt, providing a strong financial position and optionality as we scale. I will now hand it over to Joe to review our third quarter financial performance. Thanks, Kevin. As a result of the sale of our desktop portfolio in the first quarter, financials we are reporting today are for continuing operations only. All current and historical activity related to our desktops, including the gain on sale, are captured in a single discontinued operations line in our financial statements. Total revenue was $14 million for the third quarter 2025, down 4% from $14.5 million in the prior year period, primarily driven by a smaller number of multiunit MX908 device orders to U.S. Federal and defense customers, offset by continued momentum in our state and local end users. Handheld product and service revenue was $13.2 million for the third quarter 2025, down 5% from $13.9 million for the third quarter 2024. We shipped 176 devices in the third quarter compared to 178 devices shipped in 2024, bringing our installed base to 3,512. As a reminder, there were approximately 700 FTIR devices placed prior to our acquisition of RedWave. And including these units, our product installed base was greater than 4,200 exiting the third quarter. As expected, program product and service revenue was not material in either 2025 or in 2024. We are not assuming any meaningful revenue contribution from the app program in 2025. As we completed the initial low-rate production deliveries in Q3 2024 and are preparing for the next phase and potential ramp in 2026. OEM and funded partnership revenue was $800,000 for the third quarter 2025, compared to $500,000 in the prior year period. Revenue growth was led by pharma and industrial QAQC customers, with an additional lift from component sales tied to our new precision machining kit capabilities, from the KF asset acquisition. Recurring revenue, which consists of consumables, accessories, and service revenue, represented 35% of total revenues this quarter and was $4.8 million, a 10% increase over the prior year period. Looking ahead, we expect recurring revenue to be approximately one-third of total revenue for the full year. This factors in anticipated higher device placements in the fourth quarter, which naturally brings down our percent recurring but also a funding-related pause in service coverage by a U.S. Defense customer resulting in a quarterly headwind of approximately $500,000 beginning in the fourth quarter. Gross profit was $7.4 million for the 2025, compared to $7.8 million for the prior year period. Gross margin was 53% for the third quarter 2025, compared to 54% for the prior year period. The modest decrease was driven by a less favorable product mix, with material costs representing a higher percent of revenue, as well as unabsorbed costs from our new precision machining operation during the quarter. As production ramps, we do more in-house, we anticipate a benefit to gross margins in future periods. Adjusted gross profit was $8.1 million for the 2025, compared to $8.5 million for the prior year period. Adjusted gross margin was 58%, a decrease of approximately 60 basis points compared to the prior year period. The slight decrease in adjusted gross margin was driven by the product mix and unabsorbed costs as mentioned above. Total operating expenses for the 2025 were $23.7 million compared to $32.3 million in the prior year period. The decrease in operating expenses was driven by a $30.5 million goodwill impairment charge in 2024, offset in part by a $22.8 million increase in the fair value of the noncash contingent consideration. Excluding the impact of these two items, operating expenses for the third quarter decreased year over year by $900,000, which is a better proxy for trends in cash-based operating expenses. Net loss from continuing operations for the 2025 was $14.9 million compared to $23.6 million in the prior year period. This decrease was primarily driven by a $7.7 million decrease in non-cash items, additionally offset in part by $400,000 of income from our transition services agreement with Rocklagen. Adjusted EBITDA for the 2020 was a loss of $1.8 million compared to a loss of $2.7 million in the prior year period, representing a 32% year over year reduction and a 53% quarter over quarter reduction. The significant improvement was related to our aggressive cost initiatives resulting in reduced operating expenses across the board, including facilities, R&D costs, and professional fees. As we enter the fourth quarter, we will continue to leverage these structural changes to drive positive adjusted EBITDA with our scale and projected high teens revenue growth. We ended the third quarter 2025 with $112.1 million in cash, cash equivalents, and marketable securities with no debt outstanding. We consumed approximately $6.5 million of cash in the '25. The usage was primarily related to working capital and supporting our operations, but also included the $2 million used for our asset acquisition of KAF. As we noted last quarter, the combination of proceeds from the Desktop Portfolio sale, disciplined cost actions, and durable growth catalysts for 2025 and beyond reinforces our confidence in sustaining a healthy cash balance through our transition to profitability. Looking ahead in 2025, we continue to expect revenue from continuing operations to be in the range of $54 million to $56 million, representing growth of 13% to 17% over full-year 2024 revenue from continuing operations. Our guidance range includes the following assumptions: first, we expect handheld product and service revenue to grow 16% to 20% year over year, which equates to a range of $51.5 million to $53.5 million. The $500,000 decrease reflects the funding-related pause in service coverage for a U.S. Defense customer as previously mentioned. Second, we now expect OEM and funded partnerships, including contract revenue, to be approximately $2.5 million. The $500,000 increase is mainly based on third-quarter performance and the inclusion of revenues from the KF acquisition. And third, as stated all year, we are not assuming any meaningful revenue contribution from the U.S. Department of Defense AvCAD program in 2025, as we are preparing for a potential next phase and ramp in 2026. During the quarter, our commercial team had strong progress in advancing large enterprise opportunities across both U.S. and international accounts. We are also encouraged by the early momentum with 35 units for Q4 shipment to state, local, and international customers. Securing a few of the larger 20-plus enterprise opportunities in the pipeline is central to achieving our fourth-quarter revenue expectations. Our expectations assume that the government resumes normal contracting and operations this quarter. Our operations are nimble. We build to forecast. We have the inventory. We are able to fulfill most orders as received, right through the last days of the year. Moving down the P&L, we continue to expect adjusted gross margins to be in the mid- to high 50s range for full-year 2025, with further opportunity to expand in 2026. With an adjusted gross margin of 56% for the nine months ended 09/30/2025, we remain confident in our ability to deliver on our expectations for the full year. And we continue to target adjusted EBITDA positivity in Q4 of this year, supported by our Q4 revenue projection, anticipated mix, and resulting gross margin, and lower operating costs following our portfolio divestiture and facility consolidation. At this point, I would like to turn the call back to Kevin. Thanks, Joe. To close, Q3 marked another important step forward in our 908 Devices Inc. 2.0 transformation. As planned, we are one broadening our customer mix and reducing customer concentration, two, expanding our handheld portfolio from one product to now five, and three, increasing the share of recurring revenue. Together, this strategy reduces our dependency on the timing of larger U.S. Federal and defense awards and creates a steadier cadence of orders across a more distributed customer base. Joseph H. Griffith: Further, Kevin Knopp: we delivered our best adjusted EBITDA results since our IPO, reflecting disciplined execution, cost control, and continued progress towards profitability. With a solid balance sheet, strong year-to-date revenue growth, and line of sight to achieving positive adjusted EBITDA in the fourth quarter, we are confident in our trajectory and the foundation we are building for sustained growth in 2026 and beyond. Thank you for your continued interest in 908 Devices Inc. We look forward to updating you on our progress next quarter. With that, let's open it up for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press 9 on your telephone keypad to raise your hand and 6 on your telephone keypad to unmute when it is your turn. Your first question comes from the line of Puneet Souda with Leerink. Please go ahead. Puneet Souda: Yeah. Hi, guys. Thanks for taking my questions. So first one, on the $4 million. You know, I just wanted to make sure you are accounting for that in the full year if you could confirm that. And then if that was to come in later than expected, then is this going to be the first, is it going to be a contribution to the first quarter 2026 revenue? And then if I could follow-up for the '26, are you expecting, expecting, 20% growth, or could this be more than 25% growth year over year in '26? Kevin Knopp: Sure. Absolutely, Puneet. So I guess let me Joseph H. Griffith: explain it this way. For our Q4 guidance, it includes the run-rate business, and the larger enterprise orders that totaled to about 60-ish units, maybe approximately $3 million. You know, we have the pipeline of those large enterprise opportunities for Q4. Spanning $3 million of high probability enterprise opportunities from those U.S. federal and defense customers that are held up waiting for the U.S. government to get back to business. Additionally, we also have about a million of international orders that require export licenses. Applications are moving, but slower than normal and require an expedite request with the shutdown. You know, to deliver on our guidance, we are assuming the government returns to normalized operations in the quarter. And we can land and ship these before year-end. You know, we build the forecast. We have the inventory, and we can ship right up through the end of the day, the last days of the year. We do have sizable additional sizable enterprise opportunities for international customers progressing towards closure. Some require export licenses and some do not. Further, we have seen our state and local channel overperform our expectations all year, and we are very pleased with the Viper traction to date. With now more than 35 units in hand for Q4 shipment. Representing about 15% of our Q4. $4 million revenue in our guidance, it could be impacted. If the government has not returned to normal by year-end, but we will be looking to leverage other opportunities in our pipeline to mitigate. And importantly, this is a timing thing. These opportunities do not, do not go away. Carry over whether in Q1 or early in 2026. Another way, I guess, to read this is that if the government was fully back to work and operating normally, you would probably be hearing increased confidence to the high end or even higher. In today's call. Puneet Souda: Got it. That's very helpful, Joe. And then on the AvCAD program and the Coast Guard, I mean, Coast Guard order, could you update us? How should we think about AvCAD in '26? Is this more first half versus second half? And then on the Coast Guard order of 23 MX908, and correct me if I'm wrong on that, when do you expect that to be in the revenue? Thank you. Joseph H. Griffith: Yeah. The Coast Guard was in our shipments for Q3, so it's exciting to get that key win. Kevin Knopp: Yeah. And on the AvCAD side, the program Joe Griffith: completed a final field validation event. So the government is currently working through those results, and we continue to expect clarity on the next steps before the end of the year. And as you know, we engage the government directly for our commercial products, but for AvCAD, we are partnered with Smiths. They are the prime or the sub, so they manage that program. But we are expecting some feedback in the coming months, and we will certainly keep all updated there. But yes, it has got to continue to move forward. Timing is harder to control, especially given the shutdown dynamics here. But we have been engaged with AvCAD over five years, and we do anticipate it to be a meaningful growth driver and to scale up and to have a nice runway for us over potentially a five to seven-year horizon. So, as we mentioned before on AvCAD, Smith is working through kind of a handful of small incremental improvements, and that was the goal to demonstrate in this field test. And we will be looking for that validation that it has occurred. The scientist in me, I remain very encouraged about where we are at. Because the detection side of it is really some impressive performance levels that had to be hit, and we are doing that. So, and with the new administration, you know, certainly, there are changes in the contracting. So could there be an acceleration? Could there be a delay? Probably equally are possible on that. But at the moment, I think we have got good momentum, and they are coming up to a decision point that we should get those next steps clarity. So from a 2026 I think AvCAD creates it's one of the levers or catalysts for growth. There's the Joseph H. Griffith: opportunity as we learn at the end of the year that can contribute to that 20% product growth. That we will continue to evaluate and talk to as we get into March. Puneet Souda: Got it. Okay. Helpful, guys. Thank you. Kevin Knopp: Welcome. Operator: Your next question comes from the line of Matt Larew with William Blair. Please go ahead. Matt, a reminder to please unmute yourself by clicking the unmute button in the bottom left corner. Matt Larew: Great. Can you hear me okay? Yes. We can hear you, Matt. Okay. Fair enough. Joseph H. Griffith: Joe, I just wanted to ask on Kevin Knopp: adjusted of the breakeven this quarter, obviously, given the government shutdown and AvCAD, you know, some moving parts that are big in size in terms of the top line. Just the sensitivities around hitting that number, and maybe more importantly, as you think about taking through the P&L performance into 2026, you think once you hit the adjusted breakeven that you will sort of remain, at or above that level or, you know, given some of the first half or second half spend and cash dynamics. Could you sort of have a, you know, two steps forward, one step back kind of, you know, path from here? Joseph H. Griffith: Got it. Yeah. From a sensitivity perspective, you know, the $4 million of potential risk, it would be impactful. You know, if we do not land the $3 million or so in high probability orders anticipated from those federal and defense customers, and maybe the million dollars that need to export licenses. Then unless we can partially offset and get to the low end of our revenue range, it will be a challenge. You know, it's hard to offset the gross margin loss, and we need to be at the low end really to from the range to achieve our target. But we will look for ways to minimize the revenue risk but we do need to scale to get to our Q4 adjusted EBITDA positivity goal. So, I mean, just reiterate a bit, you know, we are holding our revenue guidance steady in our base case, which the $54 million to $56 million for the year. A minimum will need to be at that low end. Easier if Q4 revenues are near the midpoint of that range or even the higher, but at least at the minimum, the adjusted gross margins in the mid to high fifties we have been talking about. And on the Q4 OpEx, excluding noncash stock comp and intangibles in, call it, $11 million not far off from where we were in Q3, really benefiting from the impact of the facility transition and other cost savings we have done. So revenues are the most critical and crucial. As you might expect, you know, of those factors driving positive adjusted EBITDA in Q4, as we think about '26 and adjusted EBITDA, you know, we will be working towards getting there on a full-year adjusted EBITDA. You know, there is seasonality. So from a revenue perspective, I would expect it to flip back to negative earlier in the year we are not at the same scale as Q4. And I think our history has shown that there is, you know, a ramp in the back half typically. On the adjusted EBITDA. Matt Larew: Okay. Great. And then Kevin, you know, one of the three growth catalysts for next year is NextGen. MX. And, you know, just as you now get closer to that replacement cycle getting going, just kind of curious updated thoughts on, that opportunity and to the extent you have shared any of the new features or form factor with, you know, feedback and how that's kind of leading to your excitement for the product launch. Kevin Knopp: Yeah. Sure thing. You are absolutely right. Innovation, new product, is one of our three growth catalysts, and our Explorer product is the second newest product, and Viper, I hope you are hearing on our call today. We are very pleased with that recent launch, and that's a new product for us that we think is going to be compelling. Contributor here going forward in 2026 and beyond. And you are right. Next Gen MX as well. Right? We have got over 3,000 of those out in the world of our first generation or the really greenfield placements and us being able to continue that, but also have an upgrade opportunity. We think it will be meaningful over time. Nothing really new to report today on that front. I would say that we remain on track. Teams working on that program aggressively and very encouraging, I would say, improvements there. But, you know, again, we have got a very disruptive product in terms of no direct competition or their current MX, so we will work through the timings of that launch, but we still expect it in 2026. And, again, Explorer and Viper have really been doing well, and was part of the thesis of the Red Wave acquisition, of course, and so we are super excited for those contributions as well. Matt Larew: Alright. Thank you. Operator: Your next question comes from the line of Brendan Smith with TD Cowen. Brendan, a reminder to press 6 on your telephone keypad in order to unmute. Brendan Smith: Great. Thanks for taking the questions, Can you hear me okay? Kevin Knopp: Yep. Hello. I can hear you. Okay. Brendan Smith: So yeah. So maybe just putting the shutdown aside just for the time being, I wanted to ask a little bit more about and I fully appreciate it's still early, but just where you are seeing and expecting to kind of the most interest in Viper so far. And maybe how we should think about the launch ramp of Viper relative to kind of your expected growth trajectory for the earlier gen devices. Maybe just if you would expect any potential cannibalization just of the earlier gen growth trajectory as Viper gets its legs or if you are really expecting some of the target customers could continue to persist for both independently? Yeah. No. Great question. I think, Viper, we are really, really pleased with that. Last quarter, we highlighted that we expected Viper to be a small contributor in Q4, and then a rising contributor in 2026. In the third quarter, we did ship that first Viper, good feedback Kevin Knopp: on that. Another handful or so that went out, for a demo unit to our partners that are working to then evangelize that product. Really excited about all of the all about what we are hearing there and that team leader connection. And as we reported today, there's a meaningful amount, 35 or so, that are on deck for Q4 shipment. So I think the takeaway is that the guide the engagement is showing great early signs and that we do see Viper playing a good role in supporting our growth goals for 2026. From a cannibalization, it really does not impact our MX. It's a complementary product. It's also complementary in use case with our other products on the FTIR side. So, you know, we think this is just great to have in the toolbox. And right now, it seems to be being validated that way. So we remain excited about it. Brendan Smith: Okay. Great. Thanks. Kevin Knopp: And then maybe on team leader that you mentioned, maybe just what are kind of the next steps there in development and thoughts on maybe a broader rollout as that gets integrated a little bit more. Just maybe help us understand a little bit more how you are thinking about potentially monetizing that aspect of the system moving forward and maybe when that could start to factor in? Kevin Knopp: Yeah. Absolutely. So Team Leader is an app application software that hits it connects to all of our FTR devices and then soon our mass spec device. And it allows people remotely to see what's going on with the unit, location information, and then we are starting to add more and more what we think is compelling features in the fleet management perspective so you can understand where each of the devices sits, software, training, things of that nature. And as we do that and that roadmap, we think of these features as pretty compelling, yes, the value of that and its contribution, expect to be incremental to our recurring revenue. So, you may know some large caps in the gas detection space and saw some more medium cap device, out there in the gas detection space companies, do see that working well for them in other segments of the gas detection market. So, you know, I think, it's early days here, but we see a growing contribution as we go over time with that product. Yep. Brendan Smith: Great. Thanks, guys. Operator: If you have dialed into today's call, please press 9 to raise your hand, and 6 to unmute. Our next question comes from the line of Dan Arias with Stifel. Please go ahead. Dan Arias: Hey. Good morning, guys. Thank you. Kevin or Joe, anything that you guys would Kevin Knopp: consider a risk when it comes to production capabilities or supply chain, etcetera, on full AvCAD fulfillment? The only reason I ask is because you have a bigger portfolio now. More balls in the air. So just sort of curious if there's anything that you think is worth calling out when it comes to scale-up capabilities that's unique or just, you know, sort of requires some particular attention. Kevin Knopp: Yeah. Great question. As you know, we have done a ton of work over the first half and in the third quarter in moving our production and having it up and running, for the third quarter completely. In Danbury, Connecticut. That includes our MX908, where those core components and subsystems are in common, with many of the elements of the AvCAD product. So we feel good about it that we got a nice base there. We feel good about it that we can handle some of the machining requirements from where we are set to build our pumps at scale. From both the KAF precision machining asset acquisition and importantly, the machining capabilities that we have here in the Boston area. So nothing of note there. I think we really stand ready. And these programs take time, so you do get visibility into revenue ramps or unit volume ramps. So I would expect that, as we get clarity, as we anticipate over the last few months here or a couple of months of the year, that will help us prepare for what their intended volumes and shipment and plan is. Yep. Okay. No. I do not expect any supply chain problems there on that. For rampability. Dan Arias: Yeah. Great to hear. Okay. Then, Joe, maybe just a follow-up on the shutdown dynamics. If we do move past the shutdown here, you get the confidence in 4Q revenue recognition that you mentioned, does it stand to reason that the 2026 revenues that might be dependent on business development activity that should be taking place now. Is that still sounding good? Or is there some residual timing risk when you just think about the first quarter or the second quarter of the calendar year? I mean I know we have time to lay out next year, just trying to make sure that we sort of fully round out the impact of the government stuff here. Joseph H. Griffith: Yeah. In many ways, with the shutdown, our sales team is kind of cranking along business as usual. Most of them are still around. It's a lot of the contracting folks. So continue to work the pipeline in short term and longer term, opportunities across the enterprise. Portfolio. So, I do see this as a timing issue. And a bit of a pause. But yeah. And I think I would just add to that. I mean, Dan, it is unprecedented times there. Certainly, we are encouraged by the news over the weekend of government progress on that. And we tried to paint it as a possibility here on the impact we are continuously gauging. But I would clarify that it's probably not a black and white situation. Kevin Knopp: As we called out, you kind of have greater than $3 million of these high probability enterprise orders in the US Fed defense customer bucket, that are held up, but each have a shade of gray. You know, some of these, can move efficiently in the continuing resolution. Some of these could move and are even when it's completely shut down. But there's other dynamics that we are always trying to get on top of. For instance, if some of our opportunities use owing them money, if the government is shut down, some of that can be redirected temporarily. To be used to keep the lights on in other areas. So all of these types of issues. But as we work through each, it's not a black and white situation. But, yeah, I certainly feel good about the pipeline, and they would likely manifest themselves if that were to happen, the ones that slip. Would be into 2026. But as Joe pointed out, I mean, really, the good news is that we build vanilla boxes. Right? We build COTS products. We build to forecast. We have the inventory of them based upon that, and we can deliver all the way up through the last days of the year. So really about the government, call it, returning to normal operations. As Joe said, we are actively engaged with customers. Many of our customers are still there, but maybe their contracting colleagues are missing or there's another priority during this more limited resource time. But, yeah, we remain encouraged about the future and how we are aligned to the appropriations that we anticipate here. Hopefully, in days and for some of the branches that we are hearing about. Dan Arias: Yep. Fingers crossed. Okay. Thank you very much. Operator: There are no further questions at this time. I will now turn the call back to Kevin Knopp for closing remarks. Kevin Knopp: Yes. Thank you very much. Thank you for joining our Q3 call, and we appreciate your interest in 908 Devices Inc. And thank you. Have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the ADC Therapeutics Q3 2025 Earnings Conference Call. At this time, lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call, you require assistance, please press 0 for the operator. This call is being recorded on Monday, November 10, 2025. I will now turn the call over to Nicole Riley, Head of Investor Relations and Corporate Communications for ADC Therapeutics. Nicole, please go ahead. Nicole Riley: Thank you, Operator. Today, we issued a press release announcing our third quarter 2025 financial results and business updates. This release and the slides we will use in today's presentation are available on the Investors section of the ADC Therapeutics website. I'm joined on today's call by our Chief Executive Officer, Ameet Mallik, who will discuss our operational performance and recent business highlights. Our Chief Medical Officer, Mohamed Zaki, who will discuss our clinical programs and updates, followed by our Chief Financial Officer, Pepe Carmona, who will review our third quarter 2025 financial results. We will then open the call to questions. Before we begin, I would like to remind listeners that some of the statements made during this conference call will contain forward-looking statements within the meaning of the Safe Harbor provisions of The US Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, and actual results, performance, and achievements could differ materially. They are identified and described in the accompanying slide presentation and in the company's filings with the SEC, including Form 10-Ks, 10-Qs, and 8-Ks. ADC Therapeutics is providing this information as of today's date and does not undertake any obligation to update any forward-looking statements contained in this conference call as a result of new information, future events, or circumstances, except as required by law. The company cautions investors not to place undue reliance on these forward-looking statements. Today's presentation also includes non-GAAP financial reporting. These non-GAAP measures should be considered in addition to and not in isolation or as a substitute for the information prepared in accordance with GAAP. You should refer to the company's third quarter earnings release for information and reconciliation of historical non-GAAP measures to the corporate GAAP financial measures. I will now turn the call over to our CEO, Ameet Mallik. Ameet? Ameet Mallik: Thanks, Nicole, and hello, everyone. Thank you for joining us on today's call. In 2025, we continued to focus on execution and delivering on our commercial strategy. Maintaining ZENLATA as a differentiated treatment option for third-line plus DLBCL patients while advancing data across key trials. Net product revenues were $15.8 million in the third quarter, reflecting variability in customer ordering patterns and were broadly in line with the quarterly run rate over the past two years. We continue to progress against our key ZENLATA trials in second-line plus DLBCL and expect to share additional data in the coming months. We plan to provide an update on LOTUS seven, our Phase 1b trial evaluating ZENLATA, in combination with the bispecific antibody glafitamab before the end of the year. Then in 2026, we plan to announce top-line results from LOTUS V, our Phase III confirmatory trial of ZENLATA in combination with rituximab once the prespecified number of PFS events is reached, and data are available. Within indolent lymphomas, the lead investigator on the Phase II IIT of ZENLATA in combination with rituximab recently presented encouraging updated relapsed or refractory follicular lymphoma data at the 22nd International Workshop on Non-Hodgkin Lymphoma. The trial is on track to enroll 100 patients. In addition, the Phase II IIT of ZENLATA in relapsed or refractory marginal zone lymphoma continues to enroll to the target of 50 patients. Beyond ZENLATA, we continued with IND enabling activities for our PSMA targeting ADC, which are on track to be completed by the end of the year. Lastly, just after the quarter end, we secured a $60 million private placement led by TCGX, including participation from RedMob Group and other existing investors. This financing takes our expected cash runway at least to 2028. With our strengthened balance sheet, I am confident that we are well-positioned to further invest in ZENLATA as we anticipate advancing into earlier lines of therapy for DLBCL and into indolent lymphomas. As a single-agent therapy in third-line plus DLBCL, ZENLATA has a profile of rapid, deep, and durable efficacy as well as manageable safety with simple, and convenient administration. Beyond our current indication, we believe in the potential to reach significantly more patients by expanding use into earlier lines of therapy in DLBCL and into indolent lymphomas. The data we've seen across these settings so far has been consistently encouraging, with the potential to be highly differentiating. We continue to believe that through expansion into these settings, ZENLATA has the potential to reach peak annual revenues of $600 million to $1 billion in the U.S. Our current indication has, as I noted earlier, shown relative stability in net revenues over multiple quarters demonstrating ZENLATA has a clear place in the market as a monotherapy. We believe LOTUS V has the potential to lift peak annual revenue for ZENLATA to $200 million to $300 million as we expand into the second-line setting. Not only would this double the addressable patient population, but with an improved clinical profile versus our current indication as a monotherapy, we expect to gain share in the second-line plus setting and improve the duration of therapy. With LOTUS seven, we estimate we can expand the total opportunity for ZENLATA in DLBCL to $500 million to $800 million in peak annual revenue with both regulatory approval and compendia listing. If the data continue to be compelling, we believe ZENLATA plus glafitamab has the potential to transform the future lymphoma treatment paradigm by becoming the preferred bispecific combination in the second-line plus DLBCL setting. On top of this, we see additional potential for ZENLATA in relapsed or refractory marginal zone lymphoma and relapsed or refractory follicular lymphoma. If the encouraging initial data in the Phase II IITs are maintained in larger patient numbers, we believe these indolent lymphomas could provide additional peak annual revenue for ZENLATA of $100 million to $200 million with both regulatory approval and compendia listing, primarily driven by MZL. Let's drill down a little more into the specifics of the DLBCL treatment landscape to explain why we believe ZENLATA has the opportunity to play a significant role. In both the second and third-line plus settings, there are two main segments. The first segment includes complex therapies, which require unique infrastructure and expertise to handle logistical requirements and patient management. These are primarily confined to the academic centers and more sophisticated community centers and include therapies like CAR T, transplant, and bispecifics. The second segment comprises more broadly accessible therapies which all physicians can administer in the outpatient setting and includes ADCs, monoclonal antibodies, and chemotherapy. The launch of bispecifics as monotherapy in the third-line plus setting has resulted in an evolution of the treatment landscape where we estimate there is currently a 60/40 split between complex and broadly accessible segments. In the second-line setting where bispecifics have not yet been approved, but were recently added to NCCN guidelines for use in combination, we expect that they will continue to gain share and grow the use of complex therapies. Through LOTUS V and LOTUS VII, we believe ZENLATA combinations have the potential to raise the bar on efficacy in second-line plus DLBCL in their respective treatment segments offering complementary approaches to addressing unmet needs. In LOTUS V, our Phase III confirmatory study, we are combining ZENLATA with the most widely used agent, rituximab, in patients with second-line plus DLBCL. As a reminder, initial data from the safety lead-in portion showed an overall response rate of 80% and a complete response rate of 50% with no new safety signals demonstrating that this combination has the potential to provide competitive second-line plus efficacy with a favorable safety profile allowing broad accessibility. In LOTUS VII, our Phase Ib trial, we are combining ZENLATA with a highly effective bispecific glafitamab in second-line plus patients. Data presented in June at ICML based on the April 2025 cutoff showed the combination was generally well tolerated with a manageable safety profile. Furthermore, we believe it demonstrated clinically meaningful benefit with an overall response rate of 93.3% and a complete response rate of 86.7% across 30 efficacy evaluable patients. We are encouraged by the promising early data which we believe demonstrates the potential for ZENLATA plus glafitamab to be a best-in-class combination in a highly competitive market. When you look at the CR rates among both currently available and emerging therapies in these two treatment segments, we believe the emerging clinical profile of ZENLATA plus glafitamab in the LOTUS VII trial positions us well among complex therapies. At the same time, the clinical profile of ZENLATA plus rituximab in the LOTUS V trial has the potential to differentiate us among broadly accessible therapies. Together, we believe these combinations have the potential to double the addressable patient population as we move into the second line and increase the duration of therapy moving on average from three cycles to five to six cycles. Now I will turn the call over to our Chief Medical Officer, Mohamed Zaki, who will share the latest on the Phase II follicular lymphoma IIT data. Mohamed? Mohamed Zaki: Thank you, Ameet. I am pleased to share updated data from the Phase II investigator trial of ZENLATA in combination with rituximab in relapsed/refractory follicular lymphoma. The data were presented in September at the 22nd International Workshop on Non-Hodgkin's Lymphoma by the lead investigator, Dr. Juan Pablo Adrushio from the Sylvester Cancer Center, part of the University of Miami Miller School of Medicine. Data presented from the 55 efficacy evaluable patients to date in this trial continues to demonstrate encouraging results with an overall response rate of 98.2% and a complete response rate of 83.6%. After a median follow-up of 28 months, median PFS was not reached. And the 12-month PFS was 93.9%. In this trial, no new safety signals were observed, and safety was consistent with the known profile of ZENLATA. The University of Miami is actively enrolling towards the target of 100 high-risk relapsed/refractory follicular lymphoma patients and is opening the study at additional US cancer research centers. As soon as sufficient data are available, we plan to assess regulatory and update the compendia pathways. Now I will turn the call over to Pepe Carmona, our CFO, who will discuss financial results for the third quarter. Pepe? Pepe Carmona: Thank you, Mohamed. On the financial front, the long-term net product revenues in 2025 were $15.8 million as compared to $18 million in the same quarter in 2024. Total operating expenses for the quarter were $45 million on a non-GAAP basis, representing a 12.1% net decrease over the prior year. The reduction was primarily driven by lower R&D expenses, with sales and marketing expenses stable year over year. We continue to be disciplined in our capital allocation towards potential value creation while driving efficiencies across the portfolio. On a GAAP basis, we reported a net loss of $41 million for 2025 or 30¢ per basic and diluted share, as compared to a net loss of $44 million or 42¢ per basic and diluted share for the same period in 2024. The decrease in net loss for the quarter is primarily attributable to lower R&D and G&A expenses. You can find the reconciliation of GAAP to non-GAAP measures for the third quarter and year to date in the companion financial tables of the press release issued earlier today and in the appendix of this presentation. At the end of the quarter, we had cash and cash equivalents of $234.7 million, which compared to $250.9 million as of December 31, 2024. In October, we entered into a $60 million PIPE financing, which on a pro forma basis expanded our cash and cash equivalents to approximately $292.3 million as of that date. The strengthening of our balance sheet allows us to execute our strategy with an expected cash runway extending at least to 2028. Across LOTUS V, LOTUS VII, and MZL ZENLATA programs, we expect to have data catalysts in the remainder of 2025 and 2026. For LOTUS V, we expect to provide top-line data in 2026 once a prespecified number of PFS events is reached and data are available. Assuming positive results, a supplemental biologic license application submission to regulatory authorities will follow, with potential confirmatory approvals in second-line plus DLBCL as well as publication and compendia inclusion in 2027. With LOTUS VII, following the presentation of the data at EHA and ICML in June, we observed an acceleration in enrollment in the study at the selected 150 microgram per kilogram dose level. We plan to provide a clinical update on all efficacy evaluable patients with a minimum of six months of follow-up through a corporate announcement before the end of the year. Once sufficient data with longer follow-up are available, we plan to engage with the FDA. In addition, assuming positive results, we plan to pursue publication and compendia inclusion in 2027. We expect additional data to be shared at medical conferences by the lead investigators, and we plan to assess regulatory and compendia strategies once sufficient data are available. Beyond ZENLATA, we continue to advance our exatecan-based PSMA targeting ADC with completion of IND enabling activities anticipated toward the end of this year. I will now turn the call back over to Ameet. Ameet Mallik: Thank you, Pepe. Let me close by saying that I am pleased with how we are executing against our strategy and continue to be excited by the consistently encouraging ZENLATA data we are generating across our ongoing trials. We have a clear vision to unlock the true potential of the company with multiple potential value-creating milestones ahead and a balance sheet that enables us to deliver on our strategy. We can now open the line for questions. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Eric Schmidt with Cantor. Your line is now open. Eric Schmidt: Maybe I'm intrigued by Pepe's comments that we're seeing accelerated enrollment post the June data release. Not surprising, of course, but can you frame how many patients we might get later this quarter? And then in terms of your target enrollment, out of 100 or so patients, are you adjusting that target? And is it possible that that target could be reached sooner rather than later? Thank you. Ameet Mallik: Thanks for the question, Eric. Yeah, no. We've been pleased that since the EHA and ICML update, we've had even greater interest in the trial, and enrollment has definitely accelerated. We're still targeting the roughly 100 patients that we've been targeting to enroll. It will occur quicker than when we originally anticipated. We're not giving an exact timeline, but we're still confirming the first half of next year to have that completed. And then in terms of the upcoming data release, are you still targeting 40 or forty plus? Well, we'll give you know, as you recall, we had enrolled originally twenty patients in each dose, then we continue to expand at the 150 dose, right? So it'll clearly be more than the original twenty and twenty. But it won't be fully all 100. And, also, I want to make sure you heard what Pepe said is that we're going to be sharing updates on all efficacy evaluable patients with a minimum six months follow-up. This is because it provides more stable, meaningful updates, both in terms of the depth of the response but also the durability of response. That was, as you can recall, some of the questions we received in the early updates is we had very limited follow-up. So now we're focused on where the data is more stable, and that's really when patients with a minimum six-month follow-up. Okay. Thank you very much. Operator: Your next question comes from Clara Dong with Jefferies. Your line is now open. Jenna Li: Hi, good morning. Thanks for taking our questions. This is Jenna Li on the line. Could you talk about in the context of the upcoming LOTUS V and LOTUS VII data and the submission timelines, when should we expect to see an inflection point for ZENLATA sales? And could you also give some qualitative comments on the pace of revenue ramp-up once you have those potentially positive data or approval in hand? Thank you so much. Ameet Mallik: Yes. I think you're asking about the milestones and then also the revenue inflection. So first, I would say, for LOTUS VII, we expect to share an interim update on data later this year. And, obviously, we expect to have full data sometime by the end of next year or into 2027. As you can see, what we guided to is publication and or compendia inclusion sometime between the end of next year and 2027. With LOTUS V, we expect to share top-line results in 2026, and then have approval sometime in 2027. So if you didn't get the revenue ramp-up for those two following compendia inclusion and approvals, which we expect for both, the first half of 2027, we expect revenues to ramp up subsequent to that. Jenna Li: So sorry. Just a quick follow-up. Did you also have any comments on the pace of ramp-up following each first half of 2027? Ameet Mallik: Yeah. I mean, I don't want to guide to the exact ramp-up. What I will say is if you look at other launches, whether it's the bispecifics or Polivy in frontline or others. I would say the majority of the ramp-up happens during the first two years post-launch or approval or compendia listing of a new indication. It's typically the majority that's going to happen in the first two years. Jenna Li: That's super helpful. Thank you so much. Operator: Your next question comes from Michael Schmidt with Guggenheim Securities. Your line is now open. Sarah: Hey. This is Sarah on for Michael. Thanks so much for taking my question. So I just wanted to get your thoughts on with these newer agents moving into frontline DLBCL, is that something that you are or would consider pursuing for ZENLATA? Thanks so much. Ameet Mallik: Yeah. No. I think the frontline will be because if you look at the frontline setting, for decades, really, R-CHOP was the standard of care. Then only a couple of years ago, saw 0.1 of the biggest things being studied right now are bispecifics. I think there's some excitement about if those could have potential still to be determined, I think, still a little bit of ways away from seeing those readouts. And in terms of our future development, we'll consider how that goes for this combination post the readout of 100 patients and any support would depend on a partner too. I don't see us likely funding a phase three study with this in the frontline or the second-line setting with this combination purely on our own. Sarah: Thanks so much. Ameet Mallik: Yeah. We're watching the space closely. Operator: Your next question comes from Leonid Timashev with RBC Capital Markets. Your line is now open. Leonid Timashev: Hey, thanks for taking my question. I just want to ask on sort of the split of community and academic. I know you've talked about LOTUS V potentially being more positioned in the broadly applicable therapies and LOTUS VII more for the academic. But I guess I'm curious how neat you think those breakdowns actually are going to be and sort of how you're going to balance ultimately where patients are found and how you want to focus your sales force across academic and community to sort of pursue the opportunity where it is. Thanks. Ameet Mallik: Yeah. So I would I wouldn't do the breakdown in terms of academic community. What I'd say is for the more complex therapies, whether it's CAR T or bispecifics, so let's just talk about bispecifics because that's more applicable to LOTUS VII. They're not only used across all the academic subjects. They are used in more sophisticated community centers, and that may grow over time. So I wouldn't say the distinction is purely community versus academic. It's more of all of the academic can administer those products. And a portion of the community can administer those products. In that universe of institutions that can administer the product, obviously LOTUS VII is going to have a place. Then there's other therapies, like chemotherapy, ADCs, antibodies, which are more broadly accessible, and those can be administered across all settings. But they are still administered in the academic centers, and they're administered in all the community settings. So I wouldn't differentiate to say LOTUS VII is going to be purely academic and LOTUS V is going to be purely community. The reality is LOTUS VII, when a patient is suitable for it, and if the facility can administer the therapy, you're going to go with the highest efficacy product and combination that you can go with. We think LOTUS VII is really well positioned, and that will be used, again, in all the academic centers and a portion of the community. Exactly how much, we'll see over time how bispecifics are adopted by the community. With LOTUS V, either because of accessibility of the therapy or because of suitability for the patient, remember, there's some patients that have comorbidities or other conditions which may prevent them from getting an immune-based therapy. It may be a post-CAR T patient that's at risk of infection. It may be a patient with autoimmune disease. There may be other reasons why you're not going to want to give a bispecific-based therapy. And for other centers in the community, they're not going to have access to them. So for all those reasons, we think LOTUS V still plays a big role. We still see our base chemo regimens having a large share in the relapsed refractory market. So we think we have a good place, and that's really our strategy, to hopefully have leading efficacy in both of these segments, both the complex therapies and the more broadly accessible therapies. Operator: Ladies and gentlemen, as a reminder, should you have a question, please. Your next question comes from Sudan Loganathan with Stephens. Your line is now open. Sudan Loganathan: Hey, good morning Ameet, Mohamed, and Pepe. I know you've spoken about the opportunity in the second line, third line plus for relapsed refractory DLBCL with LOTUS VII, LOTUS V outcomes respectively. But can you give us more details on how you view each percentage increase in penetration in either the second or third line setting would add to the ZENLATA revenues to achieve your peak guidance ranges that you've noted? And then secondly, regarding the ZENLATA plus rituximab, for relapsed/refractory FL, data thus far at 84% CR rate seems to slide in nicely right after the T cell therapeutics. And then in line are slightly better than the bispecific. If this holds true, does this mostly take market share away from bispecifics or any opportunity to take from the T cell therapeutic options in FL? Glad to get your details on those things. Thanks. Ameet Mallik: Yeah. So I would say, you know, to answer your first about what's SharePoint worth, so think about in the second line setting, there's about twelve thousand patients in the U.S. And in the third line plus setting, there's six thousand patients. So depending on where you're getting the share, is it second line setting or third line plus every share point, obviously, multiplied by the number of patients. With monotherapy, we're typically seeing three cycles. Now remember, the first two doses of our product are 150 micrograms per kilogram, then it drops to 75. So it's weight-based, but oftentimes it could be two vials for the first two cycles and drop to one vial. What we're seeing with LOTUS V and LOTUS VII is somewhere between five to six cycles. So you can just do the subsequent calculation on vials. And then you know what our net price and our gross price is in the upper twenties, thousands. Net price is in the lower 20,000. So if you do the kind of calculation depending on what if you're talking about a SharePoint, the second line, a third line plus setting, that kind of gives you a rough estimate. Just by way of example, like in the LOTUS V, for example, if we were able to maintain our roughly 10% share that we have in the third line plus setting and translate that in the second line setting. But with increased duration of therapy in our net pricing, that would take our product, which is on a roughly $70 million run rate, what it's kind of been the last couple of years. To just over $200 million. Obviously, we were hoping with efficacy improvements, you actually gain share, and that's what leads to the guidance of $200 to $300 million. You can do similar calculations for LOTUS VII. Now turning to the indolent lymphomas. I think we're excited both about the data that Mohamed spoke about with the last refractory follicular lymphoma. And relapsed/refractory marginal zone lymphoma data that was presented at EHA and ICML. I think both right now are showing outstanding results. I would say in terms of the opportunity for potential adoption, right now we're basically funded to try to get into compendia for both. So obviously, we won't promote either of these indications. But what I could say is the unmet need and the level of competition is probably higher. Unmet need is higher in MZL, and the level of competition is lower in MZL versus follicular lymphoma. That's why we've emphasized that one a bit more. When you look at the different agents that are approved during compendia, the FCR rates are 29%, roughly 30%. Even if you look at subsequent data that's come out, maybe a bit higher than that, what we've been showing is closer to 70% CR rate in that MZL setting. In follicular, although the data is outstanding, and we hope to have a place there, it's a lot more competitive. There's literally more than 10 agents that have phase three trials including the bispecifics, and many other agents, who have large phase three studies with overall survival. And it's just a more competitive space. That's why we think the potential for uptake is just smaller, not because the data isn't excellent, but just because it's a much more competitive space. Operator: No further questions at this time. I will now turn the call over to Ameet Mallik for closing remarks. Ameet Mallik: Well, I want to thank you all for joining our call today. We really appreciate the questions, and we appreciate your continued support. We look forward to keeping you updated on our progress. Operator, you may now end the call. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Two. Good morning, ladies and gentlemen. Welcome to Village Farms International third quarter 2025 Financial Results Conference Call. This morning, Village Farms International issued a news release reporting its financial results for the third quarter ended September 2025. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the Investors heading. Please note that today's call is being broadcast live over the Internet and will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. Details of how to access the replays are available in today's news release. Before we begin, let me remind you that forward-looking statements may be made today during or after the formal part of this conference call. Certain materials assumptions were applied in providing these statements, many of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements. A summary of these underlying assumptions, risks, and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K MDNA for the year ended 12/31/2024 and 10-Q for the quarter ended 09/30/2025, which will be available on Edgar and Cedar Plus. These forward-looking statements are made of today's date, and except as required by applicable securities laws, we undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGiglio. Michael DeGiglio: Thank you, Sherry. Good morning, everyone, and thank you for joining us today. With me on the call are Stephen Ruffini, our Chief Financial Officer, and Ann Gillin Lefever, our Chief Operating Officer, Patty Smith, our Corporate Controller, and Sam Gibbons, Senior Vice President of Corporate Affairs. I'll begin with a review of highlights from the third quarter, then Stephen will review the financials in more detail before I provide some last closing comments. As we discussed in this morning's earnings release, our third quarter was another one of many records for Village Farms International. Our last quarter's call, we talked about our confidence in the sustainability of the positive trends we were seeing across the business as we continue executing and scaling a profitable global enterprise. Today's results, only three months later, validate the expectations we discussed, and we remain confident that our competitive strengths combined with the incremental growth catalyst we see on the horizon position us for a very strong future. Consolidated net sales increased 21% year over year in Q3, and net income from continuing operations was $10.8 million or $0.09 a share, an increase of almost 10% sequentially compared to the record we set last quarter. For the second consecutive quarter, we also achieved new records for adjusted EBITDA and adjusted EBITDA margin from continuing operations of $20.7 million and 31% of sales. And we continue to see excellent cash conversion with consolidated cash flow from operations of $24.4 million, another record for Village Farms International. Our Canadian cannabis business delivered 29% year-over-year growth in net sales, reaching a new high of $64.1 million in Q3, driven by strong performance in our targeted channels, improving sales mix, which has led to higher average pricing, and continued momentum in the international medical export division, which we were up more than 750% year over year. What is enabling us to deliver these levels of performance? Well, we believe it comes from three critical factors. First, is our capabilities as a premier provider of quality and consistent cannabis flower at scale and at the lowest cost. Second is our commitment to manufacturing excellence and our EU GMP capabilities. And finally, it's a tremendous execution of our global team. Our execution on all fronts has been paramount to our success, and all the Village Farms International team members are worthy of considerable praise. Canadian cannabis retail sales were in line with our expectations with stronger contribution margin from retail branded sales in Q3 driven by our recent success in aligning our product portfolio towards higher margin SKUs. As a reminder, we first began discussing our plan to realign our product offerings towards the end of last year. As our analysis and consumer feedback suggested, the quality of our flower should command a higher price point. Since that time, we've observed significant improvements in profitability and because of our deliberate move away from some value-oriented tiers of the market, and our core Pure Sunfarms brand has experienced steady growth in market share since last December. We're pleased to be seeing relative stability in overall share performance as we begin to anniversary the implementation of these changes. And we're looking forward to benefiting from expanded production capacity next year, which will enable us to continue supporting growth in the Canadian market. Our non-branded wholesale channel in Canada continued to show consistent top-line performance as we've observed the past seven quarters. And as mentioned previously, our international medical business continued to expand rapidly during the third quarter with over 750% sales growth year over year. Germany continues to be a driver of increasing international demand, and we believe we've expanded market share sequentially in this market during each of the past four quarters. Based on local government data and internal estimates, we believe Village Farms International is now the largest exporter of medical cannabis to Europe and that we are well-positioned long-term to continue expanding into new markets as additional countries around the world embrace the many benefits of regulated cannabis. I also want to make clear that international business did not experience any disruptions to delivery or order flow during the third quarter. And in fact, the German government recently increased its import limit of medical cannabis by an additional 70 metric tons. As a reminder, our Delta British Columbia facility has been EU GMP certified since 2022. This certification was recently renewed, which underscores our rigorous commitment to our operational excellence and enables us to ship directly to partners across the world who are seeking GMP flower. We have never shipped through Portugal, having identified this as a compliance and supply chain risk some time ago. Our consistent product quality, potency, and reliability of on-time delivery of our products continue to differentiate Village Farms International from our competitors on the global stage. And we expect to expand to multiple new international jurisdictions during the first half of next year. As a reminder to investors who may be new to our story, we are only using approximately 35% of our nearly 5 million square feet of advanced greenhouses in Canada for cannabis production today. We have proven our playbook in scaling our Delta, BC production campus partly thanks to our nearly 40-year track record in highly intensive agriculture. And we have a strong labor force that knows how to execute and operate these facilities efficiently. To support continued growth in Canada and abroad, the 40 metric ton capacity expansion project we announced last quarter is now underway. And we anticipate it will increase our annual production capacity in Canada by approximately 33%. The incremental capacity is expected to begin coming online in Q2 of next year and be fully ramped in early 2027. At that time, 45% of our greenhouse capacity in Canada will be in full cannabis production, leaving our largest 60-acre Delta One greenhouse facility available for future phase conversion to cannabis beginning as early as 2027 if we deem necessary. As many of you know, increasing global demand for cannabis has currently resulted in a relatively supply-constrained environment in the domestic Canadian market for much of the past year. These dynamics have supported an improved pricing environment in Canada. And along with improvements in our operating efficiency, helped us achieve record gross margin with improved profitability in all our various sales channels during the third quarter. Excuse me. Canadian cannabis gross margin of 56% was above the high end of our targeted range due to a variety of factors, which Stephen will discuss momentarily. Our Q3 sales growth, improved gross margin performance, and continued cost discipline resulted in a 309% increase in adjusted EBITDA in Canadian cannabis to $19.3 million or 41% of sales. We believe this sets an all-time quarterly record in profitability from continuing operations of any public Canadian cannabis company. In The Netherlands, our first facility in Drafton reached full production capacity during Q3 and sales increased 44% sequentially with healthy profitability and cash generation. We also expanded our market penetration in coffee shops sequentially with our products now in 91% of participating coffee shops, and we are continuing to introduce new products, including several hash offerings and pre-rolls that we anticipate will enjoy popularity in one of the world's most famed cannabis markets. Construction of our second and large Dutch facility, which will increase our total production capacity in The Netherlands fivefold, is progressing on schedule and remains on track to begin operating in late Q1 of next year. We have been increasing headcount in The Netherlands during the fall to prepare for the expansion. And we anticipate incremental operating expenses at Lely Holland over the course of the next few quarters to support this growth. However, as the Phase two facility comes online, through the first half of next year, we expect our Netherlands business to be a strong driver of revenue growth for us in 2026, and to help us maintain relative strength in our overall margin performance as compared to a majority of our public cannabis company peers. In our produce business, sales were roughly flat after accounting for sales commissions paid to Vanguard Foods LP. Our ongoing produce segment is now comprised almost entirely of our Delta One greenhouse operations, which historically has generated positive net income and cash flow. And can still be converted to a cannabis facility in the future. Our second and third quarters will always be our seasonally strongest quarters for produce. Net income improved more than fourfold in Q3 to $1.3 million and adjusted EBITDA improved nearly 50% to $2.5 million from $1.7 million. Our U.S. Cannabis and Clean Energy segments also performed in line with our expectations during the quarter. We are pleased with the incremental net income that Clean Energy contributes to the company. And we continue to believe that these segments, despite being small portions of our business today, there is meaningful potential for both of these businesses to provide investors with additional upside, which we further believe differentiates Village Farms International as an attractive investment opportunity. As a reminder, for anyone new to our story, we still have certain greenhouse assets in West Texas that we believe offer us a clear opportunity to replicate our success in Canada if and when U.S. regulations allow. Finally, as noted on this morning's earnings call, we closed the quarter with $88 million in cash on our balance sheet, reflecting an increase of nearly $23 million since the end of Q2 following another quarter of strong free cash flow generation. Finally, our significantly improved cash flow generation profile and balance sheet strength gave our Board of Directors confidence to implement a share repurchase program in September as part of our balanced approach to capital allocation to drive shareholder returns. We believe we are in an excellent position to continue growing and investing behind our business. And we see significant opportunities for us to continue profitably scaling our global cannabis enterprise in 2026 and beyond. I'll turn the call over to Stephen to review the financials now. Stephen? Stephen Ruffini: Thanks, Mike. As a reminder, as of May 30, some of our produce assets were privatized and are now classified as discontinued operations. Reported financial results for comparative prior periods have been adjusted accordingly. I'll start with a review of our consolidated results. Consolidated net sales increased 21% to $66.7 million driven by growth in our Canadian cannabis segment as well as the second full quarter of contribution from our recreational cannabis sales in The Netherlands. Net income from continuing operations improved to $10.8 million or $0.09 per share, compared to a net loss of $800,000 or $0.01 per share in Q3 of last year. Consolidated adjusted EBITDA from continuing operations was $20.7 million compared with $4.7 million in Q3 of last year, resulting in an adjusted EBITDA margin of 31% in the quarter compared to 8.5% in Q3 of last year. Our cash flow from operations improved to $24.4 million compared with $6.1 million in Q3 of last year. Turning now to our segmented results. We will start with Canadian cannabis, which I will discuss in Canadian dollars for comparative purposes. Total net sales were $64.1 million for a 29% increase versus Q3 last year. The year-on-year improvement was driven by strong performance in our targeted channels, improved pricing, and continued momentum in our international medical exports, which increased 758% from Q3 last year to $16.3 million. Canadian retail branded sales were $37 million, in line with our expectations following the realignment of our product portfolio to higher margin SKUs. Canadian cannabis gross margin was 56%, up from 26% in Q3 last year and well above the high end of our target range of 30% to 40%. As Mike mentioned earlier, our improved gross margin was helped by favorable pricing as compared to the prior year. And we also benefited from increased international export sales, lower packaging inputs, improved productivity, and higher crop yields during the past summer growing season. SG&A expenses as a percentage of sales were 20%, an improvement of 22% last year as we continue to drive efficiencies throughout our Canadian cannabis operations. Q3 adjusted EBITDA for Canadian cannabis improved 309% year over year to our strongest performance ever at $26.6 million, resulting in an adjusted EBITDA margin of 41%, which was more than triple the 13% of last year. Cash flow from operations increased 339% to $26.8 million, our strongest quarter of operating cash flow since we expanded into Canadian cannabis in 2017. Finally, as we do each quarter, I will point out that in Q3, we paid Canadian excise taxes on our retail branded sales of $21.6 million, nearly 40% of retail branded sales and almost double our SG&A costs. Turning now to our recreational cannabis business in The Netherlands. Q3 saw our second full quarter of sales from our Lely Holland operations. Sales were $3.6 million with adjusted EBITDA of $1.3 million, both meaningful increases quarter over quarter and firmly in line with our expectations. With our Phase I facility now operating at full capacity, we expect our Netherlands sales performance in Q4 to be similar to Q3, although with increased operating expenses which Mike mentioned, will be rising into Q1 as we get ahead of our larger Phase two facility. Turning now to our U.S. Cannabis business. Q3 sales of $3.3 million continue to reflect the impact of various state actions dealing with the ongoing proliferation of unregulated hemp products. Gross margin was down slightly year over year at 60%, resulting in a small negative adjusted EBITDA for the quarter. Having stabilized this business amidst strong regulatory headwinds, we are working on a number of initiatives to invigorate sales of our responsible GMP-produced natural hemp products. In our continuing produce operation, sales decreased 10% year over year to $12.8 million, although this is a result of incurring a sales commission in 2025 to our privatized produce business. In previous years, we were the exclusive sales agent for our produce as well as for others. However, our net income from continuing operations was up $1 million to $1.3 million with our adjusted EBITDA margin improving to $2.5 million. I will remind investors that our produce operations in Q3 and through the remainder of this year reflect contributions from our Delta One greenhouse and half of our Delta Two greenhouse. The Delta Two tomato crop is being pulled this week for us to commence the conversion to cannabis production, which will bring our total operational square footage of cannabis production in Delta to 2.2 million square feet. Turning to consolidated cash flows and the balance sheet. Total cash flow from operations was $46.7 million through the first nine months of the year. We ended Q3 with cash of nearly $88 million, which includes restricted cash of $5 million with a net cash position of $53 million. Our total debt at the end of Q3 was $35 million. As noted in our 10-Q this morning, in August we paid down $3 million of U.S. term debt as part of the produce privatization transaction. We had a blended borrowing rate of approximately 6.5% at the end of the quarter with additional debt capacity as we evaluate the most efficient ways to fund our growth. Our healthy cash flow and strengthening balance sheet will enable us to continue supporting future expansion projects. And as Mike mentioned, we'll also support the $10 million share repurchase program that our Board approved in September. The program provides for the purchase of up to just under 5.7 million common shares or 5% of our issued and outstanding shares as of the date of the announcement. Our management team and Board believe this reflects a prudent and balanced approach to capital allocation to drive returns to shareholders. I will now turn the call back to Mike for some closing comments. Michael DeGiglio: Well, thank you, Stephen. And thanks and congratulations to all the Village Farms International team members around the world whose hard work, tenacity, and integrity are continuing to raise the bar for ourselves and our industry. In addition to delivering record profitability in the Canadian cannabis industry, our performance this quarter also surpasses the profitability of any U.S. operators who have reported thus far in this current earnings season. Village Farms International is now one of the most profitable cannabis businesses on planet Earth, and we remain highly motivated to exceed our own expectations. We are growing our business organically, funding our growth with our own cash generated from operations, and we believe we still have a considerable amount of future organic growth catalysts on our horizon. We are confident in our ability to continue driving growth in revenue and EBITDA supported by our proven operational and manufacturing expertise, our culture of cost discipline, and continuous improvement. And of course, through the continued excellence and leadership of our people. I'm incredibly proud of all the progress our teams have made together this year and know that we are all looking forward to another strong year of growth in 2026. Operator, that concludes our prepared remarks. We'll take questions now. Operator: Thank you. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. You may then return to the queue. Please standby while we compile the Q&A roster. And our first question will come from the line of Aaron Grey with Alliance Global Partners. Your line is open. Aaron Grey: Hi, good morning. Thank you for the questions and congrats on the strong quarter here. First question for me, I want to talk a bit about cannabis gross margin, 56%. You talked about some of the year-over-year improvement, but I want to talk even sequentially. Right? Some very strong improvement. So some of the drivers you saw there, you know, when we think about international mix, you know, it's pretty similar quarter over quarter, but still saw, you know, some pretty meaningful expansion there. So is there some improvements in pricing and mix within international? Some of the more meaningful operating efficiencies? So just some of the specific drivers in terms of some of the sequential trends there. And then how best to think about that gross margin going forward and how sustainable gross margins more close to these levels are? Thank you. Michael DeGiglio: Thanks, Aaron. So overall, we had improved efficiency. One of our DNA KPIs is continuous improvement on cost and efficiency. So that improved efficiency and productivity. We had higher crop yields. We normally do in the summer than the winter. Favorable pricing, as I mentioned, compared to the prior year tied to mostly a function of SKU mix, which I mentioned on the call. Lower packaging inputs and improved margins and of course, international export which has solid margins. Those were key drivers to those results. Ann, you want to add some color? I think you covered it. Okay. Thank you. As far as gross margin, you know, we as we said, our sweet spot is always 30 to 40% because you have to look long term. There's always different ebb and flows in the market. But we are always trying to exceed that, but we're not really changing that guidance between thirty and forty was a strong quarter for us and we certainly take it. And we're going to always strive to exceed. But we're we're gonna stick to those, that sweet spot we mentioned consistently over the last few years. Aaron Grey: Okay. Great. Appreciate that. And then on the international front, more thinking about the top line. You know, can you mention in terms of the competitive environment, maybe some of you mentioned that you haven't had as many issues, but have some of the supply challenges from some of your peers you're hearing about or or some of the quality issues, has that provided you you know, more of an opportunity to take meaningful, you know, share gains within the past two quarters? And, you know, how's it seems like you think that's pretty sustainable over the near to medium term, you know, with Delta second half of Delta two coming online and even some emphasis to potential for Delta one coming online, in 2027. So just maybe talking about some of the dynamics you're seeing internationally and what's making you so constructive at least in the near to medium term for some continued opportunities there? Thanks. Michael DeGiglio: Yeah. Well, I think, you know, it's still an asset industry. I mean, when I look at the cannabis business ten or fifteen years from now, it's gonna be interesting to see how it segments from commercial side, innovation side. To cultivation. But at this stage, cultivation rules, I mean, at the end of the day, you have to be able to consistently perform super high quality every single day and we always strive to do that at the lowest possible cost. Our original business model was based on that, and the team is executing. So without having consistent solid, good quality nothing else really matters. That coupled with EU GMP, the team has executed brilliantly. We had a renewal after our first three years with Flying Colors and we're actually expanding that whole EU GMP processing side for the future. And then you know, first and then coupled with it's not so much of as I said in my comments, one, two, three. You have to have all three. It's sort of like a three-legged stool. If one of those legs fall off, you topple over. And the final one is the execution of the team. Both on the commercial international side and on cultivation manufacturing side. And I think that's what we've communicated from day one we got into cannabis, and, it's a matter of how well you can execute. Aaron Grey: Okay. Great. Appreciate the call. I'll go ahead and jump back in the queue. Operator: One moment for our next question. That will come from the line of Frederico Gomes with ATB Capital Markets. Your line is open. Frederico Gomes: Hi, good morning. Congrats on the outstanding quarter here. Thanks for taking the questions. First question on The Netherlands, very strong performance. And I adjusted EBITDA there. So I guess just two questions there. One is, gross margin declined a bit sequentially. So could you talk about what drove that decline if related to mix or investments or something else? And then second question on The Netherlands as well. Know, I know that you have a 30 to 40% gross margin target for Canadian cannabis, but I'm curious about if you have the same sort of target for The Netherlands long term. Thanks. Michael DeGiglio: Hi, Frederico. Yeah. We absolutely have the same goals on the gross margin long term for The Netherlands. You know, it's a start-up. We just started producing in the end of the first, second quarter. So when you really look at some of the competitors and taking years, if not decades, to ramp up their business, I think we've done pretty well within the first year. It hasn't even been a year of cultivation. So you'll definitely see some lumpiness as we get stable going forward. So I think that shouldn't reflect that we're coming off on gross in any given quarter over the long term. Thank you. And then second question on Germany. Frederico Gomes: You mentioned you gained market share sequentially there in each of the past four quarters. So could you provide maybe a number in terms of where you think your market share is right now and whether you think that market share momentum is gonna continue in terms of gaining share sequentially over the next few quarters? Michael DeGiglio: Well, you know, I'm never gonna first of all, we're not putting out what we think the market share is, but I wouldn't be surprised if we're number one in whatever that market share number is. And the reason I don't want to comment is because there really are no clear statistics as of yet. So I would be just surmising it at this point. But I believe we're by far the number one market share in Germany, and I think for the reasons I mentioned earlier and in my remarks, to answer Aaron's question as well. I think that we took an approach, you know, in let's control what we can control. And that's where we believe we differentiate ourselves. We didn't look at Portugal. We thought Portugal was a risk and a liability both in supply chain, regulatory side. So we just built our business, for Europe based on our own production, our own people direct to our customers. And I think, you know, that seems to be a winning formula at this point in time. And I believe the German market is going to continue to grow as well going forward. Frederico Gomes: Thank you very much. Operator: One moment for our next question. And that will come from the line of Pablo Zuanic with Zuanic and Associates. Your line is now open. Pablo Zuanic: Thank you, and good morning, everyone. Look. My question is really a three-part question on Texas. I mean, obviously, in my interpretation, the regulatory changes in the medical program there are quite favorable. Especially for the three incumbents. There. Right? There may be 15 more licenses issued, there will be a bit of a lag, a time lag. Those new licenses, not even clear when they will be issued. So I just want to have a sense of how aggressive is Village Farms International willing to be in Texas in terms of M&A activity? And what could that mean for your Nasdaq listing? How would you think about that? Because when we look at, you know, Canopy Growth or SNDL, it seems that other companies have not been willing to give up their Nasdaq listing. But, I mean, what can you say publicly on this topic? Thank you. Michael DeGiglio: Well, good morning, Pablo. I'm gonna first let Stephen answer a couple of the first points on Texas. And then we could kinda come back to some others. So regarding the Republic Of Texas, Stephen, comments? Stephen Ruffini: Yeah. We're certainly anticipating, and excited and understand that the Department of Public Safety is still online to issue its licenses on December 1. So we should hopefully know something. But that would be twelve additional. Not this. Yeah. Twelve additional. So we'll see if they keep on their timeline. We've heard nothing to the contrary of that. Texas has improved its medicinal definition and expanded the illnesses that can access the system. That being said, it's not quite as open as something like Florida, but we are certainly excited about the opportunity. Michael DeGiglio: Yeah. And I think regarding Nasdaq, we feel very that we can find a suitable structure going forward. We've been working on that for a couple of years. So, when and if we'd probably move forward, but we're not gonna jeopardize at any time on that Nasdaq listing problem. Pablo Zuanic: Okay. No. That's good. Thank you. Understood. And then the second question, just regarding Quebec, the province of Quebec, I think you've said in the past, it's about 40% of your revenues. I don't know if it's 40% of your Canadian domestic earnings on the cannabis side. But, you know, there's been some regulatory changes there. Vape is allowed now. I think there were other regulatory changes on caps. Maybe more stores. You know, what's your outlook for Quebec province? And how are you positioned to benefit? If you can correct me if I'm wrong in terms of the relevance of Quebec to your business on the recreational side. Thank you. Ann Gillin Lefever: Pablo, good morning. It's Ann. Quebec is very important, but your number is on the high side. It's not 40% of total cannabis. We've traditionally been a little bit higher than the spread of revenue across provinces, just to give you some sense of that. There are some changes coming. Vape is one of the big changes. I think the SQDC has done a great job of assessing where they're not able to grab the listed or the legacy market share, and this is going to be a big form factor to move into the private market or to, sorry, the legal market. And we are participating in that as we go forward. Pablo Zuanic: Right. Thank you. Look. I'm gonna ask I'll start one. I know it's only two, but let me break the rule this one time. On the Dutch side, I know that there's 10 licensees on the production side, but it seems that not all of them are up and running. Some of them have had problems. It seems that you are one of the few that's expanding capacity. In this case, was five times. So like you're in a very good position. Right? And there are other people that maybe started first are in a weaker position now. Do you want to comment on the competitive landscape on the production side in Holland right now? Michael DeGiglio: Sure. Well, I think eight are in production. Two more will be coming on in the next quarter or so. I think of the ten, one will probably be more of a light asset model. There are issues with others, quite a few that I've heard of. But that can always be an opportunity for us. But we're very focused on getting, as I said, this next facility will increase our capacity fivefold. So our focus is getting it up and running. Crawl, walk, run. And then we'll see what opportunities lie ahead. We're very excited about those opportunities in the future in The Netherlands for us. As well, Pablo. Pablo Zuanic: Okay. Alright. Thank you. Thank you. Operator: Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. DeGiglio for any closing remarks. Michael DeGiglio: Thank you. Okay. Thank you again for joining us today, and we hope you have a wonderful holiday season. We look forward to our next update for year-end in March. And wishing everybody a happy New Year as well. Thank you, operator. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good day. And welcome to the CEVA, Inc. Third Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I'd now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence and Investor Relations. Please go ahead, sir. Richard Kingston: Thank you, Rocco. Good morning, everyone. And welcome to CEVA's third quarter 2025 earnings conference call. Joining me today on the call are Amir Panush, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA. Before handing over to Amir, I would like to remind everyone that today's discussion contains forward-looking statements that involve risks and uncertainties as well as assumptions that materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include regarding our market position and industry trends, including with respect to embedding of AI across customer product lines and customer licensing of NPUs for AI interfacing. Statements regarding demand for and benefits of our technologies, expectations regarding revenues including higher royalty potential for AI agreements, and our financial goals and guidance regarding future performance. CEVA assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. We will also be discussing certain non-GAAP financial measures which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results. A reconciliation of non-GAAP financial measures is included in the earnings release we issued this morning and in the SEC filings section of our Investor Relations website at investors.cevaip.com. With that said, I'd like to turn the call over to Amir who will review our business performance for the quarter and provide some insight into our ongoing business. Amir? Amir Panush: Thank you, Richard, and good morning, everyone. We are pleased to report that the third quarter exceeded our expectations on both revenue and non-GAAP EPS. With revenue of $28.4 million and non-GAAP EPS of $0.11. In licensing, we secured several strategic agreements that reinforce our market-leading position in wireless connectivity and accelerate our expansion in AI. This quarter was marked by strong execution across our core pillars: Connect, Sense, and Infer. And highlights the breadth and strength of our IP solution portfolio. The most significant win this quarter was in AI, where Microchip, one of the world's leading microcontroller and connectivity providers, and whose products power billions of devices across industrial, consumer, automotive, and other end markets, adapted our full NPO NPU portfolio for its future roadmap. This win is a strong proof point of the broader industry trend. Major MCUs and semiconductor vendors are embedding AI capabilities across their product lines, bringing more on-device intelligence for performance, user experience, privacy, and cost. Selecting CEVA gives Microchip a complete portfolio of edge AI inference solutions, from ultra-low power inference for MCUs to high-performance AI in advanced systems, all under a unified software stack. This flexibility allows them to standardize AI deployments across industrial, automotive, consumer, communications, and compute markets without compromising on power or costs. Let me take a moment to talk about the role of NPUs in the broader AI ecosystem. NPUs, at the end of the day, are optimized compute engines for AI inference. Just as CPUs orchestrate system control and GPUs accelerate graphics, companies rarely reinvent CPUs or GPUs. They license proven processor IP and focus on system integration and software differentiation. We believe NPUs will follow the same path. Licensing a proven and scalable NPU architecture delivers the performance and scalability customers need while freeing resources to focus on software-optimized models and application-specific experiences. CEVA is uniquely positioned to lead this transition. We have a full range NPO portfolio, a unified software framework, and tools, and a strong partner ecosystem. This enables customers to focus on differentiated models and experiences while we provide the scalable, proven technology foundation. Our recent new point engagement with a leading MCU vendor is a powerful validation of this approach. Beyond the new portfolio win, we signed three AI DSP agreements that broaden our reach across consumer electronics and automotive. First, a leading global electronics brand is integrating our AI DSP into its next-generation edge SoC family for home appliances, enabling vision, voice, and contextual awareness in connected devices. Second, a high-profile automotive customer expanded its use of Silva AI DSPs and accelerators for centralized compute platforms now entering production. And a new engagement with an innovative ADAS chiplet architecture company is strengthening our position in automotive. AI processor licensing is now a very meaningful and growing part of our business, contributing roughly one-third of the licensing revenue in both the second and third quarters. The first time AI has had such a significant impact on our licensing mix. In addition, these AI agreements typically carry a higher royalty potential than our traditional licensing business, further enhancing long-term value. Moving now on to wireless connectivity, which represents a core pillar of our growth strategy and a powerful cross-sell engine into AI. We had another impactful quarter. We delivered wins in both established standards, like Wi-Fi 6 and Bluetooth 5, and next-generation standards. This quarter, a long-term customer licensed our latest Wi-Fi 7 and Bluetooth high data throughput IP for upcoming roadmaps. These standards offer higher throughput, lower latency, and improved power efficiency, which are essential for advanced audio wearables, robotics, and broader physical AI use cases. These transitions are not one-off wins. They cement multiyear royalty ramps, as customers build on power generation and continue forward with CEVA Technologies as core enablers of connectivity and AI. By consistently delivering end-to-end, multi-standard connectivity solutions, together with advanced sensing and AI IP, we provide a unified foundation for intelligent, connected devices. This positions us as the de facto partner for next-generation connectivity and strengthens our leadership as AI and sensing adoption expands across markets. Now turning into royalties. We delivered solid growth across most of our markets, with royalties up 6% year over year and 16% sequentially. Consumer IoT was a key driver, posting 9% year-over-year growth supported by record shipments in cellular IoT and Wi-Fi. Our 5G SWAN infrastructure customers also had a strong quarter, with revenues up 91% compared to last year. In automotive, two large semiconductor customers continued to ramp up volume shipments for ADAS solutions based on our AI DSP, contributing to overall royalty growth in the quarter and beyond. Mobile royalties grew 4% year over year and 7% sequentially, driven by recovering low-end smartphone segments. At the high end, our U.S. OEM customers launched a second smartphone model featuring its in-house 5G modem with CEVA technology. And as this model expands into more markets in the fourth quarter, we expect further royalty growth. In summary, this quarter's AI-led licensing momentum and continued progress in wireless connectivity highlight the breadth and scalability of our IP across Sense, Connect, and Infer. These wins strengthen our pipeline, increase visibility into future revenue streams, and reinforce CEVA's role as a foundational technology provider for intelligent, connected, and increasingly physical AI devices. Now I will hand the call over to Yaniv for the financials. Yaniv Arieli: Good morning. Thank you, Amir. I'll now start by reviewing the results of our operations for 2025. Revenue for the third quarter was $28.4 million, up 4% compared to $27.2 million for the same quarter last year, and up 11% sequentially. The revenue breakdown is as follows: licensing and related revenue totaled $16 million, representing 56% of our total revenue for the quarter. This reflects a 3% year-over-year increase and a 7% sequential increase. Licensing revenue for 2025 reached $46.1 million, a 4% increase compared to $44.3 million for the same period of 2024. As Amir noted, this growth primarily represents strong traction in AI, following multiple significant design wins for NPUs and AI DSPs. AI processor licensing contributed roughly a third of the licensing revenue in both the second and third quarters, demonstrating solid momentum and strategic progress. These were our core, the importance of our Neuprol MPU portfolio and AI DSP offerings as key growth drivers going forward. Royalty revenue for the third quarter was $12.4 million, reflecting 44% of total revenue, a 16% sequential increase, and a 6% increase year over year. Consumer IoT is a key driver. It posted 9% year-over-year growth, supported by record shipments in cellular IoT and Wi-Fi. Gross margin came slightly better than our guidance, at 88% on a GAAP basis and 89% on a non-GAAP basis, compared to 85% and 87% respectively a year ago. Total operating expenses for the third quarter were $27.1 million, at the higher end of our guidance. Our total non-GAAP operating expenses for the third quarter, excluding equity-based compensation expenses, amortization of intangibles, and related acquisition costs, were $22.1 million, at the higher end of our guidance as well, mainly due to higher employee benefit provisions associated with better financial results. Non-GAAP operating margins and net income improved significantly over 2025, reaching 11% of revenue, and $3.1 million, also higher than any percent and $2.1 million recorded in the third quarter of last year. GAAP operating loss for the third quarter was $2.1 million, as compared to a GAAP operating loss of $2.6 million for the same period in 2024. GAAP and non-GAAP taxes were $1.7 million, just below our guidance. GAAP net loss for 2025 was $2.5 million. The EBIT loss per share was $0.10, as compared to a net loss of $1.3 million and a net loss per share of $0.06 for the same period last year. Our net GAAP income, non-GAAP net income, and diluted income per share for 2025 was $2.7 million and 11%, respectively, representing $0.01 over Street estimates. In the same period last year, net income was $3.4 million and diluted income per share was $0.14. With respect to other related data, shipped units by CEVA licensees during 2025 were 559 million units, up 19% sequentially and 11% up year over year. Of these, 69 million units, or 12%, were mobile handset builders. A record 510 million units were for IoT, up 13% year over year, with consumer IoT reaching 500 million units and industrial IoT totaling 10 million units. Bluetooth shipments were 303 million units in the quarter, down 1% from 306 million in 2024. Cellular IoT shipments were an all-time record high at 69 million units, up 41% year over year. Wi-Fi shipments also reached an all-time high of 82 million units, up 73% from 47 million units a year ago. Wi-Fi 6 shipments also set a new record, up 194% year over year, as customers continue to ramp up the cloud. Our wireless IP portfolio, which includes Bluetooth, Wi-Fi, UWB, and cellular IoT, achieved its strongest royalty revenue quarter on record. These shipments and royalty trends reinforce the adoption of next-generation connectivity standards, which serve as the foundation for AI-embedded devices and position CEVA for multiyear growth. As for the balance sheet items, as of September 30, 2025, CEVA's cash, cash equivalent balances, marketable securities, and bank deposits were approximately $152 million. In the third quarter, we repurchased about 40,000 shares for approximately $1 million. In all of 2025, we purchased approximately 340,000 shares for approximately $7.2 million. As of today, around 684,000 shares are available for repurchase under the repurchase program, which was extended in November. Our DSOs for the third quarter of this year were 47 days, a bit higher than the last quarter, but in line with our norms in prior quarters. During the third quarter, we used $5.9 million of cash from operating activities. Ongoing depreciation and amortization was $1.2 million, and the purchase of fixed assets was $400,000. At the end of the third quarter, our headcount was 434 people, of whom 353 are engineers. Now for the guidance. Our licensing business remains strong, supported by a robust pipeline and deal flow across our three core pillars: Connect, Sense, and Infer. We delivered six consecutive quarters with licensing revenue above $15 million, underscoring consistent execution. Royalty revenue typically strengthens in any given second half, and the third quarter reflects this trend with 16% sequential growth and 6% year-over-year growth. Looking ahead, we expect continued seasonal momentum in the fourth quarter, driven by share gains at a U.S. OEM smartphone customer using our technology in its in-house 5G modem and by strong ramps in Wi-Fi and cellular IoT. We are maintaining our full-year revenue guidance as previously discussed and aligned with Street estimates for the year. As for the fourth quarter, total revenue is expected to be in the range of $29 million to $33 million. Gross margin is expected to remain high and with the same level of Q3, approximately 88% on a GAAP basis and 89% on a non-GAAP basis, excluding a grade of $200,000 for equity-based compensation expenses, and $100,000 of amortization of acquired intangibles. GAAP OpEx is expected to be higher than the third quarter, in the range of $27 million to $28 million, and our anticipated total operating expenses for the third quarter, $4.7 million, is expected to be attributable to equity-based compensation expenses, $200,000 for amortization of acquired intangibles, and $100,000 for expenses related to a business acquisition. Non-GAAP OpEx is also expected to be higher than the third quarter, in the range of $22 million to $23 million. Net interest income is expected to be approximately $1.5 million. Taxes for the third quarter are expected to be approximately $1.8 million, and the share count in the third quarter is expected to be approximately 25.8 million shares. Rocco, we can now open the Q&A session, please. Operator: Yes, sir. Please press star then 1 on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from the queue, please press star then 2. Once again, that's star then 1 if you have a question. First question comes from Chris Reimer with Barclays. Please go ahead. Chris Reimer: Congratulations on the strong quarter. Looking at shipments, you mentioned the strong momentum with the smartphone customer that was driving the royalties. I was wondering if you could describe any of the other segments and how they're doing, if there might be any other ramp-ups coming to market in the near term. Amir Panush: Yes, Chris. This is Amir. Thanks for the question. Definitely, we see growth momentum in terms of our royalty, both in terms of seasonality and overall. Coming from basically multiple different opportunities. One, of course, is the mobile that we mentioned, with the large U.S. OEM. The other things from a seasonality point of view in mobile, the low-tier customers that we have in mobile, we expect them to continue basically the sequential growth as we go through the year. And the other things that we mentioned, and now we see more and more that happening, is basically the Wi-Fi shipment volume growth and the transition from Wi-Fi 4, 5 to the more latest standard Wi-Fi 6, which on its own also basically goes with higher ASP per unit. And with that, will drive higher royalty overall. In addition to that, we see the cellular IoT keeps going very nicely. And we had another record high this quarter, like the Wi-Fi shipments. And the last piece that we mentioned is things related to automotive ADAS systems. We have now two customers that started to ramp in volume production, and we expect that to continue to grow in Q4 and through the next few years as well. And additionally, in V2X, we had a customer that got acquired by Qualcomm, and this is also going and ramping right now. And we expect that to continue to drive additional royalty growth. So all in all, from significant Wi-Fi growth, server IoT, getting more market share in mobile, and doing better in automotive, all these will drive royalty growth as we move forward. Chris Reimer: Thanks. Yes, that's great color. Just touching on the Microchip partnership and in addition, with the other NPU deals that you're making, is there any change in the timeline to development and getting products into the market, and is there any change in the types of products? Just wondering about any color there. Amir Panush: Sure. Thanks, Chris. So first, we are super excited about this opportunity, where Microchip decided to license our complete portfolio of NPUs all the way from the lower power performance type of MCU needs all the way to more high-end type of inference needs in infrastructure and data centers. So this is a really great opportunity to collaborate with a great company like Microchip. And in terms of the time to market, it's similar to most other technology that we see, which is typically between eight and twenty-four months from the time that we start the design until we basically go to production and start the ramp-up. So overall, I would say this is not different that much from many of the other design wins that we have had. Chris Reimer: Got it. Got it. Thanks for that. That's it for me. I'll jump back. Thank you, Chris. Operator: Thank you. Our next question comes from Madison DePaulo with Rosenblatt Securities. Please go ahead. Madison DePaulo: Hi. This is Madison calling on behalf of Kevin Cassidy. I was just wondering when can we expect to see the Microchip MPU shipments hit CEVA's royalty revenue? And what is the time frame of the license? Yaniv Arieli: Yeah. You know, a typical license agreement is a few years, and then usually a customer comes and licenses the next generation or different enhancements and new features that we come up and develop over the years. That's our normal life cycle of the licensing deal. And one thing I think Amir mentioned is that we don't see the NPU or AI business line having any significant differences versus the other IoT and connected devices. Usually, the design cycle of the chip runs anywhere between one to two years. And then productization and ramp-up, so anywhere between two years to three years, you usually find and see the royalty stream, especially for a big and successful company, that's the norm that we have seen in recent years. So we don't think AI is any different than the other IP that we license. Maybe one more comment I will add. This is Amir. First, in terms of the deal itself, this is a multiyear deal. So this is really to provide direct access to our technology, to Microchip, to eliminate the cost on the product line. And we are very excited about that. But also, definitely, AI is a market where technology in terms of new innovation and new needs is coming very quickly. So we do expect, especially in the AI domain, that the cycle of innovation and speed towards innovation will drive renewal of those deals with additional capabilities to come on a good regular basis of every year or two. So definitely, there is more opportunity to keep upselling the technology as we drive more development. Madison DePaulo: Okay. Thank you. Operator: Sure. Thank you. Our next question comes from Martin Yang at Oppenheimer. Please go ahead. Martin Yang: Hi, thank you for taking my question. Can you maybe go into more details on which Microchip product family or verticals will be prioritized initially? Is it industrial, automotive, any other data centers? And how do you think about the attractiveness of those end markets respectively based on when or which goes to market first? Amir Panush: Yes. So Martin, thanks. Great question. Again, just to clarify, in terms of the deal itself, this is to provide full access for all the different ranges of needs of MPUs to all the different markets that Microchip has business in. In terms of which will come first, we can't really go into the business of what our customer is planning to do. But it will definitely be on the so-called full spectrum of that range. So we do expect to have multiple programs where some of them are more, I would call it, the embedded MCU product line. And some of them are more towards the infrastructure and the data center type of solution. Martin Yang: Thank you, Amir. One more question. How do you think about the prospect of getting Neural Pro integrated with your connectivity IPs? Is there a strong interest by customers for both of those? And if so, how far along with productization and mass production? Amir Panush: Yes. That's a great question. First, with this specific customer, for example, yes, we have in the past licensed connectivity and are very likely to continue licensing additional connectivity technology as we move forward. So we definitely see a good synergy of the ability to license both connectivity technology and NPU technology. And definitely, as we go towards more embedded systems, that's where the integration of the two technologies makes lots of sense and provides additional time-to-market advantage, cost, and power efficiency of the solution. And those are the things that we typically really master very well and can enable our customers to compete very successfully in the marketplace. And so that combination will play to our strengths as we keep moving forward. In the previous quarter, we talked about several deals of NPU coming together with connectivity. And that trend will continue. So we are very, very encouraged with what we have seen so far, really building on the wireless connectivity leadership. And then on top of that, we are now driving very good success in terms of design wins and accessing the markets with our AI solution. Operator: Thanks, Martin. And our next question comes from David O'Connor at BNP Paribas. Please go ahead. David O'Connor: Great, good morning, thanks so much for letting me ask a question. Maybe, Amir, just firstly on again, to go back to the Microchip deal. But if you could give us just a bit more color around what the competitive landscape looks like for you to kind of secure that win? Was it mainly internal IP that you were competing against? Is there a lot of kind of anything you can share around what led to that and why exactly now? I mean, you proved sales you guys have been developing for some time. Why exactly now this Microchip licensed new probe? And also maybe as a follow-on, can you talk as well around the sustainability of that kind of AI looking forward? So when you look in the pipeline, how does that look? Is there other potential microchips? Any kind of color you can share on that should be helpful. Thank you. Amir Panush: Yes. Thanks a lot, David. So really like three different questions. I'll try to address each of them. So first, from a competitive landscape, this is also what I mentioned in the prepared remarks. Related specifically to NPU. NPU, we believe, like other processors, whether it's a CPU or a DSP or GPU, we believe that the majority of the companies out there are not going to build on their own or make on their own. And they will go and license this technology. So we believe there is a great opening and opportunity ahead of us to license NPU technology. And the same, again, they apply to the customer, which we competed with other potential IP vendors rather than the mix versus pie. And we believe, again, that's a great opportunity for us. And the reason that we have won in account and how why now we are seeing the momentum, which is honestly, it's not just now. It's for the last two quarters in bigger numbers, for the last four quarters, we're really starting gaining the momentum. It's because we are delivering three major ingredients that each of them is quite unique to us, and all of them is extremely unique of what we can offer. One is now a complete portfolio of NPUs starting again from the low end to the higher end of the spectrum for inference use cases. So again, portfolio play. Second is a combined software stack that can support all the different hardware configurations underneath and one that can quite easily get integrated by our customers into their own software stack. So again, very advanced software stack. It supports all our combined portfolio. And the last piece is that within each of those different configurations, we believe that we have one of the best, if not the best, optimization in terms of the architecture and technologies we can offer, of the trade-off between power, cost, size, and performance. So again, extremely competitive offering on each ingredient on its own, on top of the portfolio and then the software stack that comes on top of it. And we believe all those three ingredients coming together provide us a very good competitive advantage in the marketplace. The last piece about sustainability of the business. At the end of the day, when we look at the pipeline ahead of us, it aligns quite nicely with the momentum that we have generated the last two quarters. So a significant portion of the pipeline comes from our NPU product line, that, as you mentioned, we have invested in that for the last few years, and now we've really seen that's materializing nicely. So I cannot say that on a quarterly basis, that's exactly going to be the revenue recognition. And things can vary on a quarterly basis. But as a long-term trajectory, our pipeline definitely supports this level of revenue. And potentially even above it. David O'Connor: Very helpful. That's great color. And maybe just following on from that one for Yaniv on the OpEx side of things. Given the kind of interest and acceleration you're seeing on the new Pro AI side of things, can you just speak to the OpEx? That in the base? Or can we expect maybe a step up in OpEx required there to support that growth that you're seeing? Anything around the OpEx related to new products? Yaniv Arieli: Yes. Sure, David. Two things on that. One, definitely, as you have seen for the last few years, we definitely manage very carefully expenses. And we would like to drive continued momentum on the bottom line. Having said that, definitely we see an opportunity ahead of us both actually on keep expanding our wireless connectivity leadership as well as on the AI that now we really have the proof points and the success in the marketplace. So when I take these two points into consideration, definitely, we look at how we can invest and add the capabilities to drive revenue growth. All while at the end of the day stay quite disciplined. So how we invest our money. So for Q4, we gave the specific guidance. We wouldn't see big changes in the OpEx and in R&D investments. Going forward, we need to do our planning and discussions probably we'll do it later or early next year. About 2026 investments and how we see the opportunities and the potential ROI in this specific very, very exciting market. And it seems that we have managed to penetrate into and in some sense, there are signs of some very, very interesting and lucrative deals. Amir Panush: Yes. And overall, David, I would just conclude, we're really excited about the momentum that we are seeing right now. And the competitiveness of our technology. Again, both on AI and overall the wireless connectivity leadership with the volume keeps going up. Quarter over quarter. David O'Connor: Great color. Thanks so much, guys. Operator: Thank you. And that concludes our question and answer session. I'd like to turn the conference back over to Amir Panush for any closing remarks. Amir Panush: Hello? Hello? Amir? I'd like to turn the call over to Amir Panush. Please go ahead. Richard Kingston: That's fine. I'll take it here. Thanks very much, Rocco. On behalf of the CEVA team, thank you for joining us today. With AI now contributing over one-third of licensing revenue, and connectivity shipments hitting record highs, we are well-positioned for sustainable growth and expanding our role as a foundational technology provider for intelligent connected devices. We look forward to meeting many of you during the third quarter at investor conferences. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on Form 8-Ks and accessible through the Investors section of our website. With regard to upcoming conferences, we will be participating in the following conferences: the 14th Annual ROTH Technology Conference on November 19, in New York, the UBS Global Technology and AI Conference on December 2 in Scottsdale, Arizona, and the Northland Growth Conference on December 16 being held virtually. Further information on these events and all events we will be participating in can be found on the Investors section of our website. Thank you, and goodbye. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Selena Chong: Good morning, everyone, and welcome to our First Half FY '26 Results Briefing. Today, we are pleased to have with us our Group CEO, Mark Chong; CFO, Isaac Mah; and COO, Neo Su Yin. So this session will be webcast live and recorded. So without further ado, let me hand over to Mark Chong. Chin Chong: Yes. Thanks, Selena. Actually, before we jump in, could we -- could I know who is online? Selena Chong: It is audience, participants of the webcast. [Operator Instructions] Chin Chong: So thank you, everyone for coming to our results announcement for H1 of FY '26. My name is Mark Chong. I'm 10 days old on the job, I think there may be a fair bit of interest on how we are going to take the company forward, our strategy. I really would like to share those with you when we are ready. But being only 10 days on the job, I'm afraid there's not much I can talk about on the future plans. Today, we are really talking about the results announcement. So that's going to be the focus of this section. And you know that SingPost has divested some assets overseas. We have folded the international division into the domestic ops. We are now a single entity. We have dropped the group -- the word group from our titles. We are just as we are. So the immediate order of business for us right now is to ensure that our business, our core business run well. Our customers are well served. So we are looking at for the immediate-term operational efficiency, widening our network to serve our customers and keep the core business running well. Through our recent divestments, we, of course, received the proceeds. We have paid out a special dividend. We have paid down debt, a chunk of debt, and we'll keep the rest for our working capital, et cetera. So we will continue to maintain a disciplined capital management approach [Technical Difficulty] and therefore [Technical Difficulty]. So those are the immediate priorities. For the results, I will now hand over to Isaac to take us through. Thank you. Isaac Mah: Thank you, Mark, and good morning. As Mark conveyed, our focus is on a stable and sustainable future, underpinned by a strong financial position. And this first half really has been defined by actions that reflect that commitment. We completed a major organizational realignment following the sale of the Australian business. This was an important step to ensure that our corporate structure is rightsized, optimized for the remaining side of the business. This included removing overlapping corporate support functions, integrating the cross-border operations into the Postal and Logistics business in Singapore and further streamlining activities. Along with that, we have concluded several transactions. This includes the unwinding of the cross-holdings with Alibaba, leading to the divestment of 4PX and the cessation of the joint venture Quantium Solutions. Various Quantium Solutions subsidiaries have also since been divested, and we have also completed the sale of the freight forwarding business, Famous Holdings. The combined result of these actions is a stronger balance sheet, providing the financial flexibility and foundation for future growth. Next slide, please. Now our operational developments over the first half are centered on 2 areas that enhance our capacity, efficiency and reach. First, on the capacity front, the SGD 30 million investment to expand parcel sorting capacity at the e-commerce logistics hub in Tampines is on track and expected to be fully operational by mid-2026. E-commerce remains a growth driver for the logistics business. As such, we are tripling our capacity to address demand, efficiency and service quality, which in turn will enable us to scale up this business segment efficiently. On the network front, we expanded our reach across the island through strategic collaborations and partnerships to offer customers maximum convenience and choice. This includes partnerships with Pick Lockers, Cheers and FairPrice Xpress outlets. We have also been deploying 24/7 POPDrop kiosks that provide a one-stop service to customers. Our post office also serves as partnership touch points with DHL and FedEx. We have also started a trial for the posting and return of mail directly at the Letterbox nests of several HDB housing blocks. If successful, this may be rolled out island-wide, which will enhance customer convenience. These investments in capacity and network are key, not just to make the business more efficient, but also to solidify our competitive position and serve customers even more effectively. Now on to the financials. As we move from the second half of the last financial year into a review period, cost discipline was key. This has enabled the company to reverse from a SGD 0.5 million loss in the preceding 6 months to an underlying net profit of SGD 5.5 million this half. The operational discipline, costs have come down, reflecting 2 key drivers: one, organizational streamlining and cost management efforts; and two, the reduction in expenses in tender with lower volumes and revenue. The recent divestments have led to exceptional gains on disposal of about SGD 9 million. There is also a fair value gain on SingPost Center of SGD 5.5 million in exceptional items. As a result, profit from continuing operations was higher at SGD 20.6 million. In comparison, discontinued operations incurred a SGD 2.2 million loss this half compared to a SGD 21 million profit in the prior period when the divested Australian business was still included. Put together, net profit was 17% lower year-on-year. Excluding these exceptional gains, the underlying net profit or UNP was SGD 5.5 million, lower year-on-year, but as mentioned, better than the loss in the second half of last year. The lower UNP year-on-year is attributable to 2 main factors: the loss of profit contributions from the Australian business, which previously bolstered our results, the softer performance in the cross-border business, which I'll cover next in the segments. Now with the change in SingPost profile, we have revised the business segments to Logistics and Letters, Post Office Network and Property Assets. This change was from Australia, International and Singapore. Logistics and Letters, which now cover the delivery business, both domestically and internationally as well as other services is our largest segment by revenues. Post Office Network comprises agency services, product sales and rental of space and the post office. Property Assets refer to rental and related contributions from properties, the largest contributor being SingPost Center. Now moving into a segment-by-segment review. Logistics and Letters faced a challenging operating environment, which resulted in lower revenues of SGD 153.5 million and an operating loss of SGD 4.4 million. Letter mail volume continued its structural decline, a trend that we have been managing for some time. Volume of domestic e-commerce deliveries softened about 3% over the period. In contrast, cross-border e-commerce volume fell by 63% year-on-year, a reflection of the difficult market conditions in that space. This was part of a much larger global trend, which has seen significant volatility, particularly with the U.S. tariff situation. We have taken actions to streamline the cross-border operations and also implement cost management measures to align with the reduced business activity. Along with the drop in volume-related expenses, the segment operating costs have fallen about 27% year-on-year. Now moving on to the Post Office Network. In the Post Office Network, the decline in revenues was mainly due to lower agency services revenue. This was partly cushioned by higher rental income from leasing within the Post Office Network properties. Our efforts to control costs and optimize the network yielded results. Costs were reduced by 13%, which lowered the operating loss from SGD 6.7 million to SGD 5.8 million. Property Assets. Property Assets comprises property rental and related activities and mainly at SingPost Center. The segment continues to provide consistent revenue streams. With a focus on maintaining high tenancy levels, we saw improved revenue performance driven by rental growth at SingPost Center. Overall occupancy rate was 99.2%. Operating profit was lower, primarily due to higher expenses like property management service costs and property tax. Now on to the balance sheet. There are a couple of points I would like to highlight. One, the balance sheet movements are largely the effect of the consolidation of subsidiaries that were divested. Two, with the divestments this year, including the Australian business, our financial position has been strengthened by proceeds from disposals. The company's cash position is SGD 594.1 million. This provides us with financial flexibility, enabling the funding of operation investments as well as future requirements. To complete the financial picture, let me highlight some points on cash flow. Cash flows generated before working capital was lower compared to the prior period. This was expected primarily due to the absence of contributions from divested subsidiaries. The negative operating cash flow after working capital changes was driven mainly by higher settlement of payables. Investing cash flows was largely due to proceeds from disposals, reflecting the realization of value from these noncore assets. Financing cash flows was primarily -- financing cash outflows was primarily due to the special dividend payout to shareholders in August with respect to the sale of the Australian business. Now lastly, I'm glad to share that the Board has declared an interim dividend of SGD 0.08 per share, which represents 30% of the UNP for the first half. That concludes my presentation. Our disciplined approach has positioned us well for the road ahead. With that, I will hand over to Selena to move on to the Q&A session. Thank you. Selena Chong: So, Mark, Isaac [Technical Difficulty]. Chin Chong: Yes. Why don't we start. Selena Chong: If anyone has any questions to [Technical Difficulty], can identify yourself for the benefit of audience of the webcast. Unknown Analyst: [Technical Difficulty] Just 2 questions from us. First is how should we think about [Technical Difficulty]. Second question is could you give more color about segment of [Technical Difficulty] for cross-border customers and also what is your outlook for the segment and [Technical Difficulty]. Isaac Mah: So first off, we don't typically comment on [Technical Difficulty]. I think what you've seen in our presentation is that we have actually executed very well on several cost control initiatives. We will continue to see the efforts of this in our numbers. Going forward, we believe that there continues to be good opportunities in the Letters and Logistics space, and we'll continue to build on our network as well as our service levels, which would then ensure the right for us to play in this region. Su Yin, anything you want to add to that? Su Yin Neo: Yes. I think as you know, with the geopolitical situation as well as [Technical Difficulty] structurally being a lot inner in order for us to then take the strategic review [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So the structural decline of the Post Office Network also the volumes, how do you actually stop that because this is a structural problem. So is there any plan for any [Technical Difficulty] what are the key plans to stop this structural decline because this has been happening over the last 10 years, actually it is still in decline. So how do you encourage people to use more [Technical Difficulty] structural decline. I think you have seen that this is not possible [Technical Difficulty]. Chin Chong: I think the decline of postal post structurally that cannot be [Technical Difficulty]. So we will follow its course and all that. But I think what was good that [Technical Difficulty] was the arrival of e-commerce, the growth of e-commerce. So parcels came along, and I think SingPost played quite hard on the post side. And what we have to do going forward is to make ourselves competitive. So I think what we have as advantages are, of course, we still have the postman who cover all the blocks and all the letterbox nest. So we will leverage on that better quality of service in terms of touch points, et cetera. And I think you note our investments in SGD 30 million in the sorting new, the Tampines hub also to lower our cost to serve, right, and provide higher CapEx. I think the decline in the cross-border volumes, obviously, we have to [Technical Difficulty]. Unknown Analyst: So for your SGD 30 million investment, right, decrease of cost, right. So what's the -- how much cost you decrease? So for example, your average -- no, no, I think you decrease your overall cost. The SGD 30 million investment you have to decrease your overall cost per package [Technical Difficulty] reduce the cost. So how much cost will actually decrease. So for example, let's say package previously cost will be x amount to deliver. So this SGD 30 million based on the same volume of the decrease percentage. Su Yin Neo: Well, it is very specific to the processing segment of the entire delivery to almost half of the cost [Technical Difficulty]. Currently the cost [Technical Difficulty] a lot of it is manpower cost. As you know, manpower cost continues to increase year-on-year. So that's something that the automation is meant to deliver as an outcome, [ 2 ] vessels to get productivity as well as give us more capacity to offer more cost-effective solutions to our customers. Unknown Analyst: And this reducing cost is including depreciation? Su Yin Neo: Yes. Unknown Analyst: [indiscernible] 2 questions. One on Logistics and Letter, the international part, how much of the decline was actually [Technical Difficulty] supply chain realignment and how much was really a competitive loss assuming the volumes are pretty much bottomed out, let's say, all your postal volumes, this is the worst [Technical Difficulty]. How much more rationalization of postal network is needed [Technical Difficulty]. Su Yin Neo: I think the structural decline of mail is clearly an evolution that has undertaken over the last decade or so. E-mail is coming in, everyone's gone digital now. There is still obviously a proportion of our population that still requires physical letters and centers. So that will continue. The decline will continue to come given that more and more digitalization is ongoing. Government is also pushing direction. Clearly, government has also now taken a position that it's digital first but not digital only. So this will obviously try to buffer that decline somewhat. But that said, I think in relation to the parts of the e-commerce business, which Mark touched on earlier, where we utilized the infrastructure as well as the network that mail to also deliver e-commerce, I think that's where we are, one, our assets a lot harder. But in that case, given change and shift in the volumes that we're doing in the nature of the business as well. We will continue to be looking at how we can evolve the network. We also want to change the way we do deliveries to meet the new and coming demands of our customers. So that will be an ongoing process because while, as you know, the market is very competitive in the last [Technical Difficulty]. We are obviously still as part of the strategic review, reviewing how we can utilize our assets lot differently to get greater yields for revenue, so that's also part of the overall review of our business. Unknown Analyst: So you think there is more upside to the international... Su Yin Neo: I think the international... Unknown Analyst: Is it more like a blip or maybe really the new... Su Yin Neo: So I think if you observe what's happening in the cross-border space, whether it's the big boys, even your DHL, FedEx and all, I mean these are obviously issues now being half empty. This is an issue that is affecting everyone globally in the landscape. I don't think it's unique to SingPost. Where our position will be other thing is we will then look at where is the space that we can play in the cross-border and international business. I think that's also part of the strategy that we want to undertake. Unknown Analyst: And on the postal network... Chin Chong: On the cross-border trade, there's a lot of uncertainty right now. I think we all know. One day, there's tariffs on China and other day, there's no tariff tariffs. So we are also adjusting the government. Unknown Analyst: On the postal network, more rationalization before assuming everything remains... Su Yin Neo: As I mentioned earlier, as we our business the last mile e-com part of the network, we are still rationalizing whether that network is efficient in how we manage it, whether it versus fixed base, cost base, variable cost base. So these are things that we are undertaking. I can't give you an answer right now, but I think what we are trying to do is to meet whatever customers need, evolving needs that our consumers have to make sure that we deliver the best cost-effective for [Technical Difficulty]. Isaac Mah: Maybe just to add on to what Su is saying, I think our press release and we also said now 80% of Singaporeans can reach touch points in 10 minutes. And the network size -- total network size is [Technical Difficulty] [ 2,500 ]. So I think this is a very core part of what we do, and this I think [Technical Difficulty]. Su Yin Neo: I think just to add on to what Issac mentioned, if you look at the network expansion that we've undertaken in the last couple of months, we have not put in any money. It is really leveraging on existing infrastructure, working with partners using their infrastructure to extend the level of [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So what's the current plan in terms of years? I'm asking in terms of years that you can foresee business -- the core business property turning around to rather I would say, decent profit or rather a sizable profit to justify the current market valuation. Isaac Mah: So maybe just focus on what we're sharing the first half. So I think the key message is that last half, there were losses. This half we have turned the corner, right? So significant efforts have put through. There's still work to be done. We are also in the process of the strategy [Technical Difficulty]. Chin Chong: Your question will be answered when we have completed our [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] I understand you're coming. Chin Chong: [Technical Difficulty] I think many people have asked. We thank everybody's patience. As we are doing this strategic review, I think once we are ready, we will be very happy to answer all these questions. Unknown Analyst: Do you have an answer to the clients. Chin Chong: I don't have answer to that, but we are doing [Technical Difficulty]. Unknown Analyst: Just 1 question. So actually, why do you choose to. [Technical Difficulty] I mean Singtel is quite stable and doing very well. Chin Chong: It is a very good question, but since we are on the results announcement and not [Technical Difficulty]. Unknown Analyst: Postal network additional agency services can you... Chin Chong: Sorry. Unknown Analyst: On the postal network to optimize the revenues better, what additional agency services can you? Isaac Mah: Currently, we already provide services to 47 agencies. We are exploring adjacencies or other parties that we can work with. But right now, it's still in the early stages. And I think we would like to wrap it up together with the whole strategy review it's all kind of tied into investments we need to put in to unlock some of these capabilities as well as the wider play around our logistics business. And our core really is the ability that we give every single address for every day and how to leverage on those success factors. Unknown Analyst: So somehow it feels like all questions are lined up to you, strategic review. Chin Chong: The number of touch points we have, the post offices, we are reviewing on the optimal number. I think that will depend on a couple of things. One that we see, the second one can we expand the business model. Maybe we do need to fully own all our post offices. We want to balance touch points' cost. So the cost -- fixed cost maybe reset to other models, maybe the franchise network or something like that. So these are the ideas that we are but we've got nothing to share with you. Unknown Analyst: How much of your post office rationalization is dependent on rentals versus -- I'm trying to see whether the focus is on improving revenues at current network or cost is also a factor you think cost is just too much. Isaac Mah: I think it will be a combination of both in any kind of business, you have to look at what's the opportunity in the market that can grow the top line as well as the cost is involved in. So it's definitely a combination of the 2, not one or the other. Unknown Analyst: In your slide, you see revenue decline from the agency services. There were also higher rental income. Isaac Mah: So maybe -- so if you think from that perspective, the post office segment has not only have income from providing services itself, but some of the post offices no longer occupy the full footprint. So we have actually leased out some of that. So that's in the rental income portion of that segment. However, given our network of post offices is finite, and we won't -- in sense, we won't be renting more space just to lease it out, if that makes sense. So the opportunity -- while there might be opportunities there to continue to grow the rental income network, it will be fairly limited. Unknown Analyst: Any thoughts on trying to do something with regards to collection points, franchise. Su Yin Neo: We already do that. Yes, we already do that. So... Unknown Analyst: [Technical Difficulty]. Su Yin Neo: Yes. Actually, so in the [Technical Difficulty] agents that they operate on, for example, we have mom and pop store, [Technical Difficulty]. So they also collect on our behalf. We realize that I think in our business that drives the way our consumers our further investment into infrastructure is definite not the way to go, which is why as you can see through working with partnerships and all using third party, all kind of third party we are open to explore how our network and keeping costs low such level cost item that... Unknown Analyst: What's the feedback so far, Finding it more efficient, running. Su Yin Neo: Yes. So we obviously have to study profile of where users are. For example, a lot of it is really in our first mile network. So our first mile network is where your sellers are the ones that's using us through the platform to then deliver for us to then pick up items rather than us going to a door to pick up 1 or 2 items, you can drop it off at your convenience at these locations. And given that now we've got 2,500 of them all over the island, working with the likes of Pick, Cheers and all have been very, very helpful in now bringing that convenience down to 10 minutes everywhere. So that's been a great extension of our convenience points. To improve the target audiences, which a lot of it is the upstream customer that we have, which is the sellers really in the success of keeping our cost of the network. Unknown Analyst: Is there anything more can do to optimize it better or most of the benefits are already captured? Su Yin Neo: Well, I think it's a matter of now finding the right partners, how more could you expand that without incurring additional cost --. Chin Chong: I believe we can do more. I mean in a couple of ways, in our own post offices where our margins will be converged. I think if we can find a way to run our own post offices at lower cost, that will improve margins. Of course, in the partner network today, I think awareness is not so great because you also asked the question. So I think we probably can drum up awareness and work out the processes in such a way that our margins. I mean even the network itself, we are working together now. We also can leverage on that to make it more [Technical Difficulty]. If you note some of the moves that I think has undertaken, we are trialing the posting of letters at the post office box, that is [Technical Difficulty], letterbox nest, our asset line. We are the only ones with that access and all those things letters. So letters plus more parcels is one area we will be also looking at and see how we can leverage and squeeze more out of our infrastructure. So we have our own infrastructure, the partner infrastructure. We will see how we can lower cost to serve and maybe get more volumes into [Technical Difficulty]. Unknown Analyst: In the SGD 30 million investment at the parcel sorting center in [Technical Difficulty] at what point can that center completely take over parcel and [Technical Difficulty] Is there a time line. Su Yin Neo: Middle of next year. Unknown Analyst: By next year. Su Yin Neo: Middle of next year. Chin Chong: But it will not fully take over. We will take over [Technical Difficulty]. Su Yin Neo: For parcels, yes. Parcels, yes, but we also -- in this facility, we also got the processing capability for larger parcel is really focused primarily on the small parcels. But as you know, primarily about 70%, 80% of parcels that come across the cross-border domestically are small. So we will generate about 400,000 capacity just from this [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] Su Yin Neo: Cross-border [Technical Difficulty]. Unknown Analyst: And the large ones will be moving... Su Yin Neo: The large one is already at the logistics. Isaac Mah: Currently, there's still -- we still process [Technical Difficulty]. I think his question was when will -- will we ever move. Unknown Analyst: Everything. That facility is quite big. I've seen it. Chin Chong: I think it will not take over everything because we've got the sorting center for mail that is here. There's a certain shelf life to it and there's a certain purpose of extremely digital. I mean the utility of course, if we completely write down that thing it's going to hit our focus. So over time, we will migrate and concentrate more and more so [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So is there any change in stance? Chin Chong: We are reviewing that stance. And once we are ready, we --. Unknown Analyst: Secondly, is there any [Technical Difficulty] I think there's a very good delivery network can deliver [Technical Difficulty]. I think also government something that --. Chin Chong: I'm not sure NTUC [Technical Difficulty] but se we talk to --. Unknown Analyst: [Technical Difficulty] Su Yin Neo: [Technical Difficulty] Unknown Analyst: For your cross-border, which are still profitable or it is very dependent on postal network. Su Yin Neo: Yes. So currently, when we reintegrated the international business, I think we primarily went back to our foundation, which is postal. So the postal network continues to be the most cost effective way of doing deliveries. However, as maybe compared to some service levels are probably not as high as compared to [Technical Difficulty]. So where we are looking for opportunities now is if there are consumers and customers that are not looking for express level delivery, there is a space for us. And it continues to be profitable [Technical Difficulty]. So currently as Isaac alluded to in his presentation, a lot of this is only when we have the volume and the cost. Unknown Analyst: So have you kind of still a large amount non-postal network related cross-border logistics. Su Yin Neo: Currently, not as much as we have focused on what we do best. But that obviously does not stop us from working on partnerships. Like for example, the recent U.S. duty paid solution that we introduced was actually working with a partner and that is on a commercial solution. Unknown Analyst: The SGD 30 million, the new sorting center -- you also mentioned that triples your capacity? Su Yin Neo: Yes, our small package sortation capacity, which is currently now housed here. So once that is ready middle of next year, it actually triples what we can do for small packets. Unknown Analyst: My understanding is the bottleneck still largely at the last. So even if you spend -- I know [Technical Difficulty] I think the capacity does it really move the volumes? Su Yin Neo: I think what we always try and get out of network in -- particularly in the last mile because of density. For us, we are very fortunate because we run a postal network. We actually deliver to every address. But sometimes you open, right? But the moment we can increase density, which means if we can deliver more to a single location, that makes our network a lot more ... Unknown Analyst: And that bottleneck is at the sorting center? Su Yin Neo: Currently now for us, it's actually [Technical Difficulty]. Chin Chong: Probably a change. So sorting center, we increased capacity. Last mile, if you densify, you bring on more parcel... Unknown Analyst: My impression was always the last mile was the bottleneck rather than sorting... Su Yin Neo: For us, increasing the capacity to process is definitely one of the key drivers for improvement of revenue. Unknown Analyst: Just to follow on this, you said that it will help your e-sellers the convenience for the e-sellers. But in this, I presume there will be more critical to capture the inflow rather than the outflow. I mean, correct me I'm wrong or maybe you're referring to the e-sellers that really a large part of postal volumes... Su Yin Neo: Actually, there's 2 components. [Technical Difficulty] coming a lot from China. There's also obviously a lot of domestic sellers. They actually buy from overseas, then we sell here. So essentially the same -- they're all in the same thing. It's just a matter of selling what are coming from. Isaac Mah: I think it's also important to note that they are selling through the post offices. Su Yin Neo: Yes. Isaac Mah: So basically, your convenience for them makes the platform and the platform more [Technical Difficulty]. So it's a virtuous cycle. While it directly benefits the convenience of these small sellers, it's part of the platform strategy. So it's the overall ecosystem. Unknown Analyst: Just last one for me. Your income [Technical Difficulty] but at the same time, your interest expense [Technical Difficulty] net cash. So I was just wondering, will there be -- will you be kind of moving further down. Isaac Mah: So interest expense has actually fallen off quite a bit versus last year. I think previously, we carried even at SingPost group level, we carried about SGD 300 million in debt to Australian business. That has now all since paid down. So it has actually come down a lot versus last year versus if you compare it to our cash holdings, it is actually not that big because the amount of interest earned on the cash is actually higher. So we do still have 2 tranches of bonds outstanding, one, SGD 100 million tranche and another [ SGD 250 million ]. On top of that, there's also the perpetual of [Technical Difficulty]. But if you look at the kind of -- because that is a hybrid, right? So on the kind of the equity accounting available to us, we are seen as a net cash position. Chin Chong: Your question is especially the interest rates come down, [Technical Difficulty] I think some of that. Unknown Analyst: Just a follow on Paul's earlier question talking about densifying the last mile that has to do with the capacity on these orders. Quickly understand. Are you actually having shortfall there a pipeline which is stuck at the sorting center? Or are you thinking that once it triples, then you'll be able to this investment is to address the backlog volume preparing for [Technical Difficulty]. Su Yin Neo: [Technical Difficulty] So what happens now is that during the peak period, the period where there's a lot more volumes, you have to then at the bottom. So in our business, unless you have the automation and the sortation capabilities, then the alternative is. [Technical Difficulty] And as you know, people cost is always going up. So this investment is reaching the point where we recognize that we need the capacity. We need the cost of each item to then be lower. So it was the right time to put investment in, one, address existing prices that we have in terms of requiring men to do the issue as well as to create capacity to allow our customers to go alongside with them as that business grows every year. Chin Chong: [Technical Difficulty] Selena Chong: We have time for maybe 1 or 2 more questions. Anyone? If not then we'll just bring this session to an end. We want to thank everyone for participating. Cheers.
Selena Chong: Good morning, everyone, and welcome to our First Half FY '26 Results Briefing. Today, we are pleased to have with us our Group CEO, Mark Chong; CFO, Isaac Mah; and COO, Neo Su Yin. So this session will be webcast live and recorded. So without further ado, let me hand over to Mark Chong. Chin Chong: Yes. Thanks, Selena. Actually, before we jump in, could we -- could I know who is online? Selena Chong: It is audience, participants of the webcast. [Operator Instructions] Chin Chong: So thank you, everyone for coming to our results announcement for H1 of FY '26. My name is Mark Chong. I'm 10 days old on the job, I think there may be a fair bit of interest on how we are going to take the company forward, our strategy. I really would like to share those with you when we are ready. But being only 10 days on the job, I'm afraid there's not much I can talk about on the future plans. Today, we are really talking about the results announcement. So that's going to be the focus of this section. And you know that SingPost has divested some assets overseas. We have folded the international division into the domestic ops. We are now a single entity. We have dropped the group -- the word group from our titles. We are just as we are. So the immediate order of business for us right now is to ensure that our business, our core business run well. Our customers are well served. So we are looking at for the immediate-term operational efficiency, widening our network to serve our customers and keep the core business running well. Through our recent divestments, we, of course, received the proceeds. We have paid out a special dividend. We have paid down debt, a chunk of debt, and we'll keep the rest for our working capital, et cetera. So we will continue to maintain a disciplined capital management approach [Technical Difficulty] and therefore [Technical Difficulty]. So those are the immediate priorities. For the results, I will now hand over to Isaac to take us through. Thank you. Isaac Mah: Thank you, Mark, and good morning. As Mark conveyed, our focus is on a stable and sustainable future, underpinned by a strong financial position. And this first half really has been defined by actions that reflect that commitment. We completed a major organizational realignment following the sale of the Australian business. This was an important step to ensure that our corporate structure is rightsized, optimized for the remaining side of the business. This included removing overlapping corporate support functions, integrating the cross-border operations into the Postal and Logistics business in Singapore and further streamlining activities. Along with that, we have concluded several transactions. This includes the unwinding of the cross-holdings with Alibaba, leading to the divestment of 4PX and the cessation of the joint venture Quantium Solutions. Various Quantium Solutions subsidiaries have also since been divested, and we have also completed the sale of the freight forwarding business, Famous Holdings. The combined result of these actions is a stronger balance sheet, providing the financial flexibility and foundation for future growth. Next slide, please. Now our operational developments over the first half are centered on 2 areas that enhance our capacity, efficiency and reach. First, on the capacity front, the SGD 30 million investment to expand parcel sorting capacity at the e-commerce logistics hub in Tampines is on track and expected to be fully operational by mid-2026. E-commerce remains a growth driver for the logistics business. As such, we are tripling our capacity to address demand, efficiency and service quality, which in turn will enable us to scale up this business segment efficiently. On the network front, we expanded our reach across the island through strategic collaborations and partnerships to offer customers maximum convenience and choice. This includes partnerships with Pick Lockers, Cheers and FairPrice Xpress outlets. We have also been deploying 24/7 POPDrop kiosks that provide a one-stop service to customers. Our post office also serves as partnership touch points with DHL and FedEx. We have also started a trial for the posting and return of mail directly at the Letterbox nests of several HDB housing blocks. If successful, this may be rolled out island-wide, which will enhance customer convenience. These investments in capacity and network are key, not just to make the business more efficient, but also to solidify our competitive position and serve customers even more effectively. Now on to the financials. As we move from the second half of the last financial year into a review period, cost discipline was key. This has enabled the company to reverse from a SGD 0.5 million loss in the preceding 6 months to an underlying net profit of SGD 5.5 million this half. The operational discipline, costs have come down, reflecting 2 key drivers: one, organizational streamlining and cost management efforts; and two, the reduction in expenses in tender with lower volumes and revenue. The recent divestments have led to exceptional gains on disposal of about SGD 9 million. There is also a fair value gain on SingPost Center of SGD 5.5 million in exceptional items. As a result, profit from continuing operations was higher at SGD 20.6 million. In comparison, discontinued operations incurred a SGD 2.2 million loss this half compared to a SGD 21 million profit in the prior period when the divested Australian business was still included. Put together, net profit was 17% lower year-on-year. Excluding these exceptional gains, the underlying net profit or UNP was SGD 5.5 million, lower year-on-year, but as mentioned, better than the loss in the second half of last year. The lower UNP year-on-year is attributable to 2 main factors: the loss of profit contributions from the Australian business, which previously bolstered our results, the softer performance in the cross-border business, which I'll cover next in the segments. Now with the change in SingPost profile, we have revised the business segments to Logistics and Letters, Post Office Network and Property Assets. This change was from Australia, International and Singapore. Logistics and Letters, which now cover the delivery business, both domestically and internationally as well as other services is our largest segment by revenues. Post Office Network comprises agency services, product sales and rental of space and the post office. Property Assets refer to rental and related contributions from properties, the largest contributor being SingPost Center. Now moving into a segment-by-segment review. Logistics and Letters faced a challenging operating environment, which resulted in lower revenues of SGD 153.5 million and an operating loss of SGD 4.4 million. Letter mail volume continued its structural decline, a trend that we have been managing for some time. Volume of domestic e-commerce deliveries softened about 3% over the period. In contrast, cross-border e-commerce volume fell by 63% year-on-year, a reflection of the difficult market conditions in that space. This was part of a much larger global trend, which has seen significant volatility, particularly with the U.S. tariff situation. We have taken actions to streamline the cross-border operations and also implement cost management measures to align with the reduced business activity. Along with the drop in volume-related expenses, the segment operating costs have fallen about 27% year-on-year. Now moving on to the Post Office Network. In the Post Office Network, the decline in revenues was mainly due to lower agency services revenue. This was partly cushioned by higher rental income from leasing within the Post Office Network properties. Our efforts to control costs and optimize the network yielded results. Costs were reduced by 13%, which lowered the operating loss from SGD 6.7 million to SGD 5.8 million. Property Assets. Property Assets comprises property rental and related activities and mainly at SingPost Center. The segment continues to provide consistent revenue streams. With a focus on maintaining high tenancy levels, we saw improved revenue performance driven by rental growth at SingPost Center. Overall occupancy rate was 99.2%. Operating profit was lower, primarily due to higher expenses like property management service costs and property tax. Now on to the balance sheet. There are a couple of points I would like to highlight. One, the balance sheet movements are largely the effect of the consolidation of subsidiaries that were divested. Two, with the divestments this year, including the Australian business, our financial position has been strengthened by proceeds from disposals. The company's cash position is SGD 594.1 million. This provides us with financial flexibility, enabling the funding of operation investments as well as future requirements. To complete the financial picture, let me highlight some points on cash flow. Cash flows generated before working capital was lower compared to the prior period. This was expected primarily due to the absence of contributions from divested subsidiaries. The negative operating cash flow after working capital changes was driven mainly by higher settlement of payables. Investing cash flows was largely due to proceeds from disposals, reflecting the realization of value from these noncore assets. Financing cash flows was primarily -- financing cash outflows was primarily due to the special dividend payout to shareholders in August with respect to the sale of the Australian business. Now lastly, I'm glad to share that the Board has declared an interim dividend of SGD 0.08 per share, which represents 30% of the UNP for the first half. That concludes my presentation. Our disciplined approach has positioned us well for the road ahead. With that, I will hand over to Selena to move on to the Q&A session. Thank you. Selena Chong: So, Mark, Isaac [Technical Difficulty]. Chin Chong: Yes. Why don't we start. Selena Chong: If anyone has any questions to [Technical Difficulty], can identify yourself for the benefit of audience of the webcast. Unknown Analyst: [Technical Difficulty] Just 2 questions from us. First is how should we think about [Technical Difficulty]. Second question is could you give more color about segment of [Technical Difficulty] for cross-border customers and also what is your outlook for the segment and [Technical Difficulty]. Isaac Mah: So first off, we don't typically comment on [Technical Difficulty]. I think what you've seen in our presentation is that we have actually executed very well on several cost control initiatives. We will continue to see the efforts of this in our numbers. Going forward, we believe that there continues to be good opportunities in the Letters and Logistics space, and we'll continue to build on our network as well as our service levels, which would then ensure the right for us to play in this region. Su Yin, anything you want to add to that? Su Yin Neo: Yes. I think as you know, with the geopolitical situation as well as [Technical Difficulty] structurally being a lot inner in order for us to then take the strategic review [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So the structural decline of the Post Office Network also the volumes, how do you actually stop that because this is a structural problem. So is there any plan for any [Technical Difficulty] what are the key plans to stop this structural decline because this has been happening over the last 10 years, actually it is still in decline. So how do you encourage people to use more [Technical Difficulty] structural decline. I think you have seen that this is not possible [Technical Difficulty]. Chin Chong: I think the decline of postal post structurally that cannot be [Technical Difficulty]. So we will follow its course and all that. But I think what was good that [Technical Difficulty] was the arrival of e-commerce, the growth of e-commerce. So parcels came along, and I think SingPost played quite hard on the post side. And what we have to do going forward is to make ourselves competitive. So I think what we have as advantages are, of course, we still have the postman who cover all the blocks and all the letterbox nest. So we will leverage on that better quality of service in terms of touch points, et cetera. And I think you note our investments in SGD 30 million in the sorting new, the Tampines hub also to lower our cost to serve, right, and provide higher CapEx. I think the decline in the cross-border volumes, obviously, we have to [Technical Difficulty]. Unknown Analyst: So for your SGD 30 million investment, right, decrease of cost, right. So what's the -- how much cost you decrease? So for example, your average -- no, no, I think you decrease your overall cost. The SGD 30 million investment you have to decrease your overall cost per package [Technical Difficulty] reduce the cost. So how much cost will actually decrease. So for example, let's say package previously cost will be x amount to deliver. So this SGD 30 million based on the same volume of the decrease percentage. Su Yin Neo: Well, it is very specific to the processing segment of the entire delivery to almost half of the cost [Technical Difficulty]. Currently the cost [Technical Difficulty] a lot of it is manpower cost. As you know, manpower cost continues to increase year-on-year. So that's something that the automation is meant to deliver as an outcome, [ 2 ] vessels to get productivity as well as give us more capacity to offer more cost-effective solutions to our customers. Unknown Analyst: And this reducing cost is including depreciation? Su Yin Neo: Yes. Unknown Analyst: [indiscernible] 2 questions. One on Logistics and Letter, the international part, how much of the decline was actually [Technical Difficulty] supply chain realignment and how much was really a competitive loss assuming the volumes are pretty much bottomed out, let's say, all your postal volumes, this is the worst [Technical Difficulty]. How much more rationalization of postal network is needed [Technical Difficulty]. Su Yin Neo: I think the structural decline of mail is clearly an evolution that has undertaken over the last decade or so. E-mail is coming in, everyone's gone digital now. There is still obviously a proportion of our population that still requires physical letters and centers. So that will continue. The decline will continue to come given that more and more digitalization is ongoing. Government is also pushing direction. Clearly, government has also now taken a position that it's digital first but not digital only. So this will obviously try to buffer that decline somewhat. But that said, I think in relation to the parts of the e-commerce business, which Mark touched on earlier, where we utilized the infrastructure as well as the network that mail to also deliver e-commerce, I think that's where we are, one, our assets a lot harder. But in that case, given change and shift in the volumes that we're doing in the nature of the business as well. We will continue to be looking at how we can evolve the network. We also want to change the way we do deliveries to meet the new and coming demands of our customers. So that will be an ongoing process because while, as you know, the market is very competitive in the last [Technical Difficulty]. We are obviously still as part of the strategic review, reviewing how we can utilize our assets lot differently to get greater yields for revenue, so that's also part of the overall review of our business. Unknown Analyst: So you think there is more upside to the international... Su Yin Neo: I think the international... Unknown Analyst: Is it more like a blip or maybe really the new... Su Yin Neo: So I think if you observe what's happening in the cross-border space, whether it's the big boys, even your DHL, FedEx and all, I mean these are obviously issues now being half empty. This is an issue that is affecting everyone globally in the landscape. I don't think it's unique to SingPost. Where our position will be other thing is we will then look at where is the space that we can play in the cross-border and international business. I think that's also part of the strategy that we want to undertake. Unknown Analyst: And on the postal network... Chin Chong: On the cross-border trade, there's a lot of uncertainty right now. I think we all know. One day, there's tariffs on China and other day, there's no tariff tariffs. So we are also adjusting the government. Unknown Analyst: On the postal network, more rationalization before assuming everything remains... Su Yin Neo: As I mentioned earlier, as we our business the last mile e-com part of the network, we are still rationalizing whether that network is efficient in how we manage it, whether it versus fixed base, cost base, variable cost base. So these are things that we are undertaking. I can't give you an answer right now, but I think what we are trying to do is to meet whatever customers need, evolving needs that our consumers have to make sure that we deliver the best cost-effective for [Technical Difficulty]. Isaac Mah: Maybe just to add on to what Su is saying, I think our press release and we also said now 80% of Singaporeans can reach touch points in 10 minutes. And the network size -- total network size is [Technical Difficulty] [ 2,500 ]. So I think this is a very core part of what we do, and this I think [Technical Difficulty]. Su Yin Neo: I think just to add on to what Issac mentioned, if you look at the network expansion that we've undertaken in the last couple of months, we have not put in any money. It is really leveraging on existing infrastructure, working with partners using their infrastructure to extend the level of [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So what's the current plan in terms of years? I'm asking in terms of years that you can foresee business -- the core business property turning around to rather I would say, decent profit or rather a sizable profit to justify the current market valuation. Isaac Mah: So maybe just focus on what we're sharing the first half. So I think the key message is that last half, there were losses. This half we have turned the corner, right? So significant efforts have put through. There's still work to be done. We are also in the process of the strategy [Technical Difficulty]. Chin Chong: Your question will be answered when we have completed our [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] I understand you're coming. Chin Chong: [Technical Difficulty] I think many people have asked. We thank everybody's patience. As we are doing this strategic review, I think once we are ready, we will be very happy to answer all these questions. Unknown Analyst: Do you have an answer to the clients. Chin Chong: I don't have answer to that, but we are doing [Technical Difficulty]. Unknown Analyst: Just 1 question. So actually, why do you choose to. [Technical Difficulty] I mean Singtel is quite stable and doing very well. Chin Chong: It is a very good question, but since we are on the results announcement and not [Technical Difficulty]. Unknown Analyst: Postal network additional agency services can you... Chin Chong: Sorry. Unknown Analyst: On the postal network to optimize the revenues better, what additional agency services can you? Isaac Mah: Currently, we already provide services to 47 agencies. We are exploring adjacencies or other parties that we can work with. But right now, it's still in the early stages. And I think we would like to wrap it up together with the whole strategy review it's all kind of tied into investments we need to put in to unlock some of these capabilities as well as the wider play around our logistics business. And our core really is the ability that we give every single address for every day and how to leverage on those success factors. Unknown Analyst: So somehow it feels like all questions are lined up to you, strategic review. Chin Chong: The number of touch points we have, the post offices, we are reviewing on the optimal number. I think that will depend on a couple of things. One that we see, the second one can we expand the business model. Maybe we do need to fully own all our post offices. We want to balance touch points' cost. So the cost -- fixed cost maybe reset to other models, maybe the franchise network or something like that. So these are the ideas that we are but we've got nothing to share with you. Unknown Analyst: How much of your post office rationalization is dependent on rentals versus -- I'm trying to see whether the focus is on improving revenues at current network or cost is also a factor you think cost is just too much. Isaac Mah: I think it will be a combination of both in any kind of business, you have to look at what's the opportunity in the market that can grow the top line as well as the cost is involved in. So it's definitely a combination of the 2, not one or the other. Unknown Analyst: In your slide, you see revenue decline from the agency services. There were also higher rental income. Isaac Mah: So maybe -- so if you think from that perspective, the post office segment has not only have income from providing services itself, but some of the post offices no longer occupy the full footprint. So we have actually leased out some of that. So that's in the rental income portion of that segment. However, given our network of post offices is finite, and we won't -- in sense, we won't be renting more space just to lease it out, if that makes sense. So the opportunity -- while there might be opportunities there to continue to grow the rental income network, it will be fairly limited. Unknown Analyst: Any thoughts on trying to do something with regards to collection points, franchise. Su Yin Neo: We already do that. Yes, we already do that. So... Unknown Analyst: [Technical Difficulty]. Su Yin Neo: Yes. Actually, so in the [Technical Difficulty] agents that they operate on, for example, we have mom and pop store, [Technical Difficulty]. So they also collect on our behalf. We realize that I think in our business that drives the way our consumers our further investment into infrastructure is definite not the way to go, which is why as you can see through working with partnerships and all using third party, all kind of third party we are open to explore how our network and keeping costs low such level cost item that... Unknown Analyst: What's the feedback so far, Finding it more efficient, running. Su Yin Neo: Yes. So we obviously have to study profile of where users are. For example, a lot of it is really in our first mile network. So our first mile network is where your sellers are the ones that's using us through the platform to then deliver for us to then pick up items rather than us going to a door to pick up 1 or 2 items, you can drop it off at your convenience at these locations. And given that now we've got 2,500 of them all over the island, working with the likes of Pick, Cheers and all have been very, very helpful in now bringing that convenience down to 10 minutes everywhere. So that's been a great extension of our convenience points. To improve the target audiences, which a lot of it is the upstream customer that we have, which is the sellers really in the success of keeping our cost of the network. Unknown Analyst: Is there anything more can do to optimize it better or most of the benefits are already captured? Su Yin Neo: Well, I think it's a matter of now finding the right partners, how more could you expand that without incurring additional cost --. Chin Chong: I believe we can do more. I mean in a couple of ways, in our own post offices where our margins will be converged. I think if we can find a way to run our own post offices at lower cost, that will improve margins. Of course, in the partner network today, I think awareness is not so great because you also asked the question. So I think we probably can drum up awareness and work out the processes in such a way that our margins. I mean even the network itself, we are working together now. We also can leverage on that to make it more [Technical Difficulty]. If you note some of the moves that I think has undertaken, we are trialing the posting of letters at the post office box, that is [Technical Difficulty], letterbox nest, our asset line. We are the only ones with that access and all those things letters. So letters plus more parcels is one area we will be also looking at and see how we can leverage and squeeze more out of our infrastructure. So we have our own infrastructure, the partner infrastructure. We will see how we can lower cost to serve and maybe get more volumes into [Technical Difficulty]. Unknown Analyst: In the SGD 30 million investment at the parcel sorting center in [Technical Difficulty] at what point can that center completely take over parcel and [Technical Difficulty] Is there a time line. Su Yin Neo: Middle of next year. Unknown Analyst: By next year. Su Yin Neo: Middle of next year. Chin Chong: But it will not fully take over. We will take over [Technical Difficulty]. Su Yin Neo: For parcels, yes. Parcels, yes, but we also -- in this facility, we also got the processing capability for larger parcel is really focused primarily on the small parcels. But as you know, primarily about 70%, 80% of parcels that come across the cross-border domestically are small. So we will generate about 400,000 capacity just from this [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] Su Yin Neo: Cross-border [Technical Difficulty]. Unknown Analyst: And the large ones will be moving... Su Yin Neo: The large one is already at the logistics. Isaac Mah: Currently, there's still -- we still process [Technical Difficulty]. I think his question was when will -- will we ever move. Unknown Analyst: Everything. That facility is quite big. I've seen it. Chin Chong: I think it will not take over everything because we've got the sorting center for mail that is here. There's a certain shelf life to it and there's a certain purpose of extremely digital. I mean the utility of course, if we completely write down that thing it's going to hit our focus. So over time, we will migrate and concentrate more and more so [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So is there any change in stance? Chin Chong: We are reviewing that stance. And once we are ready, we --. Unknown Analyst: Secondly, is there any [Technical Difficulty] I think there's a very good delivery network can deliver [Technical Difficulty]. I think also government something that --. Chin Chong: I'm not sure NTUC [Technical Difficulty] but se we talk to --. Unknown Analyst: [Technical Difficulty] Su Yin Neo: [Technical Difficulty] Unknown Analyst: For your cross-border, which are still profitable or it is very dependent on postal network. Su Yin Neo: Yes. So currently, when we reintegrated the international business, I think we primarily went back to our foundation, which is postal. So the postal network continues to be the most cost effective way of doing deliveries. However, as maybe compared to some service levels are probably not as high as compared to [Technical Difficulty]. So where we are looking for opportunities now is if there are consumers and customers that are not looking for express level delivery, there is a space for us. And it continues to be profitable [Technical Difficulty]. So currently as Isaac alluded to in his presentation, a lot of this is only when we have the volume and the cost. Unknown Analyst: So have you kind of still a large amount non-postal network related cross-border logistics. Su Yin Neo: Currently, not as much as we have focused on what we do best. But that obviously does not stop us from working on partnerships. Like for example, the recent U.S. duty paid solution that we introduced was actually working with a partner and that is on a commercial solution. Unknown Analyst: The SGD 30 million, the new sorting center -- you also mentioned that triples your capacity? Su Yin Neo: Yes, our small package sortation capacity, which is currently now housed here. So once that is ready middle of next year, it actually triples what we can do for small packets. Unknown Analyst: My understanding is the bottleneck still largely at the last. So even if you spend -- I know [Technical Difficulty] I think the capacity does it really move the volumes? Su Yin Neo: I think what we always try and get out of network in -- particularly in the last mile because of density. For us, we are very fortunate because we run a postal network. We actually deliver to every address. But sometimes you open, right? But the moment we can increase density, which means if we can deliver more to a single location, that makes our network a lot more ... Unknown Analyst: And that bottleneck is at the sorting center? Su Yin Neo: Currently now for us, it's actually [Technical Difficulty]. Chin Chong: Probably a change. So sorting center, we increased capacity. Last mile, if you densify, you bring on more parcel... Unknown Analyst: My impression was always the last mile was the bottleneck rather than sorting... Su Yin Neo: For us, increasing the capacity to process is definitely one of the key drivers for improvement of revenue. Unknown Analyst: Just to follow on this, you said that it will help your e-sellers the convenience for the e-sellers. But in this, I presume there will be more critical to capture the inflow rather than the outflow. I mean, correct me I'm wrong or maybe you're referring to the e-sellers that really a large part of postal volumes... Su Yin Neo: Actually, there's 2 components. [Technical Difficulty] coming a lot from China. There's also obviously a lot of domestic sellers. They actually buy from overseas, then we sell here. So essentially the same -- they're all in the same thing. It's just a matter of selling what are coming from. Isaac Mah: I think it's also important to note that they are selling through the post offices. Su Yin Neo: Yes. Isaac Mah: So basically, your convenience for them makes the platform and the platform more [Technical Difficulty]. So it's a virtuous cycle. While it directly benefits the convenience of these small sellers, it's part of the platform strategy. So it's the overall ecosystem. Unknown Analyst: Just last one for me. Your income [Technical Difficulty] but at the same time, your interest expense [Technical Difficulty] net cash. So I was just wondering, will there be -- will you be kind of moving further down. Isaac Mah: So interest expense has actually fallen off quite a bit versus last year. I think previously, we carried even at SingPost group level, we carried about SGD 300 million in debt to Australian business. That has now all since paid down. So it has actually come down a lot versus last year versus if you compare it to our cash holdings, it is actually not that big because the amount of interest earned on the cash is actually higher. So we do still have 2 tranches of bonds outstanding, one, SGD 100 million tranche and another [ SGD 250 million ]. On top of that, there's also the perpetual of [Technical Difficulty]. But if you look at the kind of -- because that is a hybrid, right? So on the kind of the equity accounting available to us, we are seen as a net cash position. Chin Chong: Your question is especially the interest rates come down, [Technical Difficulty] I think some of that. Unknown Analyst: Just a follow on Paul's earlier question talking about densifying the last mile that has to do with the capacity on these orders. Quickly understand. Are you actually having shortfall there a pipeline which is stuck at the sorting center? Or are you thinking that once it triples, then you'll be able to this investment is to address the backlog volume preparing for [Technical Difficulty]. Su Yin Neo: [Technical Difficulty] So what happens now is that during the peak period, the period where there's a lot more volumes, you have to then at the bottom. So in our business, unless you have the automation and the sortation capabilities, then the alternative is. [Technical Difficulty] And as you know, people cost is always going up. So this investment is reaching the point where we recognize that we need the capacity. We need the cost of each item to then be lower. So it was the right time to put investment in, one, address existing prices that we have in terms of requiring men to do the issue as well as to create capacity to allow our customers to go alongside with them as that business grows every year. Chin Chong: [Technical Difficulty] Selena Chong: We have time for maybe 1 or 2 more questions. Anyone? If not then we'll just bring this session to an end. We want to thank everyone for participating. Cheers.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to CBAK Energy Technology's Third Quarter of 2025 Earnings Conference Call. [Operator Instructions] Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to [ Etian Tian ], IR specialist of CBAK Energy. Ms. Tian, please proceed. Unknown Executive: Thank you, operator, and hello, everyone. Welcome to CBAK Energy's earnings conference call for the third quarter of 2025. And joining us today are Mr. Zhiguang Hu, or Jason, Chief Executive Officer of CBAK Energy; Mr. Thierry Li, Chief Financial Officer and Company Secretary; and [ Yvan ], who will help with our interpretation, will join us for the Q&A section. We released our results earlier today. The press release is available on the company's IR website at ir.cbak.com.cn as well as from the Newswire Services. A replay of this call will also be available in a few hours on our IR website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligations to update any forward-looking statements, except as required under the applicable laws. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO. Please go ahead, Jason. Zhiguang Hu: Hello, everyone. Thank you for joining our earnings conference call for the third quarter of 2025. Our consolidated revenue rose sharply this quarter, increasing 36.5 percentage year-over-year to $50.9 million compared with approximately $44.6 million in the same period last year. The strong growth was primarily driven by the recovery of Hitrans, our battery raw material segment. Since acquiring Hitrans in 2021, the segment has been weighed down by industry-wide overcapacity and prolonged decline in raw material prices, resulting in several years of weak performance. Recently, however, we have been pleased to see clear signs of recovery. Raw material prices have rebounded steadily, driving a meaningful turnaround at Hitrans. In the third quarter alone, Hitrans generated approximately $27.2 million in revenue, representing 143.7 percentage increase year-over-year. With the continued recovery in the raw material market, we are confident that Hitrans team will build on this positive momentum to further expand sales and narrow losses in the coming quarters. Our Battery business also began to stabilize in the third quarter after a short-term volume decline caused by our ongoing product portfolio upgrade. Revenue in this segment grew 0.7 percentage year-over-year, effectively returning to the same level as the prior year quarter. This improvement was mainly driven by robust demand for our Model 32140 battery produced at Nanjing plant, where production capacity remains fully utilized and a significant backlog of orders persist. To address this supply shortage, we are activating the launch of Nanjing Phase II facility, although slightly delayed. We now expect mass production to begin in mid-November 2025. Compared with the 13-gigawatt-hour capacity of Phase I, Phase II will add another 2 gigawatt-hour of capacity. Given the current supply-demand imbalance in the market, we anticipate this expansion will make a substantial contribution to next year's sales. In October 2025, we officially commissioned a new product line in -- at our Dalian facility. Historically, this plant has focused on producing Model 26650 and 26700 battery model, product with nearly 2 decades of market presence. In response to evolving customer needs, we invested in a new line dedicated to manufacturing the larger, higher performance 40135 Model. Over the past year, many of Dalian's customers have been conducting testing and certification process for the Model 40135, a necessary step that temporarily impacted shipment volume and contributed to a brief slowdown in the battery segment revenue growth. Early market feedback, however, has been very encouraging. Previously, the Dalian plant had 1 gigawatt-hour of capacity for the Model 26 Series. The new line has an additional 2.3-gigawatt-hour capacity for the Model 40135, similar to the Nanjing expansion. This upgrade is expected to become a key growth driver for 2026. Now, let me turn the call to our CFO, Thierry Li. Jiewei Li Thierry: Thank you, Jason. As Jason mentioned, Hitrans delivered a very solid performance this quarter, with sales increasing significantly and net loss narrowing to $2.1 million, an 18.8 percentage improvement from $2.6 million in the same period of 2024. If this momentum continues, we believe Hitrans is on track to return to profitability in the coming quarters. Meanwhile, although our Battery business reported flat year-over-year revenue, following a weaker performance last quarter, segment net income rebounded strongly, up 122.7% to $4.53 million compared with $2.04 million a year ago. This rebound was mainly driven, as Jason noted, by robust demand for our Model 32140 batteries, which are currently in short supply. With both segments showing minimal improvement in profitability, our consolidated net income attributable to CBAK Energy shareholders reached $2.65 million, representing a 150-fold increase year-over-year. Looking ahead, we are confident that the new 40135 production line at our Dalian facility, together with the upcoming 32140 production expansion at our Nanjing plant will further enhance our earnings performance. Combined with the ongoing recovery of our raw materials industry, which continues to strengthen Hitrans' results, we believe that our overall performance in the coming quarters and years will deliver sustainable value for our shareholders and investors. Furthermore, we continue to pursue overseas manufacturing expansion, but progress remains contingent on updates to China's export control policies covering lithium battery materials and equipment. Until the Chinese authorities clarify or adjust these restrictions following the recent meeting between the Chinese and U.S. presidents in Busan, we are unable to advance specific overseas projects. On the commercial side, we have signed a term sheet with one of Asia's largest publicly listed companies to jointly develop an overseas lithium battery production base. This reflects strong strategic alignment and commercial potential. However, we would like to remind investors that policy shifts could affect our overseas plans and timelines. Should policy conditions permit, management of the company has reached a firm consensus that establishing a stable overseas production base outside China will significantly enhance our supply reliability and strengthen our position as a preferred supplier to major global customers. Thank you. We will now open the floor for the Q&A section. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from the line of Brian Lantier from Zacks Small-Cap Research. Brian Lantier: Really impressive results from the LEV division. I was wondering if you could talk a little bit about the -- any particular customer concentration in that market. And how sustainable you see the light electric vehicle sales going in the coming quarters? Zhiguang Hu: Thank you, Brian. [Foreign Language] [Interpreted] So actually, for the LEV business, especially the 2-wheelers and 3-wheelers, so I think now we are developing pretty good, especially in the Southeast Asia countries. And for example, in India, for the top 10 2-wheelers OEM, and we are -- we have all in communication with them. And some of them we have already had mass supplied to them. And also, for example, in India, for the battery swapping business, we are also incorporating with one of the biggest battery swapping company in India as well. So in this industry, I think now we are developing pretty good. Brian Lantier: Okay. Great. That's really helpful. Regarding Hitrans, what do you see overall in the market regarding potential oversupply? Has demand come up to meet the supply in the industry? And should we expect more balance in the market going forward? Jiewei Li Thierry: Okay. Brian, let me take this question. For Hitrans, this product is always very clear. They're making NCM raw materials to a couple of the battery manufacturers. Some of them are not our competitors because we're making LFP cells. So Hitrans is exploring the market, but I don't think they're going to find some other new customers beyond the current area. So what Hitrans will do is to keep improving the quality and the performance of their current raw material products. And along with this recovery of the whole industry, I think we can expect or anticipate a much stronger performance of Hitrans in the coming quarters. Brian Lantier: Okay. Great. And, I guess, just looking forward to 2026, it sounds like you could, at some point be -- have production capacity above 6 gigawatts. When do you expect that to be the case? Is it midyear, the end of 2026? And has it become any easier to secure the necessary production equipment to power these expansions? Zhiguang Hu: [Interpreted] Yes. So currently, the status is all of the equipment has already been installed in the warehouse in both Dalian and Nanjing factories. So we have already -- well, in Dalian, it's already trial production. And in Nanjing, it will be start of trial production in this month. And we, hopefully, by Q1 next year, then we will achieve mass production for both factories. And also, in terms of all of the orders we have got, and then the 6 gigawatts-hour will be achieved next year, which is in accordance with the order we have already received from the customers. Jiewei Li Thierry: And I would like to add another point, I think in mid-November, we're going to announce our Nanjing expansion plan, it's going to complete soon. And then, we are preparing a video showing the latest equipment we have and the new production line for the purpose that all our investors and shareholders can have a very, very clear picture of how our factory looks like. Operator: [Operator Instructions] Seeing no more questions in the queue, let me turn the call back to Jason for closing remarks. Zhiguang Hu: Thank you, operator. And thank you all for participating in today's call and for your support. We appreciate for your interest and look forward to reporting to you again next quarter on our progress. Operator: Thank you all again. This concludes the call. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen, and welcome to Strata Critical Medical Fiscal Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference call over to Matt Schneider, Vice President of Finance and Investor Relations and CFO of Strata Keystone Perfusion subsidiary. Matt, you may begin. Mathew Schneider: Thank you for standing by, and welcome to the Strata Critical Medical Conference Call and Webcast for the quarter ended September 30, 2025. We appreciate everyone joining us today. Before we get started, I would like to remind you of the company's forward-looking statement and safe harbor language. Statements made in this conference call that are not historical facts, including statements about future time periods, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and actual future results may differ materially from those expressed or implied by the forward-looking statements. We refer you to our SEC filings, including our annual report on Form 10-K filed with the SEC for a more detailed discussion of the risk factors that could cause these differences. Any forward-looking statements provided during this conference call are made only as of the date of this call. As stated in our SEC filings, Strata disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. During today's call, we'll also discuss certain non-GAAP financial measures, which we believe may be useful in evaluating our financial performance. A reconciliation of the most directly historical comparable consolidated GAAP financial measures to those historical non-GAAP financial measures is provided in our earnings press release and investor presentation. Our press release, investor presentation and our Form 10-Q and 10-K filings are available on the Investor Relations section of our website at ir.stratacritical.com. These non-GAAP measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Hosting today's call are our co-CEOs, Will Heyburn and Melissa Tomkiel. I'll now turn the call over to Will. William Heyburn: Thank you, Matt, and good morning, everyone. It's been a very exciting few months as we closed 2 transformational transactions during the quarter, both the divestiture of our passenger business and the acquisition of Keystone Perfusion, setting us up incredibly well for long-term growth and value creation. We also rebranded the company in Strata Critical Medical and change our ticker symbol at SRTA to reflect our sharpened focus on health care. I'm happy to report that Strata is off to an exceptional start. In Q3, year-over-year revenue growth accelerated to 29%, excluding Keystone well above of our expectation for mid-teens revenue growth in the second half of the year. This resulted in record segment adjusted EBITDA performance, which saw 80% year-over-year growth, excluding Keystone this quarter. This great profit improvement was driven both by volume and significant improvements in aircraft performance as we emerge from a period of particularly heavy maintenance on our own fleet. This resulted in a medical segment adjusted EBITDA margin increased to over 15% in Q3 2025, excluding Keystone versus our 10.8% in the prior year period and 12.5% in the first half of this year. Our sequential growth in Q3 2025 versus Q2 2025 is particularly impressive in the context of the seasonal sequential decline in industry transplant volumes, demonstrating a significant impact of Strata's continued market share gains and our customers' adoption of new services. We're also encouraged by the positive free cash flow from continuing operations in the quarter, and we expect to consistently generate free cash flow moving forward. Before I walk through the financial results in more detail, I'll turn it over to Melissa. Melissa Tomkiel: Thank you, Will. It's an honor to be here as co-CEO discussing this exceptional first quarter performance at Strata. Our integration of Keystone and our launch of Strata's new clinical services division is off to a fantastic start. With these new capabilities, we are now truly an end-to-end organ recovery platform, and the team is focused on tailoring solutions that deliver operational efficiencies and cost savings to the transplant community broadly starting with our existing customers. Our go-to-market strategy uses the same playbook we've employed successfully in our core logistics business, locating resources closer to our customers. We are colocating staff and equipment acquired through Keystone near our existing logistics hubs, enabling us to offer all in lower cost to deliver these services. We are also rolling out new offerings to reduce the cost of DCD dry run recoveries, a consistent pain point for our customers. By utilizing local surgical, NRP and air resources in strategic service areas, we enable our customers to avoid incurring what can be very significant air transportation costs and wasting their surgeons valuable time until we know that the organ will be accepted. This is an industry first, and we're thrilled to have a way to make the transplant process more cost efficient for our customers. We hope it will enable centers to go after organs that otherwise may not have been worth the time and expense increasing transplant volumes. We continue to strategically focus on where the puck is going and industry data shows the market is heading in our direction. Industry-wide NRP adoption rates continued to increase during Q3 with transplants of organs that have undergone NRP approximately doubling versus the prior year. This is an encouraging validation of our strategy to increase exposure to the fastest-growing sectors of the transplant ecosystem. It also further aligns our mission with that of our customers, enabling more reliable and lower cost access to life-saving organs. We've also seen great responses from our colleagues across the transplant industry. This is a particularly exciting quarter for our friends at OrganOx as they received FDA approval to perfuse livers with the metra device while in flight. We've already done the work to support our customers who choose to utilize this technology, all part of our device-agnostic strategy. We still believe that the customer is always right, and we will always do everything we can to support the rapidly broadening set of life-saving technologies driving growth in organ transplant volumes. With that, I'll turn it back over to Will. William Heyburn: Thanks, Melissa. I'll now walk through the financial highlights from the quarter. All financial results discussed during this call reflect continuing operations only as the results of the passenger business have now been reclassified as discontinued operations for all periods. Revenue rose 36.7% year-over-year to $49.3 million in Q3 2025. Excluding Keystone, revenue increased 29% versus the prior year period. Despite the sequential seasonal decline of industry-wide heart, liver and lung transplants in Q3 of approximately 6%, our revenue increased 3% sequentially, excluding Keystone. Organic revenue growth in Q3 was driven primarily by strength in Air Logistics, where both new and existing customers contributed to the strong results in the quarter. We added 1 new OPO air logistics customer late in Q3. I'd also highlight that organ placement services revenue more than doubled year-over-year, albeit on a small base as we continue to scale the business and acquire new customers. During the quarter, we added 1 new organ placement customer. Revenue growth can be noisy quarter-to-quarter, but our year-to-date growth rate, excluding Keystone of 15% reflects strong outperformance relative to the industry transplant volume growth of approximately 4%. Keystone, which closed on September 16 saw only a 0.5 month of revenue contribution during the quarter for a $2.8 million impact. For the full month of September, Keystone's revenue increased over 40% year-over-year. Moving to margins. As expected, we saw a significant sequential improvement in Medical segment adjusted EBITDA margins to 15.1% in Q3 2025, excluding Keystone versus 12.5% in the first half of the year driven primarily by improved performance in our own fleet. Adjusted unallocated corporate expenses of $3.3 million in Q3 2025 are down approximately 40% from our run rate prior to the passenger divestiture reflecting our significantly reduced corporate overhead as a purely medical-focused business, and this also came in ahead of our guidance for $3.5 million. Turning to cash flow. There's been a lot of noise this quarter given the unique transactions completed during the period and accounting that unfortunately is not particularly intuitive in our situation. As such, we'll take a minute to walk through all the nuances, but we'll start with the most important point. We now expect this business to be solidly free cash flow generative going forward. And if you cut through all the noise this quarter, we generated approximately $2 million of free cash flow from continuing operations in the quarter and $2.7 million of free cash flow from continuing operations before Aircraft and Engine acquisitions. Now we'll dive into the details. Due to the unique nature of Keystone's capital structure or employees participated in a phantom equity plan, a portion of the upfront consideration was paid to employees participating in this plan through Keystone's payroll system post-close. As a result of this structure, accounting rules required us to recognize $44.3 million of the Keystone purchase consideration and operating cash flow instead of investing. While the underlying total cash consideration from the Keystone transaction is unchanged, this accounting treatment resulted in a negative operating cash flow in the quarter. So the difference between adjusted EBITDA of $4.2 million in the quarter, and cash from operations of negative $37.3 million was primarily driven by this $44.3 million impact from the Keystone acquisition consideration mentioned above and Joby transaction costs of $6 million. This was partially offset by operating cash flow from discontinued operations of approximately $8 million. Capital expenditures, inclusive of capitalized software development costs were $3.2 million in the quarter, driven primarily by capitalized aircraft maintenance of approximately $2.5 million and capitalized software development of $0.3 billion. We ended the quarter with no debt and approximately $76 million of cash and short-term investments. Before moving to the outlook, there are a few quick housekeeping items to review. First, the Joby transaction closed during the quarter. As a reminder, the total value of the transaction was up to $125 million, consisting of an $80 million upfront consideration in cash or stock, $35 million in 2 separate earn-outs over a total of 18 months that can also be paid in cash or stock and an indemnity holdback of $10 million. Joby chose to pay the $80 million upfront consideration in stock, and we monetized the shares during the quarter for cash proceeds of approximately $70 million. The $10 million difference was driven by a significant decline in Joby's stock price during both the pre-closed VWAP measurement period, which determined the number of shares we received and immediately after we received the shares. We have clear capital deployment priorities and took a market-neutral view as we liquidated the Joby shares. Lastly, we booked a legal provision during the quarter for ongoing litigation related to our go-public transaction that's been disclosed in our SEC filings over the last several years. Moving now to the outlook. Due to the strong demand we saw in Q3, which continued in October, we are raising our 2025 revenue guidance range to $185 million to $195 million. We are also reaffirming the adjusted EBITDA guidance range of $13 million to $14 million for 2025. Medical segment adjusted EBITDA margins are expected to rise sequentially in Q4 versus Q3's 15.3%, primarily due to the mix impact of the Keystone acquisition. Adjusted unallocated corporate expenses are expected to be approximately $3.5 million in Q4. Finally, we are looking forward to Monday, November 17, when we are hosting our inaugural Investor Day at the NASDAQ market site in New York City at 2:00 p.m. There has been considerable change at Strata over the last few months and we are excited to provide a deep dive on the business and share our plans for significant growth and value creation over the coming years. Leaders from across the business will participate in the event and will be on hand to answer questions afterwards. We will also introduce our formal 2026 financial guidance and medium-term financial targets during the event. We hope you can join us next week. With that, I'll turn it back over to the operator. Operator: [Operator Instructions] It comes from the line of Ben Haynor with Lake Street Capital. Benjamin Haynor: It sounds like everything is going quite well, and nice to see the guidance raise here. Could you maybe provide a bit of a disaggregation of where the growth came from in terms of the revenue here during Q3? William Heyburn: Sure. Happy to do that, Ben. Thanks for being on the call. Look, it was a pretty even mix of new customer acquisition. We continue to take market share and some strength within our existing customers. And some of that strength can also come from customers taking new services from us. We've broadened the suite of services that we offer. So very happy to see all of those things coming together for revenue growth that far exceeded. Benjamin Haynor: And maybe this is a question for the event next week. Do you see the growth as coming from similar directions in the future. Are the growth drivers similarly weighted as you see it? William Heyburn: Yes. Look, we continued to add new customers in the quarter, as we talked about during the call, and we see an equally attractive opportunity to consolidate market share in a very fragmented marketplace where we think our offering is significantly stronger just given our scale and our local service model. And then we also see a really attractive underlying industry growth trajectory where you have new technology and evolving regulations that are resulting in really attractive growth. And that really attractive growth means more people get organs that need them ultimately resulting in lives being saved. So we think everything is aligned to create multiple ways for us to achieve our growth objectives here. And we're really excited to talk about that in a lot more detail next week at our Investor Day. Benjamin Haynor: Okay. Great. Looking forward to that. And then on the heavy maintenance that you performed earlier this year across the fleet. What should we expect in terms of fleet margin kind of the remainder of the year downtime impact? Any moving pieces that's changed because of the maintenance schedule earlier this year? Mathew Schneider: Ben, this is Matt. Yes, so we did see scheduled maintenance events kind of come down into the third quarter that will continue into the fourth quarter. As we said on the call, prepared remarks, we do expect margins to increase sequentially within the Medical segment. So we are seeing that benefit and we'll talk more next week about the margin expectations moving forward. But I think you see that improvement in the first half versus the third quarter, what we're expecting in the fourth quarter, all kind of in line with how we've been talking about it over the last few quarters. Benjamin Haynor: Okay. Great. And then lastly for me, you mentioned the relocation things associated with Keystone. Is that relatively de minimis in terms of expenses that, that will generate? Or is that something that we should kind of factor in? William Heyburn: I don't think it's anything you need to factor into the SG&A. It's just more about aligning our resources so that we're not flying people across the country when we don't have to deliver these services. So that's one of the big advantages here is putting those things together. Operator: [Operator Instructions] Our next question is from Jon Hickman with Ladenburg Thalmann. Jon Hickman: Yes, I don't know who this question is for, but with the Keystone acquisition, could you give us a sense of how many individual separate customers you are serving now? William Heyburn: So Keystone has a number of different business lines, Jon, Will here. Across both the cardiac care business and the transplant business, there's almost 250 different customers across the country. So it's a really great geographic diversity across the country. And that's one of the reasons that we like this model because the perfusionists that serve those cardiac care customers could also be utilized to provide those NRP services that we provide to transplant center customers. So there's this really strong foundation of trained personnel that are based locally across the country for the cardiac care business that can then support the transplant business as well. And we see a big opportunity to bring those valuable services to our mutual customer base because there's only about 10% overlap of the transplant customers between the legacy Strata business and Keystone. So great opportunity there. Jon Hickman: So is there any customer that's like, I don't know, 5% or more now of revenues. Any one customer that's that large. William Heyburn: We don't break out the customers on a business line by business line basis, but it's a very diversified business given that 250 customers for the revenue base there. Jon Hickman: Okay. And then could you elaborate -- I couldn't -- you gave us a lot of information pretty quickly. You said you got a new customer right at the end of the quarter? William Heyburn: Yes. On the logistics business, we added a new customer on the logistics side for organ procurement organization. And if you recall, Jon, those contracts tend to be a little more focused on the ground than on the air, but they'll do a little bit of both. And so excited to see that continued momentum for new customer acquisition. And a lot of that market share gain is what drove our outsized growth in this quarter from customers we added earlier in the year. And then we also mentioned that we added a new customer for organ placement as well. Jon Hickman: Okay. So as far as on the logistics side or the organ transplant side, so you were very heavy in the -- on the air side and Keystone had more ground services. Is that my recollection? Are you kind of evening out that those 2 revenue sides now? Or is air still predominantly the larger part? William Heyburn: Air is still a much larger part of the business, Jon, though, you're correct in a sense that Keystone is weighted more towards some of the organ procurement organization customers, which do -- they do have a lot of ground business that, that generates, though Keystone's revenue is really generated by surgical recovery services and NRP services that they're providing to those customers. But it creates a ground opportunity for us to provide the logistics to those underlying Keystone customers. But it won't create a material shift in the logistics business in terms of the weighting between air and ground. Jon Hickman: Okay. And then are you going to get to a point where you're going to break out like 2 different like logistics versus the Perfusion aside? William Heyburn: Yes. So if you look at our investor deck that we just posted this morning, you'll see that we've added a breakout on a pro forma 2025 basis of what the business mix is assuming Keystone was acquired on January 1 of this year. So that's sort of the best indicator of what the go-forward business mix is likely to be. I would flag for you that the Keystone business is concentrated in some of these really fast-growing subsectors of the transplant industry. So we talked on the call about how it grew more than 40% year-over-year in the month of September. So you will see a little bit of shift towards those services because we do expect, for example, NRP to continue growing as a percentage of the overall DCD recovery. So some of those underlying industry dynamics, we'll talk about a lot of it in much more detail next week at the Investor Day, will result in some mix shifts towards those services. Operator: And as I see no further questions in the queue, I will pass it back to Matt. Mathew Schneider: Great. So we got a few questions from investors directly, and we're just going to address that now. So the first question is, just a question about the seasonality that we saw in the third quarter with transplant volumes down mid-single digits. Will, why don't you take that one? William Heyburn: Sure, Matt. This is something that we expected, and we've seen it in the industry volumes the last 3 years or so in a row. At the end of the day, there's a supply and availability of transplant surgeons factor that drives the amount of volumes that can take place in the industry. And just historically, we've seen more vacations, more unavailability of surgeons and it does, unfortunately, impact the volumes. This year was no different. There could be some other factors at play on the year-over-year. There's always some lumpiness as we like to say, and the transplant volumes. But as you can see, given our market share growth, our new offerings and expanded service lines, we're growing right through that seasonality, which is where we want to be. Mathew Schneider: Great. Multiple ways to outgrow the industry. We also got a question just how is the Keystone acquisition going so far, we closed about 7, 8 weeks ago. Melissa, why don't you handle that one? Melissa Tomkiel: Sure. Thanks, Matt. We're getting real good positive reaction from our customers on the Keystone acquisition, and it's really a great team of people that we're thrilled to have join us. With Keystone surgical recovery and NRP capabilities, it truly makes us an end-to-end organ recovery platform. So the customers are really excited about having us as a one call option. Mathew Schneider: Great. Well, we received a few other questions, but we're going to save those for the Investor Day next week. We're going to hand it over back to Carmen. Operator: Thank you so much. And ladies and gentlemen, this concludes our conference. Thank you for your participation, and you may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Sonida Senior Living Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I will now turn the call over to Jason Finkelstein, Investor. Jason Finkelstein: Thank you, operator. All statements made today, 11/10/2025, which are not historical facts, may be deemed to be forward-looking statements within the meaning of federal securities laws. The company expressly disclaims any obligation to update these statements. Actual results or performance may differ materially from forward-looking statements. Certain factors that can cause actual results to differ are detailed in the earnings release that the company issued earlier today, as well as in the reports that the company files with the SEC, including the risk factors contained in the annual report on Form 10-Ks and quarterly report on Form 10-Q. Please see today's press release for the full Safe Harbor statements, which may be found in the 8-Ks filing from this morning or at the company's Investor Relations page found at investors.sonidaseniorliving.com. In addition, as it relates to any discussions today regarding the proposed transaction announced on 11/05/2025, we have made and will continue to make important filings with the SEC in connection with the proposed transaction, including a registration statement on Form S-4 and the related joint proxy statement prospectus we filed with the SEC in connection with the proposed transaction. Today's call is not intended to be and is not a substitute for those filings. We urge you to read those materials carefully when they become available before making any voting or investment decisions. Please also note that during this call, the company will present non-GAAP financial measures. For reconciliations of these non-GAAP measures to the most comparable GAAP measure, please see today's earnings release. If you'd like to follow along during today's call, you can find Sonida's third quarter 2025 earnings presentation in the Investor Relations section of the company's website. In addition, we have included supplemental earnings within our presentation consistent with prior quarter releases. I would now like to turn the call over to Sonida, President and CEO, Brandon M. Ribar. Brandon M. Ribar: Thanks, Jason. Good morning and thank you for joining us on our third quarter earnings call. Last week, we announced a significant step in the Sonida journey with the signing of a merger agreement to acquire CNL Healthcare Properties or CHP for total consideration of $1.8 billion. The transaction, which is scheduled to close in late Q1 of '26, accelerates the company's growth profile and should deliver significant value to Sonida's current and future shareholders. The structure of the transaction achieves four simple but highly impactful objectives. First, it is accretive to the quality and age of our real estate, with an average age below public peers and our existing portfolio. Second, the transaction is significantly accretive to AFFO per share through structural and operational synergies while at the same time it materially reduces leverage with a clear path to achieving our target of six times leverage. And finally, the additional liquidity generated through the issuance of shares to CHP's current retail shareholder base will immediately increase the free float of the stock to approximately $1 billion following the closing of the transaction. The addition of high-quality real estate located in strong growth markets further enhances the near and long-term earnings power of the portfolio and creates additional flexibility for portfolio optimization as we look to recycle out of select lower growth assets into higher return acquisitions. For reference, we have acquired 23 assets over the last eighteen months. Once we close and integrate the CHP portfolio, we hope to return to this pace of acquisitive growth. The company's free cash flow generation post-transaction provides significant capital for accretive reinvestment in both internal ROI projects and bolt-on acquisitions. Additionally, the commitment of a new upsized $300 million revolver at the close of the transaction will further increase our available capital to capitalize on our robust investment pipeline in 2026. Switching now to our third quarter results. Our portfolio top line continued to deliver sequential growth and year-over-year improvement driven by both occupancy and rate, highlighted by an accelerated recovery in our acquisition communities. Total portfolio NOI grew 21% year-over-year, including the NOI drag from communities opened or acquired in 2025. Adjusted EBITDA improved more than 30% on the strength of our acquired communities' same-store NOI growth and the effective management of our G&A. Same-store occupancy increased 90 basis points in sequential quarters to 87.7% and finished October with an average of 88%, a portfolio high point. Our 19 communities acquired in 2024 performed exceptionally well with a sequential improvement of 370 basis points from Q2 to Q3. Our operating team will place added emphasis in two specific areas as we close the year: the consistent delivery of excellent clinical care and services to support the health and well-being of our residents and a laser focus on NOI flow-through with a strong occupancy base. Additionally, managing outlier community performance in the same-store portfolio remains a key focus and is limited to headline same-store NOI growth numbers in Q2 and Q3 as Kevin will further detail. Our goal is to continually assess the long-term earnings potential of each community and implement required optional changes, further invest to drive higher performance, or monetize those non-strategic or low-growth assets. Kevin will elaborate further on the details of the results. But I want to touch on a few important elements of the operating plan moving forward. For the month of October, we had a record high occupancy for our same-store portfolio of 88%. Additionally, our overall rate profile of the business remains strong and labor trends have moved in line with expectations after the completion of our regional restructuring and scheduling system overhaul, which heightened labor volatility in July and early August. Labor metrics in the early stages of the fourth quarter remained steady in terms of hours of labor per resident day and total wages. We are moving in a positive direction on the labor front, and the continued emphasis on the use of technology to staff our communities based on the daily service and clinical needs of our residents will be key to achieving margin expansion as occupancy levels approach 90%. The phased rollout of our new clinical system supporting a robust electronic health record system in our assisted living and memory care apartments was completed at the end of the third quarter. In conjunction with the full implementation of additional scheduling technology and staffing data generated through our nurse call system, our operations team will now have a consistent view of staffing trends and variability in each of our communities. A strong technology platform coupled with more robust labor management processes and oversight provide our local leadership the tools to manage their workforce efficiently while delivering excellent care and services to our residents. Fundamental to our acquisition strategy is the ability to enhance resident care while optimizing the labor cost model as communities deliver occupancy growth. Our acquisitions continue to shine with another strong quarter of growth on both the top line and net operating income. Specific to the acquisitions completed in 2024, we view November 2024 as the baseline month given all 19 communities had been transitioned into the portfolio. Over the last twelve months, average occupancy has increased from 76.3% to 83.7%, and resident rates have increased 4.2% over the same period. These acquisition communities reached a high point in both occupancy and NOI in Q3, and trends in October remained strong. Given the scale of the CHP transaction, Sonida's track record of successfully integrating communities into our operating platform, minimizing the period of initial disruption, and improving performance trends gives us confidence in our team's ability to execute this more complex and scaled transaction. On the whole, our acquisitions continue to achieve or exceed our underwriting, and the pace of recovery has accelerated in less than the eighteen to twenty-four months timeline previously indicated in our comments. The combined NOI of the acquisitions completed in 2024 represents a greater than 10% yield on total acquisition cost with additional upside remaining in all key operating metrics. These operating results and the continued growth of our platform, including the CHP Transaction, depend on the strength and capabilities of our local and regional leadership. We are proud of the compassion and commitment to results delivered every day in our Sonida communities. We are also intensely focused on retaining, developing, and recruiting new talent as we grow. Employee turnover and leadership turnover within our communities continue to trend favorably. I am confident these retention levels are a result of the investments we have made in wages, benefits, and the positive and supportive culture at Sonida. Recruiting additional talent to successfully scale the business and execute our growth plan will be imperative, and based on the elevated external interest in career opportunities within Sonida, I'm confident we will continue to attract top-notch talent with a commitment to providing high-quality care and services to our residents. I'll now turn the call over to Kevin for a detailed discussion of our Q3 performance. Kevin J. Detz: Thanks, Brandon. I'll begin my comments with an overview of the work our teams have completed in recent months to support the NOI ramp of our acquisitions, as well as identify outlier performance opportunities in our same-store portfolio. The availability of more robust technology related to labor has allowed for increased visibility in communities where costs have not flexed with the pace of occupancy growth or where premium labor has weighed down margin expansion. Our finance, clinical, and HR teams, including a newly appointed CHRO, are working collectively with operational leadership to ensure community staffing aligns with the needs of our residents. Our team has also redirected additional resources to assist our operators to ramp margin while maintaining the high level of care and service consistent with the Sonida culture. In the past few months, we have seen significant progress in overall labor management. I'll now walk through a few key pages in our Q3 investor deck posted this morning. Starting on slide 17 with the same-store comparisons of sequential and year-over-year quarters, we are happy to report occupancy of 87.7% for Q3, which is our highest quarter post-COVID. This represents an increase of nearly a full point over the previous quarter's occupancy of 86.8%. Revisiting some of the organizational changes this summer, the shift of G&A dollars towards our marketing team has created a more consistent and wider sales funnel that has supported this growth. This shift, combined with a dedicated focus on generating internal sales leads, has moved reliance on outside placements from 43% to 26% year-over-year. This momentum in occupancy carried into Q4 with a spot occupancy of 89% as of October 31. And finally, the portfolio continued its strong rate trajectory with a year-over-year RevPAR increase of 4.7%. More on the same-store NOI further in the presentation. Moving ahead to our acquisition portfolio performance on Slide 18. Note that these figures include the results from our 20 community from 2024, including the at-share results of our two joint venture investments and the December 31, 2024 acquisition of our North Bend Crossing Vista community that opened in July, as well as our three recent 2025 community acquisitions. In consecutive quarters, occupancy increased 180 basis points, leading to an increase in annualized revenues of $10 million for the same period. Acquisition portfolio NOI increased by $900,000 or 22% on a sequential quarter basis. When removing the combined NOI loss from the recently opened Northbank Crossing Vista acquisition and the September Mansfield acquisition, this increase jumps to $1.1 million or 28%. Expanding more on the acquisition portfolio performance, we've now owned our 2024 acquisitions for roughly a year. As a reminder, more than half of these communities were distressed at the time of purchase. As Brandon mentioned earlier, these communities have grown occupancy by 740 basis points since November 2024. This occupancy expansion, coupled with a strong operating expense flex over that same one-year period, has resulted in a 10% yield on cost. As seen on Slide 28. This twelve-month achievement has exceeded our initial expectation of 18% to twenty-four months and is driving our belief that there is significant remaining upside in this portfolio through full occupancy stabilization and ongoing rate growth. Moving to total portfolio highlights on slide 19. The company grew its year-over-year total portfolio NOI at share by 20%, or $14 million on an annualized basis. Note that the overall year-over-year occupancy and margin percentage for the total portfolio at share is unfavorably impacted due to the acquisitions coming in at lower starting average occupancy and margin levels. Over to Slide 20, where we will review the same-store occupancy in more depth. On last quarter's call, we touched on the historically high levels of deaths that impacted our occupancy, despite our progress on absolute move-ins. This quarter, I'm pleased to report that we have continued our same-store move-in acceleration with move-outs due to deaths retreating back to normal operating levels. This net trend provided for the 90 basis point increase in occupancy from the second quarter with continued momentum heading into the last quarter of the year, including a solid net gain of 30 basis points of occupancy for October. Moving ahead to the rate discussion on Slide 21. As a reminder, on a same-store basis, the average annual rent renewal rate on March 1 was 6.9%, which was applicable to 71% of the total same-store residents. Comparing the rate profile to Q3 2024, the company continues to drive private pay increases with a near 5% increase across quarters. Over the past year, the company has invested in its on-site clinical resources and clinical technology platforms, both contributing to an increase in level of care fees by 14% year-over-year. Additionally, the migration away from premium and contract labor to more permanent up-skilled clinical functions further supports the overall resident experience. Diving into margin drivers and NOI more broadly, we will move ahead to Slide 22 to discuss same-store operating expense trends. As a percentage of revenue, total labor excluding benefits increased 70 basis points from the previous quarter. This was driven by a rapid spike in occupancy in several communities during the front part of the quarter where labor was not flexed timely and appropriately. Using our proprietary labor tools, we identified the drivers of the labor misses and implemented more stringent labor controls and close monitoring oversight from our corporate support center. Because of this, the trending of labor in the back half of the quarter improved, with hours relative to occupancy decreasing 2.5%, approximately $100,000 on an annualized basis. We expect this trend to continue into the fourth quarter based on preliminary results for October. On the non-labor expense front, absolute costs increased $600,000 from Q2 2025 to Q3 2025, half of which is attributed to one extra expense day in the quarter. The remaining half was attributed to increases in utilities, primarily electricity, due to a prolonged summer in Texas and our southern states. Speaking to the company's overall same-store margin profile in more depth, 50% of our communities grew year-to-date NOI by 10% or more, as compared to 2024. The bottom cohort of underperforming communities is almost directly correlated to the Texas communities that were part of the organizational restructure this summer, which were impacted primarily from weaker sales resources that we're addressing through our enhanced marketing platform. The remaining communities are ones that the company expects to evaluate for potential pruning out of its core portfolio. Closing out the P&L for this quarter's earnings, our G&A continues to show stabilization following 2024's one-time build-out of our business development and operational excellence functions to support overall growth initiatives. G&A levels for the year remained slightly below normalized run rate Q4 levels due to a slight reduction in total FTEs over those periods, as well as focused spending controls tied into our revised operating cadence implemented in 2024. All three of 2025 community acquisitions were onboarded without adding FTEs at the above-community level. Moving to the balance sheet on Slide 23. As mentioned in last quarter's earnings, we successfully closed on a restated finance agreement with Ally Bank that provides for an additional five years of term, which includes two one-year extensions and a variable interest rate of SOFR plus 2.65 with a step down to SOFR plus 2.45 subject to achievement of certain performance thresholds. The initial proceeds of $122 million were used to pay off the current Ally term loan of $113 million, with the remaining borrowings collateralizing the additional Alpharetta community acquired in June. The revised Ally term loan provides for an additional $15 million in delayed draws as certain financial covenants are attained. With the December 2024 amendment of our Fannie loans and the restated Ally Term Loan, approximately 80% of our debt has an effective maturity date of early 2029 or later, with our credit facility representing 11% and expiring in mid-2027. Our total debt at share is comprised of 57% fixed-rate debt. With the inclusion of the credit facility, the weighted average interest rate is 5.5% for the portfolio, with the variable rate debt nearly fully hedged. Currently, the company has $64 million of capacity remaining under its facility, with approximately $41 million immediately available at the end of the third quarter. The company continues to expand its availability as the underlying borrowing base assets securing the facility continue to expand their NOI profile each quarter. Finally, as of today, the company is in compliance with all financial covenants required under its mortgages and credit facility. Back to you, Brandon. Brandon M. Ribar: Thanks, Kevin. As we close out the year, our team remains dedicated to achieving results on two primary fronts. The operations team continues to focus entirely on the in-place portfolio with specific emphasis on improving performance at communities with weak or negative year-over-year NOI growth. Our M&A and operational excellence teams will work hand in hand with senior leadership to continue building our integration plans while engaging in strategic discussions with CHP's current operators to identify a clear path forward post-closing. We are extremely excited about the opportunity ahead and thankful for the consistent support from our investors. The announcement last week generated incredible excitement and interest both inside and outside of Sonida, and our team remains fully dedicated to the successful execution of organic and inorganic growth objectives. This concludes our prepared remarks. Operator, please open the line for any questions. Operator: And your first question comes from the line of Ronald Kamdem with Morgan Stanley. Please go ahead. Ronald Kamdem: Hi. This is Derek Metzler on for Ron. Thanks for the question, and congrats on the merger announcement. Before we get into that, I'm just... Brandon M. Ribar: Thank you. I agree. Just, maybe before we get into the merger, touch on operations in the quarter quickly. I guess one of our questions was about the same-store occupancy trend, which is just growing below the industry average, I guess, of about 200 basis points year over year. Maybe just touch a little more on the move-in, out trends you saw during the quarter and what might be impacting that and kind of what you're seeing going forward? Brandon M. Ribar: Certainly. Yeah. I'd say that specifically in the back half of the quarter and then here in the early part of Q4, we've been pleased with the accelerated same-store occupancy improvement up to that kind of 89% spot level and 88% in October. So while earlier in the summer, our numbers might have been a little bit kind of below peers, we have seen good movement. And I'd say that it's been driven by a handful of communities that were kind of trailing or lagging in terms of their performance in the portfolio. And move-in trends have picked up significantly. I think the other piece that's really important that Kevin referenced was the move-ins are coming from non-paid referral sources. And so as we've seen the combination of a reduction in move-outs through deaths, and then an increase in move-ins that we're generating through our own internal mechanisms. That ultimately is helpful from just an overall margin and growth perspective. As we look to continue that in Q4. So I'd say that we're pleased to be knocking on the doorstep of 90%, but we know that continued growth and then also margin flow-through are absolute areas of emphasis for us here as we close the year. Ronald Kamdem: Great. That's helpful. And then, I guess, just as you're preparing for the merger, clearly, was an expense related to that in the transaction costs. This quarter about $6.2 million. I guess as you go through the next couple of quarters before the merger closes, is that kind of a recurring cost that we can expect? Or was there anything else in that number we should think about and just anything else kind of going into the merger preparation? Brandon M. Ribar: Yes. So the total transaction cost $75 million that were in the merger deck that we released. So obviously, that's a fluid number, but that's what we pegged right now and $6 million of that goes towards that $75 million. So we should continue to see each month and then with the end of the quarter, the end of the year and into next year those transactions costs being incurred as part of the cost to do the deal. Ronald Kamdem: Great. Thank you very much. Brandon M. Ribar: Thanks, Derek. Operator: Your next question comes from the line of Benjamin Hendrix with RBC. Please go ahead. Benjamin Hendrix: Hey, thanks guys. Congratulations again on the acquisition. I appreciate the color also on kind of same-store labor costs that were related to some of the occupancy ramp early in the quarter. I just wanted to get your thoughts on kind of how you see RevPOR versus ex POR trending over kind of the longer term on a run rate basis? And if we expect that spread to be a little bit compressed in the near term, due to some of the investments you're talking about specifically into labor management, just any indication about how you're seeing long-term RevPOR versus XPOR? Thanks. Brandon M. Ribar: Thanks so much, Ben. Yeah, I'd say that on the RevPOR front, we recognize that at the higher occupancy levels on a portfolio-wide and then also with the specific acquisition we brought on board and the same store being up close to 90, that continuing to push rate consistent with what we've achieved and even really consistent with what we've achieved in prior years, but with opportunity expand in certain communities as well in 2026 and beyond. So we recognize that rate is super key, especially on the same-store side, to expanding the margins up to where we believe we can get to in that 30 plus percent range. And then on the labor front, we've kind of seen the trends that hit us in July and August start to really kind of come back in line, but we know there's more upside and work to do on that front, and that's where our entire leadership team is continuing to spend a fair amount of time. So, we feel like the relationship being able to expand margin based on the X4 REV4 relationship in 2026 is how margin expansion will really be able to be achieved. Benjamin Hendrix: Great. Thanks. And on the acquired portfolio, including the new acquisition, how is agency labor or contract labor kind of trending versus or where does that stand kind of versus your targets and how much opportunity can we expect on the labor front getting that back down to normal levels? Brandon M. Ribar: Yes. So we have hardly any contract labor to speak of in the acquisition portfolio or the whole company as a total. Where we're seeing the initial challenges from the first year that we think we've largely pushed past on the acquisition portfolio is the premium labor, with respect to overtime and getting permanent employees and associates at our communities. But now we're seeing that. So I think that's creating a little bit of the NOI boost that you saw quarter to quarter going back to Q2. Benjamin Hendrix: Great. Thanks guys. Appreciate the color. Brandon M. Ribar: Thanks, Ben. Operator: There are no further questions at this time. We will now turn the call back over to Brandon Ribar for closing remarks. Brandon M. Ribar: Thank you all for joining our Q3 conference call. We'll be speaking with you soon. Take care. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen. And welcome to the RadNet, Inc. Third Quarter 2025 Financial Results Conference Call. At this time, all participants will be in a listen-only mode. Following the presentation this morning, there will be a question and answer session. To ask a question, press star and then one on your touch-tone phone. To withdraw your question, press star and then two. As a reminder, this call is being recorded. I now hand the conference over to Mr. Mark Stolper, Executive VP and CFO. Thank you, and over to you. Mark Stolper: Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss RadNet, Inc.'s third quarter 2025 financial results. Before we begin today, we'd like to remind everyone of the safe harbor statement under the Private Securities Litigation Reform Act of 1995. This presentation contains forward-looking statements within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning anticipated future financial and operating performance, RadNet, Inc.'s ability to continue to grow the business by generating patient referrals and contracts with radiology practices, recruiting and retaining technologists, receiving third-party reimbursement for diagnostic imaging services, successfully integrating acquired operations, generating revenue and adjusted EBITDA for the acquired operations as estimated, among others, are forward-looking statements within the meaning of the safe harbor. Forward-looking statements are based on management's current preliminary expectations and are subject to risks and uncertainties which may cause RadNet, Inc.'s actual results to differ materially from the statements contained herein. These risks and uncertainties include those risks set forth in RadNet, Inc.'s reports filed with the SEC from time to time, including RadNet, Inc.'s annual report on Form 10-K for the year ended 12/31/2024. Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date it is made. RadNet, Inc. undertakes no obligation to update publicly any forward-looking statements to reflect new information, events, or circumstances after the date they were made or to reflect the occurrence of unanticipated events. And with that, I'd like to turn the call over to Dr. Berger. Howard Berger: Thank you, Mark. Good morning, everyone, and thank you for joining today. On today's call, Mark and I plan to provide you with highlights from our third quarter 2025 results, give you more insight into factors which affected this performance, and discuss our future strategy. After our prepared remarks, we will open the call to your questions. I'd like to thank all of you for your interest in our company and for dedicating a portion of your day to participate in our conference call this morning. With that, let's begin. I am very pleased with the performance in the third quarter. Revenue and adjusted EBITDA were both quarterly records and exceeded internal budgets set at the beginning of 2025. Total company revenue increased 13.4% and adjusted EBITDA increased 15.2% relative to last year's third quarter, resulting in a 26 basis point improvement in adjusted EBITDA margins. This performance is reflective of several positive and continuing trends that have been driving RadNet, Inc.'s strong results in recent quarters. Mark Stolper: First, same center procedural volume Howard Berger: continues to be robust, particularly within advanced imaging. Advanced imaging increased 13% on an aggregate basis and 9.9% on a same center basis as compared with last year's third quarter. This performance resulted from, among other things, equipment and software upgrades, which have shortened scanning times and increased capacity. A reduction of exam room closures from remote scanning enabled by DeepHealth's TechLive recently approved FDA software. Deployment of AI-assisted dynamic scheduling designed to fill exam slots that would otherwise have gone unused. Recent de novo center openings and tuck-in acquisitions along with the continuing shift from expensive hospital imaging towards more cost-effective ambulatory freestanding imaging. Margins continue to benefit from the continuing shift in procedure mix towards advanced imaging. In this third quarter, 28.2% of our procedures were from advanced imaging compared to 26.7% in the third quarter of last year. While the growth in advanced imaging is due in part to TechLive and the dynamic scheduling, which are serving to expand our operating hours and ensure appointments are fully utilized, it is also the result of certain advanced imaging specialty practices we have been building. Examples of these programs include prostate PET CT or PSMA, amyloid brain PET CT, prostate MRI, and coronary CT angiography. Today's advanced imaging equipment is more capable than ever, and some of the faster-growing advanced imaging studies are an outgrowth of recently FDA-cleared novel radioactive pharmaceuticals and advanced post-processing software. Furthermore, an increased focus within the healthcare delivery system on early detection of disease and population health screening is driving increased clinical indications for ordering more advanced imaging studies. RadNet, Inc.'s strong financial performance in the third quarter is also reflective of improvement in reimbursement rates with commercial and capitated payers recognizing the position RadNet, Inc. offers as a lower-priced alternative to hospital-based imaging. To this end, we have been successful in receiving rate increases from many of the larger commercial and capitated payers, and several capitated contracts have been converted to higher-paying fee-for-service relationships in recent quarters. The stronger operating results in the third quarter relative to our internal budget, along with trends that we are continuing into this year's fourth quarter, resulted in the decision to increase 2025 full-year guidance ranges for revenue and adjusted EBITDA. Mark will discuss this in more detail in his prepared remarks. Steady progress also continues in the digital health operating segment. The EBCD DeepHealth AI-powered breast cancer screening program continues to expand. Currently, we are experiencing a blended adoption rate nationally above 45%, with more cancers being found across RadNet, Inc. centers which otherwise might have only been detected at a later date. In the quest for reimbursement, we continue to make inroads with third-party payers. During the third quarter, several of our larger capitated medical groups agreed to add EBCD as a covered benefit for over 700,000 members. In an effort to boost compliance with annual breast cancer screening guidelines, Regal Medical Group, Lakeside Community Healthcare, ADOC Medical Group, and Desert Oasis Healthcare have agreed to reimburse RadNet, Inc. for its EBCD program. On July 17, the previously announced acquisition of iCAD, a global leader in clinically proven AI-powered breast health solutions, was completed. With over 1,500 provider locations facilitating over 8,000,000 annual mammograms in 50 countries, iCAD's ProFound Breast Health Suite and RadNet, Inc.'s DeepHealth AI-powered breast skin solutions together can materially expand and improve patient diagnosis and outcomes on a global basis through further enabling accuracy and early detection. We have substantially completed the integration to digital health of most of iCAD's operations, with cross-synergies ahead of plan and recent customer wins demonstrating the power of the newly merged entities. Also within digital health, we completed the implementation of C Mode's thyroid ultrasound technology across more than 240 RadNet, Inc. centers. As you may recall, C Mode's initial applications to detect and characterize thyroid nodules and breast lesions in ultrasound imaging improve diagnostic accuracy and enhance clinical workflows. In the most recent month, within the RadNet, Inc. centers, we processed over 14,000 thyroid scans using this technology. Early deployment of C Mode's FDA-approved thyroid ultrasound AI has demonstrated over a 30% reduction in scan time. Furthermore, because a reimbursement code already exists that makes a portion of our over 230,000 annual thyroid ultrasounds eligible for additional reimbursement, we have been successfully billing for C Mode's AI. An initiative is ongoing to pursue FDA approval for C Mode's next application in breast AI ultrasound, which constitutes over 600,000 of RadNet, Inc.'s approximately 2,700,000 annual thyroid exams. Some of you may have also seen last week an announcement that RadNet, Inc. acquired the assets of AlphaRT. AlphaRT has been advancing several mission initiatives around remote technology scanning, including a vendor-agnostic staffing service capable of delivering on-demand access to highly skilled remote MRI technologists, a real-time AI-driven safety alert system to detect unsafe materials or circumstances, and an MRI tech aid certification program designed to strengthen the workforce in an effort to deliver high-quality care. This platform has implications for both operating segments of our business. For digital health, AlphaRT will enable the sales and marketing teams of TechLive to offer a more comprehensive portfolio of solutions around remote scanning to now include providing remote technologists as a staffing service and a training and certification program for tech aids necessary to effectively provide on-site care in conjunction with remote scanning. For the imaging center operating segment, AlphaRT will pursue building and training remote technologists that can be used as a labor pool to scan for RadNet, Inc. facilities. Furthermore, AlphaRT should become the principal training agent for RadNet, Inc.'s tech aids or what we call internally in-suite assistants or ISIs. Before I turn the call back to Mark, I would just like to highlight our financial liquidity and leverage, which continues to be carefully managed. As of 09/30/2025, our cash balance was $804.7 million and our net debt to adjusted EBITDA ratio was approximately 1.0. An attractive pipeline of acquisition opportunities is being evaluated for both the core imaging services division and for digital health, and we have confidence in our ability to invest the cash balance over time in opportunities that advance RadNet, Inc.'s strategic objectives. At this time, I would like to turn the call back over to Mark to discuss some of the highlights of our third quarter 2025 performance. When he is finished, I will make some closing remarks. Mark Stolper: Thank you, Howard. I'm now going to briefly review our third quarter 2025 performance and attempt to highlight what I believe to be some material items. I will also give some further explanation of certain items in our financial statements as well as provide some insights into some of the metrics that drove our third quarter performance. I will also provide an update to 2025 financial guidance levels which were released in conjunction with our 2024 year-end results in February and amended following our first and second quarter financial results. In my discussion, I will use the term adjusted EBITDA, which is a non-GAAP financial measure. The company defines adjusted EBITDA as earnings before interest, taxes, depreciation, and amortization and excludes losses or gains on the disposal of equipment, other income or loss, loss on debt extinguishment, and non-cash equity compensation. Adjusted EBITDA includes equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interests in subsidiaries and is adjusted for non-cash or extraordinary and one-time events taking place during the period. A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to RadNet, Inc. common shareholders is included in our earnings release. With that said, I'd now like to review our third quarter 2025 results. As Dr. Berger highlighted in his remarks, our business continues to demonstrate double-digit top-line growth as a result of a number of continuing and enduring industry and RadNet, Inc.-specific trends. From an operational perspective, we continue to focus on creating capacity at existing centers, opening de novo facilities, shifting our business mix towards advanced imaging, executing on tuck-in acquisitions when available, negotiating reimbursement increases from commercial and capitated payers, and accelerating digital health revenue growth. During this year's third quarter, the 13.4% increase in total company revenue relative to the same period last year was highlighted by strong growth in advanced imaging. Aggregate MRI volume increased 14.8%, CT volume increased 9.4%, and PET CT volume increased 21.1% from last year's third quarter. And on a same-center basis, same-center MRI volume increased 11.5%, same-center CT volume increased 6.7%, and same-center PET CT volume increased 14.9%. As Dr. Berger noted, this is a function of the combination of greater utilization of higher acuity imaging in the healthcare delivery system at large, RadNet, Inc.'s expansion of specialty programs in areas such as cardiac, neuro, prostate, and PET CT imaging, investments we've made to drive capacity for advanced imaging studies, and patient throughput and the continued shift from hospital to ambulatory outpatient imaging. During the quarter, we opened one new facility, a women's imaging center in Rolling Oak, Ventura County region in Southern California. With this de novo, we now have opened five facilities during 2025 with more to come in the fourth quarter of this year. Within our digital health operating segment, revenue increased 51.6% from last year's third quarter, which was partially the result of iCAD's revenue since its acquisition on July 17. AI revenue within digital health inclusive of iCAD revenue from its ProFound AI and DeepHealth solutions in breast, lung, prostate, and neuro increased 112% from last year's third quarter. Also contributing to this growth was a 28.7% increase in EBCD AI revenue as well as a small amount of external ultrasound AI revenue from our recently acquired C Mode. Operator: Business. Mark Stolper: Excluding the AI revenue, digital health revenue from eRAD, DeepHealthOS, TechLive, and other workflow solutions increased 24.5% from last year's third quarter. The overall business demonstrated margin improvement in the quarter. Adjusted EBITDA margins improved by 26 basis points from 16% in the third quarter of last year to 16.2% in this year's third quarter. This was a result of the strong revenue performance and a focus on cost management and efficiencies. With regards to our balance sheet and financial leverage, as of 09/30/2025, unadjusted for bond and term loan discounts, we had $287.3 million of net debt, which is our total debt at par value less our cash balance. Note that this debt balance includes RadNet, Inc.'s ownership percentage of New Jersey Imaging Network's net debt of $33.7 million for which RadNet, Inc. is neither a borrower nor guarantor. At quarter-end, our net debt to adjusted EBITDA leverage ratio was approximately one times. Contributing to our strong cash position and low leverage was the continuing improvement in our revenue cycle where we have driven DSOs or days sales outstanding down to 31.9 days, which is our lowest historical level. Given the strong third quarter results and the positive trends we continue to experience, we elected to increase revenue and adjusted EBITDA guidance for our imaging center business. We increased revenue by $50 million at the low end and $30 million at the high end of the guidance range. And increased adjusted EBITDA by $5 million both at the low and high ends of the range. We also increased our capital expenditure guidance range by $5 million, which is reflective of additional growth investment opportunities we have been pursuing. We also lowered our range for cash interest expense by $4 million at both the high and low end of the ranges, which is reflective of higher cash interest income from our cash balance than what we originally projected. For digital health, we increased the revenue guidance by $5 million predominantly to incorporate the contribution for iCAD since its consolidation in mid-July. One thing worth noting is that we did not lower the digital health adjusted EBITDA guidance for 2025 despite the fact that iCAD and C Mode were both losing EBITDA at the time of their purchases. Holding the adjusted EBITDA guidance unchanged for digital health is the result of achieving anticipated cost synergies ahead of schedule through faster integration of each of those businesses. It is also due in part to better than anticipated expense performance from the existing digital health operations. I'll now take a few minutes to give you an update on 2026 anticipated Medicare reimbursement. As a reminder, Medicare represents between 23-24% of our current business mix. With respect to Medicare reimbursement, in July, we received from CMS a matrix of proposed rates by CPT code, which is typically part of the physician fee schedule proposal that is released about that time every year. At the time, we completed an initial analysis and compared those proposed rates to our current 2025 rates. We volume-weighted our analysis using expected 2026 procedure volumes. In the proposed rule, Medicare proposed increasing the conversion factor of the Medicare physician fee schedule by about 3.3% from $32.35 to $33.42 along with certain changes to the RVUs or relative value units of specific radiology CPT procedure codes and to the Medicare geographic practice cost indices or GIPCs. Operator: Our initial Mark Stolper: analysis in July of all the various variables of the proposal indicated that RadNet, Inc. on roughly $2 billion of revenue will benefit from an approximately $4 to $5 million Medicare revenue uplift in 2026. A couple of weeks ago, CMS released its final rule, which will govern the 2026 physician fee schedule reimbursement rates. We analyzed the final rule CPT code by CPT code, and we are pleased to report that the impact on Medicare rates in 2026 will be consistent with the proposed rule calculation we completed in July. The $4 to $5 million of revenue benefit next year breaks a trend of about five years of annual cuts to the Medicare physician fee schedule. During the last four years alone, we have absorbed over $35 million of annual cuts. We are pleased that going into 2026, we will not have to overcome Medicare cuts like we have had to do in the past, and this benefit will be reflective in our 2026 financial guidance. We hope that this is a recognition from CMS that it must compensate providers appropriately and that its reimbursement should be commensurate with the rising cost of providing services. I'd now like to turn the call back over to Dr. Berger who will make some closing remarks. Howard Berger: Thank you, Mark. As many of you may be aware, RadNet, Inc. will be hosting its inaugural Investor Day tomorrow at the Nasdaq Market site in New York City. I invite all those not attending in person to watch the event via a live webcast or via the archived replay which will follow. You can get the webcast link from the Investors section of the RadNet, Inc. corporate website or from our recent press releases announcing the event. During tomorrow's Investors Day, we will have a full day's agenda that includes numerous digital health demonstrations of its AI-powered portfolio solutions and presentations from the following. Certain physician clinical leaders will discuss some of the specialty growth areas of the company, including important programs in neuroimaging, prostate imaging, PET CT, cardiac imaging, and lung cancer screening. RadNet, Inc.'s chief operating executives will provide a deep dive into many of RadNet, Inc.'s critical operating initiatives that will continue to drive efficiency and growth within our imaging center operating segment. Digital health leadership will provide an update on the progress of development, commercialization, and implementation of the DeepHealth portfolio of solutions both within RadNet, Inc. and progress we are making with outside customers. And finally, Mark will present RadNet, Inc.'s three-year plan, which will include executive management's view on the major operating assumptions and metrics that could drive our business through 2028. Additionally, tomorrow's Investors Day will provide attendees the opportunity to ask questions of and interact with the broader business and clinical leaders of the company. Mark Stolper: Whether or not you participate in tomorrow's Investors Day, Howard Berger: three weeks from now, we will also be showcasing the digital health product portfolio at the diagnostic imaging industry's largest convention, RSNA, Radiological Society of North America, in Chicago. We will be hosting two DeepHealth booth tours for investors interested in participating in demonstrations of DeepHealth's portfolio of solutions and in walking the floor of the convention. We look forward to potentially seeing you tomorrow or at the RSNA and further updating you on all our progress on the next financial results call. Operator, we are now ready for the question and answer portion of the call. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. At this time, we will pause momentarily to assemble a roster. We have the first question on the line of David McDonald from Trist. Please go ahead. David McDonald: Couple of quick digital health questions to start. Can you guys talk a little bit about TechLive, you talked about the New York market on the 2Q call. Just where we are in terms of rollout with other geographic regions. And then secondly, just on kind of the dynamic scheduling, can you provide a little more detail there? Is that you guys are doing predictive modeling around, you know, who may cancel or, you know, just increasing throughput on the scheduling side. Sure. Hey, Dave. Thanks for the questions. Yeah. With respect to the TechLive rollout, we should be substantially complete by the end of the year, maybe slightly early into the first quarter. With TechLive connecting all of our advanced imaging equipment, MRI, CT, and PET CT. We're substantially through the connection of our MRIs at this moment. And we did call out both on the second quarter and the third quarter in this call, the impact of what we're seeing in some of our markets with respect to the increased capacity that this has created for us. And then that's one of the reasons why you've seen our MRI volume both on an aggregate basis and on a same-center basis grow so substantially relative to last year because what the TechLive has already demonstrated for us is that it has substantially reduced the exam room closures when, you know, in the past, we've had a shortage of staffing for a variety of reasons or techs call in sick in the morning. We've had to close those exam rooms. And very similar to the airline industry or the hotel industry, when we have an exam slot that goes unsold, like an airplane that takes off that has a seat that's unsold, we can never resell that slot. So we did call out on last quarter that we started the rollout here in New York. Happen to be sitting in New York right now for this call. And in 83 of our centers, we reduced exam closure hours by about 42% relative to last year. And that has had a marked benefit to MRI scanning. The other thing that has had a benefit that I know you're not asking about it, but it's worth noting is what we call dynamic scheduling. That we have instituted over the last year where we now have predictive models using AI that can identify patients who might not show up for their exams based upon a number of different factors, including them not confirming those exams via text or other appointment reminders. And we've been essentially overbooking the schedule and expecting for some of these patients not to show up, and that has had a big benefit in filling spots that would otherwise have gone unused. So we expect next year to even have a bigger impact, one, because this impact is gonna be on all four quarters of next year. And also, we will be covering schedules now also for MRI and, excuse me, CT and PET CT as well. Okay. And then just one other quick follow-up, just a payer question. Can you guys just provide a quick update? It sounds like additional progress on coverage pre-EBCD. Just any conversations there, and do you expect to announce additional progress there? And then secondly, just on some of your capitated contracts, sequentially, it looked like you had a little bit of a bump in revenue. Are you seeing any of your capitated contracts start to circle back and kind of realize that the price increases you guys need are pretty reasonable relative to kind of what they'd be looking at otherwise. Howard Berger: Hi, Dave. It's Dr. Berger. I'll take that one. That's a multiple part question here, and I'll try to remember to hit all the highlights, Dave. But, in terms of actual commercial payers adopting covering the EBCD. We are in discussions. It's a big ship, and they turn slowly. But the conversations, I think, are positive. Exactly when we might get the first one to adopt is hard to predict right now, but I think it's just a matter of time. Perhaps driving that is the continued growth of adoption by our patients who are opting in to pay it out of pocket. That's now, as we mentioned in our remarks, up to 45%, and we expect to be north of 50% sometime in 2026. And the value proposition for this AI is being very well received by our patients because we do such a substantial or make such a substantial effort in the education of this, not only with the patients but with their referring physicians. And we have a lot of good testimonials, some of which we'll talk about tomorrow in the investor day of how appreciative our patient base is of offering this. In regards to capitated payers, we have been getting increases from all of our capitated programs, some of which when we did not get the desired result, we elected to go on fee-for-service, and we're getting increased rates that were higher than what we were getting under converted capitation rates to a fee-for-service program. And lastly, as I believe you mentioned, we have gotten some of our larger capitated payers in California to begin offering the EBCD program as a benefit to all of their capitated patients, which means we don't ask those patients if they want to enroll in EBCD. Because they get it as a benefit that is paid for on a fee-for-service basis by our capitated medical groups. And I want to highlight the importance of that because the capitated groups recognize that there are two benefits from this. Number one, early detection leads to lowering costs and better outcomes. The other portion of this, which they have actively encouraged us, is to get better and better compliance from patients to do their annual or biannual screening, and that is a major driver for the capitated groups because it improves their HEDIS performance and allows them to get bonuses, some of which we share in at the end of the year. So I am very grateful and very delighted to report that there is a large segment of our patients who are now getting this as a benefit. And I believe that kind of pressure inside the industry will eventually filter down to the commercial payers as something that is truly a benefit that patients deserve under their healthcare plans. We also are doing a lot of education directly with employers since probably about 70% of all the patients covered by commercial payers are actually through employer health plans. So we're very confident that this will continue to be successful. I will also tell you, and we'll be talking about it next year, that we plan to expand capabilities within the EBCD program to further create the ability to not only detect cancers early but also to improve risk prediction models that'll be part of our EBCD program. Mark Stolper: And the one thing I'll add is, yeah, to exactly Dr. Berger's point, on October 1, we had a new capitation Desert Oasis Healthcare. Actually, they're an old capitation contract of ours, but they're newly now paying for the EBCD program. So, you know, we're getting more and more traction here, and I think that this is putting more and more pressure on the commercial insurance companies because these capitated patients are HMO patients that are aggregated from the various different HMOs, you know, the United, the Aetna's, the HealthNets of the world. And so now those big insurance companies have certain of their members who are part of these capitated groups that are now getting EBCD paid for as a covered benefit and then other plans that they have that are not getting, and members that are not getting it paid for as a benefit. So I think we're headed in the right direction here. It's just that there's, you know, it's a slow process, and there's a lot of inertia in healthcare. Okay. Helpful. Thanks, guys. Operator: Thank you. We have the next question from the line of Brian Tanquilut from Jefferies. Please go ahead. Brian Tanquilut: Hey. Good morning, guys, and congrats on another solid quarter. Maybe, Dr. Berger, I'll start with you. I remember last quarter, you talked about the outlook for joint ventures and how you're getting excited about opportunities that you expect towards year-end. So just curious, where does that stand in terms of partnerships with health systems or physician groups? Howard Berger: Hey. Good morning, Brian. Nice to hear from you. It looks very robust. I don't have anything specific to announce today, although we hope to have those in the coming weeks or early first quarter. What I will tell you, though, is that we are getting more inbound calls from health systems as it relates to helping them with their radiology strategy. Hospitals are being impacted just the way for their inpatient staffing issues. As outpatients are. Meaning, radiologists are in short supply and high demand. There's turnaround time for reports is deplorable, and the shortage is creating staffing issues that nobody could have predicted. So while there perhaps are other people who provide pieces of the puzzle that health systems are made. People are more and more looking at RadNet, Inc.'s comprehensive solutions both on the operating metrics as well as the DeepHealth and AI as a way to solve some of their problems just like it's solving for us. So, the conversations that we're having are robust. And not only with the new systems that are reaching out to us, but also with existing systems that are looking to expand some of RadNet, Inc.'s operating capabilities into their health systems even if it's not part of a joint venture but leveraging up on RadNet, Inc.'s strong management and operating capabilities, much of which is really being driven by the potential value proposition of the digital health segment. Brian Tanquilut: I appreciate that. And then any piggyback on that, Mark, as I think about 2026, I know it's too early for guidance, but as we think through, topic de jour, right, EAPTCs, just curious what your health insurance exchange exposure is, or how do you view that. And then how should we be thinking about the inflationary environment for wages as Dr. Berger talked about the radiation technologists and radiologists costs? Mark Stolper: Sure. So, on your first question, regards to the exposure we have to these Medicaid programs and the exchanges, it's a very small part of our business. About 2.5% of our business is Medicaid fee-for-service business. It's also the lowest paying or lowest reimbursing book of business that we have. So, you know, regardless of what happens with this, you know, big beautiful bill on the Medicaid side of the business, I don't think we're gonna be impacted, you know, substantially. We also don't do a lot of exchange work. We do some on the fee-for-service side, and that's, you know, part of our commercial book. But, it's relatively small here. So, you know, a lot of the noise that we're hearing in Washington today, regardless of how it gets resolved, it doesn't feel like it's gonna have a material impact on our business one way or another. With respect to your second question about labor, labor still remains, you know, a challenge for our company, the industry, healthcare at large. We have seen it stabilize a little bit in our industry with respect to radiology technologists, which is our biggest pain point. We've done a lot internally from a grassroots level to be more effective at hiring and retaining talent. We, other than having to pay more, you know, we've been aggressive in establishing relationships with the tech schools, providing internship programs, training programs, tuition reimbursement programs. We've paid bounties to our existing employees who have brought in talent, you know, into our company from the outside. And we've mentioned this in the past. We actually have started our own tech program, tech training program on the West Coast in conjunction with a non-for-profit vocational program out there. So we have seen some stabilization, but it's still challenging out there. We know we will build into our 2026 guidance increases to our employees, you know, at the center level and our technologists. Like, we have been building in over the last several years. But, you know, the big focus for us is on some of the digital solutions that we think will have a major impact in helping us, you know, slow this curve or reverse this curve. You know, TechLive is an example of that where, you know, we're starting to train some of our more capable techs to be able to control multiple rooms simultaneously. It also TechLive also opens up the hiring pool beyond our geographies. So we can fish from a much larger talent pool. And the workflow solutions like DeepHealth and others also make, you know, the, you know, lowers the, you know, scanning time, increases capacity where we can do more scanning in the same number of work hours, which helps us leverage our workforce. Awesome. Thank you very much, Howard. Howard Berger: Hey, Brian. I wanna make one other quick comment about the labor market. I believe, and I hope I'm correct, that the challenges in the labor market are at an inflection point. And somebody might say, well, why do you believe that? And I'll give you two reasons. Number one, in general, you've seen many good-sized companies announce staff reductions and layoffs. Some of them use the excuse of AI has made them less dependent upon labor, manual labor. Others, I believe, are running into some of their own operating metrics that need to be right-sized. But more specifically, in the healthcare industry, one of our biggest issues that we've had to deal with is the fact that reimbursement to hospitals has been so substantially greater than it is to imaging centers. That the salaries that hospitals have been able to offer have often, you know, attracted people away from the outpatient imaging centers like ours and others. I believe that's changing. While it's not necessarily always publicly announced, I have seen many articles in the areas that we operate in of hospitals that have never in their history had layoffs, which are now because of high cost of labor as well as anticipated lower reimbursement in 2026 from many of the federal and state programs, so that I believe some of the burden that we've been shouldering for the last several years will now be lessened. It will not be eliminated, but I think that along with our timely entrance into the digital health market and the programs that we are going to continue to develop will help transition us into a less dependent manual labor force. I think you'll be hearing more about that. I do wanna emphasize that in healthcare, AI is not a bubble. It is an existential need that the industry must and will go through in order not only to deal with the challenges facing the market today from a reimbursement standpoint and from a cost standpoint, but simply to improve the quality of care and better outcomes that technology and innovation are capable of doing. And that's why that is indeed the new moniker for RadNet, Inc. that we will be talking about on tomorrow's Investor Day in which I like to think that RadNet, Inc. will be a poster child for that kind of transition. Operator: Yeah. Howard Berger: Thanks. Bye. Operator: Thank you. We have the next question from the line of John Ransom from Raymond James. Please go ahead. John Ransom: Good morning, team. A couple on digital health. Number one, just with the iCAD acquisition and your AI capabilities that you currently just use for in-house, your own centers, is there a future where RadNet, Inc. develops maybe a virtual radiology capability and uses its enhanced, yeah, EBCD technology to read just, you know, for scans, not just on the NS4 walls. I believe yeah. Good morning, John. Howard Berger: Hope you're doing well. Yes, sir. Yeah, John. I believe that is an inevitability. It's not something that is designed to eliminate radiologists if as some people have feared or have told about, but rather to address the enormous challenges that radiologists face in trying to manage all the information that is presented to them through breast imaging in particular. When I started practice, which was kind of in the horse and buggy days, there might have been two or three or four images that you would look at to try to read a mammogram. Today, and I'm not exaggerating, it's thousands of images. And to some extent, breast cancer, like other cancers, particularly if you're gonna attempt to diagnose them as early as possible. So, like, sometimes, like, looking for a needle in a haystack. That being said, the advances in technology are creating this kind of demand in an already challenged workforce, meaning radiologists, and the ability to look at patterns, which is really what radiology is about, what imaging is about, and what machine learning is about to create these AI models. Is a natural evolution to being able to, at the very least, give with greater certainty and perhaps with autonomous outcomes, those that are normal from those that are not normal. So I believe that is the future. It's something that we and others are working on. And it will not be limited to just breast imaging and cancer detection. So the tools that we're embracing and will continue to embrace and invest in will be to assist our radiologists in providing faster, better, and more accurate outcomes. John Ransom: Great. And my second question, I yeah. To your credit, you all described, you know, the DeepHealth enterprise sale as a long cycle sale, and I think that's proven to be the case. But I just wonder, a few months now, nine months now into this launch of DeepHealth. Where are you getting traction in the market? What I know it's a modular solution, but what modular solutions are getting traction? You know, against a sea of, you know, what's been described as pretty good point solution. So where are clients latching on and what's the opportunity set? I don't wanna steal your thunder about tomorrow, but I'm just curious where DeepHealth sits today in this marketplace opportunity. Howard Berger: Well, we're still currently in the process, John, of rolling out all of the modules inside RadNet, Inc., and that's something that we'll be emphasizing in tomorrow's investor day is, you know, the unique capability that RadNet, Inc. provides is not only a laboratory for development but an opportunity to deploy these do what we call co-development or co-piloting of these products and get very quick feedback as to how they're impacting both the clinical and operating metrics here. So, we're getting very good adoption internally. We're trying to finalize what I'll call some of the modules that'll be primetime and ready for adoption next year. Which at this point is only about seven weeks away. So we're excited about that. But things that we're doing, there's no reason to think that anything we're doing internally won't be embraced by someone somewhere to put into their system. I also wanna emphasize that I think as you have correctly pointed out, John, there's a lot of point solutions that in fact is, and we'll try to go into deeper, take a deeper dive in tomorrow. Part of what the benefit of the RadNet, Inc. DeepHealth operating system is, it's a platform for all of these modules or opportunities, whether they're ones that RadNet, Inc. owns and develops or whether it's one that somebody, including RadNet, Inc., may wanna license can operate on a single platform and have RadNet, Inc. be responsible for the implementation and integration of it rather than somebody have to deal with perhaps as many as 100 different vendors to do all of these point solutions. So I would encourage everybody who is able to listen in to the Investor Day either live or subsequently to understand that what we're talking is a transformative tool that we believe is going to markedly improve and address the challenges that not only radiology but healthcare itself faces. John Ransom: So, Howard, when you were reading scans, you know, back in the horse and buggy days, did you ever think you'd become a software salesman? Operator: You know? That's that's that's that was pretty good. Howard Berger: Yeah. John, I'm not even sure up until fairly recently I knew what the word software meant. Operator: That's Mark Stolper: funny. But but, actually, you bring you bring up a very good Howard Berger: point, John, and thank you. The future of radiology, the future of imaging is more about software than it is hardware. And I'm not trying to diminish the importance of hardware one bit. It has been instrumental in evolving imaging to where it is today. But the future is about software. We'll be talking about that tomorrow. And, you know, as opposed to what I continually hear about AI being a bubble and people being concerned about it, that's the least of our concerns inside healthcare and particularly in imaging. AI is here today. It has both clinical and operating implications which are going to be transformative, not just as I said, to the radiology community, the imaging community, but to healthcare. And we're excited to be leading that way. Brian Tanquilut: Lastly, for me and Mark Stolper: not that we don't love New York and California, but yeah, you guys raised have raised a pile of money. It's largely been fallow from just the core imaging M&A side. So I just wondered, you know, is there still a bid-ask spread for these larger portfolios? Is there anything cooking? What's going on with the kind of external growth model on the core imaging side? Thanks. I'll stop there. Brian Tanquilut: Thanks, John. Howard Berger: Core imaging will always be Mark Stolper: central Operator: or core to to to RadNet, Inc. It Howard Berger: no matter how large the DeepHealth division gets, at the end of the day, what we do is we are a service business that has patients which next year will do over 12 million exams coming into our offices. In which we plan to continue to invest in and grow robustly. It's important to realize, and, again, it'll be part of what we hope to communicate tomorrow on Investor Day, that the software or the DeepHealth or the digital health part of our business will help improve operating metrics, which will apply across the entire spectrum of RadNet, Inc.'s services. And so, our investment of that in anywhere we decide to take it will only help create better operating leverage for the company, allow us to go into other markets perhaps with less capital intensity than we have in the past. But have a reach that two or three years ago, we would never have even considered, not only domestically, but perhaps internationally. Operator: Thank you. Howard Berger: Thanks, John. Operator: Thank you. We have the next question from the line of Andrew Mok from Barclays. Please go ahead. Andrew Mok: Hi. Maybe just a quick Brian Tanquilut: follow-up on that, sales cycle question. From a personnel standpoint and following the iCAD acquisition, do you have the appropriate number of salespeople in the seats to sell DeepHealth, or is there more hiring needed on that front? Thanks. Operator: Hi, Andrew. Howard Berger: Yes and yes. Yes. We need more, but there's other ways of acquiring that that we'll be talking about. The Salesforce for doing this is more and more being recognized by us. That cross-selling and bundling of these tools is the way to best enhance the overall penetration of DeepHealth in the market. I think as John had just pointed out, point solutions are nice to talk about, but implementing them and maintaining them with several different companies is impractical. So what we have found and where we're particularly excited is that we gained a very substantial sales force with the iCAD acquisition. And that has, in fact, allowed us to accelerate cross-selling not only of various breast imaging suites but starting to or our breast imaging suite, but also introduce other opportunities for them to cross-sell that they're very enthusiastic about and which would have taken us quite a bit of investment in time to achieve. So it's quite likely that as we begin to embrace other areas Operator: of Howard Berger: AI software in imaging, that same philosophy is something that we will be looking at carefully so that we can accelerate what is a truly transitional time in imaging, and that is ripe for these kinds of solutions. Brian Tanquilut: Great. And maybe just a follow-up on EBITDA margins in the quarter. Was a little surprised you didn't see better flow through on very strong advanced imaging volumes. Anything to call out on the cost side or incremental margins in the quarter preventing Grayson McAlister: margins from expanding more? Thanks. Howard Berger: Well, I think on some level, you know, we can create the capacity, but you know, as we create that capacity and fill it, it will, in and of itself, reach certain limitations. So, I think we've had a very good run of this virtually every quarter. And if you compare the quarter last year over the quarter this year, last year was actually a very good quarter for us. So I was happy to see some improvement, even compared to a very good quarter last year. But I think some of the things that we talked about and that will go into more detail and, in fact, even show some slides will show that this sustainability is not just because of capacity that we're creating through the tools that we've used up to now, but how next year will be a transition that margin improvement is more likely to come through the digital health side as we begin to implement both some of the clinical and now operating tools that we're beginning to implement inside of RadNet, Inc. And so margin expansion is certainly something that is the primary focus of the company. First, to make certain that these products are capable of delivering that on our 12 million exams that we're doing annually right now. And then honing these tools so they become that much more attractive for external use. Some of that external use, again, being in a built-in customer base that we have with our current and growing joint venture health system. So I think you know, we're hitting if you look at, and we'll be showing this a slide tomorrow, the actual growth of our margin the last four years has been over 300 basis points. We think we can continue that, but not just by the more, by the tools that we've been using over the last four years and particularly in the last, you know, eighteen months to twenty-four months, but how now the act the investment in artificial intelligence will continue to drive, you know, those opportunities, which by themselves have almost unlimited potential. So we're just getting started, and I think tomorrow's investor day will hopefully amplify kind of the handover of what has been capacity creation and margin improvement over to AI and software further improvement. That'll happen primarily from the operating side, which are equally exciting for us. Operator: Andrew, will that be all? Or do you have any follow-up questions? Alright. We move on to the next question. We have the next question on the line of Wan Ji from B. Riley Securities. Please go ahead. Wan Ji: Good morning. Thank you for taking our questions, and congrats for a good quarter. Brandon Carney: So, Mark, maybe can you clarify the digital health revenue for 4Q after acquisition of iCAD, which contributes about $5 million a quarter in revenue. Does it mean the digital health will be or even decreasing year over year for April? Mark Stolper: No. We didn't mean to imply that. I mean, we increased the revenue, the guidance by $5 million. Digital, iCAD this quarter Brian Tanquilut: contributed Mark Stolper: about $3.9 million of additional revenue. We feel comfortable with the new range for digital health that we gave, but we're really not implying that digital health itself was going to be down. I mean, you know, with the iCAD revenue, we were up, you know, 56% this quarter over last year's third quarter. And, you know, we're expecting a strong performance in the fourth quarter of digital health. So we'll, you know, we'll look at where we are at the end of the year, and then that will be the kind of run rate going into next year. Brandon Carney: Yeah. Got it. We probably will hear this more tomorrow, but within the 15 to 20% year-over-year volume growth of PET CT, can you comment on the growth from oncology versus Alzheimer's? And are you preparing for new agent launching in 2026? Thank you. Yeah. Yeah. So so Mark Stolper: PET CT is still being driven by, you know, significant growth in two areas, the PSMA, prostate imaging, as well as the amyloid brain studies, you know, for Alzheimer's and dementia. And the two of those together are now about 20% of all of our PET CT procedure volume. PSMA is currently running about 12% of our PET CT volume where the amyloid brain study is another 8%. And that's it's the strong growth continues. I mean, it's pretty remarkable, and we think both of these studies are still very much underutilized within health. So there's more growth to be had there, and you'll see this tomorrow in our Investor Day that there are a number of newer radioactive or novel radioactive tracers that are in, you know, sort of the final stages of clinical trials that we think are gonna be coming on the market in the coming years that is gonna continue to make, you know, nuclear medicine and PET CT grow substantially in the future. And these are tracers that are tumor-specific and will be driving more and more utilization of PET CT in the future. Operator: That'll be all, Mr. Ji? Brandon Carney: Yes. Thank you. Thank you. Operator: We have the next question from the line of Jim Sidoti from Sidoti and Company. Please go ahead. Jim Sidoti: Hi. Good morning, and thanks for taking the call. Lawrence Scott Solow: You know, just to follow-up on the core business. I believe you said you added one center in the quarter. So are you up to 406 centers at this point? Mark Stolper: We're at 407 centers. Yeah. And that includes, you know, acquisition centers in the quarter, the new center and new centers and includes consolidation of centers. So net net at 09/30/2025, we were at 407 locations. Lawrence Scott Solow: And where do you think you'll be by the end of 2025? Howard Berger: By the end of Brandon Carney: we'll be higher. I mean, we've got some acquisitions, you know, in the pipeline that Mark Stolper: we're hoping to, you know, be in a position to close by the end of the year. We've got other de novo centers that will open between now and the end of the year. So why we don't really make those projections because it's difficult to know the timing of when acquisitions potentially close. But, yeah, we'll be, as Howard said, we'll be higher. Lawrence Scott Solow: Okay. And you gave us same center numbers for the advanced imaging procedures, but what was the overall same center volume Mark Stolper: I think, you know, because, you know, 70, 72% of our Lawrence Scott Solow: procedure Mark Stolper: mix is routine imaging that tends to, you know, from a law of averages that tends to dominate, you know, the overall average, but, including and, you know, advanced imaging is growing much faster than routine imaging. But net net, when you put all these two together, I believe it was 4.9% total same center procedure volume inclusive of both advanced imaging and routine imaging. Lawrence Scott Solow: Okay. And then last one for me. You talked a little bit about the AlphaRT acquisition. Can you just give us some broad, you know, what you paid for it, how you paid for it, you know, and just some magnitude on what that was. Mark Stolper: Yeah. Sure. And we had an 8-K to this effect because we paid it all in stock. It registered that stock. And I believe that the day of announce, you know, at the day of completion, it was somewhere in the range of $5 million, give or take a few bucks here and there, and it was all stock. And really, what AlphaRT is is it's a platform that fits in really nicely with our TechLive remote scanning technology where AlphaRT is a platform where they're providing remote technologists, meaning, you know, technologists that are sitting either in Coral Springs, Florida where they're headquartered or elsewhere, that are available to read these scans remotely, and we can use that both internally within RadNet, Inc. to cover our centers as well as provide this as a service to other customers who might be looking when they're buying TechLive from this or licensing TechLive a more comprehensive offering. So we're excited about that. They also have a technology for safety within the MRI room where it's an AI-powered camera technology that can identify materials that could be brought into an MRI room that have that are metal, which has patient safety and equipment safety implications to it. And so we're, and they also further have a certification program and a training program for tech assistants or what we call in-suite Brandon Carney: in-suite assistants who Mark Stolper: you know, if you remove the tech from the location, and they're scanning remotely, we still need someone on-site to greet the patient, to bring the patient out of the changing room, into the exam room, position them on the table, potentially position them in MRI coils. And so, AlphaRT has a platform to train this whole new, you know, employee base. Howard Berger: Yeah. I just for a moment, I'll introduce a term that we're gonna talk about tomorrow. So, you know, we sell an AI tool called TechLive. What the AlphaRT opportunity will allow us to do is to provide live tech. So that we will become, up for ourselves and for others an opportunity for staffing, not just providing AI. Which in today's market could wind up being a product of our services division and one that perhaps, given the demand and compensation that people get for providing this somewhat very needed and in short supply service, with greater margins than even our AI business. Lawrence Scott Solow: Alright. Well, thank you. I'm looking forward to hearing more about it Brandon Carney: tomorrow. Mark Stolper: Alright. Lawrence Scott Solow: Thank you, Jim. Thanks, Jim. Operator: Thank you. This concludes the question and answer session. I would now like to turn the conference back to Dr. Berger for the President and CEO for any closing remarks. Howard Berger: Okay. Thank you very much, operator, and I want to thank everybody for attending today's Brandon Carney: earnings call. Howard Berger: I thought it was gonna be a slightly shorter, but apparently not, earnings call given the Investor Day tomorrow, but I'd encourage everybody who's interested and who will get a substantially deeper dive into the metrics that we look at every day and which, up till this time, we've not had an opportunity perhaps to display as vividly as we will tomorrow, to sign in and listen to both a clinical and an operating presentation, which is something that has not ever been done in our industry. So we look forward to seeing those of you tomorrow. And, otherwise, for our fourth quarter earnings call in March. Brandon Carney: Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Thomas Lister: Thank you, Tom, and good morning, afternoon, or evening to all of you joining us today. I'll pass the call over to George. Global Ship Lease's focus continues to be on optionality. As geopolitical and trade policy uncertainty continue to be a major factor throughout the third quarter. George Youroukos: As we have seen in recent weeks with the IMO Net Zero framework, USTR, and China port fees, all of which were deferred at the eleventh hour or later, even policies that are proposed without even fully coming into effect are having far-reaching real-world implications. All of these real and potential factors are contributing to two major effects, both of which play to our advantage. Number one, making supply chains less efficient, which means that more ships are needed to transport a given quantity of cargo. Number two, increasing the value of flexible midsize and smaller container ships, such as those in our fleet. Now, on the IMO deferment, this occurs particularly to the benefit of older conventionally fueled vessels that are now likely to have a longer economic life. Taken together with aggregate growth in global containerized trade, these factors are contributing to a situation where there's essentially zero idle capacity for the vessel size segments in which we operate. Thus, we continue to see strong interest in chartering our vessels, typically on a multiyear basis. Through the first nine months of 2025, we added $778 million in contracted revenues with full contract coverage for the remainder of 2025, 96% coverage for 2026, and 74% coverage for 2027. This offers us stability and certainty at a time where both are generally in short supply. Our progress in securing additional charter coverage, adding to our revenue backlog, and fortifying our balance sheet has enabled us to achieve strong credit ratings across the board, including an investment-grade rating on our U.S. private placement notes. These same factors, notably including a clutch of recently agreed long-term charters, have put us in a position to once again increase our supplemental dividend, bringing our overall dividend to $2.5 per share on an annualized basis. That's a 19% increase being announced today. But if you look at where our dividend was just over a year ago, which was $1.50 annualized, the total increase is 67%, all done on a non-speculative basis on the back of real contracted revenues and without compromising our ability to establish a fortress balance sheet and position Global Ship Lease, Inc. for opportunistic fleet renewal at the right time. With everything going on in the world, both Global Ship Lease, Inc. and our customers are acutely aware that many of our assumptions and understandings can be turned upside down one second to the next. In this environment, we are simultaneously locking in the high value and forward visibility that comes from time charter contracts with top-tier global liners while also making sure that we have the strategic and financial flexibility to respond to the challenges and the opportunities of a fast-changing world and a cyclical industry. In this way, we are maximizing Global Ship Lease, Inc.'s optionality and putting ourselves in the position to protect and generate shareholder value no matter what is waiting around the corner. Now with that, I will turn the call over to Tom. Thomas Lister: Thank you, George. Hello again, everyone. And please turn to Slide five to see our diversified charter portfolio. As of September 30, we have over $1.9 billion in forward contracted revenues, with 2.5 years of remaining contract cover. Through the first nine months of 2025, we added 38 charters, including extension options exercised for almost $780 million in contracted revenues, of which about $380 million were added in the third quarter. Slide six is where we discuss our dynamic capital allocation policy. With the inherent cyclicality of our industry, we consider it essential to look at the big picture in order to remain on the front foot, manage risk, and capitalize on opportunities as they arise. As George mentioned, this has only become more important in the current environment. Optionality remains key as we navigate this environment and tackle our priorities. Among other things, these include returning capital to our shareholders through our just upsized $2.5 per share annualized dividend and strengthening our balance sheet. To that end, we've continued to delever to grow equity value and to increase our financial resilience and cash reserves to manage the various geopolitical challenges and uncertainties that confront the industry with growing frequency. And, of course, we need cash on hand to cover CapEx requirements and to seize the right investment opportunities as and when they arise, especially as we've observed on various occasions because the best such opportunities tend to crop up when capital is otherwise scarce. We're proud to have made Global Ship Lease, Inc. a stable and liquid platform that allows investors to participate in the industry with us managing and mitigating the risks of the down cycle and negative volatility while maximizing access to super returns in the up cycle. Turning to slide seven. This slide shows the cyclicality of our industry and how we have managed it. We want to emphasize our history of disciplined capital allocation regarding investments, buying ships during downturns where asset prices are depressed, or structuring deals such that downsides are limited and upsides are substantial. This also shows that it is at and near the bottom of cycles where the opportunities for outsized value are to be captured. I'll now pass the call to Tassos to discuss our financials. Tassos Psaropoulos: Thank you, Tom. Slide eight shows our financial highlights for the first nine months of 2025. I would like to emphasize a few key takeaways. Earnings and cash flow are up compared to the first nine months of 2024. Our cash position is $562 million, of which $72 million is restricted. The remainder ensures that we can fully cover our covenants, work at capital needs, and manage the potential financial implications of geopolitical issues, which seem to be arising with increasing frequency and sharpness. It also provides dry powder both for CapEx to keep our existing fleet commercially relevant and for disciplined investments in fleet renewal if and when the right opportunities emerge. And, of course, importantly, it supports payment of our expanded dividend. Earlier this year, we completed an $85 million refinancing that pushed our weighted average maturity to 4.7 years and brought our blended cost of debt to 4.34%. We also realized a $28.3 million gain from the sale of three older vessels. Our strong credit ratings were affirmed. We have $33 million remaining under our opportunistic share buyback program, and we continue to delever and build equity value. Slide nine now shows our ongoing process to repeat the resilience, derisk our balance sheet, and grow equity value. The graph on the left shows our progress in reducing our outstanding debt. From $950 million at the end of 2022, we are on track to be under $700 million at the end of this year, even as we have acquired ships and put leverage on. The graph on the right is the more telling perspective as our financial leverage has reached 2.5 times. We have come a long way since the days of eight-plus times leverage. Slide 10, the left graph shows our cost of debt, which we have lowered to a blended 4.34%, down from over 6% in 2020. We have continually reduced our margin even as soft has risen materially. And the graph on the right shows our very competitive breakeven rates where interest rate reductions have more or less offset OpEx inflation. With that, I will turn the call back over to Tom to discuss the market and our fleet. Thanks, Tassos. Thomas Lister: Slide 11 reiterates our emphasis on midsize and smaller container ships between 2,010 TEU. These vessels are the backbone of global trade, and not dependent upon any one trade or country, and are extremely flexible. This stands in contrast to the very big ships that tend to dominate the headlines in the media but which are more restricted in where they can go due to their size requiring specialized port infrastructure and deepwater, not to mention huge cargo volumes to fill them. This keeps the very big ships largely confined to the main lane trades between China and the U.S. or Northern Europe, which as I'll get to in a minute, have been disrupted in recent quarters. The flexibility our fleet offers is a key point that we reiterate because it matters a great deal, particularly in this current environment of heightened uncertainty and shifting trade patterns. Our fleet plays an increasingly vital role as trade routes and supply chains have become fragmented by a wide variety of factors that we'll discuss on the coming slides. On Slide 12, we break down the impact we've seen from the ongoing disruption in the Red Sea, prior to which approximately 20% of global containerized trade volumes transited that bottleneck. Since then, about 10% of effective capacity has been absorbed as ships have been forced to reroute around the Cape Of Good Hope, which in turn has driven up charter rates. While it is difficult to predict how long these particular conditions will last, we and the industry more broadly are looking to see a sustained period of safety and stability before transiting goods through there again, as seafarer safety is key. If and when the Red Sea does reopen for safe transit, there would be a period of costly and complex rerouting and reshaping of networks for the liner companies. This suggests that there will need to be a reasonably high industry-wide comfort level before we would expect to see large-scale rerouting via the Red Sea and Suez. But it's certainly something to keep an eye on. On Slide 13, we discuss tariffs and how 2019 under the first Trump administration could be instructive in how we might expect things to continue to play out moving forward. Following the 2019 tariffs, there was reduced trade between the U.S. and China, which had a negative impact on larger containerships used for those mainland trades. While as for midsized and smaller container ships, there was, perhaps counterintuitively, an uplift in demand following the tariffs. As trade routes shifted and more emphasis was placed on intra-Asian trades where midsized and smaller ships predominate. Regional trade volumes increased, the supply chain diversified, and midsized and smaller containerships were the beneficiaries. Put bluntly, if you're providing capacity to the containerized supply chain as we are, increased disruption, complexity, and inefficiency in the supply chain tends to be a good thing and supportive of earnings. Slide 14 is where we discuss the latest developments or non-developments, if you prefer, on the regulatory front. Namely, USTR Fees and the Reciprocal China port fees caused quite a lot of agitation, vessel redeployments, and uncertainty as the industry sorted out how to adjust. In the case of USTR, that played out with several months of forward notice, as the regulations which were announced in February modified in April and implemented in October. Meanwhile, in the China port fee situation, several months' worth of disruption and strategizing were forced into a memorable few days in October with measures announced on a Friday and implemented the following Tuesday. Even with both measures now apparently suspended after only negligible periods of enforcement, the industry was given yet another sharp reminder of the value of maintaining flexibility. Meanwhile, the long-anticipated net zero framework at the IMO, which had been due to be adopted in October, was deferred at the eleventh hour by one year. This deferral will likely extend the lives of older ships and lift the commercial relevance and earnings for conventionally fueled ships such as those in the Global Ship Lease, Inc. fleet. Our view has long been that in a period of pronounced regulatory uncertainty, there are clear advantages to investing in midlife tonnage and being smart followers when it comes to the adoption of new fuels and propulsion technologies. We cover supply-side dynamics and scrapping trends on Slide 15. As ships continue to transit around the Cape Of Good Hope, and supply chains remain both fragmented and subject to continuous reshuffling, idle capacity and scrapping levels have remained close to zero. In that context, scarcity value is real. And the liners continue to show an interest and, in fact, a need to charter in scarce tonnage in an uncertain freight environment as the risk of being short on capacity and the value of network optionality override concerns about fleet optimization and the maximization of efficiency. Slide 16 shows the order book. Here, we want to highlight that although the overall order book is meaningful and has grown over the past few years, the segments in which Global Ship Lease, Inc. focused are seeing far less growth. For ships over 10,000 TEU, a segment upon which Global Ship Lease, Inc. does not focus or participate, the order book to fleet ratio stands at 54%. However, this stands in sharp contrast to the 32% ratio for all containerships and even more so for the 15% order book to fleet ratio in the segments Global Ship Lease, Inc. does participate in, which are those between 2,010 TEU. Also, with the current order book, if we were to assume that all vessels over 25 years old were scrapped through 2029, which is how long it would take to deliver the current order book, the sub-ten thousand TEU fleet would actually shrink by over 5% in that time frame. While capacity remains tight, we will continue to lock in charter coverage at attractive rates. However, should the market normalize in the coming years, we would expect to see scrapping activity pick up sharply, meaningfully offsetting the impact of new vessels coming into the market in our size segments. Slide 17 shows the charter market against which I would remind you that our breakeven rate, including operating costs and debt service, is just over $9,100 per vessel per day. With the current market conditions, we have been locking in as much charter coverage as possible and now have forward visibility on €1.92 billion of contracted revenues over 2.5 years of coverage. Who knows how macro, geopolitical, and industry dynamics will develop going forward, but we're pleased to have built a stable platform in otherwise choppy seas. On that note, I will turn the call back to George on slide 18. George Youroukos: Thank you, Tom. To summarize, our cash flows are strong, and we continue to build our charter backlog. With almost $2 billion of cover over two and a half years, 2025 fully contracted, marginal open days in 2026, and a significant slice of 2027 already covered. Even as there is a sigh of relief on the current suspension of USTR and China port fees, and some quarters for a deferral of the IMO net zero framework, uncertainty remains pronounced. We're maximizing optionality to manage risks and capitalize on opportunities. Less efficient and more fragmented supply chains are increasing demand for our fleet of flexible midsize and smaller container ships. We have strengthened our balance sheet and continue to amortize debt to build equity value and resilience through delevering. We have lowered our financial leverage, and our average break-even rates stand at just above $9,500 per day per vessel. And our credit ratings are in great shape. As the existing cash flows and cash cows begin to age out, we're focused on the disciplined and opportunistic renewal of our fleet to ensure that we have the right value-generating assets going forward. And as ever, we're proud of returning capital to shareholders through our dividend, which following the increase announced today stands at an annualized rate of $2.5 per common share, 67% above where it was just eighteen months ago. With that, we would be very pleased to take your questions. Operator: And our first question comes from the line of Liam Burke with B. Riley Securities. Please go ahead. Liam Dalton Burke: Thank you. Hi, George, Tom, Tassos. How are you today? George Youroukos: We're well. Thanks, Liam. How are you? Liam Dalton Burke: Fine. Thank you. It looks like freight rates have sort of bounced off the bottom from the third quarter and are inching up. Are you still seeing a healthy gap between freight rates and charter rates here? Thomas Lister: Hi, Liam. Short answer, yes. Charter rates continue to move sideways at very healthy levels. So historically, I would say, really quite high and attractive levels. So despite the near-term volatility both up and down in the freight markets, the charter markets are staying steady. Liam Dalton Burke: Great. And is there any appetite or how are you balancing rates versus duration when you're looking at either renewals or forward charters? Thomas Lister: Look. We're conscious that these are strange and uncertain times. So, we continue to be focused on a sort of risk-averse basis on midterm and longer charters. And we're happy to take attractive economic rates on as long charters really as we're able to go at the moment. So for different sizes, that means probably sub 5,000 TEU. You're looking at a couple of years that you can fix for. And from, say, six or six and a half thousand TEU up, you're looking at maybe three and possibly even four years in some instances. And that would be our preference to lean into. Liam Dalton Burke: Great. Thank you, Tom. Thank you, George. George Youroukos: Our pleasure. Operator: Again, to ask a question, simply press 1. And our next question comes from the line of Omar Nokta. Thank you. Omar Mostafa Nokta: Hi, George, Tom, Tassos. Thanks for the update. Obviously, things are coming together quite nicely. Pretty solid quarter. You added a good amount of backlog despite all the uncertainty and the strange times that you're just referencing, Tom. Just kind of thinking about the fact that you were able to add so much backlog in the third quarter, $380 million, nearly half of what you did for or sorry, nearly half equal to what you did in the first half. Just want to get a sense from you. Is that on the back of a very sort of maybe active, fast-paced market on the part of charters? Or is it something unique to Global Ship Lease, Inc. that you were able to accomplish, maybe not necessarily representative of the broader market dynamics? Thomas Lister: I mean, obviously, we'd take every opportunity to talk up our own book, Omar, but I would say that it's more representative of the market. And if you look back on 2025 year to date, the first quarter was very active. The second quarter was significantly disrupted by Liberation Day. So I would say a lot of chartering activity was effectively put on hold during the second quarter. And that came into the third quarter. So I think probably best to look back on the nine months as a whole as opposed to trying to read too much into individual quarters. But what I would say is that, in the face of an uncertain environment, and it just seems to get more uncertain every day, the lines see capacity as optionality. Particularly, you know, midsize and smaller container ships that can be moved around pretty much any trade. And we see, as a result, sustained demand for such tonnage, which is what explains the fact that charter rates in the broader market as well as within our fixtures remain at very attractive levels. Omar Mostafa Nokta: Yeah. Thanks, Tom. Especially, it looks like, you know, for those older vessels we noticed in your fleet list, several of those ships that are in that 2,000, 2,001 built age range have now been extended for, say, three years. You know, those ships are going to be, call it, close to twenty-nine, maybe thirty years when those ships roll off charter. You think obviously, it's going to be a different market perhaps in three years' time, but as you think about what that market looks like, assuming it's still kind of the same, do you think their ships can continue to trade at twenty-nine, 30 years old, or is there an age limit you think for those ships? George Youroukos: Yep. If I may take this, I will tell you. If the market was exactly the same as it was today, these ships will continue to trade. There's one big differentiation between containers and the other types of ships. There is no extra insurance on the cargo depending on the age of the ship. And why is that? Because container ships have the highest and best record of safety versus other types of ships. I mean, ships sinking or breaking into two, etcetera. The construction of the containers, because of the way they are loaded and discharged, in a direct way. You know, they have to slide the containers into the cargo hold from the gantry crane. They are super heavy in lightweight, hence, very strong, very well made. Then the fact that the cargo does not come into contact with the cargo hold, meaning it's just boxes that you stack up in, so you're not putting anything like oil that goes and touches the side of the ship, you know, the cargo hold or bulk cargo, which, again, you know, gets in contact with the surface of the cargo hold and deteriorates over time. Make container ships very strong, and hence, there is no extra insurance, which means that the ships can trade easily past the twenty-eight or twenty-nine years if the market is there. Thomas Lister: And, Omar, just to sort of add yet more texture to that. I think, you know, the US Jones Act vessels that trade, in some instances into the sort of late thirties and occasionally into their forties, are evidence of the fact that technical obsolescence in the containership sector, if you put sort of fuel and propulsion issues to one side for a moment, is not an issue. So that dovetails with what George was just saying. So long story short, if there's economic need, the vessels will, quote unquote, live longer. Omar Mostafa Nokta: Okay. Yeah. Thanks, Tom. Thanks, George. That's very helpful. And then maybe just as one final one, Tom, you were talking about the Red Sea. And there's obviously perhaps maybe a growing view that we'll start to see transit pick up again in the near future now that there's a peace deal in Gaza. Still, obviously, a lot of uncertainty there. But, just want to get a sense from you. Are you having discussions with your charters at the moment on how that will look? And is that how does that decision come about? Is that going to be an agreement that you make, or is it going to be them who force it down? How do you kind of think about the two sides of the ship? Thomas Lister: Yeah. So first of all, no. It's not something which is currently under discussion. Secondly, it's a sort of multilateral decision that has to be taken because also beyond the charterers and the owners, there are also the insurers, not only of the vessels themselves but of the cargo. So it's a fairly complex web of folk that have to get comfortable with the idea of transiting. And the biggest concern is obviously that of seafarer safety. But I would say, if we go back to looking at the tonnage that was diverted away from the Red Sea and Suez and around the Cape Of Good Hope, it's predominantly the bigger ships, the larger ships, because it's those ships that are typically deployed on the Asia to Europe legs. So I would say that the opening or not of the Red Sea is something that will have a proportionally greater impact on bigger ships and less of an impact, which is not to say no impact for sure, but less of an impact on midsize and smaller ships which were not frequent transiters of the Red Sea and Suez in any case, even when, you know, it was a normal environment, up until 2023. So we'll have to see, but I think the dynamics remain comparatively supportive. Omar Mostafa Nokta: Okay. Great. Thank you, Tom. Thanks, George. I'll pass it back. George Youroukos: Our pleasure. Operator: And with no further questions in queue, I will now hand the call back over to Thomas Lister for closing remarks. Thomas Lister: Well, thank you all very much indeed for joining our 3Q call, and we look forward to reconnecting in the New Year, on the back of our 4Q earnings. Many thanks. Operator: This does conclude today's conference call. You may now disconnect.
Operator: Welcome everyone to Barrick Mining Corporation's third quarter 2025 results presentation. At this time, all participants are in listen-only mode. As a reminder, this event is being recorded, and a replay will be available on Barrick Mining Corporation's website later today. I will now turn the call over to Cleve Rickert, Head of Investor Relations. Please go ahead. Cleve Rickert: Thank you, Mariana, and good morning, everyone. We hope you have had an opportunity to review the press release we issued before the markets opened this morning. This presentation deck is also now available to download on our website. Presenting our results today are Mark Hill, interim CEO and Group COO, and Graham Shuttleworth, Senior EVP and CFO. Other members of Barrick Mining Corporation's management team will be available after our prepared remarks for Q&A. Before we begin, please note that we will be making forward-looking statements. This slide includes a summary of the significant risks and factors that could affect Barrick Mining Corporation's future performance and our ability to deliver on these forward-looking statements. This material is also available on our website. I will now hand it over to Mark. Mark Hill: Okay. Thanks, Cleve. I appreciate everyone joining us this morning. So as Cleve pointed out, I am the interim CEO and Group COO. Since taking on these roles, I have met with the teams and visited most of the key sites to review performance and assess what we can do differently at Barrick Mining Corporation. Bringing a stronger emphasis on safety and operational performance. The quality of our assets is undeniable, so we are undertaking a review of our operations from the bottom up to ensure we have the right teams and processes in place to safely, most importantly, and consistently deliver value going forward. We are about halfway through that review, and we will provide more details at our full-year results in February. Since assuming this interim CEO responsibility, it is becoming increasingly clear to me that the most significant opportunity is at our gold assets in North America, particularly through improved performance at MGM coupled with our gold discovery at Fourmile. Turning to our performance in Q3, we posted strong operational and financial results and logged several company records, including adjusted earnings per share and cash flow. Production increased from last quarter and costs dropped, which combined with a higher gold price drove a significant increase in our free cash flow. We increased our base dividend by 25%. Dividends and buybacks combined in the quarter were a record quarterly cash return to shareholders. Asset sales support an expanded $1.5 billion US buyback program. On top of all this, our updated PEA confirms that Fourmile is arguably this century's most significant gold discovery. Despite this very strong quarter for business, it was unfortunately overshadowed by three fatalities. One at Goldrush, one at Bull and Hulu, and one at Kibali, which was a result of an incident that we reported in Q2 this year. Firstly, I would like to extend our sincere condolences to the families and the loved ones of our three colleagues. Secondly, I want to highlight to everyone that we are conducting a full investigation into these incidents so that we can put systems in place to guarantee everyone goes home safely every day, which is my commitment. Obviously, safety needs to be the number one focus at Barrick Mining Corporation. We are reviewing our safety culture and structures to ensure we embed the right principles at all levels of the organization to achieve our goal of zero harm. Looking at the business performance in the quarter, gold production increased 4% over Q2, primarily driven by higher grades at Kibali, higher throughput at Cortez and Turquoise Ridge, and a record high throughput at Pueblo Viejo. We expect continued quarterly growth in Q4 in line with our 2025 plan for a steady production increase throughout the year. Higher production volume helped drive our gold cost metrics per ounce lower across the board, despite the pressure on our cash costs from royalties associated with the higher gold prices. Higher volumes on lower costs translated into a 25% quarter-on-quarter increase in our attributable gold EBITDA, demonstrating significant operating leverage from a 5% increase in the gold price. Copper production was slightly down from Q2 on the back of a September shutdown at Lumwana, which was in line with our preventative maintenance programs. We expect both gold and copper to deliver within their respective production guidance ranges for the year and on cost guidance after adjusting for the royalty impact from the higher gold prices. Now I am going to hand it over to Graham to discuss our financial highlights. Thanks, Graham. Graham Shuttleworth: Thanks, Mark, and good morning to everyone. Barrick Mining Corporation's third quarter financial performance was exceptionally strong, setting company records for operating cash flow, free cash flow, and adjusted net earnings. We continued to fund our growth projects with disciplined budgets, resulting in cash flow more than tripling from quarter two. We again ended the quarter in a net cash position, supporting an additional performance dividend, an increase in our base quarterly dividend, and a significant increase in our share repurchases. Looking at how our performance has trended this year, the combination of a higher gold price, production volume growth, and lower unit costs per ounce delivered higher margins and a 20% quarter-over-quarter increase in Barrick Mining Corporation's attributable EBITDA. This translated to a 274% increase in free cash flow, enabling us to repurchase $598 million of our stock, and we increased our base dividend by 25%. I will discuss capital allocation more in a moment. As Mark highlighted, quarter three was a company record for cash returns to shareholders. We ended the quarter in a net cash position, and at today's gold price, we expect quarter four will be even better. This is all before the Hemlo and Tongon asset sales, which we expect to close before the end of the year. Looking at our capital allocation framework, so far in 2025, we have generated $5 billion in operating cash flow. We reinvested more than $2 billion back into the business, paid $596 million in dividends, and exhausted our $1 billion repurchase authorization. Barrick Mining Corporation has three capital allocation priorities, above and beyond our long-term operating plan. First, maintain a strong balance sheet, keeping us in control of our destiny through commodity price cycles. We target zero to modest net debt. Second, we invest in accretive growth, with a disciplined focus on cash generation and sustained value creation. Third, we return excess cash to shareholders, balancing dividends and buybacks depending on our share price and valuation. Given the confidence in our business, we are increasing our base quarterly dividend by 25% to 12.5 cents per share. For the quarter, the board has approved a 17.5 cents per share quarterly dividend, consisting of the higher base dividend and including a further $0.05 per share performance dividend. Additionally, given strength in operating cash flow and the cash from non-core asset sales expected in the fourth quarter, the board has authorized a $500 million increase to our existing share repurchase program, which we expect to execute on further in quarter four. Let me now turn the call back over to Mark for more detail on our regional performance in the quarter. Mark Hill: Okay. Thanks, Graham. Starting with North America, Barrick Mining Corporation's value foundation, gold production increased 4% from Q2, driven by improved performance at Cortez and Turquoise Ridge. Cortez saw a significant increase in leach pad production in line with the mine plan. Turquoise Ridge production was driven by increased throughput at the Sage Autoclave following the maintenance we undertook in the first half of the year. At Carlin, roaster throughput was negatively impacted by some unplanned downtime at the end of the quarter. Importantly, all MGM sites reported lower unit cost per ounce, and North America's attributable EBITDA increased 19% from Q2. NGM is our most important asset and is the foundation of Barrick Mining Corporation, contributing more than half of our Q3 attributable production. It is on track to achieve full-year production guidance and is central to delivering value to our shareholders. As most of you will know, we believe Fourmile is one of the most significant gold discoveries this century. We currently have 16 drill rigs on the site, and we are on track to double the existing resource this year. We have also increased Fourmile's exploration budget by a little over $10 million for the remainder of 2025. This slide highlights the opportunity. The zone circled in red is our existing resource. The black dotted area is what we expect to convert to resources this year. The region in green and beyond is all the upside. Looking ahead, we expect to have 20 drill rigs on the project next year, and we plan to commence the Bullen Hill decline development towards 2026. This will allow us to proceed with the feasibility study. On the back of the recent drill results, we updated our Fourmile PEA in September, highlighting a rare combination of grade, scale, and exploration upside. Advancing this project is obviously a key priority for the North Region and team, but also for Barrick Mining Corporation as a whole. Turning to the Latin America and Asia Pacific region, gold production was in line compared with Q2 as planned. Veladero is performing well against its targets, with a typical winter seasonal decline offsetting the record quarterly throughput at Pueblo Viejo. PV performed well in Q3, with processing throughput up 7% quarter-on-quarter, achieving record high throughput in Q3 with the highest quarterly production since 2022. Our focus is now squarely on driving improved recoveries going forward. All assets in the region are on track to meet their guidance for the year, including PV. Moving to Africa, Middle East, gold production showed the largest quarter-on-quarter increase of all the regions, rising 8% from Q2 on the back of a 15% increase at Kibali. Higher open pit mining volumes and grades uplifted Kibali's processing grade, as that operation heads into its expected strong Q4 delivery. Production at North Mara is up 3% from Q2, as both the underground and open pit exceeded expectations. Bulle And Hula was flat. Regional costs were down across the board, resulting in an impressive 65% quarter-on-quarter increase in attributable EBITDA. Now turning to copper. Production declined slightly from Q2 due to a plant shutdown in line with the plan we shared for Lumwana in September. We expect Q4 copper production to be similar to Q2, delivering annual results for our copper business within guidance. Mark Hill: As we have discussed throughout this call, Barrick Mining Corporation is in a good position to deliver on our plans for the year. Shown here, gold production is tracking in the bottom half of its guidance range, and copper production is tracking to the midpoint. Also note that the gold production guidance includes Tongon and Hemlo, and we expect to have these sales conclude before the year-end. After adjusting for the year-to-date higher gold price, our total cash costs are also tracking within guidance. As you can see, copper costs are already within guidance, and we are expecting Lumwana to report a strong finish to the year. Before I close, I just want to emphasize that our near-term focus is on safety and operational performance. We will adjust things internally as necessary to create value for our shareholders and deliver on our guidance. This company has a strong portfolio of assets with Nevada at its core. Nevada continues to drive more than half of our production from a low-risk jurisdiction. We have long resource lives and continued opportunity to replace the reserves we mine. We have some of the best growth projects in the world currently in execution. We have a strong balance sheet that is returning excess capital to the shareholders and funding our growth. We have an excellent global team of people who are empowered to deliver on our strategy. As we progress on our operational review, it is confirming to me that the value creation opportunity across the portfolio, especially the potential for North American gold assets in Nevada and the Dominican Republic, is significant. As I have said, Nevada is the core of our company, as it continues to deliver more than 50% of our production with an extraordinary opportunity for growth at Fourmile. We will be unwavering in our focus to drive value creation in Nevada. Thank you, everyone, for your attention. I will now hand it back to the moderator for the Q&A session. Operator: Thank you. The Q&A session will use the raise hand feature in Zoom. If you would like to ask a question, click on the raise hand button at the bottom of your screen. Once prompted, please unmute yourself and go ahead. We will now pause for a moment to assemble the queue. Our first question comes from Fahad Tariq at Jefferies. Fahad, your line is open. Please unmute and go ahead. Fahad Tariq: Hi. Thanks for taking my question. On the bottom-up operational review at Nevada Gold Mine specifically, can you just give us maybe a framework for what you are looking at or what the team is looking at? Specifically, what is incremental versus the recapitalization efforts that have already been completed? Including the new fleet, investment, reinvestment in the roasters, autoclaves, and so on. A lot of work has already been done, so maybe just provide what is incremental in this review. Mark Hill: Okay. Thanks for the question. So, look, the operational review is obviously we are trying to stabilize and make more consistent with our delivery through NGM. We have gone back and we are building those plans up from right from the base again, and it is going to incorporate, obviously, the mining efficiencies, utilization, and it is also going to, more importantly, include our maintenance approach, our planned maintenance, and the expected outcome of this so we do not have these unexpected surprises like we had at Carlin this quarter. We are just trying to stabilize the operations and make sure we have everything in place so that we can deliver quarter on quarter. Fahad Tariq: Okay. And then maybe as a follow-up, just on the maintenance point. So in the MD&A, it at Carlin, there was excessive scaling at the Gold Quarry roaster. Is that something that was not captured in the first half maintenance? I believe both roasters had their annual shutdowns in the first half. Or did the buildup happen after that? Mark Hill: Okay. Look, Henri, maybe you are better positioned to answer that. Please. Henri Gonin: Yes, Mark. Henri Gonin at MGM. That buildup of the scaling happened after the shutdown at Gold Quarry, and it was unforeseen, but it has been taken care of now. Fahad Tariq: Okay. Great. Thank you. Mark Hill: Thank you. Operator: Our next question comes from Matthew Murphy at BMO Capital Markets. Your line is open. Please unmute yourself and ask your question. Matthew Murphy: Hi. Mark, Graham, Cleve. Thanks for the presentation. Mark, congrats on the interim CEO role. Also interested in this operational review. How should we think about what the output of this review might be? Like, does this include a review of medium-term guidance, and can you be in a position in a few months to have a different view on that? Mark Hill: Okay. Thanks, Matthew. Well, look, the review is obviously, like I said, so that we can be more confident and we get more predictable outcomes from quarter to quarter. That will obviously feed into the budget next year, and we are not expecting any major changes on that at the moment. But it is just to try and understand where there is opportunity. So even down to the things where we say we have replaced reserves every year, this review will also include looking at maybe stepping out and drilling and seeing if there are other opportunities that we can find within the portfolio around the current assets rather than just replacing reserves. So maybe a longer-term goal, but also something we would be looking at. But the primary focus is to get the planned maintenance in place so that we can make sure we just consistently deliver on our quarterly guides. Matthew Murphy: Okay. Thank you. And then one other follow-up I noticed in the MD&A that some resequencing of Record Deep CapEx, and they are just interested in what is happening there. And when you might close the project financing. Mark Hill: Okay. Let me hand over to Graham to that, Matthew. Graham Shuttleworth: Hey, Matt. Matt, we alluded to this even last quarter. But, really, it is just a product of the work that we have been doing with Fluor, who came on board in the middle of the year as our EPCM contractor, and they have been looking at the specific timing of when we place orders and, therefore, the follow-on impact to that is just on cash flow. So really, what we have done is we have rescheduled some of the cash flow that we were expecting in '25, and we have shifted it across '26 and '27. So there is no impact on the overall project schedule or the total capital schedule. It remains consistent. It is just a timing issue as we move forward. In terms of the financing itself, we are very well advanced with the lenders. The remaining piece of the puzzle is US Exim, which is an important part of the lender group. Unfortunately, with the US government shutdown, they have not been able to sign on the dotted line. But as soon as the shutdown lifts, we will be reengaging with them, and we still expect to be able to sign that financing by the end of the year. Matthew Murphy: Okay. Thank you. Operator: Our next question is from Daniel Major at UBS. Daniel, your line is open. You may unmute and ask your question. Daniel Major: Hi. Mark, Graham. Can you hear me okay? Mark Hill: Yep. Great. Daniel Major: For the questions. So, yeah, two questions. One on the portfolio, great to see more progress and realizing particular value for Hemlo and Tongon. Is there any other potential areas of the portfolio following kind of senior management change, etcetera, that you see as opportunities? Is there any processes ongoing for any other assets in the portfolio? Mark Hill: Well, look. No. Not at this stage. As I said at the start, the focus is really on The Americas and MGM and PB and getting those up to where we need them and delivering on the Lumwana expansion and the RecoDick construction. So I have not really focused on anything else at this point, but since September when I took out. Daniel Major: Okay. Thanks. And then maybe two questions on the NGM dynamic. Firstly, with respect to dialogue with the JV partner around Fourmile and kind of at expiration depth if we look at your slide 11 to the right-hand side of the divide between the Nevada Gold Mines below Goldrush and Fourmile. Has there been any update on kind of results within the JV in that zone recently? And has the dialogue between the two parties changed at all? And could that potentially result in discussions around stage two vending for Fourmile? Mark Hill: Okay. So, look, just to maybe talk to Fourmile for a minute now. Obviously, as you are well aware, at some stage, that will end up in the joint venture with Newmont. I mean, Newmont is well aware of Fourmile, and they are well aware of all our current operations as our joint venture partner. But that is not going to be until we finish this drilling, get those declines in place, and basically deliver a feasibility study, and then we will discuss how that earning will work with Newmont. And then on the other question, I do not have any update on any more results. Yeah. I do. Last. Graham Shuttleworth: No material changes, Dan. Daniel Major: Okay. That is useful. Thanks. And then maybe one final one just I guess, directionally thinking about MGM into next year. Do you incrementally expect kind of significantly higher production, or would it be a flatter profile at a high level next year? Obviously, I guess you will give the guidance for the Q4. Mark Hill: Yeah. We will give the guides with Q4, but it will be at this stage, based on what I thought, it would be relatively flat, I would have. Daniel Major: Okay. That is clear. Thanks a lot. Mark Hill: Thanks, Dan. Operator: As a reminder, if you would like to ask a question, click on the raise hand button at the bottom of your screen. Our next question comes from Tanya Jakusconek at Scotia Capital. Tanya, your line is open. You may unmute yourself. Tanya Jakusconek: Daniel, we cannot hear you. Operator: You cannot or you cannot? Tanya Jakusconek: We can now. Operator: Okay. Good. Oh my god. Good. Thank you. Tanya Jakusconek: Good morning, everyone. Thank you so much for taking my questions. I am just going to circle back to the review, Mark, that you have been doing. You said you went to visit most of the operations and met with most of the team, and it sounds as though the focus for you is just getting this predictability on the maintenance programs to really deliver quarter on quarter delivery. When you did all of this, and I know when you go around and look at things, did you have to make any management changes that we should be aware of? Mark Hill: Thanks, Tanya. No. Look. At this stage, that is not what it is about. Like, I mean, the team in Nevada, you are probably both familiar with anyway. But, look, we have a strong team. But there are obviously some gaps in the planned maintenance and things because we cannot keep having things go wrong unexpectedly like we had at Carlin. So I do not think it is about necessarily people changes. It is just about getting those plans in place and making sure they are solid and we can rely on them going forward. And, look, the other obvious just want to bring that in. The other reason I was obviously in Nevada is, I was there for the investigation into that fatality because that is the other big priority that we have got to get on top of, which I am sure you would agree. And put some changes in place to address that. Tanya Jakusconek: Yeah. I was just gonna ask, Mark, because that is three fatalities is a lot. I was just wondering, like, as you look and reviewed the asset bases, like, are there significant changes to the procedures that need to be done? And is the, you know, higher turnover at Nevada Gold Mines, you know, obviously something that you are gonna focus on as well. In terms of health and safety and improved productivity. Mark Hill: So, Tanya, I do not think it is a gap in our processes and procedures and standards. I mean, we went through this, as you know, in Latin America in 2022 when we had that fatality at PV. And look. What I think it is, I think it is about culture. I think it is about leadership. I think most of those systems are in place. And I think they are solid. And, we are just gonna have to reset and get everyone on the same page that safety is the number one priority of this company. And as you would be aware, the minute we get safety in line, normally, what you see is you see an uptick in production and overall just, more efficient operations. But, look, let me just hand it over to Graham a minute as well because he has been deeply involved with this if he has got any additional comments to that. Graham Shuttleworth: No. Thanks, Mark, and thanks, Tanya. I think you know, Mark has hit it on the head in terms of the leadership component and specifically when we talk about that, I think is the supervision in the workplace. We believe we need to get more face time with the people underground in the process from our supervisors. And in some of the reviews and the investigations that we have obviously conducted, it has shown that perhaps some of the supervisors have been burdened with administrative tasks too, so we need to get them back into the field. I think also on reflection, not only based on these fatalities that we have seen, but I think in the data that we have been collecting over the last while, the better part of three years now, I mean, you would have seen how our total recordable injury frequency rate come down year on year but that is contrasted by, you know, the number of fatalities we have had in the last couple of years. And clearly, there has been a focus on the lagging indicators and driving that down from an injury perspective, and we have missed something in terms of the hazard recognition, particularly on the fatal risks. And I think more focus on the leading indicators is key for us. It is something we have recognized, and you may have remembered from some of the other presentations that we put together that we have prioritized leading indicators. And one of those programs was the critical control verifications that we would do, which really is engagement in the field people conducting tasks that have a fatal risk associated with it. And although we have seen a great uptake across the group, in excess of 86,000 rather CCVs completed year to date. I think what we now have to focus on is the quality of those. So that we are ensuring that everyone is learning from them, that they are recognizing the hazards in the workplace associated with those fatal risks. And then I think another aspect that we have highlighted and touched on and debated over the last while is you know, I think our safety team from a group perspective, although we firmly believe safety is a line function and must be incorporated at a site level, at a group level, we do need a few more resources to drive some of these initiatives and plans. To focus on things like the leading indicators, the competency-based training that we have highlighted and getting the supervisors back into the field. So I think in a nutshell, those are some of the focus areas, but we have obviously got a plan and as Mark has mentioned, this is our number one focus for the team, the entire team. Tanya Jakusconek: Yeah. That is good to hear. You know, focusing on the safety. Maybe one last question for me, Mark. It sounds as though you have put the pause you have hit the pause button on any potential asset sales. I know we you know, previously had talked about maybe Mali was for sale. Has that paused as well? Mark Hill: Well, I think Mali, my focus, Tanya, I do not know whether you have read some of the reports. But, look, my focus is on getting these four people out of jail. So that is what I am working through at the minute. I mean, they have been incarcerated now for, what, eleven months. So my focus is on that. Rather than anything else in Mali at the minute. And if we get that achieved, then obviously, we will look at restarting that operation. As you know, we still have people on-site doing the care and maintenance. So we could restart that operation. But the focus is we have to get those people out of jail or my focus anyway. Tanya Jakusconek: Yeah. We hope to get them out as well. Thank you. Mark Hill: Thanks, Tanya. Operator: Our next question comes from Anita Soni at CIBC World Markets. Anita, your line is open. You may unmute and ask your question. Anita Soni: Hi. Can you hear me? Mark Hill: Yep. Anita Soni: Okay. Thanks, Mark, Graham, and Henri. So I am gonna focus in on PV at first. So previously, Mark Bristow had talked about the degradation of the PV stockpiles. Could you give us an update on that? And if you know, if you have made any progress there and what that could mean? In terms of resequencing those stockpiles to be processed earlier? Mark Hill: Well, Anita, just yeah. Thanks. So, look, the recovery, as I said, is the focus. Right? Because I think we have broken the back throughput. You would have seen we have had record throughputs at PV now. So it is all about recovery. Actually, I have got Hatch on-site at the minute. They are doing an independent review for us as well. And I think there are several moving parts and not being a metallurgist, what I can say to you, obviously, the handling of those stockpiles, as you pointed out, is absolutely critical. So it is how we blend that feed going into the float circuit so that we can make sure that we do not get wild swings in our recovery throughout the day. So look. There is a lot of things going on and I think what we need to do is get real-time data back to the operators so that we can adjust it to and better control what goes into the float circuit. So I know that is probably not very specific for you, but that is sort of the situation we are in at the minute. Anita Soni: Can just so I understand, because the second question was related to the recovery rates of PV, which seemed to be undershooting what you had guided to earlier this year by about five percent or six percent. Are you processing any of these lower grade stockpiles right now, or is it just the, you know, the prior like, the prior targeted grades and I guess, direct or feed that? Mark Hill: Well, it is a blend of fresh and stockpile material that we are putting through the plant now. So it is a as it always has been, it is a combined feed strategy. Anita Soni: Alright. Maybe I will get some more detail from you tonight at the dinner. And then the second question that I had was with respect to the collars. I must say I am a bit surprised that you guys have put on collars. I think it is about I realize it is only about 10% of the production, assuming, you know, prior estimates. But why did you guys put them on, and why not stand levered to the gold price? Graham Shuttleworth: Hi, Anita. It is Graham. Sorry. Apologies. I am gonna stop calling you, Mark. Anita Soni: Or Tom Palmer. Which one is even better? Graham Shuttleworth: That is a toss-up. No offense to Tanya. Anita, yeah, thanks. The collar was put on at a time early in the third quarter. At a time of record gold prices associated with a potential strategic opportunity which ultimately did not close. I think it is important to realize that, as you point out, this is less than 10% of our production. And, you know, the top of that collar is over $4,300 per ounce. So, you know, at current record high gold prices, we are still fully exposed to these current record high gold prices. And, you know, to put it in perspective, even if the gold price were to go to $5,000 per ounce, we would still have 99% exposure to the spot prices. So it is a very small position. It is not something we intend to do going forward. It should not be read as a change in our strategy with respect to hedging. It was a product of a specific situation, which ultimately did not transpire, but we are comfortable that those positions are not going to have a material impact on our financial results. Anita Soni: Okay. So now I am intrigued. Strategic opportunity, was it acquisition or divestiture? Graham Shuttleworth: I think if I was gonna tell you that, I would have told you. Anita Soni: Alright. That is a sneaky answer. Okay. That is it for my questions. Thanks. Mark Hill: Thanks, Anita. Operator: Our final question comes from John Tumazos at Very Independent Research. John, your line is open. You may unmute yourself and ask your question. John Tumazos: Thank you. Mark, in terms of the big picture, which of your corporate policies are different than your predecessor? Certainly, we are all on the same page for cause and safety and maintenance, etcetera. Mark Hill: Well, look. I do not think the strategy, John, has changed at all. I mean, you have obviously gathered my focus or where I see the most value is obviously in Nevada. So we are gonna build out those two growth projects we have. But then the next thing is definitely shifting the focus to America. And I have already started with that. Like, we are gonna spend a bigger proportion of our exploration as well in Nevada and North America. So I suppose it is not really a shift, but if you ask me where my attention is gonna be and maybe there is a little bit of a change, then it will be all the focus we are gonna put into North America. Because I do see a big opportunity there, and I do see that as the big project and the next big growth area for Barrick Mining Corporation. John Tumazos: Thank you. Mark Hill: Thanks, John. Operator: Thank you. That concludes our Q&A session for today. Back to Cleve for any closing remarks. Cleve Rickert: Great. Thank you, everyone, for joining us today. We look forward to speaking with you again on our full-year results call in February. And as always, please get in touch with us if you have any further follow-up questions. Thanks again very much.
Operator: Welcome to the FreightCar America's Third Quarter 2025 Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note this conference is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Chris O'Dea with Riveron Investor. Please go ahead, sir. Chris O'Dea: Thank you, and welcome. Joining me today are Nicholas Randall, President and Chief Executive Officer, Michael Riordan, Chief Financial Officer, and W. Matthew Tonn, Chief Commercial Officer. I'd like to remind everyone that statements made during the conference call relating to the company's expected future performance, future business prospects, or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FreightCar America's Form 10-K for a description of certain business risks, some of which may be outside of the control of the company that may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events, or otherwise. During today's call, there will also be a discussion of some items that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the earnings release issued yesterday afternoon or this morning. Excuse me. Our results for the third quarter 2025 are posted on the company's website at freightcaramerica.com, along with our 8-K, which was filed premarket this morning. With that, let me now turn the call over to Nicholas Randall for a few opening remarks. Nicholas Randall: Thank you, Chris. Good morning, and thank you all for joining us today. FreightCar America delivered an exceptional third quarter, highlighted by strong deliveries, revenue growth of over 42%, and a recent record for the third quarter adjusted EBITDA at our new facility of $17 million, growing 56% versus the prior year. We achieved a gross margin of 15.1% and an adjusted EBITDA margin of 10.6%, up approximately 80 basis points and 100 basis points respectively versus the prior year, representing our most profitable quarter since relocating production to Mexico. This performance highlights the strength of our flexible manufacturing model and the disciplined execution of our commercial strategy. During the quarter, our team remained focused on building value and solving complex customer needs. While others in the industry may rely more heavily on commoditized orders, our adaptability and ability to deliver custom, high-value solutions continue to drive sustainable profitability across market conditions. Operationally, our team in Castanos continues to execute at a high level. Improvements in safety, quality, throughput, and cost structure remain consistent quarter after quarter. These efficiency gains and the reliability of our processes have been instrumental in supporting our record EBITDA performance at our facility. As we scale, we are reinforcing that culture of execution, one that emphasizes continuous improvement, customer responsiveness, and long-term value creation. Strategically, we remain focused on initiatives that position us for durable growth. We are excited about the progress and developments we have displayed with our TrueTrack process, integrating digital tracking and monitoring capabilities across each production step, ensuring on-time deliveries, increased efficiencies across all of our manufacturing lines, and most importantly, delivering high quality and reliability in every railcar we produce. In addition, we are also moving forward with enhancements to our plant layout. This initiative is all about improving flow, increasing productivity, and driving higher throughput. It will enable stronger margins per car, expand our ability to meet growing customer demand, and establish a strong market position. It's another great example of how we are executing on the opportunities within our footprint to build a more efficient and capable operation for future growth. At the same time, we continue to explore ways to vertically integrate our capabilities, continue to invest in automation and process control, and strengthen our readiness for future tank car conversions, which is already well ahead of schedule. Together, these actions reflect the continuous progress we are making since transforming our production footprint and it's laying the groundwork for more consistent profitability through future cycles. From a market standpoint, as we noted last quarter, the broader railcar industry continues to operate below long-term replacement levels, with total deliveries expected to remain under 30,000 railcars this year versus a normalized rate closer to 40,000 units. While this softness has limited overall new car volumes in the industry, our ability to serve more complex customer orders beyond standard new car builds has helped offset that trend. We continue to capture opportunities through conversions, retrofits, and other specialized railcar solutions, all areas where we bring value and deepen our customer partnerships. While industry demand is temporarily muted, the replacement cycle gap is widening, creating pent-up demand that we are well-positioned to capture early once the market begins to normalize. As we enter 2025, our priorities remain clear: deliver enhanced quality of earnings, generate positive free cash flow, and maintain our disciplined approach to growth. Our backlog remains healthy and diversified at 2,750 units valued at approximately $222 million, and our commercial pipeline continues to build across both conversion opportunities and new railcars, which reinforces our view of the recovery towards normalized replacement levels. Looking ahead, we see numerous opportunities on the horizon and are excited about strengthening our position in the market. Operationally, we're excited to reap the benefits of improvements to our lines and deliver on our adjusted EBITDA guidance for the fiscal year. We expect to maintain strong margins and close the year with solid positive cash generation. With that, I'll turn it to Matt to discuss the industry dynamics. W. Matthew Tonn: Thank you, Nick, and good morning, everyone. As Nick mentioned, the third quarter represented another resilient period for FreightCar America as we continue to prioritize disciplined order intake and profitable growth despite challenging industry dynamics. Industry order activity remains subdued as macroeconomic uncertainties continue to impact customer order timing. The total new car orders for the North American market are expected to finish below 30,000 railcars for the year, well below the normalized rate of approximately 40,000 railcars. Even with this temporary soft backdrop, our commercial team delivered solid results and maintained strong momentum in meeting our customers' needs. During the quarter, we received total orders for 430 railcars, bringing our backlog to 2,750 cars at quarter-end, valued at approximately $222 million. Importantly, we maintained our position in the market, achieving over 20% of addressable market order share for new car orders or 15% of the total market. Our backlog reflects a healthy balance across our broad railcar portfolio, including conversions and retrofits, which remain a core component of our business, as Nick mentioned earlier. Our conversion and retrofit capabilities give customers a cost-efficient alternative to new builds and are a meaningful driver of margin expansion for FreightCar America. In a market focused on extending asset life and lowering total cost of ownership, these offerings keep fleets productive, maintaining customer budgets in a challenging market environment. Backed by our deep engineering expertise and flexible and efficient plant footprint, we tailor solutions to each customer's specific needs and operating environments. We continue to see strong engagement from long-standing customers and healthy momentum from new accounts. Interest in 2026 deliveries is strong, supported by broad participation across key end markets including chemical, agricultural, industrial, aggregates, and mining. While the pace of order placement has moderated, customer inquiries and bid activity remained steady, reinforcing our view that replacement cycle fundamentals are intact. Commercially, our focus remains on maintaining pricing discipline and ensuring we continue to deliver the highest quality for our customers. We are achieving several strategic initiatives to enhance our competitiveness and customer responsiveness, as Nick mentioned earlier, including expanded engineering capabilities, improved lead time management, quality initiatives with our TrueTrack quality process, and deeper integration between our commercial and operational teams. We are excited to see these initiatives come together to help strengthen our ability to capture the right business while enhancing the profitability improvements we've achieved over the year. With that, I'll turn the call over to Michael Riordan to review our financial results in more detail. Mike? Michael Riordan: Thanks, Matt, and good morning, everyone. I'd like to begin by sharing a few third-quarter highlights. Consolidated revenues for 2025 were $160.5 million with deliveries of 1,304 railcars, compared to $113.3 million on deliveries of 961 railcars in 2024. The year-over-year increase reflects higher production and deliveries. Gross profit for 2025 was $24.2 million with a gross margin of 15.1%, compared to a gross profit of $16.2 million and a gross margin of 14.3% in 2024. The improvement in margin was driven primarily by the product mix, including specialty new cars and conversions, as well as continued operational efficiency at our Castanos facility. SG&A for the third quarter totaled $9.6 million compared to $7.5 million in the prior year period. Excluding stock-based compensation and certain professional service costs, SG&A as a percentage of revenue was approximately 50 basis points lower year-over-year, reflecting our operational leverage on higher deliveries between the comparable periods. Adjusted EBITDA for the third quarter was $17 million, representing a margin of 10.6%, compared to $10.9 million and a 9.6% margin in 2024. This represents our strongest quarterly adjusted EBITDA since relocating to Mexico and underscores the benefits of disciplined execution and favorable product mix. Adjusted net income for the quarter was $7.8 million or $0.24 per diluted share, compared to adjusted net income of $7.3 million or $0.08 per diluted share in 2024. Reported net loss for the quarter was $7.4 million or $0.23 per share, which includes a $17.6 million non-cash charge related to the change in warrant liability due to share price appreciation. As a reminder, this is a non-cash item that does not impact our operating performance, cash flow, or share count. Turning to cash flow, we generated $3.4 million in operating cash during the quarter. Adjusted free cash flow was approximately $2.2 million, an improvement of $1.2 million versus the prior year period. Our continued cash generation reflects disciplined working capital management and improved profitability. We ended the quarter with $62.7 million of cash, no borrowings under our revolving credit facility, maintaining a healthy balance sheet and ample liquidity to support growth investments. Given our capital strength, we are well-positioned to build on our platform and look for strategic opportunities to amplify our market position and scale. Capital expenditures for the third quarter totaled $1.2 million, bringing year-to-date capital expenditures to approximately $2.1 million. For the full year 2025, we now expect capital expenditures to be in the range of $4 million to $5 million, consistent with our original assumptions for the year. Our updated forecast on the timing of certain spend for projects has shifted into 2026. Overall, our financial performance in the third quarter and the success of our commercial strategy demonstrate the profitability and cash generation capabilities of our business model. We are reaffirming our full-year adjusted EBITDA and railcar delivery guidance ranges and adjusting our revenue range down to $500 to $530 million to reflect the product mix change. We remain on track to deliver positive free cash flow for the year with a solid foundation heading into 2026. Looking ahead, we're focused on ensuring that every dollar we invest supports scalable, high-return opportunities. With a healthy balance sheet and steady cash flow, we are well-positioned to support future growth and deliver improved profitability. With that, we'll now open the line for Q&A. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from Mark Reichman with Noble Capital Markets. Good morning. Mark Reichman: I just the question I have is the guidance on the CapEx was, I think it had been updated to $9 million to $10 million, and so you've sent it back to the $4 to $5 million, which I understand and I think is reasonable. Could you just kinda walk us through your plans to prepare for the tank car conversions and entrance in the new tank car markets, kinda how those capital expenditures unfold into 2026, and the uses of the expenditures? Nicholas Randall: Hey, Mark. Good morning. It's Nick. I'll answer that one, and if I missed something, Mike can follow up on that. So a couple of things. So on the CapEx investments, it's not a change in scope. It's just a move of timing. We had some investment for vertically integrated components for the tank car retrofit that were originally scheduled for late December. They're gonna move into early January just so it tips across that new year period. So just a change in timing at the end of the year, but not something about a change in scope. As it goes for the preparation and readiness for the tank car conversion, we're well ahead of schedule. You know, there's a couple of processes to get AAR certifications at the plant, then a couple of processes on the capital equipment. So, we're well ahead of schedule. We'll be talking more about the timing of shipments of that in 2026. But, yeah, they certainly start through our 2026 period. But the change in CapEx allocation this year is just a couple of weeks in timing. It just so happens it's right at December, which flips into 2026 rather than 2025. Mike, I don't think I missed it in there. Michael Riordan: Nope. Mark Reichman: And then just the next question is on the revenue guidance. I mean, if I look at the backlog from the second quarter, you know, it averaged about $87,000 a unit. So if you look at the backlog now, it's about $81,000. But margins have actually improved. So I guess I'm kinda looking at the fourth quarter, and I'm thinking, you know, probably somewhere in the eighties per unit. Would you kind of expect the margins for the fourth quarter to look pretty much like the third quarter? Nicholas Randall: Let me break that down a bit more. There's a couple of questions wrapped up in that one question. So it's on the can you talk about average selling price? So, yeah, when the average selling price does change when we switch to conversions, so we are holding our guidance on unit count, but you'll see that our revenue dollar guidance dropped down a bit just to reflect that higher proportion of conversions. And then when you look at conversions, when you look at the percentage-wise because it's a lower average selling price, the percentage-wise do go positive in an up direction because it's a smaller, high proportion of a smaller revenue price. So I just want to make sure that the guidance we've got for the rest of the year is to hold adjusted EBITDA and to hold the unit count. The revenue dollar is come down, so it's just because there's a higher proportion of conversions than we originally forecast way back at the beginning of the year when we, sort of tried to predict what would happen in Q4. So I'm not sure if that answers your question. Mike can add some more color to it, but it's a, you know, the important thing for us is to manage our profitability and cash generation, but revenue is not a great metric given the nature of conversions and new cars and the change in average selling price between the two. Mark Reichman: Well, that's great. I really appreciate the color. Thank you. Operator: And our next question comes from Iba Prasella with Northcoast Research. Iba Prasella: Hi, good morning, guys. I am asking questions on behalf of Aaron Reed this morning. And my first question is, I was just wondering, do you expect your product mix to shift following the change in guidance or can you share any additional color on the mix between rebuilds and new builds is going to be trending? Nicholas Randall: Yes. Good morning, Iba. It's a similar question to what Mark just asked on the guidance. So when you see our revenue move like that, but the adjusted EBITDA stays the same, that does imply that the average selling price for the unit count stays the same, which would imply there's a higher proportion of conversions compared to our original forecast. It's not a massive swing, but it does swing a little bit. From a margin and a sort of percentage guidance, you know, we've got a couple of weeks left to finish off 2025. So we'll be able to back end that from the adjusted EBITDA and the revenue kind of pretty much calculates where that's going to end for the balance of the year. Iba Prasella: Okay. Thank you. And then could you share more detail maybe on how the demand for coal car repair is? Is that still providing a meaningful lift as you look into 2026 at all? Nicholas Randall: So coal car repair sits in our aftermarket business. We break those two out now between new cars and the aftermarket business. And we have, as FreightCar America, the largest fleets of coal cars out there in use on tracks across North America. So obviously, there's talk in the news about the extension of power stations, extension of life, of coal-powered facilities. We would naturally expect that there's a sustained and continued demand for coal car components and coal car repair support items, which we have a very nice product portfolio that matches that. So, yeah, we'd expect to see that continued demand for components, but that's separate from new cars, a bit on the aftermarket business. We'll continue to see those coal car components and on the cars we recently built over the last thirty, forty, fifty years. Iba Prasella: Alright. Perfect. Thank you so much. And then my last question is that I guess, have you guys experienced any disruptions or order delays tied to the government shutdown or related policy? Nicholas Randall: I think, you know, the nature of how we run our business and the nature of the rail industry, it's less susceptible to short-term items like government shutdowns and the cases that, you know, sort of things that are being hauled and being moved. So we haven't seen anything, you know, directly affects us from that perspective. The most sensitive area, if there was gonna be an area, would be in border crossing, but a lot of that is now automated. Not fully automated, but highly automated. So we haven't seen any disruption in that. In cars transferring to and from Mexico into the USA. But that's probably where if there was to be some disruption, that's where we would see it. But we haven't seen it in any recent term time frame. Iba Prasella: Okay. Thank you guys so much. Nicholas Randall: Thank you. Operator: We'll go next to Brendan McCarthy with Sidoti. Brendan McCarthy: Great. Good morning, Thanks for taking my questions here. Just wanted to circle back to the 2025 guidance. And sorry if I missed this, but just looking at the midpoint of revenue and adjusted EBITDA for 2025, it looks like just based on my rough math that Q4 is implied to come in at around $11.7 million for adjusted EBITDA on about $140 million in revenue, which would be a margin of about 8%. Just curious if you can expand on the step down there from the third quarter and what might be driving that. Michael Riordan: Sure. Yeah. So as mentioned, we had some favorable product mix in Q3 and Q2 where we were doing a number of specialty new cars. We won't see that work really in Q4. And Q4 for us traditionally is a lower margin quarter as we do always try to take off, you know, December to do annual planned maintenance for the facility. So you lose a little bit of margin there with the week shut off. And the proportion of what I call more of the commoditized cars is some of the other builders have noted and covered hoppers is just larger in Q4 than it has been in the earlier quarters. As well. That product is a lower margin car compared to the rest of our product portfolio. Nicholas Randall: Yeah. But I mentioned in my script that we've taken some work in addition to that annual shutdown, taking some work to repurpose some of our operational lines to make that margin more sustainable going forward. So there's an annual normal maintenance shutdown that takes place towards that December into the New Year period. We've got some lines that we are retooling and refueling and repositioning to enhance that flow, enhance future on those as well. So I don't see anything that is a, you know, a long-term negative trend, but that Q4 often has that sort of additional cost that sits there for a couple of weeks. And then, obviously, you get the revenue it's down to revenue when it's offset. Just close out one-off upgrades. Brendan McCarthy: That makes sense. That's very helpful. I appreciate it. And then just more of a broad question on your tank car retrofit program as we start to see, you know, hopefully see the deliveries, you know, flow through in 2026 and 2027 related to the thousand car order in your backlog. So just taking a step back and looking at that addressable market, I guess, do you are you able to really quantify what that addressable market looks like? How many, you know, tank cars are up for, you know, possible retrofit as it relates to the 2029 deadline? I know some of those cars may be scrapped, but how do you estimate or ballpark what that addressable market might look like? Nicholas Randall: I'll start that, and then Matt may have some color to add into that, Brendan. So I think, yeah, I would step it back a bit. There's a bigger question to ask really for us at FreightCar America is our pathway into new tank car builds. So the retrofit program that we have is significant in its own right. It's a very nice program to, that we're privileged to work for, work through. But there's a piece of that that for us, what it also provides to us is the AAR approvals, the process to get the plant prepared and ready, a whole bunch of things that puts us in a position that as soon as that retrofit program is coming towards completion, we switch modes into new car, new tank car production. And that new tank car production just, you know, on a normal run rate of 40,000 units a year, approximately 10,000 are tank cars, and that's an area in the market that we've historically not been able to address. So I think what I look and I talk more about internally is the purpose and one of the benefits of doing this retrofit program is we get, you know, a short-term benefit, which is great in '26 and '27. But really the exit of that is not to try and clearly will take more retrofits if there are there. But the main goal for us is to leave that program and position ourselves into the new tank car programs directly after that. But in answer to your specific question, how big is that market? I, you know, there's a majority of tank cars either owned by people who can produce tank cars or look after the tank cars already. So maybe, it may be smaller for us, but I think there's probably, you know, there's a couple of maybe a couple hundred more that we could look to add over that program. But I really and the reason why it's, I'm more interested in we would wanna switch to new tank cars as soon as possible after that program, which is really the sort of the main goal for us, if that makes sense. Brendan McCarthy: Got it. That makes sense. I appreciate the color there. I know it's a big catalyst for you guys looking ahead. One more question for me just on industry dynamics. I know you mentioned in the prepared comments roughly 30,000 orders for the year continues to run below the industry replacement level. We've seen the industry fleet contract a bit. Are you still pretty confident that you might see an uptick, maybe retracement towards that replacement level demand in 2026? Or is that still pretty uncertain at this point? Nicholas Randall: You know, there's a couple of ways of looking at that. You know, first of all, my headline answer is yes. I'm confident we'll trend towards that in the calendar year 2026. What I think it'll be more back half loaded in 2026, but it'll certainly get us in a position where order placement would get order you'll see order placement first, obviously, at 40,000 and then you'll see deliveries follow through probably in the deliveries will probably be late 2026 into 2027. I think what we look at the underlying fundamentals, which is still very solid if you look at the class one railroads, at the railroad communities, they're still posting good results and good throughput and good utilization rates and all those metrics, which is very good for us. You know, you look at we see it more that there's pent-up demand coming through because, you know, as you think about the main commodities, the agricultural commodities, the aggregates, the oil and gas industry, their desire and their need for railcars isn't fundamentally changing down. Scrap rates have continued to happen this year as anticipated or as expected. So we see is that the rail the underlying demand is still coming through, still pretty predictable. And it's more about, as Matt referenced, it's just the gestation period between inquiry through to order placement just gets extended slightly. You know, we put a forecast out at the beginning of this year for how many units we would get out this year and how much adjusted EBITDA. And, you know, contrary to what the order placement would suggest, we're holding it. And I know we've been able to get through and been able to push that through. So I do see this as an opportunity towards the sort of as you go to Q2, Q3, Q4 next year, that order placement will certainly trend back to that normalized 40,000 units a year. Matt, anything I missed? W. Matthew Tonn: No. I think your comments are accurate. The bottom line is you've got two back-to-back years of sub 25,000 year per year orders booked. And when we look at our history of 40,000 railcars delivered or roughly 38,000 ordered over a ten-year span, we can't continue on this pace for long. Add into that the number of cars that are scrapped annually, we are headed towards some sort of a bubble and we will get that happening sometime in the second half of the year. Nicholas Randall: Just to bubble us in more orders, please. More orders. Brendan McCarthy: That's great. That makes sense. And just as a follow-up, I know you mentioned 20% market share of the new railcar orders for this quarter. That's really solid to see. And I know it's really trended above your historical market share. What do you really attribute that to? Nicholas Randall: I'll start with that and then Matt can talk a bit some of the, you know, I think there's a couple of things is, you know, we've got three things that really work for us. One is, and experience. Now we've got a lot of good railcars out there. Customers know that. Customers like our railcars. Whether it's new cars or conversions, customers really like the experience. Our breadth of product and configuration we can provide on the markets we address, our customers really like the ability to tailor some of their products and customize it in a way that meets their needs. And then on our execution, you know, we talked about an initiative called TrueTrack. Where we have this digital traceability and trackability. But our execution of delivering on time in full and good quality reliable railcars is, you know, those three things fundamentally put us in a position where we're able to win, you know, solve customers' problems in a way that adds value for them. And I think, you know, underpinning all that is Matt and his team. They did a good job of being able to get in front of customers, build great relationships, and solve customers' problems as well. Brendan McCarthy: That makes sense. Thanks, Nick. Thanks, everybody. That's all for me. And congrats on a strong quarter. Nicholas Randall: Thank you. Thanks, Nick. So when we What I'm not oh, I was gonna say, you said somebody sorry. So in Q3 2025 was another strong quarter for FreightCar America with revenue up over 42%, gross margins expanding to 15.1%, and record adjusted EBITDA of $17 million, our most profitable quarter since we relocated to Mexico. Operationally, our team in Castanos considers the gains in safety, quality, throughput, cost. Plant footprint enhancements underway will further improve flow, productivity, and margins reinforcing our leadership in that key segment. Strategically, we're advancing our TrueTrack digital integration, vertical integration, and automation while advancing our operational readiness for tank car conversions all position us for future growth and margin expansion with a healthy backlog of 2,750 units by approximately $222 million strong inquiry momentum supporting a recovery and replacement cycle demand, which remain on track to achieve our EBITDA guidance, closing the year with solid profitability and positive cash flow. And with that, thank you very much. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.