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Aspira Women’s Health Inc. (NASDAQ:AWH) Q4 2022 Earnings Conference Call March 22, 2023 4:30 PM ETCompany Participants Nicole Sandford – President & Chief Executive Officer Ryan Phan – Chief Scientific Officer & Chief Operating Officer Marlene McLennan – Chief Financial Officer Conference Call Participants Ross Osborn – Cantor Fitzgerald Griffin Soriano – William Blair Operator Good morning ladies and gentlemen and welcome to Aspira Women’s Health, Inc. Fourth Quarter and Year-End 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Leading the call today are Nicole Sandford, President and Chief Executive Officer; Marlene McLennan, Interim Chief Financial Officer; and Dr. Ryan Phan, Chief Scientific and Operating Officer. Before we begin, I would like to remind everyone that forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995, will be made during this call, including statements relating to Aspira’s expected future performance, future business prospects and future events or plans. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, actual outcomes and results are subjected to risks and uncertainties and could differ materially from those anticipated due to the impact of many factors beyond the company’s control. The company assumes no obligation to update or supplement any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Participants are directed to the cautionary notes set forth in today’s press release, as well as the risk factors set forth in Aspira’s most recent annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC for a description of factors that could actual — that could cause actual results to differ materially from those anticipated in the forward-looking statements. At this time, I’d like to turn the call over to Nicole Sandford, President and Chief Executive Officer. Please go ahead, ma’am. Nicole Sandford Thank you, operator and good afternoon, everyone. It is my pleasure to welcome you to our 2022 year-end conference call. Today, we plan to share with you highlights from a year of company-wide necessary change for Aspira Women’s Health. Since stepping into the CEO role last year, I have said that achievement of our mission rested on focused execution in 3 areas: growth, innovation and operational excellence. I made a commitment to be transparent with our stakeholders and to earn your trust by clearly stating our intentions and then following through. I’ve also given my word that I would utilize our resources, your capital and our time, as effectively and efficiently as possible in pursuit of the long-term success of the company. While it has not been an easy year, I am proud of our progress and believe we have emerged stronger than ever before. I hope you will feel the same before this call is over. Let me pause and introduce Dr. Ryan Phan, our Chief Scientific and Operating Officer; and Marlene McLennan, our Interim Chief Financial Officer. You will hear from each of them shortly with an update on our product portfolio and financial performance, respectively, before we open the call for questions. Let me start with an overview of our commercial progress in 2022. We grew product revenue last year to $8.2 million, a 20% increase over 2021. At the same time, we increased gross profit 8 percentage points and reduced sales and marketing expense by 13% on a full year basis. Test volumes increased to 21,423, a 23% increase, continuing the sequential and year-over-year growth trends that we have sustained for every quarter since I became CEO. OvaSuite test volumes have continued their upward momentum in the first quarter of 2023. Despite major weather events that caused weeks of delivery disruptions around the country, we saw a dramatic daily volume growth in both January and February. In 2022, we rebranded our ovarian cancer portfolio under the name OvaSuite. Our Ova1Plus test which has now been ordered more than 60,000 times, continues to displace inferior but deeply entrenched single biomarker test. With the successful launch of OvaWatch in December 2022, we now offer a noninvasive risk assessment test for all of the more than 1 million women a year that develop adnexal mass. Our OvaSuite tests have the potential to replace fear with data when women and their healthcare providers make decisions about how, when or even if they remove a women’s reproductive organs. With one of the most extensive ovarian cancer biobanks and decades of bioinformatics expertise, we believe there is no one better positioned to become the market leader in the development of the most advanced diagnostic tools for this devastating and deadly disease. Before moving on, I want to remind you that we face no competition in the market for OvaWatch. It is a completely new risk assessment blood test with a clinically validated 99% negative predictive value that can significantly reduce the number of indeterminate masses and provides a previously unattainable level of confidence in a physician’s decision about the care of their patients. We learned a great deal about our OvaSuite sales and marketing strategies in the last year. In addition to completely rebooting our marketing program, we reallocated funds to high-impact provider conferences, streamlined our KOL program and reworked our incentive plans to drive behaviors that results in provider adoption. In 2023, we will engage in more market focused, high-impact media, starting with an interview on lifetime channels morning show, The Balancing Act in April. Last year, we announced an Ova1Plus co-marketing and distribution agreement with BioReference. Following an October launch, momentum among the joint sales teams has been lower than anticipated. However, we believe our partnership continues to be an important part of the women’s healthcare program. We are working together to implement more effective sales incentives as part of a relaunch between the commercial team. We intend to make the most of this experience and the lessons learned, as we look towards the development of commercial partnerships for our other products, including OvaWatch. On the reimbursement front, we are actively pursuing payer adoption and fair pricing for the OvaSuite test portfolio, hitting a number of important milestones in 2022. Starting with OvaWatch, the American Medical Association moved quickly to assign OvaWatch a unique PLA code which will facilitate efficient coverage and reimbursement when it goes into effect in April of 2023. We also secured OvaWatch coverage from an industry-leading global payer just 2 months after our official launch and only weeks after the publication of our clinical validation study. Meanwhile, we continue to press hold out commercial payers on Ova1Plus coverage, adding Sentinel [ph] of Oklahoma and Molina of Ohio coverage in the first quarter of 2023. The OVA1 clinical utility study which experienced significant COVID delays, has been completed and a manuscript has been submitted for publication. On the Medicare front, we joined with ovarian cancer advocacy groups to educate Congress on the failures of single biomarker tests and the need for better diagnostic tools to save women’s lives. Our combined efforts resulted in the call for national Medicare coverage for multi-marker ovarian cancer test the Omnibus spending bill passed late last year. While we continue to pursue the crosswalk of OvaWatch coverage via our Novitas OVA1 LCD, the implementation of this provision by CMS in 2023 would potentially provide a national coverage determination for all of our ovarian cancer testing portfolio. On the Medicaid front, we became credentialed in a number of additional states in 2022 and are actively engaged with Medicaid decision-makers since launching OvaWatch in December. Turning to our operational excellence initiatives, we have aggressively reduced back office and discretionary spending and reallocated funds to activities that drive our strategic goals. We are a smaller, more nimble organization today compared to a year ago. We eliminated nearly 30% of the workforce, creating significant payroll and payroll-related savings that we will see in 2023. While this has meant that the team that remains must do even more to support our success, I know each individual shares a passion for our mission to improve outcomes for women with gynecologic diseases. Last quarter, we used $7.1 million in cash, a meaningful step down from the trajectory we were on at the beginning of 2022. We will continue to streamline spending while growing top line revenue. In 2023, our cash usage for operations is expected to be between $16 million and $19 million. A significant reduction when compared to the $32.3 million of cash used in operations in 2022, while this is meaningful progress, we recognize that our cash needs exceed our year-end cash balance of $13.6 million. We are actively identifying additional sources of liquidity and in February, put a $12.5 million EPM in place with Cantor Fitzgerald. I’m confident in our ability to secure additional funding to meet our needs and in our ability to navigate these difficult market conditions without sacrificing revenue growth. That being said, our cash needs will drive how quickly we can move some of our programs, products and activities forward. Now, I will turn the call over to Ryan for a closer look at our product development and innovation progress. Ryan Phan Thank you, Nicole. I am proud to say that in spite of challenges, we have found opportunities and have made significant progress in our growth and innovation goals. I will spend the next few minutes updating you on our overall product development and pipeline progress. Let me start with OvaWatch which we will launch in December. OvaWatch is the first and only of its kind noninvasive ovarian cancer reassessment test. It provides health care providers with a personalized result based on 7 biomarkers, age and menopausal status for women presenting with benign and indeterminate adnexal masses. Historically, patient might have chosen preventative surgery, potentially causing lifelong implication for women, who have their ovaries necessarily removed. With the launch of the OvaWatch, clinicians are able to make better informed care decisions for women than they were previously possible. I am also pleased to say that the OvaWatch clinical validation management will publish in the peer review journal of Frontiers in Medicine just a few weeks ago. This publication highlights real-world evidence to support the clinical usefulness of OvaWatch in the management of adnexal masses. It demonstrated OvaWatch’s high negative predictive value across diverse data sets. And so its utility as an effective assessment tool for clinician to safely decrease premature or unnecessary surgery. Enrollment in the prospective OVA1 study has been committed. However, we continue to follow with end goal patients via additional periodic blood draws. As a result, we are collecting real-world evidence to support the second phase of the OvaWatch launch, a serial monitoring assay for women with adnexal masses who are not identified for surgical intervention. Let’s move on to EndoCheck, our in development test for the identification of endometriosis. You may recall that we expanded our development activity in 2022. The result of our internal development of a protein-based test was expanded to consider a multiomic noninvasive diagnostic tests via a sponsor agreement with a consortium of academic institutions led by Harvard Dana-Farber Cancer Institute. I will provide an update on each starting with the internal efforts. While I’m pleased that we have made much progress on the development of an effective assay, the speed of development and commercialization of any endometriosis test will depend on the availability and cost of usable high-quality samples that align with our test’s intended use. While we have recently succeeded in identifying and cataloging a lost number of patient samples from our own biobank. Additional samples from other sources will be needed to develop a commercially viable test. The surplus sufficient symbol continues and we remain focused on the launch of the first-generation assay in the second half of the year. With respect to the small cell research agreement with Dana Farber, we are pleased to report that the development efforts with this group of scientists and collaborators are on track. Sufficient and highly qualified endometriosis patients and controlled cohorts were obtained for this study and the development efforts are well underway, utilizing a next-generation sequencing-based approach and proteomic analysis for the identification of microRNAs and proteins. We believe that the project of this collaborative effort will meet our expected development goals for 2023. To support the development of endometriosis diagnosis assay, our multicenter clinical study for endometriosis were designed and is currently enrolling patients to confirm the clinical performance of EndoCheck as a noninvasive tool to aid the diagnosis of endometriosis. This is a prospective observational study. We are pleased with our enrollment upside and patients so far. We are closely monitoring progress and potentially competitive efforts, both in the U.S. and globally but are optimistic about the competitive positioning of our EndoCheck test. We believe asking what gynecology diseases is and our ability to develop and validate the clinical assay in our clear laboratory setting offers an advantage over others. The strategy and approach on EndoCheck launch will be discussed at an R&D Day that we plan to host on May 21. We will also highlight the potential for the 0 margin application of our OvaWatch test and our plans for growing the OvaSuite portfolio. It has indeed been a very dynamic and exciting time for Aspira. I’ve been with the company for less than a year and are focused on building momentum through the first phase along on OvaWatch and a steady progress in the development of EndoCheck. I am confident in the progress we made in the development of powerful products will help improve women’s gynecology health. I will now turn to Marlene for a discussion of our financial performance. Marlene? Marlene McLennan Thank you, Ryan. Total product revenue was $8.2 million for the year and $2.1 million for the quarter ended December 31, 2022, compared to $6.6 million and $1.9 million for the same period in 2021. The 20% full year and 16% fourth quarter revenue increases were due to an increase in Ova1Plus test volume compared to the prior year, partially offset by a lower average unit price of $372 for the year and $369 for the fourth quarter of 2022 compared to $378 and $381 for the same period in 2021, respectively. The overall number of tests performed increased 23% for the year to 21,423, with the fourth quarter volume increasing 18% to 5,642 test. Gross profit margin for the year was 53% compared to 45% in 2021. For the fourth quarter, gross profit margin was 57% compared to 55% in the same period last year. Margin improvement is primarily attributed to targeted cost control measures in the laboratory and information technology spending. Research and development expenses for the year increased 12% to $6 million, primarily due to costs related to our sponsored research collaboration agreements and increases in employment-related expenses, partially offset by decrease in costs attributed to clinical trials. R&D for the quarter decreased 29% over the same period last year, primarily due to personnel expenses. Sales and marketing expenses decreased 13% for the year to $14.9 million and 40% for the quarter to $2.9 million, primarily due to decreases in employment-related expenses, consulting expenses and other marketing expenses, offset by an increase in travel costs. General and administrative expenses for the year increased 22% to $16.2 million, primarily due to legal costs, severance for role eliminations and incremental cost of the Executive Chairperson and costs related to our capital raise. For the quarter, G&A expenses decreased 21% to $2.9 million, primarily due to a decrease in outside legal expenses. As of December 31, 2022, Aspira had $13.6 million in cash and short-term investments. Cash used in operations for the year was $32.2 million compared to $27.4 million in 2021. We utilized $7.1 million in operating activities during the fourth quarter of 2022 compared to $7.6 million in the fourth quarter of 2021 and $8 million in the third quarter of 2022. Cash to be used in operations in 2023 is anticipated to be between $16 million and $19 million. I will turn it back over to Nicole. Nicole Sandford Thank you, Marlene. In closing, we’ve come a long way since the beginning of 2022 and we have been through tremendous change as an organization. But the one thing that remains clear is the critical need for better ovarian cancer diagnostic tools for women and the resulting potential for our business. We’re taking all the steps we believe are necessary to position ourselves for success and continue to be steadfastly focused on growth, innovation and operational excellence. With that, I would like to now open up the call for questions. Operator? Question-and-Answer Session Operator [Operator Instructions] Our first question comes from the line of Ross Osborn with Cantor Fitzgerald. Ross Osborn Congrats on the progress. I thought we’d start off on ASP this year. There’s a lot of moving dynamics. So maybe focused on OvaWatch initially. How should we think about ASP following your ability to sign a national payer? And then as a follow-up, when looking at the corporate ASP, can we just walk through the change in payer mix there and how that should evolve over this year? Nicole Sandford Sure. Well, on the OvaWatch side, as you know, it does take some time to get those payer relationships lined up. We were very pleased with the progress that we’ve made so far. But of course, the business is — or the test market is really divided in a number of parts, including Medicare which is really important for an ovarian cancer test, as women are at higher risk as they age. So we continue to be optimistic about the crosswalk of the Novitas LCD and as I mentioned in my earlier remarks, we are looking at a potential NCD for multi-market ovarian cancer blood test based on the provision in omnibus bill. So still work to do there, of course but ultimately, we expect in reasonably short order, sometime towards the end of the year to start to see the OvaWatch, ASP start to line up with the Ova1Plus price. And to your point around the changes — I’m sorry, Rob, I think you were asking around OVA1Plus average selling price, what to make of that in the mix. It is true. It had additional Medicaid sales this year and that mix has sort of resulted in a little bit of erosion on the sales price. But on the upside, that gives us a great platform to go back to those states which we have been doing aggressively in the last several weeks to go back to states and say, your patients — your Medicaid patients are benefiting from this test. They’ve been ordered frequently. We’ve been able to provide statistics and have had very positive conversations with a number of state Medicaid administrators, to make them see that the test is useful and is being used for the population and to encourage them to accelerate, adding over plus to the fee schedule. Ross Osborn Okay, great. And juggling a couple of calls, I may have missed this but how are conversations going with potential partners for co-marketing distribution agreement for OvaWatch? Any idea on the time line there? Nicole Sandford So as you probably know, the important issue that people are looking to is very similar to the question you already asked which is what does the reimbursement look like for this test, because that is an important risk factor for any potential partner on a commercial partnership for OvaWatch. So every time we have an announcement which we’ve had many in the last couple of months which is great, we get a more captive audience with people to talk about, the market potential for the test. No time line here to — no time line here to announce. Believe me, we’ll be happy to tell you when there’s something there. Ross Osborn Okay, got it. And then maybe on your cash burn, does a signing of a potential partner for OvaWatch, does that include in your cash burn guidance positive or negatively? Nicole Sandford No. We have not included anything relative to cash for OvaWatch partnership. Ross Osborn Okay, great. And then lastly on — nice reiteration for your plan to launch on that test. So I guess between now and launch, what needs to happen from both a development and regulatory perspective? Nicole Sandford So we’ve mentioned in the past that we are pursuing a number of different potential paths for the launch of an endometriosis test which could include an FDA path or an LDT. So we’re not ruling either out at this point or remove them all in, I guess, I would say. So from a regulatory standpoint, that’s still sort of developing as we continue to think about what makes the most sense from a launch perspective. What needs to happen, as Ryan mentioned, the biggest barrier to a completed test is in remains, the availability of acceptable samples for the validation of the test. That has been a challenge and it continues to be a challenge. It doesn’t do us with any good whatsoever to try to validate or continue development with samples that are not high quality and that don’t line up exactly with the test that we’re developing. So that is a challenge. So we continue to seek out additional sources and as we said in the remarks earlier, we were very pleased to see that we were able to identify a number of additional samples in our own biobank as we continue to refine the test and the requirements. Question-and-Answer Session Operator Our next question comes from the line of Andrew Brackmann with William Blair. Griffin Soriano This is Griffin, on for Andrew. Thank you taking our questions. Maybe just to start on OvaWatch, can you talk a little bit about the stock feedback that you’re getting on OvaWatch? Are you seeing an expanded ordering population that you have that expanded label? And then I think there was some expectation for some cannibalization of OVA1Plus, has that played out as sort of expected so far? Nicole Sandford Thanks for the question. I’ll say on the cannibalization side, we have not seen that. We’ve continued to see growth in OVA1Plus. We were really thoughtful about how we presented the test to the physicians and the intended each very, very clear. We’ve found that they’ve been able to understand very easily which test is appropriate given the intended use. So happy to say that has not materialized as of yet. Of course, it’s early days. And in terms of physician response, so far, it’s been overwhelmingly positive. As you know, it takes a while to get the word out on a new test. So we continue to go out in the field and also as a company, we’re investing in a lot of additional physician conferences and higher impact at the conferences were attending to get the word out. But people seem to be really open to the intended use and they understand the value of taking what turns out is a pretty significant number of masses that sort of fall into the indeterminant category which frankly means they really don’t have a good sense of what to do with that patient; and it’s a large percentage. Having a tool that helps them to reduce that number or to just have better insight into that number of patients is incredibly valuable. We’ve heard that time and again. So as they’ve learned how the test works and the value of being able to isolate the patients that really do need additional scrutiny or additional clinical intervention and rule out to some extent, the women that are in that indeterminate category has been very, very valuable. Griffin Soriano Okay. And that corporate deck, I think, has a potential of watches $300 million to $420 million. Obviously, serial monitoring is really a big part of that. Can you just go in a little bit more detail on the time line for the serial launch indication? I know you talked about a prospective study that’s enrolling but any sense of time lines for launch there? Nicole Sandford Yes. Yes. So I’ll start and then Ryan can add any color to the study. The study is actually — the study that we’re using for the serial monitoring test is actually an extension of the OvaWatch, clinical validation study which is frauds, we continue to take draws and monitor those patients through additional drugs. Our commitment has been to launch that serial monitoring test in the second half of 2023. Ryan, anything else you’d like to add? Ryan Phan No, I think that Nicole mentioned everything needed, [indiscernible] ask that question. You answered right. I think the OvaWatch serial monitoring assay is going to be key for the patient and the physician as well, particularly for this particular population, many of them was either by selection or by clinically makes sense but not selected for surgical intervention. So they need a tool to follow up and OvaWatch is serving that purpose. The great news is our clinical study has come late but we continue to follow those enrolled patients. So we know exactly what the [indiscernible]. So those data are going to help us to set the stage for what the time line and also at the dosage, if you will. If you think therapeutically, how did this frequently how the woman should see the OvaWatch we may have those information when near to the time that we can launch the test which we intended — we remain intended for the second half of the year. Griffin Soriano Okay. And then — sorry. Nicole Sandford Sorry, let me just say one thing. We understand that in the market that we are in right now but the market conditions being what they are, investors, both current and potential investors, are hyper focused on companies with revenue. We continue to believe that the OvaWatch serial monitoring test is going to drive material revenue for the company and has been really put to the top of the list in terms of things we think about every day. And we do believe that our revenue estimates that we’ve talked about in the past are very, very realistic for a serial monitoring test. Griffin Soriano Okay. And then last one, maybe for you, Marlene, on just burn $16 million and $19 million for the year. Anything on how do you think about pacing, first half, second half split? And then I know you had previously sized the reduction forces being maybe something a little over $6 million year-over-year savings in 2023. Is that sort of still how you’re thinking about that? Marlene McLennan We are definitely on target for that and monitoring it very closely. It’s pretty evenly spread over the quarters. Most of our savings will be realized towards second quarter going forward, because they were just initiated in first quarter. But overall, we are on target for $16 million to $19 million. Operator Ladies and gentlemen, there are no further questions at this time. I’d like to turn the call back to Nicole Sandford for any closing remarks. Nicole Sandford Thank you so much and thanks for the questions. We appreciate the attendance today and the continued support and interest in the company. We’ve been through an awful lot of change this year, as I said but I’m more optimistic than I’ve ever been. I’ve said before and I’ll say it again that as companies that are further away from commercialization of their product, are really going to struggle. And as we see the fallout of that happening all around us, I believe that we’re going to be comparatively a very, very attractive investment, especially as we kind of move through the year and we continue to deliver on all of the things that we’ve promised. So, I appreciate your time today and look forward to continuing to bring you additional news and insight as the year goes on. Thank you so much. Marlene McLennan Thanks, everyone. Operator This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great evening.

MillerKnoll, Inc. (NASDAQ:MLKN) Q3 2023 Earnings Conference Call March 22, 2023 5:30 PM ETCompany Participants Carola Mengolini – Vice President, Investor Relations Andi Owen – Chief Executive Officer Jeff Stutz – Chief Financial Officer John Michael – President, Americas Contracts Debbie Propst – President, Global Retail Conference Call Participants Greg Burns – Sidoti & Company Reuben Garner – Benchmark Company Budd Bugatch – Water Tower Research Steven Ramsey – Thompson Alex Fuhrman – Craig-Hallum Capital Group Operator Good evening and welcome to MillerKnoll’s Third Quarter Earnings Conference Call. As a reminder, this call is being recorded. [Operator Instructions] I would now like to introduce your host for today’s conference, Vice President of Investor Relations, Carola Mengolini. Carola Mengolini Thank you, Lisa. Good evening and welcome to MillerKnoll’s third quarter fiscal 2023 conference call. I am joined by Andi Owen, Chief Executive Officer; and Jeff Stutz, Chief Financial Officer. Also available during the Q&A session are John Michael, President of Americas Contracts and Debbie Propst, President of Global Retail. Before I turn the call over to Andi, please remember our Safe Harbor regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today’s press release. The forward-looking statements are as of today and assume no obligation to update or supplement these statements. We may also refer to certain non-GAAP financial metrics, which are reconciled and described in our press release posted on our Investor Relations website at millerknoll.com. With that, I will turn the call over to Andi. Andi? Andi Owen Thanks, Carola. Good evening, everyone and thank you so much for joining our call. Throughout this quarter, our team delivered strong earnings and margin improvement despite challenging economic conditions. We have many competitive advantages. We have a collection of strong design brands, which are sold across multiple business channels and that cater to a different customer segments around the globe and we are nimble. We are capturing synergies, reducing our cost structure and optimizing our capabilities so that we are positioned to capture opportunities as and when the macroeconomic picture improves. To be sure, this is a disruptive period. Traditional office usage and layouts are not as relevant as they want us for and new opportunities exist to help our customers design more hybrid, collaborative work environments. Our contract clients continue to engage us in conversations around reimagining their work spaces both to enhance their employee experience and to create multiuse spaces. Because of this, the volume of customer discussion remains very high and the funnel of potential project opportunities is robust, albeit somewhat uncertain in terms of timing. These customer interactions continue to emphasize the importance of non-traditional product categories to home and office settings. We believe that this pivot to premium ancillary product solution give MillerKnoll and our distribution partners, a distinct competitive advantage given our best-in-class collective brand. To this end, I will highlight the great performance of some of our smaller luxury brands such as Holly Hunt, Muuto and Spinneybeck Filzfelt, which support our strategy towards a diversified global business model that includes luxury ancillary products that cater to both the residential and commercial client base. As we continue to build our presence as one collective at MillerKnoll brand, we are also seeing a new patent emerge with our dealers and the way we are winning businesses. Now with more offerings across our portfolio, we are better suited to win whole floor plan solutions than ever before. We are also using a transitional period across our industry as a strategic opportunity on many fronts, introducing innovative products, pursuing new sector expansion and investing in our digital capabilities, all of which permits us to further our reach and remove friction claims for our dealers and our customers. As it pertains to our retail segment, we believe that higher interest rates have temporarily slowed new and second home buying and in some cases, also delay decisions to upgrade and renovate current spaces. Additionally, we are seeing customers temporarily shift more of their discretionary spend towards travel and leisure. And although we believe this is a short-term trend due to pent-up demand after an extended period of pandemic-related isolation on this we are preparing for a near-term slowdown in our demand environment. And although this won’t jeopardize our long-term growth strategies, we know that is happening. To the end, we are analyzing and reviewing our retail footprint. We will continue to expand our reach through targeted channel development and digital experiences. During the quarter, we finished converting HAY stores in the U.S. into DWR spaces in several key marketplaces. On the other hand and based on the success of a HAY’s wholesale business in Europe, we opened our first HAY shop-in-shop with Nordstrom here in the U.S. Moreover, through a wholesale partner, we also opened our first Herman Miller and Knoll stores in Shanghai. In addition, we are strategically expanding our international business. Around the world, different regions are in varying phases of return to office. Due to our global footprint, we continue to capture business in areas with more favorable economic conditions such as the Middle East, Asia and India to name a few. Our global reach, our unmatched product portfolio and our expertise in various areas such as healthcare, education and hospitality are a meaningful advantage. We are also making strategic choices to prioritize projects and opportunities that drive sales and margin expansion across all channels. I will show a few examples. Through our integration work, we continue to compare – I am sorry, we continue to capture cost synergies with $123 million of implemented savings to-date as we work our way towards our goal of $140 million. We are creating [indiscernible] to deliver improved quality, reliability and production lead times. Our Geiger facility in Hildebrand, North Carolina does incredible work and restricting more MillerKnoll production there, creating a center of excellence for premium upholstery and craft wood products. We are also looking across our global operations network and identifying where we have available capacity and unharnessed capabilities. We will move production to the places that are best suited to manufacture items versus having solely brand-dedicated facilities. For example, during the quarter, we shared our decision to shift some metal fabrication work from Toronto to East Greenville, Pennsylvania. And we are fine-tuning our brand portfolio. With multiple brands and channels, we can select to where and how we sell items. This quarter, we began the work to wind down fully as a standalone branded sales channel. Going forward, select Fully products will be sold through our existing designers and reach and Herman Miller channels. So before I hand the call over to Jeff, I want to highlight that we continue to lead through innovative design. During the third quarter, we launched a variety of exciting new products across our collective brands. In addition, we continue to deliver against our sustainability goals, reducing our carbon footprint and using sustainable materials. For example, Herman Miller was recently recognized with a chemical footprint project for our commitment to minimizing chemical footprints and integrating criteria for better alternatives into our design practices. In the months ahead, we continue to manage our business, taking into consideration the macroeconomic pressures we are all experiencing. We are vigorously controlling the factors that we can, leaning into our strategy and adapting our business priorities to anchor on our best assets and to continue to develop areas where we see future success. As we navigate a variety of market conditions around the world, we are prioritizing our work around innovation and what drives our business, where there is margin to gain, where there are opportunities to build for future success and ensuring that our customers turn to us first. So with that, I will turn the call over to Jeff for his prepared remarks. Jeff Stutz Thanks, Andi and good evening, everyone. We appreciate you joining us. During this quarter, we delivered adjusted earnings of $0.54 per share, beating our guidance and significantly outperforming the same period last year. While net sales came in lower than the same time last year, we experienced another quarter of strong margin expansion that contributed to our improved performance. At the consolidated level, net sales in the third quarter of $984.7 million decreased 4.4% on a reported basis and 2.7% organically compared with the same quarter last year. Consolidated orders for the quarter were $885.4 million, reflecting an organic decline of 17.6% from the same quarter last year. Softer demand tied to global macroeconomic uncertainty and elevated comparables in the third quarter of last year resulted in the year-over-year pressure for orders in each of our business segments. Within our Americas Contract segment, net sales totaled $484.6 million. This represents a year-over-year decrease of 4.9% on a reported basis and an organic decrease of 4.5%. New orders for this segment came to $461.6 million, reflecting a decrease of 12.6% from the same quarter last year on a reported basis and down 11.8% organically. During the past few months, general economic uncertainty and the impact of rising interest rates have weighed on business and consumer sentiment levels. The result has been slowing demand patterns and further delays in customer return to office timelines. So with all that said, gross and operating margins in the Americas segment have continued to improve as expected, driven by net pricing benefit and the impact of integration cost synergies. For the quarter, operating margins for this segment improved 980 basis points on an adjusted basis versus the same period last fiscal year. Within our Global Retail segment, net sales in the quarter were $257.6 million, a decrease of 7.7% compared to the same period last year on a reported basis and down 5.5% organically. New orders totaled $213.7 million in the third quarter, down 23.5% compared to the same quarter last year on a reported basis and down 21% organically. Here again, macroeconomic pressures and increased stock market volatility have eroded consumer sentiment and buying activity. Overall margin performance in this segment did improve sequentially from the second quarter, but remained lower on a year-over-year comparison due to elevated freight expenses and higher inventory costs that we outlined for you last quarter. As Andi mentioned, this quarter, we made the decision to cease operating fully as a standalone brand. By integrating fully into our global retail organization, we will reduce operating costs and further optimize our retail structure. As part of our commitment and focus to drive profitable growth and streamline our organization, we are constantly reviewing our channels to market, products and processes to identify ways to leverage our strengths. And this decision is an example of that. Turning to our International Contract and Specialty segment, net sales for the quarter were $242.5 million, reflecting an increase of 0.6% on a reported basis and an increase of 4.3% organically. New orders in this segment were $210.1 million, which is down 27.2% year-on-year on a reported basis and down 24.5% organically. From an adjusted operating margin perspective, this segment delivered strong year-over-year improvement with an increase of 270 basis points, mostly driven by pricing actions taken earlier in the year and favorable product mix. Shifting back to the enterprise level results, we were pleased this quarter to report a meaningful improvement in margin performance. Our consolidated adjusted gross margin in the period was 35.7% and the adjusted operating margin was 7.5%. And these results are 260 and 340 basis points higher than the same period last year respectively. Higher pricing, benefits from cost synergies and reduction in variable compensation more than offset higher commodity costs and other inflationary pressures to drive these positive increases. Turning to cash flows in the balance sheet. This quarter, we generated $75.7 million of cash flow from operations and paid down $18.1 million of debt. And moreover, as part of our focus on maintaining a strong balance sheet, this quarter, we executed an interest rate hedge, which provides an immediate reduction in current interest expense and together with our previous three hedge instruments has provided a fixed interest on 65% of our total bank debt. We ended the period with a net debt-to-EBITDA ratio as defined in our credit agreement of 2.6x. Now I will talk about our guidance for next quarter. The outlook reflects a revenue guide that is informed by the recent order trends. To this end, we expect net sales to range between $930 million and $970 million and adjusted earnings to be between $0.37 and $0.43 per share. So before we open the call for your questions, I just want to highlight that our focus on actions toward diversifying our business, driving profitable growth and capturing cost synergies are helping us navigate short-term macroeconomic challenges, but most importantly, they are strategically positioning us to capture further top line and margin expansion when the macroeconomic trends improve. With those prepared remarks, I will now turn the call back over to the operator and we’ll take your questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] We’ll take our first question from Greg Burns with Sidoti & Company. Greg Burns Good afternoon. Can you just talk about the order trends in the early part of this quarter? Have you seen any improvement or has it stayed about the same? Jeff Stutz Hi, Greg, this is Jeff. I will take that. So the good news is we did see improved trends as we made our way through the quarter, really across each of our three business segments. So while we ended the quarter in the organic numbers that I gave you in my prepared remarks, order entry levels in the month of February, for example, were actually better than the full quarter trend in each of the three segments. So we did see some improvement. And in the first couple of weeks of Q4, I would say, generally, that’s continued. Greg Burns Okay. And then just specifically, the decline you saw internationally, the international segment has kind of been an outperformer relative to North America, but it seems like it’s catching down. Is there anything in particular going on there? Andi Owen I think just a couple of things, Greg, and then I’ll turn it back to Jeff. I think the international business is a little lumpier as far as timing and placing orders. I think that if you think about last year, they had an amazing quarter with the price increase that we instituted and so they are up against really significant comps. So I think there is a little bit of timing in quarter-over-quarter, and there is a little bit of comparison to last year in international. We are seeing more weakness in the European business than we are across the globe. And we are seeing China come back a little more slowly than we had thought. But I think on the whole, long-term, we feel very optimistic. Jeff, I’ll let you add. Jeff Stutz Yes. And the only thing I would add, Greg, and I think this is an important reminder really for all of the comps across our consolidated group that a year ago Q3, we had an amazingly strong quarter in order entry in particular. And just to kind of remind everybody, we had 74% order growth in the third quarter of last year in our International segment. We’ve never seen anything even that touches those types of percentages so remarkable growth. So these are real tough comps. And even in the Americas segment, we had growth that was up 37% in the year-ago period. So I’m always cautious about pointing to comps, but this is one of those moments where it matters because I do think that those were remarkably strong numbers a year ago. Greg Burns Okay. And then in terms of your synergy targets, I know Fully was a Knoll brand. So is – is this part of that $140 million of the savings there or is this incremental to that? And do you – are there any other brands that are up for maybe being absorbed into the – your broader network? Andi Owen Yes. This is part of the synergy savings, Greg. It’s a great question. And as part of the integration process, we will continue for the next however many months to go through and evaluate what is profitable, what are the right decisions. And certainly, we will let you guys know when we make those decisions and when they are public. But right now, Fully is the only place that we’ve made that decision, and it is the right thing to do; always hard to do, but the right thing to do. Greg Burns Okay, thank you. Operator We will take our next question from Reuben Garner with Benchmark Company. Reuben Garner Thank you. Good evening, everybody. Andi Owen Good evening. Reuben Garner Jeff, maybe to start, operating expenses in the third quarter came in, I think, lower than what you guys were looking for and it looks like there is a step-up in dollars in the next revenue. Can you kind of walk through maybe what was different for you in the third quarter? And is there any seasonality of spending or anything else that would lead to the step up in the next quarter? Jeff Stutz Yes. Happy to, Reuben. You’re spot on. We – and I would tell you that given order trends, just in general terms, we are really taking every measure to manage costs in line with lower demand levels. So that’s just the general overview comment. I would tell you that one of the big factors in the third quarter, and this speaks to our guide for Q4 as well as the impact of declining volumes around incentive compensation as an example. So we did see some of those accruals come down in the third quarter. So you won’t get a repeat of that in Q4, if that makes sense. So that’s one of the factors that’s causing some lumpiness there. But I would also tell you that we historically – and I think you know this from past. We tend to see some seasonal uptick between Q3 and Q4 in spend rates just as we ready ourselves for the – for new product releases and so forth that tend to be seasonal as we move into the early part of summer. So I think all of those factors combined caused that. But look, I would tell you that those programs work as designed. They are variable in nature. And when you see volume levels drop, you see those come down. And so I think it’s no surprise, but it is a factor that influenced the comparison to the guide. Reuben Garner Okay. And then same kind of line of questioning on the gross margin side, it looks like with your guidance for the next quarter, you’re still kind of on the path that you laid out at the end of last year, and that’s what I think is despite less volume than you probably would have otherwise thought and then maybe less mix of the higher-margin retail. Is that right? And I – and if so, can you kind of walk through what’s kind of improved sequentially? Is it simply price flowing through and finally, some deflation or inflationary release? Jeff Stutz Yes. I think you’re hitting on a couple of the key points, Reuben. And by the way, I appreciate the observation because we – this is an area that we wanted to make sure we emphasize and that we feel really good about. I mean the margin expansion across the business is every bit as strong as we had expected it to be. And I think it’s encouraging to see it even as demand levels have fallen. And that’s been a message that we’ve consistently been sending that we think we can achieve that. So we feel really good about that. I think our guide, if you look just sequentially from Q3, a couple of things that inform that, pricing is one of them. And you mentioned that that’s somewhere on the order of 30 basis points. We’re going to get a little bit of lift from commodities. So we are seeing a couple of areas where we’re starting to see market prices move around even some reinflation look at market price of steel, for example, that’s been ticking up of late, but we still believe that as a basket commodities will be favorable to us sequentially. The other thing that I’d point out is there is a mix factor in there that’s going to help, but I want to give a shout-out to the retail side of the business. We’ve had a couple of quarters here where we’ve had some one-offs that we’ve talked to about things like inventory storage costs and so forth that have pressured margins. We expect those to meaningfully improve as we move into Q4. So that’s another driver of that expected increase in gross margin. Andi Owen The last thing I would add, Jeff, is just you start to see synergy capture coming through that line as well. And as we continue to capture more and more synergies, we will also see about the margin is outlined. So yes, we are very pleased about that. Reuben Garner Alright. I’m going to speak one more in, a follow-up on Holly. So can you help – is that something that you are not able to do because of the developments with hermanmiller.com and internal kind of initiatives versus some kind of structural change? I just thought that Fully was offering something that maybe you guys didn’t have before or maybe it was just a whole didn’t. Can you kind of, I guess, dig into that a little bit more? Andi Owen Yes. It’s a great question, Reuben. So I think when Knoll acquired Fully, and I certainly can’t speak for that company back then, but it offers them a digital avenue to market that they didn’t have. We have that, and we have a very well-established one as well as a retail business. And so as we look across the organization and find redundancies it’s important that we address as we have a great retail channel to market. We have great Fully products. We don’t need the duplication that we’ve had. And although Fully is a small portion of our business, it has been breakeven to money moving at best. And so for us, and this was the right decision, and we can still maintain the great products. We can still bring them to market in a very meaningful way, and we don’t need to lose that, but we can lose some of the extra cost that was making it not a profitable equation for us. Reuben Garner Got it. Thanks, guys and good luck going forward. Andi Owen Thank you. Operator We will take our next question from Budd Bugatch with Water Tower Research. Budd Bugatch Good afternoon, Jeff. Good afternoon, Andi and the team. Congratulations. Andi Owen Good afternoon, Budd. Budd Bugatch Can you hear me, when I coming through? Andi Owen Yes. We can hear you. Budd Bugatch Okay, thank you. Congratulations on managing the margins in this. I think that’s impressive. And the difference is at least to my model, mostly center in the Americas, which I don’t suspect is a big surprise in terms of particularly the revenue. And I know, John, you said that the order patterns have started to improve. Can you at least put some quantification on that or are we looking at a positive orders year-over-year in terms of what you’re seeing in the last couple of weeks of the quarter and maybe the first couple of weeks of the next? Jeff Stutz Yes, Budd, this is Jeff. So what I would tell you is that we started the quarter lagging pretty – we were down double-digit percentage. We improved in January and February to single digit. The percentage still declined, but an improving trend line, and that has – it’s moved a little bit in the first couple of weeks of Q4, but nowhere near as low as it was to start back in December. So it’s still pressure, wouldn’t want to leave you with the wrong impression there. But that coupled with the fact that John, maybe you could speak to this a little bit. I think we’re getting some feedback by the way. Andi Owen Operator, are we returning some feedback on the line? Are you hearing that? Operator Yes, madam. I am hearing that. Andi Owen Thank you, Budd, can you hear? Budd Bugatch I can hear you fine. I’m not getting the feedback. So I don’t think it’s coming from my line. Andi Owen Okay. Keeping going that. Jeff Stutz Alright. We were getting a little feedback in the room. Yes. So I would say that trend, which is at least moving in the right direction, albeit still year-on-year pressure combined with some of the funnel metrics that we’re seeing. And I don’t know, John, if you want to speak to that, that gives us some encouragement here. John Michael Yes. Thank you, Jeff. Hi, Budd. From a funnel perspective, we’ve seen significant growth in the over $1 million size projects, something we really haven’t seen a lot of since we’re pre-pandemic days if you will. So we’ve seen a lot of activity there. And the overall funnel is up quarter-to-quarter as well. I think from Q3 to Q4, our net funnel additions were up 38%. So the activity seems to be percolating a bit, and that gives us obviously some encouragement to see some change in order trend over time as well. Budd Bugatch And when you’re talking about funnel, you’re talking about visits and projects you’re bidding on? Or is there something more concrete to what you define as the funnel? John Michael It’s identified project and account opportunities that our sellers have identified and are pursuing in the market. So they are live projects that we’re tracking in pursuit of. Budd Bugatch And the BIFMA numbers, at least as we see them on a monthly basis, look like we’re getting into a situation where orders are just about flat year-over-year, not quite, but getting there. And so the fact that you’re still down single digit, does that mean that you’re performing a little bit behind BIFMA for the rest of the industry? Andi Owen I think you have to look at BIFMA with a grain sell, Budd. I mean, depending on how all of the players are reporting their numbers and what’s included in contract and if there is other visit, I wouldn’t say that that you can make that lead necessarily. Budd Bugatch Okay. I always take those numbers with a little bit of a grain of soft indeed. Andi Owen I think that we appreciate that. Budd Bugatch Jeff, can you give us maybe kind of an MD&A read of going from a walk to – from gross margin, either segment level or overall level as to what drove the difference because where is the contribution margin right now with all the changes that you’re experiencing with all the difficulties in the environment. Jeff Stutz Yes, happy to – I’m going to keep it at the enterprise level, Budd, just because we don’t guide at the segment level, but happy to talk kind of at the ink level for the business. And if you – I’ll just walk you year-on-year for the third quarter. Pricing was the big story for us this quarter, and it really has been. But that was a favorable 400-plus basis point move in gross margins. And again, that’s particularly encouraging because we have been expecting it and we’re getting it, which is great. The other positive is that we had a little bit of positive of around 60 basis points, best we can estimate from overall product mix shifts that have been in our favor. And that’s across all of our channels, by the way. So that can be channel mix, and it can also be product mix. Commodities are actually after many, many quarters of significant pressure from commodities. We’re starting to see those flatten out. They were slightly negative. We had about a 20 basis point year-on-year drag from net commodity impacts on the business, but much improved from where they have been. We did lose some overhead from lower production levels, again, when – as you know, when order levels drop in the business and you get less production, you see that on the labor and overhead lines. So we lost about 70 basis points year-on-year from overhead leverage. And then freight and transportation costs were – continue to be a pressure in total. We were 90 basis points down year-on-year from freight and transportation. And the thing I’d say about that is we’re seeing – it’s stubbornly slow, but we’re seeing improvements. And I think particularly in the retail side of our business, we’re seeing still elevated inbound freight costs mainly coming out of Europe where container rates and shipping costs just haven’t come down as fast as what we’ve seen out of Asia. So that’s one kind of nuance to the business, but in total, for the enterprise, 90 basis points of freight. And then the last thing I would point out is, I mentioned – this wasn’t a surprise as we knew this was going to be a factor, 50 basis points of that storage fee impact that we had in the retail side of the business, that inventory demurrage and storage fees that I talked about on the call last quarter, it was 50 basis points of pressure year-on-year. The good news is that’s behind us now. And actually… Budd Bugatch That’s okay. I am sorry, that was a negative $140 million then with the $90 million and the $50 million. Is that exact sit in effort? Jeff Stutz Yes, right between freight and the retail storage, that’s $140 million negative. That’s correct. Budd Bugatch Alright. So, the merger is done, where that’s – I hate that word. I hate the fact of paying out money. Unfortunately, turn a lot of my personal wealth about 30 years ago. Can you also give us maybe on a GAAP basis, what the GAAP guidance would be for EPS? I know the adjusted is 37 to 43. What would the GAAP be? What’s the adjustment number? Jeff Stutz But the only known adjustment would be the impact of amortization cost of purchased intangibles from the Knoll acquisition. And that’s, I think on the order of $6 million a quarter. Beyond that, we may well have other adjustments, but they are certainly not known at this point. Budd Bugatch And they are not in the guidance, so the guidance as we do that, okay? And you are guiding on tax rate is the same as it has been or where is it – where is that going to be? Jeff Stutz Yes. We figured 22% to 24%, same as where we have been. Budd Bugatch Okay. And just a couple more for me and these are more niche. That $4.6 million, I think of restructuring, is that all fully? Jeff Stutz So, the fully restructuring – well, no, we had total special charge items in the quarter of just over $52 million, I think Budd, $37 million of which relates to the fully decision and those were impairment of things like leases, inventory valuation reserve, so the majority of it was related to fully, but not the total amount. Budd Bugatch But the $4.6 million in restructuring, where did that – what was the restructuring? What did you do there? Jeff Stutz That would have related, Budd, to actions that were announced in Q2 associated with the early retirement and some workforce reductions that have a tail as we move through the balance of the fiscal year just based on the timing of exits. Budd Bugatch Okay. And that’s split – it’s primarily mostly in Americas, is that right? I think that’s where it’s shipping mostly. Okay. I see it. And last for me is the incentive comp. Can you quantify what that was in the quarter, how much that helped in the quarter? Jeff Stutz We are not – I am not going to quantify it, Budd, it was a primary driver in the operating expense reduction year-on-year. Budd Bugatch And the reason that doesn’t repeat is you have already made that reduction for – you had a similar reduction last year. I mean you all always have that variable issue when revenues don’t quite make expectations. John Michael Yes. That is correct. Jeff Stutz Yes. But it just depends on kind of business conditions at a given point in time and the kind of the outlook for the balance of the year. Budd Bugatch So, it’s already – we shouldn’t expect that to occur? Jeff Stutz Correct. You should not. Andi Owen You should not expect. Budd Bugatch I hope I said that right, or hope I am still a little confused, but we will get that squared away at later time. Thank you. Thank you very much. Good luck to you on the fourth quarter and going into next year. Hopefully, we find some bit of a normalcy as society. John Michael Great. Thank you, Budd. Operator We will take our next question from Steven Ramsey with Thompson. Steven Ramsey Hi. Good evening. Andi Owen Hi Steven. Steven Ramsey Hi. Maybe to start with just bringing the Americas orders and demand into the context of companies. More companies laying-off workers, but the tug of war against companies wanting workers in the office in recognizing the value, realize that the near-term maybe is a headwind. But how is that shaping conversations for the longer term, maybe as you look into the second half of calendar 2023 and beyond. Andi Owen It’s a great question. Stephen, John alluded earlier to the amount of activity that we are seeing, and I think it’s directly related to returning to work, to leaders of companies wanting to find ways to get people back in the office. And also, frankly, people coming back and see the office and enjoying being together and collaborating again. So, we are seeing an uptick in activity looking to find creative ways to change spaces, to adapt to the new workforce, to adapt to hybrid. So, more activity than we have in the past. And I think that’s shaping how we can help people make these decisions and how they can think about their workspaces. But John, what specifics would you add for the Americas? John Michael Thanks Andi. I would add that literally every C-level conversation we are having probably for the last 90 days, those executives are looking for help to get their employees back in the office. I think they understand the importance of return to office for all the reasons we have all talked about in the past, culture connections collaboration, etcetera. And I think they are becoming bolder in terms of their desire to have people back because they are understanding the business impact of not having their employees back in the workplace. So, I think to your point, ultimately that will change from a headwind to at least neutral, if not a bit of a tailwind as companies come to grips with that. Steven Ramsey Okay, great. And then shifting to international, you talked about new markets and geographies through local accounts. Can you share if this is a new initiative or a stronger push in the past? And is this going to be a major sales benefit in the next couple of quarters, or will this have to build up over time? Andi Owen Yes. We have been investing in and developing our international sales team, expanding our dealer network internationally for the last several years. So, I would say we stand more ready now than we did a couple of years ago to capture the opportunities in different markets than we did before. We have had great leadership there. We continue to have great leadership there. And because we have such a varied presence, we can capitalize on the markets where we see opportunities. So, I would say it’s been a conscious effort, not a new one, but one where I think we will start to reap the benefit as we find these opportunities. Jeff, what would you add? Jeff Stutz Yes. And Stephen, the only thing that I would add to that is this is one of those areas where I think the combination of Herman Miller and Knoll plays to our advantage here because we now have new tools and new solutions that we can offer existing dealer partners in markets like India or markets like Korea or even in Europe, where the Knoll product lines give us solutions that we couldn’t previously offer our customers and it opens doors. So, we are very encouraged and have high expectations for that. Steven Ramsey Got it. Okay. And then last quick one for me on the fully shift. I may have missed this, but how quickly does that help profitability in the retail channel. Is that pretty immediate or will that take time to build up? Andi Owen We will be unwinding this in the next quarter, and then we will see it in Q1. But remember, this is a small portion of the piece of the retail business. Jeff, do you want to add something? Jeff Stutz No, I think that’s fair. Steven Ramsey Okay. Great. Thank you. Andi Owen Thank you. Operator We will take our next question from Alex Fuhrman with Craig-Hallum Capital Group. Alex Fuhrman Hey guys. Thanks for taking my question. First and foremost, if I could just ask maybe to square a little bit the differences in what we are hearing about for orders versus your revenue trend? I mean it sounds like orders were down close to 20% in the third quarter and have gotten a little bit better, but obviously, the revenue guidance that you are giving for Q4 is a good amount better than that order trend. So, just hoping if you could square the two numbers a little bit is part of that, the improvement you have seen in orders quarter-to-date or maybe just the benefit of working through your existing backlog? Just anything you can kind of give us as we sort of size up what the base case would be heading into next year would be very helpful? Jeff Stutz Yes, Alex, this is Jeff. Good question. So, I think you kind of hit on a couple of the main points, but just to maybe emphasize them. A, we have seen, as I mentioned earlier, kind of as we move through the quarter, order patterns did get a little better. And so that’s part of our calculus. You also have, in particular, in the international business, we have just got – some of this is – Andi used the term lumpy earlier, and it is very true in that segment of our business. And so there are – we have line of sight to orders that we have confidence in early enough in the quarter to influence revenue in Q4. And then the other point that I would make is, even though in total, the Q4 revenue guide is a little atypical because it’s actually – at our midpoint, it’s down from the Q3 number that’s just reflective of economic conditions. However, even within that, within some of the segments, you do have some seasonality that is normally expected in Q4. And I would point to the retail business as part of that as well. So, I think those are the major factors that give us kind of the parts and pieces that inform the fourth quarter guidance. Alex Fuhrman Okay. That’s really helpful, Jeff. And then if I could ask also just about the backlog before COVID and before the acquisition of Knoll, it seemed like your backlog was more or less consistent around the $400 million level. And then of course, with Knoll and the pandemic, we saw balloon up to $1 billion. Now, it’s been working its way steadily down for a few quarters and is around $700 million. Can you give us a sense of where we should expect to see that level out with Knoll and in the post-COVID world are you expecting that number to continue to work lower throughout next year? Jeff Stutz Alex, we are still – the world has been so disrupted, we are still kind of waiting to see ourselves what kind of the new normal looks like. But I would tell you that I think based on the patterns that we see and based on how orders are scheduling, we are nearing a point where we think the backlog is largely stabilized. It might – you might argue it’s still a bit elevated in total. But I think as we move through Q4 and get into the – certainly, the Q1 of this next year, our expectations would be that we are, if you will, kind of at that new normal level. So, I am not going to give you an absolute dollar amount because business can – as soon as I do business conditions will change, but I think we are going to close. Alex Fuhrman Great. That’s helpful. Thanks. Andi Owen Thank you. Operator And we do have a follow-up question from Budd Bugatch with Water Tower Research. Budd Bugatch Yes. Sorry to prolong it, but I just wanted to make sure I understood something. Jeff, you said that the only adjustment you would expect in Q4 is really the amortization of purchased intangibles. Are there still acquisition and integration charges continuing, I think you told they would continue for a long time? Jeff Stutz Well, this is why we are not guiding. We don’t have absolute clarity on what those will be. That’s a live program that will unfold. So, that’s why we have tried to keep it out of the numbers because it can move around based on actions and levers that get pulled in the quarter. So yes, there are – there is potential for other things. The only absolute known would be that amortization number that I gave you. Budd Bugatch Got it. Okay. Well, thank you very much and again, good luck going on the future periods. Operator And there are no further questions. We turn the floor back to President and CEO, Andi Owen, for any closing remarks. Andi Owen Thanks again everyone for joining us on the call. We appreciate your continued support of MillerKnoll and we look forward to updating you on our progress again next quarter. Thanks again and have a great night. Operator And that does conclude today’s presentation. Thank you for your participation and you may now disconnect.

Fathom Holdings Inc. (NASDAQ:FTHM) Q4 2022 Earnings Conference Call March 22, 2023 5:00 PM ETCompany Participants Josh Harley – Founder, Chairman, Chief Executive Officer Marco Fregenal – President, Chief Financial Officer Alex Kovtun – Investor Relations, Gateway Group Conference Call Participants Jonathan Bass – Stephens Ariye Cole – Cole Capital Operator Good day! And welcome to the Fathom Holdings, Fourth Quarter and Year End 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Alex Kovtun, with Gateway Group. Please go ahead, sir. Alex Kovtun Thank you, operator, and welcome everyone to Fathom Holdings 2022 fourth quarter and year end conference call. I’m Alex Kovtun with Gateway Group, Fathom’s Investor Relations firm. Before I turn things over to the Fathom management team, I want to remind listeners that today’s call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company’s control, including those set forth in the Risk Factors section of company’s latest Form 10-Q, and its upcoming Form 10-K and other company filings made with the SEC, copies of which are available on the SEC’s website at www.sec.gov. As a result of these forward-looking statements, actual results may differ materially. Fathom undertakes no obligation to updated any forward-looking statements after today’s call, except as required by law. Please also note that during this call we will be discussing adjusted EBITDA, which is a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today’s press release, which is now posted on Fathom’s website. With that, I’ll turn the call over to Fathom’s Founder, Chairman and CEO Josh Harley. Josh. Josh Harley Thank you, Alex. Good afternoon, and welcome everyone to our fourth quarter and full year 2022 earnings call. I want to start by thanking our agents and employees across each of our businesses for their ongoing hard work and dedication during this challenging time for our industry. Their commitment to supporting our growth, vision and serving others in the communities we operate in is a testament to the Fathom culture. Our agents have worked hard to continue to grow and thrive, even with all the market uncertainties, and we’re proud of how they have adjusted and overcome this constantly shifting market. As a testament to their success, Fathom Realty continued to climb in the latest RISMedia Power Broker Report. For 2022 Fathom Realty ranked 12th in sales volume, up from 16th in 2021 and we also ranked 10th in the total number of transactions in 2022. Now, before turning the call over to our President and CFO, Marco Fregenal for a detailed review of our financial results, I’d like to touch on a few key highlights from our results and why we remain optimistic about the business and year ahead, regardless of what happens in the housing market. 2022 was an extremely challenging year for Residential real-estate as rapidly increasing mortgage rates, combined with limited inventory led to an all-time low in housing affordability and a double digit decline in transactions in the U.S. industry wide. Although we felt this pressure within our business, we still managed to deliver solid financial results. For the full year 2022, total revenue grew 25% as Fathom Realty continued to take market share from legacy brokerage firms, despite the volatile environment. Fathom completed approximately 44,700 real-estate transactions in 2022, up approximately 14% compared to the prior year. Importantly, the double digit percentage increase in transactions on our platform compares favorably to the entire U.S. Residential Real-Estate market, which according to the National Association of REALTORS saw an overall transaction decline, 18% in 2022. We also increased our agent network to over 10,000 agents at the end of the year, which further validates that we’re winning through innovation and a truly disruptive business model continues to resonate amongst agents. Even with today’s economic uncertainty and subdued real-estate market conditions, we believe that Fathom has a long, positive runway ahead of us. So let’s start first with our Realty business. During the last housing recession, specifically in 2010, I started Fathom as an asset light technology enabled business, because I wanted to build a company that can endure all market environments, while empowering agents to realize their full potential. Today Fathom Realty operates in 37 states and the District of Columbia, and we anticipate entering all 50 states within the next 18 month. Our presence continues to grow across the country, and I believe that our opportunities and ability to serve agents are greater than they ever have been. Fathom Realty is among the fastest growing residential real-estate brokerages in the United States. We are uniquely positioned to offer an industry leading agent commission model without having to sacrifice the agent experience, which is especially important for agents who are price sensitive during the downturn in the industry. Our focus is not just on adding more agents, but also helping our agents become more productive with the right training and technology, to close more sales and ultimately earn more money. Even though we charge a small fraction of what other brokerages charge their agents, our Realty business delivered six consecutive quarters of adjusted EBITDA profitability prior to this last quarter, where we saw an increased number of real-estate transactions terminate. On a positive note, existing home sales in the United States increased 14.5% in February, ending a 12 month streak of declines. While we are hopeful that trends continue to move in the right direction, we remain focused on what we can control, and we believe we are positioned to thrive both today and into the future. The technology that powers our Realty operations remains a key point of differentiation that sometimes gets overlooked. As we’ve highlighted before, by owning our technology, we can generate long term savings and ultimately charge our agents far less than others with a competitive agent commission structure, while building a model to generate margins similar to or even better than our peers over time. In addition, we license our proprietary technology to outside agents and brokerage through a recurring revenue subscription model, further increasing the long term revenue potential for Fathom and the differentiation of our brand within the industry. Today, there are over 750 brokerages, licensing our technology and data, touching over 450,000 agents. Now let me touch on our agent trends and steps we are taken to grow the Fathom network. We focus toward a great degree on serving our agents so that we attract and retain the best in the industry. When it comes to providing the greatest value to agents, we believe that Fathom wins hands down. When you combine our competitive agent commission structure, new agent referral program and the technology and training we offer to agents, we believe it’s a very strong proposition that is resonating well in this environment. Last quarter, we launched an enhanced agent referral program called Free4Life, and revised agent commission structure. Both initiatives were well received and our agents’ referral program continues to have a positive impact on our recruiting efforts. Even with the changes that we implemented on January 1 to the commission structure, agents will still save an average of well over $2,500 per sell versus the industry average permission split. We’re also excited about our new agenda referral program, which we believe is the most attractive incentive industry, as it’s based solely on an individual agent’s efforts. So while the market is in a down turn currently, we remain well positioned to attract agents, help grow their book of business and put more money in their pockets, especially in a time where inflation is placing pressure on their bank accounts. We can make this claim given our track record of supporting agents on our platform. Historically, the average agent who joins Fathom increases their sales transactions by 49% within four years of joining, and the average lifetime value of an agent is currently over $21,000 on just the Realty side of the business, demonstrating the power of our model. Our cost to acquire one agent during Q4 remained low at approximately $1,000, making our breakeven on each agent less than the $1,150, which we’ll earn back on their first sale. We also maintained our strong retention rates, which are approximately twice the national average and remain exceptionally strong given the backdrop of agents leaving the industry over the last year. During Q4 2022, our attrition rate averaged approximately 1.6% per month. More importantly, 90% of agents who left Fathom sold four homes or less per year. Given the current market conditions and historical examples, we do anticipate the industry attrition rate to increase as more agents struggle. We certainly will not be immune as may – and may see an increase as well, but we believe they’ll continue to be primarily from low producing agents. Now during 2022 we also launched several initiatives to bring together our agents, including our inaugural Team Think Tank to discuss strategies for building and running successful real-estate teams. We also launched our Veteran Division to provide specialized resources, support and opportunities for Fathom’s current and former military service members, as well as veteran home buyers and sellers and those still on active duty. We’ve also received a lot of positive feedback from our Chaplin C [ph] program, and we’re exploring ways to expand it, in ways to touch even more of our people. These are just a few of the examples of the many ways in which we support agents and our communities. Now, in spite of the market conditions, we remain optimistic about the year ahead and believe that Fathom as a whole is on track for revenue agent transaction growth in 2023. As we look ahead, we expect to turn the corner towards profitable growth in the coming quarters while starting to really show the operating leverage in our business. While our mortgage, title and insurance companies are relatively small today, they have the potential to dramatically increase revenue and profitability per transaction over time. As we navigate the current challenging market, Fathom has continued to identify opportunities to optimize expenses across our business segments. We had already reduced expenses by approximately $3 million per quarter, which we should see the full benefit of in the first quarter of 2023. Importantly, we believe these cost reductions were made without sacrificing our ability to growth. Fathom was built to thrive in both good times and challenging times. We remain focused to reaching total company adjusted EBITDA breakeven in the second quarter of 2023 and generating cash low in the third quarter of 2023. Let me repeat that, because I think it’s important. We remain focused on reaching total company adjusted EBITDA breakeven in the second quarter of 2023 and generating cash flow positive in the third quarter of 2023, even in today’s market environment. With that, I’d like to pass over to Marco for a financial update. Marco Fregenal Thank you, Josh. I’ll start with a detailed review of our fourth quarter and full year 2022 results, and then I’ll finish with the discussion on guidance. Fourth quarter revenue declined 12% year-over-year to $83.4 million compared with $95.5 million for last year’s fourth quarter. For the full year, revenue increased 25% to $413 million, compared to $330.2 million in the prior year. As we all know, the industry as a whole experienced a significant decrease in revenues in Q4 due to the full impact of the increase in interest rates during the latter part of the year. GAAP net loss for the fourth quarter was $9.9 million, compared with a loss of $3.6 million for the 2021 fourth quarter. For the full year GAAP net loss was $27.6 million, compared to a loss of $12.5 million in 2021. Adjusted EBITDA loss, a non-GAAP measure was $5.9 million in the fourth quarter, versus adjusted EBITDA loss of $2 million for the fourth quarter in 2021. For the full year, adjusted EBITDA loss was $12.2 million, compared with the loss of $8.2 million in 2021. GAAP expense was – I’m sorry, G&A expense was $8.5 million for the quarter or 10.2% of revenue compared with $9.1 million or 9.5% of revenue for the same period a year ago. For the full year, G&A expense was $43.2 million or 10.4 million of revenue – 10.4% of revenue compared to $32.7 million or 9.9% of revenue in 2021. On a sequential base, G&A was reduced by $3 million from $11.5 million in the third quarter of 2022. Our gross profit was $6.4 million in the fourth quarter, down from $9.3 million for the fourth quarter of 2021. Gross profit decreased to 7.7% of revenue in the fourth quarter compared to 9.8% for the same period a year ago. For the full year, gross profit grew to $49.7 million, which is about 9.9% of revenue compared to $29.7 million or 9% of full revenue for 2021. Expenses related to marketing activities were $1.3 million for the 2022 fourth quarter and $5.2 million for the full year. The increase in marketing expenses related to the increase in recruiting activities, opening new markets and launching the ancillary businesses. Now I’ll spend some time reviewing our business segment results in more detail. As with all real-estate companies, Q4 is a difficult quarter for our real-estate division. We closed approximately 9,250 real-estate transactions in the fourth quarter, a 14% decrease from last year’s fourth quarter. While our full year included approximately 44,700 real-estate transactions, a 14% increase relative to the prior year. Now to add some additional color to that, while we only saw an increase of 14%, the overall real-estate market was down 16%. Revenue for the quarter was $79.5 million and revenue for the full year was $390.6. Adjusted EBITDA in the real-estate decision was a loss of $1.3 million, making the first time in the last seven quarters that we had a negative adjusted EBITDA. This was primarily due to the negative impact from the increase in real-estate – interest rates. Our mortgage business generated revenues of $1.3 million in the fourth quarter compared to $2.7 million in the prior year period. The mortgage adjusted EBITDA for Q4 was a negative $1.2 million. Our team has done a great deal of work in reducing expenses to right-size the expenses for the mortgage business going forward. We have also done a great deal of work in launching new marketing programs to increase the attach rate, and look forward to sharing those results in Q1. VIA [ph], our insurance business generated revenues of $1.3 million in Q4 and a total of $6.1 million for the year, with adjusted EBITDA of negative $55,000 for the quarter and a positive adjusted EBITDA of $530,000 for the year. In Q4, we’ve seen an increase in the attached rate of our insurance business, exceeding 7% of Fathom’s by-side transactions in North Carolina and in Texas. Verus Title had revenues of $614,000 for the quarter and $3.9 million for the year. The Title adjusted EBITDA for the quarter was a negative $266,000 and a negative $218,000 for the full year. We have seen an increase in file starts in Q2, mostly related to an increase in the market activities, as well as attach rate. Now moving to our technology segment, revenues in the fourth quarter totaled $705,000, which is consistent with Q4 of 2021. Adjusted EBITDA loss for the quarter in our technology segment was $350,000 compared with the loss at $225,000 in the fourth quarter of 2021. Our LiveBy team has significantly increased its footprint across the country to reach 400 MLS and 450,000 agents. LiveBy powers more than 3.5 million community pages with over 100,000 neighborhood reports created. We continue to focus on our balance sheet and ended the quarter with a cash position of $8.3 million, which we believe provide us with the adequate run away to grow the business and execute our strategy through profitability, especially given that we’re laser focused on our goal to reach adjusted EBITDA positive by Q2 of 2023. We did not purchase any shares in our fourth quarter under our stock repurchase plan, and approximately $40 million remains under the authorization. Now, before turning the call back to Josh, let me briefly touch on guidance. Given the uncertainty in the macro environment, we are only providing guidance for the first quarter ending March 31, 2023. For the first quarter we expect revenues in the range of $75 million to $77 million and adjusted EBITDA loss in the range of $1.3 million to $1.5 million. As a reminder, guidance is forward looking, which as we noted in the beginning of the call is subject to risks and uncertainties. I like to thank the entire team across all our companies. Q4 was a difficult quarter for everyone, and I could not be more grateful and proud of the leadership and hard work demonstrated by our leaders and team members doing these challenging times. With that, I’ll turn the call back to Josh. Josh Harley Thank you, Marco. Despite the volatility in the markets, we remain focused on execution and getting to cash flow profitability in the third quarter of 2023. As we turn the corner on profitability, we believe that 2023 will be a pivotal year for Fathom. With that, operator, lets open the call for questions. Question-and-Answer Session Operator We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from John Campbell from Stephens. You may now go ahead. Josh Harley Hey John! Jonathan Bass Hey, can you hear me okay? Josh Harley Good. Jonathan Bass Hey, it’s Jonathan Bass on for John Campbell. I’ve got a two part question here, both in relation to the new agent commission model that was implemented on January 1. First is, since the implementation of higher fees, have you guys seen any notable attrition due to the higher cost of agents? And then on the flip side, what are you seeing on the new referral program. On the last earnings call you mentioned September being the best referral month ever as a result of the CAP4LIFE testing. Is there any update you can give there? Josh Harley Sure. As far as agent attrition goes, I can count on two hands the number of agents who you know reached out to me directly and told senior leadership about – you know complaining about a fee increase. But you know, we didn’t really raise the fees very much. There’s such a small amount that it didn’t really affect a lot of agents. And no one wants to see their fees go up, that’s true, but compared to our peers who saw – and I go to the last several year period and saw their fees increased by $450 per transaction, you know we really only raised our fees about $50 per transaction during that same time period. So, you know when you put things in perspectives, I think most agents realize that, you know yeah it stinks, but it’s far better than the alternative. So you know, I think we fared really well. I don’t believe we saw an uptick in an overall attrition due to that. Marco, do you want to touch on the question regarding the recruiting numbers and what we’ve seen in regards to the case in the full program? Marco Fregenal Sure. Yes, so we continue to see an increase in recruiting due to that. I think that when we update Q1, we have a greater deal of visibility into the program. As you – if you may recall for the program, agents need to recruit four agents and then – or eight agents, depending on which level they want to reach. So I think when we do our Q1 earnings call, we’ll be able to shed more light on the program and how that’s going. A – Josh Harley Yeah, in fact I’d like to add a little bit more color to that, because I think it’s important to understand it. Look, this is one of those programs that just doesn’t – you can’t flick a switch and all of a sudden overnight you see the numbers you know have doubled or tripled, because ultimately it takes time for agents to start sharing with other agents across transactions. So if an agent closes ten transactions a year, you know they may get one or two opportunities every single month to share Fathom with another agent you know, and they may have to share it several times in a row before that agent finally becomes receptive or that agent closes a transaction and realize they just gave their broker $4,000 versus they could have given us $550. So it takes a little bit of time, but we can already – we’re already starting to see some very positive momentum from that, so we feel they are encouraged. Jonathan Bass Okay, thank you for the color there; one more if I could. Is there anything you’re hearing from agents anecdotally or otherwise, about how the spring selling season is shaping up? Josh Harley Yeah, in fact literally right before I got on this call, I was talking to one of our agents via messenger, and she was very encouraged, because she’s been seeing a pickup on both listings. You know people finally getting off the fence and putting their home in the market, as well as more buyers you know getting off the fence as well. You know, I think it’s gotten to a point where a lot of buyers are realizing that the 6%, 7% range – you know 6% to 10% range is probably here to stay for quite some time, and you know they are – even though it’s not ideal for them, you know they are finally getting off the fence saying, okay, I need to pull the trigger. You know a lot of them are waiting thinking okay, we’re going to drop back down to 4% or you know 3%, which you know none of us really believe is going to happen. So I think it’s really a matter of receiving the right perspective and people realizing, okay, if this isn’t going to change, we’ve got to move. Even in the worst time period during the last housing recession, you know we really went down about 15% in the total number of homes. The fact is, people still need to buy and sell. There is never going to be a zero sum wherein just no one moves. But the fact is, we saw – I think I mentioned that it my [inaudible] that any other reported you know, so I’ll take a fifth [ph] or 14% in the number of homes. So we feel very positive. Our agents are starting to see some momentum as well. I tried to talk about one to two agents every single day. Some days I get to talk to three agents every single day, and I’m just, I’m seeing a lot of positive feedback and definitely some new energy from agents as the spring starts coming around. Jonathan Bass That’s great. Thank you, guys. Operator [Operator Instructions] Our next question will come from Ariye Cole with Cole Capital. You may now go ahead. Ariye Cole Yes, thank you very much, and best to luck to all of you this year with all your efforts in innovating. Question number one, could you just kind of clarify for me, regarding the iPro Realty Network, with the 435 agents that work in the network, are all brought onboard in the December quarter or will the timing be different from that? A – Marco Fregenal The iPro, they actually were brought in in the Q1 of 2022, not the December quarter. The iPro acquisition I believe was February and the agents were brought in in February and March of ’22, Q1 of 2022. Ariye Cole Got it. So as a result, your agent number at the end of the December quarter of 10,370. A – Marco Fregenal Correct. Ariye Cole The growth there from September to December was all organic growth in terms of how the agent number grew? A – Marco Fregenal That is – that’s absolutely correct, yes. The last acquisition we made is Q1 of 2022 with some small walkovers throughout the year. But the Q4 growth was 100% organic growth, yeah. Ariye Cole Got it. A – Josh Harley Yeah, when we use the word walkover, we’re usually a referencing a small brokerage, sometimes with 15 agents, 20 agents, five agents or a large team that’s coming over. So these aren’t really necessarily acquisitions. But as we make sure we clarify, when we say walkover, the kind of industry term, that’s what that means. Ariye Cole Okay. And then regarding the Free4Life recruitment program, I’m trying to understand where you think agents at Fathom are going to be able to source the majority of agents they try to bring onboard. What I’m alluding to is, they obviously come in contact with agents who are either buyers or who are on the other side of the transaction when they are selling a home. We also have agents they probably just happen to know in the local community where they work. And so, what I’m just trying to understand is, in addition to those two sources, you know where will agents be finding other people who are prospects to be persuaded to join the Fathom family. Josh Harley Well, I think you nailed the two most important ones, and that’s relationships, prior relationships, as well as the new relationships on the other side of transactions. By the way, the – the new relationship on the other side of the transaction is probably the most important one, because when you’re at the transaction table and you’re talking. Sometimes they become friends, sometimes they don’t. Sometimes they become friends and you start talking about, because both sides are usually getting the same commission checks, right. You know the commission rather paid to the brokerage is the same typically, not always but typically. And you got the Fathom agents saying, ‘hey! I used to be with the same company you are with now, and I remember on this I would probably pay them what, you’re probably paying $4,000 or $3,000 on this commission. I’m only paying $550’ or if they’ve capped, I only paid $150. You know you should really think about it, and it’s – that’s kind of one of those, like that eye opening moment, the ah-ah moment that agents have. Like, are you serious, that’s what you’re really paid. Because they hear it, and they hear it and they hear it like we beat them over the head, but it’s not real to them until it’s real to them, right, so that the money’s actually coming out of their check and going to the broker. Especially when agents say, ‘look, I don’t have to give up anything, right. It’s not what the broker tells you. You know I keep, you know I ‘ve got great support. I’ve got you know everything I need, all the tools, technology and everything else I need.’ So that tends to be the best conversation for getting agents over. Relationships are obviously important as well. We found that oftentimes on agent first comes over to Fathom, they are the like the most excited, because they are able to see that change. They come over to Fathom, that sometimes is a really good opportunity because they’ll tell, you know five or 10 other agents that they worked with at the other brokerage when they come over, like “hey I just moved to Fathom, you should think about coming too,” especially now that we have this Cap4Life and Free4Life opportunity for them, so it’s been great. Now, one other source that I see a lot of agents come. Some agents get ultra-motivated, which you know we’ve seen with a lot of competitors as well and that’s going to social media. And so they like to put out there, hey – they are part of these different real-estate networks on Facebook and Instagram and others and all these other social media platforms, and they’ll share their story. If anyone asks about you know, if anyone complains about the broker, in terms of Fathom we can jump in, so hey, you should think about that or they’ll private message them. So social media has been a great source as well for anything that’s outside of your relationships or outside of business transaction. Ariye Cole Okay. And just two follow-up questions regarding the recruitment, what sort of other resources might Fathom provide to help in essence, close the deal and bring on the new agent. Because what – your Fathom agents, let’s say it can have a situation where they are able to get someone very interested in learning more, but you don’t make a change in your career instantaneously. People want to learn about your software platform, about other aspects of the job. How easy are the switching costs are and other things, and the question is, to what degree do your agents enlist some sort of corporate support to help persuade the prospect to actually go from just thinking about joining Fathom to actually doing it. Josh Harley I love that question. You know this is the first time we’ve had that question. We’ve talked to hundreds of investors and potential investors and you’re the first person to ever ask it, so thank you for that, that’s a great question. So yes, number one, I think our Fathom Careers website is probably the best resource and so you have a lot of agents that will actually refer people, “hey, check out the Fathom Career website.” But also we’ve got a marketing center behind the wall and where our agents can go to get business cards, order business cards, order post cards, download marketing, you know buy your presentations, listing presentations, but we also have a whole section on recruiting as well. And so if they want to go, and they can print out or they can email, you know basically about Fathom, like here’s the key benefits of joining Fathom, why Fathom is different. So we’ve got a lot of resources that agents can – I’m not a big fan of print, but they can print or they can share via email or they can share via social media. Some of the things that we have via social media might be you know sized differently to better fit social media platforms. So we provide a lot from corporate for them to be able to access. Now it’s free access, right, so they can go in any time they want, it’s available. They don’t have to reach out to us and ask us for something. But again, you know everyone can go to fathomcareers.com, and it has everything. We’re the only brokers that I know off that literally lists everything. We list everyone on our fees. There’s not a single fee that we charge that’s not listed on our Fathom Careers website, and yet most companies, you can’t figure out what their fees are, because fees are hidden. So I think we’re very unique in that, we’re very transparent. We encourage everyone to look at those numbers. Ariye Cole Great. And… Marco Fregenal Let me also add, let me add one more thing. We also have between local leaders, where we call our District Directors and Recruiters, we have a team of about 150 individuals, which are located throughout the country. Which agents can call upon them to help, sort of close the deal if you will, okay. So there is a team of, again our local District Directors or our Managing Brokers and Recruiters that can help an agent at any given time, and they often do, get involved to help the agent get sort of like across the end line there. And so that’s another thing that we provide across the country. Josh Harley And Marco raised a great point. To add more color to that, when they do reach out, you know I’ve seen other companies, like okay, if you reach out to us and we have to get involved, we don’t give you half of the benefit. The agency still gets full benefit, even if we end up recruiting. Even if our person ends up doing all the recruiting effort, they still get the full benefit of that. Ariye Cole Got it. Thank you. One last thing, you had an effort under way be able to bring in leads for your agents internally. What’s the status with that and what sort of efforts are you making in 2023 to move that forward so that in the future you’ll actually be internally finding leads and selling them to your agents and participating on the back end on the more sale. Josh Harley That’s a fantastic question. I’ll tackle part of that and let Marco to add some color as well. This is an area that we’re continuing to move forward, albeit slower than we’d like. You know we talked about the fact that we’ve cut a lot of cost. Unfortunately, some of those costs had to come from employees, and that’s never – it’s never an easy thing to do, and these are people we love and care about. These people, we knew their families, and it is very hard to do. But the bulk majority that came from different initiatives trying to right side the business, and that’s one of the areas, because with the lead-gen side, it requires a very large upfront investment. Although the return of investment, you know 18 months later could be significant, and we are really excited about that, during this time period as we were trying to make sure we’re protecting people’s jobs and not laying as many people off, you know protect the company and make sure we achieve adjusted EBITDA breakeven and cash flow positive. These are all main focuses for us and so we’ve had to put a little bit of backbone up, but even with that, it’s still alive, right? We’re still putting an effort. We’ve got a great team that’s generating leads for insurance business. They are also general leads for mortgage business. They are also generating leads for agents as well, not to the level we’d like. So I won’t say we put it on hold, but we definitely put – I’m not sure how to best put that, but we didn’t [Cross Talk] much than we’d like to. Marco Fregenal Yes, we have become more strategic on our approach and so we will be announcing sometime in the next few weeks our new program called Hometown Heroes, which is exclusive relationship with Hometown Heroes and which will provide leads to certain markets. So I think the best way to describe our approach right now is more strategic, and so we are definitely have reduced the number of markets. But we’ll continue to learn and build a program, so over time then we can accelerate the growth, right, into that. But I think you know the focus of being adjusted EBITDA positive is something that – it’s something that we are extremely focused on, and so the leads program has been decreased, but again it’s just more of an aspect of being strategic at our approach, and I think it’s very soon we’ll announce a new program called Hometown Heroes that were very excited about. Ariye Cole Great! Well, thank you. Best of luck! Josh Harley Yeah, sure, thank you. We are very eager to get to the point of being you know just either breakeven and cash flow positive. Because we want to move past the conversation with investors of, can you be truly cash flow positive, or when can you be? We want to move past a conversation to how profitability can you be? Like that’s a much better conversation to have and so that’s really our focus right now. Ariye Cole All right, excellent! Josh Harley Thank you. Operator [Operator Instructions]. It appears there are no further questions. This concludes our question-and-answer session. I’d like to turn the conference back over to Josh Harley for any closing remarks. Josh Harley Thank you. Thank you. Of course, thank you for joining our call today and for your interest in Fathom. For those of you who are Fathom shareholders, thank you for your trust. We will continue to work hard and look forward to sharing future updates with you. Have a wonderful week! Operator The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

Aeva Technologies, Inc. (NYSE:AEVA) Q4 2022 Earnings Conference Call March 22, 2023 5:00 PM ETCompany Participants Andrew Fung – Director, IR Saurabh Sinha – CFO Soroush Dardashti – Co-Founder, CEO & Director Conference Call Participants Colin Rusch – Oppenheimer Antoine Chkaiban – New Street Research Joseph Moore – Morgan Stanley Suji Desilva – ROTH Capital Partners Kevin Garrigan – WestPark Capital Operator Good day. My name is Doug and I’ll be your conference facilitator. I’d like to welcome everyone to Aeva Technologies’ Fourth Quarter and Full Year 2022 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. Following the opening remarks, we will conduct a question-and-answer session. As a reminder, today’s conference call is being recorded and simultaneously webcast. I’d now like to turn the call over to Andrew Fung, Director of Investor Relations. Andrew, please go ahead. Andrew Fung Thank you, and welcome, everyone to Aeva’s fourth quarter and full year 2022 earnings conference call. Joining on the call today are Soroush Salehian, Aeva’s Co-Founder and CEO, and Saurabh Sinha, Aeva’s CFO. Ahead of this call, we issued our fourth quarter and full year 2022 press release and presentation, which we will refer to today and can be found on our Investor Relations website at investors.aeva.com. Please note that on this call, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our most recent Form 10-Q and Form 10-K. In addition, during today’s call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Aeva’s performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. The webcast replay of this call will be available on our company website under the Investor Relations link. And with that, let me turn the call over to Soroush. Soroush Dardashti Thank you, Andrew, and good afternoon, everyone. 2022 was a significant year at Aeva, that was marked by a number of milestones that moved us forward on the path towards production. I would like to summarize our key achievements on Slide five. First, we introduced Aeries II, the world’s first commercially available 4D LiDAR offering high performance and a smaller form factor. Over the course of 2022, we shipped to more than 40 customers. Importantly, this has enabled us to progress on a growing number of vehicle programs to the advanced or RFQ stage with leading OEMs. Second, our commercial progress was possible because of our ability to bring up our initial manufacturing line; launching a new product is not trivial, and I am very proud of the work the Aeva team accomplished to increase the pace of production by approximately three times by yearend, and enable us to meet more of the growing demand for our unique products. Third, we solidified our accelerator expansion into the established and growing industrial automation markets, with the addition of our collaboration with SICK AG. We also completed core development of our LiDAR-on-Chip perception platform for industrial automation, which we are using for our existing customers, including Nikon, as well as to grow our opportunities in industrial automation and fourth, all of this was accomplished while maintaining a sharp focus on spend. OpEx came in below the outlook we provided for 2022 by more than 10% without limiting our ability to execute. We ended the year with $324 million in cash and marketable securities, which positions us well to continue investing strategically to bring Aeva 4D LiDAR to market. Turning now to Slide seven, I would like to provide more color on recent business developments. The Aeva team has been laser-focused on advancing our growing commercial momentum and our efforts are beginning to show meaningful progress. In particular, I’m excited to share that Aeva has been selected by top 10 global OEM for their vehicle development program. We are starting to deploy Aeva 4D LiDAR as the long range LiDAR on this OEM on-road development fleet, where valuable re-enrol data with a new dimension of velocity will be used to define the specifications for production vehicles with a targeted 2025 start of production. We have been engaged for some time with this OEM and now they can start to incorporate Aeva’s unique velocity data and the perception software to achieve their high standards for safety. Because FMCW can instantly measure velocity for every pixel and is immune to interference from other LiDARs or the sun, it can provide unique advantages over time of flight or 3D LiDAR in detection and classification of critical objects on the road. We believe this helps OEMs with a better margin of safety and to achieve the performance needed for broad deployment of advanced ADAS and autonomous capabilities. We hope to share more details on this collaboration over the course of this year. Moving to Slide eight, I would like to discuss our progress in industrial automation. In Q4, we completed the core development of our LiDAR-on-Chip perception platform for industrial automation, which utilizes the same chip architecture we are using for automotive, but with different software to pursue the large and growing precision distance measurement market, which is a subset of the large industrial automation sector. Precision distance measurement is used across many industries for manufacturing, inspection and quality control. While the market is already multi-billion dollars in size, broader adoption has unlimited by current solutions that are typically challenged in meeting the right balance of performance, cost and size all in one solution, often resulting in multiple product architecture skews for each application to achieve; for example, short, mid or long range distance measurements. Through adaptable software, Aeva’s LiDAR-on-Chip can achieve the needed level of precision across multiple applications from short to longer ranges, all on the same scalable, silicone photonics architecture at affordable costs in a compact form factor. We think this performance flexibility can bring immense value to the end user and allows us to pursue multiple opportunities with the same platform. We’re using this platform starting with our collaboration with Nikon, leveraging Aeva’s ability to achieve micron-level precision for industrial metrology applications. Additionally, our plan this year is to leverage our LiDAR-on-Chip perception platform to respond to a growing pool from the market and distance measurements for large scale opportunities. Let’s turn to Slide nine. After successfully bringing up our initial manufacturing line last year, I am pleased to share that we are expanding to a new manufacturing line in 2023 to support our growing commercial momentum. This line simplifies the overall manufacturing process and is where we complete our LiDAR system assembly, calibration and test. We expect this new added capacity to sufficiently support our product deployment needs to existing customers and new opportunities until mass production. Earlier this year, we began manufacturing on this new line and expect process optimizations to continue over the next few months. Along with the higher capacity, our new line will allow us to also implement increasing levels of automation as we progress towards production. Turning now to Slide 11, I would like to share more about our key goals for this year. Our priority is to convert more of our commercial progress to program wins and focus on the following objectives in 2023. First, we target winning two additional programs towards production. We’re progressing on a growing number of vehicle programs to the advanced or RFQ stage with leading OEMs. In addition, this year we are looking to further our engagements within major industrial sensing opportunities where we can leverage our LiDAR-on-Chip perception platform. We do not expect to win all of our engagements, but do believe we are in a position to secure additional programs towards production this year. Second, we plan to complete key product development in automotive and industrial. In automotive, this includes completing the final form factor that will be used for serious production. For industrial automation, we will continue to iterate on our platform this year to prepare for market release and expand additional opportunities for deployment at scale. Third, complete the expansion of our new manufacturing line, which we expect to provide sufficient capacity to support our existing customers until production and secure additional production programs. And fourth, we are focused on maintaining strong financial discipline as we work to bring Aeva 40 LiDAR to market. As Saurabh will discuss in more detail next, we target OpEx in 2023 to be similar to 2022. We have a strong balance sheet and will continue to strategically invest to meet the increasing demand for our unique 40 LiDAR technology. With that, let me turn the call over to Saurabh, who will discuss the financials. Saurabh Sinha Thank you, Soroush, and good afternoon, everyone. Let’s turn to Slide 13 to discuss our full year 2022 financial results and 2023 financial outlook. Revenue for full year 2022 was $4.2 million, which included revenue of $8.1 million, that was partially offset by an adjustment of $3.9 million due to an existing customer’s roadmap provision towards less customization. This aligns with our standard product line capabilities. We look forward to continuing our collaboration with this customer on their program. Non-GAAP operating loss for the full year 2022 was $127.7 million, which primarily consisted of R&D expenses. In addition, we continue to efficiently manage operating expenses and it came in below our annual outlook for 2022 by more than 10%. Our gross cash use, which is operating cash flow less capital expenditure was $117.4 million for the full year 2022. This enabled us to end the year with a strong cash, cash equivalent and marketable securities position of $323.8 million. Weighted average shares outstanding for the fourth quarter was $218.4 million. Turning now to a financial outlook for 2023; as Soroush said, this year we are focused on increasing our wins and supporting our customers on product validation and development of their end products. We are targeting revenue in 2023 to grow by at least 50% year-over-year, driven by higher product deliveries to our key customers. As we are bringing up our new manufacturing line and optimizing processes in the first half of the year, we expect 2023 revenues to be backend loaded. We are targeting non-GAAP operating expenses, which excludes stock-based compensation and other potential non-recurring charges to be similar to 2022. And lastly, Aeva’s balance sheet is strong and we continue to have significant capital to execute on our plan to ramp up product shipments, support our existing customers and convert additional programs toward production. I will now turn the call back to Soroush for closing remarks. Soroush Dardashti Thank you, Saurabh. In summary, we are really excited about our growing commercial momentum and the opportunities ahead in 2023. Over the past quarter, we have made substantial progress on multiple programs with global OEMs, thanks to the tremendous work by the Aeva team. Similarly, we are actively engaged on growing opportunities to use our LiDAR-on-Chip perception platform for large scale implementation and industrial automation. Our focus in 2023 is on winning these opportunities and continuing to work towards production with our existing partners. We are in a strong position with our unique technology and financial position to do so, and I look forward to sharing our progress over the course of this year. With that, we will now open up the line for questions. Question-and-Answer Session Operator [Operator instructions] Our first question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question. Colin Rusch Thanks so much, guys and congratulations on all the progress. With the increased availability of product, and having been able to get samples out, can you talk a little bit about the availability of samples and how it’s changing the scope and scale of the customer engagement that you’re able to work on at this point? Soroush Dardashti Sure, Colin, happy to answer that. This is Soroush. So, obviously as we set the goal last year to release Aeries II, this was a key milestone for us. We did achieve that goal. We really delivered on launching Aeries II and this has been a key factor for us, right? As I mentioned on the call, that launch resulted in us being able to shift over 40-plus customers. We have further expanded with that, our ability to secure new partners in the industrial as well including with the collaboration with SICK AG, of course, in addition to our existing collaboration with Nikon and, we’ve also made good progress in bring up our initial manufacturing in mind. So all of that has really resulted us to actually now continue our progress towards advancing to the late stage or our few stages with multiple customers, which obviously if we could not deliver Aeries II would’ve been a problem. So that’s been a big win-win for us. I think also generally the feedback customers have been quite positive and we are making now meaningful progress and case in point is the top 10 OEM decision that I mentioned on the call to start implementing our LiDAR on their vehicle fleet, which is a significant milestone for us as well. So hopefully that answers your question. Colin Rusch Yes, that’s helpful. And then with the manufacturing process, can you talk a little bit about the key areas of maturation that you’re working on right now, this year, and then also the CapEx spend that you’re planning to put into that line this year as you work towards a larger scale? Soroush Dardashti Yeah, so as I mentioned on the call, this year we’re expanding our manufacturing to a new line, which really further increase our capacity and the importance here thing is that, our overall LiDAR system manufacturing is being simplified in terms the process. We are increasing automation. We will have with this new line, sufficient capacity to support our customers and new wins until production. So this now — this new line is really going to be setting us up for the next set of opportunities, engagements and getting to secure those wins, but the activity really is around continuing with process optimizations, which I mentioned on the call, we’re going to be doing the next few months and further increasing our automation level to really continue scaling our product deliveries throughout the rest of this year to our — to those key customers. Operator Our next question comes from the line of Antoine Chkaiban with New Street Research. Please proceed with your question. Antoine Chkaiban Hi, Andrew, Soroush. Thanks for the update and for taking my question. So yeah, maybe my main question is, recent news flow suggests that multiple LiDAR enabled L3-designs [ph] are getting pushed out by one to two years and can you maybe please give us your latest perspective on the situation what you are hearing in conversation with OEMs and in particular, has anything changed with regards to whether those L3 platforms will adapt LiDAR when they eventually ramp, and what their latest thoughts are on time of flight versus FMCW? Soroush Dardashti Yeah, sure, Antoine, happy to answer that. So, I think generally obviously OEM-to-OEM vehicle type to vehicle type and level automation, there is differences and approaches from between across these folks, there is differences in the timings. I think some of the can assume from what we hear in the industry, some of the very, very high level, super high level automation obviously has, timelines wise, is what we are seeing is pushed out. But from those L3 plus and ADAS applications from automation, that’s actually where a lot of the focus is and this has been critical for our case in terms of our advancement throughout the opportunities evidenced by the fact that we’ve been able to actually provide units to our customers and start delivering samples so they can actually validate, but also importantly, that now these OEMs starting to actually make progress towards RFQ stages. So we’re now in multiple RFQ programs as a result of our ability to ship last year with Aeries II and there are a number of decisions that are happening. We expect to happen this year and one of course, case in point of this clear evidence is that this top-10 OEM that we talked about, which is an established leader in automotive, as I mentioned on the call with significant scale and we’ve been working with this OEM for some time now, and this OEM was tested with other three [indiscernible] LiDARs in the prior development stages since our close collaboration is now in the next stage is actually decided to our LiDAR technology, the four LiDAR as the long range LiDAR on the fleet vehicle. So that’s, to your point about what the advantages that the folks are seeing; I think that’s now starting to take shape and it continues to build on our belief that the industry over time is going to transition to FMCW, but again, we are pretty encouraged by the progress we’ve made and excited to start off the year with this growing momentum here. Antoine Chkaiban Thanks that for the color and maybe just as a quick follow up. So you mentioned that you’re progressing well on a growing number of vehicle programs, the advanced RFQ stage with leading OEMs and so maybe if you could just give us like a sense of how things have progressed relative to say 90 days or 180 days ago, so we can better visualize how momentum is picking up. That would be — that would be amazing. Soroush Dardashti Yeah, sure. Look, as I said, as a direct result of our ability to actually ship product to customers and also some of the customers now decisions happening this year, and we are now fortunate to be advancing to those RFQ stages and advances on multiple programs with decisions happening in the next number of months. One, two is we are seeing some of those OEMs after they start actually implement and use our technology to really start realizing how they can leverage the key dimensions such as velocity, the differentiation of our — of our technology. And this in large part is helping some of those folks to achieve some of the high level standards that they could not achieve before with other solutions, right? So that I think is some of the traction and actually evidence that we’re seeing from the customer before we expect to continue working through these program opportunities, RFQs with these customers as well as supporting this top-10 OEM as they work towards production as I mentioned with the targeted SOP of 2025. Operator Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question. Joseph Moore Great, thank you. In terms of the new OEM arrangement that you talked about, you talked about it as a development agreement with kind of the intent to go to manufacturing in 2025. Can you be — what does that development agreement mean? Is it a commitment to volume? Is there, prospects for volume, but you have to meet certain milestones, just how should we think about what a development agreement means in terms of certainty of revenue commitment? Soroush Dardashti Yeah, sure, Joe, happy to answer that. So let me give you some context background as we talked about this now a little bit. So first of all, as I mentioned this OEM as an established leader in automotive with significant scale, we’ve been working with them for some time. They have tested with other 3D time-of-flight LiDAR in the prior stages. And with our close collaboration with this OEM in the next stage, they decided to really implement our technology as the long range LiDAR. So what does this mean? This means that we’re expecting that this replaces the 3D time-of-flight LiDAR on the vehicle fleet, that’s what our understanding is. And to your question about, okay, what does the development include? What does it pertain? So, there’s a few things. One is that we’re deploying our LiDAR on the road fleet. So this is, we’re providing them with sensors. They’re integrating on their vehicle fleet. Importantly, they’re starting to actually integrate our velocity data products and our perception software into their stack, which I think is a critical point as we expect with this that the overall stack is going to start to be defined with their — for the production vehicles with our velocity data, right? So we’re working together to define those specs for production. And the SOP target is for 2025. So that is all critical and the reason, I think one of the key reasons for them deciding to implement us on their vehicle fleet, that’s setting the path and the key specs for the production program is that they were not really able to achieve the standards of the safety and performance that they’re looking for again, to our understanding for deployment and with our technology, they’re starting to see what they can do with the addition of the velocity. And as we have talked about the long range detection, which other time-of-flight solutions are challenge. So it’s further evidence towards the unique advantages of FMCW technology. Joseph Moore Great. It sounds like a great win. When you think about attach rates out in the 2025 timeframe, is this the kind of thing that would be part of sort of an option package that people would buy for the car? Would it be standard in all the vehicles? May maybe not, if you can’t talk to the specific one as you just think about 2025 types of production, is it more of like a driver assistance package or is it part of the standard delivery? Soroush Dardashti Yeah, so I obviously can’t comment on the specific details yet, but, our expectation is that this is for higher level automation product and it’s obviously using the LiDAR sensor technology is crucial for the OEM achieving their specific use cases specifically as we talked about on, for example, highway driving, long range sensing. So that’s what I can say at this time. And we’re really focused on helping this OEM achieve those requirements that they could not really be able to achieve before for their production vehicle program. Operator Our next question comes from the line of Tristan Gerra with Robert W. Baird. Please proceed with your question. Unidentified Analyst Hi, this is Tyler on for Tristan. Thanks for taking the questions. How has the competitive landscape for FMCW technology changed? Are Intel’s Mobileye and other players still working to develop the technology, or have you seen any changes there? Soroush Dardashti Yeah, look so obviously, I can’t comment for others, but, I think one thing that we see you feel is important is that we’re not alone in doing — bringing this technology to the market. We think we have an advantage in terms of both the technology approach, which we have had significant work in protecting our IP and the patents with I think, to this state still one of the largest portfolio of IP granted patents in this space. And two, also from a product maturity standpoint, as you know, we’ve been at this for six, near nearly seven years now, which requires significant investment, significant development, and so, which I think has helped us to progress on our opportunities to secure some of these key partners and start preparing for the program — production programs that are coming up. Obviously there are, as I mentioned, there are other folks that are in the space. I think we take every competition seriously, and I think generally for the space again, as we have talked about before, we do expect that over time there is going to be a transition from time of flight towards FMCW and some of the largest players, like you mentioned, like Mobileye, also starting to implement that strategic cross area [ph] strategy is actually, I think a positive thing for the industry. I think it’s a proof point to the advantages of FMCW and we welcome that and I think we think that’s important overall for the industry space. I think, we expect that over the next number of years. Others also will come but, we hope to continue extending our lead in the FMCW space with our unique approach to technology and now our focus on bringing up our manufacturing and releasing our first product to market. Unidentified Analyst Great. And maybe a quick follow-up to what you just said and to a previous question, can you provide an update on the timing that you expect for that transition to FMCW both for robotaxis and then also personal vehicles? Soroush Dardashti Yeah, look as we’ve talked about, and some, like for example with the top 10 OEM here, first launchers happening around the 2025 timeframe. As you know, in the automotive space, programs have multiple year cycles and this is not something that’s going to happen overnight, and I do fully expect that there will be additional wins in time-of-fight domain even this year. But the fact that OEMs are starting to leverage and implement the FMCW approach, realizes potential start to actually implement it in their stack and therefore make those decisions to start replacing FMCW time-of-fight already, I think is a big proof point towards that transition is starting to happen and that’s what I think is important. As I said, okay, a few years for that to complete and at the end of the day, also, we don’t think this is a just only one technology is going to be in the next few years. It’s going to take some time for that to happen. Operator Our next question comes from the line of Suji Desilva with ROTH Capital Partners. Please proceed with your question. Suji Desilva Hi, Soroush. Hi, Saurabh, congrats on the progress here. Soroush, on the top 10 global OEM development, what are some of the milestones to watch for in the timeline between now and calendar ’25 and if you can’t be specific about the top 10 you just won, maybe just generally after you announce an on-road development, what should we watch for in the next — in the first year or two, prior to volume ramp? Soroush Dardashti Yeah, I think thanks for the question, Suji. So, the biggest thing for us is, working together with this OEM to help them integrate the unique technology in their stack, and as they build the rest of the stack around it, we think this is going to be a quite a powerful combination because of taking advantage, advantage of those unique data products. For example, when you go from, black and white cameras to color, using that color information, of course going to provide you with some new valuable information, right? So that’s what we’re doing, which involves specifically deployment of our LiDAR on their fleets, them integrating those data products in their stack and starting to build their actual software stack for their production vehicles as they move along. So that I think is an important piece that we’re going to be working with this OEM in the next number of months to achieve that. And, generally this from you ask about, generally from, okay, when you go to a fleet, what happens next? Typically, the next stages go through the traditional award process, RFQ and award. And we — as I mentioned earlier, we are progressing with a number of others into the RFQ stages in the next months and expect some of those decisions to happen this year. So that’s, I think a couple of things I would say that you should be looking out for. Suji Desilva Okay. And then for a follow up, I think I know the answer to this, but does –is every customer going to have to go through this phase where they’re getting access to your velocity data and capability for essentially the first time and they have to kind of weave it in with theirs and meld it together? Or can some just benefit from all the learning you’ve done in-house in the past few years and just kind of run with that? Or just, is every customer going to have to kind of go through this phase? Yeah. Soroush Dardashti Yeah. So short answer is actually, as we implement this for initial customers, the fact that, so one thing also I mentioned earlier is even for this opt OEM, they’re starting to actually not just use the velocity, but also our perception software, right, and that I think actually is an important value proposition because it actually helps them accelerate their integration. So it’s not that this is a super long process. The fact that we have significant experience with our FMCW data, the fact that we have been developing the perception software in conjunction and parallel to our hardware is an important thing, and as we’re able to talk in the future, we will do that more about that. But, this specific top 10 customer and others, I think are going to be able to use, actually tap into our perception software to accelerate those integration pieces. What I’m referring to is really the normal process that they have to kind of go through as they build up their vehicle fleets most — almost all OEMs prior to an actual launch. So that I think is important and we see this as a validation point for us to be able to then provide, take from those learnings and provide the perception software and the results from it to other customers as well. Operator Our next question comes from the line of Kevin Garrigan with WestPark Capital. Please proceed with your question. Kevin Garrigan Yeah. Hey guys. Thanks for letting me ask the question. Just one quick one for me. So besides Nikon with industrial metrology and SICK with industrial sensing, what are some other applications customers are looking to deploy your LiDAR for, and can you kind of remind us of your strategy in industrial market? I don’t think you guys are going after every single application, but what are some areas you’re focusing on, if any? Soroush Dardashti Yeah, thanks, thanks for your question, Kevin. So look, I think this is an — this is an important area for us because it’s actually one we’re seeing additional inbound interest across industrial applications. You’re right, industrial generally is a kind of broad term. We’re not going after every single piece, but, I would divide this into a couple different pieces. One is around industrial sensing where we have for example, the 40 or the 40 scanning application. This is the approach we’re taking our collaboration with SICK AG, the company that’s one of the leaders, top leaders in the industrial sensing space. There we’re providing, sensor solutions starting with kind of our Aeries II products and for applications around safety automation logistics and as such. The other approach — the other segment, really what we’re focused on is around or we call precision distance measurements. These are typically applications where it’s not really scanning and the focus really is on measuring precisely either distance of objects or features of things throughout the manufacturing process including manufacturing inspection, metrology and overall other safety topics or interaction between humans and manufacturing automation equipment. And this is what I was mentioning on the call where, with our completion of our LiDAR-on-Chip module or perception platform for industrial sensing, we can now achieve the micron-level precision and this one of our first customers in this space is Nikon, which we have talked about and they’re using that for automotive manufacturing, high volume automotive manufacturing applications. But also, we see a pull from the market for this distance measurements across other applications, which we think there is a clear existing business and potential for large scale deployment. And this is — this could be from anything from few centimeters of distance to hundreds of meters of distance and the key for us is, unlike other solutions. So first of all, pre-defined [ph] LiDAR, what’s out there in the market doesn’t even typically address those markets because of some of the performance inherent limitations. Other existing solutions are either typically across multiple SKUs with different architectures that are focused on some only doing a piece of, it’s a just very short range, some that’s medium range and some that’s longer range. The advantage that we bring here is really that we can achieve that high level performance, micro level precision and as in a compact silicon products chip platform add volume scale, which, based on the manufacture process that we have also in a way that is, from a cost standpoint is affordable and doing so in a way that one solution is able to tackle multiple of these applications from short to longer range. And we think this is an interesting area from an opportunity standpoint for us. And we are — we’re engaged on multiple opportunities with folks and as we’re able to talk more, we will discuss further. Kevin Garrigan Okay. Got it. That makes a lot of sense. I appreciate the color. Thanks guys. Operator There are no further questions in the queue. I’d like to hand the call back to management for closing remarks. Soroush Dardashti Thank you for joining the call and we will see you next time. Operator Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.