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Aras Azadian: All right. We'll get started. Thank you for joining, everyone. My name is Aras Azadian, CEO, Founder of Avicanna. Some of you would know me for a long time. This is my 10th year in the role. Joined today by -- with Dr. Karolina Urban, who's our EVP of Scientific Affairs and Medical Affairs; and Nick Hilborn, who's our Interim CFO. We're going to take you over some of the corporate updates from 2025, then a little bit of an overview of where we stand as a corporation. But of course, I look forward as well into 2026. So what's coming which is very exciting. In addition to that, we're going to leave a little bit of time for Q&A at the end. So a customary disclaimer notice. But for some of you that are new to the company, I'll spend a minute or 2 and just who we are. So Avicanna is -- now we're fully vertically integrated cannabinoid-based pharma company. We have established what we believe is an industry-leading scientific platform and that his now translated into a commercial platform. This is across four different business pillars now from medical cannabis products, many there quite a brand to our medical cannabis care platform, which is my media to our pharmaceutical pipeline and, of course, our Aureus raw materials division. This is all part of an integrated commercial platform. These business units while we do operate independently, do have substantial synergistic benefits for each other business unit. This has resulted in over 50 commercial products, mainly in the Canadian market. This is part of our plans for 2026 to further expand these into international markets. And we have established footprint and or proof of concept in what is now 24 international markets, resulting in about $25.5 million of revenue during 2025, and essentially adjusted EBITDA breakeven. This is all derived from the scientific platform. Dr. Urban will walk you through some of the developments of this year, but our scientific platform is really where we dedicated the first 5 years of Avicanna into drug delivery preclinical and clinical development and it's something that we take a lot of pride in, and I believe, again, Avicanna is an established leader within that realm. So just a quick overview of 2025. This is what we're going to be covering. So I don't want to take the thunder away from my colleague, Nick, but from a financial perspective, we were able to relatively consistent revenues from last year, a little bit above last year's results of $25.5 million. We did substantially improve our gross profits and gross margins by about 10%, resulting in 53% gross profits. I believe these are industry-leading numbers and an indication of the company's entry barriers and operating -- the fact that we're operating as a more biopharma company. We are happy to be carrying 0 debt in terms of structured debt or debenture on our balance sheet. And again, we were able to substantially improve our adjusted EBITDA to less than $300,000 for all of 2025. So strongest financial performance to date, while the revenue growth was modest, we were able to substantially improve other variables within our financial performance. Nick will dive into that. We did improve our efficiency and margins. We'll dive into how we accomplished that. We were able to also make strategic investments during 2025. So for those of you that have been shareholders for Avicanna for a long period of time, you would notice that we were able to actually reinvest in physical capabilities in Colombia, for example, that has now resulted in improvements of our export capabilities, but also in R&D and clinical development that is really the largest value driver for the company in the long term. We did continue to expand our commercialization efforts in Canada, and I'll expand into that. And then focus more on international advancement and commercialization across new markets, which we will also expand on. So overall, a successful year. We're very happy with the results of the year, and we're very excited for what 2026 has to offer. So just a quick overview of RHO Phyto for some of you that are not familiar, RHO Phyto is our main medical cannabis brand. This is treated as of the medical formulary for insurance adjudication and for clinical practice. From a simple sense, this is a portfolio of advanced medical cannabis products that are utilizing Avicanna's proprietary drug delivery systems to deliver standardized and evidence-based products to patients. Karolina and her team, including our pharmacists and mine are helping patients to do with clinical guidelines and treatment plans and working with the medical community to identify which one of these products is most suitable for various clinical indications or symptoms. Very happy with what we've done with RHO Phyto. Canada has been our proof-of-concept market where we have commercialized about 50 of these SKUs. The learn firm them test it improved the formulation, improved dosing and are consistently revamping this portfolio. We will be now focusing on internationalization and further scale in RHO Phyto in 2026 which we will expand on. Something that in the next slide that we're quite excited about is the pipeline that's coming and Karolina will expand on -- the one after, yes. So something that we're quite excited about, again, is the pipeline. I'll expand on it. But in the next slide, we're talking about what we've accomplished with RHO Phyto, our medical portfolio in Canada. The number of listings we have continue to increase, which means more and more channels. We can call them placements across Canada or listings. These are SKU getting listed within a medical or retail channel, meaning a province or a medical platform other than MyMedi. So we're at 170, and this is a 26% increase from last year. We do now have 50 products in the Canadian market. We believe that number is going to go up by the end of this year with the introduction of our next-generation 3.0 products. But in addition to that, we are removing SKUs that are low performance. So the idea isn't just to bring more and more product into the market, but to bring on products to the market, test them, learn from them, improve them and keep the winners and ideally start linking those products -- particular products to various -- again, symptoms or clinical indications or patient groups which is part of the medical affair efforts Karolina will expand on. This is all done in an asset-light model. So Avicanna is not a licensed producer. We are outsourcing the manufacturing of our proprietary products, meaning, we are tech transferring our formulations. We're ensuring that it's meeting Avicanna's quality standards and these products are being released. What's interesting about this model is its scalability. So as we continue to grow in the domestic market of Canada, but also internationalized, we will be using an asset-light model that allows us to scale without major CapEx. We are in eight national medical platforms, including MyMedi. So my MyMedi being -- is one of the medical cannabis platforms in Canada. We believe it's unique and Karolina will expand on that, but we're very excited to see that we are entering more and more channels where these proprietary products are having significant benefit for patients. Karolina will expand on in fluid and PwdRx. These are two of our technologies that we have finalized during 2025 and its derivative products and I'll leave that for Karolina, but what I'll touch on is the products from this -- from these developments that were going to be translating into the Canadian market during 2026 and into international markets from 2026 and on. So this includes in fluid, which is a liquid version of self-emulsifying drug delivery system that is being utilized as a precursor, so as essentially a nano emulsion going into gummies, resulting in fast gummies. Same technologies being utilized in our new capsules that are going to be fast-acting capsules, sachets and small beverages. The idea here is to be able to reduce combustible and inhaled products within the patient population by delivering fast-acting benefits of cannabinoids within more and more consumer-friendly or patient-friendly dose forms. These are all in esprit products, lots of a protection around these and very excited to see so early results in these products within preclinical clinical development and bring them to the market. PwdRX on the right is powder version of a similar technology, but different that allows us to then solidify these products into hard forms such as tablets and oral pouches. Karolina Urban: Good morning, everyone. Over the past year, our Medical and Scientific Affairs, efforts in Canada have remained focused on advancing cannabinoid-based medicine through three integrated pillars: a scalable medical platform, standardized and evidence-based proprietary products and rigorous clinical evidence generation. I'll walk through these briefly. 2025 was the turning point from MyMedi, our medical cannabis care platform, which provides access to cannabinoid-based medicine to patients across Canada with health care practitioner authorization. Originally launched following the acquisition of Medical Cannabis by Shoppers a subsidiary of Shoppers Drug Mart, the platform demonstrated growth supported by ongoing improvements in patient engagement, communication workflows and clinical documentation processes. These operational enhancements alongside the continued expansion and increased utilization of our pharmacist-led support services are driving greater efficiencies across our platform while improving patient retention, continuity of care and overall sales performance. You may ask what differentiates MyMedi from other medical cannabis services. And that's the combination of infrastructure, clinical support and access. We have a diverse multi-brand platform with over 230 SKUs from 65 leading medical cannabis brands. We have a strong medical affairs platform, including clinicians training and accredited education programs through Avicanna Academy. We have integrated insurance and reimbursement capabilities across private insurers public institutions and multiple provincial workers' compensation boards, such as WSIB. And we have bilingual pharmacist-led support programs that are important in treatment planning and specialized services, which is the ones we have developed for veterans. Importantly, this platform not only supports patient care but also enables real-world evidence generation, which I'll touch on like. It also generates clinician engagement and payer integration at scale, positioning it as a core driver of both clinical and commercial growth. We continue to believe that MyMedi, especially when combined with RHO Phyto is the most complete service of cannabinoid-based medicine and perfectly suited for international expansion into markets that are planning to regulate medical cannabis federally. During 2025, we set out to engage and collaborate with the medical community in Canada in an effort to help facilitate the incorporation of cannabinoid-based medicine into standard of care. While we faced early challenges, we are pleased with the progress we made in 2025 and the reception we have received from the medical community. Over the of the year, we have continued to expand our reach within the medical community through targeted education, scientific exchange and collaboration with key stakeholders. This has included healthcare professional training and education that has been focused on clinical guidelines, treatment planning and integration of medical cannabis into products, key opinion leader engagement, including four national webinars, reaching over 700 registrants and over nearly 400 live attendees, strategic collaborations with professional organizations, including the Nurse Practitioners Association of Ontario and the Canadian Pain Society. Conference participation and scientific presence, including our annual symposium, which had over 400 health care practitioner registrations as well as participation in eight other conferences across Pain, Mental health, Pallative Care and Veteran Health, giving us presence across the country. Finally, we enhanced all of our educational infrastructure, including updates to Avicanna Academy and the development of training modules. We also conducted advisory board engagements, including chronic pain and PTSD focused sessions with multidisciplinary experts to inform clinical frameworks and identify gaps in care. All of these efforts are designed to support clinicians in adopting cannabinoid-based therapies in a structured and evidence-informed manner. As a result, we are seeing continued growth in new prescribers engaging with MyMedi, either through direct patient onboarding or referrals through clinic networks, strengthening our position within the medical channel and supporting sustained patient growth. In terms of our pipeline development and translational science, over the last 9 years of preclinical and clinical work on cannabinoids, Avicanna has established a scientific platform and continues to develop intellectual property. Our R&D team continues to innovate and leverage. Our robust understanding of medical cannabis and patent outcomes to deliver proprietary cannabinoid-based products. Our development efforts are underpinned by a robust R&D platform, complemented by observational real-world evidence studies that help inform clinical decision-making and validate our therapeutic approach. During 2025, we also finalized two self-emulsifying drug delivery system platforms, in fluid and PwdRX that are designed and optimized to solve challenges associated with hydrophobic nature of cannabinoids. Both of these unique drug delivery systems utilize a nano-emulsion technology to deliver cannabinoids in a consistent and rapid manner while enhancing absorption and speed of onset. Both of these technologies were also further developed into final product formats that Aras alluded to as part of our 2026 pipeline. Really an incredible example of our scientific platform translation capabilities into commercial efforts. We continue to advance our proprietary oral delivery platforms. First, PwdRX, which is designed to address key challenges associated with cannabinoids, including poor solubility, variable bioavailability and delayed onset. In a recent in vitro study, this platform demonstrated a 74% increase in bioavailability, a 63% increase in peak plasma concentration and 134% higher peak concentration compared to standard MCT oil formulations. We have filed a provisional patent covering this technology, which is adaptable across multiple formats, including capsules, tablets, sachets and pouches. Additionally, in fluid, another self-emulsifying drug delivery system will be utilized in various product formats. This technology was designed for product formats such as beverages and gummies. Finally, we are granted a new USPTO patent covering topical cannabinoid composition for dermatological applications, further strengthening our intellectual property portfolio. We continue to advance a structured clinical development strategy that spans real-world evidence, randomized controlled trials and early phase mechanistic studies. At the foundation of this work is our national real-world evidence study conducted through MyMedi, which is led by Dr. Hance Clarke. This prospective observational study has enrolled approximately 450 patients to date and evaluates patient-reported outcomes across pain, sleep, anxiety, depression, and medication use in routine clinical practice. This study has now been published in the Canadian Journal of Pain, demonstrating significant improvements across multiple clinical endpoints over a 24-week period. We continue to drive this data collection forward as we speak. Building on the real-world evidence findings, we have initiated a pilot Phase II randomized placebo-controlled clinical trial in osteoarthritic pain, which is also led by Dr. Hance Clarke at the University Health Network. This study is a multicenter, 3-arm parallel study that is evaluating our proprietary oral cannabinoid capsules utilizing our solid fed delivery platform. We are currently in recruitment -- patient recruitment phase and this trial represents an important step towards generating high-quality controlled evidence to support clinical and regulatory advancement. Looking ahead, we have also received Health Canada approval for a Phase I randomized placebo-controlled dose finding study that we announced in 2026 and in collaboration with the University of Calgary, led by Dr. Leah Mayo and Dr. Matthew Hill. This study is designed to characterize the dose-dependent effects of oral THC on anxiety, incorporating validated psychometric assessments alongside pharmokinetics profiling and biomarker analysis. Together, these programs reflect a deliberate and staged approach to evidence generation, leveraging real-world data to inform controlled trials and advancing toward more precise dose defined therapeutic strategies. Now I'll turn it back over to Aras. Aras Azadian: Thanks, Karolina. Just we'll get into a little bit of the international progress we made during 2025. And at the end of the presentation, we'll talk about our 2026 plans. But as most of you are familiar with the company and the success we've had in Canada. Canada does remain our main market, our priority market, but Canada is also our sandbox. Canada is again where we're optimizing our role fit portfolio, optimizing the services provider in MyMedi, combining into what is a real complete medical cannabis service, and we are then utilizing that to build our pharmaceutical pipeline and intellectual property portfolio. However, during 2025, we were able to accomplish some early signals elsewhere. Initially with Trunerox, for those of you that are not familiar, Trunerox is our first approved pharmaceutical. This is an epilepsy drug for pediatric epilepsy catastrophic indications, including Lennox-Gastaut and Dravet syndrome and the product was approved for at marketing authorization by Invima, which is the Colombian authorities, the product was launched early Q1 2026. This is a very soft launch. So we're learning from it. We're learning from our first pharmaceutical launch and hoping that we can scale that in Colombia and then internationalize it in other markets, where the Trunerox approval at Invima does us qualify. In addition to that, we were able to commence exports into the United States. We have never breached U.S. federal law. We've never conducted sort of state-level activities, and therefore, are actually quite clear in terms of our U.S. pathway. However, we're able to conduct CBD -- direct CBD product sales through our partnership with re+PLAY. re+PLAY for those of you who are not familiar with, is Al Harrison, a former NBA Veterans CBD recovery brand, which is utilizing our proprietary CBD and CBG topicals. We launched the brand late last year and are now working on the scale of that in the United States with Al and his team. Very excited about the opportunity there because we're utilizing our own organic CBD and CBG that we're producing in Colombia. We're producing the finished product also in Colombia and exporting that into the United States going through obviously the full import and export process. In addition to that, we were able to scale Aureus and more importantly, improve the quality of Aureus, which is our Colombian subsidiary. So in Colombia, we have our majority-owned subsidiary that has been historically focused on the production of active pharmaceutical ingredients, CBD, CBG, THC, using organic materials. Over the last 2 years, we've concentrated on improving the capabilities within this operation to be able to produce organic premium flower so that we can export that around the world. The reason why that's important is, in many of the emerging international markets, such as the European Union, U.K., Australia, flower does still represent the highest proportion of sales, and it is the easiest product to be able to export and we've been able to prove that our infrastructure in Colombia, which has clear cost advantages and environmental advantages and organic certification can meet the regulatory and quality requirements of these markets. We announced that we export to Australia. And as of last year, we were able to enter Europe as well. So we believe this can be something that's going to be scaled during 2026. So we're quite excited about the opportunity this can have as a revenue driver and also as potentially a very large cash cow to then help fund some of the other innovations and international expansions of the company. We were able to enter our 24th market. So this is now -- but in 2026, we enter Australia, which is our sixth continent. For those of you that are not familiar with the regulatory landscape relates to cannabinoids, it's a controlled substance. So there's a lot of code applications and import and export process that needs to -- we need to go through. And no country has the same regulations. So we are navigating a very complex regulatory scheme internationally, and we were able to successfully work with international law to be able to get these products into various markets, something that we're quite excited about, and I'll touch on in terms of what we expect to do in 2026 as a forward-looking statement. So overall, I think we're very well positioned to now scale. We did further improve our processes during 2025. We did land in new markets. We have launched new programs and partnerships. And again, we're operating in a very asset-light model where we believe that the formulations products can enter more and more international markets, while not requiring a significant investment from a CapEx perspective from Avicanna, and while maintaining high entry barriers, whether it's the formulations or it's a low cost of material that we're able to deliver. I think we're going to go into finance now, Nick? Nick Hilborn: Thank you, Aras, and good morning. I'm happy to provide an update on the financial results for 2025. In 2025, top line revenue was consistent year-over-year at $25.5 million. Avicanna earned gross profit of $13.5 million, representing a gross profit margin of 53%. This is a 10% increase from the 2024 gross margin of 48%. The improved gross margin is a result of increased service and licensing revenue as well as a higher sell-through of Avicanna-branded products on MyMedi. As a percentage of MyMedi sales, Avicanna-branded products sold on MyMedi grew from 17.5% in Q4 2024 to 19.7% in Q4 2025, a 12% increase year-over-year. The company also continued its relentless efforts on cost control, decreasing operating expenses by $1.5 million year-over-year, representing a 9% decrease compared to 2024. As a result, we achieved adjusted EBITDA positivity in the fourth quarter of 2025, earning $310,000. Avicanna also significantly improved adjusted EBITDA for the full year by 71% and achieving a loss of $300,000 in 2025 compared to a loss of $1 million in 2024. This improvement is a direct result of the boost in gross margin and efficiencies within operating expenses. Net loss was also upgraded significantly, up by 41% from $4.6 million in 2024 to $2.7 million in 2025. Avicanna continues to operate with no debt on its balance sheet and managed to improve its working capital position by 23% in 2025 as compared to the prior year. The company is on the path to fund its own operations through operating cash flow and only raised $1 million through a non-brokered private placement during the year as compared to $4.8 million raised in 2024. Now we'll move to the next slide, and we'll go through a brief revenue breakdown. So we operate in many different channels and markets MyMedi.ca in Canada continues to be the major driver for Avicanna. And after a soft first quarter, we were able to deliver 3 sequential quarters of revenue growth, resulting in $20.4 million for the year. As noted on the previous slide, as a percent of MyMedi.ca sales, our medical affairs efforts resulted in a 12% increase of our Avicanna-branded product sell-through, substantially improving our consolidated Canadian gross margins. Other Canadian revenue was comprised of license and service revenue in addition to business-to-business product sales into other channels such as medical cannabis. High-margin license revenue increased by 39% year-over-year from $1.16 million to $1.6 million, while B2B product sales were relatively in line with the prior year. International revenue, most notably from our Santa Marta Golden hemp joint venture achieved revenue of $1.9 million. Although top line revenue was relatively consistent year-over-year in our International segment, we were able to realize significant margin improvement with the shift away from product sales towards service revenue. Now I'll pass it back to Aras for a look forward into 2026 as well as closing remarks. Aras Azadian: Thanks, Nick. Again, I'm very happy with the financial results more so from the fact that we have reduced almost eliminated the use for external capital to sustain our business looking forward to 2026. As we look to further scale and invest. I think that gives us a solid ground to build on, and we're quite happy with that. Unfortunately, we're seeing the inverse impact of our financial and corporate and clinical and R&D progress in terms of the stock price. I think that's for anyone that can access public files, it's clear to see that there is an oversupply of the stock coming from one of the major shareholders, so this is public information in a relatively illiquid stock in the TSX in the segment that we're unfortunately associated to the terms of cannabinoids that is having an impact. And we're hoping the progress we continue to make in terms of 2026 and our plans that were for 2026 will help rectify this and really unlock value for shareholders. When we look at Canada, again, Canada is our primary focus, but it is also our more mature market, representing almost 90% of our international revenue. We do expect to continue to grow in a more stable fashion and we do expect to further invest within the R&D, clinical and medical affairs. Quite excited about the launch of the 3.0 products. We believe that this is in line with the needs of the market, both on the medical and even on the retail side, where there's opportunity for licensing of these technologies. We're quite -- it's quite important for us to be able to resolve some of the harm concerns related to cannabinoids, specifically in a harm reduction campaign and fast-acting oral formulations, we believe can offset or reduce the amount of combustible inhaled products that are in the Canadian market, and that's something that we will be dedicating resources to during 2026. In terms of the United States, this is becoming much more important for us as we proceed. We do have a multipronged U.S. strategy, which does include a pre rescheduling and a post rescheduling that is expected. For those of you that are not aware, the United States or Donald Trump has indicated that he expects to reschedule cannabis or cannabinoid-based products federally, and that would allow for significant opportunities from a medical, R&D, clinical, but also from a commercial perspective for companies like Avicanna that have dedicated 10 years now into a complete medical cannabis focus. Within that, we expect to dedicate resources into partnerships, strategic partnerships in terms of licensing and sort of the CBD pathway prior to rescheduling and post rescheduling, hope that we can 1 day bring the MyMedi and RHO Phyto platform into the United States and offer what has worked as a complete medical cannabis care platform in Canada into the United States. In addition to that, we are looking at the U.S. capital markets, something that we've -- we always knew we need to -- we aim to go towards. We've done a lot of analysis, and we have now engaged in discussions to be able to build our U.S. listing pathway in terms of a senior exchange. We believe as a biopharma company that does operate only in federal regulations. We have the capabilities and the regulatory sort of clearance to be able to list on a senior U.S. exchange where we can really unlock value for our shareholders. So this is something that we're going to be dedicating again, time and resources to this year, and we believe it's something that will substantially help to unlock value. From an international market perspective, again, what we did in Canada has worked, and we now aim to take our learnings, our products, our formulations, our technology, whether it's through direct exports of our raw materials out of Santa Marta, which we've already proven or our finished products, whether that's licensing or finished exports of our products like RHO Phyto into various emerging markets, two strategic partnership with Fortune 100 and Fortune 500 companies that are looking to enter the cannabinoid adjacent to the cannabinoid direct model using either our intellectual property or raw materials to various other opportunities as the more and more countries legalize and regulate cannabinoid-based products, the trend we are seeing is that this is under a medical platform. And this is where we believe that Avicanna very well positioned. Again, to take the learnings of the company from Canada intellectual property and scale it internationally. From an R&D clinical perspective, we're quite excited that we're able to reinvest in these opportunities. And during 2025, Karolina and the team have made significant advancements from new product development to preclinical and clinical development. much of which has been done through grants and support from the clinical community. But we have been able to invest into these platforms, and we believe that this will ultimately drive the real value of the company in the future, especially as we go towards the United States and the senior exchange listing as a pharmaceutical issuer. And we're quite excited to see the learnings again from our real-world evidence that we've been able to conduct in Canada or some of our Phase II studies that are now ongoing in Canada into later-stage pharmaceutical development into markets like the United States. And where there's substantial opportunity to then co-develop or license technology as well. So overall, very excited for what we've accomplished. I'm personally very comfortable. This is the most comfortable the company has been in terms of financial performance, being able to stand on its own 2 feet and now look forward and invest in many of the things that we've already proven have worked in different markets or more specifically in Canada, and we believe that we have the team to do so, and we're excited to do so. So we'll open it up now. Karolina is going to help me with some of the questions and happy to answer that for the group. Karolina Urban: [Operator Instructions] If we have no questions, you're always welcome to e-mail the team at Avicanna. We're always open to discussing anything and look forward to your feedback. We'll give it 1 more minute. [Operator Instructions] All right, Barbara. Unknown Shareholder: I just had a quick question. Barbara Hickson, I'm a retired investor. Are you finding any interest from other major pharmaceutical companies in terms of acquiring the company? Aras Azadian: Barbara, I'll answer that and good question. So far the early interest has come from cannabis companies, and we believe there's one, the value hasn't been right; and two, they will likely shelf the company in terms of the intellectual property and the value that it generates from a medical and pharma perspective. So our target, ultimately, when we consider an exit, it would be a pharmaceutical one. We've had collaborations and engagements, partnerships, some strategic sort of alliances with midsized pharma companies, and we continue to scale those, but we haven't had any direct acquisition opportunities yet. I do, however, believe that once we do eventually listen to the U.S. in terms of a senior exchange and the rescheduling of the United States takes place, that's going to open up the opportunity for more health care biotech investment, but also health care biotech companies getting more comfortable with the cannabinoid space. Today, we're still fighting a significant amount of stigma and hesitation because of the lack of sort of federal authorization in the United States, and that's where a lot of these companies are, as you know, so we see that as a significant opportunity to unlock value and even potentially for an exit. We're not quite there yet. And this is why we're further formatting the company to be more U.S. friendly for such opportunities. Karolina Urban: We have 1 more minute. Aras Azadian: I think we'll wrap up here. Everyone, thank you for attending. Thank you for your interest in the company. We're happy to keep you updated, especially as we make further progress in 2026. We will be conducting more and more calls, updates, webinars, et cetera, and excited to deliver the results of this year for 2. Thank you. Thanks, Karolina. Thanks, Nick. Karolina Urban: Thanks, everyone.
Operator: Ladies and gentlemen, thank you for standing by, and I would like to welcome you to the Discussion of Text Q4 2025-2026 KPI Conference Call. The call today will be hosted by Marcin Droba and Lucja Kaseja from the Investor Relations department. [Operator Instructions] So without further ado, I would now like to pass the line to Lucja. Please go ahead, ma'am. Lucja Kaseja: Good afternoon, everyone. Thank you for joining our webinar. We will now present and discuss both our operational data for the past quarter and our outlook for the upcoming months, of course, this time in English. First of all, please take a moment to read the disclaimers, especially those regarding forward-looking statements. [Technical Difficulty] I can go straight to the point, as you already know from the current report published last week on Thursday. The MRR at the end of March stood at USD 6.93 million. This means that during the quarter, the Text Group's MRR decreased by USD 50,000. This is a smaller decline than in the previous 2 quarters, but of course, it is not a reason to be satisfied. What matters, however, is what lies behind it. First and foremost, January and February were quite stable as we reported in our February quarterly statement and the MRR drop occurred in March. That month, we introduced some changes to our customer acquisition process, specifically some experiments, including redirecting leads from the chatbot.com website to the Text App. This initiative provides us with a lot of necessary data, but we are still losing some of the leads along the way, although we see improvement almost every day. In February and March, we also observed an increase in customer churn, primarily due to unpaid subscriptions. We believe that especially in March, this is an early reaction to the planned end of grandfathering for existing LiveChat customers, which we started communicating to them precisely since the beginning of March. This is a move that will significantly impact our KPIs, especially starting from April and into the following quarters. The picture of the past quarter looks much better when we look at our cash flow, which is reflected in the collective payments -- in the payments received data. Here, we have a 0.4% year-over-year increase and 3.1 percentage increase compared to the previous 3 months. This is the highest quarterly value recorded in this financial year and the highest since Q2 of the 2024, '25 financial year. Differences in the dynamics between MRR and payments received usually stem mainly from the distribution of annual payments. However, we are also in a situation where more revenue kind of leaks from our reported MRR. We are, of course, referring to payments received under postpaid per usage model. Here, we see a significant increase, especially in payments for API usage. We reached a quarterly value of over USD 0.25 million, up from the previous 3 months by over 160%. On Slide 6, we can see that the steady growth in the share of larger clients in our MRR. During this quarter, the share of customers with an ARPL over USD 500 increased by 1 percentage point. This is a favorable trend that should translate into better revenue retention over time as this customer group stays with us longer and is more open to upselling. The next slide shows how the share of customers paying for more than one product from the tech portfolio is currently growing. In Q4, they already accounted for 38.8% of our MRR, 10 percentage points more than a year ago and 1.6 percentage points more than in the previous 3 months. We are always thrilled to share our customers' success stories. This time, it's a brand very well known in Poland, STS, which handles 0.5 million chats annually and does it phenomenally. The video mentions a satisfaction score of 82%, but right up to the filming, the team impressed that they had reached 85%, an excellent result made possible only with the best tools. You will find a link to the video in the presentation. STS uses 4 of our products: LiveChat, ChatBot, HelpDesk and KnowledgeBase. It is worth noting that our AI agents are doing great and constantly improving, achieving a resolution rate of 74% compared to the industry average of around 59%. For a human agent, this metric is usually between 70%, 75%, while other market players recently declared 60% as a success. Importantly, this average includes accounts that has not yet fully trained their AI agents on their own data. For customers who have completed the training phase, the results are even better, ranging between 80% and 90%. And for you to understand the metric, a chat is considered resolved if the user receives a complete answer to the reported issue, the user raises no further concerns and the interaction ends with no unresolved follow-up questions. The most important product updates this quarter relate to the agent AI area, and we -- and were rolled out in March. We enabled our customers to create multiple AI agents within a single work space. And most importantly, we introduced custom skills feature. Thanks to this, a user can describe in natural language what a given agent is supposed to do, and the AI will autonomously prepare the appropriate workflow, enabling the agent to execute specific tasks. Our work in the last quarter also involves many initiatives, often smaller projects that fit into a bigger picture. In our quarterly report, we mentioned, among other things, that our products are now available in the Microsoft marketplace, that we obtained Meta business partner status and that we entered the marketplace of Kandji a security app. In terms of security, we also partner with Hexnode, a device management and security company, and we are launched in their marketplace. Infrastructure changes have translated into increased reliability and quality. We've returned to actively encouraging our customers to give us reviews and feedback, and the results are already visible in various rankings and listings. This is very important also because it directly translates into credibility and visibility in AI models, where we've seen clear improvement. Of course, we still have a lot of work ahead of us in this area, and we will simply have to wait a bit to see the full effects of many of those actions. To sum up the quarterly picture, we recorded the best quarter in terms of payments received in this financial year. Unfortunately, we have an MRR decrease, though it's smaller than in the previous period, and it reflects the fact that a small but rapidly growing part of our business is not captured in MRR. In this quarter, the MRR decline is at least in part the result of our deliberate actions. And as we have -- as we mentioned you usually ask about new clients and the results of our sales department. This quarter, we signed several significant renewals, some of which included upgrades. The biggest ones concerned our key accounts were hundreds of agents work with our products. These are clients from industries such as Biotechnology, ForEx and iGaming. These renewals and upsells were made possible by our SOC-2 certification. If we look at the direct cost of obtaining the certificate, they have fully paid off. For now, it mostly helps us play defensive, but we expect... Operator: Ladies and gentlemen, please standby. [Technical Difficulty] Lucja Kaseja: I lost my connection. I am back. Hopefully you hear me well now. Operator: Yes, yes, we do. Lucja Kaseja: Thank you. Sorry for those problems. Coming back to the topic I was just discussing, so the new clients. This quarter, we acquired new clients across multiple countries and industries and our strongest sector were education, including top universities in Singapore and New Zealand, finance and insurance with new clients from the U.S. and sports betting. And the last slide on my side, in the next 3 quarters, the biggest direct impact on our operational metrics will come from ending price grandfathering for LiveChat customers as the new pricing for the existing customer base has been in effect since the beginning of the month. As you surely remember, at the end of September, we raised LiveChat prices for new customers. The price change varied across different plans, but on average, it was around 20%. As we said 3 months ago, the new pricing was accepted by the market and after a short dip conversion rate returned to the previous levels. The end of grandfathering pricing for LiveChat will likely translate into some increase in churn in short term, but we estimate the net effect should be significantly positive for our recurring revenue. We assume the largest impact of MRR -- on MRR will be recorded in the current quarter. The price changes will not affect customers using the Text product or those whose annual contracts expire after 2026. We assume 2027 will be the year of migration to Text. We are continuing our work on SOC-2 Type 2 certification, which will confirm that all implemented procedures are functioning as intended, and we are currently during the observation period. Starting tomorrow, the product operating under the working name Text App will off to become the text solution. The communication campaign associated with this brand is scheduled to begin in May. Please don't expect fireworks, by the way. There won't be a big bang at launch. It will be a safe, scalable process where budget decisions will be made based on data and results in specific channels. And a major event related to this campaign will take place in the fall. We will certainly be much more active in PR. After a long break, we have someone on board responsible for this area. And we also want to start collaborating with industry influencers, among other things. The goal is to gradually and consistently build the strength and visibility of the Text brand. Realistically, the effects of this campaign will be visible in our KPIs by the end of the calendar year. This aligns with what we have been saying at our previous meetings. This is not a sprint run. It's the start of marathon. Also in subsequent quarterly reports, we have emphasized that text.com will not be a significant acquisition channel in the coming months. Looking ahead to the next 3 quarters, the biggest impact will come from ending the LiveChat price grandfathering. Currently, a slightly stronger dollar is also working in our favor. We have also stabilized our infrastructure costs, which should actually be slightly lower in Q4 of the past financial year, the one that has just ended. Of course, we have to keep in mind that this is a dollar-denominated cost for us. Marketing and customer acquisition costs will grow, but budgets for individual channels will be closely tied to observed results. Thank you very much for your attention this time. And now we invite you to ask your questions. Operator: [Operator Instructions] We have received a text question from [ Maximilian Rafaga from Family Office. ] Based on press coverage, it looks like competitors like Sierra and GenAI are growing substantially. Can you talk about their target customers and whether they are taking away potential customers of yours or if you're going after different customers? Marcin Droba: Marcin Droba here. So thank you for your questions. Thank you for being with us. So of course, I don't want to really comment on Sierra or Intercom or any of our competitors. Definitely, we had a very good quarter in terms of as stated in the presentation in the term of defense. So actually, we prolonged our very important deals. We kept important customers who actually had deals close to an end. So looking at that, that was very good, very solid quarter. Of course, we are not growing. We are not as successful at this moment at the acquisition that was not a great quarter in that term. But we will be -- I think looking at the future, looking at our plans when it comes to this PR to this communication offensive, which will start in the May. At some point, we will be more aggressive when it comes to addressing that customers, which are now using some competitors' solutions. We have some arguments, which should help us like one of the arguments can be great results of our AI agents we just presented. So at some point, we'll be more aggressive when it comes to that kind of approach. But looking at the last quarter, we didn't really -- I'm very convinced that we didn't lost any notable customers to our peers. Operator: Okay. Another text question from Maximilian. What are your main growth channels going to be for Text App given that your previous CEO strategy will likely not work anymore given the decline of search traffic overall? Marcin Droba: [ And sorry Lucja, ] we usually switch when it comes to the answer, but I will try at least partially to answer that question, quoting our CEO, who actually stated on that answering very similar question that Internet hasn't really changed. in how growth works over the last 20 years. Only the platforms have shifted when the underlying mechanics stays the same. So we have to basically repeat all the work we did over the last 20 years. We know how to do that. Actually, that was also not a bad quarter when it comes to our visibility on AI models. So we definitely work on that. We will be much more active when it comes to, for example, to peer also when it comes to cooperation with some influencers in the coming months. So but basically, it's very similar work. but just in different space. Also, I wouldn't agree with the statement that CEO is not working at all. It's still working. It still helps us, but not at the scale we used to see. That's obviously very important change. And we witness many changes in the coming years probably. Lucja Kaseja: Yes. We will definitely be more active with our brand. And as I mentioned, we have a new PR person on board. So more of such activity will be visible. Also, we will be -- similarly as in this presentation, we will be more sharing the examples of brands and how they work with our products because this is something excellent that is being done and some of the customers have excellent stories. It's just our role to pick them up and showcase. So this type of activity will be definitely something that will be seen in the next couple of months. Marcin Droba: So some things changing. For example, the PR, public relation wasn't so important for us, historically speaking. But media coverage media publication are probably now more important as they are source of the knowledge, a source of reputation for the AI models. Some things changes, but basically, the work is very similar. Operator: Okay. Another question from Maximilian. Can you share traction of Text App in terms of retention, usage, et cetera? Is it performing better than your legacy solutions? This seems the most crucial point, but you share very little information in your communications. Lucja Kaseja: We have not given, as you correctly spotted, detailed information about Text App, especially like the -- what you have mentioned, retention or usage. This is because we have not run a large-scale conversion from the legacy products. We are getting customers each month in the Text App. However, these are not very large numbers. So we still do not have such history of data for those users. Marcin Droba: So yes, of course, as Lucja said, it's still -- we are aware that what we are seeing now, what is now happening in the Text is 1:1 translatable, I don't know if that's a correct wording to that same solution to the Text in the future because there will be also some changes in the Text. We just added like crucial things in the area of AI agents. And we migrate to Text very specific group of the customers of legacy products. So this is -- all these KPIs are very important for us. But I think in the IR communication, it wouldn't be so valuable to honest to really share too much information because all these KPIs will be subject to the huge changes in the coming quarters. Operator: [Operator Instructions] Marcin Droba: As you may know, we had a Polish webinar before that webinar. We obviously had some more questions. But if I look at the whole picture. Really, we -- I don't think we share really important substantial information, which I think all the important things we declare, we said, we shared today are already told. We were asked about dividend policy is confirmed. We were asked about margins of the paper usage payment. And I think it's important to stress that if you look at the API revenues that revenues actually -- we had cost related to that revenues before. We just started to monetize that subject. In the future, it will be very important that the most important part of paper usage, paper results model will be AI agents. That's the huge area definitely. We definitely assume a very solid margins in that area, but we will learn in the future what market will accept, what competition landscape look like. So we will observe how it work. But when we think about how current pricing is working, we definitely assume that margins on that part of our business will be at least solid. Operator: At this point in time, I'm seeing no further questions from the audience. So I'm just going to pass the line to the Investor Relations team of Text the line back to say their concluding remarks. Lucja Kaseja: Well, we basically want to thank you for listening to our presentation. As you have seen, there is a lot of things that are happening. As we mentioned, small things are changing, but are part of a much bigger picture. There are some exciting things that will be in the future. But also we constantly do like day-to-day work to -- for the numbers to be as they are. Thank you very much for your attention. Marcin Droba: Thank you very much. Operator: Thank you. We are now closing all the lines. Goodbye.
Operator: Hello, and welcome to The Greenbrier Companies Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. At the request of the Greenbrier Companies, this conference call is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Mr. Travis Williams, Head of Investor Relations. Mr. Williams, you may begin. Travis Williams: Thank you, operator. Good afternoon, everyone, and welcome to our second quarter fiscal 2026 earnings call. Today, I'm joined by Lorie Tekorius, Greenbrier's CEO and President; Brian Comstock, Executive Vice President and President of the Americas; and Michael Donfris, Senior Vice President and CFO. Following our update on Greenbrier's Q2 performance and outlook for fiscal 2026, we'll open the call for questions. Our earnings release and supplemental slide presentation can be found on the IR section of our website. Matters discussed on today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion, we will describe some of the important factors that could cause Greenbrier's actual results in 2026 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier. We will refer to recurring revenue throughout our comments today. Recurring revenue is defined as leasing and management services revenue, excluding the impact of syndication transactions. And with that, I'll turn the call over to Lorie. Lorie Leeson: Thank you, Travis, and good afternoon, everyone. We appreciate you joining us today. Greenbrier delivered resilient second quarter results. Steady execution across our integrated business model and disciplined pricing supported our performance as our customers' needs continue to evolve and the expected production ramp-up shifts beyond the current fiscal year. Consistent with our expectations and production schedules as we exited Q1, deliveries and revenues were lower sequentially. Notably, though, aggregate gross margin and earnings exceeded prior periods with similar delivery levels. The structural improvements we've executed over the last several years drives our ability to deliver better financial performance on lower volumes and achieve what we like to call higher lows. Current FTR forecasts indicate approximately 24,000 new railcar deliveries for the North American market in calendar 2026. The last time the freight railcar industry generated annual deliveries at these levels, Greenbrier was a much different company. Our cost structure was higher, our capital planning was less targeted, our market position was narrower and our earnings profile was materially less dependable. That context matters because Greenbrier is fundamentally stronger today. We have structurally and systematically improved our operations and grown our market presence, resulting in a more balanced and durable business model. As a result, even in a more moderate railcar investment climate, we're generating solid profitability and positive cash flow while maintaining a high level of liquidity. Market conditions can be dynamic. Customers are deliberate with capital investments amid evolving freight conditions, changing trade policies, geopolitical developments and a mixed macroeconomic backdrop. However, as we entered March, customer commitments increased, reinforcing our view that underlying demand remains intact over the long term. In North America and Europe, we're experiencing longer customer decision-making times, which has shifted the timing of production. However, we remain confident in market fundamentals. We expect the constraints on order activity to begin to loosen in the near term. You'll hear more about the market from Brian in just a few minutes. In more limited order environments, execution and customer alignment are critical, and our commercial team remains closely engaged with customers as their timing requirements and other needs take shape. We continue to align our manufacturing footprint with current demand levels. Production rates moderated during the quarter, and we took targeted actions to rightsize our workforce while ensuring the flexibility to respond to evolving market conditions. These are thoughtful, proactive steps that protect profitability and preserve operational agility. In Europe, the operating environment is driving our footprint rationalization initiatives in Poland and Romania and includes a full exit from Turkey. Our Leasing & Fleet Management business continues to perform at a high level and remains a vital source of stability and growth, supported by high railcar utilization and retention and strong renewal rates. We are optimizing the composition of Greenbrier's own railcar fleet and expanding it through thoughtful investments, including pursuing opportunities in the secondary railcar market. Our balance sheet remains strong. We ended the quarter with over $1 billion of available liquidity, providing us with the flexibility to continue investing in the business, pursue opportunities in the secondary market and return capital to shareholders, including this quarter's 6% dividend increase to $0.34 a share. Looking ahead, our updated outlook for this fiscal year accounts for the near-term demand environment and a shift of some deliveries from the second half of fiscal 2026 to fiscal 2027. Our attention is focused on the elements within our control, driving operational efficiency, maintaining commercial discipline, aligning capacity with demand and allocating capital to the highest return opportunities. In closing, I want to thank our employees for their continued focus and commitment. Their execution in a dynamic market environment demonstrates the strength of our culture and operating model. We have an experienced team, a robust platform and the agility to navigate changing market conditions as we remain focused on delivering long-term shareholder value. And with that, I'll turn the call over to Brian to discuss our operations in more detail. Brian Comstock: Thanks, Lorie, and good afternoon, everyone. I'll cover our second quarter operational performance, including commercial activity, manufacturing, Leasing & Fleet Management. Starting with commercial activity, we received broad-based orders for approximately 2,900 new railcars globally, with demand concentrated in North America and supported by leasing activity. As you know, our programmatic railcar restoration activity is not reported as part of our new railcar orders, deliveries or backlog. Turning to backlog. We ended the quarter with approximately 15,200 railcars valued at $2.1 billion, providing solid visibility into production as we move through the year. Our backlog continues to provide a meaningful base of production support, and our commercial team is focused on continuing to convert market opportunities into orders. Importantly, more than half of our orders in the quarter were driven by lease originations, underscoring our strong lease origination capabilities, key for our lease fleet growth and manufacturing stability. Leasing & Fleet Management delivered another strong quarter. Fleet utilization remained above 98% retention was strong and renewal rates continue to be robust. These dynamics reflect both the quality of our fleet and the value of our customer relationships. The strength of our leasing platform was demonstrated by our recent $300 million ABS financing in February that saw incredibly strong demand from investors, resulting in favorable terms. We continue to optimize the portfolio through disciplined asset sales. The strong secondary market for railcar equipment has enabled us to refine the composition of our owned portfolio and allows us to recycle capital where we are seeing the strongest returns. While our lease fleet was modestly lower compared to the first quarter, this reflects timing related to asset sales and new additions. As we move through the second half of the fiscal year, fleet growth will benefit from our recurring revenue profile and continue to strengthen the earnings contribution of the leasing platform. with asset purchases recently completed and a pipeline of additional near-term opportunities, we expect to finish fiscal 2026 with a lease fleet of over 20,000 railcars. As we deploy capital, we remain disciplined. We are focused on opportunities that meet our return thresholds and support long-term value creation. In addition, our asset management capabilities continue to scale. We expanded relationships with key partners and now manage a significantly larger railcar fleet on behalf of third parties, further reinforcing our position as a leading provider of fleet management services. Moving to manufacturing. Our results were influenced by a planned 2-week shutdown for maintenance over the holidays. We will continue to scale our flexible manufacturing footprint as we have many times in the past to align with production expectations. In Europe, we are continuing to execute footprint optimization actions designed to improve the competitiveness and profitability of our European operations over time. When completed, these actions are expected to generate about $20 million in annualized savings. Our actions are focused on maintaining efficiency, protecting profitability and preserving the flexibility to respond as conditions evolve. At the same time, we continue to advance our manufacturing excellence initiatives. We are driving improvements in our cost structure, productivity and process efficiency. These initiatives are structural and enhance through-cycle margin performance. Finally, our syndication team delivered solid execution in the quarter, supported by strong investor demand. These activities generate attractive recurring fee income, significant liquidity and risk management and remain an important component of our integrated model. In summary, we continue to align production with demand, maintain operational discipline and advance key initiatives across the platform. These actions support margin resilience today and position us to respond to changing market conditions with flexibility. And with that, I'll turn the call over to Michael to review our financial results. Michael Donfris: Thanks, Brian. Revenue for the quarter came in at $588 million, reflecting the timing of deliveries in North America and Europe. Aggregate gross margin for the quarter was 11.8%. This performance demonstrates the resilience of our integrated business model as leasing and fleet management and syndication activity partially offset lower fixed overhead absorption and less favorable product mix in manufacturing. Earnings from operations were $25 million or 4.3% of revenue. Results reflect the revenue timing dynamics I just mentioned, partially offset by resilient margin performance and disciplined execution across the business. Our effective tax rate for the quarter was 14.9%, driven primarily by discrete items related to foreign exchange impacts, particularly the strengthening of the Mexican peso. Diluted earnings per share were $0.47 and EBITDA for the quarter was $61 million or 10.3% of revenue. Turning to the balance sheet. Greenbrier ended Q2 with total liquidity of over $1 billion, the highest level in Greenbrier history, consisting of approximately $520 million in cash and $560 million in available borrowing capacity. We generated approximately $159 million of operating cash flow during the quarter. supported by earnings and disciplined working capital management. Liquidity remains robust and reflects both the strength of our capital base and our disciplined approach to capital recycling in a healthy secondary market. In addition to investing in our lease fleet, we remain committed to returning capital to our shareholders through a combination of dividends and share repurchases. Greenbrier's Board of Directors declared a dividend of $0.34 per share. This represents our 48th consecutive quarterly dividend. The 6% increase reflects confidence in our business model, cash generation capability and ability to deliver through-cycle performance. Through the first half of fiscal 2026, we repurchased $13 million of common stock under existing authorization. As of quarter end, approximately $65 million remain available for repurchases. We will continue to access this capacity opportunistically, consistent with market conditions and our broader capital allocation framework. Now turning to guidance. We are updating our fiscal 2026 outlook to reflect a more gradual production ramp-up resulting from a shift of deliveries into early fiscal 2027. This is driven by order timing rather than changes in underlying demand. Our focus remains on driving profitability through operational efficiency, growth of our recurring revenue from Leasing & Fleet Management and disciplined capital use. Importantly, aggregate gross margin performance remains aligned with our long-term targets. Our guidance for fiscal 2026 is as follows: new railcar deliveries of 15,350 to 16,350 units, including approximately 1,500 units from Greenbrier-Maxion Brazil. total revenue of $2.4 billion to $2.5 billion, aggregate gross margin between 14.8% and 15.2% and operating margin between 7% and 7.8%. We continue to anticipate a reduction in SG&A of about $30 million versus prior year. We are now forecasting EPS between $3 and $3.50 per share. From a cadence perspective, we expect Q3 to be similar to Q2 in terms of deliveries with modest sequential improvement in aggregate gross margin. We anticipate Q4 to see further sequential improvement in both deliveries and aggregate gross margin. Greenbrier's capital expenditures and manufacturing are unchanged at $80 million. I noted on our previous earnings call that we were opportunistically pursuing leased railcars in the secondary market and could end up with a higher level of investment in the lease fleet. To that point, gross investment in Leasing & Fleet Management is now projected to be roughly $300 million, up from $205 million. Proceeds from equipment sales are forecast to be $175 million as we take advantage of the strong secondary market to optimize our lease fleet. As Brian mentioned earlier, we will end fiscal 2026 with more than 20,000 railcars in our lease fleet. In summary, Greenbrier delivered solid financial performance in the second quarter, particularly in light of the current market backdrop. Our integrated business model, disciplined capital allocation and focus on execution position us to deliver through-cycle profitability and continue creating long-term shareholder value. With that, we'll open it up for questions. Operator: [Operator Instructions] And the first question will come from Harrison Bauer with Susquehanna. Harrison Bauer: I just want to start off on maybe the large increase in your planned gross capital expenditures for the lease fleet. Can you provide a sense of how much you are building into the fleet from your own manufacturing capabilities versus your utilization of the active secondary market? Brian Comstock: Yes. Harrison, this is Brian. So to give you an idea, I'd say it's a pretty even mix. We continue to have a strong lease origination profile in the back half of the year. So we'll see a number of new units go in. But we've also been very active in the secondary market in acquiring assets as well. Harrison Bauer: Great. And then maybe as a follow-up on the secondary market, your equipment gains were substantially lower this quarter from last. I know maybe last quarter, you're a little bit more opportunistic. Can you provide maybe -- and you did increase your equipment sales, your proceeds target for the year. Can you give us maybe a sense of where you expect gains to be up for the year? How is the secondary market holding up? And just further color on that part of the leasing business. Lorie Leeson: Sure, Harrison. This is Lorie. What I would say is while we don't give quarterly guidance, we do expect the second half to be more of an investment in our lease fleet as opposed to secondary market sales. So while we do expect to continue to have gains on sale because it's just a normal part of having a lease fleet, we do expect it to probably be less than in the first half. Operator: The next question will come from Ken Hoexter with Bank of America Merrill Lynch. Ken Hoexter: So Lorie, we were both at the Rail Equipment Finance Conference and the industry was talking about manufacturing down 27% last year and 23% this year. So at the midpoint, it looks like your number is down about 26% in production year-over-year versus the market. Are you now underperforming or losing share? Or maybe in that, if you want to talk about what is getting pushed out to next year, what kind of -- maybe it's mix, maybe something else? I don't know how you want to phrase it, but all in on kind of what's going on with the numbers pushing out. Lorie Leeson: Sure. I'll start, and Brian may want to come back with a little bit more on what he is seeing in the market. But yes, it was lovely to see you in Palm Springs as always. I would say that what we've really seen is with more recent economic uncertainty, we're seeing our customers just take a little bit more of a pause. So while we're excited about the activity that we've seen in March and are continuing to work from a demand perspective, it required us to be a little bit more moderate in our ramp-up expectations that we had planned to do towards the back half of this fiscal year. So we're still seeing -- having the same conversations. We're not seeing any fall away in underlying demand for railcars. We're not seeing any substantial adjustments to our share. What we're just seeing is a timing shift out of the back half of our fiscal '26 and into 2027. Brian Comstock: Yes. Maybe I'll add a little bit on. This is Brian, Ken. I think what Lorie said is absolutely accurate. At the end of the day, we're not seeing any share decline at all. What really happened is there was a conflict that kind of popped up in the middle here in the last few weeks, and that has put some of these projects behind by, I would say, about 4 to 6 weeks. So what we had anticipated ramping up on -- and these are projects that are imminent. They're not projects that might happen. These are projects that we have a high degree of confidence have just simply gotten pushed back by probably about 1.5 months to 2 months. So it's going to put it more into the late August time frame into kind of the early September. Ken Hoexter: Okay. I don't know how to phrase the next one, but I guess the last time we saw the backlog this low, I think, was back in the second quarter of 2014. I've got a model that I've been doing this too long, right? So the model goes back pretty far. So the last time we were at 15,200, it's over a decade ago. So how should we think about that and kind of a normal cycle, right? I guess if I look at timing of 40-year rail assets, it seems like we could have a few years of relatively weak carload orders, although Lorie, at the conference, I guess, somebody was thinking that we might see a rebound in '27 on some cars. Is this just a normal car low point in the cycle? Or I guess, how do you think about the backlog? And I guess just one other statement outside of the question would be just -- I'm surprised on Turkey. I didn't -- I don't even think you've ever talked about Turkey. And I know it's in the Q that you have assets in Turkey, Poland and Romania, but surprised you're seeing it closing. So I'd love some thoughts on the timing of the cost savings. Lorie Leeson: So maybe I'll start with the end of yours first, and then we can go back around. So I think we've been talking about some of our footprint optimization that we've had going on in Europe. And I guess we've just been remiss in calling out Turkey, but specifically, that's one of the things. As we looked at what our capabilities are in our existing footprint, that was just an area that was not necessary and the logistics transportation distance just made it not be feasible anymore in support of our operations in Romania and Poland. So I think that's kind of the gist of it there. And I'll turn the other over to Brian because I can't remember the question... Ken Hoexter: The backlog. Brian Comstock: Yes. I think you're really talking about the backlog and order cadence and kind of where we're at in the cycle. If you kind of look at the orders over the last few quarters, it's been fairly consistent in kind of that 3,000, somewhere between the high 2s to the mid-3s. And we continue to project that we'll be fairly consistent, almost a 1:1 kind of -- if you look at our current build rate, we're kind of at a 1:1 ratio at this point. We've already seen a significant uptick in March, for example. We're on a cadence to significantly improve backlog this next quarter with just even a little bit of help. So we're off to a pretty good start, and we're starting to see some of that come in that we thought was going to come in a little bit sooner. And again, I think some of the delay has really been around what's happening in the world today and a little bit more uncertainty that was thrown at us. And now as people kind of look at their supply chains and they rethink about where things are, we're in the planting season for crops, there's a lot of things that are starting to happen. Storage is down, by the way, 36,000 cars from January. The fleet is tight. People are starting to move forward. So I tend to subscribe to the that you talked about that you talked to one individual down at Palm Springs thought '27 was going to be a stronger year. I think for sure, it's going to be a stronger year. We're already seeing some of the big buyers come to the plate. The other thing that the 15,200 cars does not include any multiyear opportunities. So that's one of the things if you look backwards, can kind of skew what the actual buildable backlog is because some of that was going to be built over a period of years. So all in all, I feel like we're in a pretty strong position. Again, you kind of look at a 1:1 book-to-bill is kind of where we're at, and we see that building this quarter. so. Lorie Leeson: And just maybe a couple of things to say as well is we do have a really experienced team here at Greenbrier. And for better or for worse, we've been through a few cycles, and this is why we take the deliberate actions we take around production rates and making certain that we're moderating those rates because it benefits our workforce and our financial results to keep things on a steady pace as opposed to having pops and drops. The other thing that I'll comment on is part of what we've been doing over the last few years, which is to utilize our footprint in North America for more than just new railcars, right? So we're doing some of this large program work that Brian Comstock has a really fancy long term for. And -- but that's where our commercial team and our folks, men and women on the shop floor have made adjustments thinking about the environment that we're operating in and being responsive to our customers' needs, not just for new railcars, but how can we take care of their broader business. And that's part of what you're seeing in our financial results, and it's not part of deliveries. It's not part of orders. It's not part of backlog. Operator: The next question will come from Andrzej Tomczyk with Goldman Sachs. Andrzej Tomczyk: Just wanted to follow up quickly on the manufacturing. I wanted to dig in on the -- this quarter's margin performance, specifically, the gross profit margin was down 600 basis points year-over-year. But I'm curious if you could share what you think that margin drag would have been had you not taken the cost out actions that you did last year. So that's sort of the first part of that. And then separately, just the confidence, the degree of confidence on 2Q marking the bottom for the margins. I think you mentioned it would, but the confidence there into the back half as well. Lorie Leeson: So the first thing I'll start with, and I won't get into specific details, I'll let Michael decide if he wants to go there. But the big difference between this year and a whole year ago, it feels like there are so many things that are different from 12 months ago, but it's really mix. I think Michael might have mentioned in his remarks that we have -- we've had a shift in the mix of what we're currently manufacturing. So these are more general purpose car types as opposed to some more specialized cars that we were doing last year. That's not to say that those specialized car types aren't going to come back. And I would say that looking at Brian and knowing what our operating group is doing, we're very confident about where we see margins going in the near term and knocking on this wood conference table that, yes, this marks the low spot. But I think all of us know that you can't anticipate everything that might happen tomorrow or next week. Brian Comstock: Yes. Maybe I'll jump in and then Michael, you can add as well. But from the operating perspective, I think one of the questions, Andrzej, you were asking is what kind of efficiencies have we been able to manage over the years that has improved the higher end of the low cycles. And when we look at -- we look at what we've done with our in-sourcing projects and with our efficiency projects, I figure we've added 2 or 3 basis points to the bottom line just through manufacturing efficiencies and focus. Yes, 200, 300, sorry. Michael Donfris: Yes, I would agree with that. And also, if you look back to last year, Andrzej, it was at a higher volume number versus this quarter. And so we do have fixed cost absorption, as we mentioned in the prepared remarks that are impacting this quarter. Given where we are in the cycle, this is a -- we're pretty happy with kind of where we are. And we do think that it's potentially at an inflection point, and we'll see a better third quarter and a better fourth quarter as we move forward from a margin percent standpoint. Lorie Leeson: And just one more thing, just to say, I think the last time, if my numbers in my spreadsheet, and it's probably not as good as Hoexter's spreadsheet, but if I'm looking at my spreadsheet correctly, the last time we had deliveries in this neighborhood, our gross margin was around aggregate gross margin around 8.6% -- so we -- with the changes that we've made over the last few years, we have substantially improved how we're able to convert activity into gross margin and bottom line. Andrzej Tomczyk: Understood. Very helpful color there. I did want to switch over just to the leasing and focus really on the back half. The gains on sale, you mentioned, I think, could come down a little bit. Is there any way to think on a full year basis, how you would look to manage gains into 2027 as an early look? And then separately, just as a clarification point, you had the leasing gross margins more recently close to the low to mid-60% range. I'm wondering if that should persist in the near term. I think last year it was closer to the 71% range. That might be a function of mix, et cetera. Just could you just talk about what's driving that gross margin within leasing and if we should use that as a sort of run rate into the back half? Michael Donfris: And I'll take this one. I think the margins in leasing will continue in that low to low 60% range. So I think you can think about that as you kind of go forward. In terms of how we think about secondary market activity and gains on sale, that's just part of our business model. And so we did see, as Lorie mentioned, a little bit of it benefiting the first half of the year, and it's really more of a build in the back half of the year. We'll continue to look at our lease fleet and determine from a concentration perspective, what makes sense for us and how the market is reacting to secondary market activity to determine what 2027 looks like. It's a little bit early for us to look at that. Lorie Leeson: And I'll just say and maybe this can come up on your follow-up calls. But if I heard you correctly saying that maybe last year, Leasing & Fleet Management was in the 70% range, I think we should probably provide you some updated information because we adjusted where some of our syndication activity is now flowing through manufacturing. So when I look back at history with that adjustment, our Leasing & Fleet Management gross margins are in that low 60% range. So I think maybe we just have some cleanup we can help with. Andrzej Tomczyk: Understood. And then last one for me on a more sort of a medium-term basis. Any updates to your thinking on the pending Class 1 rail merger or any comments you want to make regarding how your customers are thinking about the merger? Appreciate the time today. Lorie Leeson: Sure. Thank you. And I will just say, having been, I think, at Mars, and that's before the application was turned back for them to -- they're resubmitting that, I think, this month. I think the point is for shippers and the users of freight rail to think about will a merger benefit them, will the efficiencies that are being touted, will they come to pass? I will continue to say anything that benefits our customers, the customers of Greenbrier, the customers of any of the railroads should attract more shift of transportation onto the rails because it is a more fuel-efficient way to transport materials and anything that grows modal share should mean -- it's a bigger pie for all of us. So even if our market share stays absolutely the same, if we can grow modal share in the North American market, then we're all going to enjoy more pie. Operator: Showing no further questions, this will conclude our question-and-answer session. Pardon me, it looks like Harrison Bauer with Susquehanna has a follow-up. Harrison Bauer: You guys had a comment earlier in the call regarding that a lot of your maybe more recent orders or demand activity was actually lessor driven. Can you just talk about a little bit of what's driving that? Is that more speculative? Is that underlying expectation for carload growth to resume? Just curious if you could dive a little bit more into that comment. Lorie Leeson: Sure. I'll set it up for Brian, who will probably understand better what's driving people choosing to purchase versus choosing to lease and just give a shout out to our commercial teams who are always right there next to our customers and willing to help them with whatever makes sense for their capital structure, right, if they need to commit spending dollars or they just want to lease depending on what activities are going on. But I will also emphasize that our team thinks about every single deal that we originate, whether it's a direct sale or a lease with the expectation that those cars will stay active and not doing something that is speculative or short term in nature to come back home or to go into storage. Brian Comstock: Yes. And Harrison, I think the comment around if operating lessors are becoming more active in the market is true. I don't recall saying that, but it is true. We are seeing more operating lessor activity. And the reason is they're seeing the same things we are. They're hearing the same sounds from the same customers, the optimism, you've got through the planting season. There's been a falloff of covered hopper cars, the 4750 fleet. The fleets are tight. And so people are anticipating continued buildup in demand next year. So we are seeing many of the operating lessors who have been sitting on the sidelines starting to dip their toes in the water a bit on -- and I wouldn't say they're speculative buys, I would say they're strategic buys because they're very focused on specific opportunities. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Lorie Tekorius for any closing remarks. Lorie Leeson: Thank you very much. I appreciate everyone's time and attention. Happy to take any follow-up calls. Travis is happy to take any follow-up calls later today if you'd like. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings. Welcome to the Aehr Test Systems Fiscal 2026 Third Quarter Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Jim Byers of PondelWilkinson Investor Relations. You may begin. Jim Byers: Thank you, operator. Good afternoon, and welcome to Aehr Test Systems Third Quarter Fiscal 2026 Financial Results Conference Call. With me on today's call are Aehr Test Systems' President and Chief Executive Officer, Gayn Erickson; and Chief Financial Officer, Chris Siu. Before I turn the call over to Gayn and Chris, I'd like to cover a few quick items. This afternoon, right after market closed, Aehr Test issued a press release announcing its third quarter fiscal 2026 results. That release is available on the company's website at aehr.com. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. And I'd like to remind everyone that on today's call, management will be making forward-looking statements that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors are discussed in the company's most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call, are only valid as of this date, and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now with that, I'd like to turn the conference call over to Gayn Erickson, President and CEO. Gayn Erickson: Thanks, Jim. Good afternoon, everyone, and welcome to our third quarter fiscal '26 earnings conference call. I'll start with an update on the key markets driving our business and strong demand we're seeing, particularly from AI and data center infrastructure. Chris will then review our financial results, and we'll open up the call for questions. We're very pleased with the strong momentum in our business across multiple market segments highlighted by more than $37 million in quarterly bookings and a book-to-bill ratio exceeding 3.5x. Our effective backlog, which includes the backlog of $38.7 million at the end of the fiscal third quarter plus additional bookings received since the end of the quarter, is now over $50 million, a new company record. After generating approximately $20 million in bookings in our first -- in our fiscal first half, we're already 2.5x that in second half bookings and now expect to come in on the high side of the $60 million to $80 million in second half bookings I mentioned last quarter. Demand continues to accelerate across both package level and wafer level burn-in driving -- driven by increasing semiconductor complexity, power requirements and deployment in mission-critical AI, networking, automotive and industrial applications. As devices become more advanced, the need for comprehensive test in burn-in is becoming essential to ensure reliability and performance. This is driving growing adoption of our solutions across multiple markets. So let me start with wafer-level burn-in. During the quarter, we continued to make progress in growing our installed base and expanding to new customers with our wafer level burn-in solutions. AI wafer-level burn-in is really hot right now, I guess, pun intended. We received a $14 million follow-on production order from our lead wafer-level AI accelerator processor customer for multiple new fully automated FOX-XP wafer-level burn-in systems to be used in data center training and inference applications. The order included multiple additional FOX-XP wafer-level test and burn-in systems, each configured to test nine 300-millimeter wafers in parallel along with a set of Aehr's proprietary FOX WaferPak full wafer contactors and a fully integrated FOX WaferPak auto-aligner with each system to enable hands-free operation in high-volume production. In addition, the order included multiple additional FOX WaferPak auto-aligners to upgrade the customer's existing installed base of FOX-XP systems to full automation. Aehr is the first company to successfully demonstrate and ship a wafer-level burn-in solution for AI processors. Our FOX-XP systems configured for very high power, high current AI processors began shipping last year and provides the highest power per wafer capability available in the market, delivering up to thousands of amperes of current per wafer. This order further expands our installed base of FOX-XP systems and adds full automation across the production lines, highlighting the growing importance of wafer-level burn-in to ensure the long-term reliability of today's very high power, high current AI processors. We're also actively engaged with multiple additional AI processor companies on benchmark evaluations and expect to make meaningful progress with those opportunities. Our benchmark evaluation program with a top-tier AI processor supplier continues to make good progress, but it's taking longer than we originally expected. This was due to a technical misunderstanding on the clock configurations, which created some challenges with the initial WaferPak designs. While we wish we had been able to catch this earlier, we're taking device data now on their wafers with the current WaferPak design and redesigning the WaferPaks to meet the new requirements. We expect to continue to provide them with additional data on this WaferPak design as well as the improved one over the next several months. We have several other companies ranging from suppliers of data center-focused AI accelerator processors to edge AI processors and CPUs that are providing us with information on their devices and road maps and asking about our wafer-level burn-in capabilities and recommendations for burn-in of their next-generation devices. There is significant interest in doing wafer-level burn-in for devices that are expected to put in advanced packages, such as TSMC's CoWoS-based packages that include other dies such as HBM DRAM stacks, other compute AI processors and photonic or electrical-based transceiver chipsets. Waiting out bad devices before they're packed together with these other devices is significantly cheaper than the yield loss if these are burned in at package level and the entire multichip package is thrown away. For burn-in silicon photonics devices, we recently announced a major new customer win, a major new silicon photonics customer with an initial order for multiple high-power FOX-XP wafer-level burn-in systems for devices aimed at the hyperscale data center optical interconnect market. This customer is developing advanced silicon photonics-based transceivers for data center networking and optical I/O applications to address the rapidly accelerating demand for high-speed fiber optic communication links in hyperscale AI and cloud data centers. These multiple systems are for both engineering qualification and high-volume production and include a FOX-XP wafer-level burn-in system configured to test nine wafers in parallel, a fully integrated WaferPak auto-aligner, multiple FOX-NP wafer-level burn-in systems and multiple full sets of FOX WaferPak full wafer contactors for production, engineering and new product introduction. These systems are all scheduled to ship in this fiscal fourth quarter ending May 29, '26. They've also provided a forecast for multiple additional XP production systems over the next year as they ramp capacity to support next-generation hyperscale data center deployments. We believe this win positions Aehr to participate in what could be a significant multiyear expansion of silicon photonics production driven by the growth of fiber optic interconnects and hyperscale AI data centers. Additionally, we received a follow-on order from our lead silicon photonics customer for both the new high-power FOX-XP wafer-level system and an upgrade of an existing system to our latest high-power fully automated configuration. We now have fully integrated our systems and aligners with their autonomous-guided robots that carry around the 300-millimeter FOUP so the customer can operate in a fully lights-out hands-free operation. They, too, have given us a forecast for additional production systems as they ramp into next calendar year. As data center architecture scale to support AI, cloud computing and high-performance networking, fiber optic interconnects offer significant advantages over copper wiring, including higher data rates, lower power consumption, longer reach, improved thermal performance and reduced electromagnetic interference. These advantages are driving rapid adoption of silicon photonics transceivers across hyperscale and enterprise data centers worldwide and increasing demand for cost-effective production-proven burn-in solutions that can ensure device quality and long-term reliability at volume. Aehr is the market leader in wafer-level burn-in for silicon photonics transceivers with a large installed base at leading global semiconductor and photonics companies. The company's -- or our FOX-XP platform enables high parallelism, high-temperature and high-power wafer-level burn-in, allowing customers to stabilize their devices, a critical manufacturing process step in the laser diode emitters for these devices, as well as to identify early life failures before packaging to significantly reduce the cost of test. In gallium nitride and silicon carbide power semiconductors, we've been working with our lead GaN production customer on a significant number of new devices aimed at multiple markets that include automotive, intermediate bus conversion, data center and electrical infrastructure. This continues to be a great partnership, and we continue to work on and believe we have solved the key challenges with full wafer burn-in of GaN devices on silicon. Wafer-level burn-in of their GaN devices for both qualification and production burn-in is an extremely valuable capability that is critical to their road map and plan, and we're both very excited to see them meet their growth projections. We continue to see GaN and silicon carbide power semiconductors as critical to the electrification of the world's infrastructure in addition to key market opportunities such as data center power delivery, electric vehicles and charging infrastructure. We won a new customer in silicon carbide this quarter with a company in Taiwan, focused on the Asian and particularly greater EV market -- greater China EV market, sorry. They placed an order for a small configured FOX-XP system for qualification and production. Key elements of their decision included our ability to demonstrate all the capabilities they needed with our systems in Fremont, California as well as the feedback they received from customers who have data and confidence in Aehr's wafer-level burn-in systems used for testing and burn-in silicon carbide wafers across a large number of silicon carbide suppliers. We see an uptick in activity and forecast from the silicon carbide players. This makes sense as we see major OEM EV suppliers in Japan and Germany roll out a number of new EVs later this year. These EV suppliers understand the value and need for wafer-level burn-in of these 6 devices before they're put into modules containing many devices in parallel for the EV engine drive inverters. This is well understood in the industry, and Aehr is seen as the market leader and proven solution for wafer-level burn-in silicon carbide devices used in EV inverters by a significant number of EV suppliers. We're still convert -- conservative about forecast from customers. And while we have plenty of capacity and believe we have the world's most cost-effective and highest performance wafer-level burn-in solution on the market, we're not yet counting on significant revenue from this segment to return yet. However, it could still be a very good performing segment for us next year. We'll see. Now let me talk about wafer-level burn-in for memory. Our engagement with a key memory supplier continues to progress with additional wafer testing just this last week. We've been able to achieve the correlation they're asking for and are now in discussions about test system specifications needed for their next-generation flash memories and in particular, their high bandwidth flash devices. We hope to close on this in the next few months, which would lead to a development agreement to supply systems and WaferPaks to them after a 12- to 18-month development of our new memory optimized blades for our FOX-XP and NP multi-wafer test and burn-in platform. But we're also now in discussions with other key memory suppliers that also produce high bandwidth memory, the new DRAM standard being used in AI GPUs in addition to standard DRAM and flash memories. The HBM memories, as I referred to, are embedded into multichip packages with advanced substrates such as the CoWoS packaging from TSMC. NVIDIA's road map is aggressively pushing toward higher capacity, faster HBM standards to address the memory wall in AI training and inference. The upcoming road map transitions from HBM 3E to HBM 4E in 2026 and then from HBM 4E and HBM5 in the following years with capacity per GPU expected to increase from 80 gigabytes in the A100 class to over a terabyte in the Rubin Ultra by 2027 for SemiAnalysis. We are seeing the added potential for HBM insertions with our FOX multi-wafer test and burn-in system road map that extends to flash, high-bandwidth flash, DRAM and HBM memories. This is a key focus for Aehr this year to drive to an agreement to work with these customers in the development of the enhancements needed to extend our FOX systems to these markets. This is a market that we believe could drive orders in fiscal '27 with ramps in fiscal '28. Now turning to package-level burn-in. Let me start by highlighting that we're trying to change our own vocabulary from packaged part burn-in to package level burn-in. This may seem subtle, but to give a little background, traditionally, there was one semiconductor integrated circuit per single package. The package was used to protect the die from elements and wire out to a standard pattern of pins or pads that allowed easy handling and assembly onto a printed circuit board. This pattern or pitch between pins is much, much larger than the pitch on the individual die. So contacting the devices is very different for us between our package-level and wafer-level solutions. Historically, about 20 years ago, there was a package concept called multichip packages where multiple individual die were wire bonded into a single package. This was driven at the time for size and performance. Typically, this was much more expensive and generally, this faded out in time to other smaller package sizes. Recently, in the last handful of years, there have been 3 major drivers of the need for new multichip packages, but this has been called advanced packaging or modules rather than MCPs. One driver, which is the biggest one, is that the multi-decade long trend that we referred to as Moore's Law has come to an end. This law was the number of transistors was doubling every 1.5 to 2 years, while the die size was staying the same, and therefore, costs were staying flat or decreasing. This allowed higher and higher performance, smaller die, and therefore, lower-cost die to be made via process improvements or die shrinks. This drove the industry for 40 years or so until around 2010, plus or minus, when shrink started to slow materially. Then as several applications such as AI processors, extremely high-density memory such as flash and DRAM, power semiconductors were being driven by massive markets such as data center, AI and electric vehicles, the extremely high value and need for multiple devices in the same package came to fruition. This time, it was functionality and feasibility that drove this. We now refer to these devices in 2 camps, really 3 camps: wafer level, die level and package level, where package level includes both single die package and also multi-chip modules or advanced package, multi-die packages such as those found in AI GPUs with HBM DRAM stacks, multi-stack flash SSDs and also multi-die silicon carbide modules for EV inverters and charging infrastructure. At least I hope this helps as we talk through this and make it more clear what the difference is between wafer-level and package level. You may catch me still saying package part at times as old habits are hard to break, but we'll try to refer to these as package level from now on. Okay. During the quarter, we announced a key production win with our lead package-level hyperscale customer. This customer is a premier large-scale data center provider and selected Aehr for production burn-in of their next-generation significantly-higher-power AI processor with an initial production order of our high-power Sonoma systems. This next-generation AI ASIC is expected to move to production later this year and is believed to be even higher volumes than the first device that this customer is ramping our Sonoma systems on right now. We also expect a significant near-term follow-on order from this customer for package-level burn-in systems to support their high-volume manufacturing of their custom AI processors today, the current one used in data center training and inference. They are forecasting a substantial expansion of Sonoma systems purchases beginning in the second half of calendar 2026 and continuing into '27. We believe it's likely that there is overlapping ramps between the current and next-generation devices, which should significantly expand both our installed base and long-term consumable opportunity with this customer. We're also engaged with multiple potential customers for package-level qualification test of AI accelerators, ASICs, network processors and edge AI processors for automotive and robotics. These engagements also represent opportunities to move to production burn-in over time. And interestingly, about half of these have also expressed interest in wafer-level burn-in in addition to our package-level burn-in solutions. Yesterday afternoon, in fact, we received an order from a brand-new customer for Sonoma to be used for reliability qualification of their new AI processor, but they may also do production burn-in with this device, which they can do with the exact same platform using Sonoma. This momentum reinforces our leadership in high-power burn-in for AI processors. The broader demand environment remains very strong. Industry forecasts indicate that hyperscale data center capacity is expected to nearly triple by 2030, driven by both new builds and upgrades to existing infrastructure. This is driving substantial growth in high-performance semiconductors and in turn, demand for advanced burn-in solutions. As we've noted before, as our installed base of systems continues to grow, our consumables, which includes our WaferPak full-wafer contactors for wafer-level and our burn-in board and modules for package-level burn-in, can continue to grow beyond our systems. While this year has been lighter in terms of consumable sales, particularly WaferPaks, we believe it's an outlier. Some customers had bought systems ahead of the need and have grown into capacity, and this seems to be running its course. We believe, over time, our consumables business will consistently be at 30% or more of our total revenue, and our margins will increase as sales of these value-add consumables grow. To support growing demand, we're continuing to scale manufacturing capacity. In addition to our Fremont expansion, this quarter, we'll begin shipping Sonoma systems from one of our current contract manufacturers, adding capacity of more than 20 additional Sonoma systems per month. This meaningfully increases our ability to support future growth. With expanding AI infrastructure deployments and our recent manufacturing capacity enhancement, we believe we're well positioned to support significant growth both in our wafer-level and package-level burn-in systems as customers ramp production. With strong second half bookings so far and a strong funnel of additional orders expected this quarter, we believe we're well positioned to exit the fiscal year ending May 29 with a strong backlog and deliver significant revenue growth in fiscal '27. We currently expect full year fiscal '26 revenue to be on the high side of the $45 million to $50 million range provided last quarter. We also expect our bookings for the second half of the fiscal year to be on the high side of the $60 million to $80 million range provided last quarter. More broadly, we believe we have a clear path to sustain long-term growth as our installed base expands across AI, silicon photonics, power semiconductors, memory and other high-performance applications. As semiconductor performance and reliability requirements continue to rise, burn-in is becoming increasingly critical across a growing set of applications. We believe Aehr is uniquely positioned as the only provider offering both wafer-level and package-level burn-in solutions at scale. With that, I'll turn it over to Chris. Chris Siu: Thank you, Gayn, and good afternoon, everyone. I'll begin with bookings and backlog and walk through our third quarter financial performance, cash position, outlook and investor activity. The company recognized bookings of $37.2 million in the third quarter of fiscal 2026, significantly higher than the $6.2 million in the second quarter as we have received multiple purchase orders for FOX systems, WaferPak and several auto aligners from different customers for AI, silicon photonics and silicon carbide applications. At the end of the quarter, our backlog was $38.7 million. During the first 5 weeks of the fourth quarter, we received an additional $12.2 million in bookings. This increase was driven primarily by major new silicon photonics customer for wafer-level burn-in with an initial order for multiple FOX systems for both engineering qualification and high-volume production, which we recently announced. With these recent bookings, our effective backlog, which includes our quarter-end backlog plus additional bookings received since the end of the third quarter has now grown to a record of $50.9 million, providing strong visibility for the remainder of fiscal 2026 and positioning us for significant growth for fiscal 2027. Our strong bookings include increased demand for both wafer-level and package-level burn-in solutions. We believe this reflects the proven value of these differentiated solutions which are increasingly integral to the production and reliability strategies of our customers in the AI, data center and other key markets we serve. Turning to our Q3 performance. While we did not provide quarterly guidance, our third quarter revenue of $10.3 million was in line with internal expectations due to delayed orders. Q3 revenue was slightly below consensus and down 44% from $18.3 million in the prior year period. The decline was primarily driven by lower shipments of FOX systems and WaferPaks for wafer-level burn-in business, partially offset by stronger demand for our Sonoma systems and BIM from our hyperscale customer. Contactor revenues, which include WaferPaks, while wafer-level burn-in business and BIMs and BIPs for package-level burn-in business totaled $3 million, representing 29% of total revenue in the third quarter. This compares to $5.9 million or 32% of revenue in Q3 last year. Non-GAAP gross margin for the third quarter was 36.5% compared to 42.7% a year ago. The year-over-year decline reflects lower overall sales volume and a less favorable product mix as last year quarter included a higher proportion of high-margin WaferPak revenue. Non-GAAP operating expenses in the third quarter was $6.3 million, flat from $6.3 million in Q3 last year. We continue to invest significant resources in our AI benchmark and memory projects. During the quarter, we recorded an income tax benefit of $0.8 million, resulting in an effective tax rate of 19.9%. Non-GAAP net loss for the third quarter, which excludes the impact of stock-based compensation and acquisition-related adjustments, was $1.5 million or a loss of $0.05 per diluted share compared to net income of $2 million or $0.07 per diluted share in the third quarter of fiscal 2025. Non-GAAP net loss for the third quarter exceeded consensus by $0.02. Turning to cash flow. We used $3.7 million in operating cash during the third quarter. We ended the quarter with $37.1 million in cash, cash equivalents and restricted cash, up from $31 million at the end of Q2. The increase was primarily due to proceeds from our at-the-market, or ATM, equity program. During the third quarter of fiscal 2026, we raised $10.5 million in gross proceeds through the sale of about 269,000 shares. Since the end of Q3, we raised another $19.5 million gross proceeds through the sale of about 477,000 shares. And with the $9.9 million we raised in Q2, we have now fully utilized $40 million available under the ATM and have sold over 1.13 million shares at an average price of $35.38. We also announced this afternoon that we'll be changing our fiscal year from the last Friday of May to the last Friday of June effective after our fiscal year ends on May 29, 2026. Our new fiscal year 2027 will begin on June 27, 2026, and end on June 25, 2027, continuing with the 4-4-5 calendar. As a result, we will have 1 month of financial results from May 30, 2026, to June 26, 2026, which will be reported as a transition period when we file our quarterly Form 10-Q in the first quarter ending September 25, 2026. We believe our new fiscal year will align more closely with the reporting periods of our customers and our peers in the semiconductor test equipment industry. Moving to our outlook. For the full year fiscal 2026 ending on May 29, 2026, we currently expect total revenue to be on the high side of the $45 million to $50 million range provided last quarter and non-GAAP net loss per diluted share to be between negative $0.13 and negative $0.09 for the full fiscal year. We expect our gross margin to improve as our manufacturing activity increases to support higher sales volume and better absorb our fixed costs. We also expect to return to profitability on a non-GAAP basis in the fourth quarter of fiscal 2026. Lastly, looking at Investor Relations calendar. Aehr Test will be participating in 2 investor conferences over the next couple of months. We'll be meeting with investors at the Craig Hallum Institutional Investor Conference taking place in Minneapolis on May 28, and we'll be presenting a meeting with investors on June 2 at the William Blair 46th Annual Growth Conference taking place in Chicago. We hope to see some of you at these conferences. That concludes our prepared remarks. We're now happy to take your questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from Mark Shooter with William Blair. Mark Shooter: You have Mark Shooter on here for Jed Dorsheimer. Congrats on all the progress, especially with the hyperscaler. I'm curious how you guys are looking at this internally? And what percentage of GPUs or ASICs or XPUs do you think are burnt in today? And how do you guys size the vector space? Gayn Erickson: That's really a good question, and I think we're still getting our arms around a little bit here. I would say that we've been a little bit surprised at how many devices are not yet doing production burn-in. One of the things that we mentioned strategically when we purchased Incal what 18 months ago or so, Incal does a type of burn-in and they were known for it called qualification reliability burn-in, which all processors go through, in fact, all semiconductors. It's what determines their lifetime reliability specs and that they will last long enough, et cetera. So sort of a onetime deal, you do with a large number of devices to do the statistics on it. Then certain devices go through a screening in production to weed out infant mortalities because the failure rate is higher than the market will bear, okay? So Incal was doing this with a large number of AI customers. But actually, prior to that, wasn't doing any production burn-in. When we acquired them, we've now -- because of the capacity we have in terms of people and infrastructure, we've been able to capture this large hyperscaler and are engaged with multiple others. But one of the things that I've been surprised at is that how many of the, I guess, particularly, the ASIC suppliers don't do production burn-in yet or are talking about doing it. And that goes for a lot of different devices that are out there from edge, robotics, ASIC, network processors and even -- I want to always be careful at GPU because everybody just associates GPU only with NVIDIA. But not all devices are burnt in still today. And so there are certain ones that are, there are certain ones that aren't. And even within a company, they may have some of their products are burnt in and others aren't. However, the common theme is they're all moving to burn-in. The data is out now that there's solutions out there like Sonoma or the wafer-level burn-in of our FOX system that can cost effectively do it. And so now there's a very viable alternative to doing it at the system level or the rack level. We've said in the past that many of these guys would actually build it all the way to the rack and then at the system integrator, they would burn it in for a week or 2 and weed out the infant mortality to ship it or in some cases, with the ASIC suppliers, they just shipped it into their data centers and dealt with the fallout. So it's growing. I'm trying to think if I try and put a percentage, I think on ASICs, it might be by unit quite like SKU, I mean, I don't know if it's 20%, maybe it's 5% of the -- so most ASICs are not burnt-in. I would say on the AI accelerators that are out there across the wide variety, maybe half. But then what's happening is the processors are getting higher power from generation to generation and breaking all the tools that are out there. So even the tools that were out there, and I'm not giving any inside information whatsoever, but just what's classically understood, like NVIDIA's processors of couple generations ago compared to their current ones, their power is substantially more, which would require new tools. And the ones that they're working on and others in a year and out -- and again, just what's publicly available, break the current tools. And so there's a continuous road map. And so even within our Sonoma platform, we're continuing to add capabilities. It's one of the key features we have is the ability to adapt it and add higher and higher current and power as you go forward. So how many times you hear a CEO say, you're at the early innings, but this is still at the kind of the beginning phases of this. And over time, people will be buying a lot more burn-in systems as a percentage, meaning to cover the percentage of total and then just ensure quantity. Mark Shooter: I appreciate all the color, Gayn. That's very helpful. To zero in a bit on your hyperscaler customer, can you bring us a little into the room a bit here and what was the decision process to go with package-level, right, not packaged part anymore, it's package-level versus wafer-level? And do you see a transition potentially with this customer to move to wafer level? And if you get a new customer, is there -- do you think that they'll make the same decision? Or is there a track towards wafer level? Like try to help us out with that. Gayn Erickson: Okay. So to be fair, 2, 3 years ago, if you would have asked me, we said -- I've said this before, can you do wafer-level burn-in of AI processors, I think we would have said absolutely not. We didn't have the power and the system, and the belief was that there weren't the test modes that we now understand there are to be able to do it. And now as we've gone from customer to customer across a wide variety, there's commonalities about it that allow us to be able to confidently tell them we can do wafer-level burn-in. So prior to that, it was whether you did package-level burn-in or not or did it at, say, the rack level, okay? So people first step is, do I do burn-in, then they're going to default to thinking I'm going to do it at the package level. But then what we're seeing, and I mentioned this before, we have customers -- I don't want to get too carried away here, but the last 2 customers that were in, in the last 2 weeks, Alberto is our package-level burn-in VP and Vernon really runs kind of the wafer-level side of things. The customer will come in and say, I want to talk about package level, and about halfway through the tour, they're like what is that? We talk about wafer level. They're like, whoa, whoa, whoa, how do I do that? And so we kind of joke about it around here. It's like ah. But the reality is, we don't care which side you go to. We have both. Specifically, on the hyperscaler and I've said this out loud before, the first device they ran with us, it's not their first device, but it's the first one they went to production on is on Sonoma. Their second device, they just awarded us with production for that one and are planning the ramp of that with us right now. They are already on the road map talking about the third device, and they've asked us about the DFT to specifically put into the third device because they would like to consider that for wafer level on our FOX systems. So I think that's sort of a progression that we will see. And I would actually imagine large customers that have multiple different product lines, some they would do wafer level on and some they might do package level on. It becomes particularly valuable when you have a -- like a package that has multiple processors in it and all the HBM memory, right? So in those particular ones, I mean, the co-op substrate is more expensive than the silicon itself or the processor, which sounds crazy. So they would be very interested in doing the wafer-level to screen out the die before they have to throw away everything else. So I think there's a progression over time where people will move towards wafer-level on the things they can default to package-level where they can't. Operator: Next question comes from Christian Schwab with Craig-Hallum. Christian Schwab: Thanks for a tremendous amount of detail regarding the different target markets and your success in each one of them. The most common question I receive is, is there a way to gauge over a multiyear time frame? Obviously, you gave guidance for this year in support of substantial growth the following year with bookings in hand and others to come. But as -- if you had enough time to give some thought to the range of potential outcomes over a multiyear time frame that you guys could do in combination of your target markets and potential entry into the market -- memory market down the road. Gayn Erickson: So the short answer is we have. The long answer is it's -- we're just really cautious about trying to get too carried away with our projections. But the numbers are very significant. If you just -- because particularly now that there's some hung down memory kind of angle on this thing, too. If you look at the dollar spend that people are going to do on whether you call it compute or AI or if you look at the compute capability, right, that are going into training and inference in data centers, inference and edge, automotive, robotics, the number of different applications and the way people are using it and deploying it, the amount of silicon wafers is staggering and why people talk about these enormous dollars. Those devices -- a processor has always been burnt in. I want to -- it feels like I'm contradicting what I said earlier. It's widely known that Intel and AMD, the primary processor suppliers of the world, burnt in every one of their processors and always have, right? When the first GPUs were coming out, those were using graphics, they were not burnt in. And the initial people that are all related to AI are our foundries and they're out looking for burn-in capability. There were no burn-in systems in the foundry OSAT models. And so people weren't spending on. They spent enormous amounts of money on test and it's growing. And they're going to be spending a significant portion of their test budget on burn-in going forward. I hear things -- I mean, I hear it constantly from the customers rotating through. So the TAMs are multi-hundreds of millions of dollars for package-level burn-in. Wafer-level burn-in, if you say it displaces package-level is even higher. The average actual price per unit time of wafer-level is actually more expensive than package-level. But the yield pays for all of it. And so it's cheaper to the customer to spend more money. And so the TAMs are larger there. If you look at the memory side of things, if you look at the memory spend of the number of fabs that are coming out in the next in 5 years, what percentage of budget is for their test budget, it -- these are big numbers. And so the spend is -- in burn-in is probably total spend measured in multiple billions of dollars per year in the next couple of years on an annual basis. And the question is, well, then wait a minute, how come you guys aren't $500 million? And the answer is we think that we have a very good opportunity to significantly grow our package-level and wafer-level business across the biggest segments that are driving burn-in and one of the reasons we're leading with putting infrastructure and capacity in place to be able to have the conversations we're having these customers that are throwing out some really big numbers. And somebody warned me, you're getting carried away here, but it's an awesome place to be, and it's not only Silicon Carbide for EVs where lots of people are wondering that the EVs are ever going to make it. As you guys know the history, it's like people got ahead of themselves, and I was even saying it. It's like, come on, you guys. No one's going to be -- we're not all going to be driving EVs. But the TAMs in these segments are significantly larger than anything we ever talked about on the power semiconductor side. Operator: The next question comes from Max Michaelis with Lake Street Capital Markets. Maxwell Michaelis: First, I want to start out here. When you look at the demand environment from the package-level and wafer-level, the demand seems strong on both sides of the business here. But I mean, to me, it looks like wafer-level has seen some -- is outpacing on the demand side and maybe the order side. Can you let me know if I'm wrong there, but is there anything else you can add as well. Gayn Erickson: The challenge with our business and for all of our shareholders is we know how to be lumpy. And by having more markets and more customers, it can make it less lumpy. But the ASP of a production order set in wafer-level burn-in can be $10 million to $20 million in an order, let's say, okay? Package-level can be that big or bigger, too, okay? So when they come in, it looks like, oh, right now, we see demand on both significant. Now the engagement and the work to get a wafer-level burn-in is definitely harder than package level. And the obvious reason is, in many cases, we're already testing the part for the quality on our tool. So now they have to just say, oh, I need to buy a whole bunch of them and add automation and go to production. Does that make sense? On wafer-level, what we found is that there's a learning process by both sides a little bit, but to understand how they can use our tool to be able to test their part. And in some cases, they're like, okay, I know if I just did this, it would make it a lot easier. But it's too late. I already taped out this part. That would be an example of this benchmark I'm in right now. It's like they're having to use some -- a little fancier WaferPak to do it. And if they just did some specific DFT, they could use a very simple WaferPak, the same WaferPak we're using for like silicon photonics or Silicon Carbide and some of these others. Their vocabulary with us is, oh, I'll be able to do that for the next gen, but can you just work around it with the current one? Well, it's kind of harder. The other one, as I mentioned, I want to get a little too carried away. I mean I get pretty techy on these things. But we had a miscommunication on the clock, which is something really simple candidly. But if you do them wrong, it doesn't work. And so we've had to jury-rig some stuff to actually get it to work, and we're going to spin it to make it work. Nobody is freaking out about it because this isn't rocket science, but it would be something we would never mess up again with that customer because that we now both have the same vocabulary. Second one is always easier. And so there's a little bit more startup thing with the wafer-level burn-in. But if you're technically astute and engaged and you look at it, you're not going, oh, this isn't going to work. You just go, okay, gosh, that's too bad that. Okay. Now let's keep going. And so there's a learning process. We're getting faster at it. And I think, over time, wafer-level burn-in -- like the Silicon Carbide or the silicon photonics customer we won this last quarter, it was just yes. I mean there was no one way for benchmark. It went from can you do it to how fast can you deliver, okay? I think that is a natural progression. You'll see it in our package level, and you'll see it in our wafer-level over time where customers will engage, they'll know we can do it, and they just say let's go. Operator: [Operator Instructions] The next question comes from Larry Chlebina with Chlebina Capital. Larry Chlebina: Gayn, your contract manufacturer that you're starting up, when does that start? And when will it be fully capable of doing your 20 Sonomas a month? Gayn Erickson: They're -- they've already built. They're in the process of building the first batch, I would say is the best way of looking at it. There's -- it's a little more complicated than the way I described, but there's sort of -- there's actually 2 contract manufacturers together and then one feeds into the other one. The first -- the one that feeds into the other one did their prototypes, they sent to us, we were going through a kind of an acceptance process to validate it to work out any kinks, then those go to the other contract manufacturer for final system integration and shipping. The other one is when we were out there, we visited them last September, I think, we did kind of an audit of facility power infrastructure and cleanliness and they did a kind of a remodel similar to ours if people have seen it. It's all white and fancy clean floors, more clean room space so that we can actually build these things in a clean room area. They had facilities, they were doing some stuff for solar as it turns out. And so we were able to leverage from that. And that is in place now. And we think our first products would be ready to ship to customers this quarter through May. And what we want to make sure is they're ready to go by late summer when we see the Sonoma ramp hitting. Larry Chlebina: That was the really my question. Are you keeping any capacity? Or are you planning on producing those systems in Fremont as well or is... Gayn Erickson: Yes, for sure. But this is in addition to. We've kind of talked about like about a 20 system per month capacity here from an infrastructure and footprint perspective. We would actually still need to hire some more people, maybe to take on a shift. But we'll use -- we use that facility for like large volume orders of the same SKU, if you will, make it simple. And then we'll use -- we'll continue to make Sonoma systems here and all of the XPs will be built out of here, all the FOX products. Larry Chlebina: Great. And then did I hear you say that your first expected XP sales to an HBM customer will be this calendar year or next fiscal year '27? Gayn Erickson: Yes, I didn't quite say anything. I was a little more elusive than that on purpose. What I will tell you is that we have identified some interesting opportunities with HBM, probably the new 4E that it has some interesting challenges that people would really like to do this wafer-level burn-in on. And between our FOX system as it stands and the road map that we've been working on, as people know, with a team of people here for a memory extension to the FOX system to add what we would call channel modules into the FOX that make it memory focused, we think that there's some real overlap there. That just as you know, Larry, you follow this a lot. That's an uptick, okay? I thought HBM had a pack flash and it is in parallel with flash now. Larry Chlebina: I would say that would be an uptick. Yes, I agree -- a little bit of an uptick. Gayn Erickson: An order would be a good uptick. I'll agree with you. But right now, I'm excited about the discussions. Larry Chlebina: Yes. So the flash engagement, is that -- do you think that will bear fruit on the enterprise side here shortly before HBF gets underway, the effort that you're going to have. Gayn Erickson: That's a good question. I think it really is up to the customer kind of the timing of what we would build would be something that would be a superset that could do both. So yes, if HBF were delayed a little bit, maybe we would intercept their standard products. They've asked us to build it. The definition discussion has been to do both. In some ways, HBF is easier, okay? Then -- because if you start saying it's all flash, a lot of times what happens is people say, well, I want to be able to test everything I've ever had before. And then as the interfaces evolve, they tend to converge in voltages and speed or whatever. And if you say, well, I want legacy, it's like, well, okay, I've got to support this old voltage or something on a device you don't make anymore. So part of the challenge for us is to try and kind of converge on what do you really need going forward, where are you going to spend the money. They probably never buy a system for legacy products from us in general. So I think that's one of the challenges we get to work through. Larry Chlebina: That's all I had. Boy, you got a lot of irons in the fire. Gayn Erickson: It is so much fun, you guys, I'm telling you. You -- yes, the -- Vernon and Alberto and the R&D teams and the poor Nick, our WaferPak team is very busy right now. And we're doing some things to offload that adding additional resources. We're hiring anybody looking for a great job with a company that's growing, let us know. We've got a lot of reqs out there, and we're looking for great people. So it's... Larry Chlebina: It sounds like it is a lot of fun and congratulations. I know you've been working at it for a good while to get to this point. Operator: [Operator Instructions] Gayn Erickson: All right, operator, if there's no other questions, we'll end on a really happy note. And as always, if you guys have any questions, please feel free to reach out to us. If you happen to be in the Bay Area and want to try and stop by, we're always happy to give a short tour to key investors and things like that. And we look forward to a great quarter and talking to you next quarter. I guess with our new fiscal year, now our quarterly earnings will be the same time the next time, and then there'll be a I guess, a 1-month push or something like that, but it should work out. This will be a good thing for our customers, which, honestly, that's the key to all of this. All right. Thank you very much, folks. Bye-bye. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by, and I would like to welcome you to the Discussion of Text Q4 2025-2026 KPI Conference Call. The call today will be hosted by Marcin Droba and Lucja Kaseja from the Investor Relations department. [Operator Instructions] So without further ado, I would now like to pass the line to Lucja. Please go ahead, ma'am. Lucja Kaseja: Good afternoon, everyone. Thank you for joining our webinar. We will now present and discuss both our operational data for the past quarter and our outlook for the upcoming months, of course, this time in English. First of all, please take a moment to read the disclaimers, especially those regarding forward-looking statements. [Technical Difficulty] I can go straight to the point, as you already know from the current report published last week on Thursday. The MRR at the end of March stood at USD 6.93 million. This means that during the quarter, the Text Group's MRR decreased by USD 50,000. This is a smaller decline than in the previous 2 quarters, but of course, it is not a reason to be satisfied. What matters, however, is what lies behind it. First and foremost, January and February were quite stable as we reported in our February quarterly statement and the MRR drop occurred in March. That month, we introduced some changes to our customer acquisition process, specifically some experiments, including redirecting leads from the chatbot.com website to the Text App. This initiative provides us with a lot of necessary data, but we are still losing some of the leads along the way, although we see improvement almost every day. In February and March, we also observed an increase in customer churn, primarily due to unpaid subscriptions. We believe that especially in March, this is an early reaction to the planned end of grandfathering for existing LiveChat customers, which we started communicating to them precisely since the beginning of March. This is a move that will significantly impact our KPIs, especially starting from April and into the following quarters. The picture of the past quarter looks much better when we look at our cash flow, which is reflected in the collective payments -- in the payments received data. Here, we have a 0.4% year-over-year increase and 3.1 percentage increase compared to the previous 3 months. This is the highest quarterly value recorded in this financial year and the highest since Q2 of the 2024, '25 financial year. Differences in the dynamics between MRR and payments received usually stem mainly from the distribution of annual payments. However, we are also in a situation where more revenue kind of leaks from our reported MRR. We are, of course, referring to payments received under postpaid per usage model. Here, we see a significant increase, especially in payments for API usage. We reached a quarterly value of over USD 0.25 million, up from the previous 3 months by over 160%. On Slide 6, we can see that the steady growth in the share of larger clients in our MRR. During this quarter, the share of customers with an ARPL over USD 500 increased by 1 percentage point. This is a favorable trend that should translate into better revenue retention over time as this customer group stays with us longer and is more open to upselling. The next slide shows how the share of customers paying for more than one product from the tech portfolio is currently growing. In Q4, they already accounted for 38.8% of our MRR, 10 percentage points more than a year ago and 1.6 percentage points more than in the previous 3 months. We are always thrilled to share our customers' success stories. This time, it's a brand very well known in Poland, STS, which handles 0.5 million chats annually and does it phenomenally. The video mentions a satisfaction score of 82%, but right up to the filming, the team impressed that they had reached 85%, an excellent result made possible only with the best tools. You will find a link to the video in the presentation. STS uses 4 of our products: LiveChat, ChatBot, HelpDesk and KnowledgeBase. It is worth noting that our AI agents are doing great and constantly improving, achieving a resolution rate of 74% compared to the industry average of around 59%. For a human agent, this metric is usually between 70%, 75%, while other market players recently declared 60% as a success. Importantly, this average includes accounts that has not yet fully trained their AI agents on their own data. For customers who have completed the training phase, the results are even better, ranging between 80% and 90%. And for you to understand the metric, a chat is considered resolved if the user receives a complete answer to the reported issue, the user raises no further concerns and the interaction ends with no unresolved follow-up questions. The most important product updates this quarter relate to the agent AI area, and we -- and were rolled out in March. We enabled our customers to create multiple AI agents within a single work space. And most importantly, we introduced custom skills feature. Thanks to this, a user can describe in natural language what a given agent is supposed to do, and the AI will autonomously prepare the appropriate workflow, enabling the agent to execute specific tasks. Our work in the last quarter also involves many initiatives, often smaller projects that fit into a bigger picture. In our quarterly report, we mentioned, among other things, that our products are now available in the Microsoft marketplace, that we obtained Meta business partner status and that we entered the marketplace of Kandji a security app. In terms of security, we also partner with Hexnode, a device management and security company, and we are launched in their marketplace. Infrastructure changes have translated into increased reliability and quality. We've returned to actively encouraging our customers to give us reviews and feedback, and the results are already visible in various rankings and listings. This is very important also because it directly translates into credibility and visibility in AI models, where we've seen clear improvement. Of course, we still have a lot of work ahead of us in this area, and we will simply have to wait a bit to see the full effects of many of those actions. To sum up the quarterly picture, we recorded the best quarter in terms of payments received in this financial year. Unfortunately, we have an MRR decrease, though it's smaller than in the previous period, and it reflects the fact that a small but rapidly growing part of our business is not captured in MRR. In this quarter, the MRR decline is at least in part the result of our deliberate actions. And as we have -- as we mentioned you usually ask about new clients and the results of our sales department. This quarter, we signed several significant renewals, some of which included upgrades. The biggest ones concerned our key accounts were hundreds of agents work with our products. These are clients from industries such as Biotechnology, ForEx and iGaming. These renewals and upsells were made possible by our SOC-2 certification. If we look at the direct cost of obtaining the certificate, they have fully paid off. For now, it mostly helps us play defensive, but we expect... Operator: Ladies and gentlemen, please standby. [Technical Difficulty] Lucja Kaseja: I lost my connection. I am back. Hopefully you hear me well now. Operator: Yes, yes, we do. Lucja Kaseja: Thank you. Sorry for those problems. Coming back to the topic I was just discussing, so the new clients. This quarter, we acquired new clients across multiple countries and industries and our strongest sector were education, including top universities in Singapore and New Zealand, finance and insurance with new clients from the U.S. and sports betting. And the last slide on my side, in the next 3 quarters, the biggest direct impact on our operational metrics will come from ending price grandfathering for LiveChat customers as the new pricing for the existing customer base has been in effect since the beginning of the month. As you surely remember, at the end of September, we raised LiveChat prices for new customers. The price change varied across different plans, but on average, it was around 20%. As we said 3 months ago, the new pricing was accepted by the market and after a short dip conversion rate returned to the previous levels. The end of grandfathering pricing for LiveChat will likely translate into some increase in churn in short term, but we estimate the net effect should be significantly positive for our recurring revenue. We assume the largest impact of MRR -- on MRR will be recorded in the current quarter. The price changes will not affect customers using the Text product or those whose annual contracts expire after 2026. We assume 2027 will be the year of migration to Text. We are continuing our work on SOC-2 Type 2 certification, which will confirm that all implemented procedures are functioning as intended, and we are currently during the observation period. Starting tomorrow, the product operating under the working name Text App will off to become the text solution. The communication campaign associated with this brand is scheduled to begin in May. Please don't expect fireworks, by the way. There won't be a big bang at launch. It will be a safe, scalable process where budget decisions will be made based on data and results in specific channels. And a major event related to this campaign will take place in the fall. We will certainly be much more active in PR. After a long break, we have someone on board responsible for this area. And we also want to start collaborating with industry influencers, among other things. The goal is to gradually and consistently build the strength and visibility of the Text brand. Realistically, the effects of this campaign will be visible in our KPIs by the end of the calendar year. This aligns with what we have been saying at our previous meetings. This is not a sprint run. It's the start of marathon. Also in subsequent quarterly reports, we have emphasized that text.com will not be a significant acquisition channel in the coming months. Looking ahead to the next 3 quarters, the biggest impact will come from ending the LiveChat price grandfathering. Currently, a slightly stronger dollar is also working in our favor. We have also stabilized our infrastructure costs, which should actually be slightly lower in Q4 of the past financial year, the one that has just ended. Of course, we have to keep in mind that this is a dollar-denominated cost for us. Marketing and customer acquisition costs will grow, but budgets for individual channels will be closely tied to observed results. Thank you very much for your attention this time. And now we invite you to ask your questions. Operator: [Operator Instructions] We have received a text question from [ Maximilian Rafaga from Family Office. ] Based on press coverage, it looks like competitors like Sierra and GenAI are growing substantially. Can you talk about their target customers and whether they are taking away potential customers of yours or if you're going after different customers? Marcin Droba: Marcin Droba here. So thank you for your questions. Thank you for being with us. So of course, I don't want to really comment on Sierra or Intercom or any of our competitors. Definitely, we had a very good quarter in terms of as stated in the presentation in the term of defense. So actually, we prolonged our very important deals. We kept important customers who actually had deals close to an end. So looking at that, that was very good, very solid quarter. Of course, we are not growing. We are not as successful at this moment at the acquisition that was not a great quarter in that term. But we will be -- I think looking at the future, looking at our plans when it comes to this PR to this communication offensive, which will start in the May. At some point, we will be more aggressive when it comes to addressing that customers, which are now using some competitors' solutions. We have some arguments, which should help us like one of the arguments can be great results of our AI agents we just presented. So at some point, we'll be more aggressive when it comes to that kind of approach. But looking at the last quarter, we didn't really -- I'm very convinced that we didn't lost any notable customers to our peers. Operator: Okay. Another text question from Maximilian. What are your main growth channels going to be for Text App given that your previous CEO strategy will likely not work anymore given the decline of search traffic overall? Marcin Droba: [ And sorry Lucja, ] we usually switch when it comes to the answer, but I will try at least partially to answer that question, quoting our CEO, who actually stated on that answering very similar question that Internet hasn't really changed. in how growth works over the last 20 years. Only the platforms have shifted when the underlying mechanics stays the same. So we have to basically repeat all the work we did over the last 20 years. We know how to do that. Actually, that was also not a bad quarter when it comes to our visibility on AI models. So we definitely work on that. We will be much more active when it comes to, for example, to peer also when it comes to cooperation with some influencers in the coming months. So but basically, it's very similar work. but just in different space. Also, I wouldn't agree with the statement that CEO is not working at all. It's still working. It still helps us, but not at the scale we used to see. That's obviously very important change. And we witness many changes in the coming years probably. Lucja Kaseja: Yes. We will definitely be more active with our brand. And as I mentioned, we have a new PR person on board. So more of such activity will be visible. Also, we will be -- similarly as in this presentation, we will be more sharing the examples of brands and how they work with our products because this is something excellent that is being done and some of the customers have excellent stories. It's just our role to pick them up and showcase. So this type of activity will be definitely something that will be seen in the next couple of months. Marcin Droba: So some things changing. For example, the PR, public relation wasn't so important for us, historically speaking. But media coverage media publication are probably now more important as they are source of the knowledge, a source of reputation for the AI models. Some things changes, but basically, the work is very similar. Operator: Okay. Another question from Maximilian. Can you share traction of Text App in terms of retention, usage, et cetera? Is it performing better than your legacy solutions? This seems the most crucial point, but you share very little information in your communications. Lucja Kaseja: We have not given, as you correctly spotted, detailed information about Text App, especially like the -- what you have mentioned, retention or usage. This is because we have not run a large-scale conversion from the legacy products. We are getting customers each month in the Text App. However, these are not very large numbers. So we still do not have such history of data for those users. Marcin Droba: So yes, of course, as Lucja said, it's still -- we are aware that what we are seeing now, what is now happening in the Text is 1:1 translatable, I don't know if that's a correct wording to that same solution to the Text in the future because there will be also some changes in the Text. We just added like crucial things in the area of AI agents. And we migrate to Text very specific group of the customers of legacy products. So this is -- all these KPIs are very important for us. But I think in the IR communication, it wouldn't be so valuable to honest to really share too much information because all these KPIs will be subject to the huge changes in the coming quarters. Operator: [Operator Instructions] Marcin Droba: As you may know, we had a Polish webinar before that webinar. We obviously had some more questions. But if I look at the whole picture. Really, we -- I don't think we share really important substantial information, which I think all the important things we declare, we said, we shared today are already told. We were asked about dividend policy is confirmed. We were asked about margins of the paper usage payment. And I think it's important to stress that if you look at the API revenues that revenues actually -- we had cost related to that revenues before. We just started to monetize that subject. In the future, it will be very important that the most important part of paper usage, paper results model will be AI agents. That's the huge area definitely. We definitely assume a very solid margins in that area, but we will learn in the future what market will accept, what competition landscape look like. So we will observe how it work. But when we think about how current pricing is working, we definitely assume that margins on that part of our business will be at least solid. Operator: At this point in time, I'm seeing no further questions from the audience. So I'm just going to pass the line to the Investor Relations team of Text the line back to say their concluding remarks. Lucja Kaseja: Well, we basically want to thank you for listening to our presentation. As you have seen, there is a lot of things that are happening. As we mentioned, small things are changing, but are part of a much bigger picture. There are some exciting things that will be in the future. But also we constantly do like day-to-day work to -- for the numbers to be as they are. Thank you very much for your attention. Marcin Droba: Thank you very much. Operator: Thank you. We are now closing all the lines. Goodbye.
Operator: Hello, and welcome to the Xcel Brands Q4 2025 Earnings Call. [Operator Instructions] Now I would like to turn the call over to Seth Burroughs. Seth, you may begin. Seth Burroughs: Good afternoon, everyone, and thank you for joining us. Welcome to the Xcel Brands Fourth Quarter of 2025 Earnings Call. We greatly appreciate your participation and interest. With us today on the call are Chairman and Chief Executive Officer, Robert D'Loren; and Chief Financial Officer, Jim Haran. By now, everyone should have had access to the earnings release for the quarter and fiscal year ended December 31, 2025. In addition, we plan to file our annual report on Form 10-K with the Securities and Exchange Commission later this week. The release and the annual report will be available on the company's website at www.xcelbrands.com. This call is being webcast, and a replay will be available on the company's Investor Relations website. Before we begin, please keep in mind that this call will contain forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from certain expectations discussed here today. These risk factors are explained in detail in the company's most recent annual report filed with the SEC. Xcel does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The dynamic nature of the current macroeconomic environment means that what is said on this call could change materially at any time. Finally, please note that on today's call, management will refer to certain non-GAAP financial measures, including non-GAAP net income, non-GAAP diluted EPS and adjusted EBITDA. Our management uses these non-GAAP metrics as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends related to the company's results of operations. Our management believes these financial performance measurements are also useful because these measures adjust for certain costs and other events that management believes are not presented of our core business operating results. And thus, they provide supplemental information to assist investors in evaluating the company's financial results. These non-GAAP measures should not be considered in isolation or as alternatives to net income, earnings per share or any other measure of financial performance calculated and presented in accordance with GAAP. You may refer to the attachment to the company's earnings release or the 10-K for a reconciliation of non-GAAP measures. And now I'm pleased to introduce Robert D'Loren, Chairman and Chief Executive Officer. Bob, please go ahead. Robert D'Loren: Thank you, Seth. Good afternoon, everyone, and thank you for joining us today. I would like to start today's call with a brief update on recent developments from Q4 2025, and the full calendar year 2025 and our outlook moving forward. After that, our CFO, Jim Haran, will discuss our financial results in more detail. In 2025, we worked hard with all our production partners and licensees to drive our business for 2026 ramp-up of the business. Also, we worked with UTG on a new business development strategy identifying prospective business licensing partners and continue to explore acquisition opportunities with them. 2025 was a year of getting back to basics and laying the foundations of growth for the future. after enduring 3 years of setbacks caused by COVID and the bankruptcy of the Lord & Taylor, which alone cost us over $3 million in related losses. To start with building for the future in 2025, we announced our new influencer-led brands with Cesar Millan, Gemma Stafford, Jenny Martinez, Coco Rocha and Shannon Doherty. This grew the social media filing in our brand portfolio from $5 million to $46 million. We identified key category license opportunities for all these new influencer-led brands. Now all of these influencer-led brands will be launching throughout 2026 on interactive television and at bricks and e-commerce retailers. Interest in these brands has exceeded our expectations. We are on track with wholesale shipments by our licensees beginning in the first quarter of 2026 and on-air programming on QVC and HSN commencing in the second quarter, followed by distribution in other channels later this year. We believe that these new influencer-led and our legacy brands each have the potential of reaching our goal of achieving annual royalty income on average of $6 million per year by 2029. We believe this would imply assuming royalty exit multiples remain at the current market average of 7x gross royalty income, a potential portfolio gross value for all of our existing influencer-led and legacy brands of $375 million. As I mentioned, our social media reach across our portfolio is now $46 million and based on our pipeline of new influencer-led brand opportunities, we are well on our way to achieving our goal of 100 million social media followers across our brand portfolio. I should add that our TV and streaming content distribution is well over 100 million households. We believe the social media and broadcast and streaming reach of our brand portfolio is driving demand for our brands and products across all categories. C. Wonder and Christie Brinkley remains some of the fastest-growing brands on HSN, and we have a new licensee that is designing and selling outstanding apparel products for these brands. Judith Ripka continues to operate on plan on JTV. Revenues from JTV were up 23% from the prior year and we expect 2026 growth in product sales and related royalties to exceed 2025's actual sales. We expect that our Longaberger brand will launch in spring of 2027 with new products co-created by Shannon Doherty. Shannon has 3 million social media followers and is perfect for the Longaberger brand. We generated an adjusted EBITDA loss of approximately $600,000 in Q4 and a $2.3 million loss for the full year 2020, which is $187,000 improvement over the prior year quarter and a $1.2 million improvement over the full year 2024. Although our results improved year-over-year, it was less than our expectations. This was primarily attributable to a combination of a transition to a new apparel supplier for our C. Wonder and Tower Hill by Christie Brinkley brands and our Halston business not materializing as expected for the full year. That said, Halston had a strong second half of 2025, and we are optimistic about Halton's potential in 2026. Although we are pleased with the progress of our legacy and new influencer-led brands, we believe the worst is now -- and we believe the worst is now behind us. We remain cautious for the near term, given the macroeconomic outlook for 2026, which has been shaped by lingering inflation, the full impact of trade tariffs, the war in Iran and, to some extent, a bifurcation in consumer spending. With that, I would like to turn the call over to our CFO, Jim Haran, to cover our financial results for the fourth quarter and full calendar year 2025, Jim? James Haran: Thanks, Bob, and good afternoon, everyone. I will now briefly discuss our financial results for the quarter, fiscal year ended December 31, 2025. Revenue was $1.17 million for the fourth quarter of 2025 compared with $1.21 million in the fourth quarter of 2024. This decline was primarily attributable to a transition to a new supplier for our HSN business during the quarter, causing a gap in wholesale shipments. On a full year basis, revenue was $4.94 million for the current year compared with $8.26 million for the prior year. This decrease was primarily driven by the June 2024 divestiture of the Lori Goldstein brand and the subsequent loss of the licensing revenues associated with our brand. Also, approximately $350,000 of the decline in revenue was attributable to the fact that in the prior year, we recognized revenue from the final sale of certain residual product inventory with no comparable amounts in 2025. Direct operating costs and expenses were $2.2 million for the current quarter, down 22% from the prior year quarter. For the current year, our direct operating costs were $8.57 million, a decrease of 33% from the prior year. For both the quarter and full fiscal year, the decrease in direct operating costs was primarily attributable to the business transformation and cost reduction actions taken by the company over the past 2 years. The full year decline was partially attributable to the divestiture of the Lori Goldstein brand and the subsequent elimination of cost associated with that brand. As a result of the restructuring of our business model, we have reduced our payroll, operating and overhead costs to a run rate of approximately $8 million on an ongoing forward basis. Looking at our other operating cost expenses, which are predominantly noncash in nature. Our depreciation and amortization expense was relatively flat from the fourth quarter of 2024 to the fourth quarter of this year. On a full year basis, depreciation and amortization expense declined from $4.9 million in 2024 to $3.6 million in 2025, which was a result of the sale of the Lori Goldstein business. Interest and finance expense was $800,000 for the current quarter compared with $500,000 in the fourth quarter of last year. On a full year basis, interest and finance expense was $4.3 million for the current year versus $900,000 in 2024. These year-over-year increases primarily led to higher interest expense as a result of higher interest rates and higher average debt balances in the current year compared to last year. And in addition, during the current year, we recognized a $1.9 million loss on early extinguishment of debt from the April 2025 financing of our term loan. Now that being said, it's important to remember that under our term loan, a majority of the interest due under our current debt will be payable in-kind, meaning that will accrue and not require cash payments until starting 2027. Overall, we had a net loss for the current quarter of approximately $2.8 million or minus $0.55 per share compared with a net loss of $7.1 million or minus $3 per share in the prior year quarter. After adjusting for certain cash and noncash items, results on a non-GAAP basis were a net loss of approximately $1.6 million or $0.32 per share for the current quarter and a net loss of $1.6 million or minus $0.69 per share for the prior year quarter. Adjusted EBITDA loss for the current quarter was approximately $600,000 compared to a loss of $792,000 in the prior year quarter. This represents a 24% year-over-year improvement in EBITDA, which continues the trend and continue to make year-over-year EBITDA improvements over the past few quarters. For the full fiscal year, we had a net loss of approximately $17.5 million or minus $5.08 per share on a GAAP basis compared with a net loss of $22.4 million or minus $9.84 per share in 2024. The net loss for the current year includes a $6 million loss under the divestiture of the equity investee on IM TopCo and a $1.9 million loss from extinguishment of debt. As a result, we had fully written down our investment in the Isaac Mizrahi brand to 0 and divested all of our remaining equity interests in the brand, and therefore, will not incur any such charges and losses going forward. The net loss in the prior year included $11.8 million loss related to the equity investee on IM TopCo, a $3.5 million asset impairment charge related to the company's former office lease and partially offset by a $3.8 million gain from the divestiture of the Lori Goldstein business. On a non-GAAP basis, we had a net loss of $5.2 million or minus $1.52 per share, roughly comparable to a non-GAAP net loss in the prior year of $5.1 million or minus $2.23 per share. Our EBITDA for the current fiscal year was negative $2.3 million, a 35% improvement for EBITDA of negative $3.5 million for the prior fiscal year. I'd like to reiterate that all of these charges are described within other operating cost expenses are product noncash in nature and nonrecurring and are excluded from our non-GAAP measures of performance. Once again, as a reminder, our earnings press release and Form 10-K present a full reconciliation of our non-GAAP measures with the most directly comparable GAAP measures. Now turning to our balance sheet and our liquidity. In the very busy past few months as we have entered into a number of transactions to ensure we have the right capital structure in place to ensure appropriate liquidity to successfully execute on our business plan. In December 2025, the company closed on a private investment in a public equity transaction with net proceeds of approximately $1.8 million. In January 2026, we entered into a committed equity line facility, giving us up to $15 million of funding over the next 2 years for working capital and potential acquisition opportunities at our discretion. As of December 31, 2025, the company's balance sheet reflected stockholders' equity of approximately $16 million, unrestricted cash of approximately $1.2 million and restricted cash of $1.7 million. Also as of December 31, 2025, we had $12.7 million of long-term debt. And with that, I would like to turn the call back over to Bob. Bob? Robert D'Loren: Thank you, Jim. Ladies and gentlemen, this concludes our prepared remarks. Operator? Operator: [Operator Instructions] And our first question comes from the line of Michael Kupinski with NOBLE Capital Markets. Jacob Mutchler: It's Jacob Mutchler on for Michael today. I was just curious if you could provide a little bit of additional color around the Halston rollout for spring. I believe you mentioned on the last call that G-III was making some tweaks to merchandising. So any color on the spring role that would be appreciated. Robert D'Loren: So they haven't reported to us so we don't know how their Spring '26 is going for them. They did have a good second half of '25 that we were happy to see. We believe that dresses are working well for them and that they're continuing to improve the sportswear line, but we were happy to see the second half of '25 perform really well. So that's what we know now. They usually report to us 45 days after the quarter. So we'll know. We'll know soon. Jacob Mutchler: Got you. All right. And if you could also just briefly touch upon the cadence of those, the influencer brands that are rolling out? Are they all expected to start selling in the first quarter? Are they going to be spread out throughout the year? And my apologies if you touched upon this in your prepared remarks. Robert D'Loren: So Cesar, Gemma, Jenny Martinez will launch now in this Q2 period on QVC and HSN. And by the back half of the year, we expect to be in some brick-and-mortar retailers and on Amazon. Starting on Amazon with Cesar, we're building an Amazon store. That will be the first of its kind in the pet category where Xcel will control what the store looks like and oversee how each of the licensees market within the Cesar Millan Trust Respect Love Store. So we're excited about that. And then we'll follow with similar Amazon stores for the rest of our brands. Coco Rocha, will be launching later in the year. And when you think about the time it takes to go through design, product development, sample reviews, it usually takes about a year and Coco is the newest of the brands. So she'll be on the back half of the year. Jacob Mutchler: Got you. And then just one last question. Could you provide any update on how or the adoption for the brands is going? Just curious if there's been any recent wins or progress with signing up some additional brands? Robert D'Loren: So Olin Lancaster and I just finished the Pet Expo, which was 1.5 weeks ago in Orlando. We showed between 2 licensees, over 1,000 SKUs. And a lot of it was consumer-facing products, collars, leashes, hydration systems, bowls, toys, and then some of it was deodorizers, dog shampoo, conditioners, detergents. And we had a great, great show, great response to the product. And those are the first of the Cesar products to really be shown at a trade show. And we had great response from specialty retail as well as some of the big boxes. And our licensees over the next 30 to 60 days are taking orders, and we hope to be in store on shelves in August. And then just to add to that for you, so you understand the cadence of this. Those are the first categories by design that we designed and launched, but now more categories will go into development like chews and treats and hopefully, soon supplements and food containment systems, cages, dog beds, all of those are in the pipeline. Operator: And our next question comes from the line of Thomas Forte with Maxim Group. Thomas Forte: Great. So first off, Bob and Jim, congrats on the progress you made in '25. And Bob, thanks for sharing the $375 million opportunity for Xcel brands. I appreciated that. So one question, one follow-up. From a product standpoint, can you provide a high-level view on your mix by category including apparel, food, jewelry and pet and maybe give a sense of how that compares with your historical performance? Robert D'Loren: Sure. So historically, Tom, we've been concentrated in and fashion accessories like jewelry with Judith Ripka and custom jewelry with some of our other brands. Generally speaking, a majority of that production through our licensees and some of our retail partners that imported products under our brands themselves. We're severely disrupted because of tariffs. And we were still dealing with it in '25 in the apparel categories. And we realized that one, we needed to pivot into consumer categories that were growing at a better rate than apparel. And two, we needed to focus on things where the major categories are produced in America. So when you think about food for human consumption, most of it is made here in America. It's not really a product that is imported to a large degree. And the same thing holds true for dog food supplements. Most of that product is made here in the U.S. So lead times are shorter. There's no tariff issues, and we viewed that as one, a hedge against tariffs because even in '25 where some of our factories, say, Cesar Millan, collars, leashes, things like that, are typically made in China, they had to pivot to India and then India, was hit with a 50% duty. It caused delays and it's just the nature of dealing with what's happening politically in the world at the moment. And we will continue to look for brands and consumer categories that have less of this risk. We're not going to be able to reduce that 100%, but we will be leaning into more things that are made here. Thomas Forte: Excellent. And then for my follow-up, you did a good job of explaining that historically, when you sign an influencer, there can be often a 1-year period for product design and things of that nature. But how would you characterize your current influencer pipeline? And are those the type -- are lead times on the pipeline such where you start conversations with the influencer? And then how long does it take for those conversations to turn into agreements and things of that nature? Robert D'Loren: So generally, when we start, when we identify an influencer that we're interested in and the criteria for that, Tom, is they need to have and established credible voice in a category and unimpeachable credentials. And if they have those things, they are the types that we're interested in. We're less focused on celebrity brands where a celebrity that may be an actor or an actress is interested in promoting apparel or some other category, beauty. If they were a mega influencer of that type, we would look at it. But for the most part, when you think about people that have 10 million to 20 million, 30 million followers, if they don't have that authenticity in the category, it's not something we would be interested in. And when we identify someone like a Cesar Millan or a Gemma Stafford, we generally -- that period of starting the conversation to drafting an LOI and getting it into a definitive agreement is about 90 days. And then from there, we start product development, conceptual designs initially and then allow and find licensees that can develop the product communicate with factories, prepare tech packs, product samples are sent to us. We do the initial review. We may make changes and we go through another round and then it goes to the talent for review. There may be tweaks after that. So that whole process is about a year. And while that is all happening, the licensees and Xcel are working with retailers to sell product into those retailers. So that's approximately how the cycle works. Sometimes it could take a little longer but for the most part, it's a year. And that's why in the licensing business, generally all license agreements have an 18-month first year for that very reason. Operator: And our next question comes from the line of Howard Brous with Wellington Shields. Howard Brous: I'm getting a good sense of a churn in 2026. How do we look like for 2027 and going forward? Robert D'Loren: So Howard, I would say the way to think about this is the goal here internally is to get each of the brands to $6 million of royalties on average heading into 2029. So if you think about million spread over the next 3 years, I would put some of it into 2026. But then I would start to model in $2 million per year, say, per brand going into '27, '28, '29. And if you run out that model, what you might find in 2027 is $18 million of top line. Jim covered expenses, we're running just about $8 million in overhead. That's what we think we could look like in the near term based on everything we have in the pipeline today in terms of license agreements and all the negotiations that are happening across all the brands, including Coco. We think she is going to be great for what she does. And if there's anything more that you want to know about that, Howard, let me know, but I think that's how you should look at it. Howard Brous: We are basically talking about $84 million for the next getting -- this year '27, '28. You're talking about 2x EBITDA or less based on today's value. Is that a fair comment? Robert D'Loren: Yes. And if you think about if everything happens the way we believe it will, based on where we are with all of these new brands. And you think about $18 million times 7, in '27, that would imply $126 million value. And I think certainly, we've demonstrated that we sell our brands or those kinds of multiples. And if you back into what that would mean less our debt, the stock price does not reflect in any way the value of the portfolio. Operator: [Operator Instructions] And our next question comes from the line of Walter Schenker with MAZ Partners. Walter Schenker: Just since we're using Cesar and you gave a bunch of information about cadence for Cesar in so how it goes forward. When you go to a show, and you show 1,000 different items, the cost of that's been borne by the suppliers? Robert D'Loren: Yes. Yes. the suppliers bear the product development cost. We're in there with advice and guidance on design, but we don't order samples from factories, Walter. And we don't incur the cost of setting up significant boots at these shows. We attend the shows, and we solicit new potential licensees in categories that we're targeting. There may be a point where we do shared presentation booths when we have, say, when someone like Cesar gets to 7 or 8, 10 signed license agreement, well, then we might make the World of Cesar. But at that point, revenues will be ramping up and sharing in the cost of a booth with 7 or 8 licensees is certainly something we would be willing to do. Walter Schenker: You took us through the year and getting on the shelves in the latter part of the year. You collect a royalty when the end retailer sells it, when the supplier you're dealing with sells it to a retailer? Robert D'Loren: Both. So it depends what the channel is. So if it's a wholesaler if it's one of our licensees, we are paid when they ship in the quarter that they ship. So the goods that are going to be launching on QVC this month and next month and in June, for the most a lot of those goods have already been shipped into QVC's warehouses. And then as the wholesalers begin to ship, Amazon and other retailers will be paid. For a business that happens on QVC because the royalties are also tied to retail sales on QVC, when the goods are sold on QVC, then we're paid the royalties. Walter Schenker: Okay. And so Cesar is just since it seems to be sort of leading and maybe bigger as an opportunity at this point, you are expecting some revenue to be generated in the second quarter but more in the third quarter and even more in the fourth quarter, some seasonality maybe to some of the stuff you're selling. So Cesar will be generating revenues through the balance second half of the year shortly? Robert D'Loren: Yes, Cesar, Gemma and Jenny, yes, because products are shipping, and we're out in the market with them. And if you recall, we signed Cesar, Jenny and Gemma in the early part of last year. So they're the ones that -- products being delivered to the market now. Coco is more recent for us and she will begin to deliver products to the market or we will together for the second half of this year. And I would say more holiday just given the time line it takes to get product into the market. And then with Shannon Doherty for Longaberger because she is the most recent, it will be a '27 project for us. Walter Schenker: As a big picture, you have a handful of different brands and influencers all in what I would call a start-up phase where you're really getting going getting working with suppliers. Robert D'Loren: Yes, just the influencers. Halston, that's different. C. Wonder is different. Christie Brinkley is different. Those that are established brands. Walter Schenker: How does that affect your view, personally, maybe with the company's time and effort would adding further influences or adding and expanding business versus really concentrating on those in getting those start-ups, again, my term you term getting those startups off to a good start with your help? Robert D'Loren: So we are focused on the ones that we have but we are also, at the same time, looking for new talent in new categories. We do have a goal to get the brand portfolio to 100 million followers. QVC has been, I think, making a lot of the right decisions about pivoting to streaming. I don't know if you saw this, but last quarter, they were TikTok Shop's #1 seller. They are leaning into streaming now in a big way. And I think hopefully, they'll get through whatever restructure they have to do and continue doing what they're doing because it's the right thing. And we are 5 for 5 with them on launching influencer-led brands on the network because this is their future, too. And we're seeing that even with the bricks retailers and Amazon. Today, customer acquisition cost is extremely expensive if you're doing it the traditional way, and influencers change that dynamic. They come with a lot of reach, take someone like Cesar. He has syndicated TV shows in 80 countries and 21 million highly engaged followers. If you speak with those followers in the right way -- which we are very good at, we've been putting celebrities on television for many years, you can really help your retail partners to develop new customers at a much lower customer acquisition cost. And that's the whole point of what we're doing. Operator: And now we have additional questions from Thomas Forte from Maxim Group. Thomas Forte: Great. So last 2 for me, Bob. So you just talked about a 100 million follower goal by year-end. Can you talk about if you're on track for that? Robert D'Loren: We are. And we're in conversations with, I'll call it a celebrity for the moment, that could get us there, just that one. But there are more that we're focused on, another big one in the pet space and some additional ones in the food space. Thomas Forte: And then my last question. I think you said that you have your essentially operating costs at $8 million per -- does that mean that the incremental profitability of each extra dollar revenue is essentially 100%? How should we think about the profitability of the next dollar revenue? Robert D'Loren: I don't think the operating overhead will increase dramatically, except for the rev share that we have with the influencers, but that's variable. It goes up only if the products are making sales and we're generating royalties. So we like where the overhead is now. Of course, we're working every day to try to find more efficient ways to do things. And AI is helping us to do that. Quite frankly, we're using it in design. We're using it in concepting. We're using it for strategic plans. I sat down with some of our younger, smarter people that really understand AI, and I think soon we'll be able to leverage Claude and Claw to do a lot of manual things that we've been doing in the office. So we're excited about what AI can do for the business, including using it for design. Operator: There's no further questions at this time. I will now turn the call back over to Robert D'Loren for closing remarks. Bob? Robert D'Loren: Thank you. Ladies and gentlemen, in concluding, we have not been more excited about our business in several years. I want to thank every one of you for your support and for your time this afternoon. We greatly appreciate all of you. And as always, stay fit, eat well and be healthy. Operator: That concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Direct Digital Holdings Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] And I would now like to turn the conference over to Walter Frank of IMS Investor Relations. You may begin. Walter Frank: Good afternoon, everyone, and welcome to the Direct Digital Holdings Fourth Quarter and Full Year 2025 Earnings Conference Call. On today's call are Direct Digital Holdings Chairman and Chief Executive Officer, Mark Walker; and Chief Financial Officer, Diana Diaz. Information discussed today is qualified in its entirety with the Form 8-K and accompanying earnings release, which was filed on Wednesday, April 1, by Direct Digital Holdings and may be accessed at the SEC's website and the company's website. Today's call is also being webcast, and replay will be posted to Direct Digital Holdings Investor Relations website. Immediately following the speaker's presentation, there will be a question-and-answer session. Please note that the statements made during the call including financial projections or other statements that are not historical in nature may constitute forward-looking statements. These statements are made on the basis of Direct Digital's views and assumptions regarding future events and business performance at the time that they are made, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risks, which could also cause direct actual results to differ from its historical results and forecasts, including those risks set forth in Direct Digital's filings with the SEC, and you should refer to those for more information. This cautionary statement applies to all forward-looking statements made during this call. During this call, Direct Digital will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release that Direct Digital filed in its Form 8-K last week. I will now hand the call over to Mark Walker, Chief Executive Officer. Please go ahead, Mark. Mark Walker: Thanks, Walter, and thank you to everyone joining our call this evening. I'll start by reviewing some of the highlights of our operations and financial results during the fourth quarter and full year before turning the call over to our Chief Financial Officer, Diana Diaz, for a more detailed look at our financial results. We'll conclude by opening the call for a brief Q&A. For the full year, we reported $34.7 million in sales. While we saw a decrease in our sell-side revenue during the year, we grew full year buy-side revenue, maintained strong gross margins for the year and importantly, drove considerable efficiency and cost reduction in the business. Finally, we made significant strides in improving our balance sheet. We still have a lot of work to do, but I'm encouraged that many of our strategic initiatives position us very well as we move into 2026. We're a focused, more nimble organization with a realigned structure and a clear strategy to drive returns for shareholders. Over the past 1.5 years, we've noticed a shift to the overall digital advertising market that prioritizes buy-side transactions as well as increasing demand from our customers for more accessible buy-side media. During 2025, we began to lean into this demand, resulting in increased buy-side revenue, which offered some early confirmation from what we're seeing in the market. Fast forwarding to where we are today, buy-side revenue grew 28% in the fourth quarter of 2025 compared to the fourth quarter of 2024, and has increased 10% year-over-year, supported by a combination of new and existing customers and the demand we're seeing across our verticals, including travel and tourism, higher education and energy to provide a few examples. As we move through 2026, we'll continue to increase our focus on driving more digital marketing spend among our buy-side and new enterprise customers. To this end, in March of 2026 we launched Ignition+, our AI-enabled programmatic media solution, which provides enhanced accessibility for large enterprise clients in the buy-side network. We'll also prioritize the transparency, efficiency and cost reduction through AI-driven optimization and side securation. We believe the launch of Ignition+ and our focus on driving digital marketing spend among buy-side and new enterprise customers will allow us to more nimbly address changing market dynamics and capitalize on the many emerging opportunities that we're seeing. Specifically, Ignition+ takes the sell-side intelligence data and expertise that we've collected and built over many years within our Colossus business to inform supply side access and combines it with Orange 142's end-to-end programmatic media technology stack. The result is centralized buying that enables brands to buy media instead of markup, significantly increasing the value of their marketing budget. Ignition+ is supported by a team of on-demand programmatic experts and designed to focus on solutions for mid-market enterprise brands who have traditionally been forced to choose between transparency and scale when selecting an ad tech solution. This has streamlined operating structure that enables us to more efficiently go to market and drive value creation for our shareholders. As a result of these changes, we are consolidating our operations into a single reporting segment beginning in 2026. We believe the streamlined structure, combined with the growth strategies we have put in place our restructured balance sheet, targeted operational improvements and ongoing cost discipline, positions us to return to positive platform growth and achieve breakeven or better quarterly performance by the second half of this year. Thanks to all the hard work, dedication and support from our team, we entered 2026 on full stride with the refresh and revitalized strategy that allows us to expand our market share and meet the growing demands of both current and new customers. As always, we sincerely appreciate your support of Direct Digital Holdings. We're encouraged by the many exciting opportunities ahead of us in 2026. I will now hand the call over to Diana Diaz, our Chief Financial Officer, who will walk through some of the financial highlights in further detail. Diana Diaz: Thank you, Mark, and good evening, everyone. I'll now provide a review of our fourth quarter results with some context on full year trends were relevant. Consolidated revenue in the fourth quarter of 2025 was $8.4 million compared to revenue of $9.1 million in the fourth quarter of last year. Buy-side revenue increased approximately 28% to $8.2 million compared to buy-side revenue of $6.4 million in the fourth quarter of last year. Sell-side revenue was $200,000 in the fourth quarter compared to $2.7 million in the fourth quarter of last year. The decrease in sell-side advertising revenue was primarily related to a decrease in impression inventory when compared to the fourth quarter of last year. Gross margin for the fourth quarter of 2025 was 27% compared with 32% in the fourth quarter of last year. Operating expenses in the fourth quarter of 2025 and were $6.7 million, a decrease of 12% compared with $7.7 million in the same period of last year. On an annual basis, operating expenses decreased 18% to $25.2 million for the full year of 2025, a decrease of $5.4 million compared with operating expenses of $30.6 million in the full year of 2024. Expense reduction remains a key strategic priority and we're pleased with the progress achieved in 2025. Total operating loss for the fourth quarter was $4.5 million, consistent with the fourth quarter of 2024. Net loss for the fourth quarter was $12.6 million compared to a net loss of $6.6 million in the fourth quarter of last year. This year's quarterly net loss included nonoperational financing-related costs of $7.4 million. Adjusted EBITDA for the fourth quarter of this year was a loss of $3.6 million compared with adjusted EBITDA loss of $3.4 million in the fourth quarter of last year. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $700,000 compared to $1.4 million at the end of last year. Total cash plus our accounts receivable balance as of December 31, 2025, was $3.9 million compared to $6.4 million at the end of last year. Throughout the quarter and the year, we've taken several steps to enhance our balance sheet. [Technical Difficulty] Operator: Ladies and gentlemen, please stand by while we work through our technical difficulties. Ladies and gentlemen, thank you for your patience. We are now reconnected. Ms. Diaz, you may continue. Diana Diaz: Okay. Thank you. Adjusted EBITDA for the fourth quarter was a loss of $3.6 million compared with adjusted EBITDA loss of $3.4 million in the fourth quarter of last year. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $700,000 compared to $1.4 million as of the end of last year. total cash plus our accounts receivable balance at the end of December 31, 2025, was $3.9 million compared to $6.4 million at the end of last year. Throughout the quarter and the year, we've taken several steps to enhance our balance sheet, our capital structure and our access to capital. In the third quarter of 2025, we announced the issuance of $25 million of a new series of convertible preferred stock through the conversion of a portion of existing debt into the new class of perpetual convertible preferred stock. In the fourth quarter, we issued an additional $10 million of Series A preferred stock and expanded our equity reserve facility by 50 million shares or $100 million. We raised a total of $7.3 million through the equity reserve facility in 2025. And on December 30, 2025, our Board of Directors and shareholders approved a 55:1 reverse stock split of all classes of our common stock which was implemented on January 8, 2026. With that said, earlier today, we filed an 8-K to disclose a receipt of a listing deficiency notice from Nasdaq regarding our stockholders' equity as of December 31, 2025, as reported in our Form 10-K, which we filed last week. We're working closely with our team and advisers on next steps intended to bring us back into compliance, and we will provide material updates as they become available to us. As we said before, our Nasdaq listing is a key asset that provides heightened visibility among institutional investors, which is foundational to our go-forward strategy to build and maintain a strengthened investor base. We will continue to prioritize our listing on Nasdaq and evaluate and take the necessary steps to preserve our status. And now I'd like to turn it over to Mark for some closing comments. Mark Walker: Thank you, Diana, and thank you to everyone for joining. We appreciate your interest in Direct Digital Holdings. I would like to now open the call for questions. Operator, please open the line. Operator: [Operator Instructions] And our first question comes from the line of Dan Kurnos with Benchmark, a StoneX company. Daniel Kurnos: I guess, I'll keep it quick here and just ask how should we think about the sell-side at this point, wind down, deemphasized, utilize your data? And then subsequently, on the buy-side, as you guys pivot, just curious, as you think about channel expansion, COGS was up. You mentioned kind of your key priority categories was the specific categories, travel, the primary driver? Were there some ancillary categories that added? And just how do we think about your ability to scale up from the current base level based on the Q4 results. Mark Walker: Yes. Good question. Yes, twofold. One, the way we think of the sell-side business is really is a margin capture opportunity. As we've talked about before, we have moved more towards a unified structure where we leverage as much and try to run as much as we can of the buy-side demand dollars into our sell-side platform to the benefit of our customers. So I would view it as more of a margin capture strategy, which helps us capture an extra 20% to our bottom line with more -- that flows through there. As it relates to how should we think about expansion and growth and growth accelerants, the expansion into new verticals is important to us. So as you know, Dan, since you've been following us for a while, the DMO/travel tourism space or regional and local travel tourism space is important to us, definitely a strong segment that we're continuing to see growth and opportunity there. In addition to that, the education space has been strong for us with some of the educational clients that we've brought into the fold. The third that we have had a heavy focus in is the energy sector, which is a new category that's helped us grow. We believe with the headwinds of the macroeconomic view that, that mix is a stable mix for our company and is 1 that we're going to continue to expand and lean into on a go forward. In addition, for growth strategy, we're also exploring inorganic opportunities on the demand side of the business where we feel like we have a real opportunity to add on new verticals. Daniel Kurnos: And just, I guess, as we think about new sources of revenue, obviously, right now, the space is super focused on the buy-side anyway on getting away from sort of the legacy DB Plus focused on CTV. You've got a bunch of DSPs focused on trying to drive dollars away from social and SMB is a huge talking point. You clearly have a lot of regional and smaller buyers. I understand you're not a DSP yourself, but I mean that seems to be where the buy-side is focused. I wonder if you guys can kind of tap into the trends that are going on in the space right now? Mark Walker: No. I think we've been ahead of the trend in the mid-market space. I think you're starting to see more and more players. As you know, some of the larger guys starting to move down into the mid-market space where we have a strong foothold, specifically in those Tier 2, Tier 3 media markets. So we're going to continue to expand there. We think that the opportunity we have, which allows us some flexibility as the opportunity to do that organically, which we've historically have proven that we can do. And I think we also are looking at inorganic opportunities that add different regions into our mix as well. We do believe that similar to what other people are saying, yes, we think that the fact that we're able to service social as well as programmatic is important to us, and we're going to continue to focus in on both of those. Operator: And our next question comes from the line of Michael Kupinski with NOBLE Capital Markets. Michael Kupinski: First of all, congratulations on seeing the acceleration in the buy-side revenue. That's very encouraging. I was just wondering if you can just break down the sustainability of that 28% buy-side growth in Q4? You mentioned that it was driven by new customers and expansion with existing accounts. I was just wondering if you can just share with us how much was driven by the new customers versus the existing accounts? Mark Walker: Yes. In regards to new customers, I don't have that number off the top of my head on the specific percentage. But I can say that what we are seeing is with the new mix of customers that we have brought in, specifically in the energy sector, it is helping to change our typical curve that we have seen where we used to have the tail off between 3 and 4. Now we're seeing where it's starting to maintain within quarters 3 and 4. And so we anticipate that we're going to see that same type of curve within 2026. And that's really driven mostly from new customers that we brought into the fold for us. Diana Diaz: And just to clarify, Michael, the fourth quarter included $1.7 million from customers in new verticals. And for the year, we had -- hold on to that number. But that was the fourth quarter was $1.7 million. It was about $7 million for new customers for the year. Michael Kupinski: For this year. That's terrific. And then how scalable is the current buy-side platform? And is there -- are there any bottlenecks to see some acceleration in the growth there? If I know you've main seeing some pretty decent margins there. I'm just wondering how sustainable those are? Mark Walker: Yes. So we're -- as we said before, we have actually more cost saving measures that are going to come into fold that we should see the benefit in Q2, which we're looking forward to, to help expand our margins some. We do believe that the buy-side still has more upside growth potential for us in regards to the expansion on current customers and the growth that we're seeing from them and then also new customers that we're bringing into the fold. So do we think we can maintain a trend? Yes, we think Q1 is going to be positive growth as well. And we still hold to on an annualize basis of 10% growth over year-over-year is what we're focused in on. Michael Kupinski: Got you. And then in terms of the traction or KPIs, can you kind of give us share us your thoughts about ignitions in the AI platform since its launch? If you can just give us some sense of what KPIs are you looking at there? Mark Walker: Yes. We're looking for large enterprise customers that we could bring in specifically under that program. We view it as more sizable, larger than our current average revenue per customer that we bring in on that, and we run test pilots within 2025 that we're hoping to come in fruition as full blown customers within 2026. The KPIs that we look for there are going to be larger spend ratios that come from them at a more shared margin opportunity for them due to the transparency. Michael Kupinski: Got you. And then you were speaking about inorganic growth going back to the buy-side, what kind of verticals are you looking at that would be interesting to you to add beyond the current scope of what you currently have in your verticals? Mark Walker: Health care is 1 that we're definitely have a keen eye on as well as some CPG to move us more in the retail space on those verticals as well. And then financial services, banking services is the other one. Michael Kupinski: Got you. And then you said that you're taking additional steps to reduce costs. Can you kind of just talk us through about what those additional steps might be? And if there's a dollar amount you might be able to put around that? Mark Walker: Yes. Diana, would you like to take that one? Diana Diaz: Sure. So some of the cost reductions that we're looking at had been historically on the sell-side, and we have some contracts that are winding down in that business that we think we can live without. And so that's the bulk of it, it's probably starting in the second quarter about $0.5 million a quarter reduction. Operator: And that concludes our question-and-answer session. I would like to now turn the conference back over to Mr. Mark Walker for closing remarks. Mark Walker: Thank you. That concludes our conference call for today. Thank you for participating. You may now disconnect. Operator: Ladies and gentlemen, once again, this concludes today's call. We thank you for your participation, and you may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Levi Strauss & Co. First Quarter Fiscal 2026 Earnings Conference Call for the period ending March 1, 2026. [Operator Instructions] This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company. This conference call is being broadcast over the Internet and a replay of the webcast will be accessible for 1 quarter on the company's website, levistrauss.com. I would now like to turn the call over to Aida Orphan, Vice President of Investor Relations at Levi Strauss & Co. Aida Orphan: Thank you for joining us on the call today to discuss the results for our first quarter of fiscal 2026. Joining me on today's call are Michelle Gass, our President and CEO; and Harmit Singh, our Chief Financial and Growth Officer. We'd like to remind you that we will be making forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in our reports filed with the SEC. We assume no obligation to update any of these forward-looking statements. Additionally, during this call, we will discuss certain non-GAAP financial measures, which are not intended to be a substitute for our GAAP results. Definitions of these measures and reconciliations to their most comparable GAAP measures are included in our earnings release available on the IR section of our website, investors.levistrauss.com. Please note that Michelle and Harmit will be referencing organic net revenues or constant currency numbers, unless otherwise noted, and the information provided is based on continuing operations. Finally, this call is being webcast on our IR website, and a replay of this call will be available on the website shortly. Today's call is scheduled for 1 hour, so please limit yourself to 1 question at a time to allow others to have their questions addressed. And now I'd like to turn the call over to Michelle. Michelle Gass: Thank you, and welcome, everyone, to today's call. I'm pleased to share that 2026 is off to a strong start. In Q1, we exceeded expectations across the top and bottom line, driven by every region and channel, underscoring the continued momentum of our strategies. As we've highlighted over the past few years, the strategic choices we have made to narrow our focus and maximize the potential of the Levi's brand are enabling us to pursue our highest return growth opportunities. We are becoming a more DTC-first denim lifestyle company, and it is leading to more consistent and faster growth, a much larger addressable market and higher profitability. Today, we're operating from a stronger foundation. We're executing with intention, and we have more ways to win than ever before. Before I turn to our Q1 results, I want to briefly note a leadership update. Earlier today, we announced that after a planned transition, Harmit will retire following 13 years with LS&Co. Harmit has been an exceptional partner and leader playing a central role in strengthening our financial foundation as we've accelerated growth, expanded margins and evolved into a more diversified direct-to-consumer business. The disciplined systems and high-caliber finance organization he built have positioned us well for long-term success. We've initiated a comprehensive search for our next CFO with the support of a leading executive search firm, and Harmit will continue to serve in his role until a successor is appointed. He will remain for a planned transition as an adviser to ensure continuity. Given the strength of our leadership team and the momentum in the business, we are confident in a seamless transition and remain firmly focused on executing our strategy and delivering sustainable profitable growth. Let's now turn to the details of the quarter. As a reminder, all numbers Harmit and I will reference are on an organic basis. We generated another quarter of high single-digit organic net revenue growth, up 9% and up 14% on a reported basis. We delivered double-digit top line growth in both Europe and Asia, and 7% growth in the Americas. We drove 10% growth in the DTC channel with comp sales up 7%, reflecting strong underlying demand. Our wholesale channel exceeded expectations, delivering 8% growth, fueled by strength across segments. Growth in women's continued to accelerate, up 13% in addition to 7% growth in men's. Our evolution into a head-to-toe lifestyle brand is fueling accelerated growth in tops, up 13%. And while we drove significant top line growth, we also exceeded our adjusted EBIT margin expectations and delivered double-digit earnings growth in the quarter. This strong early performance gives us confidence to take up our full year guidance. I'll now walk you through highlights from the quarter in the context of our strategies. Let's start with our first strategy, being brand-led. The Levi's brand was up 9% for the quarter as we continue to keep the brand firmly at the center of culture. Few brands can authentically play across so many facets of culture, sports, fashion and music in a way Levi's consistently does, and this was on full display during the Super Bowl. Leading up to the game, we turned the Bay Area into Levi's Home Turf with a full 360-degree activation, including exclusive product drops and live music as well as hands-on workshops and in-store celebrity and athlete engagements. We also launched a number of exciting collaborations, including a new Nike apparel capsule, and denim Nike Air Jordan 3s. We extended that energy during the game itself, launching our new global campaign, Behind Every Original, designed to unfold in chapters throughout the year. Premiering during one of the most watched moments of the Super Bowl, early results have been very encouraging, with strong awareness, brand equity lists and more than 1.4 billion media impressions generated in February alone. Featuring global brand ambassadors, Doechii, Questlove, BLACKPINK's ROSE and basketball superstar, SGA, the campaign has been recognized among the top Super Bowl ads by outlets, including Forbes, Ad Age and Fast Company. Building on the strong momentum from our campaign, we announced a multiyear global partnership with Rose, including new co-created pieces that will come to market later this year. And a prime example of Levi's showing up organically at the center of culture is Harry Styles wearing a pair of vintage 501s on his new album cover and his backup dancers, all wore 501s on stage at the BRIT Awards in February. Now turning to product where we continue to see strong growth in men's and women's and across tops and bottoms, fueled by innovation and execution. First, let's start with our bottoms business, which was up 7%. We're infusing newness across the assortment with innovative fabrics, fits and finishes throughout both our icons and fashion styles. Within core bottoms, we continue to introduce modern interpretations of our iconic 501 like our very popular 501 '90s and 501 Curve for her. And for him, the 501 Loose and 501 Thermodapt, our new climate adapting fabric innovation. Another great example of the organic strength of our core is the 25% increase in our iconic 517s, which were famously worn by Carolyn Bessette and prominently featured in the popular show Love Story. Our newer fashion forward fits across loose and baggy styles continue to deliver outsized performance. We're following the tremendously successful launch of last year's women's Cinch Baggy with an expanded assortment of Cinch Wide Leg, Barrel, Shorts and more. And for men, we introduced a new Baggy Barrel Fit, which continues to drive fashion relevance for him. Our push into categories beyond denim bottoms has expanded our total addressable market and contributed to roughly 1/4 of our top line growth with still much more opportunity ahead. Tops continue to be an important growth driver as we build out a more complete lifestyle offering. In men's, we saw continued success in polos, button downs and our newly launched quarter zips. And in women's tops, wovens, blouses and sweaters were standouts, along with our expanded selection of tees. Dresses also continued to perform well as a natural extension of our lifestyle strategy. We've sharpened our product strategy by shifting toward a more globally directive assortment. In our DTC business, we've increased product commonality to nearly 50% today. This shift has driven greater productivity through SKU reduction and enabled us to focus on fewer, bigger product stories showcasing our head-to-toe collections. As a result, we're showing up globally with more impact and consistency and with clear storytelling and stronger alignment across markets. A great example of this was the Q1 global launch of our head-to-toe Grunge Prep collection. This new aesthetic combines preppy tops like cable crew neck sweaters and rugby tees, with worn-in, grunge-textured bottoms, a cross-fit like our 578 Loose and Baggy Loose cargo pants. Blue Tab, which is the most premium expression of the Levi's brand, delivered robust growth in Q1, reinforcing our confidence in this business. We expanded the assortment, adding more women's product and lifestyle pieces while maintaining a solid foundation in premium denim. With just 1% market share of the $10 billion total premium denim market, this represents a sizable long-term opportunity for the Levi's brand. As we look to spring and summer, our global product assortment will continue to deliver against our big ideas with a unified lens. We will build on the momentum we're seeing today by expanding lightweight and linen-blend product across tops, dresses and bottoms, while also leaning into shorts, jorts and other warm weather lifestyle pieces. Now shifting to our strategy to become a best-in-class DTC-first retailer. Our global direct-to-consumer business delivered double-digit growth, up 10% in Q1. Comparable sales were up 7% this quarter on top of high single-digit growth last year. This marked our 16th consecutive quarter of positive comps as we continue to raise the bar on our retail execution. We've strengthened lifestyle merchandising and outfitting in stores, improved in-stock positions through better assortment planning and invested in training our teams with a new global selling model. In the quarter, e-commerce delivered 17% growth reflecting continued momentum as we elevate the online experience. Digital plays an important role in how consumers discover the brand and build a deeper connection with Levi's. Importantly, newer consumers engaging with us through e-commerce continue to skew younger. In Q1, 70% of new U.S. e-commerce orders came from Gen Z and millennials. This reflects our ability to connect with younger consumers as they enter the category, driven by product newness, lifestyle-led storytelling and a more dynamic digital experience. Our loyalty program also continues to be a powerful driver of consumer engagement, reaching 46 million members globally, up 17% year-over-year with more than 2 million new members added in the first quarter. Loyalty members spend about 40% more with higher transaction values and purchase frequency than nonmembers. Global wholesale continues to be an important part of our business to reach consumers around the world. Results this quarter were better than expected, up 8%, driven by strength across segments. The growth in wholesale reflects the momentum behind our lifestyle assortment, the strength of our partnerships and our commitment to reaching Levi's fans wherever they choose to shop. Now turning to our third strategy, powering the portfolio. Our international markets continue to demonstrate strong momentum, up 12%. Europe grew 10% in Q1 with growth across most major markets. Having recently visited stores across Europe, I got to see firsthand how strongly consumers are responding to our elevated denim lifestyle assortment. One of the markets I visited was Italy, which plays a unique role as a premium halo for Levi's across Europe, shaping brand perception well beyond its borders. As a global center of fashion and culture, we have elevated our presence in the market and revenues in Italy have nearly doubled since 2021. Importantly, we have continued to strengthen our #1 share in denim bottoms across both men's and women's in this market. In Q1, our value brand Signature grew 16%, reflecting impressive performance in women's. Over the past year, we have revitalized Signature through a product and brand reset, introducing compelling newness and expanding into lifestyle categories. This is translating into share gains for the brand within key wholesale accounts, a clear signal that the revitalization is resonating with consumers. Beyond Yoga was up 23% with DTC continuing to show solid momentum. The brand expands our addressable market into premium activewear, complementing our denim lifestyle portfolio. Our recently launched Seek Beyond marketing campaign and broader product offerings are gaining traction with consumers and fueling growth. While we continue to invest in the business, our operating loss narrowed in the quarter, driven by strong top line growth and gross margin expansion, reinforcing our path toward profitability. In closing, the quarter reinforces the significant progress we're making against our strategies. We're seeing the impact of becoming a more brand-led consumer-centric DTC-first lifestyle company with broad-based strength across our business. The work we've done to sharpen our focus, elevate the Levi's brand and operate with greater discipline is translating into higher quality, more profitable growth, while building a stronger foundation for the business. While we remain thoughtful about the external environment, we're confident in the direction we're headed as we move through the year and beyond. With that, I'll turn it over to Harmit to walk through the financials and our outlook. Harmit? Harmit Singh: Thank you, Michelle. I wanted to take a moment to speak about the announcement we made earlier today. After 13 years with the company, I will retire following a planned transition. This company and our people have meant the world to me, and it's been a true privilege to work alongside Michelle, our Board and all our shareholders and the extraordinary leadership team as we have transformed this company into a more diversified global direct-to-consumer business. I'm incredibly proud of what we've built together, from accelerating our growth, transforming the company into a DTC-first retailer while expanding margins and returns. What gives me the greatest confidence as I look ahead is the strength of my team and the deep talent we put in place. I'm so grateful for the support of me and the company. I'll remain fully engaged as CFO and Chief Growth Officer until a successor is appointed and stay for a planned transition. LS&Co. is stronger than ever and I have every confidence in the company's continued momentum and ability to deliver long-term profitable growth. Let's turn to quarter 1. We delivered another strong quarter, marked by high-quality, broad-based growth and stronger-than-expected profitability. Our first quarter results reflect the power of the end. While our top line outperformance this quarter was driven primarily by better-than-expected wholesale performance, DTC remained healthy. More broadly, every facet of our business has contributed to growth over the past 6 quarters, wholesale and DTC, U.S. and international, women's and men's, tops and bottoms, units and AUR. Our focus on improving flow through that is converting a higher percentage of revenue into profit enable us to exceed our adjusted EBIT margin expectations and deliver higher earnings. As planned, we leaned into A&P earlier in the year to support the launch of our '26 global campaign. Normalizing for this timing, adjusted EBIT margin of 12.5% would improve 160 basis points to 14.1%. While we continue to take a prudent approach to planning for the balance of the year, our strong first quarter results and positive quarter-to-date trends position us to raise our expectations for revenue, margins, both gross and adjusted EBIT margins as well as adjusted diluted EPS. Turning to the details of the quarter. Net revenues were up 9%, with broad-based strength across all segments and channels. Our international business contributed to about 75% of our growth. Women's accounted for approximately 55% of total growth. DTC accounted for just over half the growth. By category, tops drove roughly 1/3 of our growth in this quarter and growth was driven equally by higher volumes and higher AUR. Given the ramp-up of our distribution center in Europe last year, shipments moved from quarter 1 to quarter 2. As a result, quarter 1 '26 revenue growth benefited by approximately $30 million or about 2 percentage points. This will have an offsetting impact in quarter 2. Excluding this timing shift, quarter 1 still delivered high single-digit growth. I'll address the impact on quarter 2 in our guidance. Gross margin for quarter 1 was 61.9%, slightly better than external expectations, contracting 20 basis points year-over-year, primarily due to tariffs. The decline in gross margin was partially offset by pricing actions and lower promotional activity. We continue to closely monitor the consumer response to pricing actions and to date, we have not seen an impact on demand. From an input cost perspective, we have locked in ocean freight rates and secured cotton at favorable levels for 2026. Adjusted SG&A grew 16%, driven by higher A&P, the higher-than-expected sales volume and foreign exchange. Excluding the 160-basis points impact of A&P, we delivered 90 basis points of leverage across the balance of the business. We still expect marketing as a percentage of sales to be approximately flat year-over-year at around 7%. Improving flow-through remains a key priority, and we are taking deliberate actions to deliver it. Across the organization, we are leveraging our global talent hubs and accelerating productivity through expanded AI initiatives, allowing us to support our growing business while keeping overall head count flat year-over-year. At our recent leadership summit, we aligned our top 250 leaders around tighter SG&A discipline and a sharper focus on converting top line growth into consistent profitability. And importantly, our leadership team's incentives are directly aligned with driving both revenue growth and profitability. With respect to the status of the U.S. distribution network transformation, execution continues to progress and notably, distribution expenses versus prior year improved as a percentage of revenue. We are working towards completing the transition by midyear and costs we expect to incur are factored into our updated guide. Longer term, this transition positions our network to support omnichannel growth and drive efficiency. Adjusted EBIT margin was 12.5% in the quarter. Excluding the A&P investment, adjusted EBIT margin would have been 14.1%, substantially higher than last year and reflecting flow-through of approximately 40% from the higher revenue. Adjusted diluted EPS was $0.42, ahead of our expectation and up 11%. We ended the quarter with reported inventory dollars up 4%. We're comfortable with the quantity and quality of our inventory as we enter the spring season. Turning to shareholder returns. We took another important step forward this quarter with the successful closing of the Dockers transaction, which further simplifies our portfolio and sharpens our focus on the Levi's brand and Beyond Yoga. Our adjusted free cash flow in quarter 1 '26 was also substantially higher than last year at $152 million. This along with the net proceeds from Dockers' sale enabled us to return cash to shareholders through share repurchases. In total for the quarter, shareholder returns were up 163% to $214 million. In quarter 2, we declared a dividend of $0.14 per share, an increase of 8% year-over-year. Now let's review the key highlights by segment. The Americas net revenues were up 7%, driven by 4% growth in the U.S. and 14% growth in LatAm. This was fueled by strength across DTC and wholesale channels. U.S. wholesale was up this quarter even with our actions to rationalize certain customers. The acceleration in LatAm was driven by double-digit growth across every market, including Mexico. Operating margin contracted 260 basis points due to the timing of A&P and the impact of tariffs. Europe grew 10% with solid demand and strength across markets and channels as consumers continue to gravitate towards our head-to-toe offerings. Operating margin expanded 50 basis points, driven by gross margin expansion. Given the distribution transition we are lapping in Q1 and Q2 of '25, it is best to look at Europe on an H1 basis. We expect Europe to grow mid-single digit in the first half of the year, consistent with our guidance for the segment. And importantly, prebook for the fall and winter season is up high single digits. Asia grew 12%, fueled by growth across both channels, led by DTC, which was up 16%. Key markets like India, Japan, Korea and Turkey delivered strong results across channels and categories. China was also positive, reflecting early progress and green shoots under new leadership as actions to reset the business begin to take hold. Gross margin expansion and SG&A leverage drove 150 basis points of operating margin expansion. The Middle East, which is part of our Asia segment, represents about 0.5 point of total company revenues and is mostly operated as a distributor model. Now turning to guidance. '26 is off to a strong start. And as a result, we're raising our outlook across revenue, margin and earnings while maintaining a prudent view on the macro environment. As a reminder, our guidance assumes incremental U.S. tariffs on imports from China at a 30% rate, and the rest of the world at 20% and therefore, does not contemplate the recently announced Supreme Court ruling or the administration's effort to reimpose the tariffs. While this has not been incorporated into our guidance, if the 10% tariffs currently being charged stay in place for the rest of this fiscal year, we believe there could be an incremental benefit to our current outlook of approximately $35 million to COGS and $0.07 to EPS. For the full year, we are raising our expectations for both reported and organic net revenue growth by 0.5 point. We reported growth to be up 5.5% to 6.5% and organic revenue to be up 4.5% to 5.5% for the full year. The increase in our top line expectation is due to stronger-than-expected performance in the U.S. wholesale channel, and we now expect global wholesale to be up low single digits. Gross margin is now expected to be flat to slightly up versus our prior expectation of flat to prior year. Adjusted EBIT margin is now expected to be approximately 12%, up from our previous expectation of 11.8% to 12%. And we now expect adjusted diluted EPS of approximately $1.42 to $1.48, up from $1.40 to $1.46. For quarter 2, we expect reported revenues to be up 4% to 5% for the quarter and organic up 3% to 4%. As I previously mentioned, growth in quarter 2 would have been higher by approximately 2 points due to the timing of last year's distribution transition, which reinforces that there is no change in underlying demand trends between quarter 1 and quarter 2. Gross margin is expected to be slightly down due to unfavorable foreign exchange. We expect to fully offset the impact of tariffs through our various mitigation efforts. Adjusted EBIT margin is expected to be in the range of 8% to 9%. This translates to an adjusted diluted EPS of approximately $0.22 to $0.24. Let me provide some color on the margin cadence of our full year outlook. Given our Q1 results and Q2 guidance, we expect H1 EBIT margins to be in the range of 10% to 11%, and we expect accelerated margin expansion in the second half year, driven primarily by 4 factors. First, the normalization of A&P effectively pulling 1 point of A&P out of H2 into H1, behind the launch of our campaign, which was primarily expensed in H1. Two, given the seasonality of our business, which is weighted more towards the second half, the incremental volume drives higher fixed cost leverage. Three, we will begin to realize the full benefits of our pricing actions, which had not yet been implemented in H2 of last year. Fourth, lower distribution expenses as we ramp down the parallel distribution center. This positions us for H2 EBIT margins to be in the 13% to 14% range, consistent with our full year guide of approximately 12%. In summary, we delivered our sixth consecutive quarter of mid- to high single-digit growth, driven by both our wholesale and DTC channels. DTC now represents about half our business and continues to be a significant growth driver. We reported 16 consecutive quarters of comp sales growth. And as you saw in this quarter's press release, we reported comp growth of 7%. We will continue to report comp sales as part of our regular disclosures. We raised guidance, reflecting our momentum and execution against our strategies while maintaining a disciplined, balanced approach to the full year. Michelle, I and the entire executive team are committed to flowing a higher percentage of revenue to profitability, solidifying a clear path towards a 15% EBIT margin over time. And with that, I will now open up the line for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Laurent Vasilescu of BNP Paribas. Laurent Vasilescu: Michelle, Harmit, congrats on a great start to the year. And Harmit, I want to quickly say, it's been a real pleasure working with you over the last few years. So Michelle, can you talk about what's driving the momentum in the business and how confident you are in sustaining that momentum, particularly with the uncertain macro backdrop in Europe and North America, which I think everyone is really laser-focused on. And then Harmit on SG&A, thank you for unpacking a little bit on the SG&A growth of up 16%. I saw in your 10-Q tonight, distribution expenses actually went down for the first time. How should we think about these distribution expenses and overall expenses for the balance of the year to get to that 1H, 2H operating margin that you laid out? Michelle Gass: Thanks, Laurent, and thanks for the questions. So I'll kick it off, and I'll hand it over to Harmit. So first off, we're really pleased to start the year so strong with, of course, a beat on the top and bottom line. But the 9% organic growth, 14%, it was high quality and directly linked to the execution of our strategy. We saw the growth broad-based across segments, channels, genders and categories. And just to share, like if we take our -- one of our key strategies, which is this pivot to denim lifestyle, we saw outperformance in the women's business, up 13%. We saw outperformance in tops, up 13%, which really demonstrates that we can grow our addressable market. And while we did this, call it the core of our business in men's and bottoms, both feel really strong at plus 7%. So strategy number one. Second strategy on this, we are becoming a best-in-class DTC retailer. DTC is continuing to fuel the growth. It was up 10%, 7% comp growth. We're very pleased to start sharing that number, and our wholesale business grew as well at up 8%. So again, this is about execution. And as we look ahead, we see a lot of runway ahead to the second part of your question, in terms of sustaining the momentum. It's the cause and effect on executing our strategies and the consumer is responding. We are very cognizant of the environment around us. But our consumer is responding to innovation, newness and Levi's as a great value. So we'll stay close. But given what we're seeing in the business and how we started this quarter, we feel very confident and hence, why we were confident enough to raise our guidance for the year. Harmit Singh: And Laurent, to your second question, first, I appreciate your remarks. I still have a job to do. We still have to deliver the year. So I'm around for a while. But to your question on SG&A, in essence, SG&A as a percentage of revenue was a little over 49%. We expect to deliver the year with SG&A as a percentage of revenue around mid- to high 49%, lower than a year ago. Just unpacking this quarter, let's start with SG&A was up 16%. A&P was -- the timing of A&P because we are assuming that we spend only 7% of revenue by the end of the year was approximately 5% of that 16% increase. Foreign exchange, it's interesting because of our global business when the U.S. dollar is weaker, which we have seen over the last couple of months, actually it's when you convert that into dollars, it impacts SG&A. That's about 4 to 5 points. And the remaining 7 points was largely driven by volume, were driven by a little bit of inflation. And what we call as we expand DTC, we continue to open doors. So overall SG&A, we believe will continue to improve as a percentage of revenue. The other thing that we -- because we've taken this to heart, which is we have to convert a higher percentage of revenue to profitability. And I shared with all of you what we are doing as a team, bringing the 250 leaders together, talking about why flow-through is important and how that acceleration of growth along with profitability really enhances and creates a lot of value for all our stakeholders. Operator: Our next question comes from the line of Oliver Chen of TD Cowen. Oliver Chen: Harmit, congrats on a really wonderful career. Regarding the guidance, it seems conservative given the 2-year stacks decelerate, and you've been posting better and solid numbers. Why wasn't the guidance higher in terms of the momentum you're seeing? And the U.S. wholesale, which parts of that business were better than expected? And do you expect that momentum to continue? And as we look forward on the -- go ahead. Harmit Singh: No, no. Oliver, go ahead. Oliver Chen: As we look forward on the margin side, what should we know about mix as you continue to make so much lifestyle progress and/or what's embedded for promotions because it's not an easy environment out there, but you're experiencing a lot of innovation and gas is on everyone's mind on a near-term basis as well. Harmit Singh: Sure. Oliver, 2 things is early in the year, we have a sizable beat. And while we haven't seen, even in quarter-to-date trends, any real change in trends. Our view is that be prudent in the outlook as we think forward. So that's really what's driving what we call a more prudent outlook. The only other thing to think about is we haven't incorporated the reduction in tariffs, which may come to pass at some stage, right? We've quantified it, but we haven't incorporated that. That gives us what I call contingency of cushion, should the environment change in any dramatic way. And so that's how we are thinking about it. The real focus of the company, as Michelle pointed out, is to continue the momentum on the top line while converting a higher piece of that revenue into profitability. We have taken gross margins up for the year from what we said flat to slightly up because we think we can fully offset the 19% increase in tariffs. We have taken EBIT margins up to the high end of the range, and we've taken EPS. So we feel generally positive from that perspective. In terms of your mix, so your question about wholesale, what really drove the beat on wholesale. And it is true that 2/3 of the beat was largely driven by wholesale and it was largely in the U.S. and Europe. And the outperformance was really -- we're beginning to see what is showing up in DTC by driving denim lifestyle now get incorporated by our partners buying more women's. Women's growth in wholesale was really strong. They're buying more tops, that's making a difference. And the good news is there's still a balance between units and AURs even in wholesale. So I think that's been the, I would say, the thought, which is start with DTC, prove it out and then showcase that so that your partners buy. And I think we're beginning to see it and it's still fairly underpenetrated. Women's in wholesale is underpenetrated. Tops in wholesale is underpenetrated. And so I think those are the factors that really, I think from our perspective, we believe there's a long runway for growth, a $6.5 billion company getting to $10 billion over time. Oliver Chen: And Michelle, one for you. Just what's ahead on your thoughts on denim momentum? Because one question is if we're at a peak place in the denim cycle, but you're doing a lot and things are changing with baggy and head-to-toe. And as you embrace loyalty, the loyalty program in AI and personalization, how might you see that manifesting and what's happening with innovation. Thank you. Best regards. Michelle Gass: You bet. I'll hit those quickly. The denim category remains healthy. It's actually accelerating here in the U.S. It's outperforming overall apparel. Clearly, as the leader in the category, we are fueling that growth through all the innovation and fashion cycles we're bringing. So we sit here today, again, we've contemplated that in our guide that we expect the momentum to our strategy is to continue. And loyalty, AI, our e-commerce business, again, up double digit, and we are now leveraging AI tools to help that consumer engagement. Loyalty, again, as we shared in our remarks, is up, again, acquired 2 million consumers in the quarter. Operator: Our next question comes from the line of Ike Boruchow of Wells Fargo. Irwin Boruchow: Congrats, Harmit, we'll miss you. But a question for you -- actually, 2 questions for you, Harmit. Can you just clarify the commentary on Europe in the second quarter. So you're basically guiding Europe organic -- constant currency revenue flat in the second quarter. Can you just quantify the wholesale, the dollars that moved into 1Q that are moving out of 2Q just so we can smooth that out. And then to Laurent's question on the DC side. What's your expectation for the remainder of the year? You're already getting scale on that line item? And it feels like a lot of the initiatives haven't really kicked in yet that should drive leverage. Just what's the expectation for leverage on that line item for the rest of the year? And then how quickly could you potentially get that line item back to 5% of sales? Is that 4 to 5 years? Or is that more like 2 to 3 years? Harmit Singh: Okay. So to answer your first question, which is Europe, I quantified it. It's about $30 million and is primarily wholesale. And so you can do the math, but that's really what -- and you're right, Europe up 10%, primarily flat in quarter 2. But for the first half, about mid-single digit. We're guiding Europe to be mid-single digit. The other pleasing fact in Europe is that our prebook for fall and winter is looking at approximately high single digits. We're feeling good about the Europe business. The team in Europe is executing really well. And so that's really what's driving the -- that's the amount, and that's what's driving the shift. To your question about the transition of the DC, I mean just think of this broadly, I would say Europe transition that began about 1.5 years ago has stabilized. You're seeing it in their results. We're doing more omnichannel fulfillment and that's making a difference. It took us a little while, but distribution costs in Europe now are scaling down as a percentage really well. U.S., we continue to be committed to reducing the transition cost as the year progresses, and we'll do it in a way where we prioritize the incremental demand that we are seeing with the costs incurred because we have seen volumes really pick up and fulfilling that has been great. As I mentioned earlier, we continue to expect the cost of additional DC to taper off as the year progresses beginning in the second half and our DC that is being run by Merck -- by Maersk really stabilized. So to your question about when do we get to 5% distribution cost as a percentage, I won't comment on the timing, but what I will say is our new supply chain leader and the new distribution experts that we've got are committed to improve both the flow-through, so we drive higher volume throughput as well as lower cost over time and built into our plan is to get from 12% to 15%. So we are committed as an organization. It's a big piece of what we are focused on. So stay tuned. Operator: Our next question comes from the line of Jay Sole of UBS. Jay Sole: Maybe, Michelle, can you just talk a little bit more about what you're seeing in the U.S.? And I think you mentioned quarter-to-date was good. We've been through Easter, how it's been? And then also, it sounds like the Super Bowl was a big event for Levi's. But I think Levi's Stadium is hosting 6 games for the World Cup this quarter. Are there plans around that? Will that impact SG&A? And what -- how should we think about that opportunity? Michelle Gass: Yes, you bet. Thanks, Jay. So first, I'll take your question on the U.S. Pleased with the start of the year in the U.S. as well. We were up 4% in the quarter, and we saw both channels performing well. This quarter, especially reflecting the strong execution that we're seeing, both in our DTC channel, strength in stores and online, driven by enhanced merchandising, we're doing expanded lifestyle assortment, and I'll get you the marketing campaign in just a minute. But clearly, it was a very unique way to start the year. We're very pleased with that. And U.S. wholesale was up this quarter, again, very strong performance with our customers. And to make note, not only in Levi's Red Tab, but in our Signature brand, our value brand, that was up 16% in the quarter. So one of the things that we've really moved to with the whole opportunity to amplify the power of the Levi's brand is to segment. So you've got your core Red Tab, which is a core of our business. You have Signature, which is accelerating. They're bringing a lot of newness and relevance to that consumer, to that value-conscious consumer. And then, of course, on the high end, early stages with Blue Tab, but we're seeing nice consumer reception. And that new business was up 40% in the quarter. So we're obviously staying close to the dynamics in the macro environment. But in terms of our consumer, we're seeing a lot of resilience there. And then to your point on the Super Bowl, I mean, we couldn't be more pleased with how our launch of our new brand campaign resulted. So we had a very unique opportunity with Levi's Stadium hosting the Super Bowl. So we were on the world stage center of culture. We leaned in. We launched our new campaign. It was the first time in 20 years. It got watched in the peak of the watch of the Super Bowl, 1.4 billion impressions. We have measured that. We've got a great return on it. And really, this is about the launch for the year. So it's a formula that works for us, tapping into global and local influencers, and we will continue to activate against sports and music. So to your point on World Cup, we do have plans for that throughout the year as well as music collaborations. And all of that is baked into our plan, which takes us to 7% for the year in terms of spend. So call it the peak of our spend was actually in the first quarter. That normalizes as we go through the balance of the year. We're seeing the results. We're getting a nice tailwind from all the brand activations. Operator: Our next question comes from the line of Brooke Roach of Goldman Sachs. Brooke Roach: Harmit, best of luck in your next chapter. It's been great working with you. I was hoping that you could unpack how you're thinking about pricing and the pricing power of the brand as you look forward into the rest of the year. Did you see any elasticity in response to some of the recent price increases? And does this give you confidence to take even more pricing in what looks to be an even more inflationary environment. Potentially offsetting that, what are your plans that are embedded in the guide for markdowns in the back half of the year? And how should we be thinking about opportunity for continued markdown reduction as you implement your initiatives? Michelle Gass: Brooke, I can -- I'll take that question. Around pricing, and I'm glad you asked it because when we think about pricing holistically, it is about the premiumization strategy that we have on the brand. Mitigating tariffs has just been one component of it, but it is about our focus on full-price selling, unlock promotions and pricing for innovation and newness. And I was just talking about even at the kind of pinnacle expression of the brand with Blue Tab, we're pricing in the $200, $300 range. So very consistent with what we shared in the past. We've been very thoughtful and targeted. We are monitoring consumer response. And to date, we have not seen an impact on demand, and you saw that in our Q1 results. And as matter of fact, growth for us in the quarter was driven equally between AUR and units, which really does speak to the power of the brand right now. But we'll continue to be very thoughtful. We're clearly operating in an uncertain and volatile time. But given the strength of the brand, we feel really good, and our consumer is responding, especially as we take those opportunities to price -- premium price or innovation in newness. I guess the second part of your question would be around markdowns. So the only thing I would say to that is as we rewire the company to truly operate the best-in-class retailer, we have new allocation systems. We have new supply chain leadership. And our execution level is improving, which you see that again in our AURs more full-price selling. So the capability of the team is really elevated around that front. Operator: Our next question comes from the line of Bob Drbul of BTIG. Robert Drbul: I guess, Harmit, I have a question for you. First of all, congratulations again, and I echo a lot of the earlier comments and sentiment. I guess on the -- you talked about ocean freight and cotton being locked through '26. Can you talk about just have there been sort of discussions around trying to -- for your vendor trying to pass through any increases away from your current locked rates? And I guess the other question is just on that is, how far are you locked with ocean freight and cotton in '26. Harmit Singh: So thanks, Bob. And you were great on CNBC earlier. But what I'd say is, and thanks for your sentiment. What I'd say is that we are locked through the end of the year on base ocean and air freight rate. There are surcharges that are imposed. Our view on the surcharges is that our guidance reflects this. Oliver talked about why you're being modest in your guidance, we are taking into account a bunch of things relative to that. To your question about vendors asking for higher prices. When we reduce the product cost in 2026, it was a combination of a couple of things. First was rationalizing the SKUs, moving out of unproductive SKUs. It was about driving higher globally directive assortments, which is having more of a common line, which drives more leverage through volumes. And cotton, obviously lower than a year ago, really helped. And so we're very thoughtful because we've got vendors who have been with us for years, and we introduced some newer competition. So right now, we are not seeing it. If you think of the futures of cotton, as you look at '27, they're largely consistent with what we believe. And our view is that product costs over time because we are not rationalized all our SKUs. We haven't rationalized all our fabrics yet. We're driving to more of a tighter go-to-market calendar. It was 16 months, it's close to 13, and we're trying to drive that I think all those are different levers that we have that over time can continue to drive product cost in the right direction, which is lower, not higher. Operator: Our next question comes from the line of Rick Patel of Raymond James. Suraj Malhotra: This is Suraj Malhotra on for Rick Patel. Harmit, thanks for everything and best of luck. So looking at the 4.5% to 5.5% organic revenue growth guidance for fiscal year '26, how should we think about the split between unit growth and AUR growth, especially given the pricing actions taken year-to-date? Harmit Singh: Yes. Thanks for expressing the sentiment. Same here. You guys have been great. The way we are thinking about it is an even balance between units and AUR. The reason -- the question is why are we selling more? It's largely because we are expanding our addressable market. Addressable market, which is $100 billion for denim. And you've heard me say before, we're trying to bust the myth that we're not only about denim. Now that addressable market is up 15x because we're getting into things like non-denim bottoms, skirts and dresses for her, expanding our tops offer. So that's why we feel selling more, and we are adding a lot of new stores to selling more along with higher AUR is probably what's going to happen through the year. Where does that balance go over time, I think it's something that we will reinforce as we guide annually. But that's how we're thinking about it. And that's what I would suggest as you model both that. Operator: Our next question comes from the line of Paul Lejuez of Citi. Paul Lejuez: Harmit, best of luck. It's been a pleasure working with you. If we go back to the first quarter, I'm just curious how things look on a monthly basis, how much of the quarter was driven by December results versus the months that followed. Maybe if you can tie that into what you said about quarter-to-date, I think you said you haven't seen any signs of a change. Curious if you could talk about that by region, if there are any places that you might have seen an acceleration or deceleration relative to either the first quarter as a whole or the exit rate? Harmit Singh: Yes. Thanks, Paul. As you know, we don't get into the level of details. I'd say on the quarter-to-date trends, they remain positive and support the guidance that we laid out for you. In terms of trends in quarter 1, I think we ended the quarter at 9%. January, February, largely in line with that. So it was not like it was way off of -- either higher or lower. Do remember that the trends acceleration in the quarter, as you think about timing, we had the Chinese New Year timing and then the Easter timing in Europe. That does impact it. So January, February, probably a little higher than December because of that. Chinese New Year is largely towards the end of the quarter. Dalston was largely a January, February piece. But our guidance for quarter 2 really reflects how we started the quarter. Paul Lejuez: Got it. And then any change to your macro view by region? Harmit Singh: Asia has started really strong, Paul. Asia really started strong, which is great. China, we didn't talk about China. I think I mentioned it was positive for the first time in a long time. We've got a new team there. They're resetting the business. So our view is -- and Asia, we are underpenetrated, right? It represents about 20% of the business when half the world's population is there. And you've seen the operating margin in Asia, we take the last 3, 4 years, improve as we drive more volume leverage. Outside that, Europe and U.S., largely consistent. And so nothing apparent right now. I think the consumer continues to be resilient. Importantly, they are continuing to gravitate to newness. And our product pipeline is really strong, and Michelle referenced in her prepared remarks. And so I think if there's a way we can bring -- continue to bring newness in, which we believe we can, and drive that at good value price points, I think we could continue the momentum and that's what's reflected in our full year guidance. Operator: Our next question comes from the line of Adrienne Yih of Barclays. Adrienne Yih-Tennant: Let me add my congratulations on the quarter and also your future, Harmit. And my question is it remains on international and the strength that you're seeing there. I guess where are you seeing kind of the most surprise in terms of growth acceleration? And how does your go-to-market strategy differ by region, say, like wholesale versus DTC? Harmit Singh: Yes. So I'll just give you a quick perspective across the 3 regions. If you take the Americas and U.S. in particular, it was primarily wholesale. But now this balance is shifting to more of a balanced business between DTC and wholesale. And it's not coming at the cost of wholesale, DTC is growing at a much stronger phase, and we're now opening. We have about 70, 80 full-price stores in the U.S. We're probably going to be opening 10, 12 stores a year for the next couple of years and doubling that. Asia is 60% direct-to-consumer and 40% wholesale, and that is primarily how we think the business grows. Most of our new stores are actually opening in Asia. And Europe is little higher on DTC than wholesale, but the product is largely a Tier 1, Tier 2 product. So very harmonious between the 2 channels. And I haven't spoken about Latin America, which is another big opportunity for us to grow. I mean they've been growing double-digit for a while and the team there is doing a great job. So as we think about different regions, that's the mix. I mean our view is Asia, you grow that in the high single digits. That was reflected in our guidance. Europe in the mid-single digit, that's reflected in the guidance. And Americas, low to mid-single digit, that's reflected in the guidance. Operator: Thank you. At this time, I'd like to turn the floor back over to the company for any closing remarks. Michelle Gass: I want to say, thanks, everyone, for joining the call, and we look forward to speaking with you again at the end of Q2 in July. Thank you. Operator: Thank you. This concludes today's conference call. Please disconnect your lines at this time.
Curtis Schlaufman: Hi, everyone, and welcome to the DeFi Technologies 2025 Fourth Quarter Financial Review and Shareholder Call. I'm Curtis Schlaufman, VP of Marketing and Communications. Joining me on the call today are Chief Executive Officer, Johan Wattenstrom; Chief Financial Officer, Paul Bozoki; and President, Andrew Forson. We'll begin with opening remarks from Johan Wattenstrom followed by a review of our fourth quarter and full year 2025 financial results from Paul and then an update on growth initiatives and strategic priorities from Andrew. After that, we'll open up the line for Q&A. [Operator Instructions] We won't be able to get to everything. And if you want your -- if we don't get to it on this call, please do e-mail ir@defi.tech or curtis@defi.tech, and I'll get to your questions as soon as possible. But then we'll invite some of our analysts on the live to ask questions with the management team. Before we begin, I'd like to remind everyone that certain statements made during today's call may constitute forward-looking information under applicable securities laws. These statements include, but are not limited to comments regarding expected financial performance, business development, strategic initiatives, market expansion, product growth and future opportunities. Forward-looking statements are based on management's current expectations and assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied. With that, I'll turn it over to our CEO, Johan Wattenstrom. Johan Wattenstrom: Thank you, Curtis, and thank you, everyone, joining us today. As many of you know, as a co-founder, I've been very much involved in the business since its inception and stepped into the CEO role during the fourth quarter. I'm very encouraged by where the business stands as of today and by the foundation we built for the next phase of growth. Our 2025 results reflects the strength of the platform we have built and the progress we have made over the last several years. If you look at our IFRS revenue trajectory, the scale of that process become very clear. In 2021, revenue was $15 million. In 2022, it was a negative $14 million. In 2023, it was $10 million. In 2024, it increased to $31 million. And in 2025, it reached a record USD 99 million. That progression is important because it shows how far the business has evolved. We have built DeFi Technologies into a much broader, more durable and more scalable platform. We are not reliant on any single product, revenue stream or market environment. We have built a business with multiple pathways for growth, and we believe we have never been better positioned to scale the platform and capitalize on the opportunities ahead. At the center of the group is Valour, our digital asset management business. Valour gives investors regulated access to digital assets through traditional financial infrastructure. And today, the platform includes more than 100 listed ETPs across multiple exchanges globally. That geographical reach, combined with the breadth of products we offer, continues to set us apart in the market. What makes our model especially compelling is its vertical integration. We do not simply earn management fees on AUM. We monetize those assets across multiple activities, including staking, lending and market making. That gives us multiple revenue streams from the same base of assets and allows us to monetize more efficiently than a traditional asset manager. The capital we raised has strengthened the model even further. It has enhanced our ability to increase monetization across the platform and across the balance sheet, particularly by expanding the trading, hedging and market making infrastructure that supports Valour's issuance stack and allows us to earn additional income on AUM more efficiently. During the quarter, we continued executing against several important priorities. First, we expanded the Valour product platform and ended the year having achieved our goal of reaching 100 listed ETPs. That milestone reinforces our position as one of the most diversified digital asset ETP issuers globally. The product expansion continues into high value-added products, including more institutional investment exposures. Second, we remain focused on broadening the investor base that can access the platform. Today, the majority of our AUM is still driven by retail investors, but a major priority going forward is increasing institutional participation for structures such as UCITS, AMCs, hedge fund structures, fund of funds, on-chain distribution and other investment vehicles that can access larger pools of capital. Third, geographic expansion remains an important opportunity. Europe remains our core market and main focus. We continue to see significant growth potential in jurisdictions across Europe. Outside Europe, we continue to expand into select regions where we access -- where access to regulated digital assets investment products remains limited. Brazil is an example of that. And we also continue to advance our discussions into other locations in Latin America, Asia, Africa and the Middle East. And finally, our financial position remains a major strategic advantage. We have never been better positioned from a balance sheet perspective. We ended the year with approximately USD 178.7 million in total cash, treasury and venture portfolio value and effectively no debt. That fortress balance sheet gives us the flexibility not only to support the business through volatility, but also lean into opportunities and aggressively pursue our business goals in any macro environment. Even in a prolonged crypto winter, that financial strength allows us to continue increasing monetization across our AUM and balance sheet, invest through the cycle, diversify revenue streams, accelerate strategic growth initiatives and pursue attractive acquisitions or investments in assets that may become available at compelling valuations. In other words, we believe our balance sheet allows us to be proactive rather than reactionary and position us to emerge even stronger as the digital asset markets recover. More broadly, we are building for the convergence of decentralized finance and traditional capital markets. We see a significant long-term opportunity to create the products, infrastructure and institutional rails that we believe will transform capital markets over the next 5 to 10 years. We are entering 2026 from a position of strength with a proven business model, optimized monetization and the financial flexibility to invest in the next phase of growth. We believe we are still in the early stages of building the institutional gateway to the future of finance. With that, I'll turn it over to Paul to walk through the financial results. Paul Bozoki: Thank you, Johan, and good morning, everyone. I'll begin with an overview of assets under management. DeFi closed December 31 with AUM of $622.3 million. Average AUM throughout fiscal 2025 was approximately $809.9 million. During the year, Valour also achieved net inflows of $110.1 million into its ETP products, reflecting continued investor demand despite market volatility. Turning to revenue. DeFi generated record full year revenue of $99.1 million for fiscal 2025. For the 3 months ended December 31, 2025, revenue was $20 million. On the profitability side, net income and comprehensive income for fiscal 2025 was a record $62.7 million. For the fourth quarter alone, net income was $28.9 million. These results reflect the earnings power of our platform and the resilience of our diversified model across market cycles. Within Valour, our Q4 effective staking and lending income was 4.7% on the $728.3 million average Q4 AUM, an increase from the 3.4% realized during Q3. While we staked approximately 44.4% of our AUM at the end of Q4, our average staking during the quarter was approximately 70%, which contributed to the higher earned staking yield. Staking was reduced at December 31, 2025, to allow for coin transfers for audit purposes to verify our ownership. We adapt our staking percentage in sync with market conditions and internal risk management policies to ensure we can meet ETP commitments on a timely basis, and we generally stake between 60% and 70% of our AUM. Our Q4 effective management fee yield was 1.2%, consistent with earlier quarters in 2025. We remind investors that we do not charge management fees on our main Bitcoin and Ethereum products, which reduces our effective management fee income from the typical 1.9% we charge on most altcoin ETPs. We closed Q4 with 102 products and reached our 100 product goal during October 2025. Stillman Digital is also an important part of the platform. That business is not dependent on cryptocurrency prices being strong, but rather on trading volatility and institutional activity. Stillman had an exceptional Q4 with revenues of $3.3 million, up from $2.2 million in Q3 2025. Stillman's full year 2025 revenues totaled $9.6 million, and we expect the grid business to grow by 15% to 20% in 2026, irrespective of whether crypto prices increase. This growth is expected to be driven by a combination of more effective monetization of existing flows, enhanced customer acquisition workflows, leveraging AI for outreach and customer onboarding and expansion into new geographies. Stillman is positioned well both domestically in the United States where the majority of business is and in international markets through its regulated Bermuda entity. As previously discussed, the timing of DeFi Alpha transactions remains opportunistic and is dependent on market conditions, and some of these opportunities have been deferred. Turning to operating income. Q4 operating income was $7 million, and operating income for the 12 months ended December 31 was $46.5 million, reflecting our continued focus on profitability. Operating income declined by $2 million from Q3 2025 due to lower crypto prices and lower average AUM in the fourth quarter. Q4 IFRS net income after tax came in at $28.9 million with full year IFRS net income after tax came in at $62.7 million. In terms of our crypto investments, the company's venture portfolio now consists of 12 private investments with the largest being our 5% stake in AMINA Bank, which makes up 83% of the portfolio's fair value. AMINA Bank continues to perform exceptionally well, although its AUM did decline to CHF 2.7 billion at the end of Q4 from CHF 3.5 billion at the end of Q3, in line with the fall in crypto prices during the fourth quarter. To reflect the compression in EV to AUM multiples and lower crypto prices, the company recorded an approximately CHF 11 million noncash mark-to-market negative adjustment for its investment in AMINA Bank. Our most recent investment was in Stablecorp, the issuer of the QCAD Canadian-dollar stablecoin. Following a multiyear regulatory approval process, we are pleased to hear that in Q4, Stablecorp received a final receipt for its prospectus, qualifying the distribution of QCAD tokens under Canada's current regulatory framework for stablecoins. This milestone establishes QCAD as Canada's first compliant CAD-denominated stablecoin and reflects -- represents an important step in expanding regulated digital asset infrastructure in the country. We're proud to be early backers of this project alongside the likes of Coinbase and Circle Ventures. The company did not make any new investments during the fourth quarter. We continue to believe AMINA will be a successful long-term investment and the addition of Stablecorp further strengthens the strategic positioning of our venture portfolio. Turning to the balance sheet. As of December 31, 2025, the company held $113.8 million in cash and USDT/USDC, including $91.2 million of cash. Digital asset treasury holdings totaled approximately $35.5 million, and the venture and private portfolio was valued at approximately $29.4 million. Together, total cash, treasury and venture portfolio value stood at $178.7 million at year-end. That financial position gives us a high degree of flexibility. It supports continued investment in platform growth, product expansion, strategic infrastructure and opportunistic capital deployment while also reinforcing the strength and durability of the business. As we look ahead, our focus remains on scaling the core drivers of the platform, expanding monetization across AUM, supporting institutional product development and maintaining disciplined capital allocation. At this point in time, the company is declining on providing guidance for 2026, given the general market volatility caused in part by the war in Iran and in particular, volatility in crypto prices since Bitcoin peaked on October 10, 2025. The company reminds investors that it is exceptional financial strength with $113.8 million of cash in USDT/USDC on hand at December 31 in the event of a prolonged market volatility to focus on executing its objectives as outlined by our CEO, Johan, earlier to build long-term shareholder value. With that, I'll turn it over to Andrew. Andrew Forson: Thank you, Paul. As Johan mentioned earlier, one of the key opportunities ahead of us is continuing to deepen engagement across our ecosystem and provide greater transparency into how regulated capital is positioning across the digital asset market. We spent considerable effort building our brand and generating institutional visibility for DeFi Technologies and Valour in global investor circles. In 2025, we onboarded buyers from regions as far reaching as Saudi Arabia, Hong Kong, Japan, Brazil and more. This process continues. Our focus is to ensure our companies have adequate visibility in all potential markets where our existing ETPs and future UCITS, AMC and custody solutions will be distributed. We have also put great emphasis on building systems to onboard investor capital to our existing ETPs as well as any potential future structured instruments we create. Lastly, we wanted to ensure that DeFi Technologies, our platforms, our data and our operations are able to communicate their value and offer unique takes on the massive amount of data we generate to media, digital asset issuers and foundations, investors and the growing world of AI. Some of the tangible steps we have taken over the course of 2025 are as follows: in October 2025, we launched 2 products on the London Stock Exchange. In December 2025, we successfully listed 5 ETP instruments and the DeFi Technologies DEFT shares on the B3 Exchange in Brazil, which represents the first time in the history of the company, we have products listed outside of Europe. These products were launched in a period of declining digital asset prices and significant market instability. In the instance of both London and Brazil, in March and April of 2026, we define the processes and teams required to steadily attract capital to our products listed in those markets. Our capital markets distribution work is being executed with an eye towards supporting the distribution of our UCITS products. This is especially the case in Brazil and Latin America. To drive inflows and AUM growth in our core Nordic and European markets, in March 2026, Valour engaged a Chief Revenue Officer, who is focused on growing the AUM, distribution networks and institutional adoption of the full range of Valour products. In Q3 2025, we introduced our own events, marketing and communications platform that enables us to interact directly with institutional investors in a low-cost, cost-efficient manner. We have used this platform to promote our stock to institutional investors, interact with foundations, promote our ETPs, engage with our portfolio companies, discuss listing opportunities with regulators and build our mailing list, which now numbers over 40,000 entries. For the first time in the company's history, our sales, marketing and growth initiatives reach all inhabited continents. We are a global company. Our approach serves the dual purpose of promoting our core Valour products, making strategic introductions to Stillman Digital as well as helping communicate the DeFi Technologies vision and DEFT stock opportunity, which is widely available internationally given our NASDAQ uplisting. Our growth activities identify listing opportunities for our ETPs and distribution and partnership opportunities for Stillman Digital and our prospective products like UCITS. In Q4 2025, we built out a complete business intelligence system that provides granular views of our inflows, competitor analysis and product consumption. This information helps us to make better product and sales targeting decisions whilst helping us understand exactly what is selling and where. Our work with data and international expansion, events, marketing and visibility has enabled us to create innovative data-driven products like our DEFT Valour Investment Opportunity Index that have helped and we anticipate will continue to help us directly attract capital to our existing suite of 102 ETPs. Our work with our data, events and listings enables us to provide a compelling narrative to foundations and large holders of digital assets to invest them with Valour in a manner that directly increases our assets under management. This approach is appreciated by foundations and institutional investors since we are able to show how their investment provides a positive impact and signal to capital markets for their chosen digital asset. These innovations also lay the groundwork for the development of tokenized products, which will help us to introduce new pools of capital to our existing portfolio of products. Our strategic priorities remain clear. We are focused on continuing to expand distribution, entering new markets, broadening our institutional product set and strengthening the infrastructure that supports long-term monetization across the business. We believe DeFi Technologies is building not just products, but the broader institutional infrastructure and framework that will support the next phase of digital asset adoption and integration with capital markets. We are better positioned than ever to provide global visibility and execution support to the vision outlined by our CEO, Johan. With that, I'll turn it back over to Curtis for Q&A. Curtis, I believe your audio might be unmute. Curtis Schlaufman: Yes. Sorry. Apologies for that. So we'll go into a few questions from the chat. [Operator Instructions] First question from Niko Graseck. What do you plan to do with a big amount of cash, Johan? Johan Wattenstrom: Yes. I think we have communicated consistently since we raised the money, but I'm happy to repeat here. We obviously are focusing on organically building our business vertically as before. We are in the process right now of productifying, I would say, a lot of the IP and tech we already have in the group. So we are building our own -- the Valour Funds is a new business unit we are launching, Valour custody and so forth. So we are basically taking technology we already have in-house, and we are productifying it in terms of, for instance, the fund units that will incorporate both the usage funds, other types of funds in Europe, hedge funds, for different types of strategies geared towards different types of investors. We will use some of the funds towards seeding those. We are always keeping some cash at hand for opportunistic opportunities that pop up. We have historically seen some really good opportunities. We -- like with Stillman, we have -- we're always reviewing new opportunities like that. And I would -- should add also, we are actually monetizing that cash at the moment. They're not just lying around. So it's kind of -- we are actively working with that money. The cash also enables us to do Alpha trades in a more efficient fashion and also to go after Alpha trades we could not go after without the cash. So it's kind of a multitude of uses cases from seeding, investing in our own organic growth -- looking at opportunities, we're not really actively looking for anything. We're obviously looking for something that really fits into our structure with high synergies. But we're always looking at new cases. We will probably not do a lot of new venture capital investments, but it's mainly to drive organic growth, geographic expansion and be able to trade more efficiently. We do a lot of high ROI trading in our treasury. We are incubating trading strategies and so forth, which is a great use of cash until we need it for actually building the business. We are not using it to throw money at new markets, new products we don't really see any traction from really. I think maybe that's enough for, yes... Curtis Schlaufman: Yes. And just to provide a bit more context, last crypto winter bear market, the company was $40-plus million in debt, and we were effectively working for survival to bring the company out of those tranches this time around, of course, robust balance sheet. We can be a shark or more aggressive on the potential acquisitions of cheaper assets this time around. And then, of course, as Johan mentioned, we are using a lot of that cash to ramp up our monetization levels to increase revenue of our current core operations. So that's -- we're putting it all to work, and we'll continue to look for opportunities that will continue to grow the business and add additional revenue streams. Second question from Simon Partington. Why was AMINA Bank taken down so much? You bought it when it was CHF 1 billion in assets and you're now holding it at cost. There has to be value creation from CHF 1 billion to CHF 2.7 billion since purchase. Paul? Paul Bozoki: Yes. I'd remind everybody, we bought it in 2020, '21, which was also a large run-up in crypto. And now we're in a pullback. EV enterprise value to AUM multiples have compressed. So AMINA, just for everybody's benefit, AMINA is doing very well in growing its AUM. As we said, it's CHF 2.7 billion, is down in the quarter in line with Bitcoin. But there's been a compression for valuations of asset management companies as we've seen in DeFi stock, and I think all crypto investors that hold the usual names are well aware of the compression in the crypto equity. So AMINA Bank, even though it's private, is not immune to that, and our valuation reflects that. And likewise, we do carry at fair value. So to the extent crypto prices come up, their AUM increases and there is an expansion in EV to AUM multiples, we would, of course, write it up. Noncash adjustment, I'd like to remind people of that, and we're long-term holders. Curtis Schlaufman: I got a few questions about the NASDAQ listing status. I'll go over that really quickly. So we do have 180 days to regain compliance of trading back over $1. We do think we're extremely undervalued here and should already be trading well north of $1. If you look at the sheet here, we took effectively the average trailing P/E of Bitcoin miners, crypto exchanges and other businesses, NASDAQ-listed companies, companies on the S&P 500 and New York Stock Exchange. And the average multiple that many public companies are trading at is 24x. We're trading 4.8x at a $300 million market cap on a trailing P/E basis. So we're -- even if you were to cut our earnings in half, we're still tremendously undervalued. Based on our balance sheet and our revenue, we would qualify for an additional 180-day extension. It's effectively giving us well over a year to regain compliance over $1. I think we're still of the mindset that we want to continue to increase our revenue and revenue generate or revenue-generating capabilities and let our balance sheet and revenue speak for the share price. So it's a matter of just getting our story back out there and turning around the narrative in that sense. If we have any other announcements regarding that, we will make that known to the public. So as of right now, it's just getting the name of the company out there. Hopefully, crypto prices turn around here, Bitcoin and the rest of digital assets recover, and that will be much more helpful for the broader picture. Let's do another question from Andrew and Johan. Can you comment on when we can expect ETP volume and traction in Brazil? What's nice to see are the One Valour staking ETPs on Frankfurt, showing some buys, for instance, the ICP staking product. When can we anticipate breakthrough in Brazil? Andrew Forson: Yes. Thanks, Curtis. And that's a great question. We have taken an approach of being very, very conservative in that we do not want to be throwing massive amounts of capital at expansion efforts at a time of extreme macroeconomic volatility and compressed digital asset prices. Now that we have had an opportunity to see how the markets have settled, we believe that there is somewhat of a bottom associated with digital asset prices subject to the current macroeconomic environment. We've taken the approach of building the organic teams in each one of these markets so that we are ready to grow adoption of our ETPs and primarily be in a position so that we can have long-term quality distribution partners in markets like Brazil, the U.K. and Germany. What that means is it will take time to grow, but we are already seeing growth. We just initiated our capital markets activities in these markets pretty much last month in the month of March. Had we not listed at the time that we did list, and this is a critical point, it is possible that given the change in digital asset prices that if we had delayed the listing, we may not have been eligible to list today. So it was a prudent choice to list when we did list. And now we are working through with the understanding of what the market is now with building out the teams. We have the people in place very economically in a very cost-efficient way, and we're well positioned for long-term growth. And that growth does not just factor in our ETPs. In every one of these markets, we also try to attract buyers for DeFi Technologies DEFT stock, and we have also been forward-looking to ensure that our partners in the form of Stillman, our subsidiary in the form of Stillman Digital and our future products will also have proper distribution networks. So our perspective is slow and steady, be cost efficient, focus on prudent business, not allocating capital in a way to get a quick hit in markets that are not necessarily beneficial in the digital asset space in terms of market values, but we are committed to doing a good job in all of these markets, and we're already seeing traction already, particularly within the last month. Curtis Schlaufman: Great. I'll invite Ed Engel, analyst at Compass Point to ask a few questions. Ed? Edward Engel: A couple of questions for me. I think in the past, you've talked about -- you've got about $44 million of kind of core OpEx if you exclude stock-based comp? What AUM level do you need to be at on a fee basis to reach breakeven? Paul Bozoki: That $44 million for 2026, we feel is now $36 million. So $30 million of operating general and admin is the target for the year, plus $6 million for the fees and commissions. So that translates into $425 million for the AUM, assuming I get $11.5 million from Stillman to get the number. So $425 million at a 5.8% monetization plus 11.5% on Stillman will get -- will cover us, so the breakeven. So long-winded way of saying $425 million. So we're fine. It's on our website for everybody. We're at $460 million as of yesterday of AUM. And that's on the Valour website. Any investor can see at any time. Edward Engel: That was very helpful. And then I know sometimes reporting prelim stuff and non-prelim stuff, it gets a little hairy. But at the end of the year, you disclosed that you had $138 million of net inflows in 2025. And then I think yesterday, you said $110 million net inflows. In the fourth quarter, did you still have net inflows? I know the numbers were prelim versus not, but were there still net flows in the report? Paul Bozoki: Yes, plus 6. Edward Engel: Okay. Perfect. Okay. Paul Bozoki: 110 is the right number for the full year. That's in our cash, yes. Edward Engel: Okay. That's great. And then I guess on DeFi Alpha, just -- I mean, is it fair to assume that in a crypto winter, there is probably less near-term opportunities for that business? Johan Wattenstrom: Yes. I think it's fair to assume. I think for at least a few of them. I think there have been new opportunities on our radar here, which might be actually doable in this climate. But I would say, in general, we are also on our side, less keen to do it because we have a certain capacity per coin to pursue these trades without any market risk. And obviously, with higher markets, we will make much, much more on the trades. So yes, there's less opportunity. There is still opportunity. Some new opportunities have come up. But I would say we are less aggressive at these levels. And obviously, with the market come back, we will be focusing very hard on these transactions. But -- so it's from both sides, not only the counterparties, it's only also from our side because if we do trade here and Solana then goes up 4x to the former high, then we lost -- yes, we only own 25% of what we could do, for instance. But yes, it's -- in general, it's true. It's less opportunity because of these reasons. But also, it doesn't mean it won't happen. We have other opportunities at these levels that we are looking at, at the moment. Curtis Schlaufman: And then Mike Grondahl from Northland. Mike Grondahl: I just want to circle back to -- I think it was $44 million of OpEx that it sounds like you've reduced. Are you saying it's good to think about that level, Paul, that $36 million for 2026? What would push it higher? Any chance of pushing it lower? Paul Bozoki: Yes. Great question, Mike. We're cutting the marketing. Just for everybody, in our MD&A, I've got the detailed breakout of the $34.2 million full year operating general and admin costs. And in 2025, we did spend $8.8 million on marketing. That is most of the savings that's going to get the $34 million down to $30. Our professional fees in 2025 were $5.3 million. We also think we'll do a bit better, but I will caution people that we're still dealing with the class action lawsuit, and that's not inexpensive. So I'm not counting on large savings there. The savings will come out of the marketing spend that went along with the NASDAQ listing last year. Johan Wattenstrom: Yes. And a comment on the marketing. I think we've become more aggressive on the marketing and PR. It's that the spend goes down. It's just that we stopped doing some bad marketing that we have looked -- analyzed in the past and seen that the effect is really low, but it's super expensive. So I think we are actually doing more marketing, more aggressive in the market that matters, but we do it at a much lower cost. Andrew Forson: Yes. Just to support what Johan is saying, that reduction in marketing cost is really enhancing efficiency. We have our own platforms for communicating directly with institutional investors without having to allocate a lot of money. As a matter of fact, in some instances, we get sponsorship revenue to run some of our events where we speak to people. And with the addition of a Chief Revenue Officer in our core markets, we're doing -- I just got off a call with them. We're doing very direct-to-market communications with brokerages and platforms to enhance our visibility and all of this is at minimal to no cost. So the marketing is strong. It's how the allocation is happening that will realize significant efficiencies. Mike Grondahl: Okay. And then just maybe one more. The $114 million cash balance, I'm trying to understand how much of that you use in operating the business month-to-month? And how much of that is extra, if you will, or a little bit of excess capacity? Is there a way to frame that? Paul Bozoki: Mike, the $36 million that we just talked about, that's cash burn that needs to be covered. The rest of the money, the rest of it is really working capital on the balance sheet. Mike Grondahl: Got it. So Paul, another way of saying that is you do need about $100 million to run the business. Paul Bozoki: Well, okay, for everybody, just -- our burn rate is $36 million. And we talked that if we have $425 million of AUM and Stillman is good for $11.5 billion, we're breakeven, okay? So that's breakeven. We're at $460 million. So we're making a little bit of money even today in the bear market. The managing the AUM, and we've talked to the analysts, there's about 5% of the AUM is needed in working capital. So on $400 million, that's $20 million. And why does the AUM need some working capital? It's because we're collecting mainly Swedish kronas in Sweden. We've got to convert that to U.S. dollars, get it to a crypto exchange, buy the crypto -- and then similarly, when people cash out, you got to sell the crypto, USDT, send it to the broker, convert to Swedish crowns, pay them out. So there is a -- you need some flow for that. So that flow is about 5%, right? So on $1 billion, ideally, you have $50 million of flow. And when we raised the $100 million, that was also one of the things we put in the prospectus is more working capital so that we can grow. And then trades take working capital. So they just -- you need working capital in the business. Mike Grondahl: That's helpful. I just wanted to understand. Johan Wattenstrom: Mike, just additional there. We don't need $100 million for that. And also, it's not linearly going up with the AUM. So it's -- if we have a super high AUM, that doesn't mean if we double the AUM, that does not mean that the turnover or the inflows, outflows double. So it's -- we might go up from $20 million to $30 million or so. It's not that it doubles if the AUM goes up. So if it's a $5 billion, we still don't need more than probably $50 million in working capital for the trading. We also have third-party market makers. So it's we have a lot of ways of managing that besides our own working capital. It's obviously nice to have, but it's not a must-have with this type of working capital. And when we have this access to working capital, there's other things we can pursue in type of different trades opportunistically and so forth, but it's not a must-have for running the business. Curtis Schlaufman: That's it. All right. Allen Klee from Maxim. Allen? Allen Klee: You talked about how you wanted to get more institutional flows and products. Could you expand on that a little bit of like the type of products that you're thinking about for '26? Johan Wattenstrom: Yes, of course. So the demand we have from the institutional side is basically in other -- some of them can invest in ETNs as well, other than normal ETNs, exchange of notes or the asset-backed ones. But quite a few of them prefer funds either of a CCAF type or a usage type within Europe. A lot of them also can invest obviously normal hedge funds, Cayman-based funds. So the most of the demand is for those types of vehicles. And yes, and some of them even want to invest through tokens or vaults on-chain. So that's something we also obviously are looking at developing. So it's most of those vehicles. So some of them already can invest in what we have for sure or the competitors have like the ETNs, but we are -- we see a lot of demand for the UCITS for the CCAF and for the normal hedge funds. So that's what we're building right now and soon we'll have available. Allen Klee: Would these products be available on the exchanges that you work with? Or is this outside of the exchanges? Johan Wattenstrom: These will firstly be marketed to fund platforms globally. The UCITS funds are eligible for listings, but we will probably do that in Phase 2. There's a still a bit of a pushback from the regulatory authorities in Europe on this area. So we can't really push too quickly to not make ourselves enemies. But so they will first be available on fund platform. So available also for retail to save for pensions and so on, but on fund platforms with broker-dealers, banks and so forth, and all the major fund platforms in Europe and globally where we can get in. And the hedge funds, obviously, is a little bit of a different game where we will get into the major databases of hedge funds. We will also talking with a lot of fund of funds and it will be more of a roadshow type of marketing. But for the other types of funds, there are a lot of really big platforms with access for both retail and institutions. Allen Klee: My last question, you were talking before about the cash you need to run your businesses. And could you just touch on regarding to Stillman kind of the cash you kind of need to support the trading there? Johan Wattenstrom: They are actually self-supporting. We don't need to support them with additional operational capital from DeFi and we are supporting them in growth initiatives that they're working on to get more licenses statewise in the U.S. to get the licenses in the UAE and so forth. Areas where they already have an established base of clients. But yes, they actually -- they are growing, but they're also making a lot of money, and we don't need to -- so far, if there are more opportunities, we can allocate to them. But so far, they've been self-sufficient in working capital in regards to the group. Curtis Schlaufman: And now Kevin Dede from H.C. Wainwright. Kevin Dede: So curious to know if you have an ETP launch target for this year versus the 100 or so you expected to have at the end of last year. Johan Wattenstrom: Yes. The quick answer to that is no, we do not have a target. And I think the explanation is that last year, it was -- we thought as a strategic goal to have a really broad portfolio of ETPs. The broader portfolio of single underlying assets we have, the more alpha type trade we can pursue without any market risk and the more connection we get, obviously, with the foundations and the broader ecosystem within those assets. So it was a strategic goal at that point. I would say we'd cover most of the high-quality top 100 assets as of today. So we're not listing -- there's no more that we just need to list like we had to have 25 first half year or something. It's more just driven by what type of business deal opportunity we see and what type of different type of ETPs, more value-added types of ETPs where you could see leverage ETPs, it could be volatility target ETPs. It could be total return and others with a dividend for some foundations and so on. And also actively managed everything from funds to actively managed certificates to tokens -- so we're not pursuing just products that we, from a qualitative standpoint, see are high value-added where we can have good margins that takes us where we want to be from a product standpoint, from a qualitative perspective. We don't have any quantitative goals for this year. I think we actually -- we cover what we need to cover. Now it's more focused on creating high value-added type of strategies and investment exposures plus also making all the ones we have available in other types of -- new types of vehicles to provide access for new pools of money. So no, we don't have a quantitative target. Kevin Dede: Okay. Thanks, Johan. Paul, I may have misunderstood some of your comments. I understand no guidance. But I also thought I heard expectations for 15% to 20% growth. And I was hoping you could straighten that out for me. And are you talking about AUM, revenue, earnings? Or did I just mishear you completely? Paul Bozoki: Yes. We -- I guess you got us, Kevin, that we are a little bit -- there's some inconsistency there. So we are suggesting that Stillman will grow at 15% to 20%. So that just for clarity is Stillman, -- we're not providing on the consolidated company, which is Valour, right, is the balance, given crypto prices and the outlook. It's just -- we're waiting on that before putting out a number on where we think Valour is going to go. Kevin Dede: Do you think you'd be able to zero in on it? And about the time frame you talk about March quarter? Paul Bozoki: Let's -- I think probably the summer, guys. March quarter is here in a month. I don't personally believe anything will change in a month, but let's -- we understand that the analyst community would prefer guidance. And to the extent we're comfortable in putting out a number, we will likely do so, okay, guys? So likely not in a month, but... Kevin Dede: I think -- I don't want to step beyond my bounds here, but I think the analyst community is facing the same variables that you are and the market is highly volatile. So appreciate the feedback on that, Paul. One last thing, just on marketing, I'd like to clarify expectations on spending. I understand that you're winding it down, but you're also trying to address the institutional market. And I heard comments regarding more efficient spending, but it's not clear how that happens. Andrew Forson: Kevin, is this with regards to marketing? Kevin Dede: The marketing spend. Yes. Andrew Forson: No, I was just going to say that as opposed to using a broad brush large expense program, as Johan was discussing the fund programs, for instance, if we are going to speak to institutions, we don't necessarily have to allocate significant capital to a newsletter program. We can actually invite the institutions into a room and speak to them directly. And we can find that, that costs us a great deal less but gets us more direct interaction and helps us to close deals, which is something -- I'm not just saying that anecdotally, it's something that we've done. I think we actually have deals closing well, today. So this sort of thing, of course, we can leverage broad-based investor type marketing. But given the new products that we're looking at, given the volatility in the market, given the fact that we do have 102 digital asset underlying ETPs, which is the largest portfolio of such product mix in the world, our next phase is to not only prepare the groundwork for new products that are going to be made available on institutional platforms, but also make institutions more aware and help them to onboard their capital directly. And so it's a little bit more of a focused and a soft touch direct approach, and that also enables us to work globally and within different countries within Europe. So it's slightly different. Instead of a media spend, it's more targeted direct face-to-face with investors and allocators. Johan Wattenstrom: Yes. The cost we see is much less for the institutional approach where we do -- we are in databases. We are on the platforms, and we do a lot of roadshows person to person. That costs very little in comparison with some unrelated promotion campaigns that might have happened in the past that we will not repeat. So that's very different. And also when it comes to social media marketing on ETPs on how we market in our core market for the products, we also deploy AI to a huge extent right now in a lot of the creation and distribution and research. But it's basically a few very high-cost promotion campaigns that were done in the past that we don't like and we will not do again, and that was a lot of money. And we're expanding the campaigns to promote our brand recognition and also for the individual products to retail, that is expanding. Also the institutional outreach expanding a lot, obviously, but the cost is much lower. I think it just reflects that we paid far too much for campaigns in the past for -- basically in the North America. Curtis Schlaufman: I think I can equate to more of like it was a throwing paint at the wall. And over the past few months, since then, we've gotten a lot leaner and more targeted in our marketing efforts. Kevin Dede: So less. Yes, less just spilling paint and more Banksy. Curtis Schlaufman: Yes, more Banksy. Andrew Forson: Yes. I mean Curtis and Kevin, now when we meet with people, we have their contacts. We're able to follow up. So we are actually able to have face-to-face discussions, figure out what their capital allocation plans are going to be 2 quarters hence, and follow-up and that can result in a multimillion dollar deal as opposed to just putting something out there that may sound good and feel good, but it costs so much money and it's hard to measure the return -- it's also hard to ensure that investment happens. And going forward with things like UCITS and whatnot, this sort of efficiency with distribution. I mean, UCITS is a gold standard that has applicability internationally. So now we know who we can speak with in different markets once these products are launched, and it also gives us the opportunity to explore different markets for existing ETPs, but more efficiently so. Curtis Schlaufman: All right. I think that wraps up the analyst questions. Any final analysts that didn't get a chance. I'm not seeing any. So I think we're all set here. We'll let you go about a couple of minutes early. If we didn't get to your question, please e-mail me curtis@defi.tech. I will get to it as soon as I can. Thanks again for everyone who joined. We do appreciate your time, and we do appreciate your continued support. Again, Andrew, myself, Johan, Paul, any questions you have, we make ourselves widely available. So if you need clarification on anything, please do reach out. I think most of you know me pretty well by now. So I don't really say no to answer any questions. So there should be no excuse for folks saying that we're not paying attention, curtis@defi.tech. Thanks again, everybody. Enjoy the rest of your day, and we'll chat with you again in a few weeks.
Operator: Good afternoon, and welcome to Phoenix Education Partners Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Beth Coronelli, Vice President of Investor Relations. Please go ahead. Elizabeth Coronelli: Thank you. Welcome to the Phoenix Education Partners' Second Quarter Fiscal 2026 Earnings Conference Call. Speaking on today's call are Chris Lynne, our Chief Executive Officer; and Blair Westblom, our Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. Listeners should not place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statements after this presentation. The risks related to these forward-looking statements are described in our filings with the SEC, including our most recent Form 10-K, Form 10-Q and other public filings. We will also discuss certain non-GAAP financial measures. You should consider our non-GAAP results as supplements to and not in lieu of our GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and SEC filings. Unless otherwise noted, comments on the call will focus on comparisons to the prior year period. We also direct you to the supplemental earnings slides provided on the Phoenix Education Partners' website. I'll now turn the call over to Chris. Christopher Lynne: Thank you, Beth, and good afternoon, everyone. We appreciate you joining us. Today, we'll walk through our results for the second quarter of fiscal 2026 and the continued progress we're making on our strategy. Guided by our mission, we remain focused on advancing student success through flexible, career-relevant education for working adults. Our students balance professional and personal responsibilities as they pursue their education and our strategy remains centered on supporting their success through personalized technology-enabled programs. Fiscal 2026 also represents an important milestone for the University of Phoenix. Later this year, we will celebrate our 50th anniversary, marking 5 decades of serving working adult learners while continuously adapting to the evolving needs of the workforce. Our commitment to student satisfaction is reflected in the recent Encoura Ruffalo Noel Levitz priorities survey for online learners, a national study spanning 150 institutions and approximately 90,000 learners, which shows consistently high satisfaction among currently enrolled online students. The university administered through the Noel Levitz platform, the survey to a random sample of 20,000 actively enrolled associate, undergraduate, graduate and doctoral students representing each college and degree level with approximately 2,500 students responding. The university performed above the national averages across all 26 measured attributes, with 85% of our students reporting being very satisfied or satisfied with their online university experience compared to 73% of students in the national benchmarked institutions. These results combined with strong retention results, underscore our commitment to delivering strong student outcomes and ensuring that working adult learners develop skills that translate directly into their careers. Turning to our results. The second quarter reflects continued progress across our key priorities, enrollment growth driven by record retention, margin expansion and a strong balance sheet that gives us the flexibility to invest in students and return capital to shareholders, all underscoring the durability of our model and commitment to student success. For the quarter, average total degreed enrollment was up 1.8%. Net revenue was down 0.4% and adjusted EBITDA was up 7.8% from the prior year. Average total degreed enrollment was driven by strong retention trends. Our retention rate from the most recent annual cohort was 76.6%, up approximately 500 basis points from the prior year and significantly improved from the 59.7% retention rate from the annual cohort ending in 2017 prior to our transformation. This sustained progress reflects the continued disciplined execution of initiatives across the student life cycle aimed at enhancing engagement, persistence and ultimately, student outcomes. Net revenue was in line with expectations and adjusted EBITDA outperformed as a result of disciplined cost management and lower bad debt expense. Our employer-affiliated or B2B channel continues to be a meaningful growth driver. Employer-affiliated students represented 35% of total enrollment in the quarter, up from 31% in the comparable period in 2025, reflecting continued expansion of both existing and new employer relationships. This channel now represents over 1/3 of our total enrollment and helps reinforce the durability of our revenue as B2B students typically have higher retention. We are seeing increasing demand from employers seeking to upskill and reskill their workforce, and our flexible career relevant programs are well positioned to meet that need. We align our curriculum to in-demand skills, with students building verified job-relevant capabilities throughout their coursework, an approach that differentiates us with both employers and individual learners. We also enable our students and alumni to showcase these capabilities through shareable employer-informed skill badges and have now issued over 1 million of these digital badges to date. Complementing our B2B momentum, we are continuing to invest in technology and artificial intelligence to better serve students and employer needs. We are making meaningful progress deploying AI across the university. Examples include an AI-assisted student onboarding experience, delivering 24/7 support for students and faculty, increasing adviser productivity, expanding our software development capacity and driving greater efficiency and credit evaluation. We are using AI-driven personalization to enhance engagement and student support as well as improve conversion in our marketing and enrollment funnel. We believe these initiatives are contributing to our performance and will continue to support margin improvement. We are also investing in how the university shows up across the next generation of search and discovery platforms. As social media and AI increasingly shape how prospective students explore and evaluate their education options, we continue to optimize our presence across these emerging interfaces and ensure our outcomes-focused content reaches students wherever they are and wherever they begin their journey. We believe that our response over time has been effective as evidenced by our leading brand position across marketing platforms. While underlying demand for our brand remains strong, we experienced changes to search algorithms, which affected our marketing funnel. As we've done consistently for years, we proactively leveraged our leading brand, targeted content and digital expertise to adapt and optimize within the shifting marketing environment. As we headed into the third quarter, we have continued to see healthy underlying demand and are encouraged by the early signs of improvement in the marketing funnel from our proactive initiatives and our ability to maintain our brand leadership position. We also believe the university is well positioned for the needs of today's workforce. We are in the early stages of what many are calling the great reskilling of the American workforce. Estimates suggest that 60% of the global workforce will need to acquire new skills by 2030 to remain competitive in an AI-transformed economy. We believe the majority of jobs in the future will be held by workers fluent in AI. The workers most affected by this change are mid-career adults who need flexible career-relevant education that fits around their professional and personal lives, the exact population this university has served for 5 decades. We have been committed to the AI fluency of our students since we adopted the ethical use of AI by all of our students in our skills aligned curriculum approximately 2.5 years ago. And we will continuously adapt our curriculum and thoughtfully add AI skill development related to specific disciplines and careers that are rapidly evolving in their use of AI. Our progress is demonstrated by the reporting from 79% of the students surveyed in the most recent Ruffalo Noel Levitz priority survey for online learners that they are satisfied with their confidence applying AI tools in real-world scenarios. As we enter the second half of the year, underlying demand and retention remains strong, we remain focused on disciplined execution and thoughtful investment to support student outcomes and financial performance. Our approach continues to be guided by our mission to enhance the adult learner experience, including strengthening engagement and retention. With that, I'll turn it over to Blair. Blair Westblom: Thank you, Chris. Net revenue for the second quarter was $222.5 million, down 0.4% compared with $223.4 million in the prior year period, reflecting the impact of discounts. Average total degreed enrollment increased 1.8% for the second quarter to approximately 82,600 students compared to 81,100 in the prior year, driven by strong retention trends. Net income attributable to Phoenix Education Partners was $10.8 million or $0.28 per diluted share compared to $16.1 million or $0.43 per diluted share in the prior year. The decrease was primarily driven by higher share-based compensation expense associated with our IPO. Adjusted EBITDA for the second quarter increased 7.8% to $34.8 million compared to $32.3 million in the prior year. Adjusted diluted earnings per share was $0.58 in the second quarter compared to $0.56 in the prior year. Adjusted EBITDA margin for the second quarter expanded to 15.7%, up from 14.5%, driven by lower bad debt expense, primarily due to higher retention, partially offset by an increase in costs attributable to being a public company. For the first 6 months of fiscal 2026, net revenue was $484.5 million, an increase of 1.3% compared to $478.1 million in the prior year. Average total degreed enrollment was up 2.9% for the first 6 months to approximately 84,100 students compared to 81,700, reflecting continued strength in retention. Net income attributable to Phoenix Education Partners was $26.2 million or $0.68 per diluted share compared to $62.5 million or $1.66 per diluted share in the prior year, with the year-over-year decrease primarily driven by share-based compensation expense associated with our IPO. For the first 6 months, adjusted EBITDA increased 7.4% to $110 million compared to $102.4 million in the prior year, and adjusted diluted earnings per share was $1.97 compared to $1.92 in the prior year. Adjusted EBITDA margin for the first 6 months increased from 21.4% in the prior year to 22.7% in the current year, representing a 130 basis point improvement. These results reflect the increase in net revenue as well as lower bad debt expense, primarily due to higher retention and lower financial aid processing costs. We continue to maintain a strong balance sheet with substantial liquidity and no outstanding debt. As of February 28, 2026, total cash and cash equivalents and marketable securities were approximately $252.1 million compared to $194.8 million at the end of the prior fiscal year. The increase was primarily driven by approximately $80 million of cash generated from operating activities, partially offset by approximately $10 million of capital expenditures and previously announced dividend payments. Our capital allocation priorities remain unchanged: investing in student success and our technology platform, maintaining a strong balance sheet and returning capital to shareholders. Consistent with these priorities and our belief in the long-term value of our stock, today, we announced the authorization of a $50 million share repurchase program by the Board of Directors. This authorization provides flexibility within our capital allocation framework and the ability to manage dilution effectively over time. During the quarter, we paid a dividend of $0.21 per share. And today, we announced another quarterly dividend of $0.21 per share payable in May. We expect to continue to pay quarterly dividends of approximately $0.21 per share or approximately $0.84 per share annually, subject to Board approval. We will also continue to actively evaluate M&A opportunities that would be complementary to our existing platform and align with our capital allocation strategy. With respect to our fiscal 2026 outlook, we are reiterating our net revenue guidance of $1.025 billion to $1.035 billion and adjusted EBITDA guidance of $244 million to $249 million. As discussed, underlying demand and retention remains strong. We are maintaining our net revenue guidance, but currently expect to trend toward the lower end of the full year range, reflecting the near-term marketing dynamics discussed. Given our execution to date, we are confident in our adjusted EBITDA outlook and believe we are trending toward the upper end of our guided range. This reflects disciplined cost management and efficiencies driven by our strategic and operational initiatives, including AI and technology-enabled capabilities, which we expect to support margin expansion over time. We operate from a position of financial strength, supported by strong cash generation and disciplined capital allocation. We are confident in the long-term durability of our business and remain focused on execution while continuing to invest in student success and long-term value creation. I'll now ask the operator to begin the question-and-answer session. Operator: [Operator Instructions] Your first question comes from the line of Jasper Bibb with Truist. Jasper Bibb: I wanted to follow up on some of the marketing themes you discussed. Can you maybe give a little bit more detail on the trends you've seen over the past couple of months on starts or application growth as the company navigated the channel shift you discussed from Gen AI to search or search AI, I'm sorry. Christopher Lynne: Yes. Jasper, this is Chris. Good to hear from you. Yes. So we've been navigating changes to online search for quite some time now. And coming into the quarter, we did experience another algorithm shift in AI search on Google, which had an impact to how prospective students were navigating their search process. We responded to it quickly and working with Google to understand, and this is something we're very good at. We've done for years to understand these algorithm shifts. And an example of some of our responses to that. We are learning that the AI overviews on Google now are more reliant as a primary source on YouTube. And for many years now, we've been #1 in our sector in social media. We've developed a lot of outcomes-based content that is out there that's really generated strength for us. And so one of the things we did is we migrated a lot of that content over to YouTube. And so we made changes like that, that have -- we talked about in our opening remarks that we've seen improvements in some of these recent trends coming into Q3 back in line with the trends that we were expecting for this year. To answer questions directly about applications, really, this happened going into our January enrollment period. So there was some impact on the January enrollment. And the way I would characterize it is we're seeing healthy demand at the top of the funnel. We're seeing changes in how that demand is coming to the university through multiple channels. And we've been reacting to those changes to make sure that we meet the demand where it comes to us effectively. And we feel like we've responded well in line with how we've been managing these types of changes over time for the last several years and are happy with the trends that we're seeing going into Q3. Jasper Bibb: That all makes sense. And I'm not sure how much you can address this, but I think the education department changed the rules around private equity ownership in this space. The company's majority shareholder is obviously a private equity firm. Does that change anything on how they think about their investment or time line there that they've conveyed to you? Christopher Lynne: The short answer is no. And I think the changes you're referring to are related to the program participation agreements. And we just entered into a 6-year agreement last year. And based on any of the guidance received, we don't anticipate any impact. Operator: Your next question comes from the line of Alex Paris with Barrington Research. Alexander Paris: Congrats on the outperformance in the quarter. Just to clarify your answer on the previous question. Chris, you said coming into the second quarter, these changes were made at online search, and it had an impact on Q2 enrollment? Christopher Lynne: Yes. It was ahead of the January enrollment season later in January, we saw some impact, which ended up being, we believe, a result of an algorithm shift in Google's AI overviews. When we were seeing that, that was in the late or early winter, so November, December time frame. Early on, it looked like some seasonality that we were trying to understand, we later recognized that the algorithms did shift and so the way we responded to that was multifold. We had a lot of responses, really just continuing to do a lot of the same things that we've been doing for years. I think one of the more material changes we made was learning that Google had shifted to YouTube as being a primary source for the AI overviews. And despite the fact that we were very strong in content across social media, we weren't where we can be with YouTube. So we made some large shifts in the January and February time frame to address that. And when I mentioned that we're seeing trends return back to trends we expected for the year, that began to occur back in early March. Alexander Paris: Okay. Got you. I just wanted to clarify that. So you saw the initial impact early in the second quarter, you made some changes and then early here in the third quarter, month of March, you're seeing some improvement? Christopher Lynne: Yes. I would say the impact was noticeable really in the later part of the second quarter, but the algorithm shift happened in the early part of the second quarter. Alexander Paris: Okay. Got you. So the shift early in the quarter, the impact late in the second quarter and then here early in the third quarter, you're seeing some improvement in response to some of the changes that you've made, you think? Christopher Lynne: Yes. I mean we've seen continuing through all of this, we've seen strong demand for our brand, which is the very top of the funnel. One of the most effective ways of looking at that is just the inquiry searches for our brand on Google. And then the next measurement we look at is how that demand comes to us on our website, and it comes from various channels. And we've seen strength in how that inbound demand is coming to us. That's returned back to what I would call normal relative to our recent history here in the early part of Q3. Alexander Paris: Got you. And then so the second question is for Blair in your comment regarding revenues and the guidance for the balance of the year, you said that revenue should trend to the lower end of the full year range because of some of these marketing issues? Blair Westblom: Yes, that's right, Alex. As discussed, we would expect revenue to come in, in the lower part of the range just given the marketing dynamics that we've observed. Chris, is there anything you'd like to add to that? Christopher Lynne: Yes. I mean the way we looked at it is we took the best information available. We didn't feel based on that, that we should change the range, but we did want to guide to the lower end given these dynamics we saw in Q2. Alexander Paris: And again, it sounds like conservatism, given you said that things have kind of returned to normal here in, I don't know, month of March or early April? Christopher Lynne: I would call it, Alex, prudent. I mean we -- I think you'll learn the style of this management team over time. We try to be prudent. I would also say that there's always a cycle time. So when you see demand, it works its way through the funnel. And so I think it's prudent because we're seeing what we need to see, but we also know that there's seasonality in terms of when students actually begin their classes. And so we took that all into consideration with our guidance. Alexander Paris: Okay. That's great. And then just to button it up. Adjusted EBITDA, on the other hand, is trending towards the upper end of the full year range, and that's due to cost management as well as lower bad debt related to the better retention. Do I have that right? Christopher Lynne: Yes, absolutely. And it's also a reflection of the good work that our teams are doing, leveraging our technology and AI solutions. That's been a big part of our story for years. And we're seeing nice traction in getting efficiency. You heard it in our opening remarks that our story has been -- we've been effective at gaining improvement in student outcomes while reducing the cost to deliver those outcomes. And we continue to see the ability to do that, not only improve retention, but improve the efficiencies in generating these results. And we believe that we're going to maintain those types of efficiencies through the remainder of the year. Alexander Paris: Your next question comes from the line of George Tong with Goldman Sachs. Keen Fai Tong: Can you provide an update on your fraud prevention initiatives and your estimate of how much of an impact that is currently having on enrollment performance? Christopher Lynne: George, yes, thanks for the question. Very similar to last quarter. We feel really good about the infrastructure that we put in place last year. If you recall, we did see a lot of friction as we were putting the infrastructure in place. And then in Q4 of last year, we made a choice to include some of the analytical detection and verification processes at the top of the funnel. And we saw a lot of friction in Q4. That improved significantly coming into Q1. It's improved even further into Q2. What I would say today is we have a very strong, agile system of detection based on strong analytics and prevention with verification, fraud detection with our bank accounts that's working very well. We think that this is doing a couple of things. While there is a lot of UEA activity in the marketplace, we are seeing evidence that as it relates to us, while we still see a lot of volume try to get into our funnel, it's dissipated quite a bit. So we do think that our systems of controls have deterred the volume from trying to penetrate our university as often. And we've gotten better and better at that balance of reducing friction significantly for well-intended students so that they can have a normal process of working their way through the enrollment process. So we feel really good about where we're at. We have it under control through Q2. It's a day-to-day thing, but our systems are great. And I would say there is a little bit of friction that will exist as long as this activity exists in the marketplace, but it's not something that we consider material to date. Keen Fai Tong: Got it. That's helpful. And then your retention rate expanded quite a bit, 500 bps year-over-year in the quarter. Can you elaborate on the initiatives that drove this level of improvement and if this rate of improvement is sustainable or more onetime in nature? Christopher Lynne: Yes. Thanks for that question. I'll say there's a -- we're in the probably eighth year, if I'm doing my math, our ninth year of a transformation that we've been talking a lot about. We've seen many, many years of consistent meaningful improvement in our retention rates, which ultimately will lead to stronger and stronger graduation rates. And it's a myriad of things. I mean we've built a technology digital-first platform inside and outside the classroom that leverages our data in really powerful ways to predictively meet our students when and where they need us with solutions. And we have hundreds of solutions that we're constantly focused on that are removing friction or finding ways to get more effective outcomes to our students. Some of the bigger needle movers we talked about were mobile-ready courses in those early courses where students are acclimating into the institution. That's had a meaningful uptick because as they have success in those early courses, they get more confident and then they end up persisting. If they can get first -- through the first 2 or 3 courses, they persist at much higher rates and graduate much higher rates. Dispersed by course we've talked about in the past has also been a really meaningful needle mover. But there's numerous other things, and that's part of our story. Like we're really excited about this moment where -- at which AI technologies are we're in a position to leverage these technologies in ways to continue to do what we've been doing, which is improve these retention outcomes for our students and satisfaction outcomes while reducing the cost to deliver them. And we're seeing an acceleration of AI initiatives across the Board from our AI-assisted student onboarding to human-in-the-loop solutions that are taking cycle times and supporting our students down considerably while getting to more effective solutions in a much more efficient way. Examples are our transcript evaluations. We've seen those cycle times improve. We still have our transcript evaluators in the process, but we're leveraging AI and other technologies to make that process much more effective or call summarizations that we're leveraging across our student-facing positions that enable us to take many, many minutes, sometimes more than 10 minutes out of the preparation process of supporting a student and put us in a position to give them even better support, leveraging AI to better summarize where we are with that student and what next steps we should be taking. So we expect it to continue. Now in terms of the onetime, 500 basis points improvement for undergrad programs in fiscal '25 was an enormous improvement. We're very proud of it. I would not expect that year-to-year. That is really -- you don't see that often. You get a 100 basis point improvement in any given year, and that's a pretty meaningful jump. But we have continued to improve versus last year. So we do expect to continue to improve retention going forward. That's a really important part of our strategy. Operator: Your next question comes from the line of Griffin Boss with B. Riley Securities. Griffin Boss: I just want to jump right back into that discussion on retention, more so directed at the expansion of your employer-affiliated students or the B2B segment, if you will. So we've talked about this plenty in the past. I'm just curious, I mean, you've expanded that from what was it 31% a year ago, now it's a 35% of total enrollment. Where -- can you just remind us where you think that, that level can go or maybe what you aspire to do? Obviously, this is a big strategy for Phoenix in terms of retention. But you've talked about in quarters past how this -- you could see kind of overall revenue growth trailing enrollment growth given some of the Myriad things that you've discussed today on top of B2B. But is that going to continue into -- past the third quarter at this point? Just kind of where you're at on the B2B initiatives at this point? Christopher Lynne: Yes. Thanks, Griffin. I really want to address 2 parts of your question. One, where we're going with our B2B growth; and two, the relationship between revenue and enrollment because I want to be really, really clear on how I think you should be considering that. In terms of B2B growth, I mean, this is a big part obviously, we've discussed for a while of our long-term strategy. We think we're well positioned to meet the reskilling needs of employers and their employees who are working adult students. And we're positioned well to continue healthy growth in that segment. We increased the size of our account management teams this year by about 25%. We're seeing the benefit of that, both in expanding growth within existing relationships as well as growing new employer relationships as well. And we believe we can continue healthy growth in that area. We're not in a position to give you a long-term view on that, but we have a -- well over a majority of our students are working adults. We have over 2,500 employer alliances that cover a large percentage of the market share of employed work in adults. So we do think that there is strong upside in growing that channel. In terms of the revenue and enrollment relationship, we do have a discounted rate on average for B2B. And I think we mentioned that in our opening remarks. That's been very much in line with our expectations. And just as a reminder, our B2B students retain at higher rates. It's a very durable revenue stream. And over time, they have very similar profitability characteristics as our B2C students. And the bigger the channel gets, the more effective it is at reducing the acquisition cost of growing that channel. So we feel really good about that being in line with expectations. But the other relationship between revenue and enrollment to keep in mind that I talked about in previous quarters is last year, we had a higher volume of students enter our risk-free period. This is not anything to do with B2B, but we had a larger percentage, and we offer a risk-free period to students that have certain risk characteristics that don't correspond to higher retention rates. So we offer them the opportunity to try our courses out before they enroll. That did result in more of those students deciding to enroll, but not persisting beyond their initial courses. So I mentioned this early in the year for a reason because we anticipated in this quarter and in Q3 that would affect we have atypical relationship between our average enrollment and revenue as a result of that experience last year. We're not having that experience this year. We have students that -- in terms of student mix that we expect to persist much longer, but it is affecting that trajectory in Q2 and Q3, and we expect that to reverse back to more normal trends in Q4. Operator: Your next question comes from the line of Jeff Silber with BMO Capital Markets. Ryan Griffin: This is Ryan on for Jeff. I had a question. I know business and IT are big program concentrations for you. I was wondering if you're seeing any shifting degree preferences from students as some of the newer students might be fearful about the potential Gen AI impact. I know we saw some of that in the fall clearinghouse data. So curious as it relates to your business. Christopher Lynne: Yes. Thanks, Ryan. Yes, we're looking at that very closely. I think what I'd like to point out that we feel really good about is we made multiyear investments in aligning all of our curriculum to career relevant skills. And that's across all of our programs. We're very comfortable with the breadth of our program offerings, including our business and IT programs. And what that means is that in every course a student takes, they can earn verified skills that map to the career relevant skills that employers need today. We've embedded AI fluency into the skills aligned curriculum over the last 2.5 years. And so we feel very good about the differentiation of our programs from a skills alignment and the relevancy to the workforce needs today. And we're seeing that -- we believe that's evident in the growth that we're seeing directly in the B2B relationships because these -- we're growing existing relationships where we still compete against other universities and colleges, and we're able to expand our growth, and we believe that differentiation is a very helpful driver to that growth. And we're seeing growth in all of our programs. One of the strong trends I also read about is in health care and nursing. That has been a nice tailwind for our health care programs and nursing programs. Health care employers are the largest segment we have across our B2B portfolio, just under 30%. But we're seeing growth of all of our programs within that segment. And many of our programs are business and IT because there is demand from those employers and those employees. So we feel comfortable with where we're at as it relates to the University of Phoenix's programs. Ryan Griffin: And I appreciate the color on the B2B enrollments and the strength of those relationships. I'm just wondering how you're thinking about the non-B2B degreed enrollments? And are you investing there? And how has that kind of been trending? Christopher Lynne: Yes. So we have variability between B2C and B2B throughout the year. We're comfortable with the demand we're seeing across both programs, both channels. We think that if we're meeting the needs for employers and workers, we're meeting the needs for those that don't have benefits under employers and are working mid-career working adults. So we feel like that differentiation is helpful across B2C and B2B, and we feel like we see plenty of evidence of that in our demand framework. Operator: Your next question comes from the line of Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to appreciate all the feedback this afternoon. Maybe you could talk a little bit about the competitive landscape right now. You talked a lot about the investments that you've made, specifically kind of targeting from a marketing standpoint. But maybe just give us an update on just how you would characterize the pulse of the overall competitive landscape. And then as you think about your strategy over the course of the next 1 to 2 years, what we could expect to see as you continue to look to differentiate yourself? Christopher Lynne: Yes. Thanks for the question. We have a very large addressable market, both students with some or no college, some college degree or some college credits that want to complete their degree and those that have no college credits and want to complete their degree. And for a lot of those students, we may not be competing with anyone except for motivating them to pursue getting skills that could advance their careers. So we tend to focus on what are the needs of those potential students that we can support. Students have a need for skills today. They want career-relevant skills that not just wait for a degree, but that they're getting skills along the way that have value in the workforce. We believe that we're delivering on that in a very differentiated way. Each course, they're getting skills in weeks, not years. That's one of our primary campaigns. And we don't have many competitors that can say the same thing based on the substance of what they deliver. And so we think that, that positions us very well to meet the needs. There's also other things that we do very well at saving time and money. We're very effective at helping students with previous college credits, leverage those college credits to save time and money. So we make sure that we differentiate the experience that those students have and getting credit on the front end. The more effective we are there, the better we compete with other institutions like ourselves. There's a lot of flexibility, our empathetic support process is something that busy working adults who are a little bit cautious about pursuing college again. They see that as a very strong value proposition. So the more effective we are at telling people what we do really well and helping them understand how we do it better than our competitors tends to help us be effective in the marketplace. And we just continue to lean into those distinctions effectively in our marketing efforts. Stephanie Benjamin Moore: Got it. And just as a follow-up, I mean, I think we're all a society thinking about the way we use education is differently now with AI. So I guess maybe just to wrap it up, I mean, do you feel like there's a strategy in which you can kind of advertise your approach not only to everything you just outlined, but that in Gen AI world, maybe how you pursue education could be different? I guess I'm just a high-level question if that is. Yes. Christopher Lynne: I'm thrilled you asked it. Look, we think the evolution of AI is extremely powerful to our business model and how we serve our students. We talk a lot about that. But to answer your question, when you look at the workforce trends, what's existing today and where the world is going, and we talked about this in my opening remarks about this great reskilling as they call it, we're living that. I mean this is a rare moment where we're looking at our own institution and working on reskilling our entire employee base to help them leverage tools that magnify their ability to pursue the goals that we have. There's a lot of organizations like us that have a big vision. And the use of AI is powerful at a person level, at a workflow level and at a corporate level in helping institutions get to the visions that they have. So the entire workforce is going to need these skills in order to drive the goals of tomorrow. And we know that the workers that are fluent and are capable in using AI are going to have the jobs of tomorrow. We're extremely well positioned. We think this is a tailwind for the university. We adopted AI into our curriculum almost 2.5 years ago. We were a first mover here. Now all institutions are trying to figure out how to do this. Our students are gaining fluency in AI. We're getting deeper and deeper into looking at what our employer partners and industry councils are looking for in the workplace and building those technical skill needs into our program. So we think we're well positioned to help our students gain skills for tomorrow. We also think our differentiation is we understand the adult learners. So when you look at the learner today, more and more learners are becoming what we have served for almost 5 decades, an adult learner that is constantly looking to upskill that values the pursuit of a degree, but they're working, they have responsibilities along the way. AI has changed the game so much. The speed and movement of skills in the workforce is going to cause more and more learners to look like our learners, and we're well positioned to deliver value. And we know they want value along the way as well as through the degree, and we have a curriculum that offers them skills along the way as well as the degree. So we think we're very well positioned within the trends that we're seeing in the workforce today as it relates to the AI. Operator: That concludes our question-and-answer session. I will now turn the call back over to Chris Lynne for closing remarks. Christopher Lynne: Thank you. Our results this quarter reflect continued progress in executing our strategy. We remain confident in the strength of our mission, the resilience of our model and our ability to continue to deliver strong student outcomes. I want to thank our faculty and team members for their continued dedication to our mission and commitment to student success. Thank you for joining us today.
Operator: Thank you for standing by, and welcome to Skillsoft's Fourth Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] Please note that today's call is being recorded, and a replay of the call and webcast will be available shortly after the call concludes for a period of 12 months. I would now like to hand the conference over to your first speaker today, Nick Teves, Investor Relations. Thank you. Please go ahead. Nick Teves: Thank you, operator. Good day, and thank you for joining us to discuss our results for the fourth quarter ended January 31, 2026. Before we jump in, I want to remind you that today's call will contain forward-looking statements about the company's business outlook and our expectations that constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including statements concerning financial and business trends, our expected future business and financial performance, financial condition and market outlook. These forward-looking statements and all statements that are not historical facts reflect management's current beliefs, expectations and assumptions and therefore, are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions, forecasts, estimates or projections in the forward-looking statements made today. For a discussion on the material risks and other important factors that could affect our actual results, we refer you to our most recent Form 10-K and other documents that we file with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements or information, which speak as of their respective dates. During the call, unless otherwise noted, all financial metrics we discuss other than revenue will be non-GAAP financial measures, which are not prepared in accordance with Generally Accepted Accounting Principles. For example, listeners should be cautioned that references to phrases such as adjusted EBITDA and free cash flow denote non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation or as a substitute for GAAP financial measures. Presentation of the most directly comparable financial measures determined in accordance with GAAP as well as the definitions, uses and reconciliations of non-GAAP financial measures included in today's commentary to the most directly comparable GAAP financial measures is included in our earnings press release, which has been furnished to the SEC on Form 8-K and is available at www.sec.gov and is also available on our website at www.skillsoft.com. Following today's prepared remarks, Ron Hovsepian, Skillsoft's Executive Chair and Chief Executive Officer; and John Frederick, Skillsoft's Chief Financial Officer, will be available for Q&A. With that, it's my pleasure to turn the call over to Ron. Ronald Hovsepian: Thanks, Nick, and good afternoon. Thank you to everyone for joining us today. Over the past 18 months, we have worked through two important and related efforts at Skillsoft. First, we undertook a strategic transformation to reposition the company for where the market is going. Second, during FY 2026, we made meaningful operational progress against that strategy while navigating a very challenging external environment. Let me start with the strategic transformation. We began with a comprehensive assessment of the market, where the customer demand was heading and where Skillsoft could differentiate in a durable way. That work confirmed 3 foundational assets in the business: our content, our platform and our data. Those assets give us a credible foundation to evolve from a traditional learning company into an AI-native skills platform built for the enterprise needs. From there, we put in place a clear transformation plan and applied sharper prioritization with greater discipline to capital allocation. Using that same discipline, we reduced gross costs by approximately $45 million and reinvested roughly half of that into areas that we believe would matter most for long-term value creation, primarily go-to-market capabilities and AI-driven product innovation. FY 2026 was about turning that strategy into execution. And I want to be clear on the context. We made progress while operating against a backdrop of significant macro and geopolitical uncertainty. Earlier in this year, bookings were affected by executive orders, DOGE-related actions and broader disruption in parts of the government market. As the year progressed, that uncertainty was compounded by additional global geopolitical instability and a more cautious enterprise spending environment. Despite that, we made substantial operational progress. We advanced our product road map, including the release of an upgraded version of CAISY, our AI simulation offering. We announced our new AI-native platform in September, and we brought it to general availability in February. Since launch, we have secured 15 paying customers, and we are also using the platform internally in our own operations, which is helping us refine the experience and accelerate learning from the market while becoming more efficient as a company. At the same time, we continue to simplify and focus on the business. We further streamlined the cost structure, improved efficiency and maintained prioritization and disciplined capital allocation with the outcome of generating positive free cash flow. Just as important, FY 2026 demonstrated the financial durability of the business as we operated with discipline and continue to fund our transformation in a highly uncertain environment. That same discipline also led us to initiate a strategic review of Global Knowledge, which remains underway as we continue to focus capital and management attention on the areas of the portfolio with the strongest growth, margin and cash flow characteristics, particularly TDS. As we sit here today, I think there are 3 things that matter most. First, the strategic transformation was necessary with the AI disruption. And that transformation is well underway as we reposition the company around AI-native and AI-enabled skills platform model. And that positioning is increasingly resonating with customers. Second, FY 2026, we represented substantial operational progress. We improved focus, advanced the platform, made the cost base leaner and more directed, strengthened execution discipline and delivered positive free cash flow, all while continuing to manage through a meaningful market disruption. Third, we're beginning to see evidence that this work is gaining traction. Our platform is winning customers. Our AI capabilities are seeing strong engagement, and we believe our TDS Enterprise business has reached a revenue inflection point. When we look at the market, many companies are talking about skills and many of them are talking about AI. What we believe differentiates Skillsoft is our ability to bring together content, platform, data and AI in a way that is usable, governed and scalable for the enterprise. Our differentiation comes down to 3 things. First, our skills intelligence. We have a deep and structured body of enterprise learning data mapped to roles, domains and job-relevant use cases, which gives us a meaningful foundation for a skills-based development. Second, the integration of content, platform and data. We are not offering a narrow point solution. We are delivering an integrated system that can help customers move from learning activity to workforce capability and measurable outcomes. Third, our ability to operationalize AI in the enterprise environments. Customers are not looking for AI as a feature by itself. They are looking for trusted partners that can help them apply AI securely, responsibly and in ways that improve workforce readiness in a measurable way. All of this is delivered through our AI-native skills (sic) [ Skillsoft ] Percipio Platform, which brings together learning content, skills data and measurement into a unified system. It can serve as the front end of a learner relationship or as the back end of the skills management process, giving customers flexibility in how they deploy it in their enterprise environments. That is exactly how we are seeing it in the market. One concern we sometimes hear is whether AI could reduce the relevance of categories like ours. What we are seeing suggests the opposite. AI is increasing the urgency of workforce readiness. It is widening the skills gap faster than many organizations can close it and driving demand for solutions that can translate into AI true role-based execution. This is not just conceptual, it is showing up in customer behavior in platform usage and in buying decisions. For example, one of Singapore's largest telecommunications providers selected Skillsoft through a competitive RFP process to support an AI-led workforce transformation mandate, not simply to extend a content relationship. Across the organization's entire user base, Skillsoft is helping support role redesign, develop AI capabilities and embed learning into the flow of work. Early activation includes persona-based learning for an internal AI academy and pilots around AI augmented job redesign. We saw something similar with a large global health care organization, which entered into a multiyear partnership with Skillsoft to help operationalize an AI-first operating model. They are using Skillsoft to translate AI advancements into role-specific capabilities and move from fragmented learning approaches toward a more centralized and business-aligned skills model. We're also seeing a strong signals in our own engagement data. AI skill benchmark completions increased 994% year-over-year. AI content completions increased 261% year-over-year. AI Journey completions increased 222% year-over-year. CAISY learners increased 146% year-over-year and CAISY launches or engagement increased by 341% year-over-year. To us, that matters because it reflects active scaled behavior tied directly to workforce transformation. It suggests that AI is not displacing the need for skills development, it is increasing it. And as enterprise move faster on AI, they're also becoming more aware of the risks of moving without verified workforce capability. AI without demonstrable skills can create a real business risk, including poor decision-making, compliance exposure and lower productivity. That is the one reason buyers are becoming more focused on ROI, measurable outcomes and trusted platforms that can support enterprise execution at scale. So when I step back, I would frame FY '26 this way. It was a year of significant strategic and operational progress in a highly uncertain environment. We continued transforming the company. We advanced our AI-native platform and broader AI capabilities. We sharpened the operating model. We demonstrated financial durability, we improved execution discipline, and we began to see clear evidence of the traction in the market. There's still work ahead, but the direction is increasingly clear. We are building a more focused company, a more differentiated AI-native platform in a market where the need for skills-based workforce transformation is growing, and that demand continues to build. We believe Skillsoft is increasingly well positioned to translate that market shift into durable growth. With that, let me turn the call over to John to cover our financial results in more detail. John? John Frederick: Thank you, Ron, and good afternoon, everyone. As a reminder, and as noted at the opening of the call, consistent with prior quarters, this section covers non-GAAP measures unless otherwise stated. During mid-fiscal '25, we presented our strategic and financial road map to the Street. For fiscal '25 through fiscal '26, our stated financial objectives were: first, $45 million of annualized expense reduction in fiscal '25. This was achieved. Second, margin expansion in fiscal '25 and '26. This was also achieved. Third, return to top line growth in fiscal '26. This was achieved for TDS Enterprise, but not for Learner or for GK, which informed decisions around the latter 2 businesses. And finally, fourth, positive free cash flow generation in fiscal '26. This was achieved for fiscal '25 and for fiscal '26. While macroeconomic disruption and minor operational time delays impacted bookings and revenue during fiscal '26, the company delivered on its structural objectives of cost reduction, margin expansion and cash generation, validating that the transformation strategy presented at Investor Day is indeed on track. Now turning to the results. Revenue for TDS was $102.6 million for the fourth quarter, nearly flat year-over-year, with growth in our Enterprise Solutions business offsetting a continued drag from our B2C learner product. Global Knowledge revenue of $28 million in the quarter was down approximately $2.9 million or 9.4% year-over-year. The trends we've seen earlier in the year for demand and instructor-led training have continued. Total revenue of $130.7 million in the fourth quarter was down $3.1 million or 2.3% year-over-year. Our TDS LTM dollar retention rate, or DRR, as of the fourth quarter was 98% compared to 105% in the prior year quarter. Customer retention improved year-over-year, while customer upgrade rates declined more, reflecting a challenging year-over-year comparable period. Going forward, we believe that the release of the new platform should enable us to move back to historical upgrade rates and beyond. Now I'll walk you through our expense measures, which taken as a whole, continue to see year-over-year improvements. Cost of revenue was $34.2 million in the fourth quarter or 26% of revenue, up 2.5% year-over-year, reflecting higher labs and certification spending resulting from higher customer utilization. We have changed the way we structure some of these agreements to avoid these overruns in the future. Content and software development expenses of $12.8 million in the quarter or 10% of revenue were down approximately 5% year-over-year. These improvements largely reflected productivity gains from leveraging AI and sharper focus. Selling and marketing expenses of $37.5 million in the fourth quarter or 29% of revenue were down approximately 5.6% year-over-year, resulting largely from lower program spending, reflecting our drive for capital allocation discipline. General and administrative expenses were $15 million in the fourth quarter or 11% of revenue, down approximately 13% year-over-year, reflecting lower headcount and vendor spending, continuing our drive for a leaner, more efficient cost structure. Once we complete the GK strategic assessment process, we believe we can streamline the cost structure further. Total operating expenses were $99.5 million in the fourth quarter or 76% of revenue and were down $4.3 million or 4.2% year-over-year. Adjusted EBITDA of $31.2 million was up approximately 4% compared to $29.9 million last year, with adjusted EBITDA margin as a percentage of revenue for the quarter at 23.9% compared to 22.4% last year. We estimate that TDS contributed approximately $33 million to EBITDA, driving most of the improvement in both EBITDA dollars and EBITDA margin. GAAP net loss was $36.7 million in the fourth quarter compared to a GAAP net loss of $31.1 million in the prior year period. The increase in GAAP net loss resulted primarily from an intangible impairment charge and higher restructuring expenses, offset somewhat by lower expenses. GAAP net loss per share was $4.19 compared to $3.75 loss per share in the prior year period. Adjusted net income of $11 million in the fourth quarter compared to adjusted net income of $17.5 million in the prior year. Adjusted net income per share of $1.26 in the fourth quarter compared to adjusted net income per share of $2.11 in the prior year. Now moving to cash flow and the balance sheet highlights. Free cash flow for the quarter was $26.5 million compared to $13.2 million in the prior year period. As a reminder, last quarter, we highlighted delayed collections in the third quarter would be recaptured in the fourth quarter, which, in fact, happened, driving a portion of the improvement. GAAP cash, cash equivalents and restricted cash was $104.5 million at quarter end. Total gross debt on a GAAP basis, which includes borrowings under our term loan and accounts receivable facility was $578 million at the end of Q4, down slightly from approximately $581 million at the end of fiscal '25, reflecting normal amortization. Total net debt, which includes borrowings under our term loan and accounts receivable facility, net of cash, cash equivalents and restricted cash was approximately $474 million, down from approximately $477 million at the end of fiscal '25, reflecting our positive free cash flow for the year, which came in just above the high end of our expectations at $6.5 million. We continue to make progress on our strategic assessment of GK that we announced in our Q3 earnings call. We're in active discussions with multiple parties, having completed a recent bid date. However, the conflict in the Middle East has had meaningful impacts on our process given GK's direct exposure to the Middle East, fears of global economic issues and some potential buyers being physically located in the market. We will keep our stakeholders updated on this, and we are working quickly with speed and certainty as key guardrails in our assessment. That said, there can be no absolute assurance of a successful transaction. Looking to fiscal '27 guidance. For TDS, we expect revenue for the full fiscal '27 year of between $388 million and $406 million and adjusted EBITDA between $108 million and $116 million or around 28% of revenue. Putting aside GK, we expect free cash flow in the range of $14 million to $22 million for TDS. With that, operator, please open the call up to questions. Operator: [Operator Instructions] And our first question comes from the line of Ken Wong with Oppenheimer & Company. Hoi-Fung Wong: Great to see a solid close to the year, guys. Ron, maybe starting with you. When I look at the TDS guidance, it does show a slight decline. Can you talk through some of the business dynamics that you're seeing, some of the -- maybe how that progression could look through the year? And then, John, to the extent that you can maybe comment on the levels of conservatism or some of the assumptions that are baked into that guidance, so we have a sense of kind of the -- how qualified that number could eventually settle out at? Ronald Hovsepian: Thanks, Ken. Great to hear your voice. The key business dynamics that you're asking about that are influencing are some historical pieces that I'm looking at my teammate, John, and he'll walk you through them so you can bridge them as part of it. So we've got some historical pieces with the normal things you're seeing. I'd just remind everybody, when we came into the year, we were driving our strategic transformation and that operational turnaround. We've made really good progress against that as part of it. So now we're shifting to the phase here where we're going to start to focus on the growth. That will show up actually first in bookings before it shows up inside of the revenue number. And the revenue had some headwinds and other dimensions that I'm looking at John to cover with you so we can bridge those numbers to you to make it clearer of where we're going. But the market is definitely slowed and focused on it right now. Customers are thinking. That plays right to our core strategy of that learning unified platform, the Skillsoft Percipio Platform, unifying all their skills management needs. That's definitely been the conversation. As we said, we've now signed up 15 customers on to that strategy and that journey with us, all paying customers, which is great. So I'll flip it over to John to fill in the rest of that guidance dimension for you, and then we can come back to it more, Ken. John Frederick: Ken, thanks for asking the question. So if you break down TDS, we have 2 components of it. We have a consumer business, we have an enterprise business or an enterprise solution, if you will. When you think about the relative size of those 2 components, consumer is about 9% of the total and Enterprise is the rest just to contextualize it. When you look at the midpoint of our guidance, we're down about $7 million year-over-year at the midpoint. Nearly all of that is as a result of our consumer business. The enterprise business has actually been performing reasonably well. It hit the inflection point. We've talked about that. So we're pretty happy with that. Some of the headwinds that we saw earlier in the year, namely some of the churn in some of our government federal clients put a bit of a bookings headwind going into fiscal '27, as Ron was commenting on the fact that you really have to get the growth out of bookings first before you get it in revenue. We had a bit of a headwind from that. We think that we can overcome most, if not all of that and perhaps grow from a revenue basis in enterprise, but we'll continue to have -- we're planning for a continued decline in the consumer business. Hoi-Fung Wong: Got it. Okay. That's fantastic. I appreciate that. And I guess maybe just continuing down that thread, like you guys highlighted some macro geopolitical uncertainty. Obviously, you've got a new platform out there that probably takes a little time to ramp. Should we assume that you have an elevated level of conservatism in that guide relative to how you guys typically approach it? What's the right framing of the setup on numbers here? John Frederick: Yes. I think the range that we put out, I think, is pretty reflective of what we're seeing in the market right now, which is really a couple of components. At the low end of the range, we're thinking about things like pressure from the Middle East, most notably at the low end of guidance. At the high end of guidance, we're assuming that we can temper the decline in the consumer business and that we have a well-performing Middle East business. So just to kind of think about the two ends of the spectrum that kind of informs where we could end up and it actually gives you a way to track how we're doing through the year. Hoi-Fung Wong: Got it. Okay. Fantastic. And Ron, you touched earlier on some of the customer engagement on the AI side and north of 200% on a few of your key KPIs there. Any thoughts on how the time line might look when you move from activity to workforce transformation and then hopefully, workforce transformation leads to monetization. Like what's the path forward on that particular time line? Ronald Hovsepian: Yes. It's a multidimensional time line. So to your first part of the time line, we're already collecting from those customers in those numbers I just gave you, right? So we're already getting some of that revenue as part of that journey. Two, when we structured it was we wanted the customers to really begin to use it. So we were more open about the usage of how they were approaching it versus trying to hit them with all usage fees we were driving adoption as part of it at these early customers that we had as part of our journey. So as I think about that part of the road map, we structured our pricing and packaging to make sure that we got the customers adopting and going. So we're in the early days of that. Those pieces associated with it after these early parts of what we're talking about, then get into the full migration where the customer can then sell, and I'm jumping all the way to the end of the journey, which for a customer could really range from anywhere from 6 months to 2 years as a large customer is going on one of those large migrations. But the correlation would be they move from multiple hundreds of thousands of dollar type customers to multiple millions of size customers as we go on our journey. And as you know, each leg -- each leg of the adoption gathers more impact and more holding power for us with the customer. And what I'm more excited about in some of the numbers as we go forward when we start showing some of those will be around how they adopt our strategy around our custom content, their content and building that. That's still the early days on that piece. Everything else is really driving engagement on the products that we got out last year. And then we'll continue to report back to you these pieces and put it together in a more broader mosaic. But the ultimate life cycle that I look forward to packaging up here once we get more data will be that life cycle journey, where do I have the customers at this stage, then going to the next stage to the next stage to the next stage. And we think of those stages in four big chunks, and we can walk you through what those are after on that one, Ken, but happy to. I do see -- I'm focused on the enterprise and larger enterprises, I see that those turning into multimillion dollar contracts per year with our customers in terms of upside which I think is where you're saying, hey, Ron, how fast can you get there? And then how much is it worth at the end? Hoi-Fung Wong: Understood. Perfect. I appreciate the context there, Ron. And I think one piece of the guidance that I thought was particularly attractive was you're still projecting for increased EBITDA, free cash flow despite a slight downtick in TDS. I guess as we think about that the spend numbers there, do you feel there is sufficient investment to provide growth? And you -- I think, John, you mentioned that once you guys potentially clear GK off the deck, there's maybe room for further improvement. Maybe dive into those 2 pieces, if you could. John Frederick: Sure. Happy to. So one of the interesting things that isn't completely visible in the numbers is we have been fairly successful in reducing costs on a year-over-year basis. We have that grow under year-over-year where costs are -- you get the rest of the costs that you reduced in the prior year. So we have a little bit of a tailwind from that. We're taking those benefits, and we're investing in growth. We're investing in things like marketing programs. We're investing in the platform. So everything that we're doing at this point is reorienting our spend towards the areas of the business that we think will grow the fastest. When you think about what's possible on the other side of the GK, there's really two big components. One is the trap costs that are in the business. We believe that by the end of the fourth quarter, we can get those out of our run rate, assuming we can get to a satisfactory transaction between now and then. And then as you simplify the business, it gives us the ability to refine the rest of the cost structure over time because it's just a simpler business to run. Hoi-Fung Wong: Got it. Okay. Very helpful. And then I realize we're not focused as much on GK anymore with you guys looking to exit that business. But while it declined, it does appear that maybe we found some footing at the $28 million revenue run rate level. I guess is that a fair assumption? And again, just to the extent that you guys can talk on how GK tracked relative to expectations, would just love to get a sense of whether or not that business has stabilized. John Frederick: So I think, as you know, we're giving guidance on TDS with respect to the historical, I think -- we would have liked to have seen a little bit more progress in the fourth quarter. One of the challenges for that business, though, is the process itself. And that process, along with 20% of our business being in the Middle East, the combination of those two things put some pretty intense pressure on the business. Now having said that, I think the team did a good job of absorbing those fundamental challenges. So thanks for the observation. For sure, I think they'll appreciate that. I think that the business has the ability to grow. I think if we had more time and we -- this was on the same pace of performance as TDS. We'd have a demonstrable reason to keep the company or keep the business in the company because we do like that learning modality. But I think we've also concluded that from a learning modalities perspective, we can partner and get that piece and including GK being a partner on the other side of what happens. If I drill down into the individual pieces of GK, the EMEA business is really starting to look like a good performer. We're very excited about that. In the Middle East, notwithstanding what's going on in the world, we're seeing some solid progress there. In North America, that's the place where we have a bit of work to do to repair the business. Hoi-Fung Wong: Got it. Okay. Perfect. And then shifting back to the core TDS side. You touched on the DRR, slight downtick sequentially, down year-over-year, not an area where you guys expect to live forever and there's a path upwards. Ron, do you feel you guys have the appropriate product set, the appropriate go-to-market that we can see DRR return to that 105 level, again, maybe not this year, but down the line? And then for you, John, I guess, how should we think about that trajectory? Again, not a specific quantification of what that number could be. But I mean, should we assume that the path forward will be -- will hopefully be at least a little bit of an upward trajectory? Ronald Hovsepian: Yes. As John pointed out in his prepared remarks, there was a headwind from the prior year comparison that was there. And then there was some of the headwinds that happened as part of the year that we had pointed out as part of that overall journey. When I look forward, when you combine that and I look forward to where we can go, absolutely, I do see us have the ability to recover to those historical patterns that we were operating in as I look ahead. So to me, having -- as we layer more of the bricks down and this big foundation that we poured last year, those pieces will just continue to build our story, and that should directly tie to DRR from my perspective with these customers, especially as we've shared with you, we've got a good group of customers that are very loyal. We've got a good group of customers that are very engaged. And those 15 customers that are signed up for the -- paying customers have signed up for the new platform journey in the very early days here is a real good testament to that opportunity to improve that DRR as we go on that journey as the first green shoot, let's call it, Ken. Hoi-Fung Wong: Fantastic. Ronald Hovsepian: So maybe I'll just say, John, do you want to add to that? John Frederick: Yes. So let me come in over the top on that on a couple of things. So as you drill into DRR, so you look at the fiscal '25 period, the fourth quarter of fiscal '25, we had an outstanding quarter from a DRR perspective, and that was on the strength of some very large upgrade deals that we had at the end of that quarter. As we proceeded through the year, we had the challenges from some of our federal customers and just some of our larger customers really screwing down on expenses because of economic uncertainty. That drove much of what we saw in our upgrade performance. So interestingly, the thing that I liked about the fourth quarter of this year was we actually saw some strengthening in our retention rates, our customer retention rates. So that part with lower churn was very exciting for us. The much lower upgrade rates, I think as we get past -- we lap the federal business comps. As we go into the year, it will be a little bit easier for us to kind of get back to those levels and get back to the 100% and above as we proceed but we really needed 2 elements. One is for the new product to be in market and showing well. I think we're seeing that with 15 customers who are paying for the platform. We needed really the marketing to wrap around that so people knew we had a new product and it was demonstrably different in the marketplace. I think the combination of those 2 things, along with lapping some of the churn that we had in fiscal '26 should really help our DRR in the upcoming year. Hoi-Fung Wong: Got it. And then last one for me. Just when you look out at the competition, both old and new, how would you say you guys are stacking up? I guess any concern that against some of the prior softness that hopefully we're going to lap, like any confidence -- what's the confidence that, that is not driven by competition? It's more a dynamic of macro? Ronald Hovsepian: Yes. So from my perspective, as I look at the market in total, customers are going to make some big shifts in these next 5 years, and some of them are going to come sooner than later. When I look at the competition from that perspective, AI will be that catalyst, and it will come in both the agentic workflow, way people consume content and learning experiences that will all tie together. At the end of the day, skills management for the companies is going to be the new high order for what customers have to get done. That requires a unified platform system that allows a customer to manage that full life cycle and at the learning level, right, not at the system of record down at the HRIS level, they can complement each other. But it's really how do I take my company on that learning journey. What I see in the market today is a series of point solutions in the market. And I see some people after our announcement last September scrambling to try to fill in some of the cracks around that on their platform stories because their platforms are narrow, their point solutions. I'm an LMS. Now I want to be a talent management system. So what I'm seeing right now is the normal repackaging of the marketing and the materials around it. In general, I'm actually more comfortable that there's more point solutions that the customers will want to learn to over time, migrate into a full skills life cycle management, which our skills management positioning will be excellent as we progress on that journey as I look at it. So I remain very optimistic that this piece of it is going to be very, very move with great velocity for us. And let's just get these early wins as part of it as part of the overall journey. So to me, it's a logical aggregation opportunity for us -- for the customer, excuse me, to then make that migration from point solutions. My life experience has been point solutions to suites to platforms as part of the journey. And again, I'm in the learning space. I'm not taking on anything with HRIS or anything like that. But in that learning space, you have to train humans and AI now. You have to manage humans and AI now. You have to bring all those pieces together. We've got a skills ontology of 20 years around content and learning. We've got the skills ontology of how to do roles assessment. That's how we're winning these deals. That's our data. And that's why I made the comment around our platform, the data that we have along with the platform, along with the content is actually the winning hand, right, much like the media market, right? Oh, it's all content, it's all content. No, no, no, it's all platform. No, no, no, it's actually both. We have streaming, right? Putting all three together to me is going to be the key of this market, and that's what we have. Hoi-Fung Wong: Got it. Really appreciate the thoughtful response there. That's it on my end. Ronald Hovsepian: All right. Thanks, Ken. John Frederick: Thank you, everyone. Operator: And with that, there are no further questions at this time. I'd like to turn the call back over to Ron Hovsepian for any closing remarks. Ronald Hovsepian: Thank you. As I look back at the 18 months ago when we started the journey from our overall reporting perspective at Investor Day, we've made a ton of progress on the strategic transformation. Still more work to be done. But as I look forward, where we positioned ourselves with AI and how we think about AI as part of the customer's journey, as I just said, the journey for the AI human part of it and the agent part of it is going to play a key role for us and a key role with the customer. We're as well positioned as anybody with what we're doing with our skills intelligence, what we're doing with our content, what we're doing with our platform and ultimately bringing all that together with the data that we have here over many, many years. So as I look at '27, it's a year of growth. We're going to try to prove ourselves growth in the revenue. And then as we hit the end of the year, we'll start to really begin to look at what that backlog growth looks like because we're seasonally loaded to the back end, it will show up in that backlog number as we look into the end of the year. So with that, I say thank you. Stay tuned. I look forward to reporting more about our growth and where we're going as we move forward. Operator: Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.
Market expectations for inflation over the next two years have ramped up along with energy prices.