Good day, and welcome to the Elauwit Connection third quarter results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your phone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Matt Kreps, investor relations for the company. Please go on.
Good afternoon, and thank you all for joining us today to discuss Elauwit's third quarter 2025 financial results and business update. This is our first call as a NASDAQ-listed company. We are excited to connect with our current and prospective investors. The earnings release covering our results for this period is now available on the investors page of our website at investors.elauwit.com. We plan to file our Form 10-Q for the third quarter with the SEC within the next week. I would encourage you to review the full text of the release and accompanying financial tables in conjunction with today's discussion. This conference call is being webcast live and will be available for replay on our investors page. Speaking on the call today are Executive Chairman, Dan McDonough, Chief Executive Officer, Barry Rubens, and Chief Financial Officer, Sean Arnette.
We'll cover our prepared remarks on the business and financial results, then open the call for questions from our analysts and institutional investors. Please note that during this call, management will make projections and other forward-looking statements regarding our future performance.
Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in this afternoon's release, as with other risks that are more fully described in Elauwit's filings with the SEC. Our actual results may differ materially from those projected in the forward-looking statements. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ from our current expectations. Elauwit specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. We will also reference adjusted EBITDA, which is a non-GAAP financial measure.
A description of adjusted EBITDA, along with a reconciliation of adjusted EBITDA to the most comparable GAAP financial measure, can be found in our earnings release. With that, I will now turn the call over to Dan. Please go ahead.
Thank you, Matt, and thank you to everyone who's joined today's call. I'll begin today's call with an overview of the business, then pass to Barry for discussion around our sales and operations. Finally, Sean will provide a few highlights from the financial results. Looking forward, we can expect our Chief Growth Officer, Sebastian Shahvandi, who joined our team last month, to join these calls to provide additional color on sales activities and pipeline growth. Since this is our first call as a NASDAQ-listed company, many of you may not be fully familiar with Elauwit, I'll start with an overview of our business. Elauwit is a technology-driven broadband infrastructure provider focused on delivering fiber-based internet, managed network services, and networking-as-a-service to multifamily and student housing communities across the U.S.
We own and operate what I like to call last 100 feet networks across these properties, bringing carrier-grade fiber and Wi-Fi 6 access directly into units and common areas. We generate revenue under two business models, managed service and networking-as-a-service, which I'll dig into in a moment.
For our investors, our services generate profitable, long-lived, sticky, recurring revenue contracts. In addition to a growing number of units already under contract, we also have a robust pipeline of new installations to drive our growth in 2026 and 2027. This onboarding and backlog process provides clear evidence of our growth, which we believe will continue over the next couple of years. To deliver on this, we have built a scalable operating model that we believe can handle almost any number of units we can add for years to come as we take share in a large and fragmented addressable market.
By executing successfully, we believe we create a win-win-win scenario, where we generate high margin revenue streams, elevate the resident experience, and unlock value for our property owners. One of the most common questions we get is, why Elauwit? The answer is simplicity, service, and profit. When a resident moves into an apartment or other multifamily housing unit, they sign a lease, then begin the arduous and time-consuming process of securing utilities, including internet access. This usually means a lengthy sign-up process, waiting several days for a technician to come and turn on the service, and taking a day off of work for an open-ended install appointment. It's a frustrating, inconvenient, and time-consuming process, but eventually, the resident will have some level of internet access in their new home.
The property owner isn't likely participating in this revenue stream, other than perhaps a nominal marketing agreement for small dollars. Elauwit changes every facet of this experience. The property is pre-wired with enterprise-grade networking equipment, offering the resident better service and faster speeds. When the resident signs their lease, the internet fee is included in their rent as a standard cost, but usually 10%-15% less than the products I just described. Instead of waiting days for an install, they get their log on credentials when they get their keys, providing immediate internet access, not just in their unit, but property-wide in all of the amenities. That alone is a compelling case, but we take it one step further by improving the revenue potential and value of the property itself.
With Elauwit, the property owner also participates in the monthly recurring revenue from the service, which provides a source of profit and the increased recurring cash flow that enhances the value of their property. In short, we believe every new property is a win for Elauwit, a win for the property owner, and a win for the resident. For Elauwit, we offer two approaches to this incredible service in what we think is a more than $25 billion market opportunity. For both approaches, the entire property is turned on and serviced, and the monthly fee is included in the residence costs by default, ensuring full subscription to the services. Historically, we have offered a managed network approach whereby the property owner pays us an upfront fee to construct and install the network throughout the property.
The property owner collects a fee that goes in part to them for their installation cost and profit, and partly to us for our services under a five to seven-year contract. This model works well in new construction, where the balance sheet is open to add the network, and with large and financially sophisticated properties seeking retrofit upgrades.
This approach works for about 30% of our target market. With our IPO and strengthened balance sheet, we can now support the other 70% of the opportunities in the market as well. For these properties, mostly retrofits, but also some new construction, we're offering networking as a service or NaaS. Under this model, we can use our public company balance sheet to install and own the network, then collect a higher recurring monthly fee from the property owner to operate it under an eight to 10-year contract.
This model is similar to a SaaS data center or alarm company model, where customers stay for years, generating high margin service revenue. We are excited about the new opportunities now quickly opening up to us as a public company with capital to deploy these networks. One of the first things we have done is expand our sales and marketing resources to a team of hunters who are actively engaging in creating marketing content and building our pipeline of targeted managed services and networks as services opportunities with a major marketing and sales campaign launching on January 1. Initial sales and marketing hires include our new Chief Growth Officer, a VP of Marketing, a BDR, and an AI-enabled marketing agency. Expected near-term hires in early 2025 include five additional team members to round out our direct sales and growth marketing.
The current focus of the sales and marketing team includes the implementation of our new CRM, producing core marketing assets, finalizing our 2026 event calendar, and deploying our official partner program. Based on two months of effort from our newly formed sales team, we are seeing more quality and greater breadth of opportunities and more low-hanging fruit than frankly, we would have seen otherwise.
To date, our sales team that has grown the company to almost $23 million in sales this year was essentially just the executives. It's easy to see how a full team can rapidly accelerate our prospects. That brings me full circle to my opening comment that represent the compelling growth case of high value recurring and long-lived revenue. With that, I'll turn it over to Barry to talk through some of our key operating metrics for how we get there.
Thank you, Dan, and good afternoon, everyone on the call. We're excited to be here, and we're excited to be on the NASDAQ. Being part of the capital markets not only allows investors to participate in our success, but also provides the access to capital to expand our market reach and drive growth. With our recent IPO and proceeds from our offering, we are now funded to pursue the other 70% of the market opportunity that was available but simply not accessible to us. As Dan mentioned, that access can quickly accelerate our growth.
We track our business across three key metrics: contracted units, those waiting to be built or in the process of installation; activated units that are fully installed and on, but may not be fully billing yet due to onboarding; and billed units that are fully generating revenue under our managed service or NaaS contracts. Contract units and billed units are relatively self-explanatory. Activated units represent the rollover period throughout the 12 months following the installation, and we onboard their costs pro rata to align them with lease renewals. In short, when we complete an installation, we know that we have 12 months of growth ahead, then long-term sticky recurring revenue for years to follow. Billed units today are at 10,710, up 107% from a year ago. These are a mix of managed services and our first NaaS models.
Activated units are 16,964, up over 150% from 6765 a year ago. This represents our total installed universe today and contracted growth already built into our business. These units will become billing units within the next 1-12 months. Furthermore, we expect to activate nine networks in December, representing 2,727 units. Contracted units are 32,826 compared to 25,907 a year ago. I should also note, and Sean will elaborate more, that our revenue includes the recurring service sales as well as installation sales. Because we have been largely focused on managed service projects to date, our recurring revenue has been a smaller portion of the total sales.
However, we expect recurring revenue to increase as a percent of total revenue over the coming years due to, one, the rising number of billed units on long-term multi-year contracts, and two, the rising contribution of NaaS installations that bill at a higher monthly rate. We anticipate that recurring revenue will grow steadily because of the sticky nature of these contracts, and may be enhanced further by a shift in the favor of NaaS throughout 2026 and 2027.
I'd also like to take a moment to note that our sales universe is vast, encompassing more than 12 million units across the U.S. We're currently in about half of those states, but we readily can go anywhere. Our business model uses a highly scalable call center to service our residents, and contract installation teams that we can easily flex and scale as needed with minimal cost to us.
As Dan mentioned, we stood up a full sales and marketing team for the first time in Elauwit's history. They're just getting started. We have a solid backlog of projects through the first half of next year. We anticipate the sales team will further expand our backlog in 2026 and throughout 2027 to achieve the performance goals we have shared so far. In short, we believe we have good visibility to growth just from the business we have already contracted, exciting upside to accelerate and expand our growth prospects over the next few years, providing a compelling business built on growing percentage of recurring revenue under long-term profitable contracts. With that, I will hand it over to Sean to briefly recap some of our business highlights from the quarter and year to date. Sean?
Great. Thank you, Barry. Today, I'll walk through a few of the financial highlights of our third quarter 2025 that include continued quarter-over-quarter robust growth, margin expansion and gross profit, and positive adjusted EBITDA. Revenue for the third quarter increased $3.4 million or 178% to $5.2 million compared to $1.9 million for the prior year period. This increase was primarily due to increased network construction activities and the activation of networks, driving the ramp in our recurring service revenues. Cost of revenue increased to $3.4 million for the third quarter compared to $1.7 million for the prior year period. The increase in cost of revenue was due to increased network construction activities. I should note that network construction activity, both in terms of cost and margin, can be lumpy and incurs substantial costs upfront, but leads to long-lived recurring revenue.
Gross profit increased 782% to $1.9 million for the third quarter compared to $0.2 million for the prior year period. The increase in gross profit was driven by higher revenue levels and gross margin expansion. Our gross margin for the third quarter increased to 36.0% compared to 11.4% for the prior year period, primarily due to increased network activations and greater recurring service revenues in which we realized higher gross margin levels than with our network construction activities.
These trends illustrate the benefits of scaling our business and the percentage of revenue from recurring services, as Dan and Barry addressed in their remarks. Operating expenses were $1.8 million for the third quarter compared to $1.1 million for the prior year period. The increase was driven by continued growth in our project management and network engineering functions, as well as expenses associated with the preparation for being a publicly traded company.
Higher gross profit from revenue increases paired with gross margin expansion resulted in operating income of $0.1 million for the third quarter compared to an operating loss of $0.9 million for the prior year period. Net loss decreased to $0.8 million to $0.2 million for the third quarter compared to a net loss of $1.0 million for the prior year period, driven by higher total revenue and gross margin expansion for the period. As a growth company, we expect to prioritize investment in sales, marketing and customer expansion, but target to remain operating neutral on our results. For this reason, we anticipate using adjusted EBITDA as a primary metric to assess our operating performance. Adjusted EBITDA in the third quarter was $0.1 million compared to negative $0.9 million in the prior year quarter.
Adjusted for a change in fair value of the SAFE liability on balance sheet as a result of the conversion to common stock at our IPO. On a year-to-date basis, revenue for the nine months increased $11.8 million or 226% to $16.9 million compared to $5.2 million for the prior year period, demonstrating increased network construction and activation activities, driving the ramp in our recurring service revenues. Cost of revenue increased to $12.1 million for the nine months compared to $4.3 million for the prior period. The increase in cost of revenue was due to increased network construction activities. Gross profit increased 451% to $4.9 million for the nine months compared to $0.9 million for the prior year period.
Our gross margin for the nine-month period increased to 28.8%, compared to 17.1% for the prior year period, primarily due to increased network activations and greater recurring service revenues in which we realized higher gross margin levels than with our network construction activities. Operating expenses were $4.9 million for the nine months, compared to $3.1 million for the prior year period.
The increase was driven by continued growth in our project management and network engineering functions, as well as expenses associated with the preparation for being a publicly traded company. With our NASDAQ IPO and related capital raise, we now have a balance sheet to fund increased NaaS activity and other initiatives designed to drive our growth and increase the contribution from long-term recurring revenue sources. From an outlook perspective, we intend to provide annual guidance as a matter of practice and anticipate doing so on our March call.
Until then, we expect the fourth quarter to show continued growth in our business due to ongoing network construction activity and increased recurring revenue from activated and billing units. Before moving into Q&A, I'd like to also remind everyone that we will be participating in two conference events over the coming days, including the opportunity to meet with management. If you would like to arrange a meeting, please do so through those events if attending, or via Matt Kreps, our investor relations contact, whose contact information is on our results release and IR website. I'd like to ask the operator to open the call for questions.
Thank you. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from George Sutton with Craig-Hallum. Please go ahead.
Thank you, and welcome to your first call.
Thank you.
There were a couple of lines in your press release that I just wanted to see if you could quantify a little bit. You talked about a strong and growing pipeline of opportunities, one, and number 2, a growing funnel of new business opportunities. I just wondered if you could give us a little bit more detail into those statements.
Hey, George, this is Dan. Thanks for that question. As I mentioned in my opening remarks, our sales organization that we've stood up now is wildly different than what we've had before. We've been really reluctant to quantify things at this moment. Even our Chief Growth Officer hasn't been in for two full months yet. What I can say is anecdotally, it's pretty wild for us. It's, in some ways, overwhelming just thinking about how this opportunity is coming together. I don't think we're prepared now. I think we need a few more months under our belt to really understand how to quantify these and look at the strata of our funnel and be able to report on it in a way where we can define it correctly.
Let me ask it a different way. With the sales team coming in, what does a rational sales cycle look like? Obviously, I know you've had some discussions with NaaS customers prior to your IPO. Any update on sort of that 70% of the opportunity as you defined it?
Yeah. The best way I could probably explain this is anecdotally. A lot of the folks that we've talked to in the past that we haven't been able to talk to, we're able to talk to now. Two is that we are seeing that our sales organization is opening up opportunities in ways that we didn't even really originally think. For instance, conferences. We would go to conferences and attempt to have meetings with folks at those conferences to introduce our service offerings. Now we're at the point where we're walking into those conferences with sometimes nine or a dozen meetings already scheduled for our BDR with high-quality folks. Our Chief Growth Officer is talking to a handful of different outfits that we've never spoken to before.
We are making progress with the ones that we've already been speaking to, but I think the thing that's way more exciting for us is that the floodgates have opened, and it's just too nascent at this point for us to really put the correct strata in, define these things, and start reporting on them. I would assume, a few quarters from now, that these metrics will be really important and we will be able to provide them.
Barry specifically talked about nine networks accounting for 2,700+ units. I just wondered if you could give us a little bit more detail there.
Barry, you want to go ahead and take that?
Yeah. We have a number of projects, 2,700 units coming on board. Those are primarily represented by Hanover and DSR. Obviously, we're pushing to get those things constructed and activated in 2025. I think one of the key things we've been able to do this year is ramp up our construction and operations to the point that we've activated over 12,000 units with that 2,700 this year, which all starts the ramps moving and adds to monthly recurring revenue next year. People are very focused right now on closing out these projects.
Got you. Okay. Thanks, guys.
Once again, if you have a question, please press star, then one. The next question comes from Gary Greenberg with Matheson Group. Please go ahead.
Hey, guys. Thanks for taking my questions. My first question was just on the timeline towards converting contracted units to active units. I think you'd mentioned for activated to build, it was between 1 to 12 months. I was just wondering if there is a kind of useful rule of thumb to use on the contracted to activated as well.
That's a great question.
Okay. Never mind.
Sorry. I could start with a broad brush, because I think defining these things is really important, because I believe that these are going to be critical metrics for us going forward. Contracted units specifically is, again, when we get those contracts signed. That is a future revenue. Depending on the type of contract, like NaaS for a retrofit, we could start activating them in just three months, four months, possibly.
Some of the new construction contracted units could take a year or even more because we're at the mercy of the development cycle and the general contractor schedule and such. There can be a big lag there. Once we have the contract, we understand the revenue associated with it. Activation is the moment that we light up the network in the building, people start moving in. That is a pretty clear and easy definition.
Billed units is when we're actually collecting revenue from those units. The reason why there's a differentiation between activated units and billed units is because with a lot of our developers and owners, we give a 12-month ramp, meaning that in a 12-month cycle, everybody's leases renew, and they can put this cost, connectivity charge in their lease. For the first month of an active building, we might only be billing one twelfth of the units. Everything pretty much goes from active to billed over a 12-month period. That might be more than you were asking for, but does that answer your question?
Yes. Thank you. That's really helpful. Then in terms of the opportunities that you guys are seeing now, obviously, it sounds like with the new sales team in place, there's a lot of opportunity. I was wondering, in terms of your pipeline, what % you would say is coming from existing clients expanding within their portfolios versus new customers?
Yeah, another good question. Being as though up until about 50 days ago, everything was executive-led sales, the overwhelming majority of the things in our pipeline was from existing relationships. Those existing relationships are with large organizations that have a very big pipeline of business for us that would allow us to grow just on those properties alone. 50 days in, I don't have enough foresight to be able to say how that's going to shift.
That's why we're really pushing to the next quarter to kind of give that kind of guidance. What I can say is we're wildly excited, somewhat overwhelmed by the activity. It's moving at a velocity that I certainly didn't expect. I think that, in the next year, it's going to be overwhelmingly new opportunities compared to the ones that we've been working with for the last few years.
Okay. Got it. Then my last question is just on the two services you guys have, the two models you guys have. In launching the Network as a Service, you say that's going to target 70% of the market, whereas managed is 30% now. I was wondering if you could just go into a little bit of detail about the difference in economics between those two models.
Certainly. That is also a very good question. The best way I can explain it is, when we said executive-led sales, that included me. Out of every 10 folks that we would go to, three of them had the sophistication to be able to make a large upfront payment for the network, call it $250,000-$300,000. The other seven, it was a roadblock to the conversation, so we'd have to walk past them. What Network as a Service does is it opens up our ability to have conversations with those folks because we've eliminated that roadblock. I'll tell you the difference between the two pricing models, really, because we're delivering the same service to the two financial models, deals really with what I call type and timing.
Type, what I mean is the smaller, less sophisticated, or the smaller developers or owners that don't have the same amount of credit opportunity, typically will prefer Network as a Service because there's no upfront cost. Whereas in the much larger organizations that borrow at a very cheap rate, it makes sense for them to capitalize that cost and reduce their operating expense. That's type. Then timing is really new construction versus retrofit. As I mentioned in my remarks, new construction is a moment where the balance sheet's open, you have a construction loan, and it's pretty easy to include this expense in your construction loan. When you have an existing property and it's a retrofit, the balance sheet isn't open.
You probably are maxed out on your credit or in a position where you don't want to use it for this, and you're more likely to go with Network as a Service. Again, we feel that those two financial models are beneficial one way or the other based on the timing of a property or the type of owner.
Okay. Got it. Thank you. That's really helpful.
Great.
Once again, if you have a question, please press star, then one. Since there are no more questions, this concludes the question and answer session and today's conference call. Thank you for attending today's presentation.