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Operator: Thank you for standing by. This is the conference operator. Welcome to the NOVAGOLD's First Quarter 2026 Financial Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Melanie Hennessey, Vice President, Corporate Communications. Please go ahead. Melanie Hennessey: Thank you, Galen. Good morning, everyone. We are pleased that you have joined us for NOVAGOLD's 2026 First Quarter Webcast and Conference Call and for an update on the Donlin Gold project. On today's call, we have NOVAGOLD's Chairman, Dr. Thomas Kaplan; President and CEO, Greg Lang; and NOVAGOLD's Vice President and CFO, Peter Adamek. At the end of the webcast, we will take questions by phone. Additionally, we will respond to questions received via e-mail and the webcast. I would like to remind you, as stated on Slide 3, any statements made today may contain forward-looking information such as projections and goals, which are likely to involve risks detailed in our various EDGAR and SEDAR filings and forward-looking disclaimers included in this presentation. With that, I will now turn the presentation over to NOVAGOLD's President and CEO, Greg Lang. Greg? Greg Lang: Thank you, Melanie. On Slide 5, we highlight the key attributes that make the Donlin project unique in the gold industry. Donlin has a combination of scale, grade, long life, low operating costs and significant upside potential in the exploration areas, and we're in a safe jurisdiction. With about 40 million ounces of reserves and resources at 2.25 grams, Donlin has got grade better than twice the industry average. Our known resource occupies only 5% of our total land holdings and there is considerable potential to increase the strong reserve base. We're also fortunate to have long-term committed shareholders who understand the value in an asset like Donlin. Moving on to Slide 6. This chart illustrates the value of Donlin and a variety of gold prices. With today's gold price approaching the upper end of this chart, the project has a net present value of almost $24 billion at a 5% discount rate. This underscores the leverage and significant economic potential of Donlin in the current gold price environment. As highlighted on Slide 7, Donlin will be a big mine. It will average over 1 million ounces a year during its 30-year mine life and about 1.3 million ounces the first 10 years. This asset production makes it really unique and stands out in the gold space. Grade is one of the most important attributes of a mining project. At 2.25 grams, Donlin is twice the industry average. It's this high grade that contributes to Donlin's very low operating costs at less than $1,000 an ounce. This slide really highlights the significant exploration potential at Donlin. Our known resources reside in the ACMA and Lewis areas, as shown on Slide #9. These areas represent only 3 kilometers of an 8-kilometer gold bearing system. When the time is right, we will continue to explore both along strike and at depth, and there's tremendous potential right in our own backyard. Turning to Slide 10. This slide is a summary of the status of our permitting. We've completed the federal permitting process and we're wrapping up the state permitting. We've worked well with the federal and state agencies over the years, and our permits are in good standing. The only remaining permit in Alaska is for the dam safety certificates and the design packages have been submitted to the state, and we anticipate approval well in advance of needing this permit. Slide 11 highlights a recent statement from Governor Mike Dunleavy up in Alaska. Governor Dunleavy as well as the other elected officials in Alaska have long been staunch advocates for the Donlin project and the importance of what it can mean to the state of Alaska in the Y-K region. On Slide 12, we highlight our long-standing engagement with our Native Alaskan partners, Calista owns the mineral rights and TKC owns the surface rights. We've got a life of mine agreements in place with both of these entities. And it's really important to remember that this is private land that was designated for mining activities. Both Calista and TKC have an owner's interest in seeing this project go forward. Moving on to Slide 13. We are starting to fill out the Donlin Gold feasibility team. Frank Arcese is our project manager. He's been around the industry for almost 40 years and is very well seasoned with big projects in remote locations. We've hired Fluor, one of the industry's leading engineering firms to lead the bankable feasibility study. Under Fluor, we have 3 specialty firms, Worley, who was responsible for the pipeline; Hatch, who is a leader in pressure oxidation and oxygen plants; and WSP, a firm specializes in, among other things, power plants. These are all industry-leading firms that will help us with the bankable feasibility study and taking the project forward into construction and, ultimately, operation. I will now turn the call over to NOVAGOLD's Vice President and Chief Financial Officer, Peter Adamek. Peter? Peter Adamek: Thank you, Greg. Turning to our operating performance on Slide 15. NOVAGOLD reported a fiscal 2026 first quarter net loss of $15.4 million. This represents an increase of $6.3 million from the comparable prior year period primarily due to higher expenditures at Donlin Gold following the commencement of the bankable feasibility study related activities including hiring for key roles on the Donlin Gold project team and higher G&A expenses at NOVAGOLD. The company's share of Donlin Gold expenses in the first quarter of 2026 was $3.9 million higher than the comparative prior year period due to camp remaining open this winter and increased project activities following Fluor being awarded the lead engineering role for the Donlin Gold bankable feasibility study in early February 2026. Unlike the comparative prior year period, the company's first quarter results also reflect NOVAGOLD's 60% interest in Donlin Gold. NOVAGOLD's G&A expenses increased in the first quarter of 2026 by $3.9 million from the comparable prior year period, primarily due to higher professional fees and share-based compensation. Professional fees were elevated during the first quarter but remained in line with quarterly cadence expectations and are expected to decline from first quarter levels during the remainder of the year and remain within previously issued 2026 guidance. On Slide 16, our treasury increased by $277.4 million to $392.5 million at the end of the first quarter, primarily due to closing of a private placement of approximately [Technical Difficulty]. NOVAGOLD intends to use the net proceeds from the private placement for expenditures associated with Donlin Gold activities, exercise of the company's prepayment option on the Barrick promissory note and general corporate purposes. Excluding the financing, corporate G&A costs during the first quarter increased by $3 million, and our share of Donlin Gold funding increased by $11.9 million compared to the prior year. Moving to Slide 17. Our treasury at the end of the first quarter sits at a robust $392.5 million. NOVAGOLD is well funded, enabling it to complete the Donlin Gold bankable feasibility study in 2027 and exercised its option to prepay the Barrick promissory note later this year. Our operating cash expenditures in the first quarter of fiscal 2026 remained in line with our 2026 budget and guidance. And with that, I will now turn the presentation back over to Greg to discuss first quarter highlights. Greg Lang: Thank you, Peter. Slide 18 highlights our continuing engagement with the communities in and around Alaska. We work closely with Calista and TKC on all of these programs as well as preparing them and the local people for ultimate employment at the mine. All of these programs are a testament to our commitment to total engagement with the local communities and ultimately preparing a workforce for the Donlin project. Turning to Slide 19. During the first quarter, we announced the advancement of the Donlin Gold bankable feasibility study as well as additional engineering firms have been engaged for very specialized components of this study. This integrated approach leverages the deep technical expertise that all of these firms bring to the bankable feasibility study. On Slide 20, another development we follow with a lot of interest is the proposal to bring gas down from the North Slope into the Cook Inlet, ultimately tying into the header that will feed the Donlin project. We've got a nonbinding letter of intent with Glenfarne to evaluate natural gas supply from this proposed pipeline. This pipeline has the potential to be a real game changer for Donlin, giving us access to cheap, reliable and long-term natural gas. We will continue to advance discussions with Glenfarne as the project moves forward and where they might potentially fit in supporting the infrastructure for the Donlin project. Last year was really a transformational year for the company. Post the Barrick transaction, we've steadily made meaningful progress to advance the Donlin Gold project through a bankable feasibility study. We're building up the team with expertise to do this. In a while, we will continue to engage with our local communities. Turning to Slide 22. This highlights our top shareholders, we have always valued their long-term commitment to the project into the company. I think it's important to note that Paulson, who is now our 40% partner with Donlin has been a major shareholder in NOVAGOLD for over 15 years. This slide also highlights the coverage that NOVAGOLD has from various banks. NOVAGOLD is focused on delivering on every single commitment we've made, advancing the Donlin Gold project through a bankable feasibility study and achieving all of these milestones. Operator, we are now prepared to open the line for questions. Operator: [Operator Instructions] Our first question is from Francesco Costanzo with Scotiabank. Francesco Costanzo: I'll just start with the BFS. I appreciate that you'll be giving a more fulsome update on the BFS time line around midyear. But given that you've now awarded the engineering contracts for the project, can we consider that the clock on the 12- to 18-month time line to complete the BFS has now started? Greg Lang: I would say, yes, certainly, we have got all of the firms in place to do the bankable feasibility study. Fluor hit the ground running. They're obviously the key driver in this. And from where we're sitting today, I'd say, give or take a year, we will have it wrapped up. Francesco Costanzo: That's great. And my second question is just going to move to project financing. Just this week, we saw Perpetua Resources announced the approval of a $2.7 billion loan from EXIM. Now though the projects are obviously different, I'm wondering if you see any read-throughs on the potential debt financing availability for a project that offers significant domestic investment in the U.S., such as Donlin? Thomas Kaplan: Shall I take that one, Greg? Do you want to begin? Greg Lang: Sure. Go ahead, Tom. Thomas Kaplan: I think that it's very fair to say that when you're building the biggest gold mine in the United States, you're going to have multiple sources of financing that come to the floor. And if I had to hazard a guess, I would say that governments will be a very large component in that. There is, of course EXIM. I believe that EXIM is very well aware of our project. And for many reasons that you've cited, the domestic component of this story, not only being the largest gold mine in the United States, but being located in a place where it becomes a nexus for the energy story in Alaska, which is of extraordinary importance to this administration. Yes, I think it is fair to say that we should expect that the U.S. government has a serious interest in this story. But equally, I would point out that at least 2 Asia Pacific countries, Japan and South Korea have made very substantial commitments to investment in the United States. $550 billion in the case of Japan, $350 billion in the case of Korea. And both of those have advanced in terms of execution over the last several months. I think that it is fair to say that one of the things that we do expect them to be interested in is being able to make quite a statement with Donlin as the biggest, but also as enjoying the fruits of location, location, location. If you're on the Pacific Coast of Alaska, you have an opportunity to really develop relationships that are natural in terms of meshing together. The Japanese are very large buyers of gold and the South Korean Central Bank. Several months ago, announced that it was going to go back into the market to add to its reserves. Their timing was actually quite good. The prospect for us to be able to utilize the benefits, for example, of offtake agreements of 1.3 million, 1.4 million ounces a year, clearly make us a bit of a unicorn in terms of the ability to attract financing. And I'm not even talking about the other traditional sources. I hope that helps. Operator: The next question is from Soundarya Iyer with B. Riley Securities. Soundarya Iyer: Congratulations on this, the quarterly update. My question is on the exploration work. So as you mentioned in your opening remarks, the current resource is just 5% of the land package. So have you planned any 2026 exploration drill program or budget to test further targets? Or is that a priority after the bankable feasibility study? Greg Lang: I'll start with that one. We have putting together an exploration plan, more I would describe it as general reconnaissance work throughout our land holdings and the area in and around Donlin. So I think that's getting started. But you have to remember, I think there's a lot of snow left on the ground in Alaska. So it will be another month or 2 before we really can get on the ground. But it's more general recon. We've been studying Donlin. We believe the next Donlin is at Donlin, and we're in a modest program starting to evaluate that. Thomas Kaplan: If I may add just a few words on that because the drill bit has been my best friend over the last 3 decades. If I may echo Greg's comment, and this is obviously a very forward-looking statement. But being that for reasons belonging to Barrick's ultimate belief that this would fall into their lap one day or the other. The 95% of the property that's been unexplored is all prime real estate. And we believe that in addition to what we see as low-hanging fruit to add tens of millions of ounces within the 8-kilometer belt, 5 kilometers of which just simply have been drilled, shown mineralization, but there was never any follow-up because the deposit was already so big that it was thought you leave that for later. But in addition to the 45 million ounces of resources that we already see, it's low-hanging fruit to add, in our view, tens of millions of more ounces. But we are looking for that at Donlin. In a bear market, people really don't care about exploration results. And so I'm very glad that you asked that question because in a bull market, great drill results can cause the stock price to double or more. And we do expect to be adding a lot more ounces in the immediate vicinity of the property as we go from the 3 kilometers to the 8-kilometer mineralization. But at the same time, what Greg is referencing is that we are undertaking a project or property-wide analysis in order to identify the best drill targets that are extrinsic of the 8 kilometers. Because in our view, the odds that this occurrence is alone. Well, mother nature is very fickle. We know that the odds are very long in exploration. But I've been in this movie before. And I found that in the case of precious metals, and in the case of hydrocarbons, where we made our biggest killing at Electrum, Wildcatting is something that can take a 10x opportunity to 100x. And fortunately, we have a partner who doesn't see exploration success as being a challenge. But John Paulson and his team completely have aligned with us on understanding that good news through the drill bit is a multiple expander. And if this turns out to be what we hope it is and it's a hope, this is really the next Carlin. And the partners are aligned in being able to identify that. So when you think of the relatively low cost of exploration versus the high reward, I think you can understand that the partners in Donlin are very keenly aware that we may just be scratching the surface in this story. It remains one of the greatest exploration stories in the world, and that will unfold for the market. Soundarya Iyer: Yes. I mean I totally agree with that. My question was on that front that exploration work could gain more value in a bull market. And just one more. On the state permitting, can you walk us through what's left there on the -- as a full state permitting checklist? What is in hand? What remains outstanding? And how do we expect the receipt of those permits going forward? Greg Lang: Sure. I'll take that one. The only outstanding state permit is for the tailings dam and other water retention structures. Our federal permits which are all in hand, authorized us to do this work. However, in Alaska, these structures are administered by the state, and they require final engineering drawings before they grant approval. We've submitted the design packages to the state. We had already completed the geotechnical work, and we expect approval of these permits about the time we're wrapping up the bankable feasibility study. So they're not on the critical path, but the work to get these permits is well in hand. All of our other remaining state permits are in good standing as is our federal permits. Melanie Hennessey: Thank you. I do have a few questions from the webcast that I wanted to read out. The first is from Eric. Will the BFS include a closure and recognition estimate, including long-term water treatment and post-closure monitoring assumptions? Greg Lang: I'll start with that one. Yes, it does. Part of the feasibility study and actually the permitting requires you to have approved closure plans that have to be invested by the state and our native partners. The lease plans, reclamation and closure and water treatment, they are all part of the commitments in our existing permits. Once the mine is in operation, it will cash fund these permits through a trust. So it's -- the procedure is well defined and the approvals are all in place for the subsequent reclamation and restoration of the Donlin site post mining. Melanie Hennessey: Great. Thank you, Greg. The next question comes from Jean. Given the recent share price volatility and now with the feasibility team in place, which upcoming milestone in this study do you believe will be most important in helping the market recognize the project's underlying progress and value? Greg Lang: Well, there's -- I mean, the important piece of this, obviously, is to finish the feasibility study. But along the way, we're advancing many different avenues. I think particular interest is we will be evaluating third-party participation in our gas pipeline and other components in the infrastructure that we could logically bring in a third party to handle. So that will be one of the catalysts coming up as we advance the feasibility study. Then the other milestones along the way as different components of the study are completed, and we will update the marketplace as this work unfolds. But the real key item is finishing the study, and we anticipate it will certainly demonstrate robust economics in this price environment. Melanie Hennessey: Great. Thank you. I have a further question that come through the line from Matt. Dr. Kaplan, at the last quarter's update, you mentioned that your decisions toward NOVAGOLD and Donlin were family influence. I have been following NOVAGOLD for over 15 years and now have many family members investing in the story. I just wanted to say that I appreciate your's and NOVAGOLD's integrity over the years. A big thank you. Could you comment on the recent movement in gold and how that relates to NOVAGOLD? Thomas Kaplan: Well, that's very kind. While I'm going to ask our team, could you please call up the chart that references the long-term bull market in the Dow, and just let me know when it's up there. Melanie Hennessey: Yes, the slide is up. Thomas Kaplan: But before that, let me get to the best part of the questioner's remarks. First of all, I find it very gratifying, we all do that you're able to make this comment about our integrity and your family's investment in NOVAGOLD. Needless to say, as Electrum is the largest shareholder of the company. And as the largest shareholder of Electrum is my family. I take it very much to heart that I have a responsibility to my family, but all the other shareholders and in your case, your own family, to do the best possible thing that we can. And I would say that the thing that Greg and I are most proud of since having come into the story together in 2011, we are celebrating 15 years of joyful monogamy. And one of the things that we are most proud of is that any promises that we made, we kept. To the extent that we disappointed, I think 100% of our shareholders understood it was for reasons beyond our control. And we had all the tailwinds that I think and John Paulson thinks will take us to $100 per share. But we had one headwind. And when you think that a year ago, our stock was at $2 and change, and reached 14, and I have no doubt that we will vastly surpass that and multiply past $14. You understand that we took it to heart as much as any shareholder that we were being held back. And once that was relieved approximately a year ago, we knew that we would be on our way to $10 to $15 to $30, and we think well beyond that for all of the reasons that have become so clear to everyone that whether people realize it or not, and I'm not saying we're going back to a gold standard, because we'll never see that kind of discipline ever again in human economics. But we are seeing the remonetization of gold. We are seeing that central banks have shown through their purchases that gold is the asset that they hold because it doesn't represent someone else's liability. When central banks hold gold, when central banks buy gold, they're making a statement. To the extent that some central banks need to lay off some gold as Turkey is said to have, that proves, proves to all of the rest of them that gold is the asset that you want to own because gold traditionally in a crisis gets hit because if it's in a bull market, it may be one of the only things in which people have a profit. So the ability to not just buy but the ability to sell something, if you need to take some chips off the table because I don't know, you have missiles that are flying into your territory and need to be taken out with Patriots. That's a good thing, not to be concerned about. And this is one of the things that I enjoy most in the time that I've been bullish on gold and publicly so since gold was at $500 in 2007. And when I said my first equilibrium for gold would be between $3,000 and $5,000, people thought I was nuts. Similarly, when I said that silver will go to triple digits, people thought I was nuts, but that's my stock in trade. I don't know how to build a mine. Greg Lang knows how to build the mine. Richard Williams knows how to build the mine. They know how to do it on budget and on schedule. I can't figure out how to make chrome work over Safari. But I don't need to. You surround yourself with the very best people. My job is to protect my family's wealth. And by extension, all of the families that depend on me, including our management team and including our shareholders. So with that, let me go back to a chart that I spoke to on our last conference call because I wanted to give people a heads up as to what might happen. It wasn't required, but it might happen. In fact, what I would call the 1987 correction started 3 days later. Now I'm not going to say that I was predicting it. I was going to say that it should be expected. And for that reason, whereas people who predict a downdraft are seen as Cassandra's, I wasn't actually being a Cassandra in this case. And I have been a Cassandra in different cases, like on the Middle East. But in this instance, I was presenting people with my belief that we could have in 1987. 1987 is not so much remembered for how you felt when you thought the world was caving in, in October of '87. It was -- it is and should be remembered as the blip that created the best buying opportunity of the bull market in stocks. The best because we've already seen the stock market go to 2,750. And when it pulled back to 1,650, you have to fade these numbers a bit, I'm sorry. That was actually the cream of the opportunity to be able to build the position if you didn't have one or to add on weakness in a bull market that has all the structural factors going forward. And if anything, we can see that the world is a very different place. I hope that it's going to turn out to be a much safer place. But without getting into politics, the reality is that we're in unchartered waters economically and the debt burden will never be repaid. So just for all these reasons, if you didn't own gold on the way up, taking advantage of a pullback was what I was trying to express, while some people were a little bit upset that I said that there could be such a pullback, the reality is we're looking at it. So look at this chart again because this is the exact same chart as I issued. And I'll just repeat the sentence that I repeated 3 months ago. As a curiosity, I want you to go back and look back at the mid-1980s. The blip, which barely is noticeable is the crash of '87 that a lot of us thought was going to be the harbinger of The Four Horsemen of the Apocalypse. You can't even see it as the Dow march from 1,000 to 45,000 and up to 50-some-odd thousand plus leap in value over the decades. A few days later, '87 began. And then it was compounded by the need for people to be able to have some liquidity due to the war with Iran. So once again then let me reiterate, in the words of Ray Dalio, one of our greatest contemporary applied historians, Gold is now the second largest reserve currency behind the U.S. dollar. To understand why you need to look at the history of fiat currencies like the dollar and hard currencies like gold. The way I see it, we're currently facing a classic currency devaluation similar to what we saw in the 70s or 80s. In both of those cases, fiat currencies around the world all went down together and all went down in relationship to hard currencies like gold. If events today follow a similar pattern that makes hard currencies an attractive asset to hold. For all of you who've known me or listened to me over the years when I was asked which currencies to own, I said, if you have to own a paper currency on the dollar. But the real currency is gold. And now I don't really know what paper currencies are going to thrive the most. But I will repeat something which I've said now over the last couple of years, regardless of your view on currencies against gold, the dollar is actually collapsing. So every once in a while, you'll have a pullback, but the long-term trend on gold, to my mind, is going to be very similar and indeed price-wise, it actually looks at, but that's coincidence. Very similar to what we saw in the Dow Jones. And so for those, if you haven't taken advantage of the pullback, my strong recommendation is that you do. And I can only say that what my family does, we are long-term holders in our flagship gold asset Donlin and will absolutely remain so because to our mind, if we sell it, we can't go into something at least as good, and we really think impossible to go into anything better. So thank you for being a long-term shareholder. Thank you for your support. I can tell you it means a lot to us. And the last conference call for those who managed to stay through it. One of the callers actually said that he and his wife had an argument over NOVAGOLD during the tough times, but that the revival of NOVAGOLD actually saved his marriage. And we regarded that as probably not only the funniest, but the most heartwarming piece of news we've had all year. So with that, I thank you and all of the shareholders who have kept the faith. All I can do is promise you that I, the entire management team is devoted to being able to unlock the fullest value of what we consider to be the greatest gold development story in the world and what will be the largest single gold mine in the best jurisdiction on the planet. Thank you. Operator: I'd now like to hand the call back over to Greg Lang for concluding remarks. Greg Lang: Well, I just want to thank everybody for taking the time to get an update on NOVAGOLD, and our Chairman's thoughts on gold prices and markets. So everybody thank you. We'll be in touch. Operator: This brings to a close of today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Thank you for standing by. This is the conference operator. Welcome to the NOVAGOLD's First Quarter 2026 Financial Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Melanie Hennessey, Vice President, Corporate Communications. Please go ahead. Melanie Hennessey: Thank you, Galen. Good morning, everyone. We are pleased that you have joined us for NOVAGOLD's 2026 First Quarter Webcast and Conference Call and for an update on the Donlin Gold project. On today's call, we have NOVAGOLD's Chairman, Dr. Thomas Kaplan; President and CEO, Greg Lang; and NOVAGOLD's Vice President and CFO, Peter Adamek. At the end of the webcast, we will take questions by phone. Additionally, we will respond to questions received via e-mail and the webcast. I would like to remind you, as stated on Slide 3, any statements made today may contain forward-looking information such as projections and goals, which are likely to involve risks detailed in our various EDGAR and SEDAR filings and forward-looking disclaimers included in this presentation. With that, I will now turn the presentation over to NOVAGOLD's President and CEO, Greg Lang. Greg? Greg Lang: Thank you, Melanie. On Slide 5, we highlight the key attributes that make the Donlin project unique in the gold industry. Donlin has a combination of scale, grade, long life, low operating costs and significant upside potential in the exploration areas, and we're in a safe jurisdiction. With about 40 million ounces of reserves and resources at 2.25 grams, Donlin has got grade better than twice the industry average. Our known resource occupies only 5% of our total land holdings and there is considerable potential to increase the strong reserve base. We're also fortunate to have long-term committed shareholders who understand the value in an asset like Donlin. Moving on to Slide 6. This chart illustrates the value of Donlin and a variety of gold prices. With today's gold price approaching the upper end of this chart, the project has a net present value of almost $24 billion at a 5% discount rate. This underscores the leverage and significant economic potential of Donlin in the current gold price environment. As highlighted on Slide 7, Donlin will be a big mine. It will average over 1 million ounces a year during its 30-year mine life and about 1.3 million ounces the first 10 years. This asset production makes it really unique and stands out in the gold space. Grade is one of the most important attributes of a mining project. At 2.25 grams, Donlin is twice the industry average. It's this high grade that contributes to Donlin's very low operating costs at less than $1,000 an ounce. This slide really highlights the significant exploration potential at Donlin. Our known resources reside in the ACMA and Lewis areas, as shown on Slide #9. These areas represent only 3 kilometers of an 8-kilometer gold bearing system. When the time is right, we will continue to explore both along strike and at depth, and there's tremendous potential right in our own backyard. Turning to Slide 10. This slide is a summary of the status of our permitting. We've completed the federal permitting process and we're wrapping up the state permitting. We've worked well with the federal and state agencies over the years, and our permits are in good standing. The only remaining permit in Alaska is for the dam safety certificates and the design packages have been submitted to the state, and we anticipate approval well in advance of needing this permit. Slide 11 highlights a recent statement from Governor Mike Dunleavy up in Alaska. Governor Dunleavy as well as the other elected officials in Alaska have long been staunch advocates for the Donlin project and the importance of what it can mean to the state of Alaska in the Y-K region. On Slide 12, we highlight our long-standing engagement with our Native Alaskan partners, Calista owns the mineral rights and TKC owns the surface rights. We've got a life of mine agreements in place with both of these entities. And it's really important to remember that this is private land that was designated for mining activities. Both Calista and TKC have an owner's interest in seeing this project go forward. Moving on to Slide 13. We are starting to fill out the Donlin Gold feasibility team. Frank Arcese is our project manager. He's been around the industry for almost 40 years and is very well seasoned with big projects in remote locations. We've hired Fluor, one of the industry's leading engineering firms to lead the bankable feasibility study. Under Fluor, we have 3 specialty firms, Worley, who was responsible for the pipeline; Hatch, who is a leader in pressure oxidation and oxygen plants; and WSP, a firm specializes in, among other things, power plants. These are all industry-leading firms that will help us with the bankable feasibility study and taking the project forward into construction and, ultimately, operation. I will now turn the call over to NOVAGOLD's Vice President and Chief Financial Officer, Peter Adamek. Peter? Peter Adamek: Thank you, Greg. Turning to our operating performance on Slide 15. NOVAGOLD reported a fiscal 2026 first quarter net loss of $15.4 million. This represents an increase of $6.3 million from the comparable prior year period primarily due to higher expenditures at Donlin Gold following the commencement of the bankable feasibility study related activities including hiring for key roles on the Donlin Gold project team and higher G&A expenses at NOVAGOLD. The company's share of Donlin Gold expenses in the first quarter of 2026 was $3.9 million higher than the comparative prior year period due to camp remaining open this winter and increased project activities following Fluor being awarded the lead engineering role for the Donlin Gold bankable feasibility study in early February 2026. Unlike the comparative prior year period, the company's first quarter results also reflect NOVAGOLD's 60% interest in Donlin Gold. NOVAGOLD's G&A expenses increased in the first quarter of 2026 by $3.9 million from the comparable prior year period, primarily due to higher professional fees and share-based compensation. Professional fees were elevated during the first quarter but remained in line with quarterly cadence expectations and are expected to decline from first quarter levels during the remainder of the year and remain within previously issued 2026 guidance. On Slide 16, our treasury increased by $277.4 million to $392.5 million at the end of the first quarter, primarily due to closing of a private placement of approximately [Technical Difficulty]. NOVAGOLD intends to use the net proceeds from the private placement for expenditures associated with Donlin Gold activities, exercise of the company's prepayment option on the Barrick promissory note and general corporate purposes. Excluding the financing, corporate G&A costs during the first quarter increased by $3 million, and our share of Donlin Gold funding increased by $11.9 million compared to the prior year. Moving to Slide 17. Our treasury at the end of the first quarter sits at a robust $392.5 million. NOVAGOLD is well funded, enabling it to complete the Donlin Gold bankable feasibility study in 2027 and exercised its option to prepay the Barrick promissory note later this year. Our operating cash expenditures in the first quarter of fiscal 2026 remained in line with our 2026 budget and guidance. And with that, I will now turn the presentation back over to Greg to discuss first quarter highlights. Greg Lang: Thank you, Peter. Slide 18 highlights our continuing engagement with the communities in and around Alaska. We work closely with Calista and TKC on all of these programs as well as preparing them and the local people for ultimate employment at the mine. All of these programs are a testament to our commitment to total engagement with the local communities and ultimately preparing a workforce for the Donlin project. Turning to Slide 19. During the first quarter, we announced the advancement of the Donlin Gold bankable feasibility study as well as additional engineering firms have been engaged for very specialized components of this study. This integrated approach leverages the deep technical expertise that all of these firms bring to the bankable feasibility study. On Slide 20, another development we follow with a lot of interest is the proposal to bring gas down from the North Slope into the Cook Inlet, ultimately tying into the header that will feed the Donlin project. We've got a nonbinding letter of intent with Glenfarne to evaluate natural gas supply from this proposed pipeline. This pipeline has the potential to be a real game changer for Donlin, giving us access to cheap, reliable and long-term natural gas. We will continue to advance discussions with Glenfarne as the project moves forward and where they might potentially fit in supporting the infrastructure for the Donlin project. Last year was really a transformational year for the company. Post the Barrick transaction, we've steadily made meaningful progress to advance the Donlin Gold project through a bankable feasibility study. We're building up the team with expertise to do this. In a while, we will continue to engage with our local communities. Turning to Slide 22. This highlights our top shareholders, we have always valued their long-term commitment to the project into the company. I think it's important to note that Paulson, who is now our 40% partner with Donlin has been a major shareholder in NOVAGOLD for over 15 years. This slide also highlights the coverage that NOVAGOLD has from various banks. NOVAGOLD is focused on delivering on every single commitment we've made, advancing the Donlin Gold project through a bankable feasibility study and achieving all of these milestones. Operator, we are now prepared to open the line for questions. Operator: [Operator Instructions] Our first question is from Francesco Costanzo with Scotiabank. Francesco Costanzo: I'll just start with the BFS. I appreciate that you'll be giving a more fulsome update on the BFS time line around midyear. But given that you've now awarded the engineering contracts for the project, can we consider that the clock on the 12- to 18-month time line to complete the BFS has now started? Greg Lang: I would say, yes, certainly, we have got all of the firms in place to do the bankable feasibility study. Fluor hit the ground running. They're obviously the key driver in this. And from where we're sitting today, I'd say, give or take a year, we will have it wrapped up. Francesco Costanzo: That's great. And my second question is just going to move to project financing. Just this week, we saw Perpetua Resources announced the approval of a $2.7 billion loan from EXIM. Now though the projects are obviously different, I'm wondering if you see any read-throughs on the potential debt financing availability for a project that offers significant domestic investment in the U.S., such as Donlin? Thomas Kaplan: Shall I take that one, Greg? Do you want to begin? Greg Lang: Sure. Go ahead, Tom. Thomas Kaplan: I think that it's very fair to say that when you're building the biggest gold mine in the United States, you're going to have multiple sources of financing that come to the floor. And if I had to hazard a guess, I would say that governments will be a very large component in that. There is, of course EXIM. I believe that EXIM is very well aware of our project. And for many reasons that you've cited, the domestic component of this story, not only being the largest gold mine in the United States, but being located in a place where it becomes a nexus for the energy story in Alaska, which is of extraordinary importance to this administration. Yes, I think it is fair to say that we should expect that the U.S. government has a serious interest in this story. But equally, I would point out that at least 2 Asia Pacific countries, Japan and South Korea have made very substantial commitments to investment in the United States. $550 billion in the case of Japan, $350 billion in the case of Korea. And both of those have advanced in terms of execution over the last several months. I think that it is fair to say that one of the things that we do expect them to be interested in is being able to make quite a statement with Donlin as the biggest, but also as enjoying the fruits of location, location, location. If you're on the Pacific Coast of Alaska, you have an opportunity to really develop relationships that are natural in terms of meshing together. The Japanese are very large buyers of gold and the South Korean Central Bank. Several months ago, announced that it was going to go back into the market to add to its reserves. Their timing was actually quite good. The prospect for us to be able to utilize the benefits, for example, of offtake agreements of 1.3 million, 1.4 million ounces a year, clearly make us a bit of a unicorn in terms of the ability to attract financing. And I'm not even talking about the other traditional sources. I hope that helps. Operator: The next question is from Soundarya Iyer with B. Riley Securities. Soundarya Iyer: Congratulations on this, the quarterly update. My question is on the exploration work. So as you mentioned in your opening remarks, the current resource is just 5% of the land package. So have you planned any 2026 exploration drill program or budget to test further targets? Or is that a priority after the bankable feasibility study? Greg Lang: I'll start with that one. We have putting together an exploration plan, more I would describe it as general reconnaissance work throughout our land holdings and the area in and around Donlin. So I think that's getting started. But you have to remember, I think there's a lot of snow left on the ground in Alaska. So it will be another month or 2 before we really can get on the ground. But it's more general recon. We've been studying Donlin. We believe the next Donlin is at Donlin, and we're in a modest program starting to evaluate that. Thomas Kaplan: If I may add just a few words on that because the drill bit has been my best friend over the last 3 decades. If I may echo Greg's comment, and this is obviously a very forward-looking statement. But being that for reasons belonging to Barrick's ultimate belief that this would fall into their lap one day or the other. The 95% of the property that's been unexplored is all prime real estate. And we believe that in addition to what we see as low-hanging fruit to add tens of millions of ounces within the 8-kilometer belt, 5 kilometers of which just simply have been drilled, shown mineralization, but there was never any follow-up because the deposit was already so big that it was thought you leave that for later. But in addition to the 45 million ounces of resources that we already see, it's low-hanging fruit to add, in our view, tens of millions of more ounces. But we are looking for that at Donlin. In a bear market, people really don't care about exploration results. And so I'm very glad that you asked that question because in a bull market, great drill results can cause the stock price to double or more. And we do expect to be adding a lot more ounces in the immediate vicinity of the property as we go from the 3 kilometers to the 8-kilometer mineralization. But at the same time, what Greg is referencing is that we are undertaking a project or property-wide analysis in order to identify the best drill targets that are extrinsic of the 8 kilometers. Because in our view, the odds that this occurrence is alone. Well, mother nature is very fickle. We know that the odds are very long in exploration. But I've been in this movie before. And I found that in the case of precious metals, and in the case of hydrocarbons, where we made our biggest killing at Electrum, Wildcatting is something that can take a 10x opportunity to 100x. And fortunately, we have a partner who doesn't see exploration success as being a challenge. But John Paulson and his team completely have aligned with us on understanding that good news through the drill bit is a multiple expander. And if this turns out to be what we hope it is and it's a hope, this is really the next Carlin. And the partners are aligned in being able to identify that. So when you think of the relatively low cost of exploration versus the high reward, I think you can understand that the partners in Donlin are very keenly aware that we may just be scratching the surface in this story. It remains one of the greatest exploration stories in the world, and that will unfold for the market. Soundarya Iyer: Yes. I mean I totally agree with that. My question was on that front that exploration work could gain more value in a bull market. And just one more. On the state permitting, can you walk us through what's left there on the -- as a full state permitting checklist? What is in hand? What remains outstanding? And how do we expect the receipt of those permits going forward? Greg Lang: Sure. I'll take that one. The only outstanding state permit is for the tailings dam and other water retention structures. Our federal permits which are all in hand, authorized us to do this work. However, in Alaska, these structures are administered by the state, and they require final engineering drawings before they grant approval. We've submitted the design packages to the state. We had already completed the geotechnical work, and we expect approval of these permits about the time we're wrapping up the bankable feasibility study. So they're not on the critical path, but the work to get these permits is well in hand. All of our other remaining state permits are in good standing as is our federal permits. Melanie Hennessey: Thank you. I do have a few questions from the webcast that I wanted to read out. The first is from Eric. Will the BFS include a closure and recognition estimate, including long-term water treatment and post-closure monitoring assumptions? Greg Lang: I'll start with that one. Yes, it does. Part of the feasibility study and actually the permitting requires you to have approved closure plans that have to be invested by the state and our native partners. The lease plans, reclamation and closure and water treatment, they are all part of the commitments in our existing permits. Once the mine is in operation, it will cash fund these permits through a trust. So it's -- the procedure is well defined and the approvals are all in place for the subsequent reclamation and restoration of the Donlin site post mining. Melanie Hennessey: Great. Thank you, Greg. The next question comes from Jean. Given the recent share price volatility and now with the feasibility team in place, which upcoming milestone in this study do you believe will be most important in helping the market recognize the project's underlying progress and value? Greg Lang: Well, there's -- I mean, the important piece of this, obviously, is to finish the feasibility study. But along the way, we're advancing many different avenues. I think particular interest is we will be evaluating third-party participation in our gas pipeline and other components in the infrastructure that we could logically bring in a third party to handle. So that will be one of the catalysts coming up as we advance the feasibility study. Then the other milestones along the way as different components of the study are completed, and we will update the marketplace as this work unfolds. But the real key item is finishing the study, and we anticipate it will certainly demonstrate robust economics in this price environment. Melanie Hennessey: Great. Thank you. I have a further question that come through the line from Matt. Dr. Kaplan, at the last quarter's update, you mentioned that your decisions toward NOVAGOLD and Donlin were family influence. I have been following NOVAGOLD for over 15 years and now have many family members investing in the story. I just wanted to say that I appreciate your's and NOVAGOLD's integrity over the years. A big thank you. Could you comment on the recent movement in gold and how that relates to NOVAGOLD? Thomas Kaplan: Well, that's very kind. While I'm going to ask our team, could you please call up the chart that references the long-term bull market in the Dow, and just let me know when it's up there. Melanie Hennessey: Yes, the slide is up. Thomas Kaplan: But before that, let me get to the best part of the questioner's remarks. First of all, I find it very gratifying, we all do that you're able to make this comment about our integrity and your family's investment in NOVAGOLD. Needless to say, as Electrum is the largest shareholder of the company. And as the largest shareholder of Electrum is my family. I take it very much to heart that I have a responsibility to my family, but all the other shareholders and in your case, your own family, to do the best possible thing that we can. And I would say that the thing that Greg and I are most proud of since having come into the story together in 2011, we are celebrating 15 years of joyful monogamy. And one of the things that we are most proud of is that any promises that we made, we kept. To the extent that we disappointed, I think 100% of our shareholders understood it was for reasons beyond our control. And we had all the tailwinds that I think and John Paulson thinks will take us to $100 per share. But we had one headwind. And when you think that a year ago, our stock was at $2 and change, and reached 14, and I have no doubt that we will vastly surpass that and multiply past $14. You understand that we took it to heart as much as any shareholder that we were being held back. And once that was relieved approximately a year ago, we knew that we would be on our way to $10 to $15 to $30, and we think well beyond that for all of the reasons that have become so clear to everyone that whether people realize it or not, and I'm not saying we're going back to a gold standard, because we'll never see that kind of discipline ever again in human economics. But we are seeing the remonetization of gold. We are seeing that central banks have shown through their purchases that gold is the asset that they hold because it doesn't represent someone else's liability. When central banks hold gold, when central banks buy gold, they're making a statement. To the extent that some central banks need to lay off some gold as Turkey is said to have, that proves, proves to all of the rest of them that gold is the asset that you want to own because gold traditionally in a crisis gets hit because if it's in a bull market, it may be one of the only things in which people have a profit. So the ability to not just buy but the ability to sell something, if you need to take some chips off the table because I don't know, you have missiles that are flying into your territory and need to be taken out with Patriots. That's a good thing, not to be concerned about. And this is one of the things that I enjoy most in the time that I've been bullish on gold and publicly so since gold was at $500 in 2007. And when I said my first equilibrium for gold would be between $3,000 and $5,000, people thought I was nuts. Similarly, when I said that silver will go to triple digits, people thought I was nuts, but that's my stock in trade. I don't know how to build a mine. Greg Lang knows how to build the mine. Richard Williams knows how to build the mine. They know how to do it on budget and on schedule. I can't figure out how to make chrome work over Safari. But I don't need to. You surround yourself with the very best people. My job is to protect my family's wealth. And by extension, all of the families that depend on me, including our management team and including our shareholders. So with that, let me go back to a chart that I spoke to on our last conference call because I wanted to give people a heads up as to what might happen. It wasn't required, but it might happen. In fact, what I would call the 1987 correction started 3 days later. Now I'm not going to say that I was predicting it. I was going to say that it should be expected. And for that reason, whereas people who predict a downdraft are seen as Cassandra's, I wasn't actually being a Cassandra in this case. And I have been a Cassandra in different cases, like on the Middle East. But in this instance, I was presenting people with my belief that we could have in 1987. 1987 is not so much remembered for how you felt when you thought the world was caving in, in October of '87. It was -- it is and should be remembered as the blip that created the best buying opportunity of the bull market in stocks. The best because we've already seen the stock market go to 2,750. And when it pulled back to 1,650, you have to fade these numbers a bit, I'm sorry. That was actually the cream of the opportunity to be able to build the position if you didn't have one or to add on weakness in a bull market that has all the structural factors going forward. And if anything, we can see that the world is a very different place. I hope that it's going to turn out to be a much safer place. But without getting into politics, the reality is that we're in unchartered waters economically and the debt burden will never be repaid. So just for all these reasons, if you didn't own gold on the way up, taking advantage of a pullback was what I was trying to express, while some people were a little bit upset that I said that there could be such a pullback, the reality is we're looking at it. So look at this chart again because this is the exact same chart as I issued. And I'll just repeat the sentence that I repeated 3 months ago. As a curiosity, I want you to go back and look back at the mid-1980s. The blip, which barely is noticeable is the crash of '87 that a lot of us thought was going to be the harbinger of The Four Horsemen of the Apocalypse. You can't even see it as the Dow march from 1,000 to 45,000 and up to 50-some-odd thousand plus leap in value over the decades. A few days later, '87 began. And then it was compounded by the need for people to be able to have some liquidity due to the war with Iran. So once again then let me reiterate, in the words of Ray Dalio, one of our greatest contemporary applied historians, Gold is now the second largest reserve currency behind the U.S. dollar. To understand why you need to look at the history of fiat currencies like the dollar and hard currencies like gold. The way I see it, we're currently facing a classic currency devaluation similar to what we saw in the 70s or 80s. In both of those cases, fiat currencies around the world all went down together and all went down in relationship to hard currencies like gold. If events today follow a similar pattern that makes hard currencies an attractive asset to hold. For all of you who've known me or listened to me over the years when I was asked which currencies to own, I said, if you have to own a paper currency on the dollar. But the real currency is gold. And now I don't really know what paper currencies are going to thrive the most. But I will repeat something which I've said now over the last couple of years, regardless of your view on currencies against gold, the dollar is actually collapsing. So every once in a while, you'll have a pullback, but the long-term trend on gold, to my mind, is going to be very similar and indeed price-wise, it actually looks at, but that's coincidence. Very similar to what we saw in the Dow Jones. And so for those, if you haven't taken advantage of the pullback, my strong recommendation is that you do. And I can only say that what my family does, we are long-term holders in our flagship gold asset Donlin and will absolutely remain so because to our mind, if we sell it, we can't go into something at least as good, and we really think impossible to go into anything better. So thank you for being a long-term shareholder. Thank you for your support. I can tell you it means a lot to us. And the last conference call for those who managed to stay through it. One of the callers actually said that he and his wife had an argument over NOVAGOLD during the tough times, but that the revival of NOVAGOLD actually saved his marriage. And we regarded that as probably not only the funniest, but the most heartwarming piece of news we've had all year. So with that, I thank you and all of the shareholders who have kept the faith. All I can do is promise you that I, the entire management team is devoted to being able to unlock the fullest value of what we consider to be the greatest gold development story in the world and what will be the largest single gold mine in the best jurisdiction on the planet. Thank you. Operator: I'd now like to hand the call back over to Greg Lang for concluding remarks. Greg Lang: Well, I just want to thank everybody for taking the time to get an update on NOVAGOLD, and our Chairman's thoughts on gold prices and markets. So everybody thank you. We'll be in touch. Operator: This brings to a close of today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Mark Allen: Good morning, everyone, and thank you for joining us. We're pleased to present our 2025 full year results today. Joining me this morning are Matt Osborne; Mel Chambers, COO for the East region; Samy Zekhout, COO for the West region; and Martyn Espley, Investor Relations Director. You all know Martyn and are getting to know Martyn, but I also think it's important that you get to meet more of the wider leadership team, and I'll ask Mel and Samy to say a few words about themselves when they present later. I should mention Hannah Surtees is also with us today. Hannah has handed over the Investor Relations button to Martyn. Going forward, she's going to head up our communications team and work closely with me on our strategy. I'd like to thank Hannah for the sterling job she's done in recent years and say how much I enjoy -- I'm enjoying working with her. Over the next 35 minutes, we'll take you through the key highlights of the year, including our financial performance and our refresh strategy. Then there'll be time for questions. Let's start with our 2025 full year. Overall, we delivered solid financial performance in what has been a challenging operating environment. Adjusted profit before tax was GBP 73.2 million, which is down around 3% year-on-year. This reduction reflects the impact of the disposal of Fairfax Meadow together with the challenges in our seafood businesses and Dalco. Importantly, performance in our core meat operations in this challenging environment was stable. This demonstrates the resilience of our core business. We made good commercial progress during the year. We secured contract extensions in both the Netherlands and Denmark. This reinforces the strength of our long-standing customer relationships and the value we continue to deliver to our retail partners. In terms of our growth investments, our projects in Canada and Saudi Arabia remain on track. These are important platforms for future expansion, and we continue to expect them to contribute from 2027 onwards. Alongside this, we are planning to invest up to GBP 30 million to expand capacity in Poland. This will enable us to benefit from attractive growth opportunities in fresh prepared foods. It will also strengthen our position in Central Europe. Looking ahead, our 2026 outlook remains unchanged since the January trading update. We expect adjusted profit before tax to be in the range of GBP 60 million to GBP 65 million. This year-on-year reduction largely reflects continued challenges in our seafood, vegetarian and vegan businesses. We remain cautious on the impact of red meat inflation. Finally, we've refreshed our strategy. Going forward, we will focus on growth plans and investment in our core meat and fresh prepared food activities. We will also implement plans in Seachill, Foppen and Dalco to improve performance and increase strategic optionality. As part of our strategic refresh, we've also updated our financial framework. We have a clear focus on delivering sustainable profit growth, disciplined investment and compelling returns for shareholders. So while 2025 has had its challenges, we have made important changes in several areas and continue to position the business for long-term growth and value creation. I'll now hand you over to Matt to take you through our full year 2025 performance. Matthew Osborne: Thanks, Mark, and good morning to those of you in the room and those of you listening in. I'll now walk you through our 2025 financial results, highlighting the main drivers of volume, revenue, profit, net debt and cash flow. I'll also touch upon the outlook for 2026 before handing back to Mark. As we saw in the first half of the year, our full year performance was underpinned by continued resilience within our core meat and fresh prepared food businesses, which now account for around 90% of our revenue. This is a testament to the strength of our core business model and the expertise and commitment of our teams. As we've previously highlighted, our seafood vegetarian and vegan businesses are facing challenges and our strategic review, which Mark will introduce shortly, seeks to address them. Before then, though, let's take a closer look at the numbers. First, the headlines. Volumes from our continuing operations, so excluding Fairfax Meadow, which we sold in September last year, were up 0.2% against a highly inflationary environment, which drove revenue up 11.9% on a constant currency basis. Constant currency operating profit fell by 4.4%, reflecting in particular the challenges in the U.K. seafood business, and I'll cover profit in a little more detail shortly. The resulting operating profit margin was 2.3%, down from 2.6% last year. In line with the guidance we provided last November, profit before tax was GBP 73.2 million, down 2.8% and from continuing operations, so again, excluding Fairfax Meadow, profit before tax was GBP 69 million, down 1%. Adjusted earnings per share of 56p was 7.4% lower, reflecting a slightly higher tax rate of 30% due to the impact of truing up some historic tax allowances. Our strong financial position and confidence in the medium-term outlook means we are maintaining our commitment to a progressive dividend policy with the final dividend flat, the full year dividend per share is up 1.4% to 35p. Net debt improved slightly year-on-year with significant cash inflows in the second half from divestment proceeds and a partial unwind of working capital. This was despite the planned increase in growth capital with 2025 being the main year of spend on our Canada project. Moving to revenue. With volumes and mix broadly stable, an 11.9% increase in constant currency revenue was almost entirely down to increases in raw material input costs. On mix, we continue to see a shift in the U.K., in particular, with lower-cost products forming a higher proportion of our overall volume. However, multi-buy and promotional activity were a positive for us in Australia. The relative strength of sterling versus the Australian dollar remained a headwind, albeit partially mitigated by a strengthening of the euro in the year. Now moving to show volume and revenue by region. I've shown a version of this chart before, but I've split out our seafood, vegetarian and vegan businesses to demonstrate the performance of our core meat businesses. These numbers also exclude Fairfax Meadow. In the U.K. and Ireland, core meat volumes remained resilient and were only down slightly despite significant inflation in beef of more than 30%. The impact of this inflation can be seen in revenue increases of 23.5%. European volumes were stable overall, including double-digit growth in fresh prepared foods in Central Europe and the benefit of new customer volumes in Denmark. Revenue growth was less material than in the U.K., reflecting a more diversified mix of meat products. And APAC again delivered volume growth despite the reemergence of raw material inflation. Seafood, vegetarian and vegan volumes were down 2.6% with price inflation weighing heavily on whitefish volumes in the U.K. Foppen volumes were relatively stable as we continue to meet customer demand despite the regulatory restrictions on our facility in Greece. And Dalco volumes were up, albeit from a low base. Revenue was down by more than volume despite the whitefish inflation with market salmon prices 17% lower in 2025 than in 2024, reducing Foppen revenues. Moving now to profit. Operating profit from our core meat and fresh prepared food businesses were slightly up year-on-year with the volume growth in APAC being the main driver, given the cents per kilo fee structure there. Seafood, vegetarian and vegan operating profit was materially down, however, with Seachill moving into a loss-making position, reflecting the pressure that lower volumes puts on gross profit. Foppen's underlying profit was stable, albeit there were material non-underlying costs that I'll cover shortly. We delivered an improved result of Dalco, although the business remains loss-making. Central costs were lower as were interest costs, reflecting lower market rates. Before the negative impact of FX due to the weaker Australian dollar, in particular, group PBT on a constant currency basis was down 2.8%. After excluding the contribution from Fairfax Meadow, which we sold in September, it was down 1%. Nonunderlying and exceptional items excluded from the underlying results represent a net profit of GBP 29.3 million in the period, albeit there were a number of moving parts. The biggest cost related to Foppen. We incurred cash costs totaling GBP 9.2 million relating to the relocation of production from Greece to the Netherlands to ensure continuity of supply to our customers in the U.S. while also using air rather than sea freight to ensure an appropriate level of inventory. We expect regulatory restrictions to be in place for at least the first half of 2026 and expect some further Foppen-related exceptional costs this year. In addition, we wrote off inventory that could not be delivered to the U.S. or resold elsewhere, resulting in an GBP 18.4 million charge. We incurred reorganization and restructuring costs of GBP 9.6 million compared to GBP 4.2 million in 2024, and this reflects the ramp-up of our transformation activity and group reorganization in order to support long-term efficiency and growth. We expect these costs to continue in the range GBP 5 million to GBP 10 million a year over the next few years, and this spend will help underpin our medium-term growth objective,s, and we'll provide some more detail on our transformation program in the strategic update section shortly. Last, but certainly not least, we recognized profits on disposal of GBP 66.5 million relating to the sales of Fairfax Meadow and Foods Connected. Both of these transactions are steps towards simplifying our portfolio whilst also realizing significant value for the group. Now moving to net debt and cash flow. Net bank debt improved slightly in the year despite a free cash outflow. This includes the impact of material cash inflows from the disposal of Fairfax Meadow and Foods Connected as we realize value through portfolio simplification. Exceptional cash flows relating to Foppen and wider group transformation and restructuring totaled GBP 18.9 million, and we returned GBP 31.5 million to shareholders in 2025, consistent with our progressive dividend policy. Net bank debt of GBP 126.7 million results in net debt-to-EBITDA of 0.9x, remaining at very comfortable levels. And in February of this year, we successfully refinanced our bank facility, which now provides an increased GBP 450 million of revolving credit facilities for at least the next 5 years, providing flexibility to deliver future growth opportunities. In addition, these bank facilities are enhanced by the ongoing benefits of our lease and customer supply chain financing with margins typically 0.5 to 1.5 percentage points lower than our bank facility. Let me touch on our free cash outflow. The group remains intrinsically cash generative and retains a strong balance sheet. This strength provides flexibility to allocate capital to benefit the group over the longer term. In 2025, this included the investment in inventory to ensure we'd be able to deliver excellent service levels to our customers during peak trading periods in the second half of 2025 and into 2026. It is important we continue with disciplined investment in our existing facilities, ensuring they run efficiently and continue to support growth. Core net capital expenditure of GBP 46.5 million was lower than last year and included spend on capacity increases at Hilton Food Ireland. It also included further investment in Sweden, where we've installed frozen burger production lines, a new category in our partnership with ECA. 2025 was also the main year of investment in our expansion into Canada. We've now spent GBP 55 million in total on the project, with the remaining project costs being incurred in 2026. The project remains on track for full launch in 2027. Before I hand back to Mark, let me cover the outlook. We've traded in line with our expectations in the year-to-date and continue to expect 2026 adjusted PBT in the range of GBP 60 million to GBP 65 million, unchanged from the time of our trading update in January. As we said at the time, the expected reduction in profit is predominantly due to continuing challenges in Seachill, Foppen and Dalco. Our core meat business continues to prove resilient and volumes over the first part of this year were solid. However, given the economic backdrop, it is right we remain cautious on the impacts there may be on meat demand due to inflation. We are also mindful of any potential direct or indirect impacts of the current situation in the Middle East. We would expect net debt to increase in 2026. Core CapEx will be GBP 50 million to GBP 55 million within our expected range. However, total CapEx will remain elevated as we complete our project in Canada and expect to commence spend on our planned capacity expansion in Poland. Both of these projects will create value for shareholders and are expected to contribute to earnings in 2027. One of the reasons we remain positive about the medium-term and long-term outlook for the group. I'll be back later to summarize our refreshed capital allocation framework and medium-term financial targets. But for now, let me hand back to Mark. Mark Allen: Thanks, Matt. Mel, Samy, Matt and I will now take you through a summary of our strategy. This is based on the review we've recently completed. We aim to be the international red meat partner of choice. Aligned with that, in certain appropriate geographies, we have a developing fresh prepared food business that we'll invest in where the returns are attractive. What gives us confidence in this ambition is the structural strength of our core meat businesses. We operate long-standing partnerships with leading retailers. We benefit from high barriers to entry in our markets. We have a proven operating model that is delivered consistently over time. However, this strategy is not only about defending what we already have. We also see significant further growth potential, which we will unlock through a combination of portfolio optimization, targeted investment and the evolution of our operating model. Simply put, this is a strategy that builds from a position of strength and our core capabilities. Importantly, we will be very deliberate about where we invest to drive future growth and attractive returns. Before we provide a bit more detail on our growth potential, let me put it in context against our recent track record. As you can see from the chart on the left, operating profit from the group's core activities excluding Fairfax Meadow, Seachill, Foppen and Dalco has grown by 4% on average since 2022. This demonstrates the strength and stability of our core meat and fresh prepared food operations. On the right, you'll see the building blocks that underpin future growth. The expected reduction in profit in 2026 compared to 2025 is largely down to the challenges faced by Seachill, Foppen and Dalco. We expect profit from our existing core business to be relatively stable and remain so moving forward. This will be supplemented from 2027 by our projects in Saudi Arabia and Canada. We expect to realize the full benefits from these in 2029. We also expect to deliver growth from our focus on our fresh prepared food product offering and multi-customer models in certain markets. We'll provide some color on this shortly. All this results in mid-single-digit average operating profit growth per year with potential for adding additional growth beyond from value-adding investments. Here are the 3 levers that will drive this growth over the medium term. The first is maximizing the core. Here, our focus is on reinforcing our leadership in retail meat by maintaining the structural advantages we built over many years. At the same time, we're driving continuous efficiency improvements to maintain margin resilience. This ensures that the core business continues to generate stable and predictable cash flows. The second lever is enhancing the mix. We are actively increasing our exposure to higher-margin segments where we have an opportunity to win. This is particularly the case in value-added meat and fresh prepared foods. These categories offer faster growth and attractive returns. They allow us to better serve evolving customer and consumer needs. Mel will talk about expansion plans in our Poland business shortly. The third lever is geographic expansion. We will continue to replicate our partnership model in underpenetrated and high-growth markets. We will work alongside anchor retail partners to leverage our expertise and scale. Taken together, these 3 levers create a balanced growth profile. They support stable cash flows, high margins and faster overall growth while reducing our reliance on volume alone. While the framework itself is simple, the value creation potential from executing it well is significant. A key part of enhancing our mix is optimizing our portfolio, particularly in seafood and meat alternatives, where performance has been volatile and unsatisfactory. These businesses have limited synergy with our core meat capabilities. We are taking a very focused and disciplined approach and will limit future investment across the 3 businesses, Seachill in the U.K., Foppen and Dalco. Across these businesses, the overarching objective for the group is consistent to reduce earnings volatility, improve returns and create greater flexibility and optionality for future value realization. In Seachill, our priorities are operational recovery, cost reduction and product focus. This should allow us to rebuild margins. In Foppen, we are operating in an increasingly consolidating smoke salon market. Our focus here is on driving volume through best-in-class quality, customer service, competitive pricing and continued innovation. We will also address the challenges that are continuing into 2026. We resumed sea freight shipments to the U.S. and are actively rebuilding the stock pipeline. We continue to engage with U.S. regulators to lift the restrictions on our Greek facility. Encouragingly, underlying retailer demand remains strong. In Dalco, the priorities are to improve operational performance and win new business. We're aiming to put the business in a stronger position operationally and financially, giving us greater flexibility in how we create value from it. I will now hand over to Mel, who will then hand over to Samy to help bring our growth strategy to life with specific examples from our East and West regions. Melanie Chambers: Thank you, Mark, and good morning, everyone. Having recently stepped into the role of Chief Operating Officer for the East, I'm extremely excited about the opportunities that lie ahead in my region and the refreshed group strategy. More broadly, I bring with me more than 25 years' experience from across the food industry with a strong focus on operating globally. When I joined Hilton Foods in 2022 as the CEO for the APAC region, I spent considerable time strengthening the customer relationship, building deeper alignment and developing a regional leadership team for future success. As we move on to competitive positioning, there are 3 key areas of focus that will underpin how we maximize our core meat capabilities. First is manufacturing excellence. We are driving continuous efficiency and improvement across all our operations, and this is supported by a clear automation road map. At the same time, we are maintaining a very disciplined approach to cost control, particularly within central functions, and this ensures that we avoid any unnecessary or duplicated overhead. Second, innovation and category leadership. We continue to enhance our capabilities in value-added products, working with our partners to develop new target product ranges that align closely with consumer demand. We are also expanding into adjacent categories such as slow cook products, where we see attractive growth opportunities. And third is our security of supply. We will continue to develop our global red meat sourcing center of excellence, which allows us to leverage our scale more effectively while also using our local sourcing capabilities to ensure resilience and availability in each of our markets. Together, these initiatives will ensure that we improve our competitive advantage, continue to support our retail partners effectively and position the core business for sustained market outperformance. This slide now provides a clear example of our strategy to enhance our mix through our planned investment in Poland. We see a compelling opportunity in fresh prepared foods in Central Europe, driven by strong underlying demand and forecast market growth of around 8% per year. At the same time, our retail partners are increasingly looking for value-added solution, which plays directly to our strengths. Our planned investment of up to GBP 30 million over 2026 and '27 will expand capacity, increase automation and enhance our processing capabilities. Importantly, this will allow us to differentiate our offering through improved shelf life and product innovation. And from a financial perspective, this is a highly attractive investment. It is expected to generate returns well above our cost of capital with return on capital employed above 20% over the life of the project. It will also be accretive to the group's margin mix. And this is a good example of how we can deploy capital in a disciplined way to drive both growth and returns while strengthening our competitive position. I'll now hand over to Samy. Unknown Executive: Thanks, Mel. After 30 years at Procter & Gamble, my most recent role was as CFO and Deputy CEO for 6 years at Nomad Foods. I'm really pleased to have the opportunity to step into this role from my nonexecutive position. After having been exposed to Hilton Food Products, facilities and people over the past several months, as a Board member, I felt that there was a huge opportunity to contribute if we got the strategy right and properly executed to reignite value growth for the years to come. Our investment in Canada comes under my remit and represent a step change growth opportunity for the group. As you probably know, we are developing a new facility to support a long-term 10-year partnership with Walmart with the sites scheduled to launch fully in early 2027. Progress on the project remains on schedule. Product development has been completed and tailored to customer requirements, and we will begin production testing of equipment and systems in the second half of the year. From a financial standpoint, this is an attractive opportunity. We expect return above our cost of capital with return on capital employed over the life of the contract, consistent with our refreshed capital allocation framework. The project will begin contributing to profit from 2027 with a full contribution from 2029 and beyond. Importantly, this is not just about the initial contract. We also see further opportunities in adjacent value-added categories within Canada. More broadly, we see broader potential through all our retail partners' international footprints. So Canada is both a significant stand-alone investment and is a good example of international expansion. To support the delivery of our strategy, the newly appointed executive team is behind our plans to evolve our operating model through what we call One Hilton. This is about embedding a consistent value creation mindset across the organization, ensuring that all parts of the business are aligned around delivering returns. It also involves building a more integrated and scalable global platform allowing us to leverage our international scale more effectively while continuing to execute strongly at the local level. At the same time, we are preserving and strengthening what differentiates us particularly our deep partnership with leading retailer and our unique collaborative business model. Overall, this transformation ensures that we can scale efficiently as we grow without losing the strength that underpin our success. Let me now hand over to Matt. Matthew Osborne: Thanks, Samy. Now let me spend a few minutes taking you through our refreshed capital allocation framework and medium-term targets. Everything is underpinned by our desire to maintain a strong balance sheet, ensuring we have appropriate headroom to withstand any market shocks and provide flexibility for future investment. I'm comfortable with net bank debt, excluding leases, in the range 1 to 2x EBITDA through the cycle. This is significantly below our bank facilities financial covenant of 3x. We will continue to invest in our facilities to maintain and enhance our operations, underpinning core organic growth through improved automation and productivity and the development of new product categories. This investment will be in the region of GBP 45 million to GBP 55 million per annum and will fluctuate depending on when and where investment makes economic sense. Our strong balance sheet and cash-generative model then provides flexibility for further incremental value-adding and strategically aligned investment. This could be in material new capacity expansion, such as the project we're planning in Poland or in geographical expansion, similar to our entry into Canada and Australia and New Zealand before that. Our benchmark for these investments is high. Returns need to be materially ahead of WACC and any investment must support our group ROCE target of greater than 20%. At the same time, we also recognize the importance of cash returns to shareholders. We are maintaining our progressive dividend policy with the intention to move back to around 2x earnings cover over time through adjusted earnings growth that our strategy is expected to deliver. Our dividend policy means we retain flexibility to seek further value-adding investment opportunities in line with our strategy. However, in the future, should no attractive opportunities exist, we would consider returning any surplus cash to our shareholders. In addition, we would continue with our progressive dividend policy. Let me now cover what the strategy means in terms of medium-term targets. First, as Mark has already said, we are targeting mid-single-digit operating profit growth on average each year, recognizing though that the nature of our investment means it won't be a linear progression. This growth will be underpinned by our ongoing investment to improve and automate our facilities and the contribution we expect from the new facilities in Saudi Arabia and Canada from 2027. It excludes any benefit from material incremental investment in new geographies or in large-scale capacity expansion. It also excludes any contribution from the improvement plans we have in place at Seachill, Foppen and Dalco. We expect these businesses, which we anticipate to be marginally loss-making as a whole in 2026, not to become a sustained drag on earnings. Second, through continued good working capital management and a focus on cash flow, we expect cash flow conversion, so free cash flow as a proportion of net income to be around 100% on average over the years. Third, we continue to target a group ROCE of at least 20%. This figure was 20.1% in 2025, and we expect it to drop below 20% in 2026, given the level of preproductive capital related to the Canada project. Any further material incremental projects may also have a shorter-term impact on reported returns. So over the medium term, we believe this is an appropriate target to benchmark the group against. Let me now hand back to Mark. Mark Allen: Thanks, Matt. To summarize, we believe we are well positioned for the future. We have a resilient and cash-generative core business. This is supported by structural advantages and a strong track record of execution. We have a clear strategy to drive growth. This is built around maximizing the core, enhancing the mix and expanding geographically. We will apply a disciplined approach to capital allocation, ensuring that we invest only in opportunities that generate attractive returns. Aligned to this, we have a highly engaged, skilled and talented workforce. Taken together, this positions us to deliver sustainable profit growth, strong cash generation and reduced volatility. We believe this will deliver compelling value for shareholders over the long term as we focus on being the international red meat partner of choice. That concludes the presentation. Thank you all for listening. I'll now chair the Q&A. Can you please ask questions by me and I'll allocate to the appropriate person. Can I also ask that when you ask a question, you introduce yourself and give us the institution that you work for. Thanks very much. Matthew Abraham: Matthew Abraham from Berenberg. First question just in reference to the FY '26 guidance. Just wondering if you can outline what your expectations are for that raw material price inflation that's trapped up in the second half of the year, please? Mark Allen: Mark, do you want to answer that? Matthew Osborne: Yes. Look, I think we recognize that there are inflationary pressures, but the basis for the guidance we issued in January hasn't really changed, and we're confident in that GBP 60 million to GBP 65 million PBT guidance. Matthew Abraham: Okay. So does that then infer that there's the expectation for a deterioration in elasticity as it has been from the first half of the year to the second half of the year because there will be that sustained high price backdrop? Is that the expectation given that this inflation backdrop is likely to persist? Matthew Osborne: So we recognize the resilience of the core product we produce. We recognize that there could well be some inflationary pressures, but I'll come back to the guidance we issued in January, took into account our views on inflation. Mark Allen: If you go back to the presentation, I think in one of my sections I talk about, we are mindful of the ongoing position on red meat is as an example. That mindfulness is built into our numbers and forecasts that we've put into the market for this year. So we feel comfortable where the guidance is, and we feel comfortable that we've taken into account what -- where we think the inflation -- inflationary nature of our products are going to go and the impact on consumers' purchasing habits. Matthew Abraham: Okay. That's helpful. And it was obviously impossible to account for it in January, but one thing that's obviously changed is the freight dynamic. Can you just talk about your exposure there and what you're doing to mitigate those pressures given that, that's a new factor post January? Mark Allen: I think that's a really difficult question to answer. And if I went around the room and asked everybody to answer that question, I think we probably get a lot of different answers. Suffice to say that in our business, we're in the very lucky place that a lot of our contracts are cost plus. So they go automatically to our customers. And where necessary, we're looking at holding the mirror up to ourselves, looking at our internal costs and taking costs out where we can. I don't think anybody can predict what's going to happen as a result of the Middle East. We're very -- as we said in the presentation, we're very mindful of the situation and we will react accordingly. I think the most important thing is outside of that, we are very comfortable with where our numbers are for this year. Charles Hall: Charles Hall from Peel Hunt. A couple of questions, if I may. Firstly, can you just talk a little bit about the red meat market, what your customers are doing to respond to the higher price points and what you're doing in terms of product positioning? Mark Allen: Okay. I think that depends on geography. And maybe in a second, I'll ask Mel to talk a little bit about what's happening in Australasia. I think that's important. In the U.K., which is a fairly substantial part of our business, actually no different than Australia. But what's typically happening is people are trading down and Matt talked about that. I think one of the benefits that we have, we're probably the lowest cost producer of the product in the U.K. that supports our customers' ability to be consumer aware. And if you look at the shelves in Tesco, they're doing a range of things to give real value to consumers. So what we've typically seen is people trading down, moving down the portfolio towards mints, et cetera. But there's still a top-tier purchasing habit that people are buying into premium cuts, maybe eating out less than they were and consuming it at home. We see that trend to -- continuing. We saw evidence of it last year. We expect it to continue for this year. Mel, do you want to quickly talk about Australia? Melanie Chambers: Yes, absolutely. I think you nailed it overall. But I mean, we've seen 3% growth in Australia. We haven't seen it slowing down, but they are definitely changing the mix. So lots of 3 for $25, 3 for $20 offerings, promotions in store, and we're working strongly with the customer on co-creation of that middle tier and how do we build the value in that middle tier. Charles Hall: Great. And Matt, last year, the inventory increased fairly significantly building up ahead of Christmas and Easter, I think. And partly, obviously, that's pricing, but also availability. How do you see that panning out this year? Matthew Osborne: Yes. So as we would have talked about before, we built inventory to ensure we had sufficient available to us to hit both Christmas and now Easter peak. So that's largely unwound. We'll have seen, as you rightly say, an increase in the stock value just because of inflation as well. So comfortable where that sits. And so see that unwind now. Now clearly, we will work with our customers to ensure that we can meet their demand and meet peak trading periods and how that looks really depends on availability of the market and some of the challenges we may face into, but comfortable with where we sit, comfortable with us delivering for our customers and the [indiscernible]. Mark Allen: Let me come in just to add something to that. There was a lot of noise around that -- those purchases last year because there were surprise. And 1 or 2 people since I've been involved has said could that happen again. What is absolutely clear is if -- particularly in the environment that we touched on at the moment where there's lots of uncertainty, if opportunities arise for us to buy meat ahead of any inflationary pressures, that's exactly what we'll do. We'll explain it to you guys. We'll explain it to shareholders. But if it's the right thing for the business, that's exactly what we'll do. Charles Hall: And lastly, Mark, the SPV, I think we'll now call it, is how much do you think you can improve the profits? And how long will it take to get change in those segments? Mark Allen: There's a -- so we didn't really discuss it in the presentation, but I've got a dedicated team working in that area. It's got its own effectively, it's leader. We're already seeing evidence in those -- of improving trends in those businesses. We've won new business in Dalco in recent days as an example. We've got a cost-out program in the Seachill that's starting to pay dividends. Foppen is actually a different set of problems. But as you heard in Matt's presentation, we're already using sea freight as opposed to air freight. That starts to normalize it. We are working very hard with the U.S. FDA to get our protocols reassessed. That's happening. We put it in 2 weeks ago. We're waiting for the results. But we're also challenging some of the -- some of the things that are perfectly acceptable in the U.S. for example, dipping fish in saltwater that on the face of it are not acceptable in Europe and the U.K., but we think we found an opportunity to make them acceptable in the U.K., and we're going to be working on that. So we've got a range of activities in each of the businesses that we're already on with that will start to deliver improvements now. Will they get to the stage where at the end of the year? I think in Matt's presentation, he said that they will be collectively loss-making still by the end of the year. Will we get to the stage where they're profitable by the end of the year, question mark, but we're working very hard to make sure that, that's where we get to. We want to give ourselves choices in these businesses, and that's what the -- all the work we're doing, it's about giving ourselves choices. Darren Shirley: Sorry, Darren Shirley from Shore Capital. Just a question on one of the areas where you talk about enhancing the mix within the business. You talk about scaling value-added meat. Can you just outline exactly what that means? Is that an opportunity you haven't been taken advantage of previously? Or is that a new opportunity... Mark Allen: I guess we -- a bit of both, Darren, to be fair. Just as an example, we use Sid in that area where we've been very successful with it, but there is greater opportunity to do it in more places around the world. some of the work that we're doing in Poland will enhance our capability to deliver against that as a product line. There's opportunities -- further opportunities in the U.K. And the interesting thing is you don't have to manufacture it everywhere. You can manufacture it in one place and export it to the neighboring countries. So as an example, and Mel can probably give you more detail than me on this, we will upgrade our facilities in Poland, but that gives us an opportunity to sell into neighboring countries from the Poland facility, which is a low-cost will be automated solution. Darren Shirley: Okay. And then Poland, GBP 30 million, what exactly are you expanding there? Is it the meat side? Is it just the fresh prepared side? Is it new capabilities. Just a bit of color what you're getting for GBP 30 million. Mark Allen: I feel a bit sorry for Samy because I'm passing all these questions to Mel, but I promise I'll give one to you in a second, Samy. Mel, do you want to just talk about what we're doing in Poland? Melanie Chambers: Absolutely. So it is an expansion of our fresh prepared foods business that we currently have there, which is next to the fresh meat factory. So it's expanding the footprint of that, which allows us to be able to have more capacity so that we can keep up with the customer demand. And as Mark touched on, it can act as a hub that can then serve other markets from there. And so what we're looking at doing is advancing the technology within that facility and also the automation at either end. Mark Allen: In terms of the products, Mel? Melanie Chambers: Yes. So the products, we're looking at sous-vide, we're looking at the ready meals. We do sandwiches, pizzas currently through there. So a lot of the fresh prepared foods. Darren Shirley: And then just one last one, if you don't mind, is, you talked about there being additional exceptional costs associated with Foppen this year. Could you give us sort of a ballpark number in terms of what we're thinking. Matthew Osborne: Yes. So current run rate is around EUR 800,000 to EUR 1 million a period. Now that will have included air freight costs as opposed to sea freight costs. And as Mark touched on, we're moving away from air freight at the moment. So we see that reducing over time. As you know, we are operating out of the facility in the Netherlands, which has increased operating costs as well. So that's where we see it. Clive Black: Clive Black also from Shore Capital. Darren's Younger brother. A few, if I may, Firstly, to follow on from Charles' question about working capital. Are you looking at a similar positive outflow this year? Or is it an improvement year-on-year? Maybe start with that 1. Mark Allen: Do you want to answer that one? Matthew Osborne: Yes. So based on where we sit today, we'd expect there to be a modest improvement over the year. Now as Mark said, though, we will reserve the right to make purchasing decisions if see it's the right thing to do to ensure we're avoiding inflation or ensuring supply for our customers. Clive Black: And then not to keep Samy out of it, I think you talked about long-term opportunities from international retailers. Just flesh that out what that actually means for investors? Mark Allen: John? Unknown Executive: Yes, sure. Absolutely. I think we -- we declared in our third pillar that there was effectively an opportunity to expand geographically. And I think you've seen that in the move that we are making now today in Saudi and Canada. And the idea there is to leverage what we are doing that as a benchmark, if you want for future opportunities either to selling into new geography or expanding effectively into new category within those geographies as well. Clive Black: Okay. So that could mean for the product categories and further plans in those markets? Is that whst you alluding to? Unknown Executive: Yes. I mean all options are being considered and we'll be effectively investigating the opportunity on the basis of, let's say, the best opportunity from a value creation standpoint, absolutely. Mark Allen: Just to be clear, that those opportunities will be in fresh meat, our core capabilities or fresh prepared foods, the list that Mel articulated. We're not going to go into sort of wide categories. We'll focus on the things that we know and understand, and that's where we'll invest. Just to maybe put a bit more flesh on that, 1 or 2 people have asked in recent times, will we spend more in Canada? The answer to that question is we might. And the reason we might is because we might win incremental business there. So that is not a definite, but there is a chance that we win incremental business there. That business, so if the cost -- the capital costs go up, they're going up because they'll deliver improved returns. Clive Black: But the probability will be with existing customers rather than new customers? Mark Allen: I think in the main with existing customers, but I think it's fair to say that we've got a team with suit cases traveling around looking for opportunities in appropriate geographies. These are long pipelines though. You don't have an idea today that gets delivered tomorrow. As you've heard in the case of Canada, that's probably been in the making for 3 years before we actually started the development. So we're working on long-term projects. Clive Black: And again, in your presentation, you talked about a global red meat sourcing capability. What does that actually mean for shareholders? Mark Allen: So the one thing that shareholders should draw from that is we actually have a very well-run, efficient sourcing team based in Huntington that source red meat from South America, from Australasia and around the world. I would say that we are at the top end of capabilities in that area. Look, as the supply of meat declines in the West, in particular, that, I think, will come more and more into ton. and it gives our shareholders and us as a business, a degree of comfort going forward. Clive Black: And does that sourcing capability need to be replicated in fish? Mark Allen: I think, kind of to a degree, it is already there in fish. I think the fish challenges are much more here and now operational, customer product so that we're looking at the business on a relatively short-term basis to solve some of the challenges that we have. Ongoing sourcing capabilities are a thing that we'll look at, but they're not in the immediate to-do list. Clive Black: Okay. And then just the last one. Again, you talk about your production platform around the world. How consistent is that to the extent -- we've been to Huntington and 1 or 2 others have been to other plants around the world. But across the globe, how consistent is your production capability? Mark Allen: I think if you traveled around the factories, you'd see similarities in all the factories. One of the things that I think Sally talked about one Hilton. One of the things that we're addressing full on at the moment is our ability to make sure we're getting synergies from the skills we have in the various locations. You might argue Hilton hasn't historically done that. Each of the businesses has done their own good work, but it hasn't been translated across the group. We're already seeing benefits of getting it group-wide rather than business-wide. And I think we'll continue to do that. I think the fundamental factories, if you walk into our factories, you'll see similarities everywhere, and you'll see the same focus to efficiency, yield, give away, all the things you would expect to see in any factory. And the fact -- the reality of it is if you take Walmart as an example, they didn't just sign a contract and say, we'll go and work with Hilton. They went and visited lots of these facilities, saw it themselves, saw something that is different than what our competitors offer and then sign on the bottom line. So that isn't me saying it. That's a very big highly competent retailer saying we want to put our eggs in the Hilton basket. Matthew Webb: Matthew Webb from Investec. Can I ask about the -- or any operational implications of the strategic review and the very clear distinction you've made between core and noncore. I mean, are these businesses already run very separately? If not, are they going to be separated out more clearly to give you that optionality of selling the noncore when the -- when profitability improves? And then related to that, I think you mentioned that the investment priority would now obviously be on the core side of the business. Clearly, when it comes to expansion, that's what we would expect. But if there was a, say, a big automation project that would improve the profitability of the noncore side, would you go ahead with that? Or would you be wary of doing that if the ultimate plan is to sell? Mark Allen: Well, I think the last -- start with the last point first. We haven't said that the plan is to sell. So let's be clear about that. What we have said is we need to work very hard on these 3 businesses to deliver optionality. They're already now. It was one of the first things I did when I put Mel and Samy into their roles, took out these 3 businesses and manage them separately. They have a management team looking after them that are focused entirely on improving those businesses during this year. So if you wanted a view on the capital question, if the capital pays back in less than a year, then the chances are we'll probably say yes. If it's a long-term capital investment, then the chances are unless we've done the short-term stuff, i.e., got the businesses to a sustainable position, we are not going to be investing long-term capital in these businesses. And that's -- I think the team would probably agree. I've been very clear with the team. We will invest, but sort the businesses out in the first place, and that's where we've got to get to. And I've said a few times, this is all about giving us optionality. Improving the current situation through a range of measures, and then that gives us choices going forward, choices to keep the business, but also to do other things as well. But be clear, there has been no decision to sell any of these businesses. Matthew Abraham: Just a follow-up for me, if I may. So you mentioned the desire to improve the businesses, and there's been improvement initiatives implemented in these businesses over a number of years. What's different in the approach that's being outlined today? But yes, I guess that is the first follow-up, please. Mark Allen: In some respects, I'm probably the wrong person to ask that. They're not here. But if you ask the team, I am sure they would say there's a very different approach in the rigor and challenge that goes on in their businesses to that, that has been historically done. So it's a rigor, it's a focus. It's a accountability, it's an empowerment that maybe didn't exist before as we look to improve them. Now there is -- as I've said already, there's a range of things that we're working on from cost out at one end to volume in at the other, and they're all different depending on the business that we're talking about. Matthew Abraham: Okay. And then maybe just one more follow-up, if I may. So there's a greater concentration of investment going into what appears to be a high-returning business in the core. But the ROCE target is unchanged. Like why would there not be a better ROCE profile if more investments going into a better returning component of the business? Mark Allen: Maybe I should pass that to Matt, but I'm not going to. I'm going to answer it because we believe that, that level is a satisfactory acceptable return for us that work in the business and for shareholders as well. Darren Shirley: It's Darren Shirley again. Two areas of the business, which haven't been mentioned, obviously, you crystallize value with Food Connected early this year. But within that sort of bucket of sort of other investments you've got Agito in there and Cell Ag. I mean, where do they sit in sort of the new Hilton? Mark Allen: Well, I think it's very clear from what we've said that they're not core in terms of investment. They are important, though, because not necessarily as a shareholding point of view, they're important to the running of the business. Agito is intrinsically linked to our developments around the world, and it forms a big part of what we're doing in Australia. Cell Ag is a start-up, and it's a business that's very interesting from a personal point of view, but it's not necessarily that interesting for the view of a public company. And what being absolutely blunt, we would like other partners to join us in the Cell Ag investment. Darren Shirley: And then just a point of clarification because you mentioned cold red meat on a number of occasions. In APAC and in Canada, fish, am I right in thinking seafood will continue to be part of the broader offering you bring it to Woolworths in Canada and Australia? Mark Allen: Seafood is going to be a continuing part of the offering in Australia. May not be in Canada. Darren Shirley: Does that represent sort of a downsizing of the thinking in Canada? Mark Allen: No. 'm not -- at this stage, I'm not going to say any more than that. You shouldn't worry about what I've just said from Canada. It is integral to the offering that we have in Australia. And in Australia, it works really well. I think the difference between Australia, it is a very simple, straightforward cost-plus model. What we operate in the U.K. is different to that. Darren Shirley: Because there were ambitions to expand the seafood after an APAC, would those ambitions still be there? Mark Allen: Do you want to talk about that, Mel? Melanie Chambers: Yes. So the seafood works well in New Zealand as a food park. So we have the red meat, the poultry and the seafood. And due to it being a smaller location, less stores, it serves being able to serve the whole country out of that one facility. In Australia, due to the diversity of travel time and transit time, the seafood model wouldn't work long term because it's fresh, it's not frozen. So when you're looking at trucking for 12 hours from there to there, your shelf life is obviously shrinking. So it works well in New Zealand, but it's not something that we're progressing currently in Australia. Mark Allen: Any more questions? We're going to be around for a little while if there's any individual questions you want to ask. I'm conscious 1 or 2 of you have got to get after another presentation. Good business that is as well, by the way. Thank you for your time. Thank you for your questions, and feel free to come back to us on any points over the next few days. Thank you.
Operator: Good afternoon, and welcome to today's earnings call for Omeros Corporation. [Operator Instructions] Please be advised that this call is being recorded at the company's request, and a replay will be available on the company's website. I will now hand the conference over to Jennifer Williams, Investor Relations for Omeros. Please go ahead. Jennifer Williams: Thank you, and good afternoon, everyone. Before we begin, please note that today's discussion will include forward-looking statements. These statements reflect management's current expectations and beliefs as of today and are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed discussion of these risks and uncertainties, please refer to the special note regarding forward-looking statements and the Risk Factors sections in our annual report on Form 10-K, which was filed with the SEC today. Today's call will include a discussion of certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to the corresponding GAAP measures is included with Omeros' earnings press release issued earlier today, which is available on the Investor Relations page of our website and has been furnished with the Form 8-K we filed with the SEC earlier today. With that, I'll turn the call over to Dr. Greg Demopulos, Chairman and CEO of Omeros. Gregory Demopulos: Thank you, Jennifer, and good afternoon, everyone. Joining me today are David Borges, our Chief Accounting Officer. Nadia Dac, Chief Commercial Officer; Dr. Andreas Grauer, Chief Medical Officer; Dr. Cathy Melfi, Chief Regulatory Officer; and Dr. Steve Whitaker, Vice President of Clinical. Two major successes made the fourth quarter of 2025 a turning point for Omeros. On November 25, we closed our previously announced asset purchase and license transaction with Novo Nordisk for our Phase III ready asset, zaltenibart. Then on December 23, we received FDA approval for narsoplimab now commercialized under the brand name YARTEMLEA for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy, or TA-TMA. Through the zaltenibart deal, Novo Nordisk received exclusive global rights to develop and commercialize zaltenibart, Omeros' proprietary human monoclonal antibody targeting mannan-binding lectin-associated serine protease-3 or MASP-3 and a small number of target-related very early-stage antibodies and antigen binding fragments. MASP-3 is the key activator and is widely considered the premier target of the alternative pathway of complement. Omeros retains rights to its MASP-3 small molecule program, including the ability to develop and commercialize small molecule MASP-3 inhibitors across a range of therapeutic areas, including, but not limited to, ophthalmology, neurology, gastrointestinal disorders, dermatology, musculoskeletal diseases and oncology. Omeros also retains rights to its grandfathered MASP-3 antibodies with temporal and indication restrictions on commercialization and for use in advancing its small molecule therapeutics. The transaction resulted in an upfront cash payment to Omeros of $240 million with an additional $100 million in achievable near-term milestones. We're also eligible for another $410 million in onetime development and approval milestone payments and up to $1.3 billion in onetime sales and commercial milestones. All told, the deal is valued at up to $2.1 billion in upfront and milestone payments. On top of that, Omeros is set to receive tiered royalties up to the high teens on net sales of commercialized products. As part of the transaction, we entered into a transition services agreement, or TSA, with Novo Nordisk. Under this TSA, we are providing and being reimbursed by Novo Nordisk for our employee costs and other expenses associated with services to facilitate the transfer and to maintain the continuous operation of zaltenibart studies and programs. Novo Nordisk will also reimburse Omeros for its inventories of zaltenibart drug substance and drug product. Our partnership with Novo Nordisk is mutually beneficial, underscoring the value of Omeros' science and development expertise while providing us with substantial and ongoing working capital and enabling Novo Nordisk to lever its extensive experience and global reach to unlock the full potential of zaltenibart. Novo plans to advance zaltenibart across PNH and multiple other indications. The ultimate beneficiaries will be patients. Omeros' second landmark achievement in the fourth quarter of '25 was FDA's late December approval of YARTEMLEA, Omeros' lead MASP-2 inhibitor, making YARTEMLEA the first and only approved treatment for TA-TMA. MASP-2 is the effector enzyme of the lectin pathway of complement in TA-TMA and often fatal complication of stem cell transplantation is driven by lectin pathway activation. The FDA-approved indication for YARTEMLEA is broad, covering all TA-TMA in both adults and children at least 2 years of age. Unlike C5 and C3 inhibitors sometimes used off-label, YARTEMLEA by blocking upstream MASP-2 preserves the infection fighting functions of the classical and alternative pathways of complement. This important mechanistic benefit is reflected in YARTEMLEA's approved label, in which there are none of the safety-related obligations usually required for complement inhibitors. Specifically, no box warning, no risk evaluation and mitigation strategy or REMS program and no required vaccinations. As previously disclosed, we began preparations for the U.S. commercial launch of YARTEMLEA well before receiving approval, allowing us to hit the ground running. We've hired and deployed our entire field force of account managers and directors, market development managers, market access leads and medical science liaisons across all territories. Having supplied our distributors within the first 3 weeks of January, first sales occurred shortly thereafter. Within 24 hours of placing an order, both adult and pediatric TA-TMA patients are now receiving YARTEMLEA, including patients who have recently failed prior off-label C5 or C3 inhibitor regimens. Patients are receiving YARTEMLEA in both hospital and outpatient settings and third-party payer reimbursement has been received. The per vial price for YARTEMLEA is approximately $36,000. Each vial represents a single dose. Across the pivotal clinical trial and the expanded access program, median utilization was 8 to 10 vials per treatment course. We expect the majority of the TA-TMA patients course to be administered in hospital outpatient departments where the drug typically is purchased and billed by the hospital. With our field force fully deployed, we remain focused on the 80 highest volume transplant centers across the country. Those 80 centers represent approximately 80% of annual stem cell transplants in the U.S. At this early stage, our primary launch objectives are fourfold: First, to educate the entire transplant care team, including transplant physicians, nurses, pharmacists and reimbursement teams regarding the recently harmonized TA-TMA diagnostic criteria, thereby driving awareness, early diagnosis and treatment of the disorder. On that front, beyond the 80 highest volume transplant centers, our field force has actively met with and detailed centers representing nearly 90% of the allogeneic stem cell transplant procedures performed nationally. Second, to support transplant centers in quickly obtaining their pharmacy and therapeutics or P&T committee approvals, adding YARTEMLEA to their formularies and streamlining their ordering processes to continue ensuring seamless access to YARTEMLEA in both the hospital and outpatient settings. Our progress has exceeded our expectations. YARTEMLEA has obtained P&T committee approval and is now on formulary at 50% of the top 10 U.S. transplant centers, 40% of the top 20 centers, 35% of the top 40 centers and approximately 30% of the top 80 transplant centers across the country. Third, to work with third-party payers to continue ensuring timely reimbursement consistent with the YARTEMLEA label and published diagnostic criteria. To date, third-party payers have approved all pre-authorization requests for YARTEMLEA, meaning that insurers have agreed to prospectively cover those patients. Fourth, to finalize the Health Economics and Outcomes Research or HEOR analysis using the uniformly strong clinical efficacy data and favorable safety profile of YARTEMLEA to demonstrate its compelling cost effectiveness to health care providers and payers. We plan to publish the HEOR analysis for YARTEMLEA soon, and the results strongly support YARTEMLEA's clinical, economic and real-world value. We look forward to providing additional detail regarding the launch of YARTEMLEA during our upcoming earnings call for the first quarter of 2026. Beyond the U.S., our marketing authorization application for YARTEMLEA in TA-TMA is pending with the European Medicines Agency. We continue to expect a decision midyear. For commercialization of YARTEMLEA outside the U.S., we are evaluating potential partnerships, both broad ex-U.S. arrangements and regional collaborations. We believe that these opportunities are substantial. As we have discussed in previous calls, the underlying biology of TA-TMA, endothelial injury and cellular damage spans a broad range of therapeutic areas. For YARTEMLEA, we are evaluating expansion opportunities in additional indications, including acute respiratory distress syndrome or ARDS, solid organ transplant-related TMA and other endothelial injury-related disorders. We also intend to advance our once-quarterly dosed MASP-2 antibody, OMS1029, which is Phase II ready as well as our MASP-2 small molecule program designed for once-daily oral administration. We expect that both our long-acting antibody, OMS1029 and our small molecule inhibitor programs are well suited for chronic indications, including those in nephrology and in neurology. Let's now examine our fourth quarter and full year 2025 financials. For the fourth quarter, Omeros reported net income of $86.5 million or $1.22 per share compared to the third quarter's net loss of $30.9 million or a loss of $0.47 per share. Fourth quarter results include a net gain of $237.6 million resulting from the zaltenibart transaction with Novo Nordisk. In the fourth quarter, Omeros also incurred a $136 million noncash charge associated with the mark-to-market adjustment on the embedded derivatives related to our 2029 convertible notes and term loan. Excluding this charge, our fourth quarter non-GAAP adjusted net income was $222.5 million and our fourth quarter non-GAAP adjusted income per share was $3.14. Further strengthening our balance sheet in the fourth quarter in November, we used a portion of our $240 million upfront payment from Novo Nordisk to repay in full our $67.1 million secured term loan. Last month, we used another portion of the upfront to repay at maturity the remaining $17.1 million principal balance on our 2026 convertible notes. As a result, all indebtedness under our senior secured term loan and 2026 notes has been extinguished, leaving us with only a $70.8 million principal amount outstanding in 2029 convertible notes. As of December 31, 2025, we had $171.8 million in cash and investments, an increase of $135.7 million from the quarter ended September 30, 2025. We anticipate that the YARTEMLEA program will be financially self-sustaining this year, and we expect the company to achieve positive cash flow in 2027. Let's turn now to development programs beyond our complement franchise. Our PDE7 inhibitor program evaluating OMS527 for cocaine use disorder is fully funded by a grant from the National Institute on Drug Abuse or NIDA. Animal cocaine interaction studies designed with NIDA toxicologists were completed and showed no drug interaction or safety issues, supporting the scheduled inpatient human study in cocaine users. FDA subsequently requested additional preclinical information before initiation of the inpatient study. Together with our collaborators at NIDA, we are scheduled to meet with FDA in the coming quarter to discuss that request. Our targeted complement activating therapy or T-CAT platform has also made substantial strides. Our T-CAT platform represents a novel class of pathogen targeting recombinant antibodies designed for broad use against diverse pathogens, including multidrug-resistant organisms or MDROs. MDROs are predominantly bacteria that are resistant to antimicrobial agents and are rapidly becoming a global threat. In 2024, sales of anti-infectives were $46 billion in the U.S. alone and $135 billion globally. Over the next 25 years, more than 39 million people worldwide are estimated to die from MDR bacteria alone. Unlike marketed antimicrobials, T-CAT is designed to kill pathogens regardless of resistance profile without promoting resistance. In well-established in vivo animal models considered predictive of efficacy in humans, T-CAT recombinant antibodies demonstrated effectiveness in treating life-threatening infections caused by both gram-negative and gram-positive bacteria, including those designated by the World Health Organization as priority pathogens. Patents have now been filed and a publication on our T-CAT platform is expected in the coming weeks. Finally, our oncology platform continues to progress rapidly. IND-enabling studies are underway for OncotoX-AML, our biologic agent designed to treat acute myeloid leukemia or AML. AML is an aggressive and often fatal bone marrow and blood cancer. OncotoX-AML has shown broad application across AML genotypes, including historically difficult-to-treat mutations like TP53, NPM1, KMT2A and FLT3. These genetic mutations are collectively found in approximately 90% of AML patients. Across human tumor-bearing animal and in vitro human AML cell line studies, OncotoX-AML has consistently shown superior efficacy to current AML standard of care treatments. In a pilot study assessing the efficacy and safety of OncotoX-AML in nonhuman primates, a single course of OncotoX-AML resulted in selective, reversible and dose-related killing of myeloid progenitor cells, the cells that can mutate and lead to AML by up to 99%. OncotoX-AML was tolerated with no safety signal of concern. Together with our clinical steering committee comprised of AML experts from leading academic cancer centers, we are designing our first-in-human clinical trial targeted for late next year. That concludes our financial corporate and development update. And I'll now turn the call over to David Borges, our Chief Accounting Officer, for a detailed discussion of our financial results. David? David Borges: Thanks, Greg. Net income for the fourth quarter of 2025 was $86.5 million or $1.22 of net income per share compared to a net loss of $30.9 million or $0.47 net loss per share in the third quarter of 2025. Fourth quarter results include a net gain of $237.6 million on the sale of zaltenibart to Novo Nordisk, which I will discuss in more detail in a moment. Results also include a $136 million noncash charge associated with the mark-to-market adjustment on the embedded derivatives related to our 2029 convertible notes and term loan. Excluding this charge, non-GAAP adjusted net income for the quarter was $222.5 million and non-GAAP adjusted net income per share was $3.14. This charge represents a noncash remeasurement adjustment and excluding it, provides a clearer view of the company's operating performance during the quarter. As of December 31, 2025, we had $171.8 million of cash and investments on hand. This balance includes the gross proceeds of the $240 million upfront payment received from Novo Nordisk in connection with the sale of zaltenibart and the full repayment of our $67.1 million term loan in the fourth quarter. In connection with the repayment of the term loan, all liens and covenants associated with the credit agreement, including the $25 million minimum liquidity covenant were eliminated. In February 2026, we repaid at maturity the remaining $17.1 million principal balance on our 2026 notes. Following these repayments, our only remaining debt is a $70.8 million in principal amount of unsecured 2029 convertible notes, which are not due until June 2029. Costs and expenses from continuing operations for the fourth quarter before interest and other income were $29.1 million, an increase of $2.7 million from the third quarter of 2025. Research and development expenses in the fourth quarter were primarily focused on YARTEMLEA and zaltenibart. Interest expense in the fourth quarter was $8.7 million. The primary components of interest expense include the DRI royalty obligation, the 2029 notes, the 2026 notes and the term loan. Excluding the DRI OMIDRIA royalty obligation, which represents pass-through interest from Rayner to DRI and has no economic impact to us, as well as noncash amortization of debt issuance costs, discounts and premiums, contractual cash interest expense was $3.2 million compared to $4.2 million in the prior quarter, a decrease of $1 million. The decrease was primarily due to the repayment of the term loan in November 2025. In connection with the closing of the sale of zaltenibart to Novo, we recognized a net gain of $237.6 million. This reflects the $240 million upfront payment less $2.4 million in transaction costs. Concurrent with the closing of the transaction, we entered into a transition services agreement with Novo Nordisk to facilitate the transfer of acquired assets and liabilities and support the continued operation of relevant studies and program activities. Costs incurred by the company under the transition services agreement, including third-party expenses and internal FTE costs are expected to be reimbursed by Novo. Interest and other income totaled $1.1 million in the fourth quarter compared to $616,000 in the third quarter of '25, primarily reflecting higher average cash balances. In connection with the repayment of the term loan in November '25, we recognized a $17 million noncash gain related to the derecognition of the remaining unamortized premium. This was a onetime accounting adjustment associated with the repayment of the loan. And during the fourth quarter, we reported $135 million noncash loss on the mark-to-market adjustment on the embedded derivative related to our 2029 convertible notes. The change in valuation was primarily driven by the increase in our stock price during the quarter, which rose from $4.10 per share at September 30, '25 to $17.18 per share at December 31, '25. This embedded derivative reflects certain features of the notes, including the conversion option and interest make-whole provisions available to noteholders. Because the valuation of this derivative is influenced by our stock price and other market inputs, it can introduce significant volatility in our reported results from quarter-to-quarter. This adjustment is noncash and does not affect our operating performance or liquidity. As a result, we present non-GAAP adjusted net income and net loss to exclude the noncash nature of these volatile swings. Income from discontinued operations in the fourth quarter was $6.6 million, an increase of $16.2 million from the third quarter. The increase primarily reflects the absence of a large noncash remeasurement expense recorded in the third quarter following a downward revision of the forecast for U.S.-based OMIDRIA royalties. Now let's look at our expected first quarter 2026 results. We anticipate that overall operating expenses from continuing operations in the first quarter of '26 will be comparable to the fourth quarter of '25. Research and development expenses are expected to be lower as zaltenibart-related expenses will be reimbursed under the transition services agreement with Novo. Sales and marketing expenses are expected to increase in the first quarter, reflecting costs associated with building our commercial infrastructure, including the hiring of a field sales force, marketing expenses and other commercial launch activities for YARTEMLEA. As YARTEMLEA is in the early stages of launch, we are not providing revenue guidance at this time. We typically do not provide guidance following a new product launch while the market access and physician adoption are developing until -- and until we're able to estimate revenue with greater accuracy. In the near term, we're focused on building physician awareness, expanding disease education and working with third-party payers to ensure timely reimbursement. Interest and other income are expected to be slightly higher than in the fourth quarter of 2025, primarily reflecting higher average cash balances. Interest expense is expected to be approximately $8.1 million, reflecting the reduction in our outstanding debt and excluding any potential noncash adjustments related to the OMIDRIA royalty obligation. Income from discontinued operations is expected to be in the $5 million to $6 million range, again, excluding any noncash remeasurement adjustments related to the OMIDRIA contract royalty asset. And finally, one thing to keep in mind is that our reported results will continue to reflect mark-to-market adjustments on the embedded derivative tied to our 2029 convertible notes. These adjustments generally move with our stock price and can create significant volatility from quarter-to-quarter. Because these adjustments are noncash and unpredictable, we present non-GAAP adjusted net income and loss measures, and they do not affect our operating guidance. And with that, I'll turn it back over to Greg. Gregory Demopulos: Thanks, David. Operator, please, would you open the call to questions. Operator: [Operator Instructions] Your first question comes from the line of Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congrats on all the progress. Maybe just 2 from me. How should we think about the progress of formulary additions across the top 80% of transplant centers in 2026? Obviously, you got off to a strong start there. So just sort of how should we think about the progress for the rest of the year? And then secondly, I know it's very early on in the YARTEMLEA launch, so kind of asking this with an asterisks. But any color on the real-world vial usage to date? Sort of any early data suggesting a different number of vials in the real world versus what we saw in the clinical data? Gregory Demopulos: Brandon, thanks. With respect to the first question, we're quite pleased with the P&T committee approvals that we've received so far that YARTEMLEA has received. It was really ahead of schedule, which I think indicates the strong interest and frankly, the recognized need for the drug. I expect -- I think we expect that we will continue to see additional P&T approvals over the next several months. And our objective, of course, is to have P&T committee approvals across all of the top 80 and frankly, beyond the top 80 sites. But I'll check with Nadia. Nadia, do you have any additional thoughts on that? Nadia Dac: Yes, I completely agree with everything you said, Greg. And I will underscore how pleased we are with the speed with which these P&T decisions are being taken, which isn't always the case in a launch. Here, they're seeing the value and the urgency to treat patients with YARTEMLEA's value proposition. And I will add that in places where we don't have P&T approval yet, if it's still underway, it's not standing in the way of getting YARTEMLEA to the patients. And so we are seeing the use of YARTEMLEA in the hospitals even without a P&T approval in place. Gregory Demopulos: I would just underscore that latter point from Nadia, which is despite in some of these centers not having P&T approval yet, we continue to see requests and sales of YARTEMLEA, use of YARTEMLEA for the benefit of the patients in those centers. So it's really been very encouraging and frankly, validating on what we believe the importance and the need for YARTEMLEA is in these patients, both adult and pediatric, really both in the hospital setting and in the outpatient setting. Your second question, Brandon, was tied to vial usage. And I assume you're asking whether it's once weekly, twice weekly, but let me just make sure I understand the question. Brandon Folkes: Yes. Ideally. Just anything you're learning early on in the launch, which may be different to what we saw in the clinical data? Gregory Demopulos: Yes, not really different. We are seeing once weekly and twice weekly usage right now, at an estimate, the split is about 70% once weekly, 30% twice weekly, twice weekly being more common in the pediatric patients than in the adult patients. We do expect that shift to move more heavily toward twice weekly dosing. Really what needs to occur and what our field force is doing is educating the transplant teams on their ability to dose twice weekly. It is allowed under our label. And I think that, that information is being really well received by the transplant teams across the centers nationally. And so I would expect that we would see that split to move more heavily toward twice weekly dosing. But again, I'll ask Nadia her thoughts on this. Nadia Dac: Yes, absolutely. And one of the execution tactics and the messaging that the field is focused on is the sense of urgency and not to wait because our label allows twice weekly dosing. And so in several instances, we're seeing that there is an urgency to treat and move a little faster if they need it for the patients. And the other thing that's very encouraging is the published policies that we've seen to date with third-party payers are, they're supporting prior authorization to label. And so it's not restricting the use of twice weekly dosing as needed. Gregory Demopulos: Does that help, Brandon? Brandon Folkes: Very helpful. Congrats on the early launch progress. Gregory Demopulos: Thank you. Operator: Your next question comes from the line of Olivia Brayer with Cantor. Samuel Rodriguez: This is Sam on for Olivia. I have a quick one on -- you mentioned that you plan to be financially sustainable this year and then cash flow positive by 2027. Is that implying that you received the $100 million from Novo and you had to pay the 29 notes? And then under YARTEMLEA launch, what feedback have you gotten from the sales force when educating the teams? And has there been any like pushback or like what kind of roadblocks or things have you seen that you expect to like smooth out by the rest of the year? Gregory Demopulos: Sam, with respect to your first question, the comment about self-sustainability was really directed at the YARTEMLEA business in 2026, meaning the business itself would be self-sustaining in 2026. 2027 is our target for company positive cash flow. So I'm hoping that, that helped and cleared up any misunderstanding. Samuel Rodriguez: Yes. That's awesome. And then on YARTEMLEA, what kind of bumps in the road have you encountered? And what can you do to like smooth those out? Gregory Demopulos: Yes. Again, we'll get into this more in our Q1 call, which will be in about 6 weeks. But I can tell you that our sales team is really very excited, very enthusiastic about the responses that they are receiving from the medical centers that they're detailing. And as I said, we are -- we've been in already sites that represent about 90% of the allogeneic transplants done nationally every year. So the response has been from those centers really uniformly positive. I think that -- there's an education process that's going on. But the eagerness to learn the recognition of the urgency and the need for YARTEMLEA and the benefits with the really quite favorable safety profile, I think, is resonating very strongly with the sites, really all the sites that I am aware of have been very receptive. But again, I'll turn it to Nadia and see if she has more information on that. Nadia Dac: Yes. The receptivity has been extremely positive. Our value proposition is viewed as significant and addressing an unmet need. And I will say that all of the effort we put into the prelaunch period of educating on TA-TMA, the signs of symptoms to identify it and the urgency to treat, we're seeing the payoff of that education. And so now with the first and only approved product for TA-TMA, that sense of urgency is playing out. And if I were to pick on anything that we want to smooth out, what we're working on as a commercial team is to make sure that we have even more education out there that supports our on-the-ground efforts and seeing how we can do more through nonpersonal efforts because as we see, the patient can come from anywhere, 175 centers. So we want to make sure that we're supporting any of the HCPs out there that are looking for treatment and wanting to learn more about YARTEMLEA. Gregory Demopulos: And I would agree with what Nadia said that really we're focused on educating. But I've been personally quite impressed by the steep upswing of that education across all of these sites. They understand it, they get it. And as Nadia said, they're quite receptive to the value proposition here for their patients. I mean this is a drug that works well. And when you look at the safety profile, that's quite a favorable benefit risk profile that I think YARTEMLEA represents. Samuel Rodriguez: And if I can squeeze one last one in. Regarding the EMA decision by midyear and like partnership discussions, do you expect any impact from MFN and like ex U.S. pricing? Gregory Demopulos: Yes. It's too early right now to discuss what we expect with respect to pricing in the EU. We are really sort of laser-focused on achieving that approval. There is, as you know, no approved treatment other than narsoplimab or YARTEMLEA anywhere in the world, and that includes Europe. So I think it is a needed product. We see the interest in it to be high as was clearly evident at the recent EBMT meeting, the European Blood and Marrow Transplantation meeting. The interest in YARTEMLEA there was very high. And our focus is getting it approved, making it available for European patients as we've already made it available through our expanded access program. Operator: Your next question comes from the line of Steve Brozak with WBB. Stephen Brozak: I'd like to go back to something you raised on the last series of questions in terms of the value proposition. I mean, given your compassionate use programs and all the drug that you've given out and all the literature that's been published, I'm certain that the hem-oncs are very, very familiar with YARTEMLEA. But can you go into as much detail as possible as to the value proposition because these are sick patients, of course. But a lot of resources have been expended on them financially and obviously, in the medical care. Can you tell us about that? Because I'd like to put into perspective the criticality of what has just been done and what you're now doing. And I've got a follow-up after that, please. Gregory Demopulos: Steve, yes, with respect to the value proposition, I think I mentioned or I know I mentioned in the prepared remarks, the work we're doing on HEOR, on the Health Economics and Outcomes Research, and we'll be publishing. We plan to publish those analyses soon, but they're compelling. I think they make a very clear case for the economic, clinical and really, as I said, real-world benefits of YARTEMLEA. So we think that there is obviously a strong case to be made, and we are making it, and we'll be publishing that. So did that answer your question? Or was it something additional? Stephen Brozak: No, no. It's answered the question, but frankly, I was looking more for dollars and cents as to the scale order of magnitude when you're seeing these transplant patients, those are not just critical procedures, but they're also very, very expensive. Can you give us an idea of what we're looking at as far as what patients or the insurers, the hospital systems are spending right now? And also, I know this has been the classical unmet need, but what were some of the products that were used before in the order of magnitude and frankly, they were spending and where they really weren't working. If you could give us anything there, and I've got one more again after. Gregory Demopulos: Sure. Well, look, the overall transplant cost and related costs run about $1 million. So you spend a lot of money, you spend a lot of time, energy, there's a lot of patient involvement, patient family involvement. And then TMA hits, right? And it is really unpredictable. You cannot -- there's no test that will tell you this patient versus another patient is going to have a TA-TMA. So I think what I want to be careful about is speaking directly to numbers. With respect to your question about what has been used previously. Well, we know that off-label C-5 and to a much lesser extent, C-3 inhibitors have been used. You know the costs associated with those. Those are quite public. What we do know and what we're seeing in the published literature out of Memorial Sloan Kettering directed to adults, out of Emory directed to children, really now controlled trials with specifically in these cases, C-5 inhibition. But what we have seen and what have been -- what has been published is the markedly increased infection rate associated with C-5 inhibition, I mean up to a sixfold increase in infection-related mortality as reported in this set of publications. So that carries, I think, a significant cost beyond the cost of the agents themselves. So we think that where we are priced, the economic value proposition for narsoplimab or YARTEMLEA is really quite clear. And then when you layer on the clinical benefits of that, it becomes really something that I think is pretty compelling. Is that addressing your question, Steve? Stephen Brozak: Absolutely. Okay. A follow-up. You've been very transparent in saying that the hem-oncs, the hematological oncologists have been accepting YARTEMLEA. Question I've got for you is, since it is obviously a critical mishap, how fast are you in being able to respond? Because part of this is obviously being able to get the drug to the patients, but how quick can you respond to these clinicians who are obviously watching their patients deteriorate, but that those first few days are critical in understanding it. How -- what feedback can you give us there? And I'll hop back in the queue. Gregory Demopulos: Sure. Well, as we have set up our distribution channels, we can deliver drug. We are delivering drug within 24 hours of the request. So we can reach the site very quickly, which, of course, is the objective, right? Our preference would be not to wait until the patient is severely or critically ill, as you just noted, but to move it upstream temporarily, right, to be able to treat patients earlier, jump on it quickly, jump on it hard, meaning appropriately dosing. And in that way, really bring the full effect of narsoplimab or YARTEMLEA to these patients. That's the objective. That's what we've -- that's the purpose behind establishing really 24-hour delivery of the drug. Request comes in, drug goes out. And I think the effects of that we're seeing, and I think we'll continue to see. Nadia, do you have something you'd like to add to that? Nadia Dac: Yes, absolutely. So even before the shipment goes out, if there's any questions or any support that they need with the prior authorization, we have our team on the ground that will either go there in person or jump on a Zoom and address those questions, whether it be our reimbursement manager, our account manager or our MSLs. So we have a model that is designed to act immediately, and we have multiple examples of that. In addition to the 800 number that we have, our in-person phone calls that come in, we jump on that immediately and then drug is delivered within 24 hours. Gregory Demopulos: And with respect to what Nadia just said about pre-authorizations, as I mentioned in the prepared comments, all pre-authorization requests have been approved by the third-party payers. So we're quite pleased with -- we're quite early in this launch. Our launch was really January. And here we are at the end of March, talking pharmacy and therapeutic committee approvals. And to the extent that we have we're very pleased. And we think those are going to continue to move through. Remember, I've given you those that are already approved. I did not mention those that are actively in process for being approved. And those numbers are even substantially higher than what I just gave you. So we're really quite pleased by that and look forward to sharing additional information at our Q1 call. Speaker. Stephen Brozak: Congrats on, obviously, the developments of 2025 and what you've just told us about Q1. Operator: Your next question comes from the line of Serge Belanger with Needham. Serge Belanger: Greg, you mentioned all requests for access to YARTEMLEA have been granted. Just curious if these were via medical exceptions or there's formal formulary coverage for the product at this point? And then since we're at the last day of the quarter, 1Q here, is it too early to talk about how many patient starts we've seen so far that have started treatment on the product? Gregory Demopulos: And the second question I broke up a little bit was how the response has been to the drug? Serge Belanger: No. The second question was since we're on the last day of the first quarter, whether it was too early to start -- to get an idea of how many patient starts you have seen so far on the product. Gregory Demopulos: You're asking about numbers. Right. We aren't going to provide those today, Serge. We'll be talking about those, obviously, in the Q1 call. But I think we've given you color as to how we see the launch going with respect to your first question, let me turn that over to Nadia. Nadia Dac: Yes. So the question is about the PA approval and whether those were handled by medical exception or by policy. The answer is both. And what's really encouraging is, as many of you probably can see, there are published policies already for YARTEMLEA in the public domain and that they are PA to label. And in the places where we don't see a published policy yet, they are being handled by medical exception, also PA to label. Our intent going into the launch, we built a strategy where we would have policies that are PA to label, and that is playing out. And we have a strong national account manager team that is following up with any of the payer requests for in-services, presentations and the value narrative that we spoke about earlier is going to be very critical to those conversations. But we are very encouraged and really strong success to date. Serge Belanger: Great. And Greg, regarding the $100 million milestone that you described as near term from Novo. I guess just how confident are you in this -- in receiving this milestone? And can you give us color on what triggers it? Gregory Demopulos: Yes. We are, by agreement with Novo Nordisk, not able to specify what those -- that collection of milestones ties to. But I will tell you that we're confident around the receipt of those. Again, I can never guarantee these things, but I think our level of confidence is high. Operator: There are no further questions at this time. I will now turn the call back to Dr. Demopulos for closing remarks. Gregory Demopulos: Thank you, operator. Thank you all for joining this afternoon. 2025 ended strong, and 2026 has continued that momentum. The strategy we set for the company is playing out, and we are well positioned now for success. We look forward to speaking with all of you again in about 6 weeks when we'll provide a more detailed update on our YARTEMLEA launch. We appreciate your continued support, and have a good evening. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the BioHarvest Sciences Fourth Quarter and Year-End 2025 Earnings Call. [Operator Instructions] I will now hand the call over to Justin Meiklem, Head of Investor Relations. Please go ahead. Justin Meiklem: Greetings. With us on the call are Dr. Zaki Rakib, Chairman; Ilan Sobel, Chief Executive Officer; and Bar Dichter, Chief Financial Officer. Before we begin, I'd like to remind you that management will be making projections and forward-looking statements on the call today regarding future events. Any statements that are not historical facts are forward-looking statements. These statements are made pursuant to and within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. We encourage you to review BioHarvest Sciences' SEC filings, including the company's most recent Form 40-F, which identify risks and uncertainties that may cause future actual results or events to differ materially. These filings can be found on the company website, as well as the SEC's website at www.sec.gov. Please note that the forward-looking statements made during today's call speak only to the date they are made, and BioHarvest Sciences undertakes no obligation to update them. And with that, I would like to now turn the call over to Ilan Sobel, Chief Executive Officer. Ilan? Ilan Sobel: Thank you. I want to thank you all for joining us on today's call. For those of you who are new to our story, BioHarvest's North Star is to discover, develop, manufacture and democratize life-changing compounds from plants that will positively impact the health and wellness of hundreds of millions of consumers and preserve the planet for generations to come. We are a leader in Botanical Synthesis, a process that utilizes our patented non-GMO platform to produce plant-derived compounds with greater potency than the plant without having to grow the plant itself. Importantly, we required the plant just once to be able to identify the cells in the plants that produce these critical phyto nutrients. Utilizing these cells, we conduct hundreds of experiments with our technology, optimizing the environmental conditions and food that we feed the cells to be able to get the cells to mirror and magnify the levels of the phyto nutrients they produce versus the plant. We then scale the production and elicitation of these cells in industrial scale bioreactors to produce highly soluble, bioavailable and efficacious final material in a short period of time. Our technology allows us to improve nature with the power of our science and create innovative, unique and active molecules and compounds that we can produce with unique consistency, economic viability and commercial protection. We can use these compounds in our own proprietary products or to partner with key customers, which serve high-value markets in the pharmaceutical, nutraceutical, cosmetic and fragrance and nutrition sectors. BioHarvest today operates through 2 distinct but highly complementary business units, our direct-to-consumer products division, led by our flagship VINIA nutraceutical platform, and our CDMO services division, where we partner with third parties to develop novel plant-based compounds using our proprietary Botanical Synthesis technology. These 2 businesses represent the company's dual growth engines and provide BioHarvest with multiple pathways to revenue growth and long-term shareholder value creation. Given their different operating models, capital requirements and stages of financial maturity, we are managing the business through a 2 lens framework designed to optimize performance, capital allocation and strategic execution across both divisions. This structure reflects the way we have operated the company since late fourth quarter 2025. And beginning in 2026, our manufacturing center of excellence will be incorporated into the CDMO organization. This will further align our manufacturing capabilities under a single platform serving both our direct-to-consumer products, business and our external CDMO partners. Importantly, while both divisions are positioned as growth engines, there are at different points in their development. We expect the D2C business to achieve profitability in 2026 while continuing to invest behind growth and customer acquisition. In parallel, we believe the CDMO business has the potential to accelerate meaningfully in 2026 and beyond, supported by continued investment in technology capabilities and commercial infrastructure to unlock its full value potential. Now turning to the fourth quarter. We are pleased to report that our fourth quarter revenues were $9.1 million, falling within our guidance range, up 25% year-over-year. This impressive result was due to a record number of sales orders that came in from our core consumer products business that generated over $3 million in sales just for the month of December 2025, a record month. Revenues were $34.5 million for the year, up 37% from the previous year. Our gross margins were 58% for the fourth quarter, up 100 basis points compared to the same period last year, and 59% for the year, up 400 basis points compared to last year. While the ongoing conflict in the Middle East has understandably raised concern, BioHarvest's research and manufacturing operations are operating continuously without any interruptions. Recent airspace closures have affected commercial traffic, but cargo flights have gradually resumed, and we are meeting supply chain obligations and remain fully committed to meeting our product supply obligations to our partners. However, as the situation is constantly fluctuating, we, of course, continue to monitor developments closely. Before I go deeper into defining our achievements and focus areas for 2026, I'm going to hand over to Bar to share more details on the financial performance. Over to you, Bar. Bar Dichter: Thank you, Ilan. Good afternoon, everyone. I will provide you with a sustained view of our financial results. A full breakdown is available in our SEC filings and in the press release that crossed the wire before market closed today. Please note that all figures are in U.S. dollars unless stated otherwise. Revenues for the fourth quarter of 2025 increased 25% to $9.1 million, within management's guidance. The increase was largely due to the growth in the VINIA franchise, which exceeded 85,000 active users as of March 2026. Gross profit increased 27% to $5.2 million or 58% of total revenues in the fourth quarter of 2025 as compared to $4.1 million or 57% of total revenue in the same year ago quarter. The increase in gross margin was primarily driven by the benefit of revenue mix, in case manufacturing scale and improved manufacturing yields. Total operating expenses for the fourth quarter totaled $6.3 million as compared to $5.8 million in the same year ago quarter. The increase in operating expenses was primarily due to an increased marketing spend and higher expenses from the CDMO service division. Total operating expenses shrunk on a percentage of revenue to 70% as compared to 80% of revenue in the same year ago quarter. Net losses for the fourth quarter of 2025 totaled $2.2 million or $0.10 per basic and diluted share as compared to a net loss of $3 million or $0.17 per basic and diluted share for the same period last year. Adjusted EBITDA and non-IFRS measure totaled $0.5 million as compared to an adjusted EBITDA loss of $1.8 million for the same year ago quarter. Cash and cash equivalents as of December 31, 2025, totaled $23 million as compared to $2.4 million as of December 31, 2024. I would like now to pass the call back to Ilan. Ilan Sobel: Thank you, Bar. Let's now turn to talk about the performance of our VINIA business. We continue to see strong growth in our core business, with our website, vinia.com, continuing to do the heavy lifting and delivering approximately 80% of our revenues, with over 90% of these revenues being highly valuable subscription revenue. Amazon sales, which comprised approximately 20% of our sales revenue, continued to also be a strong contributor for growth in our business. I'm also extremely proud to announce that given the full year revenues of $30.6 million for our D2C business in the U.S.A., we have achieved the total position of being the #1 Resveratrol polyphenol brand in the United States of America based on estimated market sizing utilizing Nielsen IQ 2025 market projections for total U.S.A. for Resveratrol nutritional supplements and beverages and Amazon sales data for Resveratrol nutritional supplements. This is a major achievement for us as a company, given the fact that we have achieved this major achievement in less than 5 years from entering the U.S. market. And today, collectively with Israel, we have more than 85,000 active users of the VINIA brand. VINIA's leadership position is driven by its clinically demonstrated ability to increase arterial dilation, improving blood flow and enabling enhanced delivery of oxygen and nutrients throughout the body. This mechanism of action addresses what many medical experts increasingly recognize as one of the most foundational elements of human health and performance, efficient blood flow and oxygen delivery. Given the recognized importance today by medical experts on arterial health and blood flow and the inimitable characteristics of our VINIA compound, we believe that we have developed a best-in-class blood flow transportation system in the body to make other synergistic nutrients work harder. This, we are seeing as a major asset, which we will utilize in 2026 to accelerate the growth of our direct-to-consumer business. I want to turn our attention now to talk about one of our major focus areas for 2026, our VINIA BloodFlow Hydration launch, which we officially launched on December 3 to the U.S. market with a very differentiated promise of providing American consumers with electrolyte powering cells through better blood flow delivery. Let me explain for a moment how important that is. There are a myriad of electrolyte drinks that currently exist in the market today for hydration. But it's important to understand that water and electrolyte alone are not enough. Without blood flow, the water and electrolytes have nowhere to go. VINIA significantly increases arterial dilation, enhancing blood flow and improving the delivery of fluids, electrolyzed oxygen to our body organs, tissues and trillions of cells. VINIA acts as an amazing blood flow transportation system across our 60,000 miles of arteries, veins and capillaries for any nutritional ingredients, in this case, electrolytes, to better reach the body's trillions of cells due to the ability to increase blood flow and oxygen via increased arterial dilation. We have been very encouraged by the first 16 weeks of our BloodFlow Hydration launch. So now I'd like to share some specific facts that highlight why we believe we have a category disruptor in our hands, given its category differentiation anchored in our core strategy of delivering superior science, superior efficacy and superior taste. Since launch, our VINIA BloodFlow Hydration has achieved the following key results, which give us the confidence that we have a high-performing category disruptor in our hands, which requires further investment to realize its key potential. One, VINIA BloodFlow Hydration is now the #2 contributor to incremental new customer sales with 15% of new customer revenue year-to-date on vinia.com, ahead of all other categories except capsules. Two, VINIA BloodFlow Hydration has achieved a verified rating of 4.8 out of 5 via vinia.com after more than 90 reviews. And three, VINIA BloodFlow Hydration has achieved a rating on Amazon of 4.9 out of 5 after approximately 50 Amazon reviews across all flavors and variety packs. This is currently one of the highest rating of any top 100 electrolyzed products on Amazon. Given these very positive early signals over the past 16 weeks and the approximate 50% premium we have been able to command versus key market leaders, we will accelerate direct marketing dollars behind VINIA BloodFlow Hydration to capture our fair share of this $17 billion category in North America. VINIA BloodFlow Hydration plays an important role for us to be able to broaden the age demographic of our core customer base. Today, our customer base is skewed towards our super senior consumers. These are consumers who are above the age of 65. We have identified that VINIA BloodFlow Hydration is able to appeal to this consumer base, but also, importantly, has significant traction with our [ super seeker ] customer, age 35 to 65, who is looking for better longevity options to support their aging process. And more specifically, our super active consumer, who is aged 20 to 35, who are looking for a hydration solution that is more performance-based. Accordingly, we have spent a large part of Q1 adjusting our marketing mix away from traditional TV aimed at our super senior consumer, which has been the lion's share of our marketing spend dollars in the past, and moved this to digital channels such as Facebook, Instagram, YouTube and now, we have recently opened our TikTok shop so as to more effectively recruit our important younger super seeker and super active consumer segments. This shift to digital media channels also provides us with an opportunity to improve our cost of customer acquisition versus our previous heavy reliance on TV. We are currently utilizing Q1 to best optimize our marketing mix to deliver the step change in growth we expect in Q2, driven by scaling VINIA BloodFlow Hydration and its ability to appeal to a much broader consumer audience with the expectation to drive aggressively, new customer acquisition in Q2 at a lower cost of acquisition. I want to talk now about our second major focus area, which I termed as a big bet during our previous quarterly update in November last year and is also becoming a strategic asset for the company: our health professionals, our Health Pros channel. This initiative, where we are acquiring critical health-driven opinion leaders with large social media followings to advocate and sell VINIA to their social media followers, is really starting to scale. The initiative has gained significant traction over the past 90 days, and we are starting to see the positive effects of scaling these opinion leaders. Right now, we have partnered with 250 Health Pros, and we will be adding approximately 25 to 50 Health Pros per month. This channel, for example, in the month of March, has delivered more than 10% of incremental new customer revenue, and we expect it to be an important contributor to future new customer revenue as this marketing channel continues to scale. Further, this month, we kicked off a consumer challenge for our BloodFlow Hydration product on March 17, together with all our Health Pros. And as of today, more than 1,300 consumers have signed up to our 30-day BloodFlow Hydration challenge, and we are seeing amazing results across social media with consumers posting their results every day, highlighting their increase in physical activity when partnering with VINIA BloodFlow Hydration. In 2026, we will continue to leverage this powerful fact that VINIA is a best-in-class nutrient delivery system for ourselves, given its ability to significantly increase arterial dilation, improving blood flow and the delivery of targeted synergistic active ingredients to our body's organ tissues and cells. Accordingly, our goals for this year are to leverage this insight to drive aggressive premiumization of our business by targeting relevant multibillion-dollar synergistic revenue pools in the nutraceutical industry, where we believe our blood flow delivery advantage, combined with high-performing synergistic active ingredients, will be category disruptors and will enable us to increase key financial metrics such as revenue per month and gross profit margin delivery. These opportunities, we are terming VINIA Plus opportunities, where we are considering entering multibillion-dollar categories combining VINIA with a synergistic nutraceutical ingredient and leveraging our consistent strategy of superior science, superior efficacy and superior taste to bring meaningful differentiated premium products to the market to win consumers' choice in these categories. VINIA Plus our past marketing categories that we are considering entering include the multibillion-dollar greens category focused on gut microbiome health, the cellular health category and the Omega 3 [ CoQ10 ] heart health category, as well as a number of other categories. The company will share more information about its plan to launch VINIA Plus premiumized product over the course of the next few months. Let me now excitingly turn to our CDMO business. As a reminder, our contract development and manufacturing organization, or CDMO business, was formally created in Q2 of 2024. Along with the consumer products side of the business, they form our 2 growth engine strategy that we believe warrants a 2 lens approach. The distinction between our products direct-to-consumer business from our B2B CDMO business reflects the operational reality of how we manage the company today and has already resulted in a meaningful acceleration in the CDMO performance, as will be highlighted to you all shortly. Under this model, the CDMO operates as a fully integrated business unit, including R&D, manufacturing and business development. This organization alignment has significantly improved execution speed, focus and accountability. Investments in this unit can now be tracked more effectively in terms of ROI. Since its creation, CDMO has evolved beyond the traditional model of service to what can be best described as forming strategic partnerships with each of its customers versus just more transactional R&D-based relationships. This shift reflects the collaborative nature of our engagement, where we often participate in long-term value creation, including royalties, and in certain cases, ownership in developed compositions which we may in the future commercialize and bring to market using our direct-to-consumer e-commerce platform. It also reflects the additional set of skills added to the unit capabilities that include AI-driven molecule discovery. From a financial perspective, the CDMO side of the business generated approximately $2 million in third-party revenue in 2025. If we also include internal manufacturing of VINIA powder supply to our products business, total activity would have been approximately $9 million in revenue, demonstrating the scale of manufacturing infrastructure already in place. As a reminder, our development program under the Botanical Synthesis process for new molecules or compounds ranges from $2 million to $3 million and spans 18 to 27 months. It is divided into 3 stages, where the first stage, Stage 1, is the creation of the cell bank that is needed for the subsequent stages, Stage 2 and Stage 3. In Stage 2 and 3, cells are propagated in small- to large-scale liquid medium bioreactors. Stage 3 completion signifies the readiness for the industrial or commercial manufacturing. Right now, we are working on multiple high-value projects on the CDMO side of our business. Specifically, we are advancing quickly all active development programs for third parties, each focused on a unique plant-based composition targeting multibillion-dollar end markets. These are: 1 program in nutraceuticals with *Saffron Tech, a pioneering revolutionizing advanced cultivation methods for *saffron, one of the world's most valuable and health-promoting mechanicals to develop saffron-derived botanical compound; 2 programs in nutrition, including the previously announced collaboration with Tate & Lyle, a leader in natural sweeteners; 1 program in the multibillion-dollar fragrance and scents market with a prominent UAE investment group to develop a plant-based fragrance compound derived from a plant that is under significant threat due to overharvesting and habitat losses. Whilst we have made strong progress across all 4 projects, I want to spend a little time highlighting the biological breakthroughs we have recently achieved in our fragrance program, which was announced earlier today. Our CDMO division has successfully completed Stage 1 of a multistage development program for a rare scent producing plant used in the global fragrance and scents industry. The program is being conducted under contracts signed approximately 1 year ago with a prominent UAE-based investment group and represents what BioHarvest believes to be the first ever successful creation of a stable cell culture for this rare and endangered fragrance-related plants. This milestone positions BioHarvest to enter the growing particular premium scent and fragrance segment, estimated to represent a $12 billion market opportunity, at least. This particular scent is widely regarded as one of the most valuable fragrance raw materials in the world, with premium grades commanding prices exceeding tens of thousands of dollars per kilogram, and demand is growing across the Middle East, Asia and luxury Western perfume market. The development was achieved using BioHarvest's proprietary Botanical Synthesis platform technology, which enables the production of rare plant-derived fragrance compounds without the need to cultivate or harvest the original plant, which, in fact, is classified as an endangered species and typically grows only in highly specific regions of Southeast Asia. The rare molecules responsible for the scent and aroma of this particular plant, including sesquiterpenes and chromones, was successfully identified in the Stage 1 cell culture, with molecular profiles closely matching those found in the original plant. This achievement demonstrates the ability of BioHarvest's platform to replicate highly complex plant-based fragrance compositions that include, but not limited to, the terpenes family of molecules previously considered extremely difficult or impossible to reproduce sustainably. I want to reiterate that under the terms of the agreement, BioHarvest retains 20% ownership of the compositions developed through this multistage program, creating a long-term royalty driven economic model as development advances towards commercialization. This structure aligns with BioHarvest's evolution from a traditional CDMO to a partner development and manufacturing organization, or what we like to call a PDMO, where the company participates directly in downstream value creation. With the successful completion of Stage 1, we are ready to move to Stage 2, where cells stored in a proprietary cell bank will be propagated in liquid medium to generate significant biomass. This biomass is expected to be available for pre-commercial testing within 6 to 9 months, with full development and industrial scale manufacturing anticipated within 12 to 18 months. For the pharmaceutical program, which commenced in 2024 in which the company announced Stage 1 completion in 2025, the company has completed the first step of the 3 steps within Stage 2. Given the long cycles in the development of pharmaceutical programs, further research is being conducted to determine the optimal next steps within Stage 2 in order to best meet the customers' FDA-driven requirements. With our 2 lens focused approach and the success that we are seeing in progressing our projects, we are heavily investing in improvements of further CDMO capabilities, including AI-driven development tools to optimize development time lines, improve success rates and build a library of synthesizable plant-based molecules. To further accelerate pipeline conversion, we added a new Vice President of Business Development in early March, strengthening our commercial capabilities and customer outreach, and we are proactively investing in the development of additional biological assets to expand our portfolio of opportunities for current and future partners. Independent of specific contracts, BioHarvest is advancing a pipeline of highly sought-after plant-based molecules through early and mid-stages of its proprietary Botanical Synthesis process, thereby derisking and accelerating potential customer programs. This growing portfolio already includes assets that have progressed beyond Stage 1 such as basket derived. PGG derived from pomegranate and selected polyphenols from blueberry as well as emerging capabilities in plant-based extracellular vesicles, otherwise called exosomes. By building this library of partially developed biological assets BioHarvest is positioning CDMO to offer faster development times, lower risk profiles and differentiated value propositions to partners across the nutraceutical, pharmaceutical and cosmetic and fragrance markets. Ladies and gentlemen, 2025 was a defining year for BioHarvest. We delivered strong execution across both of our growth engines, scaling our core consumer business, reinforcing VINIA's category leadership and building meaningful momentum in our CDMO platform through strategic partnerships and important development milestones. At the same time, we strengthened our balance sheet, expanded our customer base and entered 2026 with the capital and capabilities and structure to support our next phase of growth. Looking ahead, we believe BioHarvest is exceptionally well positioned. The early performance of VINIA BloodFlow Hydration, our expansion into more efficient and diversified customer acquisition channels and the growing strategic value of our CDMO platform give us increasing confidence in our ability to accelerate growth and create meaningful long-term value when using our 2 lens model to optimize strategic decisions across our direct-to-consumer and CDMO business units. We are entering this next chapter with momentum, with focus and a clear path to building a larger and stronger company. With our platform, our products, our partnerships and capital in place, we believe BioHarvest is entering 2026 in its strongest position yet. Thank you very much for your time. We will now open the call to questions. Operator: [Operator Instructions] Our first question comes from the line of Anthony Vendetti with Maxim Group. Anthony Vendetti: So it seems like the CDMO business is really starting to develop. And with this new contract on the fragrance business, it seems like it's just adding to what you did in '25 on the pharmaceutical side and on the Tate & Lyle side. So maybe, Ilan, if you could just give us a little more detail. You did mention a little bit about the pharma company. Can you give us a little more detail around how the Tate & Lyle contract is going and expectations for that particular contract in '26? Ilan Sobel: Sure, Anthony. I'm going to firstly just kind of take it up a level of abstraction to emphasize how happy Zaki and I are in the significant progress that we've made over the last 4 to 6 months in the CDMO. And a big part of that has been anchored in structuring the organization so that we're allocating resources in a way that those resources are fully dedicated to the respective business units. So now our R&D organization is 100% focused on working on the CDMO. And boy, it's amazing to see what focus can do. And secondly, as we look at the 2 lens model and really start to make conscious decisions by -- given the fact now that we're really running as 2 separate businesses and we're able to really understand the cost structure and the financial performance of these businesses, we're able to, therefore, ensure that we're allocating resources in the right way and making the right investment decisions. And we've started that investment process towards the end of the fourth quarter, continued in the first quarter. And we're seeing major, major dividends with the team really knocking the ball out of the park with some of these milestones, where really, we're breaking biological barriers and unlocking the ability to be able to capture value in multiple billion-dollar categories. I'm going to ask Zaki to go into a little bit more detail across some of the projects so you understand the momentum that we have across this part of the business and why we're so eager to continue to lean in and invest more in this business in building critical capabilities and specifically as well, with the manufacturing organization now coming underneath the CDMO. It makes perfect sense. If you think about it, the manufacturing business should be inextricably linked into the CDMO given that just the name, contract development and manufacturing organization. And as a result of that synergy as well, we are seeing significant progress and are making the required investments in manufacturing, in AI, in ensuring a computer vision, in developing an elicitation center of excellence. And these investments, we're starting to see pay off. And they will continue to pay off in 2026 and be able to drive really nonlinear growth as we move into 2027. Zaki,over to you to give a little bit more texture around the specific projects. Zaki Rakib: Sure. Thanks, Ilan. You've covered a lot of the ground already. So I thank you for that. So just wanted a little bit of background to -- for you to be able to scope, I guess, your question is, how do you analyze the success we've had in the various projects where -- that are undergone within the CDMO organization. So we -- plant molecules can cover multiple industries, the 4 industries we cover, the nutrition industry where we have 2 molecules currently in development. We have the fragrance, which is part of the overall cosmetics and beauty. And then we have the pharma, the projects you mentioned earlier. And we have a nutraceutical project with the saffron. So those are the major projects that are going inside the CDMO organization besides the assets we continue to build. So we advance our own molecules so that when we go talk to a customer, we can offer them a more advanced stages. Ilan mentioned earlier during the call, the 3 stages of development. Each stage within itself is divided into various steps, and each stage carries a certain revenue target. So as you try to model the overall project between 18 and 27 months, $2 million to $3 million is the -- was the NRE, the revenue that we can see. The beauty of the diversification across multiple industries is that some -- is the profile of risk/reward. Some of the projects like in pharma may take more time, but ultimately, because of the high margins that they carry, would provide a lot of reward on the back end of the project, meaning the manufacturing stage where we expect to start even in the latter part of 2027, the second half of 2027, we are expecting to start manufacturing some of the molecules or compounds that we are currently -- that are currently in development. So every time 1 crosses 1 stage and moves to the next one, you need to keep in mind is that it advances us and gets us closer to the commercialization. Or from our end, it would be the manufacturing phase. So if -- I want to give you a quick update on all the various projects. While we have already announced on the pharma side that we've crossed Stage 1 and we have actually recognized revenue associated with some elements of Stage 2, typical to pharma, there's this time where it's more research that is done on both ends, be it the customer as to try to make sure that the adjustments are made to comply with all the FDA regulations and whatnot is required. This is very typical. We're not surprised. We expect to go through that, will take some time. That has been factored in as we look at the revenue projections, both for 2025 and obviously, for 2026 and beyond, as you will be seeing it later. I think it's included in our news release on what we're guiding for 2026. So when we look at the fragrance projects, what's really nice about it is that we completed Phase 1 at a record time from the time we got the source material. Although we signed the agreement earlier, usually, the time starts from when we receive the source material from which we developed the cell culture. We expect it to be running much faster, and we expect it to reach within the next 6 months, so the second stage, which carries a higher revenue than Stage 1, subsequently Stage 2 and then -- 3, sorry, and getting into production. Ilan mentioned the unique breakthrough, first time ever anyone develops a stable culture [ 8 ] molecule like the sesquiterpenes and chromones and whatnot. This is really -- we feel very, very happy about it. On the saffron, we've also made a lot of progress. We're inching closer to the completion of Stage 1. And that also would be something that would move faster, and we expect to see some early production of it in the latter part of 2027. On the nutrition side, we've also made a lot of progress getting really closer to the completion of Stage 1. So we really are -- Stage 1 is also the riskier part because the ability to develop and store a cell bank of stable cell culture is representing the highest risk in the process. Not the shortest time, but the highest risk in the process. And basically, what we're having is a 100% success in any molecules that we have really touched so far. That also brings lot of internal confidence. And also as we display that confidence to our customers, we expect that more of what we look at in the pipeline to converge faster. So I hope that gave you a bit of an overview of where we stand with the various projects and what we expect in the next -- especially 2026, the progress that would be further made. Operator: Your next call comes from Matt Hewitt with Craig-Hallum Capital Group. Matthew Hewitt: Congratulations on the progress last year. Maybe first up, obviously, a lot of updates on the CDMO side with your various partners there. What does the pipeline look like on that side? Is that something that you expect to continue to build? Or do you feel like now is a good time to maybe pause a little bit, focus on kind of helping and shepherd some of those programs to the commercial stage or through the manufacturing stage before you start to build on that more? Ilan Sobel: Zaki, why don't you go ahead, and I'll come in and lean in if I want add anything. Zaki Rakib: Sure. I mean, you get the answer once you analyze the financials and the guidance to understand that we are actually doing both. We continue to invest in the infrastructure. We need an infrastructure to be able to address multiple projects simultaneously. And even with the existing projects, what we found is that by improving the infrastructure we have, we can advance those projects faster which is very important in our business, improving margins, improving the execution time, getting the customer more engaged, more excited. Ultimately, customers want to see new ideas coming to fruition and getting commercialized much faster or faster cycles. And what we -- what will take place in 2026 is infrastructure, continuing to build it. Which, like I said, serves in both ability to absorb more projects, which means part of the work we expect to do in 2026 is work on the pipeline. Part of it is converging some of the projects that we have been in discussion with some of the candidates on the pipeline, and some of which is actually seeking new partners by the end of the year. So between the various activities on the existing pipeline or expanding it, that's why we guided -- in the year 2026, we provided guidance of $4 million to $6 million in revenue coming out from external customers. That would be doubling -- or actually between doubling and tripling the revenue. So that gives you an idea. And when we came up with this number, it's a mix of projects that exist today that advance mostly to Stage 2, and then new projects coming in into Stage 1, all of which are going to be taking advantage of an improved infrastructure that we started focusing on late last year, as the R&D team that was in place was mostly busy completing all tasks relative to the product side and moving, transferring its knowledge to the manufacturing organization so that they have the independence of working on the process for the manufacturing. So that's how -- what's taking place right now. Ilan Sobel: And just to add to that, Matt, that we've made a really conscious decision, a conscious decision in doubling down, leaning in, as I call it, and investing heavily in the CDMO. Because we've seen really strong results in multiple areas which unlock significant opportunities in multi -- multiple billion-dollar categories. And like now is the time to invest. And that investment, we believe that we're going to be making in 2026 and you see it based on the adjusted EBITDA guidance that we've given, is going to pay big time dividends as we move into '27 and '28 because we've got to scale the infrastructure. And there are specific areas of competitive advantage that we believe are inimitable areas of competitive advantage that we layer on to our core Botanical Synthesis technology that we are super enthusiastic and excited about and want to really build these centers of excellence so that we can increase the traffic, increase the success rate and really start to scale the CDMO. If you go back to the North Star of the company, we've always said that the direct-to-consumer business is really the validation of the power of the technology. But as we look to build this business into a multibillion dollar revenue business, it's the CDMO and the manufacturing scaling and the industrialization of plant cell biology which is going to build us to be that global leader in plant cell biology that we want to be, touching the lives of tens of millions or hundreds of millions of people ultimately. And this is the time to be courageous. And this is the time to lean in. And we're doing this, and we have full support of our Board. And Zaki -- and kudos to Zaki and his team and the R&D team that have really given us the confidence to be able to double down and know that we're going to get a really strong ROI on that investment. Matthew Hewitt: Understood. And then maybe shifting gears with my second question. You noted in your prepared remarks that you've made a shift in your marketing for VINIA, specifically looking to expand into some of the younger cohorts. And I'm just curious, that started here this quarter. How long will it take for you to determine if some of those new changes are having the effect or the desired effect that you had hoped for? Ilan Sobel: Thanks. It's a great question. It's actually interesting. When you look at BloodFlow Hydration, this is kind of like the ace in our hand. Because as you saw in the chart that I shared during my prepared remarks, you see the BloodFlow Hydration has an ability to appeal to all 3 of our consumer segments or cohorts. And so we really started to see, when we look at who our consumer is, that younger consumer come in, which is being driven by BloodFlow Hydration. But also, BloodFlow Hydration is very well accepted in that older cohort. So we've got this ace that allows us to kind of bridge and an amazing product that has unique differentiation. And it's very -- well, we're finding as well, it's very simple to understand the power of BloodFlow Hydration. Because when you say to consumers very clearly without BloodFlow Hydration, there's nowhere to go. And ultimately, what we're providing are electrolytes powering cells through better blood flow delivery. And people get it. They go, oh, okay, we realize like, electrolytes is not enough. Fluid is not enough. It's how you transport those fluids and electrolytes to the entire body to be able to really go deep into yourselves. So this has given us the ability now to shift the mix out of TV. And it's not like we're stopping TV. We're just -- we're starting this migration. Hydration is our ace, our catalyst to be able to do this. We'll have more catalysts coming over the course of the next 3 to 6 months as part of our premiumization strategy. But this is a product now that -- Hydration is a product that we started to see great progress on TikTok. We just started TikTok scaling, I would say, in the last couple of weeks, and we're seeing amazing videos being actually produced by TikTok influencers because they get it. People get it. They're understanding the proposition. They understand that it's unique, and they understand it's relevant to a TikTok audience, which is a younger audience. Similarly for Facebook and Instagram, as we go after those super seekers. So my expectation is the migration is going to take us, as we start to sharpen the messaging, optimize. And as my VP of Sales, Jared says, we're tuning. We're tuning YouTube. We're tuning Facebook. We're tuning Instagram and optimizing the mix so that we're getting to the best cost of acquisition. We started to do it very significantly in the month of March. We'll continue in April. And I think by the end of the second quarter, we would have really started to be able to optimize that marketing mix powered by BloodFlow Hydration. And you'll start to see a number of other products that are going to piggyback on top of that. They're going to help us scale their business towards that younger consumer base. And importantly, at a much higher revenue per month per customer, which is what we're going after. Operator: Your next call comes from Sean McGowan with ROTH Capital Partners. Sean McGowan: A couple of questions here. So what can you tell us about your expectations for the phasing of revenue this year, like per quarter, especially now on the last day of the first quarter? What can you tell us how we should expect that to play out? Ilan Sobel: Yes. So I actually -- I knew you were going to ask that question, Sean. I know you pretty well by now. Okay. Look, I mean, basically, we see revenue growth in 2026 being nonlinear to -- in order to achieve the guidance. And for us, Q1 is a critical quarter to make the required changes in the mix in line with our 2 lens model. And therefore, we see Q1 having more moderate growth versus previous year. And then we start to really accelerate the growth as we unlock the benefits of the incremental investments and capabilities that we're building, both on the direct-to-consumer business and on the CDMO business. And so Q2 and beyond, we're really -- you'll start to see a bit of a multiplier effect as a result of the actions that we took in Q1. And so you can kind of start to see how that build goes from Q1 to Q2 to Q3 and Q4. And again, it's not going to be totally linear. You'll start to get a bit of a multiplier effect as you go into the second half of the year. Also, when you layer on the additional activity -- I talked about the premiumization strategy that we're bringing to market, and we're going to start to share more of that over the next, let's call it, 90 days. And once you start to understand the premiumization strategy, you'll start to see how the second half has significant activity in it. And that activity also is going to help to drive that multiplier effect as we move into Q3 and Q4 with a really, really strong end of the year. Sean McGowan: That's very helpful. A couple of other questions on guidance. What can you tell us about your expectations for the gross margins in each of the segments compared to last year? Ilan Sobel: Yes. Look, I think what we're going to see -- I'll talk about the direct-to-consumer side of the business. From the direct-to-consumer side of the business, we're also investing heavily on the manufacturing side. We're investing heavily in manufacturing efficiencies. Always, Q4 and Q1 is a little bit more challenging because you've got seasonality challenges there, higher transportation costs. But my expectation is -- similar to what I shared on revenue, you'll start to see basically, gross profit margins continue to get better through the year with the benefits of scale, with the benefit of process optimization that we're driving. This will be a little bit more linear as opposed to the revenue. But we -- you're anchoring now, 59%, 60%, and we'll start to see that move up let's call it, 0.5 point each -- 0.5 point to 1 point each quarter as we try and move up to the 64%, 65% mark as an aspiration. But obviously, we're modeling and trying to be a little bit more conservative as we look to under promise and overdeliver. And then obviously, on the CDMO, you have a little bit more lumpiness just given the nature of deals and getting deals signed at the end of quarters, beginning of quarters. I think the CDMO is a little bit more challenging to predict. But definitely, as Zaki said, we see a lot of deals moving from Q1 into -- sorry, from Stage 1 into Stage 2. And that's going to be ultimately happening in second quarter and third quarter. So you'll start to see the benefits of that, plus new deals dropping basically in the second and third quarters. And the pipeline is looking really good. And each time we make announcements like we made today on breakthrough capabilities, I mean, I just -- it's very hard for, I guess, the investor community to understand the magnitude of the breakthrough of the R&D team with what they've been able to do with these unique molecules, the sesquiterpenes plus the chromones. It's a major, major breakthrough. And what this does is it starts to now unlock many other opportunities which can really derive significant demand from the marketplace. So bottom line is you'll start to see on the CDMO, those benefits coming through, but it will continue to build in Q2, Q3 and Q4. Sean McGowan: Okay. And then to dovetail on that comment about investments in CDMO, I would assume that you would like us to infer that these investments being made that result in the EBITDA losses are a sign of optimism for the future and not a problem, right? Ilan Sobel: 100%. And as I said before, it's a conscious decision that we're making. And you'll see it just when you look at -- and we'll talk about it more when we do our one-on-ones, and look at the modeling from an R&D expense. I mean, these are expenses that are going in to build capability in critical areas that we have seen already, the ability to win in, and we want to double down, build centers of excellence. And we know that these different centers of excellence, whether it's in AI, whether it's in process engineering on the manufacturing side, whether it's in computer vision that we'll be talking more about, which we think is a real breakthrough for us. Or a center of excellence that we're building in elicitation methods, which is such a critical part of our business. These are anchor, anchor capabilities that really help build a moat, a further moat, I should say, around Botanical Synthesis technology. And ultimately, we feel like now is the time we -- the team has done enough in the last 6 months to show us the potential of what we can do and the optionality that we can build for this business and for our investors. And now is that time to double down and to seize the opportunity. The investor community will see the benefits from this over the next 90 days, 180 days and beyond because there's a lot going on. Operator: Your next question comes from the line of Susan Anderson with Canaccord Genuity. Susan Anderson: I was curious, I guess, as you continue to roll out new products, how should we think about your marketing expenses as a person to sell, particularly as you move on TikTok and other social media platforms. I guess, should we expect it to grow? Or should we expect it to continue to be similar to what we saw this year? Ilan Sobel: So when you look at specifically on the direct-to-consumer business, Susan, we've been looking at like basically total sales and marketing, around about 46%, 47%. We should see similar levels. It should -- there should be some efficiency coming quarter-on-quarter. Importantly, those efficiencies are going to come from basically mix. And for example, the Health Pros that we talked about a little bit earlier on the call really helps drive that mix because it's a very, very efficient way to be able to acquire customers. And we've seen that now. We've spent 12 months building the infrastructure, the capabilities, the end-to-end computerized -- the whole digitized system from onboarding a Health Pro, all the way to paying them their commissions each month, educating them. And we see it in this month of March, literally 10% of our incremental customer base came from Health Pros. And those Health Pros are going to scale as we bring in more and more mega Health Pros in their communities. And so as we navigate and we drive a better mix through the different channels like Health Pros, that starts to drive greater marketing efficiencies and will plow the majority of those efficiencies back into investing in marketing to continue to grow the business. Because that's what our 2 lens model is telling us to do, keep on growing the business, get to scale, increase the adjusted EBITDA. This year is a start, getting into positive adjusted EBITDA territory and then to continue to grow that. But there will be efficiency benefits. It's not going to be drastic, but they will be sharpening of the pencil, efficiency benefits that we can use to drive more leverage to the bottom line. Susan Anderson: Okay. Great. And then I guess on a fragrance front, it sounds like the timing of a potential product is like 12 to 8 months out, per the release, I guess. So should we think about that as like late '27, early '28? And I guess the same thing with Saffron. And then, I guess, in between that, think about continued VINIA rollout, such as the hydration and other products and then also new CDMO products? Ilan Sobel: Correct. So when you think about catalysts, firstly, on the manufacturing perspective, with the specific fragrance that we've talked about, plus Saffron, and just as Zaki articulated, the amount of progress the team have made in a short period of time. Basically, second half of '27 is realistic to actually start manufacturing and starting to move the revenue, getting into really the scaling and the major revenue component. As we start to look at VINIA, the [ premiumization ] strategy, we will start to share more detail. And yes, there are a number of big bets that we're making, going after major multibillion-dollar categories with uniquely differentiated propositions, anchoring in the fact that we have the best nutrient delivery system in the world because of our ability to increase arterial dilation and basically, that being the blood flow carrier of each of those nutrients to be able to actually perform better in the body. And so as we selectively and surgically go after these categories in a way that drives premiumization for our business, you'll start to see a very clear growth strategy that can really take us from a business today that's looking, as we've discussed, 38 -- basically moving from $38 million to $42 million on the D2C business, but really driving exponential growth as we go into 2027 because of the breadth of product line that we bring into the market across multiple categories. Operator: There are no further questions at this time. I will now turn the call back to Ilan Sobel, CEO of BioHarvest Sciences, for closing remarks. Ilan Sobel: Thank you, Kara, and thank you, everybody, for joining us today and for your continued support. I hope you feel after the discussion that we've had and the significant progress that we've demonstrated that we're entering 2026 with great momentum with focus and a very well articulated strategy that we know how to execute and operationalize in order to drive growth across both of our business units. And we look forward to continuing to create value for our shareholders in the quarters ahead. And I'd like to wish everybody a happy Passover and a happy Easter over the next couple of weeks, and safe travels. Operator: That concludes today's call. Thank you for attending, and you may now disconnect.
Operator: Greetings, and welcome to the TruBridge Fourth Quarter Earnings Conference Call. [Operator Instructions] And please note that this conference is being recorded. And it is now my pleasure to introduce to you, Dru Anderson. Thank you. You may begin. Dru Anderson: Thank you. Good afternoon, and welcome to the TruBridge Fourth Quarter and Year-End 2025 Earnings Conference Call. Leading today's call are Chris Fowler, President and Chief Executive Officer; and Vinay Bassi, Chief Financial Officer. This call may include statements regarding future operating plans, expectations and performance that constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company cautions you that any such forward-looking statements only reflect management expectations and predictions based upon currently available information and are not guarantees of future results or performance. Actual results might differ materially from those expressed or implied by such forward-looking statements as a result of known and unknown risks, uncertainties and other factors, including those described in public releases and reports filed with the Securities and Exchange Commission, including, but not limited to, the most recent annual report on Form 10-K. The company also cautions investors that the forward-looking information provided in this call represents their outlook only as of this date, and they undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. At this time, I will turn the call over to Mr. Chris Fowler, President and Chief Executive Officer. Please go ahead, sir. Christopher Fowler: Thank you, John, and thank you, Dru, and thank you to everyone for joining us today to discuss our Full Year and Fourth Quarter. Before discussing our results, I would like to address 2 topics. First, we filed our 10-K with the SEC in compliance with the extension period. As we disclosed earlier this month, we identified certain out-of-period adjustments during final audit procedures with our new external auditor. As a reminder, this is our first year-end audit together. These adjustments are primarily related to revenue recognition and related costs, capitalized software development costs and nonroutine transactions. I want to emphasize that these adjustments are noncash and not material to our fiscal 2025 financial statements or to our previously issued financials. While the delay was frustrating, this process reflects our commitment to strengthening our financial reporting standards and our internal controls. Secondly, as you may have read in the 10-K, over the past several months, we have been engaged in a strategic review process considering a range of alternatives to maximize shareholder value. We will provide additional information as appropriate. As a result, we are not issuing formal guidance today, but we expect to achieve modest revenue growth in 2026 and anticipate approximately 200 basis points of improvement in adjusted EBITDA margins. Turning now to an overview of the numbers for the fourth quarter and full year 2025. Total revenue for the quarter came in at $87.2 million, in line with the midpoint of the revised guidance we provided last quarter. Adjusted EBITDA of $19.2 million was at the high end of our guidance range and represented a slight expansion in margins compared to the prior year. For the full year, our total revenue was $346.8 million, a 1.4% increase over 2024. Adjusted EBITDA was $68.7 million, up 23% year-over-year. In terms of free cash flow, we generated $20 million for the year, an increase of $5 million over 2024. Bookings of $19.8 million on a total contract value basis compared to $15.5 million sequentially and $14.3 million a year ago. In Q4, our bookings were supported by growing SaaS, strategic partners, including Microsoft and our exclusive Dragon Copilot integration with TruBridge EHR and continued demand for our comprehensive revenue cycle technology and services platform. The pipeline we see today is encouraging and gives us confidence that our market is an environment of healthy demand. As a proof point, the dollar value of our overall sales pipeline is currently the highest it has been in 9 quarters and has increased 53% since the beginning of Q3. And the increase we are seeing is diversified across our business. If I compare the pipeline today to earlier last year, approximately 14% was from opportunities greater than 100-beds, and that segment is 30% of the pipeline today. At the same time, we are improving the quality of the opportunities. The percentage of recurring deals represents greater than 70% of the pipeline compared to onetime projects, a noticeable improvement from approximately 57% last summer. Additionally, our higher-margin encoder solutions continue to gain traction. During this period, encoder pipeline growth increased 74%, driven primarily by strong performance in new business and our channel partner ecosystem. We are confident that between our new leadership team and regionalized coverage model, we expect to see successful conversion of this growing pipeline and healthy demand environment. And while we may be a quarter or 2 away from consistent quarterly performance, our commercial engine is on the right trajectory, and we expect to see continued improvements down the road. I'd like to take a minute to talk about customer retention, specifically financial health and how it has acted as a headwind to us and the actions we've taken to begin to mitigate it. We started our global workforce transition in earnest in 2024. And over the course of the year, we saw a decrease in retention in our CBO customers as the onshore and offshore teams figured out how to work best together. In 2025, we took several decisive actions to strengthen the process and simplify it for the customers. One key action was bringing in the necessary experience in managing global teams and executing successful transitions. Earlier last year, we implemented a more structured transition model with stronger oversight, better visibility into performance across the full transition cycle and deeper collaboration with the customer. It is still early in the process, but we are seeing progress in the results so far and believe that the operation model is repeatable. Additionally, we opened our new Global Capacity Center, or GCC, in Chennai last month, which represents a significant milestone for our cross-shore global delivery model. With all this in mind, we will continue to monitor progress and our transition initiatives will be interlocked to our continued performance improvements. We are also focused on our comprehensive AI strategy. We are currently pursuing 4 pillars that span our entire organization: financial health, patient care, customer service and internal development. On the financial health side, we are working on a solution to predict claims denials earlier and more accurately and taking the corrective action to get the claims approved on the first path. In patient care, we are leveraging Ambient Technology through partnerships with Microsoft. In a pilot that we are running at a regional hospital, we are already seeing results with providers spending more time interacting with patients and meaningfully less time documenting the interactions. We are pleased with the response from HIMS attendees a few weeks ago and are excited to showcase this next week at our National Client Conference. In terms of customer service and satisfaction, on a previous call, I mentioned an internal AI-driven support bot, which has already demonstrated improved support consistency and faster turnaround. We are developing a customer-facing release that will enable clients to directly engage with the chatbot experience through an expanded and improved knowledge base. This enhancement is aimed at significantly increasing self-service efficiency and improving the overall customer experience. We will, however, continue to offer live customer support for those that choose that route for their customer experience. Finally, in terms of our tech stack, we are leveraging AI tools for development to modernize our underlying technology, which should lead to rapid innovations, faster delivery of applications to the customer and simplify new customer implementations and continue to drive margin expansion. In conclusion, as we continue to make the necessary changes in the business we see a positive progress and remain on the right forward trajectory. Given our targeted AI strategy, strong cash position and net leverage ratio of approximately 2x, we are well positioned to compete and we will continue evaluating all available strategies to drive shareholder value. Now I'll turn the call over to Vinay to review our financials. Vinay? Vinay Bassi: Thanks, Chris, and good afternoon, everyone. I will begin by noting that we filed the 10-K today. As Chris mentioned earlier, during the preparation of the financial statements and through our continuous process improvement efforts, we identified some material noncash misstatements primarily related to the timing of revenue for some products and associated contract costs, capitalized software and certain other nonroutine items. We have revised these prior period financials to reflect them in the appropriate period, and these adjustments can be found in the 10-K filed today. While this resulted in a slight delay in our earnings timings, we believe it was the prudent step and reflects our continued focus on strengthening our financial reporting and controls. Today, I will provide update on our 2025 strategic finance priorities, review our fourth quarter and full year financial results, provide additional insight into segment performance and profitability trends, discuss our cash flow generation and balance sheet progress. First, an update on our financial initiatives and overall progress in 2025. This year marked meaningful operational and financial improvement in the health of the business. As Chris mentioned, it was highlighted by the continued margin expansion and strong free cash flow generation in 2025 and over the last 2 years. Firstly, I'd like to highlight the investments we are making in improving our finance function. Over the past 2 years, we have been strengthening the finance team and continuing to improve our processes and controls. Further, mid last year, as part of our ongoing commitments to governance and financial rigor, we appointed our new external auditor. As a result of this partnership, we are accelerating process improvements in many areas, including progress towards remediation of the material weaknesses. As an example, we are already seeing the benefits from the investments we have made in building our in-house quote-to-cash centers of excellence team and continue to further strengthen processes with additional internal and external resources. Next, a core focus throughout the year has been improving cash flow from operations. For the full year 2025, cash flow from operations was $37 million, an increase of 19% year-over-year, driven by stronger profitability, improved working capital management and continued discipline around expenses. Further, we have also maintained a disciplined approach to capital allocation during the year. By prioritizing investments with highest returns and carefully balancing growth opportunities, we were able to reduce gross capital expenditure in 2025 while continuing to support strategic needs of the business. Free cash flow, as defined as cash flows from operations adjusted for capital expenditures was $20 million, an increase of approximately $5 million year-over-year. As a result, we ended the period with a solid liquidity position, providing additional flexibility to continue investing in the business while also supporting balance sheet objectives. Further, we also strengthened our financial position through disciplined debt reduction, lowering net debt by approximately $19.5 million year-to-date and improving our net leverage ratio to 2x. This marks the fourth consecutive quarter with net leverage below 2.5x and a significant improvement from over 2x in Q4 2023, underscoring our consistent improvement in balance sheet improvement and capital efficiency. Further, as cash generation continues to build, our approach to capital allocation remains disciplined. We are constantly evaluating the best uses of capital, including share buybacks and organic investments in order to drive value for all stakeholders. We are also very excited to announce that in November 2025, we entered into an amended and restated credit agreement with our syndicated lending partners. The new agreement includes a 5-year term that expires in 2030 with up to $250 million in credit facilities. This financing extends our maturity profile, provides very attractive overall cost of capital and provide additional liquidity to support both our ongoing operations and strategic priorities. Finally, margin expansions remain central to our long-term strategy, and we continue to see expansion of adjusted EBITDA margins in 2025 by 350 basis points, driven by cost optimization initiatives and disciplined expense management across the organization. The improvements were primarily related -- realized across IT, cloud operation, vendor optimization and patient care support, where we applied a strong return on investment framework and leverage automation to streamline workflows and improve efficiency. Over the last 2 years, the adjusted EBITDA margin has expanded by more than 650 basis points from the combination of global workforce transition, targeted cost optimization actions and efficient revenue growth. Now turning to our fourth quarter results in more detail. Bookings in the fourth quarter were $19.8 million on a TCV basis, up $6 million compared to prior year and up $4 million sequentially, providing continued commercial momentum as we head into 2026. Fourth quarter revenue was $87.2 million, a decrease of approximately 1% compared to a year ago. As a reminder, the year-over-year decline in Q4 '25 included approximately $1 million from the sunset of our Centriq product in the patient care business. Normalizing for this, total revenue growth would have been about 1% point higher with revenue roughly flat to prior year. Financial Health revenue totaled $56.2 million and approximately 65% of the total company revenue represented an increase of 2% year-over-year, primarily due to strong growth in the Encoder business. Patient Care revenue was $31 million, reflecting a 6.6% year-over-year decline, primarily due to the sunset of our Centriq. Total gross margins in the quarter were 53%, flat versus prior year and up 120 basis points sequentially. Financial Health gross margins improved to 50%, an increase of 65 basis points compared to the prior period, driven by the continued impact from our offshore transition as well as other labor efficiencies and ongoing process improvements. Patient Care gross margin was 59%, down 75 basis points compared to last year, primarily due to revenue mix and timing. Adjusted EBITDA for the quarter was $19.2 million with a margin expansion of 160 basis points from 20.4% in the fourth quarter of 2024 to 22% margin this quarter. The consistent quarter-over-quarter improvement reflects both stronger gross profit performance and continued execution against our cost optimization initiatives. As these structural improvements continue to scale, we believe there remains opportunity for additional margin expansion going forward. Now I'd like to provide a few full year highlights. Total bookings for the year was $82.9 million on TCV basis, up 1% compared to the prior year. On ACV basis, total bookings were $70.9 million. Our full year revenue of $346.8 million increased 1.4%. Financial Health revenue was $221.7 million, was up 2% compared to the prior year as growth in CBO and Encoder businesses from revenue generated from bookings was partially offset by client attrition and slower growth in other products. Patient Care revenue was $125.2 million, roughly flat versus prior year. Excluding the impact of Centriq, Patient Care revenue growth would have been about 4%, driven by SaaS booking and new customer implementations. Adjusted -- 2025 adjusted EBITDA of $68.7 million increased 23% year-over-year with margin expansion of 350 basis points, reflecting gross margin improvement through improved productivity and cost actions with disciplined cost management. Moving to the balance sheet. We ended the quarter with $24.9 million in cash, more than double the $12.3 million we exited 2024, driven by improved earnings conversion and disciplined working capital management. Net debt was reduced to approximately $139.8 million, and our net leverage improved to 2x, marking our strongest leverage position in several years. With accelerating free cash flow generation and a strengthened liquidity profile, we are well positioned to continue deleveraging and enhancing financial flexibility into 2026. As Chris mentioned, while we are not providing formal guidance due to our strategic review process, we remain confident that we can achieve modest revenue growth in 2026, along with continued adjusted EBITDA margin expansion of approximately 200 basis points. In conclusion, I'm pleased with the operational and financial progress that we have made across the organization over the past year and look forward to keeping you up to date on our continued progress. Thank you, and I will now turn the call over to John for questions. Operator: [Operator Instructions] And the first question comes from the line of Sean Dodge with BMO Capital. Sean Dodge: Vinay, you mentioned the outlook for the year being modest revenue growth. I guess just in context of the new bookings metric you're providing with the annual contract value, could you give us just a quick tutorial on how to use that to kind of better understand your visibility there? Do we take like recurring revenue from 2025? Is that the baseline and then we assume some type of client churn and then layer in the ACV bookings? Is that the right order? Am I missing a step or an assumption in there? Vinay Bassi: No, I think you're on the right track. Like you said, the recurring revenues and some assumption of bookings conversion because, as you know, bookings have the same -- you can apply some formulaic view of how bookings translate into revenue and attrition. I think that's the right way of doing it. Sean Dodge: Okay. And then the comments on customer retention on the RCM, the CBO side, Chris, you mentioned making some improvements to that process. Did your retention rate in Q4, did that continue to improve? And then if you could just frame the number of renewals that you had in 2025 for the full year, how will 2026 compare? Do you have a similar number of contracts renewing this year as you did last? Or is it more or less? Christopher Fowler: It's not quite as many that we're -- that we have kind of in the target of as it relates to the transition and then where we're paying that close attention to make sure that we're not putting ourselves in a spot of bother. What I would say is that going back to your first question that it's the continuation of some of the attrition from '25 that's playing into '26 and then a modest improvement to flattish improvement over that number. And so that's where we come back to with the bookings performance and with that continued kind of muted success on the retention side, that we see that modest growth year-over-year. Again, we're focused on making sure that we've got the process right and making sure that as we continue to transition customers that we're paying attention to the metrics that matter the most, the cash in the door, the communication with the customers that we have not impaired their operations as well, not just from a cash perspective, but also the day-to-day operations and let that kind of be our guide as the throttle for the transitions going forward. Again, we feel good about the progress we're making, but we want to continue to make sure we're measuring as we go. Sean Dodge: Okay. Great. And then on the strategic review, I know there's a lot you can't talk about with that, and I know there's a wide range of outcomes there. I guess just any indication you can give us on time lines? It sounds like it's been underway for a while. Is there a point in time or date you expect to communicate to us what you decide to do or not to do? Christopher Fowler: I'm going to do my best to not be tongue in cheek here, Sean, but you kind of answered the question at the top, very limited. And what I would say is right now, we do not have a time line on this, to your point. I think the Board is being super thoughtful about this. And again, with the focus of shareholder value as the guiding light to the process and making sure that it's more about getting to the right outcome as it is about hitting a certain deadline. Operator: And the next question comes from the line of George Hill with Deutsche Bank. Maxi Ma: It's Maxi on for George. So we are seeing a lot of volatility in bookings and annual contract value over the past few quarters, and you talked about more larger deals in the pipeline. How should we think about the conversion timing into revenue? And how has implementation duration or client ramp changed? Are there any capacity constraints at this point? Christopher Fowler: Thank you, Maxi. There are no capacity constraints, and we still are in a situation where our bookings were a little bit at the mercy of the customer for the timing. So the capacity is typically not on our side. We're typically looking for ways to accelerate that with the customer and making the entry into the service or the technology more efficient. So as a basis, typically, the technology that we're putting in, if it's a replacement technology, then there is a contract term that the customer is working out of that they're not going to want to double pay for something. And so we are, again, sort of at the mercy of what those contracts are. On the services aspect of things, typically, it gets down to -- sometimes it's politics at the facility of how the onboarding and offboarding of the staff that's doing the current work at the facility plays out. So we continue to be mindful of how we can do a better job of representing the bookings impact into the run rate and how we can be more thoughtful for you guys to understand how that plays out. And I would say, as we continue to work through this year, that's something that we may try to get better at. Maxi Ma: Got it. That's very helpful. I just have a quick follow-up. Given margin expansion is primarily cost driven, how much incremental opportunity remains versus what's already been realized? Are we getting close to peak margin after achieving the 200 basis points improvement target this year? Christopher Fowler: I hate to kind of be a little bit futuristic with this. But I think that we're -- you heard me talk a little bit about AI in the prepared comments. And what I would say is we're continuing to look for opportunities for efficiency and better outcomes based on the availability of AI in the different pillars that we discussed. So from a development standpoint, us being able to accelerate our road map and be able to deliver our products faster to our customers, which drives revenue, which drives margin and also being able to use it on our RCM services side, to be able to return cash faster to our customers. And so I don't think we're at the end when we hit that 200. And I don't know where the ceiling is. We're going to continue to keep pushing and leveraging both the staff that we have and also the technology that's available, and we'll continue to keep you updated on the progress there. Vinay Bassi: And I'll just add one more thing. While cost is obviously the biggest driver, I think revenue mix is also will play as technology solutions like encoder keeps picking up, those are at very higher margins than our services business. So while the big needle mover in the past has been cost, but we keep a close eye on the revenue mix because that could be a big contributor as we keep going. And as Chris said, we still have more room to grow here. Operator: And the next question comes from the line of Jeff Garro with Stephens. Jeffrey Garro: I want to start with a strategic question and ask if you could give some comments on how you currently see the strength of the business from combining Patient Care and Financial Health and opportunities or synergies that you see from that combination beyond just having the overhead scale of having both of them under one roof. Christopher Fowler: I'll take a stab at that, Jeff. First of all, condolences on the heartbreaker with Duke. That was an unbelievable shot. But to get to your question, to me, we've talked about this in the past. I think there is such an interconnectivity between the relationship and the foundation that we have built with the rural community customer base with the EHR and how we're able to use that as really kind of the platform that we can grow from. I think as we continue to advance the technology in the EHR, we are focused on that 100-beds and under space. And I think that there's room for us to expand there. And I think there's natural expansion in that customer base for the RCM services as well. So when we look at this strategically, I think it is about how those 2 pieces together can continue to fuel the growth in the rural and community market going forward. Jeffrey Garro: Excellent. I appreciate that. And I appreciate the condolences, it's going to be a multi-month mourning period here. But I want to go to the forward view and you understand the lack of formal guidance, but I want to see if there's anything that, Vinay, you would want to call out from FY '25 that won't repeat as well as ask about whether there are items from Q4 that you would call out as appropriate to annualize as we look forward into 2026. And then just lastly, to catch all, any general comments on visibility that you see for the business relative to prior years as we look ahead? Vinay Bassi: So that's a great question. I like -- I'm bound a little bit on not giving too much on the guidance and all. But what I would say is you know this business better than I do also, Jeff. We will continue to have some seasonality of some of the revenue streams and the timing of bookings. That -- that part will keep on -- might be more there. But I think as what Sean mentioned, looking at our bookings and attrition, I think modest revenue growth is what we have factored in. But I wouldn't say like there would be significant changes from the past. But yes, some seasonality will play obviously, quarter-to-quarter. Jeffrey Garro: Great. I appreciate that. And one last one, if I could sneak it in. Some really helpful commentary around the pipeline and some of the metrics you gave there. Really great to see that. So I wanted to ask about your plan for pipeline to bookings conversion and specifically around the impact of your new commercial leader, given the growth in the pipeline, some of that pipeline building must predate him, but he has a great set of experience and probably has some good plans on converting that pipeline to bookings. So I wanted to ask you to dive into the weeds a little bit there. Christopher Fowler: Yes. A good question again. What I would say is the pipeline growth that we have seen really is attributable to the new team that we have in place now, right, and their new approach to the process. So the first step is really making sure that we've got that pipeline built so that we have more shots on goal to make sure that we flatten out the consistency of the bookings quarter-over-quarter. So we've done that, that we've seen the pipeline increase. And now I think over the next quarter or 2, we should start to see the size of the pipeline also smooth out through the top to the bottom of the pipeline, really, so the funnel is kind of evenly scattered so that we have the ability to make sure that we're putting up those consistent numbers quarter-over-quarter versus what you've seen over the last several years, where we have good quarters, down quarters and you kind of see that yo-yo. The goal is that we're trending up, but that we're also smoothening it out just a little bit, which allows for us to be a little bit more predictable kind of in all parts of the business. So I think that, that's the second phase from the commercial team transformation, first getting that pipeline built. Now it's about making sure that we're pushing it all the way through. I've been real pleased with how they worked through making sure that the integrity of the opportunities in the pipeline is there. And then also, and I think we called this out on the script that the quality of the pipeline has also improved so that we've got much more recurring revenue and also focused on some of those larger opportunities, we're starting to see those pops. So again, the credibility of the story that we've had from the beginning of we think that there is a tremendous market opportunity in this space for the services that we provide. Now we just need to see the pipeline pay off in the coming quarters. Operator: And the next question comes from the line of Sarah James from Cantor Fitzgerald. Sarah James: I wanted to go back to your earlier comment on the financial health products. You were talking about rolling out solutions that predict claims and claims denials earlier and more accurately than they have in the past. Can you tell us a little bit more about that? Any KPIs you can share time lines of launches of waves of the product? Christopher Fowler: Yes, absolutely. Welcome back, Sarah. Glad to have you on the call. So we are -- we have in a pilot format some of our technology in the field. I think it's important to say this is homegrown. We have built this internally. And we are experimenting, I would say. So if we're looking at it in the baseball parlance, I would say we're in the very early innings on this initiative. But the mindset is that because we have the full RCO technology suite, we have the remit information from 835s. We have the claim status information from the 276 to 277 transactions that go out for us and we have this not just for the customers we do the billing for, but for the customers that we do just the claim submissions for as well. So we have a great database of information to be able to train the models. And right now, we're in that training phase with a handful of code sets on a handful of customers. So right now, we don't have any KPIs because it's still in a learning phase. But the goal is that we continue to take the information that we have from the front-end edits from the back-end remits and continue to winnow that down so that on specific rejection codes that we receive, denial codes that we receive that we're flagging those early with an opportunity to be able to really have an impact on the number of denials that we're having to manage. That's really, I think, the opportunity. I would say, in general, probably 80%, 85% of claims are going through and getting paid once they go through our edits. So now there's an opportunity for 15% of the claims to be improved. I think that's the area that we're looking to really kind of make an impact on. And the real part about it, too, is that the work to get those corrected and then back through the system is an arduous process because it can take hours on the call with the insurance payer and then work back with the customers to get the information and the documentation right, and it just creates this vicious cycle. And we've let the claim go out the door, so it takes 30 to 45 days to find out that it was going to get denied. So it's definitely our priority from the RCM side that this is the -- it might be the most difficult, but I think it has the highest opportunity for return for us from an efficiency and satisfaction for our customers. So more to come there. Sarah James: That's great. And one more. So as hospital systems are trying to manage through EAPTC expiration and what that implies for margins, are you seeing the way they purchase products change or having conversations that over the next year or 2, it might -- whether that's wanting more integrated solutions and less point solutions or if it's focusing on faster ROI versus long-term ROI? Like how are you seeing the demand change given the regulatory environment for providers? Christopher Fowler: It's a good question, Sarah. What I would say people are definitely focused on impact, right, that they definitely want that return. And I think that the world is clamoring for -- because you're now using ChatGPT or Quad personally, I think that people are expecting to see that show up and provide them relief in their work world as well. If you go back to the press release that we issued last week with our customer in New Mexico, Artesia, what you'll see is that it's generating 50% to 75% less time documenting for our providers which is a huge number, right? And it hits in a couple of places from a return standpoint. It provides provider satisfaction. It allows that provider to be more attentive to the patient and provide a better quality of care and hopefully a better outcome for that patient. And it also frees up capacity for that provider to see more patients, which ultimately drives more revenue. So I think those are the kind of -- those are the things that our customers are looking for and customers in general in health care are looking for. And so it's about how do we build and partner with more opportunities to deliver something like that. Operator: And the next question comes from the line of Ryan Halsted with RBC Capital Markets. Ryan Halsted: I guess starting with the hospital end market and some of the regulatory changes that are impacting them. I think one of them is the rural health fund that represents a potential opportunity for you guys. I'm just curious if you've had any better visibility into what that fund could mean for some of your customer bases and if you've had any conversations about maybe even being a part of how that funding could be spent? Christopher Fowler: Absolutely, Ryan. Thank you for the question. So yes, we are 100% locked in on helping our hospitals get into that $50 billion fund and make sure that it's actually providing value for them. The way we've kind of characterized this internally is that it's a meaningful use opportunity again, yet that has a real impact to satisfaction and good outcome for the providers, for the patients and for the vendors as well. We announced -- I think you may have seen this a few weeks ago that we were selected by SAIC to be their preferred partner for the EHR and RCM technology and their alliance around the rural health care, which is really helping hospitals and states tap into those funds. I would still say this is early stages now. We're starting to see RFPs go out, but each state really has their own latitude to kind of help decide, drive what are the initiatives inside of their state that they need to fix, which I think is actually pretty elegant because the needs of Mississippi and the needs of South Dakota aren't necessarily the same. So I think giving that latitude back to the states is great. Now the challenge to some extent is that, that gives us 50 different strategies that we've got to kind of line up with and see where we can play and be helpful. The good news is there are some -- we are going to see some commonalities across that. So we are definitely, as an organization, very much focused on making sure that we are at the table with our customers, at the table with the states to be a part of shaping the use of that $50 billion and making sure that it's providing a positive impact and a good outcome. Ryan Halsted: That's great. That's helpful. And then maybe turning to AI. I think it was helpful to hear how you're deploying it both externally and internally. But I know certainly, a lot of attention is being paid to some of your competition, both across Financial Health and Patient Care. I'm just curious if you're seeing any sort of changes in terms of your competitive landscape from larger incumbents maybe becoming a bit more nimble in terms of making an entry into your markets? Christopher Fowler: We have not seen that yet. I think that companies are all trying to figure out how this plays out for them. And I think it's one of those things where you got to be pretty careful because it's expensive. And I think I said this maybe on the last call. I think sometimes people assume that AI replaces people and then that you get to drop that straight to the bottom line. I think for us, the way that we have kind of modeled out where we think AI can be an improvement is about a 20%, maybe 30% improvement from a bottom line perspective. But if you're not careful, you can really start to layer in some costs pretty quickly. And so we're trying to be mindful of making sure that we pick projects that we think have impact and that we also believe that we can bring quickly and that we're not carrying a bunch of extra cost without being able to rationalize that as we go. And so that's why when you look at the Ambient Technology, and we're seeing the sales that are being generated based on that and the pipeline continue to build based on that, there's a nice return that's associated with that. We look at what we're doing in the support area and how that's improving the experience for our customers, which is improving retention, which improves their desire to want to buy from us going forward. We're making sure that there is ROI attached to the AI projects that we're doing. And I think that, that's really the way that I think that if you're being smart about it, you got to pay attention because otherwise, you can end up with a pretty big bill without a lot to show for it. So we're happy with the progress we've made. And I guess, like others, we hope to see that kind of accelerate. But back to your initial question, we're today not seeing anything dramatically change from the competitive landscape on it other than our customers ask questions a lot more about what's happening, what we're doing with AI. So it's nice that we have a thoughtful response to be able to share back and that we're making meaningful progress on that. Ryan Halsted: Got it. That's great. And then my last question, just a clarification question. In terms of the outlook and the 200 basis points of margin opportunity, so are we to assume that, that is specifically the margin expansion opportunity you've alluded to in the past from offshoring? Or is it from something different or a combination? Vinay Bassi: It's a combination. It's the same one that I gave last time, too. Obviously, you saw the EBITDA is much better than the consensus. So we still feel 200 bps. So it will come from a variety of factors. Obviously, global offshore transition will be a key part of it, plus some other benefits of cost optimization and obviously something with the revenue mix, too. Operator: And the final question comes from the line of Gene Mannheimer with Freedom Capital Markets. Eugene Mannheimer: Congrats on a good finish to the year, gentlemen. So just building off that last comment, Vinay, so the 200 bps of EBITDA margin expansion, so it will be probably most of it from the COGS line, but some SG&A too with -- maybe with some of the AI you're introducing. Is that how to think about it? Vinay Bassi: So you should think about it. It will go through all the major cost or cost of sales, product development and will be the primary contributors of this. And obviously, from sales and G&A, there might be a mix of investments needed as and when. But I think it will not just be in COGS, it will be primarily, but also from product development piece where we constantly keep on looking at ROI driven, like what Chris said, we are working on these 4 initiatives. Some of it goes through product development, some of this goes through cost of sales, but all are positive ROI projects. Eugene Mannheimer: Got it. Got it. Okay. And then second -- my follow-up would be just maybe talk a little bit about that partnership with RevSpring. You signed it about 3 months ago. And I'm just thinking about how you see that bringing value to your customers and if there would be anything incremental this year that could come from that. Christopher Fowler: Thanks, Gene, and thanks for the nice comment at the top as well. I don't think -- and Vinay is pulling up real quickly. I don't think there's a meaningful impact this year. Again, I do think that as the changes on the regulatory wins continue to blow and there may be some challenges with eligibility and continued increase in deductibles and co-pays. I think it's in our best interest to make sure that we have a best-in-class patient collections initiative. So we have the service where we have the call center and we're making the outbound calls, we receive inbound calls and also partnering with RevSpring to deliver the digital experience for how the patients interact with their bill pay. So I do think that it will be a -- I do think that it will have a material impact. I don't expect that to play out in this year. I think we'll start to see some traction there towards the back half of the year and then moving into 2027. Vinay Bassi: Yes. And Gene, I think Chris is right. There will be some savings on the cost part as we go through the digital piece. And obviously, they're becoming a much more strategic partner yields more benefits across the board from next year onwards. Operator: This now concludes our question-and-answer session. And I would like to turn the floor back over to Chris Fowler for any closing comments. Christopher Fowler: Thanks, John, and thank you all for your continued support. As always, thank you to all of our TruBridge team members who wake up every day focused on delivering for our customers. Have a wonderful afternoon. Thanks, everybody. Operator: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
William Li: All right. Let's get going. My name is William Santana Li, Chairman and CEO of Knightscope. I'm here with our Trustee and CFO, Apoorv Dwivedi. We're going to do a little bit of a different format today. First, an announcement regarding this Thursday, then Apoorv will go through the 2025 financial results that we filed on Form 10-K. And then we aggregated a bunch of questions that have come in, including from the 3 equity research analysts, and we'll try to put that in a much more efficient approach to answering questions. So with that, I'll start it off with -- we're going to have our first annual Autonomous Security Force Day and also celebrate our 13th year anniversary in business. I often like to say we're here in Silicon Valley. There are 22,000 start-ups here. 95% of them failed despite having unbelievable ambition, financing and the like. And for us to be able to start the company, get it funded, grow it, take it public, buy 2 companies and still be at it 13 years later is certainly a testament to the relentless nature of the Knightscope team. And I couldn't be more excited about our future as we build out the nation's first autonomous security force. So this Thursday, we're going to have several VIP private sessions for previews as to what we're building during 2026 and intentionally to get some market feedback, and then we're going to have an open house in the evening here in Sunnyvale at our new headquarters. And there's rumors flying around, there's going to be an ice cream truck and a bunch of other stuff. So hopefully, if you have an RSVP, please be sure to check our social media channels or newsletters, and you can grab a spot there. So that will be at 6:00 p.m. this Thursday. All right. With that, I'll turn it over to Apoorv, who will walk you through history, meaning 2025, and kind of what happened then. Then we'll talk a little bit about the acquisition and the questions and why all the excitement for 2026 and beyond. So with that, Apoorv? Apoorv Dwivedi: Thanks, Bill. Good afternoon, everyone, and thank you for joining. I will begin with a review of our financial performance, first for the Q4, and then the full year 2025, followed by commentary on liquidity and capital strategy. With that, let's jump right in. Q1 -- sorry, Q4 revenues declined approximately 9.8% year-over-year [indiscernible] product shipments, primarily driven by supply chain constraints which we've talked about in the past that resulted in delays of ECD product deliveries. The services business remained materially unchanged. Gross loss of $1.6 million reflects ongoing margin pressure driven by elevated material and other input costs for production and by under-absorption of fixed manufacturing overhead. These factors were consistent with full year trends and underscore the need for improved scale and supply chain normalization to drive margin recovery for the company. Our operating expenses of $9.7 million in the quarter increased approximately $3.8 million year-over-year, driven by higher investment in both R&D and SG&A functions. R&D spending reflects the company's deep commitment to continued advancement of our next-generation platforms such as the K7, the K1 Capsule and the Signals software. SG&A increased primarily due to targeted investment in talent and organizational capabilities, which are critical to positioning the company for future scale and growth. Overall, the cost structure reflects a deliberate investment phase to support long-term expansion. Q4 2025 net loss of $11 million widened versus prior year due to a combination of lower revenue, continued gross margin pressure and sustained operating investment. The quarter reflects a near-term financial impact of scaling the platform, while revenue growth remains uneven. With that, moving on to full year. 2025 full year revenue grew approximately 4.9% to $11.3 million, driven primarily by the services revenue expansion in both the Machine-as-a-Service ASR offerings and our full service maintenance plans on the ECD installed base. However, growth in the product revenue was modest due to the already discussed supply chain-related constraints and shipment timing issues discussed earlier. [Audio Gap] increased by approximately $1.1 million versus prior year, reflecting higher bill of material cost [indiscernible] and production variability. The lack of scale continues to pressure unit economics, reinforcing the importance of driving higher volume and utilization as we continue to grow. Full year operating expenses increased approximately 12.1% year-over-year, driven primarily by a $5.4 million increase in R&D investment compared to 2024. This reflects continued focus on platform development and next-generation products to support future scalability. The increase was partially offset by cost savings in SG&A expenses of approximately $1.8 million as well as the absence of $0.5 million in restructuring charges incurred in the prior year. This demonstrates progress in optimizing the company's cost structure while investing in growth. Full year loss increased to approximately $33.8 million. This reflects a combination of modest revenue growth, continued gross margin pressure and elevated investment levels, consistent with the company transitioning to growth. Weighted average loss per share of $4 decreased by approximately 63.5% year-over-year. Finally, from a balance sheet and cash flow perspective, we used approximately $30.3 million in operating activities during 2025, reflecting a continued investment [indiscernible] organizational scale. Importantly, we raised $42.2 million through financing activities, allowing us to strengthen our balance sheet and support ongoing operations. We ended [indiscernible] a significant increase from the $11.1 million [indiscernible] 83% year-over-year improvement in cash position. Looking ahead, our focus remains actively on managing liquidity through a combination of capital markets, access, operational discipline and strategic initiatives designed to improve cash generation over time. In summary, 2025 was a year of foundational investment. We strengthened the liquidity position, continued to grow revenue modestly and made critical progress in evolving our business model towards a more integrated and scalable platform. While near-term financial performance reflects that investment phase, we believe the combination of our technology, software and now human-enabled delivery capabilities position Knightscope to pursue larger opportunities and improve financial performance over time. With that, I'll turn the call over to Bill as we go through the questions provided by our analysts. William Li: Yes. Apoorv, I think there's some connectivity issues. So if you want to kill the PowerPoint and turn your video back on would be great. So while he does that, let me put things in context a little bit. We've been at this problem and tackling this issue of trying to see if we can make the U.S. the safest country in the world, utilizing technology, AI, robotics, electric vehicle technology, telecommunications, the whole gamut. And after working on the problem for over a decade, it's become obvious to me that the nations addicted to CCTV cameras, security guards and video management systems running on Windows and -- are unwilling to change or willing to change at a snail's pace. And so we wanted to try to be helpful to our clients to build a managed service provider that can take a lot of the technological burden, complexity regarding the technology itself, installation, IT, cybersecurity, keeping things up to date, making sure it's all operating off of a Chief Security Officer's hands and come with -- go to market with a complete full solution instead of having this disparate set of widgets all over the place that don't talk to each other and the like. And an accelerant and catalyst to do that was the acquisition of Event Risk that we recently announced. And that's a transformative and strategic acquisition so that we can go to market as a managed service provider to actually fix the client's problems instead of doing the mix and match. And that's one of the reasons we're extremely excited about our future. We've been at this for a very long time. I've never been this excited and kid around with the team here. It's like I couldn't sleep before because all kinds of problems and stuff. Now I can't sleep because I'm too excited. So the future looks genuinely bright. We have a lot of contracts signed, and just focused very much on execution, both operationally and technologically. We've got a lot of new technologies that we're developing, and we're going to showcase some of that this Thursday. And the coming years are going to create literally a new kind of entity that has never existed before, a managed service provider that can be that -- a nation's first autonomous security force. William Li: So with that, we got a bunch of questions in from a variety of folks, including our research analysts. So Apoorv, if you want to read off the first easy question, we can get on it. Apoorv Dwivedi: Absolutely. All these questions are easy. William Li: Excellent. Apoorv Dwivedi: The first one was basically, can you provide visibility on timing of supply chain issues clearing up? And basically, are any supply chain disruptions anticipated due to all the global conflicts happening across the Middle East and Europe? William Li: I think there's volatility prior in the system, still in the system, and I would forecast going forward, we'll continue that volatility. So we need to better manage the volatility. Some of it has to do with tariffs, geopolitical instability, et cetera. Some of it has to do with an end-of-life component. And some of it has nothing to do with, hey, can you get the NVIDIA chip? It's the one specific resistor or button or what have you that ties up the whole thing, and it's not one strategic component. So this continues to be a whack-a-mole kind of problem that we're working through. We now have a supply chain manager and a team that's proactively working the issue. So we're starting to plan better, buy in advance, replace components, outright replace suppliers if needed. But to be on a cautionary note, we've had our struggles. I think we can try to minimize the damage, but a lot of it is not necessarily directly in our control. So we're working through the problem. I don't know if Apoorv, you had a different take on that? Apoorv Dwivedi: No, I agree, Bill. I think the volatility is driven primarily by macro events. And I think we're doing a lot of things internally to mitigate as much as possible, right? The broader electronics market, in particular, continues to be volatile. There's longer lead times, tighter availability in items like compute modules, networking hardware, memory, et cetera. So I think those are some things that are just outside of control, or controlled directly, but we are putting in place mitigation steps. So things like making sure we're not relying on single source, expanding our relationships to multiple vendors, making sure that we identify items that have the highest risk and making sure that we have enough of those in stock, which is an investment in inventory. So there's a lot we're doing, and we've been able to learn over the last few months that we're working through. I would say keeping supply chain and production in sync is important for us, and we'll continue to adjust as things progress. We do expect that versus prior year, this year, we'll have slightly better, if not much better outcomes as we continue to invest in supply chain and our relationships. William Li: All right. Next. Apoorv Dwivedi: Next question was on the move. Is the move to the Sunnyvale facility complete and up to operational efficiency? William Li: Mostly. Mostly done. We have a little bit of a challenging landlord situation with less flexibility than we want, but we're working through it. One of the reasons we're having this Autonomous Security Force Day here is to showcase the progress that we've made since we've moved into the building. Still a lot more that we want to complete, but things are looking pretty good. I will confess that some of us are nervous that we're going to run out of space a lot sooner than we were planning, but that's a good problem to have in the coming quarters. Apoorv Dwivedi: Next one is on the recent acquisition. Following the Event Risk acquisition, can you give us an estimate of how much your potential market has expanded? Do you have an estimate around the new TAM? William Li: I've been wanting to do an acquisition like this for 5 years. So the TAM that we actually put in the investor presentation, if you haven't seen the latest one, it's at knightscope.com/america. That $230 billion there is the TAM that we're going after and remains unchanged because this was kind of the overall plan. I think this is an unlock or a catalyst for us to be able to go to market much more efficiently and much more aggressively. So I think one of the enticing things that's going to happen in the coming quarters is just to see genuine accelerated growth versus the less than optimal growth that we've seen to date. And the idea is to be able to -- maybe 2 different steps here. One, we have existing clients between the acquisition and our legacy clients. And there's a significant amount of opportunity to cross-sell technology or security agents back and forth. So there's that kind of literal synergy. And then there's the -- once that's done, let's go to market together in specific verticals for us to be able to, again, bring a total solution. So the TAM doesn't change the amount that we can go grab after the TAM and do it in an accelerated fashion is, I think, dramatically increased. We're -- if you haven't heard, we're -- the team is well over 400 employees now, and we're in a pretty serious pace of growth. Apoorv Dwivedi: Yes, I agree, Bill. I think the way to think about it is not whether the TAM has increased, but more our ability to penetrate that and grab a larger piece of that market share faster is definitely accelerated. We've talked about this in the past where we've said, generally, when the RFPs and RFQs are out for security guards only, we were, for example, excluded from those because we don't have guarding services. We don't have humans. We're only technology. And then when we would try to go after technology, only RFPs and RFQs, again, we didn't have a full-on solution. So it kind of limited us a little bit. Now with the acquisition and being able to go to market in a way that allows us to provide that fully managed services or fully managed security services, it just allows us to go to market faster. William Li: Yes. And a little bit more context for those newer to that conversation. There are, I think, rough numbers, more than 6,000 guarding companies in the U.S. that maybe have more than 100 employees, plus or minus. Our friends over at Lake Street helped us vet the first 100, and we came across Event Risk and Eric Rose. And a lot of special things about why we got so animated and excited. Having a combination of a serious operator who's been more than around the block, has been able to work in large established guarding companies, help train the Navy SEALS, Marine, law enforcement and been able to grow and bootstrap an entire company unto himself with the team was an accomplishment in and of itself. If you add the growth, the continued double-digit growth that he's been able to enjoy over the past few years is another important bullet point. But another one is very interesting. The industry is 100% to 400% employee turnover rates. The Knightscope Security Force is at 6%, very laser-focused on recruiting, on recruiting the right people, providing them health benefits, providing them the appropriate training. And in our case, we're going to be adding a few more things. We -- the Board of Directors kindly approved stock options for the entire team so we can also attract more people and keep the people employed and engaged and have them be part of the winning solution here. And we're working on some new technologies to add to those security agents. So in the future, you'll be hearing us talk about ASAs or augmented security agents that really don't exist today. And that allows all of that, combined with the stationary technology, the autonomous robotic technology, the augmented security agents, all having that data fed into our upcoming new Signals software platform. And our remote monitoring team is going to give us an unprecedented capability to properly secure a facility. And our security analyst that's remotely operating then now has machines to do things autonomously. They can escalate things to a different risk level to have some humans involved. And then there is a response element, both armed and unarmed. And that's unprecedented in the industry. And one of the reasons why we're in good spirits and more than rather excited about the future. Apoorv Dwivedi: Question on the sales forces and how we mash them together. Two questions, and I'll combine them here. What is the overall sales pipeline expected for the ASR, the ECD and the Event Risk, or now known as the Knightscope Security Force business? And then what is the timing around being able to sell legacy Knightscope with the Knightscope Security Force services together? William Li: I'm going to want Wall Street, media and our own team internally to really stop focusing on selling widgets. How many of these units did you sell? How many of this standard stationary device did you sell? What we really need to focus on is aggregate total revenue growth of providing an actual solution to our clients. And that is the overall strategy for us to deliver a managed service provider and try to focus on fixing the client's problem, improving outcomes, improving quality, improving service levels. And hopefully, there's some cost reductions in there for a client depending on the location. But overall, manage this much, much better that's being done today and not focused on did you sell an agent or 10 agents or 100 or 300 agents with that contract? Or did you sell -- the important part is, are we fixing the client's problems. And that is a bit different and why the change in strategy is to force that change in adoption that's needed across the country. Most humans and most large organizations don't want to change. I told the Pentagon, DHS and Congress the same thing. This whole country does not want to change. Even when I'm sitting here, Silicon Valley is a bunch of engineers. Like you hand them electricity, fire and the Internet. In terms of AI, it's like, no, no, no, I'm good. I know what I'm doing. Like, I don't know. I think we need to find a different path to make those changes and give some relief to the chief security officers. If you really put yourself in their shoes in this day and age, it was different 30 years ago. But when -- if you're ex law enforcement, ex military, you're here to secure a property, that's kind of your go-to skill mix. In this day and age, hey, can you please talk to me about 4G and 5G versus private LTE versus industrial Wi-Fi? And then I don't know about the drone. And then is this cybersecurity compliant, but did the DoD accept the Impact Level 5? Or is it a FedRAMP thing? And you want the robot to work with the guard, and it's just -- it's too much. You're asking a CSO to be the chief technology officer, the chief information officer, the chief information security officer, the head of facilities, purchasing and everything else. And then we're wondering why it's not working and it costs too much money. So I really want the whole team, external and internal, to be focused on top line revenue and bottom line profitability as we get there. Apoorv Dwivedi: From a modeling perspective, will you be breaking Event Risk into its own reporting line item? Or will it be included within the services revenue? I can answer that one, Bill. Really, TBD. We're assessing the right way to reflect the Knightscope Security Force revenues and line items in the business. Most likely, though, we do consider it to be a service, and we would want to include that in the services line. However, there are some GAAP rules that we're evaluating along with our auditors to make sure that we not only provide the right level of disclosures, but the right level of visibility as we go forth and draft up our 10-Qs and 10-Ks. William Li: And I don't -- I think we missed part of the answer to the other question. The pipeline without [indiscernible] is rather healthy, let's put it that way. And we're intentionally focused on execution as primary drivers. So changing the recruiting profile of the team, setting the standards of the team differently, changing processes, figuring out appropriate uses of AI implementation for specific areas, building new technologies, everything is very much focused around execution because the pipeline is rather healthy. Apoorv Dwivedi: Absolutely. Next question is, what -- will you be announcing the contracts of the Knightscope Security Force when they are won? William Li: I think that's also a TBD. As we mentioned during the sit down with Eric, if you haven't seen the interview, go on our YouTube channel. We want to take a thoughtful balance-of-the-year process to think through the branding, through IT, through HR, through finance, accounting, audit, technologies, et cetera, instead of rushing decisions. So that also applies to press releases, public relations, external affairs, government relations and investor relations. So something we'll ponder and think through as the company continues to mature as a premium managed service provider. Apoorv Dwivedi: Next question kind of dovetails right into that, Bill. Can you provide a time line for integration? How is the process so far? And are there any notable items to call out? William Li: So this is probably my -- I've lost track, 24th, 25th or 26th acquisition. And as I often say, doing the deal is the easy part for those that have been around the block. It may not seem that way for people that participate, but it is actually the easy part. The hard part is day 1 after you close the transaction. I will say it has gone a lot more smoothly than all of us expected. We have willing folks who want to work together, who want to make changes, who need additional support and changes. But as I just stated, the integration plan is try to get everything sorted in a reasonable time frame over the balance of the year. In terms of priorities, let's call it, finance, accounting, audit-related stuff first, probably dovetail HR and IT kind of the same time. And then the last is the go-to-market, branding, marketing and that sort of thing. We are planning to be at GSX in Atlanta in September, so that you'll start getting a good -- more than a sneak peek then as to how the integration is going. Apoorv Dwivedi: Yes, Bill, I think being super deliberate in how we merge 2 organizations, primarily around culture, around go-to-market strategy and obviously, the back-end support needed to support the growth of the combined organization are things that we're looking at. From a time line perspective, I think it will take a couple of quarters, if not more, for us to kind of get our hands around how we want to move forward as a combined company. We are looking at internally, some of the things you talked about. For example, finance first, just integrating the finance functions, then looking at HR, IT. And then finally, as we move into the client-focused or public-focused phase of the combined company. Any outlook for any more M&A over the next year? William Li: So we continue to look for accretive opportunities, typically probably around 2 or 3 subjects. One is on the technology side. Again, living here in Silicon Valley, there's always some interesting items that might be easier to buy than to build. So we continue to look on the call -- just call technology front. Those often may not be top line revenue focused. It's more the nugget of talent or technology that we want. Another would be on the remote monitoring side of things. So we want to continue to build up the RTX capabilities as we build out the security force. So we're actively looking there. I think the growth on the security force itself is, as I said, healthy. So I'm not sure we want to do a bolt-on just yet, but we have a lot of activity going on. So M&A, open for business, but I always want to make sure it's going to be helpful for our shareholders and the overall growth of the company and be mindful and careful and make sure we get a good deal. Apoorv Dwivedi: Last question, Bill. What are some key milestones should investors watch out for in 2026? William Li: I can start. Maybe you want to finish, but I think the 10-Q that we filed in the second quarter that will reflect part of the activity from the security force side of things would be, one, the following 10-Q and then the following 10-Q. So I think keeping an eye on the regulatory filings starting mid-May would be important. Maybe there are folks in the audience that don't realize this. But usually, when you make an acquisition, there's like this 71-day rule, I'm sure I'm going to screw this up. But within 71 days, you need to file the kind of overall impact. So we're working on that. And so that will occur in the coming weeks, probably in the May time frame. So that, to us, is going to be really important because that will show is the strategy working or not and is the company growing and heading towards profitability. Second, technology. This all gets very exciting if you can have a pretty serious competitive advantage in a very large marketplace with capabilities that no one else can do. So we probably want to keep an eye on did the beta prototype testing actually occur in the second half of the year for the K7, which we're spending a lot of time on. And -- when the Board is excited, the management team is excited, the team is excited, our suppliers and vendors are excited. And all the recruits that we're hiring -- oh, by the way, go to knightscope.com/careers, we've got a lot of openings -- are all excited and dying to work on the K7. Like, hey, maybe we're on to something. So keeping an eye on the K7 progress, important. On the stationary side, we're unveiling the K1 Capsule and Super Tower here this Thursday. So progress there is important. And then also on the Signals platform. I think those are 3 that we can publicly talk about are things to keep an eye on. So basically, 2 answers to the question, like is Knightscope doing well or not? Is the revenue going up? Yes or no, and not based on press releases or anything else. I want to see the regulatory filing. Are the numbers going up, yes or no? And then are you making serious progress on technology development that will give us a sustainable competitive advantage. I think those probably should be the 2 key items to keep an eye on, unless Apoorv, you've got another one? Apoorv Dwivedi: No, Bill, I think at the end of the day, it comes out to improvements in execution and how does that reflect in the company's financials and the way we are perceived in the market by our investors and customers and clients and vendors. It's really our ability to go out and grow revenue. And with the combined company, we have a theory that this will actually accelerate this. So what -- look out for the second half to see some of that proof. Obviously, product launches and commercialization of our new product development that the team is working really hard on, that's going to be important. And overall, just watching -- hopefully, as we do these things the right way over the next few quarters, especially going into the latter half of 2026 and 2027, we should see improvements across all of our P&L line items, both on the revenue side as well as the cost mitigation side. And that's going to be the sum of all things we do from an execution perspective. If we do that right, it will show up in the financials. William Li: And then I've gotten a lot of questions asynchronously here on, hey, what does Bill and Apoorv and Mercedes know about running a guarding business? Well, keep in mind that the idea and how we approach this is very similar to how a private equity firm would look at it, which is basically, we want to go buy a solid business that's run by stellar management. And then we give them the tools and support and technology for them to grow and give them the autonomy, frankly, to be able to do that. And we found that in Event Risk. The management team is very strong. They've been growing very quickly. The client retention rates are astronomically good. The employee retention rates are astronomically good. And we've got real hitters that we're betting on to continue to grow the business. And then what we're going to come with is technology then that will ensure that it's not a commodity staffing business of headcount the way it's kind of -- the industry has been run today. So we're reimagining and re-architecting how physical security gets delivered to a client. And our initial interactions with folks that are in the know or prospective clients or in the pipeline, we know we're on the right path. Our focus right now is just heads down on execution. So the balance of the year, to kind of wrap this up, is focus on technology development, focus on growth, finish up the integration so that 2027, '28, '29 are hopefully some epic years for us. And again, we're in great spirits. The market, I think, is trying to understand what we just did, both on Wall Street and in the security industry, but the proof is going to be in the pudding. And I'm betting on this team, and we're highly confident that the future is bright. So Apoorv, do you have any last remaining thoughts? Apoorv Dwivedi: No. Same, Bill. I echo both your sentiment and the team's sentiment in that we have a lot to do. We have a lot going on, and we just have to keep our heads down and focus. William Li: Yes. Lastly, I want to publicly thank our Board of Directors and the management team for the support in doing this strategic acquisition. Again, I've been wanting to do this for half a decade and finally got the brave pill to do it. And now I'm just kicking myself that we didn't do it 5 years earlier, but this is going to be a lot of fun. So hopefully, for those of you that can join, we'll see you Thursday night for our first annual Autonomous Security Force Day. Please be safe. Thanks, everybody.
Gary Friedman: There are pieces that furnish the home. And those who define it. There are places you visit. And those you remember. There are spaces you move through. And those have moved you. Welcome to the world of RH. Albert Einstein's Three Rules of Work: Out of clutter, find simplicity; from discord, find harmony; in the middle of difficulty lies opportunity. Seem especially relevant at this moment. We're compounding clutter from tariffs, global discord as a result of war, and the most dire housing market in decades can make it difficult to separate the signal from the noise. It's important to remember necessity is the mother of invention. And our most important innovations were birthed during the most uncertain times. Transforming a nearly bankrupt Restoration Hardware into RH, the leading luxury home brand in North America was not a feat for the faint of heart. While the external challenges are somewhat familiar, our internal opportunities are massively different. We're not closing stores and fighting to survive. We're building a never seen before brand that's positioned to thrive. Before we get into the details of our strategy, let's start with a few facts that should quiet some of the noise. In 2025, RH achieved revenue growth of 8% and 2-year growth of 15%, far outpacing our furniture industry peers by 8 to 30 points. Adjusted EBITDA reached $597 million, or 17.3% of revenues versus $539 million or 16.9% of revenues in 2024. Free cash flow of $252 million versus negative free cash flow of $214 million in 2024, an increase of $466 million year-over-year. Those results were despite 2025 being our peak investment year with $289 million of adjusted CapEx to support our global expansion plus an additional $37 million to purchase the Michael Taylor, Formations and Dennis & Leen brands to support the launch of our new concept, RH Estates, a strong performance considering the unusual circumstances. Let me shift your focus to our strategy and how we expect our growth to accelerate over the next several years. We believe there are those with taste and no scale, and those with scale and no taste. And the idea of scaling taste is large and far-reaching. We believe our goal to position RH as the arbiter of taste for the home will prove to be both disruptive and lucrative as we continue our quest at building one of the most admired brands in the world. We like to use a simple question to frame our significant opportunity. Who is the home brand for the luxury customer? The LVMH, Hermes, Cartier or Cucinelli customer. RH has curated the most compelling collection presented in the most inspiring spaces in the world. Our brand attracts the leading designers, artisans and manufacturers, scaling and rendering their work more valuable across our growing global platform. Our product is both categorically and stylistically dominant, enabling RH to address the largest market of any brand of its kind. We curate across the 7 major product categories: furniture, upholstery, outdoor, lighting, linens, rugs and decor, and we integrate across the 3 dominant product styles, traditional, contemporary and modern, which we refer to as RH Estates, RH Interiors, and RH Modern. RH Estates, our newest brand extension, launching this spring, will address the traditional market where the RH brand is currently underpenetrated. 60% of luxury homes feature classic or traditional architecture, which influences the majority of furniture purchasing behavior. RH Estates will feature the introduction of RH Bespoke Furniture, customizable collections from our recently acquired Michael Taylor, Joseph Jeup, Formations and Dennis & Leen to the trade brands. RH Estates will also include the introduction of RH Couture Upholstery by Dmitriy & Co., tailor-made sofas, sectionals and chairs of arguably the highest quality upholstery available anywhere in the world. Designers will be able to order custom made sizes and finishes plus specified COM fabrics. RH Bespoke Furniture and RH Couture Upholstery will enable interior design firms to now specify RH for their most discerning clients and custom projects. RH Estates will also include collections from many of the most talented designers and artisans in our industry. Let's take a look at some of their work. [Presentation] Gary Friedman: RH Estates will premiere at the opening of RH Milan, the gallery on the Corso Venezia, a 70,000 square foot former palace, during Salone, the largest design show in the world with an estimated 500,000 visitors descending on the city that week. The launch of RH Estates will include a dedicated source book, mainly mid-May, and international advertising campaign and freestanding Estates Galleries in Greenwich, Connecticut and the San Francisco Design District opening early summer. And the West Hollywood Design District opening in 2027. We believe RH Estates will become our largest and highest margin brand extension, driving significant growth over the next several years. Let me shift your attention to our multidimensional physical-first global ecosystem, the world of RH. That goes far beyond a typical multichannel approach, inspiring customers to dream, design, dine, travel, and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in our industry. The question we often are asked is why physical first in a digital world? Let me explain. Furniture remains the least digitized large retail category with an 80-20 store to online split, with luxury furniture estimated to be as high as 95.5%. Why do stores still dominate? Comfort, scale, finish and quality are hard to judge online. Even when customers purchase on a website, most experienced the product in a store, we believe the physical manifestation of a brand will continue to be significantly more valuable than an invisible online way. We also believe most retail stores are archaic windowless boxes that lack any sense of humanity. That's why we don't build retail stores. We create inspiring spaces. Spaces that are a reflection of human design, a study of balanced symmetry that creates harmony. Spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality, spaces with garden courtyard, rooftop restaurants, wine and barista bars. Spaces that activate all of the senses and spaces that cannot be replicated online. While most have been closing or shrinking the size of their stores, we've been building some of the largest and most immersive spaces in the history of our industry. Let's take a look at our most recent work. [Presentation] Gary Friedman: We believe our investments in building completely unique, immersive experiences in Paris, Milan and London, we'll set the stage for RH to become a truly global luxury brand. It's important to understand that there are several strategically significant businesses embedded in our galleries, including RH Interior Design, where we become the largest residential interior design firm in the world, with projects from San Francisco to Sydney, Los Angeles to London, Miami to Milan, and Dallas to Dubai. We offer design services, including interior architecture, landscape architecture, art and antique curation and turnkey installations. Another important business embedded in our galleries is RH to the trade, a specialized team that calls on services and supports interior design firms assisting in the design, curation, delivery and installation of many of their projects. RH Hospitality operates beautifully integrated restaurants, wine and barista bars in our galleries that generate significant traffic and brand awareness. While our galleries might see several hundred customers per week, our restaurants feed several thousand. With 26 restaurants in operation today and are scheduled to reach 40 by the end of 2027, RH is 1 of only 7 globally owned and operated luxury restaurant brands with 20 or more locations worldwide. We believe our galleries create a unique competitive advantage that will likely never be duplicated in our lifetime as the cost of construction at the luxury level has doubled post-COVID. To address that challenge, we've developed several immersive new gallery concepts that will enable us to scale in a faster and more capital-efficient manner. The first, the most revolutionary is what we call an RH design compound, currently in development in Naples, Miami and Walnut Creek, a compound is 6 to 8 independent buildings connected by beautifully landscaped garden courtyards with a sun-filled atrium restaurant anchoring the project. Due to the absence of multiple stories that require steel structures, grand staircases, elevators, complex mechanical systems and long development time lines, we believe we can build design compounds significantly faster and more capital efficient than our prior design galleries. Another new approach to deploying the RH brand in a faster and more capital-efficient manner is what we call a design ecosystem, currently under construction in Greenwich and Palm Desert and in the development process in West Hollywood Design District. An ecosystem is a multi-building brand presence on a street, in a neighborhood, design district or shopping center. Our first ecosystem will be in Greenwich, Connecticut, and includes our gallery at the Historic Post Office, our new outdoor gallery opened last year, and our new RH Estates Gallery with an integrated restaurant opening in the former Ralph Lauren building this summer. We've also developed a new single-story gallery, ranging from 15,000 to 20,000 square feet with a dramatic courtyard restaurant targeting secondary markets. We're currently under construction in Los Gatos, California and are in design development for galleries in Richmond and Milwaukee. We have been extremely pleased with our performance of our first freestanding RH Interior Design office in Palm Desert, California and have plans to open a second interior design office in Malibu this fall. In total, we have an opportunity to expand our presence in 27 existing markets, and open 1 of our new design concepts in 48 new markets across North America, representing a $2 billion opportunity. Let me shift your attention to our business model and balance sheet. While we believe it's prudent to plan conservatively this year due to uncertainties around interest rates and inflation, and have planned revenue growth in the 4% to 8% range in 2026. We do expect growth to accelerate to 10% to 12% in 2027, and reach $5.4 billion to $5.8 billion by 2030. Adjusted EBITDA in the 14% to 16% range for 2026, reaching 25% to 28% by 2030. We expect cash flow of $300 million to $400 million in 2026, and $500 million to $600 million in 2027, inclusive of $200 million to $250 million of asset sales each year. We expect cumulative cash flow of $3 billion by 2030, inclusive of the asset sales and expect to be debt-free by 2029. While one might look at the current market discord and argue that RH has been in the wrong place at the wrong time. I would argue we've used this period to position our brand to be in the perfect place at the perfect time. Let me explain why. There are two important factors that will meaningfully expand the size of our market over the next 10 years. One is the exponential spending of high and ultra-high net worth consumers on the home. Ultra-high net worth consumers with a net worth above $20 million, own on average 3.7 homes, billionaires own 10. Ultra-high net worth consumers spend 6.4x more on home furnishings than a consumer with a single primary residence. Two, is the estimated $30 trillion to $38 trillion wealth transfer projected to take place over the next 10 years, which is more than double the past 10 years. Not only does the absolute dollar amount more than double, it's estimated that the dollars transfer from one to an average of 7 people. It's possible over the next 10 years our market will be multiple times larger than the past 10 years. When you combine that with our efforts to elevate and expand our product, globally expand our platform, generate significant revenues and brand awareness with our immersive hospitality venues, I would argue that the RH brand is in the perfect place at the perfect time. And we will emerge from this period of clutter, discord and difficulty as one of the highest performing and most admired brands in the world. Allison Malkin: [Operator Instructions] Your first question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: First question, I want to talk about demand signals from the consumer. This has been a transitional period for the company. I realize the demand is outpacing a lot of other home furnishing companies, but it's come at a pretty big cost to margin. So expectations around demand improving while we see the margin of the business begin to turn. That's my first question. Gary Friedman: Simeon, the margin pressures somewhat disconnected and unrelated from the demand. The margin pressures really from -- kind of the investment cadence we have as far as expanding the business throughout Europe and some of the margin pressure coming from the tariffs, from a transition and timing and resourcing. But you basically have kind of an inflection point of we're in kind of a peak investment period from a capital and an expense and cost perspective based on the investments we're making, both from a global expansion and North American expansion point of view and from a product point of view with the launch of RH Estates. I think you have to think about the launch of RH Estates in Q2, we'll have significant costs with sourcebook and advertising and launching costs, without having much revenue until we get into the third and fourth quarter. And Estates is, remember is basically running late. Our original plan was to have Estates in the third and fourth quarter last year. So we have some timing issues. I think when you think about the significant investments we're making, both from a capital and expense perspective, and we're going through kind of an unpredictable time. So I think that's why it's important as you're looking at the business, you're looking at the model, if you're thinking about being an investor here, you have to have a longer-term view than a shorter-term view in periods like these. And in many ways a lot of people are going less than we're going right as people are pulling back and trying to manage the margin side of their business, we're investing in the most significant way we have in our history, and that's just going to create some timing dislocations from an earnings perspective. Simeon Gutman: And then my follow-up, you made a couple of executive leadership changes, one, a new President and two, a second person. And in the release you talked about potentially helping monetize some of the real estate. So can you talk about both of those hires, what prompted them? And then what does it speak to about the direction of the business you are heading in? Gary Friedman: Well, I think it's explained in the press releases. I don't know if there's anything different than that. We mentioned -- we're extremely happy to have Dave Stanchak rejoined Team RH. He's -- has made a significant impact while he was here, both from a North American transformation point of view and a global transformation point of view and was involved in really setting up the structure of the real estate for European expansion. And so it's good to have Dave back. And I think, Dave, it's probably the most, I think experienced real estate executive on a retail point of view because he's -- both -- not someone who's just been involved with mall leasing and -- which is typical, when you think about most retailers, Dave's been involved in real estate investments. He is an investor. He's had his own shopping centers and controls real estate themselves. So he comes out from an investor perspective, a much bigger perspective and it's a kind of a transformational leader as you think about a unique business like ours and the platform we're building, which is unlike anything anybody else is doing or has done at a level of quality and locations and so on and so forth. So there's not anything that I didn't talk about, I think, in the press release. And then with Veronica's joining RH, we've known Veronica for a long time. We've been able to observe her and her leadership and her ability to build what we think is one of the leading manufacturing businesses in North America for an upholstery point of view. But mostly what we, I think, think about here is not just the upholstery part of our business. But if you think about the best luxury models in the world, whether you're looking at Vuitton or Hermes, or CHANEL or others, one of the things that's very unique with their business models as they have a very concentrated core business, 80% of their business is in the leather goods and accessories part of the business. It's very similar to our business from a penetration point of view, 80% of our business is furniture, that's typical if you look at the home furnishings business. So if you're in all categories, that's going to directionally be the mix depending on how you position those categories. And we think there's an opportunity when you look at our business from a global scale and building a unique platform that's synergistic and appropriate for the unique platform we're building from the selling side. I think we've built -- have built and are building the most unique physical selling platform in the world. And I think it deserves and will be positively impacted by building the most unique manufacturing and sourcing platform in the world. So eliminating, when you think about the inefficiencies of manufacturing, when you don't -- when you don't control your distribution, there's quite a bit. So long term we think we can build a unique manufacturing platform. And as I said in the press release, a combination of owned joint venture and outsourced that can be very unique and significantly accretive from a -- we think both a revenue and a cost perspective and a margin perspective. So yes, so we're excited. We think Veronica is the best person in the industry we've met. I think she's a unique talent leader. She's an engineer by education and experience, and has a big -- and very big and kind of strategic view of manufacturing and sourcing. So it's a new level of talent in the company. We've never had someone this kind of pedigree and experience and talent, and we think she's going to do some incredible things long term. Allison Malkin: Your next question comes from the line of Steven Forbes with Guggenheim Securities. Steven Forbes: Gary, with Milan and London slated to open here in short order, curious if you could give us an update on RH Paris and/or just comment on the anticipated revenue contribution from the broader RH International strategy behind the 2030 reference year you laid out in your prepared remarks. Obviously, just looking today, any color to help support or build conviction around those longer-term outlooks you laid out today? Gary Friedman: Not sure if I get that question correctly. Jack Preston: The impact of international as it relates to the 2030 targets, how we think about that growth of that. Gary Friedman: Yes. Well, I think what we've articulated most recently over the last few quarters and really since, I think, our start, really that the opening of Paris, Milan and London is kind of the brand foundation to build on when you think about European expansion. There are the three most important cities in Europe, we think they're important from a positioning of the brand and a brand awareness point of view. And all three of those are really the besides, again, RH England, which is out in the countryside, which was important from a brand impression and awareness perspective and how to kind of make an entry into the European market. But these really are where we have significant investments in the presentation of the product that hospitality experience, which we think is going to be critical long term to building brand awareness throughout Europe. And then one of the keys here is really not just these key stores because if you -- as we assess the business in Europe, and we have since day 1, I believe that the basic distribution and where the sales will come from will be long term, more important in suburbs and second home markets than cities that the cities are really going to be the key to brand awareness and driving the brand, positioning the brand, and we'll do significantly more revenues, we believe, in Paris and Milan and London than we will in other cities. And if we were ranking them, clearly lending, we believe, going to be the biggest market for us as it should be. But our distribution of business is significantly suburbs and second home markets in North America. 90%, 92% of our business is in suburbs and second home markets. And second home markets are kind of like a suburb, right? And about 8% of our business is in the cities. And we think that distribution is going to be similar throughout Europe. And if you looked at Apple's real estate strategy and you look at their distribution throughout Europe, which we believed was a good kind of model for us to look at as far as a higher-end consumer. And you looked at like Apple's North American kind of distribution versus our North American distribution, their penetration in suburbs, our penetration in suburbs. There are similarities there. We're more highly penetrated into second home markets than they are. Most people have their phone with them. But one of the keys for, I think, Dave is joining the company, too, is just to continue that leadership into Europe and building out into the suburbs and into the second home markets to cover the business. So strategically, we're setting up the business in the kind of key markets that you would from a brand and awareness perspective and not that we don't think that the business is going to have revenues there. We just think the biggest revenues are going to come long term when you think about the longer-term plan as we expand into the suburbs and [ certain end ] markets where people really buy much more furniture, both indoors and outdoors. Steven Forbes: Maybe just a quick follow-up. Obviously, great to hear Dave rejoining the company. You talked about -- you talked about $250 million of asset sales in each of the next 2 years. This is sort of a 2-part question. One, can you speak to sort of the value of the non-core assets or the assets that you don't plan to operate in the future versus the value of the assets RH is still planning to operate in the future. And then maybe any color on sort of timing for 2026 asset sales as we think through the potential interest expense savings. Gary Friedman: As far as that mix, I'd say the majority of the asset sales are assets that we will be operating that are in a sale leaseback kind of properties and then there's some investment properties that we had in Aspen. And a few other things that we've decided not to pursue for whatever reason, we own a building in Milan -- not Milan, excuse me, Madrid, and we're not going to pursue the development of that. We're fine with the location we have today. And so it's just looking at -- taking a look at our balance sheet and just turning the facets into cash, as we said we would be doing. So we've said we have about $0.5 billion of real estate assets that we could monetize. And we're going to begin to monetize those. Dave has got tremendous experience on that end of real estate. So -- and he feels very confident in what we're going to be able to do. And some of these are properties that we had purchased and had developed over the last 2 to 3 years, I guess. You got to think about a lot of our investment horizons are pretty long from a -- when you think about some of the galleries that we've built, you've got significant time to design and develop and get through the approval process and then you've got significant time building them. So you have a relatively long holding time. And I think post-COVID, all of the construction cost have went up, particularly at the luxury level. And those prompted us as we communicated in the video, to develop just other faster, more flexible ways to deploy the brand. And when you think about the design compounds and think about where the first couple are going in Naples, we're taking that what was formerly a Nordstrom's site in Walnut Creek, we're taking what was formerly a Neiman Marcus site. And then in Miami, we're developing kind of a parking lot size kind of a key visible area in Miami, that was kind of Bank of America. But we think about those opportunities to be significantly faster and more capital efficient. We've built most of our big, kind of, I'd say, the higher investment, higher capital side of the business, we've been transforming the real estate here now for 15 years. And so even on a European and global point of view, I would say that we have Sydney coming, but that's a different model that's really being built by the developer. It's not going to take much capital from RH. But yes, we have significant assets. We're going to now monetize, turn into cash, and then we've got some assets in Aspen and other things like that, that will monetize over time. So yes, so a lot of that will come off the balance sheet. I don't know, Jack, do you have anything to add on? Jack Preston: No. I think from a timing perspective, Steve, we'll just keep you posted. We're not ready to commit us to show the cadence to 2026, and we'll just update you as things as appropriate. Allison Malkin: Your next question comes from the line of Max Rakhlenko with TD Cowen. Maksim Rakhlenko: So first on Estates, can you provide color on how you're thinking about scaling the collection? We know when the books will hit, but how are you thinking about the cadence of the product rollout into the galleries? How are you looking by inventory, et cetera? Just if you could compare and contrast this collection versus the Modern and Interiors launches that you had a couple of years back. Gary Friedman: Sure. So the books will hit kind of mid-May, and we will -- we've got a handful of stores that will get the initial product that we'll be able to kind of test and then we and get some reads on, but we feel very confident in this selection. So we went out with a bigger inventory by -- and a lot of it based on just the data. You got 60% of luxury homes in America that have classic and traditional architecture. So -- and it is really the next big trend. As you think about how the trends cycle through, this trend is a lot of the product you're going to see cycle through, it's why we've made some of the acquisitions that we made, whether it's the Michael Taylor brand and the famous diamond table and so on and so forth to really be able to not only have authority, but be able to have intellectual property rights for a lot of the kind of key products that are going to come. And so we just think it's going to be a big building trend. But in the second half will be -- and how many galleries do we think? 30? Unknown Executive: I think -- yes. Gary Friedman: About 30, 40 galleries -- our top 30, 40 galleries in the large design galleries, we'll take over the first floor with RH Estates. So this is a significant launch and a significant bet. Maksim Rakhlenko: Got it. That's helpful. And then just a two-parter on margins. If you could just isolate how you're thinking about the impact of tariffs for 2026, both the cadence and magnitude as I don't think you discussed that in the letter this time around. And then separately, if we exclude tariffs and some of the timing shifts that you discussed earlier on the call, how healthy is sort of your -- or how healthy are your product margins as we think about the long-term targets you laid out? How much higher can the product margins go as you do continue to add these new collections that I think come with much higher margin. So if we just think about the core, where can the business go from a product margin perspective? Gary Friedman: Yes. I think -- I mean, we're not giving detailed margin forecast. But our margin -- our product margins are relatively healthy, except for some bumps we're going through from a tariff point of view. I think we've been able to perform reasonably well. If you exclude kind of the weight that we have from this investment cycle and the drag from Europe and you kind of take a look at the business. And I think one of the things we're doing, as we think about this business, a lot of times with brands as you go through the history of brands, you've got kind of the levels and the transformations you make to kind of get to where you want to go. And this next -- this cycle we're in now, it's a key investment cycle. Clearly, we've spent a lot of capital. We've made big investments to kind of position the brand not only in North America, but positioned in Europe for the long term. And once you get past those cycles, we're going to have great leverage. Opening galleries like we're opening and restaurants like we're opening or significant costs, especially when you're doing them in a different country. There's just more travel, more expense from hiring people and building new organizations and so on and so forth. So from a -- I just think, it's not just the product margins, it's really just the overall margin structure of the business once we go post peak here on this investment cycle, both from a capital and from an expense and cost point of view. I think the model of this business is going to look like one of the best models people have ever seen in our industry. So if not the best model, I think it's going to be the best model anyone seen. So we feel confident in that. I mean, we're also just -- from a global perspective, navigating through very uncertain times. And we do have a product mix that is going to be somewhat more cyclical and have more of a drag. So when you're really focused on the furniture business versus the home furnishing, the broader furnishings business, accessories business, tabletop business, kitchen businesses and so on and so forth. You're going to have more weight during times like these. So that's going to require you to fight for more business. But that's throughout our history. We've always fought through the business in times like these. We've always been more promotional than less promotional in times like these. And we think it's times like these that there's a lot of fallout. And there's going to be a lot of competition that's not going to make it through these times. There's been greater fallout in the furniture business. As most people know, over the last few years than in any time in history. And I think there's going to -- as long as the housing market remains difficult, there's just going to be a lot less competition, and we're going to be better positioned than we've ever been for the other side of the cycle. As we build out the assortment, especially in the Estates over the -- think about the Estates expansion over really a 5-year horizon from a product point of view, I'd say over the next 5 years as Estates assortment is going to grow, it's going to build, it's going to become more dominant. The trend is going to -- that wave is going to keep building over the next 5 to 10 years, right? So I think about the whole model of the business in this way, we're very confident in the long-term model. I think what confuses people is most public companies go public and they kind of manage the business, right? They have a simple rollout and they're going to do so many stores a year and the stores are all the same and everything is really predictable and most of them go through their rollout cycle of 5 to 7 to 10 years, however -- what amount of time they stay relevant for. And then usually, becomes kind of a dated concept over time. And that's why we like to say that most retail malls or graveyard for short-lived ideas. Most retail companies don't even concepts don't live out the first term or second term of their leases. So we're going through one of those investment cycles that will leapfrog this business forward and you're looking at kind of peak investment cycle and kind of trough kind of economic cycle, right? So and even with those two, you still get a business here with a kind of a mid-teens EBITDA margin to high teens EBITDA margin. And once you get past this cycle, there's a lot of leverage in this model. So... Jack Preston: Max, I'll add on tariffs. So in Q4, we talked about last year tariffs having an impact of 90 basis points in terms of a drag. And Q4, we had talked about $170 million. We ended up at $190 million in Q4. And the way we characterized that in the last call is that, that's ultimately by Q4, you're fully baked into the sort of prior tariff regime. Obviously, things have changed now with the Supreme Court decision. But tariffs come out in and out of turn, as you know. And so while in the -- let's say, in the first half, you might have some tailwinds from that relatively lower rate that exists under Section 122 today. Who knows what happens in the second half. There's obviously a sprint to replace all those tariffs and potentially more as Trump first said under Section 301 in the back half. So we're just -- we're playing by year being -- as you know, we're nimble and we're dynamic. But as far as last year's tariff impact was sort of fully baked in at Q4, the bit of an indicator as to how it plays out in the first half, but obviously, the math will tell you that there's going to be some relief there as far as that tariff drag is concerned. So we'll keep you updated if there's -- as things play out. Obviously, we're watching it like you guys are watching. Allison Malkin: Your next question comes from the line of Steven Zaccone with Citi. Steven Zaccone: I wanted to ask about the cadence of the year from a revenue growth perspective because the first quarter, obviously calling for revenue to be down, but in the full year, it looks like an acceleration in the back half. Can you just talk through the points of the acceleration? I assume Estates is a big piece? How much is International? Any details you could share would be helpful. Gary Friedman: Well, yes, clearly, International and Estates, the cycling of -- Estates across the entire platform, International from opening cadence and just what we think the growth in the first couple of years. We really -- RH England is kind of our best point of history and -- we know how that ramps. So we expect the International stores to have a ramp to them over the first several years. But when you think about the back half, sure, you've got openings in North America, you've got openings in Europe. You've got Estates, which will -- in Q3, Q4, you'll start seeing the revenues flow from demand in Q2. And you'll see a ramp in Estate. You'll have a second mailing of the book. You'll have newness in both Interiors and Modern. So all of those things combined, we believe is a big step up in the business in the second half. And we would have expected more in the back half of last year and the first half of this year because Estates would have been part of that cadence. Steven Zaccone: Okay. Understood. And then the second question I have is just on the margin recovery of the business, right, because we've been an investment period for the business for some time, and I think you've used the term leapfrog in terms of margins in the past. For the longer duration investor, when you look at the business, what do you think is the biggest factor holding back margins for improving? Is it just the fact that some of the investments have taken a little bit longer and have been a little bit higher than expected? Has it been the top line, the macro environment? How do we think about some of the unlocks to see that margin improvement on the other side come back stronger? Gary Friedman: I think you've just outlined it. Yes, I mean we've -- we're in peak investment cycle in trough -- economic cycle, especially from a home point of view. So the -- I mean, not just trough investment cycle, you've had the whole kind of chaotic tariff cycle, that has caused kind of significant disruption on the business. I mean we've resourced 40% of our assortment business of our size -- resourcing 40% of your core assortment, which is really -- 40% of the assortment is bigger -- it's a larger part of the business. So, yes, it's all of those things together, Steve. So this is a good time to buy our stock. This is when people create generational wealth, right? This is no different than trough times in a real estate market, trough times in any kind of a transitional time for an industry or business. And all businesses in our industry get hit in these times and all businesses that survive to the other side, get a lift in this time. I think what's different is we've historically been investors during times like this is when we've seen the biggest opportunities. But this time is, I think, different than previous times because we're in a kind of a real peak investment cycle. We're opening Europe, we're launching new businesses. And so the opportunity to have a leapfrog, if we're more right than wrong, and we don't have to be completely right, we just have to be directionally right here. And so we say don't let perfect be the enemy of great. And yes, we've got a lot of experience here in this company. We've been doing this a long time. And I think we've proven that we've been a lot more right than a lot more wrong. I mean if you think about the transformation from what was Restoration Hardware before, to what is RH today, if you think about the transformation of this brand, over a 20-plus year period and try to say, name other brands that have made transformations like that, name other brands that are positioned like we are. These are the times that businesses like ours separate ourselves even further from the pack. But you have to make those investments, you have to take that level of risk to be able to do that. So we are not kind of a management culture or leadership culture. And we're constantly innovating and investing, but this is one of those significant cycles. It just happens to be -- during a significant down cycle, especially focused on our industry. And so -- but we're in a better position than we've ever been from a historical point of view to weather the storm. And I think if you just think about what does the next 5 years look like from an investment point of view. I mean we're going to come off, if you take that -- the $37 million and the $289 million, you've got kind of a peak type of investment year historically. And then we come off that peak. And we come into the $250 million to $260 million, and then that's going to drop to $150 million to $170 million a year. So you think about the company growing, the capital investment period coming down, and it's not just the capital, right -- the investment, but it's also all the expense that's connected to that capital. All the expense that's connected to bringing up those stores, training the people, building the infrastructure, building the distribution capability in the business, all the marketing and advertising that supports a launch, all the time and energy to kind of build out the assortments, develop all the products at scale to create a leapfrog, not to kind of slightly outperform. But it's no different than taking a $300 million business that was losing $40 million a year. That was Restoration Hardware and creating RH, that's a $3.5 billion business. I mean that -- think about what the next cycle looks like. The next cycle is, I think, even more magnified that -- we -- our framework for the model. And the biggest pieces of the model are the pieces we're talking about. If I was on the outside, looking at this, I'd say, hey, what is the outlook for capital investments as they go forward and not just thinking about the capital, but what is the expense, the cost investments that are connected to that capital, how does that change over the next 5 years? And how does it change over the next couple of years, right? Just over the next couple of years, the investment cycle is post peak, and it's going to turn down and accelerate in a downward way just as revenues are going to accelerate in a positive way, right? And when you have those two things going in different directions, that's when you have inflection points in return on invested capital, on margins, earnings, et cetera, et cetera. So the framework for the math is pretty simple. I think the strategy because it's never been seen before is -- can be suspect and could be hard to understand. There can be less believers than more believers at certain times. So look, I don't blame anybody for kind of saying, "Hey, this is -- it looks like an uncertain time to invest," whether it's in our stock or any stock in our category. But especially, you've got to kind of believe in the longer-term debt here. And we think this is going to be the -- one of the best bets that people will make as referenced by my personal investment here. So that's how we think about it. Allison Malkin: Your next question comes from the line of Michael Lasser with UBS. Michael Lasser: Gary, you've laid out this ambitious and aspirational plan to take advantage of what seems like a very large and growing addressable market, and yet the market is not really willing to give you the amendment, sort of a doubt. And part of that is RH has been averse to and does not really look at its business on a same-store basis, which is understandable, and that's long how you've articulated it. But at this point, that has defaulted to the narrative where RH needs to grow concepts and its physical footprint in order to drive growth, and that comes with a significant cost. And as a result you may not be able to realize its aspiration, understanding that it's come a long way from its origin, but it's the market's relying heavily on the recent experience. So why based on the recent experience is the default of the market wrong? Gary Friedman: I think it's what I just said. You have to think about peak investment period and what hopefully is a low point in the trough from a market perspective. It's -- again, I think if you pull out the investments, just pull out the European drag of the investment -- think about -- we're investing in Europe. The European market is worse than the American market right now. It's -- we're investing at a time you likely would like to not invest, but you can't make long-term real estate investments and expect to get them all right, right? So the -- why is the simple model, Michael, of saying I'm cycling peak investments, and I'm cycling hopefully what is trough growth, right? And we've got significant growth opportunities as we've laid out. And the cost, they're going to kind of go away. So a lot of people thought Amazon wasn't going to make a lot of money until he did, right? That's -- I think it's that simple. Think about -- yes, I think the key is don't bake this cost structure into your model right now. You're looking at the -- a peak cost structure, both from capital and an expense perspective. These galleries that we're opening are the most expensive galleries that we've opened, both from a capital and a cost point of view. Michael Lasser: Got you. Very helpful. So put it in parlance that the investment community would think about it is, essentially this is, the peak of the disruption, there will be significant same-brand growth that will lead to sizable margin expansion, especially as the investments moderate. Now the counterpoint would be, hey, we're living in a world of high uncertainty between the geopolitical, technological and other factors. So what would be the sensitivity to your outlook for free cash flow in the event that sales in the back half just don't materialize like you would expect. And without asking you to show your hand, but it is important to the investment case, what options would you pursue in the event you needed more financial flexibility to execute on your strategy? Gary Friedman: Yes. I think it's a great question, Michael. Look, we've got the ability to pull back investments further, right? When I think about the major strategic investments that we had -- we had to decide to go international, invest into Europe, years ago, right? These weren't short-term decisions. These were 5, 6, 7, 8 years ago, right? We're making some of these decisions and investments. And those decisions are easy -- are not easy to pull back on, right? But we're cycling those. We've got a lot of flexibility. When you think about the next wave of investments, whether it's expanding in North America, whether it's expanding in Europe, you're looking at much smaller investments, you're looking at much more flexible real estate, many more choices, et cetera, et cetera. And you're just not going to have the same kind of cost. I mean we're going to -- the cost of building some of the new concepts that we've laid out, just the way we're thinking about deploying capital in North America through compounds and ecosystems and secondary market galleries that are in the 15,000 to 20,000 square foot range. Just the real estate risk, the investment risk of those, the financial participation of developers and landlords is much higher than when you're investing in major cities internationally. It's just a very different investment cadence. And we just have a lot -- and you don't have the same time horizon, right? So there's just a lot more flexibility. And -- so when I look at -- I would say, peak investment, peak risk right now. You're looking at peak investment, peak risk. And who knows from day-to-day or hour-to-hour about the geopolitical and economic environment. Of course, this is -- it's kind of different times. And there's major news headlines are made by tweaks and post today, right, and they happen all day long. So I just think that if you're just trying to say, okay, how do I think about the go forward? There's just a lot less risk. There's a lot more risk, I'd say, over the last couple of years than over the next couple of years. I mean there's -- is there further risk in the housing market? There always could be further risk. There always could be other things. I mean, could the war escalate? Could China try to take Taiwan? Could -- yes, there's a lot of things that can go the wrong way. We can all kind of imagine what those look like. But it's no different in calculating what the federal funds rate is going to be, right? Like everybody has been wrong on that. And unfortunately, that's been bad for our business, right? They're supposed to be 3 cuts to the federal funds rate this year. Now it looks like there's going to be no cuts, then there might be hikes. Does that create some short-term risk? It does. Can we navigate through that? We can. Do we have more upside to downside in the second half from a revenue -- demand and revenue point of view? We do. But I kind of say, look, if I was on the outside of this today and I had the information that the outside world has that we're giving you today. I'd say it's or you could -- I would -- look, I bought the stock at what, $2.16 a share, I bought $10 million of the stock. I was wrong, which is at the low point. But I don't see too much more downside risk in the model. Most of the work is behind us, building the galleries, getting the people trained, bringing up restaurants internationally. We -- the product side, I think, is a lot less risky. We're not going into some unknown aesthetic or trend we're betting on what is kind of the biggest market, the traditional classic market. And it just so happens, if you look at the trend that's going to come through, that is going to be the next trend. So -- but yes, your question is correct. We have toggles we can pull. We have assets that we can monetize. And we're pretty good at navigating 3 times like this. We've got it. Yes, this is my 26th year here. So I've seen cycles and the teams seem cycles, and we've navigated through. I would face somewhat similar times, not completely similar times. Allison Malkin: Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Bradley Thomas: Gary, first, I wanted to follow up a bit more about the RH Estates line. And you, I believe, alluded to working more with designers and decorators in this. And so I was hoping you could talk a bit more if the selling process or how you go to market needs to be different on this line that seems to have so much potential for you? Gary Friedman: Well, we do a big business with design -- interior designers today. We have, I think, like I outlined in my comments that we have multiple businesses embedded in our galleries. We have a trade team that services interior designers and decorators, that's a meaningful part of our business. We think it will become a bigger part of our business, especially with the launch of RH Bespoke Furniture and RH Couture Upholstery because that's going to open up the ability to have kind of more customizable product from a size, fabric, finish, so on and so forth. And that will open up -- I think it should open up that market pretty significantly. We have some other strategies to address that market that you'll hear more about, that will kind of support what we're doing from a marketing point of view. So yes, Estates, I think, is when you think -- again, if you think about kind of the high-end part of the business that we're going to address with Estates, and that's just kind of the beginning. We'll also address that throughout the entire brand. But let's say, a stage represents the launch of RH Bespoke Furniture and the launch of RH Couture Upholstery kind of framing those. Think about those across the whole business long term. Bradley Thomas: That's helpful. If I could ask a follow-up on the 2030 margin targets. Just wondering if there's any high-level framework to think about perhaps how International fits into that, and how much mix or leverage of sale -- from sales factors into that? Gary Friedman: Yes, I mean, we have some data now. We kind of know as we've opened some of these, how they're evolving, how to think about, how they might evolve and grow. And so I think we have very reasonable targets internationally, mixed into this. I don't think there's anything that's a stretch perspective. So when you look at -- you just look at the total composition of kind of the top line accelerating in the out years to 12% growth. I think the way I'd think about that is you've got about 4 to 5 points from the platform expansion, you've got 3 to 4 points, maybe 5 points from the product expansion. And you've got -- at some point here, we think, there's a couple of points from the housing market coming back. I mean, I don't think we're going to be in a 9- or 10-year downturn of the housing market. Let's hope not. But if it doesn't come back, it's not like we've got a big number out there for the housing market. We've got kind of a 2- to 3-point hope in the out years of that plan that we'll see some lift in the housing market. If we see a lift in the housing market, you could see -- I mean, based on where it's been, I mean, you could argue there's a 10-point lift from the housing market in the out years. And if that happens, you don't have us growing at 10% to 12%, you have us growing at 18% to 22%. Allison Malkin: Your final question comes from the line of Marius Morar with Zelman. Marius Morar: Just a quick question on the growth outlook for next year. Gary, I think on -- in the video, you mentioned that it's a bit conservative. I was just wondering at the low end, do you sort of embed any sort of deterioration in the housing market or maybe an increase in interest rates? Gary Friedman: Yes. I think we're conservative throughout the second half. I mean, obviously, we have embedded the growth from our platform and the new galleries and the galleries that are cycling, and we've got growth from Estates and some of the newness and expansion of the assortment in Interiors and Modern. But do we have the housing market getting worse? I'd say we have embedded in this -- the current environment right now, which I believe is worse and mostly from a geopolitical point of view and a perception point of view, of more things can go wrong then maybe can go right. And I think that's how the market's generally risk times like these, when you've got uncertainty and you've got global tensions and war and oil issues and the endless amount of things that oil impacts, right? So, yes, I mean -- but did the housing market gets better when interest rates came down somewhat? Not really. Is the housing market going to get worse if they go back? If we get 25, 50, 75 basis points, you get three hikes. I don't think it gets much worse. I think you've got to think back in history and say, in 1978, we sold -- there's 4.06 million homes sold, and that was a low point. And in 2003, '04 and '05, you had 4.06 million homes sold on average, 4 million to 4.06 million of somewhere about 4.03 million. And that's -- and that's with 53 -- I think it's 53% more people, right? So it's hard to believe it gets worse than this to get worse in this for a small period. I mean, none of us have seen a world war in our lifetimes, right? Is there a risk of a world war? I don't think so. I mean I think, cooler heads will prevail. But this is uncertain times. So I think the -- whether the interest rates go up or down 25 to 75 basis points? I don't think it's going to change much in the housing market. If the interest rates go up 300 or 400 basis points, I think that's different. I think they go down 100 basis points with pricing coming down, which is pricing is coming down across the market, I think you're going to see a housing market acceleration. So I'd say short term, handicap it, as even. I think we're seeing pressure right now. Longer term, I think you have to kind of handicap it as a positive because we've never -- we've never seen -- we're now in the fourth year of the worst housing market in 40 to 50 years. That hasn't happened in my lifetime, I've never seen 2 down years -- seen 1.5 down years in my career. I've never seen 3 down years, and I surely never seen a fourth down year. I don't think anybody has. So how long does it stay here? I don't know. It's all today the new normal and build out from here. At some point, I think how the market comes back. And I think it's more likely to come back than go down. But if the interest rates are moving 50 to 75 basis points to 100 basis points, I don't know if that moves the needle plus or minus. On the minus side, you're getting closer to affordability, right? On the upside, you could have some moderate slowing. I think the bigger thing is if we have real inflation and interest rates have to rise 300, 400 basis points, that's a problem. Marius Morar: That's helpful. And maybe a quick follow-up. In the first quarter guidance, do you also embed any drag from the back order and special order similar to the drag you had in the fourth quarter? Gary Friedman: Jack, do you want to take that? Jack Preston: Yes. Yes, that's something that's going to take probably until the second half to fully resolve itself just because of the complexities of resourcing. So that is just -- yes, there's something that... Gary Friedman: We take that drag in, yes. Marius Morar: Is it getting worse in the first quarter? Jack Preston: There's some modest impact that that's over and above what we felt in Q4. And then so then we'll see the resolution of that in the second half. Gary Friedman: It's basically from the amount of resourcing and just the new factories being brought up in different countries, being able to ramp up fast enough. And so that's the biggest hit is coming from tariff-related resourcing of furniture, outdoor furniture, specifically metal outdoor furniture. Lighting is a big one. Rugs is a big one, and furniture is a big one. If you think about our business and you've got -- you take the furniture part of the business includes about 80%. And then you take lighting and rugs, which are the next biggest pieces, those are all being impacted. But you've got to -- by far biggest part of our business has been all impacted in a bigger way. Resourcing things like bedding, pillows, [ throws ], accessories, picture frames, things like that, which are not -- from a percentage point of view, not a very big part of our business, much easier to resource those things, much easier to move picture frames, pillow cases, [ throws ], tabletop, glassware, accessories, things like that much, much more easier. When you talk about ramping furniture factories, lighting factories, rug factories, moving those categories just more complex. And so those have been just slower to scale and transition. And when you think about just the -- being on the manufacturing side or manufacturing partners moving from one country to another, building factories, scaling them. And then all of a sudden, having tariffs change and going, "Oh, God, what do I do now? By doing the right thing, I mean, think about the rug business. And we -- for a while there, I mean, India was a big source of rugs, and you get hit with the 50% tariff and you're sourcing rugs to other countries. There's not that many places that have that kind of capacity to move those businesses. So same thing with lighting. Lighting is very different than any other kind of an item. Again, the more accessories, more seasonal parts of the business, you want to resource Christmas ornaments, things like that, very simple. When you're resourcing the core part of our business, much more complex. Allison Malkin: That concludes our question-and-answer session. I will now turn the call back over to Gary Friedman for closing remarks. Gary Friedman: Thank you. Well, thank you, everyone. We know this is an uncertain time in our business. Hopefully, we've shed some light to give you more certainty and more confidence in our outlook and our strategy. We believe this is the most important period in our history, and we've never been more excited about the outlook and what we believe will be the outcome. So we look forward to talking to you soon. Thank you for all the leadership and partnership from our teams and our partners all around the world. Everybody is working hard to kind of get to the next place. And so thank you. Allison Malkin: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you, everyone, and welcome to the Beyond Meat, Inc. 2025 Fourth Quarter Conference Call. [Operator Instructions] Please note this event is being recorded. It is now my pleasure to turn today's conference over to Raphael Gross, partner of ICR, Inc. Please go ahead. Raphael Gross: Thank you. Hello, everyone, and thank you for participating in today's call. Joining me are Ethan Brown, Founder, President and Chief Executive Officer; and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to our fourth quarter and full year 2025 earnings press release filed today after market close. This document is available on the Investor Relations section of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Forward-looking statements in our earnings release, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. We refer you to today's press release, our quarterly report on Form 10-Q for the quarter ended September 27, 2025, and our annual report on Form 10-K for the fiscal year ended December 31, 2025, to be filed with the SEC along with other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements today. Please note that on today's call, management may reference adjusted EBITDA, adjusted loss from operations and adjusted net loss, which are non-GAAP financial measures. While we believe these non-GAAP financial measures provide useful information for investors, any reference to this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures. And with that, I'd now like to turn the call over to Ethan Brown. Ethan Brown: Thank you, Raph, and hello, everyone. We entered a challenging year for our brand with an equally challenging quarter. We used this period, however, to accomplish a series of foundational building blocks for the company. First, we retired the majority of our 2027 convertible debt notes, and second, we raised significant capital, 2 measures that fundamentally changed and strengthened our balance sheet. Third, we invested in an enterprise-wide transformation initiative with a focus on rightsizing our operations and expanding our margins. Fourth, and as you will see reflected in our Q4 2025 numbers, we took another hard look at the assets, products and inventories, we believe, are not needed going forward and took action to disposition them. Fifth, we continue to lead the category in bringing clean plant-based meats to the consumer while hammering away at persistent misinformation promulgated by the incumbent industry. Finally, we laid the groundwork for repositioning Beyond Meat to Beyond the Plant protein company so that we can bring the strength of our brand, technology and expertise to adjacent categories. Having touched on the significant actions we took to strengthen our balance sheet through the elimination of approximately $900 million in debt and the addition of approximately $149 million in cash on our previous earnings call, I will forgo further detail here. Instead, I will focus my comments on a quick financial review of Q4 2025 before turning to our transformation work, product narrative and our brand repositioning and entry into adjacent markets. What I hope will be clear from these comments, especially for the investor who desires to drill down a level deeper than headline numbers, is that we are highly focused on reducing baseline operating expense and cash use, increasing conversion efficiency in our production facilities and addressing category headwinds straight on even as we take significant steps to diversify beyond it. Financial results for the fourth quarter 2025 reflect persistent weak demand in the plant-based meat category, resulting in lower volumes, the impact of which ripple throughout our P&L. This negative pressure was coupled with a number of significant nonroutine charges, many of which, though not all, stem from our transformation activities. Sales were $61.6 million, down 19.7% from the year ago period. Lower sales led to lower overhead absorption, which together with higher trade, negatively impacted gross margin. More significant, however, were large nonroutine or unusual items. These include such items as increased provision for inventory obsolescence, partly reflecting the strategic discontinuation of certain lower-profit products and accelerated depreciation related to the cessation of our operational activities in China, the net result was a reported gross margin of 2.3%. Similarly, despite progress in reducing the baseline cost of operating our business, significant nonroutine items, including large noncash charges, increased our reported operating expenses to $134.2 million versus $47.8 million in the year ago period. These included $48.1 million in noncash charges related to the write-down to fair value of certain of the company's long-lived assets; a $38.9 million litigation-related accrual; and higher noncash stock compensation expense of approximately $13.3 million related to our convertible debt exchange transaction. Stripping out these nonroutine items and the impact of the transaction-related change in noncash stock compensation, one can see that the run rate operating expense of our business is down considerably year-over-year. Finally, also reflecting the aforementioned transaction, net income of $409.9 million in the fourth quarter of 2025 compared to a loss of $44.9 million in the year ago period, reflecting a $548.7 million gain on debt restructuring. To summarize, our fourth quarter 2025 results reflect both continuing challenges in the category as well as substantial noise in our reported numbers due to, among other factors, several of our transformation initiatives. I will now turn to this transformation activity, where we are encouraged by the progress of our transformation office led by our interim Chief Transformation Officer, John Boken. As I noted, we've seen further reduction in underlying operating expenses, excluding the nonroutine items and transaction-related stock compensation increase for both the fourth quarter and full year 2025 on a year-over-year basis, and we are pursuing other cost reduction measures going forward. Also setting aside certain nonroutine charges, we believe we are making progress against our goal to sustainably return to healthy gross margins. As previously shared, we've largely completed the consolidation of our production network and continue to improve asset utilization at our manufacturing facilities. Further, we're now in the process of optimizing our new continuous production line at our facility in Columbia, Missouri and are investing in automation. These and other measures are already showing up in a year-over-year improvement in conversion costs across our network, a key component of our COGS reduction initiatives. Further, through our transformation office, we are seeking to reduce material costs through RFP actions, the cultivation of secondary sources and formulation improvements. We are further consolidating our warehouse network and reducing logistics expenses. We are exiting less profitable product lines, and we are making substantial progress on driving down inventory. Finally, we remain very focused on cash management and significantly reduced our baseline cash use in the fourth quarter compared to prior periods, excluding extraordinary items. I'll now turn briefly to our ongoing efforts to dispel the persistent cloud of misinformation regarding our products. As I have noted countless times in these calls, the incumbent industry did a masterful job of seeding doubt in the mind of the consumer. For the time being, we operate in an upside down world with proteins from peas, lentils, fava beans and brown rice, mixed with avocado oil and a limited number of other clean ingredients, is disingenuously, though broadly cast, as less than healthy. I believe this confusion will ultimately clear. In the interim, we remain focused on innovating around taste and health and helping to communicate the latter via various accreditations and certifications including our now 20-plus certifications from the Clean Label Project. For our latest center to plate innovations, such as Beyond Steak Fillet or Beyond Ground Fava, consumers can now order directly from Beyond Test Kitchen, our direct-to-consumer platform. These products, they're great taste, simple and clean ingredients and the impressive macro nutrient content are winning accolades from consumers even before they reach retail stores. Beyond Steak Fillet boasts 28 grams of protein, fava beans, wheat gluten and mycelia, and only 1 gram of saturated fat from avocado oil, while boosting 0 cholesterol and only 230 calories. Beyond Ground Fava delivers 27 grams of protein from fava beans and potato, 4 grams of fiber from psyllium husk, has no saturated fat or cholesterol and is only 140 calories. Moreover, Beyond Ground Fava is made from only 4 ingredients: water, fava protein, potato protein and psyllium husk and performed extremely well in niches such as tacos, Bolognese and protein bowls. Finally, I'll now turn to a key and central communication. Notwithstanding the many changes occurring through our transformation office that I've discussed above, what I noted late last year that going forward, you should not expect more of the same, I was most of all referring to the broadening of the aperture that you see as we move from Beyond Meat to Beyond The Plant Protein Company. I believe that no company has innovated with plants under more scrutiny than Beyond ever. We're now bringing the results in hard-fought expertise and capabilities, our commitment to health and clean ingredients and our brand to adjacent categories where we believe we can be disruptive and win. Our first foray in this broader delivery of the power of plants to consumers is our exciting new drink platform Beyond Immerse. The Beyond Immerse platform, a clear and slightly carbonated beverage, is designed to provide the consumer with protein, fiber, antioxidants and electrolytes, effectively immersing the body in the nutritional benefits of plants. We launched Beyond Immerse as we now plan to do with all new retail innovation on the Beyond Test Kitchen to early fanfare and excitement, generating over 3 billion media impressions and selling out of our first limited-run inventory quickly. Beyond Immerse is formulated to support muscle health and recovery, gut health, immune function and hydration. Each serving contains 10 or 20 grams of protein, 7 grams of fiber, and only 60 or 100 calories depending on the level of protein. Beyond Immerse is made without added sugar, sugar alcohols, artificial sweeteners or flavors, stabilizers, carrageenan and many other ingredients present in many popular protein drinks. Easier to drink than a thick protein shake and made without whey so it's dairy free, the product is designed for the casual to competitive athlete as well as the busy student or professional who wants protein, fiber, antioxidant and electrolytes at the gym, home, work or on the go. Moreover, we believe it is particularly well suited for GLP-1 users. I personally find it satisfying post workout at breakfast or late afternoon when I'd like a boost between meals. It's been fun to watch consumers enjoy it. And like all things Beyond, we continue to innovate and iterate based on what we believe is a state-of-the-art science and consumer use and suggestions. Far from stepping away from our mission to change the source of protein at the center of the plate from animals to plants, we reaffirm it and take to these promising adjacencies to introduce our brand to a much larger number of consumers and currently participating in a plant-based meat category. We do so not to dabble but with a firm and serious belief that our technology, our brand and our commitment to human health and the power of plants allows us to successfully deliver unique and compelling value within the certain segments we've identified. In the end, it is our aspiration that though indirect, this expansion will lead more consumers back to Beyond at the center of the plate as they enjoy our brand, clean ingredients and commitment to their health in a less controversial, more convenient products like Beyond Immerse. As such, I close today's comments as I have many others that we remain focused on building tomorrow's global protein company of size and significance. With that, I'll now turn the call over to Lubi. Lubi Kutua: Thank you, Ethan, and good afternoon, everyone. I'll begin with a review of our fourth quarter financial results before providing some brief comments on our outlook and additional matters regarding some of our recent disclosures. Total company net revenues decreased 19.7% to $61.6 million in the fourth quarter of 2025 from $76.7 million in the year ago period. The decrease was primarily driven by a 22.4% decrease in volume of products sold, partially offset by a 3.5% increase in net revenue per pound. Ongoing softness in volume of products sold primarily reflects weak category demand in many of our key geographies and channels and lower sales of chicken and burger products to QSR customers, both in the U.S. and abroad. Net revenue per pound increased primarily as a result of changes in product sales mix, favorable changes in foreign exchange rates and price increases of certain of our products, partially offset by higher trade discounts. Breaking this down by channel, U.S. retail channel net revenues decreased 6.5% to $31.7 million in the fourth quarter of 2025 compared to $33.9 million in the year ago period. The decrease was primarily volume driven, which again largely reflects weak category demand, while net revenue per pound was flat. Although volume headwinds persist, we are beginning to see some benefit from recently announced distribution gains in the mass channel, which is helping to mitigate the general softness. In U.S. foodservice, net revenues decreased 23.7% to $8 million in the fourth quarter of 2025 compared to $10.5 million in the year ago period. The decrease was primarily driven by a 25.1% decrease in volumes of products sold, partially offset by a slight year-over-year increase in net revenue per pound. Although category dynamics in the foodservice channel also remain weak, much of the decline in our business was due to the lapping of sales of chicken products to a U.S. QSR customer in the year ago period. Turning to International. International retail channel net revenues decreased 32.5% to $8.8 million in the fourth quarter of 2025 compared to $13.1 million in the year ago period. The decrease in net revenues was primarily driven by a 33.5% decrease in volume of products sold, partially offset by a 1.5% increase in net revenue per pound. The decrease in volume of products sold was primarily driven by reduced burger sales in the EU and certain retail channels in Canada. Although our Canadian business generally remains healthy, year-over-year comparisons were negatively impacted in part by stocking activity in the year ago period in anticipation of potential tariffs. Finally, in International Foodservice, net revenues decreased 31.8% to $13.1 million in the fourth quarter of 2025 from $19.3 million in the year ago period. The decrease in net revenues was driven by a 34.1% decrease in volume of products sold, partially offset by a 3.4% increase in net revenue per pound. The decrease in volume of products sold was primarily attributable to reduced sales of our chicken and burger products to certain QSR customers. The increase in net revenue per pound primarily reflected favorable changes in foreign currency exchange rates and changes in product sales mix, partially offset by higher trade discounts. Moving down the P&L. Gross profit in the fourth quarter of 2025 was $1.4 million or gross margin of 2.3% compared to gross profit of $10 million or gross margin of 13.1% in the year ago period. Gross profit and gross margin in the fourth quarter of 2025 included $2.4 million in noncash charges related to SKU rationalization initiatives and $1.5 million in expenses related to the shutdown of our China business. Additionally, gross profit and gross margin in the fourth quarter of 2025 were negatively impacted by increased cost of goods sold per pound, partially offset by increased net revenue per pound. Reduced production volumes in response to weak demand continue to represent a meaningful headwind in terms of fixed cost absorption even as we have been encouraged by improvements in our variable conversion costs. Overall, by cost bucket, the increase in cost of goods sold per pound primarily reflects higher materials costs and increased inventory provision, partially offset by lower manufacturing expenses, including depreciation and lower logistics costs. Operating expenses were $134.2 million in the fourth quarter of 2025 compared to $47.8 million in the year ago period with a significant year-over-year increase on a reported basis, reflecting the inclusion of certain large noncash charges. Specifically, and of note, operating expenses in the fourth quarter of 2025 included $48.1 million in noncash charges related to the loss from write-down of assets held for sale, reflecting certain PP&E assets which were no longer deemed core to our strategic objectives going forward, a $38.9 million litigation-related accrual and $13.3 million in incremental share-based compensation expenses related to the convertible debt exchange. Excluding these and other lesser items, the decrease in operating expenses compared to the year ago period was primarily driven by decreased marketing expenses. Below the line, total other income net was $542.6 million in the fourth quarter of 2025 compared to total other expense net of $7 million in the year ago period. The increase was primarily due to a gain on debt restructuring, resulting from our debt exchange and to a lesser extent, a gain from remeasurement of warrant liability, partially offset by a loss from remeasurement of derivative liability and an increase in interest expense. Net income was $409.9 million in the fourth quarter of 2025 or $0.84 per common share compared to a net loss of $44.9 million in the year ago period or a loss of $0.65 per common share. Adjusted EBITDA was a loss of $69 million in the fourth quarter of 2025 compared to a loss of $26 million in the year ago period, although I would note that adjusted EBITDA in the fourth quarter of 2025 includes the previously mentioned loss from write-down of assets held for sale. Turning to our balance sheet and cash flow highlights. Our cash and cash equivalents balance, including restricted cash, was $217.5 million as of December 31, 2025, and total outstanding carrying value of debt was $415.7 million, which includes the total undiscounted future cash flows of the new 2030 notes in accordance with TDR accounting guidelines. Net cash used in operating activities was $144.9 million in the year ended December 31, 2025, compared to $98.8 million in the year ago period. Capital expenditures totaled $12.3 million in the year ended December 31, 2025, compared to $11 million in the year ago period. Net cash provided by financing activities was $223.4 million in the year ended December 31, 2025, compared to net cash provided by financing activities of $45.8 million in the prior year. In 2025, net cash provided by financing activities included $100 million in draws from our delayed draw term loan facility, partially offset by related debt issuance costs and aggregate net proceeds of approximately $148.7 million from sales of common stock under our ATM program. As a reminder of the key highlights -- as a reminder of the key highlights of our Q4 debt exchange, we exchanged over 97% of the $1.15 billion aggregate principal amount of the 2027 convertible notes for approximately $209.7 million in aggregate principal amount of new second lien 2030 convertible notes and approximately 318 million new shares of common stock. This leaves approximately $29.5 million of the 2027 convertible notes outstanding today. In combination with the nearly $150 million in net proceeds we raised from our ATM program in Q4, we believe these actions have meaningfully strengthened our balance sheet and support our continued efforts to execute our business transformation plan. Let me now touch briefly on our outlook. We continue to experience elevated levels of uncertainty and therefore, low visibility within our core category of plant-based meat. Accordingly, we believe it remains prudent to provide only limited and very near-term guidance until we begin to see more clear signs of stabilization within our operating environment. With that context, we are providing the following revenue guidance for the first quarter of 2026. We expect net revenues to be approximately $57 million to $59 million. Finally, I'll close by making a few remarks on some of our recent disclosures regarding the company's internal controls over financial reporting. As part of our fourth quarter and full year 2025 financial close procedures and in addition to a previously identified material weakness related to the account for nonroutine and complex transactions, we identified an additional material weakness related to controls associated with the accounting for inventory provision, including amounts recorded for the provision of excess and obsolete inventory. We are clearly disappointed with these findings and are actively working on plans to remediate the identified deficiencies. In part, while assessing the impact of these material weaknesses in our financial statements, we identified certain errors related to our previously issued interim condensed consolidated financial statements for 2025, which we determined were immaterial to those interim financial statements. We intend to correct those prospectively when we file our quarterly reports in 2026, and we have also furnished as corrected amounts for certain key affected financial measures in today's press release. We want to assure all our stakeholders that we are fully committed to our efforts for remediating the identified issues and strengthening our controls as applicable, and we have already taken measures to advance these objectives. Lastly, as we noted in our earnings release, we are unable to file our annual report on Form 10-K for the fiscal year ended December 31, 2025, within the prescribed deadline as we require additional time to complete our fourth quarter and year-end financial close procedures. We are working diligently to address these matters. However, at this time, we are unable to estimate when the Form 10-K will be filed. As a result, the company will be considered an untimely filier and will no longer be eligible to use Form S-3 registration statements until it regains timely filer status by filing in a timely manner, all reports required to be filed under the Securities Exchange Act of 1934 as amended for a period of 12 calendar months. And with that, I'll turn the call over to the operator to open it up for your questions. Thank you. Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ben Theurer with Barclays. Benjamin Theurer: A few ones -- so maybe to kick it off a little bit on like the outlook for new products and product lines which you've talked a little bit about the beverage opportunities here. And then obviously, you've talked about a pipeline of potential new products under the new branding umbrella. So I really want to understand, Ethan, from you, is that to be seen as like really pivoting away from kind of like the initial mission of Beyond was to really look to diversify the portfolio. And we would like to understand where you are in terms of researching and developing those products to get a better understanding in terms of the time line when we can expect those products to come to market? That would be my first question. Ethan Brown: Thank you, Ben. I appreciate it. So I think, first and foremost, no, it is not in any way abandoning the original mission and focus that we have had. It's simply broadening the aperture of our business and meeting consumer where they are today. And if I could just comment a little bit on why we're making this pivot and then get into kind of the timing and focus of the pivot. If I thought that Beyond, in our original value proposition, were struggling during a period when the role of science and public discourse and social media, media and government was pronounced and effective when our pricing and economic stability and buying power are all favorable and the American political landscape were characterized by a sense of common ground versus the vision, and Beyond were really suffering, I would be very concerned for our long-term prospects and for the plant-based meat category overall. But none of that is true, right? This is a very difficult period for the world, it's a difficult period for our country, and I think one of the things that is most significant for our business in terms of what's impacting it is this kind of surround sound of pseudoscientific jargon and positioning and promotion that really overwhelms what is decades and decades and decades of science. And I think nothing in our lane is more obvious than -- is more obvious representation of this troubling trend and the resurgence of red meat. And I've spent over 17 years now seeking and listening to the council, some of the very best cardiologists in the country at some of our most prestigious institutions, and I can only look at these current trends with a mixture of sadness for the folks that are going to be impacted by it and increased in patients for those that are seeking to profit from it. I was very glad to see the American Heart Association today take a stand, I think a major newspaper, I actually got a clipping of it, summarize it as that new nutrition guidance from the American Heart Association advises getting proteins from plants rather than meat, choosing low fat or fat-free dairy and using olive, soybean and canola oil instead of beef tallow and butter. So you have a kind of an independent institution backed by science that is saying the exact opposite of where our culture is going on diet. But the good news is that this is a pendulum, it's going to swing and it's going to swing back, and I'm very comfortable that Beyond will prosper when it does. But I'm not going to wait around for that. And because of the work we've done, particularly over the last 10 years, to really lead the category and developing extremely clean, healthy products, we're really well positioned to look outside the category and take that technology, take that science, take that brand into segments that are -- and categories that are many, many, many times the size of the plant-based meat category. So you have a great brand. We just for example, again, got the Time Magazine list best brands in the world. You take the science that continues to win awards and accolades for some of the development work we've done around the plant-based protein for the center of the plate and you take a massive trend within the consumer that is around protein and fiber and things like that, you say, okay, where can we apply all this? And the first, we did a lot of work over the last year understanding which adjacent markets we can get into. And the first one that we've identified and been public about and others will follow is the beverage category. And we launched an initial version online earlier and sold out very quickly that initial inventory. And what we're doing is, as we did with Beyond Ground Fava, learning from the consumer what they like and don't like and making adjustments. And that process is going great. And so the product that we're going to be launching soon, I think, is going to be one of the best protein drink markets, protein drinks on the market. It satisfies so many different needs for the consumer, whether it's protein, fiber, antioxidants, electrolytes, does so in a really clean way. And fascinating for me as we get into these other categories and I start looking at some of the key competitors in those categories, the really big ready-to-drink protein companies, they're putting things in their products that we could never put in our products because of the scrutiny we're under, because of our guidelines around clean ingredients. When you're looking at, I think, one of the top ones is sucralose, there's carrageenan, has [ sulfamic ] potassium, another one has artificial flavors and all of the above. Another one has hexametasulfates as well as all of the above, it just goes on and on, things that we put in, they'd be kind of front page news from our friends in the incumbent industry. So we're going to take that relentless innovation. We're going to take that to clean ingredients. We're going into those categories. And so I think the drink category is the one that's most clearly on the horizon for us, the one that I'm willing to most speak most publicly about. And so I think this summer, you'll see us be pretty active there. Benjamin Theurer: Okay. Got it. And then this is maybe more for Lubi. If we kind of like look at the balance sheet and like in connection with the cash flow statement, clearly, throughout the quarter, you got a little bit of a relief on where we are on the cash balance. But if we kind of look at just the underlying trends within cash from operations, it continues to be somewhat in that range, 40 million, 50 million-ish negative on a quarterly basis shaping out at about 140, 150 for the year. So what are the things that you can kind of like work on, just given where the environment is. And I mean, your outlook for 1Q clearly points to not necessarily a top line-driven recovery in 2026. So all that operating leverage continues to be probably a headwind or the lack of operating leverage put it this way. So what are the levers you can pull to kind of like maybe further reduce with any incremental cash burn with durations that you're facing? Ethan Brown: I can just give a quick answer and then turn it to Lubi. One, I think you'll see that we're doing some really interesting things with inventory. So that's going to give us some favorability. And then second, I think you just got to back out some of these onetime charges that have been so difficult for us. And once you do that, you see a dramatically slowing use of cash. So you do it this quarter, for example, you are down significantly from where we were a year ago, if you back out those onetime charges or some of the extraordinary stuff related to convertible debt exchange. And I think you'll only see that as we go forward, it will continue to be favorable for us. Lubi Kutua: Yes, Ben, I appreciate the question. Yes, I would probably echo a lot of what Ethan just mentioned. We have been focused now for a while on our working capital management and in particular ensuring that our stocking levels of inventory are appropriately sized given where the business is. I think the team has done a really good job in managing the inventory down, but I think there's more to come in that regard. The other important thing to -- and again, Ethan mentioned this, is in the last couple of quarters, we have had some fairly large what we would consider sort of nonordinary course business expenses, right, in the fourth quarter? In particular, these were related to the debt exchange. The business -- we continue to execute our transformation plan, all right, for this business. And so from time to time, we will see some of these unusual items, all in sort of service of trying to reposition this business more appropriately towards our goals to profitability. But I would expect that in 2026, some of the larger items, certainly that we saw in recent quarters should not recur. Recall as well that last year in 2025, we unfortunately did have a couple of reductions in force and the associated severance payments that are related with that -- related to that. And then just lastly, I would say that we are focused on trying to expand our gross margin. Ethan, in his prepared remarks, mentioned that we're standing up our sort of first continuous production line or we do end-to-end production, and we're going to be -- that's going to give us an opportunity to internalize additional volume that's previously outsourced and increase our internal asset utilization. So I think all of those measures taken together should help to reduce that rate of cash consumption. Operator: Next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: I guess first question -- congratulations on the financing and all of that. Maybe are there things that you can now do that maybe you're prohibited from doing before as you sort of execute the turnaround? And then also, I guess, in the context of the of the refinancing in the -- as it relates to the filing and some of the financial disclosure issues, does that change anything related to the transactions that you've done? Or is there anything that we just need to be aware of if for some reason the 10-K comes out even later than planned, just things that we should know about that could happen. Ethan Brown: Thanks. I'll take the first one and then pass it on to Lubi. I don't think we're going to be making any outsized investments as a result of the cash we brought on. I think we're just continuing to focus on EBITDA positive target and minimize cash use. But there are some things that we now have the ability to do. So if you look at last year, we cut way back, and I think part of the issue with our fourth quarter results on the top line, we didn't market a lot. And we were just in cash conservation mode as we were doing our debt exchange, which was incredibly expensive. And so I pulled back considerably on marketing. So this year, we won't do that, particularly as we as we get into some of these exciting categories where marketing is important. And then just on like the automation and on continuous lines and things like that, you will see us make CapEx investments that will allow us to drop down more cash out of just general sales and operations. But I do think if you take a step back and look at our P&L for the quarter, as we were talking about on operating expense, there's just a lot of noise in these numbers, and I tried to touch upon that. Like I think if you look at gross margin, for example, we did have lower volumes, which led to some of this lower fixed overhead absorption. But we did have these charges, right? We had some of the SKU rationalization charges. We had expenses related to shutting down our China business. Then we had much higher inventory provisions than normal, things like that, so that's masking these kind of lower conversion costs throughout our plants, lower logistics costs and things of that nature. And so if you take a step back to, okay, the company is converting materials at a lower rate than it has before, right, and then you go to OpEx and you say, okay, strip out all those onetime charges, the company is operating this business at a much lower rate than it was before. And so now it's just incumbent and cash is too, same thing. If you take out all of those onetime charges, cash consumption is lower. And so if you start to put that picture together, you say, what this company really needs to do this fix this top line. And I've tried for years to do that through the existing category. And I think the headwinds are going to be here for a little bit longer. And it's something we got to get outside the category to address, and that's why you see us in some of these adjacencies. So it's difficult for people to see if they just look at the top line numbers, but take a step back, what the missing piece really is becoming now is just getting a top line to be where we need to be, and we're very focused on that. Lubi Kutua: Yes. And Kaumil, maybe if I would just add a couple of things to that. So as far as what putting the sort of balance sheet restructuring behind us now enables us to do. I think Ethan sort of covered that well and the raising of the additional proceeds from the ATM allow us to, I think, spend a little bit more on the marketing front, which we do think will be important to stabilize the top line and as we start to expand into some of these adjacent categories. But I think the other thing as well is just the focus, right, that we are able to reallocate to the primary business. As you guys know, I mean, we had been talking about the debt restructuring for quite some time on these earnings calls. And so that did consume quite a bit of the management team's focus. And so it's a relief to put that behind us and really focus now on the very important steps and measures that we need to continue to make to turn the business around. Your question regarding the disclosures around the material weakness and the impacts that's had on our financial statements. I would say it doesn't necessarily change anything immediately. But obviously, we're very focused on ensuring that we can file our 10-K as quickly as possible, notwithstanding the fact that we were not able to do so within the prescribed time line. Kaumil Gajrawala: Got it. And then as it relates to the benefits product, what does the supply chain look like for something like that? Can you leverage your current PP&E assets to produce it? Do you use third-party co-packers? It sounds like it just sounds different from the core of what you're doing that, yes, it's cool, likely to be promising, but how does that impact the actual practicality of production and such? Ethan Brown: Yes. That's a very, very good question. Before I answer, I want to just note one thing on the core business that I moved over to too quickly. If you look at the results on a segment-by-segment basis, in U.S. retail, we were down 6.5%. And to me, that's actually encouraging. Because if you look at the overall numbers, they were down more than that, right? But if you start to see stabilization in the U.S. retail in our core business, which I think we're going to see, though I can't say exactly when, then everything we're doing on these adjacencies is kind of additive, right, if you can turn around that retail position in terms of the retail number. And so I was very encouraged by that, and it has to do with some of the new distribution we've been able to obtain in some of the larger mass stores. So as we layer in things like drinks, I think getting the reconnected to the U.S. retail consumer seems like it's within reach. On the supply chain side, I guess, the first thing I would say is that despite our past, we actually have a lot of beverage expertise. We have some of the -- I think, some of the best minds and beverage on our Board with Seth and Justice and Jim and Boston Beer, Kathy and Coke, so it's not like we're coming into this without a lot of experience. It's just something we haven't done before as the company. And so the supply chain is actually pretty similar from an ingredient perspective. We're dealing with protein. We're dealing with fiber. We're dealing with flavor, things like that. So that is not a stretch for us at all. And the production, if you think about turning plants into needs for the center of the plate and you think about blending together protein and fibers and flavor in a drink, the latter is much easier. And so this is not something that we're worried about from a logistics perspective. Co-packing is readily available throughout the United States. It has much less arduous terms from a scale-up perspective. Often, we have to go teach the co-packer how to make our products. That's obviously not the case here. And I think what you're really going to see is our ability to understand all the characteristics of plant materials, the proteins, the fiber and how to optimize their taste for the consumer is going to shine in these drinks, and that's what I'm excited about. Operator: The next question comes from John Baumgartner with Mizuho. John Baumgartner: Maybe first off, Ethan, just to build on that last line of thinking. Just sticking with the expectations for the beverage expansion and the adjacencies more broadly. Can you walk us through how you plan to scale it, how you'll manage distribution, the specific channels that you'll enter? How you will allocate budget to enter these categories? Just how do think about milestones you ramp up and the impact on cash burn? Ethan Brown: Sure. So we're taking a pretty careful approach. So you'll see the same pattern that we've just done with drinks now initially launching D2C getting feedback from the consumer making adjustments. And then you'll see us go into a particular regional distribution, likely emphasis on natural and then into mass. And so we'll take a step by step. That as we see success or failure, we'll adjust how much we're spending. But so far, and this is very early days, the indications we're getting from the drink are very positive. In terms of distributor interest and things like that, all of it is speculative at the moment. So I don't want to promise anything. But I think what you'll see is a kind of measured approach from us, and we'll spend a certain amount, make sure that we're still on track, then it's an additional amount. But one of the neat things is that we're not necessarily creating entirely new brands, right? Like so the drink is called Beyond Immerse, but we're relying on the fact that Beyond is a very well-known brand. So we don't have to kind of reinvent the wheel. And we have a strong consumer base that's particularly interested in what we're doing. And so that gives us an advantage relative to someone who's just starting out, right? We're able to sell additional product to a consumer that's already buying Beyond. I don't know, Lubi, if you have any comments. Lubi Kutua: No. I think you covered it well, Ethan. What I would say is to your question around potential impact on cash burn, I think one of the things that's attractive about the beverage category -- can be attractive about the beverage category, particularly at scale, is the margin profile, right? So obviously, as we are in relatively limited distribution and producing at much smaller quantities, the economics won't look quite as favorable as if we are successful and begin to scale up. But certainly the margin profile for that category of products would be attractive. And so with the supply chain that we have in place and these co-packer agreements, et cetera, we actually think that the impact on the total cash use will not be overly burdensome. John Baumgartner: Okay. And then I'm curious about your vision for the Beyond Meat portfolio going forward as you work through this SKU rationalization. I guess where have you chosen to retrench in terms of product or new products? And what have you identified as the foundation for the core going forward? Is it steak? Is it burgers? How should we think about that? Ethan Brown: Yes. So as I mentioned in my comments, we have 20-plus products that are clean label project certified. And I really focus on those. And the Beyond portfolio, for example, and because just in my own taste and my own health. And areas where maybe there's less differentiation than I'd like to see. You can make sure what that might be, some of the breaded items, things like that, less interested in that, more interested in where we can deliver really unique value to the consumer. And so Beyond Steak Fillet is a good example. That's 20 grams of protein. It's 1 gram of saturated fat from avocado oil. It's got mycelium, which is a terrific ingredient; it's got fava beans, et cetera. So focusing on things that really help tell the story around Beyond and tell the clean ingredient and healthy narrative are the ones that we're focusing on going forward. Operator: The next question comes from Peter Saleh with BTIG. Peter Saleh: Great. Maybe Ethan, I guess the first question I had was on the beverage lineup. You mentioned initially getting some feedback and then making adjustments. So maybe can you talk a little bit about the initial -- what feedback you may have gotten and any adjustments you've made? And then if you could just help us out here, what is the target customer here for this beverage lineup. And then I have a follow-up as well. Ethan Brown: Sure. So I think one of the things we're learning about beverages is unlike where we have a really clear North Star, what does this taste like a beef burger or not, the reason there are so many definitions in markets that people have different tastes, right? And so what we're trying to do is find that sweet spot where we can appeal to a broad group of consumers, taste profiles. And so I think what we found is the 10-gram we put out kind of home run. The 20-gram, a lot of people are going to love it or didn't like it much. And enough people, thankfully, love it, that we're able to keep going. But that was more polarizing than the 10 gram. And so what we've done is tap back some of the intensity of the flavors in the 20-gram and some of the sweetness in the 20 gram. And the product that they've developed, and we're probably on our sixth or seventh iteration since we launched, is just phenomenal. Again, I put -- I stand behind us. I think it's going to be one of the best protein drinks on the market, to the holistic picture, the protein content, the fiber, antioxidants, the electrolytes, the environmental footprint, the ease of consumption. I'm probably drinking too many a day, and I've watched people in our office, in my home. It is all of a product. And so I'm looking forward to it. But that was the type of feedback we reacted to it. And there's nothing wrong with that, right? Like even with the Beyond Ground Fava, which we just got an award that's under embargo right now for the innovation there, was that 4 ingredient, 27 grams protein product, we just like to iterate with our consumers. Like it's a new model, I think, in food that we're very, very fast in what we do and letting them weigh in and tell us what they like and don't like. Peter Saleh: Great. And then just, Lubi, on the gross margin for 2026, is there anything you can provide or share with us at this point? And should it mirror '25, should be much better, lower? Anything on the cadence, that would be helpful. Lubi Kutua: Yes, Peter, unfortunately, like we're not providing guidance for gross margin for the year. And I think just to provide a little bit of context around that is one of the reasons why we continue to provide only near year-end guidance on revenue is the fact that our category right remains -- our core category, plant-based meat remains sort of very volatile and volumes remain soft. And obviously, with that being, obviously, at this stage, the vast majority of our business, right? The impact that softer volumes has on margins can be pretty significant, right? And so I mentioned in my prepared remarks that we -- that the lower fixed cost absorption continues to be a headwind on margin. And so I think it's just extremely difficult for us to sort of forecast gross margin to any degree of certainty when there's so much variability on the top line. So we -- obviously, we have initiatives in place that are aimed at expanding margins, right, including like the continuous line that I mentioned. But ultimately, we need to see some stabilization on the top line in order for us to have sort of greater confidence in terms of where margins will shake out. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ethan Brown for any closing remarks. Ethan Brown: Thanks, everyone, for the questions. Appreciate all the interest, and got to go look back over the last year, I do want to complement the team this transaction that Lubi and his group executed was just enormous undertaking. And so there's a lot of work that went into that. And I think he's particularly pleased to have that behind him. But as we look forward, we're excited to see what's going to happen as we pivot our brand into some areas that are maybe not as challenged in our core category. We're going to be talking with you guys pretty soon, and I think we'll have more information then as to how things are going. Thanks very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon. Welcome to Duos Technologies Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining us for today's call are Duos President, Doug Recker; and CFO, Leah Brown. [Operator Instructions] Then before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. Now I'd like to turn the call over to Mr. Doug Recker. Sir, please proceed. Doug Recker: Welcome, everyone, and thank you for joining us. Earlier today, we issued our earnings press release and our 10-K for 2025. Copies are available in the Investor Relations section of our website. I encourage all listeners to review press releases and our 10-K filing to better understand some of the details we'll be discussing during this afternoon's call. Before I begin, I would like to take a minute to personally thank Chuck Ferry for his leadership and guidance. Chuck has served the Duos organization and provided personal mentorship to me. I value Chuck and the opportunity he has provided me at Duos. It is not every day that you get it to be mentored by a war hero and a corporate Champion. And for that, I will be forever grateful I look forward to your continued mentorship and guidance as you continue to serve on our Board of Directors. Thank you, Chuck, for all you have done and continue to do for the Duos organization. As your newly appointed CEO, I am honored and excited to discuss the focus of Duos Technologies Group. We are now fully dedicated to the data center market through our Duos Edge and Tech Solutions division, driven by accelerating customer demand. I will get into more of that in a minute, but I want to give you an update on the Rail technology and Duos Energy subsidiaries. First, let me talk to you about our legacy business, which is the railcar inspection portal. In the previous calls, we have discussed that this line of business has become less important to our future at Duos. We also talked about diversifying our business strategy to edge computing. Thus, we have made the decision to completely divest the Rail division. This divestiture is expected to take place over the next 60 days. This decision did not come lightly, and I know the rail technology has a rich history with Duos shareholders. In fact, my involvement goes back many years before joining Duos and I was intimately involved in the design and building of the Edge Data Centers that the portal uses today. However, the lack of growth and regulatory hurdles for that business has proved to be extremely challenging to manage. The decision to divest to freeze up company resources and cut significant SG&A expenses. For more details will be made available on a few divestitures in the near future. Second, I would like to talk about Duos Energy Corporation. As many of you may remember from last year, Duos entered into an asset management agreement with new APR Energy to help find new contracts to engineer, procure, construct and operate fast power plants. Duos also was giving a 5% equity stake in the parent of APR Energy. The AMA provided the interim financial ability to execute and pivot to our data center strategy. We announced on the Q3 earnings call that the AMA would conclude in 2026, that Duos will remain -- will retain the 5% equity stake. Now I would like to discuss our data center strategy and our new line of businesses at Duos Technology Solutions. Part of our strategy in building and deploying data centers at a rapid pace has always been focused on cost savings, lowering our capital expenditures. Building data center infrastructure is very capital intensive. As Duos is a relatively small buyer compared to the larger hyperscalers and colocation companies, we needed a way to buy products cheaper. So we created Duos Technology Solutions. This brand-new division allows us to do just that as well as provide a new stream of revenue for us. We started by hiring an industry veteran with a proven track record, who understands our business as well as the data center market overall. Kristen Sanderson joined Duos and will serve as a Senior Vice President of Duos Technology Solutions. Kristen has over 18 years of data center product experience, vast market distribution knowledge, relationships with all the key supplier partners that Duos needs to work with and a wealth of relationships in the data center industry. This new division allows Duos to procure materials for its own builds at a much lower rate than the legacy way of purchasing through traditional distribution. Duos Technology Solutions offers the same strategic sourcing and product distribution to new customers, including large-scale enterprise organizations, hyperscalers, large colocation companies, low-voltage contractors and general contractors across the United States. I'm very pleased to report that through the first quarter, Duos Tech Solutions has already sold $10 million in new business, which currently sits as backlog, all of which I expect to be recorded as revenue this year. This new line of business has low overhead and is simple to execute while having strong commitments by the end client. The revenue generator from Tech Solutions is expected not only to replace the revenue from the new APR AMA, but also provide better margins, thus further contributing to the overall future profitability an growth of Duos Technologies Group. Kristen has built a seasoned team with the talent and short 3-month build tremendous sales pipeline, and we expect amazing things from this new venture. Now I want to shift our discussion to the core of our new data center focused organization, Duos Edge AI. The demand for edge computing continues to grow at a rapid pace, and I'm pleased to share that Duos Edge AI is in a great place to meet this demand. The second half of 2025 proved to be extremely busy for Duos Edge. In July 2025, we successfully completed a capital raise of $45 million with Titan Partners to fund the construction and deployment of 15 EDCs to further broaden the connectivity and compute needs of underserved Tier 3 and Tier 4 markets. Duos Edge AI was also awarded a patent for clean room technology for modular data center deployments, which gives us a strategic competitive advantage in the space. Our goal in 2025 was to procure, manufacture, deploy 15 edge data centers. This goal was extremely aggressive and unheard of in our industry. We are proud to report today that we have accomplished that goal. Our focus for the first half of 2026 is to continue executing our sales strategy to acquire new customers in our markets to fully utilize the capacity of each EDC. In March 2026, we completed a $65 million capital raise to deploy approximately 2,300 GPUs-as-a-service, a 4.8-megawatt high-density EDC deployment for a leading hyperscaler and to expand our high-density EDC footprint to support growing demand for power and compute across AI inference, training, enterprise and hyperscale AI workloads. We also have 5 new EDCs in production with plans for an additional 20 megawatts of deployed capacity by year-end. Having inventory for our EDCs to deploy in critical -- is crucial for our continued growth and success in this market. The Duos Edge AI story and its initial success is garnering tremendous excitement in demand. So inventory will allow us to react quickly to new market requests. Part of this new demand, we now see is for higher density power, which serves AI and high-power compute needs. While Duos Edge AI is committed to sticking to our original model of deploying in the Tier 3 and Tier 4 markets, we are seeing unprecedented demand for power in megawatts compared to kilowatts. The data center market is experiencing a boom like we've never seen before and building at scale is costly, and it takes years to complete. During the course of this deployment, our 15 EDCs, we saw an influx of calls requesting more power in the markets where we are formed organizations all across the country. There is such a shortage of data center space and power that companies are turning to Duos Edge AI. So we are going to start to build our new EDCs with greater power capacity to meet this demand. We have shown in the market we can deploy at lower cost with an incredibly faster speed to market. Duos Edge AI will now be able to cater to customers that have the high densities like the neocloud providers and hyperscalers for their remote edge sites. These higher power capacity EDCs should provide much higher monthly recurring revenue for Duos which we will explain in our financial update coming up shortly. Before I transition to the financials, I would like to touch on our start of the year and our first partnership in deploying high-density power EDCs. This month, Duos executed its first contract across two newly launched business lines, GPU as a Service and high-power colocation service for AI infrastructure. Under our GPU-as-a-Service agreement, Duos will deploy 2,304 NVIDIA GPUs across our Edge Data Center platform, generating reoccurring revenue through a GPU rental model, purpose-built for enterprise and AI workloads. This contract is expected to generate approximately $176 million in revenue over a 36-month term, with margins exceeding 80% and expected annual EBITDA of approximately $40 million. Separately, Duos was awarded a high-power colocation contract to deliver 4.8 megawatts of critical compute power to support a leading hyperscalers high-density NVIDIA GPU cluster, housed within Duos edge data centers. This contract represents Duos entry into the market of high-power colocation where demand for AI-grade infrastructure continues significantly outpacing supply. Together, these contracts mark a significant commercial inflection for Duos, establishing two distinct and complementary revenue streams within our data center platform and validating Edge Data Center infrastructure at the highest level of the AI compute market. Since announcing these contracts, we have received strong incremental inbound interest from hyperscalers, neocloud providers and other large-scale compute customers seeking high-density EDC solutions, we see a significant opportunity to scale the high-power EDC model through 2026 and beyond. Now I would like to turn it over to our CFO, Leah Brown, who will go over our financials for 2025. Leah? Leah Brown: Thank you, Doug. This has been an exciting year for Duos. 2025 is a year marked by significant revenue growth, strategic investments and meaningful progress towards building a stronger, more scalable company. I am truly excited to walk through our full year financial performance and highlight key operational drivers that shaped our results. For 2025, total consolidated revenue was approximately $27 million. The company previously projected revenue in 2025 of $28 million. Although that target was not met, we recorded a little over $1 million in deferred revenue for Technology Solutions, which is contracted, cash was received and we will record as revenue in 2025. In 2025, the $27 million in revenue was a significant increase compared to $7.3 million in 2024, which is over a 270% increase year-over-year. This growth was primarily driven by services and consulting revenue from the asset management agreement with new APR Energy, totaling $22.4 million in 2025 versus $900,000 in 2024. The company delivered materially stronger gross margin in 2025 and generating $7.9 million in gross profit, achieving approximately 29%, a significant year-over-year improvement. This was driven by improved cost absorption and continued operating efficiency. The company reported net loss of approximately $9.8 million in 2025. An improvement from the $10.8 million net loss in 2024. The year-over-year improvement was driven primarily by higher revenue and significantly stronger gross margin. As we discussed on our Q3 earnings call, achieving positive adjusted EBITDA was an important milestone for the company, reflecting the early benefits of revenue scale and margin improvement. I'm pleased to report that we've built on that progress in Q4, delivering positive adjusted EBITDA for the second consecutive quarter. This consistency is meaningful and demonstrates that the Q3 results was not a onetime event, but rather the continuation of improving operating performance as the business scales. The consecutive improvement from Q3 to Q4 reinforces our confidence in the direction of the business, driving higher revenue volume, improved gross margin and more fee cost structure. Let's shift to the balance sheet. The company ended 2025 with approximately $63 million in total assets, reflecting meaningful growth year-over-year. Cash increased significantly compared to the prior year driven by capital raise during the year with strengthened liquidity and enhanced our ability to support operations and planned investments. Another strong position on the balance sheet is property and equipment. Each with significantly increased year-over-year, reflecting continued investments in infrastructure and assets required to support the program execution and long-term growth initiatives. The current contract liabilities over $5 million supports the company's future revenue recognition. On the equity side, capital raised during the year strengthened our balance sheet and liquidity, while ongoing investment in the business aligns our strategy to scale operations and drive longer-term value creation. 2025 was a transformative year for Duos Technologies Group. We significantly scaled revenue, strengthened our liquidity position and make strategic investments that position the company for increased operating leverage and margin expansion going forward. As previously reported, the Rail segment remains relatively flat. In response, we are divesting the rail business and reallocating resources to support the continued expansion of our Edge Data Center segment. Turning to our 2026 outlook. The company is providing revenue guidance of $50 million to $55 million in total revenue across all business lines. This forecast reflects growth from both our core operations and newer initiatives, which Doug will cover, and we believe positions us for a strong year. Due to the timing of revenue recognition, a significant portion of revenue is expected to be recognized in the second half of the year, coinciding with the period in which we expect to achieve positive EBITDA. Our investment and expanded revenue opportunities give us confidence in our ability to execute and continue building a stronger, more profitable company. Doug, I'll turn it back to you for additional comments. Doug Recker: Leah, thank you. Before we open this up for questions, I wanted to say again how honored I am to serve as your new CEO. The new data center-focused strategy is the new Duos Group -- Duos Technologies Group, and we are poised for great success. We have been awarded global recognition with the Innovation of the Year award at the largest data center and telecom conference at Pacific Telecom Council, 2026 in January. We have also been nominated for breakout success in North America Digital Infrastructure Leader of the Year from the Tech Capital Global Awards coming up in May. The global recognitions only solidifies, we are on the right path at Duos with a prosperous future ahead. We understand we have a new focus, and this is a departure from our legacy business passed. We are taking steps to ensure the new messaging is related to the market and that we will be given the appropriate market coverage moving forward. We will be retaining an IR firm to assist and expect several analysts to report on our new focus and business activities in the near future. And with that, I will open it up to questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Ed Woo with Ascendiant Capital Markets. Edward Woo: Yes, I'd just like to give my congratulations to you, Doug and to the entire Duos team. The growth that you guys had has just been amazing. My question is, as you mentioned that demand remains very, very strong. Are there any worries of competitors entering this market? And what can Duos do to be able to have the advantages to be able to compete if new entrants come in? Doug Recker: That's a great question, and that's why we're -- we manage the business appropriately. So you're going to see some people come into the market, like you just probably saw the press release from Crusoe. They're entering the market. As far as building 5 to 10 to 20-megawatt modular data centers. They're one of the largest in the business. They build Stargate, they're huge. So that in itself tells us we're in the right market. But what we've done, and this is an incredible piece, I just got back from GTC, and everybody was talking about how they're concerned about deploying with modular because GPUs are extremely sensitive to particles and dust. And ironically, in the best part about our business, we obtained a patent in September called the clean room we actually have a patent that goes on top of our -- it connects to our modular data center that cleans the air before you come in. So all the particles on your body, on your equipment are blown off filtered off, then you walk actually into the data center. That is huge when it comes to deploying because what's going to happen is the GPU providers like NVIDIA and everybody that make chips, everybody makes servers, they won't honor their warranties if the fans get dirty and dust in them. So that is a huge win for us, and it's going to help us differentiate us from the competitors coming in the market. You will see them, but we are the only ones that have deployed, prime example, 15 pods. I challenge everybody that comes into this business that doesn't have a 3D rendering to go look at physically look at their pod. We had a customer fly in from China last week, and they flew into Corpus Christi and toward our pods, just to see our manufacturing capabilities. So it looks like there'll be a new customer of ours on the hyperscale side, possibly. So we have the experience. We've done it. We can actually show people our markets that can physically go there to see our customers see year burning and see how the facility works. So we welcome the competition, but we're strong where we sit. Edward Woo: That sounds good. And my last question is kind of like a longer-term plan. I know you guys kind of been focused on the rural underserved markets. Is there plans to go into the bigger markets? And also, you mentioned China customers or China partners, do you anticipate possibly going international? Doug Recker: Yes. Great question. Right now, our focus is Tier 3, Tier 4 markets, and let me tell you why. The demands to deploy in a Tier 3 market, I can deploy my pods and get access to power in 90 to 120 days. If I go into a Tier 1 market, I'm competing against the larger data centers and the infrastructure that's already in place. We're going to build infrastructure fast. So where do you do that? You go into markets that have accessible power. They've built substations that have 5 to 10 meg available on them and permitting is a lot quicker. So our focus is going to continue to Tier 3 and Tier 4 markets, and that business sector is huge, and it's going to be huge for the next 10 years. And to your international question, once we start deploying at scale here and move on, we'll be open to international. But right now, our #1 focus is in the U.S. into the Tier 3 and Tier 4 markets. Operator: Our next question comes from the line of Dan Weston with WestCap Management. Dan Weston: Congrats on the quarter. Doug, a couple of quick points of clarification. The -- I think you mentioned you were expecting to have -- or you do have 5 new EDCs in production to be deployed by year-end, if I heard that right. Are those 5 EDCs specific to the GPU as a service contract you just signed? Doug Recker: No, those 5 EDCs are committed to markets that have been contracted. So there are markets in Georgia, and we're working with the utility to deploy on their network as well. So those are our normal pods that we deploy in that we've deployed. Like the 15 we've deployed, they're identical. So yes. And let me give some clarification because this might help answer a lot of questions for other folks, too. We're still building our same model. Our core is you go after the education, health care and local government in these markets. But what we're doing at the factory is we're building the pod with more power. So we're deploying these units the same concept, the same places, but we're building more at scale, so we can bring in higher density users. So yes, so that's the model. Dan Weston: Got it. Back to the first GPU-as-a-service customer that you just recently signed. When do you expect to have those larger pods, if you will, in the ground and expect it to generate revenue. Doug Recker: We're on track for July, August. So with permitting and things like that, I want to say August to you, but we're looking good. So more August time frame. Dan Weston: That's amazing. And as it just kind of ties into the guidance that Leah provided, Leah, if you're there, I think I wrote down $50 million to $55 million of revenue expected for this year. Could you give us a sense of how that revenue breaks down, please? Leah Brown: So yes, thank you for that question. So the revenue line that we anticipate for this year, we're expecting definitely on a holistic view to achieve that aggregate. As a company, we don't go into specifics for each business line. But overall, we do anticipate to meet that guidance. Dan Weston: Okay. I understand. And while you're there, you mentioned the PP&E up at $27 million and change. That's obviously a massive increase from last year, but also up $12 million from your Q3. Can you give us a breakdown of what that PP&E is, please? Leah Brown: Absolutely. So the majority of our PPE is our Edge Data Center. So we have 15 data centers, and we've also started prebuying for the next lot that is coming online in 2026. So you -- the majority of that. Yes. Dan Weston: Great stuff. And then last one for me, and I'll jump back in. Doug, I think you mentioned that you had secured the 4.8 megawatts of power for -- I assume you're talking about the GPU as a service contract. The initial LOI, I think you mentioned 10 megawatts dedicated to that project. Could you explain a little bit what the delta is there between the 4.8 and the 10 megawatts? Doug Recker: Sure. So the site is built to 10 megawatts. So there's 10-megawatt available. So they're taking down 4.8 for critical load. So that means I can add to that site quickly up to 10 meg. Now that site can go to 20 meg, but it might take another year to get access to another 10. So that -- so the winner here is that site has a capability that's already been transformed down at 10 meg. So there's 10 meg physically available today if I wanted to sell it. So I would just build the pods, I build another section of pods to get to the 10 meg. So another 5 meg cluster of pods. Dan Weston: And in terms of real estate, if you will, there's plenty of space there to just drop another 2, 3 or 5 pods down if needed. Doug Recker: Yes. So there's 3 acres there. And what we've noticed is 3 acres is plenty. Basically, if you look at our model, we're deploying 5 meg it's really like looking at 5 school buses. Dan Weston: Understood completely. Do you anticipate that your first technology, global technology customer for the GPU as a service will end up taking the whole 10 megs? Doug Recker: Yes. The actual -- there's 2 customers that are -- yes, absolutely. They're looking at 5 more sites at 5 megs with us right now. Obviously, we've researched, we found 5 sites with the power there, but we're going to get this one installed and the one in Iowa installed first, and then we'll report on how quickly we did it and how the revenue looks. But the demand -- I mean, I came back from GTC, and there was 21 -- we had 21 inquiries on 5 to 10 meg sites. The demand in this niche is unbelievable. So like I said, I'm not really worried about other people coming in. Our secret sauce is how we deploy quickly, how we find the power. We have a secret to that. and the other piece is the clean room. I don't see you -- prime example, in one of these pods, you're talking $10 million to $12 million just in GPU in a pod. So a clean room I don't understand why you wouldn't go to it, somebody that has a clean room. It doesn't cost them more. Dan Weston: Understood. By the way, do you anticipate that you'll be able to disclose who that first technology customer is in the near future? Doug Recker: I'm not sure. It's a very, very, very strict NDA right now. So I think maybe if we -- once we prove ourselves to them, it might be an option. But put it this way, they're Tier 1, so we're good. Dan Weston: I appreciate that. Let me squeeze one last one and I'll hop back, you mentioned that there was a $10 million backlog in the Tech Solutions business that you expect to record as revenue for this year. Yes, is that typical for this business where the booking of the contract could take several quarters to actually run through the revenue line? Doug Recker: Yes, exactly. So let me give you an example. So we sell a lot of -- and we have a lot of -- our funnel is huge. So we have a lot of like cabinet, PDUs fiber connectors, those are 60 days, 90 days max, right? Well, we booked that. We ship it out quickly. But UPSs and other switch gears are 6 to 8, some of them are 9 months out. So that's -- we had a big booking towards the end of the year, but it took 3 months for us to bill it, right? So A lot of the bigger products takes longer. But everything that we're booking that's in the funnel and that you see us report in this quarter, next quarter, we'll all build this year because the majority of it is I wouldn't say off the shelf, but it's more UPS, PDUs, cabinets, cold aisle containment, that kind of stuff. And there's a lot of it. Dan Weston: That's incredible. Congrats to everybody. Doug Recker: Thank you. That's why I'm here. I love the question. Thank you, sir. Operator: Our next question comes from the line of Nico Sacchetti with RBC. Nico Sacchetti: Maybe I'll piggyback on Dan's last question here. So not only is that $10 million of the distribution business going actually recognizing revenue. Is $10 million like a quarter a typical run rate for that business? Is that quite huge quarter? Is that low? Obviously, not looking for a definitive guidance, just trying to get an idea of what you're expecting or what that capability [indiscernible] just like a normalized situation. Doug Recker: Yes. And we're new to the business, but what we're seeing is when we can recognize it and how stable it is. So let's say the funnel is over $150 million depending on what the product is. Nico Sacchetti: Sorry, just to clarify, you said the funnel like annual capacity. Is that like your high-end number that you could do in... Doug Recker: The $10 million was over 2 months, and that was when they first started. So obviously, we're looking at a lot greater than that. Nico Sacchetti: yes, going back in and out will hold on a little better. I thought you said the funnel is $150 million. Is that like an annual like TAM or capacity that you could do? Did I hear that number? Doug Recker: Yes, that number is from two sales reps that we hired that's in their funnel for this year -- and that's only for 3 months of doing business. We just started that group. I mean, look, on data center buys $1.6 billion worth of product, right? So that's normal, believe it or not, in this industry. Nico Sacchetti: So it would be fair to say if there was any kind of negative perception around the loss of that $20 million 2-year and the opportunity substantially higher. You mentioned that replacing that revenue, but it sounds like this could be a multiple of that in a normalized situation. Doug Recker: That's exactly right. That's why we brought it on. And Nico, just real quick about that division. Remember, the main reason we brought that division on is in the marketplace right now, everybody knows to build a megawatt, it's anywhere from $10 million to $13 million, right, to build a megawatt. Why they're looking at us is I can build a megawatt for $6.5 million. And how do we do that, it's because an infrastructure group has direct to the manufacturer now. So I'm not buying through a Wesco or a Graybar. So 20% to 30% comes off the line because I buy direct. Nico Sacchetti: So you are offering something that can be set up substantially quicker than like a traditional football field size data center and at a lower cost is what it sounds like. . Doug Recker: That's right. Nico Sacchetti: Any thought of removing the lower cost and just go number a better margin profile. Doug Recker: Right. But we can deploy quicker. Remember that. So in the CapEx isn't as intense. So you're deploying 5 megs at $25 million. It's a big difference. Nico Sacchetti: So a lot of what I have are just clarification questions. Obviously, there's a lot of moving parts. I'm just trying to make sense of what was the company you have the AMA, the equity software and then it's going towards this modular data center, school, hospital, anchor tenant, the metrics around that were very black and white like cost, what the revenue opportunity is. And then it seems like we're kind of pivoting again. And so I just want to make a sense of all of these moving parts. And maybe the -- it would be helpful if could clarify the deck that you have available on your website from February, I think it is. Is this like good information? There's just some difference in metrics from what's on the slide versus like what was reported. And I just have some clarification questions. I'm just curious like how set in stone the numbers were off of that specific presentation. Doug Recker: Yes. So we're actually after -- obviously, after the call, we're going to update because now we've recognized and told some information. We're going to update that. But just remember, there's -- and I don't want to make it confusing. I'm trying to -- that's why I'm trying to change the model here a little bit. There's 2 pieces to our business. One is the Edge Data Center business and the one is the infrastructure. The Edge Data Center business, the GPU business falls under the Edge Data Center business. Remember, it's the same pod. It's the same concept. It's just I'm building them bigger. Just look at the GPU as a different type of customer. So I'm just bringing in different types of customers. So it's the same model, and the revenue is a lot higher, obviously, because they're taking power. We make money off of power space and cross connects, right? So the more power we sell, the more money we make. So -- but obviously, the CapEx goes up in the pod cost. The model -- and I'm pretty sure we shared that the model on the GPU is a big difference. Prime example, remember, our pod model at 15 cabinets is $350,000 to $400,000 a year. That's the goal, right? Out of that if you compare it to the GPU model, 1 meg, you're at $1 million a year. So at 4.8 megawatts, you're now at almost $1 million a month. So why not build the pod bigger and take the customers in that need that power. When all it is for us is at the factory, we just put bigger panels in. Nico Sacchetti: So when you say the same model, you've talked about just the original, the standard version of this going on kind of like Tier 2, Tier 3 markets or rural areas where there is like 500 miles data center, what's the... Doug Recker: Nico, you're cutting out, it's hard to hear you. Nico Sacchetti: I think I'm having some bad service here. I just want to get like do you have -- it sounds like it totally depends on the unit for what the metrics are or it was much more standardized with the other versions or the model and then when you say the same model, are they going in certain locations where instead of being a colocation where you still have the hospital and the school and it's in a rural area and you're just having less of it available to be leased out essentially by maybe other businesses in that town now that... Doug Recker: Yes, that's -- you're exactly right, Nico, that's exactly right. So our core customers are our anchor customers, which are education, health care and then enterprise in that market, right? The carriers coming in to take space so they can peer and cross connect to each other. That's the best -- someone's cross talking, I'm sorry about that. But yes, Nicco, if you can hear me. That's the original model. That's why we're sticking with that model. We're just adding more capacity to bring those customers in that need higher density. So we're always servicing that market. And that's what helps us get into those Tier 3, Tier 4 markets, especially with permitting and everything because we're low on the radar. We're not 10, 20, 30, 40 megawatts that they have to build out that stream in the community. We're going after power that's already there. That's in excess that the utility wants to make money on. So in return, it helps the local community as well. in tax dollars. So they're actually welcoming us. Operator: Our next question comes from the line of Carl Wiese with Grow Funds. Unknown Analyst: Yes. I was wondering if you can kind of talk to at scale as you go into the second half. What does the model look like from a gross margin perspective? And then with all of the selling the Rail business and winding down the management contract. What kind of OpEx should we expect on a go-forward basis? Doug Recker: We'll talk real quick. Let me take over the rail. So the Rail business, we're hoping to offload or decommission that offload it in the next 60 days. That's the goal on that. So there's no burn on that business for us right now. So hopefully, we'll exit that. It frees up a lot of SG&A. So we'll obviously not carry that load of employees and all the other expense. So that's a good thing, and that should happen in the next 60 days. But I'll turn it over to Leah on your numbers there. Leah Brown: Sure. So Carl, good afternoon. Yes, so we should expect to see gross margin improve in the second half of the year. Just a reminder with the revenue recognition for some of our business lines, you are going to see that revenue recognized in the second half of the year. So we're looking at gross margin around 76%. Unknown Analyst: Gross margin shouldn't it -- well, the data centers themselves are what, 70 to 80 type gross margins. Leah Brown: Yes, exactly. So we should see around -- for gross margin, you're about $7 million, $6 million towards the end of the year. Yes, exactly. So just when we report here in May, you'll see our Q1, but you'll be able to see that revenue picking up in Q3 and Q4. Unknown Analyst: And OpEx, should actually be coming down at the same time. Doug Recker: The OpEx, yes. Unknown Analyst: And then just, Doug, as you said here today, how long do you think this demand environment will last? Doug Recker: I think the high demand like what we're seeing now, like when I go to GTC and there's 21 people trying to talk to me to take -- signed contracts. I think that is going to be strong for the next 3 to 4 years. And then what's critical about our business is the main data centers that are out there, and I think we might have talked about this before, the main data centers that are out there are going to look to us as a hub and spoke because they're going to want to capture those markets that we're in like the Dumas, like the Corpus Christi, Lubbock, these Tier 3 markets that we're going in, they need to have compute out there. So does the mobile operators. When we go to 6G, we're at 5G, we're going to 6G now. They need the compute out at what we call the eyeballs. So all that data is going to take a lot of fiber to get back, a lot of network, right? So they want to be able to own that network and they want to own that customer. The best way to do that is obviously buy these many data centers everywhere, bring them back to the core. Because to be honest with you, they're all going back to a core anyway. So it makes complete sense. So I think the growth is going to be very strong and extremely strong in the 3 to 10 meg range because right now, and I just did this exercise for another potential client, he needed 2 meg worth of power, 2 meg, which doesn't sound like a lot nowadays, but it's a lot. I couldn't find it throughout the country in one data center. I'm talking about a legacy data center. So the market is looking past the need of the 10 to 15 meg data centers. And prime example, like Johnson & Johnson, they keep their stuff at a local data center. They go to like a QTS. They go to Flexential. That's where the house. They don't go to a hyperscaler. They don't go to these big ones they're building. We're losing sight that the demand is there and they're still growing. So I think you're going to see the market for the next 5 to 10 years focusing on that 10 to 15-megawatt range. So we have a long haul, but we do have to build quickly. Operator: Our next question comes from the line of Tom Leonard with RiverBay Investments. Unknown Analyst: You provided a lot of color on the GPU-as-a-service, the economics, the revenue of that. I'm trying to think about the revenue exit run rate this year. And so could you put a little more color on the high-density EDC, how many total megawatts and what's the revenue value per megawatt for that high-density colocation customer versus leasing and GPUs that you purchased? Doug Recker: Sure. On the GPU model, let me back up. The goal for this year is to deploy 25-megawatt. Now that can be through 300 kW pod that we deploy. Right now, we have 15 of them on the ground at 300 kW. But the total megawatt because that's what we're being judged by right now, everybody is being judged by megawatts, not by kilowatts or cabinets. So the plan is 25 megawatts. And when we look at the GPU model for every megawatt, we're looking at $2 million a year in revenue. That's right on the head. That's what they're billing, that's what the industry shows, and that's what we're building to. So it obviously is a very strong model to house GPU for customers. Operator: Thank you. And with that, that concludes today's question-and-answer session. I'd like to pass the call back over to Doug for any closing remarks. Doug Recker: Well, I'd like to thank everybody for joining today, and we look forward to speaking with you in Q1 earnings. Thank you so much for your time. Operator: Before we conclude today's call, I would like to provide Duos safe harbor statement that includes important cautions regarding forward-looking statements made during this call. The earnings call contains forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Forward-looking terminologies such as believes, expects, may, will, should, anticipates, plans and their opposites or similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties. Risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based and could cause Duos Technologies Group's actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in the Item 1A and Duos on annual report on Form 10-K which is expressed incorporated herein by reference and other factors as may periodically be described in Duos' filings with the SEC. Thank you for joining us today for Duos Technologies Group Fourth Quarter and Full Year 2025 Earnings Call. You may now disconnect.
Stuart Smith: Welcome, everyone, to the KULR Technology Group Fourth Quarter and Full Year 2025 Earnings Call. I'm your host today, Stuart Smith. In just a moment, I'm going to be joined by the Chief Executive Officer for the company, Michael Mo, as well as the Chief Financial Officer for the company, Shawn Canter. Both of those officers will be giving their opening remarks, and that will be followed by a question-and-answer section with management. And again, we want to thank you for those questions. Now before I begin, I would like you to listen to the following safe harbor statement. This call contains certain forward-looking statements based on KULR Technology Group's current expectations, intentions and assumptions that involve risks and uncertainties. Forward-looking statements made on this call are based on the information available to the company as of the date hereof. The company's actual results may differ materially from those stated or implied in such forward-looking statements due to risks and uncertainties associated with their business, which include the risk factors disclosed in KULR Technology Group's Form 10-K filed with the Securities and Exchange Commission on March 31, 2026, as may be amended or supplemented by other reports the company files with the Securities and Exchange Commission from time to time. Forward-looking statements include statements regarding the company's expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as anticipate, believe, could, estimate, expect, intend, may, should and would or similar words. All such forward-looking statements that are provided by management on this call are based on the information available at this time, and management expects that internal expectations may change over time. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Except as otherwise required by applicable law, the company assumes no obligation to update the information included on this call, whether as a result of new information, future events or otherwise. Now with that, I'm going to turn the call over to Michael Mo, Chief Executive Officer of KULR Technology Group. Michael, the call is yours. Michael Mo: Thank you, Stuart. Good afternoon, everyone. Thank you for joining. 2025 was a difficult year for our shareholders and for our company. Share price declined significantly, and we recorded a net loss of approximately $62 million. The majority of this loss was driven by onetime and noncash items, but it was still a loss. Our investors, shareholders, internal team members and I all felt the effects of this loss. We recognize the impact this has had, not just on our investors and shareholders, but also on our employees and partners who are deeply invested in our success. I feel that way alongside all of you. I want to acknowledge this directly. Equally as important, I want to separate what affected performance in 2025 from what matters most to the business going forward. In 2025, KULR continued to grow and invest in its core business, the KULR ONE battery platform for energy storage systems. Adversity brings clarity. It sharpens our focus, reinforce our discipline and remind us exactly what must be done. We're taking these lessons forward with urgency and intent. Our foundation is strong, our direction is clear, and we committed to executing with precision and accountability in 2026. What I want to do today is go through what we built in 2025, what we believe is the right foundation and what realistic 2026 growth execution looks like. KULR designs and builds advanced battery systems for autonomous platforms, digital infrastructure, electric transportation and space exploration. KULR ONE is our battery platform. Our progress in 2026 will be judged by core battery revenue growth and improvements in gross margin as volume and automation increase. The mission for 2026 is clear: eliminate distractions and execute with discipline. Our singular focus is to build and sell more KULR ONE batteries. That's the work, and we will do it relentlessly. I would now like to walk you through some of the 2025 financial reportings and the situation surrounding them. Shawn Canter will provide a full financial summary during his portion of the call. Under GAAP accounting, KULR recognized an unrealized mark-to-market adjustment of $13.8 million on its Bitcoin holdings for 2025. The adjustment reflects the change in Bitcoin price at the end of 2025. While this is an expense, it's not a cash expense. We have maintained our Bitcoin treasury of approximately 1,082 Bitcoins without selling any coins. We invested in and formed a distribution relationship with a private exoskeleton company. In late 2025, that company filed for insolvency. We took the full write-off of approximately $6.9 million. Clearly, this investment did not work out. The investment and the distribution relationship with this entity have been ended and the full account is in the 10-K. The lesson is clear. We must be disciplined in how we allocate capital and resources, prioritizing the growth of our core battery platform and focusing on opportunities where we have greater operational control, strong commercial visibility and direct alignment with our strategic priorities. Battery platform revenue, which is product sales plus contract services was $7.3 million in 2025. That's the commercial baseline we're scaling from in 2026. Revenue was $16.1 million, up 51%. Most of that growth came from Bitcoin mining and battery research grant dollars. The number that matters most to us in 2026 is the battery platform revenue. That's the business we're building KULR ONE around, and that's where we need to demonstrate growth. $7.6 million is where we start. I would also like to address the product sales gross margin of 1% in 2025. KULR ONE gross margin at current production volume reflects the economics of an early-stage manufacturing ramp. Three factors are driving the current cost structure. First, material pricing at current volume is high. Second, the fixed facility costs are spread across a production base that has not yet reached high throughput. Third, each new customer program carries engineering and design costs that are concentrated in early production runs before volume scales. As programs mature and volume increases, those program level costs will be absorbed across a larger number of units. All 3 of these factors compressed margin at the start of a production ramp. They will improve as volume grows. To address these, 3 actions are already in motion. First, programs that began as early prototypes are transitioning to production. Many KULR ONE Air drone battery programs are moving along that curve. Each program that crosses from prototype to volume production shifts from a cost center to a margin contributor. Second, we're installing an automated production line in second half of 2026. Automation reduced per unit labor cost and improves yield consistency at scale, both of which will directly impact gross margin. Third, the KULR ONE platform itself is maturing. As more programs are built on the same modular architecture, engineering and design work required to onboard new customers decrease. That ratio continues to improve as platform accumulates application experiences across defense, aviation, telecom and data center use cases. In summary, we do not view 2025 margin profile as the end state of the business. We view it as the current economics of low-volume production before programs mature, automations in place and production volume grows. What we built in 2025 is the foundation for our growth in 2026. Our headquarters facility is a vertically integrated battery production center from design, prototyping, cell screening, qualification test to volume production. We're working with domestic battery cell suppliers to strengthen our NDAA compliant supply chain and our customer base has grown across 6 diverse industries. We have an experienced and dedicated team, solid financial resources and a broad customer base to grow our business. We have learned the difficult and valuable lessons. We're now focused on execution, ship more batteries. You may ask the question, why now? Why 2026 is the year for change? High-growth markets that KULR serves, autonomous platforms, direct energy systems, digital infrastructure, they all share a common technical constraint, power density. The demand for high-power battery pack has emerged, and that's the biggest growth driver for us. The requirement is not simply to store more energy, but to deliver at high C-rates than the standard battery. Oftentimes, this must be done in challenging environments that include extreme temperatures, high G-force, vacuum conditions and underwater pressure without thermal failure. That's not a commercially available battery problem. That's a specialized battery problem. It requires a battery architecture specifically designed for high-power and thermal stress operation. Simply put, these customers often cannot rely on off-the-shelf battery packs. They need high performance, safety and reliability, all in one package that can deliver fast at commercial prices. KULR ONE is built to that specification. It starts with building the right architecture and then select the right battery cell partners. KULR ONE is a modular and customizable architecture to meet customer needs across multiple end markets. We currently have over 30 active customer development programs in KULR ONE Air, KULR ONE Space, Guardian and Triton, which is our new maritime platform. Those programs are at different stages from evaluation to development through more advanced commercialization work. They represent a broad pipeline of revenue growth for KULR ONE as we move these customers from design into production revenue in 2026 and beyond. KULR's cell partnership reflect the same focus. We have worked with both Amprius and Molicel for a long time. They focus on high-power and high-energy density batteries. Those partnerships are a deliberate long-term strategy to maintain access to the most capable battery cell technology available as power density requirements with KULR's markets continue to advance. The combination of KULA ONE system architecture and advanced power cells from our partners give our platform a development road map that extends well beyond the current production configurations. Next, I'll give you an update on our KULR ONE Air. KULR ONE Air, which was launched last year to support the drone industry is now expanded beyond just air-based autonomous systems. Just in the KULR ONE Air category, we have over 20 active engagements to develop specialized battery systems for many high-profile unmanned systems companies that operate in the air, ground and maritime markets. The intensive work accomplished in 2025 to ramp our engagement with these demanding customers will start to become apparent in 2026 as their programs and system evolve from development to deployment. Let me share with you why KULR ONE Air is the right platform for this market. Autonomous systems like drones and robots operate by executing rapid and high-intensity physical action. Their motors accelerate a takeoff. Gimbals stabilize under heavy load. Sensors are firing at the same time and their control systems respond in milliseconds. Each of these actions demand a large amount of current and power delivered instantaneously. Energy batteries, the kind of optimize for energy density and releasing it gradually over a long period of time cannot respond fast enough and sustain the discharge rate, these actions require without overheating or collapsing the voltage. A power battery is designed around the opposite priority. It's built to deliver power at 5 to 20x faster than energy batteries. It also needs to sustain that output through repeated high demand cycles, and it needs to manage the heat generated by the power without failure. For autonomous system where the motor, the sensors and the computers are all cranking at peak current at the same time, only a power optimized architecture can keep up. The engineering challenge of a power battery is not simply to build a bigger or stronger version of an energy battery where heat and thermal stress is manageable. For power batteries, heat dissipation becomes the primary engineering constraint. The design needs to be lightweight enough for the platform to fly and high component and manufacturing quality to sustain the performance. For example, a single defect in welding and soldering joints will result in such a high-energy battery creating a resistance point that at high discharge rate generates enough localized heat to drive the entire pack into thermal runway. KULR ONE address each one of these constraints through a combination of engineering expertise, proprietary technology, thermal control, component integrity and build precision. That's what separates KULR ONE battery that perform in the field from one fails under operational load. Our current engagements span agriculture, survey, law enforcement, defense drone programs and surface and subsea maritime vehicles. The breadth of the applications reflect the platform's configurability. It's the same KULR ONE architecture adopted to the specific power, weight and certification requirements for each platform. KULR has shipped thousands of these drone battery packs to date. We're engaged with 2 of the leading unmanned aerial system companies in the United States with a combined production volume target to approach 10,000 packs per month in second half of 2026. These are active engineering partnerships with production time lines, pack configuration and qualification schedules already in place. Another point -- another important point I'd like to make is about supply chain resilience, namely NDAA compliance that stands for National Defense Authorization Act. The NDAA compliance is a procurement requirement for government and defense adjacent customers. KULR entered a joint development collaboration with Hylio to design, prototype, qualify and manufacture NDAA-compliant battery systems in Texas. Hylio is a Texas-based designer and manufacturer of drones for agriculture and public sector programs where NDAA compliance becomes important. Both the batteries and the drones are made in the United States. Next, I'll give an update on our other KULR ONE programs. KULR ONE Space and KULR ONE Guardian are the 2 programs that set the performance standards for the entire KULR ONE portfolio, both operating environments where battery failure is not recoverable, human space flight, deep space missions and active military operations. The engineering standards that we develop for these programs are what the rest of the KULR ONE platform is built on. Every performance requirement met in the spacecraft or combat system, propagation resistant, thermal stability under extreme conditions, certification under scrutiny raised the engineering baseline that KULR ONE Air, Max and Triton inherit. Customers in defense drones, electric aviation, AI data center programs are buying into this architecture that has already been qualified in the most demanding operating environment. KULR continue to see adoptions across the space sector. The XLT and the Reach series batteries are in active use across multiple satellites in both LEO and GEO applications. The Reach series currently is in multiple unit deployment on 4 partner satellites. Next, I'll talk about what are the competitive advantages of the KULR ONE platform. The #1 competitive advantage for the KULR ONE platform is the performance, safety and quality standards the platform was built to. KULR ONE's core IP originated by the work we've done with NASA Johnson Space Center. The architecture was designed for human-rated spaceflight applications, environments where battery failure is not a recoverable event. Zero propagation failure has a propagation containment. That heritage is the engineering foundation that makes KULR ONE the correct choice for applications where performance and safety are both nonnegotiable. A perfect example of that advantage is our partnership with Robinson Helicopters. Robinson Helicopter Company has manufactured more civil helicopters than any other company in the world in its 50-year history. They have manufactured more than 14,000 helicopters. The procurement standards for safety critical systems are established and rigorous. They valued KULR ONE and selected to be their next electric aviation platform. That decision is important because it further validates the engineering standards KULR ONE was built to. Under this co-development agreement, KULR will design and integrate a lightweight, high-performance battery architecture for the eR66 battery-electric helicopter demonstrator. We're building a dual life architecture, which means that each pack is engineered from day 1 for 2 years. First for primary flight cycle and a certified second life energy storage application. This model creates 2 revenue streams for KULR. The primary use case are rapid organ and tissue transport, emergency response and short-haul operations where zero emission performance and low acoustic signature are operational requirements. Second life energy storage is for industrial and digital infrastructure applications. Execution speed is another KULR ONE advantage. Not speed is a marketing claim, but speed as a demonstrated and repeatable engineering capability. In November 2025, we received a purchase order for a 400-volt battery system to power a Counter-UAV (sic) Counter-UAS direct energy platform. Five weeks later, we developed -- we delivered a complete design package to work in prototype. Achieving that time line was made only possible because of the deliberate engineering foundation we built in 2025, including model-based electrical and thermal simulation, proprietary cell selection, design for safety architecture and in-house integration running electrical, mechanical and firmware developed, all in parallel. This system is scheduled to enter production in 2026. Next, I'll provide an update on KULR ONE platform for digital infrastructure and AI data center applications. Our digital infrastructure strategy addresses 2 distinct but related segments, telecom network backup and AI data center power. Both require battery systems that must perform reliably, but in different operating environments. Telecom sites face grid instability across diverse geography, while AI racks increasingly require battery integration closer to the compute equipment itself rather than rely on centralized UPS systems. Telecom operators depend on the battery backup as a primary protection against grid interruptions. 5G infrastructure laws are raising the performance and uptime requirements for those systems beyond what legacy lead acid installation can meet. In January 2026, KULR was awarded a 5-year preferred battery supply agreement from Caban Energy, a Miami-based company that deliver energy as a service to telecommunication operators across 12 countries. As part of that transaction, KULR has taken full control of the battery manufacturing equipment and process, and we've commenced production. Production battery packs were delivered to Caban in Q1 of 2026. We plan to consolidate full operation into our Texas facility in Q2 to improve efficiency, reduce overhead and centralize operation as we grow. We now have the supply chain set up for the 48-volt 100-amp hour battery production and the focus is to deliver batteries to meet growing Caban demands. Beyond that agreement, we're in active engagements with telecom operators and service providers directly with our KULR ONE battery as a Service offering. These are separate from the Caban channel and represent KULR's effort to build direct recurring revenue relationships in the telecom segment. Data centers have traditionally handled battery backup the same way with large power systems installed in a dedicated room, separate from the computing equipment they protect. That model is changing. As AI workloads grow and hardware running them becomes more power intensive, the industry is moving towards battery backup installed directly inside the computing rack. The battery is no longer just a facility utility. It's become part of the compute infrastructure itself. That shifts create a different set of requirements. A battery that operates inside the rack next to the processor, it protects needs to meet much higher safety standards and need to handle higher voltages and respond much faster than conventional backup systems. At the end of last year, KULR joined the Open Compute Project as a Platinum member. OCP is an industry body whose specifications define how hyperscalers and large cloud operators build their infrastructure. Platinum membership places KULR in the working groups writing the next generation of power standards and position us inside the relevant technical working groups and help us to build a product in line with where the market is going. In the same month, KULR created a joint development collaboration with a leading global battery cell manufacturer to develop the KULR ONE MAX BBU for AI scale data centers. KULR leads the system design, safety engineering and certification, while the cell partner supplies the battery cell platform for the life of the commercial program upon certification. The opportunity is significant, and it depends on certification, qualification and customer adoption time lines. The same trend that are driving record level battery demand in large data centers is also driving demand at the edge. AI inference, the process of running AI models to generate response is moving out of the central data centers into network itself closer to the end user. That means that the computer hardware and the battery backup protecting it must operate in telecom facilities, cell towers and distributed network nodes. The environmental and reliability requirements at these locations are more demanding. This is where the AI data center opportunity and the telecom opportunities converge. The battery requirements are related, the customer base overlap and KULR ONE is the same architecture to save both. Next, Shawn Canter will discuss financial highlights. Shawn? Shawn Canter: Thanks, Mike. 2025 was an important year for KULR. As Mike mentioned, it marked a transition to a scalable product-focused model. Let me touch on a few points from 2025 before we get to the Q&A. KULR generated over $16 million in revenue in 2025. This is a 51% increase over the prior year. As we have previously discussed around our focus on product, our product revenue increased and our service revenue declined. Product revenue was up 39%, while service was down 50%. Again, while we expect to have some service business, we anticipate continued growth to come from the product side of the business as we scale into the large end markets Mike discussed earlier. Product revenue came from 47 customers in 2025. Revenue per customer was approximately $108,000 or 56% higher than 2024. Services revenue came from 34 customers, the same as 2024. Services revenue per customer in 2025 was approximately $65,000 or 50% lower than 2024. Mike touched on gross margins earlier. We have set out in detail information about gross margin, R&D and SG&A in the Form 10-K filed today. KULR recorded an approximately $62 million net loss for the year. There is an aggregate of approximately $33 million of noncash expenses on the income statement that contribute to the net loss. These represent almost 55% of it. As Mike mentioned, the largest of these is an approximately $14 million mark-to-market expense due to the decline in the price of Bitcoin. As a reminder, in the second and third quarter, Bitcoin's ascending price contributed a noncash gain to those quarter's results. Now let's get to the Q&A. Back to you, Stuart. Stuart Smith: All right. Thank you very much for that, Shawn. And as mentioned, that now takes us into the question-and-answer portion for our call today. And here's the first question. Can management speak to which markets are seeing the most momentum today and where early customer interest is starting to turn into repeat business and meaningful revenue? Michael Mo: Yes, Stuart, I'll take that one. I would say the KULR ONE Air for the autonomous platforms are the clearest near-term production momentum. It has expanded beyond the airborne drones to surface and subsea maritime applications as well as land applications. We now have over 20 active customer development agreements or programs across our KULR ONE Air platform. Thousands of battery packs have already been shipped and 2 of the leading drone companies in the U.S. have active production time line with us, pack configurations, qualification schedules in place, and we're looking at over 10,000 battery packs per month later 2026. I would say that's the market has the highest momentum these days. Stuart Smith: Thank you for that, Michael. Here's the next question. Could you give an update on where KULR is positioned in the AI data center backup power market? And what investors should be watching for to know whether this can become a meaningful source of growth? Michael Mo: Yes. We start developing our AI data center BBU product in 2025. And at the end of 2025, we joined the OCP platform membership and which positions us inside the working group that writes the next generation of the power standard for these hyperscaler infrastructures. So now we're building products to meet where the market is heading for the next cycle of growth. 2026 is the year that we really need to work with our BBU cell providers on the UL 9540 certification and work with the hyperscaler customers on integration work. And I would say that 2027 is the year that we can see revenue opportunities. Stuart Smith: Next question. Where do things stand in telecom and energy infrastructure? And what still needs to happen before those opportunities can start contributing in a bigger way? The Caban announcement was a great start. Michael Mo: Yes. We've taken control of the battery manufacturing equipment and process from Caban, and we've commenced production. Production battery types have been delivered to the customer, and we plan to consolidate that into our Webster facility in Q2 and improve efficiency to reduce costs and also centralize operation as we grow. We now have supply chain set up for the 48-volt 100-amp hour battery production, and the focus is now to deliver batteries to meet the customers' needs. In addition, we are in active engagements with telecom operators and service providers directly to provide KULR ONE batteries as a battery as a service offering that's separate from the combined channels. So we're starting to test the water to offer that as the battery as a subscription service. And the goal is to lower the total cost of ownership for operators to replace the lead acid batteries into lithium-ion batteries. Stuart Smith: Michael, since KULR is involved in several areas like aerospace, defense, telecom, e-mobility and data centers, where is management most focused right now? And where will most of the company's attention and resources go over the next year? Michael Mo: Yes. The focus for 2026 is simple, build and sell more KULR ONE batteries. The management is most focused right now on the KULR ONE Air platform. That's the one that shows the highest growth with our customers. I think I repeated it now that we have over 20 active customer engagements for the autonomous systems for air, land and maritime, and we shipped thousands of the battery packs for the customers. And this is the one that we see the highest growth in 2026. Stuart Smith: Looking at the rest of 2026, what are the biggest goals and milestones investors should be on the lookout for? And what would management consider a successful year? Michael Mo: Well, I think that the -- across our portfolio, the KULR ONE Space and Guardian products will continue to gain customer traction. As you know, the private space exploration and the DLW the market is also very growing very quickly. The telecom batteries, we're shipping volume to our customers to meet their demands. We have some new telecom operators that hopefully will get contracts in 2026 for Battery as a Service. Keep in mind that these operating engagements can take some time, but I think it could be a very good recurring revenue business for us. The first is the -- but the most important is the KULR ONE Air product that's going to ramp and scale with our customers. And I think the baseline is 10,000 packs per month as we get our automated production line going. So I think these are the big ideas for our goals. Stuart Smith: Okay. Excellent. Next question then, how stable and repeatable is the KULR ONE platform revenue base becoming? Michael Mo: Yes. Like I said in the prepared remarks, what has fundamentally changed for KULR in 2026 compared to previous years is that the need for power battery pack has emerged for these very fast-growing new markets, autonomous platforms, digital infrastructure and direct energy. KULR ONE is engineered from the ground up to serve this paradigm shift. And our customer engagements are now broader industry coverage. The customers are very diversified in different markets. And we also have a lot more customers and they all have their programs that's running, and we're customizing our solutions specifically for their programs. And these customers have their own road map to ramp in volume in 2026. And that gives us more confidence and build our production capability to serve these customers on schedule. We're certainly moving to a more stable and repeatable product sales business model in 2026. Stuart Smith: All right. Michael, next question is, as space-based AI data centers become more of a long-term discussion point, does KULR see a potential role there given its background in space applications, thermal management and battery safety? Michael Mo: Well, first of all, I think this is a long-term conversation, and it is not something KULR can focus on in 2026. But the space-based AI data center is probably one of the biggest and the hardest idea right now. Elon Musk talked about it. He believes that the best way to solve the difficulties of building AI data center on earth is to move them into space. And at GTC 2026, NVIDIA launched the Space-1 Vera Rubin module along with their Thor and Jetson platform. And these are engineered to deliver AI performance for the open data centers. And on top of that, how to cool chips in space is still an unsolved problem. These data centers will definitely need to use space-proven batteries. And some of these private space companies that NVIDIA is working with for space AI data centers are already KULR customers. So I think there might be opportunities, but not particularly a focus for us in 2026. Stuart Smith: Understood. Here's the next question. You have recently announced drone partnerships with Hylio, a backup power partnership with Caban Energy and a standards body looking to modularize AI data center building blocks. These 3 initiatives represent a large market opportunity, but how much, if any, will you see in 2026? Michael Mo: Yes. Hylio and Caban are both 2026 revenue contributors, Caban in production by now and grow for the remainder of 2026. Hylio is an active engineering collaboration right now and revenue will follow qualification and production milestones as program move from prototype to volumes. And we do expect that the Hylio revenue in second half of 2026. The AI data center BBU business, as I talked about, it will be more like a 2027 business for us. Stuart Smith: Michael, here's the final question for today's call. In regards to your ability to power drones. Given the recent developments globally, are you aligning yourself with companies that plan to rapidly increase output as a result? Michael Mo: Yes. KULR ONE Air for drone, autonomous platform is the focus for KULR 2026. We have many active engagements for air, land, maritime applications. And many of them will go to production in 2026. And we're setting up an automated production line for those platforms, for those batteries in -- to be in operation in second half 2026. Also related to the drone is the counter drone direct energy systems, and we develop a 400-volt battery for a customer in 5 weeks' time from when we receive the PO. And that's actually a record time for a system like that. And these systems will go into production in 2026. Another one that's really important is NDAA compliant. So that's for domestic production. A lot of times, that's a structural requirement for government drone programs. And this is why we partnered with Hylio to build made in U.S.A. batteries and drones together. So we are very well positioned to serve many of these customers that's growing very fast for both defense and commercial applications in 2026. Stuart Smith: Well, as mentioned, that's our final question for today's call. I do want to point out, as we do in all of these calls that all you need to do is pull up the press release that came out for this call, which came out March 26, and continue to send your questions in throughout the quarter leading up to our next call. We appreciate all of those who did submit calls for questions for today's call. And I would like to thank Michael Mo, CEO for KULR Technology as well as Shawn Canter, the CFO for KULR Technology Group for joining us here today. That concludes our call, and I will now turn the call over to our operator. Operator: Thank you. This does conclude today's webcast and conference call. You may disconnect at this time, and have a wonderful day. Thank you once again for your participation.
Mark Allen: Good morning, everyone, and thank you for joining us. We're pleased to present our 2025 full year results today. Joining me this morning are Matt Osborne; Mel Chambers, COO for the East region; Samy Zekhout, COO for the West region; and Martyn Espley, Investor Relations Director. You all know Martyn and are getting to know Martyn, but I also think it's important that you get to meet more of the wider leadership team, and I'll ask Mel and Samy to say a few words about themselves when they present later. I should mention Hannah Surtees is also with us today. Hannah has handed over the Investor Relations button to Martyn. Going forward, she's going to head up our communications team and work closely with me on our strategy. I'd like to thank Hannah for the sterling job she's done in recent years and say how much I enjoy -- I'm enjoying working with her. Over the next 35 minutes, we'll take you through the key highlights of the year, including our financial performance and our refresh strategy. Then there'll be time for questions. Let's start with our 2025 full year. Overall, we delivered solid financial performance in what has been a challenging operating environment. Adjusted profit before tax was GBP 73.2 million, which is down around 3% year-on-year. This reduction reflects the impact of the disposal of Fairfax Meadow together with the challenges in our seafood businesses and Dalco. Importantly, performance in our core meat operations in this challenging environment was stable. This demonstrates the resilience of our core business. We made good commercial progress during the year. We secured contract extensions in both the Netherlands and Denmark. This reinforces the strength of our long-standing customer relationships and the value we continue to deliver to our retail partners. In terms of our growth investments, our projects in Canada and Saudi Arabia remain on track. These are important platforms for future expansion, and we continue to expect them to contribute from 2027 onwards. Alongside this, we are planning to invest up to GBP 30 million to expand capacity in Poland. This will enable us to benefit from attractive growth opportunities in fresh prepared foods. It will also strengthen our position in Central Europe. Looking ahead, our 2026 outlook remains unchanged since the January trading update. We expect adjusted profit before tax to be in the range of GBP 60 million to GBP 65 million. This year-on-year reduction largely reflects continued challenges in our seafood, vegetarian and vegan businesses. We remain cautious on the impact of red meat inflation. Finally, we've refreshed our strategy. Going forward, we will focus on growth plans and investment in our core meat and fresh prepared food activities. We will also implement plans in Seachill, Foppen and Dalco to improve performance and increase strategic optionality. As part of our strategic refresh, we've also updated our financial framework. We have a clear focus on delivering sustainable profit growth, disciplined investment and compelling returns for shareholders. So while 2025 has had its challenges, we have made important changes in several areas and continue to position the business for long-term growth and value creation. I'll now hand you over to Matt to take you through our full year 2025 performance. Matthew Osborne: Thanks, Mark, and good morning to those of you in the room and those of you listening in. I'll now walk you through our 2025 financial results, highlighting the main drivers of volume, revenue, profit, net debt and cash flow. I'll also touch upon the outlook for 2026 before handing back to Mark. As we saw in the first half of the year, our full year performance was underpinned by continued resilience within our core meat and fresh prepared food businesses, which now account for around 90% of our revenue. This is a testament to the strength of our core business model and the expertise and commitment of our teams. As we've previously highlighted, our seafood vegetarian and vegan businesses are facing challenges and our strategic review, which Mark will introduce shortly, seeks to address them. Before then, though, let's take a closer look at the numbers. First, the headlines. Volumes from our continuing operations, so excluding Fairfax Meadow, which we sold in September last year, were up 0.2% against a highly inflationary environment, which drove revenue up 11.9% on a constant currency basis. Constant currency operating profit fell by 4.4%, reflecting in particular the challenges in the U.K. seafood business, and I'll cover profit in a little more detail shortly. The resulting operating profit margin was 2.3%, down from 2.6% last year. In line with the guidance we provided last November, profit before tax was GBP 73.2 million, down 2.8% and from continuing operations, so again, excluding Fairfax Meadow, profit before tax was GBP 69 million, down 1%. Adjusted earnings per share of 56p was 7.4% lower, reflecting a slightly higher tax rate of 30% due to the impact of truing up some historic tax allowances. Our strong financial position and confidence in the medium-term outlook means we are maintaining our commitment to a progressive dividend policy with the final dividend flat, the full year dividend per share is up 1.4% to 35p. Net debt improved slightly year-on-year with significant cash inflows in the second half from divestment proceeds and a partial unwind of working capital. This was despite the planned increase in growth capital with 2025 being the main year of spend on our Canada project. Moving to revenue. With volumes and mix broadly stable, an 11.9% increase in constant currency revenue was almost entirely down to increases in raw material input costs. On mix, we continue to see a shift in the U.K., in particular, with lower-cost products forming a higher proportion of our overall volume. However, multi-buy and promotional activity were a positive for us in Australia. The relative strength of sterling versus the Australian dollar remained a headwind, albeit partially mitigated by a strengthening of the euro in the year. Now moving to show volume and revenue by region. I've shown a version of this chart before, but I've split out our seafood, vegetarian and vegan businesses to demonstrate the performance of our core meat businesses. These numbers also exclude Fairfax Meadow. In the U.K. and Ireland, core meat volumes remained resilient and were only down slightly despite significant inflation in beef of more than 30%. The impact of this inflation can be seen in revenue increases of 23.5%. European volumes were stable overall, including double-digit growth in fresh prepared foods in Central Europe and the benefit of new customer volumes in Denmark. Revenue growth was less material than in the U.K., reflecting a more diversified mix of meat products. And APAC again delivered volume growth despite the reemergence of raw material inflation. Seafood, vegetarian and vegan volumes were down 2.6% with price inflation weighing heavily on whitefish volumes in the U.K. Foppen volumes were relatively stable as we continue to meet customer demand despite the regulatory restrictions on our facility in Greece. And Dalco volumes were up, albeit from a low base. Revenue was down by more than volume despite the whitefish inflation with market salmon prices 17% lower in 2025 than in 2024, reducing Foppen revenues. Moving now to profit. Operating profit from our core meat and fresh prepared food businesses were slightly up year-on-year with the volume growth in APAC being the main driver, given the cents per kilo fee structure there. Seafood, vegetarian and vegan operating profit was materially down, however, with Seachill moving into a loss-making position, reflecting the pressure that lower volumes puts on gross profit. Foppen's underlying profit was stable, albeit there were material non-underlying costs that I'll cover shortly. We delivered an improved result of Dalco, although the business remains loss-making. Central costs were lower as were interest costs, reflecting lower market rates. Before the negative impact of FX due to the weaker Australian dollar, in particular, group PBT on a constant currency basis was down 2.8%. After excluding the contribution from Fairfax Meadow, which we sold in September, it was down 1%. Nonunderlying and exceptional items excluded from the underlying results represent a net profit of GBP 29.3 million in the period, albeit there were a number of moving parts. The biggest cost related to Foppen. We incurred cash costs totaling GBP 9.2 million relating to the relocation of production from Greece to the Netherlands to ensure continuity of supply to our customers in the U.S. while also using air rather than sea freight to ensure an appropriate level of inventory. We expect regulatory restrictions to be in place for at least the first half of 2026 and expect some further Foppen-related exceptional costs this year. In addition, we wrote off inventory that could not be delivered to the U.S. or resold elsewhere, resulting in an GBP 18.4 million charge. We incurred reorganization and restructuring costs of GBP 9.6 million compared to GBP 4.2 million in 2024, and this reflects the ramp-up of our transformation activity and group reorganization in order to support long-term efficiency and growth. We expect these costs to continue in the range GBP 5 million to GBP 10 million a year over the next few years, and this spend will help underpin our medium-term growth objective,s, and we'll provide some more detail on our transformation program in the strategic update section shortly. Last, but certainly not least, we recognized profits on disposal of GBP 66.5 million relating to the sales of Fairfax Meadow and Foods Connected. Both of these transactions are steps towards simplifying our portfolio whilst also realizing significant value for the group. Now moving to net debt and cash flow. Net bank debt improved slightly in the year despite a free cash outflow. This includes the impact of material cash inflows from the disposal of Fairfax Meadow and Foods Connected as we realize value through portfolio simplification. Exceptional cash flows relating to Foppen and wider group transformation and restructuring totaled GBP 18.9 million, and we returned GBP 31.5 million to shareholders in 2025, consistent with our progressive dividend policy. Net bank debt of GBP 126.7 million results in net debt-to-EBITDA of 0.9x, remaining at very comfortable levels. And in February of this year, we successfully refinanced our bank facility, which now provides an increased GBP 450 million of revolving credit facilities for at least the next 5 years, providing flexibility to deliver future growth opportunities. In addition, these bank facilities are enhanced by the ongoing benefits of our lease and customer supply chain financing with margins typically 0.5 to 1.5 percentage points lower than our bank facility. Let me touch on our free cash outflow. The group remains intrinsically cash generative and retains a strong balance sheet. This strength provides flexibility to allocate capital to benefit the group over the longer term. In 2025, this included the investment in inventory to ensure we'd be able to deliver excellent service levels to our customers during peak trading periods in the second half of 2025 and into 2026. It is important we continue with disciplined investment in our existing facilities, ensuring they run efficiently and continue to support growth. Core net capital expenditure of GBP 46.5 million was lower than last year and included spend on capacity increases at Hilton Food Ireland. It also included further investment in Sweden, where we've installed frozen burger production lines, a new category in our partnership with ECA. 2025 was also the main year of investment in our expansion into Canada. We've now spent GBP 55 million in total on the project, with the remaining project costs being incurred in 2026. The project remains on track for full launch in 2027. Before I hand back to Mark, let me cover the outlook. We've traded in line with our expectations in the year-to-date and continue to expect 2026 adjusted PBT in the range of GBP 60 million to GBP 65 million, unchanged from the time of our trading update in January. As we said at the time, the expected reduction in profit is predominantly due to continuing challenges in Seachill, Foppen and Dalco. Our core meat business continues to prove resilient and volumes over the first part of this year were solid. However, given the economic backdrop, it is right we remain cautious on the impacts there may be on meat demand due to inflation. We are also mindful of any potential direct or indirect impacts of the current situation in the Middle East. We would expect net debt to increase in 2026. Core CapEx will be GBP 50 million to GBP 55 million within our expected range. However, total CapEx will remain elevated as we complete our project in Canada and expect to commence spend on our planned capacity expansion in Poland. Both of these projects will create value for shareholders and are expected to contribute to earnings in 2027. One of the reasons we remain positive about the medium-term and long-term outlook for the group. I'll be back later to summarize our refreshed capital allocation framework and medium-term financial targets. But for now, let me hand back to Mark. Mark Allen: Thanks, Matt. Mel, Samy, Matt and I will now take you through a summary of our strategy. This is based on the review we've recently completed. We aim to be the international red meat partner of choice. Aligned with that, in certain appropriate geographies, we have a developing fresh prepared food business that we'll invest in where the returns are attractive. What gives us confidence in this ambition is the structural strength of our core meat businesses. We operate long-standing partnerships with leading retailers. We benefit from high barriers to entry in our markets. We have a proven operating model that is delivered consistently over time. However, this strategy is not only about defending what we already have. We also see significant further growth potential, which we will unlock through a combination of portfolio optimization, targeted investment and the evolution of our operating model. Simply put, this is a strategy that builds from a position of strength and our core capabilities. Importantly, we will be very deliberate about where we invest to drive future growth and attractive returns. Before we provide a bit more detail on our growth potential, let me put it in context against our recent track record. As you can see from the chart on the left, operating profit from the group's core activities excluding Fairfax Meadow, Seachill, Foppen and Dalco has grown by 4% on average since 2022. This demonstrates the strength and stability of our core meat and fresh prepared food operations. On the right, you'll see the building blocks that underpin future growth. The expected reduction in profit in 2026 compared to 2025 is largely down to the challenges faced by Seachill, Foppen and Dalco. We expect profit from our existing core business to be relatively stable and remain so moving forward. This will be supplemented from 2027 by our projects in Saudi Arabia and Canada. We expect to realize the full benefits from these in 2029. We also expect to deliver growth from our focus on our fresh prepared food product offering and multi-customer models in certain markets. We'll provide some color on this shortly. All this results in mid-single-digit average operating profit growth per year with potential for adding additional growth beyond from value-adding investments. Here are the 3 levers that will drive this growth over the medium term. The first is maximizing the core. Here, our focus is on reinforcing our leadership in retail meat by maintaining the structural advantages we built over many years. At the same time, we're driving continuous efficiency improvements to maintain margin resilience. This ensures that the core business continues to generate stable and predictable cash flows. The second lever is enhancing the mix. We are actively increasing our exposure to higher-margin segments where we have an opportunity to win. This is particularly the case in value-added meat and fresh prepared foods. These categories offer faster growth and attractive returns. They allow us to better serve evolving customer and consumer needs. Mel will talk about expansion plans in our Poland business shortly. The third lever is geographic expansion. We will continue to replicate our partnership model in underpenetrated and high-growth markets. We will work alongside anchor retail partners to leverage our expertise and scale. Taken together, these 3 levers create a balanced growth profile. They support stable cash flows, high margins and faster overall growth while reducing our reliance on volume alone. While the framework itself is simple, the value creation potential from executing it well is significant. A key part of enhancing our mix is optimizing our portfolio, particularly in seafood and meat alternatives, where performance has been volatile and unsatisfactory. These businesses have limited synergy with our core meat capabilities. We are taking a very focused and disciplined approach and will limit future investment across the 3 businesses, Seachill in the U.K., Foppen and Dalco. Across these businesses, the overarching objective for the group is consistent to reduce earnings volatility, improve returns and create greater flexibility and optionality for future value realization. In Seachill, our priorities are operational recovery, cost reduction and product focus. This should allow us to rebuild margins. In Foppen, we are operating in an increasingly consolidating smoke salon market. Our focus here is on driving volume through best-in-class quality, customer service, competitive pricing and continued innovation. We will also address the challenges that are continuing into 2026. We resumed sea freight shipments to the U.S. and are actively rebuilding the stock pipeline. We continue to engage with U.S. regulators to lift the restrictions on our Greek facility. Encouragingly, underlying retailer demand remains strong. In Dalco, the priorities are to improve operational performance and win new business. We're aiming to put the business in a stronger position operationally and financially, giving us greater flexibility in how we create value from it. I will now hand over to Mel, who will then hand over to Samy to help bring our growth strategy to life with specific examples from our East and West regions. Melanie Chambers: Thank you, Mark, and good morning, everyone. Having recently stepped into the role of Chief Operating Officer for the East, I'm extremely excited about the opportunities that lie ahead in my region and the refreshed group strategy. More broadly, I bring with me more than 25 years' experience from across the food industry with a strong focus on operating globally. When I joined Hilton Foods in 2022 as the CEO for the APAC region, I spent considerable time strengthening the customer relationship, building deeper alignment and developing a regional leadership team for future success. As we move on to competitive positioning, there are 3 key areas of focus that will underpin how we maximize our core meat capabilities. First is manufacturing excellence. We are driving continuous efficiency and improvement across all our operations, and this is supported by a clear automation road map. At the same time, we are maintaining a very disciplined approach to cost control, particularly within central functions, and this ensures that we avoid any unnecessary or duplicated overhead. Second, innovation and category leadership. We continue to enhance our capabilities in value-added products, working with our partners to develop new target product ranges that align closely with consumer demand. We are also expanding into adjacent categories such as slow cook products, where we see attractive growth opportunities. And third is our security of supply. We will continue to develop our global red meat sourcing center of excellence, which allows us to leverage our scale more effectively while also using our local sourcing capabilities to ensure resilience and availability in each of our markets. Together, these initiatives will ensure that we improve our competitive advantage, continue to support our retail partners effectively and position the core business for sustained market outperformance. This slide now provides a clear example of our strategy to enhance our mix through our planned investment in Poland. We see a compelling opportunity in fresh prepared foods in Central Europe, driven by strong underlying demand and forecast market growth of around 8% per year. At the same time, our retail partners are increasingly looking for value-added solution, which plays directly to our strengths. Our planned investment of up to GBP 30 million over 2026 and '27 will expand capacity, increase automation and enhance our processing capabilities. Importantly, this will allow us to differentiate our offering through improved shelf life and product innovation. And from a financial perspective, this is a highly attractive investment. It is expected to generate returns well above our cost of capital with return on capital employed above 20% over the life of the project. It will also be accretive to the group's margin mix. And this is a good example of how we can deploy capital in a disciplined way to drive both growth and returns while strengthening our competitive position. I'll now hand over to Samy. Unknown Executive: Thanks, Mel. After 30 years at Procter & Gamble, my most recent role was as CFO and Deputy CEO for 6 years at Nomad Foods. I'm really pleased to have the opportunity to step into this role from my nonexecutive position. After having been exposed to Hilton Food Products, facilities and people over the past several months, as a Board member, I felt that there was a huge opportunity to contribute if we got the strategy right and properly executed to reignite value growth for the years to come. Our investment in Canada comes under my remit and represent a step change growth opportunity for the group. As you probably know, we are developing a new facility to support a long-term 10-year partnership with Walmart with the sites scheduled to launch fully in early 2027. Progress on the project remains on schedule. Product development has been completed and tailored to customer requirements, and we will begin production testing of equipment and systems in the second half of the year. From a financial standpoint, this is an attractive opportunity. We expect return above our cost of capital with return on capital employed over the life of the contract, consistent with our refreshed capital allocation framework. The project will begin contributing to profit from 2027 with a full contribution from 2029 and beyond. Importantly, this is not just about the initial contract. We also see further opportunities in adjacent value-added categories within Canada. More broadly, we see broader potential through all our retail partners' international footprints. So Canada is both a significant stand-alone investment and is a good example of international expansion. To support the delivery of our strategy, the newly appointed executive team is behind our plans to evolve our operating model through what we call One Hilton. This is about embedding a consistent value creation mindset across the organization, ensuring that all parts of the business are aligned around delivering returns. It also involves building a more integrated and scalable global platform allowing us to leverage our international scale more effectively while continuing to execute strongly at the local level. At the same time, we are preserving and strengthening what differentiates us particularly our deep partnership with leading retailer and our unique collaborative business model. Overall, this transformation ensures that we can scale efficiently as we grow without losing the strength that underpin our success. Let me now hand over to Matt. Matthew Osborne: Thanks, Samy. Now let me spend a few minutes taking you through our refreshed capital allocation framework and medium-term targets. Everything is underpinned by our desire to maintain a strong balance sheet, ensuring we have appropriate headroom to withstand any market shocks and provide flexibility for future investment. I'm comfortable with net bank debt, excluding leases, in the range 1 to 2x EBITDA through the cycle. This is significantly below our bank facilities financial covenant of 3x. We will continue to invest in our facilities to maintain and enhance our operations, underpinning core organic growth through improved automation and productivity and the development of new product categories. This investment will be in the region of GBP 45 million to GBP 55 million per annum and will fluctuate depending on when and where investment makes economic sense. Our strong balance sheet and cash-generative model then provides flexibility for further incremental value-adding and strategically aligned investment. This could be in material new capacity expansion, such as the project we're planning in Poland or in geographical expansion, similar to our entry into Canada and Australia and New Zealand before that. Our benchmark for these investments is high. Returns need to be materially ahead of WACC and any investment must support our group ROCE target of greater than 20%. At the same time, we also recognize the importance of cash returns to shareholders. We are maintaining our progressive dividend policy with the intention to move back to around 2x earnings cover over time through adjusted earnings growth that our strategy is expected to deliver. Our dividend policy means we retain flexibility to seek further value-adding investment opportunities in line with our strategy. However, in the future, should no attractive opportunities exist, we would consider returning any surplus cash to our shareholders. In addition, we would continue with our progressive dividend policy. Let me now cover what the strategy means in terms of medium-term targets. First, as Mark has already said, we are targeting mid-single-digit operating profit growth on average each year, recognizing though that the nature of our investment means it won't be a linear progression. This growth will be underpinned by our ongoing investment to improve and automate our facilities and the contribution we expect from the new facilities in Saudi Arabia and Canada from 2027. It excludes any benefit from material incremental investment in new geographies or in large-scale capacity expansion. It also excludes any contribution from the improvement plans we have in place at Seachill, Foppen and Dalco. We expect these businesses, which we anticipate to be marginally loss-making as a whole in 2026, not to become a sustained drag on earnings. Second, through continued good working capital management and a focus on cash flow, we expect cash flow conversion, so free cash flow as a proportion of net income to be around 100% on average over the years. Third, we continue to target a group ROCE of at least 20%. This figure was 20.1% in 2025, and we expect it to drop below 20% in 2026, given the level of preproductive capital related to the Canada project. Any further material incremental projects may also have a shorter-term impact on reported returns. So over the medium term, we believe this is an appropriate target to benchmark the group against. Let me now hand back to Mark. Mark Allen: Thanks, Matt. To summarize, we believe we are well positioned for the future. We have a resilient and cash-generative core business. This is supported by structural advantages and a strong track record of execution. We have a clear strategy to drive growth. This is built around maximizing the core, enhancing the mix and expanding geographically. We will apply a disciplined approach to capital allocation, ensuring that we invest only in opportunities that generate attractive returns. Aligned to this, we have a highly engaged, skilled and talented workforce. Taken together, this positions us to deliver sustainable profit growth, strong cash generation and reduced volatility. We believe this will deliver compelling value for shareholders over the long term as we focus on being the international red meat partner of choice. That concludes the presentation. Thank you all for listening. I'll now chair the Q&A. Can you please ask questions by me and I'll allocate to the appropriate person. Can I also ask that when you ask a question, you introduce yourself and give us the institution that you work for. Thanks very much. Matthew Abraham: Matthew Abraham from Berenberg. First question just in reference to the FY '26 guidance. Just wondering if you can outline what your expectations are for that raw material price inflation that's trapped up in the second half of the year, please? Mark Allen: Mark, do you want to answer that? Matthew Osborne: Yes. Look, I think we recognize that there are inflationary pressures, but the basis for the guidance we issued in January hasn't really changed, and we're confident in that GBP 60 million to GBP 65 million PBT guidance. Matthew Abraham: Okay. So does that then infer that there's the expectation for a deterioration in elasticity as it has been from the first half of the year to the second half of the year because there will be that sustained high price backdrop? Is that the expectation given that this inflation backdrop is likely to persist? Matthew Osborne: So we recognize the resilience of the core product we produce. We recognize that there could well be some inflationary pressures, but I'll come back to the guidance we issued in January, took into account our views on inflation. Mark Allen: If you go back to the presentation, I think in one of my sections I talk about, we are mindful of the ongoing position on red meat is as an example. That mindfulness is built into our numbers and forecasts that we've put into the market for this year. So we feel comfortable where the guidance is, and we feel comfortable that we've taken into account what -- where we think the inflation -- inflationary nature of our products are going to go and the impact on consumers' purchasing habits. Matthew Abraham: Okay. That's helpful. And it was obviously impossible to account for it in January, but one thing that's obviously changed is the freight dynamic. Can you just talk about your exposure there and what you're doing to mitigate those pressures given that, that's a new factor post January? Mark Allen: I think that's a really difficult question to answer. And if I went around the room and asked everybody to answer that question, I think we probably get a lot of different answers. Suffice to say that in our business, we're in the very lucky place that a lot of our contracts are cost plus. So they go automatically to our customers. And where necessary, we're looking at holding the mirror up to ourselves, looking at our internal costs and taking costs out where we can. I don't think anybody can predict what's going to happen as a result of the Middle East. We're very -- as we said in the presentation, we're very mindful of the situation and we will react accordingly. I think the most important thing is outside of that, we are very comfortable with where our numbers are for this year. Charles Hall: Charles Hall from Peel Hunt. A couple of questions, if I may. Firstly, can you just talk a little bit about the red meat market, what your customers are doing to respond to the higher price points and what you're doing in terms of product positioning? Mark Allen: Okay. I think that depends on geography. And maybe in a second, I'll ask Mel to talk a little bit about what's happening in Australasia. I think that's important. In the U.K., which is a fairly substantial part of our business, actually no different than Australia. But what's typically happening is people are trading down and Matt talked about that. I think one of the benefits that we have, we're probably the lowest cost producer of the product in the U.K. that supports our customers' ability to be consumer aware. And if you look at the shelves in Tesco, they're doing a range of things to give real value to consumers. So what we've typically seen is people trading down, moving down the portfolio towards mints, et cetera. But there's still a top-tier purchasing habit that people are buying into premium cuts, maybe eating out less than they were and consuming it at home. We see that trend to -- continuing. We saw evidence of it last year. We expect it to continue for this year. Mel, do you want to quickly talk about Australia? Melanie Chambers: Yes, absolutely. I think you nailed it overall. But I mean, we've seen 3% growth in Australia. We haven't seen it slowing down, but they are definitely changing the mix. So lots of 3 for $25, 3 for $20 offerings, promotions in store, and we're working strongly with the customer on co-creation of that middle tier and how do we build the value in that middle tier. Charles Hall: Great. And Matt, last year, the inventory increased fairly significantly building up ahead of Christmas and Easter, I think. And partly, obviously, that's pricing, but also availability. How do you see that panning out this year? Matthew Osborne: Yes. So as we would have talked about before, we built inventory to ensure we had sufficient available to us to hit both Christmas and now Easter peak. So that's largely unwound. We'll have seen, as you rightly say, an increase in the stock value just because of inflation as well. So comfortable where that sits. And so see that unwind now. Now clearly, we will work with our customers to ensure that we can meet their demand and meet peak trading periods and how that looks really depends on availability of the market and some of the challenges we may face into, but comfortable with where we sit, comfortable with us delivering for our customers and the [indiscernible]. Mark Allen: Let me come in just to add something to that. There was a lot of noise around that -- those purchases last year because there were surprise. And 1 or 2 people since I've been involved has said could that happen again. What is absolutely clear is if -- particularly in the environment that we touched on at the moment where there's lots of uncertainty, if opportunities arise for us to buy meat ahead of any inflationary pressures, that's exactly what we'll do. We'll explain it to you guys. We'll explain it to shareholders. But if it's the right thing for the business, that's exactly what we'll do. Charles Hall: And lastly, Mark, the SPV, I think we'll now call it, is how much do you think you can improve the profits? And how long will it take to get change in those segments? Mark Allen: There's a -- so we didn't really discuss it in the presentation, but I've got a dedicated team working in that area. It's got its own effectively, it's leader. We're already seeing evidence in those -- of improving trends in those businesses. We've won new business in Dalco in recent days as an example. We've got a cost-out program in the Seachill that's starting to pay dividends. Foppen is actually a different set of problems. But as you heard in Matt's presentation, we're already using sea freight as opposed to air freight. That starts to normalize it. We are working very hard with the U.S. FDA to get our protocols reassessed. That's happening. We put it in 2 weeks ago. We're waiting for the results. But we're also challenging some of the -- some of the things that are perfectly acceptable in the U.S. for example, dipping fish in saltwater that on the face of it are not acceptable in Europe and the U.K., but we think we found an opportunity to make them acceptable in the U.K., and we're going to be working on that. So we've got a range of activities in each of the businesses that we're already on with that will start to deliver improvements now. Will they get to the stage where at the end of the year? I think in Matt's presentation, he said that they will be collectively loss-making still by the end of the year. Will we get to the stage where they're profitable by the end of the year, question mark, but we're working very hard to make sure that, that's where we get to. We want to give ourselves choices in these businesses, and that's what the -- all the work we're doing, it's about giving ourselves choices. Darren Shirley: Sorry, Darren Shirley from Shore Capital. Just a question on one of the areas where you talk about enhancing the mix within the business. You talk about scaling value-added meat. Can you just outline exactly what that means? Is that an opportunity you haven't been taken advantage of previously? Or is that a new opportunity... Mark Allen: I guess we -- a bit of both, Darren, to be fair. Just as an example, we use Sid in that area where we've been very successful with it, but there is greater opportunity to do it in more places around the world. some of the work that we're doing in Poland will enhance our capability to deliver against that as a product line. There's opportunities -- further opportunities in the U.K. And the interesting thing is you don't have to manufacture it everywhere. You can manufacture it in one place and export it to the neighboring countries. So as an example, and Mel can probably give you more detail than me on this, we will upgrade our facilities in Poland, but that gives us an opportunity to sell into neighboring countries from the Poland facility, which is a low-cost will be automated solution. Darren Shirley: Okay. And then Poland, GBP 30 million, what exactly are you expanding there? Is it the meat side? Is it just the fresh prepared side? Is it new capabilities. Just a bit of color what you're getting for GBP 30 million. Mark Allen: I feel a bit sorry for Samy because I'm passing all these questions to Mel, but I promise I'll give one to you in a second, Samy. Mel, do you want to just talk about what we're doing in Poland? Melanie Chambers: Absolutely. So it is an expansion of our fresh prepared foods business that we currently have there, which is next to the fresh meat factory. So it's expanding the footprint of that, which allows us to be able to have more capacity so that we can keep up with the customer demand. And as Mark touched on, it can act as a hub that can then serve other markets from there. And so what we're looking at doing is advancing the technology within that facility and also the automation at either end. Mark Allen: In terms of the products, Mel? Melanie Chambers: Yes. So the products, we're looking at sous-vide, we're looking at the ready meals. We do sandwiches, pizzas currently through there. So a lot of the fresh prepared foods. Darren Shirley: And then just one last one, if you don't mind, is, you talked about there being additional exceptional costs associated with Foppen this year. Could you give us sort of a ballpark number in terms of what we're thinking. Matthew Osborne: Yes. So current run rate is around EUR 800,000 to EUR 1 million a period. Now that will have included air freight costs as opposed to sea freight costs. And as Mark touched on, we're moving away from air freight at the moment. So we see that reducing over time. As you know, we are operating out of the facility in the Netherlands, which has increased operating costs as well. So that's where we see it. Clive Black: Clive Black also from Shore Capital. Darren's Younger brother. A few, if I may, Firstly, to follow on from Charles' question about working capital. Are you looking at a similar positive outflow this year? Or is it an improvement year-on-year? Maybe start with that 1. Mark Allen: Do you want to answer that one? Matthew Osborne: Yes. So based on where we sit today, we'd expect there to be a modest improvement over the year. Now as Mark said, though, we will reserve the right to make purchasing decisions if see it's the right thing to do to ensure we're avoiding inflation or ensuring supply for our customers. Clive Black: And then not to keep Samy out of it, I think you talked about long-term opportunities from international retailers. Just flesh that out what that actually means for investors? Mark Allen: John? Unknown Executive: Yes, sure. Absolutely. I think we -- we declared in our third pillar that there was effectively an opportunity to expand geographically. And I think you've seen that in the move that we are making now today in Saudi and Canada. And the idea there is to leverage what we are doing that as a benchmark, if you want for future opportunities either to selling into new geography or expanding effectively into new category within those geographies as well. Clive Black: Okay. So that could mean for the product categories and further plans in those markets? Is that whst you alluding to? Unknown Executive: Yes. I mean all options are being considered and we'll be effectively investigating the opportunity on the basis of, let's say, the best opportunity from a value creation standpoint, absolutely. Mark Allen: Just to be clear, that those opportunities will be in fresh meat, our core capabilities or fresh prepared foods, the list that Mel articulated. We're not going to go into sort of wide categories. We'll focus on the things that we know and understand, and that's where we'll invest. Just to maybe put a bit more flesh on that, 1 or 2 people have asked in recent times, will we spend more in Canada? The answer to that question is we might. And the reason we might is because we might win incremental business there. So that is not a definite, but there is a chance that we win incremental business there. That business, so if the cost -- the capital costs go up, they're going up because they'll deliver improved returns. Clive Black: But the probability will be with existing customers rather than new customers? Mark Allen: I think in the main with existing customers, but I think it's fair to say that we've got a team with suit cases traveling around looking for opportunities in appropriate geographies. These are long pipelines though. You don't have an idea today that gets delivered tomorrow. As you've heard in the case of Canada, that's probably been in the making for 3 years before we actually started the development. So we're working on long-term projects. Clive Black: And again, in your presentation, you talked about a global red meat sourcing capability. What does that actually mean for shareholders? Mark Allen: So the one thing that shareholders should draw from that is we actually have a very well-run, efficient sourcing team based in Huntington that source red meat from South America, from Australasia and around the world. I would say that we are at the top end of capabilities in that area. Look, as the supply of meat declines in the West, in particular, that, I think, will come more and more into ton. and it gives our shareholders and us as a business, a degree of comfort going forward. Clive Black: And does that sourcing capability need to be replicated in fish? Mark Allen: I think, kind of to a degree, it is already there in fish. I think the fish challenges are much more here and now operational, customer product so that we're looking at the business on a relatively short-term basis to solve some of the challenges that we have. Ongoing sourcing capabilities are a thing that we'll look at, but they're not in the immediate to-do list. Clive Black: Okay. And then just the last one. Again, you talk about your production platform around the world. How consistent is that to the extent -- we've been to Huntington and 1 or 2 others have been to other plants around the world. But across the globe, how consistent is your production capability? Mark Allen: I think if you traveled around the factories, you'd see similarities in all the factories. One of the things that I think Sally talked about one Hilton. One of the things that we're addressing full on at the moment is our ability to make sure we're getting synergies from the skills we have in the various locations. You might argue Hilton hasn't historically done that. Each of the businesses has done their own good work, but it hasn't been translated across the group. We're already seeing benefits of getting it group-wide rather than business-wide. And I think we'll continue to do that. I think the fundamental factories, if you walk into our factories, you'll see similarities everywhere, and you'll see the same focus to efficiency, yield, give away, all the things you would expect to see in any factory. And the fact -- the reality of it is if you take Walmart as an example, they didn't just sign a contract and say, we'll go and work with Hilton. They went and visited lots of these facilities, saw it themselves, saw something that is different than what our competitors offer and then sign on the bottom line. So that isn't me saying it. That's a very big highly competent retailer saying we want to put our eggs in the Hilton basket. Matthew Webb: Matthew Webb from Investec. Can I ask about the -- or any operational implications of the strategic review and the very clear distinction you've made between core and noncore. I mean, are these businesses already run very separately? If not, are they going to be separated out more clearly to give you that optionality of selling the noncore when the -- when profitability improves? And then related to that, I think you mentioned that the investment priority would now obviously be on the core side of the business. Clearly, when it comes to expansion, that's what we would expect. But if there was a, say, a big automation project that would improve the profitability of the noncore side, would you go ahead with that? Or would you be wary of doing that if the ultimate plan is to sell? Mark Allen: Well, I think the last -- start with the last point first. We haven't said that the plan is to sell. So let's be clear about that. What we have said is we need to work very hard on these 3 businesses to deliver optionality. They're already now. It was one of the first things I did when I put Mel and Samy into their roles, took out these 3 businesses and manage them separately. They have a management team looking after them that are focused entirely on improving those businesses during this year. So if you wanted a view on the capital question, if the capital pays back in less than a year, then the chances are we'll probably say yes. If it's a long-term capital investment, then the chances are unless we've done the short-term stuff, i.e., got the businesses to a sustainable position, we are not going to be investing long-term capital in these businesses. And that's -- I think the team would probably agree. I've been very clear with the team. We will invest, but sort the businesses out in the first place, and that's where we've got to get to. And I've said a few times, this is all about giving us optionality. Improving the current situation through a range of measures, and then that gives us choices going forward, choices to keep the business, but also to do other things as well. But be clear, there has been no decision to sell any of these businesses. Matthew Abraham: Just a follow-up for me, if I may. So you mentioned the desire to improve the businesses, and there's been improvement initiatives implemented in these businesses over a number of years. What's different in the approach that's being outlined today? But yes, I guess that is the first follow-up, please. Mark Allen: In some respects, I'm probably the wrong person to ask that. They're not here. But if you ask the team, I am sure they would say there's a very different approach in the rigor and challenge that goes on in their businesses to that, that has been historically done. So it's a rigor, it's a focus. It's a accountability, it's an empowerment that maybe didn't exist before as we look to improve them. Now there is -- as I've said already, there's a range of things that we're working on from cost out at one end to volume in at the other, and they're all different depending on the business that we're talking about. Matthew Abraham: Okay. And then maybe just one more follow-up, if I may. So there's a greater concentration of investment going into what appears to be a high-returning business in the core. But the ROCE target is unchanged. Like why would there not be a better ROCE profile if more investments going into a better returning component of the business? Mark Allen: Maybe I should pass that to Matt, but I'm not going to. I'm going to answer it because we believe that, that level is a satisfactory acceptable return for us that work in the business and for shareholders as well. Darren Shirley: It's Darren Shirley again. Two areas of the business, which haven't been mentioned, obviously, you crystallize value with Food Connected early this year. But within that sort of bucket of sort of other investments you've got Agito in there and Cell Ag. I mean, where do they sit in sort of the new Hilton? Mark Allen: Well, I think it's very clear from what we've said that they're not core in terms of investment. They are important, though, because not necessarily as a shareholding point of view, they're important to the running of the business. Agito is intrinsically linked to our developments around the world, and it forms a big part of what we're doing in Australia. Cell Ag is a start-up, and it's a business that's very interesting from a personal point of view, but it's not necessarily that interesting for the view of a public company. And what being absolutely blunt, we would like other partners to join us in the Cell Ag investment. Darren Shirley: And then just a point of clarification because you mentioned cold red meat on a number of occasions. In APAC and in Canada, fish, am I right in thinking seafood will continue to be part of the broader offering you bring it to Woolworths in Canada and Australia? Mark Allen: Seafood is going to be a continuing part of the offering in Australia. May not be in Canada. Darren Shirley: Does that represent sort of a downsizing of the thinking in Canada? Mark Allen: No. 'm not -- at this stage, I'm not going to say any more than that. You shouldn't worry about what I've just said from Canada. It is integral to the offering that we have in Australia. And in Australia, it works really well. I think the difference between Australia, it is a very simple, straightforward cost-plus model. What we operate in the U.K. is different to that. Darren Shirley: Because there were ambitions to expand the seafood after an APAC, would those ambitions still be there? Mark Allen: Do you want to talk about that, Mel? Melanie Chambers: Yes. So the seafood works well in New Zealand as a food park. So we have the red meat, the poultry and the seafood. And due to it being a smaller location, less stores, it serves being able to serve the whole country out of that one facility. In Australia, due to the diversity of travel time and transit time, the seafood model wouldn't work long term because it's fresh, it's not frozen. So when you're looking at trucking for 12 hours from there to there, your shelf life is obviously shrinking. So it works well in New Zealand, but it's not something that we're progressing currently in Australia. Mark Allen: Any more questions? We're going to be around for a little while if there's any individual questions you want to ask. I'm conscious 1 or 2 of you have got to get after another presentation. Good business that is as well, by the way. Thank you for your time. Thank you for your questions, and feel free to come back to us on any points over the next few days. Thank you.
Operator: Good day, everyone, and thank you all for joining today's Co-Diagnostics, Inc. Full Year 2025 Earnings Webcast. [Operator Instructions] As a reminder, today's session is being recorded. And it is now my pleasure to turn the floor over to Head of Investor Relations, Mr. Andrew Benson. Please go ahead, sir. Andrew Benson: Good afternoon, everyone. Thank you all for participating in today's conference call. On the line today from Co-Diagnostics, we have Dwight Egan, Chief Executive Officer; and Brian Brown, Chief Financial Officer. Earlier today, Co-Diagnostics released financial results from the fourth quarter and full year ended December 31, 2025. A copy of the press release is available on the company's website. We will begin with management's prepared remarks and then open up the call to analyst Q&A. Before we begin, we would like to inform listeners that certain statements made by Co-Diagnostics during this call, which are not historical facts, are forward-looking statements. In addition to diagnostic test developments and timing for commencement of clinical evaluations, this include statements concerning the company's Co-Dx PCR testing platform, which requires regulatory approval and marketing authorization for diagnostic use and is not currently for sale. Actual outcomes and results may differ materially from what is expressed or implied in any statement. Important factors, which could cause actual results to differ materially from those in these forward-looking statements are detailed in Co-Diagnostics' filings with the SEC, including risks related to our ability to obtain regulatory approvals, successfully complete clinical evaluations, secure adequate financing and achieve commercial adoption of our products. Co-Diagnostics assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events. In addition, the company may discuss certain non-GAAP financial measures during today's call. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. We refer you to the company's earnings release issued shortly before this call, which contains reconciliations to the non-GAAP financial measures presented to their most comparable GAAP results. At this time, I would like to turn the call over to Co-Diagnostics' Chief Executive Officer, Dwight Egan. Dwight? Dwight Egan: Thank you, everyone, for joining us today and for your continued support of Co-Diagnostics. This continues to be one of the most active and strategically important periods in our company's history as we execute on the significant opportunity ahead of us and continue to implement our multipronged growth strategy. Before we begin, I'd like to briefly touch on our NASDAQ listing status. We want to thank our shareholders for their patience and continued support throughout this process. We were pleased to successfully complete the appeal and have our shares relisted, and we are now firmly focused on moving forward. Importantly, despite this temporary disruption, we remain focused on execution and continue to make meaningful progress across the business. During the reporting period, we advanced several key initiatives that are positioning Co-Diagnostics for its next phase of growth. Each of these developments support our goal of strengthening the company, both operationally and financially as we move closer to commercialization. These efforts are not isolated. They represent cumulative progress with each initiative contributing to a broader integrated strategy designed to create long-term shareholder value. As we look ahead, our focus remains centered on 4 primary growth pillars: first, progressing our clinical pipeline toward key regulatory milestones including our upper respiratory program and additional tests such as TB and HPV; second, advancing CoSara and our broader strategy in India, including regulatory progress, manufacturing readiness and evaluating potential strategic alternatives, such as a SPAC transaction; third, continuing execution of our CoMira joint venture with Arabian Eagle which is expanding our international footprint across Saudi Arabia and the broader MENA region; and finally, expanding our AI-driven capabilities to enhance innovation, efficiency and data-driven insights across our platform. Together, these pillars form a cohesive strategy built around global reach, technological innovation, financial discipline and scalable execution. This is the framework guiding how we are approaching 2026 and laying the foundation for commercialization and long-term growth. With that context, I'll begin with our CoSara strategy and our progress in India. India has been a core component of our business for nearly 8 years and over that time, we have built a meaningful foundation through our CoSara joint venture in one of the largest health care markets in the world. Today, CoSara has established a nationwide commercial presence, serves hundreds of laboratory customers and has 15 PCR tests cleared through India's regulatory pathway. We are now preparing to manufacture the PCR Pro instrument and associated consumables locally in India, which represents an important step towards commercialization. Importantly, CoSara has received the CDSCO license to manufacture the PCR Pro instrument, a key regulatory milestone that supports this transition. We have also expanded CoSara's commercial and distribution territory across South Asia to include Bangladesh, Pakistan, Nepal and Sri Lanka, increasing our addressable market to approximately $13 billion and strengthening our long-term opportunity in the region. As CoSara continues to mature, we believe it has reached a stage where it can stand on its own as a public entity, which we believe may provide an alternative path to access capital and support future growth. We have engaged a financial adviser and are actively exploring strategic alternatives, including a potential SPAC transaction to support the capital needs required to fully execute on this opportunity, which we expect will enhance value for our shareholders. While we are not in a position to announce a transition today, we have completed multiple presentations with prospective partners, and the process remains active and ongoing. There can be no assurance that any transaction will be completed or on what terms. Beyond the potential SPAC transaction, CoSara represents a key engine for long-term growth. We are also preparing to initiate TB clinical performance studies in India, which is the largest single country market for TB diagnostics. This represents one of the most significant near-term commercial opportunities for our platform. Earlier this month, the World Health Organization issued updated guidance recommending near point-of-care molecular tests for TB diagnosis, along with the use of tongue swab samples for patients who cannot produce sputum. This is an important development for the field as we believe both our PCR Pro instrument and our MTB test are directly aligned with this guidance. The importance of tongue swab sampling has been building over time, including throughout our own development efforts supported by the Bill & Melinda Gates Foundation. We designed our test specifically to accommodate this approach in addition to traditional sputum samples. We believe our platform is well positioned to address emerging needs in TB diagnostics. Preclinical studies conducted by third parties have shown performance that is comparable to and, in some cases, exceeds other commercially available molecular TB tests. We are confident that upcoming clinical studies will further validate the role our tests can play in supporting these new WHO guidelines. We look forward to providing additional updates as CoSara continues to advance. Turning to our CoMira joint venture. This initiative remains a cornerstone of our international expansion strategy. Saudi Arabia has historically been our largest international market and CoMira represents the next step in localizing our technology within the region. This model builds on the same approach we have used in India, with the goal of establishing local manufacturing and distribution capabilities, so products can be produced closer to end markets. We are currently progressing on execution including finalizing a lease for a manufacturing facility and progressing toward operational readiness across Saudi Arabia in 18 additional MENA markets. Domestically, manufactured medical products are typically prioritizing Saudi Arabia's procurement processes, and we anticipate this to extend to molecular diagnostics. Once operational, CoMira is expected to be the first domestic manufacturer of molecular diagnostics in the Kingdom, which would provide a meaningful competitive advantage. This initiative aligns with Saudi Arabia's broader goals around healthcare innovation, local manufacturing and supply chain resilience. It also positions Co-Diagnostics as a strategic partner in the region's healthcare infrastructure. More broadly, CoMira reinforces the scalability of our platform and our ability to deploy it globally in a capital-efficient way. In parallel with our operational progress, we continue to strengthen the intellectual property foundation that supports our platform. Over the past several months, we have received international patents covering key components of the Co-Dx PCR platform, including recent patent grants in Australia and Japan. These patents cover core systems, methods and technologies underlying our PCR Pro instrument and proprietary test cups. The Japanese patent was granted by one of the most rigorous patent offices in the world, further validating the strength and uniqueness of our platform. Expanding our IP portfolio is critical as we move toward commercialization, particularly as we scale internationally through initiatives like CoSara and CoMira. These protections help secure our competitive positioning and support our long-term strategy of building a differentiated globally deployable diagnostics platform. Turning to our clinical pipeline. Our upper respiratory multiplex test represents a critical step in advancing our platform toward market readiness. This test was originally designed to detect flu A, flu B, COVID-19 and RSV, and clinical evaluations are progressing well. Based on current epidemiological trends, including lower-than-expected COVID prevalence across our multiple study locations, we are planning to pursue an initial regulatory submission focused on flu A, flu B and RSV. Importantly, this decision is driven by limited availability of COVID-positive samples rather than any limitation of the platform or performance of the COVID-19 target. This approach allows us to accelerate time lines while maintaining the flexibility to incorporate COVID at a later stage if conditions change and to prioritize speed to market while remaining adaptable, demonstrating our ability to execute in a disciplined and pragmatic way. Beyond this program, our broader pipeline continues to advance. Our TB and HPV programs remain key areas of focus with TB representing a significant global opportunity, particularly in India. The global TB diagnostics market is expected to grow meaningfully over the coming years and we believe our platform is well positioned to participate in that growth. Our HPV program is progressing through preclinical development and process qualification with additional updates to come as time lines are further defined. In addition, our vector program continues to expand with increased adoption across public health applications. Collectively, these programs highlight the versatility of our technology and its relevance across multiple high need markets. Finally, our AI business unit represents one of the most forward-looking aspects of our strategy. We have been leveraging machine learning and algorithmic analysis within our platform for many years, and we are now expanding these capabilities more broadly. The Co-Dx primer AI platform is designed to unify our efforts across diagnostics, data analytics and operational efficiency. Integrating AI enhances our ability to design assays, interpret results and improve system performance. Over time, we believe these capabilities may support predictive insights, including identifying emerging outbreaks and improving real-time situational awareness. We already have multiple AI models in place with additional development underway, and we believe this represents a significant long-term opportunity. This initiative strengthens our competitive position while complementing the scientific progress we are making across our clinical programs. In closing, the initiatives we've discussed today reflect the continued progress Co-Diagnostics has made over the past year from international expansion and manufacturing readiness to clinical advancement and technological innovation. Each milestone strengthens a different aspect of our business. Taken together, they demonstrate that our strategy is working. Our execution is on track, and we are building a scalable platform with global relevance. We are entering the next phase of growth with a strong foundation, expanding opportunities and a clear path toward commercialization. With that, I'll now turn the call over to Brian Brown, our Chief Financial Officer, to review our financial results and outlook. Brian Brown: Thanks, Dwight, and thank you to everyone who joined today's call. For the full year 2025, total revenue was $0.6 million compared to $3.9 million in 2024. The year-over-year decrease was primarily driven by lower grant revenue as most of the previously awarded grant funding was recognized in the prior year. Product revenue for the year was $0.4 million compared to $0.8 million in 2024, reflecting our continued focus on platform development and limited commercial activity during the period. Total operating expenses for 2025 were $50.6 million compared to $43.0 million in 2024. This increase was primarily driven by a noncash impairment charge of approximately $18.9 million related to in-process research and development intangible assets. Excluding this noncash charge, operating expenses declined year-over-year, reflecting our continued focus on cost discipline. Research and development expenses were $19.1 million compared to $21.0 million in the prior year reflecting disciplined investment in the Co-Dx PCR platform, partially offset by increased clinical trial activity. Sales and marketing expenses were $2.4 million compared to $4.5 million in 2024, primarily driven by lower personnel, consulting and travel-related expenses. General and administrative expenses were $9.1 million compared to $16.2 million in the prior year, with the decrease primarily driven by lower legal, consulting and stock-based compensation expenses. Net loss for the full year 2025 was $46.9 million or a loss of $35.25 per share compared to a net loss of $37.6 million or $37.22 per share in 2024. The increase in net loss was primarily driven by the noncash impairment charge and lower grant revenue, partially offset by reduced operating expenses and a tax benefit recognized during the year. Excluding the impact of the noncash impairment charge of $18.9 million, full year 2025 net loss would have been $28.0 million. Adjusted EBITDA was a loss of $28.0 million for the full 2025 compared to a loss of $33.5 million in 2024. Turning to the balance sheet. We ended the year with $11.9 million in cash, cash equivalents and marketable investment securities compared to $29.7 million at the end of 2024. Net cash used in operating activities was $29.0 million for 2025, consistent with the prior year as we continue to invest in platform development and clinical programs. Net cash provided by investing activities was $26.3 million, primarily driven by the maturity of marketable securities. Net cash provided by financing activities was $11.7 million, reflecting capital raised through our at-the-market program and registered direct offerings. As discussed previously, we have an active ATM facility in place, which provides additional flexibility to support our capital needs. We continue to carefully manage our liquidity and cost structure as we progress towards commercialization. While we expect to continue generating operating losses in the near term, our focus remains on advancing our clinical pipeline, achieving regulatory milestones and positioning the business for future revenue growth. We will also continue to evaluate financing alternatives, including equity, debt and strategic partnerships to support these objectives. In parallel, we remain focused on securing additional non-dilutive funding opportunities, including grant funding to support continued development of our Co-Dx PCR platform. Looking ahead, we remain focused on disciplined capital allocation as we advance towards key inflection points, including clinical submissions and potential commercialization milestones. I look forward to sharing additional updates as we progress through 2026. With that, I will now turn the call back over to Dwight. Dwight Egan: Thank you, Brian. To close, I want to extend our sincere gratitude to our shareholders for their continued support and to our employees whose dedication and hard work remain one of our most important assets as we execute on the Co-Dx vision. We are focused on delivering against our strategy and advancing the company toward its next phase. With that, we will now open the line for questions. Operator? Operator: [Operator Instructions] We will take our first question today from Yi Chen at H.C. Wainwright. Unknown Analyst: This is Katie on for Yi. Looking at your now 3 target tests, dropping COVID seems like a great idea. Where does the sample accrual stand for the 3 target panel, is first half of '26 still the target? And how quickly could you add COVID back if, for some reason, conditions change and it makes sense to add it back? Dwight Egan: Thank you for your question. First of all, let me emphasize that the taking away the COVID out of the mix of the multiplex test was not -- was a decision based on the availability of COVID in what is a very powered clinical trial in about 8 different locations across the United States, COVID just simply did not show up over a several month period. And so rather than wait to do a submission after a protracted clinical trial. We decided to move forward with the flu A, flu B and RSV components of the test and to leave ourselves the flexibility of putting COVID in later when it shows up with more samples. In the meantime, it doesn't get in the way of us getting a more expeditious submission into the FDA. So I just want to make that logic clear as to why we made that decision. It is a little bit surprising, of course, that COVID doesn't show up the way we would have expected it to show up in terms of its broader characteristics across the country when we just came through a pandemic where there were so many hundreds of millions of tests done on COVID. But that's what reality was during our clinical trial. And if we waited for instance, until the summer to do the -- get more COVID, there's no assurance that it would show up then even though it might be. And so we'll -- we have the flexibility to continue to test for COVID when and if that becomes a viable direction for the company. Was there another part of your question? Unknown Analyst: So I guess, my question is more, what would it look like to add it back? Is it like a quick approval? Or is it you're going to have to put it through another trial? What does it look like to put it back should that time ever come? Dwight Egan: Well, first of all, we would not anticipate that it requires any redesign, for example. And so a lot of that would be a negotiation with the FDA in terms of what they would require. Will they require 30 positive samples, will they require it to be dispersed over demographics and so on and so forth in terms of age. So a lot of that will be defined in our consultation with the FDA as to what they would want us to do to light that up. We don't view it as being a very difficult thing to do. And like I say, it doesn't require that we reengineer or work on the chemistry and those sorts of things. It's just getting it up and going. How many sites would we have to put in, arguably not as many as we did with the 8 sites or so that we did during our normal clinical trial. But I think it's a change that we can add and that it won't be onerous on the company to do that. Operator: [Operator Instructions] We will hear next from the line of Michael Okunewitch at Maxim Group. Michael Okunewitch: Congrats on the speedy resolution of the listing challenges. Good to see you back on the NASDAQ. So I guess just to kick off. I wanted to see if you could talk a little bit about the South Asia distribution expansion to the other countries like Nepal, Pakistan and Bangladesh. Is this more for supporting the existing commercial test? Or would this be to expand the opportunity for PCR Pro, particularly on TB? Is that a similar issue in those countries as it is in India? Dwight Egan: I think the kind of disease burden that you have in those other countries is very similar to the disease burden in India. Altogether, our motive is driven by the fact that we go from about $11 billion in total addressable market to more like $13 billion by adding those countries. And it just made geographical sense for us to have all of that handled through the CoSara joint venture. The CoSara joint venture is a mature business at this point. We've been doing it for almost 8 years. And so we have manufacturing capabilities there. We have a number of employees. We have salespeople covering the -- pretty much the entire continent -- subcontinent of India, and it's just a natural progression to go into these others as we then also move into the CoMira joint venture in the Kingdom of Saudi Arabia. So it's just a sort of strategic move to let the CoSara group do everything they could do on that subcontinent, and we think it makes a lot of sense for the company. Michael Okunewitch: Thank you for the additional clarity on that. And then for the U.S. FDA study in particular, can you just comment on how many samples you're expecting to need to support that study? Dwight Egan: Well, this -- when we do a study like that, this is something that we hire a CRO to do, and it's a very structured sort of clinical trial. The FDA knows what we're doing. They know how many samples that we're going to collect, and I would represent to you that it's in excess of 1,200 different patients that have already been through the enrollment. So we're nearing conclusion here of the entire test and getting ready to do analytical studies and do our submission to the FDA. Now that's one of the reasons that we are waiting to add COVID to the mix when there is COVID. When COVID shows up in enough -- with enough force that we can get the kind of samples we need to satisfy the FDA. Michael Okunewitch: All right. And then 1 last one for me and I'll hop back into the queue. I saw that you've gained the clearance to sell the PCR Pro device now in India. You started shipping devices over there. Could you talk about what are the immediate next steps and time lines for getting that study up and running and then moving on to commercialization? Dwight Egan: Yes. Our expectation in India, and as I mentioned, it's a mature joint venture at this point, having spent about 8 years doing it. And we have 15 tests that are already cleared through the CDSCO there. We have a very good track record with the regulatory bodies there in India. We have manufacturing facilities. We have sales and marketing, and we have a very, very good group of individuals that support that business. And so when we look at taking this new Co-Dx PCR Pro box there, it has -- it's a technology transfer operation. We have already established an oligonucleotide lab there where we are making our own oligonucleotides, and that's not -- that's rocket science. That's pretty sophisticated molecular science. And that's already in process. We put that in the last -- a year ago, December, actually. So it's a matter of getting the technology over there and set up and trained. We will be manufacturing product here in Utah, while we're doing that at a measured pace because we've already gone through all the processes in Utah making it so that we can produce cups that are the consumables with integrity, and we can do it at scale. So we have a lot of capacity here in Utah. We'll continue to use that capacity as we start what's going on in India and begin the clinical trials. As you can imagine, since India is the hotspot for tuberculosis worldwide. We will not have any trouble whatsoever getting the type of clinical samples that we need to do the clinical trial for tuberculosis since such a high percentage of the country is infected already with latent TB and a certain percentage of those erupt into full-blown TB on an active basis every year. So we believe that this clinical trial will proceed quickly and then that the study will go before the CDSCO in pretty short order, we actually expect to have commercialization of the TB test in India, let's say, by the third quarter of '26. Operator: And we would like to thank each of our analysts who had signaled for a question today. Ladies and gentlemen, this does conclude the Co-Diagnostics, Inc. Full Year 2025 Earnings Call. We thank you all for your participation, and you may now disconnect your lines. Enjoy the rest of your day.
Operator: Good morning, everyone, and welcome to today's PVH Fourth Quarter 2025 and Full Year Earnings Conference Call. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is now my pleasure to turn today's program over to Sheryl Freeman, Senior Vice President of Investor Relations. Sheryl Freeman: Thank you, operator. Good morning, everyone, and welcome to the PVH Corp. Fourth Quarter and Full Year 2025 Earnings Conference Call. Leading the call today will be Stefan Larsson, Chief Executive Officer; and Melissa Stone, Interim Chief Financial Officer and Executive Vice President, Global Financial Planning and Analysis. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. It may not be recorded, rebroadcast or otherwise transmitted without PVH's written permission. Your participation constitutes your consent to having anything you say appear on any transcript or replay of this call. The information to be discussed includes forward-looking statements that reflect PVH's view as of March 31, 2026 of future events and financial performance. These statements are subject to risks and uncertainties indicated in the company's SEC filings and the safe harbor statement included in the press release that is the subject of this call. These include PVH's right to change its strategies, objectives, expectations and intentions and the company's ability to realize anticipated benefits and savings from divestitures, restructuring and similar plans such as the actions undertaken to focus principally on its Calvin Klein and Tommy Hilfiger businesses and its initiatives to drive more efficient and cost-effective ways of working across the organization. PVH does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimates regarding revenue or earnings. Generally, the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules. Reconciliations to GAAP amounts are included in PVH's fourth quarter 2025 earnings release, which can be found on www.pvh.com and in the company's current report on Form 8-K furnished to the SEC in connection with the release. At this time, I'm pleased to turn the conference over to Stefan Larsson. Stefan Larsson: Thank you, Sheryl. Good morning, everyone, and thank you for joining our call today. I want to start by thanking our teams around the world for delivering a strong fourth quarter and finish to the year on our multiyear journey to build Calvin Klein and Tommy Hilfiger into their full potential and make PVH one of the highest performing brand groups in our sector. While there is, of course, more work to do, we have made important progress on this journey, and I will discuss this more in a moment. In the fourth quarter, we exceeded our guidance across revenue, operating profit and EPS. Total revenue for the company was up mid-single digits on a reported basis above our guidance and flat in constant currency. Importantly, we drove better-than-expected gross margin performance in the quarter with sequential improvement across all regions. We continue to manage our operating expenses thoughtfully while strategically increasing marketing spend behind our 2 iconic brands, and we drove a 10% non-GAAP operating margin, which would have been 11.7% without the gross tariff impact. For the full year, we delivered on our financial guidance across both the top and bottom line. And as planned, we returned to revenue growth for the year. Despite the choppy consumer and macroeconomic environment, we delivered a non-GAAP operating margin of 8.8% for the full year, above our guidance, including the impact of tariffs. When excluding the impact of gross tariffs, operating margin was 9.6%. We continue to simplify our operating model and drive more efficient ways of working, generating over 200 basis points of annualized cost savings. We further strengthened our supply chain, ending the year with a good inventory position, up 5% versus last year or up 1% when adjusted for tariffs, positioning us well for spring 2026. Finally, we returned over $560 million of capital to shareholders through our share repurchases, representing 15% of our shares outstanding. Looking ahead, while the macroeconomic environment remains uncertain, we have started 2026 with positive momentum and higher spring season sell-through trends across both brands in all 3 regions. While wholesalers remain cautious and the consumer macro environment continues to be uneven, our fall 2026 order books for Europe are positive. As we speak, we're in the middle of some of the most important weeks of the quarter with Easter this coming weekend, which fall 3 weeks earlier than last year. For Calvin Klein, we have strengthened our global product capabilities and have addressed the translator operational challenges we faced in 2025. Our deliveries are now on time and our going margins are back on plan. This year, we will strategically increase marketing spend and further invest in the shopping experience across digital shop-in-shops and store concepts. For fiscal 2026, we expect to grow total revenue slightly on a reported basis and be flat to up slightly in constant currency with planned growth in direct-to-consumer across both brands and all 3 regions. We expect our non-GAAP operating margins to hold steady at 8.8% or 11% excluding the gross impact from tariffs. Additionally, we intend to continue to return capital to shareholders with a target of at least $300 million this year. Now let me share a brief update on what drove our performance for the fourth quarter and full year 2025. Starting with Calvin Klein. In 2025, we continue to drive strong brand relevance for Calvin in both product and marketing. We sharpened our focus on our core categories strategically infusing innovation and newness in the worlds of underwear and denim supported by full funnel 360 marketing. We reinvented our biggest underwear franchises with the launch of the icon cotton stretch, amplified with Bad Bunny and [indiscernible], which grew 20% in men's and 13% in women's driving our broader underwear business up low single digits versus last year. We also grew our fashion denim category, which represents over 50% of our denim business with high single digits. In addition, Calvin returned to the runway, creating a strong halo for the brand. And during the year, we opened new Calvin Klein flagship stores in both Tokyo and New York City. In the fourth quarter, we leveraged key consumer moments and deliver strong engagement and results, generating higher full price sales versus last year and sequential improvements in gross margin. Turning to Tommy Hilfiger. Throughout the year, we took Tommy's iconic DNA of classic American cool and cut through in major cultural moments from the Met Gala to F1: The movie. We also launched our new partnership with Cadillac Formula One in Q4 with a positive consumer response. In addition, we announced one of the most significant new global partnerships for Tommy, our first football partnership with Liverpool Football Club. This news was the #1 most engaged post ever to go out on Tommy's social channels with strong resonance across Europe and driving immediate spikes in e-commerce traffic. In the marketplace, we further improved our e-commerce experience, opened new stores globally and in wholesale, we unveiled our new shop-in-shop concept at the iconic Gallery Lafayette in Paris. And finally, in the fourth quarter, just like in Calvin, we leaned into our best product categories where we drove strong growth for our iconic cable knit sweater franchise with sales up over 50%. Overall, when I look at our global business for the holiday, we navigated an uneven macro environment across both brands. And I was particularly pleased to see that where we brought newness into key product categories, we were able to drive growth with higher full price sell-through. Now I will turn to our regional performance, starting with Europe. For the full year, the region declined 1% in constant currency, with 2 quarters of strong D2C growth in the first half, followed by a more muted consumer in the second half. In wholesale, we delivered sequentially improving order books each season in Europe returning to growth beginning with our fall '25 season. In the fourth quarter, revenue was down low single digits in constant currency, in line with guidance and against the muted backdrop. In constant currency, wholesale was down 1% as positive order book growth was offset by lower in-season replenishment and D2C was down mid-single digits. For both Calvin and Tommy, the areas where we have introduced the most product innovation into key categories continue to drive growth and our focus continues to be on scaling that innovation across bigger parts of the assortment. We also continue to work more closely than ever with our wholesale partners. And in January, we held our second annual Global Partner Day to kick off the fall '26 market launch. We had over 500 key partners in attendance and received the strongest and most positive feedback yet. Next, turning to the Americas. For the full year, we delivered mid-single-digit growth driven by our wholesale channel and strength in our e-commerce business. The consumer backdrop has been uneven. And in stores, industry traffic trends were increasingly challenged, resulting in our total D2C business down low single digits for the year. In the fourth quarter, we grew overall revenue by 4% driven by wholesale as well as continued growth in digital. D2C declined mid-single digits due to lower store traffic, partially offset by AUR growth. Product-wise, we saw strength in denim for both men and women. Our wholesale business increased high teens partly driven by the take-back of our women's sportswear and jeans business with underlying growth in wholesale, up mid-single digits. Despite lower traffic, we drove greater full price selling for the region and over 200 basis points in sequential year-over-year gross margin improvement. Moving to Asia Pacific. For the full year, revenue declined mid-single digits in constant currency or down low single digits, excluding the timing impact from the Lunar New Year calendar shift. But importantly, we delivered sequential improvements in our top line performance each quarter over the course of the year. In the fourth quarter, excluding the Lunar New Year calendar shift, our APAC revenue returned to growth and was up low single digits in constant currency. In digital, we delivered the second consecutive quarter of high single-digit growth as we successfully concluded Double 11 and the holiday period. Overall, we are seeing good conversion and positive traffic improvements across key markets, including China and Japan. We continue to execute with discipline in the region, driving gross margin improvements and reinvesting into marketing with key local talent. Both brands were proud to participate as first-time exhibitors at the China International Import Expo, building on our long-standing presence and commitment to the market. Before we turn to 2026, I would like to take a moment to reflect on the progress we have made through our multiyear PVH+ Plan journey to date. While we have important work still ahead of us, since 2022, we have navigated a series of external headwinds, including exiting our Russia business, the introduction of tariffs, and we have also navigated specific geopolitical dynamics. Throughout this period, we have remained steadfastly focused on executing our plan and delivering significant operational progress across all 5 critical areas of the PVH+ Plan, winning with our Hero products and categories, driving strong consumer engagement strengthening our distribution in the marketplace by deepening our partnerships with key wholesale partners and expanding our D2C business, building a global demand-driven operating model and driving operational efficiencies to power our investments in growth and in marketing. Through this work, we have built a more systematic, repeatable approach which is a powerful foundation as part of our continued journey to build Calvin Klein and Tommy Hilfiger into their full potential. As we said we would, we divested profit-dilutive non-core businesses putting 100% of our retention behind our 2 globally iconic brands, Calvin and Tommy. And on an underlying basis, ex divestiture we have grown those brands at 2% CAGR in constant currencies since 2021. At the same time, we have built a strong leadership team with experience to unlock our brand's full potential. Across our regions, we increased our Americas profitability to double digits ex tariffs. We drove higher quality of sales through our initiative in Europe, and in APAC drove a 5% growth CAGR in constant currency over the period. And as our important work continues, one of the biggest accomplishments is how we have driven brand relevance with the consumers who matters the most going forward. Our most recent consumer research not only confirms that Calvin Klein and Tommy Hilfiger are 2 of the most recognized and loved brands globally. Both brands also outperformed with the Gen C and younger millennial consumers. And within this, both brands are performing strongly with the highest value consumer segments the status-oriented shoppers and style enthusiasts. This is important because these consumers shop more often have higher order values and are more loyal. This is a direct result of our multiyear work to ignite Calvin's and Tommy's brand DNA and make them even more relevant for today. A key part in our consumer engagement is the strength we have built on social, where Calvin has the most followers and the highest engagement of our competitive set with 44 million followers across our 4 biggest platforms. Tommy has the third largest following in the industry with 31 million and the same leading engagement levels as Calvin approximately 4x higher than most of our competitors. In addition, our consumer insights confirm clear product authority in some of the biggest and growing categories in the market. For Calvin, this means the right to play and win in underwear, denim, outerwear and knits. And for Tommy, it means the right to play and win in outerwear, sweaters, shirts and knits. The strength we have built with the consumer guide our path forward. We are increasingly targeting the best consumer segments for each brand as we expand our product strength across the top 5 categories. We put innovation and newness into creating the best product franchises, and we drive our consumer engagement with a full funnel 360 approach. To make this possible, we are leveraging the strong global product and marketing capabilities for both brands that we have worked to establish. We are also well underway to successfully transitioning the licensed women's sportswear business in the U.S. wholesale channel for both brands to ensure that our product creation across both men's and women's are brand right and positioned to drive sustainable, profitable growth. In the marketplace, we have both increased our focus on our key wholesale partners and have meaningfully strengthened our D2C execution, which now represents approximately half of our sales, up from 44% in 2021. We have done this while elevating the brand experience across digital and stores, delivering digital penetration that is nearly doubled pre-COVID levels. We have also made significant operational progress in our journey to become a more data and demand-driven company, improving inventory management and building new capabilities, including in AI. Our new collaboration with OpenAI, which we announced in January, we will accelerate that progress. Importantly, we drove over 300 basis points of cost savings, including 200 basis points of annualized cost savings from our cost efficiency initiatives. Over the past few years through the disciplined PVH+ execution and despite the multiple external headwinds, we have built a strong foundation in both Calvin Klein and Tommy Hilfiger to be able to drive sustainable profitable growth with increasing pricing power across all 3 regions. As I've said before, every season, you will see us expand on this further. Now as we look ahead, I want to share our actions for 2026 that will help us do just that. Let me start with Calvin Klein. We can't talk about Calvin Klein today without referencing Love Story, the TV show, the cultural resonance of Love Story reinforces the timeless power of the Calvin Klein brand and its authentic place in American fashion with a premier driving a search in online interest in Calvin. We're capitalizing on the love story effect in multiple ways that are true to the brand, leveraging the '90s focus in our product assortment and marketing and supercharging it in e-commerce and stores with a spring 90 [indiscernible] on calvinklein.com that is driving above-average social engagement and click-through rates. We are also styling key talent, including actress Sara Pigeon, who placed Caroline [indiscernible] Kennedy at the recent Vanity Fair Oscar party, and we hosted a New York Magazine pop-up collaboration at our new SoHo store, achieving our highest daily sales and visitors to date. We are continuing to lead the 90 style conversations globally, a look that we help define by leaning into the stars driving the trend today across our platform. You will see this across our spring campaign featuring global ambassador, John Cook, which pairs cultural influence with the hero product storytelling to drive consumer demand. Here, strong social engagement is driving fantastic sell-throughs with sales of campaign items up over 50% after launch and the [indiscernible] John Cook War reaching 60% sell-through in just 2 weeks. In March, we launched a new spring campaign featuring FC Barcelona and Brazilian National team, Soccer star [indiscernible] debuting our most recent underwear innovations, icon active mesh and icon cotton stretch with a stitch-free Infinity bond waste band. We drove social engagement up 62% as sales of featured products were up 11% versus a similar campaign last year. Our most recent runway show at New York Fashion Week once again placed Calvin Klein at the center of the cultural conversation, supported by top global talent, including Jennie, Dakota Johnson, Brook Shields and Lilly Collins, the full 2026 show was once again the #1 in [indiscernible] of voice and #1 in earned media value from all of New York Fashion Week. Finally, we just unveiled Calvin's latest spring campaign starring actor Dakota Johnson, styled in new underwear and denim styles. Since the campaign launch, website traffic has been up double digits versus last year in Europe, sell-through has also been strong. Sales in key featured items shot up 4 times versus the time prior. For Tommy in 2026, we are doubling down on our core product categories and set out to create the best product franchises in the market. Moving forward, you see us expand our category acceleration across sweaters, outerwear and knits and shirts. We have started the new fiscal year with a healthy momentum with the launch of the brand Spring 2026 campaign, which features an invitation to Tommy's aspirational world. The campaign has been very well received across markets, serving as both a brand beacon and amplifying our 2026 product priorities. We will continue to leverage our partnerships with Liverpool Football Club and Cadillac F1 throughout the year with a steady drumbeat of consumer engagement. As part of our new multiyear Liverpool partnership, Tommy Hilfiger will address the full team from match arrivals 6 to 8 per season, and each tunnel walk represents an opportunity to drive scaled brand visibility and product sales as we style players in our most aspirational Tommy icons and offer shop to look access. In our first tunnel walk, we drove a 200% increase in sales for these products in Europe compared to the prior week. For Cadillac Formula One, we are activating the partnership with store pop-ups driver appearances and local influencer styling. Following the first 2 races of the season in Melbourne and Shanghai, where we activated with poultry bottles and Chinese driver, Jo [indiscernible], together with local Tommy ambassadors, our China Tommy D2C sales were up double digits in March versus last year. Our expanded partnership with Sergio Checco Peres also continues to drive a consistent uplift in traffic. And in the U.S., the Tommy Icons Checker has won so far this season, such as our cable knit polo have seen double-digit sales increases. Overall, our exclusive Tommy partnerships are driving scaled global engagement with our consumers generating over $700 million impressions and an increase of over 300% in media value versus prior campaigns. And earlier this week, Tommy announced Travis Kelsey, American football icon, 3 time Super Bowl Champion as a global brand ambassador and creative collaborator, one of sports biggest stars on and off the field Kelsey will bring his unique perspective to Tommy Hilfiger as part of the series of campaigns kicking off in fall 2026. Looking ahead for our regions, we have started fiscal 2026 with momentum, which has continued through quarter to date, where we see spring product season do better than last year same time. In Europe, following a tough second half last year, this year, we are expecting a gradual improvement in top line trajectory as we progress through the year. You will see our investments in marketing and the consumer experience start to cut through in the marketplace. In wholesale, we closed our fall 2026 order book, up low single digit, marking the third consecutive season of growth. When taken all together, we expect our overall revenue for the region to be up slightly in 2026 compared to 2025. In the Americas, we continue to work towards unlocking our full potential and expect to grow across all channels by elevating the brand experience, including targeted remodels, strengthening the marketplace distribution and driving pricing power. Overall, we expect modest growth for D2C 2026, and we expect continued growth in e-commerce as we continue to further strengthen our digital position. And in wholesale, we expect to see growth driven by the transition of previously licensed Tommy Hilfiger women's sportswear in-house. In Asia Pacific, we're off to a great start with Lunar New Year, where we launched a dedicated capsule featuring brand ambassador in global K-Pop Superstar Jisoo, exceeding expectations. We expect to continue to drive growth in the region in 2026, up low single digits in constant currency, powered by D2C. The region will continue to be a growth engine for us long term, and we expect to return to growth for the full year. Turning to our licensing business. We continue to build out our already strong licensing business where our licensing partners help bring our vision to life across multiple lifestyle categories from watches and fragrances to eyewear and are critically important to how we drive sustainable profitable growth. In conclusion, our focus is clear to unlock the full potential of Calvin Klein and Tommy Hilfiger by building on the strong foundation we created and drive next-level execution of our PVH+ Plan. While we are seeing early momentum in 2026, we remain conscious of the current macroeconomic environment, and we are laser focused on building out further strength in the consumer offerings in both of our brands. And with that, I'll turn the call over to Melissa. Melissa Stone: Thanks, Stefan. Good morning. My comments are based on non-GAAP results and are reconciled in our press release. As Stefan discussed, our fourth quarter and full year results delivered or exceeded expectations across key financial metrics. In the fourth quarter, we generated 6% reported revenue growth, flat in constant currency, drove sequential improvement in our year-over-year gross margin percent and continued our focus on strong SG&A discipline. We drove significant sequential improvement in our operating margin, reaching 10% for the quarter despite a negative 170 basis point gross tariff impact and ahead of plan. EPS was 17% higher than the prior year. For the full year, we delivered 3% reported revenue growth, up slightly in constant currency both in line with our guidance, with 8.8% operating margin for the year despite a negative 80 basis point gross tariff impact and EPS of $11.40. Throughout the year, we drove quarterly sequential improvements in our gross margin comparisons as we set out to do and exited the year with over 200 basis points of annualized cost savings from our growth driver cost savings actions. We ended the year with healthy inventory levels, up 5% compared to last year and 1% excluding the impact of tariffs, well positioned heading into 2026. We delivered strong free cash flow for the year of over $500 million and returned over $560 million to shareholders through the repurchase of nearly 8 million shares of common stock through our accelerated repurchase program and open market purchases. Looking ahead to 2026, we are planning full year reported revenue up slightly compared to 2025 and flat to up slightly in constant currency. We project operating margin to be approximately 8.8%, in line with 2025, even with a negative 215 basis point gross tariff impact as we drive underlying gross margin strength and tariff mitigation actions while investing in our brands through full funnel marketing. I will now discuss our 2025 results in more detail and then move to our 2026 outlook. Reported revenue for the fourth quarter was up 6% and flat in constant currency, exceeding our guidance. From a regional perspective, EMEA was up 8% reported and down 3% in constant currency. Direct-to-consumer trends from Q3 generally continued in Q4, down mid-single digits in constant currency with wholesale down 1%. Revenue in Americas was up 4% driven by high-teens growth in wholesale, reflecting a mid-single-digit increase in the base business, the impact of bringing Calvin Klein women's sportswear and jeans wholesale in-house and initial shipping related to the Tommy Hilfiger women's sportswear and performance wholesale transition in-house. D2C revenue in Americas was down mid-single digits in total and in stores partially offset by continued growth in our e-commerce business. In Asia Pacific, revenue was flat as reported and down 2% in constant currency, which included an approximately 4% headwind from the timing of Lunar New Year compared to the fourth quarter last year. Excluding the Lunar New Year impact, Asia Pacific returned to growth in the fourth quarter. D2C revenue was down low single digits in constant currency, but up excluding the Lunar New Year timing effect with continued growth in our e-commerce business, driven by strong double 11 performance in China. Wholesale revenue was down mid-single digits in constant currency as our wholesale partners in the region continued to take a cautious approach. In our licensing business, revenue was up 10%, primarily due to the impact of nonrecurring contractual royalties in the quarter. Turning to our global brands. Tommy Hilfiger revenues were up 7% as reported and up 1% in constant currency. Calvin Klein revenues were up 3% as reported and down 1% in constant currency. From an overall PVH channel perspective, our direct-to-consumer revenue was up 1% as reported and down 3% in constant currency, which included an approximately 1% headwind from the timing of Lunar New Year compared to the fourth quarter last year. Sales in our retail stores were flat as reported and down 4% in constant currency. Sales in our owned and operated e-commerce business were up 5% as reported and flat in constant currency as strong growth in Asia Pacific and Americas was offset by the decline in EMEA. Total wholesale revenue was up 11% as reported and up 4% in constant currency, which reflects the North America license transitions, partially offset by the decreases in EMEA and Asia Pacific. In the fourth quarter, our gross margin was 57.6%, stronger than planned, reflecting significant sequential improvement across all regions as compared to the third quarter. The decrease of 60 basis points compared to last year includes a decrease of approximately 170 basis points due to the growth impact of tariffs, a decrease of approximately 50 basis points from our North America license transitions, as we've previously discussed and a marginally higher promotional environment. These decreases were largely offset by our proactive tariff mitigation actions, enabling us to mitigate over 40% of the increased tariffs in the quarter and our efforts to lower product costs as well as favorable foreign exchange. Importantly, we saw significant sequential improvement in Calvin Klein gross margins in the fourth quarter as we steadily work through the previously discussed transitory operational issues. SG&A as a percent of revenue improved 20 basis points versus last year to 47.7% reflecting efficiencies from our growth driver 5 cost savings actions, partially offset by our increased full funnel marketing investments to build momentum heading into 2026. EBIT for the fourth quarter was $250 million and operating margin was 10% roughly in line with 10.3% operating margin in 2024 despite the 170 basis point negative gross tariff impact. Fourth quarter EPS was $3.82, a 17% increase over $3.27 last year, reflecting a negative $0.70 growth impact related to tariffs and a positive $0.33 benefit related to exchange. Interest expense was $19 million and our tax rate was approximately 23%. For the full year 2025, we delivered our overall revenue plan. Regionally, EMEA was down low single digits in constant currency with positive first half D2C trends offset by muted consumer activity in the second half, driven by a tougher backdrop in the region. In the Americas, we delivered a mid-single-digit increase in revenue driven by the North America license transitions and strength in e-commerce. And in Asia Pacific, we drove steady quarterly sequential top line improvement after a challenging start to the year, ending the year overall down mid-single digits in constant currency, including a low single-digit impact from the Lunar New Year timing. While gross margin of 57.5% was lower than last year, including the approximately 80 basis points negative impact of gross tariffs, of which we mitigated approximately 30% for the year, it was stronger than planned. SG&A as a percentage of revenue improved 70 basis points over the prior year to 48.7% as we drove meaningful savings from our Growth Driver 5 cost savings actions. We achieved operating margin of 8.8%. Interest expense was $79 million. Taxes were approximately 22% and EPS was $11.40, which included a negative impact of $1.10 from gross tariffs and a positive impact of $0.56 from exchange. This compared to last year's record high non-GAAP earnings per share of $11.74. And now moving on to our 2026 outlook. As Stefan discussed, in 2026, we will build on the strong foundation we've created and drive the next level of execution of the PVH+ plan. While wholesalers remain cautious and the consumer macro environment continues to be uneven, our European order books are positive, and we are expecting growth in D2C in both brands and in all 3 regions for the full year. At the same time, we expect to absorb the full impact of U.S. tariffs in 2026. Our outlook assumes a 15% tariff rate on goods coming into the U.S. starting from February 24 of this year, with inventory receipts prior to that at tariff rates previously in place. Our guidance does not assume any tariff refunds. We expect an approximately $195 million gross tariff cost and EBIT or approximately $3.30 per share based on these assumptions. We continue to take tariff mitigation actions with the benefit of our actions planned to increase quarter-by-quarter throughout 2026 as we work to fully mitigate tariffs over time. It's important to highlight that significant uncertainty remains around the conflict in the Middle East as well as evolving global trade policies, the broader macroeconomic environment and consumer spending behavior. Our business in the Middle East, excluding Turkey, is about 1% of our total revenue and solely a wholesale business, so the profit impact is disproportionate at approximately 7%. Our guidance is based on current macro and geopolitical conditions and excludes any potential impacts from a prolonged expanded or more intense conflict in the Middle East. For the full year, our overall reported revenue is projected to be up slightly versus 2025 and flat to up slightly in constant currency. We expect full year operating margin will be approximately 8.8%, in line with 2025 and up, excluding the impact of tariffs in each year, as we drive operational gross margin improvements and annualize our growth driver cost savings, some of which we will reinvest in the business, particularly in marketing. We are projecting earnings per share in a range of $11.80 to $12.10 compared to $11.40 in 2025. Regionally, in EMEA, where we saw lower traffic and weaker consumer sentiment in the market in the back half of 2025. For 2026, we are planning for a gradual top line improvement as we progress through the year. We expect the first half to continue to be tougher within this backdrop with second half improvement as our investments in marketing and in elevating the consumer experience, drive even greater strength in the region. In wholesale, as Stefan mentioned, we closed our full 2026 order books up low single digits. At the same time, the overall macro environment remains choppy, and we are planning our revenues prudently. We expect our overall revenue for EMEA will be up slightly in constant currency compared to 2025. In the Americas, we are planning revenue up low single digits compared to 2025 with growth in wholesale driven by the Tommy Hilfiger women's sportswear and performance wholesale transition. And in D2C, despite the choppy consumer backdrop and lower traffic trends in stores in 2025, we entered 2026 with momentum, which has continued in the first quarter to date. We also expect continued growth in e-commerce as we continue to further strengthen our digital position. Overall, we are planning modest growth in D2C for 2026. Next, in Asia Pacific, we are planning 2026 revenue up low single digits in constant currency, led by growth in D2C, partially offset by a decrease in wholesale as we expect our partners in the region to continue to take a cautious approach. Our licensing business is expected to be down low teens, reflecting the North America license transitions. Excluding the impact of these transitions, we expect low single-digit growth in the balance of the licensing business. Overall, the impact of the licensing transitions net of the increase in wholesale is expected to result in a less than 1% net increase in our total revenue. We expect gross margins to be up slightly compared to 2025 as we plan to more than offset an approximately 215 basis point impact of gross tariffs in 2026, which compares to approximately 80 basis points in 2025 and an approximately 50 basis point impact from the North America license transitions with gross margin improvements driven by our tariff mitigation actions, favorable product costs, including foreign exchange and other business improvements. We expect to mitigate approximately 60% of the tariff impact for the full year with the impact of our mitigation strategies becoming progressively more meaningful as we move through the year, exiting the year with over 75% mitigation on an annualized basis heading into 2027. We expect SG&A as a percentage of revenue to be up slightly as we reinvest savings from our growth driver cost savings actions back into the business including an over 50 basis point increase in marketing as a percentage of sales compared to 2025. We expect our full year operating margin will be approximately 8.8%, including the 215 basis point growth headwind from tariffs and in line with 2025. Interest expense is projected to be approximately flat compared to $79 million in 2025. Our tax rate is estimated at a range of 22% to 23% and EPS is projected to be a range of $11.80 to $12.10. Looking at the balance sheet, we are projecting capital spending of approximately $250 million as we invest globally to refresh our stores and our shop-in-shops in our wholesale partner stores and continue to strengthen our digital position. And we are planning at least $300 million of share repurchases in 2026. Now turning to the first quarter. We are projecting first quarter reported revenue to increase slightly versus 2025 and decreased low single digits in constant currency with growth in D2C offset by lower wholesale. Importantly, as Stefan mentioned, we have started 2026 with positive momentum and higher spring season sell-through trends across both brands and all 3 regions. In EMEA, we expect revenue to be down mid-single digits in constant currency overall and in both channels, reflecting the choppy macro environment that has continued into 2026 and wholesale shipping timing including a slightly larger portion of the spring season shipping in Q4 last year than in Q1 this year. In Americas, we expect revenue to be down slightly as growth in D2C is expected to be more than offset by lower wholesale, reflecting a first half to second half timing shift compared to 2025. And in Asia Pacific, we expect revenue to be up low single digit in constant currency as growth in D2C, including the favorable timing of Lunar New Year compared to the prior year is offset by lower wholesale as our wholesale partners in the region continue to take a cautious approach. In our licensing business, revenue is expected to be down mid-single digits, driven by the previously mentioned North America license transitions. The balance of the license business is expected to grow low single digits. Tariff impacts will weigh more heavily on our year-over-year gross margin comparisons in the first half due to the timing of when the tariffs were effective in 2025 as well as the sequentially increasing impact of our mitigation strategies. In Q1, we project a gross tariff impact of approximately 230 basis points, about half of which we expect to offset through our tariff mitigation actions in the quarter. Despite this significant negative impact, we are projecting first quarter gross margin to be nearly flat compared to the prior year as our operational improvements to drive gross margin expansion, including our tariff mitigation actions and favorable product costs are offset by the negative tariff impact and the gross margin differential from transitioning license categories in North America back in-house. We are projecting first quarter SG&A as a percent of revenue to be up approximately 150 basis points versus 2025. We are reinvesting a portion of our growth driver 5 cost savings back into the business, including an approximately 100 basis point increase in marketing spend compared to Q1 last year. In the first quarter of 2025, we reduced our marketing spend due to the Calvin Klein product delays and the environment in China. This year, we are more heavily weighting our marketing spend to the first half to amplify our cut-through campaigns and drive brand heat early in the year. While this will drive our first quarter operating margin down, we'll see sequential improvement each quarter throughout 2026. In total, we are projecting our first quarter operating margin to be in a range of 6% to 6.5% including the 230 basis point gross tariff headwind compared to 8.1% last year, which did not include the higher tariffs. Earnings per share is projected to be in a range of $1.65 to $1.80 compared to $2.30 in the prior year. Our tax rate is estimated at approximately 22% and interest expense is projected to be approximately $20 million. Before we open up for questions, I want to reiterate that while we continue to navigate macro uncertainty, we have a clear focus on what is within our control and driving the next level of execution of the PVH+ Plan. We have started 2026 with positive momentum and are expecting growth in D2C in both brands and in all regions for the full year. We are continuing to invest in our brands and our business throughout the year and expect to drive gross margin up despite the impact of tariffs with operating margin for 2026 at approximately 8.8% in line with 2025 and reflecting underlying strength. And with that, operator, we would like to open it up to questions. Operator: [Operator Instructions] We'll take our first question from Bob Drbul with BTIG. Robert Drbul: Stefan, I was just wondering, can you talk about how you leverage the information about your consumer and the brand health across the PVH plan throughout the business? Stefan Larsson: Yes. Bob, and thanks for the question. It's a really important one. So as we shared in our prepared remarks, we do extensive consumer research and really exciting to see that the work that we have done over the past few years result in standing stronger with the Gen Z and Gen Millennial than our peer group. And within the Gen Z and Gen Millennial, it's really the combination between the strength with the Gen Z and Gen Millennial. And within those groups, the segments that the status interested segments, the style-driven consumer segments because we know that they shop more often. They spend more and they're more loyal. So the way we deploy that knowledge is through social, through e-commerce, expanding -- we target these consumers, and we build out our category strength from the 2, 3 categories where we see real strength already today in both Calvin and Tommy to the top 5 category. Top 5 categories is over 60% of the business. So it's really targeting the consumers where we are the strongest that spends the most and the most interested in style and status and then driving 360 consumer engagement with that consumer. And then that's how we are starting to turn the consumer flywheel. And that's part of why we delivered a stronger-than-expected Q4 and why we are off to a strong start despite the uncertain macro. That's why we're off to a strong start in the beginning of '26 as well. Operator: We will move next with Michael Binetti with Evercore. Michael Binetti: I guess this might be for Melissa, but maybe on the EBIT margins. So we entered the year with margins down 160 to 200 basis points in the first quarter, but then we get to flat in the year. and I think you said EBIT margin improves each quarter. Could you just clarify, is that the level or the year-over-year? Maybe just give us a little bit of help on how to think about the cadence of EBIT margin through the year after first quarter? And then, I guess, backing up, Stefan, on Americas, the revenues planned down slightly in the first quarter, D2C growth, but I think you said wholesale negative. And I would think you would have about a mid-single-digit lift from the licenses. So maybe just a bigger picture thought on why you think -- and we can see all the marketing and we can see everything with Calvin going viral. I'm just -- I'm curious why you think wholesalers have such a gap to what you're seeing in some of the successes and growth in D2C at this point and in fact, can reconcile itself as we move through the year? Stefan Larsson: Yes. Thanks, Michael. Let me start, and then Melissa will be able to take you through. There is a timing shift in wholesale to your point, Michael, in Q1, and there are a number of other shifts as well like the tariff impact that starts off higher and then goes down. So -- but let me start from a business perspective and just say, so we are quite far into Q1 by now. And we have a positive momentum in the spring season sell-through for both Calvin and Tommy across all regions. So we see the stronger D2C trend across both brands, all regions. And in Q1, 1 factor that also impacts Q1 is that we are strategically increasing our marketing spend. And some of that spend is somewhat front-loaded in the year. So full year basis, marketing spend is up double digit. But the first quarter, as Melissa mentioned, there are shifts from the market conditions last year to this year that gives us the confidence to invest more early. And we see that in Calvin through the strength in the spring campaign. We see it with a fashion show with the amplification of the Love Story interest. In Tommy, we see it through Cadillac Formula One. We see it with a Liverpool partnership. We see it with the spring campaign. So we're really leaning in to turn that consumer flywheel, but Melissa will be able to take you through more of the quarter-to-quarter timing. Melissa Stone: Yes, sure. Thank you, Stefan. So as we think about the trajectory for the year, there's several moving parts. Just on the top line, we have started the year, as we talked about with positive momentum with spring season product selling up versus last year in both brands in all 3 regions. And while the macroeconomic environment remains uncertain, we do expect growth for the full year. But in the first half, we're lapping the stronger comparisons in Europe and the Americas from last year. While in the second half, we expect to drive improvement as we continue to focus on what is within our control and see our investments drive strength to consumer. And I would just add that in Q1, when you look at our overall revenue on a 2-year stacked basis, which takes out some of the wholesale timing that's impacting our comparisons. Our total revenue growth in constant currency is sequentially improving from Q3 to Q4 and then from Q4 to Q1. And then when we look at the profit cadence, there are also 2 main parts that I'd highlight. I mean, first, as Stefan mentioned, there's the tariffs. And in the first half, we are burdened by tariffs, which only had a very small impact in the Q2 last year. And at the same time, we expect that our tariff mitigation actions will become increasingly impactful as the year progresses, and we expect to exit the year with over 75% of the tariff mitigated on an annualized basis. And then the second piece, as Stefan mentioned, is marketing where we've strategically weighted our investment to the first half, particularly Q1 ahead of the key consumer moments to align with our commercial plan and activate the full funnel and drive that heat early in the year. And you'll remember that in the second half of 2025, we had already stepped up our marketing investment versus our original plan and so that we lap that in the second half of '26. And then lastly, from an FX perspective, there's just 2 things I'd highlight. With translation, we see a favorable impact year-over-year, more heavily weighted to the first half, and you can see that effect in our Q1 revenue guidance. And then on our inventory cost, it's actually opposite where we see the favorable impact building as the year progresses, and that comes through and strength in our gross margins. And importantly, I would just add that on inventory costs overall, we're starting to see the benefit in our product costs as we leverage the scale and the power of PDH and our 2 global product kitchens. And we saw that benefit start to come through in Q4, and we'll continue to see that benefit in 2026. So a lot of parts. But overall, we expect progressive year-over-year improvement in our operating margins. Operator: We will move next with Jay Sole with UBS. Jay Sole: Great. I want to ask you about Love Story. I mean it really was a phenomenon. I just want to ask about the learnings from it just because it was it bigger than you expected? And how did it play out? And like I said, what are the learnings that you'll take going forward? Stefan Larsson: Thanks, Jay. It's almost impossible to have a conversation about Calvin right now without Love Story. So is also a really, really great question. So could we anticipate it? I don't believe anyone could have anticipated the magnitude of the hit it has become globally and across generations. So if you look -- we just got the data yesterday that over 40 million people have watched Love Stories, Hulu's most streamed show ever. So what's the learning for us and what's the effect? When the show launched, we could see the search -- search for -- the search increase for Calvin Klein, e-commerce traffic, D2C is positive. The consumer is looking for iconic Calvin, starting with iconic underwear and iconic denim, the most sold denim style right now is the '90s fit. So some of the key learnings here is you can't plan for these things. But what I'm really excited about and is what the team has done over the past 3, 4 years is we have gone back to the DNA of what made Calvin collide with culture back in the '90s when that happened and really taken 100% of that iconic DNA and then working hard to make it 100% current. So when something like Love Story hits, it's just a really nice sync up with where we are with the brand. So it also shows the power of the brand. So we are talking about since we started the PVH+ journey that there is something special in Calvin and Tommy because there are one of a handful of brands that have provided with culture and become globally iconic. This is a good example of this because the interest we see spans generations. And then one of the biggest audience parts of love story is also where we have built the most strength which is within the young millennial and the Gen Z consumer. So Calvin really helped shape American Fashion and the '90s look? And yes, just -- we see it in the demand. We see it in the interest for the brands, but this is something that has been built over the last 3, 4 years. And we just appreciate it. And for those of you who haven't watched Love story, please do, it's a great show. Operator: We will move next with Brooke Roach with Goldman Sachs. Brooke Roach: Stefan, I was wondering if I could get your latest thoughts on the path to deliver sequentially and sustainably stronger sales momentum in your Europe business. Beyond the easier compares, what are the most important drivers of that sequential improvement that's planned throughout the year? And what is a more appropriate medium-term algorithm for European growth on a go-forward basis? Stefan Larsson: Yes. Thanks, Brook. As we mentioned, there are 2 big factors here. One is that the spring product season in both Calvin and Tommy in Europe, is up versus last year. We we're still relatively -- sorry, relatively early in the spring. So we are 1 week away from Easter. Last year, it was 3 weeks later. But we have a very good read on early spring product up versus last year. And that is both in D2C and wholesale. And then the forward-looking wholesale order book for fall is up low single digits. So you will see that -- you will see the combination of keep building the D2C momentum powered by our increase because also in Europe, we are stepping up the marketing investments and we see the effect of that. And we will see the effect of that gradually improve over the year. So you will see our market presence for Calvin and Tommy step-by-step through the year improve. And then we build on the positive start to spring. And then we have the belief from our partners in the forward-looking order books. Operator: We will move next with Dana Telsey with Telsey Group. Dana Telsey: As you think about the uptick in the marketing spend as we go through the year, the first quarter having the most pronounced impact, how do you think of Tommy and Calvin, what we should be watching for, for newness moving through? -- and the addition of Travis [indiscernible] to the platform, are there other new celebrities or sports side concept we should be watching for also? And Stefan, how do you think this is sales drivers for the brand. Stefan Larsson: Yes. Thanks, Dana. What's -- so let me start with Tommy this time. So I'm really excited this earlier this week, as you alluded to, we revealed that American football icon, 3x Super Bowl winner Travis [indiscernible] becoming our Tommy brand ambassador and creative collaborator. And we know when we have done these collaborations in the past, how much power there is because there is a lot of love for Travis Kelsey out there, a lot of love for Tommy and then combining those really creates energy and interest. And the way the way we build that collaboration is, again, going back to the DNA of Thomas classic American Cool. And then as I mentioned, for Tommy, we are building out the and putting innovation into our strongest franchises into our 5 most important categories. So when looking at categories for Tommy is, outerwear, sweaters, shirts, knits as an example. So it's putting innovation and newness. It's almost like internally is very clear, and I push it all the time with the team says it has to be 100% iconic and 100% current. So that's what we're going to do through the collaboration with Travis. We are also doing it in Tommy. So what you will see more of is building out the Cadillac Formula One partnership and the Liverpool Football Club partnership. So Liverpool became, as I mentioned, the #1 engaged social post ever in the history of the brand. It was really exciting about how the brand makes these collaborations shoppable is Cadillac Formula One, we were able to launch the fan wear, the Tommy Cadillac Formula One fan wear at around the Super Bowl. And for a few days there, 50% of the sales in our U.S. e-commerce was Cadillac Formula One Tommy. So there is an enormous interest in that. And then through the races, we work with the drivers, we work with local influencers and then we have shopped to looks. So when you see Tommy show up with your Formula One team that you follow, you see, Tommy, with some of the best footfalls in the world in Liverpool, can shop the look starting from social all the way to e-commerce to e-mails. So some of the biggest impressions we have had since we launched Canada Formula One and Liverpool. So you'll just see us build out Tommy's presence through those partnerships. And then in Calvin, what you will see in Calvin is starting this spring, you just -- already, you have seen the spring campaign with John Cook, the famous K-Pop star campaign items. So what we -- if you look closer at those campaigns, we build out newness and innovation in underwear, in denim, in outerwear in knits, and you start to see how that drives sales. So if you look at the John Cook featured products, prior to the campaign and after the campaign, they are up 50%. And the outerwear that has had a sell-through in 2 weeks. Dakota Johnson, same thing, what she were in innovation in underwear was shopped to look and became one of the highest selling underwear styles that we have. So when we introduce innovation and newness into our icons, whether it's underwear or denim, et cetera. That's how we drive this 360 engagement. So you will just see a consistent drumbeat of that towards that consumer target, the Gen Z, the young millennial and the standard shopper and the style enthusiasts. So that's over time, you'll just see us build that out. We have time for 1 more question. I look at Sheryl now. I guess to signal one more question. Operator: We will take our last question from Tom Nikic with Needham. Tom Nikic: Just wanted to ask about the expectations for direct-to-consumer growth this year. And I'm wondering how much of that is driven by pricing in order to mitigate in order to tariffs and how much is driven by expectations for improvement in traffic or unit volume. Stefan Larsson: Yes. Thanks, Tom. So let me start and then hand over to Melissa. But overall, we are pleased to see in North America, how we are able to take pricing by offering the consumer great value. So you see that in D2C, you see that across channels, really, but your question was about D2C. So you see the pricing power and the tariff mitigation that coming out of this year, we will have mitigated 75% of the tariffs. And then across the board, we make sure that we drive pricing power in multiple ways. But it starts by being really focused on these categories that we accelerate and then putting innovation in the franchises and then cutting the long tail of product. There is a lot of pricing power and margin gain over time that we will tap into more and more and then when we drive the consumer engagement on top of that product strategy and then make it come to life all the way through, that's when we see we're able to drive pricing power. So it's very much connected to where we strengthen the consumer offering. So in Calvin Klein underwear denim, we're able to drive pricing power because we offer something that's more valuable to the consumer. Melissa Stone: Yes. And I would just add to that, Tom, that from a DTC perspective, we're planning our overall B2C business up low single digits in 2026 and that includes growth in both brands and across all regions for the full year, not just in our North America business where we're faced with tariffs. Stefan Larsson: All right. Thank you very much, Tom, and thanks, everyone, for joining our call today. Looking forward to reconnecting after Q1, and we are heads down ready for the big Easter period here. So we're going to get back to business and looking forward to speaking with you in a quarter. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Greetings, ladies and gentlemen, and welcome to the SEALSQ Fiscal Year 2025 Financial Results Earnings Conference Call. As a reminder, this conference call contains forward-looking statements. Such statements involve certain known and unknown risks, uncertainties and other factors, which could cause actual results financial condition, performance or achievements of SEALSQ to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. SEALSQ is providing this communication as of this date and does not undertake to update any forward-looking statements contained herein as a result of new information future events or otherwise. These risks are also discussed in our filings with -- made with the Securities and Exchange Commission. Please be advised that our fiscal year 2025 earnings release was issued on Tuesday, March 31, 2026. Also, our Form 10-K for the full year ended December 31, 2025, which was filed with the SEC on Tuesday, March 31, 2026, can be found by visiting the Investors section of SEALSQ website. at https://investors.sealsq.com. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce Carlos Moreira, Founder and Chief Executive Officer of SEALSQ. Mr. Moreira, please go ahead. Carlos Moreira: Thank you very much, Kevin, and good morning in the United States, and good afternoon in Europe to everybody. Welcome to our full year 2025 earnings call. I am joined today by our Chief Financial Officer, John O'Hara. I'll begin with an overview of our key highlights and major developments from the year. John will then walk you through the financial results in more detail. After that, I'll return to share our outlook for 2026 and beyond, I will conclude by opening the line for your questions. 2025 was a defining year for SEALSQ. It was a year where we stepped decisively into the role we had been building towards since our founding that of the world-leading platform for post-quantum secure semiconductor and trusted digital infrastructure. Every investment, product launch and partnership this year advances one central thesis that the quantum threat to encryption is real. It is accelerating and hardware rooted post-quantum security is the only durable answer. Let me walk you through those accomplishments one by one. In October 2025, SEALSQ market valuation surpassed $1 billion, and we achieved an upgrade to the NASDAQ Global Select market, its highest year. This reflects our growing scale, institutional governance standards and investors' recognition and our positioning at the interception of semiconductor, cybersecurity and quantum resilience. November 2024, we have raised more than $530 million in capital, providing us with a substantial financial flexibility to accelerate our growth strategy and deepen our investment in innovation. This founding strengthens our balance sheet and enables us to scale product development, expand our commercial reach and support the industrialization of our next-generation secure semiconductor platform. It also positions us to advance key strategic initiatives, including post-quantum product development, certification programs and potential partnerships or acquisitions that we can enhance our technology capabilities and market presence. I will provide more detailed color shortly on our use of capital and how we are allocating these resources to drive long-term value creation. I will start with our QS7001, the world's first post-quantum semiconductor. The most consequential milestone of 2025 was the commercial launch of the Quantum Shield QS7001 in Q4. This is the most first commercial available secure semiconductor embedding NIST standardized post-quantum cryptography algorithms, such as MLK, MLA KEM and MLA DSA directly in hardware delivering up to 10x higher performance than PQC software implementation. We unveiled the QS7001 at the IQT Quantum and AI conference in New York in October, and formally launched development kits at Las Vegas Grand Prix in November. The pipeline on QS7001 and QVault TPM has already grown to over $60 million for 2026 to 2029, up from approximately $11.4 million at the same point last year. I will now discuss the SEALSQ made in U.S. strategy and recent development. The U.S. government and enterprise market increasingly required Root of Trust, PKI infrastructure and cryptographic provisioning on American soil, driven by national security imperative and regulatory mandates. In November 2025, we launched a sovereign U.S. post-quantum Root of Trust, the first of its kind, marking a foundational milestone in or made in U.S. strategy. This initiative ensures that the entire trust chain from silicon design to cryptographic provisioning can be executed within the United States under the highest level of certification and control. To operationalize this vision, we engage Trusted Semiconductor Solution, TSS, as our U.S. manufacturing and distribution partner and establishing a U.S.-based secure personalization hub in 2026, reinforcing supply chains sovereignty and resilience. This strategy further strengthen through key partnerships collaboration with Lattice Semiconductor enables the integration of low-power FPGA technologies, supporting flexible, secure and post quantum-ready hardware architectures for defense, IoT and HAI applications. At the same time, engagement with Paradrone extends secure Root of Trust capability into autonomous and defense trade UAV system where [indiscernible] resilient and trusted communications are mission-critical. Trusted Semiconductor Solution, TSS, a Category 1A trusted accredited company meeting the highest standard for 100 classified and mission-critical macro electronics has announced a strategic partnership to co-develop Made in U.S., PPC enabled semiconductors, secure semiconductor solution. These solutions are designed to reach the highest level of hardware certification required by U.S. defense and government agencies. Leveraging TSS' established a relationship and trusted position within the U.S. Defense ecosystem, this collaboration has strengthened SEALSQ footprint and accelerate access to sensitive national security market. TSS serves us as a critical interface to U.S. agencies, insurance compliance with the Department of Defense, DoD and federal requirements while enabling the developer mind of SEALSQ quantum resistance silicon, [indiscernible] chip design, advanced certification and secure personalization technologies. [indiscernible] represents the quantum computer layer of this long-term vision. Its electron on Helium approach enables Quantum Processor as small as a funnel and compatible with the standard semiconductor manufacturing processes. This breakthrough aligns directly with the objectives of building an end-to-end sovereign quantum security stack bringing today post-quantum cryptography chips with tomorrow Quantum processors. The follow-on investment in February 2026 reflects a strong conviction in this trajectory and reinforces the strategic position and the intersection of semiconductors cybersecurity and quantum computing. By combining U.S.-based manufacturing and personalization through TSS programmable secure hardware, the Lattice Semiconductor trusted autonomous system with Parodrone and future quantum capabilities enabled by [indiscernible], we are establishing a vertical integrated sovereign and quantum resilient security ecosystem tailored to the most demanding requirements of U.S. defense, critical infrastructure and next-generation AI system. Our total activity -- sorry, our total active pipeline across all products, stands to an estimate $200 million in March 2026, which publishes a certification road map confirming all the products variant, which are QS701,V1,QS7001, V2, QVault TPN 183, QVault TPN 185, which are on track for CC EAL 5 plus FIPS 14-3 and TCG certification through Q4 2026. While our customers are actively testing development kits and progressing through the design in progress, signaling strong engagement and readiness for adaptation, we see that gating factor for conversion to revenue are twofold. First is the certification completion or CC EAL 5 and FIPS 143 milestones remain on track through Q4 2026, and customers in regulated sectors typically require the certifications before committing to volume purchases. As already mentioned, the laboratory has confirmed that the common criteria evaluation required to achieve evaluation Assurance Level EAL 5+, namely fault injection and side channel attacks, pass in March certification as anticipated. Second, integration cycles in the semiconductor industry, the past from design into full production usually expand 6 to 18 months. We are actively accelerating this timeline through co-development partnerships and close collaboration with customers shortening the time from prototyping to deployment. Critically regulatory pressures, such as the CNSA 2.0 in the United States and the European Union or cyber resilient act are creating tangible urgency. These deadlines are not theoretically, they are influencing procurement decisions today, and we are seeing this urgency directly reflected in commercial conversations driven faster designing and a strong early adoption. This combination of mature pipeline, accelerating integration and regulatory-driven demand positions us well for meaningful near-term revenue growth while laying the foundation for continued expansion through 2028. Now moving to acquisitions. In 2025, we completed the acquisition of IC'ALPS SASU, a leading ASIC design, a specialized company based in Grenoble and Toulouse in France. This added approximately 100 high skill engineers, bringing our global workforce to approximately 300 people. IC'ALPS bring expertise in custom chip design for health care, automobile and IoT and position us to develop the QASIC, which is the quantum ASIC, a purpose-built post-quantum cryptographic ASIC. ASIC revenues also grew from $1.4 million in Q3 to $2.2 million in Q4, confirming the value of this acquisition. Additionally, last month, we signed a letter of intent to acquire 100% of Miraex, a Swiss developer for photonics-based Quantum interconnected solution. Miraex represents a strategic asset in completing our Quantum vertical stack. This technology provides a critical interconnect layer linking quantum computing networking and post-quantum cryptography into a unified architecture. Once completed, the acquisition is expected to accelerate our QS OC initiative and strengthen our ability to deliver resilient end-to-end quantum secure infrastructure across both terrestrial and space-based environment. Another key milestone in the establishment of our Quantum fund and a strategic investment made through it. Our Quantum Fund launched in 2025 with a $20 million initial allocation has grown now to $200 million as today. We deployed approximately $30 million across IC'ALPS, [indiscernible], EeroQ, WISeSat, Quantix Edge Security and the WeCan Group, each reinforcing our Quantum vertical from silicon to space. On November 2025, investment in EeroQ deepened with a follow-on in February 2025, is particularly strategic. EeroQ is building a quantum processor based on single electron on super fluid helium, a design approach that yields processor as small as a thumbnail manufactured on a standard semiconductor processes. This underlines our Made in U.S. vision and our long-term Root-to-Qubit ecosystem. The U.S. government and enterprise market increasingly requires Root of Trust, PKI infrastructure and cryptographic provision on American soil. In November 2025, we launched a sovereign U.S.-based post Quantum Root of Trust, the first of its kind. We engaged Trust semiconductor solution as U.S. manufacturing and distribution partner and we are building a U.S. personalization hub in 2026. EeroQ is the quantum computer layer of this vision. Their electron on Helium approach allows processor as small as a thumbnail to be manufactured on a standard semiconductor processes directly aligned with our long-term goal of an end-to-end server in quantum security stack from post-quantum chips today to quantum processors in the future. The follow-on investment in February 2026 reflects our conviction in this direction. All these advances tie well with our Quantum highway global expansion strategy. We advanced our Quantum highway linking industrial capabilities around several locations like Murcia, Toulouse, Grenoble, Geneva and Chicago, connecting Spain, France and the United States and Switzerland. In September 2025, we signed a EUR 40 million joint venture with the Spanish government to establish Quantum Edge security in a city located in the southern part of Spain, Murcia. Spain's first Quantum -- first Quantum Semiconductor personalization Center. We are establishing 2 additional hubs in the U.S. and in Asia in 2026. In November 2025, we launched a sovereign U.S.-based post Quantum Root of Trust, enabling U.S. government agencies to manage Quantum secure digital identities in U.S. oil. In November 2025, SEALSQ invested $10 million in WISeSat to develop a Quantum secure satellite infrastructure platform. The complemented -- the contemplated model is based on an anticipated remarkable right of use over 12 satellites. WISeSat will remain ownership of the operation while SEALSQ will secure dedicated capacity for Quantum Spatial Orbit cloud initiative, delivering quantum key distribution, Quantum run their number generation and post-quantum identity services as a subscription offering to enterprises and government. The WISeSat 3.0 launch in June 2025 already included a proof of concept for SEALCOIN machine-to-machine transaction, secure bio semiconductor stack. While there cannot be no assurance that the contemplated arrangement will be completed on currently anticipated terms, we believe this represents a significant long-term opportunity as the world's first Quantum Secure Orbital cloud. I am turning now the call to John, who will discuss financial results for the year 2025. Go ahead, John. John O'Hara: Thank you, Carlos, and hello to everybody on the call. So SEALSQ delivered total revenue of $18.3 million in fiscal year '25, representing growth of 66% compared to 11%, and second, the addition of our new ASIC segment, which contributed $3.6 million following our acquisition of IC'ALPS in August 2025, representing 5 months of consolidated revenue. Within the semiconductor segment, we saw particular strength in our smart card reader SCR 200 product line, which delivered 51% revenue growth year-on-year, driven by expanded deployments at key customers. Our Secure Element product lines, notably the VIC 405 and VIC 408 also saw significant bond growth in smart metering and secure communications applications. Trust Services, which include our PKI and provisioning solutions, grew by almost 600% year-on-year, both from a small base and currently represent just 2% of total revenue. Geographically, North America remains our largest market at 57% of revenue. We are pleased to report strong momentum, in particular, in Asia Pacific, where revenue grew 95% year-on-year, driven by adoption of the MATA protocol in smart home and HVAC applications. We also recognized some small revenues relating to sampling of the QS7001 quantum resistant chip as clients commenced their first testing of this product, and we expect first production revenues from the QS7001 in the second half of 2026. Gross profit improved substantially to $8.6 million in 2025, up from $3.7 million in the prior year, with gross margin expanding 13 percentage points to 47%. This was primarily driven by the addition of the ASIC segment which carries significantly higher margins at 88%, reflecting the design service and nature of that business with low directly attributable costs. Semiconductor segment gross margin partially recovered to 37%, up from 34% in 2024, as shipments of new products for our existing customer base resumed following a period where customers were drawing down their own inventory. Total operating expenses were $48.4 million in 2025 compared to $20.9 million in 2024, an increase of 132%. However, I want to be clear about what is driving this increase as context matters significantly here. The single largest factor is a noncash stock-based compensation charge of $11.2 million. Following the significant change in SEALSQ's market capitalization since our original listing, Management made the deliberate decision alongside the Compensation Committee to issue equity awards to our staff and senior staff as recognition of their commitment and to align their interest with our shareholders. This is a onetime accounting charge with no cash involved. Beyond that, the increase in operating expenses reflects 3 structural changes in our business. The consolidation of 5 months of IC'ALPS operating expenses following the August acquisition, the build-out of our own management team with C suite and central functions that were previously provided by our parent, WISeKey, now directly employed by SEALSQ from January 2025 and continued investment in research and development and sales and marketing to support our post-quantum product road map. Net of stock-based compensation, in particular, R&D expenditure was $10.1 million, representing 25% of our total operating expenses and reflecting the investment required to bring our Quasar post-quantum product program to commercial launch. The net loss for the year was $34.2 million compared to $21.2 million in 2024 and a meaningful offset to our operating loss came from the nonoperating income of $8.9 million, the majority of which $6.1 million was interest income earned on our substantial cash balance throughout the year. Turning to the balance sheet and liquidity. We ended the year with cash and cash equivalents of $417.7 million with short-term investments of $10 million on top of that, which was up from $84.6 million at the end of 2024. Working capital was positive at $421 million. This cash position is a result of highly successful equity capital markets activity throughout 2025, and in aggregate, since November 2024 until the current date, SEALSQ has raised over $575 million in cash for a series of [indiscernible] direct offerings, warrant exercises and our at the market facility. This puts us in a genuinely strong position to execute on our strategy in the years ahead, and Carlos will come back to that later in the call. Operating cash outflow for the year was $31.3 million reflecting our continued investment phase. Investing activities consumed $35.3 million, primarily comprising of acquisitions and strategic investments, including the acquisition of IC'ALPS, our investments in EeroQ, WISeSat, the WeCan Group and Quantix Edge Security in Spain. Total debt at the year-end was a modest $1.7 million, all of which relates to French government-supported loans acquired with IC'ALPS. The balance sheet is therefore essentially debt-free at the parent company level. Based on our cash projections through to March 2027, we have confirmed sufficient liquidity to fund operations and the business is not dependent on further capital raises for its immediate operational continuity. Moving on to our balance sheet. Total assets grew to over $500 million at the end of 2024 -- at the end of 2025, principally reflecting the increase in cash. Noncurrent assets grew from $4.5 million to $54.5 million which was driven by the IC'ALPS acquisition, which added $5.7 million of goodwill and $21 million of intangible assets net of amortization as well as our strategic investment portfolio. On the other hand, total liabilities were $42.7 million at the year-end and the cumulative deficit at $76 million, up from $41.9 million in the prior year, reflecting the net loss for the period. Looking to 2026, there are a number of important milestones we are targeting. On revenue, we expect fiscal '26 to represent a year of acceleration. The ASIC segment will contribute a full 12 months of IC'ALPS revenue for the first time. We anticipate the first production revenues from the QS7001 and the QVault TPM in the second half of 2026. The estimated combined pipeline for these 2 products is at $60 million as of December 31, 2025, and as of today, and that's across approximately 115 potential customers. Just for clarity, this is a management estimate and is subject to convert -- conversion risk, customer validation, timelines and the certification process. R&D expenditure is expected to continue to increase in 2026, with a particular focus on our post-quantum cryptography road map and the build-out of our test and personalization infrastructure in Spain and prospectively in the United States and Asia. Finally, we expect to continue executing on our strategic investment program. The Quantum funded a total allocation of $200 million, of which we have spent just over $30 million to date. We will continue to evaluate opportunities in quantum computing, quantum as a service, secure semiconductor technologies aligned with our road map. We have $530 million in cash, generating meaningful interest income, and we are investing from a position of strength. Part profitability, we believe, runs through revenue scaling with a $200 million pipeline for 2026 to 2029, revenue expected to grow by between 50% and 100% in 2026, Q1 expected to more than double year-on-year and gross margins certainly trending upward, we are confident in that trajectory. Now I'll turn the call back to Carlos who will provide additional details on our growth strategy. Carlos, please go ahead. Carlos Moreira: Thank you, John. So let me start with 2 milestones that we believe will define our 2026 product calendar. So first is the full scale commercial deployment of the QVault TPM or RISC-V-based semiconductor controller which marks SEALSQ's formal entry into the trusted platform module market and is expected to drive significant new revenue in H2 2026, as indicated by John. Second, we anticipate a custom post-quantum ASIC engagement with contractualization in H2 2026, reflecting IC'ALPS contribution to the QASIC initiative. Furthermore, our $200 million pipeline, which spans from 2026 to 2029 and the near-term portion, particularly the QS-7001 and QVault TPM program, is at the most advanced stage with customers actively running development kits and moving through design in processes. This is a traditional practice in this industry where the testing kits are used and completed before further acquisition of the product. The key conversion factors are: First certification completion or CC EAL 5 plus the 143 milestones are on track through Q4 2026, and regulated sector customers required this before committing to volume. Second, integration cycles in semiconductor design to production typically runs 6 to 18 months. We are actively compressing this through codevelopment and partnerships CNSA 2.0 and EU CRA deadlines are creating a genuine urgency, we see directly in our commercial conversation. This to be completed with the announcement yesterday and Google of the acceleration of the Quantum Day and Quantum thread on cryptography and cryptographic tuck-ins, which will also create an urgency aspect in the market and the consumer application of this technology. Let me now discuss regulatory tailwinds hard deadline set for 2026. The regulatory environment is no longer a distant tailwind. It is creating binding new terms demand that is actively shaping customer purchasing decision. By September 2026, the Cyber Resilient Act mandates security life cycle, documentation for all products with digital elements sold in the European Union. Noncompliant risk incurring fines up to $50 million or 2.5% of the global turnover. This has driven urgency among manufacturers and OEMs to reassess the security architecture and ensure long-term compliance. In parallel in the U.S., the NSA, CNSA 2.0 requires traditional networking equipment to prefer post quantum algorithm by 2026. This effectively accelerates the replacement cycle for a wide range of infrastructure embedded system. Importantly, these are not long-dated policy [indiscernible], they are active enforceable deadlines. As a result, we are seeing a clear shift from evaluation to execution and customer engagements. Against this backdrop, SEALSQ's unique position, SEALSQ is one of the very few companies in the world with certified hardware native solution ready today. This gives us a meaningful first mover advantage as customers move quickly to secure compliance, future-proof solutions. So now moving on to global infrastructure expansion. In 2026, we plan to commence the establishment of 2 additional custom design, tech and personalization hubs, 1 in the United States and 1 in Asia, complementing the Murcia Spain center and significantly expanding our global footprint. These hubs will not only enhance our operational resilience and proximity to key market, but also will create a distributed sovereign grid infrastructure aligned with evolving geopolitical and cybersecurity requirements. At the same time, we will accelerate the development of the SEAL Quantum Spatial Orbit cloud, a strategic initiative that reflects a fundamental shift in how digital infrastructure must evolve in the quantum area. As a complement last -- only yesterday, we launched the new satellite, which is a WISeSat 3U already with a post-quantum chip embedded, which is the beginning of this infrastructure. The convergence of Quantum technology and space-based infrastructure is no longer optional. It's becoming essential. First, security at the quantum level requires a new infrastructure layer, retrial network are increasingly vulnerable in a post-quantum world, a space-based system enabled Quantum Key Distribution, QKD and ultra-secure communications beyond the reach of conventional cyberattack ensuring that data sovereignty is guaranteed and resilient for government and enterprises. Second, latency coverage and independence are critical. Space-based quantum cloud allows computation, secure data exchange and AI processing to occur close to the edge, anywhere on earth without reliance on fragmented terrestrial infrastructure. This is particularly important for critical sectors such as defense, finance, energy and smart infrastructure. Third, data sovereignty and geopolitical fragmentation are reshaping the cloud landscape. Nations and regions increasingly require trusted independent infrastructure. So Orbital Quantum cloud platforms provide a neutral sovereign and tamper-resistant layer enabling countries and organizations to operate securely across border without compromising control over the data. Fourth, scalability on Quantum services depend on cloud delivery. Just as a classical cloud computing, democratized access to computing power, Quantum cloud will be the gateway to Quantum capabilities. Integrating these services with satellite infrastructure ensures global accessibility, including in regions where terrestrial connectivity is limited or insecure. Finally, space enables true resilience. Orbital infrastructure is inherently more robust against physical disruption, geopolitical conflicts and centralized points of failure. For Quantum companies, this resilience is not just a technical advantage, it is a strategic necessity. Let me now discuss the steps we have taken in building the Quantum cloud economy. Throughout the WISeSat Quantum Spatial Orbit club, we are positioning ourselves as the intersection of quantum computer, cybersecurity, satellite infrastructure and AI. This platform will support secure quantum communications, QQD and post-quantum cryptography, distributed quantum computer access via cloud services and infrastructure, trusted AI processing in a space-based environment and global IoT edge services authentication secured by quantum resistant technology. In parallel, we will continue disciplined investment through the Quantum Fund, supporting innovation and accelerating the commercialization of Quantum and post-quantum solutions across our ecosystem. With that context, I will now turn to our recent capital raises, including March 2026 financing and outline how we are deploying this capital, particularly in support of the U.S. semiconductor personalization center. During March 2026, SEALSQ raised an additional $125 million bringing our total cash position to approximately $530 million. This capital raise was undertaken with a clear and specific strategic rationale to fund the development of SEALSQ's Semiconductor personalization center in the United States, which is a high capital-intensive activity. This center provides localized high secure environment certified to common criteria such as ELS, EAL 5+ and specifically designed to customize program and inject cryptographic identities into semiconductor transforming them into trusted post-quantum resilient devices, compliant with the NSA, CNSA 2.0 framework. These are significant capital investments. Each U.S. center requires approximately $100 million in company investment, reflecting the specialized infrastructure, security accreditation and operational capabilities required to deliver this level of certification. EAL 5 plus grade cryptographic personalization at the scale. SEALSQ is already developing a comparable center in Murcia, Spain designed to serve the European market and aligned with the European Union legislation requirement. In addition, we are establishing a center in India in partnership with Cain Semiconductor that just yesterday inaugurated their OSAT, extending our personalization capability into one of the world's fastest-growing semiconductor market. Once operationally, these centers will serve as a dual strategic purpose. First, will generate higher revenue from semiconductor personalization center and cryptographic provision services, representing a meaningful and recruiting contribution to SEALSQ's top line from countries that today we are not able to reach. Second and equally important, they will provide essential physical infrastructure to support the Quantum vertical stack, the company is developing. Our ultimate vision goes beyond security as a cost, we aim to transform security into a strategic value driver by enabling new services and business model such as secure in vehicle transaction, electricity exchange between vehicles and grid, authenticated drone delivery, autonomous robotic assets control, et cetera. SEALSQ is strongly convinced of the conversions between post-quantum cryptography and Quantum technologies. We will continue to build a broader quantum strategy, particularly around our collaboration with EeroQ for their partnership in Quantum based on their line semiconductor technologies are also under active discussion. This includes ASIC design, in particular, the development of a unique cryo CMOS capability as well as the integration of advanced security to support fully secure quantum computer system. Through this approach, SEALSQ is positioned itself at the intersection of secure semiconductor, post-quantum cryptography and Quantum technology with the ambition to become a key player in building the next generation of trusted digital infrastructure in the United States. This position, nobody currently in the market has it. I will now turn back to the operator for a Q&A session, and I thank you very much for your attention for the moment. Operator: [Operator Instructions] Our first question today is coming from Matthew Galinko from Maxim. Matthew Galinko: Congratulations on the year. Maybe just firstly on the pipeline for the new Quantum products. I think you might have mentioned you have 10 customers better in kind of very active stages. I guess with the kind of with regulations starting to have an impact and teeth maybe in late '26, do you expect the number of customers you're engaging with to increase in that over the course of the year? So exiting '26, would we expect to have a significantly greater number of customer engagements on the Quantum products? Carlos Moreira: Matt, nice to talk to you again. Yes, I mean, I think there are several factors that is going to accelerate or sales in QS7001 post-quantum, not only at the silicon level but also the software level. One of them, as I mentioned, during the presentation is the CNSA 2.0 and their equivalent regulatory framework and basically is saying that companies, especially companies that they are dealing with technology that serves the purpose of critical infrastructure needs to be previously compliant. And this is an important driver because that means that governments around the world are putting that level of urgency. The second one is that we are gradually getting the certifications that they are require. This is a long process. Sometimes people don't understand how long it takes for the laboratories to certify those products. And many companies, they have expressed, as you can see on the $200 million pipeline, they have expressed strong objectives to deploy, but obviously, they want to deploy a certified product, especially the companies and organizations and they are working with government defense and critical infrastructure, which is the second driver. And I would say the third driver is the urgency created by the fact that there is now common consensus that the QD is actually arriving faster than everybody thought. Remember, last year, in January last year, we were still thinking that quantum computers will be only able to break RSA, triple desk in 30 years' time. This was reduced to 10 and now Google announced yesterday that they are actually dividing that by 10. The urgency is actually very large. And sectors like the possibility of breaking Bitcoin, let's say, then you break on wallet, imagine the consequences for the entire Bitcoin community. If one of those wallets will be compromisable because they have a quantum attack. Now Quantum companies are also expanding faster their Qubits generation. The company we have invested and the ones that we are in the process of investing, they are already able to generate between 10 and 100 Qubits. And some of them, they are predicting to be able to reach the 500 Qubits, which is what Google say that will actually be enough to break cryptocurrencies. So these factors are obviously accelerating the demand of the product in the market. We are also -- we have our first player advantage here, which is obviously hard to replicate it, even for very large companies that they don't necessarily have a PQC chip are now approaching us and say, can we come with you because one public information is Lattice Semiconductor, right, then they will be teaming with us to be able to offer to their clients PQC chips. So this is obviously -- this is a very big entry into the market because a Lattice has thousands of customers, and they will accelerate the sales of those Microchip. So I know that sometimes it looks like it's slow, but actually, this is a total different computational architecture. This is not just improving or patching cybersecurity issues. This is actually redesigning the entire infrastructure that requires time and be sure that your product is to the level to solve that problem. Matthew Galinko: And then I guess my follow-up would be on the personalization center. It sounds like you're moving forward in the U.S. It sounds like in 2026, but is it reasonable to expect that you'd be making those investments in '26 and maybe generating revenue? And sort of opening the centers in '27? Or what's a reasonable timeframe to think about for the U.S. center and then the second one that you discussed? Carlos Moreira: Yes. So you remember, originally, we had the idea to build a personalization center furnace crash from the beginning. And this is obviously a 4 to 5 year investment of time and resources. That obviously is a real estate problem, right? You have to get the authorization, the land, the building the contractors. It is a tedious process, especially now with the huge demand on data center infrastructure. So it's hard to find the right people to build those infrastructures. So this was the original old thinking, and we will build our own thing. Then we move into a more, I would say, pragmatic and fast thinking, which is let's only team with somebody that has already a legacy infrastructure, operational that they are in the same sector than we are, and they will like to upgrade their existing infrastructure to become a PQC personalization semiconductor center, which is -- it's a bit the model we have actually also in Spain. So that reduces the time to market by nearly 3 years. So that takes only around 6 months to 1 year by the time you are operational. That obviously requires buying machines because it's a big investment. You still need -- and this is the reason we raised money is because this was not in our budget, right, to develop a full personalization center, with some existing infrastructure. We have several states and they have approached us with incentives to do it in their states. We are now combining this intention to bring us to one of those states with semiconductor company, then they will be operational already in the state, and they would like to team with us to do that. So we shall be able to announce very soon. I guess, before the end of June, we should be able to announce where it's going to be located. And this obviously will have a huge potential for our deployment. That means on the chips will be personalized in the United States. That means that we will be fully CNSA 2.0 compliant because they will be chips that will be verifiable in a localized place. People can see them, can test them, can be assured and all the cryptographic keys has been located at the center itself. That will also -- we are still a Swiss French company. So many of our clients, they are saying, guys, coming to the U.S. if you want to be bigger and grow your revenue. And obviously, that satisfied that requirement. So we are -- we believe that by the end of this year, we shall be able to have something very concrete in this area. Operator: [Operator Instructions] We do have a follow-up from Matthew Galinko from Maxim. Matthew Galinko: Carlos, you mentioned some of the intense demand for land and power resources coming from the AI industry. I'm curious with some of the influence that's had on the semiconductor industry, I'm curious if that's having any impact on demand cycles from your customers or pricing or anything around margins that we might expect to hit you in 2026? Carlos Moreira: You mean from the energy sector, in particular? Matthew Galinko: Just broadly, we've seen some things about memory prices being incredibly high, storage prices being high, from high demand from AI data center builds. I'm just wondering if that ends up influencing kind of the end customer that you're selling into for your products, if that changes anything about their timelines or sourcing, pricing or anything that ends up impacting you? Carlos Moreira: We don't have that information. Obviously, there are different type of semiconductors, right? I think the -- I mean, there is an interesting debate now that quantum computers will actually redesign a bit the current infrastructure because you need less data center space, you need less computer, traditional compute capabilities. And at the end of the day, you need less chips from the memory companies, right, as quantum computers have a much powerful processing capability. What we believe is going to happen is that those chips that we are selling, it sells basically first to companies that like smart meters companies, then they want to secure smart meters because they are connecting smart meters to grids, and they are now in the process of learning how to tokenize the energy, they process through their smart meters. And also the energy that is reverted back again to the grid. So there is -- this is where we launched SEALCOIN, which is a crypto tuck-in that basically allows this market to be exchangeable and transactional between devices. So this is something that will have the first client we announced partnerships with Landis & Gyr, which is already 40 million of Landis & Gyr meters are already equipped with the software component of it and the future meters will increasingly be PQC compliant. So this is the industries which are booming now and because the current situation with oil and everything related to that is forcing companies to diversify the energy sources. And at least in Europe, this is becoming a very, very big now and our technology solves that problem because not only you secure the transaction, you authenticate the meter, you tokenize the energy collected by that meter, let's say, from a solar panel and you sell that energy to another meter in a peer-to-peer transactional process. So this is an area we see a big expansion for our capabilities. Operator: [Operator Instructions] We reached the end of our question and answer. I'd like to turn the floor back over for any further closing comments. Carlos Moreira: So thank you very much, everyone. SEALSQ sits at an extraordinary inflation point. As I mentioned during our presentation, quantum computer is no longer a distant theoretical risk. Major technology companies, government and institutions are converging on timelines that make the quantum threat to encryption near-term reality. Regulators have responded. NISA standardized post quantum algorithm. The NSA has issued CNSA, 2.0 mandates and the European Union Cyber Resilient Act, is creating binding legal obligation. SEALSQ has the product, the certification in process, the pipeline, the partnerships, the capital and the strategic vision to lead this transformation. To our employees, I would like to thank for their extraordinary commitment this year, to our partners, customers and investors, thank you for your trust and continued support. We look forward to updating you throughout the year, and we wish you all a secure and prosper year-end -- year ahead. This concludes today the call. Thank you very much for your attention. Thank you. That does conclude today's teleconference webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Hello, and welcome to the Bit Digital Fourth Quarter and Full Year 2025 Earnings Conference Call. We'll begin shortly. [Operator Instructions] As a remainder, today's call is being recorded. I'll now turn the call over to your host, Cameron Schnier, Head of Investor Relations at Bit Digital. Cameron, please go ahead. William Schnier: Thank you and welcome to Bit Digital's Fourth Quarter and Full Year 2025 Earnings Call. Joining me today are Sam Tabar, our Chief Executive Officer; and Erke Huang, our Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during today's call may be considered forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of these risks, please refer to our SEC filings, including our Form 10-K filed March 27, 2026. We will also refer to non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in our earnings materials available on our website. Following our prepared remarks, we'll open the line for questions. With that, I'll turn the call over to Sam. Sam? Samir Tabar: Thank you, Cam, and thank you for everyone for joining. I'll start with our progress in 2025 and how we are positioning the business. We repositioned the company as a strategic asset company or SAC, centered on Ethereum and AI infrastructure. We began exiting Bitcoin mining, built a scaled ETH position and established WhiteFiber as a core asset. Let me start with our Ethereum strategy. We view ETH as core infrastructure, a productive asset, not a passive holding. It allows us to participate directly in network activity through staking within a disciplined risk framework. For investors, Bit Digital provides a yield-generating way to gain productive exposure to the broader Ethereum network. We combine treasury ownership and staking income and disciplined capital allocation. Our focus is on increasing ETH per share, not just growing the balance. We are not optimizing for short-term scale. We are optimizing for long-term compounding. We approach this through a risk-adjusted lens, prioritizing security, liquidity and counterparty quality, while identifying opportunities to enhance returns. The recipe includes capital efficiency, yield generation and long-term compounding. Our ETH position has grown more deliberately than some others in the market, that is intentional. We believe this approach allows us to scale over time without compromising the balance sheet. We've also been deliberate in how we deploy capital across market conditions. We are not accumulating ETH at any price. We are disciplined with how we use equity with a focus on long-term value per share. We are seeing more opportunities to deploy capital, but we will only do so if it's accretive per share. We continue to believe Ethereum is foundational infrastructure for digital assets and on chain financial activity and that its role will expand over time. We expect staking income to become a meaningful and recurring contributor to cash flow. Staking revenue grew nearly 300% in 2025. Nearly half of our full year staking revenue was generated in the fourth quarter, reflecting the scaling of our ETH position over the course of the year. Turning briefly to Bitcoin mining. We continue to wind down the business in a deliberate manner. As of year-end, our active hash rate was approximately 1.5x exahash. We are not allocating growth or replacing capital to this segment. Exposure will continue to decline and mining is no longer a strategic focus. But it does continue to generate cash flow as we complete the transition. Hash rate will continue to decline gradually, while efficiency improves as old miners retire first. Turning now to WhiteFiber. Our ownership in WhiteFiber provides key exposure to AI infrastructure, where demand for compute continues to outpace supply. We view this as a long-term position aligned with structural growth in the market. Our focus is on supporting the platform asset scales. We have also been clear on our intentions with respect to our ownership. We do not intend to monetize our WhiteFiber position in 2026. We view it as a core long-term strategic asset and a key part of our exposure to AI infrastructure. This ownership stake is a key differentiator for Bit Digital. It is a high-quality liquid asset on our balance sheet that provides differentiated flexibility as we scale the business. Over time, this flexibility can support capital allocation across the platform while reducing reliance on dilutive sources of capital. As we look ahead, our priorities are evolving. The next phase of the SAC model is building durable cash flow. This is critical to supporting continued investments and compounding across the platform. We expect to expand our operating footprint through disciplined investments. Our focus is on acquiring or building assets that fit our framework and generate consistent returns. Across Ethereum and AI infrastructure, our approach is consistent, capital efficiency, discipline, long-term compounding. We have operated through multiple market cycles as a public company. Volatility is not new to us. Our focus remains on execution and long-term value creation. I'll now hand the line to Erke to discuss our financials. Erke Huang: Thank you, Sam. I'll walk through our fourth quarter and full year 2025 results. Our 2025 results include WhiteFiber, which we continue to consolidate following its IPO. A portion of the results is attributable to noncontrolling interests. First quarter revenue was $32.3 million, up from $25.8 million in the same period last year. Full year revenue was $113.6 million, a 5% increase compared to 2024. Results reflect growth in cloud, colocation and staking alongside the wind down of Bitcoin mining. Fourth quarter results were also impacted by digital asset revaluation, similar to the full year. I will now break down revenue by segment. Revenue from digital asset mining was $27.3 million for the year, down 53% compared to 2024, reflecting the continued wind down of the business. Cloud services revenue was $68.8 million, up 50% year-over-year. Colocation services revenue was $8.9 million up from $1.4 million in the prior year. Ethereum staking revenue was $7 million, up from $1.8 million in 2024. As of year-end, the majority of our ETH holdings were actively stacked, supporting ongoing yield generation. Overall, our revenue mix continues to shift away from mining and towards staking and infrastructure-related revenue. Now turning to profitability. Gross profit for the fourth quarter was approximately $18 million, representing a gross margin of approximately 56% compared to approximately 40% in the same period last year. Net loss attributable to Bit Digital shareholders was $84.9 million for 2025, compared to a net income of $28.3 million in 2024. This change was largely driven by a less favorable year-over-year impact from digital asset revaluation. Adjusted EBITDA for the year was negative $24.9 million compared to a positive $73 million in 2024. A change reflects the same dynamic, where were noncash digital asset revaluation offset improvements in our operating businesses. Now turning to balance sheet. We ended the year with $118.4 million in cash and cash equivalents compared to $95.2 million at the end of 2024. This balance primarily reflects cash held at WhiteFiber, which is consolidated in our financial statements. Total digital assets were $415.7 million at year-end up from $161.4 million in the prior year. This reflects ETH accumulation partially offset by lower year-end ETH prices. During the year, we issued $150 million of convertible notes, which are reflected on our year-end balance sheet. Proceeds were used to increase our ETH holdings. Overall, 2025 reflects a transition in our business and financial profile. We reduced the exposure to Bitcoin mining, scaled newer revenue streams and repositioned the balance sheet around Ethereum and our ownership in WhiteFiber. Looking ahead, we expect our results to increasingly reflect recurring revenue and cash flow with less attribution contribution from legacy mining and reduced exposure to volatility over time. With that, I'll turn it back to Sam for closing remarks. Samir Tabar: Thank you, Erke. I'd like to close with a few thoughts on where we're heading. We've made significant progress repositioning Bit Digital as a strategic asset company. Today, we are a business built around 2 core pillars, an Ethereum treasury and staking platform and a majority ownership stake in WhiteFiber, which gives us exposure to AI infrastructure. We believe that combination is differentiated. We believe it is difficult to replicate at scale. And we do not think it is fully reflective on how the company is valued today. We are not standing still. We are not trying to be a vehicle that simply raises capital to buy ETH. We do not believe that creates long-term value. Our objective is to build a business that can generate cash, deploy that capital efficiency and compound value over time. That is the next phase of the SAC model. We believe adding a durable cash flow engine is critical to that evolution. It allows us to grow our ETH position in a more sustainable way and reduces reliance on external capital. M&A is part of that strategy. We are actively evaluating opportunities to acquire or build operating businesses that align with our framework and can generate consistent returns. We're focused on assets we understand. We will prioritize long-term value creation over speed. Importantly, we also have flexibility that many others do not. Our ownership in WhiteFiber is a high-quality liquid asset that provides flexibility as we scale the business. It supports growth without relying on dilutive capital and gives us exposure to AI infrastructure alongside our Ethereum strategy. At the same time, we remain fully aligned with WhiteFiber's long-term success. As we've said, we do not intend to monetize that position in 2026. The goal is simple, build a business that generates cash, deploy that capital into high conviction assets like Ethereum and continue compounding value per share over time. We have evolved the business significantly over the past year, and we expect that evolution to continue. We have operated through multiple market cycles, and our focus remains always on discipline, execution and long-term value creation. With that, operator, we can open the line for questions. Operator: [Operator Instructions] The first question comes from Nick Giles with B. Riley Securities. Nick Giles: Appreciate the update. Sam, I'm intrigued to hear that M&A may be of increased focus. Can you give us a sense for what that could entail? Would potential targets be other [ DAT Cos ] that may have a lower [ MNAV ] than yours? And kind of what would be the rough framework we should be thinking about? Samir Tabar: No. It would not be other [ DATs ] it would be a business that has -- that is generating cash or is on its way to generating cash so we can deploy that capital and invest it into Ethereum. We think that's the better way. In some ways, we have that already, but we're sunsetting a business, which is Bitcoin mining. So that is generating cash. That's another differentiator that other [ DATs ] don't have. But that is not a business of the future of Bitcoin mining. And we've known that for a long time. In fact, we're the first ones or one of the first ones to announce that publicly. So we are looking -- we are actively in the market right now, quite active looking at M&A opportunities. They could be crypto-adjacent businesses aligned with Ethereum, aligned even potentially with agentic AI that has an intersection with Ethereum. There is an intersection between agentic AI and Ethereum. And so if we can find a business that has a very clear path towards cash flow related to those work streams, those 2 sectors, we are very, very much interested. And so we've been actively in the market. We've already spoken to many candidates actually. You've got to kiss a lot of toads before you find that prince or princess. And so in our case, it's a matter of time when we find it, we have been very successful in M&A in the past. And therefore, that being for WhiteFiber when we acquired Enovum, but that's for WhiteFiber today is about Bit Digital. And we intend to make a successful acquisition as we've done for WhiteFiber, but this time for Bit Digital. Nick Giles: And that's super helpful. That's exactly what I was looking for. My second question was just can you speak to some of the trends you're seeing across the Ethereum network? I think in the past, you've spoken about stablecoins being built on top and a number of developers that are using the Ethereum network. Just anything you're seeing out there that's kind of away from the price pressures that we see on our screen. Samir Tabar: Yes. I mean with respect to the price pressures, it's difficult to avoid talking about that. I think there's been a lot of macro movements. I think 2 things happened with respect to price pressure. I know you're not asking about that, but I do want to make a comment about it. I think there was a rotation into gold. We're now seeing that rotation out of gold and coming back into crypto. I also think that there is obviously macro pressures, such as the war that's happening, that's caused a darker mood, but that is coming to an end. So I think those price pressures were not helpful, the movement towards gold and the war, but we're surfacing out of those 2 trends, so now coming back into crypto. So I'm glad to see that happen. But with respect to Ethereum, the blockchain itself, I think it was Jamie Dimon that said the era of experimentation is now over. Let's start using these technologies. And I fully agree with that comment. The era of sandboxing this technology, the era of experimenting is over. And it's just -- the old world is now just changing, especially with AI people are seeing that you just can't hold things together in the old way. And so all these intermediaries and all these -- it can be all streamlined through blockchain and agentic AI. And I think we're really living in an era where that old world is breaking down quite rapidly now, the 2 battering rams being blockchain and then AI. And so it's bound to happen. It's not if, it's when. And I agree with the sentiment that the era of experimentation is over, let's get out of the sandbox. The regulations are becoming more clear, and we should be seeing more of a golden age. In Ethereum and I think it's going to be Ethereum in particular because it doesn't have any downtime. And I don't think institutions can deal with a protocol that has uptime issues. Operator: Our next question will come from George Sutton with Craig-Hallum. George Sutton: Sam, so could you just walk a little in more detail around your recipe that you mentioned and the things that you are contemplating relative to building that ETH per share? Samir Tabar: Yes. I mean we have a pretty unique recipe. A lot of people classify as DAT. That's a sub-strategy that we have. We're very different. If you look at our peers, we have, believe it or not, a profitable Bitcoin mining business that, of course, we are sunsetting. We have 70% majority stake in WhiteFiber, and WhiteFiber isn't the topic of the conversation today. But I mean, just -- there's obviously a lot of -- I can't comment the price of particular stocks, but I can comment certain facts that, for example, WhiteFiber has an $865 million contract. And has a hyperscaler that is attached to the end of that contract with respect to North Carolina site. Again, this is about Bit Digital. But my point is there aren't many companies that are positioned to have an infrastructure investment in the digital space, that being Ethereum, that we have an investment of a real business with incredible contracts attached to it with respect to WhiteFiber. We have, oh, by the way, an ongoing business with Bitcoin mining that we are sunsetting but their revenues, it's still profitable. And now we are in the market very actively in M&A, and what we want to do with that business is take the cash flow from that business and create a flywheel that we take the money from that business and it has to be a high-growth business and pour that into Ethereum. And by the way, we also have a non-dilutive source of capital through WhiteFiber in the future. So if you take -- if you have a source of capital, all these levers that other DATs don't have, the WhiteFiber lever, the business that we intend to acquire in the future with its cash flow, these are real businesses, and we take that and we pour that into buying Ethereum. We think that is the way forward instead of just being a shell company that you just subbed a bunch of Ethereum on, and you're just basically doing that, which we don't think is really the best way forward. And I think it's also highly dilutive. You need different levers, that's the recipe. George Sutton: I understand. Just on the agentic AI that you mentioned this morning relative to Ethereum, I believe the last number was something like 11,000 agents operating through 402 protocols. Can you just give us a picture of how well positioned ETH is versus other blockchains relative to the agentic AI token side? Samir Tabar: Can you rephrase that question? Are you asking basically what's the intersection between agentic AI? And well, it has a lot to do with identification, but I'm not sure that's your question. Are you asking about the activity? George Sutton: Well, you mentioned for the first time today that you're contemplating in agentic AI-related acquisition... Samir Tabar: It's definitely one of the -- just to be clear, it's a possibility. It's something we're looking into. We've always called out the trends before they happen in the mainstream, and we were the first DAT basically. We got out of Bitcoin mining were. We're the first ones. We did the AI infrastructure company. We believe that agentic AI is a huge future, and what we're interested in are businesses, blockchain businesses that have an intersection with the agentic AI. We think the agentic AI economy is going to blow up in a major way, and we want to participate in the agentic economy. That's our thesis. George Sutton: Understand. Just one other quick question with respect to the CLARITY Act. I'm just curious your thoughts on that, your thoughts on likelihood of that getting through? And as it's currently constructed, how do you think it would influence the ETH assets that you own? Samir Tabar: This is almost more of a political question. I'm happy to go there. So I think that there are going to be -- I think the November elections are very much in play and whoever controls Congress is going to have obviously some influence on whether certain legislation gets passed. I think the Democrats have a choice to make. If they're going to try to weaponize technology like they did in the last election, that's going to be very problematic. I hope that they've learned their lesson, and I hope that they do not go the way of Elizabeth Warren, and they're more enlightened in their posture towards new technologies like blockchain. And if they do that, if the Democrats have learned their lesson from the last election cycle, then I do believe that the CLARITY Act will have a chance to pass. It all depends on political parties not weaponizing and politicizing technologies. Operator: And the next question will come from Kevin Dede with HC Wainwright. Kevin Dede: Would you mind digging in a little bit on the Ethereum yield strategy you're considering? I know at one point, you had wrapped ETH or liquid ETH. I'm wondering if you're considering lending or borrowing on Aave. What sort of DeFi applications or initiatives might you consider building your Ethereum returns? Samir Tabar: I'd love to pass that question over to our CFO, Erke. Erke Huang: Kevin, so far, majority of our ETH has stayed native. And in the past, we had explored restaking, liquid staking and all those strategies. But to make a very simple majority as native. And we are exploring some strategies around enhancing the return. But so far, we think native staking provides the most, I would say, research risk justified returns, until we see other opportunities we might pursue, that's the strategy right now. Kevin Dede: The press release, Erke, the press release talked to 89% and of your balanced staked. Are you running all of that staking on your own validator nodes? And what would it take for you to go to a full 100% staking? Erke Huang: Yes. We worked with Figment for native staking. That's through the partnerships and they run their nodes for us. And with respect to the 10%, that's with our third-party fund managers. We deploy with them. That's generating about 3% to 4%, so which is higher than 3% negative staking awards, working with a number of external fund managers to get the enhanced yield. Our target is to increase, let's say, from 10% to 20%, but really, it depends on what the strategies are and what the size of the strategy that would allow us to generate such returns from the market, especially from the risks associated with deploying those strategies. So we're super careful about working and selective working with different counterparties. Kevin Dede: Thanks, Erke. You nipped my last question in the bud on counterparty risk. So I'll flip over to Sam. A lot of discussion on M&A activity. Can you offer a time line? Is this something you hope to close before the end of the year? I know you want to keep it -- you want to keep yourselves open and want to hold yourself to any obligation, but can you just kind of give us something to look forward to. We appreciate it. Samir Tabar: Sure. Last time I spoke about time line. I got into some hot water. So I want to make sure I don't discuss time lines too aggressively, and I don't want to be optimistic. I prefer to be much more conservative when it comes to time lines. But I could tell you what is happening. We've been on calls with M&A candidates for the past couple of months since early this year. In fact, we started that process. Yes, I think early January. And it's a long process because frankly, there's a lot of trash out there. So we want to make sure that we are -- we buy a business we really love and is aligned with our philosophy in the future. And we don't want to buy some sort of impaired business or some business where is just -- it's just not for us. So in terms of when that will happen, I can't give you a time line, although I do hope for it to happen, I believe that don't hold me to it, that will happen this year. But I want to make sure -- I want to make it clear that it's more important that we do the right acquisition, and we don't rush anything and buy the wrong business, because that will end in tears for everybody. So we have to be really careful on who we acquire. And we have a very -- we have a fantastic track record in M&A, and we intend to use that talent in spotting the right acquisition candidate to provide at least some value for BTBT. Kevin Dede: Yes. So Sam, on that topic of being careful and the due diligence process, do you think you need to supplement your headcount in analyzing where you think agentic AI software development is and how legitimate the targets you're looking at are? Samir Tabar: Yes. I mean, again, it could be agentic AI. It could be more of an ease adjacent play. We're still looking at the various candidates. But I think your question is -- just to be clear, if we were to acquire that company, they will have headcount. So that headcount will automatically increase when we acquire X... Kevin Dede: No, no, I understand that -- I understand that, Sam. I was just wondering if you think you need new people now to help you in the review process? Samir Tabar: Yes. I mean there's -- we are going through -- we are -- there is actually an active process going on in hiring headcount that is going to be looking at this, although we have a number of executives looking at this very closely, as well, all the candidates, all the M&A candidates that we have been speaking with. We're all -- there's a bunch of us on the call, and we are screening people out. There have been some interest in candidates, by the way, and those conversations continue. But to answer your question directly, Kevin, we are hiring another person to help with the due diligence process of all this. And of course, once we figure out our top 3 candidates, we'll have to go through a more even deeper dive process, and then we'll be hiring the bankers and lawyers and so on. Operator: And the next question will come from Mike Grondahl with Northland Securities. Mike Grondahl: Another question on the acquisitions you're looking at for BTBT. It sounds like you're looking to buy an acquisition that generates cash. Can you talk a little bit about the size of acquisition and how you would finance it? And then secondly, if we could get kind of an update on the financing for WYFI, that would be great. Samir Tabar: So the financing for WYFI, that was -- we did do the WhiteFiber earnings call the other day. And I believe that script and the audio recording of that is posted on our website. We'll have that sent to you. So it's a much longer conversation, although it's an exciting one on WhiteFiber with respect to financing. And going back to your first question, with respect to the sizing, it depends on the candidate. It depends on, of course, we do still have a balance sheet. And perhaps there are ways to finance it off the balance sheet. But I think we do have a healthy balance sheet still, and we'll be using that to acquire the candidate we will have in mind as part of our overall strategy for Bit Digital. And again, I want to remind everybody on this call that no one is doing these things, not -- I just see DATs just pressing the button, having 1 lever. And I don't think that's the way to go. Even strategy this week stops doing that. It's not -- it's kind of a dumb strategy to just buy the digital asset, and that's it. I mean what kind of headcount do you need for that strategy, not many people. So we're trying to put some intellectual heft and differentiate ourselves. And we've done that so far with our exposure to AI infrastructure. We've done that. We already have Bitcoin mining business that continues to throw cash. And we're buying ETH not at any price. And so now with respect to acquiring a business, that's throwing off cash or has a promising path towards throwing off lucrative cash, that's going to be an additional lever for us to buy Ethereum in a non-dilutive manner, which I think is the way forward. Operator: And sir, do you have any further questions? Mike Grondahl: No. Operator: Thank you. And at this time, there are no further questions. Samir Tabar: Thank you, everybody. Thank you very much for attending this call and listening to us. We really look forward to the future and how we'll continue to differentiate ourselves, and we're really excited by it. So we look forward to the next quarterly call. And thank you very much for today. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Good morning, and welcome to the MSC Industrial Supply Fiscal 2026 Second Quarter Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ryan Mills, VP of Investor Relations and Business Development. Ryan Mills: Thank you, and good morning, everyone. Welcome to our fiscal 2026 second quarter earnings call. Martina McIsaac, President and Chief Executive Officer; and Greg Clark, Interim Chief Financial Officer, are on the call with me today. During today's call, we will refer to various financial data in the earnings presentation and operational statistics document, both of which can be found on our Investor Relations website. Let me reference our safe harbor statement found on Slide 2 of the earnings presentation. Our comments on this call as well as the supplemental information we are providing on the website contain forward-looking statements within the meaning of the U.S. securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements. Information about these risks are noted in our earnings press release and our other SEC filings. Lastly, during this call, we may refer to certain adjusted financial results, which are non-GAAP measures. Please refer to the GAAP versus non-GAAP reconciliations on our presentation or on our website, which contain the reconciliations of the adjusted financial measures to the most directly comparable GAAP measures. I'll now turn the call over to Martina. Martina McIsaac: Thank you, Ryan, and good morning, everyone. On today's call, I will briefly cover our performance in the fiscal second quarter, then share my thoughts on the progress of our initiatives and the current state of underlying industrial demand. I will then turn the call over to Greg to provide greater detail on our quarterly performance and outlook for the fiscal third quarter. Starting with our performance in fiscal 2Q. ADS growth of 2.9% fell short of 4.5% growth at the midpoint of our outlook. While we did experience modest headwinds from weather and the partial government shutdown, the change in our service organization, which represents the last structural phase of our sales optimization work, created some noise in the quarter that's worth digging into. As we previously shared, at the end of 1Q and early 2Q, we completed the last round of structural changes and accompanying head count reductions related to our sales optimization work. To recap, in fiscal year '25, we took actions designed to bring head count levels more in line with an efficient territory design. Those actions primarily impacted our core sellers. Then in December, as we shared, we had a final round of changes, which involved all of our remaining customer-facing roles. Prior to this change, for legacy reasons, it was possible that an MSC customer was serviced by 2, 3, 4 or even 5 MSC representatives, creating overlap of multiple sales and service activities and resulting in multiple MSC reps supporting the same revenues. These inefficiencies caused our cost to serve to become inflated over time, particularly within national account customers where customer needs are the greatest. In the action taken at the beginning of our fiscal 2Q, this resource model was greatly simplified to create a geographically aligned service organization that matches our sales structure and is appropriately sized to customer potential. Total impacted customer-facing head count was approximately 130 associates. This consolidation was complex and could not be achieved without some level of relationship change in the field. We anticipated this and intentionally calendarized this change in fiscal 2Q when demand is seasonally low. Impact varied by customer but was most felt in our National Accounts and larger Core Customers who have the largest service teams. Those customers saw some level of face change as the responsibilities were handed off through the consolidation of the team that supports them. The new structure now clarifies responsibilities and will result in greater ownership and accountability in our teams, driving focus across all of MSC's product offerings. It's important to note that these changes did not impact the momentum of our vending and In-Plant programs as reflected in our op stats for the quarter. Now under Jahida Nadi's leadership, we are accompanying these organizational enhancements with a strong sales management process and improved pipeline management. While these actions weighed on our results in the quarter, this change was necessary. We are enhancing MSC's ability to produce sustained levels of profitable growth for the future by taking measured steps to optimize our cost structure and improve our effectiveness in the field. We have greatly simplified and aligned our sales and service organizations. And though it takes time for a change like this to take hold, month to date in March, we are seeing the year-over-year trend in the sales to impacted customers continue to improve compared to levels in January and February as new relationships are developed. Following these changes, growth acceleration is our primary objective. Supporting my confidence is the momentum I see building across the organization from our supplier growth forum. By intentionally bringing more than 1,000 MSC associates and 400 suppliers together, we strengthened relationships, aligned priorities, set the foundation for meaningful long-term growth and created a defining moment for our company. We facilitated over 3,000 prescheduled meetings to discuss white space overlap and joint growth opportunities that we identified using AI, and I couldn't be more pleased with the outcome. In just 3 days, these strategic conversations translated into nearly 10,000 opportunities totaling close to $500 million in combined near-term and long-term potential, creating tremendous energy, both internally and externally, as shown in the quote from a supplier on Slide 4. Strong execution, like that seen in the growth forum, can be seen across MSC. A good example is the year-over-year margin expansion that our team achieved in the quarter. Gross margin of 41.1% performed better than expected and improved 10 basis points year-over-year. This improvement is the result of price actions taken in fiscal 1Q and 2Q in response to inflation as well as the continued professionalization of our pricing processes and margin management. The combined impact of these activities resulted in price contributing approximately 6.5% to our daily sales performance in the quarter. In addition to gross margin, I'm encouraged by how the team managed operating expenses more closely to sales during the quarter. Adjusted operating expenses improved 20 basis points compared to the prior year as a percentage of sales. This was primarily driven by the combined benefits of our head count reductions and the productivity actions associated with our network optimization strategy, which is beginning to show through in our financial performance, as you can see on Slide 5. Our planning and procurement team, led by Kathy Mauch, has been focused on improving our planning processes, embracing AI and embedding it into our daily work to produce the improved inventory metrics shown on this slide. Our operations teams, led by Darrick Collier, continue to optimize within the 4 walls of our distribution centers as seen by the favorable trends in their head count and compensation expenses. Both cases are perfect examples of the results a data-driven focus on continuous improvement could have, and I'm looking forward to the greater impact it will have on MSC as this mentality takes shape across the company. Progress made in both these areas of the P&L resulted in adjusted operating margin of 7.5%, a 40 basis point year-over-year improvement and within the range of our outlook. Together, this allowed us to achieve 2Q adjusted incremental margins of 21%, towards the upper end of our expectations. Switching to the macro environment, I would describe the current state as a tale of 2 realities. On one hand, signs of a potential industrial recovery are encouraging. As you can see on Slide 6, the IP readings across most of our top manufacturing end markets are beginning to form more favorable trends. Customer sentiment has been improving also as seen by recent MBI readings, which have produced consecutive monthly readings above 50 for the first time in a multiyear period. However, on the other hand, geopolitical tensions, the war with Iran and rising fuel costs present heightened uncertainty. While we haven't seen any meaningful disruption yet, we are in constant communication with customers and are taking proactive steps to secure supply. Looking at our performance against the IP index, our average daily sales has outperformed for the third consecutive quarter. That said, outgrowth remains below our stated goal of 400 basis points and has been primarily supported by price. I am encouraged, however, by our volume performance in February that began showing modest year-over-year improvement in core customer daily sales. The changes to our sales structure were the right ones and were necessary to set MSC up to achieve higher levels of growth. We see encouraging signs of improvement and this momentum is captured in our outlook for the fiscal third quarter as seen by the accelerated growth that is implied in April and May. We are making progress on our strategic initiatives. We are operating with greater focus and discipline, and we have a leadership team committed to building a stronger business. Looking ahead, this gives me confidence in MSC's ability to execute and create long-term value for shareholders. And with that, I will now turn the call over to Greg to cover our financial results in greater detail and expectations for the fiscal third quarter. Gregory Clark: Thank you, Martina, and good morning, everyone. Please turn to Slide 7, where you'll find key metrics for the fiscal second quarter on both a reported and adjusted basis. Fiscal second quarter sales of $918 million improved 2.9% year-over-year, primarily driven by benefits from price of 6.6%. Volumes in the quarter declined 4% year-over-year and included a combined headwind of approximately 100 basis points related to the weather and the partial government shutdown. Sequentially, average daily sales declined 6.5%. By customer type, we remain encouraged by core customer daily sales that continue to grow above total company and improved approximately 6% this quarter compared to the prior year. National account daily sales were essentially flat compared to the prior year. In the public sector, daily sales declined roughly 1% due to tougher comps and impacts felt later in the quarter from the partial federal government shutdown. In solutions, we were pleased by the continued expansion of our footprint in 2Q. In vending, the number of machines installed at quarter end increased 8% year-over-year to approximately 30,400 machines. The number of customers with an In-Plant program improved 9% year-over-year to a total of 423 programs. As you recall, last quarter, our In-Plant program count growth moderated as we strengthened financial discipline in the field and sharpened the quality of our decision-making. This is prompting us to transition certain existing In-Plant programs with suboptimal returns to more cost-effective service options that are better scaled to customer needs. As a result, signings in the second quarter were higher than the sequential increase in total program count. Looking at the sales through these solutions, average daily sales through vending were up 8% year-over-year and represented 20% of total company net sales. Sales to customers with an In-Plant program were also up 8% year-over-year and represented approximately 20% of total company net sales. Moving to profitability for the quarter. We were pleased with gross margins of 41.1% that improved 10 basis points year-over-year or roughly 40 basis points sequentially. This gross margin performance was better than expected and primarily driven by favorable price cost as a result of our pricing actions and the continued professionalization of our pricing processes. Operating expenses in the fiscal second quarter were approximately $310 million on a reported basis. On an adjusted basis, operating expenses were $308.5 million, down approximately $3 million versus the prior quarter, but up approximately $7 million year-over-year as ongoing productivity improvements and head count actions were more than offset by the combination of personnel-related cost increases, investments and higher depreciation. When combined with higher sales year-over-year, this resulted in year-over-year improvement of 20 basis points in adjusted operating expenses as a percentage of sales for the quarter. Reported operating margin for the quarter was 7.1% and compared to 7% in the prior year. On an adjusted basis, operating margin of 7.5% was within our outlook range of 7.3% to 7.9%, and compared favorably to 7.1% in the prior year. We delivered GAAP EPS of $0.76 compared to $0.70 in the prior year. On an adjusted basis, we delivered EPS of $0.82 compared to $0.72 in the prior year, an improvement of 14%. Turning to Slide 8 to review our balance sheet and free cash flow performance. We continue to maintain a healthy balance sheet with net debt of approximately $466 million, representing roughly 1.2x EBITDA. As a reminder, during the quarter, we amended our AR securitization facility and increased its capacity by $50 million. Excluding this $50 million reduction in AR, working capital was a use of cash in the quarter with the proactive build of inventory being the primary driver. Together, this resulted in operating cash flow conversion of 224% for the quarter. Capital expenditures of roughly $21 million were down approximately $9 million year-over-year and similar to levels last quarter as expected. This resulted in free cash flow conversion of approximately 173% in the fiscal second quarter and 86% fiscal year-to-date, keeping us on track to achieve our target of approximately 90% for the full year. Looking at our capital allocation strategy on Slide 9. Our highest priorities remain organic investment to fuel growth and advancing operational efficiencies across the business. Returning capital to shareholders also remains a priority with approximately $49 million returned to shareholders in fiscal 2Q and $110 million fiscal year-to-date in the form of dividends and share repurchases. Moving to our expectations for the third quarter on Slide 10. We expect average daily sales to grow 5% to 7% compared to the prior year. The range of our outlook takes into consideration our daily sales estimate for fiscal March of approximately 4% when including the anticipated headwind of 100 basis points from the timing of Good Friday. Under this revenue assumption, we expect our adjusted operating margin for the fiscal third quarter to be between 9.7% and 10.3%. Driving this expected range are the following assumptions for the quarter. Gross margin of approximately 41% and the sequential step-up in the adjusted operating expenses primarily driven by higher variable expense associated with the expected increases in sales. Together, these assumptions resulted in an implied adjusted incremental margin of approximately 25% at the midpoint of our outlook, keeping us on track to achieve our expectation of roughly 20% adjusted incremental margins for the full year and a mid-single-digit growth outcome. Turning to Slide 11. Our expectations on certain line items for the full year remain unchanged. As a reminder, this includes depreciation and amortization expense of $95 million to $100 million, interest and other expense of roughly $35 million; capital expenditures, including cloud computing arrangements of $100 million to $110 million; a tax rate between 24.5% and 25.5%; and lastly, free cash flow generation of approximately 90% of net income. To assist in modeling the cadence of sales for the remainder of the fiscal year, the bottom of the slide provides historical quarter-over-quarter averages and key considerations. And with that, we will open the line for Q&A. Operator: [Operator Instructions] Your first question for today is from Ryan Merkel with William Blair. Ryan Merkel: I wanted to start with the sales trends. Can you just talk about why you're confident that average daily sales is going to accelerate to 7% plus in April and May? And in your answer, can you talk about is price going to build more? And then what are you assuming for the national account recovery because I think it was sort of flat in the quarter? Martina McIsaac: Ryan, yes, let me start by digging in a little bit to the second quarter impact, which is then driving our confidence in the third quarter. So in the second quarter, as we tried to explain on the call, we made changes across our indirect -- basically our indirect sales force. And many of our customers had faced changes, which led to some volume contraction. So let me explain what was happening in that time. You're talking about the people that have to be on the plant floor every day, understanding the customers' business, capturing all of the unplanned demand at the account, managing our VMI programs. So it takes a little while for somebody new to come up to speed to understand those responsibilities to rebuild their network. So we had guided softer in the second quarter because we knew there would be a disruption in volume. And as we started to make the change, we saw 2 effects. We planned a very detailed warm handoff and transition of our -- from one team member to another. So if you can imagine what was happening, you might have been taking on more responsibilities in your current customers or you might have been moving to take on responsibilities in a new portfolio of customers or you might have been moving to an uncovered customer. So there's a lot to learn in that process and we had planned an overlap of resources so that the incumbent associate could work with the new associate over a period of time. And what happened to us in the second quarter, which caused us to have a softer result than we had anticipated, is that the weather shut a lot of our customers down in that overlap period. So if your role is to get into a new facility, learn it, understand it, make new contacts, take over that business, and you can't get there because the facility is buried in snow or you can't get out of your driveway, then essentially what happened is it pushed the, let's call it, recovery, for lack of a better word, it pushed it out in the calendar farther than we anticipated. So we're seeing in March, what we had hoped to see in February and so on. So we lost some time. We had an impact to volumes due to timing. The other thing that happened in the quarter is, as we made these changes, hunting and complacency is no longer part of our compensation plan. We changed -- we're raising the bar on expectations. We changed compensation. We changed responsibilities. We're raising standards. And we had a higher percentage of attrition than we expected to have. So a lot of you have asked me about, do I expect attrition as we sort of drive a performance culture in MSC, and we do, and we did expect to see attrition as a result of this change. But again, we had calendarized it a little more gently. Like we expected that it would happen later in the cycle, and we had quite a lot of attrition immediately. So then we had customers that were uncovered for a period of time, and so we were missing some of that unplanned demand. So if you look at our op stats, you'll see that despite the fact that this plan intended a reduction in sales head count of 130, I think we're down 158 heads quarter-over-quarter. You see the residual impact as we've been filling those roles. So all that to say, we're starting now to see the volume recovery that we expected, and that's what's giving us confidence in April and May were just pushed out from where we had intended to be because of those 2 impacts. So as you look at March, I can use March as an example, we were looking for 2 volume effects as we went through this change. The first one was we wanted to see a greater integration of all the parts of our business. So for example, we are -- we consolidated legacy sales forces from 10 year-old acquisitions, we brought our OEM fastener business now into the main responsibility of our core field sales and field service teams, and we wanted to see acceleration in those businesses, and we are seeing it. So for example, OEM -- our OEM business is growing mid-teens in February, even higher in March. So we're having the behavior change that we wanted to see, which makes us confident in volume. And then we just -- we wanted to see that hunting mentality start to show up, which we are also seeing across the board. So we're seeing month-over-month improvement, as I said in the prepared remarks, on customers that were impacted. Our core customer exited 2Q with positive volume, National Accounts was up low single digits in February and now mid-single digits month-to-date in March. So the biggest -- if you wanted to size the impact of volume or this change on volume in the second quarter, I'll walk you from our outlook. If the midpoint of our outlook was 4.5%, we had anticipated a bigger negative impact for our growth forum, which we really didn't see and we got a little more price than we thought. So add 100 basis points to that, that puts us at 5.5%. Then take another 100 basis points off for the impact of weather in the public sector and you're looking at a gap of about 150 basis points. So we saw -- we had what we believe was an outsized impact on volume, which is transitional, which is behind us, about 2/3 of that impacted National Accounts. So that gives you kind of a feeling of why we feel National Accounts will recover and the volume, we can count on the outlook for March and April. Ryan Merkel: Got it. All right. That's actually very helpful. And good to hear the National Accounts is recovering. Just a follow-up on price then. Are you expecting more price increases from your suppliers? And maybe talk about tungsten because it sounds like there might be another price increase there. Martina McIsaac: Yes. So when we talked -- since we talked to you in January about tungsten, we've taken about -- we've seen price increase notices that range from between 7% to 15%, so the prices continue to climb. Even the market for scrap carbide has gone up 500% since we talked to you last. So there's -- we're definitely seeing pressure. Those price increases probably will become effective sort of May, June. So we will likely have another pricing action around that time. We're -- we don't know where this will end. I still would say what I said in January. I don't think the suppliers have captured all of it. We're starting to see a little bit of supply constraint now. Ryan Mills: And Ryan, this is Ryan. Just come over the top. We took a little surgical price increase in March, less than 1%, but as you think about 3Q year-over-year, the price benefit should be pretty similar to what we saw in 2Q, just to give you a little color on that. Operator: Your next question is from Ken Newman with KeyBanc Capital Markets. Kenneth Newman: So maybe to follow up on the pricing question. It sounds like you feel pretty confident in improving volume trends here in March to date. But just given all the uncertainty in the macro, I'm curious if there's a way for you to decipher if the customer conversations have suggested that there's been a negative impact on the uncertainty? And is there a risk that starts to get pushed out to the right? Martina McIsaac: We are, as I said, in deep conversations with customers. So we're at the phase where they're starting to assess potential risks and they want to understand supply -- security of supply, but we haven't seen any change that would suggest that the demand is slowing down. It's the opposite. They see demand picking up and they want to make sure that their supply is secure. That's what we've seen so far. Kenneth Newman: Understood. And then maybe for the follow-up. I understand that the tungsten-oriented inventory is only about 15% of the portfolio. But maybe could you just give us a little bit of color on, one, how much of that is going through the Core Customer versus National Accounts as we think about that price mix dynamic? And then secondly, what is -- can you remind us just how do you source that tungsten? Is there -- I'm guessing it's index based, but is there an inherent lag relative to how that price is versus the spot? Martina McIsaac: So we don't source tungsten, right? We resource carbide cutting tools. So what you're seeing -- I mean, some of our suppliers do have some level of backward integration to tungsten. But what we're tracking, obviously, is we're tracking the price of tungsten as an input to carbide cutting tools, but we're monitoring the supply for that. I'm not sure if I understood the question, Ken. Kenneth Newman: Yes. I guess the ultimate question I'm trying to get a sense of is what is -- maybe deciphering how much of the pricing is coming from tungsten-oriented inventory versus the broader portfolio? Gregory Clark: Yes, Ken, I'll give you a little color on that. The price increase we took in mid-January, we said low single-digit range. A good portion of that was on the cutting tool side. And as you heard Martina in the last question from Ryan, we anticipate some further pricing moves in the May to June time frame. I would say it would be a similar -- it'd be a good portion on the cutting tool side. Martina McIsaac: We have started to get notices from other suppliers as the conflict continues, so anything that has -- I mean you can imagine the portfolio that might be impacted, there's fuel surcharges and discussions. So it's not only going to be carbide, I think, that we'll see going forward. But that -- up until this point, that's been the big mover. Operator: Your next question for today is from Tommy Moll with Stephens. Thomas Moll: Martina, I want to make sure I heard you correctly, December was the last planned round of significant head count actions. And assuming the answer there is yes, that I heard you correctly, what's your confidence level in the disruption from all the sales organization changes fading as quickly as it sounds like you're assuming? I mean, noted that the most recent quarter, perhaps the headwinds were a little bit worse than expected, but that you've seen some more recent signs that are really encouraging. These progressions tend to not be linear. And so I'm just curious what your conviction level is that it's all clear from here or all better from here. Martina McIsaac: I appreciate the question, and I appreciate the comment that this is disruptive. We believe that it was 100% necessary. So we have to bring it to balance indirect resources versus direct resources. We had to change the sales culture back to a hunting culture and enable people to do that. So there are a lot of positives going on right now in our sales force. New tools, new support like the growth forum, new compensation plan, which is very lucrative to the hunting behavior that we want. And it's -- I'm not going to share too many details for competitive reasons. But when you look inside the portfolio, and you take out maybe the customers who had a later introduction to the changes because of the attrition that we mentioned, we're seeing growth rates that are very exciting. And so I do believe we'll still have attrition. Selling right now in MSC doesn't feel like it did 6 months ago, and it doesn't feel like it's going to 6 months from now. But we're building an engine that will deliver sustainable organic growth for the long term, and I feel very confident that we're on the right track. Ryan Mills: And Tommy, maybe I'll give a little bit more detail on February and March. February, that growth rate is a little masked by public sector. It was down mid- to high teens, reason being is the partial government shutdown delayed funding, and we had a tough comp there. As you heard Martina say, in February, core was up mid- to high single digits. National Accounts was up low single digits. And then as we look at March month-to-date before we go against that Good Friday headwind, the core is growing at a similar rate and National Accounts is up a little bit more than low single digits. So we're starting to see that improvement now that Martina is alluding to. Thomas Moll: So pivoting to a broader demand discussion. To the extent you can exclude all the factors, the MSC-specific factors that you've already identified that impacted recent results, is it possible to just benchmark the tone of some of the end market dynamics or customer conversations, I don't know, year-to-date, quarter-over-quarter, however you want to slice it? Feel like things have gotten a little better or stay the same? Martina McIsaac: Yes. Thanks for the question. I mean we do. That's why we said it's a little bit of a mixed picture right now. But we're looking for improvement and recovery in fabricated metals and primary metals, and we are seeing it. And we are outgrowing IP in both of those end markets. That gives us confidence for the continued core customer recovery. And then even some of the other segments, I mean, let's leave aerospace to the side, but even some of the other segments where we're heavily indexed in National Accounts, like ag and automotive, they're definitely not getting worse. We're seeing some beginning signs of life. Some of it may not impact us in our fiscal year because it will be -- they're sort of projecting changes and investments that will impact the back half of the calendar year, but we're definitely -- things are waking up and shaking up with some of our biggest National Accounts. Operator: Your next question is from Patrick Baumann with JPMorgan. Patrick Baumann: Just wanted to follow up on a couple of things. Just on the pricing comment. So I think I heard you say that there was a surgical increase in March in addition to what you did in January, and then there's more to come in May. But then I thought you said that the year-over-year price in the back half would be like similar to what it is in the second quarter, which I guess makes some sense because of the year-over-year comps maybe. But maybe just clarify, I just want to make sure I heard that right. So maybe like 6.5% to 7% price in the back half is kind of what you're thinking at this stage? Or is that off? Martina McIsaac: Yes. I think, yes, we're going to start to comp some of the actions that we took last year when the tariffs first started to roll out and maybe for modeling purposes, Ryan, you can... Ryan Mills: Yes, Patrick. Yes. So we start comping again some of our pricing actions here in 3Q, depending on the timing of the late May -- May, June price increase. The comps get tougher in 4Q. So as you model the back half, I would -- you're exactly right, I'd stick in that 6.5% to 7% range on the pricing front. Patrick Baumann: And is there any impact from like the evolving tariff situation on that in terms of the changes that have been talked about, IEEPA versus Section 122 or what have you? Martina McIsaac: No. That -- the math on that work out to be fairly stable for us right now. And remember, we're not the Importer of Record for 3/4 plus of what we bring in. So we haven't seen any meaningful movement on -- from our suppliers right now. So right now, sort of modeling stability. Patrick Baumann: Understood. And then a follow-up on the headcount. So like I know we talked about, I think, the field associates side, but if you look at total heads, they were down about 240 in the quarter sequentially which is more than -- I think we were expecting like 100 people, and you talked about some attrition in field associates as well. Just curious, as you look forward, like in the near to medium term, like do you see potential for cost cuts from like redundancies similar to what you found in the second quarter? Do you think that this will be an ongoing lever in terms of OpEx opportunity? Or are we kind of like -- I'm asking in context, you had a slide there for supply chain heads. I don't know what's in the other head count. So just trying to understand a little bit better like how you think the total head count will evolve over the next, I don't know, 6 to 12 months or 24 months or however long you're willing to talk about it? Martina McIsaac: Yes, thank you. So our ambition, Patrick, which we've stated publicly, we want to restore MSC to the mid-teens level of operating margin. And in order to do that, we have to accelerate organic sales growth, which is behind this first range of initiatives, and we've got to challenge all of our cost structures. And that includes some legacy structures like we collapsed in this last change of the sales force. And there are other places in the business where we will look to change the way that we perform work, and we'll look at automation and AI in the facilities and in the office. And I do think you'll see us continue to try to challenge that cost structure for greater leverage as we continue to grow with mid-teens being kind of the target. So if you look, we brought the head count down by more than 400 heads in the last 12 months. The sales changes are done now, but we are making improvements in productivity within the CFCs, which is allowing us to bring head count down. We're deploying AI across the business, which is letting us not replace attritted head count for the moment. But yes, we're absolutely committed to challenging our cost structure. Operator: Your next question for today is from Stephen Volkmann with Jefferies. Stephen Volkmann: Just a couple of quick follow-ups for me. One, I'm trying to think about since this whole tungsten explosion has happened in terms of pricing, how much do you think pricing is up since, I don't know, 2 years ago or something? I'm trying to think about whether there is going to be some demand destruction because the stuff is getting really expensive or maybe some sort of different product, maybe substitution or something? Just anything in those lines we should be thinking about? Martina McIsaac: I mean, as the leading metalworking distributor, we are always working with customers to look at substitutions, to take cost out of their business. We took $500 million out of customers' operations last year. And if it were to become an extreme situation, we could always support. But it's not easy to change a cutting tool once a customer is working with certain technology, and it depends on what you're doing and what you're cutting. So I think, obviously, there is a limit where anything would create demand destruction. But I think right now, we're supporting customers where they're asking for help, and we'll continue to do that. On the 2-year stack, maybe Ryan, I don't know if I can throw that one over to you, do you have any additional comments? Ryan Mills: No, I would just say for the cutting tool side, there might be an opportunity to switch to a high-speed steel cutting tool. I mean it varies by customer, whether it's a custom tool. That being said, I think it provides a good opportunity for us to leverage our technical expertise, an ability to drive savings in customers' facilities to offset that inflation. So we look at it as more as an opportunity and also you heard Martina talk about us building our inventory, availability is #1 priority of our customers. So we're also taking advantage of that as well. Stephen Volkmann: Okay. Great. And then I think last year, we were sort of comping against some destock, if I remember correctly. I assume that's kind of ended, but is there any sign of like a restock? Or is anybody trying to get ahead of some of these price increases with some inventory build? Just any commentary there, and I'll pass it on. Martina McIsaac: So it's interesting when you think about our business and you have 60% or say, a majority of our business is planned demand, there's really no restocking happening there. That's more of a negotiation where we're taking the responsibility to keep the customers' stock. So they're not acting there. And the triggers we look for in terms of prebuy, exceptionally large orders, anything that would signal a change, we're really not seeing a lot of that. There's been some increased pull for certain products. Now that as the conflict is escalating, obviously, you could imagine the end markets that might have a bit more demand right now. But in general, we haven't seen the big -- if we were expecting a big restock and return to inventories anticipating -- that customers were anticipating an increase in demand, we haven't seen that yet. So neither prebuy for price or restock. Operator: Your next question is from Nigel Coe with Wolfe Research. Nigel Coe: Obviously, we covered a lot of the topics here. On the field office headcount, so just to be clear, are we assuming that the head count from here is fairly stable in the back half of the year? Maybe could you just maybe quantify kind of the cost reduction and what that does to SG&A in the back half of the year? Martina McIsaac: Yes. I'll throw the SG&A question to Greg. But the sales headcount is not stable in the sense that we are going to fill those attritted positions and then we expect to be adding direct sellers, Nigel. Like our goal was to bring into balance direct and indirect. When you have too many indirect sellers, you have too many people being paid on the same sales dollar. But as we see sales acceleration, we hope to be able to be adding sellers and covering more customers, which is something MSC has not done for a very long time. But in general, we're not projecting massive changes to the size of what we just cut. But Greg, do you want to share any additional color there? Gregory Clark: Yes. I think what I can do is I can give you some color on just what happened in Q2 on the OpEx and then if there's anything more I want to talk about Q3, Ryan can jump in. But just to give you some color on the OpEx, on a year-over-year basis, we did see the OpEx stuff up about $7 million. This was driven by -- primarily by an increase in personnel-related costs of about $9 million. And of that merit and the fringe benefit inflation are the big drivers there, followed by stock compensation -- stock-based compensation, about $1 million. We had increase in depreciation and amortization as well of about $2 million related to our digital and e-com spend, which is what we use for enhancements to the web. We also saw $2 million of additional outbound freight due to rate increases. We also did some spend on the investments, which are geared towards solutions growth and other items such as the growth forum for about $1 million. And this is partially offset by the productivity that we've talked about, including the network optimization, benefits as well as some of the headcount actions that were taken. Nigel Coe: Okay. That's great color. Maybe we'll dive into that weeds even deeper offline. I just want to have another crack at the pricing question. First of all, the March price increase that you referred to, did that hit in March? Or was that effective in April? I know it's a small point, but fairly important. Because when we think about the sequentials, if we take March as a good run rate, you account for the Good Friday timing, I think we're using -- if we use normal seasonality month-over-month, we're kind of getting to the high end of your range. So I'm just wondering the 5% to 7%, obviously, a lot better than what we saw in 2Q, but does that assume that some of this volume attrition continues into the third quarter? Ryan Mills: Yes. Nigel, this is Ryan. The March price increase, that was mid-March and keep in mind that we have to give notice period to our contract customers. So I'd say it really didn't provide that much of a benefit in March. As we look into April and May, the midpoint of our guidance assumes growth of about 7%. So that would imply a little bit of volume growth year-over-year and then low single digits, call it, 2%, 3% on the top end of the range. Feel good about where we're at right now, still had a little bit of some of this sales force optimization noise in March, but it's easing. That's giving us confidence. We talked about the growth rates we saw in March in core and National Accounts, that's improving. As Martina mentioned, the impact of customers. We're improving both month-over-month and year-over-year modestly in March. This is all month-to-date, but feel good where we're at right now. Operator: Your final question for today is from David Manthey with Baird. David Manthey: First off, Martina, you mentioned that you expect volumes to improve through the year. As we look at the year-over-year trends, the comps are pretty easy. I think they're low single-digit negative in April and May. So effectively, this statement on the fiscal year is a bet on June, July and August. And I know we've asked you about your conviction in the outlook a number of times here. But given the fact that your customer event was in February, which is sort of ahead of the conflict, and I think there was some optimism growing then, have you gotten early reads from customer attitudes since the conflict began like in the last month, for example, that still gives you confidence in that growth through the end of the fiscal year? Martina McIsaac: Yes. I mean I think, as I shared before, customers are mostly asking us right now to secure supply against an increasing demand that they feel they're going to see. So they want to make sure that we are planning volumes that they're imagining and understanding. So we haven't seen a dampening of sentiment. And of course, the indexes wouldn't show it yet. Ryan Mills: Yes. Dave, the thing I'd add to is encouraging to see the MBI be above 50 for 2 consecutive months. That's the first time over a multi-period. Not seeing anything too concerning from a demand destruction standpoint as of today due to conversations we're having in the field and with customers. I'd say we're probably cautiously optimistic on the end market fundamentals for the remainder of the fiscal year. David Manthey: That's good to hear. And then finally, I too, I'm trying to dimensionalize the impact of these headcount changes. So could you tell us when in the quarter the rift happened? I mean I guess you're down 158 field sales heads sequentially and if I heard you correctly, you said you're going to refill those positions. I'm just thinking about how we thread the needle between 9% less [Technical Difficulty] year-over-year and then adding those people back and then what's the cost impact and you're assuming no sales impact. So I'm sorry to ask it again, I'm just trying to really dimensionalize the changes. Martina McIsaac: No. Thank you, Dave, for the question. And we -- like I said, we didn't give you a lot of details in our January call for competitive reasons. I'm happy to share a little bit more now. So the action was -- the sellers -- impacted service people were notified right before Thanksgiving and the action took place throughout the month of December and into January because we did plan that overlap period. And when I say we're going to backfill those roles, I mean, some of the attritted roles. We permanently contracted the sales force by 130 people. So you're talking about a couple of tens of roles that are vacant that we intend to fill so that we can have the complete complement of sellers that we planned for in this change. So depending on the role, the handoff happened quickly and sellers left the company in the month of December. Some of them hung on a little bit longer. We had planned a longer transition period, but I would say that by mid-January, all of those heads were out, and those were only a very few exceptions that we had to make just because of the longer handover period. It mostly happened in sort of early December. Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to Ryan Mills for closing remarks. Ryan Mills: Thank you for joining us on today's call. We look forward to seeing you on the road at NDRs and upcoming conferences. Our next earnings call for the fiscal third quarter will be on July 1. Have a good day. Operator: This concludes today's conference, and you may disconnect your phone lines at this time. Thank you for your participation.
Operator: Good afternoon. I'd like to welcome you to the Skillz, Inc. Fourth Quarter and Full Year 2025 Results Call. I will now turn the conference over to your host, Joseph Jaffoni from JCIR to begin. Joseph Jaffoni: Thank you, operator, and good afternoon, everyone. Skillz has issued its 2025 fourth quarter and full year earnings release, which is available on the company's Investor Relations website. Let me read the safe harbor language, and then we'll get right into the call. All statements and comments made by management during this conference call other than statements of historical fact may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Skillz cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during this call. For additional details on these risks and uncertainties, please see Skillz annual report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission and Skillz subsequent public filings with the SEC. Skillz undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Andrew Paradise: Thank you, Joe, and good afternoon. I'll begin today's call with an overview of our fourth quarter and full year 2025 financial performance. For the fourth quarter of 2025, GAAP revenue was $30 million, up 11% from $27 million in the third quarter and up 67% from $18 million in the prior year period. Adjusted EBITDA loss was $10 million compared to a loss of $12 million in the third quarter and a loss of $17 million in the prior year period. These results marked four consecutive quarters of sequential revenue growth and two consecutive quarters of year-over-year revenue growth. For the full year 2025, GAAP revenue was $105 million, up from $93 million in 2024, which represented 13% year-over-year growth. Adjusted EBITDA loss was $51 million compared to a loss of $61 million in 2024, which represents a 16% year-over-year improvement. A key driver of 2025 was our AI ad tech segment, RZR, which was rebranded from Aarki last month. RZR delivered 146% net revenue growth year-over-year. And for the first time since its 2021 acquisition, it generated positive adjusted EBITDA for the full year 2025. In addition to the headline growth, we're encouraged by RZR's performance and momentum supported by stronger systems, deeper advertiser relationships and disciplined channel growth. Moving on to our 4 business pillars. The first pillar, enhancing the platform for player and developer engagement. On the Skillz platform, we continue to invest in new content and strengthen the developer experience. Last month, at the Annual Game Developers Conference in San Francisco, we debuted our Pro SDK product. Our Pro SDK architecture expands our development framework and provides developers with full creative control of the entire gameplay experience. It also strengthens monetization capabilities through meta game systems while leveraging the competition infrastructure and secure layer that power the Skillz platform. Turning to RZR. Over the past two years, we focused on modernizing its technology stack and scaling its infrastructure. RZR is evolving into a scaled performance marketing platform with meaningful monetization capabilities across the broader digital ecosystem. RZR is improving its machine learning training capacity and improving auction level intelligence across the platform. Building on the data models introduced in Q2 of 2025, RZR is expanding its retargeting and user acquisition share and improving performance across channels. Moving to our second pillar, up-leveling our organization. Operational efficiency continues to improve across both Skillz and RZR platforms, allowing us to better leverage our people and resources. Both businesses operate globally and are poised to execute on scaling their teams to support growth. We recently strengthened our Board of Directors with the addition of Gary Vecchiarelli and Shannon Demus. Gary serves as President and Chief Financial Officer of CleanSpark and brings extensive public company finance, capital markets and strategic planning experience supporting high-growth companies. Shannon serves as CFO of the Americas of Light & Wonder and brings deep financial leadership experience across global gaming and digital entertainment businesses. In addition, Jeff Shouger joined the Skillz Board Advisory after serving as Chief Financial Officer of Niantic, where he helped scale the company through global expansion and strategic transactions, including its recent $3.5 billion sale of Scopely. Together, they add significant capital market expertise, gaming and platform operating experience and financial discipline as we continue to scale the business and execute on our strategies. As it relates to our third pillar, go-to-market strategy and monetization. At Skillz, our focus remains on acquiring and retaining high-quality paying players while driving efficient monetization. Paying monthly active users or PMAU, was 141,000, down 9% from 155,000 in the third quarter and up from 110,000 in the prior year period, which represented 28% year-over-year growth. For RZR, machine learning enhancements together with improved bidding efficiency and campaign optimization have contributed to margin expansion. RZR is meeting customer demand by advancing its product capabilities. Importantly, RZR's revenue growth is coming from both existing and new customers. For our fourth pillar, path to profitability. With RZR achieving positive full year adjusted EBITDA paired with continued improvements across the Skillz platform, we're making progress on our path to profitability. Let's now move to an update on our Fair Play initiative. As we've discussed and disclosed previously, protecting players and preserving fair competition remain core to our values as the pioneers of the skill-based gaming category. We continue to pursue litigation against Papaya Gaming and Voodoo Gaming for their alleged use of bots, a practice we believe undermines consumer trust and harms the entire industry. We remain committed to our position as both the Papaya and Voodoo matters continue through the litigation process. Regarding Papaya, our trial is now set for April 13, 2026, in the Southern District of New York, and we look very much forward to our day in court. As a reminder, in connection with our 2024 settlement with AviaGame, our annual $7.5 million payment was received in Q1 of 2026. To date, a total of $65 million has been received from AviaGame. The company expects to receive two additional payments of $7.5 million in each of March 2027 and March 2028. In closing, 2025 was a meaningful year of progress across the enterprise. We stabilized the business, strengthened our platform infrastructure, improved operating discipline and preserved our balance sheet to support ongoing growth. Additionally, we continue to deliver sequential and year-over-year revenue growth and expanded the technology foundation of both our Skillz and RZR platforms. By combining competitive skilled gaming with AI-driven performance marketing, we're building an ecosystem designed to scale engagement, data and monetization with discipline. We believe this integrated approach creates long-term optionality in gaming as well as in adjacent areas where content, identity, commerce and performance marketing converge. Our focus remains on executing against that opportunity while maintaining financial discipline and driving long-term shareholder value. With that, I'll turn over the call to Gaetano for a review of the financial results. Gaetano Franceschi: Thank you, Andrew. Our fourth quarter results highlight the benefits of disciplined execution and structural improvements across both the Skillz and RZR businesses, producing stronger fundamentals and a trajectory towards profitability. Q4 2025 GAAP revenue was $30 million, up from $27 million in Q3 2025 and up from $18 million in Q4 2024, representing 11% growth quarter-over-quarter and 67% growth year-over-year. Q4 2025 research and development expenses of $6 million increased 78% year-over-year, reflecting ongoing investment in our Skillz and RZR businesses. Q4 2025 sales and marketing expenses of $19 million increased 27% year-over-year, which reflected ongoing user acquisition and engagement marketing spend. Q4 2025 general and administrative expenses of [ $18 ] million decreased 13% year-over-year, reflecting continued focus on expenses. Q4 2025 net loss of $18 million improved 27% year-over-year. Q4 adjusted EBITDA loss was $10 million, up from a loss of $12 million in Q3 2025 and up from a loss of $70 million in Q4 2024, which represented a 17% improvement quarter-over-quarter and 41% improvement year-over-year. Our balance sheet remains healthy, and we continue to manage capital prudently as we progress towards sustained profitability. We ended Q4 2025 with $195 million in cash and cash equivalents and $130 million of debt outstanding that is now classified as current. As the debt approaches maturity later this year, we continue to evaluate a range of strategic alternatives to optimize our capital structure. We are driving the business forward with focus and discipline to deliver meaningful long-term value for our shareholders and look forward to updating you further on our progress in 2026. Operator, we're now ready to open the line for questions. Operator: [Operator Instructions] First question is from the line of Ed Alter with Jefferies. Edward Alter: Would love to just dig into the Skillz side of the results and the paying MAUs and GMV. It looks like kind of the direction of growth from paying users versus GMV has kind of flipped versus the last couple of quarters where paying users were up a little bit and then GMV per payer was down a bit, and that kind of flipped in the fourth quarter. I would love to hear just your thoughts on kind of what changed here? And is this kind of the trajectory going forward? Or how to think about that? Unknown Executive: Ed, thanks for the question. Yes. As you recall, in Q4, we had one of our larger gaming developers leave the platform. So we had a little bit of a dip in our paying MAU. But you can see that we continue to increase on our GMV per paying MAU. Going forward, as we restart -- as we continue to drive better efficiencies in our UA, we're going to rescale our UA spend and continue to grow also on our paying MAU. Edward Alter: Okay. Great. So -- and then, yes, I guess, on the partner that you guys kind of leaving the platform. I think you guys had disclosed that in your 10-K yesterday that they were 51% of revenue last year. How is the progress going in terms of kind of moving folks from those games into -- I think you talked about some Skillz branded versions of those -- of that content. Kind of I would love to hear the -- how that rollout has gone. Unknown Executive: Yes. We don't disclose like the transition for a variety of reasons. But basically, when the partner left the platform, there were some games that left immediately. And then the two larger games that are, call it, the majority, call it, 80-plus percent are there, and we're in the process of transitioning to our owned games. Andrew Paradise: Also, if I could just jump in, this is Andrew, and thank you for the question, Ed. The other thing that we saw in Q4 is we had a technical issue with some of our engagement and marketing technologies for our player base, and we've now addressed that. So it's kind of -- you're seeing both effects in the change in [ PMAU ] in Q4. Operator: There are no additional questions waiting at this time. So that will conclude the conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Mountain Province Diamonds Inc. Q4 2025 Webcast and Conference Call. [Operator Instructions] This call is being recorded on Wednesday, April 1, 2026. I would now like to turn the conference over to Jonathan Comerford. Please go ahead. Jonathan Christopher Comerford: Good day to everyone who has dialed in to listen to our Q4 and year-end 2025 results call. My name is Jonathan Comerford, and I am President and CEO of the company. Also present on this call is Steve Thomas, our CFO; and Reid Mackie, our Head of Diamond Sales and Marketing. At the conclusion of this presentation, we will be available for any questions you may have. . Firstly, I would like to draw your attention to our cautionary statement regarding forward-looking information. This presentation will be posted on our website for anyone who needs additional time to review the statement. Mountain Province Diamonds produces Canadian diamonds to the highest standards of corporate social responsibility, and this is something we continue to be proud of. We own 49% of the Gahcho Kué mine in the Northwest territories with De Beers Group, a division of Anglo American plc owning the remaining 51%. Today, I will speak to our Q4 and year-end 2025 results and provide some insight into our first quarter of 2026. Following that, Steve, our CFO, will discuss the Q4 and year-end 2025 financial performance of the company. Reid will comment on the overall diamond market. I'll then make some closing remarks to complete the presentation and answer any questions you may have. safety. Starting with safety, Gahcho Kué continues its strong performance in 2025 with total recoverable injury frequency rates of 2.2, which is the best ever achieved at the mine and below the 2.3 in 2024, which is a record at the time. Safety remains a top priority, and we will continue to focus on it across all operations. Q4 and year-end 2025 highlights. 2025 was always going to be a challenging year. In the first 3 quarters, we mainly processed low-grade ore from the Tuzo stockpiles while preparing the high-grade NEX ore body. This went largely as expected. In January to September 2025, we produced about 2.5 million carats at an average grade of less than 1 carat per tonne. In the last quarter, production picked up sharply, nearly 1.9 million carats at a grade of 2.25 carats per tonne. Daily production increased from 9,000 carats at the start of the year to 25,000 carats a day in November and December. The strong performance has continued into 2026. While grades in carats recovered were higher than expected, we saw a lower size distribution -- frequency distribution. In other words, the smaller stones, which are currently under pressure in the market made up a greater proportion of the overall carat production. In terms of mining, the operator moved 38.7 million tonnes of material in 2025. That's ahead of both the budget and guidance and more than 17% above 2024's figures. Access to the high-grade 5034 NEX ore body was achieved as planned. In summary for the operations. Overall, safety, processing and mining were performing well. I would like to thank all of the staff at the GK for what they've achieved in what is extremely challenging circumstances. Grade was a bit challenging early in 2025, but improved in Q4 and as we focused on the NEX ore body and has continued into 2025 -- or 2026. Diamond market. The diamond market remains very tough, particularly for small stones and positive signs have repeatedly been offset by external factors. U.S. tariffs have added uncertainty and the recent conflict in the Middle East has affected consumer confidence impacting key markets such as Israel and Dubai. Overall, the market remains highly uncertain. Liquidity, during 2025, our largest shareholder, Mr. Dermot Desmond, provided vital support during a period of low grade and challenging diamond prices. We are very grateful for this support. After year-end, the company was unable to meet its share of mining costs, which were particularly high in the first half of the year due to the winter road. This led our partner, De Beers to make in-kind elections as announced earlier this year. We are actively working with our partners to resolve these outstanding payments, and I hope to provide further updates in the coming weeks. Given the challenging market, the joint venture partners also decided to postpone the Tuzo Phase 3 earlier this year, allowing us to manage liquidity and preserve optionality. Before I close, I would like to take a moment to thank Jeff Swinoga for his outstanding contribution as a Director and as Chair of the Audit Committee. While we are sorry to see him move on to bigger and better things, we are very grateful for his commitment and staying on to see the audit through to completion. On behalf of the Board and the entire team, I would like to sincerely thank him for his service and wish him every success in the future. With that, I will now turn over the call to Steve, who will take us through the financial results. Steve? Steven Thomas: Thank you, Jonathan, and good morning, everyone. -- noting that all numbers discussed will be in Canadian dollars unless otherwise stated. As Jonathan has said, the company experienced tough market conditions throughout the year with prices falling notably in the second half of the year, which has impacted several aspects of the financial results beyond revenue. In Q4, we processed mined an NEX ore with average grade more than double that of the first 9 months. This explains the higher carats sold in Q4, approximately 50% higher than in each of the first 3 quarters. However, the average selling price in Q4 at USD 52 per carat was unchanged from Q3, reflecting continued market uncertainty, largely due to the 50% tariff on Indian rough diamond imports into the U.S. in place at that time. The average selling price for 2025 was USD 59 per carat, lower than any quarter since the mine opened, except for the prices in H2 2025 and in Q2 and Q3 of 2020 when the retail markets were closed due to COVID-19. This pricing environment has placed the company under significant financial pressure. The financial statements going concern note outlines measures taken to address liquidity, including debt raised to fund operations. It also details outstanding amounts owed to De Beers as operator for unfunded cash calls and how these balances have evolved since year-end. As in the first 3 quarters of 2025, Q4 pricing resulted in significant write-downs of diamond inventory and ore stockpiles, increasing production and depreciation costs. Although ore stockpile tonnes remained broadly unchanged since the midyear, they declined by 1.8 million tonnes in the first half of 2025. This led to the release of previously capitalized costs into production costs -- cash production costs unlike in 2024 when the stockpiles increased by 1.8 million tonnes and costs were capitalized. The resulting loss from mine operations in Q4 2025 was $50.2 million, contributing to a full year loss of $154 million, which compares to a $13 million loss in Q4 2024 and a full year profit of $18.4 million in the year 2024. In addition, Q4 2025 included a material impairment charge of $103 million, which equals a net $90 million after an offsetting deferred tax recovery. This complex calculation required additional audit work by KPMG, which delayed this week's earnings call to today. A weaker U.S. dollar in Q4 and for the full year resulted in an unrealized foreign exchange gain compared to a significant loss in 2024 when the U.S. dollar strengthened. Adjusted EBITDA, which accounts for that impact, saw 2025's result materially below 2024, although positive in Q4 2025 versus being negative in Q4 2024. Cash flow from operating activities was an inflow of $9.1 million in Q4 '25 and an outflow of $22.1 million for the full year, which compares to a $79.8 million inflow in 2024. The combination of low prices and the lowest annual sales volume since the mine opened reflects ongoing market instability and reliance on the lower-grade stockpile wall whilst we stripped the NEX ore body. Key factors for recovery include resolution of the tariff regime, improved geopolitical stability in the Middle East, both of which are critical to restoring diamond prices and enabling the company to meet its future financial obligations. Turning briefly to the balance sheet. Most notably, the year-end balance sheet reflects the reduction in property, plant and equipment by $103 million, being the noncash impairment charge, which effectively accelerates future depreciation charges. The injection of USD 40 million under the bridge credit facility and the equivalent of CAD 33 million through a working capital facility have been reported in the first 9 months of the year. During the year also, in agreement with De Beers, they have drawn funds from the decommissioning restricted cash account in our balance sheet to meet cash call requirements when due. Whereas the restricted cash balance was $14.4 million at the end of Q3. By the year-end 2025, it had been replenished fully to $34.9 million, but to note that since the year-end has been further utilized in a similar fashion to meet cash flows. For the combined value of the derivative assets at $343,000, this compares to an overall liability of $1.8 million at the 2024 year-end. The asset comprises $178,000 being the fair value of the early repayment feature within the second lien notes, which has increased by $780,000 over the quarter, but reduced by $5.9 million since 2024 year-end. The reduction in closing value compared to 2024 is due to a significant rise in the discount rate used to derive its fair value from 9% to now 15%. The other derivative asset of $165,000 represents the fair value of [ one ] USD 15 million currency hedge in place, which has since the year-end been settled. At the 2024 year-end, that was a liability of $7.9 million, given that there were USD 105 million of hedges outstanding that were out of the money. Considering the inventory of $151 million, they have decreased by $3.2 million over the quarter as there has been a $10 million reduction in supplies inventory and the ore stockpile has reduced by $1.9 million. And these reductions have been offset by an $8.8 million increase in the value of rough diamond inventory as the volume of carats on hand has increased by [ 280,000 ], albeit with each of those carats being $7 less in value in its carrying value. Closing inventory value for 2025 is $45.3 million lower than for 2024, primarily due to the $56.7 million reduction in the comparative value of the ore stockpile for which the tonnes held at 100% at 2.3 million tonnes have reduced by 1.8 million tonnes compared to the start of the year. That decrease is offset by supplies inventory being $8 million higher than in 2024, in large part due to consignment stock, which we now hold and early delivery of other stock items. There is also an increase in the value of rough diamond inventory by $3.4 million, reflecting the far higher volume of carats held, which increased by [ 324,000 ], albeit with a lower carrying value of $41 per carat compared to their opening carrying value of $72. This reduction reflects the impact of write-downs taken during the year to adjust the carrying value of cost to its lower net realizable value per carat. In respect of property, plant and equipment, or PPE, the year-end 2025 balance of $518.5 million is down $111.6 million over the quarter and $69 million over 2024 year-end balance. The increase reflects an increase in the decommissioning and restoration asset reported in PPE by $19 million as our share of the undiscounted decommissioning cash flows was reestimated upwards by $32 million in Q4 with the balance of that sum reporting mainly to inventory. Also, an additional $18 million was invested in sustaining capital during the year, plus an additional $45 million of capitalized waste activity in respect of NEX waste material, less about $45 million of depreciation, which is not associated with NEX capitalized waste. All of these additions were offset by the aforementioned $103 million impairment charge and a slight reduction of $3 million in assets under construction as that work was completed. For current liabilities, the $62 million increase in the accounts payable balance of $126 million at 2025 year-end compared to only $65 million at 2024 year-end reflects 2 major increase in respect of accounting for $24 million of accrued interest on the senior secured notes, which the lenders agreed to forego until payment in June 2026. This balance has grown as expected during 2025 and did not exist at 2024 year-end as it was previously being paid every 6 months. Secondly, unpaid cash calls due to the operator at the year-end of $30.6 million, which De Beers financed on occasions during the year by withdrawing funds from the company's portion of the decommissioning funding balance or by utilizing the overdraft facility, which is available to the operator. As addressed in the financial statements subsequent events note, since the year-end, De Beers has issued in-kind election notices or IKEs in respect of unpaid cash calls, which must be paid within 60 days in order to avoid an event of default under the GK joint venture agreement, where the first of these IKEs has become due, De Beers agreed to issue new IKEs in respect of any unpaid balance on the original IKE. And that is taking place whilst the companies are in discussion on how to resolve this issue and manage broader joint venture matters going forward. The current liabilities also reflect the following: the Dunebridge USD 40 million Bridge Credit Facility, which was fully drawn in July, and the balance reflects the principal, unamortized deferred transaction costs and the accrued interest, all translated at the period end closing FX rate. Secondly, the Dunebridge working capital facility of USD 23.6 million, which was fully drawn during Q2 2025 and is accounted for similar to the bridge credit facility. Thirdly, the fair value of the current component of the decommissioning and restoration liability, which has seen a little movement over the 3- and 12-month period ending December 2025 with the risk-free interest rate used in the calculation being comparable at both year-ends. The resulting change in the value of net current assets and current liabilities during Q4 2025 and across the full year results in the working capital position decreasing by $50 million during the quarter to minus $70 million and compares to a working capital balance of negative $120 million at the 2024 year-end. Turning to long-term liabilities. Of $479 million at 2025 year-end compared to $22 million at 2024 year-end, these comprise the translated value of the U.S.-denominated senior secured notes and junior credit facility, which, with the weakening of the U.S. dollar since the start of the year, tends to decrease the Canadian reported value, resulting in an unrealized foreign exchange gain of $4.4 million in the quarter and $15 million for the full year. The other material long-term liability is the discounted value of the decommissioning liability, which has increased from $83.5 million to $114.8 million, which reflects the increase in the estimate for the liability itself, offset by a slight increase in the discount rate used in its fair value calculation. Turning to earnings. Revenue for both Q4 and the full year 2025 declined significantly versus 2024, with average prices down 18% year-over-year and volumes down 31%, reflecting the market conditions and production sourced from the stockpile ore for the first 9 months of the year. Cost of sales at $310 million in 2025 exceed $249 million incurred in 2024. And when normalized for carats sold between the 2 periods and accounting for the higher write-downs of inventory to net realizable value, the underlying costs have increased about 20%, which reflects higher operating costs year-on-year, and increased depreciation charges associated with the higher levels of capitalized stripping undertaken. In respect of cash production costs at $76 per carat and $93 per tonne for the full year 2025, that compares to $60 per carat and $77 per tonne for the year-end 2024. And the costs rose year-over-year, driven by the aforementioned stockpile depletion in 2025 versus its growth in 2024. The gap in these costs that I've set out widen when you include deferred stripping given that $26 million of higher capitalized stripping costs were incurred in 2025 compared to 2024. Finance expenses in 2025 increased to $56 million for the year compared to $43 million in 2024, with the interest charge increase of $10 million, reflecting the new bridge loan and working capital debt facilities and the growing accrual on the senior loan notes and junior credit facility. Foreign exchange movements included both the unrealized gains on the debt translation and a realized loss of $4.4 million on hedge settlements made in the year, which were below the prevailing market spot rate. The deferred tax recovery totaling $30 million for 2025 compares to a charge of $1.6 million in 2024, with $13 million of that change driven by the impairment charge and the balance due to the operating losses incurred in 2025. The company reported a loss from operations of $50 million in Q4 and $154 million for the full year and that compares to a profit of $18 million in the year ended 2024 with the reduction of $173 million, reflecting reduced sales of $112 million and a $61 million increase in the cost of sales, as discussed earlier. In line with operating loss, operating cash flow was an outflow of $59 million for 2025 compared to $15.5 million in 2024. Debt funding of $89 million largely explains the difference to the operating loss versus the closing cash flow movement and provides the reason for us having a closing cash balance of $2.3 million. Adjusted EBITDA was $4.8 million for the year, equaling a 3% margin, and that compares to $91 million in 2024 with a 34% margin. As a result of the above, the net loss after tax was $151.6 million in Q4 and $279.5 million for the full year, which compares to an [ $80.8 million ] loss in 2024 with the difference largely due to the impairment charge, the significantly lower sales volume and price and the write-off charges against ore stockpile and rough diamond inventory flowing through the cost of sales and arising itself due to the low price environment. Loss per share was $1.32 for the full year compared to $0.38 in 2024. In conclusion, 2025 was a challenging year, marked by weak diamond prices and low sales volume whist mining through the NEX waste material. The company has relied on significant financial support from its major shareholder, Mr. Desmond of which -- for which we are very grateful, but we still faced a $30.6 million shortfall in cash calls made to the operator at the year-end. And as mentioned, the going concern note addresses the company's liquidity challenges and extends into the developments seen in Q1 of 2026. Despite these pressures, the mine achieved record operational performance and accessed the highest grade ore in its history. Ongoing discussions with De Beers and the lenders aim to stabilize our financial position. However, a recovery in market conditions is critical to meet obligations and for us to realize the benefits of increased production coming from the NEX ore body. Thank you. And I will now hand over to Reid. Reid Mackie: Thanks, Steve. Going into 2026 from 2025, overall market sentiment was cautious amid the ongoing uncertainty over U.S. tariffs and the pending sale of De Beers. The rough market was showing signs of improvement early in the year and the industry more optimistic for the year ahead. However, the outbreak of war in the Middle East and tariff uncertainty has shifted the market back into a more conservative wait-and-see mindset. Presently, this market reticence is based more on logistical disruptions rather than structural market shifts. At the beginning of the year, we saw signs of a rough diamond market recovery supported by positive holiday retail results and producer supply and price management. In the U.S., holiday retail sales were positive with sales exceeding $1 trillion for the first time year-on-year growth. and year-on-year growth was estimated between 3.5% to 4.2%, and jewelry, the jewelry component of this was up 1.6%. Looking ahead in 2026, the National Retail Foundation recently forecast that 2026 U.S. retail will grow 4.4% over 2025. Globally, luxury brands have continued to perform well, leveraging the rarity and exclusivity of naturals to drive diamond jewelry sales. Solid demand and growth were noted in the Americas, Japan and Hong Kong. And finally, we saw Chinese jewelry retailers reporting improved performance in Q4. The lab-grown diamond market continues to grow, albeit at a slowing rate and primarily in the U.S. at commercial retailers where the incentive to hold on to the short-term high percentage retail margins is still present, if not waning. This contrasts with the rest of the world where naturals hold overwhelmingly strong consumer preference, most importantly in the growth markets of India and China. The luxury brands, which have shown the strongest performance in the jewelry sector, continue to promote the exclusive use of natural diamonds in their collections. More recently, even at U.S. retailers such as Blue Nile, there are signs of differentiation back towards natural diamonds as elevated luxury. The widening price gap between natural diamonds and lab grown appear to have hit an inflection point where this price differentiation is being -- now being recognized at the consumer level. Meanwhile, updates in grading terminology and regulatory guidance serve to further underpin the deepening market segmentation of the 2 products. Global macroeconomic factors stemming from the recent war in Iran and continued tariff uncertainty warrant close monitoring of the rough diamond market. In 2025, we saw diamond jewelry production strategies in the midstream evolve quickly to minimize the impact of U.S. tariffs, highlighting the nimble adaptability of the diamond industry, especially in India. However, it remains to be seen how the most recent events will impact consumer spending preferences going forward. Despite headwinds, it's important to remember that we are still seeing the fundamental signs of a diamond market stabilization to support price recovery. With much reduced rough diamond supply upstream, solid consumer demand and growing differentiation away from lab growth with naturals being an elevated luxury product, we look forward to long-term price growth for our diamonds. And with that, I'll pass you back to Jonathan for his closing remarks. Jonathan Christopher Comerford: Thanks, Steve, and thanks, Reid. Just to summarize some of the highlights for 2025. In terms of safety, we had record total recordable injury frequency rate performance, reflecting the ongoing commitment to safety. In terms of production, Q4 2025 drove a strong finish with nearly 1.9 million carats recovered at 2.25 carats per tonne and daily production rising from 9,000 to 25,000 carats, and that has continued into 2026. In terms of mining, we mined out 38.7 million tonnes in 2025 ahead of the budget guidance with the high-grade 5034 NEX ore body access as planned. We still, however, face a very challenging diamond market with smaller stones remaining under pressure, in particular, due to global uncertainty, tariffs and geopolitical factors, which are keeping the market very unpredictable. And then finally, in terms of liquidity and strategic focus, the focus continues to be working with the beers and our stakeholders to manage costs and optionality while working with other stakeholders, including our workers, government, et cetera, to get through this very challenging time. I would like to thank you for your time. My team are now available for -- take any questions you may have. So over to the operator. Operator: [Operator Instructions] There appear to be no questions. I will turn the call back over to Jonathan Comerford for closing comments. Jonathan Christopher Comerford: And there's no questions from the received in, Steve, is there? Steven Thomas: No. Jonathan Christopher Comerford: Webcast... Steven Thomas: None online. Jonathan Christopher Comerford: Okay. Steven Thomas: Sorry, one has just come on the screen. Jonathan, I apologize. It's just popped up. Can you tell me the total value of diamonds sold on March 17 at the auction? That -- I don't think we can disclose that number. That's from Mr. Barry White from the Sunday Times Ireland Edition because we're here to deal with the year-end financial results. Jonathan Christopher Comerford: Not -- that will be released as part of the Q1 results. Steven Thomas: Correct. Jonathan Christopher Comerford: Which is in May. Steven Thomas: No other questions, Jonathan. Jonathan Christopher Comerford: Okay. So I would like to close off this call, and I'd like to thank everyone for listening in and for the perseverance with this company. It's been a very challenging year. And hopefully, we'll have some news to disclose to the market in the not-too-distant future. I would like to wish everyone a happy Easter, and thank you again. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Penguin Solutions Second Quarter Fiscal 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Suzanne Schmidt, Investor Relations. Suzanne, please go ahead. Suzanne Schmidt: Thank you, operator. Good afternoon, and thank you for joining us on today's earnings conference call and webcast to discuss Penguin Solutions Second Quarter fiscal 2026 results. On the call today are Kash Shaikh, Chief Executive Officer; and Nate Olmstead, Chief Financial Officer. You can find the accompanying slide presentation and press release for this call on the Investor Relations section of our website. We encourage you to go to the site throughout the quarter for the most current information on the company. I would also like to remind everyone to read the note on the use of forward-looking statements that is included in the press release and the earnings call presentation. Please note that during this conference call, the company will make projections and forward-looking statements, including, but not limited to, statements about the market demand, technology shifts, industry trends and the company's growth trajectory and financial outlook, business plans and strategy, including investment plans, product development and road map, anticipated sales, orders, revenue and customer growth and diversification and existing and potential strategic agreements and collaborations. Forward-looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risks and uncertainties, including, without limitation, the risks and uncertainties reflected in the press release and the earnings call presentation filed today as well as in the company's most recent annual and quarterly reports. The forward-looking statements are representative only as of the date they are made, and except as required by applicable law, we assume no responsibility to publicly update or revise any forward-looking statements. We will also discuss both GAAP and non-GAAP financial measures. Non-GAAP measures should not be considered in isolation from, as a substitute for or superior to our GAAP results. We encourage you to consider all measures when analyzing our performance. A reconciliation of the GAAP to non-GAAP measures is included in today's press release and accompanying slide presentation. And with that, let me now turn the call over to Kash Shaikh, CEO. Kash? Kash Shaikh: Good afternoon. Thank you for joining our second quarter FY '26 earnings call. This is my first earnings call as CEO of Penguin Solutions, and I'm excited to step into this role. I want to start by thanking Mark Adams for his leadership and for the strong foundation he built. Since joining in early February, I've spent significant time with customers, partners and our teams around the world. I've witnessed the strength of the company, both in our technology and our customer relationships. What is clear is this. AI is moving from experimentation to production with workloads increasingly shifting towards real-time inference. We are already seeing this translate into customer demand beyond hyperscale across enterprise, neoclouds and sovereign AI markets. We expect this transition to expand our addressable market and drive increased demand for integrated AI infrastructure, where Penguin is already winning. We see this firsthand in the breadth of our deployments from a sovereign AI factory, Haein in South Korea to enterprise voice AI with Deepgram to large-scale research systems with Georgia Tech, along with a growing pipeline across all 3 market segments. What makes this opportunity so significant is that the architecture of AI is also changing. Model training was largely compute bound, inference powering agentic AI is memory bound and latency sensitive. We believe this is driving a rearchitecture of the data center across compute, memory, interconnect and software. We also see AI driving memory demand, not only for the high-bandwidth memory or HBM used with GPUs or other accelerators, but also for general-purpose memory. General purpose compute wraps around every GPU build-out and whether it's reinforcement learning pipelines or inference serving, that workload runs on processors backed by significant memory content across the entire system. So while memory markets are cyclical, we believe AI is adding a more durable layer of demand for memory. As AI factories scale, I expect customers to increasingly prioritize partners that deliver with speed and precision, along with full stack AI factory platform capabilities, including compute, scalable memory systems, cluster management software, end-to-end services and a partner ecosystem to deliver a differentiated solution. Time to deployment is now directly tied to time to first token. Against this backdrop, we are building Penguin into an AI factory platform company. Our AI factory platform is built around 6 core elements. First, Penguin ClusterWare, our AI infrastructure management software. Second, our new Penguin MemoryAI line of systems designed specifically for AI inference workloads. Third, Penguin Advanced Computing Systems optimized for AI workloads. Fourth, Penguin OriginAI factory architectures, our reference designs for AI factories. And fifth and sixth, end-to-end services and our partner ecosystem. Production-grade AI factories require full stack design across compute, memory, storage, networking and software. We partner with leading AI companies, including NVIDIA and SK Telecom and partners like Dell. We also offer complete end-to-end services spanning design, build, deploy and managed services. We are strategically positioned at the intersection of AI infrastructure and memory with a long track record in both. Few, if any, companies combine these capabilities at scale. We believe that together, our AI infrastructure and memory expertise position us to meet the evolving requirements of AI infrastructure as it shifts towards inference workloads. This supports our ability to develop differentiated solution. Given the momentum we are seeing in our AI infrastructure business and the significant market opportunity ahead of us, we are very focused in this area. We plan to invest more in our AI factory platform to accelerate our AI business growth, specifically in product innovation, go-to-market and customer engagement. In March, at NVIDIA GTC Conference, we announced 2 AI inference-centric solutions aligned with this strategy. First, the Penguin MemoryAI server. Building upon our Compute Express Link or CXL-based memory expansion capabilities, we introduced a new line of scalable memory systems called MemoryAI. CXL is a high-speed interconnect that enables scalable, shared memory across GPUs and CPUs. We also announced the immediate availability of our new MemoryAI KV Cache server. Here KV or key value cache stores inference context to accelerate large language model responses. Second, the expansion of our OriginAI Factory Architecture portfolio, which now includes blueprints that address the larger workloads and the low latency demands of AI inference. We also continue to expand capabilities of ClusterWare toward a unified control plane for AI factory infrastructure, integrating the open ecosystem to deliver repeatable production scale deployments. To accelerate the innovation and strengthen our leadership team, we recently appointed Ian Colle as Senior Vice President and Chief Product Officer. Ian brings more than 2 decades of experience building AI infrastructure platforms and scaling high-performance computing, most recently at Amazon Web Services. He was recently named by HPCWire to its People to Watch 2026 list, reflecting his reputation in the industry. Now let me briefly address our second quarter performance. In Q2, we delivered net sales of $343 million. Non-GAAP gross margin was 31.2%. Non-GAAP diluted earnings per share were $0.52. These results reflect strong demand and execution in memory and continued progress in our AI/HPC business. Before turning to the segments, I would like to address our updated outlook. As Nate will describe in further detail, following our solid Q2 net sales and EPS performance, we are raising the midpoint of our full year net sales and EPS outlook. We are raising our outlook for our integrated memory business, fueled by AI-driven demand, strong execution by our team and favorable pricing dynamics. While our second half advanced computing net sales outlook is lower than our prior expectations, we are encouraged by strong year-over-year Q2 bookings growth for non-hyperscaler AI/HPC business, which included 5 new AI/HPC customer wins that brings our first half total this year to 7 new AI HPC logos compared to 3 in the first half of last year. With that context, let me turn a closer look at each of the segments. Starting with advanced computing, net sales for the quarter were $116 million, representing 34% of total company net sales and declined year-over-year. Advanced Computing net sales for the second quarter reflect both the timing of large deployments and our transition away from hyperscaler concentration. They also reflect the previously disclosed wind down of our Penguin Edge business. We believe diversification of [ net sales ] and wind down of Penguin Edge will strengthen the long-term quality of the business. As I mentioned, we are transitioning our AI infrastructure business from hyperscaler concentration toward a more diversified customer base across enterprise, neocloud and sovereign AI. This transition is showing very encouraging progress, but we still have more work to do. Non-hyperscale AI/HPC net sales grew 50% year-over-year for the first half of the year, representing over 40% of first half segment net sales, supported by strong non-hyperscale year-over-year booking growth in the quarter, including 5 new AI/HPC logos across financial services, biomedical research and energy. We expect further diversification in the second half of the fiscal year. Our AI HPC pipeline continues to strengthen with opportunities to acquire additional logos in the second half of the fiscal year across enterprise, neocloud, sovereign AI customers. As previously discussed, these engagements typically progress over many months from prospecting to design to award, followed by contracting and ultimately, system build and deployment. While the sales cycle can be long, often 12 to 18 months and can introduce quarterly net sales variability, it also supports deeper customer relationships, repeat business and a more durable long-term growth. I'm encouraged by the trajectory of the business and the signals we are seeing in the market. Beyond the numbers, we are also seeing increased activity in specific enterprise verticals. For example, we recently announced our collaboration with Deepgram and Dell to support enterprise voice AI deployments. This win highlights the growing demand for low-latency, production scale inference infrastructure in real-time applications. In this engagement, Penguin designed and deployed an optimized inference environment built on Dell PowerEdge servers and NVIDIA RTX Pro 6000 Blackwell GPUs. This solution facilitates Deepgram's speech-to-text, text-to-speech and voice agent functionalities for applications within health care and retail sectors. This case study also demonstrates how design and integration expertise delivers differentiated value. As inference workload scale, we expect these types of deployments to become an increasingly important driver of AI infrastructure demand. Georgia Tech's AI Makerspace developed in partnership with NVIDIA is a strong example. Our relationship with Georgia Tech continues to grow and validates Penguin's ability to help organizations move efficiently from concept to production-grade AI infrastructure. Now turning to Integrated Memory. Net sales for the quarter were $172 million, representing 50% of total company net sales and grew 63% year-over-year. AI-driven demand remains strong across networking, telecommunications and computing market segments. Pricing dynamics were favorable and although supply remained tight, we continue to manage constraints effectively through our supplier relationships and disciplined procurement. Stepping back, our AI/HPC and memory segments taken together enable us to integrate compute and memory architecture in ways that meet the requirements of production AI environments. Memory architecture is becoming increasingly central to AI performance, particularly as inference workloads scale. Our early investments in CXL position us well as customers evaluate more dynamic memory architectures. Furthermore, we are beginning to see this demand translate into customer deployments, including a recent substantial order for CXL cards from a generative AI company building solutions for inference workloads. This reinforces our strategic position at the intersection of memory and AI infrastructure to capitalize on the next phase of AI, focused on inference powering agentic AI workloads. These solutions are sold to enterprise AI infrastructure buyers, the same customers we serve in our AI HPC business. For example, we sold our CXL-powered KV Cache servers to a Tier 1 financial institution for their on-premise AI factory. In parallel, we continue to advance development of our Photonic memory appliance or PMA, formerly referred to as OMA, which is designed to extend memory capacity and bandwidth for large-scale AI environments. We were an early investor in a photonic memory company, Celestial AI, reflecting our long-standing focus in memory architecture innovation and our early conviction in the importance of optical interconnects for next-generation AI systems. Celestial AI was recently acquired by Marvell in a multibillion-dollar deal. Beyond the portion of proceeds we received from the acquisition as an investor, we are positioning ourselves for future growth in this market. As inference workloads expand, technologies like PMA can help address key memory scaling challenges in the next-generation AI systems. Last but not least, LED. Net sales for the quarter were $56 million, representing 16% of total company net sales and were down 7% year-over-year. The business continues to operate with focused leadership and dedicated operational discipline. While market conditions remain mixed, we are maintaining a disciplined approach to investment and capital allocation. We are focused on optimizing portfolio value while concentrating resources on areas where we see the strongest long-term returns. In close, the demand for data center AI infrastructure and memory is expanding rapidly. AI factories are becoming infrastructure that powers artificial intelligence across a range of industries. As AI shifts toward inference and agentic systems and scales across large enterprise, neocloud and sovereign AI environments, we expect demand to accelerate. At the same time, memory is becoming a defining constraint and a defining opportunity. Penguin sits at the intersection of AI infrastructure and memory innovation. And we believe that is a powerful position to be in. Our focus is clear. We are prioritizing 4 areas. First, to invest in product innovation across our AI factory platform, particularly at the intersection of AI infrastructure and memory to drive profitable growth; second, to execute with speed and precision; third, to deepen customer engagement and our ecosystem to support long-term growth; and fourth, to continue diversifying our customer base while building toward more consistent and predictable growth. We believe this focus positions us well to execute in a rapidly evolving market while continuing to build a durable and scalable business. With that, I'll turn it over to Nate. Nate Olmstead: Thanks, Kash. I will focus my remarks on our non-GAAP results, which are reconciled to GAAP in our earnings release tables and in the investor materials available on our website. With that, let me now turn to our second quarter results. In the quarter, total Penguin Solutions net sales were $343 million, down 6% year-over-year. Non-GAAP gross margin came in at 31.2%, which was up 0.4 percentage points versus Q2 last year. Non-GAAP operating margin was 13.2%, down 0.2 percentage points versus last year, and non-GAAP diluted earnings per share were $0.52, flat year-over-year. In the second quarter of fiscal 2026, our overall services net sales totaled $64 million, up 1% versus the prior year. Product net sales were $279 million in the quarter, down 8% versus the prior year. Net sales by business segment were as follows: In Advanced Computing, Q2 net sales were $116 million, which was 34% of total company net sales and down 42% year-over-year. This sales decline reflects both the ongoing wind down of our Penguin Edge business and hyperscale hardware sales in Q2 last year, which did not recur in Q2 this year. Drilling down deeper into our advanced computing results, our non-hyperscale AI/HPC net sales were down 35% year-over-year in the quarter, but up 50% for the first half of the year. Given the project nature of the business, where sales can be lumpy from one quarter to the next, we believe looking at the multi-quarter trend is a helpful way to evaluate the growth in this portion of our business. In addition to solid first half growth in our non-hyperscale AI/HPC business, we continue to make good progress on diversifying our net sales to new customer segments. For the first half of the year, the non-hyperscale AI HPC business represented more than 40% of total advanced computing net sales versus approximately 20% in the first half of last year. We expect to see our mix of net sales from enterprises, neoclouds and sovereign AI customers increase further in the second half of this fiscal year. In Integrated Memory, Q2 net sales were $172 million, which was 50% of total company net sales and up strongly with 63% growth year-over-year. And in optimized LED, Q2 net sales were $56 million, which was 16% of total company net sales and down 7% versus the same quarter last year. Non-GAAP gross margin for Penguin Solutions in the second quarter was 31.2%, up 0.4 percentage points year-over-year and up 1.2 percentage points sequentially with strong margin performance in each business, driven primarily by product mix in advanced computing, favorable pricing in memory and tariff recovery in LED. We currently project lower gross margins in the second half, driven by a higher mix of lower-margin AI hardware and memory sales, rising memory costs in our AI factory solutions and less tariff cost recovery in LED. Non-GAAP operating expenses for the second quarter were $62 million, down 3% year-over-year and relatively flat sequentially. We expect a modest sequential increase in operating expenses in the second half, reflecting normal seasonality and increased investments in R&D, including for our ClusterWare software and MemoryAI solutions. Q2 non-GAAP operating income was $45 million, down 8% year-over-year and up 9% versus last quarter. Operating margins were down 0.2 percentage points versus the prior year, but up 1.1 points sequentially, driven by higher sequential gross margins in both memory and advanced computing. Non-GAAP diluted earnings per share for the second quarter were $0.52, flat versus Q2 last year and up 7% versus the prior quarter. Adjusted EBITDA for the second quarter was $50 million, down 6% year-over-year and up 11% versus the prior quarter. Turning to the balance sheet. For working capital, our net accounts receivable totaled $371 million compared to $330 million a year ago, with the increase driven by higher memory sales volumes and variations in sales linearity across the quarters. Days sales outstanding were healthy at 50 days, consistent with the prior year and down 1 day versus last quarter. Inventory totaled $322 million at the end of the second quarter, up from $200 million a year ago, reflecting increased memory costs, growth in our memory business and strategic purchases to fulfill memory and AI demand in the second half of the year. Days of inventory was 51 days, up from 37 days a year ago and 38 days last quarter, primarily due to our strategic memory purchases and the timing of receipts and shipments. Accounts payable were $401 million at the end of the quarter, up from $238 million a year ago due primarily to higher memory costs, growth in our memory business and the timing of purchases and payments. Days payable outstanding was 63 days compared to 44 days last year and 55 days last quarter. The year-over-year and quarter-over-quarter movements were due to the timing of purchases and payments. Our cash conversion cycle was 38 days, an improvement of 5 days compared to Q2 last year and up 3 days versus last quarter due to the timing of purchases and payments. Consistent with past practice, days sales outstanding, days payables outstanding and inventory days are calculated on a gross sales and a gross cost of goods sold basis, which were $672 million and $578 million, respectively, in the second quarter. As a reminder, the difference between gross and net sales is primarily related to our memory businesses logistics services, which are accounted for on an agent basis, meaning that we only recognize the net profit on logistics services as net sales. Cash, cash equivalents and short-term investments totaled $489 million at the end of the second quarter, down $158 million versus Q2 last year and up $28 million sequentially. The year-over-year fluctuation was primarily due to proceeds from the issuance of preferred shares in Q2 of last year, offset by debt repayments for our term loan in Q4 of last year. Sequentially, the cash increase was due to cash generated from operating activities as well as approximately $32 million received from proceeds from the disposition of our investment in Celestial AI in connection with its sale to Marvell Technology. These sources of cash were partially offset by our share repurchase activity in the quarter. We ended the quarter with $450 million of debt, down $20 million versus last quarter due to the retirement of our 2026 convertible notes. In total, we closed the quarter in a net cash position. And based on our current debt maturity schedule, have no further scheduled debt payments due until 2029. Second quarter cash flows provided by operating activities totaled $55 million compared to $73 million provided by operating activities in the prior year quarter. The decrease in cash flow in the quarter versus last year was due primarily to investments in net working capital to support growth for the second half of this fiscal year. For those of you tracking capital expenditures and depreciation, capital expenditures were $2 million in the second quarter and depreciation was $5 million for the quarter. Wrapping up our cash flow activities, we spent $32 million to repurchase approximately 1.7 million shares in the second quarter under our stock repurchase program. As of February 27, 2026, an aggregate of $64.5 million remained available for the repurchase of our common stock under the current authorization. And now turning to our outlook. Given our solid half 1 performance and an improved half 2 outlook for our Memory business, we are raising our full company net sales and non-GAAP diluted EPS outlook for the year, which at the midpoint now calls for 12% net sales growth and $2.15 of non-GAAP diluted EPS, up from our previous outlook of 6% net sales growth and $2 of non-GAAP diluted EPS. As a reminder, our full year outlook assumes that we will continue to diversify our customer sales mix and does not include any advanced computing AI hardware sales to hyperscale customers. And also consistent with our assumptions from last quarter, our FY '26 financial outlook reflects the ongoing wind down of our high-margin Penguin Edge business. We expect sales from this business to essentially cease by the end of fiscal 2026. The combined effect of these 2 assumptions in our FY '26 outlook remains approximately a 14 percentage point unfavorable year-over-year impact to our total company net sales growth and approximately a 30 percentage point unfavorable impact to Advanced Computing. With that said, our full year net sales outlook reflects the following full year growth ranges by segment. For Advanced Computing, we now expect full year net sales to change between minus 25% and minus 15% year-over-year. While our Advanced Computing net sales outlook for this fiscal year is lower than our previous forecast, we are encouraged by our AI HPC bookings, including several new logos and pipeline growth. As it has previously, this outlook reflects the Penguin Edge and hyperscale hardware sales impacts mentioned earlier. For memory, we now expect net sales to grow between 65% and 75% year-over-year, driven by strong demand and a favorable pricing environment. And for LED, we continue to expect net sales to decline between minus 15% and minus 5% year-over-year. Our non-GAAP gross margin outlook for the full year is now 28%, plus or minus 0.5 percentage points. We adjusted our gross margin outlook down by 1 percentage point to account for a higher mix of memory sales, which have a lower gross margin than our company average and higher memory costs in our AI hardware business. Our full year expectation for total non-GAAP operating expenses remains $250 million, and we have narrowed that range to plus or minus $5 million. For FY '26, we now expect a non-GAAP diluted share count of approximately 53 million shares, down from our prior outlook, primarily reflecting the impact of our recent share repurchases. Our non-GAAP full year diluted earnings per share is now expected to be approximately $2.15, plus or minus $0.15. Our forecasted FY '26 non-GAAP tax rate remains at 22%. And while we expect to use this normalized non-GAAP tax rate throughout FY '26 and beyond, the long-term non-GAAP tax rate may be subject to changes for a variety of reasons, including the rapidly evolving global and U.S. tax environment, significant changes in our geographic earnings mix or changes to our strategy or business operations. Our outlook for fiscal year 2026 is based on the current environment, which contemplates, among other things, the global macroeconomic environment and ongoing supply chain constraints, especially as they relate to our advanced computing and integrated memory businesses. This includes extended lead times for certain components that are incorporated into our overall solutions impacting how quickly we can ramp existing and new customer projects and fulfill customer orders. Our outlook also contemplates the industry-wide higher costs for memory, which may slow customer demand for our products and solutions and may lower our gross margins in our advanced computing and memory businesses. Overall, we believe our focused execution, disciplined expense management and balance sheet strength provide a strong foundation for sustained profitable growth. We expect these qualities to support our continued progress as we pursue opportunities to enhance long-term shareholder value. Please refer to the non-GAAP financial information section and the reconciliation of GAAP to non-GAAP measures tables in our earnings release and the investor materials on our website for further details. With that, operator, we are ready for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Katherine Murphy from Goldman Sachs. Katherine Campagna: I'll ask about the raised Memory segment outlook for 65% to 75% growth. How much of this is from increased favorable pricing versus demand for new product categories? And as a follow-up, how should we think about the impacts to the operating margin outlook for this segment and the investments that need to be made into new technologies like CXL and photonic memory appliances? Nate Olmstead: Kath, it's Nate. So on the memory outlook, listen, we're really pleased with the demand that we're seeing as well as the favorability that we see in the pricing environment. I would say for the increase that we're seeing in the second half, that's majority pricing but demand is also very strong across telco, networking, AI-driven demand is just very strong. In fact, to get to the high end of that outlook really just refers to our ability to secure materials, which is really the only inhibitor we see right now to raising that outlook here in the second half. So we're chasing materials. We're using the balance sheet to strategically purchase ahead where we can, but the demand is very strong in memory. In terms of the investments, we've reflected it in the outlook. So I kept the OpEx for the year at $250 million, plus or minus $5 million. We're balancing the portfolio as we always do, to look for opportunities to accelerate our investments in innovation in AI or in the memory solutions that we've been talking about. But that's all included in the outlook. I expect the operating margins for memory to remain pretty healthy in the back half of the year. I do expect some pressure on gross margins in AI as we see a higher mix of new hardware shipments in the second half as well as factoring in some of the higher memory input costs that we have in that business. Operator: Sorry, your next question comes from the line of Brian Chin. We're experiencing some mild technical difficulties. My apologies. Your next question comes from the line of Brian Chin from Stifel. Brian Chin: Maybe first question, I guess, in Advanced Computing, what changed that caused you to lower the midpoint of your prior guidance to the new range you've communicated? And can you describe how booked you are to that midpoint of that new range? Kash Shaikh: So one of the main factor is the lag between our bookings and the revenue. Our revenue lags about 3 to 6 months from the time of the bookings. And this is primarily driven by the timing of the deployments, in some cases, the material availability and so on and so forth. And given where we are in terms of our fiscal year, we have 5 months remaining. So going forward, most of the bookings that we are expecting may not materialize into the revenue for the second half of this fiscal, but we believe that it will have a positive impact, obviously, going into the first half of the next fiscal. So that's one of the reasons that we are lowering the guidance for advanced computing driven by the deployments. But we are seeing strong momentum in our pipeline as well as bookings. Bookings grew very significantly in Q2 for non-hyperscale AI/HPC business, which is very strategic for us, and we are encouraged to see the progress. We closed 5 new logos with AI/HPC in Q2. And in first half, that takes the total to 7 new logos as compared to 3 new logos last year. So we are very confident in our ability to execute. The main issue at this point is timing. Brian Chin: Okay. Yes. I appreciate that, Kash. And it sounds like you're pretty well booked into the fiscal second half lowered outlook and that some of these new bookings are more kind of beyond a 6-month window. Also thinking about growth in the business, obviously, there's that sort of headwind that you helped to clarify in terms of reduction in hardware revenue to the new hyperscaler, the wind down of Penguin Edge. And so 30 percentage point impact, if we kind of net that against the guidance, maybe 10% growth for this year, net of that in that segment. So moving forward, as you survey the business and you haven't been in the role that long, and you think about what that sort of apples-to-apples growth rate was or is tracking to for this fiscal year, how are you thinking about sort of target growth rates for the advanced computing business moving forward? Kash Shaikh: So overall, let me give you a data point. So the first half of this fiscal, our net sales grew about 50% year-over-year for non-hyperscale AI/HPC business, representing 40% of the overall mix of advanced computing, which is almost 2x of what we closed last fiscal. So the growth is substantial in terms of the bookings as well as the revenue that we see, and we expect that to continue. And as we continue to close the bookings converting the pipeline, we see strong pipeline across all 3 segments that I mentioned between enterprises, on-prem AI deployments, significant activity with sovereign AI customers as well as neocloud customers. Operator: Your next question comes from the line of Matthew Calitri from Needham & Company. Matthew Calitri: Matt Calitri here from Needham. Do the new memory launches mark a shift in strategy on that front? Just curious because in the past, the company has talked kind of more about the niche parts of the integrated memory business and noted it's early on things like the CXL front. But now it sounds like memory is expected to be a larger driver as part of this AI factory platform. So just wondering if anything has changed there. And what gives you confidence there's durable demand here? Kash Shaikh: Yes. So it is a part of our strategy. The MemoryAI appliances that we launched about a month ago starting with GTC is a part of us investing more in our AI factory platform strategy. So there are 6 elements to this strategy and MemoryAI is one of the strategic elements where it is very timely if you look at how AI is transitioning from model training to inference. And in the workloads where you are focused on inference, memory becomes an increased requirement because of lower latency as well as larger context size for inference, powering the agentic AI. So this is very strategic for our business. In fact, we are leading the market in this area, taking advantage of our unique position at the intersection of memory and AI infrastructure. and combining the deep understanding and architecture, we introduced this MemoryAI KV cache server as one of the products in the line of MemoryAI. We are working on other products, and we will continue to invest and in fact, invest more in this area to take advantage of the market opportunity because the timing is perfect and our leadership in the MemoryAI line of products. To give you a proof point, the, one of the new logos we acquired Tier 1 financial institution. Not only we are deploying the AI infrastructure, AI factory deployment for them, they also purchased our CXL-based KV cache server, which is a proof point of as customers are transitioning from training and bringing AI on-premise in their factories, deploying on-premise, focusing on inference and powering agentic AI, it is very strategic for us and the timing is just right. So we expect to see this demand, and we plan to continue to invest in this area. Matthew Calitri: Awesome. That's great to hear. And then, Nate, with a new CEO in the seat and some moving pieces around sales cycles and supply chain, did you change the guidance philosophy at all or embed any additional conservatism? Any color on the puts and takes there would be helpful. Nate Olmstead: Yes. Matt, no, no change in the philosophy. We -- Kash and I are very quickly aligned, I think, on how we think about tracking the business and looking at things. And in fact, I think with our new CRO, who came in a couple of quarters ago, he's done a nice job of adding some more rigor to the planning process in our AI business and just improving the visibility there a little bit. But it's a challenging environment from a supply chain standpoint, and we're, of course, got a lot of experience managing supply chain in our memory business. And I think that that's an advantage for us in an environment like this. Operator: Your next question comes from the line of Samik Chatterjee from JPMorgan. Manmohanpreet Singh: This is MP on behalf of Samik Chatterjee. So my first question is I just wanted to double-click on your advanced computing guidance. You mentioned that a lag of 3 to 6 months for the revenue, which you will book in your second half. But was there a change observed for the bookings which you did in first quarter or any change relative to what were you expecting to do in 2Q? And I have a follow-up as well. Nate Olmstead: Yes. MP, I think bookings were strong in Q2, really good growth sequentially and year-over-year. I do think that the deployment cycle has lengthened a little bit with some of the supply constraints, in particular, on memory, things have gotten a little bit longer. But we're really pleased with the 5 new logos. And I think demand is good. We're seeing good strength in the pipeline, and it's also diversifying nicely across the non-hyperscale segments such as enterprise and neocloud and sovereign. So I think we feel really good about the demand. I think this is just an issue of a little bit of timing as we can convert bookings into revenue. Manmohanpreet Singh: Okay. And my second question would be also on advanced computing and your AI factory-related business. Like does NVIDIA coming up with their own reference designs for factory-level solutions? Like how does that play relative to you? Like is that a tailwind for you? Or is that a headwind for you? Like can you please help us understand...? Kash Shaikh: Yes, we believe this is an advantage for us. So we work very, very closely with NVIDIA and some of the wins that I mentioned, for example, the Tier 1 financial institution recently along with our MemoryAI product in this transaction. NVIDIA worked very closely with us, and we are working with NVIDIA leveraging their reference design, combining that with our AI factory platform and complementing NVIDIA's NVI as an example, to provide full stack to our customers. So their blueprints are more complementary to our AI factory platform and the components that make up for it. So we are actually quite excited about those blueprints and working very closely with NVIDIA to capture the opportunities, especially as NVIDIA is increasingly focused on enterprise, it aligns with our strategy and go-to-market. Operator: Your next question comes from the line of Ananda Baruah from Loop Capital. Ananda Baruah: A couple, if I could. Kash, and maybe Nate as well, earlier remarks were that you're seeing increased momentum across neocloud, sovereign and enterprise. And you mentioned 1 of the 2 of the new wins. Do you have -- and I think, Kash, you had mentioned you've made some specific or at least general inferencing remarks, including around agentic. Do you have any specific context you can give us around what your customers are telling you their thrust in inferencing is right now and maybe the degree to which agentic is showing up there. Like we just want to get a sense of what the customer activity tone is like behaviorally, say, over the last 90 to 180 days. Do you have anything there you can share with us to make it a little bit more experiential for us? And then I have a quick follow-up too. Kash Shaikh: Sure. we believe we are early in the adoption of inference with these customers, but it is increasingly deployed as in customers as they move towards agentic, inference provides the opportunity for powering the agentic. And when you think about inference, I'll give you an example of why the architecture is changing and why memory is becoming increasingly critical in inference as compared to the model training. So for example, let's say, if you are writing a book and if you have to write a new sentence without having the memory as a supporting component for you, you will have to reread the entire book before writing the next sentence. So in the inference, you're doing an inference on a lot of data you already have. And if you have a component where the book you have written so far is stored, so before writing the new sentence, you don't have to reread the book. That's kind of how it is changing for the enterprises and other segments. And we see customers already deploying it and the architecture is changing, which is why not only we have the opportunity and advantage to provide them our AI infrastructure as well as the services, increasingly, we are seeing the demand for our MemoryAI portfolio, where they are deploying AI infrastructure and increasingly inference, they need products like that to be able to provide that memory component for the inference so that the responses of LLMs can be much more faster than they would be otherwise. Ananda Baruah: I got it. That's helpful. And just one last -- one quick follow-up, I'm mindful of the time here in case there's anybody behind me. The CXL product, it sounds like you -- to the earlier question, it sounds like you guys are a little bit more enthusiastic about the CXL sleeve today than you were maybe 90 days ago, you have the new products out at GTC. Is that accurate statement? Are you expecting maybe it's because of these new products, a little bit more -- and certainly some of the NVIDIA announcements at CES as well. But are you expecting a little bit more revenue a little bit sooner than maybe you were CXL-wise 90 days ago? And then a quick second part to that. Do you need photonics to work before you really get CXL amplification? Like do you need CPO or photonics to work before you can really amplify CXL and scale out -- or scale up? That's it for me. Kash Shaikh: Yes. So let me address your CXL question first. I think CXL adoption is timely given the transition to inference because, as I mentioned, with inference, you need increased memory for faster LLM responses. And what CXL provides compute Express Link is you can share the memory between for GPUs and CPUs. So what it allows is new memory pooling, which is an advantage in inference workloads. So while CXL was obviously available for the last, I'd say, few quarters, it is driving that -- that inference adoption is driving the adoption for CXL and this transaction that I mentioned where we received an order, it's actually an enterprise generative AI company working on inference workloads. So you can imagine, CXL cards make sense for them because those workloads need increased memory and the memory pooling capabilities provided by CXL between GPUs and CPUs are an advantage for those kind of customers. And then in terms of photonic memory appliance that we are working on in our partnership with Celestial AI, which is now obviously Marvell, that provides increased capability because obviously, when you have photonic connectivity, then you have increased capacity to share the memory. So it takes it to the next level. However, CXL in itself is an advantage. We can take it to the next level with the photonic appliance. There is another element which is KV Cache that I mentioned, MemoryAI, KV Cache server, which is essentially providing much more responsiveness for larger context workloads, again, used in inference. So various requirements, you can think of it as inference has various requirements related to memory and the type of workloads it has and some of it is latency. So these components between CXL or the CXL-based KV Cache which provides increased responses and larger memory -- largest context sizes and then taking it to the next level photonic memory make up various use cases for inference. So inference gets mainstream, we will have an advantage of this portfolio helping with various use cases of inference. Operator: Your next question comes from the line of Kevin Cassidy from Rosenblatt. Kevin Cassidy: And just the gross margin for the memory, your gross margin was up in the quarter and memory revenue was up strong. And I just want to understand what the dynamics were there. Nate Olmstead: Yes, sure, Kevin. We saw a little favorability in memory margins. Some of that is mix, a little bit stronger demand in flash actually, which is a little bit higher margin product for us within the portfolio. And then also some of the pricing increases, we were able to capture a little bit of margin upside on that just based on the timing of our inventory purchases relative to the timing of shipments and sales to customers. Kevin Cassidy: Okay. So you kind of -- as you look out to the second half of the year, you see that catching up to the price increases compared to... Nate Olmstead: Yes. So as the price increases slow, right, if that's an assumption that you use that price increases are going to slow, then we would see -- we would expect to see less margin favorability from that because it'd be less of a timing difference between -- or less of a price variation between the timing between purchasing inventory and selling. But we have been using the balance sheet to try to secure inventory where we can. It's a tight market. So it's not unlimited supply. But where we can, we're using the balance sheet to try to gain a little bit of an advantage. Kevin Cassidy: Okay. And maybe just as we're talking about memory, as you get to these CXL systems, would you expect that's going to be higher margin than the module business? Nate Olmstead: Yes, we do. It's really a solution. It's got software aspects to it, some good differentiation on the hardware as well. So I see that as a nice margin opportunity for us down the road. Operator: At this time, there are no further questions. I will now hand the call over to Kash Shaikh, CEO, for closing remarks. Kash Shaikh: Thank you, operator. We see AI shifting towards inference with demand expanding beyond hyperscaler to enterprise, neocloud and sovereign AI customers. We are still in early shift in this transition, but the combination of our customer demand, product innovation and booking momentum gives us the confidence in the path ahead. We believe we are well positioned at the intersection of AI compute infrastructure and memory, and we are making good progress diversifying our customer base. My focus is on strong execution across product innovation, customer engagement and diversification, disciplined capital allocation and investment in our AI/HPC business to support the long-term growth. We look forward to updating you on our progress. Operator: This concludes today's call. Thank you for attending. You may now disconnect.