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Operator: Good afternoon, ladies and gentlemen. And welcome to the Rubrik Second Quarter Fiscal Year 2026 Results Conference Call. At this time, all lines are in a listen-only mode. If at any time during this call, you require immediate assistance, please press 0 for the operator. This call is being recorded on Tuesday, September 9, 2025. I would now like to turn the conference over to Melissa Franchi, Vice President, Head of Investor Relations. Please go ahead. Hello, everyone. Welcome to Rubrik's Second Quarter Fiscal Year 2026 Financial Results Conference Call. Melissa Franchi: On the call with me today are Bipul Sinha, CEO, Chairman, and Co-founder of Rubrik, and Kiran Chaudhry, Chief Financial Officer. Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page at www.ir.rubrik.com. Also on this page, you'll be able to find a slide deck with financial highlights that, along with our press release, includes a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. During this call, we will make forward-looking statements including statements regarding our financial outlook for the third quarter and full fiscal year 2026. Our expectations regarding market trends, our market position, opportunities, including with respect to generative AI, growth strategy, product initiatives, and expectations regarding those initiatives, and our go-to-market motion. These statements are only predictions that are based on what we believe today and actual results may differ materially. These forward-looking statements are subject to risks, and other factors that could affect our performance and financial results which we discuss in detail in our filings with the SEC. Rubrik assumes no obligation to update any forward-looking statements we may make on today's call. With that, I'll hand the call over to Bipul. Bipul Sinha: Thank you, Melissa. I want to start by thanking everyone for joining us today. We are pleased with our second quarter results that once again exceeded all guided metrics across top line and profitability. Here are five key numbers. First, subscription ARR surpassed $1.25 billion, growing 36% year over year. Net new subscription ARR reached $71 million in the second quarter. Second, our subscription revenue was $297 million, growing 55% year over year. Third, our subscription NRR remained strong once again, above 120%. Fourth, customers with $100,000 or more in subscription ARR crossed 2,500, growing 27% year over year. Finally, on profitability, we once again made material improvement in subscription ARR contribution margin, up about 1,800 basis points year over year. On cash generation, we are very happy to report we generated over $57 million in free cash flow this quarter. This combination of top line growth and cash flow margin at our scale is rare. We remain confident about the opportunity ahead, and thus, we are raising our outlook for the year. Let me first give you some context on where we are focused. Rubrik is evolving into the security and AI company. In the last several quarters, it is clear to us that as we continue to focus on and win the past cyber resilience market, we also have a tremendous opportunity in the enterprise AI acceleration. Let's start with cyber resilience. And the broader context of the market opportunity. From our inception, Rubrik was designed to help customers achieve the fastest cyber recovery time. To deliver this, we uniquely combine data security posture management, identity resilience, and cyber recovery natively on our Rubrik Security Cloud or RFC platform to achieve complete cyber resilience. And at the center of our differentiated architecture is the Rubrik preemptive recovery engine. In Q2 alone, I had over 125 meetings with customers and prospects worldwide. What was abundantly clear is that IT and security leaders now have an assumed breach mindset. Simply meaning they are certain that cyber attacks are inevitable despite significant investments they have made in cyber prevention and detection. At the same time, these enterprises are also looking to replatform and modernize their infrastructure in preparation for the imminent enterprise AI transformation. As companies shift deeper into cloud engine AI, customers continue to turn to us, Rubrik, for complete cyber resilience. Delivering uniform and consistent data security policy control as well as rapid accurate recovery from cyber attacks. Concurrently, our Predibase acquisition I'll discuss later in my remarks, also allows us to deliver enterprise AI acceleration. The bottom line is this. We have tremendous opportunities ahead of us. First, we continue to lead the vast cyber resilience market. And second, at the same time, we continue to build a new future for enterprise AI. Now I'll detail some of the wins across our initiatives at varying scale. For our cyber resilient data protection business, we continue to add solutions across new applications and workloads. Leveraging the same underlying preemptive recovery engine to deliver risk and remediation capabilities. This unique architecture consistently enables us to outperform both legacy and new gen backup vendors. Let me highlight this with two illustrative customer events from the quarter. A major North American oil and gas company selected Rubrik after its legacy backup provider was unable to support a fast recovery following a disruptive cyber attack. Rubrik was selected because of our superior recovery time relative to both legacy as well as new gen alternatives. Our comprehensive yet radically simple platform cyber recovery across all workloads including the cloud, was another key reason for the legacy backup replacement. In another example, a Fortune 50 pharma leader turned to Rubrik to protect its critical applications displacing its twenty-year-old legacy backup vendor as well as native cloud backup solutions. We also outcompeted new gen backup vendors for this opportunity. Rubrik was selected due to not only our ability to deliver greater cyber resiliency, in the face of escalating cyber risk, but also more efficient cloud storage cost. Let me now talk about innovations in cloud protection that are delivered from RSC which is a single unique platform across center, cloud, SaaS, and identity workloads. We continue to expand our purpose-built cloud data protection solution to more applications services, and databases in the public cloud. This quarter, we expanded our cyber protection of AWS RDS database. And added comprehensive protection for Amazon DynamoDB strengthening Rubrik's leadership in cyber resilience for cloud databases. We'll continue to build upon our code to cloud cyber resilience platform which offers protection from the first line of code full stack of applications in production across the major hyperscalers. Let me highlight a few customer wins cloud and SaaS protection. First, a global Fortune 500 transportation organization increased their investment in Rubrik this quarter, adding M365 protection. Protection for Azure workloads, code-based recovery for GitHub, and Azure DevOps as well as Jira protection. This expansion bolsters the company's cyber resilience. And reduces recovery times across its critical cloud applications. Another example is with the Fortune 500 logistics and supply chain company that also expanded its partnership with Rubrik, by fortifying its mission-critical data state in Azure and M365 applications. After adding Rubrik to safeguard its data center applications in the past. Furthermore, the customer added identity recovery, reducing recovery time of directory and Entra ID, from several weeks to mere hours. Rubik's cyber resilience platform now avoids an estimated $65 million losses per day for this customer in case of downtime due to cyber attacks. Now let's turn to our opportunity in identity resilience. In just a couple of quarters of general availability, we have seen notable momentum for Rubik identity recovery solution with now over 200 customers. Rubik is addressing a critical need for enterprises by enabling the rapid recovery of their identity services following cyber attack, or operational failure so that they can return to business as usual. We are the only vendor in the market that delivers rapid recovery of both active directory and intra ID in a hybrid cloud manner the backbone of identity solution worldwide. Let me give you two specific customer wins in identity. This quarter, a leading UK financial services company strengthened its partnership with Rubrik by adopting Rubrik Identity Recovery, prompted by a recent cyber attack on a major UK retailer the company evaluated vulnerabilities within its own active directory environment. They recognize that these weaknesses could lead to significant post-attack disruption resulting in substantial market cap declines and potentially affecting millions of pensioners. By consolidating data and identity protection with Rubrik, this company now considers Rubrik one of its top three strategic IT vendors. In another example, a Fortune 500 financial institution in The US turned to Rubrik after an audit uncovered that its active directory recovery would take upwards of seven days with millions of dollars at risk each day. By adding rubric identity recovery, they reduced recovery times to under two hours preventing potentially significant business disruption and satisfying board mandate. We continue to invest in our identity solutions. We deepen our innovation with the general availability of Rubik identity resilience. Like I mentioned in the last quarter's earnings call, we are bringing together Rubrik's identity and DSPM solutions. Our latest Rubik identity resilience solution brings together data security and identity intelligence for the first time. Similar to how we monitor and sustain data, Rubric Identity Resilience continuously monitors and protects human and nonhuman identities. Tracking misconfiguration, as well as high risk and malicious changes in the active directory and intra ID. It also ties identity-based information like privilege access to rubrics, DSPM sensitive data context and activity. To strengthen risk posture and accelerate cyber recovery. Next, let's talk about our innovation in the Gen AI space. As I noted during our IPO, Rubik by design perpetually lives on the frontier of innovation. And our long-term success depends upon our ability to continuously create and commercialize pioneering products. As part of this, we continue to build a portfolio of innovation at different stages and at different levels of risk. This approach allows us to stack multiple f curves to maintain maximal momentum. While preparing for what's next. Along these lines, I will talk about our longer-term initiatives for GenAI. While GenAI can unlock significant new efficiencies for every organization, there are significant barriers like accuracy, cost, and security which hinders its adoption beyond proof of concept. We are addressing these challenges while leveraging our unique ability to extract, manage, and business data. Rubrik's data platform not only delivers robust cyber recoveries, but also provides clean, secure data with the necessary permission and policy enforcement to power generative AI applications. This ensures only the right person has access to the sensitive data. Our recent acquisition of Predibase furthers this vision. Just as Rubrik is working to simplify data access for GenAI, Readybase works to solve performance and cost issues around deploying GenAI models for proprietary AI applications. The Predebase platform allows enterprises to fine-tune GenAI model and run an optimized inference stack for faster accurate results at lower cost. We believe the combination of Rubrik and Predibase is incredibly powerful in accelerating GenAI from proof of concept to full production and value realization. We welcome the pretty based team to Rubrik. Where they have hit the ground running and continue to innovate and define new frontiers in enterprise agentic AI. We recently announced agent rewind, built on our Rubrik's secure data platform underpinned by ReadyBasis AI technology. We have spent years helping our customers recover from cyber attacks and operational error. With Agent Rewind, we can now help customers undo the mistakes of AI agents without full system rollback. Which is crucial for a scalable and secure AI adoption. We are still in the early stages of optimizing product market fit for our AI solutions. Including agent rewind. We plan to add more capabilities and investments to enable confident enterprise AI transformation and agentic work adoption. This is our multiyear initiative to scale rubrics AI solutions. In closing, I would like to share my gratitude. First, thank you to all my fellow Rubik continues to win the cyber resilience market. Because of Rubikanth's collective focus and disciplined execution. We continue to break new grounds for enterprise AI acceleration. And you know what? It's still early days for all the opportunities ahead of us. Also, a big thank you to all our customers and partners. Your trust inspires us to continue to lead and define future of cybersecurity and enterprise AI. And lastly, of course, thank you to you, our shareholders, your continued support and trust. With that, I'm pleased to pass it over to our Chief Financial Officer, Kiran Chaudhry. Kiran Chaudhry: Thank you, Bipul. Good afternoon, everyone, and thank you for joining us today. We had a strong Q2, which was highlighted by solid growth at scale and continued improvement in profitability. We continue to benefit from our leadership in the growing market for cyber resilience, and we are pleased to raise our outlook for the year. Let me start by briefly recapping our second quarter fiscal 2026 financial results and key operating metrics and then I'll provide guidance for the third quarter and full year fiscal 2026. All comparisons, unless otherwise noted, are on a year-over-year basis. We are very pleased to have ended Q2 with subscription ARR of over $1.25 billion, growing 36%. We added $71 million in net new subscription ARR. We continue to drive adoption of our Rubrik Security Cloud which resulted in $1.1 billion of Cloud ARR up 57%. Our differentiated land and expand model benefits from multiple avenues to gain new customers and grow our footprint after the initial contract. Expansion occurs through increased data existing applications, securing more applications or identities, or adding more security functionality. As a result, we continue to see a strong subscription net retention rate which remained over 120% in the second quarter. All vectors of expansion are healthy contributors to our NRR. Highlighting the meaningful runway we have to more deeply penetrate our customer base. Adoption of additional security functionality contributed approximately 35% of our subscription net retention rate in the quarter. We ended the second quarter with 2,505 customers with subscription ARR of $100,000 or more up 27%. These larger customers now contribute 85% of our subscription ARR up from 82% in the year-ago period as we become an increasingly strategic partner to our enterprise customers. For our second quarter, subscription revenue was $297 million up 55%. Total revenue was $310 million, up 51%. Revenue in Q2 benefited from our strong ARR growth and tailwinds from our cloud transformation journey. We also saw a higher nonrecurring revenue which was accounted for as material rights related to a crowd transformation. This contributed approximately seven percentage points to the revenue growth this quarter. Which was a few percentage points above our expectation. Adjusting for the benefit from material rights in Q2, total revenue grew approximately 44%. Turning to a geographic mix of revenue. Revenue from The Americas grew 53% to $225 million. Revenues from outside The Americas grew 46% to $85 million. Before turning to gross margins, expenses, and profitability, I would like to note that I'll be discussing non-GAAP results going forward. Our non-GAAP gross margin was 82% in the second quarter compared to 77% in the year-ago period. Our gross margin benefited from the revenue outperformance including higher nonrecurring revenue, reduced hosting costs from new cloud contracts, including a one-time hosting cost credit, and the improved efficiency of our customer support organization. We anticipate total gross margin to remain within our long-term target of 75% to 80% in fiscal 2026. As a reminder, we look at subscription ARR contribution margin as a key measure of operating leverage. We believe the improvement in our subscription ARR contribution margin demonstrates our ability to drive operating leverage and profitability at scale. Subscription ARR contribution margin was positive 9% the last twelve months ended July 31 compared to negative 8% in the year-ago period. An improvement of approximately 1,800 basis points. When normalizing for the $23 million, in employer payroll taxes associated with the IPO in the prior period, the improvement was approximately 1,500 basis points. The improvement in subscription ARR contribution margin was driven by higher sales the benefits of scale, and improving efficiencies and management of costs across the business. Free cash flow is positive $57.5 million compared to negative $32 million in 2025. This increase was driven by higher sales including timing of renewals, improved operating leverage, and optimizing our capital structure. Turning to our balance sheet, we ended the second quarter in a strong cash position with $1.5 billion in cash, cash equivalents, restricted cash, and marketable securities and $1.1 billion in convertible debt. Let me now provide some context for our outlook for fiscal 2026. We remain confident about our outlook given the strength of the fiber resilience market and demand for our differentiated offerings. We believe these drivers alongside our strong and consistent execution will deliver strong subscription ARR growth ahead. In terms of operating investments, we continue to invest in R&D to drive innovation in the large and growing markets we operate in across data, security, and AI. We'll also continue to make investments in go-to-market where we see the most compelling ROI across select regions and verticals and to find product market fit and scale our new innovations. Let me discuss our current outlook on quarterly seasonality. After a strong first and second quarter, we anticipate Q3 will contribute approximately 21 to 22% of full-year net new subscription ARR. In addition, subscription ARR contribution margin has some seasonality due to the timing of net new subscription ARR and operating expenses each quarter. Based on our current net new ARR linearity and investment plans, we continue to anticipate the subscription contribution margins will be the seasonally lowest in Q3 before moving higher in Q4. In terms of revenue, we now expect material rights related to our cloud transformation to contribute approximately six percentage points to revenue growth for the full year. Up from our prior expectation of a few percentage points. As a reminder, the revenue related to material rights is nonrecurring, and we expect minimal revenue contribution from material rights in fiscal 2027. Please see additional modeling points for fiscal 2026 in our investor presentation which can be found on our investor relations website. Now turning to our guidance for the third quarter, and full year fiscal 2026. In Q3, we expect revenue of $319 million to $321 million, up 35-36%, which includes a few percentage points higher benefit from material rights than previously expected. We expect non-GAAP subscription ARR contribution margins of approximately 6.5%. We expect non-GAAP earnings per share of negative $0.18 to negative $0.16 based on approximately 200 million weighted average shares outstanding. For the full year fiscal 2026, we expect subscription ARR in the range of $1.408 billion to $1.416 billion reflecting a year-over-year growth rate of 29% to 30%. We expect total revenue for the full year fiscal 2026 in the range of $1.227 billion to $1.237 billion reflecting a year-over-year growth rate of 38% to 40%. Or 32% to 34% without the benefit from material rights in fiscal year 2026. We expect non-GAAP subscription ARR contribution margins of approximately 7%. We expect non-GAAP earnings per share of negative $0.50 to negative $0.44 based on approximately 197 million weighted average shares outstanding for the full year. We expect free cash flow of $145 million to $155 million. Finally, we are pleased with our execution in the first half of the year as we continue to deliver cyber resilience to organizations around the world. With that, we'd like to open up the call for any questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed with the number two. If you are using a speakerphone, please lift the handset before pressing any keys. In the interest of time, please limit yourselves to only one question. Your first question comes from the line of Saket Kalia from Barclays. Your line is now open. Saket Kalia: Okay. Great. Hey, guys. Thanks for taking my question here and another nice job this quarter. Absolutely. You know, guys, the number that really jumped out to me the most of all was the free cash flow margin at 19% in the quarter. I think that's now four consecutive quarters of positive free cash flow. Bipul, maybe the question is, what's changed strategically in driving that type of profitability? And, Kiran, is there anything that we should think about in the second half on free cash flow as we fine-tune our models? Bipul Sinha: Thanks, Saket. As I've said before, I'm a capitalist. And I love profitability and cash flow. But, look, we are in a very large and an expanding market of cyber resilience. And as customers are looking to transform their businesses into AI enterprises, they are doing multiple transformations around cloud, around infrastructure, and cyber resiliency is the number one topic for them because if your data doesn't have integrity or availability, none of the AI will be useful. Or helpful. So we are helping do that cyber resilience transformation for our customers. Giving them like, AI-based ransomware detection, fast recovery, capabilities like that. And that's what is helping us win in this large market. And as we are scaling our business, the efficiencies are kicking in. I would love to have Kiran add some more from a finance perspective. Kiran Chaudhry: Sure, Bipul. And hi, Saket. I'll just give you a little bit more context both for the cash flow in the quarter and assumptions on the guide. So super pleased with the $58 million we generated in free cash flow this quarter. As you said, 19%. It was 3,500 basis points improvement year over year. And then from 700 basis points from last quarter Q1. A few reasons for that. Starting off with stronger ARR performance, than anticipated, and then the margin improvement as well, 9% sub AR margin. That was a key driver for the cash flow. In addition to that, you'd have seen we made some capital structure optimization in the quarter. We settled our private company debt, which has a higher interest coupon with a 0% convertible. So we had more cash on the balance sheet and less interest expense, which we sometimes pay out in cash. So that helped as well. And then on the duration front, we saw favorable duration this quarter. As you know, we increasingly sell cloud-native products, which tend to have a shorter contract length as well as shorter payment terms, and we didn't see that compression duration this quarter. And the last thing I'll say is that there's probably more timing related, but we saw more early renewals. Related to the usual trend and some of which was multiyear as well. This was in the context mostly of customers co-terming renewals with active expansion. So all of that really drove the cash flow outperformance to 19% margin this quarter. I look at the guide, we are happy to raise the guidance for the year. We previously had guided around 6% margin and we're guiding to 12%. And that's a thousand basis point or 10 percentage points improvement year over year. Some of the trends continue. Obviously, it's based on our ARR guide as well as the higher investments we are making in the second half from an OpEx perspective. Obviously, the capital structure portion will continue. But specifically in the duration, we are not assuming the compression continues. We are modeling in a little bit more compression. Would say low to mid-single digits through the rest of the year, and that is all the assumptions. We have made in the guidance. Saket Kalia: Super helpful, guys. Thank you. Melissa Franchi: Thank you, Saket. Operator: Your next question comes from the line of Andrew Nowinski from Wells Fargo. Your line is now open. Andrew Nowinski: Good afternoon. I just wanted to say, I think the net new ARR in Q2 is really impressive. Considering you went through a sales comp change, moving to annual sales comp plans this year. And so I know the change really didn't have an impact on your year-over-year growth in Q2, but I was wondering if you could just talk about whether you saw any impact from that and whether you're expecting higher seasonality in Q4 because of that change? Thank you. Bipul Sinha: Let me give you some qualitative perspective on it, and I'll let Kiran provide some more details. Look. We have been running our business on a per-year net ARR basis. And it jumps this quarter, that quarter, depending upon the deal timing and deal closure. But we run our business on a full-year new ARR. We used to do a quota compensation for the sales team on a half-yearly basis. So starting this fiscal year, fiscal year 2026, we decided to align how we run the business with how we compensate our sales team. And that change in the first half so far has not brought out any material impact to how we see our business or their achievement. Obviously, we have the rest of the year in front of us and we'll know more about the impact by the end of this year. But so far, it has gone well. Kiran? Kiran Chaudhry: I'll just add a few more thoughts here. So there are, of course, some shifts in seasonality. But it's only the first half. So we can give you a full update on our first year with this sales compliant change at the end of the year. But so far, it's been smooth and there's been no disruption. But from a modeling perspective, since we don't have a Q2 accelerator as we had in the previous half-year plans, Q2 and Q3 will look somewhat similar. That is reflecting our guidance, but Q4 will be seasonally strong. And this is reflected both in our subscription ARR guidance as well as the margins and free cash flow. Andrew Nowinski: Thank you very much. Melissa Franchi: Thank you, Andy. Operator: Your next question comes from the line of John DiFucci from Guggenheim. Howard Ma: Great. Thank you. This is Howard Ma on for John. I guess either for Bipul or Kiran, can you help us better understand how you're levered to data growth? So for instance, there's an aspect to your pricing model that's based on volume tiers. Which you could argue is directly tied to data growth. And then there's a user-based element especially with securing SaaS apps, So what is the mix today, and is there an opportunity for a purely consumption-driven component that gets bigger over time? Bipul Sinha: So Rubrik's products are a combination of data volume, and data security features and capability that we attach to it. And the combination of the two is the pricing for our different editions like enterprise edition, foundation edition, So we don't separate the two. And we help our customers identify all of the critical data and deliver all our security capabilities on those critical data. And as their data grows, as their applications or number of users grow, as they adopt more workload for Rubrik, we grow. So we have multiple growth vectors in Rubrik. One vector is organic data growth within a workload and applications that we are already securing. The new workloads that are coming to Rubrik, or existing applications, which are moving to Rubrik. And then the third piece is attaching the data security products. For products such as M365, which is tied to the number of users, We have a licensing model that aligns to that SaaS program. So we'll make it easy for our customers to adopt Rubrik and for them to understand the pricing model and expense based on how they pay for their core platform. Howard Ma: Does it answer your question? Bipul Sinha: Yes. That does. Thank you so much. Melissa Franchi: Thank you, Howard. Operator: Your next question comes from the line of Eric Heath from KeyBanc. Your line is now open. Eric Heath: Hey, guys. Thanks for taking the question and congrats on the results again. Kiran, I want to ask a few different questions on the model if I could. Could you just help us understand maybe what drove some of that early renewal activity given some of the sales comp structure changes to make it more year-end? I would have thought the opposite would have happened given the comp structure change. And if you could just speak to what's driving the decline in non-cloud ARR quarter over quarter is a little bit bigger than normal one. And lastly, if I could, if I could push it. But on the material rights, just what's driving that higher material rights activity that you're not necessarily expecting or you weren't expecting? Thanks. Kiran Chaudhry: Sure. I'll take them in order. So from a renewal perspective, we always see some early renewals every quarter. I mean, some of this is timing. Right? We have some on-time renewals, which is the majority. And some early and some late. But the renewals which occurred this time were more related to our expansion deals, which were in process with the same customers. And, typically, customers' core term the renewal activity with the expansion itself. So that was really the driver of the early renewals. And I also pointed out that some of those renewals are multiyear in nature. So that obviously impacted cash flow because of the higher billings. And just to add one more point, that is not related to the comp structure changes because that is tied to expansions, which is occurring along with renewals. So I wouldn't relate those two activities. And the second question, the non-cloud ARR, most of our since we're about 85% cloud right now, most of the cloud ARR is net new in the sense either coming from new customers or expansion with current customers. But there's still a small element of migrations which are happening from the non-cloud part. So you still see that declining a little bit. And at some point, we're getting towards the, I would say, point where it optimizes to a more steady rate it's a few points more than 80%, after which you'll see the non-cloud ARR grow as well. And then on the last point on the material rights, just to give some context, these are related to some qualified customers who had gotten some credits at the time we start our cloud transformation and those credits are beginning to expire. In some cases, where the qualification is possible, the customers use the credits to purchase some newer expanded products. In other cases, they expire. So the accountant treatment is slightly different. When those credits are used to purchase something versus when it expires. So that drives variability as well, and there's some timing element to that. Too, which we saw outperformance this quarter. Eric Heath: Thanks, Kiran. I threw a lot at you, but appreciate that. Thank you. Melissa Franchi: Thank you. Yep. Thank you, Eric. Operator: Your next question comes from the line of Kash Rangan from Goldman Sachs. Your line is now open. Matt Martino: Hey, guys. This is Matt Martino on for Kash. Thanks for taking my question. Bipul, Rubrik's brought to market a slew of new innovations across identity AI and data security. As you expand from a core product to a multiproduct platform, how do you see your go-to-market and sales motion evolving to effectively sell this broader, more complex vision to the C-suite? Thanks. Bipul Sinha: So multiproduct sales for some time now. Because we started with our core data protection business for data center as well as cloud, then we added M365. Then we added like, Salesforce, then we added now identity recovery, identity resilience, We are now building solutions for AI. So we have a kind of, like, a pipeline of three stages. So the stage number one is what we call RubrikX. That actually is the incubation phase of new products and go-to-market. And then the next phase is PLS, which is our product line sales team. That takes the early majority of product to scale it to be ready for the core sales team, and then we've transferred it to the core sales team. That's how we kind of scale our multiproduct go-to-market strategy. Obviously, we are doing all our product in a single platform. Rubrik Security Cloud. So that when our customers adopt more of Rubik's solution, our platforms get smarter and smarter and deliver more value. For example, if our customers have M365, as well as on-premises data center solutions. If there is a threat actor on both sides, we will be smart. We'll be giving our customers a smarter information about the complete picture of their data security and cyber resilience. As opposed to dumping logs and having them analyzed separately. So that's the platform strategy that we have taken from day one. And that's how we are building a multiproduct portfolio, but driving the value from a single platform. Matt Martino: Very helpful. Thank you, Bipul. Operator: Your next question comes from the line of Gregg Moskowitz from Mizuho. Your line is now open. Gregg Moskowitz: Great. Thank you for taking the question, and very nice quarter, guys. I wanted to ask about the DSPM. First of all, how it did in Q2? But more broadly, because it remains a hot area within cybersecurity, But, you know, these days, almost all the larger vendors have some sort of offering. Clearly, a significant majority of enterprises have yet to implement DSPM, When I think about Rubrik, I know you have a differentiated position here, but is there a point at which you think we'll see an inflection in DSPM market adoption? How do you think this will all evolve? Bipul Sinha: We have a belief that cyber resilience requires both resilience and identity resilience. And combining DSPM, is the data portion with identity information is needed to provide complete cyber resilience. Because when a privilege gets escalated for a user, inside your active directory, you may want to understand what new sensitive data is now being exposed to this customer and what is the blast radius for the customer credential get compromised. So bringing the identity intelligence and data security intelligence in a single platform is differentiated. We have this new unique vision in this market, and we believe that the future is going to be a holistic view for the customers from data identity and cyber recovery to be able to drive complete cyber resilience. And that's what we are driving for. Gregg Moskowitz: Okay. That's helpful. Thank you. Melissa Franchi: Thanks, Gregg. Operator: Your next question comes from the line of Todd Coupland from CIBC. Todd Coupland: Great. Good evening, everyone. You Bipul, you gave a number of examples on competitive wins this quarter. Could you just talk about the environment and your major sources of share and update us on your deal win rate? Thanks a lot. Bipul Sinha: As far as we are concerned, there is no change in the competitive environment for us. We still win the vast, vast, vast majority of deals against all competition legacy as well as new gen vendors. And it is due to our unique platform Rubrik Security Cloud, it is underpinned by a preemptive recovery engine that pre-calculates a clean data state even before the cyber attack happens. So that our customers are ready to recover as soon as they have a successful cyber attack. As a result, many of our customers are not in the news even when they are confronted with significant cyber attacks and they are not disrupted. And that's what is differentiated about Rubrik. And, again, we are equal opportunity replacers. For both legacy solutions as well as new gen solutions because they lack cyber resilience. Capabilities in a way of preemptive recovery engine. Just to give you an example, a European multinational industrial company replaced the legacy backup vendor with Rubrik's cyber resilience platform because a third-party audit found that they were not ready to recover upon a cyber attack, and they needed to upgrade their resilience posture. And they chose Rubrik for fast recovery for a simplified software platform for cyber resilience. So that's what we see in the marketplace. Again, our win rate comes from a very differentiated platform that we envision and built in the last ten years. Todd Coupland: Great. Thanks for the color. Operator: As a reminder, if you wish to ask a question, please press 1. Your next question comes from the line of Junaid Shah Siddiqui from Truist. Your line is now open. Junaid Shah Siddiqui: Great. Thanks for taking my question. Bipul, as the MCP protocol adoption gains traction across the cybersecurity ecosystem, do you view it as a strategic growth lever that could expand Rubrik's role from, you know, data protection into a broader security orchestration platform? Bipul Sinha: The way we see Rubrik is not in the prevention and detection business. We are in the cyber resilience business. Because we have a fundamental belief you can't prevent the unpreventable. And the world requires cyber resiliency and cyber recovery capabilities, and that's what we are focused on. Having said that, if you take a step back, Rubik is really a secure data lake. And we use that data lake data to recover applications. And recover your system. And this data is governed and secured and classified. And with Anapurna platform, we built vectorized search to deliver embeddings directly into GenAI applications. And now Predibase which is the fine-tuning and serving platform, And now we are building AgenTeq Rewind that combines our core cyber resilience plus the AI platform technology to really deliver capabilities around undoing the action bad actions of agents. So we are looking at AI in a holistic way. But we are not just focused on securing the AI. What we are focused on security, which is the cyber resilience business, as well as AI operations business, which is about agent fine-tuning, serving, agent rewind plus plus. So that's why we are defining ourselves Rubrik is the security and AI company. Junaid Shah Siddiqui: Thank you. Melissa Franchi: Thank you. Yeah. Operator: Your next question comes from the line of James Fish from Piper Sandler. Your line is now open. James Fish: Hey, guys. Sorry for any background noise here. Just wanna go back to the DSPM side. Any way to think about the updated penetration here? What you're seeing competitively just within this part of the market? And then additionally, what are you guys assuming you're thinking about for Fed here heading into, you know, the big Fed? And understanding it's been a small part historically, you know, what do you actually see for maybe some disruption there? Thanks, guys. Bipul Sinha: Sorry. Did you say Fed? Fed. Okay. As I said, we see the opportunity in the data security market around combining data and identity together. Because I don't believe just the data classification itself is a long-term sustainable business or a platform. So our vision is that how do we combine identity and data together to give a full picture of not just the posture of the data and identity, access to the data, but at runtime understanding what is really happening to the data and should anything bad happen. How do we do data recovery or identity remediation? And it's all data is the underpinning technology or the platform across all three. And that's the vision that we are driving. In terms of the again, this is still in the investment phase for us. And we are continuing to kind of build the cyber resilience transformation for our fed customers. It is high priority for fed organization given the nation-state actor and the fed that they face. It is we continue to invest in the growth and develop the Fed market for ourselves. We recently received Fed RAMP Moderate, For example, this quarter, a Fed agency had a challenge of deployment of a new gen vendor that they had bought a couple of years ago. So they are replacing that new gen vendor with Rubrik to protect their mission-critical databases. Which is required for their cyber resilience. And they picked Rubrik for our ability to deliver faster recovery times on the data. So fed again, we continue to win in the fed. It's still a developing market for us. Continue to invest. And we believe that Fed will continue to be a significant opportunity for us given how important cyber resilience and cyber recovery is for this market. James Fish: Thank you, James. Operator: Your last question comes from the line of Shrenik Kothari from Baird. Your line is now open. Zach Schneider: Great. Hey, guys. This is Zach Schneider on for Shrenik. Thanks for taking our question. So I believe nearly half of new deals are landing in the enterprise tier with foundation still key entry point for budget-constrained customers, and please correct me if that number is wrong, But could you just walk us through how deal sizes, renewal patterns are subsequent expansions differ across the tiers? Especially over multiyear contracts? Thanks. Kiran Chaudhry: Hi, Shrenik. So this is Kiran. I'll take your question. So on the first part, it's generally the trend has been similar. Close to half of our lands are coming from the enterprise edition. And then a mix of both the business and foundation with foundation being the larger of those two. And the enterprise the expansion path can vary. As you know, we are a multiproduct company. So customers start with one of these editions and maybe a couple of one or two of these workloads, and then they can expand by either expanding to a higher tier edition if they start with foundation or business, or if they already start with enterprise, they could expand to other workloads as well. And start with Microsoft 365, go to a native cloud workload or an Oracle workload, or database workload. So the expansion paths are not limited just because you started in a higher edition because you can always add more workloads as well. Zach Schneider: Great. Thanks a lot. Melissa Franchi: Thank you. Operator: This concludes our Q&A session. I would now like to turn the call over to Bipul Sinha for closing remarks. Bipul Sinha: Thank you. Thank you, everyone, for joining us today. We remain very excited about the cyber resilience opportunity as we build the future of AI transformation in terms of the enterprise AI acceleration. Much appreciate your support and trust. Again, very early days for Rubrik. We are in the first decade of our multi-multi-decade story. Thank you so much for your time. Talk to you three months from today. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to the Rubis 2025 Half Year Results presentation. [Operator Instructions] Now I will hand the conference over to the speakers to begin today's conference. Please go ahead. Clemence Mignot-Dupeyrot: Good evening, everyone. I'm Clemence Mignot-Dupeyrot, Head of Investor Relations. I am here today for Rubis's H1 2025 Results. I am with Clarisse Gobin-Swiecznik, Managing Partner; and Marc Jacquot, CFO. Clarisse will start the conference. Clarisse Gobin-Swiecznik: Ladies and gentlemen, good evening. To kick off this presentation of our H1 results, let me very quickly remind you what we do. Our business is about distributing energy while supporting mobility solutions. In Europe, we distribute and sell LPG, and we also produce and sell photovoltaic power. In Africa, we distribute and sell bitumen to road contractors in West Africa and fuel and LPG in East Africa. In the Caribbean, we distribute and sell fuel and LPG. Those products reached a wide range of customers, both individuals and professionals while the distribution is supported by a reliable and most of the time in-house logistics. For H1 2025, this diversified business model delivered a steady performance. In a global economic environment marked by uncertainty, our results for the first half of 2025 standout with growth in volumes and margins across all regions and product lines. Photosol continues to progress according to plan on track towards 2027 objectives. Our group EBITDA grew by 3% and the net income group share by 26%, driven by a stronger operational performance, better FX management and stable emerging currencies. Cash flow generation remains steady at EUR 276 million for H1, which is a key highlight of this publication. All of this gives us confidence in reaching our full year guidance, even in a less favorable USD-Euro exchange rate environment in H2. The following slide highlights our balanced growth across product lines and geographies. It showcases the strength of our commercial strategies, our agility, and seamless execution. Looking at our H1 performance by business line, you can see that in Retail & Marketing, all products delivered both volume and margin growths. LPG was driven by a very strong commercial momentum in Europe. In fuel distribution, the expected pricing formula adjustment in Kenya took the first step in March. The second step implemented in mid-July will show in our H2 performance. In bitumen distribution, demand in Nigeria is strongly picking up. The sharp decrease in unit margin visible here is purely a basis effect linked to the 2024 currency devaluation. We already mentioned it in Q1, Marc will elaborate further on this point. As for Support and Services, which covers supply to the distribution business, and the SARA refinery performance remains overall stable. Finally, the renewable business is expanding as planned with a sharp increase in both assets in operation and secured portfolio, in line with the remark we presented at last year's Photosol Day. In conclusion, this first half results are yet another demonstration of the group's ability to deliver consistent commercial and operating performance, cycle after cycle. And when you combine that resilience with discipline and proactive financial management, the outcome is clear, the strong and steady cash flow generation is fully in line with our historical standards. Marc Jacquot: Thank you, Clarisse. Good evening to all. Let's start with the big picture for the first half. Our EBITDA is up 3% year-on-year and flat on a comparable basis. As Clarisse already mentioned, this is driven by strong LPG performance in Europe, while in Africa, Kenya improved volumes and margins in the retail segment, and bitumen return to growth in Nigeria. Net income is up 26% to EUR 163 million, reflecting the absence of FX losses. CapEx related to the distribution business remains well under control, roughly stable at EUR 73 million while they are increasing in renewable to EUR 85 million, which is a concrete and positive sign that our growth projects are now materializing and are being steadily derisked. Nearly 85 megawatts were put in operation over H1 and 290 megawatts are now under construction. Corporate net debt is stable at 1.4x despite a negative trend in working capital over H1 which confirms our strong financial position. And finally, cash flow from operations remained strong at EUR 276 million for the first half year, supported by the good operating performance and the absence of FX losses. All in all, that's a solid performance. Now let's take a closer look at our activities. Retail & Marketing delivered a solid performance across the board with EBITDA increasing by 3% year-on-year. In Africa, we have three things to highlight. First, retail. Retail is contributing well and the impact of the new pricing formula in Kenya is expected to be fully visible in the second half. Second, aviation, which is more volatile, is facing higher pricing competition, leading us to reduce our volumes for the moment in Kenya. And the third one is bitumen. Bitumen margins increased less than volume and this is a basis effect from 2024 when naira devaluation impact affecting the financial results below the EBITDA was passed through to customers. Now let's look at the Caribbean. The Caribbean region was broadly stable, which is in line with our expectations. Guyana slowed down a bit with the election coming up in September, creating some kind of wait-and-see behavior among our B2B customers. In Haiti, the measures we have taken in our logistic management are starting to pay off, even if volumes remain a bit soft. Jamaica is normalizing with supply conditions slightly less favorable than last year. Now Europe. In Europe, the momentum is particularly good as a result of our challenger positioning combined with the excellence drive of our commercial teams and a colder winter this year. Looking at Support and Services, it remained stable, which is normal as this segment usually flexes with our Retail & Marketing activities. Now the renewable electricity production, what we can say is that the power EBITDA stands at EUR 22 million, which is up 38% year-on-year. In line with our road map, our development expenses have increased, reflecting the acceleration of the growth of this business, resulting in a consolidated EBITDA at EUR 10 million. In conclusion, this is a robust operating performance, attesting to the strength of our product and geographical diversification. Let's have a look at our financial results. Let me highlight just a few items here. The net income group share is up 26% or on a comparable basis, 18%. This is the result of lower expensive local debt levels and reduced FX exposure. When analyzing our income statement, let me remind you that the share of net income from associates in H1 2024 included Q1 results from Rubis Terminal. Interest costs are down, thanks to lower debt in Kenya and more favorable interest rates. As you know, last year, Rubis recorded significant FX losses, particularly in Kenya and Nigeria. In H1 this year, local currencies were more stable and the strategies we put in place to mitigate the FX risk have proven efficient, and we didn't incur any FX loss. As for taxes, nothing major to flag, the OECD global minimum tax is now fully integrated in our normal run. Overall, Rubis demonstrated agility and delivered solid financial results, fueling its cash flow momentum and supporting its balance sheet. Now a word on our financial debt. Total net debt stands at EUR 1.4 billion, with corporate debt at EUR 910 million, maintaining a healthy leverage of 1.4x at corporate level. Our liquidity level is high with more than EUR 180 million under RCF in addition to our EUR 530 million cash on balance sheet. The main variation of this debt this half came from the steady operational cash flow of EUR 390 million, which is up 11%, reflecting the good operating performance combined with the absence of FX losses. A negative impact from change in working capital of EUR 68 million after a very positive effect in H2 '24 as a consequence of lower trade payables. CapEx of EUR 164 million, which is higher than last year with the ramp-up of Photosol, hence, our usual June dividend that we paid to shareholders, but also to minority interest and general partners. Nonrecourse debt increased by EUR 63 million, in line with the renewable investments. All in all, our balance sheet remains solid with ample liquidity to support our future growth. Clarisse Gobin-Swiecznik: Thank you, Marc. Before we open the floor to Q&A, let me wrap up. So first, we saw Rubis commercial and operating performance. Second, our seamless execution and agility deliver reliable cash flows through the cycle. Finally, these H1 achievements make us confident, we are on track to reach our 2025 targets even in the less favorable euro-dollar context in H2. With a healthy balance sheet and a stable leverage ratio, we confirm we are aiming at EUR 710 million to EUR 760 million EBITDA within the framework of assumptions you have here on the slide. Thanks a lot for your attention. We are ready to take your questions. Operator: [Operator Instructions] Marc Jacquot: We have no audio questions for the moment. I propose you begin by the written questions on the webcast. Clemence Mignot-Dupeyrot: So we have 2 questions on the webcast from Auguste Deryckx of Kepler. Question number one is group EBITDA was stable on a comparable basis despite 5% volume growth, what are the key headwinds preventing stronger margin conversion? Marc Jacquot: What we can say on the margins, as I mentioned, the LPG margins were stable over the first half. And in the fuel distribution business, so the unit margin decreased by 1% in H1. And this decrease came exclusively from the Caribbean, especially from Jamaica. In Jamaica, the supply is not in Rubis' hands. And last year, we had very favorable condition for this supply. And this semester, actually, those conditions normalized, I would say. So that's the first explanation. Second one is on the bitumen, bitumen distribution business. So the volume growth in Nigeria resumed, as we explained. And H1 2024 was high due to the FX pass-through and the significant decrease in margin is explained by the basis effect after H1 2024 devaluation, after considering the guidance. Clemence Mignot-Dupeyrot: We have 2 questions considering on euro and USD FX. So question number one is -- but both questions have the same answer. Question number one is what level of FX rate and hyperinflation assumptions underpin the guidance, the EBITDA target of EUR 710 million to EUR 760 million. And what contingency levers do you have if the macro backdrop worsens. And another question from Emmanuel Matot is what is the total negative impact we can expect for 2025 on your EBITDA? Marc Jacquot: So regarding the guidance and the hyperinflation embedded in the guidance. We have the same level of hyperinflation in the guidance than in 2024, meaning a positive impact of EUR 25 million -- EUR 24 million on the EBITDA, EUR 22 million on the EBIT and minus EUR 10 million at a net income group share level, okay? So this is our assumption, and it will be -- and this is something that we will know only at the closing. So there is a lot of uncertainty in the hyperinflation. So we cannot commit on this number. In terms of impact of U.S. dollar, euro, the initial assumption we have was the euro-dollar level of the beginning of the year, meaning an exchange rate of $1.05 okay, for EUR 1. Now we are at $1.17 or $1.16 depending of the day. What we can say is that the good performance of the H1 will compensate the favorable impact related to the U.S. dollar impact. The margin we have in U.S. dollar is concerned, actually, I would say, 2/3 of our business, okay? So you can calculate what is the impact yourself on for H2. Operator: [Operator Instructions] Clemence Mignot-Dupeyrot: So we have another question online from [ Jean-Luc Romain ]. Could you please give us an idea of what the renewable EBITDA is before development costs? Marc Jacquot: So the renewable EBITDA before development cost is what we call the power EBITDA, the power EBITDA amounted to EUR 22 million in H1. Clemence Mignot-Dupeyrot: We have another question from [ Thomas Trotter ] saying about the aviation business. Are any of your markets showing activity in SAF, sustainable aviation fuel and is that a market Rubis might get into? Clarisse Gobin-Swiecznik: We are more or less agnostic to the type of fuel we distribute. We adapt to the demand of our customers. We would be able to distribute SAF and we do, in some places, especially in the Caribbean, but it's mainly a question of offer and demand, and there is not a lot of offer to date. We are, in any case, adapting ourselves to the demand from our customers. Clemence Mignot-Dupeyrot: Another question from Mr. [indiscernible] about Photosol portfolio evolution. It is not on the slide you have here in the presentation that is in the webcast, which you can find it on our website. Operator: [Operator Instructions] Clemence Mignot-Dupeyrot: We have another question from Emmanuel Matot at ODDO online, asking us if we have any impact of U.S. tariffs during the summer? Clarisse Gobin-Swiecznik: Rubis geographic and operational model makes it largely insulated from the direct effects of tariffs. We are not present in the U.S. nor in China, and we do not depend in any case of U.S.-based or China-based suppliers in our distribution business. On the indirect side, the products and services we offer are essential, particularly in the energy space. As such, demand tends to be relatively inelastic, meaning it remains quite stable even during periods of price volatility or economic slowdown. So I would say we have no effect of tariffs on our P&L or results. Clemence Mignot-Dupeyrot: Another question from [ Roger Degree ]. Can you update us on the CapEx plans and specific projects for the next year or 2 in the energy distribution business? Marc Jacquot: Roger. What we can say on the Photosol CapEx, this level, as you know, will increase in line with the ambitions communicated to the market at Photosol Day. So this is a EUR 1.1 billion CapEx in the 2024, 2027 back-end loaded. And for 2025 it should be in the range of EUR 150 million to EUR 160 million. Talking about Rubis Energy, so the distribution business, we should be in the normalized level in the -- I would say, EUR 185 million on the run rate. Clemence Mignot-Dupeyrot: Another question online. Can you give us an update on the shareholder structure? So the answer is public. The shareholding structure as of today is, the largest shareholder is Mr. Patrick Molis with more -- a bit more than 9%. Then you have the Bolloré Group through Plantations des Terres Rouges, a bit above 5%. You have Mr. Sämann 5% or so, Groupe Industriel Marcel Dassault a bit above 5%, and then the rest of the shareholding is structure an overall split between different shareholders. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Clemence Mignot-Dupeyrot: Thanks a lot for being here. We will be on the road on the days to come. So do not hesitate to reach out to us if you want to schedule a meeting or if you have questions, you know where to reach us. Thanks a lot, and have a nice evening.
Operator: Hello, everyone, and thank you for joining the ANGLE 2025 Interim Results Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions] I will now hand over to Andrew Newland, CEO. Please begin. Andrew David Newland: Good morning, everybody, and welcome to ANGLE's interims webcast for 2025. It's been a very strong half year in terms of major progress in commercialization on multiple fronts. However, there has been strong revenue pressure from adverse market conditions. So it's a balanced 6-month period. As you know, ANGLE has developed a breakthrough product for cancer diagnostics, which can be used to help patients get better outcomes by making sure that they have more appropriate treatment and also reduce health care costs. We're getting closer to its deployment widely for patients. We've had 3 major achievements during the half year, which are in relation to large pharma contracts, DNA dual analysis and cluster buster drugs. So I will tell you about those now. First and very importantly, our large pharma strategy, which we've developed as a way of accessing development funds to progress clinical trials in support of Parsortix has progressed well. The idea here is that pharma can fund for their own drug development purposes, individual clinical trials and that they can actually lead eventually to a companion diagnostic based on the Parsortix system and wide adoption. So as you know, we've had 3 pharma projects -- large pharma projects that we've been working on. And all 3 of those successfully completed during the period. The first one, the Eisai HER2 breast cancer trial was very important as it demonstrated in a 200-patient cohort Phase II trial that 2 tubes of blood taken at the same time and processed by Parsortix gave very consistent results in terms of the number of cancer cells present, the circulating tumor cell clusters present and critically, the expression or absence of expression of HER2 protein. But -- and this is the key point, the 2 time points were different. So very often, we saw that the patient's condition had changed. And this was to be expected because the first blood draw was taken prior to the patient being given the HER2 antibody-drug conjugate drug and the second time point was afterwards. So we saw significant changes in some, but not all of those patients. We're currently awaiting access to the clinical data to demonstrate whether or not the changes we saw directly correlated with the patient response or otherwise to the drug. But that's obviously what we would anticipate. So this trial has successfully confirmed that our HER2 assay, so our test for analyzing the HER2 protein on the cancer cells is very useful for the HER2 drug clinical trials, but also is likely to be relevant for selection of the drug for individual patients. So that was a big step for us. Secondly, the 2 AstraZeneca contracts, which were slightly different in nature because we were funded to develop assays for AstraZeneca. The first one was in DNA Damage Response, which is applicable for multiple cancers and the second one in Androgen Receptor, which again is a protein, but in this case, for prostate cancer. Both of those assay development projects were successfully completed. And we're now waiting actually to hear from AstraZeneca and indeed from Eisai and BlissBio, the owner of the ADC in HER2, about next-stage projects. So we've got next-stage projects under discussion with those companies. The second major achievement was the development of the DNA dual analysis, Illumina, end-to-end NGS assay, and I'll talk about that in more detail later, but it was a major achievement during the half year. And the third one, which I'll also discuss later, was the publication in Nature Medicine, a top-level peer-reviewed journal of the first inpatient trials for cluster buster drugs developed using Parsortix and fundamentally dependent on Parsortix. Post the half year-end, so since the 30th of June, momentum has continued, and we were absolutely delighted last month to announce our first large med tech collaboration. So why would a med tech company want to collaborate with ANGLE? Well, the answer is that we can offer them access to circulating tumor cells, so intact cancer cells from blood. And if they can move their test across to that analyte, then they can do repeat testing. And I'll talk more about that, but we're delighted to have secured that collaboration deal with Myriad Genetics, which offers the potential for large-scale commercialization of the Parsortix system. And as I said, I'll explain that. We built out the pipeline of opportunities with multiple large med tech and large pharma companies. So there are other companies coming down that track. One of the very interesting developments is the development that we've now managed to engage with the NHS in very serious discussions, and that has come since the NHS' announcement on the 30th of May that they were launching something called blood test-first in lung cancer, where lung cancer patients will have a blood test processed. And that is current -- to identify whether the specific treatments they can be given. The advantage of that blood test versus the tissue is that the results from the blood test can be found quicker, so the patient gets treatment quicker. And also a number of patients, probably about 20% don't actually have a successful biopsy. So they have no sample to guide their treatment. But what the NHS is interested in is the DNA dual analysis solution that ANGLE uniquely provides. So I'll give more information on that a little bit later. And then finally, internally, we've been working extremely hard, and we're making very good progress on accrediting -- getting an accreditation for our clinical lab. We're targeting completion of that by the end of the year. And that would then open up the possibility for ANGLE to start offering tests directly for patient management, which clearly would be a major step forward for the business. In terms of the half year results, in terms of the finances, we have unfortunately been subjected to the challenging market conditions. Market volatility and tariff concerns have actually slowed decision-making regrettably at many large corporates that we're in touch with. So they're pausing or delaying some of their decisions. And that comes on top of a lack of capital for the smaller companies that we'd like to work with. So in both cases, there's been a delay in conversion of pipeline opportunities that we've been developing. The consequence of that is that the pharma revenue is regrettably down on the prior year half year period, and the product revenue is flat. We believe that this is a temporary situation, which will resolve itself over time. But at the moment, it's unclear when that will happen. We've been managing our costs very carefully with tight cost control, and we've reduced our operating expenditure by 12% compared to the previous period. And overall, that has slowed down to the comprehensive loss being reduced by 7%. Clearly -- and the cash and R&D tax credits position stands at GBP 6.6 million with the cash runway unchanged into Q1 2026. But clearly, access to additional funding is a key focus for the business for H2. And that funding can come from a variety of different sources. In terms of some more granularity on key developments, our integrated NGS workflow with the Illumina platform is a major step forward for ANGLE. It's a unique offer actually, that ANGLE offers the ability to assess both the DNA from circulating tumor DNA, the dead, which come fragments from dead and dying cancer cells which is the standard approach from the plasma as well as the circulating tumor cells, which we can obtain from the waste product of the ctDNA analysis. So the ctDNA providers, what they do is they extract the plasma liquid and they throw away the blood cellular component. What we've developed is the methodology for resuspending that in a saline, running it through the Parsortix system and recovering the circulating tumor cells, and they can then be analyzed with the exact same approach of sequencing as the ctDNA. So then you have 2 analytes from the same tumor blood, which have been sequenced in the same way. As I said, we're the only company that can offer that solution. Now what we've done in the half year is we have developed an Illumina end-to-end solution. So by that, I mean, we start with the Parsortix, but then we use an Illumina pan-cancer gene panel and the Illumina next-generation sequencing. And that has some really significant advantages. Firstly, Illumina has got worldwide distribution of its products, which means that there is a customer base with their products that can now implement Parsortix. We don't have to supply a separate cancer panel external to Illumina. And secondly, of course, this increases the revenue potential for Illumina and has got them quite interested in working with us on joint sales. Now this form of analysis, as you can see from the image here, identifies twice as many mutations, so actionable DNA variants than ctDNA alone. And it is therefore the case that we believe that very, very important information about how the cancer is progressing is missed by circulating tumor DNA. It's also missed by tissue biopsy because the tissue biopsy is a onetime point. And what happens is the cancer progresses and changes and you can't repeat the tissue biopsy. And that is what has stimulated the interest from the NHS. And they're now considering the idea of testing on a large-scale basis, whether they can, in fact, get additional actionable information from the circulating tumor cells, which would improve the outcome for patients and importantly, reduce the cost of operation. So this whole area of getting the Illumina end-to-end DNA dual analysis to work was a major achievement in the half year. The second major achievement was this first medtech partnership. So this, we think, is the first of many such medtech partnerships. It's driven by the idea that companies who offer tissue-based tests. Now in the case of Myriad Genetics, they do that via large-scale clinical laboratories where they offer tests. These companies basically can only do one time point for the patient. They can only do their test when they've got the tissue available. Now the same approach applies also to medtech companies who sell products. Their products can only be used at a single time point where there is tissue. And this is a crucial limitation on cancer care today, which is that it's all based off -- apart from some ctDNA, which has its own limitations. It's all based off tissue where there's only one time point available. And yet everybody knows that cancer progresses and changes. So with Myriad, the idea here is that they are working with ANGLE to see if they can port one of their cancer tests onto a CTC platform. So that would then enable them to have, as I mentioned, multiple repeat tests for a patient, so that generates repeat revenue for them. And secondly, it opens up the opportunity to provide tests for patients who don't have tissue and quite a lot of patients have a failed tissue biopsy or alternatively, the biopsy tissue is not accessible. So that's 2 major benefits for them. The third potential benefit is actually looking at patients before the tissue diagnosis. So if you have a test, you can do a blood test without any major impact on the patient. So you can do it very early when, in fact, you might not choose to do a tissue biopsy because of the invasive nature of that. So Myriad has made a commitment to expanding its offering across the cancer care continuum. And we see Myriad as an excellent major partner for commercialization. They have, as I mentioned, a very large-scale clinical laboratory establishment, and they're a major player. They have around $800 million in revenue as it stands at the moment. And they're an outstanding partner for us to work with for commercialization because they have already got all the market channels in place. We expect to see other medtech partnerships coming through in due course. Now the reason I've highlighted this area of targeting metastasis is because the Parsortix system has unearthed some amazing information. The fact that there are large-scale circulating tumor cell clusters present in patient blood and that these circulating tumor cell clusters are absolutely incredibly important in terms of the metastasis of the patient. In fact, the Aceto Lab in Switzerland has demonstrated using Parsortix in a mouse model that the cancer is 100x more likely to spread. The metastatic potential is 100x greater where there are circulating tumor cells in a cluster than when the same number of circulating tumor cells are separate rather than attached to one another. And these large-scale circulating tumor cell clusters have never been seen before the advent of Parsortix. Now we previously reported the publications by this group over the last 4 or 5 years in nature. But what they've done is they've stepped forward, and we announced in January a publication again in Nature Medicine, where they have used the Parsortix system with breast cancer patients to identify patients with circulating tumor cell clusters. And then they have given them a heart-related drug called digoxin and showed again using Parsortix, the ability to separate these circulating tumor cell clusters into individual cells. That same process in a mouse reduced the spread and pretty much stopped the cancer progression in the mice compared to identical mice that didn't have the heart-related drug. So there was now a spin-out company that's been set up in Switzerland with the idea of developing a new class of drugs to stop the spread of cancer. And this can only be possible if the Parsortix system is used to identify whether the patient has circulating tumor cell clusters and ensure that the right patients get the drug and then monitored with routine blood test to see whether they need to have the drug again. We expect that there will be major clinical trials using Parsortix in order to progress this further. So a very exciting development for cancer management of the future, and it's entirely enabled by the Parsortix system. So our system has a lot of evidence behind it, and that continues to build. So now we have 46 independent cancer centers in 15 different countries, who have published between them 115 peer-reviewed journal publications on Parsortix across 23 different solid tumor cancers. And all of these publications are positive. So we are now into the phase of commercialization. As I mentioned earlier, we have had some adverse market conditions, which have temporarily slowed the decision-making process at some of the largest companies. However, we have a very major pipeline that we have developed, and we expect to see a whole series of developments coming through in the relative near term. So we're getting started on the Myriad Genetics collaboration, porting their tissue test to CTCs, and we expect to see that expanding over time. We have discussions going with several large pharma companies in relation to multiple projects, and that's being progressed further at an upcoming conference, the World CDx Conference in Boston on the 21st of September, where we have many meetings with pharma to progress these discussions. We also have engagement with multiple med tech companies who will be at that conference, including some who have declared themselves wanting to do joint sales with ANGLE of CTCs -- potential CTC solutions marrying their downstream technology and offering that to pharma, which is a welcome addition to our sales approach. The partnership for DNA dual analysis. So this evidence is now beginning to get out there, and we have several molecular companies, both NGS and other molecular downstream analysis companies looking to partner with us to take that further forward. So we expect to see progress in relation to that. We also have some companies interested in partnering with ANGLE in relation to protein analysis. So this is looking at the proteins such as the HER2 and the Androgen Receptor that I mentioned earlier on in the presentation. There's many different ways that you can analyze these proteins, but you have to have intact cancer cells to do it, and we provide that solution, which isn't otherwise available. The methods can involve immunofluorescence, immunohistochemistry and FISH, to name a few. So there are several companies wanting to partner with us on that. We're hopeful that we'll be able to agree a suitable clinical study with the NHS soon, which would be then to evaluate the benefits that can come from analyzing and circulating tumor cells, first for lung cancer, but then for other cancers. And obviously, the target there would be to generate the clinical evidence which will be sufficient for the NHS to seek to adopt solution from ANGLE as a routine solution. And obviously, we're a U.K. company. We're close to the Royal Marsden, who's heavily involved in this, and we have a number of benefits that we can offer them over and above their current solutions, which are based from the U.S. ctDNA companies. And we -- the NHS is the largest medical market in the world in terms of a single customer, and we believe that adoption by NHS would drive -- further drive worldwide interest in our technology. And as I mentioned, we're working on our own clinical laboratory accreditation. That's going very well, and we expect to see that complete by the end of the year. So in summary, we have a breakthrough technology, and it is capable of transforming cancer patients' outcomes, both diagnosis and treatment as well as reducing costs for health care providers. We believe it provides the best sample for analysis, and particularly that is now being proven for next-generation sequencing, which is the major area of focus for all the health care providers. And it's interesting that NGS is getting a lot of attention. The cost of NGS sequencing is dropping and the sensitivity is increasing. The adoption of artificial intelligence is increasing. And again, that enables patents to be seen that might be missed otherwise and the cost of AI is dropping. So what you actually end up with is a limiting factor is access to the best sample. And we believe that intact living cancer cells taken at a real-time point from the patient blood provides the best possible sample. In terms of downstream analysis, we have got a unique DNA molecular analysis of intact cancer cells married also with the ctDNA, and that gives the ability to look at clonal evolution. And looking at clonal evolution and how the cancer is changing is the driver to get ahead of the spread of disease. And that's why the new drugs to block cancer progression based on Parsortix are a major development. And that's also why the NHS is now expressing strong interest in what ANGLE is doing. So thank you very much for listening. We'll now move to Q&A, and Ian Griffiths, our CFO, will join me for that. Operator: [Operator Instructions] We have our first question from Adam McCarter from Cavendish. Adam McCarter: I've just got a few. So yes, just you talked during the presentation about the challenging environment sort of experienced during H1. Just wanted to know if you've started to see any encouraging signs of these headwinds begin to subside at all in the second half of the year? So second question then just on the NHS. Just how do we sort of think about those NHS clinical studies that Parsortix could be incorporated into the opportunity and the materiality there? And then the final question is obviously good to see sort of more of those high-impact journal publications for Parsortix, particularly the Nature Med one. Are these types of publications helping sort of in your BD efforts and helping progress those conversations with pharma and the medtech? Andrew David Newland: Thank you very much, Adam. The first comment -- question was about encouraging signs. Well, certainly, the Myriad Genetics signing up to go ahead with us was a very encouraging sign. That was a conversation that had been going on for quite some time. And they've taken the decision that despite the conditions, they want to start investing in this. I listened recently to the Chief Executive's presentation of their own results, and they specifically referred to extending their offer into the continuing cancer care continuum. So I thought that was a very promising sign. That said, there are multiple others, which I would have liked to have dropped by now. So let's hope to see -- we'll see some more of them coming through in a similar way. In terms of the NHS side of things, what that's generally speaking about is the fact that they are adopting the blood test-first in lung cancer patients for 15,000 patients per year. And interestingly enough, they literally do throw away the blood cells. And that's quite a compelling argument. You're throwing away the best part of the sample with Parsortix, we can analyze that. So I guess we'll start off with a pilot study first and then if they like it, we can expand. But the good thing is they don't even have to take an additional tube of blood to address this. And in terms of the -- Ian, you can add to this if you wish to. But in terms of the publication side, absolutely, we use these peer-reviewed publications to drive business development. We have a medical writing team that packages that information, and it forms a lot of the interaction that we have with prospective collaborators and customers. Ian Griffiths: Yes. And I'd probably add to the encouraging sign a couple of things. So one is increasing sort of awareness of the need to incorporate multi-omics into oncology and multi-omics, just for clarity, it means not just DNA, but adding in RNA and protein information. And if you look at Illumina, in particular, the way they're developing their next-generation sequencing is they can already do RNA and the sensitivity and cost points are improving that all the time. But they're also introducing a new protein solution as well. So obviously, we've got the perfect sample to fit with the Illumina equipment. And then the other thing is in discussions. So obviously, we produced data earlier in the year on the dual analysis. And that's generating a lot of interest because I think people are quite surprised how much additional DNA information we're finding with CTC-DNA, not just what the ctDNA produces alone. So there's quite a lot of interest around that complementary nature, but the fact that there's a lot of additional data. Operator: Our next question comes from Edward Sham from Singer Capital Markets. Edward Sham: Congratulations on all the operational progress despite the tough sector headwinds. I've got a few questions. But if I could just first start with your kind of your large pharma contracts because you've obviously completed in the first half, the 3 contracts with Eisai and AstraZeneca. I was just wondering how much visibility do you have in converting those into further contracts? And just can you give me a sense of the wider pipeline? Are you seeing strong traction across pharma? Or is it more medtech? Andrew David Newland: So in terms of the visibility on the new contracts, regrettably, we don't control the timing of these large pharma, and they will tell us when they're ready to do whatever it is that they want to do. So that's a bit of a challenge. But we are seeing increased wider interest from large pharma, and we have a very strong roster of meetings at World CDx. And this includes pharma that we've been dealing with for some time. We have been called on by several large pharma to provide them with -- essentially, they call it an RFI, a statement of what we can analyze from CTCs and how that works and how much we would charge them for that. So we do know that there are multiple players at these large pharma who are actively considering adoption of our solutions. What we don't know is when they might decide to jump in and also when those studies would start. So that's it really. I mean basically, there is mounting evidence and mounting interest, but we've got to get it converted. Edward Sham: No, that's really helpful. And then maybe just on the Myriad Genetics collaboration. Can you just outline the key milestones and importantly, how the economics would work if that was to be commercialized at scale? And just kind of give me an idea would that -- would ANGLE's revenues primarily be through services? Or is that also driving part sorting sales and consumables as well? Andrew David Newland: So we gave an announcement in relation to the work with Myriad. It was a bit lighter on details, and that's because they don't want to disclose some of those bits of detail. But I can talk in principles. So initially, we are being paid to provide some direct services to assess our sample going into their test. Some of that work has already been done. Now we're looking at various different modifications, which may improve the outcomes. So that's paid for service work. Assuming that progresses, what I would anticipate is there will be more paid for service work in terms of clinical trials to actually assess how well the CTC test does against the tissue biopsy test. And then beyond that, an implementation would involve us selling them a whole lot of Parsortix machines and setting up -- they would have to set up a Parsortix laboratory. So we'd have quite a lot of product sales. And every single sample, of course, would then need a Parsortix cassette as a consumable. And we currently charge $300 a cassette for that purpose. So that's on the specific tests we're working on at the moment. But they have a whole series of tests. And if the first one is looking good, there's absolutely no reason why they wouldn't do all their tests in a similar way. So we'd expect to see them getting -- wanting to get closer and closer to ANGLE. And then what I just described in terms of the sort of revenue flows being multiplied out by multiple different tests. Edward Sham: That sounds like a really great opportunity. And then just maybe just one last question on costs and runway. So you've highlighted your cash runway goes into Q1 '26. But I was just wondering beyond that, you've mentioned the alternative sources of funding. I was just thinking what can you do now? So realistically, can you take further cost out of the business and kind of what do you think your cash burn is going to look like through to kind of the end of the year? Andrew David Newland: Ian, do you want to cover that one? Ian Griffiths: Yes. Obviously, we are -- and you've seen that from the half year, we are continuing to try and manage our costs tightly. So certain spend has been sort of paused, certain costs have been cut back. But the nature of us being a regulated industry and having to have the sort of capability and capacity to deliver on the projects, deliver on the milestones means there's a certain level of underlying spend. So we're focused very heavily on the sort of that milestone delivery, and that can in itself be sort of one of the potential sources of funds. As we highlighted in the interims, there's a variety of sources of funding that are available to us. It's not just the revenues, but there's also commercial milestones, licensing, other income from collaborations with industry partners as well as sort of debt and equity funding, which is what we've historically done with the company. So we flagged, we will need to raise additional funding through one or a combination of such sources. We know there's challenges on the AIM market and biotech sector, which are well documented. And so our focus is very much is generate the milestones, generate the contracts that show that we're making that commercial progress to secure that support. Operator: [Operator Instructions] We currently have no further audio questions. We'll now move on to our text questions. Our first question is from Franc Gregory from Trinity Delta. She asks, following up on Adam's question, what can you tell us about the state of discussions with large pharma and large medtech companies? Andrew David Newland: So Franc, thanks for the question. So I think I gave a fair amount of information on that. We're talking to large pharma. There's multiple large pharma involved and across a variety of different drug categories. Just to recap, the protein analysis, which is what we've done so far for pharma, such as HER2 Androgen Receptor and the DNA Damage Response proteins, those are all things that have to be done by looking at cells and looking for expression. So they cannot go elsewhere for that. And there is, therefore, quite a lot of interest and particularly from antibody-drug conjugate companies because the antibody-drug conjugate attaches to the cancer cell via the protein. And if that protein is not there, then it won't work. And as an example, AstraZeneca's drug in HER2 is a HER2 antibody-drug conjugate. It is prescribed currently based off tissue biopsy. So if the patient is HER2 positive or HER2 low, then they'll be given that drug but as a second or third-line therapy, and that can be 3, 5 or even more years after the tissue biopsy. So there's published independent data that shows that up to 40% of the HER2 status would have changed in that time frame. This is mirrored across all the different proteins, and that's why the pharma are interested in that. The second interest for the pharma is in relation to the DNA dual analysis. And our pitch there is that the circulating -- so some of the pharma are adopting circulating tumor DNA analysis in their clinical trials. And our pitch to them is you're missing out on information, which might be critical in your clinical trial by not analyzing the circulating tumor cells in the blood cellular component. And that is beginning to gain traction as well. It's obviously a new area because we've only just developed it, but that is the subject of a lot of the conversations in the World CDx. So hopefully, that's a little bit more information on the pharma relationships. In terms of the med tech, we've got several big med tech product providers who offer molecular or protein-based testing solutions, which are sold worldwide, but they don't have access to a repeat sample. And those people are beginning to talk to us about implementing a CTC solution, which could be sold to their customers. And also, there's quite a lot of interest in working for -- jointly to get sales from pharma. And that would help us a lot because credibility of a very big company that they already do companion diagnostics with in tissue, wanting to work with ANGLE would obviously be a credible offering to the pharma. Operator: We have a follow-up question from Franc. How long and complex is the selling cycle into these partnership discussions? Andrew David Newland: Sorry, I missed that. Could you repeat the question? Operator: How long and complex is the selling cycle into these partnership discussions? Andrew David Newland: That's very variable. So what's happened is that the selling cycle has been longer than anticipated for the reasons that I said that these pharma are delaying commitments to various different things. But generally speaking, you're looking at a 6-month engagement before you can actually get into a sale because you're providing information to the pharma on the specific data from -- it was an earlier question, but data from the publications, for example. And then we sometimes do some pilot work ourselves. And so we have to submit a lot of data to be considered before they then decide to go forward. Operator: Our next question comes from Nigel Birks from Cavendish. [ BSL ] highlighted the unique potential of Parsortix in cluster cells a while back. What is new now? And how might this be commercialized? Andrew David Newland: So that's a great question. Thank you very much, Nigel. So what is new is that they have actually used the Parsortix system with breast cancer patients to identify circulating tumor cell clusters. And then they have dosed these patients with the heart drug, digoxin, and they've showed that the circulating tumor cell clusters separate into individual cells. So this is a completely new way of trying to approach cancer therapy is to reduce the competence of the circulating tumor cells to actually grow somewhere else and cause the secondary cancer. The reason that's significant is because well over 90% of patients who die from the metastatic spread to secondary cancer sites. Now that is caused by the circulating tumor cells in clusters landing somewhere else and growing. And there's -- so -- and they've demonstrated in a mouse model that if this heart drug is given, then the circulating tumor cell clusters disaggregate in the mouse and the mouse does not then succumb pretty much at all to the cancer. So it doesn't spread and kill the mouse. So the hope is that, that will translate to cancer patients. Now normally, there would be quite a big risk associated with a transfer of a mouse model across to a human model because there are a variety of differences, which mean that it might not be successful. So this first step shown that they have been successful in disaggregating the circulating tumor cell clusters is incredibly important. But the second element is that there was work done in the mid-1980s and 1985, the first large-scale study was done looking at breast cancer patients and trying to work out differences between the ones who had a successful outcome and the ones who didn't. And what they found was that actually a good factor for a better outcome was relating to having a comorbidity of a heart condition. So can you believe that? So if you've got cancer, you'd be better off if you have a heart condition, you're more likely to survive your cancer than if you don't have a heart condition, which is patently absurd. So the only -- and nobody understood that in the '80s and late '80s when this was investigated in detail. But they then -- and they sort of gave up on it. But now, of course, when we now know that heart drugs disaggregate circulating tumor cell clusters, there's the possibility that, that's the reason why we're seeing the progress in the mouse model. So the spin-out company is now working on some other drug targets very similar to digoxin, but with greater potency for CTC cluster disaggregation and basically less side effects. So that's super exciting because it could likely lead to a lot of work with Parsortix on clinical trials, which we can obviously enable and make money out of. And then as and when it potentially comes to market, the Parsortix is an absolutely crucial element. It would have to be used with every patient on multiple time points. Operator: We currently have no further questions. So I will now hand back to Andrew for closing remarks. Andrew David Newland: Well, I'd like to thank everybody for their support. It's obviously very disappointing that we didn't deliver higher revenue lines. We're hopeful that this will change, and it will change as we get our large pharma and our large med tech collaborations moving forward. And as I mentioned, our clinical lab will open up the potential for us to actually start providing tests for patients. And there is a very, very strong demand from the medical world and patients for this approach. And the fact that the NHS has started engaging with ANGLE is, I believe, a very strong positive. So thank you very much for your support. Have a good day, everybody.
Holly Schoenfeldt: Good morning, everyone, and thank you for joining us today for our webcast announcing U.S. Global Investors Results for Fiscal Year 2025. As you can see on Slide #2, the presenters for today's program are Frank Holmes, U.S. Global Investors CEO and Chief Investment Officer; Lisa Callicotte, Chief Financial Officer; and myself, Holly Schoenfeldt, Director of Marketing. Moving on to Slide #3. During this webcast, we may make forward-looking statements about our relative business outlook. Any forward-looking statements and all other statements made during this webcast that don't pertain to historical facts are subject to risks and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-K filing for more detail on the factors that could cause actual results to differ materially from any described today in forward-looking statements. Any such statements are made as of today, and U.S. Global Investors accepts no obligation to update them in the future. Moving on to the next slide. As always, we appreciate our loyal shareholders. So if you like one of our signature USGI hats that are featured on this slide, just send us an e-mail at info@usfunds.com with your mailing address and we'd be happy to send them your way. Okay, on the next slide, I want to briefly review the company U.S. Global Investors is an innovative investment manager with vast experience in global markets and specialized sectors. We use a quantamental strategy to create thematic smart beta 2.0 products. The company was originally founded as an investment club, becoming a registered investment adviser in 1968 and has a long-standing history of global investing and launching first-of-their-kind investment products, including the first no-load gold fund. And finally, we are experts in thematic investing, in particular, in gold and precious metals, natural resources, airlines and luxury goods, all using a quantimental approach that includes both macro and micro factors. At this point, I do want to hand things over to our CEO and CIO, Frank Holmes, who will provide a deeper macro overview of this visual and in the whole fiscal year. Frank, over to you. Frank Holmes: Thank you, Holly. Thank you very much for the introduction, and really smart beta 2.0 is very key as a dynamic investment process that we adhere to. And also from a macro point of view and our thematic ETFs, we try to cross what are the key drivers on global themes, where big government spending is going, and we right in all our perspectives that we believe that government policies are precursor to change. So we monitor and track both monetary and fiscal policies, and we comment regularly, every week in investor alert and if you're not a subscriber, I highly recommended because it gives you a good recap of these various asset classes. As you're looking at right now the DNA volatility and life is all about managing expectations. And when it comes to the stocks, volatility is very important to try to understand grasp. So when we look at the S&P and gold and grow, they all basically, it can go up or down 70% of the time, 1%, not a bit. If it's all 3% that's material. And when we look over 10 days, is 3% to 4%, so if it goes up 10% over 10 days, that means it has a change in momentum. It falls more than 4% over 10 days, usually that's a by. And I'm going to comment about how we continue to buy in those down days, especially when we get these big drought any volatility in spoke volatility in the marketplace. But here, you can see that the DNA volatility of grow is now left, which is really important to me than the Dow Jones U.S. asset managers index used to be greater -- and it used to be much more like the volatility with GOAU is or the airlines index of 3% daily, and now it's down to 1%. And it was important for you to recognize that our revenue comes from assets that are in JETS and GOAU. And they're very important because they drive the overall revenue line. So our DNA volatility has been becoming much calmer than the volatility underlying assets. Next, please. I want to thank the shareholders, all the retail and then the institutional. These are the top 3, either Capital Management, Vanguard and Perritt. Perritt is known for a long period of time, there's expert specialists in micro caps and also have a cultural affinity towards golds and asset class, which I'll comment later on in this macro overview before we turn it over to Lisa Callicotte, to give you the financial updates. Next, please. I owned approximately 90% of the company and 99% of the voting control, which has been compliance with SEC rules, et cetera. We do have independent directors and independent boards that we have to go through the normal process in managing the affairs of the company. And we have experts in the fund business and legal and accounting and venture capital -- so I'm happy to see that the independent directors have a breadth and depth of knowledge of capital markets, which I believe is important. Thank you. Next, please. So strategy and tactic. So create thematic products that are sustainable, using our smart beta 2.0. It requires rigorous back testing for thousands of hours. Our mission is to make people feel financially happy and secure that their wealth is consistently growing. And they relate to these themes that we're providing for public and what I said we backtested it and employs on these products also in addition to myself. But as a company, we strategically buy back the stock using an algorithm on flat and down days. And we managed to preserve past and future growth and opportunities of market corrections, M&A activity to acquire fund assets on a regular basis, we look at opportunities. Grow our subscriber base and followers. We believe that that's very important for the crossover from people that follow us, read our research. They know our culture, they know our values, and it's much easier for them feeling the trust factor to come into our thematic funds. So we want to really have educated and informed investors and increase our closure to the bitcoin ecosystem. We've regularly deploying capital into the Bitcoin ecosystem, especially, when since the Genius Act has been approved, and that has been changing overall capital markets acceptance. And we think that scarcity is important for gold as much as and more so even for Bitcoin, which is capped at 21 million coins, and the adoption process seems to be growing slowly outside America, but pretty quite rapidly in America. Next, please. GROW performs a [indiscernible] cap over the past 5 years, but it's just marginal. What's positive for the shareholders is that small cap stocks has started turning up. And what this visual is trying to show you, the last time we had this epic surge to $12 of share for GROW. A lot of that was a huge growth we had in just ETF and HIVE. HIVE had this exponential move because Ethereum had moved in Bitcoin, but really, we were the dominant player in Ethereum, and we were making almost $1 million a day at that time. Ethereum is no longer a crypto asset to mine and HIVE is now just going through a new growth cycle with Bitcoin mining, especially the expansion in Paraguay and our HPT strategy in Canada -- so that has been part of our exposure is through HIVE. Next, please. They're really important is if you know that 80% of the world's cargo is carried by ship -- so the CETF is connected to emerging markets. So I want to try to explain to people that it's so important like arteries and veins of the world, that is the connectivity between emerging markets, exporting commodities to developing markets, buying the finished product coming out of China or Thailand, all this shipment is taking place on cargo ships. And one of the things we had shut down is our Eastern European fund after Putin invaded Ukraine, it really changed the whole dynamic to New York. And the whole concern about China building up their military and becoming more and more difficult, what they've done, but what we've noticed is that to have a pulse global activity and trade, it really all comes from cargo. And so we created a product. And in daily, you can see cargo provide goods and for energy shifting what the rates are. And what's interesting to me is that they all fell on April 2 earlier this year when Trump came up with his global tariff war, but really start to rebound and cargo shipping actually it is making more money than we were a year ago. And for investors, cargo shipping, the yield on this was about something like an 18% dividend payouts. So these shipping companies are leveraged, but they offer big payments. And I'm happy to share with you with all the negative news last year, the shipping companies did payout big dividends. And this year, their shipping rates are higher, even with this backdrop of all those negative news. Next, please. So this is another visual to highlight that despite tariffs, total imports in the first half of 2025 forecast to be nearly 4% higher than the previous year. Next please. Now gold, gold is in the region all-time high in 2025, but gold talks are ripping up, they're showing up in growth stocks in IBD's growth momentum, both for this huge increase in revenue per share and cash flow per there. But the ETF space, I'm happy to share with you is that we've not experienced the redemptions, but there's been a lot of redemption next place has taken place and when we take a look at the other ETFs. So the biggest is GDX, the experience with $3 billion of redemptions other ETF as the gold stocks have been making all-time highs because the gold is making an all-time high and profit margins have been expanded. So from when we look at our product OAU, it's really how well in fund flows relative to the other big gold ETF. Gold equity ETFs, but what's important here is to show that gold is performing well. And a big part of that is China's push with the BRICS Nations, Brazil and Russia and other one [ road ] one belt countries being anti the U.S., anti particular U.S. dollar in particular, when Obama went after sanctions and complicated U.S. dollar assets and then Biden did it again. There's this big push to de-dollarize. So what you've seen is China and other countries, having less dollars of foreign currency and increasing it into gold. And it's more and more central banks buying gold. So it just tends be prudent for many reasons, central banks have a different theme than retail and family offices or smart investments like Galileo, they believe that when you have such a big interest payment on $37 trillion deficit that goal becomes an important asset class. But what I want to share with the listeners -- it's not just the dollar. It's also the G20 countries are just extensive money printing, and that has really triggered an interest in bitcoin. And with the new administration and with the Genius Act just being recently passed, it enters in that the scarcity of Bitcoin capped 21 million coins, and the scarcity of gold, but there's no mathematical perfect cap on it is showing you that money printing excessive, they're going into alternative asset classes. And gold and silver and gold stocks and Bitcoin and Bitcoin mining stocks are like HIVE was the Bitcoin mining stock but holds Bitcoin. These are alternative asset classes are capturing more appeal, especially when the large hedge fund, the world it keeps articulating why you want to have gold as an asset class. So we think we're in a good position. Next, please. Market disconnect. This is a visual to show you the GDX, which is market-based, market cap-based ETF unlike GOAU, which is more focused on revenue and cash flow and free cash flow and royalty model. There's been nothing, but redemptions as the gold prices have gone up. I believe that is turned now, which is good. The positive fund flows a bit of an offset, but it's really been really weird market, since last year that you would experience Gold taking off profit margin of gold stocks and gold stocks going up 40% to 80% to 100%, various names that there would be net redemptions. What was acclaimed to me was that there's been a lot of hedge funds that were short gold stocks. And along the GDX as gold has been rising, we've been unwinding their hedge position. So I don't know, if that's true, but it really is a conundrum I've seen before. But I think us behind us I really do. I think U.S. Global is well positioned with GOAU and these other thematic products, please next. Record-breaking quarters for royalty companies. Franco-Nevada reported record revenue for the quarter, up 42% year-over-year. Wheaton also had generated record revenue and operating cash flow Triple flags, which came out about 5 years ago, basically posted operating cash flow and increased their dividend. So I think that, that model is continuing to grow, but the gold stock that have higher expenses and then as gold trades higher, all of a sudden, their cash flow and exploding, they've had better stock performance. And when we look at stock by Gold Fields, it's been on a tier. But as a value gold stock picker, it's not the best for a value, but as high leverage, they call it, high operating costs, when both starts to take off as it has been these companies have the biggest percentage change in gross profit margin. And a lot of more speculative funds and hedge funds go into those names. Next, please. So the growing global reach U.S. Global ETFs now, in particular, JETS and GOAU are listed on the Mexican Stock Exchange, I went down to Mexico made a presentation to family offices of about 150 investors. And we're seeing that also listed in Bogota and Peru and Chile that these the Colombian securities that we're getting more trading and more volume that is taking place in these particular products. It was interesting that in Peru, there was lots of more interest in SCA, the sea cargo shipping ETF. Next, please. Well, there's another factor. There's an intersection with military spending and AI and data centers and NVIDIA chips that's really important for investors we're on a super cycle here for AI. There is no doubt about it, but there's also a fast-end big spend into data centers and sourcing energy. In fact, the biggest spend in America right now for infrastructure is in [ between ] Oplin, Texas, whereas the $500 billion spend to build the biggest high-performance computing data center at this. And what's interesting is that 70% of that demand is for Open Chat GPT. And an Open Chat is a phenomena. Unlike I hear these people say, oh, it's a bubble like tech bubble like 1999, and it's just not true. That tech bubble was eyeballs. This tech bubble, if it's a bubble is because of cash flow and revenue Open Chat has gone from basically nothing to $1 billion a month in revenue. And continues to grow, along with the other big language model companies like perplexity, Groq, which is Elon Musk investment and through a special purpose fund, we have a small investment in the sort of growth in that Groq that's in the U.S. global portfolio investments. And the only way to get that was to go through a special purpose. And it's illiquid, but it's growing, and it's just important to recognize that we believe that U.S. Global, we were in a super cycle. And a super cycle is really important for us that the military spend because of what's happened in the Ukraine and how the Ukraine have a pushback with creating asymmetry with drones for using GPU chips, but these inexpensive drones basically been able to deter and push back against Russia. And President Trump, no mentioning of words of telling the NATO members of Europe and Canada got better [ antipasto ] spending more money or they're going to pull NATO. And it's been a sea change. The amount of money and what's happening in Europe is very profound, they're going to emulate America and create an industrial complex that parts will be made through all these different countries in Europe and basically being assembled in Germany, tax special weaponry cannons, missile launchers, et cetera, et cetera, and so Germany is committed to up to 5% of their GDP. But that's a big number. You're talking, and that's going to be, when I do my other calculation is up to over $300 billion. And you take a look at a Sweden, all of a sudden there are 2%, who's the strongest center has been Poland. So next place. So there is a big spend of the NATO members, and this is looking back, basically, but these numbers are just going to grow and the consumer is concerned. Well, a lot of this money is going to go into a satellite that's going to go into needed to use of NVIDIA chips to power these new drones or autonomous weaponry, autonomous submarines, autonomous vehicles, dogs that are autonomous that can go into high conflict zones. It goes on and on with your imagination, but the spend is huge, but what you realize is that it has to go into data center, so that it has to go into -- because if you don't have high performance computing data centers, then the drones don't work and the satellites. So all this stuff is all hyperlinked to each other. Next, please. We used to think it was just metal, iron and steel, now it's a very different world. But this was NATO members projected defense spending and the numbers are quite substantial. The last number like for Canada is actually over $150 billion. And it's up faster than what this was printed out. Just to give you an idea of what's taking place. Countries like Poland became big spenders because not only from refugees come from Ukraine, but from Belarus and they had to build a wall to protect illegals or the spies coming into sabotage illegal complexes within Poland. So Poland is very sensitive of Russian spies coming into the country. So you're seeing them put up a big spend. And what's interesting is that Greece is a big percentage of GDP because they had no idea how to protect their borders when they had the Syrian crisis, and they were going from Turkey over to Greece and how do they manage all of this was a game changer for them. So the U.S. is projected to spend $1.5 trillion. But what's the difference between what we're spending in China? China might spend 8% on soldiers and health care, et cetera, most of us going into armaments, whereas 50% of NATO and U.S. is on soldiers and the cost for health care and continuous care for these soldiers we are actually underspending relative to what China is spending. Next, please. The AI market is exploding. And will continue to spend 28% CAGR. And next please. So it's important to understand these big changes. And that's 1 reason why we created our war with ETF. But as AI to rebuild the military, so it has a lot of cybersecurity-related investments. Next, please. But what's really alarming is that ETFs have grown to be more in numbers than overall listed public companies and talk to a retired former SEC senior lawyer is alarming and that the SEC has to go and promote new IPOs, new companies coming public, the formation of capital because if that's not growing faster than M&A work, then all of the sudden mutual funds became bigger than stock shares outstanding. And what you do see is that there are lots of mergers and there's not of private equity coming in buying companies. So therefore, eventually starts impacting liquidity. The new administration is very pro turning up IPOs and creating capital for more public companies, which is positive. The ETF is really fasting what's happening there is the thematic ETFs are capturing more imagination. And not just an index that's really based on something by these index providers, but active ETFs have flourished, and that's something that we are really happy about and positioned to capture the growth. Next, please. So U.S. ETF assets are approaching $11 trillion. Next, please. Now what's the time for small caps to run? Michael Gade is well known in Piper Sandler, likes to say, a small caps, the unquestionable winner in August. But we saw that we rose, but really nothing greater than the rose of 2000 small caped index. It's related to what's the growth in assets. And I showed you earlier that when we had JETS go from $40 million to $4 billion in assets and HIVE go from $0.50 to $10 or some number like a big number. Those big moves on our balance sheet, in particular, the growth in JETS that there is lots of sophisticated investors that trade our stock around the number of creates and fund flows. So they're looking at the total number of assets we have every month. And if they start to expand, then they want to be long. If they start to fall, then they want to be out. I was told by 1 small group that they do biweekly what the overall asset picture is because it drives revenue. That's not how we function. We're long-term investors. And we believe that we have great products. We have real conviction on the quality of the products we offer. And so they've been rigorously back tested before we put them in the marketplace. JETS has validated this concept of what we went out to create that was to be the New York Stock Exchange Global Airline Index. And even after fees has done that. And when we look at the airline industry, it is almost 9% of global GDP. So can you get 1 product that's capturing 9% of their global GDP? Well can you capture -- another product captures 80% of all global trade at sea. I think these are really unique products. And I hope we have in England, it's called Trip. So it's basically JETS with additional hotels and cargo and not cargo ships but cruise liners because cruise liners are having incredible growth in revenue that people are still spending incredible cruise amounts of money to go on cruises and same thing with airline tickets, the prices have not gone down. When I get analyst say, it's really interesting to share with you, Wall Street comes out and says, well the airlines are going to grow up 3%, but GDP Airport grew at 15%. So how can the airport grow of traffic, 15%, but the airlines are only grow 3%. And so there's a disconnect that there's always a negative narrative that's been going on for 2 years now that the airlines are going to fall apart, but they continue to defy and they're using AI to have pricing power and how they move their Jets along, if they're going to cancel roots, it's done very quickly. So it's important for you to recognize the investors that AI is a significant component for how airlines are managing supply, which then gives them pricing power. Next, please. Bull markets have lasted 5x longer than Bear markers on average. So I watch this. I see this and I listened to and I read a Twitter and LinkedIn and this is just potentially to look for the next crisis. So people can pat themselves they call the crisis. But if it happens by the dip and hold on for life that's basically what this suggesting because of trade payer. Next, please. Warren Buffett highlights the value proposition of buying back one's own stock at a value accretive prices. And it benefits all shareholders. It's very much a democratic process democracy, democratizing capital markets is not just for the biggest holders. And so he will retire at the end of 2025 at the age of 95 with $340 billion cash to invest. So I think it's interesting in what he's done, but he was a big proponent of buying back stock. So let me give you a quick recap. Next, please. So positive news, buyback authorizations have increased 19% year-to-date. So that has been another part about executives and boards making a decision to buy back their stock. Next, please. While we buy back stock because we believe the stock has undergone and therefore, buy back shares as we're long-term investors. And this is part of the company's 2-pillar strategy to enhance shareholder value by paying dividends as well as buying back stock per year. Next, please. So for share repurchase program for the end of June 30, the company repurchased a total as 801,000 Class A shares using cash of $1.9 million, of which a lot of these proceeds came from being paid back on our debenture from HIVE. Next, please. Those repurchases, as you can see, showing you that has steadily increased. Next, please. The dividends, the company pays a monthly dividend. That's a 3.66% yield, it was more attractive than any money fund. Next, please. Shareholder yield. This is the algorithm dividends plus buybacks plus debt reduction divided by market cap is the overall shareholder yield. And next, please says that U.S. Global, and the 5-year treasury is 3.79%. Most dividend paid stocks are based on the 3.79%, the 10-year is 4.24%, odds favor rates dropped this month. So what does that mean? Well, that's one other factor that people look at to move stocks around. But the shareholder yield is 9%, so we believe that GROW is an attractive buy. Next, please. We look to compare our souls to WisdomTree which is 100% ETFs at Invesco, 40% of their assets to our QQQ and give an idea for relative multiples and what the rotations are for investors. Next, please. So I look for at 2025, the company has a steady cash flow despite volatile and challenging macro environments at the apathy for JETS is disappointing and for gold, we believe that this turns on when a turn is very rapid, it just happens so quickly. And so we -- our assets are down from a year ago. So we ended up losing money, but we still keep deploying and building our plan because we believe that it just happens so quickly, fund flows and directional change. And so we believe that we'll continue to buy back stock on flat and down days and pay monthly dividends. And we have a strong business to do so. Next, please. Smart beta investing is our quantamental fundamental investment strategy because it combines cutting-edge technology with robust data analysis to help optimize returns and manage risk effectively for our shareholders. It's a quant approach. It's back tested thousands of hours before we go and launch a product just like medical product is supposed to be tested over and over before unleased to the public, and we have the same sort of discipline. Next, please. GROW's investment is slowly drilling down to 8% comfortable debenture of $1.5 million. And as the money comes in, we're redeploying back into the crypto ecosystem. Next Please. So it's -- we have $1.4 billion in assets. We have [ $1.5 million ] in annual operating revenue. the real important number is to get through $1.9 billion. We've seen this happen in a month. So as I said to investors that we've seen the redemptions slow down, we've seen the apathy slowdown -- and we think that with our thematic asset classes that we remain very bullish and committed to a long-term secular Bull market. Next, please. Average assets under management. As you can see that shift, that's really just the talent time of apathy not having bad products, but having good quality product out there. Sentiment, we can't control. We can still control, having a good product. Next, please. Quarterly earnings per share were definitely impacted marked by the tariff war for the quarter. It's improved this quarter ended June and hopefully, it improves this next quarter. Historically, in the fourth quarter, airlines have a huge run -- and usually, September is usually a good buying, and they have a big run along with Bull stocks, so we remain very positive going into the year-end. Next, please. Now I'm going to turn over to hard working, our CFO, Lisa Callicotte, to give you a granular detailed analysis. I know I've been long-winded to talk about a macro theme of where we are and she'll give you a bottom-up analysis of financial analysis. Thank you, everyone, for being loyal shareholders. Lisa? Lisa Callicotte: Thank you, Frank. Good morning. First, I'll start with our Slide 43 that has the financial highlights for our 2025 fiscal year. Average assets under management were $1.4 billion for the year ending June 30, 2025. The Operating revenues were $8.5 million, and we had a net loss of $334,000 or $0.03 per share. Slide 44 notes our breakout of earnings. So we have operational earnings that consist of our advisory services and then we have other earnings, which mainly consists of realized and unrealized gains and losses on our investment holdings. But both of these are dependent and will fluctuate based on stock market forces. The next slides talk about more of our detail of our operations for the fiscal year ending June 30, 2025. Our operating revenues were $8.5 million for the year, which was a decrease of $2.5 million or 23% from the $11 million in the prior year. The decrease is primarily due to a decrease in assets under management, especially in our JETS ETF. Operating expenses for the current quarter were $11.4 million, relatively flat compared to the prior year. On the next slide, we see our operating loss for the year ending June 30, 2025, is $3 million. And we had other income for June 30, 2025, of $2.7 million compared to $2.4 million in the prior year. This was an increase of approximately $329,000, mainly due to higher investment income in the current year. In the current year, we had lower realized and unrealized losses versus the prior year. Net loss after taxes for the year was $334,000 or a loss of $0.03 per share, which is an unfavorable change of $1.7 million compared to the net income of $1.3 million or $0.09 per share for fiscal year 2024. If we move on to the balance sheet on Slide 47 and 48. We see that we have a strong balance sheet and has high levels of cash and securities. And then if we go to Slide 49, that notes our total liabilities, and these are consistent with prior year. The next slide is a detail of our stockholders' equity. At June 30, 2025, the company had a net working capital of $37.2 million and a current ratio of 20.9:1. With that, I'd like to turn it over to Holly, so she can discuss marketing and distribution initiatives. Holly Schoenfeldt: Thank you, Lisa. All right. This first slide in my section showcases our ongoing dedication to delivering original timely market insights to our YouTube and TikTok channels, Video content remains one of the most powerful tools for educating and engaging both new and existing shareholders. If you haven't already, we'll strongly encourage you to explore our YouTube channel. All right. On the next slide, I'd like to spotlight several recent interviews featuring Frank Holmes from the past quarter, including appearances on the Seeking Alpha podcast premarket Prep, FOX Business television and other major platforms. Earned Media remains a cornerstone of our marketing strategy, giving us the opportunity to share timely insights and thought leadership across a range of thematic sectors. We regularly amplify these appearances on our special media channels JETx and LinkedIn, and we featured them throughout our website content too. All right, on the next slide. Our war ETF launched about 9 months ago, and we continue our outreach and marketing efforts for this unique product and we actually just published a white paper this week on defense spending and the ETF itself, and that can be found on u.Sglobaletfs.com or to e-mail us at info@usfunds.com, I will send you that link. All right. On the next slide, I also want to quickly announce a few webcast we have in September, both of which you will be able to access a replay for. One is September 10, where we will be teaming up with the HIVE ETF team out of Europe to discuss our UCITS Travel ETF, ticker symbol TRIP or TRIP. Secondly, on September 25. Frank Collins will do a virtual webcast highlighting clear trade in the market right now and specifically, why not going to be a good time to look at exposure to defense and gold. All right. On the next slide, we always like to recap the most read Frank Talk blog post during the most recent quarter. So as you can see here, the top being focused on defense and [indiscernible] along with the attractiveness of gold. So again, that perfectly aligns with our webcast on September 25, we hope you'll tune in. And we hope you'll keep reading the Frank Talk Blog. Thank you. All right. Finally, on my last slide, I do encourage all of you to follow U.S. Global Investors on social media. We're on Twitter or X LinkedIn, YouTube, Instagram and Facebook. So wherever you prefer to get your news, be sure to check us out. This was your up-to-date with what's going on not only with growth but our funds and, of course, the broader market insight. All right. As a reminder to our audience, if you have any questions today, please feel free to e-mail those to us at info@usfunds.com, and we will gladly follow-up with you and get anything clarified that you may need more information on. Thank you so much for tuning in today. That concludes our webcast summarizing fiscal year 2025.
Operator: Hello, everyone, and thank you for joining the ANGLE 2025 Interim Results Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions] I will now hand over to Andrew Newland, CEO. Please begin. Andrew David Newland: Good morning, everybody, and welcome to ANGLE's interims webcast for 2025. It's been a very strong half year in terms of major progress in commercialization on multiple fronts. However, there has been strong revenue pressure from adverse market conditions. So it's a balanced 6-month period. As you know, ANGLE has developed a breakthrough product for cancer diagnostics, which can be used to help patients get better outcomes by making sure that they have more appropriate treatment and also reduce health care costs. We're getting closer to its deployment widely for patients. We've had 3 major achievements during the half year, which are in relation to large pharma contracts, DNA dual analysis and cluster buster drugs. So I will tell you about those now. First and very importantly, our large pharma strategy, which we've developed as a way of accessing development funds to progress clinical trials in support of Parsortix has progressed well. The idea here is that pharma can fund for their own drug development purposes, individual clinical trials and that they can actually lead eventually to a companion diagnostic based on the Parsortix system and wide adoption. So as you know, we've had 3 pharma projects -- large pharma projects that we've been working on. And all 3 of those successfully completed during the period. The first one, the Eisai HER2 breast cancer trial was very important as it demonstrated in a 200-patient cohort Phase II trial that 2 tubes of blood taken at the same time and processed by Parsortix gave very consistent results in terms of the number of cancer cells present, the circulating tumor cell clusters present and critically, the expression or absence of expression of HER2 protein. But -- and this is the key point, the 2 time points were different. So very often, we saw that the patient's condition had changed. And this was to be expected because the first blood draw was taken prior to the patient being given the HER2 antibody-drug conjugate drug and the second time point was afterwards. So we saw significant changes in some, but not all of those patients. We're currently awaiting access to the clinical data to demonstrate whether or not the changes we saw directly correlated with the patient response or otherwise to the drug. But that's obviously what we would anticipate. So this trial has successfully confirmed that our HER2 assay, so our test for analyzing the HER2 protein on the cancer cells is very useful for the HER2 drug clinical trials, but also is likely to be relevant for selection of the drug for individual patients. So that was a big step for us. Secondly, the 2 AstraZeneca contracts, which were slightly different in nature because we were funded to develop assays for AstraZeneca. The first one was in DNA Damage Response, which is applicable for multiple cancers and the second one in Androgen Receptor, which again is a protein, but in this case, for prostate cancer. Both of those assay development projects were successfully completed. And we're now waiting actually to hear from AstraZeneca and indeed from Eisai and BlissBio, the owner of the ADC in HER2, about next-stage projects. So we've got next-stage projects under discussion with those companies. The second major achievement was the development of the DNA dual analysis, Illumina, end-to-end NGS assay, and I'll talk about that in more detail later, but it was a major achievement during the half year. And the third one, which I'll also discuss later, was the publication in Nature Medicine, a top-level peer-reviewed journal of the first inpatient trials for cluster buster drugs developed using Parsortix and fundamentally dependent on Parsortix. Post the half year-end, so since the 30th of June, momentum has continued, and we were absolutely delighted last month to announce our first large med tech collaboration. So why would a med tech company want to collaborate with ANGLE? Well, the answer is that we can offer them access to circulating tumor cells, so intact cancer cells from blood. And if they can move their test across to that analyte, then they can do repeat testing. And I'll talk more about that, but we're delighted to have secured that collaboration deal with Myriad Genetics, which offers the potential for large-scale commercialization of the Parsortix system. And as I said, I'll explain that. We built out the pipeline of opportunities with multiple large med tech and large pharma companies. So there are other companies coming down that track. One of the very interesting developments is the development that we've now managed to engage with the NHS in very serious discussions, and that has come since the NHS' announcement on the 30th of May that they were launching something called blood test-first in lung cancer, where lung cancer patients will have a blood test processed. And that is current -- to identify whether the specific treatments they can be given. The advantage of that blood test versus the tissue is that the results from the blood test can be found quicker, so the patient gets treatment quicker. And also a number of patients, probably about 20% don't actually have a successful biopsy. So they have no sample to guide their treatment. But what the NHS is interested in is the DNA dual analysis solution that ANGLE uniquely provides. So I'll give more information on that a little bit later. And then finally, internally, we've been working extremely hard, and we're making very good progress on accrediting -- getting an accreditation for our clinical lab. We're targeting completion of that by the end of the year. And that would then open up the possibility for ANGLE to start offering tests directly for patient management, which clearly would be a major step forward for the business. In terms of the half year results, in terms of the finances, we have unfortunately been subjected to the challenging market conditions. Market volatility and tariff concerns have actually slowed decision-making regrettably at many large corporates that we're in touch with. So they're pausing or delaying some of their decisions. And that comes on top of a lack of capital for the smaller companies that we'd like to work with. So in both cases, there's been a delay in conversion of pipeline opportunities that we've been developing. The consequence of that is that the pharma revenue is regrettably down on the prior year half year period, and the product revenue is flat. We believe that this is a temporary situation, which will resolve itself over time. But at the moment, it's unclear when that will happen. We've been managing our costs very carefully with tight cost control, and we've reduced our operating expenditure by 12% compared to the previous period. And overall, that has slowed down to the comprehensive loss being reduced by 7%. Clearly -- and the cash and R&D tax credits position stands at GBP 6.6 million with the cash runway unchanged into Q1 2026. But clearly, access to additional funding is a key focus for the business for H2. And that funding can come from a variety of different sources. In terms of some more granularity on key developments, our integrated NGS workflow with the Illumina platform is a major step forward for ANGLE. It's a unique offer actually, that ANGLE offers the ability to assess both the DNA from circulating tumor DNA, the dead, which come fragments from dead and dying cancer cells which is the standard approach from the plasma as well as the circulating tumor cells, which we can obtain from the waste product of the ctDNA analysis. So the ctDNA providers, what they do is they extract the plasma liquid and they throw away the blood cellular component. What we've developed is the methodology for resuspending that in a saline, running it through the Parsortix system and recovering the circulating tumor cells, and they can then be analyzed with the exact same approach of sequencing as the ctDNA. So then you have 2 analytes from the same tumor blood, which have been sequenced in the same way. As I said, we're the only company that can offer that solution. Now what we've done in the half year is we have developed an Illumina end-to-end solution. So by that, I mean, we start with the Parsortix, but then we use an Illumina pan-cancer gene panel and the Illumina next-generation sequencing. And that has some really significant advantages. Firstly, Illumina has got worldwide distribution of its products, which means that there is a customer base with their products that can now implement Parsortix. We don't have to supply a separate cancer panel external to Illumina. And secondly, of course, this increases the revenue potential for Illumina and has got them quite interested in working with us on joint sales. Now this form of analysis, as you can see from the image here, identifies twice as many mutations, so actionable DNA variants than ctDNA alone. And it is therefore the case that we believe that very, very important information about how the cancer is progressing is missed by circulating tumor DNA. It's also missed by tissue biopsy because the tissue biopsy is a onetime point. And what happens is the cancer progresses and changes and you can't repeat the tissue biopsy. And that is what has stimulated the interest from the NHS. And they're now considering the idea of testing on a large-scale basis, whether they can, in fact, get additional actionable information from the circulating tumor cells, which would improve the outcome for patients and importantly, reduce the cost of operation. So this whole area of getting the Illumina end-to-end DNA dual analysis to work was a major achievement in the half year. The second major achievement was this first medtech partnership. So this, we think, is the first of many such medtech partnerships. It's driven by the idea that companies who offer tissue-based tests. Now in the case of Myriad Genetics, they do that via large-scale clinical laboratories where they offer tests. These companies basically can only do one time point for the patient. They can only do their test when they've got the tissue available. Now the same approach applies also to medtech companies who sell products. Their products can only be used at a single time point where there is tissue. And this is a crucial limitation on cancer care today, which is that it's all based off -- apart from some ctDNA, which has its own limitations. It's all based off tissue where there's only one time point available. And yet everybody knows that cancer progresses and changes. So with Myriad, the idea here is that they are working with ANGLE to see if they can port one of their cancer tests onto a CTC platform. So that would then enable them to have, as I mentioned, multiple repeat tests for a patient, so that generates repeat revenue for them. And secondly, it opens up the opportunity to provide tests for patients who don't have tissue and quite a lot of patients have a failed tissue biopsy or alternatively, the biopsy tissue is not accessible. So that's 2 major benefits for them. The third potential benefit is actually looking at patients before the tissue diagnosis. So if you have a test, you can do a blood test without any major impact on the patient. So you can do it very early when, in fact, you might not choose to do a tissue biopsy because of the invasive nature of that. So Myriad has made a commitment to expanding its offering across the cancer care continuum. And we see Myriad as an excellent major partner for commercialization. They have, as I mentioned, a very large-scale clinical laboratory establishment, and they're a major player. They have around $800 million in revenue as it stands at the moment. And they're an outstanding partner for us to work with for commercialization because they have already got all the market channels in place. We expect to see other medtech partnerships coming through in due course. Now the reason I've highlighted this area of targeting metastasis is because the Parsortix system has unearthed some amazing information. The fact that there are large-scale circulating tumor cell clusters present in patient blood and that these circulating tumor cell clusters are absolutely incredibly important in terms of the metastasis of the patient. In fact, the Aceto Lab in Switzerland has demonstrated using Parsortix in a mouse model that the cancer is 100x more likely to spread. The metastatic potential is 100x greater where there are circulating tumor cells in a cluster than when the same number of circulating tumor cells are separate rather than attached to one another. And these large-scale circulating tumor cell clusters have never been seen before the advent of Parsortix. Now we previously reported the publications by this group over the last 4 or 5 years in nature. But what they've done is they've stepped forward, and we announced in January a publication again in Nature Medicine, where they have used the Parsortix system with breast cancer patients to identify patients with circulating tumor cell clusters. And then they have given them a heart-related drug called digoxin and showed again using Parsortix, the ability to separate these circulating tumor cell clusters into individual cells. That same process in a mouse reduced the spread and pretty much stopped the cancer progression in the mice compared to identical mice that didn't have the heart-related drug. So there was now a spin-out company that's been set up in Switzerland with the idea of developing a new class of drugs to stop the spread of cancer. And this can only be possible if the Parsortix system is used to identify whether the patient has circulating tumor cell clusters and ensure that the right patients get the drug and then monitored with routine blood test to see whether they need to have the drug again. We expect that there will be major clinical trials using Parsortix in order to progress this further. So a very exciting development for cancer management of the future, and it's entirely enabled by the Parsortix system. So our system has a lot of evidence behind it, and that continues to build. So now we have 46 independent cancer centers in 15 different countries, who have published between them 115 peer-reviewed journal publications on Parsortix across 23 different solid tumor cancers. And all of these publications are positive. So we are now into the phase of commercialization. As I mentioned earlier, we have had some adverse market conditions, which have temporarily slowed the decision-making process at some of the largest companies. However, we have a very major pipeline that we have developed, and we expect to see a whole series of developments coming through in the relative near term. So we're getting started on the Myriad Genetics collaboration, porting their tissue test to CTCs, and we expect to see that expanding over time. We have discussions going with several large pharma companies in relation to multiple projects, and that's being progressed further at an upcoming conference, the World CDx Conference in Boston on the 21st of September, where we have many meetings with pharma to progress these discussions. We also have engagement with multiple med tech companies who will be at that conference, including some who have declared themselves wanting to do joint sales with ANGLE of CTCs -- potential CTC solutions marrying their downstream technology and offering that to pharma, which is a welcome addition to our sales approach. The partnership for DNA dual analysis. So this evidence is now beginning to get out there, and we have several molecular companies, both NGS and other molecular downstream analysis companies looking to partner with us to take that further forward. So we expect to see progress in relation to that. We also have some companies interested in partnering with ANGLE in relation to protein analysis. So this is looking at the proteins such as the HER2 and the Androgen Receptor that I mentioned earlier on in the presentation. There's many different ways that you can analyze these proteins, but you have to have intact cancer cells to do it, and we provide that solution, which isn't otherwise available. The methods can involve immunofluorescence, immunohistochemistry and FISH, to name a few. So there are several companies wanting to partner with us on that. We're hopeful that we'll be able to agree a suitable clinical study with the NHS soon, which would be then to evaluate the benefits that can come from analyzing and circulating tumor cells, first for lung cancer, but then for other cancers. And obviously, the target there would be to generate the clinical evidence which will be sufficient for the NHS to seek to adopt solution from ANGLE as a routine solution. And obviously, we're a U.K. company. We're close to the Royal Marsden, who's heavily involved in this, and we have a number of benefits that we can offer them over and above their current solutions, which are based from the U.S. ctDNA companies. And we -- the NHS is the largest medical market in the world in terms of a single customer, and we believe that adoption by NHS would drive -- further drive worldwide interest in our technology. And as I mentioned, we're working on our own clinical laboratory accreditation. That's going very well, and we expect to see that complete by the end of the year. So in summary, we have a breakthrough technology, and it is capable of transforming cancer patients' outcomes, both diagnosis and treatment as well as reducing costs for health care providers. We believe it provides the best sample for analysis, and particularly that is now being proven for next-generation sequencing, which is the major area of focus for all the health care providers. And it's interesting that NGS is getting a lot of attention. The cost of NGS sequencing is dropping and the sensitivity is increasing. The adoption of artificial intelligence is increasing. And again, that enables patents to be seen that might be missed otherwise and the cost of AI is dropping. So what you actually end up with is a limiting factor is access to the best sample. And we believe that intact living cancer cells taken at a real-time point from the patient blood provides the best possible sample. In terms of downstream analysis, we have got a unique DNA molecular analysis of intact cancer cells married also with the ctDNA, and that gives the ability to look at clonal evolution. And looking at clonal evolution and how the cancer is changing is the driver to get ahead of the spread of disease. And that's why the new drugs to block cancer progression based on Parsortix are a major development. And that's also why the NHS is now expressing strong interest in what ANGLE is doing. So thank you very much for listening. We'll now move to Q&A, and Ian Griffiths, our CFO, will join me for that. Operator: [Operator Instructions] We have our first question from Adam McCarter from Cavendish. Adam McCarter: I've just got a few. So yes, just you talked during the presentation about the challenging environment sort of experienced during H1. Just wanted to know if you've started to see any encouraging signs of these headwinds begin to subside at all in the second half of the year? So second question then just on the NHS. Just how do we sort of think about those NHS clinical studies that Parsortix could be incorporated into the opportunity and the materiality there? And then the final question is obviously good to see sort of more of those high-impact journal publications for Parsortix, particularly the Nature Med one. Are these types of publications helping sort of in your BD efforts and helping progress those conversations with pharma and the medtech? Andrew David Newland: Thank you very much, Adam. The first comment -- question was about encouraging signs. Well, certainly, the Myriad Genetics signing up to go ahead with us was a very encouraging sign. That was a conversation that had been going on for quite some time. And they've taken the decision that despite the conditions, they want to start investing in this. I listened recently to the Chief Executive's presentation of their own results, and they specifically referred to extending their offer into the continuing cancer care continuum. So I thought that was a very promising sign. That said, there are multiple others, which I would have liked to have dropped by now. So let's hope to see -- we'll see some more of them coming through in a similar way. In terms of the NHS side of things, what that's generally speaking about is the fact that they are adopting the blood test-first in lung cancer patients for 15,000 patients per year. And interestingly enough, they literally do throw away the blood cells. And that's quite a compelling argument. You're throwing away the best part of the sample with Parsortix, we can analyze that. So I guess we'll start off with a pilot study first and then if they like it, we can expand. But the good thing is they don't even have to take an additional tube of blood to address this. And in terms of the -- Ian, you can add to this if you wish to. But in terms of the publication side, absolutely, we use these peer-reviewed publications to drive business development. We have a medical writing team that packages that information, and it forms a lot of the interaction that we have with prospective collaborators and customers. Ian Griffiths: Yes. And I'd probably add to the encouraging sign a couple of things. So one is increasing sort of awareness of the need to incorporate multi-omics into oncology and multi-omics, just for clarity, it means not just DNA, but adding in RNA and protein information. And if you look at Illumina, in particular, the way they're developing their next-generation sequencing is they can already do RNA and the sensitivity and cost points are improving that all the time. But they're also introducing a new protein solution as well. So obviously, we've got the perfect sample to fit with the Illumina equipment. And then the other thing is in discussions. So obviously, we produced data earlier in the year on the dual analysis. And that's generating a lot of interest because I think people are quite surprised how much additional DNA information we're finding with CTC-DNA, not just what the ctDNA produces alone. So there's quite a lot of interest around that complementary nature, but the fact that there's a lot of additional data. Operator: Our next question comes from Edward Sham from Singer Capital Markets. Edward Sham: Congratulations on all the operational progress despite the tough sector headwinds. I've got a few questions. But if I could just first start with your kind of your large pharma contracts because you've obviously completed in the first half, the 3 contracts with Eisai and AstraZeneca. I was just wondering how much visibility do you have in converting those into further contracts? And just can you give me a sense of the wider pipeline? Are you seeing strong traction across pharma? Or is it more medtech? Andrew David Newland: So in terms of the visibility on the new contracts, regrettably, we don't control the timing of these large pharma, and they will tell us when they're ready to do whatever it is that they want to do. So that's a bit of a challenge. But we are seeing increased wider interest from large pharma, and we have a very strong roster of meetings at World CDx. And this includes pharma that we've been dealing with for some time. We have been called on by several large pharma to provide them with -- essentially, they call it an RFI, a statement of what we can analyze from CTCs and how that works and how much we would charge them for that. So we do know that there are multiple players at these large pharma who are actively considering adoption of our solutions. What we don't know is when they might decide to jump in and also when those studies would start. So that's it really. I mean basically, there is mounting evidence and mounting interest, but we've got to get it converted. Edward Sham: No, that's really helpful. And then maybe just on the Myriad Genetics collaboration. Can you just outline the key milestones and importantly, how the economics would work if that was to be commercialized at scale? And just kind of give me an idea would that -- would ANGLE's revenues primarily be through services? Or is that also driving part sorting sales and consumables as well? Andrew David Newland: So we gave an announcement in relation to the work with Myriad. It was a bit lighter on details, and that's because they don't want to disclose some of those bits of detail. But I can talk in principles. So initially, we are being paid to provide some direct services to assess our sample going into their test. Some of that work has already been done. Now we're looking at various different modifications, which may improve the outcomes. So that's paid for service work. Assuming that progresses, what I would anticipate is there will be more paid for service work in terms of clinical trials to actually assess how well the CTC test does against the tissue biopsy test. And then beyond that, an implementation would involve us selling them a whole lot of Parsortix machines and setting up -- they would have to set up a Parsortix laboratory. So we'd have quite a lot of product sales. And every single sample, of course, would then need a Parsortix cassette as a consumable. And we currently charge $300 a cassette for that purpose. So that's on the specific tests we're working on at the moment. But they have a whole series of tests. And if the first one is looking good, there's absolutely no reason why they wouldn't do all their tests in a similar way. So we'd expect to see them getting -- wanting to get closer and closer to ANGLE. And then what I just described in terms of the sort of revenue flows being multiplied out by multiple different tests. Edward Sham: That sounds like a really great opportunity. And then just maybe just one last question on costs and runway. So you've highlighted your cash runway goes into Q1 '26. But I was just wondering beyond that, you've mentioned the alternative sources of funding. I was just thinking what can you do now? So realistically, can you take further cost out of the business and kind of what do you think your cash burn is going to look like through to kind of the end of the year? Andrew David Newland: Ian, do you want to cover that one? Ian Griffiths: Yes. Obviously, we are -- and you've seen that from the half year, we are continuing to try and manage our costs tightly. So certain spend has been sort of paused, certain costs have been cut back. But the nature of us being a regulated industry and having to have the sort of capability and capacity to deliver on the projects, deliver on the milestones means there's a certain level of underlying spend. So we're focused very heavily on the sort of that milestone delivery, and that can in itself be sort of one of the potential sources of funds. As we highlighted in the interims, there's a variety of sources of funding that are available to us. It's not just the revenues, but there's also commercial milestones, licensing, other income from collaborations with industry partners as well as sort of debt and equity funding, which is what we've historically done with the company. So we flagged, we will need to raise additional funding through one or a combination of such sources. We know there's challenges on the AIM market and biotech sector, which are well documented. And so our focus is very much is generate the milestones, generate the contracts that show that we're making that commercial progress to secure that support. Operator: [Operator Instructions] We currently have no further audio questions. We'll now move on to our text questions. Our first question is from Franc Gregory from Trinity Delta. She asks, following up on Adam's question, what can you tell us about the state of discussions with large pharma and large medtech companies? Andrew David Newland: So Franc, thanks for the question. So I think I gave a fair amount of information on that. We're talking to large pharma. There's multiple large pharma involved and across a variety of different drug categories. Just to recap, the protein analysis, which is what we've done so far for pharma, such as HER2 Androgen Receptor and the DNA Damage Response proteins, those are all things that have to be done by looking at cells and looking for expression. So they cannot go elsewhere for that. And there is, therefore, quite a lot of interest and particularly from antibody-drug conjugate companies because the antibody-drug conjugate attaches to the cancer cell via the protein. And if that protein is not there, then it won't work. And as an example, AstraZeneca's drug in HER2 is a HER2 antibody-drug conjugate. It is prescribed currently based off tissue biopsy. So if the patient is HER2 positive or HER2 low, then they'll be given that drug but as a second or third-line therapy, and that can be 3, 5 or even more years after the tissue biopsy. So there's published independent data that shows that up to 40% of the HER2 status would have changed in that time frame. This is mirrored across all the different proteins, and that's why the pharma are interested in that. The second interest for the pharma is in relation to the DNA dual analysis. And our pitch there is that the circulating -- so some of the pharma are adopting circulating tumor DNA analysis in their clinical trials. And our pitch to them is you're missing out on information, which might be critical in your clinical trial by not analyzing the circulating tumor cells in the blood cellular component. And that is beginning to gain traction as well. It's obviously a new area because we've only just developed it, but that is the subject of a lot of the conversations in the World CDx. So hopefully, that's a little bit more information on the pharma relationships. In terms of the med tech, we've got several big med tech product providers who offer molecular or protein-based testing solutions, which are sold worldwide, but they don't have access to a repeat sample. And those people are beginning to talk to us about implementing a CTC solution, which could be sold to their customers. And also, there's quite a lot of interest in working for -- jointly to get sales from pharma. And that would help us a lot because credibility of a very big company that they already do companion diagnostics with in tissue, wanting to work with ANGLE would obviously be a credible offering to the pharma. Operator: We have a follow-up question from Franc. How long and complex is the selling cycle into these partnership discussions? Andrew David Newland: Sorry, I missed that. Could you repeat the question? Operator: How long and complex is the selling cycle into these partnership discussions? Andrew David Newland: That's very variable. So what's happened is that the selling cycle has been longer than anticipated for the reasons that I said that these pharma are delaying commitments to various different things. But generally speaking, you're looking at a 6-month engagement before you can actually get into a sale because you're providing information to the pharma on the specific data from -- it was an earlier question, but data from the publications, for example. And then we sometimes do some pilot work ourselves. And so we have to submit a lot of data to be considered before they then decide to go forward. Operator: Our next question comes from Nigel Birks from Cavendish. [ BSL ] highlighted the unique potential of Parsortix in cluster cells a while back. What is new now? And how might this be commercialized? Andrew David Newland: So that's a great question. Thank you very much, Nigel. So what is new is that they have actually used the Parsortix system with breast cancer patients to identify circulating tumor cell clusters. And then they have dosed these patients with the heart drug, digoxin, and they've showed that the circulating tumor cell clusters separate into individual cells. So this is a completely new way of trying to approach cancer therapy is to reduce the competence of the circulating tumor cells to actually grow somewhere else and cause the secondary cancer. The reason that's significant is because well over 90% of patients who die from the metastatic spread to secondary cancer sites. Now that is caused by the circulating tumor cells in clusters landing somewhere else and growing. And there's -- so -- and they've demonstrated in a mouse model that if this heart drug is given, then the circulating tumor cell clusters disaggregate in the mouse and the mouse does not then succumb pretty much at all to the cancer. So it doesn't spread and kill the mouse. So the hope is that, that will translate to cancer patients. Now normally, there would be quite a big risk associated with a transfer of a mouse model across to a human model because there are a variety of differences, which mean that it might not be successful. So this first step shown that they have been successful in disaggregating the circulating tumor cell clusters is incredibly important. But the second element is that there was work done in the mid-1980s and 1985, the first large-scale study was done looking at breast cancer patients and trying to work out differences between the ones who had a successful outcome and the ones who didn't. And what they found was that actually a good factor for a better outcome was relating to having a comorbidity of a heart condition. So can you believe that? So if you've got cancer, you'd be better off if you have a heart condition, you're more likely to survive your cancer than if you don't have a heart condition, which is patently absurd. So the only -- and nobody understood that in the '80s and late '80s when this was investigated in detail. But they then -- and they sort of gave up on it. But now, of course, when we now know that heart drugs disaggregate circulating tumor cell clusters, there's the possibility that, that's the reason why we're seeing the progress in the mouse model. So the spin-out company is now working on some other drug targets very similar to digoxin, but with greater potency for CTC cluster disaggregation and basically less side effects. So that's super exciting because it could likely lead to a lot of work with Parsortix on clinical trials, which we can obviously enable and make money out of. And then as and when it potentially comes to market, the Parsortix is an absolutely crucial element. It would have to be used with every patient on multiple time points. Operator: We currently have no further questions. So I will now hand back to Andrew for closing remarks. Andrew David Newland: Well, I'd like to thank everybody for their support. It's obviously very disappointing that we didn't deliver higher revenue lines. We're hopeful that this will change, and it will change as we get our large pharma and our large med tech collaborations moving forward. And as I mentioned, our clinical lab will open up the potential for us to actually start providing tests for patients. And there is a very, very strong demand from the medical world and patients for this approach. And the fact that the NHS has started engaging with ANGLE is, I believe, a very strong positive. So thank you very much for your support. Have a good day, everybody.
Andrew Briggs: Thank you, Claire, and good morning, everyone, and welcome to Phoenix's 2025 Half Year Results. Today, I'll start with a summary of the progress we've made. Nick will then take you through the first half financial performance, and I will close with an overview of some of the strategic developments we'll be delivering over the coming months before taking your questions. Last March, I set out our vision to become the U.K.'s leading retirement savings and income business, helping more people on their journey to and through retirement. Today marks the halfway point of our 3-year strategy, and there are 3 key messages I'd like you to take away. The first is that we're making strong progress on executing against our strategic priorities. We're meeting more of our customers' needs and driving organic growth. Second, I'm particularly pleased that this set of results evidences that the balance sheet pivot is beginning to show. So we can confidently say we're on track to deliver all of our financial targets. And third, what I'm most excited about is that we're uniquely positioned to capture the momentum in our structurally growing markets. Progress towards achieving our vision is delivered through our strategic priorities of grow, optimize and enhance. We've achieved a number of material strategic milestones already this year. To grow, we need the products which meet the needs of our customers and build out our ability to engage with them both directly and through advisers. From an engagement perspective, it's great that we've received approval from the FCA for our in-house advice proposition, which we'll launch later this year. And from a product perspective, we've launched the Standard Life Guaranteed Lifetime Income Fund, completing our full product suite. So we're now able to help customers at every stage of their retirement journey from when they first start saving right into later life. Within Optimize, we've taken a material step forward on the journey to in-housing the asset management of annuity backing assets that I spoke to you about back in March. And we're currently preparing to in-house a further GBP 20 billion, which I'll come on to later. Lastly, enhance. Key here is completing the migration of customer administration to modern technology-enabled platforms. We migrated a further 0.8 million policies onto the TCS Bank's platform in the first half. We also entered into a new strategic partnership with Wipro to manage an additional 1.9 million policies. This delivers an acceleration in our cost savings run rate and increases execution certainty as we are no longer migrating these policies. Progress against our strategic priorities is translating directly into attractive financial outcomes. And hence, our first half performance has been strong across our financial framework of cash, capital and earnings. Operating momentum is excellent with 9% growth in operating cash generation and 25% growth in IFRS adjusted operating profit. And I'm particularly pleased with capital, where our solvency capital coverage ratio grew from 172% at the end of last year to 175% at the half year, even after retiring GBP 200 million of debt. Our leverage ratio improved from 36% to 34%, taking us a step closer to our 30% target. And we are materially accelerating delivery of our cost savings target. So firmly on track across the board. The U.K. retirement savings and income market is already huge with over GBP 3.5 trillion of stock. It's also structurally growing, driven by a range of demographic and socioeconomic trends. Summarizing the gray boxes across the top, there are 2 themes I'll draw out. Firstly, the structural growth is driven by the aging population and the shift from defined benefit to defined contribution. Secondly, people simply are not on track to have saved enough for a decent standard of living in retirement. And most are doing this without any advice or guidance. We feel passionate about helping everyone achieve financial security in retirement, and it's a huge opportunity for us. We will continue to advocate for the changes that will make the biggest difference to our customers. So I'm really encouraged by recent regulatory and political proposals that create additional tailwinds to our industry as outlined in the orange boxes on the slide. These will accelerate the existing structural growth drivers in the market. As a top 3 player in workplace, we're already well in excess of the GBP 25 billion minimum threshold requirement for default funds as set out in the government's pension scheme bill. So we are ready to take on business from corporates who need a secure provider. We think the pension adequacy review must raise savings levels through an increase in auto enrollment contribution rates to help close the pension savings gap. And the introduction of targeted support and pension dashboard has the potential to be a game changer for engaging customers and helping them make better financial decisions. We are well positioned to benefit from these structural market drivers. Turning to Slide 8. The top of the slide shows how those market trends are driving substantial flows across the savings and retirement market. The bottom half of the slide sets out our ambition and strategy where our business mix is diversified and balanced across the key markets we operate in. We are the only at-scale U.K. player focused solely on the retirement savings and income market via workplace, retail and annuities. And we're already taking a good share of flows in each, but with plenty of upside potential. Specifically in Workplace, our ambition is to consolidate our top 3 position as that market grows strongly and consolidates down. In retail, we're looking to move from a top 10 to a top 5 position, and we'll continue to focus on this. And in Retirement Solutions, we aim to maintain a top 5 position. These clear ambitions are underpinned by robust strategies supported by the strength of our franchise, brand, customer base and product set. Essential to a robust strategy is being crystal clear on how we are well positioned to win share in these growing markets. And this starts with the 3 competitive advantages of the group. Customer engagement is key and with 1 in 5 U.K. adults being customers of Phoenix, including a large existing workplace book, we have an exceptional level of customer access. This gives us deep customer insights, which in turn supports how we develop and design propositions. We also benefit from capital efficiency from our diversified business model, comprising both capital-light fee-based and capital utilizing spread-based businesses. And we have cost advantages, underpinned by our scale with 12 million customers and which have been achieved by leveraging technology across our business. This will increase further through our cost savings program. These 3 group advantages then directly translate to the specifics needed in our customer offerings in each market. Taking workplace as an example, on the bottom left of the slide, where we're one of the top 3 players in the market. I regularly meet our employee benefit consultant partners, and they consistently tell me that we win by having excellent customer engagement through offering leading employer propositions as we truly understand what customers, both employers and their employees want and need. Offering excellent service is also key to winning. When I was in Edinburgh at our workplace pitch last week, it was clear that providing their employees with exceptional service is critical. Our ability to succeed here is underpinned by our strong digital capabilities, which include our market-leading app rated 4.7 stars on the App Store. Alongside this, our capital and cost efficiency and inherent scale mean we can offer our products at competitive prices while delivering attractive margins. Let me now touch on some of the activity the teams have been doing to enable us to keep winning in these markets from both an engagement and product perspective, starting with pensions and savings. Engagement is key here. And on this slide, I call out the imminent launch of our Retail advice proposition that I mentioned earlier. So as we start to roll out trusted in-house advice, we'll provide customers with a compelling reason to stay with Standard Life. To be clear, we'll start small here and scale over time. In partnership with digital engagement specialists Life Moments, we've launched Family Finance Hub. And Standard Life also completed its connection to the pension dashboard ecosystem, both being examples of ways we've looked to empower our customers and increase engagement with them. Testament to our commitment to excellent service, we are the first workplace provider to win the Master Trust Treble across the Pensions -- Corporate Adviser, Pensions Age and Professional Pensions Awards. I'm really proud of the team for this external recognition. From a financial perspective, our pensions and savings business is simple. It's about growing assets, which we've done, and it's about expanding margins, which we've also done. Together, this delivered 20% growth in operating profit. We've also continued to develop winning products for customers in Retirement Solutions. We launched the Standard Life Guaranteed Lifetime Income plan for advisers on the Fidelity platform in March. Separately, we've enhanced our BPA offering. Many DB schemes have existing longevity reinsurance, and we've leveraged our extensive expertise to novate these into a BPA transaction. What does this mean? It means we're better placed to win by helping corporates with their broad range of requirements. As proof, this, among other innovations, enabled us to complete our largest ever BPA deal in July worth GBP 1.9 billion. This particular transaction was the in-house scheme of a large employee benefit consultant, so a really positive testament to our proposition. The other item I'd call out on this slide is the launch of the U.K.'s first fully digital signature-free application for annuities. As you'll know from your own experiences, having a hassle-free digital experience is increasingly important. So we're always looking at ways to make our customer journeys easier. Looking at the financials, Nick will come on to the actual annuity volumes in the first half, which were relatively modest, but we've now secured over GBP 3 billion of BPAs with individual annuities performing strongly, too. Of course, our focus remains on value, not volume, and our execution here enabled 36% growth in profits. To optimize customer outcomes and enhance returns, we've been evolving our approach to asset management. Historically, we've had an outsourced operating model for all assets. For our Pensions and Savings business, which represents the majority of our assets, this strategy is unchanged. Moving forward, we expect to consolidate the number of asset managers we partner with, and Aberdeen continues to be our key asset management strategic partner, potentially attracting a greater share of these assets. As signaled in March, our strategy for the management of the annuity backing assets is evolving to one which is predominantly in-house. We will leverage the internal capabilities we have built to manage public credit and private assets alongside partnering to source differentiated and unique private assets. We are now managing GBP 5 billion of our GBP 39 billion portfolio in-house and are preparing to in-house a further GBP 20 billion. To be clear, this in-housing only covers our annuity backing assets. We have no intention of becoming a fully fledged asset manager nor are we looking to manage third-party assets. But we're excited about the benefits this brings by underpinning the delivery of management actions in annuity portfolio reoptimization and with greater cost efficiency. Our strategic execution is creating financial flexibility for the future. This chart focuses on operating cash generation. This is the most important way to look at our financials because it's the sustainable surplus generation in our Life operating companies, that's also remitted as dividends up to the holdco. Hence, it's the primary driver of shareholder dividends. We reiterate our ongoing target of mid-single-digit percentage growth for the full year and going forward. This level of cash generation not only means that our dividend of circa GBP 550 million is well covered and secure, but also generates at least GBP 300 million of excess cash per annum after financing our recurring uses. We will deploy this excess in accordance with our capital allocation framework with our current focus continuing to be on deleveraging as we remain laser-focused on achieving our 30% target. As you would expect, the Board will look to allocate capital to the highest returning opportunity, and we are excited about the optionality our strategy is creating. With that, I'll hand over to Nick, who will talk in detail about our financial performance. Nick? Nicolaos Nicandrou: Thank you, Andy. Good morning, everyone, and may I extend my own welcome to all of you joining us today. I am pleased to be reporting strong operational performance in the first half, evidenced by the profitable growth in both our pension and savings and our Retirement Solutions operations, by the execution of sizable recurring management actions and by the acceleration of our cost savings initiatives. This operational momentum is driving strong value creation with improvements across all 3 pillars of our financial framework with growth in operating cash generation of 9%, growth in net recurring capital generation of 4 percentage points and growth in IFRS operating profit of 25%. It is also supporting the emerging balance sheet pivot with both leverage and overall solvency capital levels improving. This means that we are firmly on track to achieve all of our 2026 targets. Turning to the financial highlights. Operating cash generation grew to GBP 705 million, and we delivered total cash generation of GBP 784 million. The shareholder solvency coverage ratio increased to 175%, remaining in the top half of our operating range, and our Solvency II leverage ratio improved to 34%. IFRS operating profit increased to GBP 451 million. And whilst the IFRS loss after tax was GBP 156 million, the impact of this loss was cushioned by CSM growth of 10% with IFRS adjusted shareholders' equity closing at GBP 3.4 billion. In line with our policy, the Board declared a 2.6% increase in the interim dividend to 27.35p per share. Let me now take you through these results in more detail. Operating cash generation, shown on the left, was up 9% to GBP 705 million, supported by growth in surplus emergence to GBP 411 million and an increase in recurring management actions to GBP 294 million. I am committed to providing you with the segmental OCG analysis by business, and we'll do so with the full year results. For now, I continue to share an indicative split. As you can see, the contribution from Retirement Solutions is greater given the capital-heavy nature of this business. The contribution from the capital-light pensions and savings business is lower, but is growing fast, benefiting from new business flows and cost savings. On the right, you can see that operating cash generation more than covered our dividends and recurring uses, generating excess cash of GBP 246 million in the period. This result has been flattered by the relatively low level of annuity investment in the first half, reflecting timing of BPA deals. At the full year, we expect excess cash to be at least in line with the GBP 0.3 billion reported last year. Turning next to recurring management actions. These represent repeatable sources of value that we deliver year after year across our business. In any given period, these will vary in quantum between the 3 categories we first highlighted in March, which are repeated on this slide. On the left, the largest component relates to annuity portfolio yield reoptimization actions, which generated GBP 189 million of OCG in the first half. By way of reminder, we capture such opportunities by making frequent small-sized trades through market cycles, which optimize the risk-adjusted return of our portfolio without taking on more risk, whilst remaining duration and cash flow matched. We delivered GBP 81 million of OCG through capital improvement actions, representing a long-standing Phoenix capability of extracting recurring value from model and data improvements, primarily from our capital-heavy business. On the right, you can see the GBP 24 million OCG contribution from ongoing fund simplification. In the first half, we closed 65 out of a total of around 5,000 funds, delivering further operational and service fee reductions. This component represents an enduring source of value as we continue to simplify our fund range with further fund closures expected in the second half. Our half year performance puts us firmly on track to deliver recurring management actions in the order of GBP 500 million at the full year, in line with our guidance. Having delivered GBP 705 million of OCG in the first 6 months, going forward, we expect a more even half-on-half profile compared to 2024, which was second half weighted. And so we reiterate the mid-single-digit percentage annual OCG growth guidance. On the right, you can see that the total cash generation over the last 18 months of GBP 2.6 billion is also tracking towards our GBP 5.1 billion cumulative 3-year target. Turning from cash to capital. I set out on this slide, the shareholder solvency walk, which I will step through in some detail. Looking at the 2 book ends of the chart, you can see that we increased both our solvency surplus to GBP 3.6 billion and our solvency coverage ratio to 175% after repaying GBP 200 million of debt in February. In between these bookends, we analyze the various recurring and nonrecurring components of the walk and show the corresponding own funds and SCR values in the table below. You will see that our recurring net capital generation represented by the items grouped in the top left box of the chart was positive GBP 0.2 billion, equivalent to 4 percentage points of solvency coverage ratio. The corresponding recurring own funds generation shown in the bottom left box, was also positive GBP 0.2 billion, supporting the favorable evolution of our leverage ratio. The items grouped in the top right box show a net positive generation from nonrecurring items of GBP 0.1 billion. Stepping through each component in turn, other management actions were GBP 0.1 billion positive and include benefits arising from 2 sources. The first relates to the expense savings from in-housing annuity backing assets. And the second results from selling the shareholders' 10% share of future income in one of our 90/10 funds to the estate of this fund. We have initiated a program covering 12 with-profit funds, which over the next 2 years will release total surplus of around GBP 150 million. There is more detail in the appendix for those who are interested. Economics and temporary strain were neutral overall. Our hedging strategy delivered as expected, producing a GBP 0.1 billion negative, which was offset by the unwind of the annuity temporary strain that we carried over from full year '24. The investment spend and other component reflects continued spending on our investment program, offset by the beneficial impact of the Wipro strategic partnership, which has accelerated the start point from which the lower per policy administration charges apply on the GBP 1.9 billion impacted policies. Before leaving the slide, I would note that the capital improvement in the period is flattered by the timing of BPA deals. By way of illustration, if we had written the same BPA volumes as in the first half of 2024, the coverage ratio would have been around 3 points lower, reflecting both the day 1 capital investment and the related temporary strain. Notwithstanding this, the underlying capital improvement in the first half remains strong. Turning to leverage. We made a clear commitment to bring this ratio down to 30% by the end of 2026. Leverage improved to 34% in the period, supported by the GBP 200 million debt repayment and the growth of regulatory Own funds, reflecting the drivers that I covered in the previous slide. We remain firmly in control of our path to 30%, supported by the GBP 650 million of excess cash that we expect to generate over the next 18 months. As I said before, the path to 30% will not be linear and deleveraging will be managed within the upper half of our 140% to 180% operating range. Our IFRS adjusted operating profit increased by 25% with our 2 main business divisions growing at a strong double-digit rate. I will come back to their respective performances shortly. The overall increase to GBP 451 million is supported by business growth, which has driven our asset base higher and increased both investment contract revenues and insurance contract CSM releases. It is also supported by a high level of investment margins, reflecting the value added by Phoenix Asset Management and by cost savings, which I will cover on the next slide. Our successful delivery of our grow, optimize and enhance strategic initiatives puts us well on track to achieve our GBP 1.1 billion operating profit target by full year '26. Consistent with the comment I made earlier on OCG in-year profile, IFRS operating profit will also be more even first half on second half going forward. In March, I shared my assessment that our cost savings target of GBP 250 million was credible and that I was looking for opportunities to accelerate its delivery. The actions we have taken in the period, namely the introduction of Wipro as a strategic partner for customer administration and other changes to our operating model have accelerated the delivery profile with GBP 160 million cumulative run rate savings now expected to be achieved by full year '25, some GBP 35 million higher than our previous guidance. At the end of the half, cumulative run rate savings reached GBP 100 million with actions taken in the period, adding GBP 37 million to the full year '24 total. Some GBP 40 million of this run rate total was earned in the period. Our cost savings initiatives remain a key underpin to delivering the 2026 operating profit target and to supporting ongoing business margin improvements. Our Pensions and Savings business continues to grow in assets, profitability and margins. As Andy outlined earlier, we continue to win in workplace with a leading employer proposition, excellent customer service and competitive pricing. This translated into GBP 4.9 billion in workplace gross inflows, including GBP 0.7 billion in new scheme wins. You may recall that last year, we won a GBP 0.9 billion large scheme, which are relatively infrequent, boosting the prior year comparator. Excluding new scheme wins, we reported robust growth in gross inflows to GBP 4.2 billion, highlighting the workplace flywheel effect as the combination of strong new business flows in recent periods and low bulk losses expands our overall regular premium base. Our workplace pipeline is at a very healthy level, reinforcing our optimism of sustained business growth. Workplace outflows were slightly up year-on-year, reflecting higher base AUA and the natural attrition from those taking their pensions or porting their workplace schemes to their new employer. Moving across the slide to retail business flows. It is pleasing to see an uptick in gross inflows with outflows stabilizing. Positive market effects have more than offset the overall net fund outflows with average AUA closing up year-on-year. Looking at the bottom half of the slide, IFRS operating profit increased 20% to GBP 179 million. The improved investment contract result is supported by higher fee revenues from the 5% growth in average AUA and continued cost discipline. Our scale and operating leverage supported an improved operating margin of 19 basis points. Our Retirement Solutions business also delivered a strong operating performance in the first half. As a reminder, new volumes are not the primary driver of profits here. We run GBP 39 billion of annuity assets. So it is the management of this large book of business that drives most of our profitability. Stepping through the slide, starting in the top left, BPA volumes were GBP 0.3 billion in the first half, reflecting market factors and our selective participation. We have since completed a GBP 1.9 billion deal, and we are at an exclusive stage for deals totaling GBP 1 billion. So at GBP 3.2 billion year-to-date, our BPA volumes are robust. In individual annuities, new premiums grew by 20% to GBP 0.6 billion with our market share rising to 13%. In the bottom right, you can see that operating profit increased strongly in the period, up 36% to GBP 286 million. The improvement is supported by higher CSM releases, reflecting growing business scale, higher investment margins, reflecting the value add by Phoenix Asset Management and ongoing operational leverage. We have maintained pricing discipline with business incepted at a similar level of strain to last year of around 3%, generating mid-teen IRRs. We remain committed to deploying up to GBP 200 million of capital this year, provided with secure sufficiently attractive returns. The 10% increase in our store of insurance contract value recorded in the CSM represents another key underpin to our future operating profitability. This increase reflects ongoing contributions from the usual sources as well as a sizable contribution in this period from strategic projects, namely the expense savings benefit from in-housing annuity backing assets and the impact of the Wipro strategic partnership on associated contracts. Completing the IFRS picture, this next slide shows the first half movement in IFRS adjusted shareholders' equity. Our higher operating profitability means that we continue to close the gap between recurring sources and uses being negative GBP 36 million in the period compared to negative GBP 139 million period last year. Nonoperating expenses reduced to GBP 184 million, reflecting the tapering of our planned investment spend. We reported adverse economic variances of GBP 275 million, driven primarily by the negative marks on equity hedges following a 7% rise in markets. As I illustrated back in March, this is a known consequence of our hedging strategy, which protects cash and solvency capital that gives rise to an accounting mismatch under IFRS. The slide which accompanied the explanations provided in March is included in the appendix. Actions such as the with-profits initiative to sell GBP 0.7 billion of future shareholder transfers to the estate will reduce our overall equity risk exposure, allowing us to shrink the size of the equity hedging program by around 10%. On the right of the chart, you will see that we closed the period with an adjusted shareholders' equity of GBP 3.4 billion. Before leaving this slide, I reiterate that our aim is for IFRS shareholders' equity ex economics to grow from 2027. Moving next to dividend. Phoenix is a highly cash-generative business. We have a strong track record of consistent dividend growth and operate a sustainable and progressive dividend policy. I outlined in March the financial metrics that the Board considers when undertaking the annual dividend assessment. These are repeated on this slide being mainly OCG, the solvency coverage ratio and the parent company distributable reserves, all of which remain healthy. Consistent with previous guidance, the Board continues to consider that the group's consolidated IFRS shareholders' equity does not give rise to any practical limitations to dividend payments. To conclude, we have made a -- we have made positive progress at the midpoint of our 3-year strategy, and we have increased execution certainty across all of our 2026 financial framework targets. We have positioned the business to generate mid-single-digit percentage annual OCG growth, producing a level of OCG, which more than covers our recurring uses and delivered excess cash of GBP 300 million or more per annum. We're on track to reduce our leverage ratio to 30% by 2026 with all the levers required to achieving this being firmly within our control. Finally, supported by the acceleration of our cost-saving plans, we are on track to deliver GBP 1.1 billion of IFRS operating profit in 2026, enabling us to cover our recurring uses on this reporting basis as well. Thank you for your attention. I will now hand you back to Andy. Andrew Briggs: Thank you, Nick. Our vision is simple: to become the U.K.'s leading retirement savings and income business, serving customers of all stages of their life cycle from 18 to 80 plus, and we're making great progress. We have built leading propositions across our Pensions and Savings and Retirement Solutions businesses and enhanced our asset management capabilities. Our focus will now turn to further building out our customer engagement tools, which will be enhanced by our increasingly digitally enabled customer interface shown in the lighter purple. Our strategic priorities are clear, and we're excited about what comes next. Looking forward, we expect the second half of 2025 to be just as busy as the first as we continue to execute against our strategic priorities. For growth, while we'll continue to consolidate our excellent position in Workplace and Annuities, the focus of our investment is in retail as we build out our capabilities. Priorities here are engaging our customers. So I'm particularly excited about the imminent launch of our Retail advice proposition also connecting our full range of products into key platforms. And so the launch of our Smooth Managed Fund on the Quilter platform, one of the largest in the market is a key step forward to reach more customers. For Optimize, we will progress our shift to in-housing annuity backing assets. And for Enhance, by the end of the year, 75% of policies will be on their end state platform. Today, we're announcing our intention to change our group name from Phoenix to Standard Life plc in March 2026. Our move to Standard Life brings our most trusted brand to the forefront and demonstrates our commitment to helping customers secure a better retirement. It's a brand known to all of you and the brand we are already using for new business in the pensions and savings and retirement solutions markets. The move aligns our brand strategy with our group strategy, supporting our focus on organic growth. It unifies our colleagues and strengthens our employer brand. And it simplifies our business, reducing duplication and cost. In summary, we are executing -- successfully executing on our vision to be the U.K.'s leading retirement savings and income business. Let me recap the 3 key messages. I'm delighted with the progress we're making against our strategic priorities. I'm pleased that the balance sheet pivot is beginning to emerge, and I'm optimistic about the future. Delivering on our strategy is enabling us to meet more customer needs and in turn, deliver strong shareholder returns. So with that, let us move to questions. So we'll start with questions from the audience in the room. If you can raise your hand if you have a question and we'll direct one of the roving microphones to you. Please you can start by introducing yourself and the institution you represent. For anyone watching on the webcast, please use the Q&A facility and we'll come to your questions after we've answered those in the room. Andrew Briggs: So we start with Abid. I hope it's 3 questions first. Abid Hussain: So 3 questions. It's Abid Hussain from Panmure Liberum. The first one is on your own funds. You're making a number of investments across the business now and margins are moving in the right direction. So when do you expect the own funds to start increasing? That's the first question. And the second one is on your dynamic hedging. Can you give us an update on your plans to reduce the overhedged nature of the Solvency II balance sheet or as I see it, the overhedged nature of that Solvency II balance sheet. I think you previously said you were going to move to a more dynamic approach on that. So any update, please? The third question is on margins across the pensions and savings business. Where do you think those margins might settle down to. It's good to see the operational leverage coming through, but I suspect there's an element of over earnings. So just sort of any guidance on that. And as a subpart to that, if I can, just very quickly. Can you give us any color on where the Workplace savings margins might be? Andrew Briggs: Sure. So I'll take the first and third of those, and Nick will take the second. So on Own Funds, so unrestricted Tier 1 Own Funds, the Own Funds, excluding the debt did grow from GBP 4.2 billion to GBP 4.4 billion. But obviously, what we're then doing is paying down debt to reduce the leverage ratio. So we had GBP 0.2 billion growth in the recurring Own funds. And then the nonrecurring, basically the one-off management actions covered the cost of the investment. So that was neutral on Own funds. And so very pleased with that progress. And that's a key focus for us. So I know there's a lot of focus on shareholder equity. But the point of the hedging is to protect that Own funds growth and the solvency surplus, which protects the dividend in due course. So we want to keep momentum in growing that Own funds going forward as we've shown in the first half. In terms of pensions and savings and margins there, so you saw the margin increase from 17 basis points to 19 basis points. The revenue margin was broadly flat and the revenue was up by 5% because the average AUA was up by 5%, and that was coupled with reducing costs, which led to the growth in the margin. Probably the guidance I'd just reiterate is back in March, we talked about that over half of the growth from '24 to '26 in operating profit would come in pensions and savings. That basically implies pensions and savings will hit around GBP 450 million of operating profit next year. If you work that through, that will be a margin getting into the sort of low 20 basis points. And I think what we'd expect to do over time is you would see a gradual slow decline in the revenue margin. But ultimately, we want to hold the costs broadly flat and absorb inflation and therefore, you continue to get the benefits of operating leverage. We don't disclose the margin split between the different areas in any detail. But broadly speaking, Workplace would be typically high 20s would be the sort of revenue margin there. And that's what's leading to the sort of slight decline, but only marginal decline in the overall revenue margin of 46 basis points in the first half. Nick, do you want to take the hedging question? Nicolaos Nicandrou: Will do Andy. So we hedge around 80% of the equity risk. That's where we are. And the way we think about this is that, if you like, that relates to the equity exposure of the legacy book, which is in runoff. And we, therefore, don't hedge the new business that we write. That 80% will gradually taper over time as the legacy book runs off, clearly 6 months on from when I updated to you, there's been minimal movement in that. But the initiatives to effectively neutralize our shareholders' transfer will have an impact. As I said, that GBP 700 million of future shareholder transfers. There is substantial equity risk associated with that. And as we deliver that program, we will see a 10% reduction in the notional. The program is across 12 out of our 22 with profit funds. Those 12 funds are 9 to 10 funds with very strong estates. The customers want to take more risk, but we don't want to do that, hence, the transactions that we're putting in place. Three of those with profit funds will be completed by the end of the year, another 7 next year and the final 2 in 2028. And the benefits, whether it's the GBP 150 million of extra surplus that, that will generate or whether it's the 10% reduction in the hedging will come through around 50% this year, 30% next year and 20% in 2027. So Gradual decline sort of to summarize gradual declines as the legacy book runs off, and then we'll take 10 points off that, 5 this year, 3 next year and 2 the year after. Andrew Briggs: So we go along to Andy. Andrew Sinclair: It's Andy Sinclair from Bank of America, and great to see the Standard Life brands coming back to the fore. Three for me, please. First, just on the operating profit balance H1 versus H2. Just trying to get a little bit more color on that comment. I guess I thought pensions and savings stronger in H2 with higher AUM, retirement I have thought about flattish, and that's before the cost saves coming through. So should we still be expecting H-on-H growth H2 on H1? And just a little bit more color on that, please. Second was actually on IFRS nonoperating on the amortization of intangibles. I think the guide for that has typically been down about 8% a year, but it dropped, I think, 16% last year, and it's, I think, 11% year-on-year in H1. Clearly helpful to have that nonoperating drag dropping away. Is there any reason why that's going faster? And how should we think about that? Should we still think about 8%? Or should we think about it going faster? And then just third, just on those with-profit transactions you're mentioning. As I understand it, for the equity hedging, one of the positives is when equity markets go up, yes, you lose on the short term from the hedging, but you gain that back with higher fees, et cetera, over time. How -- where are we seeing that IFRS kind of unwind from that hedging coming through at the moment? Is there anything that's coming through maybe in H2 as kind of a one-off coming through there? And does that change the sensitivities as well as sensitivities already updated? Andrew Briggs: I'm going to let Nick do all 3 of those. While he's just thinking of those, if you didn't know, Andy started his career at Standard Life in Edinburgh, hence, the reference to brand, he's feeling good about it. So Nick? Nicolaos Nicandrou: Well, I didn't mean to imply that H2 is going to be exactly the same as H1. Inevitably, there will be factors that shift that. I mean clearly, the higher CSM base should benefit the second half in the same way as it's done this year. We'll see what the AUA does on the investment contracts. Cost savings, yes, we'd expect more to emerge in the second half. But compared to what we saw last year, both in relation to OCG and IFRS, you should see a much more balance. It was 45-55. That's not the shape we're going to have going forward. Amortization of intangibles, there has been an acceleration. If you look in the recent past. That's merely a reflection of some of these books running off completely. So it's great to see that we are on a tapering path for that. And actually, that's also true in relation to interest costs. It's also true in relation to the, if you like, the nonoperating investment spend. All of this very helpful as we seek to get to 2026 and cover all our recurring uses and 2027 to cover all uses, except the hedge-related volatility. I mean on equity, I think you answered the question that there is a mark-to-market. The benefit will come through higher charges going forward. There's been no discernible change in the equity strategy or approach. So I wouldn't expect to see anything different in the second half compared to what we've seen in the first, unless I misunderstood your question. Andrew Sinclair: I was just asking for the with-profits transactions that you're doing, if I can understand it reduces the equity hedging going forward, but are you giving away some of that benefit of expecting in future to get those higher charges through? Just kind of interested to know a bit more in terms of the color of. Nicolaos Nicandrou: So the impact on IFRS of the with-profits program will be second order. I mean, before we used to get effectively 10% of the increase in asset share come through. That was hedged. So we didn't -- if you like, the risk-weighted contribution to the result was modest. As we go forward, that will be replaced effectively by an investment return on whatever it is that we're investing the proceeds in. So the impact will be second order. Mandeep Jagpal: Mandeep Jagpal, RBC Capital Markets. Three for me as well, please. First one on management actions. You plan on bringing a further GBP 20 billion of annuity assets in-house. Just to clarify, are the potential expense savings that you mentioned already included in your nonrecurring management action guidance? And then it also supports the delivery of recurring management actions. So is that already included in your GBP 500 million per annum guidance? Or could there be upside to both these targets quite soon? And then just on the -- follow-up question on the hedging. How should we think about the impact of the hedges to the with profits with respect to the SCR? So trying to understand if we should expect the increase in market exposure to increase the SCR potentially? And finally, you highlighted the pension adequacy review as a tailwind. What does Phoenix think the contribution rate should eventually get to make pension adequate? And how long do you think it would take to get there in the U.K.? Andrew Briggs: Thanks, Mandeep. So I'll take the first and third and ask Nick to take the second. So in terms of the GBP 20 billion of housing annuities, so the 2 benefits of that. One is more cost efficient, and that is one of the drivers of the nonoperating Own funds growth that we showed and I talked about to Abid a moment ago. So that's taken through there. It also -- by having the assets in-house ourselves with our own people, it is favorable in terms of the annuity reoptimization portfolio actions that we undertake. We're not increasing the guidance from the GBP 500 million per annum, but it's going to be easier to get there now effectively, yes. So it puts us in a strong position. In terms of the contribution rate, so we have a think tank. It was called Phoenix Insights. It's rebranded to the Standardized Center for Future Retirement, a bit of a clue of the direction of travel for the group. We did that earlier this year. And we did a piece of independent research work there. And the proposal that came out of that was that we should look to increase the auto enrollment contribution rate from 8% to 12%. So that was the kind of the independent research. Just giving you a kind of sense of this from a couple of perspectives. So although the minimum rate in the U.K. is 8%, the average savings rate is 10%. In Canada, the average saving rate is 20% to give you a sense of where U.K. consumers are heading compared to Canadian counterparts. Of that 8% in the U.K., the employer contribution is 3%. Australia is just increasing their employee contribution to 12%. So this is why we're calling this out quite very loudly. It's not going to be that visible because people retiring today still have significant defined benefit pensions. But in 10, 20 years' time, we are heading for real impoverished retirements. Now the bit that's interesting in all of this is actually our market is huge, GBP 3.5 trillion. It's already growing really strongly, as you can see from the fund flows I had on Slide 8. But if we address this under provision, it's going to grow even faster still, yes. And that's what we're advocating for and driving for. Nick, do you want to take the second one. Nicolaos Nicandrou: Yes. With profit. So just to add some more numbers and some more detail, if I may. On the solvency -- so these funds there's about GBP 700 million of shareholders' interest in future transfers. And that GBP 700 million is on the solvency balance sheet. In addition to that, there's about GBP 200 million of shareholders' interest in the estate. The solvency rules don't allow us to take credit for that GBP 200 million. So in making this transaction, albeit it's a small discount to the values that I've just quoted, we get to recognize the GBP 200 million shareholders' interest in the estate, hence, why there is an impact on solvency. Now that GBP 700 million was subject to a whole host of risks. Yes, there was equity risk and interest rate risk, but that was hedged. So very modest SCR in relation to that. But there's credit risk associated with the investments that are backing up. There is expense overrun risk, there's mass lapse risk. So there was an SCR associated with those. And clearly, as we complete those transactions, that SCR falls away. If it's replaced by cash, we won't hold any risk capital in relation to that. So the benefits come through recognizing the shareholders' interest in the estate and removing the SCR. Andrew Briggs: I think just a couple of quick comments on this. This is a sensible simplification. So in the shoes of a customer, historically in these funds, basically, there was this concept of you're sharing the profits 90/10 between the customer and the shareholder. It's not the easiest concept for your average consumer to get your head around. Where we're effectively going to by doing this is we're making the with-profit funds kind of mutual with-profit funds. So the customer gets the smoothing, but it's just the same as any other fund they can invest in. There will be an annual management charge and our revenue is charges less expensive than the same is on the unit-linked business. So it's a much simpler customer proposition. It also is beneficial financially. It reduces the equity hedging risk. It adds own funds. So it's beneficial. But I wouldn't overplay it. And all the things we're talking about today, this is quite a small part of the picture of the value creation of the group. Dominic O''mahony: Dom O'Mahony, BNP Paribas Exane. I've got 3, if that's all right. The first is just on the in-housing of the assets. Great to see the benefit across all the financial metrics on that. Is there more you can do? Clearly, that's about -- it's now just over the majority of the annuity book, but there's anything to stop you doing the rest. And on the -- you're very clear in saying that you're not trying to become a third-party asset manager. But on the with-profits book in particular, I guess you have quite a lot of discretion about how you manage that. Is there anything you could do to in-house any of that? Second question was just on the excess cash build, which is very pleasing, clearly. In terms of deployment, Page 13 runs through the way you're thinking and it's very helpful. Would you feel that you would have to get above the 180% solvency ratio before deploying that into, say, additional capital returns beyond your existing deleveraging program or indeed to shareholders? And more broadly, what would be your priorities for using excess cash beyond this -- beyond the deleveraging plan? And then third question, the bond yield curve has moved in an interesting way since the end of the half. It moves every day, of course, but I think there's been some steepening. My guess is that your fixed income duration is quite long. Should we be focusing more on the 30-year or the 10-year when we think about the various impacts on your balance sheet? Andrew Briggs: Thanks, Dom. So I'll take the first 2 and ask Nick to take the third. So in terms of the in-housing of assets, so we have GBP 39 billion of annuity backing assets. We have 5 already in-house. And today, we're announcing a plan to in-house a further GBP 20 billion. So there is a bit more that we could go after in due course. But I wouldn't envisage we end up with all of the assets in-house because we'll do public credit in-house, derivatives and so on. We'll do some private debt in-house, but we'll also continue to partner with third parties that can get us access to particular differentiated private credit that we couldn't get directly ourselves, yes. So it wouldn't be the whole GBP 39 billion in due course. In terms of with-profits, no plan to change our current approach there. So view that the same as the pensions and savings side where we are determining the right strategic asset allocation. We're partnering with external asset managers that have real expertise in different sectors that we will continue to partner and outsource those assets. In terms of excess cash flow, so as we said, we're once again reiterating that we will have at least GBP 300 million per annum of excess cash. That's significant. We're paying a dividend of GBP 550 million. And then on top of that, after all recurring uses, we have GBP 300 million of excess cash. So it shows the strong solid cash generation. The great thing about Phoenix is because of the approach we take to hedging, you're going to get that money because the solvency balance sheet is protected, and that's why we hedge in the way we do so that, that money comes out. In terms of how we're using it, the priority at the moment is using it to delever. We believe that's the highest return on capital. And in many ways, you can kind of see that in terms of our share price performance, the market implied WACC has come down, and it's increased the intrinsic value by the most amount, if you like. So that seems to us to be proving to be the right call. What we basically will then do once we get the leverage down to 30% is we will allocate the excess cash against the highest return opportunity using our capital allocation framework. So historically, we've illustrated that could be investment in organic growth. It could be considering M&A. It could be further deleveraging beyond the 30% level or it could be further capital return, share buybacks we'll make a call -- the Board will make a call at the time based on what would be the highest return on capital for shareholders of how we deploy that excess capital. I wouldn't see that we would need to be north of 180% to do that. We have a target range of 140% to 180%. We would rather be in the top half of that target range so that in the event that we're extreme shocks, we're still above the bottom, although obviously, our balance sheet is much less sensitive to market movements than our peers for the reasons I've said. So it wouldn't need to be above 180% to deploy excess cash. As indeed, we're not above 180% at the moment, and we're deploying the excess cash against deleveraging. Nicolaos Nicandrou: We're deploying the excess cash to grow, optimize and enhance. So the deployment is happening. On your question on duration, I mean it's not -- it's less a question of choice. We have to hedge in line with the duration of our annuity liabilities. At the moment, we hedge the 1 in 200 cash flows, and that takes us somewhere in the 15- to 17-year point. So our hedging program kind of reflects the -- if you like, the length or the tenor of those liabilities on a 1 in 200. And yes, what the impact that we've seen on our solvency balance sheet of the rate movements since the half year, indeed equity markets and some of the other is de minimis, both at the own fund level and at the surplus level. So hedging is delivering exactly what it's designed to do, which is to provide stability to our balance sheet, to our solvency balance sheet and in doing so, underpin the progressive dividend policy. Andrew Briggs: Andrew? Then we'll come from Andrew. Andrew Baker: Andrew Baker, Goldman Sachs. I'll go 3 as well, if that's okay. You just mentioned de minimis impact in the second half on solvency balance sheet. What would that be on the IFRS equity side, if that's okay? And then secondly, we've seen quite a bit of M&A recently in the U.K. bulk annuity space. Do you expect this to have any impact on your ability to deploy the GBP 200 million of capital that you have in your plans at attractive margins? And then finally, is there anything you're able to say on sort of the life insurance stress test later in the year and what we should be expecting there? That would be really helpful. Andrew Briggs: Okay. I'll let Nick do 1 and 3, and I'm happy to pick up the second one on the M&A in the BPA market. So I think there's 3 things I'd say. The first is it's actually quite good, isn't it, that all this capital wants to come into the U.K. savings and retirement market. It shows it's a really attractive market. The market is growing strongly. The margins are attractive. The profit pools are attractive and people are prepared to pay a lot of money to get them to be part of it. I'd say that's a real strong endorsement of the market. I mean in terms of ourselves, we feel in a good position competitively. We're far more diversified than many of our competitors. So we have a capital efficiency advantage because we've got a much more diversified overall business mix. So we find we can compete well in the market currently, and we're well placed to compete well. The Standard Life brand lands really positively in this market. But we also have a whole host of developments that we're undertaking to continue to evolve our competitive position. So the in-housing of assets is really helpful that we're announcing today. We continue to look to partner with external asset managers that have unique differentiated private asset capabilities. That's a key focus for us. And I'm also really pleased with the build-out of individual annuities. So our individual annuities grew 20% first half on first half. That took our market share up from 11% to 13%. And obviously, a lot of this external capital coming in is going to focus on BPA rather than individual annuity. So all in all, are we confident that over time, we'll be able to deploy our GBP 200 million of capital? Yes, we are. But we will be disciplined, and we will not deploy the capital if we can't get attractive returns. We're focused on returns. The beauty for us of having a very diversified business mix is we can afford to then be disciplined and focused in what we're doing. Nick, do you want to take the other 2? Nicolaos Nicandrou: Yes, happy to. Maybe just to add an addendum to your answer. the 3% strain data point that I gave earlier and the mid-teens IRR, those relate to effectively the year-to-date GBP 3.2 billion of BPAs that we've written and the GBP 600 million of the individual annuities at the first half. So if you like, it's an updated -- it's a current number. Let me take list because that would be quick. Yes, like everyone else, we submitted our stress test results in relation to Phoenix Life Limited. The PRA will publish information later this year, sometime in early Q4 on the industry impact and specific impact, nothing to say at this point, and we can have a conversation at the point that those are published. On the impact of market movements, I'll answer the question on IFRS, but if you permit me, let me explain to you why I regard that as noise. okay? So as far as -- for as long as we continue to grow our OCG to cover our uses for as long as we have a very healthy solvency base and for as long as we're increasing our IFRS operating profits that we can sit here so that they can cover the recurring uses. As long as we're doing that appropriately, then I am unconcerned about the hedge-related volatility that comes to IFRS. And why is that? As we have explained before and as it's set out on Slide 44 in the appendix, the hedging is giving us the stability to the solvency balance sheet. You can see that this time around, you can see that going back. But the offset, the IFRS balance sheet doesn't cover all the components that we hedge. So it's a mismatch and it's noise. What matters, as I said, when it comes to dividend is the distributable reserves that we have in plc. They were GBP 5.6 billion at the end of full year '24. At the half year point, they've increased to GBP 5.7 billion. What's feeding that are remittances from the Life subsidiaries. We've just filed accounts for the Life subsidiaries. They showed that in 2024, we made GBP 500 million of profit and the hedging resides within these Life companies, GBP 500 million of profit, their distributable reserves going up to GBP 1.8 billion. In the first 6 months of this year, the U.K. Life subsidiaries made another GBP 400 million of U.K. GAAP profit after absorbing the -- again, the hedge-related impact. Why U.K. GAAP is the same economic basis of reporting as we see in Solvency II. And therefore, the numbers are exceedingly healthy. That's why we're confident that there are no practical implications to that hedge-related noise that is coming through the IFRS. Again, I'll repeat what I said a minute ago on the solvency balance sheet, de minimis impact, both on our own funds and in relation to the solvency, the accounting noise, if you like, since the half year is adverse GBP 150 million. Nasib Ahmed: Nasib Ahmed from UBS. Three questions from me as well. Firstly, on the retail business. You say you're trying to get from top 10 to top 5. What does that mean in terms of flows? Do you reduce the GBP 7 billion of outflows? Or do you increase the GBP 2.5 billion of inflows in that business as well? If you can kind of give us some update on -- I think you have targets for the end of this year. It seems like they're not going to be met, but maybe next couple of years, where do you see the net inflow on the retail business going to? Second question on M&A. It seems like -- I mean, you've been pretty clear it's not a focus or not as big a focus anymore. But there was a deal done by HSBC Life. What was the reason for not going for that one? Was it just the new business proposition was not aligned to where you guys are? And then on disposals as well, Europe and Sun Life over 50s, where is your thinking around disposals of those 2 businesses? And then finally, on leverage, Nick, you say it's not going to be linear, but it seems like if you retire the Tier 2 this year and the Tier 3 next year, you're kind of there. Why would you not do that? Why is it not linear? Andrew Briggs: Okay. So I'll take the first 3 and let Nick take the fourth. So on the retail side, so to answer your question, basically, top 10 to top 5 is roughly going from GBP 5 billion of inflows to GBP 10 billion of inflows to give you a kind of sense of it, yes. Key focus for us. We very consciously went about this strategic pivot to organic growth by looking at the 3 markets in a logical order. We started with BPA, then workplace. We're now turning our attention much more to retail. The reason we did the first 2 first is that in those, you've got a small number of expert buyers in the employee benefit consultants and corporates, you can get to them quite quickly, and we've successfully done that and that those businesses are performing very strongly indeed. Retail will take more time because we're trying to get to literally millions of customers and thousands of individual advisers. So it's going to take more time, but we are confident we're on that journey. We're confident we've got structural advantages to get there. I think the other thing I would say as well, just that when you look at our overall business, roughly half of our outflows are actually customers taking their income in retirement. That's what we're here to do. That's our whole purpose in life. So that half goes with a big smile on our face and our hands clapping. We're delighted we're helping with a kind of GBP 14 billion payroll of U.K. retirees, yes. I mean that's what we're here to do. So we really focus on the other half that is transferring elsewhere. That's the particular focus on the outflow side. So in terms of M&A, what I'd say is M&A remains something that we would absolutely consider. What's great for us now is that we're delivering strong organic growth. So we no longer have to do M&A. It becomes a choice. We are still the first port of call for anyone considering looking at M&A. We still see M&A as the opportunity to create value, build scale. But what we're doing is we're basically allocating our capital. We now have far more choices where we can allocate. We're allocating our capital where we can get the highest returns on that capital. So I'm not going to comment on any specific deal, obviously. But rest assured, any M&A going on, we would get the call, and we would look at it, and we would think about it compared to alternative returns on capital and other sources, and we will deploy against the highest value returns. In terms of potential disposals, so on Sun Life, you may recall, we considered potentially selling that last year and then the FCA came up with their protection market review. Not an issue for us specifically, but when we were trying to sell the distribution arm and one of the key focuses was on commission rates between the manufacturing arm and distribution arm, we own both. So we're agnostic as to what that is internally. That basically became an issue. We've got a great team of people there in Sun Life. They're doing a great job. I'm going to let them get yes. I'm not going to disrupt them again, if you like. In terms of Europe, you mentioned that as well. So what we said on Europe is that we have a number of things that we need to do to that business, which are the right things to do to it organically. We need to get it on to more modern technology. We need to get a partial internal model in place. Those initiatives are still in train and will run for another period of time, and they are the right things to do for that business organically for the future, but also would create greater optionality as well in a number of dimensions. Nick, do you want to pick up on leverage? Nicolaos Nicandrou: Yes. On leverage, really to reiterate the comments that I made in my prepared remarks that we have all the levers to be able to get to 30%. What do I mean by that? Well, clearly, we have the recurring capital generation, sizable enough to more than cover the recurring uses. So we can finance it. And then, yes, we have the instruments that are coming up that fit within the kind of the timing -- the time frame that is covered by our target. Andrew Briggs: The bottom line there, is if we keep growing own funds, we won't need to take out all of the debt coming up over the next 12 months to get to the target. And so the point is we may choose to refinance some of that potentially and still get to the target if we keep growing own funds. That's the point if we want to refinance some. We may or may not. It's a decision we'll make at the time. Andrew, you've been pretty quiet so far. Unknown Analyst: Okay. I've got 10 questions if I may. I was just going to ask on the pensions and savings business and particularly the savings element of it. Could you split down the net flows in the retail bit between the old-fashioned individual unit linked and the new retail? And perhaps give some sense in pensions and savings as to the split of the profits between those 3 elements within that because you have one legacy business within there. Nicolaos Nicandrou: So that second bit again. Unknown Analyst: And then give us some sense of the legacy profits within the pensions and savings business. And then secondly, you're talking about Europe, need for more modern technology and a partial internal model. When will you have completed that and therefore, can look at your options? Andrew Briggs: Sure. So on pensions and savings, the -- if you look at the sort of annualized retail inflow of around GBP 5 billion that we have gross flows, roughly half of that is regular premiums on existing customers. So all the workplace levers, for example, end up in retail. And the other half is effectively transferred in, so lump sum. So if you want to sort of draw the distinction, roughly half is regulars, roughly half is transfers in. In terms of breaking down the profits between the different segments, it's not something we do, Andrew, and I do hear that people want more, and it's something we will give some thought to in time. But the point I'd draw is that an awful lot of the cost of being in this business are fixed. And therefore, the marginal revenue fund flow you generate, generates significant marginal value. And that's exactly what we're seeing. So our margin at 19 basis points is materially higher than our other main listed peers, materially higher. And it's not actually that we're much better. It's that we just have more scale. And so if you try and do the cost allocation down, you've got a large fixed cost of being in this business, the systems and processes and so on involved that you'd be allocating around. So the point I'd really draw to is going forward from here, we would expect to be obviously, there will be a runoff of revenue. Think about the revenue line and the cost line separately. There will be a runoff of revenue over time as customers take their income in retirement. We'll have all the new flows coming in, and we kind of give a bit of a sense of the revenue margin. The average is 46. Workplace is down in the high 20s. So you can get a bit of a sense of that. And then in terms of the cost base, the cost base is going to continue to come down in line with our GBP 250 million cost reduction. So in trying to model the picture going forward, I'd encourage you to split the revenue and the cost side out. There's a trajectory of cost that I think is sort of clearly defined by our cost reduction target, and then you can get a sense of the revenue picture. But I do hear you, and it's something we will give some thought to. Europe, I would say 18 to 24 months would be the order of magnitude frame. I'm looking at Jackie in the front row, you're going to be horrified at that 18 to 24 months, that's fine, yes. 18 to 24 months will be a sense of time frame. Nicolaos Nicandrou: Your question was on the partial internal model as well in relation to Europe. I mean I -- look, it's a good question. It's one example of many things that are available to us to kind of optimize the balance sheet. And let me just expand on that a little more, if I may. Clearly, business-led drivers such as the Wipro, such as in-housing of annuities, the cost savings programs is driving capital efficiency. Ultimately, it's helping our operating leverage as well. But there's many balance sheet type actions that we can do with profit simplification is one example. I mean the other few I would flag just by way of example, we -- unlike many of our peers, up until now, we've only done one major model change. That's when we put Phoenix and Standard Life together. Others have done 3 or 4. So our capital models or our approved model is a little behind the curve. We're in the process of making our second ever application as we look to increase the sophistication of the way we model credit risk. At the moment, it's very simple. We're moving to a transition and default approach in stressing it. Others have done that since day 1. Whether it's Europe on a partial internal model or ReAssure on a standard formula, Sun Life on a standard formula, again, there will be other applications that will come over the next year or 2 as we move those to an internal model. And in doing so, we will benefit from the diversification benefits that come across when you integrate it. In Ireland, we're happy with the partial internal model, but there are further transactions such as a mass lapse reinsurance, for example, that will put that partial internal model to an outcome that is very similar to a full internal model. Lots and lots of activities and a big runway over the next few years to generate more value. And all these things are in our scope, and we will address those systematically and extract the benefits. Andrew Briggs: Any other questions in the room? Do we have any questions on the webcast? Operator: Three questions from Farooq at JPMorgan. Firstly, on the asset management side, can you let us know how many external asset managers you think you'll end up working with? Secondly, can you talk about your use of a heavier gilt-based investment strategy compared to and any use of derivative strategies to capture a higher spread from gilts? And lastly, right now, how is further deleveraging versus other uses of excess cash looking on a return on capital basis? Andrew Briggs: Okay. So on the -- I'll take the first and -- you'll take the second. Do you want to do a third or should I do a third? What do you think? I have to think about it. Nicolaos Nicandrou: Write it down. So we're thinking about the second. Andrew Briggs: Okay. I will do the first and the third. So on the asset management side, how many partners will we work with? We don't have a sort of set specific number we're targeting. We just feel that with 5,000 funds and the broad range of partners we currently have, we can simplify that down. We can get a better outcome for our customers by having a smaller number of funds and a smaller number of partners. And we would expect Aberdeen as our key strategic asset management partner are likely to be a beneficiary of that exercise. In terms of the return on capital looking at different options, we're very clear. We have stated a target of a 30% leverage ratio on a Solvency II basis and we're aiming for that. And there's nothing we've seen that suggests that there will be a higher return on alternatives to doing that. So that is absolutely our focus. Expect us to use excess cash to delever until we get to that 30% target. And then Nick, on the second? Nicolaos Nicandrou: On gilts, 2 or 3 things to say. Yes, we're long gilt at the moment. The opportunities to deploy some of the new premiums that we've collected over the last year or so into credit are not as valuable as we would like them. So yes, we're long gilt about GBP 1.5 billion. We -- but we don't do -- I think if your question was referring to sort of leverage gilt approaches to improve deal economics, we do very modest amounts of that. Andrew Briggs: I think the point I'd just quickly add there is we're quite happy with the strain around 3% because we're quite happy to deploy capital and then generate an attractive return on that capital and hence, make a decent amount of money. There is a little bit of a tendency in the market at the moment to focus on getting the strain as low as possible. So for example, doing these leverage gilt trades, it does bring the strain down, but you end up making an attractive return on very little capital, so don't actually make that much money. And if you do the leverage gilt trades, you then can't do the annuity portfolio optimization over time either. And so it kind of takes away another source of ongoing value. So we're -- we view the value creation is the primary thing we're trying to achieve here rather than get the strain as low as we possibly can. It's -- we've got plenty of capital. We're high surplus cash generation. So we're happy to deploy where we get attractive returns. Any other web questions? Okay. So that brings us to the close. I'm actually going to go off piece here and the team don't even know I'm going to do this. Claire looks very worried, Joe looks worried. But I was chatting to [ Barry Corns ] earlier today. And you tell me, Barry, that after over 1,200 analyst company meetings, today is your very last one and your last day. Is that correct? So I think that -- over 1,200. I think it deserves a round of applause to finish, hope you agree. I've always gone quite well with Barry. I think he's completely bought to ever speak to me again. But anyway, thanks, everyone, for coming along. We'll be around for a while if you have any further questions, but thanks so much for your time. Much appreciated.
Operator: Thank you for standing by, and welcome to Skillsoft's Second Quarter Fiscal 2026 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers present, there will be a question and answer session. Please note that today's call is being recorded and a replay of the call and webcast will be available shortly after the call concludes for a period of twelve months. I would now like to hand the conference over to your first speaker today, Stephen Poe, Investor Relations. Thank you. Please go ahead. Stephen Poe: Thank you, operator. Good day, and thank you for joining us to discuss our results for the second quarter ended July 31, 2025. Before we jump in, I want to remind you that today's call will contain forward-looking statements about the company's business outlook and our expectations that constitute forward-looking statements within the meaning of The U.S. Private Securities Litigation Reform Act of 1995, including statements concerning financial and business trends, our expected future business and financial performance, financial condition, and market outlook. These forward-looking statements and all statements that are not historical facts reflect management's current beliefs, expectations, and assumptions and therefore are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions, forecasts, estimates, or projections in the forward-looking statements made today. For a discussion of the material risks and other important factors that could affect our actual results, we refer you to our most recent Form 10-K and other documents that we file with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements or information as of their respective dates. During the call, unless otherwise noted, all financial metrics we discuss will be non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. For example, listeners should be cautioned that references to phrases such as adjusted EBITDA and free cash flow denote non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation or as a substitute for GAAP financial measures. A presentation of the most directly comparable financial measures determined in accordance with GAAP, as well as the definitions, uses, and reconciliations of non-GAAP financial measures included in today's commentary to the most directly comparable GAAP financial measures, is included in our earnings press release, which has been furnished to the SEC on Form 8-Ks, is available at www.sec.gov, and is also available on our website at www.skillsoft.com. Following today's prepared remarks, Ron Hovsepian, Skillsoft's Executive Chair and Chief Executive Officer, and John Frederick, Skillsoft's Chief Financial Officer, will be available for Q&A. With that, it's my pleasure to turn the call over to Ron. Ron Hovsepian: Thanks, Stephen. Good afternoon, and thank you for joining us. Economic uncertainty extended Q1 headwinds into Q2 and weighed on revenue primarily through lower customer discretionary training spending. The impact was most pronounced on our live learning offers, which include nearly all of global knowledge products while affecting only one product, coaching and TDS. With clearer visibility and established buying patterns, and given Q1 and Q2 contribute 30 to 40% of our annual bookings, we are updating our full-year revenue guidance. Despite a lower revenue base, we delivered consistent profitability and improved adjusted EBITDA margins, reflecting the success of our expense reduction, operational improvement, and resource allocation initiatives executed to date. As a result, we are maintaining our full-year expectations for adjusted EBITDA and free cash flow, which John will cover in more detail. Ahead of our results, we want to update you on our transformation. We're about one year into our execution plan, which is producing encouraging proof points. Most notably, a fourth consecutive quarter of revenue growth in our TDS enterprise solution, which represents more than 90% of the TDS segment. The people transformation and new roles are foundational to the next phase of our transformation, which are driving the new AI innovation-based product roadmap and our new positioning that will focus on intelligent learning design, skills intelligence, and immersive learning experiences. To summarize our key transformation actions, since launch last August, we have created and implemented a dual business unit structure, improved our operational execution, conducted a significant shift in critical resources, and recently finished building out our talented bench of leaders to drive our strategy forward. In total, these actions help deliver $45 million in expense reductions, contributed significantly to profitability and margin expansion, and we have begun to stabilize our core TDS enterprise segment. Turning to the second quarter, broad macro and geopolitical headwinds weighed heavily on GK during the first quarter and continued into the second quarter, with the largest impact coming from slower demand in North America and in The Middle East. These were driven by external factors. As a result, we are updating the revenue guidance. John will provide the specifics. Our teams continue to deliver on our strategic priorities. First, we have focused on leveraging the existing scale of our platform and our relationship management teams that already serve nearly 3,000 customers, all more than $1 million of total contract value. I'd like to share three examples of customer wins from Q2, which validate our strength in providing value to enterprise organizations. A global athletic apparel brand partnered with us to enhance leadership capabilities and drive cultural transformation. Our unified learning solution integrated risk-based compliance, inclusive leadership development, and innovation training. Our personalized learning pathways and analytical tools help the organization to track progress and elevate engagement while streamlining global compliance. A global semiconductor manufacturer engaged our team to enhance their learning ecosystem for 43,000 employees with a focused AI-powered content and personalized learning paths. The program includes certifications in cloud, cybersecurity, and agile methodologies. Our ability to deliver high-impact learning at scale is helping the customer meet aggressive innovation timelines and improve cross-functional collaboration. A leading European provider of digital services partnered with us to launch a large-scale workforce transformation initiative. We were selected for our ability to deliver strategic learning at scale, which we accomplished with them. In just eighteen months, the company's global workforce earned over 20,000 certifications in cybersecurity, cloud, data, and AI, and service management. These wins reflect the growing demand for scalable, high-impact learning solutions as organizations adapt to rapid shifts in workforce and AI technology. To meet this need, we are evolving our product strategy to focus on AI-native design, skills intelligence, and enterprise-grade flexibility. This shift is not limited to an enterprise HR team; it is increasingly relevant to the executives across the organization who are focused on building workforce capabilities that directly link to measurable outcomes. Later this month, we will share details about a new AI authoring experience designed to change the way organizations create and deliver learning. This innovation is part of a broader roadmap focused on personalized skills development, scalable certification, and advanced analytics. These capabilities will enable enterprises to produce high-quality content faster at a lower cost, localize and govern it at scale, shorten time to competency, and quantify the ROI through deeper skills and compliance insights. As part of our roadmap, we advanced Casey by adding full voice mode, five-level proficiency scoring, an improved feedback rubric, and a new behavior trait for more dynamic conversations. For enterprises, this scales realistic role play delivers consistent and audible proficiency signals, speeds time to competency, lowers coaching costs, and links skills progress to faster sales ramp, higher customer satisfaction, and stronger compliance. We expanded global learner support with a unified language experience in over 50 languages, an intuitive page builder for custom enterprise landing pages, and broadened HR and technology certifications with comparative dashboards by department, geography, each having custom attributes as desired. For enterprises, this delivers faster global rollouts, higher adoption and completion, consistent governance, and clearer ROI from skills and compliance gains. Skillsoft Precipio platform momentum continues with technology learners up 50% year over year, AI learners up 74%, and AI learning hours up 158%. Enterprises are scaling with Skillsoft to close the skill gaps, reach competency faster, adopt AI more broadly, cut training and onboarding costs, and improve their KPIs. Bringing it all together, we're confident in our core businesses' durability and in the strategic investments in our go-to-market and product portfolio, all of which will enable us to return to market growth rates. With that, now let me hand the call over to John to cover our financial results in more detail. John? John Frederick: Thank you, Ron, and good afternoon, everyone. As a reminder, and as noted at the opening of the call, consistent with prior quarters, this section covers non-GAAP measures, unless otherwise stated. As Ron noted, we continue to advance our transformation and are seeing encouraging signs even amid persistent macroeconomic and geopolitical challenges, particularly in public sector spending within our global knowledge segment. We have made considerable investments in our go-to-market enterprise customer resources and products, and while it's too early to conclude on the efficacy of these investments, I wanted to share some initial insights. With respect to enterprise customers, we invested in specialized subject matter experts, SMEs, to help our customers make the most of their talent development journey. These SMEs improved dollar retention rates by more than 10 percentage points better than the average. Investments made in Q2 will take time in the market for us to see the effects. Aiding this rollout of key investments, we now have a new marketing leader and expect to make some exciting product announcements in the upcoming weeks, as Ron referenced earlier. Now turning to the results. Revenue per talent development solutions, or TDS, was $101.2 million in the second quarter, slightly down year over year. Our TDS performance continues to benefit from our efforts to capitalize on the evolving market shift from traditional learning and skills development towards more comprehensive talent development solutions. However, during the quarter, growth in our TDS enterprise solutions was masked by declines in our learner product line, reflecting fundamental changes in the B2C market over time. Global knowledge revenue of $276 million in the quarter was down approximately $2.9 million or 9.6% year over year. We continued to see softening demand reflecting lower discretionary spending, particularly in North America, and from geopolitical instability in The Middle East, which impacted GK during the quarter. These market conditions are central to our view on full-year guidance, which we'll cover shortly. Total revenue of $128.8 million in the second quarter was down $3.4 million or 2.6% year over year. Our TDS LTM dollar retention rate, or DRR, as of the second quarter was 99%. This compares to 99% last quarter and 98.4% one year ago. Churn and erosion in our federal business had a material effect on DRR in the quarter, reducing our performance within the quarter by approximately four percentage points. Putting the materiality of this in the proper context. Now I'll walk through expense measures, which again saw a year-over-year improvement as a result of the cost reduction initiatives we executed in the back half of last year. Cost of revenue of $32.7 million in the second quarter, or 25% of revenue, was up 1.6% year over year, reflecting higher utilization of certain platform features by our customers. Content and software development expenses of $13.2 million in the quarter were 10% of revenue, down approximately 5.9% year over year. These improvements largely reflected productivity gains from leveraging AI and a sharper focus. Selling and marketing expenses of $38.5 million in the second quarter were 30% of revenue, down approximately 3% year over year. General and administrative expenses were $16.1 million in the second quarter, or 12% of revenue, down approximately 10.5% year over year. Total operating expenses were $100.5 million in the second quarter, or 78% of revenue, down $3.4 million or 3.2% year over year. Despite the lower revenue base compared to the prior year period, we once again delivered strong profitability with adjusted EBITDA of $28.3 million, flat compared to last year. Adjusted EBITDA margin as a percentage of revenue for the quarter was 22% compared to 21.4% last year. GAAP net loss was $23.8 million in the second quarter compared to a GAAP net loss of $39.6 million in the prior year period. GAAP net loss per share was $2.78 compared to $4.84 per share in the prior year period. Adjusted net income of $7.9 million in the second quarter compared to adjusted net income of $7.1 million in the prior year. Adjusted net income per share of $0.92 in the second quarter compared to adjusted net income per share of $0.87 in the prior year. Moving to cash flow and balance sheet highlights. Free cash flow for the quarter was negative $22.6 million compared to negative $16.1 million in the prior year period. As we anticipated and as we alluded to in the last quarter's call, most of the positive free cash flow we generated in the first quarter reversed in Q2. However, year-to-date free cash flow remains positive and was approximately $3.5 million as compared to a cash usage in the prior year of $5.7 million. Again, this was driven largely by normal seasonality as Q2 is typically our weakest cash flow quarter, as well as timing of collections and certain disbursements in the quarter. Looking to the balance of the year, improving free cash flow and generating consistent positive free cash flow continues to be a top priority. And accordingly, we're reiterating our expectation of $13 million to $18 million for the full year. GAAP cash, cash equivalents, and restricted cash were $103.4 million at quarter end. Total gross debt on a GAAP basis, which includes borrowings on our term loan and accounts receivables facility, was $579 million at the end of Q2, down slightly from approximately $581 million at the end of 2025, reflecting normal amortization. Total net debt, which includes borrowings on our term loan and accounts receivable facility, net of cash, cash equivalents, and restricted cash, was approximately $475 million, down from approximately $477 million at the end of 2025. Turning to the outlook for the full year, as Ron already mentioned, we are adjusting our previously communicated revenue range outlook for fiscal '26 to account for the now anticipated continued softness in federal spending. We now expect revenue of $510 million to $530 million for the full year. However, because of continued operational execution and cost optimization, we're reiterating our expectations for adjusted EBITDA of $112 million to $118 million. We also remain confident in our ability to drive positive free cash flow in fiscal '26 and are reiterating our expectation of $13 million to $18 million for the full year. We're continuing to monitor external market conditions and impacts to our business and are diligently focused on continuing to accelerate our transformation and optimizing our performance, including examining all areas of the business for profitability improvements. With that, operator, please open the call up to questions. Operator: Thank you. And at this time, we will conduct a question and answer session. Our first question comes from Ken Wong with Oppenheimer. Please state your question. Ken Wong: Fantastic. Thanks for taking my question. Ron, I wanted to touch on your comments about the softer live learning environment. Appreciate the color in North America and The Middle East. Are you able to give any additional color on if any particular sectors stood out in terms of kind of material softening? I know last quarter, we saw some softer government discretionary, but would love a sense of kind of what end markets might be impacted. Ron Hovsepian: Yeah. No. Thank you, Ken. The answer is, yeah, it's kind of an interesting story. It's a tale of two cities here. What I see in North America specifically, I did see public sector get affected in North America and The Middle East in terms of live learning. Right? That was a direct hit there. When I look at what's happening in our live learning, in particular, in Europe, we're actually showing good progress there. I think as John referenced in his comments. So it's interesting. We've been and that's a booking statement. Is what you're hearing from me. We're seeing that progress. So it gives me confidence we see a clear path on how to fix that business and get that business to growth again. And proof points that we can do it. And we'll give more color in the near term on what we'll see then. We'll have some things to share. The interesting part, though, is where we got really, really hit in the quarter was really public sector. The uncertainty in The Middle East was a big one on that piece of it. And then in North America, the uncertainty that we're all familiar with and the expense got. Ken Wong: Got it. And any I'm sure the natural question from some investors might be, you know, why you're confident that this might be more of a macro dynamic versus potentially a competitive situation here. Any color you're seeing in the pipeline or just your deal commentary with customers that suggest that it's more the former rather than the latter? Ron Hovsepian: Yeah. When I look down into the bookings and what I'm seeing happen specifically in Europe, which is probably six to nine months ahead of its recovery compared to, like, The US. What I see there is actually really nice large dedicated public sector deals being signed by the team. And that will become revenue and convert over time. And those are nice numbers. We haven't shared those numbers publicly, and we'll figure out when and where, if any, of that gets shared. But I can tell you that part is working. So that's where I'm getting the confidence from when you hear me say that, and that is where we're really seeing good progress. I would share with you that the rest of the market, when I look inside the sector of virtual instructor-led training and physical instructor-led training, those two pieces of it, it's the people who deliver it, are also seeing I looked at about six companies that deliver portions of it. And I saw a range of negatives from those companies reporting in that one live learning bucket is what I'm referring to. So I saw four out of the six not have growth. One of them have growth at 1%. So I didn't feel like we were way out of line with what's occurring across the market, again, in that narrow sector. There's another four or five companies I track, but they don't publish numbers. So that's a very important piece, Ken, of what I saw happening inside the market, as well. As I think about it. Yeah. And I think so hi, Ken. This is John. John Frederick: A couple of things. So first, from a confidence perspective, we did see some green shoots as Ron alluded to in Europe with respect to GK. So we're starting to see some improvement from a bookings perspective such that that business is largely that piece of the business is largely inflected in that quarter. So that's a one-quarter inflection point. I wouldn't call it a full inflection, but it certainly gives us a reason to feel a little bit more confident with some of the activities we're conducting in that region. The second piece really is around confidence. When we adjusted our guidance down, almost all of that guidance adjustment pertained to GK specifically. So we're really trying to do our best to be careful and thoughtful about taking that piece of the risk profile of the forecasting out of the mix, if you will. Ken Wong: Got it. Okay. Perfect. And that somewhat segues into my next question, John, and just you feel that that $17 million, that three-point cut to revenue, that feels appropriately fenced off. I mean, you characterize that as being based on what you saw in your bookings in the quarter, or did you guys embed some further erosion as a potential safeguard? John Frederick: Yeah. So it's a great question. Thank you. So first half revenue for the company was down about $7 million. When you think about this business from a normal seasonality perspective, from a bookings perspective, about 35% of our business is in the first half, about 65% is in the second half. So we have a bunch of commercial activity happening in the back half of the year. We took that into consideration when we set the low end of our guidance range. So, you know, said differently and more directly, first half down $7 million. That implies the back half being down $13 million to get to the low end of our guidance. So we tried to take that heavier seasonality in the back half of the year into consideration, if you will. Ken Wong: Perfect. Okay. Really appreciate the color there. I think that makes a lot of sense. And then yeah, I guess this could go for either you, Ron, or John. But with you know, you guys were projecting to a little bit of growth previously, and now the new guy, you know, bit of a decline from fiscal 2024. And I know the aim with all the moving pieces, the first, you know, first part of the year was to get back to growth, Ron. Do you think that that timeline is now hugely dependent on macro, or do you feel there's still elements that are within your control that potentially get this business back on track? John Frederick: Ken, this is John. So great question. Why don't we start with what our strategic aim was last year? So we started with the transformation. We reduced some costs. We made a bunch of investments in the first half of the year, predominantly in the second quarter. So, you know, we haven't had quite enough time in the market to see how those investments were really gonna pay off. We certainly expect that they will. And when you play this out, I'd say that we've tried to do our very best to, to actually, I wanna actually, really wanna shift to a different topic here, but to give you a little bit more context. But I think what we really wanna do is make the investments. We have confidence in the investments that we've made. We've seen some green shoots in the business. We've also seen in the TDS enterprise product line that that business has continued to grow over the last four quarters. And that gives us a lot of confidence that given that that's 90% of the TDS segment, you kind of break the two pieces out, we derisk the forecast on the GK side. We've got the transformation seeming to work on the TDS enterprise product side. Our strategic target was that enterprise customer. If you go back to that beginning last August, so to kind of just summarize, the target was the enterprise customer. That segment of the customer is growing. We've derisked the GK side. I think we're feeling pretty good about what the outlook is. Ron Hovsepian: Yeah. And just to finish answering your question on the macro uncertainty and the impact on the long term or near term plan, from my perspective, this macro uncertainty has hit us for about three to six months on timing roughly. As I look out into it. We were a little slow in some of the hiring. The macro uncertainty piece hit. So that piece of it is what I would contextualize it in. I feel very comfortable over the next twelve months to eighteen months we can make up at least one quarter of that. So I'm not I'm gonna let the economy do its thing. And as I shared with you and the rest of the group at the beginning of the year, we did not account for macro uncertainty because it was too difficult to predict at the beginning of the year. As we got through the first half here, we had a lot more facts in our patterns. We could see things and everything John said then kicked in in his prepared comments and just now. But when I look at it, I'm just looking at the time window of it. I see it hitting us for about six months right now, and I believe we can easily make up one of those quarters over the next twelve to eighteen months. Right? I don't wanna act like we can get back time, but some of that we can make up. And that's a financial statement in terms of getting back to the growth plans that we have. That's not that's I don't see it making a big shift or a tectonic plate shift, which is what you were, I think, really asking. Ken Wong: Perfect. Okay. Fantastic. And then yeah, maybe shifting to, again, more a more positive note. Does sound like TDS, especially the enterprise customers, was tracking the plan. Any update or any incremental color on maybe how the dollar retention rate looked for that business? And then to the extent that there's any color on maybe the 10% that's not the enterprise mix, any color on how that performed? John Frederick: Yeah. Great question. So our year-to-date DRR was around 99 as you probably heard. And within the quarter, we had a fairly significant impact from our North American federal business. I think in terms of the prepared remarks, we were that had about a four percentage point impact negative in the quarter. So, you know, obviously, we're absent that effect. We would have had a bit better DRR. When I think about it relative to the competitive set in the marketplace, I think we're really holding our own nicely from a DRR perspective and setting the table for future growth. For sure. I think when you look at the smaller piece of the business that remaining less than 10% of the TDS business, which is really the B2C business, if you just kind of run the math. That business is down double digits on a year-over-year basis. So that was putting some fairly intense pressure on the TDS segment. Having said that, our real focus is on the enterprise customer. Ken Wong: Got it. Okay. Perfect. Ron Hovsepian: Good. Yeah. That's fine. Keep going. Ken Wong: Yeah. I was gonna just ask and I know this is always it's always tricky, but I mean, given the cuts that you guys have laid out there, obviously, some incremental weakness to account for the seasonality in the second half. I mean, would it be fair to call Q2 a trough or I guess it'd be more I guess, could be maybe three Q depending on how we weight the guidance. But how would you help us kind of frame kind of where we are in terms of the magnitude of headwinds that you're facing? John Frederick: Yeah. I think we've programmed in a bit of reduction in the back half of the year for sure. So if we were to kind of separate the two segments, we don't obviously, we don't give segment guidance. But we're certainly more negative in our outlook on the GK piece in terms of the guidance adjustment that we made. I think in the end, we can certainly expect that the TDS business should continue to perform at or about the level it's been from a revenue perspective. It's, you know, the seasonality is relatively modest in that business. It's basically a fifty-fifty business. Can it has some predictability to it. So I don't see a lot of negativity coming the way of TDS. With respect to a trough, we programmed in more of a trough on the GK side in the back half of the year. I think the way to think about it is kind of the tale of two cities again, with TDS performing reasonable to expectations. In fact, I'll say it more directly. Had we not had some of the headwinds on GK, we probably would be having the conversation about reducing guidance. Ken Wong: Got it. Understood. Ron Hovsepian: And I think on the guidance, Ken, I think John answered that perfectly, so I don't want to add anything to add there. But just for I just want to remind everybody, we're balancing in this conversation your trough question. When I look at it, at the top level. We're balancing macro uncertainty, right, that we talked about, which your question was built on, but I'm also balancing a transformation at the same time. So your question about is it the trough, we're right you know, right in the middle of that transformation as well. Right? You as I indicated in my comments, you'll see you'll see a set of announcements shortly, very shortly. You will you we are hiring, as John pointed out in his things, very quickly, right, in this past quarter in particular. Right? So as you look at it, I the transformation also happening. That'll add to a little bit of the trough here that we're in. And so there's a financial part you were and then there's the transformational part. I think we just gotta remember we're doing both at once, which adds a little, you know, extra degree of difficulty. To what we're getting done from an overall business perspective. So in terms of the transformation layer of it, I believe we're hitting as we enter next year, I feel very good about the overall strategy and the execution of the go-to-market changes, the product changes, and the overall business changes that we're making. And those things will start to then be they'll be fully instantiated as we hit next year. And we will begin to see those things start to pay off. So I'll let you design the timing on the trough on that one. Ken Wong: Understood. I appreciate that, Ron. And then maybe the last question for me just look. While you know, little disappointing on the revenue side, you guys were able to maintain EBITDA and it sounds like cash flow will still be on the positive end. How should we think about kind of the levers that were pulled to the extent that there's further softening? I mean, do you feel there's still some capacity to sustain the kind of profit that you guys have been pushing forward since the start of the year? John Frederick: Yeah. So we, Ken, we're certainly always cognizant of how we can become more efficient during the course of the year. So we're, you know, we're almost in a constant mode of assessing, particularly as part of this transformation, as we make these investments trying to become continuing to be more efficient. And so you can reasonably expect that we'll have a business model that comports with the current trajectory of the business. Yeah. Ken Wong: Understood. And I guess maybe a follow-up to that. I guess, how much of the cost management, the incremental productivity is just simply because a variable component to your cost structure, obviously, if your bookings and the revenue do not align with a certain compensation level for sales and marketing, you can dial that back. Versus, you know, what might have been more deliberately cut, whether it's on G and A or product to get aligned with kind of the current conditions. John Frederick: Actually, very little of it was pure variable cost changes as a result of revenue. It was mostly the effects of fixed costs that we've taken out previously. Ken Wong: Alright. Perfect. I think that's it on my end, guys. Really appreciate the incremental color there. And yes, best of luck on the back half. John Frederick: Thank you. Thank you. Operator: Thank you. And there are no further questions at this time. I'll hand the floor back to Ron Hovsepian for closing remarks. Thank you. Ron Hovsepian: Thank you, Diego. I'm as excited as ever about the opportunities in front of us at Skillsoft. While the challenging macroeconomic headwinds in some markets have caused choppiness in our revenues over the short term, the disciplined execution of our transformation, key investments, and the up-and-coming product announcements put us on sound footing to participate in the AI-fueled opportunities emerging in this market. Allowing us to really return the company to market growth in line with our long-range plan. So I'm confident where we're heading, and I look forward to seeing where and when and how fast we can get ourselves there. With that, thank you all for participating in the call today. Talk soon. Operator: Thank you. This concludes today's call. All parties may disconnect. Have a good day.
Operator: Hello, and welcome to the Core & Main Q2 2025 Earnings Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand it over to Glenn Floyd, Director of Investor Relations. Please go ahead. Glenn Floyd: Good morning, and thank you for joining us. I'm Glenn Floyd, Director of Investor Relations at Core & Main. We appreciate you taking the time to be with us today for our fiscal 2025 second quarter earnings call. Joining me this morning are Mark Witkowski, our Chief Executive Officer; and Robyn Bradbury, our Chief Financial Officer. On today's call, Mark will begin by sharing an overview of our business and recent performance. Robyn will follow with a review of our second quarter results and our outlook for the rest of fiscal 2025. We'll then open the line for Q&A, and Mark will wrap up with closing remarks. As a reminder, our press release, presentation materials and the statements made during today's call may include forward-looking statements. These are subject to various risks and uncertainties that could cause actual results to differ materially from our expectations. For more information, please refer to the cautionary statements included in our earnings press release and in our filings with the SEC. We will also reference certain non-GAAP financial measures during today's discussion. We believe these metrics provide useful insight into the underlying performance of our business. Reconciliations to the most comparable GAAP measure are available in both our earnings press release and the appendix of today's investor presentation. Thank you again for your interest in Core & Main. I'll now turn the call over to our Chief Executive Officer, Mark Witkowski. Mark Witkowski: Thanks, Glenn, and good morning, everyone. We appreciate you joining us today. If you're following along with our second quarter earnings presentation, I'll begin on Page 5 with a business update. I'm proud of our associates' dedication to supporting customers and delivering critical infrastructure projects. Our teams drove nearly 7% net sales growth in the quarter, including roughly 5% organic growth. Municipal demand remained healthy, supported by traditional repair and replacement activity, advanced metering infrastructure conversion projects and the construction of new water and wastewater treatment facilities. Our nonresidential end market was stable in the quarter. Highway and street projects remain strong, institutional construction has been steady, and we're seeing continued momentum from data centers. While data centers represent a small portion of our sales mix today, customer sentiment points to continued growth in this space, and we expect it to become a larger portion of our sales mix over time. On the residential side, lot development for single-family housing, which accounts for roughly 20% of our sales, slowed during the quarter, especially in previously fast-growing Sunbelt markets. We believe higher interest rates, affordability concerns and lower consumer confidence are weighing on demand for new homes. And until these macro headwinds ease, we expect activity in this end market will continue to soften through the second half. As a result, we are factoring in a lower residential outlook into our full year expectations, which Robyn will speak to in more detail. Against this market backdrop, we drove significant sales growth and market share gains across key initiatives, including treatment plant and fusible high-density polyethylene projects, where our technical expertise and consistent execution continue to differentiate Core & Main in the industry. We are also deepening relationships with large regional and national contractors, especially those pursuing critical infrastructure projects across the country. These customers increasingly value our ability to support them with consistent service, scale and product availability wherever their projects take them. Sales of meter products declined year-over-year, primarily due to project delays in the current year and a difficult comparison to last year's 48% growth rate. However, we have a growing backlog of metering projects we expect to release in the second half of the year, supporting our expectation for strong full year metering sales growth. Additionally, a healthy pipeline of bids and continued project awards gives us confidence in both the near- and long-term outlook for metering upgrade projects. Gross margins performed well in the quarter at 26.8%, up 10 basis points sequentially from Q1 and up 40 basis points year-over-year. Our gross margins reflect strong execution of our private label and sourcing initiatives, while our local teams continue to capture market share. At the end of the day, our performance is largely driven by how well we support our customers, making sure they have the right products at the right time with the service they need to keep projects on schedule and on budget. At the same time, our operating costs were elevated this quarter. We've experienced unusually high employee benefit costs and inflation in other categories like facilities, fleet and other distribution-related expenses. We have also carried higher costs from recent acquisitions, which have contributed to sales growth but have not yet reached their full synergy potential. Although we anticipated some of these pressures, certain costs were more pronounced than expected. To address these factors, we have implemented targeted cost-out actions to improve productivity and operating margins. We expect a portion of the savings to be realized in the second half of this year with a larger annualized benefit in 2026. We expect to achieve additional synergies tied to recent acquisitions. Our integration approach is phased and growth-oriented, starting with people, sales and operations to position each business for success. Once that foundation is in place, we evaluate opportunities in terms of costs and resources and develop plans to drive SG&A synergies. Our approach to cost management will be measured and focused on realigning the business with the demand environment without jeopardizing future performance, growth opportunities or the ability to serve our customers. We remain confident in the long-term growth and profitability prospects of Core & Main, including our ability to drive SG&A improvements and generate substantial value for shareholders. We continue to be balanced in how we allocate capital. During the quarter, we generated $34 million of operating cash flow and deployed approximately $24 million across organic growth initiatives, share repurchases and debt service. Year-to-date, we have repurchased $47 million of shares, reducing our share count by nearly 1 million. Our growth strategy is driven by organic growth and complementary acquisitions. After the quarter, we announced the acquisition of Canada Waterworks, a 3-branch distributor of pipe, valves, fittings and storm drainage products in Ontario, Canada. We expect the transaction to close later this month, further enhancing our position in the multibillion-dollar Canadian addressable market. With this acquisition, we now have 5 locations in Ontario, all established through value-enhancing M&A. This has created a platform for meaningful growth in Canada. On the organic side, we're making prudent investments to enhance our capabilities and better serve customers. We recently opened new locations in Kansas City and Wisconsin, strengthening our presence in priority markets. We are also evaluating additional high-growth markets for future expansion. These investments are designed to generate long-term growth, strengthen our market share and support our goal of delivering above-market growth over the coming years. We have plans to open several more locations this year, and I look forward to sharing updates on these initiatives. Before turning the call over to Robyn, I want to reiterate my confidence in Core & Main's growth and margin expansion opportunity. We are well positioned to benefit from future investments in aging U.S. water infrastructure. We have the right team in place to execute on the opportunities ahead, and we look forward to delivering even greater value to our customers, suppliers, communities and shareholders. Thank you for your continued support and trust in our vision. With that, I'll turn the call over to Robyn to walk through our financial results and outlook for the remainder of the year. Go ahead, Robyn. Robyn Bradbury: Thanks, Mark. I'll start on Page 7 of the presentation with some highlights from our second quarter results. As Mark mentioned, we grew net sales nearly 7% in the quarter to $2.1 billion. Organic sales were up roughly 5% with the balance of growth coming from acquisitions. Prices continue to be flat overall, and our teams worked diligently to sustain pricing in an evolving tariff and end market environment. In total, we estimate that our end markets grew in the low single digits range. We outperformed the market with significant sales growth and market share gains in our treatment plant and fusible high-density polyethylene initiatives. Gross margin came in at 26.8%, up 10 basis points from the first quarter and up 40 basis points year-over-year. The sequential and year-over-year improvement were both largely driven by continued execution of our private label and sourcing initiatives and contribution from accretive acquisitions. SG&A expenses increased 13% this quarter to $302 million. Roughly half of the $34 million increase was related to incremental costs from acquisitions and timing of onetime and other nonrecurring costs. The remainder was made up of volume-related growth, inflation and distribution-related costs and investments to drive future growth and market share gains. We implemented certain productivity and cost-out measures earlier this year, but with higher costs and inflation continuing to pressure our operating margins and our expectation of softer residential demand, we will be taking additional targeted cost reduction actions in areas that won't impact our ability to serve customers. Importantly, we will continue to make strategic investments to strengthen the business. We're seeing strong results from our sales initiatives, and we have opportunities to accelerate that with additional investment. We intend to keep expanding through greenfield locations to better serve customers and capture share while also investing in technology solutions that improve efficiency and support long-term margin expansion. Interest expense was $31 million in the second quarter, down from $36 million in the prior year. The decrease was primarily driven by lower fixed and variable interest rates on our senior term loan credit facilities and lower average borrowings under our ABL credit facility. Our provision for income tax was $41 million compared to $42 million in the prior year. Our effective tax rate was 22.5% for the quarter versus 25% a year ago. The decrease in effective tax rate was primarily due to tax benefits associated with equity-based compensation. Adjusted diluted earnings per share increased approximately 13% to $0.87 compared to $0.77 in the prior year. The increase reflects higher adjusted net income as well as the benefit of a lower share count following our share repurchase activity across fiscal years 2024 and 2025. We exclude intangible amortization because a significant portion of it relates to the formation of Core & Main following our leverage buyout in 2017. We believe adjusted diluted EPS better reflects the results of our operating strategy and the value creation we're delivering for shareholders. Adjusted EBITDA increased 4% to $266 million in the quarter, while adjusted EBITDA margin declined 40 basis points to 12.7%. The decline in adjusted EBITDA margin was driven by higher SG&A as a percentage of net sales, which we are taking actions to optimize. Turning to the balance sheet and cash flow. We ended the quarter with net debt of $2.3 billion and net debt leverage of 2.4x within our stated goals. Total liquidity was $1.1 billion, consisting primarily of availability under our ABL credit facility. Net cash provided by operating activities was $34 million in the quarter, down from $48 million in the prior year. The decline was primarily due to higher investment in working capital, partially offset by higher net income, lower tax payments and timing of interest payments. During the second quarter, we returned $8 million to shareholders through share repurchases, bringing our total for the first half of fiscal 2025 to $47 million and reducing our share count by nearly 1 million shares. As of today, we have $277 million remaining under our share repurchase program. Next, I'll cover our revised outlook for fiscal 2025 on Page 9. We are very pleased with our sales growth, gross margin expansion and capital allocation efforts through the first half of the year. However, higher operating costs and softer residential demand have resulted in operating margins coming in below our expectations. As a result, we are lowering our guidance to reflect current market conditions and higher operating expenses. We now expect net sales of $7.6 billion to $7.7 billion, adjusted EBITDA of $920 million to $940 million, and operating cash flow of $550 million to $610 million. We expect end market volumes to be slightly down for the full year. Municipal end market volumes are expected to grow in the low single digits, nonresidential volumes are expected to be roughly flat and residential lot development is expected to decline in the low double digits. Residential volumes were soft in the quarter and have weakened further through August, consistent with our updated guidance. We still expect pricing to have a neutral impact on full year sales, and we remain on track to deliver 2 to 4 percentage points of above-market growth. We expect adjusted EBITDA margins in the second half of the year to be slightly lower than the first half, reflecting continued gross margin performance, offset by a softer residential market and a higher SG&A rate. In summary, we continue to execute our growth initiatives, expand gross margins and make the strategic investments needed to position the business for long-term success. We have favorable long-term demand characteristics across each of our end markets, many levers to drive organic above-market performance, a healthy M&A pipeline, and numerous opportunities to improve operating margins. We are taking targeted actions to align the business with current demand trends and deploying capital to accelerate growth and enhance shareholder returns. We are confident in our ability to execute on the opportunities ahead, and we look forward to delivering even greater value to our customers, suppliers, communities and shareholders. With that, we'll open it up for questions. Operator: [Operator Instructions] Our first question for today comes from Brian Biros of Thompson Research Group. Brian Biros: On the guidance changes, I guess, the adjustment to the resi outlook from flat to down low double digits looks to account for maybe a little bit more than the adjustment to total sales overall. So it seems like maybe there's something at least positive partially offsetting that resi impact. Maybe that's slightly better municipal market, maybe it's just recent M&A being added in. Can you just touch a little bit more on the puts and takes to the revenue guidance there? Because it seems like there's more than just the resi impact to the top line. Robyn Bradbury: Yes. Thanks, Brian, for the question. You're right. Resi is the kind of the main driver for the reduction in the sales guide. We were expecting that to be flat kind of earlier in the year. It has declined kind of during the quarter, continued to soften after the quarter, and we're expecting that to be in the low double digits range now. That's the majority of the decline there. And then we do have some other areas of bright spots on the top line that are offsetting some of that. So some of our sales initiatives continue to perform really well, like things like treatment plant. Some of our fusible high-density polyethylene product lines are performing well. The municipal market remains strong with ample funding, and we're seeing a lot of demand there, too. So those are kind of the puts and takes on the top line with the revised guide. Brian Biros: Understood. And then second question for me, I guess, just the water category overall is kind of getting a lot of attention now. It used to kind of be a green initiative angle. Now it's seemingly a crucial part of the AI infrastructure build-out and kind of just the general reindustrialization trend. You highlighted in some of your prepared remarks and I think in the press release, things about your technical expertise, your consistent execution, leading to share gains, focusing on the larger contractors. So I guess just bigger picture here kind of going forward, where do you see, I guess, the biggest opportunities for growth with the way the water market is evolving? Mark Witkowski: Yes. Thanks, Brian. Great question. And I would tell you, we're obviously very favorable on the overall water market. And we've really seen more and more demands for water as you've seen these data centers going up in certain areas that need energy and water to satisfy those types of projects. So we're seeing the demands with projects like that. I think the value of water has improved. You're seeing rates passed at the local level more and more so that the municipalities are very healthy right now. And that's giving them more opportunities to get projects designed and ultimately improve the aging infrastructure, which is really the key piece that's really behind the multiyear tailwinds that we have in that municipal market. But then when you throw on top of that some of the demands now for water, which are even more with some of these projects that are going on, obviously sets us up really well. And that's a big part of why we continue to invest in this business, invest in resources, invest in facilities. Those tailwinds are there. We're capturing a lot of those as you're seeing in the municipal results. We're obviously facing some temporary headwinds here with the residential market being softer. We're on the front end of a lot of this with lot development. Our results obviously go into the July period. So I think we're facing some of this a little earlier than some are seeing it on the residential side. But that municipal strength and then that strength that we're seeing with some of these projects in the nonresidential space like data centers is definitely helping offset some of that weakness. Operator: Our next question comes from Matthew Bouley of Barclays. Matthew Bouley: So just a question on the, I guess, the makeup of the guide. So at the midpoint, I guess, revenue cut by $50 million and EBITDA cut by $45 million. So I guess I hear you on the higher operating expenses, but then you're also taking these targeted cost actions as well. So is it more just -- it just simply takes a lot of time to get these cost actions into place. You mentioned more of a 2026 impact, I believe. Or is the kind of maybe changed mix of business with residential a lot weaker impacting the margin as well? I guess just what else would explain that kind of larger decremental EBITDA margin? Robyn Bradbury: Yes. Thanks, Matt. Yes, we are taking cost out. We have already taken some costs out. We started taking some out in the first quarter. We continue to do so in the second quarter. There is some kind of stubborn inflation and other higher cost areas that are continuing to offset some of that. So we will continue to do additional cost-out actions. We will see some of that in the second half, but the larger majority of that will be seen into FY '26. Some of the cost-out actions that we made earlier in the year were in our fire protection product line that was experiencing some softness given some market pressures on nonresidential at that time and also the steel pricing pressures that we were seeing in the fire protection. That has since rebounded. So we took some cost out earlier in the year. It was very targeted to certain areas that we knew wouldn't disrupt the business, and now we're seeing that recovery, and we're well positioned for that. So we'll continue to do additional cost out, targeted actions that won't impact our ability to service our customers or service growth. We'll continue to make investments in growth. And Mark and I have been around the business for a long time. So we kind of know where those cost actions can come out and where we need to make investments. Matthew Bouley: Okay. Got it. And then secondly, just on residential specifically, obviously, a fairly substantial change to the outlook over the past -- relative to 90 days ago. So I guess what I'm trying to get at is sort of, a, your visibility into that end market? And b, maybe how did residential look during both Q1 and Q2? You're talking about kind of low double digits. I'm wondering if the expectation is that it would weaken a lot further in the second half. And so yes, just any color on that kind of cadence of residential and then just more specifically, what you're hearing from customers in that group? Mark Witkowski: Yes. Thanks, Matt. On the residential side, as we kind of worked our way into 2025, really felt like that market was going to be flat overall as we got into the first quarter. And we actually saw some pretty, I'd say, decent residential performance in Q1. Obviously, wasn't great, but we at least saw some projects going earlier in the year and obviously had a really good first quarter. And some of that was just, I'd say, better performance there than we expected. If you go back to Q1, we were well over our consensus and expectations on the top line. And really, what we saw as we got into Q2, really saw residential weaken really throughout the quarter. We definitely started to hear some of those signs at the end of the first quarter, but it was more of like scaling back some projects and frankly, just continue to weaken as we got throughout Q2 and definitely into August, as Robyn had mentioned. So that residential really kind of whipsawed from Q1 into Q2. We do think low double digit is the right way to look at it from here through the end of 2025. Obviously, we're expecting some kind of rate cut here in September. I think that's starting to be reflected a little bit on the mortgage rate side, but we're definitely not seeing the investments in the infrastructure from the builders. That's kind of been a mixed bag. Some are investing in land, some aren't. Definitely, we're not seeing the level of lot development going into those at this point. So the results that we're seeing, I think, are kind of reflective of what obviously we're hearing from the customers, and the scaling down is definitely what we felt in Q2. So we'll work through that. Obviously, we think there's continued significant pent-up demand that that's just creating. At some point, that's going to release, and we want to be well positioned to capture that when it does. Operator: Our next question comes from David Manthey of Baird. David Manthey: You might have just answered this in relation to one of Matt's questions there. But what was the residential market in the first half in terms of growth rate? And then your down low double-digit outlook, what does that imply for the back half? Mark Witkowski: Yes. Thanks, Dave. I'd say for the first half of the year, it was kind of down low -- or down mid-single digit to high single digit. And in the second half, obviously, I think that's overall going to be low double digit, slightly worse just to get to the low double digit over the full year. David Manthey: Got it. Okay. And then maybe back on the SG&A side. I think last quarter, you said that your organic revenues were up mid-single digits and organic same-store SG&A was up 4% year-over-year. Could you provide those organic figures for this quarter as well so we can compare that? Robyn Bradbury: Yes, Dave, when you think about how M&A impacted us in the quarter, it contributed about 2 points of growth to the top line. And then if you think about our growth in SG&A for total company, it contributed about 3 points of that overall growth. David Manthey: Okay. And then also last quarter, thinking about operating expenses, I believe you sort of implied you're expecting to see improving SG&A as a percentage of sales each quarter as we move through the year, which on the old forecast, I think, sort of implied lower dollars each quarter. But assuming no major M&A from here, do you think that the second quarter will be the high watermark for SG&A dollars this year as you implement these cost-out actions and normal seasonality impacts those numbers? Robyn Bradbury: Yes, Dave, we do. We've got -- as we talked about M&A and the record year we had in M&A that we did in the prior year, we've got a lot of opportunities there on the synergies. Those are things that we're working through. So we expect to continue to work through those and get some of those synergies recognized in the back half of the year and into FY '26. There were some onetime items in the second quarter that we don't expect to continue. So that's contributing to a little bit higher SG&A kind of rate and dollars in the quarter. And so with those things combined, we do expect to start seeing some progress on SG&A. And we do have some seasonality in there. But when you look at the SG&A rate year-over-year each quarter, we do expect that to kind of improve sequentially as we go throughout the rest of this year. David Manthey: Yes. Okay. And if I could sneak one more in here as we're talking about all the seasonality and 2025 being an unusual year in terms of lack of acquisitions versus all the deals you've done historically. When you think about normal seasonality ex acquisition, sort of the organic progression, how do you think about that? Do you think about it in terms of percentage of total full year sales per quarter? Do you think of sort of quarter-to-quarter growth rate? How do you think about the seasonality? And if you could just give us an idea of what we should expect this year because of the fact that you have very few or no acquisitions other than this Canada deal you just announced? Robyn Bradbury: Yes, Dave, I'll give you some color around that. So I would think about the second and the third quarter are typically similar size-wise. And then we typically see about a 15% to 20% decline in the top line from the third quarter to the fourth quarter. We can see a little bit of uplift in the first quarter from the fourth quarter, but those are typically pretty well in line. So it is a pretty kind of standard bell curve of the second and third quarter being the highest with it being a 15% to 20% decline from there ex any M&A activity. Operator: Our next question comes from Sam Reid of Wells Fargo. Richard Reid: I wanted to touch on your updated guide perhaps from a slightly different perspective. Just on the second half EBITDA margins. So it sounds like you're still expecting favorable year-over-year gross margin, if I heard correctly, Robyn. But can you talk about what that looks like sequentially on the gross margin line relative to Q2? So just basically the guide path for gross margin as we look into Q3 and Q4? Robyn Bradbury: Yes. Yes, we're expecting it to be stable, which would imply up in the 20 basis points range for the second quarter for gross margins. But our gross margin initiatives are performing very well. Private label has been performing well. Sourcing has been performing very well. We expect to continue to make improvements on gross margins. But I would say, as we think about the back half of the year, we're thinking about it as stable to the second quarter. We've made a lot of progress in gross margins kind of already in the first half of the year and expect to see those trends continue and be stable in the second quarter -- or second half. Richard Reid: That helps. And then as a follow-up, so one, could you just give us a rough sense as to the size of private label today, perhaps how much you were able to grow that in the second quarter relative to the first quarter? And then just a follow-up on the SG&A optimization initiatives. Could you just offer up some perspective on sizing those just so we have a rough sense as to where you're going to exit the year into 2026? Mark Witkowski: Yes. On the private label piece, as Robyn mentioned, we made some really good progress there, continue to drive that through the business. Right now, it's about 4% of our revenue, but I'd say steadily growing and expect that to be even more as we exit 2025. So very pleased with the new products we've introduced. The pull-through to the branch network has been strong. And if we get a little help from the volume in the second half, we'll make even more progress on pulling some more private label through. And I'll let Robyn cover the SG&A question. Robyn Bradbury: I think, Sam, your question was on the sourcing side, right? We've made a lot of progress there, too... Richard Reid: It was on the sizing of the SG&A initiatives. Robyn Bradbury: Okay. Sorry about that. Yes, let me give you a little bit of color on that, on the cost-out actions. So acquisition synergies is a big part of that and a big area that we have begun taking cost out there, and we've got a lot of opportunity. We've talked about that. Taking quite a bit of time to get through as we integrate these businesses. We've got a lot of controllable spend reductions that we've been working on with things like travel and overtime. One thing that we've done a really good job on as a business is managing headcount and any of those controllable expenses. So the sizing of it is really inflation related. Some of our incentive comp increases are a little bit larger given the improvement on gross margin. And so those are some of the big areas that we're looking at. And as you look at the back half of the year, the SG&A rate is a little bit higher than the first half, just given some of these inflationary and trends that we're seeing there. Operator: Our next question comes from Mike Dahl of RBC. Michael Dahl: Sorry to keep harping on the SG&A. But in terms of the actual variance versus your expectations, you've noted some things were even more pronounced. Can you just be more specific on what came in worse than expected? And then back to the question of kind of segmenting out actions, when you think about all those different actions, do you have a good way of giving us kind of roughly how much is headcount related versus kind of fleet and infrastructure related in terms of the cost outs? Robyn Bradbury: Yes. Thanks, Mike. Let me break down a little bit for you the kind of the contribution in the quarter. So if you think about the 13% increase in SG&A over the year, what we talked about was about half of that was M&A-related kind of onetime nonrecurring items. So if you think about that 13% growth, about 3 points of that was M&A, and that's an area, like I said, we've got synergy opportunities there. About 1 point of that growth was related to some onetime items, some changes that we're making to improve performance over time. Those are things like retention and severance and relocations. And then we had about 2 points of, I would call it, a surge in the quarter related to just some higher medical claims, insurance costs, things like that, that are a little bit unusual and had some timing impacts in the quarter. So that's kind of the first half. The second half of the SG&A increase year-over-year was a lot of items related to increased volume, inflation and investments that we're making into the business. So I mentioned incentive compensation. That's up more than our sales, just given our gross margin enhancement and the nature of those compensation plans that's worth about 1 point. We've seen a lot of inflation on our facilities and fleet that's worth about 1 point. On the medical side and some of those insurance claims, we've seen a lot of inflation in that area. We've seen some higher cost claims that's worth about 2 points. And then we've got a little bit of a difference in the way that the equity-based compensation is showing up. We've just got a new run rate there with 3 years of vesting. So that's worth about 1 point. And then like Mark and I said, we're going to continue to make investments in growth. So we feel good about the long-term dynamics of this business. We're continuing to make investments in greenfields, investments in growth initiatives, investments in technology, and that's worth about a couple of points as well. So that kind of gives you the breakdown for that 13% growth that we saw in the quarter versus what we consider M&A and onetime versus kind of more structural related to volume and inflation. Some of those inflation items were a lot higher than we were expecting. And so that's what we need to work to offset. So we've got several million dollars of cost-out actions that have been executed in the first half of the year. I would say we've got a meaningful amount of actions that are in process that we're working through. And to date, we've already managed headcount very well. It's not up much on a year-over-year basis. It's kind of more in that flatter range, and we'll take a look at that. But we're looking at areas where we can maybe not backfill, where we can have some selective hiring, where we have underperforming areas where we can take some cost out there. But we feel like we've got a lot of levers to pull here on the SG&A side. We're going to get it under control and offset some of this inflation, but we're also going to continue to make some of those investments for growth because of the long-term market dynamics. Michael Dahl: Okay. Got it. My second question, just on pricing. I think you said it was neutral. Can you just give us a better sense of kind of how the commodity side trended through the quarter into 3Q? And as you think about kind of neutral or better for the year, just elaborate a little more on what you're seeing on finished goods versus commodity right now? Mark Witkowski: Yes, Mike, I'll take that one. On the pricing side, it kind of played out exactly the way we thought it would, neutral for the quarter. We did see some increases come through related to some of the, call them, the non-pipe-related products, some of which are imported by our suppliers. There's a little bit of tariff probably increase there into some of those prices that some of the suppliers passed along to start the year, which ultimately offset some of the moderating of the larger diameter water PVC pipe that we have. We saw some moderation of that pricing through the first half of the year. That will be likely a little bit of a headwind into the second half, but these other product categories that have seen increases has effectively offset that and expect that to continue to be stable like we've talked about for a while. Operator: Our next question comes from Collin Verron of Deutsche Bank. Collin Verron: First, I just wanted to touch on the meter sales. It was a bit surprising just given the magnitude. You called out some project delays. I guess how much of the decline do you think was due to project delays? And what are your expectations for meter sales through the rest of the year and sort of how you're thinking about long-term growth in that category still? Mark Witkowski: Yes, sure. Thanks for the question. I would tell you on the meter side, the primary driver of the somewhat small decline in the quarter was the substantial growth we saw last year. We were up 48% in a quarter on meter sales. So that just gives you the magnitude of the initiative that we're driving there, and that performance last year was really, really strong. We did have some meter delays in the quarter. But really, I think the way to think about that is really just created a nice backlog for us that we expect to ship out in the back half of the year. Collin Verron: That's helpful color. And you guys also talked about some greenfield opportunities here. I guess how should we think about the decision between greenfield and M&A and sort of the expenses associated with opening these branches and how quickly they ramp to sort of the company average metrics? Mark Witkowski: Yes, sure. When we think about greenfields, we think about those in conjunction with M&A. So as we look across the U.S. and Canada for priority markets, we're evaluating both of those opportunities. Is there an M&A opportunity? Is there a greenfield opportunity? Both are very attractive to us. We've been able to generate really strong returns, whether we do a greenfield or an acquisition. Obviously, if you do an acquisition, you're going to pick up that revenue and profitability much quicker. Greenfields will take a little longer, but typically, we're breaking even within the first couple of years and expect to be at kind of the company average in 3 to 5. So there is a little bit of ramp-up in cost when you do greenfields. We're definitely accelerating our greenfield strategy with, I'd say, a renewed focus on driving our organic core growth in the business and I expect that you'll continue to see greenfields open up throughout the country in these priority markets as we review them and continue to have a nice healthy pipeline of M&A as well that we're evaluating. So we like having both of those levers as we look at those priority markets. Operator: Our next question comes from Patrick Baumann of JPMorgan. Patrick Baumann: A lot has been covered already. Just wanted to go back to the resi side quickly. So the move from flat to down low double just seems like a bigger revision than what we've seen from the starts data. So from that perspective, just trying to understand, was there like an overbuild of lots that are now being reduced at a greater magnitude than what we're seeing in starts? Maybe just address where lot development stands today to provide some context versus history and for the revision. Mark Witkowski: Yes, sure. If you go back again to the early part of the year, we felt it was going to be flat. That did kind of worsen throughout the first half of the year. I would say we probably saw some buildup in developed lots in the earlier part of the year. Obviously, single-family starts has not really met that early expectation, even though it was only kind of guided to at flat. So I think that's part of it. Obviously, we've seen a phasing down of a lot of these projects. And then we did see in parts of the country where we performed really well, frankly, in parts of Florida and the Southeast, which were pretty hot markets for a while, which was helping kind of keep resi kind of in at least that flat territory really fall off as we got late into Q2 and here to start Q3. So we've definitely seen the activity weaken on the lot side. And we'll see ultimately when those developers decide to reinvest and get that going. I wouldn't say there's a significant amount of developed lots, but there's definitely been an increase there just given the slowdown that we've seen in single-family. But again, believe that is temporary. We'll work through that this period of time. And then we're going to be really well positioned to capture that growth as it comes back, as these rates ease, you're seeing lumber prices drop. Some of these things may ultimately lend themselves to better affordability, and we'll see that pent-up demand release. Patrick Baumann: Okay. And then on the acquisition you did, just to clean up here. I assume that's not in the guidance since it hasn't closed. Any perspective on size of that deal? And then any update on how the pipeline for M&A looks these days? Mark Witkowski: Yes, sure, Pat. The acquisition we did in Canada was a 3-branch acquisition with 2 locations around Toronto and another one in Ottawa. And I would say those branches are typical kind of branch size for us and kind of the $15 million range and really excited about that one. It really builds a great platform for us to grow from in Canada. That's now the second acquisition we've completed there. I think it gives us a really good opportunity to not only build on the synergies there that we think we can bring, but start to put in some greenfields in Canada as well. So expect some continued growth there. So one that we're really excited about. We've got a great management team with that one and it is really going to allow us to capture a lot of that addressable market in Canada that just hasn't been available for us before. And then the pipeline continues to be healthy. We've got a series of deals that we're looking at right now, I'd say, in various stages and varying sizes. We've got a lot of different opportunities that we're evaluating right now and really excited about it. Obviously, we absorbed a lot of M&A from the 2024 year. You saw us get this one announced in Canada and excited to continue to drive that part of our growth strategy as we go forward. Operator: Our next question comes from Anthony Pettinari of Citi. Asher Sohnen: This is Asher Sohnen on for Anthony. I just wanted to ask about the current kind of competitive environment, if that's changed at all from the prior quarter. Maybe there's industry response to kind of resi demand slowing. Just any thoughts on competitive environment? Mark Witkowski: Yes. Thanks for the question. I would tell you there's been no real meaningful change in the competitive environment. It's been pretty typical for several quarters. I expect it to continue along those lines. We've had -- I'd say, in some very limited markets across the U.S., we've had some regional competitors kind of going after each other pretty good, which frankly, plays right into our hands. I think our customers like the stability that Core & Main brings both in service and value. And overall, it's been, I'd say, a pretty typical kind of competitive environment for several quarters now. Asher Sohnen: Great. And then can you just remind us which of your product groups are kind of most exposed to the resi end markets? And if that softness in resi is making any kind of -- or that you anticipate kind of in the second half as well, kind of driving any shift in the mix or strategy around inventory positioning? Mark Witkowski: No, I wouldn't say there's a major difference on the resi side outside of -- if you think about our fire protection product category that we have is much more focused on kind of non-resi for us, which includes that multifamily piece, and most of that is kind of steel pipe on that piece of it. But the rest of the end markets for resi, non-resi and municipal really have a kind of a standard mix for the most part of all of our product categories. It's obviously very local. It depends on what those local specifications are. Really, for us, it's really an assessment of where we're aligning some of those resources. So if resi gets softer in an area, we may move some of that head count and resources into other areas that are driving growth. So when we think about resource allocation, that's really more of how we think about the moves that we've got to make. And as part of the kind of the targeted actions that Robyn was referring to that we're making and putting in place, so we can continue to invest in the business where we're growing. Where there's market headwinds or underperformance, we're shifting some of those resources and ultimately managing the cost that way to make sure we continue to capture the growth that's there. Operator: Our next question comes from Keith Hughes of Truist Securities. Julian Nirmal: This is Julian on for Keith. I know you already touched on it a little bit, but how should we think about the pricing in third quarter versus fourth quarter? Robyn Bradbury: For pricing, we're expecting it to be flattish for the remainder of the year, and I would think about that for both the third quarter and the fourth quarter. The pricing has been very stable over the last few quarters now, and we're expecting that to continue. So I would say no notable changes expected there. Operator: Our next question comes from Nigel Coe of Wolfe Research. Nigel Coe: Yes, look, we've touched on a lot of the stuff here. But I just want to circle back to SG&A, if I may. Just so I understand the guide, if gross margins are going to be fairly flat to second quarter, it seems like SG&A dollars stepped down versus the $302 million in 2Q. Just want to make sure that's correct. And I'm just wondering what the impact of the 53rd week has on SG&A specifically. Robyn Bradbury: Yes. Thanks, Nigel. You're right. The SG&A dollars are going to step down quite a bit in the second half compared to the first half, and that's related to cost-out actions and also just the lower volumes that we're expecting, which then creates a little bit of pressure on the rate in the second half because of the lower volumes. But you're thinking about that the right way. And then the way that we're thinking about the 53rd week, that's an extra -- or 1 less week of sales kind of we categorize it in the fourth quarter in that January time frame. Obviously, there's variable SG&A related to that, that will come out. But when you think about it from an EBITDA perspective, it should be in that kind of $8 million to $10 million range. Nigel Coe: Okay. That's helpful. And then obviously, I think we understand the drivers of the residential weakness and maybe the flat outlook was a tad optimistic in hindsight. Nonres, I think, is the big debate, though, and it seems it could go in 2 directions here. We've got a weakening economy, but then we've got a lot of these mega projects, data centers, et cetera. So I'm just curious, Mark, Robyn, how you see, based on, I don't know, feedback from the field, customers, what sort of direction do you think this breaks into as we go into 2026? Do you think nonres as a category gets stronger? Or is there some risk there as you go into '26? Mark Witkowski: Yes. Thanks, Nigel. I think that's definitely how we're seeing the nonresidential area right now. There's a lot of puts and takes in that market, both by project types and, frankly, by geography as well. So we're seeing a lot of variation there. I do think there's a lot of good things there to be excited about, in particular, on the highway work, street work, that we get a lot of storm drainage product put in place on those types of projects. That's been really strong. The data center activity seems like that's got plenty of legs to it yet, and we pick up, I'd say, more than our fair share of that work, which has really helped cushion some of the softer commercial and retail kind of development in that area, which I wouldn't expect that we're going to see any near-term return of that really until we see some of the pent-up residential start to release. So I'd expect probably more of the same out of non-resi kind of for us. Just given our exposure there and how those work, it's going to -- kind of just the broad project types that we service, it's going to kind of flatten out, which is what we've experienced in '25. So I wouldn't see a lot of upside or downside as we think about that one going forward, at least in the very near term. Operator: At this time, I'll now hand back to Mark Witkowski for any further remarks. Mark Witkowski: Thank you all again for joining us today. I want to close out by recognizing our associates for their dedication and commitment to delivering exceptional service to our customers. This quarter, we delivered solid sales growth driven by resilient end market demand, stable pricing and continued market share gains. We're seeing strong results from our growth initiatives, and we believe there's an opportunity to accelerate that momentum with additional investment. We recently expanded our presence with new locations in priority markets and announced an acquisition that broadens our footprint in Canada. These actions reflect our disciplined approach to investing in the business to drive long-term growth. We're well positioned to capitalize on long-term secular drivers of water infrastructure investment, including aging systems, population growth and increasing regulatory requirements. With the right team in place, a growing platform and a proven strategy, we are confident in our ability to execute on the opportunities ahead and deliver even greater value to our customers, suppliers, communities and shareholders. Thank you for your continued interest in Core & Main. Operator, that concludes our call.
Operator: Good day, and thank you for standing by. Welcome to the SailPoint Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Scott Schmitz, SVP of Investor Relations. Please go ahead. Scott Schmitz: Good morning, and thank you for joining us today to discuss SailPoint's fiscal second quarter 2026 financial results. Joining me today are SailPoint's Founder and CEO, Mark D. McClain, and our Chief Financial Officer, Brian Carolan. For the Q&A portion of today's call, we will also be joined by our President, Matthew Mills. Please note that today's call will include forward-looking statements. Because these statements are based on the company's current intent, expectations, and projections, they are not guarantees of future performance. A variety of factors could cause actual results to differ materially. This call will also include references to non-GAAP results, which exclude certain items that do not reflect our underlying business performance. Please reference this morning's press release and our supplemental earnings presentation posted on investors.sailpoint.com for further information regarding our forward-looking statements and non-GAAP financial measures, including reconciliations to the nearest comparable GAAP financial measures. And with that, I'd like to turn the call over to Mark. Mark D. McClain: Thank you, Scott. Good morning, everyone, and thank you for joining us today. We're thrilled to share our fiscal Q2 2026 results. This was another exceptionally strong quarter for SailPoint, where we executed well against the opportunity in front of us. We closed the quarter with $982 million in annual recurring revenue or ARR, a 28% year-over-year increase, with SaaS ARR growing 37% year-over-year. Our ARR growth reflects the strong demand for the breadth and depth of identity security controls that SailPoint provides to more than 3,100 enterprises worldwide. This quarter, we saw a 48% year-over-year increase in customers with ARR greater than $1 million. This highlights our unique ability to support the tremendous scale and complexity prevalent among enterprises today. This momentum reflects a market transformation. Let me explain the key themes that are driving this demand and why we believe our approach positions us to lead this evolution. First, enterprises now expect identity to solve full-fledged security challenges by anchoring them in deep governance constructs. We believe SailPoint's heritage and leadership in governance mean we're the only provider that can elevate identity to this broader security role with confidence. Second, static admin time controls are giving way to real-time and dynamic enforcement as enterprises face new classes of risk, especially from AI and machine identities. With SailPoint, customers will soon be able to adapt to these risks quickly, applying identity intelligence to stop threats before they spread. Third, security leaders are realizing that identity alone is not enough and that they need security and data context as well, which was highlighted in our recently released Horizons of Identity Security report. Our ability to create a trifecta across these vectors of identity, security, and data context is highly differentiated and enables customers to make rapid, precise decisions that reduce risk without slowing the business. And finally, the market and SailPoint is operating well beyond traditional IGA, delivering an extensible platform that governs and secures all identities, human and nonhuman, and their access to data so that context can be leveraged to strengthen every layer of the entire security stack. Let me walk you through how these shifts are reshaping the market and why we believe we're built to lead in this new era. CIOs and CSOs are prioritizing their investment in identity security because they recognize it has become the backbone of securing their enterprise. As identity becomes the primary threat vector, enterprises are realizing they need real-time controls across all identities, human and machine, to properly secure their environment. Security companies may excel at threat detection, but without identity context layered in, today's threats are nearly impossible to understand against the backdrop of business risk. That's where we believe SailPoint is uniquely positioned. We've built a platform that is bringing together identity, data, and security in real-time, and that advantage becomes even more critical as AI agents enter the enterprise. These autonomous actors are making access decisions independently, often spinning up sub-agents or executing workflows at machine speed. Static admin time policies simply weren't built for this speed or scale. We believe real-time authorization, especially for this new class of AI, is no longer optional. Securing them requires more than static authentication controls or basic policy. It demands deep governance, with identity context and controls applied at the most granular level and for the duration of the workflow. Every enterprise will soon face two critical questions. First, can you guarantee that an agent isn't accessing data the human owner shouldn't see? And secondly, can a human use that agent to circumvent security controls? To properly answer these questions, agent governance must be built on a foundation of deep identity context and intelligent automation. With SailPoint Agent Identity Security, launching at this year's Navigate, we're delivering what we believe is the only solution that is designed to govern AI agents and the sub-agents they create across the full life cycle. It's powered by the same policy engine and entitlement level precision that we believe has always set SailPoint apart. The rise of AI agents in the workforce is driving a fundamental shift from static admin time governance to dynamic real-time identity security. With the innovations we're delivering today, we are helping enterprises address an entirely new class of identity challenges. We believe SailPoint provides the critical platform to enable broad enterprise adoption of AI, purely and at scale. The game has changed, and so have we. With our heritage in traditional IGA, we are able to bring together the context of identity, data, and security in ways that are difficult for others to replicate. While others are rolling up swim lanes like access, PAM, and IGA, we've chosen to bring together the capabilities that truly work to solve the next generation identity security challenges. Aggregation may simplify procurement, but it doesn't solve the security problem, especially at enterprise scale. Instead of stitching tools together, we've built a unified platform that brings identity context, data context, and security context into one extensible control play. Importantly, we believe our twenty-year foundation in identity gives us something others don't have: deep, contextual understanding of how identity works across the enterprise. Today, we manage over 125 million identities and their deep fine-grained entitlements across 3,100 customers, spanning legacy systems, SaaS applications, cloud platforms, and hybrid environments. That's the kind of complexity most vendors just can't touch. We believe that depth of identity and entitlement data isn't just foundational to securing the modern enterprise; it's essential to governing the rise of AI agents, which interact with every layer of this ecosystem. In this regard, the recent flurry of M&A activity in our space validates what we've said for years: identity is now central to enterprise security. It also highlights a key difference. While others focus on connecting identity and threat, we're addressing the deeper challenge, bringing identity and data together, tightly integrated across the security ecosystem to provide risk-aware authorization and context into breaches across all identities. Solving identity security at scale requires more than consolidation. It requires deep expertise. SailPoint is purpose-built for this. With two decades of industry expertise, broad identity coverage, and an open partner ecosystem. In a market increasingly defined by consolidation, roll-ups, and bundled point solutions, SailPoint remains one of the only independent enterprise-scale identity security platforms, offering the objectivity, extensibility, depth, and scale large complex enterprises demand. Just as enterprises embrace multi-cloud strategies for choice and resilience, they rely on SailPoint for the same flexibility and identity. And at our annual Navigate event, we'll show exactly how this will come to life through things such as real-time authorization across all identities, human, machine, and AI, advanced security solutions for orchestration, risk-based intelligence, and automated remediation. Privileged security posture management, our dynamic approach to help achieve zero standing privilege. We recognize that all identities can be privileged at some point. We secure the full identity landscape, privileged or not, by applying identity context at the entitlement level. Whereas traditional PAM uses a static model focused mainly on privileged identities, which represent at most 10% of all identities in any large enterprise. It's one more example of how SailPoint is redefining the control plane for identity security, unifying policy, intelligence, and enforcement across every corner of the enterprise. We believe this is a market transformation, not incremental innovation. Our goal is to build the foundation for the next generation of enterprise security, where identity operates at the heart of the security operations center, delivering real-time protection at the speed and scale the modern enterprise demands. Now let me spend a few minutes on our execution this quarter before I hand over to Brian, who will dive deeper into our financial results. We continue to execute with discipline, translating our strategy into strong results. Enterprises around the world are embracing our comprehensive, intelligent approach to identity security, and we're arming them for what's next via new innovations that address both existing as well as new emerging challenges. For example, we recently introduced SailPoint Accelerated Application Management to directly address an ongoing enterprise challenge: the frustration that comes from limiting how many applications customers connect to identity security solutions due to complexity and lack of time or resources. This is a breakthrough offering from SailPoint that transforms how enterprises discover, govern, and secure applications at scale. By uniting visibility, intelligence, speed, and automation, we enable organizations to quickly onboard and deeply govern hundreds of applications, something previously out of reach for most. We shattered the old notion that it takes years to make hundreds of applications visible in an identity solution. Our customers can now do this in hours or days and then move to a deeper level of governance. Our acquisition of key assets from Saviynt, expected to close later this year subject to customary closing conditions, stands to further enhance this offering with what we believe is best-in-class SaaS application visibility and identity risk detection. This will strengthen our ability to reduce application sprawl and deliver faster time to value, lower costs, and reduced risk. Likewise, we're tackling emerging challenges through key product innovations like SailPoint Non-Employee Risk Management, SailPoint Data Access Security, and SailPoint Machine Identity Security. Each is seeing strong sustained demand, with ARR across these offerings more than doubling in the first half of this year compared to the same period last year. SailPoint Machine Identity Security, in particular, is delivering record-breaking momentum, our fastest-growing new product in SailPoint's recent history, demonstrating the market's appetite for advanced enterprise-grade identity solutions. To highlight a couple of key wins in Q2, a leading technology company turned to SailPoint to govern their identity landscape, which spans employees, cloud infrastructure, and machine identities. In fact, their machines now outnumber human identities 20 to 1, underscoring the scale and complexity we believe SailPoint is uniquely built to handle. In another example, a 2,000 auto manufacturer modernized on SailPoint's platform to address an evolving identity landscape that spans employees, contractors, cloud workloads, and machines. This was one of our largest deals of the quarter and reflects the growing demand for a future-ready platform that can unify governance across all identities. While much of our growth is outside of traditional IGA today, we continue to capitalize on competitive displacements. Increasingly, enterprises recognize that legacy solutions can't take them into the future, and they're turning to SailPoint's modern platform to get them there. They buy from us not only to solve today's identity challenges but to prepare for tomorrow's. From governing machine identities to securing AI agents and addressing the entitlement explosion that legacy approaches weren't built to handle. A recent win with one of Europe's largest retailers replacing a stalled deployment from another vendor that lingered for more than three years underscores the strength of our future-ready approach and the value of SailPoint as a proven modernization partner. On the partner front, inbound interest from global systems integrators and leading technology firms continues to accelerate. Our newly announced partnership with HCL Technologies brings enterprise-scale modern identity security to more markets and geographies, especially in the age of AI. The market is validating our strategy. Our execution is solid, and we believe our position has never been stronger. We're building the identity security platform that enterprises trust to govern every identity, contextualize every access decision, and secure every interaction, human or machine, in real-time. While there is a lot of convergence in the industry, we're converging what we believe matters most to customers: identity, data, and security. That's what modern security demands, and that's what we believe positions SailPoint to lead in a world defined by agent scale, data sensitivity, and escalating complexity. With that, I'll turn it over to Brian, who will share more details on our financial results from the quarter. Brian? Brian Carolan: Thank you, Mark, and good morning, everyone. Thank you for joining us today. Fiscal Q2 2026 was another strong quarter with robust demand for our leading identity security platform. We believe the depth and breadth of our platform set us apart and make us uniquely positioned to govern and secure complex enterprise environments, which is evident in our results. We ended fiscal Q2 with ARR of $982 million, an increase of 28% year-over-year, with SaaS ARR of $623 million growing 37% year-over-year. Total Q2 revenue increased 33% year-over-year, and adjusted operating margins expanded 980 basis points to 20.4%. We also generated a record $50 million of cash flow from operating activities. Let's dive in. We continue to see many durable growth drivers across the business and across industry verticals. While our ARR growth remained largely balanced between new logos and existing customer extension, Q2 was our largest new logo ARR quarter ever, primarily driven by SaaS. Notably, we saw a 30% increase in average ARR per new SaaS customer. More and more often, new customers are landing with our most fully featured offerings, which include advanced AI and automation features as well as cloud infrastructure entitlement management, which helps customers understand the identity context of their cloud workloads. Many of these new logos are also buying our emerging add-on modules, which include Non-Employee Risk Management, Machine Identity Security, and Data Access Security. In fact, new SaaS customers had a 40% attach rate of add-on modules compared to 25% in the same quarter last year. Our add-on modules are also driving expansion within our existing customer base. Once again, the ARR from our emerging add-on modules more than doubled year-over-year, contributing nicely to our NRR of 114%. Overall, we continue to see good balance across all four of our primary NRR drivers, including cross-sell, upsell, suite upgrades, and platform modernizations inclusive of migrations. Turning to revenue. In Q2, we delivered revenue of $264 million, an increase of 33% year-over-year, with subscription revenue growing 36% year-over-year. This better-than-expected result was due to strong bookings and SaaS term mix. We also benefited from the timing of term contract renewals, most materially in the Fed sector. This resulted in $7 million more upfront revenue recognition in Q2 versus what was originally expected in Q3. Please note, there was no material impact to ARR because these were renewals. In Q2, we delivered strong incremental operating leverage, which resulted in adjusted operating income of $54 million or 20.4% margin, which increased 980 basis points year-over-year. Our strong top-line growth with the increasing size of new customer wins is leading to economies of scale and strong margin expansion. In Q2, we generated cash flow from operating activities of $50 million and free cash flow of $46 million or 17.4% margin. This is a reflection of our robust growth profile, disciplined expense management, and strong collection efforts. Turning now to guidance. For simplicity, I will refer to the midpoint of our guidance ranges. Full details can be found in this morning's press release and supplemental earnings deck. For 2026, we expect ARR to cross the $1 billion mark at $1.029 billion, up 26.5% year-over-year. For our fiscal year 2026, we are increasing our ARR outlook by $10 million to $1.11 billion, up 26.6% year-over-year compared to our prior guidance of 25.5% growth. On a trailing twelve months basis, our guidance also assumes revenue will cross the $1 billion mark in 2026, with Q3 revenue of $270 million, an increase of 15% year-over-year, making our year-to-date revenue growth rate 23%. We expect adjusted subscription gross profit margin to be approximately 82% due to a higher mix of SaaS revenue versus last Q3, with adjusted operating margin of 16%. We expect our diluted share count to be approximately 562 million shares and adjusted EPS to be approximately $0.06. As I mentioned earlier, our Q2 results benefited from the timing of term renewals, which flow through our P&L at a high margin rate. Our Q3 revenue and adjusted operating margin guidance reflect the $7 million quarterly timing dynamic as well as future investments. As Mark mentioned, we'll be sharing much more about our exciting innovation and product initiatives at our Navigate conference in three weeks. For fiscal year 2026, we are increasing our revenue outlook by $16 million to $1.055 billion, up 22.4% year-over-year compared to our prior guidance of 20.6% growth. We are also increasing our adjusted operating income by $16 million to $179 million or 17% margin compared to our prior guidance of 15.7% margin. We expect our diluted share count to be approximately 565 million shares and adjusted EPS to be $0.21. Additionally, we remain comfortable with the second half consensus estimates for free cash flow of approximately $85 million, with roughly one-third generated in Q3 and two-thirds in Q4. Please note, we included additional modeling notes in our supplemental earnings deck. In summary, we believe we are well-positioned to win the next generation of identity security because of the depth and breadth of our platform, our continued product innovation, and our relentless focus on execution. With over 125 million identities with deep and fine-grained entitlements created over our twenty-year history, we believe we have a strong competitive position and the right to win as we combine identity, security, and data into a modern platform. We look forward to providing a deep dive into our new innovations and customer testimonials at our Navigate conference in September. With that, let's invite Matt Mills, our President, to join us and open the call for questions. Operator? Operator: And our first question today will come from Brian Lee Essex of JPMorgan. Your line is open, Brian. Brian Lee Essex: Great. Congratulations on a strong quarter, guys, and thank you for taking the question. Maybe Brian, for you, could you peel back a layer on the guidance a little bit? I caught the commentary about the upfront revenue recognition from the renewals on the federal side, but we'd love to dig into that and understand the impact on ARR from the non-SaaS ARR and how you think like did anything change with regard to the methodology of your guidance? It seems like ARR guidance was increased a bit more last quarter than it was this quarter. Just would love a little additional color there. And then maybe adjacent to that Fed comment, like confidence in going into next quarter, which is obviously a seasonally heavy Fed quarter? Thank you. Brian Carolan: Sure. Good morning, Brian. So first of all, we're really pleased with our first half of the year. We're ahead of expectations on all guided metrics. We feel really good about us heading into the second half of the year now. We raised on all key metrics, we raised ARR by 100 basis points, up from the prior guide, up to 27% year-over-year growth. We're raising revenue by 200 basis points versus the prior guide, up 22.4% for the full year, and we're also raising adjusted operating income. So we feel really good heading into it. As you noted, this was merely a dynamic of term renewals, especially in the federal space. So when you go into a quarter such as Q2, you have to make a judgment call and you want to use some prudency around whether that's going to land in Q2 or Q3. Well, we actually had a 100% renewal rate of our term-based Fed renewals in fiscal Q2. And with the dynamics of term-based revenue recognition, as you may know, you recognize all that revenue upfront in the period of renewal. So basically, that shifted $7 million. Again, it was a timing shift, had nothing to do with anything of a pull forward of revenue. It just was merely a timing shift from Q3 that we originally expected into Q2. So we're going to be very consistent with our approach to guidance. I think we've been able to demonstrate kind of a beat and raise cadence. We feel like this is a prudent approach heading into the second half of the year. We feel like we're well-positioned. We're coming off a very strong quarter for us. We had record free cash flow. We had record net new logo ARR. It's our best quarter ever. And we feel really strong going into the second half of the year. And then just lastly, just your question on ARR impact. There was no ARR impact driven by these term-based renewals because they were renewals. They were sitting in our ARR, and we successfully renewed them at a 100% renewal rate. Brian Lee Essex: All right. Helpful. Thank you. Operator: And one moment for our next question, which will be coming from Meta Marshall of Morgan Stanley. Your line is open, Meta. Meta Marshall: Great, thanks. Appreciate the question. I guess just diving a little bit further into that. Just the net new ARR decel in Q3 from Q2 and then just kind of what gives you confidence in the pickup in Q4? Just a little bit more diving into the Q3, Q4 dynamics would be helpful. Thanks. Brian Carolan: Sure. Good morning, Meta. Yes. So if you look at Q2, we achieved a $57 million. That was consistent with last year. But bear in mind, it was a very tough comparable going back to last year. So if you look at this on a kind of a two-year CAGR basis, we were over 40%. So we feel good about heading into Q3 now. We feel like it's a prudent place to start. And hopefully, we can demonstrate again our beat and raise as we head into the second half of the year. Meta Marshall: Great. Thanks. Operator: One moment for our next question, which will be coming from Todd Weller of Stephens. Your line is open, Todd. Todd Weller: Let me echo the congratulations and thanks for the question. Mark, can you talk about machine identity? It's a complex market. All sorts of types of identities that are out there from service to secrets and cloud apps to the emerging world of AgenTic. And I know AgenTic is coming soon, but maybe today, where are you seeing the most opportunity? What are the use cases driving your machine identity solution? And competitively, what are you seeing in those instances? Mark D. McClain: Thanks, Todd. Thanks for the question. Yeah, I think we've tried to make sure we're trying to clarify and even delineate a little bit what we're doing from others. In our case, the machine identity approach we're taking is pretty consistent with how we've handled the governance of non-human identities. And as you noted, for now, that does not include AgenTic. We're going to cover in our Navigate launch here shortly a new product focused on agents. Our machine product would be covering things, as you said, like service accounts and software bots and RPA, maybe even some intelligent devices. I'd say in general, we're finding the situation where customers have sort of woken up, so to speak, to the fact that while some of these agents, excuse me, identity categories and machine are not new, they're a new part of the attack vector. So it's not that there's been a brand new introduction to machine identities. They've been there in many cases for some time. Now they're being recognized as part of the attack vector. And so what we've highlighted for folks in our offering is there's two things that are kind of unique about what we're doing for machines versus humans historically. One is you have to find them. You have to discover them. In many cases, customers really don't have a good grasp of the inventory of all these nonhuman identities that are already in their environment. And once you find them, then you need to kind of assign ownership. The other challenge is often there's some service account out there, there's some device out there, but it's not clear what human is responsible. So this idea of discovery and then assignment is kind of unique and new in the case of machine identity. Once we get through that step, though, in some cases, the ongoing governance and security of these identities looks pretty familiar. It's the lifecycle. It's the certification. Is this still a valid identity, who's responsible for it, has anything changed, is there any evidence of compromise? The kind of questions we answer for human identity. So we are finding that customers are very interested in this topic, and they are looking at our offering as pretty different from some of the offerings, say, that are focused more on, like, certification of servers, which is another offering for machine identity out there today. And that offering is more akin to authentication for a human. They want to validate that the machine is actually the machine they think it is, there's not a governance lifecycle approach. We're bringing our traditional lifecycle approach to these machine identities. Operator: And one moment for our next question. And our next question will be coming from Jonathan Rakover of Cantor Fitzgerald. Your line is open, Jonathan. Jonathan Rakover: Yes, good morning. So I'd be curious to hear your thoughts on the AI-driven connector integration. I mean, just from my perspective, it seems it turns what has been more of a passive kind of pipeline for access data into, let's call it, an enabler of more intelligent and automated processes. It seems to open up use cases around risk detection, potentially better context around access control. So I'd love to hear your thoughts on this opportunity. Is it going to be a part of the upcoming agent identity security solution? Is it separate in one of the incremental monetization opportunities? Mark D. McClain: Okay. Jonathan, I'll do my best. That's a complex question there. I'm going to tackle it. I think where I hear you there is saying, look, there are some unique characteristics of the emerging agent world. And as we've all read, there's been a lot of interest and a lot of experimentation, maybe a little less full-scale deployment than maybe folks thought we might be at this stage. And I guess I'd also remind people that the two classes of agents, really oversimplifying for a moment, are those that are coming through the software vendors. Workday and Salesforce and others saying, here, I'm going to introduce agentic capabilities into my platform. But then mid to large customers are going to clearly be spending time developing their own bespoke agents that make sense in their business that they think they need to develop. Right? Well, in both cases, these agents, as you said, are going to perform in some ways like a human. They're going to be trying to access the data they need to do their job. And one of the things, the themes you're going to hear from us at Navigate very strongly, we hit it somewhat on the call today, is that what's been kind of lacking in the realm of identity historically is a very tight alignment with deep entitlement data. Right? Like, how do you really understand all the data elements an identity can access? Well, in the world of AgenTic, we're going to have to get very crisp and very clear on that because these agents are going to go out trying to quote solve a problem, and they're going to go looking for data wherever they can find it. If they're allowed access to data they weren't actually supposed to see, they're going to return results that maybe weren't supposed to be visible to that person or that entity. So this idea of tying together very tightly the identity landscape, which is our historical focus, and all the deep understanding of the data so that we can have a complete picture of identity and data access, then tie that into the security landscape, that's going to be critical in this emerging world of agents. If we're going to really understand the agents and their access and their potential for risk, we have to fully understand all their characteristics and all the data they can access and then map that into the security ecosystem. There's a lot of new things coming to support that, but at a macro level, that's why we think this problem is going to be pretty challenging for enterprises. They haven't mapped those entitlements and data terribly well to the human identities today. They've got to get that right if they're really going to secure these agents in this rapidly evolving world. Operator: And one moment for our next question. Our next question will be coming from Robbie David Owens of Piper. Your line is open, Rob. Robbie David Owens: Hi. Good morning, guys, and thanks for taking my question. Mark, in your prepared remarks, you talked a lot about modernization. And just would love you to double click a little bit on where a lot of customers are at this point, how much legacy still remains within that installed base? And with a record new logo ARR quarter, do you think we're starting to see a tipping point just in terms of a transformation of identity within that legacy base? Thanks. Mark D. McClain: Thanks, Rob. And if you don't mind, I'm going to flip this to Matt. We invited Matt to join us on the Q&A, and he's very close to a lot of our customers with legacy environments that are contemplating moving. I think we have seen a bit of acceleration in interest there. I'll let Matt kind of talk about what we're seeing out there. Matthew Mills: Yes. Thanks, Mark. Thanks, Rob. Look, I do think we're seeing an acceleration of migrations from our installed base. I would even argue that we're seeing an acceleration of movement in the legacy business as well. And I think when we sit here and look at it, there's a number of things we talk about here today, I think that are really starting to accelerate that. I don't think agents are an if, right? It's a win. And I think a lot of these companies that have these very, I'll just say, customized solutions that are out there are woefully inadequate to be able to support this. And I think it's creating a little sense of urgency, if you will. And so we're seeing an increase in opportunities in both the legacy world and then our modern platform. Robbie David Owens: Great. Thank you. Operator: And one moment for our next question. Our next question will be coming from Gabriela Borges of Goldman Sachs. Your line is open, Gabriela. Gabriela Borges: Hi, good morning. Thank you. Mark and Brian, I think you've been pretty consistent in saying that the mix of your business between SaaS and term will ebb and flow. My question for you is, how do we think about what that ebb and flow might look like over the next twelve months? What I mean is, is it possible that you've seen sort of an adoption conversion for some of your most tech-savvy customers in the first phase of cloud adoption or the first phase of cloud migrations and now perhaps we're in a little bit more of an ebb where it might take longer for the next phase of cloud migration? Just curious what you're seeing in the pipeline and some of your larger customer conversations as well. Thanks. Brian Carolan: Let me start, Gabriela, and then maybe pass it over to Mark or Matt. In terms of the mix, the Q2 mix is largely in line with our ongoing targets where we target about 90% SaaS of our net new bookings. In fact, it was about 86% in Q2. You can expect this coming quarter in Q3 with the Fed year-end to be a little bit heavier for term, not materially heavier, but a little bit heavier. This is going to ebb and flow a little bit. But we still see the ongoing trend for mostly SaaS and the vast majority being SaaS. A lot of our new offerings are going to be SaaS-enabled. You'll learn more at Navigate. And I think that's really the wave of the future. Having said that, we've got a lot of happy customers that are on-prem and iQ. We're happy to meet them where they are. We happened to see some upsell opportunities, some new term deals, especially in EMEA this past quarter. So they will come along from time to time. It may not be a high number of customers that choose that, but sometimes they're larger dollar size. Mark D. McClain: Yes. I mean, I think in general, Gabriela, the trend is still strong. There's probably two things, as Matt just commented, that probably in our minds could put the potential for a little more acceleration of our installed base moving and some of that legacy. One is this pull toward AgenTic, I think, is going to maybe be the straw that breaks the back of the camel here on people thinking they can continue to live with their old solution and quote get by. I think they're starting to recognize those old legacy solutions are not going to get them there in any case. I think the other, and we are fortunate to continue to put up some strong results. But I think we all acknowledge there's not a wonderfully great macro backdrop here, right? So I think in some ways, there are times when customers might lean towards a modernization program but defer it a little in kind of tougher economic situations. We have people talking to us about having stalled that a little in the first half and bringing it back onto the plate in the second half. So we'll see how this progresses. But no, I certainly wouldn't think if the sense of your question was have we seen kind of the flow and are we about to see an ebb that's going to slow down, I don't think we are seeing that. If anything, it would maintain or perhaps even increase a little bit the rate of movement to the SaaS. Matthew Mills: This is Matt. I would just add, when you look at the total percent of transactions, it's very small every quarter. And the thing is they're typically chunky deals. When you look at the Fed business or some of the typically, Fed business is outside of the U.S. largely. But there are not many of them. They're just chunky. Term can look like it's having a bigger impact than it is, but the counts are pretty low. And then again, of that installed base, the movement to SaaS, I'd say, is either consistent as it's been or perhaps even looking like it might pick up a little. Hope that helps. Gabriela Borges: Absolutely. Good detail. Thank you, gents. Operator: And one moment for our next question, which comes from Saket Kalia of Barclays. Your line is open. Saket Kalia: Okay, great. Hey, guys. Thanks for taking my question here. Mark, maybe for you, can you just talk a little bit about the relative difference in pricing per identity in machines versus humans? I mean, to your point, it feels like customers are finally seeing that as an attack surface. How are they sort of how are they willing to pay for that governance versus what they're paying for human identities? Brian, if I can squeeze in a clarification because I think it's important, can you just remind us also what drove that tough comp last year on net new ARR and how you think about that sort of on a more normalized year-over-year basis? Thanks. Matthew Mills: Hey, this is Matt. Real quick, as it relates to last year, and then on the pricing, I'll touch on both and then I'll pass it back to Mark and Brian. When you look at our pricing, our baseline really starts with the workforce. And everything, if you've heard us talk about machine identities in prior conversations, we always talk about it being about one-third or 35%, 30%, 35% accretive to our workforce. And when you sit here and you start thinking about agents, right, it's very similar. I mean, we talked about two different types of agents. I think the first type of agent looks very similar to what a machine would look like and is priced accordingly. When you start talking about some of these autonomous agents that operate and look much more like a human being, right, they'll be priced very similar to what we price our workforce at today. And that's really how you should think about that. Brian Carolan: Sure, yes. So Saket, just looking back to last Q2, again, we were up 86% year-over-year last Q2 in terms of net new ARR. This was driven by a strong migration quarter. Also, it just happened to be a good customer expansion cohort. These come along in terms of renewals, and depending on the cohort, you can see some really nice expansion opportunities. Really looking at this over a two-year period, again, our compound annual growth rate is over 40%. But more importantly, we are really pleased. We had a really strong SaaS quarter in terms of net new ARR. We achieved $49 million. I mean, it was $9 million ahead of our total net new ARR guidance of $40 million. So we're pleased with that. Again, I mentioned it was the best SaaS new logo ARR quarter ever. And then I also mentioned on the call, we saw a 30% year-over-year increase in average ARR per new SaaS customers. So that's really a testament to the fact that we are landing larger and larger with our customers. And they're also attaching more add-on modules to their initial purchase. That was at 40%, which was up from 25% last year. Saket Kalia: All super helpful. Thank you. Operator: And our next question will be coming from Patrick Colville of Scotiabank. Your line is open, Patrick. Patrick Colville: Thank you for having me on. And it's great to be part of the SailPoint story. Mark and Brian, I guess I just want to double click on the competitive environment. We've got other public competitors talking much more about governance, which is nice validation of the governance space. But can you just talk about changes in enterprise governance bake-offs that you're seeing? Are you seeing those guys in the play? Or are those firms you're seeing in bake-offs very similar now to a year ago? Thank you. Mark D. McClain: Thanks, Patrick. Yes, good question. Yes, this is something I think may become thematic for us almost every quarter, which is while there is a lot of noise, I guess, is the right term out there from some of the folks that have more recently entered the governance space from other parts of the landscape. For the great majority of our deals, the competitive landscape in our deals hasn't changed for the great majority of those deals. As you get to, as we said often, the lower end of our enterprise market, we talked about strategics being kind of accounts with rounded off 10,000 employees and up, and then enterprise kind of from there down to a few thousand. In that lower end of that enterprise market, we will see a little more attempt at encroachment from some of these newer offerings. With very limited success. But for the most typical kinds of deals we're fighting, it hasn't changed that in the mid to large enterprise and certainly in the strategic. It's still kind of the IGA players that have been out there with pretty rich offerings. Our win rates against those competitors continue to be very strong. We continue to watch closely for kind of the progression of these other offerings and see how much they're having an impact. I think that whole converged story is more appealing down market and has a little more success. Know Matt, would you add anything to that? That's kind of what we're seeing. Matthew Mills: Yes. No, Patrick, I would just say in that enterprise space, as Mark said, it's a little bit more challenging, right? Because typically, they're unsophisticated or less sophisticated, I'll say, buyers. And I would just offer it's terribly confusing. If you're a new buyer. Right now in terms of all the way everybody's in the identity security business, for instance. So I think it becomes a bit of a challenge down there. And then you've got the convergence play, which to those smaller, less sophisticated buyers is somewhat appealing. Patrick Colville: Thank you very much. Operator: Thank you. And our next question will be coming from Tal Liani of Bank of America. Your line is open. Tal Liani: Hi. Most of the questions about the quarter were answered. I want to ask you more about the market. So I want we spoke with one of your competitors who made the big acquisition recently. And what they're saying, and I want to hear your comment on this is number one, as the price of privileged access is coming down and the ease of deployment is becoming easier, more customers will do privileged versus regular employee identity because it is just more rigorous, better solution. And that will take away from the traditional players like yourself. And the second thing that they said is identity was sold so far standalone, it's going to be part of a platform. You'll sell it with cloud security, with other things. And so far, this market was very standalone kind of market. So just wanted to hear your views on these topics just because it relates to kind of future growth and future opportunity. Thanks. Mark D. McClain: Okay. Thanks, Tal. Those are great questions. And we'll all continue to not name who we know we're talking about. But yes, the large vendor that bought an identity vendor, I think, has made some interesting claims about how this world is going to go. Look, I think the idea that more companies will want the ability to kind of we call it escalate or de-escalate or have dynamic privilege controls over their entire identity landscape. That's accurate. The problem is for that vendor, the ways that those folks in that industry have approached privileged identities, privileged users with a very deep, very static set of controls for folks who lived in a permanent identity landscape, meaning a database administrator or a sysadmin. So you gave those people a vault to check out credentials. You recorded every keystroke. That's not what companies are talking about doing for their broad landscape. They're saying when Brian, the CFO, is logging in from a foreign country on a laptop in the middle of the night, I may want to have a tighter level of control over that than when Brian's logging in from his desktop in the office. So the idea of escalation or de-escalation or dynamic privilege controls, tighter assurances that identity is who or what I think it is, that's coming, this idea of dynamic privilege. Just our contention is it's not the traditional technology that defined the PAM market that are going to be the successful ways to do that. At scale in a highly dynamic environment. So the idea that privilege will become more prevalent is accurate. We disagree that the right way to do that is to take traditional PAM technology and try to apply them across the enterprise. That's not going to work. That's not going to scale. On the other side, on your general point about standalone identity, but before I leave it on the PAM point, I would point you to a couple of numbers. We highlighted in our earnings today that we have 125 million identities under management. And by the way, it's a little conservative. We just felt like we could absolutely defend that number. The comment from that vendor about what's just inherited was about 8 million identities with 500 to 2,000 per account. That is an order of magnitude or two lower than what we offer and often are managing in an account. So I think it's nontrivial to go a couple of orders of magnitude of scale and for people to act like that's a simple thing to do is not really logical to us. Secondly, on the standalone point, again, we would agree that companies are looking for a tighter integration of the identity ecosystem with the traditional security ecosystem, we would also kind of challenge whether they're going to want that all bundled into one offering because there isn't actually a single dominant player that owns the entire security landscape, right? I guess, the name now, a couple of folks, Palo Alto, Zscaler, CrowdStrike, all very significant players in the security landscape. We think if we do a good job of bringing the identity and data together that I talked about earlier, into a single control plane that we can manage and deliver value to the customer, we're going to need to tie that into multiple parts of the security ecosystem. So we want to be able to make sure that a customer who's leaning on any one of those other key players in the security world can tie that into their identity picture, that's our job. We want to have a complete robust picture of the identity data landscape and then expose that bidirectionally with the security vendors to make sure we can feed them information, they can feed us so customers can manage these threats that are usually targeted at identities in very real-time. Tal Liani: Got it. Thank you. Operator: And one moment for our next question. Our next question will be coming from Gregg Moskowitz of Mizuho. Your line is open, Greg. Gregg Moskowitz: Great. Thank you for taking the question. Accelerated application management, very interesting technology. Mark, can you elaborate on how you will enhance this with assets from Savvy later this year? Also, what is the competitive landscape like in this area today? Thanks. Mark D. McClain: Thanks, Greg. Good to talk to you. Yes, I guess on the first part, yes, the Advanced App Management module, not module, excuse me, service from us is going to be kind of multifaceted. We've been working on multiple types of technology that we think can accelerate how rapidly we can onboard applications. And by the way, let me define onboard for a second. One of the confusions out there in the market today is people talking about how fast they can connect to an application. Well, what we believe is there's actually multiple layers or types of connection, right? It's one thing to get visibility to an app. Do I know that app's out there? Am I aware of the identities that are connected to that app? That is one of the things that we will accelerate with this offering from Savvy, the easy and rapid discovery and connection to that application just to bring it under the domain of SailPoint, meaning I'm aware that that app's out there. But there's another level of sophistication required in your connection technology to do governance over that, to do certifications and management. And then a third even deeper level of connectivity required to do automated lifecycle provisioning, to do real-time remediation, you know, spin up, spin down access based on changes in the security landscape. So one of the confusions out there, Matt commented earlier how confusing it is for customers when people are running around saying, I've got connectivity that's simple and comprehensive. We're like, what kind of connectivity are you talking about? Right? We need to make sure we're delineating for customers to have visibility across everything as rapidly as possible is a great goal. Then you need the ability to also deepen that into governance compliance, into lifecycle deep automated provisioning. And that's the depth technology we've been doing for many years that most folks who are claiming to have rapid easy connectivity aren't capable of. They can get you visibility. They can't actually do those other things at depth. And I'll bridge from there to your competitive landscape. Yeah, there's some newer vendors, particularly that are making some good noise and getting people excited about how easy it is to connect. We're aware of many of those. And as we dig into that, some of them have shown up kind of next to us in a couple of accounts. We find that there is a bit of exaggeration of what they could do. Like, yeah, they can connect to things easily. Can they deeply govern and manage those? Not always. And so I think we highlighted this in our road show even six, seven months ago that the challenge in this environment is to be both deep and wide. And that is our heritage. You have to be able to cover the breadth of the landscape that customers care about, you have to go deep into the entitlement layers within that landscape. That's very difficult to do for folks that haven't got that kind of technology. So I think that's really where we're differentiated and we'll continue to be differentiated. Gregg Moskowitz: Very helpful. Appreciate that, Mark. Thank you. Operator: And one moment for our next question. Our next question will be coming from Shaul Eyal of TD Cowen. Your line is open. Shaul Eyal: Thank you. Hi. Morning, guys. Congrats. Brian, Matt, or Mark, so operating margin performance was absolutely stellar. Aside from the top-line beat, is it just a prudently disciplined approach you've been taking? And maybe in that context, how do you think about the second half hiring plan? Brian Carolan: It's Brian here. I'll take that one. So yes, to your point, I mean, really drives the margin, the top-line growth. We continue to be disciplined. We had revenue growth, we raised 200 basis points by our prior guide, up to 22.4% for the full year. We're now projecting 17% adjusted operating margins. It's up 160 basis points. So clearly, we have proven that we can expand margins responsibly. But looking out to Q3, we want to be cognizant here of we've got some investments that we need to make on a couple of different fronts. One is we're launching a series of new products and modules at Navigate. We want to be able to have a successful start to that. So we want to continue to invest in that significant opportunity in front of us. And we also want to scale our go-to-market engine, heading into FY 2027. So margins do reflect that heading into the second half of the year. But again, I think we've demonstrated that we can improve margins pretty handily if we need to. Shaul Eyal: Thank you. Operator: And our next question will be coming from Keith Bachman of BMO. Your line is open. Keith Bachman: Hi, yes. Thank you. Good morning. I wanted to ask two questions. One to follow on Moskowitz's question is, if you think about the application segment, what are customers are you displacing existing solutions? And Part B, the question is really when could this be in a position, this aggregate segment, be in a position whereby it could contribute to net new ARR growth? Is it next year? Then my second question is hoping you could just talk a little bit about your customer growth or what to expect in terms of new logo growth over the next number of quarters? And part of it is all the things you're doing on GenTyc, how might that pull customers? The breadth of solution you have, your 250,000 ARR customer count is going up 27%. I understand that. But that also includes customers that upsell into that category. Just trying to get a little more granularity on how your customer count may help contribute to total growth over the next number of quarters. That's it for me. Brian Carolan: So Keith, there's a couple of parts there. It's Brian here. So I think what you were referring to is our SailPoint Accelerated Application Management and its contribution to NRR. I think this will happen over time. We are trying to get off the blocks very quickly with this offering and service. So hopefully, we'll see a nice uptake of that. And I think what happens is there's a faster time to value with the customers, right? So we're going to become stickier on a whole tier of applications, Tier one, two, and three, from compliance to very deep governance with the more complex applications. And I think the faster we get there, we're going to have a more entrenched time to value, and that will show up in the form of NRR. With respect to customer count, I think we need to be careful here just because adding volumes and volumes of customers has not really been our approach. It's really the quality and the size of the land. So we are focused on the right customers. These are more larger, more complex environments. These tend to be programs, not projects. I think you saw that we had a 48% year-over-year increase in customers with greater than $1 million of ARR. You noted that there was a 27% increase in customers with greater than $250,000 of ARR. But more importantly, out of our net new ARR this quarter, it wasn't necessarily the volume of the customers, it's the size of the lands that we're doing. Our ASP, our ARR per those new logos is up 30% year-over-year, and it's also the attach rate of other modules. So again, it's not the number of customers, it's the quality and size of the customers that we land. Operator: And our next question will come from Gray Wilson Powell of BTIG. Gray, your line is open. Gray Wilson Powell: Okay, great. Thanks for taking the question. And yes, I hear that Gray Powell guy is a pretty good analyst. He's been following me around for a while. Mark D. McClain: That was great. It so does brother Gray, I heard. Gray Wilson Powell: Yeah. Thanks. Okay. So a lot of good questions have been asked. Maybe just sort of a high-level macro one. There's a lot of uncertainty in the macro environment around tariffs back in April and May. Just how much have things changed the last three or four months, if at all, just how does your visibility on demand and your pipeline feel today versus a few months ago? Thanks. Brian Carolan: I'll get that correct. I think we're fortunately in a very resilient market. These tend to be mission-critical, not nice to have but must-have decisions for enterprise-level customers to make. So I think we're fortunate to be in that. In terms of our ability to navigate through the macro environment and the tariff situation, we have not seen material impact on our funnels. We're cognizant of it, but it hasn't been something that we're overly concerned about. And what's nice is that we sell into all verticals. So we've got a very, very balanced growth strategy among many different verticals. So we're not relying upon any single one vertical. So again, I think we're feeling very good heading into the second half of the year. Gray Wilson Powell: All right. Got it. Thank you very much. Operator: And I would now like to turn the call back to Mark for closing remarks. Mark D. McClain: Thank you. And Latonya, no worries on Gray and Gary. Happened to him so much that's why we joked about it. Thanks, everyone. Really appreciate these great questions. Obviously, it's a we believe a very strong story, but some complexity, and I really appreciate the opportunity to clarify where we are and kind of the dynamics of the landscape and the financial performance. So we look forward to continued dialogue. Thanks, everyone, for joining the call. Well, have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello and welcome to the Core & Main Q2 2025 earnings call. My name is Alex. I'll be coordinating today's call. If you'd like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. I'll now hand it over to Glenn Floyd, Director of Investor Relations. Please go ahead. Glenn Floyd: Good morning and thank you for joining us. I'm Glenn Floyd, Director of Investor Relations at Core & Main. We appreciate you taking the time to be with us today for our fiscal 2025 second quarter earnings call. Joining me this morning are Mark Witkowski, our Chief Executive Officer, and Robyn Bradbury, our Chief Financial Officer. On today's call, Mark will begin by sharing an overview of our business and recent performance. Robyn will follow with a review of our second quarter results and our outlook for the rest of fiscal 2025. We'll then open the line for Q&A, and Mark will wrap up with closing remarks. As a reminder, our press release, presentation materials, and the statements made during today's call may include forward-looking statements. These are subject to various risks and uncertainties that could cause actual results to differ materially from our expectations. Glenn Floyd: For more information, please refer to the cautionary statements included in our earnings press release and in our filings with the SEC. We will also reference certain non-GAAP financial measures during today's discussion. We believe these metrics provide useful insight into the underlying performance of our business. Reconciliations to the most comparable GAAP measure are available in both our earnings press release and the appendix of today's investor presentation. Thank you again for your interest in Core & Main. I'll now turn the call over to our Chief Executive Officer, Mark Witkowski. Mark R. Witkowski: Thanks, Glenn, and good morning, everyone. We appreciate you joining us today. If you're following along with our second quarter earnings presentation, I'll begin on page five with a business update. I'm proud of our associates' dedication to supporting customers and delivering critical infrastructure projects. Our teams drove nearly 7% net sales growth in the quarter, including roughly 5% organic growth. Municipal demand remained healthy, supported by traditional repair and replacement activity, advanced metering infrastructure conversion projects, and the construction of new water and wastewater treatment facilities. Our non-residential end market was stable in the quarter. Highway and street projects remain strong, institutional construction has been steady, and we're seeing continued momentum from data centers. While data centers represent a small portion of our sales mix today, customer sentiment points to continued growth in this space, and we expect it to become a larger portion of our sales mix over time. Mark R. Witkowski: On the residential side, lot development for single-family housing, which accounts for roughly 20% of our sales, slowed during the quarter, especially in previously fast-growing Sunbelt markets. We believe higher interest rates, affordability concerns, and lower consumer confidence are weighing on demand for new homes. Until these macro headwinds ease, we expect activity in this end market will continue to soften through the second half. As a result, we are factoring in a lower residential outlook into our full-year expectations, which Robyn will speak to in more detail. Against this market backdrop, we drove significant sales growth and market share gains across key initiatives, including treatment plant and fusible HDPE projects, where our technical expertise and consistent execution continue to differentiate Core & Main in the industry. We are also deepening relationships with large regional and national contractors, especially those pursuing critical infrastructure projects across the country. Mark R. Witkowski: These customers increasingly value our ability to support them with consistent service, scale, and product availability wherever their projects take them. Sales of meter products declined year over year, primarily due to project delays in the current year and a difficult comparison to last year's 48% growth rate. However, we have a growing backlog of metering projects we expect to release in the second half of the year, supporting our expectation for strong full-year metering sales growth. Additionally, a healthy pipeline of bids and continued project awards gives us confidence in both the near and long-term outlook for metering upgrade projects. Gross margins performed well in the quarter at 26.8%, up 10 basis points sequentially from Q1, and up 40 basis points year over year. Our gross margins reflect strong execution of our private label and sourcing initiatives, while our local teams continue to capture market share. Mark R. Witkowski: At the end of the day, our performance is largely driven by how well we support our customers, making sure they have the right products at the right time with the service they need to keep projects on schedule and on budget. At the same time, our operating costs were elevated this quarter. We've experienced unusually high employee benefit costs and inflation in other categories like facilities, fleet, and other distribution-related expenses. We have also carried higher costs from recent acquisitions, which have contributed to sales growth but have not yet reached their full synergy potential. Although we anticipated some of these pressures, certain costs were more pronounced than expected. To address these factors, we have implemented targeted cost-out actions to improve productivity and operating margins. We expect a portion of the savings to be realized in the second half of this year, with a larger annualized benefit in 2026. Mark R. Witkowski: We expect to achieve additional synergies tied to recent acquisitions. Our integration approach is phased and growth-oriented, starting with people, sales, and operations to position each business for success. Once that foundation is in place, we evaluate opportunities in terms of costs and resources and develop plans to drive SG&A synergies. Our approach to cost management will be measured and focused on realigning the business with the demand environment without jeopardizing future performance, growth opportunities, or the ability to serve our customers. We remain confident in the long-term growth and profitability prospects of Core & Main, including our ability to drive SG&A improvements and generate substantial value for shareholders. We continue to be balanced in how we allocate capital. Mark R. Witkowski: During the quarter, we generated $34 million of operating cash flow and deployed approximately $24 million across organic growth initiatives, share repurchases, and debt service. Year to date, we have repurchased $47 million of shares, reducing our share count by nearly 1 million. Our growth strategy is driven by organic growth and complementary acquisitions. After the quarter, we announced the acquisition of Canada Waterworks, a three-branch distributor of pipe, valves, fittings, and storm drainage products in Ontario, Canada. We expect the transaction to close later this month, further enhancing our position in the multi-billion dollar Canadian addressable market. With this acquisition, we now have five locations in Ontario, all established through value-enhancing M&A. This has created a platform for meaningful growth in Canada. On the organic side, we're making prudent investments to enhance our capabilities and better serve customers. Mark R. Witkowski: We recently opened new locations in Kansas City and Wisconsin, strengthening our presence in priority markets. We are also evaluating additional high-growth markets for future expansion. These investments are designed to generate long-term growth, strengthen our market share, and support our goal of delivering above-market growth over the coming years. We have plans to open several more locations this year, and I look forward to sharing updates on these initiatives. Before turning the call over to Robyn, I want to reiterate my confidence in Core & Main's growth and margin expansion opportunity. We are well-positioned to benefit from future investments in aging U.S. water infrastructure. We have the right team in place to execute on the opportunities ahead, and we look forward to delivering even greater value to our customers, suppliers, communities, and shareholders. Thank you for your continued support and trust in our vision. With that, I'll turn the call over to Robyn to walk through our financial results and outlook for the remainder of the year. Go ahead, Robyn. Robyn Bradbury: Thanks, Mark. I'll start on page seven of the presentation with some highlights from our second quarter results. As Mark mentioned, we grew net sales nearly 7% in the quarter to $2.1 billion. Organic sales were up roughly 5%, with the balance of growth coming from acquisitions. Prices continued to be flat overall, and our teams worked diligently to sustain pricing in an evolving tariff and end-market environment. In total, we estimate that our end markets grew in the low single-digits range. We outperformed the market with significant sales growth and market share gains in our treatment plant and fusible HDPE initiatives. Gross margin came in at 26.8%, up 10 basis points from the first quarter, and up 40 basis points year over year. The sequential and year-over-year improvement were both largely driven by continued execution of our private label and sourcing initiatives and contribution from accretive acquisitions. Robyn Bradbury: SG&A expenses increased 13% this quarter to $302 million. Roughly half of the $34 million increase was related to incremental costs from acquisitions and timing of one-time and other non-recurring costs. The remainder was made up of volume-related growth, inflation and distribution-related costs, and investments to drive future growth and market share gains. We implemented certain productivity and cost-out measures earlier this year, but with higher costs and inflation continuing to pressure our operating margins and our expectation of softer residential demand, we will be taking additional targeted cost reduction actions in areas that won't impact our ability to serve customers. Importantly, we will continue to make strategic investments to strengthen the business. We're seeing strong results from our sales initiatives, and we have opportunities to accelerate that with additional investment. We intend to keep expanding through greenfield locations to better serve customers and capture share, while also investing in technology solutions that improve efficiency and support long-term margin expansion. Robyn Bradbury: Interest expense was $31 million in the second quarter, down from $36 million in the prior year. The decrease was primarily driven by lower fixed and variable interest rates on our senior term loan credit facilities and lower average borrowings under our ABL credit facility. Our provision for income tax was $41 million compared to $42 million in the prior year. Our effective tax rate was 22.5% for the quarter versus 25% a year ago. The decrease in effective tax rate was primarily due to tax benefits associated with equity-based compensation. Adjusted diluted earnings per share increased approximately 13% to $0.87 compared to $0.77 in the prior year. Robyn Bradbury: The increase reflects higher adjusted net income, as well as the benefit of a lower share count following our share repurchase activity across fiscal years 2024 and 2025. We exclude intangible amortization because a significant portion of it relates to the formation of Core & Main following our leveraged buyout in 2017. We believe adjusted diluted EPS better reflects the results of our operating strategy and the value creation we're delivering for shareholders. Adjusted EBITDA increased 4% to $266 million in the quarter, while adjusted EBITDA margin declined 40 basis points to 12.7%. The decline in adjusted EBITDA margin was driven by higher SG&A as a percentage of net sales, which we are taking actions to optimize. Robyn Bradbury: Turning to the balance sheet and cash flow, we ended the quarter with net debt of $2.3 billion and net debt leverage of 2.4 times within our stated goals. Total liquidity was $1.1 billion, consisting primarily of availability under our ABL credit facility. Net cash provided by operating activities was $34 million in the quarter, down from $48 million in the prior year. The decline was primarily due to higher investment in working capital, partially offset by higher net income, lower tax payments, and timing of interest payments. During the second quarter, we returned $8 million to shareholders through share repurchases, bringing our total for the first half of fiscal 2025 to $47 million and reducing our share count by nearly 1 million shares. As of today, we have $277 million remaining under our share repurchase program. Robyn Bradbury: Next, I'll cover our revised outlook for fiscal 2025 on page nine. We are very pleased with our sales growth, gross margin expansion, and capital allocation efforts through the first half of the year. However, higher operating costs and softer residential demand have resulted in operating margins coming in below our expectations. As a result, we are lowering our guidance to reflect current market conditions and higher operating expenses. We now expect net sales of $7.6 to $7.7 billion, adjusted EBITDA of $920 to $940 million, and operating cash flow of $550 to $610 million. We expect end market volumes to be slightly down for the full year. Municipal end market volumes are expected to grow in the low single digits, non-residential volumes are expected to be roughly flat, and residential lot development is expected to decline in the low double digits. Robyn Bradbury: Residential volumes were soft in the quarter and have weakened further through August, consistent with our updated guidance. We still expect pricing to have a neutral impact on full-year sales, and we remain on track to deliver 2% to 4% of above-market growth. We expect adjusted EBITDA margins in the second half of the year to be slightly lower than the first half, reflecting continued gross margin performance offset by a softer residential market and a higher SG&A rate. In summary, we continue to execute our growth initiatives, expand gross margins, and make the strategic investments needed to position the business for long-term success. We have favorable long-term demand characteristics across each of our end markets, many levers to drive organic above-market performance, a healthy M&A pipeline, and numerous opportunities to improve operating margins. We are taking targeted actions to align the business with current demand trends and deploying capital to accelerate growth and enhance shareholder returns. Robyn Bradbury: We are confident in our ability to execute on the opportunities ahead, and we look forward to delivering even greater value to our customers, suppliers, communities, and shareholders. With that, we'll open it up for questions. Operator: Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to remove your question, that's star followed by two. Our first question for today comes from Brian Biros of Thomson Research Group. Your line's now open. Please go ahead. Brian Biros: Hey, good morning. Thank you for taking my questions today. On the guidance changes, I guess the adjustment to the RESI outlook from flat to down low double digits looks to account for maybe a little bit more than the adjustment to total sales overall. It seems like maybe there's something at least positive partially offsetting that RESI impact. Maybe that's slightly better in the municipal market. Maybe it's just recent M&A being added in. Can you just touch a little bit more on the puts and takes to the revenue guidance there? It seems like there's more than just the RESI impact in the top line. Robyn Bradbury: Yeah, thanks, Brian, for the question. You're right. Residential lot development is kind of the main driver for the reduction in the sales guide. We were expecting that to be flat kind of earlier in the year. It has declined kind of during the quarter, continued to soften after the quarter, and we're expecting that to be in the low double digits range now. That's the majority of the decline there. We do have some other areas of bright spots on the top line that are offsetting some of that. Some of our sales initiatives continue to perform really well, like things like treatment plants. Some of our fusible HDPE product lines are performing well. The municipal market remains strong with ample funding, and we're seeing a lot of demand there too. Those are kind of the puts and takes on the top line with the revised guide. Brian Biros: Understood. Second question for me, I guess just the water category overall is kind of getting a lot of attention now. It used to kind of be a green initiative angle. Now it's seemingly a crucial part of the AI infrastructure build-out and kind of just the general reindustrialization trend. You highlighted in some of your prepared remarks and I think in the press release things about your technical expertise, your consistent execution, leading to share gains, focusing on the larger contractors. I guess just bigger picture here going forward, where do you see, I guess, the biggest opportunities for growth with the way the water market is evolving? Thank you. Mark R. Witkowski: Yeah, thanks, Brian. Great question. I would tell you, we're obviously very favorable on the overall water market. We've really seen more and more demands for water. You've seen these data centers going up in certain areas that need energy and water to satisfy those types of projects. We're seeing the demands with projects like that. I think the value of water has improved. You're seeing rates passed at the local level more and more so that the municipalities are very healthy right now. That's giving them more opportunities to get projects designed and ultimately improve the aging infrastructure, which is really the key piece that's really behind the multi-year tailwinds that we have in that municipal market. When you throw on top of that some of the demands now for water, which are even more with some of these projects that are going on, it obviously sets us up really well. That's a big part of why we continue to invest in this business, invest in resources, invest in facilities. Mark R. Witkowski: Those tailwinds are there. We're capturing a lot of those, as you're seeing in the municipal results. We're obviously facing some temporary headwinds here with the residential market being softer. We're on the front end of a lot of this with lot development. Our results obviously go into the July period. I think we're facing some of this a little earlier than some are seeing it on the residential side. That municipal strength and that strength that we're seeing with some of these projects in the non-residential space, like data centers, is definitely helping offset some of that weakness. Brian Biros: Yeah, thank you. I'll pass it along. Operator: Thank you. Our next question comes from Matthew Adrien Bouley of Barclays. Your line is now open. Please go ahead. Matthew Adrien Bouley: Hey, good morning, guys. Thank you for taking the questions. Just a question on the, I guess, the makeup of the guide. At the midpoint, I guess revenue cut by $50 million and EBITDA cut by $45 million. I hear you on the higher operating expenses, but then you're also taking these targeted cost actions as well. Is it more just, you know, it just simply takes a lot of time to get these cost actions into place? You mentioned more of a 2026 impact, I believe. Is the kind of, you know, maybe changed mix of business with residential a lot weaker impacting the margin as well? I guess just what else would explain that kind of larger decremental EBITDA margin? Thank you. Robyn Bradbury: Yeah, thanks, Matt. Yeah, we are taking costs out. We have already taken some costs out. We started taking some out in the first quarter, and we continue to do so in the second quarter. There is some kind of stubborn inflation and other higher cost areas that are continuing to offset some of that. We will continue to do additional cost-out actions. We will see some of that in the second half, but the larger majority of that will be seen into FY2026. Some of the cost-out actions that we made earlier in the year were in our fire protection product line that was experiencing some softness given some of the market pressures on non-residential at that time and also the steel pricing pressures that we were seeing in the fire protection. That has since rebounded. We took some costs out earlier in the year. It was very targeted to certain areas that we knew wouldn't disrupt the business. Now we're seeing that recovery and we're well positioned for that. Robyn Bradbury: We will continue to do additional cost-out targeted actions that won't impact our ability to service our customers or service growth. We will continue to make investments in growth. Mark and I have been around the business for a long time, so we kind of know where those cost actions can come out and where we need to make investments. Matthew Adrien Bouley: Okay, got it. Thank you for that, Robyn. Secondly, just on residential specifically, obviously a fairly substantial change to the outlook over the past, you know, relative to 90 days ago. I guess where I'm trying to get at is sort of, A, your visibility into that end market, and B, maybe how did residential look during both Q1 and Q2? You're talking about kind of low double digits. I'm wondering if the expectation is that it would weaken a lot further in the second half. Any color on that kind of cadence of residential and then just more specifically what you're hearing from customers in that group. Thank you. Mark R. Witkowski: Yeah, thanks, Matt. You know, on the residential side, as we kind of worked our way into 2025, it really felt like that market was going to be flat overall as we got into the first quarter. We actually saw some pretty, I'd say, decent residential performance in Q1. Obviously, it wasn't great, but we at least saw some projects going earlier in the year and obviously had a really good first quarter. Some of that was just, I'd say, better performance there than we expected. If you go back to Q1, we were well over our consensus and expectations on the top line. Really what we saw as we got into Q2, we saw residential weaken really throughout the quarter. We definitely started to hear some of those signs at the end of the first quarter, but it was more like scaling back some projects and frankly just continued to weaken as we got throughout Q2 and definitely into August, as Robyn had mentioned. Mark R. Witkowski: That residential really kind of whipsawed from Q1 into Q2. We do think low double digit is the right way to look at it from here through the end of 2025. Obviously, we're expecting some kind of rate cut here in September. I think that's starting to be reflected a little bit on the mortgage rate side, but we're definitely not seeing the investments in the infrastructure from the builders. That's kind of been a mixed bag. Some are investing in land, some aren't. Definitely, we're not seeing the level of lot development going into those at this point. The results that we're seeing, I think, are kind of reflective of what obviously we're hearing from the customers and the scaling down is definitely what we felt in Q2. We'll work through that. Obviously, we think there's continued significant pent-up demand that that's just creating. At some point, that's going to release, and we want to be well positioned to capture that when it does. Matthew Adrien Bouley: Got it. Okay, thanks, Mark. Good luck, guys. Mark R. Witkowski: Yep. Operator: Thank you. Our next question comes from David John Manthey of Baird. Your line's now open. Please go ahead. David John Manthey: Thank you. You might have just answered this in relation to one of Matt's questions there, but what was the residential market in the first half in terms of growth rate? Your down low double digit outlook, what does that imply for the back half? Mark R. Witkowski: Yeah, thanks, Dave. I'd say for the first half of the year, it was kind of down low or down mid-single digit to high single digit. In the second half, I think that's overall going to be low double digit, slightly worse just to get to the low double digit over the full year. David John Manthey: Got it. Okay, thank you for that. Maybe back on the SG&A side, I think last quarter you said that your organic revenues were up mid-single digits and organic same-store SG&A was up 4% year over year. Could you provide those organic figures for this quarter as well so we can compare that? Robyn Bradbury: Yeah, Dave, when you think about how M&A impacted us in the quarter, it contributed about 2% of growth to the top line. If you think about our growth in SG&A for total company, it contributed about 3% of that overall growth. David John Manthey: Okay. Also, last quarter, thinking about operating expenses, I believe you sort of implied you were expecting to see improving SG&A as a % of sales each quarter as we move through the year, which on the old forecast, I think sort of implied lower dollars each quarter. Assuming no major M&A from here, do you think that the second quarter would be the high watermark for SG&A dollars this year as you implement these cost-out actions and normal seasonality impacts those numbers? Robyn Bradbury: Yeah, Dave, we do. We've got, you know, as we talked about M&A and the record year we had in M&A that we did in the prior year, we've got a lot of opportunities there on the synergies. Those are things that we're working through. We expect to continue to work through those and get some of those synergies recognized in the back half of the year and into FY2026. There were some one-time items in the second quarter that we don't expect to continue. That's contributing to a little bit higher SG&A kind of rate and dollars in the quarter. With those things combined, we do expect to start seeing some progress on SG&A. We do have some seasonality in there, but when you look at the SG&A rate year over year each quarter, we do expect that to kind of improve sequentially as we go throughout the rest of this year. David John Manthey: Yeah, okay. If I could sneak one more in here as we're talking about all this seasonality and 2025 being an unusual year in terms of lack of acquisitions versus all the deals you've done historically, when you think about normal seasonality ex-acquisition, sort of the organic progression, how do you think about that? Do you think about it in terms of % of total full-year sales per quarter? Do you think of, you know, quarter-to-quarter growth rate? How do you think about the seasonality? If you could just give us an idea of what we should expect this year because of the fact that you're very few or no acquisitions other than this Canada Waterworks deal you just announced. Robyn Bradbury: Yeah, Dave, I'll give you some color around that. I would think about the second and the third quarter are typically similar size-wise, and we typically see about a 15% to 20% decline in the top line from the third quarter to the fourth quarter. You know, we can see a little bit of uplift in the first quarter from the fourth quarter, but those are typically pretty well in line. It is a pretty kind of standard bell curve of the second and third quarter being the highest with it being a 15% to 20% decline from there ex any, you know, M&A activity. David John Manthey: Got it. Thank you very much. Operator: Thank you. Our next question comes from Sam Reid of Wells Fargo. Your line's now open. Please go ahead. Sam Reid: Awesome. Thanks so much. I wanted to touch on your updated guide, perhaps from a slightly different perspective, just on the second half EBITDA margins. It sounds like you're still expecting favorable year-over-year gross margin, if I heard correctly, Robyn. Can you talk about what that looks like sequentially on the gross margin line relative to Q2? Just basically the guide path for gross margin as we look into Q3 and Q4. Robyn Bradbury: Yeah, we're expecting it to be stable, which would imply, you know, up in the 20 basis points range for the second quarter for gross margins. Our gross margin initiatives are performing very well. Private label's been performing well. Sourcing's been performing very well. We expect to continue to make improvements on gross margins. I would say as we think about the back half of the year, we're thinking about it as stable to the second quarter. We've made a lot of progress in gross margins kind of already in the first half of the year. I expect to see those trends continue and be stable in the second quarter or second half. Sam Reid: That helps. As a follow-up, could you just give us a rough sense as to the size of private label today, perhaps how much you were able to grow that in the second quarter relative to the first quarter? To follow up on the SG&A optimization initiative, could you just offer up some perspective on sizing those just so we have a rough sense as to where you're going to exit the year into 2026? Thanks. Mark R. Witkowski: Yeah, on the private label piece, as Robyn mentioned, we made some really good progress there. Continue to drive that through the business. Right now, it's about 4% of our revenue, but I'd say steadily growing and expect that to be even more as we exit 2025. Very pleased with the new products we've introduced. The pull-through to the branch network has been strong. If we get a little help from the volume in the second half, we'll make even more progress on pulling some more private label through. I'll let Robyn cover the SG&A question. Robyn Bradbury: I think, Sam, your question was on the sourcing side, right? We've made a lot of progress there too. Sam Reid: It was on the sizing of the SG&A initiative. Robyn Bradbury: Okay. Sorry about that. Let me give you a little bit of color on that, on the cost-out actions. Acquisition synergies is a big part of that and a big area that we have begun taking costs out there. We've got a lot of opportunity. We've talked about that. Taking quite a bit of time to get through as we integrate these businesses. We've got a lot of controllable spend reductions that we've been working on with things like travel and overtime. One thing that we've done a really good job on as a business is managing headcount and any of those controllable expenses. The sizing of it is really inflation-related. Some of our incentive comp increases are a little bit larger given the improvement on gross margin. Those are some of the big areas that we're looking at. As you look at the back half of the year, the SG&A rate is a little bit higher than the first half, just given some of these inflationary trends that we're seeing there. Sam Reid: That helps. Thanks so much. I'll pass it on. Operator: Thank you. Our next question comes from Michael Glaser Dahl of RBC. Your line's now open. Please go ahead. Michael Glaser Dahl: Morning. Thanks for taking my questions. Sorry to keep harping on the SG&A, but in terms of the actual variance versus your expectations, you've noted some things were even more pronounced. Can you just be more specific on what came in worse than expected? Back to the question of kind of segmenting out actions, when you think about all those different actions, do you have a good way of giving us kind of roughly how much is headcount-related versus kind of fleet and infrastructure-related in terms of the cost deaths? Robyn Bradbury: Yeah, thanks, Mike. Let me break down a little bit for you the kind of the contribution in the quarter. If you think about the 13% increase in SG&A over the year, what we talked about was about half of that was M&A-related, kind of one-time non-recurring items. If you think about that 13% growth, about three points of that was M&A, and that's an area, like I said, we've got synergy opportunities there. About one point of that growth was related to some one-time items, some changes that we're making to improve performance over time. Those are things like retention and severance and relocations. We had about two points of, I would call it a surge in the quarter related to just some higher medical claims, insurance costs, things like that that are a little bit unusual and had some timing impacts in the quarter. Robyn Bradbury: That's kind of the first half. The second half of the SG&A increase year over year was a lot of items related to increased volume, inflation, and investments that we're making into the business. I mentioned incentive compensation. That's up more than our sales, just given our gross margin enhancement and the nature of those compensation plans. That's worth about a point. We've seen a lot of inflation on our facilities and fleet. That's worth about a point. On the medical side and some of those insurance claims, we've seen a lot of inflation in that area. We've seen some higher cost claims. That's worth about two points. We've got a little bit of a difference in the way that the equity-based compensation is showing up. We've just got a new run rate there with three years of vesting. That's worth about a point. Robyn Bradbury: Like Mark and I said, we're going to continue to make investments in growth. We feel good about the long-term dynamics of this business. We're continuing to make investments in greenfields, investments in growth initiatives, investments in technology, and that's worth about a couple of points as well. That kind of gives you the breakdown for that 13% growth that we saw in the quarter versus what we consider M&A and one-time versus kind of more structural related to volume and inflation. Some of those inflation items were a lot higher than we were expecting, and that's what we need to work to offset. We've got several million dollars of cost-out actions that have been executed in the first half of the year. I would say we've got a meaningful amount of actions that are in process that we're working through. To date, we've already managed headcount very well. Robyn Bradbury: It's not up much on a year-over-year basis. It's kind of more in that flatter range, and we'll take a look at that. We're looking at areas where we can maybe not backfill, where we can have some selective hiring, where we have underperforming areas where we can take some cost out there. We've got a lot of levers to pull here on the SG&A side. We're going to get it under control and offset some of this inflation, but we're also going to continue to make some of those investments for growth because of the long-term market dynamics. Michael Glaser Dahl: Okay. Got it. Thank you for that. My second question, just on pricing, I think you said it was neutral. Can you just give us a better sense of kind of how the commodity side trended through the quarter into 3Q? As you think about kind of neutral and better for the year, just elaborate a little more on what you're seeing on finished goods versus commodity right now? Mark R. Witkowski: Yeah, Mike, I'll take that one. On the pricing side, it kind of played out exactly the way we thought it would, neutral for the quarter. We did see some increases come through related to some of the, I'd call them the non-pipe related products, some of which are imported by our suppliers. There's a little bit of tariff probably increased there into some of those prices that some of the suppliers passed along to start the year, which ultimately offsets some of the moderating of the, you know, water, larger diameter water PVC pipe that we have. We saw some moderation of that pricing through the first half of the year. That'll be likely a little bit of a headwind into the second half, but these other product categories that have seen increases have effectively offset that and expect that to continue to be stable, like we've talked about for a while. Michael Glaser Dahl: Okay. Excellent. Yep. Operator: Thank you. Our next question comes from Collin Andrew Verron of Deutsche Bank. Your line's now open. Please go ahead. Collin Andrew Verron: Morning. Thank you for taking my questions. My first, I just wanted to touch on the meter sales. It was a bit surprising just given the magnitude. You called out some project delays. I guess, how much of the decline do you think was due to project delays, and what are your expectations for meter sales through the rest of the year and sort of how you're thinking about long-term growth in that category still? Mark R. Witkowski: Yeah, sure. Thanks for the question. I would tell you on the meter side, the primary driver of the, you know, somewhat small decline in the quarter was the substantial growth we saw last year. We were up 48% in a quarter on meter sales. That just gives you the magnitude of the initiative that we're driving there, and that performance last year was really, really strong. We did have some meter delays in the quarter, but really, I think the way to think about that is it really just created a nice backlog for us that we expect to ship out in the back half of the year. Collin Andrew Verron: Quick caller. You guys also talked about some greenfield opportunities here. I guess, how should we think about the decision between greenfield and M&A and the expenses associated with opening branches and how quickly they ramp to the company average metrics? Mark R. Witkowski: Yeah, sure. You know, when we think about greenfield locations, we think about those in conjunction with M&A. As we look across the U.S. and Canada for priority markets, we're evaluating both of those opportunities. Is there an M&A opportunity? Is there a greenfield opportunity? Both are very attractive to us. We've been able to generate really strong returns, whether we do a greenfield or an acquisition. Obviously, doing an acquisition, you're going to pick up that revenue and profitability much quicker. Greenfield locations will take a little longer, but typically, we're breaking even within the first couple of years and expect to be at kind of the company average in three to five. There is a little bit of ramp-up in cost when you do greenfield locations. We're definitely accelerating our greenfield strategy with, I'd say, a renewed focus on driving our organic core growth in the business. I expect that you'll continue to see greenfield locations open up throughout the country in these priority markets as we review them and continue to have a nice, healthy pipeline of M&A as well that we're evaluating. We like having both of those levers as we look at those priority markets. Collin Andrew Verron: Great. Thank you for taking my questions. Mark R. Witkowski: Thanks. Operator: Thank you. Our next question comes from Patrick Bauman of JP Morgan. Your line's now open. Please go ahead. Patrick Bauman: Oh, hi. Good morning. Lots been covered already. Just wanted to go back to the RESI side quickly. The move from flat to down low double just seems like a bigger revision than what we've seen from the starts data. From that perspective, just trying to understand, was there like an overbuild of lots that are now being reduced to, you know, at a greater magnitude than what we're seeing in starts? Maybe just address where residential lot development stands today to provide some context versus history and for the revision. Mark R. Witkowski: Yeah, sure. If you go back to the early part of the year, we felt it was going to be flat. That did kind of worsen throughout the first half of the year. I would say we probably saw some build-up in developed lots in the earlier part of the year. Obviously, single-family starts has not really met that early expectation, even though it was only kind of guided to it at flat. I think that's part of it. Obviously, we've seen a phasing down of a lot of these projects. We did see in parts of the country where we perform really well, frankly, in parts of Florida and the Southeast, which were pretty hot markets for a while, which was helping keep RESI kind of in at least that flat territory, really fall off as we got into late into Q2 and here to start Q3. Mark R. Witkowski: We've definitely seen the activity weaken on the lot side. We'll see ultimately when those developers decide to reinvest and get that going. I wouldn't say there's a significant amount of developed lots, but there's definitely been an increase there just given the slowdown that we've seen in single-family. Again, believe that is temporary. We'll work through this period of time. We're going to be really well positioned to capture that growth as it comes back. As these rates ease, you're seeing lumber prices drop. Some of these things may ultimately lend themselves to better affordability. We'll see that pent-up demand release. Patrick Bauman: Okay. Thanks for the perspective. On the acquisition you did, just to clean up here, I assume that's not in the guidance since it hasn't closed. Any perspective on, you know, size of that deal and any update on how the pipeline for M&A looks these days? Mark R. Witkowski: Yeah, sure, Pat. You know, the acquisition we did in Canada was a three-branch acquisition with two locations around Toronto and another one in Ottawa. Those, I would say, those branches are typical kind of branch size for us in kind of the $15 million range. Really excited about that one. It really builds a great platform for us to grow from in Canada. That's now the second acquisition we've completed there. I think it gives us a really good opportunity to not only, you know, build on the synergies there that we think we can bring, but start to put in some, you know, greenfield locations in Canada as well. Expect some continued growth there. One that we're really excited about. Mark R. Witkowski: We got a great management team with that one, and it's really going to allow us to capture a lot of that addressable market in Canada that just hasn't been available for us before. The pipeline continues to be healthy. We've got a series of deals that we're looking at right now, I'd say, in various stages and varying sizes. We've got a lot of different opportunities that we're evaluating right now and really excited about it. Obviously, we absorbed a lot of M&A from the 2024 year. You saw us get this one announced in Canada and excited to continue to drive that part of our growth strategy as we go forward. Patrick Bauman: Okay, thanks for the time. Mark R. Witkowski: Yeah, thanks, Pat. Operator: Thank you. Our next question comes from Anthony James Pettinari of Citi. Your line's now open. Please go ahead. Asher Sonin: Hi. This is Asher Sonin on for Anthony. Thanks for taking the question. I just wanted to ask about the current kind of competitive environment, if that's changed at all from the prior quarter. Maybe there's industry response to kind of residential demand slowing. Just any thoughts on the competitive environment? Mark R. Witkowski: Yeah, thanks for the question. I would tell you there's been no real meaningful change in the competitive environment. It's been pretty typical for several quarters. I expect it to continue along those lines. We've had, I'd say, in some very limited markets across the U.S., we've had some regional competitors kind of going after each other pretty good, which, frankly, plays right into our hands. I think our customers like the stability that Core & Main brings, both in service and value. Overall, it's been a, I'd say, pretty typical kind of competitive environment for several quarters now. Asher Sonin: Great. Thanks. Can you just remind us which of your product groups are most exposed to the residential end markets? If that's not, is residential making any kind of, or that you anticipate in the second half as well, driving any shift in the mix or strategy around inventory positioning? Mark R. Witkowski: No, I wouldn't say there's a major difference on the RESI side outside of, you know, if you think about our fire protection product category that we have, it is much more focused on, you know, kind of non-RESI for us, which includes that multifamily piece. Most of that is kind of steel pipe on that piece of it. The rest of the end markets for RESI, non-RESI, and municipal really have a kind of a standard mix for the most part of all of our product categories. It's obviously very local. It depends on what those local specifications are. Really, for us, it's really an assessment of where we're aligning some of those resources. Mark R. Witkowski: If RESI gets softer in an area, we may move some of that headcount and resources into other areas that are driving growth. When we think about resource allocation, that's really more of how we think about the moves that we've got to make. As part of the targeted actions that Robyn was referring to, that we're making and putting in place, we can continue to invest in the business where we're growing. Where there's market headwinds or underperformance, we're shifting some of those resources and ultimately managing the costs that way to make sure we continue to capture the growth that's there. Asher Sonin: Great. Thanks. I'll turn it over. Operator: Thank you. Our next question comes from Keith Hughes of True Securities. Your line's now open. Please go ahead. Julie: Hey, this is Julie. I know you already touched on it a little bit, but how should we think about the pricing in third quarter versus fourth quarter? Robyn Bradbury: For pricing, we're expecting it to be flattish for the remainder of the year. I would think about that for both the third quarter and the fourth quarter. Pricing's been very stable over the last few quarters now, and we're expecting that to continue. I would say no notable changes expected there. Julie: Got it. Thanks. That's all for me. Operator: Thank you. Our next question comes from Nigel Edward Coe of Wolfe Research. Your line's now open. Please go ahead. Nigel Edward Coe: Oh, thanks. Good morning. Yeah, look, we've touched on a lot of the stuff here, but just want to circle back to SG&A, if I may. Just so I understand the guide, you know, if gross margins are going to be fairly flat to second quarter, it seems like SG&A dollars stepped down versus $302 million in Q2. Just want to make sure that's correct. I'm just wondering what the impact of the 53rd week has on SG&A specifically. Robyn Bradbury: Yeah, thanks, Nigel. You're right. The SG&A dollars are going to step down quite a bit in the second half compared to the first half. That's related to cost-out actions and also just the lower volumes that we're expecting, which then creates a little bit of pressure on the rate in the second half because of the lower volumes. You're thinking about that the right way. The way that we're thinking about the 53rd week, that's an extra or one less week of sales. We categorize it in the fourth quarter in that January timeframe. Obviously, there's variable SG&A related to that that will come out. When you think about it from an EBITDA perspective, it should be in that kind of $8 to $10 million range. Nigel Edward Coe: Okay. That's helpful. Thanks. I think we understand the drivers of the residential weakness, and maybe the flat outlook was a tad optimistic in hindsight. Non-RESI, I think, is the big debate, though. It seems it could go in two directions here. We've got a weakening economy, but we've got a lot of these mega projects, data centers, et cetera. I'm just curious, Mark, Robyn, how you see, based on feedback from the fields, customers, what sort of direction do you think this breaks into as we go into 2026? Do you think non-RESI as a category gets stronger, or is there some risk there as we go into 2026? Mark R. Witkowski: Yeah, thanks, Nigel. I think that, you know, that's definitely how we're seeing the non-residential area right now. There's a lot of puts and takes in that market, both by project types and, you know, frankly, by geography as well. We're seeing a lot of variation there. I do think there's a lot of good things there to be excited about, in particular in this highway work, street work, that we get a lot of storm drainage product put in place on those types of projects. That's been really strong. The data center activity seems like that's got plenty of legs to it yet. We pick up, I'd say, more than our fair share of that work, which has really helped cushion some of the softer commercial and retail kind of development in that area, which I wouldn't expect that we're going to see any near-term return of that really until we see some of the pent-up residential start to release. Mark R. Witkowski: I'd expect probably more of the same out of non-residential kind of, you know, for us, just given our exposure there and how those work. It's going to kind of just the broad project types that we service, it's going to kind of flatten out, which is what we've experienced in 2025. I wouldn't see a lot of upside or downside as we think about that one, you know, going forward, at least in the very near term. Nigel Edward Coe: Okay, thank you. Operator: Thank you. At this point, I'll now hand back to Mark Witkowski for any further remarks. Mark R. Witkowski: Thank you all again for joining us today. I wanted to close out by recognizing our associates for their dedication and commitment to delivering exceptional service to our customers. This quarter, we delivered solid sales growth driven by resilient end-market demand, stable pricing, and continued market share gains. We're seeing strong results from our growth initiatives, and we believe there's an opportunity to accelerate that momentum with additional investment. We recently expanded our presence with new locations in priority markets and announced an acquisition that broadens our footprint in Canada. These actions reflect our disciplined approach to investing in the business to drive long-term growth. We're well-positioned to capitalize on long-term secular drivers of water infrastructure investment, including aging systems, population growth, and increasing regulatory requirements. Mark R. Witkowski: With the right team in place, a growing platform, and a proven strategy, we are confident in our ability to execute on the opportunities ahead and deliver even greater value to our customers, suppliers, communities, and shareholders. Thank you for your continued interest in Core & Main. Operator, that concludes our call.
Operator: Morning and welcome to the Designer Brands Inc. Second Quarter 2025 Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Ashley Furlan, Investor Relations. Please go ahead. Ashley Furlan: Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week period ending August 2, 2025, to the 13-week period ending August 3, 2024. Please note that the financial results that we will be referencing during the remainder of today's call exclude certain adjustments recorded under GAAP unless specified otherwise. For complete reconciliation of GAAP to adjusted earnings, please reference our press release. Additionally, please note that remarks made about the future expectations, plans, and prospects of the company constitute forward-looking statements. Results may differ materially due to the various factors listed in today's press release and the company's public filings with the SEC. Except as may be required by applicable law, the company assumes no obligation to update any forward-looking statements. Joining us today are Doug Howe, Chief Executive Officer, and Jared Poff, Chief Financial Officer. Now let me turn the call over to Doug. Doug Howe: Good morning and thank you everyone for joining us. I'd like to begin by saying how proud I am of the improvements we've made throughout the quarter, due in no small part to the hard work and dedication of our associates. We are pleased with the meaningful progress against our strategic initiatives throughout the second quarter and are excited to report this positive momentum has carried forward into August. In the second quarter, we delivered sequential improvement over Q1, reflecting the impact of targeted operational efforts and the resilience of our team. Our total sales for the quarter were down 4% year over year, with a 5% decline in comparable sales. This was a 280 basis point improvement from the first quarter comps, and despite remaining volatility and uncertainty, we believe this reflects the effectiveness of our strategies and gradual improvement in consumer sentiment. On the expense side, adjusted operating expenses were down over $14 million last year, and we achieved 350 basis points of leverage compared to Q1, demonstrating disciplined cost management and supporting year-over-year EPS growth. Let me review some highlights from each segment with the second quarter. Starting with our retail businesses. For the second quarter, U.S. retail comps were down 5%, with total sales also down 5%. These declines were an improvement from the first quarter, correlated with slightly improved consumer sentiment and sequential improvement in store traffic as we move through the quarter. While broader macroeconomic pressures persist, these trends offer encouraging signs that some headwinds may be starting to ease. Additionally, we know that the largest number of signups for our VIP rewards program happened in stores. As store traffic improves, it should have a positive impact on the program, whose members drive over 90% of our transactions. Store conversion was up 1% versus last year, as our strong assortment and improved in-stock levels resonated with customers. To support further improvements in traffic and conversion, we are continuing to invest in marketing both in and outside of stores, meeting our customers where they are, with the styles they are seeking. In stores, we've seen positive results from the collateral and branded in-caps that have echoed consistent improved messaging. Our simplified pricing strategy also helped drive clearance sales up 3% versus last year. Delivering value has always been a core part of our model, and this approach reinforces our commitment to making it even easier for customers to find. As we utilize marketing to acquire new customers, we've also successfully launched a new partnership with DoorDash. While it's early in this relationship, we're encouraged that approximately 85% of our transactions from the DoorDash marketplace so far represent customers that are new to DSW. We believe this is also helping to bolster interest in our stores across local geographies. Within our stores, we launched several trend-driven campaigns with key national brands this summer. Specifically, we executed a Birkenstock front-of-store takeover across all locations. The campaign was fully integrated across all channels, reinforced by a revitalized digital storefront and VIP program integration. Additionally, social engagement continued to climb in Q2, fueled by stronger content strategies and creator partnerships that continue to build relevancy with the consumer. We are excited to continue to leverage these partnerships throughout the back-to-school season. In our U.S. retail business, a few categories meaningfully outpaced the balance of the business. This was led by strength in the women's dress category, which delivered a positive 5% comp, a 900 basis point improvement from the first quarter. Our top eight brands also continued to outperform the balance of chain with a positive 1% comp for the quarter. Penetration of our top eight brands grew 300 basis points over last year, accounting for 45% of total sales in the quarter. On the athletic side, our adult business showed sequential improvement, and Kids Athletic posted a flat comp, representing a 500 basis point improvement over the prior quarter, underpinned by a strong start to the back-to-school season. As we discussed last quarter, we have been leaning more overtly into our back-to-school marketing to reinforce our position as a true destination and see this resonating as we continue to see positive momentum in August, with further sequential improvement in comps. We spoke last quarter about our improved distribution strategy and increased focus on enhancing digital profitability. We made progress on this in the second quarter, optimizing our marketing spend and placing stronger focus on cultivating customers across channels. Looking ahead, we plan to continue leaning into our omnichannel approach to deepen relationships and enhance customer lifetime value. Turning to our Canadian business, total sales in the second quarter showed sequential improvement over Q1 and held flat year over year. The trajectory continued to sequentially improve throughout the quarter, with July turning to a positive comp. Overall, this steady progress gives us cautious optimism as we look ahead. Now to our brands portfolio segment. Although sales were down 24% compared to last year, this was largely driven by lower internal sales as anticipated. Importantly, wholesale activity across all other external retail partners delivered year-over-year growth. Turning to our near-term areas of focus, we remain confident in our strategy and will continue to focus on the two pillars of customer and product within our retail businesses. In brands, we will drive growth by scaling private label, building a more profitable wholesale model, and investing in strategic growth brands like Topo Athletic and Keds. Our customer remains our first priority, and we are committed to delivering meaningful, consistent value to them across all channels. With our customer squarely in mind, we are excited about the DSW brand repositioning that we recently launched. This includes implementation of newly branded customer-facing assets, including an updated DSW logo, a refreshed fall marketing campaign, gift cards, and evergreen signage. As part of our brand repositioning, we were excited to unveil our new tagline, "Let Us Surprise You." This marks a pivotal step in reinvigorating our DSW brand identity and leans back into what truly differentiates the DSW shoe buying experience. We are actively bringing the campaign to life with an optimized marketing approach, which will help to balance spend between top-of-funnel and personalized activations, raise brand awareness, and deepen customer engagement. We're also consistently focusing on highlighting the value we provide. As we discussed before, we have moved clearance pricing to a flat % off versus the multiple discount levels we used in the past. We are selectively offering additional discounts on clearance, marketed as buzzworthy, as well as rolling out exciting limited-time events. While it's early, we're encouraged by the trends we are seeing, particularly as average clearance markdown rates are trending lower than in prior periods. Shifting to our product pillar, we continue to operate with focus on elevating and evolving our assortment while driving improvement in inventory availability and productivity. We are meaningfully reducing our choice count while simultaneously increasing our depth on key styles throughout the year. Our choice count for the back half of 2025 is planned down 25% versus last year, and our depth is planned up 15%, underscoring our focus on inventory productivity. Looking ahead, we are adding depth in our core styles, including our top eight brands, ensuring we are focusing on the areas of highest demand. Going into fall, we are also seeing positive signs as it relates to regular price boosts, which we believe may signal potential strength in our seasonal merchandise this fall. On the product availability side, we have continued to shift inventory allocation in the U.S. between digital fulfillment centers and our store locations to optimize in-store product availability. Our in-stock levels of regular priced products materially improved to approximately 70%, a clear sign of progress in our inventory availability. We are seeing this strategy validated by our DSW store customers, who are driving our positive conversion comps. We continue to optimize our digital fulfillment through our distribution center, which is operationally more efficient than fulfilling from stores, while also protecting store inventory to ensure the shoe she wants is in the store when she visits. In the second quarter, we fulfilled over 80% more of our digital demand through our logistics center compared to last year. Overall, this adjustment has allowed us to protect our in-store inventory, focus on cost efficiencies, and post higher store conversion rates, all of which are foundational elements to better serve our customers. As we continue to focus on the pillars of customer and product in our retail businesses, we recently unveiled a reimagined DSW store in Framingham, Massachusetts. This store is the first within the DSW fleet to fully integrate the DSW brand positioning of "Let Us Surprise You," with immersive, playful elements designed to drive deeper customer engagement and discovery within our curated assortment. As we pilot new and emerging technologies for potential integration across our retail footprint, this store location will be an important testing ground for modern and innovative shopping experiences. Aligned with our larger retail strategy to transform and differentiate our retail experience, this new store format features a suite of services, including Fitfinder technology, shoe protection services, and a dedicated try-on area with augmented reality-enabled try-on kiosks that allow customers to build complete outfits from toe to head. A customization station further elevates the experience, enabling customers to personalize their purchases through embroidery, engraving, and digital printing. We believe this initiative represents a meaningful step forward in our efforts to evolve the DSW brand, deepen customer loyalty, leverage our stores as differentiators, and unlock long-term value. Turning to our brand segment, our sourcing team has done an admirable job mitigating the impact of tariffs and has made meaningful progress in our strategy to continue to diversify our supply base. Moving forward, we will continue to prioritize diversification to avoid over-reliance on any one country of origin, as the tariff environment remains highly unpredictable. Turning to our brands themselves, at Topo, we continue to meaningfully expand door count and shelf space in existing locations. Additionally, our DTC business continues to deliver outsized growth. Topo was early in raising prices as we saw tariff risks materialize, and they have helped to mitigate a significant portion of these costs. We have seen no impact on sales or growth rates by doing so. Before I conclude, I want to share a few thoughts on our 2025 guidance. Given the ongoing volatility with the recent tariff increases extended and the continued consumer caution around discretionary spending, we decided to continue to withhold our guidance. We will remain focused on disciplined execution across the areas within our control as we navigate the near-term environment. By doing so, I'm confident we're building a business grounded in the strength of our brand, centered on the customer, and positioned to drive sustainable long-term value. I want to emphasize that we remain committed to our strategy and our transformation. We are encouraged by the early signs of positive momentum and pleased with the sequential improvement we've delivered. We remain cautiously optimistic for the remainder of the year, as there is still a lot of macro uncertainty. As always, I am deeply proud of our team members, whose commitment, resilience, and focus have been the driving force behind our progress. Their ability to navigate challenges while continuing to deliver excellence exemplifies the culture and strength of our organization and will position us well for long-term growth. With that, I'll turn it over to Jared. Jared? Jared Poff: Thank you, Doug, and good morning, everyone. I want to begin by echoing Doug's comment that the sequential improvement we've seen this quarter is a significant step forward. Despite ongoing macroeconomic headwinds and continued pressure on consumer discretionary spending, our focus on advancing our strategy is delivering improved results. Let me provide a bit more detail on our second quarter financial results. For the second quarter of fiscal 2025, our net sales of $739.8 million declined 4.2% year over year, with comp sales down 5%. This represents a significant improvement from Q1, where net sales were down 8% from last year. In our U.S. retail segment, sales declined 4.8% year over year, with comp sales down 4.9%. This represents another significant improvement from Q1. We are also encouraged by our women's dress performance, which posted a 5% positive comp in the quarter and represents a significant part of the business at almost 12% of total sales. While athletic sales were a slightly negative comp of down 2%, we did see a two-point comp improvement from the first quarter. In our Canada retail segment, sales were up 0.4% in the second quarter compared to last year, with comps down 0.6%, another significant improvement from the first quarter. Finally, in our brand portfolio segment, total sales were down 23.8% to last year, largely driven by the anticipated decline of internal sales to DSW. I would like to echo Doug's comment about the strength of our brand's external wholesale business, which was up 7%. While we continued to see challenges throughout the quarter, Topo Athletic remained a standout in our assortment, posting 45% growth in sales year over year. Within our dress and seasonal assortment, Jessica Simpson and Vince Camuto continued to be strong performers, achieving sales growth of 12% and 17% in wholesale sales to partners outside of DSW. Consolidated gross margin was 43.7% in the second quarter and decreased by 30 basis points versus the prior year, primarily driven by lower IMU due to increased penetration of the athletic category, but leveraged 70 basis points from the first quarter. For the second quarter, adjusted operating expenses dropped $14.1 million versus last year, slightly leveraging by 20 basis points year over year. As we discussed in our last call, in response to the highly volatile macro environment and its impact on our business, we have taken an aggressive, disciplined approach to managing our expense structure and capital expenditures. With these actions, we currently are on track to deliver approximately $20 million to $30 million in expense dollar savings across fiscal 2025 as compared to 2024. As a reminder, our third quarter will include a headwind of $9 million compared to the prior year from our bonus accrual reversal last year during Q3. For the second quarter, adjusted operating income was $30.3 million compared to operating income of $32.5 million last year. In the second quarter of 2025, we had $11.7 million of net interest expense compared to $11 million last year. Our effective tax rate in the second quarter on our adjusted results was 10.1% compared to 20.6% last year. Our second quarter adjusted net income was $16.7 million versus $17.1 million last year, and $0.34 in adjusted diluted earnings per share for the quarter, which I'm happy to report was above last year's EPS of $0.29. Turning to our inventory, we ended the second quarter with total inventories down 5% to last year. During the quarter, we utilized excess cash to pay down debts, ending the quarter with total debt outstanding of $516.3 million. Subsequent to the end of the second quarter, we have further paid down debt to end fiscal August with outstanding debt of $476.1 million. We ended the second quarter with $44.9 million of cash, and our total liquidity as of the end of the second quarter, which includes cash and availability under our revolver, was $149.2 million. While we are encouraged by the progress made since Q1 and remain cautiously optimistic about the second half of fiscal 2025, there is still work ahead. Persistent macroeconomic headwinds and uncertainties related to tariffs have led us to the decision to continue to withhold full-year guidance as we focus on the factors within our control. To conclude, I'm encouraged by the progress we achieved during the second quarter, and as the macro environment stabilizes, I am confident that we are well positioned to advance our strategy. With that, we will open the call to questions. Operator? Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Mauricio Serna at UBS. Please go ahead. Mauricio Serna: Great. Good morning. Thanks for taking my question. I guess I wanted to ask if you could elaborate on the interquarter trends. It seems like things really got better as the quarter progressed. Could you give us a sense of what were the comps, how the comp sales looked during the quarter, and how to think about that, considering that you mentioned the momentum continued into August so far? Thank you. Doug Howe: Yeah. Hi, Mauricio. This is Doug. Thanks for your question. Yeah, we saw a sequential improvement as we moved through the quarter. As we said in the prepared remarks, we're obviously very encouraged by the trend that we saw in athletics, both in kids and adults. Most notably, the dramatic improvement that we saw in women's dress, which was a 900 basis point improvement in the quarter, that's always been an explorer area of strength for us, obviously. That has continued even as we've advanced in August, as we said. We're very encouraged by that. I mentioned very early on that the initial boot selling, specifically regular price, is very encouraging as well. We think that bodes well for not only the, you know, it's really a fashion inning, so we feel really strongly about that assortment and are cautiously optimistic as we move through the back half of the year. Mauricio Serna: Got it. I guess just wondering, at the end of the quarter, were you still on negative comps, or were you actually positive as a total company? Doug Howe: Still slightly negative, we've seen sequential improvement as we've now moved through August. Jared Poff: Mauricio, one thing I would remind you, and we talked about it on the last call, we are taking a very different approach than we historically have towards our digital business, recognizing there's a large part of that that it's very difficult to make actual money on. We have been very deliberately pulling back the marketing we spend to chase some of those empty calorie sales as well as the sales themselves. We're really focused on where we can provide a differentiation, which is our stores, and are seeing some really strong trends there. As Doug mentioned in his script, we saw that turn to positive in August in our stores' comps. When you do look at the total, you do need to make sure and understand there's a piece of it that we're okay with negative comps on, on the digital specifically, as long as we're improving our profitability. Doug Howe: To Jared's point, we are seeing positive conversion in stores as a result of both the assortment and the inventory fulfillment strategy that we've spoken about. That was actually very encouraging to see that the assortment is resonating with customers specifically in stores. Just one quick follow-up on the topic of profitability. Could you maybe give us a little bit more detail on Q3, like how much of a pressure are you foreseeing because of tariffs? I guess at this point, you already have that inventory, so you probably have an idea of what's the weighted average tariff or the incremental cost just related to that in Q3, in your Q3, yes. Doug Howe: Yeah, Mauricio, let me kind of give you some high level, and Jared can answer the color here as well. I just want to remind everyone that, you know, the overwhelming concern that we've had from the onset has not been the direct impact of tariff. Because when you look at it in the grand scheme of things, like our brand's portfolio, only import about 20% of product. The rest of it, we land domestically. At DSW, obviously, we're largely reliant on our brand partners. We have always been most concerned about the indirect impact of tariff. We've been working very closely on the retail side. We've had brand partners strategically, you know, very selectively pass on price increases. We've largely passed those on and maintained our IMU. The majority of those are just now coming customer-facing in the last couple of weeks. We're cautiously optimistic, but that's, you know, why we have concern. It's always been more around that indirect impact that it would have on overall consumer sentiment as opposed to the direct impact. We've selectively taken price increases in some of our private label products. Haven't had, you know, a negative reaction to that. Again, it's early days and we are kind of cautiously optimistic as we move through the balance of the back half. Mauricio Serna: Thank you so much. Operator: Again, if you have a question, please press star then one. The next question comes from Dana Telsey at Telsey Group. Please go ahead. Dana Telsey: Hi, good morning, everyone. As you just put out the new marketing campaign with "Let Us Surprise You," what are the markers that you're looking for given that 70% of your customer base shops in store? You mentioned the store in Framingham, Massachusetts. How are you thinking of store productivity with this campaign? How are you thinking of openings and closings? Is there any real estate bent to it that you'll get from the enhanced marketing? Marketing is a percent of sales. How are you thinking about that this year? Thank you. Doug Howe: Yeah, good morning, Dana. This is Doug. Yeah, we're very excited about the brand campaign. It is really early days. We just launched that actually in Q3. It went live on September 2. I'd say anecdotally, the feedback has been very, very positive from both customers' interactions, certainly from our associates. We are very happy with just the positioning of it. It's a bit of a wink and a nod. It's whimsical. It just feels like encouraging her to come in and kind of enjoy shopping in our stores, which again, we believe are very much our core differentiator. You walk into one of our stores, there's 2,000 choices of footwear. We want her to really enjoy that experience. They spend well over 30 minutes in the store. We're happy about that. It's very early days as it relates to the reaction. That's gotten a lot of impressions and pickup on the prep. That's all been very overwhelmingly positive as well. To your point, I mean, we're going to be very thoughtful around how this shows up in-store in our CRM and all of our marketing channels. We're obviously, as Jared said, really focusing on channel profitability. We want to make sure that we're continuing to focus on optimizing that marketing investment. We'll be happy to report out as we get a little bit further along, but it's fairly anecdotal at this point. Again, very encouraged by the work. It was all informed by qualitative and quantitative research. We took the appropriate time to actually get to the messaging. To me, it feels kind of reminiscent of, you know, DSW's core strength. Surprising by great brands, great value, great assortment in our stores. We look forward to reporting out on the specifics, but a bit premature to do that at this point. Jared Poff: You know, Dana, from the marketing as a % of sales, I would say we are certainly cognizant. We are probably at the higher end of much of our peer set, but we think it's important to highlight where the differentiation is for DSW versus other shoe chains and shoe stores that are out there. We have mentioned when we kicked this off, it has been a minute, a very long minute since we have done some DSW brand marketing. Also, we just talked about how we are pulling back on aggressively chasing some of those empty calorie digital sales, which has freed up some marketing dollars on that front. Overall, we're not seeing or expecting significant deleverage on our marketing SG&A line. We think it's more of an optimizing and kind of pivoting. As long as it's getting the returns that we're seeing and we're tracking that and we're tracking it very closely, we'll continue to fund that where it makes sense. Dana Telsey: Got it. You had mentioned Birkenstock is one of the brands with an activation that performed well. What are you seeing from brands? How is Nike performing? Any highlights of what you're expecting for brand activations or performance in Q4? Thank you. Doug Howe: Yeah, Dana, that's a great question. You know, Birkenstock was among the top eight brands that we're tracking. We're really encouraged by the fact that those brands, as we said, delivered a 1% comp and their penetration increased to 45% of total sales. Birkenstock is one example, but the team has done a really good job of providing more brand collateral in stores, really telling a brand story, getting behind those brands that the customers are craving right now. That'll continue to be our focus going forward. We're fortunate to have great partnerships with those key brands. We're maintaining better in-stock levels with them, getting more access to product, and continue to be very encouraged by those top eight brands, of which Nike is obviously one of them. Dana Telsey: Thank you. Doug Howe: Sure. Operator: We have a follow-up from Mauricio Serna of UBS. Please go ahead. Mauricio Serna: Great. Thanks. Just a quick follow-up. I think, you know, I recall you mentioned you're planning to have like deeper assortment. Could you elaborate a little bit more on what you're bringing, you know, maybe from a brand's perspective or category perspective? You know, like where is this deepening in assortment taking place? Just as a reminder, maybe on the puts and takes on your expectation of SG&A dollars to be down $20 to $30 million for the full year. Could you break that out into what are the different buckets that are driving that decline? Thank you. Doug Howe: Yeah, thanks, Mauricio. I'll take the first part of that and then I'll let Jared answer the SG&A piece. From an inventory perspective, as we've shared earlier this year, the teams are really focused on increasing our product availability, so our in-stock. That applies to the top brands, it applies to the top categories. As I said in my prepared remarks, our choice count for the back half is down 25%, but our depth is up 15%. That's a meaningful change and is driving a pretty strong result in store conversion. When we do customer intercept interviews, the number one reason when a customer leaves a store without a purchase is they didn't find their size. This goes squarely at that with regards to making sure that we have the style she wants and the size she wants when she comes into the store. That's the benefit we're actually seeing on the inventory productivity. Jared Poff: On the $20 to $30 million, I would kind of bucket it this way. About a third of that is professional fees, consultants, and things like that that we had been using for various initiatives that, you know, we have certainly ratcheted that down to things that are just absolutely critical. We're getting an immediate payback. We've got roughly around half of the savings from personnel-related type of actions. There were some corporate actions taken earlier in the year, as well as the flex that goes with the comps that we're seeing out in the store land. The balance is just some puts and takes along lines like depreciation, occupancy, things like that. Mauricio Serna: Understood. Thank you very much. Operator: This concludes our question and answer session. I would like to turn the conference back over to Doug Howe for any closing remarks. Doug Howe: I just closed by saying that we are encouraged by the early signs of positive momentum, and we were pleased with the sequential improvement that we delivered throughout the quarter. I want to say thank you again to all of our team members for their unwavering commitment and their focus as they continue to operate with a sense of urgency to move the business forward. Thank you to all of you for joining us today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and welcome to the Ambiq Micro Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, September 4, 2025. I would now like to turn the call over to Ms. Charlene Wan. Charlene, please go ahead. Charlene Wan: Good afternoon, and welcome to Ambiq's Second Quarter 2025 Earnings Conference Call. I'm Charlene Wan, Vice President of Corporate Marketing and Investor Relations at Ambiq. I'm joined today by Ambiq's CEO, Fumihide Esaka; and Ambiq's CFO, Jeff Winzeler. As part of today's call, we will review our quarterly financial performance and provide a summary of our outlook. Our earnings release and the accompanying financial levels are available on the Investor Relations page of our website at www.ambiq.com. Before I turn the call over to Fumi, I'd like to remind our listeners that during the course of this conference call, the company will provide financial guidance, projections, comments and other forward-looking statements regarding future market development, the future financial performance of the company, new products or other matters. These statements are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC. Specifically, the final perspective related to our initial public offering and our most recent 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. Also, the company's press release and management statements during this conference call will include discussions of certain non-GAAP financial measures. These financial measures and related GAAP to non-GAAP reconciliations are provided in the company's press release and related current report on Form 8-K. For those of you unable to listen to the entire call at this time, a recording will be available via webcast in the Investor Relations section of the company's website. And now it's my pleasure to turn the call over to Ambiq's CEO, Fumihide Esaka. Fumi, please go ahead. Fumihide Esaka: Thank you, Charlene. Good afternoon, and thank you to everyone for joining us on our first earnings call since our IPO on July 30. Ambiq has been on an incredible journey. The company was founded in 2010 to put intelligence everywhere using the world's most power-efficient chips. At this point, we have enabled more than 280 million devices in applications ranging from personal devices to medical and health care to the industrial edge to smart home and smart buildings. We are excited about enabling the next billion devices as AI move out of the cloud and on to the edge. For those of you new to Ambiq's story, I'd like to give you a quick overview of our business. Ambiq is a pioneer and leading provider of ultra-low power semiconductor solutions. Our mission is to enable intelligence and AI everywhere by delivering the lowest power semiconductor solutions. As many of you know, most of to date's AI computation including both training and inference happens in data centers, which are far away from the action. Moving AI inference to the edge is a great alternative because it offers lower latency, greater privacy, improved security and reduced costs. However, we haven't yet seen the full potential of edge AI because edge devices tends to be smaller and battery-powered. With that innovation, it's nearly impossible for those devices to run AI without quickly draining their batteries. Ambiq has solved this power problem with our SPOT platform. SPOT stands for Sub-threshold Power Optimized Technology. It significantly reduces total system power consumption and enables devices to run AI locally without sacrificing battery life. SPOT has been foundation for 5 generations of our flagship SoC family called Apollo. In addition to hardware, we also offer extensive software solutions to help our customers reduce their products and design cycle. More and more people are realizing potential of running AI at the edge as that's where the action takes place. If your smart watch is capable of running on device AI, you get a doctor or personal trainer on your wrist. Hearing aid with onboard AI models can filter out the noise in a restaurant and enhance the 1 voice you actually want to hear. And the factory machinery equipped with a wireless fault detector can identify failure before it happens and calls for help without bringing the factory line down. With our energy-efficient products and solutions, Ambiq is well positioned to drive and benefit from the edge AI revolution. In that, let me now turn the call over to Jeff Winzeler, our CFO, to discuss our second quarter results and third quarter outlook in more detail. And then I will talk more about our strategic priorities as we look ahead to the coming quarters and year. Jeffrey Winzeler: Thank you, Fumi, and thanks, everyone, for joining us today. Before I review the financials, please note that I will focus my discussion on non-GAAP financial results and refer you to today's press release for a detailed reconciliation of GAAP to non-GAAP financial results. The non-GAAP adjustments relate to stock-based compensation, depreciation, amortization, warrant value and other charges. Revenue for the second quarter of 2025 was $17.9 million compared to $15.7 million in the first quarter and $20.3 million in the second quarter of 2024. The sequential increase in second quarter revenue was driven by increased customer demand and favorable product mix. The year-over-year decrease in net sales reflected the company's strategic decision to diversify revenue toward higher-value opportunities with customers outside of China. In the second quarter of 2025, net sales to end customers in Mainland China were 11.5% as compared to 42% in the second quarter of 2024. Non-GAAP gross profit for the second quarter of 2025 was $7.6 million or 42.7% of revenue compared to $7.4 million or 47.1% of revenue in the prior quarter and $6.7 million or 32.9% of revenue in the same quarter a year ago. The sequential and year-over-year increases in non-GAAP gross profit for the second quarter of 2025 were the result of a more favorable product end customer mix, as the company continued to execute on its strategic prioritization of geographies outside of China. Non-GAAP operating expenses in the second quarter of 2025 were $13.8 million compared to $13.1 million in the prior quarter and compared to $14.4 million in the second quarter of 2024. The breakdown of non-GAAP operating expenses for the second quarter of 2025 are as follows: Research and development expenses were $7.3 million compared to $7 million last quarter and $7.3 million in the same quarter a year ago. One of our top strategic initiatives post-IPO is to continue growing our technical capabilities and investing in our product development road map to capture the opportunities ahead of us. SG&A expenses in the second quarter were $6.5 million compared to $6.2 million in the prior quarter and $7.1 million in the second quarter of 2024. Total other income in the second quarter was $315,000, consisting mainly of interest income from our cash reserves compared to $461,000 in the prior quarter and $337,000 during the same quarter a year ago. Net loss for the second quarter of 2025 was $8.5 million or $18.90 per share based on 449,785 weighted average shares outstanding. This compares to a net loss of $8.3 million or $18.96 per share in the first quarter of 2025 and net loss of $10.6 million or $34.59 per share in the second quarter of 2024. The per share amounts have been adjusted to reflect a 1 for 28 reverse stock split that was affected prior to our IPO. Second quarter non-GAAP net loss was $5.9 million compared to non-GAAP net loss of $5.2 million in the first quarter of 2025 and non-GAAP net loss of $7.4 million in the second quarter of 2024. The loss per share in the second quarter of 2025 was $0.43 based on unaudited pro forma common shares of 13.6 million as disclosed in the company's F-1. Turning to the balance sheet. Cash and cash equivalents were $47.5 million at the end of Q2 2025. On July 30, the company completed an initial public offering, consisting of 4.6 million shares of common stock issued at $24 per share. After deducting underwriting costs, commissions and other transaction costs, the net proceeds were $97.2 million. Now let me turn to our guidance for the third quarter of 2025. We expect revenue to be in the range of $17.5 million to $18 million. Non-GAAP loss per share is expected to range between $0.35 loss per share and $0.28 loss per share on a weighted average post-IPO share count of approximately 18.2 million shares. This share count reflects the pre-IPO reverse split and conversion of preferred shares into common plus the common shares issued at the IPO and is the baseline share count for the company going forward. In summary, during Q2 2025, Ambiq grew revenue from the previous quarter and importantly, grew gross profit dollars, both sequentially and year-over-year in support of our ambitions for profitable growth. Subsequent to the quarter, we successfully completed the company's initial public offering and secured the necessary financial resources to execute on our strategic business plan, which Fumi will now detail further. With that, let me pass the call back to Fumi. Fumihide Esaka: Thank you, Jeff. Since this is our first earnings call, I'd like to take a moment to outline our mission and strategic initiatives. Our goal is to drive long-term shareholder value through sustainable and profitable growth. After our successful IPO we intend to use the proceeds to support the execution of 3 key initiatives. Our first initiative is to expand into new markets and geographies with our existing products. This will fuel our revenue and margin growth. We have demonstrated a strong end customer adoption with market leaders. These top tier brands validate the value proposition of our Apollo products and have helped us acquire a growing number of new customers. We will be expanding our sales and support resources to enable these new customers. We are proud to share 1 great example of our recent new customer announcement. Whoop, a leader in health-oriented wearables recently chose Apollo for their newest fitness tracker product line. The new Whoop 5.0 and Whoop energy products give an incredible intelligent view of your health and even your blood pressure in a small band that lasts for more than 14 days on the battery. Ambiq's Apollo delivers 10x better battery efficiency allowed Whoop to utilize on-device AI to process biometric data intelligently. In addition to personal devices and wearables markets, we are pursuing new edge AI use cases such as AR/VR glasses, heart monitors, smart medical patches, oxygen condition monitors, smart alarms and locks and robotics. We are also sifting our geographic concentration. Historically, we had significant sale with end customer in Mainland China. As the demand for edge AI grows globally, we are prioritizing sales efforts towards other meaningful geographies. In 2023, 66% of our net sales were to the end customer in Mainland China. This fell to 50% in 2024. In the second quarter of 2025, only 11.5% of our net sales were to end customers in Mainland China. This is a big reduction compared to the 42% number we saw in the second quarter of 2024. We currently anticipate this mix to continue in 2025 and beyond. Our second key initiative is to expand our existing Apollo family and introduce the new atomic product line. As a high-growth company, we are scaling our R&D and go-to-market capability to capture the edge AI opportunities. Since we launched the first Apollo SoC in 2015, we have introduced new products nearly every year. The original Apollo 3 and 4 SoCs are being used for a variety of early edge AI deployments. The new Apollo510 and Apollo330 SoCs launched in the past 18 months add better accelerated AI compute. Last week, we announced the expansion of our Apollo 5 line with Apollo510B wireless SoC. It has a 250 megahertz Cortex-M55 coprocessor alongside a dedicated 40 megahertz network processor and Bluetooth Low Energy 5.4 radio. Target applications include wearables, AI glasses, heart monitors, smart locks and factory condition monitors. The fourth Atomic family product is currently in development. This innovative product is expected to deliver our highest performance and lowest power consumption for AI model at the edge. It targets edge AI applications with demanding compute requirements, especially for vision. Atomic features a full Neural Processing Unit, or NPU, for high-performance AI acceleration along with new memory innovations. And lastly, our third and long-term initiative is to build a variant of the SPOT platform that enables IP licensing to third parties. As this is the most energy-efficient edge AI chip design platform, we have received numerous increase to license SPOT. There are specialized applications that require power efficiency, such as data centers and automotive AI processing. To reach these markets, we plan to develop SPOT into IP and chip development platform. This offering will enable other companies to license or partner with us to incorporate SPOT into their own low-power chip designs. Our plan to develop this IP and technology platform for licensing would take place over the next 3 to 5 years. To conclude my prepared remarks, I want to first thank our investors, customers, partners, suppliers and employees for their support of Ambiq over the past 15 years. Thank you for helping us become a public traded company. The future of Ambiq is very bright and we are only at the beginning of unlocking the full potential of AI at the edge. I look forward to reporting our continued progress and meeting with each of you in the coming quarters. With that, I will open the call to questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from the line of Vivek Arya with Bank of America. Vivek Arya: Welcome to the public markets. Fumi, for my first question, I'm curious how does Ambiq kind of define edge AI? And what percentage of your sales today would kind of fit that definition? And how do you see that mix evolving in any kind of ASP benefits as that mix evolves towards more edge AI? Fumihide Esaka: Again, edge AI is growing in medical, industrial edge, personal devices, smart home and buildings, and we ourselves is really focusing on enabling this edge AI market. It is very hard to define. The percentage of AI use at our end customers, but most of our customers are already using intelligence. And that's where we add a lot of value. So we believe that more than half of the business is already using intelligence on their devices and we will continue to grow. Vivek Arya: Okay. And for my follow-up, I think the IP licensing opportunity sounds very interesting. But you did mention that it might take a few years to fully develop. Is there anything that you can do -- so first of all, what kind of use cases and applications are asking you for that licensing and chiplet-type architecture? And then can you do anything to accelerate that development of being able to license SPOT technology? Fumihide Esaka: Yes, Vivek, we believe that data center, automotive and mobile devices, those could take advantage of our SPOT technology. And as we are focusing on enhancing our R&D capability, we may be able to accelerate our development, our IP, with more resources and funding available. And we do have a dedicated team that is focusing on our SPOT licensing. And as previously discussed, they are right now focusing on 12-nanometer SPOT platform. And with proven that 12-nanometer development, we believe that we can accelerate our plan. Operator: Our next question comes from the line of Tim Arcuri with UBS Financial. Dino Ragazzo: Hello. This is Dino on for Tim. Welcome to the public markets. Could you talk about your progress on the non-wearable's opportunities as of now? You previously announced some design wins in medical and industrial. Can you just give us an update on your progress there? Fumihide Esaka: Well, again, about 17% of our funnel is already towards medical, industrial edge, smart home and building, and we believe that more than 20% is already -- we're working with some of the customers to define Atomic edge AI in vision. So we're making great progress even since we talked last time. Dino Ragazzo: Got it. And then I guess another question, just on your Q2 results, do you see any signs of pull-ins that impacted results? Jeffrey Winzeler: I think we had a pretty good ramp from Q1 to Q2. And if you think about our business typically seasonally, you would expect Q2 to be higher than Q1 and growth throughout the year. I think the 1 thing that kind of impacted this year was the announcement or the possibility of tariffs. And with the uncertainty of that, we did see some upside demand from customers in Q2 that drove revenue slightly higher than what we had originally anticipated in our model. That's really the only pull-in activity that we saw in the quarter. Operator: Then your next question comes from the line of Quinn Bolton with Needham & Company. Quinn Bolton: Fumi and Jeff, congratulations on the successful IPO. I guess I wanted to start with just looking at some of your end customers fitness tracker area, they seem to have pretty good results. Garmin, I think, reported a 41% year-on-year increase. And I guess I was wondering, can you give us a sense of just like the order trends you saw through the second quarter? Is your customer end market success leading to higher order rates? And then I guess a related question, how far in advance would you guys ship the Apollo processor ahead of when the end device might sell? Is that typically like a quarter lead time, but any sense on how far in advance you might ship ahead of your customers' end device sale would be helpful. Fumihide Esaka: Typically, our customers do place an order about 16 weeks lead time, and we do see our end customer, like you mentioned, but we cannot be -- we cannot make a very -- comment about the specific customer, but we see that the healthy growth, and we're very optimistic that they will continue to grow. Quinn Bolton: I guess maybe just on the orders, are you seeing kind of with that 16-week lead time, is that order book sort of suggesting sort of a healthy second half? I think you guys had previously seen some uncertainty around tariffs that had led to perhaps some caution on the second half. Any update on the tariff impact as you look into the second half of the year? Jeffrey Winzeler: Yes. I mean in terms of our guidance for Q3 revenue reflects the fact that we think there's a little bit of upside to what our financial model was, so that's a good thing. And we're cautiously optimistic. We also have seen the same news from the customers. I think in general, there's a macro feel that some of the tariff is not going to be as impactful as our end customers previously thought. So as I said, we're cautiously optimistic that the second half of the year will be better than what we had originally built into our plans. Quinn Bolton: Excellent. And then lastly, Jeff, any thoughts on gross margin as you look into the third quarter, I think you were around 43% in Q2. Would you expect gross margins to be relatively flat, up or down in the third quarter? Any directional comment would be helpful. Jeffrey Winzeler: Yes. We've taken a big step up from previous years, obviously, with exit out of China and the focus on other markets. So the 43% that we announced in Q2, I think, is relatively indicative of where our gross margin is today. Now going forward, that will vary by a point or 2 depending on the product mix in any given quarter, manufacturing yields, et cetera. But in general, I think that's a pretty safe place in terms of where our business is today. Operator: Our final question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Fumi, Jeff, welcome to the public market, and congrats on that Whoop win. So Fumi, you talked about the sort of first long-term strategic initiative. Clearly, you're starting to broaden the applications and markets that you are going into, especially on wearables. As we look at maybe in the next 4 months or so, which are some of the applications you expect to see revenue from? I know it's hard to kind of think out a few, but any color you could share with us that would be great. Fumihide Esaka: Well, we're not going to see a revenue from a new application, and again, this coming quarter, but definitely, some of the AR glasses are taking a first would -- working with some of the AR glass customers that definitely will be in the market very near term. And also, worker safety monitors and machine health monitor, those are already in the market, and we continue to -- we believe that to grow that market segment. So we believe that our application is growing really fast. Tore Svanberg: Very good. That's exactly what I was looking for. And then as my follow-up, could you just give us an update on Atomic, where we sort of are in the development process there? I think you have previously talked about that product being potentially available sometime next year. But yes, any -- well, precisely and obviously not for production, but any updates there would be helpful. Fumihide Esaka: Well, we're very excited to talk about Atomic, because we started working with early adopter on spec soon after we did a public offering. And activity is more active than ever before. Again, I believe that becoming a public company and our customers becoming more comfortable with working with Ambiq, we believe that we're going to make great progress coming quarters. Operator: With no further questions in queue, I will hand the call back to Jeffrey Winzeler for closing remarks. Jeffrey Winzeler: Thank you. Before closing the call, I'd like to let you know that we'll be attending the UBS Global Technology Conference in Scottsdale, Arizona on December 3, and the following day, December 4, we'll be at the Stifel Deep Tech Forum in Menlo Park, California. If you'd like to arrange a meeting with us at these events, please contact our IR firm, the Shelton Group. You can find the relevant contact information on the Investor page of our website, ambiq.com. Thank you again for joining us today, and we look forward to discussing our continued progress on our next earnings call. Operator, you may now disconnect. Operator: Thank you. Thank you for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the First Quarter 2026 Results Conference Call. I would now like to turn the meeting over to Ryan Hanley. Please go ahead, Mr. Hanley. Ryan Hanley: Thank you, and good morning, everyone. As mentioned, we would like to welcome you to Major Drilling's conference call for the first quarter of fiscal 2026. With me on the call today are Denis Larocque, President and CEO; and Ian Ross, CFO. Our results were released last night and can be found on our website at www.majordrilling.com. We also invite you to visit our website for further information. Before we get started, we'd like to caution you that during this conference call, we will be making forward-looking statements about future events or the future financial performance of the company. These statements are forward-looking in nature, and actual events or results may differ materially from those currently anticipated in such statements. I'll now turn the presentation over to Denis Larocque, President and CEO. Denis Larocque: Thanks, Ryan, and good morning, everyone, and thank you for joining us today to discuss our first quarter results. So we got off to a slower start to the calendar year due to delayed mobilizations, but we're pleased to see activity levels steadily accelerate through the beginning of fiscal 2026. As we reach our previously stated growth target achieving 21% revenue growth over the last 3 months, showing momentum across the business. We were particularly pleased with activity levels in Peru and Chile with Peru's revenue run rate continuing to increase following the completion of the Explomin acquisition last November. This growth is expected to more than offset temporary softness in the Australian -- Australasian market where pauses at certain projects caused by changing exploration plans led to a reduction of activity in the quarter. While the North American market was impacted by forest fires, permitting delays and continues to see elevated levels of competition, activity levels began to improve towards the end of the quarter. That recovery, combined with our strong positioning in Latin America gives us confidence in our platform as we face further growth in exploration budget over the years to come. Overall, we remain optimistic as we move into the second quarter of fiscal 2026. I'll discuss the rest of the outlook when Ian has taken us through the financials. Ian Ross: Thanks, Denis. Revenue for the quarter was $226.6 million, up 20.8% from the prior quarter and 19.3% from the $190 million over the same period last year. Revenue growth was driven by continued strength in the South and Central American region, in particular, Peru, but partially offset by Australasia, which were impacted by unexpected modifications to certain drill programs. The unfavorable foreign exchange translation impact on revenue when compared to the effective rates for the same period last year was approximately $1 million. While the impact on net earnings was minimal, expenditures and foreign jurisdictions tend to be in the same currency as revenue. The overall adjusted gross margin percentage, excluding depreciation, was 25.2% for the quarter compared to 28.9% from the same period last year. The decrease in margins was attributable to the continued competitive environment in North America as well as by some mobilization costs as a few additional projects ramped up in the quarter. Additionally, Explomin's margin profile is reflected given its focus on longer-term contracts and a higher proportion of underground drilling. While these programs typically result in more margins, they provide increased revenue diversification and stability. G&A costs increased $3.2 million compared to the same quarter last year due to the addition of Explomin along with annual inflationary wage adjustments. Company generated EBITDA of $32.1 million in the quarter compared to $34.3 million in the prior year period with net earnings of $10.1 million or $0.12 per share compared to net earnings of $15.9 million or $0.19 per share for the prior year period. The company ended the quarter with $2.8 million in net debt while working capital grew by $13.1 million to $206.8 million, driven by an increase in receivables, which coincided with the ramp-up in activity levels. The total available liquidity of $127 million and strong levels of cash flow expected to be generated through the busier months of the year, the company remains very well positioned moving through fiscal 2026. During the quarter, we strategically relocated drill rigs within certain regions to areas experienced higher levels of demand, which when combined with prior investments in the fleet, resulted in lower-than-expected CapEx spending of $14.4 million in the quarter and improved utilization. A total of 5 new drill rigs and support equipment were added, while 4 older, less efficient rigs were disposed of, bringing total rig count at quarter end to 709. The breakdown of our fleet and utilization in the quarter is as follows: 307 specialized drills at 46% utilization, 163 conventional drills at 50% utilization, 239 underground drills at 54% utilization for a total of 709 drills at 50% utilization. As we've mentioned before, specialized work in our definition is not necessarily conducted with a specialized drill. Rather, it is work that requires that meet the rigorous standards of our customers in terms of technical capabilities, operational and safety standards and other related factors. These standards are becoming increasingly important to our customers. In the first quarter, specialized work accounted for 60% of our total revenue. We continue to see high levels of demand for our specialized services and expect this trend to continue as deposits become increasingly more challenging to find with discoveries continuing to be in remote locations. Conventional drilling, which is mostly driven by juniors, increased slightly to 14% of revenue for the quarter, while underground drilling contributed 26% of total revenue, aided by the contribution of Explomin. We continue to see the bulk of our revenue driven by seniors and intermediates representing 92% of our revenue this quarter as they continued their elevated efforts to address the depleting reserves. While junior financings have begun to increase, the amount of capital raise is still well below the level seen in prior cycles. As a result, juniors continue to represent approximately 8% of our revenue in the first quarter. In terms of commodities, oil represented 41% of revenue in the first quarter with continued high gold price, while copper accounted for 34% of revenue, driven primarily by strength in the South and Central American region. Iron ore continues to make a meaningful contribution at 11% aided by our Australian operations and demonstrating the diversity in the commodities for which we drill forward around the world. With that overview of the financial results, I'll now pass the presentation back to Denis to discuss the outlook. Denis Larocque: Thanks, Ian. As we head into Q2, we expect to see some top line momentum driven by additional projects, particularly in the South American region. As we previously discussed, our Peru revenue base -- our Peru revenue run rate has continued to grow since the acquisition of Explomin that was closed back in November. This trend is expected to continue in the second quarter as more long-term contracts are added, while our Peruvian operation also addresses the growing demand for underground drilling. These types of projects provide stable and diversified streams of incremental revenue. As well, we remain optimistic on the North American region as the junior financing market has begun to show signs of life while discussions surrounding more streamlined permitting processes in both Canada and U.S. are also expected to lead to an increase in activity. On the commodity side, as you probably know, gold just hit another record high and the outlook for copper and other base metals is looking strong. We anticipate these elevated prices to support further growth in exploration budget over the years to come as mining companies use the additional cash flow generated from these high commodity prices to address their need to replace depletion and continue to build reserves. From an operational standpoint, we're in great shape. Our fleet in a great condition, inventory levels are solid and our crews are doing an outstanding job on safety and performance. Thanks to prior investments in infrastructure and equipment, we do not foresee the need for significant incremental CapEx. This positions us to unlock a meaningful operational leverage as activity scales up and demand continues to grow. With that, we can open the call to questions. Operator? Operator: [Operator Instructions] Our first question is from Donangelo Volpe from Beacon Securities. Donangelo Volpe: First question from me. Can you talk about the dynamics you guys are seeing in North America. We've been seeing a modest uptake in junior financings. Just wondering how you view the pipeline in Canada versus the United States. And I was just wondering if you could provide any additional commentary related to the streamlined permitting process you're seeing in both regions. Denis Larocque: Yes. Well, in Canada, the activity has -- as we said, we've seen -- as we progress through the quarter, we've seen a pickup in activity. Some of that's driven by juniors, but they're still not back in great force, if I might say, as the financings that were done, there's always a period before we see that come through in the field. And I think we certainly saw some of that coming near the end of the quarter. We didn't see that uptick in the U.S., though at this point. From the permitting perspective, I must say that we haven't seen -- well, we definitely haven't seen an impact in terms of drilling because it takes -- again, there's -- it takes a bit of time before you see that coming through. And frankly, it's still not moving as quick as I personally would have thought it would following our Canadian election. And in the U.S., you had resolution, for example, just as an example in the U.S. that still got blocked a few weeks ago. So it's still not -- we're still not seeing a great uptick in permitting in North America, while we're certainly seeing more activity coming from that in other areas of the world. Donangelo Volpe: Okay. And then I guess that kind of segues into my next question. With the outlook pointing towards continued top line growth driven by out performance in South America. Can you discuss some of the stronger regions you foresee in the future? And what some of the dynamics are there that will be driving that growth? Denis Larocque: Yes. Well, Peru, we're seeing that operation continues to grow over the next quarter for sure. Lots of activity, but at the same time, as we said, lots of mobilization activity, preparation of rigs, additional people that were brought in and with its load of onboarding costs since the beginning of the year. But we're looking forward to all of that basically hitting cruising altitude by next quarter. So Peru is certainly an area. We see North America like financings, with financing, as you said, picking up lots of time that comes in North America. So we are seeing Canada continuing to increase going into next quarter as well. We'll see in the U.S. if that happens as well. And then the rest is going to be really stated by what mining companies where mining companies end up spending their next budgets. Donangelo Volpe: Okay. Perfect. I appreciate the color. And then last question for me. Just CapEx was about $14 million for the quarter. Can you discuss some of the dynamics that led to the lower-than-expected CapEx? And can we still expect it to be in the $60 million to $70 million range on an annual basis? Denis Larocque: Yes. Part of it really was, as I mentioned, I mean, we prepared 30-some rigs for Peru. And the good news is that we were able to move some of those rigs to some of those rigs from other operations to Peru, which helped. You saw that come through on the utilization rates, which are higher. We've hit 50% for the first time in a long time. And so that played part of it in terms of the growth that we expected and not having to spend as much on CapEx. Going forward, we don't foresee having to spend a lot more than what we had expected. So we'll see how it plays out. Again, it all depends which region, where the demand comes from and the type of demand. But at the moment, we don't foresee needing more CapEx than what we had guided at the last quarter. Operator: [Operator Instructions] Following question is from Brett Kearney from American Rebirth Opportunity Partners. Brett Kearney: Terrific to see the continued strength in your major markets and you guys' ability to capitalize and execute on that in the precious metals and copper front. Just curious, as there's been a heightened focus on critical minerals and I guess, the expanded list of the resources included therein. I know they're all small individually, but just curious kind of in aggregate, whether you're seeing any opportunity across some of more niche mining areas from rare earths, tin, tungsten, antimony in aggregate currently or going forward that can move the needle at all for you all? Denis Larocque: Yes. Well, like you said, all of those individually are not big contributors to exploration. But in aggregate, can certainly have an impact. So I mean, you mentioned tin, we have part of our operation in Peru that's drilling for 10. Lithium comes back on and off, depending on the times and you've got nickel, you've got uranium down the road that could be a contributor in terms of the whole electricity and everything that is needed there. So when you -- again, when you put it, it's still going to be -- we're still going to have between 70% to 80% of our activity that's going to come from gold and copper. But those other metal, I always use the flavor of the day kind of comment and critical minerals certainly the flavor of the day. So we expect to see activity from some of these metal... Brett Kearney: Excellent. And then maybe an extension of that, given your guys' size and trusted position as a mining services provider to Canada, North America, the West. To the extent you can comment, are you all actively engaging in or been approached at all in some of the security discussions as the importance of these metals, including even copper takes quite in priority. Are you guys being looked in at all to conversations involving discussions around NATO, the West. Denis Larocque: Well, I mean, not directly because we're just a supplier to the mining industry, but we are certainly having discussions with different people involved with ministers and trying to drive the point that our Canadian economy really need resources, and we need to get on if we're going to track investment, we need to make the -- we certainly need to make the environment or the business environment conducive to that. So we're certainly participating in those discussions and making that heard. It's just a matter of speed the intentions are there, and it's just a matter of speed of making this happen. And we certainly see other countries basically taking action much quicker than we see in Canada. But the conversation is certainly heading the right way, let's put it that way. It's more a question of... Operator: Following question is from James Vail from Arcadia Advisors, LLC. James Vail: Denis, you said that the second quarter top line is showing momentum. I guess I'll get to the bottom line is what you see change the dynamics of the third fiscal quarter and expecting maybe less of a slowdown that you've had historically, so that the activity wouldn't slow down as quickly as it did last year and slower to pick up in the spring. Is that a possibility? Or is that -- will those historic dynamics still be in place? Denis Larocque: Yes. To be frank, Jim, we -- it's too early to tell because we typically have those discussions when we get to October, November when they start to have plans. And lots of time, those -- even those decisions of continuing or not close to Christmas are made when they get to October, November, if they haven't spent all of their budgets or the environment like right now with gold running up, they say, okay, well, let's just add more -- 2 more months of budget to this year and keep going and so those decisions typically happen in October, November. So it's early to tell, but the environment with commodity prices is certainly positive for that to maybe continue later in the season. But again, too early to tell. James Vail: Okay. And then just finally, looking at the segment information, and there's the asterisk that says Canada U.S. includes revenues for Canada. If you do the arithmetic, it looks like the U.S. was down 20% in the quarter. Is that correct? Is that accurate? Denis Larocque: Yes. It is. There's been a slowdown. We've seen some slowdown in the U.S. A lot of that was driven by juniors. That's where -- last year, we had a lot of junior customers that didn't come back this season and we're waiting to see that. But then basically, as you mentioned, Canada has certainly grown from last year. James Vail: Yes, that's up 20%. That's encouraging. That is good. Okay. Are you going to present at Beaver Creek, Denis? Denis Larocque: No. We're not. Basically Beaver Creek is only for mining companies in terms of presenting. So we won't be at that conference. Operator: [Operator Instructions] We have no further questions registered at this time. I would now like to turn the meeting back over to Denis Larocque. Denis Larocque: Well, thank you. And please don't forget to join us. It's our AGM today, which will be held in-person and virtually at 3:30 Eastern Time. And all the details related to the AGM can be found on our website. So thank you for joining us today, and I hope to see you at our AGM. Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Cognyte Software Ltd.'s second quarter fiscal year 2026 earnings conference call. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Dean Ridlon, Head of Investor Relations. Please go ahead. Dean Ridlon: Thank you, Operator. Hello, everyone. I'm Dean Ridlon, Cognyte's Head of Investor Relations. Thank you for joining us today. I'm here with Elad Sharon, Cognyte's CEO, and David Abadi, Cognyte's CFO. Before getting started, I would like to mention that accompanying our call today is a presentation. If you'd like to view these slides in real time during the call, please visit the Investor section of our website at cognyte.com. Click on "Upcoming Events," then the webcast link for today's conference call. I would also like to draw your attention to the fact that certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the Federal Securities Laws. These forward-looking statements are based on management's current expectations and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by these forward-looking statements. The forward-looking statements are made as of the date of this call and, except as required by law, Cognyte assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements. For a more detailed discussion of how these and other risks and uncertainties could cause Cognyte's actual results to differ materially from those indicated in these forward-looking statements, please see our annual report on Form 20-F for the fiscal year ended January 31, 2025, and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures. We believe investors focus on non-GAAP financial measures in comparing results between periods and among our peer companies that publish similar non-GAAP measures. Please see today's presentation slides, our earnings release, and the Investor section of our website at cognyte.com for a reconciliation of non-GAAP financial measures to GAAP measures. Non-GAAP financial information should not be considered in isolation from, as a substitute for, or superior to GAAP financial information, but is included because management believes it provides meaningful information about the financial performance of our business and is useful to investors for informational and comparative purposes. The non-GAAP financial measures that the company uses have limitations and may differ from those used by other companies. Now, I would like to turn the call over to Elad. Elad Sharon: Thank you, Dean. Welcome, everyone, to our conference call for the second quarter of the fiscal year ending January 31, 2026. Before I get started, on behalf of the Board and management team, I want to thank our shareholders for their trust and support at last week's annual general meeting. Turning now to our Q2 results. Our Q2 performance reflects solid execution against our strategy and constant demand for our solutions. In the second quarter, we grew revenue by approximately 16% year-over-year to about $98 million. Non-GAAP gross profit increased by about 17% year-over-year. We generated approximately $11 million of adjusted EBITDA for the quarter, growth of about 33% compared to what we generated in Q2 last year, and cash flow from operating activities was a negative $6 million, primarily due to expected seasonal expenses. These results reflect how our technology is not only mission-critical but increasingly indispensable as global threats grow more complex. We proudly serve four agency types: law enforcement, military intelligence, national intelligence, and national security agencies, each facing rising data volumes, more sophisticated adversaries, and a constantly evolving technology landscape. Our solutions help them to stay ahead of these challenges, enabling them to protect people, secure borders, disrupt criminal internal networks, defend against cyber threats, and ensure public safety every single day. This quarter, the commitment was reflected in two significant wins for military intelligence customers. In Asia-Pacific, we signed a $10 million follow-on deal with a longstanding customer. They operate in a complex border environment and use our border security solutions to stop infiltration attempts by hostile actors, clear proof of the ongoing trust they place in us and the tangible operational results we deliver. In EMEA, we won a competitive deal worth about $10 million with a new Tier 1 military intelligence organization, beating several global vendors, including the regional incumbent. They chose Cognyte Software Ltd. for our proven tactical intelligence solutions to modernize operations and address emerging threats. The anticipated impact of our solutions has already led the customer to place a follow-on order, demonstrating confidence in our technology and the potential for a broader and long-term partnership. Taken together, these wins reflect the broader reality we see every day. Around the world, governments and agencies are confronting rising levels of complexity and uncertainty. The global environment is marked by heightened security challenges, from digital to physical domains, creating an urgent and sustained demand for advanced intelligence solutions. This growing demand not only underscores our commercial momentum but also the effectiveness of our differentiated technology. As we shared at Investor Day, our technology stack is built on three layers: signal processing, insight mining, and investigative analytics. Within this framework, this quarter, I want to highlight our operational intelligence suite of solutions, also known as tactical intelligence, which is where our technology meets the field. Taking in the foundational layer of signal processing, it transforms chaotic signal feeds into clean, usable data as it helps field units operate in real time. Whether in complex city environments or remote terrain, our best-in-class suite of tactical intelligence solutions enables missions from early threat detection to planning and operational response. When you combine that offering with our top layers: insight mining and investigative analytics, culminating in our decision intelligence solution, Nexite, you get the full power of the Cognyte technology platform. What sets us apart is how these layers and solutions work together as one integrated platform, creating a complete and differentiated intelligence capability powered by advanced AI. That is why intelligence and security agencies continue to choose Cognyte: to detect threats faster, act with precision, protect communities, and respond decisively to the full spectrum of criminal, terror, and national security challenges. We regularly hear from both current and prospective customers about the real impact our solutions are having. Just last month, during a week-long proof-of-concept in the field in a large U.S. city, a prospective customer used one of our solutions to work more efficiently. The customer noted that the solution performed better than what they had relied on for years from incumbent providers. That pilot led directly to the arrest of several fugitives, individuals wanted for murder and armed robbery, clear proof of how quickly our solutions make an impact. Beyond customer feedback, our innovation is recognized across the industry. In Gartner's 2025 hype cycle for public safety and law enforcement, Cognyte was named a sample vendor for our AI-powered predictive analytics. Gartner called the benefit of predictive analytics transformational, as broader data sharing and richer datasets unlock new insights. Across all regions, agencies are being asked to do more with fewer resources while facing adversaries who are more agile and technology-sophisticated. This dynamic is driving increased investment in modern AI-enabled intelligence platforms, reinforcing the strategic importance of our offering. The U.S. remains a cornerstone of our growth strategy, and further penetration into this market is a key priority. We continue to strengthen our reach through expanded presence and strategic partnerships. To that end, we entered into an alliance with LexisNexis Risk Solutions, a Tier 1 partner with deep specialization in the federal market. This partnership expands our footprint and sales power in the region, providing access to a highly connected team with strong relationships across U.S. agencies. This is particularly strategic for our tactical intelligence portfolio, where federal customers represent an important growth opportunity. At the same time, we continue to operate against the backdrop of atypical U.S. agency procurement delays that limit NAITM visibility into budget timing. While this environment presents what we believe are temporary challenges, we are confident that as state and local and federal spend normalizes, Cognyte will be well-positioned to accelerate customer acquisition and reinforce our competitive position in this region. Direct engagement with customers and prospects is also central to advancing our strategy. Recently, we participated in ATIA, a leading U.S. event for federal and state and local law enforcement, where we had an opportunity to showcase our capabilities and connect with key decision-makers. Looking ahead, we are actively preparing for key upcoming conferences, including MILIPOL Paris, the leading global event for Homeland Security and Safety, Asian Defense and Security in Bangkok, a premier exhibition for defense, security, and disaster response in the Asia-Pacific region, and IACP in Denver, Colorado, the premier gathering for U.S. police chiefs and public safety leaders, as well as other important forums. These events give us the opportunity to showcase our latest capabilities, strengthen relationships, and create new opportunities. In today's environment, where threats are becoming more diverse and harder to predict, our technology provides agencies with the speed, accuracy, and insights they require to stay ahead. Looking ahead, we are encouraged by how current and prospective customers continue to respond to our technology. Our ongoing execution, combined with a clear focus on innovation, positions us well to drive long-term growth and continue to meaningfully expand profitability. We have a clear path to our financial targets for the fiscal year ending January 31, 2028: $500 million in revenue, gross margins of about 73%, and adjusted EBITDA margins above 20%. These goals are grounded in our strategy, deepening relationships with our existing customers, winning new customers, and expanding our footprint in the U.S. market. We remain confident in achieving these targets because the market need is growing, our technology leadership is proven, and our execution is delivering results quarter after quarter. For our current fiscal year ending January 31, 2026, we are updating our guidance and now expect revenue of approximately $397 million, plus or minus 2%, representing about 13% year-over-year growth at the midpoint of the range, and adjusted EBITDA of approximately $45 million at the midpoint of the revenue range, representing approximately 55% year-over-year growth. Before I hand it over to David, I want to share why we do what we do. A core challenge our customers face is the imbalance between bad actors and those working to stop them. Bad actors, whether criminals or terrorists, move fast, adapt quickly, and exploit a single weakness with devastating impact. By contrast, law enforcement and security organizations must track and respond to a wide range of evolving threats in real time and with absolute precision. That means the bad guys only need to succeed once, while agencies need to succeed every single time. This asymmetry puts immense pressure on investigative teams to work faster, smarter, and more accurately than ever. Every day, our customers stand on the front lines, protecting citizens, safeguarding borders, and preventing harm. Our purpose is clear: to give them the technology to generate the insights and the confidence they need to stay ahead of those who would do harm. This is the mission that drives every innovation, every partnership, and every decision we make at Cognyte. Now, let me turn the call over to David to provide more details about our Q2 results. David? David Abadi: Thank you, Elad, and hello, everyone. As you just heard, we are making strong progress across the business. In Q2, that translated into solid financial performance supported by healthy demand and good visibility. This performance reflects the consistency of our execution and reinforces our continued confidence in the outlook. Revenue for Q2 was $97.5 million, an increase of 15.5% year-over-year. Software revenue was $36.6 million, an increase of $9.7 million, or 35.9% year-over-year. Software revenue is comprised of perpetual licenses, appliances, along with some term-based subscription licenses. Software services revenue was $46.7 million, up $1.4 million from last year. Software services revenue comes mainly from support contracts and, to a lesser extent, cloud-based SaaS subscriptions. Our total software revenue for the quarter was approximately $83.3 million, representing 85.5% of total revenue. We continue to expect software revenue to be about 87% of total revenue on an annual basis. Professional services revenue in Q2 was $14.2 million, an increase of $2 million over last year. Professional services revenue is expected to fluctuate between quarters due to revenue recognition timing. We continue to expect professional services revenue to be about 13% of total revenue on an annual basis. Recurring revenue for Q2 was $47.4 million, representing 48.7% of total revenue. Recurring revenue, driven primarily by support contracts and some term-based and SaaS subscription offerings, enhances our visibility in both the near and the long term. Non-GAAP gross margin for the quarter was 72.1%, expanding by 81 basis points year-over-year. Gross margin may fluctuate between quarters based on our revenue mix. Gross profit in the second quarter grew faster than revenue growth and was $70.3 million, an increase of 16.8% year-over-year. We believe the steady improvement we have made in gross profit is the result of the significant value customers derive from our innovative solutions, our competitive differentiation, and our improved cost structure. The combination of revenue growth and our business model continues to deliver meaningful year-over-year improvements in profitability, showing our ability to drive operational leverage. Once again, non-GAAP operating income and adjusted EBITDA both grew significantly faster than revenue. In Q2, we generated $8 million of non-GAAP operating income, nearly twice as much as the $4.4 million generated in Q2 last year. Adjusted EBITDA for the quarter was $11 million, about 33% higher than the $8.3 million generated last Q2, resulting in second quarter fiscal 2026 non-GAAP EPS of $0.08. Q2 GAAP net income for the quarter was $2.7 million versus a loss of $0.9 million in Q2 last year, resulting in second quarter GAAP EPS of $0.02. Looking at our H1 results, our revenue was $193.1 million and grew by 15.5% year-over-year. Our non-GAAP gross profit grew faster by 16.8% year-over-year. The leverage we have in our model helped us generate meaningful improvement in profitability year-over-year. Our H1 GAAP operating income was $4.9 million versus an operating loss of $3.7 million during the same period last year. Non-GAAP operating income was $15.6 million, more than double versus $6.3 million during the first half of last fiscal year. Our H1 adjusted EBITDA was $21.3 million versus $13.3 million in H1 of the previous year. Non-GAAP EPS was $0.15 in H1 this year compared to $0.02 in the same period last year. Turning to our balance sheet, our short and long-term contract liabilities, commonly referred to as deferred revenue, remained robust at about $114.3 million at the end of Q2, up slightly versus the July 31, 2024 balance. During Q2, we had negative cash flow from operations of $6.3 million and a negative free cash flow of $8.9 million. Historically, we have had negative cash flow from operations in Q2 due to the timing of certain expenses, including bonus payments. For the full year, we continue to expect cash flow from operating activities to be about $45 million. During Q2, we completed the repurchase program previously authorized by the Board of Directors. The company repurchased about 2.1 million ordinary shares for a total of $20 million. In July, the Board has also approved a new share repurchase program of up to $20 million in ordinary shares over the next 18 months through January 14, 2027, as part of our capital allocation strategy. Following the required 30-day notice period under Israeli law, share repurchases could commence on Friday, August 13. Our cash position remains strong at $84.7 million with no debt. Let me walk you through our execution against some of our key performance indicators. RPO, or remaining performance obligations, represents contracted revenue to be recognized in future periods, influenced by factors such as sales cycles, deployment timelines, contract plans, renewal timing, and seasonality. While fluctuations are expected in total RPO, current levels support our growth expectations. At the end of Q2, total RPO was $574.5 million versus $567.7 million at the same period last year. Total RPO is a sum of deferred revenue of $114.3 million and backlog of $460.2 million. Short-term RPO at the end of Q2 increased to $355 million, which we believe provides solid visibility into revenue over the next 12 months. These healthy RPO levels validate the strength and resilience of our business model and support our expectations for $500 million in annual revenue for the year ending January 2028. Q2 billings were $93 million, an increase of about 20% versus the same period last year. Q2 non-GAAP operating expenses were $62.3 million and aligned with our expectations. We remain focused on driving continued financial improvement and sustained margin expansion. Today, we are updating our guidance for the current fiscal year ending January 31, 2026. We're expecting full-year revenue of about $397 million, plus or minus 2%. This represents approximately 13% year-over-year growth at the midpoint of the revenue range. We expect total software revenue to be about $345 million, representing approximately 87% of total revenue, and professional service revenue to represent about 13% of total revenue, aligned with our strategic goals. We believe that our strong short-term RPO of $355 million and the favorable demand environment support this outlook. We expect Q3 revenue to be slightly higher than the Q2 levels we are reporting today, and Q4 to also grow sequentially. We now expect annual non-GAAP gross margin to be 72%, reflecting an improvement of 100 basis points over last fiscal year. Gross margin may fluctuate between quarters based on our revenue mix. We expect annual gross profit to increase at a faster rate than revenue growth. We expect adjusted EBITDA to be about $45 million for the year ending January 2026, representing approximately 55% year-over-year growth. We have made progress with our strategic tax planning and now expect non-GAAP tax expenses to be about $11 million, an improvement from our initial estimate of $13 million. With this updated and improved outlook, we now project annual non-GAAP EPS to be $0.23 at the midpoint of the revenue range. Turning to cash flow, we remain confident in our ability to generate $45 million of operating cash flow in FY26, reflecting both strong collections discipline and expanding profitability. Before I summarize, we are pleased to report that the class action lawsuit was fully dismissed with no additional appeals possible. To summarize, we continue to execute against our strategic priorities with a strong focus on delivering results. We have good visibility into our business, supported by healthy demand, which gives us confidence in our momentum and our outlook. The fundamentals we have built: recurring revenue, operating leverage, and targeted investment in strategic growth areas are durable and support our confidence in the long-term value we are creating. This is also reflected in our strong balance sheet and is especially evident in our capital allocation approach. With strong fundamentals, we believe we are well-positioned to sustain our momentum and continue delivering profitable growth this year and beyond. With that, I would like to hand the call over to the Operator to open the lines for questions. Operator? Operator: Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question at this time, you will need to press star one one on your touch-tone telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Matthew Kalitri from Needham, you'll understand open. Matthew Kalitri: Hey, guys. This is Matt Kalitri over at Needham. Thank you for taking our questions, and nice to see the revenue outlook raised again. Can you help us think through your updated assumptions there around the U.S. federal environment, the group's contribution, and any contributions from the large deal signed during the quarter? Elad Sharon: Yeah, hi, Matt. When you look at the guidance, we look at our existing customers as well as the new opportunities. The U.S. represents a significant opportunity for us, given that it's a large territory with many security agencies. We continue to make investments in order to expand presence, increase market reach, expand the partner network, and invest more in marketing. Having said that, in the shorter term, the U.S. presents a small portion of our business, so we are not relying in our guidance heavily on the U.S. We do believe that the U.S. will become a more significant portion of our business over time. In terms of the federal agencies, we do have lots of traction with federal agencies. We run POCs and demos very successfully, actually. The LexisNexis Risk Solutions partnership is also a tailwind for us in order to access faster and more efficiently both federal agencies, and actually, they started working with us already. I do not expect the numbers to increase fast, given that first, it takes some time to sell to the federals, but also, we know that there are certain budget issues in the federal agencies. Some of them are still in continuing resolution budget behaviors, so it will take some time. To summarize, the U.S. is a significant opportunity for us. We do not rely on it heavily in the shorter term. We do believe that it will accelerate over time, and we see very good indication across the board in the federal and state and local in the U.S. In terms of GroupSense contribution to this one, GroupSense is a relatively small acquisition. We want to increase the market access for cyber threat intelligence. We actually are on track with the integration of GroupSense into Cognyte Software Ltd. We are approaching their customers, and we are trying actually to push the Luminar technology into the customer base. It looks good. We are on track, and we will continue this effort as part of the many other initiatives that we are running in order to expand presence in the U.S. Matthew Kalitri: That's great. Thanks so much there. With the U.S. specifically, how are conversations compared to expectations? I know you said budgets remain a challenge, and that's consistent with what we're hearing. Are budgets starting to open up at all, or is it a lot of the same still? Elad Sharon: First of all, all our judgments related to budget headwinds coming from the U.S. are based on our guidance, so we shouldn't be surprised, right? We do see the behavior all over. It's not just Cognyte, but we hear it from others. We know that there are certain headwinds that we have to take into account in the U.S. Having said that, if you look at the few last quarters, we were able to acquire new state and local customers. We were able to have very strong POCs and demos. We pushed out incumbents. We already got follow-on orders from some of them. We engaged with federal agencies. We ran POCs. Earlier in the call, I gave an example of a very successful POC where the customer was able, a prospect customer actually, was able to generate value very fast from our technology that he couldn't do within the current technology they have. Generally speaking, we believe that our strategy to expand presence in the U.S. is the right one. Of course, we take into consideration that penetration mode takes time, and the headwinds in the budgets now that we see in the federal agencies are also temporary disruptions, but it doesn't change our strategy that the U.S. should be a growth opportunity for us over time, and that's the reason we continue to invest. Matthew Kalitri: Understood. Great to hear. You're still expecting an 87%, 13% split between software and professional services for the year. Is there any seasonality at play with that, or what gives you confidence that the software revenue mix will increase in the second half this year? Elad Sharon: There is no real seasonality that can take place on the professional services, but if you look at the first, the reason that we're doing professional services, professional services we are doing in cases that we believe that this can allow the customer to generate the value faster from our solution and actually allow us to grow with the customer faster. You can see that professional services recognize based on certain revenue accreditation criteria, so there is fluctuation between quarters in the professional services. The reason that we believe that we will continue to have the level of mix of 30% of professional services and 87% of software is actually the visibility that we have. We do have visibility into our next 12 months and specifically in the next two quarters, which gives us the confidence that we will be able to achieve it. If you think about that, you can see that our software revenue is growing fast, and you can see that our gross margin is improving. This is something that we are also very pleased. We now raised the guidance of the gross margin to be 72%, and it gives us also the confidence that we will be able to achieve the 73% in the long term. From an overall perspective, we are in a very good shape on achieving our financial targets. Matthew Kalitri: Very helpful. Thank you. Operator: Thank you. Our next question coming from the line of Joshua Husk with Evercore. Have all your lines now open. Joshua Husk: Hey, guys. Can you hear me? Hello? Operator: Yes, we can. Joshua Husk: Yes, we can hear you. Hey, guys. Thanks. Quick question. On the quarters together, just clarify how much of the growth came from existing customers buying more products versus data growth. I know your growth is driven by data growth and new products being adopted by your customers. Can you give us some color on how much of the growth this quarter was driven by data versus new products? Elad Sharon: When you look at our growth strategy, actually, there are three pillars, three main pillars. The first one is the current customer base, the existing customer base, and we have a very significant task that we believe. We have hundreds of customers around the world in nearly 100 countries that continue to buy from us, either expansions related to data capacity and diversity, functionality upgrades, or more use cases. The second one is related to acquiring new logos. Actually, we acquired about 30 new logos in H1 this year. The third one is midterm, actually the acceleration of our performance in the U.S. In general, the main growth is usually coming from the existing customer base, and the reason is that when you acquire a new customer, usually they start small, and when they grow over time, they're already considered existing customers. For that reason, usually you'll see the growth coming from the existing customer base. Whether it's data or functionality, it's usually both. The reason is that we continue to innovate and actually release more capabilities and generate more value and uncover more hidden insights out of the same data sets customers have. The customer, in order for them to be successful in the mission, they have first to cover all data sources that they have and analyze it in a very efficient manner. They also have to be able to get strong analytics in order to have the insights and get the decisions, the right decisions on time. To summarize, mostly existing customers are the driver for the growth, but the reason is that the new customers start small and grow over time, and by then they are considered already existing customers. Joshua Husk: Yep, very helpful. Elad, you mentioned that you had some displacement of incumbents in Europe, and I think even in the US, you said you displaced some of the existing vendors. Can you talk about what is driving that displacement? What is your secret sauce or what is the functionality that you bring to the table that is allowing you to displace the incumbents? You mentioned, I think, in EMEA as well as in the US. Elad Sharon: Yeah, so actually, when we look at the market, we understand that the demand drivers are related to three dimensions. The first one is data. We just discussed it. The second one, the adversaries are getting more sophisticated. They use advanced tools to evade detection. They also use new technology. The third one is technology that is running really fast. Technology running really fast means that actually it can be an advantage for our customers, for security agencies, if they implement it and use it sooner than the bad guys. It also can be a challenge for them if they don't use it because the others are using it. For example, in order to use fake identities and to create or to encrypt their doing. In order for security agencies to be more successful, they must stay ahead of the bad guys. For that reason, we invest in R&D, and actually, our investment in R&D is relatively significant in order to be able to keep our customers ahead of the adversaries. We add more AI capabilities, analytics, and GenAI. We improve the workflows of the users. We give them some automation inside the solution in order to be more effective. We maintain the solution to be able to be utilized by simple users and advanced users. Actually, the most important one is to be able to deal with data that is growing really fast and the functionality, which is primarily analytics that can generate more insights out of the same data set. Usually when we push incumbents out, it's because we show either by POCs or demos. I gave an example earlier in the call. We actually encourage prospective customers to go for a POC, not just to get the proposal and see the compliance because everybody is compliant to everything. We encourage customers to test the technology. Actually, we educate them. They try it, and after they try it and they see the results compared to incumbents, they choose to move to us. It happened to us in many territories, and I gave two examples today. It happened in the U.S., and it also happened in EMEA this time. Actually, this is not new to us. It happens again and again, and the main reason is actually maintaining the superiority of the technology in a way that makes our customers' mission more successful. Joshua Husk: Ana, the majority of the growth comes from existing new logos. It's still a small portion of the growth driver. When you think about new logos acquisition, how much of that is displacing an existing vendor versus completely greenfield? Is there a lot of greenfield out there, or most of the new logos that you acquire are coming from displacing an incumbent? Elad Sharon: It's a mix. Actually, some new logos are coming from new territories, like in the U.S. We were not operating in the U.S. a few years back, so every new logo that we get from the U.S. is a new territory. Actually, we haven't been there before. In other cases, it could be other new departments at the same organization in a customer that we already have, or it could be new agencies in the same country we're operating in already. For example, we serve today the national security only, and then we are able to acquire also the law enforcement and the military intelligence. It's a mix, I would say. It's not either this or that. It's both. Joshua Husk: Got it. I just have a few more. Maybe for David. David, the billing summary was very strong this quarter. I think if I look at the seasonal jump from Q1, it seems stronger than usual seasonality. Anything to call out in the billing strength this quarter? David Abadi: I couldn't hear the beginning of the question. Can you repeat? Joshua Husk: Yeah, the billing summary this quarter was very strong. I think if you look at the typical seasonality, you don't see a big jump from Q1 to Q2, but I think this quarter we saw a big jump in billings. I believe last quarter was $78 million, and I think you're doing $93 million this quarter in billings. That seems like a big jump. Anything to call out? Anything specific that drove that strength in billings this quarter? David Abadi: Actually, billing is impacted from multiple things. It could be certain milestones of the billing per the contract. It could be based on new orders that come with the advances. It could be a lot of things that impact. If you look at the overall trend, you can see that in the level of the 12 months, we see that the billing is strong, is in a similar level of revenue, which means that we have a quality revenue. There is nothing specific for this quarter to call. We are very pleased with the number that we have this quarter because it was a strong one, and obviously, we want that this number will continue. Joshua Husk: Very helpful. The recurring revenue mix of 48%. I think that's been pretty consistent. Do you expect that to trend up quite a bit, or should we see that level of 48% sort of sustained in the next few quarters? David Abadi: Recurring revenue consists of two major pillars. One of them is the support, which is the vast majority. The other element is subscription. Subscription is split into two things. One of them is the SaaS, which is a very small number, and the other one is the term-based. The term-based can play a role here with the fluctuation. If we look at the fundamental of the recurring itself, what is recurring? If I say support and SaaS, do you see that they are growing over time? Looking ahead, we believe that, for example, in the beginning of next year, you will see some improvement in the recurring revenue because we closed some deals in subscription that will be active next year. Overall, I would say that in the long term, you will see some improvement in the recurring revenue, but we are very pleased with the recurring because if you look at that, today we have 48% or 49% of our total revenue is recurring, while the vast majority of ours is perpetual. The offering by itself is perpetual, and we are able to drive recurring revenue, although we see customers that are still buying on perpetual. Given the fact that we want over time to increase our subscription offering, we believe that the overall trend that you will see is that recurring is growing. Joshua Husk: Yeah. One last one from you guys. Elad, I know you mentioned that the U.S. is still early. You're not assuming a lot of contribution from the U.S. for your guide for this year, but we also have a long-term guide of $500 million. Are you assuming that the U.S. becomes a sizable portion of your revenue mix to get to that $500 million, or the U.S. doesn't have to inflect that much for you to reach your $500 million target? Elad Sharon: Yeah, so when we guide, of course, we have a few pillars that we work on in order to be able to balance between risks and opportunities, et cetera. Having said that, we did take into consideration, and we have the baseline to do that, that the U.S. will grow over time because of a few data points. The first one is that we today know, it's not a question mark, but we know that the product-market fit to the U.S. market is excellent. We know that. We know that because customers that either bought from us already or POCing or seeing demonstrations, they tell us that. This is one. Second, we're able to get follow-on orders already. Third, we do see that partners would want to work with us more than before because they also recognize the strength of the technology. We did see that we are able to acquire new customers over time, not yet in the federal, but you have to remember that with federal, we started after we started with state and local. Taking all of those data points together, we do see the potential challenge in the U.S., and I do expect the portion of the revenue coming from the U.S. to grow over time. Joshua Husk: Got it. That's it from you guys. Thank you. Thanks. Operator: As a reminder, to ask a question, please press star one one. Our next question coming from the line of Charlie Zhou with Evercore. You'll understand, open. Charlie Zhou: Hi, thank you so much for taking that question. This is Charlie for Peter Levine. I just have two quick ones. First, could you please help us to think about how the overall deal pipeline is turning versus six to twelve months ago? If you have observed any incremental pressure from macro, and secondly, just in terms of the overall threat landscape, have you seen any new trends in the public sector? Any color would be super helpful. Thank you so much. Elad Sharon: Charlie, I understand that you're asking about the demand environment, right? That's what you're trying to understand. Charlie Zhou: Yes. Elad Sharon: Is that correct? Charlie Zhou: Yeah. Elad Sharon: If you look globally at the market, we all see that the world is not getting safer. The security pressure is growing all over. The borders are blurred between criminal activities and terror activities. They're actually cooperating. The technology is a benefit for the bad actors to evade detection. The challenge of our customers is growing. For that reason, we do see a healthy demand environment. Customers need to modernize the solution. They have to deal with more data. They have to have more analytics in order to uncover insights, including hidden insights out of the data that they have. They have to understand who is doing what, when, with whom, why, and also to have predictive analytics to actually be able to predict what would be the next potential threat in order to neutralize it before it unfolds. The challenge on our customers and security agencies is growing dramatically. For that reason, we believe, and we also see that, that the demand is very healthy. We do see this in the amount of POCs and demos we are doing. We do see this in the traction with existing customers that want to modernize and to upgrade and expand. We do see this in the industry conferences that we are participating in. Many meetings, many demonstrations, customers, and also prospectives are keen to hear from us what's new, what we are going to have soon. The demand drivers are very strong, and the environment overall is very healthy. Charlie Zhou: Great. Thank you. Elad Sharon: You're welcome, Charlie. Operator: Thank you. I'm showing no further questions in the Q&A queue at this time. I will now turn the call back over to Dean for any closing remarks. Dean Ridlon: Thank you, Livia, and thank you everyone for joining us on today's call. Please feel free to reach out to me should you have any questions, and we look forward to speaking with you again next quarter. Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good day. And welcome to the Lakeland Fire and Safety Fiscal Second Quarter 2026 Financial Results Conference Call. All lines have been placed in a listen-only mode and the floor will be open for questions and comments following the presentation. During today's call, we may make statements relating to our goals and objectives for future operations, financial and business trends, business prospects, and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings. Our actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. On this call, we'll also discuss financial measures derived from our financial statements that are not determined in accordance with the US GAAP, including adjusted EBITDA, excluding FX, and adjusted EBITDA, excluding FX margin, organic sales, adjusted gross profit, adjusted organic gross margin, and adjusted operating expenses. A reconciliation of each of the non-GAAP measures discussed in this call to the most directly comparable GAAP measure is presented in our earnings release and/or the supplemental slides filed with our earnings release. A press release detailing these results was issued this afternoon and is available in the Investor Relations section of our company's website ir.lakeland.com. At this time, I'd like to introduce your host for this call, Lakeland Fire and Safety's president, chief executive officer, and executive chairman, Jim Jenkins, and chief financial officer and security secretary, Roger Shannon. Mister Jenkins, the floor is yours. Jim Jenkins: Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 2026 second quarter ended 07/31/2025. We continue to build momentum in 2026 despite the challenging tariff environment, as we focused on recent acquisition synergies, increasing our market share within the fragmented $2 billion fire protection sector in the largest global markets, growing our global industrial products business. Roger will go over the financials in more detail shortly, so I'll provide you with a brief overview. We achieved record net sales of $52.5 million, representing a 36% year-over-year increase. Driven by a 113% increase in fire service products and the ongoing momentum from our recent acquisitions. In The US, our net sales increased 78% year-over-year to $22.1 million. And in Europe, our net sales increased 113% year-over-year to $15.1 million. We anticipate continued robust growth in our fire services, both organically and through acquisitions, as well as in our industrial segments in the months and years ahead. Adjusted EBITDA, excluding FX, was $5.1 million, an increase of $2.4 million or 89% compared with $2.7 million for the comparable year-ago period. Sequentially, our adjusted EBITDA increased $4.5 million or 740%. Adjusted gross profit as a percentage of net sales in the second quarter was 37.4% versus 41.1% in the comparable year-ago period but increased 220 basis points sequentially from 35.2% in the first quarter. Our adjusted gross margin percentage decreased in the second quarter for fiscal 2026 compared to the same period last year. Primarily due to lower acquired company gross margins, increased material costs, and tariffs. Partially offset by a reduction in profit and ending inventory. Margins in the acquired businesses were impacted by increased material costs, and amortization of the write-up in inventory as part of purchase accounting. A largely anticipated $3.1 million food order through Jolly Scarfe also contributed materially to the quarter, as part of our previously awarded four-year supply contract from the Italian Ministry of the Interior. Which provided 47,500 intervention boots for firefighters. Our manufacturing facility in Romania provides high production flexibility, and every detail of the boot was custom designed to fully meet the fire brigade's requirements. Additionally, we are diligently working to bring an NFPA certified Jolly Boot To The US markets. The world's largest market for fire turnout gear. While this launch has taken longer than originally anticipated due to certification backlogs, we expect to bring the boot to The US market in 2026. Jolly's strong brand has a well-established reputation for producing high-quality, innovative, professional footwear designs and manufacturing in the growing first responder safety market. Additionally, the recent announcement of our facility closures and the $6.1 million sale and partial leaseback of our Decatur facility further strengthens our balance sheet and supports our M&A activity. The sale was part of the company's previously disclosed financial and operational initiatives aimed at streamlining global operations and improving profitability. Lakeland has begun a search for a new upgraded warehouse, logistics, and lab facility in a more strategic location to replace the Decatur facility. Combined with our previously announced closures, which include the planned closures of our warehouse facility in Hull, England, and Meridian manufacturer facility in Whitman, Arkansas. These initiatives are expected to streamline global operations, improve profitability, and generate annual savings of approximately $1 million for the remainder of fiscal 2026. We have further identified and are executing initiatives expected to yield an additional $3 million in annualized savings. With the benefits anticipated to materialize in 2026. We believe these efforts will enable higher margins and build a more agile, and cost-effective Lakeland in the longer term. On the capital markets front, during the quarter ended 06/30/2025, we saw an increase in reported institutional holdings by 447,000 shares or 6.2% to 7,622,035 shares and the number of institutional holders rose from 90 to 94 from 82. Most notably, our recent inclusion on the Russell Broad market 3,000 index and 2,000 index due to our expanding market capitalization is a significant milestone resulting from our revenue and global momentum. The second quarter reflected the impact of tariff uncertainty and the associated mitigation strategies we have employed since the election. Our diversified manufacturing footprint enables us to adapt effectively to shifting trade dynamics and minimize potential disruptions. This flexibility enables us to maintain stability across our supply chain and production processes even in the face of uncertainty. Including in the Latin American industrial space, one of our high-margin geographies. Our focus remains on strengthening customer relationships, driving operational efficiency, and maintaining sound financial stewardship. Our positioning within two relatively recession-resistant sectors, industrial and fire, continues to provide us with a solid foundation. We are not entirely insulated from the uncertainty surrounding global tariff developments, but we are navigating this period with clear priorities, thoughtful planning, and strong confidence in our long-term outlook. Looking ahead into the remainder of fiscal 2026, we remain focused on growing revenue in our fire services and industrial verticals. Implementing operating and manufacturing efficiencies to achieve higher margins significantly reducing operating expenses. And continuing to navigate tariff uncertainties. We are also continuing to execute on our strategic acquisition strategy by integrating acquired companies and realizing cross-selling and operational synergies to accelerate growth while also pursuing opportunities in the fire suit rental, decontamination, and services business. Efforts to integrate and optimize our recent fire services product acquisitions are going well. We are particularly excited about our recent Meridian acquisition and are very pleased with the efforts of the Viridian and Lakeland sales and operations team to integrate the business and expand sales opportunities. To expand our firefighter protection offerings and further consolidate the fragmented fire market, we are continuing to pursue M&A opportunities within the fire suit rental decontamination, and services business. Particularly within The United States. Our acquisition pipeline remains strong, with this recurring revenue services channel, and we are actively engaged in several strategic discussions that align with our growth strategy. With expected activity in the second half of the year. We will utilize our strong balance sheet to support this acquisition strategy with a focus on efficiency, reducing costs, and financial and operational agility. With the four recently completed acquisitions, which added product line extensions either made of new products and expanded our global footprint, We are well-positioned to grow our global head-to-toe buyer portfolio and generate long-term value for our shareholders. With that, I'd like to pass the call to Roger, to cover our financial results and updated guidance outlook. Roger Shannon: Thanks, Jim, and hello, everyone. I'll provide a quick overview of our fiscal 2026 second quarter financials before diving into the details. Revenue for the quarter grew $14 million year-over-year to a record $52.5 million, an increase of 36% compared to 2025. Consolidated gross margin decreased from 35.9% from 39.6% for 2025 while our adjusted gross margin decreased to 37.4% as compared to 41.4% in the year-ago period. Adjusted operating expense increased by $1.4 million from $13.2 million in Q2 of last year to $14.6 million in 2026 primarily due to inorganic growth. Net income was $800,000 or 8¢ per basic and diluted earnings per share in 2026 compared to a net loss of $1.4 million or $0.19 per basic and diluted earnings per share for 2025. Adjusted EBITDA, excluding FX, was $5.1 million for the quarter. An increase of $2.4 million or 90%. Compared with $2.7 million for 2025. Adjusted EBITDA excluding FX margin in 2026 was 9.6%. An increase of 270 basis points from 6.9% in 2025. And an increase of 830 basis points from 1.3% in 2026. Cash and cash equivalents were $17.7 million on 07/31/2025, compared to $17.5 million on 01/31/2025. On a consolidated basis, for 2026, domestic sales were $22.1 million representing 42% of total revenues. And international sales were $30.4 million, accounting for 58% of total revenues. As our recent Meridian acquisition contributed to increased US revenue. This compares with domestic sales of $12.4 million or 32% of the total and international sales of $26.1 million or 68% of the total in 2025. Looking at 2026, our quarterly revenue continued to grow both organically and through acquisitions. Sales from our recent acquisitions accounted for $9 million of the year-over-year revenue increase. While organic sales increased $5 million or 14% over the prior year. Sales of the fire services product line increased by $13.6 million year-over-year driven by $5.2 million in sales from Viridian, and a net increase in sales of $7.3 million from LHD and Jolly, as well as organic fire services growth of $1.2 million. Adjusted gross profit for 2026 was $19.6 million an increase of $3.8 million or 24% compared to $15.8 million for 2025 due primarily to higher organic and inorganic sales partially offset by lower gross margins. Adjusted gross profit as a percentage of net sales decreased to 37.4% for 2026 from 41.1% for 2025. But we did see a sequential increase of 220 basis points from 2026. Due primarily to an anticipated partial reversal of a purchase price variance expense recognized in the prior quarter. On an adjusted basis, operating expenses excluding foreign exchange were $14.6 million in the fiscal second quarter more accurately showcasing the decreases in both our organic and inorganic segments resulting from the new cost reduction initiatives. On a sequential basis, adjusted operating expenses decreased by $1.3 million or 8.1% due to focused cost control measures and the previously mentioned initiatives. Adjusted EBITDA excluding FX was $5.1 million for the fiscal second quarter an increase of $2.4 million or 90% compared to $2.7 million for 2025 and an increase of $4.5 million or 740% compared with $600,000 for 2026. This significant increase was the result of record revenue and OpEx improvements along with sequential margin improvement, which drove adjusted EBITDA excluding FX margin higher by 270 basis points to 9.6% in the most recent quarter and increased from 6.9% in 2025 and 1.3% in 2026. Adjusted EBITDA excluding FX margin in 2026 was 9.6, an increase of 270 basis points from 6.9%. Revenue for the trailing twelve months ended 07/31/2025 was $191.6 million. An increase of $53.9 million or 39% versus the Q2 fiscal 2025 trailing twelve-month revenue of $137.7 million. With our recent fire services acquisitions supporting Lakeland's continued revenue growth. Spreading twelve months adjusted EBITDA, excluding the impacts of FX. Was $16.5 million compared to $14.5 million for the prior quarter's trailing twelve months. The improvement was driven by higher revenue and expense reductions resulting from initiatives undertaken beginning midway through Q2. We expect this positive trend to continue into 2026. Considering that we completed four major acquisitions in the past twelve months, the full integration and implementation of which requires some time, we believe the resulting synergies and efficiencies will begin to translate into even stronger financial performance in the coming quarters. Adjusted gross margin percentage decreased in 2026 to 37.4% compared to 41.1% in the same period last year, due to lower acquired company gross margins. Increased material and supply chain costs, tariffs, and higher inventory reserves, partially offset by lower profit and ending inventory expenses versus the prior year. Margins in the acquired businesses were impacted by increased material costs and amortization of the write-up in inventory as part of purchase accounting. Adjusted organic gross margin percentage decreased to 39.3% from 41% for 2026. Primarily due to increased sales in lower margin regions. Adjusted gross margins did increase sequentially by 220 basis points, as previously mentioned, from 2026 primarily to anticipated partial reversal of the purchase price variance expense recognized and as we discussed in the previous quarter, and a partial quarter of expense reductions from the previously discussed operational cost reductions. Adjusted EBITDA excluding FX for 2026, as mentioned, was $5.1 million an increase of $2.4 million compared with $2.7 million for 2025. The increase was driven by strong performances in North American sales, sales from acquired companies, notably Veridian, and lower profit in ending inventory expenses partially offset by increased material and supply chain costs and tariffs. We anticipate sequential growth in gross margin and adjusted EBITDA excluding FX. In the third quarter. Reviewing our performance for the second quarter, our most recent acquisition, Meridian, contributed $5.2 million in revenue during the quarter, and LHD added $5.4 million across all three subsidiaries Germany, Australia, and Hong Kong. We expect sales from all of our fire services subsidiaries to accelerate as we fulfill open orders, capitalize on cross-selling opportunities, and roll out Jolly and Pacific products to The US, the world's largest fire market. Looking at our organic business, our US revenue increased 78% to $22.1 million from $12.4 million driven by continued growth in our Lakeland fire services and industrial businesses. Our European revenue including Eagle, Jolly, and our recently acquired LHC business, grew 113% to $15.1 million. We continue to see very good sales opportunities in Europe and are committed to its growth trajectory. Our Latin American and Mexican operations experienced a $3.6 million decrease in sales from $9.1 million in the year-ago period to $5.4 million in the current quarter. Primarily due to ongoing delayed purchase decisions resulting from tariff uncertainty. In Asia, however, we saw sales increase 6% year-over-year from $3.5 million to $3.7 million in the current quarter. Regarding product mix, for fiscal year to date 2026, our fire services business grew to 47% of revenues versus 38% for fiscal year 2025. Driven by a full quarter of Meridian sales and organic gains in The US. For our industrials product lines, disposables accounted for 27% of the year-to-date revenue while chemicals accounted for 12%. The remainder of our industrial products, including FRAR high performance and high vis accounted for 14% of sales. Now turning to the balance sheet. Lakeland ended the quarter with cash and cash equivalents of approximately $17.7 million and long-term debt of $28.1 million. This compares to $17.5 million in cash and $16.4 million in long-term debt as of 01/31/2025. As of 01/31/2025, the long-term debt included borrowings of $24.9 million outstanding under the revolving credit facility of Bank of America with an additional $15.1 million of available credit under the loan agreement. We were in compliance with all credit facility covenants. Following the Q2 quarter end, we sold our Decatur Alabama property for $6.1 million less customary commissions and closing fees. And applied 100% of the proceeds to repay our revolving credit facility. Net cash used in operating activities was $9.7 million in the six months ended 07/31/2025. Compared to $4.1 million in the six months ended 07/31/2024. The increase was driven by an increase in inventory and AR and a net loss of $4.9 million. Capital expenditures totaled $2.1 million for the six months ended 07/31/2025. Primarily related to investments in our new SAP ERP system. We anticipate FY '26 capital expenditures to be $4 million. At the end of Q2, inventory was $90.2 million up from $85.8 million at the end of Q1 fiscal year 26. And $67.9 million in the same period last year. We have recently initiated a series of targeted actions to optimize inventory levels across specific categories. Our immediate priorities include US critical environment, Jolly, LHC Australia, and Viridian, where we see the greatest opportunity to align balances with demand and improve efficiency. Inventory of acquired companies totaled $15.4 million versus $6.4 million last year. $6.4 million of the acquired inventories increase came from the Meridian acquisition and LHC's inventory increased by $2.6 million versus last year. Year over year, we saw an increase in our organic inventory of $13.3 million versus the quarter ended July 31, 2024. Organic finished goods were $39.3 million in 2026, up $10.3 million year over year and up $2 million quarter over quarter. Organic raw materials were $33.4 million in 2026, up $2.4 million year over year and up $1.2 million quarter over quarter. With that overview, I would now like to turn the call back over to Jim before we begin taking questions. Jim Jenkins: Thank you, Roger. In conclusion, we continue to demonstrate strong net sales growth, including a 14% increase in organic growth reflecting the strength of our underlying business. This growth is further supported by a 113% year-over-year increase in our prior services, as well as strong regional performance in The US and Europe. Of 78% and 113%, respectively. Our near-term strategy is focused on expanding top-line revenue in our fire services industrial verticals, while driving operating and manufacturing efficiencies to deliver higher margins all against the backdrop of ongoing tariff uncertainties. Looking long term, our strategy remains to grow both our fire services and industrial PPE verticals through our strategically located company-owned capital light model. By maintaining a focus on operating and manufacturing efficiencies, we believe we are positioned to grow faster than the markets we serve. Our acquisition pipeline also remains robust. With active discussions underway in line with our overall growth strategy. We expect continued top-line revenue growth in our fire services and industrial verticals combined with operating and manufacturing efficiencies, However, given the ongoing uncertainty with the global tariff environment, we are adjusting our fiscal year 2026 outlook for adjusted EBITDA excluding FX to the $20 million to $24 million range and expect fiscal year 2026 revenue to be near the lower end of the $210 to $220 million range. Looking further ahead, we believe our cost discipline acquisition strategy and operational improvements will position the company for accelerated growth over the next three to four years. As we look forward as we look towards the future, we are confident that our continued focus on cost discipline, targeted acquisitions and operational enhancements will serve as key growth drivers over the next three to four years. As we scale, we anticipate steady expansion in EBITDA margins moving into the mid to high teens range over the next three to five years, driven by improved efficiencies, a stronger product mix, and disciplined pricing execution across the platform. We look forward to sharing upcoming milestones in the weeks and months ahead as well at the Lake Street ninth annual best ideas growth big nine conference this Thursday in New York City and the DA Davidson twenty-fourth annual diversified industrials and services conference next week in Nashville, Tennessee. With that, we will now open the call for questions. Operator? Operator: Thank you. We'll now be conducting a question and answer session. You may press 2 if you like to remove your question from the queue. One moment please while we pull up for questions. Our first question is coming from Mike Shlisky from DA Davidson. Your line is now live. Mike Shlisky: Hi. Good afternoon. Thanks for taking my questions. Hey, Mike. I just want to start just by discussing the full-year guidance and what the back half implied numbers are. It's looking like and I you know, we'll get the exact we can dig deep to the exact numbers later, but roughly $8 million a quarter in EBITDA. To round out the, you know, $20 to $24 million for the year. I'm kinda curious. And that does suggest a pretty good margin improvement between the second quarter and the third and fourth year. Is that the right runway to like look at beyond 2025 into '27? And there's a sense as to whether any large lumps year over year in the fiscal 2027 outlook. Roger Shannon: Hey, Mike. It's Roger. And I I I don't believe that's gonna be the right run rates like we discussed in our comments. We do, you know, very much believe that the you know, the modestly lower, EBITDA that we're seeing in the year that resulted in us kind of resetting the EBITDA to the 2024 range was a result of what we're seeing in LATAM and Mexico. You know, we talked about very nice strong growth in The US. Resumption in growth, really. And most areas around the world. And even that comes during a period where we're seeing fire services, large tenders, and RFP in both The US and Europe come out, roll out at a slower pace than expected due to know, different types of physical policy in Europe as well as just kind of some waiting in The US. So, you know, even with that, we were pleased with with US performance. But if you look at you know, what we had in Latam with almost $4 million kinda down year over year. That that region specifically has kinda taken a larger share of of the impact, and we don't expect that to be the run rate going forward. In fact, we you know, from what we're seeing on the ground, in both The US and fire services and in Europe, we expect that RFP activity to pick up And and we expect LATAM to to pick up in the back half of the year, just unfortunately not in a pace that would make up the year to date. Decrease. Mike Shlisky: Okay. Got it. And the the organic growth of 14%, seems very strong as well. In trying to untangle the the full year outlook and the kind of the longer-term trends, what's your expectation for full-year organic growth and kind of the broader into fiscal 2027, the approximate organic growth that you might be expecting. Roger Shannon: You know, I think that I think those percentages are still, you know, pretty consistent with kinda mid-teens. In the organic growth. Again, think they're depending on the timing of I'll let Jim chime in this. But but depending on the timing of when we see those fire services RFPs in certain large orders that we believe are kind of backlogged and expect to hit, you know, that that could increase in this year. We're just not Jim Jenkins: Yeah. I mean, Mike, there's there's a there's some lumpiness. Obviously, I think I've said this before on the fire. There's there's lumpiness in that revenue. So you could get some quarters where you do see, you know, mid-teens you know, organic growth. Followed by a, you know, a lower number. I I'm still staying with the high single digit, low double-digit organic growth. That's where that's our that's what we're modeling. That's what we're striving towards. And some some quarters, you get much greater than that, and then some quarters, get a little less than that, all based on timing of these tenders. Mike Shlisky: Okay. Got it. And then just one last one. You just you mentioned those in your comments there. The the M&A outlook and the M&A plan. Just I guess, can you update us on the targets that you're looking at in rentals or termination? Do you have any deals that might be more imminent than others? Or it's still very much in the early stages for most of the things that you're working with? Jim Jenkins: We're in the throes of I mean, I think we've said in the press release, and I think in the script, we we're we're in the throes of, you know, several conversations that are beyond conversations at this point. And that we'd expect, you know, a couple of these to close. You know, one or two of them to close in the, you know, the coming months. You know, as I said, the the model for this is you know, they're they're service related. It's, it's decontamination. There's a add on of rental There's there's potential add ons for repairs. And, you know, we would as I said, those are those are gonna be smaller deals than the deals we've been doing historically. But from a strategic perspective, very important to us. So you know, we as I said, I think the longer-term goal was to make sure we've got most of The United States covered. You know, with the with within the regions that we serve. And you then take a look at, perhaps greenfielding in other areas within, within the world. So you know, I I think that, when we say the the rope the the acquisition pipeline is robust, it's also imminent. Mike Shlisky: Okay. I greatly appreciate the comments. I'll pass it along. Thank you. Operator: Thank you. Next question is coming from Mark Smith from Lake Street Capital. Your line is now live. Mark Smith: Hi, Mark. Hi, guys. Hey, I wanted to dig into gross profit margin a little bit more here just as we think about the second half. What's kind of implied for tariffs and any kind of shift in timing, you know, for Q3 versus Q4 would be great. Roger Shannon: Yeah. We the the tariffs that's a great question. Great point. I appreciate you bringing that up, dude. The impact of the tariffs during the quarter was during this past quarter was about you know, 1.2 margin points. And you know, a large portion of that's due to the fact that you know, the the tariff numbers themselves jumped around a lot. Between different countries, especially ones we manufacture. And the timing of when we were able to implement price increases versus when the tariffs begin to impact us. So, you know, there certainly was a gap between the impact of the tariffs in the quarter and when the price increases started to take effect. And what we have seen in, like, pick July, the most recent month, or even in August, really, as we look at that, that is starting to balance out more. So so the benefit of the price increases is really kinda catching up more to the to the impact of the tariffs. The second thing that we saw in this quarter you know, if you remember, we had a, a a pretty large negative impact from the the the widely discussed purchase price variance that we hope and not talk about as much this quarter because it we did have a a pretty good reversal in that you know, from Q1 that kinda got us back into, you know, the higher thirties, but we do improvement in gross margin over the coming quarters. And I don't I I I've not sure I would see it you know, at at a 40 level again for the full year, but I think certainly getting closer to that in in the back end of the year. Mark Smith: Okay. And while we're on that, just as we look at the inventories, you know, they were up. It sounds like a fair amount of this is kind of pre-stocking stuff or tariffs. You know, how how comfortable are you with your inventory levels today? Jim Jenkins: Look. We're we we we consider them high. Okay? I mean, I'll be I'll be frank with you. I I I want to drive that we are gonna optimize our inventory and we're gonna drive them down over the course of the next six months. That is now we've got real line of sight on opportunities in both high performance and the turnaround business, which I think we've talked about earlier about some buildup associated with that. You know, we've identified LHD in in in Australia. They've got a buildup of inventory similarly in the in the high-performance area. As well that we would expect to, to move downward. And then Jolly's got, you know, additional buildup in some boots that they have in stock. That will be, you know, doing some promotions, introducing some new you know, new boots into new customers, in Jolly to help drive that activity. But, yeah, we're we're I I want I want that that inventory turn into cash as quickly as I possibly can, and and there's a there's a sense of urgency here to be doing Roger Shannon: And just give you some indication that the the activity on high performance has started or it's still you know, it has just begun in the quarter, but you know, certainly a a significant amount of stocking for that HP program in The US we've talked about. But just for some context, for for Q2, our high-performance business was up 64% year over year, almost a billion dollars. And then even over quarter one, it was up 39%. Over quarter one. So we're seeing some acceleration in that You know, our disposable business was overall was up 12% year over year. Of course, fire, we talked about chemicals up 7% year over year. It really is that wovens in in LATAM, and I think there is also inventory associated with that. That you know, that will will and needs to move. But there's you know, I really, make make most no mistake about it. We're not happy with the level of where inventory is. We're certainly, you know, certainly taking action to make sure that we balance production versus, you know, just producing, on open order type items and things that are must stock or that are you know, under a container program, etcetera. So know, we had taken some actions in anticipation of of the tariffs. I think we're you know, let's say, well stocked in critical environment. We're gonna be doing some things to to work that down, and that's problem I. At this point, But but, certainly, you know, we're we're gonna work to get those inventory levels. You know, probably back at least back into the 80 millions. Mark Smith: Okay. And if I squeeze in one more here, just have you seen any change yet in in combined in in Latin America, or is it still kind of skittish there today? Jim Jenkins: We're, we are starting to see some movement in Latin America. We, you know, we we had some delay in shipments, particularly in the fire space that we're gonna see in the second half of the year that we're we're we're very comfortable with because, obviously, we've got line of sight of that. You know, Latin America has got a very close relationship with end users, and, they have they're in a place where we're striving to be, particularly on the industrial side, in North America where they've got strong relationships with end users. So they've also got some visibility on the industrial side. So, you know, Roger made the point know, we're gonna see some substantial recovery, but not enough to get where we needed to we needed them to be you know, earlier in the year. So we're not gonna make up for all the lost, you know, value that we had, that we anticipated in the in the year, but we're gonna see a substantial catch up in the in the second half. And you know, we're we're we are now sort of twice a week checking in with with LATAM and where they are. And getting very comfortable with where they're driving this. Mark Smith: Excellent. Thank you, guys. Operator: Thank you. As a reminder, star one to be placed Our next question is coming from Gerry Sweeney from ROTH Capital Partners. Your line is now live. Gerry Sweeney: Good afternoon. Good evening. Hey. Jim. How are guys doing? Jim Jenkins: Fantastic. Gerry Sweeney: I wanted one more question on on tariffs. Maybe from a different angle. I'm just curious. Obviously, you kinda outlined the impact on margins, etcetera. But I'm wondering about maybe just more normalization maybe from two perspectives. One, your client perspective. Are they getting more comfortable with what's going on in sales picking up? Obviously, we see some decent organic sales, etcetera. But even secondarily, internally, right, you're a global company. You are a small cap, micro cap. Are you getting used to some of this variations and variability in tariffs and just getting our arms around that manpower which, you know, potentially could take away from sales optimization of and just running the everyday business. Jim Jenkins: You know, Jerry, the the that that's an interesting question. I I think the answer is we are getting used to the the the uncertain environment. You know, and we are, know, we are we are certainly coping with it, I think, a you know, in a much better way than maybe we were even, you know, ninety days ago. Mhmm. You know, operations operations has a lot of initiatives that they're working on from our Lean Six Sigma initiatives that we're working through, to, you know, shipping costs, warehousing consolidations. You know, those things serve the benefit you know, the bottom line. And they may not be an immediate quick fix fix, although some of them can be. As we witnessed sort of in the in the equipment consolidation. In Arkansas, and the hall closure, I I you know, those are things that we're that longer term, we'll continue to be focused on. And yeah. I mean, that the reality is once the tariffs are finalized, either the supreme court says one thing or the other, you know, it will be a one-time reality that we all from a competitive landscape, will deal with for that that annual period, and then we'll get through it. Yep. And it'll be a different world. So I I see see a light at the end of the tunnel here. I really do. I'm very optimistic with how we're we're handling it. And you're right. We are we are trying to you know, it it is we get we get what punch We think a punch is coming with a right hand and it comes from a left hand. So we do have to Yep. Adjust. But I'm I'm really pleased with how we're adjusting. Now if I can just get the end user customer to stop saying, well, let's wait until next month to see what the tariff looks like, That that's gonna help a lot. Gerry Sweeney: Got it. I apologize. I'm not sure if this was asked. Talked about RFPs coming out and they were a little bit slower than you probably anticipated. Maybe a little bit more color on what you're seeing and just a little bit more confidence in in terms of how that's going to develop. Not sure if they've been issued in your applying form or or what have you. Jim Jenkins: Well, we're in the throes of several of them. At this point. And, you know, as I've said before, these things sort of ebbs ebb and flow. And we're seeing real activity, but that activity will likely hit end of this fiscal year early into next year. Okay. The good news is that we've got, you know, lots of inventory to roll out to, to entice folks to to purchase. And, you know, we've acquired what I would call sort of products that don't necessarily need to wait on an RFP. A helmet, a glove, a hood. Right? Those are not a boot. You know, those are things Yep. Firefighters, you know, just like my wife, they lose gloves. You know, and, you get they gotta go buy more. So it it's, you know, it's it's not it's and so those are things that you know, my senior sales leadership is driving and driving their team to do. You know, when we we've we've tried things like tariff-free sales. We've and and and we're seeing some we're seeing some movement with So yeah, I I you know, as though and then as as we start getting those consistent sales with some of those products, and you know, you get a you get a tender that hits. We have one in The UK. We think we've got real positive signs on where we're gonna be with that just because we've had prior relationships there. We've got a few in Europe, several in Asia, and in, the APAC region. And and more in, in all the other regions that, you know, we reside with that portfolio. We're gonna see know, some some pops as a result of that. I would expect those into next year. The other thing is that as we continue to grow the service business, this this recurring revenue model that I think we all love, you know, we'll we'll see that in the coming months, you know, hopefully in North America. You know, as an add on to what we're doing in Australia and Hong Kong. You know. And obviously, goal for me is to have you know, a significant amount of that services driven decontamination revenue recurring for us driving other opportunities. Gerry Sweeney: Got it. No. That's helpful. And listen. I I mean, I I'd certainly appreciate you know, tariffs We come into the office every day, we see different headlines. So I I I get being in the trenches could be challenging. So we definitely appreciate that. Maybe a question for Roger. OpEx expense, I think you highlighted $1 million worth of savings, but targeting $3 million I think, in the second half of this fiscal year. As much as you can say, what are some of those what is the $3 million, and sort of what is the timeline? They gonna come sort of towards the end of the year or sometime in the, you fiscal three q and then some more fiscal four q? Roger Shannon: You know what? I think it's gonna be probably consistent over the rest of the year because, you know, the way you think about it is we we really started this initiative about halfway through the current quarter. I think we made pretty tremendous progress over over, say, June and and all of July And then there are other things, you know, for example, like the, whole warehouse lease that really didn't even have an impact in Q2 that will start over the rest of the year. So, you know, I I would expect to see it pretty consistently over the rest of the year. So, you know, we had we said we had targeted four. We hope it will actually be more than that. We've got got, you know, one one one point one million of it in the barn so far, and then you know, just gotta keep on executing. But we you know, and to that point, we really haven't stopped either. It's we've identified some big rocks and and but we're still chipping away and working on some things. Jim Jenkins: Mean, we're we're working on on some consolidation of warehousing in parts in you know, different parts of the world that my ops team has been been looking at. You know, we're looking at even local shipping you know, sort of consolidating that into one into one shipper. Those things you know, that's that's saving money, $50 in this area and a $100 in this area and all of a sudden it adds up. Gerry Sweeney: Yep. I get it. Okay. I appreciate that. Alright. I'll jump back in so I appreciate it, guys. Jim Jenkins: Thank you. Thanks, Jerry. Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments. Jim Jenkins: Thank you, operator. And and thank you all for joining us for today's call. And thank you to our customers and distributor partners worldwide for trusting us with your lives and safety. Lakeland continues to be well-positioned for long-term growth. If we are unable to answer any of your questions today, please reach out to our our IR firm MZ Group, and we'd be more than happy to assist. Thank you. Operator: Thank you. That does conclude today's teleconference webcast. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation today.
Jason Few: Good morning, everyone. Thank you for joining us on our call today. We continue to execute with discipline in our third fiscal quarter, delivering meaningful revenue growth while focusing on expanding our sales pipeline and improving our cost structure. The decisive restructuring actions we implemented in June are already yielding results, lowering costs, sharpening our focus on distributed power generation, and positioning us for investment in technologies and partnerships that can unlock future growth. I want to begin by underscoring what makes FuelCell Energy, Inc. distinctive. From our headquarters in Connecticut, we have established a global leadership position in electrochemical technology, delivering large-scale, always-on power, and advanced emissions management. We believe we see a once-in-a-generation opportunity to shape the transition to a clean energy economy that leverages abundant natural resources, and we believe we are positioned to play a meaningful role in empowering that future. Today, we live in a world where energy demand is accelerating at an unprecedented pace, driven by the exponential growth of AI, data centers, and technology. This is not a distant trend; it is a structural shift reshaping global energy markets today. A world where the existing grid cannot keep pace with these demands, requiring new approaches to provide firm, resilient, and clean power both in the near term and in decades to come. The need is clear, urgent, and investable. A world where we believe FuelCell Energy's people, innovations, and proven utility-scale distributed power platforms are uniquely positioned to meet these challenges. We bring decades of experience and differentiated technology. In connection with the implementation of our restructuring plan, our strategies and business plans have evolved. At the center is our carbonate power generation platform, the core of our business and the expected engine of our growth. We believe that broader deployment of this platform is our clearest path to profitability, supported domestically by favorable public policy tailwinds. At the same time, we continue to focus on innovating tomorrow's clean energy technologies and forging blue-chip partnerships, concentrating on the innovations we believe have the greatest potential for commercial impact and long-term value creation. On slide five, when it comes to the third quarter, I want you to keep four points in mind. First, global power demand is accelerating. Global power demand is rising at an unprecedented pace driven by AI, crypto, and the increasing density of servers inside data centers. FuelCell Energy's modular carbonate baseload power technology is a proven scalable solution available today to meet this demand with reliable, clean, always-on power. Second, strategic partnerships validate global scale. We believe that our commercial traction and partnership continue to validate our ability to scale globally. South Korea is our most active international market, where we are focused on unlocking commercial opportunities. Under our long-term service agreement with Goyne Green Energy Company Limited or GGE, the operator of the world's largest fuel cell park, we delivered eight replacement modules to GGE during the third quarter. We expect that this partnership will drive product revenue as we continue to deliver modules through the remainder of fiscal year 2025 and in fiscal year 2026. During the quarter, we entered into a long-term service agreement with CGN, the Osland Generation Company or CGN, a leading independent power producer in South Korea. CGN will purchase eight carbonate fuel cell modules from us, making a total of 10 megawatts of power, and we will provide long-term operations and maintenance services for that CGN power platform. Additionally, in the second quarter, we executed an MOU with Inuverse, a developer of next-generation AI-specialized hyperscale data centers, to explore opportunities to deploy up to 100 megawatts of fuel cell-based power starting in 2027 at the AI Donggu Data Center, which Inuverse hopes to develop into Korea's largest data center. I will speak in more detail about our Korean opportunities on a later slide. Beyond Korea, we continue to strengthen global relationships. Dedicated Power Partners is our partnership with Diversified Energy and Tessiak, which we formed for the purpose of meeting surging off-grid data center demand by powering these sites with our platforms using Diversified Energy's natural gas and coal mine methane resources. Our work also continues with ExxonMobil's low carbon solutions, ExxonMobil Technology and Engineering Company, and Esso Nederland BV to develop a pilot plan utilizing carbon capture technology at Esso's Rotterdam manufacturing complex. We continue to make good progress during the second phase of our commercialization of this technology while Esso continues to progress build-out of the infrastructure for the pilot plant. Additionally, with Malaysia Marine and Heavy Engineering and Idaho National Laboratory, we are advancing with capital efficiency our solid oxide electrolyzer technology. We are proud of our existing partnerships and look forward to further opportunities for our business. Third, US policy tailwinds. Domestic policy continues to create meaningful tailwinds for our business. One of the most impactful elements of the recently enacted One Big Beautiful Bill Act is the reinstatement of the investment tax credit, or ITC. By maintaining full ITC eligibility for fuel cell technologies, we believe that this legislation will ensure that companies like FuelCell Energy can continue to deploy US-built platforms at scale. We believe that the ITC can help us win projects with more cost-sensitive commercial and industrial customers, and we further believe the flexibility and long-term visibility of the ITC under the legislation will help to provide developers and investors with the confidence to accelerate deployment. We think the 45Q carbon capture sequester and utilization incentive will provide meaningful support for fuel cell carbon capture applications, like the applications we are developing jointly with ExxonMobil's LCS business, and reinforce our conviction that carbon capture will be central to meeting US energy goals. We are proud to partner with ExxonMobil and its affiliates in our work to commercialize this technology. US policy is also supportive of natural gas infrastructure expansion, recognizing the role of natural gas as a backbone fuel. We are pragmatic. We do expect the use of hydrogen will increase, but natural gas remains essential. Our carbonate platform is built to deliver clean power from a combination of both. We think Congress took a much-needed step to support a more inclusive approach to energy policy and that fuel cells fit well in the alternative power landscape. According to the Department of Energy, there are fuel cells running in 48 states, generating baseload power and operating as primary power sources. Fuel cells are optimized when they run continuously, which is why they are ideal for data centers. Given the numerous supportive policies around the world, we believe that FuelCell Energy is positioned well to take advantage of available opportunities. Finally, we are working to fortify our financial foundation. We closed the quarter with approximately $237 million in total cash and cash equivalents, providing ample runway to execute on our business plans. While our June restructuring resulted in significant noncash expenses, our cost control measures are trending strongly in the right direction and beginning to have positive effects. We remain on track to reduce operating expenses by 30% on an annualized basis compared to operating expenses incurred in fiscal year 2024. And we are targeting the future achievement of positive adjusted EBITDA once our Torrington manufacturing facility reaches an annualized production rate of 100 megawatts per year. The decisive steps we took are already paying off, strengthening our balance sheet, sharpening our execution, and positioning us for profitable growth. Moving to slide seven. Let me dive deeper into our market presence in South Korea and the opportunities ahead. South Korea has been one of the most forward-leaning nations in adopting fuel cell power to address growing electricity demand and advance a clean energy future. Its hydrogen economy roadmap has set a global benchmark for low to zero carbon power generation, and we are proud to be a trusted partner of GGE and CGN in supporting those goals. Beyond our recently announced MOU with InuVerse and our long-term service agreement with CGN, we continue to maintain a strong commercial relationship with GGE, Noel Green Energy, and Korea's Southern Power Company. Today, we have 82 modules installed or in backlog in Korea, representing 108 megawatts of clean power. On slide eight, let me update you on how FuelCell Energy is positioning itself to serve one of the fastest-growing markets in the world: data centers. We believe that our MOU with InuVerse to explore future opportunities focused on data and our partnership with Diversified Energy and Tessiak and Dedicated Power Partners are just the beginning. We are in conversations with leading data center developers, hyperscalers, and investors about how our platforms can meet their rising demand for reliable, clean baseload power. We hold a differentiated position in the energy sector as the only fuel cell manufacturer with demonstrated utility-scale platforms over 10, 20, and 50 megawatts with more than seven years of continuous run time and more than 17 million megawatt hours of power production. We believe our platform delivers reliability, superior efficiency compared to engines and turbines, and seamless integration with other energy sources. Regulatory momentum further strengthens this opportunity. The One Big Beautiful Bill Act reestablishes full ITC eligibility for fuel cell technologies, which we believe will help US-built platforms like ours scale into this generational data center demand. To seize this opportunity, we expect to leverage the scalability of our manufacturing base. The heart of our operations is in our Torrington, Connecticut facility, which is sized to accommodate an eventual annualized production capacity of up to 200 megawatts per year with additional capital investment in machinery, equipment, tooling, labor, and inventory. We also have a proven ability to localize manufacturing, as demonstrated in Korea. That flexibility to meet our customers where they are is a competitive advantage as we work to expand globally. We believe our supply chain, comprised of mostly US companies, is stable, giving us greater control over delivery and service timelines. This level of certainty is highly valued by our customers. We look forward to providing further updates in future quarters as we anticipate scaling our manufacturing to meet future demand. Let me conclude by reiterating. FuelCell Energy is delivering measurable progress on our strategy and restructuring. We are growing revenue, reducing costs, and focusing our resources on near-term commercial opportunities with the goal of long-term value creation. We believe the decisive steps we have taken are strengthening our foundation and positioning us to capitalize on commercial opportunities during one of the most important energy transitions of our time. The world needs more power: clean, resilient, affordable, and always-on power. And that is exactly what we aim to deliver. With that, I would like to turn the call back to our CFO, Mike Bishop. Mike Bishop: Thank you, Jason. And good morning to everyone on the call today. Let's begin by reviewing the financial highlights for the quarter shown on Slide 11. In 2025, we reported total revenues of $46.7 million compared to revenues of $23.7 million in the prior year quarter, representing a 97% increase. We reported a loss from operations in the quarter of $95.4 million compared to $33.6 million in 2024. This increase is mainly attributable to noncash impairment expenses of $64.5 million and restructuring expenses of $4.1 million incurred as a result of our previously announced restructuring plan. The net loss attributable to common stockholders in the quarter was $92.5 million compared to a net loss attributable to common stockholders of $33.5 million in 2024. The resulting net loss per share attributable to common stockholders in 2025 was $3.78 compared to $1.99 in the prior year period. Adjusted net loss per share attributable to common stockholders, which excludes the noncash impairment expenses, restructuring expenses, and certain other noncash items, was 95¢ compared to $1.74 in 2024. Net loss was $91.9 million in the third quarter of fiscal year 2025 compared to a net loss of $35.1 million in 2024. Adjusted EBITDA totaled negative $16.4 million in 2025 compared to adjusted EBITDA of negative $20.1 million in 2024. Please refer to the appendix of the earnings release, which provides a reconciliation of the non-GAAP financial measures adjusted net loss per share attributable to common stockholders and adjusted EBITDA. Finally, as of 07/31/2025, the company had cash, restricted cash, and cash equivalents of $236.9 million. Next, on Slide 12, you will see additional details on our financial performance and backlog. In the graph on the left-hand side, revenue is broken down by category. Product revenues were $26 million compared to $300,000 for the comparable prior year period. This increase is primarily attributable to the delivery and commissioning of eight replacement modules to GGE in Korea and revenue recognized under the company's sales contract with Ameresco Inc. Service agreement revenues increased to $3.1 million from $1.4 million. The increase in service agreement revenues during the three months ended 07/31/2025 was primarily driven by revenue recognized under the company's long-term service agreement with GGE. Generation revenues decreased to $12.4 million from $13.4 million, reflecting lower power output resulting from routine maintenance activities during the quarter. Advanced technology contract revenues decreased to $5.3 million from $8.6 million. Looking at the right-hand side of the slide, I will walk through the changes in gross loss and operating expenses. Gross loss for 2025 totaled $5.1 million compared to a gross loss of $6.2 million in the comparable prior year period. The decrease in gross loss for 2025 was primarily related to decreased gross loss from generation revenues and product revenues, partially offset by reduced gross margin on advanced contract revenues and service agreement revenues during 2025. Operating expenses for 2025 were $90.2 million, which included noncash impairment expenses of $64.5 million and restructuring expenses of $4.1 million recognized in 2025. Administrative and selling expenses decreased to $14.1 million during the period from $14.6 million during 2024, primarily due to lower compensation expense resulting from the restructuring actions taken in September 2024, November 2024, and June 2025. Research and development expenses decreased to $7.6 million during 2025 compared to $12.8 million during 2024. The decrease was primarily due to lower spending on commercial development efforts related to solid oxide power generation, electrolysis platform, and carbon separation and carbon recovery solutions. On the bottom right of the slide, you will see that backlog increased by approximately 4% to $1.24 billion compared to $1.2 billion as of 07/31/2024. As Jason noted, during the quarter ended 07/31/2025, the company entered into a new long-term service agreement with CGN. Backlog for the CGN long-term service agreement was allocated between product backlog of $24 million and service backlog of $7.7 million. Slide 13 is an update on our liquidity position. As of 07/31/2025, we had cash, restricted cash, and cash equivalents of $236.9 million. During the three months ended 07/31/2025, approximately 6.8 million shares of the company's common stock were sold under the company's amended open market sale agreement at an average sale price of $5.70 per share, resulting in net proceeds to the company of approximately $38.1 million. Subsequent to the end of the quarter, approximately 2.7 million shares of the company's common stock were also sold under the amended open market sale agreement at an average sale price of $4.55 per share, resulting in net proceeds for the company of approximately $11.8 million. In closing, we are taking deliberate and proactive steps to maintain a strong and flexible balance sheet while maintaining cost discipline and executing on a growth strategy centered on our carbonate platform. Our priorities remain clear: reduce spending and product costs, lower cash burn, and accelerate our trajectory towards the future achievement of positive adjusted EBITDA. In parallel, we are actively pursuing strategic financing to support commercial execution, including our Korea repowering projects. We believe our proven technology is well-positioned to meet the accelerating need for distributed power generation both through our established channels and our partnership with Dedicated Power Partners. We remain focused on driving financial performance while enabling long-term scalable growth. I will now turn the call over to the operator to begin Q&A. Thank you. Operator: We will now begin the question and answer session. Matt: Hi, everyone. Good morning. Thank you for taking my question. I have Matt here on for George. So I just want to start. You know, congrats on the Inuverse deal. It seems like the data center opportunity is really strong. Can you provide a little bit more of an update on your momentum in the data center space, how this partnership is going along, and any other customer conversations that are in the pipeline? Jason Few: Yeah, Matt. This is Jason. Thank you for the question. I think the Inuverse announcement is a reflection of the strength that we have been able to demonstrate in Korea with large-scale utility platforms and having multiple years of experience running platforms, almost 60 megawatts as an example. This is really important when you think about data centers as they try to shift the way in which they think about purchasing power, which historically has always been relying on the grid. Now, as they look for on-site generation, having assurance around the technology is important. Having a long-term track record at a utility scale is important. The added benefit that we bring is our ability to deliver thermal energy for absorption chilling. If you look at the opportunity with Inuverse, we are talking about potentially up to 100 megawatts in these initial phases as they look to build the largest data center in Korea. We think our platform and what we have demonstrated is the reason why we were able to secure that relationship with Inuverse. As we look across the board, we are seeing significant strength in the data centers. If you look at our pipeline today, there has been a significant shift in the opportunities around data centers that we see in our pipeline. We are engaged across everything from colocated data centers to the hyperscalers around our technology. We are excited about the momentum for data and the market opportunity it represents. Matt: That's great. Thank you. As a follow-up to that, what's been the breakdown of those data center conversations geographically? It sounds like Korea demand has been very strong, but have you seen domestic demand? Jason Few: We are seeing strong US domestic demand in addition to Korea and broader Asia as an opportunity set for where we are focused on that data center opportunity, but really strong demand in the US. If you look at the market or the macro environment, the grid is short power. The grid is short transmission. Permitting is a challenge. If you think about our technology being a behind-the-meter solution, we are easy to site, easy to air permit. We can be sited in edge data centers because of our size and noise profile. We have negligible particulate emissions. We see significant opportunity in the US. On top of that, the policy tailwinds we see from the ITC being fully back and available to us until at least 2032 and potentially as far out as 2035 give investors and data center developers certainty around the tax policy and how they can take advantage of that. For us, we have been able to prove our ability to monetize ITC and recycle that cash. We think that supports strong tailwinds for data centers overall. Matt: That's great. Thank you, guys. I'll hop back in the queue. Thanks, Matt. Operator: We'll move next to Jeff Osborne at TD Cowen. Jeffrey Osborne: Great. Thank you. Good morning. A lot of detail on data centers there in prepared remarks on South Korea. Jason, I was wondering if you could give us a quick update on the more singles and doubles, if you will, on the sort of legacy commercial business for you folks now that the tax credit in the US has been reinstated. What's the funnel and pipeline there look like? Jason Few: Yeah. So we continue, Jeff, to see opportunity outside of the data center space, and I would characterize it more as just distributed power generation overall. We see the ability to leverage ITC as a way to hit some of those singles and doubles as you refer to them. If you look at our not too long ago, now some of what we are doing in Hartford, we have opportunities around grid resiliency and reliability as a theme that's clearly emerging. Leveraging our technology, we think that we are starting to see the shift in the way utilities think about deploying power and really gaining an appreciation for the value of distributed power generation as opposed to centralized generation, especially when you begin to look at the challenges around permitting. We know there's a lot of activity happening at the federal level, but at the end of the day, permitting is local. We think that's a significant advantage for us. As we focus and shift our focus, we think about data centers, distributed power generation, and leveraging our multi-fuel capability to include things like biofuels. That's really where our sales team is very focused in leveraging the strength of our mobile permanent platform. Jeffrey Osborne: Got it. That's helpful. And then either for yourself or Mike, I think you mentioned, what was it, eight units or modules to GGE in the quarter. Can you give us a reminder of how many are remaining, like your expectations for Q4 and Q1? Mike Bishop: Sure, Jeff. Good morning. I'll take that. This is Mike. Yes, as we had said in our previous quarter, we had 16 modules left for this fiscal year. We delivered on time eight modules this quarter, which would leave a balance of another eight in the fourth fiscal quarter and then another 16 next fiscal year. On top of that, we signed a repowering agreement with CGN in the third quarter, and those module deliveries would start in fiscal 2026 as well. Jeffrey Osborne: Is there something specific with the number eight for this quarter and next, Mike, that that's sort of the staffing capability, so the remaining 16 for next year is it safe to assume eight in Q1 and eight in Q2? Just in terms of a cadence? Mike Bishop: So we haven't provided specifics on the timing of those 16, but as we sit here today, it's basically paced by our current production rate in our factory in Torrington. Jeffrey Osborne: Got it. And my last question is just you mentioned the 100 megawatts to EBITDA breakeven in terms of Torrington output. I may have missed it. What is the facility running at now, or what's your expectation for the next six months or so just in light of the growth as it relates to the two Korean contracts? Mike Bishop: So, yeah, today. So the facility is in between the 30 to 40 megawatt range. We'll operate at that range given our current backlog, and we'll certainly look to adjust that as other backlog materializes. To your point around EBITDA positive, yes, I would confirm that when the company gets to 100 megawatts of production volume, we expect to be at adjusted EBITDA positive, and that will be paced by the timing of building up backlog. Jeffrey Osborne: Perfect. And the last, just clarification on that topic. Is it safe to assume sort of the forty to forty-five megawatt annualized run rate is sort of a gross margin breakeven run rate? Mike Bishop: So from a product perspective, yes. You can see gross margin excluding what I call capacity costs, overhead costs, that type of thing for the product sale business. So yes, at this current run rate. And then if you look at generation, generation negative gross margin on the P&L, but when you back out depreciation and derivative type charges, generation from an EBITDA perspective is positive this quarter when you back out those numbers were north of 30% for an adjusted EBITDA perspective. Jeffrey Osborne: Got it. That's all I had. Thank you. Mike Bishop: Thanks, Jeff. Operator: And as a reminder, if you would like to ask a question, press 1. We'll go next to Ryan Pfingst at B. Riley. Ryan Pfingst: Hey, guys. Thanks for taking my questions. I'll ask a follow-up on INUVERSE and maybe timing there. Could you talk about your expectation for when that MOU might convert to an order and what the steps are to get there? Jason Few: Yes, Ryan. Thank you for your question. If you look at the MOU with Inuverse, part of what you think about in these data center developments, and particularly for folks trying to develop hyperscale data centers, you can think about solving a few challenges as you build to secure securing offtake agreements from your data center customers themselves. That's all about creating or delivering effectively powered land. If you think about Inuverse, what they're doing is ensuring gas supply with us and working with us. They've ensured power supply for that facility. Now it's all about securing all of the offtake agreements to really deliver against their overall development plans. Those activities are ongoing. They are working aggressively to secure those offtake agreements, now having lined up the power and gas supply for that site. We expect that to be an ongoing development and more to say here in the coming quarters. They're following the process that we need to be able to secure those agreements. Ryan Pfingst: Got it. Appreciate that, Jason. And then on carbon capture, can you remind us what some of the next milestones are there with that Exxon and the Rotterdam project? Jason Few: Sure. So the next milestones are we are in the conditioning phase for the carbon capture modules that will be shipped to Rotterdam to be part of this project. Exxon has publicly disclosed their progress that they're making at the Esso Facility in Rotterdam to be able to execute the project. We expect the project to be up and operational in 2026. The project is in parallel in construction to ready the site. We're finalizing the conditioning of the modules. We'll ship the modules. So I would say if you think about next milestones, you might look at our shipping modules and then really look at the completion of the construction and getting the COD on the site to demonstrate the technology. Ryan Pfingst: Great. I appreciate it. I'll turn it back. Thank you. Operator: We'll move next to Noel Parks at Tuohy Brothers. Noel Parks: Hi. Good morning. There was a mention near the end of the prepared remarks about at least looking for strategic financing for projects such as some of the power projects in Korea. Can you talk a little bit more about what that process looks like, whether you're thinking of doing deals on an individual project-by-project scale or looking for more large, spanning deals? Mike Bishop: Sure, Noel. Good morning. This is Mike. Thanks for the question. When we look at Korea specifically, if you take the GGE order, for example, when we announced that order, it was a $160 million order to the company, and you can see we've been executing on that now over the last several quarters. You may recall at the end of last fiscal year, we entered into a financing agreement with the USXM Import Bank. That financing yielded about $10 million to the company. So when you look at the opportunity around the contract like GGE, there are certainly additional financing opportunities on that contract to recycle capital back to the company. That's essentially what we were about with the Korea repowering opportunity. Certainly, now you add the CGN project into that, and there are additional repowering opportunities in Korea that, in our perspective, are quite financeable. That's how I'd answer Korea. But I'd also like to make a comment regarding the US opportunities as well and maybe reflect back on the partnership that we have with Dedicated Power Partners that we've established with Diversified and Tessiak. As these data center opportunities emerge, we see a significant opportunity for commercial financing against these opportunities through that partnership, which would attract capital for multiple projects. What that does for FuelCell Energy is turn those orders into product sales, relatively short-term product sale orders as we're delivering on building out the data center projects. Long-term, twenty-year service agreements. It really starts to simplify FuelCell Energy's model and working with our partners to scale up a financing model around these commercial opportunities in the US. Noel Parks: Terrific. Thanks. And thinking about the data center market, of course, there's such a whirlwind of activity going on industry-wide around everything having to do with power and energy to supply that demand growth. I'm just curious, because you talked maybe about the degree of decisiveness or urgency you're seeing when you're talking with data center hyperscaler customers, I'm wondering if you can envision what the sweet spot, the type of customer or arrangement that is the best fit, would you say, for fuel cell technology looking near term? Jason Few: This is Jason. Thank you. We're seeing obviously, there's a tremendous amount of activity happening around the data center space. As I commented earlier, we're seeing that from everything from colocation all the way through into hyperscalers. As we think about where we fit as a company and how we can participate in that, I would tell you in a few different ways. One way would be if you think about a greenfield site, we certainly offer that data center developer the ability to get what we think is time to power faster through our ability to deliver our platform in addition to our ability to minimize the constraints or friction points that generally are around permitting related issues, such as air permitting, and or needing interconnection as an example for the electricity grid. You can think about us as being a great first set of power or first set of power blocks into that opportunity to get that data center going. Our modularity gives us the ability to scale with that data center as incremental power is needed so they can take the power they actually need as opposed to just taking what power is available, and we think that gives us an advantage. The second area where we think that we offer tremendous value to data center customers is our ability to deliver absorption chilling. If you think about that and you just take as an example, a 50 megawatt data center, we're delivering 9,000 tons of chilling capacity. Effectively taking away almost five megawatts of mechanical cooling requirements for that data center, which delivers a tremendous amount of value. We're doing that at roughly 70% efficiency when you think about the electrical efficiency and using the thermal energy. We think that's also a big advantage for us and value we can add to data center customers. If you think about existing data centers, I think our modularity becomes really important because the next block of power that data center needs may be 20 megawatts. It may be 50 megawatts. It may not be 250 megawatts that you might typically think about in a combined cycle gas engine as an example. We give the ability to scale in a modular fashion. If you think about our power blocks at a nameplate capacity of 1.4 megawatts, that is at utility scale. That's a really compelling block size to be able to scale power in a very modular fashion. We think that whether you're talking about colocation, expanding an existing data center, or a new data center site, we offer value across all of those scenarios in our ability to allow the customer to configure power the way they need it. Our ability to integrate with other technologies, which we've also demonstrated our ability to do that. Today, we use thermal energy to drive an organic ranking cycle engine. We also have a number of applications where we're deployed as a microgrid. All of which are needed as the power needs transition from grid-based power and just backup generation to on-site power, and needing to deliver that same level of reliability that a tier three or tier four type data center requires, and our ability to create that combination adds a lot of value to those customers. Noel Parks: And just one last one for me. Given all those factors which sound incredibly favorable, any inkling of whether you might have some pricing power heading into some of the new agreements you're looking at? Jason Few: No. That's a great question. I think if you look at what some of these hyperscalers are willing to pay for nuclear, the answer to that would probably be yes. But I think that we're really thinking about how do we add value and deliver time to power to those customers. Then how do we price all of the value that we deliver, not just the electricity to those customers. We think there is value to time. There's clearly value to baseload, reliable, clean, efficient electricity. There's clearly value to the thermal energy. As we think about overall pricing and economics around the deal, domestically, our ability to take advantage of the ITC at 30% is another form of value that we can deliver overall in terms of how we think about pricing and overall economics for those deals. Noel Parks: Terrific. Thanks a lot. Operator: And as a final reminder, please press 1 if you have a question. We'll pause just a moment. And at this time, we have no further questions. I would like to turn the conference back over to Jason Few for closing remarks. Jason Few: Thank you, Audra. Thank you all for listening in today. I look forward to sharing more progress updates on our strategy and restructuring plans and actions in the next quarter. Thank you for joining. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to A-Mark Precious Metals Conference Call for the Fiscal Fourth Quarter and Full Year ended June 30, 2025. My name is John, and I will be your operator this afternoon. Before this call, A-Mark issued its results for the fiscal fourth quarter and full year 2025 in a press release, which is available in the Investor Relations section of the company's website at www.amark.com. You can find the link to the Investor Relations section at the top of the home page. Joining us for today's call are A-Mark's CEO, Greg Roberts; President, Thor Gjerdrum; and CFO, Cary Dickson. Following their remarks, we will open the call to your questions. Then before we conclude the call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of A-Mark's website. Now, I would like to turn the call over to A-Mark's CEO, Mr. Greg Roberts. Sir, please proceed. Gregory Roberts: Thank you, John, and good afternoon to everyone. Thanks once again for joining our call. As we reported in our earnings release today, our fourth quarter and fiscal year 2025 results underscore the ability of our fully integrated platform to generate positive results during challenging market conditions. Despite the ongoing uncertainty in the physical markets, which has led to increased supply and range-bound premium spreads, we reported $17.3 million of net income non-GAAP adjusted net income before provision for income taxes of $53.1 million, non-GAAP earnings before interest taxes, depreciation and amortization of $64.4 million and diluted EPS of $0.71 per share for our fiscal year 2025. For the fourth quarter of 2025, we generated $10.3 million of net income, non-GAAP adjusted net income before provisions for income taxes of $19.2 million, non-GAAP earnings before interest taxes, depreciation and amortization of $29.2 million and diluted EPS of $0.41 per share. Our fourth quarter results improved from the previous quarter with a 99% increase in gross profit, a 233% increase in non-GAAP adjusted net income and a 2,167% increase in non-GAAP EBITDA, reflecting the benefit of our recent strategic acquisitions. We have made steady progress bringing Spectrum Group International, AMS Holdings and Pinehurst Coin Exchange under the A-Mark umbrella, managing inventory levels and completing automation upgrades at our AMGL facility with centralized operations now in place. We completed the migration of Pinehurst logistics operations from North Carolina to AMGL in Las Vegas. One example of our cost savings synergies we expect to achieve from our recent acquisitions. As we continue to progress our integration initiatives, the scale and efficiencies we're achieving will help to optimize expenses, create greater operating leverage and maintain costs at more optimal levels going forward. We have also made significant progress in our expansion into Asia with LPM, now fully operational in Singapore across both wholesale and e-commerce channels, further broadening our reach into the Southeast Asian market. We believe these acquisitions, combined with our growing international presence, strengthen our distribution channels and expand our reach into higher-margin collectible and luxury segments. With a broader and more diversified platform, improved operational leverage and a strong balance sheet, we enter the new fiscal year well positioned to capture growth across multiple channels. Now, I will hand the call over to our new CFO, Cary Dickson, who will provide a more detailed financial overview of our results. Then A-Mark's President, Thor Gjerdrum, will discuss our key operating metrics. Afterwards, I will provide further update on our business growth and strategy for the upcoming fiscal year and then take your questions. Cary? Cary Dickson: Thank you, Greg, and good afternoon to everybody. Our revenues for Q4 fiscal '25 decreased 1% to $2.51 billion from $2.52 billion in Q4 of last year. Excluding a decrease of $94 million of forward sales, revenues increased $81 million or 5%, which was due to higher average selling prices of gold and silver, offset by a decrease in gold and silver ounces sold. For the full year, our revenues increased 1.3% to $10.98 billion from $9.7 billion in the prior fiscal year. Excluding an increase of $446 million of forward sales, -- our revenues increased $832.9 million or 15%, which was due to higher average selling prices of gold and silver, partially offset by a decrease in gold and silver ounces sold. Revenues also increased due to the acquisition of a controlling interest in Silver Gold Bull, which we refer to as SGB in June of '24, and the acquisitions of Spectrum Group International, which we refer to as SGI and Pinehurst Coin Exchange, which we will continuously refer to as Pinehurst in February of 2025. And finally, AMS Holdings, which we refer to as AMS in April of '25. Gross profit for Q4 fiscal '25 increased 90% to $81.7 million or 3.25% of revenue from $43.0 million or 1.7% of revenue in Q4 of last year. The increase was primarily due to the acquisition of a controlling interest in SGB in June of '24 and the acquisitions of SGI and Pinehurst in February '25 and AMS in April of '25. For the full fiscal year, gross profit increased 22% to $210.9 million or 1.92% of revenue from $173.3 million or 1.79% of revenue in the prior fiscal year. The increase in gross profit was due to higher profits earned by our direct-to-consumer segment, partially offset by lower gross profits earned from our wholesale sales and ancillary services segment. SG&A expenses for Q4 of fiscal '25 increased 135% to $53.4 million from $22.7 million in Q4 of last year. The overall increase was primarily due to an increase in compensation expense, including performance-based accruals of $17.6 million, an increase in advertising costs of $5.3 million, an increase in consulting and professional fees of $3.1 million and other expenses. Increases in SG&A expenses, including expenses incurred by SGB, SGI, Pinehurst and AMS, which were not included or only partially included in the same year ago period. For the full fiscal year, SG&A expenses increased 55% to $139 million from $89.8 million in the prior fiscal year. The increase is primarily due to an increase in compensation expense, including performance-based accruals of $24.1 million as well as increases in consulting and professional fees of $9.1 million, advertising costs of $8.4 million, facilities expense of $3.0 million and other expenses. SG&A expenses include expenses incurred by LPM, SGB, SGI, Pinehurst and AMS, which were not included or only partially included in the same year ago period. Depreciation and amortization expense for Q4 of fiscal '25 increased 201% to $8.6 million from $2.8 million in Q4 of last year. The increase was primarily due to an increase in amortization expense of $6 million related to intangible assets acquired through the acquisition of a controlling interest in SGB and the recent acquisitions of AMS and SGI. For the full fiscal year, depreciation and amortization expense increased 101% to $22.9 million from $11.4 million last fiscal year. The increase was primarily due to an increase in amortization expense of $12.9 million related to intangible assets acquired through our acquisitions of LPM, SGI, Pinehurst AMS and the acquisition of a controlling interest in SGB. -- an increase of $1.8 million of depreciation expense due to an increase in capital expenditures, partially offset by a decrease in JMV intangible asset amortization of $3.1 million. Interest income for Q4 of fiscal '25 decreased 34% to $5.3 million from $8.1 million in Q4 of last year. The decrease is primarily related to lower interest earned from repurchase agreements with customers of $1.4 million and other finance products of $0.7 million. For the full fiscal year, interest income decreased 4% to $25.9 million from $27.2 million in the prior fiscal year. The decrease is primarily due to a decrease in interest income earned by our Secured Lending segment of $0.8 million and other finance product income of $0.5 million. Interest expense for Q4 of '25 increased 34% to $12.9 million from $9.6 million in Q4 of last year. The increase in interest expense was primarily driven by higher overall borrowings related to precious metal leases, the trading credit facility and product financing agreements. For the full fiscal year, interest expense increased 17% to $46.2 million from $39.5 million last fiscal year. The increase is primarily driven by higher overall borrowings related to precious metal leases, the trading credit facility and product financing agreements, partially offset by the repayment of AM Capital funding notes that we had back in December of 2023. Earnings from equity method investments in Q4 decreased 201% to a loss of $0.8 million from earnings of $0.8 million in Q4 of last year. For the full fiscal year, earnings from equity method investments decreased 170% to a loss of $2.8 million from earnings of $4.0 million last fiscal year. The decrease in both periods was due to decreased earnings from our equity method investees. Net income on a GAAP basis attributable to the company for the fourth quarter of fiscal '25 totaled $10.3 million or $0.41 per diluted share. This compares to net income attributable to the company of $30.9 million or $0.29 per diluted share in Q4 of last year. For the full fiscal year, net income on a GAAP basis attributable to the company totaled $17.3 million or $0.71 per diluted share, which compares to net income attributable to the company of $68.5 million or $2.84 per diluted share last fiscal year. Adjusted net income before provision for income taxes, a non-GAAP performance measure, which excludes depreciation, amortization, acquisition costs, remeasurement gains or losses and contingent consideration fair value adjustment for Q4 fiscal '25 totaled $19.2 million, a decrease of 5% compared to $20.1 million in the same year ago quarter. Adjusted net income before provision for income taxes for the full fiscal year totaled $53.1 million, a 34% decrease from $80.3 million in the prior fiscal year. EBITDA -- another non-GAAP liquidity measure, which excludes interest, taxes, depreciation and amortization for Q4 fiscal '25 totaled $29.2 million, a 24% decrease compared to the $38.4 million in Q4 of fiscal '24. EBITDA for the full fiscal year totaled $64.4 million, a 40% decrease compared to the $106.5 million last fiscal year. Turning to our balance sheet. At fiscal year-end, we had $77.7 million of cash compared to $48.6 million at the end of the fiscal '24. Our nonrestricted inventories totaled $794.8 million, up by $215 million from the $579.4 million we had at the end of the last fiscal year in '24. And that completes my financial summary. Now, I will turn the call over to Thor, who will provide an update on our key operating metrics. Thor? Thor Gjerdrum: Thank you, Cary. Looking at our key operational metrics for the fourth quarter and full year 2025, we sold 346,000 ounces of gold in Q4 fiscal 2025, which is down 23% from Q4 of last year and down 20% from the prior quarter. For the full fiscal year, we sold 1.6 million ounces of gold, which was down 11% from last fiscal year. We sold 15.7 million ounces of silver in Q4 fiscal 2025, which was down 38% from Q4 of last year and down 0.2% from the prior quarter. For the full fiscal year, we sold 73.6 million ounces of silver, which was down 32% from last year. The number of new customers in the DTC segment, which is defined as those who register, set up a new account or made a purchase for the first time during the period was 108,900 in Q4 fiscal 2025, which was down 81% from Q4 of last year and decreased 88% from last quarter. For the 3 months ended June 30, 2025, and June 30, 2024, approximately 30% and 92% of the new customers were attributable to the acquisition of AMS and the acquisition of a controlling interest in SGB, respectively. For the 3 months ended March 31, 2025, approximately 84% and 9% of the new customers were attributable to the acquisitions of Pinehurst and SGI, respectively. For the full fiscal year, the number of new customers in the DTC segment was 1,129,200, a 57% increase from the 718,500 new customers in the prior fiscal year. Approximately 79% of the new customers for the fiscal year ended June 30, 2025, were attributable to the acquisitions of SGI, Pinehurst and AMS. Approximately 73% of new customers in fiscal year 2024 were attributable to the acquisition of a controlling interest in SGB. The number of total customers in the DTC segment at the end of the fourth quarter was approximately $4.2 million, a 37% increase from the prior year. The year-over-year increase in total customers was due to the acquisitions of SGI, Pinehurst and AMS as well as organic growth of our JMB customer base. The DTC segment average order value, which represents the average dollar amount of products ordered, excluding accumulation program orders delivered to customers during Q4 fiscal 2025 was 2,443, which is down 15% from Q4 fiscal 2024 and down 21% from the prior quarter. For the full fiscal year, our DTC average order value was 2,886, which was up 19% from fiscal 2024. For the fiscal fourth quarter, our inventory turn ratio was 1.9, which was a 17% decrease from 2.3 in Q4 of last year and a 21% decrease from 2.4 in the prior quarter. For the full fiscal year, our inventory turn ratio was 9.1, a 1% decrease from the 9.2% last fiscal year. And finally, the number of secured loans as of June 30, 2025, totaled 445, a decrease of 9% from March 31, 2025, and a decrease of 24% from June 30, 2024. Our secured loan receivable balance at the end of fiscal year was $94 million, a 9% decrease from March 31, 2025, and a 70% decrease from June 30, 2024. That concludes my prepared remarks. I'll now turn it over to Greg for closing remarks. Greg? Gregory Roberts: Thank you, Thor and Cary. Our recent acquisitions and growing international presence have strengthened our competitive position while expanding our footprint into higher-margin luxury segments. Our investment in infrastructure and automation technology at our Las Vegas facility has enabled us to centralize our operations, manage costs and allows us to scale up as market conditions evolve. Looking ahead to fiscal 2026 with our expanded brand portfolio and ongoing integration and optimization opportunities, we remain confident in A-Mark's long-term trajectory and our continuing ability to deliver shareholder value. That concludes my remarks. Operator, we can now open the line for questions. Operator: [Operator Instructions] Our first question comes from Thomas Forte with Maxim Group. Thomas Forte: So 3 questions for me. I'll go one at a time. The first one is a high-level question. You had indicated and you saw in the quarter an improvement in the performance versus the prior quarter. At a high level, though, I was curious where you think we are in the cycle right now. Thor Gjerdrum: I mean we saw some real strength in April. May and June were a little more -- a little slower. What we've talked about the last 2 or 3 quarters, the continued higher spot prices, which result in higher carry costs for A-Mark as well as the headwinds as it relates to the premium in our -- particularly our silver products, it has continued. And we continue to battle these issues, and they are continuing. I do -- I am optimistic that our -- integration of our acquisitions and our continuing efforts to optimize and integrate and reduce the expenses in these acquisitions will ultimately is going to pay off. But at the moment, the market is about how it has been over the last 3 to 6 months. Thomas Forte: Okay. And then for my second, you did engage in a lot of strategic M&A over the last 12, 18 months. Where are your thoughts today? It seems like you have more opportunities to take advantage of, but I don't know if you feel like you need to digest what you just did. But what are your current thoughts on strategic M&A? Thor Gjerdrum: I mean I think we're always looking for opportunities, and there are still opportunities in the pipeline that we're looking at. I do believe that we closed 3 acquisitions in our Q3, and we did digest those, and we do believe that we've made good progress in integrating them, although we're not complete yet. I think that the team at A-Mark has done a great job with the integration, and I believe that we are ready to digest something else if the opportunity presented itself. And we're just trying to, as usual, balance our capital allocation between inventory and acquisitions and continuing to optimize what we've already purchased. So work is ongoing in all areas, but I certainly wouldn't shut the door on future acquisitions. I've said before for quite some time that when the market is slow, we believe that opportunities will present themselves and that the acquisitions that we can make now when the market is slower are a lot easier for us to digest and grow and expand than making an acquisition when the market is very hot. So feeling good about it. Door is open and looking for opportunities. Thomas Forte: All right. So 2 more. I just thought of one more I wanted to ask quickly. So I think that the answer to this one is that they're still in their early days, but some of the acquisitions you did were intended to give you some element of countercyclicality. So where are we with those efforts? Thor Gjerdrum: I mean, I think particularly in the Stack's Bowers area, we just concluded last Friday, our largest sale in history on the Rare Coin auction side. It was a $62 million sale -- over 9 days. We sold over 14,000 lots, a very good result. The team at Stack’s Bowers did excellent work getting that auction and those auctions out the door. And that particular market on the rare coin side is very strong right now. And to the countercyclical nature you just mentioned, it is proving out that we're benefiting on the higher-margin rare coin side right now than maybe on the 1 ounce silver rounds. So I believe that the strategy is sound. I think the acquisitions were appropriate and they were well timed, and we just need to continue to expand on them. Thomas Forte: Great. And then last one. So it wasn't clear to me in the prepared remarks, I apologize if it was clear, and I just didn't understand. Have you finished fully upgrading your Vegas distribution center? I know you're adding in or implementing some pretty impressive tech -- is that fully? Thor Gjerdrum: Yes. I would say we're 95% complete. From an infrastructure standpoint, we are complete. We continue to work on the software and IT side of it, integrating all of our different customers and all of our internal DTC customers, we are integrating that, but it is operational. And I would say that, like I said, it's mostly complete. We're very happy. The increased capacity and cost savings has been everything we expected it to be. We have been able to onboard a number of new clients there, which ultimately in the long term is going to translate into more business and give us opportunity to take market share when the market heats up. Thomas Forte: The next question comes from Mike Baker with D.A. Davidson. Michael Baker: Okay. A few for me. Starting big picture, you said, Greg, at the beginning, just the environment remains weak or soft or slow, whatever you said. Can you just remind us, bigger picture, what's a good environment for you guys? What are we from -- looking from the outside looking in, what do we need to see in the world for it not to be a slow environment. I mean, April, we had a lot of volatility around Liberation Day. I guess that's sort of calmed down. Is it just that the world is too good right now? What makes a good environment for you guys? Thor Gjerdrum: I mean the world is too good if you're in the equities market, and that's where a lot of people are right now. It's hard to compete with the returns. As you point out, yes, April, there was a great deal of volatility. If you look at the [indiscernible] levels, they were very high. And our business performed very well in the first 10 days of April. The uncertainty as it relates to tariffs and as it relates to interest rates and our cost of financing has been negatively affected by a lot of the current administration's strategies. And I believe that when you ask the question, what's good for us? Well, certainly, volatility and some uncertainty in the equity markets would be good for us. The bigger picture macroeconomic issues that are generally good for us are fear and uncertainty. And our last really big run was the Silicon Valley Bank crisis. So these are things that would affect us positively. But we can't just wait and hope they're going to happen. I mean we're continuing to grow this business. We're continuing to take seriously our view of our SG&A and particularly our inventory and carrying costs. And historically, we've held a very good-sized inventory in preparation for higher premiums and for more activity. But really, over the last 9 months, we've probably had a bit too much inventory. So that is something that we're taking a look at. Certainly, the higher spot prices have put a lot of -- put a spotlight on precious metals, but they haven't particularly been good for us. Most of the demand and drive in the higher spot prices has been from central banks, and it has not yet translated into a FOMO type effect as it relates to our DTC customers. We see glimpses of change and of things kind of rebounding, but no what we could consider multi-month traction at the moment. So doing everything we can and just making sure we're in a position where if something happens tomorrow that we're able to take advantage of it. Michael Baker: Understood. Okay. That's helpful. A couple of follow-ups. One, you said you mentioned tariffs. Remind us how are tariffs impacting your business right now? Thor Gjerdrum: Well, certainly, the tariffs are causing a great deal of consternation as it relates to countries that are subject to tariffs and changing tariffs. In particular, a high percentage of the gold that comes into the United States comes from outside the U.S., particularly Switzerland, London and some other areas. There have been a number of occasions over the last 8 to 12 weeks, where uncertainty as it relates to where metal should be located to avoid tariffs has disrupted a number of our different places that we borrow metal or where we borrow dollars and the cost of carry has just been higher for us. I think also the uncertainty just as it relates to what will be taxed or what will be tariffed and what will not has caused some disruption in our hedge position, which historically has been a regular contributor to our profitability. And that what we call contango has had some periods of flipping to backwardation. So that in general, we get paid to have a short position and that reduces our carry costs in a backwardation situation, near-term spot prices are higher than longer-term prices, and that can negatively affect our profitability. So it has been -- I think we've managed it well, but it has certainly caused a bit of uncertainty in parts of our business. Michael Baker: Yes. Okay. A lot there. If I could ask one more good news question. Your gross margin was really strong. So I get that gross profit dollars were helped by acquisitions, but what was the big driver to the margin so gross profits relative to sales? It was up... Thor Gjerdrum: I mean I think the gross profit... Michael Baker: 1.7 Yes, what was that? Thor Gjerdrum: I mean the gross profit is up because we've added in gross profit from our acquisitions. We've also -- as Cary noted, we've added a lot of SG&A. So you -- our actual gross profit percentage margin is likely to be up because we've integrated the higher-margin businesses. But those acquisitions and higher-margin top line is just a minor percentage of our $11 billion annually in sales. The higher-margin businesses are a few hundred million dollars. So it's going to add gross profit. I mean our job right now is to continue to look at efficiencies and synergies and how to capture more of that gross profit and we can do that by making sure we're taking a close look at our SG&A as well as I do believe there's an initiative we're working on right now to reduce our inventories a bit and lower our cost to carry. Our interest carry cost, as you can see from the release, are very high. And historically, that has given us optionality as it relates to selling that inventory and being able to maximize the premiums we achieve. In the current environment, those premiums are -- have shrunk. So we just don't believe we're going to need to have the same inventory in the future. Operator: The next question comes from Andrew Scutt with ROTH Capital. Andrew Scutt: So you talked a lot in the -- on the call about greater exposure to international markets. If you look at it, I know revenue is not maybe the best indicator for your business, but as a percentage of revenue, it's grown substantially around 50% last year, over 60% year-to-date. Can you just kind of talk to us where you see that mix balancing out maybe over the medium and long term as you continue with these strategic acquisitions? Thor Gjerdrum: Yes. I would say that we're very pleased. It took 6 to 9 months, but we've been able to integrate our LPM acquisition that was in Hong Kong, that is in Hong Kong. And LPM has been able to expand and open a retail facility in Singapore. We've also made a couple of hires to move more into the wholesale trading business in Singapore. And those areas are new to us. We're very optimistic of what we've seen, particularly in the more recent months as the opportunities there appear to be what we hope they would be. And so I think we just like the growth opportunity down there. I'm not saying that it's going to be immediately a material portion of our top line sales. But we are onboarding new customers, and we are -- we have gained access through our LPM brand to a number of new product offerings and higher-margin products that originate in China or in Southeast Asia. And having access to those products gives us optimism that this is going to be a new kind of frontier for us that we haven't tackled before. We continue to have good strong new customer growth numbers in the U.S. But certainly, we are very new to the Asian markets, and we see some good client onboarding there, and we're starting to see some very positive numbers. Andrew Scutt: Great. And right know -- I mean, it is a soft environment. You guys have really expanded your DTC exposure to different types of markets, online sales over the phone sales. Are there any particular pockets right now that are currently showing promise? And kind of can you talk about how that expansion has benefited you in this environment? Thor Gjerdrum: Like I said earlier, I think the [indiscernible] some higher premium bullion products as well as the rare coins in our new Stack’s Bowers brand has been very positive. I believe that our CFC finance business is strong right now. I think that is growing. We did get back over $100 million of our loan book in the last few weeks. And there does seem to be -- I don't know if it's connected to the overall economic environment or what it is, but we do see an uptick in new loans and new draws against existing loans. So those areas are good. But we're still buying back a lot of material from customers. Our DTC brands are buying back a very high percentage of what they're selling is coming through buybacks. We're keeping up with that with regular melt lots where we're actually melting quite a bit of stuff right now. So the premiums continue to be a challenge, and we're looking towards when that's going to change and an uptick in silver, in particular, over the last few weeks with silver getting above $40. We have seen a bit of positivity there from the silver buyer. So there's a few pockets of positivity. And again, I believe that we're headed in the right direction, and we're making the right adjustments with our business. So looking forward to the future. Operator: [Operator Instructions] The next question comes from Gregory Gibas with Northland Securities. Gregory Gibas: I wanted to follow up on what you mentioned earlier regarding backwardation. I know we talked about it last quarter. Just regarding the impact that maybe backwardation and the cost to carry had in the quarter in fiscal Q4 versus fiscal Q3, was it pretty similar? Or are you seeing it lighten up as there is a little bit more clarity in terms of tariffs? Thor Gjerdrum: You asked -- your question is Q4 versus Q3 2025. Gregory Gibas: Yes. And just kind of how it's trending maybe post that as well. Thor Gjerdrum: I mean I don't think it's eased up at all. I think it continues to be challenging. Within the last 3 to 4 weeks, the White House announced that silver was going to be a strategic metal or was going to be a rare earth type strategic item. That threw a great deal of disruption into the silver market. And it does affect our ability to finance our silver inventory and as well as our hedge because a good portion of our hedge is in silver. But what it tends to do when you have these disruptions is it causes the curve in contango to flip and you have 1,000-ounce bars, -- there was a period 2 weeks ago where 1,000-ounce bars were trading at a $1 premium over the melt value for delivery into New York. I mean we're struggling to sell 1 ounce silver rounds at $0.40 an ounce over melt. So it gives you an idea of the flip. And when large traders around the world believe that they're going to get metal locked, the demand coming out of New York to get the metal into New York as soon as possible creates this very near-term spike in the premium over the spot price. So that is what leads to backwardation. And that's the definition of it is where future values are lower than near-term values. So to this point, we haven't seen this become long term. For the most part, you get announcements out of the White House or out of other parts of the government, and it creates a bit of immediate panic or a week or 2 of uncertainty. And then things tend to settle down again. I mean, we had an announcement that was kind of what, I guess, is fake news a few weeks ago where there was a rumor out there in the Financial Times, and there was a story that Trump was going to put tariffs and taxes on gold being imported from Switzerland along the same time that there was a lot of trade war chatter going on. In the end, Trump came out a few days later and said, no, I'm not going to tariff gold from Switzerland. But it was only -- this was 4 or 5 weeks ago, it was only in the last week that the administration came out with proper guidance to the import agents as to what code they were supposed to use for gold bars. There's just a lot of disinformation out there. I believe there's a lot of trading strategies going on taking advantage of some of this. I think in all of my analysis of our book, of our hedge book of where we're at, we have 20-year history of managing our book and managing a contango environment very profitably to A-Mark. But we are -- there are a few bumps in the road right now. And every morning, we wake up wondering what's going to be next. So that's really what's going on. Gregory Gibas: Yes. I appreciate the details, Greg. And I guess I just wanted to follow up, too, in terms of the solid progress that you've made digesting those recent acquisitions. Could you maybe just go over the highlights in terms of what's been done and maybe what's on the horizon regarding integration work that's not yet completed with SGI and AMS? Thor Gjerdrum: Sure. I mean I think the first big lift was for Cary and Jill on our finance team. They've done a great job of the purchase price accounting. We were able to complete our year-end. We're here talking and we have our release here. And I think the integration of the accounting for the acquisitions is 90% complete now and a great job by the finance team. We started and it was our plan first to integrate Pinehurst, and Pinehurst was a stand-alone business that we had a minority interest in located in North Carolina. And we have completed moving their inventory and all of their shipping and logistics, storage, pick and pack, all of that has now been moved to Las Vegas. Thor Gjerdrum spearheaded that along with Brian Aquilino and Vince from Pinehurst, and that's now complete. We've been able to eliminate a lot of redundancy and a lot of costs there. From the Pinehurst DTC side of things, we are continuing to look for redundancies and synergies that we can find with JM Bullion and our DTC operations in Texas. As it relates to AMS, I think we are in process of looking at where the synergies are, particularly with their marketing department and some of their marketing expertise that we're rolling out across some of our other platforms and again, looking for synergies and looking for redundancy in expenses that we don't have to incur. And I think on the stack side, we've moved some of our resources from El Segundo. We've moved them down to Orange County, and we are developing and building a more integrated trading desk down here. So we have a lot on our plate. We have a lot going on, but very excited about the opportunity. Operator: At this time, this concludes our question-and-answer session. I'd now like to turn the call over to Mr. Roberts for his closing remarks. Gregory Roberts: I'd like to thank our many shareholders once again for your loyalty and being with the company and joining our call today. Continued interest and support is important to A-Mark. I'd also like to thank our many employees for their dedication and commitment to A-Mark's success. I look forward to keeping you apprised of A-Mark's progress and turn it back over to John. Thank you for being on the call today. John Moorhead: Before we conclude today's call, I would like to provide A-Mark's safe harbor statement that includes important cautions regarding forward-looking statements made during this call. During today's call, there were forward-looking statements made regarding future events. Statements that relate to A-Mark's future plans, objectives, expectations, performance, events and the like are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. These include statements regarding expectations with respect to growth, the delivery of long-term value, expense optimization, cost containment and operating leverage. Future events, risks and uncertainties individually or in the aggregate could cause actual results or circumstances to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ include the following: the failure to execute the company's growth strategy, including the inability to identify suitable or available acquisition or investment opportunities; greater-than-anticipated costs incurred to execute this strategy; our inability to execute on our cost containment and expense reduction programs, government regulations that might impede growth, particularly in Asia, including with respect to tariff policy; the inability to successfully integrate recently acquired businesses; changes in the current international political climate, which historically has favorably contributed to demand and volatility in the precious metals markets, but also has posed certain risks and uncertainties for the company. Particularly in recent periods increased competition for the company's higher-margin services, which could depress pricing; the failure of the company's business model to respond to changes in the market environment as anticipated; changes in consumer demand and preferences for precious metal products generally; potential negative effects that inflationary pressure may have on our business; the failure of our investee companies to maintain or address the preferences of their customer bases; general risk of doing business in commodity markets and strategic business, economic, financial, political and governmental risks and other risk factors described in the company's public filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements. Finally, I would like to remind everyone that a recording of today's call will be available for replay via a link in the Investors section of the company's website. Thank you for joining us today for A-Mark's earnings call. You may now disconnect.
Operator: Welcome all to the Bioceres Crop Solutions Fiscal Fourth Quarter and Full Year 2025 Financial Results. My name is Drew, and I'll be the operator on the call today. [Operator Instructions] With that, it's now my pleasure to hand over to Paula Savanti from Investor Relations to begin. Please go ahead when you're ready. Paula Savanti: Thank you. Good morning, everyone, and welcome to Bioceres Crop Solutions Fiscal Fourth Quarter and Full Year 2025 Earnings Conference Call. Our prepared remarks today will be led by our Chief Executive Officer, Federico Trucco; and myself as Head of Investor Relations. Both of us will be available for the Q&A session following the presentation. During this call, we will make forward-looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. I refer you to the forward-looking statements section of the earnings release and presentation as well as the recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect no or changed circumstances. Please note in today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in our earnings press release. The conference call is being webcast, and the webcast link is available at our Investor Relations website. It is now my pleasure to turn the call over to Federico. Federico Trucco: Good morning, and thanks, everyone, for participating in today's call. Please turn to Slide #3. I wanted to start today's call by looking at this year's performance considering the trajectory of our company since 2019. 2019 is the year we launched Bioceres Crop Solutions to the public equity markets. As you can see, this is the first down year in the series and one that comes with important lessons in terms of risk management and financial prudence, which I'll address towards the end of the presentation today. We are reporting a very disappointing final quarter to an extremely challenging fiscal year. Challenges in fiscal '25 cannot be attributed to a single factor, but we understand rather stem from a combination of circumstances, including most significantly the macro shift in Argentina, our main market. In fiscal '24, clients anticipated a significant devaluation of the Argentine peso and as a result, hedged against this event by prepurchasing some of the input required -- inputs required for the following year. In contrast, with no expectation of currency devaluation for fiscal '25, clients in Argentina had no incentive to maintain high inventory levels. Adverse on-farm economics also led to reduced spending on ag inputs, further exacerbating the company's exposure to the shifting cycle. These circumstances coupled with deteriorating financial conditions for the sector in general and our own shift in strategy around the HB4 seed business, landing us in the position we are reporting today. I will now ask Paula to go over the specifics of the quarter and the year before we discuss lessons learned and next steps. Paula? Paula Savanti: Thank you, Federico. Let me take you now through our financial results for the quarter and for the fiscal year '25. Let's turn to Slide 4 to begin, please. In the fourth quarter, we reported revenues of $74.7 million, a 40% decline compared to the same period last year. This decline is explained primarily by 2 factors. One is a winding down of our seed business. As you can see in the composition by segment of our quarterly revenues. Sales in the seed segment were $25 million lower than last year, accounting for about 50% of the quarterly year-over-year decline. The other 50% of the decline is roughly equally split between crop nutrition and crop protection, with both segments affected by the weaker demand for crop inputs in Argentina given the dynamics that Federico has just explained. In Crop Protection, we didn't see in Q4 the typical pattern of preseason sales ahead of the spring planting season as producers continue to operate this year and/or more just-in-time purchasing modality. In this sense, we expect activity to pick up as planting season begins this spring. The decline in sales in Argentina eclipsed the fact that international sales of some of our core technologies grew strongly in the quarter with, for example, adjuvant sales in Brazil, almost doubling and bioprotection products in the U.S. growing almost 40%. In Crop Nutrition, sales declined by 34% for the quarter, driven by lower micro-beaded fertilizer sales in Argentina as well as lower inoculant revenues in other markets due to the calendar-based timing of the Syngenta agreement which costs some misalignment with our reporting quarters. For the full fiscal year, revenues came in at $335.3 million, down 28% year-over-year, with declines in all 4 of our reporting -- all 3 of our reporting segments. In Crop Protection revenues, were $181.9 million, down 20% from the prior year, with full year dynamics very similar to those seen in the quarter, a strong decline in Argentina, offsetting growth in bioprotection in the U.S. and adjuvants in Brazil. In Crop Nutrition, revenues for the full year were $89.5 million, down 37% year-over-year. Again, as in the quarter, the main driver of the decline were micro-beaded fertilizers in Argentina. Sales of this product were negatively affected by a lower corn acreage this year. As farmers feared a repeat of the cor stunt disease, corn acreage fell by about 20% compared to the year before. Additionally, weak on farm economics and elevated channel inventories generated price pressure, which compressed margins. In this segment, the expected reduction of $15.7 million related to the Syngenta down payment further weighed on comparisons. Lastly, revenues in the Seed & Integrated Products segment were $63.9 million for the year, representing a reduction of 34%. As explained before, this reduction reflects the scaling back of the HB4 program as we transition the seeds business into a royalty-based model. It's important to highlight that while the new strategy reduces upfront revenue recognition, it sets the stage for a more capital efficient and scalable business, which we expect will drive growth and improve profitability going forward. Now let's please turn to Slide 5 to look at the quarterly gross profit by business segment. In the fourth quarter, gross profit was $25.4 million, a 47% reduction compared to the same quarter last year. Most of the decline is accounted for by the Crop Nutrition and Seeds segments as can be seen in the bar chart on Page 5 of the presentation. The $10.6 million decline in crop nutrition for the quarter is driven by lower gross profit for micro-beaded fertilizer sales for fertilizers, where, as mentioned, lower sales in terms of volume were coupled with margin compression on account of pricing pressures in the market. by softer margins in biostimulants as the business expanded into markets with different pricing structures, but with meaningful growth potential and by lower gross profit from inoculants on account of the lower revenues in the quarter, as mentioned above. In Seed & Integrated Products, the $9.3 million decline in gross profit reflects as mentioned, the planned wind down of the seed business. With no upstream sales to report, revenues in this segment were mostly grain inventory being sold off at a lower margin compared to last year's HB4 related sales, which drove a contraction in the segment's gross margin. Finally, in Crop Protection, gross profit decreased $2.2 million from last year, a lower decline than that seen in revenues as the products that were mostly negatively affected were low-margin noncore products. A more favorable mix with higher contributions from bioprotection products as well as stronger margins in adjuvants resulted in a higher gross margin for the segment in the fourth quarter. Overall, gross margin for the quarter contracted from 38% in 4Q '24 to 34% this quarter on account of the margin compression in Seeds and Crop Nutrition. Now let's please turn to Slide 6 to look at the gross profit and margin dynamics for the full year. For the year, gross profit was $131.7 million, a 29% decline with respect to fiscal 2024. The decline reflects the lower sales seen across all segments. The largest decline came from Crop Nutrition, which saw a $31.9 million reduction in gross profit year-over-year. impacted not only by the weaker demand for our micro-beaded fertilizers, but also weighed by a $15.7 million year-over-year reduction from the Syngenta down payment, which carried 100% gross margin in FY '24. The remainder of the decline was split evenly between the other 2 segments. In Crop Protection, the decline in gross profit came from lower margin noncore products, resulting in a higher segment gross margin as product mix improved in favor of higher-margin adjuvants and bioprotection products. In Seed & Integrated Products, the gross profit decline follows top line performance. Overall, for the year, gross margin was maintained at 39% despite the challenging context and the absence of the Syngenta contribution. Now let's move to Slide 7 to look at adjusted EBITDA for the quarter. The adjusted EBITDA for the quarter was negative $4.5 million, down from $19.9 million the year before. This sharp decline is almost entirely explained by the $22.7 million gross profit reduction discussed before. While there were $5.7 million in savings in operating expenses achieved as a result of delivering cost control measures, these were offset by $5 million in nonrecurring impairments for the quarter. This number is 6 to 7x greater than our normal impairment run rate and is linked to 2 specific events, [ bad debt ] in Bolivia and the HB4 [indiscernible]. Finally, positive contributions from JVs were offset by other expenses during the quarter. Let's turn to Slide 8 to review EBITDA performance for the full year. For the full fiscal year, EBITDA was $28.3 million, down from $81.4 million in '24. As with the quarter, the decline in EBITDA results mainly from a $54.6 million decline in gross profit, part of which can be attributed to the lack of the Syngenta payment this year as a larger portion of which is due to the performance of the business discussed above. Again, nonrecurring expenses due to impairments outweighed OpEx efficiencies achieved through cost control initiatives. Joint venture results also weighed on performance with Synertech, the JV exclusively dedicated to manufacturing micro-beaded fertilizers impacted by weaker product demand in recent quarters. The JV results were offset by higher other income which reflected the beneficial exchange of noncore soybean trades and intellectually property assets that was disclosed in 3Q '25. Now let's move to Slide 9 to look at cash flow. Thanks to the concrete actions we've taken to improve working capital management, which we discussed in our previous calls and continued to focus throughout the year, we delivered a solid operating cash flow despite the pressure on profitability. Operating cash flow reached $29.9 million in the fourth quarter, up 28% year-over-year. For the full fiscal year, we generated $53 million, a 27% increase versus last year. This underscores our ability to prioritize cash generation even in a challenging environment. Net cash consumption for both the quarter and the full year came mainly from financing activities, primarily due to debt repayments. With that, let's move to the next slide and take a closer look at our balance sheet and cash position. As of fiscal year-end, total financial debt stood at $255.5 million, slightly lower than the $259.7 million in 4Q '24. As previously reported, the company entered into amendments to its note purchase agreements and outstanding notes during the fourth quarter, extending the convertible note maturities under new terms that resulted in an increase in the principal base. While the aggregate principal amount of the outstanding notes increased, total debt declined year-over-year and was slightly lower compared to 3Q '25, reflecting the repayment of unsecured public bonds and working capital loans in Argentina. Cash, cash equivalents and other short-term investments totaled $34.6 million, resulting in a net financial debt of $220.8 million as of June 30, 2025, compared to $217.4 million in the immediately preceding quarter. Given a stable net debt, but the substantially lower adjusted EBITDA, this resulted in a net debt to adjusted EBITDA ratio of 7.8x. And with that, I will turn the call back to Federico. Federico Trucco: Thanks, Paula, and please turn to Slide #11 for an overview of our current financial strategy. As we discussed in our last earnings call and revisited a few slides prior, we continue to focus on cash generation and improving our working capital profile where we are targeting a running rate of between 5 to 6 months of sales, which will better reflect our current business model and product mix priorities. Also, we have accelerated adjustments to our cost structure, targeting operating expense savings of around 10% to 12%. These savings will average about $3 million to $3.5 million per quarter as we started to see in the last quarter of fiscal '25. And we have reduced our rate of incremental CapEx and R&D investments by 50%, lowering it from nearly 6% of sales to between 2.5% and 3% for fiscal year '26 and '27. Importantly, we do not expect this slower pace of investment to affect near-term growth as we already have the key registrations and manufacturing capacity in place to deliver on our 3-year plus business plan. Finally, and without undermining the current financial challenges, we'll continue to work closely with our creditors to comply with our existing financial obligations and roll over part of our upcoming debt maturities as we have done in the past. Where do we want to land? Please turn to the next slide. With these actions, a more normalized ag input market in Argentina and continued positive momentum in the U.S. and Brazil. to agricultural geographies, which are key, where last year, we grew 17% and 29%, respectively. We expect to improve our EBITDA margin levels and steadily progress towards a more robust balance sheet, preparing us for the next phase of growth. Our main focus will be on scaling up our biological initiatives, including using our key actives such as Rinotec and UBP to functionalize and further differentiate important revenue generators for us, such as adjuvant and micro-beaded fertilizers. On the seed front, we'll continue to support our key partners in Latin America, Florimond Desprez in wheat and GDM in soy, while we onboard new partnerships in other geographies, mainly the U.S. and Australia. I will pause now and open up the floor for Q&A. Operator? Operator: [Operator Instructions] Our first question today comes from the line of Kristen Owen from Oppenheimer. Kristen Owen: I want to pause here on the slide that you left us on here Slide 12 with the looking ahead. And understanding that the 40% gross margin, 22% EBITDA margin, this is sort of where we are targeting over time. But as we think about the transition of the business, what are the metrics that we should be focused on, say, the next 6 to 9 months initially, it was this top line growth and EBITDA dollars, cash generation? Just want to know what we should be focused on, on this interim term at this stage of the corporate evolution. Federico Trucco: Kristen, thanks for joining the call today, and thank you for your question. I think, obviously, cash generation will continue to be a focus, a strong focus for us as we try to get leverage ratios back to more normal levels. I believe that top line growth is less of a priority under the current circumstances and that expansion of our profitability will be basically dependent on our ability to scale up the most profitable products in our portfolio. Remember, we've recently achieved registration of Rinotec in the U.S. and Brazil, and we're starting to generate revenues from that new family of insecticides and nematicides. Also, most of the pain from the shifting of the seed business away from the identity preserve scheme that we had has already occurred. So I think that will be an important contributor to going back to sort of the plus 40% overall gross margin profile. And with the cost reductions that are sort of meant to rightsize the organization for the current business opportunity, I think that we will get to these kind of metrics sooner rather than later. But I would say working capital, making sure we're below 5 months of sales, moderate top line growth but expanding profitability at the EBITDA level and gross margin level are key indicators as we track progress towards sort of a more stabilized situation. Kristen Owen: Okay. And if I could just add as a quick follow-up there. It sounds like these targets are not reliant on sort of any real growth beyond market growth in the portfolio. It's just growing those products, which are new and differentiated, not necessarily a robust return of the end market? Federico Trucco: Absolutely. So what I would say is that part of what we need is the rebound to some extent of the input market in Argentina, which is not something that is affecting us specifically. In fact, we have lost market share in any of our key products. So if we see that tracking positively, I think that will do a lot in terms of us achieving these metrics than the type of growth that we need in the other geographies as the portfolio scales up, the new product opportunities scale up is not different from the one we saw last year. So that is, I think, what is required for us to get to this more stabilized, more profitable numbers. Kristen Owen: Okay. One final question for me. If you could just say more about the cost savings initiatives. I think you said the cadence beginning in fiscal fourth quarter here was about $3 million to $3.5 million a quarter, and that's going to be pro rata across 2026. Just help us with a little bit of how you're thinking about those cost savings initiatives. Federico Trucco: Look, I have my sort of own sort of back-of-the-envelope numbers. I think if we were between $28 million and $30 million a quarter in terms of overall OpEx to get to closer to $25 million. It's where we think we are with the things we have already done. So what I'm talking about are the results that we will obtain from streamlining workforce and rightsizing sudden capacities that has already occurred. A contributor to that is obviously the shift in the set uses strategy, but we have also done changes on other aspects of the organization to give us those levels of savings on a per quarter basis. So we should see that reported every quarter on a forward-going basis because we have already seen some of that in the final quarter of the fiscal year we just reported. Operator: Our next question comes from Ben Klieve from Lake Street Capital Markets. Benjamin Klieve: First on the Syngenta agreement. I understand that last year, $16 million was the recognition of that upfront payment. What was the gross profit within fiscal '25 from that agreement? Federico Trucco: Ben, thanks for joining us today. Paula, do we have a specific number there? Paula Savanti: So we don't have -- so those $16 million were from the upfront payment, which this year is 0, right, because that's already been done in the last 2 quarters. So this year, we don't have any. This year, although we're having from the Syngenta payment for the full year is the what comes from the profit sharing that we've been doing, not the upfront payment, right? Federico Trucco: Yes. But then we have a minimum profit sharing of how much. So I think Ben there, what we have is probably that the profit sharing from Syngenta comes on a calendar basis. So it's -- we can give you that number. But I think the -- for fiscal year '25, part of the calendar is still not done because I mean, half of the year is still remaining. So we know from '23 and '24, they were on target based on the minimum payment requirements. Now the Syngenta has been selling probably at a slower pace than anticipated so that the minimum payment requirements are considered in terms of gross profits that we are materializing and not -- we're not seeing results in excess of that. Paula Savanti: Yes. For the full year, we have somehow something like -- for the fiscal year, which is not -- which doesn't correspond to the calendar year targets with them. Look, for the fiscal year, we have about $18 million gross profit from them. Federico Trucco: Yes. Sorry, 1 8 is the number then. Benjamin Klieve: Okay. That's helpful. I'm sorry, you broke up a little bit at the end there, but I think I caught it, and I'm sure that was on my end. Okay. So next question, the HB4 outlook. I understand this is a fluid situation and the -- you've got a lot of different efforts here to try to extract some value from this. But I'm curious if you can look back over the last year, a year ago on this call was when the -- I think really the air began to go out of the balloon regarding HB4. What specifically has been done within HB4 over the past year that you can point to as efforts that are really beginning to get traction here that could give you a hopeful outlook here for the future of that product? Federico Trucco: Yes. That's a great question, Ben. So I think the most important effort over the last year was the agreement with [indiscernible], which we announced in the February earnings in the February call. So even though that might have been a bit overshadowed by other things that were discussed during that call, I think the key there was that in soybeans, which was the one crop, where obviously, we have a huge opportunity in Latin America where we have struggled the note in terms of the ramping up of the HB4 technology, we achieved an agreement with them, where they now are using exclusively the technology in Latin America. And repositioning that technology, not just for the drought tolerance effect, but also a way to provide a weed control platform that should be attractive to farmers in the region. That new platform that is branded [ Wales ], that's the GDM brand for this new approach has already been launched. This is now being scaled up with a selective number of GDM multipliers and the different channels. And we'll be starting to generate revenues in the upcoming fiscal year, which is very meaningful to us, which we don't control the go-to-market effort there that's or the inventory ramp-up or less even less sort of destiny of the grain like we did in the entity reserve channel. But that, to me, it's kind of the most significant achievement over the last 12 months to reignite the opportunity around the HB4 event under a different strategy in soybeans. In wheat, what we have done is open up the business to some of our key customers in Argentina so that we wouldn't have to do the multiplication and the go-to-market ourselves. That is work in progress. But I would say that the most important achievement in wheat was the -- basically structuring of a master agreement in the U.S. with Colorado withdrawers, as an entry point to a consortium of different breeding programs. On a [indiscernible] partner, which we cannot disclose due to confidentiality purposes that will now scale that opportunity in the U.S. market. Even though this is still a few years away, I think that jointly with what we are doing in Latin America, with EMBRAPA developing the varieties for the [indiscernible] in Brazil and the major customers, as you said, is executing commercial in Argentina, that will completely reshape the opportunity behind the soy and the wheat events. That's what we have done. I think that, obviously, we've learned from the past, and we're not going to provide any guidance in terms of revenues. But I think it's a dramatic shift, one that can be managed with a small group of people that are dedicated to the regulatory staff and the technology demonstration work and not with an extended sales force that was trying to, if you will, scale this up beyond our capacities to [indiscernible]. Operator: Our next question comes from Austin Moeller from Canaccord. Austin Moeller: I know you talked about earlier in the remarks about the plans for further diversification of revenues [indiscernible] to the U.S. and Brazil. But how should we be thinking about the upcoming spring planting season in Argentina? I mean it just looks like at least so far, there hasn't been a lot of advanced purchasing of inputs yet, and there's still a lot of currency and on-farm economic risk in Argentina. Federico Trucco: [Technical Difficulty] Okay. I don't know if -- asking, can you repeat the question? We had some interference here with audio. Austin Moeller: Sure. Yes. So I guess what I was just asking was, I know you had previously discussed looking ahead to a more promising spring planting season. But I guess what is your confidence in that just given there's not been a lot of advanced purchasing of inputs and there's considerable currency and on-farm economic risk in Argentina? And then could you just go into a little bit more detail on what you expect in terms of diversification of revenues into the U.S. and Brazil? Federico Trucco: Yes. Thank you for your question, and apologies for the technical difficulties. So basically, in terms of Argentina, the situation here is a bit counterintuitive because whenever there is a risk of devaluation that tends to drive farmers to prepurchase products like they did in fiscal '24. So even though that was not an issue last year because of the more stable macro situation, after the elections of last weekend, I think it's becoming a bit of a driver. So we expect an accelerated pace of input sales just because of that. Most importantly, I would say, rain and weather conditions have been very favorable. So we are looking forward great planting season. And that, I think it's obviously a key factor in terms of our expectations in Argentina. And remember that we operate on a dollar-denominated business. And whenever there's kind of devaluation potential that tends to accelerate our sales and eventually dilute part of our fixed expenses, which are the peso-denominated salaries we pay in countries. So that's in terms of the Argentine dynamics. In terms of diversifying away from Argentina, we've seen good growth last year in the U.S. and in Brazil as well as in the rest of the world there. The key drivers are the biostimulant platform, which is important in Europe as those products go into the Americas, the U.S. and Brazil will see revenue increases from the UBP derived technologies. Also the recent registration of Rinotec in both the U.S. and Brazil is allowing us to become more competitive on seed-applied insecticides and nematicides. And that I think will also give us significant growth in those markets. So there's an aspect of these 2 products, which I also wanted to emphasize, which is the opportunity of selling them not as standalone biologicals, but as a way to functionalize some of our big revenue generators. So you can use UBP today in adjuvant, as we've discussed in the past to improve the recovery of herbicide applications on certain crops. And that is a very meaningful technological aspect that we're planning to seize importantly because we have installed capacity in adjuvant and a customer base to which we can translate this message. And on the Rinotec front, I think similarly, using that as a way to functionalize the adjuvants that are used in insecticidal applications is a way where we can see some revenues and growth without sort of the necessity of selling the product on a stand-alone basis. So those are the initiatives in play. I think they will significantly help us in those geographies outside of Argentina. And that is, I think, going to give us a more balanced geographical mix on a few years. It's not going to happen from 1 year to the next. But after 2 to 3 years, I think we can be less exposed to the type of ships that we saw last year in the Argentine market. Austin Moeller: Okay. And just a follow-up. How should we be thinking about like the cadence of the Syngenta revenue ramp in the new fiscal year? Previously, you discussed that as sort of being a 2-year ramp process to hit what you expect to be the run rate over the term of the agreement for $230 million in minimum profits. But I guess, how much should we be thinking about in next fiscal year? Federico Trucco: So basically, the $230 million are over the 10-year period, we started with smaller numbers, and that's why we had the down payment upfront to compensate in part for the gap in the first and second year. I think Paula recently alluded to the $18 million we had in fiscal year '25 coming from the Syngenta agreement. So we are not yet at the average of 23 per year, if you will. We expect that to be coming up in the current fiscal year as we continue to discuss the agreement with Syngenta and look for opportunities to fortify the relationship. So I think this is ramping up as projected without sort of undermining some of the challenges that we have seen in agriculture in general, particularly early on in the agreement in Brazil and other geographies where we are just now coming out of the down cycle in the ag-inputs market now. Operator: [Operator Instructions] Our next question comes from Kemp Dolliver from Brookline Capital Markets. Brian Kemp Dolliver: Could you talk a little bit more about the current state or level of inventories held in the channel. There seems to be a, probably, one of the most significant obstacles other than improvement in on-farm conditions to your driving -- getting some growth, improving your profitability, et cetera. Federico Trucco: Thanks for joining the call. I think in terms of Argentina, the inventory situation has been almost depleted. So that's been the case over the last 12 months. And I'll give you a very concrete example. For instance, in the micro-beaded fertilizer business, which is obviously one of the business that was most significantly affected over the last 12 months. If you go back to fiscal '23 and '24, in both years, we did about 30,000 tons. Of the 30,000 tons we sold in fiscal '24, 5,000 were in inventory. And this year, fiscal '25, I think we did less than 15,000. We were at 14,000. And consume the 4,000, 5,000 that were in inventory from the year before. So if you look at sort of the actual numbers, maybe in fiscal '24, it was 25,000 that were consumed, fiscal '25, 19,000. And we believe on a forward-going basis, we'll be seeing some recovery because those basically dynamics are indicative of 0 inventory in the channel. I think there might even be a supplied concern, if at the end of the day, product cannot be manufacturing time to fully address the planning needs of farmers. So I think that's been reverted fully in the Argentine market. And that is just one example to highlight a product line that is very meaningful for us. In biologicals, in general, inventories are less of a concern because of the self-life issues. You cannot keep inventories forever when you're talking about seeds or when you're talking about my crops, they have -- they declined over time. So in general, the sector -- or those products are less exposed to inventory situations. And in the U.S. and Brazil, I think the inventory problems were prior to last year. So this take back to the '23, '24, but mostly fiscal '23, so we see now that the level of utilization of product is consistent with our pace of sales. So that is something that we are tracking in both those geographies to make sure that we are not running into inventory hurdles as we execute on the current business plan. Brian Kemp Dolliver: Great. And do you have your accounts receivable and inventories and accounts payable at year-end at hand? Federico Trucco: Give me a second, I'll pass it on to Paula for that information. Paula Savanti: Yes, yes. Sorry, can you repeat what was the question? The level of accounts receivables? Federico Trucco: At the year-end, also on payables and inventories. Paula Savanti: Account pales at year-end are $145 million. Inventories were $90 million, rounding numbers, but fairly close. And trade receivables $170 million. Brian Kemp Dolliver: And then one last question and that relates to the changing role of the Chief Commercial Officer. what thoughts do you have with regard to what that position will look like -- should look like going forward? Federico Trucco: Look, Kemp, that's a great question. I think we're still discussing with the Board whether this should be something that integrates operations more fully or be strictly dedicated to commercial the way it was before. I have to sort of also indicate that the departure of Mile Marinof, it's because he has accepted the CEO position of a company called Horizon starting September 1. So it wasn't something that was planned. I mean we were probably intending to continue with the current Chief Commercial Officer role. And because of that departures that we are reconsidering whether we should keep that format or have one that is probably more integral in its nature. And by that, I mean, have some incremental operating responsibilities beyond the commercial aspects of the company. Operator: With that, that concludes the Q&A portion of today's call. I'll now hand back over to Federico for some closing comments. Federico Trucco: Well, I want to thank everyone for participating in the call. And obviously, for the patients, we had some technical difficulties today. We are available to address further questions and hopefully, turn the page on a very difficult year as we look forward into a more normalized set of circumstances and a sort of a new path of growth for Bioceres Crop Solutions on a forward-going basis. Thanks, everyone, and have a great rest of the day. Operator: Thank you all for joining. That does conclude today's call. You may now disconnect your lines.
Operator: Greetings, and welcome to AstroNova's Second Quarter Fiscal Year 2026 Financial Results. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Deborah Pawlowski. Thank you. You may begin. Deborah Pawlowski: Thank you, and good morning, everyone. We certainly appreciate your interest in AstroNova, and thank you for sharing your time with us today. I am pleased to introduce you to Yorek Itmann, who was appointed President and Chief Executive Officer of AstroNova effective August 15 this year. Also joining us is Thomas DeByle, our Chief Financial Officer, who should be familiar to most of you. You should have the earnings release that crossed the wires earlier this morning as well as the slides that will accompany our conversation today. If not, you can find these documents on the Investor Relations segment of our website, AstroNova, Inc. Please turn to Slide 2 to review cautionary statements. As you are likely aware, during the formal presentation as well as the Q&A session, management may make some forward-looking statements about our current plans, beliefs, and expectations. These statements apply to future events that are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. Also, as noted on the slide, management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. Now, if you will turn to Slide 3, I will turn the call over to Yorek. Yorek? Yorek Itmann: Thank you, Debbie. Good morning, everyone, and thank you for joining us today. I'm excited to take on this new leadership role and confident in the future of AstroNova. We have a leading market position in aerospace with a loyal customer base and long-term contracts as a first-tier supplier to major aircraft manufacturers. In our product identification segment, our new commercial print technologies have begun to ship. As these new print solutions are validated by our customers, we expect to be able to address the full funnel of interest we have been generating to drive sales. But I know we have a lot of work to do to get our growth and profitability on track. On Slide 3, you see my priorities for AstroNova. Starting first with our product ID segment, we began the restructuring of our sales team earlier this year to be much more customer-centric. The company has been losing customers over the last number of years, and I believe it's because of how we went to market and how our sales organization was compensated. I reorganized sales into two teams: customer acquisition and customer retention. This reorients our focus on taking care of our current customers and winning back those we have lost while gaining new customers. Also working to change the skills of our sales team to align with our new product offerings. Our new print solutions, especially the significantly larger and higher value print solutions, we're now offering are capital projects for our customers. This is a very different sales process from how we have sold our legacy tabletop printers. The sales cycle is longer, and customers' needs are more specific. We've been making progress with our new go-to-market strategy and believe results will begin to demonstrate it over the next several quarters. Our success is also dependent upon a couple of other hurdles we are currently addressing. First, we have to validate with customers that the upgrades we have made to the Emtek's product line meet their needs, including print quality, speed, reliability, durability, and lower operating costs. We have shipped several of the models with another to be on the way this week. If results come out as we expect, we can drive more sales. If not, we will have to rethink that portfolio. Second, as this might be news to you, we have a different kind of problem with our product line for our partners who serve the mail-in sheet printer line. We have had a hard time keeping up with demand. We have redesigned products for that market, and we have excellent partners serving those customers. Our partners and their customers like the products. We just haven't been able to make enough of these products. Our PI leadership team is actively engaged now in order to capitalize on this opportunity. Turning to aerospace now. Even though revenue declined compared with last year's second quarter, we believe that business is performing on key metrics such as transitioning to our ToughRider flight deck printers from legacy equipment. During the quarter, we began shipping the ToughRider 640 to a major aircraft OEM. As a result, the ToughRider represented 50% of second-quarter shipments and remains on track to reach our target of over 80%. Forty-five percent of the segment's revenue is for aftermarket sales and service, and roughly 10% of hardware sales are dependent upon spare replacement machines. However, for new build aircraft, we like the long-term tailwind provided by growth in commercial aircraft build rates. We're also making changes in the culture of AstroNova. We have great talent within the organization that needs to be unleashed yet held accountable. I am working to create a more collaborative culture that puts the customer first. I'm excited about how the team has embraced change and believe we can develop into an organization that delivers. We have to execute our plan to regain trust with our key stakeholders, including customers, employees, and not least, investors. I believe that if we can demonstrate, AstroNova can make progress in our markets with our customers, strengthen earnings power, and be straightforward and transparent while delivering on our promises. We will build credibility with you. Thomas, I will turn it to you now to review the financials. Thomas DeByle: Thank you, Yorek, and good morning, everyone. On Slide 4, you can see the second-quarter revenue of $36.1 million declined 10.9% year over year and sequentially 4.2%. Seventy percent of this quarter's revenue was recurring. By segment, product ID and aerospace decreased 8.9% and 15.1%, respectively. Lower sales in product identification in the quarter were primarily driven by a $2.6 million decline in recurring supplies, parts, and service from customer attrition. This is partially offset by higher demand for the mail-in sheet flat pack products. In July, we began shipping our new professional label printers, the QL 425 and 435 models. And in August, we shipped the 800, a new direct-to-package printer line that was upgraded from the former Emtek model. For aerospace, the year-over-year decline was a result of a tough comparison against last year's second quarter, which benefited from a $1.3 million and unusually large spare printer shipments to both the airline and a defense customer, as well as nonrecurring engineering revenue from an OEM project. For 2026, revenue of $73.8 million increased marginally year over year due to higher hardware sales offsetting the decline in recurring supplies, parts, and service revenue. Turning to Slide 5, gross profit in the second quarter was $11.6 million, down $2.7 million year over year, reflecting lower sales and unfavorable mix primarily related to the decline in aerospace volume. For the first half of fiscal 2026, gross profit was $24.3 million or 32.9% of sales, a $2 million decline from the same period last year as a result of a less favorable product mix primarily in the aerospace segment. For the second half of the year, we expect aerospace gross margin to improve on similar volume since we began shipping the ToughRider to a major OEM in June. Higher volume and improved mix in the product ID should drive margins as well. Looking at Slide 6, product ID operating income for the quarter declined $400,000 or 18% and was partially offset by a $500,000 reduction in operating costs. In the first six months of fiscal 2026, GAAP operating income also declined. We expect improvement to sales, and with the impact of our cost reductions, we should see improving margins for the segment. Looking at Slide 7, aerospace operating income for the quarter was down $1.4 million or 37% due to sales volume and unfavorable mix. This was partially offset by $300,000 in cost reductions. For 2026, GAAP and adjusted operating income declined due to weak second-quarter results. Turning to Slide 8, our net loss was $1.2 million or $0.16 per share, reflecting lower volume, partially offset by a $500,000 tax benefit. Adjusted EBITDA was $2.1 million, down $1.8 million compared with the prior year period. Adjusted EBITDA margin for the second quarter was 5.7%. Moving to Slide 9, cash provided from operations in 2026 was $4.6 million and down from the prior year based on everything we have covered here. As Yorek mentioned, we are rethinking how we operate the business and are driving a stronger focus on cash generation through improved operational performance. We are carefully managing our capital, and as a result, our CapEx was $100,000 in the first six months of the year. We have been constraining our capital investment and expect CapEx for the fiscal year to be less than $5 million. We paid down $5.1 million in debt through the first half of the year. And as of July 31, 2025, we have $10.4 million in total liquidity, including $3.9 million in cash, $5.9 million available on our revolver, and an untapped $600,000 line of credit in Portugal. Our leverage ratio of funded debt to adjusted EBITDA was 3.5 times. The bank waived our fixed charge coverage ratio for the second quarter, and we are in discussions regarding restructuring of our debt, which we expect to have completed in the next sixty days. Our objective with the turnaround of product ID and continued advancement of the aerospace segment is on a consolidated basis to grow sales, drive product profitability, generate cash, and pay down debt. Now please turn to Slide 10, and I'll hand the call back to Yorek. Yorek Itmann: Thanks, Tom. We had orders of $35.9 million in 2026, which were relatively unchanged from the prior year period but up $1 million sequentially as a solid improvement in aerospace more than offset a very weak order quarter for product ID. As we discussed earlier, we have changed the team structure and are actively meeting with current, past, and prospective customers. Aerospace orders were up $3.8 million for the trailing first quarter. I'm seeing how much variation this business can have from quarter to quarter. We do expect that as Boeing increases its build rates and if it levels out, we should see steady growth in hardware sales related to new builds. Backlog for the quarter was down $4.6 million year over year to $25.3 million and represents about 30% of expected shipments for the second half of the year at the midpoint of our guidance range. If you will turn to Slide 11, I will summarize the work we have to do to put AstroNova on track to deliver stronger profitability and improve sales. There unfortunately is not any single lever to pull to make this work. We have to reengage with our customers and simplify our processes to improve our responsiveness. We need to measurably improve our customer retention rate. We have to evolve our sales approach for new higher value printers. We also are addressing production challenges in the mail-in sheet flat pack printer operation. We need to streamline processes to take out costs and reduce our lead times. We're simplifying operations in Portugal and better prioritizing and allocating our resources. I remain encouraged as we move forward. We expect to see a full benefit of the $3 million in annualized cost reductions in the second half of the fiscal year. We'll have a much better understanding of the potential of our new printers over the next few months. And our aerospace business provides a stable base with a couple of tailwinds, including increasing aircraft build rates and a benefit to profit margin we will realize in fiscal 2028 as Honeywell royalty rolls off. I'm looking forward to the challenge of improving the business and driving change toward AstroNova. Operator, let's open the line for questions. Operator: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. As a reminder, if you'd like to ask a question, please press 1. One moment while we poll for questions. This concludes the question and answer session. And this concludes our conference for today. You may disconnect your lines at this time. And we thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to AeroVironment's First Quarter and Fiscal Year 2026 Earnings Conference Call. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Director of Investor Relations, Denise Paccioli. Please go ahead. Denise Paccioli: Thank you, and good afternoon, ladies and gentlemen. Welcome to AeroVironment's First Quarter Fiscal Year 2026 Earnings Call. My name is Denise Paccioli, Director of Investor Relations for AeroVironment. Before we begin, please note that certain information presented on this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve many risks and uncertainties that could cause actual results to differ materially from our expectations. Further information on these risks and uncertainties is contained in the company's 10-Ks and other filings with the SEC, in particular, the risk factors and forward-looking statement portion of such filings. Copies are available from the SEC on the AeroVironment website www.avinc.com, or from our Investor Relations team. This afternoon, we also filed a slide presentation with our earnings release and posted the presentation to the Investors section of our website under Events and Presentations. The content of this conference call contains time-sensitive information that is accurate only as of today, 09/09/2025. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me today from AeroVironment are Chairman, President, and Chief Executive Officer, Mr. Wahid Nawabi, and Executive Vice President and Chief Financial Officer, Mr. Kevin McDonnell. We will now begin with remarks from Wahid Nawabi. Wahid? Wahid Nawabi: Thank you, Denise. Welcome everyone to our first quarter fiscal year 2026 earnings conference call. I'll start by summarizing our quarterly performance, followed by Kevin, who will review our financial results in greater detail, and then discuss guidance for fiscal year 2026. After this, Kevin, Denise, and I will take your questions. I'm pleased to report a very strong start to our fiscal year with excellent first quarter financial results, setting new records for the company. We are better positioned than ever to drive industry-leading organic revenue growth and profitability. Our acquisition of Blue Halo has created significant new growth in critical areas that are aligned with our customers' highest priorities. And our integration efforts are progressing ahead of plan. Our first quarter results benefited from programs tied to this acquisition, and we look forward to building on that momentum in the coming quarters. Now, let me summarize the key messages for 2026 which are included on slide number three of our earnings presentation. As a reminder, this is the first quarter where our results are inclusive of our recent Blue Halo acquisition. First, we achieved another record first quarter with revenue of nearly $455 million. Second, bookings for the first quarter reached nearly $400 million and our funded backlog grew to $1.1 billion. Unfunded backlog is now at $3.1 billion. Third, we introduced several innovative solutions in Counter UAS, space communications, and direct energy among other areas, that are directly aligned to our customers' urgent priorities and represent multibillion-dollar market opportunities over the next several years. And fourth, we're maintaining our fiscal year 2026 guidance with revenue between $1.9 billion and $2 billion. Overall, AeroVironment is uniquely positioned as a leading defense tech prime with our innovative product offerings, along with the experience and capacity necessary to scale manufacturing on an expedited timeline. This is what is required for the urgent national security priorities of our nation and our allies around the globe. We have worked very hard throughout the past few years to position AeroVironment for such a historic set of opportunities. Since our last earnings call, we announced several key program wins and milestone achievements. For example, yesterday we announced a nearly $240 million award for our long-haul space laser communications terminals. That will be delivered over the next three and a half years with options for additional systems. To put this in perspective, we expect the laser communication is going to be one of the most important aspects of warfare in the space domain. And represents a multibillion-dollar opportunity for AeroVironment. AeroVironment is clearly leading the industry in this critical area and technology. Our technology allows the secure transfer of high bandwidth data in the most challenging space environments at the fastest rates and across very long distances than any other current capability on the market. This is a strategic and critical milestone for our customers and we're now excited to move it from development into full-rate production. With our decades of proven track record, AeroVironment is well-positioned to efficiently scale our laser comm manufacturing to capture growing demand in this multibillion-dollar new market. In addition, AeroVironment was also recently awarded a $95 million contract to further the development and scale manufacturing of our Freedom Eagle One or FE1 for long-range kinetic interceptor program for the US Army. This missile is designed to deliver extended range, higher altitude, and all-weather performance against a broad set of emerging threats. AeroVironment's FE1 missile addresses a much broader set of requirements at much affordable price points than anything available on the market today. Our nation needs capabilities such as FE1, to affordably defend our nation against such emerging threats. This award enables AeroVironment to enter and disrupt a multibillion-dollar missile defense market. The US Army considers our innovative SD WAN solution the leading capability in this critical area. We're looking forward to sharing future progress with you on FE1 and our next-generation counter UAS missile efforts in the coming quarters. Another key achievement in the first quarter was the recent delivery of two of our counter UAS inventory squad vehicle-mounted LOCUST laser weapon systems. Under the US Army's multipurpose high-energy laser program, or AMP HEL. We're set to deliver two additional joint light tactical vehicles or JLTVs mounted LOCUST laser weapon systems next month for the second increment of the AMP HEL program. These deliveries mark a major milestone in the US Army's objective of operationalizing directed energy capability to defend against the emerging proliferation of drone warfare. Our LOCUST laser weapon system use of directed energy is a critical emerging technology that is key to defending against group one through four drones. And in the future, will enable defense against hypersonic missiles, cruise missiles, and other projectiles at much lower and affordable costs. We also see this emerging market exceeding several billion dollars in the coming years, And AeroVironment is ahead of most, if not all industry players to scale and capture a significant portion of this very large opportunity. And finally, we delivered multiple P550 Route 2 UAS systems along with training to the US Army for the long-range reconnaissance or LRR program of record. Persistent, low-cost, reliable ISR at the edge of the battlefield represents a shift in defense strategy around the globe. And we believe our P550's performance specifications meet the US Army's program requirements better than any other competitor solution on the market. This program of record represents approximately $1 billion in value over the next five years, and AeroVironment is very well prepared to execute and deliver on it. The successful adoption of our P550 with the US Army's LRR program should also lead to more international adoption of this capability by our allies in the coming years. We've experienced such a trend with our other global franchises, such as the Raven, Puma, and Switchblade. We look forward to continued progress with this significant program record. In addition to these significant program wins, and milestone achievements, last week, we unveiled AeroVironment Halo, a software platform and ecosystem that is hardware agnostic, and unifies our suite of mission-ready software tools and offerings. AeroVironment HALO clearly demonstrates the depth and breadth of our AI-powered software ecosystem for our end markets. At launch, these software modules include our multi-domain command and control, intelligence analysis, synthetic training, and autonomous targeting. AeroVironment HALO blends the best of both legacy AeroVironment and BlueHalo software solutions and offers our customers a comprehensive mission-ready suite of AI-powered software tools that empowers warfighters to dominate the mission across air, land, sea, space, and cyber domains. We're excited to share more details over the coming months about how AeroVironment HALO software enhances the speed, autonomy, modularity, and interoperability of our offerings to address growing market needs. As the industry continues to grow, and demand for our customer-driven solutions increases, we are focused on leveraging our strategic partnership to unlock new opportunities for AeroVironment. Both domestically and abroad. Since our last earnings call, we have announced several key partnerships that will advance our long-term growth objectives and broaden our exposure in new areas. First, we announced a strategic partnership with Sierra Nevada Corporation, for limited area defense architecture under the Golden Dome for America initiative. This partnership focuses on integrating and aligning existing open architecture solutions using passive and active sensing radio frequency directed energy kinetic energy electronic warfare, and cyber solutions, and addresses the complete kill chain to neutralize group one to four unmanned aerial systems advanced cruise missiles, and other next-generation aerial threats. With our broad suite of technological solutions, AeroVironment is uniquely positioned to help protect our nation by implementing a cost-effective solution for sovereign missile defense. Second, we signed a memorandum of understanding in Denmark for expanding airport utilization for median UAS training demonstrations, and customer integration activities in the region. And finally, we announced an expanded partnership with the Dutch Ministry of Defense to modernize and expand their Puma fleet highlighting the rising demand for adaptable mission-ready, unproved systems across NATO. In summary, we're currently pursuing more than 20 different programs of record which exceed $20 billion in potential value over the next five years. Included in these programs are OPF light and medium one-way attack lasso, LRR, laser communications, NGCM, HMIF, and additional options with our SCAR space program among several others. As we pursue these significant opportunities and programs ahead, we're also focused on managing the business efficiently during this period of high growth and capacity expansion. This past quarter, we successfully raised more than $1.5 billion through equity and convertible debt. Funds were used to pay down debt from the acquisition of Blue Halo, and the balance will be used to help support the company's growth including necessary production capacity expansion. As we've discussed over the past year, our current facilities are capable of scaling manufacturing to meet rising demand through at least fiscal year 2027. We're making progress on a new state-of-the-art manufacturing facility in Salt Lake City, Utah, which will allow us to considerably increase our manufacturing capacity for demand beyond fiscal year 2027. As part of our distributed approach to manufacturing for resiliency and risk diversification, we now have manufacturing sites operating across 12 different states. Now I would like to provide brief updates on our two business segments. Our first segment, autonomous systems, achieved revenues for the first quarter of $285 million. This segment continues to remain a strong growth driver for the company as demand continues to increase for our family of UAS solutions such as Puma, P550, and Jump 20. We anticipate further growth in our precision Strike and Counter UAS Group for our Switchblade family products, Redragon One Way Attack Drone, as well as from our RF counter UAS solution, Titan, and our next-generation counter UAS missile defense system, FD1. Now onto our second segment, space, cyber, and directed energy or SCDE segment. Our SCDE segment posted first-quarter revenues of $169 million. Our space technologies and directed energy solutions will continue to drive growth in this segment and for the company. As I mentioned earlier, when announced yesterday, a $240 million contract award for our long-haul space laser communication system. In addition to anticipated revenue growth from this area, we're confident that our Badger phased array solution and our counter UAS directed energy solutions LOCIST, will be key growth drivers for this segment in the future. Let me conclude my comments with the following. With the acquisition and successful integration of Blue Halo, we have significantly expanded our cutting-edge and battle-proven portfolio to include space technologies, counter UAS, directed energy, electronic warfare, and cyber solutions. We have broadened our growth opportunity in a demand-fueled market. This has been a deliberate part of our long-term strategy. Our high-volume manufacturing expertise and capacity in these critical areas is also another key differentiator that is unrivaled in the industry. AeroVironment's installed base of more than 42,000 platforms, fielded and performing in high-demand environments across multiple domains, is another aspect of our competitive differentiators. And finally, our track record of exporting and supporting solutions to more than 100 allies around the world sets us further apart than any other player in this industry. We have worked hard to position our company for success. And we're very excited to help our nation and allies across the globe. AeroVironment stands ready to continue executing and delivering on our promise to our key stakeholders so they can proceed with certainty. With that, I would like to now turn the call over to Kevin McDonnell for a review of our fourth quarter and full-year financials. Kevin? Kevin McDonnell: Thank you, Wahid. Today, I will be reviewing the highlights of our first-quarter performance, which I will occasionally refer to both our press release and earnings presentation available on our website. Just a reminder that we closed our Blue Halo acquisition on May 1, so results for Q1 and projected FY '26 include the financial activity from Blue Halo. I'll briefly comment on the results for the quarter and then turn to guidance for the remainder of FY 2026. In summary, we are very pleased with the results of the new AeroVironment on all metrics delivering solid top-line and EBITDA growth. As Wahid mentioned, our equity and debt raise in July position us well for growth with over $700 million of cash and investments on the balance sheet. Wahid also mentioned in his remarks we started the year with $454.7 million of revenue in the first quarter, which represents a 140% increase over the prior year as reported or an 18% increase on a pro forma revenue basis. Since the acquisition of Blue Halo, our regional revenue mix has shifted towards the increase in domestic revenue. For Q1, 78% of our revenue came from domestic customers, and 22% from international customers. In the first quarter, Ukraine represented 8% of revenue. The rest of Europe represented another 6% of revenue. Expect Ukraine revenue to remain between 5-8% of total revenue in FY '26. When comparing pro forma revenue for the '5, several of our products realized tremendous growth. Switchblade 600 product had over 200% revenue growth. Jump 20 had over six times revenue growth. Our LOCUST directed energy counter UAS systems also had five times pro forma revenue growth. Titan revenues nearly doubled a reflection of the strength of our counter UAS RF business, and finally, Badger, an advanced RF satellite ground station, grew nearly 40%. Notably, we received an award for $70 million for additional Badger units in the quarter. And this is part of a larger order, expect to receive in Q2. As mentioned on prior earnings calls, AeroVironment is now operating under two reporting segments: Autonomous Systems or AXS and Space, Cyber, and Directed Energy or SCDE. AXS ended the quarter strong with $285 million of revenue, representing a 22% increase over FY '25 pro forma revenues. Of the total in the quarter, about 35% came from Switchblade 600 product, 15% came from Puma products, 9% from Switchblade 300, 7% from counter UAS RF, and 6% from Jump 20. SCDE ended the quarter with $169 million of revenue, which represented a 12% increase over pro forma FY '25. Of the total for the quarter, approximately 19% came from Badger satellite ground station, 12% from LOCUST directed energy counter UAS systems, and 12% from our advanced R&D businesses which focuses on research, development, testing, and evaluating emerging technologies to ensure their effectiveness transition to the warfighter. In terms of adjusted EBITDA, slides ten and eleven on our earnings presentation show the reconciliation of GAAP gross margins to adjusted gross margins and net income to adjusted EBITDA. Adjusted EBITDA in Q1 was $56.6 million, up from last year's Q1 of $37.2 million as reported primarily due to the incremental Blue Halo results. EBITDA as a percentage of revenue ended at 12.4% of revenue was in line with our expectations. We continue to forecast full-year adjusted EBITDA at 16% of revenue. Moving to gross margins. In the first quarter, consolidated GAAP gross margins finished at 21% versus 43% in the prior year. The decrease in GAAP gross margins can be attributed to the higher service mix of 31% of revenues versus 16% in the prior year. Plus an increase of intangible amortization, other noncash accounting expenses of $33.7 million over FY '25. First-year first-quarter adjusted gross margins were 29% versus 45% in the '5. As noted, the business landscape of the combined new company has changed significantly with a higher service mix and several products at early stages of maturation. We believe adjusted gross margins should continue to improve throughout the year, ending up in the mid-30s by Q4 with an average for the year in the low thirties. Moving on to operating expenses. Reported GAAP SG&A for the quarter was $131.3 million versus $33.8 million in the prior year. Net of intangible amortization deal and integration costs adjusted SG&A was $65.2 million versus $32.7 million in the prior year. The increase is largely a result of the combination of Blue Halo. As a percentage of revenue, adjusted SG&A in the quarter was 14.3% of revenue versus 17.3% in FY '25. Again, these SG&A levels represent a shift in the business model and we expect to end the year in the 11% to 13% range. As we begin to realize synergies and achieve higher revenue. R&D expense for the first quarter was $33.1 million or 7.3% of revenue compared to the $24.6 million thirteen percent of revenue in the prior year. Again, this is a shift in the business model, and we expect R&D as a percent of revenue to end the year at between 6-7% revenue range. Now turning to GAAP earnings. In the first quarter, the company generated a net loss of $57.4 million versus net income of $21.2 million recorded in the same period last year. The decrease in net income of $88.5 million can be attributed to increased intangible amortization, other non-cash purchase accounting expenses of $74.9 million for the Blue Halo acquisition, plus another $23.7 million of deal and integration costs. In addition, interest in other income expense increased $14.6 million year over year. This was offset by the additional $6.3 million of income from operating activities and a decrease in taxes of $16.7 million. Slide 12 shows the reconciliation of GAAP and adjusted or non-GAAP EPS. The company posted adjusted earnings per diluted share of $0.32 for the first quarter of fiscal 2026 versus $0.89 related share for 2025. Moving to the balance sheet. At the close of the first quarter, our total cash and investments amounted to $722 million. As most of you know, we completed $1.7 billion financing during the first quarter, of which approximately $950 million was used to pay down the debt from the Blue Halo acquisition. We now have a completely new balance sheet as a result of the Blue Halo transaction. Consequently, many of our balances are not comparable to prior periods. For instance, our overtime revenue recognition has increased from 41% to 75% of revenue year over year driving up unbilled receivables. With that said, unbilled receivables continue at a higher level than we are targeting. We have been negatively affected by the alignment of the contracting officers for our Switchblade product. This transition has been completed. And we expect unbilled to be down significantly the next quarter. Turning to backlog. Our funded backlog at the end of 2026 finished at $1.1 billion. Unfunded backlog grew to $3.1 billion at the end of Q1. I should note that we included our visibility from expected Medicare long-term contracts which we expect to perform during the fiscal year. But which have not been funded as of this date. Given this, the visibility to the midpoint of our revenue guidance range is 82%. We expect that our unfunded backlog to continue to grow significantly during the second quarter due to the recently announced contracts and new contracts in the cycle. Finally, I would like to provide you with our updated FY 26 guidance. On page six of the presentation, we provide fiscal 2026 guidance. Fiscal year revenue is still expected to be between $1.9 billion and $2 billion. Adjusted EBITDA remains between $100 million and $320 million but non-GAAP adjusted EPS is now projected to be between $3.60 and $3.70. Due to the refinancing of our debt. The midpoint of our revenue guidance range represents nearly 15% growth over the pro forma FY '25. So as mentioned previously, our visibility to the midpoint of revenue guidance range is at 82%, which is higher than it at the higher end of historical range at this point during the year. I'd like to close by echoing Wahid's remarks. We are very well aligned with the US DOD priorities and those of the allies and are excited about our prospects. Now I'd like to turn things back to Wahid. Wahid Nawabi: Thanks, Kevin. Before turning the call over for questions, I'd like to reiterate all the positive momentum we have entering our 2026. First, we achieved another record first quarter with revenues of nearly $455 million. Second, bookings for the first quarter reached nearly $400 million and our funded backlog grew to $1.1 billion. Unfunded backlog is now at $3.1 billion. Third, we introduced several innovative solutions in Counter UAS, space communications, and direct energy among other areas that are directly aligned to our customers' urgent priorities and represent multibillion-dollar market opportunities over the next several years. And fourth, we're maintaining our fiscal year 2026 guidance with revenue between $1.9 billion and $2 billion. Our strong first-quarter results underscore the confidence we have in the future of AeroVironment, and our ability to reshape the future of defense. Our integrated capabilities across every domain of modern warfare combined with our enhanced innovation and ability to scale, strengthens our ability to address emerging global priorities. We stand ready and committed to deliver just as we've always done. With strong support on both sides of the aisle in Congress, the current administration, and our customers, we're confident that AeroVironment will not be negatively impacted should Congress fail to pass a budget resulting in a continuing resolution. The support for our solutions and the urgency behind the needs for our products gives us confidence. That we will remain a high priority in either scenario. Additionally, we have significant momentum internationally with our allies. Where our ability to deliver battle-proven solutions quickly at scale is certainly a competitive advantage. I want to thank our employees, shareholders, and customers for their continued commitment to AeroVironment and our mission. We're honored to support the most critical defense missions at this pivotal moment, and we're ready to seize the tremendous opportunities ahead. And with that, Kevin, Denise, and I will now take your questions. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone. Callers limit themselves to one question and return to the queue to ask additional questions. Our first question comes from Ken Herbert with RBC. You may proceed. Ken Herbert: Yeah. Hi. Good more or good afternoon. Wahid, Kevin, and Denise. Really nice results. Maybe then, Wahid, Yeah. Maybe, Wahid, just to start off, obviously, good revenues. You didn't change the full-year outlook. I think you know, you've obviously got better visibility at the 82% than you've had at this point in prior years. Can you just talk about some of the puts and takes as we think about the $1.9 billion versus $2 billion full-year revenue outlook and how you're thinking about risk of the guidance on the top line and opportunities to maybe outperform that this year? Thank you. Wahid Nawabi: Thank you, Ken. Yes. We're very pleased with the results. I'm very pleased also with the integration of Blue Halo with AeroVironment. As you know, this is no easy feat. This is a very large undertaking combining two of the best-of-breed companies creating a $2 billion enterprise that addresses all the key areas of our defense priorities, both domestically and internationally with our allies. In terms of our guidance, we feel very good about our first-quarter results, but it is first quarter. We've got three more quarters to go. The budgets for the year are not totally set. There is a potential for a continued resolution, which we don't believe that it's going to affect our year, but in order for us to perform above and beyond that, it's still a lot more questions left. And so given all those reasons, also, some of these contract timing is really critical because the US DOD is going through a lot of changes and transformation and many of their services. And given all that, we believe that we're on track again. It's going to be a fantastic year with record revenues and profitability nearly $2 billion in revenues and $300 million worth of adjusted EBITDA. We're going to be this the poster child of what a defense tech company in a tranche should look like. And we're pleased that we've achieved the results we have so far, and we look forward to updating you in the future. Ken Herbert: Thanks, Wahid. I'll stick to one. Wahid Nawabi: No problem. Thank you, Ken. Operator: Our next question comes from Anthony Valentini with Goldman Sachs. You may proceed. Anthony Valentini: Hey, guys. Thank you for the question. I'm curious, are you guys seeing increased competition now that there's an emphasis on, you know, the unleashing of American drone dominance? And how do you think price will be impacted over time by competition? Like you guys, you know, on your Switchblades, you know, specifically, I think you guys have talked about, you know, low hundreds of thousands of dollars, as the price there. If there's more competition over time, is there a risk that, that price is going to go down and margins will suffer? Thanks. Wahid Nawabi: Anthony, thank you for that question, and great to talk to you again. Obviously, the focus of The US for the American drone dominance is really important, and we support it. And we're very pleased with that. We are used to competition and competitors ever since I've been with this company for over a decade and a half. It is not new to us. We've had the drone insanity when the commercial drone industry was going on. We've had that with our small UAS. There's been doubts about that our performance for decades. AeroVironment has continued decades and decades to be able to deliver and prosper and stay as the leader in this market. What that tells me is that actually the focus on this market and the amount of growth that there is, it's actually attracting more and more investments, of course, but also attention to our customers. So it's a good sign that the US DOD believes that we've got a scale and we got to grow. But we really feel strong about our portfolio. There are several, several key competitive differentiators that enable us to actually lead and continue to stay as the leader. And there are no shortcuts in this business. It's one thing to say that we can somebody can do it. Actually doing it and delivering it at scale. It's a very, very high bar. I want to remind everybody that our systems are used by the tens of thousands globally with scale repeatedly multiple times in our history. And we have a unique competitive advantage in terms of having them manufactured capacity to produce these things at urgent and very short cycles. Based on the demand and urgency and priority of our US DOD and our allies. That is a clear, clear advantage for AeroVironment. Amongst many other things, and, we look forward to that. So while we always take competitors seriously, we're very confident about the best-in-class solutions that we've got in our track record and the positioning that we have in the marketplace. I mean, we've always provided a very cost-efficient product, and a lot of you know, the competition is a lot of that is about the value versus alternatives. So unmanned solutions provide incredible value. A lot of the pressure would probably come more on the low end of the market. Than in our categories, which is, you know, group two and above. Anthony Valentini: Great. Thank you guys so much. Wahid Nawabi: You're welcome, Anthony. Operator: Our next question comes from Louie DiPalma with William Blair. Louie DiPalma: Good afternoon, Wahid, Kevin, and Denise. Wahid Nawabi: Hey, Louie. Hello. Louie DiPalma: Hi there. Denise Paccioli: Hi. Louie DiPalma: You announced the AeroVironment Halo Unified software platform last week. Can you talk about how your software integrates with third-party hardware providers in addition to the AeroVironment portfolio of systems? And secondly, is there the potential that your software platform can be open to third-party software developers such that others can build applications on top of your software similar to how like, Palantir has their Maven smart system and it's becoming a platform. And you have this command and control system that seems to have a lot of similarities there for the command and control for the SUAS and CUAS and your laser systems, etcetera. Thanks. Wahid Nawabi: You're welcome, Louie. Of course, AeroVironment Halo software, which we just announced, is really a great example of how we brought the best of both worlds from AeroVironment's portfolio of software solutions as well as BlueHalo software solutions into one cohesive umbrella of an ecosystem and platform that allows us to deliver and innovate in the lots and lots of different areas of the entire market. There is certainly a major, major need and a market opportunity for companies like AeroVironment and others to try to help simplify and integrate and interoperate all these systems together. That's precisely what AeroVironment HALO's strategy and product roadmap and value proposition is all set to be. In regards to your first question, yes, we already today enable third-party devices third-party platforms, hardware systems, to actually integrate and be interoperable with AeroVironment Halo. And many, many other subsystems or modules of AeroVironment HALO. AeroVironment Halo is going to be an umbrella brand with lots and lots of different tools and applications underneath it. And we continue to invest in that. So that's definitely a yes for that. In terms of allowing other third-party companies to develop software as an API and open platform, absolutely true. Yes. That's the case as well. In fact, we already have some solutions that we provide to our customers to our small UAS and our load immunizations which use third-party apps as a software that is plug and play into our system. So the last thing I want to mention is that we've developed AeroVironment HALO ecosystem from the ground up based on the expertise that we have on the edge of the battlefield, with all the platforms and tens of thousands of systems that we make out there in all the different domains. That gives us a unique competitive advantage because it's much, much harder to do the C2, the command and control connectivity interoperability at the lower level at the edge of the battlefield than it is just represented at the graphical user interface at the high levels. The high level gets a lot of limelight and a lot of hype. But the real value in the hard work is how you interconnect the subsystems. In an open modular architecture approach. And that's precisely how we built the software platform that we've got. We're going to continue to invest in it. The software department of our engineering department is the largest department within our entire innovation groups. And so we intend to continue to invest in this best area, and innovate deliver more capability. And that's why our solutions are always been known as software-defined platforms. And I'm glad you asked that question, Louie. Louie DiPalma: Thanks for the extensive answer, Wahid. And I will save the rest of my questions for Albuquerque. So thanks, everyone. Wahid Nawabi: Wonderful. We look forward to seeing you there, Louie. Thank you. Operator: Our next question comes from Jan Engelbrecht with Baird. You may proceed. Jan Engelbrecht: Good afternoon, Kevin and Denise. Congrats on a very strong set of results. I guess, with the Blue Halo now falling part of the group and clearly a big domestic presence, I just wanted to sort of have a sense of the exportability of the Blue Halo product offerings. Just given sort of what Europe is planning to spend and sort of their strength in sort of lack of industrial base to do things themselves. Just look at things like the LOCUST system and space capabilities that you now have. If you could just talk more about that. And then just a small addition, but with the Red Dragon, I'll being placed on the blue US cleared list in August, does that sort of imply that it can be exported immediately? Or is that near term more of a domestic opportunity? Thank you. Wahid Nawabi: Sure. So really, the Blue Halo solution set brings tremendous complementary capabilities to AeroVironment. And as I mentioned earlier, in the space domain, obviously, you know, the large 1.5 plus billion dollar program record that we won with the Space Force is an incredibly advanced innovation and state-of-the-art capability in the phased arrays. And you're going to see some of that, hopefully, if you get to come to our open house in Albuquerque later next month. So we're the leader on that, and that's a very large program. The Vulcan system which I mentioned is the leading directed energy counter drone or counter UAS solution in the market today. We delivered our first batch of systems to the US Army. We continue to deliver some more mounted on a moving mobile JLTV, as I mentioned, and it is going to be a very large multibillion-dollar. We believe that the counter UAS directed energy solution with lasers which is the LOCUST platform as an example, is a multibillion-dollar long-term opportunity for the company. And we're the leader in space clearly. And lastly, I'll mention also that Titan RF solutions were already getting a lot of orders for international customers for that. It's one of the best-performing solutions out there in the market. And that market is multi-billions of dollars over the next decade as well. So absolutely agree with you that the Blue Halo solution set is incredibly complementary to our solution set. They're growing. Winning a lot of opportunities and programs. We're positioned for a lot more. And then being that part of the Blue Halo certified product, which you saw. Are one of our products, absolutely allows us to actually sell internationally easier and also the US DoD and other government agencies can buy easily because of the certification. And so that's another great progress for our company and teams. And we're very pleased with the progress we're making so far. Jan Engelbrecht: Great. Thanks, Ed. Very helpful. And just a quick follow-up. In terms of Golden Dome, we obviously see that great program win in GEO with laser terminals. Where you sort of seem to have no competition, really. And we've seen in lower orbit sort of the problems that vendors are experiencing on the optical terminals. Is that still I mean, would you still consider that a golden dome opportunity given that it's gonna have a bit more latency than the satellites in the Earth orbit? And I guess a follow-on, is there any willingness to move down into that orbit just given sort of the delays that vendors have seen in that PWSA program? Thank you. I'll leave it there. Wahid Nawabi: Yes. I'm glad you brought that up because our solution for the laser comms and phased arrays addresses both of those two key areas that you mentioned. Absolutely agree with you that as we start to think about the Golden Dome initiative, and objective, the ability to communicate and space by itself. You know, we learned very, very convincingly in Ukraine. We all the world has learned that RF communication is not safe and secure. It is not immune. It could be jammed. The same thing is true of all the satellites that we have in the space. Whether it's commercial satellites or military satellite, national security satellites, they are susceptible to the same jamming issues because they talk to systems on the ground, and talk to each other. So laser communications, which were the currently the undeniable industry leader technologically as well as product maturity wise. Is the critical way of the future of satellites to be able to communicate. And talk to them. And so we offer that capability. And absolutely, can do that not only for the geosynchronous satellites, but for MEO and LEO satellites as well. In fact, we have a product, a separate product, in our phased array product set called the Panther that is a smaller system that allows us to offer that to international allies many other customers, for LEO and NEO satellites as well. And so that's why I said that market is a multibillion-dollar market, which we believe is just at its infancy. And we've got a leading pole position. And as we continue to execute on our strategy, I think we're going to see a lot of growth in that area and a lot of more attention and focus from the U.S. DoD and a lot of commercial companies as well, customers as well. Jan Engelbrecht: Perfect. Thank you. Appreciate the time. Wahid Nawabi: You're welcome. Thank you. Operator: Our next question comes from Jonathan Siegman with Stifel. Good afternoon, Wahid, Kevin, and Denise. Thank you for taking the question. Jonathan Siegman: Thank you, Jonathan. Maybe just on funded backlog. You had disclosed back in November that Blue Halo had about $600 million of funded backlog. When I add that into what you had on April 30, it seems like maybe it's a little bit lower than what we expected. So can you confirm, number one, did the accounting change? When you merge that in? Just they've got a question that maybe something that dropped out wanted was hoping you could confirm that. Is not the case. Thank you. Kevin McDonnell: I don't know where the $600 million comes from, but at the beginning of the period, well, I don't have a Blue Halo. The current SCDE division had about, you know, just over 300, and they increased that during the quarter. Of backlog funded backlog. Wahid Nawabi: Yeah. Just to add to that, Jonathan, you know, we have won and booked quite a lot of really significant unfunded contracts that allow our customers to add dollars to it. Some of that, Jonathan, is related to the fact that a lot of the funding that has been authorized and approved by Congress as well as by the President for the Department as part of the additional funding sources. That they're getting that money hasn't transitioned yet and been released to the services and the program executive offices to authorize or to put task orders against it. So what we have is a great situation where in the next quarter or next quarter, Q2 and Q3, we expect to book an enormous amount of funded orders and part of contracts against those large unfunded existing obligations. And so in general, our funded backlog which was roughly about $1.1 billion. The unfunded part is much, much bigger. It's almost three times bigger, and we're going to see more bookings and task orders to come in this quarter, next quarter to keep building on that momentum that we've got and established. Kevin McDonnell: Yeah. I mean, we think contract signings in the second quarter, I mean, we have the evidence of the laser contract we just signed. You know, could be well over a billion approaching $2 billion in the second quarter. So we're gonna we see a lot of momentum already in this quarter, which, you know, we have some time left. So we're very optimistic. Jonathan Siegman: Right. We look forward to seeing it. Thank you for the time. Wahid Nawabi: You're welcome, Jonathan. Operator: Our next question comes from Greg Conrad with Jefferies. You may proceed. Greg Conrad: Good afternoon. Maybe just kind of following up on that question. I mean, in the script, you called out 20 programs, you know, $20 billion over the next five years. Can you maybe talk about how much of that is competitive versus follow-on? And when you think out the next maybe six months, what are some of the larger decisions, you know, within that pipeline that you expect to be made, you know, competitively? Wahid Nawabi: Sure. So, Greg, as you know, we haven't shared such statistics in the past. And I intentionally wanted to share that to emphasize the fact that we're a different company today. And the opportunities in front of us are massive. Literally massive. And the 20 plus programs that we're chasing and were pursuing or actively engaged in. And the majority of those cases, if not all, were one of the top contenders for those programs. We're very, very confident that many of those programs over the next several years are going to convert into some sort of a backlog and demand for solutions. Number one. Number two, Look, you can look at our track record. We have a very high win rate. The timing of those contracts and selection process may change slightly because of the way that the US DOD and the funding and the congressional budgets work. But overall, have a very high win rate when we engage in opportunities. And so we don't expect it to be 100%, of course. But there's going to be more competition. But the magnitude of programs and the quality of these and the size of these programs that we're going after is quite remarkably significant. And we're very pleased with that. It encourages me as a member of this team, just that we've worked really hard to get here. And I we've got a lot of great years ahead of us. Kevin McDonnell: I think the emphasis is shifted to more off-the-shelf proven capabilities, companies that can scale as kind of part of the formula. But it also means they may pick more than one vendor for some of these programs because they wanna kinda hedge their bets on the scalability. Greg Conrad: Right. And I guess just as a follow-up, I mean, that part seems to kinda fit what we're hearing about maybe how Golden Dome is awarded. I mean, you called it out a couple of times in the script, but how do you think about award timing or decisions tied to that program just given the accelerated schedule and you know, how much of that opportunity is maybe tied to Golden Dome? Wahid Nawabi: Yeah. So we're really counting Golden Dome specifically as part of the hours 20 programs. Maybe some parts of it, very small parts of it, not much. This 20 programs that I'm referring to is well these are things that we've been pursuing well before the Golden Dome was even announced. And so Golden Dome obviously adds to that, does not subtract from it and that is not inclusive of that number one number two. We really believe that we have got a very compelling solution that the US Department of Defense and our national security agencies and the president and the department can actually implement very quickly almost no R&D cost. These are systems that we've already developed. And a lot of folks are talking about space and missiles in the space and satellites in space. This is about our homeland. And how we protect critical sites on our homeland terrain. And the solutions that we've developed that really addresses the emerging threats against drones and hyper missiles and cruise missiles. And ICBMs. We've got this solution set today, not only the hardware platforms, but also the software solutions that can sense them, that can actually identify them, and then also to actually integrate and operably few different systems within our existing customer footprints to work as an interoperable integrated system. So we've invested quite a lot of energy last several months to architect that solution set. That's why we made the public announcement. With our partner Sierra Nevada Corporation. And we're looking forward to actually engaging with the government. We are engaged with them today. They are obviously getting spooled up on that. And that we really wish the opportunity we'll have an opportunity to actually discuss this with them and show them what we can do right away. And we go as far as, I'm confident that if they give us a chance, we can implement a solution at a site this calendar year. This calendar year, And so we feel very good about it. Greg Conrad: Thank you. Wahid Nawabi: You're welcome, Greg. Operator: Our next question comes from Andre Madrid with BTIG. You may proceed. Andre Madrid: Hey, good afternoon, everyone. Thanks for taking my question. Wahid Nawabi: Hi, Andre. Kevin McDonnell: Hi, Andre. Andre Madrid: On LRR, I know you mentioned last quarter that a decision would likely be released within the next three to six months. You know, is that kind of a is that still on the cards right now? Should we should we expect you know, kind of a decision now imminently? Wahid Nawabi: I do, Andre. I mean, we're talking to the program office of the US Army very, very regularly. They're very impressed and happy with our solution set. We believe that our solution meets the US Army's requirements for the LRR program better than any other solution on the market. We also know that they most likely will down selected two. And as Kevin said earlier, that they would keep at least two vendors sort of warm and engaged in this in this development. We have ramped up manufacturing. We're ready to go. We've been getting ready because we know that the US Army has an urgent, urgent need. Persistent, low-cost ISR at the edge of the battlefield and different theaters is incredibly important. We've got one of the most affordable low-cost solutions out there. And the P550 delivers on that quite well. So I'm hoping that the announcements will come sooner. You know? We're still within that time frame that I mentioned, three to six months. We're very close to getting to that three-month period. It's not actually even been three months yet, but we're looking forward to it. And I believe that the army will make some kind of an announcement quite soon. Andre Madrid: Got it. Got it. That's helpful. And I guess sticking on LRR and P550, No. You mentioned the international opportunity that's present. I guess just how big is that on a relative basis? And then kind of in that same mindset, you know, you mentioned that you could potentially see the first P550 order as early as this past quarter. So I just wanted to see if there's any update there. Wahid Nawabi: Yeah. So we do hope that we receive an order. There's definitely opportunities in our pipeline, both domestically, internationally beyond the U.S. Army. For the P550, As I said that the P550, in my personal opinion, is going to be another product that is going to be similar and consistent to the other product franchises that we already have. The success of the P550 with the US Army as part of the LRR program will translate most likely will translate into a global franchise product franchise similar to Puma Switchblade 300, Switchblade 600, Raven, and many other products that we have. And so I already know that we're engaged with multiple countries. Many of them would love to procure P550. We're ramping up manufacturing for that reason. And we hope to actually update you in the next quarter or so with some successful reasons, some wins and some awards. Andre Madrid: Awesome. Wahid, appreciate the color. I'll, I'll step away and leave it open to the rest of the queue. Thanks so much. Wahid Nawabi: Thank you, Andre. Operator: Our next question comes from Colin Canfield with Cantor Fitzgerald. You may proceed. Colin Canfield: Hey. Thank you for the question. Could you maybe just walk us through the cash flow bridge for the rest of the year and essentially kind of how should we think about normalized working capital balances for the business, you know, maybe as a magnitude terms of total dollars or as a percentage of revenue? Thank you. Kevin McDonnell: Well, as I said, I mean, I think that there's opportunity on the balance sheet, particularly in the unbilled receivables area. You know, our goal is to be cash flow positive and to have some cash conversion this year versus last year. And we feel that we're positioned that now. The only caveat to that is that we as we, you know, look at our plans for growth, we're facing, you know, a situation where several of our products may need to ramp up here. And as I said earlier, the US DOD is putting a premium on manufacturers who can scale up. So it's kind of a balancing act between cash generation and that. But we do feel comfortable with the cash flow savings from working capital that we could offset any increases in the CapEx. But it should be in line with our guidance. But if it goes up a little above that, it would probably be offset by working capital improvement. Colin Canfield: Got it. And then just I know it's a normalized view, like, in terms of kind of ex-growth environment. Is there, like, a kind of proxy for how large the account should be? Like, a rough kind of sense? Kevin McDonnell: How long the what? The unfunded or what? Colin Canfield: Just, like, how much working capital should go on to the balance sheet? Like, just how much should be good. Yeah. How much? Kevin McDonnell: For the year, all said and done, it go much higher than it is right now. Colin Canfield: Okay. Thank you. I appreciate the color. Kevin McDonnell: You're welcome, Colin. Operator: Our next question comes from Trevor Walsh with Citizens. You may proceed. Trevor Walsh: Great. Hey, team. Thanks for taking the questions. Wanted to just follow-up on the $240 million award for the laser terminals. I understand it's got a three-year delivery period. Can you maybe just give us a rough framework for how that revenue will probably flow, over the course of that and then just kind of what the kind of upside opportunity is, something similar to that deal or and then I just timing of that potential upside? Just, again, I know you're just not specific, but just from a general outlook. Thanks. Wahid Nawabi: Sure, Trevor. So we consider that award a landmark event for us for multiple reasons. Number one, it's a very large contract. Number two, it's technology of the future that is going to make a huge impact in our entire space domain, as a whole for the country. And we're the best in the world in that category. Our technology is second to none. There's nobody that can actually do it better than us. In this area. And I expect this to actually go. So our customer is very motivated to go past. Obviously, the funding is to do a couple of things. One is to finish the development and the first article of the system. And also, the second one is to actually transition it to initial rate low production and prepare for a full-rate production, which will happen a year later. Well over a year later. So that's exactly what we're working on. We're very bullish on that. I think the market for laser communication is huge. You know, there's two reasons for that. Number one, there's lots and lots of satellites in space that is going to require this mechanism of communication. RF communication, as I said earlier, is basically compromisable and compromised already. Satellites need to communicate to the ground and to each other. We've got the secret sauce and the technology to do it. We've got the full position in the market. We've got a solution that works in the customer's Bob. And as more and more satellites come online. The need for this is going to become more and more evident. And so it's a groundbreaking event for us and we feel very good about that. For the long term. So I think it's going to be a significant growth driver over the next several years beyond just fiscal 26 for us once we transition from low-rate production to full-rate production and deployment of the systems out in space. Trevor Walsh: Great. Thanks for the color. We really appreciate it. Wahid Nawabi: You're welcome, Trevor. Operator: Our next question comes from Austin Moeller with Canaccord Genuity. You may proceed. Austin Moeller: Hi. Good afternoon, Wahid, Kevin, and Denise. So just my first question, just looking through the budget and the congressional drafts of the budget, there's about $68 million in there for launch effects, which is, I guess, what they renamed LMAMS. And I presume that does not include FMS to Ukraine. Correct? That's just purely army stockpiling? Wahid Nawabi: That is also my understanding, Austin, that the $68 million that's in the budget for LaunchDefact is all it's only for the U.S. Domestic consumption of the different variants of the FX, because LaunchFX comes in small, medium, and different sizes. And different effects. It's only to the domestic USD needs, not to the FMS customers. And demand. Austin Moeller: Okay. And could you just go into a little bit of detail on the energy requirements for LOCUS on an Ampel or DE DEM SHORAD platform? Platform mobile ground vehicle versus the energy budget that's available for a fixed emplacement or on a navy ship, for example? Wahid Nawabi: Yeah. So Austin another area. I'm glad you brought this up because our directed energy LOCUST laser system is trying to solve the problem, the real mission problem of how do you detect and defeat a group one or two or three drone. Or a fast-moving missile, The way you do it, most people are trying to add more energy and pump more energy at the target. But if you're not firing correctly at the target and accurately, it's essentially useless. So that you can make it as big as you like, it going to be effective. The secret sauce to our solution is that we have the best technology when it comes to actually delivering those photons and the laser at the right points of the target. And actually identifying the target classifying it and then pointing the laser directly where you want to actually defeat the Target and make it come up from the fall in the ground. And so that secret sauce is very, very unique to AeroVironment's core competency and expertise. And that's why our solution doesn't require a lot of power. We are roughly about 20 kilowatts. 15 to 20 kilowatt system. And we have plans to go higher. The M. Sure. As another system are much, much more expensive, much bulkier and bigger. And less mobile and maneuverable. Our system can be has been installed. As I said on the call my remarks that we've installed it and we delivered it to the US Army on a JLTV. And we're going to deliver more of them. US Army is very pleased with our system. It's performing really well. On various tests and missions. And we believe that this is a market that we're just scratching the surface today. And I believe it's going to be a very large part of the counter UAS and counter hypersonic missile defense system. Including the Golden Dome. So it has multiple implications in the market for various missions. And we're actually quite encouraged and enthused by that. Austin Moeller: That's very interesting. Thank you for the details. Wahid Nawabi: You're welcome, Austin. Operator: Our next question comes from Austin Bollig with Needham. You may proceed. Austin Bollig: Hi. Thanks for taking my question and congrats on the solid results guys. Question is how do deal with your guys' full year Yeah. My question has to deal with the full-year guidance. I think you guys have discussed this in prior questions. But if I'm understanding you right, with all of this big funding that was in the OBD, has yet to have been, allocated to specific departments, is it fair to assume that none of that is baked into your current guidance so might leave some room to upside if current contracts flow over the next couple quarters? Wahid Nawabi: So to us, if some of that is baked in, but not all of it. And the reason for that is because it's a very fluid sort of timing in the market. Those funding of the OBD as I said, it hit all the accounts within our customers systems them to be able to contract that out. Now how long it takes to do that really matters as to how much we can deliver these this year. Primarily because of how much time we're going to have left in the year to be able to execute against it. There's only so much planning and at risk that we can go given the situation that we're in right now. So for that reason, I would say we feel very strong about our current guidance. Some of that OVB dollars is baked into our guideline guidance and our expectations. But some of it's not. And then every day that goes by by the budgets not being approved or continuing resolution going forward or the dollars not been hitting their accounts, It could actually actually adds more risk for that not to happen this year, but it will happen the fall year. Regardless, we're going to have a great year, and we're gonna most likely gonna finish the year strong with a very strong pipeline in bookings. That can set us up for even more success beyond fiscal 26. Austin Bollig: Got it. Just a quick follow-up. Like, within, of that funding that you guys are including in your current guidance, like, which technologies or products is that focused in? Is that more on the UAF side, counter UAS? Or just love some color there? Wahid Nawabi: Oh, Austin, so it is so difficult to just name one particular product or technology that we have relative to the priorities of the defense. I am a very firm believer that the prospects for growth and prosperity for AeroVironment has never been better. And going to have a fantastic year this year. And we're positioned and poised to go even more beyond this fiscal year. There is money and there's funding and there's need urgent requirements for drones. For loitering munitions, for counter UAS RF, for lasers, for the Golden Dome, for software solutions that we have as our AeroVironment Halo is therefore our Titan family of our jammers. There's money for space laser communication and needs for that. It's also for phased arrays and scar and badges. So that we have. I think the opportunities are for us, both domestically, internationally, has never been better. And we worked hard over the last decade to position ourselves for this type of an opportunity that really is remarkably unique, in my view. And so we're very pleased with the execution of our team. I'm pleased with our results and how we put investments we've made and the best we've made and the company we've built to position ourselves. And we look forward to updating you in the quarters to come. Austin Bollig: Awesome. Well, thank you guys. Best of luck. Wahid Nawabi: Thank you. Thank you. Operator: Thank you. I would now like to turn the conference back to Denise for any closing remarks. Denise Paccioli: Thank you once again for joining today's conference call and for your interest in AeroVironment. As a reminder, an archived version of this call, SEC filings, and relevant news can be found under the Investor section of our website. We hope you enjoy the rest of your evening, and we look forward to speaking with you again following next quarter's results. Operator: This concludes today's conference call. You may now disconnect.