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Operator: Good morning, everyone, and welcome to Pure Cycle Corporation's Second Quarter 2026 Earnings Call. As in prior quarters, we'll start the call with a presentation from our CEO, Mark Harding, and then we'll provide time for questions and answers afterwards. [Operator Instructions] So we'll start the earnings call with a presentation [indiscernible] questions and answers. Without further ado, I'd like to introduce Mark Harding, our CEO. Mark Harding: Thank you. Good morning, everyone. My wingman today are Marc Spezialy, our CFO; and our Controller, Serena Fingan. So if you have any questions, we'll have a solid team to weigh in on all of the details here. For those of you that are looking at this, we do have a deck for this. It's on our website. I think it's on our landing page, you can click on that and then we'll be able to advance through the presentation and give you the details on it. So with that, I'll start. And start with our forward-looking statements, statements that are not historical facts contained or incorporated it reference in this presentation are forward-looking statements as that is the meaning of the Securities and Exchange Act. Most of you are familiar with that. [indiscernible] want to continue to emphasize the team that we get to work with an outstanding team of professionals that really bring their game every day. And so it helps drive value for the corporation. So continued shout out to our management team. Also, our Board of Directors, I do want to welcome our newest Board of member, Dan Rohler and look forward to working with him. He is actively engaged and really working with the directors and the team. So we look forward to working with him. Let's take a look at kind of the investment snapshot here. We continue to deliver shareholder returns and returns on our assets through consistent and profitable results continuing our street with a 27th continuous profitable quarter here. We're growing our revenues, our recurring revenues and durable revenues through all 3 business segments. We continue to grow our asset base by delivering lots to our national homebuilder customers as close to a just-in-time basis and really doing that to really match market demands and we do see a lot of cyclical nature in the housing market. Water is a little bit more tempered in that, but we continue to really focus on our assets and monetizing our assets and build shareholder value really through our strong balance sheet and strong liquidity position. Let's dive right into the results, really had a great order and this year has been a more tempered year to be able to even out our revenues and our cash flows on this, and that's really been a function of a very, very mild winter for my fellow skiers the morning the loss of ski season, but we're celebrating the opportunity for us to really do a lot of the work that we can't do seasonally in the winter by a lot of the concrete work and the asphalt work. So what you see is kind of a more even paced development, where we're able to -- through our cost of completion on our project, be able to even out these cash flows on it. So quarter-over-quarter revenue this first 6 months, about $5.1 million in revenue, about $2.8 million in gross profit. And really, those are driven by those percent completions on delivering our lots to our customers. We're about as much as 6 months ahead of schedule on some of the lot deliveries on that. And so a lot of our builders are equally thrilled with that because they were able to get out in the field and put up some model homes for this spring season. Taking a look at net income and earnings per share. Again, those are going to match really exceeding our guidance typically on the quarter-over-quarter just because of the advancements on our projects on that. So net income, a little over $1 million earnings per share, about $0.05 per share. And really, this is up by about 36%, really driven by all segments, mostly land but water as well as single-family rentals. We're adding a few more of our rental segments in there, and we'll have a little bit more color on that later, but also seeing a bit of an uptick in our water through industrial water sales to oil and gas operators this year, taking a look at just the comparison to our guidance, our full year guidance. So we're right at that 50% our guidance through halfway through the year. So that's a bit unusual for us just because the winter quarters usually our weakest year or weakest quarter of the year just because of the seasonality of weather out here. And so we're about $14.3 million in total revenue of our close to $30 million forecast or guidance and then profit at about $9 million to our about $19 million guidance on that. So really terrific results year-over-year. Moving to net income and earnings per share also we see those pacing more evenly through the year. Margin results are showing a bit more moderated because we have advancements and investments into the delivery of lots slightly ahead of our contract delivery. So those will normalize through the rest of the year and really kind of help us temper those [indiscernible]. So specifically, with the quarter end results, what I'd like to do is kind of drill down to each of these segments and talk a little bit about what it is that each of these are driving for us. One of the things I recently heard was an acronym called a [ halo ], which is used to describe some companies that -- in the context of this, it's a heavy asset, low obsolescence, and I found that pretty descriptive over our company and you can't get a more low obsolescence asset than water utilities. And so we'll drill down on the water utilities and talk specifically about what we're seeing in that growth and margin opportunities. We really deliver water to customers kind of in 3 various segments. We have our domestic deliveries, which is your portable water that we deliver to residential and commercial users. We have our industrial segment, which delivers water to our oil and gas operators. And then we have continued customer growth, which is our connection fees, and those are onetime fees that are paid by our homebuilder customers and then that just adds to the customer growth of the overall segments. Taking a look at revenues on a quarter year-to-date basis, we continue to see some customer growth corresponding revenues driven by the connection fees, which is really adding new customers to the system. Our oil and gas revenues are up this year, and I think we'll see a very strong performance in industrial water sales and then just monthly water and wastewater sales continue to grow, and that's really a function of continued growth in the rates as well as the number of customers for that. Detailing out the industrial segment. Our oil and gas sales are up significantly over last year's primarily because last year was largely a permitting year for our operators, mostly our largest operator who was working to secure as many as 200 permits in and around our service area and really, that's translated into increased drilling and increased fracking this year, which is really turning out quite well for them, given the rise in oil prices, so they couldn't have timed that better for bringing a lot of that new supply online. The outlook looks very good for this year. I think we'll exceed our guidance that we had taken a look at this year. And I think it's going to continue into the future, right? We see rigs that we have a dedicated rig to our service area, which is drilling some of those 200 well permits, and that will probably take them somewhere around the 3 years to drill all those wells. Our revenue per well continues to strengthen. We do have a multiyear contract with our operators to deliver these water supplies. So it allows us to do some strength in planning and then also making sure that our infrastructure is capable of not only meeting our industrial, but the domestic demands on that. One of the things that we like to highlight in our Water segment is the capacity that we have and the fact that we continue to grow and developing this capacity, but yet we're still only using a small fraction of our portfolio while we generate significant revenues from this segment and really at very attractive margins when we're really looking at that variable demand for oil and gas, they do have a preferential pricing on that where we do get a premium on that to make that water supplies available to them as they need that in the volumes that they need. Let me move into highlighting our land development segment. This is a nice area of our high school at Sky Ranch that's being constructed. So we're very excited about that. It will really deliver not just -- it's a full K-12 campus. So we've got the primary school, which is a Ka as well as our high school there. And really, a lot of the relocation and customer feedback on buying in the community is a function of the school campus that we have here. We're delighted to continue to work with our charter school operator National Heritage Academy or Terrific Partners in bringing educational excellence at Sky Ranch. Talking a little bit about how we're delivering a lot. So this fiscal year, really focusing on punching out Phase II, which was about 228 lots and we're about 95% complete with that and then also Phase IId, which we're almost 80% complete on that. And really, that's the big advancements for this quarter. over the winter months, we were able to get a lot of that infrastructure in the ground. Very proud of our portfolio of homebuilder customers, all of the major homebuilders including the Lennar, D.R. Horton, KB Taylor Morrison, Challenger, Pulte, [indiscernible] all bring entry-level homes to the Denver market. Phase II started out with about 780 homes, but through some product alignments and diversification, that's really grown to about a little over 1,000 lots in that area. So we do see a significant uptick in our density out of Sky Ranch, and that's terrific for us. Not only does that allow us to deliver more lots but allows us to increase the assessed value, which really has an impact on generating additional capacity, bonding capacity within the district to repay our reimbursables on that, which you see us continue to grow. Let's drill down a little bit on that land development by phase, period-over-period, the revenues really did crush it. We really are generating significant Q2 revenues, more of a function of that mild winter and an opportunity for us to kind of turn up the volume and get that payment down and finished those lots so that the homebuilders can get those building permits and really start getting their model homes up for the selling season. We do see an uptick in traffic out of Sky Ranch. All our builders are seeing an uptick on that and a little bit more of a conversion to that. There's lots of reasons that housing has variable demands, whether that's interest rate sensitivities, and we see a little bit of volatility in the interest rate segment. I think that still is the #1 incentive that our homebuilders are offering is a mortgage buydown. I think they're hitting that sweet spot of trying to buy down those mortgages right below that 5% range. So that 4.99%. So when you see a lot of that adjustment from the Federal Reserve on interest rates, that may not have as big an impact on this particular segmentation of it just because that's the primary incentive that our homebuilders are offering or first-time buyers in converting those into sales. The pace of our land development will normalize through the rest of the year. We really do have a little bit to complete in that Phase II and then are really moving into grading the next phase, which is going to be [ 2E]. That's about another -- we've got another good slide on kind of the visual aspect of completing out each of these. And so as you see, you can see that in the lower left cell there where -- we've got a number of homes that are up and constructed for that Phase IIC and then Phase IID, while it's a little bit out of the picture on this, we do have model home lots being developed in there. So we have really 2 active phases that are complete where they're developing lots. So we've got about maybe 430 lots available for homebuilders to really tap the market on a variety of products. We've got all phases of the products, whether they are standard for task 45-foot front load, 45-foot rear-load, 35-foot rear-load, duplexes, townhomes. We really have a very strong portfolio diversity of product type out there is really creating opportunities for almost every type of home buyer in that. Moving on to kind of the development time line here. This gives you kind of an overview of our phasing. And as most of you know, most of our contracts are geared towards a system of developing a portion of the infrastructure in phases and then having -- once that's complete, having our homebuilder customers reimburse us and support the next phase of the development activity. And so we get payments at the Platt stage, which is when we finish the recorded flat and there's a real property interest that they acquire. And then a second payment, which is at the completion of wet utilities, once we're done with the water sewer and storm facilities on the phase and then finally, that third payment at finished lot pays. And so that's where you saw some of those lots being pulled forward on being able to finish a number of those lots on Q2. As I started to allude to, we are starting Phase II. So our grading contractors mobilizing on site will be hitting that this month. And really, those are about 160 lots that we're looking for delivery and continuing pacing that so that each of our builders can have a year's worth of inventory. Those will be 2027 lots. So we expect those to deliver sometime in the summer of 2027. That Phase IIE here is to give you kind of an orientation of where that's at it's directly across the street from our school. And this is really more of an infill site. We have most of the infrastructure done on that. A lot of the road network is done. Most of the main lines on the water and the sewer system are already in place. That kind of gives you a -- that's our water -- our peak hour water storage tank and comp station. They're in the picture as well, but that's a very streamlined process for us to be able to bring this online. It's about another $14 million in lot revenues, correspondingly $4.3 million in tap fees and about $240 million in recurring revenue from the number of comers that we have on that. This was kind of a celebratory opportunity for us, together with National Heritage Academy, really on a groundbreaking for that and really partnering with our local school district, the [ bentoschool district ] as well as the National Heritage Academy to bring this K-12 campus to our development. I wanted to show a continuing -- one of the most underappreciated assets I think we have in our portfolio is our service area. And as many of you have heard me talk through the years, the Denver Metro area continues to grow out on the Eastern planes, we really live on an ocean. We can't grow West as a metropolitan area. So really moving to the east side of it. This really kind of gives you an illustration of the level of activity that's occurring around our service area on the Lowry Ranch. As you all know, the State of Colorado owns the Lowry property, it is owned in the school trust, and they develop their assets to generate revenue for the public education system here in the state of Colorado. And there's a couple of parcels that really just highlighted here, one on the south side of the property, and that kind of gives you -- that bottom picture is an orientation looking north and then it's a very active development on that. That's about a half section 320 acres. And then also properties that you've seen the -- what's occurring on the west side with all the development from the city of Aurora that's on the west side, but then also projects starting on the north side of the property as well. And so there's substantial opportunities all around the property, and it's well positioned for whenever the state looks to find opportunities for the Lowry range, we are the exclusive water and wastewater provider for this particular property. And having been able to develop Sky Ranch, I think we can demonstrate that we would love to partner with them on opportunities for land development should that occur, but we really do want to kind of give you perspective of kind of the growth of the metropolitan area and how that grows in relationship to where some of our assets are, whether that's Sky Ranch or whether that's our service area at [indiscernible]. Moving into our third segment, single-family rental. There's a bit of an update in what I probably call a realignment for a couple of reasons in the single-family rental segment, as many of you know. The current administration has had some strong comments about corporate ownership of homes I probably would push back a little bit on that on kind of the justification for that. But they were sort of concerned about corporate ownership and what that is doing to housing affordability. And so we took a strong look at how we were positioning the growth trajectory of this particular segment and really decided to slow our growth of this segment and take a look at these assets in a couple of ways. We wanted to really get a strong look at what the return on the investment is for these segment assets. And as they settle in, as we've got them constructed as we've got them leased out. We really want to understand, well, what are these -- what is the return for this particular asset? And is that going to meet an acceptable level of threshold here for the company and making sure that, that delivers the returns that the shareholders are looking for in that. And so what we've done is push back a number of those lots that we were having, our homebuilder customers build for us. And as an illustration here, this kind of shows you the lots that were identified in blue are the ones that are either constructed or under construction. And so that will settle up to be about 60 units. The lots that we have that are kind of highlighted in this light yellow, light green color, those are the lots that we kind of reevaluated and we're able to resell back to each of the homebuilders that are building their product classes in there. And so what we've done is kind of pared that back from a growth strategy up to about 90 units and really scale that back to about 60 units. And so that will allow us to have a little stronger performance on the revenue from the Land Development segment because we're getting about $100,000 to $110,000 a lot on that. So we'll see that come back to the company and then really take a look at really what the performance is on this segment, be able to get our returns on that and really report that to you. And make a decision as to how this segment continues in the future. So that's been really the key realignment here is to take a more measured growth approach to our single-family rentals on that. We've got 19 homes completed to date and they are all completely rented. We are seeing extremely strong demand for rentals in this unit. So I'm very optimistic about the continued performance of it. Each of the homes as we bring them on market are already rented. I think we've got homes rented for home deliveries that we're seeing up through August right now. So we do continue to see that as a strong performer in the segment. And then this will instruct us on how the appreciation of the homes are going as we continue to add value to the community, not only from the schools, but then all the commercial development and open space and trails and the recreational opportunities that we deliver. We are seeing continued strong growth of these home values, and that's an opportunity for us to really measure that within the overall segment. One of the most attractive features of the single-family rentals is our recurring revenues and the asset appreciation. So period-over-period, revenues are up 20%, mostly as a result of additional units. We continue to see growth in the monthly rentals on this. And what we really like to do is make sure that we get all these units fully leased and have a 100% occupancy on that. [indiscernible] the growth trajectory. This is kind of how each of the phases of performance. And this is a bit of an update from our previous position on that where we were growing up to about 90 homes. And I think we really took a look at that and payer back almost all of the units in Phase II [indiscernible] on of the units in Phase IIC, really just as a reactionary element to some of the pressures that this segment was receiving on ownership, corporate ownership and then also opportunities to demonstrate to you all what the return of this segment is going to look like. Talk a little bit about shareholder value, our assets and kind of what we have in use and really a little bit about where we're headed. As most of you know, we are extremely hawkish about our equity, with our last issuance being more than 15 years ago. And so we really do fund our operations through our balance sheet. If you take a look at really all of the components of this, we maintained a strong balance sheet. I believe our assets are significantly more valuable than the recorded value. And that's mostly because they're legacy assets. They've been acquired many, many years ago, more than more several decades ago. And taking a look at each of these individual segments, if you take a look at our Water segment, we have about $74 million or, call it, $75 million in total assets, and that's about 44% of the total assets of the company. But then when you take a look at kind of what's developed and what that contribution is, that's only about 4% developed. So you see how that kind of the pedal that we have left in the water segment and really the opportunity that we have to continue to grow that segment in our business. Land segments, we acquired Sky Ranch in 2010. It's about a $5 million acquisition of the land. We did get some water beneath that as well. And then taking a look at kind of the developed land for sale, how we do the percent completion on that, that represents about 6% of our total assets, and it's about 20% developed. So while we continue to generate strong returns year-over-year on that, we still have a good amount of land that we have developed more homes and then the commercial value on that. So really terrific opportunities to continue to grow the land development segment. And as many of you know, we continue to look for other opportunities in the land development segment. Taking a look at our single-family home segment. That's a relatively small segment, about a total of 5% of the total assets and had a little detailed discussion about that on kind of how we're going to really mark that performance of that segment. But really, the biggest opportunity for us here is our total liquidity here. And taking a look at the cash and receivables, it's about a 44% asset. And largely held in that note receivable from the municipality where we continue to develop the infrastructure, those public improvements are reimbursable to us. And we take a look at building the assessed value through adding additional homes there. Our next opportunity for monetizing some of that assets likely to be in 2027, where we're taking a look at financing and refinancing. We'll have a financing on the interchange. As many of you know, we talked about kind of how we're going to construct a new interchange on the interstate there, but also being able to refinance some of the Phase 2 bonds and really capitalize on the opportunity we financed our first bonds on Phase 2 at about 780 units and growing that to the [ 1,030 units ] gives us an opportunity to have a significant reimbursement for refinancing those bonds now that they'll be mature and more assessed value than we originally planned in the first financing. So that will be a great opportunity for us moving forward. The low obsolescence the recurring revenue really come from water and wastewater revenues and rents from our single-family home rental segments. And so you do have strong sticky revenue on those sides and really a lot of the growth revenue from selling lots to national homebuilders as well as the connection charges to add our customer growth into our Water Utility segment. talk a little bit about shareholder value. We consistently grow our balance sheet and income statement quarter-over-quarter year after year. and really generate kind of leading -- industry-leading margins from all segments, whether that's going to be the water segment the land development segment and the single family rental segments. And so we're very targeted to continue to monetizing our assets, taking a look at where we're at in our guidance. So we're taking a look at our guidance for 2026 at about $2.7 million in recurring revenue and asset growth, bringing that a little over $160 million. So those still look strong. Profitability trends. We continue to build shareholder value on really each of these segments and really on pace for delivering our fiscal year-end results. We will share some guidance on 2027 at our Q3 as we get a little bit clearer picture of kind of how the Phase IIE is going to come along and tap fees and the oil and gas deliveries for fiscal '27 become a little clearer for us. Taking a look at kind of that total gross revenue, our guidance is going to be in that $26 million to $30 million range. We're still supporting that earnings per share in that same range $0.43 to $0.52. And upside in some of that acceleration of that is really going to be probably the timing of the delivery of lots as well as, I think, oil and gas, and so we'll have a lot -- a much stronger year in selling industrial water sales just because of the permitting that was done last year and really, I think the strength and the price of oil will really reinforce the fact that our operators are going to really try and capitalize on that, keep those rigs in active service on our service area in and around our service areas. So we don't have just the 1 operator, we do have several operators that are looking at programs and multi-well pad sites this year. So we believe we'll have a strong performance on that industrial segment. We continue to reinvest and repurchase shares. I believe our stock is undervalued, significantly undervalued. We are we're encouraged by some of the recent strength in the stock and really do believe that the assets do have continued support and really focused on continuing to deliver that shareholder value. And some of the ways of doing that are really going to be kind of the development of our commercial opportunities, getting this interchange completed, we're really at the final stages of that permitting process, and getting that into [ CDOT and Rabo County ] who are regulatory agencies here, but it does allow us to accelerate not only the commercial opportunities, but also continuing on the residential side. So that's another thing to keep a look out in the next fiscal year. And then also I did want to kind of give you a revised video. We're trying to kind of keep this video as part of our format to kind of share with you the progress that we make. So it's about a minute long, but I'll give you kind of an opportunity to see -- gives you a perspective. That should be an all white picture there in the background, and it's just not. So that gives you an illustration of kind of the dry year that we've had and [indiscernible] also gives you kind of a picture. You can see the landscaping is fairly dry throughout the community. It's pretty typical, but I think that we're going to have a challenged year for some of our water supplies and other providers. I think we're strong in our position in our portfolio, but other providers are going to see very seasonal water deliveries. Just kind of drills in on that Phase IIC number, we probably got more than 1/3 of these homes permitted and started and then it also gives you kind of where we're taking a look at IID, where you've got homebuilders really starting construction activity on that project as well. And really, this is the unusual aspect. We would not expect to have all these roads paved and these lots available for that. But we were able to capitalize on that this year with the mild winter. And so that's a great opportunity for us and our homebuilders. And then moving into kind of Phase IIb, we're nearly complete here. We probably only got maybe half a dozen home lots that are yet to be constructed in that phase, and then this kind of rolls up into a good view of the high school and construction progress on that. We've enjoyed that opportunity as well. They are ahead of schedule with the mild winter that we've had as well. So that will open up in August for our toolkit for the next '26, '27 school year. So that's exciting for us. And then ultimately, kind of a shot at where we're going to be with that interchange in our commercial properties up there in that area. So we are actively marketing our commercial properties. We've got both retail and industrial brokers engaged and are seeing some exciting opportunities. We're out there pitching a lot of the retail and some industrial opportunities for distribution centers, a number of different types of uses, whether that's going to be a heavy water user or just access to that Interstate is a terrific asset for us. So with that, I guess I'll -- those are our prepared remarks. So what I'd like to do is open it up for Q&A. I think the easiest way to do the Q&A is if you want to on Mike and just shout out a question and then we'll coordinate seeing how that technology works for everyone. So with that, I'll turn it over to you all. Elliot Knight: Mark, I've got several questions for you. Most important on your last call, you made it clear that completion of the new interchange is very important. You sound encouraged, could you give us a real -- a detailed update? Mark Harding: Yes, drilling down in then. So the interchange, we have -- we've been working on that. It's -- government always has an acronym for it, and then Colorado, it's called the 1601 permit process. And so you do that in conjunction with the [indiscernible] Department of Transportation, and it's a comprehensive effort, right? You go through every component of your interchange design, what the load capacities are going to be, what the traffic movements are going to be what the distance setbacks are for signals to the interchange and environmental aspects of it. And so we're now at about a 30% design of that interchange. So we really have a solid idea of how that's -- the cost estimates are going to be and then really how do you fund that. So it's a private permit, the Sky Ranch will be a permit for that. And then we work together with Arapaho County because they'll be the administration of that. It's in the jurisdiction of Arapaho County. We should be submitting that 1601 seat. We submitted every component of that as we go along for their review and their concurrence. So what we hope to do is have that ready sometime this June and then really be in a position of going to final design on that. That will probably take through the end of the year and then take a look at funding that bonding of that. We've got specific mills that have been set aside within the community to be able to bond that. So we have that as a component of the 1601 and then start construction in 2027 with a completion in 2028. So that would be the time line. Elliot Knight: Okay. That slipped a little bit from completion in 2028 because on the last call, I think you were thinking in late 2027? Mark Harding: Yes. that probably has slipped just a little bit, but we continue to be able to deliver each individual phase. So I think we'll still -- we won't really miss any of our cadence on lot deliveries on that. I think what we've tried to do is work on currently with some of our commercial opportunities [indiscernible] lead time as well, and we want to make sure that we can bring those online as we're constructing the interchange. Elliot Knight: Okay. On your last call, you mentioned data center -- no mention of it today. Could you please update us anything you can tell us there? Mark Harding: Yes. We -- it's not that we are not continuing to pitch that. But Colorado is probably not as attractive as a state on some of these larger hyperscale or data center type opportunities, and it's really twofold. One, a lot of these -- the ones that we were very active [indiscernible] really are looking for tax incentives and so the state had the bill before the legislature, they have 2 competing bills. They have 1 bill that is seeking incentives and 1 bill that's seeking to disincentivize and Colorado just has a dysfunctional relationship with itself on being able to set a consistent policy. But they are heavy water users, which is something that we certainly have an opportunity to support, but they're also heavy power users and Colorado probably is a little more challenged than other areas on bringing on additional power, particularly gas turbine-based power in the area. So those are the risk elements that some of the data centers that we have been marketing to are sharing with us. We still like the opportunity. There still are data centers that are being built in this area. And so we'll compete with that and see where it lands. But it's not just the data centers. We have water and bottling opportunities. Those are going to be heavy water customers, that we're pitching to and then just overall distribution centers and things like that for our commercial industrial opportunities. Elliot Knight: Okay. Last question. I was delighted to see that you've added another 1,600-plus acre feet of water. You acquired little bits and pieces of water, I think in the last few years. The company continues to say it has 30,000 acre feet of water. It must have more than that. Doesn't it -- how much does it have? Mark Harding: We do. We do. You're set to heat tabs on that. We probably increased that portfolio about 10%. And so we're maybe closer to 300 or 3,000 acre feet of water. And correspondingly, we do have the ability to probably provide service to more than 60,000 connections, and those are very important metrics. Those are longer tail on it. But when you take a look at how we scope that opportunity, we talk about $40,000 a connection charge of $60,000, which is about $2.5 billion, and that number is probably [indiscernible] consider. It's probably closer to $3 billion worth. But those are longer lead that kind of carries us out and continues to add to the real depth of that segment of the business and as we get closer to that 25,000 connections within the company, we can really detail out really how much more of that we have to serve. And I think couple of areas for that, the Denver area growing out in and around Sky Ranch in and around [indiscernible] which is our service area, are really the key opportunities for us to continue to add to that portfolio -- that customer on that portfolio. I see Jeff's got to stand up. Unknown Analyst: Quick question. The -- as I recall, you were going to wait for the commercial development until the [indiscernible] was actually finished. Did I understand that you're currently actively marketing the commercial opportunities? Mark Harding: We are. Yes. Unknown Analyst: Is that an acceleration of what you had wanted to do? Mark Harding: Well, I think we had that time line. And as Elliot kind of highlighted, we were looking at getting that 1601 permit kind of this summer, and I think we'll look to get that towards the end of the year. but we already set that up in motion, right? We want to be in front of these users. It's not something that you can just directly turn on and say, okay, get out there and start building your building or your retail use or whatever it is. We really want to make sure that it is a highly attractive site, and we want to be regionally specific. We want all of those folks that are looking at sites and interchanges to be appreciating what it is that we're putting into this opportunity and put it into their scope and planning. And we do have some capacity to get started on it. It's not 100% conditioned on the interchange being developed. We have an existing interchange, it does have service capacities, and we do have opportunities where we can add maybe it would be a nontraffic sensitive type user to the site, someone like a distribution center that would have the appreciation. Okay, we can use the existing interchange to get our building permitted and started. And then as that gets completed, really would have that truck traffic. So that's what we were trying to do is parallel that process and make sure that this doesn't have that long lead time and really deliver just in time. Unknown Analyst: Mark, just quick. Do you have any expectation on the timing of the next receivables? Mark Harding: Great question. we'll take a look at what that capacity is from the 2022 bonds. And so those typically have a 5-year call provision, and so that's where they start to burn off in 2027. And taking a look at really the differential that we had in our first filing and our second filing, we think they're somewhere around $10 million to $12 million worth of additional reimbursables from refinancing just what we've already financed there. And then as we move into Phase II, we'll take a look at because that will be that 2027 time frame as well as we complete that interchange and really start processing permits into Phase III, that could be as much as $20 million. So -- and I think we got about $10 million of refinancing of one bonds and then probably another in of fresh financing moving into Phase III. Unknown Analyst: Awesome. And then can you talk about the builders' appetite for lots right now, delivered the current phase ahead of schedule, we know new home demand spend kind of sluggish given interest rates. So I guess I'm just wondering, is there any risk of an air pocket between this phase and then starting the next phase if it takes a while for the builders to deliver the lots that you delivered ahead of schedule? Like how does that impact the timing of starting the next phase? Mark Harding: That's a great question. And so really, what we saw as a result of kind of this pull back in the market. And I'd say consumer confidence is the #1 factor on decisions to buy houses. Interest rates always impact that, but that's -- that's not, I think, in our segment, where homebuilders are able to buy down mortgages and at an entry-level point, that's a little less costly for them. When you're buying down a mortgage at maybe a point at $450,000 home there's a lot less than if you're buying down that point at $800,000 home. And so that sensitivity for us isn't so much in interest rate but more consumer confidence. And so what we were able to do is pull in new homebuilders to the portfolio. We had 4 homebuilders -- 4 national homebuilders that were part of the portfolio as we started Phase II. We now have a -- and those 3 new ones that are in the mix on this thing are really -- there is a filing 2D. And so they have 1 year inventory, and we're looking at 2027 in deliveries and sell. They may not be in IIC but they're in IID. And then the other 4 were in IIC and IID. And so they're a little bit long on that annual inventory, but the other ones are a little short on that annual inventory. And so that gives us the opportunity to roll Phase IIE on because they're the ones that want those '27 deliveries working on the '26 deliveries that they already have. And so that's an opportunity for us to bring in more builders. And we really like having that yearly deliveries for them and a number of builders in there. So they're bringing diversity of products. So it's not cannibalizing the market. It's really having an opportunity where we have a very robust portfolio builders. Operator: [Operator Instructions]. Mark Harding: [Operator Instructions]. Operator: There was a question in the chat related to a slight decline in some reoccurring revenue from 2025 to 2026. We -- I looked into that and it looks -- we have some commercial customers non-oil and gas that are off site of Sky Ranch that are governmental buildings that could fluctuate from year to year. And that looks like what it's what's causing that slight decline. Obviously, we're not seeing a decline on the average house per residential house in Sky Ranch nor are we forecasting any kind of decline there even with water restrictions that are coming forward. So it happens to be just a slight anomaly between some off-site customers that are showing that slight decline. Mark Harding: Well if there aren't any other [indiscernible]. Unknown Analyst: A couple of quick questions for you. One, on the land acquisition. Any updates from any of the potential spots you're looking at and -- or from Lowery, I know you discussed Lowry, but nothing else except for just the fact that everything is built out already, and we need to -- that's the next logical spot. And then secondly, when it comes to stock buyback, I know you guys have been buying back stock, but really just to maybe offset the -- not to reduce share count. Any thoughts to stepping that up at a quicker pace with the stock still sitting here? Mark Harding: A couple of good questions. We are taking a look at new acquisitions really, there are a number of land areas in and around Sky rands and other areas. And -- and there's a soft way of taking a look at that. Where we go out and we buy a land and hold that in inventory and -- is that the best use for our shareholder capital because some of those projects would be very long stemmed in being able to do that. And there's some we're trying to get -- I think our priority opportunities where we can either get those in a partnership, get those in away -- acquisitions in a way where that doesn't become a big drain on tying up shareholder capital for many, many years on that. And so there's still opportunities in there. Most of those guys really aren't that excited about that type of structure. And so what we want to do is time those out if we've got an opportunity that we can buy a cheap land, but that land doesn't look to turn over for 7 to 10 years. That may not be our highest priority. There are opportunities where that has gone up. And we sort of said, well, we like that land interest, and we might not be the buyer today, but we might be the buyer in 5 years and it doesn't matter where we may have to pay a little bit more in 5 years, but it's also 5 years closer to when that would be looking for development. So we're really being disciplined about that type of opportunity. Did highlight, Lowry, and those are -- we continue to see great opportunities there. That is controlled by the state, and we'll work with them and whatever their time line is on something like that. So we'll be reactionary to that. On the share buyback, we took a look at what our trading windows are and we wanted to open up some flexibility on that to be able to be more aggressive on particular areas. There's certainly a lot of restrictions on the windows that we can repurchase those shares and -- we want to be a little bit more flexible for that. And so we did modify our window of trading activity. And then really, Craig, I think our continued focus is capital stack to be in a position to reinvest in the company. And this -- our balance sheet and liquidity and our flexibility here has been really demonstrated by being able to do that this winter and having the capital to be able to do that. And so you did see a real change in the liquidity where we were dropping that liquidity down substantially because we did deliver in advance of those. And as that comes back and that liquidity continues to reimburse. There are opportunities for us to increase our share buyback, and that's something that we continue to evaluate, and we will take advantage of as appropriate. [indiscernible]. Operator: [Operator Instructions]. Unknown Analyst: Yes. This is Greg Bennett. Could you go through the economics of the -- you're deemphasizing the rental program, but what are the -- what is the return unlevered rate of return in the rental program. I mean you're -- am I correct the loan that you have against these properties is a floating rate loan. And yes, I'm just curious, you've never mentioned what the places rent for or what the capital you have tied up in you go through the economics of that? Mark Harding: Yes. Yes. I mean, so I'll give you kind of a high-level version of that. So typically, what we see is we're carrying forward some of that equity in the lot and the water. And so when we go out and we contract with our homebuilders to build those homes, they're coming in around $350,000 is really the cost that, that vertical construction is on that home. The home typically appraises somewhere in that $530,000 range. So we have about $180,000 margin in there. And a lot of that's just kind of the equity value of that. We do have a credit instrument for that. It's a fixed rate credit instrument, not a variable rate one. So we do have a facility that we're using that credit facility and not our cash to be able to do that. It's about a 6.5% credit facility. So our first few were done in a very low credit facility, right around that 4.5% rate. So it was much better at that rate. The rentals on these cover the debt service on that and provide us a margin. So typically, these homes are renting around $3,000. I'll just use that as a kind of a round number. some are a little lower, some are a little higher, depending on the number of bedrooms and the square feet of that. And so when you take a look at all of those, we don't have a lot of holding costs on those. And so our rate of return on that somewhere in the 8% to 10% range, but we want to dial that in. We want to see, okay, is that -- how is that performing? What is the capital creation of those homes. If those homes are appreciating at 4% or 5%, together with the rental incomes we want to see what those segments are performing out and making sure that, that meets our investment threshold. So that's really the pause of continued growth of that segment is to get a good handle on how that segment is performing and report that out and make a determination of management and the board level as to is that adequate? And do we want to keep moving forward with it. Unknown Analyst: Okay. Second question on -- you mentioned in your comments in the oil and gas segment, the impression I got is that you contracted out for the drilling companies. Are these all -- is that firm take-or-pay or let's just say oil prices go down to $60 a barrel or $50 a barrel, are these -- is the contract a take-or-pay? Or can they say, no, we're not going to take the water, we've decided to slow down our drilling operation? Mark Harding: Yes, great question. The oil and gas companies really will pay a premium for you to be at their back end call. And so when we when we price our spot oil and gas or industrial deliveries, that's about 3x, 3x what we price it out at our residential customers. But the downside of that is that sometimes they help back on that call. And so no, we don't have a very fixed amount of take or pays and we're one of the very few providers that can dial up and dial down on their systems, and that makes us very attractive to them. And so the premium that I think we charge them for that flexibility is really good for them and good for us. And as you saw last year, we had relatively weak oil and gas deliveries compared to 2023 time frame or 2024 time frame. And so it is a variable demand. It is hard for us to forecast because they do -- it takes a significant amount of lead time for them to get their permits in line, get their rigs committed. And so what we will see is we will see some pretty robust demand through 2026, and we will see a pretty healthy opportunity in 2027, given what they've already what they drilled to date. And so I think we're pretty we're pretty confident about the next 2 years on that. But forecasting out beyond that, as you highlight, is a real function of how oil and gas is doing in the overall commodity index. Unknown Analyst: Okay. And final question, and I'm in a car, but I didn't see your slide, but in the very beginning of your presentation, you gave an area view, I guess, of Aurora or some of the properties, I guess, that are south of Sky Ranch that were undergoing -- my impression was there were undergoing development of home sites. Is that correct? Mark Harding: That is correct. Unknown Analyst: Yes. So the stuff that's been permitted south of the Sky Ranch that actively being developed. What's the time -- I mean, how many units is that? What's the absorption? Is that thousands of units? Is that like a 5-year plan for -- these are other companies or it's Aurora. But what's the time frame to get all those years? Mark Harding: Yes. And so just that -- you're correct. And there's a lot of land in and around this area, right? The I-74 is probably be highest development corridor in the metro area. And it had reasons for that being the case. One, it has transportation. Secondly, it has available land. And so there are on a number of projects, which are thousands of residential units, and they're all around our area. And the Denver area is adding around 15,000 to 17,000 units a year. And I would say this submarket is probably 1/3 to 40% of that domain, whether it's in Aurora, whether it's in IncorporApple County, it really is the strongest development segment in that area, and it will continue to be that way. It will add 6, 000 or 7,000 units a year in this corridor for the next 50 years, right? There's no other area to develop. So we worry less about how we compete necessarily a Sky range to the next development. I think we have a lot of advantages that bring us into a higher performing master plan community than other areas. But at the end of the day, it's all going to absorb. And so this happens to be we're targeted in the right segments of the Denver Metro area. We're offering the right product. We're offering the right model for delivery of lots to our homebuilder customers. So we worry less about is that project can absorb in conjunction with our project absorbing and are we going to see any competition in that area. I would say that's not the biggest metric for us. What we really want to do is be the right developer being that we are doing a horizontal work. We're doing it exactly the way our customer wants it with annual lot deliveries. We're adding to the builder portfolio so that we have all of the builders in our projects and whether we have 1 project at Sky Ranch. But we have multiple projects where there are other Sky Ranch 2, Lowry, any of the other projects, we want to make sure that -- we continue to pay those deliveries and maintain what will be a very long tail of land development. Unknown Analyst: Yes. I guess my question was more when do other parties have to come to you for water -- if you don't own the [indiscernible]? Mark Harding: Yes. I misunderstood that. So they're in the city of Aurora, which as you can see, most of the land directly south of Sky Ranch is in the city of Aurora. They will not come to us, right? They will get their water from the city of Aurora. Those land areas that are not incorporated into the city and the corporate or Apple County, low rate, they will get their water from us. And so I would say it's maybe an even split of opportunities that are going to be competing with us that are going to get their water from Aurora and opportunities that we are competing for to be the developer or just the water utility provider because they're in unincorporated [indiscernible]. whether we develop it or another developer develop, is it. Unknown Analyst: Mark, I think I figured out my [indiscernible] here. Congratulations to you and the team on another solid quarter here. So following up on the question with regard to water. You've got capacity. Obviously, you've got great variability with industrial water sales. What -- can you just refresh us what the opportunity, what your obligations are to WISE and what the opportunity there is, especially if I think you alluded to earlier in your comments that this might be a challenging year when it comes to water supplies and other areas. Do you have the ability to sell through the WISE program or draw from the WISE program. Mark Harding: We do have the ability to draw from the WISE program. So that's an addition, as Elliot identified earlier, that's one of the acquisitions of water supply that's added to the portfolio. We get about, I think, our full subscription in there is about 900-acre feet of water. That system is fully built. We have capacity within that system. So we have, in addition to the 900-acre feet, we have 3 MGD of pipeline capacity in there. And the -- WISE is a kind of a partnership among 12 different water providers in the Denver metro area. And what we've done over the last several years is -- there are opportunities where we want more water, like if we have very heavy oil and gas demands in the winter and other of the WISE participants do not have real high water demand because their summer irrigation season hasn't quite kicked in. There are opportunities for us to get more water out of WISE. And then sometimes when the heavy irrigation season is going on and we have light oil and gas or industrial water deliveries, our domestic deliveries are relatively modest. They're probably 5% of the total capacity that we deliver in any given year, we have opportunities to sell water to the otherwise participating. So we go both ways. WISE, where we're able to trade for more water or trade or less water in that opportunity within WISE. Is there opportunities for that to expand? Yes. We're looking at partnerships and regional partnerships for storage. As many of you who have been following the company for a long time now, we have some very valuable storage reservoirs. And so those are opportunities for us to develop and store other water supplies as our partners look to develop those water supplies had a higher treatment capacity where we can deliver more than our subscription that [indiscernible] into that. So that will grow over time for opportunities for us to expand and it would be a spot water type market, but opportunities for -- as oil and gas over the next 10 years starts to mature out. And if they recycle in and refrac those wells, that will continue to build in the next cycle of the development of this [indiscernible] formation. And then also opportunities for us to be spot and peak water deliveries to other WISE participants. So we look at all those opportunities and that interconnect of that system is a very important aspect of that. Well, terrific questions, and I want to thank you all for your continued engagement. We continue to really pace the development of our assets and really are looking forward to built out at Sky Ranch. We're looking forward to continuing to expand in the land development and really monetizing our service area and more water opportunities and really building this in. So we couldn't be more excited about our runway and really the market penetration that we seen as a utility provider in the [indiscernible] as well as the land developer in the Denver area. And so I think that's going to continue to generate really handsome returns for us and returns to the shareholders. So -- if you didn't get on the call, if you're listening to this on a rebroadcast and a question arises, certainly don't hesitate to give us a call. We will have our Annual Investor Day this coming in July. So -- do we have a date set on that? I think it's [indiscernible] third week of July. So be on the lookout for that. I think it's typical on a Wednesday. I know I did get 1 shareholder that was looking for combining that with a Friday activity, but we'll send some information out as it gets a little bit closer to that. But again, thank you all for your continued investor confidence, and we look forward to the next steps. Thank you.
Operator: Greetings, and welcome to The Simply Good Foods Company Second Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] As a reminder, this
Operator: Good day, and thank you for standing by. Welcome to the Richardson Electronics, Ltd. earnings call for 2026. At this time, participants are in a listen-only mode. 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 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Edward Richardson, Chairman and Chief Executive Officer. Please go ahead. Edward Richardson: Good morning, and thank you all for joining Richardson Electronics, Ltd.’s call for 2026. We appreciate your continued support and interest in Richardson Electronics, Ltd. Joining me today are Robert Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer; Gregory Peloquin, General Manager of our Power and Microwave Technologies and Green Energy Solutions Group; and Jens Ruppert, General Manager of Canvas. As a reminder, this call is being recorded and will be available for playback. I would also like to note that we are making forward-looking statements. They are based on current expectations and involve risks and uncertainties. Therefore, our actual results could be materially different. Please refer to our press release and SEC filings for an explanation of our risk factors. I am pleased to report that Richardson Electronics, Ltd. has now delivered seven consecutive quarters of year-over-year sales growth, reflecting continued progress in executing our multiyear strategy. Our performance this quarter was led by strong momentum in PMT, particularly in EDG and the semi fab equipment market. Third quarter sales growth was supported by continued discipline around gross margin and operating expenses. Our performance reflects the strengths of our team as we continue to invest across the organization to build depth, technical expertise, and operating performance. I believe our efforts are positioning Richardson Electronics, Ltd. for sustainable long-term value creation. Looking at our third quarter fiscal 2026 results, total sales were $55.5 million, up from $53.8 million in Q3 of last year, while operating income improved to $1.5 million compared with an operating loss of $2.7 million in the prior-year quarter. Gross margin increased to 31.9%, an increase of 90 basis points over last year. PMT sales increased to $38.7 million, up $3.4 million year over year. Green Energy Solutions performed in line with expectations, although below the prior year due to the timing of sales, and Canvas remained profitable with a 32.2% gross margin despite softer revenue in North America. It is important to note that this is the final quarter in which our year-over-year comparisons are affected by the sale of much of our healthcare business in 2025. That transaction continued to impact our year-over-year sales and profitability comparisons this quarter, but it will no longer impact going forward. We also remain focused on expense discipline, working capital management, and improving inventory turns. We ended Q3 with $29.5 million in cash and cash equivalents. Our order activity remains solid and total backlog increased to $151.2 million at quarter end, giving us confidence as we move forward into the final quarter of the fiscal year. We also are closely monitoring the developments in Iran, the related movement in energy markets, and the evolving tariff environment. While these issues are creating real uncertainty for many companies, they have not had a significant impact on our business or markets at this point. We have remained disciplined in how we manage sourcing, inventory, pricing, and customer commitments. We believe that discipline positions us well to navigate the changing trade environment. Over time, if higher conventional energy prices persist, that could further improve the economic case for certain alternative energy solutions. In any event, we are continuing to invest in and support a number of programs tied to global wind, EV, and other related power management markets. We believe initiatives underway can support long-term growth opportunities for Richardson Electronics, Ltd. I will now turn the call over to Robert Ben, our Chief Financial Officer, who will provide a detailed review of our third quarter results and capital position. Following Robert’s remarks, Gregory and Jens will provide updates on our business units, and then Wendy will follow up with the progress we are making executing against our multiyear growth strategies. Robert Ben: Thank you, Ed, and good morning. I will review our financial results for our third quarter and first nine months of fiscal year 2026, followed by a review of our cash position. In addition, please note that I will be discussing non-GAAP financial measures. A reconciliation of non-GAAP items to the comparable GAAP measures is available in our third quarter fiscal year 2026 press release that was issued yesterday after the market closed. Consolidated net sales increased 3.1% to $55.5 million, compared to net sales of $53.8 million in the prior year’s third quarter. When excluding healthcare, for which the majority of assets were sold in January 2025, net sales increased by 6.0%. Please note that healthcare results, including prior periods, are consolidated into the PMT segment beginning in fiscal 2026. This was our seventh consecutive quarterly year-over-year increase in sales. Third quarter net sales growth was led by a 9.7% increase in PMT sales, driven by significant increases in semiconductor fab and RF and microwave products. Excluding healthcare, PMT net sales increased by 14.5%. Sales for GES were $500,000 below 2025 due to project timing. Canvas sales decreased $1.2 million, which primarily reflected project timing in North America. Consolidated gross margin for the third quarter improved to 31.9% of net sales compared to 31.0% during 2025. The 90 basis point increase in consolidated gross margin was due to higher margin in PMT, partially offset by lower margin in GES and Canvas. Operating expenses were $16.2 million compared to $14.5 million in 2025. The increase in operating expenses resulted from higher salaries and incentives associated with critical adds to staff and in support of our existing employees, as well as related medical benefits and travel expenses. Also, the operating expenses in 2025 were historically low. Operating income was $1.5 million for the third quarter of fiscal 2026 compared to an operating loss of $2.7 million and non-GAAP operating income of $2.2 million in the prior year’s third quarter. Net income was $900,000 for 2026 compared to a net loss of $2.1 million and non-GAAP net income of $1.6 million in 2025. Earnings per common share diluted were $0.07 in 2026 compared to a net loss per common share diluted of $0.15 and non-GAAP earnings per common share diluted of $0.11 in 2025. EBITDA for 2026 was $2.2 million versus negative $2.1 million in the prior year’s third quarter. Adjusted EBITDA was $2.8 million in 2025. Turning to a review of the results for the first nine months of fiscal year 2026, net sales were $162.4 million, an increase of 3.4% from $157.0 million in the first nine months of fiscal year 2025, which reflected higher sales across our business segments. When excluding healthcare, consolidated net sales increased by 7.2%, and PMT net sales increased by 8.2%. Gross margin was 31.2% of net sales, which was a 40 basis point increase from the first nine months of fiscal 2025. As a percentage of net sales, operating expenses for the first nine months of the fiscal year improved to 29.6% from 29.7% for the first nine months of the prior fiscal year. Operating income for the first nine months of fiscal year 2026 was $2.6 million as compared to an operating loss of $3.1 million and non-GAAP operating income of $1.8 million for the first nine months of fiscal year 2025. The company reported net income of $2.7 million, or $0.19 per diluted common share, for the first nine months of fiscal year 2026 versus a net loss of $2.2 million, or $0.16 per diluted common share, and non-GAAP net income of $1.4 million, or $0.10 per diluted common share, for the first nine months of fiscal year 2025. EBITDA for the first nine months of fiscal 2026 was $6.2 million versus negative $500,000 in the prior year’s first nine months. Adjusted EBITDA was $4.5 million in the first nine months of fiscal 2025. Turning to a review of our cash position, cash and cash equivalents at the end of 2026 were $29.5 million compared to $33.1 million at the end of 2026. This use of cash primarily related to higher inventory associated with final buys from a critical supplier. Capital expenditures of $800,000 in 2026 were primarily related to our manufacturing business, facilities improvements, and IT systems. Versus $500,000 in 2025. We paid $900,000 in the third quarter for cash dividends. In addition, based on our current financial position, our Board of Directors declared a regular quarterly cash dividend of $0.06 per common share, which will be paid in 2026. As of the end of 2026, the company had no outstanding debt on its revolving line of credit with PNC Bank. Now I will turn the call over to Greg. He will provide more details for our PMT and GES business groups. Gregory Peloquin: Thank you, Bob, and good morning, everyone. GES and PMT remain key components of our multiyear growth plan; the progress we are making is encouraging. Coming out of fiscal 2025, we had a number of strategic imperatives, including developing a strong backlog, launching several new products, expanding our customer base, and advancing multiple development programs from beta testing to preproduction. I am pleased to report that we continued this momentum for 2026. Starting with GES, backlog for our core PEM products, including the Ultra 3000 multibrand offerings, grew 15% in Q3 as more companies adopted our key products across a broader set of applications and expanded globally. Year to date, bookings from our key products, including PEMs and multibrand solutions, had a high double-digit growth rate versus prior year. That booking strength positions us well for Q4 and a strong fiscal 2026 with forecasted double-digit revenue growth as well as supporting continued momentum into fiscal 2027. Coming out of 39% growth in Q2, GES sales were down 5.4% in Q3 versus the prior year. However, after three quarters, both sales and bookings are up versus prior year. And in our most recent second quarter, we had significant sales growth in our core business, including PEMs, starter modules, and global expansion of key products, which helped offset softer year-over-year growth results in Q3, mainly in components business, as our mix continues to shift towards engineered solutions. We are also beginning to experience longer lead times for certain components due to precious metals supply constraints. These factors contributed to sales being down but in no way indicate the underlying strength of the business. Within GES, we saw progress across three key growth opportunities. First, we experienced growth adoption of our PEM modules across multiple wind turbine platforms and owner-operators around the world. We also booked our first BES program in Q3, which began shipping in Q4. In addition, Q3 was strong for our locomotive products, including starter modules and superstructures. Across these programs, testing continues to progress well with our key customers. We feel this will help us achieve double-digit growth again in fiscal 2027. Our GES growth strategy remains centered around power management applications. We have rapidly designed multiple products, secured patents, and built a strong global base of customers and partners. Our success is evident in our growing sales pipeline as we capitalize on numerous growth opportunities tied to evolving power management requirements and significant energy transformation initiatives. We serve dozens of wind turbine owner-operators, including exclusive partnerships with the top four owner-operators of GE wind turbines: RWE, Invenergy, Enel, and NextEra. We also saw growth from our new multibrand PEM platforms. We continue to grow this program internationally, expanding into Europe and Asia with new products for other turbine platforms, including Suzlon, Senvion, Nordex, and SSB. We have now received orders from customers in Brazil, Australia, India, France, and Italy in addition to our strong rollout in North America. Turning to PMT and excluding the legacy healthcare business, sales were $38 million in the quarter, a 14.5% increase over the prior year. This reflects a slight slowdown in the electron device MRO business, more than offset by growth in the RF and wireless components business, which had strong growth in satcom, radar, and microwave communications, and strong growth in the semiconductor wafer fab market. We are excited about the positive feedback from our semi fab customers expressing ongoing optimism and continued growth going into our fiscal 2027. Across both segments, one of the most important priorities is accelerating the design-to-production cycles. We are expanding our design capabilities to move more products more quickly from concept into manufacturing and test in LaFox. We are also adding experienced industry talent to help expedite growth. Our Illinois-based design center intended to showcase our BES solutions, which we had expected to be operating in Q4 fiscal 2026, is now more likely to come online in Q1 fiscal 2027. Even so, we are still quoting numerous opportunities throughout North America, including shipping our first system this month. More broadly, we are investing in infrastructure, expanding our design and field engineering teams, and enhancing our in-house design and manufacturing capabilities to support growing demand and innovation. Our field engineering team continues to identify new customers and opportunities across our end markets. We continue to gain market share by developing new products and solutions that are accepted by our customers. Our Sweetwater, Texas design center is finalizing several new products that will generate new revenue in fiscal 2027. Looking ahead, we are encouraged by the strategic initiatives underway across PMT and GES, including our ESS program, global expansion of our key products, and new technology partnerships. Our global capabilities and global go-to-market strategy continue to differentiate us from our competition in power management, RF and microwave, and green energy markets. By combining legacy products and new technology partners and engineered solutions, we believe we are well positioned to deliver continued growth. In summary, we remain optimistic about our growing project-based business, even though quarterly timing can be difficult to forecast. We continue to expand our technology partnerships, design opportunities, and engineered resources while addressing technology gaps with new partners and solutions. We believe fiscal 2026 will be another growth year for both PMT and GES with solid momentum going into fiscal 2027. And with that, I will turn it over to Jens to discuss Canvas. Jens Ruppert: Thanks, Greg, and good morning, everyone. Canvas designs, engineers, manufactures, and sells custom displays to original equipment manufacturers across global industrial and medical markets. It is our mission to deliver high-quality display solutions tailored for our customers’ needs. Canvas reported revenues of $8.0 million in 2026 compared with $9.2 million in the same quarter of the previous year. As we have said before, our business remains project-focused and can vary from quarter to quarter based on customer program timing. On a year-to-date basis, revenues were $25.0 million, up from $23.7 million in the comparable period last year. Our gross margin as a percentage of net sales was 32.2% in the third quarter, compared with 33.2% in 2025. Product mix and freight, duty, and other supply chain-related costs affected the year-over-year comparison; margin remained at a healthy level. The backlog at the end of 2026 increased to $38.2 million, up from $38.0 million at the end of the second quarter, providing a strong foundation as we move into Q4. The quarter unfolded against the backdrop of the global economy that remains resilient overall but uneven across regions, while trade policy shifts, tariffs, and logistic markets continued to create pockets of uncertainty. In response, we stayed focused on disciplined execution, close customer collaboration, and maintaining the operational flexibility needed to support customer schedules. During this most recent quarter, Canvas secured orders from both repeat and new medical OEM customers for a range of applications. Our primary focus remains on robotic-assisted surgery, navigation, and human-machine interface solutions for the control of medical devices. At the same time, our solutions continue to support a broad set of commercial and industrial applications, including passenger information systems in trains and buses, as well as HMI technologies used in printing, vending, milling, and packaging equipment. Our initiatives remain centered on increasing Canvas’ visibility and market leadership by developing new opportunities, deepening customer relationships, and converting our pipeline into additional design wins and production programs. We have also recently added to our sales leadership team and continue to strengthen our supply chain flexibility and execution capabilities so we can respond effectively as customer demand patterns evolve. Looking ahead, while the business remains project-focused and can vary quarter by quarter, we are encouraged by the level of engagement, our request-for-quote activity, and the quality of our opportunity pipeline. With backlog now at $38.2 million and our Q4 forecast looking very promising, we believe we are well positioned for a strong finish for the fiscal year. Our dedicated sales teams continue to pursue new opportunities while I remain focused on executing our strategic plans to drive sustainable growth and deliver long-term value for our shareholders. I will now turn the call over to Wendy. Wendy Diddell: Thanks, Jens, and good morning, everyone. As a reminder, the remaining portion of our healthcare business, including the manufacture and repair of certain CT tubes, is now recorded under PMT. Under the January 2025 supply agreement with DirectMed, DirectMed is our sole customer for our CT tubes. Since the healthcare divestiture closed in 2025, 2026 should mark the end of the tough year-over-year comparisons. During the quarter, we wrapped up production of our Alta tubes, and we are now focused entirely on repairing Siemens tubes. We shipped a limited number of repaired Straton Z tubes during the quarter. We also completed life testing on the MX series and are now building beta tubes. These must run for at least 60 days in the field without failure before we can launch the rest of the series. With the completion of the Alta build-out and continued expansion of the Siemens repair program, we expect that to translate into a meaningful improvement in our bottom line starting in fiscal 2027. Stepping back to our multiyear strategy, we remain focused on two primary operating priorities: accelerating growth and improving efficiency. The third quarter, particularly February, was a good indicator of performance. This was driven by the strength we are seeing in the semiconductor wafer fab market as AI continues to lift equipment demand globally. We also launched new programs in our Green Energy Solutions business unit, including the long-awaited Sudan India program. We are concentrating our near-term development efforts on several products that we expect will contribute to sales growth in calendar year 2027. A key example is the battery energy storage solutions Greg mentioned. Our BES strategy is supported by our decades of engineering know-how bringing emergency applications to market, a world-class battery energy storage design center at our LaFox facility launching in fiscal 2027, and our more recent experience developing power modules for world-class wind and rail customers. We are seeing the commercial and industrial storage market become more attractive as customers put a higher priority on resiliency, power quality, and managing energy costs at the site level. That is especially true in applications where downtime is expensive and distributed storage can solve an immediate operating issue. For us, the opportunity is not just overall market growth; it is turning those real customer needs into a repeatable pipeline of commercial projects. Within our Made in America growth strategy, we are seeing credible evidence that U.S.-based investments have been increasing, particularly around factory construction and reshoring. Initially, we have focused on leveraging our existing customer and supplier relationships along with targeted outbound marketing to highlight our U.S. engineering and manufacturing capabilities. While we have added several small programs that will begin shipping in the coming weeks, we remain actively engaged in the quote and prototype stage on several programs with larger companies nearing $1 million in potential annualized revenue. We expect our Made in America strategy to expand over time. Recent new program wins provide us with growing confidence in the need for our capabilities while also helping us fully utilize our factory and resources over the near term. Turning to efficiency and cash generation, we are pleased to share that the multiyear inventory investment we made around a single critical supplier is now complete. We believe this investment in inventory will support our business through 2030. We have also identified alternative suppliers with enough lead time to protect continuity, quality, and our ability to meet customer demand. More broadly, we remain focused on controlling inventory and improving turns across all our segments. Without this one supplier, our inventory levels are trending down. We have also kicked off a disciplined cost-control effort to evaluate where AI can help us, including an enterprise-wide AI steering committee with multiple working groups. The intent is to exit a 90-day period with some early wins and a practical roadmap focused on high-ROI use cases across our global operations, driving efficiency, improving decision-making, and reducing manual work. We are keeping this tightly scoped and milestone-driven, leveraging internal teams so we can capture real benefits without meaningful incremental cost. Looking further out, we remain focused on driving growth through a mix of organic initiatives and a disciplined approach to acquisitions. We are evaluating opportunities thoughtfully, with an emphasis on areas where we can leverage our existing capabilities and global infrastructure. We believe the initiatives we are executing today position us well to accelerate revenue growth and improve profitability over time, and we will stay patient and selective as we consider longer-term acquisition opportunities. With that, I will turn it back to Ed. Edward Richardson: Thanks, Wendy. In closing, our third quarter results reflect continued progress in strengthening the financial profile of the business. We delivered year-over-year sales growth, improved gross margin, and generated operating income. We also believe our exposure to select alternative energy and EV programs provides an additional avenue for long-term growth as market conditions continue to evolve. With a strong balance sheet, increasing backlog, and a continued focus on repeatable sales, operational discipline, and higher-value engineered solutions, we believe Richardson Electronics, Ltd. is well positioned to build on this momentum. We remain committed to improving profitability and creating sustainable value for our shareholders, customers, and employees as we move forward. We will now open the call for questions. Operator: As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Ladies and gentlemen, due to time constraints, we ask that you please limit yourself to one question and one follow-up. Again, we ask that you please limit yourself to one question and a follow-up until all have had a chance to ask a question, after which we will answer additional questions from you as time permits. Please standby while we compile the Q&A roster. And our first question comes from Anja Soderstrom with Sidoti & Company. Your line is open. Good morning. This is Justin on for Anja. Justin (Sidoti & Company): Hi. Following the March launch of your Laser Slot Saver solution, can you discuss how customer interest, initial adoption, and order activity has trended? Gregory Peloquin: Yeah. So right now, we have identified on our system—so just real quickly, all of our customers on our system are applied one to three application codes. And so we started our customer base, like we do with any new product introduction, of any customers that would be working in an application that would need that product. So the team has done that. They mailed out sales tools to get with them. They are having a show this quarter where they are going to feature it in the booth. So right now, they are getting a lot of requests for more data, more information. But it is in the infancy stage of its launch. Justin (Sidoti & Company): Thanks for the color there. And then can you provide more detail on the project timing dynamics within GES this quarter, and how we should think about revenue contribution and project conversion in the fourth quarter? Gregory Peloquin: Yeah. So it is a very project-based business, which, as we have mentioned, is very hard to forecast quarter over quarter. A prime example of that is in Q2, we grew 39%. And the backlog with GES is very, very strong. It is close to $40 million. But that is the backlog that was generated over the past four years. And in those four years, these products did not exist. We identified the opportunity. We did the design work. We did the manufacturing testing. And then the field alpha, beta testing. So the backlog is ordered based on annual contracts of 12 months, large quantities, large dollars, and then they pull off of that. So in Q2, they pulled a lot of the issues in terms of they were designing it in the field, putting it into their turbines. And then in Q3, we saw sales not be as high as we would like, but backlog and bookings continue to grow as they, you know, pull off of these programs. The good news is the $8-plus million we shipped in GES was pulled off of backlog and current purchase orders. The backlog stayed flat. Actually, it was up a little bit. That is new business, new customers, and new products that keep that backlog at $40 million. So we are very confident that we are meeting our objectives in terms of adding sales growth, adding increase in backlog, increasing our customer base, and increasing the number of products that we have developed in our design centers. We have done all of that this year. And as of the end of the third quarter, sales are up, backlog is up, and we are looking for a Q2-type growth in our Q4. And, going into fiscal 2027, looking for, again, double-digit growth. So we are very confident and happy with our backlog and the customers that are adopting these products as we introduce them. Justin (Sidoti & Company): Great. Thanks. I will turn it back. Gregory Peloquin: Thanks, Justin. Operator: Thank you. Our next question comes from Robert Brooks with Northland Capital Markets. Your line is open. Robert Brooks: Hey, good morning, team. Thank you for taking my question. It was great to see the backlog growth exiting the third quarter. Just wanted to dive a bit deeper into that, specifically with the PMT stuff. What specific end market or customers or products drove that strength in the PMT backlog growth? Gregory Peloquin: In Q3 specifically, on the PMT side, it was our semiconductor wafer fab customers, and then RF and wireless components that are going into satcom applications and aerospace and defense. Those two had very nice quarters and also an increase in backlog. So for PMT, it was specific to our semi fab wafer fab customers and our RF and microwave components business. Robert Brooks: Got it. And then on GES, right, it is up slightly, but core backlog up more and you gave some color to Justin on the last question. But I was kind of confused. So the backlog is ordered based on annual contracts. So, like, you are getting one order at the beginning of the year from a customer saying, okay, we want X amount of Ultra 3000s this year, and then they pull from that. Like, do they have to pull—like, do they have to—if they order 100 ultra capacitors, do they need to take all 100 in the year? Gregory Peloquin: Exactly, Bobby. So they give us an order for an annual usage of their forecast, but they could order one unit or pull one unit off of, let us say, 100 pieces like you talked about, at the beginning of the year, and at the end of the 12 months, they could pick the other 99. Or they could take 25 a quarter. It is very hard because with them, it is all based on the time of year, the weather, the wind speed. That is why we carry such a large inventory, because they literally look at a weather report and find that the wind speeds will be down this certain week in a certain month and ask us to ship that month. So that is kind of how it is really hard to say what the sales will be and then the backlog, because these are annual contracts. But, Bobby, the good news is when you see $8 million in shipments that were pulled off of current orders, if the backlog stays the same, that is new orders from other customers that were coming in. Robert Brooks: And just overall, a $40 million backlog generated on products that did not exist four years ago is a strong backlog even if it stayed at $40 million. Yeah. I agree with that. And so one more clarification point. So walking down the road of annual order, if someone orders 100 units, and let us say they pull 20 or they do 25, 25, 25, so then you would be expecting they should be pulling 25 in the fourth quarter. Are they contractually obligated to hit that number that they pledged to, or can they push it over to the next—okay. So, like, you already know how many— Gregory Peloquin: Yeah. So they give us a quantity. Based on that quantity, we give them a price. Obviously, if quantity is larger, they get a better price. And they give us the PO, and their commitment is to take those products over a 12-month period. Robert Brooks: Got it. And then just, like, if you had to rank order, what would be the three most compelling near-term—call it, over the next 12 months—opportunities you see in the GES segment and why? Gregory Peloquin: Well, the first one is—because, you know, we are quoting opportunities between $2 million and $20 million—is the BES. Obviously, those bookings would be huge in a given quarter. And the other two, going into fiscal 2027 and some in fiscal 2026, are new products coming out of our Sweetwater design center. We have a new PEM coming out for the 20 newton-meter turbines throughout the world. We have a number of accessory—what we call accessory—products: the Turbine Guard and others that will be—they are just finishing up beta testing now. Absolutely fantastic performance. We have ordered all the housings and are starting to bring in product so we can start shipping that and booking and shipping that in 2027. So the three would be BES and then a handful of new products, mainly the 20 newton—we see that as a very large growth area for us—and then these Turbine Guards, which go into every turbine that we have ever sold a pitch energy module in. So we have a captured audience. We have the contacts, and that is usually what takes the most amount of time when you are introducing a new product: who are the people that make the decisions, on and on and on. Well, we have already worked with most of them for four years. So, Bobby, it is new products and then the major, big BES strategy that we are implementing. We are in the very infancy stages of that. Robert Brooks: Appreciate that, Colin. And then just last one for me is just a little bit more color on the BES, you know, demo plant. That timeline of the getting up has slid to the right by a quarter. What happened there? And could you just remind us on the CapEx required for that and just the specs of the plant? Gregory Peloquin: Yeah. So it has nothing to do with us, really, and if you have ever built a new house in a rural area, it is getting all the hookups. They have to increase the transformer. And getting something like that through ComEd—I do not know who you use, Bobby, but here in Illinois—it is just time-consuming. But we do have—and they committed to it—we have a weekly call with them now. But it is just very time-consuming to get them to get the grid set up so we can put in the demo center so we can also then obviously sell back into the grid. But we will probably proceed without it. We might just put it in place so people can see it, see how it is hooked up to our—because, obviously, we are going to use it here—and then move forward. So that is kind of the status of the BES. We have—just like the other programs we have done in the past with the RF and microwave components and then the—we call Project Turbo internally here—the engineered solutions. We have identified technology partners. We feel we have a couple of very strong ones for this strategy: one that will support us in the Americas, another one that will support us globally. And that is what we are using right now to do these quotes. So we are not waiting and running in place. We are out looking for opportunities. And, as you know, we identified one and a 16-page proposal, and we won it in December. And I can tell you it has already been shipped this quarter, Bobby. It is about $570,000 or $590,000—our first system. Robert Brooks: Awesome. I will return it to queue. Congrats on the strong quarter. Wendy Diddell: Bobby? Jens Ruppert: You are not going to ask me about GE? Wendy Diddell: I waited and waited. I have good news for you. I did not put it in. Gregory Peloquin: He is away now. Wendy Diddell: Oh, he is off? Okay. I will talk to you later, Bobby. Gregory Peloquin: So just to add to that, we have this program going with GE that their installers, that are GE installers, or customers that have service agreements, they needed to test our product because, obviously, right now, they are using lead-acid batteries in these service agreements. And they have an installation manual with all the safety characteristics. So they just have to match our product up with their lead-acid batteries and make sure the ESR—there is no difference, which we already know there is not—then they can put the design in and installation manual with check-off from safety. So anybody that has a GE service contract and uses GE to do the service, they can now tell them, which they have been trying to do, to use our pitch energy modules and do not replace the lead-acid batteries with lead-acid batteries. So very positive, Bobby. We tested it here. It passed. I talked to Mike Rodkin yesterday, and he is just going to finish it up. So, hopefully, in Q1, knock on wood, that program will be all signed off, and we will be up and running. Wendy Diddell: Hi, Ross. Are you on the phone? Thank you. Operator: Our next question comes from P. Ross Taylor with ARS Investment Partners. Your line is open. P. Ross Taylor: Yeah. Thank you very much. Going over your balance sheet, it looks like you have got north of $11 a share in book value. Looks like over 80% of that book value is current assets, net current assets. And, obviously, I am curious on getting to how much of the inventory line is the Talos inventory you have built up, and how rapidly do you anticipate converting that inventory into cash? Wendy Diddell: We have got about $45 million in Talos inventory, and we have been communicating over the past couple of years we will have enough inventory to take us through 2030. So we are in good shape there. We are done with the purchases. So what you will start to see now in Q4 and, obviously, going into the several years is burning down that inventory level. And, as I mentioned, the team has done a phenomenal job reducing inventory with our other suppliers. So I think you are going to see that via cash generation going forward. P. Ross Taylor: Okay. And the fact that you found qualified replacement suppliers makes you comfortable and should allow you to, perhaps, do that at a faster pace than might have been the case if you were not able to find those. Wendy Diddell: I would not say we are going to sell off the inventory quicker because of that. It gives us comfort that we are never going to be in a position where we lose sales because we do not have product. P. Ross Taylor: Okay. And that is important. Can you talk about a couple areas? One, initiatives you have—you have talked about the idea of getting more recurring business. I think one of the drawbacks the stock has suffered from historically is the high volatility in earnings. So can you talk about both the progress on those initiatives and how we should see it as investors—how we should see the fruits of that—a more stable earnings or less downside to earnings, bluntly. And then along with that, would you also talk about the potential opportunities in the idea of artificial diamonds. You are hearing a lot of talk on the leading edge in the AI chip space that silicon has limitations to heat transfer and heat absorption and that it turns out that artificial diamonds apparently work quite well in that. And so there is, from my understanding, an initiative to push forward with turning artificial diamonds into substrate and how you might benefit from your involvement in that space. Gregory Peloquin: Alright. Wendy Diddell: Let me—that is two very different long questions. Let me start with the second one. Me too, so I have got to get them. That counts to be more than two. Alright. Artificial diamonds. We are dealing with a couple of very large customers that make those types of substrates for cooling AI. It is still using, as you call them, artificial diamonds, but still in its early phases. We have shipped them—I think it is three now—microwave generators, large generators. That is the Great Lakes Crystal Technology company that is making those. So we will continue to participate with companies like that using our microwave generators. So it is a good opportunity, and we hear the same things you do, Ross. Now on recurring revenue, I am looking around the room here a little bit. I will start with the easy part of that, which is we consider a lot of our EDG, our core business, as being recurring revenue—not in the sense that it is service contracts like you might be looking for—but it is recurring in that we basically have the tubes to fit those sockets, and those tubes have a limited usage life. So when those tubes fail, then they come back to us, and they order them again. That is the strength of the MRO business and the EDG business in particular. Now if you are talking more about service agreements and contracts, I am going to turn that over to Greg and let him address that. Gregory Peloquin: Yeah. Just a couple of things to add also, to jump in on what Wendy said. Most of our RF and microwave semiconductor customers are looking at diamond substrates for semiconductors. It is becoming a technology of choice—you know, going from GaN and silicon carbide, now diamond. So we hope that continues because they are going to need different equipment that will come from our semi wafer fab customers that are building this type of equipment, and then hopefully using, obviously, our products that we make here. On the recurring revenue, Wendy hit it on the head. You know, we have a very—obviously—very strong base business. Call it legacy. I call it legendary. The tube business. And that is pretty consistent, you know, plus or minus 2% or 3%. Obviously, very profitable. And so we are using some of those profits, but also that base business, including the customers, to bring in new products. And, you know, we have forecasts for every product we introduce, based on the number of customers, TAMs, DTAMs, all that stuff. And when we introduce a product, we have a very high confidence level that it will go into production and that we can start gaining market share. So it is just a pretty much standard model in that we have a very strong base business, and then we continue to bring into those similar type markets—power management and RF and microwave, which are also tubes—new products with the state-of-the-art technology that we can design, manufacture, and test here. P. Ross Taylor: And can I throw one quick theoretical question in for Ed? I mean, personally, Ed, the stock trades at or even under book value. The book value, as I noted, is over 80% current assets. It strikes me as replacement value for your assets is probably a significantly higher number than book value. Does it frustrate you, and what do we need to do to get investors to recognize that this company actually should trade at a more meaningful premium to book? Edward Richardson: Well, I think we just need to continue the development of the new programs we are talking about. You know, every quarter—I am sure this was coming up—our board talks about whether or not we should buy our stock back, and we have gone through that program in the past. And every time we buy the stock back and reduce our cash, the price of the stock would go down. So there was no benefit to that. And the real answer to your question is to continue to develop these new programs and increase the business and the profit generated by the new programs. P. Ross Taylor: Yeah. And I was not going to bang my head on the buyback. You and I—I tried to hit it. Well, we are just in different places. I actually would argue your buybacks have not been a failure. But, you know—okay. We can do that intellectually at some other point in time. But, no, I do think it is an area, and I do think that these initiatives to, you know, capitate the downside in earnings numbers will pay tremendous benefit from a shareholder standpoint because it simply will take away that downside risk and might give the sell side a little bit more courage to actually value the business more appropriately. Thanks. Edward Richardson: Thank you. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone. Again, that is 11 to ask a question. Our next question comes from Chip Rui with Rui Asset Management. Asset Management. Hi. Your line is open. Gregory Peloquin: Hi, Chip. Chip Rui: It sounds very, very positive. I mean, it really feels like you guys are tipping to an inflection point in a dozen areas, and I guess I will just ask specifically if you could talk about two. One, you know, semi CapEx has been the historical volatility for you guys. It has been in a tremendous down cycle for a couple years, but you have, you know, industry-wide, seen people like Micron talk about chips sold out for years and massive capital investment by them and others. So what are you seeing on that? How much of it could you play in? And how would that shake out as far as future orders, kind of over the next two or three years if that cycle develops the way some of the larger industry players see? And then secondly, congratulations on that GE warranty. I was going to ask it too. So just to clarify, it is approved. It is baked. Have you actually signed off, or do you still need to? And just for clarity, that does open about 50% of the market that you have not been able to touch. So just some more color on how meaningful that could be. Okay. Thank you. Yeah. Gregory Peloquin: Yeah. So the situation we have is the team obviously has done a great job selling to owner-operators. As you know, we have exclusive agreements with the top four, but these owner-operators do not have service contracts with GE. They bought a GE turbine, but they service it themselves. So they can do whatever they want with the turbine. There are other customers, and that number has become lower than we originally thought. It is a much smaller percent of the owner-operators that actually have GE contracts, but it is still worth this process. And so our part—they are not testing to see if it works. We have, you know, sold over 84,000 of these to date with Six Sigma-like quality. We are on their website already. What this program is, is if you have a service agreement with GE and you are using GE to do that service, they have to go through and make sure that product that you now want to install meets all the safety requirements of a GE safety manual. And so the good news is they sent us the spec that they are going to test. We have already tested the product. Every one of them has worked perfectly, matched up with that. We still have sent products to them. They are going through the testing. And, again, I hope this is completed by Q1. But just like the NDA and this agreement that we have with them—and I cannot say GE anymore; I have to say a large wind turbine manufacturer—you know, it is just those companies that are that large; it just takes time. But very positive, you know, working directly with them. They are going to do the final test on the product. And what they are doing is making sure that the ESR matches up the same with the battery. Then they do not even have to change a manual because there are no technical changes to the product and the installation. Plus, as you know, we designed and developed a discharge tool that is becoming more and more popular that actually discharges all the energy in the cells—you put it in before you take it out. So that is the scenario with it. You know, it is worth millions of dollars to us, but it is not a 50% increase in our SAM. It is probably about, you know, 15% to 20% increase in our opportunity or served available market. Does that explain it a little bit better? Chip Rui: Yes. Yep. Wendy Diddell: And then your other question was regarding the semi market. The first question. Chip Rui: Yeah. Just it has been in a bit of a down cycle for a few years. From kind of the fab guys are talking about really needing to step up. How could that pull through to you over the next two to three years? Wendy Diddell: Yeah. I think that what you are going to see is continued good growth in that particular part of our business. Gregory Peloquin: Yeah. I think what you are going to see is you are still going to have cycles, but this cycle that we are seeing now—especially in their forecasts and, you know, what they are putting in the portal that we have with them in terms of their forecast—I think the upside is going to be longer than we have seen it in the past just because of all the things that many of you mentioned on the phone with the need for more semiconductors, data centers, the whole thing—that this upside should last longer versus the, you know, six to twelve month cycles that we have seen in the past. So that is the other benefit of this. And then while that is growing, before the, you know, the cyclical part of it, we will hopefully be bringing in new products to, you know, balance out the downside of the semiconductor wafer fab market. So when it does pick up, for use of a better term, it is gravy to our overall results. Chip Rui: Okay. Thank you. Gregory Peloquin: Thanks, Chip. Operator: Thank you. And our final question comes from Andrew Wrem with Otis and Partners. Your line is open. Gregory Peloquin: Hi, Andrew. Operator: Andrew, please check the mute button. Unknown Analyst: Sorry. Hi. Andrew Wrem: Greg, could you give what the backlog for PMT was in the quarter? Gregory Peloquin: Do you have that in front of—Bob? I have—I do not exactly know. Backlog for PMT at the end of the quarter was $75.4 million. Wendy Diddell: Dollars. Andrew Wrem: Okay. So that was up pretty substantially. I mean, I think you guys said in your prepared comments 15% or maybe a little bit higher. Backlog overall—excuse me—was up eleven. Jens Ruppert: Yep. 11.4%. Andrew Wrem: So total backlog is around $153 million, $155 million, somewhere in there. Wendy Diddell: $151.2 million. Gregory Peloquin: Okay. Andrew Wrem: And then in the past, you have commented on what the semi wafer backlog has been. Can you comment on that or just maybe even in rough terms? Gregory Peloquin: We will just tell you it is up. Andrew Wrem: Okay. And then I guess you commented on the inventory. I did not check, but for the Talos inventory, will you guys put a footnote in your Q and K as you work that down through time, or what would be the best way to kind of get at—like, because you said excluding Talos, overall inventory is down. I think that is kind of an important metric here. So if you do not provide it as a footnote, I guess I would encourage you to do so because I think that is pretty important. Because you guys have worked hard on reducing overall inventory, so I think that is important to this story. Wendy Diddell: Thanks, Andrew. We will take that under advisement. Yeah. Thanks, Andrew. Good hearing from you. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Edward Richardson for closing remarks. Edward Richardson: Well, thanks again for joining us today and your questions. We look forward to talking to you again in July. We are happy to take your calls anytime, so feel—we are happy to take the calls, and we are welcome to call us anytime. Thank you very much. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Good morning. As part of the discussion today, the representatives from Northern Technologies International Corporation will be making certain forward-looking statements regarding Northern Technologies International Corporation’s future financial and operating results, as well as their business plans, objectives, and expectations. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and that Northern Technologies International Corporation desires to avail itself of the protections of the safe harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in Northern Technologies International Corporation’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and recent press releases. Please read these reports and other future filings that Northern Technologies International Corporation will make with the SEC. Northern Technologies International Corporation disclaims any duty to update or revise its forward-looking statements. I would now like to turn the call over to Patrick Lynch, CEO. You may begin. Patrick Lynch: Good morning. I am Patrick Lynch, Northern Technologies International Corporation’s CEO. I am here with Matt Wolsfeld, Northern Technologies International Corporation’s CFO. Please note that a press release regarding our second quarter fiscal 2026 financial results was issued earlier this morning and is available at ntic.com. During today’s call, we will review key aspects of our fiscal 2026 second quarter financial results, provide a brief business update, and then conclude with a question-and-answer session. Please note that when we discuss year-over-year performance, we are referring to the second quarter of our fiscal 2026 in comparison to the second quarter of last fiscal year. Our results were in line with expectations. We continued to execute against our long-term growth strategy. Second quarter performance was driven by solid top-line growth across our businesses, including record second quarter ZERUST oil and gas net sales, with year-over-year growth across all geographies, reflecting the investments we have made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry. We have also seen continued strength at Northern Technologies International Corporation China, despite the seasonal impact of the Lunar New Year, and achieved another solid quarter of Natur-Tec growth. Overall, second quarter and year-to-date results reflect the resilience of our business model and the increasing value customers place on our corrosion prevention and compostable plastic solutions. While the macro environment, including geopolitical tensions in the Middle East, ongoing supply chain pressures, and continued challenges in the European economy, has become more uncertain, we remain confident in the direction of our business and the strategies we are executing to drive long-term value. The diversity of our end markets, geographic footprint, and product portfolio positions us well to navigate near-term volatility. As we move through 2026, we expect continued sales growth and improved profitability, supported by stable trends in North America and ongoing strength in Northern Technologies International Corporation China, ZERUST Oil and Gas, and Natur-Tec. So with this overview, I will examine the drivers for the second quarter in more detail. For the second quarter ended 02/28/2026, our total consolidated net sales increased 15.3% to $22.0 million as compared to the second quarter ended 02/28/2025. Broken down by business unit, this included a 72.1% increase in ZERUST oil and gas net sales, an 11.2% increase in ZERUST industrial net sales, and an 8.1% increase in Natur-Tec’s net sales. Turning to our joint venture sales, which we do not consolidate in our financial statements, total net sales for the fiscal 2026 second quarter by our joint ventures increased year over year by 18.6% to $23.5 million, reflecting improved year-over-year demand across many of our joint ventures. We continue to closely monitor trends across our European markets for signs of stabilization following years of subdued demand. As governments begin to implement targeted economic stimulus packages, we expect that any economic recovery from these stimulus packages will lead to a positive impact on our joint venture operating income in future periods, especially in Germany. Improving sales trends continued at our wholly owned Northern Technologies International Corporation China subsidiary. Fiscal 2026 second quarter net sales at Northern Technologies International Corporation China increased by 18.5% to $4.4 million, demonstrating strong demand in this geography. Furthermore, given that the majority of Northern Technologies International Corporation’s China sales are for domestic Chinese consumption, we believe Northern Technologies International Corporation China’s exposure to U.S. tariffs is limited. We expect demand in China will continue to improve in fiscal 2026, helping to support higher incremental sales and profitability in this market. We believe that China will likely become a significant market for our industrial and bioplastic segments, so we will continue to take steps to enhance our operations in this geography. Now moving on to ZERUST Oil and Gas. ZERUST Oil and Gas sales were $2.7 million, a second quarter record, and increased 72.1% from the same period last year. This growth reflects the investments we have made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry. A highlight of increasing ZERUST Oil and Gas adoption includes the three-year contract with an estimated total value of approximately $13.0 million we announced in November 2025 for a major offshore project with a leading global EPC company. We expect this project to ramp throughout the current fiscal year and continue through calendar 2028. This is a significant validation of our engineering capabilities, the scalability of our ZERUST Oil and Gas business, and the reputation we have built as a trusted partner to leading offshore operators. Brazil represents one of the fastest-growing deepwater markets globally, and we believe this win provides a strong foundation for continued growth and expansion across international oil and gas markets. During the second quarter, we also experienced higher year-over-year oil and gas sales in the Middle East, North America, India, and China from both new and existing customers, reflecting the contribution of recent investments we have made to enhance our sales team and add resources to support future growth. This has improved our sales pipeline; the size and number of opportunities have expanded. Our pipeline includes global opportunities to protect above-ground oil storage tanks, pipeline casings, and offshore oil rigs from corrosion. The nature of this industry will always cause certain fluctuations in ZERUST Oil and Gas sales; nevertheless, we still expect to see ZERUST Oil and Gas sales and profitability improve significantly in fiscal 2026 as we continue to leverage these investments and rein in operating expense growth. Turning to our Natur-Tec bioplastics business, second quarter Natur-Tec sales were $5.4 million, representing an 8.1% year-over-year increase in Natur-Tec sales. We continue to pursue several larger opportunities in North America and India for our Natur-Tec solutions that we believe hold significant promise to benefit our sales in the coming quarters, including advancing the compostable food packaging solution mentioned on prior calls. Overall, we believe Natur-Tec is a best-in-class compostable plastic business that is well positioned for significant future growth in the United States and abroad, and we expect sales to continue to expand throughout the year. Before I turn the call over to Matt, I want to acknowledge the hard work and dedication of our global team of both employees and joint venture partners. Our success and our ability to navigate more complex economic periods are direct results of their efforts. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2026 second quarter. Matt Wolsfeld: Thanks, Patrick. Compared to the prior fiscal year period, Northern Technologies International Corporation’s consolidated net sales increased 15.3% in the fiscal 2026 second quarter, the strongest year-over-year growth rate we have achieved since fiscal 2022 because of the trends Pat reviewed in his prepared remarks. Sales across our global joint ventures increased 18.6% in the second quarter. Joint venture operating income in the second quarter increased 19.8% compared to the prior fiscal year period, primarily due to higher sales at our joint ventures. Total operating expenses for the fiscal 2026 second quarter increased 7.7% to $9.5 million, primarily due to higher selling, general, and administrative expenses, partially offset by a reduction in research and development expenses. Operating expenses as a percentage of second quarter sales were 43.2% compared to 46.2% in the prior fiscal year period. We expect quarterly sales to grow faster than operating expenses as we continue to leverage recent investments and upgrades across our global operations. Gross profit as a percentage of net sales was 35.7% during the three months ended 02/28/2026, compared to 35.6% during the prior fiscal year period. Higher gross margin for the second quarter was primarily due to the increase in sales. We expect gross margin to improve sequentially during fiscal 2026. As a reminder, during the second quarter last fiscal year, Northern Technologies International Corporation recognized $1.1 million in other income due to the receipt of a one-time cash employee retention credit payment. No other income was recognized in this fiscal year’s second quarter. Northern Technologies International Corporation reported a net loss of $35,000 or $0.00 per share for the fiscal 2026 second quarter compared to net income of $434,000 or $0.04 per diluted share for the fiscal 2025 second quarter. For the fiscal 2026 second quarter, Northern Technologies International Corporation’s non-GAAP adjusted net income was $70,000 or $0.01 per diluted share, compared to a non-GAAP adjusted net loss of $300,000 or a loss of $0.03 per diluted share in the fiscal 2025 second quarter. A reconciliation of GAAP to non-GAAP financial measures is available in our second quarter fiscal 2026 earnings press release that was issued this morning. As of 02/28/2026, working capital was $20.2 million, including $5.6 million in cash and cash equivalents, compared to $20.4 million, including $7.3 million in cash and cash equivalents, as of 08/31/2025. As of 02/28/2026, we had outstanding debt of $14.3 million. This included $11.3 million in borrowings under our existing revolving line of credit, compared to $12.2 million as of 08/31/2025. Reducing debt through positive operating cash flow and improving working capital efficiencies is a strategic focus for fiscal 2026 and beyond. On 02/28/2026, the company had $29.7 million of investments in joint ventures, of which 51.8%, or $15.4 million, was in cash, with the remaining balance primarily invested in other working capital. In January 2026, Northern Technologies International Corporation’s board of directors declared a quarterly cash dividend of $0.01 per common share that was payable on 02/11/2026 to stockholders of record on 01/28/2026. To conclude our prepared remarks, we believe our second quarter results demonstrate the continued strength and resilience of our business, led by strong year-over-year sales growth and improving year-to-date profitability. While the macro environment remains uncertain, we are encouraged by the underlying trends across our business and the momentum we are seeing across our operations. As we move to the balance of fiscal 2026, we expect revenue growth to increasingly translate to improved profitability supported by operating leverage, disciplined expense management, and continued focus on working capital efficiencies and debt reduction. We believe these factors position us well to navigate near-term macro uncertainty while driving stronger financial performance and cash flow generation over time. With this overview, Patrick and I are happy to take your questions. Operator: As a reminder, to ask a question, please press 1-1 on your telephone and wait for your name to be announced. Our first question will come from the line of Timothy Clarkson of Van Clemens. Your line is open, Timothy. Timothy Clarkson: Hey, guys. Obviously a really good quarter revenues-wise. Earnings still not quite there, but maybe you can talk a little bit about the investments that have been made over the last year or so and where you think the investments have been worthwhile. Matt Wolsfeld: I would say there is what I will call the long-term investment and the short-term investment. The immediate investments we made over the past two years were really the hiring of a lot of people and starting the new subsidiary that we have in the UAE, specifically with the oil and gas opportunities there, and we have seen success from that entity. Part of what has fueled the oil and gas revenue increase has been some of the revenues that we have achieved in the Middle East. If I look at the breakout of oil and gas revenue, I think part of the expectation was that the increase was due to the Brazil contract, which is true, but we are really looking at a non-Brazil increase this quarter of about 85% compared to the second quarter last year and a Brazil oil and gas increase of about 55% this year compared to Q2 of last year. The growth that we are seeing in oil and gas is not localized to Brazil; it is happening based on opportunities in North America, the Middle East, and other regions. We certainly get the sense that we are starting to get traction in that area from the investment we made over the past two years. At this point in time, we are happy with those investments. We are at a point now with oil and gas where it is a transition from the work that we have been doing behind the scenes to really focusing on closing business and adding revenue to the top line that will ultimately flow down to an earnings-per-share standpoint. The other investments we have made will come through the investing section of the cash flow over the past couple of years, where you look at purchasing the building next door and making improvements to that building and adding both warehousing capability and manufacturing capability to our facility, which helped us maintain the gross margins on the new products that we have so we do not have to outsource and can achieve better gross margin for those products. We have spent about $4.0 million plus on that facility, bringing in manufacturing capabilities here. Additionally, over the past two years, we implemented a new SAP system, which certainly has been a little bit more painful to deal with, but long term I think the data that we are getting out of that SAP system and the way that we will be able to integrate things worldwide with how the company is set up with the subsidiaries around the world and the joint ventures is going to give us much better data to be able to grow from a total global company perspective. Those are really the three main investments we have made over the past two years. Although a lot of them have been difficult and certainly added to operating expense over the past two years, I think that is really what is going to fuel the company for the coming three to five years. Timothy Clarkson: Obviously, China is doing really well. There was some concern that as they transition to electric cars there would not be very much demand for ZERUST. It looks like there is still plenty of demand for ZERUST, electric cars or not. Matt Wolsfeld: China has done well, surprisingly well. If I look back at where we were selling in China when we established this subsidiary in 2014, 2015, 2016 compared to where we are now, there has been a transition between supplying the U.S.-based or European-based automotive companies to now focusing on supplying for domestic consumption, which is good given the volatility of what happens in China from an export standpoint. A lot of the increases that we have seen in China have been for domestic consumption of the ZERUST product. Timothy Clarkson: One last question. In general on the R&D end, is the R&D spend particularly on ZERUST-type products or on the compostable stuff, or some of both? Are there some new emerging technologies coming from all the R&D spending? Patrick Lynch: From the HVAC side in particular, we are very positive on what is going to happen in the food packaging, in that we are extremely confident right now that that should fit. Timothy Clarkson: And that was creating the compostable packaging that does not allow moisture in, right? Patrick Lynch: Right. Timothy Clarkson: No one else has that product, right? Patrick Lynch: Right. Timothy Clarkson: One last question I will ask is, historically Northern Technologies International Corporation would net 10% at kind of optimum sales level. Is that still the goal of the company, 10% after tax? Matt Wolsfeld: It is difficult to look at it just from the standpoint of what the traditional net is because, obviously, the joint venture operating income that comes in is not included from a top-line standpoint. The big difficulty we have in the company is if you look back at the historical contributions from the joint ventures, it was significantly higher. Just looking at what we previously received from the German joint venture, that would be anywhere from $0.10 to $0.12 per share per quarter coming in, whereas now you are looking at $0.05 or $0.06 per quarter coming in. What we are seeing is that as we get back to what we expect to see in Q3 and Q4, a significant increase in the earnings compared to Q1 and Q2, it is really a matter of how the Natur-Tec business, the oil and gas business, and the industrial business offset some of the declines we have seen from the difficulties at the German joint venture, specifically dealing with the German economy. They have done a good job with what they are dealing with, given the difficulties with energy prices and things like that in Germany specifically, but it is really a matter of getting the income from the new businesses and seeing those take off to augment what have been a decline in Germany. Patrick Lynch: Thanks, Tim. Operator: Our next question will be coming from the line of Jake Patterson of Atlanta Investment Group. Your line is open, Jake. Jake Patterson: Hey, guys. Just a couple quick ones. First off, on gross margin, I know you had guided for sequential expansion and are continuing to guide for that. We saw margin kind of flattish, even down slightly quarter over quarter, and it looks like a lot of that was from Natur-Tec. I know one of the weaker margins we have seen in at least the last couple of years. I was curious what happened there and the outlook for the second half going forward on that margin. Matt Wolsfeld: There are a lot of different factors that have impacted Natur-Tec if you look back four or five quarters. Historically, it is going to be a more volatile gross margin. The reasons for the volatility are twofold. One is fluctuating input prices from the materials that we are using. Two, a bigger component is that we are doing global manufacturing for the Natur-Tec product, and there has been a lot of impact from tariffs and the change in tariffs that we have in place. When we were focused more on manufacturing in China and there was volatility with tariffs there, we saw some increases and then decreases. We are now set up, or will be set very quickly, where we are able to do manufacturing in China, Vietnam, and India, and longer term looking for some North American manufacturing capabilities for Natur-Tec. The other component to the gross margin is the selling price. We have seen that the Natur-Tec end products operate in a competitive environment, and the companies we are dealing with are dealing with razor-thin margins. At times, we have had to decrease price to remain competitive in some of those larger bids. The goal is to move forward with selling more of the proprietary resins compared to the end products that are in the more competitive space. Ultimately, there are many input factors that impact the gross profit for Natur-Tec specifically. The goal is to hold and increase gross margin as much as possible; it is just sometimes difficult depending on the region. Jake Patterson: Still on the margin side, ZERUST—just looking at the oil and gas mix relative to last year, it is 500 basis points higher and gross margin is down year over year there. Is that still any impact from that supplier issue you guys had in the first quarter? It did not seem like as much improvement as I would have thought. Matt Wolsfeld: We did continue to have the impact on inventory and the impact from supplier issues we talked about in Q1 and the carryover to Q2. The other difficulty we have that has not impacted us from a second quarter standpoint is what is going to happen in Q3 and Q4 given what is going on with energy prices and polyethylene prices worldwide. We have dealt with this before, whether during COVID or other time periods. We do our best to pass through increases in raw material prices to customers as much as possible. We are seeing an increase in some of the main base materials that go into our polyethylene-based products, so it is something to watch out for in Q3 and Q4. Jake Patterson: I saw that as, like, down the line. I think resin prices are up 60% or so, so that should be interesting to see. I guess one last one: you mentioned that the Middle East contributed to some of your oil and gas revenue growth, and they were up, I think, like 80% or something year over year. When you go look at your investor presentations, I think you break out the geographies for ZERUST Oil and Gas, and it only lists Brazil and North America, at least as of November of your fiscal 2025 year. I was curious—it sounded like there was some Middle East revenue from that geography last year, but I am assuming it is still pretty minimal at this point? Patrick Lynch: I would not say it is minimal. We previously were selling to some of these Middle East opportunities and had larger contracts with British Petroleum in Georgia and some other areas like that. We have historically sold to Reliance in India, and these sales were happening through North America. Now we are pushing some of these opportunities to be more localized in that area because they are better set up to serve that region. Those previously were going through North America. Going forward, once the subsidiary in the UAE is fully up and running, fully functional, and operating completely independently, we will break out the revenues for that area in the investor presentation. The other thing that has changed is we are using the subsidiary network that we have in place to go after the oil and gas opportunity. I mentioned specifically opportunities in India, China, and Brazil. These are all areas where we want to go after oil and gas opportunities with those subsidiaries. Some of them are also bringing in and hiring people that specialize in the oil and gas space to be able to go after those opportunities there. We will establish a regional hub in Asia, as we talked about, and in the Middle East, which makes sense. Ultimately, we are looking to push those oil and gas products out through all the subsidiaries that we have to take advantage of that network that we spent so long to build up. Jake Patterson: Gotcha. That makes sense. Cool. That is it for me. I appreciate it. Patrick Lynch: Thanks, Jake. Operator: Our next question will be coming from the line of Gus Richard of Northland Capital Markets. Gus, your line is open. Gus Richard: Thanks so much for taking the question. I want to focus on the impact of the war. You guys reported last quarter, and last quarter ended before the war started. There has been a lot of change in the world, and I am first curious if that is changing regional demand in terms of where companies or countries or regions are getting more active or less active. Matt Wolsfeld: There are a bunch of different impacts from what is happening across the board. You have the very up-close impact where the individuals that we have in the subsidiary in Dubai are getting air raid sirens and are locked in place and told not to go out at various times, and they are seeing this firsthand. A lot of the areas where they are going to sell products and do installations are on lockdown. You do have the opportunity that with some of the infrastructure that has been blown up, there will be opportunities where there is rebuilding and increased spending in those areas where they will need some corrosion protection and things like that. Then you have the secondary impact of what is happening with supply chain, energy prices, and things like that with what is going on in the Strait and relationships, which is causing energy prices to increase, which is causing raw material prices to increase, which is impacting not just Northern Technologies International Corporation, but certainly all the joint ventures and the subsidiaries. On top of that, you have subsidiaries that are further away—take, for example, Brazil—where they potentially have supply constraints from the standpoint that raw material needs to be shipped there. There are potentially shortages of the product. We are not seeing shortages of product in North America; prices are going up, but we are not seeing shortages. We are looking at certain regions around the world where they are potentially running into issues of even having raw materials in place to be able to make the product, which is different than just price increases. There are a lot of different ways where what is going on in the Middle East with the war is impacting the company. It is certainly a concern, but I think we are in a position where we are able to deal with those issues. If I look at what is happening in Brazil, we had a conversation about supply lines. We are fortunate in the way we have other subsidiaries and other entities around the world that could potentially meet customers in Brazil, meet their demand, and provide product to them. We are not sole-sourced in areas. It allows us flexibility and the ability to pick and choose what we want to go after and have options as far as picking lowest-cost suppliers and steps like that. Gus Richard: You have increases in input prices. Are you able to pass that increase on to your customers? How are you adjusting to higher input costs, and how receptive are your customers to that, or contractually? Matt Wolsfeld: The good thing we have is that initially, when things kicked off, we did build up inventory a little bit. We are doing our best to hold prices where we can, but we also do not want to be in a situation like we had in COVID where we reacted too slowly and ultimately did not raise prices for six months and we had issues. We are monitoring prices, and we are looking at raising prices where we can. Specifically, when we are selling custom-made products, based off of the price that we pay, it is easier to push that increase on the customers. The other benefit is it is not like this is an anomaly where the customers do not understand what is going on from an international standpoint and raw material pricing standpoint. They see what is happening at the gas pump. They can read and hear what is happening from supply chain and prices going up. It is easy to come in and explain and say, look, the price of polyethylene has increased by $0.20. This is how your price of our product is increasing and why. It is a matter of walking the customers through it and explaining what is happening, but we can point to very clear data that shows exactly how our input prices are increasing. That certainly helps with passing those increases on to customers and an increased final price of the die. Gus Richard: You talked about operating leverage. Does the operating leverage come from holding OpEx flat and rising revenue, or is there an opportunity to trim your OpEx? A little color there would be helpful. Matt Wolsfeld: The goal from a leveraging standpoint is to increase revenue. If we look forward at the backlog that we have and the projects that we have, the expectations are that our third and fourth quarters will be significantly better than first and second quarter. We have historically had very strong third and fourth quarters from a revenue standpoint, and I would expect that trend to continue. Second quarter is traditionally our slowest quarter from a revenue standpoint. The reason why revenues look good in the second quarter this year is because second quarter last year was down so much and was such a bad quarter from a comparative standpoint. Given where we are at from a backlog and expected projects we have to close, third and fourth quarter should really show how the company is going to get back on track from an earnings standpoint and profitability standpoint, where you can see how we are going to utilize that leverage and push as many gross margin dollars to the bottom line as possible. Holding OpEx flat or as low as possible is certainly the objective, and not necessarily cutting expenses at this point. Gus Richard: The last one for me: looking at the balance sheet, cash has declined the last five quarters in a row, or net cash has declined. Your debt has increased; the cash has kind of stayed the same. I want to understand what was driving that decline. Was it the investments in the business? What is the plan to get cash back to a better place? Can you repatriate some of the cash in some of the JVs? Any thoughts there? Matt Wolsfeld: There is a three-pronged approach. One is to bring back, from a dividend standpoint, cash at the subsidiaries and at the JV level to help increase the amount of cash we have here and ultimately get at the line of credit. The number one thing we need to do is increase earnings. If you look back quarter by quarter at what we are doing from an earnings standpoint, you are not going to be able to build your cash back. In fiscal 2025, we had virtually no earnings. In fiscal 2024, we generated $0.60 a share, which helped from a cash standpoint, but everything we did in 2025 from an earnings standpoint hurt us. A big component to our income is the equity income, which obviously is not cash coming in; it is the dividends that come in from the equity income that ultimately get you there. The goal is to increase earnings, which I think is what you are going to see in Q3 and Q4, which will help pay down the debt. The other item is the investing section from a cash flow standpoint. We made significant investments in PP&E items—the building next door—and the SAP system that we had cash out the door to fund. The actual investments that we are going to be making from a cash flow standpoint over the next few years are going to be significantly smaller than we have done in the past two years, and that is also going to significantly put more cash back on the books. I think the trend is going to start in Q3 and Q4 to work on reducing the debt exposure. Gus Richard: Got it. That is it for me. Thanks so much. Matt Wolsfeld: Great. Thanks, Gus. Operator: I am showing no further questions. I would now like to turn the call back to management for closing remarks. Patrick Lynch: I want to thank everybody for coming. Have a good morning, and wish you a good day. Operator: This concludes today’s program. Thank you for participating. You may now disconnect.
Operator: Good morning. Welcome to Byrna Technologies Inc.’s fiscal first quarter 2026 earnings conference call. My name is Sherry, and I will be your operator for today’s call. Joining us for today’s presentation are the company’s CEO, Conn Davis, and CFO, Laurilee Kearnes. Following their remarks, we will open the call to questions. Earlier today, Byrna Technologies Inc. released results for the fiscal first quarter ended February 28, 2026. A copy of the press release is available on the company’s website. Before turning the call over to Conn Davis, Byrna Technologies Inc.’s Chief Executive Officer, I will read the safe harbor statement. Some discussions held today include forward-looking statements. Actual results could differ materially from statements made today. Please refer to Byrna Technologies Inc.’s most recent 10-Ks and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information, future events, or otherwise. As this call will include references to non-GAAP results, please see the press release in the Investors section of our website, ir.byrna.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. Now I would like to turn the call over to Byrna Technologies Inc.’s CEO, Conn Davis. Please go ahead, sir. Conn Davis: Thank you, Sherry, and thank you, everyone, for joining us today. I want to start by saying how excited I am to be here. This is my first earnings call as CEO of Byrna Technologies Inc., and I could not be more energized about the opportunity in front of us. Over my first several weeks in the role, I have spent a great deal of time assessing the business, and aligning with the team on where I see the greatest opportunities ahead, where we need to sharpen execution. Before I go further though, I want to take a moment to acknowledge Bryan Ganz. What Bryan built here over the past several years is remarkable. He took this company from its Nasdaq listing to one that generated $118 million in revenue last year and built the category leader in less-lethal personal defense. I am grateful for his leadership and the role he played in building Byrna Technologies Inc. into what it is today. Now, as I have spent time with the business, it has become even clearer to me why this opportunity is so compelling and why this is the right time for me to step into the role. Byrna Technologies Inc. is entering a phase where marketing, ecommerce, and operating execution matter enormously, and those are the areas where I believe my experience and skill set can help the business sharpen its focus and improve performance. When I was evaluating this opportunity, four things in particular stood out to me. First, the company’s mission spoke to me. At Byrna Technologies Inc., we empower people to protect themselves and live safely without the need for lethal force. The opportunity to both empower individuals and save lives was truly meaningful to me. Second, the market is enormous relative to where our sales are today. At the core of this opportunity is our launcher platform, which addresses a real and growing need for less-lethal personal defense. We have built a strong product and early brand awareness, but the reality is we have only scratched the surface of what this brand can become. There are entire consumer segments we have yet to meaningfully engage that represent a significant growth opportunity. Third, this company has important strengths already in place. The balance sheet is in great shape. We have a truly differentiated product offering that addresses a real consumer need and stands apart in the market. We have a talented and dedicated team in place. We have a strong manufacturing footprint right here in the United States. And we have a growing retail and dealer footprint that gives us multiple avenues to reach customers. These are the hallmarks of a business that is poised to accelerate. Fourth, and perhaps most importantly, I believe Byrna Technologies Inc. is at a phase where stronger execution can translate the strengths already in place into more consistent growth. The dealer channel is growing, the retail channel is growing, and we have the product innovation pipeline and operational infrastructure to support the next phase of expansion. Taken together, this is a business with meaningful opportunity ahead. But realizing that opportunity will require sharper execution than the company has demonstrated recently. With that context, let me walk you through how I am thinking about the business’ priorities. First, I am focused on driving deeper penetration into our retail and dealer channels. I believe this represents our single biggest growth opportunity over the next 12 to 18 months. We are continuing to expand our brick-and-mortar presence, and we are focused on improving productivity within that footprint. We are investing in in-store shooting experiences that bring the product to life for new customers and working closely with our retail partners to ensure they have the inventory, education, and tools they need to sell effectively. The data we are gathering from our own retail locations is already informing how we approach merchandising, marketing, and sell-through, and we intend to use those proprietary insights to sharpen our approach across every channel. Second, we are working to broaden our brand message to reach new audiences and customer segments. Historically, Byrna Technologies Inc. has spoken most effectively to a narrower slice of the market, and there is a much wider audience that this product and mission can and will resonate with. We see evidence that Byrna Technologies Inc. can resonate more broadly when customers engage with the product in a more intuitive and effective way, whether that is in our own stores, in stronger retail presentations, or through guided tools like our new Find the Right Launcher quiz on byrna.com. I will come back to that new tool in a moment, but it is one example of how we can do a better job helping a broader audience understand what product is right for them and why. Whether it is an early morning runner, a college student walking to their car, or a family on a campout, we believe Byrna Technologies Inc. can become a more relevant and accessible solution for a wider set of customers. That means evolving our message to be more emotionally resonant and more relevant to people’s everyday lives. We want our customers to understand and feel that Byrna Technologies Inc. launchers are there to keep them safe and provide confidence in their ability to protect themselves in real-world situations. As one part of this change, we plan to evolve our influencer strategy to be more inclusive, reaching a broader and more diverse set of customers through new and more impactful media channels. The less-lethal personal defense category should speak to far more people than it currently does, and we intend to lead that conversation. Third, we are establishing a clear financial algorithm that will help ensure our growth flows through to the bottom line. We will be disciplined in how we deploy capital, focused on improving inventory turns, and committed to leveraging our cost structure so that every incremental dollar of revenue drives meaningful improvement in EBITDA and cash generation. Growth is important, but profitable growth is the goal. With that in mind, we are working to ensure our expanding retail footprint grows the top line and meaningfully improves our cash conversion. Additionally, with our $33 million in inventory, we have a significant opportunity to optimize our working capital and use that cash to invest in our brand strategy. I also want to be clear about our capital allocation philosophy. The highest and best use of our investment dollars right now is in the core of the Byrna Technologies Inc. business. We are long on the launcher market, and we will continue to invest accordingly. That said, we will remain thoughtful about selective opportunities that can enhance our product portfolio and expand how we address the needs of the marketplace. We have an incredible opportunity ahead of us, and I am excited to be here to help capitalize on it. With that, I will turn the call over to our CFO, Laurilee Kearnes, who will walk you through the financial results for the quarter. Laurilee? Laurilee Kearnes: Thank you, Conn, and good morning, everyone. Let us review our financial results for fiscal Q1 ended February 28, 2026. Net revenue for Q1 2026 was $29 million, an 11% increase from $26.2 million reported in 2025. The increase was driven primarily by continued sales expansion across dealer and chain store channels, partially offset by typical post-holiday seasonal moderation in the quarter and lower conversion rates on our website. Gross profit for Q1 2026 was $17.4 million, or 60% of net revenue, compared to Q1 2025. The increase in gross profit was driven by the increase in overall sales. The modest change in gross margin was primarily due to the greater contribution of dealer and chain store sales. We do expect to see gross margin expansion in the back half of the year given continued changes in the product mix, modest price increases that we implemented late in the first quarter, and continued efficiency improvement in manufacturing. Operating expenses for Q1 2026 were $16.5 million compared to $14.2 million for Q1 2025. The 16% increase reflects higher advertising expenses and marketing costs to support revenue growth through the expansion of retail distribution and initiatives aimed at increasing brand awareness and conversion. We also incurred higher costs for legal and other professional fees during the quarter. Net income for Q1 2026 was $800,000 compared to $1.7 million for Q1 2025. Adjusted EBITDA, a non-GAAP metric, for Q1 2026 totaled $2.2 million compared to $3.0 million for Q1 2025. Cash, cash equivalents, and marketable securities at February 28, 2026, totaled $9.6 million compared to $15.5 million at November 30, 2025. The decrease in cash was primarily driven by payment of year-end bonuses and other approved payables. Inventory on February 28, 2026, totaled $33.1 million compared to $32.7 million on November 30, 2025. As Conn mentioned, we are focused on decreasing the inventory levels to improve our working capital. I will now pass the call back to Conn for additional insights into our performance and future. Conn Davis: Thank you, Laurilee. Our first quarter results reflect real demand for our solutions, while also highlighting areas where we see clear opportunities to improve execution. I would like to address a few specific areas from the quarter. On ecommerce, byrna.com remains our flagship digital destination and our most mature channel. Conversion did not perform to our expectations in the quarter, and we are taking direct action to address that. The underlying issue is not a lack of interest in the product. Through much of 2025 and into the start of 2026, traffic to byrna.com remained relatively stable outside of promotional periods, but conversion moved materially lower, and average order value also began to come under pressure in fiscal Q1. To put that more concretely, average daily sessions in January, February, March were approximately 37 thousand, 40 thousand, and 34.5 thousand, respectively, while conversion was about 0.68%, 0.64%, and 0.54%. March traffic was roughly in line with April 2025, when average daily sessions were also about 34.5 thousand, but conversion in March was materially lower than the roughly 0.94% conversion we saw last April and the roughly 1.17% we saw in May. That tells us the issue is not simply traffic generation. It is how effectively we are converting that traffic. We are over-indexed on a static audience, and when new customers do arrive, we are still speaking to the gun enthusiast, failing to align the brand to their needs or educate them on the product. That is a clear execution issue, and one we are actively addressing. We are investing to meaningfully improve the online experience by making it easier for customers to understand the product, compare our launcher lineup, and ultimately make a purchase with confidence. Customers who cannot experience the product in person need to feel that same level of confidence online. We have recently launched a Find the Right Launcher experience on byrna.com to guide consumers to the right choice for their needs and location. That tool has already generated more than 30 thousand completions and is converting at roughly twice the rate of the overall site, while also giving us richer data on who is coming to byrna.com, what they are looking for, and how familiar they are with the category. We think that is an important first step in improving education, strengthening conversion, and building a better website experience over time. We have also begun shifting the landing page message away from a weapon-first framing toward a safety- and use case-first approach, one that will be more emotionally resonant with a broader audience. This initial change is part of a much broader shift that you will see across our materials in the coming months. We also launched the Byrna CLXL in February. This is a product we are genuinely excited about, and while early customer engagement in store has been strong, overall performance to date has not yet met our expectations. Just like the Byrna CL, we have found that when customers see it in our company-owned retail locations, they gravitate towards it strongly. In fact, during March, in our retail stores, the combined CL and CLXL made up almost 80% of launcher sales. The challenge is that we are not yet telling that story effectively online or with our retail partners. We are not drawing a clear enough contrast between our launchers or giving customers a compelling reason to choose the CLXL over our other products. That is a marketing and merchandising challenge, not a product challenge, and it is one we are actively working to solve. Turning to our big box retail distribution, we continue to be encouraged by the trajectory of these relationships. The holiday season provided important lessons around inventory planning and stocking levels, and we are working closely with our partners to ensure they are well positioned heading into the rest of the year. We are seeing encouraging early indicators of sell-through across key partners, particularly in stores where customers are engaging with the product directly. At one retail partner, where we now have year-over-year comparables, same-store sales increased roughly 164% in Q1 and 92% in March, even before the benefit of additional end cap or shelf display programs. Similarly, stores with dedicated shooting experiences are generating roughly three times the sales of non–shooting experience stores. Those data points reinforce our view that merchandising decisions can materially improve awareness, education, and overall retail velocity. At this stage, our priority is optimizing performance within our existing store base through better inventory planning, appropriate in-stock positioning, and closer coordination with our on-stock levels and reorder cadence. We are continuing to support our partners with the tools and merchandising needed to drive productivity at the store level. We are also seeing encouraging data in our Byrna Technologies Inc.–owned retail stores. In March, sales across Byrna Technologies Inc.–owned retail grew 16% year over year, and conversion improved from the low 60s in April 2025 to the high 60s in March 2026. Our existing store base also gives us a much stronger platform from which to further expand the physical footprint in 2026. We entered 2025 with approximately 200 chain stores and a 700 total store footprint. We entered 2026 with approximately 900 chain stores and a 1.5 thousand total store footprint, and we expect to expand that further this year through additional chain store growth and targeted dealer additions. By the end of 2026, we currently expect Byrna Technologies Inc. to be in around 2 thousand total locations, including big box retail and dealers nationwide. Included in this growth, we are excited about our new partnership with Academy Sports + Outdoors. We are beginning with an initial rollout of approximately 50 stores during Q2 with the opportunity to expand from there. Regionally, Academy has a strong presence in Texas and across the Southeast U.S., an area where Byrna Technologies Inc. has not historically had a strong store presence. By the end of 2026, we are targeting Byrna Technologies Inc. to be available at roughly 200 to 250 Academy locations. However, our expansion in retail is not just about store count. It is about retail velocity. At Bass Pro, for example, we are moving from behind the glass in the firearms section to test high-traffic end caps. This is a critical distinction. Behind the glass requires a salesperson, while on the end cap allows for self-discovery. Moreover, it provides us with another opportunity to leverage enhanced merchandising to express the Byrna Technologies Inc. brand and educate consumers in the retail setting. As we scale towards 2 thousand total stores by year-end, our focus is to continue driving toward an experiential and frictionless retail model, ensuring Byrna Technologies Inc. is seen as an accessible, easy-to-use personal safety device rather than a weapon. We have also recently added Murdoch’s Ranch & Home Supply, a regional retailer with strong presence across the Mountain West, and we look forward to building that relationship further. Our initial rollout with Murdoch’s will be in 14 of their locations with freestanding displays by the end of Q2, and we are targeting Byrna Technologies Inc. to be available in approximately 30 locations by year-end. From a geographic perspective, we are becoming well established across much of the Western United States, and we continue to evaluate targeted physical store expansions to fill in gaps strategically. Historically, much of our dealer growth was driven by a passive, inbound approach. Dealers frequently came to us and to date the strategy was to evaluate and launch in areas where an incremental dealer may be accretive. We have now shifted to a proactive outbound strategy, and we will be looking to add dealers in selected whitespace markets where we believe additional dealer coverage can support broader brand awareness and retail productivity. We are seeing healthy momentum in our dealer channel overall. In Q1, our premier dealers grew 60% year over year, and our top 20 dealers grew 55% year over year. While that is not a perfect same-store comparison, it reinforces our view that the opportunity in physical distribution is substantial and sell-through remains strong. The expected year-over-year growth in our brick-and-mortar channel this year is meaningful, and it will be an important step in broadening Byrna Technologies Inc.’s brand presence in 2026. On the channel mix more broadly, we expect our brick-and-mortar sales to continue growing faster than our most mature channel, byrna.com, in 2026. This is a normal and healthy evolution for a brand at our stage. As I mentioned earlier, we have an immediate focus on further improving conversion on byrna.com and making sure that channels work together more effectively. We are also seeing a continued shift in product mix, with the CL platform representing an increasing percentage of unit sales. Across the portfolio—from the SD to the LE to the CL and the CLXL—we offer a range of products at different price points, allowing us to serve a broad set of customers and use cases. The SD and LE continue to serve as important entry points, particularly for more price-sensitive customers, while the CL platform is contributing to the mix shift towards higher-margin products. We are seeing that the higher-end CL is performing particularly well in retail environments where customers can engage with the product directly, reinforcing our focus on expanding and optimizing our physical store performance with improved in-store presentation, merchandising, and customer education. Turning to marketing, we are prioritizing the evolution of our message. This is a key area for us, and we see it as one of the most important levers to drive improved performance across the business. We believe there is meaningful opportunity to improve how we communicate the value of our products and convert that into real, sustainable demand. Historically, Byrna Technologies Inc. has focused on the early adopter, the tactical and self-defense enthusiast. While that core remains important, our future growth lies in the normalization of less-lethal protection for more everyday use cases. We know our products resonate with a wider audience when they are presented, merchandised, and explained effectively. Our focus is now on translating that broader relevance into more consistent sales by improving how customers encounter, understand, and purchase the product across every touchpoint. To be effective, these changes will extend across all of our go-to-market channels as we build an integrated brand and experience everywhere customers interact with Byrna Technologies Inc. Our goal is to meet customers wherever they are and ensure they can engage with and purchase our products in a simple, convenient way for them. To accomplish this, we are refining how we approach marketing to reach customers more effectively across channels. This includes shortening and improving the effectiveness of our creative so it is more impactful, enhancing the website experience to better guide customers through the lineup and educate consumers who are new to the category, optimizing our influencer strategy and messaging to better align with the customer segments we are targeting as we broaden the brand, shifting our media and messaging towards more effective channels, including social media, and being more targeted in how we deploy media in markets where we have strong retail store coverage. More broadly, we are focused on allocating marketing dollars more effectively and building a more structured, data-driven approach so we can track performance and demonstrate progress over time. Our objective is to better connect awareness to conversion, whether that occurs online or in store, and to do that with more consistency than we have demonstrated recently. On the manufacturing side, we are continuing to drive lean manufacturing and continuous improvement initiatives at our Fort Wayne facility to deliver margin improvement. We believe this, combined with a tighter focus on inventory planning, will help improve inventory turns and support stronger cash conversion over time. We have already taken steps to reduce our build rate so that inventory can come down rather than continue to grow, and we have reduced headcount at the plant accordingly. We are also making progress on our next-generation modular platform, which is intended to simplify the launcher architecture, significantly reduce component count and labor requirements, and ultimately lower costs. The initial platform will be centered around our .61 caliber system, and we are making strong progress towards the launch in 2027, with the broader rollout extending through next year. It is early, but we are encouraged by the progress and believe this platform will be a meaningful step forward in both product performance and manufacturing efficiency. Looking ahead to Q2, I have spent my first weeks on the job aligned around one clear objective: winning the fight for revenue while simultaneously building the long-term foundation. Based on what we are seeing today, fiscal Q2 is developing materially below our expectations and below both the year-over-year and sequential improvement we would ultimately expect this business to deliver. Part of that reflects a tougher comparison against last year’s fiscal second quarter, which benefited from the CL launch and initial load-in orders with new retail partners of roughly $2.7 million. To help offset this, we will have our initial retail load-in orders from new partners in Q2 and expect total retail load-in orders in the quarter to exceed $300 thousand. These orders will help boost our floor for the quarter, but given the recent conversion data for March, we understand that we need to be thoughtful and expeditious about the changes we are making to how we manage demand generation, website conversion, retail productivity, and inventory. We believe those changes are necessary, and they make near-term results more variable and less suitable for providing formal quarterly guidance until we have better operating consistency and stronger visibility. Performance is not where we want it to be, and I want to be direct about the primary reasons for that. First, the business exited fiscal Q1 with a weaker starting point for Q2 than we should have, in part because late-quarter promotional and merchandising actions concentrated more purchases into Q1 than would normally be the case. Second, byrna.com continues to underperform our expectations. Site traffic has remained relatively stable; however, conversion has declined materially, partially due to the growth of our retail channel. Average order value has come under pressure. This tells us the issue is not simply demand generation, but the effectiveness of our website and our conversion path. Third, while our retail and dealer expansion continues to build a larger base for growth, the contribution from newer chain store openings is expected to build more meaningfully in 2026, consistent with ramp patterns we saw in 2025. The operational changes we are making are to improve the business over time, but they are not changes that will fully move through the system in a matter of weeks. We are focused on improving conversion, strengthening retail productivity, and executing more effectively across channels, which we believe will better position us to build top-line momentum as we move through the back half of the year. Just as importantly, we are going to be much more active in identifying areas for improvement, addressing them directly, and making the changes needed to improve the business. We are actively working to improve the quarter in front of us, but we are doing so in a way that supports stronger execution and healthier momentum through the balance of 2026. Going forward, we do not plan to continue the prior practice of pre-announcing quarterly revenue. During this period of tightening operational execution and strengthening forecasting capability, we believe providing a single early revenue data point can provide an incomplete picture of the business. Our focus is on improving the underlying operations, financial forecasting, and visibility needed to provide investors with better context through our regular reporting process. In closing, we are aligning the entire organization around a clear set of objectives and measures. These are not glamorous initiatives, but they are the right ones to drive consistent performance, and they will compound. We believe this is the right moment for Byrna Technologies Inc. to lean in and execute with focus. We are investing in the customer experience, working to expand our reach to new audiences, and strengthening the operational foundation of the business. That is the mindset of a category leader, and that is what we intend to be. I am incredibly proud to be a part of this team. I am grateful to the employees, partners, and shareholders who have helped build Byrna Technologies Inc. into what it is today. I am deeply committed to the mission at the heart of this company, providing people with safe, reliable, effective options to protect themselves and their families without resorting to lethal force. The mission matters. It resonates and it is far from fully realized. We have the brand, the team, the manufacturing, the balance sheet, and the distribution foundation to improve from here. I look forward to demonstrating that through consistent execution in the quarters ahead. We will now open for questions. Operator: Thank you. The company will now be taking questions from sell-side analysts. Our first question is from Jeremy Hamblin with Craig-Hallum Capital Group. Please proceed. Jeremy Hamblin: Thanks for taking the question. So just wanted to start off by seeing if we can get a little more detail behind the revenue commentary. It sounds like you are expecting sales to be down in Q2 on a year-over-year basis. Based on what you saw in the March period, presumably you are expecting wholesale to be up on a year-over-year basis, but DTC channel to be meaningfully down. It sounds like you are kind of targeting something in the $25 million range, but I wanted to see if you could provide at least a little more color. I know you are not providing formal guidance per se, but just based on the commentary around conversion rates, which sound like they are down pretty steeply, is that a pretty fair interpretation of what you are saying? Laurilee Kearnes: Hi, Jeremy. Thank you for the question. Yes, I would agree that that is what we are saying. We do expect to be down meaningfully year over year and compared to Q1. Remember, we did have, as Conn pointed out, inventory load-in for some of the new retail partners of $2.7 million versus we are going to have $300 thousand this year. So that is a pretty meaningful change. And really, byrna.com and what we are seeing online, the conversion rates are much lower with similar web traffic coming to the store. So we did benefit in Q2 last year from the CL launch coming out. That had some significant sales. So we do have some of that year-over-year pressure, but we do expect it to be down significantly. Jeremy Hamblin: And then to that point, I wanted to get underneath the average order values declining, in particular online. So just help us understand that given that it sounds like the CL has been taking share overall, but maybe that is not the case in the DTC channel. Wanted to see if you could comment on that, or if the AOVs are falling because you are not getting the same type of accessory attachments in those orders, but just help us to understand why those AOVs are falling given that you have a more expensive CL launcher now and you have taken price, I believe, in early 2026 on the SD and the LE. Conn Davis: Hi, Jeremy. Thank you for that. I would say there are a couple of factors driving that. First, you are right, we did take some price. CL mix is not as high online as it is in our retail stores, and that goes back to the conversation I was having earlier where we are not telling the story well enough on byrna.com to drive that upsell into the CL platform. The other piece of this, and I think it is important to understand, is from a marketing perspective, we have been targeting the same audience for a while now, and we are seeing that audience still come back to byrna.com, but they are buying more things like ammunition and accessories for their existing launcher instead of adding another launcher to the cart. And so what we are seeing there is just kind of a shift a little bit into the mix in the bag. Laurilee, do you have any more detail? Laurilee Kearnes: I think that that is fair. I think as we have this new tool of Find the Right Launcher, and more education online to help people really differentiate the launchers, we know they can differentiate them in store. We want to help them do that online as well, and we believe that will help to drive the average order value increase. Jeremy Hamblin: Just a clarifying question. What is the CL mix online versus at retail? Laurilee Kearnes: So at retail, I think we pointed to our retail stores, which is really—we do not really have necessarily store-level detail on all of our partners. Overall, we were seeing for the quarter the CL at roughly 40% of total overall unit sales. But we know in our stores, as we mentioned, given a month of data, it was 80% in our own retail stores. I can follow up with you, Jeremy, on the breakdown of the two. Jeremy Hamblin: Appreciate that. And then just one last one here. In terms of the gross margin improvement, if you are seeing so much more traction at brick and mortar and that has a lower gross margin profile, why would you expect the gross margin to improve from 60%? It would seem like it would be just kind of stuck in that range, unless you are assuming that there is going to be a much better mix of DTC in the back half of the year. Laurilee Kearnes: So, I mean, obviously, the back half of the year we get better DTC just because of the holidays themselves, right? So that is part of it. But really, we are continuing to see that mix change, and the CL is a higher-margin product. So as the percentage of CL grows and as we do more to grow that percentage of CL, we expect to see that with the product mix. And we also are really working on the manufacturing efficiencies, and we believe that will lead to higher gross margins as well. Jeremy Hamblin: Got it. No, I am not saying they are going up drastically, but they are definitely—through the back half of the second half of the year, you will see some improvement in that. Thanks for taking the questions. I will hop out of the queue. Laurilee Kearnes: Thanks, Jeremy. Operator: Our next question is from Eric Wold with Texas Capital Securities. Please proceed. Laurilee Kearnes: Eric, you there? Conn Davis: Eric, can you hear us? Operator: We lost Eric. So we are moving on to Jeff Van Sinderen with B. Riley Securities. Jeff Van Sinderen: Yes. I just wanted to follow up on a couple of things you said. At Bass Pro, I think you said you are shifting to end caps. And I am wondering about the thought process of if it is behind the glass, you sort of are engaging with the salesperson. If it is on the end caps and just open, which is what it sounds like you are doing, how do you engage a salesperson to sort of teach in that product? Conn Davis: Thank you for the question, Jeff. You know, I will tell you that when it is behind the glass, you almost have to have a salesperson to drive that purchase. When you have got an end cap like that, you have got the opportunity to pull a salesperson in if you have questions, but we also have the opportunity to tell the story right there in store with merchandising materials tied to that end cap. It creates a lot better option for self-discovery but also does not create a purchase barrier by having to get a salesperson involved. Jeff Van Sinderen: Okay. And then I wanted to follow up a little bit more on marketing. Maybe you could just walk us through the pathway to get on social media because I think there have been some challenges there in the past. Just wondering what you are planning to do there. Absolutely. So— Conn Davis: As we pivot our brand messaging and our target audience to a wider, more inclusive audience, that audience lives on social media—a lot of it does—and we are going to have to be present there and be native to where our customers are actually going to be able to see and engage and visualize the product. Now, as you mentioned, Byrna Technologies Inc. historically has been limited from paid advertising on social media channels. I do not see that changing in the short term. We are going to have to leverage a much more intentional organic social media presence and rely on social media influencers that have the right audience. By tapping a social media influencer crowd, we will really be able to generate more lifestyle stories about how the Byrna can really impact people’s daily lives, and we believe that will be very resonant with the target audience. Jeff Van Sinderen: Okay. And then one thing I did not hear much about today—realize you guys have a lot to do—but any sense or any update you can give us regarding plans to launch more recurring revenue lines of business? I know that was talked about previously. I am just wondering how that might take shape over the next year or so. Conn Davis: Yes. So I think as we look at investment in the business overall, as I mentioned, I am long on the launcher platform. I think that is our best near-term opportunity to continue to grow this business and this brand. That being said, we have recently hired a new head of R&D who has a lot of experience in connected devices and recurring revenue places. I think thinking about how we can do that thoughtfully and intentionally from an organic point of view will be the path forward there rather than trying to go out and purchase, call it, a connected devices platform, which, as I am sure you are aware, are very expensive from a multiples point of view. Jeff Van Sinderen: Okay. Thanks for taking my questions. Conn Davis: Thank you, Jeff. Operator: Our next question is from Eric Wold with Texas Capital Securities. Please proceed. Eric Wold: Hey, thanks. We will try one more time. Sorry about the technical difficulties. Thanks for the questions. So a couple of questions on the retail channel. You mentioned, Conn, that one of the retailers that you have line of sight to last year’s results are seeing strong same-store sales year over year in Q1 and so far in March. Anything that retailer is doing differently than the other retailers or maybe a different geographical area? Just trying to get a sense of why those trends may or may not be translatable to some of the other retail partners. Conn Davis: Eric, what is exciting about that is they have not historically done much of anything differently, and their footprint is fairly wide base. So I think that is going to see translation across the retail category. What is exciting about that partnership though is because of the success we have had, we are now able to go in and lean more heavily into merchandising opportunities with counter displays, and really get buy-in from that retailer in order to accelerate faster. Eric Wold: Got it. And then, yes, I know the exclusive agreement with Sportsman runs through August. You mentioned that the retailers that have the shooting experiences are doing 3x the sales of the other stores that are not. How quickly are retailers on their own moving to make that offering available? What percentage currently offer an in-store shooting experience, and how many do you think could be there by year end? Conn Davis: Thanks, Eric. I will tell you that beyond the Sportsman’s experience, where you really see that have picked up is in the dealer channel, and our premier dealers all pretty much have shooting experiences in their facilities right there and available. And, Laurilee, what is the percentage of our dealers now that are— Laurilee Kearnes: Very small percentage. Conn Davis: Yes. It is definitely less than 10%, sub-10% from a dealer point of view. I would say beyond that, obviously, other retailers are starting to explore what that looks like. I do not have a specific rollout at this point in time for experiences in other mass-market retailers. That will be on a store-by-store basis for those retailers, what they choose to do. Eric Wold: And just a quick follow-up on that. What is the main pushback or main reason why a retailer is not offering this? Is it space? Is it cost? What is the reason why you are hearing that the retailer also is not moving off of this? Conn Davis: Eric, you are a little garbled to me. I want to make sure I understood. Are you asking what are we hearing from the retailers that have not yet adopted a shooting experience? Eric Wold: Yes. What reason are they possibly giving for not moving quickly on that if they are seeing that—if the results are there? Is it the space in the store? Is it a cost? Personnel? Anything you can share on that? Conn Davis: Yes, it is not really the cost. The cost to do it is not all that expensive. That being said, the space is what is challenging and kind of resetting the stores and planning for that. So it is a longer lead time for that to get done. And I think a lot of those retailers are seeing the success we are having and having more and more thoughts and conversations in that direction. Eric Wold: Perfect. Thank you. Conn Davis: Thank you. Operator: Our next question is from Matt Koranda with ROTH Capital Partners. Please proceed. Matt Koranda: Hey guys, good morning. Just wanted to hear a little bit more about the near-term conversion trends that you shared, Conn. Maybe just—did you implement any significant changes in March to the messaging that sort of impacted conversion? And then what changes can you make, I guess, on the website specifically to improve conversion in the near term, or is this something that is likely going to take a bit longer before we start to see a lift in conversion? Conn Davis: Thank you, Matt. I will tell you we are doing the tactical things we can do now, and I will give you a couple of examples of that. One, the Find Your Launcher quiz that we have put in place—we are seeing significant engagement with that online. I mentioned that we are north of 30 thousand completions on that now. That has largely only been available for the past few weeks online. We had tested it before, but it was fairly hidden. We are getting great data around what the consumer is looking for coming to the website when they are trying to learn more about the platform. We are going to leverage that to create specific landing pages and educational pages here in the near term in order to help drive that conversion. Today, we are seeing consumers who take that quiz convert at twice the rate of the overall website experience. We anticipate being able to continue to drive that up through tactical changes. Additionally, we have pivoted some of the messaging on the website, and we have more work to do there. But from a starting point of view, you used to come to the website and the first thing you would see was a launcher—which obviously looks like a pistol—and a lot of information around some of our historic influencers. That turned some consumers off. We have already pivoted that messaging to be much more lifestyle-focused and about how Byrna Technologies Inc. can be an enabler of safety and confidence, and we are seeing some traction there as well. So I think more to come there, Matt. We are doing the tactical things now, but over time you are going to see a much bigger shift and reset in the experience online. Matt Koranda: Okay. This is to get your thoughts, Conn, on the product portfolio and the progression there. It sounds like no change in terms of your posture toward the launcher, and it sounds like you are signaling probably more of an organic development process on connected devices. Any thoughts on sort of how long that organic process could take to get something connected devices–wise? Are we looking at something maybe over the next year plus in terms of introduction? How should we think about the progression of the product portfolio under your leadership? Conn Davis: No, I appreciate the question, Matt. Clearly, I think the focus and the near-term attention is definitely on the launcher platform and optimizing that. That being said, I would anticipate us testing and learning in that connected devices market at some point before the end of this year, but I do not have any specific timing on what that looks like. Before we were to make a big push there, I think you are right. It is probably a next-year time period if we see success in the test and learn. Matt Koranda: Okay. Fair enough. And then maybe if I could squeeze one more in. Laurilee, just any thoughts on progression of cash flow for this year? Noticed the inventory balance and what you said in the prepared remarks. But maybe just if you could put a finer point on how we should be thinking about free cash flow this year in light of some of the demand comments you guys also made? That would be helpful. Laurilee Kearnes: Yes. I think we expect free cash flow to end up being in the mid-teens, some of that coming from EBITDA, some of it really coming from working capital. So I would say that is our base minimum that we are looking for this year. Q1 is obviously always the quarter that we use cash—that is not unusual—but as we continue to work through the inventory changes, we are targeting a meaningful reduction in inventory. We have already taken steps on the production side. So that is where we are looking at for the year. Conn Davis: Matt, just to be clear, it is a big focus of mine and an initiative to drive that and be much more effective. We are already taking steps to tie production much more closely to what we are seeing from a demand point of view. Matt Koranda: Got it. Very helpful, guys. Thanks. Conn Davis: Thank you. Operator: Our next question is from Jon Hickman with Ladenburg Thalmann. Please proceed. Operator: And we just lost Jon. So this will conclude our question and answer session. I would like to turn the call back over to Mr. Davis for closing remarks. Operator: Thank you. We appreciate your continued interest in— Conn Davis: I want to take this opportunity to thank our investors, customers, vendors, partners, and employees. This journey is only possible because of their tremendous support and belief in our mission of saving lives. Operator: Thank you for joining us for today’s Byrna Technologies Inc.’s fiscal first quarter 2026 conference call. You may now disconnect.
Operator: Greetings, and welcome to the Simulations Plus Incorporated Second Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] And please note that this conference is being recorded. It is now my pleasure to turn the conference over to Lisa Fortuna. Thank you. You may begin. Lisa Fortuna: Good afternoon, everyone. Welcome to the Simulations Plus Second Quarter Fiscal Year 2026 Financial Results Conference Call. With me today are Shawn O'Connor, Chief Executive Officer; and Will Frederick, Chief Financial Officer of Simulations Plus. Please note that we updated our quarterly earnings presentation, which will serve as a supplement to today's prepared remarks. You can access the presentation on our Investor Relations website at simulation-plus.com. After management's commentary, we will open the call for questions. As a reminder, the information discussed today may include forward-looking statements that involve risks and uncertainties. Words like believe, expect and anticipate refer to our best estimates as of this call, and actual future results could differ significantly from these statements. Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission. In the remarks or responses to questions, management may mention some non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in the most recent earnings release available on the company's website. Please refer to the reconciliation tables and the accompanying materials for additional information. With that, I'll turn the call over to Shawn O'Connor. Please go ahead. Shawn O'Connor: Thank you, and welcome, everyone. We exceeded the top line guidance that we communicated to you last quarter and delivered $24.3 million in revenue during second quarter with growth in both our Software and Service segments. Adjusted EBITDA was $8.7 million, reflecting a 36% margin and adjusted diluted EPS was $0.35, in line with our internal expectations. Turning to the macro environment. We continue to see encouraging market conditions globally, supported by ongoing most favored nation pricing agreements, easing tariff concerns and a more supportive funding environment for our customers. On the regulatory front, the new approaches methodologies or NAMS guidance issued late last year was further clarified with an additional update last month. Against this backdrop, we're seeing a pickup in client spending reflected in solid software renewal rates, increased new logo activity and strengthened service bookings. Overall, we're pleased with our first half fiscal 2026 performance and encouraged by the momentum that it is building across the business. Next, I want to address the broader discussion around artificial intelligence and its impact on software companies, including our own. Over the past quarter, AI-related competitive concerns have weighed on their valuations across most software-based business models, and biosimulation has not been entirely immune to that sentiment. That said, we believe it's important to separate short-term market perception from long-term fundamentals. From our perspective, ongoing advances in AI are a net positive for biosimulation. AI is accelerating the industry's transition to a data-driven drug development workflows and, importantly, enhancing the value of trusted and validated scientific engines rather than replacing them. We have been an early adopter of AI for decades, beginning with the introduction of ADMET Predictor in the late 1990s, and we continue to lead in its practical application today. Beyond using machine learning for property prediction or to improve software development efficiency, we are embedding AI across our product roadmap, improving compute performance, interoperability between scientific engines, data management and duration, automation of repetitive modeling tasks and making our tools more accessible across organizations. While certain software models may face disruption from AI, we believe the core value of our scientific engines, including property predictions, PBPK, PK/PD and QSP modeling functionality and science remains strong and durable. These capabilities are built on decades of scientific investment deep domain expertise, validated methodologies and integration into customer workflows and regulated environments. In contrast to black box approaches, our solutions are trusted, auditable and difficult to replicate. That is why we have long been the preferred choice for commercial drug developers even during a period of significant investment in AI-driven discovery companies, and a number of open source applications. At our Investor Day in January, we outlined the road map focused on further leveraging AI across our ecosystem and we continue to make solid progress executing against that plan. Just a few weeks ago, we announced strategic collaboration programs with 3 large pharmaceutical companies to advance AI workflows across drug development life cycle. The close collaboration between Simulations Plus and leading pharmaceutical organizations will provide direct insight into how AI will be integrated into real-world environments, in forming product direction, workflow standardization and for future commercial models. The programs will utilize Simulations Plus' major software platforms, including GastroPlus, MonolixSuite, ADMET Predictor and Thales. Participating companies will integrate our internally developed AI agents directly into model inform direct development workflows, enabling natural language interaction, automation of data processing coordination of simulations across multiple modeling engines and generation of interoperable outputs from complex multistep pipelines. These programs represent an important step in moving us and our partners beyond experimentation and into practical implementation as we advance our software and services into a unified modeling ecosystem. Finally, it's important to emphasize that our customers are not looking to replace biosimulation engines. Instead, they are looking to enhance their value using AI to improve efficiency, broaden deployment and accelerate drug discovery and development. Furthermore, cost benefits accrue at any point that Simulations Plus can help us simplify and shorten the drug development process or mitigate costly miscalculations. This approach aligns closely with our strategy to be a key partner in our clients' AI journey and supports our long-term growth plans. With that, I'll turn the call over to Will. William Frederick: Thank you, Shawn. To recap our second quarter performance, total revenue increased 8% to $24.3 million. Software revenue increased 9%, representing 60% of total revenue and Services revenue increased 8%, representing 40% of total revenue. Turning to software highlights for the quarter. Discovery revenue, primarily from ADMET Predictor, increased 19% for the quarter and 6% for the trailing 12-month period. The contribution as a percentage of total software revenue was 19% during the quarter and 18% for the trailing 12 months. Development revenue, primarily from GastroPlus and MonolixSuite increased 12% for the quarter and 3% for the trailing 12-month period. The contribution was 78% of total software revenue for both the quarter and the trailing 12 months. Clinical operations revenue primarily from proficiency declined 54% for the quarter and 58% for the trailing 12-month period. The contribution during the quarter was 3% of total software revenue and 3% for the trailing 12 months. We ended the quarter with 297 commercial clients, achieving an average revenue per client of $124,000 and a 91% renewal rate for the quarter. On a trailing 12-month basis, we achieved average revenue per client of $148,000 and our renewal rate was 87%. While we've seen a decline in software renewal rates, it's worth diving a bit deeper into the patterns we've seen. For top 20 pharma clients, we've historically had 100% logo retention. For $1 billion-plus pharma, defined as companies generating over $1 billion in global revenue, we've seen 90% logo retention. Churn has predominantly been with other commercial pharma defined as biopharma companies with at least 1 approved product and less than $1 billion in revenue and precommercial biotech defined as biotech companies without an approved therapy. This is consistent with historically more episodic versus recurring demand as pipelines progress with the challenging early-stage biopharma market backdrop over the last few years. Our top 25 customers represent about 46% of overall software revenue and these customers are highly stable with 100% logo retention and 90% plus gross revenue retention. As we continue to assess software renewal rates and advance our sales team reorganization from product-focused selling to a regional account-based model centered on deepening client relationships, we plan to provide increased visibility into software retention and cross-sell expansion opportunities. For example, in fiscal 2025, we saw the following from clients with software revenue greater than $100,000: 50% purchased 2 software products, 23% purchased 3 software products and 15% purchased 4 or more products. We believe this creates meaningful cross-sell and upside opportunities as reflected in the continued growth of average software revenue per client. We look forward to providing additional insight into these performance metrics over time. Turning to services highlights for the quarter. Development services, which includes our biosimulation services, increased 12% for the quarter and declined 3% for the trailing 12-month period. The contribution during the quarter was 77% of total services revenue and 75% for the trailing 12 months. Commercialization Services, which includes our MedChem services, declined 1% for the quarter and increased 66% for the trailing 12-month period. The contribution during the quarter was 23% of total services revenue and 25% for the trailing 12 months. Total services projects worked on during the quarter were 199 and ending backlog increased 18% to $24 million from $20.4 million last year. Overall, we have a healthy pipeline of services projects. Total gross margin for the second quarter was 66%, with Software gross margin of 89% and Services gross margin of 33%. On a comparative basis, total gross margin for the prior period was 59% with Software gross margin of 81% and Services gross margin of 25%. The increase in Software gross margin was primarily driven by increased software-related revenue, particularly from Development and Discovery Solutions and lower software-related costs largely reflecting reduced amortization expense following the impairment charge in the third quarter of fiscal 2025. Other income was $0.3 million for the quarter compared to $0.8 million last year. The prior year amount included the gain on the change in fair value of contingent consideration related to the Immunetrics holdback liability. Income tax expense was $1.4 million compared to $0.4 million last year our effective tax rate was 23% compared to 12% last year. The increase in the tax rate is primarily due to the result of favorable discrete item in the prior year that did not recur in the current year, a less favorable jurisdictional mix of earnings between the U.S. and France, increased unfavorable global intangible low-taxed income, or GILTI, impacts driven by higher French taxable income, and a lower foreign-derived intangible income or FITI benefit. In addition, certain items affecting the current year effective tax rate relate to accelerated deductions elected under the One Big Beautiful Bill Act. These deductions are expected to be favorable to cash flows as they accelerate the timing of tax benefits and reduce near-term cash tax payments. As a result, we now expect our effective tax rate for fiscal 2026 to be between 23% to 25% as compared to our previous expectation of 12% to 14%. Moving to our balance sheet. We ended the quarter with $41.8 million in cash and short-term investments. We remain well capitalized with no debt and strong free cash flow as we continue to execute our growth and innovation strategy. Our guidance for fiscal 2026 remains relatively unchanged from what we previously provided. Total revenue between $79 million to $82 million, year-over-year revenue growth between 0% to 4%, software mix between 57% to 62%, adjusted EBITDA margin between 26% to 30%. Adjusted diluted earnings per share is now expected to range between $0.75 to $0.85, which reflects the change in our effective tax rate we just discussed. For the third quarter of 2026, we anticipate revenue to be between $20 million to $22 million, adjusted EBITDA margin of 27% to 33% and adjusted diluted EPS between $0.20 to $0.27. I will now turn the call back to Shawn. Shawn O'Connor: Thank you, Will. As I mentioned before, we're pleased with our first half performance and remain excited about the opportunities ahead. Simulations Plus is transitioning from a set of innovative modeling tools into an integrated AI-driven biosimulation ecosystem, supporting the full drug development life cycle, from discovery through commercialization. Our core purpose remains unchanged, empowering our clients to deliver safer, more effective therapies through science-driven innovation. What's accelerating and is how we execute against that mission. By combining our validated scientific engines with enhanced cloud capabilities, AI-powered workflows and a coordinated road map we're delivering greater speed, consistency and interoperability to our clients. Thank you for joining the call today. And with that, we'll open the call for questions. Operator: [Operator Instructions] And our first question comes from the line of Matt Hewitt with Craig-Hallum. Matthew Hewitt: Obviously, it's nice to hear we're starting to see some positive impact from the changes that we started to see last fall. Maybe first up, I was hoping we could dig in a little bit on the 3 large pharma customers that you announced here a couple of weeks ago kind of coming in and adopting the 4 major platforms. Could you walk through exactly how that's going to work? What does that -- what do those contracts look like? Is it cross-selling that's already occurring? Just any more color there, I think, would be helpful. Shawn O'Connor: Sure, Matt. Yes, we announced a few weeks ago the collaborations with 3 large pharma accounts. Those collaborations have been underway for a longer period of time. These are not new relationships beginning. They've been involved in our product road map development for some time, prior to our unveiling of that to the Investor Day meeting in January. Each of the collaborations has a little bit different focus across the scientific engines, but the tougher collectively, all of our scientific engines, collaboration is 1 of working together to ensure that we've got good visibility to their needs, their workflows, internal to their organizations so that we can match the development of the AI capabilities to meet their needs and fit into their environments. It's good to have 2 or 3 of these relationships so that every company is unique as to how they're deploying their efforts on the AI side. So it allows us to develop our solutions in a way that can be tailored to different needs across the pharma companies. So we're engaging with them on a product development basis. There has been some financial component to at least 1 of the relationships already. The financial relationship going forward with each of the parties is in discussion right now as to what the long-term takedown across the technology platform will be and what the financial circumstances will be around that. But very important relationships for us. It's similar to what we've done through our lifetime as a company. Our scientific engines have been developed in a series of collaborations with our clients, with regulatory bodies. It's what's made them on target in terms of the needs of drug development and good to see that that's continuing through our AI developments today. Matthew Hewitt: That's super helpful. And then maybe a follow-up question. You noted you're having some success with cross-selling already. And you also mentioned that during the quarter, you won some new logos. I'm just curious, are those new logos customers that maybe hadn't adopted your software services before? Are these competitive conversions, like you're winning business or taking share? Just any other color there would be helpful as well. Shawn O'Connor: Yes, as new logos, the nonexisting customers that are taking down solutions for the first time. So they're new to us in terms of the competitive situation in terms of their selection of our product, we have to go through each and every one. And as Will described, in terms of the stability of our client base at certainly the large top 20 as well as the billion-dollar large pharma companies. New logo opportunities are going to be at the lower end of the environment or size of the clients. So those customers can be clients that are just initially starting up in internal capabilities for biosimulation. But in some cases, they may be movement from competitive scenarios. Operator: And our next question comes from the line of Constantine Davides with Citizens. Constantine Davides: Just a couple of questions here. First, I noticed a large sequential uptick in the commercial portion of the services backlog. And I just wanted to get a sense for maybe the proficiency pipeline in both software and services, size of deals that you're seeing and then any seasonality we should consider as we think about that business over the back half of the year? Shawn O'Connor: Sure. The backlog is as a reminder, entirely service revenue based. So that's driven -- 75% of our service business is in the development space, the 25% is in the [ kinetic ] communications space, that revenue service revenue stream that came to us through the acquisition of proficiency. We started to see good pipeline activity and closure as we exited and saw a good delivery in terms of service revenue in the first quarter, and that's continued into the second quarter here. So that side of our business is slowing quite nicely right now. Turning to the proficiency question. All the backwards leverage off of the service, Med Communications service business through the halfway point of the year is up nicely. They had a very good first quarter. Second quarter growth was not as high on a percentage basis but a good contribution and certainly cumulatively through the midpoint of the year, they're performing quite nicely. On the Software side, that performance has gone as anticipated. To recall, beginning of the '25 post acquisition of Proficiency, their first couple of quarters, delivered good revenue, clinical trial step back in the back half of '25, certainly brought that run rate of software revenue contribution down. That's continued into the first half of the year. It stabilized at a good sort of starting point, if you will, and we look for reasonable growth on a go-forward basis for the efficiency from this point forward. Constantine Davides: Great. And then just -- I appreciate the added color on some of the product update. I think you said 50% of your customers have 2 or more and some other metrics around that. I guess when you think about upsell, Shawn, where is the biggest opportunity? Is it getting single product customers to 2? Is it getting some of the 2 product customers to 3? Just how should we think about sort of progress in that metric over time and what's feasible? Shawn O'Connor: Yes, it's an opportunity exists in all of those levels, taking a claim from 1 to 2 and 2 to 3 and beyond. We historically have seen good linkage between ADMET Predictor and GastroPlus often our 2 product customers might start with those 2. Obviously, the Monolix product that came to us through acquisition 1.5 years ago now. It is a nice complement in the PK/PD space for our clients to reach out and bring on board. And we've seen over the last number of years, very strong growth. And our revenue from the Monolix PK/PD platform. So opportunity exists across all the machinations there in terms of which products. And I think the opportunity here is for that to accelerate driven by, a, our reorganization of our business development organization from sellers, if you will, at each of the point solutions independently, so to speak, or quoted by product to an environment in which we are geographically and then to count organized with quotas that our business development people carry that are quotas for our clients as opposed to go to quotas for specific products. I think that focus will help in terms of our cross-selling efforts. Secondly, the development and delivery of our ecosystem, as we've described, it enhances the interoperability across the scientific engines tremendously. And as well, putting it into the cloud offers more opportunity for the smaller and medium-sized entities out there taking access. So that may be a new logo opportunity, but that new logo opportunity then rolls into cross-selling opportunities. So from both an organizational and our sales approach perspective as well as our product road map, I think we are very focused on our cross-selling efforts going forward and the opportunity certainly is quite large there. Operator: And our next question comes from the line of Max Smock with William Blair. Max Smock: Wondering if you can discuss kind of where you're at right now halfway through the year relative to your expectations when you gave your initial guide at the end of last year? Just trying to get a sense for the level of conservatism that's embedded in the guide in light of your bullish macro commentary and the growing interest in NAMs. Just kind of looking at the numbers, revenue up 3% in 1H, but I think guidance imply was basically flat revenue in the second half off of what looks like easier comps. So if you can just maybe level set and help us understand the thought process behind not taking up to guide on the back of the really strong results we saw here in the second quarter? Shawn O'Connor: Sure, Max. Not a surprising question. We -- each quarter, each opportunity we report, take a look at the guidance opportunity to adjust as warranted. I'd say we're operating still in an environment that fragile might be a reasonable term to use. We see a lot of momentum, good spending in part of our clients. But we've got macro issues in terms of global politics as well as the more specific pharma-related scenarios that could raise their head. And so a cautious approach to this based upon our experience over the last 24 months drives us pretty strongly here. That being said, yes, the momentum seems to be building on that delivered quite nicely in the first couple of quarters here. And certainly, it puts us moving into the back half of the year with greater confidence in terms of the guidance that we've got out there. But a relatively cautious approach in terms of let's not take a 1 or 2 quarter drive it into a trend just yet. Max Smock: That's really helpful. And maybe just following up on that, particularly your comment around the fragile environment. I know it's probably hard to tell to some extent, but just wondering if you can bifurcate a little bit between the momentum you're seeing, whether how much of that is coming from just an overall recovery in the macro environment and biopharma spend more broadly versus how much of do you think -- how much of that recovery do you think is more a function of just increasing interest and growing adoption of NAM specifically? Shawn O'Connor: I'd say broadly, I mean when we say NAMs, some people might jump and say, boy, is that the animal testing announcement, and I would say the momentum built here is certainly, that's on the horizon and -- but it's a horizon still a couple of years out. So in general, the support for biosimulation for in silico methodologies for AI is strong broadly from the regulatory perspective. I think our clients shifted in '25 to AI investment strategy, which was a partnership with other AI discovery companies. That shift is now causing them to take a look at internal implementation of AI. I think there's a lot of momentum building out of those endeavors, circling in the large pharma environment. So I think it's pretty broad based, but we operated in an industry that is somewhat fragile in the sense of external announcements and macro issues. Operator: And our next question comes from the line of Jeff Garro with Stephens. Jeffrey Garro: I want to ask a little bit more on cross-selling. You just kind of hit the macro versus micro part of that topic. But I was hoping you could dive a little bit further on evaluating your progress to reach multiple buyers within your clients' organizations getting kind of beyond the modeling department with these clients? Shawn O'Connor: That's a good question, Jeff. Getting as much of your targeted budget as you can as an objective, but also looking for other pockets of budget within our clients has always been something that has been at the forefront here. Our efforts in terms of the proficiency acquisition opened up our reach into clinical trial operation projects. And so that is certainly presents more TAM at a macro level. And specifically, a network can do another part of our client organizations and new budget dollars. I'd say the most predominant 1 again, is in the arena of the AI budget within our clients. And I think in that regard, the collaborations that we've announced, those collaborations have served well, our ability to leverage our very strong modeling and simulation relationships, leverage that into relationship build with the leaders within those collaborative clients, building that relationship and in fact, opportunity for the funding of our ecosystem and our AI functionality to be sourced outside the traditional modeling and simulation budget. And I think that bodes well. And when I step back and looked at it and we sort of estimate growth of modeling and simulation budgets you really need to open up your eyes and see that, that growth is incremental when you look at the AI budgets alongside the modeling and simulation budgets. And certainly, the AI spend those budgets in our clients is broad-based across the full continuum from patient recruitment to all kinds of investments of AI that a pharma company may be making. But a portion of that AI budget is it's in the biosimulation space. And so when we look for budget growth and modeling and simulation, they receive the traditional momentum picking up there, but the icing on the cake, a very thick icing, can be found in the AI budgets within large pharma as well. Jeffrey Garro: Excellent. I appreciate all those comments. And probably a nice segue to the other question I wanted to ask on AI monetization. You said that we should have kind of low to minimal expectations for AI monetization this year. You mentioned that discussions are really still ongoing on the economic model with your labor collaborative partners that you recently announced, but I still want to ask just kind of a what timing is on when AI monetization starts to show in the P&L? How we should think about the pacing of those discussions? And maybe just more broadly, what we can look to as potential proof points that AI is generating incremental value outside from the likely aid that it will provide to renewal and retention efforts? Shawn O'Connor: Yes, good question. That discussions are underway with those collaborators, which will just as they are proving the path forward on the technology development, they will prove the path forward in terms of monetization. And I'd say at this stage that the recognition of the value of the incremental technology is very visible and accepted on the part of our clients. And -- so the groundwork, if you will, in terms of value and monetization is there. The mechanics of how that rolls out is where the discussions lie right now. we certainly not anticipated in fiscal year '26, significant contribution from this arena at all in our guidance per se. And inevitably, is also tied to commercial delivery of this technology. And so I would look out to this being a contributor to fiscal year '27. Operator: And our next question comes from the line of David Larsen with BTIG. David Larsen: Are any of the sort of large AI companies, clients of yours, like Google DeepMind comes to mind or any of these other organizations? Shawn O'Connor: Yes. I mean, yes, the historical drug discovery, primarily AI entities, the Recursions, the DeepMinds, relevant AIs of the world. Yes, generally, there's -- it's not 100% coverage, but a good percentage of those are licensing some footprint of our software, yes. David Larsen: So you're generating revenue from the AI market already supporting these AI organizations. And I would imagine they need SLP because of your data dictionaries, because of the training of your scientists, because of all of the data that you -- and models that you've built over the past decades, that they can then search that, is that right? Shawn O'Connor: Ultimately, they have evolved into drug development companies. They are all, for the most part, in discovery, some have reached early clinical status with a program or two. And so historically, to date, primarily the opportunity, our discovery platform is ADMET Predictor. So it's ADMET Predictor and its utility in terms of property prediction is what is the value to them now as they move into the clinic. The scientific engines of GastroPlus and Monolix and Thales become candidates for their use in the development -- clinical development cycle of their development of drugs. Operator: And our next question comes from the line of Brendan Smith with TD Cowen. Brendan Smith: Maybe first, just on some of the services metrics that you show, I think it's on Slide 13, if I'm not mistaken. I just want to make sure I'm understanding correctly. I guess how should we think about kind of the relative decline, albeit minimal in total projects year-over-year kind of versus the increase in backlog there specifically. Is that kind of a function more of the types of projects you're moving into, the customers themselves? Or I guess, are there any other dynamics at play there? Shawn O'Connor: Yes. A number of projects can evolve over time, we can have projects that are consuming a good percentage of our staff in a particular quarter, and other quarters where we're working on smaller or medium-sized projects and whatnot. So that can kind of ebb and flow quite a bit. The backlog growth is nice getting back to prior year levels here in terms of our total backlog, and it's good measurement in terms of our pipeline on service as it's closing ahead of actual performance of those projects. Brendan Smith: Okay. Got it. Helpful. And then maybe a second one, just looking at kind of Slide 9, I think you -- where you had the comparison of as Q2 versus trailing 12 months and just looking at the breakdown of software solutions as a percent of software revs. I mean it looks pretty stable over the last year. But I guess I'm just wondering if you expect any meaningful shift in that segment breakdown over the next 12 months? Kind of as some of these new rollouts and broader sector interest starts to evolve? And I guess if not, with maybe just underpinning some of those assumptions, presumably, I guess, based on your recent conversations. Shawn O'Connor: The assumption under -- Brendan, I'm sorry, but just to clarify the assumption in terms of software and service mix, is that what you're referring to? Brendan Smith: Actually, just within the software. I guess what I'm really asking is it looks like the kind of relative breakdown of which software solutions you have over the last year is pretty consistent with what we saw in Q2. I'm just curious if you're expecting any shift in that just between kind of discovery, development and clinical ops over the next year, just kind of given the push to get new logos signed and kind of expanding within kind of the sector interest into the space? Shawn O'Connor: Yes. Okay. I understand now. Clearly, our development solutions of Monolix and GastroPlus are the key drivers in terms of our software revenue with ADMET Predictor contributed the proficiency training platform providing contribution, but the smallest piece of the pie there. The cross-selling opportunities would support both somewhat in the ADMET Predictor and GastroPlus space, but significantly in terms of Monolix, seeing more of the large $1 billion plus pharma plus top 20 clients take on Monolix as their preferred platform in the PK/PD space. That slice could grow. It's growing faster in terms of percentage growth than the other solutions for the last couple of 3 years. So seeing grow would not surprise me. New logos, often the starting point there is going to be the GastroPlus or Monolix if it's a development company that's a pre-product biotech company. If they're in discovery and probably an ADMET Predictor. So I think we've seen some stability in the pie chart there contribution. I think that stability will remain pretty much the same with perhaps Monolix taking a little bit of incremental piece of that pie. Operator: And with that, there are no further questions at this time. I'd like to turn the call back over to Shawn O'Connor any closing remarks. Shawn O'Connor: Very good. Okay. Over the next few months, we've got a number of investor conferences, including the RBC Global Healthcare Conference, Craig-Hallum Conference, TD [ Life Science ] Tools and Diagnostic Revolution and the Citizens Medical Devices and Health Care Services Forum. Hopefully we can see many of you there. Otherwise, I appreciate the opportunity to deliver this quarter's results to you and look forward to speaking again next quarter. Take care, everyone. Operator: And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may now disconnect your lines, and have a wonderful day.
Operator: Good morning. My name is Elliot, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Roots Fourth Quarter Earnings Conference Call for Fiscal 2025. [Operator Instructions]. On the call today, we have Meghan Roach, President and Chief Executive Officer; and Leon Wu, Chief Financial Officer. Before the conference call begins, the company would like to remind listeners that the call, including the Q&A portion, may include forward-looking statements concerning its current and future plans, expectations and intentions, results, level of activities, performance, goals or achievements or any other future events or developments. This information is based on management's reasonable assumptions and beliefs in light of information currently available to Roots, and listeners are cautioned not to place undue reliance on such information. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company refers listeners to its fourth quarter management's discussion and analysis dated April 8, 2026, and/or its annual information form for a summary of the significant assumptions, underlying forward-looking statements and certain risks and factors that could affect the company's future performance and ability to deliver on these statements. Roots undertakes no obligation to update or revise any forward-looking statements made on this call. The fourth quarter earnings release, the related financial statements and the management's discussion and analysis are available on SEDAR as well as on Roots Investor Relations website at www.investors.roots.com. A supplementary presentation for the Q4 2025 conference call is also available on the Roots Investor Relations site. Finally, please note that all figures discussed on this conference call are in Canadian dollars, unless otherwise stated. Thank you. You may begin your conference. Meghan Roach: Thank you, operator. Good morning, everyone, and thank you for joining our Q4 2025 earnings call. On the call today, I will briefly review our fourth quarter and full year financial results, which our CFO, Leon Wu, will cover in more detail, and then discuss our operational highlights. Our strong momentum carried through the fourth quarter, our largest quarter of the year. Total Q4 sales reached $115.5 million, up 4.2% year-over-year, driven by direct-to-consumer comparable sales growth of 7.3% or 14.8% on a 2-year stack basis. This growth was supported by strong customer reception to our core and seasonal product offerings, marketing initiatives that drove direct-to-consumer traffic, and operational improvements in store conversion. For the full year, we delivered revenue of $277.7 million, up 5.6%, with direct-to-consumer comparable sales growth of 9.5%. Full year gross margin reached a record 61.3%, up 150 basis points. Adjusted EBITDA increased 9.5% to $23.3 million. Net income was $4.7 million or $0.12 per share compared to a net loss of $33.4 million in fiscal 2024, and net debt was reduced 42% year-over-year to $4.3 million. Overall, fiscal 2025 was a year of strong growth and continued momentum. And these results reflect the effectiveness of our strategy and the discipline of our execution. I will now turn to the fourth quarter operational highlights that drove our positive year-over-year performance. The consumer environment continued to be dynamic throughout the fourth quarter. Against this backdrop, Roots delivered strong holiday results with our product offering resonating well with customers. These results underscore the differentiated position of the Roots brand and the value customers place in our heritage, quality and comfort. Our merchandising strategy continued to gain momentum in the fourth quarter. Growth was led by our Cloud Fleece collection, which more than doubled year-over-year and has become a meaningful component of our Sweats business. Our Activewear category also delivered double-digit growth, continuing to become a more significant part of our product mix. Our Wicked collaboration with Universal Studios, which launched in November, generated significant brand feeds and a very positive customer response. Sales productivity continues to improve, reflecting tighter assortment, more disciplined buys and our ongoing investments in AI-driven allocation tools. We also continue to drive margin improvements through sourcing, which remain a meaningful opportunity as we scale the business. As we look to fiscal 2026, we see upside opportunities increasing the depth of certain collections where customer demand outpaced supply in the fourth quarter. Our marketing efforts in the fourth quarter were focused on driving brand awareness and customer engagement during our most important selling season. The quarter was highlighted by the launch of our Anything Roots holiday campaign featuring Seth Rogen. The campaign ran across out-of-home placements, social media, Spotify and streaming platforms, including Netflix and Prime Video. Seth Rogen's warmth, authenticity and unmistakable Canadian charm aligns strongly with the brand and acted as a great addition to our diverse marketing during the holiday season. We also continue to build on Roots' heritage and sports partnerships during the quarter. Our collaboration with the NFL on a limited-edition capsule collection, celebrating the 60th anniversary of the Super Bowl, brought together football heritage with classic Canadian design and was well received. We also launched our Roots x Blue Jays collection, connecting the brand with one of the most exciting seasons in the franchise history. During the quarter, we expanded investments in paid media across the full marketing funnel. These efforts, combined with the learnings from our testing throughout fiscal 2025, are informing a more disciplined and data-driven approach to creative testing and media spend as we enter fiscal 2026. We are closely monitoring the impact of Agentic AI on customer product discovery and continuing to adapt to this evolving landscape. We see both opportunity and complexity and how consumers are beginning to interact with brands through AI-powered platforms, and we are positioning Roots to benefit from these shifts. Our brand ambassador program played a more significant role in our fourth quarter performance than in previous years, enabling us to reach more consumers across multiple geographies with varied interest. Consumers also responded positively to our curated offers on core franchises and gifting categories, and the witty, light, holiday approach helped reinforce Roots as a destination for thoughtful gift giving. Now turning to our retail and e-commerce performance. Our omnichannel performance in the fourth quarter reflects strong contributions from both channels. The 7.3% increase in comparable sales in the quarter, which is 14.8% on a 2-year stack basis, reflects the positive impact of this strategy on performance. In our retail channel, store conversion improved year-over-year, reflecting the continued benefits of our investments in visual merchandising, sales associate training and store hour optimization. Our store productivity improvements continue to drive an increase in sales per square foot across the network. In e-commerce, our paid media efforts drove substantial traffic to the channel. We continue to invest in personalization in search and product merchandising and made improvements in the shoppability of our landing pages and overall customer experience. These initiatives will carry forward and build upon each other as we enter fiscal 2026. During the quarter, we continued to advance key operational initiatives that will position the business for long-term scalability and efficiency. In January 2026, we announced a new 10-year strategic distribution partnership with Metro Supply Chain, Canada's leading privately owned third-party logistics provider. This partnership will result in Roots' distribution moving from our current company-operated facility to Metro Supply Chain's technology-enabled facility in Ontario. This is a significant step in strengthening our supply chain infrastructure and enhancing our omnichannel capabilities. The transition is expected to be completed by July 2026, and we are pleased with the progress to date. As mentioned, we continue to advance our use of artificial intelligence across the business. On the operational side, our AI-driven inventory allocation and replenishment tools are contributing to improved sales productivity and more disciplined inventory management. We are also investing in our data infrastructure to unlock deeper customer insights and support more informed decision-making across the organization. More broadly, as AI-powered platforms increasingly mediate the shopping journey, we believe it is important for Roots to be well positioned in this emerging landscape. We are actively working to ensure our product data, content and digital infrastructure are optimized for AI discovery, and we believe brands with strong heritage and authentic differentiation like Roots are well positioned to benefit from this shift. Turning now to some leadership changes. I'm pleased to highlight the announcement of Rosie Pouzar as Chief Commercial Officer, which we announced in February 2026. Rosie joined Roots following a successful tenure at Sephora Canada, where she held senior leadership roles, including Senior Vice President, Retail, and Chief Operating Officer. She's been with Roots for the last year as our Head of Omnichannel Growth. In her role at Roots, Rosie will help sharpen our enterprise priorities and accelerate decision-making to unlock new areas of growth. She has already made meaningful contributions in her time with us, and I'm confident she will be instrumental in advancing our strategy. Now before passing the call over to Leon, I would like to briefly address the strategic review that the Board of Directors announced on March 3, 2026. As I look at the transformation that has occurred at the company since fiscal 2019, I'm incredibly proud of the team's accomplishments. Our balance sheet reflects a fundamentally different company. In fiscal 2019, the company carried approximately $96 million in net debt. Today, net debt stands at $4.3 million, with a leverage ratio of less than 0.2x trailing 12-month adjusted EBITDA. Our gross margin trajectory reflects the successful repositioning of Roots as a premium brand. In fiscal 2019, gross margin was 53.4% and over 60% of our customers purchased something on sale. In fiscal 2025, we achieved a record gross margin of 61.3% and over 70% of our customers purchased at full price. We've also delivered meaningful returns to shareholders. In fiscal 2019, adjusted net income per share was $0.10. In fiscal 2025, adjusted net income per share was $0.22, more than double. Undoubtedly, Roots' strong fundamentals and replicable heritage makes it an attractive brand. As we disclosed at the time, the Board initiated a review of strategic alternatives to identify opportunities to maximize value for all shareholders. As stated in the announcement, the company does not intend to disclose developments with respect to the strategic review unless and until the Board has approved a specific transaction or otherwise determines that disclosure is appropriate or required by law. There can be no assurances that the review will result in any specific action, transaction or agreement, and we will not be providing further commentary or taking questions on this matter today. The management team remains dedicated to executing on our strategic priorities and to operating the business in the best interest of all stakeholders. Now moving to our strategic outlook. As our results highlighted, our strategy remains consistent and focused. We are strengthening our core franchises, expanding into complementary categories and increasing the clarity and differentiation within our assortment. We are elevating the brand through collaboration, heritage storytelling and more targeted marketing. We are enhancing our omnichannel experience with a focus on convenience, speed and personalization. We are driving operational excellence across the business, including through our new distribution partnership with Metro Supply Chain and the appointment of a Chief Commercial Officer. And we are taking a disciplined approach to capital allocation as evidenced by our net debt reduction, share repurchase activity under our normal course issuer bid and prudent investment decisions. As we look to 2026, we are mindful of the evolving macro and trade environment. We are monitoring these developments closely and are focused on mitigating their impact while continuing to invest in the long-term growth of the brand. Before turning the call over to Leon, I would like to thank our employees for their dedication and hard work to fiscal 2025. Their contributions have been instrumental in the progress we have made. I'd also like to thank our customers for their continued loyalty to the brand. Roots is a brand with deep heritage, a commitment to quality and a genuine connection to community and nature that continues to set us apart. With that, I will now turn the call over to our Chief Financial Officer, Leon Wu, for a deeper review of our financial results. Leon Wu: Thank you, Meghan, and good morning, everyone. I am pleased to share our fourth quarter and full year fiscal 2025 results, which marked the sixth consecutive quarter of growth in top line sales and gross margins, while we continue to reduce our year-over-year net debt. These results reflect the strength of our brand and the collective efforts of our product, channel and marketing teams, who continue to execute with discipline and consistency. Fiscal 2025 was a milestone year for Roots. We delivered record gross margins, robust free cash flow and meaningful earnings improvement, all while continuing to invest in the long-term growth of the brand. I will now share some more details on the key elements of our results, beginning with our fourth quarter before summarizing our full year performance. Q4 2025 sales were $115.5 million, increasing 4.2% as compared to $110.8 million in Q4 2024. Our DTC segment sales were $107 million in the quarter, growing 5.7% relative to $101.2 million last year. Our comparable same-store sales grew 7.3% in the quarter and 14.8% on a 2-year stack basis, with positive momentum across both our store and e-commerce channels. The strong DTC sales performance during our largest quarter reflects a strong consumer reception to our core and seasonal product offerings, supported by marketing initiatives that drove traffic growth and operational initiatives that improved our store conversion. As Meghan mentioned, the combination of compelling product curation and authentic brand storytelling continue to resonate with our customers. Our Partners and Other sales were $8.5 million in Q4 2025, down 11.5% compared to $9.6 million last year. The decline in this segment was primarily driven by lower wholesale sales to our international operating partner in Taiwan which, consistent with what we flagged last quarter, was a result of earlier fulfillment of holiday and spring orders that took place in Q3 of this year. This decline was partially offset by continued positive momentum across our other lines of business within the segment. On a full year basis, total sales were $277.7 million in fiscal 2025, an increase of 5.6% compared to $262.9 million in fiscal 2024. DTC sales were $239.5 million, a 7.3% increase from $223.3 million last year, with full year comparable sales growth of 9.5% or 12.8% on a 2-year stack basis. Partners and Other sales amounted to $38.2 million, down 3.7%, driven entirely by the reduction in wholesale orders from our Taiwan operating partner, as we continue to support our partner in addressing their inventory optimization and operational opportunities. Excluding those sales, our Partners and Other segment would have grown 23% year-over-year, reflecting the strength in our Other line of business. Total gross profit was $71.4 million in Q4 2025, up 5.1% as compared to $68 million last year. Total gross margin was 61.8%, up 50 basis points compared to last year. Our Q4 2025 DTC gross margin was 62.5%, up 10 basis points from 62.4% last year. The DTC gross margin increase was driven by 30 basis points of product margin expansion from ongoing product cost improvements, partially offset by various factors, including unfavorable foreign exchange impacts on U.S. dollar inventory purchases and distribution center transition costs. For the full year, gross profit reached $170.2 million, up 8.3% from $157.1 million in fiscal 2024. Roots achieved a record high gross margin of 61.3% in fiscal 2025, up 150 basis points compared to 59.8% last year, a result we are very proud of and that reflects a sustained multiyear effort to improve our product economics through disciplined costing and promotional management. Full year DTC gross margin was 63.4%, up 80 basis points from 62.6% in fiscal 2024. SG&A expenses were $49.3 million in Q4 2025, up 9.1% from $45.2 million in Q4 2024. The increase was primarily driven by $2.8 million in incremental marketing costs, reflecting the elevated Q4 marketing investments we signaled last quarter and $0.8 million in higher variable selling costs resulting from our strong sales performance. SG&A also reflects $1.1 million in incremental U.S. duties paid on e-commerce sales following the elimination of the duty-free de minimis exemption, $600,000 of higher costs associated with changes in personnel and $154,000 of higher noncash share-based compensation costs. These increases were partially offset by a $1.6 million reduction in store-related occupancy, capital depreciation and impairment costs, reflecting the ongoing improvements in store productivity from our fleet optimization strategy. Full year SG&A expenses were $155.5 million, up 8.3% from $143.5 million in fiscal 2024. The increase was primarily driven by our intentional incremental investments in marketing and personnel and higher variable costs from increased sales, partially offset by lower store costs related to improved productivity. In 2025, we executed on a wide range of exciting brand marketing moments that contributed towards sustained momentum throughout the year. As Meghan mentioned, we are constantly reflecting on the results of each initiative and we will leverage the learnings from the past year to refine our go-forward marketing strategy with the goal of maintaining momentum while focusing on the most effective and efficient initiatives. In Q4 2025, net income totaled $14.7 million or $0.37 per share. This compares to a net loss of $21.7 million or $0.54 per share in Q4 2024, which was impacted by a noncash impairment charge on intangible assets. Excluding that impairment, Q4 2024 net income would have been $15 million or $0.37 per share. Adjusted EBITDA was $25.1 million in Q4 2025 as compared to $25.3 million in Q4 2024. Excluding the impacts from the revaluation of cash settled instruments under our share-based compensation plan, Q4 2025 adjusted EBITDA would have been $24.9 million as compared to $25.7 million in Q4 2024. On a full year basis, net income totaled $4.7 million or $0.12 per share as compared to a net loss of $33.4 million or $0.83 per share in fiscal 2024. Excluding the noncash impairment charge and associated tax impacts recorded last year, fiscal 2024 net income would have been $3.3 million or $0.08 per share. On that basis, full year net income improved 41.1% and net income per share improved 50% year-over-year. Full year adjusted EBITDA was $23.3 million, up 9.5% from $21.3 million in fiscal 2024. Excluding the impacts from cash settled instruments under our share-based compensation plan, fiscal 2025 adjusted EBITDA would have been $24.1 million, an increase of 12.6% compared to $21.4 million in fiscal 2024. We are pleased with the continued year-over-year growth in our annual profitability metrics. The strong foundation set by consistent sales momentum and record gross margins allowed us to scale our full year net income and adjusted EBITDA margins while investing in incremental marketing to build long-term brand equity. The growth in our earnings per share metrics also reflects the benefits of share buybacks made under our NCIB as part of our capital allocation strategy. Now turning over to our balance sheet and cash flow metrics, which also reflect the strong results from the quarter and full year. Ending inventory was $45.1 million, up 9.9% as compared to $41 million at the end of last year. Of the increase, $0.7 million was driven by the higher foreign exchange paid on our purchases. The remaining increase was driven by investments in certain core collections and higher in-transit inventory to support DTC sales for the upcoming year, along with an increase in inventory to support our growing North American B2B wholesale business. Free cash flow was $40.8 million in Q4 2025, an increase of 3.5% as compared to $39.4 million in Q4 2024. The improvement in free cash flow was driven by higher sales and improvements in working capital during the quarter. For the full year, free cash flow was $7.5 million compared to $9.8 million last year, reflecting $3.1 million of higher corporate income taxes paid and $1.1 million in higher capital investments made throughout the year, partially offset by higher earnings and improvements in working capital. Under our normal course issuer bid, we repurchased just over 264,000 common shares for $0.9 million in Q4 2025. For the full year, we repurchased just over 1.28 million common shares for a total consideration of $4 million. The NCIB allows us to repurchase 1.3 million shares. And as of the end of fiscal 2025, we have approximately 60,000 shares remaining under the current program, which is in effect until April 10, 2026. Net debt was $4.3 million at the end of fiscal 2025, down 42.2% as compared to the end of last year, representing a continued improvement in our balance sheet. Our net leverage ratio measured as net debt over trailing 12-month adjusted EBITDA was less than 0.2x. We have $33.5 million outstanding under our credit facilities and total liquidity of $73.6 million, which includes $28.6 million of cash and $45 million of available borrowing capacity. With that, operator, you may now open the call for questions. Operator: [Operator Instructions] Our first question comes from Brian Morrison with TD Cowen. Brian Morrison: Meghan, maybe -- there's certainly been a lot of macro events in the past 6 weeks at a minimum that's weighing upon consumer sentiment. Can you just provide some color on what you're seeing in terms of same-store sales Q1 to date? And maybe also with respect to what you're seeing for freight costs and lead times, are you having any impact on that front? Meghan Roach: I'll say, definitely we're operating in a dynamic environment, Brian. I think we won't comment specifically on Q1 trends at this point as we're just trying to focus on Q4 on the call. But I'd say, it continues to be a dynamic environment. I think it's no different than really what we've seen over the last 3 years. It seems like every year there's something new that happens. And our focus as a company really has been to continue to maintain the good focus on product, on customers, and serving the customers the best way we possibly can. Undoubtedly, if you look at longer-term freight costs, there could be some pass-through from that perspective if oil prices continue to be high as they are today. We've obviously seen that in the past through different time periods and been able to manage through that. So at this point, we're really just focused on managing the business and the controllables that we have ourselves and really thinking about making sure we have the right product in front of the customers in the right places and really investing behind those things that we think are going to drive long-term growth. Brian Morrison: Okay. Maybe just turning to your marketing investment. It sounds like things are going well, both top and bottom funnel. What can we expect or what are the key takeaways you saw in terms of what's working, what didn't work in terms of partnerships, collaborations or digital investment? And when I think of fiscal '26, should I think of a similar magnitude driving leverage or maintained as a percentage of sales? Meghan Roach: Yes. So from a marketing perspective, I think you can definitely look at '25 as a year where we invested across a number of different parts of the funnel from a marketing perspective to really get a better sense of, with a brand like Roots, where we have almost 100% awareness across the Canadian marketplace, the things that we think are going to have the best return on our investment. So you saw us doing everything from the Seth Rogen campaign to increasing influencer spending, to paid media. And what we've now done into '26 is really looked at all those different aspects of marketing spending and determined where we're getting a great return on our investment, what we need to do to maintain good brand engagement and awareness from a customer perspective, and where we can drive more efficiency. So as you look to '26, we will be targeting a reduction in the overall marketing spend, because we think there's more efficiency in terms of how we can dedicate our dollars, and investment in certain areas where we think putting more dollars behind it will generate a better return on that investment and help overall sales. So I'd say looking at '26, you'll continue to see us moving around the marketing spend into those pockets and areas that we think have the best return for us and continuing to balance off the spending between near-term sales and longer-term brand development from a business perspective. Brian Morrison: Okay. That's helpful. The last question maybe. I think in retail, we're all interested in AI right now and its progress. You talked about inventory management and data-driven decisions. Maybe just the benefits you're seeing from your implementation, how material the costs are to implement and the opportunity to expand further. Meghan Roach: Yes. I mean I think when I look at it from a retail perspective -- sorry, maybe I'll add something, Leon, and then you can jump in on the broader pieces. From a high-level perspective, I think your last question in terms of where we see the potential benefits and the road map, I would say, we really do see a lot of opportunity from an AI perspective. We're applying it across the company in a multitude of different areas, and Leon can jump into some things more specifically as it relates to that. But I think when you look at a business like ours, we think that we have opportunities to jump-step the productivity. We have an opportunity to kind of really get in front of the customers in different ways from an AI perspective. And so we're really actively looking across the business to invest behind those things that we think are going to drive the best return, whether that's on inventory management, whether that's in the e-commerce environment from a search perspective or e-mail, whether that's customer service, there's a multitude of different places that we're investing our time. But holistically, we're really focusing on where do we see value add and then thinking about whether or not we can add AI to that as opposed to just looking for AI tools to address the multitude of things. Leon, did you want to add a few things? Leon Wu: Yes. And I think similar to what Meghan is saying, we've come a long way in terms of AI implementation and how it's really benefiting the operations of the business, not just the efficiency, but also the efficacy of how we're operating. So Meghan talked about early stages of how we manage our inventory allocation. So during the Q4 period, we saw great results from an improved stockout rate. We have things like how we automate our customer service responses, which is helping us reduce some of the call center costs. So there's various areas that we look at and we continue to see further opportunities coming ahead. And one of the areas we really invested in is building a very solid data platform that supports all of these AI initiatives. So building out a data warehouse, better identification of customers. So I think we're very well set up to really leverage a lot of the new technologies coming out going forward. Brian Morrison: Okay. Maybe one last one I'll squeeze in here, too. Just Meghan, you did mention that you will go into more depth in certain product lines for 2026. You had some, not least, stockouts, but what product lines? Is this Cloud? Is this Roam? What can we expect in terms of more in depth for next year? Meghan Roach: Yes, absolutely. So we did actually have a few stockouts in a couple of categories in the fourth quarter. So when you look at that, we do see some more upside potential in terms of sales that we could have generated if we had more inventory. It actually crossed a multitude of categories. So with everything from some of our lifestyle products to some of the products within our Cloud collection, certain silhouettes and styles. So there was a few different pockets of areas that we saw it. I would say, in addition to that, outside of things that were actually maybe stocked out, which is not a ton of things, but a few things, there was items where we've realized that the demand associated with them could have a longer life cycle in the business. So we may invest behind something and assume it maybe lives only from a July to October time period. And what we're seeing is it maybe could live from a July to April time period. And so we've been doing a lot of testing around that in the first quarter and then into the fourth quarter, where we extended the life of certain things or we brought in new collections that we would have otherwise only had for certain fall time periods to get a better understanding of the consumers' reaction to these types of product categories. So I would say it's across the most 2 things, outerwear, lifestyle, sweats. There's a number of places we see an opportunity for us to put more depth behind it and extend the life cycle of these products to be able to get more sales from our consumers. Operator: [Operator Instructions] We have no further questions. I'll hand back to you, Meghan Roach, for any final remarks. Meghan Roach: Well, thank you, everyone, for joining us today. We appreciate you coming to listen to our Q4 call. We look forward to speaking to you in the first quarter. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon, and welcome to the Beam Global 2025 Year-End Operating Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lisa Potok, CFO. Please go ahead. Lisa Potok: Hi. Good afternoon, and thank you for participating in Beam Global's 2025 Year-End Operating Results Conference Call. We appreciate you joining us today to hear an update on our business. Desmond Wheatley, President, CEO and Chairman of Beam Global, is joining me by phone from Europe on his way to the Middle East. Hopefully, we do not have any technical difficulties during this call. Desmond will be giving his thoughts on 2025 and providing an update on recent activities at Beam, followed by a question-and-answer session. But first, I'd like to communicate to you that during this call, management will be making forward-looking statements, including statements that address Beam's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Beam's most recently filed Form 10-K and other periodic reports filed with the SEC. The content of this call contains time-sensitive information that is accurate only as of today, April 9, 2026. Except as required by law, Beam disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. While 2025 presented near-term revenue headwinds driven by the U.S. federal government reversing its fleet electrification program, it also marked a pivotal inflection point for Beam Global. We significantly reduced our reliance on government customers, expanded into international markets and exited the year with a strong momentum. I'll start with a few key highlights. We delivered 56% sequential revenue growth from Q3 to Q4 of '25, and we fundamentally reshaped our revenue mix. Commercial customers represented 72% of revenue in '25, up from 38% in 2024. And 70% of our Q4 revenue came from our new and expanded portfolio of products, reflecting the growing breadth of our products' appeal. We ended the year with $6 million in backlog, no debt and access to a $100 million undrawn credit facility, giving us a strong financial flexibility as we move into 2026. Turning back to revenue. Fourth quarter revenue was $9 million, up 7% year-over-year and 56% sequentially. For the full year, revenue was at $28.2 million compared to $49.3 million in 2024. This decline was primarily driven by a sharp reduction in U.S. federal orders, which fell from over 60% of our revenue in 2023 to less than 5% in 2025. At that same time, we grew our nonfederal government business significantly, making up some of the lost ground. On profitability, our fourth quarter gross margin was 18%, and our full year gross margin was 13%. On a non-GAAP basis, excluding the noncash depreciation and amortization, gross margin improved to 23% in 2025, up from 21% in 2024, reflecting our continued improvement in our unit economics despite our lower volumes. Our operating expenses for the year were $31.1 million, including approximately $15 million in noncash charges, which was primarily related to the goodwill impairment and noncash compensation. The goodwill impairment in no way reflects management's objective view of the value of our acquisitions, which we believe are adding great value to the company. The impairment comes as a result of accounting rules, whereas the fair value of the goodwill fell below its book value due to the sustained decline in our stock price in early '25. Excluding these items, our operating expenses were approximately $16.1 million, representing a 17% year-over-year reduction, which highlights our disciplined approach to cost management. Our net loss from operations before tax was $27.4 million or $9.5 million excluding noncash items, which is non-GAAP, compared to $8.6 million last year. The increase was primarily driven by the lower revenue. Finally, on liquidity. We ended the year with $8.9 million in working capital. We continue to operate with strong working capital efficiency, converting the majority of our short-term assets into cash within approximately 180 days. Combined with our available credit facility, we believe we are well positioned to fund operations and support our growth initiatives. In closing, we believe the actions we took in '25, diversifying our customer base, expanding internationally, improving our margins and maintaining financial discipline have positioned Beam Global for a more stable, scalable growth. We are entering '26 with momentum and confidence in our long-term trajectory. I will now turn the call over to Desmond to provide a business update. Desmond Wheatley: Well, thanks very much for that, Lisa. And thanks to all of you for joining this call. As Lisa pointed out, I am, in fact, in transit on my way to the Middle East at the moment. And so I don't have 100% faith in the connection that I'm on at the moment. But I'm going to go along with it, and I appreciate all of your patience and hanging in there with me. Timing wasn't ideal, but we're going to get it done anyway. So Lisa just went through the numbers with you, a lot of noncash stuff in there. I'm going to repeat a little bit of what she said because I just want to make sure we make this really clear. And I really encourage you all to take a look at the noncash business, particularly where that impairment of goodwill is concerned because that was a big hit to us. And again, nothing whatsoever to do with our feeling about the value of our acquisitions, but I'll cover that again a bit in a minute. In the fourth quarter of 2025, as she said, we did increase our revenues by 50% over the prior quarter, and that was about 7% increase over the same quarter prior year. At the same time, we reduced our operating costs and improved our gross margins, net of noncash items. We did all of this despite having no contributions to our revenues from our historically largest customer, the U.S. federal government, and despite putting in place several new avenues for sustainable growth like the formation of Beam Middle East, for example. The growth came as a result of our getting our existing and really importantly, new products in front of customers on whom we've not previously focused our sales efforts, both in the U.S. and internationally. This is a strategy that's worked, and it's continuing to work. Full year 2025 was a year in which the Beam team demonstrated, without question, its ability to respond to the significantly changed market conditions within which we find ourselves. It was also a year in which we demonstrated the efficacy and appeal of our expanded product portfolio to broad market segments both in the United States and internationally, even in the face of these dramatic shifts in market appetite and U.S. government policies. When we consider the fact that in prior years as much as 80% of our revenues came from sales of our EV ARC product to U.S. government agencies, and that as of January 6, 2025, that entire stream of federal revenue dried up for us like a light switch being turned off, it's indeed a testament to the broad appeal of our products and the tenacity of our team that we were able to, nevertheless, generate $30 million of revenue from other sources than those which we've historically been selling to for the last several years. In fact, our biggest year revenue was about $70 million. And when you take away federal sales from those revenues, we sold $10 million worth of stuff to everybody else. So you can see that we've actually tripled our sales to nonfederal customers in 2025. Another way of looking at this is that had we -- had an election go the other way, we might reasonably have expected to do the same level of federal sales in 2025 as we've done in previous largest year. And that would have put us at a run rate of almost $90 million in 2025. So it's fair to say that the changing priorities of the new administration have had a very significant impact on our business. Equally fair to say that by tripling our revenues from non-U.S. federal customers, we've done a pretty good job of responding to that shift and tapping opportunities, which I will believe will be much larger for us in the future. It's not actually easy to sell tens of millions of dollars of product to the U.S. Federal government. You have to create a selling and operational team, which can work within the strict confines of the regulatory environment, which the federal government as a marketplace requires. And we spent several years refining our processes and complying with ever more stringent regulations, which resulted in us becoming by the end of 2024, a company with significant administrative, sales and even operations organization geared towards serving the largest fleet in the world, the U.S. federal fleet. When in January of 2025, sales opportunities from the federal government came to an abrupt end, we had to completely change our sales approach and a significant amount of our operational process as well. You could say we got knocked down in the third, but we went back to our corner. And when we came back out, we came out punching. As I often say to our team, you can manage the business or you can let the business manage you. The Beam team managed the business and took the steps necessary to ensure that we created new opportunities for growth rather than allowing the loss of our largest customer at the time to be an existential threat. Now all of us have a high degree of confidence that the federal government will return as a customer in the future because the electrification of transportation is certain and our products actually become better and more relevant with every day that passes. A very good indicator of this is that the Federal General Services Administration, or GSA, who manages our federal purchasing contract, actually renewed that contract with us in 2025 and extended it through 2030. We believe that's a strong indication that the bureaucracy at least still recognizes the value of our products and sees a future where they'll want to again leverage this contract, and we'll be ready for them. In the meantime, the steps that we've taken to evolve from being a one product, one customer company to being a company with a portfolio of incredibly relevant and compelling energy and infrastructure solutions have made us 1,000x the company that we were just a few years ago. Many people still think of us as a solar-powered electric vehicle charging infrastructure company, but there is so much more to the story. I think of Beam Global as a 3-legged stool: energy storage and security, electric mobility and transportation and smart cities infrastructure. We have an expanded portfolio of excellent and patented products, which we're now successfully selling across all 3 of these sectors. Many people still think of us as a U.S. or even California organization. But here again, there's much more to the story. Yes, it's true that we have thousands of our EV charging infrastructure and energy security products deployed across the United States, but we now also have products deployed in 23 nations globally. In addition to our factories in San Diego and Chicago, we now have 2 separate factory facilities in Europe, and we have sales and business development offices in Abu Dhabi in the Middle East, where I'm off to at the moment. Beam Middle East is the latest addition to the Beam Global family and is, at least in my opinion, probably the most important story from Beam Global's 2025. This excellently structured joint venture with the Platinum Group, UAE, enables us to address a rapidly growing cash-rich market with our portfolio of products, which could not be any more relevant for that part of the world. The Gulf states have announced investments of over $1 trillion in the next decade on sustainable infrastructure as they diversify their economies and indeed their lifestyles away from solely petrochemicals. We formed a joint venture with the Platinum Group because they're a highly qualified and extremely influential entity within the United Arab Emirates. Chaired by His Highness Sheikh Mohammed Sultan Bin Khalifa Al Nahyan, the Platinum Group is a multibillion-dollar entity invested in a broad selection of industries. The Al Nahyan family, the family of our partner, Chairman, is the ruling family in the UAE and has unparalleled influence over just about everything that happens there. It is not a distant relative, by the way. We've opened sales and administrative offices in Abu Dhabi and have made only very modest capital investments there. Our strategy is to sell and market our products in the region and will support the early sales we make from our Beam Europe factory in Serbia. We've already done this and prove the model is successful. Beam Europe is 4 hours flight from Abu Dhabi, and we can ship our products and containers from our factories in Serbia to our facilities in Abu Dhabi in about 4 weeks and very inexpensively. But we do also have some local employees, and we're able to leverage the Platinum Group's extensive SG&A infrastructure without having to recreate ourselves. This is a fantastically efficient model and allows us to operate as though we've been there for years without having to learn the local ropes or build an administrative bureaucracy. Beyond that, the Platinum Group's influence is such that simply being part of their group is extremely helpful when we need anything. As our sales volumes increase in that region, and we certainly expect them to, we intend to assemble our products locally in the UAE with components and subassemblies, which are manufactured in our factories, both in the United States and Serbia. With further expansions in volume, we intend to evolve to a full manufacturing capability there in the UAE. Because of our relationships with the Platinum Group, we'll have no difficulty identifying and acquiring factory facilities with very good economics. There's no shortage of qualified labor in the region. And again, the economics where employees are concerned are very good. Beam Global's contribution to the joint venture is our IP and our know-how. The Platinum contribution is to leverage their relationships, their experiences and their influence in the region to lubricate any administrative and regulatory barriers we may encounter, and most importantly, to get us to the decision makers we need to sell our products. They have certainly not disappointed us thus far. We're already dealing with senior and influential decision-makers at some of the most important entities in the region. Stay tuned for more news on that. Now Beam Middle East has been operating for about 6 months, and I can tell you that our model is already working. We're looking forward to being able to make some announcements in the not-too-distant future about early wins. And assuming the war in the region comes to an end before too long, we believe that we may be able to advance some of the other larger opportunities, upon which, we're already working. Even if the war does drag on, we still believe that there will be significant opportunities for Beam Middle East within the Middle East itself and also as a gateway to Africa, which is a massive and very fertile market for our products. We've had a great deal of success with the U.S. and U.K. militaries, and our products' military applications has only increased at our off-grid energy infrastructure and energy storage products groups. As it happens, I was actually on my way to the Middle East when the bombing started. And as a result, my last trip there was disrupted. However, as I've already told you, I'm on my way there now, and I look forward to advancing our initiatives with the Beam Middle East team. I'm hopeful that future earnings calls will give me the opportunity to report on some fantastic new opportunities there for our products. Drones, autonomous vehicles, electrification of transportation, energy storage and security, smart cities infrastructure, micromobility and machine learning, all of these things are sought after in the UAE. All of these are things in, which Beam Global excels. The regulatory environment is much more welcoming than it is in the U.S., and they're enthusiastically seeking out technologies like ours to continue building on the ambitious steps they've already made. On the energy storage side of the business, our team of scientists and engineers continue to win new patents in 2025. Now our patented and energy dense, safe and bespoke battery solutions are powering drones in the air, on the land and in the sea. In 2025, we also won a Fortune 500 automotive company as a battery customer. Our battery solutions are currently deployed in military applications, which are so secret that I cannot describe them. We've kept vital electricity flowing to our customers during hurricanes and even in as much as 8 feet of storm surge because our products are hurricane-rated and flood-proof to 9 feet. That's part of the reason that they're listed on the FEMA or Federal Emergency Management Agency as disaster preparedness and resiliency solutions. We supplied electricity to earthquake responders, the police, EMTs and a whole host of military applications. We're working with developers of unmanned autonomous boats, which need lightweight and highly energy dense battery packs to execute the kind of missions that you've all seen on television recently. And our BeamWell product is being used by the Royal Jordanian Armed Forces to provide electricity, mobility and desalination so that they can have drinking water where there's only dirty or salty water and robust mobility in war zones and disaster struck areas without relying on vulnerable traditional infrastructure or supply chains. Goodness knows we've all heard enough about attacking energy infrastructure in the Ukraine and in Iran recently to understand how relevant our products, which are immune to such centralized vulnerabilities, are increasingly becoming. One of our battery customers, Ray Systems, in the United Kingdom is producing one of the strangest but most fantastic underwater drones I've ever seen. It's able to conduct long mission silently and efficiently, and will only get more effective with Beam Global's highly energy dense, low weight and safe battery technology, providing them with greater range, greater resilience and a lower total cost of ownership as a result of our ability to provide extended life batteries with increased energy density. Beam is, as far as we know, uniquely able to provide these sorts of bespoke battery solutions for incredibly challenging opportunities. We feel this is another great differentiator and certainly an opportunity for growth for us. Our smart cities infrastructure business is evolving with ever-improved products and technologies. And it seems that our customers appreciate this and that we've not misjudged their appetite for these sorts of solutions. Twice in the first quarter of this year, we announced record weekly sales of our smart cities infrastructure products. In the first instance, we announced $1 million in sales in a single week. And then just a few weeks later, we announced $1.7 million sales of smart city products, again, in a single week. Annualize this, and you can see why we're so excited about this 1 vertical of our 3-legged stool. I've driven down highways in Europe lined with our energy-efficient lighting infrastructure products. We're in the process of integrating our BeamSpot street lighting solution, which is onboard energy storage, tracking solar and light wind generation. With EV ARC electric vehicle charging, BeamBike electric bike sharing and several of our other smart cities infrastructure products under a single project for a single customer for the first time in our history. This is an excellent example of how taking products from across our portfolio and combining them into a single ecosystem can deliver energy security, energy savings, sustainable mobility and novel new approaches to how energy generation and infrastructure can improve the lives of the citizens our customers serve. It's a highly replicable model, and one which we intend to expand with these real-world test case is now available to us. It also has excellent potential as a source of future recurring high-margin revenue as we mature the deployments. I started out by saying that we are so much more than a solar powered electric vehicle charging infrastructure company. And indeed, we are. But that's an area of business, which is still important to us and always will be. And I believe it will be increasingly important to us in the coming months and years. Electric vehicle adoption is still growing globally and is inevitable everywhere, even in the U.S. There's not a country on the planet that is planning for a future without EVs, and the need for rapidly deployed and highly scalable charging infrastructure is becoming more and more acute. Despite the U.S. federal government's position on electric vehicles, in 2025, we shipped our electric vehicle charging and smart cities infrastructure products to Arizona, California, Colorado, Florida, Michigan, Oregon, New Jersey, Nevada, Texas, Washington, the District of Columbia, Massachusetts, New Mexico, Ohio, Illinois and Alabama in the U.S. and internationally to Quebec, Ontario and Alberta in Canada, and to Serbia, Spain, Romania, Greece, North Macedonia, Bosnia and Herzegovina, Croatia and Montenegro in Europe. And also to the Middle East. So you can see that while this is only one piece of our business, it's still an exciting, and at least from an international point of view, at the time being, very compelling growth opportunity. But there are also some new and very exciting aspects of this business developing, which we are now addressing in unique and compelling ways. Autonomous vehicles are becoming more and more accepted. Companies like Waymo, Cruise Tesla, Lucid, Uber, Rivian and many others are expanding autonomous taxi operations and making them more mainstream every day. Millions of miles have been driven by these autonomous vehicles with far higher safety than human drivers. And it's not just taxis and passenger cars. In fact, materials rehandling, logistics services and a whole host of other vehicle operations, including law enforcement, military and agricultural applications are moving towards fully driverless vehicles. One obvious and, until now, stubborn flaw with the model has been that all autonomous vehicles still require human beings to plug them in to recharge them. Notice that I didn't say fill them up with gas or diesel because in case you're wondering, there will not be mass adoption of autonomous internal combustion engine vehicles. They will certainly all be electric. But the current model, in which autonomous vehicle operators build centralized locations with massive power infrastructure to which each of their autonomous vehicles must inefficiently return at the end of shift so that a human being can plug them into expensive and vulnerable electrical infrastructure is clearly flawed. In fact, it's one of the most significant barriers to the rapid deployment of these technologies in cities across the world. Beam Global has a unique and patented solution to solve for this challenge. Our wireless and autonomous AV charging solution enables autonomous taxis and other types of autonomous vehicles to recharge regularly and without returning to any type of centralized infrastructure, and most importantly, to recharge without the requirement of human intervention. The vehicles charge themselves wirelessly on our unique and patented product. In fact, our autonomous wireless charging solution solves every problem that AV operators are facing from an infrastructure point of view. We can deploy rapidly at scale and with a fixed and certain budget across any city just about anywhere in the world. Our solutions are immune to the type of centralized vulnerabilities that are currently facing AV operating companies, meaning that their fleet will continue to operate even if there's some kind of power failure. Our solution puts them in a position where they no longer need to rely on a single centralized hub to fuel their entire fleet. There's no unit cost for the energy, which we're providing to the taxis, which makes the economic model for operating a much more certain and stable. Because as we've seen, particularly right now, traditional electricity costs, especially when powered by natural gas, can be incredibly volatile. That makes it hard to forecast the economic model on your AVs. The unit cost of energy on a Beam Global wireless fleet of autonomous charging infrastructure is always the same: 0. And because our intention is to have a wireless Beam Global charter within 2 minutes of any taxi drop off, those vehicles now no longer need to make the inefficient trips to centralized charging hubs because they can top off between every passenger trip. Our patented wireless EV ARC, combined with our recently announced partnership with HEVO, is already in front of several automotive manufacturers and AV companies. At the same time, we are actively working with logistics and material rehandling operators to provide wireless charging for their autonomous vehicles. Abu Dhabi has publicly stated that it intends to be the autonomous vehicle leader of the world. The Middle East is headquartered in Abu Dhabi. At the same time, the Trump administration and the Department of Transportation has similarly expressed the wish for the U.S. where Beam Global's headquartered, to lead in that space. Autonomous vehicles are already providing services in cities in Europe, where Beam Europe operates. In short, we are present in all the most active markets for AVs, and we have a patented solution, which is a killer app for the future of AV infrastructure. They may think it's early days in the AV space. But as The Wall Street Journal recently reported this time, it looks like AVs are really going to take off. And in fact, they could be the next thing, big thing in transportation. Beam Global has, as I said, the killer app for autonomous vehicle deployment. It's a solution that makes so much sense, and we have good intellectual property protection and a tremendous amount of experience in deploying this type of infrastructure across cities. So while there may be a lot of negativity around electric vehicles and charging infrastructure in the United States at the moment, you don't have to dig very far to see that this is still an incredible opportunity for us because EV sales are continuing to grow globally, and especially because of our incredible and unique position in the autonomous vehicle space, which we believe creates opportunities for very significant growth. Remember, we experienced years of triple-digit growth when EV was popular theme on Wall Street. There are those that believe that AV will be even bigger. Both will certainly happen, and Beam Global will play an important role in their infrastructure requirements. Beyond autonomous vehicles and EVs, we're also experiencing success with other electric mobility solutions. Our BeamPatrol, for example, electric motorcycle bundle is now being used by law enforcement in the United States. Our BeamBike, electric bicycle and infrastructure bundle is being used in the United States, Europe and the Middle East. And our Beam branded application, which manages the bikes and allows for billing and geolocation, et cetera, is available on both Apple and Android. We believe that in 2026, we will see significant growth in the deployment of our BeamBike electric bicycle solutions, as well as our other electrification of mobility and transportation products. And with BeamBike in particular, that's often a recurring revenue opportunity for us. What other company can you think of that's producing such a relevant set of patented products for today's challenges and opportunities, while remaining debt-free, disciplined and lean? You can clearly see that our diversification of product portfolio, and also, international sales pipeline is creating significant opportunities for us and really started to pay off. We saw tremendous growth from 2020 through 2023, basically with a single product and a single customer in a single country. We now have multiple very relevant, very current products, which have a great deal of appeal for a broad section of customers in nations across the world. And you don't have to take my word that this strategy is working. You only have to look at our numbers. Federal sales, which were, as we said in previous years, something like 80% of our revenues, were only 4% in 2025. And that wasn't new sales. It was mostly from ongoing service contracts. Our nonfederal government sales went from being around 20% of revenues to 96%. So clearly, our efforts to diversify away from federal sales have worked. Now it's still a work in progress, and we have a lot more to do, but we're taking the right steps, and those steps are generating positive results. Similarly, that 80% of revenues that we got from the government was all derived, not surprisingly, in the United States. And frankly, so were the other 20% at that time. In 2025, almost half of our revenues came from international sales, and our current international backlog is more than half of our total, showing that our geographic diversification is also working. And all of that happened before we opened Beam Middle East, which, while it's certainly a challenging environment at the moment, I still believe will provide us with significant opportunities for very large growth in the future, assuming things calm down, which I know we all hope they will. Our contracted backlog numbers also support the points I've been making to you. The international contribution to our $6 million of backlog at 12/31/25 was more than 50%, and our energy storage business contributing over 30% of backlog at that time. Just as I said, more than half of our current backlog of $9 million comes from our international operations. So you can see that we're still often viewed as a solely U.S.-based solar-powered electric vehicle charging infrastructure product company, but actually, only 11% of our backlog at 12/31/25 was derived from that part of the business. The rest of it has come from all our fantastic new products. Now again, I want to come back to the fact that's still a very important part of our business, and it will continue to be, particularly as we launch our autonomous charging for autonomous vehicles, which will be performed by our patented off-grid products. But the really important point here is that we are successfully diversifying our business and creating lots of opportunities for U.S. and international growth beyond charging infrastructure products. Whereas in the past, we were heavily relying on one product, as I said, one customer and in one country. We did all of this, by the way, while improving our gross margins, net of noncash items by 1.8% year-over-year and holding our operating costs flat or even lower, in fact, again, net of noncash items. A couple of points are worthy of making on both our gross margins and our operating expenses. First, on margins. That improvement net of noncash comes even with the increased burden of fixed overhead allocations, which result from our lower revenue number. That means that our unit economics, which are over 40% gross margin, improved to such an extent that we were able to absorb the negative impact of increased fixed overhead allocations and still come up with almost 2% increase in gross margin from the prior year. When volumes return, as we expect them to, the unit economic improvements we've made should help us report even greater improvements in gross margins. And gross margins are more than just a metric. Every time we sell a product, we are better off from a cash point of view than we would be without selling that product. That might sound obvious. But of course, as you know, lots of companies are not like that. And that's how we're going to get to cash flow and to profitability, and that's a major area of focus for us. Our operating expenses were flat, in fact, reduced year-over-year, excluding noncash items, even though we own Beam Middle East and push forward all the other initiatives I've described already and many others. The noncash amounts in our operating expenses were largely driven by that approximately $11 million of impairment of goodwill. We talked about this already, but I really want to drill this in. I've just spent the last few minutes pointing out how benefit -- beneficial our international expansion and our energy storage group have been to our overall businesses. So it should be clear that no one at Beam Global thinks that our acquisitions are worth less than they were when we made them. On the contrary, we are very happy with our acquisitions in Chicago and Serbia, and we never try to -- stop trying to make them better, of course. The impairment of goodwill was driven entirely by accounting rules, let's say that the total value of our stock can't be less than the carrying value of the reporting unit. Because we've had a reduction in our share price and therefore, market cap, we had to impair our goodwill to reflect the new valuation of the whole company. Even though, as I already said, we actually believe that our acquisitions are worth more than we paid for them. Rules are rules. We don't break them. To the balance sheet for a moment. We still have no debt except for a couple of vehicle payments, and have a very clean cap table with an extremely low number of common shares outstanding when compared to any of our so-called peers. No warrants to speak of and no other mechanisms, which might cause any investor concern. We still have our $100 million credit line available to us. And untap, untouched it and it's priced at SOFR plus 300 basis points, not as inexpensive as it was when we first negotiated it, still pretty good money and available to us any time we need it for rapid growth. And while I know that it concerns some people that we operate with a low cash balance, we always have done. It's part of being lean. First of all, we have twice as much cash at March 31 as we did at December 31, twice as much cash at March 31 as we did at December 31. So it's not as if there's some terrible trend that anyone can draw conclusions from. And secondly, as I've always said, working capital is a better metric when considering our business. We actually burned around $6 million of cash in all of 2025. On 12/31 of '25, we had around $9 million in working capital, of which about $6 million is AR. On March 31 of this year, we had twice as much cash and almost $7 million in AR. On top of that, we have over $9 million of contracted backlog now. We generally convert AR within a couple of months and backlog in a couple of months more. So taken as a whole, adding cash, AR and backlog, we have around $18 million of cash and stuff that will be turned into cash in the next short number of months. And that's without adding inventory, which, again, we generally convert pretty quickly. Remember, we burned $6 million in all of 2025. So please, read more than the first line of our balance sheet if you want to have a realistic idea of how our performance might be affected by cash availability. Because as I said, between cash and the things that we will convert into cash in a short number of months, we're about $18 million, and we burned $6 million in all of 2025, do the arithmetic. By the way, we have no going concern, and that's why. I know it would make some people more comfortable to see me load up the balance sheet with cash, even if it meant taking on debt, but debt costs money, and I've got cash flow in my sights, everybody at Beam Global does. We will continue to be very careful with cash and equity, as we've always been. And if you got any questions about our level of discipline, just take a look at our acquisitions, the tremendous expansion of our product portfolio and the international footprint we now cover and consider how little cash we use to make all of that happen. Also remember that our unit economics provide gross profits of over 40%. So that every time we invoice for product, we have more cash than we did before that product left our factory. As we return to a higher volume of product shipped, as I'm confident we will, we generate more and more gross profit, reducing our reliance on any other cash resources we have. So was 2025 a tough year with us, what with tariffs, a retreat from EVs, our biggest customer doing a U-turn on the electrification of its fleet and all the other challenges large and small that came along? Yes, it was. 2025 was a challenging year. Did we respond to that challenge by adding new products, finding new customers, addressing new geographies and creating what might be our biggest opportunity for growth yet, autonomous charging, drone products, Beam Middle East, our smart cities wins? Yes, we did. Did we do all of that while maintaining the highest level of financial and economic discipline? Yes, we did. And are we excited about 2026 and the rest of our future? You bet you. Yes, we are. With that, I thank you for your time. I hope you were able to hear everything that I just said. And I appreciate your attention and your continued support of this company that we all love and that has so much very real potential. And with that, I'll now hand back to the operator and take any questions that you may have. Operator? Operator: [Operator Instructions] The first question is from Craig Irwin with ROTH Capital Partners. Craig Irwin: Great. First, congrats, the numbers were actually a little better than what we were looking for. It's an accomplishment in this environment, for sure. So my first question is this, 70% of revenue in the fourth quarter came from new products. Are there any products that you would specifically call out as a large contribution in there, something that's really catching wind in its sales in the market? And then the 6 and change in revenue that they contributed, do you have an approximate number for the year ago? Or is this all fresh revenue in '25? Just so we can get a frame on the organic growth rate there. Desmond Wheatley: Yes. So certainly, our smart cities infrastructure products are contributing significantly. And of course, a lot of that's also contributing to our international growth. Energy storage has picked up its head. And then we just have a much broader selection of products now, Craig. So it's not even that specifically any one of them is pulling hard away from the others. It's just that what's really different about our business is, as I said during my comments, we only ever really had that single -- the EV ARC product. It was fantastically successful with it for many years, and we still are selling a lot of them, but I think the big thing now is just that we are -- we have a much more diversified group of products, and we're taking revenue from all of them one way or another. Sorry, you asked -- you were talking about the backlog, presumably, 6 million of backlog. Craig Irwin: Sorry, not the -- I will ask about the backlog, but the revenue from that 70% from new products, right, $6.3 million. How many of those products were sold last year? And can you give us an approximate sort of year-over-year growth rate if there was a revenue contribution from them last year? Desmond Wheatley: That's been really -- the growth rate has been really significant. I don't actually have the exact numbers percentage year-over-year growth, but it's -- but most of them are new. And so the growth rate has been really significant for us. Now we've had the energy storage business for some time. We've been making batteries for some time, but we're just getting a lot better about how we -- how and what we target. And of course, we acquired much of the smart cities infrastructure business with -- through our acquisition in Serbia, but we've made that a very different business. It's -- they're very much modernized and up to date and doing some really exciting things now, which they didn't do in their history. Not because they weren't willing, but they just didn't have the technology and the other things that we're bringing to the table. And so it's been a really good marriage from that point of view. Craig Irwin: That's good to hear. So then the backlog, right? $8 million, you are obviously executing because I know you book and ship pretty quick. Are there areas in the backlog where you feel that things are building, maybe supply chain is limiting your ability to ship that maybe we could have had a bigger quarter in the fourth quarter? Is there anything that you would call out in backlog as sort of indicative of changing momentum in the business after the strong finish in '25? Desmond Wheatley: No. So it's a good -- I'm glad you asked that question because, actually, I should have been specific that, that backlog that we have will all be -- I mean, with possible of some minor and immaterial exceptions that will all be executed upon in the next quarter or 2. So it's -- none of it -- these are long-term sort of contracts that we're going to be taking money from in years to come. Not materially. There are a couple of little things in there. So that's the first thing to understand about it. From a supply chain point of view, we're doing pretty well where that's concerned. But one thing, again, that our acquisition in Europe has done has allowed us to spread things out across the year a little bit better. That said, first quarter is historically a slow quarter for us. It's a slow quarter in the infrastructure business. It's also a slow quarter in Europe, particularly in the Balkans because their Christmas and New Year extends halfway through January, and there are other weather-related things. But the good news is that the backlog that we do have right now will all convert -- materially, all convert in a short few number of months. And of course, as you can see, we had $6 million at 12/31. We now have $9 million. As you can no doubt, we imagine we have revenue quite a bit in the first quarter as well. And so we're clearly adding to it. More than just replacing it, we're adding to it. Craig Irwin: Understood. Understood. Last question, if I may. So the re-up on GSA is encouraging. Can you maybe clarify for us if this could include slightly different formats of your existing products? There's -- there are emerging applications like drones out there where the government needs these for remote monitoring and other applications, and powering these drones is often quite problematic. I'm not calling that out as the example, but there will be other similar examples. If you were to have to modify the platform, is this something that could be covered under the GSA purchasing agreement at this time? Desmond Wheatley: So better than modifying it, we actually have our patented BeamFlight product, and this is exactly what you've just essentially described. This is essentially an EV ARC, but for drones. It has a completely different form factor, but the same underlying technology. And we are able to deploy it in contested environments on borders anywhere, frankly, without any type of infrastructure requirement. No construction, no electrical work. It generates and stores its own electricity. Drones can land on it autonomously, refuel and take off. Now I've had a pan on that for a couple of years. We haven't been able to do very much with it because as you know, until the last couple of years, drones haven't really taken off, to give the pan. But they are taking off in a major way right now. And we expect to see a lot of business on that -- from that product and also from the fact that we're now putting, we're making bespoke and highly energy dense batteries for drones in a way that nobody else is able to, to my knowledge. To be specific to answer your question, that is not covered under our existing GSA contract. However, I do think it's very encouraging that GSA renewed our contract. I mean, they don't -- they're not out looking for work for nothing. There's a reason that they did that. And we believe that the long-term view is that electrification is going to play a major role in their future plans. And frankly, we've had enough conversations with people within the federal government to know that they believe that, too. The next thing for us to do will, of course, be to do as we've done in the past with some of these big purchasing contracts where we add product. And you're absolutely right that what we're doing with drones between -- both between our Made in America batteries and our drone recharging product will be a major area of focus for us. And so will autonomous vehicles. I mean, autonomous vehicles are -- again, we often hear stories about Waymo and Cruise and the taxi fleets. What we don't hear about is all the autonomous vehicles that are being increasingly used by militaries and for logistics and for all the other things that federal government, particularly the military, really needs them for. And our ability to get those vehicles refueled without infrastructure requirements and without human intervention, I also believe will be a major opportunity with us with the Feds. So I spent a lot of time in my comments talking about how the federal government was by far our largest customer. U.S. Army is our largest customer. That literally came to a stop, January 6 of 2025. But we still view the U.S. federal government as a major opportunity for us because we will sell them our energy security products and storage products during this administration. And then when this administration is replaced by somebody who's more in favor of electrification and renewables, then we believe we'll see a massive increase of business back then too because they'll be 4 years further behind. And that urgency is so important to us because our products are rapidly deployed and scalable. And I'll just give you 1 quick anecdote on that. We deployed something like 700 plugs for the U.S. Army in less time than they were able to put permitting and construction packages together to put traditional charger in the ground. So speed and urgency will be really important. And I believe that the Feds will be a great customer for us again in the future. It's not an accident that they replaced that contract and extended it for years. Operator: The next question is from Tate Sullivan with Maxim Group. Tate Sullivan: Good to hear from you, Desmond. Can you just -- I didn't hear -- can you talk about BeamSpot a bit? Is BeamSpot in any of the backlog? Or are you focusing sales efforts regionally, anywhere? A little detail on that, please. Desmond Wheatley: Yes. Yes. So BeamSpot is a bit of a paradigm. I love that product. And yes, it's great to say that it is now in the backlog. And actually, the deployment that's in the backlog right now is very exciting because, as I said in my comments, it's not just BeamSpot. It's a combination of BeamSpot, EV ARC, BeamBike and a whole bunch of our other stuff under a single project, which -- we're -- that's been one of our goals and part of our strategy for a long time is to create -- become a solutions provider and create ecosystems with our products. And although they all have the same underlying technology largely, they do a lot of different things for customers, and it's just great to see it coming together. Beyond that, the other thing that's important to mention about BeamSpot is, as you probably remember, one of the deciding factors in my acquiring the company that we acquired in Serbia, which is now Beam Europe, was that, that turned us into the fourth largest streetlight manufacturer. Don't quote me on that. It might be the fifth or the sixth largest or the third largest. I think it moves around a little bit. But certainly, in top single digits, largest streetlight manufacturer in Europe. And they -- what they've done with manufacturing of BeamSpot and improving it and getting it going has been fantastic. And on top of that, I additionally acquired a power electronics firm in Serbia, which allowed us to put bespoke power electronics in the latest version of BeamSpot. So look, said another way, I can presell the negative, if you like. We were probably a little early on releasing BeamSpot because we didn't really know how to sell it, and we've made some very significant upgrades to it. We are much better at knowing how to sell it now, and we have made those upgrades to it. Now it's much more manufacturable than everything else. And I think you're going to see a lot more of it deployed in the near future and adding to our backlog. Tate Sullivan: Great to hear. And then is your primary assembly manufacturing facility now in Serbia Are you doing some of the battery storage work there as well? Or can you talk about the footprint in manufacturing footprint? Desmond Wheatley: Yes. Yes. No, the answer is no. We are -- Chicago is still, without a question, our battery center of excellence. That's where our scientists and our engineers and technologists who are used to doing that. However, it is part of my plan in the future to start battery manufacturing in Serbia with the excellence and understanding that we have from our Chicago facility. But manufacturing, we're certainly very good at manufacturing in Serbia. BeamSpot will, from a structural elements point of view, certainly be manufactured in Serbia because a lot of it is automated, and we just don't have the machines and everything in the U.S. to do that. We're still manufacturing in the U.S. Frankly, I would have done a lot more manufacturing in Serbia and probably brought some of that into this country if it wasn't for the tariffs. Serbia was hit with 37% tariffs, which is 1 of the highest of all the countries in the world, even though the entire trade is about $800 million. This is a drop in the bucket. Something about the magic in the equations that were used to work out these tariffs. Now of course, those tariffs have been judged illegal or whatever by the Supreme Court, but there is still other tariffs, Section 232 and 300 and so on, that we have to contend with. So that put a bit of a fly in the ointment for the plan there. But now, of course, Beam Europe is the manufacturing center for our beginning efforts in Beam Middle East. Until we get to enough volume there to be manufacturing there, we will use the Serbia as a factory for all of Europe and the Middle East and indeed, into Africa. And by the way, I didn't mention it in the call, but I'm going to East Africa next week. I'll be in Kenya, Tanzania and Rwanda. I'm not going there for sun time. I'm going to because we have tremendous opportunities there as well. And Serbia will be the manufacturing for that again until we get to sufficient volume to do it in the UAE. Operator: The next question is from Ryan Pfingst with B. Riley FBR. Ryan Pfingst: I wanted to come back to the battery product and drone opportunity. You mentioned the energy density. Can you just talk about some of the battery characteristics that make it an attractive product for drone manufacturers, perhaps even what the specific energy density actually is of your battery product? And is the opportunity mainly here in the U.S.? Or is there interest that you're fielding internationally as well? Desmond Wheatley: Yes, those are all great questions. Thank you. So let's start with what differentiates us and why we would be interesting to a company like Ray Systems or to the several there. By the way, just to start off, we put batteries in more drones than I can talk about. Drone manufacturers are quite jealous of their proprietary information. And I wish -- there was a couple of names I wish I could mention to you right now, but I'm not allowed to. We have confidentiality agreements with them. But I just want you on the call to understand it's more than one. It's many, and there are really specific reasons that we do it. So to your questions. First of all, most people, as you know, make batteries that are square or rectangles. Now, I have an engineering background. If I'm going to build a drone, I do not want to build it around somebody else's square or rectangle. Beam, we are able to make bespoke shaped batteries. We can fit energy storage into confined real estate spaces, and we're not slaves to squares and rectangles. And that's really important when you're making drones, particularly the higher up the value chain they are in terms of their missions that they've got to perform. Ray System is a perfect example of this, an incredible device that travels silently underwater over a great distance, almost impossible to detect. They can't just be putting a big lumpy rectangle or square in there. And so our ability to give them energy density and bespoke shapes and real estate is really important. The second thing is, yes, we can increase the energy density. We do increase the energy density. And most of that comes down to our proprietary and patented thermal energy management solutions. Because we're able to manage the thermal properties of the batteries without having external cooling or heating. And in very tight and efficient packaging, we can get more energy into the battery cells. We can take more energy out to those battery cells quickly without having the thermal problems. We also prevent thermal runaway, which is the thing that you've all seen with the fires and those sorts of stuff. So all of these things are incredibly valuable to drone operators. They want safety. They want length of life. But it also turns out making -- turns out it makes the batteries less expensive to own. Even though our batteries are more expensive than off-the-shelf solutions that they can buy, they end up having a lower total cost of ownership because they last longer and the cost per store energy is lower and because they don't have to build their devices around shapes that they don't like. So we bring a whole lot to this and a lot of experience and some excellent customers already, but we're just getting started on that. Yes, a lot of it is in the U.S. But as I mentioned, Ray Systems was a good example there, U.K. based. There's a couple of other -- I mentioned we're working with some autonomous boat companies. These are -- I mean that's a drone in a way, but it's a boat. I can't go into too much detail on it because again, this is also a secret, but they're outside the United States. And then from our BeamFlight product point of view, it's like an EV ARC, works anywhere in the world. And in the Middle East, for example, if you think about some of the borders between Saudi and between the -- between Jordan and Syria, where a lot of drug trafficking and arms and terrorism and stuff like that, our ability to deploy BeamFlight along those types of borders and create border curtains of drones that do not need to come back to an operator, centralized infrastructure to recharge, I believe there'll be tremendous value in that, and we are certainly going to aggressively sell that in those regions. And then just finally, if you -- what you know about Ukraine, the drone operators sending drones out into contested environments, flying a mission, and then returning the drone to the operator, which means you can target the drone and the operator, BeamFlight removes that risk because the drone can recharge in a contested environment and carry on in it's -- about its mission without returning to an operator. So it's a -- a big part of it's our capabilities with our batteries. A big part of it is U.S., but there's also already significant international opportunities that we're executing on. We believe there are more coming in the pipeline. And then it's not just about the batteries, it's also about BeamFlight and that tremendous enabler. Ryan Pfingst: Great. I appreciate all that detail, Desmond. And then just switching gears and thinking about this year from a high level and understanding there's a lot of moving parts. But could you give some insight on how you're thinking about 2026 from a growth perspective or perhaps a product mix perspective? Desmond Wheatley: Right. Well, so first of all, full disclosure, I'm really s*** at forecasting things. I did not see the election coming. I did not see this war coming right now. I mean, I think we've all seen it coming for a little while. There's a whole lot of things I didn't see coming. So I'm just qualifying what I'm about to tell you by saying that. Because I recognize that about myself, and I think just about any human being, I don't know anybody that can properly forecast these things, the most important takeaway and the most important answer to your question is diversification. What we have done is we have immunized ourselves from the situation that we were in before. And you can say shame on us, but remember, we did $6 million, $9 million, $22 million, $70 million in revenue in those years, selling that EV ARC product. So I think it was appropriate that we stayed the course with that. But we've immunized ourselves from that kind of product concentration and customer concentration. We now have this broad portfolio of products. We're now selling not just in one country, but internationally. So if I was going to answer your question without getting into specific because as I've already said, I'm pretty rubbish at forecasting those kind of things, what I will tell you is this. It makes sense that with a diversified set of products, all of them are very relevant. Energy storage, autonomous vehicles, drones, electrification, smart cities. All these things are very relevant. We're now selling them. We've already sold into 23 nations. We're now selling them globally. We just opened Beam Middle East. So 2026 is going to be a story of diversification and growth and sustainability because if we have a failure in one market or with one product, all the others will continue to operate. That has not been our history, and we paid the price for that heavily in 2025. It was -- in my way -- in many ways, the most challenging year of our history, and we've had some doozies, but we are immunizing ourselves and we're creating opportunities that will not be negatively impact in that way. So sorry, it's a long-winded answer, but the correct answer to your question is revenue will be from diversified products from diversified customers, from diversified geographies, and that's exactly what I want it to be. Operator: The next question is from Noel Parks with Tuohy Brothers Investment Research. Noel Parks: Great. In particular, I was interested in your comments on the smart cities infrastructure products. I just was curious a little bit about the sales process for those. I was wondering if it's more of sort of a push or pull type situation, such as -- are you at Beam sort of presenting the vision to customers for what might be achievable and how they can kind of future-proof themselves? Or is it more of that sort of an incoming planned integrated strategy like sort of formal RFPs coming in that you're responding to? Desmond Wheatley: Right. So another reason that I acquired the company that we acquired that's now Beam Europe is because I really wanted us to get heavily into this space. I love stuff that looks boring, and then the fact is really interesting. So streetlight is a perfect example. What can be more boring than a street light? But if you think about what streetlight is, it's a piece of powered infrastructure every 10 meters on every street and every city in the world. You've got power, and you've got a mounting asset. When you start adding intelligence to that, that starts to become very, very interesting. And that's the area that we're pushing hard into. And I knew it would be a challenge to sell it. And because of what you just pointed out, that frankly, it still is more push than pull. I want it that way, by the way. When it becomes pull, it becomes commoditized, and that drives margins down. What we're doing is we're leveraging all the relationships that we've had as a result of our acquisition, 30 years of selling this type of street furniture and infrastructure across Europe and even into Africa. In fact, even in the U.S., we've got streetlights in the U.S. that we manufactured. We're leveraging those relationships. We know that the direction of all these cities is to move to smart cities infrastructure because they want energy savings and they want information coming from the streets. And our ability to detect a gunshot, hear if a woman screams, know if the air is unhelpful, know if a drone is flying overhead, our ability to do all this and add all of that kind of stuff to build infrastructure, I believe is going to become very, very important to them. And it already is. But it is still more push than pull, but we kind of like it like that, and it's working for us. And I think we're going to really concentrate heavily on that part of the business because it's a massive. I mean, basically, you're turning streets into the Facebook of infrastructure, just gathering a lot of data, making it available to our customers. And we have a tremendous foot up and leg up in our ability to lead in that space. Noel Parks: Great. And sort of building on something you touched on a little earlier with a question about product mix. I was wondering in particular about margin trends this year. And I wondered, do -- sort of the -- sort of full year average margins. Do you anticipate them varying a lot with product mix? And I'm just sort of wondering what your visibility is like there, whether pretty -- you have a pretty good idea of where margins are headed or whether a lot is going to depend on sort of exactly what sells when? Desmond Wheatley: I'm happy that some of the things that we are doing, which are the hardest to do and therefore, capture the highest margins are some areas where we're seeing some growth, some meaningful growth. That's helpful. I'm also happy that we have, for the last several years, improved our unit economics. And those -- across the board. And that goes all the way from the dumbest stuff that we're making to the most expensive stuff we're making. We're just getting better at what we do across the board. So we're -- those unit economics improvement -- you can -- if you're in manufacturing, unit economics is everything. Right? Because if you don't have that, you're losing money every time you sell a product, sort of make it. Well, we're getting better and better at that. And that's being reflected in the growth that we're reporting across the company. I will tell you this, we're not targeting specific areas because of -- because they are higher or lower margin right now. We believe in our strategy. We believe in the 3-legged stool, energy storage and security, smart cities infrastructure, electrification and mobility and transportation. We believe in those 3 stools, and we have capacity to aggressively grow all of them. So at the moment, we're not going to target things over margins. But what I -- from a strategy point of view, what we will continue to do is to seek out the things that are hard to do and require really excellent people, scientists and engineers and the kind of people that we have on our staff and that we proved over and over again can solve problems that other people can't because that's where we're going to get the highest margins. But the batteries for the drones is a perfect example of where we're getting good at selling something, which is more expensive than the off-the-shelf thing and yet helping our customers understand that it will actually cost them less in the long run. And that's the sort of ultimate goal, right? To sell something that's expensive and high margin and you have the customer spend less. Smart cities infrastructure is a perfect example of that. A streetlight with intelligence is going to be a lot more expensive than a dumb streetlight, but the city is going to be better off because of their ability to gather the data and manage the city and do all the other things that they do along with that. I have -- I know I didn't properly answer your question because the answer is I don't know. I don't know exactly where the profit centers are going to be because, as I say, it's pretty fluid, and that's why we've made this very diverse business so that we're confident that we will hit in several of our areas even if we don't hit in all of them. Operator: This concludes our question-and-answer session. Desmond Wheatley: Thanks, operator. No, sorry, I was just saying we're a little over time here, but it sounds as though we've come to the end of the questions anyway. So operator, it's all yours. Operator: I'm just going to turn it back over to you, Mr. Wheatley, for any closing remarks you might have. Desmond Wheatley: Okay. All right. Well, you're probably sick of hearing me talking. I've talked quite a lot here. As you could tell, I still don't lack enthusiasm. I'm very happy about this business. I'm happy that I'm going to go and see our people in the Middle East and all the opportunities that we're building on there. And I just really encourage several things. First of all, look at the noncash operations of the company. Don't just look at the cash line on the balance sheet, look at how much cash we really have in terms of AR and backlog and those sorts of things. And then, yes, what I really want people to understand is that the company you thought we were, the solar powered electric vehicle charging company, we are still that. That's still an important part of our business, particularly where autonomous vehicles is concerned, but it was 11% of our backlog at 12/31. We are doing a yeoman's job of building our energy storage, our smart cities infrastructure and all the other mobility products and everything else that we've got. So please start thinking about us differently, start recognizing that we are that diverse company, and we will return the results to prove that, that's the right way to think about being global moving forward. And with that, I thank you all very much for your time and apologize for going a few minutes over here. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: I would like to welcome everyone to the FTG Q1 2026 Analyst Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the call over to Mr. Brad Bourne, President and Chief Executive Officer of FTG. Mr. Bourne, you may proceed. Bradley Bourne: Thank you. Good morning. I'm Brad Bourne, President and CEO of Firan Technology Group Corporation, or FTG. Also on the call today is Drew Knight, our Chief Financial Officer. Before we go any further, I must caution you that this call may contain forward-looking statements. Such statements are based on the current expectations of management of the company and inherently involve numerous risks and uncertainties, known and unknown, including economic factors and the company's industry generally. The preceding list is not exhaustive of all possible factors. Such forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the company. The listener is cautioned to consider these and other factors carefully when making decisions with respect to the company and not place undue reliance on forward-looking statements. The company does not undertake and has no specific intention to update any forward-looking statements written or oral that may be made from time to time by or on its behalf, whether as a result of new information, future events or otherwise. We are off to a great start in 2026. We had record first quarter revenues, earnings and backlog, with some strong end market demand tailwinds offset by a big swing in the Canadian to U.S. exchange rate that was a bit of a headwind. More specifically, in our first quarter of 2026, FTG accomplished many financial goals, including our bookings were $60 million, marking a 17% increase over Q1 2025 and a book-to-bill ratio of 1.27:1. Our quarter end backlog stood at $157.9 million, an 11% rise from the previous year-end. Our revenue was $47.3 million, a 10.3% increase over Q1 2025. Our adjusted EBITDA was $7.3 million, down from $8.4 million in Q1 last year. Our adjusted net earnings were $3.5 million, up from $3.3 million in Q1 last year. We generated strong free cash flow of $4.9 million in the quarter. We maintained a strong balance sheet with net debt of $4 million or only 0.1x trailing 12-month EBITDA, including $9.9 million of government loans. Other accomplishments in our first quarter included, after FTG Circuits qualified for two significant classified defense programs last year. Initial orders have been placed for these programs in Q1 and deliveries are expected to take place in Q3 this year and beyond. FTG Aerospace Calgary, formerly FLYHT, achieved record profitability in Q1 2026. The newest site of FTG continues to benefit from last year's efforts to obtain certifications, sell its existing product portfolio and the rebuilding of licensing revenues related to their SATCOM radio for Airbus. In Q1 2026, deliveries to China's C919 program continued. In addition, deliveries to the new De Havilland Canadair 515 aerial firefighting aircraft started to ramp up. More deliveries on both programs are expected for the remainder of 2026 and beyond. FTG is proud to support the Artemis mission around the moon by supplying Switch Interface Panels to the Orion spacecraft. Although space represents a small portion of FTG's business, space is a growing sector and FTG has activities with other customers in this area. And we continue to strengthen our team and improve our bench strength with new site leadership in our Chatsworth facilities. Drew will provide more details on Q1 2026 results shortly. Let me turn to some external items. Our end market remains strong. Airbus is targeting 870 aircraft deliveries in 2026, up about 10% from 2025. But more importantly, they're looking to ramp to over 1,000 aircraft annually in the next 2 years. Airbus has a backlog of over 1,000 aircraft on order. At Boeing, they shipped 600 planes last year, up from 348 the year before. Looking forward, Boeing has plans to ramp their production to over 800 planes annually in the next few years. Boeing's backlog is about 6,000 planes, so over a decade's worth of orders at their current production rates. It has become clear that Airbus is outperforming Boeing in the air transport market in terms of aircraft shipped, and they hold a 60% market share based on order backlog. This does have implications for FTG's plans going forward. In the business jet market, Bombardier reported high single-digit shipment increase for last year. They are also pushing hard to add defense component to their business and have had some success to date in selling their business jets for defense applications, including to the Canadian military. In the helicopter market, Bell Helicopter reported a 20% revenue increase last year, driven by increase in defense programs. All of this bodes well for us as we look to future demand in the coming years. U.S. defense spending, including supplemental funding request is expected to increase going forward. The budget request in the U.S. for next year is for a 50% increase in spending to about $1.5 trillion. There are new commitments from all NATO members, including Canada, to ramp up defense spending to 3.5% of GDP with another 1.5% for defense infrastructure. Canada increased their defense spending last year to 2% of GDP. All of this indicates significant increases in defense budgets for all European countries and Canada. The recent creation of the Defence Investment Agency in Canada to accelerate and streamline future defense procurement activity is positive for the industry here. Looking at the longer term, Boeing's most recent 20-year market forecast for commercial aerospace shows significant long-term growth, and it continued to show 20% of all new aircraft deliveries going to China and close to 40% to Asia, as has been the case in the recent forecast. The business jet market has seen traffic recover and a recent business jet forecast from Honeywell similarly predicts growth in this market of 5% this year and 3% annually over the next decade. So as we have said for many years, FTG's goal is to participate in all segments of the aerospace and defense markets as each moves through their independent business cycles. It is not often all segments are growing and seems to be the case now. Beyond this, let me give you a quick update on some key metrics for FTG for our first quarter of 2026. First, as already noted, the leading indicator of our business is our bookings or new orders. Our bookings were $60 million in the quarter. This resulted in a backlog of $158 million at the end of the quarter, even after record Q1 shipments. The Q1 sales were $47.3 million, up 10% over Q1 last year. In our Aerospace business, sales were up 12% in Q1 to $17.1 million compared to Q1 last year. Sales in Toronto and Calgary were up, Tianjin was flat, while activity in Chatsworth was down in the quarter due to timing of some orders. There were continuing ramp-up in C919 shipments in the quarter as well as assemblies for both Boeing and Airbus. The C919 shipments benefited both Toronto and Tianjin, while the other shipments benefited Toronto. Calgary saw a pretty even split in revenues between hardware sales, which were mostly SATCOM radios, data sales and licensing revenues. On the Circuits side of our business, sales in the quarter were $31.1 million, up 8.3% over last year. Our strongest growth in the quarter was our site in Fredericksburg, Virginia, which was up over 80% and followed by our Chatsworth site, which was up over 25%. Minnetonka had strong demand and was up 11%, while our Toronto facility was flat in the quarter. Overall, at FTG, our top 5 customers accounted for 52.7% of total revenue in Q1 2026 as compared to 52.1% last year. Airlines were 3 of our top 20 customers in the quarter due to the FLYHT acquisition. Also interesting to note that the top 10 customers, 6 are customers shared between Circuits and Aerospace. We like to see the shared customers as it means we are maximizing our penetration of these customers by selling both cockpit products and circuits boards. Given the actions of the new administration in the U.S. of implementing tariffs, it's also good to see that 1 of our top 10 customers is outside of the U.S. than this was in China and another 7 have some operations outside the U.S. While on this topic, 72.1% of FTG sales are to U.S.-based customers. This includes sales by U.S. sites as well as sales from FTG sites in Canada or China. This compares to 72.2% last year. While sales grew by 10% in the U.S. They also grew by 10% in Asia and by 30% in Canada, as we benefited from previous efforts to expand globally, including things like our content on the C919 aircraft in China and acquiring FLYHT with sales globally. Sales decreased in Europe by about 5% in the quarter. The increase in sales outside the U.S. are helpful in the event of tariffs, the U.S. might impose on our non-U.S. based sites. Our goal is to continue to grow our non-U.S. revenue for our non-U.S. sites. In Q1, 2026, 36% of our total revenues came from our Aerospace business, compared to 35% last year. I would now like to turn the call over to Drew, who will summarize our financial results for our first quarter of 2026. And afterwards, I will talk about some key priorities we are working on. Drew? R. Knight: Thanks, Brad. Good morning, everyone. I would like to provide some additional detail on our financial performance for Q1. Starting with revenue and gross margin. On sales of $47.3 million, FTG achieved a gross margin of $14.6 million or 30.9% in Q1 2026, compared to $13.3 million or 31% on sales of $42.9 million in Q1, 2025. As such, gross margin rates in 2026 were consistent with prior year. The increase in gross margin dollars is based on top line growth, while the gross margin rate remained flat despite a $1.5 million negative variance in FX and $400,000 of gold variance. Offsetting these two anomalies was significant and due to operational improvements at several sites in the U.S.A. and at Aero-Calgary. Moving on to SG&A. SG&A expense was $6.9 million or 14.5% of sales in Q1 2026 as compared to $6.7 million or 15.7% and of sales in the prior year. The increase of $200,000 during Q1 2026, was primarily due to the acquisition impact of having Aero-Calgary for a full quarter in the year, and the remaining increase included Hyderabad, India start-up expenses and some corporate admin costs of the new leadership team. R&D costs for Q1 2026 were $2.3 million or 4.9% of sales as compared to $1.6 million or 3.8% of revenue for 2025. R&D efforts include product and process improvements at the Circuits segment as well as Aerospace segment process improvements and product development. Regarding foreign exchange, FTG is exposed to currency risk through transactions assets and liabilities and foreign currencies, primarily in U.S. dollars. The average exchange rate experienced in Q1, 2026 was 1.375 as compared to 1.431 in Q1, 2025, which equates to a weakening of the U.S. dollar by 4% and this hurts results for FTG, as noted. Adjusted EBITDA, as detailed in the MD&A, was $7.3 million for Q1 2026 or 15.4% of sales as compared to $8.4 million or 19.5% of sales for Q1 2025. As noted with gross margins, the year-over-year comparison of adjusted EBITDA is distorted by $1.9 million due to a $1.5 million impact from FX and a $400,000 impact from the onetime gold contract gain in 2025. Absent the FX and gold impact, the adjusted EBITDA would have been $800,000 improved over Q1, 2025 as a result of growing the top line organically, operational improvements and managing expenses. For Q1, 2026, FTG recorded net earnings of $3.5 million or $0.14 per diluted share as compared to $3.2 million or $0.13 per diluted share in Q1, 2025. The earnings comparison to prior year was impacted by the same FX rate issue and the onetime gold contract realization. However, this was partly offset by favorable income taxes. The effective tax rate for Q1, 2026 was approximately 5.2% as compared to 32.9% in Q1 2025. The low rate in 2026 relates to tax-free profit of business units with historical tax losses and also prior year tax adjustments. Also Q1, 2025 was tax inefficient with a few non-deductible losses unable to reduce taxable income in profitable business units. I would like to remind everyone that FTG continues to have substantial tax losses available to offset future income and the accounting benefit of these losses has not been recognized in our financial statements. These tax loss carryforwards are located in both the U.S.A. and Canada, and the Canadian losses were recently acquired with the acquisition of FLYHT in December 2024. Speaking to our financial position, FTG maintains a strong balance sheet, and our net debt position as of Q1 2026 was $4 million as compared to net debt of $8.3 million as of Q4 2025. This leverage ratio represents 0.1x trailing 12 months EBITDA. Free cash flow in Q1 2026 was $4.9 million as compared to $8.2 million in Q1 2025. Capital expenditures were $0.7 million as compared to $0.9 million in Q1 2025. Going forward, we expect CapEx to be closer to FTG's long-term target of 3% of revenue, notwithstanding any significant capacity increases. As at the end of Q1 2026, the corporation's primary sources of liquidity totaled $80.5 million, consisting of working capital of $60.4 million and $20.1 million of unused credit facilities. FTG has plans to improve cash efficiency and minimize stranded cash in various business units. Accounts receivable days outstanding were 68 at the end of Q1 2026, up from 55 at the recent year-end due to timing of a couple of customer payments. Inventory days were 111 at the end of Q1 2026 quarter end, up from 105 at 2025 year-end to address order fulfillment in upcoming months. And accounts payable days outstanding were 59 as of the Q1 2026 quarter end as compared to 58 at the 2025 year-end. Turning to our outlook. FTG's book-to-bill ratio for Q1 2026 was 1.27:1. As we enter Q2, 2026 with a near record backlog of $157.9 million of which approximately 80% is expected to be converted to revenue in 2026. The new business activities in both the aerospace and defense industries are strong and continue to accelerate. Both the Circuits business and Aerospace business are increasing throughput and winning their share of new customer RFPs. Last quarter, we noted the program awards for two substantial classified defense programs, we have since received the opening POs for delivery in 2026, though these orders are only a fraction of the annualized volume. I should note that FTG's reported backlog only includes POs received and does not include program awards with estimated volumes. As we approach the midpoint of Q2, we are focused on managing cash flow and improving operational efficiency and continuing with the Aero-Calgary integration, which is already bearing fruit. I should note that our complete set of quarterly filings is available on sedarplus.com or on the FTG website. With that, I would like to turn things back over to Brad. Bradley Bourne: Thanks, Drew. Let me delve into some important items for the future of FTG that we'll continue to build on our accomplishments from last year and Q1 this year. We will continue to pursue growth in the defense market. As noted previously, we expect defense spending to continue to grow in Canada, the U.S. and NATO. We've had some good success on some new classified programs in the U.S. last year, and we are pushing for more new programs this year. We are seeing volumes ramp up in many areas, including electronics for various weapon and electronic warfare systems. Beyond this, we will look for opportunities outside of the U.S. as well. The NATO defense budget was about 1/3 of the U.S. budget a decade ago, and it's 2/3s today. So it's definitely a market of interest to us. As Canada ramps its defense spending and its commitment to NATO, we are hopeful that it will create new opportunities for FTG sites outside the U.S. After the U.S. and NATO, the next biggest defense market of interest to us is India. And we will -- and as we get our new site established there, we will look to capture some market share in this market as well. We will look to capture more work in the commercial aerospace market and grow as volumes ramp up. As part of this, we will look for ways to increase our activity with Airbus as they are the stronger performer right now. To do this, we will leverage our Canadian China and Indian sites, and we will continue to investigate establishing a footprint in Europe. Given the uncertainty regarding tariffs from the U.S., we will look to continue to diversify our revenue streams for our non-U.S. sites. Some of the items I already mentioned will assist in this, but it will remain a priority action for us. We will increase our sales staff outside the U.S. in 2026 to help drive this growth. Tariffs are now impacting costs in our Circuits business. This is because a lot of materials used in our manufacturing processes originate outside of North America. The impact is largest for our U.S. sites, but Toronto is also impacted when material shifts via the U.S. to Canada. We estimate the overall cost impact to be in the millions of dollars in 2026. We started to work with our customers to pass these increased costs to them and to the end users. We will continue to take steps to create value from our acquisition of FLYHT last year. As of December 1, we have renamed the business FTG Aerospace Calgary as we have amalgamated legally into FTG. The amalgamation was done to possibly enable us to use FLYHT losses beyond just our operation in Calgary. But to be clear, we do not have certainty that this will be possible. In the Calgary business itself, we believe we are now well positioned to have a strong year as a result of our product certification and STC efforts last year. We are seeing strong demand for all 3 products, and our pipeline looks robust. The licensing revenue on our SATCOM radio product has returned and should be consistent going forward. The licensed product ends up on Airbus aircraft. So we know the demand is strong. The Edge+ WQAR has the key STCs in place and with our first delivery behind us, we are quoting many new opportunities in a number of geographic jurisdictions. And we're also starting to manufacture this product in our Tianjin plant to enable us to capture margin as well. We expect sales of their weather product to ramp in 2026 with contracts in place with both NOAA in the U.S. and U.K. Met in England. We are looking to manufacture our SATCOM radio product in our Chatsworth, California facility in 2026. These actions should enable FTG Aerospace Calgary to become a positive addition to FTG and further mitigate the risk from U.S. tariffs. We will open our aerospace facility in Hyderabad, India in 2026. First, our decision to expand geographically was partly us looking for an insurance policy against anything negative happening to our China operations. But it was also partly to expand into a new region with growth potential. As we analyze options, we concluded India is a very cost-effective place for manufacturing, and with Prime Minister Modi's Make In India policy, coupled with significant defense spending, it will be an ideal place to operate. We selected Hyderabad as it has an aerospace hub primarily focused on manufacturing, unlike Bangalore, which is more engineering and software focused. Our facility is well underway. It now looks like mid-2026 for its completion. In the meantime, we will be sourcing the necessary equipment to be ready to go. Our estimated total investment is forecast to be approximately $2 million to $3 million, while, not the original intent. We believe this initiative could also help mitigate any negative impacts from U.S. tariffs. We continue to assess possible corporate development opportunities that could fit with either of our businesses. We have a few areas of interest, including establishing a footprint in Europe, growing our presence in India, or expanding our technology in a few areas. With our focus on operational excellence in all parts of FTG, our strong financial performance last year and in Q1 this year, our recent acquisitions and our key sales wins, we are confident we are on a strong long-term growth trajectory. This concludes our presentation, and I thank you for your attention. I would now like to open the phones for your questions. Jenny? Operator: [Operator Instructions] Your first question comes from Steve Hansen with Raymond James. Steven Hansen: Just wanted to ask on the margin profile going forward. I appreciate the commentary regarding the FX and the gold contract issue, not repeating. But as we think about the margin profile here going forward, I think we can all see FX. But is there anything else in last year's numbers that we should think about as being headwinds or tailwinds as we think about the balance of this year for cadence just around either Circuits or Aerospace because the margins were lower than we had anticipated. Bradley Bourne: No, I mean, for sure, the biggest impact is FX, offset by our standard reality of top line drives bottom line and top line price margin. So if revenue goes up, margins should go up, notwithstanding, you saw a little bit of a hiccup or a little bit of a downturn in Q1. But there was nothing other onetime related from last year to this year at the margin level. Steven Hansen: Okay. Helpful. And as we look forward, though, is there any other headwinds that we should contemplate? Just trying to think about other things outside of FX? Bradley Bourne: No. The -- yes. And even on FX, I mean, the biggest impact on that is below the margin line, below the gross margin line. But yes, there's nothing else that I see today going forward. And sorry, Steve, just I think -- because I know from an operations perspective, our Q1 is always a little bit of a challenge because we had the Christmas holidays and that sort of thing in there. And for sure, the holidays had the worst possible timing this year, when the holidays actually hit at the beginning of the week or end of the week or in this case, middle of the week, just made it really painful in Q1 this year in terms of how to get through the holidays, when they operate, when they to shut down. So that definitely hurt Q1 this year even more than what we typically see in other Q1s. Steven Hansen: Okay. Helpful. Just on the new program ramp up, it sounds like the first POs are in, which is encouraging relatively low volume build. How should we think about the cadence of that revenue layering in? It sounds like this year will be modest, and we can expect a bigger pickup next year? Bradley Bourne: Yes, that's exactly true. Modest this year will be in the millions of dollars. So it's not tiny, but the real volumes kick in 2027 and beyond. Steven Hansen: Understood. Okay. Helpful. And then just on FLYHT specifically, it feels like the cadence of your discussion has changed there. It sounds like things are hitting stride maybe a little bit sooner than I was thinking. How do you think about sort of the pace of your progress there, both on the sales front and the margin front? It sounds like it is more encouraging than we heard before. Bradley Bourne: Yes. it's definitely -- Q1 this year was great. at FLYHT. And we are -- all three products are -- seem to be well positioned to be successful and to grow this year. And I'll give great credit to the team there that everything we wanted to get done last year was done. And the key for year was basically get approvals or get STCs. So we could sell the product, particularly the WQAR. That was 100% complete at the end of last year, which was a great accomplishment, really impressed that all that got done. So now we're able to just go sell this product. That's what we're focused on. On the QAR the SATCOM Radio has been around a long time. So it's just business as usual, but we've had some good orders, and we see a good pipeline. And then lastly, on weather, a little bit -- I can say it's a little bit behind the other 2, but notwithstanding that, we actually have existing contracts with NOAA in the U.S. and with U.K. Met in England. These are existing contracts. So this is now about executing on them and converting them to revenue, and that's the key for us. And if there's anything that we did not as well as we'd like last year, but we're all over it this year is getting the production in-sourced into FTG sites. And so I think I talked about it all last year, but it's now happening. So like there are orders in our Tianjin facility to build WQARs. There are orders in our Chatsworth facility to build SATCOM radios. So that is further upside that we think we're going to -- we control that 100%. So we know we're going to convert that this year. Operator: The next question comes from Nick Corcoran with Acumen Group. Nick Corcoran: Congrats on the record quarter. Just on FX, are you able to quantify the rough impact of a $0.01 change between the Canadian dollar and the U.S. dollar? R. Knight: Yes. It's definitely transactional is the primary issue, but then it's also as we translate our U.S. operations back to Canadian dollars. And we estimate that a 1% change in the FX is about $800,000. Nick Corcoran: That's helpful. And then really strong book-to-bill in the quarter, it sounds like defense was part of the driver of that. Are there any other notable orders that might have hit in the quarter? R. Knight: Well, yes, I guess Calgary. So Calgary, further to what Steve had mentioned earlier. Calgary had a strong quarter, but it is a little lumpy. And so we did get a decent order that was a little unexpected, and that definitely made Calgary's quarter a little bit outsized. So that's probably one other thing other than those two defense programs. Nick Corcoran: Great. And then the last question is just on FLYHT. The licensing revenue starting back up. Do you expect that to be relatively flat through the year? Or is there a seasonality or timing of orders that we should consider? Bradley Bourne: For sure, it's a little bit uncertain, but the expectation just based on historic activity is it should happen each quarter, but no guarantee on that. But it's just the licensing revenue hits when they need to ship product to Airbus. And so the demand at Airbus is there, for sure. I think it will be consistent in every quarter, but it could bounce around a little bit from 1 quarter to the other. We don't control that. Operator: The next question comes from Russell Stanley with Beacon Securities. Russell Stanley: Congrats on the quarter. Maybe just first on bookings following up. You've got the new programs contributing, and you mentioned that Calgary had an outsized quarter there. Can you talk to what bookings growth look like for the rest of the business? I'm not sure you've isolated that out, but any color on that front would be helpful. Bradley Bourne: No. No, I can't, Russ. I don't have it in front of me. What can I say? I mean the bookings were strong. The book-to-bill was strong, and that's against record revenues. So we saw strong demand across the company, and it's coming on both sides of the business, both commercial aerospace and defense. For sure, there are strong defense bookings in the quarter. And we're still working on a handful of other new programs. So without trying to delve down into a site level stuff, I am expecting still a strong ramp in demand plus some new programs in the coming quarters. Russell Stanley: Got it. That's -- that's helpful. And on those two, the classified programs, I think on the February call, you noted those programs may eventually require multiple suppliers given the volumes needed by the customer. I know it's only been 2 months since that call, but I'm wondering if you have a firmer sense as to how many other players you may have to share this work with eventually. Bradley Bourne: Yes. I think -- but I don't have a definitive answer on this. What I can say, I think it's generally two, but it could be three, but not more than that. And it doesn't mean -- also to be clear on this, it doesn't mean if there's three that each one gets 1/3, it will depend on performance on initial orders, whoever is performing well, gets a bigger share. It depends on just existing relationships with the customers will determine, who gets a bigger share. So for sure, our goal is to be getting a bigger share of these programs, not just an even split with whoever the other suppliers are. Russell Stanley: Got it. And then just on gross margins, I just want to clarify your comments around the cost inflation from -- related to the tariffs on imports from Asia. Did you see that evident in this quarter? Or are we still waiting to see that filter through to your financials? Bradley Bourne: It's definitely in our costs in this quarter and as I said, we're trying to pass this on to customers. We have definitely passed it on to some customers and working with the others. So all of the cost was there. Some of the offset was there as well. Operator: The next question comes from Steve Hansen with Raymond James. Steven Hansen: Brad, I just want to come back to the capacity question. I know you've been shuffling some work in trying to create space effectively. Where do you feel like you're at today? Do you have any constraints? You suggested you're still examining some new programs, but you've also got to contemplate the ramping of your existing baseload. So I mean, how do you feel about the capacity situation today? I think you described some good progress at Fredericksburg and a few other sites, but just where do we sit today? Bradley Bourne: Yes. That's a good question. So last year, in total, we shipped $191 million. I'd say our available capacity across FTG is north of $250 million. So we have some room to grow. And that's based on capacity, and capacity is described as plants and equipment capacity, if we're running the plants with the equipment we have 24 hours a day, 7 days a week, we get north of $250 million. To get there, we need to add people. And so that's what the focus has been get people in the door and keep the equipment running more hours a day. So that's a good news. It's not -- we don't need to spend money to get at that capacity. We just need to get people in and trained. That limits our growth rate, it doesn't limit our total capacity. The one exception on capacity is Circuits Toronto. They are running 24/7. As I noted in my remarks, that Circuits Toronto basically was flat year-over-year. So they need to add some actual equipment capacity to grow, but we're doing that. And the guy running that site has put together a plan and good news in manufacturing, generally, when you run out of capacity, it's in 1 or 2 areas in the plant, it's not in every area. It's basically where your bottlenecks are. So we've put together a plan, where we're going to expand the areas where we have the bottlenecks. And for about a $5 million investment this year, we'll add $20 million of capacity or north of $20 million. So that's happening, and it's underway. And I believe that, that will happen. So that will get us additional capacity that we will immediately take advantage of because we need to. And then lastly, of course, building out a facility in Hyderabad, India, this is on the cockpit product side of things, so that's going to add about a facility with about a $20 million of capacity. Obviously, we're not going to do $20 million out of the gate. But based on the size of the facility and the equipment that we can add another $20 million. So we're taking steps right now to get at the existing capacity and then add further capacity for both our businesses. So we need to focus on it, but it's not a constraint for our growth. Steven Hansen: Okay. That's very helpful. It's great color. And just one more for me and just my follow-up is on the corp dev side. You referenced, I think, three priorities that you're looking at Europe, India and technology. How do you rank order those? It sounds like Europe was first, but I mean, is that really the priority? I mean, how do you think about the different buckets of opportunity? And how far along are you? Or how does the pipeline look in maybe those different buckets as you see it today? Bradley Bourne: Yes. That is correct. For sure, my #1 choice is Europe. And for sure, at this point, I am much more knowledgeable about a lot of different factors in looking at Europe, what's the right perspective? Does it matter EU countries, not EU countries? Does it matter NATO countries, not NATO countries. Does it matter low cost versus high cost? Does it matter the labor laws? All these things matter. So that kind of reduces your set of opportunities. And then obviously, you also only look where there might be something available, so there's going to be an existing company. And so I know all of that. I know what I'm interested in. And so we're working it. You also need someone who's willing to talk, and that's kind of the next item for me. So no announcement this week, but it's priority for me to continue to work this and see if we can get a footprint in Europe for all the reasons I talked about and I don't think I said it all today, but why is Europe of interest? Three reasons. First one, Airbus is there, and I'd like to do more with Airbus. Second one, defense spending is ramping faster in Europe. So that's another reason. And third one, there's not a risk of tariffs in Europe. So for all these reasons, it's of interest to me. Then working it. But as I say, you got to find someone to dance with, and that's next on the list. But I wouldn't rule out other things. As I say, we're building out our facility in India for cockpit products. We have an option on the line next door. Could that be build out a Circuits facility? It could be. For sure, it's not underway. It's not planned, but it's an option I have. So that's a consideration. And so lot's going on. And there are incoming opportunities and I'm trying to not get distracted on, to be fair. It's easy sometimes to react to the incoming opportunities, but I'm trying to stay focused on what I think is most important for FTG on this topic right now. Operator: There are no more questions at this time. I will pass back the call to Mr. Brad Bourne for any closing remarks. Please go ahead, sir. Bradley Bourne: Thank you. The replay of the call will be available until May 11 at the numbers listed on our press release. The replay will also be available on our website in a few days. I thank you all for your interest and participation. Thank you. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to AmpliTech Group's Quarterly Investor Update Call, where the company will discuss its FY 2025 Financial Results. Present in this call, we have the executive team of AmpliTech Group, Fawad Maqbool, CEO, CTO and Board Chair; Jorge Flores, COO; and Louisa Sanfratello, CFO. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to AmpliTech's COO, Jorge Flores. Jorge Flores: Thank you, operator, and thank you, everyone, for joining today's call to review the progress of AmpliTech's growth initiatives and to answer investors' questions. Following initial management comments, we will open the call to investors' questions as well. An archived replay of today's call will be posted to the Investor Relationship section of AmpliTech's corporate website. This call is taking place on Thursday, April 9, 2026. Remarks that follow and answers to questions may include statements that the company believes to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include words such as anticipate, believe, expect or words of similar importance. Likewise, statements that describe future plans, objectives or goals are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to be materially different than expected. Such risks include, among others, matters that the company has described in its press releases and in its filings with the Securities and Exchange Commission. Except as described in these filings, the company disclaims any obligation to update forward-looking statements, which are made as of today's date. With that, let me turn the call over to our CEO and CTO, Mr. Fawad Maqbool. Fawad Maqbool: Thank you, operator and Jorge, and thank you, everyone, for joining us today. Fiscal year 2025 was a transformative year for AmpliTech Group. We delivered company record top line growth, expanded our presence in the 5G infrastructure market and continue to build the foundation for long-term growth across both our legacy RF business and our emerging ORAN 5G platform. For the full year 2025, revenue increased to $25.2 million compared to $9.5 million in 2024, representing approximately 165% year-over-year growth. This increase was driven by higher sales of our low noise amplifier and low noise block products, expansion of our 5G product lines, recovery in Asian markets within the Spectrum division and increased demand from telecommunications and satellite communications customers. We're very encouraged by this performance because it reflects growth from multiple parts of the business, while also showing that our strategic investments in 5G are beginning to translate into commercial traction. At the same time, 2025 was also a year of deliberate investment. As we entered the carrier-grade ORAN radio market and ramped early deployments, we experienced near-term margin pressure. Gross profit increased to $6 million from $3.5 million in the prior year, but gross margin declined to 23.9% from 36.7%. That decline reflects our strategic ramp-up of 5G product deployments, initial market penetration efforts and our focus on winning long-term opportunities with larger mobile network operator customers. The company expects these margins to improve over the next few quarters. We view this as an investment phase. Our priority has been to establish market presence, support customer adoption and position the company for larger scale deployments over time. As volume, scale and execution matures, we believe margin performance has the potential to improve. From a technology and strategy standpoint, we've made meaningful progress in 2025. We continued advancing our ORAN compliant radio systems, including our Massive MIMO 64T64R ORAN CAT B platform while integrating proprietary RF and MMIC capabilities that we believe help differentiate our solution set in the market. We also continue to build our commercial pipeline. As previously announced, the company has a nonbinding letter of intent for $78 million in ORAN radio systems, representing a potential multiyear growth opportunity, subject to definitive purchase orders. The company believes this LOI itself will surpass the $100 million mark supported by production forecast that we have received. As of March 2026, we had received approximately $5 million in funded purchase orders, of which we had a small number of initial shipments from December to early this quarter. The bulk of the shipments will resume and culminate during our second quarter this year. Also, as previously announced, we have a second LOI with the North American MNO valued at over $40 million, of which we already have received half of this amount in funded purchase orders. This means these LOIs are real and dynamic. From this amount, we still have to ship about $8 million with shipments resuming in early Q2 of 2026. We believe an increase in this LOI amount is also possible. In addition, during 2025, we continue expanding our MMIC Design Center, advanced our AmpliTech 5G division focused on 5G system deployment and integration. These steps are part of our broader strategy to evolve from a component supplier into a more complete systems provider, serving high-growth and growth markets. Overall, we believe fiscal 2025 marked meaningful progress in scaling the business, expanding our market reach and positioning AmpliTech for the next stage of growth. With that, I'll turn the call over to our CFO, Louisa Sanfratello, to review our financial results in more detail. Louisa Sanfratello: Thank you, Fawad. As Fawad mentioned, fiscal year 2025 reflected substantial growth in revenue along with continued investment in the business. For the year ended December 31, 2025, revenue was $25.2 million, up from $9.5 million in 2024. Gross profit increased to $6 million compared to $3.5 million in the prior year. Gross margin was 23.9% in 2025 compared to 36.7% in 2024. The year-over-year decrease in gross margin was primarily due to the strategic ramp-up of 5G deployments, early-stage customer acquisition efforts and in the initial market penetration costs associated with carrier-grade ORAN radio systems. Selling, general and administrative expenses increased to $10.7 million from $7.9 million in 2024. This increase was driven primarily by the higher headcount and payroll costs, increased professional and compliance expenses and expanded commercial and marketing activities as we supported the growth of the organization. Research and development expense was $2.7 million compared to $3.6 million in 2024. The decline reflects the completion of certain key development initiatives, including work related to our Massive MIMO 64T64R ORAN CAT B Radio System and advanced beam-forming and 5G infrastructure technologies. Net loss for fiscal 2025 was $7 million compared to $11.2 million in 2024. Operating loss improved to $7.3 million compared to $8.4 million in the prior year. This improvement was driven by the strong revenue growth as well as the absence of certain onetime charges recorded in 2024. Turning to the balance sheet. As of December 31, 2025, working capital was $10.2 million. Cash and cash equivalents were $11.6 million, which included subscription proceeds held in escrow. Our accounts receivable was approximately $3.4 million. The company also strengthened its capital position through approximately $8.1 million in net proceeds from a rights offering and an additional $8.3 million in net proceeds from a registered direct offering, of which both were completed in January of 2026. Based on our current operating plan, management believes we have existing liquidity to fund operations for at least the next 12 months. In summary, we are pleased with the top line momentum in the business while remaining disciplined in managing investments to support long-term valuation creation. I'll now turn the call back to Fawad for closing remarks. Fawad Maqbool: Thank you, Louisa. To close, fiscal 2025 was an important year for AmpliTech Group. We generated substantial revenue growth, improved operating performance, continued investing in our 5G platform and strengthened our balance sheet. While we remain in an investment phase, we believe the progress made across our commercial pipeline, technology portfolio and strategic initiatives positions us well for long-term growth. We appreciate the continued support of our shareholders, customers, employees and partners. Before we open the line for callers in the call for questions, I would like to have our COO, Jorge Flores, go over the questions previously received via e-mail. Jorge Flores: Thank you, Fawad. I would like to immediately start with the first question received, which was revenue growth was very strong. What were the main drivers? Our 165% revenue growth in 2025 was driven by a combination of a stronger demand for our core LNA and LNB products, expansion of our 5G product lines, recovering Asian markets within the Spectrum division and increased demand from telecom and satellite communications customers. But out of this, without a doubt, our major revenue growth came from our AmpliTech 5G division and shipment done on our $40 million LOI with a North American MNO. Question number two, why did gross margin decline despite the higher revenue? The margin decline was largely due to the strategic ramp-up of our 5G deployments. If you reflect back on our Q2 2025 results, that's the quarter in which we invested heavily to become a major player in the ORAN markets. We were in the early stages of customer acquisition and market penetration for carrier-grade ORAN radio systems, and that put pressure on our gross margins in the near term, driving our gross margin down into the single digits. Our focus has been on establishing long-term customer relationships and scaling the business. We also provided guidance that our gross margins will recover into double-digit gross margins, which we accomplished over Q3 and Q4 of 2025, going from about 7% gross margins in Q2 of 2025 into the final fiscal year 2025 gross margins of 23.9%. Question number three, how should investors think about the $78 million letter of intent? This letter of intent represents and it is actually more than a multiyear opportunity. While it is not binding and subject to definitive purchase orders, it's the second sizable deployment we have in our hands. So investors must see not just this LOI, but both LOIs as tremendous validations that we have the technology. In addition to this, we also have the supply chain. And on top of that, we are also able to handle the logistics of shipping our radios directly into installer warehouses where these are kitted and sent out to deployment at cell tower sites. As for purchase order amounts and shipment status, what we can share is that as of March 2026, we have already received a little over $5 million in funded purchase orders against this LOI. Initial shipments began in December 2025. To date, we have shipped less than $0.5 million of these orders as we must follow the initial cadence of the end users' installation crews. As they acquire speed in their deployment, we will acquire speed in our shipments. This leaves us with projections to ship the balance of the order, if not during Q2, very early Q3. As such and based on forecast received, we estimate receiving additional orders before the end of the current quarter. Based on the magnitude of the project at hand and the number of sites that need to be deployed, the company believes this LOI will grow north of the $100 million mark over the next 2 years. Question number four, what gives you confidence in liquidity? As of year-end, we had $10.2 million in working capital. Cash and cash equivalents were $11.6 million, and we also added capital through the rights offering and the January 2026 registered direct offerings. Based on our current plan, management believes this is more than sufficient to fund the operations for the next 12 months. Question number five, what are the most important strategic priorities going forward? Our priorities include scaling our 5G and ORAN product opportunities, executing on funded orders, continuing development and commercialization of our Massive MIMO and ORAN solutions, turning to orders additional projects currently being discussed with other major players, also expanding our MMIC and systems capabilities by continuing development on 5G front-end modules. Gross margin improvement is not just a strategic goal, but a critical day-to-day operation goal for us. For any business really, it goes without saying that we fully understand that we must do whatever is within our power to maximize cost efficiency, price competitively, push our supply chains, keep on working using forecast to optimize material order placements and receipts. While we do have our own manufacturing capabilities in the U.S., these are largely related to our AmpliTech Inc. core division. For large volume of ORAN 5G radio manufacturing, we will continue our strategy to use CMs or contract manufacturers, either local or abroad that are specifically in business. These are the CMs are specifically in business to handle the type of production we require. Our strategy does not include hiring hundreds of people to support manufacturing. It is just not cost efficient for our organization. That is why CMs are there. That's why contract manufacturers are there to scale up when we need them to scale up and scale down when delivery time frames require us to do so. Last question is, what you can say about your $40 million LOI with the North American MNO? What is the current level of orders received, orders shipped, balance of funded POs and program visibility? We already received 50%, about 50% of funded purchase orders for this program. We have shipped about $12 million worth of ORAN 5G radios to this MNO, with shipments slated to resume early in Q2 of 2026. Same as with the $78 million LOI, we believe this project will exceed the initial LOI value of $40 million. We are certainly very excited when we hear our end customers speak about future cell tower site deployments and their plans for expansions. This concludes the questions previously received to our e-mail. Operator, please open the line for other questions. Operator: [Operator Instructions] The first question will come from Jack Vander Aarde with Maxim Group. Jack Vander Aarde: Good results and good outlook. It's good to see things are still on track. Fawad, can you maybe just touch on the nature of this agreement, this larger LOI and just the cadence of the orders you're expecting? I believe it's going to be a little bit different than the agreement you had where you've already received most of the LOIs. Is it going to be bigger chunks? Fawad Maqbool: Yes. Yes. So this LOI is basically for overseas, right? It's an Asian customer. And in that one there, there are lots of -- in the countries that these are deployed, the pace is very slow as far as deployment is concerned. So they have a whole crew of people working to do the entire nation. And what happens, they have to get all the legalities and they have to have all these permits and everything in place. So it's a slow process that's initially slowing this down. Our proof-of-concept has been done. We have delivered already radios that have been put into the first deployments, and they're working very well. So what we're working on right now is just basically the logistics of getting the radios deployed and then installed. And that's just taking a little bit of time initially. But as that ramps up, then our shipments will also continue to ramp up later this quarter and towards the end of the year. Jack Vander Aarde: Okay. Great. And then because if I look at last year, like especially the second quarter in 2025, that's when you received the largest amount of orders. It sounds like this year with this other customer, you're expecting something similar maybe between the second quarter and the third quarter. How about other agreements that you -- potential opportunities with other 5G players? Can you just touch on those discussions? Are you -- do you feel like there's an opportunity to announce a new partner in the next 6, 12 months on top of these? Fawad Maqbool: Yes. Definitely, there's a chance of that happening. We have been in discussions for a while. And obviously, the success of our previous deployments is also key. And in these various different areas, there are different bands that we have to adjust the radios for, and we've been doing that. And in those adjustments, those radios, they have to go through a proof-of-concept phase as well. But all of these are part of expanding our traction. So we believe that these will be successful just like these first LOIs, and we may be going into directly the PO phase even before an LOI phase from other leading MNOs that are going to follow suit in this ORAN deployment. Everyone is not as strongly focused into this ORAN but as time progresses, the ORAN deployments will replace the older RAN deployments. And the larger MNOs are very slow to adopt the new structure. It involves a lot of expense for them, but they will eventually have to adopt that because the technology for expanding the capacity and the speeds of various networks in larger dense populated areas as well as rural areas is increasing. The demand is increasing for that. So it's inevitable that this growth will happen, and we are in the right spot. So we do feel that we will have some positive engagements this year. Jack Vander Aarde: Okay. Great. And then just one more for me. You guys kind of touched on the expenses and the gross margin. But the fourth quarter, I think it's just kind of a trend where the fourth quarter operating expenses are higher than any other quarter. Is this just a onetime thing at the end of the year? Maybe for Louisa, if you could help understand, I think it's the SG&A expense line. Louisa Sanfratello: Yes. Those expenses were basically -- we had -- we reviewed employment contracts and so forth with our management. We had accounting expenses that increased because of the rights offering as well as legal and things like that. Jack Vander Aarde: Okay. Got you. And then I guess, going forward, on a normalized basis, I mean, do you expect gross margins and operating expenses to be somewhat more linear and smooth out? Is this a good read-through for the go-forward run rate, maybe north of 40% gross margin? Just help me understand what the kind of normalized cadence is? And that's it for me. Fawad Maqbool: Yes. So it will increase. It's anywhere between 30% and 50% is the number in this telecom business, depending on what type of products we're offering. And obviously, we're offering products that are not me-too products. Our products are always -- they have value added because we're putting our own MMICS in there that other companies cannot do to improve the performance. And we have other enhancements that we're working on to differentiate our product from the rest of the competitors. So right now, in ORAN, we are the leading company deploying the largest ORAN radios out there. And we are making them even better so that if there are competition that comes in, then they would not be able to compete with the performance because of our inherent legacy business that designs our own LNAs and our designs our PAs. Those are all going to wind up going into our radios and all the other components. So we're just talking about radios right now, but there's a whole slew of products that come out of this. We're not doing just the radios. We're also doing the private 5G enhanced CPE devices. There -- if they're like advanced routers, so to speak. But those are special products that are also all kinds of IoT-related products that we're doing that we haven't really called out specifically, but it's an entire industry base that supports this whole radio rollout. Operator: The next question will come from Anthony Bates with [ Despoer Ventures ]. Unknown Analyst: Can you give us any updates on progress in the cryogenic tech area? Anything that you're working on there? Fawad Maqbool: Yes. So we originally were introduced our cryogenic LNAs for the quantum computing applications. We have gone through successful iterations and many different iterations from initial concept based on our customers' feedback. So we're working on a final version, which is basically a very standard module for [ 4 Kelvin ] operation for a quantum computing production environment. What we have done initially was to provide proof-of-concept units customized for every single different, let's say, manufacturer of the quantum computers like Google and IBM and many others. But every one of them has a different type of flavor to their quantum computers, and none of them are going to very large production levels right now. So we have worked on our fourth version, and we are about to deliver the fourth version of the quantum computing LNAs, which are very high performance. And they're more of a standardized product to fit into many different quantum computing platforms. So we haven't introduced that yet, but we are working on that, and that's going to come up. It will become more important when the larger production starts to ramp up for all these quantum computing companies. They're not in high production mode right now. Unknown Analyst: Well, can you guesstimate when you might have an order? Fawad Maqbool: I don't know. I mean everything is just right now, we can't say anything when they would be in order. We have provided all these samples, and it could be later this year, it could be early next quarter. But it's all based on the demand of the companies in building these quantum computers. They're not reaching production. Unknown Analyst: Right, right. Actually, I guess I'm asking is they're not in production yet. Do you have any idea when they may be in production? Fawad Maqbool: I couldn't tell you every single one of them is different. I think that's also being driven by other parts of the industry. It's not just the quantum computing is one example for us. The quantum computer demand comes from the large data, right? So large data is part of the large data is the 5G deployments. Every single MNO has to have a high-speed infrastructure so that all that data can go into a quantum cloud and then the supercomputers will have -- quantum computers will have a lot more data to crunch on, right? So as this builds out, the other industry is going to build up. It's connected. It's all connected in the ecosphere of high-speed connectivity as well as computing because you can't have the metaverse and all these other things, fully automated vehicles, all these things that require high-speed capacity and then crunching all these numbers into a quantum cloud unless everything is in place. Unknown Analyst: And my last question is, can you give us any kind of updates on -- is it the Texoma Semiconductor Tech Hub? Anything coming out of that? Fawad Maqbool: Yes. That's our MMIC Division. And our MMIC Division is basically expanding its product line. They're also building LNBs now, low noise block converters are used in satellite communication technologies. So the LEO satellites will need ground station terminals to communicate with and the LNBs that are in these ground station terminals, rebuild because we have the lowest noise figures in the world. So those are increasing in number every day, every year, actually. And so our LNBs product line is increasing as well. That's why you saw some increase in the revenues from our LNB division. But this is part of our Texoma Division in Texas in Allen, Texas. But they're also ramping up production of our ICs that are going into these radios. So that's growing, and that division will be growing more as our production increases. Unknown Analyst: Okay. And that will be growing this year? Fawad Maqbool: Yes. Operator: The next question will come from Andrew DeAngelis with Venture Visionary Partners. Andrew Deangelis: Just a lot of helpful detail on this call, but just wanted to make an explicit question of it. The $50 million revenue guidance that you have out there for this year, what gives you confidence in your ability to achieve that? Jorge Flores: Right now, it's a combination of 2 factors. One is the current backlog that we already have in funded orders on both of the LOIs. And the second though is that we are actively seeing forecasts provided by the end users directly into us, and that's how we're managing the supply chain as well. So that's a big definitely on why we are projecting that. Andrew Deangelis: That's helpful. And then just relative to the funds that you guys received in the recent rights offering, where will you be utilizing those funds? And can you talk maybe through the cadence of how those funds will be deployed? Fawad Maqbool: So most of those funds are used for our -- the growth of this 5G business, right? So as I mentioned before, we're building new MMICS and new chips to go into these radios, and we're building different types of radios. So most of our expense is going to be working capital for building out the infrastructure for our 5G groups. But as well, we're building the other groups as well. So it's a scaling effect. Every single group, the idea is to drive growth from our 5G division, which will require increased amount of MMICS, custom MMICS and PAs and low noise amplifiers, which will go down to the MMIC group and increase their revenue because they will be supplying the 5G radio requirements. And then the other packaging group, which is Spectrum division, which is in California, that's a stocking and distribution group. They'll be providing the packages for all these MMICS that go into these radios. So each of these divisions are structured such that there's a synergetic synergy and growth. As we scale up the 5G, we will scale all the other divisions as well. But our sales force is increasing as well. So we're putting in key personnel this year to grow the specific telecom business. So we recognize the need for having specific sales force for this particular application because connectivity to these large MNOs is very, very important in growing the business. And we found that these are giants, right, telecom giants, and we're a smaller company, penetrating these giants. But what will help is a good technical force as well as sales force that is connected to all of these companies. So we're going to be focusing on increasing sales personnel as well as technical personnel in these areas. Andrew Deangelis: Very helpful. And I guess this just kind of layers -- this question layers on to what you just mentioned. But I just, again, want to make it explicit. In terms of your execution priorities, the 1 or 2 things that you're focused on here in the first half of the year, what would those be? Fawad Maqbool: Well, I mean, R&D, we're still -- we're basically growing the company, right? So the R&D phase mostly is done. What we're trying to do now is to take our production line and our assembly lines and make them such that we can make repeatable products. So many of our products are standardized now. It took about a year or 2 so that we can actually make our assembly line standardized and have our supply chain standardized as well. And this increases our 5G exposure. So the idea is to build consistent and cost-effective assembly lines and product lines and procure all the materials at good prices so that we can have a higher gross margin as we grow the business. Andrew Deangelis: And you think that inflection point is going to really, I guess, happen here in the first half? Fawad Maqbool: Yes. It's more likely in the second half. It will start in late Q2, but in the second half of the year. Operator: That concludes the question-and-answer session. I will now turn the call back to Fawad Maqbool for closing remarks. Fawad Maqbool: Thank you, operator, and thanks to everyone who joined today's call to hear the progress we've made and the plan we have to further our company's mission of providing the communication systems of tomorrow today. We look forward to updating you further on our first quarter financial results call next month. Until then, please contact us directly should you have any questions or wish to schedule a call with management. Our Investor Relations team can be reached at the contact information listed at the bottom of our press releases. Thank you, and be well. Operator: Today's conference call is now concluded. Thank you. You may now disconnect your lines.
Operator: Greetings. Welcome to the ClearSign Technologies Fourth Quarter and Full Year 2025 Corporate Update Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Matthew Selinger, Investor Relations. You may begin. Matthew Selinger: Good afternoon, and thank you, operator. Welcome, everyone, to the ClearSign Technologies Corporation Fourth Quarter and Full Year 2025 Corporate Update Call. During this conference call, the company will make forward-looking statements. Any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs and prospects. These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call include, but are not limited to, whether field testing and sales of ClearSign products will be successfully completed, whether ClearSign will be successful in expanding the market for its products and the other risks that are described in ClearSign's filings with the SEC, including those discussed under the Risk Factors section of the annual report on Form 10-K for the period ended December 31, 2025. Except as required by law, ClearSign assumes no responsibility to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. So with me on the call today are Jim Deller, ClearSign's Chief Executive Officer; and Brent Hinds, ClearSign's Chief Financial Officer. So with that, I am going to turn it over to Jim Deller. Jim? Colin James Deller: Thank you, Matthew. As always, I'd like to thank everyone for joining us on the call today and for your interest in ClearSign. Like our most recent calls, we will use a Q&A format for the session. Some of you are sending questions ahead of time, and we will assimilate those questions as we go through this call today. So for the call today, Matthew will lead a question-and-answer session. I will go through the different business units, much like our previous calls. Many of you may have seen this, but just a reminder, you can send in questions ahead of time to our Investor Relations, that is Matthew Selinger at mselinger@firmirgroup.com. So with that, Brent will go over a summary of the company financials for the fourth quarter and full year '25. Brent? Brent Hinds: Thank you, Jim, and thank you to everyone joining us here today. Before I begin, I'd like to note that our financial results on Form 10-K were filed last week with the SEC. And with that, I'd like to give an overview of our financial results for 2025. For the fourth quarter of 2025, the company recognized approximately $3.7 million in revenues compared to approximately $590,000 for the same period in 2024. This year-over-year increase in revenues was predominantly driven by our 26 process burner order that will be installed in the petrochemical plant of the Gulf Coast of Texas. Now for the full year perspective, we recognized approximately $5.2 million in revenues compared to approximately $3.6 million for the same period in 2024. This 44% year-over-year increase in revenues was predominantly driven by our process burner products. It is important to note that during 2025, we did recognize revenues from our other offerings, specifically midstream burners, flares, spare parts and engineering services like CFD studies. Now I'd like to turn our attention to the full year income statement. Our year-end 2025 gross profit was approximately 27%, which is down approximately 4 percentage points from 31% compared to 2024. This year-over-year decrease in gross profit was driven by our warranty accrual. In addition, our year-end 2025 net loss increased approximately $197,000 compared to the same period in 2024. This year-over-year increase was predominantly driven by nonrecurring legal fees of approximately $746,000 in 2025. Now I'd like to shift the focus to cash. Our net cash used in operations for the full year 2025 was approximately $4.7 million compared to approximately $4.4 million for the same period in 2024. This year-over-year change was predominantly driven by our change in net loss discussed earlier. As of December 31, 2025, we had approximately $9.2 million in cash and cash equivalents, with approximately 5.3 million shares of common stock outstanding. We believe our overall working capital positions us to continue executing on our long-term growth plan to scale our revenue and profits beyond our breakeven goal as we continue to build a technology company recognized for its innovative solutions. And with that, I'd like to turn the call over to Matt Selinger. Matthew Selinger: Thanks, Brent. And Jim, thank you for joining me here today. So Jim, we've had a lot of new interest in the company lately, and I see some new attendees on the call today. So can we take a moment to give a high-level overview of what ClearSign does and then maybe move into how we do it. So Jim, what in a nutshell does ClearSign do? Colin James Deller: Sure. Yes. So we are an industrial technology company. But the technology we make is a low emissions industrial burner, right? So these are the components that control the flames in companies like all refiners and chemical plant, also boilers, midstream gas heaters, but the very large industrial flames. And this industry is driven by the need to meet the latest emissions regulation and specific to provide ultra-low NOx emissions. And we can do that by controlling the chemistry in the flame and we do through control of the flame structure. The NOx emissions are driven by the Clean Air Act, they're imposed by regulation. So these are a level that our customers are required to meet. Our advantage in the market is we enable them to do it in a much more cost-efficient manner than with the existing technology. So the levels we're talking about, the other technology to reduce emissions is called an SCR or selective catalytic reformer (sic) [ selective catalytic reduction ]. It's basically a back-end chemical plant that has to be built into a heater to remove the emissions from the flames before those gases go up the stack. With the ClearSign technology, we just don't make those emissions in the first place. To put that into perspective, one of the orders we have in-house, we were talking to the customer prior to receiving that order and their estimated costs for going with the alternative SCR solution were about a $50 million project for a conversion of one of their heaters. The -- our estimate of the ClearSign solution, their total cost, which includes our burners is in the region of $7 million to $10 million. So it's our belief just on this one project that we're saving this client in the region of $40 million. There's a very clear cost advantage to our customers in selecting this new ClearSign technology and not making emissions in the first place. Matthew Selinger: All right. So you've talked about what we do, the drivers in the market, kind of the competitive landscape of technology. Maybe describe more kind of the market and the market opportunity, Jim. Would you be able to kind of quantify what our addressable market is? Colin James Deller: Sure. And -- right, we -- our biggest market segment is oil refining. We're also looking to develop into the petrochemical industry. But to try and put our arms around the realistic market opportunity for ClearSign, the regulations that require technology are the newest strictest areas. So for us, while there's some in Europe are predominantly for this purpose, which is think about Texas and California, is that our estimate is there's about 28,000 burners installed in refineries in California and Texas. And we did a technology feasibility study with ExxonMobil back in 2019. And as part of our conversations during that process, ExxonMobil expressed their assessment that about 15% of their burners were good targets for ClearSign technology. So if we use that 15% guideline of the 28,000 installed burners in California and Texas, that gives about 4,200 burners currently installed in refineries in California and Texas that are good applications to be retrofit with ClearSign technology to comply with modern emissions requirements. And the timing, you can expect that will be done over probably 10 years as we just trying to get our arms around or bracket the market. And then the other important piece of information is the average price for burners is about $100,000 plus more for the big ones, less the smaller ones. But for the sake of this math, we consider a ClearSign burner to sell for about $100,000 apiece. That will give you a number for the refining industry, the petrochemical industry, we would assess to be about the same size as the refining industry. And when we look at the total ClearSign product sales, we have other products as well. I'd expect our flare and thermal oxidizer products combined to make about 20% of our business. Our midstream and water products make up another 20% sort of the refining and petrochemical, that will be about 60% of the total. Matthew Selinger: Okay. Great. And again, you referred to that burner -- a typical burner price around $100,000 because we've referred to that as what Brent said in that 26 burner order, and we'll talk about some orders later that will help investors kind of quantify what a total order size may look like if you apply that dollar amount to a burner for one of our orders. Colin James Deller: Yes, it's a good guide. I think the other piece of relevant information, if you're looking at the company, right, we are -- when we talk about the company structure and how we work, we are an asset-light company. We need a run rate of about $16 million per year or 160 process burners per year to get to breakeven, right? So that's not an extremely high number. But with that market size when you do the math, there is plenty of market there for ClearSign to develop a very profitable business. Matthew Selinger: Great. And one thing you just said there, Jim, which is a good segue to the next question, you mentioned asset-light. So you mentioned, obviously, we're an industrial technology company. And because of being asset-light allows us to capture these ballpark 30% margins, which Brent said. How does ClearSign do it? How are we structured? And how are we going to market? Colin James Deller: Yes. So we have a unique IP and technology. And in fact, we have unique capabilities with our computer modeling. Since I joined the company in 2019, we set a strategy of leveraging that IP selling into this very industrial market with very established clients like our refining companies. Those clients require full-scale demonstration of furnace. They require the equipment to be manufactured in the shop that they have accredited with a very sophisticated quality control system, right? It takes a lot of money to develop that kind of asset. So rather than doing that, we said about leveraging our IP, but to work through collaborative partnerships with other companies that already have that infrastructure in place. And there are some really big companies in this industry. We formed a collaborative partnership with one of the really big major Zeeco in late 2019. Zeeco is a multibillion dollar [indiscernible] billion with a B company. They're based here in Tulsa. They're about 10 minutes down the road from our office. They have the largest burner test facility and manufacturing plant here. So we can demonstrate our products now in the Zeeco test facility. Our process burners get built by Zeeco. So our clients get to benefit from the approval of their manufacturing and their quality control system. So basically, we get to deliver our IP but to present it through the market with the credentials of Zeeco. For Zeeco, our capital arrangement allows them to compete in areas of the market that extend beyond the capabilities of their own technology. So this is truly a win-win relationship for both of us. Matthew Selinger: Okay. That's great. Well, then let's turn to the year-end and fourth quarter. The company ended the year-end on a high note and recorded quarterly -- record quarterly and annual revenues. Brent did mention, but what were the contributors to this? Colin James Deller: No, I'm going to turn this over to Brent. He has all the details from the finances and can talk about more specifically. Brent Hinds: Thank you, Jim. Thanks, Matt. Yes, the fourth quarter revenues were predominantly from our 26 burner order that would shift down to that petrochemical company in the Texas Gulf Coast. I think it's important to note that in the fourth quarter, the revenues weren't just made up of that. We also recognized revenues related to spare parts orders and engineering services. Specifically, one of the engineering services that we're citing was a customer witness test, where a subject matter expert from a petrochemical company came in and got to look at our burner and kind of run it through the test facility. I liken it to inviting a test driver to come run the race car around the racetrack and get to play with it. Matthew Selinger: And that went well? Brent Hinds: Yes, it went well. Matthew Selinger: Great. It's good to hear. So then the 26 burner order was completed and delivered and the revenues have been booked. Is that right, Jim? Colin James Deller: That's correct. The requirement work we had the burners are complete and packaged and ready to collect by year-end. And Zeeco really came through for us. They work long hours. But before everyone left for the holidays, we haven't combined with Zeeco had that done. So yes, we did recognize the revenue. Matthew Selinger: And when will this project start up in the field? Colin James Deller: The burners are currently on the client site. They're waiting to be installed, which is scheduled to happen early after midyear this year. The current expectation is the start-up will occur in October. Matthew Selinger: Okay. So then let me ask you this. Do you think this will boost or help our visibility and potential pipeline? Colin James Deller: We expect this to be very important for us. There's a number of reasons for that. I mean clearly, it's a very dominant client. It's in the heart of our biggest market down on the Texas Gulf Coast. The burners are an early version of our new Gen 2 technology, which is a great burner for us. The project was done through the Wahlco, who, I believe, the leading engineering heater revamp company here in the U.S. So there are a lot of eyes on these burners. I think generally for everyone. But we have to be very careful when we talk about customer names and the details of projects openly. Within the industry through all the conferences and the interpersonal relationships, this project is very well, right? They know the burners. There are a lot of people watching this project and talking about it. And even companies like Wahlco have been a very good reference for us because they've been through this project and see the burner development, seen them operate in the Zeeco test burners. They've already been very meaningful in talking to other clients about ClearSign burners and their experience of working with us. Matthew Selinger: Yes. And I know we mentioned in our previous calls and mentioned the name Wahlco, you can go to their website and they list the logos of their clients, and it really is a who's who of super majors, major petrochemical companies, and you can see it on their website. Colin James Deller: Yes. And they're actually part of a very large organization themselves. So yes, they've been a very good client for us. Matthew Selinger: So then let's talk about other announced process burner orders. We've announced a 32 burner order for a major refiner and a 36 burner order for another major. We're calling it a household name. So in regard to the latter, the 36 burner order going to the Gulf Coast, how is that order progressing? Colin James Deller: Very well. The -- so both of these orders are released in phases, which is actually very common. The first phase being engineering and the computational modeling or simulation of the burners operating in the clients. That has gone extremely well. Those results are sent to the client. So we're currently discussing moving into the testing phase of that project. The other interesting part is the installation has been split into 2 phases. And in the first half has been pulled forward so we can supply the burners into the first 2 sections of it. There's a large 4-section heaters preferred being supply the burners in the first 2 sessions, and those could be established quickly and then roll into -- we expect to complete the other 2 sections, but the first manufacturing phase actually being pulled forward, which is very good news for us. Matthew Selinger: And then so earlier, you spoke about the drivers for our technology and the use of our products. But -- and you spoke about NOx emissions being the main one. But this project is a bit of some other drivers. Is that correct? Colin James Deller: It is. And this -- we mentioned the CFD and the competition modeling, this is where that really gets to be very valuable. So a big part of the economic driver for our client in undertaking this project is not only maintaining compliance with NOx emissions, but in this case, to improve the performance and the operation of the heater. So another thing that we can do with our technology is we have great ability to control the shape and the structure of the flame and impact the pattern or the way that the heat is transferred to the heating services inside the heater. So we can distribute the heat evenly and basically reduce hotspots that can occur if you don't do that well. What that means for the client is that we can reduce the maintenance requirements, we can reduce the frequency of prevent having to replace damaged tubes, increases the what they call the uptime of heater basically increasing their productivity and reducing their maintenance costs. So we can deliver a very real return on investment for the client in addition to or as opposed to on the emissions-based projects, we're really -- in that case, we're delivering a much more economical way of solving a problem for them. In projects like this, we can actually give them a return on investment in terms of making more. Matthew Selinger: Okay. So we're actually making the heater run better and more efficiently. Colin James Deller: That's correct. Matthew Selinger: Now the other layer about this project you and I were discussing recently is what I'll call the design or engineering of this order. And you were telling me this is kind of a new iteration or application of burners. Could you give some more color about that? Colin James Deller: Yes. And it makes sense. So to tie back to when we talked about the company and the industry in general and the feasibility or the assessment from ExxonMobil of 50% of burner being good application to ClearSign, that was based on the burners we had available at that time, which were upwards vertically fired round shape burners, which is the most common shape. But there are different types of heaters and different shapes and configurations. This particular case on the Gulf Coast, the burners are mounted and firing horizontally on opposed walls at the end of the square box. They're firing in towards each other. There are a number of heaters of this configuration, getting into and getting this reference and demonstrating the burners performing well in this configuration provides a very good reference for us and opens up this new type of heater for ClearSign and expanding our market. So it's actually not just showing what we can do in control of the flame shape and making the heater run better, it's also getting us a reference and an extension of our product line into the horizontal configuration. Matthew Selinger: Right. So it's demonstrating a larger applicability and expanding our addressable market? Colin James Deller: Yes. Matthew Selinger: So then let's turn to the 32 burner order and how is this order progressing? Colin James Deller: So this order is very similar to the first in many ways. So we received the CFD and the engineering order upfront. That has gone very well. The same as the first order, this project has also been split into 2 parts and the first part being accelerated. So we're actually going to expect to move into the testing phase quite soon. In fact, we recently received the order for some engineering to support that test. And then after that, expect to move in and be able to make the product for that first heater ahead of the schedule that we originally anticipated. So that's good news. Matthew Selinger: That's positive. And then since we're on that previous order, we're talking about designs or applications. Is this a standard application or a configuration? Colin James Deller: These -- it's amazing how similar these projects are. This is -- it's a different configuration. This is a flat burner. So whereas the standard burners around, in fact, the horizontally fire burners we just talked about around, this burner is a long thin flame and the burner is designed to fire up against the wall inside the heater. To get the heater, the heater has a either a brick or a concrete, a high-temperature concrete wall, the burner heats the wall up, heat radiates on the wall onto the process tubes. What's especially interesting here is there are a large number of heaters and refineries of this configuration that makes this burner very relevant. What's particularly interesting in is looking forward to our product development pipeline, we're looking to get into the petrochem and specifically the ethylene manufacturing heaters. And having a flat burner that fires up against the wall of this configuration is a very common format in the ethylene furnaces. And that industry in itself is about the same size as the entire refining industry if we can get into that production. So these burners, as we're developing them for this refinery process heater are a good step in that direction. It shows our capability to produce the shape of burner. There's still work to do to get into the ethylene furnaces, but I believe this can provide a very valuable step forward as we move into and expand into that ethylene markets, are very exciting for us. Matthew Selinger: Yes. So not only are these 2 orders, large orders for us, they're both different configurations and each one that are going to be great references and expand our applicable market. Colin James Deller: That's true. And I think at a higher level, when you look at these, I think what is showing with our very developed CFD capabilities and a very adaptable burner technology that we developed through the government SBIR program is that we have the ability to take our standard burner and to adapt that to meet the special needs of customers in these different heater applications where the burner has not been successful. So it truly platforms and showcases what we can do at ClearSign, the high level of engineers that we've been able to recruit and hire the sophisticated CFD technology that we deploy, the experience within the company, combine that with the IP that we have and what we've developed through the big SBIR project we've just completed. I think it shows those capabilities at a high level and how we can adapt this technology and readily take it and put it into these different configurations and show the success that we've been able to show. Matthew Selinger: Okay. Well, then beyond these 2 existing projects, what does the pipeline look like? Now we did mention a story on the last call about a new major refiner wanting to get quotes on 10 or so heaters. Have you seen any of these requests? Colin James Deller: We have -- again, let's take a step back, if we can. We gave an update call in February of this year. And the main reason we did that is we've seen a shift in the type of inquiries for quotes that we've received. Basically, we started to get a lot of interest from super major household name, major refineries have rolled into the orders we've just talked about, but there was a lot of other interest from these big customers that we've been pursuing and had not had great success while our technology was just not well known or trusted within the industry. And seeing that significant shift in the market dynamic was very relevant, leading to the update we gave in February. So as part of that call, we did talk about one instance we discussed was through heater engineering company, by Wahlco, one of the major refineries and one of the key decision-makers, subject matter experts there talking to his close relationship person at Wahlco to get references of their experience working on the 26 burner project, a turn around and asked Wahlco to refer 10 projects that they have lined up in their queue to ClearSign for input going forward, right? So now to date, we've received 4 of those inquiries and been able to provide proposals for them to set expectations, right? These type of projects are usually scheduled over a long period of time. They're scheduled around our refinery turnarounds and project planning. There's a lot of work. So this is not all work that's going to come in, in the next 12 months. Some of these are scheduled out years and will continue to be. But in terms of building up our proposal backlog, this is very significant. So to date, we've quoted 4 of these. We expect more to come. Matthew Selinger: Great. And then for those -- and you're right. And referring to that last call in February, we did talk kind of a market dynamic that we're seeing, right? Larger customers, larger facilities, larger heaters, thus, we're seeing kind of larger orders, quoting larger orders. Colin James Deller: Yes. Matthew Selinger: And then from that, could you talk about the total process burner pipeline in general? Colin James Deller: Yes, I can. So just as a -- put some data points out of those 4 heaters for that refiner total about 73 burners, I think, is the total for those 4. In the last call, the -- we gave a general number, the backlog quoted was around 200. The -- and that included what we knew about the 10 heaters from -- because we've continued to get inquiries. We received some more, and I believe that total around 225 as we sit today. And again, those are also from household name well-recognized major refiners. Matthew Selinger: And then what sort of -- I mean we also talked about in the last call, but what sort of marketing initiatives do we have kind of on the horizon coming up? We mentioned a demonstration coming up later this month. Colin James Deller: Yes. I mean there's obviously -- we're pushing LinkedIn and advertising campaigns. But the big event right now, we have a new burner technology we developed under the DOE SBIR grant. That development was completed last year. And the last part of that project, we're actually releasing that and demonstrating that to industry in a couple of weeks on April 23. So we have a demonstration going on at the Zeeco test facility with decision-makers and subject matter experts from major refineries and engineering companies coming in to town for that. Matthew Selinger: And how does this compare? I know we've done previous demonstrations like this, but maybe just could you give a comparison how this might compare? I know it hasn't happened yet. But how does it look like so far compared to previous demonstrations that we've done? Colin James Deller: Yes, we can because we -- obviously, we track the responses, the invitations and new crews coming in. Much like the dynamic in the market and proposals, we've got a -- the previous demonstration, I believe the attendance was around 16 to 18 people. So far, we have just over 30 and counting people coming into this demonstration. But what's particularly important is who is in that 32. So we have key decision-makers, subject matter experts from the major refineries and major engineering companies, including customers that we're bidding to and have on the respective pipelines coming in to see. These people are taking time out of their schedule, flying to Tulsa, spend a day with us. So this is a very pleasing development for us. Matthew Selinger: Yes, I think it will be a great event. Well, then let's shift to the M series, which is our midstream focused product. Jim, like you did with process burner, would you mind kind of describing the midstream application and maybe in comparison to the process burners? Colin James Deller: Yes. This is -- so the industry to start with, right, the refining and petrochemical is taking crude oil and processing it to an end product. The midstream, we're moving upstream. The midstream is really transportation and predominantly with this being about gas, it's also the purification and the cleaning of the gas. When it comes out the ground, it's got components in you don't want to burn, so it gets cleaned and then transported to the gas you'll see coming out in your homes and the client side. For the heaters and burners, the equipment is typically a lot more simple than the refinery heaters. It's also a lot more standardized. So that means that the burner products that we have can be designed, but once designed, they don't get customized on a job-by-job basis. The fuel is always natural gas compared to refineries where you got a whole mixture of blends. The business for that reason, can be much shorter cycle. The burners tend to get built to existing prints. It is a very low consumption of engineering and project management resources once the products have been developed. So it's a very -- well, it's based on the same technology and expertise in terms of the product line itself and how we think about it, it actually operates very differently to the process. So we can take an order to revenue much more quickly. We don't have always detailed visibility of the pipeline because once clients -- our clients heater manufacturers, once they have pricing of our burners, they will use that pricing on multiple occasions whenever they have an application for that burner, they don't come back to us for details. So there are, I'm sure many quotes out there using our equipment that we don't even know about. Matthew Selinger: And we did talk about pipeline. I know, again, we keep referring to that last call, but we did mention I think our proposal pipeline on that last call, which sits about... Colin James Deller: It was about 50 at that time, I believe. Matthew Selinger: 5-0? Colin James Deller: Yes. And they continue to come in. And like I said, that's what we know about. I'm sure there are others out there that we don't know about at this time. I think just on that note, right, we have -- there's 2 burners. We have an M1 burner that has run now for many months. That's our first burner, that's the ultra-low burner that burn ran around 2ppm, far exceeding any requirements of these burners. But we've also developed a lower cost, what we call the M25, which is a lower spec burner for a much broader application. There's a lot of inquiries using this burner. The first of those started up 2 weeks ago, met all requirements, that burner is up and running. So that was a very pleasing development for us to actually have one up and running at actually Devco heater down in Texas. Matthew Selinger: Okay. And that's through Devco. And that was the dynamic we talked about how we sell to third-party manufacturers, companies like Devco. Have there been some developments with these third-party manufacturers? Colin James Deller: Yes. I mean the -- in particular, Devco, watching the news. So we've mentioned Zeeco as our partner, Zeeco is a multibillion-dollar company. Zeeco actually purchased Devco, now Zeeco. So they are now very close to our office. I believe -- well, the first thing that happened was I reached out to Zeeco at the same time that Zeeco reaching out to us to confirm that the ClearSign would still be part of the Zeeco business. So we were both pursuing the same goal there. So that's very pleasing. My understanding is Zeeco has obviously taken that business over looking to grow it. They have a lot more resources than the old Devco. So I believe that's actually very good. We could be seeing a lot more Devco work in the future. Matthew Selinger: Okay. Great dynamic. So then we've covered refining, we've covered midstream. Let's get closer to the production well and talk about another product line, flares. Now this is a product line that we've seen a strong resurgence and expansion in orders and in the monetary size of orders. So can you give -- just like the other 2 product lines, Jim, could you give a brief description of our flare products? Colin James Deller: Yes. So most people will see flares, you -- when look at more refinery, you see the large flames on very tall sticks or pipes or stretches going up in the air. There are many different types of flares, right? Ours are a much smaller flare. The typically stand 30 to 50 feet high or they're inside of that size of vessel, they are enclosed flame. And the reason they built that way is that like our other products, we have a low emissions flare. So on flares in certain regions of the company, they're also required to control their NOx emissions. We have a burner product that can do that. The earlier orders for the flare burners we took were to upgrade the burners in existing flares. So basically, our clients have purchased flares from another supplier. The flares didn't work, but they couldn't meet the emissions requirements. They came to ClearSign to replace the burner, which we did inside the existing stack. Those orders to us ran in the region of $200,000 to $250,000 per burner order. Recently, our clients have seen benefit from having us replace more and more of the equipment. So now we're typically replacing not just the burner, but replacing the fuel control system, the blower and in fact, the elements of the stack. The most recent order is a good example of this. We refer to them as system project by replacing the entire system. And these orders are coming in on the low end, $500,000 up to about $1 million apiece, the last order was right around that $1 million. Matthew Selinger: Right. And so we talked about that, that our most recent order was, I think, the customer's fifth order from us, and that customer evolved from you say, just burning -- excuse me, just ordering the burner parts, morphing into a full system. And this last full system came in around that -- closer to that latter number, the $1 million range. Is that correct? Brent Hinds: Yes, that's right. Matthew Selinger: And then what does our prospective pipeline look like here for this product? Colin James Deller: Yes. So I mean just with this client, we have one flare with them is due to stop at start of any time is just waiting on a component, which is not as supply somebody else's supply. We have the one that we've mentioned now that is being built. We believe or understand from them that they have 4 or 5 more flares that they will need. Now we don't know exactly the timing, but that's -- there are more flares needing low emissions coming up based on California and also, we believe also the Midwest. When we think about this technology though, we also look at it in a horizontal, which generally referred to an incinerator or thermal oxidizer. And in that format, the ability to burn a hard-to-burn waste gas has a lot of inerts is another big cost driver, right? If typically, the client will have to buy natural gas to burn this type of gas completely. With our burners, we can burn this in its raw form, don't -- without the need to buy any supplemental gas. And we have a number of projects quoted and hopefully going to come through later this year based on that. So those -- we generally group those also into that description of system projects. So both in the vertical enclosed flare format and in the horizontal incinerator or thermal oxidizer format, we're seeing a fairly healthy pipeline there. And in the latter in the thermal oxidizer format, there are a lot of renewables applications. So it's not just the refining and the wellhead fields, it's getting into other industries. Matthew Selinger: Okay. So you can look to some potential continued momentum in this product line. Colin James Deller: Yes. Very much. Matthew Selinger: So with that being said then, Jim, we're partway into 2026. And looking forward into this year, what are the milestones that investors should be looking for? Colin James Deller: I mean very clearly, at this time, it's all about building our backlog in the company. So getting orders in. But we're seeing significant opportunities out there now. We need to bring those orders in-house. So we've got that backlog to consistently get to a breakeven point and to stay there. So we're bringing in these large refining process orders and by building on that momentum. The start-up down on the Texas Gulf Coast is going to be a very significant reference point for us. I believe there are a lot of people watching that project. The demonstration on April 23 in just a couple of weeks to industry is going to be very significant all in [indiscernible] all about building the backlog, bringing these orders in, growing our traction with the refining industry and pushing out with new shapes and getting into more heat and showing what we can do. We're getting more and more of that work. Beyond that, the flare systems projects and thermal oxidizer projects with the size of those orders, that can be a very meaningful revenue stream for the company. So we are absolutely looking to push and maximize the references from the installations we get in that segment. And the midstream, there are a lot of quotes out there in that midstream industry just bringing those in and turning that into a routine business for us. Matthew Selinger: Okay. That's great. So that's all the prepared questions I have today. So with that, let me take a pause, and we will open it up for Q&A from analysts and investors. Operator: [Operator Instructions] Our first question comes from Peter Gastreich with Water Tower Research. Peter Gastreich: So congratulations on your results and a great start to 2026. Just first of all, I appreciate the detail around the burner order configuration. Are you able to expand a bit more on what this will mean for your addressable market? And how would you characterize the size of the market opportunity? Colin James Deller: Thank you, Peter. I mean the -- it's actually very large. The most pleasing part about the SBIR project was the burner platform that we've developed. It's certainly a very good straight refinery burner. But the way that the burner technology is structured, it allows us to adapt it to different shapes. So in the quarter, the 2 orders we talked about, if I had to put a number to it, it probably adds 20% to 25% to our refining coverage in just those 2 formats. But when you think larger about what we can do with that burner, I mean I truly think it opens up the door for us to get into the ethylene production, as I mentioned, which is about the size of the refining industry in itself. And I'm not sure where the boundaries are, to be honest. It's just a very flexible burner format that is very applicable, I think, and can probably open up some new markets we've not even considered yet. Peter Gastreich: Okay. Great. And so for the fourth quarter, you had a big jump in revenue with that equivalent to 70% of the full year. Meanwhile, you mentioned before that Zeeco made a substantial effort to ship 26 burners by year-end. So with your technology really being something you as potentially being disruptive, big addressable market out there, orders could expand meaningfully. How should we think about the capacity of Zeeco and the supply chain to facilitate this large growth outlook? Colin James Deller: Yes. I mean when you put things in perspective, right, Zeeco is a multibillion-dollar company. They have global manufacturing. So I would love to be a supply problem for Zeeco. They have the biggest test facility in the world. They truly have -- up in the region, I believe, north of 15 test furnaces there. So they -- it is not a problem. Also for the other product lines, we have multiple other manufacturers in Tulsa that we can use that are used to manufacturing equipment for the combustion and the oil industry in general. That's part of the reason we moved the company here in addition to the human personnel and the expertise here. So there -- believe me, there is very adequate resources within Zeeco and then within Tulsa for the other product lines for ClearSign. Peter Gastreich: Okay. Great. I'll just ask one more question here before getting back in the queue. So it looks like your installed base here is on a solid trajectory. How should we think about the aftermarket pull-through here, maintenance, spare parts, things like that as a contributor to future revenue? Like how substantial will that be? Colin James Deller: I mean based on what we've seen at ClearSign and also for me, based on my prior experience, it is an extremely meaningful product line in itself. It is very profitable because the -- all the engineering and the design work is done, and the clients' need is based on responsiveness. So it's very profitable and the more equipment we get out as our business grows, it will continue to grow. And it is likely that in terms of profit margin, it may well end up being close to the largest source of income for ClearSign as we look further ahead in the field and as we get more equipment out there in the market. So it is a very important product and one that we pay a special attention to now because of how important we expect it to be in the future. Operator: [Operator Instructions] The next question comes from Amit Dayal with H.C. Wainwright. Amit Dayal: Just with respect to sort of cadence of revenues in '26, how should we think about quarterly revenue flows this year? Brent Hinds: That's a great question. From a quarterly perspective, Q1, I feel confident in saying that it's not going to replicate Q4 of 2025. But from an overall annual perspective, we feel confident with the revenues for 2026. Colin James Deller: I think if I can, just in general for, we've said this before, given that our orders are very large and also long term, our revenue flows will be lumpy, right? We're not going to get consistent smooth quarters, especially not at this stage. As the business grows and we get more orders in-house, that will tend to smooth out with the volume. But at the period we're at right now with these large orders, I say it's going to fluctuate. Looking long term at the -- well, we talked a lot about the interest from our customers and the pipeline we're seeing on the proposals. As that flows through and those come in, I mean the long-term view for the company is very healthy. I chime really just to caution that I do expect things to be lumpy in the short term. Amit Dayal: No, I appreciate that. Just wanted to see if that is still sort of in play. Not expecting anything different, but it's good to know how we should think about '26. And then just from a balance sheet perspective, are you comfortable as your orders ramp with respect to working capital needs, et cetera, to meet your growth requirements? Colin James Deller: Yes. Brent Hinds: Yes, we feel very confident in the cash position that we have. Colin James Deller: I think for the new investors on the call as well, it's good to point out with our projects that they're typically self-funding. We actually bring enough money in early in the project to cover our cost for the execution of those orders. So we do not need cash. So as the large orders in our pipeline come in, we don't actually need our cash to execute those orders. We typically get that cash in, in advance of our costs or expenses. Amit Dayal: Okay. Understood. And then just last one. With sort of this current macro situation in the Middle East, in the energy space, some of the product deployments need downtime, et cetera, for customers to put these things into play. Do you think you might face some pushouts from that perspective? I don't know, it may be too early to tell, but any thoughts on how that part of the execution... Colin James Deller: So you're referring to the Middle East? Operator: We lost Amit's line. I will see if I can get him back on the line for you. Colin James Deller: Okay. I believe he was asking about the Middle East and the structure there. So those projects will be long term. We don't know what is happening there. Typically, the emissions regulations in the Middle East are not in the same level as those in the U.S. So it's unlikely that ClearSign technology will be deployed to the Middle East in the near term. No. If that increases the demand and the production in the U.S., it may well drive the need for equipment or upgrades in the U.S. There may be some benefit there for ClearSign. But to be clear at this point, I don't see ClearSign products being shipped out to the Middle East just because there's not a need for them. Matthew Selinger: And I'm going to go ahead and dovetail a question that was sent in about a similar topic. There was a question asked, Jim, if there was a great need for U.S. products being sent there, could our, in a sense, manufacturing supply be disrupted? Could we have issues getting our own burners manufactured, let's say, here locally? Colin James Deller: Yes. I don't see that as being a concern. I mean one of these projects tend to be long. But also if we're thinking most of these will be refineries, if it's Zeeco. Zeeco is a global company. They have manufacturing around the world. In fact, they actually have a manufacturing base in Saudi Arabia there to serve the Middle East. So our products are typically manufactured in the U.S. plant. So I don't see that as a concern at this time. Matthew Selinger: And I'll give another follow-up question, if I could, Jim, from an e-mail that came in. There's been also very news kind of relevant. There's been a lot of discussion of potentially the first new refinery being built in Texas. Are we seeing or hearing anything about that? Colin James Deller: We obviously see the news, and there's been a couple of release out this week. Within the industry, we're not hearing much actual factual news. So we're watching it closely. I'm -- I think at this point, I'll just say we are paying attention to it. I would not put too much at stake at this time. As things develop, if they do, and they've mentioned there being a hydrogen fuel to that site. If that does materialize, it could be very relevant for ClearSign. But at this point, we are watching 4 developments, let me say, there's -- we've not seen any solid details about that yet. Matthew Selinger: Okay. Great. Jim, I'm seeing no more questions. So with that, I think we'll go and wrap up the call. I will pass it back over to you. Colin James Deller: Great. Thank you, Matthew, and thank you, everyone, for joining us today and for your interest in ClearSign and especially for taking the time to listen to our call. We will be presenting at Water Tower Research Insights Conference next week on April 15. and the company can be found on their website, watertowerresearch.com. We look forward to updating you regarding our developments and speaking with you on our Q1 2026 call, which will occur in May. In the meantime, please keep checking in for developments on our website. And for more behind-the-scenes updates, please follow us on LinkedIn. With that, thank you very much, and thank you, operator. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Alex Ng: Good afternoon, and welcome to Stolt-Nielsen's earnings call for the first quarter of 2026. As always, the earnings release and related materials are available on our website. We will also be recording this session and playback will be available on the website from tomorrow. Included in this presentation are various forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, and we refer you to our latest annual report for further details. I'm Alex Ng, Vice President of Corporate Development and Strategy. Joining me today are Udo Lange, CEO; and Jens Gruner-Hegge, CFO. At the end of the presentation, there will be a Q&A session where we'll be taking questions online. [Operator Instructions] Thank you. And over to you, Udo. Udo Lange: Yes. Thank you, Alex. Good afternoon, everyone, and thank you for joining us today for our first quarter 2026 results. The presentation will follow our usual format. I will begin with an overview of the group's results for the first quarter and share some key highlights. Jens will then take us through the financial detail before handing back to me to cover the performance of each of our divisions, our view of the market outlook and some concluding remarks. Let's get started. In the backdrop of elevated market disruption and considerable global uncertainty, I'm pleased to report that Stolt-Nielsen has delivered a solid first quarter, achieving group EBITDA of just over $180 million. This result reflects the strength of our diversified business model and the resilience it brings to our earnings. Our non-tanker portfolio contributed 44% of group EBITDA in the quarter, a clear demonstration that Stolt-Nielsen is not simply a shipping company. In fact, our Stolthaven Terminals business had its second highest ever quarter in terms of operating profit achieved. We are a global liquid logistics business and our diversification continues to support earnings through periods of market dislocation. We are, of course, closely monitoring the conflict in the Middle East and in particular, the effect on transit through the Strait of Hormuz. This introduces new complexities to global energy and chemical supply chains, which we are working through with our customers to keep products moving. We are thankful that our people remain safe, that none of our vessels are currently stuck in the Arabian Gulf and that our assets are not impacted thus far as our network continues to adapt to a rapidly changing situation. Our priorities at this time are to keep our people safe, leverage our global logistics network to best support our customers through the disruption and to maintain strict cost discipline and capital allocation for flexibility and long-term value creation while maintaining robust liquidity management. We have limited visibility on how the conflict in the Middle East will play out and a range of outcomes are possible, which makes giving meaningful EBITDA guidance very challenging. Hence, we have withdrawn our previously issued EBITDA guidance for 2026. I would also like to highlight a number of strategic developments during the quarter. In Taiwan, our Stolthaven Terminals joint venture in Kaohsiung commenced operations, adding more than 60,000 cubic meters of new storage capacity. And we recently announced the planned sale of a 50% equity stake in Avenir LNG, which will be achieved through a strategic joint venture with Japanese shipping company, NYK Line. Consistent with our strategy of building the Avenir business for the future while preserving our own balance sheet flexibility. From a financial standpoint, we maintain robust liquidity of $546 million, and our net debt-to-EBITDA ratio stands at 3.02x. And in February, the Board recommended a final dividend for 2025 of $1 per share, bringing the total for the full year to $2 per share, subject to shareholder approval at the AGM later this month. Let us now turn to our financial highlights. I'm satisfied with the results the company has achieved in the quarter against a complex and challenging market backdrop. Looking across the key metrics. Operating revenue for the quarter was $717 million, up 6% compared to the same period last year, predominantly driven by the inclusion of SUS. EBITDA before the fair value adjustment came in at just over $180 million. This represents a modest decline of 4% year-over-year, driven principally by weaker freight rates in Stolt Tankers, lower margins within STC and additional costs associated with integrating Suttons. Operating profit was $82 million, down 24% versus last year, mainly to the performance in Stolt Tankers and Stolt Tank Containers, plus additional depreciation from lower residual values and the consolidation of the Hassel 4 ships, Avenir and Suttons. Net profit was $47.5 million, driven by the same factors as well as higher interest expense due to the consolidation of Avenir and Hassel Shipping 4's debt. Free cash flow was nearly $120 million this quarter, which was significantly higher than the same period last year, which included the cash outflows for Avenir and Hassel Shipping 4. And our net debt-to-EBITDA ratio has improved slightly from 3.12 last quarter to 3.02x. These results demonstrate the underlying resilience of our business even as we navigate a period of heightened market complexity. Over the page, we look at some of the key drivers of performance. Stolt Tankers enjoyed increased volumes this quarter, but due to ongoing weaker freight rates, the average deepsea TCE revenue for the quarter was approximately $23,600 per operating day, a decline of 14.5% year-on-year. At Stolthaven Terminals, performance has been strong and steady. Utilization was stable at 91.2% in the first quarter versus 91.9% in the same period last year, and we saw some positive impact from storage rate increases. At Stolt Tank Containers, gross profit per shipment declined by 33% year-over-year. Stolt Tank Containers is navigating a very challenging market environment where margins are squeezed and is focused on integrating Suttons. That is all from me now. Jens, I will hand over to you for the financials. Jens Grüner-Hegge: Thank you, Udo. Good afternoon, everyone, and good morning to those of you joining us from the U.S. I will compare the first quarter of '26 against the first quarter of 2025. And as a reminder, our first quarter runs from December 1 through February '28. And as such, the closure of Strait of Hormuz did not impact the first quarter results. Also, the company recently published its annual report for 2025 and this year, including the CSRD environmental report for the first time, and you can find this on the company's website, www.stolt-nielsen.com/investors. Let's dive into the financials. Revenue for the quarter was up $41.2 million over the same quarter last year due to the following main factors: this is the first full quarter with Suttons included, and they contributed $38 million in revenue this quarter. S&G saw a $16 million increase over the first quarter last year due to the acquisition of 100% of Avenir at the end of January 2025. And Stolt Sea Farm had a $10 million increase in revenue on the back of firm prices. This was partly offset by lower revenue in Stolt Tankers, which declined by $22.5 million, mostly due to lower freight rates, lower demurrage revenue and lower bunker surcharge revenue due to falling bunker prices. However, volume was up by 20%, but mostly due to somewhat shorter voyages and higher share of commodity chemicals versus specialty chemicals. Moving to operating expense. This increased by $33 million, mainly due to the additional Suttons shipments and related expenses as well as the consolidation of Avenir and added ship owning expenses due to a larger wholly owned fleet, partly offset by lower time charter expenses and lower bunker cost. Depreciation and amortization expense was $17 million higher than the same quarter last year, and this was due to a reduction in the residual value of ships following a fall in steel prices, requiring us to increase depreciation of ships. Also, the 100% acquisition of the 2 businesses towards the end of the first quarter last year as well as the acquisition of the Suttons assets in November increased our asset base and hence also increased our depreciation. JV equity income was lower in part due to the purchase and consolidation of 100% of Hassel Shipping 4 last year and the weaker tanker markets in general, partly offset by a lower loss in Higas, our LNG terminal in Sardinia, Italy. So as a consequence, operating profit for the quarter was $81.8 million, down from $107.9 million in the fourth quarter last year. The finance expense was up $6 million compared to the first quarter of '25, and that's due to the additional debt related to the acquisition and consolidation of Hassel Shipping 4, Avenir and as well as Suttons. And as such, the net profit for the quarter was $47.5 million with EBITDA of $180.8 million. Net profit is down from $151.4 million in the same quarter last year, but please note that in the first quarter '25, we had a one-off gain on the step-up in value related to the acquisition of Avenir and Hassel Shipping 4 of $75 million. And also, as EBITDA excludes the impact of interest and depreciation, both of which increased year-over-year, the swing in EBITDA is significantly less than the swing in net profit. Now let's have a look at the cash flow statement. Net cash from operations was down this last quarter, predominantly reflecting $50 million in weaker earnings and working capital outflows, $7 million lower dividends from joint ventures, $3.8 million higher interest payments and $2.4 million lower interest receipts, partly offset by lower tax payments. Net cash used in investing activities was significantly down at $44.1 million from $232 million due to last year's business acquisitions. In the current year, cash spent on capital expenditures related mostly to tankers and terminal investments. The sales proceeds of $11 million that you can see there as well relate to the sale of a ship during the quarter. And then net cash used in financing activities of $66.1 million reflect the dividends paid in December 2025, while the debt proceeds and repayments reflect refinancings concluded during the quarter. As such, total cash flow for the quarter was a positive $10.1 million. And if you look at the graph on the bottom right, you can see we ended the fourth quarter with $546 million in available liquidity, as Udo has pointed out. So let's go over and look at the capital expenditures. Capital expenditures during the quarter totaled $42 million, with mostly spent on tankers progress payments for new buildings as well as terminals and Stolt Sea Farm expansion CapEx. Overall, for 2026, we expect to spend around $300 million, significantly down from the $511 million we spent on CapEx in 2025. And this is to a large part driven by the sale of 50% of Avenir, removing CapEx of $112 million across '26 and '27 related to 2 new LNG carriers. And in 2027, we expect to see capital expenditures increase again due to the significant progress and delivery payments on the newbuilding program for tankers. We intend to continue to invest strategically in our businesses, but we also need to focus on integrating our added capacity into our operations for maximized long-term benefit for our customers and our shareholders. And with the current geopolitical uncertainties, we will be cautious with committing to further CapEx until we see the full effect of the current unrest. So this is our debt maturity profile, which is relatively smooth over the 5-year horizon shown here. The debt profile reflects the recently refinanced debt for Hassel Shipping 4 and the deconsolidation of Avenir's debt. The gray boxes represent normal repayments, while the black and orange boxes reflect balloon payments on bank loans and bonds, respectively. If you look at the bottom left graph, gross debt reduced in the first quarter due to Avenir being accounted for as held for sale. So $120 million in Avenir debt is no longer included in this overview. And our average long-term interest rate in the fourth quarter was 5.65%, an increase from the previous quarter, driven by temporary drawdowns on more expensive revolving credit facilities and the full quarter of the bond issued in October 2025. This is our -- shows our financial KPIs and the continued steady performance of the company has supported our covenants. The decrease in debt during the first quarter supported a decrease in net debt to tangible net worth on the top left quadrant and net debt to EBITDA on the bottom left quadrant. Debt to tangible net worth is now at 0.98 as well below our covenant limit of 2.25x. With the lower EBITDA for the quarter, the last 12 months, EBITDA fell slightly to $777 million. EBITDA to interest expense on the top right quadrant was down to 5.31, whilst the net debt-to-EBITDA decreased from 312 to 3.02, as Udo mentioned. So overall, we are well within compliance on all covenants. And finally, before handing back to Udo, let me finish up with a snapshot of our main sustainability metric, the annual efficiency rating for Stolt Tankers, which finished 2025 at 9.34, just over 40% reduction from 2008. Also in 2025, we held gold ratings from EcoVadis for our 3 logistics businesses. And just to inform you, a gold rating indicates that the business is in the top 5% of companies in the industry. And then again, to point out that the recently issued annual report for 2025 contains our first CSRD report in case you want to read more about the company's ESG performance, and you can find the report on our website, as I mentioned. And with that, I would like to pass it back to you, Udo. Udo Lange: Yes. Thank you so much, Jens. I will now take us through the highlights from each of our operating divisions. Let's start with Stolt Tankers. Operating revenue at Stolt Tankers was $386 million for the quarter, down 5.5% on the year. This decline reflects the rate environment, which was only partially offset by a modest increase in operating days, driven by additions to the fleet. The rate decline is driven by a change in the mix of speciality versus commodity cargo as a result of near-term market conditions, which also drove up volumes. COA rates were renewed in the first quarter at an average rate decrease of 5.3%. This has improved versus the 9.6% decrease in Q4. EBITDA was $102 million, down 7%. Operating profit was just over $50 million, down 24% year-on-year. This reflects the lower freight rates on both regional and deepsea spot trades. We remember that previously, Hassel Shipping 4 was a joint venture and so was included as equity income. And as a result of the Hassel Shipping transaction within this quarter's results, we also saw higher owning expenses, additional depreciation and lower equity income from joint ventures versus the prior year. Depreciation was further impacted by changes in residual value. Maren and her team continue to work diligently to navigate this highly complex and unpredictable macro environment with a clear focus on delivering for our customers. I commend them for all their efforts during what continues to be a very challenging period. Looking now more closely at tanker rate trends. Whilst the TCE rate for the quarter declined to approximately $23,600 per operating day, down around 15% year-on-year, we continue to trade well above the 2018 to 2022 down cycle average of $19,825 per day and a level marginally above the long-term 10-year average of $23,300 per day. The early signs of rate softening that we saw last quarter have continued with a quarter-on-quarter change of under 4%. The effects of the conflict in the Middle East and the disruption at the Strait of Hormuz are introducing new complexities for global trade flows, and we are keeping a watchful eye on developments. This global disruption has the potential to create additional upward movement in rates and ton mileage in certain routes and downward movement in others. I also want to reiterate a point we have made before. We are not simply a chemical tanker business. We encourage investors and analysts to evaluate our performance across our diverse portfolio as a whole. I'm pleased to report a strong consistent performance from Stolthaven Terminals, and I would like to thank Guy and his team for achieving the second best operating profit in the company's history. Operating revenue was $79 million in the quarter, up 4% year-over-year. This improvement was driven by storage rate increases on existing contracts as well as new business secured at improved rates and favorable foreign exchange impacts, partially offset by softer utilization in certain areas. Utilization remained essentially stable at 91.2% from Q4 to Q1, but declined versus the prior year's 91.9%. EBITDA was $45 million, up 4%. Operating profit was $28.6 million, broadly level year-over-year as improvement in revenue was offset by inflationary cost increases and the impact of foreign exchange. We continue to progress adding storage capacity at existing U.S. sites. Projects in Houston and New Orleans are expected to come online in a staggered fashion, and we expect this incremental U.S. capacity to provide a contribution to earnings growth over the medium term. Stolt Tank Containers saw a strong increase in revenue this quarter, driven by the addition of the Suttons tanks to the fleet. Operating revenue was $184 million, up 20% year-over-year. Overall shipments totaled nearly 48,000 in the quarter, up 31% year-on-year, reflecting the addition of the Suttons volumes, while underlying volume was also slightly improved. Stolt Tank Containers recorded an operating loss of $5 million in the quarter, predominantly driven by weaker transportation margins and reduced demurrage in a highly competitive market. Suttons related integration costs and the typical seasonal softness in the first quarter. The integration of Suttons into our platform is going as planned, and we expect the positive EBITDA impact from the Suttons business to materialize from 2027 onwards once integration is more substantially complete. In the near term, Jens and his team are focused firmly on cost discipline, margin improvement and executing the integration effectively, and I thank them for their efforts. I now want to cover our view of the market and concluding remarks before we open for Q&A. Let me first give you some important context for understanding the operating environment we are navigating today. The Strait of Hormuz handles approximately 20% of global seaborne oil and CPP volumes, around 15% of global chemicals, 20% of LNG and 40% of LPG. The closure of the Strait of Hormuz represents the largest supply shock to global energy markets since 1973. The disruption to trade flows is already creating tangible effects in the chemical markets with volatile energy prices, shifting demand patterns and increased activity in the U.S. Gulf contrasting with a slowdown in other regions. We are also seeing spillover effects, including elevated bunker prices and availability constraints east of Suez, which are adding to the operational complexity for all participants in the market. This is not just a temporary disruption. It is a structural dislocation and the downstream consequences for chemical and industrial supply chains are already being felt. Firstly, the supply shock itself. Approximately 20 million barrels per day have been effectively removed from global seaborne flows due to the Hormuz closure. Middle East exports are down around 60% from around 25 million barrels per day to a net negative position when you account for the coordinated attacks across Saudi Arabia, UAE, Qatar and Iraq. Critical infrastructure has also been impacted. The Saudi East-West pipeline bypass with a capacity of approximately 7 million per day is already operating at a maximum. And even at full utilization, it can only reroute around 35% of Saudi Arabia's export volumes. There's simply insufficient physical replacement for what has been lost. In the center here on the chart, we begin to see system breakdown. Storage infrastructure is now approaching saturation, what the industry refers to as tank tops, and this is beginning to force production shut-ins. We are seeing force majeure declarations across LNG, LPG and chemical cargoes. The physical constraints on rerouting storing and processing volumes are compounding the supply loss. The third shock is demand rebalancing with Asia firmly at the epicenter. Japan, Taiwan, South Korea, Vietnam and Singapore collectively import more than 70% of the crude from the Arabian Gulf. The feedstock consequences are severe. Naphtha supply is down approximately 1.2 million barrels per day, and LPG prices have risen sharply since late February. This could potentially translate into a feedstock crisis with shutdowns of crackers, PDH plants, methanol facilities and aromatics units resulting in lower volumes. China, Korea and India have begun implementing export controls and rationing measures. The conclusion is clear. This is not a market we expect to normalize quickly. We are planning for a range of potential scenarios, spanning from a stabilized transit environment where trade flows largely normalize through to most restricted or even a closed transit regime. Across these scenarios, we have a clear set of operational and financial levers available to us. These include deploying our tanker fleet to optimize utilization and our COO and spot mix, leveraging the diversification of liquid logistics and aquaculture portfolio, providing some resilience to our earnings, adjusting capital allocation by deferring nonessential CapEx and drawing on our strong liquidity and balance sheet capacity to absorb volatility. At this stage in time, it is unclear whether the disruption will create more complexity or opportunity for our business. From a supply perspective, the stainless steel tanker order book stands at approximately 18% of the existing fleet with net supply growth of around 4% expected in 2026. However, a significant feature of the current fleet is its age profile. Approximately 14% of the stainless steel tanker fleet is aged 25 years or older and eligible for retirement. And this proportion increases to around 30% when you consider vessels aged 20 years and above. The potential for fleet retirements to absorb new supply is considerable and also acts as a buffer in case of potentially prolonged demand contraction. We expect these supply dynamics to continue to provide underlying structural support to the chemical tanker market over the medium term. To wrap this up, we are operating in an exceptionally uncertain global environment. The geopolitical pressures we face, particularly from the conflict in the Middle East and the disruption at the Strait of Hormuz introduce real complexity and market risk. Our immediate priority is to protect our people, our assets and our earnings. And we are maintaining a clear focus on what we can control. In that context, I want to leave you with 4 key themes. Firstly, we are safeguarding earnings and maintaining our focus on customers. Our ships are not currently directly affected, and our fleet is adapting swiftly to the changing situation. Our global network is agile and well positioned to support customers through the current period of supply chain disruption, and we're working closely with customers to find solution with them. Secondly, we are leveraging our diversification. The resilience of our non-tanker portfolio provides 44% of group EBITDA, providing earnings and support at a time when the tanker market faces headwinds. Thirdly, we are maintaining disciplined management of our costs and capital allocation. We have a clear set of financial levers available to us, and we will deploy them appropriately as the situation evolves. And fourth, we enter this period of uncertainty from a position of financial strength. We have robust liquidity of $546 million, a well-structured balance sheet and the capacity to absorb volatility while still pursuing strategic opportunities. Despite the challenges ahead, our strategic foundations are strong. Our portfolio is resilient and our team is focused. We continue to navigate this complex environment, delivering long-term value for our shareholders, our customers and all of our stakeholders. Thank you for your attention. I will now pass you back to Alex for Q&A. Alex Ng: [Operator Instructions] So we will start with the first question. First one for you, Jens, in relation to EBITDA guidance. Could you provide a bit more comment around the rationale for removing the EBITDA guidance? And then any information about when you would expect to resume that guidance? Jens Grüner-Hegge: Thank you, Alex, and thank you for the question. As Udo talked about, we're living in a situation which is rather unpredictable. And this could go either way up or down. And therefore, we feel that there is no real foundation to provide an EBITDA guidance at this stage. I think once we start seeing things normalize, which would mean a number of the factors that are currently causing disruptions coming back to normal, then we can reconsider providing an earnings guidance at that point. Udo Lange: Yes. Maybe let me add. So what is really the value of guidance? The value of guidance is that we see more in the business than you as an outsider and that we provide basically guardrails with the lower level or an upper level. And when you have a situation like this, if the guidance range becomes ridiculously large or it's so foggy, then it's a little bit like the COVID time. So nobody was surprised when companies stopped providing guidance during COVID. So this is not a decision that we take lightly. So we really had long conversations around this. And we just came to the conclusion. What we are seeing right now is not good enough to provide reasonable guidance. Exactly what Jens said, it can go up and it can go down, and we will come back when we have more clarity. Alex Ng: Thank you. Next question is in relation to tank containers. Would you be able to provide some guidance, Jens, in relation to where the integration costs sit in the line items? Are they entirely booked in SG&A as a starting point? And maybe just another comment around Stolt Tank Containers SG&A more broadly. Apologies, I think you're on mute. Jens Grüner-Hegge: I am indeed. Thank you. To the first part of the question, yes, the integration cost is in SG&A. And as I mentioned in my speaker notes, it was about $5 million that we incurred in the first -- during the first quarter. As for SG&A in general, as we compare the first quarter of '26 with the first quarter of '25, you have pretty much 1 year of inflationary expenses that have come in and that impacts the results. Other than that, I think for STC, I think it's fair to say they are in a tough market. And when you are in a tough market, you're always having a close eye on your expenses, and that is also the case with STC at the moment. So when this then will normalize, it's hard to say again because they are in the midst of a significant integration following the acquisition, plus we also have the market disruptions that we have to consider as we look forward. Alex Ng: Thank you, Jens. Also continuing on STC, Udo, would you be able to provide a bit more color into the current state of the market and any potential views on outlook in relation to potential improvements in the underlying markets there? Udo Lange: Yes. So the market, as you see, continues to be very challenging. And so when you look at what is really the underlying driver, it is an oversupply. As you know, during COVID, there's a long tail of competitors that got added. This is starting to shake out with our acquisition of Suttons and some other consolidations that are happening in the market. There is consolidation going on, but this is, of course, not changing overnight. And then you take a Middle East situation and that, of course, added extra pressure to the whole situation. So I think what we are really focused on is, of course, working with our customers, delivering value there, but also being focused on margins. So we are very clear on looking at how do we do margin management overall in the business. And in addition, of course, we have a fantastic digital platform and a strong best shore center. And so we just need to deliver even more value on productivity and operational efficiency, and we are fast tracking also on the Suttons integration. So we do everything that is in our control to improve the situation. So we know that this was an exceptionally weak quarter, and Hans' his team are fully focused on that. But of course, there's also a market piece in there. And it's too early for me to tell when the market will change. Alex Ng: Thank you. Next is an accounting question. For tankers, you mentioned that there was an uptick in depreciation quarter-on-quarter due to a change in residual values driven by steel prices. How should we think about the Q1 level? Would it be a new run rate for the tankers depreciation? Or is there an element of one-off effects here? Jens Grüner-Hegge: So typically, what we do is we adjust steel price or we do an assessment of the residual value once per year, and this is done basis steel prices. Steel prices reflect the recycling value of older tonnage. And that sets the target depreciation when the ship reaches its fully depreciated age. And so once a year, we reset this value unless there are any demand shocks. And then that sets really the level of depreciation for the following year. So yes, there was a significant increase this time around, but you should expect that other than changing in our asset base due to acquisitions or sales of assets that it should remain steady accordingly. Alex Ng: And next question is in relation to Avenir and the sell-down there. Are you able to provide a sense for the proceeds both in cash and more broadly relating to the balance sheet you received from this? And how will you allocate those proceeds? Jens Grüner-Hegge: So we are not allowed to talk about the actual sales price of this is unfortunately confidential and as often as the case in such transactions. But as I mentioned, we have removed the debt from our balance sheet now, and we also removed future CapEx, future CapEx being approximately $120 million impacting '26 and '27 and the debt being reduced by $112 million. So hence, you see that reduction now already in our balance sheet. Udo Lange: Yes. And let me add what Jens says. So we are super excited about this deal because it's really a double whammy. So on the one hand, we can accelerate our strategic ambitions in this space because we have a strong partner with NYK, who can also bring offtake for the business, and we can jointly grow. But then on the other hand, it also helps us both on our balance sheet side. And as you saw, it has a significant impact on reducing our CapEx exposure, and that is quite relevant during a time like this. Alex Ng: A question relating to the results and how they presented, Jens. Last quarter, there was a like-for-like income statement, which was very helpful. Is it possible to get something like that for this quarter, particularly given the number of moving items that have been occurring during the period? And also, do you expect similar in the coming periods? Jens Grüner-Hegge: Yes. I think previously, there were a lot of movements related to acquisitions of Suttons and also with the 2 acquisitions we did in the beginning of the year. We haven't presented that at the moment. Going forward, when we compare next quarter, it will be on a like-for-like basis because you will have had a stable second quarter of '25 and a stable second quarter of '26, you'll probably see a little bit less volatility other than, of course, Avenir. And we can put that in when we present the next quarter's earnings so that you get a like-for-like, and then we can share it broadly with the whole market at the same time. Alex Ng: Thank you. Next question is in relation to the performance of Stolt Sea Farm. Stolt Sea Farm performance looked particularly strong. Q1 is typically strong, but is it primarily volumes or price driven this development? And how do you expect this to continue? Jens, maybe that's one for yourself around the Q1. Jens Grüner-Hegge: Yes. I think, first of all, Q1, we have this typically seasonally strong Christmas season, where you have good volumes that are being sold, particularly in December, after which it tapers off a little bit in the beginning of the new year typically. But this quarter, we saw good movement in prices, favorable movements in prices, and that is reflected in the improvement in the results. That's really the main driver. I think we've elected to not report in detail on Stolt Sea Farm, but there is -- there are sections in the interim financials that were issued together with the earnings release that have more detail on Stolt Sea Farm. It remains strategic. It is important to us, and we will continue to invest in it. And -- but you can find more details about Stolt Sea Farm in the interims. In the presentations itself, we want to focus on the liquid logistics, which is really the bulk of the company's assets and what drives the performance of the company, particularly in times like this when you have disruptions in the global supply chains. That said, under such circumstances, it's nice to have a business like Stolt Sea Farm contributing steadily to the performance overall of the group. Alex Ng: Very good. That concludes all the questions that we have. So thank you very much. Just as a reminder, we'll be posting a recording of our call on our website tomorrow. And Udo, back to you. Udo Lange: Yes. Thank you so much, everybody. I really appreciate you joining us today, and I look forward to talking to you again when we present our results for the second quarter of 2026 in July. And of course, like all of us, I hope that by then, the world has come to a more peaceful landing than where we are right now. With that, all the best for today.
Deborah Honig: All right. Good morning or good afternoon, depending on where you're dialing in from. Thanks for joining us today. We have a very exciting update with iFabric. They just put out their Q4 and full year 2025 numbers, which were fantastic and offered some guidance on Q1 '26 as well. With me today, I have Hylton Karon, CEO; Hilton Price, CFO; and Giancarlo Beevis, COO. We're not going to work off a presentation. The format will be a quick overview of the company for anyone that's new to the story, then we're going to get right into the financial numbers and then open it up for Q&A. There is a Q&A box at the bottom of your screen, so feel free to use that. And even though we're not working off a presentation, this session will contain forward-looking statements. If you'd like to know more about those, you can find them on the presentation on the company's website. With that out of the way, I'd like to introduce and hand the mic over to Giancarlo Beevis, who's COO of the company and CEO of Intelligent Fabrics division. Giancarlo Beevis: Thanks, Deb, very much. Hi, how are you? Deborah Honig: I'm good, I'm good. Yes, why don't you tell us a little bit about the company for people that are less familiar? Giancarlo Beevis: Sure. Thanks, everyone, for taking the time to join us. So as Deb said, for anyone who's new to the iFabric story, I'll kind of give you the quick version as best I can. I think at our core, we're really a company that makes everyday products more intelligent and harder working without making life more difficult. So really, what we do is we operate 2 unique divisions, Intelligent Fabric Technologies that develops proprietary performance chemistries and treatments for textiles. If you think of antimicrobial protection, moisture management, cooling, UV protection, those types of things. We then bring those technologies to life in real finished product, whether that be with major brands or through private label programs and major retailers across North America. Our other division is Coconut Grove Intimates, which has spent more than 30 years really developing and distributing solution-driven intimate apparel and accessories, where we really fuse fashion and function. We distribute all those items again through all major retailers throughout North America and some over in the EU and U.K. So really, if you want to know how we think of iFabric today, we're really a global company with proprietary technology, clinically proven technology. Our business is expanding across health care, sports, travel and other consumer markets. We have powerful retail relationships. We have accelerating revenue and a massive runway ahead for us to continue to build on. So we like to say that we're innovation without boundaries, and we quite literally mean it. It's chemistry to checkout is how we think about it. So we're really using our different apparel items and other items across multiple categories to deliver our unique proprietary technologies to the marketplace. So all that in a nutshell, really reader's digest version of who we are and what we do. I'll turn it over to Hilton Price, who talk about fiscal 2025, which was a fantastic record year for the company. Hilton? Hilton Price: Just a second. Sorry, I couldn't unmute. I don't know what happened. Good afternoon, everyone. As is my usual preamble, I would say that we did a very comprehensive press release on the Q4 and annual results for 2025. The full version is available on our website and also on SEDAR, if you want to look at it. So what I'm going to do in this segment is just focus on a few key elements or important aspects of our financials that I think bring clarity to the numbers and where we're headed as a company. So starting off with revenue. For fiscal '25, our revenues of $32.9 million compared to $27.3 million in the prior year, 20% increase, a record year for the company. Quarter 4 2025 was $11 million compared to $10.5 million, a very small 5% increase, nevertheless, a record. But I want to bring some perspective to that. The revenues would have actually been a lot bigger in that quarter. We had around $1 million in product that we shipped late December that only reached the customer warehouses shortly after year-end. I don't know what the delay was. We thought that would arrive before year-end, but unfortunately, that wasn't the case. Now normally, we have a situation where we deliver inventory or product to our customers' shipping companies, we would recognize as revenue because the risk is passed. But unfortunately, in relation to Costco, they've got an exceptional rule in their agreement that they don't recognize the risk until the goods are received in their warehouse. Accordingly, we were forced to move this $1 million in product that shipped in December into Q1, which is one of the reasons why we amended our guidance for that quarter. So that $1 million added on to Q4 would have made for a much better record, unfortunate. But fortunately, we'll see a much bigger Q1. Gross margins. This is an important thing because our margins on the face reduced from 41% last year to 32% in the current year. And in Q4, in particular, went down from 40% in '24 to 26% in '25. There's a couple of reasons for that. I mean the obvious one is U.S. tariffs, which impacted U.S. sales of about $17 million, almost half our revenues. However, the good news is the IEEPA tariffs have been struck down by the courts and have been replaced by a new 10% tariff, which for us is far more manageable. Now that we have clarity on this, I think we're hopeful that we'll be able to reprice goods going forward to the level that we'll be fully be able to recover the 10%. We weren't able to do that in the prior years, we were committed on pricing. So we took the strategic decision to share the tariff cost with our suppliers. So basically, we ate half and our suppliers ate half. That's going to change. The good news is we're lodging a refund claim of about $600,000 for illegal tariffs charged to us. And in fact, the U.S. have started to reimburse companies. They are backed up. I don't know how long it's going to take. Our agents seem to think it will be this year. But nevertheless, the amount is USD 600,000, which translates to about CAD 800,000. And we'll recognize that when we receive it, it will be a bonus for whichever quarter that's applicable to. The other major consideration or factor that impacted margins was the fact that we stopped shipping intimate apparel in the fourth quarter. And that was pursuant to the fact that we did not renew the Maidenform license agreement that we were using to supply apparel to our major customers. We replaced that with our own brand, which Giancarlo can speak to. I believe the own brand is doing quite well, and it's been accepted by all our major customers. So we'll be able to resume -- in fact, we have resumed shipping in Q1 of intimate apparel. Unfortunately, intimate apparel or fortunately carries the highest margins in the business. So when there's a falloff in intimate apparel sales, it will impact our margins or our blended margins quite significantly. So with the resumption of sales of those products, I would expect margins to increase, obviously, with lower tariffs, all impact the margins, and we've seen improvement. The other major benefit of launching our own brand is we don't have to pay royalties, and that will be a significant cost saving for us going forward in that division. We are paying around 10% with the advertising contribution, I believe. So that's all going to be saved and go to the bottom line. And I believe our new brand is selling better than Maidenform. So all good. Selling and administrative costs, we saw an increase of about $1 million in 2025. Our royalties is one of the biggest components of that as it's variable in relation to sales, higher sales, more royalties. We also spent about $200,000 on our new ERP system, which is a one-off cost. It's not going to be repeated. We've paid most of the cost in '25. I think we have a small residual cost in '26, but the bulk of our cost was in '25. We were hoping to put the system in place in Q1 '26. Unfortunately, that didn't happen due to the commitment required by staff to deliver and execute on the massive quarter. So I've delayed the implementation until quarter 2 or Q2. And it will bring a lot of efficiencies to the way we operate, especially in analyzing our sales, our product and our inventory. I think we'll see a good deal of efficiencies later in the year. EBITDA. Adjusted EBITDA was $1.9 million in '25 compared to $2.7 million in 2024. And the main reason is obviously the reduction in gross margins. So with a number of one-off costs behind us, such as the ERP systems as well the reduction in tariffs, the resumption of the apparel business, savings in royalties, I would expect earnings EBITDA to significantly improve going forward. Cash, credit lines. Our cash increased to $3.8 million from $2.1 million last year. At the same time, we utilized our bank line to the extent of $6.7 million to pay for inventories. And I'm asked why we didn't use the cash to reduce our inventories. And the short answer is that most of our cash was carried in U.S. dollars to convert to Canadian and back to U.S. where we needed for U.S. settlement would have cost us more in exchange differences than the interest that we pay on our credit line. And the final item that I'd like to discuss is our inventories. If you look at the balance sheet, you'll see that our inventories increased to $21 million at the end of '25 from $10.1 million last year. And this represents the inventory that's been brought in to support this massive Q1 that we've just had, for which we've already provided guidance in the press release, and we expect revenues for the quarter to be in the range of $25 million to $27 million. That's it. I'll be happy to take any questions. Deborah Honig: Okay. I see some questions here. So could you quantify the Q1 '26 revenue guidance? Is it mostly related largely in fulfilling the 1,000 additional Walmart stores? Does it include the $8 million related to the Roots contract? And how much is related to the fulfillment of the existing 500 Walmart stores? Hilton Price: Giancarlo, do you want to take it or you want me to answer that? Giancarlo Beevis: No, sure, I can answer. So part of it is fulfilling the additional 1,000 Walmart stores, but it's not all of it. We've obviously launched the new brand for the intimate apparel segment at 2 major retailers that's in the quarter, which is great. We also have another intimate apparel program that's launching at another major retailer in their private label brand. We've also expanded our leakproof underwear program at Walmart into, I think, about 5 -- 4 or 5 new styles and into an expanded store count. So it's kind of a mix of all things. Does it include the $8 million related to Roots? No, only part of it. We shipped part of that in Q4, and we shipped part of that in Q1. And then how much is related to fulfillment of the existing 500, I think I answered that part already. So it's really kind of a nice mix of all programs across both divisions. Deborah Honig: And then I guess a related question. Guidance for Q1 was quite strong. Is this primarily attributed to scrubs growth? Do you anticipate this year will be first half heavy? Or do you see -- do you foresee strong orders shipping in the second half of the year as well? Giancarlo Beevis: So again, part of it is attributed to scrubs, but we expect that to grow. We're working on future store expansion for that going into the end of the year as well. So I think that, obviously, while this is a fantastic quarter, I don't think every quarter will be that, but Q1, Q4 is obviously always a great quarter for us. So we expect that to be large again. We're seeing some expansion in Q3, and I think Q2 will be a great quarter as well, maybe not to the extent of $25 million to $27 million, but we are seeing some good numbers. Deborah Honig: So expecting growth quarter-over-quarter, but not sequentially? Giancarlo Beevis: Yes. Deborah Honig: And then how much in tariffs did the company pay last year? And what's the potential refund amount? Hilton Price: I think I gave it USD 600,000. Deborah Honig: Okay. Hilton Price: CAD 800,000. Deborah Honig: Okay. And then you spoke about this a bit with the Intimates segment. Margins declined to 26.3% from 30.2% last quarter and 38.7% last year. Can you expand on the margin reasons as to why it could expand again? Hilton Price: Yes. Well, intimates carries the highest margin in the business. We stopped shipping intimate apparel in Q4. So when we stop shipping intimate apparel, our blended margin will drop. When we start shipping it again, we'll get the blended margin back up to normal range of around about 35% to 37%. Hylton Karon: I'd like to jump in here and say something, excuse me, everyone. I just had mouth surgery, so I'm talking a little slurred. I think in addition to what Hilton just said, in order for us to get a lot of new positioning in retailers in the United States, we had to give some assistance to get some competitors out of the shelf space. So Hilton, I think that's the other thing that we I'm always right. So I just want the market to understand that we did spend in the tune of a few hundred thousand for us to be able to do multiple millions a year for many years to come. So I think that, that's an additional hit to the margin that was a strategic management decision because these -- the retailers came to us. We refreshed the whole program. It's a whole new dynamic way of marketing these products, and we invested in '25 for the future. So I think that's critical for the market to understand that. Hilton Price: It will be one of the factors that will bring up the margins to historic levels. Deborah Honig: What growth rate do you see for the Intimate Apparel segment? Should we assume that apparel revenue is likely to be very small over 2026? Or will deliveries start mid-2026? Giancarlo Beevis: No, I think it will be a good growth year for the intimate apparel. I mean the new brand has taken off quite well, and we've seen some great traction so far, and we're only looking to expand it from there. I think that we have been held back in some sense using our previous brand that we just jettisoned for our new brand and we're after a new demographic where a lot of these sales are happening. So we're already seeing that in the early reads that we have. We have programs that are selling much over planned, like in the tune of 100%, 200% over what we planned. So we would expect to see that growth to be quite strong over 2026. Deborah Honig: And margin as well, given your royalties... Giancarlo Beevis: Yes, yes, exactly. Hilton Price: No royalties. Hylton Karon: Once again, I'm going to jump in. I think what needs to be said is by us doing our own branding and our own positioning, by being restricted in the Maidenform license to the products that we were able to sell because they did sell traditional lingerie, it is now open season for us. We now can do any product because we restrict it. So besides the fact that we're more competitive because there's no royalty, we are now open to sell any lingerie product. So this is actually very dynamic and very strategic for us for the long-term future. And I think in the months and years to come, this is something that's very exciting for us because we be no longer restricted in what we can offer to the lingerie department, whereas under the Maidenform license, we were severely restricted. So this is another very important reason why we did the investment in '25 because this is going to allow us to expand the lingerie business. And as Hilton Price said, it's some of the higher-margin business that we do in the company, and we will look at it. It's not going to be -- it's not going to have the growth opportunity that IFTNA has, but it's certainly going to be a nice contributor in the bigger picture to the whole of the company. Thank you. Deborah Honig: And how much higher are the gross margins on your branded product versus Maidenform? Hylton Karon: Well, I would say that everything in the lingerie department is probably the margin is in the mid-40s to low 50s margin, whereas IFTNA has got exponentially higher volumes and the margins are either in anything from 35% to 40%. So when you look at the corporation, we like to achieve 40% as a GP for the corporation or better, and we're going to get back to that, and we've elaborated as to why we took the knock in '25, but there's no reason between tariffs contributions. And I would like to just add another thing that we have not brought to the fore. In 2025, we've spent multiple hundreds of thousands putting in a new ERP system. We know the company is growing. We've proven it now with the revenue growth, and we had to put in what's probably in totality, $0.5 million investment and a lot of it was paid out in '25. This is a onetime investment for the future, but it is a complete new operating system. So once again, for the investment community to understand, we've invested for the future in '25. So that was also a hit to the margin. So if one understands we've invested in '25 with strategic growth in mind, knowing the exponential growth the company is enjoying into the future, and we've put systems in place to help us run a far bigger company. Hilton Price: I just want to add something there. You've got to differentiate between items that affect EBITDA and items that affect margin. Yes, the system had a big cost, but those are operational costs. Those will affect G&A and EBITDA. Obviously, the higher margins in Intimate Apparel will bring up the margins. So one shouldn't confuse the 2. Royalties as well as a selling expense. It doesn't directly impact margins. It certainly impacts the bottom line. Deborah Honig: Got it. And what is your adjusted EBITDA margin objective for the next 2 to 3 years? Hilton Price: I'm trying to get to 15% in 2026 and hopefully, as high as 20% in '27. Because a lot of our costs are fixed costs, our variable costs or incremental cost to execute on higher revenues are not that large. So at significantly higher revenues, you're going to see a lot more dropping to the bottom line. Deborah Honig: Just trying to group these together a little bit. Can you give a little color on expenses going into 2026? And will selling expenses increase faster than G&A? Hilton Price: That's not going to be the case. I mean you will look at it after Q1. You'll see that, that absolutely isn't going to be the case. Deborah Honig: And then I know you talked about Q4 versus Q1 -- Q4 '26 versus Q1 '26. Do you expect Q4 to be just as strong? Or do you think Q1 was an anomaly because of some of the orders that slipped into the quarter? Hilton Price: No, Q4 won't be as strong as Q1, but it will be significant. And we are working on other stuff -- we're not a mature company. Any one of these things that we are working on can come to fruition in the next few months and could be a Q4 delivery. And it might be that Q4 is as good as Q1. It could be the case. We don't know. We're working on stuff. Giancarlo? Giancarlo Beevis: Yes. No. I mean we're working on things that could -- as you say, any one of them pop could give us one of those record over record quarters. So as we move through the year, we'll see how those come. Some of them are looking good. So let's see what the year holds. Deborah Honig: Could you discuss the rollout of scrubs via Walmart and what might happen over the next couple of years with this product? Giancarlo Beevis: So we were given a test and I think it was about 367-odd stores. Obviously, it was well received in the first handful of weeks of selling, which we announced that we were getting an additional 1,000 stores. So we're in, call that 1,367. It's only about 20% of Walmart stores in the United States. So if we extrapolate that just on purely door growth to the rest of the 4,400-odd stores in the U.S., we have substantial runway organically just with expanding into different stores. We are seeing the sales continue on a good trend. Obviously, we're the only technology in the store with clinically proven -- or the only scrubs in the store with full clinically proven technologies and actually touting it. So the market is accepting it. People are looking for these types of goods, and we're the only ones who can supply it to them. So it is going well. I saw a question there on are we expanding to other retailers beyond Costco and Walmart because that's what we've talked -- that's what we've spoken about. Yes, of course. We don't want to sit here and spend 20 minutes listing out the customers we're selling to, but we are expanding that. We're not just a 2-trick pony. Keep your eyes on the stock. You'll see some announcements coming out in the coming months that will list some of the new retailers that we're working with. Deborah Honig: And what is the path for getting the scrubs sold directly to hospitals? Giancarlo Beevis: So we're currently working with the hospital group that did the clinical trial out in California on multiple different paths to doing it, whether that's through a buying group, whether that's a direct relationship that encompasses iFabric, Walmart and the hospital group themselves so that they can be directed to a B2B portal directly with Walmart that will supply our doctor's choice scrubs. But obviously, we're also working through the nurses unions to see if we can get their kind of seal of approval because once the nursing unions get a handle on this kind of technology, they're going to insist that their nurses are protected by using that, which kind of forces the hospital's hands. So there's many different routes. We're trying all of them. And again, stay tuned. We'll see where we can get within the next 12 months. Deborah Honig: And are you pursuing European or Asian distribution for the scrubs? Giancarlo Beevis: At this point, we haven't. We've expanded some of our technology as we released in Marks & Spencer. But yes, we're pushing into the EU, but not as fast as quite as fast a pace as we are in North America. Deborah Honig: And do you have an update on the EPA kill claim? Giancarlo Beevis: We're still working. We're still doing the leaching study. And hopefully, we get that completed in the short term. I think the positive news is that what we can show is that the clinical trial has been fully worth the wait. Everyone was -- all the investment community always wanted to know why it was taking us so long to do that. But we did achieve it, as we said we would. And once we did achieve it, we can clearly see what growth came just from that. So our expectation is that once we get the EPA kill claim, we'll have that expanded growth continue to show up with the kill claim as well as the clinical trial as kind of a double-edged sword. Deborah Honig: And are the royalties for the use of Doctor's Choice names for the scrubs in the high single digits or higher? Can you comment? Giancarlo Beevis: Single digits. Deborah Honig: Okay. Giancarlo Beevis: Very recent... Hylton Karon: I'm going to just comment on this. I think that certainly investors are asking minutia questions. We, as a business, and I think we've touched on this, Deborah, is we, as a company mandate to ourselves as management to have a minimum revenue and a minimum margin. So we take -- the royalty is only one component of a costing. So to focus just on one part of a total costing is just not important. The whole package has to work for the business or we're not going to take the business. We don't chase revenue. In fact, I think it's one of the lower royalty programs that we run. But it's not whether it's higher or lower. We just make sure that at the end of the day, any program we take is going to give the right return to the -- for us to invest the kind of money we're investing. Deborah Honig: Just scrolling through these, trying to find new questions. On April 8, Trump posted a country supplying military weapons to Iran will be immediately tariff on any and all goods sold to the United States, 50% effective immediately. There will be no exclusions or exemptions, potential targets are believed to be China. How long before the company can diversify its supply chain out of China? Giancarlo Beevis: So just quickly on that. I mean, everyone wants to move out of China so quickly and then he changes his mind and everyone wants to move back to China so quickly. China has got consistency. China has got supply. They've been doing it forever. So -- and we have infrastructure there. So we are quite comfortable with producing in China. Having said that, we have, obviously, since the beginning of last year, started to diversify our supply chain. So we already can make anything we make in China and other places in the world, whether that be Vietnam, whether that be Bangladesh, whether that be India, we do have backup plans. If he does -- if he passes that 8:00 p.m. deadline and he puts the new tariffs in and he wants to do whatever he wants to do, we can maneuver quite quickly. Stuff that's already in process will be stuff that's already in process, but we do have a strategic plan in place to make sure that we don't get caught. Hylton Karon: I think people must also ask themselves the question. China is the primary source of fabric. So all these other countries where people who don't know our business, it's easy to ask the question where you're sourcing from. But at the end of the day, everybody is getting their fabric from China. So I think this is a -- it's a great conversation, and it makes for wonderful chatter. But at the end of the day, our competitors and us, we're all in the same boat. And to get resupply of the kind of volume we get to flick a switch and buy from another country would take 3 to 5 years to develop. So this is really a mute conversation. Us and our competitors, we're all in the same boat. We're all in the same industry. And it really -- we watch it, obviously. We will be pricing it. The buyers are well aware of where we're sourcing from. And so I just don't think this is a major issue and something that needs to be overly stressed about. Deborah Honig: With the market cap sitting around $100 million and a record-breaking Q1 coming up, what are the primary hurdles you see to scaling the Intelligent Fabrics division beyond its current retail footprint? Are you seeing any white space in defense or professional service sectors for your antimicrobial treatments? Hilton Price: We've got many opportunities. Giancarlo Beevis: Yes. I mean there's tons of opportunities. I'll address that first. Obviously, military has always been something of interest to us. It's just a longer -- much longer cycle to get anything adopted. So it's something we've always been interested in. We've always had discussions about. Never mind military. Hilton and I even in the beginning days went to do NASA work, but it's great to go do all that work and spend all that money and they make 7 space suits. So we've really kind of focused ourselves in other areas. But obviously, the defense part of life and with all the funding that's currently going into those programs with all the regimes around the world is an important thing for us, and we are cognizant of that, and we are looking at every route that we could get into the defense sector of life. We also are looking at hospitality and travel, as you see by the signing of TUMI, it's antimicrobials in particular, are very critical in the travel industry. So we are working and have been for years working with many different hospitality companies to try and get our technology into that. I think as we pivoted from just being a technology company to making products to utilize the technology, I think that in the coming months, you'll see some product categories that we get into that really hit that home and hospitality market that we're all talking about. Hilton Price: I think we're at the point that we can really refocus on the Canadian market, Giancarlo. We've discussed that. I mean it's a big market opportunity for us. And I think we've now got tools that we can bring to bear to start ramping up in Canada, which could be a very nice business for us. Giancarlo Beevis: Agreed. And sorry, Deborah, I don't -- I forgot the first part of his question. Deborah Honig: I just... Giancarlo Beevis: That's okay. I think I got most of it. Deborah Honig: Yes, I think you're fine. I guess a follow-on. Are you looking at industrial operators like fast food or slaughterhouse or butchery to see if there's other verticals related to those sectors? Giancarlo Beevis: Yes. So as we've announced previously, we've been working on this hard surface coating, which would go for all of those types of places from health care facilities to daycares to schools to slaughter houses to all those kinds of things. When you get into food industries, there's obviously a lot more regulatory work around that, which we have done a little bit of a deep dive into. And as we work through the protocol on doing the hard surface coating, all of those factors will be taken into consideration. So we do have a product for those specific industries. Deborah Honig: Okay. And then I've got a number of questions on how you plan to scale, whether you need working capital, whether you're adding employees. Giancarlo Beevis: I mean the beautiful part about some of the business that we're doing, so Walmart gives us 300 stores or 1,000 stores or 4,000 stores. We don't need to hire anyone else to do that extra business. And as much as those numbers seem big to us when we're talking about a fabrication and manufacturing landscape in China, it's still small numbers for them. We have factories that have been in business for 50, 60-plus years, do programs on a bigger scale than what we're doing right now. So I'm not worried about supply chain capacity. We also have multiple factories across all the different fabrications that we do. So I think we're pretty safe there. I mean, obviously, if we're going to take on new business and new categories, will we need a handful of new designers? Will we need a handful of new sourcing people, perhaps, but the expenditure won't be substantial. Hilton Price: And our balance sheet is very underleveraged. I mean we've got the capacity to take on debt. We've got the EDC that will guarantee increased bank lines if we need them. It's not ideal. We don't always feel comfortable doing -- using too much debt. And maybe at some point, we'll have to consider supplementing our capital by doing a raise. But those are all things that are on the table. Deborah Honig: And to what degree do you have visibility into sales to end consumers? And can you talk about retail pull-through? Giancarlo Beevis: I mean we only see what the retailers tell us. We can't really see much of the end-use consumer data. But what we can see is that the consumer is recognizing the value of our products and really looking for our solutions in multiple categories. I mean that's as best we can see from a consumer end of life. But they're obviously looking for what we have. And every time we give it to them, it seems to do well. Deborah Honig: And then with Doctor's Choice program now in 1,000 stores, can you help under -- well, I guess the same question, reorder dynamics. Scrubs seem like a year-round stable for health care workers rather than seasonal category. Does that steady demand help smooth out some of the quarter seasonality we've seen historically? Giancarlo Beevis: Yes. So the program is 52-week replenishment. We get obviously a major set when we set stores to make sure shelves are full, and then we replenish weekly from there based on demand. And that -- when we get additional stores, you'll see that big spike again. So when we talk about where these quarters lie and if we will see big quarters again, let's say, for Q3, they want to add another 1,000 stores. Well, obviously you're going to see a spike because we got to fill 1,000 more stores worth of goods. So that's part of it. And then again, adding different retailers, we'll be able to see that. If one hospital group orders, that could be Q4 where we have to manufacture all of all those for the entire hospital system. So all those things are on the table. But we are actively -- to this point, it is a year-round business, so it will help stabilize some of our quarters, and we're also trying to get into new categories that help keep that quarterly flow even throughout the year. So we're not -- Q4 is heavy for us for swim. Q2 is heavy for us -- or Q1 is heavy for us for intimate apparel because people are buying it for weddings and problems and all that kind of stuff. So we're actively seeking new categories that help even out our year quarter after quarter. Deborah Honig: And then one of your directors, Cameron Groome, has joined the Board of Directors of a company with the germicidal ultraviolet product. Does IFA have a potential interest in using its filters in combination with it to create a one-two punch? Giancarlo Beevis: Quite honestly, I don't know enough about that other company. It could be something we explore, but I don't know enough about what they do. The challenge with ultraviolet product is it's like hand sanitizer. It's good for about 3 seconds while you use it and then you touch something and get germs on it again. There's no residual kill to it. Whereas what we're working on in our hard surface coating and what we do in our textile technology is it's continual kill. So it's there for the life of the product. It's not something that has to be flashed every 15 minutes to refresh it. So listen, to be open for discussion, but not that we've had a discussion at this stage. Deborah Honig: And talking about Roots. So if Roots was to be sold to another party, how protected are you from a possible change of control? Giancarlo Beevis: Our license agreement has renewals and things of that nature, but that's our protection as we have multiple renewals, auto renews if we hit certain dollars, which we generally do. So outside of that, that's the protection we have. Deborah Honig: And how vulnerable is the company to the rise in oil and natural gas prices given you synthetic fibers and import from China? Giancarlo Beevis: As vulnerable as anyone who make any petroleum-based product in the world. Deborah Honig: Yes. And how do you go about educating consumers on the technology and claims for the scrubs? Giancarlo Beevis: So all the scrubs that are listed in store have signage everywhere and have QR codes that are directly on every garment and every hang tag so that they can be directed right to the journal and the study. And then obviously, we're through trade shows and other kinds of social media messaging, we're also trying to get all that story out as best we can. The biggest thing, I think, for us on that side of life will be the nursing unions trying to get it in their hands so they can spread it to their community and have them push forward on their end. Deborah Honig: And what's...Sorry, go ahead, Hilton. Hylton Karon: Sorry, just to that point, Giancarlo, I think you've made a good point. I think that these codes and these pop-ups not only talk to the success of the clinical trial, but also to the fact that it's peer-reviewed and published in a journal. So these things carry weight to the medical community working in the medical community. So these people understand exactly what we've got. And it's not to be taken lightly when Giancarlo says that all the retailers, there's no other product besides ours that can talk about it clinically proven and peer reviewed. So we really have a one-two punch that none of our competitors have got, nobody else. Giancarlo Beevis: Also just -- sorry, Deb, to go back to the question about petroleum-based costs rising. Anyone can make a 100% polyester shirt. All of our shirts are -- might be 100% poly, but they do something. So we're not necessarily just trying to sell based on price on a polyester shirt, which is what other people are doing. There is a premium to our product. And if costs get out of control, we're able to kind of counteract that by offering something premium that offers a benefit to the customer instead of just a petroleum-based textile shirt or pant or whatever it may be. Deborah Honig: And what's the status of your partnership with The Lad Collective? Will we see product launches in 2026? How can you enter the hospital and health care nursing channels? Will this be with -- The Lad Collective and iFabrics need to have a dedicated sales team to push this product? Giancarlo Beevis: So I mean, once we have something to announce, we'll announce. I can't -- I don't think I can give anything further on that, but we are obviously actively working with The Lad Collective on getting those programs launched ASAP. It's a great product. They have some technical functional patent-protected features that go along with our fabric technology that give you something that is just not available in the bedding sector. So we're very, very excited about that partnership. And we think that from a retail side of life, that will really yield a great response for us in many retailers. So again, stay tuned on that. As soon as we have something to announce, we will. From a health care and health care nursing channels for TLC, I mean, betting is something that we want to do in health care. I don't know how it will relate to TLC, but it is a business that we're actively pursuing from an Fabric perspective with or without the TLC side of life. We've been working on that for years, and I think that will come to fruition shortly. Deborah Honig: Right. Well, I think we've exhausted the Q&A. Hylton, you said that you wanted to have some final remarks. Hylton Karon: Thanks, Deborah. Well, first, thanks, everyone, for taking the time to listen to the results. I just want to complement Giancarlo, Hilton Price and the whole team. I think what we've done in '26 and the end of '25 doesn't come without a lot of hard work. And as we say, keep watching, these are not anomalies. I'm so proud of what we've achieved, and I think we are on a new trajectory. And we can't -- we're so excited to show the market what we're going to do for the rest of '26 and into '27 and beyond. We've got a lot of scope for growth. I think we've touched on the fact that margins in '25 were an anomaly. So -- and as Hilton Price succinctly put it, the bottom line is only going to get better and better because of margins and volumes. So we're excited and very proud of what we've been able to achieve and the future is looking really, really strong. Thank you. Deborah Honig: Great. Well, thank you to the team. Congratulations on an incredible year and an incredible start to 2026. Thank you to the audience for your participation and your questions. If you have any further questions, feel free to reach out, and I can get those answered. Or if you'd like a one-on-one call with management, please feel free to reach out. And yes, thanks, everyone. Have a great afternoon. Giancarlo Beevis: Thanks very much. Hilton Price: Thanks, everyone.
Operator: Good morning, and welcome to the BlackBerry Fourth Quarter and Full Fiscal Year 2026 Results Conference Call. My name is Betsy, and I will be your conference moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Suzanne Spera, Senior Director of Investor Relations, BlackBerry. Please go ahead. Unknown Executive: Thank you, Betsy. Good morning, everyone, and welcome to BlackBerry's Fourth Quarter and Full Fiscal Year 2026 Earnings Conference Call. Joining me on today's call is Blackberry's Chief Executive Officer, John Giamatteo; and Chief Financial Officer, Tim Foote. After I read our cautionary note regarding forward-looking statements, John will provide a business update, and Tim will review the financial results. We will then open the call for a brief Q&A session. This call is available to the general public via call-in numbers and via webcast in the Investor Information section at blackberry.com. As part of today's webcast, presentation slides will be played. The slides are also available on the Investor Information section at blackberry.com as well the replay of today's call. Some of the statements we'll be making today constitute forward-looking statements and are made pursuant to the safe harbor provisions of applicable U.S. and Canadian securities laws. We'll indicate forward-looking statements by using words such as expect, will, should, model, indeed, believe and similar expressions. Forward-looking statements are based on estimates and presumptions made by the company in light of his experience and its -- of historical trends current conditions and expected future developments as well as other factors that the company believes are relevant. Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. These factors include the risk factors that are discussed in the company's annual filings and MD&A. You should not place undue reliance on the company's forward-looking statements. Any forward-looking statements are made only as of today, and the company has no intention and undertakes no obligation to update or revise any of them, except as required by law. As is customary during the call, John and Tim will reference non-GAAP numbers in their summary of our quarterly results. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release published earlier today, which is available on the EDGAR, SEDAR+ and blackberry.com websites. And with that, let me now turn the call over to John. John Giamatteo: Thanks, Suzanne, and thanks to everyone for joining today's call. BlackBerry finished the fiscal year with another strong quarter, delivering double-digit top line growth and marking the eighth consecutive quarter of improving GAAP profitability, capping 2 full years of significant progress in the fundamentals of the business. When this new management team was appointed, we promised a turnaround to transform BlackBerry into a profitable growth company, and I'm pleased to report that we've done exactly that. These are not just data points or even a trend, but a consistent track record of delivery. The turnaround is complete, and the BlackBerry story is now a growth story. . QNX delivered another rule of 40 quarter, rounding out a rule of 40 year. We achieved the second consecutive record for revenue in the quarter, exceeding the top end of the guidance range at $78.7 million, representing 20% year-over-year growth. The nature of the business means -- building on a solid and underappreciated Q3, we believe QNX is as strong as ever. Revenue was driven by a record quarter for royalties and development revenue had its best quarter of the year. We are delighted to report that QNX royalty backlog continues to grow, increasing to approximately $950 million. We added significantly more into the backlog than we recognized in the P&L this year. The backlog provides QNX with a line of sight to ongoing multiyear durable revenue growth that few companies enjoy. Consistently adding backlog year after year, significantly above the rate it is recognized in the P&L is a key indicator of future revenue growth potential. This is not a business that is slowing down, but rather one that is compounding, powered by our continued leadership in automotive and growing momentum across physical AI, robotics, industrial, medical and emerging markets. The royalty engine is just getting started, and we're more excited than ever about the future of QNX. It is important to reiterate that QNX's growth should not be judged from quarter-to-quarter. The nature of the business means that design wins aren't evenly spread and therefore, neither are development tool purchases. Further, the majority of revenue we secure from a design win will come once it moves into production, which is often 2 to 3 years in the future. As a result, some quarters like Q1 tend to be seasonally softer, while others such as Q4 are typically much stronger. We saw this last year. Q1 grew at a single-digit rate year-over-year in fiscal 2026. But QNX still delivered 14% growth for the full fiscal year. We expect a similar cadence this year. Despite that unevenness from quarter-to-quarter based on our strong backlog, pipeline and operating leverage, we expect QNX to remain a Rule of 40 business for fiscal year 2027. Therefore, it is important to focus more on the strength of our full year growth, the continued expansion of our backlog and our growing design win pipeline all of which points to QNX remaining a solidly double-digit growth business. Our QNX strategy is underpinned by our automotive leadership. This past quarter, we demonstrated that with a wide range of design wins in multiple domains. Our largest win of the quarter was with a Tier 1 supplier for the Chinese market where QNX will be deployed on Chinese chip maker, Xeris SoCs in a range of smart sensors for use by a number of leading OEMs. China remains a large, valuable and growing market for us, demonstrated by this win, which comes on the back of several other significant wins in recent quarters. We continue to demonstrate our leadership in the digital cockpit domain, including a major win with one of the world's top 5 automakers based in North America. We were able to successfully upsell the customer to a broader range of our product portfolio for a platform that we expect to go into production this year. We also secured a significant ADAS safety system design win in Europe with another top 5 OEM that is deploying a Qualcomm Snapdragon chipset. In addition to the progress in our core auto strategy, we have 2 key growth accelerators that offer significant upside potential. The first is the move up the automotive software stack beyond the core operating system into the middleware layer with our alloy core platform. This platform combines QNX's safety-certified operating system and virtualization with our partner vectors, Safe middleware to provide a pre-integrated safety-certified lightweight and scalable foundation for a number of key domains throughout the car. Alloy core reduces software integration overhead for OEMs, accelerates their development and frees them up to focus engineering resources on differentiating customer experiences in the app layer. We continue to work very closely and effectively with Vector and remain on track for general release of the product this calendar year. While as expected, we haven't secured any design wins for Alloy core yet conversations with several leading OEMs, including Mercedes-Benz are progressing well. The platform represents an opportunity for significant ASP expansion compared to the revenue from selling the core operating system. Alloy core could be many multiples of that. The second growth vector where we're seeing significant traction is the general embedded space. Currently, approximately 20% of QNX revenue comes from non-auto verticals and the addressable market opportunity is massive, potentially larger than for automotive. The technology we developed for auto is intentionally highly adaptable for use in adjacent verticals, and we're investing in go-to-market to drive adoption. Sales cycles in these verticals are often relatively long, but the pipeline we've been building is starting to convert in fiscal year 2026 delivered wins in several of our target verticals. This past quarter, we secured a significant win for our general embedded development platform or GEDP to be deployed in industrial automation controls for a major North American OEM. This was one of a number of wins in industrial automation, which is a key target vertical. We also secured a number of wins in medical instrumentation, including with Johnson & Johnson, where QNX OS for safety will power a new AI-driven heart pump. Robotics represents one of our most exciting long-term opportunities as we stand to capture growth in physical AI. We are building pipeline momentum and expect this vertical to become a meaningful part of gem growth over time. QNX has already proven itself as the platform of choice for physical AI, given its large footprint in all levels of autonomous driving. The car is the most complex consumer device and is essentially a robot all wheels. We believe our strong partnerships will support this growth. Recently, ARM announced its new ARM AGI CPU for use in physical AI. And during the launch event, CEO, Rene Haas identified QNX as one of its foundational software ecosystem partners in support of their aspirations in this space. We also have strong relationships with other leading silicon providers, including NVIDIA and Qualcomm, who are also pushing into physical AI and we believe these partnerships help position us well for future growth. Now moving over to Secure Communications. Just over a year ago, the Secure Communications division was barely discussed. In fact, at the time it was viewed as a drag on our overall story, a business in transition as we focus from a broader cyber portfolio to our core strengths in mission-critical secure communications and digital sovereignty. Today, the situation has changed considerably. This past quarter, secure communications delivered a near rule of 40 quarter, results that would have seemed unthinkable a year ago. We believe it now represents under-recognized value within our portfolio. Revenue was strong at $72.5 million exceeding the top end of our guidance by 12% and delivering 8% year-over-year growth. Digital sovereignty, the desire for governments to retain critical data and communications on sovereign solutions hosted and operated in country is no longer a buzzword. Instead, it is a budget line item for governments worldwide and we are winning in this space with a demand environment that has seldom been stronger. Together with rapidly growing defense budgets among NATO allies and beyond, the Secure Communications division is benefiting from meaningful tailwinds. Secusmart, our military grade encrypted voice and data platform delivered a strong quarter with revenue growing meaningfully year-over-year. This performance was primarily driven by sales to the German government, where Secusmart is a key and trusted supplier meeting the very demanding certification requirements of the German cybersecurity Authority, BSI. Our investment in the platform to support iOS devices in addition to Android, has driven a significant market opportunity for us with the German government, and we see a strong line -- pipeline of opportunities as we head into fiscal year 2027. Outside of Germany, we were thrilled to announce a multiyear extension and expansion to our contract with Shared Services Canada. SSC is the Canadian government agency responsible for delivering and operating IT infrastructure and digital services for most federal agencies. As part of the deal, the Canadian government has significantly expanded its number of Secusmart licenses. This will help drive a strong start to fiscal year '17 and with meaningful revenue from this deal expected in the new fiscal year. Other wins in the quarter included NATO and the Malaysian anticorruption establishment. UEM continues to stabilize. Although full year revenue declined year-over-year, the renewal rate continued to improve and the value of multiyear deals increased by 47% year-over-year. In Q4, we secured a number of new logo wins particularly by capitalizing on the BSI certification in Germany and where UEM is sold in conjunction with Secusmart. This quarter's wins we're global and included the IRS, the German Bundesbank, the Council of the European Union, the Netherlands Reagewaterstak as well as Switzerland's Bank Julius Baer. AtHoc, our Critical Event Management solution had a solid quarter and full year, recording double-digit year-over-year revenue growth for Q4 and high single-digit growth for the full fiscal year. This past quarter, we secured expansions and renewals with a number of customers, including the U.S. Air Force the U.S. Coast Guard and the U.S. Department of Treasury as well as a new logo win with Australia's Department of Foreign Affairs and Trade. Key metrics for the Secure Communications business indicate an inflection point. Annual recurring revenue, or ARR, for secure comms increased by $2 million or 1% sequentially to $218 million, which is $10 million or 5% growth year-over-year. Dollar-based net retention rate or DBNRR also improved by 2 percentage points sequentially to 94%, 1 percentage point higher than in Q4 of the prior year. Another reason we're confident in the durability of BlackBerry's growth is the competitive moat we enjoy across our QNX and secure communications businesses. This moat is multilayered and importantly, addresses the concerns investors have today about AI and software models. Let me give you 3 reasons why we believe our moat is durable. The first is that our QNX pricing model is different from traditional seat-based SaaS models. The majority of QNX's revenue is consumption-based, primarily driven by royalties tied to the number of high-performance systems powered by QNX in cars, robots and other intelligent edge devices rather than seat-based licenses. Second, our software is embedded in the most demanding, highly regulated safety critical use cases imaginable where users' lives depend on the software working exactly as it should. AI is probabilistic by nature, meaning outputs can vary but the QNX platform is deterministic, delivering the same result every time without exception. That distinction matters enormously when our software controls the vehicle safety features such as adaptive cruise control or autonomous drive. We have built deep trust with customers through decades of flawless execution backed by certifications, such as the rigorous ISO 26262 standard for functional safety. The stakes are high and the cost of failure could be catastrophic and the benefit of replacing a proven certified platform for a marginal price saving in our view, is not a trade-off that any responsible OEM will make. As a relatively small portion of the bill of materials we see the risk and reward equation heavily skewed to our favor. The third is cost of delivery. QNX's scale across the automotive and other verticals drives a cost of delivery advantage that individual OEMs attempting to build and maintain their own solution, even with AI tools cannot match. On the secure comp side, our products are deployed in mission-critical, highly regulated, highly sensitive environments. The license to operate in those environments comes in the form of hard-earned certifications, which assess people and processes as long as long-standing customer relationships that take years to build. Far from being complacent, we see AI as a net tailwind for our business rather than a threat. QNX is positioned to be a critical enabler for physical AI where there is 0 margin for error and learnings from our leadership position in demanding automotive environments serve as a perfect blueprint. Further, in the hands of our R&D experts, powerful new AI tools increase productivity, accelerate development cycles, strengthen our competitive advantages and enhance the operating leverage already embedded in our model. Touching briefly on licensing. Licensing revenue came in at $4.8 million, slightly below guidance due to quarterly variation in returns from pre-existing arrangements that are not indicative of any change in the underlying business. And with that, let me now turn the call over to Tim, who will provide further details on our financials. Tim Foote: Thank you, John, and good morning, everyone. Earlier, John described how both QNX and Secure Communications delivered stronger-than-expected revenue. This past quarter, we saw the impact of this year-over-year revenue growth in both divisions and for BlackBerry overall. QNX gross margins expanded by 1 percentage point to 84%, record revenues of $78.7 million. Further, this drove an 11% year-over-year growth in adjusted EBITDA for QNX to $21.4 million, representing 27% of revenue for the quarter. For the full year, QNX delivered $71 million of adjusted EBITDA or $0.26 of revenue, which together with the 14% revenue growth mean that QNX was a rule of 40 business, both for the quarter and the full fiscal year. The strong top line for secure comms also drove operating leverage, with gross margins expanding by 8 percentage points year-over-year in Q4 driven in part by stronger Secusmart software license revenue. This translated into a 27% adjusted EBITDA margin for secure comms growing to $19.5 million for Q4 and $56.1 million for the full year, well ahead of guidance from this time last year. Our licensing business contributed $6.3 million of adjusted EBITDA in the quarter and $21 million for the full year. This relatively passive income stream remains a solid source of both profitability and cash flow for BlackBerry. Adjusted operating costs, excluding amortization for our corporate functions, came in at $11.1 million in Q4 and $41 million for the full fiscal year. Tight cost control reduced corporate overhead by 5% year-over-year in fiscal year 2026. Pulling this all together, BlackBerry had a very strong fiscal quarter and solid fiscal year. Total company revenue grew 10% year-over-year in Q4 and 3% year-over-year for fiscal year 2026. For the quarter, year-over-year, gross margins expanded by approximately 5 percentage points to 78.2% and adjusted EBITDA margins by 8 percentage points to 23%. For Q4, BlackBerry generated $36.1 million of adjusted EBITDA driving full year performance, exceeding the top end of our guidance range at $107.1 million. Adjusted earnings per share for Q4 also beat the top end of the guidance range at $0.06. In Q4, we converted this strong profitability into cash flow. During the quarter, we generated $45.6 million of operating cash flow and a further $38 million in deferred proceeds from the sale of Cylance to Arctic Wolf. This conversion of profitability into cash continues to strengthen our balance sheet. We exit fiscal year 2026 with $432.4 million of cash and investments or $232 million of net cash. This provides the company with substantial optionality for capital deployment. This past quarter, we continued to execute on our share buyback program, repurchasing 6.7 million shares for $25 million. This brings the total since the program launched in May of last year to 15.5 million shares or $60 million. The share buyback program serves 2 purposes, offsetting dilution from equity-based compensation and signaling how we value the company relative to current price levels. Further, given our capital generation, we are actively considering tuck-in M&A as a way to further accelerate growth in QNX. While QNX has a strong organic path to durable long-term growth. We also see opportunities to increase both the speed and scale of that growth through strategic buy-side M&A. The bar is high, however, and any M&A need to be compelling both strategically and financially. Moving now to guidance for Q1 and the full fiscal year. As John mentioned, the turnaround is now complete. BlackBerry is now positioned as a sustained growth story. QNX entered fiscal year 2027, with solid momentum. For Q1, we expect revenue to be in the range of $60 million to $64 million, reflecting the seasonal cadence that we've seen from QNX in recent years. As John mentioned, growth from quarter-to-quarter is unlikely to be linear due in part to the impact of upfront revenue from development licenses. Therefore, some quarters will have stronger year-over-year growth than others, but we believe the trajectory is clear and consistent. For the full fiscal year, we expect to continue to drive solid top line growth with revenue in the range of $290 million to $307 million. The top end of the range represents approximately 15% growth and acceleration over fiscal year 2026, and this is our target. However, given the current uncertainty in the macro environment, we believe it's only prudent to price and some risk to the lower end of the range. On the cost front, we continue to invest organically in our QNX business to capture the opportunities we see in front of us. We expect a sustained top line growth to translate into adjusted EBITDA for QNX in the range of $69 million to $81 million for the full year. We expect secure comms to return to full year growth for the first time in 6 years. This is an important inflection point. The combination of digital sovereignty tailwinds and the benefits from key investments such as Secusmart iOS support, FedRAMP high authorization for AtHoc and UEM BSI certification is helping stabilize UEM and drive growth for AtHoc and Secusmart. We expect Q1 revenue in the range of $66 million to $70 million. For the full fiscal year, we expect to deliver top line growth in the range of 4% to 8% or $270 million to $280 million. We expect adjusted EBITDA for the fiscal year 2027 to be in the range of $57 million to $65 million. For our licensing division, the revenue stream is relatively solid, and we expect licensing to remain a consistent source of profitability and cash flow. As a result, we continue to expect revenue to be approximately $6 million each quarter and adjusted EBITDA of approximately $5 million per quarter. Bringing everything together at the total company level, we expect BlackBerry to deliver an acceleration in top line growth in the range of 6% to 11% for fiscal year 2027, or $584 million to $611 million. We expect adjusted EBITDA of between $110 million and $130 million and non-GAAP EPS to increase significantly to be between $0.15 and $0.19. This EPS guidance does not reflect the impact of any potential future share repurchases. Finally, in terms of cash, consistent with historical patterns, Q1 is expected to be a seasonal low for cash flow, driven by the billings and payments timing. However, for the first time in 3 years. We expect BlackBerry to maintain positive operating cash flow generation in Q1 in a range of breakeven to $10 million. Further, improved cash conversion is expected to drive full year operating cash flow of approximately $100 million, nearly doubling year-over-year. And with that, let me now turn the call back to John. John Giamatteo: Thanks for the summary, Tim. And before we move to Q&A, let me briefly summarize the key takeaways from this past year. BlackBerry's turnaround is complete and we are now firmly focused on growth and value creation. Over the past fiscal year, we delivered consistently improving fundamentals highlighted by a record revenue quarter for QNX. Today, QNX is a Rule of 40 business with growing backlog and strong sustained momentum. Secure Communications has returned to growth, supported by a demand environment for digital sovereignty that is both real and accelerating. Across the company, we are growing, generating meaningful cash and deploying it with discipline. We have a proven track record of execution, a clear strategy, and we are well positioned for the road ahead. So with that, let's now move to Q&A. So Betsy, if you can please open up the lines. Operator: [Operator Instructions] The first question today comes from Kingsley Crane with Canaccord Genuity. Unknown Analyst: Really impressive results. this term physical AI is in vogue now, and you've been building capabilities in the gym space for years. I'm just curious if customers understand that automotive really can be a blueprint here and thinking about the distinction between deterministic action and probabilistic action, that seems important not just in auto, but also in other areas like general Robotics. Just curious on that. John Giamatteo: Yes. Yes. That's really good perspective is. And that's something that we think has really resonating in the prospects and the pipeline that we're building in the robotics space and particularly in the GM space. The credibility that we have in the automotive space with autonomous and all the safety certified capabilities that we provide there really translates so well into an environment like physical AI and I think for that reason, we get a lot of looks at new opportunities that maybe others don't and maybe we wouldn't have had in the past. But we think the combination of leveraging that subject matter expertise, the building out of our go-to-market function and some of the partnerships that we have there, we're really starting to see some solid pipeline will -- it will take some time to convert it and to turn it into backlog and royalties and the rest of it, but we are very encouraged by the momentum that we see in that space. . Unknown Analyst: Thanks, John. Really helpful. And for Tim, look, the ASPs on the GEM wins are meaningfully higher than automotive. Could you just remind us of the delta between those? And would these opportunities in physical AI meaningfully expand that further? Tim Foote: Yes. Great question, Kingsley, and great to speak with you. Yes. So one of the things, obviously, is the volume equation. When you look at auto, you have some very significant volumes in terms of production runs. And you don't typically see that in GEM. But quite often in this space, particularly things like robotics and physical AI. Right now, it's speed to market, that's the most important thing as opposed to sort of driving gross margins for the OEMs themselves. So what we're seeing is less price sensitivity on that side of the house. What we see is, ultimately, the growth story is to have more instances of QNX running with more layers of software as well. And physical AI as John mentioned, being a really compelling safety critical use case is a really high-performance edge compute type environment that we really would excel in. So yes, we believe that as GEM starts to grow as a portion of the overall pie because it is growing pretty fast right now, that could be pretty accretive to our gross margins going forward. Operator: The next question comes from Todd Coupland with CIBC. Thomas Ingham: I wanted to ask about Alloy Core. You talked about general availability later in the year, how meaningful this could be? How meaningful could this be to your backlog, maybe put that into the context of the $950 million you just reported. . John Giamatteo: Yes. Todd, we -- I will tell you -- Tim and I talk about this all the time. We think this is one of the most underappreciated part of the business in terms of our -- the upside potential that we have to this current year because we're finding more and more OEMs are looking for us to do more and more of this kind of partnership with the likes of Vector. So we're -- the pipeline for that is growing significantly and we do think it can have a meaningful impact to the overall backlog. We're confident on rolling it out in time. And we're also confident in converting a number of opportunities that are pretty -- progressing really, really well. So it's hard to put a specific number on it and probably be inappropriate for me to do that. But I do think it can have a significant impact to that $950 million backlog and set us up even better for future growth in a place where we already have a lot of credibility. Thomas Ingham: And then in terms of robotics, exclude an automation, industrial automation, are you bucketing that in physical AI? Or is that a separate category? And then specifically on that, what does the pipeline look like? And how meaningful could that be to your backlog and growth in the coming year? . John Giamatteo: Yes. Robotics, physical AI, we would -- when we think about the general embedded space, we think of really 3 categories that we've had great momentum on industrial automation, medical instrumentation. It's a really nice win this quarter with Johnson & Johnson. And then robotics and physical AI, we kind of bring that together. Today, it represents an overall 20% of our backlog-ish of our revenue. And we think the robotics component of it is probably going to be one of the faster-growing segments of those 3 verticals that we're focusing on. So we'll continue to provide updates on wins as we make further progress in this space. But between alloy core and the gym in those 3 verticals, we think the growth trajectory is very optimistic about the growth trajectory of those businesses. Operator: [Operator Instructions] The next question comes from Paul Treiber with RBC Capital Markets. Paul Treiber: You see the QNX backlog growth, it did improve to 10% this year, up from 6% last year. Could you walk through some of the drivers of that improved growth, whether it's obviously, new deals, but then also if there was any increases in any existing deals? And then what are some of the key categories that are seeing stronger growth or contributing to that growth? John Giamatteo: Great. I'll start, Tim, you chip in. I think part of the growth in the backlog, Paul, is that like we built out the portfolio of QNX in a pretty comprehensive way. A few years ago was QNX SDP 7. Today, it's SDP 8, our next-generation capability Today, it's QNX cabin, which gives our OEM customers the ability to more cost effectively deploy their products. QNX Sound is another component of it. Alloy core is another component. So what was, I think, a more limited focus in the product is a much broader set of capability and some of the wins this quarter with a major OEM in North America, where we've kind of gone deeper and richer with some of these other capabilities. So having a broader portfolio within the auto space, has, I think, been really, really helpful. And then obviously, we've already talked a little bit about the GEM momentum in those 3 verticals. So the combination of all of that is I think what helped us resulted in a really strong backlog number for the year. Paul Treiber: And then secondly, just on investments that you're making, looking at guidance, it implies 20% EBITDA margins at the midpoint basically flat despite revenue growth. So obviously, you're making investments. Could you walk through what are some of those larger investments? And then also if you still expect leverage of corporate overhead and other cost efficiencies? Tim Foote: Yes. Really good question. So ultimately, we've got very strong balance sheet, Paul. So what we're looking to do is obviously deploy that capital intelligently to drive growth. We see now, as John mentioned, we turn to a growth story. We see value creation going forward, coming primarily now from top line growth and the operating leverage that, that drives. So when we look at the QNX business, we see significant growth opportunities in many different ways. So obviously, backing the Alloy core opportunity driving forward with the full portfolio in the STPA launch, making sure we've got the right go-to-market for GEM. So we're backing all of those things. So looking at the QNX guide for the year, we're actually sort of holding EBITDA relatively flat, and that's a deliberate choice. We're making those investments in R&D and in sales and marketing to really drive that top line growth. Now going forward, we see opportunities then for further leverage to come in the future. But for this year, we're really focused on that. The other part you mentioned was the corporate overhead. I think we've done some tremendous heavy lifting over the last couple of years and taken out a significant amount of cost. Now we continue to take a very close look at every single dollar that we deploy across the business, but particularly in the corporate overhead. So when longer-term contracts are coming up for renewal, we're taking a hard look at those and seeing, do we really need it? Can we downsize it? Are there alternatives? So what I'd say you'd expect to see this year is actually a decrease, a further decrease in corporate overhead from, I think it's $41 million, maybe take $4 million or $5 million off of that going into the new year. But I don't think cutting cost is really now the main focus there. We've turned the page on that, Paul, and we're really looking to drive top line growth. Operator: The next question comes from Steven Li with Raymond James. Steven Li: A quick one. How did share count jump to 643? I'm drawing a blank here, Tim. Tim Foote: 643. No, I don't think that's right. . Steven Li: It's not -- I mean, the diluted share count was 643 for the Q4. Tim Foote: Now the share count should have come down. We're just scrambling to see what the numbers are. So -- we've gone from 590 basic down to 598 and that's really a function of the of the buyback to leave -- particularly... Steven Li: On the diluted share count? Tim Foote: We need to take a look at that, Steve, and then come back to you. . Operator: I would like to turn the call back over to John Giamatteo, CEO of BlackBerry for any closing remarks. John Giamatteo: Terrific. Thank you, Betsy. Thanks, everybody, for being part of the call today. Before I wrap up, I just want to make a quick note that our QNX team is going to be in Boston on May 27 and 28 for the Robotics Summit and Expo, one of the industry's largest events. John Wall will be opening the conference as part of keynote there, and I'll also be on a panel with leaders from Amazon Robotics Universal Robots and Locus Robotics. The team will also be showcasing the latest of our QNX innovations and how we provide the trusted foundation that robotics and physical AI systems rely on to operate safely and predictably in the real world. So if you're in the air, please stop by. We'd love to see you there. And with that, thanks for joining today's call, and we'll see you all next time. . Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Good day, and welcome to the WD-40 Company Second Quarter Fiscal Year 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I would now like to turn the presentation over to the host for today's call, Wendy Kelley, Vice President, Stakeholder and Investor Engagement. Please proceed. Wendy Kelley: Thank you. Good afternoon, and thanks to everyone for joining us today. On our call today are WD-40 Company's President and Chief Executive Officer, Steve Brass; and Vice President and Chief Financial Officer, Sara Hyzer. In addition to the financial information presented on today's call, we encourage investors to review our earnings presentation, earnings press release and Form 10-Q for the period ending February 28, 2026. These documents will be made available on our Investor Relations website at investor.wd40company.com. A replay and transcript of today's call will also be made available shortly after this call. On today's call, we will discuss certain non-GAAP measures. The descriptions and reconciliations of these non-GAAP measures are available in our SEC filings as well as our earnings documents posted on our Investor Relations website. As a reminder, today's call includes forward-looking statements about our expectations for the company's future performance. Actual results could differ materially. The company's expectations, beliefs and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished. Please refer to the risk factors detailed in our SEC filings for further discussions. Finally, for anyone listening to a webcast replay or reviewing a written transcript of this call, please note that all information presented is current only as of today's date, April 9, 2026. The company disclaims any duty or obligation to update any forward-looking information as a result of new information, future events or otherwise. With that, I'd now like to turn the call over to Steve. Steven Brass: Thanks, Wendy, and thanks to everyone for joining us today. I'll begin with an overview of our sales performance for the second fiscal quarter of 2026, followed by an update on the progress we've made across select areas of our Four-by-Four Strategic Framework. Sara will then walk through the details of our second quarter results, recap our business model, share a brief update on the divestiture of our homecare and cleaning business and review our guidance for fiscal 2026 and will conclude by taking your questions. Today, we reported consolidated net sales of $161.7 million, an increase of 11% compared to last year. Let's spend a few moments looking more closely at those results and the factors contributing to our performance. Maintenance products continue to be our core strategic focus, accounting for roughly 97% of total net sales this quarter. Net sales in this category totaled $156.8 million, reflecting a 13% increase year-over-year. On a constant currency basis, net sales in this category increased 6% year-over-year, in line with our long-term growth expectations for maintenance products. As a reminder, we go to market through a mix of direct operations, which represents approximately 80% of global sales and marketing distributors, which account for the remaining 20%. During the second quarter, sales of maintenance products in our direct markets grew 14% compared to the prior year. Sales through our marketing distributor network increased 9% year-over-year, driven primarily by sequential improvement across our Asia Pacific distributor markets as we saw the anticipated rebound following a softer first quarter. I'd also like to highlight that our gross margin remained solidly within our expected guidance range for fiscal year '26. In the second quarter, we delivered a gross margin of 55.6%, up 100 basis points year-over-year. On an adjusted basis, excluding assets held for sale, gross margin was 56%. Now let's talk about second quarter sales results by segment, starting with the Americas. Unless otherwise noted, I'll discuss net sales on a reported basis compared to the second quarter of last fiscal year. Sales in the Americas, which includes the United States, Latin America and Canada, was $71.8 million in the second quarter, an increase of 10% compared to last year. Sales of maintenance products in the Americas were $69.1 million, an increase of 11% or $6.7 million compared to last year. All of that growth was driven by higher sales of maintenance products in the U.S., which increased 15% compared to last year. Sales performance of WD-40 Multi-Use Product in the U.S. was particularly strong, increasing by $5 million or 15%. This growth was driven by higher volumes with select customers and online retailers, supported by elevated promotional activity and modest price increases, which we implemented earlier in fiscal year '26. We expect a strong momentum in the U.S. to continue with numerous activities already planned for the second half of fiscal year '26. In the Americas, maintenance product sales also benefited from strong growth of WD-40 Specialist which increased 17% compared to the prior year. That growth was driven primarily by expanding distribution and higher online sales in the U.S. We saw modest sales growth in Latin America this quarter, which was largely offset by softer sales in Canada, leaving overall performance for the combined regions essentially unchanged. Homecare and cleaning product sales declined 13%, reflecting our strategic shift towards higher-margin maintenance products in alignment with our Four-by-Four Strategic Framework. In total, our Americas segment made up 44% of our global business in the second quarter. With a significant number of initiatives planned in the back half of the fiscal year, our outlook for the Americas is very strong. As a result, we expect high single digit into low double-digit growth in the Americas this fiscal year, driven primarily by strong activity in the United States. This strong top line growth positions us well to help offset uncertainty associated with global economic and geopolitical conditions that could impact other areas of the business. Now turning to EIMEA, which includes Europe, India, the Middle East and Africa. Sales of $64.9 million in the second quarter, an increase of 9% compared to last year. This increase was driven by favorable foreign currency exchange rates as most of our EIMEA sales are transacted in euros or pound sterling and translated into U.S. dollars for reporting purposes. On a constant currency basis, sales were down 3% year-over-year. Let's go into our EIMEA through a combination of direct operations as well as through marketing distributors. Net sales in our EIMEA direct markets, which accounted for 70% of the region's sales, increased 12% during the quarter to USD 45.6 million. Given that currency translation can obscure our reported results, we believe it's helpful to also consider performance in the local currencies in which we transact sales. In local currency, we continue to see double-digit growth of WD-40 Multi-Use Product across many of our direct markets, including France, Iberia and Benelux, where sales increased 16%, 12% and 12%, respectively, driven by successful promotional activities. These sales increases were entirely offset by lower volumes in our distributor markets. Net sales in our EIMEA distributor markets, which accounted for 30% of the region's sales, increased 1% during the quarter to USD 19.2 million. Sales in our EIMEA distributor markets were most notably impacted in the Middle East, reflecting the timing of customer orders following strategic distribution changes. We transitioned to a new marketing distributor partner in a key country during the first half of fiscal '26, which shifted the timing of customer orders. With the transition now complete, we expect increased activity in the second half of the fiscal year, subject to further geopolitical disruption in the region. As a reminder, we divested the U.K. homecare and cleaning portfolio in fiscal '25, which negatively impacted second quarter sales by $1.5 million. In total, our EIMEA segment made up 40% of our global business in the second quarter. As we look ahead, we expect a better second half performance in EIMEA. We are closely monitoring the geopolitical conditions in the Middle East. Sales to the region directly affected by the current geopolitical tensions represented approximately 3% of global sales in fiscal year '25. Our presence in these markets is limited. We have one manufacturing partner in the region but no significant operations beyond the distribution and sale of our products through third-party distributors. We will continue to monitor the situation closely and assess any potential impact as circumstances evolve. Despite this disruption, we expect to achieve mid-single-digit growth on a constant currency basis this fiscal year. In reported currency based on current exchange rates, we would expect growth of maintenance products in EIMEA to be in the high single digits this fiscal year. Now on to Asia Pacific. Sales in Asia Pacific, which includes Australia, China and other countries in the Asia region was $25 million in the second quarter, an increase of 19% or $1.3 million compared to last year. We did benefit from favorable currency movements in Asia Pacific, although to a lesser extent than in EIMEA. On a constant currency basis, sales in the region were up 16% versus last year. Most of that growth was driven by higher sales in China and our Asia distributor markets where sales and maintenance products increased 25% and 19%, respectively, compared to last year. Sales of WD-40 Multi-Use Product was strong across the trade block. In China, sales of WD-40 Multi-Use Product increased by $1.1 million or 18%, driven by higher volumes from effective promotional programs and marketing activities as well as expanded distribution, particularly through online retailers and industrial channels. In our Asia distributor market, sales of WD-40 Multi-Use Product increased by $1.3 million or 17%, partially due to successful promotional programs, particularly in Malaysia and the Philippines. We are pleased to see a strong rebound in the Asian distributor markets as customers in the region have adjusted back to more typical inventory levels. In Australia, sales of WD-40 Multi-Use Product increased 15%, driven by the timing of customer motions and expanded distribution. In Asia Pacific, maintenance product sales also benefited from strong growth in WD-40 Specialist, which increased by 55% compared to the prior year. Sales increased most significantly in China, driven by successful promotional programs, along with expanded distribution, particularly through online retailers and industrial channels. In total, our Asia Pacific segment made up 16% of our global business in the second quarter. Based on current visibility, we expect this momentum to continue for the remainder of the fiscal year. However, like many companies, we remain cautious given ongoing global economic and geopolitical instability. We expect Asia Pacific to deliver strong growth in the back half of fiscal year '26, supporting mid- to high single-digit growth on a reported currency basis for the full fiscal year. Now let's talk about our Must-Win Battle. A core element of our strategy is accelerated revenue growth in our maintenance products through our Must-Win Battle. Starting with Must-Win Battle #1, lead geographic expansion. Year-to-date sales of WD-40 Multi-Use Product reached $245 million, an increase of 6% compared to the same period last year. We delivered solid performance in the Americas and EIMEA, with sales growing 7% and 6%, respectively. Year-to-date sales in Asia Pacific remained flat. However, following the strong recovery experienced in the second quarter and the momentum we expect in the second half of the year, we anticipate solid growth in the region for the full fiscal year. We continue to make excellent progress across many key markets, delivering strong year-to-date sales growth, including increases in local currency of 7% in the U.S., 4% in China, 10% in France and 14% in Iberia. We estimate the attainable market for WD-40 Multi-Use Product at about $1.9 billion with fiscal year '25 sales of $478 million. That leaves roughly $1.4 billion of long-term growth opportunity ahead of us. Next is Must-Win Battle #2, accelerating premiumization. This is centered on accelerating growth in our premium WD-40 Multi-Use Product performance. Products such as Smart Straw and EZ Reach are developed for the end users at the forefront of every decision. The strong focus on the end user enhances brand loyalty, supports gross margin growth and strengthens our competitive advantage. Year-to-date, combined sales of WD-40 Smart Straw and EZ Reach increased 9% compared to the prior year. Premiumized products represent approximately 50% WD-40 Multi-Use Product sales, leading meaningful runway for continued growth. We're targeting a compound annual growth rate for premiumized product net sales of greater than 10%. Our third Must-Win Battle is to drive WD-40 Specialist growth. If WD-40 Multi-Use Product is a Swiss Army knife of maintenance, WD-40 Specialist is a dedicated tool, a hammer, screwdriver or wrench designed for specific jobs. This focused brand extension strengthens our portfolio without diluting the iconic core. Year-to-date sales of WD-40 Specialist were $44.9 million, up 19% compared to last year. We're targeting a compound annual net sales growth rate for WD-40 Specialist of greater than 10%. I'm excited to share that in the second half of this fiscal year, we launched our latest innovation within the WD-40 Specialist product line, a bio-based multiuse lubricant across several European markets. Formulated with 85% bio-based ingredients, the product meets stringent environmental standards while delivering the professional-grade performance our end users expect. This launch reflects our commitment to practical innovation and environmental stewardship. Our fourth Must-Win Battle is to turbocharge digital commerce. Our digital commerce strategy plays a vital role in advancing each of our Must-Win Battles by increasing brand visibility, improving accessibility and deepening end user engagement across global markets. Year-to-date, e-commerce sales increased 23%, driven primarily by strong momentum in the United States and China. We'll now move to the second element of our Four-by-Four Strategic Framework, our strategic enablers, which focus on operational excellence. Today, I'll provide updates on strategic enablers 3 and 4. Our third strategic enabler is operational excellence in the supply chain. Profitable growth requires the supply chain is optimized high-performing and resilient. In the second quarter, we delivered global on-time in full performance of 96%, reflecting the discipline and reliability of our operations. Our decentralized global supply chain is a strategic advantage enabling both resilience and agility in periods of economic and geopolitical uncertainty. By limiting exposure to any single region, we reduced risk across the network. If a manufacturing partner is impacted by unforeseen circumstances, we can quickly pivot and shift production to other partners within weeks, an agility that's especially valuable in uncertain times. We spent the last 3 years, strengthening our global supply chain adding even more manufacturing partners, optimizing inventory and building a more agile network. We recently added a new manufacturing partner in our EIMEA, further diversifying our European supply chain and transitioning from a single dominant partner to multiple partners across the continent. The logistics associated with this transition resulted in a temporary inventory build in EIMEA. At the same time, we also built inventory in the United States in anticipation of a strong third quarter. These higher inventory levels are beneficial as they help insulate us from short term gross margin volatility, including the impact of near-term fluctuations in crude oil prices. Based on current inventory levels, we do not expect gross margins to be significantly impacted in the third quarter, which provides us time to take mitigating actions to defend gross margin as needed. Overall, our supply chain is significantly more resilient today than it was historically. These changes support gross margin expansion and help insulate the business to meet ongoing global economic and geopolitical uncertainty. Our fourth strategic enabler is to drive productivity through enhanced systems. At WD-40 Company, technology is a critical enabler of productivity and scale for building a digital foundation designed to support global growth and increase operational flexibility, helping us execute our strategy faster and more effectively. We've made meaningful progress deploying proven AI-enabled platforms like Microsoft Dynamics 365, Salesforce and Atlas for supply chain. Our goal isn't just personal efficiency, it's rethinking processes across the business. We are where appropriate, leveraging artificial intelligence across certain parts of the business to improve efficiency and augment decision-making. Our focus remains on practical responsible applications that enhance productivity and support our teams. In addition, we continue to make progress in our enterprise resource planning or ERP implementation. In the second quarter, we went live with another phase of the rollout in Canada. The new system is now operating across a substantial portion of the business, including the U.S., our Latin America and Asian distributor markets, operations and Canada, together representing roughly half of global revenue. With that, I'll turn the call over to Sara. Sara Hyzer: Thanks, Steve. Today, I will go over our results against our business model and discuss the key factors driving our second quarter performance. I'll also provide an update on the planned divestiture of our Americas homecare and cleaning business, along with our fiscal year 2026 guidance and the assumptions we made to provide more transparency. First, we were pleased with our second quarter performance and the momentum we're seeing in the business, with operating income this quarter, growing at 4% over prior year on a constant currency basis. As we noted last quarter, we expected results to strengthen as the year progressed following a slow start, and that improvement is showing up across both the top line and the bottom line. As Steve mentioned the expected top line strength particularly in the U.S., will help to buffer any impacts of the current geopolitical tension in the Middle East. And with that, I will cut to the chase that we are reaffirming our full year 2026 guidance even through all this turbulence. I'll cover our assumptions behind the guidance later in my remarks. With that as the lead, now let's take a closer look at our business model. This framework serves as a distinct guide for how we manage and allocate resources across the business. It is anchored in 3 key components: gross margin, cost of doing business and adjusted EBITDA. In the near to midterm, we actively manage each element within defined ranges, which gives us strategic flexibility while remaining aligned with our long-term objectives. Because the model is fundamentally driven by revenue, changes in sales levels from quarter-to-quarter can result in some variability in model performance. We will begin with gross margin performance, which continues to be strong. In the second quarter, our gross margin was 55.6%, up from 54.6% in the second quarter of last year, representing an improvement of 100 basis points. Gross margin was most significantly impacted favorably by 80 basis points from lower specialty chemical costs and 70 basis points from higher average selling prices, including the impact of mix and premiumization. These positive impacts to gross margin were partially offset by higher other miscellaneous input costs, primarily in EIMEA, which negatively impacted our gross margin by 40 basis points. Gross margin in the Americas increased 300 basis points, rising from 50.1% to 53.1%, driven by higher average selling prices and lower specialty chemical costs. In EIMEA, gross margin declined slightly by 90 basis points from 58.1% to 57.2%, reflecting higher filling and warehousing fees, partially offset by lower costs for specialty chemicals. In Asia Pacific, gross margin increased slightly by 30 basis points from 58.4% to 58.7%, primarily due to favorable changes in sales and market mix period-over-period. We remain encouraged by the overall trajectory of gross margin while recognizing that the operating environment continues to present external headwinds. Subsequent to our quarter end, recent geopolitical developments in the Middle East have contributed to the increased cost of certain petroleum-based specialty chemicals and other input costs, which will impact our cost of products sold. There is typically a delay of between 90 and 120 days before changes in cost of raw materials impact our cost of products sold due to production and inventory life cycles. As Steve discussed a few minutes ago, we do not expect that our gross margin will be significantly impacted until the fourth quarter of fiscal year 2026 based on current inventory levels. The duration of this conflict and its impact on our raw materials will drive our decisions around mitigation efforts, which we are currently assessing. For more reasons than just the impact to our business, we hope this development is short term in nature. I will go over our assumptions over the price of oil when I discuss our full year 2026 guidance. Now turning to our cost of doing business, which we define as total operating expenses adjusted for certain noncash items. Cost of doing business is primarily influenced by 3 areas: our investment in people, global brand-building initiatives and freight costs associated with delivering our products to customers. In the second quarter, our cost of doing business was unchanged from prior year at 38% of net sales. Investing in our future remains a top priority. While our long-term objective is to manage our cost of doing business within a 30% to 35% range, we have been making deliberate investments to support sales growth and improve operational efficiency. These investments are strengthening our foundation and positioning the business for long-term sustainable growth. In addition, we continue to work through the revenue impact associated with the fourth quarter 2025 homecare and cleaning divestiture in the United Kingdom. In dollar terms, our cost of doing business increased $7 million or 13% compared to the prior year quarter. Unfavorable foreign currency exchange rates accounted for $3 million of that increase this quarter. So on a constant currency basis, the increase was 7%. The majority of the remaining increase, $2.3 million, was driven by higher employee-related expenses, including incremental headcount to support initiatives aligned with our Four-by-Four Strategic Framework. Advertising and promotional expenses increased year-over-year, reflecting higher levels of promotional activity and marketing support, particularly in the Americas and EIMEA. As a percentage of net sales, A&P spend was 5.5% this quarter compared with 5.1% in the prior year. While we are currently tracking slightly below our full year guidance of approximately 6% of net sales, we have brand-building initiatives planned for the remainder of the fiscal year, which we expect will bring A&P investment in line with our full year guidance. As the business grows, we expect leverage from higher revenues to move the cost of doing business towards the target range, with sales growth and cost control serving as the main catalyst for improvement. Turning now to adjusted EBITDA. In the second quarter, our adjusted EBITDA margin was 18%, flat compared to last year. Adjusted EBITDA margin is an important indicator of both profitability and operational efficiency. In the nearer term, we continue to believe we can return adjusted EBITDA margin to our midterm target range of 20% to 22% as we absorb the revenue impacts associated with the homecare and cleaning divestitures. The 25% target at the high end of our range represents a long-term aspiration for the business. Getting there will be driven by scale, gross margin accretion and making progress on our cost of doing business targets. Turning now to other key measures of financial performance, let's review operating income, net income and earnings per share for the second quarter. Operating income increased 13% to $26.3 million in the second quarter, with foreign currency being a tailwind for us this quarter. On a constant currency basis, operating income increased by 4%, primarily driven by higher sales and improved gross margin, partially offset by increased operating expenses. Net income was $20.3 million compared to $29.6 million in the prior year fiscal quarter. You may recall that in the second quarter of fiscal year 2025, we recorded a nonrecurring noncash tax benefit of $11.9 million that had a significant positive impact on the results last year. Excluding this onetime benefit, net income would have increased $2.4 million or 13% in the second quarter compared to the prior year. Diluted earnings per common share were $1.50 in the second quarter compared to $2.19 in the prior year. Diluted EPS for the quarter reflects 13.5 million weighted average shares outstanding. Excluding the onetime tax benefit in the prior year, non-GAAP EPS would have increased 14% over the prior fiscal quarter. Additional details on last year's tax benefit are available in our SEC filings. Turning now to our balance sheet and capital allocation. We continue to operate from a position of financial strength with solid liquidity that supports the discipline, strategy focused on long-term growth and the generation of reliable cash flow and returns for our stockholders. Our capital deployment decisions continue to emphasize discipline and accretion with the objective of enhancing long-term stockholder value. Our first focus is investing back into the business through advertising and promotional activities. After investing back in organic growth opportunities, dividends remain our top capital allocation priority with an annual payout target of more than 50% of earnings. On March 16, our Board of Directors approved a quarterly cash dividend of $1.02 per share. In the second quarter, we executed share repurchases totaling approximately 38,175 shares for an aggregate cost of $8 million under our authorized program. As of quarter end, roughly $14 million remains available for repurchases with the authorization set to expire at the end of the fiscal year. Given our confidence in the strength and durability of the business, we increased the pace of repurchases and intend to utilize the remaining authorization. Before turning to guidance, I'd like to share a brief update on the household divestiture. We continue to advance the process to sell our American homecare and cleaning brands with our investment banking partner actively engaged in discussions. While there can be no assurance that a transaction will be completed, we are encouraged by continued discussions and will provide updates as the process progresses. So let's turn to fiscal year guidance. As a reminder, we issued this year's guidance on a pro forma basis, excluding the financial impact of the home care and cleaning brands currently classified as assets held for sale. Although the timing remains uncertain, this approach is intended to provide clear visibility in the performance of the core business and limit variability associated with the transaction. While geopolitical developments in the Middle East and their potential impact on the global economy warrant caution, we are encouraged by the momentum in the business. We have clear visibility in promotional activity in the U.S. and are seeing improving momentum in both EIMEA and Asia Pacific. With a number of initiatives planned for the second half of the year, we are confident in delivering a solid full year outcome and so we are reaffirming our guidance today. We continue to expect net sales in constant currency to land at the mid- to high end of our guidance range, reflecting the strength and visibility we have on the top line. At current exchange rates, we expect low double-digit revenue growth for the full fiscal year on a reported currency basis. However, the duration and potential impacts of ongoing geopolitical developments in the Middle East have introduced an increased level of uncertainty. While we remain confident in achieving our full year guidance, we now expect metrics below the top line to fall within their respective guidance ranges as opposed to tracking towards the mid to high end. This guidance is based on several key assumptions, including crude oil prices ranging between $95 and $115 per barrel and an average euro-to-U.S. dollar exchange rate of approximately $1.15 for the back half of the year. It also reflects our current view of broader macroeconomic conditions. Actual results may vary as these inputs differ materially from our assumptions. For fiscal year 2026, we expect net sales to be between $630 million and $655 million after adjusting for foreign currency impact, a growth of between 5% and 9% from the pro forma 2025 results. In reported currency, we expect revenues between $650 million and $680 million using current exchange rates in the back half of the year, excluding revenue from the assets held for sale. Gross margin is expected to be between 55.5% and 56.5%. Advertising and promotion investment is projected to be around 6% of net sales. Operating income is expected to be between $103 million and $110 million, representing growth of between 5% and 12% from the pro forma 2025 results. The provision for income tax is expected to be between 22.5% and 23.5%. And diluted earnings per share is expected to be between $5.75 and $6.15, which is based on an estimated 13.4 million weighted average shares outstanding. This range represents growth of between 5% and 12% over the pro forma 2025 results. In the event we are unsuccessful in the divestiture of the American homecare and cleaning brand, our guidance would be positively impacted by approximately $12.5 million in net sales, $3.6 million in operating income and $0.20 in diluted EPS on a full year basis. That completes the financial overview. Now I would like to turn the call back to Steve. Steven Brass: Thank you, Sara. In summary, what did you hear from us on this call. You heard that in constant currency sales and maintenance products were up 6% in the second quarter, in line with our long-term growth expectations. You heard that in reported currency, sales of WD-40 Multi-Use Product were up 12% in the second quarter with growth across all 3 trade blocks. You heard that in reported currency, sales and maintenance products in our direct markets were up 14% in second quarter. You heard that all our Must-Win Battles are performing well and that year-to-date in reported currency sales of WD-40 Specialist were up 19%, sales of premiumized products were up 9%, and sales in the e-commerce channel were up 23%. You heard that in the second quarter, our gross margin was 55.6%, up 100 basis points from the second quarter of last year. You heard that we continue to accelerate buybacks and plan to fully utilize our remaining authorization with the objective of enhancing long-term stockholder value. You heard that our decentralized global supply chain provides resilience and agility amid economic and geopolitical uncertainty and that recent supply chain initiatives along with higher inventory levels are supporting gross margin in the near term, giving us time to take mitigating actions as needed. You heard that we have clear visibility into strong promotional activity in the U.S. in the back half of fiscal year '26, and we are seeing improving momentum across both EIMEA and Asia Pacific. You heard that while geopolitical developments in the Middle East, and their potential impact on the global economy, warrant caution, we're encouraged by the momentum in the business and believe this momentum will help to mitigate impacts associated with global economic and geopolitical conditions that could affect other areas of the business. And you heard that with a number of initiatives planned for the second half of the year, we are confident in delivering a solid full year outcome, and so we are reaffirming our guidance today. Thank you for joining our call today. We'd now be pleased to answer your questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Baker with D.A. Davidson. Michael Baker: Okay. Great. Congratulations on a good quarter. So just to make sure I have this right in so everyone has it right. I think there was the change in guidance, if the -- the sell changing guidance. I guess, is that after the first quarter, you expected top line and margins, profitability, bottom line to be towards the mid- to high end of the guided range. Now we have the same guided range and we expect the top line still to be mid- to high end. But I think what you said is that margins and profitability now just within the range rather than specifically mid- to high end. I just want to make sure I heard that right, and that's the change. And then I'll have a follow-up question. Sara Hyzer: Sure, Michael. So this is -- good to hear from you. Yes, you understood that correctly. So we are maintaining our expectation for revenue growth in the mid- to high single digits. And just given the growth -- the risk right now that we see in the gross margins and considering some of the mitigation actions depending on how long this lingers, we believe we're kind of well within the range, but we're not necessarily saying the mid- to high for all of the other metrics. Michael Baker: Got it. And so that so again, I think as you said it, but that's because now we expect oil to be -- now it's based on oil to be $95 to $115, which starts to impact you in your fourth quarter. And I guess my question would be, I guess, so what was the expectation prior to the situation that's played out in the Middle East the last few months? Sara Hyzer: Yes, it's definitely -- I mean we are seeing the input cost increase since the -- subsequent to our quarter end. In our previous guidance, it was closer to the, I think, $65 to $85 range, and so it has moved up quite a bit. Michael Baker: Got it. All right. So just to square it all put together, just so we all understand, it was $65 to $85. Now we expect it to be $95 to $115. We all see what's going on in oil that's -- there is a delay, but that starts to impact you in the fourth quarter. And because of that, the gross margins will be more towards the -- within the range rather than the mid- to high end. Just does that summarize everything, so hopefully that clarifies. Sara Hyzer: That was a very good summary. You probably said it better than I could. Michael Baker: Okay. Got it. Awesome. Now with that out of the way, can I ask just about a more sort of business-related question. Remind us again why this acceleration that we're seeing in the U.S., how do you have so much visibility? What are you hearing or seeing from your key partners in the U.S.? Steven Brass: Mike, this is Steve. So there's a lot going right in the U.S. And so you heard WD-40 Specialist is growing very, very nice in the strong double digits. E-commerce is working very, very well for us with very strong growth in e-commerce. And then as we look, I mean, you've already seen very strong growth in the first half but compared to what's coming in the second half with the programs beginning in Q3, we have an extremely strong kind of unprecedented in recent history of the company outlook for the U.S. with a very, very substantial promotional program for the back half of the year. Michael Baker: And is that increased promotions and activity in existing customers? Or is it different channels? I know there's been an initiative to get more into the dollar channel or hard discounters? Or is it more just within the existing channels that you're in? Steven Brass: It's both. So the major promotions are with our existing customers. We've also we have brought on board a major new customer in the discount channel as well, which is starting to add some nice additional revenue as new distribution. Operator: Your next question comes from the line of David Shakno with William Blair. David Shakno: By the way, this is David Shakno, stepping in for Jon Andersen. Just had a question on Asia Pacific. You talked about I think it grew or the specialist grew 55% this quarter. You hit a bit on this in the prepared remarks about promotional programs and distribution. But can you double-click into those drivers a little bit, especially on the promotional programs? Is there any sort of air pocket we should be considering for the region or specialists just overall in Q3? Steven Brass: So the increase in specialist was across the board. So we had China, the distributors and Australia all delivering very strong double-digit growth. So it wasn't a particular region or a particular channel. I'd say the underlying theme is new distribution and promotions combined as well as continued innovation and new products across the region. And so it's not one thing. We are seeing very, very strong -- I'm not sure we'll deliver 55% growth in every quarter, but you should expect WD-40 Specialist to continue to grow very strongly in Asia. David Shakno: Got it. And if you don't mind me asking one other here. Just on premiumized products. So I think you said it's up to 50% now of the multi-use product sales. I think that's up from 49% last quarter, if I'm not mistaken, quite a strong achievement. How much of the remaining $1 billion, $1.5 billion, $1.4 billion growth opportunity depends on moving towards those premiumized products and premium formats and given the Middle East situation, given also just more broadly overall consumer sentiment, has that changed kind of your outlook there on premiumized products? Steven Brass: Not at all, in our premiumized products have consistently delivered around that 9%, 10% growth rate historically, there's absolutely no reason why that can't continue. We see that building in the second half of the year, moving into double digits for the year. And so you've got $25 million plus or up about $250 million base now on petroleum products. And in terms of units sold globally, it's about 40% of units. So our best markets in terms of premiumization penetration are approaching 80% including the U.S. And so we have a long, long runway for growth, several hundred million dollars of growth out of that benchmark opportunity on nonpremium formats. Operator: Your next question comes from the line of Daniel Rizzo with Jefferies. Daniel Rizzo: First, with the mitigation efforts that you might have to take, when do you think -- I mean is there a drop dead date when we'll have to be that decision will have to be made? And two, as a rule of thumb, how far -- how long until that kind of flows through where we notice it in the P&L? Is it the same thing as with the cost where it's 90 -- or 6 months? Or how should we think about that? Steven Brass: Yes, Daniel, it's Steve. So yes, I mean, obviously, we're not rushing into things. And so we're carefully evaluating this situation. It seems almost on a daily basis, it's kind of changing. And we don't want to telegraph our kind of intentions out to competition on this call, in particular. But we are looking at we are looking actively at mitigation, both in terms of potential price movement and further cost-saving initiatives, which would mitigate this thing. We did talk to having high inventories, right? And so with the shift we made in EIMEA, we've built up considerable inventories. And with the U.S. with our strong promotional program for Q3, we have a strong inventory basis. And so that was either excellent strategic planning or good fortune, whichever way you look at it. And so to cut to the chase, I suppose, in terms of the impact of decisions we will make today, you're going to see that impact in the fourth quarter, but maybe not the beginning of the fourth quarter. And so any measures we take would begin to hit the business in the fourth quarter. Daniel Rizzo: And with those elevated inventories, I assume that's going to have somewhat of a negative impact on working capital. And I was wondering what the effect of that will be in just in dollar amount. Sara Hyzer: We haven't disclosed the -- I mean, the dollar amount you're already starting to see some of that with the buildup of the inventory levels on our balance sheet in Q2. So some of that has already happened. And that was really to support, as Steve had mentioned, the planned back half motions. The buildup also did occur because we actually were successful in transitioning to a new filler in Europe. And so we did also intentionally build some inventory as we work through that transition and that really happened right at the end of Q2. So I think what we're anticipating to see is the inventory build in Q2, it will continue to build a little bit into the third quarter. It will start to work its way down. And then really, I think you'll see a higher AR balance at the end of Q3, which that will get worked down before we get to the end of the fourth quarter. So there's going to be a little bit of a tail from a working capital perspective. But we have a strong balance sheet, and we can afford to have some blips there if we need to. Daniel Rizzo: Okay. That's very helpful. And then the one thing that kind of caught me here was the bio-based product that you're kind of introducing in Europe. It sounds interesting. One, how should we think about that ramping across the globe? Are you going to be introducing it to other regions soon? How should we think about the growth over the next 3 years? And the second part of this question is the bio-based product, does that use less oil? Would that be something that's a long-term mitigator of the fluctuations in oil? Is that how we should think about that? It would seem so. Steven Brass: Thank you for the question, Daniel. And so the product is launching across 7 or 8 European countries this quarter. And so you always have a build time to build. We have plans to roll that out globally, which will probably go into next fiscal year. And I don't want to create crazy expectations for this. This is -- it's the first iteration of our multi-use product essentially with a bio-based format. So it's 85% bio-based formulation, which meets all of the European kind of regulations around bio-based products. And yes, so ultimately, if it's very successful, yes, it will begin to reduce our dependence on oil going forward. And that will be a nice hedge. That's going to take multiple years for that to be meaningful revenues. Operator: Your next question comes from the line of Aaron Reed with North Coast Research. Aaron Reed: So one of the things that I wanted to get a little more color on is, we talked about it a little bit already, but given the ongoing geopolitical tension and really just the volatility across the global markets, can you give a little more color on the key assumptions underpinning your guidance and why you still believe it's achievable? Sara Hyzer: Yes, I can start that. Steven Brass: Okay, Sara, you go ahead, please. Sara Hyzer: I can jump in, Steven, and then I'll turn it over to wrap up that one. So I mean, yes, it is -- the environment we're in today is definitely challenging to attempt to forecast. I think what is helping us right now is that we do have a fair amount of inventory sitting on the balance sheet which we can phase out, when we can plan out when that's going to flow through. And so if oil stays within that range that I talked about between $95 and $115, the impact to the business, and this is potentially before mitigating factors that we might implement, we're able to, within that range, I think, reasonably predict what the fourth quarter is going to look like. And with the third quarter and the fourth quarter, we believe we'll be able to stay within that guidance. There are some puts and takes there with access to certain markets, and maybe I'll let Steve talk a little bit about that, that might bring it down, but then there's still some upside to go after. Steven Brass: And if I could just add then to that. Yes, just a very strong basis in the U.S. And so I can't emphasize enough given the volatility around how that U.S. performance which we talked about could actually be into the double digits this fiscal year, which is a long time since we've achieved that in the U.S. And so that's a really positive kind of basis. And that's helped mitigating. We do have some exposure in the Middle East, obviously. That's about 3% of our business. And so yes, that may be just a few million dollars' worth of risk in the Middle East in terms of the actual geographic region. We've had Europe coming back outside of the Middle East. We did make a change in Europe in the first half of a distributor in one of our key territories. And so that's coming back in. We began to ship in March, again to that particular territory, believe it or not. And Europe sequentially in the second quarter was about 10% bigger in revenues, about EUR 55 million in local currency in euros, compared to around EUR 50 million in the first quarter in net sales. So you did see an uptick of around 10% in absolute terms in the first quarter in Europe, and we do expect that despite the turbulence to continue in Q3 and Q4, much stronger revenue in EIMEA. And in Asia Pacific, China is delivering solid double-digit growth continually and did so in the first half year. So we expect China to continue with strong double-digit growth for the year. There is potentially some downside risk in Asia, you've got a little bit contagion going on there at the moment in terms of potential kind of shutdowns of operations and kind of fuel availability. And so that is some downside risk, but we still see for the year in Asia overall, mid- to high single-digit growth. And so overall, the picture is looking reasonably bright, subject of course to further turbulence. Aaron Reed: Okay. And that kind of leads into my next question around the performance in Asia. What is driving that? And how sustainable is that momentum? Steven Brass: Yes. So it's things I think I've just kind of spoken to. So the China piece, I mean, the China team just continuously deliver these strong results. And it's just whatever is going on in the economy, we're continually opening new points of distribution. We're continually sampling. And so that's driving growth in China, whatever is going on with the economy. You've seen a strong -- the Asia distributors came back very strongly in Q2. That was really just a phasing question between Q4 and Q1. POS sales didn't really change between those periods, which is just inventory levels. And so we kind of highlighted that would improve in Q2, and it did. And so that's good, and we expect that to continue. And then Australia is set up for a good typical kind of mid-single-digit growth for the year as well. And so yes, we're optimistic about the outlook for Asia. Aaron Reed: Okay. And one more question here. European business has been flat to down year-to-date. What gives you confidence in a meaningful recovery in the second half? And really what leading indicators are you looking at that really support that? And actually I think I got one more question after that. Steven Brass: Okay. So yes, Europe, yes, it's been flat. We're very transparent. It's been kind of -- make it look a little better with the currency kind of benefit there, but volumes are kind of flat at the midyear. Direct markets in Europe are actually up around 4% combined, and we did kind of talk about many of our markets are doing very well. We have market Iberia doing very well, well into double digits. France doing well. Benelux is doing very, very well. And so overall, direct markets are coming back. It was really just this 1 distributor issue, particularly in the Middle East, that undermined the kind of performance of about 3 million down versus prior year as well as a couple of promotional phasing issues with other MDs. But really, the Middle East one was the big one there. And so yes, we see Europe coming back with stronger growth in the second half. In that kind of mid-single-digit kind of level, depending on the exchange rate, the actual exchange that could actually get into double digits or at the very kind of low case, high single digits we believe for the year. Aaron Reed: Okay. That makes sense. And one last item real quick here. My associate just handed me a headline saying you missed earnings by about $0.08. But when I look at consensus, it says you beat. Are there other metrics that I -- or am I misunderstanding something on this? Sara Hyzer: You are not. We -- I'm actually looking at the same headline right now. And unfortunately, I think what they pull based on what I can do -- based on what I can tell is they actually pulled the non-GAAP EPS number from Q2 last year, so they compared $1.32, unfortunately, which then drove the headline and then there was even a follow-on where they actually did pull the right $1.50 and then they compared it to the $1.40 and saying that the $1.50 fell short of the $1.40. So unfortunately, I think they just one, pulled the wrong number. But yes, it's an unfortunate situation that it hits the headline like that because that's not the case this quarter. Aaron Reed: As long as I'm not misunderstanding something. Sara Hyzer: You were not, and I'm pulling my hair out. Thank you. Operator: Ladies and gentlemen, that does conclude our allotted time for questions. We thank you for participation on today's conference call and ask that you please disconnect your line.
Alex Ng: Good afternoon, and welcome to Stolt-Nielsen's earnings call for the first quarter of 2026. As always, the earnings release and related materials are available on our website. We will also be recording this session and playback will be available on the website from tomorrow. Included in this presentation are various forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, and we refer you to our latest annual report for further details. I'm Alex Ng, Vice President of Corporate Development and Strategy. Joining me today are Udo Lange, CEO; and Jens Gruner-Hegge, CFO. At the end of the presentation, there will be a Q&A session where we'll be taking questions online. [Operator Instructions] Thank you. And over to you, Udo. Udo Lange: Yes. Thank you, Alex. Good afternoon, everyone, and thank you for joining us today for our first quarter 2026 results. The presentation will follow our usual format. I will begin with an overview of the group's results for the first quarter and share some key highlights. Jens will then take us through the financial detail before handing back to me to cover the performance of each of our divisions, our view of the market outlook and some concluding remarks. Let's get started. In the backdrop of elevated market disruption and considerable global uncertainty, I'm pleased to report that Stolt-Nielsen has delivered a solid first quarter, achieving group EBITDA of just over $180 million. This result reflects the strength of our diversified business model and the resilience it brings to our earnings. Our non-tanker portfolio contributed 44% of group EBITDA in the quarter, a clear demonstration that Stolt-Nielsen is not simply a shipping company. In fact, our Stolthaven Terminals business had its second highest ever quarter in terms of operating profit achieved. We are a global liquid logistics business and our diversification continues to support earnings through periods of market dislocation. We are, of course, closely monitoring the conflict in the Middle East and in particular, the effect on transit through the Strait of Hormuz. This introduces new complexities to global energy and chemical supply chains, which we are working through with our customers to keep products moving. We are thankful that our people remain safe, that none of our vessels are currently stuck in the Arabian Gulf and that our assets are not impacted thus far as our network continues to adapt to a rapidly changing situation. Our priorities at this time are to keep our people safe, leverage our global logistics network to best support our customers through the disruption and to maintain strict cost discipline and capital allocation for flexibility and long-term value creation while maintaining robust liquidity management. We have limited visibility on how the conflict in the Middle East will play out and a range of outcomes are possible, which makes giving meaningful EBITDA guidance very challenging. Hence, we have withdrawn our previously issued EBITDA guidance for 2026. I would also like to highlight a number of strategic developments during the quarter. In Taiwan, our Stolthaven Terminals joint venture in Kaohsiung commenced operations, adding more than 60,000 cubic meters of new storage capacity. And we recently announced the planned sale of a 50% equity stake in Avenir LNG, which will be achieved through a strategic joint venture with Japanese shipping company, NYK Line. Consistent with our strategy of building the Avenir business for the future while preserving our own balance sheet flexibility. From a financial standpoint, we maintain robust liquidity of $546 million, and our net debt-to-EBITDA ratio stands at 3.02x. And in February, the Board recommended a final dividend for 2025 of $1 per share, bringing the total for the full year to $2 per share, subject to shareholder approval at the AGM later this month. Let us now turn to our financial highlights. I'm satisfied with the results the company has achieved in the quarter against a complex and challenging market backdrop. Looking across the key metrics. Operating revenue for the quarter was $717 million, up 6% compared to the same period last year, predominantly driven by the inclusion of SUS. EBITDA before the fair value adjustment came in at just over $180 million. This represents a modest decline of 4% year-over-year, driven principally by weaker freight rates in Stolt Tankers, lower margins within STC and additional costs associated with integrating Suttons. Operating profit was $82 million, down 24% versus last year, mainly to the performance in Stolt Tankers and Stolt Tank Containers, plus additional depreciation from lower residual values and the consolidation of the Hassel 4 ships, Avenir and Suttons. Net profit was $47.5 million, driven by the same factors as well as higher interest expense due to the consolidation of Avenir and Hassel Shipping 4's debt. Free cash flow was nearly $120 million this quarter, which was significantly higher than the same period last year, which included the cash outflows for Avenir and Hassel Shipping 4. And our net debt-to-EBITDA ratio has improved slightly from 3.12 last quarter to 3.02x. These results demonstrate the underlying resilience of our business even as we navigate a period of heightened market complexity. Over the page, we look at some of the key drivers of performance. Stolt Tankers enjoyed increased volumes this quarter, but due to ongoing weaker freight rates, the average deepsea TCE revenue for the quarter was approximately $23,600 per operating day, a decline of 14.5% year-on-year. At Stolthaven Terminals, performance has been strong and steady. Utilization was stable at 91.2% in the first quarter versus 91.9% in the same period last year, and we saw some positive impact from storage rate increases. At Stolt Tank Containers, gross profit per shipment declined by 33% year-over-year. Stolt Tank Containers is navigating a very challenging market environment where margins are squeezed and is focused on integrating Suttons. That is all from me now. Jens, I will hand over to you for the financials. Jens Grüner-Hegge: Thank you, Udo. Good afternoon, everyone, and good morning to those of you joining us from the U.S. I will compare the first quarter of '26 against the first quarter of 2025. And as a reminder, our first quarter runs from December 1 through February '28. And as such, the closure of Strait of Hormuz did not impact the first quarter results. Also, the company recently published its annual report for 2025 and this year, including the CSRD environmental report for the first time, and you can find this on the company's website, www.stolt-nielsen.com/investors. Let's dive into the financials. Revenue for the quarter was up $41.2 million over the same quarter last year due to the following main factors: this is the first full quarter with Suttons included, and they contributed $38 million in revenue this quarter. S&G saw a $16 million increase over the first quarter last year due to the acquisition of 100% of Avenir at the end of January 2025. And Stolt Sea Farm had a $10 million increase in revenue on the back of firm prices. This was partly offset by lower revenue in Stolt Tankers, which declined by $22.5 million, mostly due to lower freight rates, lower demurrage revenue and lower bunker surcharge revenue due to falling bunker prices. However, volume was up by 20%, but mostly due to somewhat shorter voyages and higher share of commodity chemicals versus specialty chemicals. Moving to operating expense. This increased by $33 million, mainly due to the additional Suttons shipments and related expenses as well as the consolidation of Avenir and added ship owning expenses due to a larger wholly owned fleet, partly offset by lower time charter expenses and lower bunker cost. Depreciation and amortization expense was $17 million higher than the same quarter last year, and this was due to a reduction in the residual value of ships following a fall in steel prices, requiring us to increase depreciation of ships. Also, the 100% acquisition of the 2 businesses towards the end of the first quarter last year as well as the acquisition of the Suttons assets in November increased our asset base and hence also increased our depreciation. JV equity income was lower in part due to the purchase and consolidation of 100% of Hassel Shipping 4 last year and the weaker tanker markets in general, partly offset by a lower loss in Higas, our LNG terminal in Sardinia, Italy. So as a consequence, operating profit for the quarter was $81.8 million, down from $107.9 million in the fourth quarter last year. The finance expense was up $6 million compared to the first quarter of '25, and that's due to the additional debt related to the acquisition and consolidation of Hassel Shipping 4, Avenir and as well as Suttons. And as such, the net profit for the quarter was $47.5 million with EBITDA of $180.8 million. Net profit is down from $151.4 million in the same quarter last year, but please note that in the first quarter '25, we had a one-off gain on the step-up in value related to the acquisition of Avenir and Hassel Shipping 4 of $75 million. And also, as EBITDA excludes the impact of interest and depreciation, both of which increased year-over-year, the swing in EBITDA is significantly less than the swing in net profit. Now let's have a look at the cash flow statement. Net cash from operations was down this last quarter, predominantly reflecting $50 million in weaker earnings and working capital outflows, $7 million lower dividends from joint ventures, $3.8 million higher interest payments and $2.4 million lower interest receipts, partly offset by lower tax payments. Net cash used in investing activities was significantly down at $44.1 million from $232 million due to last year's business acquisitions. In the current year, cash spent on capital expenditures related mostly to tankers and terminal investments. The sales proceeds of $11 million that you can see there as well relate to the sale of a ship during the quarter. And then net cash used in financing activities of $66.1 million reflect the dividends paid in December 2025, while the debt proceeds and repayments reflect refinancings concluded during the quarter. As such, total cash flow for the quarter was a positive $10.1 million. And if you look at the graph on the bottom right, you can see we ended the fourth quarter with $546 million in available liquidity, as Udo has pointed out. So let's go over and look at the capital expenditures. Capital expenditures during the quarter totaled $42 million, with mostly spent on tankers progress payments for new buildings as well as terminals and Stolt Sea Farm expansion CapEx. Overall, for 2026, we expect to spend around $300 million, significantly down from the $511 million we spent on CapEx in 2025. And this is to a large part driven by the sale of 50% of Avenir, removing CapEx of $112 million across '26 and '27 related to 2 new LNG carriers. And in 2027, we expect to see capital expenditures increase again due to the significant progress and delivery payments on the newbuilding program for tankers. We intend to continue to invest strategically in our businesses, but we also need to focus on integrating our added capacity into our operations for maximized long-term benefit for our customers and our shareholders. And with the current geopolitical uncertainties, we will be cautious with committing to further CapEx until we see the full effect of the current unrest. So this is our debt maturity profile, which is relatively smooth over the 5-year horizon shown here. The debt profile reflects the recently refinanced debt for Hassel Shipping 4 and the deconsolidation of Avenir's debt. The gray boxes represent normal repayments, while the black and orange boxes reflect balloon payments on bank loans and bonds, respectively. If you look at the bottom left graph, gross debt reduced in the first quarter due to Avenir being accounted for as held for sale. So $120 million in Avenir debt is no longer included in this overview. And our average long-term interest rate in the fourth quarter was 5.65%, an increase from the previous quarter, driven by temporary drawdowns on more expensive revolving credit facilities and the full quarter of the bond issued in October 2025. This is our -- shows our financial KPIs and the continued steady performance of the company has supported our covenants. The decrease in debt during the first quarter supported a decrease in net debt to tangible net worth on the top left quadrant and net debt to EBITDA on the bottom left quadrant. Debt to tangible net worth is now at 0.98 as well below our covenant limit of 2.25x. With the lower EBITDA for the quarter, the last 12 months, EBITDA fell slightly to $777 million. EBITDA to interest expense on the top right quadrant was down to 5.31, whilst the net debt-to-EBITDA decreased from 312 to 3.02, as Udo mentioned. So overall, we are well within compliance on all covenants. And finally, before handing back to Udo, let me finish up with a snapshot of our main sustainability metric, the annual efficiency rating for Stolt Tankers, which finished 2025 at 9.34, just over 40% reduction from 2008. Also in 2025, we held gold ratings from EcoVadis for our 3 logistics businesses. And just to inform you, a gold rating indicates that the business is in the top 5% of companies in the industry. And then again, to point out that the recently issued annual report for 2025 contains our first CSRD report in case you want to read more about the company's ESG performance, and you can find the report on our website, as I mentioned. And with that, I would like to pass it back to you, Udo. Udo Lange: Yes. Thank you so much, Jens. I will now take us through the highlights from each of our operating divisions. Let's start with Stolt Tankers. Operating revenue at Stolt Tankers was $386 million for the quarter, down 5.5% on the year. This decline reflects the rate environment, which was only partially offset by a modest increase in operating days, driven by additions to the fleet. The rate decline is driven by a change in the mix of speciality versus commodity cargo as a result of near-term market conditions, which also drove up volumes. COA rates were renewed in the first quarter at an average rate decrease of 5.3%. This has improved versus the 9.6% decrease in Q4. EBITDA was $102 million, down 7%. Operating profit was just over $50 million, down 24% year-on-year. This reflects the lower freight rates on both regional and deepsea spot trades. We remember that previously, Hassel Shipping 4 was a joint venture and so was included as equity income. And as a result of the Hassel Shipping transaction within this quarter's results, we also saw higher owning expenses, additional depreciation and lower equity income from joint ventures versus the prior year. Depreciation was further impacted by changes in residual value. Maren and her team continue to work diligently to navigate this highly complex and unpredictable macro environment with a clear focus on delivering for our customers. I commend them for all their efforts during what continues to be a very challenging period. Looking now more closely at tanker rate trends. Whilst the TCE rate for the quarter declined to approximately $23,600 per operating day, down around 15% year-on-year, we continue to trade well above the 2018 to 2022 down cycle average of $19,825 per day and a level marginally above the long-term 10-year average of $23,300 per day. The early signs of rate softening that we saw last quarter have continued with a quarter-on-quarter change of under 4%. The effects of the conflict in the Middle East and the disruption at the Strait of Hormuz are introducing new complexities for global trade flows, and we are keeping a watchful eye on developments. This global disruption has the potential to create additional upward movement in rates and ton mileage in certain routes and downward movement in others. I also want to reiterate a point we have made before. We are not simply a chemical tanker business. We encourage investors and analysts to evaluate our performance across our diverse portfolio as a whole. I'm pleased to report a strong consistent performance from Stolthaven Terminals, and I would like to thank Guy and his team for achieving the second best operating profit in the company's history. Operating revenue was $79 million in the quarter, up 4% year-over-year. This improvement was driven by storage rate increases on existing contracts as well as new business secured at improved rates and favorable foreign exchange impacts, partially offset by softer utilization in certain areas. Utilization remained essentially stable at 91.2% from Q4 to Q1, but declined versus the prior year's 91.9%. EBITDA was $45 million, up 4%. Operating profit was $28.6 million, broadly level year-over-year as improvement in revenue was offset by inflationary cost increases and the impact of foreign exchange. We continue to progress adding storage capacity at existing U.S. sites. Projects in Houston and New Orleans are expected to come online in a staggered fashion, and we expect this incremental U.S. capacity to provide a contribution to earnings growth over the medium term. Stolt Tank Containers saw a strong increase in revenue this quarter, driven by the addition of the Suttons tanks to the fleet. Operating revenue was $184 million, up 20% year-over-year. Overall shipments totaled nearly 48,000 in the quarter, up 31% year-on-year, reflecting the addition of the Suttons volumes, while underlying volume was also slightly improved. Stolt Tank Containers recorded an operating loss of $5 million in the quarter, predominantly driven by weaker transportation margins and reduced demurrage in a highly competitive market. Suttons related integration costs and the typical seasonal softness in the first quarter. The integration of Suttons into our platform is going as planned, and we expect the positive EBITDA impact from the Suttons business to materialize from 2027 onwards once integration is more substantially complete. In the near term, Jens and his team are focused firmly on cost discipline, margin improvement and executing the integration effectively, and I thank them for their efforts. I now want to cover our view of the market and concluding remarks before we open for Q&A. Let me first give you some important context for understanding the operating environment we are navigating today. The Strait of Hormuz handles approximately 20% of global seaborne oil and CPP volumes, around 15% of global chemicals, 20% of LNG and 40% of LPG. The closure of the Strait of Hormuz represents the largest supply shock to global energy markets since 1973. The disruption to trade flows is already creating tangible effects in the chemical markets with volatile energy prices, shifting demand patterns and increased activity in the U.S. Gulf contrasting with a slowdown in other regions. We are also seeing spillover effects, including elevated bunker prices and availability constraints east of Suez, which are adding to the operational complexity for all participants in the market. This is not just a temporary disruption. It is a structural dislocation and the downstream consequences for chemical and industrial supply chains are already being felt. Firstly, the supply shock itself. Approximately 20 million barrels per day have been effectively removed from global seaborne flows due to the Hormuz closure. Middle East exports are down around 60% from around 25 million barrels per day to a net negative position when you account for the coordinated attacks across Saudi Arabia, UAE, Qatar and Iraq. Critical infrastructure has also been impacted. The Saudi East-West pipeline bypass with a capacity of approximately 7 million per day is already operating at a maximum. And even at full utilization, it can only reroute around 35% of Saudi Arabia's export volumes. There's simply insufficient physical replacement for what has been lost. In the center here on the chart, we begin to see system breakdown. Storage infrastructure is now approaching saturation, what the industry refers to as tank tops, and this is beginning to force production shut-ins. We are seeing force majeure declarations across LNG, LPG and chemical cargoes. The physical constraints on rerouting storing and processing volumes are compounding the supply loss. The third shock is demand rebalancing with Asia firmly at the epicenter. Japan, Taiwan, South Korea, Vietnam and Singapore collectively import more than 70% of the crude from the Arabian Gulf. The feedstock consequences are severe. Naphtha supply is down approximately 1.2 million barrels per day, and LPG prices have risen sharply since late February. This could potentially translate into a feedstock crisis with shutdowns of crackers, PDH plants, methanol facilities and aromatics units resulting in lower volumes. China, Korea and India have begun implementing export controls and rationing measures. The conclusion is clear. This is not a market we expect to normalize quickly. We are planning for a range of potential scenarios, spanning from a stabilized transit environment where trade flows largely normalize through to most restricted or even a closed transit regime. Across these scenarios, we have a clear set of operational and financial levers available to us. These include deploying our tanker fleet to optimize utilization and our COO and spot mix, leveraging the diversification of liquid logistics and aquaculture portfolio, providing some resilience to our earnings, adjusting capital allocation by deferring nonessential CapEx and drawing on our strong liquidity and balance sheet capacity to absorb volatility. At this stage in time, it is unclear whether the disruption will create more complexity or opportunity for our business. From a supply perspective, the stainless steel tanker order book stands at approximately 18% of the existing fleet with net supply growth of around 4% expected in 2026. However, a significant feature of the current fleet is its age profile. Approximately 14% of the stainless steel tanker fleet is aged 25 years or older and eligible for retirement. And this proportion increases to around 30% when you consider vessels aged 20 years and above. The potential for fleet retirements to absorb new supply is considerable and also acts as a buffer in case of potentially prolonged demand contraction. We expect these supply dynamics to continue to provide underlying structural support to the chemical tanker market over the medium term. To wrap this up, we are operating in an exceptionally uncertain global environment. The geopolitical pressures we face, particularly from the conflict in the Middle East and the disruption at the Strait of Hormuz introduce real complexity and market risk. Our immediate priority is to protect our people, our assets and our earnings. And we are maintaining a clear focus on what we can control. In that context, I want to leave you with 4 key themes. Firstly, we are safeguarding earnings and maintaining our focus on customers. Our ships are not currently directly affected, and our fleet is adapting swiftly to the changing situation. Our global network is agile and well positioned to support customers through the current period of supply chain disruption, and we're working closely with customers to find solution with them. Secondly, we are leveraging our diversification. The resilience of our non-tanker portfolio provides 44% of group EBITDA, providing earnings and support at a time when the tanker market faces headwinds. Thirdly, we are maintaining disciplined management of our costs and capital allocation. We have a clear set of financial levers available to us, and we will deploy them appropriately as the situation evolves. And fourth, we enter this period of uncertainty from a position of financial strength. We have robust liquidity of $546 million, a well-structured balance sheet and the capacity to absorb volatility while still pursuing strategic opportunities. Despite the challenges ahead, our strategic foundations are strong. Our portfolio is resilient and our team is focused. We continue to navigate this complex environment, delivering long-term value for our shareholders, our customers and all of our stakeholders. Thank you for your attention. I will now pass you back to Alex for Q&A. Alex Ng: [Operator Instructions] So we will start with the first question. First one for you, Jens, in relation to EBITDA guidance. Could you provide a bit more comment around the rationale for removing the EBITDA guidance? And then any information about when you would expect to resume that guidance? Jens Grüner-Hegge: Thank you, Alex, and thank you for the question. As Udo talked about, we're living in a situation which is rather unpredictable. And this could go either way up or down. And therefore, we feel that there is no real foundation to provide an EBITDA guidance at this stage. I think once we start seeing things normalize, which would mean a number of the factors that are currently causing disruptions coming back to normal, then we can reconsider providing an earnings guidance at that point. Udo Lange: Yes. Maybe let me add. So what is really the value of guidance? The value of guidance is that we see more in the business than you as an outsider and that we provide basically guardrails with the lower level or an upper level. And when you have a situation like this, if the guidance range becomes ridiculously large or it's so foggy, then it's a little bit like the COVID time. So nobody was surprised when companies stopped providing guidance during COVID. So this is not a decision that we take lightly. So we really had long conversations around this. And we just came to the conclusion. What we are seeing right now is not good enough to provide reasonable guidance. Exactly what Jens said, it can go up and it can go down, and we will come back when we have more clarity. Alex Ng: Thank you. Next question is in relation to tank containers. Would you be able to provide some guidance, Jens, in relation to where the integration costs sit in the line items? Are they entirely booked in SG&A as a starting point? And maybe just another comment around Stolt Tank Containers SG&A more broadly. Apologies, I think you're on mute. Jens Grüner-Hegge: I am indeed. Thank you. To the first part of the question, yes, the integration cost is in SG&A. And as I mentioned in my speaker notes, it was about $5 million that we incurred in the first -- during the first quarter. As for SG&A in general, as we compare the first quarter of '26 with the first quarter of '25, you have pretty much 1 year of inflationary expenses that have come in and that impacts the results. Other than that, I think for STC, I think it's fair to say they are in a tough market. And when you are in a tough market, you're always having a close eye on your expenses, and that is also the case with STC at the moment. So when this then will normalize, it's hard to say again because they are in the midst of a significant integration following the acquisition, plus we also have the market disruptions that we have to consider as we look forward. Alex Ng: Thank you, Jens. Also continuing on STC, Udo, would you be able to provide a bit more color into the current state of the market and any potential views on outlook in relation to potential improvements in the underlying markets there? Udo Lange: Yes. So the market, as you see, continues to be very challenging. And so when you look at what is really the underlying driver, it is an oversupply. As you know, during COVID, there's a long tail of competitors that got added. This is starting to shake out with our acquisition of Suttons and some other consolidations that are happening in the market. There is consolidation going on, but this is, of course, not changing overnight. And then you take a Middle East situation and that, of course, added extra pressure to the whole situation. So I think what we are really focused on is, of course, working with our customers, delivering value there, but also being focused on margins. So we are very clear on looking at how do we do margin management overall in the business. And in addition, of course, we have a fantastic digital platform and a strong best shore center. And so we just need to deliver even more value on productivity and operational efficiency, and we are fast tracking also on the Suttons integration. So we do everything that is in our control to improve the situation. So we know that this was an exceptionally weak quarter, and Hans' his team are fully focused on that. But of course, there's also a market piece in there. And it's too early for me to tell when the market will change. Alex Ng: Thank you. Next is an accounting question. For tankers, you mentioned that there was an uptick in depreciation quarter-on-quarter due to a change in residual values driven by steel prices. How should we think about the Q1 level? Would it be a new run rate for the tankers depreciation? Or is there an element of one-off effects here? Jens Grüner-Hegge: So typically, what we do is we adjust steel price or we do an assessment of the residual value once per year, and this is done basis steel prices. Steel prices reflect the recycling value of older tonnage. And that sets the target depreciation when the ship reaches its fully depreciated age. And so once a year, we reset this value unless there are any demand shocks. And then that sets really the level of depreciation for the following year. So yes, there was a significant increase this time around, but you should expect that other than changing in our asset base due to acquisitions or sales of assets that it should remain steady accordingly. Alex Ng: And next question is in relation to Avenir and the sell-down there. Are you able to provide a sense for the proceeds both in cash and more broadly relating to the balance sheet you received from this? And how will you allocate those proceeds? Jens Grüner-Hegge: So we are not allowed to talk about the actual sales price of this is unfortunately confidential and as often as the case in such transactions. But as I mentioned, we have removed the debt from our balance sheet now, and we also removed future CapEx, future CapEx being approximately $120 million impacting '26 and '27 and the debt being reduced by $112 million. So hence, you see that reduction now already in our balance sheet. Udo Lange: Yes. And let me add what Jens says. So we are super excited about this deal because it's really a double whammy. So on the one hand, we can accelerate our strategic ambitions in this space because we have a strong partner with NYK, who can also bring offtake for the business, and we can jointly grow. But then on the other hand, it also helps us both on our balance sheet side. And as you saw, it has a significant impact on reducing our CapEx exposure, and that is quite relevant during a time like this. Alex Ng: A question relating to the results and how they presented, Jens. Last quarter, there was a like-for-like income statement, which was very helpful. Is it possible to get something like that for this quarter, particularly given the number of moving items that have been occurring during the period? And also, do you expect similar in the coming periods? Jens Grüner-Hegge: Yes. I think previously, there were a lot of movements related to acquisitions of Suttons and also with the 2 acquisitions we did in the beginning of the year. We haven't presented that at the moment. Going forward, when we compare next quarter, it will be on a like-for-like basis because you will have had a stable second quarter of '25 and a stable second quarter of '26, you'll probably see a little bit less volatility other than, of course, Avenir. And we can put that in when we present the next quarter's earnings so that you get a like-for-like, and then we can share it broadly with the whole market at the same time. Alex Ng: Thank you. Next question is in relation to the performance of Stolt Sea Farm. Stolt Sea Farm performance looked particularly strong. Q1 is typically strong, but is it primarily volumes or price driven this development? And how do you expect this to continue? Jens, maybe that's one for yourself around the Q1. Jens Grüner-Hegge: Yes. I think, first of all, Q1, we have this typically seasonally strong Christmas season, where you have good volumes that are being sold, particularly in December, after which it tapers off a little bit in the beginning of the new year typically. But this quarter, we saw good movement in prices, favorable movements in prices, and that is reflected in the improvement in the results. That's really the main driver. I think we've elected to not report in detail on Stolt Sea Farm, but there is -- there are sections in the interim financials that were issued together with the earnings release that have more detail on Stolt Sea Farm. It remains strategic. It is important to us, and we will continue to invest in it. And -- but you can find more details about Stolt Sea Farm in the interims. In the presentations itself, we want to focus on the liquid logistics, which is really the bulk of the company's assets and what drives the performance of the company, particularly in times like this when you have disruptions in the global supply chains. That said, under such circumstances, it's nice to have a business like Stolt Sea Farm contributing steadily to the performance overall of the group. Alex Ng: Very good. That concludes all the questions that we have. So thank you very much. Just as a reminder, we'll be posting a recording of our call on our website tomorrow. And Udo, back to you. Udo Lange: Yes. Thank you so much, everybody. I really appreciate you joining us today, and I look forward to talking to you again when we present our results for the second quarter of 2026 in July. And of course, like all of us, I hope that by then, the world has come to a more peaceful landing than where we are right now. With that, all the best for today.
Operator: Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware First Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on April 9, 2026. [Foreign Language]. Richard Lord: Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the first quarter ended February 28, 2026. With me is Antoine Auclair, CFO and COO. As usual, note that some of today's remarks include forward-looking information, which is provided with the usual disclaimer as reported in our financial filings. During the quarter, we maintained our growth momentum with good results. After a strong year of acquisition in 2025, we completed our first acquisition of 2026 in December, adding 2 distribution centers of McKillican American in Oregon and Washington state as previously announced. Additionally, we signed 2 letters of intent for new acquisition in Canada. Quarterly sales increased by 5% to $463.6 million. Excluding the impact of the Canadian dollar appreciation against the U.S. dollar, the increase in sales would have been 7%. This growth reflects both the solid contribution of our manufacturers market in Canada and in the U.S., where sales rose 6% to $408.2 million and the contribution from acquisition, which accounted for 3% of total sales growth. Our strategies of innovation, acquisition, distinctive service and market segment diversification have successfully offset certain sector slowdowns. In fact, the hardware retailers market -- sorry, let me -- in fact, the hardware retailers and renovation superstores market -- sorry, my iPad had a problem, declined by 1.9% compared to the same quarter of 2025. Sales totaled $55.4 million reflecting a slowdown in Canada, where sales decreased by 6%, while in the U.S., they rose by 21% in U.S. dollar. Our EBITDA increased by 1.9%, but would have been up 5.6% if we exclude the FX impact with also an EBITDA margin slightly higher than last year. Net income rose 4% to $0.26 per share. I am pleased and proud to note that during the quarter, Richelieu has awarded -- was awarded 2 prestigious top prizes at the Best of KBIS 2026 Trade Show in Orlando, Florida. An annual industry-wide global event that recognizes the most innovative kitchen and bathroom solutions. These awards demonstrate our commitment to always being first to bring innovative products to market, thereby helping to drive the market forward. Our decorative hardware collection Atipica received silver in the Style Statement category. This exclusive collection created in collaboration with our long-term Italian partner redefines modern sleek design. In addition, we earned gold in the Wellness Trailblazer category for VERTI 440 motorized system for cabinets and closet. This unique innovative system is designed to enhance mobility, safety and autonomous living in any environment. Antoine will now review the financial highlights of the first quarter. Antoine Auclair: Thanks, Richard. First quarter sales reached $463.6 million, up 5%, driven by 2% internal growth and 3% contribution from acquisitions. Sales to manufacturers stood at $408 million, up 6%, including 3.1% from internal growth and 2.9% from acquisitions. In the hardware, retailers and renovation superstores market, sales totaled $55.4 million, down 1.9%. In Canada, sales amounted to $249.8 million, up 3.4%. Our sales to manufacturers reached $206.3 million and hardware retailers and renovation superstores market, sales stood at $43.5 million, down 6%. In the U.S., sales grew to $155.6 million, up 11.3% and reflecting 6.4% in total growth and 4.9% from acquisitions. In Canadian dollar, sales in the U.S. reached $214 million, an increase of 6.8%, representing 46% of the total sales. First quarter EBITDA reached $43.2 million, up $0.8 million or 1.9% despite a negative foreign exchange impact of $1.6 million due to currency fluctuations. The EBITDA margin stood at 9.3% compared to 9.6% last year. First quarter net earnings attributable to shareholders totaled $14.4 million, an increase of 3.6% from the first quarter of 2025. Diluted net earnings per share was $0.26 compared to $0.25 last year, an increase of 4%. First quarter cash flow from operating activities before net change in noncash working capital balances was $37.9 million or $0.69 per diluted shares. The net change in noncash working capital used cash flow of $21 million, mainly reflecting the increase in inventories, which is a normal seasonal fluctuation for this period of the year. As a result, operating activities provided a cash inflow of $17.1 million compared to a cash inflow of $3.7 million in the first quarter of 2025. We paid dividends of $8.6 million to shareholders, and we invested $13.2 million, including $10 million for 1 business acquisition and $3.2 million in CapEx. At the end of the quarter, financial situation was healthy and solid with working capital of $625.7 million and almost no debt. I now turn it over to Richard. Richard Lord: Thank you, Antoine. In conclusion, we are integrating our recent acquisitions efficiently while continuing to actively pursue opportunities. The highly fragmented market in which we operate, particularly in the U.S., still offer many acquisition opportunities, and we are well positioned to capitalize on those that meet our disciplined acquisition criteria. We believe we are well positioned with a strong offering and deep expertise to meet the evolving needs of the specialized market we serve. We are confident that we will continue to strengthen our foundation by creating and seizing opportunity for long-term value creation. Thanks, everyone. We'll now be happy to answer your questions. Operator: [Operator Instructions] First, we will hear from Hamir Patel at CIBC Capital Markets. Hamir Patel: Richard, are you able to comment on how sales have fared in Q2 so far for both the manufacturers and retailers? Richard Lord: The market is still very good. Just to give you some -- an idea of the market in Canada, as we -- the last quarter was a total increase for the industrial customers by 4%, but the Eastern Canada sales were up by 12%, and this is continuing in the current month as well. So Eastern Canada, we see a regain in the construction industry for multiple buildings that are being built. So basically, it's positive. The only market in Canada that is going not very well is the Ontario market, was down by 4% in the Ontario market. While Western Canada is up by 3% and in the U.S., as we have already mentioned the growth in the U.S. So basically, it's doing well in the circumstances, even though we have the retailers market, which is very -- which is flat. It's -- if we -- constant communication with the retailers in Canada, and they all have a negative POS sales. So basically, we -- I think this market is going to come back... Hamir Patel: Okay. Great. And just looking at Q1 organic growth was 2%. What was the price and volume sort of composition that got you to 2%? Antoine Auclair: I mean, just to complete also the -- your previous question. The month of March is pretty aligned with what you've seen in the first [indiscernible]. We're still seeing growth in March in the beginning of April as well. And regarding the price increase versus the volume. It's pretty much -- the increase you're seeing in the U.S. is pretty much price increase driven. In Canada, it's a 50-50 price increase in volume. Hamir Patel: Great. That's helpful. And just the last question I have before I jump back in the queue. EBITDA margins 9.3% in the quarter. What are you expecting for full year 2026? And how do you think about where longer-term margins might stabilize? Antoine Auclair: First of all, you understand that the first quarter is always the softer quarter of the year. So you'll see the EBITDA increase in the next 3 periods for sure. The EBITDA margin should be similar or slightly higher than last year if you look at Q2, Q3 and Q4. So we've delivered 10.9% last year. We should be slightly over that as we already communicated to you guys. What we're looking for is for EBITDA between 12% and 13%. So that's -- at the end of the day, that's what we are heading for. But for 2026, it should be around the 11% mark. One thing, Hamir, that you guys need to understand is that, yes, the foreign exchange had an impact in Q1, but the tariffs also are impacting the EBITDA margin in percentage. So we've always said that we would pass the tariff dollar, so no impact on the EBITDA dollar, but has an impact on the EBITDA margin. Hamir Patel: Antoine, do you have a sense as to maybe how many basis points that's represented? Antoine Auclair: 0.2. Operator: Next question will be from Zachary Evershed at National Bank. Zachary Evershed: Last quarter, you were hopeful for a continuation of the year-over-year margin expansion in Q1. We heard about the FX impact, which is about 30 to 40 basis points and the tariff pass-through impact, which is about 20 basis points. Anything else happened in the quarter that pushed down on the year-over-year comparison versus Q1 last year? Antoine Auclair: If you exclude, Zach, the FX impact, you would be slightly higher than last year, and the tariff impact also has -- is impacting negatively the margin percentage. So if you exclude that, we would be higher than last year. Zachary Evershed: Got you. And the pressure on retailers in Canada this quarter, you mentioned negative POS data, but last quarter, we had a large nonrecurring sort of seasonal order. Anything notable this quarter? Richard Lord: So the business is still flat as we speak, but we hope that the months to come -- I think the construction is going to improve because many of the retailers sell to contractor as well. So -- and basically, the consumer will have to spend one day or the other. The past due business is going to -- that's a project that the consumers will do soon as well for which we have many products. So basically, we hope that the market should not be that bad with the hardware retailers. Zachary Evershed: And given the resurgence in mortgage rates in the U.S., are you seeing any changes in the willingness to transact from sellers in your M&A pipeline? Maybe they're throwing in the towel? Antoine Auclair: No, the M&A pipeline is healthy in the U.S. as well. So we've signed 2 letters of intent in Canada. We have other opportunities that we're hoping to close soon, but it's very healthy as we speak. Richard Lord: And coming back, Zach, to [indiscernible] letter as well. I think we already told you that we're going to gain some business we closed in the U.S. that will represent something between something like $10 million per year. And that project should start in the third and the fourth quarter of this year. Zachary Evershed: And despite the turmoil we're seeing in global markets, no change to your expectations for roughly plus or minus $100 million in added revenue through M&A? Richard Lord: Yes, sir. No problem at all. That will be -- that should be reached. Operator: [Operator Instructions] And at this time, Mr. Lord, it appears we have no other questions. Please proceed. Richard Lord: Thank you very much, all of you. So we're always happy to answer your questions if you call us. Bye-bye. Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
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