DLTH

Good morning, and welcome to Duluth Trading's fourth quarter financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Steffes, Senior Associate, Duluth Investor Relations. Please go ahead.

Thank you, and welcome to today's call to discuss Duluth Trading's fourth quarter financial results. Our earnings release, which was issued this morning, is available on our investor relations website at ir.duluthtrading.com under News Releases. I'm here today with Stephanie Pugliese, President and Chief Executive Officer, and Heena Agrawal, Senior Vice President and Chief Financial Officer. On today's call, management will provide prepared remarks and then open the call for questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified by the use of words such as estimate, anticipate, expect, and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. With that, I will turn the call over to Stephanie.

Good morning, everyone, and thank you for joining us today to discuss Duluth Trading Company's fourth quarter and fiscal 2020 results. I am extremely proud of the team's continued discipline in managing promotional resets, controlling expenses, streamlining operations, and optimizing inventory. This strong execution led to the third straight quarter of enhanced gross margin, lower costs, reduced inventory, and improved profitability. Adjusted EBITDA for the full year rose more than $10 million to $24.9 million, and we delivered almost $17 million in positive free cash flow, a $42 million improvement over fiscal 2024. Our business reset is well underway. We continue to work diligently on simplification, expense control, and productivity. Our SG&A decreased by $5 million in the fourth quarter. We also ended the year with inventory down $35 million or 21% versus last year.

Looking specifically at this past holiday season, we successfully executed our operational goals. This represents the culmination of a year's worth of effort by the team to focus on and improve the customer experience. Better forecasting and effective positioning of inventory across our fulfillment centers cut the average click-to-ship time in half compared to last year, and our wait times for customer service were dramatically reduced. We were in stock in our stores, and we were able to deliver with higher conversion as customers came to shop in our retail locations. Throughout the peak season, we stayed the course on our more disciplined promotional strategy, offering 30% off discounts coupled with select stump busters versus last year's 50% off across the board. This approach continued through December with giftables and a final 30% off promotion, expanding gross margin and delivering customer satisfaction.

Overall, in the fourth quarter, men's and women's apparel drove strong margin improvements despite year-over-year sales declines. We saw key wins in outerwear and the Souped-Up Sweats collections across both genders, with Men's Souped-Up more than doubling in sales versus last year. We drove margin gains from holiday unders inventory and strong giftable products. Finally, AKHG grew in sales and margin across both men's and women's. Our marketing success in the quarter was driven by an effective balance of brand awareness and conversion efforts. By running our national advertising spots for extended durations, we achieved significant improvements in ad recall and overall brand lift. High Affinity podcast reads and December Good Morning America integration increased brand sentiment, new customer conversion, and direct site visits. We focused on high-value retargeting during Black Friday and Cyber Week, and localized college football buys increased retail foot traffic and sales.

After the key holiday selling period, we pivoted to clearance messaging in order to maximize post-season demand. Looking ahead, we are continuing to build brand awareness with a full funnel marketing approach, which includes exciting new spots running during March Madness and NHL games. Now turning specifically to our channel performance. Our efforts in digital to reduce reliance on promotions while building brand acceptance and revenue per customer improved profitability year-over-year despite reduced traffic. Overall conversion was strong. Sales per customer increased 4% and average order value improved by 10% for the full year. Our retail portfolio was a continued bright spot, with net sales growing 4.7% to $71.6 million in the fourth quarter.

This performance was fueled by the opening of 2 new stores, an increase in average order values, and improved in-stock levels, allowing us to capitalize on key traffic moments like Black Friday and throughout December. Our improved operational results impacted not only retail stores, but our entire network. In the third quarter, we moved decisively to position Adairsville at the center of our fulfillment operations. In Q4, we strategically held 69% of our inventory there, a marked increase over last year. This positioning allowed us to fulfill the majority of peak orders from this single facility, demonstrating efficiency that will enable us to rationalize further our distribution network in 2026. In addition to the current year improvements, we have made progress on our longer term initiatives, starting with our logistics network.

We have now completed the first two phases of streamlining and the consolidation of fulfillment operations by closing Dubuque in October 2024 and now Salt Lake City in February 2026. Concurrently, we are enhancing the fully automated Adairsville fulfillment center's efficiency and capacity. For 2026, we plan to further boost Adairsville's productivity with investments in cross-dock capabilities and improved labor management. Next, our efforts to improve our retail portfolio results, driven by targeted local marketing in priority areas, an engaged and energized team, and better inventory allocation for higher in-stock positions, have successfully delivered positive comp store sales for the fourth quarter and the full year. We saw lower price sensitivity following the promotional reset and achieved more favorable lease renewals, driving a 550 basis points improvement in four-wall profitability year-over-year.

Every store in our current fleet is profitable, and both of our recently opened new stores are projected to achieve payback in three years or less. In 2026, an additional 10% of our fleet will be due for lease renewals. We will proceed with these renewals only if they meet our predetermined profitability requirements. Third, the enterprise planning process is driving an integrated business plan by connecting forecasts across various functions, including marketing, merchandising, supply chain, and stores. This integration is continuing to deliver significant benefits, such as higher forecast accuracy, right-sized inventory buying, receipt time management, and optimal allocation across locations to best serve our customers across all channels. Lastly, our direct-to-factory sourcing initiative has matured. Currently, almost 60% of our product is sourced directly from factories, with the remainder coming through our two primary vendor agents.

We continue to scale with our current vendors to deliver cost savings, diversify our sources to enhance supply chain agility, and maintain our focus on innovation and quality. As we move into 2026, we still have work to do in this turnaround, and it remains our primary focus, particularly in continued disciplined efforts in the first half of the year. Our ongoing priorities are building pricing and margin integrity through promotional reset, efficient inventory management, SKU reduction, and maintaining rigorous cost discipline, in part to offset the now annualized impact of tariffs. We are not stopping there. This year, we are intensifying our focus on strategic brand initiatives, reinforcing the brand identity around our core product assortment, strengthening our leadership in work wear, delivering a memorable experience through our unique storytelling and our actions to reengage and attract valuable customers, and further embedding operational excellence across the organization.

While we expect that these efforts will benefit us more heavily in the back half of the year, we have begun to see some green shoots from our focus on core product and are pleased with the trend that we are seeing so far this quarter. Products like DuluthFlex Fire Hose, Double Flex Denim, and Souped-Up Sweats are resonating in a positive way as we tell our story of innovation and long-lasting durability to both new and renewed customers. In addition, new product launches, like our lightweight Fire Hose shirt and the NoGA Air that just landed for women, are getting strong initial responses. Our marketing has become more effective at driving higher levels of traffic to our site and to our stores.

We are executing a full funnel approach to marketing this year with the intent to reactivate our customer base, build retention, and attract new fans to the brand. As an example, we are running our new Buck Naked ad featuring our best-selling underwear in March Madness and NHL games while supporting core product visibility and sales in lower funnel efforts like SEO and branded search. We continue to monitor response in traffic, conversion, and brand sentiment to optimize our spend with agility. To fuel the second half of the year, we are making targeted investments and creating synergies with our product and marketing. These include customer-facing improvements such as integrating Apple Pay on our website to streamline the checkout process and fully leveraging our comprehensive full-funnel marketing strategy.

Our product assortment is stronger year-over-year with tighter SKU counts and a focus on core products that speak to our customers' hands-on, hardworking lifestyle, and our stores will be supported to deliver another year of increased sales. We have confidence that we will see the results of these efforts with improved sales trends and profitability in the second half of the year. In closing, I want to extend my thanks to the entire Duluth team for a year of significant progress that positions us for future success. We have entered 2026 in a stronger financial and operational position with better liquidity, improved inventory levels, a more focused assortment, and positive team momentum. We have a complete and highly capable leadership team prepared to execute our plan, and we look forward to presenting a detailed multi-year strategy during our first quarter earnings call in June.

With that, I'll pass it over to our CFO, Heena Agrawal, to discuss our financials in more detail.

Thank you, Stephanie, and good morning, everyone. I am pleased to share our fourth quarter and full year fiscal 2025 results, which reflect the incredible progress our team has made in executing our strategic turnaround. We successfully achieved the goals we set at the beginning of the year, fixing our promotional strategy, restoring price integrity, improving cash and inventory management, and strengthening operations. We effectively handled stress through targeted price increases and cost mitigations. We delivered a full year adjusted EBITDA of $24.9 million, an increase of $10.3 million versus last year. As a result of focused and disciplined effort, combined with our agility in responding to macroeconomic conditions, we have achieved three consecutive quarters of improved year-over-year net income margin and free cash flow.

We ended the year in a strong liquidity position of over $141 million as we reduced inventory by 21.1% and had zero debt on our asset-based lending facility. We generated $16.6 million in free cash flow for the full year, a $41.8 million improvement over the prior year as a result of improved profitability and working capital management. Let me now review our fourth quarter results, followed by a more in-depth review of the full year. Starting with our results for the fourth quarter of 2025 with comparisons to prior year. We reported net sales of $215.9 million, a decline of 10.5%. When excluding the 53rd week from the prior year, the sales decline was 8.3%.

Gross margin expanded by 890 basis points to 53%. We delivered net income of $7.8 million, an increase of $13.4 million. As a result, our reported EPS is $0.22, and adjusted EPS is $0.23, an increase of $0.33. Adjustments to EPS include net restructuring expenses of $0.3 million for the closure of Salt Lake City fulfillment center. To note, we have not adjusted EPS for tax valuation allowance, which would have reduced adjusted EPS by $0.04 this quarter. Adjusted EBITDA reached $17.5 million, marking an $8.9 million improvement. This represents a margin increase of 460 basis points to 8.1%. Moving on to full year 2025 with comparisons to last year.

Net sales were $565.2 million, a decline of 9.8%. Excluding prior year's fifty-third week and wholesale, net sales declined 9.4%. Gross margin for the year expanded by 420 basis points to 53.4%. Our reported EPS loss is $0.47, and adjusted EPS loss is $0.43, an improvement of $0.63. Adjustments to EPS include $0.9 million of net restructuring expenses and $0.4 million of net impairment expenses. To note, we have not adjusted EPS for tax valuation allowance, which would have improved adjusted EPS by $0.11 for the full year.

Adjusted EBITDA for the year is $24.9 million, an improvement of $10.3 million, representing an increase in margin of 210 basis points. When discussing the top line, it's important to note that all comparable sales figures exclude the effects of both the prior year's 53rd week and wholesale. Full-year net sales declined 9.4% as a result of our promotional reset and pricing strategy. The direct channel was impacted throughout the year by the pullback on promotions, resulting in a 16% decline for the full year. This was primarily driven by a decrease in web traffic, partially offset by double-digit growth in average order values from higher average unit retail prices. Mobile sales penetration increased by 160 basis points.

In contrast, the retail channel grew sales by 3.5%, fueled by comparable sales growth and the launch of two new stores late in the third quarter, partially offset by one store closure in the second quarter. The retail channel outperformed the direct channel as retail customers showed lower price sensitivity to the promotional reset. The in-store experience continues to drive a high conversion rate among new and existing customers, who report five-star reviews on satisfaction and continue to purchase at higher year-over-year average order values. The promotional reset resulted in a decline in both men's and women's sales, with drops of 9.2% and 9.7%, respectively. However, sales grew in key categories for both genders, including outerwear, AKHG, and our Souped-Up Sweats collection. With fewer promotions and increasing average prices, profitability improved across product categories and sales channels.

Notably, the full-year profitability of the store portfolio improved by 550 basis points, with every store in the fleet being profitable. Gross margin rate for the full year was 53.4%, expanding by 420 basis points, driven by restoring price integrity through reduced depth of discounts, the flow-through of lower product costs as a result of our direct-to-factory sourcing initiatives and tariff mitigation, overcoming a tariff impact of approximately $11 million. Average unit retails increased by 12% over last year, driven by a pullback on the depth and frequency of promotions, targeted price increases in the back half of the year, and a higher mix of full price sales. Gross margin expanded by 640 basis points in the second half despite tariff costs.

SG&A expenses for the year were $310.5 million, which is $27.1 million or 8% lower than last year. We successfully exceeded our target of $10 million in expense savings this year as we took actions to rightsize our cost structure. SG&A, as a percentage of sales, increased by 100 basis points, primarily due to the drop in sales. Advertising costs represented 10.3% of sales, a 50 basis points improvement due to a more effective balance between upper and lower funnel spend. Variable costs were lower in dollars, driven by lower unit sales, partially offset by reticketing labor to execute price increases. Costs deleveraged as a percentage of sales by 50 basis points with a greater penetration of retail sales this year.

Overhead expenses were down by over 4% and deleveraged by 170 basis points, largely due to the decrease in sales. Inventory at year-end was $131.3 million, a $35.2 million or 21.1% reduction compared to prior year. This follows a 17% reduction in Q3 and 12% reduction in Q2, marking the third consecutive quarter of year-over-year improvement. This performance was achieved through two key factors, the enterprise planning process and SKU rationalization. The planning process successfully aligned inventory with sales plans and balanced the timing of receipts. In addition, our inventory allocation strategy maximized stock at the automated Adairsville fulfillment center and significantly improved store in-stock position by over 500 basis points during the peak season.

Our inventory mix at year-end consisted of 82% in current products and 18% in clearance goods, compared to 11% in clearance at the end of last year. We have since reduced the mix of clearance inventory, which stood at 13% at the end of February 2026, compared to 11% in the previous year. Our capital expenditures for the year were $17.8 million, compared to $17.4 million in the prior year, with funds allocated primarily to investments in the Manhattan Active Warehouse Management, the opening of two new stores, and ongoing maintenance. The transition to an asset-based lending facility in 2025 resulted in both lower borrowing costs and greater flexibility. Our net liquidity position has strengthened sequentially over the past three quarters, culminating in $141.3 million in net liquidity at the end of fiscal 2025.

This includes no outstanding debt on the ABL facility and $16.3 million in cash and cash equivalents. Due to improved profitability, better working capital management, and a disciplined approach to capital allocation, we generated positive free cash flow of $16.6 million for the year. This represents a material improvement of $41.8 million compared to 2024. Now turning to our outlook for fiscal year 2026. Our full year guidance is as follows. Net sales are projected in the range of $540 million-$560 million. This forecast anticipates that the first half decline will be similar to the prior year's trend, followed by stabilization in the second half of the year. Adjusted EBITDA in the range of $26 million-$30 million for the full year. Capital expenditures of $12 million allocated between growth, infrastructure, and ongoing maintenance.

Starting with the top-line projection and assumptions. Full-year sales are projected to be approximately -1% to -5% compared to 2025, driven by the continued promotional resets to restore price integrity and annualization of price increases from 2025. This outlook does not assume additional headwinds from changes in the geopolitical environment. In the first half of 2026, we anticipate a sales decline in the range of -6% to -10%, similar to 2025, due to a combination of factors. The declines are driven by ongoing adjustment of our promotional depth and frequency, the annualization of price increases implemented in the second half of 2025, and the decision not to repeat the Big Dam clearance event in February and the wholesale program. These are expected to be partially offset by strength in sales of core items, higher average unit retails, a greater mix of full price sales, and annualization of new store sales. For the second half of 2026, we anticipate sales stabilizing within a range of -2% to +2% as we anniversary the promotional reset and price increases. We will continue to realize the benefits of a higher mix of full price sales from right-sized inventory purchases. This will be further complemented by our edited assortment focused on core products our customers value most and a healthy return on our full funnel marketing investment. Moving on to gross margin assumptions.

We anticipate gross margin for the full year to expand by approximately 100 basis points to 54.4% from continued promotional reset, annualization of price increases, greater mix of full price sales, and sourcing savings, partially offset by annualization of tariff impact. With the ongoing uncertainty regarding the timing and rates of alternate tariffs, our outlook assumes the tariff rates in effect prior to the Supreme Court ruling and does not include recovery of previously paid tariffs. We expect SG&A to reduce in dollars versus prior year, but deleverage by approximately 50-100 basis points as a percent of sales, driven by structural fixed overhead costs and continued investment in advertising. This is partially offset by efficiencies from streamlining the logistics network and store portfolio. We expect optimization efforts to drive greater efficiency moving forward.

We are focused on continuing to right-size our inventory, targeting a 5%-10% reduction driven by a double-digit decrease in our SKU count and disciplined planning to align receipts with the sales plan. We have planned capital expenditures of approximately $12 million, a reduction of almost $6 million versus 2025, capped at 2.2% of sales. This capital is allocated across growth initiatives, infrastructure improvements, and ongoing maintenance. Key investments include the final phases of Manhattan Active Omni for the website and stores, growth capabilities like Apple Pay that drive higher conversion online, and investments in receiving and cross-dock capabilities in Adairsville to fully maximize its utilization. In closing, fiscal 2025 was a defining year for the company, marked by the successful implementation of our strategic turnaround, leading to more robust operations and financial stability.

Moving into 2026, we will build on this strong base characterized by a disciplined promotional strategy, stronger operations, leaner inventory, and enhanced cash flow. Our focus will be on stabilizing sales through increased assortment productivity, ensuring healthy returns on our full funnel marketing investments, and strengthening our brand to retain valuable existing customers while successfully acquiring new ones. We are confident that we have established a resilient foundation capable of delivering sustainable, profitable growth. We look forward to providing a comprehensive overview of our long-term strategy and vision during our first quarter conference call in June. With that, we will now open the call for questions.

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Dylan Carden with William Blair. Please go ahead.

Thanks. I'm just curious on the retail channel holding up better than online. Can you remind us, was that because you started kind of your promotional pullback earlier in that channel? Or, I guess, to what do you attribute the strength? Maybe it's just sort of being in stock. Any sort of further commentary there would be helpful.

Yeah. Hi, Dylan. This is Heena. Thanks for the question. Yeah, I think there are a few key factors that have helped the retail channel. The promotional reset was started at the same time. We have the same pricing online and in stores. But what we see is a greater resilience and less price sensitivity for customers who come to our stores with higher conversion. They are looking for more full price products, willing to pay the better prices and higher average order values. In addition, we had a strategic inventory allocation strategy where we made sure that there was greater in-depth assortment available in stores, and that's why we also saw in-stock go up by over 500 basis points during the peak season.

In addition, we have a fabulous store team that is really serving our customers, as you can tell from our five-star satisfaction reviews, and we have very high conversion rates. All those factors helped the stores not only increase sales, have positive bumps, but also improve profitability for the total portfolio by over 550 basis points.

Dylan, hi, this is Stephanie. The one thing that I would add to what Heena just shared is our marketing efforts. We've seen really positive results in driving traffic to retail locations, both through the full funnel approach. You know, even our upper funnel marketing is driving that awareness that then drives the traffic to the stores. We've also coupled that with more localized marketing in our retail store locations.

Why pace the year sort of down more in the front half, sort of a stabilization in the back half if you're kind of carrying, theoretically carrying that momentum in that channel? Is it just that direct suffers more early on from the sort of promotional reset?

Yes, that's absolutely right. We are assuming positive bumps for retail stores for the full year. The reduction is really coming from digital channel, especially in the first half.

Great. Just on inventory, curious, do you think you need to be? Your turns are kinda two times a year. Do you think is the, sort of the efficiency that you can foresee in the model getting you to four times? Or is there some further reset there on that?

Yeah, I think there are a couple of factors, Dylan, that'll improve our turns over time. One is the reduction in SKUs, so allowing us to be more focused on the products and be able to create more productivity per product or per SKU that we have in the assortment. The second piece of it is, as we continue to become more efficient and productive in our supply chain, and that's all the way through the supply chain from our vendor base to the distribution centers. As we mentioned a day or so, we've been more and more focused on creating a hub there throughout the pipeline so that we can move faster getting our product through the pipeline out to our stores.

That all cuts days and weeks off of the turn assumptions that we have. As we look forward, we'll see improvement this year, but it won't stop there as we become more efficient not only in the supply chain, but how we think about our SKU counts and what we focus on in the assortment.

Excellent. Thank you very much.

Mm-hmm.

This concludes our question and answer session and Duluth Trading's fourth quarter financial results conference call. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the Ocean Power Technologies Fourth Quarter and Full Fiscal Year 2025 Earnings Conference Call. A webcast of this call is also available and can be accessed by a link on the company's website at www.oceanpowertechnologies.com. This conference call is being recorded and will be available for replay shortly after its completion. On the call today are Dr. Philipp Stratmann, President and Chief Executive Officer; and Bob Powers, Senior Vice President and Chief Financial Officer. [Operator Instructions] Now I am pleased to introduce Bob Powers. Please go ahead, sir.

Thank you, and good morning. After the market closed yesterday, we issued our earnings press release and filed our annual report on Form 10-K for the period ended April 30, 2025. Our public filings are available on the SEC website and within the Investor Relations section of the OPT website. During this call, we will make forward-looking statements that are within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include financial projections or other statements of the company's plans, objectives, expectations or intentions. These statements are based on assumptions made by management regarding future circumstances over which the company may have little or no control and involve risks, uncertainties and other factors that may cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. Additional information about these risks and uncertainties can be found in the company's Form 10-K and subsequent filings with the SEC. The company disclaims any obligation or intention to update the forward-looking statements made on this call. Finally, we posted an updated investor presentation on our IR website. Please take a moment to review it as it provides a nice overview of our company and strategy. Now I am pleased to introduce Dr. Philipp Stratmann.

Good morning, and thank you for joining us today. Fiscal 2025 was a transformational year for OPT. We delivered real measurable value in a global market undergoing rapid change, and we entered fiscal year '26 positioned to lead in the sustainable data-driven blue economy. Today, I'll walk you through our most important achievements, the momentum they've created and the opportunities ahead as we execute our strategic growth plan. In fiscal '25, OPT was granted a U.S. Department of Defense Facility Security Clearance at the Secret level, a milestone that significantly expands our eligibility for classified defense work. This clearance not only affirms OPT's compliance with federal security protocols, but also opens the door to high-value multiyear programs where few companies are even allowed to compete. It expands our addressable market and deepens our partnership potential. Let's talk about backlog and visibility. I'm incredibly excited to announce that we entered fiscal '26 with $12.5 million in funded backlog, the highest in our history. This reflects multi-quarter fulfillment of both international defense and commercial contracts and signals strong customer confidence in our solutions and our ability to execute. It is a clear indicator that our strategy is working and that demand is real and growing. Over the past year, we deployed our artificial intelligence capable Merrows and WAM-V platforms across the Middle East, Latin America and the Indo-Pacific, establishing a meaningful global footprint in allied defense and commercial markets. These deployments validate not just demand, but our readiness to deliver. They demonstrate that our autonomous platforms can operate across maritime, surface and subsea domains in some of the world's most demanding environments. That's real-world mission relevance and it sets us apart. We also expanded key partnerships with defense, drone and subsea leaders, including Red Cat, Teledyne Marine and regional integrators in the Middle East and Latin America. These partnerships extend our reach, improve integration and distribution and help reduce customer acquisition costs. They are a force multiplier for OPT, enabling faster scale, broader validation and deeper market access, especially in regions where local partners accelerate our credibility. OPT's WAM-V platforms were selected to participate in the U.S. Navy's Project Overmatch autonomy exercises, one of the Pentagon's most advanced and future-focused initiatives. Our involvement speaks volumes. It reflects a high-trust relationship with the Navy, confirms our alignment with multi-domain interoperable system goals and positions OPT for access to future large-scale defense procurement channels. This year's performance reflects the strength of our disciplined operating model. We're executing with a streamlined team and leaner OpEx structure, yet delivering more for our customers, our partners and our shareholders. By aligning resources with top priorities, we've increased our operating efficiency without compromising our delivery capability or innovation road map. This positions us not only to weather volatility, but to scale with purpose as demand accelerates. We view this phase of lean execution not as a constraint, but as a foundation. With core systems, processes and leadership in place, we are prepared to scale responsibly as opportunities mature. We have retooled our go-to-market engine with purpose and position. Under new leadership, our sales organization has been redesigned to drive mission alignment, speed and scale, not just transactions. We've upskilled the team, deepening their ability to engage on operational needs and procurement realities across defense and maritime domains. At the same time, we've expanded internationally, matching talent to strategic growth corridors in NATO aligned Latin America and Middle Eastern markets. Complementing this internal transformation is a growing network of region-specific resellers, force multipliers who understand local dynamics and are helping us deliver OPT solutions faster and further than ever before. This is not just a strategic investment. It's already delivering results. We're seeing improved customer engagement, higher win rates and increasing traction in markets where we previously had limited presence. This go-to-market evolution is a foundational pillar of our growth strategy, enabling us to solve real-world customer missions at scale. We are taking some important steps to reduce our customer acquisition costs. First, as I just mentioned, we have repositioned our commercial team to place greater emphasis on achieving more scalable, repeatable sales. Second, we are expanding our dedicated demonstration fleet to accelerate customer engagement and close new business in less time and with greater efficiency. Finally, we have realigned our operations and development teams to drive best-in-class customer experience through more innovation and enhanced operational execution. In turn, that empowers us to concentrate more on deepening relationships with existing customers and expanding value-added services like training. Our commitment to continuously strengthen our commercial effectiveness and operational agility underscores our professionalism and readiness as a leading provider in autonomous maritime systems. Becoming an AUVSI Trusted Operator marks an important milestone in this evolution. Additionally, I want to highlight a significant milestone that speaks to the discipline and maturity we're building across OPT. Just 2 weeks ago, we achieved ISO 9001 certification for our quality management system, a globally recognized benchmark for excellence in engineering, manufacturing and service delivery. This is not just a compliance achievement. It is a reflection of OPT's evolution into a scalable, repeatable and process-driven provider of maritime solutions. Whether we are deploying a WAM-V for autonomous ISR missions activating a PowerBuoy for persistent offshore power or integrating Merrows to enhance maritime domain awareness. We are now doing so under a globally standardized framework of quality and continuous improvement. For our customers, ISO 9001 is often a prerequisite for long-term engagement. It is a signal that we're not just innovative but dependable at scale. In fact, we're already seeing this resonate with procurement teams who have told us that certification materially strengthens our position in upcoming opportunities. Internally, this also reinforces our operational foundation as we expand internationally and engage with increasingly complex supply chains and mission profiles. It's about delivering excellence consistently, which is exactly what the market demands from the next generation of maritime intelligence providers. We believe this certification will meaningfully support our growth strategy while deepening the confidence of our partners, investors and customers alike. Finally, fiscal year 2025 brought headwinds, particularly in defense, where election-related uncertainty and the pending administration transition delayed procurement activity. Combined with broader macroeconomic volatility, these factors slowed pipeline conversion, resulting in revenue below expectations and a shortfall against our Q4 calendar '25 profitability target. Still, OPT ended fiscal '25 with strong momentum, record backlog, a growing pipeline and increasing demand across core markets. These results reflect the strength of our positioning and the resilience of our team. We remain confident that fiscal '26 will mark a step function in execution as we advance towards sustained growth, profitability and long-term value creation. In closing, we have turned the corner. OPT is no longer just about wave energy. We provide full-service maritime domain awareness that is persistent and deployed from platforms that enable multi-asset capabilities. We have become a multi-solution platform company, one that's enabling customers to operate further offshore, stay deployed longer and lower costs through intelligent autonomy. Our strategy has been simple but disciplined, diversify, scale and improve margins. We've moved beyond grant-funded R&D into real commercial contracts. We've expanded into defense, energy and international markets, and we're focused on repeatable, scalable services that drive long-term value. We're not pitching potential, we are executing. Every contract validates our pioneering efforts to develop our model. We are well positioned to meet all challenges in our prosperous horizons and capitalize on the heavy lifting completed to date. The technology has proven is continuing to accelerate. The customers are buying. With capital in hand, platforms in the water and a growing global footprint, OPT is no longer proving it's scaling. Thank you for your continued support. I will now turn it over to Bob, who will walk through our financial performance in more detail.

Thanks, Philipp. Let's begin with our financial performance for the year. Fiscal 2025 was a record year for revenue. We generated $5.9 million, a 7% increase over the $5.5 million recognized in the prior year. What makes this growth especially meaningful is that it was achieved alongside a 26% reduction in operating expenses, which I'll cover in more detail shortly. The revenue growth reflects the strength of our strategy, the discipline of our execution and the growing demand for OPT's autonomous and maritime solutions. One of the biggest drivers was our expansion in Latin America, which made a meaningful contribution to both our FY '25 revenue and the $12.5 million in backlog Philipp referenced. This underscores our focus on diversifying revenue across high-growth international markets, and we believe it sets the stage for future expansion. Looking ahead, scaling revenue remains a key priority as we convert backlog into deliveries and expand into new channels. Our focus remains squarely on delivering consistent performance and long-term value for shareholders. Turning to expenses. Operating expenses for fiscal 2025 totaled $23.4 million, down 27% from the $32.2 million in FY '24. This $8.8 million reduction reflects deliberate organization-wide efforts to optimize headcount, reduce third-party costs and tighten expense control across all functions. This level of cost discipline, combined with top line growth shows that we're building a model with meaningful operating leverage, a critical step towards sustainable profitability. As a result, our loss for the year improved by 22% from $27.5 million to $21.5 million. This progress shows we're staying disciplined with spending while still growing the business and meeting our customer commitments. On the balance sheet, as of April 30, 2025, our total cash position, including cash, restricted cash, equivalents and short-term investments stood at $6.7 million compared to $3.2 million for the close of FY '24. Just after year-end, we further strengthened our liquidity by securing a $10 million unsecured debt financing from an institutional investor. This investment represents a clear market endorsement of OPT's platform, technology road map and long-term value creation strategy. Their participation not only bolsters our capital base, it also equips us to execute on our record backlog, scale up international operations and pursue near-term profitability with greater confidence. On cash flow, net cash used in operating activities for the year was $18.6 million, an improvement of over 38% compared to the $29.8 million in FY '24. This reduction reflects the impact of our cost management initiatives, but partially offset by final payouts related to bonuses and earn-outs accrued in the prior fiscal year. That concludes our financial update. We're encouraged by the demand signals we're seeing across defense and commercial markets and energized by the progress we've made. As Philipp noted, new initiatives, particularly our strategic partnerships and international deployments position us to capitalize on momentum, expand our customer base and continue advancing towards scalable recurring growth. As we move into Q1 of FY '26, our focus is on executing backlog deliveries, converting demonstrations into multiyear deals and maintaining tight expense control. Thank you again for your support.

[Operator Instructions] Our first question is coming from Glenn Mattson from Ladenburg Thalmann.

Congrats on the strong growth in backlog and pipeline. I'm curious a little bit more about the pipeline. Just can you give us some understanding and background about how you compile that number and just some background around the conversion and how well -- how mature some of that is? So just color on that would be great.

Yes, absolutely. Glenn, thanks for being on. The way -- as you've seen, the way we look at our pipeline, it is everything that is an actual opportunity where we're under discussions with a customer. With the retooling of the commercial team, and you've seen we recently onboarded a new SVP for Commercial, Jason Weed, who's a retired U.S. Navy captain and others that we've brought on. We've really positioned the company to now start increasing and accelerating the conversion rate as we're looking at what is a qualified opportunity or opportunity under negotiation with the customer to then focusing on the delivery portion of the pipeline and then converting that to revenues. With the key appointees in the present administration in place, we feel very confident about seeing an increase in the conversion rates. And equally, as the world starts recognizing that a hybrid fleet and unmanned operations in the ocean are a critical portion of operations, we look forward to participating in that. So I think as we stated, these are qualified opportunities, opportunities under negotiation, and we are increasing -- or we're feeling confident about increasing the conversion rate as we move through the current fiscal year.

And then I guess as a follow-up, the -- you've done a great job cutting costs. Can you just talk about your capacity and ability to meet demand should it accelerate faster than you expect or...

Yes, absolutely. We've got -- obviously, we've got the facility in New Jersey, where we got just under 60,000 square feet. We got our smaller prototyping facility in the Bay Area in Northern California. And under the leadership of our operational team, we have redesigned the layout of parts of our facilities so that we can scale up more quickly. But obviously, as you pointed out on the cost cutting, we're doing so in a way that is conscious of working capital. so that we can convert as and when required without front-loading too much into inventory prior to starting the conversion.

Next question is coming from Peter Gastreich from Water Tower Research.

Peter from Water Tower. So congratulations to the team on your results and executing on your strategy in 2025. It's really great to see this meaningful momentum in your backlog and also the cost cuts. It looks like you're well positioned starting off in 2026. I just have a couple of questions. One on the backlog and the other is on the gross margin. Just related to the backlog, could you talk -- first of all, so thanks for the previous question on that as well. But could you please talk about the breakdown of the backlog in terms of product type? Any type of color you can give on that would be great.

Thanks for being on, Peter. And it is -- what we are pleased with in the backlog is the fact that it is a very healthy split between buoys, vehicles and associated services. What we're also starting to see, and as I mentioned in my remarks earlier, with becoming an AUVSI Trusted Operator, we're seeing an uptick in service revenues related to training that are sitting in -- starting to sit in backlog and certainly sitting in the pipeline. So we feel good about the fact that this is not based on one single one of our solution, but truly is part of what we set out to do, which is deliver autonomous persistent and resident ocean intelligence, whether that is buoys, vehicles, enabled software that sits at the edge across them or whether it is services that are related to getting these items deployed.

Okay. And yes, just a question on the gross margin. So over the last year, your gross margin was on the decline and -- just looking out towards your backlog right now and eventually having that feed through, how should we be thinking about how your gross margin would be evolving sort of broadly going forward?

Yes. I think we're seeing an uptick again where gross margin is going to start heading. Some of that has been related to the fact, as Bob mentioned, we've been working on projects such as Overmatch and others, which have been revenue generating, but more focused on larger scale demonstration efforts. As we transition further into operational use of the systems, we look forward to seeing that corresponding uptick in gross margins, which are driven to some extent by the service revenues that I just mentioned as those, a, they're recurring; and b, they do carry with them a higher gross margin when we start delivering them.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you for being a shareholder and for supporting our ongoing growth and execution of our strategy. We look forward to continuing to deliver for you, our customers and all of our stakeholders. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.