The Cardano community has made an important call to major crypto exchange Coinbase. This follows a clarification on asset listings made by Coinbase CEO Brian Armstrong in the past week.

On Friday, the Coinbase CEO shared with the crypto community that the crypto exchange has published a “Guide to the Digital Asset Listing Process” in a bid to enlighten crypto project users. This, according to the Coinbase CEO, was necessitated by the exchange getting a ton of questions about how and why assets get listed, and in order to boost transparency, the guide was then written.

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According to the guide, applications for listings are free, merit-based and evaluated under the same standards,  with review times ranging from hours to months, depending on complexity and completeness.

Cardano community makes crucial call

Aside from Binance and Upbit, Coinbase accounts for one of the largest trading platforms for Cardano’s ADA, with the crypto exchange expanding its support for the digital asset.

In June 2025, Coinbase launched its wrapped Cardano token, cbADA, on Ethereum layer-2 network Base, enabling Cardano holders to access the DeFi ecosystem.

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While ADA is gaining ground on the Coinbase crypto exchange, the same cannot be said for native assets on the Cardano network. Since the Mary ledger upgrade, Cardano has supported multi-assets, referred to as native tokens or assets.

In line with this, Cardano focused community X account, Cardanians, makes a call to Coinbase, imploring it to start listing Cardano native assets/tokens, stating it is time the Cardano ecosystem gets the recognition it deserves.

In separate news, Cardano Founder Charles Hoskinson believes Cardano’s best days are ahead of it. “Now we have a constitution, hundreds of DReps, and a ratified budget. We’ve done all this in just one year.Imagine what we can achieve in the next 3–5 years,” the Cardano founder stated.

Image source: The Motley Fool.

DATE

Wednesday, Sept. 3, 2025, at 8 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Mary Ellen Coyne
• Chief Financial Officer — Mark Webb

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

• Mark Webb stated, “Gross margin (GAAP) was 68.4%, down about 210 basis points versus Q2 FY2024, primarily due to a higher mix of markdown sales and increased full-price promotional rates.” There was also an additional negative impact of approximately 50 basis points from tariffs in Q2 FY2025.
• Mark Webb reported, “Guidance for Q3 FY2025 assumes approximately $5 million of incremental impact from tariffs, net of vendor-negotiated offsets,” signaling total gross margin headwinds in the coming quarters if current tariff policies persist.
• Management indicated potential gross margin compression ahead, stating, “Gross margins are assumed to be down compared to last year, more than experienced in Q2, driven primarily by tariff pressure,” for Q3 FY2025.

TAKEAWAYS

• Total Company Sales— $154 million in total company sales for Q2 FY2025, representing a 0.8% decrease from Q2 FY2024.
• Total Company Comparable Sales— Down 1% for the second quarter of fiscal 2025, with sequential sales trend improvements each month.
• Store Sales— Increased by 0.4%, partially driven by three net new stores versus Q2 FY2024.
• Direct Sales— Accounted for about 46% of total sales and declined about 2% year over year.
• Gross Profit— Gross profit was $105 million, down approximately $4 million from Q2 FY2024.
• Gross Margin— 68.4%, a decline of roughly 210 basis points, primarily due to an increased mix of markdown sales, elevated promotional intensity, and 50 basis points of tariff-related pressure.
• SG&A Expenses— SG&A expenses were about $89 million, up from approximately $86 million in Q2 FY2024, attributed mainly to higher store, occupancy, shipping, non-recurring, and marketing costs, partially offset by lower management incentive accruals.
• Adjusted EBITDA— $25.6 million, down from $30.2 million in Q2 FY2024.
• Adjusted Net Income per Diluted Share— $0.81, down from $1.05 in Q2 FY2024; Share count was 15.3 million versus 15.1 million in Q2 FY2024.
• Free Cash Flow— $17 million of free cash flow was generated, with a closing cash balance of $46 million.
• Inventory Position— Ended about flat year over year, excluding tariffs; including tariffs, total reported inventory was up about 5% from Q2 FY2024.
• Share Repurchases— 68,000 shares repurchased for approximately $1 million; year-to-date repurchases totaled 255,000 shares for $4.5 million as of Q2 FY2025, with $20 million remaining authorized.
• Quarterly Dividend— $0.08 per share dividend paid on July 9, with approval for next dividend to be paid Oct. 1 to shareholders of record as of Sept. 17.
• Capital Expenditures— $3 million in capital expenditures, mainly for stores and ship-from-store capability rollout.
• Store Count— 247 stores at quarter-end versus 244 a year ago, following the closure of two stores and no new openings during the quarter; Two openings are planned for late Q3 FY2025, with full-year net new store guidance at one to five.
• Ship-from-Store Capability— Launched across all stores during July, designed to capture previously unfulfillable demand and support gross margins.
• Tariff Impact— Average sourcing tariff rates are now 20% for the largest countries and 50% for India, versus previous assumptions of 10% globally and 30% for China (as of Q3 FY2025); Quarterly incremental tariff impact is estimated at $5 million net of vendor offsets for Q3 FY2025, with annualized exposure around $20 million if conditions persist.
• Q3 2025 Outlook— Adjusted EBITDA guidance is $18 million to $22 million for Q3 FY2025, sales are expected to be flat to down low single digits, comps down low to mid-single digits, and gross margin decline in Q3 FY2025 is expected to be greater than in Q2 FY2025, primarily due to tariff pressure.
• Strategic Priorities— Management is focused on evolving product assortment for broader appeal, enhancing the customer journey through new marketing initiatives (including local television tests), and operational optimization, including technology upgrades and a new non-tender loyalty program launch planned for the back half of 2025.

SUMMARY

J. Jill (JILL -2.25%) management reported a modest revenue decline, with sequential sales trend improvement in Q2 FY2025, but significant gross margin compression in Q2 FY2025, resulting from elevated promotions and increased tariff exposure. Cash flow and share repurchases remained healthy, with capital expenditures invested in omnichannel capabilities and store productivity.

• The company finalized its Order Management System implementation and completed a full ship-from-store rollout, with management emphasizing operational agility and speed as key improvements from these projects.
• Marketing tests — including a local television campaign — demonstrated “tremendous impact,” prompting management to adjust the marketing mix toward more flexible, broad-reach channels aimed at new customer acquisition in the second half of FY2025.
• A new, non-tender customer loyalty program is expected to launch in the second half of the year to supplement the highly penetrated GACC credit card rewards audience and further expand the customer base.
• Despite cost headwinds, the company remains committed to shareholder returns via continued dividend payments, opportunistic share repurchases, and preservation of debt flexibility, with $20 million of repurchase authorization remaining as of Sept. 3, 2025, with funded debt at $70 million.

INDUSTRY GLOSSARY

• OMS (Order Management System): A technology platform used to manage and fulfill customer orders across various channels, improving inventory accuracy and fulfillment efficiency for omnichannel retailers.
• Ship-from-Store: A retail fulfillment capability allowing stores to fulfill and ship online orders directly to customers, expanding inventory availability and reducing lost sales from out-of-stock items online.
• GACC (J.Jill Credit Card Program): J.Jill’s proprietary credit card program, referenced as a key driver of customer loyalty and sales penetration.
• Non-Tender Loyalty Program: A customer rewards program that does not require a proprietary credit card, designed to attract and retain a wider customer segment beyond credit cardholders.

Full Conference Call Transcript

Mary Coyne: Good morning, everyone, and thank you for joining us today. With my first full quarter as CEO of J.Jill completed, I want to begin by thanking our team for their dedication and support. Since joining in May, I’ve had the opportunity to dive deeper into all aspects of our business, and I remain confident in the significant opportunities ahead, despite navigating some near-term challenges. In the second quarter, sales trends sequentially improved month over month, enabling us to deliver total sales down less than 1% and an adjusted EBITDA of $25.6 million.

Improved traffic, both online and in stores, supported this performance, as well as increased promotional activity, which we leveraged to better align inventory to sales trends as we entered the back half of the year. I am energized by what I see, having had 100 days to assess this business. We serve a growing and valuable demographic. We have a deep understanding of this customer segment and have therefore developed a loyal customer base. We operate with discipline, which has allowed us to consistently deliver high margins and generate significant free cash flow. We will continue to lean into these strengths and position the brand to drive long-term profitable growth.

To do this, we must expand our customer file, attracting a significant number of new customers, re-engaging those who have shopped with us before, and continuing to delight our existing loyal customer base. In the near term, we plan to move quickly but thoughtfully, testing new initiatives and leaning into those that work to deliver on our objectives, and widening the aperture of our focus to appeal to a broader audience. Concentrating on driving customer growth, we will execute immediately on three areas: one, evolving our product assortment; two, enhancing the customer journey; and three, improving the way we work.

With respect to product, we need to widen the appeal of our assortment to attract new customers while continuing to deliver newness that is relevant and versatile to fit her lifestyle. Our new Chief Merchandising Officer, Courtney O’Connor, has been partnering closely with Creative Director Elliot Staples and the Design Merchandising and Planning team to develop a compelling assortment for spring 2026, while making subtle refinements in the product assortments and presentations for fall and winter this year. We are going to focus on delivering a stronger, more cohesive product assortment moving forward, eliminating redundancy to incorporate new styles that serve more of the customer’s lifestyle needs to capture a greater share of her wardrobe.

As we make these enhancements, we will also be leaning into expansion opportunities in areas such as accessories, building on what is currently a small but highly scalable business. Moving to our second area of focus, enhancing the customer journey, we are evaluating ways to expand our reach to capture the full marketing funnel: top, middle, and bottom. We just recently completed a small test with television advertising, and for the back half of this year, we made adjustments to the marketing mix, enabling greater flexibility to engage a wider audience.

In addition, as we evaluate the right balance across our marketing channels, we have reshot certain imagery for the second half of the year that you will begin to see across digital media, catalogs, in stores, and online soon. We run highly profitable stores, which also serve as a great marketing vehicle for the brand. They allow us to tell our product story to both new and existing customers, and we are excited for our upcoming store openings later this fall. We are confident in our long-term goal to open 50 stores by the end of 2029.

As we execute on this objective, we are constantly evaluating opportunities for store locations focused on driving productivity, welcoming new customers, and increasing brand awareness. We know the opportunity that is in front of us, and it is one that our whole organization is rallying around. To support this, we are focused on improving the way we work, leaning into technology capabilities that will enable us to work smarter, faster, and more effectively. This includes building a strategic technology roadmap, incorporating opportunities for AI implementation in order to accelerate growth, gain efficiencies, and improve the customer experience.

We’re fostering a corporate culture that isn’t just about process improvement, but about the agility and urgency needed to capitalize on the opportunities ahead of us. The team did a great job in executing the implementation of Order Management System (OMS), and we are pleased to share that we launched the new ship-from-store capabilities well ahead of plan and in time for the fall and winter season launches. As we continue to evolve the brand and progress forward, we are in the office collaborating with one another. There’s a palpable energy across the organization.

In summary, I believe through the actions and strategies we are putting in place, we are addressing the right priorities, enabling us to build on the strengths of our proven operating model while capitalizing on the areas that will drive sustainable, profitable growth. With that said, we are continuing to operate in a very dynamic and uncertain environment, particularly as it relates to inflation and tariffs. In response, our team is leveraging our strong relationships with vendor partners and staying nimble and responsive as we navigate the evolving macro landscape. As we look toward 2026 and beyond, we are excited to write the next chapter, building a stronger, more agile business to deliver enhanced shareholder value.

I look forward to updating you on our progress. Now, I’ll turn it over to Mark for a detailed review of our financial performance.

Mark Webb: Thank you, Mary Ellen, and good morning, everyone. Following a challenging start to the second quarter, we were encouraged that sales trends stabilized and improved into June and July. We remained committed to our disciplines during the quarter, assessing slow-moving inventory units and taking action when necessary, resulting in improved end-of-quarter inventory levels compared to the end of Q1. We rolled out ship-from-store, our first omnichannel capability post-OMS Go Live, extending it to the entire fleet during the month of July. Our operating model continues to demonstrate its strength and resilience, generating $17 million of free cash flow in the quarter, resulting in end-of-quarter cash on the balance sheet of $46 million.

Now, let me provide more details on our second quarter results. Total company sales for the quarter were about $154 million, down 0.8% compared to Q2 2024. Total company comparable sales for the quarter were down 1%. Store sales for Q2 were up 0.4% compared to Q2 2024, driven by three net new stores in the quarter compared to last year. Direct sales, which represented about 46% of total sales in the quarter, were down about 2% compared to the second quarter of fiscal 2024. As mentioned, sales trends improved each month of the second quarter.

This was in part due to positive customer response to the summer sale in July, which helped clear markdown goods and end the quarter with clean inventories. Q2 total company gross profit was about $105 million, down about $4 million compared to Q2 2024. Q2 gross margin was 68.4%, down about 210 basis points versus Q2 2024, driven primarily by a higher mix of markdown sales and higher full-price promotional rates as we took action and successfully moved the liable inventory we carried into the quarter. Gross margin rate was also pressured by approximately 50 basis points related to tariffs. SG&A expenses for the quarter were about $89 million compared to approximately $86 million last year.

The increase was driven by higher store expenses, driven by net new stores and higher occupancy costs on lease renewals, higher shipping expenses, non-recurring costs, and higher marketing expenses, partially offset by lower management incentive accruals and OMS-related costs, which were slightly below last year at about $300,000 for the quarter. Adjusted EBITDA was $25.6 million in the quarter compared to $30.2 million in Q2 2024. Interest expense was $2.7 million in Q2 compared to $3.7 million last year. Adjusted net income per diluted share was $0.81 compared to $1.05 last year, which reflected an average weighted diluted share count of 15.3 million shares this year versus 15.1 million shares last year.

We repurchased 68,000 shares for approximately $1 million in the second quarter, bringing year-to-date repurchases to 255,000 shares for $4.5 million, resulting in approximately $0.01 benefit to reported second quarter adjusted diluted EPS. As of September 3, we have approximately $20 million remaining on the $25 million share repurchase authorization. We also paid our quarterly dividend of $0.08 per share on July 9, and as announced on August 27, our board approved payment of the Q3 dividend on October 1 to shareholders of record as of September 17. Please refer to today’s press release for reconciliations of non-GAAP financial measures to their most comparable GAAP financial measures.

Turning to cash flow, for the quarter, we generated about $19 million of cash from operations, resulting in ending cash of about $46 million. Looking at inventory, we successfully cleared excess inventory units during the quarter, ending the second quarter with inventories about flat to last year, excluding the incremental costs associated with tariffs, including the costs of tariffs in both on-hand and in-transit inventory. Total reported inventory is up about 5% compared to the end of the second quarter last year. Capital expenditures for the quarter were about $3 million compared to $2 million last year.

Investments were focused primarily on stores and the project to launch ship-from-store capabilities, which rolled out during the quarter and are now active in all stores across the fleet. We are excited to have this omni-capability enabled. It will help drive sales growth and support gross margins as previously unfulfillable demand is fulfilled. With respect to store count, we closed two stores during the second quarter. We did not open any new stores in the quarter, resulting in an end-of-quarter store count of 247 stores compared to 244 stores at the end of Q2 last year. Now, turning to our outlook.

Under the current global trade agreements, we now have more visibility to the impact of tariffs on our cost of goods sold and are working levers to mitigate the impact as much as possible. While there remains some uncertainty with how all of these actions by us and others across the industry will impact the U.S. consumer, we are providing certain guidance metrics for the third quarter of fiscal 2025, as detailed today in our press release. For the third quarter, we expect adjusted EBITDA to be in the range of $18 to $22 million.

This range assumes sales will be about flat to down low single digits for the quarter, and comps will be down in the low to mid-single digits. Gross margins are assumed to be down compared to last year, more than experienced in Q2, driven primarily by tariff pressure. With respect to tariffs, rates for our largest sourcing countries have landed on average around 20%, with India now at 50%. This compares to our prior assumption of 10% on all countries and 30% on China. Given these elevated rates, our guidance for the third quarter assumes approximately $5 million of incremental impact from tariffs, net of vendor-negotiated offsets.

We would assume a similar level going forward on a quarterly basis should current tariff policies remain in place. As Mary Ellen mentioned, we are working multiple levers to mitigate the impact as much as possible, including negotiating savings offsets with our vendors, adjusting on-order quantities, and strategically reviewing promotion and pricing strategies to drive higher average unit retails. With respect to capital expenditures for the year, we continue to expect spend of between $20 and $25 million. Regarding store count, we still expect to open between one and five net new stores this year, with two new stores planned to open toward the end of the third quarter.

As demonstrated year to date, the business continues to generate strong free cash flow, and we remain committed to our strategies to support total shareholder returns, which includes paying our dividend, repurchasing shares, and paying down debt. As previously mentioned, we announced our quarterly dividend of $0.08 per share payable on October 1 to shareholders of record on September 17. We have repurchased approximately 255,000 shares year to date, including the repurchase of 68,000 shares in Q2 for about $1 million. We will continue to opportunistically repurchase shares under the remaining $20 million of our $25 million authorization.

With funded debt currently sitting at $70 million on the balance sheet, with plenty of term remaining, we have ample flexibility and will continue to opportunistically evaluate refinancing options. Importantly, as Mary Ellen mentioned in her remarks, we are encouraged by the opportunities in front of us. We will continue to operate the business with discipline and are committed to making strategic investments this year to sharpen our brand voice through evolved and focused product assortments and a refined marketing approach to build our customer file and drive profitable growth. Thank you. I will now hand it back to the operator for questions.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question today comes from the line of Jonna Kim from TD Cowen. Your line is open.

Jonna Kim: Hi. Thank you for taking my question. Would love additional color around what drove the improvement in June and July. Mark, on tariffs, how should we think about sort of the annualized tariff impact next year as you mitigate some of the impact that you have this year? Would love additional color there. Thank you very much.

Mark Webb: Great. Thanks, Jonna. I’ll jump in and maybe also provide some color as needed. The performance in Q2 was really driven by clearance activities coming out of the sort of slowdown we saw at the end of Q1, beginning of Q2, and really committing to our discipline to drive markdowns and promos as necessary. We saw a good customer response to that, really good response to the sale in July. That was what was behind the trends that we saw in Q2. Underneath that, traffic improved a little bit, conversion improved a little bit, which is not uncommon with elevated levels of promotion and markdown at the end of Q2.

Tariffs, what we’ve indicated, Jonna, is that tariffs really net of vendor-negotiated offsets of about $5 million in Q3 we expect will roll forward for the most part in the quarters to come. I think there’s, without giving the specific answer, the annualized portion of the $5 million annualizing closer to $20 million. That’s probably the best math at this point. Of course, we’re working other levers around the on-order adjustments, as well as strategic pricing and promotions that over time may mitigate the absolute dollar amount of that tariff hit on a quarterly basis.

Jonna Kim: Got it. Just one question. In the second half, do you expect promotional level to be in line or elevated versus last year? Any thoughts there would be helpful. Thank you so much.

Mark Webb: Yeah, it’s a good question. I mean, the landscape from here forward somewhat changes from the landscape through the first half because now we’re in sort of the tariff part of the year. Our expectation is, as we mentioned previously, our unit receipts in the back half are bought down closer to the mid-single digits. The sort of supply side is adjusted. The expectation would be that our strategic pricing actions, as well as tighter promotions, help to offset some level of those tariffs. We stand ready.

In all honesty, the guidance range that we provided for Q3 assumes a range of outcomes with specific respect to the receptivity of the customer to those pricing actions that we’re taking, knowing that we’re not the only ones. That level of macro uncertainty is what’s sort of coloring the range of guidance, the low end being low receptivity to our pricing increases and the high end being a more receptive customer to the price increases.

Jonna Kim: Got it. Thank you.

Mark Webb: Thanks.

Operator: Your next question comes from a line of Corey Tarlowe from Jefferies. Your line is open.

Corey Tarlowe: Great. Thanks. Good morning. Mary Ellen, could you maybe talk a little bit about kind of 100 days into the business at this point, where you see opportunity for change, where you see opportunity to accelerate innovation, what’s working in the business, and then maybe other areas or trends you’ve seen quarter to date that you might want to shed some light on? Thanks so much.

Mary Coyne: Good morning, Corey. Yes, super excited after 100 days and having had a moment to assess the business. I’m very pleased to report that we are already seeing cultural shifts within the organization, ship-from-store being the most recent example where the team’s work together, greater sense of urgency and purpose, and delivered results well ahead of schedule. We are excited to see that in terms of the momentum and the team efforts here. As we look forward, our focus is on growing the customer file. That is truly what our goal is. There are three immediate areas of focus that we know we need to do that.

It’s the product, it’s the customer journey, and it’s the way we work that I just referenced. Changes and innovation that we’re working on right away are around marketing mix and attracting more customers. We know that we have an incredible demographic. She holds the largest wealth in this country. It’s a growing segment. She’s incredibly loyal to the brand she loves, and she wants to look more stylish today than ever. We are very excited that we have a base of a loyal customer, and the opportunity ahead of us immediately is to really think about the marketing mix that will add to that customer file.

In terms of what’s working right now, we are in the back half of this year making slight refinements to our presentations, both in-store and online, and to our assets that will be shared, both catalog and digital. The focus really is on 2026 and how we drive compelling assortments to attract this customer.

Corey Tarlowe: Great, thanks so much. Mark, could you maybe walk us through some of the puts and takes in margin? Obviously, tariffs was one that was already addressed and talked about, but are there any other considerations in the back half of this year? How do you see the path to kind of the high teens EBITDA margin continuing and sustaining over the long term? What do you think the key drivers are to get you there?

Mark Webb: Yeah, Corey, good questions. Look, I think in the back half of the year, the primary margin story comes down to tariffs. Part of that is the strategy that we’re deploying on the strategic pricing and selective pricing. The goal really is to offset the dollar amount of the tariffs versus trying to mark it up and maintain the rate. That carries with it, out of the gates, full receptivity to the pricing increases margin pressure. As I mentioned, we’re providing the closer-in outlook for Q3 that has a range of expectations around that receptivity. That’s the primary.

Underneath the covers, there are some opportunities to offset that through the level of promotions executed in the business, the fact that the inventories are bought, as I mentioned, down in the back half of the year, which we feel is a prudent way to position the inventories.

That is enabling us to continue to manage the business with the discipline of the operating model on display, still cash-generative, and allowing us to make these investments, which to your last question is really the path for us going forward to invest, as Mary Ellen said, in expanding the customer file, the breadth of the assortment, the appeal of the assortment, and the marketing mix is really the opportunity to drive profitable growth deliberately in the coming year, which will be the kind of the go-forward story to drive that performance back into the business.

In the meantime, we continue those investments and continue to generate the cash and distribute the cash in support of our TSR strategies, as evidenced by the dividend and the share repurchase activity to date.

Corey Tarlowe: Great, thanks so much, and best of luck.

Mark Webb: Thanks.

Jonna Kim: Thank you.

Operator: Again, if you’d like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Janine Stichter from BTIG. Your line is open.

Janine Stichter: Hi. Good morning. Mary Ellen, I just wanted to get your thoughts on the state of your consumer. I know your consumer tends to be pretty headline sensitive, and they weren’t feeling great at the start of Q2. Outside of some of the noise you saw from promotions in Q2 that did drive sequential improvement, how is she feeling today?

Mary Coyne: Good morning, Janine. Thanks for the question. What we’re seeing is the consumer slowly return. We saw that, again, sequentially month over month in Q2, and we’re optimistic as we’re heading into Q3. I believe as the tariff noise has settled, we have seen our comeback into the business, which is very exciting for us.

Janine Stichter: Great. I just wanted to clarify around the back half promotional levels. Inventory is clean, but obviously, your consumer still is selective and price sensitive. Would you expect promotions to be up year over year in the back half, down, or is that still part of the range of outcomes you’re contemplating?

Mary Coyne: As Mark said earlier, that will really depend on the consumer acceptance with our brand as well as our peers of the price increases. The range that we’ve put out there, sort of the high end is she’s very accepting because we were strategic and thoughtful about where we increased prices. On the low end is that she is more resistant to the overall cost of purchases moving forward.

Janine Stichter: Great, thanks so much, and best of luck.

Mary Coyne: Thank you.

Operator: Your next question comes from the line of Marni Shapiro from The Retail Tracker. Your line is open.

Marni Shapiro: Hey, guys. Nice improvements here, at least in getting some traffic back in the stores. I’m curious if you could talk a little bit. You upgraded your POS systems. Will you, I guess, upgrade, modernize, change anything with inspired rewards? I think you have a pretty loyal customer, as far as I recall. Will you use that to sort of expand your base of customer? I just have one follow-up on that, if you wouldn’t mind.

Mary Coyne: Sure. Marni, yes, we are very happy to have POS and Order Management System (OMS) implementations behind us. The team is currently working on drafting a reward program that is non-tender because, as you know, right now, the GACC, our own credit card program, is highly penetrated to our sales and a very loyal audience. We do have many programs for them. As I said, the team is working on one that’s non-tender and one that we will have rolled out in the back half of the year.

Marni Shapiro: Fantastic. You said you were going to launch, you launched some TV or you were testing some television. I’m curious what your thoughts are on social media content in real-life events. I feel like your customers, when I’m in your stores, they’re all talking to each other. I’m curious what you think about those two aspects to grab people into your stores.

Mary Coyne: Great question. We are very clear that we need to get our message out to more people to drive awareness, all levels of the funnel. We would say particularly really looking at top and middle, as we’ve been converting very well on the bottom to grow the customer file. The television test was very small, and it was very local. It is super exciting for us because it did have a tremendous impact. As we look forward to changing the marketing mix, we will absolutely be looking to what you were talking, you know, more digital, more direct interaction. That mix going forward will be very different.

Honestly, we’ll be testing strategically in the back half of the year to really understand how we can free up some resources to really engage these new to brands and react, as opposed to focusing only on our existing file.

Marni Shapiro: Fantastic. Can I sneak in just one more? I don’t know if I’m projecting onto your stores, but in the last, I think, two weeks, even last week and a half, the stores already look different. They look cleaner. The front of the store looks different. I don’t want to say younger, maybe more modern, the way things are paired. Am I projecting onto it, or have you already made changes in the merchandising without changing the product?

Mary Coyne: Marni, I love this question. Yes, for the back half of the year, as we have said, because the product was already locked in, what we have done is change the presentation. Both in stores and online, and to your point, making it much easier for the customer to shop, cleaner color stories. Honestly, we’ve rethought what we’re doing in windows to make them more compelling. Yes, we are seeing a positive response so far. Very glad to hear that people are noticing. Thank you.

Marni Shapiro: Fantastic. Thanks, guys.

Operator: That concludes our question and answer session. I will now turn the call back over to Mary Ellen Coyne for some final closing remarks.

Mary Coyne: Thank you all for joining us today. We are focused and committed to executing on our objectives, and we look forward to speaking with you again on our next earnings call.

Operator: This concludes today’s conference call. Thank you for your participation, and you may now disconnect.

Image source: The Motley Fool.

Date

Tuesday, Sept. 2, 2025, at 8 a.m. ET

Call participants

• Chief Executive Officer — William Li
• Chief Financial Officer — Stanley Qu
• Investor Relations — Rui Chen

Need a quote from a Motley Fool analyst? Email [email protected]

Takeaways

• Vehicle deliveries— 72,056 smart EVs delivered in Q2 2025, representing 25.6% year-over-year growth.
• Revenue— Total revenue of RMB19 billion for Q2 2025, up 57.9% quarter over quarter.
• Vehicle sales— RMB16.1 billion in vehicle sales for Q2 2025, reflecting 2.9% year-over-year growth and a 62.3% quarter-over-quarter increase in vehicle sales revenue.
• Other sales— RMB2.9 billion for Q2 2025, a year-over-year growth of 62.6% and a 37.1% increase quarter over quarter.
• Vehicle gross margin— 10.3% vehicle margin.
• Overall gross margin— 10% overall gross margin.
• Non-GAAP operating loss— Adjusted loss from operations was RMB4 billion (non-GAAP), down 14% year over year and 32.1% quarter over quarter (adjusted, non-GAAP).
• Non-GAAP net loss— Adjusted net loss was RMB4.1 billion (non-GAAP), decreasing 9% year over year and 34.3% quarter over quarter (adjusted net loss, non-GAAP).
• Q3 delivery guidance— Management expects 87,000 to 91,000 deliveries, representing 40.7%-47.1% year-over-year growth.
• Q4 delivery target— The company targets average monthly deliveries of 50,000 units, for a quarterly target of 150,000 units across three brands.
• Q4 group vehicle gross margin target— Management expects 16%-17% group vehicle margin, with L90 and ES8 targeted at 20% each.
• R&D expenses— Non-GAAP R&D expense guided at RMB2 billion per quarter for Q3 and Q4.
• SG&A expenses— Non-GAAP SG&A guided to be within 10% of sales revenue in Q4.
• Non-GAAP breakeven guidance— The company expects group non-GAAP operating breakeven in Q4.
• Third-generation platform highlights— CEO Li cited high-voltage architecture, lightweight battery packs, and in-house smart driving chip as major contributors to cost and product efficiency.
• Production ramp— L90 supply chain capacity targeted at 15,000 units per month in October.
• No new model launches for remainder of 2025— Management said no additional model launches or deliveries are planned for the rest of the year, citing full production allocation to existing models.
• Firefly brand— Over 10,000 Firefly deliveries within three months, now the top-selling model in the high-end small bath market.
• Charging & swap network— 3,542 power swap stations and over 27,000 charging points deployed worldwide as of July 2025.

Summary

NIO(NIO 0.78%) reported a 57.9% sequential increase in total revenue, driven primarily by expanding vehicle deliveries and substantial contributions from other sales, including used vehicles, R&D services, and after-sales support. Management reaffirmed momentum with a delivery outlook of up to 91,000 units for Q3 and set aggressive Q4 production targets for the L90 and ES8 models. Cost optimization is being achieved through a revamped organizational structure and deployment of self-developed technology platforms, which underpin sequential improvement in operating and net losses on a non-GAAP basis. The company highlighted non-GAAP targets for Q4 vehicle margin (16%-17%) and brand-level margins (20% for key new models), together with breakeven guidance on a non-GAAP basis, supported by disciplined R&D and SG&A spending. Management outlined no further model launches in 2025, reallocating resources to maximize production output and market responsiveness.

• CEO Li emphasized, “Vehicle gross margin in Q4 is expected to be around 16% to 17% for the entire group to achieve breakeven,” confirming the margin focus embedded in model launches and supply chain management.
• CEO Li stated there is “no major impact” on margins due to exchange of prior offers for upgraded battery standardization.
• Management attributed margin and cost improvements to technology, including proprietary smart driving chips and a 900-volt architecture, that reduce BOM cost and enable aggressive pricing without eroding profitability.
• The self-developed chip NX9031 is positioned to offer chip performance “on par with four flagship chips in the industry,” according to CEO Li, yielding cost savings without disclosing per-unit figures.
• Supply and production capacity were cited as current constraints on further launches, with combined production capacity of all three brands in Q4 expected to be as high as 56,000 units a month to support demand.

Industry glossary

• BOM (Bill of Materials) cost: Total spend on raw materials and components directly attributable to manufacturing a finished product.
• Power swap: NIO’s proprietary technology/platform that enables drivers to exchange depleted EV batteries for fully charged ones at dedicated stations.
• High-voltage (900V) architecture: Vehicle electrical infrastructure designed to improve charging speed, energy efficiency, and support advanced vehicle functionality.
• NX9031: In-house smart driving chip developed and deployed by NIO for advanced autonomous and smart vehicle features.

Full Conference Call Transcript

William Li: Hello, everyone. Thank you for joining NIO’s 2025 Q2 earnings call. In Q2, the company delivered 72,056 smart EVs, up 25.6% year over year. The new brand refreshed four products to model year 2025, further enhancing its product competitiveness. With improved organizational efficiency and growing brand awareness, the Envoy brand is gaining momentum in the mainstream family market. And thanks to the clear product positioning and deep market insight into the high-end small car market, the Firefly has been well received by the target audience. The company delivered 21,017 vehicles in July and 31,305 in August.

The launch of the Envoy L90 in late July and the pre-launch of the new all-new ES8 in late August dropped strong market demand, boosted user confidence, and lifted overall sales. We expect total deliveries in Q3 to range from 87,000 to 91,000, representing a new high of 40.7% to 47.1% growth year over year. On the financial side, vehicle gross margin remained stable while other sales saw significant margin improvements. Moreover, the implementation of the cell business unit mechanism has begun to yield tangible cost reductions and efficiency gains. In Q2, the non-GAAP operating loss narrowed more than 30% quarter over quarter.

Since the start of deliveries in Q2, NIO ET9 has performed strongly in the executive flagship sedan market. Building on continuous R&D investments, NIO was the first to bring the in-house developed smart driving chip and full domain vehicle operating system on production models such as ET9 as well as the 2025 ET5, ET5T, ES6, and EC6. In late June, we rolled out the new world model across all new vehicles equipped with our proprietary smart driving chip.

Within just five months, this in-house developed chip enabled the mass release of functions and the seamless migration of core models and applications across five vehicle models, representing China’s and also the industry’s first full function delivery on a self-developed flagship smart driving chip. On August 21, NIO hosted the product and the technology launch of its core strategic model, the all-new ES8. As an all-around tech flagship SUV designed for the success of business, family, and individuals, the third-generation ES8 is an epitome of NIO’s tech innovation.

The all-new ES8 features original and distinctive design language, class-leading capping and storage space, premium features and comfort experience, flagship safety as well as smart driving and cabin experience ahead of its time. It is the most competitive model in the premium large zero SUV segment, receiving significant attention and recognition from both media and users. Pre-orders have started with test drives starting in mid-September followed by the official launch at NIO Day in late September and deliveries afterward.

On July 31, the Ambo L90, a game-changing product among large three-row family SUVs, was launched with ingenious space and comfort design, all-around smart safety, competitive pricing, and comprehensive charging and swapping services, the Almighty redefines the large zero SUV experience, making it a good fit for large families. The Envoy L90’s sales performance exceeds our expectations. In its first full delivery month, its deliveries reached a history high of 10,575. We are working closely with our supply chain partners for the ramp-up production capacity and keep pace with the strong market demand. L90’s strong market performance has also boosted Ango’s brand awareness and the demand for the L60.

In August, the L60’s order intake also hit a new high this year. As for Firefly, since deliveries begun over 10,000 Firefly has been delivered within just three months. It’s already the best-selling model in the high-end small bath market. Its novel design, flagship-level safety, and agile driving dynamics have been well received. Notably, in recent CIA SI test Firefly together with the ARMOR L60 achieved the highest safety rating ever. We are pleased to see the growing brand awareness is driving growing demand for Firefly.

In terms of product quality in June, MiO ET5 and ET5T ranked segment first in JD Power’s NEV IQF study, while the EC6 and ES6 ranked top two in the premium fab segment in J.D. Power’s NEV appeal study. With outstanding product quality, NIO has been the segment leader in J.D. Power’s quality study for seven consecutive years in 2019. As of now, the company operates 176 NIO Houses and four sixteen NIO Spaces as well as four fourteen Amo stores. On the service side, the company has three eighty-eight service centers and 68 delivery centers. Our sales and service network now operates efficiently and cohesively across all three brands earning recognition from our users.

Regarding charging and swapping, the company has 3,542 power swap stations worldwide, including over 1,000 stations on highways in China and has provided over 84,000,000 swaps to users. By July, the battery swap network had thoroughly covered the highways between major cities in China, connecting five fifty cities with three-minute swaps and eliminating users’ fringe anxieties on long trips. In August, we completed the power swap route along China’s iconic G318 Sichuan Hizhang Highway. NIO and Amo users now can drive their cars and swap all the way to the base camp of Mount Kumolama. Besides, the company has built over 27,000 superchargers and destination chargers. So far, NIO is the car company with the most chargers in China.

In Q2, NIO has entered a new cycle where its continuous investment in technology innovation, infrastructure, and the multi-brand strategy in the past decade begun to translate into market competitiveness. The strong sales momentum of the new All New ES8 and ARMOR L90 proves that our decade-long commitment to the fab roadmap with chargeable, swappable, and upgradable technologies can create user value beyond expectations, increasingly recognized and embraced by a growing base of users. We believe the all-new ES8 and L90 will drive the transition of the large rear wheel SUV market towards full electrification and boost the sales growth across other models.

At the same time with NIO’s continued efforts in the charging and swapping infrastructure, its power swap network now covers major highways and expands into more counties in China. As the network effect of power swap is becoming more evident, over time more users will experience and understand the unique benefits of the NIO Power Swap. Built on the company’s 12 full stack technological capabilities and the nationwide charging and swapping network, the three brands are reaching a broader user base. Starting in Q3, the multi-brand strategy will drive our sales growth and capture greater market shares across the various segments, helping to advance our mission of shaping a sustainable and brighter future.

Since the beginning of this year, the company has focused on systematically enhancing operational efficiency and execution, leading to significant improvement in both R and D as well as sales and service. With rising sales, improving gross margin and the more efficient cost of control, we expect to see a substantial improvement in the company’s financial performance paving the way for the next phase of rapid growth. Thank you for your support. With that, I will now turn the call over to Stanley for Q2’s financial details. Over to you Stanley.

Stanley Qu: Thank you, William. Let’s now review our key financial results for the 2025. Our total revenues reached RMB19 billion, increased 9% year over year and 57.9% quarter over quarter. Vehicle sales were RMB16.1 billion, up 2.9% year over year and 62.3% quarter over quarter. The year-over-year growth was mainly due to higher deliveries, partially offset by a lower average selling price from product mix changes. The quarter-over-quarter increase was mainly from higher deliveries. Other sales were RMB2.9 billion, grew by 62.6% year over year and 37.1% quarter over quarter.

The annual growth was driven by increased sales of used cars, technical R and D services, sales of parts and after-sales of vehicle services at Power Solutions, while the quarter-over-quarter increase was mainly due to the increase in revenues from used cars, technical R and D services, parts accessories and after sales vehicle services. Looking at margins, vehicle margin was 10.3% compared with 12.2% in Q2 last year and 10.2% last quarter. The year-over-year decline was mainly due to changes in product mix, partially offset by lower material cost per unit, while quarter-over-quarter vehicle margin remained stable. Overall gross margin was 10% versus 9.7% in Q2 last year and 7.6% last quarter.

The year-over-year gross margin stayed stable and the quarter-over-quarter increase was mainly attributable to positive mix effect driven by the increase in revenue from used cars and technical R and D services. Turning to OpEx. R and D expenses were RMB3 billion, decreased 6.6% year over year and 5.5% quarter over quarter. The decreases year over year and quarter over quarter was mainly driven by lower design and development costs from different development stages, with the year-over-year also reflecting reduced depreciation and amortization expenses. SG and A expenses were RMB4 billion, up 5.5% year over year and down 9.9% quarter over quarter.

The year-over-year increase was mainly driven by higher personnel costs, rental and related expenses associated with the expansion of sales and service network, partially offset by decreased sales and marketing activities. The quarter over quarter decrease was mainly due to the decrease in personnel costs and marketing and promotional expenses, primarily driven by the company’s comprehensive organizational optimization efforts in marketing and other supporting functions. Loss from operations was RMB4.9 billion, down 5.8% year over year and 23.5% quarter over quarter. Excluding share based compensation expenses and organizational optimization charges, adjusted loss from operation was RMB4 billion, representing a decrease of 14% year over year and 32.1% quarter over quarter.

Net loss was RMB5 billion, showing a decrease of 1% year over year and a decrease of 22% quarter over quarter. Excluding share based compensation expenses and organizational optimization charges, adjusted net loss was RMB4.1 billion, representing a decrease of 9% year over year and 34.3% quarter over quarter. That wraps up our prepared remarks. For more information and the details of our unaudited second quarter 2025 financial results, please refer to our earnings press release. Now I will turn the call over to the operator to start our Q and A session.

Operator: Your first question comes from Geoff Chung from Citi. Please go ahead.

Geoff Chung: Hi, this is Geoff from Citi. Thank you, Li Bin Zhong and Stanley Zhong and congratulate with the good result. My first question is about ES8 and L90’s capacity ramp up pace and the delivery target for the rest of the year. And due to the strong order backlog, can we expect December single month run rate for the group to hit 55,000 unit or above? This is my first question.

William Li: Thank you for the question. It’s true that with the launch of the Envoy L90 and also the new Audio ES8, we actually see a stronger market demand higher than what we’ve expected before the launch. In that case, we’ve been working closely with our supply chain partners to improve and enhance the production capacity throughout the value chain and also the supply chain. Our target is that in October the full supply chain capacity for the Envoy L90 can achieve and reach 15,000 units a month. And for the ES8 as the ramp up of production takes slightly longer, we hope that the full supply chain capacity can achieve 150,000 units in December.

With that by looking at both the demand and the supply availabilities and capacity, our Q4 target is to achieve an average of 50,000 units deliveries per month for all three brands, which means that in Q4 our quarterly delivery target combining all three brands is 150,000 units.

Geoff Chung: Thank you, Li Bin Zhong. So my second question is about the gross profit margin and whether fourth quarter can breakeven at the bottom line level. So if we look at the second quarter, our revenue up 58%, but our gross profit up more than 100% Q on Q. So could you give us more color on the second half vehicle GP margin trend and the non vehicle GP margin trend? And also to be specific, how do you see the L90 and the ES8 GP margin independently? Thank you very much.

William Li: Thank you for the question. I would like to walk you through our Q2 product margin. In terms of the vehicle margin in the second quarter of this year, it was 10.3%. As in the second quarter, we have conducted the model year upgrades on the ET5, ET5T, EC6 and ES6 as the product upgrades happened in the mid and late May. In that case among the 72,000 units we’ve delivered in Q2 only around 20% was contributed by the model year ’25 products. In that case the actual margin improvement contributed by this four models is not that significant in comparison to Q1.

And then in the third quarter as we have the full quarter deliveries for the model year 2025 products as well as the start of deliveries of the L90, which will further help improve the vehicle gross margin. And then in Q4 as William mentioned starting late September, we are going to start the deliveries of the ES8. We expect the vehicle margin to further grow. So Q4 also represents the first full quarter for the deliveries of both L90 and ES8. With that, we expect the Q4 vehicle gross margin to be around 16% to 17% for the entire group to be able to achieve breakeven.

As based on the decade long battery bus tech innovation, the in house developed of core parts and components as well as the continuous efforts in the cost of control and the savings on the supply side as well as the product cost structure, We achieved not only competitive product performance for the L90 and beyond ES8, but also a very competitive cost structure and the pricing point. With that in Q4 our gross margin target for the L90 and ES8 is 20%. In terms of the gross margin of other sales, it’s 8.2 in Q2 and it’s mainly contributed by two factors.

The first is regarding the revenues contributed by our existing users, including via our aftermarket services, our auto financing business as well as the narrowed loss on the power services. And the second factor is regarding the margin contributed by our technological service provided to our partners. With this two combined, we’ve achieved a good and positive gross margin on other sales in Q2. And in terms of the revenues or margin contributed by the technological services we provide to the partners as it is highly dependent on the product and the project stage, the actual revenues contributed may not be consistent from quarter to quarter.

In that case excluding that part, our expectation for the gross margin on other sales is to be breakeven or slightly with a slight loss quarter over quarter.

Geoff Chung: Thank you for the new guidance. Looking forward to the fourth quarter. Thank you.

Operator: Thank you. Your next question comes from Bin Wang from Deutsche Bank. Please go ahead.

Bin Wang: Thank you. I just want to ask for more detail about number four quarter breakeven. Number one is that what’s your R and D expense for number three and number four quarter? I think you actually guide close to billion in the number four quarter. Do you still maintain the same guidance for the number four quarter? And secondly, it’s the same for SG and A. Lastly, what’s the breakeven means? Do you breakeven in the OP level or net profit level? Is GAAP or non GAAP? Thank you very much for my question.

William Li: Thank you for the question. Regarding the breakeven target, our quarterly breakeven target is based on the non GAAP basis. And regarding the R and D and SG and A guidance, starting Q2 this year, we have conducted a series of measures combining our CPU mechanism to control our R and D expenses. Our principle is that without compromising on the major and the core R and D activities and also product planning, we will keep improving the R and D efficiency, which means that without compromising or affecting our major product planning and R and D, we will push for higher efficiencies in the R and D activities.

With that our target for the Q3 and the Q4 R and D expenses on the non-GAAP basis will be RMB2 billion per quarter. And in terms of the SG and A expenses also based on our CPU mechanism we’ve conducted measures to improve the overall SG and A efficiency. In the second quarter, our sales volume is at the magnitude of around 70,000 units. So the SG and A ratio to the sales revenue still accounts for a relatively high percentage. But as in Q3 and Q4, we grow our sales volume and also sales revenue, we expect the percentage of SG and A in the sales revenues to actually coming down to a more reasonable range.

But as in Q3, we’re planning several new product launches, there will also be corresponding marketing and go to market expenses. In that case, in Q3, we are still not able to achieve a breakeven on the SG and A expenses. But in Q4 the non GAAP target for the SG and A expenses will be within 10% of the sales revenue.

Bin Wang: Thank you, Womin.

Operator: Thank you. Your next question comes from Tim Hsiao from Morgan Stanley. Please go ahead.

Tim Hsiao: Hi. This is Tim from Morgan Stanley. Thanks for taking my question. So I have two questions. The first one is about the new model pipeline. Given the robust demand of L90 and ESD that occupied our capacity, well, the company adjust the launch schedule for the upcoming models. And we noticed that the NIO days, has notably moved forward to late September. Can management also share more insight into the updated model pipeline in the following quarters? That’s my first question. Thank you.

William Li: Thank you for the question. It’s true that at the moment we actually prioritize the production of the L90 and also the All new ES8 from the production capacity perspective. For the ARMOR brand, we even have to really give way to the L90 productions and compromising on the production of L60. So that it will find that our L60 users are also waiting up to pick up their cars. So right now we actually have four models with backlog order backlogs accumulated and the users will need to wait for the new car pickup including L90, Onu ES8, L60 and also Firefly.

And regarding the production capacity for the ARMOR product starting October, we expect the capacity to come back to a normal range, mainly supported and fueled by the production capacity of the battery. As in the past several months, we’ve been working closely with our battery partners to ramp up the production capacity. With that in Q4 for the ARMOR brand, we expect the full supply chain production capacity to be around 25,000 units a month. And regarding the new brand for the launch of all new ES8, we also have challenges regarding the supply of the brand new 102 kilowatt hour battery.

As the demand of the ES8 is actually stronger than we expected, then we at the beginning we underestimated the demand for the ES8 and also the volume assumption for the battery packs. We’ve been working closely also with the battery suppliers and partners to secure the supply of this new battery pack. With that in Q4, we expect the full supply chain capacity for the new brand can also achieve a 25,000 units monthly capacity. And regarding FarFly, we are also steadily increased its production and supply capacity. And in Q4, we expect the production capacity to ramp up to up to 6,000 units a month at its peak.

So it means that in Q4, the combined production capacity of all three brands will be as high as 56,000 units a month to be able to support our demand. As we have already dedicated our full capacity to the production of the existing models in the market, So for this year, we will not have any new models launched or delivered to the market. Previously, we’ve mentioned that we plan to also launch the L80 of the Ambu brand. But as now we have run out of all the capacities available, we actually have to decide to delay the deliveries of this new model.

But in terms of the launch or the go to market cadence for the L80, that’s to be decided. In addition to the onboard L80, next year in the coming quarters, we also have another two new models coming under the new brand to also two large SUVs. One is the ES9 as many of the users and the public already know about it and also ES7, a large five seater SUV model. As for the New Day this year, as it is happening in September, the protagonist of this event will be definitely the all new ES8.

Tim Hsiao: Thank you, Lian. My second question is about the pricing strategy and also just a quick follow-up on the margin side. Because we noticed that both the L90 and the new ES8 have launched with aggressive pricing strategies. So I just want to know that will this pricing strategy be extended to all the upcoming models under both brands? And if that’s the case, how should we think about NIO’s gross profit margin trajectory into next year? What would be a more sustainable and ideal equal margin level once all the new models are upgraded next year? That’s my second question. Thank you.

William Li: Thank you for the question. For the entire company as we’ve also previously mentioned for the long term our group level product margin is actually 20%. That’s our target. More specifically on the gross margin by brand for the new brand our target is to achieve 20% vehicle gross margin and even target a higher margin of 25%. And for Anvil, no lower than 15% for the long term and for Firefly around 10%.

For the ES8 and the L90 newly launched this year as well as the new models coming up next year, we also have this we’ll also contribute to this target as at the product definition and design stage we have already prepared for an aggressive pricing strategy and our cost structure can also support such strategy to be able to achieve more competitive pricing of our products without compromising on the product competitiveness itself. This is actually driven and enabled by our decade-long tech innovation, technology accumulation, in house developed parts and systems and also stringent cost control.

Operator: Your question comes from Jing Cheng from CICC. Please go ahead.

Jing Cheng: Thank you for taking my questions. My first question is still about our L90 and also ES8. So we have already seen that these two new models have already demonstrated our enhanced product capability and also very competitive pricing still with a very solid gross profit margin. So besides previously Stanley has already told us of the technology and also the platform upgrades. Could you share more about the underlying successful experience about these two new models such as our changes on maybe supply chain, maybe the dealers networks? This is my first question.

William Li: Regarding the overall product competitiveness on the third generation, it is actually getting stronger and better. And this also allows for more competitive product competitiveness as well as the cost structure. And as we’ve mentioned, this is enabled by our continuous tech innovation. Let’s say the 900 volt high voltage architecture, this platform actually allows for more integrated and a lightweight design that’s not only in the powertrain system as well as the high voltage architecture throughout the vehicle to be able to achieve high performance and the lightweight design. Such lightweight design also allows for improved cost structure and also experience competitiveness.

For example, on the ES8 and also L90 we’ve achieved a huge frunk and also trunk space, such huge storage space is also enabled by the high integration level of our architecture and systems. And another example is regarding the smart technologies, the digital architecture. On the third generation, we adopted the innovative digital architecture with the central computing cluster plus the zonal controllers. This can help achieve a better cost as well as the mass performance and the management. Let me take e fuels as an example. Previously on other older models, there are physical fuse box, which is as heavy as 10 kilos per car and it can take up eight liters of space.

But with eFuse, we are able to integrate them into the master board that can actually manage the power supplies throughout the vehicle at a very detailed and precise level, but still contributing to the mass reduction and cost improvement. So this improvement in both cost structure as well as user experiences are enabled by the tech innovation. Another example is regarding our proprietary smart driving chip. Of course, we’ve made the major upfront investment in the chip development, but the performance of our in house developed smart driving chip NX9031 can achieve the performance that is on par with four flagship chips in the industry.

So R&D-wise, we made investment upfront yet BOM cost wise this smart driving chip can also achieve savings. And another thing is regarding the technology roadmap, mainly the chargeable, swappable and upgradeable technologies for our products. With this, we are able to select the most suitable and optimal battery packs, including its capacity and the size for our users. For example, for some of our peers and competitors, they actually needed to strike a balance between the battery cost and also the battery range. Then they choose the LFP as the chemical system and they make a battery pack of around 90 or 100 kilowatt-hour capacity.

But with that the battery pack is actually very big and heavy. If you look at our battery packs for the Envoy L90, put a 85 kilowatt hour battery inside and for the ES8, a 102-kilowatt-hour battery inside. They can achieve the driving range and performance on par with those peers. But in terms of the mass, the 80 fiveone is only around 400 kilos and the 102 kilowatt hour battery pack is only around 500 kilos. So it is actually around 200 kilos lighter than many of our peers’ solutions. This is also another mass and cost optimizations enabled by our chargeable swappable and upgradable tech solutions.

And in terms of a competitive product in both cost as well as the user experience, I think three things will define the competitiveness of a product. The first is regarding the technology roadmap, the second is regarding the product planning and the third is regarding the product definition itself. And our past practice and experiences prove that our technology roadmap, including our multi-brand strategy, our chargeable, swappable, upgradable solutions, our full stack tech capabilities develop in house as well as our product planning are in general in the right direction. Yet when it comes to the product definition, we did have some lessons learned from the previous generations and platforms.

With that on the third generation with our all new ES8 and L90, we not only draw the best practices from the industry and peers, but also make corrections from within to be able to achieve a better product performance and the success with ES8 and L90 as it is actually drawing the effort of our competitive technology roadmap, reasonable product planning as well as more precise product definition and the market insights that can fit for the users’ needs in the Chinese market. And in terms of the supply chain, this is also playing a very important role in achieving the long term competitiveness of our product cost structure by establishing a win cooperation with our partners.

And in the past one or two years, we’ve also made adjustments to our supply chain and the partner strategy. In general, we look for the partners who believe in the roadmap technology decisions of the company as well as believe in the long term potentials of the company. And we work closely with these partners to jointly define the cost of targets and all types of targets. So for the existing products and also the coming platforms, we will also adopt this principle in our nomination and the sourcing strategy to be able to work with our partners closely.

Stanley Qu: Thank you, Tianjin.

Operator: Thank you. Your next question comes from Ming-Hsun Lee from Bank of America. Please go ahead.

Ming-Hsun Lee: Thank you, Wei Lin, and congrats for the good results. I also have two questions. So my first question is, could you confirm your new model pipeline for 2026? Can I confirm there will be at least five new car, which include ES6, ES7, ES9, L80 and also the second model under the Firefly brand?

William Li: Regarding our product strategy for 2026, as we’ve mentioned, we will focus on three large SUV models for the Envoy and also the new brand. Regarding the ET5, ET5T, ES6 and ES6, as this year we have just upgraded these four models to the model year 2025. For next year, we don’t have major plans to upgrade or facelift these four models. As on the model year 2025, we’ve already upgraded interior, exterior, the smart system is also upgraded to the latest C. S platform with both upgrade in the smart driving chip as well as the operating system. And recently we have also announced to make 100 kilowatt hour battery as a standard configuration on these four models.

We believe that with all these changes the competitiveness of these four models will continue to be strong in the coming quarters. Of course, it doesn’t mean that we will make zero changes to this model. We will still roll out some product calendars as this year earlier this year we have released the Champion Edition for the five and the six series and in the coming year we will also have such special versions and additions for these models. And also for the Firefly brand, we don’t have a plan for the second model next year.

Ming-Hsun Lee: Thank you, William. And my second question is regarding to the operating expense control. So in 2026, what level do we expect for your R and D expense per quarter? Do you think you can maintain around RMB2 billion non GAAP R and D expense per quarter? And also, could you guide your latest CapEx plan for 2025 and 2026? Thank you.

William Li: Regarding the R and D expenses, starting this year we’ve made major efforts based on the CPU mechanism improving our R and D efficiencies and the overall ROI of our R and D activities and investment. For the next year, our quarterly R and D expense non GAAP will be around RMB2 billion to RMB2.5 billion per quarter. That is a reasonable range for us to also maintain our long term competitiveness from the technology perspective. The major liabilities comes from the new model development as we believe that the investment for the foundational level R and D activities and technologies are mostly finished.

And also regarding the CapEx as we haven’t started the operational target discussion and the setting for the next year, I may not have a very clear or precise outlook regarding the CapEx for 2026, but I can share with you two principles we have. The first is regarding the power swap network. In general, we still hope to leverage as much as possible the Huffman’s resources and for the Power Swap network construction. And regarding the R and D CapEx and it’s well, regarding the CapEx on the product, it’s mainly dependent on the overall R and D cadence and also go to market strategies of the new models.

Overall speaking for next year, we hope the CapEx can be similar to the level of this year or if possible achieve even better results next year. But as I’ve emphasized, it’s highly dependent on the overall launch cadence and also R and D cadence of the new models.

Operator: Thank you. Your next question comes from Paul Gong from UBS. Please go ahead.

Paul Gong: Thanks William for taking my question. My first question is regarding the impact of the 100 kilowatt hours of the battery that you are going to adopt across new brands. Can you share with us the financial impacts of this strategy? Definitely, we can see that the competitiveness of the vehicles are getting enhanced because of this 100 kilowatt hours of the battery. But what would be the incremental costs on your front? Thank you. This is my first question.

William Li: Thank you for the question. When we announced the policy changes on the 100-kilowatt-hour battery pack, we’ve already introduced the potential impact or implications on the financials of the product. As when we launched the model year 2025 product, we offered a series of special offers and discounts to our users together with the products. And this time when we make the 100-kilowatt-hour battery standard configuration of the five and the six series, we actually withdraw many of these offers we provided at the launch of the product. And in exchange, we offer the 100-kilowatt-hour battery as a standard configuration.

So from the transactional perspective, there is no major change from the users perspective as well as from the vehicle margin perspective, there is also no major impact. And another impact is more on the sales and the upper funnel of our sales leads for the five and six series after announcing the change on the 100 kilowatt hour battery. We actually observed increases in the upper funnel incoming leads. Of course, this is a newly launched policy in terms of the long term implication, we will still need some time to observe, but overall impact is more positive than negative.

Paul Gong: Okay. So my second question is regarding the impact of switching to your self developed chips. Just now I think William mentioned that it is saving cost and it is also depending on the volume because of the fixed cost versus the volume. So can you give us some color that, for example, if you are delivering 20,000 per month with a new self developed chip, what would be the cost saving on the per car basis If this volume is coming to 50,000 per month, what would be the positive impacts from the cost saving angle due to the switching of the self developed chips? Just want to have the better estimate and sensitivity on that. Thank you.

William Li: Thank you for the question. Regarding the chip R and D expenses and investment as we actually recognize that in our immediate financials and the P and Ls, so it’s actual cost of savings per unit is not really closely tied in the actual volume we sell or actual number of the pieces we sell. As in terms of the production of these chips, we purchased the wafers directly from our chip manufacturing partners. So in that case, cost of saving per unit through the in house developed chip is not tied into the delivery volumes we achieve.

But in comparison to the chip solution we used on the second generation products, achieving the same level of computing performance, the cost is actually more advantageous and competitive with our own solution. And even on the third generation in comparison to the industry flagship smart driving chips, we still have a cost advantage and the competitiveness with our in house solution. But here I will not elaborate on the specific savings achieved per piece.

Paul Gong: Okay, I understood. That is very helpful. Thank you.

Operator: Thank you. Your next question comes from Yuqian Ding from HSBC. Please go ahead.

Yuqian Ding: Thank you, team. The first question would be more exploration on the pricing side. So ES8, L90 attractive pricing, good volume traction. So how does management would evaluate the potential internal cannibalization to the existing portfolio such as ES6 or L60 and the potential splash impact into next year’s new model pipeline?

William Li: As we’ve mentioned, the pricing of strategy for a product is highly dependent on the market competition, the cost structure of the product as well as the volume and the pricing sensitivity of the product in the segment. For the L90 as we’ve mentioned with its launch actually it has helped boosted the sales volume of L60. Right now even for the L60 users they will have to wait for the new cars deliveries and pickup. Actually in August, we even achieved a new high for the order intake of L60 for this year. So the overall impact from L90 on L60 is positive.

Regarding And the all new ES8, as we’ve also mentioned, we have now made the 100 kilowatt hour battery as standard configuration on the five and six series. So the attractive pricing of ES8 is helping boost the brand awareness of the new brand, which can also introduce more attention to the five and the six series. So with this logical and clear pricing system set up for the brand, we believe that the overall impact will also be positive on the new brand. Maybe at the beginning, our fellow will struggle with how to allocate their focuses at the time across different products.

But for the long term, we believe that the impact of these two models and the new models will be positive across the brands and the products. And also as we see strong demand for the Onui S8 and L90, we have also observed the successful product or great product great large three row battery electric SUV models launched not only by NIO, but also by our competitors who used to have only with products in the market. So with all these large three row SUVs coming to the market, we also observed a market trend in the first half of this year.

The growth rate of BAB segment increased by 39% year over year and for RIBS that’s only 14%. If we consider about the sales volume in July and August for the BAF and the RAV respectively, I believe that the growth rate of the BAF will be even faster than that of RAV. In that case, are observing growing competitiveness of the products in the mid and the mid large battery electric SUV segments as this is more well received and also evident to the public.

This is why we say that the golden era of the large fair role battery electric SUV is arriving as with more mature user mindset and also stronger competitiveness of the product, the market is shifting towards that direction. This will also help the long term competitiveness and the popularity of our existing SUV models including ES6 and L60.

Stanley Qu: Thank you, Richard.

Yuqian Ding: Yes, got it. Thank you. The second question is a little bit more exploration on OpEx side. You touched upon the innovation redesign and R and D commitment. So could you give us a little bit more quantification and breakdown in terms of the OpEx cuts target, if there is any? Or just breakdown the cost optimization initiatives seeing a little bit more details? Thank you.

William Li: Thank you for the question. As we’ve introduced towards the Q4 non GAAP breakeven target, our overall principle is that for the R and D expenses without compromising on the major R and D activities and also long term competitiveness, we would like to control the quarterly R and D expenses to be within RMB2 billion for this year and for SG and A ratio to the sales revenue around 10% this year. That’s our target for this year towards the quarterly breakeven.

And for the long term, as we’ve also mentioned, for the year of 2026, our R and D expenses will be around RMB2 billion to RMB2.5 billion per quarter depending on the product go to market and also development cadence. And as for the SG and A expenses, we would like to continue to achieve higher efficiency and utilization of expenses. That’s the overall principle.

Stanley Qu: Thank you, Yuxin.

William Li: Thank you.

Operator: Thank you. Your next question comes from Tina Hou from Goldman Sachs. Please go ahead.

Tina Hou: Thanks management for taking my question. Just a very quick one. So in the longer term, how should we think about the stabilized sales volume of L90 as well as ES8 on a like average monthly basis? Thank you.

William Li: Thank you for the question. As the automotive industry here in China is highly competitive and if you look at the sales trend of the smart electric vehicles, you seldom see any new model that can capture a very stable market share and very major trend or popularity in the market for a very long time. In that case, it’s also difficult for us to really share with you a clear outlook regarding what the stabilized sales volume of the ES8 and L90 will be for the long term. But definitely, we set ourselves a higher target and we will also try the best.

Starting this year for the new and ARMOR brand, we also started to build up the team capabilities by implementing a completely new sales and marketing paradigm. We hope that through this new sales and marketing paradigm, it can actually help us to maintain and capture the market share of our new models as soon as possible to prolong their impact and influence in the market and also to stabilize their winnable and satisfying sales volume in the market against the fierce competition as long as possible.

But as we have just implemented this paradigm and it will also take time for us to understand if it is truly helping us with the stabilization of these two great models ES8 and L90. But overall, we hope that this can achieve a good result that is satisfying to the market, investors and also our users.

Operator: Thank you, William.

Rui Chen: Thank you. As there are no further questions now, I’d like to turn the call back over to the company for closing remarks.

Rui Chen: Thank you again for joining us today. If you have any further questions, please feel free to contact NIO’s Investor Relations team through the contact information on the website. This concludes the conference call. You may now disconnect your lines. Thank you.

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The very first dApps were still conceptual only a few years ago, but we’ve advanced in a short time from proof-of-concepts to seeing developers solve challenging issues in their own regions and local communities. We see it as part of our responsibility to highlight the good faith efforts and positive works of all those helping to realize the Ethereum Foundation’s mission.

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Date

Aug. 28, 2025, 9:00 a.m. ET

Call participants

Chairman and Chief Executive Officer — Efraim Grinberg

Executive Vice President and Chief Financial Officer — Sallie DeMarsilis

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Risks

There was a $2.2 million impact from unmitigated U.S. tariff expenses in the fiscal second quarter ended July 31, 2025. Management stated mitigation actions “will predominantly impact future periods.”

Gross margin fell by 20 basis points to 54.1% from 54.3% in the fiscal second quarter of the prior year, primarily due to increased tariffs and unfavorable foreign exchange, according to management.

The Movado brand experienced a 5.6% sales decline in the fiscal second quarter.

Management confirmed it will not provide a fiscal 2026 outlook, stating, “Given the current macroeconomic environment and the ongoing uncertainty of the impact of tariffs on our business.”

Takeaways

Net sales— $161.8 million, up 3.1%, with constant currency growth of 1.4% in the fiscal second quarter.

Adjusted operating profit— $7 million, more than double the $2.6 million reported in the fiscal second quarter of the prior year.

Gross margin— Gross margin was 54.1%, down 20 basis points in the fiscal second quarter, primarily due to higher tariffs and currency headwinds, partially offset by a favorable mix.

Net income— $5.3 million, or $0.23 per diluted share, compared to $3.5 million, or $0.15 per diluted share in the fiscal second quarter of the prior year.

Inventory— $28.3 million higher than the prior year (+15.5%) in the fiscal second quarter, with $16 million pulled forward in the U.S. to mitigate tariff exposure.

International sales— Increased by 6.9% (reported) and 3.9% (constant currency) in the fiscal second quarter, led by growth in Europe, Latin America, and India.

U.S. sales— Decreased 1.6% in the fiscal second quarter, impacted by continued channel rebalancing.

Licensed brands— Reported growth of 9.5%, or 6.5% at constant currency, in the fiscal second quarter.

Movado brand sales— Declined 5.6% in the fiscal second quarter, though e-commerce posted 6% growth and brick-and-mortar sell-through improved.

Operating expenses— Fell by $2.0 million to $80.6 million (adjusted) in the fiscal second quarter, due to lower marketing spend, partially offset by higher performance-based compensation.

Annualized cost savings— $10 million in expected savings for fiscal 2026 from prior operating expense reductions.

Cash balance— $180.5 million with no debt reported at the end of the fiscal second quarter.

Outlet stores segment— Grew 2.4% in the fiscal second quarter, supported by recent initiatives and positive momentum.

Share repurchases— 100,000 shares repurchased, with $48.4 million remaining on the authorization as of the fiscal second quarter.

Summary

Management stated it established a “strong position in inventory of Swiss-made watches in the United States” to cover a substantial portion of anticipated demand in response to the new 39% tariff as of the fiscal second quarter ended July 31, 2025. Tariffs and currency pressures were cited as the primary drivers of lower gross margin, with strategic pricing actions implemented on July 1 and further actions planned. Cost-saving efforts are expected to deliver approximately $10 million in annualized reductions for fiscal 2026, which management stated are mitigating operational increases and supporting profitability growth. International growth outpaced the U.S., with Europe, Latin America, and India leading performance in the fiscal second quarter, while the U.S. saw a 1.6% decline in net sales due to strategic changes in distribution channels.

The CFO explained that approximately $4.6 million of reciprocal tariff costs remained embedded in inventory at the end of the fiscal second quarter.

Management described licensed brands as benefiting from a resurgence in “fashion watch and jewelry category” demand, citing heightened Gen Z interest on digital platforms.

Efraim Grinberg said, “We would expect our inventories to be in line by year-end,” addressing concerns about the significant rise in inventory levels.

Management referenced the completion of most restructuring charges and expects these “will be reduced significantly” in future quarters, as discussed on the fiscal second quarter earnings call.

Recent trends in mini and microwatch sizes have drawn young women back to the category, creating product opportunities across the brand portfolio.

Industry glossary

Mini watches: Wristwatches with case diameters typically between 23 to 28 millimeters, positioned as appealing to younger and female consumers per discussed brand trends.

Microwatches: Even smaller wristwatches than mini watches, referenced in the call as an emerging size segment within the portfolio.

Full Conference Call Transcript

Efraim Grinberg: Thank you, Allison. Good morning, and welcome to Movado Group’s second quarter conference call. With me today is our Executive Vice President and Chief Financial Officer, Sallie DeMarsilis. After I review the highlights of the quarter and share our progress on key strategic initiatives, Sallie will take you through the financial results in more detail. We will then be happy to answer questions. We are pleased with our overall results this quarter as we return to growth in both sales and profitability. Sales grew by 3% to $161.8 million, and adjusted operating profit more than doubled to $7 million from $2.6 million last year despite a $2.2 million impact from unmitigated U.S. tariff expenses.

Although we have taken certain actions to partially offset tariffs, those actions will predominantly impact future periods. After the quarter ended, the United States implemented a tariff rate of 39% on Swiss imports. During the second quarter, we have built a strong position in inventory of Swiss-made watches in the United States and would expect a substantial portion of the year’s needs are covered. We are hopeful that over the next several months, the United States and Switzerland will agree to lower tariff rates. Of course, we continue to monitor the situation closely and to develop mitigation plans. We continue to operate with a strong balance sheet, with over $180 million in cash and no debt.

Overall, we are pleased with the progress that we have made on our strategic initiatives, with a focus on returning the company to growth and profitability. We would expect to see approximately $10 million of annualized savings spread evenly throughout this year as a result of the actions we took late last year to reduce operating expenses. Although we experienced a 5.6% sales decline in our Movado brand, we continue to make progress on our Movado strategy, which I will discuss later in my remarks. In our licensed brands, we grew by 6.5% on a constant currency basis or 9.5% on a reported basis.

Overall, we reported gross margins of $54.1 million versus 54.1% versus 54.3% in Q2 of last year despite the 130 basis point impact of additional tariffs in the U.S. Most of our strategic pricing actions to partially offset the impact of tariffs became effective July 1. Our international business grew by 6.9%, or 3.9% on a constant currency basis, led by a strong performance in Europe, Latin America, and India, with Europe seeing particularly strong trends. As expected, this performance was offset somewhat by the Middle East, where we are in the process of rebuilding our team.

Our U.S. business declined by 1.6% as we focus on rebalancing our chain jewelry store distribution, although we had an improved performance in our domestic department store and e-commerce channels. Our outlet stores segment grew 2.4% for the quarter, and we are excited by the recent initiatives and accelerating trends in that channel. As we look at the progress that we are making in our brands, we are particularly pleased by the success that we are seeing in the overall performance of trend-right products across our brand portfolio. In Movado, we are making significant progress in returning the brand to growth in our wholesale distribution.

We have seen strong performance in our own e-commerce site, with 6% growth and strong trends in our digital partners. In brick and mortar, Movado brand sell-through has returned to growth in the second quarter in our department store channel, where we have implemented and expanded our coverage as a point of sale and installed our new point of sale display. We will continue to execute behind these initiatives as the year progresses. On the product front, Movado has seen increased penetration and success in women’s watches, including our new iconic bangle watches and our new mini quest in bold, which along with our bold tank watch is a best seller.

On the men’s side, we are seeing strong performance in the Movado bold collections, including Verso automatic and Quest automatic. Our heritage collection inspired by Movado’s rich heritage continues to do particularly well in a limited distribution across the country. The Movado brand marketing campaign for the second half will include new creative featuring our Movado icons, Ludacris, Jessica Alba, Julianne Moore, Christian McCaffrey, and Tyrese Halliburton. We are very excited by the digital-first content that our team has executed with a greater focus on products associated with each of the icons. We have exciting new products debuting this fall, like the new Museum Imperial with Christian McCaffrey and Our Heritage 1917, with Tyrese Halliburton.

On the women’s side, Jessica Alba and Julianne Moore will be featured with different shapes of our museum bangle collection and a women’s version of the museum imperial and Heritage 1917. Turning to our licensed brands, we are seeing a return to the fashion watch and jewelry category with increased interest by Gen Z consumers across digital platforms like TikTok, Reels, and YouTube. Sales in our licensed brands grew by 9.5% for the quarter or 6.5% in constant currency. In Hugo Boss, we have experienced strong growth in our iconic families, Time Traveler and Candor. Our new updated Grand Prix is quickly becoming a best seller.

We are also excited by our new women’s watches led by the May family with a petite square shape. In Tommy Hilfiger, we are very excited to be refocused on the women’s watch category. Our EMEA family is already showing signs of strong sell-through and will be featured in our fall campaign. Complementing Mia is Moira, a new mini East West Oval that has gotten a strong reception. On the men’s front, we are excited by our new seventies-inspired Chronograph Hudson Collection, which will be featured in our holiday campaign, as well as by RegattaTH, a new sports watch collection in exciting colors opening at $139.

In Lacoste, we are introducing a new black and gold version of our iconic LC 33 collection and will complement our Tang Parisienne with a new oval version. Our Lacoste jewelry business continues to exceed expectations, and we are very excited to introduce the Arthur and Crocodile families to complement our best-selling Metropole bracelet collection. In Calvin Klein, we are launching a new mini version of our best-selling Pulse collection, as well as a new 18-millimeter contemporary collection that has really piqued our retailers’ attention. Coach continues to perform extremely well, particularly in the United States, and is now showing momentum in Europe as well.

For the second half, we have several new introductions in our best-selling Sammy Oval collection with a strong new 20-millimeter Reese tank. We will also be expanding our best-selling charter collection for him. As we enter the second half of the year, we recognize that uncertainty remains around tariffs and the broader retail environment. At the same time, we are excited by the new products we have introduced and encouraged by the resurgence we are seeing in the fashion watch market. As a leadership team, our focus remains on driving profitability and delivering consistent growth in both sales and operating margin while maintaining the strength of our balance sheet and executing against our strategic plans across all of our businesses.

While some of our initiatives have longer time horizons, we are confident that we are taking the right actions for the long term and positioning Movado Group for sustainable success. I am happy about the plans that we are building for the year ahead, and I would now like to turn the call over to Sallie.

Sallie DeMarsilis: Thank you, Efraim, and good morning, everyone. For today’s call, I will review our financial results for the second quarter and year-to-date period of fiscal 2026. My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the second quarter and first six months of fiscal 2026 in our press release issued earlier today, which also includes a reconciliation table of GAAP and non-GAAP measures. Turning to a review of the quarter, overall, we were pleased with our performance for 2026. Sales were $161.8 million as compared to $157 million last year, an increase of 3.1%. In constant dollars, the increase in net sales was 1.4%.

Net sales increased across licensed brands and company stores, partially offset by a decrease in net sales in owned brands. By geography, U.S. net sales decreased 1.6% as compared to the second quarter of last year. International net sales increased by 6.9%. On a constant currency basis, international net sales increased 3.9% with strong performances in certain markets such as Latin America and Europe. Gross profit as a percent of sales was 54.1% compared to 54.3% in the second quarter of last year. The decrease in gross margin rate as compared to the same period of last year was primarily driven by increased tariffs and unfavorable foreign exchange, partially offset by favorable channel and product mix.

Operating expenses were $80.6 million as compared to $82.6 million for the second quarter of last year. The $2 million decrease was driven by a strategic reduction in marketing expenses, partially offset by an increase in performance-based compensation. The combination of higher revenue and gross profit and a decline in operating expenses drove operating income to $7 million, a $4.4 million improvement from $2.6 million in 2025. We recorded approximately $1.1 million of other non-operating income in 2026 as compared to $1.8 million in the same period of last year. Other non-operating income is primarily comprised of interest earned on our global cash position. We recorded income tax expense of $2.7 million in 2026 as compared to $843,000 in 2025.

Net income in the second quarter was $5.3 million or $0.23 per diluted share as compared to $3.5 million or $0.15 per diluted share in the year-ago period. Now turning to our year-to-date results, sales for the six-month period ended July 31, 2025, were $293.6 million as compared to $291.4 million last year. Total net sales increased 0.8% as compared to the six-month period of fiscal 2025. In constant dollars, the increase in net sales for the year-to-date period was 0.3%. U.S. net sales declined by 1.6%, and international sales increased by 2.6%. Gross profit was $158.9 million or 54.1% of sales, as compared to $158.2 million or 54.3% of sales last year.

The decrease in gross margin rate for the first six months was primarily due to unfavorable foreign exchange and increased tariff costs, partially offset by favorable channel and product mix. Operating expenses were $151 million as compared to $153.4 million for the same period of last year. The decrease was driven by a strategic reduction in marketing expenses, partially offset by an increase in performance-based compensation. For the six months ended July 31, 2025, operating income was $7.9 million compared to $4.8 million in fiscal 2025.

We recorded approximately $2.7 million of other non-operating income in the six-month period of fiscal 2026, which is primarily comprised of interest earned on our global cash position, as compared to $3.8 million in the same period of last year. Net income was $7.2 million or $0.32 per diluted share as compared to $5.5 million or $0.24 per diluted share in the year-ago period. Now turning to our balance sheet, cash at the end of the second quarter was $180.5 million as compared to $198.3 million of the same period last year. Accounts receivable was $94.4 million, up $7.7 million from the same period of last year, primarily due to timing and mix of business.

Inventory at the end of the quarter was up $28.3 million or 15.5% above the same period of last year. $5.1 million of the increase was due to foreign currency, and $4.6 million of reciprocal tariffs is included in inventory on hand at the end of the second quarter. As Efraim mentioned, as of July 31, we have built a strong position in inventory of Swiss-made watches in the United States and would expect that a substantial portion of this year’s needs are covered. We are comfortable with the composition and balance of our inventory at year-end.

In the first six months of fiscal 2026, capital expenditures were $2.8 million, and we repurchased approximately 100,000 shares under our share repurchase program. As of July 31, 2025, we had $48.4 million remaining under our authorized share repurchase program. Subject to prevailing market conditions and the business environment, we plan to utilize our share repurchase program to offset dilution in fiscal 2026. As Efraim mentioned, we closely monitor the changing tariff landscape, and we will continue to develop mitigation plans. Given the current macroeconomic environment and the ongoing uncertainty of the impact of tariffs on our business, the company is not providing fiscal 2026 outlook. I would now like to open the call up for questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys. One moment, please, while we poll for a question. Our first question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question.

Hamed Khorsand: Hi, good morning. So there was lots of commentary about mini watches, and I just wanted to understand what you are seeing from consumer habits or purchasing that you think that the mini is the route that you are taking?

Efraim Grinberg: So I think, and you know, we have both what we call mini watches, and we have microwatches, which are smaller. Mini watches for us are watches from, like, 23 to 28 millimeters. And what had happened is that for a period of time, watches had gotten bigger both for men and for women. So over the last few years, they have gotten smaller again. And with that aspect, it has actually brought young women back into the category. And there is a lot of social media around that and layering of women’s watches with jewelry. And so we believe it represents a significant opportunity across our brand portfolio.

And that trend has, as many trends do, begun in luxury and then moves into more accessible products as well.

Hamed Khorsand: Okay. And during Prime Day, I know you guys were participating. Was there anything that stood out of that event that has continued since? Or was it purely the consumer responding to price?

Efraim Grinberg: So we are probably a bigger participant in the prime events in Europe than we are in the United States. But we have seen our overall digital business with those retailers that are completely focused on the digital environment, whether it be Zalando or the Amazons of the world, really doing very well on a global basis. And that is really good to see, and that is really across our brand portfolio. So we believe that is an increased opportunity as we continue to progress down our strategic plan.

Hamed Khorsand: Okay. And then I know you have talked about raising inventory because of the Swiss watches, but earlier this year you had also raised inventory because of what is going on with tariffs. How much of your increase overall year to date, and I am speaking on calendar so excuse me, year to date on the calendar, can you just digest through the channel by the holiday shopping season?

Efraim Grinberg: Sure. So I will start, and then I will turn it over to Sallie. Our inventories got very low at year-end, so we began to rebuild inventory in Q1 of this year. We would expect our inventories to be in line by year-end. And what that has allowed us to do at the same time is to offset some of the tariff impact by having inventory moved to the United States prior to the implementation of certain tariffs. Obviously, we cannot offset all of it, and then we have taken other actions, whether it be pricing or negotiations with suppliers, to help mitigate some of the effect as well. But I will turn it back to Sallie as well.

Sallie DeMarsilis: The only detail I will add to that, and thank you, Efraim, that was very thorough, is we have, as I mentioned, about $28 million of additional inventory at this time. We do expect to work it down by the end of the year to something more reasonable. But of that, about $16 million of it is in the U.S. So we did pull it forward into the U.S. so that we can manage through these tariffs and kind of get ahead of some uncertainty with that. As we also mentioned, just to reiterate, we do think that a substantial portion of what we need in the U.S. is probably already here.

We will add in what might be new styles or something that is an advertisement or maybe something that is just selling faster than we had anticipated. Bring it in, but we should be in relatively good shape.

Hamed Khorsand: Okay. Can I ask one more question?

Efraim Grinberg: Certainly. Absolutely.

Hamed Khorsand: You have taken a lot of these restructuring charges in the last few quarters. When do they stop? And when do us investors see it show up in quarterly results?

Efraim Grinberg: Well, I think it is a combination both of charges dealing with our event that occurred in the Middle East last year, as well as some charges on the restructuring side. I would think on the restructuring side, they are predominantly done. There could be some laggard expenses on the other charges, but I would expect overall that they will be reduced significantly.

Sallie DeMarsilis: And just to remind you that we did mention when we were talking about the savings and the initiatives we were putting in place, those are offset by some increases this year in our costs. So you will see they offset some of the increases that we would have for regular year-over-year increases for merit, adding back performance-based compensation, and, of course, currency.

Hamed Khorsand: Okay. Very good. Thank you.

Operator: Thank you. And we have reached the end of the question and answer session. I would like to turn the floor back to Efraim Grinberg for closing remarks.

Efraim Grinberg: Okay. Thank you all for participating with us today, and we look forward to joining you again for our third quarter conference call where we will hopefully be able to share with you the progress that we continue to make on our strategic initiatives. Thank you.

Operator: Thank you. And this concludes today’s conference, and you may disconnect your lines at this time. We thank you for your participation.

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Date

Thursday, August 21, 2025 at 8:30 a.m. ET

Call participants

Chief Executive Officer — Tim Danker

Chief Financial Officer — Ryan Clement

Executive, Health Care Services — Bob Grant

Executive, Technology/Operations — Bill Grant

Investor Relations — Matt Gunter

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Takeaways

Consolidated revenue— $1.53 billion in revenue for fiscal 2025 (period ended June 30, 2025), representing 15.5% growth over fiscal 2024.

Adjusted EBITDA— $126 million in adjusted EBITDA for fiscal 2025, with an adjusted EBITDA margin of 8%, up 8% from the prior year.

Health care services revenue— $743 million for fiscal 2025, growing approximately 55% year over year.

Health care services adjusted EBITDA— $25 million in adjusted EBITDA for fiscal 2025; margin rose to 5.5% in the fourth quarter.

Senior segment revenue— $600 million for fiscal 2025, with adjusted EBITDA of $162 million; EBITDA margin in the senior segment up 200 basis points in fiscal 2025 compared to 2024.

Medicare Advantage policies approved— 593,000 approved Medicare Advantage policies for fiscal 2025, representing a 5% decline from fiscal 2024.

Agent productivity— 24% increase in policies per agent in fiscal 2025 over fiscal 2024.

Life division revenue— $173 million for fiscal 2025, growing 10% over fiscal 2024; adjusted EBITDA of $27 million for fiscal 2025, a 32% increase in adjusted EBITDA for the Life segment and margin improvement of more than 250 basis points compared to fiscal 2024.

SelectRx membership— 31% year-over-year membership growth for fiscal 2025; 2,500 new members added in the fourth quarter.

Revenue to customer acquisition cost ratio— The revenue to customer acquisition cost ratio expanded from 1.7x to 6.1x over the past three years.

Technology and AI impact— 7.5 million calls routed through automation and over 300,000 health care services interactions powered by AI; agent enrollment time reduced by 25% in fiscal 2025, and health assessment time reduced by 30%.

Fiscal 2026 revenue guidance— $1.65 billion to $1.75 billion in revenue for fiscal 2026 (approximately 11% year-over-year growth at the midpoint).

Fiscal 2026 adjusted EBITDA guidance— Adjusted EBITDA guidance of $120 million to $150 million for fiscal 2026, implying around 7% midpoint growth.

Health care services fiscal 2026 outlook— Health care services revenue is expected to grow approximately 20% in fiscal 2026; adjusted EBITDA is projected to exceed $50 million for fiscal 2026.

Cash flow— Operating cash flow is expected to be positive for fiscal 2026 and on an annual go-forward basis.

First quarter fiscal 2026 guidance— Forecasting a consolidated adjusted EBITDA loss of $25 million to $30 million in the first quarter of fiscal 2026 due to SAP dynamics and AEP hiring.

Capital structure improvements— October securitization and February preferred equity offering cited as actions that reduced overall cost of capital and increased operational flexibility.

Select Patient Management and Select Medical— Not expected to contribute meaningful EBITDA in fiscal 2026, but described as potential future growth drivers.

Summary

SelectQuote(SLQT 36.07%) delivered double-digit growth in consolidated revenue and single-digit growth in adjusted EBITDA for fiscal 2025, with results heavily supported by rapid expansion in its health care services segment. Management emphasized improved efficiency, capitalizing on technological advancements and automation to drive down variable costs and accelerate customer acquisition. Operating cash flow is expected to turn positive in fiscal 2026, reflecting a shift toward more consistent and sustainable free cash generation. The company outlined stable or growing profitability in its core lines, while taking a measured approach to agent hiring and policy growth in the senior segment to optimize margins. Near-term headwinds are expected for EBITDA margins due to the business mix, but these are planned and aligned with higher near-term cash generation priorities.

CEO Danker said, “we plan for a flatter year in Medicare Advantage submissions through our senior distribution business in fiscal 2026” as the company balances growth and cash flow focus.

AI and automation initiatives are credited with tangible gains in customer service speed, with specific examples including “25% reductions in enrollment time” and “more than 300,000 unique health care services interactions” processed.

CFO Clement said, “we anticipate generating positive operating cash flow in fiscal 2026 promising consistent cash flow positivity for the foreseeable future.”

Management does not expect Select Patient Management or Select Medical to generate material EBITDA in fiscal 2026, but describes ongoing investment as crucial to long-term value creation.

Cost of capital was meaningfully reduced through recent financial transactions, with additional actions planned to further improve the company’s leverage profile and funding flexibility.

Industry glossary

AEP: Annual Enrollment Period—a specific window when Medicare beneficiaries may enroll in or change Medicare Advantage and prescription drug plans.

SEP: Special Enrollment Period—periods outside of standard enrollment allowing for Medicare plan changes due to qualifying life events.

Commission receivable: Future policy commissions contractually due to the company over a multi-year period, recorded as a receivable asset on the balance sheet.

SelectRx: SelectQuote’s in-house prescription drug delivery platform targeting senior and other health care consumers.

Revenue to CAC ratio: A metric comparing total revenue generated to aggregate customer acquisition cost, highlighting efficiency of marketing and sales strategies.

Full Conference Call Transcript

Operator: Welcome to SelectQuote’s Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed with the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. It’s now my pleasure to introduce Matt Gunter. SelectQuote Investor Relations. Mr. Gunter, you may begin the conference.

Matt Gunter: Thank you, and good morning, everyone. Welcome to SelectQuote’s fiscal fourth quarter earnings call. Before we begin our call, I would like to mention that on our website, we have provided a slide presentation to help guide our discussion. After today’s call, a replay will also be available on our website. Joining me from the company, I have our Chief Executive Officer, Tim Danker and Chief Financial Officer, Ryan Clement. Following Tim and Ryan’s comments today, we will have a question and answer session. As referenced on slide two, during this call, we will be discussing some non-GAAP financial measures.

The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and investor presentation on our website. And finally, a reminder that certain statements made today may be forward-looking statements. These statements are made based upon management’s current expectations and beliefs concerning future events impacting the company, and therefore involve a number of uncertainties and risks. Including but not limited to those described in our earnings release, annual report on Form 10-Ks for the period ended 06/30/2025, and other filings with the SEC.

Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward-looking statements. And with that, I’d like to turn the call over to our Chief Executive Officer, Tim Danker. Tim?

Tim Danker: Thank you, Matt, and thanks to everyone on the call. Today, I will start with a review of fiscal 2025. Which will be brief given the drivers of another successful year. Have been consistent with the recent past. I’ll then provide additional color on the unique environment we saw this past quarter. I’ll then spend the bulk of my time on what we’re planning for the years ahead. Additionally, I’ll contextualize the near-term strategic goals for SelectQuote relative to the broad market opportunity we’ve spoken to in the past. So with that as the outline, let me begin on Slide three. With an overview of our performance highlights for fiscal 2025.

We ended the year with consolidated revenue of $1.5 billion which grew 16% compared to a year ago. As we’ve noted all year, the top line increase has been a function of the rapid growth of our health care services business, and SelectRx. Full year health care services revenue grew by approximately 55% to nearly three-quarters of a billion dollars. This is an incredible result in just a four-year history for the business. Our senior Medicare Advantage business performed very well against a challenging market backdrop for the industry.

With significant plan changes by carriers this season, as well as new SEP parameters for beneficiary eligibility, American seniors relied on SelectQuote and our agents who advise and help find the best plans to fit their individual needs. We’re most proud of how our model and agents performed under pressure. Where we drove another year of record agent productivity up 24% and ultimately drove above target EBITDA margins for the third straight year. On a consolidated basis, SelectQuote drove $126 million of adjusted EBITDA which represents an EBITDA margin of 8%. Margins were relatively in line with last year’s result, despite adding $264 million, an incremental revenue from our lower margin health care services business.

In short, we’re very proud of what the team accomplished this year, and how we are set up for the future. If we turn to slide four, let me put those accomplishments in more detail. We have presented these metrics in the past, and I want to highlight them one more time to emphasize the consistency we have achieved our senior Medicare business. As you remember, we reset our strategic priorities back in 2022, And since then, our focus on profitability and repeatability has been paramount. We’re very pleased with the efficiency gains we’ve been able to yield in the senior business.

We’ve become more efficient in the throughput of how policyholders are assisted via our year-round agent model, and our ever-expanding use of technology. We’ve become steadily efficient in how our services are marketed, in which leads we pursue in a given season or intra-season. It is also important to note that these decisions are rooted in the north star driving profitability and cash flow. As a result, Sunflip Senior has been able to drive near record margins in each of the last three years, despite wide variations in Medicare selling environments from one season to the next.

And finally, SelectQuote continues to leverage our information and connectivity advantage within health care which you can see in our revenue to CAC ratios. We are increasingly able to help more beneficiaries caregivers, and payers by offering a wider set of health care solutions. Best of all, the model is well aligned when our stakeholders do well, SelectQuote and our shareholders do well. The revenue to cap ratio, which includes both our senior and health care services revenues is how we track the reach of our model. Over the past three years, we’ve expanded our revenue to customer acquisition cost ratio from 1.7 times to 6.1 times.

We’re excited about the year ahead for health care services and believe we are in the early innings of how we can leverage our information advantage, technology, distribution to connect more services between those receiving care and those that provide it. We’re immensely proud of the ways our differentiated model and approach to health care serves such a wide breadth of Americans. But we’re equally excited about the implications for our company’s return and cash flow. Before I get to that, on slide five, let’s review the highlights of our year in health care services primarily driven by SelectRx. As I’ve noted, it was another strong year of growth with revenue of $743 million.

Most importantly, we made meaningful progress on the scale and profitability of the business despite concurrent investments and our new state-of-the-art distribution facility in Olathe, Kansas. We ended the fiscal year with adjusted EBITDA of $25 million which is up significantly year over year but still small from a margin perspective relative to what we believe is ultimately possible. The best representation of that operating leverage potential is the difference in growth between our revenues and membership in fiscal 2025. As noted, revenues grew nearly 55% over the last year, while our membership grew roughly 31%. As we mentioned last quarter, we believe this year has been a pivotal one in terms of scale of membership.

To be clear, we believe there is significant growth capacity for new members on the platform. Especially with the addition of our state-of-the-art Kansas distribution facility which significantly increases our potential capacity. With that said, expect to see increased margin and cash flow contribution in fiscal 2026 from SelectRX as scale from seasoned members continues to drive results. It is clear that a revenue base nearing three-quarters of a billion dollars is a significant asset and one that we are very focused on leveraging in 2026 and beyond. If we turn to slide six, let me quickly review our strategic vision for SelectQuote. As a broader connector within the health care ecosystem.

Today, we have clearly driven scale in both our senior Medicare Advantage and SelectRx businesses. More importantly, we have operated these businesses with a growing track record of profitability, and have done so in a range of market environments, for both Medicare Advantage and prescription drugs. As we’ve noted in the past, we believe SelectQuote’s ultimate value is as a holistic solution provider across the $5 trillion US health care market. While there is a significant growth and value creation for shareholders in this endeavor, we also note that our integrated model can be a solution for what has historically been a very inefficient system.

The information we harness, connectivity we create as an intermediary in the health care ecosystem, is tangibly valuable in a wide number of ways. Americans get better in more tailored care based on individual needs. Payer expenses are reduced because patients have better treatment adherence, which leads to better health outcomes. And, ultimately, the broader health care system benefits because Americans are directed to payers, and caregivers that create the best and most efficient patient results. This is particularly important given the traditionally underserved communities we serve which few more rural, lower income, and with more chronic conditions than the general population. This alignment across patients, payers, caregivers, taxpayers, and shareholders why we believe we are just getting started.

In what is ultimately a very value-enhancing opportunity in health care. Today, our challenge is not how to grow. As evidenced by the rapid adoption of our SelectRX platform. But instead, it’s how we balance growth while simultaneously generating a growing stream of sustainable cash flows. This is a good problem to have. We believe our current revenue to CAC ratio of 6.1 x is a compelling proof point in our ability to address the much broader health care market regions, including health care select, and Select patient management. That brings me to slide seven where I’d like to provide additional detail on our evergreen work to drive operational and cash efficiency.

First, I’ll emphasize that SelectQuote has been using technology and computing power to automate tasks and optimize decision-making since our founding forty years ago. That has not changed and it never will. We are highlighting it here given we see AI as critical to our goal to become a comprehensive health care services platform and we believe SelectQuote has a significant head start versus the competition. In our view, the reasons automation and technology are so important are threefold. First, technology is foundational to SelectQuote. And we know that our customers and partners get a higher level of service quality and reliability because of it. Second, our technology is dynamic and has the flexibility to solve for different market environments.

The evidence is in the stability of our financial results, relative to the different Medicare Advantage markets, we have operated through the past three years. Third and most pertinent in today’s SelectQuote technology represents a fixed investment that could be scaled efficiently. Put another way, our technology has been part of SelectQuote since the beginning. It’s not something that we are initiating with the advent of AI. In fact, AI will only amplify our tech-enabled model. The power of that leverage is evident in the efficiency metrics I shared for senior, well as the metrics at the bottom of this page.

Buckwood has routed over 7.5 million calls through intelligent automation, and AI has powered more than 300,000 unique health care services interactions. Technology is critical in organizing and optimizing those customer touch points, and to do so at our high level of customer service is a significant feat. But we are not just a volume processor. Enrollment time has improved by 25% over the past year. Our technology also makes a difference in the lives of our customers. Most importantly, through better health care service fit, and process efficiency. Our technology has also reduced the time in our health needs assessment calls with customers by 30%.

Most importantly, our technology is critical to our ongoing strategy to drive scaled revenues across the ecosystem which results in compounding and sustainable cash flows. Which brings me to Slide eight, Historically, we’ve talked a lot about the growth in profitability of our senior and health care services segment separately. But we created this view to highlight an emerging attribute of our diversified platform that we believe is underappreciated. As you know, the cash flows for our senior business are different than our health care services business. The diversity of that mix is a valuable input for how we manage the business and ultimately drive value for shareholders.

Specifically, health care services revenues and EBITDA are effectively immediate from a cash perspective whereas our Medicare Advantage revenues accrue over the life of a policy as it renews year after year. As our health care services business has continued to scale, it provides us better optionality how we think about capital allocation from one season to the next. We believe and we’ve heard from shareholders, that a sustainable and growing base of cash flow is important. In fiscal 2026, we believe our differentiated ability to accelerate cash flow generation through business mix is the right strategy to drive shareholder value. For context, we know that Medicare Advantage currently is and will remain in flux for fiscal 2026.

This has been well documented in the results of carrier partners, and others in the industry over the past few earning cycles. As I discussed earlier, we’ve demonstrated our ability to deliver attractive returns in our senior business over the past three years through three very different Medicare selling seasons. That said, the scale of our health care services platform now gives us strategic optionality that we didn’t have before. In the year ahead, as we continue to balance cash flow production with growth, we plan for a flatter year in Medicare Advantage submissions, through our senior distribution business.

To be clear, we believe growth in MA is a choice, we’ve built a nimble engine that is primed for growth at short notice. We remain highly confident in our view that 20% plus EBITDA margins are achievable for the segment driven by our technology and agent-led model. On the last point I’ll make, Ryan will elaborate on, is that while our fiscal 2026 forecast shows a dampening effect on EBITDA margins, because of the higher mix of SelectRx it is important for analyst investors to recognize the opposite will be true with regard to cash flow generation.

In fact, we expect FICO to be operating cash flow generative in fiscal 2026 and much of that will be driven by our view that health care services EBITDA will grow and will exceed $50 million. As we’ve noted in our strategic redesign, our focus is to prioritize cash flow and profitability. We’re excited about the overall business’ embedded cash flow potential, given our commissions receivable balance of approximately $1 billion and our growing health care services business. Which is approaching $1 billion in annual recurring revenue, with an improving margin profile.

We believe the decision to drive incremental cash flow will pay significant dividends and how we can compound and deploy that cash flow for more profitable growth and shareholder value in the future. The range of ways that can unlock the value is broad, from future growth in MA and new health care service offerings to continuing to lower our cost of capital. I’ll turn the call over to Ryan to detail our financials, but I’ll conclude by saying Blackwood has never been better positioned to harvest the gains of our strategy we are today. Brian?

Ryan Clement: Thanks, Tim. On slide nine, I’ll start with our fiscal 2025 results. As Tim noted, it was another successful year across the organization. With both revenue and EBITDA beating our original guidance set last September. SelectQuote grew revenue 15.5% to $1.53 billion. Our full year adjusted EBITDA totaled $126 million which grew 8% compared to a year ago. For the full year, our adjusted EBITDA margin was relatively stable which we view very positively considering the majority of our revenue growth was generated by our lower margin but increasingly profitable and cash generative health care services segment. Let’s shift to slide 10 to review our senior segment. Where full year revenue totaled $600 million and adjusted EBITDA totaled $162 million.

As we noted earlier in the year, our agent-led model performed extremely well in a unique season. With policy features in flux and a significant number of planned cancellations by carrier, we delivered strong results during the season with an agent force that was approximately 26% smaller than in fiscal 2024. We are most proud of the operating efficiency exhibited over the year with this smaller agent workforce. Our revenues were only 8% lower and more importantly, we drove EBITDA margins that were about 200 basis points higher which ultimately drove similar EBITDA dollars compared to 2024. Turning to slide 11. Let me detail our production and LTV metrics.

For the full year, we approved MA policies totaled 593,000 compared to 625,000 in fiscal 2024. The 5% decline was the strategic agent staffing choice, but we drove 24% more policies per agent compared to last year. That agent efficiency combined with lower marketing expense for policy were the key drivers of our margin expansion for the year. In the fourth quarter, our senior segment produced 85,000 approved MA policies down 20% year over year due to the lower agent headcount and the changes to the SEP. LTV for full year 2025 was $884 per policy. Which is 3% lower compared to 2024. As we mentioned previously, the decline was primarily a function of commission mix and timing.

LTV for the August ’37 was 1% lower compared to 2024. Which was in line with our expectations. On slide 12, let’s move to our health care services results. We continue to see strong demand for our SelectRX platform, where year-end members grew 31% compared to fiscal 2024. In the fourth quarter, we grew membership by additional 2,500. As a reminder, we believe there is significant runway to broaden this important and valuable service for both our Senior Medicare Advantage customers and for all Americans with the need for reliable and convenient prescription drug delivery. While the addressable market for our SelectRx is massive, our business and shareholders can also benefit through the ability to drive higher cash conversion.

You can begin to see the impact of our focus on efficiency and refined member targeting in the charts on the right side of the slide. In the fourth quarter, we drove $12 million of adjusted EBITDA in health care services. Which represents a margin of 5.5% which on a year over year basis compares to a quarter where we effectively broke even for this segment. I’ll share more on our outlook for health care services in a moment. But as Tim noted, it’s an exciting time at SelectQuote to have an additional growth engine to not just drive revenue, but increasingly contribute to our profit and cash flow. Moving to Slide 13.

Our Life division also performed well in the year and the quarter. Revenues grew 10% for the full year to total $173 million. The fourth quarter was even stronger with growth of 14%, driven predominantly by our final expense product. As a result, segment grew adjusted EBITDA by an impressive 32% for the year to $27 million which represents a 15% margin or more than 250 basis points higher compared to fiscal 2024. This was particularly welcome given the attractive cash flow dynamics of this segment. On Slide 14, I’ll be brief regarding our ongoing priority to improve SelectQuote’s of capital and leverage profile. Here, we outline what we’ve accomplished over the past calendar year.

But we do not have any specific update over the past quarter we would simply reiterate that the improving cash efficiency of our model is an increasingly important driver to optimize our balance sheet. The October securitization and the February preferred equity offering significantly improved our operational flexibility and did so at a lower overall cost of capital. We believe the structure can be further improved and expect future transactions will lead to extended maturity, increased operating flexibility, and a lower cost of capital. We look forward to sharing more regarding this initiative as we believe a lower cost of funding will be a more readily apparent part of SelectQuote’s value creation for shareholders.

Turning to Slide 15, we are excited to introduce our fiscal 2026 guidance. As we’ve talked about extensively, SelectQuote has built an MA engine that is prime for growth when the market allows and we have a rapidly growing and increasingly cash generative health care services business. Overall, we are managing both businesses to drive increasing cash flow which will generate long-term value for our shareholders. We expect revenue in the range of $1.65 billion to $1.75 billion which represents year over year growth of approximately 11% at the midpoint. This range assumes relatively flat senior policy value for the year based on our ongoing strategy to balance current period EBITDA with cash flow generation.

Similarly, our agent productivity was exceptional this past season, and our 2026 forecast assumes a reversion to a more historical average productivity level as we onboard new agent. This measured year for senior will be offset by continued strong growth in health care services. Where we expect revenue growth of around 20%. Moving to adjusted EBITDA. We expect to end the year in the range of $120 million to $150 million which represents year over year growth of 7% at the midpoint. While we expect margins from our senior segment to come down slightly from the mid to high 20s that we could deliver over the past few years, we expect margins to remain attractive and to exceed 20%.

For the first quarter specifically, we expect approximately 10% of our annual senior production to come in the quarter given the SAP dynamics that Tim discussed, This coupled with additional AEP hiring is expected to lead to a consolidated adjusted EBITDA loss of around $25 million to $30 million for the first quarter. In health care services, we expect to generate more than $50 million in adjusted EBITDA for fiscal 2026 as we continue to focus client acquisition on the patient that benefit most from the service and have the best-suited economics.

From a margin perspective, we expect relatively flat sequential margins in the first quarter as we ramp investment in preparation for AUP enrollment and then modest sequential expansion as we move through the remainder of the year. Over the last few years, you’ve heard us speak to the incredible long-term value we within the health care services space. We believe the scale level of profitability we expect in 2026 for a business that will only be five years old demonstrates that value creation opportunity and is just the start of what we think is possible in the future. We also anticipate another strong year for our life division.

We expect double-digit revenue and EBITDA growth with a similar margin profile in the fiscal ’25. Finally, we anticipate generating positive operating cash flow in 2026. This is an important step for us, and we see a path toward meaningful cash flow generation in the years ahead. On an annual basis, we expect to be operating cash flow positive for the foreseeable future as we continue to transition to a comprehensive health care services platform. With that, I’ll turn the call over to the operator for Q&A.

Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ben Hendrix with RBC Capital Markets. Your line is open.

Ben Hendrix: Hey. Thanks, guys. Congratulations on the quarter. I appreciate the commentary on the healthcare services growth and it seems like you’ve seen impressive revenue growth member growth this year. I just wanna talk a little bit about margins in the commentary about, you know, the scaled margin as you see more seasoned SelectRx members. Maybe you can kinda talk about the path to your target margins and how you’re thinking about that. And as we get to a more scaled margin, how do the fixed and variable cost dynamics work? To get to kind of a target margin from a scaled member? Thanks.

Tim Danker: Hey. Good afternoon, Ben. This is Tim. Sam. Thanks for the question. Hey, Bob. Why don’t you cover the color on margin progression and the drivers, and then we’ll hand it over to Ryan. Thanks, Bob.

Bob Grant: Oh, that sounds great, Tim. And so on the margin progression, know, as we get larger, Ben, and continue to refine our business, have more tenured members, but also to the point you made later, really drive the variable cost down, you know, as we are scaled and can make more optimizations. I, you know, I would expect that to continue into the future and pretty meaningfully. Right? We are really, really excited about what we can do now that we’re at scale from both a you know, COGS perspective and, you know, just general buying. Due to the fact that we’re buying so many scripts now.

But then also on automation and streamlining and really taking the time to refine the operation through opening Kansas City and then ultimately retrofitting the other facilities that we have. We’ve got a lot of good findings. We’re rolling out a lot of new technology that we are incredibly excited about. What that’ll do and I think you’ve seen the power of what it already can do given the margin progression we’ve had. So we are very confident that we can get the margins to what we’ve shared and, you know, have a meaningful kind of path ahead of us to continue to enhance the cash flow dynamics of that really powerful business.

Ryan Clement: Yeah. And then I think, you know, obviously, as we ramp our membership associated with within McKinsey facility, we do see a path to margin enhancement. We hear it on the call earlier today, You know, we expect our first quarter to be relatively in line with what we had this most recent quarter that was, you know, five and a half percent, which we’re really pleased with. And then as the year progresses, we see modest margin expansion. There will be some investment as we prepare for the AUP season and onboarding new members. But, ultimately, we do expect the business will produce north of $50 million in EBITDA in fiscal 2026.

Ben Hendrix: Great. Thank you very much. And if I could just one follow-up. As we think about scaling up this business and getting more margin from the healthcare services seems like this could be a really powerful driver for, the securitization program. I wanted to just based on your conversations with the market and with lenders, is there any kind of, kinda catalytic level or more of either EBITDA comp contribution or margin from this business, you know, that could really kind of accelerate the securitization program. Thanks.

Ryan Clement: Yeah. That’s a great question. What I’d say is there’s not a, you know, a threshold, if you will, What I will say is the progression and the EBITDA generation is it’s obviously becoming significant. And that obviously opens up a number of different paths with respect to the capital structure. So securitization still very much a path, but also you know, as we generate more and more cash flow, which we do expect this coming year, we’ll be generating meaningful unlevered operating cash flow. We’ll be positive operating cash flow for fiscal 2026. And on an annual basis, on a go-forward basis, we would expect to be to see that grow sequentially in future periods.

So I do expect to be operating cash flow positive for the foreseeable future.

Ben Hendrix: Great. Thanks,

Operator: Your next question comes from the line of George Stottman with Craig Hallum. Your line is still open.

George Sutton: Thank you. I just wanted to go back a quarter. Your message, I think, coming out of the last quarter was you were refining the marketing. There was a notable caution I think, in how fast you were growing SelectRx. It sounds like you’re more optimistic now. Maybe you have found some solutions. Can you just walk through sort of the dynamics that have changed quarter over quarter? There?

Tim Danker: Yeah. On that, you know, this is different than a growth for my membership and revenue standpoint. And, George, where we were talking a little bit last quarter was that. Right? We are far more focused now on EBITDA growth and expansion and what I talked about kind of getting variable costs down and getting your cost of goods sold, you know, so cost your hard product down. And enhancing our margins. I would expect you know, the kind of membership, and we’re not commenting on it too much, but to grow at a lesser pace we’ve seen just given we grew so fast in that.

I’d also say that, you know, we’re not gonna have quite we’ll still have good healthy revenue growth, but not quite what we’ve seen in years past. Again, kind essentially going from zero to where we are today. So that’s a little bit of a clarification to what we were talking about last quarter. But I would expect our EBITDA to continue to progress materially grow given the opportunity we have in refinements. And just the deep partnership we have with a lot of our carriers now as far as the clinical services that we provide.

And, again, it’s really last quarter talking about membership growth, but we’ll have really healthy revenue growth of north of 20% like we talked about. Again, not to the degree of going from zero to what we’ve come to. Gotcha. I wonder if you could discuss the actual AEP hiring plans that you have and how significant you are using AI as part of the mechanism to serve more customers? You mentioned the 300,000 plus interactions.

Tim Danker: Yeah. George, let me start. This is Tim, and then Bob, you can comment on AI. I think, just kind of macro here, for the AEP season, you know, we are expecting an elevated level of planned disruption again this year, you know, some similarities to last year given where carriers are with respect to their kind of profitability get well plans. And so while we don’t have full visibility to what those plan designs are gonna look like just yet, Now we do expect, you know, further benefits pullbacks, plan terminations, Last year, that certainly you know, aided our front-end customer acquisition dynamics. Things like close rates and agent productivity.

From a retention perspective, certainly, you know, we given the level of disruption last year, we were really pleased with the outcome. We’ve had good experience there. We’re making incremental investments. We’ll be prepared. Bob, you wanna speak to the technology and AI point?

Bob Grant: Yeah. I mean, I think that, you know, the tech team on our end has done a really, really nice job of continuing to supplement our agents and drive more efficiency. It’s what we’ve chatted in the past that we use technology and AI to make simple interactions faster and more efficient and ultimately save our agents time. And then that’s the same on the health care services side. We will continue doing that. We are not in any you know, we don’t think anybody’s close to fully replacing the forty-five minute very, very high-powered conversations, right, that our agents have. And or complex interactions that our health care services business has.

But we’ve made a ton of progress in making them more efficient, which is why you’ve seen our productivity per agent continue to rise we’re confident we can continue to do that. As they said, we’re gonna continue to invest in the same way we have in the past in technology. And, you know, we are very hopeful that will continue to lead the time savings for our agents, which every minute is extremely precious to us. So we’ve seen 25% reductions in enrollment time, for our agents specifically. That’s not necessarily for our customer.

And we’ve also seen for less complex conversations as we touted, you know, Bill’s team have more than 300,000 interactions on the health care services side with just using AI standalone. Just one other question on select patient. Could you give us any details in terms of where you’re headed there? Kind of contribution you expect in ‘twenty six from that segment?

Tim Danker: Yeah. We’re continuing to make really, really good progress on select patient management and then select Medical, which is our telemedicine, practice as a whole. Right? There’s complexity there on carrier contracts and what we’re doing, but we were building that the right way. And we do think in the future, provide material value. In 2026, we don’t think it’ll scale right as quickly and provide you know, meaningful EBITDA this year. But, again, it is a huge path to our future. So we’re really excited about what we can do.

And I think we’ve proven our ability to scale businesses with you know, LHA and with SelectRx, we think that’s, you know, another door that’s a big opportunity for us given the fact that our clients a lot of them you know, don’t have access to quality care. They’re homebound, and they really need to virtually interact. And we think there’s a big gap in the marketplace today where there where that is.

George Sutton: Okay. Thanks, guys.

Operator: Before going to the next question, again, if you would like to ask a press star one on your telephone keypad. Your next question comes from the line of Matt McCann with Noble Capital Markets. Your line is open.

Patrick McCann: Hey. Thanks for taking my questions. I just wanted to piggyback really quickly on, on George’s question about the AI usage. I think, you know, you have the slide on that in this quarter. And I know that’s something that you have been using previously, trying to use technology to increase agent efficiency, But I was wondering if you could talk a little bit about to what extent there have been significant recent enhancements on that front and if you could provide any further details on maybe some examples of, you know, what new additions you’ve made to the agent process in terms of added technology and AI?

Tim Danker: Yeah. So we have made a ton of recent advancements, and that’s you know, when we say, for example, like, health care services side, that’s really an extension of our agents because that was work that they transfer over. And those interactions are brand new to us. Again, our technology team did an incredibly nice job with that. When you look also higher level, every step of the funnel we you to our enrollments and taking, you know, kind of the mundane work out of that and pushing that over to AI. Those are all big levers that we continue to enhance.

And what we really focus on is you know, let’s say right now we’re saving five minutes per enrollment. By using technology. Can we push that to six, seven, eight? And make those more complex enrollments? Because, again, every minute is extremely valuable to us. We think the same thing on the agent side. Right? Can we automate certain functions whether that’s gathering data, whether that’s, you know, gathering drug, those types of things, those are all big levers for us that we are continually trying and optimizing. And, you know, again, some don’t pan out, but mostly ours do. And we’ve been really, really, really proud of that.

I think too, I would love Bill to talk about how we’re using it on the retention side and, ultimately, the compliance kinda QA side because I think we’re using it as a big enhanced there too. Bill?

Bill Grant: Yeah. Sure. I mean, in terms of specific examples, I mean, we’ve really, really ramped up kind of our overall usage. We use it all the way through from you know, our initial recruiting process, our initial scoring now is based on AI in terms of understanding how we’re understanding applicants relative to their ability to produce for us. We use it a lot in our training process. In terms of our QA, and providing real-time coaching. So call listening as opposed to having to be kind of know, more retro. We can be proactive, and we can be real-time. And provide instant feedback.

We use it a lot in our reach recaptures and our basically, our ability to, look at our block of business and analyze it quickly and decide know, how we’re going to treat people and understanding, you know, what plans they’re on to try to you know, recapture them. We use it also in our plan scoring to help us decide, okay, are they on as it possibly can be? So you know, the right are we making sure our plan rank is accurate? really, kinda list goes on and on, but we’re using it more and more. It’s really, we think, having a compounding effect on our business.

Tim Danker: Great question. Sorry for the long the long but one final point. The proof is really in the results. If you look at all these things that Bob and Bill spoke to, you can see this evidence in our margins, you know, three consecutive years. Of EBITDA margins in senior, you know, in the mid to high twenties. You’re seeing this also ramp through our health care services business and our comments on you know, our confidence around, you know, creating diversified cash generative platform. We think we are finding through technology, with highly skilled human agents. Right? We’re getting the best of both worlds, data-driven, high touch, We’re doing it at scale.

And we think the results speak for themselves.

Patrick McCann: Great. I really appreciate that. And I’ll just ask one more regarding capital allocation. I was just wondering if you could say any more about how you’re thinking about how you know, your priorities in terms of additional balance sheet improvement versus maybe a potential acquisition or things that you know, anything you might do to expand your health care services platform and when it comes to, yeah, when it comes to capital allocation, what are your priorities there, and how do you think about the making expansions in health care services while you know, being able to continue to prioritize improving the balance sheet as well.

Tim Danker: Yeah. Great question, Pat. I’ll start and see if Ryan has additional comments. I mean, the immediate focus, you know, for the business, hopefully, it came through in our prepared remarks, is balancing. Right? Balancing growth in the underlying market opportunity was driving, you know, a strong cash generative business. We know that by driving a strong, cash flow business, that’s the key to a better balance sheet. As many other benefits you started to highlight. Some of those. Right? Optionality that we have from capital allocation, around future growth in MA to new health care service offerings, certainly to a better cost of capital.

So we’re gonna, in the near term, be very focused on you know, execution of this plan that we’ve outlined. Driving stronger cash flow. We certainly and Bob did a good job highlighting and the results have demonstrated what we’ve been able to do in SelectRX. The green shoots, and select patient management. So we see additional opportunity, on the horizon, but that’s really kind of our near-term focus. We think that we are proving that we can make a meaningful impact on health care that helps improve health outcomes. While also being, beneficial to the shareholder. Ryan, any additional comments you’d make from a capital allocation perspective?

Ryan Clement: No. No. I really think you laid it out well. The capital structure is our priority. We’re obviously see lots of opportunity to grow the health care services business. But we also see a lot of opportunity to improve the capital structure. Which really sets the stage for those subsequent actions and growth within health care services. And so the capital structure is the focus at the moment, but we are making great progress. And we feel great about the financial plan and the guidance we shared today. Expect to generate meaningful unlevered operating cash flow, which we think know, certainly, sets the stage for additional transactions to improve the balance sheet.

Patrick McCann: Great. Thanks. That’s it for me.

Operator: I will now turn the call back to Tim Denker, CEO, for closing remarks.

Tim Danker: Yeah. I wanna thank you all again for, taking time this morning. A very big thank you to our team here at SelectQuote. For a very successful fiscal 2025. We all should be very proud of what we’ve accomplished thus far. I’ll close the call with one piece of perspective. We’ve spoken over the past three years about the operational stability we’ve built into SelectQuote. Since our strategic reset in 2022. If that was an initial stage, I believe 2026, and the years ahead represent the realization of the model, we built on that foundation. It’s exciting time for the company. We appreciate your time and support. As we show you what SelectQuote can be. I wanna thank you again.

Have a great rest of your week.

Operator: Ladies and gentlemen, that concludes today’s call. You can disconnect. Thank you, and have a great day.

Image source: The Motley Fool.

DATE

Thursday, July 31, 2025, at 4:30 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Jason Les
• Chief Financial Officer — Colin Yee
• Executive Vice President, Corporate Development and Strategy — Jason Chung
• Vice President, Capital Markets and Investor Relations — Phil McPherson

For analyst commentary or quotes, please email [email protected]

TAKEAWAYS

• Total Revenue: $153 million total revenue for Q2 2025, a 5% decrease quarter over quarter, attributed to lower Bitcoin production as the global hash rate increased more rapidly than Riot’s own hash rate.
• Net Income: $219.5 million, or $0.65 per share (GAAP) for Q2 2025, reversing a net loss of $296.4 million, or $0.90 per share, from the previous quarter (GAAP, Q1 2025); the gain was mainly due to a $470.8 million mark-to-market upward adjustment from appreciation in Bitcoin price and marketable securities.
• Bitcoin Holdings: Over 19,000 Bitcoin and $330 million in cash on the balance sheet as of Q2 2025, reported as $2.4 billion in liquidity.
• Adjusted EBITDA: Non-GAAP adjusted EBITDA was $495.3 million for Q2 2025, compared to a non-GAAP adjusted EBITDA loss of $176.3 million in the prior quarter, including a $470.8 million unrealized Bitcoin gain.
• Bitcoin Production: 1,406 Bitcoin mined in Q2 2025, a slight decrease from 1,530 in the previous period (Q1 2025), reflecting a strategic shift to data center development.
• Self-Mining Hash Rate: Increased from 33.7 exahash to 35.4 exahash in Q2 2025, a 5% sequential growth in self-mining hash rate, while the global hash rate rose by 9% in the same period.
• Bitcoin Mining Gross Margin: 50%, up from 48% in the previous period, driven by higher average Bitcoin price.
• Direct Cost to Mine: $48,992 per Bitcoin for Q2 2025, with power costs of $37,767 (77% of total) and non-power costs of $11,225 (23%); Non-power costs increased due to a phase one Corsicana property tax bill.
• Hash Rate Utilization: Year-over-year hash rate utilization rose from 61% to 87%, indicating improved operational efficiency.
• Fourth Quarter 2025 Hash Rate Forecast: Guidance raised to 40 exahash for Q4 2025, representing approximately 26% year-over-year hash rate growth from 2024 to 2025, with an initial Q1 2026 forecast set at 45 exahash.
• Bitcoin Collateralized Financing: $200 million Bitcoin collateralized financing facility with Coinbase enabled reduced stock issuance and funded growth opportunities.
• Engineering Business Backlog: Record backlog of $118.7 million set the stage for future revenue, despite a 14% sequential revenue decline to $10.6 million due to timing of intercompany purchases.
• Data Center Segment Development: 858 acres now controlled at Corsicana, supporting conversion of power portfolio to higher-value data center use as customer demand allows.
• New Leadership: Hired Jonathan Gibbs as Chief Data Center Officer to lead strategic build-out and anchor data center leasing efforts.
• Recent Capital Expenditures: Purchase orders placed for 10 exahash of new MicroBT miners for Rockdale and Kentucky, funded by existing cash; portion to be deployed in 2026.
• Guidance on SG&A: Cash SG&A, excluding one-time litigation and advisory fees, was $29.5 million, at the low end of $30 million-$33 million quarterly run-rate guidance.

SUMMARY

The quarter featured a marked financial transformation as Riot(RIOT 4.85%) generated net income (GAAP) in Q2 2025 from a substantial mark-to-market benefit driven by Bitcoin price appreciation, in sharp contrast to the prior quarter’s net loss (GAAP, Q1 2025). The company increased its self-mining hash rate and hash rate utilization, reflecting underlying operational improvements amid intensifying global network competition. Data center development advanced as the company secured additional land and onboarded hyperscale leadership. A record engineering backlog of $118.7 million and a newly activated $200 million Bitcoin-collateralized facility reinforced liquidity and balanced the execution of new capital expenditures and strategic growth investments.

• Chief Data Center Officer Jonathan Gibbs was brought in to finalize the design framework and enable negotiations with a spectrum of potential data center tenants.
• Management stated that completion of the Corsicana data center’s basis of design is targeted for the end of Q3, a key milestone for securing initial leases.
• Jason Chung reported, “Non-cash charges, which are primarily comprised of stock-based compensation, are temporarily elevated at present, but will be meaningfully and dramatically reduced from mid-next year onwards,” with further guidance to be provided next quarter.
• Jason Les described the strategy as “monetizing megawatts,” emphasizing the transition from mining to data centers, with readiness to accelerate leasing as substantiated demand emerges.
• Riot is methodically investing in site and substation infrastructure, while management affirmed they will not build data center capacity on a speculative basis without lease commitments in place.
• The company views its strategic location near Dallas and Austin as key to capturing premium data center economics over less accessible markets.
• Riot’s summary guidance indicated approximately 26% year-over-year hash rate growth from 2024 to 2025, and approximately 10% year-over-year hash rate growth from 2025 to 2026, with no explicit mandate to maintain a fixed market share.
• Management stated that current fully permitted infrastructure and power arrangements insulate them from immediate risks associated with recent Texas utility policy developments.

INDUSTRY GLOSSARY

• Hash Rate: The total computational power deployed by miners to process transactions and secure the Bitcoin network, measured in exahash (EH/s).
• Basis of Design: The foundational document specifying technical and operational parameters for a data center; used as the starting point in tenant negotiations and site planning.
• Build to Suit: A data center development approach where facilities are constructed to the customized requirements of a specific tenant, generally after lease agreement execution.
• Hash Price: The average daily revenue a Bitcoin miner can expect to earn per unit of hash power, typically expressed as dollars per petahash per day.
• SG&A: Selling, General, and Administrative expenses; in this context, refers to recurring operating costs excluding one-time litigation or advisory fees and non-cash charges.
• Exahash: One quintillion (1018) hashes; a unit of computational power in Bitcoin mining.
• HODL: Industry term for holding, not selling, Bitcoin; refers here to management’s decisions regarding Bitcoin reserves liquidation versus retention.
• FEA: Facility Extension Agreement; a utility contract securing access to power at a site, particularly relevant for large-scale Bitcoin mining and data center developments.

Full Conference Call Transcript

Phil McPherson: Thank you, operator. Good afternoon, and welcome to Riot’s second quarter earnings conference call. My name is Phil McPherson, Vice President of Capital Markets and Investor Relations. Joining me on today’s call from Riot are Jason Les, CEO; Benjamin Yee, Executive Chairman; Colin Yee, CFO; and Jason Chung, Executive Vice President and Head of Corporate Development and Strategy. On the Riot Investor Relations website, you can find our second quarter earnings press release and accompanying earnings presentation, which are intended to supplement today’s prepared remarks and which include discussion of certain non-GAAP items.

Non-GAAP financial measures provided should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP and are included as additional clarifying items to aid investors in further understanding the company’s second quarter performance. During today’s call, we will be making forward-looking statements regarding potential future events. These statements are based on management’s current expectations and assumptions and are subject to risks and uncertainties.

Actual results could materially differ due to factors discussed in today’s earnings press release and comments and responses made during today’s call and in the Risk Factors section of our Form 10-Ks and Forms 10-Q, including for the three months ended 06/30/2025, which will be filed later today, as well as other filings with the Securities and Exchange Commission. With that, I will turn the call over to Jason Les, CEO of Riot Platforms.

Jason Les: Thank you, Phil, and good afternoon, everyone. I’m excited to walk through the results of another strong quarter for Riot. Before we dive into second-quarter earnings, I’d like to share Riot’s strategic roadmap and provide some additional context to the development of our data center business and how we view all of our operations working together in a complementary manner. We are incredibly proud of the position that our company, Riot Platforms, is in today.

Over the last seven years, we have scaled incredibly, both in terms of our size and our capabilities, representing the culmination of years of hard work, long-term planning, and coordination, all with a view to taking ownership of our future and placing our destiny in our own hands. We have grown and evolved as a company, driven by our ability to develop world-class capabilities, including land and power procurement, Bitcoin mining at a globally significant scale, power management and trading at scale, engineering, manufacturing, and servicing critical electrical infrastructure, and significant access to global capital markets. Recently, we have added a new world-class capability.

With the hiring of Jonathan Gibbs, Riot’s Chief Data Center Officer, and other highly capable professionals from the traditional data center industry, we find ourselves at the beginning of another exciting chapter in Riot’s story. With this new capability, we are about to undergo the next step of our evolution as a company. With the ability to build and develop high-performance compute data centers, we will transform Riot by establishing a robust and scalable data center segment. Successful execution in this regard is Riot’s top priority, and we recognize the importance of clearly articulating our approach to investors and stakeholders.

To be clear, we are not pursuing a so-called pivot into AI HPC initiative with a view of doing a, quote, unquote, deal. Rather, we have added a new data center development capability which we will apply to as much of our power portfolio as possible, and which will transform our company in the years to come. This mindset informs all of our decisions, enabling us to capitalize on this exciting opportunity with discipline and foresight.

If I had to summarize our strategy into a simple elevator pitch, the pitch would be that Riot is in the business of monetizing megawatts, with a view to utilizing as much of our power portfolio as possible and maximizing the value of our megawatts over the long term. We will maximize the value of our operational assets, specifically optimizing our megawatts to use all available power. We have a great advantage with a portfolio of ready-for-service power, anchored by our operational flagship sites at Rockdale and Corsicana. These assets are not conceptual; they are active today, thanks to prior investments in Bitcoin mining infrastructure.

This enables more certain execution on our data center development initiative compared to a standalone traditional developer. Our Bitcoin mining capabilities have proven integral to this strategy, as they underpin our ready-for-service power portfolio. By utilizing our mining capabilities, we have put ourselves in the fortunate position we find ourselves in today, and we can secure new power sites by playing to our strengths, profitably managing risk, and simultaneously creating a sustainable cycle of growth. Given the attractive economics and higher valuation multiples associated with data center leases to high-quality tenants, converting as much of our power portfolio to data centers remains our preferred end use for those assets.

The pace of transition from Bitcoin mining to data centers will be influenced by customer demand trends, the availability of financing, and the general data center market. Our current efforts are laying a strong foundation for a pipeline of future transactions.

We have many advantages that have put us in an incredible position because we offer a unique combination of significant scale of readily available power in high-demand jurisdictions, a strong balance sheet underpinned by holding more than 19,000 Bitcoin and $330 million in cash, and with significant access to the capital markets, experienced hyperscale data center leadership, and development capability, scaled efficient Bitcoin mining revenues, generating hundreds of millions of dollars in revenues and cash flows annually, and battle-hardened experienced management and operations teams. With this framework, our mission is clear.

Riot will maximize value across our entire power portfolio, with a view to ensuring no stranded capacity, progressively shift power capacity towards data centers, strategically expand our power assets, utilizing Bitcoin mining where advantageous, and increase our shareholders’ exposure to value-accreting assets. We are strategically positioned at the convergence of surging compute demand and Bitcoin growth, offering compelling potential for shareholder value creation. Now turning to the second quarter. We continue to aggressively pursue further development of our data center business build-out and achieved a key milestone in our development plan. More specifically, we announced the hiring of Jonathan Gibbs as our Chief Data Center Officer.

As we searched for the right person to take leadership of this primary initiative for Riot, Jonathan’s name repeatedly came strongly recommended to us by a number of different industry parties. The market for data center talent is incredibly competitive, and professionals with Jonathan’s level of expertise are in very high demand. Jonathan’s decision to join Riot and lead our data center platform is a testament to the unique opportunity set available to Riot and our ability to succeed. We are incredibly excited to have someone of Jonathan’s caliber on board to drive our efforts. During the second quarter, we also continued to acquire additional land around our Corsicana site and now have a total footprint of 858 acres.

Adding additional land ensures that we can fully utilize the large-scale access to power that we have on-site without leaving any power stranded, and therefore, maximize the value for Riot, which we believe is the premier data center development opportunity in the country. We continue to see strong demand in the market, and we remain engaged in ongoing discussions with interested parties. With that said, in the second quarter, we also continued to make strong progress in our Bitcoin mining business, where we have made significant operational efficiency improvements that now place us among the most efficient operators in the industry, while also focusing on lower cost and maintaining a disciplined approach to capital allocation.

Riot has also maintained our strong balance sheet, a longstanding key pillar of our business, ending the second quarter with over 19,000 Bitcoin and $330 million in cash on our balance sheet, representing $2.4 billion in liquidity today. We continue to sell our monthly Bitcoin production in order to finance our ongoing operations while raising additional funds via a $200 million Bitcoin collateralized financing facility with Coinbase, allowing us to reduce issuance of stock through our ATM and fund our multiple growth opportunities, driving long-term shareholder value creation. I am proud of what we’ve been able to achieve in the second quarter.

These results and the financial and operational strength of the company will allow us to continue aggressively growing our data center business in a way that will maximize long-term value for our shareholders. I look forward to continuing to report on our progress throughout the rest of the year and beyond. With that, I would now like to turn the call over to Colin Yee, CFO of Riot Platforms, to present our second quarter financial update.

Colin Yee: Thank you, Jason. I am pleased to present Riot’s financial results for 2025. For ease of reference, we have highlighted key metrics on slide eight, which presents a snapshot of key financial and operating metrics for the second quarter. During the second quarter, Riot increased its self-mining hash rate from 33.7 exahash to 35.4 exahash, representing a 5% increase over the course of the quarter, while global hash rate rose by 9% in the same period.

Riot produced 1,406 Bitcoin in the second quarter, a slight decrease as compared to the 1,530 Bitcoin produced in the prior quarter, driven by the global network hash rate growing at a greater pace than Riot’s deployed hash rate given our shift in strategic focus to developing our data center business. Year to date for 2025, we have increased Bitcoin holdings per million fully diluted shares from 44.3 to 45.9, representing a Bitcoin yield of 3.7% through the period ended 06/30/2025.

For the second quarter, Riot reported total revenue of $153 million as compared to $161.4 million for the previous quarter, a 5% decrease quarter over quarter, primarily driven by lower Bitcoin production due to global hash rate increasing at a faster rate than our self-mining hash rate. Gross profit for the second quarter was $70.3 million as compared to gross profit of $73.6 million for the prior quarter. Gross margin in the second quarter equaled 46%, flat with the prior quarter. Net income for the second quarter was $219.5 million or $0.65 per share compared to a net loss of $296.4 million or $0.90 per share for the prior quarter.

This net income was primarily driven by mark-to-market adjustments due to the quarter-end appreciation of Bitcoin price and marketable securities totaling $477 million. As a reference, Bitcoin price at the end of the first quarter was $82,534, the price at the end of the second quarter was $107,174, resulting in a mark-to-market upward adjustment of $470.8 million for the quarter. Net income for the quarter also included a $158.1 million loss on contract settlement as part of the Rhodium acquisition, depreciation and amortization expense of $83.2 million, non-cash stock-based compensation expense of $30.1 million, and was positively impacted by the release of $26 million in restricted cash associated with the post-closing dispute settlement with Northern Data.

Non-GAAP adjusted EBITDA for the second quarter was $495.3 million as compared to non-GAAP adjusted EBITDA loss of $176.3 million for the prior quarter, which included $470.8 million in unrealized gain on Bitcoin held. Cash SG&A for the quarter was $45.8 million, including one-time litigation expenses of $14.3 million and advisory fees of $2 million. Excluding these one-time expenses, Riot’s cash SG&A expenses equaled $29.5 million, at the low end of our prior guidance of a run rate of $30 million to $33 million per quarter for 2025. For the second quarter, Bitcoin mining revenue totaled $140.9 million, in line with the prior quarter Bitcoin mining revenue of $142.9 million.

Bitcoin mining gross margin for the quarter was 50%, an increase from 48% in the prior quarter. This margin expansion was driven by higher Bitcoin price. Most notably, Riot’s year-over-year hash rate utilization increased from 61% to 87%, demonstrating our strategic focus on improving operations across all of our sites, even as we significantly scaled our operations and now positioning us among the most efficient operators in the industry. Direct cost to mine, excluding depreciation, in the second quarter was $48,992 per Bitcoin, of which power costs amounted to $37,767 per Bitcoin or 77% of total direct cost per Bitcoin.

Direct non-power costs, which include direct labor, miner insurance, miner and miner-related equipment repairs, land lease, property taxes, network costs, and other utility expenses, totaled $11,225 or 23% per Bitcoin mined, increasing quarter over quarter when direct non-power costs accounted for 18% of total costs. This increase was almost entirely attributed to the one-year anniversary of the completion of phase one construction at Corsicana and the resulting property tax bill assessment, which totaled $3.8 million for the quarter, adding an additional $2,650 per Bitcoin in direct non-power costs. We anticipate this cost will remain constant at $1.7 million per quarter going forward in our direct non-power costs.

Despite this increase in our direct cost of mine, gross profit per Bitcoin mined for the quarter remained in line with the prior quarter given the higher average price per Bitcoin seen in the second quarter. I would now like to turn the call over to Jason Chung, EVP of Corporate Development and Strategy.

Jason Chung: Thank you, Colin. As we continue to develop our data center business, we believe that providing greater clarity on our Bitcoin mining business on a standalone basis is important information for the market. On Page 11 of our second quarter earnings presentation, we have outlined the underlying run rate profitability of our Bitcoin mining business for 2025. The column outlined in the middle of the slide provides a step-by-step walkthrough of key profitability drivers for our Bitcoin mining business, ultimately culminating in run rate EBITDA for the quarter.

Top-line revenue drivers include the average global network hash rate, Riot’s average operating hash rate, average network hash price, and our total Bitcoin production for the quarter, which taken together, result in a reported second quarter Bitcoin mining revenue of $140.9 million. As highlighted on the prior slide, total direct cost per Bitcoin for the second quarter was $48,992, and when applied to the 1,426 Bitcoin we produced during the quarter, equates to our reported Bitcoin mining gross profit of $71 million or 50% on a gross profit margin basis.

In order to determine run rate cash SG&A for the quarter, we exclude from total SG&A the impact of non-cash charges, which are primarily comprised of stock-based compensation, cash SG&A related to our engineering business, and non-recurring expenses, which are primarily litigation and advisory related. Run rate EBITDA for our Bitcoin mining business for the second quarter equaled $45.6 million, representing a 32% margin. These results are based on the average network hash price for the second quarter of $51 per petahash per day, while hash price today is currently closer to $60 per petahash per day.

Our Bitcoin mining business demonstrates strong leverage to changes in hash price, and as an illustration, applying current hash price of approximately $60 per petahash per day to the second quarter results would have resulted in a 70% increase in our run rate EBITDA for the quarter. At the same time, we continue to focus on controlling and reducing costs. Non-cash charges, which are primarily comprised of stock-based compensation, are temporarily elevated at present, but will be meaningfully and dramatically reduced from mid-next year onwards, and we will provide more detailed guidance on the expected reduction in stock-based compensation in the next quarter.

As Colin previously mentioned, litigation expenses represent the bulk of our non-recurring cash expenses for the quarter, constituting $14.3 million out of the total $16.3 million. While litigation expenses can be difficult to forecast, we continue to work to reduce these expenses as well. For instance, our recent acquisition of Rhodium’s assets and settlement agreement during the quarter have eliminated litigation costs associated with this dispute.

It is important to keep in mind that these results are specific to our second quarter and that historically, the third quarter has been the period during which we have typically seen the greatest reduction in direct costs, and, therefore, the greatest increase in profitability, as that quarter is when we have typically been able to most fully employ our power strategy. I will now turn the call back over to Colin Yee to continue with the second quarter financial update.

Colin Yee: Thanks, Jason. Before diving into the financial results of our engineering business for the quarter, it would be helpful to discuss the underlying significant strategic benefits that this business brings to Riot. Our engineering business provides critical, long-lead-time items directly applicable to developing large-scale data center infrastructure. By directly controlling this business, we can ensure timely, cost-competitive availability of critical electrical components, representing a key competitive advantage in planning for ongoing development of both our Bitcoin mining and data center businesses at a time when other developers face supply constraints.

Further, through our acquisition of ESS Metron last year, the engineering business also brings added in-house expertise in commissioning, operating, and maintaining electrical infrastructure, allowing us to better maintain existing equipment, which reduces downtime and extends the life cycle of our equipment, which reduces additional CapEx spend. Direct savings to Riot on CapEx spend associated with ESS Metron since its acquisition in December 2021 already totals $18.5 million to date, and we anticipate additional ongoing cost savings well into the future. Now let’s dive into the financials. During the quarter, the engineering business achieved a record in order bookings, taking our backlog to $118.7 million and setting the stage for a strong 2025.

During the quarter, engineering revenue totaled $10.6 million, a 14% decrease relative to the prior quarter revenue of $13.9 million. Total revenue excludes $5 million of intercompany purchases made in the second quarter by Riot for CapEx. With that, I would now like to turn the call back over to Jason Les.

Jason Les: Thank you, Colin. As I discussed in my opening remarks, Riot’s strategy is to maximize the value of the megawatts that we currently have readily available. With the closing of the Rhodium asset acquisition during the second quarter, we now have access to an additional 125 megawatts of power capacity at our Rockdale facility. Following careful evaluation, we determined that the optimal use for this additional capacity in the immediate term is to upgrade it to support enhanced Bitcoin mining use. As such, we have recently entered into purchase orders for new miners to be deployed at both Rockdale and Kentucky.

In total, this order consists of 10 exahash of MicroBT’s most efficient miner, the M60S++, with an efficiency rating of 15.5 joules per terahash. At current hash prices, coupled with Riot’s low cost of energy, we anticipate a relatively quick payoff period on this purchase. Given the attractive economics and higher valuation multiples associated with data center leases to high-quality tenants, our long-term goal for this additional capacity is to transition it to data center use when appropriate. These capital expenditures are fully funded through year-end 2025 with Riot’s current cash on hand.

As a result of this increase in 2025 CapEx, we are raising Riot’s fourth quarter 2025 hash rate forecast from 38.4 exahash to 40 exahash, representing a year-over-year hash rate growth of 26%. A portion of the new miner order previously highlighted will be deployed during 2026, and as such, we are also providing an initial first quarter 2026 hash rate forecast of 45 exahash. This pace of hash rate growth is anticipated to allow Riot to maintain our approximate 4% share of the global Bitcoin network into 2026 while we continue to focus on the development of our data center business.

In January 2025, Riot formally announced our pivot to utilize the available 600 megawatts of power at Corsicana for data centers that serve high-performance computing. In just seven months, Riot has accomplished the following: One, engage Altman Solon to perform a comprehensive evaluation of the Corsicana site. Two, expanded our board to include key data center and infrastructure development expertise. Three, engage financial advisers to assist in our go-to-market strategy, financing, and strategic partnership exploration. Four, continued development of the 600 megawatt substation at Corsicana, with 400 megawatts on track for 2026, and the second 200 megawatts expected to come online in 2026.

Five, building internal expertise, recruited and hired Jonathan Gibbs as Chief Data Center Officer along with other veteran data center talent, and six, progressing on the basis of design for our data centers. All of these steps are being taken in a methodical, step-by-step manner in order to put us in the best position possible to secure a lease with a tenant and build a sustainable data center business. Further, when combined with our Bitcoin mining operations, and resulting ability to monetize power of land, as well as a strong balance sheet, we are well-positioned to expand our power portfolio further as attractive opportunities arise. Building a world-class data center team starts with the right leadership.

In June, Jonathan Gibbs joined Riot as our Chief Data Center Officer, bringing more than fifteen years of global experience leading end-to-end data center development and operations. Throughout his career, Jonathan has driven multiple aspects of leading-edge data center development, spanning capital planning, infrastructure delivery, operations, and customer engagement across North America, Europe, and Asia. Jonathan has led cross-functional teams responsible for design, construction, procurement, critical operation, ESG, EHS, and sales engineering, and has successfully led development of over one gigawatt of capacity, representing more than $17 billion in global investment. Most recently, he served as Executive Vice President of Product Delivery at Prime Data Centers, overseeing the execution of hyperscale and enterprise data centers across the United States.

Having the right expertise and experienced leadership in place is a critical step towards engaging potential data center tenants and negotiating leases from a position of credibility and strength. As highlighted on the prior slide, building internal expertise represents a key milestone in the ongoing development of our data center business. And with Jonathan now in position leading the team, we continue to aggressively push forward in completing our basis of design and ultimately securing a lease in a manner that maximizes value for Riot shareholders. We are excited to have Jonathan at the helm of our data center platform and look forward to sharing more of his team’s progress and vision in the quarters ahead.

Altman Solon’s feasibility study identified the footprint of our existing site as a potential complicating factor to fully utilizing the entire one gigawatt of power availability at Corsicana for data center use in a lowest development cost way due to the different density requirements in comparison to Bitcoin mining. We quickly moved to address this, and in May, we announced that Riot acquired a 355-acre parcel, expanding our available footprint for additional development. In July, Riot acquired a second 238-acre parcel adjacent to the previously announced 355-acre parcel, creating a 593-acre contiguous collection of land in close proximity to our existing site. Collectively, Riot now controls 858 acres of potential development area in Corsicana.

Our goal is to assemble a portfolio that ensures we have flexibility to accommodate any design specifications and requirements of potential tenants. We are frequently asked about our time-to-market strategy and the, quote, unquote, window of opportunity that we see. Our observation of market dynamics suggests that power availability will remain the key constraining factor to the explosive demand for data center development that we are witnessing, and that these dynamics will remain in place for many years to come. On page 20 of their earnings presentation, there are two charts.

The chart on the left-hand side of this slide demonstrates from 2008 to 2023, US on-grid energy demand growth was nearly flat, resulting in minimal investments in integrated infrastructure upgrades. Contrast that with projections of 2.2% compounded annual growth in demand for the next five years, representing a greater than 10x increase in annual demand relative to the prior fifteen-year period, and demonstrating a significant and growing gap between this increased demand and more limited growth in supply.

Concurrent to this growing gap in demand for power and relative to supply, timelines for pure power in key markets across the United States are significant, with analysts pointing to lead times in the Dallas and Austin markets, where our Corsicana and Rockdale sites are located, of thirty-six and forty-two months respectively. Riot’s fully permitted and readily available power located in important in-demand markets positions us to be in the right place at the right time to capitalize on these market dynamics to the benefit of our shareholders.

In closing, we have many advantages that have put us in an incredible position because we offer a unique combination of significant scale of readily available power capacity in key high-demand jurisdictions, experienced credible hyperscale data center leadership and development capability, strong balance sheet underpinned by more than 19,000 Bitcoin, and $330 million in cash and significant access to capital markets, large-scale efficient Bitcoin mining operations, generating hundreds of millions of dollars in revenues and cash flows, and battle-hardened and experienced management and operations team. With this framework, our mission is clear.

Riot will maximize value across our entire power portfolio with a view to ensuring full utilization of our available power capacity and pipeline, leaving no stranded capacity behind, aggressively shift power capacity towards data centers, strategically expand our power assets, utilizing Bitcoin mining where advantageous, and increase our shareholders’ exposure to value-accreting assets. We are strategically positioned at the confluence of surging compute demand and Bitcoin growth, offering compelling potential for shareholder value creation. We will now open the call up for questions. Operator?

Operator: Thank you. And wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. Now first question coming from the line of Greg Lewis with BTIG. Your line is now open.

Greg Lewis: Yes. Thank you, and good afternoon, and thank you for taking my questions. There’s definitely a lot to chew through on the HPC opportunity ahead for Riot. But I did want to ask about the decision. It was clearly a good quarter for generating Bitcoin, but clearly, from the action, we took that Bitcoin generation to really, you know, we sold that to monetize. Could you talk a little bit about that decision to do that and how you’re thinking about the HODL strategy, you know, in the back half of the year or even longer term?

Jason Chung: Thanks for the question, Greg. This is Jason Chung. Maybe I’ll take a stab at that one. So I think this quarter is an interesting representation of how we think about our financing strategy and the different levers available to us. And just looking at, you know, for the past quarter, the two levers that we exercised most heavily were sales of our Bitcoin production. The second was leaning into our Bitcoin stash to borrow and enter into the Coinbase facility for $200 million. The sale of Bitcoin production allows us to more than cover our operating costs and therefore frees up the additional capacity or minimizes our requirement to issue into the ATM.

And really allows us to focus any financing raise through that very specifically towards growth opportunities, which we believe are going to be value-accretive to our shareholders. And so I think that’s kind of how we think about thought about things for the quarter and probably a good reflection of how we currently think about things as well. As Bitcoin prices increase, that does give us additional room or comfort around our leverage levels and the ability to consider expanding the amount of financing we draw upon there as well.

So I think as we, you know, continue to see how Bitcoin prices evolve, you’ll see us continue to take advantage of different market conditions as we think about what’s optimal from a capital perspective for the quarter.

Greg Lewis: Okay. Super helpful. And then just, you know, realizing you’re probably limited in what you can say, maybe we can talk a little bit about what we’re seeing in the market in terms of, you know, the available power transactions or availability to electricity signing for with HPC. If you could kind of talk to the pricing dynamics, how things have been trending, I feel like more recently, it was kind of in the $120 megawatt range is some of the things that we’ve been hearing. Kind of curious if that’s kind of where you’re hearing the more is.

And then really the question I have is, as we think about sizing, is there a premium that you’re seeing in terms of having larger amounts of power available, i.e., you know, if we’re looking at a couple 100 megawatt power deal versus, say, a half gig plus, is there any kind of premium for that larger power deal just in thinking about how potential transaction could shake out?

Jason Les: Yeah, Greg. This is Jason Les now. I think at a high level, we’re seeing very robust demand in the data center market. Our view continues to be that what exists out there in terms of power and infrastructure is really not close to sufficient to meet what’s forecasted demand. And hyperscalers continuing to announce higher levels of CapEx budgets, they have serious demands for more data center capacity that really cannot be satisfied by new power that is expected to be available. What we see is the implications of the AI arms race being very clear here. There’s a trend for more compute demand, and that’s very clear.

So we believe demand is going to continue to be robust, and we are building a business here, building a platform to be able to serve it. As far as monthly rates go, I think there’s a lot of different components that go into what an ultimate lease might be, and it’s important to look at a deal like this as a sum of all of its parts, maybe instead of just, you know, a single metric. You’ll see a range of rental rates, and those will have somewhat of a correlation to the type of tenant that you’re getting.

There’s a bit of credit risk often built into what those monthly are, and you’ll see term and other components of these agreements. So I think it’s important to look at these in all of the parts that comprise them and not necessarily just what that monthly rate would be. It can be a range, and other components could enhance that deal or make that deal worse off from the perspective of the lessor. Now, as you, I think the last part of your question was, is there a premium for large-scale power? I don’t know if I can comment right now if there’s a premium for that power.

But what I can say is that there’s a premium of interest for large scales of power. So for tenants, everyone is massively scaling. Hyperscalers are looking to take down, you know, gigawatts and beyond now. And as everyone else increases their demands for compute, we’re now seeing new clouds taking down capacity at levels that hyperscalers once did, and now enterprise tenants taking down capacity at those significant levels as well. So what any long-term growth-oriented tenant is going to be thinking about is their pipeline for expanding. That having a solid prompt capacity over and over and over again with different providers.

What we see is customers who are interested in capacity available beyond just what their initial lease might be. So when you talk about a premium for capacity, that’s what we think about it. There’s a premium that is, in essence, garnering customer interest because they see an ability to expand beyond just what an additional phase of a development or lease might be. And that, we have found, is very helpful for having productive discussions.

Greg Lewis: Okay. Well, hey. Super helpful. Thank you for the time, gentlemen.

Operator: Thank you. Next question coming from the line of Nick Giles with B. Riley Securities. Your line is now open.

Nick Giles: Thank you, operator. Good afternoon, everyone. You know, I think it’s become clear that Riot’s not going to rush to get a deal done. So I want to commend you for your measured approach. But I think in recent months, forming a basis of design has been at the core of Riot’s efforts towards the data center side. And so I was wondering if you could provide any detail on what aspects of that document are clearly defined versus ones you may still be working on. I think factors that come to mind are cooling resources, redundancy, security, raw layout. Any color that you can add there would be great. Thank you.

Jason Les: Yeah. So first off, bringing an experienced data center executive like Jonathan Gibbs on board alongside other talent that’s been recruited with significant experience in data center development has aided us considerably in building this basis of design. Of course, it is this team’s, this data center team’s project and an objective to accomplish here. And this basis of design is very foundational to being able to go to market. What we’re putting together here is the technical strategy, design elements, that we can then take concrete to be able to discuss with potential customers, with potential tenants to ultimately arrive at a more customized design and then a lease.

So we see this as, you know, one of multiple milestones, but a very key milestone in progressing towards getting a lease here. We have been working at this quite a bit. Jonathan and his team have, rather, and there’s been significant progress made already. We expect that we will be able to complete this basis of design by the end of this quarter, by the end of the third quarter, that is. And I’ll be moving on to next steps in our data center strategy.

Nick Giles: Jason, thanks for all that color, and that reminds me. I want to congratulate Jonathan on his appointment. My second question was, you know, obviously, long lead times are a key determining factor in development timeline. So have you submitted any RFPs to contractors? I mean, how much is the tariff landscape ultimately playing into the timing of that? Thank you.

Jason Les: So first, for the critical infrastructure that’s needed to build this capacity, we have already secured. I’m referring to the 600 megawatts substation that’s being built that’s expanding the site to one gigawatt. We have already procured that equipment. That equipment is already arriving. That is going to take our Corsicana site to one gigawatt in 2026. So we are very well positioned on that critical equipment there. As far as other equipment goes, we are pretty confident in the steps that we’re taking to prepare for that. We are looking at long lead times for other equipment, but the timelines for these are not surprising to us. That’s kind of expected.

And the process of procuring these volume new items is already underway. And with Jonathan and team on board, we feel like we’re approaching this in a very strategic way. And ultimately, we don’t believe that the lead times for any equipment are going to impact our ability to secure a lease.

Nick Giles: Guys, thanks for the update. Keep up the good work.

Operator: Thank you. Our next question coming from the line of Darren Aftahi with ROTH Capital. Your line is now open.

Darren Aftahi: Hey, guys. Good afternoon. Thanks for taking my questions. Just following up on master site design timeframe. Being completed by the end of this quarter. Can you speak to the potential tenants that you’re engaged with? And, I guess, like, how critical is that master site design in terms of their willingness to kind of continue negotiating? Said another way, like, is that something that will accelerate negotiations for you? Are there folks that have already kind of parallel diligencing things they need while waiting for that master site design? Then my second question, on Rockdale, I know you’re upgrading some rigs there.

But can you just give us some general long-term thoughts on what that campus potentially could be used for other than Bitcoin mining and kind of where your head’s at? If you have too much to find now with Corsicana, that’s kind of back burner, or you could take things simultaneously and potentially market all your power as one campus. Thanks.

Jason Les: Yeah, Darren. So the first part of your question. So one thing I want to make clear is we are making the basis of design that we believe can serve a wide range of customers. It can serve hyperscale customers. It can serve enterprise customers or Neo Cloud customers. What we want to do is maximize our flexibility. I think that’s a theme you’ve heard us talk about on our earnings calls a couple of times now. Taking different actions, making moves in order to maximize the flexibility of our site, of our data center, and secure the best possible deal here.

And if you’re talking about engaging with serious counterparties, this is the type of information that they need you to come to the table with in order to advance discussions substantially. And that’s why we view the building out of this team here, especially led by Jonathan Gibbs and his onboarding, as very critical and a very important step we’ve made to building up this platform. I can’t comment on ongoing discussions. I would say that all types of customers are different, and maybe approach conversations in different ways and difference. Milestone in order to have a serious discussion to.

So, we look forward to sharing more about this with the market as it’s completed, and to keep being transparent and sharing our milestones and our roadmap to building out our platform here and ultimately securing a lease. With respect to Rockdale, our primary focus is scaling our data center business and maximizing the value of all of our power assets. Because of that, because of the economics that you can get with data center leases and how the market values that, data centers are the ultimate ideal use for us for all of our power capacity. What’s great about Riot is we have a lot of power capacity to work with.

Megawatts alone, which is our available capacity of Corsicana, that represents a very substantial data center campus in its own. At the same time, we are open to doing finding deals at Rockdale as well. I think what we’re just doing right now is prioritizing what we see as the best with. And as we get our data center platform off the ground and we continue to make more progress, then that makes all of our power assets, that positions all of our power assets in the pipeline for growth of the data center platform ultimately.

So you can think of our strategy as using Bitcoin mining at sites like Rockdale to monetize that power to ensure that no power is stranded and wasted, turning that into meaningful cash flows for the company, and then ultimately looking to transition that capacity to data center leases when the time is right.

Darren Aftahi: Thanks, Jason.

Operator: Thank you. Our next question coming from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is now open.

Brett Knoblauch: Hey, guys. Thanks for taking my question. Maybe an update on the kind of your Bitcoin mining outlook. I know you guys kind of raised guidance for the end of this year, the first quarter as well, network cash has kind of been stubbornly continuing to go up. Maybe high level where do you see network hash going? Is there a level where you think maybe it kind of plateaus a bit? And I know you talked about being 4% share. Is that kind of like a goal that you guys want to maintain for the long term, or how should we think about that?

Jason Les: I think the 4% share is not a mandate that we have. That’s something that we see ourselves being in just based on the growth that we’ve outlined and kind of a near-term estimate of global network hash rate in the next six to twelve months. By no means are we intending to always maintain a certain percentage. But going back to the first part of your question, I think Bitcoin miners will face the same types of scaling challenges that data centers are. There’s very limited amounts of power, and from what I think we’re seeing and, or we’re excited about is data center customers are paying a lot more for that than Bitcoin miners ultimately would.

So while Bitcoin miners have other options for power, the data centers don’t. I think they will also be constrained in how they scale, which has the potential to have a positive impact on hash price in the future. And Riot? What we’re focusing on is maximizing the value across our power portfolio, trying to maximize the value of all of our megawatts, not stranding any capacity. So what we shared with the growth that we have going on in Kentucky and the hash rate growth that we have at Rockdale, those are moves in accordance with that strategy. And I think represent measured growth of our Bitcoin mining segment.

We’re looking at approximately 26% year-over-year growth, 2024 to 2025, and then approximately 10% growth from 2025 to 2026.

Brett Knoblauch: Awesome. That’s helpful. And then maybe just on the maybe Corsicana, I think a lot of the conversations we’ve had, you know, kind of suggest that it’s maybe one of, if not the best, you know, potential AI HPC data center sites out there. You guys getting kind of, like, similar feedback when you guys are looking at, you know, potential customers or kind of what to do with maybe the remaining 600 or full gig out there?

Jason Les: What we’re focused on launching this data center platform is building a strong foundation. We want to get off on the right foot here. And building that strong foundation means getting the right deal of what we can build the pipeline on top of from the start. Now that doesn’t mean that we need full of that 600 megawatts or sign a lease for all of that 600 megawatts, to build that first foundation. That first step to build that strong foundation. We are looking at this capacity and building it out as a phased approach. We see building this out in different segments, and, you know, we’ll be talking about that more in the future.

And the fact that the site has so much capacity means that, ultimately, there may be one tenant that wants all of that. I discussed an earlier question. The fact that there’s so much growth in one site is, we believe, very interesting to lots of customers out there who have, you know, a very robust demand forecast. So it’s to be determined how this is all segmented out. But we are approaching the market with a design that we believe can serve a wide range in the market, hyperscale, customers, enterprise customers, and neo cloud.

And what’s important to us is getting this off on a solid foundation to start, and then, you know, ultimately, like I stated together, there’s lots of room to grow here. And the potential to do a larger deal from there.

Brett Knoblauch: Awesome. Thank you. Really appreciate it.

Operator: Thank you. Our next question coming from the line of Paul Golding with Macquarie. Your line is now open.

Paul Golding: Thanks so much. I wanted to ask about, of course, we can and drill down to some of the infrastructure components. I noticed in the slide on 2025 CapEx, that there’s a waterline project expected to be completed in Q2 2026. And just overall looking at the substation development line item for Corsicana, was wondering if you could expand on any of the infrastructure components for Corsicana that are maybe factoring into the conversation still pending with potential tenant counterparties as opposed to these deals having been signed already. And, also, just to help us understand the extent to which water access has already been secured given the water retention pond that you have.

And the importance of that for HPC and AI liquid cooling. Thank you.

Jason Les: So starting on water, Paul, as you noted, we have a significant size retention pond that allows us to use a lot of the water that’s just naturally generated on-site. It’s Texas, but still gets a lot of rain. We have secured the plans and the approvals to build up a waterline. And that will ultimately that’s a part of giving us maximum flexibility to serve customer demands. What we’re seeing on the data center technology side is cooling technologies becoming more and more water efficient as time goes on. In order to be flexible, we didn’t want to bank on that. So we’re securing enough water that we believe would be ample for a full one gigawatt development.

If someone needed that amount of water in order to achieve the cooling strategies that they have or that they require. As far as the infrastructure for Corsicana, I think we are in a great position and probably have a considerable leg up on what other data center developers might be at this stage. We’ve already made the decision years ago, really, to be procuring this equipment. So it’s already coming in now. That’s significantly, I think, derisked the amount, I’m sorry, derisked the timeline to getting that power online. Also, combined with the fact that we have this approved already, we have the FEA for this already. It is all baked in and ready to go.

So that, I believe, puts us in a great position when we have conversations with tenants. Because this power is not theoretical. This power is impending certain steps happening. This power is coming in the next six months and scaling up from there.

Paul Golding: Great. Thanks. And maybe a follow-on to that. We’ve talked on the call around about price potential pricing in the marketplace, and premiums or premium for demand. You’ve spoken on the call about data center customer requirements and that’s factoring into this built concept. As you have these conversations, just wanted to verify, is the plan still or is what you’re pursuing still the option to construct the facility and the power infrastructure for these tenants in a yield on cost or build to suit scenario, or are you getting inbounds? Are you considering inbounds where someone else is building it, and leasing the power and the infrastructure? Thank you.

Jason Les: So our philosophy at Riot has been to maximize the value of our assets. And we believe that build to suit model is going to be the best way to maximize the value of our portfolio of assets, especially at Corsicana. That being said, we do not intend on building up the site beyond an initial stage without a lease. We’re not looking to build out a site on spec. We believe that by finalizing the design here, understanding what that is with customers, and then being able to take initial steps to get things off the ground, which we already have done. It’s building up a substation and open the water.

These could be foundational steps in the data center. Are willing to invest in order to get things moving off the ground and getting to the point of getting the lease. But we are not looking to build to suit a site on spec and take on all that risk without having a lease in hand.

Paul Golding: Great. Thanks, Jason.

Operator: Thank you. Our next question coming from the line of Reggie Smith with JP Morgan. Your line is now open.

Reggie Smith: Hey, Jason. Congrats on the quarter. I guess, I’d like to follow-up on the last question. And I appreciate you guys wanting to actually build to suit. I guess my question is if there’s more demand today for people just looking to buy power outright. So, like, if that were your strategy, do you think this plot or your capacity would have been sold now? If that makes sense. I’m trying to figure out, like, is the hang-up or the delay in a deal being done, the fact that there may be some haggling over whether, you know, a miner just sells power outright versus a build to suit type of situation. And I have one follow-up question. Thank you.

Jason Les: Yeah, Reggie. So we’re really, we believe what we have is incredibly valuable, and I think all the data that we’re seeing in the market on data center, least, validates that belief. So it’s important to us to maximize the value of that. If you’re talking about doing something like leasing powered land, yes. You know, there is a ton of demand for lease powered land. But the value that you can expect to extract from that is going to be, I think, pretty significantly mismatched with what I think investors are expecting from this type of data center opportunity.

With the assets that we have, with the balance sheet that we have, and now with the team that we have, we are in a great position to build a data center platform and be able to the value maximizing approach that we see with this build to suit model. We are open to anything that will maximize the value, so we’re not closed off to any type of discussion, but this is the avenue that we see as the best pursuit to look forward. It’s why we’re approaching things in this manner.

Reggie Smith: That makes sense. And if I could ask one more question, one of the points that we’ve talked about that we thought has distinguished you guys from other operators is that you’re located so close to Dallas and Austin. As you kind of assess or appraise your assets, how important is that distance from one of those cities in determining the attractiveness of partnering with a Riot versus someone else? Is there still a premium for location, I guess, is what I’m asking you?

Jason Les: Yeah. Reggie, the location is very important. Dallas is one of, is a tier-one data center market. It’s one of the most in-demand data center markets in the country. That’s why I think Corsicana is so valuable. You have the great connections, low latency, and ability to get and talent to that site relatively easily as opposed to more remote locations. For that reason, we think Rockdale is also an attractive site now.

Austin, San Antonio, those aren’t tier-one markets yet, but with the investments that we see in data center CapEx, with the revenue forecast for AI software, and the margins that AI software service providers are forecast to be able to get, we think that will change over time. So by having these two sites, both near one, of course, Canada near a major market today, and Rockdale near what I would say is an emerging up-and-coming market, I think makes those sites very attractive and allows them, because of those elements, allows them to command perhaps better economics than other projects out there.

Reggie Smith: Yeah. That’s what I assume. Glad to hear that. Thank you.

Operator: Thank you. Our next question coming from the line of Mike Grondahl with Northland Capital Markets.

Mike Grondahl: Hey. Thanks, guys. And congratulations on hiring Jonathan Gibbs. What would you say his top two priorities are this summer and fall?

Jason Les: So our number one priority is building this data center platform bar none. And I would break that down into two priorities on accomplishing that. One is building up the team. Jonathan is bringing the critical leadership to making that happen. We’ve added other individuals that are veterans of data center combined sign and development, are bringing more talent on as we speak. This is important because we want to build up our expertise. We want to build up our platform so it looks and feels and acts like a way a hyperscale enterprise and Neo Cloud customers expect. So that’s the number one priority.

I guess the second priority in parallel, I’m not ranking one of the other, is completing this basis of design, of course, you can. This will allow us to have more substantive discussions with potential tenants, allow us to advance the design further, work in different customer necessary, and really get the critical parts of negotiations happening. So two priorities, number one priority, building a data center platform. Two, building the team and building the big design.

Mike Grondahl: Got it. Hey. Thank you.

Operator: Thank you. Our next question coming from the line of Siban Gwenkola with Jones Trading. Your line is now open.

Siban Gwenkola: Hi, Jason, Colin, and Jason. Thanks for the question. How will the new requirements in Texas Senate Bill six, you know, such as, like, grid upgrade cost sharing, mandatory backup generation to curtailment obligation, so forth affect the cost structure and operations of your mining and your HPC activities at both Corsicana and Rockdale? Thank you.

Jason Les: So first important to note is that for both of these sites, we have FEAs already in place. So we do not expect to need to renegotiate these FBAs in any way as a result of this change or as a result of this new legislation. This legislation launches a lot of exploratory work and information gathering. That’s something that Riot, our very capable public policy team, our power team, and our industry partners are all very involved in. One of the parts of SB6 is looking at the four CP program, something that Riot participates in over to reduce our transmission charges. That program may see changes as the working groups from this legislation progress.

We hope and we’re working to ensure this doesn’t have too much of an impact on our transmission charges. Ultimately, there’s lots of different ideas of how the changes to that program could take place. So it’s really too early to speculate on that. As far as the other requirements go, I think that is probably going to impact new FEAs and new interconnection agreements more than it is us, but it’s something we’re staying very close to. And making sure that we’re good stewards of the grid. We’re good industry partners. And we’re doing what we can to support the grid and give them the data and the reliability they need.

Siban Gwenkola: Alright. Thank you.

Operator: Thank you. I’m showing no further questions at this time. I will now turn the call back over to Jason Les for any closing remarks.

Jason Les: Thank you, operator, and thank you, everyone, for joining us on our second quarter call. We look forward to updating you for the progress on our business on the third quarter call in October.

Operator: This concludes today’s conference. Thank you for your participation. You may now disconnect.