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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, 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.
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.
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Key Takeaways: