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Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Tempus AI Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Liz Krutoholow, Vice President, Investor Relations. You may begin. Elizabeth Krutoholow: Thank you. Good afternoon, and welcome to Tempus' Third Quarter 2025 Conference Call. This afternoon, Tempus released results for the quarter ended September 30, 2025. The press release, and overview of the quarter and our latest presentation are available on our IR website. Joining me today from Tempus are Eric Lefkofsky, Founder and CEO of Tempus; and Jim Rogers, CFO. Before we begin, I would like to remind you that during this call, management may make forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of these risks, please refer to our 10-K and other subsequent filings with the SEC. During the call, we will discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliations to the most directly comparable GAAP financial measures are included in our earnings release and is available on our IR page. I would now like to turn the call over to Eric. Eric Lefkofsky: Thank you. Q3 was a great quarter all around. Our Genomics volume came in super strong with 33% overall growth with Oncology growing at 27% and Hereditary growing at 37%. We expect Hereditary growth will moderate a bit, although we now expect growth to be in the low to mid-20s as opposed to our previous guide of mid- to high teens. Our genomic growth was across the board. Really all of our assays did exceptionally well. And with MRD reimbursement on track, and our planned regulatory filing of our liquid biopsy xF later this year, we expect additional tailwind in that business, both from a unit perspective and revenue. Our data licensing or Insights business grew 38% in the quarter with an additional $150 million in total contract value, which was a super strong bookings quarter for us across multiple contracts that we highlighted in our letter. This is on top of the multi-hundred million dollar foundation model deal we struck earlier this year. So from a bookings perspective, our data licensing business is just really performing exceptionally well. The combination of growth in Genomics and growth in our data business allowed us to generate positive adjusted EBITDA for the first time this quarter, which has been a 10-year goal of ours and a key milestone. This was inclusive of several million dollars worth of additional expense from Paige, which is an acquisition we made mid-quarter. And even with that, we generated a positive EBITDA and would have been close to $4 million in adjusted EBITDA without Paige. So the business is doing exactly what we had hoped. We now expect for the year to be slightly positive adjusted EBITDA, and that's even with the additional several million dollars of drag from Paige. So all in, the business is performing well. We're growing at a rapid pace, and we're managing our costs to generate leverage in the business, which is exactly where we want to be. With that, take some questions. Operator: [Operator Instructions] Our first question comes from Ryan MacDonald from Needham. Ryan MacDonald: Congrats on a great quarter. Maybe, Eric, to start just on the -- in the Genomics business. Obviously, Oncology portfolio continuing to perform very well and a great increase in sort of testing volumes there. Can you just talk sort of click -- double-click a little bit on sort of what you attribute that the great strength in the volume growth here? Are we starting to see sort of a broader market and industry shift to more NGS testing that's sort of just helping see more patients that are just getting sequenced? Or would you say that you're really starting to see a benefit from the execution changes and sort of the sales coverage here with the broader portfolio? Just maybe what sort of Tempus-controlled success, if you will, versus sort of broader industry and market tailwinds? Eric Lefkofsky: Yes. So at a high level, look, our success is maybe slightly different than some others. So let me just talk about, I think, what's driving ours, and then we can talk about some macro phenomenon. In terms of our success, it's predominantly related to the fact that our sales force is more efficient today than it was a year ago. We made significant changes to our sales force when we brought in our MRD portfolio. Any time you make changes to sales forces in this space, you kind of cause havoc. I think people don't really realize how much havoc you cause. And then we all talk about the havoc after it's been caused. We certainly did cause some havoc, which was unintentional, and it's taken us several quarters to work through that. Our sales force is now kind of efficiently trained and doing its job, and so we're benefiting from some of that. And the second is that our technology, which is really tightly integrated and allows us to deliver highly contextualized comprehensive results to physicians is picking up steam as more and more doctors want us to deliver results that help them treat patients in a more comprehensive and more efficient manner. So we're kind of benefiting from those 2 trends. What I think broadly, people are benefiting from certainly, I think testing volumes have been healthy as more and more biomarkers are identified, people are looking to make sure their patients are tested. And so I think that's a general tailwind to the space. And then I think certainly, there are some companies who might be benefiting from the fact that they only offered solid or only offered liquid and so maybe they're now doing more concurrent testing or maybe there's some sequential testing. We're not benefiting from nearly as much of that because we've had a comprehensive portfolio in place for years now. So we don't see any of those kind of onetime benefits. So our unit growth, at least to us, looks really healthy and durable by virtue of the fact that we're not being artificially propped up by some kind of onetime benefit in either solid or liquid assays that's driving the majority of that gain. Operator: Our next question comes from Mark Massaro from BTIG. Mark Massaro: Congrats on a good quarter. I wanted to ask, Eric, maybe can you just -- there's a lot of interest not only in AI and big data, of course, but there's a lot of interest in MRD testing. And so I was just wondering if you could give us an update on how you're thinking about going to market in the clinic with MRD, recognizing that you have a partner in Personalis. I'm just curious how -- whether or not your team is trained, I believe they are. And just can you give us a sense for how fast you might go assuming reimbursement comes in over the coming weeks or months, how do you plan to sort of leverage your large sales team and go to market against a couple of other pretty significant labs in the space? Eric Lefkofsky: Yes. I mean -- so at a high level -- first of all, at a high level, when you have kind of 27% unit growth, leaving aside the Hereditary business, we're operating at a unit growth, which to us is quite healthy. As we've said historically, and we actually, in our letter, have called out that we expect to grow at about 25% for the next 3 years. So that's a fairly exceptional amount of growth. So given our size and scale. And so we don't want to grow 40% this quarter and then grow 20% in Q1 of next year. Like we want sustained long-term unit growth and revenue growth, and we feel like we're in a really good spot to deliver that. So I wouldn't expect us to like get MRD reimbursement and all of a sudden try to like jam as many tests as we can into the market, whatever that means, and kind of artificially buoy our growth rates. I would expect us to kind of dial that up every quarter in a more aggressive manner as reimbursement makes that more affordable. And we will do that. We have a really good portfolio of both naive products and informed products that span CRC, breast, lung, IO. And we've got a whole bunch of -- which we also talked about in our letter, a whole bunch of new studies being run with even a more sensitive version of our tumor-naive assay. So we're investing heavily in the space as is Personalis, and we have a really nice portfolio of tumor-naive and tumor-informed MRD assays. And we will certainly leverage our large sales force. We also have a subset of that sales force that's well trained in MRD, and we'll continue to dial that up. I wouldn't expect us to do anything unnatural in terms of investments in the sales force or anything unnatural in terms of growth, but it will certainly help us. It's one of the elements of tailwind we have that we believe can propel us to 25% growth in that space for the next 3 years. And if you kind of look at the size of our business and go out 3 years, you're looking at a pretty large Genomics business in Oncology at that point. Operator: Our next question comes from Dan Brennan from TD Cowen. Daniel Brennan: Congrats on the quarter. Maybe just on the new contracts, Eric, the company hasn't really been disclosing, I don't think, new bookings. You had the Pathos deal earlier in the year, but obviously, I think it's been an annual basis. So just kind of walk through the $150 million. You had a lot of details in the press release, all the different customers. But just can you fill us in a little bit about why disclose this? Like kind of why did these come together here? Maybe if you want to update us on what the backlog looks like today since you're giving us the bookings number. Just any more color on this trajectory and whether there was -- were you expecting these this year or next year? Just any more color you can provide since it is a pretty differentiated call out in the quarter this time. Eric Lefkofsky: Yes. I mean -- so I think, first of all, we have -- we try to provide some color in previous quarters as to the size of some of these data deals. So we -- this isn't the first time we call out at a customer level or even at a kind of a dollar level, the size of these deals, including the fact that we called out that with the AZ, Pathos deal with several hundred million dollars of additional data licensing. So we try to call these things out when they rise to a level that we feel like we should call it out. So in other words, if we have a -- if we're just closing contracts in a normal cadence, we might just refer to 1 contract or 2 contracts. If we think something bundles together in a way that's worth calling out and worth highlighting, then we highlight. There's no rhyme or reason to why this quarter versus other quarters. We don't want to be in the habit of every quarter being like, oh, our bookings was $56 million or $152 million or whatever, $212 million because it's just -- it creates noise as if that number somehow translates into revenue in the next quarter, and it doesn't because these bookings, like all of our bookings are over multiyear. So if we sign $150 million in data licensing today, it doesn't mean my revenue next quarter or next year is going to go up $150 million. These are typically multiyear deals, and so we try not to cause a havoc. Our total contract value is in a great spot. We'll disclose it at the end of the year. We told people we'll give that number annually. But it's obviously -- we've already told the world about more than $350 million of bookings in just 2 data points. So you can imagine it's well north of that. And so it's in a really strong spot. And when we do disclose the number annually, it will be -- it's a great number. So it's doing all the things you'd want it to do, which is up and to the right. And at the present moment, we're having really strong success even at our scale, signing good size or large data licensing deals. We called out 4 in this particular release. Some of them are people licensing our analytics software lens. Some of them are people licensing libraries of data or having us get additional data. But these are kind of garden variety deals where people increasingly come to us because our data product is just really differentiated. And you can see that in terms of the scale of our business, the growth of the business relative to our peer set who are all really established companies. I mean if you look at who we compete with in diagnostics, these are not underfunded companies. They're big companies, they're well funded. They've been in business typically way longer than us. To the extent they should have data, they should have lots of data. And so when you look at our data business growing in theirs, the differentiation is the fact that we just have a unique data asset. We've invested in a ton of products around that, including proprietary software and tools and technology. It resonates with people who license our data. They license more of our data on a regular basis. And so we're just pulling further and further apart from anybody else we know of in the data space in Oncology. And I don't see any sign of that slowing down. Operator: Our next question comes from Casey Woodring from JPMorgan. Casey Woodring: So starting off, just congrats on another strong quarter in core Oncology volumes. You had another competitor come out recently and also report strong liquid therapy selection volumes. So just wondering if you're seeing a similar pickup in xF and more of a marketed shift towards liquid? And then as a follow-up here, you talked about plans to submit xF for FDA approval in 4Q, followed by a full PMA submission for xR. Once you get FDA approval for those tests, I assume they would be eligible for ADLT status. So can you just walk through how you're thinking about the potential upside to the Medicare list price for those tests over the next year? And what we could think about as a benchmark really for the price that you'll try to get for them? Eric Lefkofsky: Yes. So in terms of -- so Tempus is unique in that we are now considered strong really across the entire continuum. So we're strong in Hereditary profiling when people are at risk. We're strong in therapy selection, either solid tumor or liquid biopsy, and we now have a strong offering in MRD and monitoring. So people kind of look at us end-to-end. So the interesting thing is we are probably in a pretty good position to see some of these big shifts, and we didn't see that. So we had really good growth in our solid tumor assay. We had really good growth in liquid. Nothing stood out at us as like a fundamental shift from solid to liquid. We had really good growth, certainly year -- prior period over this across both. So that said, I would agree that if with certain studies like, for example, SERENA-6, some of these studies where you might have more repetitive liquid testing, I could see over time, there being some additional volumes to our liquid portfolio that we and others might benefit from. But at the present moment, I haven't seen any seismic shift, although, again, I think the growth prospects for solid are great as more and more doctors order it and liquid probably even better because you're going to benefit from some of that serial testing. James Rogers: And then, Casey, from a reimbursement perspective, as we've said, we have the long-term tailwinds remain there. xT CDx, we ended the quarter with about 30% of the volume that had been migrated. We now have plans to move the majority of that over to the FDA approved or ADLT version throughout 2026. In the letter, you also mentioned that we're submitting xF to the FDA by the end of this year. Obviously, that's a long process, so we can't speak to specific reimbursement levels. But certainly, ADLT typically provides upside from where we're at today, and that will follow by xR. So our viewpoint, total reimbursement on average is $1,600 for the third quarter, so up about $20 sequentially, but still well below parity with our peers. So given kind of these efforts, these regulatory filings, that certainly will help us close that gap. Operator: Our next question comes from Doug Schenkel from Wolfe Research. Colleen Babington: This is Colleen on for Doug. We have a question about Ambry. Ambry continues to perform well and ahead of expectations. We believe that last quarter growth was driven about half by share gains and half by organic expansion. Can you clarify what the mix was this quarter? Also, a competitor reported last night that its Hereditary cancer volumes grew low double digits in Q3 should we, therefore, be thinking about industry growth in the low double-digit range as a reasonable baseline? And within that context, can you elaborate on how Ambry's growth compares to the broader market? And then finally, on Ambry, can you clarify the mix of panels, like larger panels like cancer next versus more targeted panels and how that impacts how we should be thinking about the ASPs going forward? James Rogers: Yes. So I'll start and then Eric can chime in. So similar to last quarter, about 50% of the gain is coming from share gains. As we highlighted in the letter, we expect that to moderate in Q4. And so we think kind of low to mid-20s is a more likely scenario than kind of where we're tracking today. Obviously, in terms of competitors, we can't speak to the share gains that -- or growth rates that others are experiencing. But Ambry continues to do well, both with bringing on new customers that are previously utilizing our competitors and then also continuing to expand kind of share of wallet with existing accounts. Eric, anything you want to add? Eric Lefkofsky: Yes. I mean in terms of the overall market, I would think that -- I think the space is much stronger than people thought. We've said that now on the last several calls. So I think whereas people thought this space might be kind of flat to anemic growth, you're now seeing people be like, oh, yes, we're growing in low double digits, which I think is probably right. We suspect that our Hereditary business will grow in the low to mid-20s, so kind of significantly above that by virtue of the fact that we have kind of the gold standard assays in market today in that space. Look, it is possible that you're going to see growth rate in the high 20s or low 30s. I mean that could easily happen, whether it's in Q4 or Q1 or Q2. And like we have historically, we're going to call out that I wouldn't expect that to continue as a long-term trend. We think a long-term trend, low to mid-20s is -- it feels pretty healthy to us and achievable, and that's where that business is. Do you want to cover the ASP piece? James Rogers: Yes. And then in terms of kind of breakdown of assays, we don't disclose the assay level detail. The ASPs have been pretty consistent over the last couple of quarters, down a little bit year-over-year as one of our larger payers kind of renegotiated agreements. But overall, pretty stable in terms of the Hereditary space. The only thing that will impact ASPs is the rare business is still a relatively small component of overall testing for Ambry, but that comes with a higher ASP. So as that continues to scale, then that will have some impact on ASPs as well. Eric Lefkofsky: And I would just add to that really quickly. There aren't a lot of rare companies out there. I mean, we are now at some size. There's a few others. Obviously, GeneDx is well known. But there's not many. And I do think that we will make real ground over the next 12 to 18 months in becoming a very big player in that space. Operator: Our next question comes from Michael Ryskin from Bank of America. Parth Talsania: I want to follow up on the last one on Ambry, but maybe tied into a bigger picture one. Just if I'm looking at the guide, the raise for the guide for the year looks like you bumped it up effectively for the 3Q beat. But just your comments on Ambry just now, if you're going from mid- to high teens to low to mid-20s, by our math, that adds about $20 million of revenue to the full year. So is there something else that's offsetting it where you're taking something out of the legacy Genomics business or maybe data and services? Just if you could talk about the bridge a little bit and sort of how that rolls up to the full year, that would be helpful. James Rogers: Yes. So I'll start and then Eric can chime in. So the Q3 growth rate was about 32% for Ambry. So we're saying it's going to go from 32% down sequentially into Q4. So not an increase in Q4. Eric Lefkofsky: But even still, let's assume that, to your point, if Ambry is outperforming by x amount of money, call it, $15 million or $20 million a year, and that might equate to a $5 million benefit in Q4. We just take the approach that we've always taken, like we try to look at it and say, if we have a beat, beat and a raise, that's great. But we don't need to get ahead of our skis. There's no benefit. We want to be in a place where we're consistently overperforming, outperforming expectation. And we don't need to artificially raise expectation for no reason, especially when the core business is growing at 30%. If we were growing at 4%, we might be like, oh, God, we need to raise expectation. But our business is growing at a really healthy rate, and we want to constantly orient people around whether we grow at 31% in Q4 or 29% or 30%, that doesn't really matter. What really matters is -- can we deliver 25% growth, not just for the next 3 years, but for the next 10 years? If we can, this will be a very, very big business. So we're architected around long-term growth, not short term. That's how we guide. Operator: Our next question comes from Subbu Nambi from Guggenheim. Ricki Levitus: This is Ricki on for Subbu. There is a bit on this in the letter, but could you share any updates on your work on the foundation model with AstraZeneca and Pathos and maybe what the next milestones we should be looking for here are? And is there any benefit you could speak to from the Paige acquisition in the foundation model work? Eric Lefkofsky: Yes. So the foundation model is just finishing the pretraining phase right now. It's going exceptionally well in terms of like the all the -- you run all these small models, both single models and multimodal models and see how they perform and are they predictive and you're measuring them against kind of these common benchmarks like C index to see how they're doing. All that's going incredibly well. The teams feel great. We're kind of entering the phase of large compute over the next several months. And then when that is done, we begin post training later this year, kind of early 2026, and we expect to have kind of the first versions of the model in Q1. In general, the team is super happy with the progress we're making, both on every side. And so there's no kind of red flags. And I would -- we're in the midst of procuring additional GPU capacity. We feel like this is just an advantage we have, and we want to lean into it and double down. And we're going to address our -- if you look at -- and we called this out in the letter, if you look at Tempus relative to other companies, we're going to look and smell and feel like a tech company in many ways, including lines of code we write, amount of money we spend on cloud and compute, number of software engineers we have on staff. And we're in a world where AI is coming and we happen to be perfectly situated, we think, we're investing in that heavily. And I think instead of us taking our foot off the gas, we will continue to press forward. Paige is awesome in that they have their own foundation model work going on in digital pathology. They have a tremendous team and have made really interesting progress there. Those teams are now connected. They're now part of our foundation model team. We're aggregating some of that data and trying to understand the insights. And so there's just quite a bit of good momentum that comes from that. And we're excited to see where it goes. Operator: Our next question comes from David Westenberg from Piper Sandler. David Westenberg: I'll focus a little bit more on the long term. Generally, the reimbursement system, CPT codes, et cetera, have generally worked on reimbursing for what you're doing in the wet lab. Now you've accumulated a lot of data and you have a lot of strong analysis interpretation. Do you believe that the health care system can effectively start to reimburse for really the challenges around data interpretation and analysis? And do you believe there's still a major -- or do you believe there's still maybe a differentiation with what you do in wet lab with, say, air correction? Eric Lefkofsky: Yes. I mean -- so look, when we think about the business, and if you look at the kind of guide we laid out the longer-term guide of growing at 25% for the next 3 years, we build that guide almost entirely looking at the growth we can see in our diagnostic business and our data business because those are big businesses, predictable, operating at scale, really good growth rates, really good margin. We understand them. We have a very hard time predicting the growth rate of some of these algorithms we have in market, effectively, to your point, this dry lab CPT code stuff. We have a hard time predicting the revenue associated with that because at the present moment, it isn't well reimbursed, if at all. We believe at some point, that will change. We believe at some point, that has to change or the health care system in this country is in danger of real problems. We just can't afford $5.7 trillion a year, growing at 7.5%. Their only solution to this problem is some amount of intelligence, call it AI, that allows us to understand where error is occurring, where waste is occurring, where mistakes are occurring, where we can be predictive and preventative, that's going to have to be paid for or it isn't going to scale. When that's paid for, Tempus is in a really unique position because we have a lot of this. We invest a lot of money embedded in our results, even with positive EBITDA, generating a ton of algorithms. I mean a lot. We have algorithms in digital pathology, radiology, cardiology, neuropsych, oncology, up and down the spectrum. And so when these things are paid for, we can distribute them across the over 5,000 hospitals connected to our ecosystem very quickly. And many of these things are already FDA approved, and so we suspect our path to reimbursement will be very quick if there is a path to reimbursement. And if -- and I've said this historically, if Tempus ever has its NVIDIA moment or whatever that moment is, it's going to be because one of these things starts to get paid for or 2 of them or 3 of them, and they just scale rapidly. So in the wet lab, you might go from $100 million of revenue to $150 million of revenue, that would be a very heavy lift. But in the algo world, you go from $100 million of revenue to $1 billion of revenue overnight because you're distributing zeros in 1s instead of having to kind of collect biospecimens and run a test and distribute it. So it just scales differently. So I'm hopeful they will get paid for. I can't see any other way out of this mess, and we're well situated. Operator: Our next question comes from Mark Schappel from Loop Capital Markets. Mark Schappel: Eric, a question on Paige AI. In addition to their AI pathology applications, I believe they also bring some synergies and leverage to your genomic diagnostics business. I was wondering if you could just provide some additional color or details on how Paige actually complements or works with your diagnostics business. Eric Lefkofsky: Yes. I mean it will work beautifully. Obviously, we just acquired Paige like very, very recently. So some of these things are being integrated now, but I'll give you just one example of ways in which digital pathology can enhance sequencing. So first of all, some percentage of the time sequencing doesn't work. It just doesn't work. You can't sequence the patient. Now it's a low percentage, but it's real. It's called kind of QNS. The results just don't -- they aren't delivered. Or some percentage of the time, you don't get enough material to even run sequencing. You just don't literally have enough material, high enough tumor percentage to even sequence the patient. In these instances, today, we say to a doctor, I can't help you. I don't have a result. But in a world where you have these digital pathology algorithms that can be deployed that can predict the most common mutations that might exist from sequencing, and Paige already has some of these in flight with more coming, one FDA approved, others from the FDA, you can basically return results to physicians even when NGS fails. Likewise, you can imagine a world where a certain number of results are really critical to get very quickly. For example, if a patient has non-small cell lung cancer, you want to know if they're EGFR mutated in 1 or 2 days. And so another benefit of integrating these things is we will be able to make some number of predictions very quickly. So we've always thought that the winning answer here was through this kind of multimodal approach to looking at the totality of data that can be generated for a patient and producing the highest quality data-driven insights as fast as possible. And those are never -- typically never single data modality driven. So we want to live in a world where we're every bit as good at generating molecular data as we are generating digitized pathology data or understanding a CT scan or an MRI or mammography. And if you look at our investments, we make investments along those lines. And I think it will over time, similar to the way if you look at Amazon, let's say, 20 years ago, you may have said, oh, whatever, they deliver books or maybe they deliver books in consumer electronics, and they're not that much better than eBay. But if you start to fast forward 5 years, 10 years, you can see the differentiation by Amazon's ability to kind of give you anything you want instantaneously. And that's because of the investments they made in depth of product and speed of distribution. And we're making similar investments or at least the corollary of similar investments in our portfolio today. Operator: And in interest of time, our final question comes from Dan Arias from Stifel. Daniel Arias: Maybe one on MRD. You guys have been pretty clear about not having plans to spend a bunch of money on big studies, but it does sound like you're investing there. And so to the extent that, that involves R&D, is there data next year that we should look out for? It does seem like we're going to have a whole slew of high-sensitivity assays coming to the market over the next 12-plus months. So I just want to make sure we have our eyes on the right things and updates from Tempus within that discussion. Eric Lefkofsky: Yes. I mean I would say we put out -- and I think this is called out in our investor deck, like it's -- we put out publications posters presentations constantly. I mean it's a crazy number. I just looked at the SITC press release, it's got like 7 papers coming out or something. So we put this stuff out pretty regularly. In terms of big studies, I think we called out in the letter that our -- on the tumor-naive side, we're in CRC today. We're running a non-small cell lung cancer study right now. We likely will go back and look at some of our CRC work. And I suspect you'll get some data coming out about both of those next year. Beyond that, we might bleed into early '27 in terms of other disease areas or other disease indications that we go into. But we expect to have really interesting data in market next year from our tumor-naive assay in both lung and CRC. And we believe we're hitting metrics that are just super powerful on the tumor-naive side that will allow us to kind of go head-to-head against some of the tumor-informed guys by virtue of some of the enhancements we've made internally with -- we have 400 PhDs around here. So it's a fairly large and talented technical team. In terms of tumor-informed, I'll leave it to Personalis to kind of provide you their road map of what's coming and what studies they're doing, but they too are investing, I think, quite heavily. Operator: That concludes the question-and-answer session. I would now like to turn the call back over to Liz Krutoholow for closing remarks. Elizabeth Krutoholow: Great. Thank you. Thanks all for joining us today. We look forward to updating you again next quarter. Operator: This concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Niagen Biosciences, Inc. Third Quarter of 2025 Earnings Conference Call. My name is Tamika, and I will be your conference operator today [Operator Instructions] And as a reminder, this conference call is being recorded. This afternoon, Niagen Biosciences issued a news release announcing the company's financial results for the third quarter of 2025. If you have not reviewed this information, both are available within the Investor Relations section of Niagen Biosciences website at www.nigencience.com. I would now like to turn the conference over to Kendall Knysch, Senior Director of Publicity and Public Relations. Please go ahead, Ms. Knysch. Kendall Knysch: Thank you. Good afternoon, and welcome to Niagen Bioscience, Inc.'s Third Quarter of 2025 Conference Call. With us today are Niagen Biosciences' Chief Executive Officer, Rob Fried; Chief Financial Officer, Ozan Pamir; and Senior Vice President of Scientific and Regulatory Affairs, Dr. Andrew Shao. Dr. Shao will join the call for Q&A. Today's conference call may include forward-looking statements, including statements related to the company's research and development and clinical trial plans and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of Niagen products and ingredients in new markets, business development opportunities, future financial results, cash needs, operating performance, investor interest and business prospects and opportunities as well as anticipated results of operations. Forward-looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurance to the actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause Niagen Biosciences' actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These risk factors include those contained in Niagen Biosciences' quarterly report on Form 10-Q most recently filed with the SEC, including results of operations, financial condition, cash flows as well as global market and economic conditions on our business. Please note that the company assumes no obligation to update any forward-looking statements after the date of this conference call to conform with the forward-looking statements, actual results or to changes in its expectations. In addition, certain financial information presented in this call references non-GAAP financial measures. The company's earnings presentation and earnings press release, which were issued this afternoon, are available on the company's website, present reconciliations to the appropriate GAAP measures. Finally, this conference call is being recorded via webcast. The webcast will be available at the Investor Relations section of our website at www.niagenbioscience.com. With that, it is now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried. Robert Fried: Thank you, Kendall. Good afternoon, everyone, and thank you for joining us on today's investor call. For the third quarter, I am quite pleased to share that we delivered yet another record performance with $34 million in revenue, a 33% increase year-over-year and net income of $4.6 million compared to net income of $1.9 million last year. We ended the quarter with $64.3 million in cash and no debt. Our e-commerce business continues to anchor our growth, delivering net sales of $19 million, a 29% increase year-over-year. The distribution business grew 109% year-over-year with $7 million in revenue, while our Niagen ingredient business remained steady, bringing in $6.9 million. During the third quarter, we onboarded a new strategic partner with access to a network of over 8,000 medical and health care practitioners, strengthening the Tru Niagen distributor revenues. This partnership supports our ongoing mission to educate health care practitioners, patients and consumers that Niagen is the most efficient, effective and only legal and highest quality NAD booster available. It also expands our communications engine to amplify awareness of Niagen's 40 peer-reviewed published clinical studies, our new study results and the healthy aging benefits of Niagen. Niagen Plus remains a key strategic focus for the company. In August, Niagen Plus at-home injection kits were launched, now only available to patients with a prescription from their practitioner, but we plan to expand distribution of the at-home injection kits via our own telehealth platform and leverage our e-commerce expertise to reach more patients. Last month, we announced that we added iCRYO to our clinic network and are currently in over 50 of their clinics nationwide. As of today, we have now onboarded more than 1,000 wellness and health care clinics across the United States to offer our Niagen Plus product line. As most of you may have noticed, the NAD market in general continues to expand quite rapidly, yet it is still only met a fraction of its potential. The supplement and injection markets are still at early stages, but there also remain considerable opportunity for NAD boosting innovations in skin care, cosmetics, food, beverage and of course, in drug applications. But it is critically important for everyone to understand that the NAD molecule itself is very large and is a nucleotide, meaning it cannot enter cells directly. It is therefore, ineffective at directly boosting NAD levels. One needs a precursor to enter the cell and then convert into NAD. And of course, the best precursor by quite a lot is Niagen NR. This is likely the reason why NAD IVs take hours to ingest, and they have significant unpleasant side effects. There are no studies that show that oral NAD supplementation increases cellular NAD. Yet, as you know, we have over 40 published peer-reviewed clinical studies in NR. Indeed, last month, the National Advertising Division, an independent advertising review arm of the Better Business Bureau, agreed with this position. Niagen Bio made a formal challenge against one particular company that was making false claims about its products that feature the NAD molecule. The National Advertising Division found that this company lacked human clinical evidence to support claims that NAD itself elevates NAD levels in the body since NAD itself is not bioavailable and there are no published human studies, oral or otherwise, demonstrating that it elevates cellular or tissue NAD. The National Advertising division's decision affirms the importance of scientific substantiation for safety and benefit claims in an industry quite crowded with brands seeking to capitalize on this big trend. At the end of September, the FDA reversed a prior determination that nicotinamide mononucleotide, NMN could not be lawfully marketed as a dietary supplement. We believe this decision will face quite strong opposition, and we expect further challenges. But even when NMN was prohibited from being on the market, the companies that are selling it presently were selling it. They were ignoring the previous FDA decision anyway. And what we see in the month since the decision is the same companies are continuing to sell at a comparable pace. We also will note that we and others have tested many NMN products on the market and most do not meet product label claims. It's important to highlight that the businesses that have been and continue to sell NMN are likely infringing on existing NMN patents that are owned by Niagen Bioscience and another company throughout the global market. So technically, NMN continues to be illegal. While NMN as an NAD precursor does elevate NAD levels, Niagen is the superior scientifically validated, safe and most efficient and effective way to elevate NAD levels. Last quarter, I discussed 2 studies investigating the effects of NR supplementation on patients experiencing symptoms of long COVID. One study conducted by Harvard University examined the effect of NR supplementation on fatigue, depressive symptoms, sleep quality and cognition. This study will be published later this month. There is also another study conducted in Norway that is undergoing peer review. We continue to make steady progress toward Parkinson's disease and ataxia telangiectasia or AT indications. As mentioned last quarter, the Phase III NOPARK clinical trial was completed in June, and we expect the results of that study to be published in early 2026. We are incorporating the FDA's feedback into our strategy for AT and continue to engage with the agency to prepare for an investigational new drug application. In an industry often marked by unverified claims and inconsistent quality, Niagen Bioscience stands apart for its scientific rigor, authenticity, integrity, transparency and innovation. While we maintain portfolio of several NAD precursors, nicotinamide riboside patented as Niagen is the most efficient, effective and extensively researched NAD precursor, as we have said, supported by over 40 peer-reviewed clinical studies with more than 50 patents and used in over 300 research collaborations. I am and I remain proud of the team's commitment to the company's initiatives and of the progress we have made over the years. Our 25-plus year mission is rooted in one goal, delivering scientifically proven solutions to address one of life's greatest challenges, aging. I would like to hand the call over to Ozan to run through the quarter's financials and then on to Q&A and closing remarks. Ozan? Ozan Pamir: Thanks, Rob. It is a pleasure to once again address our investors, partners and team members today and present another quarter of exceptional results. As Rob highlighted, we delivered another quarter of record revenues and continued profitability. This performance we're seeing is a testament to our team's commitment to operational discipline and delivering on our key initiatives and to the growing general awareness of Niagen as a premier solution to boost NAD levels. In the third quarter of 2025, we brought in $34 million in revenue, an increase of 33% or $8.4 million from the same period last year. Tru Niagen revenue grew by 44% to $26 million, a $7.9 million year-over-year increase, driven primarily by e-commerce revenue of $19 million, which was 29% or $4.3 million higher. Our Niagen ingredient revenue was $6.9 million, up 4% or $300,000 year-over-year. Within the ingredients business, we delivered $6.4 million in food-grade Niagen sales to key partners and $0.5 million in pharma-grade Niagen sales. Tru Niagen distribution remains a key growth opportunity, both domestically and internationally. While we anticipate quarterly fluctuations with Watson's, we continue to work closely with them to strengthen Tru Niagen's brand presence in Hong Kong and to launch Tru Niagen in additional Asia Pacific markets. Domestically, we're focused on expanding our distribution through partners with access to health care practitioners and other key channels, which contributed to the growth in the third quarter. As Rob mentioned, our new partner will give us access to thousands of medical and health care practitioners, a key part of our efforts to reinforce that Niagen is the most effective, efficient and clinically validated NAD booster while amplifying awareness of the growing body of clinical research supporting it. Our gross margin improved to 64.5% in the third quarter, up 100 basis points compared to 63.5% a year ago. This improvement was driven primarily by changes in product mix, improvements in labor and overhead utilization and the use of lower cost inventory purchases and production. While we expect that gross margins will improve year-over-year on a full year basis compared to 61.8% in 2024, we expect that gross margins will normalize on a quarterly basis moving forward. Selling and marketing expense as a percentage of net sales improved to 25.8% compared to 27.5% in the third quarter of 2024, reflecting our continued investments in growing global brand awareness of Niagen and doing so efficiently. Research and development expense was $1.8 million, $0.5 million higher year-over-year. Science continues to be the cornerstone of our company as we continue to invest in research and innovation to further our studies and R&D projects. General and administrative expenses totaled $7.1 million, an $800,000 increase compared to the previous year. This increase is primarily driven by increased share-based compensation expense. And finally, our net income for the third quarter of 2025 was $4.6 million or $0.06 per share, a significant improvement compared to $1.9 million or $0.02 per share for the third quarter of 2024. Turning to the balance sheet and cash flow. Our balance sheet continues to strengthen. We ended the quarter with $64.3 million in cash and no debt. For the 9 months ended September 30, 2025, net cash provided by operations was $12.8 million compared to $3.5 million in the same period last year. This year-over-year increase was mostly driven by an $11.9 million increase in net income, along with other positive shifts in working capital, such as higher accounts payable, significantly improved collections on trade receivables and increased share-based compensation expense compared to the prior year period. These were offset by increased inventory levels to support operational expansion. Regarding our full year 2025 outlook, detailed information on key financial metrics can be found in our earnings press release and presentation. Building on the strong momentum year-to-date, we recently revised our revenue growth guidance from 22% to 27% to 25% to 30% year-over-year. We remain confident in our updated full year guidance, supported by our strong e-commerce business and existing and new partnerships in the rapidly expanding NAD market. We're also revising our outlook for research and development expenses to decline as a percentage of net sales while still increasing in absolute dollars compared to our previous expectation of remaining stable as a percentage of net sales and increasing in absolute dollars. This adjustment reflects changes in timing of studies and projects. Finally, we are revising our outlook for general and administrative expenses. We now expect expenses to be up $8 million to $9 million in absolute dollars year-over-year compared to the previous expectation of a $7 million to $8 million increase. This change in G&A expectations is primarily driven by increased share-based compensation expense. One year into my tenure as CFO of Niagen Bioscience, I want to express how proud I am to be part of an organization that not only leads and defines the NAD category, but does so with integrity and professionalism. Looking ahead to 2026 and beyond, I'm confident in our ability to deliver significant returns to our shareholders. Operator, we're now ready to take questions. Operator: [Operator Instructions] Your first question is from the line of Jeff Cohen with Ladenburg Thalmann & Company. Destiny Buch: This is Destiny on for Jeff. I'm curious with the new partnership for IV, I'm curious to know what the uptake is looking like, any feedback you've received from those clinics? And if you're getting any sense, which potentially no, but if you're getting any sense of what the number of patients they're treating per week or month, whatever clarity you have there is great. Robert Fried: It's a little early, Destiny, for that. They just made the purchase towards the end of the quarter. And so they've only just begun the process of reselling the material to their physician network and presenting it. So we don't have any direct feedback from them yet. Destiny Buch: Okay. Got it. And then I'm curious with about NAD, where does this fit in your marketing funnel? Is this something that a potential consumer would see early on? Or is this something that would maybe fall a little later further down the funnel prior to purchase? Just curious. Robert Fried: With regard to NAD? Destiny Buch: Your AboutNAD site. Robert Fried: AboutNAD. Sorry. The AboutNAD website is something that we maintain, but it's an objective website. There are no -- it's not -- it's actually not in any way connected to or part of the purchasing funnel. It's just an information resource for journalists, investors, researchers, people who are generally interested in the true up-to-date science of NAD, -- what are the actual published studies, clinical and preclinical. As you know, as a dietary supplement company, the rules are clear, and we stick to the rules that one cannot imply a claim for a disease state, even if your product cures a disease. So if one conducts a study on a disease and it's actually therapeutic or prophylactic, they're very limited in what they can do with the information. So AboutNAD is a great resource where we can publish all the studies, not just the Niagen studies, but all NAD-related studies. So people can go, go to the search bar, type in any disease indication that they are concerned about or want to know about. And we'll see the studies that have been published to date without any noise of commerce or any attempt to try to push a product. Operator: Your next question is from the line of Susan Anderson with Canaccord Genuity. Susan Anderson: Nice job on the quarter. I guess maybe just a follow-up on the at-home injection. So it sounds like they're at physician offices. Are they at all of the offices, I guess, where you can also go to get the injection in office? And then also, how should we think about that rollout? Will they go -- will you go into other distribution? And then I think you mentioned you're going to put them on your own telehealth platform. So maybe if you could talk about that a little bit. How should we think about that getting up and running? And will this be in conjunction with your own DTC platform as well? Robert Fried: Yes, that's an important series of questions. Thank you, Susan. We do believe that the at-home kits are important for our future. But we are doing it like most things that we do carefully and slowly. And although there is an at-home kit available in the market, one needs to go to a clinic to purchase it at this point in time. And we're still working on the user experience to make sure that it's optimized. So it will be several months at least before it is available on our website. We are developing our own telehealth capability where one could go to truniagen.com or niagenplus.com and get a prescription from a physician online, much like the classic telehealth companies, and it would be delivered to their home via a pharmacy. But that -- we don't expect that functionality to be available for maybe 2 quarters probably, middle of next year. We do expect that some of the existing telehealth companies that are out there right now will be making it available to their customers. There are studies being done presently on Niagen injection as a potential complement to GLP-1. As you know, one of the leading side effects for these GLP-1s are muscle loss. And we believe that there is a benefit to getting NAD with Tru Niagen or with Niagen Plus to muscle density. So we hope that the results indicate that. And if that's the case, we expect to see some of the existing telehealth companies to offer it either in addition or as a complement to their GLP-1 products or as a separate stand-alone anti-aging at-home injection product. We expect that also to be somewhere in the middle of next year. Susan Anderson: Okay. Great. That was actually going to be my next question. So I assume you're already in conversations with them. And I guess, are there multiple other telehealth platforms that you're talking to? Robert Fried: Yes. Susan Anderson: Okay. Great. I guess just looking at Tru Niagen, I'm curious since the FDA's announcement on NMN, have you seen any change in purchasing behavior by consumers, I guess, in your own products, whether that's higher or lower or just changed behavior at all since the announcement? Or do you think it was really kind of a nonevent? Robert Fried: Yes. It's only been 5 or 6 weeks, and we haven't noticed anything yet. We've seen basically the sellers that never stopped selling and continuing to sell it, maybe 1 or 2 new brands that we never heard of. None of the existing established reputable play by the rules brands have entered the space, probably mostly because they know that there's a very good chance that the FDA will reverse this reversal again and because there are patents. And most of the well-managed reputable companies in dietary supplements don't blatantly go against existing patents. The ones that play in the space, the main beneficiaries of that rule are these Chinese manufacturing companies. It's all coming out of China and the smaller earlier-stage dietary supplement companies that generally don't really care much about the rules anyway. And as you know, we've tested many of the existing NMN products on the market and very few of them actually met label claims. Some of them had actually no NMN at all. We think NMN has in its purest form, an ability to elevate NAD, not as well as Niagen, obviously, but it still does it. It's still an effective way to elevate NAD. But at this point in time, we're not seeing any meaningful impact from the change in that rule. Operator: Your next question is from the line of Raj Selvaraju with H.C. Wainwright. Raghuram Selvaraju: Hear me? Robert Fried: Yes, we got you. Raghuram Selvaraju: Sorry about that. A couple of technical difficulties. Just wanted to ask about 2 aspects here. Firstly, I wanted to see if you would be in a position at this juncture to elaborate on the possibility of establishing a stand-alone entity to pursue pharmaceutical Rx applications of nicotinamide riboside, particularly in the context of Parkinson's disease, but not limited to Parkinson's disease. And if you could maybe talk through some of the key decision-making factors that are likely to influence the timing and the nature of the manner in which you might go about establishing a stand-alone entity or venture to pursue those initiatives. Robert Fried: Thank you. It is likely that we will set up a stand-alone entity to manage the pharmaceutical pursuits. As you know, the 2 primary indications at this point are Parkinson's disease and ataxia, AT, telangiectasia. There are other disease indications for which we've been doing studies. Some have been early stage have been published, others are ongoing. But at this point, we're waiting for some of these studies to be completed so that we can see the results. And we've had conversations with a number of pharma companies. And I think that the results of those studies and the results of those discussions will dictate when we exactly set up that separate entity and put all those rights into that entity. We might begin segment reporting in the next quarter or 2. Raghuram Selvaraju: That's very helpful. Also, I wanted to ask about, more broadly speaking, how you are thinking about, in particular, the Niagen Plus -- the Niagen Plus IV applicability in the context of, for example, broader access for GLP-1 medications, the continued prevalence of compounded versions of those drugs. And in particular, if you could perhaps quantify for us, now you've indicated through your press release that this manifestation of the product is available in over 1,000 clinics. Maybe you could give us a sense of how large that segment actually is in terms of the total number of clinics in which the product could be positioned and how long it might take for you to reach sort of steady-state maximal penetration in this segment, please? Robert Fried: The way we view that segment is in 2 groups and then there are subgroups of those 2 groups. There's the injection market and then there's the IV market, and they're distinct markets. The IV product itself will deliver a much higher dose. The injection market does still go straight into the bloodstream, but it's injected at much smaller doses and generally takes place over a period of time. We think the -- both injections and IVs are available in the clinics. And we think there are 2,000 to 3,000 of these IV clinics or wellness clinics in the U.S. But there are also several thousand physicians that administer NAD IVs or injections in office. So part of the reason we did this deal with this third-party company is to begin accessing actual physicians' offices to administer some of these IVs and injections. So we think between the 2 markets, then there is even a potential third market, these Botox clinics, it could be as much as 10,000 individual offices in terms of the clinic market. Again, the clinic market is both IVs and injection. When we endeavor to pursue this business, which is quite different than the dietary supplement business, although it's a similar molecule, but it's a molecule pharmaceutical grade, very, very different supply chain and manufacturing process and approval process. And Ram, as you know, we've also everything we do, we also apply for support patents, which we've done in the Niagen Plus business in addition to all of our ingredient and supplement businesses as well. But it's a very, very different vertical with different operations, although the molecule is quite similar. But when we endeavored to get into this business, we didn't contemplate the at-home injection market, GLP-1s. It took us several years, 5 years or so to get to where we are now in that business. Now we realize that there are tens of millions of people who are willing to self-inject in order to stay thin or get thin. And we're hopeful that there will be many people that are interested in self-injecting in order to stay young or to complement the GLP-1 products that they're injecting with. So the injection market, as we look at it today, appears to be significantly larger as an addressable market than the clinic market or the straight IV market. The other thing we didn't know about at the time when we first entered this was the telehealth market in general. We started this process prior to COVID. So now we see the telehealth market is expanding quite rapidly, and it provides a fascinating service to the average consumer, integrating physicians' prescriptions as well as very convenient and well-priced medications delivered straight to the home. So we see that as a very significant opportunity for Niagen. And from what we see in that telehealth market and in the clinic market, the players in that space seem to so far agree with it as well. One headwind that we've noticed so far is -- we have one very good partner in the compound pharmacy space who compounds Niagen and productizes it. They sell at a fairly high price and then they sell it to the clinics who then sell at an extremely high price. So the price to consumers of getting these IVs at this point is quite high. They've positioned it very much like a Rolls-Royce in this space. We think that until those prices come down to more manageable levels, the volume is not going to reach its potential. So right now, it's not a huge business for us, this pharmaceutical ingredient business that's catering to Niagen Plus. And we don't think it's going to really take off in a significant way until those 2 things happen. Those 2 things being, number one, the injection market, particularly the telehealth market embraces it. And number two, the overall pricing at the clinics and physicians' offices comes down fairly dramatically. Operator: Your next question is from the line of Sean McGowan with ROTH Capital Partners. Sean McGowan: A couple of questions. Maybe first, circling back on the impact of the FDA decision you've talked a little bit about it not apparently having much impact. But has there been any discussion with customers about pricing in any way? Is it having any impact on your ability to hold price where it is? Robert Fried: So you mean the FDA decision on NMN? Sean McGowan: Yes. Yes. Robert Fried: You mean with our ingredient partners? Sean McGowan: Yes. Robert Fried: Most of them understand that those companies are not really that interested in anything other than Niagen. They're always asking us to cut our prices, though, regardless of there's FDA or not. So... Sean McGowan: Why waste a good crisis, right? Robert Fried: Exactly. Sean McGowan: Okay. Got it. And then maybe for Ozan, the gross margin overall was higher than I thought and it was especially higher in consumer, where I thought we would see kind of things drift down a little bit. Can you drill down a little bit more on how, I guess, on normal the margin in the Consumer segment might have been in the quarter when you say that you expect it to normalize? How far above normal do you think those factors that you cited have pushed that margin? So what should we expect in terms of normalization? Ozan Pamir: Yes. So the gross margin in the quarter was driven -- a lot of it was driven by still some of the leftover inventory, the lower cost inventory we had and also improved product mix. But once we are through that lower cost inventory, it will -- it will normalize, but we have also increased our outlook to -- previously was slight improvement. We are now seeing an improvement. We're not able to put a percentage on it, but it will be better than last year. That's what we can say. Operator: At this time, there are no further questions. I will now hand the call back over to our presenters for closing remarks. Kendall Knysch: Thank you, Tamika. A replay of this call will be available beginning at 7:30 p.m. Eastern Time today. The replay number is 1 (800) 770-2030, and the replay ID is (858-4242). Thank you, everyone, for joining us today and for your continued support of Niagen Bioscience. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Good afternoon, and welcome to the Digital Turbine Fiscal 2026 Second Quarter Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Bartholomew, Senior Vice President of Capital Markets. Please go ahead. Brian Bartholomew: Thank you. Good afternoon, and welcome to the Digital Turbine Fiscal 2026 Second Quarter Earnings Conference Call. Joining me today on the call to discuss our results are CEO, Bill Stone; and CFO, Steve Lasher. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. These forward-looking statements are based on our current assumptions, expectations and beliefs, including projected operating metrics, future products and services, anticipated market demand and other forward-looking topics. Although, we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. Except as required by law, we undertake no obligation to update any forward-looking statements. For a discussion of the risk factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements, please refer to the documents we file with the Securities and Exchange Commission. Also during this call, we will discuss certain non-GAAP measures of our performance. Non-GAAP measures are not substitutes for GAAP measures. Please refer to today's press release for important information about the limitations of using non-GAAP measures as well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures. Now I'd like to turn the call over to our CEO, Mr. Bill Stone. William Stone: Thanks, Brian. Thanks, everyone, for joining our call tonight. Our September quarter showcased accelerating business momentum across both our On Device Solutions and App Growth Platform segments. Strong demand for our platform, combined with disciplined operational execution, drove top and bottom line results that exceeded expectations. Revenue for the quarter came in at $140.4 million, representing 18% year-over-year growth. We also achieved 78% year-over-year growth in adjusted EBITDA, demonstrating significant operating leverage in our model as we scale. We continue to execute against our strategy of connecting app developers, operators and OEMs in a mobile-first world. The combination of our installed base, monetization capabilities and growing partner network uniquely positions Digital Turbine to capture a meaningful share of the $1 trillion, $0.5 trillion market opportunity in front of us. Also in September, we successfully completed our debt refinancing through a new 4-year term loan facility, providing additional flexibility and a stronger balance sheet to support growth initiatives. Breaking our results down by segment. Our On Device Solutions business generated $96 million in revenue, up approximately 17% from the September quarter last year. In particular, it was encouraging to see 10% growth in both Global Devices and revenue per device year-over-year, with the bright spot continues to be our international ODS business, which drove 80% year-over-year revenue growth. And we also achieved a nice milestone in the quarter as for the first time in our history, our international revenues exceeded 25% of our total ODS revenues. Our application growth platform business was another bright spot for the quarter and returned to year-over-year growth posted $45 million in revenue, which was up 20% year-over-year. In particular, I was pleased with the over 40% sequential improvement in our brand business and also a double-digit increase in our DTX or SSP business. The hard work we did over the past few years to stay the course and integrate the legacy tech stacks into a common platform is now paying dividends, and we expect the momentum to continue into the future. Three key drivers powered our improved performance this quarter. First was higher advertiser demand, which translated into improved pricing and fill rates, particularly for premium placements on our platform. This strong advertiser demand resulted in over 30% year-over-year growth in revenue per device in both the U.S. and international markets for On Device business. The second driver was increased supply. Our global devices grew year-over-year driven by strong volumes from our international partners. In addition, our AGP supply volumes increased impressions by nearly 30% year-over-year driven by expansion of our distribution of our SDK footprint, strong performance in our APAC region and strong increases in non-gaming inventory. And finally, we made meaningful progress on our first-party data and AI machine learning platform, which is setting the foundation for smarter targeting higher return on ad spend for advertisers and improved user experiences, all being direct benefits of us leveraging our data. Beyond just near-term execution, we're also making strategic progress positioning in Digital Turbine for the future. Our first-party data investments, coupled with real-time AI-driven decisioning are unlocking new levels of precision and scale. These capabilities are becoming even more valuable as advertisers seek alternatives to the closed wall garden ecosystems and look for transparent performance ways to engage mobile users. We ran these unique advantages as the DT Ignite graph, which yields our AI machine learning platform, and we also brand our AI machine learning platform as DTiQ. Scaling our Ignite graph and DTiQ are one of our top priorities in the business, and we see these capabilities as a major growth driver for our business into the future. We're also seeing increasing brand engagement directly on our platform. We continue to expand the number of brands leveraging our capabilities. Much of this growth comes through traditional media buying agencies, but we were especially excited is with brands that have brought their media buying in-house, and want a direct relationship with Digital Turbine, particularly in the retail and consumer packaged goods categories. In fact, direct brands accounted for 47% of our total brand revenue in the September quarter, which was up from 22% in the prior quarter. This growth reflects the value we deliver through meaningful supply path optimization savings enabled by our extensive SDK footprint and a truly differentiated offering from omnichannel SSPs through our unique on-device scale. Moreover, the macro environment continues to shift in favor of direct distribution and alternative app distribution models. With the combination of our tech enablers such as Ignite Graft DTiQ, SingleTap and dual downloads, which enabled the distribution of application and alternative app stores directly distributed to devices. As an example, our use of SingleTap technology grew 45% sequentially, which is a nice example of helping publishers create a simple user experience to distribute their applications. And adding our ad tech tools on top of these capabilities helps them acquire more users. Regulatory momentum is accelerating in all geographies around the world to offer customer and publisher choice. In other words, our alternative strategy is simply leveraging our existing technology, capabilities and strengths for Android and iOS into a new and growing channel of distribution. To wrap up, our growth accelerated in the second quarter. We showed solid year-over-year double-digit growth in both revenue and EBITDA, driven by a healthy mix of disciplined execution, innovation, and favorable industry dynamics. We're building the right foundation through operational discipline and strategic investment to drive sustained profitable growth. We're excited by the traction we're seeing across the business and confident in our ability to continually deliver value to partners, advertisers, end users and shareholders. With that, I'll turn it over to Steve to take you through the financials in more detail. Stephen Lasher: Thank you, Bill, and good afternoon, everyone. The fiscal second quarter represented another meaningful step forward for digital turbine. We accelerated revenue growth expanded product margins and delivered top and bottom line results that exceeded our expectations. We also advanced several key strategic initiatives and strengthened our balance sheet with a new longer-term credit facility. As we look at the numbers, total revenue for the fiscal second quarter was $140.4 million, representing 18% growth year-over-year. At a segment level, our ODS business delivered $96.5 million in revenue, up 17% year-over-year. This growth was driven by higher device volumes and revenue per dice, particularly from our international partners. International ODS revenue reached a record high in surge more than 80% year-over-year. We are pleased to see our AGP segment returned to year-over-year growth, delivering $44.7 million in revenue, up 20% from the prior year. These results reflect the early benefits of our strategic efforts to better harness our proprietary first-party data and AI-driven capabilities. The combination of accelerated top line growth and ongoing operational efficiencies produced another strong profitability quarter. Adjusted EBITDA for our fiscal second quarter was $27.2 million, up 78% year-over-year. EBIT margin of 94 -- EBITDA margin of 19.4% expanded for the sixth consecutive quarter. Free cash flow for our second quarter was $7 million, an improvement of nearly $23 million year-over-year. Our non-GAAP gross margin for the fiscal second quarter was 47%, representing an improvement of 200 basis points compared to the same period last year, driven largely by product and segment mix. Cash operating expenses were $38.9 million, flat year-over-year. We are very pleased with the progress we are making on cost control and operational discipline, which allowed us to achieve 18% of year-over-year revenue growth with flat operating expenses. We will continue to identify areas for additional efficiency while maintaining targeted disciplined investments to support future growth. Turning to the bottom line. We reported a GAAP net loss of $21.4 million or $0.20 per share in the fiscal second quarter. On a non-GAAP basis, we generated net income of $16.5 million or $0.15 per share based on 113 million shares outstanding. Looking at the balance sheet. We ended the quarter with a cash balance of $39 million, up approximately $5 million from the end of the June quarter. Our total debt, net of debt issuance costs stood at $396 million. In early September, we completed a successful debt refinancing with a new 4-year term loan facility. This financing meaningfully extends our maturity time line and ensures ample liquidity to execute our growth strategy in the years ahead. Let me turn to our updated outlook for fiscal 2026. Following a stronger-than-expected quarter and with improved visibility into the remainder of the fiscal year, we are raising our full year revenue and adjusted EBITDA guidance. We now expect revenue to be in the range of $540 million to $550 million, and adjusted EBITDA in the range of $100 million to $105 million for fiscal year 2026. At the midpoint, this represents an increase of $12.5 million in revenue guidance and $9 million in EBITDA guidance compared to our prior outlook. In closing, we have positioned the company for sustainable growth in fiscal 2026 and beyond. Momentum across our core businesses remain strong, and we are confident in our ability to build on this performance moving forward. With that, let me hand it back to the operator to open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from Anthony Stoss of Craig-Hallum. Anthony Stoss: Congrats on the continued nice execution. Bill, maybe to dig a little bit deeper on the brand business is accelerating. You're lighting new customers. Maybe can you talk about what they're seeing on the ROI? Are these kind of get the similar ROI elsewhere or just the fact that you've tied in all the different platforms, you have something so unique? And then also, maybe if you can update us if you have any thoughts on whether or not you'll land -- or not land but go live with additional SingleTap people by the end of the year. William Stone: Yes. Thanks, Tony. First, on your brand question, let me lift it up and talk about just AGP in general. We did the acquisitions a few years back. And we could have easily just focused on revenue, but we made the tough decisions to integrate the platforms. And that was a lot of hard work. And we're really happy to see that starting to bear fruit, and you're seeing that show up in the results with nice double-digit increases because it's really a flywheel in terms of how the demand and supply work for each other. And then we're starting to see that. And that's super important as we think about where we're going to grow that business in the future. One of the inputs into that flywheel, the brand business. And as I mentioned in my prepared remarks, we're great to see our direct brand relationships account for almost half of our total brand revenue in the September quarter. So we've worked really hard to get approved and certified by the large advertising agencies and that's something -- it's really bearing fruit for us. But we're seeing this trend towards a lot of brands bringing media buying in-house, and they can spend more time understanding the audiences. And so especially with consumer packaged, goods brands and retail brands in particular, you're starting to see some really nice growth and momentum there. So it's something we're excited about, specially we get into the holiday season. And as far as your question on SingleTap, as I mentioned in my prepared remarks, we saw almost 50% increase in SingleTap installs quarter-after-quarter. I think that would be the metric that I'd point you to in terms of our progress here versus any single one brand name or a partner that we're working with is we're working with a lot that are names that you are familiar with. But we're excited to see that platform continue to be a benefit to end users and advertisers. We're just simplifying the experience of getting apps to device. So that growth that we saw in the quarter is something that we're encouraged by. Anthony Stoss: Just kind of a follow-up here on the international side. It was really strong yet again. If you could step back, how much or -- how penetrated do you think that international market is? And you highlighted that the RPD revenue was strong? Can you give us any more detail on what it was up to be quarter-to-quarter or year-over-year? William Stone: Yes. So in terms of international RPDs, we saw a really nice solid double-digit growth year-over-year in that. And obviously, solid growth in devices that drove the 80% increase that we have year-over-year. And so I mentioned that for the first time in the history and obviously, you've been around the company for a long time, we've talked about international for many, many quarters. And so forth now exceed 25% of our revenues for ODS is something that I was really happy to see. And it's a combination of more devices, better demand, better execution. And so really proud of the team on this one, generator strong results. Operator: Our next question comes from Mitch Pindus of Wells Fargo. Mitchell R. Pindus: I echo previous sentiments. A nice quarter. Well done. I have a question related to AI. And I wanted to find out a little bit more about if it's playing a role with Digital Turbine as it relates to either operations or advertising? William Stone: Yes. Yes. Sure, Mitch. Yes, AI is a really critical part of our strategy going forward. And it's been a part looking back as well and being able to use AI to simplify and automate our business and our business processes to make our business more efficient, is something that we've been doing and continue to make investments in. And that -- those investments will drive future operating expense and operating leverage for the business. And then on the customer side, we've made some material investments in AI specifically, which we're branding as DTiQ, that is our AI machine learning platform that can deliver better models, better outcomes, better predictions for our advertisers to drive better return on ad spend. And so big material investments for us. We're starting to see some fruits of that show up in the current quarter. But as we think about our growth drivers into 2026 and beyond, this will be a major driver for us, and this is one of our major focus areas of the company. Mitchell R. Pindus: One more question. After the recent Supreme Court ruling, which was reversed to Google Play, are you seeing any effect to DT as an alternative app storefront alternative? And if so, can you speak to the progress and your thoughts for potential of that business? William Stone: Yes, Mitch. It's something we're really excited about is, we see more democratization of app distribution and the rulings obviously support that. And so what we see going forward is a lot of app publishers that you want to have direct access with their billing to their subscribers or look at other third parties to do that, and we enable both of those. So how I would think about it is, that business is going to happen regardless of whatever Digital Turbine does. But in terms of facilitating that in terms of distributing those alternative apps, or being able to help those app postures acquire more users, that's where we come in. And I think we can really help provide a lot of value to those app publishers that want to do that. So another major focus area for our business going forward is something we anticipate to see a lot of growth and momentum for -- in 2026 and beyond. Operator: Our next question comes from Arthur Chu of Bank of America. Arthur Chu: This is Arthur for [ Omar ]. Bill, maybe just a follow-up on Ignite Graph and DTiQ. What types of data that the AI/ML platform is using that is -- that are sort of unique to Digital Turbine that could perhaps help advertise survey some conversion signals that are different from what some of the other ad platforms are doing? William Stone: Yes. Sure, Arthur. So we've got over 1,000 different signals that come in from all over our network. And that network could be more than the $0.5 billion devices that we have Ignite on or the -- between 2 billion and 3 billion devices that we have our SDK footprint in terms of leveraging the signals that come from all of those places. . And specifically, we think part of our unique secret sauce is really on the Ignite side of the business in terms of not in terms of having the access to the data in terms of what applications are on the device in terms of how they're used and install, not install, user engagement and the rest of that. And so I think with those unique signals for us can help drive better outcomes for advertisers in a more efficient way, which obviously leverages our set of capabilities. So all of that really produces a DT Ignite Graph that we can use then to build models and prediction on and what we're calling that AI machine learning platforms is DTiQ. And so we're excited about the early returns that we're seeing on that. But as we go forward, that's going to be a major investment and focus area for us. Arthur Chu: Got it. That's super helpful. Maybe if I can just ask another follow-up question. This one is on the competitive landscape. What are you seeing -- let's say, if you just look back into the past 6 to 12 months, what are you seeing -- are you seeing any changes in the competitive landscape with -- perhaps some of the other players like putting out in the market. Just wondering like if there are any changes that you're seeing there? William Stone: Yes. I think on the competitive landscape, on the On Device side of the business, we've we're actually seeing a little bit less competition as one of the major players exited that business over the past 6 months or so. So that's something I think that is good news for us, although it continues to remain robust, competitive with other players, other large mega players. On the AGP side of the business. We're really focused on just building out our flywheel in terms of how we can better connect our demand to our supply more so than competition, and a lot of the name in the industry may be competition on one part of the business, SSP or exchange side, but they're customers for ours on the DSP side. So it's a little bit nuanced in terms of getting into the details on this call. But I would say we haven't seen anything material happen in the competitive landscape on the AGP side over the past 6 months or so. Operator: This concludes the question-and-answer session. I would now like to hand the conference back over to Bill Stone for any closing remarks. William Stone: Yes. Thanks, everyone, for joining our call today. We'll talk to you again on our fiscal '26 third quarter call in a few months. Thanks, and have a great night. . Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Sherif El Etr: Good afternoon, everyone, and welcome to CIB's 3Q '25 Earnings Call. Thank you all for dialing in. This is Sherif El Etr from CI Capital Research team, and we're happy to be hosting today's call. From management, we have with us Mr. Hisham Ezz Al-Arab, CEO and Executive Board member; Mrs. Yasmine Hemeda, Head of Investor Relations; and Nelly Zeneiny, Investor Relations Manager. We will start off with a summary of 3Q '25 performance, and then we will open the floor for questions. I will now hand over the call to management. Nelly Zeneiny: Good morning and good afternoon, everyone. This is our customary disclosure statement. This call is intended for investors and analysts only. As such, if any media representative has gained access to this call, kindly hang up now. Certain information disclosed during this earnings call consists of forward-looking statements reflecting the current view of the bank with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors can cause the actual results, performance or achievements of the bank to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including worldwide economic trends, the economic and political climates of Egypt, the Middle East and changes in the business strategy, along with various other factors. Should one or more of these risks or uncertainties materialize or should any underlying assumptions prove incorrect, actual results may materially vary from those described in such forward-looking statements. The bank undertakes no obligation to republish revised forward-looking statements to reflect changed events or circumstances. And that ends the disclaimer statement. I'll now hand it over to Ms. Yasmine Hemeda to give a brief overview of the financial performance. Yasmine Hemeda: Thank you, Nelly. Good afternoon, and good morning, everyone. Thank you for joining our earnings call, and thank you, CI Capital for hosting it. I'll give a brief overview of the macroeconomic backdrop. Then I will give a brief on the quarterly financial results. The macro picture continued its steady and broad-based improvement across all fronts, and this was mainly supported by disciplined monetary policy. On the inflation front, the rate dropped to 12% as of September 2025, which allowed the CBE to further cut the policy rate to reach 21.5% by end of October, bringing the total rate cuts since March to 625 bps. This in and of itself has further improved the macro landscape, creating additional room for more cuts throughout the remainder of the year while still maintaining a real interest rate of around 10%. The decoupling of the sovereign rate persisted, continuing to offer the banks lucrative returns on their excess liquidity and helping mitigate the natural NIM compression, which is typically associated with a declining interest rate environment. On the currency front, the exchange rate has remained within a 6% to 8% trading band throughout the past period with the EGP strengthening slightly versus the dollar, hovering around the 48%, 48.5% range. But more importantly, foreign currency availability has remained consistent, supported by record highs in remittances, tourism and exports over the past period and dollar sales were surging across the system. And if this says anything, it underscores the market's confidence that the current exchange rate reflects the fair value of the EGP. As a result of this favorable and improving macro environment, CIB delivered another very strong set of results. Loans witnessed a growth of around EGP 119 billion, translating to a growth of 30%, which was driven by local currency loan bookings of 38%, together with foreign currency loans growing by 17%, with corporate loans growing by 34%, of which around 40% came in the form of CapEx and with the bank's share of lending to SMEs recording 25.4%. This fed into strong growth in the sustainable stream of noninterest income with fees and commissions income growing by 22% year-over-year. On the funding side, the bank's deposit gathering strategy continued to yield results. Total deposits recorded EGP 1.04 trillion, growing by 8% or EGP 75.3 billion year-to-date. And more significantly, the healthy share of CASA to total deposits grew from 55% last year to 60% this year. Local currency deposits added 11% or EGP 61.3 billion, while foreign currency deposits grew by 10% or USD 787 million. Consequently, our loan-to-deposit ratio reached 49.7% by end of period, up from 39.4% last year and recorded 52.3% upon further accounting for securitization deals with the local currency portion reaching a record high of 66.6%. This resulted in local currency NIMs recording 13%, showing balance sheet resilience despite the aforementioned interest rate cuts. Costs were tightly kept under control with improved efficiencies leading to a cost-to-income ratio recording 14.3%, up from 12.2% in 2024. CIB's new recalibrated ECL calculation was approved, resulting in a onetime release of a total provision amounting to EGP 13.1 billion. The release provision amount has been transferred to a special reserve in shareholders' equity through the bank's P&L statement, hence, crediting a before tax amount of EGP 13.1 billion to the P&L and to the provision balance sheet line. It's worth noting that in line with CBE's instruction, this reserve will not be recognized in the bank's capital base or CAR or distributable profits and cannot be utilized or distributed without prior consultation with the CBE. With this recalibrated model, which more realistically and accurately reflect potential credit losses and the quality of the loan portfolio, coverage of NPLs remains at a very comfortable level of 281%. And more relevantly, coverage of the risky performing portfolio [Audio Gap] profits for the 9 months 2025 reached EGP 62.1 billion. And after adjusting for the one-off reversal, year-to-date profits reached EGP 50.5 billion. ROE recorded 45.9% and upon excluding the one-off provision release, it's 37.7%. Throughout the bank maintained a strong capital position with a CAR of 30% and a CET1 ratio of 26% by end of third quarter 2025. Finally, our results this quarter reflect more than just a strong financial performance. They demonstrate the strength, the resilience and the disciplined execution that defines CIB. We remain focused on enabling growth and opportunity for our clients, our people, our shareholders, while maintaining the financial strength and solid fundamentals that underpin our leadership and success. With a clear strategy and a strong balance sheet, we will continue to invest in technology, talent and trust to ensure we continue to deliver sustainable long-term value and support the broader economy. On that note, I'll hand it over to Mr. Omar El-Husseiny, our Chief Global Markets, to give a brief on the past quarter. Omar El-Husseiny: Thank you, Yasmine. Good morning and good afternoon, everyone. Just a few updates. From a market and balance sheet perspective, our focus remains disciplined growth, expanding quality assets while protecting spreads and liquidity. This reflects solid pricing discipline and balanced mix between loans and sovereigns on the asset side and CASA and term deposits on the liability side. On the credit front, we continue to see healthy growth from the private sector with lending activity broadening across sectors that wasn't there during the past period of time, namely petrochemicals, chemicals, automotive manufacturing and port development, though at a slightly slower momentum than tourism and food industries. Year-to-date, we have added around 99 new credit commitments, including 55 during the third quarter alone, signaling both growing business confidence and CIB role in financing new investment cycles. On the noninterest income side, because we know that will be part of the questions that will be asked. On the trade finance volume, it has been increased by more than 30% year-on-year, yet profitability declined due to higher concessions offered among strong foreign currency inflows, particularly from households, tourism and exporters. This dynamic reflects our strategic decision to prioritize client relationship and flow retention during a time where we have excess foreign currency liquidity. Finally, the synergies across the global markets, treasury, GTB, financial institutions, enterprise and capital markets, debt and capital markets continue to strengthen our base of recurring fees, proving how far our integrated markets platform has evolved during the past period of time in a key growth and liquidity engine for the bank. Yasmine Hemeda: Thank you, Omar. On that note, we will now open the floor to Q&A. Sherif El Etr: [Operator Instructions] We have a question from [ Waruna ] from SICO Bahrain. Unknown Analyst: Am I audible? Yasmine Hemeda: Yes, [for me it is] fine. Unknown Analyst: So I have 4 questions, if I may ask one by one. The first one is on the loan growth. So the local currency loan growth, like you said, was very strong, 38%, but year-to-date, I'm saying. But foreign currency, I think it is -- if I -- correct me if I'm wrong, it's slightly down for the year-to-date. And so my question is, what is your expectation for 2025 this year, I mean, where can we see loan growth ending both foreign currency and local currency? And what's your expectation next year? Do you expect the similar momentum to continue? That's my first question. Secondly, I think you mentioned that the government -- the sovereign yields, I mean, that kind of protected your margins when corridor rates are falling. My question is what kind of treasury bill yields -- I mean you have -- I mean, treasury yields have been very resilient. In terms of government bond yields, long-term bond yields, have they been also resilient? I mean just want to get an idea as to what kind of yields are you been able to get? That's my second question. And third question on the NIMs. So what is the outlook? I mean, so far this year, NIMs are very resilient at around 9%. So can we expect that to continue at least for one more quarter and I mean -- and for the next year, if possible? Fourth question is on the IFRS, the model, the ECL model, now we can see certain -- I mean, if I look at corporate segment, your provision is around 1.5% of Stage 1. And then for Stage 2, around 16% these numbers have kind of revised down based on the new assumption, I guess. So can we expect like this to be the percentages going forward? I mean, how do we model that going forward? Yasmine Hemeda: Thank you, [ Waruna ]. If I'll just cover one question, and then I'll hand it over to our CFO and our Chief Global Markets to add the rest. For the loan growth, it might seem that it's a bit slow down in terms of rate on the foreign currency front, but this is because mainly of the repayments, which is very natural and very normal because most of the foreign currency lending is stemming from the tourism sector. And it's one of the main characteristics of that sector is that in good times, they tend to prepay. So it might look that it's a slowdown rate of growth compared to the local currency. But if anything, it is growing. But because of the prepayments, you'll see it slower or even possibly at a single-digit level as compared to the local currency front. In terms of the expectations of loan growth for 2025, we're still on point for our guidance, which is between 20%, 25% on a blended basis. The local currency will grow obviously at a much higher pace than that. We will continue to see the same mix that we're seeing, which is basically a lot of working capital and maintenance CapEx as well. This will continue throughout the remainder of the year. And we'll continue to see foreign currency loan growth coming mainly from the exporting industries and obviously, the tourism sector, like I mentioned earlier. I'll now hand it over to Mr. Islam Zekry, our CFO, to cover the IFRS model. Islam Zekry: Just one comment on the foreign currency growth also. When you compare the results quarter-over-quarter in foreign currency, you'll find the numbers a little bit flat. The decline is coming or the declining trend you are noticing here is coming because of the appreciation of the Egyptian pound over the past -- over the third quarter. So when you recast for this, so the number is flat given the repayments Yasmine just highlighted. Back to the NIM sensitivity, we witnessed 500, 600 basis points of cuts over the past period. And our NIMs, the local currency NIMs gets impacted by almost 60 basis points. So the impact is not linear. So the relation is not linear. And that reflects the resiliency of the balance sheet. And all the efforts have been done on the retail side to increase the weight of the current accounts savings or the cheap deposits to the total deposits, which reached almost 66% when it comes to local currency, 60% on overall deposit base. Related to the question on the IFRS... Yasmine Hemeda: IFRS, the run rate for the provision... Islam Zekry: So technically, when you look at the numbers as we speak after the release, the average cost of risk to the total outstanding deposits went down from 8.2% to 7%. This is 1% slight higher, less than 1% higher than the average of the market. The coverage ratios went down from almost 300%, 3x to almost 2.8 or 280%, which is when the model start maturing over time, we expect some adjustments on the long run. But you need to keep in your mind that the instructions of the Central Bank and the regime of the IFRS around relaxing or revising the TTCPD or the through the cycle, the probability of default process mandating us to keep monitoring the models for the coming couple of years. And within the couple of years, we may witness sort of adjustments here and there going forward. Omar El-Husseiny: And on the government bonds yield side, we had a discussion a couple of quarters ago when we said last year, we started to extend the duration on the asset side back again to the concept of mixing between assets between loan growth and securities and sovereign securities. Last year, we started to extend the duration on the asset side in the anticipation of interest rates coming down. And the majority of it was being held at the amortized cost and not through fair value through OCI. And that's not only on the local currency that has been as well on the foreign currency side. So we have been extending the duration on both local currency and foreign currency at the fixed side throughout sovereign bonds throughout our portfolio. Unknown Analyst: Okay. And regard -- I mean, as far as bonds are concerned, what is the split between the local currency and the foreign currency? Yasmine Hemeda: I'm very sorry, can you repeat that [ Waruna ]? The line was cutting a bit. Unknown Analyst: No. My question was what is the breakdown between local currency and foreign currency bonds, government bonds. Can you provide that? Omar El-Husseiny: So yes, so now we have around $3 billion on the foreign currency side. And on the local currency, we have around EGP 150 billion, EGP 160 billion. Unknown Analyst: Okay. Okay. And because the thing -- why I'm asking is that there was significant increase during the course of the third quarter as far as government bonds are concerned. So I was wondering whether you -- so basically, you were reallocating a lot of... Omar El-Husseiny: Especially on the foreign currency side because there have been lots of opportunities that we saw in order to extend our duration on the foreign currency, especially with the Fed cutting rates. So we wanted to do same as we did on the local currency side, same as the foreign currency to extend the duration on the bond side, and it has been the diversified portfolio, ranging from U.S. treasuries to other investment-grade bonds. Unknown Analyst: Okay. And just to conclude, so what is your NIM guidance on blended basis, what I'm asking for this year and next year, assuming -- I mean, let's say, let's assume that another 600 basis point cut next year, what is your expectation in NIMs? Yasmine Hemeda: So for 2025, NIM will remain almost flattish as compared to 2024 on a blended basis. So what we're aiming towards is around 9%, 9.1% for the full year. That's for this year. Next year, again, I mean, like Mr. Islam mentioned earlier, I mean, it's not a linear relationship. There are a lot of moving factors. But because of what we have been doing, fundamentally speaking, on the cost side of the NIMs of bringing down our average cost of funds by growing the CASA portion of our deposit base reaching the 60% that he mentioned earlier, so that whatever happens on the asset side, we secure a healthy enough margin on the liability side. So like we mentioned earlier that typically with a declining interest rate environment, there is definitely or there were going to be natural compression in the NIM. But because of what we have been doing, this compression will be more of a gradual one. So you won't see the 13% on the local currency front dropping to 3% or 4% overnight. It will take time. And I mean, it's too early now to guide for 2026. We're still in the process of putting together our budget. Once the budget is finalized and approved by the Board by end of the year, I'll be able to share the guidance on all fronts with the investment community at large. Unknown Analyst: So what you said was like local currency, what the sensitivity you said was 600 basis point decline... Yasmine Hemeda: It was not 600, at 60 basis points. Unknown Analyst: No, no, I'm saying the 600 rate cut resulted in only 60 basis point decline, right? Islam Zekry: Yes. Unknown Analyst: And then -- so right now, the local currency NIM is 13% as it stands in 9 months? Islam Zekry: Year-over-year, this was a 9-month... Unknown Analyst: 9 months year-to-date is 13%. And what is the foreign currency NIM? Yasmine Hemeda: 2.6%. Unknown Analyst: 2.6%. Sherif El Etr: Our next question from Rahul Bajaj from Citi. Rahul Bajaj: Rahul Bajaj from Citi. I have 2 sets of questions, similar topic actually. The first one is on the sovereign portfolio. And the second one is on the ECL. So on the sovereign portfolio, I understand your margins were strong in 3Q and the decoupling of the sovereign rate has kind of helped you. Two-part question. Firstly, do you expect this decoupling to continue as rates continue to go down? Or you think sovereign rates over time will merge with the loan yield, which is available in the market? So that's the first part. The second part of the question on this one is, I remember in previous calls, you mentioned that overall loan yield -- doing loans is more profitable for COMI than doing sovereigns because of the other -- the cross-sell and other things that you mentioned. Now because of the decoupling and because of the fact that yields on loans are going down, are you reaching a point where they're probably at an inflection and maybe you feel that doing sovereign is more profitable at this point of time rather than doing loans? Or you still think that doing loans is more profitable? So that's my first set of questions on the investment portfolio. The second one is on the ECL model. Now that the recalibration has been done, 2-part questions again. Firstly, I understand this is -- the reserve that has been created is not part of your capital now. But is there a provision or is there a discussion with the Central Bank that at some point in the future, the reserves will qualify as your core capital? Is that something that can come up 2 years, 3 years down the line? That's the first bit. The second bit is -- now that this recalibration has been done and you have the Central Bank approval, how should we think about cost of risk or normalized levels of cost of risk going forward? What would be that level? And historically, you've had a jump in fourth quarter cost of risk for the last few years. Should we expect a similar jump in fourth quarter of 2025? Yes, those are my questions. Omar El-Husseiny: Thank you, Rahul, for the set of questions. Those has been the discussions in the ALCO during the past period of time. So we are at the end of the day, a commercial bank. So our primary goal will be always getting the loans, especially for the auxiliary business. And to answer your question, it's still profitable to book loans than sovereigns. That's from one side. The other side is decoupling. Decoupling is happening, and it will continue during the coming period of time at a lesser magnitude, of course. But definitely, the market is discounting. So when we compare, shall we book a loan or shall we buy some papers, the market is already discounting further cuts in the interest rates on the local currency. So when we compare, we see the auxiliary business versus the expectation of interest rates. And one of the things that we always think about our ability as a bank to pass through the cut in interest rates to our clients on the deposit side. Islam Zekry: Regarding the accounting treatments of the ECL, yes, the instructions upon the release decision of the Central Bank is not to consider it part of the capital base or part of the distribution statement end of the year. However, reserve is reserved accounting-wise. It's part of our coverage. And regarding the discussion with the Central Bank, again, according to the IFRS 9 regime and the Central Bank guidelines over there, we'll keep monitoring those models for the coming 18 to 24 months. And then all the possibilities are there. Anyway, they are part of our equity right now as a reserve, but all the possibilities are open once we get the assurance about the stability of the models and the resulted probability of defaults out of those models within the coming 24 months. Rahul Bajaj: I had one more question, which was on the normalized levels of cost of risk. And should we expect a fourth quarter spike as we usually do? Islam Zekry: Let me give you an idea about the cost of risk within CIB. So before the release, the average cost of risk was at the original range of 8.2%. After the release, that released almost 1%. So we are at the range of 7% as we speak. The average industry is 6%. So there are 90 basis points specifically different CIB higher than the average... Rahul Bajaj: Sorry, when you say 8.2% average cost of risk, what are you referring to? Can you please clarify is this the P&L charge that you're talking about? Islam Zekry: Compared to our risky assets, specifically loans. Sherif El Etr: We have a question from Darren Smith from [ 337 ]. Unknown Analyst: Congrats and team on the great results. Just a quick question. Can you hear me, sir? Yasmine Hemeda: Yes, Darren. We can hear from you. Unknown Analyst: Just one quick question. The release of other provisions, I think, for the amount of EGP 5.1 billion, can you -- a reversal of those provisions. Can you just comment to what is that exactly? Yasmine Hemeda: That's the provisions on the contingent business. So I mean, so you have the direct, which is the 7, which you see it as a separate line. And then in -- as part of the other operating income or expense, this is the contingent provisions. Islam Zekry: Let me elaborate here a little bit. So the total release is EGP 13.1 billion, okay? So that's the total amount released. A part of this is almost EGP 8 billion, which is direct loan loss provision that will be reversed part of our credit impairments accounting-wise when you follow my statements, our statements. The contingent provision is part of our noninterest income. So there is a release of EGP 5 billion over there. That's why we are the EGP 13.1 billion in 2 different accounting lines when you look at our financial statements. Sorry, that's the IFRS presentation standard, and that's the first that we are following up. So they are in 2 different lines. Unknown Analyst: Understood. And these are both obviously related to the ECL model. And that contingent business, are you talking as letters of credit? Or what's in there? Yasmine Hemeda: Yes, yes, yes. For the [ LC ] and for your reference, I mean, you find it as part of the earnings release, we always put it as under a total provisions line, which it groups basically the direct and the contingent for your easy reference basically. Unknown Analyst: Okay. And can I just follow up on one of the last questions around the cost of risk. I don't think I fully understood because I think you referenced you said 8.2% cost of risk and maybe the way we calculate is different, but I'm taking the provision charge on the income statement over your gross loans, and it's a fraction of 8% each year. Can you just clarify where you're getting that 8.2% from? Yasmine Hemeda: I mean, Darren, it's because of the IFRS and all of the accounting things, these are too sophisticated for you and me. But I think in more simplistic terms, I mean, you're talking -- this is the way we should look at the cost of risk, which basically entails that if you annualize the first half of provisions, so basically, if you annualize the EGP 700 million that we took, so for the full year, we would get between EGP 1.4 billion, EGP 1.5 billion. This -- you should consider this as more towards a normalized run rate for the impairment charges moving forward, which would translate to a cost of risk that is, I mean, almost 0.5%, 0.7%, so you'll normalize run rate. Unknown Analyst: Exactly. That's okay. That's how I would use it. And just to confirm, and that's compared to last year, you did about EGP 4.5 billion, and you're saying it should be around... Yasmine Hemeda: It should be around EGP 1.4 billion, EGP 1.5 billion. Unknown Analyst: And you think that is a -- that's a sort of a normal level for at least a couple of years. Is that... Yasmine Hemeda: That we don't get a nuclear war or anything basically. I mean, wipe us off. I mean, hopefully, this should be the normalized run rate. Unknown Analyst: Fantastic. Okay. Congrats on getting that ECL model approved and a phenomenal set of results. Yasmine Hemeda: It's a long time in the making, we've been talking about it for like 3 years now. Unknown Analyst: That's nice to see. And I can't wait to see the dividend announcement later this year. Yasmine Hemeda: I mean I have the CEO here. I'm putting him on the hot seat. I'm telling him, you promise people, so you need to deliver on that. Sherif El Etr: We have a couple of questions in the Q&A box. There are 2 questions from [indiscernible]. She's asking profit from currency swap deeds revaluation increased from EGP 15 million in September '24 to EGP 187 million in September '25. It was a loss of EGP 395 million in Q2. Could you elaborate on the main drivers behind this swing? Omar El-Husseiny: So this one is not the currency swap, it is the interest rate swap. So we do hedging because we're expecting interest rates to come down. So we did lots of hedging on the asset side and the liability side. And as soon as the forward curve is starting to come down in anticipation of interest rates to go down, so we're making more money on this specific item. Sherif El Etr: Perfect. The other question is there is an increase of about 35% in administrative expenses for the 9 months '25 versus same period last year. Could you give us a bit more color on the key components behind that growth? Yasmine Hemeda: Yes, sure. So I mean, there is nothing one-off about it. I mean this is like normal course of action, but I'll walk you through some of the lines that may be increased more than the others. So we had a lot of renewals for expired contracts that were signed back in 2022 that expired by midyear 2025. So these renewals, they sort of embedded new rates for the foreign currency against the EGP because we -- since 2022, we saw devaluations and we saw a lot of inflationary pressures over the past 2 to 3 years. So this was reflected in the renewal of the contracts. That's one of the things. The other thing is because of the -- we had a lot of finalized IT projects and infrastructures that basically started capitalizing in the third quarter of 2025. So you need to account for the depreciation impact on those as well. And the third more significant line is that because of the increase that we saw in the loan portfolio, hence, there are a lot of associated stamp duty and regulatory expenses. But other than those, there aren't -- and even those, I mean, there aren't to be considered one-off items, I mean -- and the cost to income remains well, well below the 25% mark. And I think we guided one too many times that not only that we have the room, but we have the intention of investing and expanding and doing a lot of stuff to be able to deliver on our growth plans and digital transformation moving forward. So I mean -- and luckily, we have plenty of room to do that comfortably while maintaining a cost to income that is both comfortable for the stakeholders, for the Board and for everyone involved. Islam Zekry: And when you recast for the FX impact, the devaluation specifically, so the cost growth will be the 17% growth year-over-year. That's the normalized number for the currency devaluation. Sherif El Etr: We have another question from [ Schwab ] asking -- sorry, he didn't hear the question regarding the provision coverage on the performing risky portfolio. Yasmine Hemeda: It's 7.7% which if you remember, it used to run at around 14%. So I mean, it was brought down as promised to 7%. We always said that we will maintain that ratio between 7% to 8%. So now it's at 7.7%. Sherif El Etr: There is another question from [indiscernible] asking, will there be any more provision release going forward? Islam Zekry: We hope so. But the idea is this is not like an annual event. It's one of a time. But the idea is according to the regulation, we are for the coming 18, 24 months, we are reviewing our models. External auditors are mandated to make a quarterly review and report, I think, on an annual basis also to the Central Bank to give the comfort level on those releases. But for the time being, that's the process. Unknown Executive: We all have to understand that there's a period of time where the risks were very much like an accident, unpredictable. And those unpredictable risks are no longer there. We feel very comfortable either at the Board level or the management that we will not have those fireworks anymore. So practically, the economic condition or the monetary and exchange policy is much more predictable and by the way, I think personally that the regulatory authority, the Central Bank want to be predictable, and that helped a lot in reducing the risk premium in the market. When you look at -- because we live on the ground there, when you look at the -- anyone who is selling a product, a car, food, you name it, they used to mark their products by 30% and 40% premium for the unpredictability of the [indiscernible] and exchange policy that uncertainty as well... Omar El-Husseiny: Even for the CDS... Unknown Executive: Even for the CDS, yes. Those unpredictability now are diminishing. And practically, I see it on no more overpricing of product because of the unpredictability of the risk -- the same thing we see it in how the economy is functioning, at least our customers. And that reflected in the ACL model. I would say that I've been told not really to put it in that way. But really, the assumptions we have are very different for the expected risk factors than the assumptions we had 5 years ago or 3 years ago. Sherif El Etr: There's another question from [ Amr Ayed ] asking, we noticed the higher funds utilization rate this quarter, along with a significant decrease in cash balances. Could you please explain what's driving these changes? Omar El-Husseiny: I can't recall if this is on the local currency or foreign currency. But anyways, it's a spot balances. At some point of time, we keep cash balances in order to meet the client demands or loan growth. So for instance, we might have a loan booking on the 1st of October, and we keep the cash on the 30th of September in order to meet the client needs in terms of the loan growth. And in case it's a foreign currency, it's exactly the same, either on foreign currency loan bookings or we're just buying securities. So we keep the money at our nostro until the settlement of the transaction. Islam Zekry: I need to keep in mind that our loan to deposit specifically on the local currency went up from 50% to 66% in this [indiscernible] book. So that's part of the utilization. The others are cash operations, Central Bank cash operations. Sherif El Etr: We have a raise hand button question from [ Shalom ]. Unknown Analyst: Can you hear me? Yasmine Hemeda: Yes, hi [ Shalom ]. Unknown Analyst: I have a question again on the bond portfolio, fixed income portfolio. Could you give us an idea what part of the OCI portfolio is hedged against the interest rate risk? And what could be the potential size of the portfolio subject to recycling in case the rates drop to capitalize on the interest rates change? Omar El-Husseiny: So you're talking about the foreign currency part or the local part? Unknown Analyst: Both. But let's start with the local. Omar El-Husseiny: So I would say 100% of the local and foreign currency is for hedging purposes against interest rates going down. That's my plain answer to your question. Unknown Analyst: Could you repeat, please? Omar El-Husseiny: So I was saying either on the local currency or the foreign currency, 100% of what we're having either on fair value OCI or amortized cost is for hedging purposes against interest rates coming down. Unknown Analyst: So if I correctly understand this, in case the rates drop, so the magnitude of the gains from the mark-to-market will be limited in that case, right? Or if I have correct understanding? Omar El-Husseiny: It's for hedging purposes, it's not for trading purposes. If it's for trading purposes, then as soon as interest rates will be coming down, we'll be making more money, then we'll go just sell it and realize the profits. But as long as... Unknown Analyst: I see. And what is the part of the portfolio that could be subject for recycling for like selling to realize the gains, let's say, from the fair value OCI portfolio? Omar El-Husseiny: So based on our business model in the bank, fair value OCI and amortized costs are for hedging. So we cannot recycle those until we face a severe liquidity crunch in our balance sheet, then we will have to go and liquidate the part on the fair value OCI. Sherif El Etr: We have another question the raised hand button from Mohammed. We have a couple of questions in the Q&A box. Saurav [ Gobiyal ] asking, could you please refresh guidance for 2025 and give us color for 2026? Yasmine Hemeda: Thank you for your question. So I mean, let's work it bottom up. So we are still on point to record EGP 70 billion on a normalized basis because obviously, now we're at EGP 62.1 billion, which includes the reversal. And if you normalize for this EGP 13 billion, so basically, this EGP 50.5 billion should read 70% by year-end. Loan growth, we covered it, we're expecting on a blended basis between 20% to 25%, again, driven by stronger growth on the local currency side and strong enough single-digit growth on the foreign currency front. And with that loan growth, you should expect healthy growth in the fees and commissions line that will feed very positively into the noninterest income line as well. Costs will remain tightly under control, again, very much under 20% for the full year. NIMs will remain flat as compared to 2024. We are guiding for a blended NIM of around 9% for the full year. ROEs, I mean, it should remain well above the 37% mark, again, on a normalized basis. What else? Loan growth. Deposit growth, we're set to close the year with 10% to 15% growth on the deposit side. Most of the growth will be coming from CASA, current and saving accounts. We're always targeting that at least 55% to 60% of the new acquisitions will come in the form of CASA. Sherif El Etr: [Operator Instructions] We have one more question in the Q&A box. Selma is asking, how is the CIB positioning for potential EGP volatility? What are expectations for interest rate normalization in 2026? Yasmine Hemeda: I mean I'll take the interest rate part. So since the beginning of the year, thus far, we saw cuts of around 625 basis points, which is in line with the market consensus. If you remember, when we talked at the beginning of the year, we were guiding along with all of the other macro economists that we are to see between 6% to 8% cuts on the policy side throughout 2025, of which we saw this 625 and we're expecting to see 200 basis points more throughout the remainder of the year. I think for 2026, we'll see the remaining balance. So I mean, if we saw since the devaluation hikes of around 12%, if they cut 825 basis points in 2025, then the rest will be cut throughout 2026. So by end of '26, interest rates should go back to the pre-devaluation level. I'm not sure if I get it correctly. How do you mean how is CIB positioning for potential EGP volatility? Are you talking from a capital perspective? I mean, what are you talking about or what do you mean exactly? Until you answer, I mean, if you're asking about from a capital perspective, I'm sure you know that, I mean, as per the CBE, all banks should be 100% matched in terms of tenure and currency. So I mean, we have to be 100% matched from an assets and liabilities perspective. But we do have as any bank, I mean, because our capital is denominated in EGP. So I mean, we have this chronic sort of mismatch, which we moved very early on to hedge when we ventured to get the Tier 2 subordinated debt. And we're now at a position where for every EGP 1 depreciation, this would eat up around 20 basis points off of the CAR. Omar El-Husseiny: And in case the second part of the question is related to the FX positions. You know that as per the Central Bank regulations, we can go long or short up to 10% of our capital base, which we are maneuvering based on the market conditions, our expectations, foreign currency inflows and outflows and client needs, either they are on the trade finance or repatriation or delays. Sherif El Etr: Thank you. Since there are no further questions, would management like to make any closing remarks? Yasmine Hemeda: Thank you, everyone, for dialing in. I mean we're very happy to report yet another strong quarter, and we look forward to reporting the full year, and it will not fall short from what we promised as always. Thank you so much, and looking forward to talking to you all soon. Thank you. Sherif El Etr: Thank you, CIB management team, and thank you all for attending CIB's 3Q '25 earnings call hosted by CI Capital.
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