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Operator: Good day, ladies and gentlemen, and welcome to AmpliTech Group's Quarterly Investor Update Call, where the company will discuss its FY 2025 Financial Results. Present in this call, we have the executive team of AmpliTech Group, Fawad Maqbool, CEO, CTO and Board Chair; Jorge Flores, COO; and Louisa Sanfratello, CFO. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to AmpliTech's COO, Jorge Flores. Jorge Flores: Thank you, operator, and thank you, everyone, for joining today's call to review the progress of AmpliTech's growth initiatives and to answer investors' questions. Following initial management comments, we will open the call to investors' questions as well. An archived replay of today's call will be posted to the Investor Relationship section of AmpliTech's corporate website. This call is taking place on Thursday, April 9, 2026. Remarks that follow and answers to questions may include statements that the company believes to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include words such as anticipate, believe, expect or words of similar importance. Likewise, statements that describe future plans, objectives or goals are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to be materially different than expected. Such risks include, among others, matters that the company has described in its press releases and in its filings with the Securities and Exchange Commission. Except as described in these filings, the company disclaims any obligation to update forward-looking statements, which are made as of today's date. With that, let me turn the call over to our CEO and CTO, Mr. Fawad Maqbool. Fawad Maqbool: Thank you, operator and Jorge, and thank you, everyone, for joining us today. Fiscal year 2025 was a transformative year for AmpliTech Group. We delivered company record top line growth, expanded our presence in the 5G infrastructure market and continue to build the foundation for long-term growth across both our legacy RF business and our emerging ORAN 5G platform. For the full year 2025, revenue increased to $25.2 million compared to $9.5 million in 2024, representing approximately 165% year-over-year growth. This increase was driven by higher sales of our low noise amplifier and low noise block products, expansion of our 5G product lines, recovery in Asian markets within the Spectrum division and increased demand from telecommunications and satellite communications customers. We're very encouraged by this performance because it reflects growth from multiple parts of the business, while also showing that our strategic investments in 5G are beginning to translate into commercial traction. At the same time, 2025 was also a year of deliberate investment. As we entered the carrier-grade ORAN radio market and ramped early deployments, we experienced near-term margin pressure. Gross profit increased to $6 million from $3.5 million in the prior year, but gross margin declined to 23.9% from 36.7%. That decline reflects our strategic ramp-up of 5G product deployments, initial market penetration efforts and our focus on winning long-term opportunities with larger mobile network operator customers. The company expects these margins to improve over the next few quarters. We view this as an investment phase. Our priority has been to establish market presence, support customer adoption and position the company for larger scale deployments over time. As volume, scale and execution matures, we believe margin performance has the potential to improve. From a technology and strategy standpoint, we've made meaningful progress in 2025. We continued advancing our ORAN compliant radio systems, including our Massive MIMO 64T64R ORAN CAT B platform while integrating proprietary RF and MMIC capabilities that we believe help differentiate our solution set in the market. We also continue to build our commercial pipeline. As previously announced, the company has a nonbinding letter of intent for $78 million in ORAN radio systems, representing a potential multiyear growth opportunity, subject to definitive purchase orders. The company believes this LOI itself will surpass the $100 million mark supported by production forecast that we have received. As of March 2026, we had received approximately $5 million in funded purchase orders, of which we had a small number of initial shipments from December to early this quarter. The bulk of the shipments will resume and culminate during our second quarter this year. Also, as previously announced, we have a second LOI with the North American MNO valued at over $40 million, of which we already have received half of this amount in funded purchase orders. This means these LOIs are real and dynamic. From this amount, we still have to ship about $8 million with shipments resuming in early Q2 of 2026. We believe an increase in this LOI amount is also possible. In addition, during 2025, we continue expanding our MMIC Design Center, advanced our AmpliTech 5G division focused on 5G system deployment and integration. These steps are part of our broader strategy to evolve from a component supplier into a more complete systems provider, serving high-growth and growth markets. Overall, we believe fiscal 2025 marked meaningful progress in scaling the business, expanding our market reach and positioning AmpliTech for the next stage of growth. With that, I'll turn the call over to our CFO, Louisa Sanfratello, to review our financial results in more detail. Louisa Sanfratello: Thank you, Fawad. As Fawad mentioned, fiscal year 2025 reflected substantial growth in revenue along with continued investment in the business. For the year ended December 31, 2025, revenue was $25.2 million, up from $9.5 million in 2024. Gross profit increased to $6 million compared to $3.5 million in the prior year. Gross margin was 23.9% in 2025 compared to 36.7% in 2024. The year-over-year decrease in gross margin was primarily due to the strategic ramp-up of 5G deployments, early-stage customer acquisition efforts and in the initial market penetration costs associated with carrier-grade ORAN radio systems. Selling, general and administrative expenses increased to $10.7 million from $7.9 million in 2024. This increase was driven primarily by the higher headcount and payroll costs, increased professional and compliance expenses and expanded commercial and marketing activities as we supported the growth of the organization. Research and development expense was $2.7 million compared to $3.6 million in 2024. The decline reflects the completion of certain key development initiatives, including work related to our Massive MIMO 64T64R ORAN CAT B Radio System and advanced beam-forming and 5G infrastructure technologies. Net loss for fiscal 2025 was $7 million compared to $11.2 million in 2024. Operating loss improved to $7.3 million compared to $8.4 million in the prior year. This improvement was driven by the strong revenue growth as well as the absence of certain onetime charges recorded in 2024. Turning to the balance sheet. As of December 31, 2025, working capital was $10.2 million. Cash and cash equivalents were $11.6 million, which included subscription proceeds held in escrow. Our accounts receivable was approximately $3.4 million. The company also strengthened its capital position through approximately $8.1 million in net proceeds from a rights offering and an additional $8.3 million in net proceeds from a registered direct offering, of which both were completed in January of 2026. Based on our current operating plan, management believes we have existing liquidity to fund operations for at least the next 12 months. In summary, we are pleased with the top line momentum in the business while remaining disciplined in managing investments to support long-term valuation creation. I'll now turn the call back to Fawad for closing remarks. Fawad Maqbool: Thank you, Louisa. To close, fiscal 2025 was an important year for AmpliTech Group. We generated substantial revenue growth, improved operating performance, continued investing in our 5G platform and strengthened our balance sheet. While we remain in an investment phase, we believe the progress made across our commercial pipeline, technology portfolio and strategic initiatives positions us well for long-term growth. We appreciate the continued support of our shareholders, customers, employees and partners. Before we open the line for callers in the call for questions, I would like to have our COO, Jorge Flores, go over the questions previously received via e-mail. Jorge Flores: Thank you, Fawad. I would like to immediately start with the first question received, which was revenue growth was very strong. What were the main drivers? Our 165% revenue growth in 2025 was driven by a combination of a stronger demand for our core LNA and LNB products, expansion of our 5G product lines, recovering Asian markets within the Spectrum division and increased demand from telecom and satellite communications customers. But out of this, without a doubt, our major revenue growth came from our AmpliTech 5G division and shipment done on our $40 million LOI with a North American MNO. Question number two, why did gross margin decline despite the higher revenue? The margin decline was largely due to the strategic ramp-up of our 5G deployments. If you reflect back on our Q2 2025 results, that's the quarter in which we invested heavily to become a major player in the ORAN markets. We were in the early stages of customer acquisition and market penetration for carrier-grade ORAN radio systems, and that put pressure on our gross margins in the near term, driving our gross margin down into the single digits. Our focus has been on establishing long-term customer relationships and scaling the business. We also provided guidance that our gross margins will recover into double-digit gross margins, which we accomplished over Q3 and Q4 of 2025, going from about 7% gross margins in Q2 of 2025 into the final fiscal year 2025 gross margins of 23.9%. Question number three, how should investors think about the $78 million letter of intent? This letter of intent represents and it is actually more than a multiyear opportunity. While it is not binding and subject to definitive purchase orders, it's the second sizable deployment we have in our hands. So investors must see not just this LOI, but both LOIs as tremendous validations that we have the technology. In addition to this, we also have the supply chain. And on top of that, we are also able to handle the logistics of shipping our radios directly into installer warehouses where these are kitted and sent out to deployment at cell tower sites. As for purchase order amounts and shipment status, what we can share is that as of March 2026, we have already received a little over $5 million in funded purchase orders against this LOI. Initial shipments began in December 2025. To date, we have shipped less than $0.5 million of these orders as we must follow the initial cadence of the end users' installation crews. As they acquire speed in their deployment, we will acquire speed in our shipments. This leaves us with projections to ship the balance of the order, if not during Q2, very early Q3. As such and based on forecast received, we estimate receiving additional orders before the end of the current quarter. Based on the magnitude of the project at hand and the number of sites that need to be deployed, the company believes this LOI will grow north of the $100 million mark over the next 2 years. Question number four, what gives you confidence in liquidity? As of year-end, we had $10.2 million in working capital. Cash and cash equivalents were $11.6 million, and we also added capital through the rights offering and the January 2026 registered direct offerings. Based on our current plan, management believes this is more than sufficient to fund the operations for the next 12 months. Question number five, what are the most important strategic priorities going forward? Our priorities include scaling our 5G and ORAN product opportunities, executing on funded orders, continuing development and commercialization of our Massive MIMO and ORAN solutions, turning to orders additional projects currently being discussed with other major players, also expanding our MMIC and systems capabilities by continuing development on 5G front-end modules. Gross margin improvement is not just a strategic goal, but a critical day-to-day operation goal for us. For any business really, it goes without saying that we fully understand that we must do whatever is within our power to maximize cost efficiency, price competitively, push our supply chains, keep on working using forecast to optimize material order placements and receipts. While we do have our own manufacturing capabilities in the U.S., these are largely related to our AmpliTech Inc. core division. For large volume of ORAN 5G radio manufacturing, we will continue our strategy to use CMs or contract manufacturers, either local or abroad that are specifically in business. These are the CMs are specifically in business to handle the type of production we require. Our strategy does not include hiring hundreds of people to support manufacturing. It is just not cost efficient for our organization. That is why CMs are there. That's why contract manufacturers are there to scale up when we need them to scale up and scale down when delivery time frames require us to do so. Last question is, what you can say about your $40 million LOI with the North American MNO? What is the current level of orders received, orders shipped, balance of funded POs and program visibility? We already received 50%, about 50% of funded purchase orders for this program. We have shipped about $12 million worth of ORAN 5G radios to this MNO, with shipments slated to resume early in Q2 of 2026. Same as with the $78 million LOI, we believe this project will exceed the initial LOI value of $40 million. We are certainly very excited when we hear our end customers speak about future cell tower site deployments and their plans for expansions. This concludes the questions previously received to our e-mail. Operator, please open the line for other questions. Operator: [Operator Instructions] The first question will come from Jack Vander Aarde with Maxim Group. Jack Vander Aarde: Good results and good outlook. It's good to see things are still on track. Fawad, can you maybe just touch on the nature of this agreement, this larger LOI and just the cadence of the orders you're expecting? I believe it's going to be a little bit different than the agreement you had where you've already received most of the LOIs. Is it going to be bigger chunks? Fawad Maqbool: Yes. Yes. So this LOI is basically for overseas, right? It's an Asian customer. And in that one there, there are lots of -- in the countries that these are deployed, the pace is very slow as far as deployment is concerned. So they have a whole crew of people working to do the entire nation. And what happens, they have to get all the legalities and they have to have all these permits and everything in place. So it's a slow process that's initially slowing this down. Our proof-of-concept has been done. We have delivered already radios that have been put into the first deployments, and they're working very well. So what we're working on right now is just basically the logistics of getting the radios deployed and then installed. And that's just taking a little bit of time initially. But as that ramps up, then our shipments will also continue to ramp up later this quarter and towards the end of the year. Jack Vander Aarde: Okay. Great. And then because if I look at last year, like especially the second quarter in 2025, that's when you received the largest amount of orders. It sounds like this year with this other customer, you're expecting something similar maybe between the second quarter and the third quarter. How about other agreements that you -- potential opportunities with other 5G players? Can you just touch on those discussions? Are you -- do you feel like there's an opportunity to announce a new partner in the next 6, 12 months on top of these? Fawad Maqbool: Yes. Definitely, there's a chance of that happening. We have been in discussions for a while. And obviously, the success of our previous deployments is also key. And in these various different areas, there are different bands that we have to adjust the radios for, and we've been doing that. And in those adjustments, those radios, they have to go through a proof-of-concept phase as well. But all of these are part of expanding our traction. So we believe that these will be successful just like these first LOIs, and we may be going into directly the PO phase even before an LOI phase from other leading MNOs that are going to follow suit in this ORAN deployment. Everyone is not as strongly focused into this ORAN but as time progresses, the ORAN deployments will replace the older RAN deployments. And the larger MNOs are very slow to adopt the new structure. It involves a lot of expense for them, but they will eventually have to adopt that because the technology for expanding the capacity and the speeds of various networks in larger dense populated areas as well as rural areas is increasing. The demand is increasing for that. So it's inevitable that this growth will happen, and we are in the right spot. So we do feel that we will have some positive engagements this year. Jack Vander Aarde: Okay. Great. And then just one more for me. You guys kind of touched on the expenses and the gross margin. But the fourth quarter, I think it's just kind of a trend where the fourth quarter operating expenses are higher than any other quarter. Is this just a onetime thing at the end of the year? Maybe for Louisa, if you could help understand, I think it's the SG&A expense line. Louisa Sanfratello: Yes. Those expenses were basically -- we had -- we reviewed employment contracts and so forth with our management. We had accounting expenses that increased because of the rights offering as well as legal and things like that. Jack Vander Aarde: Okay. Got you. And then I guess, going forward, on a normalized basis, I mean, do you expect gross margins and operating expenses to be somewhat more linear and smooth out? Is this a good read-through for the go-forward run rate, maybe north of 40% gross margin? Just help me understand what the kind of normalized cadence is? And that's it for me. Fawad Maqbool: Yes. So it will increase. It's anywhere between 30% and 50% is the number in this telecom business, depending on what type of products we're offering. And obviously, we're offering products that are not me-too products. Our products are always -- they have value added because we're putting our own MMICS in there that other companies cannot do to improve the performance. And we have other enhancements that we're working on to differentiate our product from the rest of the competitors. So right now, in ORAN, we are the leading company deploying the largest ORAN radios out there. And we are making them even better so that if there are competition that comes in, then they would not be able to compete with the performance because of our inherent legacy business that designs our own LNAs and our designs our PAs. Those are all going to wind up going into our radios and all the other components. So we're just talking about radios right now, but there's a whole slew of products that come out of this. We're not doing just the radios. We're also doing the private 5G enhanced CPE devices. There -- if they're like advanced routers, so to speak. But those are special products that are also all kinds of IoT-related products that we're doing that we haven't really called out specifically, but it's an entire industry base that supports this whole radio rollout. Operator: The next question will come from Anthony Bates with [ Despoer Ventures ]. Unknown Analyst: Can you give us any updates on progress in the cryogenic tech area? Anything that you're working on there? Fawad Maqbool: Yes. So we originally were introduced our cryogenic LNAs for the quantum computing applications. We have gone through successful iterations and many different iterations from initial concept based on our customers' feedback. So we're working on a final version, which is basically a very standard module for [ 4 Kelvin ] operation for a quantum computing production environment. What we have done initially was to provide proof-of-concept units customized for every single different, let's say, manufacturer of the quantum computers like Google and IBM and many others. But every one of them has a different type of flavor to their quantum computers, and none of them are going to very large production levels right now. So we have worked on our fourth version, and we are about to deliver the fourth version of the quantum computing LNAs, which are very high performance. And they're more of a standardized product to fit into many different quantum computing platforms. So we haven't introduced that yet, but we are working on that, and that's going to come up. It will become more important when the larger production starts to ramp up for all these quantum computing companies. They're not in high production mode right now. Unknown Analyst: Well, can you guesstimate when you might have an order? Fawad Maqbool: I don't know. I mean everything is just right now, we can't say anything when they would be in order. We have provided all these samples, and it could be later this year, it could be early next quarter. But it's all based on the demand of the companies in building these quantum computers. They're not reaching production. Unknown Analyst: Right, right. Actually, I guess I'm asking is they're not in production yet. Do you have any idea when they may be in production? Fawad Maqbool: I couldn't tell you every single one of them is different. I think that's also being driven by other parts of the industry. It's not just the quantum computing is one example for us. The quantum computer demand comes from the large data, right? So large data is part of the large data is the 5G deployments. Every single MNO has to have a high-speed infrastructure so that all that data can go into a quantum cloud and then the supercomputers will have -- quantum computers will have a lot more data to crunch on, right? So as this builds out, the other industry is going to build up. It's connected. It's all connected in the ecosphere of high-speed connectivity as well as computing because you can't have the metaverse and all these other things, fully automated vehicles, all these things that require high-speed capacity and then crunching all these numbers into a quantum cloud unless everything is in place. Unknown Analyst: And my last question is, can you give us any kind of updates on -- is it the Texoma Semiconductor Tech Hub? Anything coming out of that? Fawad Maqbool: Yes. That's our MMIC Division. And our MMIC Division is basically expanding its product line. They're also building LNBs now, low noise block converters are used in satellite communication technologies. So the LEO satellites will need ground station terminals to communicate with and the LNBs that are in these ground station terminals, rebuild because we have the lowest noise figures in the world. So those are increasing in number every day, every year, actually. And so our LNBs product line is increasing as well. That's why you saw some increase in the revenues from our LNB division. But this is part of our Texoma Division in Texas in Allen, Texas. But they're also ramping up production of our ICs that are going into these radios. So that's growing, and that division will be growing more as our production increases. Unknown Analyst: Okay. And that will be growing this year? Fawad Maqbool: Yes. Operator: The next question will come from Andrew DeAngelis with Venture Visionary Partners. Andrew Deangelis: Just a lot of helpful detail on this call, but just wanted to make an explicit question of it. The $50 million revenue guidance that you have out there for this year, what gives you confidence in your ability to achieve that? Jorge Flores: Right now, it's a combination of 2 factors. One is the current backlog that we already have in funded orders on both of the LOIs. And the second though is that we are actively seeing forecasts provided by the end users directly into us, and that's how we're managing the supply chain as well. So that's a big definitely on why we are projecting that. Andrew Deangelis: That's helpful. And then just relative to the funds that you guys received in the recent rights offering, where will you be utilizing those funds? And can you talk maybe through the cadence of how those funds will be deployed? Fawad Maqbool: So most of those funds are used for our -- the growth of this 5G business, right? So as I mentioned before, we're building new MMICS and new chips to go into these radios, and we're building different types of radios. So most of our expense is going to be working capital for building out the infrastructure for our 5G groups. But as well, we're building the other groups as well. So it's a scaling effect. Every single group, the idea is to drive growth from our 5G division, which will require increased amount of MMICS, custom MMICS and PAs and low noise amplifiers, which will go down to the MMIC group and increase their revenue because they will be supplying the 5G radio requirements. And then the other packaging group, which is Spectrum division, which is in California, that's a stocking and distribution group. They'll be providing the packages for all these MMICS that go into these radios. So each of these divisions are structured such that there's a synergetic synergy and growth. As we scale up the 5G, we will scale all the other divisions as well. But our sales force is increasing as well. So we're putting in key personnel this year to grow the specific telecom business. So we recognize the need for having specific sales force for this particular application because connectivity to these large MNOs is very, very important in growing the business. And we found that these are giants, right, telecom giants, and we're a smaller company, penetrating these giants. But what will help is a good technical force as well as sales force that is connected to all of these companies. So we're going to be focusing on increasing sales personnel as well as technical personnel in these areas. Andrew Deangelis: Very helpful. And I guess this just kind of layers -- this question layers on to what you just mentioned. But I just, again, want to make it explicit. In terms of your execution priorities, the 1 or 2 things that you're focused on here in the first half of the year, what would those be? Fawad Maqbool: Well, I mean, R&D, we're still -- we're basically growing the company, right? So the R&D phase mostly is done. What we're trying to do now is to take our production line and our assembly lines and make them such that we can make repeatable products. So many of our products are standardized now. It took about a year or 2 so that we can actually make our assembly line standardized and have our supply chain standardized as well. And this increases our 5G exposure. So the idea is to build consistent and cost-effective assembly lines and product lines and procure all the materials at good prices so that we can have a higher gross margin as we grow the business. Andrew Deangelis: And you think that inflection point is going to really, I guess, happen here in the first half? Fawad Maqbool: Yes. It's more likely in the second half. It will start in late Q2, but in the second half of the year. Operator: That concludes the question-and-answer session. I will now turn the call back to Fawad Maqbool for closing remarks. Fawad Maqbool: Thank you, operator, and thanks to everyone who joined today's call to hear the progress we've made and the plan we have to further our company's mission of providing the communication systems of tomorrow today. We look forward to updating you further on our first quarter financial results call next month. Until then, please contact us directly should you have any questions or wish to schedule a call with management. Our Investor Relations team can be reached at the contact information listed at the bottom of our press releases. Thank you, and be well. Operator: Today's conference call is now concluded. Thank you. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to OVHcloud H1 Full Year 2026 Results. Today's speakers will be Octave Klaba, Chairman and CEO of OVHcloud; and Stephanie Besnier, CFO. I now hand over to OVH management to begin today's conference. Thank you. Octave Klaba: Good morning, everybody. I'm Octave Klaba, Chairman and CEO of OVHcloud. Thanks to being with us this morning. Let me start with the key highlights of H1 '26. As we announced, we generated EUR 555 million revenue and EBITDA EUR 227 million. That means that we generated around 5.5% like-for-like growth this H1. Our adjusted EBITDA, it's 40.9% and net revenue recurring rate, it's more than 100%. And we had this other -- unlevered free cash flow of EUR 32.3 million. As the key initiatives, so as you know, I started as the CEO 6 months ago, I make my -- a lot of interviews internally, and we already started some strategic initiatives in OVH to start this 5-year strategic plan that we started with '26 to '30. And inside of that, we announced that we will create -- that we actually started to create a vertical in defense market. The goal is really to go after the customers and the needs that we had a lot of feedback in the last quarter, and for this very critical horizon that some customers they ask us. Another strategic initiative, it's really focusing on the sales side on the Starters and Scalers on the acquisition. We can go deeper insight if you have any question about that. And on the corporate, more focusing on the regular fast closing, midsized deals. And again, I have some highlights if you have the questions about that. And we announced also that we create our AI lab, and it started -- it was initiated with this acquisition of Dragon LLM. And it's really to address the growing market that we feel that we -- our customers, they want us to be part that it's agentic AI. And on the operational highlights. So we had a few things that we wanted to share with you. So we had this EBITDA that is quite highest record from the IPO 5 years ago. So we still continue to improve the EBITDA, and it's going up and the goal is really to not to be satisfied with the level that we have today. And there was another key operational highlight. It's about the front-loaded CapEx to secure the -- our free cash flow in this year and the next year. So I think you will have some questions about that. So we will go deeper with your questions. So next page, please. On the -- so let's go deeper in the different range of products. So first one is private cloud. So we generated EUR 169 million that represents about 60.5% of our group revenue, and the growth is about 2.9% from the like-for-like growth on the Q2. And on the H1, it's 3.4%. As the highlight on the bare metal, so you know we started these initiatives in the first H1, first quarter and the second quarter. As the result, we have this 12% more customers acquisition. If we compare H1 '25 and H1 '26, it works better on the acquisition, but we need still to continue and to increase our aggressivity on the market and to win more customers. So what we put in place works, but it's not enough. I want more. And this is where we want to go into H2, in the Q3 and Q4 after more customers on the startup. On the scalers, we have this continued growth, and it works nicely what we have internally. There's still some improvement. But what we have, I'm happy what we have. And on the corporate, yes, we had some churn on some 2 customers on the corporate that didn't impact on the fundamentals of the -- on the growth. So we still have growth on that, but just we lost 2 corporate customers on that. Yes, we announced that we signed a strategic deal, strategic contract with Alchemy that is a blockchain platform. And we have a lot of successful in this blockchain platform that helps us really understand how to grow faster in the scaler go-to-market. On the hosted private cloud, on the Starters and Scalers, we still see that there was a few optimization of our customers. We are working on this new product. And I think in the next weeks, where you will see some announcement that we'll make with Broadcom. In other corporate, it's -- we really ramp up of this mission-critical deals that it's a really interesting market that we didn't have yesterday that based on the 3-AZ, maybe we'll have a chance to talk about that. Next page, please. On the public cloud, on the public cloud, we generated in the Q2, EUR 60 million, that is EUR 119 million in H1. There was 26% of Q2 growth and 14.5% of the growth in Q2. That means on the H1, it's 15.1% of growth. So we have a solid new customer acquisition. As I said, we changed the things, but still, we can make it better. On the scalers, strong upside of the current customers, and we see the opportunities on the additional products on this 3-AZ approach that we have that customers really like, and we see some migrations from the current data centers to this new model of the 3-AZ. On the corporate, we have more traction on the corporate. Still, those small -- the 2, 3 products that is still missed, and it will be delivered in the next quarters that will help definitely to go after this corporate market -- on the corporate market. So we've also have been working a lot, and we will secure more our public cloud on this end-to-end encryption on the confidential computing on the -- all the securities that it's -- that we can deliver on this public cloud in the product. And this is additional value that some customers, they are asking us. On the entry level of the range of the product, the VPS and the SaaS, we have a good proof that what we've done, it works well because we had more than 100% of additional customers that we had in H1 '26 versus H1 '25. That means that we doubled acquisition of number of customers. We started to see that in the revenue, and we'll see how it will evolve in the next quarters. But this is kind of prove that the strategy of the very aggressive prices, more volume, more customers and then having this machine to upsell and going and helping customers to use all our products, it works. Now we need to scale that and to go after more geographies, more customers and to be more aggressive, and this is what we will see in the next quarters. Next page, please. On the Web Cloud, we generated EUR 50 million, that means on the H1, EUR 100 million growth of the Q2, 70.5% and on that 70.5% of our group revenue. And then our growth is 2.4% on the Q2 and 2.5% on the H1. There was still -- yes, I would just go after the topics, and then I would just add additional comments on that. So on the starters, we just didn't really started repricing and to generate new demand, okay? This is exactly what we are doing right now, and it will be delivered in the next 2 months, 1 or 2 months, it's really ongoing. So we want to be really seen as very competitive on the starters market for the Web Cloud, but we have also the opportunity to go after the more higher market of the customers. They are more pro business that they trust us and they order us more products. So we want to go after this 2 segmentations of the products and also working on the web AI. And you will see the next quarters, next months, this transformation of the web cloud to the web AI that we will operate over the next months and quarters to go after this totally new market where AI helps our customers to build a faster, faster delivering website, help them to operate them to having the marketing, to having the additional products, the additional services. And this is what we are doing right now on the web cloud. So you don't see really the results of that in the numbers today because this is what we started last quarter, and there's still a lot of things to do, but you will see by the end of this fiscal year, I hope the first result of this strategy. Next page, please. If we see on the split by countries, France, we have in Q2, a growth of the 4.5%. That means on the H1, 5%. On the Europe, excluding France, we have 2.9% and then on the H1, 2.5%. I have to say that it was a really complex quarter. There was a lot of -- there was something that is really new, but we have seen that last 2, 3 years. And it seems like on this Q2 period of time, we will see in the next years, this customer optimization because it is end of the calendar year for events and the beginning of the next year. And I think this is what we have seen -- we started to see as the -- for the last year, this year and 2 years ago, that we have this kind of the new pattern of the behavior of the customers in December, January, February, where you see optimization of the cost and to having these discussions probably internally on the budget and the event starting as lower as they can, the new year and event then grow over the year until the December. So it's something that it's not confirmed yet. We're still working on the numbers to really understand. But this is also what we see on this Q2 result that we knew that it will be -- it's a tough period. Now we started to know and started to understand why it's a tough period. Still work to do to really understand the behavior of the customers and to confirm that we will have in the future this Q2 pattern on our revenue. So I don't know yet, but it is what we started to see. And then the rest of the world, we had this Q2, 8.7% and then H1, 9.5% still continue to grow on the bare metal and on this public cloud product. So I will let Stephanie to go in the financial results, and I will have talk with you on the outlook. Stephanie Besnier: Thank you very much, Octave. Hello, everyone. This is Stephanie speaking. Thank you for being with us this morning. So let's begin this financial section with our key financial figures for H1. So we delivered a profitable growth with a record adjusted EBITDA margin since our IPO and solid unlevered free cash flow despite having significantly front-loaded our CapEx ahead of H2. We'll come to that point. So we recorded an organic revenue growth of 5.5% and adjusted EBITDA margin of 40.9%. So we are up 90 basis points compared with H1 '25, thanks to our operational efficiency. And CapEx was 42.9% of our revenue, up 6.9 points compared with last year H1 '25, of which 11% were front-loaded for H2. We have decided to make proactive investments to secure our supply chain and mitigate the impact of skyrocketing component costs, which began to materialize in our Q2. Despite this anticipation of our CapEx, you see that we generated a solid unlevered free cash flow of EUR 32.3 million on this H1. So going to the next slide. Regarding our top line, as Octave said at the beginning, we delivered a like-for-like growth of 5.5% during this H1. So this was driven by, first, a private cloud performance, up 3.4% like-for-like, impacted by a 1.2 point headwind from the churn of the 2 corporate clients that we mentioned during our Q1 results. And we have also a softer hosted private cloud dynamics following Broadcom price increases. Second, public cloud continues to lead our growth trajectory, up 15.1% like-for-like, confirming its position as our primary growth engine. And last, Web Cloud, up 2.4% like-for-like. So now let's take a closer look at our P&L on the next slide. So P&L, as you can see, we achieved another strong step-up in profitability with an adjusted EBITDA of EUR 227 million in H1, and it represents a margin of 40.9%, our highest margin since our IPO. So the strong 90 basis points improvement in our EBITDA margin is coming from a positive mix effect on our direct costs, reduced electricity costs as a percentage of revenue compared to H1 at less than 5% of our revenue. And I can tell you that we are hedged in the current context also for the next 18 months. And we have also a strong operating leverage on our fixed cost base. We delivered an EBIT of EUR 35.4 million, representing a margin of 6.4%. On a like-for-like basis, if we exclude the one-off gain from the disposal of a legacy data center in Paris last year, our EBIT margin remained broadly stable. After including a financial result of minus EUR 28.7 million and a tax expense of EUR 0.7 million, we recorded a net profit of EUR 5.9 million for H1, slightly lower than last year. Now let's look at the increase in profitability, how it translated into cash generation. So our strong profitability enabled us to generate a solid unlevered free cash flow of EUR 32.3 million in H1 '26. So our CapEx, if we exclude M&A, amounted to EUR 238 million -- EUR 238.5 million exactly in H1, and it represents 43% of our revenue. Our growth CapEx accounted for 30% of revenue. And again, 11 points of our CapEx were deliberately front-loaded ahead of H2 to secure component availability and contain hyperinflation. Recurring CapEx represented 13% of revenue. So our level of CapEx is compensated by our profitability and change in operating working capital requirements, which was higher than usual and amounted to EUR 54.7 million in H1, and it includes phasing effect due to late orders in February. So all in all, after leases and financial charges, our levered free cash flow stood at minus EUR 14.2 million. So now let me give you a detailed view of our CapEx on the next slide. So our CapEx, again, excluding M&A, represented approximately 43% of revenue in H1. So let me explain the key moving parts. First, on the hardware CapEx, it represented 33% of revenue, EUR 187 million. So it's a step-up compared with EUR 27 million in H1. And as I already mentioned, this was a deliberate decision in face of a global supply crisis on memory and disk components to first secure our component availability and contain cost hyperinflation. Second, our infrastructure and network CapEx came down to 2% of revenue, EUR 11 million, with some phasing effect from H1 to H2. And product and software CapEx remained stable around EUR 37 million, 7% of our revenue, reflecting our continued investment in expanding the product portfolio. Notably with new public cloud services and mission-critical offerings while we control our costs. Other CapEx remained marginal, around 1% of our revenue. So now given the exceptional supply environment, we have adjusted our full year CapEx guidance, which I will walk you through on the next slide. So as I just mentioned, the global component crisis, particularly on memory and disk has led us to adjust our full year '26 CapEx guidance. So I will take you through the bridge on this slide. You'll remember, our initial guidance was 30% to 32% of CapEx as a percentage of our revenue. The exceptional hyperinflation on memory and disk components add approximately 3 percentage points. However, we decided to front-load some of those CapEx, and by doing so, we realized a saving of approximately EUR 10 million in our H1. So we are already partially offsetting the inflation impact through proactive timing, and we are securing our supply. So this brings our new FY CapEx guidance to 33% to 35% of revenue. This adjustment is cyclical and not structural. It reflects the current component inflation environment. We have already passed through price increases to part of our customers effective April 1, and we continue to monitor the situation closely to calibrate further adjustments as needed. On top of this, we are going to build a dedicated stock of approximately EUR 50 million in memory and disk components. Those are standard components, and there are no obsolescence risk, and it will be strictly earmarked for '25 consumption. This exceptional envelope allows us to secure availability. This is very important, and we lock in pricing ahead of further anticipated cost increases. Here again, by purchases in H2 rather than at the beginning of '27, we estimate additional savings of approximately EUR 15 million, 1-5. So in total, EUR 10 million in H1, EUR 15 million coming up in H2. Our front-loading strategy generates EUR 25 million savings that would have been lost had we waited. To finance this EUR 50 million of lock-in stock for '27, we will use a dedicated exceptional financing facility. So our underlying business generates sufficient cash to cover all our FY '26 investments and delivering a positive levered free cash flow in FY '26 that we confirm today. So including exceptional and dedicated financing for those lock-in stock for FY '27 CapEx. Let me now turn to our balance sheet and financial structure. That will be my last slide. So our financial structure remains robust and well positioned for the future. Our net debt stood at EUR 1.125 billion at the end of February '26, and it's broadly stable compared to August '25. Our leverage ratio has continued to decrease 2.6x our EBITDA, in line with our debt policy. The all-in cost of debt remained unchanged year-on-year at 4.4%, demonstrating the quality of our hedging strategy. Available liquidity stands at EUR 236 million, comprising EUR 36 million in cash and our undrawn EUR 200 million multipurpose credit facility. As you can see on the right-hand side of the slide, we have no major debt repayment before FY 2030, giving us significant financial flexibility. Our funding sources are well diversified. We have our EUR 500 million inaugural bond at a fixed rate of 4.75% maturing in FY '31, rated BB- by S&P and Ba3 by Moody's, our EUR 450 million EU taxonomy aligned green loan maturing in FY 2030. So it's a first for a European cloud player. Our EUR 200 million EIB credit facility; and finally, our undrawn multipurpose facility of EUR 200 million. And this credit facility was also converted into a sustainability-linked loan, further reinforcing our commitment to responsible financing. So in summary, we have a strong, well-hedged balance sheet with no near-term refinancing needs, supporting our path to positive free cash flow. And now I will hand over to Octave to discuss our outlook. Octave Klaba: Thank You, Stephanie. So for the FY '26 activity, our guidelines don't change, doesn't change. We anticipate like-for-like revenue growth of 5% to 7%. Adjusted EBITDA margin more than FY '25. CapEx, adjusted CapEx, if we consider really FY '26 activity is 32%, 35%, that is a little bit more, but levered free cash flow -- free cash flow will be positive for this '26 activity. So now we open the floor for your questions, if you have any. Operator: [Operator Instructions] The next question comes from Ines Mao from BNP Paribas. Ines Mao: I just have 2 questions. The first one is on your CapEx breakdown. So I look at the CapEx breakdown by component. I see that hardware was up as a percentage of revenue, which was voluntarily. But if it was only hardware, why was also recurring CapEx higher in H1 year-over-year? And my second question is, can you comment further on potential pass-through price increases to moderate the impact of this price up cycle on CapEx? Is it still on the menu? Or is -- yes, can you give us more color on this? Stephanie Besnier: Yes. Thank you, Ines. So we have a slight increase of our recurring CapEx to 13% of our revenue. This incorporates also the impact of inflation that started to kick in, particularly in our Q2 numbers. And as for the price increase, we have already started to partially pass through the impact of this inflation. We launched the first initiative around increasing our prices April 1. We are doing it tactically. We don't price all our customer bases. We focus particularly on the new configurations, on new customers and also on products where we have less price elasticity. And obviously, I mean, we remain very careful, like we mentioned, and we will continue to monitor the evolution of the prices to be ready to react and to engage into potentially new price increases if needed. Operator: [Operator Instructions] The next question comes from Derric Marcon from Bernstein. Derric Marcon: So the first one is on price increase. Can you quantify the impact that it will have in 20 -- in fiscal year 2026? And what was factored in the unchanged guidance of plus 5%, plus 7%? And if we look to 2027, what would be the impact of this price increase? That's my first question. The second question is about the telephony and connectivity. Do you see the trough coming in the next quarters? Or where do you see the trough for this business because it's still waiting on the performance of Web Cloud in H1? And my third question is on AI. Could you quantify, please, the impact of AI on public cloud growth? Stephanie Besnier: Thank you, Derric, for your questions. So first, on the price increase, I mean, we've just launched them a few days ago. Like I said, I mean, we've done tactical price increase, and this will have a gradual effect. We have some of our customers that are committing. So bear in mind that this will flow through over several quarters. We will also monitor the impact of this price increase. So far, it's too soon to tell you a clear impact. In any case, on that basis, we have no -- we have decided not to change our guidance, and we confirm the 5% to 7% range for this year. And again, for the same reason, I mean, we monitor the impact in our Q3. We'll have a better view probably at the end of Q3 of this impact, and we will work also on the guidance for '27 in the coming months, and we'll get back to you with indications and guidance for '27 at the end of October during our full year communication. Octave Klaba: On the VoIP and access, thanks for this question. So no, we don't see any change for the moment. We started to work on the web pages on the offers just last quarter, and it's still the work we are working on. I hope that the next quarter, it will be done, and we will start seeing the difference in this decrease of the revenue because it's impacting the perception on our growth on the Web Cloud. So it's sad to have this decrease of the revenue while we're doing well on the domain name of the e-mails, et cetera. So I understand your question. Still it's work -- the work will be delivered. I hope it will be May 1 on the -- or June 1, on the new range of the Web Cloud and the new range of the VoIP. And when we will see also what to do exactly, we have different options for the access, for the connectivity. Stephanie Besnier: And your last question, Derric, was on AI contribution. You remember, I mean, we always mentioned and that was true so far that we remain cautious with regard to AI, considering the level of return of investment that we've seen so far. So the contribution remained quite small because we invested tactically to answer also some requests from our customers. It's around 1 point like in the previous quarter. Now I mean you may have seen the announcement last week, we've decided to launch our lab -- our AI labs. We've made a small acquisition for Dragon LLM. And last point is that we -- in the context of this inflation on the standard components, we do see a clear improvement on the GPU return compared to CPU. And now it looks like we could achieve similar return on GPUs and on some of our CPUs. So basically, what I'm saying is that we are seeing an evolution on the market and on the economics, and we are ready to invest in the coming quarter more significantly in AI. Operator: The next question comes from Qihang Zhang from Lazard. Qihang Zhang: It's regarding your leverage -- levered free cash flow guidance is guided to be positive for financial year 2026. Could you please elaborate on this front? Is the EUR 50 million locked-in stock for '27 included in this guidance? And how should we think about the working capital for this year? Stephanie Besnier: Thank you for your questions. So to be very transparent on the levered free cash flow, like we explained, we are going to acquire components ahead of '27 that will be clearly isolated and stopped for '27 for EUR 50 million that will help us secure our supply chain. And also by doing so, it's prudent management because we will generate what we estimate around EUR 50 million of cost savings. So we are going to invest EUR 50 million more exceptional. And in front of it, we are going to set up an exceptional short-term financing of EUR 50 million. So those 2 elements will be included in our levered free cash flow and neutralized. So basically, I would say, adjusted for '26 basis, our levered free cash flow is going to be positive in '26. We don't guide for any specific numbers. It will be, in any case, above 0. And working capital, I mean, we don't guide also specifically. You see that we have some positive impact for this semester because we had some payments that were out of the period, it will also depend on the timing of the reception of the CapEx. So it's a bit too soon to comment on our working capital for the full year. Operator: Thank you for your questions. I hand the conference back to the OVH management for any closing comments. Octave Klaba: Perfect. Thank you very much for your questions. Just to have the key takeaways, highlights. 5.5% growth like-for-like. Adjusted EBITDA that is a record from IPO and the front-loaded CapEx for FY -- so H2 '26 and a lock in the stock for CapEx FY '27. Last strategic initiatives, we have -- we wanted to highlight 3 of them. Defense market, we go after this. Going after the acquisition of the small customers, digital customers, having more pressure of that and going after this more regular midsized deals and also launching our AI labs with the acquisition of Dragon LLM. In FY '26 guidance, 5% to 7% of growth like-for-like, adjusted EBITDA more than FY 2025, adjusted CapEx 33%, 35% of the revenue and positive levered free cash flow. I want to thank you for all your questions at the time and having a very good day. Stephanie Besnier: Thank you very much. Octave Klaba: Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware First Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on April 9, 2026. [Foreign Language]. Richard Lord: Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the first quarter ended February 28, 2026. With me is Antoine Auclair, CFO and COO. As usual, note that some of today's remarks include forward-looking information, which is provided with the usual disclaimer as reported in our financial filings. During the quarter, we maintained our growth momentum with good results. After a strong year of acquisition in 2025, we completed our first acquisition of 2026 in December, adding 2 distribution centers of McKillican American in Oregon and Washington state as previously announced. Additionally, we signed 2 letters of intent for new acquisition in Canada. Quarterly sales increased by 5% to $463.6 million. Excluding the impact of the Canadian dollar appreciation against the U.S. dollar, the increase in sales would have been 7%. This growth reflects both the solid contribution of our manufacturers market in Canada and in the U.S., where sales rose 6% to $408.2 million and the contribution from acquisition, which accounted for 3% of total sales growth. Our strategies of innovation, acquisition, distinctive service and market segment diversification have successfully offset certain sector slowdowns. In fact, the hardware retailers market -- sorry, let me -- in fact, the hardware retailers and renovation superstores market -- sorry, my iPad had a problem, declined by 1.9% compared to the same quarter of 2025. Sales totaled $55.4 million reflecting a slowdown in Canada, where sales decreased by 6%, while in the U.S., they rose by 21% in U.S. dollar. Our EBITDA increased by 1.9%, but would have been up 5.6% if we exclude the FX impact with also an EBITDA margin slightly higher than last year. Net income rose 4% to $0.26 per share. I am pleased and proud to note that during the quarter, Richelieu has awarded -- was awarded 2 prestigious top prizes at the Best of KBIS 2026 Trade Show in Orlando, Florida. An annual industry-wide global event that recognizes the most innovative kitchen and bathroom solutions. These awards demonstrate our commitment to always being first to bring innovative products to market, thereby helping to drive the market forward. Our decorative hardware collection Atipica received silver in the Style Statement category. This exclusive collection created in collaboration with our long-term Italian partner redefines modern sleek design. In addition, we earned gold in the Wellness Trailblazer category for VERTI 440 motorized system for cabinets and closet. This unique innovative system is designed to enhance mobility, safety and autonomous living in any environment. Antoine will now review the financial highlights of the first quarter. Antoine Auclair: Thanks, Richard. First quarter sales reached $463.6 million, up 5%, driven by 2% internal growth and 3% contribution from acquisitions. Sales to manufacturers stood at $408 million, up 6%, including 3.1% from internal growth and 2.9% from acquisitions. In the hardware, retailers and renovation superstores market, sales totaled $55.4 million, down 1.9%. In Canada, sales amounted to $249.8 million, up 3.4%. Our sales to manufacturers reached $206.3 million and hardware retailers and renovation superstores market, sales stood at $43.5 million, down 6%. In the U.S., sales grew to $155.6 million, up 11.3% and reflecting 6.4% in total growth and 4.9% from acquisitions. In Canadian dollar, sales in the U.S. reached $214 million, an increase of 6.8%, representing 46% of the total sales. First quarter EBITDA reached $43.2 million, up $0.8 million or 1.9% despite a negative foreign exchange impact of $1.6 million due to currency fluctuations. The EBITDA margin stood at 9.3% compared to 9.6% last year. First quarter net earnings attributable to shareholders totaled $14.4 million, an increase of 3.6% from the first quarter of 2025. Diluted net earnings per share was $0.26 compared to $0.25 last year, an increase of 4%. First quarter cash flow from operating activities before net change in noncash working capital balances was $37.9 million or $0.69 per diluted shares. The net change in noncash working capital used cash flow of $21 million, mainly reflecting the increase in inventories, which is a normal seasonal fluctuation for this period of the year. As a result, operating activities provided a cash inflow of $17.1 million compared to a cash inflow of $3.7 million in the first quarter of 2025. We paid dividends of $8.6 million to shareholders, and we invested $13.2 million, including $10 million for 1 business acquisition and $3.2 million in CapEx. At the end of the quarter, financial situation was healthy and solid with working capital of $625.7 million and almost no debt. I now turn it over to Richard. Richard Lord: Thank you, Antoine. In conclusion, we are integrating our recent acquisitions efficiently while continuing to actively pursue opportunities. The highly fragmented market in which we operate, particularly in the U.S., still offer many acquisition opportunities, and we are well positioned to capitalize on those that meet our disciplined acquisition criteria. We believe we are well positioned with a strong offering and deep expertise to meet the evolving needs of the specialized market we serve. We are confident that we will continue to strengthen our foundation by creating and seizing opportunity for long-term value creation. Thanks, everyone. We'll now be happy to answer your questions. Operator: [Operator Instructions] First, we will hear from Hamir Patel at CIBC Capital Markets. Hamir Patel: Richard, are you able to comment on how sales have fared in Q2 so far for both the manufacturers and retailers? Richard Lord: The market is still very good. Just to give you some -- an idea of the market in Canada, as we -- the last quarter was a total increase for the industrial customers by 4%, but the Eastern Canada sales were up by 12%, and this is continuing in the current month as well. So Eastern Canada, we see a regain in the construction industry for multiple buildings that are being built. So basically, it's positive. The only market in Canada that is going not very well is the Ontario market, was down by 4% in the Ontario market. While Western Canada is up by 3% and in the U.S., as we have already mentioned the growth in the U.S. So basically, it's doing well in the circumstances, even though we have the retailers market, which is very -- which is flat. It's -- if we -- constant communication with the retailers in Canada, and they all have a negative POS sales. So basically, we -- I think this market is going to come back... Hamir Patel: Okay. Great. And just looking at Q1 organic growth was 2%. What was the price and volume sort of composition that got you to 2%? Antoine Auclair: I mean, just to complete also the -- your previous question. The month of March is pretty aligned with what you've seen in the first [indiscernible]. We're still seeing growth in March in the beginning of April as well. And regarding the price increase versus the volume. It's pretty much -- the increase you're seeing in the U.S. is pretty much price increase driven. In Canada, it's a 50-50 price increase in volume. Hamir Patel: Great. That's helpful. And just the last question I have before I jump back in the queue. EBITDA margins 9.3% in the quarter. What are you expecting for full year 2026? And how do you think about where longer-term margins might stabilize? Antoine Auclair: First of all, you understand that the first quarter is always the softer quarter of the year. So you'll see the EBITDA increase in the next 3 periods for sure. The EBITDA margin should be similar or slightly higher than last year if you look at Q2, Q3 and Q4. So we've delivered 10.9% last year. We should be slightly over that as we already communicated to you guys. What we're looking for is for EBITDA between 12% and 13%. So that's -- at the end of the day, that's what we are heading for. But for 2026, it should be around the 11% mark. One thing, Hamir, that you guys need to understand is that, yes, the foreign exchange had an impact in Q1, but the tariffs also are impacting the EBITDA margin in percentage. So we've always said that we would pass the tariff dollar, so no impact on the EBITDA dollar, but has an impact on the EBITDA margin. Hamir Patel: Antoine, do you have a sense as to maybe how many basis points that's represented? Antoine Auclair: 0.2. Operator: Next question will be from Zachary Evershed at National Bank. Zachary Evershed: Last quarter, you were hopeful for a continuation of the year-over-year margin expansion in Q1. We heard about the FX impact, which is about 30 to 40 basis points and the tariff pass-through impact, which is about 20 basis points. Anything else happened in the quarter that pushed down on the year-over-year comparison versus Q1 last year? Antoine Auclair: If you exclude, Zach, the FX impact, you would be slightly higher than last year, and the tariff impact also has -- is impacting negatively the margin percentage. So if you exclude that, we would be higher than last year. Zachary Evershed: Got you. And the pressure on retailers in Canada this quarter, you mentioned negative POS data, but last quarter, we had a large nonrecurring sort of seasonal order. Anything notable this quarter? Richard Lord: So the business is still flat as we speak, but we hope that the months to come -- I think the construction is going to improve because many of the retailers sell to contractor as well. So -- and basically, the consumer will have to spend one day or the other. The past due business is going to -- that's a project that the consumers will do soon as well for which we have many products. So basically, we hope that the market should not be that bad with the hardware retailers. Zachary Evershed: And given the resurgence in mortgage rates in the U.S., are you seeing any changes in the willingness to transact from sellers in your M&A pipeline? Maybe they're throwing in the towel? Antoine Auclair: No, the M&A pipeline is healthy in the U.S. as well. So we've signed 2 letters of intent in Canada. We have other opportunities that we're hoping to close soon, but it's very healthy as we speak. Richard Lord: And coming back, Zach, to [indiscernible] letter as well. I think we already told you that we're going to gain some business we closed in the U.S. that will represent something between something like $10 million per year. And that project should start in the third and the fourth quarter of this year. Zachary Evershed: And despite the turmoil we're seeing in global markets, no change to your expectations for roughly plus or minus $100 million in added revenue through M&A? Richard Lord: Yes, sir. No problem at all. That will be -- that should be reached. Operator: [Operator Instructions] And at this time, Mr. Lord, it appears we have no other questions. Please proceed. Richard Lord: Thank you very much, all of you. So we're always happy to answer your questions if you call us. Bye-bye. Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Operator: Good morning. My name is Elliot, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Roots Fourth Quarter Earnings Conference Call for Fiscal 2025. [Operator Instructions]. On the call today, we have Meghan Roach, President and Chief Executive Officer; and Leon Wu, Chief Financial Officer. Before the conference call begins, the company would like to remind listeners that the call, including the Q&A portion, may include forward-looking statements concerning its current and future plans, expectations and intentions, results, level of activities, performance, goals or achievements or any other future events or developments. This information is based on management's reasonable assumptions and beliefs in light of information currently available to Roots, and listeners are cautioned not to place undue reliance on such information. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company refers listeners to its fourth quarter management's discussion and analysis dated April 8, 2026, and/or its annual information form for a summary of the significant assumptions, underlying forward-looking statements and certain risks and factors that could affect the company's future performance and ability to deliver on these statements. Roots undertakes no obligation to update or revise any forward-looking statements made on this call. The fourth quarter earnings release, the related financial statements and the management's discussion and analysis are available on SEDAR as well as on Roots Investor Relations website at www.investors.roots.com. A supplementary presentation for the Q4 2025 conference call is also available on the Roots Investor Relations site. Finally, please note that all figures discussed on this conference call are in Canadian dollars, unless otherwise stated. Thank you. You may begin your conference. Meghan Roach: Thank you, operator. Good morning, everyone, and thank you for joining our Q4 2025 earnings call. On the call today, I will briefly review our fourth quarter and full year financial results, which our CFO, Leon Wu, will cover in more detail, and then discuss our operational highlights. Our strong momentum carried through the fourth quarter, our largest quarter of the year. Total Q4 sales reached $115.5 million, up 4.2% year-over-year, driven by direct-to-consumer comparable sales growth of 7.3% or 14.8% on a 2-year stack basis. This growth was supported by strong customer reception to our core and seasonal product offerings, marketing initiatives that drove direct-to-consumer traffic, and operational improvements in store conversion. For the full year, we delivered revenue of $277.7 million, up 5.6%, with direct-to-consumer comparable sales growth of 9.5%. Full year gross margin reached a record 61.3%, up 150 basis points. Adjusted EBITDA increased 9.5% to $23.3 million. Net income was $4.7 million or $0.12 per share compared to a net loss of $33.4 million in fiscal 2024, and net debt was reduced 42% year-over-year to $4.3 million. Overall, fiscal 2025 was a year of strong growth and continued momentum. And these results reflect the effectiveness of our strategy and the discipline of our execution. I will now turn to the fourth quarter operational highlights that drove our positive year-over-year performance. The consumer environment continued to be dynamic throughout the fourth quarter. Against this backdrop, Roots delivered strong holiday results with our product offering resonating well with customers. These results underscore the differentiated position of the Roots brand and the value customers place in our heritage, quality and comfort. Our merchandising strategy continued to gain momentum in the fourth quarter. Growth was led by our Cloud Fleece collection, which more than doubled year-over-year and has become a meaningful component of our Sweats business. Our Activewear category also delivered double-digit growth, continuing to become a more significant part of our product mix. Our Wicked collaboration with Universal Studios, which launched in November, generated significant brand feeds and a very positive customer response. Sales productivity continues to improve, reflecting tighter assortment, more disciplined buys and our ongoing investments in AI-driven allocation tools. We also continue to drive margin improvements through sourcing, which remain a meaningful opportunity as we scale the business. As we look to fiscal 2026, we see upside opportunities increasing the depth of certain collections where customer demand outpaced supply in the fourth quarter. Our marketing efforts in the fourth quarter were focused on driving brand awareness and customer engagement during our most important selling season. The quarter was highlighted by the launch of our Anything Roots holiday campaign featuring Seth Rogen. The campaign ran across out-of-home placements, social media, Spotify and streaming platforms, including Netflix and Prime Video. Seth Rogen's warmth, authenticity and unmistakable Canadian charm aligns strongly with the brand and acted as a great addition to our diverse marketing during the holiday season. We also continue to build on Roots' heritage and sports partnerships during the quarter. Our collaboration with the NFL on a limited-edition capsule collection, celebrating the 60th anniversary of the Super Bowl, brought together football heritage with classic Canadian design and was well received. We also launched our Roots x Blue Jays collection, connecting the brand with one of the most exciting seasons in the franchise history. During the quarter, we expanded investments in paid media across the full marketing funnel. These efforts, combined with the learnings from our testing throughout fiscal 2025, are informing a more disciplined and data-driven approach to creative testing and media spend as we enter fiscal 2026. We are closely monitoring the impact of Agentic AI on customer product discovery and continuing to adapt to this evolving landscape. We see both opportunity and complexity and how consumers are beginning to interact with brands through AI-powered platforms, and we are positioning Roots to benefit from these shifts. Our brand ambassador program played a more significant role in our fourth quarter performance than in previous years, enabling us to reach more consumers across multiple geographies with varied interest. Consumers also responded positively to our curated offers on core franchises and gifting categories, and the witty, light, holiday approach helped reinforce Roots as a destination for thoughtful gift giving. Now turning to our retail and e-commerce performance. Our omnichannel performance in the fourth quarter reflects strong contributions from both channels. The 7.3% increase in comparable sales in the quarter, which is 14.8% on a 2-year stack basis, reflects the positive impact of this strategy on performance. In our retail channel, store conversion improved year-over-year, reflecting the continued benefits of our investments in visual merchandising, sales associate training and store hour optimization. Our store productivity improvements continue to drive an increase in sales per square foot across the network. In e-commerce, our paid media efforts drove substantial traffic to the channel. We continue to invest in personalization in search and product merchandising and made improvements in the shoppability of our landing pages and overall customer experience. These initiatives will carry forward and build upon each other as we enter fiscal 2026. During the quarter, we continued to advance key operational initiatives that will position the business for long-term scalability and efficiency. In January 2026, we announced a new 10-year strategic distribution partnership with Metro Supply Chain, Canada's leading privately owned third-party logistics provider. This partnership will result in Roots' distribution moving from our current company-operated facility to Metro Supply Chain's technology-enabled facility in Ontario. This is a significant step in strengthening our supply chain infrastructure and enhancing our omnichannel capabilities. The transition is expected to be completed by July 2026, and we are pleased with the progress to date. As mentioned, we continue to advance our use of artificial intelligence across the business. On the operational side, our AI-driven inventory allocation and replenishment tools are contributing to improved sales productivity and more disciplined inventory management. We are also investing in our data infrastructure to unlock deeper customer insights and support more informed decision-making across the organization. More broadly, as AI-powered platforms increasingly mediate the shopping journey, we believe it is important for Roots to be well positioned in this emerging landscape. We are actively working to ensure our product data, content and digital infrastructure are optimized for AI discovery, and we believe brands with strong heritage and authentic differentiation like Roots are well positioned to benefit from this shift. Turning now to some leadership changes. I'm pleased to highlight the announcement of Rosie Pouzar as Chief Commercial Officer, which we announced in February 2026. Rosie joined Roots following a successful tenure at Sephora Canada, where she held senior leadership roles, including Senior Vice President, Retail, and Chief Operating Officer. She's been with Roots for the last year as our Head of Omnichannel Growth. In her role at Roots, Rosie will help sharpen our enterprise priorities and accelerate decision-making to unlock new areas of growth. She has already made meaningful contributions in her time with us, and I'm confident she will be instrumental in advancing our strategy. Now before passing the call over to Leon, I would like to briefly address the strategic review that the Board of Directors announced on March 3, 2026. As I look at the transformation that has occurred at the company since fiscal 2019, I'm incredibly proud of the team's accomplishments. Our balance sheet reflects a fundamentally different company. In fiscal 2019, the company carried approximately $96 million in net debt. Today, net debt stands at $4.3 million, with a leverage ratio of less than 0.2x trailing 12-month adjusted EBITDA. Our gross margin trajectory reflects the successful repositioning of Roots as a premium brand. In fiscal 2019, gross margin was 53.4% and over 60% of our customers purchased something on sale. In fiscal 2025, we achieved a record gross margin of 61.3% and over 70% of our customers purchased at full price. We've also delivered meaningful returns to shareholders. In fiscal 2019, adjusted net income per share was $0.10. In fiscal 2025, adjusted net income per share was $0.22, more than double. Undoubtedly, Roots' strong fundamentals and replicable heritage makes it an attractive brand. As we disclosed at the time, the Board initiated a review of strategic alternatives to identify opportunities to maximize value for all shareholders. As stated in the announcement, the company does not intend to disclose developments with respect to the strategic review unless and until the Board has approved a specific transaction or otherwise determines that disclosure is appropriate or required by law. There can be no assurances that the review will result in any specific action, transaction or agreement, and we will not be providing further commentary or taking questions on this matter today. The management team remains dedicated to executing on our strategic priorities and to operating the business in the best interest of all stakeholders. Now moving to our strategic outlook. As our results highlighted, our strategy remains consistent and focused. We are strengthening our core franchises, expanding into complementary categories and increasing the clarity and differentiation within our assortment. We are elevating the brand through collaboration, heritage storytelling and more targeted marketing. We are enhancing our omnichannel experience with a focus on convenience, speed and personalization. We are driving operational excellence across the business, including through our new distribution partnership with Metro Supply Chain and the appointment of a Chief Commercial Officer. And we are taking a disciplined approach to capital allocation as evidenced by our net debt reduction, share repurchase activity under our normal course issuer bid and prudent investment decisions. As we look to 2026, we are mindful of the evolving macro and trade environment. We are monitoring these developments closely and are focused on mitigating their impact while continuing to invest in the long-term growth of the brand. Before turning the call over to Leon, I would like to thank our employees for their dedication and hard work to fiscal 2025. Their contributions have been instrumental in the progress we have made. I'd also like to thank our customers for their continued loyalty to the brand. Roots is a brand with deep heritage, a commitment to quality and a genuine connection to community and nature that continues to set us apart. With that, I will now turn the call over to our Chief Financial Officer, Leon Wu, for a deeper review of our financial results. Leon Wu: Thank you, Meghan, and good morning, everyone. I am pleased to share our fourth quarter and full year fiscal 2025 results, which marked the sixth consecutive quarter of growth in top line sales and gross margins, while we continue to reduce our year-over-year net debt. These results reflect the strength of our brand and the collective efforts of our product, channel and marketing teams, who continue to execute with discipline and consistency. Fiscal 2025 was a milestone year for Roots. We delivered record gross margins, robust free cash flow and meaningful earnings improvement, all while continuing to invest in the long-term growth of the brand. I will now share some more details on the key elements of our results, beginning with our fourth quarter before summarizing our full year performance. Q4 2025 sales were $115.5 million, increasing 4.2% as compared to $110.8 million in Q4 2024. Our DTC segment sales were $107 million in the quarter, growing 5.7% relative to $101.2 million last year. Our comparable same-store sales grew 7.3% in the quarter and 14.8% on a 2-year stack basis, with positive momentum across both our store and e-commerce channels. The strong DTC sales performance during our largest quarter reflects a strong consumer reception to our core and seasonal product offerings, supported by marketing initiatives that drove traffic growth and operational initiatives that improved our store conversion. As Meghan mentioned, the combination of compelling product curation and authentic brand storytelling continue to resonate with our customers. Our Partners and Other sales were $8.5 million in Q4 2025, down 11.5% compared to $9.6 million last year. The decline in this segment was primarily driven by lower wholesale sales to our international operating partner in Taiwan which, consistent with what we flagged last quarter, was a result of earlier fulfillment of holiday and spring orders that took place in Q3 of this year. This decline was partially offset by continued positive momentum across our other lines of business within the segment. On a full year basis, total sales were $277.7 million in fiscal 2025, an increase of 5.6% compared to $262.9 million in fiscal 2024. DTC sales were $239.5 million, a 7.3% increase from $223.3 million last year, with full year comparable sales growth of 9.5% or 12.8% on a 2-year stack basis. Partners and Other sales amounted to $38.2 million, down 3.7%, driven entirely by the reduction in wholesale orders from our Taiwan operating partner, as we continue to support our partner in addressing their inventory optimization and operational opportunities. Excluding those sales, our Partners and Other segment would have grown 23% year-over-year, reflecting the strength in our Other line of business. Total gross profit was $71.4 million in Q4 2025, up 5.1% as compared to $68 million last year. Total gross margin was 61.8%, up 50 basis points compared to last year. Our Q4 2025 DTC gross margin was 62.5%, up 10 basis points from 62.4% last year. The DTC gross margin increase was driven by 30 basis points of product margin expansion from ongoing product cost improvements, partially offset by various factors, including unfavorable foreign exchange impacts on U.S. dollar inventory purchases and distribution center transition costs. For the full year, gross profit reached $170.2 million, up 8.3% from $157.1 million in fiscal 2024. Roots achieved a record high gross margin of 61.3% in fiscal 2025, up 150 basis points compared to 59.8% last year, a result we are very proud of and that reflects a sustained multiyear effort to improve our product economics through disciplined costing and promotional management. Full year DTC gross margin was 63.4%, up 80 basis points from 62.6% in fiscal 2024. SG&A expenses were $49.3 million in Q4 2025, up 9.1% from $45.2 million in Q4 2024. The increase was primarily driven by $2.8 million in incremental marketing costs, reflecting the elevated Q4 marketing investments we signaled last quarter and $0.8 million in higher variable selling costs resulting from our strong sales performance. SG&A also reflects $1.1 million in incremental U.S. duties paid on e-commerce sales following the elimination of the duty-free de minimis exemption, $600,000 of higher costs associated with changes in personnel and $154,000 of higher noncash share-based compensation costs. These increases were partially offset by a $1.6 million reduction in store-related occupancy, capital depreciation and impairment costs, reflecting the ongoing improvements in store productivity from our fleet optimization strategy. Full year SG&A expenses were $155.5 million, up 8.3% from $143.5 million in fiscal 2024. The increase was primarily driven by our intentional incremental investments in marketing and personnel and higher variable costs from increased sales, partially offset by lower store costs related to improved productivity. In 2025, we executed on a wide range of exciting brand marketing moments that contributed towards sustained momentum throughout the year. As Meghan mentioned, we are constantly reflecting on the results of each initiative and we will leverage the learnings from the past year to refine our go-forward marketing strategy with the goal of maintaining momentum while focusing on the most effective and efficient initiatives. In Q4 2025, net income totaled $14.7 million or $0.37 per share. This compares to a net loss of $21.7 million or $0.54 per share in Q4 2024, which was impacted by a noncash impairment charge on intangible assets. Excluding that impairment, Q4 2024 net income would have been $15 million or $0.37 per share. Adjusted EBITDA was $25.1 million in Q4 2025 as compared to $25.3 million in Q4 2024. Excluding the impacts from the revaluation of cash settled instruments under our share-based compensation plan, Q4 2025 adjusted EBITDA would have been $24.9 million as compared to $25.7 million in Q4 2024. On a full year basis, net income totaled $4.7 million or $0.12 per share as compared to a net loss of $33.4 million or $0.83 per share in fiscal 2024. Excluding the noncash impairment charge and associated tax impacts recorded last year, fiscal 2024 net income would have been $3.3 million or $0.08 per share. On that basis, full year net income improved 41.1% and net income per share improved 50% year-over-year. Full year adjusted EBITDA was $23.3 million, up 9.5% from $21.3 million in fiscal 2024. Excluding the impacts from cash settled instruments under our share-based compensation plan, fiscal 2025 adjusted EBITDA would have been $24.1 million, an increase of 12.6% compared to $21.4 million in fiscal 2024. We are pleased with the continued year-over-year growth in our annual profitability metrics. The strong foundation set by consistent sales momentum and record gross margins allowed us to scale our full year net income and adjusted EBITDA margins while investing in incremental marketing to build long-term brand equity. The growth in our earnings per share metrics also reflects the benefits of share buybacks made under our NCIB as part of our capital allocation strategy. Now turning over to our balance sheet and cash flow metrics, which also reflect the strong results from the quarter and full year. Ending inventory was $45.1 million, up 9.9% as compared to $41 million at the end of last year. Of the increase, $0.7 million was driven by the higher foreign exchange paid on our purchases. The remaining increase was driven by investments in certain core collections and higher in-transit inventory to support DTC sales for the upcoming year, along with an increase in inventory to support our growing North American B2B wholesale business. Free cash flow was $40.8 million in Q4 2025, an increase of 3.5% as compared to $39.4 million in Q4 2024. The improvement in free cash flow was driven by higher sales and improvements in working capital during the quarter. For the full year, free cash flow was $7.5 million compared to $9.8 million last year, reflecting $3.1 million of higher corporate income taxes paid and $1.1 million in higher capital investments made throughout the year, partially offset by higher earnings and improvements in working capital. Under our normal course issuer bid, we repurchased just over 264,000 common shares for $0.9 million in Q4 2025. For the full year, we repurchased just over 1.28 million common shares for a total consideration of $4 million. The NCIB allows us to repurchase 1.3 million shares. And as of the end of fiscal 2025, we have approximately 60,000 shares remaining under the current program, which is in effect until April 10, 2026. Net debt was $4.3 million at the end of fiscal 2025, down 42.2% as compared to the end of last year, representing a continued improvement in our balance sheet. Our net leverage ratio measured as net debt over trailing 12-month adjusted EBITDA was less than 0.2x. We have $33.5 million outstanding under our credit facilities and total liquidity of $73.6 million, which includes $28.6 million of cash and $45 million of available borrowing capacity. With that, operator, you may now open the call for questions. Operator: [Operator Instructions] Our first question comes from Brian Morrison with TD Cowen. Brian Morrison: Meghan, maybe -- there's certainly been a lot of macro events in the past 6 weeks at a minimum that's weighing upon consumer sentiment. Can you just provide some color on what you're seeing in terms of same-store sales Q1 to date? And maybe also with respect to what you're seeing for freight costs and lead times, are you having any impact on that front? Meghan Roach: I'll say, definitely we're operating in a dynamic environment, Brian. I think we won't comment specifically on Q1 trends at this point as we're just trying to focus on Q4 on the call. But I'd say, it continues to be a dynamic environment. I think it's no different than really what we've seen over the last 3 years. It seems like every year there's something new that happens. And our focus as a company really has been to continue to maintain the good focus on product, on customers, and serving the customers the best way we possibly can. Undoubtedly, if you look at longer-term freight costs, there could be some pass-through from that perspective if oil prices continue to be high as they are today. We've obviously seen that in the past through different time periods and been able to manage through that. So at this point, we're really just focused on managing the business and the controllables that we have ourselves and really thinking about making sure we have the right product in front of the customers in the right places and really investing behind those things that we think are going to drive long-term growth. Brian Morrison: Okay. Maybe just turning to your marketing investment. It sounds like things are going well, both top and bottom funnel. What can we expect or what are the key takeaways you saw in terms of what's working, what didn't work in terms of partnerships, collaborations or digital investment? And when I think of fiscal '26, should I think of a similar magnitude driving leverage or maintained as a percentage of sales? Meghan Roach: Yes. So from a marketing perspective, I think you can definitely look at '25 as a year where we invested across a number of different parts of the funnel from a marketing perspective to really get a better sense of, with a brand like Roots, where we have almost 100% awareness across the Canadian marketplace, the things that we think are going to have the best return on our investment. So you saw us doing everything from the Seth Rogen campaign to increasing influencer spending, to paid media. And what we've now done into '26 is really looked at all those different aspects of marketing spending and determined where we're getting a great return on our investment, what we need to do to maintain good brand engagement and awareness from a customer perspective, and where we can drive more efficiency. So as you look to '26, we will be targeting a reduction in the overall marketing spend, because we think there's more efficiency in terms of how we can dedicate our dollars, and investment in certain areas where we think putting more dollars behind it will generate a better return on that investment and help overall sales. So I'd say looking at '26, you'll continue to see us moving around the marketing spend into those pockets and areas that we think have the best return for us and continuing to balance off the spending between near-term sales and longer-term brand development from a business perspective. Brian Morrison: Okay. That's helpful. The last question maybe. I think in retail, we're all interested in AI right now and its progress. You talked about inventory management and data-driven decisions. Maybe just the benefits you're seeing from your implementation, how material the costs are to implement and the opportunity to expand further. Meghan Roach: Yes. I mean I think when I look at it from a retail perspective -- sorry, maybe I'll add something, Leon, and then you can jump in on the broader pieces. From a high-level perspective, I think your last question in terms of where we see the potential benefits and the road map, I would say, we really do see a lot of opportunity from an AI perspective. We're applying it across the company in a multitude of different areas, and Leon can jump into some things more specifically as it relates to that. But I think when you look at a business like ours, we think that we have opportunities to jump-step the productivity. We have an opportunity to kind of really get in front of the customers in different ways from an AI perspective. And so we're really actively looking across the business to invest behind those things that we think are going to drive the best return, whether that's on inventory management, whether that's in the e-commerce environment from a search perspective or e-mail, whether that's customer service, there's a multitude of different places that we're investing our time. But holistically, we're really focusing on where do we see value add and then thinking about whether or not we can add AI to that as opposed to just looking for AI tools to address the multitude of things. Leon, did you want to add a few things? Leon Wu: Yes. And I think similar to what Meghan is saying, we've come a long way in terms of AI implementation and how it's really benefiting the operations of the business, not just the efficiency, but also the efficacy of how we're operating. So Meghan talked about early stages of how we manage our inventory allocation. So during the Q4 period, we saw great results from an improved stockout rate. We have things like how we automate our customer service responses, which is helping us reduce some of the call center costs. So there's various areas that we look at and we continue to see further opportunities coming ahead. And one of the areas we really invested in is building a very solid data platform that supports all of these AI initiatives. So building out a data warehouse, better identification of customers. So I think we're very well set up to really leverage a lot of the new technologies coming out going forward. Brian Morrison: Okay. Maybe one last one I'll squeeze in here, too. Just Meghan, you did mention that you will go into more depth in certain product lines for 2026. You had some, not least, stockouts, but what product lines? Is this Cloud? Is this Roam? What can we expect in terms of more in depth for next year? Meghan Roach: Yes, absolutely. So we did actually have a few stockouts in a couple of categories in the fourth quarter. So when you look at that, we do see some more upside potential in terms of sales that we could have generated if we had more inventory. It actually crossed a multitude of categories. So with everything from some of our lifestyle products to some of the products within our Cloud collection, certain silhouettes and styles. So there was a few different pockets of areas that we saw it. I would say, in addition to that, outside of things that were actually maybe stocked out, which is not a ton of things, but a few things, there was items where we've realized that the demand associated with them could have a longer life cycle in the business. So we may invest behind something and assume it maybe lives only from a July to October time period. And what we're seeing is it maybe could live from a July to April time period. And so we've been doing a lot of testing around that in the first quarter and then into the fourth quarter, where we extended the life of certain things or we brought in new collections that we would have otherwise only had for certain fall time periods to get a better understanding of the consumers' reaction to these types of product categories. So I would say it's across the most 2 things, outerwear, lifestyle, sweats. There's a number of places we see an opportunity for us to put more depth behind it and extend the life cycle of these products to be able to get more sales from our consumers. Operator: [Operator Instructions] We have no further questions. I'll hand back to you, Meghan Roach, for any final remarks. Meghan Roach: Well, thank you, everyone, for joining us today. We appreciate you coming to listen to our Q4 call. We look forward to speaking to you in the first quarter. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Alex Ng: Good afternoon, and welcome to Stolt-Nielsen's earnings call for the first quarter of 2026. As always, the earnings release and related materials are available on our website. We will also be recording this session and playback will be available on the website from tomorrow. Included in this presentation are various forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, and we refer you to our latest annual report for further details. I'm Alex Ng, Vice President of Corporate Development and Strategy. Joining me today are Udo Lange, CEO; and Jens Gruner-Hegge, CFO. At the end of the presentation, there will be a Q&A session where we'll be taking questions online. [Operator Instructions] Thank you. And over to you, Udo. Udo Lange: Yes. Thank you, Alex. Good afternoon, everyone, and thank you for joining us today for our first quarter 2026 results. The presentation will follow our usual format. I will begin with an overview of the group's results for the first quarter and share some key highlights. Jens will then take us through the financial detail before handing back to me to cover the performance of each of our divisions, our view of the market outlook and some concluding remarks. Let's get started. In the backdrop of elevated market disruption and considerable global uncertainty, I'm pleased to report that Stolt-Nielsen has delivered a solid first quarter, achieving group EBITDA of just over $180 million. This result reflects the strength of our diversified business model and the resilience it brings to our earnings. Our non-tanker portfolio contributed 44% of group EBITDA in the quarter, a clear demonstration that Stolt-Nielsen is not simply a shipping company. In fact, our Stolthaven Terminals business had its second highest ever quarter in terms of operating profit achieved. We are a global liquid logistics business and our diversification continues to support earnings through periods of market dislocation. We are, of course, closely monitoring the conflict in the Middle East and in particular, the effect on transit through the Strait of Hormuz. This introduces new complexities to global energy and chemical supply chains, which we are working through with our customers to keep products moving. We are thankful that our people remain safe, that none of our vessels are currently stuck in the Arabian Gulf and that our assets are not impacted thus far as our network continues to adapt to a rapidly changing situation. Our priorities at this time are to keep our people safe, leverage our global logistics network to best support our customers through the disruption and to maintain strict cost discipline and capital allocation for flexibility and long-term value creation while maintaining robust liquidity management. We have limited visibility on how the conflict in the Middle East will play out and a range of outcomes are possible, which makes giving meaningful EBITDA guidance very challenging. Hence, we have withdrawn our previously issued EBITDA guidance for 2026. I would also like to highlight a number of strategic developments during the quarter. In Taiwan, our Stolthaven Terminals joint venture in Kaohsiung commenced operations, adding more than 60,000 cubic meters of new storage capacity. And we recently announced the planned sale of a 50% equity stake in Avenir LNG, which will be achieved through a strategic joint venture with Japanese shipping company, NYK Line. Consistent with our strategy of building the Avenir business for the future while preserving our own balance sheet flexibility. From a financial standpoint, we maintain robust liquidity of $546 million, and our net debt-to-EBITDA ratio stands at 3.02x. And in February, the Board recommended a final dividend for 2025 of $1 per share, bringing the total for the full year to $2 per share, subject to shareholder approval at the AGM later this month. Let us now turn to our financial highlights. I'm satisfied with the results the company has achieved in the quarter against a complex and challenging market backdrop. Looking across the key metrics. Operating revenue for the quarter was $717 million, up 6% compared to the same period last year, predominantly driven by the inclusion of SUS. EBITDA before the fair value adjustment came in at just over $180 million. This represents a modest decline of 4% year-over-year, driven principally by weaker freight rates in Stolt Tankers, lower margins within STC and additional costs associated with integrating Suttons. Operating profit was $82 million, down 24% versus last year, mainly to the performance in Stolt Tankers and Stolt Tank Containers, plus additional depreciation from lower residual values and the consolidation of the Hassel 4 ships, Avenir and Suttons. Net profit was $47.5 million, driven by the same factors as well as higher interest expense due to the consolidation of Avenir and Hassel Shipping 4's debt. Free cash flow was nearly $120 million this quarter, which was significantly higher than the same period last year, which included the cash outflows for Avenir and Hassel Shipping 4. And our net debt-to-EBITDA ratio has improved slightly from 3.12 last quarter to 3.02x. These results demonstrate the underlying resilience of our business even as we navigate a period of heightened market complexity. Over the page, we look at some of the key drivers of performance. Stolt Tankers enjoyed increased volumes this quarter, but due to ongoing weaker freight rates, the average deepsea TCE revenue for the quarter was approximately $23,600 per operating day, a decline of 14.5% year-on-year. At Stolthaven Terminals, performance has been strong and steady. Utilization was stable at 91.2% in the first quarter versus 91.9% in the same period last year, and we saw some positive impact from storage rate increases. At Stolt Tank Containers, gross profit per shipment declined by 33% year-over-year. Stolt Tank Containers is navigating a very challenging market environment where margins are squeezed and is focused on integrating Suttons. That is all from me now. Jens, I will hand over to you for the financials. Jens Grüner-Hegge: Thank you, Udo. Good afternoon, everyone, and good morning to those of you joining us from the U.S. I will compare the first quarter of '26 against the first quarter of 2025. And as a reminder, our first quarter runs from December 1 through February '28. And as such, the closure of Strait of Hormuz did not impact the first quarter results. Also, the company recently published its annual report for 2025 and this year, including the CSRD environmental report for the first time, and you can find this on the company's website, www.stolt-nielsen.com/investors. Let's dive into the financials. Revenue for the quarter was up $41.2 million over the same quarter last year due to the following main factors: this is the first full quarter with Suttons included, and they contributed $38 million in revenue this quarter. S&G saw a $16 million increase over the first quarter last year due to the acquisition of 100% of Avenir at the end of January 2025. And Stolt Sea Farm had a $10 million increase in revenue on the back of firm prices. This was partly offset by lower revenue in Stolt Tankers, which declined by $22.5 million, mostly due to lower freight rates, lower demurrage revenue and lower bunker surcharge revenue due to falling bunker prices. However, volume was up by 20%, but mostly due to somewhat shorter voyages and higher share of commodity chemicals versus specialty chemicals. Moving to operating expense. This increased by $33 million, mainly due to the additional Suttons shipments and related expenses as well as the consolidation of Avenir and added ship owning expenses due to a larger wholly owned fleet, partly offset by lower time charter expenses and lower bunker cost. Depreciation and amortization expense was $17 million higher than the same quarter last year, and this was due to a reduction in the residual value of ships following a fall in steel prices, requiring us to increase depreciation of ships. Also, the 100% acquisition of the 2 businesses towards the end of the first quarter last year as well as the acquisition of the Suttons assets in November increased our asset base and hence also increased our depreciation. JV equity income was lower in part due to the purchase and consolidation of 100% of Hassel Shipping 4 last year and the weaker tanker markets in general, partly offset by a lower loss in Higas, our LNG terminal in Sardinia, Italy. So as a consequence, operating profit for the quarter was $81.8 million, down from $107.9 million in the fourth quarter last year. The finance expense was up $6 million compared to the first quarter of '25, and that's due to the additional debt related to the acquisition and consolidation of Hassel Shipping 4, Avenir and as well as Suttons. And as such, the net profit for the quarter was $47.5 million with EBITDA of $180.8 million. Net profit is down from $151.4 million in the same quarter last year, but please note that in the first quarter '25, we had a one-off gain on the step-up in value related to the acquisition of Avenir and Hassel Shipping 4 of $75 million. And also, as EBITDA excludes the impact of interest and depreciation, both of which increased year-over-year, the swing in EBITDA is significantly less than the swing in net profit. Now let's have a look at the cash flow statement. Net cash from operations was down this last quarter, predominantly reflecting $50 million in weaker earnings and working capital outflows, $7 million lower dividends from joint ventures, $3.8 million higher interest payments and $2.4 million lower interest receipts, partly offset by lower tax payments. Net cash used in investing activities was significantly down at $44.1 million from $232 million due to last year's business acquisitions. In the current year, cash spent on capital expenditures related mostly to tankers and terminal investments. The sales proceeds of $11 million that you can see there as well relate to the sale of a ship during the quarter. And then net cash used in financing activities of $66.1 million reflect the dividends paid in December 2025, while the debt proceeds and repayments reflect refinancings concluded during the quarter. As such, total cash flow for the quarter was a positive $10.1 million. And if you look at the graph on the bottom right, you can see we ended the fourth quarter with $546 million in available liquidity, as Udo has pointed out. So let's go over and look at the capital expenditures. Capital expenditures during the quarter totaled $42 million, with mostly spent on tankers progress payments for new buildings as well as terminals and Stolt Sea Farm expansion CapEx. Overall, for 2026, we expect to spend around $300 million, significantly down from the $511 million we spent on CapEx in 2025. And this is to a large part driven by the sale of 50% of Avenir, removing CapEx of $112 million across '26 and '27 related to 2 new LNG carriers. And in 2027, we expect to see capital expenditures increase again due to the significant progress and delivery payments on the newbuilding program for tankers. We intend to continue to invest strategically in our businesses, but we also need to focus on integrating our added capacity into our operations for maximized long-term benefit for our customers and our shareholders. And with the current geopolitical uncertainties, we will be cautious with committing to further CapEx until we see the full effect of the current unrest. So this is our debt maturity profile, which is relatively smooth over the 5-year horizon shown here. The debt profile reflects the recently refinanced debt for Hassel Shipping 4 and the deconsolidation of Avenir's debt. The gray boxes represent normal repayments, while the black and orange boxes reflect balloon payments on bank loans and bonds, respectively. If you look at the bottom left graph, gross debt reduced in the first quarter due to Avenir being accounted for as held for sale. So $120 million in Avenir debt is no longer included in this overview. And our average long-term interest rate in the fourth quarter was 5.65%, an increase from the previous quarter, driven by temporary drawdowns on more expensive revolving credit facilities and the full quarter of the bond issued in October 2025. This is our -- shows our financial KPIs and the continued steady performance of the company has supported our covenants. The decrease in debt during the first quarter supported a decrease in net debt to tangible net worth on the top left quadrant and net debt to EBITDA on the bottom left quadrant. Debt to tangible net worth is now at 0.98 as well below our covenant limit of 2.25x. With the lower EBITDA for the quarter, the last 12 months, EBITDA fell slightly to $777 million. EBITDA to interest expense on the top right quadrant was down to 5.31, whilst the net debt-to-EBITDA decreased from 312 to 3.02, as Udo mentioned. So overall, we are well within compliance on all covenants. And finally, before handing back to Udo, let me finish up with a snapshot of our main sustainability metric, the annual efficiency rating for Stolt Tankers, which finished 2025 at 9.34, just over 40% reduction from 2008. Also in 2025, we held gold ratings from EcoVadis for our 3 logistics businesses. And just to inform you, a gold rating indicates that the business is in the top 5% of companies in the industry. And then again, to point out that the recently issued annual report for 2025 contains our first CSRD report in case you want to read more about the company's ESG performance, and you can find the report on our website, as I mentioned. And with that, I would like to pass it back to you, Udo. Udo Lange: Yes. Thank you so much, Jens. I will now take us through the highlights from each of our operating divisions. Let's start with Stolt Tankers. Operating revenue at Stolt Tankers was $386 million for the quarter, down 5.5% on the year. This decline reflects the rate environment, which was only partially offset by a modest increase in operating days, driven by additions to the fleet. The rate decline is driven by a change in the mix of speciality versus commodity cargo as a result of near-term market conditions, which also drove up volumes. COA rates were renewed in the first quarter at an average rate decrease of 5.3%. This has improved versus the 9.6% decrease in Q4. EBITDA was $102 million, down 7%. Operating profit was just over $50 million, down 24% year-on-year. This reflects the lower freight rates on both regional and deepsea spot trades. We remember that previously, Hassel Shipping 4 was a joint venture and so was included as equity income. And as a result of the Hassel Shipping transaction within this quarter's results, we also saw higher owning expenses, additional depreciation and lower equity income from joint ventures versus the prior year. Depreciation was further impacted by changes in residual value. Maren and her team continue to work diligently to navigate this highly complex and unpredictable macro environment with a clear focus on delivering for our customers. I commend them for all their efforts during what continues to be a very challenging period. Looking now more closely at tanker rate trends. Whilst the TCE rate for the quarter declined to approximately $23,600 per operating day, down around 15% year-on-year, we continue to trade well above the 2018 to 2022 down cycle average of $19,825 per day and a level marginally above the long-term 10-year average of $23,300 per day. The early signs of rate softening that we saw last quarter have continued with a quarter-on-quarter change of under 4%. The effects of the conflict in the Middle East and the disruption at the Strait of Hormuz are introducing new complexities for global trade flows, and we are keeping a watchful eye on developments. This global disruption has the potential to create additional upward movement in rates and ton mileage in certain routes and downward movement in others. I also want to reiterate a point we have made before. We are not simply a chemical tanker business. We encourage investors and analysts to evaluate our performance across our diverse portfolio as a whole. I'm pleased to report a strong consistent performance from Stolthaven Terminals, and I would like to thank Guy and his team for achieving the second best operating profit in the company's history. Operating revenue was $79 million in the quarter, up 4% year-over-year. This improvement was driven by storage rate increases on existing contracts as well as new business secured at improved rates and favorable foreign exchange impacts, partially offset by softer utilization in certain areas. Utilization remained essentially stable at 91.2% from Q4 to Q1, but declined versus the prior year's 91.9%. EBITDA was $45 million, up 4%. Operating profit was $28.6 million, broadly level year-over-year as improvement in revenue was offset by inflationary cost increases and the impact of foreign exchange. We continue to progress adding storage capacity at existing U.S. sites. Projects in Houston and New Orleans are expected to come online in a staggered fashion, and we expect this incremental U.S. capacity to provide a contribution to earnings growth over the medium term. Stolt Tank Containers saw a strong increase in revenue this quarter, driven by the addition of the Suttons tanks to the fleet. Operating revenue was $184 million, up 20% year-over-year. Overall shipments totaled nearly 48,000 in the quarter, up 31% year-on-year, reflecting the addition of the Suttons volumes, while underlying volume was also slightly improved. Stolt Tank Containers recorded an operating loss of $5 million in the quarter, predominantly driven by weaker transportation margins and reduced demurrage in a highly competitive market. Suttons related integration costs and the typical seasonal softness in the first quarter. The integration of Suttons into our platform is going as planned, and we expect the positive EBITDA impact from the Suttons business to materialize from 2027 onwards once integration is more substantially complete. In the near term, Jens and his team are focused firmly on cost discipline, margin improvement and executing the integration effectively, and I thank them for their efforts. I now want to cover our view of the market and concluding remarks before we open for Q&A. Let me first give you some important context for understanding the operating environment we are navigating today. The Strait of Hormuz handles approximately 20% of global seaborne oil and CPP volumes, around 15% of global chemicals, 20% of LNG and 40% of LPG. The closure of the Strait of Hormuz represents the largest supply shock to global energy markets since 1973. The disruption to trade flows is already creating tangible effects in the chemical markets with volatile energy prices, shifting demand patterns and increased activity in the U.S. Gulf contrasting with a slowdown in other regions. We are also seeing spillover effects, including elevated bunker prices and availability constraints east of Suez, which are adding to the operational complexity for all participants in the market. This is not just a temporary disruption. It is a structural dislocation and the downstream consequences for chemical and industrial supply chains are already being felt. Firstly, the supply shock itself. Approximately 20 million barrels per day have been effectively removed from global seaborne flows due to the Hormuz closure. Middle East exports are down around 60% from around 25 million barrels per day to a net negative position when you account for the coordinated attacks across Saudi Arabia, UAE, Qatar and Iraq. Critical infrastructure has also been impacted. The Saudi East-West pipeline bypass with a capacity of approximately 7 million per day is already operating at a maximum. And even at full utilization, it can only reroute around 35% of Saudi Arabia's export volumes. There's simply insufficient physical replacement for what has been lost. In the center here on the chart, we begin to see system breakdown. Storage infrastructure is now approaching saturation, what the industry refers to as tank tops, and this is beginning to force production shut-ins. We are seeing force majeure declarations across LNG, LPG and chemical cargoes. The physical constraints on rerouting storing and processing volumes are compounding the supply loss. The third shock is demand rebalancing with Asia firmly at the epicenter. Japan, Taiwan, South Korea, Vietnam and Singapore collectively import more than 70% of the crude from the Arabian Gulf. The feedstock consequences are severe. Naphtha supply is down approximately 1.2 million barrels per day, and LPG prices have risen sharply since late February. This could potentially translate into a feedstock crisis with shutdowns of crackers, PDH plants, methanol facilities and aromatics units resulting in lower volumes. China, Korea and India have begun implementing export controls and rationing measures. The conclusion is clear. This is not a market we expect to normalize quickly. We are planning for a range of potential scenarios, spanning from a stabilized transit environment where trade flows largely normalize through to most restricted or even a closed transit regime. Across these scenarios, we have a clear set of operational and financial levers available to us. These include deploying our tanker fleet to optimize utilization and our COO and spot mix, leveraging the diversification of liquid logistics and aquaculture portfolio, providing some resilience to our earnings, adjusting capital allocation by deferring nonessential CapEx and drawing on our strong liquidity and balance sheet capacity to absorb volatility. At this stage in time, it is unclear whether the disruption will create more complexity or opportunity for our business. From a supply perspective, the stainless steel tanker order book stands at approximately 18% of the existing fleet with net supply growth of around 4% expected in 2026. However, a significant feature of the current fleet is its age profile. Approximately 14% of the stainless steel tanker fleet is aged 25 years or older and eligible for retirement. And this proportion increases to around 30% when you consider vessels aged 20 years and above. The potential for fleet retirements to absorb new supply is considerable and also acts as a buffer in case of potentially prolonged demand contraction. We expect these supply dynamics to continue to provide underlying structural support to the chemical tanker market over the medium term. To wrap this up, we are operating in an exceptionally uncertain global environment. The geopolitical pressures we face, particularly from the conflict in the Middle East and the disruption at the Strait of Hormuz introduce real complexity and market risk. Our immediate priority is to protect our people, our assets and our earnings. And we are maintaining a clear focus on what we can control. In that context, I want to leave you with 4 key themes. Firstly, we are safeguarding earnings and maintaining our focus on customers. Our ships are not currently directly affected, and our fleet is adapting swiftly to the changing situation. Our global network is agile and well positioned to support customers through the current period of supply chain disruption, and we're working closely with customers to find solution with them. Secondly, we are leveraging our diversification. The resilience of our non-tanker portfolio provides 44% of group EBITDA, providing earnings and support at a time when the tanker market faces headwinds. Thirdly, we are maintaining disciplined management of our costs and capital allocation. We have a clear set of financial levers available to us, and we will deploy them appropriately as the situation evolves. And fourth, we enter this period of uncertainty from a position of financial strength. We have robust liquidity of $546 million, a well-structured balance sheet and the capacity to absorb volatility while still pursuing strategic opportunities. Despite the challenges ahead, our strategic foundations are strong. Our portfolio is resilient and our team is focused. We continue to navigate this complex environment, delivering long-term value for our shareholders, our customers and all of our stakeholders. Thank you for your attention. I will now pass you back to Alex for Q&A. Alex Ng: [Operator Instructions] So we will start with the first question. First one for you, Jens, in relation to EBITDA guidance. Could you provide a bit more comment around the rationale for removing the EBITDA guidance? And then any information about when you would expect to resume that guidance? Jens Grüner-Hegge: Thank you, Alex, and thank you for the question. As Udo talked about, we're living in a situation which is rather unpredictable. And this could go either way up or down. And therefore, we feel that there is no real foundation to provide an EBITDA guidance at this stage. I think once we start seeing things normalize, which would mean a number of the factors that are currently causing disruptions coming back to normal, then we can reconsider providing an earnings guidance at that point. Udo Lange: Yes. Maybe let me add. So what is really the value of guidance? The value of guidance is that we see more in the business than you as an outsider and that we provide basically guardrails with the lower level or an upper level. And when you have a situation like this, if the guidance range becomes ridiculously large or it's so foggy, then it's a little bit like the COVID time. So nobody was surprised when companies stopped providing guidance during COVID. So this is not a decision that we take lightly. So we really had long conversations around this. And we just came to the conclusion. What we are seeing right now is not good enough to provide reasonable guidance. Exactly what Jens said, it can go up and it can go down, and we will come back when we have more clarity. Alex Ng: Thank you. Next question is in relation to tank containers. Would you be able to provide some guidance, Jens, in relation to where the integration costs sit in the line items? Are they entirely booked in SG&A as a starting point? And maybe just another comment around Stolt Tank Containers SG&A more broadly. Apologies, I think you're on mute. Jens Grüner-Hegge: I am indeed. Thank you. To the first part of the question, yes, the integration cost is in SG&A. And as I mentioned in my speaker notes, it was about $5 million that we incurred in the first -- during the first quarter. As for SG&A in general, as we compare the first quarter of '26 with the first quarter of '25, you have pretty much 1 year of inflationary expenses that have come in and that impacts the results. Other than that, I think for STC, I think it's fair to say they are in a tough market. And when you are in a tough market, you're always having a close eye on your expenses, and that is also the case with STC at the moment. So when this then will normalize, it's hard to say again because they are in the midst of a significant integration following the acquisition, plus we also have the market disruptions that we have to consider as we look forward. Alex Ng: Thank you, Jens. Also continuing on STC, Udo, would you be able to provide a bit more color into the current state of the market and any potential views on outlook in relation to potential improvements in the underlying markets there? Udo Lange: Yes. So the market, as you see, continues to be very challenging. And so when you look at what is really the underlying driver, it is an oversupply. As you know, during COVID, there's a long tail of competitors that got added. This is starting to shake out with our acquisition of Suttons and some other consolidations that are happening in the market. There is consolidation going on, but this is, of course, not changing overnight. And then you take a Middle East situation and that, of course, added extra pressure to the whole situation. So I think what we are really focused on is, of course, working with our customers, delivering value there, but also being focused on margins. So we are very clear on looking at how do we do margin management overall in the business. And in addition, of course, we have a fantastic digital platform and a strong best shore center. And so we just need to deliver even more value on productivity and operational efficiency, and we are fast tracking also on the Suttons integration. So we do everything that is in our control to improve the situation. So we know that this was an exceptionally weak quarter, and Hans' his team are fully focused on that. But of course, there's also a market piece in there. And it's too early for me to tell when the market will change. Alex Ng: Thank you. Next is an accounting question. For tankers, you mentioned that there was an uptick in depreciation quarter-on-quarter due to a change in residual values driven by steel prices. How should we think about the Q1 level? Would it be a new run rate for the tankers depreciation? Or is there an element of one-off effects here? Jens Grüner-Hegge: So typically, what we do is we adjust steel price or we do an assessment of the residual value once per year, and this is done basis steel prices. Steel prices reflect the recycling value of older tonnage. And that sets the target depreciation when the ship reaches its fully depreciated age. And so once a year, we reset this value unless there are any demand shocks. And then that sets really the level of depreciation for the following year. So yes, there was a significant increase this time around, but you should expect that other than changing in our asset base due to acquisitions or sales of assets that it should remain steady accordingly. Alex Ng: And next question is in relation to Avenir and the sell-down there. Are you able to provide a sense for the proceeds both in cash and more broadly relating to the balance sheet you received from this? And how will you allocate those proceeds? Jens Grüner-Hegge: So we are not allowed to talk about the actual sales price of this is unfortunately confidential and as often as the case in such transactions. But as I mentioned, we have removed the debt from our balance sheet now, and we also removed future CapEx, future CapEx being approximately $120 million impacting '26 and '27 and the debt being reduced by $112 million. So hence, you see that reduction now already in our balance sheet. Udo Lange: Yes. And let me add what Jens says. So we are super excited about this deal because it's really a double whammy. So on the one hand, we can accelerate our strategic ambitions in this space because we have a strong partner with NYK, who can also bring offtake for the business, and we can jointly grow. But then on the other hand, it also helps us both on our balance sheet side. And as you saw, it has a significant impact on reducing our CapEx exposure, and that is quite relevant during a time like this. Alex Ng: A question relating to the results and how they presented, Jens. Last quarter, there was a like-for-like income statement, which was very helpful. Is it possible to get something like that for this quarter, particularly given the number of moving items that have been occurring during the period? And also, do you expect similar in the coming periods? Jens Grüner-Hegge: Yes. I think previously, there were a lot of movements related to acquisitions of Suttons and also with the 2 acquisitions we did in the beginning of the year. We haven't presented that at the moment. Going forward, when we compare next quarter, it will be on a like-for-like basis because you will have had a stable second quarter of '25 and a stable second quarter of '26, you'll probably see a little bit less volatility other than, of course, Avenir. And we can put that in when we present the next quarter's earnings so that you get a like-for-like, and then we can share it broadly with the whole market at the same time. Alex Ng: Thank you. Next question is in relation to the performance of Stolt Sea Farm. Stolt Sea Farm performance looked particularly strong. Q1 is typically strong, but is it primarily volumes or price driven this development? And how do you expect this to continue? Jens, maybe that's one for yourself around the Q1. Jens Grüner-Hegge: Yes. I think, first of all, Q1, we have this typically seasonally strong Christmas season, where you have good volumes that are being sold, particularly in December, after which it tapers off a little bit in the beginning of the new year typically. But this quarter, we saw good movement in prices, favorable movements in prices, and that is reflected in the improvement in the results. That's really the main driver. I think we've elected to not report in detail on Stolt Sea Farm, but there is -- there are sections in the interim financials that were issued together with the earnings release that have more detail on Stolt Sea Farm. It remains strategic. It is important to us, and we will continue to invest in it. And -- but you can find more details about Stolt Sea Farm in the interims. In the presentations itself, we want to focus on the liquid logistics, which is really the bulk of the company's assets and what drives the performance of the company, particularly in times like this when you have disruptions in the global supply chains. That said, under such circumstances, it's nice to have a business like Stolt Sea Farm contributing steadily to the performance overall of the group. Alex Ng: Very good. That concludes all the questions that we have. So thank you very much. Just as a reminder, we'll be posting a recording of our call on our website tomorrow. And Udo, back to you. Udo Lange: Yes. Thank you so much, everybody. I really appreciate you joining us today, and I look forward to talking to you again when we present our results for the second quarter of 2026 in July. And of course, like all of us, I hope that by then, the world has come to a more peaceful landing than where we are right now. With that, all the best for today.
Operator: Ladies and gentlemen, thank you for standing by. Good day, and welcome to the WD-40 Company Second Quarter Fiscal Year 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I would now like to turn the presentation over to the host for today's call, Wendy Kelley, Vice President, Stakeholder and Investor Engagement. Please proceed. Wendy Kelley: Thank you. Good afternoon, and thanks to everyone for joining us today. On our call today are WD-40 Company's President and Chief Executive Officer, Steve Brass; and Vice President and Chief Financial Officer, Sara Hyzer. In addition to the financial information presented on today's call, we encourage investors to review our earnings presentation, earnings press release and Form 10-Q for the period ending February 28, 2026. These documents will be made available on our Investor Relations website at investor.wd40company.com. A replay and transcript of today's call will also be made available shortly after this call. On today's call, we will discuss certain non-GAAP measures. The descriptions and reconciliations of these non-GAAP measures are available in our SEC filings as well as our earnings documents posted on our Investor Relations website. As a reminder, today's call includes forward-looking statements about our expectations for the company's future performance. Actual results could differ materially. The company's expectations, beliefs and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished. Please refer to the risk factors detailed in our SEC filings for further discussions. Finally, for anyone listening to a webcast replay or reviewing a written transcript of this call, please note that all information presented is current only as of today's date, April 9, 2026. The company disclaims any duty or obligation to update any forward-looking information as a result of new information, future events or otherwise. With that, I'd now like to turn the call over to Steve. Steven Brass: Thanks, Wendy, and thanks to everyone for joining us today. I'll begin with an overview of our sales performance for the second fiscal quarter of 2026, followed by an update on the progress we've made across select areas of our Four-by-Four Strategic Framework. Sara will then walk through the details of our second quarter results, recap our business model, share a brief update on the divestiture of our homecare and cleaning business and review our guidance for fiscal 2026 and will conclude by taking your questions. Today, we reported consolidated net sales of $161.7 million, an increase of 11% compared to last year. Let's spend a few moments looking more closely at those results and the factors contributing to our performance. Maintenance products continue to be our core strategic focus, accounting for roughly 97% of total net sales this quarter. Net sales in this category totaled $156.8 million, reflecting a 13% increase year-over-year. On a constant currency basis, net sales in this category increased 6% year-over-year, in line with our long-term growth expectations for maintenance products. As a reminder, we go to market through a mix of direct operations, which represents approximately 80% of global sales and marketing distributors, which account for the remaining 20%. During the second quarter, sales of maintenance products in our direct markets grew 14% compared to the prior year. Sales through our marketing distributor network increased 9% year-over-year, driven primarily by sequential improvement across our Asia Pacific distributor markets as we saw the anticipated rebound following a softer first quarter. I'd also like to highlight that our gross margin remained solidly within our expected guidance range for fiscal year '26. In the second quarter, we delivered a gross margin of 55.6%, up 100 basis points year-over-year. On an adjusted basis, excluding assets held for sale, gross margin was 56%. Now let's talk about second quarter sales results by segment, starting with the Americas. Unless otherwise noted, I'll discuss net sales on a reported basis compared to the second quarter of last fiscal year. Sales in the Americas, which includes the United States, Latin America and Canada, was $71.8 million in the second quarter, an increase of 10% compared to last year. Sales of maintenance products in the Americas were $69.1 million, an increase of 11% or $6.7 million compared to last year. All of that growth was driven by higher sales of maintenance products in the U.S., which increased 15% compared to last year. Sales performance of WD-40 Multi-Use Product in the U.S. was particularly strong, increasing by $5 million or 15%. This growth was driven by higher volumes with select customers and online retailers, supported by elevated promotional activity and modest price increases, which we implemented earlier in fiscal year '26. We expect a strong momentum in the U.S. to continue with numerous activities already planned for the second half of fiscal year '26. In the Americas, maintenance product sales also benefited from strong growth of WD-40 Specialist which increased 17% compared to the prior year. That growth was driven primarily by expanding distribution and higher online sales in the U.S. We saw modest sales growth in Latin America this quarter, which was largely offset by softer sales in Canada, leaving overall performance for the combined regions essentially unchanged. Homecare and cleaning product sales declined 13%, reflecting our strategic shift towards higher-margin maintenance products in alignment with our Four-by-Four Strategic Framework. In total, our Americas segment made up 44% of our global business in the second quarter. With a significant number of initiatives planned in the back half of the fiscal year, our outlook for the Americas is very strong. As a result, we expect high single digit into low double-digit growth in the Americas this fiscal year, driven primarily by strong activity in the United States. This strong top line growth positions us well to help offset uncertainty associated with global economic and geopolitical conditions that could impact other areas of the business. Now turning to EIMEA, which includes Europe, India, the Middle East and Africa. Sales of $64.9 million in the second quarter, an increase of 9% compared to last year. This increase was driven by favorable foreign currency exchange rates as most of our EIMEA sales are transacted in euros or pound sterling and translated into U.S. dollars for reporting purposes. On a constant currency basis, sales were down 3% year-over-year. Let's go into our EIMEA through a combination of direct operations as well as through marketing distributors. Net sales in our EIMEA direct markets, which accounted for 70% of the region's sales, increased 12% during the quarter to USD 45.6 million. Given that currency translation can obscure our reported results, we believe it's helpful to also consider performance in the local currencies in which we transact sales. In local currency, we continue to see double-digit growth of WD-40 Multi-Use Product across many of our direct markets, including France, Iberia and Benelux, where sales increased 16%, 12% and 12%, respectively, driven by successful promotional activities. These sales increases were entirely offset by lower volumes in our distributor markets. Net sales in our EIMEA distributor markets, which accounted for 30% of the region's sales, increased 1% during the quarter to USD 19.2 million. Sales in our EIMEA distributor markets were most notably impacted in the Middle East, reflecting the timing of customer orders following strategic distribution changes. We transitioned to a new marketing distributor partner in a key country during the first half of fiscal '26, which shifted the timing of customer orders. With the transition now complete, we expect increased activity in the second half of the fiscal year, subject to further geopolitical disruption in the region. As a reminder, we divested the U.K. homecare and cleaning portfolio in fiscal '25, which negatively impacted second quarter sales by $1.5 million. In total, our EIMEA segment made up 40% of our global business in the second quarter. As we look ahead, we expect a better second half performance in EIMEA. We are closely monitoring the geopolitical conditions in the Middle East. Sales to the region directly affected by the current geopolitical tensions represented approximately 3% of global sales in fiscal year '25. Our presence in these markets is limited. We have one manufacturing partner in the region but no significant operations beyond the distribution and sale of our products through third-party distributors. We will continue to monitor the situation closely and assess any potential impact as circumstances evolve. Despite this disruption, we expect to achieve mid-single-digit growth on a constant currency basis this fiscal year. In reported currency based on current exchange rates, we would expect growth of maintenance products in EIMEA to be in the high single digits this fiscal year. Now on to Asia Pacific. Sales in Asia Pacific, which includes Australia, China and other countries in the Asia region was $25 million in the second quarter, an increase of 19% or $1.3 million compared to last year. We did benefit from favorable currency movements in Asia Pacific, although to a lesser extent than in EIMEA. On a constant currency basis, sales in the region were up 16% versus last year. Most of that growth was driven by higher sales in China and our Asia distributor markets where sales and maintenance products increased 25% and 19%, respectively, compared to last year. Sales of WD-40 Multi-Use Product was strong across the trade block. In China, sales of WD-40 Multi-Use Product increased by $1.1 million or 18%, driven by higher volumes from effective promotional programs and marketing activities as well as expanded distribution, particularly through online retailers and industrial channels. In our Asia distributor market, sales of WD-40 Multi-Use Product increased by $1.3 million or 17%, partially due to successful promotional programs, particularly in Malaysia and the Philippines. We are pleased to see a strong rebound in the Asian distributor markets as customers in the region have adjusted back to more typical inventory levels. In Australia, sales of WD-40 Multi-Use Product increased 15%, driven by the timing of customer motions and expanded distribution. In Asia Pacific, maintenance product sales also benefited from strong growth in WD-40 Specialist, which increased by 55% compared to the prior year. Sales increased most significantly in China, driven by successful promotional programs, along with expanded distribution, particularly through online retailers and industrial channels. In total, our Asia Pacific segment made up 16% of our global business in the second quarter. Based on current visibility, we expect this momentum to continue for the remainder of the fiscal year. However, like many companies, we remain cautious given ongoing global economic and geopolitical instability. We expect Asia Pacific to deliver strong growth in the back half of fiscal year '26, supporting mid- to high single-digit growth on a reported currency basis for the full fiscal year. Now let's talk about our Must-Win Battle. A core element of our strategy is accelerated revenue growth in our maintenance products through our Must-Win Battle. Starting with Must-Win Battle #1, lead geographic expansion. Year-to-date sales of WD-40 Multi-Use Product reached $245 million, an increase of 6% compared to the same period last year. We delivered solid performance in the Americas and EIMEA, with sales growing 7% and 6%, respectively. Year-to-date sales in Asia Pacific remained flat. However, following the strong recovery experienced in the second quarter and the momentum we expect in the second half of the year, we anticipate solid growth in the region for the full fiscal year. We continue to make excellent progress across many key markets, delivering strong year-to-date sales growth, including increases in local currency of 7% in the U.S., 4% in China, 10% in France and 14% in Iberia. We estimate the attainable market for WD-40 Multi-Use Product at about $1.9 billion with fiscal year '25 sales of $478 million. That leaves roughly $1.4 billion of long-term growth opportunity ahead of us. Next is Must-Win Battle #2, accelerating premiumization. This is centered on accelerating growth in our premium WD-40 Multi-Use Product performance. Products such as Smart Straw and EZ Reach are developed for the end users at the forefront of every decision. The strong focus on the end user enhances brand loyalty, supports gross margin growth and strengthens our competitive advantage. Year-to-date, combined sales of WD-40 Smart Straw and EZ Reach increased 9% compared to the prior year. Premiumized products represent approximately 50% WD-40 Multi-Use Product sales, leading meaningful runway for continued growth. We're targeting a compound annual growth rate for premiumized product net sales of greater than 10%. Our third Must-Win Battle is to drive WD-40 Specialist growth. If WD-40 Multi-Use Product is a Swiss Army knife of maintenance, WD-40 Specialist is a dedicated tool, a hammer, screwdriver or wrench designed for specific jobs. This focused brand extension strengthens our portfolio without diluting the iconic core. Year-to-date sales of WD-40 Specialist were $44.9 million, up 19% compared to last year. We're targeting a compound annual net sales growth rate for WD-40 Specialist of greater than 10%. I'm excited to share that in the second half of this fiscal year, we launched our latest innovation within the WD-40 Specialist product line, a bio-based multiuse lubricant across several European markets. Formulated with 85% bio-based ingredients, the product meets stringent environmental standards while delivering the professional-grade performance our end users expect. This launch reflects our commitment to practical innovation and environmental stewardship. Our fourth Must-Win Battle is to turbocharge digital commerce. Our digital commerce strategy plays a vital role in advancing each of our Must-Win Battles by increasing brand visibility, improving accessibility and deepening end user engagement across global markets. Year-to-date, e-commerce sales increased 23%, driven primarily by strong momentum in the United States and China. We'll now move to the second element of our Four-by-Four Strategic Framework, our strategic enablers, which focus on operational excellence. Today, I'll provide updates on strategic enablers 3 and 4. Our third strategic enabler is operational excellence in the supply chain. Profitable growth requires the supply chain is optimized high-performing and resilient. In the second quarter, we delivered global on-time in full performance of 96%, reflecting the discipline and reliability of our operations. Our decentralized global supply chain is a strategic advantage enabling both resilience and agility in periods of economic and geopolitical uncertainty. By limiting exposure to any single region, we reduced risk across the network. If a manufacturing partner is impacted by unforeseen circumstances, we can quickly pivot and shift production to other partners within weeks, an agility that's especially valuable in uncertain times. We spent the last 3 years, strengthening our global supply chain adding even more manufacturing partners, optimizing inventory and building a more agile network. We recently added a new manufacturing partner in our EIMEA, further diversifying our European supply chain and transitioning from a single dominant partner to multiple partners across the continent. The logistics associated with this transition resulted in a temporary inventory build in EIMEA. At the same time, we also built inventory in the United States in anticipation of a strong third quarter. These higher inventory levels are beneficial as they help insulate us from short term gross margin volatility, including the impact of near-term fluctuations in crude oil prices. Based on current inventory levels, we do not expect gross margins to be significantly impacted in the third quarter, which provides us time to take mitigating actions to defend gross margin as needed. Overall, our supply chain is significantly more resilient today than it was historically. These changes support gross margin expansion and help insulate the business to meet ongoing global economic and geopolitical uncertainty. Our fourth strategic enabler is to drive productivity through enhanced systems. At WD-40 Company, technology is a critical enabler of productivity and scale for building a digital foundation designed to support global growth and increase operational flexibility, helping us execute our strategy faster and more effectively. We've made meaningful progress deploying proven AI-enabled platforms like Microsoft Dynamics 365, Salesforce and Atlas for supply chain. Our goal isn't just personal efficiency, it's rethinking processes across the business. We are where appropriate, leveraging artificial intelligence across certain parts of the business to improve efficiency and augment decision-making. Our focus remains on practical responsible applications that enhance productivity and support our teams. In addition, we continue to make progress in our enterprise resource planning or ERP implementation. In the second quarter, we went live with another phase of the rollout in Canada. The new system is now operating across a substantial portion of the business, including the U.S., our Latin America and Asian distributor markets, operations and Canada, together representing roughly half of global revenue. With that, I'll turn the call over to Sara. Sara Hyzer: Thanks, Steve. Today, I will go over our results against our business model and discuss the key factors driving our second quarter performance. I'll also provide an update on the planned divestiture of our Americas homecare and cleaning business, along with our fiscal year 2026 guidance and the assumptions we made to provide more transparency. First, we were pleased with our second quarter performance and the momentum we're seeing in the business, with operating income this quarter, growing at 4% over prior year on a constant currency basis. As we noted last quarter, we expected results to strengthen as the year progressed following a slow start, and that improvement is showing up across both the top line and the bottom line. As Steve mentioned the expected top line strength particularly in the U.S., will help to buffer any impacts of the current geopolitical tension in the Middle East. And with that, I will cut to the chase that we are reaffirming our full year 2026 guidance even through all this turbulence. I'll cover our assumptions behind the guidance later in my remarks. With that as the lead, now let's take a closer look at our business model. This framework serves as a distinct guide for how we manage and allocate resources across the business. It is anchored in 3 key components: gross margin, cost of doing business and adjusted EBITDA. In the near to midterm, we actively manage each element within defined ranges, which gives us strategic flexibility while remaining aligned with our long-term objectives. Because the model is fundamentally driven by revenue, changes in sales levels from quarter-to-quarter can result in some variability in model performance. We will begin with gross margin performance, which continues to be strong. In the second quarter, our gross margin was 55.6%, up from 54.6% in the second quarter of last year, representing an improvement of 100 basis points. Gross margin was most significantly impacted favorably by 80 basis points from lower specialty chemical costs and 70 basis points from higher average selling prices, including the impact of mix and premiumization. These positive impacts to gross margin were partially offset by higher other miscellaneous input costs, primarily in EIMEA, which negatively impacted our gross margin by 40 basis points. Gross margin in the Americas increased 300 basis points, rising from 50.1% to 53.1%, driven by higher average selling prices and lower specialty chemical costs. In EIMEA, gross margin declined slightly by 90 basis points from 58.1% to 57.2%, reflecting higher filling and warehousing fees, partially offset by lower costs for specialty chemicals. In Asia Pacific, gross margin increased slightly by 30 basis points from 58.4% to 58.7%, primarily due to favorable changes in sales and market mix period-over-period. We remain encouraged by the overall trajectory of gross margin while recognizing that the operating environment continues to present external headwinds. Subsequent to our quarter end, recent geopolitical developments in the Middle East have contributed to the increased cost of certain petroleum-based specialty chemicals and other input costs, which will impact our cost of products sold. There is typically a delay of between 90 and 120 days before changes in cost of raw materials impact our cost of products sold due to production and inventory life cycles. As Steve discussed a few minutes ago, we do not expect that our gross margin will be significantly impacted until the fourth quarter of fiscal year 2026 based on current inventory levels. The duration of this conflict and its impact on our raw materials will drive our decisions around mitigation efforts, which we are currently assessing. For more reasons than just the impact to our business, we hope this development is short term in nature. I will go over our assumptions over the price of oil when I discuss our full year 2026 guidance. Now turning to our cost of doing business, which we define as total operating expenses adjusted for certain noncash items. Cost of doing business is primarily influenced by 3 areas: our investment in people, global brand-building initiatives and freight costs associated with delivering our products to customers. In the second quarter, our cost of doing business was unchanged from prior year at 38% of net sales. Investing in our future remains a top priority. While our long-term objective is to manage our cost of doing business within a 30% to 35% range, we have been making deliberate investments to support sales growth and improve operational efficiency. These investments are strengthening our foundation and positioning the business for long-term sustainable growth. In addition, we continue to work through the revenue impact associated with the fourth quarter 2025 homecare and cleaning divestiture in the United Kingdom. In dollar terms, our cost of doing business increased $7 million or 13% compared to the prior year quarter. Unfavorable foreign currency exchange rates accounted for $3 million of that increase this quarter. So on a constant currency basis, the increase was 7%. The majority of the remaining increase, $2.3 million, was driven by higher employee-related expenses, including incremental headcount to support initiatives aligned with our Four-by-Four Strategic Framework. Advertising and promotional expenses increased year-over-year, reflecting higher levels of promotional activity and marketing support, particularly in the Americas and EIMEA. As a percentage of net sales, A&P spend was 5.5% this quarter compared with 5.1% in the prior year. While we are currently tracking slightly below our full year guidance of approximately 6% of net sales, we have brand-building initiatives planned for the remainder of the fiscal year, which we expect will bring A&P investment in line with our full year guidance. As the business grows, we expect leverage from higher revenues to move the cost of doing business towards the target range, with sales growth and cost control serving as the main catalyst for improvement. Turning now to adjusted EBITDA. In the second quarter, our adjusted EBITDA margin was 18%, flat compared to last year. Adjusted EBITDA margin is an important indicator of both profitability and operational efficiency. In the nearer term, we continue to believe we can return adjusted EBITDA margin to our midterm target range of 20% to 22% as we absorb the revenue impacts associated with the homecare and cleaning divestitures. The 25% target at the high end of our range represents a long-term aspiration for the business. Getting there will be driven by scale, gross margin accretion and making progress on our cost of doing business targets. Turning now to other key measures of financial performance, let's review operating income, net income and earnings per share for the second quarter. Operating income increased 13% to $26.3 million in the second quarter, with foreign currency being a tailwind for us this quarter. On a constant currency basis, operating income increased by 4%, primarily driven by higher sales and improved gross margin, partially offset by increased operating expenses. Net income was $20.3 million compared to $29.6 million in the prior year fiscal quarter. You may recall that in the second quarter of fiscal year 2025, we recorded a nonrecurring noncash tax benefit of $11.9 million that had a significant positive impact on the results last year. Excluding this onetime benefit, net income would have increased $2.4 million or 13% in the second quarter compared to the prior year. Diluted earnings per common share were $1.50 in the second quarter compared to $2.19 in the prior year. Diluted EPS for the quarter reflects 13.5 million weighted average shares outstanding. Excluding the onetime tax benefit in the prior year, non-GAAP EPS would have increased 14% over the prior fiscal quarter. Additional details on last year's tax benefit are available in our SEC filings. Turning now to our balance sheet and capital allocation. We continue to operate from a position of financial strength with solid liquidity that supports the discipline, strategy focused on long-term growth and the generation of reliable cash flow and returns for our stockholders. Our capital deployment decisions continue to emphasize discipline and accretion with the objective of enhancing long-term stockholder value. Our first focus is investing back into the business through advertising and promotional activities. After investing back in organic growth opportunities, dividends remain our top capital allocation priority with an annual payout target of more than 50% of earnings. On March 16, our Board of Directors approved a quarterly cash dividend of $1.02 per share. In the second quarter, we executed share repurchases totaling approximately 38,175 shares for an aggregate cost of $8 million under our authorized program. As of quarter end, roughly $14 million remains available for repurchases with the authorization set to expire at the end of the fiscal year. Given our confidence in the strength and durability of the business, we increased the pace of repurchases and intend to utilize the remaining authorization. Before turning to guidance, I'd like to share a brief update on the household divestiture. We continue to advance the process to sell our American homecare and cleaning brands with our investment banking partner actively engaged in discussions. While there can be no assurance that a transaction will be completed, we are encouraged by continued discussions and will provide updates as the process progresses. So let's turn to fiscal year guidance. As a reminder, we issued this year's guidance on a pro forma basis, excluding the financial impact of the home care and cleaning brands currently classified as assets held for sale. Although the timing remains uncertain, this approach is intended to provide clear visibility in the performance of the core business and limit variability associated with the transaction. While geopolitical developments in the Middle East and their potential impact on the global economy warrant caution, we are encouraged by the momentum in the business. We have clear visibility in promotional activity in the U.S. and are seeing improving momentum in both EIMEA and Asia Pacific. With a number of initiatives planned for the second half of the year, we are confident in delivering a solid full year outcome and so we are reaffirming our guidance today. We continue to expect net sales in constant currency to land at the mid- to high end of our guidance range, reflecting the strength and visibility we have on the top line. At current exchange rates, we expect low double-digit revenue growth for the full fiscal year on a reported currency basis. However, the duration and potential impacts of ongoing geopolitical developments in the Middle East have introduced an increased level of uncertainty. While we remain confident in achieving our full year guidance, we now expect metrics below the top line to fall within their respective guidance ranges as opposed to tracking towards the mid to high end. This guidance is based on several key assumptions, including crude oil prices ranging between $95 and $115 per barrel and an average euro-to-U.S. dollar exchange rate of approximately $1.15 for the back half of the year. It also reflects our current view of broader macroeconomic conditions. Actual results may vary as these inputs differ materially from our assumptions. For fiscal year 2026, we expect net sales to be between $630 million and $655 million after adjusting for foreign currency impact, a growth of between 5% and 9% from the pro forma 2025 results. In reported currency, we expect revenues between $650 million and $680 million using current exchange rates in the back half of the year, excluding revenue from the assets held for sale. Gross margin is expected to be between 55.5% and 56.5%. Advertising and promotion investment is projected to be around 6% of net sales. Operating income is expected to be between $103 million and $110 million, representing growth of between 5% and 12% from the pro forma 2025 results. The provision for income tax is expected to be between 22.5% and 23.5%. And diluted earnings per share is expected to be between $5.75 and $6.15, which is based on an estimated 13.4 million weighted average shares outstanding. This range represents growth of between 5% and 12% over the pro forma 2025 results. In the event we are unsuccessful in the divestiture of the American homecare and cleaning brand, our guidance would be positively impacted by approximately $12.5 million in net sales, $3.6 million in operating income and $0.20 in diluted EPS on a full year basis. That completes the financial overview. Now I would like to turn the call back to Steve. Steven Brass: Thank you, Sara. In summary, what did you hear from us on this call. You heard that in constant currency sales and maintenance products were up 6% in the second quarter, in line with our long-term growth expectations. You heard that in reported currency, sales of WD-40 Multi-Use Product were up 12% in the second quarter with growth across all 3 trade blocks. You heard that in reported currency, sales and maintenance products in our direct markets were up 14% in second quarter. You heard that all our Must-Win Battles are performing well and that year-to-date in reported currency sales of WD-40 Specialist were up 19%, sales of premiumized products were up 9%, and sales in the e-commerce channel were up 23%. You heard that in the second quarter, our gross margin was 55.6%, up 100 basis points from the second quarter of last year. You heard that we continue to accelerate buybacks and plan to fully utilize our remaining authorization with the objective of enhancing long-term stockholder value. You heard that our decentralized global supply chain provides resilience and agility amid economic and geopolitical uncertainty and that recent supply chain initiatives along with higher inventory levels are supporting gross margin in the near term, giving us time to take mitigating actions as needed. You heard that we have clear visibility into strong promotional activity in the U.S. in the back half of fiscal year '26, and we are seeing improving momentum across both EIMEA and Asia Pacific. You heard that while geopolitical developments in the Middle East, and their potential impact on the global economy, warrant caution, we're encouraged by the momentum in the business and believe this momentum will help to mitigate impacts associated with global economic and geopolitical conditions that could affect other areas of the business. And you heard that with a number of initiatives planned for the second half of the year, we are confident in delivering a solid full year outcome, and so we are reaffirming our guidance today. Thank you for joining our call today. We'd now be pleased to answer your questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Baker with D.A. Davidson. Michael Baker: Okay. Great. Congratulations on a good quarter. So just to make sure I have this right in so everyone has it right. I think there was the change in guidance, if the -- the sell changing guidance. I guess, is that after the first quarter, you expected top line and margins, profitability, bottom line to be towards the mid- to high end of the guided range. Now we have the same guided range and we expect the top line still to be mid- to high end. But I think what you said is that margins and profitability now just within the range rather than specifically mid- to high end. I just want to make sure I heard that right, and that's the change. And then I'll have a follow-up question. Sara Hyzer: Sure, Michael. So this is -- good to hear from you. Yes, you understood that correctly. So we are maintaining our expectation for revenue growth in the mid- to high single digits. And just given the growth -- the risk right now that we see in the gross margins and considering some of the mitigation actions depending on how long this lingers, we believe we're kind of well within the range, but we're not necessarily saying the mid- to high for all of the other metrics. Michael Baker: Got it. And so that so again, I think as you said it, but that's because now we expect oil to be -- now it's based on oil to be $95 to $115, which starts to impact you in your fourth quarter. And I guess my question would be, I guess, so what was the expectation prior to the situation that's played out in the Middle East the last few months? Sara Hyzer: Yes, it's definitely -- I mean we are seeing the input cost increase since the -- subsequent to our quarter end. In our previous guidance, it was closer to the, I think, $65 to $85 range, and so it has moved up quite a bit. Michael Baker: Got it. All right. So just to square it all put together, just so we all understand, it was $65 to $85. Now we expect it to be $95 to $115. We all see what's going on in oil that's -- there is a delay, but that starts to impact you in the fourth quarter. And because of that, the gross margins will be more towards the -- within the range rather than the mid- to high end. Just does that summarize everything, so hopefully that clarifies. Sara Hyzer: That was a very good summary. You probably said it better than I could. Michael Baker: Okay. Got it. Awesome. Now with that out of the way, can I ask just about a more sort of business-related question. Remind us again why this acceleration that we're seeing in the U.S., how do you have so much visibility? What are you hearing or seeing from your key partners in the U.S.? Steven Brass: Mike, this is Steve. So there's a lot going right in the U.S. And so you heard WD-40 Specialist is growing very, very nice in the strong double digits. E-commerce is working very, very well for us with very strong growth in e-commerce. And then as we look, I mean, you've already seen very strong growth in the first half but compared to what's coming in the second half with the programs beginning in Q3, we have an extremely strong kind of unprecedented in recent history of the company outlook for the U.S. with a very, very substantial promotional program for the back half of the year. Michael Baker: And is that increased promotions and activity in existing customers? Or is it different channels? I know there's been an initiative to get more into the dollar channel or hard discounters? Or is it more just within the existing channels that you're in? Steven Brass: It's both. So the major promotions are with our existing customers. We've also we have brought on board a major new customer in the discount channel as well, which is starting to add some nice additional revenue as new distribution. Operator: Your next question comes from the line of David Shakno with William Blair. David Shakno: By the way, this is David Shakno, stepping in for Jon Andersen. Just had a question on Asia Pacific. You talked about I think it grew or the specialist grew 55% this quarter. You hit a bit on this in the prepared remarks about promotional programs and distribution. But can you double-click into those drivers a little bit, especially on the promotional programs? Is there any sort of air pocket we should be considering for the region or specialists just overall in Q3? Steven Brass: So the increase in specialist was across the board. So we had China, the distributors and Australia all delivering very strong double-digit growth. So it wasn't a particular region or a particular channel. I'd say the underlying theme is new distribution and promotions combined as well as continued innovation and new products across the region. And so it's not one thing. We are seeing very, very strong -- I'm not sure we'll deliver 55% growth in every quarter, but you should expect WD-40 Specialist to continue to grow very strongly in Asia. David Shakno: Got it. And if you don't mind me asking one other here. Just on premiumized products. So I think you said it's up to 50% now of the multi-use product sales. I think that's up from 49% last quarter, if I'm not mistaken, quite a strong achievement. How much of the remaining $1 billion, $1.5 billion, $1.4 billion growth opportunity depends on moving towards those premiumized products and premium formats and given the Middle East situation, given also just more broadly overall consumer sentiment, has that changed kind of your outlook there on premiumized products? Steven Brass: Not at all, in our premiumized products have consistently delivered around that 9%, 10% growth rate historically, there's absolutely no reason why that can't continue. We see that building in the second half of the year, moving into double digits for the year. And so you've got $25 million plus or up about $250 million base now on petroleum products. And in terms of units sold globally, it's about 40% of units. So our best markets in terms of premiumization penetration are approaching 80% including the U.S. And so we have a long, long runway for growth, several hundred million dollars of growth out of that benchmark opportunity on nonpremium formats. Operator: Your next question comes from the line of Daniel Rizzo with Jefferies. Daniel Rizzo: First, with the mitigation efforts that you might have to take, when do you think -- I mean is there a drop dead date when we'll have to be that decision will have to be made? And two, as a rule of thumb, how far -- how long until that kind of flows through where we notice it in the P&L? Is it the same thing as with the cost where it's 90 -- or 6 months? Or how should we think about that? Steven Brass: Yes, Daniel, it's Steve. So yes, I mean, obviously, we're not rushing into things. And so we're carefully evaluating this situation. It seems almost on a daily basis, it's kind of changing. And we don't want to telegraph our kind of intentions out to competition on this call, in particular. But we are looking at we are looking actively at mitigation, both in terms of potential price movement and further cost-saving initiatives, which would mitigate this thing. We did talk to having high inventories, right? And so with the shift we made in EIMEA, we've built up considerable inventories. And with the U.S. with our strong promotional program for Q3, we have a strong inventory basis. And so that was either excellent strategic planning or good fortune, whichever way you look at it. And so to cut to the chase, I suppose, in terms of the impact of decisions we will make today, you're going to see that impact in the fourth quarter, but maybe not the beginning of the fourth quarter. And so any measures we take would begin to hit the business in the fourth quarter. Daniel Rizzo: And with those elevated inventories, I assume that's going to have somewhat of a negative impact on working capital. And I was wondering what the effect of that will be in just in dollar amount. Sara Hyzer: We haven't disclosed the -- I mean, the dollar amount you're already starting to see some of that with the buildup of the inventory levels on our balance sheet in Q2. So some of that has already happened. And that was really to support, as Steve had mentioned, the planned back half motions. The buildup also did occur because we actually were successful in transitioning to a new filler in Europe. And so we did also intentionally build some inventory as we work through that transition and that really happened right at the end of Q2. So I think what we're anticipating to see is the inventory build in Q2, it will continue to build a little bit into the third quarter. It will start to work its way down. And then really, I think you'll see a higher AR balance at the end of Q3, which that will get worked down before we get to the end of the fourth quarter. So there's going to be a little bit of a tail from a working capital perspective. But we have a strong balance sheet, and we can afford to have some blips there if we need to. Daniel Rizzo: Okay. That's very helpful. And then the one thing that kind of caught me here was the bio-based product that you're kind of introducing in Europe. It sounds interesting. One, how should we think about that ramping across the globe? Are you going to be introducing it to other regions soon? How should we think about the growth over the next 3 years? And the second part of this question is the bio-based product, does that use less oil? Would that be something that's a long-term mitigator of the fluctuations in oil? Is that how we should think about that? It would seem so. Steven Brass: Thank you for the question, Daniel. And so the product is launching across 7 or 8 European countries this quarter. And so you always have a build time to build. We have plans to roll that out globally, which will probably go into next fiscal year. And I don't want to create crazy expectations for this. This is -- it's the first iteration of our multi-use product essentially with a bio-based format. So it's 85% bio-based formulation, which meets all of the European kind of regulations around bio-based products. And yes, so ultimately, if it's very successful, yes, it will begin to reduce our dependence on oil going forward. And that will be a nice hedge. That's going to take multiple years for that to be meaningful revenues. Operator: Your next question comes from the line of Aaron Reed with North Coast Research. Aaron Reed: So one of the things that I wanted to get a little more color on is, we talked about it a little bit already, but given the ongoing geopolitical tension and really just the volatility across the global markets, can you give a little more color on the key assumptions underpinning your guidance and why you still believe it's achievable? Sara Hyzer: Yes, I can start that. Steven Brass: Okay, Sara, you go ahead, please. Sara Hyzer: I can jump in, Steven, and then I'll turn it over to wrap up that one. So I mean, yes, it is -- the environment we're in today is definitely challenging to attempt to forecast. I think what is helping us right now is that we do have a fair amount of inventory sitting on the balance sheet which we can phase out, when we can plan out when that's going to flow through. And so if oil stays within that range that I talked about between $95 and $115, the impact to the business, and this is potentially before mitigating factors that we might implement, we're able to, within that range, I think, reasonably predict what the fourth quarter is going to look like. And with the third quarter and the fourth quarter, we believe we'll be able to stay within that guidance. There are some puts and takes there with access to certain markets, and maybe I'll let Steve talk a little bit about that, that might bring it down, but then there's still some upside to go after. Steven Brass: And if I could just add then to that. Yes, just a very strong basis in the U.S. And so I can't emphasize enough given the volatility around how that U.S. performance which we talked about could actually be into the double digits this fiscal year, which is a long time since we've achieved that in the U.S. And so that's a really positive kind of basis. And that's helped mitigating. We do have some exposure in the Middle East, obviously. That's about 3% of our business. And so yes, that may be just a few million dollars' worth of risk in the Middle East in terms of the actual geographic region. We've had Europe coming back outside of the Middle East. We did make a change in Europe in the first half of a distributor in one of our key territories. And so that's coming back in. We began to ship in March, again to that particular territory, believe it or not. And Europe sequentially in the second quarter was about 10% bigger in revenues, about EUR 55 million in local currency in euros, compared to around EUR 50 million in the first quarter in net sales. So you did see an uptick of around 10% in absolute terms in the first quarter in Europe, and we do expect that despite the turbulence to continue in Q3 and Q4, much stronger revenue in EIMEA. And in Asia Pacific, China is delivering solid double-digit growth continually and did so in the first half year. So we expect China to continue with strong double-digit growth for the year. There is potentially some downside risk in Asia, you've got a little bit contagion going on there at the moment in terms of potential kind of shutdowns of operations and kind of fuel availability. And so that is some downside risk, but we still see for the year in Asia overall, mid- to high single-digit growth. And so overall, the picture is looking reasonably bright, subject of course to further turbulence. Aaron Reed: Okay. And that kind of leads into my next question around the performance in Asia. What is driving that? And how sustainable is that momentum? Steven Brass: Yes. So it's things I think I've just kind of spoken to. So the China piece, I mean, the China team just continuously deliver these strong results. And it's just whatever is going on in the economy, we're continually opening new points of distribution. We're continually sampling. And so that's driving growth in China, whatever is going on with the economy. You've seen a strong -- the Asia distributors came back very strongly in Q2. That was really just a phasing question between Q4 and Q1. POS sales didn't really change between those periods, which is just inventory levels. And so we kind of highlighted that would improve in Q2, and it did. And so that's good, and we expect that to continue. And then Australia is set up for a good typical kind of mid-single-digit growth for the year as well. And so yes, we're optimistic about the outlook for Asia. Aaron Reed: Okay. And one more question here. European business has been flat to down year-to-date. What gives you confidence in a meaningful recovery in the second half? And really what leading indicators are you looking at that really support that? And actually I think I got one more question after that. Steven Brass: Okay. So yes, Europe, yes, it's been flat. We're very transparent. It's been kind of -- make it look a little better with the currency kind of benefit there, but volumes are kind of flat at the midyear. Direct markets in Europe are actually up around 4% combined, and we did kind of talk about many of our markets are doing very well. We have market Iberia doing very well, well into double digits. France doing well. Benelux is doing very, very well. And so overall, direct markets are coming back. It was really just this 1 distributor issue, particularly in the Middle East, that undermined the kind of performance of about 3 million down versus prior year as well as a couple of promotional phasing issues with other MDs. But really, the Middle East one was the big one there. And so yes, we see Europe coming back with stronger growth in the second half. In that kind of mid-single-digit kind of level, depending on the exchange rate, the actual exchange that could actually get into double digits or at the very kind of low case, high single digits we believe for the year. Aaron Reed: Okay. That makes sense. And one last item real quick here. My associate just handed me a headline saying you missed earnings by about $0.08. But when I look at consensus, it says you beat. Are there other metrics that I -- or am I misunderstanding something on this? Sara Hyzer: You are not. We -- I'm actually looking at the same headline right now. And unfortunately, I think what they pull based on what I can do -- based on what I can tell is they actually pulled the non-GAAP EPS number from Q2 last year, so they compared $1.32, unfortunately, which then drove the headline and then there was even a follow-on where they actually did pull the right $1.50 and then they compared it to the $1.40 and saying that the $1.50 fell short of the $1.40. So unfortunately, I think they just one, pulled the wrong number. But yes, it's an unfortunate situation that it hits the headline like that because that's not the case this quarter. Aaron Reed: As long as I'm not misunderstanding something. Sara Hyzer: You were not, and I'm pulling my hair out. Thank you. Operator: Ladies and gentlemen, that does conclude our allotted time for questions. We thank you for participation on today's conference call and ask that you please disconnect your line.
Operator: Greetings. Welcome to the ClearSign Technologies Fourth Quarter and Full Year 2025 Corporate Update Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Matthew Selinger, Investor Relations. You may begin. Matthew Selinger: Good afternoon, and thank you, operator. Welcome, everyone, to the ClearSign Technologies Corporation Fourth Quarter and Full Year 2025 Corporate Update Call. During this conference call, the company will make forward-looking statements. Any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs and prospects. These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call include, but are not limited to, whether field testing and sales of ClearSign products will be successfully completed, whether ClearSign will be successful in expanding the market for its products and the other risks that are described in ClearSign's filings with the SEC, including those discussed under the Risk Factors section of the annual report on Form 10-K for the period ended December 31, 2025. Except as required by law, ClearSign assumes no responsibility to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. So with me on the call today are Jim Deller, ClearSign's Chief Executive Officer; and Brent Hinds, ClearSign's Chief Financial Officer. So with that, I am going to turn it over to Jim Deller. Jim? Colin James Deller: Thank you, Matthew. As always, I'd like to thank everyone for joining us on the call today and for your interest in ClearSign. Like our most recent calls, we will use a Q&A format for the session. Some of you are sending questions ahead of time, and we will assimilate those questions as we go through this call today. So for the call today, Matthew will lead a question-and-answer session. I will go through the different business units, much like our previous calls. Many of you may have seen this, but just a reminder, you can send in questions ahead of time to our Investor Relations, that is Matthew Selinger at mselinger@firmirgroup.com. So with that, Brent will go over a summary of the company financials for the fourth quarter and full year '25. Brent? Brent Hinds: Thank you, Jim, and thank you to everyone joining us here today. Before I begin, I'd like to note that our financial results on Form 10-K were filed last week with the SEC. And with that, I'd like to give an overview of our financial results for 2025. For the fourth quarter of 2025, the company recognized approximately $3.7 million in revenues compared to approximately $590,000 for the same period in 2024. This year-over-year increase in revenues was predominantly driven by our 26 process burner order that will be installed in the petrochemical plant of the Gulf Coast of Texas. Now for the full year perspective, we recognized approximately $5.2 million in revenues compared to approximately $3.6 million for the same period in 2024. This 44% year-over-year increase in revenues was predominantly driven by our process burner products. It is important to note that during 2025, we did recognize revenues from our other offerings, specifically midstream burners, flares, spare parts and engineering services like CFD studies. Now I'd like to turn our attention to the full year income statement. Our year-end 2025 gross profit was approximately 27%, which is down approximately 4 percentage points from 31% compared to 2024. This year-over-year decrease in gross profit was driven by our warranty accrual. In addition, our year-end 2025 net loss increased approximately $197,000 compared to the same period in 2024. This year-over-year increase was predominantly driven by nonrecurring legal fees of approximately $746,000 in 2025. Now I'd like to shift the focus to cash. Our net cash used in operations for the full year 2025 was approximately $4.7 million compared to approximately $4.4 million for the same period in 2024. This year-over-year change was predominantly driven by our change in net loss discussed earlier. As of December 31, 2025, we had approximately $9.2 million in cash and cash equivalents, with approximately 5.3 million shares of common stock outstanding. We believe our overall working capital positions us to continue executing on our long-term growth plan to scale our revenue and profits beyond our breakeven goal as we continue to build a technology company recognized for its innovative solutions. And with that, I'd like to turn the call over to Matt Selinger. Matthew Selinger: Thanks, Brent. And Jim, thank you for joining me here today. So Jim, we've had a lot of new interest in the company lately, and I see some new attendees on the call today. So can we take a moment to give a high-level overview of what ClearSign does and then maybe move into how we do it. So Jim, what in a nutshell does ClearSign do? Colin James Deller: Sure. Yes. So we are an industrial technology company. But the technology we make is a low emissions industrial burner, right? So these are the components that control the flames in companies like all refiners and chemical plant, also boilers, midstream gas heaters, but the very large industrial flames. And this industry is driven by the need to meet the latest emissions regulation and specific to provide ultra-low NOx emissions. And we can do that by controlling the chemistry in the flame and we do through control of the flame structure. The NOx emissions are driven by the Clean Air Act, they're imposed by regulation. So these are a level that our customers are required to meet. Our advantage in the market is we enable them to do it in a much more cost-efficient manner than with the existing technology. So the levels we're talking about, the other technology to reduce emissions is called an SCR or selective catalytic reformer (sic) [ selective catalytic reduction ]. It's basically a back-end chemical plant that has to be built into a heater to remove the emissions from the flames before those gases go up the stack. With the ClearSign technology, we just don't make those emissions in the first place. To put that into perspective, one of the orders we have in-house, we were talking to the customer prior to receiving that order and their estimated costs for going with the alternative SCR solution were about a $50 million project for a conversion of one of their heaters. The -- our estimate of the ClearSign solution, their total cost, which includes our burners is in the region of $7 million to $10 million. So it's our belief just on this one project that we're saving this client in the region of $40 million. There's a very clear cost advantage to our customers in selecting this new ClearSign technology and not making emissions in the first place. Matthew Selinger: All right. So you've talked about what we do, the drivers in the market, kind of the competitive landscape of technology. Maybe describe more kind of the market and the market opportunity, Jim. Would you be able to kind of quantify what our addressable market is? Colin James Deller: Sure. And -- right, we -- our biggest market segment is oil refining. We're also looking to develop into the petrochemical industry. But to try and put our arms around the realistic market opportunity for ClearSign, the regulations that require technology are the newest strictest areas. So for us, while there's some in Europe are predominantly for this purpose, which is think about Texas and California, is that our estimate is there's about 28,000 burners installed in refineries in California and Texas. And we did a technology feasibility study with ExxonMobil back in 2019. And as part of our conversations during that process, ExxonMobil expressed their assessment that about 15% of their burners were good targets for ClearSign technology. So if we use that 15% guideline of the 28,000 installed burners in California and Texas, that gives about 4,200 burners currently installed in refineries in California and Texas that are good applications to be retrofit with ClearSign technology to comply with modern emissions requirements. And the timing, you can expect that will be done over probably 10 years as we just trying to get our arms around or bracket the market. And then the other important piece of information is the average price for burners is about $100,000 plus more for the big ones, less the smaller ones. But for the sake of this math, we consider a ClearSign burner to sell for about $100,000 apiece. That will give you a number for the refining industry, the petrochemical industry, we would assess to be about the same size as the refining industry. And when we look at the total ClearSign product sales, we have other products as well. I'd expect our flare and thermal oxidizer products combined to make about 20% of our business. Our midstream and water products make up another 20% sort of the refining and petrochemical, that will be about 60% of the total. Matthew Selinger: Okay. Great. And again, you referred to that burner -- a typical burner price around $100,000 because we've referred to that as what Brent said in that 26 burner order, and we'll talk about some orders later that will help investors kind of quantify what a total order size may look like if you apply that dollar amount to a burner for one of our orders. Colin James Deller: Yes, it's a good guide. I think the other piece of relevant information, if you're looking at the company, right, we are -- when we talk about the company structure and how we work, we are an asset-light company. We need a run rate of about $16 million per year or 160 process burners per year to get to breakeven, right? So that's not an extremely high number. But with that market size when you do the math, there is plenty of market there for ClearSign to develop a very profitable business. Matthew Selinger: Great. And one thing you just said there, Jim, which is a good segue to the next question, you mentioned asset-light. So you mentioned, obviously, we're an industrial technology company. And because of being asset-light allows us to capture these ballpark 30% margins, which Brent said. How does ClearSign do it? How are we structured? And how are we going to market? Colin James Deller: Yes. So we have a unique IP and technology. And in fact, we have unique capabilities with our computer modeling. Since I joined the company in 2019, we set a strategy of leveraging that IP selling into this very industrial market with very established clients like our refining companies. Those clients require full-scale demonstration of furnace. They require the equipment to be manufactured in the shop that they have accredited with a very sophisticated quality control system, right? It takes a lot of money to develop that kind of asset. So rather than doing that, we said about leveraging our IP, but to work through collaborative partnerships with other companies that already have that infrastructure in place. And there are some really big companies in this industry. We formed a collaborative partnership with one of the really big major Zeeco in late 2019. Zeeco is a multibillion dollar [indiscernible] billion with a B company. They're based here in Tulsa. They're about 10 minutes down the road from our office. They have the largest burner test facility and manufacturing plant here. So we can demonstrate our products now in the Zeeco test facility. Our process burners get built by Zeeco. So our clients get to benefit from the approval of their manufacturing and their quality control system. So basically, we get to deliver our IP but to present it through the market with the credentials of Zeeco. For Zeeco, our capital arrangement allows them to compete in areas of the market that extend beyond the capabilities of their own technology. So this is truly a win-win relationship for both of us. Matthew Selinger: Okay. That's great. Well, then let's turn to the year-end and fourth quarter. The company ended the year-end on a high note and recorded quarterly -- record quarterly and annual revenues. Brent did mention, but what were the contributors to this? Colin James Deller: No, I'm going to turn this over to Brent. He has all the details from the finances and can talk about more specifically. Brent Hinds: Thank you, Jim. Thanks, Matt. Yes, the fourth quarter revenues were predominantly from our 26 burner order that would shift down to that petrochemical company in the Texas Gulf Coast. I think it's important to note that in the fourth quarter, the revenues weren't just made up of that. We also recognized revenues related to spare parts orders and engineering services. Specifically, one of the engineering services that we're citing was a customer witness test, where a subject matter expert from a petrochemical company came in and got to look at our burner and kind of run it through the test facility. I liken it to inviting a test driver to come run the race car around the racetrack and get to play with it. Matthew Selinger: And that went well? Brent Hinds: Yes, it went well. Matthew Selinger: Great. It's good to hear. So then the 26 burner order was completed and delivered and the revenues have been booked. Is that right, Jim? Colin James Deller: That's correct. The requirement work we had the burners are complete and packaged and ready to collect by year-end. And Zeeco really came through for us. They work long hours. But before everyone left for the holidays, we haven't combined with Zeeco had that done. So yes, we did recognize the revenue. Matthew Selinger: And when will this project start up in the field? Colin James Deller: The burners are currently on the client site. They're waiting to be installed, which is scheduled to happen early after midyear this year. The current expectation is the start-up will occur in October. Matthew Selinger: Okay. So then let me ask you this. Do you think this will boost or help our visibility and potential pipeline? Colin James Deller: We expect this to be very important for us. There's a number of reasons for that. I mean clearly, it's a very dominant client. It's in the heart of our biggest market down on the Texas Gulf Coast. The burners are an early version of our new Gen 2 technology, which is a great burner for us. The project was done through the Wahlco, who, I believe, the leading engineering heater revamp company here in the U.S. So there are a lot of eyes on these burners. I think generally for everyone. But we have to be very careful when we talk about customer names and the details of projects openly. Within the industry through all the conferences and the interpersonal relationships, this project is very well, right? They know the burners. There are a lot of people watching this project and talking about it. And even companies like Wahlco have been a very good reference for us because they've been through this project and see the burner development, seen them operate in the Zeeco test burners. They've already been very meaningful in talking to other clients about ClearSign burners and their experience of working with us. Matthew Selinger: Yes. And I know we mentioned in our previous calls and mentioned the name Wahlco, you can go to their website and they list the logos of their clients, and it really is a who's who of super majors, major petrochemical companies, and you can see it on their website. Colin James Deller: Yes. And they're actually part of a very large organization themselves. So yes, they've been a very good client for us. Matthew Selinger: So then let's talk about other announced process burner orders. We've announced a 32 burner order for a major refiner and a 36 burner order for another major. We're calling it a household name. So in regard to the latter, the 36 burner order going to the Gulf Coast, how is that order progressing? Colin James Deller: Very well. The -- so both of these orders are released in phases, which is actually very common. The first phase being engineering and the computational modeling or simulation of the burners operating in the clients. That has gone extremely well. Those results are sent to the client. So we're currently discussing moving into the testing phase of that project. The other interesting part is the installation has been split into 2 phases. And in the first half has been pulled forward so we can supply the burners into the first 2 sections of it. There's a large 4-section heaters preferred being supply the burners in the first 2 sessions, and those could be established quickly and then roll into -- we expect to complete the other 2 sections, but the first manufacturing phase actually being pulled forward, which is very good news for us. Matthew Selinger: And then so earlier, you spoke about the drivers for our technology and the use of our products. But -- and you spoke about NOx emissions being the main one. But this project is a bit of some other drivers. Is that correct? Colin James Deller: It is. And this -- we mentioned the CFD and the competition modeling, this is where that really gets to be very valuable. So a big part of the economic driver for our client in undertaking this project is not only maintaining compliance with NOx emissions, but in this case, to improve the performance and the operation of the heater. So another thing that we can do with our technology is we have great ability to control the shape and the structure of the flame and impact the pattern or the way that the heat is transferred to the heating services inside the heater. So we can distribute the heat evenly and basically reduce hotspots that can occur if you don't do that well. What that means for the client is that we can reduce the maintenance requirements, we can reduce the frequency of prevent having to replace damaged tubes, increases the what they call the uptime of heater basically increasing their productivity and reducing their maintenance costs. So we can deliver a very real return on investment for the client in addition to or as opposed to on the emissions-based projects, we're really -- in that case, we're delivering a much more economical way of solving a problem for them. In projects like this, we can actually give them a return on investment in terms of making more. Matthew Selinger: Okay. So we're actually making the heater run better and more efficiently. Colin James Deller: That's correct. Matthew Selinger: Now the other layer about this project you and I were discussing recently is what I'll call the design or engineering of this order. And you were telling me this is kind of a new iteration or application of burners. Could you give some more color about that? Colin James Deller: Yes. And it makes sense. So to tie back to when we talked about the company and the industry in general and the feasibility or the assessment from ExxonMobil of 50% of burner being good application to ClearSign, that was based on the burners we had available at that time, which were upwards vertically fired round shape burners, which is the most common shape. But there are different types of heaters and different shapes and configurations. This particular case on the Gulf Coast, the burners are mounted and firing horizontally on opposed walls at the end of the square box. They're firing in towards each other. There are a number of heaters of this configuration, getting into and getting this reference and demonstrating the burners performing well in this configuration provides a very good reference for us and opens up this new type of heater for ClearSign and expanding our market. So it's actually not just showing what we can do in control of the flame shape and making the heater run better, it's also getting us a reference and an extension of our product line into the horizontal configuration. Matthew Selinger: Right. So it's demonstrating a larger applicability and expanding our addressable market? Colin James Deller: Yes. Matthew Selinger: So then let's turn to the 32 burner order and how is this order progressing? Colin James Deller: So this order is very similar to the first in many ways. So we received the CFD and the engineering order upfront. That has gone very well. The same as the first order, this project has also been split into 2 parts and the first part being accelerated. So we're actually going to expect to move into the testing phase quite soon. In fact, we recently received the order for some engineering to support that test. And then after that, expect to move in and be able to make the product for that first heater ahead of the schedule that we originally anticipated. So that's good news. Matthew Selinger: That's positive. And then since we're on that previous order, we're talking about designs or applications. Is this a standard application or a configuration? Colin James Deller: These -- it's amazing how similar these projects are. This is -- it's a different configuration. This is a flat burner. So whereas the standard burners around, in fact, the horizontally fire burners we just talked about around, this burner is a long thin flame and the burner is designed to fire up against the wall inside the heater. To get the heater, the heater has a either a brick or a concrete, a high-temperature concrete wall, the burner heats the wall up, heat radiates on the wall onto the process tubes. What's especially interesting here is there are a large number of heaters and refineries of this configuration that makes this burner very relevant. What's particularly interesting in is looking forward to our product development pipeline, we're looking to get into the petrochem and specifically the ethylene manufacturing heaters. And having a flat burner that fires up against the wall of this configuration is a very common format in the ethylene furnaces. And that industry in itself is about the same size as the entire refining industry if we can get into that production. So these burners, as we're developing them for this refinery process heater are a good step in that direction. It shows our capability to produce the shape of burner. There's still work to do to get into the ethylene furnaces, but I believe this can provide a very valuable step forward as we move into and expand into that ethylene markets, are very exciting for us. Matthew Selinger: Yes. So not only are these 2 orders, large orders for us, they're both different configurations and each one that are going to be great references and expand our applicable market. Colin James Deller: That's true. And I think at a higher level, when you look at these, I think what is showing with our very developed CFD capabilities and a very adaptable burner technology that we developed through the government SBIR program is that we have the ability to take our standard burner and to adapt that to meet the special needs of customers in these different heater applications where the burner has not been successful. So it truly platforms and showcases what we can do at ClearSign, the high level of engineers that we've been able to recruit and hire the sophisticated CFD technology that we deploy, the experience within the company, combine that with the IP that we have and what we've developed through the big SBIR project we've just completed. I think it shows those capabilities at a high level and how we can adapt this technology and readily take it and put it into these different configurations and show the success that we've been able to show. Matthew Selinger: Okay. Well, then beyond these 2 existing projects, what does the pipeline look like? Now we did mention a story on the last call about a new major refiner wanting to get quotes on 10 or so heaters. Have you seen any of these requests? Colin James Deller: We have -- again, let's take a step back, if we can. We gave an update call in February of this year. And the main reason we did that is we've seen a shift in the type of inquiries for quotes that we've received. Basically, we started to get a lot of interest from super major household name, major refineries have rolled into the orders we've just talked about, but there was a lot of other interest from these big customers that we've been pursuing and had not had great success while our technology was just not well known or trusted within the industry. And seeing that significant shift in the market dynamic was very relevant, leading to the update we gave in February. So as part of that call, we did talk about one instance we discussed was through heater engineering company, by Wahlco, one of the major refineries and one of the key decision-makers, subject matter experts there talking to his close relationship person at Wahlco to get references of their experience working on the 26 burner project, a turn around and asked Wahlco to refer 10 projects that they have lined up in their queue to ClearSign for input going forward, right? So now to date, we've received 4 of those inquiries and been able to provide proposals for them to set expectations, right? These type of projects are usually scheduled over a long period of time. They're scheduled around our refinery turnarounds and project planning. There's a lot of work. So this is not all work that's going to come in, in the next 12 months. Some of these are scheduled out years and will continue to be. But in terms of building up our proposal backlog, this is very significant. So to date, we've quoted 4 of these. We expect more to come. Matthew Selinger: Great. And then for those -- and you're right. And referring to that last call in February, we did talk kind of a market dynamic that we're seeing, right? Larger customers, larger facilities, larger heaters, thus, we're seeing kind of larger orders, quoting larger orders. Colin James Deller: Yes. Matthew Selinger: And then from that, could you talk about the total process burner pipeline in general? Colin James Deller: Yes, I can. So just as a -- put some data points out of those 4 heaters for that refiner total about 73 burners, I think, is the total for those 4. In the last call, the -- we gave a general number, the backlog quoted was around 200. The -- and that included what we knew about the 10 heaters from -- because we've continued to get inquiries. We received some more, and I believe that total around 225 as we sit today. And again, those are also from household name well-recognized major refiners. Matthew Selinger: And then what sort of -- I mean we also talked about in the last call, but what sort of marketing initiatives do we have kind of on the horizon coming up? We mentioned a demonstration coming up later this month. Colin James Deller: Yes. I mean there's obviously -- we're pushing LinkedIn and advertising campaigns. But the big event right now, we have a new burner technology we developed under the DOE SBIR grant. That development was completed last year. And the last part of that project, we're actually releasing that and demonstrating that to industry in a couple of weeks on April 23. So we have a demonstration going on at the Zeeco test facility with decision-makers and subject matter experts from major refineries and engineering companies coming in to town for that. Matthew Selinger: And how does this compare? I know we've done previous demonstrations like this, but maybe just could you give a comparison how this might compare? I know it hasn't happened yet. But how does it look like so far compared to previous demonstrations that we've done? Colin James Deller: Yes, we can because we -- obviously, we track the responses, the invitations and new crews coming in. Much like the dynamic in the market and proposals, we've got a -- the previous demonstration, I believe the attendance was around 16 to 18 people. So far, we have just over 30 and counting people coming into this demonstration. But what's particularly important is who is in that 32. So we have key decision-makers, subject matter experts from the major refineries and major engineering companies, including customers that we're bidding to and have on the respective pipelines coming in to see. These people are taking time out of their schedule, flying to Tulsa, spend a day with us. So this is a very pleasing development for us. Matthew Selinger: Yes, I think it will be a great event. Well, then let's shift to the M series, which is our midstream focused product. Jim, like you did with process burner, would you mind kind of describing the midstream application and maybe in comparison to the process burners? Colin James Deller: Yes. This is -- so the industry to start with, right, the refining and petrochemical is taking crude oil and processing it to an end product. The midstream, we're moving upstream. The midstream is really transportation and predominantly with this being about gas, it's also the purification and the cleaning of the gas. When it comes out the ground, it's got components in you don't want to burn, so it gets cleaned and then transported to the gas you'll see coming out in your homes and the client side. For the heaters and burners, the equipment is typically a lot more simple than the refinery heaters. It's also a lot more standardized. So that means that the burner products that we have can be designed, but once designed, they don't get customized on a job-by-job basis. The fuel is always natural gas compared to refineries where you got a whole mixture of blends. The business for that reason, can be much shorter cycle. The burners tend to get built to existing prints. It is a very low consumption of engineering and project management resources once the products have been developed. So it's a very -- well, it's based on the same technology and expertise in terms of the product line itself and how we think about it, it actually operates very differently to the process. So we can take an order to revenue much more quickly. We don't have always detailed visibility of the pipeline because once clients -- our clients heater manufacturers, once they have pricing of our burners, they will use that pricing on multiple occasions whenever they have an application for that burner, they don't come back to us for details. So there are, I'm sure many quotes out there using our equipment that we don't even know about. Matthew Selinger: And we did talk about pipeline. I know, again, we keep referring to that last call, but we did mention I think our proposal pipeline on that last call, which sits about... Colin James Deller: It was about 50 at that time, I believe. Matthew Selinger: 5-0? Colin James Deller: Yes. And they continue to come in. And like I said, that's what we know about. I'm sure there are others out there that we don't know about at this time. I think just on that note, right, we have -- there's 2 burners. We have an M1 burner that has run now for many months. That's our first burner, that's the ultra-low burner that burn ran around 2ppm, far exceeding any requirements of these burners. But we've also developed a lower cost, what we call the M25, which is a lower spec burner for a much broader application. There's a lot of inquiries using this burner. The first of those started up 2 weeks ago, met all requirements, that burner is up and running. So that was a very pleasing development for us to actually have one up and running at actually Devco heater down in Texas. Matthew Selinger: Okay. And that's through Devco. And that was the dynamic we talked about how we sell to third-party manufacturers, companies like Devco. Have there been some developments with these third-party manufacturers? Colin James Deller: Yes. I mean the -- in particular, Devco, watching the news. So we've mentioned Zeeco as our partner, Zeeco is a multibillion-dollar company. Zeeco actually purchased Devco, now Zeeco. So they are now very close to our office. I believe -- well, the first thing that happened was I reached out to Zeeco at the same time that Zeeco reaching out to us to confirm that the ClearSign would still be part of the Zeeco business. So we were both pursuing the same goal there. So that's very pleasing. My understanding is Zeeco has obviously taken that business over looking to grow it. They have a lot more resources than the old Devco. So I believe that's actually very good. We could be seeing a lot more Devco work in the future. Matthew Selinger: Okay. Great dynamic. So then we've covered refining, we've covered midstream. Let's get closer to the production well and talk about another product line, flares. Now this is a product line that we've seen a strong resurgence and expansion in orders and in the monetary size of orders. So can you give -- just like the other 2 product lines, Jim, could you give a brief description of our flare products? Colin James Deller: Yes. So most people will see flares, you -- when look at more refinery, you see the large flames on very tall sticks or pipes or stretches going up in the air. There are many different types of flares, right? Ours are a much smaller flare. The typically stand 30 to 50 feet high or they're inside of that size of vessel, they are enclosed flame. And the reason they built that way is that like our other products, we have a low emissions flare. So on flares in certain regions of the company, they're also required to control their NOx emissions. We have a burner product that can do that. The earlier orders for the flare burners we took were to upgrade the burners in existing flares. So basically, our clients have purchased flares from another supplier. The flares didn't work, but they couldn't meet the emissions requirements. They came to ClearSign to replace the burner, which we did inside the existing stack. Those orders to us ran in the region of $200,000 to $250,000 per burner order. Recently, our clients have seen benefit from having us replace more and more of the equipment. So now we're typically replacing not just the burner, but replacing the fuel control system, the blower and in fact, the elements of the stack. The most recent order is a good example of this. We refer to them as system project by replacing the entire system. And these orders are coming in on the low end, $500,000 up to about $1 million apiece, the last order was right around that $1 million. Matthew Selinger: Right. And so we talked about that, that our most recent order was, I think, the customer's fifth order from us, and that customer evolved from you say, just burning -- excuse me, just ordering the burner parts, morphing into a full system. And this last full system came in around that -- closer to that latter number, the $1 million range. Is that correct? Brent Hinds: Yes, that's right. Matthew Selinger: And then what does our prospective pipeline look like here for this product? Colin James Deller: Yes. So I mean just with this client, we have one flare with them is due to stop at start of any time is just waiting on a component, which is not as supply somebody else's supply. We have the one that we've mentioned now that is being built. We believe or understand from them that they have 4 or 5 more flares that they will need. Now we don't know exactly the timing, but that's -- there are more flares needing low emissions coming up based on California and also, we believe also the Midwest. When we think about this technology though, we also look at it in a horizontal, which generally referred to an incinerator or thermal oxidizer. And in that format, the ability to burn a hard-to-burn waste gas has a lot of inerts is another big cost driver, right? If typically, the client will have to buy natural gas to burn this type of gas completely. With our burners, we can burn this in its raw form, don't -- without the need to buy any supplemental gas. And we have a number of projects quoted and hopefully going to come through later this year based on that. So those -- we generally group those also into that description of system projects. So both in the vertical enclosed flare format and in the horizontal incinerator or thermal oxidizer format, we're seeing a fairly healthy pipeline there. And in the latter in the thermal oxidizer format, there are a lot of renewables applications. So it's not just the refining and the wellhead fields, it's getting into other industries. Matthew Selinger: Okay. So you can look to some potential continued momentum in this product line. Colin James Deller: Yes. Very much. Matthew Selinger: So with that being said then, Jim, we're partway into 2026. And looking forward into this year, what are the milestones that investors should be looking for? Colin James Deller: I mean very clearly, at this time, it's all about building our backlog in the company. So getting orders in. But we're seeing significant opportunities out there now. We need to bring those orders in-house. So we've got that backlog to consistently get to a breakeven point and to stay there. So we're bringing in these large refining process orders and by building on that momentum. The start-up down on the Texas Gulf Coast is going to be a very significant reference point for us. I believe there are a lot of people watching that project. The demonstration on April 23 in just a couple of weeks to industry is going to be very significant all in [indiscernible] all about building the backlog, bringing these orders in, growing our traction with the refining industry and pushing out with new shapes and getting into more heat and showing what we can do. We're getting more and more of that work. Beyond that, the flare systems projects and thermal oxidizer projects with the size of those orders, that can be a very meaningful revenue stream for the company. So we are absolutely looking to push and maximize the references from the installations we get in that segment. And the midstream, there are a lot of quotes out there in that midstream industry just bringing those in and turning that into a routine business for us. Matthew Selinger: Okay. That's great. So that's all the prepared questions I have today. So with that, let me take a pause, and we will open it up for Q&A from analysts and investors. Operator: [Operator Instructions] Our first question comes from Peter Gastreich with Water Tower Research. Peter Gastreich: So congratulations on your results and a great start to 2026. Just first of all, I appreciate the detail around the burner order configuration. Are you able to expand a bit more on what this will mean for your addressable market? And how would you characterize the size of the market opportunity? Colin James Deller: Thank you, Peter. I mean the -- it's actually very large. The most pleasing part about the SBIR project was the burner platform that we've developed. It's certainly a very good straight refinery burner. But the way that the burner technology is structured, it allows us to adapt it to different shapes. So in the quarter, the 2 orders we talked about, if I had to put a number to it, it probably adds 20% to 25% to our refining coverage in just those 2 formats. But when you think larger about what we can do with that burner, I mean I truly think it opens up the door for us to get into the ethylene production, as I mentioned, which is about the size of the refining industry in itself. And I'm not sure where the boundaries are, to be honest. It's just a very flexible burner format that is very applicable, I think, and can probably open up some new markets we've not even considered yet. Peter Gastreich: Okay. Great. And so for the fourth quarter, you had a big jump in revenue with that equivalent to 70% of the full year. Meanwhile, you mentioned before that Zeeco made a substantial effort to ship 26 burners by year-end. So with your technology really being something you as potentially being disruptive, big addressable market out there, orders could expand meaningfully. How should we think about the capacity of Zeeco and the supply chain to facilitate this large growth outlook? Colin James Deller: Yes. I mean when you put things in perspective, right, Zeeco is a multibillion-dollar company. They have global manufacturing. So I would love to be a supply problem for Zeeco. They have the biggest test facility in the world. They truly have -- up in the region, I believe, north of 15 test furnaces there. So they -- it is not a problem. Also for the other product lines, we have multiple other manufacturers in Tulsa that we can use that are used to manufacturing equipment for the combustion and the oil industry in general. That's part of the reason we moved the company here in addition to the human personnel and the expertise here. So there -- believe me, there is very adequate resources within Zeeco and then within Tulsa for the other product lines for ClearSign. Peter Gastreich: Okay. Great. I'll just ask one more question here before getting back in the queue. So it looks like your installed base here is on a solid trajectory. How should we think about the aftermarket pull-through here, maintenance, spare parts, things like that as a contributor to future revenue? Like how substantial will that be? Colin James Deller: I mean based on what we've seen at ClearSign and also for me, based on my prior experience, it is an extremely meaningful product line in itself. It is very profitable because the -- all the engineering and the design work is done, and the clients' need is based on responsiveness. So it's very profitable and the more equipment we get out as our business grows, it will continue to grow. And it is likely that in terms of profit margin, it may well end up being close to the largest source of income for ClearSign as we look further ahead in the field and as we get more equipment out there in the market. So it is a very important product and one that we pay a special attention to now because of how important we expect it to be in the future. Operator: [Operator Instructions] The next question comes from Amit Dayal with H.C. Wainwright. Amit Dayal: Just with respect to sort of cadence of revenues in '26, how should we think about quarterly revenue flows this year? Brent Hinds: That's a great question. From a quarterly perspective, Q1, I feel confident in saying that it's not going to replicate Q4 of 2025. But from an overall annual perspective, we feel confident with the revenues for 2026. Colin James Deller: I think if I can, just in general for, we've said this before, given that our orders are very large and also long term, our revenue flows will be lumpy, right? We're not going to get consistent smooth quarters, especially not at this stage. As the business grows and we get more orders in-house, that will tend to smooth out with the volume. But at the period we're at right now with these large orders, I say it's going to fluctuate. Looking long term at the -- well, we talked a lot about the interest from our customers and the pipeline we're seeing on the proposals. As that flows through and those come in, I mean the long-term view for the company is very healthy. I chime really just to caution that I do expect things to be lumpy in the short term. Amit Dayal: No, I appreciate that. Just wanted to see if that is still sort of in play. Not expecting anything different, but it's good to know how we should think about '26. And then just from a balance sheet perspective, are you comfortable as your orders ramp with respect to working capital needs, et cetera, to meet your growth requirements? Colin James Deller: Yes. Brent Hinds: Yes, we feel very confident in the cash position that we have. Colin James Deller: I think for the new investors on the call as well, it's good to point out with our projects that they're typically self-funding. We actually bring enough money in early in the project to cover our cost for the execution of those orders. So we do not need cash. So as the large orders in our pipeline come in, we don't actually need our cash to execute those orders. We typically get that cash in, in advance of our costs or expenses. Amit Dayal: Okay. Understood. And then just last one. With sort of this current macro situation in the Middle East, in the energy space, some of the product deployments need downtime, et cetera, for customers to put these things into play. Do you think you might face some pushouts from that perspective? I don't know, it may be too early to tell, but any thoughts on how that part of the execution... Colin James Deller: So you're referring to the Middle East? Operator: We lost Amit's line. I will see if I can get him back on the line for you. Colin James Deller: Okay. I believe he was asking about the Middle East and the structure there. So those projects will be long term. We don't know what is happening there. Typically, the emissions regulations in the Middle East are not in the same level as those in the U.S. So it's unlikely that ClearSign technology will be deployed to the Middle East in the near term. No. If that increases the demand and the production in the U.S., it may well drive the need for equipment or upgrades in the U.S. There may be some benefit there for ClearSign. But to be clear at this point, I don't see ClearSign products being shipped out to the Middle East just because there's not a need for them. Matthew Selinger: And I'm going to go ahead and dovetail a question that was sent in about a similar topic. There was a question asked, Jim, if there was a great need for U.S. products being sent there, could our, in a sense, manufacturing supply be disrupted? Could we have issues getting our own burners manufactured, let's say, here locally? Colin James Deller: Yes. I don't see that as being a concern. I mean one of these projects tend to be long. But also if we're thinking most of these will be refineries, if it's Zeeco. Zeeco is a global company. They have manufacturing around the world. In fact, they actually have a manufacturing base in Saudi Arabia there to serve the Middle East. So our products are typically manufactured in the U.S. plant. So I don't see that as a concern at this time. Matthew Selinger: And I'll give another follow-up question, if I could, Jim, from an e-mail that came in. There's been also very news kind of relevant. There's been a lot of discussion of potentially the first new refinery being built in Texas. Are we seeing or hearing anything about that? Colin James Deller: We obviously see the news, and there's been a couple of release out this week. Within the industry, we're not hearing much actual factual news. So we're watching it closely. I'm -- I think at this point, I'll just say we are paying attention to it. I would not put too much at stake at this time. As things develop, if they do, and they've mentioned there being a hydrogen fuel to that site. If that does materialize, it could be very relevant for ClearSign. But at this point, we are watching 4 developments, let me say, there's -- we've not seen any solid details about that yet. Matthew Selinger: Okay. Great. Jim, I'm seeing no more questions. So with that, I think we'll go and wrap up the call. I will pass it back over to you. Colin James Deller: Great. Thank you, Matthew, and thank you, everyone, for joining us today and for your interest in ClearSign and especially for taking the time to listen to our call. We will be presenting at Water Tower Research Insights Conference next week on April 15. and the company can be found on their website, watertowerresearch.com. We look forward to updating you regarding our developments and speaking with you on our Q1 2026 call, which will occur in May. In the meantime, please keep checking in for developments on our website. And for more behind-the-scenes updates, please follow us on LinkedIn. With that, thank you very much, and thank you, operator. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to the BlackBerry Fourth Quarter and Full Fiscal Year 2026 Results Conference Call. My name is Betsy, and I will be your conference moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Suzanne Spera, Senior Director of Investor Relations, BlackBerry. Please go ahead. Unknown Executive: Thank you, Betsy. Good morning, everyone, and welcome to BlackBerry's Fourth Quarter and Full Fiscal Year 2026 Earnings Conference Call. Joining me on today's call is Blackberry's Chief Executive Officer, John Giamatteo; and Chief Financial Officer, Tim Foote. After I read our cautionary note regarding forward-looking statements, John will provide a business update, and Tim will review the financial results. We will then open the call for a brief Q&A session. This call is available to the general public via call-in numbers and via webcast in the Investor Information section at blackberry.com. As part of today's webcast, presentation slides will be played. The slides are also available on the Investor Information section at blackberry.com as well the replay of today's call. Some of the statements we'll be making today constitute forward-looking statements and are made pursuant to the safe harbor provisions of applicable U.S. and Canadian securities laws. We'll indicate forward-looking statements by using words such as expect, will, should, model, indeed, believe and similar expressions. Forward-looking statements are based on estimates and presumptions made by the company in light of his experience and its -- of historical trends current conditions and expected future developments as well as other factors that the company believes are relevant. Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. These factors include the risk factors that are discussed in the company's annual filings and MD&A. You should not place undue reliance on the company's forward-looking statements. Any forward-looking statements are made only as of today, and the company has no intention and undertakes no obligation to update or revise any of them, except as required by law. As is customary during the call, John and Tim will reference non-GAAP numbers in their summary of our quarterly results. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release published earlier today, which is available on the EDGAR, SEDAR+ and blackberry.com websites. And with that, let me now turn the call over to John. John Giamatteo: Thanks, Suzanne, and thanks to everyone for joining today's call. BlackBerry finished the fiscal year with another strong quarter, delivering double-digit top line growth and marking the eighth consecutive quarter of improving GAAP profitability, capping 2 full years of significant progress in the fundamentals of the business. When this new management team was appointed, we promised a turnaround to transform BlackBerry into a profitable growth company, and I'm pleased to report that we've done exactly that. These are not just data points or even a trend, but a consistent track record of delivery. The turnaround is complete, and the BlackBerry story is now a growth story. . QNX delivered another rule of 40 quarter, rounding out a rule of 40 year. We achieved the second consecutive record for revenue in the quarter, exceeding the top end of the guidance range at $78.7 million, representing 20% year-over-year growth. The nature of the business means -- building on a solid and underappreciated Q3, we believe QNX is as strong as ever. Revenue was driven by a record quarter for royalties and development revenue had its best quarter of the year. We are delighted to report that QNX royalty backlog continues to grow, increasing to approximately $950 million. We added significantly more into the backlog than we recognized in the P&L this year. The backlog provides QNX with a line of sight to ongoing multiyear durable revenue growth that few companies enjoy. Consistently adding backlog year after year, significantly above the rate it is recognized in the P&L is a key indicator of future revenue growth potential. This is not a business that is slowing down, but rather one that is compounding, powered by our continued leadership in automotive and growing momentum across physical AI, robotics, industrial, medical and emerging markets. The royalty engine is just getting started, and we're more excited than ever about the future of QNX. It is important to reiterate that QNX's growth should not be judged from quarter-to-quarter. The nature of the business means that design wins aren't evenly spread and therefore, neither are development tool purchases. Further, the majority of revenue we secure from a design win will come once it moves into production, which is often 2 to 3 years in the future. As a result, some quarters like Q1 tend to be seasonally softer, while others such as Q4 are typically much stronger. We saw this last year. Q1 grew at a single-digit rate year-over-year in fiscal 2026. But QNX still delivered 14% growth for the full fiscal year. We expect a similar cadence this year. Despite that unevenness from quarter-to-quarter based on our strong backlog, pipeline and operating leverage, we expect QNX to remain a Rule of 40 business for fiscal year 2027. Therefore, it is important to focus more on the strength of our full year growth, the continued expansion of our backlog and our growing design win pipeline all of which points to QNX remaining a solidly double-digit growth business. Our QNX strategy is underpinned by our automotive leadership. This past quarter, we demonstrated that with a wide range of design wins in multiple domains. Our largest win of the quarter was with a Tier 1 supplier for the Chinese market where QNX will be deployed on Chinese chip maker, Xeris SoCs in a range of smart sensors for use by a number of leading OEMs. China remains a large, valuable and growing market for us, demonstrated by this win, which comes on the back of several other significant wins in recent quarters. We continue to demonstrate our leadership in the digital cockpit domain, including a major win with one of the world's top 5 automakers based in North America. We were able to successfully upsell the customer to a broader range of our product portfolio for a platform that we expect to go into production this year. We also secured a significant ADAS safety system design win in Europe with another top 5 OEM that is deploying a Qualcomm Snapdragon chipset. In addition to the progress in our core auto strategy, we have 2 key growth accelerators that offer significant upside potential. The first is the move up the automotive software stack beyond the core operating system into the middleware layer with our alloy core platform. This platform combines QNX's safety-certified operating system and virtualization with our partner vectors, Safe middleware to provide a pre-integrated safety-certified lightweight and scalable foundation for a number of key domains throughout the car. Alloy core reduces software integration overhead for OEMs, accelerates their development and frees them up to focus engineering resources on differentiating customer experiences in the app layer. We continue to work very closely and effectively with Vector and remain on track for general release of the product this calendar year. While as expected, we haven't secured any design wins for Alloy core yet conversations with several leading OEMs, including Mercedes-Benz are progressing well. The platform represents an opportunity for significant ASP expansion compared to the revenue from selling the core operating system. Alloy core could be many multiples of that. The second growth vector where we're seeing significant traction is the general embedded space. Currently, approximately 20% of QNX revenue comes from non-auto verticals and the addressable market opportunity is massive, potentially larger than for automotive. The technology we developed for auto is intentionally highly adaptable for use in adjacent verticals, and we're investing in go-to-market to drive adoption. Sales cycles in these verticals are often relatively long, but the pipeline we've been building is starting to convert in fiscal year 2026 delivered wins in several of our target verticals. This past quarter, we secured a significant win for our general embedded development platform or GEDP to be deployed in industrial automation controls for a major North American OEM. This was one of a number of wins in industrial automation, which is a key target vertical. We also secured a number of wins in medical instrumentation, including with Johnson & Johnson, where QNX OS for safety will power a new AI-driven heart pump. Robotics represents one of our most exciting long-term opportunities as we stand to capture growth in physical AI. We are building pipeline momentum and expect this vertical to become a meaningful part of gem growth over time. QNX has already proven itself as the platform of choice for physical AI, given its large footprint in all levels of autonomous driving. The car is the most complex consumer device and is essentially a robot all wheels. We believe our strong partnerships will support this growth. Recently, ARM announced its new ARM AGI CPU for use in physical AI. And during the launch event, CEO, Rene Haas identified QNX as one of its foundational software ecosystem partners in support of their aspirations in this space. We also have strong relationships with other leading silicon providers, including NVIDIA and Qualcomm, who are also pushing into physical AI and we believe these partnerships help position us well for future growth. Now moving over to Secure Communications. Just over a year ago, the Secure Communications division was barely discussed. In fact, at the time it was viewed as a drag on our overall story, a business in transition as we focus from a broader cyber portfolio to our core strengths in mission-critical secure communications and digital sovereignty. Today, the situation has changed considerably. This past quarter, secure communications delivered a near rule of 40 quarter, results that would have seemed unthinkable a year ago. We believe it now represents under-recognized value within our portfolio. Revenue was strong at $72.5 million exceeding the top end of our guidance by 12% and delivering 8% year-over-year growth. Digital sovereignty, the desire for governments to retain critical data and communications on sovereign solutions hosted and operated in country is no longer a buzzword. Instead, it is a budget line item for governments worldwide and we are winning in this space with a demand environment that has seldom been stronger. Together with rapidly growing defense budgets among NATO allies and beyond, the Secure Communications division is benefiting from meaningful tailwinds. Secusmart, our military grade encrypted voice and data platform delivered a strong quarter with revenue growing meaningfully year-over-year. This performance was primarily driven by sales to the German government, where Secusmart is a key and trusted supplier meeting the very demanding certification requirements of the German cybersecurity Authority, BSI. Our investment in the platform to support iOS devices in addition to Android, has driven a significant market opportunity for us with the German government, and we see a strong line -- pipeline of opportunities as we head into fiscal year 2027. Outside of Germany, we were thrilled to announce a multiyear extension and expansion to our contract with Shared Services Canada. SSC is the Canadian government agency responsible for delivering and operating IT infrastructure and digital services for most federal agencies. As part of the deal, the Canadian government has significantly expanded its number of Secusmart licenses. This will help drive a strong start to fiscal year '17 and with meaningful revenue from this deal expected in the new fiscal year. Other wins in the quarter included NATO and the Malaysian anticorruption establishment. UEM continues to stabilize. Although full year revenue declined year-over-year, the renewal rate continued to improve and the value of multiyear deals increased by 47% year-over-year. In Q4, we secured a number of new logo wins particularly by capitalizing on the BSI certification in Germany and where UEM is sold in conjunction with Secusmart. This quarter's wins we're global and included the IRS, the German Bundesbank, the Council of the European Union, the Netherlands Reagewaterstak as well as Switzerland's Bank Julius Baer. AtHoc, our Critical Event Management solution had a solid quarter and full year, recording double-digit year-over-year revenue growth for Q4 and high single-digit growth for the full fiscal year. This past quarter, we secured expansions and renewals with a number of customers, including the U.S. Air Force the U.S. Coast Guard and the U.S. Department of Treasury as well as a new logo win with Australia's Department of Foreign Affairs and Trade. Key metrics for the Secure Communications business indicate an inflection point. Annual recurring revenue, or ARR, for secure comms increased by $2 million or 1% sequentially to $218 million, which is $10 million or 5% growth year-over-year. Dollar-based net retention rate or DBNRR also improved by 2 percentage points sequentially to 94%, 1 percentage point higher than in Q4 of the prior year. Another reason we're confident in the durability of BlackBerry's growth is the competitive moat we enjoy across our QNX and secure communications businesses. This moat is multilayered and importantly, addresses the concerns investors have today about AI and software models. Let me give you 3 reasons why we believe our moat is durable. The first is that our QNX pricing model is different from traditional seat-based SaaS models. The majority of QNX's revenue is consumption-based, primarily driven by royalties tied to the number of high-performance systems powered by QNX in cars, robots and other intelligent edge devices rather than seat-based licenses. Second, our software is embedded in the most demanding, highly regulated safety critical use cases imaginable where users' lives depend on the software working exactly as it should. AI is probabilistic by nature, meaning outputs can vary but the QNX platform is deterministic, delivering the same result every time without exception. That distinction matters enormously when our software controls the vehicle safety features such as adaptive cruise control or autonomous drive. We have built deep trust with customers through decades of flawless execution backed by certifications, such as the rigorous ISO 26262 standard for functional safety. The stakes are high and the cost of failure could be catastrophic and the benefit of replacing a proven certified platform for a marginal price saving in our view, is not a trade-off that any responsible OEM will make. As a relatively small portion of the bill of materials we see the risk and reward equation heavily skewed to our favor. The third is cost of delivery. QNX's scale across the automotive and other verticals drives a cost of delivery advantage that individual OEMs attempting to build and maintain their own solution, even with AI tools cannot match. On the secure comp side, our products are deployed in mission-critical, highly regulated, highly sensitive environments. The license to operate in those environments comes in the form of hard-earned certifications, which assess people and processes as long as long-standing customer relationships that take years to build. Far from being complacent, we see AI as a net tailwind for our business rather than a threat. QNX is positioned to be a critical enabler for physical AI where there is 0 margin for error and learnings from our leadership position in demanding automotive environments serve as a perfect blueprint. Further, in the hands of our R&D experts, powerful new AI tools increase productivity, accelerate development cycles, strengthen our competitive advantages and enhance the operating leverage already embedded in our model. Touching briefly on licensing. Licensing revenue came in at $4.8 million, slightly below guidance due to quarterly variation in returns from pre-existing arrangements that are not indicative of any change in the underlying business. And with that, let me now turn the call over to Tim, who will provide further details on our financials. Tim Foote: Thank you, John, and good morning, everyone. Earlier, John described how both QNX and Secure Communications delivered stronger-than-expected revenue. This past quarter, we saw the impact of this year-over-year revenue growth in both divisions and for BlackBerry overall. QNX gross margins expanded by 1 percentage point to 84%, record revenues of $78.7 million. Further, this drove an 11% year-over-year growth in adjusted EBITDA for QNX to $21.4 million, representing 27% of revenue for the quarter. For the full year, QNX delivered $71 million of adjusted EBITDA or $0.26 of revenue, which together with the 14% revenue growth mean that QNX was a rule of 40 business, both for the quarter and the full fiscal year. The strong top line for secure comms also drove operating leverage, with gross margins expanding by 8 percentage points year-over-year in Q4 driven in part by stronger Secusmart software license revenue. This translated into a 27% adjusted EBITDA margin for secure comms growing to $19.5 million for Q4 and $56.1 million for the full year, well ahead of guidance from this time last year. Our licensing business contributed $6.3 million of adjusted EBITDA in the quarter and $21 million for the full year. This relatively passive income stream remains a solid source of both profitability and cash flow for BlackBerry. Adjusted operating costs, excluding amortization for our corporate functions, came in at $11.1 million in Q4 and $41 million for the full fiscal year. Tight cost control reduced corporate overhead by 5% year-over-year in fiscal year 2026. Pulling this all together, BlackBerry had a very strong fiscal quarter and solid fiscal year. Total company revenue grew 10% year-over-year in Q4 and 3% year-over-year for fiscal year 2026. For the quarter, year-over-year, gross margins expanded by approximately 5 percentage points to 78.2% and adjusted EBITDA margins by 8 percentage points to 23%. For Q4, BlackBerry generated $36.1 million of adjusted EBITDA driving full year performance, exceeding the top end of our guidance range at $107.1 million. Adjusted earnings per share for Q4 also beat the top end of the guidance range at $0.06. In Q4, we converted this strong profitability into cash flow. During the quarter, we generated $45.6 million of operating cash flow and a further $38 million in deferred proceeds from the sale of Cylance to Arctic Wolf. This conversion of profitability into cash continues to strengthen our balance sheet. We exit fiscal year 2026 with $432.4 million of cash and investments or $232 million of net cash. This provides the company with substantial optionality for capital deployment. This past quarter, we continued to execute on our share buyback program, repurchasing 6.7 million shares for $25 million. This brings the total since the program launched in May of last year to 15.5 million shares or $60 million. The share buyback program serves 2 purposes, offsetting dilution from equity-based compensation and signaling how we value the company relative to current price levels. Further, given our capital generation, we are actively considering tuck-in M&A as a way to further accelerate growth in QNX. While QNX has a strong organic path to durable long-term growth. We also see opportunities to increase both the speed and scale of that growth through strategic buy-side M&A. The bar is high, however, and any M&A need to be compelling both strategically and financially. Moving now to guidance for Q1 and the full fiscal year. As John mentioned, the turnaround is now complete. BlackBerry is now positioned as a sustained growth story. QNX entered fiscal year 2027, with solid momentum. For Q1, we expect revenue to be in the range of $60 million to $64 million, reflecting the seasonal cadence that we've seen from QNX in recent years. As John mentioned, growth from quarter-to-quarter is unlikely to be linear due in part to the impact of upfront revenue from development licenses. Therefore, some quarters will have stronger year-over-year growth than others, but we believe the trajectory is clear and consistent. For the full fiscal year, we expect to continue to drive solid top line growth with revenue in the range of $290 million to $307 million. The top end of the range represents approximately 15% growth and acceleration over fiscal year 2026, and this is our target. However, given the current uncertainty in the macro environment, we believe it's only prudent to price and some risk to the lower end of the range. On the cost front, we continue to invest organically in our QNX business to capture the opportunities we see in front of us. We expect a sustained top line growth to translate into adjusted EBITDA for QNX in the range of $69 million to $81 million for the full year. We expect secure comms to return to full year growth for the first time in 6 years. This is an important inflection point. The combination of digital sovereignty tailwinds and the benefits from key investments such as Secusmart iOS support, FedRAMP high authorization for AtHoc and UEM BSI certification is helping stabilize UEM and drive growth for AtHoc and Secusmart. We expect Q1 revenue in the range of $66 million to $70 million. For the full fiscal year, we expect to deliver top line growth in the range of 4% to 8% or $270 million to $280 million. We expect adjusted EBITDA for the fiscal year 2027 to be in the range of $57 million to $65 million. For our licensing division, the revenue stream is relatively solid, and we expect licensing to remain a consistent source of profitability and cash flow. As a result, we continue to expect revenue to be approximately $6 million each quarter and adjusted EBITDA of approximately $5 million per quarter. Bringing everything together at the total company level, we expect BlackBerry to deliver an acceleration in top line growth in the range of 6% to 11% for fiscal year 2027, or $584 million to $611 million. We expect adjusted EBITDA of between $110 million and $130 million and non-GAAP EPS to increase significantly to be between $0.15 and $0.19. This EPS guidance does not reflect the impact of any potential future share repurchases. Finally, in terms of cash, consistent with historical patterns, Q1 is expected to be a seasonal low for cash flow, driven by the billings and payments timing. However, for the first time in 3 years. We expect BlackBerry to maintain positive operating cash flow generation in Q1 in a range of breakeven to $10 million. Further, improved cash conversion is expected to drive full year operating cash flow of approximately $100 million, nearly doubling year-over-year. And with that, let me now turn the call back to John. John Giamatteo: Thanks for the summary, Tim. And before we move to Q&A, let me briefly summarize the key takeaways from this past year. BlackBerry's turnaround is complete and we are now firmly focused on growth and value creation. Over the past fiscal year, we delivered consistently improving fundamentals highlighted by a record revenue quarter for QNX. Today, QNX is a Rule of 40 business with growing backlog and strong sustained momentum. Secure Communications has returned to growth, supported by a demand environment for digital sovereignty that is both real and accelerating. Across the company, we are growing, generating meaningful cash and deploying it with discipline. We have a proven track record of execution, a clear strategy, and we are well positioned for the road ahead. So with that, let's now move to Q&A. So Betsy, if you can please open up the lines. Operator: [Operator Instructions] The first question today comes from Kingsley Crane with Canaccord Genuity. Unknown Analyst: Really impressive results. this term physical AI is in vogue now, and you've been building capabilities in the gym space for years. I'm just curious if customers understand that automotive really can be a blueprint here and thinking about the distinction between deterministic action and probabilistic action, that seems important not just in auto, but also in other areas like general Robotics. Just curious on that. John Giamatteo: Yes. Yes. That's really good perspective is. And that's something that we think has really resonating in the prospects and the pipeline that we're building in the robotics space and particularly in the GM space. The credibility that we have in the automotive space with autonomous and all the safety certified capabilities that we provide there really translates so well into an environment like physical AI and I think for that reason, we get a lot of looks at new opportunities that maybe others don't and maybe we wouldn't have had in the past. But we think the combination of leveraging that subject matter expertise, the building out of our go-to-market function and some of the partnerships that we have there, we're really starting to see some solid pipeline will -- it will take some time to convert it and to turn it into backlog and royalties and the rest of it, but we are very encouraged by the momentum that we see in that space. . Unknown Analyst: Thanks, John. Really helpful. And for Tim, look, the ASPs on the GEM wins are meaningfully higher than automotive. Could you just remind us of the delta between those? And would these opportunities in physical AI meaningfully expand that further? Tim Foote: Yes. Great question, Kingsley, and great to speak with you. Yes. So one of the things, obviously, is the volume equation. When you look at auto, you have some very significant volumes in terms of production runs. And you don't typically see that in GEM. But quite often in this space, particularly things like robotics and physical AI. Right now, it's speed to market, that's the most important thing as opposed to sort of driving gross margins for the OEMs themselves. So what we're seeing is less price sensitivity on that side of the house. What we see is, ultimately, the growth story is to have more instances of QNX running with more layers of software as well. And physical AI as John mentioned, being a really compelling safety critical use case is a really high-performance edge compute type environment that we really would excel in. So yes, we believe that as GEM starts to grow as a portion of the overall pie because it is growing pretty fast right now, that could be pretty accretive to our gross margins going forward. Operator: The next question comes from Todd Coupland with CIBC. Thomas Ingham: I wanted to ask about Alloy Core. You talked about general availability later in the year, how meaningful this could be? How meaningful could this be to your backlog, maybe put that into the context of the $950 million you just reported. . John Giamatteo: Yes. Todd, we -- I will tell you -- Tim and I talk about this all the time. We think this is one of the most underappreciated part of the business in terms of our -- the upside potential that we have to this current year because we're finding more and more OEMs are looking for us to do more and more of this kind of partnership with the likes of Vector. So we're -- the pipeline for that is growing significantly and we do think it can have a meaningful impact to the overall backlog. We're confident on rolling it out in time. And we're also confident in converting a number of opportunities that are pretty -- progressing really, really well. So it's hard to put a specific number on it and probably be inappropriate for me to do that. But I do think it can have a significant impact to that $950 million backlog and set us up even better for future growth in a place where we already have a lot of credibility. Thomas Ingham: And then in terms of robotics, exclude an automation, industrial automation, are you bucketing that in physical AI? Or is that a separate category? And then specifically on that, what does the pipeline look like? And how meaningful could that be to your backlog and growth in the coming year? . John Giamatteo: Yes. Robotics, physical AI, we would -- when we think about the general embedded space, we think of really 3 categories that we've had great momentum on industrial automation, medical instrumentation. It's a really nice win this quarter with Johnson & Johnson. And then robotics and physical AI, we kind of bring that together. Today, it represents an overall 20% of our backlog-ish of our revenue. And we think the robotics component of it is probably going to be one of the faster-growing segments of those 3 verticals that we're focusing on. So we'll continue to provide updates on wins as we make further progress in this space. But between alloy core and the gym in those 3 verticals, we think the growth trajectory is very optimistic about the growth trajectory of those businesses. Operator: [Operator Instructions] The next question comes from Paul Treiber with RBC Capital Markets. Paul Treiber: You see the QNX backlog growth, it did improve to 10% this year, up from 6% last year. Could you walk through some of the drivers of that improved growth, whether it's obviously, new deals, but then also if there was any increases in any existing deals? And then what are some of the key categories that are seeing stronger growth or contributing to that growth? John Giamatteo: Great. I'll start, Tim, you chip in. I think part of the growth in the backlog, Paul, is that like we built out the portfolio of QNX in a pretty comprehensive way. A few years ago was QNX SDP 7. Today, it's SDP 8, our next-generation capability Today, it's QNX cabin, which gives our OEM customers the ability to more cost effectively deploy their products. QNX Sound is another component of it. Alloy core is another component. So what was, I think, a more limited focus in the product is a much broader set of capability and some of the wins this quarter with a major OEM in North America, where we've kind of gone deeper and richer with some of these other capabilities. So having a broader portfolio within the auto space, has, I think, been really, really helpful. And then obviously, we've already talked a little bit about the GEM momentum in those 3 verticals. So the combination of all of that is I think what helped us resulted in a really strong backlog number for the year. Paul Treiber: And then secondly, just on investments that you're making, looking at guidance, it implies 20% EBITDA margins at the midpoint basically flat despite revenue growth. So obviously, you're making investments. Could you walk through what are some of those larger investments? And then also if you still expect leverage of corporate overhead and other cost efficiencies? Tim Foote: Yes. Really good question. So ultimately, we've got very strong balance sheet, Paul. So what we're looking to do is obviously deploy that capital intelligently to drive growth. We see now, as John mentioned, we turn to a growth story. We see value creation going forward, coming primarily now from top line growth and the operating leverage that, that drives. So when we look at the QNX business, we see significant growth opportunities in many different ways. So obviously, backing the Alloy core opportunity driving forward with the full portfolio in the STPA launch, making sure we've got the right go-to-market for GEM. So we're backing all of those things. So looking at the QNX guide for the year, we're actually sort of holding EBITDA relatively flat, and that's a deliberate choice. We're making those investments in R&D and in sales and marketing to really drive that top line growth. Now going forward, we see opportunities then for further leverage to come in the future. But for this year, we're really focused on that. The other part you mentioned was the corporate overhead. I think we've done some tremendous heavy lifting over the last couple of years and taken out a significant amount of cost. Now we continue to take a very close look at every single dollar that we deploy across the business, but particularly in the corporate overhead. So when longer-term contracts are coming up for renewal, we're taking a hard look at those and seeing, do we really need it? Can we downsize it? Are there alternatives? So what I'd say you'd expect to see this year is actually a decrease, a further decrease in corporate overhead from, I think it's $41 million, maybe take $4 million or $5 million off of that going into the new year. But I don't think cutting cost is really now the main focus there. We've turned the page on that, Paul, and we're really looking to drive top line growth. Operator: The next question comes from Steven Li with Raymond James. Steven Li: A quick one. How did share count jump to 643? I'm drawing a blank here, Tim. Tim Foote: 643. No, I don't think that's right. . Steven Li: It's not -- I mean, the diluted share count was 643 for the Q4. Tim Foote: Now the share count should have come down. We're just scrambling to see what the numbers are. So -- we've gone from 590 basic down to 598 and that's really a function of the of the buyback to leave -- particularly... Steven Li: On the diluted share count? Tim Foote: We need to take a look at that, Steve, and then come back to you. . Operator: I would like to turn the call back over to John Giamatteo, CEO of BlackBerry for any closing remarks. John Giamatteo: Terrific. Thank you, Betsy. Thanks, everybody, for being part of the call today. Before I wrap up, I just want to make a quick note that our QNX team is going to be in Boston on May 27 and 28 for the Robotics Summit and Expo, one of the industry's largest events. John Wall will be opening the conference as part of keynote there, and I'll also be on a panel with leaders from Amazon Robotics Universal Robots and Locus Robotics. The team will also be showcasing the latest of our QNX innovations and how we provide the trusted foundation that robotics and physical AI systems rely on to operate safely and predictably in the real world. So if you're in the air, please stop by. We'd love to see you there. And with that, thanks for joining today's call, and we'll see you all next time. . Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Deborah Honig: All right. Good morning or good afternoon, depending on where you're dialing in from. Thanks for joining us today. We have a very exciting update with iFabric. They just put out their Q4 and full year 2025 numbers, which were fantastic and offered some guidance on Q1 '26 as well. With me today, I have Hylton Karon, CEO; Hilton Price, CFO; and Giancarlo Beevis, COO. We're not going to work off a presentation. The format will be a quick overview of the company for anyone that's new to the story, then we're going to get right into the financial numbers and then open it up for Q&A. There is a Q&A box at the bottom of your screen, so feel free to use that. And even though we're not working off a presentation, this session will contain forward-looking statements. If you'd like to know more about those, you can find them on the presentation on the company's website. With that out of the way, I'd like to introduce and hand the mic over to Giancarlo Beevis, who's COO of the company and CEO of Intelligent Fabrics division. Giancarlo Beevis: Thanks, Deb, very much. Hi, how are you? Deborah Honig: I'm good, I'm good. Yes, why don't you tell us a little bit about the company for people that are less familiar? Giancarlo Beevis: Sure. Thanks, everyone, for taking the time to join us. So as Deb said, for anyone who's new to the iFabric story, I'll kind of give you the quick version as best I can. I think at our core, we're really a company that makes everyday products more intelligent and harder working without making life more difficult. So really, what we do is we operate 2 unique divisions, Intelligent Fabric Technologies that develops proprietary performance chemistries and treatments for textiles. If you think of antimicrobial protection, moisture management, cooling, UV protection, those types of things. We then bring those technologies to life in real finished product, whether that be with major brands or through private label programs and major retailers across North America. Our other division is Coconut Grove Intimates, which has spent more than 30 years really developing and distributing solution-driven intimate apparel and accessories, where we really fuse fashion and function. We distribute all those items again through all major retailers throughout North America and some over in the EU and U.K. So really, if you want to know how we think of iFabric today, we're really a global company with proprietary technology, clinically proven technology. Our business is expanding across health care, sports, travel and other consumer markets. We have powerful retail relationships. We have accelerating revenue and a massive runway ahead for us to continue to build on. So we like to say that we're innovation without boundaries, and we quite literally mean it. It's chemistry to checkout is how we think about it. So we're really using our different apparel items and other items across multiple categories to deliver our unique proprietary technologies to the marketplace. So all that in a nutshell, really reader's digest version of who we are and what we do. I'll turn it over to Hilton Price, who talk about fiscal 2025, which was a fantastic record year for the company. Hilton? Hilton Price: Just a second. Sorry, I couldn't unmute. I don't know what happened. Good afternoon, everyone. As is my usual preamble, I would say that we did a very comprehensive press release on the Q4 and annual results for 2025. The full version is available on our website and also on SEDAR, if you want to look at it. So what I'm going to do in this segment is just focus on a few key elements or important aspects of our financials that I think bring clarity to the numbers and where we're headed as a company. So starting off with revenue. For fiscal '25, our revenues of $32.9 million compared to $27.3 million in the prior year, 20% increase, a record year for the company. Quarter 4 2025 was $11 million compared to $10.5 million, a very small 5% increase, nevertheless, a record. But I want to bring some perspective to that. The revenues would have actually been a lot bigger in that quarter. We had around $1 million in product that we shipped late December that only reached the customer warehouses shortly after year-end. I don't know what the delay was. We thought that would arrive before year-end, but unfortunately, that wasn't the case. Now normally, we have a situation where we deliver inventory or product to our customers' shipping companies, we would recognize as revenue because the risk is passed. But unfortunately, in relation to Costco, they've got an exceptional rule in their agreement that they don't recognize the risk until the goods are received in their warehouse. Accordingly, we were forced to move this $1 million in product that shipped in December into Q1, which is one of the reasons why we amended our guidance for that quarter. So that $1 million added on to Q4 would have made for a much better record, unfortunate. But fortunately, we'll see a much bigger Q1. Gross margins. This is an important thing because our margins on the face reduced from 41% last year to 32% in the current year. And in Q4, in particular, went down from 40% in '24 to 26% in '25. There's a couple of reasons for that. I mean the obvious one is U.S. tariffs, which impacted U.S. sales of about $17 million, almost half our revenues. However, the good news is the IEEPA tariffs have been struck down by the courts and have been replaced by a new 10% tariff, which for us is far more manageable. Now that we have clarity on this, I think we're hopeful that we'll be able to reprice goods going forward to the level that we'll be fully be able to recover the 10%. We weren't able to do that in the prior years, we were committed on pricing. So we took the strategic decision to share the tariff cost with our suppliers. So basically, we ate half and our suppliers ate half. That's going to change. The good news is we're lodging a refund claim of about $600,000 for illegal tariffs charged to us. And in fact, the U.S. have started to reimburse companies. They are backed up. I don't know how long it's going to take. Our agents seem to think it will be this year. But nevertheless, the amount is USD 600,000, which translates to about CAD 800,000. And we'll recognize that when we receive it, it will be a bonus for whichever quarter that's applicable to. The other major consideration or factor that impacted margins was the fact that we stopped shipping intimate apparel in the fourth quarter. And that was pursuant to the fact that we did not renew the Maidenform license agreement that we were using to supply apparel to our major customers. We replaced that with our own brand, which Giancarlo can speak to. I believe the own brand is doing quite well, and it's been accepted by all our major customers. So we'll be able to resume -- in fact, we have resumed shipping in Q1 of intimate apparel. Unfortunately, intimate apparel or fortunately carries the highest margins in the business. So when there's a falloff in intimate apparel sales, it will impact our margins or our blended margins quite significantly. So with the resumption of sales of those products, I would expect margins to increase, obviously, with lower tariffs, all impact the margins, and we've seen improvement. The other major benefit of launching our own brand is we don't have to pay royalties, and that will be a significant cost saving for us going forward in that division. We are paying around 10% with the advertising contribution, I believe. So that's all going to be saved and go to the bottom line. And I believe our new brand is selling better than Maidenform. So all good. Selling and administrative costs, we saw an increase of about $1 million in 2025. Our royalties is one of the biggest components of that as it's variable in relation to sales, higher sales, more royalties. We also spent about $200,000 on our new ERP system, which is a one-off cost. It's not going to be repeated. We've paid most of the cost in '25. I think we have a small residual cost in '26, but the bulk of our cost was in '25. We were hoping to put the system in place in Q1 '26. Unfortunately, that didn't happen due to the commitment required by staff to deliver and execute on the massive quarter. So I've delayed the implementation until quarter 2 or Q2. And it will bring a lot of efficiencies to the way we operate, especially in analyzing our sales, our product and our inventory. I think we'll see a good deal of efficiencies later in the year. EBITDA. Adjusted EBITDA was $1.9 million in '25 compared to $2.7 million in 2024. And the main reason is obviously the reduction in gross margins. So with a number of one-off costs behind us, such as the ERP systems as well the reduction in tariffs, the resumption of the apparel business, savings in royalties, I would expect earnings EBITDA to significantly improve going forward. Cash, credit lines. Our cash increased to $3.8 million from $2.1 million last year. At the same time, we utilized our bank line to the extent of $6.7 million to pay for inventories. And I'm asked why we didn't use the cash to reduce our inventories. And the short answer is that most of our cash was carried in U.S. dollars to convert to Canadian and back to U.S. where we needed for U.S. settlement would have cost us more in exchange differences than the interest that we pay on our credit line. And the final item that I'd like to discuss is our inventories. If you look at the balance sheet, you'll see that our inventories increased to $21 million at the end of '25 from $10.1 million last year. And this represents the inventory that's been brought in to support this massive Q1 that we've just had, for which we've already provided guidance in the press release, and we expect revenues for the quarter to be in the range of $25 million to $27 million. That's it. I'll be happy to take any questions. Deborah Honig: Okay. I see some questions here. So could you quantify the Q1 '26 revenue guidance? Is it mostly related largely in fulfilling the 1,000 additional Walmart stores? Does it include the $8 million related to the Roots contract? And how much is related to the fulfillment of the existing 500 Walmart stores? Hilton Price: Giancarlo, do you want to take it or you want me to answer that? Giancarlo Beevis: No, sure, I can answer. So part of it is fulfilling the additional 1,000 Walmart stores, but it's not all of it. We've obviously launched the new brand for the intimate apparel segment at 2 major retailers that's in the quarter, which is great. We also have another intimate apparel program that's launching at another major retailer in their private label brand. We've also expanded our leakproof underwear program at Walmart into, I think, about 5 -- 4 or 5 new styles and into an expanded store count. So it's kind of a mix of all things. Does it include the $8 million related to Roots? No, only part of it. We shipped part of that in Q4, and we shipped part of that in Q1. And then how much is related to fulfillment of the existing 500, I think I answered that part already. So it's really kind of a nice mix of all programs across both divisions. Deborah Honig: And then I guess a related question. Guidance for Q1 was quite strong. Is this primarily attributed to scrubs growth? Do you anticipate this year will be first half heavy? Or do you see -- do you foresee strong orders shipping in the second half of the year as well? Giancarlo Beevis: So again, part of it is attributed to scrubs, but we expect that to grow. We're working on future store expansion for that going into the end of the year as well. So I think that, obviously, while this is a fantastic quarter, I don't think every quarter will be that, but Q1, Q4 is obviously always a great quarter for us. So we expect that to be large again. We're seeing some expansion in Q3, and I think Q2 will be a great quarter as well, maybe not to the extent of $25 million to $27 million, but we are seeing some good numbers. Deborah Honig: So expecting growth quarter-over-quarter, but not sequentially? Giancarlo Beevis: Yes. Deborah Honig: And then how much in tariffs did the company pay last year? And what's the potential refund amount? Hilton Price: I think I gave it USD 600,000. Deborah Honig: Okay. Hilton Price: CAD 800,000. Deborah Honig: Okay. And then you spoke about this a bit with the Intimates segment. Margins declined to 26.3% from 30.2% last quarter and 38.7% last year. Can you expand on the margin reasons as to why it could expand again? Hilton Price: Yes. Well, intimates carries the highest margin in the business. We stopped shipping intimate apparel in Q4. So when we stop shipping intimate apparel, our blended margin will drop. When we start shipping it again, we'll get the blended margin back up to normal range of around about 35% to 37%. Hylton Karon: I'd like to jump in here and say something, excuse me, everyone. I just had mouth surgery, so I'm talking a little slurred. I think in addition to what Hilton just said, in order for us to get a lot of new positioning in retailers in the United States, we had to give some assistance to get some competitors out of the shelf space. So Hilton, I think that's the other thing that we I'm always right. So I just want the market to understand that we did spend in the tune of a few hundred thousand for us to be able to do multiple millions a year for many years to come. So I think that, that's an additional hit to the margin that was a strategic management decision because these -- the retailers came to us. We refreshed the whole program. It's a whole new dynamic way of marketing these products, and we invested in '25 for the future. So I think that's critical for the market to understand that. Hilton Price: It will be one of the factors that will bring up the margins to historic levels. Deborah Honig: What growth rate do you see for the Intimate Apparel segment? Should we assume that apparel revenue is likely to be very small over 2026? Or will deliveries start mid-2026? Giancarlo Beevis: No, I think it will be a good growth year for the intimate apparel. I mean the new brand has taken off quite well, and we've seen some great traction so far, and we're only looking to expand it from there. I think that we have been held back in some sense using our previous brand that we just jettisoned for our new brand and we're after a new demographic where a lot of these sales are happening. So we're already seeing that in the early reads that we have. We have programs that are selling much over planned, like in the tune of 100%, 200% over what we planned. So we would expect to see that growth to be quite strong over 2026. Deborah Honig: And margin as well, given your royalties... Giancarlo Beevis: Yes, yes, exactly. Hilton Price: No royalties. Hylton Karon: Once again, I'm going to jump in. I think what needs to be said is by us doing our own branding and our own positioning, by being restricted in the Maidenform license to the products that we were able to sell because they did sell traditional lingerie, it is now open season for us. We now can do any product because we restrict it. So besides the fact that we're more competitive because there's no royalty, we are now open to sell any lingerie product. So this is actually very dynamic and very strategic for us for the long-term future. And I think in the months and years to come, this is something that's very exciting for us because we be no longer restricted in what we can offer to the lingerie department, whereas under the Maidenform license, we were severely restricted. So this is another very important reason why we did the investment in '25 because this is going to allow us to expand the lingerie business. And as Hilton Price said, it's some of the higher-margin business that we do in the company, and we will look at it. It's not going to be -- it's not going to have the growth opportunity that IFTNA has, but it's certainly going to be a nice contributor in the bigger picture to the whole of the company. Thank you. Deborah Honig: And how much higher are the gross margins on your branded product versus Maidenform? Hylton Karon: Well, I would say that everything in the lingerie department is probably the margin is in the mid-40s to low 50s margin, whereas IFTNA has got exponentially higher volumes and the margins are either in anything from 35% to 40%. So when you look at the corporation, we like to achieve 40% as a GP for the corporation or better, and we're going to get back to that, and we've elaborated as to why we took the knock in '25, but there's no reason between tariffs contributions. And I would like to just add another thing that we have not brought to the fore. In 2025, we've spent multiple hundreds of thousands putting in a new ERP system. We know the company is growing. We've proven it now with the revenue growth, and we had to put in what's probably in totality, $0.5 million investment and a lot of it was paid out in '25. This is a onetime investment for the future, but it is a complete new operating system. So once again, for the investment community to understand, we've invested for the future in '25. So that was also a hit to the margin. So if one understands we've invested in '25 with strategic growth in mind, knowing the exponential growth the company is enjoying into the future, and we've put systems in place to help us run a far bigger company. Hilton Price: I just want to add something there. You've got to differentiate between items that affect EBITDA and items that affect margin. Yes, the system had a big cost, but those are operational costs. Those will affect G&A and EBITDA. Obviously, the higher margins in Intimate Apparel will bring up the margins. So one shouldn't confuse the 2. Royalties as well as a selling expense. It doesn't directly impact margins. It certainly impacts the bottom line. Deborah Honig: Got it. And what is your adjusted EBITDA margin objective for the next 2 to 3 years? Hilton Price: I'm trying to get to 15% in 2026 and hopefully, as high as 20% in '27. Because a lot of our costs are fixed costs, our variable costs or incremental cost to execute on higher revenues are not that large. So at significantly higher revenues, you're going to see a lot more dropping to the bottom line. Deborah Honig: Just trying to group these together a little bit. Can you give a little color on expenses going into 2026? And will selling expenses increase faster than G&A? Hilton Price: That's not going to be the case. I mean you will look at it after Q1. You'll see that, that absolutely isn't going to be the case. Deborah Honig: And then I know you talked about Q4 versus Q1 -- Q4 '26 versus Q1 '26. Do you expect Q4 to be just as strong? Or do you think Q1 was an anomaly because of some of the orders that slipped into the quarter? Hilton Price: No, Q4 won't be as strong as Q1, but it will be significant. And we are working on other stuff -- we're not a mature company. Any one of these things that we are working on can come to fruition in the next few months and could be a Q4 delivery. And it might be that Q4 is as good as Q1. It could be the case. We don't know. We're working on stuff. Giancarlo? Giancarlo Beevis: Yes. No. I mean we're working on things that could -- as you say, any one of them pop could give us one of those record over record quarters. So as we move through the year, we'll see how those come. Some of them are looking good. So let's see what the year holds. Deborah Honig: Could you discuss the rollout of scrubs via Walmart and what might happen over the next couple of years with this product? Giancarlo Beevis: So we were given a test and I think it was about 367-odd stores. Obviously, it was well received in the first handful of weeks of selling, which we announced that we were getting an additional 1,000 stores. So we're in, call that 1,367. It's only about 20% of Walmart stores in the United States. So if we extrapolate that just on purely door growth to the rest of the 4,400-odd stores in the U.S., we have substantial runway organically just with expanding into different stores. We are seeing the sales continue on a good trend. Obviously, we're the only technology in the store with clinically proven -- or the only scrubs in the store with full clinically proven technologies and actually touting it. So the market is accepting it. People are looking for these types of goods, and we're the only ones who can supply it to them. So it is going well. I saw a question there on are we expanding to other retailers beyond Costco and Walmart because that's what we've talked -- that's what we've spoken about. Yes, of course. We don't want to sit here and spend 20 minutes listing out the customers we're selling to, but we are expanding that. We're not just a 2-trick pony. Keep your eyes on the stock. You'll see some announcements coming out in the coming months that will list some of the new retailers that we're working with. Deborah Honig: And what is the path for getting the scrubs sold directly to hospitals? Giancarlo Beevis: So we're currently working with the hospital group that did the clinical trial out in California on multiple different paths to doing it, whether that's through a buying group, whether that's a direct relationship that encompasses iFabric, Walmart and the hospital group themselves so that they can be directed to a B2B portal directly with Walmart that will supply our doctor's choice scrubs. But obviously, we're also working through the nurses unions to see if we can get their kind of seal of approval because once the nursing unions get a handle on this kind of technology, they're going to insist that their nurses are protected by using that, which kind of forces the hospital's hands. So there's many different routes. We're trying all of them. And again, stay tuned. We'll see where we can get within the next 12 months. Deborah Honig: And are you pursuing European or Asian distribution for the scrubs? Giancarlo Beevis: At this point, we haven't. We've expanded some of our technology as we released in Marks & Spencer. But yes, we're pushing into the EU, but not as fast as quite as fast a pace as we are in North America. Deborah Honig: And do you have an update on the EPA kill claim? Giancarlo Beevis: We're still working. We're still doing the leaching study. And hopefully, we get that completed in the short term. I think the positive news is that what we can show is that the clinical trial has been fully worth the wait. Everyone was -- all the investment community always wanted to know why it was taking us so long to do that. But we did achieve it, as we said we would. And once we did achieve it, we can clearly see what growth came just from that. So our expectation is that once we get the EPA kill claim, we'll have that expanded growth continue to show up with the kill claim as well as the clinical trial as kind of a double-edged sword. Deborah Honig: And are the royalties for the use of Doctor's Choice names for the scrubs in the high single digits or higher? Can you comment? Giancarlo Beevis: Single digits. Deborah Honig: Okay. Giancarlo Beevis: Very recent... Hylton Karon: I'm going to just comment on this. I think that certainly investors are asking minutia questions. We, as a business, and I think we've touched on this, Deborah, is we, as a company mandate to ourselves as management to have a minimum revenue and a minimum margin. So we take -- the royalty is only one component of a costing. So to focus just on one part of a total costing is just not important. The whole package has to work for the business or we're not going to take the business. We don't chase revenue. In fact, I think it's one of the lower royalty programs that we run. But it's not whether it's higher or lower. We just make sure that at the end of the day, any program we take is going to give the right return to the -- for us to invest the kind of money we're investing. Deborah Honig: Just scrolling through these, trying to find new questions. On April 8, Trump posted a country supplying military weapons to Iran will be immediately tariff on any and all goods sold to the United States, 50% effective immediately. There will be no exclusions or exemptions, potential targets are believed to be China. How long before the company can diversify its supply chain out of China? Giancarlo Beevis: So just quickly on that. I mean, everyone wants to move out of China so quickly and then he changes his mind and everyone wants to move back to China so quickly. China has got consistency. China has got supply. They've been doing it forever. So -- and we have infrastructure there. So we are quite comfortable with producing in China. Having said that, we have, obviously, since the beginning of last year, started to diversify our supply chain. So we already can make anything we make in China and other places in the world, whether that be Vietnam, whether that be Bangladesh, whether that be India, we do have backup plans. If he does -- if he passes that 8:00 p.m. deadline and he puts the new tariffs in and he wants to do whatever he wants to do, we can maneuver quite quickly. Stuff that's already in process will be stuff that's already in process, but we do have a strategic plan in place to make sure that we don't get caught. Hylton Karon: I think people must also ask themselves the question. China is the primary source of fabric. So all these other countries where people who don't know our business, it's easy to ask the question where you're sourcing from. But at the end of the day, everybody is getting their fabric from China. So I think this is a -- it's a great conversation, and it makes for wonderful chatter. But at the end of the day, our competitors and us, we're all in the same boat. And to get resupply of the kind of volume we get to flick a switch and buy from another country would take 3 to 5 years to develop. So this is really a mute conversation. Us and our competitors, we're all in the same boat. We're all in the same industry. And it really -- we watch it, obviously. We will be pricing it. The buyers are well aware of where we're sourcing from. And so I just don't think this is a major issue and something that needs to be overly stressed about. Deborah Honig: With the market cap sitting around $100 million and a record-breaking Q1 coming up, what are the primary hurdles you see to scaling the Intelligent Fabrics division beyond its current retail footprint? Are you seeing any white space in defense or professional service sectors for your antimicrobial treatments? Hilton Price: We've got many opportunities. Giancarlo Beevis: Yes. I mean there's tons of opportunities. I'll address that first. Obviously, military has always been something of interest to us. It's just a longer -- much longer cycle to get anything adopted. So it's something we've always been interested in. We've always had discussions about. Never mind military. Hilton and I even in the beginning days went to do NASA work, but it's great to go do all that work and spend all that money and they make 7 space suits. So we've really kind of focused ourselves in other areas. But obviously, the defense part of life and with all the funding that's currently going into those programs with all the regimes around the world is an important thing for us, and we are cognizant of that, and we are looking at every route that we could get into the defense sector of life. We also are looking at hospitality and travel, as you see by the signing of TUMI, it's antimicrobials in particular, are very critical in the travel industry. So we are working and have been for years working with many different hospitality companies to try and get our technology into that. I think as we pivoted from just being a technology company to making products to utilize the technology, I think that in the coming months, you'll see some product categories that we get into that really hit that home and hospitality market that we're all talking about. Hilton Price: I think we're at the point that we can really refocus on the Canadian market, Giancarlo. We've discussed that. I mean it's a big market opportunity for us. And I think we've now got tools that we can bring to bear to start ramping up in Canada, which could be a very nice business for us. Giancarlo Beevis: Agreed. And sorry, Deborah, I don't -- I forgot the first part of his question. Deborah Honig: I just... Giancarlo Beevis: That's okay. I think I got most of it. Deborah Honig: Yes, I think you're fine. I guess a follow-on. Are you looking at industrial operators like fast food or slaughterhouse or butchery to see if there's other verticals related to those sectors? Giancarlo Beevis: Yes. So as we've announced previously, we've been working on this hard surface coating, which would go for all of those types of places from health care facilities to daycares to schools to slaughter houses to all those kinds of things. When you get into food industries, there's obviously a lot more regulatory work around that, which we have done a little bit of a deep dive into. And as we work through the protocol on doing the hard surface coating, all of those factors will be taken into consideration. So we do have a product for those specific industries. Deborah Honig: Okay. And then I've got a number of questions on how you plan to scale, whether you need working capital, whether you're adding employees. Giancarlo Beevis: I mean the beautiful part about some of the business that we're doing, so Walmart gives us 300 stores or 1,000 stores or 4,000 stores. We don't need to hire anyone else to do that extra business. And as much as those numbers seem big to us when we're talking about a fabrication and manufacturing landscape in China, it's still small numbers for them. We have factories that have been in business for 50, 60-plus years, do programs on a bigger scale than what we're doing right now. So I'm not worried about supply chain capacity. We also have multiple factories across all the different fabrications that we do. So I think we're pretty safe there. I mean, obviously, if we're going to take on new business and new categories, will we need a handful of new designers? Will we need a handful of new sourcing people, perhaps, but the expenditure won't be substantial. Hilton Price: And our balance sheet is very underleveraged. I mean we've got the capacity to take on debt. We've got the EDC that will guarantee increased bank lines if we need them. It's not ideal. We don't always feel comfortable doing -- using too much debt. And maybe at some point, we'll have to consider supplementing our capital by doing a raise. But those are all things that are on the table. Deborah Honig: And to what degree do you have visibility into sales to end consumers? And can you talk about retail pull-through? Giancarlo Beevis: I mean we only see what the retailers tell us. We can't really see much of the end-use consumer data. But what we can see is that the consumer is recognizing the value of our products and really looking for our solutions in multiple categories. I mean that's as best we can see from a consumer end of life. But they're obviously looking for what we have. And every time we give it to them, it seems to do well. Deborah Honig: And then with Doctor's Choice program now in 1,000 stores, can you help under -- well, I guess the same question, reorder dynamics. Scrubs seem like a year-round stable for health care workers rather than seasonal category. Does that steady demand help smooth out some of the quarter seasonality we've seen historically? Giancarlo Beevis: Yes. So the program is 52-week replenishment. We get obviously a major set when we set stores to make sure shelves are full, and then we replenish weekly from there based on demand. And that -- when we get additional stores, you'll see that big spike again. So when we talk about where these quarters lie and if we will see big quarters again, let's say, for Q3, they want to add another 1,000 stores. Well, obviously you're going to see a spike because we got to fill 1,000 more stores worth of goods. So that's part of it. And then again, adding different retailers, we'll be able to see that. If one hospital group orders, that could be Q4 where we have to manufacture all of all those for the entire hospital system. So all those things are on the table. But we are actively -- to this point, it is a year-round business, so it will help stabilize some of our quarters, and we're also trying to get into new categories that help keep that quarterly flow even throughout the year. So we're not -- Q4 is heavy for us for swim. Q2 is heavy for us -- or Q1 is heavy for us for intimate apparel because people are buying it for weddings and problems and all that kind of stuff. So we're actively seeking new categories that help even out our year quarter after quarter. Deborah Honig: And then one of your directors, Cameron Groome, has joined the Board of Directors of a company with the germicidal ultraviolet product. Does IFA have a potential interest in using its filters in combination with it to create a one-two punch? Giancarlo Beevis: Quite honestly, I don't know enough about that other company. It could be something we explore, but I don't know enough about what they do. The challenge with ultraviolet product is it's like hand sanitizer. It's good for about 3 seconds while you use it and then you touch something and get germs on it again. There's no residual kill to it. Whereas what we're working on in our hard surface coating and what we do in our textile technology is it's continual kill. So it's there for the life of the product. It's not something that has to be flashed every 15 minutes to refresh it. So listen, to be open for discussion, but not that we've had a discussion at this stage. Deborah Honig: And talking about Roots. So if Roots was to be sold to another party, how protected are you from a possible change of control? Giancarlo Beevis: Our license agreement has renewals and things of that nature, but that's our protection as we have multiple renewals, auto renews if we hit certain dollars, which we generally do. So outside of that, that's the protection we have. Deborah Honig: And how vulnerable is the company to the rise in oil and natural gas prices given you synthetic fibers and import from China? Giancarlo Beevis: As vulnerable as anyone who make any petroleum-based product in the world. Deborah Honig: Yes. And how do you go about educating consumers on the technology and claims for the scrubs? Giancarlo Beevis: So all the scrubs that are listed in store have signage everywhere and have QR codes that are directly on every garment and every hang tag so that they can be directed right to the journal and the study. And then obviously, we're through trade shows and other kinds of social media messaging, we're also trying to get all that story out as best we can. The biggest thing, I think, for us on that side of life will be the nursing unions trying to get it in their hands so they can spread it to their community and have them push forward on their end. Deborah Honig: And what's...Sorry, go ahead, Hilton. Hylton Karon: Sorry, just to that point, Giancarlo, I think you've made a good point. I think that these codes and these pop-ups not only talk to the success of the clinical trial, but also to the fact that it's peer-reviewed and published in a journal. So these things carry weight to the medical community working in the medical community. So these people understand exactly what we've got. And it's not to be taken lightly when Giancarlo says that all the retailers, there's no other product besides ours that can talk about it clinically proven and peer reviewed. So we really have a one-two punch that none of our competitors have got, nobody else. Giancarlo Beevis: Also just -- sorry, Deb, to go back to the question about petroleum-based costs rising. Anyone can make a 100% polyester shirt. All of our shirts are -- might be 100% poly, but they do something. So we're not necessarily just trying to sell based on price on a polyester shirt, which is what other people are doing. There is a premium to our product. And if costs get out of control, we're able to kind of counteract that by offering something premium that offers a benefit to the customer instead of just a petroleum-based textile shirt or pant or whatever it may be. Deborah Honig: And what's the status of your partnership with The Lad Collective? Will we see product launches in 2026? How can you enter the hospital and health care nursing channels? Will this be with -- The Lad Collective and iFabrics need to have a dedicated sales team to push this product? Giancarlo Beevis: So I mean, once we have something to announce, we'll announce. I can't -- I don't think I can give anything further on that, but we are obviously actively working with The Lad Collective on getting those programs launched ASAP. It's a great product. They have some technical functional patent-protected features that go along with our fabric technology that give you something that is just not available in the bedding sector. So we're very, very excited about that partnership. And we think that from a retail side of life, that will really yield a great response for us in many retailers. So again, stay tuned on that. As soon as we have something to announce, we will. From a health care and health care nursing channels for TLC, I mean, betting is something that we want to do in health care. I don't know how it will relate to TLC, but it is a business that we're actively pursuing from an Fabric perspective with or without the TLC side of life. We've been working on that for years, and I think that will come to fruition shortly. Deborah Honig: Right. Well, I think we've exhausted the Q&A. Hylton, you said that you wanted to have some final remarks. Hylton Karon: Thanks, Deborah. Well, first, thanks, everyone, for taking the time to listen to the results. I just want to complement Giancarlo, Hilton Price and the whole team. I think what we've done in '26 and the end of '25 doesn't come without a lot of hard work. And as we say, keep watching, these are not anomalies. I'm so proud of what we've achieved, and I think we are on a new trajectory. And we can't -- we're so excited to show the market what we're going to do for the rest of '26 and into '27 and beyond. We've got a lot of scope for growth. I think we've touched on the fact that margins in '25 were an anomaly. So -- and as Hilton Price succinctly put it, the bottom line is only going to get better and better because of margins and volumes. So we're excited and very proud of what we've been able to achieve and the future is looking really, really strong. Thank you. Deborah Honig: Great. Well, thank you to the team. Congratulations on an incredible year and an incredible start to 2026. Thank you to the audience for your participation and your questions. If you have any further questions, feel free to reach out, and I can get those answered. Or if you'd like a one-on-one call with management, please feel free to reach out. And yes, thanks, everyone. Have a great afternoon. Giancarlo Beevis: Thanks very much. Hilton Price: Thanks, everyone.
Operator: Greetings, and welcome to The Simply Good Foods Company Second Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] As a reminder, this
Operator: Good morning, everyone, and welcome to Pure Cycle Corporation's Second Quarter 2026 Earnings Call. As in prior quarters, we'll start the call with a presentation from our CEO, Mark Harding, and then we'll provide time for questions and answers afterwards. [Operator Instructions] So we'll start the earnings call with a presentation [indiscernible] questions and answers. Without further ado, I'd like to introduce Mark Harding, our CEO. Mark Harding: Thank you. Good morning, everyone. My wingman today are Marc Spezialy, our CFO; and our Controller, Serena Fingan. So if you have any questions, we'll have a solid team to weigh in on all of the details here. For those of you that are looking at this, we do have a deck for this. It's on our website. I think it's on our landing page, you can click on that and then we'll be able to advance through the presentation and give you the details on it. So with that, I'll start. And start with our forward-looking statements, statements that are not historical facts contained or incorporated it reference in this presentation are forward-looking statements as that is the meaning of the Securities and Exchange Act. Most of you are familiar with that. [indiscernible] want to continue to emphasize the team that we get to work with an outstanding team of professionals that really bring their game every day. And so it helps drive value for the corporation. So continued shout out to our management team. Also, our Board of Directors, I do want to welcome our newest Board of member, Dan Rohler and look forward to working with him. He is actively engaged and really working with the directors and the team. So we look forward to working with him. Let's take a look at kind of the investment snapshot here. We continue to deliver shareholder returns and returns on our assets through consistent and profitable results continuing our street with a 27th continuous profitable quarter here. We're growing our revenues, our recurring revenues and durable revenues through all 3 business segments. We continue to grow our asset base by delivering lots to our national homebuilder customers as close to a just-in-time basis and really doing that to really match market demands and we do see a lot of cyclical nature in the housing market. Water is a little bit more tempered in that, but we continue to really focus on our assets and monetizing our assets and build shareholder value really through our strong balance sheet and strong liquidity position. Let's dive right into the results, really had a great order and this year has been a more tempered year to be able to even out our revenues and our cash flows on this, and that's really been a function of a very, very mild winter for my fellow skiers the morning the loss of ski season, but we're celebrating the opportunity for us to really do a lot of the work that we can't do seasonally in the winter by a lot of the concrete work and the asphalt work. So what you see is kind of a more even paced development, where we're able to -- through our cost of completion on our project, be able to even out these cash flows on it. So quarter-over-quarter revenue this first 6 months, about $5.1 million in revenue, about $2.8 million in gross profit. And really, those are driven by those percent completions on delivering our lots to our customers. We're about as much as 6 months ahead of schedule on some of the lot deliveries on that. And so a lot of our builders are equally thrilled with that because they were able to get out in the field and put up some model homes for this spring season. Taking a look at net income and earnings per share. Again, those are going to match really exceeding our guidance typically on the quarter-over-quarter just because of the advancements on our projects on that. So net income, a little over $1 million earnings per share, about $0.05 per share. And really, this is up by about 36%, really driven by all segments, mostly land but water as well as single-family rentals. We're adding a few more of our rental segments in there, and we'll have a little bit more color on that later, but also seeing a bit of an uptick in our water through industrial water sales to oil and gas operators this year, taking a look at just the comparison to our guidance, our full year guidance. So we're right at that 50% our guidance through halfway through the year. So that's a bit unusual for us just because the winter quarters usually our weakest year or weakest quarter of the year just because of the seasonality of weather out here. And so we're about $14.3 million in total revenue of our close to $30 million forecast or guidance and then profit at about $9 million to our about $19 million guidance on that. So really terrific results year-over-year. Moving to net income and earnings per share also we see those pacing more evenly through the year. Margin results are showing a bit more moderated because we have advancements and investments into the delivery of lots slightly ahead of our contract delivery. So those will normalize through the rest of the year and really kind of help us temper those [indiscernible]. So specifically, with the quarter end results, what I'd like to do is kind of drill down to each of these segments and talk a little bit about what it is that each of these are driving for us. One of the things I recently heard was an acronym called a [ halo ], which is used to describe some companies that -- in the context of this, it's a heavy asset, low obsolescence, and I found that pretty descriptive over our company and you can't get a more low obsolescence asset than water utilities. And so we'll drill down on the water utilities and talk specifically about what we're seeing in that growth and margin opportunities. We really deliver water to customers kind of in 3 various segments. We have our domestic deliveries, which is your portable water that we deliver to residential and commercial users. We have our industrial segment, which delivers water to our oil and gas operators. And then we have continued customer growth, which is our connection fees, and those are onetime fees that are paid by our homebuilder customers and then that just adds to the customer growth of the overall segments. Taking a look at revenues on a quarter year-to-date basis, we continue to see some customer growth corresponding revenues driven by the connection fees, which is really adding new customers to the system. Our oil and gas revenues are up this year, and I think we'll see a very strong performance in industrial water sales and then just monthly water and wastewater sales continue to grow, and that's really a function of continued growth in the rates as well as the number of customers for that. Detailing out the industrial segment. Our oil and gas sales are up significantly over last year's primarily because last year was largely a permitting year for our operators, mostly our largest operator who was working to secure as many as 200 permits in and around our service area and really, that's translated into increased drilling and increased fracking this year, which is really turning out quite well for them, given the rise in oil prices, so they couldn't have timed that better for bringing a lot of that new supply online. The outlook looks very good for this year. I think we'll exceed our guidance that we had taken a look at this year. And I think it's going to continue into the future, right? We see rigs that we have a dedicated rig to our service area, which is drilling some of those 200 well permits, and that will probably take them somewhere around the 3 years to drill all those wells. Our revenue per well continues to strengthen. We do have a multiyear contract with our operators to deliver these water supplies. So it allows us to do some strength in planning and then also making sure that our infrastructure is capable of not only meeting our industrial, but the domestic demands on that. One of the things that we like to highlight in our Water segment is the capacity that we have and the fact that we continue to grow and developing this capacity, but yet we're still only using a small fraction of our portfolio while we generate significant revenues from this segment and really at very attractive margins when we're really looking at that variable demand for oil and gas, they do have a preferential pricing on that where we do get a premium on that to make that water supplies available to them as they need that in the volumes that they need. Let me move into highlighting our land development segment. This is a nice area of our high school at Sky Ranch that's being constructed. So we're very excited about that. It will really deliver not just -- it's a full K-12 campus. So we've got the primary school, which is a Ka as well as our high school there. And really, a lot of the relocation and customer feedback on buying in the community is a function of the school campus that we have here. We're delighted to continue to work with our charter school operator National Heritage Academy or Terrific Partners in bringing educational excellence at Sky Ranch. Talking a little bit about how we're delivering a lot. So this fiscal year, really focusing on punching out Phase II, which was about 228 lots and we're about 95% complete with that and then also Phase IId, which we're almost 80% complete on that. And really, that's the big advancements for this quarter. over the winter months, we were able to get a lot of that infrastructure in the ground. Very proud of our portfolio of homebuilder customers, all of the major homebuilders including the Lennar, D.R. Horton, KB Taylor Morrison, Challenger, Pulte, [indiscernible] all bring entry-level homes to the Denver market. Phase II started out with about 780 homes, but through some product alignments and diversification, that's really grown to about a little over 1,000 lots in that area. So we do see a significant uptick in our density out of Sky Ranch, and that's terrific for us. Not only does that allow us to deliver more lots but allows us to increase the assessed value, which really has an impact on generating additional capacity, bonding capacity within the district to repay our reimbursables on that, which you see us continue to grow. Let's drill down a little bit on that land development by phase, period-over-period, the revenues really did crush it. We really are generating significant Q2 revenues, more of a function of that mild winter and an opportunity for us to kind of turn up the volume and get that payment down and finished those lots so that the homebuilders can get those building permits and really start getting their model homes up for the selling season. We do see an uptick in traffic out of Sky Ranch. All our builders are seeing an uptick on that and a little bit more of a conversion to that. There's lots of reasons that housing has variable demands, whether that's interest rate sensitivities, and we see a little bit of volatility in the interest rate segment. I think that still is the #1 incentive that our homebuilders are offering is a mortgage buydown. I think they're hitting that sweet spot of trying to buy down those mortgages right below that 5% range. So that 4.99%. So when you see a lot of that adjustment from the Federal Reserve on interest rates, that may not have as big an impact on this particular segmentation of it just because that's the primary incentive that our homebuilders are offering or first-time buyers in converting those into sales. The pace of our land development will normalize through the rest of the year. We really do have a little bit to complete in that Phase II and then are really moving into grading the next phase, which is going to be [ 2E]. That's about another -- we've got another good slide on kind of the visual aspect of completing out each of these. And so as you see, you can see that in the lower left cell there where -- we've got a number of homes that are up and constructed for that Phase IIC and then Phase IID, while it's a little bit out of the picture on this, we do have model home lots being developed in there. So we have really 2 active phases that are complete where they're developing lots. So we've got about maybe 430 lots available for homebuilders to really tap the market on a variety of products. We've got all phases of the products, whether they are standard for task 45-foot front load, 45-foot rear-load, 35-foot rear-load, duplexes, townhomes. We really have a very strong portfolio diversity of product type out there is really creating opportunities for almost every type of home buyer in that. Moving on to kind of the development time line here. This gives you kind of an overview of our phasing. And as most of you know, most of our contracts are geared towards a system of developing a portion of the infrastructure in phases and then having -- once that's complete, having our homebuilder customers reimburse us and support the next phase of the development activity. And so we get payments at the Platt stage, which is when we finish the recorded flat and there's a real property interest that they acquire. And then a second payment, which is at the completion of wet utilities, once we're done with the water sewer and storm facilities on the phase and then finally, that third payment at finished lot pays. And so that's where you saw some of those lots being pulled forward on being able to finish a number of those lots on Q2. As I started to allude to, we are starting Phase II. So our grading contractors mobilizing on site will be hitting that this month. And really, those are about 160 lots that we're looking for delivery and continuing pacing that so that each of our builders can have a year's worth of inventory. Those will be 2027 lots. So we expect those to deliver sometime in the summer of 2027. That Phase IIE here is to give you kind of an orientation of where that's at it's directly across the street from our school. And this is really more of an infill site. We have most of the infrastructure done on that. A lot of the road network is done. Most of the main lines on the water and the sewer system are already in place. That kind of gives you a -- that's our water -- our peak hour water storage tank and comp station. They're in the picture as well, but that's a very streamlined process for us to be able to bring this online. It's about another $14 million in lot revenues, correspondingly $4.3 million in tap fees and about $240 million in recurring revenue from the number of comers that we have on that. This was kind of a celebratory opportunity for us, together with National Heritage Academy, really on a groundbreaking for that and really partnering with our local school district, the [ bentoschool district ] as well as the National Heritage Academy to bring this K-12 campus to our development. I wanted to show a continuing -- one of the most underappreciated assets I think we have in our portfolio is our service area. And as many of you have heard me talk through the years, the Denver Metro area continues to grow out on the Eastern planes, we really live on an ocean. We can't grow West as a metropolitan area. So really moving to the east side of it. This really kind of gives you an illustration of the level of activity that's occurring around our service area on the Lowry Ranch. As you all know, the State of Colorado owns the Lowry property, it is owned in the school trust, and they develop their assets to generate revenue for the public education system here in the state of Colorado. And there's a couple of parcels that really just highlighted here, one on the south side of the property, and that kind of gives you -- that bottom picture is an orientation looking north and then it's a very active development on that. That's about a half section 320 acres. And then also properties that you've seen the -- what's occurring on the west side with all the development from the city of Aurora that's on the west side, but then also projects starting on the north side of the property as well. And so there's substantial opportunities all around the property, and it's well positioned for whenever the state looks to find opportunities for the Lowry range, we are the exclusive water and wastewater provider for this particular property. And having been able to develop Sky Ranch, I think we can demonstrate that we would love to partner with them on opportunities for land development should that occur, but we really do want to kind of give you perspective of kind of the growth of the metropolitan area and how that grows in relationship to where some of our assets are, whether that's Sky Ranch or whether that's our service area at [indiscernible]. Moving into our third segment, single-family rental. There's a bit of an update in what I probably call a realignment for a couple of reasons in the single-family rental segment, as many of you know. The current administration has had some strong comments about corporate ownership of homes I probably would push back a little bit on that on kind of the justification for that. But they were sort of concerned about corporate ownership and what that is doing to housing affordability. And so we took a strong look at how we were positioning the growth trajectory of this particular segment and really decided to slow our growth of this segment and take a look at these assets in a couple of ways. We wanted to really get a strong look at what the return on the investment is for these segment assets. And as they settle in, as we've got them constructed as we've got them leased out. We really want to understand, well, what are these -- what is the return for this particular asset? And is that going to meet an acceptable level of threshold here for the company and making sure that, that delivers the returns that the shareholders are looking for in that. And so what we've done is push back a number of those lots that we were having, our homebuilder customers build for us. And as an illustration here, this kind of shows you the lots that were identified in blue are the ones that are either constructed or under construction. And so that will settle up to be about 60 units. The lots that we have that are kind of highlighted in this light yellow, light green color, those are the lots that we kind of reevaluated and we're able to resell back to each of the homebuilders that are building their product classes in there. And so what we've done is kind of pared that back from a growth strategy up to about 90 units and really scale that back to about 60 units. And so that will allow us to have a little stronger performance on the revenue from the Land Development segment because we're getting about $100,000 to $110,000 a lot on that. So we'll see that come back to the company and then really take a look at really what the performance is on this segment, be able to get our returns on that and really report that to you. And make a decision as to how this segment continues in the future. So that's been really the key realignment here is to take a more measured growth approach to our single-family rentals on that. We've got 19 homes completed to date and they are all completely rented. We are seeing extremely strong demand for rentals in this unit. So I'm very optimistic about the continued performance of it. Each of the homes as we bring them on market are already rented. I think we've got homes rented for home deliveries that we're seeing up through August right now. So we do continue to see that as a strong performer in the segment. And then this will instruct us on how the appreciation of the homes are going as we continue to add value to the community, not only from the schools, but then all the commercial development and open space and trails and the recreational opportunities that we deliver. We are seeing continued strong growth of these home values, and that's an opportunity for us to really measure that within the overall segment. One of the most attractive features of the single-family rentals is our recurring revenues and the asset appreciation. So period-over-period, revenues are up 20%, mostly as a result of additional units. We continue to see growth in the monthly rentals on this. And what we really like to do is make sure that we get all these units fully leased and have a 100% occupancy on that. [indiscernible] the growth trajectory. This is kind of how each of the phases of performance. And this is a bit of an update from our previous position on that where we were growing up to about 90 homes. And I think we really took a look at that and payer back almost all of the units in Phase II [indiscernible] on of the units in Phase IIC, really just as a reactionary element to some of the pressures that this segment was receiving on ownership, corporate ownership and then also opportunities to demonstrate to you all what the return of this segment is going to look like. Talk a little bit about shareholder value, our assets and kind of what we have in use and really a little bit about where we're headed. As most of you know, we are extremely hawkish about our equity, with our last issuance being more than 15 years ago. And so we really do fund our operations through our balance sheet. If you take a look at really all of the components of this, we maintained a strong balance sheet. I believe our assets are significantly more valuable than the recorded value. And that's mostly because they're legacy assets. They've been acquired many, many years ago, more than more several decades ago. And taking a look at each of these individual segments, if you take a look at our Water segment, we have about $74 million or, call it, $75 million in total assets, and that's about 44% of the total assets of the company. But then when you take a look at kind of what's developed and what that contribution is, that's only about 4% developed. So you see how that kind of the pedal that we have left in the water segment and really the opportunity that we have to continue to grow that segment in our business. Land segments, we acquired Sky Ranch in 2010. It's about a $5 million acquisition of the land. We did get some water beneath that as well. And then taking a look at kind of the developed land for sale, how we do the percent completion on that, that represents about 6% of our total assets, and it's about 20% developed. So while we continue to generate strong returns year-over-year on that, we still have a good amount of land that we have developed more homes and then the commercial value on that. So really terrific opportunities to continue to grow the land development segment. And as many of you know, we continue to look for other opportunities in the land development segment. Taking a look at our single-family home segment. That's a relatively small segment, about a total of 5% of the total assets and had a little detailed discussion about that on kind of how we're going to really mark that performance of that segment. But really, the biggest opportunity for us here is our total liquidity here. And taking a look at the cash and receivables, it's about a 44% asset. And largely held in that note receivable from the municipality where we continue to develop the infrastructure, those public improvements are reimbursable to us. And we take a look at building the assessed value through adding additional homes there. Our next opportunity for monetizing some of that assets likely to be in 2027, where we're taking a look at financing and refinancing. We'll have a financing on the interchange. As many of you know, we talked about kind of how we're going to construct a new interchange on the interstate there, but also being able to refinance some of the Phase 2 bonds and really capitalize on the opportunity we financed our first bonds on Phase 2 at about 780 units and growing that to the [ 1,030 units ] gives us an opportunity to have a significant reimbursement for refinancing those bonds now that they'll be mature and more assessed value than we originally planned in the first financing. So that will be a great opportunity for us moving forward. The low obsolescence the recurring revenue really come from water and wastewater revenues and rents from our single-family home rental segments. And so you do have strong sticky revenue on those sides and really a lot of the growth revenue from selling lots to national homebuilders as well as the connection charges to add our customer growth into our Water Utility segment. talk a little bit about shareholder value. We consistently grow our balance sheet and income statement quarter-over-quarter year after year. and really generate kind of leading -- industry-leading margins from all segments, whether that's going to be the water segment the land development segment and the single family rental segments. And so we're very targeted to continue to monetizing our assets, taking a look at where we're at in our guidance. So we're taking a look at our guidance for 2026 at about $2.7 million in recurring revenue and asset growth, bringing that a little over $160 million. So those still look strong. Profitability trends. We continue to build shareholder value on really each of these segments and really on pace for delivering our fiscal year-end results. We will share some guidance on 2027 at our Q3 as we get a little bit clearer picture of kind of how the Phase IIE is going to come along and tap fees and the oil and gas deliveries for fiscal '27 become a little clearer for us. Taking a look at kind of that total gross revenue, our guidance is going to be in that $26 million to $30 million range. We're still supporting that earnings per share in that same range $0.43 to $0.52. And upside in some of that acceleration of that is really going to be probably the timing of the delivery of lots as well as, I think, oil and gas, and so we'll have a lot -- a much stronger year in selling industrial water sales just because of the permitting that was done last year and really, I think the strength and the price of oil will really reinforce the fact that our operators are going to really try and capitalize on that, keep those rigs in active service on our service area in and around our service areas. So we don't have just the 1 operator, we do have several operators that are looking at programs and multi-well pad sites this year. So we believe we'll have a strong performance on that industrial segment. We continue to reinvest and repurchase shares. I believe our stock is undervalued, significantly undervalued. We are we're encouraged by some of the recent strength in the stock and really do believe that the assets do have continued support and really focused on continuing to deliver that shareholder value. And some of the ways of doing that are really going to be kind of the development of our commercial opportunities, getting this interchange completed, we're really at the final stages of that permitting process, and getting that into [ CDOT and Rabo County ] who are regulatory agencies here, but it does allow us to accelerate not only the commercial opportunities, but also continuing on the residential side. So that's another thing to keep a look out in the next fiscal year. And then also I did want to kind of give you a revised video. We're trying to kind of keep this video as part of our format to kind of share with you the progress that we make. So it's about a minute long, but I'll give you kind of an opportunity to see -- gives you a perspective. That should be an all white picture there in the background, and it's just not. So that gives you an illustration of kind of the dry year that we've had and [indiscernible] also gives you kind of a picture. You can see the landscaping is fairly dry throughout the community. It's pretty typical, but I think that we're going to have a challenged year for some of our water supplies and other providers. I think we're strong in our position in our portfolio, but other providers are going to see very seasonal water deliveries. Just kind of drills in on that Phase IIC number, we probably got more than 1/3 of these homes permitted and started and then it also gives you kind of where we're taking a look at IID, where you've got homebuilders really starting construction activity on that project as well. And really, this is the unusual aspect. We would not expect to have all these roads paved and these lots available for that. But we were able to capitalize on that this year with the mild winter. And so that's a great opportunity for us and our homebuilders. And then moving into kind of Phase IIb, we're nearly complete here. We probably only got maybe half a dozen home lots that are yet to be constructed in that phase, and then this kind of rolls up into a good view of the high school and construction progress on that. We've enjoyed that opportunity as well. They are ahead of schedule with the mild winter that we've had as well. So that will open up in August for our toolkit for the next '26, '27 school year. So that's exciting for us. And then ultimately, kind of a shot at where we're going to be with that interchange in our commercial properties up there in that area. So we are actively marketing our commercial properties. We've got both retail and industrial brokers engaged and are seeing some exciting opportunities. We're out there pitching a lot of the retail and some industrial opportunities for distribution centers, a number of different types of uses, whether that's going to be a heavy water user or just access to that Interstate is a terrific asset for us. So with that, I guess I'll -- those are our prepared remarks. So what I'd like to do is open it up for Q&A. I think the easiest way to do the Q&A is if you want to on Mike and just shout out a question and then we'll coordinate seeing how that technology works for everyone. So with that, I'll turn it over to you all. Elliot Knight: Mark, I've got several questions for you. Most important on your last call, you made it clear that completion of the new interchange is very important. You sound encouraged, could you give us a real -- a detailed update? Mark Harding: Yes, drilling down in then. So the interchange, we have -- we've been working on that. It's -- government always has an acronym for it, and then Colorado, it's called the 1601 permit process. And so you do that in conjunction with the [indiscernible] Department of Transportation, and it's a comprehensive effort, right? You go through every component of your interchange design, what the load capacities are going to be, what the traffic movements are going to be what the distance setbacks are for signals to the interchange and environmental aspects of it. And so we're now at about a 30% design of that interchange. So we really have a solid idea of how that's -- the cost estimates are going to be and then really how do you fund that. So it's a private permit, the Sky Ranch will be a permit for that. And then we work together with Arapaho County because they'll be the administration of that. It's in the jurisdiction of Arapaho County. We should be submitting that 1601 seat. We submitted every component of that as we go along for their review and their concurrence. So what we hope to do is have that ready sometime this June and then really be in a position of going to final design on that. That will probably take through the end of the year and then take a look at funding that bonding of that. We've got specific mills that have been set aside within the community to be able to bond that. So we have that as a component of the 1601 and then start construction in 2027 with a completion in 2028. So that would be the time line. Elliot Knight: Okay. That slipped a little bit from completion in 2028 because on the last call, I think you were thinking in late 2027? Mark Harding: Yes. that probably has slipped just a little bit, but we continue to be able to deliver each individual phase. So I think we'll still -- we won't really miss any of our cadence on lot deliveries on that. I think what we've tried to do is work on currently with some of our commercial opportunities [indiscernible] lead time as well, and we want to make sure that we can bring those online as we're constructing the interchange. Elliot Knight: Okay. On your last call, you mentioned data center -- no mention of it today. Could you please update us anything you can tell us there? Mark Harding: Yes. We -- it's not that we are not continuing to pitch that. But Colorado is probably not as attractive as a state on some of these larger hyperscale or data center type opportunities, and it's really twofold. One, a lot of these -- the ones that we were very active [indiscernible] really are looking for tax incentives and so the state had the bill before the legislature, they have 2 competing bills. They have 1 bill that is seeking incentives and 1 bill that's seeking to disincentivize and Colorado just has a dysfunctional relationship with itself on being able to set a consistent policy. But they are heavy water users, which is something that we certainly have an opportunity to support, but they're also heavy power users and Colorado probably is a little more challenged than other areas on bringing on additional power, particularly gas turbine-based power in the area. So those are the risk elements that some of the data centers that we have been marketing to are sharing with us. We still like the opportunity. There still are data centers that are being built in this area. And so we'll compete with that and see where it lands. But it's not just the data centers. We have water and bottling opportunities. Those are going to be heavy water customers, that we're pitching to and then just overall distribution centers and things like that for our commercial industrial opportunities. Elliot Knight: Okay. Last question. I was delighted to see that you've added another 1,600-plus acre feet of water. You acquired little bits and pieces of water, I think in the last few years. The company continues to say it has 30,000 acre feet of water. It must have more than that. Doesn't it -- how much does it have? Mark Harding: We do. We do. You're set to heat tabs on that. We probably increased that portfolio about 10%. And so we're maybe closer to 300 or 3,000 acre feet of water. And correspondingly, we do have the ability to probably provide service to more than 60,000 connections, and those are very important metrics. Those are longer tail on it. But when you take a look at how we scope that opportunity, we talk about $40,000 a connection charge of $60,000, which is about $2.5 billion, and that number is probably [indiscernible] consider. It's probably closer to $3 billion worth. But those are longer lead that kind of carries us out and continues to add to the real depth of that segment of the business and as we get closer to that 25,000 connections within the company, we can really detail out really how much more of that we have to serve. And I think couple of areas for that, the Denver area growing out in and around Sky Ranch in and around [indiscernible] which is our service area, are really the key opportunities for us to continue to add to that portfolio -- that customer on that portfolio. I see Jeff's got to stand up. Unknown Analyst: Quick question. The -- as I recall, you were going to wait for the commercial development until the [indiscernible] was actually finished. Did I understand that you're currently actively marketing the commercial opportunities? Mark Harding: We are. Yes. Unknown Analyst: Is that an acceleration of what you had wanted to do? Mark Harding: Well, I think we had that time line. And as Elliot kind of highlighted, we were looking at getting that 1601 permit kind of this summer, and I think we'll look to get that towards the end of the year. but we already set that up in motion, right? We want to be in front of these users. It's not something that you can just directly turn on and say, okay, get out there and start building your building or your retail use or whatever it is. We really want to make sure that it is a highly attractive site, and we want to be regionally specific. We want all of those folks that are looking at sites and interchanges to be appreciating what it is that we're putting into this opportunity and put it into their scope and planning. And we do have some capacity to get started on it. It's not 100% conditioned on the interchange being developed. We have an existing interchange, it does have service capacities, and we do have opportunities where we can add maybe it would be a nontraffic sensitive type user to the site, someone like a distribution center that would have the appreciation. Okay, we can use the existing interchange to get our building permitted and started. And then as that gets completed, really would have that truck traffic. So that's what we were trying to do is parallel that process and make sure that this doesn't have that long lead time and really deliver just in time. Unknown Analyst: Mark, just quick. Do you have any expectation on the timing of the next receivables? Mark Harding: Great question. we'll take a look at what that capacity is from the 2022 bonds. And so those typically have a 5-year call provision, and so that's where they start to burn off in 2027. And taking a look at really the differential that we had in our first filing and our second filing, we think they're somewhere around $10 million to $12 million worth of additional reimbursables from refinancing just what we've already financed there. And then as we move into Phase II, we'll take a look at because that will be that 2027 time frame as well as we complete that interchange and really start processing permits into Phase III, that could be as much as $20 million. So -- and I think we got about $10 million of refinancing of one bonds and then probably another in of fresh financing moving into Phase III. Unknown Analyst: Awesome. And then can you talk about the builders' appetite for lots right now, delivered the current phase ahead of schedule, we know new home demand spend kind of sluggish given interest rates. So I guess I'm just wondering, is there any risk of an air pocket between this phase and then starting the next phase if it takes a while for the builders to deliver the lots that you delivered ahead of schedule? Like how does that impact the timing of starting the next phase? Mark Harding: That's a great question. And so really, what we saw as a result of kind of this pull back in the market. And I'd say consumer confidence is the #1 factor on decisions to buy houses. Interest rates always impact that, but that's -- that's not, I think, in our segment, where homebuilders are able to buy down mortgages and at an entry-level point, that's a little less costly for them. When you're buying down a mortgage at maybe a point at $450,000 home there's a lot less than if you're buying down that point at $800,000 home. And so that sensitivity for us isn't so much in interest rate but more consumer confidence. And so what we were able to do is pull in new homebuilders to the portfolio. We had 4 homebuilders -- 4 national homebuilders that were part of the portfolio as we started Phase II. We now have a -- and those 3 new ones that are in the mix on this thing are really -- there is a filing 2D. And so they have 1 year inventory, and we're looking at 2027 in deliveries and sell. They may not be in IIC but they're in IID. And then the other 4 were in IIC and IID. And so they're a little bit long on that annual inventory, but the other ones are a little short on that annual inventory. And so that gives us the opportunity to roll Phase IIE on because they're the ones that want those '27 deliveries working on the '26 deliveries that they already have. And so that's an opportunity for us to bring in more builders. And we really like having that yearly deliveries for them and a number of builders in there. So they're bringing diversity of products. So it's not cannibalizing the market. It's really having an opportunity where we have a very robust portfolio builders. Operator: [Operator Instructions]. Mark Harding: [Operator Instructions]. Operator: There was a question in the chat related to a slight decline in some reoccurring revenue from 2025 to 2026. We -- I looked into that and it looks -- we have some commercial customers non-oil and gas that are off site of Sky Ranch that are governmental buildings that could fluctuate from year to year. And that looks like what it's what's causing that slight decline. Obviously, we're not seeing a decline on the average house per residential house in Sky Ranch nor are we forecasting any kind of decline there even with water restrictions that are coming forward. So it happens to be just a slight anomaly between some off-site customers that are showing that slight decline. Mark Harding: Well if there aren't any other [indiscernible]. Unknown Analyst: A couple of quick questions for you. One, on the land acquisition. Any updates from any of the potential spots you're looking at and -- or from Lowery, I know you discussed Lowry, but nothing else except for just the fact that everything is built out already, and we need to -- that's the next logical spot. And then secondly, when it comes to stock buyback, I know you guys have been buying back stock, but really just to maybe offset the -- not to reduce share count. Any thoughts to stepping that up at a quicker pace with the stock still sitting here? Mark Harding: A couple of good questions. We are taking a look at new acquisitions really, there are a number of land areas in and around Sky rands and other areas. And -- and there's a soft way of taking a look at that. Where we go out and we buy a land and hold that in inventory and -- is that the best use for our shareholder capital because some of those projects would be very long stemmed in being able to do that. And there's some we're trying to get -- I think our priority opportunities where we can either get those in a partnership, get those in away -- acquisitions in a way where that doesn't become a big drain on tying up shareholder capital for many, many years on that. And so there's still opportunities in there. Most of those guys really aren't that excited about that type of structure. And so what we want to do is time those out if we've got an opportunity that we can buy a cheap land, but that land doesn't look to turn over for 7 to 10 years. That may not be our highest priority. There are opportunities where that has gone up. And we sort of said, well, we like that land interest, and we might not be the buyer today, but we might be the buyer in 5 years and it doesn't matter where we may have to pay a little bit more in 5 years, but it's also 5 years closer to when that would be looking for development. So we're really being disciplined about that type of opportunity. Did highlight, Lowry, and those are -- we continue to see great opportunities there. That is controlled by the state, and we'll work with them and whatever their time line is on something like that. So we'll be reactionary to that. On the share buyback, we took a look at what our trading windows are and we wanted to open up some flexibility on that to be able to be more aggressive on particular areas. There's certainly a lot of restrictions on the windows that we can repurchase those shares and -- we want to be a little bit more flexible for that. And so we did modify our window of trading activity. And then really, Craig, I think our continued focus is capital stack to be in a position to reinvest in the company. And this -- our balance sheet and liquidity and our flexibility here has been really demonstrated by being able to do that this winter and having the capital to be able to do that. And so you did see a real change in the liquidity where we were dropping that liquidity down substantially because we did deliver in advance of those. And as that comes back and that liquidity continues to reimburse. There are opportunities for us to increase our share buyback, and that's something that we continue to evaluate, and we will take advantage of as appropriate. [indiscernible]. Operator: [Operator Instructions]. Unknown Analyst: Yes. This is Greg Bennett. Could you go through the economics of the -- you're deemphasizing the rental program, but what are the -- what is the return unlevered rate of return in the rental program. I mean you're -- am I correct the loan that you have against these properties is a floating rate loan. And yes, I'm just curious, you've never mentioned what the places rent for or what the capital you have tied up in you go through the economics of that? Mark Harding: Yes. Yes. I mean, so I'll give you kind of a high-level version of that. So typically, what we see is we're carrying forward some of that equity in the lot and the water. And so when we go out and we contract with our homebuilders to build those homes, they're coming in around $350,000 is really the cost that, that vertical construction is on that home. The home typically appraises somewhere in that $530,000 range. So we have about $180,000 margin in there. And a lot of that's just kind of the equity value of that. We do have a credit instrument for that. It's a fixed rate credit instrument, not a variable rate one. So we do have a facility that we're using that credit facility and not our cash to be able to do that. It's about a 6.5% credit facility. So our first few were done in a very low credit facility, right around that 4.5% rate. So it was much better at that rate. The rentals on these cover the debt service on that and provide us a margin. So typically, these homes are renting around $3,000. I'll just use that as a kind of a round number. some are a little lower, some are a little higher, depending on the number of bedrooms and the square feet of that. And so when you take a look at all of those, we don't have a lot of holding costs on those. And so our rate of return on that somewhere in the 8% to 10% range, but we want to dial that in. We want to see, okay, is that -- how is that performing? What is the capital creation of those homes. If those homes are appreciating at 4% or 5%, together with the rental incomes we want to see what those segments are performing out and making sure that, that meets our investment threshold. So that's really the pause of continued growth of that segment is to get a good handle on how that segment is performing and report that out and make a determination of management and the board level as to is that adequate? And do we want to keep moving forward with it. Unknown Analyst: Okay. Second question on -- you mentioned in your comments in the oil and gas segment, the impression I got is that you contracted out for the drilling companies. Are these all -- is that firm take-or-pay or let's just say oil prices go down to $60 a barrel or $50 a barrel, are these -- is the contract a take-or-pay? Or can they say, no, we're not going to take the water, we've decided to slow down our drilling operation? Mark Harding: Yes, great question. The oil and gas companies really will pay a premium for you to be at their back end call. And so when we when we price our spot oil and gas or industrial deliveries, that's about 3x, 3x what we price it out at our residential customers. But the downside of that is that sometimes they help back on that call. And so no, we don't have a very fixed amount of take or pays and we're one of the very few providers that can dial up and dial down on their systems, and that makes us very attractive to them. And so the premium that I think we charge them for that flexibility is really good for them and good for us. And as you saw last year, we had relatively weak oil and gas deliveries compared to 2023 time frame or 2024 time frame. And so it is a variable demand. It is hard for us to forecast because they do -- it takes a significant amount of lead time for them to get their permits in line, get their rigs committed. And so what we will see is we will see some pretty robust demand through 2026, and we will see a pretty healthy opportunity in 2027, given what they've already what they drilled to date. And so I think we're pretty we're pretty confident about the next 2 years on that. But forecasting out beyond that, as you highlight, is a real function of how oil and gas is doing in the overall commodity index. Unknown Analyst: Okay. And final question, and I'm in a car, but I didn't see your slide, but in the very beginning of your presentation, you gave an area view, I guess, of Aurora or some of the properties, I guess, that are south of Sky Ranch that were undergoing -- my impression was there were undergoing development of home sites. Is that correct? Mark Harding: That is correct. Unknown Analyst: Yes. So the stuff that's been permitted south of the Sky Ranch that actively being developed. What's the time -- I mean, how many units is that? What's the absorption? Is that thousands of units? Is that like a 5-year plan for -- these are other companies or it's Aurora. But what's the time frame to get all those years? Mark Harding: Yes. And so just that -- you're correct. And there's a lot of land in and around this area, right? The I-74 is probably be highest development corridor in the metro area. And it had reasons for that being the case. One, it has transportation. Secondly, it has available land. And so there are on a number of projects, which are thousands of residential units, and they're all around our area. And the Denver area is adding around 15,000 to 17,000 units a year. And I would say this submarket is probably 1/3 to 40% of that domain, whether it's in Aurora, whether it's in IncorporApple County, it really is the strongest development segment in that area, and it will continue to be that way. It will add 6, 000 or 7,000 units a year in this corridor for the next 50 years, right? There's no other area to develop. So we worry less about how we compete necessarily a Sky range to the next development. I think we have a lot of advantages that bring us into a higher performing master plan community than other areas. But at the end of the day, it's all going to absorb. And so this happens to be we're targeted in the right segments of the Denver Metro area. We're offering the right product. We're offering the right model for delivery of lots to our homebuilder customers. So we worry less about is that project can absorb in conjunction with our project absorbing and are we going to see any competition in that area. I would say that's not the biggest metric for us. What we really want to do is be the right developer being that we are doing a horizontal work. We're doing it exactly the way our customer wants it with annual lot deliveries. We're adding to the builder portfolio so that we have all of the builders in our projects and whether we have 1 project at Sky Ranch. But we have multiple projects where there are other Sky Ranch 2, Lowry, any of the other projects, we want to make sure that -- we continue to pay those deliveries and maintain what will be a very long tail of land development. Unknown Analyst: Yes. I guess my question was more when do other parties have to come to you for water -- if you don't own the [indiscernible]? Mark Harding: Yes. I misunderstood that. So they're in the city of Aurora, which as you can see, most of the land directly south of Sky Ranch is in the city of Aurora. They will not come to us, right? They will get their water from the city of Aurora. Those land areas that are not incorporated into the city and the corporate or Apple County, low rate, they will get their water from us. And so I would say it's maybe an even split of opportunities that are going to be competing with us that are going to get their water from Aurora and opportunities that we are competing for to be the developer or just the water utility provider because they're in unincorporated [indiscernible]. whether we develop it or another developer develop, is it. Unknown Analyst: Mark, I think I figured out my [indiscernible] here. Congratulations to you and the team on another solid quarter here. So following up on the question with regard to water. You've got capacity. Obviously, you've got great variability with industrial water sales. What -- can you just refresh us what the opportunity, what your obligations are to WISE and what the opportunity there is, especially if I think you alluded to earlier in your comments that this might be a challenging year when it comes to water supplies and other areas. Do you have the ability to sell through the WISE program or draw from the WISE program. Mark Harding: We do have the ability to draw from the WISE program. So that's an addition, as Elliot identified earlier, that's one of the acquisitions of water supply that's added to the portfolio. We get about, I think, our full subscription in there is about 900-acre feet of water. That system is fully built. We have capacity within that system. So we have, in addition to the 900-acre feet, we have 3 MGD of pipeline capacity in there. And the -- WISE is a kind of a partnership among 12 different water providers in the Denver metro area. And what we've done over the last several years is -- there are opportunities where we want more water, like if we have very heavy oil and gas demands in the winter and other of the WISE participants do not have real high water demand because their summer irrigation season hasn't quite kicked in. There are opportunities for us to get more water out of WISE. And then sometimes when the heavy irrigation season is going on and we have light oil and gas or industrial water deliveries, our domestic deliveries are relatively modest. They're probably 5% of the total capacity that we deliver in any given year, we have opportunities to sell water to the otherwise participating. So we go both ways. WISE, where we're able to trade for more water or trade or less water in that opportunity within WISE. Is there opportunities for that to expand? Yes. We're looking at partnerships and regional partnerships for storage. As many of you who have been following the company for a long time now, we have some very valuable storage reservoirs. And so those are opportunities for us to develop and store other water supplies as our partners look to develop those water supplies had a higher treatment capacity where we can deliver more than our subscription that [indiscernible] into that. So that will grow over time for opportunities for us to expand and it would be a spot water type market, but opportunities for -- as oil and gas over the next 10 years starts to mature out. And if they recycle in and refrac those wells, that will continue to build in the next cycle of the development of this [indiscernible] formation. And then also opportunities for us to be spot and peak water deliveries to other WISE participants. So we look at all those opportunities and that interconnect of that system is a very important aspect of that. Well, terrific questions, and I want to thank you all for your continued engagement. We continue to really pace the development of our assets and really are looking forward to built out at Sky Ranch. We're looking forward to continuing to expand in the land development and really monetizing our service area and more water opportunities and really building this in. So we couldn't be more excited about our runway and really the market penetration that we seen as a utility provider in the [indiscernible] as well as the land developer in the Denver area. And so I think that's going to continue to generate really handsome returns for us and returns to the shareholders. So -- if you didn't get on the call, if you're listening to this on a rebroadcast and a question arises, certainly don't hesitate to give us a call. We will have our Annual Investor Day this coming in July. So -- do we have a date set on that? I think it's [indiscernible] third week of July. So be on the lookout for that. I think it's typical on a Wednesday. I know I did get 1 shareholder that was looking for combining that with a Friday activity, but we'll send some information out as it gets a little bit closer to that. But again, thank you all for your continued investor confidence, and we look forward to the next steps. Thank you.
Operator: Good afternoon, everyone, and welcome to PriceSmart, Inc.'s Earnings Release Conference Call for the Second Quarter of Fiscal Year 2026, which ended on February 28, 2026. After remarks from our company's representatives, David Price, Chief Executive Officer; and Gualberto Hernandez, Chief Financial Officer, you will be given an opportunity to ask questions as time permits. As a reminder, this conference call is limited to 1 hour and is being recorded today, Thursday, April 9, 2026. A digital replay will be available shortly following the conclusion of the call through April 16, 2026, by dialing 1(800) 770-2030 for domestic callers or 1 (647) 362-9199 for international callers, entering replay access code 589-8084. For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Gualberto Hernandez. Please proceed, sir. Gualberto Hernandez: Thank you, operator, and welcome to PriceSmart Inc.'s Earnings Call for the Second Quarter of Fiscal Year 2026, which ended on February 28, 2026. We will be discussing the information that we provided in our earnings press release and our 10-Q, which were both released yesterday, April 8, 2026. Also in these remarks, we refer to non-GAAP financial measures. You can find a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures in our earnings press release and our 10-Q. These documents are available on our Investor Relations website at investors.pricesmart.com, where you can also sign up for e-mail alerts. As a reminder, all statements made on this conference call other than statements of historical fact, are forward-looking statements concerning the company's anticipated plans, revenues and related matters. Forward-looking statements include, but are not limited to, statements containing the words expect, believe, plan, will, may, should, estimate and some other expressions. All forward-looking statements are based on current expectations and assumptions as of today April 9, 2026. These statements are subject to risks and uncertainties that would cause actual results to differ materially, including the risks detailed in the company's most recent annual report on Form 10-K, the quarterly report of our 10-Q filed yesterday and other filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These risks may be updated from time to time. The company undertakes no obligation to update forward-looking statements made during this call. Now I will turn the call over to David Price, PriceSmart's Chief Executive Officer. David Price: Thank you, Gualberto, and good morning, everyone. Thank you for joining us today. We delivered a strong second quarter. Growth was broad-based across our regions and our membership renewal rate reached an all-time high. I want to take a moment to express my sincere gratitude to every one of our employees across our 13 countries in Chile. Their dedication, hard work and passion for doing right by our members is the foundation of our success. . We delivered these results against the backdrop of continued global uncertainty, including currency volatility, evolving trade policy and macroeconomic pressures that are dynamic all multinationals face today. That being the case, our business delivers value to our members in good times and bad, and I am excited about the momentum we are carrying into the second half of this fiscal year. With that, let me walk you through highlights from the quarter. During the second quarter, net merchandise sales and total revenue reached almost $1.5 billion. Net merchandise sales increased by 9.9% or 7.8% in constant currency. Comparable net merchandise sales increased by 7.6% or 5.5% in constant currency. Two of our recent club openings, Cartago and Ketsilton-ongo are not yet included in our comparable sales numbers. During the first half of our fiscal year, net merchandise sales reached over $2.8 billion and total revenue was almost $2.9 billion. Net merchandise sales increased by 10.2% or 8.6% in constant currency. Comparable net merchandise sales increased by 7.8% or 6.2% in constant currency. During the second quarter, our average sales ticket grew by 2.2% and transactions grew 7.5% versus the same prior year period. The average price per item increased 3.3% year-over-year, while average items per basket decreased 1%. First, in Central America, where we had 32 clubs at quarter end, net merchandise sales increased 8.6% or 7.8% in constant currency. Comparable net merchandise sales increased 4.7% or 4% in constant currency. Our Central America segment contributed approximately 280 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the second quarter. Second, in the Caribbean, where we had 14 clubs at quarter end, net merchandise sales increased 4.3% or 5.3% in constant currency. Comparable net merchandise sales increased 4.2% or 5.1% in constant currency. Our Caribbean region contributed approximately 120 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the second quarter. Last, in Colombia, where we had 10 clubs opened at the end of our second quarter, net merchandise sales increased 30.5% or 13.8% in constant currency. Comparable net merchandise sales increased 31.3% or 14.7% in constant currency. Colombia contributed approximately 360 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter. The increase is a result of several factors, including the appreciation of the Colombian peso, increases in member traffic and continued strengthening of our merchandise offering, which I will share more on later in my remarks. In terms of merchandise categories, when comparing our second quarter sales to the same period in the prior year, our foods category grew approximately 9.2% within foods, fresh proteins were a standout. Seafood, poultry and meat each exceeded 15% growth as we continue to elevate quality and value in those departments. Our nonfood category increased approximately 12.4%. Alongside cost efficiencies from our age of consolidation initiatives, we drove growth with strong performance in casual apparel, especially in our actewear categories and in small appliances. One of several notable programs included a mix of shorting items that were especially exciting for our members, and contributed to our focus of creating the treasure hunt experience within our clubs and online. Softlines also had a strong quarter, highlighted by our domestic white sale promotion in January, which more than doubled sales compared to the prior year. Our food service and bakery category increased approximately 12.2% and our health services, including optical, audiology and pharmacy increased approximately 13%. Membership accounts grew 7.9% year-over-year to almost 2.1 million accounts with a strong 12-month renewal rate of 90.2% as of February 28. It is especially exciting to see our membership renewal rate at an all-time high this past quarter, a clear indication that our members see the value we deliver and remain engaged with our offering. The key focus of our membership strategy is growing the Platinum membership base. Platinum is our premium tier designed for our most engaged members. These members receive an annual cash back reward on eligible purchases which drives loyalty, increases, purchasing frequency and rewards their continued business with us. By focusing on platinum growth, we're investing in our highest value member relationships. As of February 28, platinum accounts represented 19.5% of our total membership base. up from 14.5% in the same period last year. We are happy with the results of our targeted promotional campaigns and the strong renewal rate we are seeing reflects that our members believe in the value of that upgrade. We believe that a Platinum membership, combined with our strong co-branded credit card, which comes with an additional cash back on points earned ensures that participating members get the very most out of their membership with Priceline. Membership income as a percentage of revenue increased to 1.6% in the second quarter compared to 1.5% in the prior year period, driven in part by the shift toward Platinum membership. These strong results reflect our team's execution and the strategic initiatives we have underway. Now let me walk you through the progress we're making across real estate expansion, supply chain transformation and technology investments that are enhancing our ability to serve members and position the company for our next phase of growth. We are opening our sixth warehouse club in the Dominican Republic in the La Romana municipality early next month. We are excited to bring PriceSmart to a new trade area, and we are particularly proud of the sustainable design practices incorporated in its build, including solar panels, a heat reclamation water system that eliminates the need for a water heater, recycled steel in the infrastructure, a modern CO2 refrigeration system, high-efficiency plumbing fixtures and an intelligent energy management system. These features reflect our commitment to doing right by both our members and the planet. And importantly, they also reduce operating costs, making our club more efficient. We look forward to serving members in this new trade area as we continue to deepen our presence in the Dominican Republic. In Jamaica, we have 2 clubs under construction, one in Montego Bay and the other on South Camp Road in Kingston, which we expect to open in summer and winter of 2026, respectively. Construction is progressing well for both. Recovery efforts have been strong in the aftermath of Hurricane Melissa, and market indicators suggest a robust 2025, 2026 tourism season. That, combined with international relief efforts supporting the island's recovery, give us confidence in the consumer demand environment as both clubs prepare to open. Additionally, in the second quarter of fiscal year 2026, we purchased land for our tenth warehouse club in Costa Rica and SudadKasata, that's approximately 47 miles northwest from our nearest Club in San Jose. The club will be built on a 6-acre property and is anticipated to open this summer. Lastly, in the third quarter of fiscal year 2026, we leased land for our eighth warehouse in Guatemala in the municipality of approximately 13 miles south from the near club in Guatemala City. The club will be built on a 5-acre property and is anticipated to open in the spring of 2027. Although we are still waiting to obtain all permits, we are confident we will receive them and have begun with the initial earthworks for the club. Should we not receive the remaining permits we can cancel the lease. Once these 5 new clubs are open, we will operate 61 warehouse clubs in total. We believe that there is opportunity to expand our footprint in our existing markets and plan to continue to diligently procure sites, we think will strengthen our existing network of locations and meet our expected returns. Chile remains a top priority, and we are encouraged by the progress we are seeing there. We have signed executory agreements for 2 prospective club sites and are actively pursuing additional locations. In parallel, we are laying the foundation for a successful market entry. We have hired a country General Manager and local team members, established our central office and are building out the procurement and logistical infrastructure needed to operate effectively. We look forward to sharing more specific milestones as they develop. Beyond new growth, we also will begin warehouse club and parking lot expansions and remodels in fiscal year 2026 in Portware, Jamaica and Barbados. Now turning to our supply chain transformation strategy, one of the key drivers in keeping prices low is improving how we move and distribute merchandise to our clubs. Today, we operate major distribution centers in Miami, Costa Rica, Panama and Guatemala. During the second quarter, we began operations at our new distribution center in Trinidad. In addition, we plan to open distribution centers in Colombia and Jamaica during fiscal year 2026 and in the Dominican Republic during fiscal year 2027. Our goals with these distribution centers are to improve product availability, reduced lead times and lower landed costs, among other efficiency gains. Alongside these new distribution centers, we completed implementing third-party distribution centers in China to consolidate merchandise sourced in the country, which we believe will drive greater efficiency and lower costs. We continue to advance our migration to the relax forecasting and replenishment platform and remain on track to complete the full implementation in fiscal year 2026. We completed onboarding our U.S.-sourced inventory procurement process, and now we are focused on our local goods procurement process. While the implementation of a new system brings with it an initial learning curve, we are starting to realize its capabilities and expect to see the benefits of improved forecasting, product availability and operational efficiency long term. During the second quarter, we advanced our multiphase implementation of the ETA Open Global trade management platform designed to enhance automation, compliance and controls across global import and export operations. We believe this platform will strengthen trade compliance, improve data visibility to support scalable international growth once fully implemented. Turning now to other ways we are enhancing membership. On a comparable basis, excluding a reclassification of the produce category, private label penetration increased 50 basis points in the first 6 months of FY 2026, reflecting continued progress towards our long-term goal of growing this part of our business. Using our updated methodology, penetration of private label was 26.6% of total merchandise sales. Private label serves multiple strategic purposes. It allows us to offer high-quality products at lower prices than the national brands. It improves our margins, and it gives us leverage with national brand suppliers by providing a trusted alternative that keeps them competitive. Recent additions like avocado oil, fresh chicken and purified drinking water demonstrate our focus on delivering exceptional value across key everyday categories, and we have been able to pass meaningful savings to our members as reduction in commodity costs allow including price reductions on extra version, all of all of 31.5%, franchise of 8.9% and Montreal 5.8%. Our private label water program is a good example of how private label can deliver simultaneously for members for the business and for the planet. By shifting supply for our 10 Colombia clubs to a local bottler, we reduced prices by approximately 23%, roughly $2 per pack while also lowering our carbon footprint through reduced transportation and packaging made with 50% recycled content. We continue to invest in omnichannel capabilities to meet our members where they are. In the second quarter, digital channel sales reached $94.1 million, our highest dollar volume to date, up 23.4% year-over-year and representing 6.4% of total net merchandise sales. Orders placed directly through our website or app grew 10.9%, with average transaction value up 10.8%. As of February 28, 74.7% of our members have created an online profile and more than one in 4 members had made a purchase through pricesmart.com or our app, an indicator of the digital engagement we are building across our membership base. We see continued opportunity in this space, and we will keep investing to enhance the digital experience we offer our members. During the second quarter, we began migrating our mobile application to fully native iOS and Android architectures, to enhance speed, reliability and accessibility. This foundation will allow faster deployment of new features and help us deliver an outstanding member experience in our digital channels. Turning to technology investments that enhance both member and employee experience and operational efficiency. In the first quarter, we completed implementation of our new point-of-sale system, Valera across all English-speaking Caribbean markets. We have since begun testing in Central America and are making good progress on our rollout plans for Spanish-speaking markets. Early indicators show that Valera is delivering faster checkout times, improved productivity and expanded payment options for our members, tangible improvements to the in-club experience as we roll out the platform across our network. Also in the second quarter, we furthered implementation of Workday's human capital management system to replace legacy HR applications and expect to go live by end of the third quarter. This upgrade is designed to enhance the employee experience with modern user-friendly tools while improving processes and strengthening compliance. We will also provide scalable integrated data layer to support our future growth. Before I turn it over to Gualberto, I want to address a few additional topics. First, regarding U.S. tariffs. Approximately half of the merchandise we sell is sourced locally, reasonably within Latin America. The other half is sourced from the U.S., Europe, China and globally. In addition, on February 20, 2026, the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act. While the landscape of tariffs continues to evolve, it is important to note that we consolidate many of these international products through our Miami distribution center. They are shipped in bond and are not nationalized in the United States. We also take advantage of free trade agreements where we can. Additionally, we've been leveraging our expanding distribution center network and China consolidation capabilities to shift direct to market where feasible. In short, U.S. import tariffs do not apply to most of our merchandise. And as a result, we are not owed a refund from the U.S. government due to the most recent Supreme Court ruling. We continue to monitor the evolving trade policy environment. But to date, current U.S. tariff policy has not directly impacted our cost structure or business operations. We are also monitoring developments with respect to the ongoing military conflicts with Iran. We anticipate potential impacts to transportation costs or delays in the shipment or delivery of our products. The cost of fuel is a significant component of transportation cost. If our vendors or any raw material suppliers on which our vendors rely suffer prolonged manufacturing or transportation disruptions, our ability to source product to be adversely impacted, which would adversely affect our business. Also, fuel prices in some of our markets have increased significantly, which may reduce consumer demand impacting frequency and purchasing power. However, we are monitoring and we'll do what we can to ensure we continue to provide the value we are known for in our communities. Lastly, I want to provide a brief preview of our March sales and some insight into our Semana Santa results. Note that Semana Santa this year started late March, early April versus mid- to late April last year. So the comparability and growth for March will be skewed higher. However, our comparable net merchandise sales for the 4 weeks ended March 29, 2026, grew 12.3% in U.S. dollars and 9.2% in constant currency. I'm incredibly proud of the exciting assortment we offered in the outstanding preparation and execution by our merchandising, supply chain and operation teams and also all who are involved at the company to make this year's Semana Santa a success. With that, I'll turn it over to Gualberto, who'll walk you through the financial results. Gualberto Hernandez: Thank you, David. Continuing with the income statement. Total gross margin for the quarter as a percentage of net merchandise sales increased 50 basis points to 16.1% versus Q2 last year. The increase is mainly driven by shifts in product mix, primarily within our nonfood segment and cost savings we are starting to realize from our Asia consolidation efforts when compared to the same period in the prior year. Total revenue margins improved 60 basis points to 17.7% of total revenue from 17.1% in the same period last year. This was mainly driven by the increase in our warehouse sales margins and good results in membership renewals and platinum growth, as mentioned before by David. On overhead costs, Total SG&A expenses increased to 12.7% of total revenues for the second quarter of fiscal year 2026 compared to 12.4% for the second quarter of fiscal year 2025. The 30 basis point increase is primarily related to the appreciation of the peso in Colombia and its effect on our warehouse expenses. Our continued investments in technology and executive officer compensation not incurred in previous years. Operating income for the second quarter of fiscal year '26 increased 15.6% from the same period last year to $75.4 million. Operating income for the first 6 months of fiscal year 2026 increased 12% from the same period last year to $138.3 million. Below the operating income line, in the second quarter of fiscal year 2026, we recorded an $8.7 million net loss in total other expense, an increase from a $5.1 million net loss in the same period last year. The primary cost of the increase is due to foreign currency-related losses, predominantly from unrealized noncash losses related to the revaluation of the net U.S. dollar monetary asset position we have in Costa Rica as there was a significant appreciation of the Costa Rica colon in the month of February. This loss was partially offset by lower foreign currency exchange transaction costs during the quarter and for the first 6 months of the fiscal year in Trinidad as we executed fewer sourcing transactions. However, in March and subsequent to quarter end, we have executed and will be sourcing more foreign currency and incur additional transaction costs for the remaining part of the fiscal year. When and how many transactions we executed in any given period is dependent on various factors, including available trading currencies and the cost to convert. Lastly, in light of increased volatility in the exchange rates, we are also actively exploring options to expand our hedging program in select markets. In terms of income tax, our effective tax rate for the second quarter of fiscal year 2026 came in at 26.4%, a slightly favorable result versus 27.2% a year ago. For the 6 months ended February 28, 2026, our effective tax rate was 27.1%, almost in line with a 26.9% effective tax rate of the comparable prior year period. Finally, net income for the second quarter of fiscal year 2026 was $49.1 million or $1.62 per diluted share, an increase of 11.7%, up from $43.8 million or $1.45 per diluted share in the second quarter of fiscal year 2025. Adjusted EBITDA for the second quarter of fiscal year 2026 was $99.7 million, compared to $87 million in the same period last year, a growth of 14.6%. Net income for the first 6 months of fiscal year 2026 was $89.3 million or $2.91 per diluted share, an increase of 9.4%, up from $81.2 million or $2.66 per diluted share in the first 6 months of fiscal year 2025. Adjusted EBITDA for the first 6 months of fiscal year 2026 was $186.6 million compared to $166.1 million in the same period last year, a growth of 12.3%. Moving on to our balance sheet. We ended the quarter with cash, cash equivalents and restricted cash totaling $195.1 million, plus approximately $149.7 million of short-term investments, typically held in certificates of the past. When reviewing our cash balances, it's important to note that as of February 28, 2026, we had $76.9 million of cash, cash equivalents and short-term investments denominated in local currency in Trinidad, which we could not really convert into U.S. dollars. Turning to cash flow. Net cash provided by operating activities reached $133.3 million for the first 6 months of fiscal year 2026, an increase of $6.9 million versus the prior year period. The increase is primarily driven by a $10.6 million increase in net income adjusted for noncash items and a $5.3 million overall net positive changes in other various operating assets and liabilities. This is partially offset by shifts in working capital, mainly due to higher overall inventory balances, which used $9 million of cash in operating activities. Net cash used in investing activities increased by $89.9 million for the first 6 months of fiscal year 2026 compared to the prior year, primarily due to net changes in short-term investments of $59.6 million. a $25.5 million increase in property and equipment expenditures and an $11.9 million increase in purchases of long-term investments. Net cash used in financing activities increased by EUR 21.7 million for the first 6 months of fiscal year 2026 compared to the prior year, primarily due to a $15.9 million increase in net repayments of short-term bank borrowings, a $3.1 million increase in the purchase of treasury stock upon vesting of restricted stock awards to cover employee tax withholding obligations and a $2.3 million increase in cash dividend payments. In February, we declared our annual cash dividend, which in total is $1.40 per share, or an 11.1% increase over last year's dividend. That's 5 consecutive years of increases and double what we declared per share in 2021. This is another signal of the strength of our cash-generating abilities. Our priority remains executing consistently and responsibly for our long-term success. We believe our established processes, diversified footprint and experienced teams provide a solid foundation as we manage the business day to day with that long-term perspective, guiding us forward. We appreciate the continued support of our members, employees and shareholders, and we thank our teams for their ongoing efforts. Thank you for joining our call today. I will now turn the call over to the operator to take your questions. Operator, you may now start taking our callers' questions. Operator: [Operator Instructions] Your first question comes from the line of Jon Bretz from Kansas City Capital. Jon Braatz: A couple of questions. First of all, David, when you think of -- it's been a couple of quarters since you first began talking about Chile and the media or the press in Chile has wrote a number of published number of articles about where your stores might be and some of the people you hire, but -- is it taking a little bit longer to sort of the eyes and cross the Ts and get permits and all this other stuff to begin construction of stores? Is it just a little bit longer than you would have anticipated? David Price: Thanks for the question, Jon. Yes, you're right about the media. It's been really interesting to observe just how active the press media is in the business news media is in Chile versus our other markets. It's been something that surprised us, quite frankly. And it's not necessarily a bad thing, but certainly, the press will write a lot of things, whether or not they're able to validate that they're true. They still will publish, and that's something that's kind of been -- But we haven't seen that things are taking any longer necessarily than any other market. The process actually compared to some of our other markets is better in the sense that it's much more clear, in terms of the quality of the institutions and the steps that you have to go through that good permits. But we're quite conservative in terms of when we announce openings. We typically announce once we have permits in hand and we don't. So we haven't announced. And so that's been our policy and our approach. And so we try to be consistent in how we approach announcing new openings. Jon Braatz: Okay. Two other questions. David, a lot of conversations surrounding remits in your markets. Have you seen any impact because of that? And then secondly, I was distracted a little bit when you were talking about the situation in the Mid East. Beyond the higher cost of energy, what was your comments about maybe supply chain impact if there is? David Price: Sure, sure. Thank you for the question. So in terms of remittances, we haven't seen any visible changes in consumption as a result of changes in remittances. And in fact, the data has been fairly clear that the remittances are still flowing to the markets at rates that are not that different from what has occurred in the past, which is interesting actually because one would think that there maybe would be bigger changes. But I think these are patterns that have been around for many years, and they're probably quite difficult to change. So we haven't seen any changes in terms of consumption patterns among our members as a result of changes On the topic of what's happening in Iran and Strait of Hormuz, from a supply chain standpoint, there's a lot of -- I mean, it's still somewhat early in the For sure, we're seeing there are changes in fuel costs around the globe. And that's something that I think all retailers and all distributors are dealing with. And I think it hits in different ways, and we have the ocean component via the U.S. domestic component. And so as it fuels is a large part of transportation of the cost. And so certainly, that's a piece of something that we're seeing shift. Otherwise, we haven't had major supply chain disruption at this point because a lot of the merchandise that's coming into our markets is not coming by -- well, not coming by way of the Strait. But besides that, there's some POs, a delay here and there, but nothing that's really significant. I mean -- which is good, but that doesn't mean it can't happen. I mean I think there's still yet to be seen all of the impacts of this conflict. And I think even after the conflict resolves, there still may be impacts. And there was an interesting article I read in the New York Times just last night about World Word I and the impact that happened many years after. And I recommend you read it because it got me thinking about that could happen here for sure. And so we're just trying to remain as vigilant as we can but also as flexible as we can to have a resilient supply chain. I think the work that we're doing with consolidation and then beginning to diversify how we procure products, it's all good because as the world becomes more volatile, the more resilient and diverse our supply chain is the better. Gualberto Hernandez: And we have run some simulations. This is Gualberto, Jon. We have run some simulations and are actively looking into this. There will be some smaller impacts in terms of financials, but nothing really material or nothing or... David Price: Not at this point. Gualberto Hernandez: Yes. Operator: Your next question comes from the line of Héctor Maya from Scotiabank. Héctor Maya López: Could you please share more details on the drivers of the higher gross margin, particularly if this is more structural or temporary? And if there will be some investments going forward? I mean I saw you had a better mix and solid membership income, but just wanted to understand a bit more about this. Gualberto Hernandez: Yes. Thank you for the question, Héctor. This is Gualberto. We -- there are a couple of variables that usually, it's not only one single, but we have benefited from a shift in mix by category. Foods went a little bit down in terms of say, participation versus fresh that has been helped with better margins, debase of that is on nonfood hard lines. First, that's an interesting play in harness versus softline improved the margin itself versus prior versus the same quarter in the last year, but still below the margin of Softline. Softline went up versus also a mix change there that ahead. We have started to benefit also from the Asia consolidation efforts, so there are savings in shipping costs have one routes as we are keeping the Miami saving and handling fees. So that all was in favor of the margin improvement this quarter and year-to-date. Héctor Maya López: Also, given that Central America and the Caribbean are highly dependent on remittances and all imports, how are you preparing for a potential macro challenge there? I mean at least on the side of remittances, I understand that we haven't seen material changes in the region just yet, but we have seen of central banks in Central America coming out with projections that point to a deceleration for 2026 in remittances due to declining integration trends to the U.S. and the 1% tax remittances that started this year. So basically, how would you say that you could be preparing for potential risks on this? Gualberto Hernandez: Well, I think we have some type of natural protection to that also because of the profile of our members that are less reliant on remittances. So that gives us some type of natural protection. But we don't this means, I mean, you made a very good point with we don't dismiss the risk and we're watching carefully. But again, there are only projections so far. We're tracking them. as David explained, we haven't really seen anything. As you know, the actual data about has some material lags in terms of how we retest. But I would just repeat what David said. We have not seen anything yet. We believe we have some type of network protection against the heating remittances, and we will continue following this closing. David Price: And maybe -- Héctor, I'll add one other thing, which is our -- we're one of our kind of -- the way we think about our business, one of our missions is to keep driving down costs supply chain and becoming more competitive, so we can offer better and better value to our members. And I think that's a natural -- also a natural way to protect against changes in remittance. I mean we can only do what we can do, right? I mean if there's macro swings happening, we just have to run our business as well as we can. And so as we build a better supply chain that's more efficient and more efficient than our competitors, particularly in those markets, that's going to help us continue to drive up value for the member drive market share, drive sales. And so that, I think, is the best thing we can do. Héctor Maya López: I'm the add on a promise we noticed that one plant cloud in Costa Rica and one in Jamaica have earlier opening dates now. So just wondering what was behind that? And also on Chile, if you could give us an update on not so much in progress because I understand that it is something that you see as going forward as you were expecting. But progress on how much you're learning so far from the potential opportunities in that market? And I mean, aside from the media, the media behavior that you haven't noticed, what other learnings that you're getting from this new market? David Price: Sure. Thank you. On the topic of the accelerated club opening, I always challenge our team to find ways to open earlier because every day that we save of time that we open is the day that we started getting our investment paid off and creating a good return for our shareholders. So they get a lot of pressure for me to figure out ways to go faster. But besides that, we actually received permits a little earlier than we expected. And so that's probably the most significant thing. I mean, because we only do -- we're always trying to learn how to be better at constructing these buildings, but certainly getting permits are help. So... On Chile, we're learning a lot. We're learning a lot. We've had a number of different kind of delegations of buyers that have gone down. I was down there a couple of times last year and I'll be down again a few times this year, I'm sure. And so I mean there's all sorts of things that we could dig into, but it's a very advanced market from the standpoint of both the consumer, but then also on the supply chain side. I mean distribution space is high quality, high quality is in the United States, and processing capabilities for fresh products are very high quality in terms of chicken and produce and otherwise. I think there's a desire for international goods. We see it the other retailers in the market the floor and the other retailers that they're carrying a lot of USBs and U.S. and European products, certainly German products, we see a lot of the market as well, and there's -- the shopping experience occurs in a lot digitally, but not only. I mean it's a very digitalized market, as I mentioned on prior calls, it's the highest penetration of Internet in the region, all of Latin America. So we're learning a whole lot. I mean, infrastructure is a whole lot better than our other markets in terms of mobility, right? There's toll roads that are quite robust to go from Visa Cuda, Sachiubeo or around the city, I mean, there's the coolants partially on the ground. For me, as someone that spends a lot of my professional and personal life in Central America is going to Santiago for the first time was really eye opening. I mean, tremendously eye opening in terms of how sophisticated the market is and the capabilities there. So we're learning a whole lot, and we believe that we have something that would be very desirable and valuable for the consumer in the marketplace. And so we're going to do our best. Operator: And that concludes our question-and-answer session. I will now turn the call back over to David Price for closing remarks. David Price: Thank you for joining the call, everyone, and have a great day. Thank you very much. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to Constellation Brands' Fiscal Year 2026 Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Blair Veenema, Vice President of Investor Relations. Thank you. You may begin. Blair Veenema: Thank you, Donna. Good morning all, and welcome to Constellation Brands' Q4 and Full Year Fiscal '26 Conference Call. I'm joined this morning by Bill Newlands, our CEO; and Garth Hankinson, our CFO. I'm also pleased to welcome our incoming CEO, Nicholas Fink, who is joining us at the start of today's call to share a few remarks. Following Nick, Bill will briefly review the fiscal year, after which we will turn it over to your questions for Bill and Garth. Before we proceed, we trust you had the opportunity to review the news release and CEO, CFO commentary made available in the Investors section of our company's website, www.cbrands.com. On that note, as a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in the news release and website. And we encourage you to also refer to the news release and Constellation's SEC filings for risk factors that may impact forward-looking statements made on this call. Before turning it over to Bill to kick things off, -- please keep in mind that as usual, answers provided today will be referencing comparable results unless otherwise specified. Lastly, in line with prior quarters, I would ask that you limit yourselves to 1 question per person, which will help us to end our call on time. Thanks in advance, and for the final time, over to you, Bill. William Newlands: Thanks, Blair, and good morning, everyone. I'm going to make a few opening comments before we get into Q&A. But first, I'd like to pass it over to Nick Fink our President and CEO elect for a few brief comments. Nick, warm welcome. Nick will assume the role on April 13, and we are pleased to have him with us today to say a few words before we get started. Nick? Nicholas Fink: Thank you, Bill, and good morning, everyone. I'd like to start by recognizing Bill's leadership over the past 7 years as CEO and in total, his 11 years of contributions to Constellation Brands. He strengthened the foundation of the company in meaningful and lasting ways, and I've valued our partnership during my time on the board. I look forward to continuing to work closely with him over the coming months to ensure a seamless transition as he moves into his role as a strategic adviser. I'm honored to step into the CEO role next week at such an important time for our business. Constellation enters this chapter from a position of strength with a leading portfolio in high-end beer, a reshaped wine and spirits business, best-in-cost marketing and sales capabilities and a proven playbook that continues to deliver consistent share gains year after year. While the consumer landscape remains dynamic, I firmly believe that we are well positioned to continue delivering for our consumers, employees, distributors and shareholders over the long term. Having served on the Board for the past 5 years, I've been closely involved in our key strategic and operational priorities. That perspective gives me strong conviction in our strategy and in our ability to execute going forward. We will continue to be insights-driven and consumer obsessed, lean into our strengths in beer, allocate capital with discipline and generate strong cash flow while thoughtfully navigating an evolving consumer landscape. As I formally assumed the role on April 13, I look forward to spending time with our operators, distributors and many of you in the investment community to gain an even deeper understanding as we begin to shape the next phase of our growth journey ahead. I'll close by reiterating my confidence in this business, in our iconic brand portfolio, our route to market and consumer-led marketing, our best-in-class operations and most importantly, our talented people. These strengths underpin our differentiated capabilities as we seek to continue delivering sustainable long-term growth and attractive shareholder returns. With that, I'll turn it back to Bill. . William Newlands: Thanks, Nick. Just a few additional comments from me before we start Q&A. As we stated in our published remarks, we ended the year with some solid momentum in our beer business, despite operating in a challenging environment during our fiscal '26. It was a year that required agility and focus as consumers continue to navigate a tough economic backdrop with more selective shopping behavior, which weighed on overall category performance for much of the year. Our teams stayed tightly aligned on what we can control, drawing points of distribution, supporting our core brands and executing with discipline. That approach allowed us to take share and strengthen our competitive position. Our beer portfolio continued to lead the high-end segment with Modelo Especial maintaining its leadership as the #1 beer brand by dollars in the United States and momentum improved as the year progressed. In Wine and Spirits, our efforts to reshape the portfolio are gaining traction with strong contributions from brands like Kim Crawford and Mecampo. Lastly, from a financial standpoint, the business delivered solid cash generation, giving us the flexibility to reinvest while also returning capital to shareholders. As we look ahead, we're encouraged by the improvement we saw exiting the year, but we remain realistic about the current operating environment, which remains fluid with limited visibility. That said, we feel good about where we're positioned. -- with strong portfolio, clear priorities and a disciplined approach to operating, we believe we're well equipped to continue building momentum and delivering long-term value. Now back over to you, Donna, for the questions. Operator: [Operator Instructions] Our first question today is coming from Nik Modi of RBC Capital Markets. . Nik Modi: Bill, best of luck going forward. Maybe you could just unpack the beer top line guidance for the upcoming fiscal year, the negative 1 is a positive one. And I ask that in the context of what seemingly is a pretty good start to March or to the year. if you could just give us some context on kind of what you're thinking? Is there anything that we should be thinking about in terms of like why it would decelerate for the full year relative to what we're seeing in March right now? Any context would be helpful. . William Newlands: Sure, Nick. Obviously, the single biggest challenge that exists now is our limited visibility. Things have been very volatile in terms of what the consumer reaction has been and our continuing research suggest that the consumer is still cautious. With that said, as we noted in our overview, -- we exited last year in a very strong position. We saw sequential gains in the quarter, and we saw depletions up in the quarter, which had not been the case over the prior 3 quarters. March is off to a solid start, better than planned with continued increasing momentum. So certainly, we remain optimistic about the year that we have just begun. -- but we need to continue to recognize volatility has been high and visibility has been low. Operator: The next question is coming from Bonnie Herzog of Goldman Sachs. . Bonnie Herzog: All right. And best of luck Bill from me, too. It was great working with you. I have a question on beer operating margins. Your guiding margins of 37% to 38% for this year, which is a step down from your prior guidance of 39% to 40%. So can you help us understand the key drivers of the new margin delivery I guess, especially around fixed cost absorption from the new Veracruz brewery coming online. Also, how should we think about the phasing of margins across 1H versus 2H? And then finally, I guess, I'm curious to know if you believe you could get back to the 40% margin range? And if so, is that a possibility next fiscal year? Or is this going to take longer . Garth Hankinson: Thanks for the question, Bonnie. So you're right. We've got to 37% to 38% margins. I'll tell you what the headwinds are and then what we're doing to offset those headwinds. You rightfully pointed out that -- the primary headwind as it relates to operating -- our gross profit margins are expense-related, costs associated with our new brewery in Veracruz, which is expected to begin production around the middle of our fiscal year. With that, we were going to have some fixed cost absorption headwinds as we go through the year. And then further down the P&L, we have an increase in our SG&A expense related to lower incentive comp in FY '26 and incremental investments in marketing that we will make in this year to drive continued growth within the business, both in the short and in the long term. Offsetting those headwinds will be 1% to 2% price delivery, which, as we've noted in the materials we uploaded overnight, we'll be at the lower end of the range this year. We will continue to deliver against our cost savings agenda, where we've been very successful in our migration from a builder to an operator. And then we -- additionally, as you saw in materials, we'll have relief from aluminum tariffs this year. As it relates to beyond FY '27, we're not prepared to talk around any guidance beyond this year. So we'll cover that as we go through this year and into next. Operator: The next question is coming from Dara Mohsenian of Morgan Stanley. . Dara Mohsenian: Best wishes for me also, Bill, I enjoyed working with you. And Garth, maybe if I can just follow up on the beer margin side, -- can you just break out what you're expecting from a key input cost standpoint in fiscal '27 aluminum freight and some of the other key buckets, just how hedged you are on the input cost side as well as FX side -- and then as you think about beer margins, maybe volatility there, what might be some of the upside drivers versus downside drivers -- and then also just focus on wine and spirits as much, but the margin guidance is clearly a lot lower than maybe the ongoing business should support longer term. So just help us understand the wine and spirits margin guidance for '27, how much of that is depressed by factors specific to '27 versus extends longer term? Garth Hankinson: Yes, Dara, there was a lot there. So I hope I got it off. So from a hedging perspective, we're fairly well hedged as we enter the year in both the [indiscernible] and on currencies. For fuel, we're nearly 100% hedged; on aluminum were approximately 90% hedged; natural gas, about 80% hedged; in corn about 75% hedged. Across all of our currencies, we're right around 80% hedged as we enter the year. So we're in a good spot. In terms of beer margins and what could lead to upside I think volume, as Bill noted, we're cautiously optimistic around the start of the year. And if volumes were to increase from where we are, that would certainly benefit the margin profile. As it relates to wine and spirits margins, there are a number of factors that are going into our -- the guided margin profile, including ongoing category pressures, channel headwinds, the timing of our cost deleveraging and distributor inventory rebalancing. Starting with the category headwinds. We've seen a material downgrade in the outlook from where we were a year ago U.S. high-end wine has shifted from expected low single-digit growth to low single-digit declines. U.S. high-end spirits are decelerating from plus mid-single-digit growth to flat to slightly down. And so while we're significantly outpacing the market, it's sort of on what I would call a little bit of a lower base. Relating to channel headwinds. We've seen some tasting room softness in our Napa-based wineries. And then internationally, we've seen some weakness as it relates to U.S. made or U.S. sourced wines and spirits, particularly in Canada, which is our largest market, where ban on U.S. wine and spirits remains in place. And then as we outlined in our materials, we've agreed to some inventory rebalancing with our key distributors, reflecting the softness we're seeing in the wine and spirits category. And then in terms of the timing of cost leverage because the top line is softer, as you know, in wine, the length of time it takes for things to move from the balance sheet into the P&L just it will take a bit longer than expected. That being said, structurally, we still believe that our target margins are achievable over the medium term as distributor inventories normalize as the category declines moderate and as our cost savings agenda moves from the balance sheet and into the P&L. Operator: The next question is coming from Filippo Falorni of Citi. Filippo Falorni: Just adding my best wishes to Bill and congrats to Nick on the new position. So maybe staying on beer margins, but on the marketing spend side. You mentioned in the prepared remarks that you're thinking about 9.5% of sales on marketing. How should we think about the cadence throughout the year? Obviously, you have a World Cup -- for World Cup coming in the summer, should we think maybe there's a little bit of actual spending in the summer months. And longer term, how do you guys think about the marketing levels is this 9.5% still a good place to think about longer term beyond fiscal '27? . William Newlands: You bet. We're going to very aggressively invest against our brands in the first half of this year for a number of reasons. One is the momentum that we saw coming out of the end of the year and the momentum that we've seen in March. Secondly, the World Cup is an outstanding event that provides an opportunity for many of our loyalist consumers to engage with our brands. And we're going to invest heavily against that. We always invest in the first half of the year. You will see additional investment this year. Part of that will be done against our high-end light beer strategy. You've probably noticed, we are seeing momentum in our oral and premier brands, particularly coming out of our repositioning of our price points for those 2 sub-brands and we're going to invest behind it. We think that remains a tremendous opportunity for our business, and we're going to invest behind that. We're going to continue to invest against Modelo. Modelo, we believe, still has a lot of runway and will be very appropriate in the time frame of the World Cup. And lastly, I got to make a call out to both Pacifico and Victoria, which have both on a tear, you're going to see more investment against Pacifico than we have done historically as we see that momentum is 1 that we can continue to leverage going forward. And last but not least, Victoria. Victoria has done very well and brings in a younger consumer than our overall portfolio mix, which we find is very beneficial for the long run as well. So a lot to be excited about within our brands that doesn't even begin to touch on things like Sunbrew, which obviously is another one. That showed great momentum in its first full year. So a lot of things for us to invest in, as Garth noted a moment ago. We are increasing our investment this year as we feel it's the perfect time to begin to take advantage of some of this momentum that we're seeing. Operator: Our next question is coming from Chris Carey of Wells Fargo Securities. . Christopher Carey: I wanted to follow up I think it was Dara's question just around some of the key drivers of margin and I have another question. But are you expecting a step-up in depreciation this year with the capacity? And are you well hedged on FX, I think you've been talking about layering in some hedges over the past several years. So if you could just confirm those for me, please? And then just from a medium-term perspective, I think we saw that you had given some concrete targets for cases on Pacifico over the medium term. Can you just expand on that? And and how you see the portfolio evolving and some of the key drivers of your business kind of through fiscal '30, is Pacifico going to be the new growth driver as Modelo normalizes. So I appreciate just some confirmation on the margins in the medium term. . Garth Hankinson: Yes, Chris. So I'll take the first part of that. And as it relates to depreciation, we are expecting a step into up in depreciation as Veracruz comes online in the middle or expected to be in the middle of our fiscal year. And then as it relates to currency hedging across all of the currencies that we hedge, we're roughly hedged at about 80%, and that's inclusive of the Mexican peso. And obviously, we don't get too far down the track on what we expect volumetrically for our brands. But I think your statement, do you expect Pacifico to be a continuing growth driver for our business. The answer is yes. I think you can see by the takeaway that's existing in Circana channels, Pacifico continues to explode. And it's done a very similar thing to what you saw initially with Modelo which was the initial strength was on the West Coast, and you're starting to see that strength broadening across the country. You probably have noted, we have a new campaign that focuses on the tremendously exciting yellow color of our cans, which stand out both on the shelf and in the [ cold box. ] The consumer continues to be excited about the product in the bottle or the can -- and we think that Pacifico is going to be a critically important part of our growth profile going forward. Not to diminish by the way, the potential that still exists on Modelo as well. So lots of areas for growth drivers, but certainly, Pacifico is going to be a critically important 1 for us going forward. Operator: Thank you. The next question is coming from Lauren Lieberman of Barclays. . Lauren Lieberman: Great. So Bill, as you just went through talking about the brands, 1 that was absent was Corona Extra. And so just I'd love to hear a little bit about like kind of what's next for that brand. But in particular, also extending to think about Modelo. You shared the general market ZIP codes are continuing to outperform the higher Hispanic population areas. But I want to talk about Corona Extra and Modelo Especial, particularly within gen market and what you've been seeing. And then like I said at the outset, just kind of more broadly on Corona -- any thoughts on kind of what's next to the brand given the trends have remained pretty soft. . William Newlands: Yes. No problem. Obviously, Corona remains 1 of the best loved brands that we have in the entire category. And I think the -- our ability to do things like Corona Sunbrew and the strength of Familiar are really reflective of the strength of Corona Extra. With that said, we're going to continue to invest aggressively against extra. Well, we don't see that necessarily as the growth driver of the business going forward. We believe it's important to maintain that with the kind of strength that exists today for that particular business. Recognizing the overall family is very healthy for the Corona franchise because of some of those sub-brands like Familiar and Sunbrew and Premier. Relative to Modelo, we have seen improvements as most of you know, we assess ZIP code data on a quintile basis. What's the percentage of Hispanic consumers, less than 20%, 20% to 40% and so on as you go up the ladder. We were very pleased to see coming out of the fourth quarter that all of those quintiles showed a sequential improvement in the takeaway. It was probably most notable in the state of California, which is part of the reason you've seen very strong Circana data over the recent past, where we have gained over 1 share point in both dollars and volume over the last 4 weeks, which gets us back to a more traditional share-gaining position. As you probably saw, we came out of the fourth quarter gaining 0.6 share points that has accelerated as we started into the new year. A lot of that has been driven by Modelo as well as you've seen Modelo begin to show continued strength. And we continue to invest not only with our core Hispanic consumer but in the broader marketplace as well. You will expect to see, as you have been, if you've been watching any sports that are focused against sports and that whole platform for Modelo will continue this year, and I think it will speak very well to Modelo's continue ability to grow. Operator: Thank you. Our next question is coming from Rob Ottenstein of Evercore ISI. . Robert Ottenstein: Great. Just would love to understand your process in terms of thinking about capital expenditures, given the uncertain and muted outlook of this year, the declines of last year, the lack of visibility going forward and obviously, you have to invest ahead of actual results and visibility. So -- how have you adjusted your thinking on CapEx? What -- how do you think about what to spend today for growth tomorrow and maybe update us in terms of your medium-term expectations for volume for the business. . William Newlands: So let me start, and then I'll turn it over to Garth for some more specifics about the operational footprint. I think it's important to recognize we've continued to do what we've said for a number of years now around capital allocation which has involved continuing our spend at the levels that we think are important for the long run. It's continuing to do the dividend. And more importantly, we've continued to return dollars to shareholders. Over $900 million last year despite some extra dark periods we had in preparation for the announcement of Nick joining our business. So that kind of financial discipline is 1 that I think you can expect to see continue as we go forward. Nick has been an important part of supporting our development of that strategy over the last 5 years that he's been on the board. And I think, broadly speaking, you're not going to see any real change in our approach to capital allocation. Now specifically, to the operational side of that. Garth, I'll pass that to you. . Garth Hankinson: Yes, Robert. So first of all, we're not ready to give any guidance beyond FY '27 at this point in terms of growth. That being said, -- we do expect that we will return to growth and that the headwinds that we're facing today are more cyclical in nature than they are structural. So that being said, we'll continue to operate very modularly as it relates to bringing production capacity online. I think we've been very effective in this over the last several years. This past year, FY '26 -- we spent significantly less in CapEx than where we had started our expectations in the year. And that's going to continue, right? We'll manage that spend. Some of that spend will get delayed as we bring on capacity later than expected and some of it may get avoided altogether. To your point on the timing of when you make those decisions, I mean, as we've spoken about before, a lot of what goes into a brewery are long lead items. And so you have to make those commitments ahead of time, sometimes years in advance. And so that's the process we go through is looking at what we have for expectations for growth and then back backing that into when we think that capacity needs to come online. But again, very successful in managing the modularity of when capacity comes online and managing the cost associated with it. Operator: The next question is coming from Peter Galbo of Bank of America. Peter Galbo: Garth, maybe just a clarification and then a question for Bill. I think off the back of Dara's question around just wine and spirits margins for the year. Maybe you can just help us a little bit with the phasing I think that you talked about inventory distributor reductions. I don't know if that's mostly a Q1 event, so that weighs on the margin. Just any help there. And then, Bill, just a question on on beer, you mentioned Victoria actually being a nice bright spot for the portfolio. That's obviously a very Hispanic-dominant brand. And so -- just I want to kind of reconcile the comments you have about the Hispanic consumer against 1 of the stronger brands in the portfolio, albeit small, growing at the rate that it is, given kind of the cautious view. . Garth Hankinson: So on the first piece of that, I would say that there's nothing abnormal or unusual around the phasing of line and Spirits margins in FY '27. The inventory destocking with distributors will happen throughout the year and not sort of in 1 event, if you will. . William Newlands: So relative to Victoria, 1 of the things we've seen, and I alluded to it on 1 of the prior questions, is Victoria has been a much younger demographic, 21 to 25. We're bringing in new consumers. And while you're correct, it is heavily driven by Hispanic consumers it's a Hispanic consumer that is recognizing the heritage of Victoria and the authenticity of Victoria and are adopting that as their brand. We've seen many times over the course of time that generations, new generations will find a brand that they would like to make their own. And it certainly appears at this point in time, recognizing it's early days, that a younger Hispanic consumer is focused on Victoria and is coming to that brand in very strong numbers and quantity. So -- we're very encouraged about that. It's always good within a portfolio of brands to have a somewhat different demographic base. And we think Victoria is going to be a sleeper. It's more than doubled over the last few years, and we think it has a lot of potential going forward as well, partially because of that younger demographic profile. Operator: Thank you. Our final question today is coming from Nadine Sarwat of Bernstein. . Nadine Sarwat: Guys, Bill, it's been a pleasure working with you and best of luck in the next chapter. Maybe 2 for me, just 1 clarifying on an answer earlier than my actual question. Earlier on the call, you said that you feel that your target margins for wine and spirits are still achievable over the medium term. But I know you withdrew your fiscal '28 guidance. Could you help us understand therefore what that target you're referring to is, is that north of 20% -- and then my actual question, mix was a 50 basis point drag to the beer top line in this last quarter, you guys called out packaging type. Can you give a little bit more color -- how much of this is you guys introducing new mix dilutive offerings? How much of that behavioral change from the consumer end? And what are you assuming in your full year guidance for this year when it comes to mix? . Garth Hankinson: So as it relates to our wine and spirits target margins, we still believe that structurally, we can get those margins in the low 20s. -- again, given all the headwinds that we're facing, that's going to take us a bit longer than expected, but we still expect to achieve that over the medium term. Operator: Thank you. At this time, I'd like to turn the floor back over to Mr. Newlands for closing comments. . William Newlands: All right. Thank you, Donna. In closing, literally, -- thank you all for joining the call today. As you can see, we are confident we're well positioned to achieve our objectives in fiscal '27 and continue driving long-term shareholder value. We have a strong foundation and a clear strategy, and this is the right moment for a seamless leadership transition. It has truly been an honor and privilege to serve as CEO of Constellation Brands over the last 7 years, Together as an organization, we've accomplished a great deal. We've grown our beer business from roughly 280 million cases to well over 400 million cases. nearly double the size of Modelo Especial and made it the #1 selling beer brand by dollars in America. We reshaped our wine and spirits business to be focused on a portfolio of higher-end brands -- we've established a capital allocation framework that we executed against with consistent discipline and we invested behind our organization to develop best-in-class talent and a company culture and future truly worth reaching for. While the industry landscape remains dynamic, I firmly believe Constellation is best positioned in this space with advantaged brands, best-in-class marketing and sales capabilities, and most importantly, an exceptional team. Having worked closely with Nick on the Board for the past 5 years, I know he understands our business deeply and has the leadership, judgment and strategic perspective to lead this company into its next phase of profitable growth. So to our investors, partners, employees with gratitude, I thank you for your trust and support over the years. It's been a privilege to lead this to lead this remarkable organization. And with that, Donna, back to you. Operator: Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Ladies and gentlemen, welcome to OVHcloud H1 Full Year 2026 Results. Today's speakers will be Octave Klaba, Chairman and CEO of OVHcloud; and Stephanie Besnier, CFO. I now hand over to OVH management to begin today's conference. Thank you. Octave Klaba: Good morning, everybody. I'm Octave Klaba, Chairman and CEO of OVHcloud. Thanks to being with us this morning. Let me start with the key highlights of H1 '26. As we announced, we generated EUR 555 million revenue and EBITDA EUR 227 million. That means that we generated around 5.5% like-for-like growth this H1. Our adjusted EBITDA, it's 40.9% and net revenue recurring rate, it's more than 100%. And we had this other -- unlevered free cash flow of EUR 32.3 million. As the key initiatives, so as you know, I started as the CEO 6 months ago, I make my -- a lot of interviews internally, and we already started some strategic initiatives in OVH to start this 5-year strategic plan that we started with '26 to '30. And inside of that, we announced that we will create -- that we actually started to create a vertical in defense market. The goal is really to go after the customers and the needs that we had a lot of feedback in the last quarter, and for this very critical horizon that some customers they ask us. Another strategic initiative, it's really focusing on the sales side on the Starters and Scalers on the acquisition. We can go deeper insight if you have any question about that. And on the corporate, more focusing on the regular fast closing, midsized deals. And again, I have some highlights if you have the questions about that. And we announced also that we create our AI lab, and it started -- it was initiated with this acquisition of Dragon LLM. And it's really to address the growing market that we feel that we -- our customers, they want us to be part that it's agentic AI. And on the operational highlights. So we had a few things that we wanted to share with you. So we had this EBITDA that is quite highest record from the IPO 5 years ago. So we still continue to improve the EBITDA, and it's going up and the goal is really to not to be satisfied with the level that we have today. And there was another key operational highlight. It's about the front-loaded CapEx to secure the -- our free cash flow in this year and the next year. So I think you will have some questions about that. So we will go deeper with your questions. So next page, please. On the -- so let's go deeper in the different range of products. So first one is private cloud. So we generated EUR 169 million that represents about 60.5% of our group revenue, and the growth is about 2.9% from the like-for-like growth on the Q2. And on the H1, it's 3.4%. As the highlight on the bare metal, so you know we started these initiatives in the first H1, first quarter and the second quarter. As the result, we have this 12% more customers acquisition. If we compare H1 '25 and H1 '26, it works better on the acquisition, but we need still to continue and to increase our aggressivity on the market and to win more customers. So what we put in place works, but it's not enough. I want more. And this is where we want to go into H2, in the Q3 and Q4 after more customers on the startup. On the scalers, we have this continued growth, and it works nicely what we have internally. There's still some improvement. But what we have, I'm happy what we have. And on the corporate, yes, we had some churn on some 2 customers on the corporate that didn't impact on the fundamentals of the -- on the growth. So we still have growth on that, but just we lost 2 corporate customers on that. Yes, we announced that we signed a strategic deal, strategic contract with Alchemy that is a blockchain platform. And we have a lot of successful in this blockchain platform that helps us really understand how to grow faster in the scaler go-to-market. On the hosted private cloud, on the Starters and Scalers, we still see that there was a few optimization of our customers. We are working on this new product. And I think in the next weeks, where you will see some announcement that we'll make with Broadcom. In other corporate, it's -- we really ramp up of this mission-critical deals that it's a really interesting market that we didn't have yesterday that based on the 3-AZ, maybe we'll have a chance to talk about that. Next page, please. On the public cloud, on the public cloud, we generated in the Q2, EUR 60 million, that is EUR 119 million in H1. There was 26% of Q2 growth and 14.5% of the growth in Q2. That means on the H1, it's 15.1% of growth. So we have a solid new customer acquisition. As I said, we changed the things, but still, we can make it better. On the scalers, strong upside of the current customers, and we see the opportunities on the additional products on this 3-AZ approach that we have that customers really like, and we see some migrations from the current data centers to this new model of the 3-AZ. On the corporate, we have more traction on the corporate. Still, those small -- the 2, 3 products that is still missed, and it will be delivered in the next quarters that will help definitely to go after this corporate market -- on the corporate market. So we've also have been working a lot, and we will secure more our public cloud on this end-to-end encryption on the confidential computing on the -- all the securities that it's -- that we can deliver on this public cloud in the product. And this is additional value that some customers, they are asking us. On the entry level of the range of the product, the VPS and the SaaS, we have a good proof that what we've done, it works well because we had more than 100% of additional customers that we had in H1 '26 versus H1 '25. That means that we doubled acquisition of number of customers. We started to see that in the revenue, and we'll see how it will evolve in the next quarters. But this is kind of prove that the strategy of the very aggressive prices, more volume, more customers and then having this machine to upsell and going and helping customers to use all our products, it works. Now we need to scale that and to go after more geographies, more customers and to be more aggressive, and this is what we will see in the next quarters. Next page, please. On the Web Cloud, we generated EUR 50 million, that means on the H1, EUR 100 million growth of the Q2, 70.5% and on that 70.5% of our group revenue. And then our growth is 2.4% on the Q2 and 2.5% on the H1. There was still -- yes, I would just go after the topics, and then I would just add additional comments on that. So on the starters, we just didn't really started repricing and to generate new demand, okay? This is exactly what we are doing right now, and it will be delivered in the next 2 months, 1 or 2 months, it's really ongoing. So we want to be really seen as very competitive on the starters market for the Web Cloud, but we have also the opportunity to go after the more higher market of the customers. They are more pro business that they trust us and they order us more products. So we want to go after this 2 segmentations of the products and also working on the web AI. And you will see the next quarters, next months, this transformation of the web cloud to the web AI that we will operate over the next months and quarters to go after this totally new market where AI helps our customers to build a faster, faster delivering website, help them to operate them to having the marketing, to having the additional products, the additional services. And this is what we are doing right now on the web cloud. So you don't see really the results of that in the numbers today because this is what we started last quarter, and there's still a lot of things to do, but you will see by the end of this fiscal year, I hope the first result of this strategy. Next page, please. If we see on the split by countries, France, we have in Q2, a growth of the 4.5%. That means on the H1, 5%. On the Europe, excluding France, we have 2.9% and then on the H1, 2.5%. I have to say that it was a really complex quarter. There was a lot of -- there was something that is really new, but we have seen that last 2, 3 years. And it seems like on this Q2 period of time, we will see in the next years, this customer optimization because it is end of the calendar year for events and the beginning of the next year. And I think this is what we have seen -- we started to see as the -- for the last year, this year and 2 years ago, that we have this kind of the new pattern of the behavior of the customers in December, January, February, where you see optimization of the cost and to having these discussions probably internally on the budget and the event starting as lower as they can, the new year and event then grow over the year until the December. So it's something that it's not confirmed yet. We're still working on the numbers to really understand. But this is also what we see on this Q2 result that we knew that it will be -- it's a tough period. Now we started to know and started to understand why it's a tough period. Still work to do to really understand the behavior of the customers and to confirm that we will have in the future this Q2 pattern on our revenue. So I don't know yet, but it is what we started to see. And then the rest of the world, we had this Q2, 8.7% and then H1, 9.5% still continue to grow on the bare metal and on this public cloud product. So I will let Stephanie to go in the financial results, and I will have talk with you on the outlook. Stephanie Besnier: Thank you very much, Octave. Hello, everyone. This is Stephanie speaking. Thank you for being with us this morning. So let's begin this financial section with our key financial figures for H1. So we delivered a profitable growth with a record adjusted EBITDA margin since our IPO and solid unlevered free cash flow despite having significantly front-loaded our CapEx ahead of H2. We'll come to that point. So we recorded an organic revenue growth of 5.5% and adjusted EBITDA margin of 40.9%. So we are up 90 basis points compared with H1 '25, thanks to our operational efficiency. And CapEx was 42.9% of our revenue, up 6.9 points compared with last year H1 '25, of which 11% were front-loaded for H2. We have decided to make proactive investments to secure our supply chain and mitigate the impact of skyrocketing component costs, which began to materialize in our Q2. Despite this anticipation of our CapEx, you see that we generated a solid unlevered free cash flow of EUR 32.3 million on this H1. So going to the next slide. Regarding our top line, as Octave said at the beginning, we delivered a like-for-like growth of 5.5% during this H1. So this was driven by, first, a private cloud performance, up 3.4% like-for-like, impacted by a 1.2 point headwind from the churn of the 2 corporate clients that we mentioned during our Q1 results. And we have also a softer hosted private cloud dynamics following Broadcom price increases. Second, public cloud continues to lead our growth trajectory, up 15.1% like-for-like, confirming its position as our primary growth engine. And last, Web Cloud, up 2.4% like-for-like. So now let's take a closer look at our P&L on the next slide. So P&L, as you can see, we achieved another strong step-up in profitability with an adjusted EBITDA of EUR 227 million in H1, and it represents a margin of 40.9%, our highest margin since our IPO. So the strong 90 basis points improvement in our EBITDA margin is coming from a positive mix effect on our direct costs, reduced electricity costs as a percentage of revenue compared to H1 at less than 5% of our revenue. And I can tell you that we are hedged in the current context also for the next 18 months. And we have also a strong operating leverage on our fixed cost base. We delivered an EBIT of EUR 35.4 million, representing a margin of 6.4%. On a like-for-like basis, if we exclude the one-off gain from the disposal of a legacy data center in Paris last year, our EBIT margin remained broadly stable. After including a financial result of minus EUR 28.7 million and a tax expense of EUR 0.7 million, we recorded a net profit of EUR 5.9 million for H1, slightly lower than last year. Now let's look at the increase in profitability, how it translated into cash generation. So our strong profitability enabled us to generate a solid unlevered free cash flow of EUR 32.3 million in H1 '26. So our CapEx, if we exclude M&A, amounted to EUR 238 million -- EUR 238.5 million exactly in H1, and it represents 43% of our revenue. Our growth CapEx accounted for 30% of revenue. And again, 11 points of our CapEx were deliberately front-loaded ahead of H2 to secure component availability and contain hyperinflation. Recurring CapEx represented 13% of revenue. So our level of CapEx is compensated by our profitability and change in operating working capital requirements, which was higher than usual and amounted to EUR 54.7 million in H1, and it includes phasing effect due to late orders in February. So all in all, after leases and financial charges, our levered free cash flow stood at minus EUR 14.2 million. So now let me give you a detailed view of our CapEx on the next slide. So our CapEx, again, excluding M&A, represented approximately 43% of revenue in H1. So let me explain the key moving parts. First, on the hardware CapEx, it represented 33% of revenue, EUR 187 million. So it's a step-up compared with EUR 27 million in H1. And as I already mentioned, this was a deliberate decision in face of a global supply crisis on memory and disk components to first secure our component availability and contain cost hyperinflation. Second, our infrastructure and network CapEx came down to 2% of revenue, EUR 11 million, with some phasing effect from H1 to H2. And product and software CapEx remained stable around EUR 37 million, 7% of our revenue, reflecting our continued investment in expanding the product portfolio. Notably with new public cloud services and mission-critical offerings while we control our costs. Other CapEx remained marginal, around 1% of our revenue. So now given the exceptional supply environment, we have adjusted our full year CapEx guidance, which I will walk you through on the next slide. So as I just mentioned, the global component crisis, particularly on memory and disk has led us to adjust our full year '26 CapEx guidance. So I will take you through the bridge on this slide. You'll remember, our initial guidance was 30% to 32% of CapEx as a percentage of our revenue. The exceptional hyperinflation on memory and disk components add approximately 3 percentage points. However, we decided to front-load some of those CapEx, and by doing so, we realized a saving of approximately EUR 10 million in our H1. So we are already partially offsetting the inflation impact through proactive timing, and we are securing our supply. So this brings our new FY CapEx guidance to 33% to 35% of revenue. This adjustment is cyclical and not structural. It reflects the current component inflation environment. We have already passed through price increases to part of our customers effective April 1, and we continue to monitor the situation closely to calibrate further adjustments as needed. On top of this, we are going to build a dedicated stock of approximately EUR 50 million in memory and disk components. Those are standard components, and there are no obsolescence risk, and it will be strictly earmarked for '25 consumption. This exceptional envelope allows us to secure availability. This is very important, and we lock in pricing ahead of further anticipated cost increases. Here again, by purchases in H2 rather than at the beginning of '27, we estimate additional savings of approximately EUR 15 million, 1-5. So in total, EUR 10 million in H1, EUR 15 million coming up in H2. Our front-loading strategy generates EUR 25 million savings that would have been lost had we waited. To finance this EUR 50 million of lock-in stock for '27, we will use a dedicated exceptional financing facility. So our underlying business generates sufficient cash to cover all our FY '26 investments and delivering a positive levered free cash flow in FY '26 that we confirm today. So including exceptional and dedicated financing for those lock-in stock for FY '27 CapEx. Let me now turn to our balance sheet and financial structure. That will be my last slide. So our financial structure remains robust and well positioned for the future. Our net debt stood at EUR 1.125 billion at the end of February '26, and it's broadly stable compared to August '25. Our leverage ratio has continued to decrease 2.6x our EBITDA, in line with our debt policy. The all-in cost of debt remained unchanged year-on-year at 4.4%, demonstrating the quality of our hedging strategy. Available liquidity stands at EUR 236 million, comprising EUR 36 million in cash and our undrawn EUR 200 million multipurpose credit facility. As you can see on the right-hand side of the slide, we have no major debt repayment before FY 2030, giving us significant financial flexibility. Our funding sources are well diversified. We have our EUR 500 million inaugural bond at a fixed rate of 4.75% maturing in FY '31, rated BB- by S&P and Ba3 by Moody's, our EUR 450 million EU taxonomy aligned green loan maturing in FY 2030. So it's a first for a European cloud player. Our EUR 200 million EIB credit facility; and finally, our undrawn multipurpose facility of EUR 200 million. And this credit facility was also converted into a sustainability-linked loan, further reinforcing our commitment to responsible financing. So in summary, we have a strong, well-hedged balance sheet with no near-term refinancing needs, supporting our path to positive free cash flow. And now I will hand over to Octave to discuss our outlook. Octave Klaba: Thank You, Stephanie. So for the FY '26 activity, our guidelines don't change, doesn't change. We anticipate like-for-like revenue growth of 5% to 7%. Adjusted EBITDA margin more than FY '25. CapEx, adjusted CapEx, if we consider really FY '26 activity is 32%, 35%, that is a little bit more, but levered free cash flow -- free cash flow will be positive for this '26 activity. So now we open the floor for your questions, if you have any. Operator: [Operator Instructions] The next question comes from Ines Mao from BNP Paribas. Ines Mao: I just have 2 questions. The first one is on your CapEx breakdown. So I look at the CapEx breakdown by component. I see that hardware was up as a percentage of revenue, which was voluntarily. But if it was only hardware, why was also recurring CapEx higher in H1 year-over-year? And my second question is, can you comment further on potential pass-through price increases to moderate the impact of this price up cycle on CapEx? Is it still on the menu? Or is -- yes, can you give us more color on this? Stephanie Besnier: Yes. Thank you, Ines. So we have a slight increase of our recurring CapEx to 13% of our revenue. This incorporates also the impact of inflation that started to kick in, particularly in our Q2 numbers. And as for the price increase, we have already started to partially pass through the impact of this inflation. We launched the first initiative around increasing our prices April 1. We are doing it tactically. We don't price all our customer bases. We focus particularly on the new configurations, on new customers and also on products where we have less price elasticity. And obviously, I mean, we remain very careful, like we mentioned, and we will continue to monitor the evolution of the prices to be ready to react and to engage into potentially new price increases if needed. Operator: [Operator Instructions] The next question comes from Derric Marcon from Bernstein. Derric Marcon: So the first one is on price increase. Can you quantify the impact that it will have in 20 -- in fiscal year 2026? And what was factored in the unchanged guidance of plus 5%, plus 7%? And if we look to 2027, what would be the impact of this price increase? That's my first question. The second question is about the telephony and connectivity. Do you see the trough coming in the next quarters? Or where do you see the trough for this business because it's still waiting on the performance of Web Cloud in H1? And my third question is on AI. Could you quantify, please, the impact of AI on public cloud growth? Stephanie Besnier: Thank you, Derric, for your questions. So first, on the price increase, I mean, we've just launched them a few days ago. Like I said, I mean, we've done tactical price increase, and this will have a gradual effect. We have some of our customers that are committing. So bear in mind that this will flow through over several quarters. We will also monitor the impact of this price increase. So far, it's too soon to tell you a clear impact. In any case, on that basis, we have no -- we have decided not to change our guidance, and we confirm the 5% to 7% range for this year. And again, for the same reason, I mean, we monitor the impact in our Q3. We'll have a better view probably at the end of Q3 of this impact, and we will work also on the guidance for '27 in the coming months, and we'll get back to you with indications and guidance for '27 at the end of October during our full year communication. Octave Klaba: On the VoIP and access, thanks for this question. So no, we don't see any change for the moment. We started to work on the web pages on the offers just last quarter, and it's still the work we are working on. I hope that the next quarter, it will be done, and we will start seeing the difference in this decrease of the revenue because it's impacting the perception on our growth on the Web Cloud. So it's sad to have this decrease of the revenue while we're doing well on the domain name of the e-mails, et cetera. So I understand your question. Still it's work -- the work will be delivered. I hope it will be May 1 on the -- or June 1, on the new range of the Web Cloud and the new range of the VoIP. And when we will see also what to do exactly, we have different options for the access, for the connectivity. Stephanie Besnier: And your last question, Derric, was on AI contribution. You remember, I mean, we always mentioned and that was true so far that we remain cautious with regard to AI, considering the level of return of investment that we've seen so far. So the contribution remained quite small because we invested tactically to answer also some requests from our customers. It's around 1 point like in the previous quarter. Now I mean you may have seen the announcement last week, we've decided to launch our lab -- our AI labs. We've made a small acquisition for Dragon LLM. And last point is that we -- in the context of this inflation on the standard components, we do see a clear improvement on the GPU return compared to CPU. And now it looks like we could achieve similar return on GPUs and on some of our CPUs. So basically, what I'm saying is that we are seeing an evolution on the market and on the economics, and we are ready to invest in the coming quarter more significantly in AI. Operator: The next question comes from Qihang Zhang from Lazard. Qihang Zhang: It's regarding your leverage -- levered free cash flow guidance is guided to be positive for financial year 2026. Could you please elaborate on this front? Is the EUR 50 million locked-in stock for '27 included in this guidance? And how should we think about the working capital for this year? Stephanie Besnier: Thank you for your questions. So to be very transparent on the levered free cash flow, like we explained, we are going to acquire components ahead of '27 that will be clearly isolated and stopped for '27 for EUR 50 million that will help us secure our supply chain. And also by doing so, it's prudent management because we will generate what we estimate around EUR 50 million of cost savings. So we are going to invest EUR 50 million more exceptional. And in front of it, we are going to set up an exceptional short-term financing of EUR 50 million. So those 2 elements will be included in our levered free cash flow and neutralized. So basically, I would say, adjusted for '26 basis, our levered free cash flow is going to be positive in '26. We don't guide for any specific numbers. It will be, in any case, above 0. And working capital, I mean, we don't guide also specifically. You see that we have some positive impact for this semester because we had some payments that were out of the period, it will also depend on the timing of the reception of the CapEx. So it's a bit too soon to comment on our working capital for the full year. Operator: Thank you for your questions. I hand the conference back to the OVH management for any closing comments. Octave Klaba: Perfect. Thank you very much for your questions. Just to have the key takeaways, highlights. 5.5% growth like-for-like. Adjusted EBITDA that is a record from IPO and the front-loaded CapEx for FY -- so H2 '26 and a lock in the stock for CapEx FY '27. Last strategic initiatives, we have -- we wanted to highlight 3 of them. Defense market, we go after this. Going after the acquisition of the small customers, digital customers, having more pressure of that and going after this more regular midsized deals and also launching our AI labs with the acquisition of Dragon LLM. In FY '26 guidance, 5% to 7% of growth like-for-like, adjusted EBITDA more than FY 2025, adjusted CapEx 33%, 35% of the revenue and positive levered free cash flow. I want to thank you for all your questions at the time and having a very good day. Stephanie Besnier: Thank you very much. Octave Klaba: Thank you.
Operator: Good morning, and welcome to the BlackBerry Fourth Quarter and Full Fiscal Year 2026 Results Conference Call. My name is Betsy, and I will be your conference moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Suzanne Spera, Senior Director of Investor Relations, BlackBerry. Please go ahead. Unknown Executive: Thank you, Betsy. Good morning, everyone, and welcome to BlackBerry's Fourth Quarter and Full Fiscal Year 2026 Earnings Conference Call. Joining me on today's call is Blackberry's Chief Executive Officer, John Giamatteo; and Chief Financial Officer, Tim Foote. After I read our cautionary note regarding forward-looking statements, John will provide a business update, and Tim will review the financial results. We will then open the call for a brief Q&A session. This call is available to the general public via call-in numbers and via webcast in the Investor Information section at blackberry.com. As part of today's webcast, presentation slides will be played. The slides are also available on the Investor Information section at blackberry.com as well the replay of today's call. Some of the statements we'll be making today constitute forward-looking statements and are made pursuant to the safe harbor provisions of applicable U.S. and Canadian securities laws. We'll indicate forward-looking statements by using words such as expect, will, should, model, indeed, believe and similar expressions. Forward-looking statements are based on estimates and presumptions made by the company in light of his experience and its -- of historical trends current conditions and expected future developments as well as other factors that the company believes are relevant. Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. These factors include the risk factors that are discussed in the company's annual filings and MD&A. You should not place undue reliance on the company's forward-looking statements. Any forward-looking statements are made only as of today, and the company has no intention and undertakes no obligation to update or revise any of them, except as required by law. As is customary during the call, John and Tim will reference non-GAAP numbers in their summary of our quarterly results. For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release published earlier today, which is available on the EDGAR, SEDAR+ and blackberry.com websites. And with that, let me now turn the call over to John. John Giamatteo: Thanks, Suzanne, and thanks to everyone for joining today's call. BlackBerry finished the fiscal year with another strong quarter, delivering double-digit top line growth and marking the eighth consecutive quarter of improving GAAP profitability, capping 2 full years of significant progress in the fundamentals of the business. When this new management team was appointed, we promised a turnaround to transform BlackBerry into a profitable growth company, and I'm pleased to report that we've done exactly that. These are not just data points or even a trend, but a consistent track record of delivery. The turnaround is complete, and the BlackBerry story is now a growth story. . QNX delivered another rule of 40 quarter, rounding out a rule of 40 year. We achieved the second consecutive record for revenue in the quarter, exceeding the top end of the guidance range at $78.7 million, representing 20% year-over-year growth. The nature of the business means -- building on a solid and underappreciated Q3, we believe QNX is as strong as ever. Revenue was driven by a record quarter for royalties and development revenue had its best quarter of the year. We are delighted to report that QNX royalty backlog continues to grow, increasing to approximately $950 million. We added significantly more into the backlog than we recognized in the P&L this year. The backlog provides QNX with a line of sight to ongoing multiyear durable revenue growth that few companies enjoy. Consistently adding backlog year after year, significantly above the rate it is recognized in the P&L is a key indicator of future revenue growth potential. This is not a business that is slowing down, but rather one that is compounding, powered by our continued leadership in automotive and growing momentum across physical AI, robotics, industrial, medical and emerging markets. The royalty engine is just getting started, and we're more excited than ever about the future of QNX. It is important to reiterate that QNX's growth should not be judged from quarter-to-quarter. The nature of the business means that design wins aren't evenly spread and therefore, neither are development tool purchases. Further, the majority of revenue we secure from a design win will come once it moves into production, which is often 2 to 3 years in the future. As a result, some quarters like Q1 tend to be seasonally softer, while others such as Q4 are typically much stronger. We saw this last year. Q1 grew at a single-digit rate year-over-year in fiscal 2026. But QNX still delivered 14% growth for the full fiscal year. We expect a similar cadence this year. Despite that unevenness from quarter-to-quarter based on our strong backlog, pipeline and operating leverage, we expect QNX to remain a Rule of 40 business for fiscal year 2027. Therefore, it is important to focus more on the strength of our full year growth, the continued expansion of our backlog and our growing design win pipeline all of which points to QNX remaining a solidly double-digit growth business. Our QNX strategy is underpinned by our automotive leadership. This past quarter, we demonstrated that with a wide range of design wins in multiple domains. Our largest win of the quarter was with a Tier 1 supplier for the Chinese market where QNX will be deployed on Chinese chip maker, Xeris SoCs in a range of smart sensors for use by a number of leading OEMs. China remains a large, valuable and growing market for us, demonstrated by this win, which comes on the back of several other significant wins in recent quarters. We continue to demonstrate our leadership in the digital cockpit domain, including a major win with one of the world's top 5 automakers based in North America. We were able to successfully upsell the customer to a broader range of our product portfolio for a platform that we expect to go into production this year. We also secured a significant ADAS safety system design win in Europe with another top 5 OEM that is deploying a Qualcomm Snapdragon chipset. In addition to the progress in our core auto strategy, we have 2 key growth accelerators that offer significant upside potential. The first is the move up the automotive software stack beyond the core operating system into the middleware layer with our alloy core platform. This platform combines QNX's safety-certified operating system and virtualization with our partner vectors, Safe middleware to provide a pre-integrated safety-certified lightweight and scalable foundation for a number of key domains throughout the car. Alloy core reduces software integration overhead for OEMs, accelerates their development and frees them up to focus engineering resources on differentiating customer experiences in the app layer. We continue to work very closely and effectively with Vector and remain on track for general release of the product this calendar year. While as expected, we haven't secured any design wins for Alloy core yet conversations with several leading OEMs, including Mercedes-Benz are progressing well. The platform represents an opportunity for significant ASP expansion compared to the revenue from selling the core operating system. Alloy core could be many multiples of that. The second growth vector where we're seeing significant traction is the general embedded space. Currently, approximately 20% of QNX revenue comes from non-auto verticals and the addressable market opportunity is massive, potentially larger than for automotive. The technology we developed for auto is intentionally highly adaptable for use in adjacent verticals, and we're investing in go-to-market to drive adoption. Sales cycles in these verticals are often relatively long, but the pipeline we've been building is starting to convert in fiscal year 2026 delivered wins in several of our target verticals. This past quarter, we secured a significant win for our general embedded development platform or GEDP to be deployed in industrial automation controls for a major North American OEM. This was one of a number of wins in industrial automation, which is a key target vertical. We also secured a number of wins in medical instrumentation, including with Johnson & Johnson, where QNX OS for safety will power a new AI-driven heart pump. Robotics represents one of our most exciting long-term opportunities as we stand to capture growth in physical AI. We are building pipeline momentum and expect this vertical to become a meaningful part of gem growth over time. QNX has already proven itself as the platform of choice for physical AI, given its large footprint in all levels of autonomous driving. The car is the most complex consumer device and is essentially a robot all wheels. We believe our strong partnerships will support this growth. Recently, ARM announced its new ARM AGI CPU for use in physical AI. And during the launch event, CEO, Rene Haas identified QNX as one of its foundational software ecosystem partners in support of their aspirations in this space. We also have strong relationships with other leading silicon providers, including NVIDIA and Qualcomm, who are also pushing into physical AI and we believe these partnerships help position us well for future growth. Now moving over to Secure Communications. Just over a year ago, the Secure Communications division was barely discussed. In fact, at the time it was viewed as a drag on our overall story, a business in transition as we focus from a broader cyber portfolio to our core strengths in mission-critical secure communications and digital sovereignty. Today, the situation has changed considerably. This past quarter, secure communications delivered a near rule of 40 quarter, results that would have seemed unthinkable a year ago. We believe it now represents under-recognized value within our portfolio. Revenue was strong at $72.5 million exceeding the top end of our guidance by 12% and delivering 8% year-over-year growth. Digital sovereignty, the desire for governments to retain critical data and communications on sovereign solutions hosted and operated in country is no longer a buzzword. Instead, it is a budget line item for governments worldwide and we are winning in this space with a demand environment that has seldom been stronger. Together with rapidly growing defense budgets among NATO allies and beyond, the Secure Communications division is benefiting from meaningful tailwinds. Secusmart, our military grade encrypted voice and data platform delivered a strong quarter with revenue growing meaningfully year-over-year. This performance was primarily driven by sales to the German government, where Secusmart is a key and trusted supplier meeting the very demanding certification requirements of the German cybersecurity Authority, BSI. Our investment in the platform to support iOS devices in addition to Android, has driven a significant market opportunity for us with the German government, and we see a strong line -- pipeline of opportunities as we head into fiscal year 2027. Outside of Germany, we were thrilled to announce a multiyear extension and expansion to our contract with Shared Services Canada. SSC is the Canadian government agency responsible for delivering and operating IT infrastructure and digital services for most federal agencies. As part of the deal, the Canadian government has significantly expanded its number of Secusmart licenses. This will help drive a strong start to fiscal year '17 and with meaningful revenue from this deal expected in the new fiscal year. Other wins in the quarter included NATO and the Malaysian anticorruption establishment. UEM continues to stabilize. Although full year revenue declined year-over-year, the renewal rate continued to improve and the value of multiyear deals increased by 47% year-over-year. In Q4, we secured a number of new logo wins particularly by capitalizing on the BSI certification in Germany and where UEM is sold in conjunction with Secusmart. This quarter's wins we're global and included the IRS, the German Bundesbank, the Council of the European Union, the Netherlands Reagewaterstak as well as Switzerland's Bank Julius Baer. AtHoc, our Critical Event Management solution had a solid quarter and full year, recording double-digit year-over-year revenue growth for Q4 and high single-digit growth for the full fiscal year. This past quarter, we secured expansions and renewals with a number of customers, including the U.S. Air Force the U.S. Coast Guard and the U.S. Department of Treasury as well as a new logo win with Australia's Department of Foreign Affairs and Trade. Key metrics for the Secure Communications business indicate an inflection point. Annual recurring revenue, or ARR, for secure comms increased by $2 million or 1% sequentially to $218 million, which is $10 million or 5% growth year-over-year. Dollar-based net retention rate or DBNRR also improved by 2 percentage points sequentially to 94%, 1 percentage point higher than in Q4 of the prior year. Another reason we're confident in the durability of BlackBerry's growth is the competitive moat we enjoy across our QNX and secure communications businesses. This moat is multilayered and importantly, addresses the concerns investors have today about AI and software models. Let me give you 3 reasons why we believe our moat is durable. The first is that our QNX pricing model is different from traditional seat-based SaaS models. The majority of QNX's revenue is consumption-based, primarily driven by royalties tied to the number of high-performance systems powered by QNX in cars, robots and other intelligent edge devices rather than seat-based licenses. Second, our software is embedded in the most demanding, highly regulated safety critical use cases imaginable where users' lives depend on the software working exactly as it should. AI is probabilistic by nature, meaning outputs can vary but the QNX platform is deterministic, delivering the same result every time without exception. That distinction matters enormously when our software controls the vehicle safety features such as adaptive cruise control or autonomous drive. We have built deep trust with customers through decades of flawless execution backed by certifications, such as the rigorous ISO 26262 standard for functional safety. The stakes are high and the cost of failure could be catastrophic and the benefit of replacing a proven certified platform for a marginal price saving in our view, is not a trade-off that any responsible OEM will make. As a relatively small portion of the bill of materials we see the risk and reward equation heavily skewed to our favor. The third is cost of delivery. QNX's scale across the automotive and other verticals drives a cost of delivery advantage that individual OEMs attempting to build and maintain their own solution, even with AI tools cannot match. On the secure comp side, our products are deployed in mission-critical, highly regulated, highly sensitive environments. The license to operate in those environments comes in the form of hard-earned certifications, which assess people and processes as long as long-standing customer relationships that take years to build. Far from being complacent, we see AI as a net tailwind for our business rather than a threat. QNX is positioned to be a critical enabler for physical AI where there is 0 margin for error and learnings from our leadership position in demanding automotive environments serve as a perfect blueprint. Further, in the hands of our R&D experts, powerful new AI tools increase productivity, accelerate development cycles, strengthen our competitive advantages and enhance the operating leverage already embedded in our model. Touching briefly on licensing. Licensing revenue came in at $4.8 million, slightly below guidance due to quarterly variation in returns from pre-existing arrangements that are not indicative of any change in the underlying business. And with that, let me now turn the call over to Tim, who will provide further details on our financials. Tim Foote: Thank you, John, and good morning, everyone. Earlier, John described how both QNX and Secure Communications delivered stronger-than-expected revenue. This past quarter, we saw the impact of this year-over-year revenue growth in both divisions and for BlackBerry overall. QNX gross margins expanded by 1 percentage point to 84%, record revenues of $78.7 million. Further, this drove an 11% year-over-year growth in adjusted EBITDA for QNX to $21.4 million, representing 27% of revenue for the quarter. For the full year, QNX delivered $71 million of adjusted EBITDA or $0.26 of revenue, which together with the 14% revenue growth mean that QNX was a rule of 40 business, both for the quarter and the full fiscal year. The strong top line for secure comms also drove operating leverage, with gross margins expanding by 8 percentage points year-over-year in Q4 driven in part by stronger Secusmart software license revenue. This translated into a 27% adjusted EBITDA margin for secure comms growing to $19.5 million for Q4 and $56.1 million for the full year, well ahead of guidance from this time last year. Our licensing business contributed $6.3 million of adjusted EBITDA in the quarter and $21 million for the full year. This relatively passive income stream remains a solid source of both profitability and cash flow for BlackBerry. Adjusted operating costs, excluding amortization for our corporate functions, came in at $11.1 million in Q4 and $41 million for the full fiscal year. Tight cost control reduced corporate overhead by 5% year-over-year in fiscal year 2026. Pulling this all together, BlackBerry had a very strong fiscal quarter and solid fiscal year. Total company revenue grew 10% year-over-year in Q4 and 3% year-over-year for fiscal year 2026. For the quarter, year-over-year, gross margins expanded by approximately 5 percentage points to 78.2% and adjusted EBITDA margins by 8 percentage points to 23%. For Q4, BlackBerry generated $36.1 million of adjusted EBITDA driving full year performance, exceeding the top end of our guidance range at $107.1 million. Adjusted earnings per share for Q4 also beat the top end of the guidance range at $0.06. In Q4, we converted this strong profitability into cash flow. During the quarter, we generated $45.6 million of operating cash flow and a further $38 million in deferred proceeds from the sale of Cylance to Arctic Wolf. This conversion of profitability into cash continues to strengthen our balance sheet. We exit fiscal year 2026 with $432.4 million of cash and investments or $232 million of net cash. This provides the company with substantial optionality for capital deployment. This past quarter, we continued to execute on our share buyback program, repurchasing 6.7 million shares for $25 million. This brings the total since the program launched in May of last year to 15.5 million shares or $60 million. The share buyback program serves 2 purposes, offsetting dilution from equity-based compensation and signaling how we value the company relative to current price levels. Further, given our capital generation, we are actively considering tuck-in M&A as a way to further accelerate growth in QNX. While QNX has a strong organic path to durable long-term growth. We also see opportunities to increase both the speed and scale of that growth through strategic buy-side M&A. The bar is high, however, and any M&A need to be compelling both strategically and financially. Moving now to guidance for Q1 and the full fiscal year. As John mentioned, the turnaround is now complete. BlackBerry is now positioned as a sustained growth story. QNX entered fiscal year 2027, with solid momentum. For Q1, we expect revenue to be in the range of $60 million to $64 million, reflecting the seasonal cadence that we've seen from QNX in recent years. As John mentioned, growth from quarter-to-quarter is unlikely to be linear due in part to the impact of upfront revenue from development licenses. Therefore, some quarters will have stronger year-over-year growth than others, but we believe the trajectory is clear and consistent. For the full fiscal year, we expect to continue to drive solid top line growth with revenue in the range of $290 million to $307 million. The top end of the range represents approximately 15% growth and acceleration over fiscal year 2026, and this is our target. However, given the current uncertainty in the macro environment, we believe it's only prudent to price and some risk to the lower end of the range. On the cost front, we continue to invest organically in our QNX business to capture the opportunities we see in front of us. We expect a sustained top line growth to translate into adjusted EBITDA for QNX in the range of $69 million to $81 million for the full year. We expect secure comms to return to full year growth for the first time in 6 years. This is an important inflection point. The combination of digital sovereignty tailwinds and the benefits from key investments such as Secusmart iOS support, FedRAMP high authorization for AtHoc and UEM BSI certification is helping stabilize UEM and drive growth for AtHoc and Secusmart. We expect Q1 revenue in the range of $66 million to $70 million. For the full fiscal year, we expect to deliver top line growth in the range of 4% to 8% or $270 million to $280 million. We expect adjusted EBITDA for the fiscal year 2027 to be in the range of $57 million to $65 million. For our licensing division, the revenue stream is relatively solid, and we expect licensing to remain a consistent source of profitability and cash flow. As a result, we continue to expect revenue to be approximately $6 million each quarter and adjusted EBITDA of approximately $5 million per quarter. Bringing everything together at the total company level, we expect BlackBerry to deliver an acceleration in top line growth in the range of 6% to 11% for fiscal year 2027, or $584 million to $611 million. We expect adjusted EBITDA of between $110 million and $130 million and non-GAAP EPS to increase significantly to be between $0.15 and $0.19. This EPS guidance does not reflect the impact of any potential future share repurchases. Finally, in terms of cash, consistent with historical patterns, Q1 is expected to be a seasonal low for cash flow, driven by the billings and payments timing. However, for the first time in 3 years. We expect BlackBerry to maintain positive operating cash flow generation in Q1 in a range of breakeven to $10 million. Further, improved cash conversion is expected to drive full year operating cash flow of approximately $100 million, nearly doubling year-over-year. And with that, let me now turn the call back to John. John Giamatteo: Thanks for the summary, Tim. And before we move to Q&A, let me briefly summarize the key takeaways from this past year. BlackBerry's turnaround is complete and we are now firmly focused on growth and value creation. Over the past fiscal year, we delivered consistently improving fundamentals highlighted by a record revenue quarter for QNX. Today, QNX is a Rule of 40 business with growing backlog and strong sustained momentum. Secure Communications has returned to growth, supported by a demand environment for digital sovereignty that is both real and accelerating. Across the company, we are growing, generating meaningful cash and deploying it with discipline. We have a proven track record of execution, a clear strategy, and we are well positioned for the road ahead. So with that, let's now move to Q&A. So Betsy, if you can please open up the lines. Operator: [Operator Instructions] The first question today comes from Kingsley Crane with Canaccord Genuity. Unknown Analyst: Really impressive results. this term physical AI is in vogue now, and you've been building capabilities in the gym space for years. I'm just curious if customers understand that automotive really can be a blueprint here and thinking about the distinction between deterministic action and probabilistic action, that seems important not just in auto, but also in other areas like general Robotics. Just curious on that. John Giamatteo: Yes. Yes. That's really good perspective is. And that's something that we think has really resonating in the prospects and the pipeline that we're building in the robotics space and particularly in the GM space. The credibility that we have in the automotive space with autonomous and all the safety certified capabilities that we provide there really translates so well into an environment like physical AI and I think for that reason, we get a lot of looks at new opportunities that maybe others don't and maybe we wouldn't have had in the past. But we think the combination of leveraging that subject matter expertise, the building out of our go-to-market function and some of the partnerships that we have there, we're really starting to see some solid pipeline will -- it will take some time to convert it and to turn it into backlog and royalties and the rest of it, but we are very encouraged by the momentum that we see in that space. . Unknown Analyst: Thanks, John. Really helpful. And for Tim, look, the ASPs on the GEM wins are meaningfully higher than automotive. Could you just remind us of the delta between those? And would these opportunities in physical AI meaningfully expand that further? Tim Foote: Yes. Great question, Kingsley, and great to speak with you. Yes. So one of the things, obviously, is the volume equation. When you look at auto, you have some very significant volumes in terms of production runs. And you don't typically see that in GEM. But quite often in this space, particularly things like robotics and physical AI. Right now, it's speed to market, that's the most important thing as opposed to sort of driving gross margins for the OEMs themselves. So what we're seeing is less price sensitivity on that side of the house. What we see is, ultimately, the growth story is to have more instances of QNX running with more layers of software as well. And physical AI as John mentioned, being a really compelling safety critical use case is a really high-performance edge compute type environment that we really would excel in. So yes, we believe that as GEM starts to grow as a portion of the overall pie because it is growing pretty fast right now, that could be pretty accretive to our gross margins going forward. Operator: The next question comes from Todd Coupland with CIBC. Thomas Ingham: I wanted to ask about Alloy Core. You talked about general availability later in the year, how meaningful this could be? How meaningful could this be to your backlog, maybe put that into the context of the $950 million you just reported. . John Giamatteo: Yes. Todd, we -- I will tell you -- Tim and I talk about this all the time. We think this is one of the most underappreciated part of the business in terms of our -- the upside potential that we have to this current year because we're finding more and more OEMs are looking for us to do more and more of this kind of partnership with the likes of Vector. So we're -- the pipeline for that is growing significantly and we do think it can have a meaningful impact to the overall backlog. We're confident on rolling it out in time. And we're also confident in converting a number of opportunities that are pretty -- progressing really, really well. So it's hard to put a specific number on it and probably be inappropriate for me to do that. But I do think it can have a significant impact to that $950 million backlog and set us up even better for future growth in a place where we already have a lot of credibility. Thomas Ingham: And then in terms of robotics, exclude an automation, industrial automation, are you bucketing that in physical AI? Or is that a separate category? And then specifically on that, what does the pipeline look like? And how meaningful could that be to your backlog and growth in the coming year? . John Giamatteo: Yes. Robotics, physical AI, we would -- when we think about the general embedded space, we think of really 3 categories that we've had great momentum on industrial automation, medical instrumentation. It's a really nice win this quarter with Johnson & Johnson. And then robotics and physical AI, we kind of bring that together. Today, it represents an overall 20% of our backlog-ish of our revenue. And we think the robotics component of it is probably going to be one of the faster-growing segments of those 3 verticals that we're focusing on. So we'll continue to provide updates on wins as we make further progress in this space. But between alloy core and the gym in those 3 verticals, we think the growth trajectory is very optimistic about the growth trajectory of those businesses. Operator: [Operator Instructions] The next question comes from Paul Treiber with RBC Capital Markets. Paul Treiber: You see the QNX backlog growth, it did improve to 10% this year, up from 6% last year. Could you walk through some of the drivers of that improved growth, whether it's obviously, new deals, but then also if there was any increases in any existing deals? And then what are some of the key categories that are seeing stronger growth or contributing to that growth? John Giamatteo: Great. I'll start, Tim, you chip in. I think part of the growth in the backlog, Paul, is that like we built out the portfolio of QNX in a pretty comprehensive way. A few years ago was QNX SDP 7. Today, it's SDP 8, our next-generation capability Today, it's QNX cabin, which gives our OEM customers the ability to more cost effectively deploy their products. QNX Sound is another component of it. Alloy core is another component. So what was, I think, a more limited focus in the product is a much broader set of capability and some of the wins this quarter with a major OEM in North America, where we've kind of gone deeper and richer with some of these other capabilities. So having a broader portfolio within the auto space, has, I think, been really, really helpful. And then obviously, we've already talked a little bit about the GEM momentum in those 3 verticals. So the combination of all of that is I think what helped us resulted in a really strong backlog number for the year. Paul Treiber: And then secondly, just on investments that you're making, looking at guidance, it implies 20% EBITDA margins at the midpoint basically flat despite revenue growth. So obviously, you're making investments. Could you walk through what are some of those larger investments? And then also if you still expect leverage of corporate overhead and other cost efficiencies? Tim Foote: Yes. Really good question. So ultimately, we've got very strong balance sheet, Paul. So what we're looking to do is obviously deploy that capital intelligently to drive growth. We see now, as John mentioned, we turn to a growth story. We see value creation going forward, coming primarily now from top line growth and the operating leverage that, that drives. So when we look at the QNX business, we see significant growth opportunities in many different ways. So obviously, backing the Alloy core opportunity driving forward with the full portfolio in the STPA launch, making sure we've got the right go-to-market for GEM. So we're backing all of those things. So looking at the QNX guide for the year, we're actually sort of holding EBITDA relatively flat, and that's a deliberate choice. We're making those investments in R&D and in sales and marketing to really drive that top line growth. Now going forward, we see opportunities then for further leverage to come in the future. But for this year, we're really focused on that. The other part you mentioned was the corporate overhead. I think we've done some tremendous heavy lifting over the last couple of years and taken out a significant amount of cost. Now we continue to take a very close look at every single dollar that we deploy across the business, but particularly in the corporate overhead. So when longer-term contracts are coming up for renewal, we're taking a hard look at those and seeing, do we really need it? Can we downsize it? Are there alternatives? So what I'd say you'd expect to see this year is actually a decrease, a further decrease in corporate overhead from, I think it's $41 million, maybe take $4 million or $5 million off of that going into the new year. But I don't think cutting cost is really now the main focus there. We've turned the page on that, Paul, and we're really looking to drive top line growth. Operator: The next question comes from Steven Li with Raymond James. Steven Li: A quick one. How did share count jump to 643? I'm drawing a blank here, Tim. Tim Foote: 643. No, I don't think that's right. . Steven Li: It's not -- I mean, the diluted share count was 643 for the Q4. Tim Foote: Now the share count should have come down. We're just scrambling to see what the numbers are. So -- we've gone from 590 basic down to 598 and that's really a function of the of the buyback to leave -- particularly... Steven Li: On the diluted share count? Tim Foote: We need to take a look at that, Steve, and then come back to you. . Operator: I would like to turn the call back over to John Giamatteo, CEO of BlackBerry for any closing remarks. John Giamatteo: Terrific. Thank you, Betsy. Thanks, everybody, for being part of the call today. Before I wrap up, I just want to make a quick note that our QNX team is going to be in Boston on May 27 and 28 for the Robotics Summit and Expo, one of the industry's largest events. John Wall will be opening the conference as part of keynote there, and I'll also be on a panel with leaders from Amazon Robotics Universal Robots and Locus Robotics. The team will also be showcasing the latest of our QNX innovations and how we provide the trusted foundation that robotics and physical AI systems rely on to operate safely and predictably in the real world. So if you're in the air, please stop by. We'd love to see you there. And with that, thanks for joining today's call, and we'll see you all next time. . Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Neogen Third Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, April 9, 2026. I would now like to turn the conference over to Scott Gleason, Head of Investor Relations at Neogen. Please go ahead. Scott Gleason: Thank you for joining us this morning for the discussion of our fiscal third quarter 2026 earnings. I'll briefly cover the non-GAAP and forward-looking language before passing the call over to our CEO, Mike Nassif; and our CFO, Bryan Riggsbee. Before the market opened today, we published our third quarter results as well as a presentation with both documents available in the Investor Relations section of our website. On our call this morning, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the presentation, Slide 2 of which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements. I'm now pleased to turn the call over to our CEO, Mike Nassif. Mikhael Nassif: Good morning, everyone, and thank you for joining us. I'm happy to report that we delivered solid core growth in our Food Safety segment again this quarter, including continued growth in the United States. And our growth in the quarter was consistent with current market dynamics. This is an important milestone to achieve our goal of above-market growth. We improved our adjusted EBITDA margins to some of the highest levels in recent company history at 22.8% through cost discipline. This bodes well for our future as we look to accelerate top line growth in fiscal year 2027 and beyond and helps demonstrate the inherent financial leverage in the business. At the same time, we encountered several supplier challenges stemming from third-party manufacturers that unfortunately had a meaningful impact on our Animal Safety business. While many of these issues were outside of our direct control, they don't meet the standards we've established as an organization. So in response, we've implemented a more rigorous supplier qualification and review process to strengthen reliability going forward. Meeting our customer needs remains our highest priority, and we're addressing these challenges head on with urgency and discipline. As we look at our transformation journey, we continue to be focused on 3 major strategic initiatives to stabilize and strengthen our mission as the market leader in food safety. First, commercial prowess. We're strengthening our sales and marketing engine by deploying an enhanced go-to-market strategy. We're introducing a global solutions-based selling model that will fully leverage our market leadership position, implement rigorous metric-driven performance tracking and continue to invest in talent and capabilities of our commercial team. Second, high-impact innovation. We're building the foundation for true organic innovation for the first time at Neogen. This means identifying the products and technologies that can expand our addressable markets, advance our technology leadership and differentiation and unlock new growth opportunities within our core channel. And finally, operational efficiency. We're simplifying and fortifying our enterprise processes to drive stronger efficiency and execution. Our key operational initiatives include advancing and scaling our S&OP process, completing the transition of our manufacturing operations and refining our budgeting and forecasting processes. We're already preparing for fiscal 2027 and pursuing technology enhancements and consolidation opportunities that can further streamline operations. Together, these 3 initiatives paint the picture of how we're upgrading our capabilities and solutions across the organization to be best-in-class. I'll start with our first growth initiative, commercial prowess. First, I think it's important to highlight that Neogen has a strong commercial foundation for us to build upon with the most comprehensive portfolio of high-quality integrated solutions in food safety, unparalleled technical expertise and standard setting guidance and best-in-class global education, training and implementation support. These foundational elements provide a strong launching platform for our next-generation commercial engine. Additionally, as we have previously announced, we've added 2 outstanding leaders to our commercial organization. Tammi Ranalli, our new General Manager of Global Food Safety; and Joe Freels, our new Chief Commercial Officer. Tammi and Joe have been conducting a comprehensive review of our global go-to-market strategy. These leaders know what good looks like and are leading our commercial transformation on a day-to-day basis. As we assess our presence across countries and customer segments, a clear theme has emerged. It's time to optimally realign our resources from either a geographic or revenue exposure standpoint. To address this, we intend to reallocate investment towards the markets, product lines and customer segments that deliver the most significant impact on our ability to grow while allowing us to provide better customer service. In certain regions, partnering through distribution can be a more effective playbook. This allows us to streamline our cost structure and improve the level of service we deliver to customers in those areas. I implemented a similar approach when I led the Siemens Point-of-care Diagnostics business, and it resulted in significantly improved operating performance, a more efficient organization overall and a better ability to meet our customers' needs. From a sales and operations perspective, Neogen has historically operated in a siloed manner with limited process standardization or resource alignment across geographies. Tammi and Joe are developing global standards and a unified solutions-based selling framework for our teams. We believe this approach is the most effective way to differentiate Neogen competitively and to fully leverage 2 of our core strengths, the breadth of our portfolio and our expanding commitment to innovation. We will support these solutions with rigorous metric-based analysis and disciplined performance management. Joe and Tammi continue their weekly meetings to evaluate our critical sales KPIs such as total funnel size, funnel additions and funnel wins. This process rigor has been the biggest contributor to our improved execution in food safety to date and still has significant room for further improvement. Now for our second initiative, high-impact innovation. Our Chief Scientific Officer, Jeremy Yarwood, is leading a comprehensive assessment of our existing portfolio, opportunities for organic innovation and areas where externally developed technologies could be licensed and applied within food safety. The goal of this component of our transformation strategy is clear: to enhance our current offering, enable entry into attractive markets and strengthen Neogen's competitive differentiation through unique technology solutions. At the heart of our innovation strategy, we always consider our customer needs and requirements first. One area where we see a meaningful early opportunity is Petrifilm. We believe the applications for Petrifilm extend well beyond traditional food and beverage testing into additional consumer product categories like pharmaceuticals, cosmetics, nutraceuticals and other consumer product categories. In the future, with full control of our manufacturing process, we'll qualify and validate new custom SKUs within the established Petrifilm framework, something that wasn't possible historically. In prior years, several major customers approached us seeking custom SKUs tailored to their testing needs. But because we didn't have control of production, we couldn't respond. That constraint will soon be removed. To accelerate this development, in the fourth quarter of fiscal year '26, we're investing in a research scale R&D line at our Minnesota research facility. This will allow us to rapidly prototype, test and validate new SKUs without disrupting commercial production. As our new facility in Lansing becomes operational, it will support our current and future volumes utilizing highly automated production lines with a capacity of multiples of our current commercial volume. As a result, in addition to the structural efficiencies gained from bringing manufacturing in-house, the contribution margin on incremental Petrifilm revenue is exceptionally high. Incremental volume growth can be a meaningful impact on our transformation and our ability to achieve our longer-term margin objectives. We'll plan to share more details on our plans around innovation and customer technology solutions as we progress through the calendar year. But at a high level, beyond best-in-class sales and service, differentiated products and technologies remain the most critical drivers to position Neogen as the category leader in food safety. Now let's turn to our third initiative, operational efficiency. Here's an update on our Petrifilm manufacturing transition and our core enterprise capabilities. We're right on schedule for the planned November '26 transition. I'm highly encouraged by the disciplined oversight from our operations and R&D teams and the significant momentum we continue to build. First, we've now completed full validation of 100% of the production equipment utilized in the Petrifilm manufacturing process. Additionally, this quarter, we initiated the validation process for our current 17 SKUs, beginning with the highest volume and most technically challenging products. We are actively conducting both operational performance validation on multiple SKUs to ensure full manufacturing transition by this fall. It's important for us to complete all of the product validations before commercial production and scale up to ensure we have a robust process in place and to prevent commercial production from interfering with the validation process. We continue to believe that the scale of investment required and the considerable technical complexity associated with reproducing this manufacturing process creates an almost insurmountable barrier to entry, replicating the level of precision and quality achieved through our Petrifilm platform would be exceptionally challenging for any competitor, let alone a subscale provider. In addition, we look forward to hosting 2 upcoming investor tours at our Lansing manufacturing facility in partnership with our covering analysts. These tours will give investors a firsthand view into the sophistication of the operation and the progress we are making. From an inventory management and sales operations planning perspective, we continue to make meaningful progress even as reported inventory levels remain flat sequentially. Our objective is to build an enterprise-level end-to-end controlled supply chain. We believe these initiatives will drive lower cost of goods sold through increased automation and procurement optimization, enable faster and more reliable global fulfillment and most importantly, enhance the overall customer experience. As part of this transformation, we are moving toward a centralized planning model supported by AI-enabled logistics and supply chain software tools to improve efficiency and decision-making. In parallel, we are strengthening supplier management with rigorous controls around cost, quality and performance while also simplifying an overly complex warehousing and logistics footprint to reduce both cost and operational complexity. We expect to complete the implementation of this new operating model by the end of the calendar year, and we believe it will have a lasting impact on both our cost structure and our ability to serve customers more effectively. Now I want to address the backorder challenges we experienced in our Animal Safety business. The issues stem primarily from disruptions at our third-party suppliers that related to product documentation, raw material shortages and delays tied to supplier manufacturing site transitions. These are further compounded by supplier shifts driven by global tariff changes. Here's what we're doing about it. We're conducting a rigorous review of our supplier qualifications processes and strengthening the controls necessary to ensure we're consistently positioned to meet customer needs going forward. And finally, as part of our operational efficiency, our fiscal 2027 budgeting and forecasting cycle is well underway. I've asked our leaders to do 2 things: first, to scrutinize spending with a focus on value-creating activities; and second, to take a strategic view of where technological innovation, enhanced enterprise capabilities and strengthened processes can drive meaningful long-term efficiencies. This will ultimately allow us to allocate more resources towards growth and innovation. Today, about 56% of our operating expenses are tied to salaries and benefits. This level reflects underinvestment in process automation and modern technology solutions. Achieving sustainable efficiency gains will require a degree of near-term investment and transformation-related spending. The longer-term returns from these initiatives are likely to exceed what we could achieve through acquisitions or even through internal product innovation alone. We are currently evaluating a number of areas for AI and technology implementation. These include customer service, finance process automation, sales operations and planning, research and development and technical service applications. Consistent with our historical practice, we expect this transformation-related spend to be excluded from our adjusted financials as we view it as a temporary requirement to build the foundation for a more scalable business. However, in any scenario, we believe the total magnitude of spend in these areas is positioned to decline going forward, and we continue to anticipate significant improvements in free cash flow next year. Given the large number of initiatives we have ongoing pertaining to sales and marketing, our innovation strategy and enhancing our operational efficiency, we are excited to host an Investor Day this fall to give investors a better sense of the impact our transformation is having and our long-term financial outlook. Since the day I arrived, I've been convinced that our challenges are solvable, our industry secular growth drivers are strong and our ability to execute will ultimately drive our success. While there is still meaningful work ahead, we all know turnarounds are never linear. The progress underway is substantial. And while our early wins aren't always immediately visible on our financial results, what is clear is this, our unwavering commitment to build a stronger, more innovative and efficient company for all stakeholders. The impact of the changes we're implementing today will become increasingly evident as we enter the next fiscal year and beyond. And now I'll turn the call over to Bryan. R. Riggsbee: Thank you, Mike, and thanks to all of you participating in the call today. I'm pleased to provide an overview of our financial results and outlook for fiscal year 2026. We delivered third quarter revenue of $211.2 million, representing a 0.1% increase on a core basis. As Mike noted, we saw continued strong core growth in our Food Safety segment, while supply chain disruptions within our Animal Safety segment had a significant impact on our results in the quarter. At the segment level, our Food Safety business delivered $156.7 million in revenue for the quarter, representing 4% core growth, consistent with the second quarter and relatively in line with current market growth rates. Performance was led by continued strength in our indicator testing and culture media products, which were up 11% and strong growth in pathogen test kits, which are included in bacteria and general sanitation. From a macro standpoint, as the year started, market commentary from several major food producers was generally positive. Many reported flat volumes, an improvement from the persistent declines observed over the past 3 years and several guided to a return to volume growth in calendar year 2026. Recent public comments from companies like Conagra and General Mills show the operating environment has deteriorated with supply chain and logistics cost pressures mounting as a result of the war with Iran. Fuel and fertilizer costs are rising, which is having a meaningful impact on margins for our customers. Other signs of market disruptions include factory consolidations, increased focus on cost management initiatives and restructuring across the food production landscape. Given these factors, we continue to maintain a measured view on the macro backdrop for our food safety customers. Food safety continues to be a top priority for our customers and a clear area of competitive differentiation. As an example, Nestle recently highlighted that the latest infant formula recall is expected to result in approximately $350 million in lost sales across 2025 and 2026, which does not include the additional financial costs associated with managing the recall itself. At an industry level, recall activity is also increasing. The total number of food recalls rose by roughly 15% from 2024 to 2025, and more significantly, the volume of food recalled by the FDA more than doubled year-over-year. These trends reinforce how essential reliable food safety solutions are for producers and the critical role we play in helping them maintain trust, compliance and brand protection. Quarterly revenue in our Animal Safety segment totaled $54.5 million with core revenue declining 8.7% compared to the prior year period. As mentioned earlier, supplier-related disruptions had a significant impact on the results in our Animal Safety business. If you exclude these impacts in the quarter, core growth in Animal Safety would have been more consistent with where we were in the second quarter of this fiscal year from a year-over-year growth perspective. We are beginning to see some encouraging signs in the Animal Safety end markets. Although U.S. production animal herd sizes remain near record lows, sustained strength in meat demand and pricing has materially improved producer profitability. In addition, USDA projections indicate that herd sizes may be nearing a cyclical bottom with growth expected beyond 2026 as ranchers reinvest to meet elevated global protein demand. These trends support a more constructive outlook for the segment over the medium term. From a regional perspective, U.S. revenue was 48% of total sales in the quarter, and our international revenue was 52%. Importantly, U.S. Food Safety once again grew in the third quarter, consistent with the second quarter. We saw strong growth in both EMEA and Latin America in the quarter, and the supplier issues in Animal Safety disproportionately impacted the domestic business in the quarter, given sales are predominantly based in the U.S. Gross margin in the third quarter was 46.9% and adjusted gross margin was 51.7%. On a year-over-year basis, our gross margins, excluding onetime costs, were essentially flat. This quarter, we did not make as much progress as planned on sample collection margin improvement, and it still generated a negative gross margin. We faced higher scrap rates on certain sample collection products due to a quality issue at a third-party supplier, which has now been addressed. We continue to be optimistic about our ability to drive improvement for sample collection margins through a combination of growth and potential automation investments in the upcoming fiscal year. Adjusted EBITDA was $48.2 million in the quarter, representing a margin of 22.8%, an improvement of almost 110 basis points on a sequential basis from the second quarter despite lower revenue. This change is reflective of a decline in adjusted operating expenses, which were down 9% from second quarter levels, showing strong cost control. Of note, $1 million of the sequential decline was due to nonrecurring credits, which will not repeat in future periods. Third quarter adjusted net income and adjusted earnings per share were $19.4 million and $0.09 per share, respectively. Turning to the balance sheet. We closed the quarter with $800 million of gross debt, 68% of which is fixed rate and a total cash balance of $159.9 million. We remain fully compliant with all debt covenants and believe we are well positioned to further strengthen our balance sheet as free cash flow continues to improve. As previously announced, we entered into an agreement to divest our genomics business unit, which generated approximately $90 million in revenue in fiscal year 2025 and delivered adjusted EBITDA margins in the mid-teens. The announced sale price for the business is $160 million with expected net proceeds of approximately $140 million after transaction costs and taxes. We expect the transaction to close in the second quarter of fiscal 2027. We intend to use net proceeds from the sale to reduce debt, and we anticipate our net debt to adjusted EBITDA ratio will decline to below 3x by the end of calendar 2026. Free cash flow in the third quarter was $11.1 million and is now positive for the year. We continue to expect improvements in cash flow trends going forward due to reduced CapEx following the completion of our Petrifilm equipment and construction costs as well as the elimination of duplicative manufacturing costs. Turning to our guidance. We're raising our full year fiscal 2026 revenue guidance to reflect our stronger-than-expected third quarter results. We now anticipate full year revenue to be in the range of $857 million to $860 million. With respect to this guidance, it's important to consider the evolving foreign exchange environment. Following the sharp decline in the U.S. dollar index last year and more recently, the strengthening we have seen in the dollar, we expect the currency tailwinds that have supported noncore growth to diminish meaningfully beginning next quarter. This dynamic will impact both reported growth rates and our full year revenue outlook. As a reminder, approximately 40% of our revenue is generated in non-U.S. dollar currencies. And on a sequential basis, the current level of the dollar index represents a modest headwind to noncore growth. In addition, we anticipate continued impact from certain supply-related challenges in our Animal Safety business that affected results this quarter. As Mike noted, we are also implementing several changes across the sales organization, including leadership transitions following our global talent review. Taken together, we believe it is prudent to take a more conservative view for the fourth quarter. We have also received questions regarding the conflict involving Iran and the potential implications for our business. Revenue exposure to countries within the conflict zone is immaterial, totaling less than $0.5 million annually. As for the potential impact of higher energy and oil prices on plastic components, today, we source approximately $40 million annually in plastic OEM products, and we currently hold 6 to 9 months of inventory for these components. As a result, the duration of elevated oil prices would need to be prolonged to meaningfully impact our cost structure. It is important to note that raw material costs represent only one component of our suppliers' total cost base alongside labor and overhead. And even under a more adverse scenario, we believe any impact would be manageable, and we would have the ability to partially offset increased cost through pricing actions, if necessary. Where we are seeing more tangible pressure is in global logistics and freight, given disruptions around key global transit routes such as the Suez Canal and the impact of higher energy prices on transportation rates. Currently, we are experiencing freight and transportation cost increases in the high single-digit to low double-digit range. At current rates, the aggregate impact equates to approximately $1.5 million per quarter in incremental freight and transportation costs. In light of these headwinds, we are maintaining our adjusted EBITDA guidance of $175 million for fiscal year 2026. I'll now hand the call back to Mike for some final thoughts. Mikhael Nassif: Thanks, Bryan. I'm really proud of our team, and I'd like to take this opportunity to thank our dedicated employees. We're committed to creating outstanding stakeholder and customer value as the clear market leader in Food Safety. Our industry is driven by powerful secular trends, and we offer the broadest and highest quality products. Our primary barrier to unlocking our full potential has been operational execution. And as you've just heard, we're making rapid and meaningful progress. We'll finish this year as a stronger, leaner and more capable organization. This foundation will enable us to enter the next phase of our transformation, accelerating growth and leadership through technology and product innovation. And with that, I'll now turn things over to the operator to begin the Q&A. Operator: [Operator Instructions] Your first question comes from Subbu Nambi with Guggenheim. Subhalaxmi Nambi: A couple of cleanup questions. The Petrifilm and duplicative costs were expected to step up, and they did, but the tariff cost and the sample handling expenses did come as a surprise, which sample handling looks like it's solved for. But could you walk us through what's driving those? And what's your line of sight to further costs for 4Q? R. Riggsbee: Yes. Thanks, Subbu. Yes, I think we talked about a little bit on the call some of the issues that we had in sample collection during the quarter. We made -- some of those have resolved themselves. I would not expect it to step up from where we're at, and I would expect it to improve sequentially as we get to the fourth quarter. Subhalaxmi Nambi: And then just any of these like unexpected third-party supply issues that was tied once you have taken stock of the whole animal safety supplier issue? What gives you the confidence that you'll be able to move through this quickly, just given the history of these costs mainly on margins and concerns for investors? Mikhael Nassif: Yes, Subbu, I'll take that, and thank you for the question. Yes, I mean, again, the challenges with the quarter on Animal Safety were supply side, not a demand issue. Our ordering patterns continue to be pretty encouraging. So our focus is really on addressing the 3 supplier issues. The first has to do with the key instrument supplier transitioning manufacturing locations to reduce tariffs impact. So there's been some start-up challenges that they've had. Second, we're all aware of the global vitamin A shortage. So that's affected several of our products and some constraints. And third, a fairly substantial partner of ours in sodium bicarb is transitioning production and they're running into some issues. So we've strengthened our -- on our side, our supplier management and making sure we're partnering and understanding so that we can do a better job at predicting in our forecast. I think we missed that a little bit in Q3. We were surprised by some of these supplier challenges, which we won't repeat again in Q4. Now in Q4, given the uncertainty and these things being out of our control, we have built that into the guide, and we're really thinking along the lines of being meaningfully measured as we do that. I can't give you a specific number with regards to what we expect as recovery at this point in time. We're certainly working towards that, but we do expect the challenges to continue in Q4 as these suppliers are working through it. Subhalaxmi Nambi: Super helpful. One cleanup question. On the slide deck, you say Petrifilm will be done in November 2027. I feel you meant November fiscal year 2027, right? Mikhael Nassif: Yes, surprised, no. That's I hope -- it's November 2026. We're on track. Maybe what we were trying to say is that in addition to that, we continue our 3M agreement until August of 2027 as an "insurance policy" for any disruption we may have. Operator: Your next question comes from Bob Labick with CJS Securities. Bob Labick: Congratulations on another strong quarter. R. Riggsbee: Thanks Bob. Bob Labick: Okay. Great. Just to make sure you hear me. So obviously, with this solid core growth for the second quarter in a row of 4% in Food Service, after 1 quarter, you weren't there yet, but are you in a position to say you're able to sustain top line core growth in Food Service going forward? And how should we think about the core growth over the next 12 months in terms of potential headwinds and tailwinds and any unusual comps that we should keep in mind? Mikhael Nassif: Well, thank you for that question, Bob. And I'll let -- I'll give you some thoughts and let Bryan jump in. First, let me address your second part. I mean, we're not going to -- we're not prepared to give guidance for next year at this point in time. We'll do that during our Investor Day. But to speak to Food Safety, I think that, as I said on the earnings call, our focus on commercial execution and really driving the discipline and leveraging the breadth of our portfolio has enabled us to deliver another quarter of in line with market growth on Food Safety. Now I expect that to continue. As Tammi and Joe are working through the reorganization and looking at where we can reallocate resources to drive quicker -- faster growth, we're looking at the optimization of our portfolio where we're looking to drive higher-margin products. I think that we can expect there to be more upside as we go through to accelerate that growth. And so I think the overall market on the end market piece, we see the food safety continue to be fairly stable. I'd say it's in the lower single digits at this point in time. We do hear food producers are reporting that they see volumes being flat versus declining historically. I think the tone of our customers is improving. Of course, the current macroeconomic environment and Iran and oil and all those things are creating some cost pressures and unknowns for us. But we continue to be excited about food safety and our position as the only market leader with the broadest portfolio to meet customer needs. So more to come on the Investor Day, but we feel good. But certainly, we're happy but not satisfied, and we're going to continue to push on our market leadership in food safety. And Bryan, I don't know if there's anything else you want to add. R. Riggsbee: Yes. No, I think we've seen nice -- for a few quarters now, nice growth on the Food Safety side. As Mike mentioned earlier, I'm not going to get beyond Q4, but we expect the Animal Safety issues to not fully resolve during the quarter. I think it doesn't impact the core growth number that we report, but the only thing I would just highlight is that the commentary around FX becoming a headwind versus a tailwind that we've seen. So that will impact the reported numbers. Bob Labick: Okay. Great. And then just, I guess, my follow-up, another question. You mentioned in the prepared remarks, certainly driving innovation. And then you also mentioned a research line for Petrifilm, which sounds like a wonderful idea to keep production going. Can you talk about the kind of the CapEx for that? And I think you said you expect free cash flow to grow in fiscal '27. So maybe kind of tie all of those things together for us, please. R. Riggsbee: Yes. I would say the CapEx will be in our FY '26 CapEx number. We do expect CapEx to step down next year as we get past the projects, the larger Petrifilm manufacturing facility ramp up. And given that we're at a positive free cash flow level now for the year, year-to-date, we would expect that to step up next year as profitability continues to improve and as CapEx ramps down. Bob Labick: Okay. Great. So the research line is not a major investment. It's just an opportunity to continue. R. Riggsbee: Yes. It's just incremental. It's not a material change to what we had talked about before. Mikhael Nassif: But it has a significant impact on accelerating Petrifilm innovation. And we believe that, that's extremely important for the future growth of our food safety portfolio. Operator: Your next question comes from Brandon Vazquez, William Blair. Brandon Vazquez: Mike, maybe can I start with you, and I wanted to start a little bit higher level. You've been in the seat about 6 or 7 months now. Just reflect a little bit on what things within the organization have changed that are kind of working? Like what things are allowing you to execute a little bit better than we've seen historically for Neogen? And then spend a minute on like what's left. You're talking a little bit about go-to-market strategy evaluation, things like that. What work is left to be done still? And just spend a little bit of time around that first. Mikhael Nassif: Sure, Brandon. Thanks for the question. I would say that 7 months in, I continue to believe based on everything that I've learned so far that purely our challenges are operational. They're internally related. And from the start and having been in other turnarounds, I discussed sort of the approach on driving the top line to create oxygen to allow us to run a more efficient organization and kick off more cash. And we are implementing that strategy. I spoke a little bit today around commercial prowess, operational efficiency and really focusing on innovation. So as we are strengthening our commercial acumen and becoming more focused on higher-growth markets, managing better in our operating expenses, we need to start now to think about innovation to accelerate growth in ' 28, '29 and '30 and beyond. So I think where we've been able to really push hard, you're seeing the results of that. So I think the second quarter of solid growth in food safety is representative. But I would say we're just getting started. Tammi and Joe are really digging in. They're optimizing the commercial organization. We're looking to flex the portfolio. Again, you guys know this, Neogen has got the broadest portfolio in food safety. We have the ability to provide end-to-end solutions. I'm not sure we always flex that portfolio the way that we should. And so we are very much focused on doing that and changing how we go to market. And all of those things are remaining to be done. And so I would say what I would "a quick wins" I think we've kind of captured those. And now we're in a part of taking those best practices and just back to basics and scaling them. And as you know, scaling takes some time. And I think we're in that phase now. And so no turnaround is linear, but we're going to continue to focus on those areas and scaling them across the organization in the various regions. Brandon Vazquez: Okay. And Bryan, for you, as I look at the implied guidance on adjusted EBITDA, you had talked a lot of moving pieces in Q4, whether it's the OpEx line or maybe some margin headwinds, things like that. I want to ask it a little bit more direct. I know you're not going to give us '27 on this call, but I think a lot of us are going to start building our model off of the Q4 EBITDA line, right? So like just maybe like walk us through, help us think of like what things impacting the Q4 profitability implied in guidance are transient, which ones are going to linger into fiscal '27, so we can understand to what degree this Q4 EBITDA number is like a good jumping point we should use as we build our model going forward into fiscal '27? R. Riggsbee: Yes. Thanks for the question. I think a few things that I would highlight. I think, first of all, when you look at -- we talked about it on the call, the onetime credit that we had in the quarter, that was about $1 million. We talked about the freight and transportation step-up that we're seeing. We characterize that as about $1.5 million. We had a partial -- because of the way the quarter straddles, the months, we -- our merit impact will have some incremental impact from some of our employee costs in the quarter, given the fact that we had 2 months of it in the last quarter, we'll have an incremental month. So that's a bit of a headwind. And then we finally have finished building out the lead team. And so we have a little bit of incremental cost related to that. But I think the sum of those things is probably what reconciles it for you relative to kind of where you were before in terms of Q4, that's at least a few million dollars there. And that's the way that I would probably think about it. Hope that's helpful. Brandon Vazquez: Okay. Yes. And maybe I'll sneak one last one in. Mike, as you talk about kind of go-to-market strategy evaluation, I'm kind of curious what might that entail? Like I guess part of the question that I'm asking is, is it possible in the next quarter or 2 that there's some bigger commercial changes that might be made to the organization that may take a little time to take root? Mikhael Nassif: Yes. No. So I don't see the changes we're making as disruptive as much as they are more additive and sort of accelerating where we see opportunity. So the overall strategy of our go-to-market is pretty simple. It's identifying the markets where we see significant market opportunity, evaluating our presence, adding resources to capture or exceed market growth, looking at markets where maybe the market opportunity is not as substantial, evaluating our cost structure in those markets and saying, is our cost structure aligned with the market opportunity? And then third, looking at markets where the market opportunity is not great and maybe our revenue is not there, but our cost structure is too high. How do we transition that to a partner, reallocate those savings and put it in the markets where we see accelerated growth. So I don't see that disruption as really just realigning and reinforcing the markets where we see accelerated growth. Does that help, Brandon? Brandon Vazquez: Yes. Operator: Your next question comes from Thomas DeBourcy with Nephron Research. Tom DeBourcy: I'll just ask 2 upfront. So first, just on adjusted gross margin. It seems like clear sequential trajectory upwards. And question there is really even with, I guess, integration or some disruption, your ability to sustain, even, I guess, above 50% adjusted gross margins? And then the second question, just on the sale of the genomics business. It looks like it may be actually accretive on an earnings basis given the cost of debt. But just whether that's the case? And is there additional portfolio rationalization in Animal Safety products, whether through divestiture or through just, I guess, end-of-lifeing low-margin products? R. Riggsbee: Yes. Thanks, Thomas. I'll start. I guess to your first question around the adjusted gross margin, yes, we were very pleased with the performance. I think you're thinking about it the right way, too, in terms of sustaining above 50% because we're going to have fluctuation from quarter-to-quarter. So I wouldn't focus so much on that as I would on the fact that sustaining it at that higher level, I think that's the right way to think about it. Because if you look at the current quarter, we probably had some favorable mix in there given the food safety growth, that's a higher-margin business relative to the Animal Safety business, which was down in the quarter. So I think that's the first question. And then I think the short answer on your second question around the genomics sale is, yes, accretive and positive impact from that divestiture. Mikhael Nassif: Yes, Tom, just when you look at the margin structure for the genomics business, we've talked about both the gross margin and operating margins for that business on an operating margin basis, the adjusted operating margins being in the mid-teens. So that's obviously below the corporate average. And then as we look at from a total expense standpoint, there is some allocated corporate overhead that goes away with that as well. And so that's really what drives the accretion. Operator: Your next question comes from David Westenberg with Piper Sandler. David Westenberg: Congrats on another nice beat here. So you raised the guide by a little bit more than the beat, implying maybe that Animal Safety issue might be resolved in the next quarter or so. Is that a great way to read it? And then also with kind of the beat, I know you mentioned kind of the freight costs and some of the other stuff, onetime items. Is there any other reason why you wouldn't get more operating leverage with the -- with revenue going up there in Q4? R. Riggsbee: Yes. I think the implied guide is a slight increase from Q3 to Q4 in terms of the top line revenue. So there will be some leverage that you should get -- you should see there, but it's not a meaningful step-up in terms of the revenue. I think that the guidance really implies continued food safety growth around the levels where we are currently. And we don't expect the full benefit of the Animal Safety resolution in the current quarter is the way we think about it. And then as I noted as well, the fact that we've started to turn from an FX tailwind to a headwind is also a thing that we thought about as we looked at where we're going to land the year. David Westenberg: Got you. Well, you guys -- I mean, on Brandon's question, you talked a lot about kind of some of the margin headwinds in Q4. Can you talk about as we're building 2027 to thinking about the margin expansion opportunities? I mean, I know Petrifilm is now getting in-house or transitioning to you. Is there any other ways of thinking about margin expansion opportunities in '27? R. Riggsbee: Yes. I mean I think that a couple of things. First of all, from a gross margin perspective, I think that we should be getting past the issues that we've had with sample collection. We should see Petrifilm. We've said that should be margin expansive once we've in-sourced that. So those are helpful. And then on the OpEx side, we continue to evaluate the cost structure there. I think one of the things is we saw the impact of the restructuring that we did back in the fall with -- part of that was we were looking at taking out, I think it was around $25 million, but also with some add-backs for areas where we thought we had gaps. And so you started to see some of that sort of flow through as well in terms of the investments that we've made. But I think we -- in terms of the go-to-market strategy that Mike has talked about earlier, that's obviously a more efficient way of operating in a lot of places, given the fact that you may go through distributor versus going direct, that sort of thing. So I think we have opportunity remaining on the OpEx side. Mikhael Nassif: Yes. I would add a couple of other things that are also extremely important and we're focused on, and we've talked a little bit about it. I would say more in a purchase price variance. So we're really digging into that and looking at our supplier base and trying to understand how can we improve that. That will be -- that's a huge focus now as we think about '27. I think another big one is inventory. So we definitely talked about inventory and the challenges we've had. I think the write-offs are obviously very visible, and we're aware of those, and we're working through them. But I think the way that I would see that in '27 is there's certainly been a lot of legacy raw materials that have been a big part of our inventory. And as those make it the finished goods and we start to calibrate our production to reduce inventory in '27, we should start to see the benefits of those. It's hard to see them right now because they're currently in progress. But as we transition into '27, we should start to see a meaningful decline in our finished goods inventory, which will manifest itself in an improved margin. So those are 2 other areas I would add that we're thinking through for next year. Operator: There are no further questions at this time. I will now turn the call over to Scott Gleason for closing remarks. Scott Gleason: Thank you for joining us today, and we look forward to following up with a lot of you after the call here. Have a great day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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