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Operator: Ladies and gentlemen, good day everyone and welcome to Vipshop Holdings Limited Third Quarter 2025 Earnings Conference Call. At this time, I would like to turn the call over to Ms. Jessie Zheng, Vipshop Holdings Limited's head of investor relations. Please proceed. Jessie Zheng: Thank you, operator. Hello, everyone, and thank you for joining Vipshop Holdings Limited Third Quarter 2025 Earnings Conference call. With us today are Eric Shen, our cofounder, chairman, and CEO, and Mark Wang, our CFO. Before management begins their prepared remarks, I would like to remind you that discussion today will contain forward-looking statements made under the safe harbor provisions of The U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our safe harbor statement in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this call to the extent any forward-looking statements may be made. Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income attributable to Vipshop Holdings Limited shareholders, and non-GAAP net income per ADS, are not presented in accordance with US GAAP. Please refer to our earnings release for details relating to the reconciliations of our non-GAAP measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen. Eric Shen: Good morning and good evening, everyone. Welcome and thank you for joining our third quarter 2025 earnings conference call. Our third quarter results demonstrate tangible progress on our path back to growth. We are pleased with the clear top-line expansion, led primarily by notable improvement in customer trends across our core categories. Total active customers regained year-over-year growth. Super VIP membership continued to deliver double-digit growth. In the third quarter, active super VIP customers grew by 11% year-over-year, contributing 51% of our online spending. This sustained growth was primarily driven by continuous upgrades to SVIP exclusive product and service benefits, coupled with more targeted engagement initiatives, which effectively convert regular customers. In terms of category performance, we saw accelerated momentum in apparel-related categories throughout the quarter. Our team successfully delivered a powerful blend of quality, value, and style. This was achieved through a merchandising strategy that highlights high-value brands, trending categories, and popular selling points, all of which are deeply aligned with customer priorities. Against the dynamic industry backdrop, we are navigating this operational environment with agility and efficiency. We are strategically realigning the organization for long-term success, implementing changes to strengthen our unique position as an off-price retailer for brands. We focus on reinforcing the flywheel from merchandising, customer engagement, to operation. At our core, we are a merchandising-led company. We compete through offering affordable and differentiated assortments, continuing to enhance our leadership in deep discount product offerings. We are deepening our category specialization to curate product offerings that deliver great relevance and distinct value. We start to see new momentum in customer and sales by acting upon engaging bright spots and customer performance. As an example, we are rebuilding our maternal and child care division to better integrate relevant apparel and non-apparel categories. This reshaped assortment is designed to foster cross-category growth and create lasting value for customers as they journey through different life stages. We are bringing this level of specialization across each category in our business. Additionally, we have an opportunity to scale through our differentiated product portfolio. One is Made for Vipshop Holdings Limited, which again delivered strong sales growth in the quarter. We are deepening our collaboration with more high-value brand partners. The team is capitalizing on our category insights to motivate brands to allocate and create more in-season and on-trend supply at competitive prices. A compelling case in point is a leading running shoe brand, which drove 50% of its September sales on our platform from Made for Vipshop Holdings Limited after making select popular items exclusive to us. Another case is a leading women's apparel brand, which built sales momentum by customizing more deep discount, high-demand offerings from its inventory fabrics. The other line I would differentiate is a carefully curated portfolio of popular items, which we proactively source from both domestic and global brand partners. We see strong momentum when we offer the right brand of quality, value, and style, giving fashion relevance to young and middle-class customers who increasingly come back to enjoy the fun of flash sales and treasure hunts. Beyond merchandising is how we do better to appeal to customers. In addition to sustaining strong mindshare with our core customer cohorts, we are actively experimenting with new marketing formats such as in-app content and short-form dramas. By adopting an integrated strategy across marketing, growth, and engagement, we are seeing early wins. This approach enables a differentiated balance of cost efficiency and strategic reinvestment, improving our performance in acquiring, activating, and retaining customers. To further engage our customers along their journey, we focus on facilitating the broadening and discovery of a broader range of new and existing offerings. A notable area of improvement is search and recommendations. Our systemic upgrade of relevant models, algorithms, and product operations have translated into measurable gains. In the third quarter, enhancements in our search and recommendation systems led to a tangible increase in conversions, directly contributing to sales growth. We also continue to elevate the experience for our SVIP customers. We want them to feel special, valued, and delighted with every visit, and we are delivering on this promise more consistently. In the third quarter, we launched a series of by-invitation private sales. SVIP customers were granted exclusive access to a curated selection of major brands at deep discounts, which delivered a powerful sense of value and successfully boosted membership loyalty. Lastly, we expect technology to play a strong role in tapping into the potential of growth and efficiency. We are clear on the path to accelerate AI application across our business. Our immediate focus is on deploying AI agents to enhance key areas including search, recommendations, customer service, external marketing, and business analytics. We expect these innovations to create more engaging customer experiences, empower brands with advanced tools, improve marketing efficiency, and generate actionable business insights. As an example, we are seeing good adoption of our try-on AI feature. Customers really enjoy using it to virtually try on clothes, save looks, and share with friends before buying. We are also gaining traction with AI ads, as a growing share of campaigns now leverage AI to upgrade marketing creatives and media placements, boosting customer acquisition efficiency. We are encouraged by the momentum in our business. Our operations are better aligned, and our teams are collaborating at new levels to unlock synergies. We continue to adapt to stay ahead of market trends and customer expectations. The entire organization is leaning into the opportunities ahead of us. We have great confidence in our long-term roadmap for sustainable profitable growth. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results. Mark Wang: Thanks, Eric, and hello, everyone. I am pleased to report a set of healthy financial results for the third quarter. Total net revenues turned to growth and exceeded expectations, along with solid earnings expansion. This performance validates our disciplined model to balance growth investment with value creation, upholding our long-stated goal of achieving high-quality growth. Our strategic yet prudent growth investment focuses on value-driven opportunities in merchandising expansion, especially into the differentiated portfolio, consumer-facing marketing, better engagement with customers, as well as AI-centered technology advancements throughout our operations, all aligned with our long-term roadmap for success. We make sure everything we do should be powering our virtual flywheel within a business that translates into sustainable and profitable growth. As Eric stated, we are seeing the benefits of recent strategic changes. We are encouraged by the progress made so far and expect to see the impact of our initiatives build into the rest of the year and beyond. We have great confidence in our long-term outlook and our capabilities to deliver value for all stakeholders. Again, I would like to reaffirm our commitments to shareholder returns in 2025, which is no less than 75% of the RMB9 billion full-year 2024 non-GAAP net income. So far this year, we are firmly on track with that. We have returned a total of over $730 million to shareholders through a combination of dividend payments and share buybacks. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented below are in renminbi, and all percentage changes are year-over-year changes unless otherwise noted. Total net revenues for 2025 increased by 3.4% year-over-year to RMB21.4 billion from RMB20.7 billion in the prior year period. Gross profit was RMB4.9 billion compared with RMB5 billion in the prior year period. Gross margin was 23% compared with 24% in the prior year period. Total operating expenses were RMB3.9 billion compared with RMB3.8 billion in the prior year period. As a percentage of total net revenues, total operating expenses were 18.5% compared with 18.2% in the prior year period. Fulfillment expenses were RMB1.9 billion compared with RMB1.7 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 8.7% compared with 8.4% in the prior year period. Marketing expenses were RMB667.2 million compared with RMB617.8 million in the prior year period. As a percentage of total net revenues, marketing expenses were 3.1% compared with 3% in the prior year period. Technology and content expenses were RMB438.6 million compared with RMB454.2 million in the prior year period. As a percentage of total net revenues, technology and content expenses were 2.1% compared with 2.2% in the prior year period. General and administrative expenses were RMB984.6 million compared with RMB957.8 million in the prior year period. As a percentage of total net revenues, general and administrative expenses were 4.6%, which remained stable as compared with that in the prior year period. Income from operations was RMB1.26 billion compared with RMB1.33 billion in the prior year period. Operating margin was 5.9% compared with 6.4% in the prior year period. Non-GAAP income from operations was RMB1.6 billion compared with RMB1.7 billion in the prior year period. Non-GAAP operating margin was 7.5% compared with 8.2% in the prior year period. Net income attributable to Vipshop Holdings Limited shareholders increased by 16.8% year-over-year to RMB1.2 billion from RMB1 billion in the prior year period. Net margin attributable to Vipshop Holdings Limited shareholders increased to 5.7% from 5.1% in the prior year period. Net income attributable to Vipshop Holdings Limited shareholders per diluted ADS increased to RMB2.42 from RMB1.97 in the prior year period. Non-GAAP net income attributable to Vipshop Holdings Limited shareholders increased by 14.6% year-over-year to RMB1.5 billion from RMB1.3 billion in the prior year period. Non-GAAP net margin attributable to Vipshop Holdings Limited shareholders increased to 7% from 6.3% in the prior year period. Non-GAAP net income attributable to Vipshop Holdings Limited shareholders per diluted ADS increased to RMB2.98 from RMB2.47 in the prior year period. As of September 30, 2025, the company had cash and cash equivalents and restricted cash of RMB25.1 billion and short-term investments of RMB5.9 billion. Looking forward to 2025, we expect our total net revenues to be between RMB33.2 billion and RMB34.9 billion, representing a year-over-year increase of approximately 0% to 5%. Please note that this forecast reflects our current and preliminary view of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A. Operator: Thank you. We do ask you to translate your question into Chinese if you are bilingual. And our first question will come from Thomas Chong with Jefferies. Your line is open. Thomas Chong: Thanks, management, for taking my question. My first question is about the online shopping competitive landscape. Can management comment about the latest trend as well as the potential impact coming from quick commerce? And my second question is about the monthly GMV momentum quarter to date. How is the performance we are seeing in October and November? And how should we think about the 2026 outlook? Thank you. Eric Shen: Okay. So first, in response to your question on quick e-commerce, I think we are definitely not going into quick e-commerce. But we are looking at what appeals to those attracted to quick e-commerce. Convenience is something that matters, but that matters more in grocery shopping, food delivery, and some household essentials that are not apparel-related categories, which consumers typically do not care so much about fast delivery. But, anyway, we have made progress with convenience as part of our value proposition to customers. I think, for example, there are a few notable things. One is the delivery metrics. Next-day delivery has been rolled out for certain standardized categories of products in some cities. Second is accelerating the delivery of apparel products in some key cities. And lastly, the logistics trajectories are actually optimized for customer returns to our warehouse, etc. So these efforts are still focused on driving refined supply chain management to support business growth as well as operating efficiency. Secondly, in terms of the recent GMV sales trend, if we look at October and November to date, actually, we are seeing a decent growth momentum. During the entire 11.11 promotional period, we actually recorded a decent year-over-year growth. So we are reasonably positive on the business performance of the fourth quarter, which we have guided to 0% to 5% revenue growth. And for 2026, we do see there are opportunities in off-price retail for brands. On the other hand, we do expect consumer sentiment to normalize a bit more. So we will still have reasonable expectations for growth, but we are preserving a roadmap for balanced growth and profitability. So that is the roadmap for our long-term success and distinctly high-quality development. Operator: Thank you. And our next question is going to come from Alicia Yap with Citigroup. Your line is open. Alicia Yap: Hi. Good evening, management. Can you hear me okay? Mark Wang: Yes. Yes. We can hear you. Alicia Yap: Okay. Yeah. Thanks for taking my questions. The first question is, can management elaborate on the details, changes, and restructuring of your merchandising team, and do these changes help the latest quarter performance? Are these mainly on improving your predictions of customer preferences, or is it for improving your relationship on securing better merchandise that fits the super VIP members? And how do you anticipate the changes could help the financial performance? And the second question is, can you also elaborate on how AI has been helping Vipshop Holdings Limited in terms of your financial growth? Can AI help to target churn users and also attract them back to the Vipshop Holdings Limited platform? Thank you. Eric Shen: Okay. So first, the recent organizational changes, simply put, we have realigned the entire organization for the long-term environment. Actually, it is not one department change; it is across the entire organization, among different teams, including merchandising, customer operation, and technology, etc. I think the major purpose of this organizational change is to infuse more agility and efficiency into our business model, especially as our founders are much more hands-on in daily operations. So the team can make quick decisions and turn these decisions into action. Also, we have replaced some of the senior leaders of the major merchandising team with new talent. So, basically, we have refreshed the entire organization and made consistent upgrades so that teams can collaborate at new levels to unlock synergy. For example, on the merchandising side, as we mentioned on the call, for some of the divisions, we are trying to build reshaped assortments, including apparel and non-apparel categories, to bolster cross-category purchases and customer engagement. We have actually adopted an integrated approach from marketing, growth, and engagement so that we can become more efficient in attracting, activating, and retaining customers through a series of adjustments. On the technology side, we focus on building the teams into the next phase of technology advancement, etc. So we are implementing all these changes so that we can always stay ahead of market trends and customer expectations. On the second question about AI, definitely, we are trying to accelerate AI across our business. It is just a simple fact that AI application can be very vital to driving business growth and efficiency. For example, we have added a lot of visualized model backgrounds to facilitate customer experience in virtually trying on clothes and making better choices, etc. So, actually, AI has brought benefits to conversion, directly contributing to sales growth. Also, we have made a lot of effort on AI advertising. A growing share of our marketing campaigns actually leverage AI-generated content to upgrade marketing creatives and media placement. This has actually improved customer acquisition efficiency. Of course, we are also experimenting with AI agents to be used in solving problems like customer churn or how to keep customers engaged on our platform, how to improve their customer experience with our platform. We do believe AI has a lot of potential in driving efficiency as well as supporting our long-term growth. Operator: Thank you. And our next question will come from Andre Chang with JPMorgan. Your line is open. Andre Chang: Thank you, management, for taking my question. I have two questions. The first question is about the operation. We noticed the company delivered decent net profit growth in the third quarter. However, the operating profit and the operating margin still delivered some decline year-on-year. Now management mentioned before that increasing the GMV and the revenue should help economies of scale in the margin recovery. So we want to know when and whether management expects that the operating margin and the operating profit can return to positive year-on-year growth. The second question is about the recent news talking about the management of the company thinking about a Hong Kong listing. We wonder if there is anything management can share on this front. Thank you very much. Mark Wang: Hello, Andre. Thanks for your question. Your first question is regarding our gross margin. Actually, our gross profit margin declined in the third quarter and reflects our efforts to provide more customer incentives, especially for SVIP and other high-value customers and standardized products, to maximize sales and revenue growth. For the longer term, we expect gross profit margin to be comparable to the level in 2024 and largely stable around 23%, depending on the change of product mix from the third quarter. Regarding marketing expenses, we also increased a little bit to attract more customers. We think that in the future, those merchandising capabilities, AI technology applications, and marketing expenses will be the main triggers for our GMV growth. For your second question, we have been closely following the changes in the capital market. If there is any progress, we will update the market. Thank you. Operator: Thank you. And our next question will come from Wei Xiong with UBS. Your line is open. Wei Xiong: Thank you, management, for taking my question. Firstly, we have seen the active customer number and revenue growth have turned positive this quarter. Should we expect continued sequential improvement in the fourth quarter? What are our investment plans and operational focus for users and customers at the moment? How should we think about user growth and revenue growth for next year? Secondly, just wondering, what are our latest thoughts on the shareholder return program for next year? Thank you. Eric Shen: So let me first translate your response to your question on customer and revenue growth for 2026 and beyond. For the longer term, we always stay focused on achieving steady growth in customer revenue and earnings. We believe the sustainable and profitable revenue growth model should be driven by high-quality growth in customers as well as ARPU. For the near term, we do expect customer growth will accelerate. For example, in Q4, as compared to Q3 in terms of year-over-year growth. For 2026, we continue to believe that revenue growth should be driven by growth in customer numbers and in addition to ARPU. We have made a lot of efforts in driving customer growth and have been experimenting with a lot of new ways, whether it is marketing formats or channel investment, etc. All these efforts are oriented towards acquiring new high-quality customers, activating dormant or inactive customers, as well as continuing to expand our SVIP high-value customer base. We do have confidence that for the long term, we can drive top-line growth on the basis of both customer growth and ARPU expansion. Mark Wang: Okay. For the second question regarding the total return to shareholders, our return to growth demonstrates our disciplined capabilities to manage the business to achieve balanced goals. We are more confident that we can achieve relatively stable and healthy profit and cash flow levels. In the past, we have returned over $3.4 billion to shareholders since April 2021 in the form of buybacks and dividends. For 2025, we are on track with our commitment to returning no less than 75% of the full-year 2024 non-GAAP net income to shareholders. As of the date we published the third quarter results, we have returned a total of over $730 million through dividends and buybacks. For next year, we will continue to invest in our business to grow, improve profit, and generate cash to support our dividend payment and buyback. We will evaluate the appropriate level next year. Thank you. Operator: Thank you. And I show no further questions in the queue at this time. I would now like to turn the call back to Jessie Zheng for closing remarks. Jessie Zheng: Thank you for taking the time to join us today. If you have any questions, please do not hesitate to contact our IR team. We look forward to speaking with you next quarter. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, ladies and gentlemen. Thank you for standing by for the Third Quarter 2025 Earnings Conference Call for VNET Group, Inc. After the management's prepared remarks, there will be a question and answer session. Please note the Chinese line is in listen-only mode. If you wish to ask questions, please dial in through the English line. Participants from our management include Mr. Ju Ma, Rotating President, Mr. Qiyu Wang, Chief Financial Officer, and Ms. Xinyuan Liu, Head of Investor Relations of the company. Please note that today's conference call is being recorded. I will now turn the call over to the first speaker today, Ms. Xinyuan Liu. Please go ahead. Xinyuan Liu: Thank you, Operator. Hello, everyone, and welcome to the Third Quarter 2025 Earnings Conference Call. Our earnings release was distributed earlier today, and you can find a copy on our website as well as on newswire services. Please note that today's call will contain forward-looking statements made under the safe harbor provisions of The US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligations to update any forward-looking statements except as required under applicable laws. Please also note that VNET earnings press release and this conference call include the disclosure of unaudited GAAP and non-GAAP financial matters. VNET earnings press release contains a reconciliation of the unaudited non-GAAP matters to the unaudited GAAP measures. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at ir.vnet.com. Next, I'd like to alert you that we will be utilizing text-to-speech technology powered by neulink.ai, to deliver this quarter's prepared remarks by Mr. Ju Ma, our Rotating President, and Mr. Qiyu Wang, our CFO. The management team will join the Q&A session in person. Additionally, this conference is being recorded. A webcast of this conference call will also be available on our IR site at ir.vnet.com. Now let's get started with today's presentation. Mr. Ma, please go ahead. Ju Ma: Good morning, and good evening, everyone. Thank you for joining our call today. I'll start with an overview of our major accomplishments during 2025. Let's turn to slide four. We delivered another strong quarter demonstrating our strategy's effectiveness in capturing opportunities. On the operational side, our wholesale IDC business sustained its robust growth trajectory driven by our rapid delivery capabilities and customers' fast-moving pace. As of 09/30/2025, our wholesale capacity in service grew by 16.1% quarter over quarter to 783 megawatts, an increase of around 109 megawatts. Wholesale capacity utilized by customers rose by 13.8% quarter over quarter to 582 megawatts, an increase of around 70 megawatts while the utilization rate was 74.3% reflecting customers' continuous demand for our high-quality high-performance AIDC services. Our retail IDC business continued to progress smoothly, benefiting from growing AI-driven demand. This quarter, our retail MRR per cabinet increased for six consecutive quarters, reaching RMB 8,948. On the financial side, our total net revenues increased by 21.7% year over year to RMB 2.58 billion for the third quarter. Wholesale revenues remained our key growth driver reaching RMB 956 million, a significant year-over-year increase of 82.7%, fueled by the rapid growth of our wholesale IDC business. Our adjusted EBITDA for the third quarter also increased by 27.5% year over year to RMB 758 million. In addition, building on the increase we announced to our full-year guidance before Q2 earnings this year, we are further increasing our full-year revenue and adjusted EBITDA guidance this quarter. Thanks to faster than anticipated move-ins among wholesale IDC customers and ongoing operational efficiency gains. Supported by our premium wholesale and retail IDC services, we continue to capitalize on strong customer momentum and secure new orders in the third quarter. I'll share more on the next slide. Moving on to our new order wins on Slide five. In the third quarter, we secured three wholesale orders totaling 63 megawatts. Specifically, in addition to the 20-megawatt order from our JV project we mentioned on our last call, we won a 40-megawatt order from an Internet company as announced in September and a three-megawatt order from an intelligent driving company. All four data centers in the Greater Beijing area. Entering the fourth quarter, we are seeing continued order momentum, including a 32-megawatt wholesale order we just secured from an Internet company for a data center in the Yangtze River Delta. Furthermore, driven by growing demand from customers for intelligent deployment, we secured a combined capacity of approximately two megawatts in new retail orders across multiple retail data centers from customers in the cloud services, local services, and financial services sectors. During the quarter, rapid AI development and a broader adoption of AI applications continued to fuel growth in China's IDC industry. We saw sustained momentum in AI-related investments, especially from hyperscalers that are executing strong CapEx expansion plans. This has further accelerated demand for high-performance data centers driven by AI training and inference needs. AI has become the core growth driver of the IDC industry, propelling the industry's business model evolution from project-based resource delivery to platform-based services that provide integrated AIDC solutions. Meanwhile, customer demand and critical resources such as power are increasingly concentrated among leading IDC players. As an industry pioneer in AIDC development, we are leveraging our acute insights, strong resources, and premium reliable services to seize these structural growth opportunities by quickly meeting customers' needs. Now let's delve into our business updates, starting with our wholesale business on slide seven. Our wholesale business maintained strong growth momentum, with capacity in service increasing by around 109 megawatts quarter over quarter to 783 MW, and utilization rate remaining stable at 74.3%, mainly attributable to our delivery capacities at our NOR Campus 02 and NHB Campus 01a and faster than expected move-ins at our NOR Campus 01. Our mature capacity utilization rate also reached 94.7%, a relatively high level. We have a clear growth path for our wholesale data center capacity. Let's move on to Slide eight. As of the end of the third quarter, our total wholesale resource capacity was around 1.8 gigawatts. Specifically, our capacity under construction was around 306 megawatts. Capacity held for short-term future development was around 414 megawatts, and the capacity held for long-term future development was around 291 megawatts. These secured resources represent a significant advantage in light of the IDC industry's limited effective supply and are in line with our optimistic view of AI-driven demand's long-term growth potential. Moving to our retail IDC business on Slide nine. Our retail business continued to progress smoothly in the third quarter. Retail capacity in service was 52,288 cabinets with the utilization rate increasing slightly to 64.8% as of September. As I just mentioned, our retail MRR per cabinet has increased for six consecutive quarters, reaching RMB 8,948. Turning to our delivery plan on slide 10. With our strong and efficient delivery capabilities, we successfully delivered a total of around 109 megawatts in 2025, bringing our total deliveries around 297 megawatts as of September. We currently have seven data centers under construction, with six in the Greater Beijing area and one in the Yangtze River Delta. We plan to deliver around 306 megawatts of capacity over the next twelve months, or around 132 megawatts during 2025 and 2026, and around 174 megawatts during 2026. This delivery plan reflects our view as of September, but we may update these estimates as we gain greater visibility over the next couple of quarters. In conclusion, our strong third-quarter results showcase our ability to identify opportunities and our readiness to seamlessly meet evolving market demand. Our visionary hyperscale 2.0 framework has positioned us to lead under the new global AI-driven paradigm, supported by advantages across high-density deployment, delivery speed and quality, and cutting-edge sustainable technology. As AI-related demand grows, we will continue to advance our effective dual-core strategy and hyperscale 2.0 framework, seizing opportunities to further unleash our growth potential in the AI era. Now I will turn the call over to our CFO, Qiyu Wang, for further discussion of our operating and financial performance. Thank you, everyone. Good morning and good evening, everyone. Qiyu Wang: Before we start the detailed discussion of our third-quarter performance, please note that unless otherwise stated, all the financials we present today are for 2025 and are in renminbi terms. Furthermore, unless otherwise specified, all the growth rates I am reviewing are on a year-over-year basis. Let's turn to slide 12. In the third quarter, we continued to pursue high-quality business. Our total net revenues increased by 21.7% to RMB 2.58 billion, mainly driven by the rapid growth of our wholesale business. Our adjusted cash gross profit rose by 22.1% to RMB 1.05 billion, while our adjusted EBITDA also grew year over year by 27.5% to RMB 758.3 million. Let's look more closely at our top line. As you can see on slide 13, in the third quarter, wholesale revenues, our key revenue growth driver, increased significantly by 82.7% to RMB 955.5 million, and the rapid growth was mainly attributable to the NOR Campus 01. Retail revenues increased by 2.4% to RMB 999.1 million. Our non-IDC business revenues increased by 0.8% to RMB 627.1 million. During the third quarter, we maintained solid margins thanks to our continuous efforts to enhance overall efficiency. As shown on slide 14, our adjusted cash gross margins improved to 40.7% from 40.6% in the same period last year. Our adjusted EBITDA margin rose to 29.4% compared with 28% in the same period last year. Moving on to liquidity on slide 15. We maintain robust and healthy liquidity bolstered by a net operating cash inflow of RMB 809.8 million during the third quarter, bringing our net operating cash flow for the first nine months of the year to RMB 1.37 billion. Our cash position remains solid, with total cash and cash equivalents, restricted cash, and short-term investments reaching RMB 5.33 billion as of 09/30/2025. Next, let's take a look at our debt structure on slide 16. We maintained our prudent approach to debt management. As of 09/30/2025, our net debt to the trailing twelve months adjusted EBITDA ratio was 5.5 and total debt to the trailing twelve months adjusted EBITDA ratio was 6.7, both remaining at healthy levels. Our trailing twelve months adjusted EBITDA to interest coverage ratio was 6.5. We prioritize long-term debt maturity planning in our debt and strategic management to ensure the security of debt repayment. Currently, the company's short and medium-term debt maturing in 2025 to 2027 comprises 41.4% of our total debt. Turning now to CapEx spending. As you can see on slide 17, for the first nine months, our CapEx was RMB 6.24 billion, with the majority allocated to the expansion of our wholesale IDC business. We still expect our CapEx for the full year 2025 to be in the range of RMB 10 billion and RMB 12 billion. The increase is mainly to support our planned delivery of 400 to 450 megawatts in 2025. Now moving to our full-year guidance for 2025 on slide 18. As we expect faster than anticipated move-ins among wholesale IDC customers and ongoing operational efficiency gains through the end of the year, we have further increased our full-year revenue and adjusted EBITDA guidance. We now expect total net revenues to be in the range of RMB 9.55 billion to RMB 9.867 billion, a year-over-year increase of 16% to 19%, and adjusted EBITDA to be in the range of RMB 2.91 billion to RMB 2.945 billion, representing a year-over-year increase of 20% to 21%. If the RMB 87.7 million of disposal gains on the EJS 02 data center were excluded from the adjusted EBITDA calculation for 2024, the year-over-year growth rate would be 24% to 26%. Please note our updated guidance factors in the impact of the private REIT transactions we issued early this November and excludes the target IDC project's financials from our consolidated financial statements. Before I conclude, I'd like to briefly update you on our ESG efforts. Our outstanding sustainability performance has once again earned recognition from a leading global rating institution. In 2025, our ESG score improved to 73 from 70 last year, ranking among the top 8% of the IT service industry globally. We stand out in areas including risk management, information security, environmental management, and customer relations, underscoring our comprehensive capabilities in sustainability development. This quarter's strong growth and enhanced profitability are yet another testament to our high-quality growth strategy. Looking ahead, we will continue to consolidate our core strengths and capture growth opportunities, delivering sustainable long-term value for all stakeholders. This concludes our prepared remarks for today. We are now ready to take questions. Xinyi Wang: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please ask your question to management in English and then repeat in Chinese. Your first question comes from Tom Tang from Morgan Stanley. Please go ahead. Tom Tang: Thanks, management, for this opportunity to ask questions, and congrats again on a very strong quarterly result. I have two questions. So first question is more on the 2026 outlook. So we're hearing that there has been some expansion in the domestic chips and capacities. Just wondering what is our current outlook for the overall auto tendering in 2026. Second question is about private REITs. So we noticed that we have filed another private REITs with a size of almost RMB 10 billion. So just wondering what will be the timeline of this private REITs execution, how much cash flow is going to recycle, and what will be your impact on the financial statements. Ju Ma: Thank you very much. You know, as we are approaching the end of the year, we are engaging our customers and trying to learn about their development path. This would put us in a well-positioned to plan our resources accordingly. So according to our communications with the clients and also the current status quo of the pipeline, we believe that the market will be fairly stable with a moderate increase for the year 2023. According to our conversations with our clients, we feel that they are having very detailed expansion plans or growth nationwide. Therefore, we have to plan carefully in order to accommodate the user's needs. Because they are requiring us to deliver the capacities at a faster pace with a higher requirement. So that's why we are planning accordingly as well. And so the overall rating for the next year is that the market is going to be stable with a moderate increase. And with regard to your second question on the domestic chip, so we, VNET, are tracking and monitoring the development of the domestic chips very closely. We know that the sector is evolving very quickly, with a lot more options available. And we believe that in 2026, you know, we're going to see intensive competition among domestic chip players other than the two to three major players, there are more upcoming players coming into the market. So we're going to see significant growth and development in this sector. So that will give us give the customers a lot more choices with more certainty again, that would push the development or, in return, drive the development of our business. Qiyu Wang: Thank you. I will take your second question with regard to the REITs projects. So these two REITs projects followed on the heel of our first private REITs projects. So the underlying project for our first REITs project was retail IDC, whereas the underlying project underlying assets for these two REITs projects are wholesale IDCs. So this would be the first time that we have scaled private REITs issuance with the underlying assets of wholesale. So if these issues were too successful, this would officially mark so that we have completed the full closed-loop financial capital cycle of development holding, partial exit, as well as the long-term operation. These two REITs projects are currently being reviewed by the exchanges. And the expected valuation multiples would be better than the first REITs project. Once the two REITs projects were successfully issued, we will, unlike the first REITs project, we will consolidate the financial statements of these two projects into the group level financial statements. So therefore, it wouldn't impact the group level financial statements, specifically the revenue or EBITDA data. We are planning to adopt a similar approach with future private REITs projects with underlying assets of wholesale IDCs. And our goal is to complete the issuance by Q1 next year. Xinyi Wang: Next question, please. Thank you. Your next question comes from Timothy Zhao from Goldman Sachs. Please go ahead. Timothy Zhao: Great. Thank you, Madam, for taking my question. And congrats on the very solid results. Two questions here. One regarding I think this earlier mentioned that ran I think so receive more orders for hello? Xinyi Wang: Yeah. We can hear you now. Timothy Zhao: Okay. Yeah. So I was in the appears to be we need more orders in your wholesale campuses in Hebei and Jiangsu. From the geographical location perspective, how do you think about the customer preferences, and what kind of does each campus serve differently? That's my first question. My second question is regarding the pricing. It's just for the wholesale business. I noticed that for this quarter, there is some fluctuation in the wholesale and MRR. Just wondering how do you think about the pricing trend into the fourth quarter and next year? Ju Ma: I'll take your first question. Actually, the client takes specific considerations with regard to their orders for their business across different regions, they do not have very particular preferences. I think the major considerations on their end are first, the type of business and product offerings. Second, the distance or proximity to their headquarters. And the third is how convenient it is to scale up the existing capacity that they have with us. And take VNET Us For Example. So We Have Observed That The Client Have Different Types Pays With Regard To Their Requests Across Different Regions. And It Would Vary Quarter By Quarter. We Have A Lot Of The Demand Coming From The Greater Beijing area as well as the Yangtze Delta area. However, we do have upcoming new demand from customers for campuses in Hebei province as well as the Wuhan Chapel campus. Like I said, the major considerations on the client side are their type of current product offerings and the proximity to their headquarters as well as how convenient it is to scale their existing capacity with us. So that's the major considerations on their end. And based on that, they are varying their requests quarter by quarter. And with regard to the pricing of our wholesale IDCs, according to what we have observed, the pricing for Q3 was fairly stable. Qiyu Wang: I would like to elaborate on that. First, customers are moving in faster than we expected. Therefore, the IRR of these projects is better than we expected. And number two, frankly speaking, in areas where the dynamics of the supply and demand is in tight balance, VNET does not engage in the beatings with the low prices. Therefore, we are able to secure fairly stable order or contract price. Thank you. Next question. Xinyi Wang: Thank you. Your next question comes from Daley Li from Bank of America. Please go ahead. Daley Li: Hi. Management. Thanks for taking my question. Congrats on the strong results. I have two questions here. First one is, in our last earnings call, we mentioned we have a few projects, and we are participating in the tendering. And, could you update us on the progress and, how we complete, you know, all the, projects ongoing, or are we how many projects we are dealing with our clients? And in future, how do you see the, seasonality of mold tendering in future? My second question is about the new land and the power resources. You need to call with the our total resources on hand. Is likely stable. And, in future, where would we to which area will be our focus to, find more resources? Land, and power? Ju Ma: Thank you for your questions. You know, as we have observed for the first three quarters, that different customers are coming up with different requests at different paces. And for us, we follow their paces closely. And I have done a very brief summary of what we have achieved, in terms of the new orders that we have secured for the past twelve months, that was 331 megawatts. Looking ahead to 2026, based on the services we are offering to our client as well as the understanding of our clients, we are confident that we are able to sustain this growth momentum. And so with regard to the wholesale ID we have been, you know, following closely, the client AI development trend. We have noticed that customers are actually balancing their inferencing and training demand. And we have captured that change the customers are pivoting more towards the inferencing, and we are deploying resources accordingly to meet that customer's needs. So therefore, we are repurposing some of our cabinets and acquiring GPUs in advance. So this would put us in a good position to accommodate our users' needs. And you know, particularly with these orders from the key clients, we are confident in that with the efforts on our end, are able to accommodate users' needs as the AI growth momentum continues to unleash. And with regard to your second question on resources that we're planning to acquire in the future, that's something that the company values a lot and put a lot of thoughts in. Based on the service that we offer to our clients as well as the understanding that we have, on them, we are planning our resources for the next year. On top of that, we have extended our planning over to a five-year horizon rather than on a yearly basis. So this would allow us to plan more strategically to accommodate users' needs. And to break it down, we carefully weigh three factors. One is the split the demand split between generic computing power versus the smart computing power, and the second is the geolocations and the third is the AI-related chips development. And more specifically, with regard to next year, we are going to focus number one, the Greater Beijing area, particularly Wulan Chabu, Hebei, and Beijing surrounding areas. Second, number two, the Yangtze River Delta areas. We are starting to acquire resources for the next five years. To accommodate our users' demand. And, additionally, we are exploring the resources outside of these two major areas that I've mentioned. Thank you. Xinyi Wang: Thank you. Your next question comes from Sara Wang from UBS. Please go ahead. Sara Wang: Thank you for the opportunity to ask a question. I actually only have one question. So I recall earlier this year, management had shared that one of the top priorities from Habitco customer is the time to market. So has that changed? And, also, as interest demand is going to be the growth driver into next year, is there any change in the like, customer's consideration in terms of new order release? And if we talk about more workloads by inference, that that mean maybe user latency will be a relatively more important configuration factor going forward. Ju Ma: I would take I'll answer the second half of your question. Yes. We have observed that inferencing will become a major growth driver for next year. So that means that the customers have higher requirements in terms of latency. So the lower latency the better. Therefore, we are in a very good position to meet customers' needs with our campuses in the Greater Beijing area, particularly Hebei province as well as the Wuhan Jiangbo campus. And with regard to the first half of your question, yes, it is quite a trade-off that we have to face. So we are facing significant challenges in terms of how fast the customer wants to move in with the capacity that they have secured with us. And there are three approaches that we are taking to meet customers' demand. Number one, we are planning early in terms of civil engineering and external power supply. Number two, we are consolidating our capacity in terms of supply chain management. Number three, we are adopting electromechanical modularization as well as other standardized construction solutions to meet customers' needs. As you know, the general timeline that the customer expects is t plus six, which means they want to move in within six months after signing the contract. Yes, we are able to accommodate user needs in terms of the horizon. In one particular case, we're even able to accommodate or deliver within three months after signing the contract. Just so you know. Xinyi Wang: Thank you. Next question, please. Shuyun Che: Thank you. Your next question comes from Shuyun Che from CICC. Please go ahead. Shuyun Che: Hi. My name is management. Congratulations on the company's strong earnings, and thank you for taking my question. My first question is about the wholesale IDC and the delivery piece for the IDC business is very fast and has the company set the utilization rate target for the next two years? My second question is about the retail IDC business. We have seen the retail business IDC business, MRR has been grossing for several quarters. And what are the main drivers behind this trend, and how to view this sustainability in the future. Ju Ma: With regard to the utilization rate, of course, the customers are demanding to move in at a faster pace. For our mature IDCs, the utilization rate is inching closer to 95%. And with regard to the specific target on the utilization rate, I think it's partly that depends on the capacity that's going to be delivered in the next two years. We will disclose more information in the Q4 financials, and we are in the long run, we are confident that the utilization rate will steadily increase. And thanks for your attention on our retail ID business. As you know, the wholesale IDC business has been growing fairly quickly in contrast to the Retail IDC. We are very pleased to see the MRR of our retail business continue to grow quarter over quarter for several consecutive quarters. As you know, the competition landscape in this sector is fairly intense. I think the growth hardly boiled down to a couple of factors. Number one, in terms of the needs of customers, they are adding a smart computing on top of storage plus generic computing. And we are proactively repurposing our cabinets in order to meet their demands, in order to capture on this growth momentum and need. And the factor number two on our side, on top of the hosting service we offer to clients, we are providing incremental value-added services on the software level. Let's say, networking, as well as storage networking, services? And another factor is the initiative of repurposing the retail cabinet into higher density cabinets. And clearly, we are benefiting from these efforts and initiatives. Last but not least, should the demand from customers in terms of storage generic computing plus value-added services sustain, we're confident to sustain the growth momentum of our retail business. Thank you. Xinyi Wang: Next question, please. Andy Yu: Thank you. Your next question comes from Andy Yu from DBS. Andy Yu: Hi. You, management, for taking my questions, and congratulations on the solid results. So I have two questions. So your key peer has announced plans to expand into regions with lower electricity costs to capture AI training demand. So how do you see the supply-demand dynamics will evolve in these regions where VNETs currently have a first-mover advantage? And secondly, the government stand on data center CVITs has become more positive with a shorter timeline for new asset in post IPO. Do we expect our serial application to accelerate? And apart from these projects, what will our funding strategy be going forward? Ju Ma: Thank you. I'll take your first question. I think different companies are adopting different strategic growth approaches with regard to their own reading on the market dynamics as well as their development legacy. So they are actually deploying resources, you know, based on all of these factors. However, I would like to elaborate on how we go about it. Like, we iterated many times, over the next three to five years, AI is going to be an increasingly more important growth driver. On the corporate level, our reading is that the training of foundational models that type of demand will be increasingly concentrated to one or few top capable deep-pocketed players. So that's the first reading that we have on the market. And number two, we believe that inferencing and private deployment will continue to sustain its growth momentum. As you know, it can be avid or confirmed from Jensen Huang's remarks. And number three, we believe over the course of the next five years as the GPU grows domestic GPU chips grow, there is going to be more demand from the inferencing private deployment, as well as many emerging group intelligent agents. So these are the growth areas or customer demands that we are paying closer attention to. So in a nutshell, we, VNET, will adhere to the principle of a coordinated balanced development. So using our resources, to meet users' varying demands. Thank you. So our C rate is still underway. However, I am not in a position to disclose any information at the moment, and we wish to update you later as we see more progress. So other than the C rates or public rates, we are proactively advancing the holding type ABS, also known as private REITs. And we have successfully issued one. And we are hopeful that this would allow us to recycle a major sizable asset fund. Or capital. From such types of issuance. And, additionally, I am happy to share that one of the operating entity domestic operating entity, Beijing VNET, has just got a triple-A rating from a domestic rating institution. Which is rare among private-owned companies. Non-state-owned companies. So with this rating, favorable rating, so we are actively advancing the issuance of domestic corporate bond particularly the Science and Tech Innovation Bond which comes with a very favorable interest rate. So should it be pulled through, we are going to benefit from a lower interest rate with a widening channel of financing. Xinyi Wang: Next question, please. Edison Lee: Thank you. Your next question comes from Edison Lee from Nomura. Please go ahead. Edison Lee: Okay. Thanks, management, for taking the question. So only one quick question. So how do you see the trend for our unit CapEx spending? Because I noticed that for the first nine months, the total CapEx plan, there was around RMB 6 billion versus our full-year guidance of RMB 10 to 12 billion. So it looks a bit behind schedule versus our capacity delivery schedule. And so just wondering if management can provide some colors on this and also for next year's CapEx, what's our outlook? And potential sources for funding our next year's CapEx? Ju Ma: So the majority of our CapEx is on the wholesale IDC. And the CapEx per unit megawatt for our wholesale IDs campuses are gradually trending down. And we are still in the process of putting together our CapEx for next year, and we are preparing a similar size of funding and the proceeds or the sources of the funding would mainly come from asset securitization as well as the issuance of corporate domestic corporate bonds. So a quick number that I want to share with you. So through the pre-REITs, private REITs, and development fund, that issued in 2025, we have successfully recycled RMB 2 billion to the equity assets. And our goal is that we're going to beat this number in 2026. There are a lot of tools in our toolboxes. Financing toolboxes, I would say. And we are confident that we're able to fund our CapEx while keeping the leverage ratio within a secure range. Safe range. Xinyi Wang: Next question, please. Anthony Leng: Thank you. Your next question comes from Anthony Leng from JPMorgan. Anthony Leng: Hello. So I have two questions regarding the full-year update 50 guidance. So the full-year guidance is five four q on revenue. Appears to be down a little bit. So they should based on the midpoint. And on the what's be the potential reasoning given the strong fat customer moving rate, is there a potential upside to the full-year guidance further? Second question is regarding the three q reported take the margin. This be there was a sequential decline versus two q despite a very strong customer moving rate. What's the potential driver to cost this decline? And what would be the next few quarters EBITDA margin trend? Ju Ma: Let me take your question. As always, we have been consistently prudent in terms of offering our full-year revenue guidance. I think we are going to watch closely, the pace of our customers moving in as well as the electricity used by them. Because they are closely related to the revenue. Looking to the quarter-over-quarter growth, I think there's very little likelihood that the Q4 revenue will decline sequentially. I would advise you to refer to the upper end of our full-year revenue guidance range. And with regard to the EBITDA margin, I would say it's within a reasonable range because the majority of our offerings is, you know, revenue is from the wholesale IDC business. And because of the rising temperatures in Q3, therefore, we are seeing more tariffs for Q3. Given that these are actually reflected in our P and L, in terms of the tariffs that we pay. However, with regard to our costs, they are consistent. We do not see huge fluctuations. And with you know, so I would see this is reasonable seasonal fluctuations. Xinyi Wang: Thank you. Operator: Thank you. Ladies and gentlemen, that concludes our conference for today. Thank you for participating. You may now disconnect your lines.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the ZIM Integrated Shipping Services Ltd. third quarter 2025 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Elana Holzman. You may begin. Elana Holzman: Thank you, operator, and welcome to ZIM Integrated Shipping Services Ltd.'s third quarter 2025 Financial Results Conference Call. Joining me on the call today are Eli Glickman, ZIM's President and CEO, and Xavier Destriau, ZIM's CFO. Before we begin, I would like to remind you during the course of this call, we will make forward-looking statements regarding expectations, predictions, projections, or future events or results. We believe that our expectations and assumptions are reasonable. We wish to caution you that such statements reflect only the company's current expectations and that actual events or results may differ, including materially. You are kindly referred to consider the risk factors and cautionary language described in the documents the company filed with the Securities and Exchange Commission, including our 2024 annual report on Form 20-F filed with the SEC on March 12, 2025. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn the call over to ZIM's CEO, Eli Glickman. Eli? Eli Glickman: Thank you, Elana, and welcome, everyone. Thank you for joining us today. Q3 2025 unfolded against a backdrop of continued uncertainty driven by geopolitical and trade tensions. While the shipping industry has always been characterized by volatility, we are now experiencing events and changes with greater frequency and intensity than in the past, amplifying the challenges and requiring us to be even more agile than ever. Despite these headwinds, our team has navigated a volatile rate environment with resilience, maintaining service reliability, optimizing our cost base, and delivering solid Q3 results. Slide number four. Consistent with our expectation, we generated revenue of $1.8 billion and net income of $123 million. Q3 adjusted EBITDA was $593 million, and adjusted EBIT was $260 million. We suggested an EBITDA margin of 33% and an adjusted EBIT margin of 15%. We maintain total liquidity of $3 billion at September 30. Slide number five. ZIM's board of directors continued to prioritize returning capital to shareholders and as a dividend policy in 2021 and 2022 aiming to reward long-term shareholders. Additionally, when financial results have exceeded expectations, the board has promoted the special dividend distribution to further reward shareholders. Accordingly, under this policy, the board of directors declared a dividend of 31¢ per share or a total of approximately $37 million, representing 30% of third-quarter net income. Throughout 2025, ZIM distributed a total dividend of $9.09 per share, including the dividend declared today, or a total of approximately $1.1 billion. Since the IPO, we distributed a total of approximately $5.7 billion as dividends of $47.54 per share, including the dividend declared today. Turning to our guidance, the fourth quarter is trending weaker than originally projected when we provided guidance in August. However, despite the considerable uncertainty, our nine-month results have enabled us to refine our full-year guidance, regions, and increase midpoints. As such, based primarily on our performance year to date, we now expect to generate adjusted EBITDA between $2 billion to $2.2 billion and adjusted EBIT between $700 million and $900 million. Xavier, our CFO, will provide additional context in our underlying assumption for our 2025 guidance later on the call. Slide number six. In a highly dynamic environment, we continue to take proactive steps in line with our strategic objectives during the third quarter and into the fourth quarter. Capitalizing on the versatility of our fleet, we have been able to adjust capacity quickly as market conditions have evolved. On the Transpacific, we have continuously adapted our network to account for changes in cargo flow patterns resulting from the ongoing US-China trade standoff. The recent US-China trade agreement marks a positive development potentially reducing market uncertainty and enabling our customers to plan with greater confidence. The tariff reduction on Chinese goods announced as part of this trade agreement could support demand going forward, though the extent of its impact remains uncertain. Nonetheless, the long-term trend toward economic decoupling between China and the US is likely to persist as both countries continue efforts to diversify their export and import markets. ZIM's long-term strategy, which we have previously discussed, is closely aligned with this trend. Expanding and diversifying our network so we can capture new opportunities as global trade patterns evolve. Two critical focus areas for us are Southeast Asia and Latin America. As manufacturers diversify production away from China, countries like Vietnam, Korea, and Thailand have increased their share of US imports. Our expanded presence in Southeast Asia continues to be an important strategic advantage for ZIM. By establishing a strong foothold in this market, we have been able to capture new trade flows and partially offset the reduction in transpacific cargo from China to the US. We have also strategically focused on expanding our presence in Latin America over the last two years. In Q3, we continue to grow our volumes and still see meaningful opportunities in this region, supported by the steady expansion of trade between Latin America and key markets, including the United States and China. Overall, regional diversification enhances our network flexibility, broadens our customer base, and reduces our dependence on any single trade lane. Our ability to capitalize on this opportunity is a direct result of our cost-competitive fleet and agile deployment strategy. Following the delivery of 46 new builds in 2023 and 2024, which significantly improved the efficiency of our operated capacity with a transformed fleet of larger modern vessels well-suited to the trades in which we operate. We remain diligent in keeping our fleet modern and competitive. Earlier this year, we secured a significant charter agreement for 10, 11,500 TEU LNG dual-fuel vessels scheduled for delivery in 2027 and 2028. This continued investment in our fleet is central to our growth strategy, enhancing both the sustainability and competitiveness of our capacity. The versatile size and design of these vessels will further enhance our operational flexibility and support long-term profitable growth. In addition to strengthening our core fleet, we continue to prioritize flexibility and optionality in our fleet strategy. As part of this approach, we actively manage our operated fleet to align with evolving market conditions. During the third quarter, we continued to redeliver vessels to owners, which Xavier will discuss in more detail. Our approach to renewing charters this year signals a cautious outlook, particularly as the market fundamentals still point to supply growth outpacing demand moving forward. As such, we anticipate continued pressure on freight rates during the remainder of the fourth quarter and into 2026. Overall, we remain confident in our strategy and competitive position. Today, approximately 60% of our capacity is new build, and 40% of our fleet is LNG-powered, reflecting our early investment in cost and fuel-efficient vessels and commitment to sustainability. With the addition of the ten 11,500 new LNG-powered vessels by 2028, we expect to operate not only the youngest fleet in our segment but also the greenest, with the largest proportion of LNG-powered capacity, further strengthening our leadership in sustainability and operational efficiency. Looking ahead, we intend to build on our progress to date, maintaining and further enhancing our competitive advantages while capitalizing on attractive opportunities that will ensure our fleet remains modern and cost-effective. We believe our nimble commercial approach, coupled with prudent investment in fleet equipment and technology, continues to drive resilience across ZIM's business and position us to deliver long-term value for our shareholders. Before turning the call to Xavier, I would like to address our view on the Suez Canal. Ensuring the safety of our crew, customer cargo, and vessels remains our highest priority. While the current ceasefire in Gaza is encouraging progress, a return to the Suez Canal will require further assurance regarding the durability of this ceasefire, and we are monitoring the situation closely. Having said that, we believe that a return to the Suez Canal in the near future now appears increasingly likely. Therefore, we are preparing an operational plan to support this transition once the security situation is stabilized. Resuming passage through the Suez Canal represents both opportunities and risks. While it will allow improved fleet efficiency and generate operational cost savings, it will also increase effective supply currently tied up by longer routes around the Cape of Good Hope, adding pressure on freight rates. With that, I will turn the call over to Xavier, our CFO, for a more detailed discussion of our financial results, 2025 guidance, as well as additional comments on the market environment. Xavier? Please. Xavier Destriau: Thank you, Eli. And again, on my behalf, welcome to everyone. On Slide seven, we present our key financial and operational highlights. We delivered solid profitability in Q3 despite a volatile operating environment. Third-quarter revenues were $1.8 billion, down 36% compared to last year, reflecting both lower freight rates and lower volume. Total revenues in the first nine months of 2025 of $5.4 billion were down $840 million, or 13% year over year. The average freight rate per TEU in the third quarter was $1,602 compared to $2,480 per TEU in the third quarter of last year. Q3 carried volume of 900,000 TEUs was 4.5% lower year over year, mostly due to lower volume in Crossways and Atlantic, but 3.5% higher sequentially. Revenues from non-containerized cargo, which reflects mostly our car carrier services, totaled $78 million for the quarter. That is compared to $145 million in 2024, attributable to both lower volume as we operated two fewer vessels in the current quarter, as well as lower rates. Our free cash flow in the third quarter totaled $574 million compared to $1.5 billion in 2024. Turning to the balance sheet, total debt decreased by $369 million since the prior year-end. As previously noted, total debt is expected to continue to trend down as repayment of lease liabilities exceeds lease additions and extensions until we start receiving new build charter capacity in 2026. Next, the following slide provides an overview of our fleet. Eli covered key aspects of our fleet strategy, but I would like to add a few more data points that we believe are important to consider. ZIM currently operates 115 container ships with a total capacity of 709,000 TEUs. This reflects a decrease of approximately 80,000 TEUs lower than our peak after having received all 46 newbuild vessels in early 2025. Approximately 70% of this capacity we consider as our core fleet, and it includes the 46 newbuild vessels which were received throughout 2023 and 2024, with the last vessel delivered in January 2025. These vessels carry charter durations from five to twelve years, and another 16 vessels are owned by ZIM. To remind you, we opted to secure these new builds and long-term duration contracts rather than continue to rely on the short-term charter market. And this accomplished multiple key objectives. First, we ensured access to larger vessels better suited to the trades in which we operate, thereby improving our competitive position. These vessels are generally not available in the shorter-term charter market. Second, the longer-term charter periods contribute to improved predictability in our cost structure. Moreover, for 25 of the 28 LNG vessels, our core strategic capacity, we hold options to extend the charter period, as well as purchase options giving us full control over the destiny of these vessels very much as if we were the vessel owners. We also have an option to purchase the 10, 11,500 TEU LNG vessels that Eli mentioned earlier following the twelve-year charter period. The remaining 30% of our fleet, approximately 192,000 TEUs, allows us to maintain important flexibility. By the end of 2026, there will be a total of 20 vessels up for charter renewal, with three vessels of 5,600 TEUs still up for renewal in 2025, and 17 vessels or 55,000 TEUs of capacity up for redelivery in 2026. This optionality to keep the capacity already delivered to owners allows ZIM to adjust its capacity according to changing market conditions or shifts in our commercial strategy. We have opted to redeliver 22 vessels this year based on our cautious outlook moving forward, as spot freight rates have come under pressure during the second half of the year. With respect to our car carrier capacity, we currently operate 14, down from 16 car carriers last year, and we expect to redeliver another vessel by year-end. As we previously communicated, we expanded our car carrier capacity in the past few years to benefit from favorable market trends, but we maintain optionality with no long-term commitments on our chartered tonnage. We continue to assess our level of participation as car carrier market dynamics evolve. Moving on to slide nine, we present ZIM's third quarter and nine-month 2025 financial results compared to last year's third quarter and first nine months. We delivered solid profitability in Q3. Adjusted EBITDA in this year's third quarter was $593 million and adjusted EBIT was $260 million. Adjusted EBITDA and EBIT margins for the third quarter were 33% and 15%, respectively. That compares to 55% and 45% in the third quarter of last year. For the first nine months of 2025, adjusted EBITDA margin was 34%, and adjusted EBIT margin was 16%. This is compared to 44% and 30% in 2024. Net income in the third quarter was $123 million, compared to $1.1 billion in the same quarter of last year. Next, on Slide 10, you see that we carried 926,000 TEUs in the third quarter compared to 970,000 TEUs during the same period last year, a 4.5% decline. Compared to the prior quarter, so Q2, carried volume was up 3.5%. The year-over-year decline was mainly attributable to weaker volume on Crossways and Atlantic. Transpacific volume this quarter stayed robust, down just 1.5% compared to the same period last year, which saw exceptionally strong demand in the US. Sequentially, transpacific volume increased by 17%. In Latin America trade, we also continued to see growth with a 2.4% increase in volumes year over year. Next, we present our cash flow bridge. So for the quarter, our adjusted EBITDA of $593 million converted into $628 million net cash generated from operating activities. Other cash flow items for the quarter included $451 million of debt service, mostly related to our lease liability repayment and a dividend payment of $37 million. Turning now to our outlook. We have narrowed ranges and increased 2025 guidance midpoints. Specifically, we are raising the lower end of our adjusted EBITDA range by $200 million and now expect to generate adjusted EBITDA between $2 billion and $2.2 billion. We have also updated adjusted EBIT guidance to reflect a narrower range, lowering the high end of our prior outlook. Today, we expect to achieve adjusted EBIT in the range of $700 million and $900 million. To reiterate Eli's earlier comment, these increased midpoints reflect primarily our performance year to date. We note the continued high degree of uncertainty related to global trade and related to the geopolitical environment. With respect to our assumptions, our view on freight rates has softened since our August guidance, while our assumptions about operated capacity, carried volume, and also bunker rates remain unchanged. Before we open the call to questions, just a few more comments on the market. The outlook for container shipping remains cautious, as growth in supply is expected to outpace the growth in demand in the foreseeable future. The order book has continued to grow and now stands at 31%. While the growth in supply is expected to slow down in 2026, when we compare to 2025, deliveries are projected to surge again in 2027, to more than 3 million TEUs of capacity, exceeding the record set in 2024. There are, nevertheless, mitigating factors to consider even if their impact may not be immediate. First, vessel scrapping has been minimal over the past five years, this trend cannot last forever, and at some point, vessel deletion will increase. Second, the industry's decarbonization agenda. Carriers will move forward to meet their own emission targets and expectations from customers to offer greener shipping solutions, even if the regulatory framework has met a roadblock, and these efforts may also accelerate scrapping of older vessels, which will become increasingly less economically viable, especially in comparison with the significant new build deliveries in the post-COVID era. On the other side of this supply-demand equation, global container volume is forecasted to grow by about 4% this year, largely driven by robust Chinese exports. However, the question is whether this growth is sustainable into 2026. It's also important to note that the increase in Chinese exports has not been uniform as US imports from China were negatively affected by the tensions between the two countries. Looking into 2026, it remains to be seen whether the trade agreement announced earlier this month will lead to a recovery in cargo flow on this trade lane. The supply-demand imbalance in 2026 will likely be exacerbated by the industry's return to the Suez Canal, which will, after a period of adjustment, significantly increase effective capacity. And as Eli mentioned, the reopening of Suez offers some benefits, allowing for improved fleet efficiency and operational cost savings, but it will also most likely add pressure to freight rates. On that note, we will open the call to questions. Thank you. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of Omar Mostafa Nokta with Jefferies. Your line is open. Omar Mostafa Nokta: Hi, Eli and Xavier. Really good commentary. Lots, I think, to discuss. I have a few questions, but you know, just maybe first off, on ZIM and maybe just the broader governance side of things. Can you give a comment on, obviously, the market chatter regarding a management buyout? Is that something still being explored? And related to that, how should we be thinking about the changes to the board composition you disclosed yesterday? I recognize a lot of this is sensitive, but is there anything you can share? Eli Glickman: Hi, Omar. First, the board is managing the process of board member changes. Two of the board members decided to resign, and as such, the board has chosen two new highly professional board members that meet the requirements, and we have a full scale of eight board members in the company. What was the next question? What is the next question, please? Omar Mostafa Nokta: Yeah. Just in terms of, I guess, the broader management buyout potential. If that's something that's still being explored. Eli Glickman: For this, we have no comment. Going to be a comment for sure. The board will decide when, how, and no comment for discussion. Omar Mostafa Nokta: Understood. Thank you. And then just wanted to ask about the Red Sea. You made some very interesting comments on that. And wanted to ask in terms of how you're viewing the return. I know you're in the early planning stages in the process of that. I guess for ZIM, you know, the Asia-Europe routes had not been really a major focus. Do you see this shifting as a Red Sea return or at least what you're evaluating? Is this an opportunity for you to grab market share and build a presence that you haven't had before in that leg? Eli Glickman: The answer is yes. We are actually waiting for the insurance company to approve our return into the Red Sea. So it's. And we're looking forward to going for shorter trade than the Cape of Good Hope as fast as we can. Omar Mostafa Nokta: Okay. Thank you. And then just a final one, and I'll pass it over. Xavier, you were kind of highlighting the shifts you've returned this year. We can see the cost coming down as a result of that. Are you able to give any quantification or some expectations on, say, 2026, how you think costs would look relative to what they've averaged this year? Xavier Destriau: Look, I think from a vessel or fleet profile perspective, depending, of course, as to what 2026 will look like from a rate dynamic perspective, but maybe there are risks in this respect. It is likely that we will return and continue to return vessels that are coming up for renewal and focusing on, at the end of the day, continuing to operate the larger ships, the more efficient tonnage, the newer and greener capacity that we have received over the course of the past couple of years. So today, I think 2025 was clearly a downward trend in terms of operated tonnage. We started the year at around 780,000 TEUs. We say that today, we are 710,000 TEUs, and we need to acknowledge that the charter market is still to date elevated, so it's expensive to reach out to tonnage. At a time when the revenue per TEU carried is under pressure. I think for as long as this situation continues, it is more likely than not that we will redeliver the vessels that come up for renewal as opposed to trying to recharter them. Omar Mostafa Nokta: Got it. Okay. Thank you, Xavier, and thank you, Eli. I'll turn it over. Operator: Your next question comes from the line of Marco Limite with Barclays. Your line is open. Marco Limite: Hello. Thank you very much for taking my question. My first question is on the dividend. So implied Q4 for your guidance implies that the income in Q4 will be negative. And given the outlook you're providing, probably we're going to have negative income for a few quarters at least. So can you just remind us what is your dividend policy? So as long as the net income date is negative on a quarterly basis, does that mean that you won't pay dividends? So this is, let's say, maybe the last CV for a while? Second question, so on this Red Sea reopening, you've been very helpful in giving your view. But if you want to dig out a little bit more in how much visibility you have got on timing over there at sea, have you got any strong conviction or visibility? I don't know. Have you been discussing with authorities? Or other companies? So, yeah, what is the kind of visibility you have got there? And the third question is a bit more technical. You haven't changed the upper end of the EBITDA guidance, but you have reduced the upper end of the EBIT guidance. What's that? And so sorry to stick another one, but when we think about 2025, clearly, there have been issues with the US ports and the Asian ports, China ports in Q4 probably, so is the China port fee included in your Q4 guidance? And are you able to estimate how much have you got in terms of one-off this year that are now recurring next year from all the issues with the US and Chinese ports? Thank you. Eli Glickman: I will begin with the first two questions and then we'll go. Since the IPO, we have distributed about $5.7 billion in dividends. The last two years, more than $1 billion. And this is about and more than 25 times the amount we raised in the IPO in January 2021. ZIM's dividend policy is to distribute 30% per quarter from the net profit and once a year, in the end of the year, this coming March, with a catch-up up to 50% of the net profit of the year. As for your next question, about the next quarter, we haven't published results yet. But hopefully, this quarter will be profitable as well. So we have the policy. And I just want to mention here that the board has the ability to decide on a special dividend as we did two times two special dividends. First one, on September 2021, $2 per share. And then again, December 2024. So the board has the authority on top of the policy to decide on a special dividend. And this is its authority. I cannot speak for the board. I believe in the end of the next quarter, the board will take a decision. Or anytime, it can decide to take a decision on a special dividend. As for the Red Sea, we are according to the announcement of the Houthis and the Egyptian authorities, as I said before, Omar Mostafa Nokta, willing to go as fast as we can to change the direction of vessels to go through Bab el-Mandeb and the Suez Canal. According to our policy and according to our responsibility, first, we have to have approval by the shipowner and insurance company. And this is what we are going to do. Bottom line, as soon as we can, we'll go through the Suez Canal. Xavier Destriau: Right. And I will take maybe the last two questions, Marco. If you allow me. So you're correct in terms of EBIT guidance. The original guidance range suggested a $1.25 billion difference between the two metrics, EBITDA and EBIT. So $1.25 billion of depreciation and amortization. And it was there's a little bit of rounding going on here. Now we say 1.3. It was obviously not exactly 1.25 to start with. It was a little bit more than that. Now we are tinting towards the rounding of 1.3 billion. A few things explain it. First, the two vessels that we acquired in the course of 2025 have some effect on the amortization in the tail of the year, in the second half of the year. Also, some equipment and we have taken the opportunity of maybe the equipment in terms of boxes, containers, are cheap to acquire today, and it's a good opportunity to continue to renew our fleet and maintain a very efficient fleet of equipment and let go of the older boxes. And there is also on top of that a bit of IT cost that got capitalized and finds its way in terms of depreciation towards the end. That's the reason. A mix of quite a few small things that add up to rounding to the 1.3 as opposed to 1.25. With respect to the last part of your questions, now that we are in a situation, and we've been in a situation since the announcement from both the US administration and the Chinese Ministry of Transport, there is no such thing as an extra levy that we are subject to in any jurisdiction when we call in the US or in China. Eli Glickman: I would like also to take the opportunity because of the question about the dividend. I want to emphasize to the best of my knowledge, didn't check it solely. So there's no company in history that returned in two years more than 20 times the amount that we raised in the IPO in January 2021. And by today, more than 25 times the amount that we raised, $204 million net dollars in the IPO. So in this, we made history. Maybe it's our company who raised more money. But there are no other companies that return such high or distribute such high dividends in such a short time. Please, next question. Operator: Your next question comes from the line of Alexia Dogani with JPMorgan. Your line is open. Alexia Dogani: Yes. Good afternoon. Thank you for taking my questions. Just firstly, on cost savings. In the previous downturn, you looked at kind of resizing the network, taking kind of some more efficiency measures. Is this something that you are currently considering? And what could be the potential scope? And secondly, can you give us an update on your CapEx commitments in terms of cash, but also new lease inceptions? And based on your comment that you are not looking to renew charters or are expiring, how much of the asset base do you expect will kind of roll off in the next twelve to eighteen months? And then finally, are there any financial leverage parameters that your team works towards even if there's a potential downturn, mindful that most of your debt is kind of lease debt or kind of charter debt? Thank you. Xavier Destriau: Thank you, Alexia. I'll try to take your questions in the orders that you raised them. First, you were asking about the cost savings and resizing potentially the network. Clearly, the company is always looking at trying to respond with agility to the changing market conditions. What I think is very important again, to reemphasize, and I think that links with your third question, is that the vessels that we are committed to in terms of a long-term charter are the most efficient ones today that we operate. And so we will keep those ones and those the ones that potentially we will let go again depending on what the markets look like. We'll de facto be the ones that are less efficient, older, you know, not LNG-powered, and more expensive. So I think this is very important when we think about the capacity that we end up operating. The efficient tonnage is with us for the longer term. And in terms of percentage, we need to link again with your third question, how much does it mean in terms of asset base or right of use asset? As you indeed rightly said. When we look I don't have the exact number, but maybe to assist here in trying to get the picture. We, in terms of total capacity today, out of the 710,000 TEU that we operate. You know, 70% of that capacity, even maybe closer to 75%, of that capacity is either long-term charter or owned. Leaving 25% of the amount of our right of use asset give or take on our balance sheet. Being the one capacity that can be returned. In terms of next year, 2026, this is we have, again, two hundred ninety thousand TEUs of capacity that is chartered on what we define as short-term charter out of which I think we said we have something like 80,000 TEUs that could be redelivered in 2026. So that's the way, I mean, I think to look at the math and come up with the best assessment of the asset base that could be redelivered. With respect to your second question, so we had not ended up taking them in the order as you raised them. The second question on the cash CapEx, we don't have much commitment in this respect. Very much because we are chartering as opposed to anything else. So very limited. The cash CapEx that we have is more related to sometimes equipment, but we've been as I just mentioned in the prior comment, we've been very active in already renewing our fleet of containers. So there is limited need especially if we do not grow our fleet in the coming years. I think we are set in this respect with regards to our fleet of equipment, by the way, including the reefers that we operate. So very limited cash CapEx. It's always high and maybe there will always be some from an equipment perspective, but limited in the years to come. Alexia Dogani: And if you allow me to ask a follow-up question on the point about chartered vessels versus owned. You hopefully put the chart around oversupply in the deck. We've clearly noticed that in the past four to five years, a lot of operators have increased the shared part sorry. The part of ownership of their vessels compared to charters. How does that kind of impact you think competitive dynamics and discipline in the market? Does it make it easier for people to take capacity out or harder? Thank you. Xavier Destriau: I think it depends on the capacity, and there is not, I think, one straight answer to that question because then I think we need to deep dive into the vessel segment. So whether we're talking about the large capacity vessel or the smaller one. And then also with respect to their age, and finally with respect to their environmental footprint. As well. So but by and large, I think what we are seeing and what has been, I think, very much motivating the company to shift its strategy, you know, after the IPO of the 12/21, 2022, the COVID era days. Is that, we felt that we could no longer rely on the, you know, short-term charter market to source the vessels that we needed. And, hence, we had to go seek that capacity for ourselves. And, we went through the avenue of partnering with vessel owners to go to shipyards, order the ships that were the ones that we needed, and agree with those vessel owners on a financing solution. At the end of the day, that's one way of looking at it. And I think nowadays, when we look at the order book, for the new tonnage that is on order, it is very much carrier orders that we can see, or if it is not carriers and non-vessel operators, there is very often already at the time of placing the order a charter attached. So a pre-agreement between that vessel non-vessel operator and the potential lessee that will take those vessels on charter. So we feel that we did operate the transition timely. In 2021-2022, got the vessels in 2023-2024, and now we feel much more confident in our ability to continue to operate the right tonnage in the years to come, having less dependency on the short-term charter market. Alexia Dogani: Thank you. Appreciate it. Operator: Your next question comes from the line of Chloe Xu with Citi. Your line is open. Chloe Xu: Hi. Thank you for taking my questions. My first question is on the route diversification. You have mentioned that you're adding to the Southeast Asia and LatAm markets. And I just wanted to ask, in the current rate environment, which looks like sub-breakeven overall, which route is more profitable for you at the moment and which is less profitable? And how quickly can you adjust those capacities as you see opportunities appear? And my second question is that obviously, you mentioned that you anticipate rates pressure in Q4 and 2026. As we know that the new capacities are coming in the next five years, where do you see that the rates will recover? And what do you think will be that pivoting moment in your perspective? Thank you. Xavier Destriau: Thank you. The diversification that you are referring to, and it's true that we've been, historically, and we continue to be very exposed to the transpacific trade. We are no stranger to the trend that was initiated between the two countries, China and the US, and we have taken actions already over the past years to increase our footprint in Southeast Asia to capture the cargo that is moving from China to the neighboring country in Southeast Asia. And whether those find their way in terms of countries of destination, to the US or elsewhere. And you're right in saying that also outside of this pure Southeast Asia market, we do see and believe that there is a growth opportunity on the Latin America trade. Now which one are the most profitable trade? You know, this is a very question that depends on when we ask the question. The volatility of our environment and trade by trade, the dynamic may differ as well. You know, we see positive signs in one trade in a given week or given period, maybe a couple of weeks, and then we see something else happening and the trend changing. So it is really much a moving environment, and I don't think we can look at it that way. I think it is also important for us to when we build the position in a trade where we may we were maybe not such a significant player in the past. We need to do it gradually. We need also to make sure that when we come and open a service we guarantee to our customers the reliability that they need. So, we need to provide a service that is reliable. Sometimes it means investing a little bit, irrespective of what the market dynamic does. In order to capitalize on that. And I think a very good illustration of that is the success that we've had on the Pacific Southwest with our expedite service that we initiated in 2020, June 2020, and which now is highly recognized by the market as a very reliable and successful service. So we need to really look at it as well. I think from a customer vantage point. And then to your next question, I think very difficult for me to answer when the rates or dynamic will change. Clearly, what we can see today are the threats, which come most specifically with the order book and the capacity that is about to hit the trade with the market, the water. We also talked about the Suez Canal reopening and emphasizing that this comes with opportunities and risk. And the risk is indeed clearly an influx of tonnage that may not be absorbed by the market. And as a result, putting additional pressure on the freight rates, on the rate environment. In front of that, at the end of the day, the liners always have capacities to manage the end of the day, the capacity that is being deployed to better adapt to the demand and to the changing demand. We are clearly also leveraging the, you know, operating together in order to reduce cost at the end of the day. We also will need and we need to see at some point, as we mentioned, vessels being retired, aging capacity being taken out of the trade. So that has yet to start. And I think when the situation changes on that front, we should start to see rates stabilize and potentially come back to higher levels. Operator: Thank you. This concludes our Q&A session today. I will now turn the call back over to Eli Glickman for closing remarks. Eli Glickman: Slide number 17. To conclude, despite continuing uncertainty in the market, our solid Q3 results reflect the agile nature of our commercial strategy, as well as the advantages of our modern upscale fleet of cost-efficient vessels. We remain disciplined and proactive, navigating headwinds with resilience and maintaining service reliability for customers while optimizing our cost base. We continue to share our success with investors and declare a dividend of $0.31 per share for a total of $37 million, consistent with our dividend policy and capital allocation priorities. Looking ahead, the first quarter is trending weaker than originally projected. However, based on our strong performance year to date, we've increased the midpoints of our 2025 guidance ranges. Overall, we are confident even against the backdrop of a highly volatile rate environment. That our differentiated strategy and enhanced industry position will drive sustainable growth over the long term. I would like to thank ZIM employees around the globe for their professionalism and dedication, as well as our customers and shareholders for their continuous trust and support. We look forward to sharing our continued progress with you all. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the ATRenew Inc. Third Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note today's call is being recorded. I would now like to turn the conference over to your first speaker today, Mr. Jeremy Ji, head of corporate development. Please go ahead, sir. Jeremy Ji: Thank you. Hello, everyone, and welcome to ATRenew Inc.'s Third Quarter 2025 Earnings Conference Call. Speaking first today is Kerry Chen, our Founder, Chairman, and CEO, and he will be followed by Rex Chen, our CFO. After that, we will open the call to questions from the analysts. The third quarter 2025 financial results were released earlier today. Earnings press release and investor slides accompanying this call are now available at our IR website ir.atrenew.com. There will also be a transcript following this call for your convenience. For today's agenda, Kerry will share his thoughts on our quarterly performance and business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will participate during the Q&A session. Please note our Safe Harbor statements. Some of the information you will hear during our discussions today will consist of forward-looking statements. And I refer you to our Safe Harbor statements in the earnings press release. Forward-looking statements that management makes on this call are based on assumptions as of today, and ATRenew Inc. does not take any obligations to update our assumptions on these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings press release, which contains a reconciliation of non-GAAP measures to GAAP measures. Finally, please note that unless otherwise stated, all figures I mention during this conference call are in RMB, and all comparisons are on a year-over-year basis. I would now like to turn the call over to Kerry for business and strategy updates. Kerry Chen: Hello, everyone, and thank you for joining ATRenew Inc.'s Third Quarter 2025 Earnings Conference Call. We are pleased to update you on our strengthened operating results, share the progress of our three-stage development strategy, and address key topics of interest. In the third quarter, we once again achieved new breakthroughs across multiple operational measures. Total net revenue reached a new record high of RMB5.15 billion, representing 27.1% year-over-year growth. Our 1P product revenue sustained strong growth momentum, rising 28.7% year-over-year to RMB4.73 billion, while 3P platform service revenue increased 11.6% year-over-year to RMB420 million, demonstrating continued healthy growth. Non-GAAP operating profit reached a record high of RMB140 million, up 34.9% year-over-year, with our non-GAAP operating profit margin achieving 2.7%, demonstrating steady improvement both year-over-year and quarter-over-quarter. During each third quarter, we strategically prepare for the mid to late September launch of flagship devices from leading manufacturers while building operational capacity to support uptake in new device shipments throughout October, providing users with better reflecting and trade-in experiences. Looking closer to our third quarter performance, within our 1P business, we have successfully expanded our product acquisition through trading programs and our AHS Recycle brand. We have effectively leveraged our proprietary combined refurbishment capabilities to deliver premium curated products to consumers through retail channels, including AHS Selection and Pipai. This strategy delivered impressive results, with compliant refurbished product revenue surging 102% year-over-year in the third quarter. 1P2C revenue sustained robust growth of over 70% year-over-year, and the 1P2C proportion expanded to 36.4%. We believe that strengthening our retail capabilities will enhance our pricing power in the recycling end and effectively strengthen end-to-end value throughout the industry's supply chain. On the supply side, we focused on building stronger customer awareness and recognition from the AHS Recycle brand. Orders through the AHS official website maintained a solid 30% growth, while JD.com's trade-in program continues to be a preferred choice for users looking to recycle and upgrade their devices. We also significantly expanded our offline fulfillment capabilities, building customer trust through personalized face-to-face services that offer both convenient and competitive pricing. Our AHS store network grew to 2,195 locations across both self-operated and joint-operated sites, supplemented by a workforce of 1,962 team members who either provide full-time or part-time two-door service. This comprehensive approach ensures that recycling and trade-in services are easily accessible to customers. In top-tier cities, we are positioning AHS Recycle as China's leading recycle brand, promoting AHS Recycle through our self-operated stores. We have extended our asset-light platform to high-value categories like luxury goods, gold, and premium liquor, creating more user value while improving store unit economics. In mid to lower-tier cities, we partner with local merchants who understand their markets, helping them evolve from single-store franchisees into city partners with multiple AHS stores. We support these partners with standardized quality inspection and pricing tools, official traffic, and social media guidance to build a local customer base. This collaboration drives mutual success. Stronger store performance enables franchisees to expand locally and scale their business, creating a win-win effect that benefits everyone. Our commitment to win-win collaboration with merchants is evident in the performance of our platform business. In the third quarter, service revenue maintained strong double-digit growth with an overall take rate of 4.89%. Breaking this down across three key platform segments. Kerry Chen: First, in B2B, PJT Marketplace continues to provide an inclusive trading environment for small and medium-sized merchants. By the end of the quarter, the number of contracted merchants on the platform quickly surpassed 1,370,000. This was driven by two factors. On one hand, the number of sellers representing product supplies continued to grow rapidly, thanks to PJT Marketplace's strong infrastructure and merchant service capabilities. On the other hand, with the rapid onboarding of small-sized merchants, such as those leveraging the specialty buyer model of the win, accelerated supply chain enhancement for these merchants. To ensure a positive buyer experience during this expansion, we temporarily allowed more flexible post-sale rights and made a strategic adjustment to PJT Marketplace's take rate. We remain confident in PJT Marketplace's long-term monetization potential, not only because of its maturing trading infrastructure but also because of its flexibility to innovate, expand user reach, optimize services, and create more value over time. Second, in B2C, Pipai's user service and monetization capabilities achieved another year-over-year improvement. While maintaining POP open platform functionality further strengthened consignment services for small and mid-sized merchants. Under this model, merchants no longer need to worry about product management, store operations, traffic, or after-sales as Pipai provides standardized end-to-end operational solutions. In the third quarter, GMV for consignment grew 180% year-over-year, and the take rate continued to trend upward in the high single-digit range, reflecting strong merchant recognition of our service value. Third, our asset-light platform for multi-cash flow recycling services sustained rapid growth, with transaction volume increasing by 95% year-over-year, and user experience continues to improve. As of September, 878 self-operated stores and 131 franchisee locations had activated multi-category capabilities, expanding geographic coverage. Newly enabled stores typically stabilize performance within two to three months after allocating front-end and fulfillment costs. Multi-category services deliver an average monthly contribution profit of RMB7,000 per store, optimizing the unit economics of AHS stores. This model supports customer acquisition, repeated orders, and the disciplined rollout of additional high-quality stores. We continue our strategic adoption of automation and AI technologies to drive excellence in operation and experience. As our business scales, automated inspection systems at both the recycling and operational centers generate significant economies of scale and help optimize our fulfillment expense ratio. Beyond the AI-powered automation inspection capabilities for recycling of secondhand luxury goods discussed last quarter, we have also deployed AI applications in customer service inquiry handling and training. These initiatives are enhancing the user experience and building robust capacity to handle peak demand areas, such as major promotional events. That concludes our review of third-quarter operating results. Next, I would like to take this opportunity to continue sharing our three-stage development strategy for the next two to three years. Kerry Chen: The first stage is to continue translating the core capabilities of the second-hand consumer electronics. ATRenew Inc. has already become China's largest platform for second-hand consumer electronics transactions and services. We have interpreted the entire industry chain across C2B, B2B, and B2C, industry-leading end-to-end capabilities, and maximizing value for both users and the industry. Going forward, we will reinforce this foundation in four ways. First, by enhancing scenario capabilities and deepening trade-in collaboration in new device sales channels with partners such as JD.com and Apple, enabling low-cost, high-efficiency access to firsthand supply. Second, by strengthening fulfillment capabilities through our nationwide AHS store network and through our service teams to ensure a superior user experience. Third, by enhancing the capabilities of retail sales, combined refurbishment, and a high proportion of retail sales, to achieve an end-to-end loop and improve supply chain value. And fourth, by advancing technology capabilities, leveraging automation and AI technology, to unlock scale efficiencies over the long term. The second stage is to accelerate the growth of AHS Recycle as China's leading recycling brand. By combining our in-store-based fulfillment capabilities with an asset-light platform model for multi-category recycling, we aim to increase user engagement and frequency of service usage. At the same time, the ecosystem extension of AHS Recycle is expanding into extensive community scenarios across major cities. The AHS Recycle brand will partner with more consumer brands to promote REVIVE initiatives based on high-frequency scenarios, using brand incentives to encourage broader participation in recycling and the circular economy across China, so that everyone can benefit from the sustainable consumption model we advocate. With this, we strengthen consumer awareness of our recycling capabilities, improve our active user base of consumer electronics with high-frequency daily grain disposal activities, and promote a closed loop of grain recycling and grain consumption. We are dedicated to building differentiated competitive edges for AHS Recycle. The third stage is to prepare for an international strategy that shares China's green story globally. Over the past fifteen years, we have built deep expertise in standardization, automation, and platform capabilities for second-hand consumer electronic products. The rapid increase in domestic recycling penetration is driving a growing flow of used smartphones to overseas markets, representing a clear trend. On the one hand, we are actively engaging in the development of export standards and international mutual recognition for China market products. For instance, we participate in the expert committee for the cross-border export standard for secondhand goods, a joint initiative of the China Quality Certification Center and the International for Standardization. On the other hand, we are channeling high-quality China-sourced devices of earlier generations into the international market. Hong Kong, among others, as a key global trade hub for used electronics, facilitates this flow, allowing us to successfully address the demand abroad. Recently, the monthly export of China-sourced devices has exceeded 10,000 units. Looking forward, as domestic recycling penetration rates increase and standards become further clarified, we believe there will be more exports. We also look forward to replicating our efficient platform capabilities abroad to create an international version of the PJT Marketplace, connecting global sources of premium consumer electronics with global merchants. Simultaneously, we will, at the appropriate time, integrate with the international layout of our strategic partners to provide solutions and jointly explore the broader retail opportunities in the global markets. Looking forward to 2026, we remain confident in the healthy development of the second-hand industry and the strong growth trajectory of our company. We are also proud to share international recognition. This year, ATRenew Inc. is a finalist for the prestigious Earthshot Prize, a global environmental award founded by His Royal Highness Prince William. The prize recognizes outstanding contributions across five categories aimed at repairing our planet. ATRenew Inc. was highly recommended by the committee in the "Build a Waste-Free World" category for its practices in advancing the circular economy through pre-owned product transactions and services. Moving forward, we remain committed to our founding mission of giving a second life to idle goods and will continue to contribute to the circular economy in China and globally. Now I would like to turn the call over to CFO, Rex Chen, for financial updates. Rex Chen: Hello everyone. We are pleased to report outstanding financial performance in 2025. We continue to capture opportunities from targeted trading scenarios, enhanced fulfillment and supply chain capabilities, and elevated AHS Recycle brand presence. Total revenue in the third quarter was at the high end of our guidance, increasing by 27.1% to RMB5.15 billion. Adjusted operating income grew by 34.9% to over RMB140 million. Before taking a detailed look at the financials, please note that all amounts are in RMB, and all comparisons are on a year-over-year basis unless otherwise stated. In the third quarter, total revenue growth was primarily driven by continued net product revenue growth. Net product revenues increased by 28.7% to RMB4.73 billion, largely attributable to the growth in online sales of pre-owned consumer electronics. Net service revenues were RMB420 million in the third quarter, representing an increase of 11.6%. The increase was largely driven by Pipai Marketplace and multi-category recycling business. The overall take rate of our marketplace was 4.89% for 2025. During the quarter, our multi-category recycling businesses contributed nearly RMB53 million of revenue, accounting for 12.5% of service revenue. Now let's discuss our operating expenses. To provide greater clarity on the trends in our actual operating-based expenses, we will mainly discuss our non-GAAP operating expenses, which better reflect how management views our operating results. The reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding Form 6-Ks furnished with the U.S. SEC. Merchandise costs increased by 26.3% to RMB4.1 billion, in line with the growth in product sales. Gross profit margin for our 1P business was 13.4% compared with 11.7% in the same period last year. The gross margin improvement in our 1P business was primarily driven by high-efficiency C2B recycling scenarios, compliant refurbishment capabilities incorporated in our supply chain, and an increasingly diversified retail channel mix. This allowed us to increase the proportion of higher-margin retail sales. 1P2C revenue accounted for 36.4% of product revenue in 2025, up from 26.4% in the same period last year. Meanwhile, our international business operation efficiency has improved with continued improvement in both scale and gross margin. Fulfillment expenses increased by 25.9% to RMB440 million. Non-GAAP fulfillment expenses increased by 25.6% to RMB430 million. Under the non-GAAP measures, the increase was mainly driven by higher personnel and logistics expenses, reflecting a greater volume of recycling and transaction activities compared to the same period last year in 2024. Additionally, operation-related costs rose as we expanded our store network and enhanced operation center capacity in 2025. Non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.4% from 8.5%. Rex Chen: Selling and marketing expenses increased by 15.4% to RMB360 million. Non-GAAP selling and marketing expenses increased by 40.6% to RMB360 million. The increase was primarily driven by higher advertising and promotional campaign-related spending, as well as an increase in commission expenses associated with channel service fees. As a result, non-GAAP selling and marketing expenses as a percentage of total revenues increased to 7% from 6.3%. General and administrative expenses increased by 6.9% to RMB74.1 million. Non-GAAP G&A expenses also increased by 17.7% to RMB5.2 million, primarily due to an increase in tax and surcharges, as well as an increase in consultant fees. Non-GAAP G&A expenses as a percentage of total revenues decreased to 1.3% from 1.4%. Technology and content expenses increased by 19.5% to RMB61.1 million. Non-GAAP technology and content expenses increased by 23.2% to RMB61.1 million as well. The increase was primarily driven by elevated personnel expenses. Non-GAAP technology and content expenses as a percentage of total revenue remained stable at 1.2%. As a result, our non-GAAP operating income was over RMB140 million in 2025 compared to non-GAAP operating income of RMB100 million in 2024. Non-GAAP operating profit margin was 2.7% for this quarter, compared to 2.6% in 2024, representing an increase of 16 basis points. During 2025, we repurchased a total of 4.5 million ADSs for approximately USD2.1 million. We will continue to evaluate our overall profitability and update the shareholder return programs at the appropriate time. As of September 30, 2025, cash and cash equivalents, restricted cash, short-term investments, and funds receivable from third-party payment service providers totaled RMB2.54 billion. Our financial reserves are sufficient to support reinvestment in business development and shareholder returns. Now turning to the business outlook. For 2025, we anticipate total revenues to be between RMB6 billion and RMB6.18 billion, representing a year-over-year increase of 25.4% to 27.4%. For the full year 2025, we estimate total revenues to be between RMB20.87 billion and RMB20.97 billion, representing a year-over-year increase of 27.8% to 28.5%. Please note that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions. Operator: Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. When asking a question, state your question in Chinese first. Then repeat your question in English for the convenience of everyone on the call. And the first question will come from Wan Jiao with CICC. Please go ahead. Wan Jiao: Thanks for taking my questions. My first question is we know that recently we are having some changes to the national subsidy policies. Could you please share the impact on your business? And the second one is, could you please give us more color about the outlook for Q4 and next year? Thank you. Kerry Chen: Thank you for your question. The first question is about national subsidy. That is a very good question. Let me address it by analyzing the growth drivers of our 1P business in the context of the national subsidy. The national trade-in subsidy directly promotes the sales of new devices. However, these subsidies are only applicable to new devices priced under RMB6,000. Therefore, a significant portion of consumers purchasing premium models do not utilize these subsidies. Given that our 1P business primarily focuses on premium brands, the proportion of trading orders utilizing national trade subsidies was actually quite limited this year. Nevertheless, the national subsidies have effectively stimulated upgrades within the pre-owned consumer electronics industry. Benefiting from our mature trade-in supply chain this year, we collaborated with JD.com to create the best-in-class trading user experience. We also worked with brands like Apple, Huawei, and Xiaomi, facilitating device upgrades for more users through trade-in offsets. This approach, combined with specific subsidies offered by e-commerce platforms and manufacturers in trading scenarios, helps users upgrade their devices at a lower cost. We estimate that AHS Recycle achieved a trade-in penetration rate exceeding 10% on JD.com this year. The penetration rate is consistently increasing, driving precise conversions within JD's core human electronics business. Furthermore, we see significant potential for further growth in this penetration rate. As the retail prices of new devices from brand manufacturers continue to trend upwards, trading programs are gaining favor among users as a more cost-effective upgrade path. Simultaneously, these programs help manufacturers protect the retail pricing of their new devices, creating a win-win situation. The scenario of new device retail presents an important source for us. We will continue to collaborate closely with our e-commerce and manufacturing partners to optimize the trading pricing algorithm, operational processes, supply chain, and user experience, increasing the penetration rate of trade-in services over the long run. Regarding the second question, we expect total revenue growth in the fourth quarter to be between 25.4% and 27.4%. The major electronics brands we serve have launched more attractive products this year and achieved considerable sales, stimulating stronger consumer demand for device upgrades. Based on our fourth-quarter outlook, we forecast total revenue for the full year 2025 to be between RMB20.87 billion and RMB20.97 billion, representing a year-over-year increase of 27.8% to 28.5%. This suggests a possibility for us to grow faster than our internal budget at the beginning of this year. We anticipate accelerated revenue growth this year compared to last year, primarily driven by three factors. First, the national trading initiative has promoted e-commerce platforms and brand manufacturers to actively build or enhance their trade-in service capabilities. An integrated trade-in supply chain can efficiently provide users with a best-in-class operating experience. Second, we are rapidly expanding our fulfillment network, having established a more granular presence in nearly 300 cities across China, ensuring a superior user experience. Third, we are actively building the AHS Recycle brand, recognizing that brand influence delivers long-term value. For 2026, we are actively preparing our internal annual budget. We expect to maintain a relatively rapid year-over-year growth rate, driven by increased penetration of trading programs, enhanced brand power and fulfillment capabilities of AHS Recycle, and the improvement in our overall supply chain efficiency. Thank you for the question. Operator: The next question will come from Wei Fadi with DBS. Please go ahead. Wei Fadi: I will recap in English. So good evening management and congratulations for the astonishing third-quarter results. So two questions from our side. The first one is what is the store opening pace for the fourth quarter and for the year for ATRenew Inc.? Thank you. Kerry Chen: I will take the first question. For the full year 2025, we maintained our target of accelerating store openings. As shown in our store structure and capabilities, the number of self-operated AHS Recycle stores in Tier one and Tier two cities has grown steadily. For self-operated stores, we prioritize quality development, focusing on delivering a superior user experience through enhanced fulfillment capabilities. Nearly 88% of these self-operated stores are now equipped with multi-factor services. Regarding joint-operated standard stores, to build capabilities together, we actively collaborate with local market partners. Based on empowering them with our capabilities and traffic support, we work with city partners to serve local users and rapidly advance our store opening goals. In some franchised store scenarios, we are prudently exploring service capabilities for high-value categories, with gold reduction already taking initial shape. Moving forward, the pace of new store openings will be dynamically balanced with the expansion of our two-door service team to ensure the efficiency of both our physical locations and personnel. Wei Fadi: So my second question is what are the plans and targets for the multi-category business in the future? Thank you. Kerry Chen: In terms of the multi-category business, it has maintained a record development trajectory this year, benefiting from our quick improvements in several metrics, including service coverage, baseline pricing capabilities for various categories, and user experience. Our multi-category recycling business operates on an asset-light platform model, which is less susceptible to policy changes and emphasizes compliant operations. It focuses on core user experience metrics such as transaction efficiency and pricing within the C2B model. In the third quarter, against the backdrop of rapidly rising gold prices, we prioritized user transaction experience by reducing our take rate. This approach provided users with tangible value and benefits while also ensuring the rapid growth of our transaction volume. Looking ahead, leveraging the strength of our AHS Recycle brand and our store network, we will prioritize developing high-value categories that are convenient for users to bring to our store for transactions. We aim to integrate user demographic profiles, including age and gender, to solidify the consumer mindset of AHS Recycle's go-to destination positioning. Wei Fadi: Thank you. Operator: The next question will come from Michael Kim with Zacks Small Cap Research. Please go ahead. Mr. Kim, your line is open. Michael Kim: Hi. Can you hear me? Kerry Chen: Yes. We can hear you. Michael Kim: Okay. Curious to get your perspective on the uptake of enhanced services across your marketplace businesses and how maybe a more favorable mix might impact take rates? And then just related to that, how has the mix trended more recently as it relates to multi-category transactions? Thanks. Kerry Chen: The take rate for PJT Marketplace remained stable at over 6%. The slight variation in the platform take rate in the third quarter was primarily due to phased adjustments in our merchant service policy, where we allow buyers more flexible return exchange options. PJT actively introduced innovative transaction models such as the specialty buyer model and expanded platform supply chain connectivity to Douyin. This provides more influencers and small business owners with access to industry supply sources, simplifies secondhand transactions, and offers consumers better products and greater value. Within the Pipai Marketplace, the consignment model has shown initial success, driving its take rate into the high single-digit range to 9%. There remains room for optimization in both the sales categories and take rate structure for consignment. This standardized model effectively addresses operational challenges for small merchants by offering a simpler store setup experience, higher transaction efficiency, and better pricing and sales channels. As the consignment business scales, both the revenue structure and take rate of the Pipai Marketplace have the potential for further optimization. Our report volume comes from gold reflecting, which is more standardized and operates with a low single-digit take rate. The service take rate for the secondhand luxury category comes to exceed 10%. For future category expansion, we will prioritize high-value categories that offer greater service value and potential for higher take rates. Michael Kim: Got it. Thanks for taking my question. Operator: As there are no further questions at this time, I would like to turn the conference back over to management for closing remarks. Jeremy Ji: Thank you. Thank you all again for joining us. A replay of today's call will be available on our IR website shortly, along with a transcript when ready. If you have any additional questions, please feel free to email us at ir@atrenew.com. Have a good day. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to the Third Quarter 2025 Investor Call for Pershing Square. Today's call is being recorded. It is now my pleasure to turn the call over to your host, Bill Ackman, CEO and Portfolio Manager. William Ackman: Thank you, operator. So welcome to the third quarter conference call. We've had a strong year-to-date, certainly through Q3 and even up to the present, north of a 20% return and nicely in excess of the S&P for the year. But despite overall strong performance, we don't get them all perfectly right. So I thought we'd start the call just focusing on a couple of investments that have not performed well this year. And why don't I turn it over to Anthony to talk -- let's talk about Chipotle. Let's start there. Anthony Massaro: Thanks, Bill. So we actually sold our remaining shares in Chipotle this year following the company's third quarter earnings report. This concluded an investment in the company that was over 9 years old. So a very disappointing conclusion to what had long been a very successful investment for us. The stock IRR from our inception to exit was just under 16% versus just over 15% for the S&P 500. But fortunately, we have previously sold 85% of our initial 10% stake in the company at various times over our 9-plus year holding period. That resulted in a realized IRR on the position of just under 22% and $2.4 billion in cumulative profits. So the big question is, obviously, why did we decide to sell the rest of it this year after a stock decline of nearly 50%. So just to give you kind of some context for our thinking, from the first full quarter that Brian Niccol was CEO of Chipotle, that was the second quarter of 2018 through the end of 2024, quarterly same-store sales averaged 9% and no quarter outside of one quarter that was impacted by COVID was below 3%. And if you look under the prior management team, in the 10 years prior to the 2015 food safety scandal that predated our investment, same-store sales also averaged 9%. So as the company started to report weak quarterly same-store sales this year, we believed based on the various sales-driving initiatives they had in the pipeline and also the remarkable long-term historical performance since the company went public, that trends would eventually improve. And unfortunately, underlying trends progressively worsened throughout this year including another step down during the current fourth quarter that was disclosed on the Q3 call. We do believe that macroeconomic weakness amongst low- to middle-income consumers and younger consumers is the primary cause of this same-store sales slowdown as evidenced by similar trends that peers are experiencing. But we don't know how long this weakness is going to last. We don't know if it's going to worsen before it gets better. And it's pretty clear that Chipotle and competitor management teams don't know either. They're doing the right thing by reinvesting in the customer value proposition by not taking price despite mid-single-digit food cost inflation, and they're, therefore, accepting kind of lower near-term margins. But we don't know if this will be sufficient, and there might be more kind of to come there. Year-to-date, of the kind of nearly 50% stock decline, forward earnings are only down 8%. Now that's not good, right, because they're supposed to actually grow. But forward earnings are down 8%, but the PE multiple is down 44%. So the vast majority of the year-to-date stock decline is due to multiple compression. While the current valuation of about 25, 26x forward consensus earnings is cheap if the company can quickly get back to achieving its long-term growth goals, we just didn't have enough confidence to underwrite this at this time. So the business has a high degree of operating leverage. So it's possible that if sales weakness persists for however long it persists, that consensus margin levels will be below even current levels. And this investment now has a much wider range and dispersion of potential outcomes around the company's near- and medium-term earnings power. That's just much wider than we had foreseen at the beginning of the year and frankly, at any time since we own our investment in Chipotle. And this made it a lot more difficult to continue holding the investment despite the fact that the company is now trading at one of its lowest multiples ever. And there's a new CEO running the company since Brian left for Starbucks in August. He's a talented operator, but he's certainly off to a rocky start as a first-time CEO. And in light of this, a return to the company's historical premium valuation multiple is uncertain. We do have tremendous respect for Chipotle, and we wish the company all the best as it navigates what's proven to be quite a challenging environment for them and for the industry. William Ackman: Yes, we wish the company well. We think highly of Scott. We think he's a very good leader. He did a great job running COO of the company for a long period of time. So we wouldn't bet against Chipotle. And maybe someday, we have an opportunity to become a shareholder again. Anthony Massaro: Totally agree. William Ackman: So on the topic of less than successful investments this year, let's talk about Nike and maybe feel free to jump in as well, Manning, if you'd like. But Anthony, go ahead. Anthony Massaro: Sure. So we also exited our investment in Nike Options earlier this month. Unlike Chipotle, Nike was an unsuccessful investment for us. So much shorter holding period. We first invested in the company this time around in June -- or sorry, in the spring of 2024. The cumulative return on Nike since we first invested was negative 30% versus the S&P, which is up 33% and the cumulative P&L was over negative $600 million. So the big mistake here was the initial underwriting. So as we've previously communicated, we underestimated the degree of near-term revenue declines and operating deleverage, aka margin declines that would be necessary to effectuate a turnaround here. So the prior CEO had lost the organizational focus on sport. They overemphasized direct-to-consumer sales at the expense of wholesale relationships, and they failed to create innovative performance products while overproducing big lifestyle franchises, and this really damaged brand heat in the eyes of the consumer. The prior CEO had admitted to kind of these mistakes in early 2024 and outlined a series of corrective actions, which is why we thought that the ship had kind of been set in a better direction, but the magnitude of the corrective actions that were required were far greater than we anticipated. Fortunately, for Nike, the company's controlling shareholder, Phil Knight, and the Board of Directors made the ideal management change in September of 2024 by bringing back long-time Nike veteran, Elliott Hill. We believe Hill is a fantastic CEO. He has an excellent strategy to return to profitable growth by renewing Nike's obsession with sport, accelerating innovation, creating bold marketing and rebuilding wholesale distribution, which he led for a very long time. At the start of this year, we converted our Nike common stock position into a deep-in-the-money call option position. We did this to preserve the upside potential of owning the stock while unlocking capital to make new investments. Since the start of this year, the turnaround is progressing a bit below where we projected for revenues, but materially below for margins. And the reasons for that are twofold. About half of that margin decline versus what we projected at the beginning of the year is due to tariffs, which were new this year and the other half is due to more aggressive clearance activity of legacy inventory. So Nike is down about 17% year-to-date. Most of that is forward earnings, which are down 15% and the multiple is effectively unchanged, down 2%. While we have confidence that Nike has the right CEO and the right strategy, we grew more uncertain of what long-term margins would look like as this year progressed. Can the company really get back to pre-COVID margins in light of tariffs, which don't seem like they're going away anytime soon and in light of the more competitive nature of the industry. It is a more fragmented competitive landscape in athletic footwear and apparel now than it was kind of for most of Nike's history. And to meet our return thresholds for a turnaround at the time of our sale would have required us to assume stabilized margins of at least 13%, which is consistent with what they did pre-COVID. And we didn't have enough confidence to make this assumption kind of in light of these new margin headwinds. We do believe that Nike's turnaround will be successful, but we don't know what success will look like from a margin perspective. The company has articulated confidence in getting back to double-digit margins, very different outcome for shareholders if that's closer to 10% than 13%, 14%. So we have tremendous confidence in Elliott, a tremendous admiration and respect for what he's doing at bringing Nike back to greatness, and we wish him and the team at Nike the best of luck. William Ackman: Obvious question would be with respect to Nike. It's a company we've owned before and got right in the past in a meaningful way. Any sort of overarching lessons from either the Nike or the Chipotle experience that will help us avoid similar mistakes in the future, either a better exit from a Chipotle or a miss -- a better timing on our acquisition of shares of Nike. Anthony Massaro: Yes. Look, I think we're still reflecting on kind of lessons learned, but I think I would point 2 high-level ones, one for each. On Chipotle, I think high PE multiple stocks can be dangerous when things turn. I think that if everything is going right and you have a very proven leader running the company, you can afford to hold it for a while longer. But I think with a high multiple stock, if kind of the trends slow for any reason, it's better to exit faster than to give management the benefit of the doubt. For Nike, I think one lesson that I and we, I think, have learned there is return thresholds for turnaround situations, even if the turnaround doesn't look like initially that it's going to be that severe, should be higher. So I think had we gone in with kind of a higher required -- had we had a higher required IRR for that one, perhaps we would have avoided making the initial investment. William Ackman: Great. Why don't we focus on one other underperformer for the year, and then we'll get to why we're actually having a good year, but I think it's good. Let's focus on the negative first. Universal Music. Let's talk about that. Ryan, go ahead. Ryan Israel: Sure. So Universal Music, the business performance has continued to be strong. In their most recent quarter reported a few weeks ago, the company showed, for example, that revenues grew at about a 10% rate on a constant currency basis and their adjusted EBITDA profit metric actually grew a little bit in excess of that about 12% rate. Those levels of business performance are actually very consistent with what the company has done since we helped facilitate a public listing nearly 4 years ago. So the business performance remains quite strong operationally in our view. But as you mentioned, Bill, the stock has underperformed this year. And in particular, it's really underperformed since the summer. So the share price was in July, a little bit above EUR 28 per share. And as of earlier this week, it was as low as about EUR 21.50, which is about a mid-20s percent decline in the share price. And actually, at one point earlier this week, the company was down to a 20x PE multiple based on consensus analyst earnings for the next year, which is the lowest multiple that the company has ever traded at in our little over 4 years of ownership. And we think the primary reason for the decline in the share price over the summer to now really due to technical factors. So for example, the largest shareholder of the company, the Bollore Group, there was a ruling in July by a French court that they would need to buy out another publicly traded company. And so there was a fear or perception in the marketplace that Bollore, who is the largest owner of UMG would be a forced seller for a chunk of -- a very large chunk of their shareholdings in order to fund this buyout that a French court was requiring. And so that forced seller dynamic, in our view, made it difficult for other people to want to buy the stock ahead of what could be a forced seller in somewhat unknown time frame and potentially unknown quantity. As we transition from that happening in the summer to the fall, the U.S. government shut down. And so the SEC was unable to kind of fulfill any sort of request for a U.S. listing and UMG's example, which we think created potentially further technical headwinds. Stepping back a little bit, our view has been that the business performance remains very strong, as I mentioned on the quarterly basis, this quarter as well as really over the last 4 years. And we think that a share buyback really could address the technical concerns that would have happened. So for example, the market perception that there is a forced seller that could be around the corner, hard to get market participants to want to buy shares in advance of that. Yet if the company is buying their shares, that could provide somewhat of an offset for the technical demand. And in general, for a company that has very strong operational performance, we think a buyback at the lowest multiple that it has traded at for the last 4 years would be a good idea as well. But maybe I can turn it back to you, and you can talk a little bit more about the upcoming U.S. listing. William Ackman: So one of the package of rights we received when we became a shareholder of Universal Music was the ability to catalyze a listing in the U.S. And we felt strongly that it's a U.S. headquartered global business, but half -- even more dominant in the U.S. and a very significant percentage, effectively half of their business is a U.S. company. It is listed in Euronext that has limited the universe of people who can own the stock. Many U.S. investors by mandate are not permitted to own Euronext listed securities. And our view, materially more demand can come into the stock with the U.S. listing. We also think the kind of cadence of quarterly reporting and the kind of information that becomes available when a company is registered in the U.S. will provide -- enable better analyst coverage. The fact that the peers are U.S. listed companies will make, I think, easier, I would say, comparisons and I would say, better understanding of the company. And so we catalyze that listing by exercising our registration rights. Our registration rights require in order for the company to be obligated to register our shares in the U.S. and create a listing here for us to actually sell some stock. So we've agreed to sell $500 million of shares as part of the listing of the company. Now in light of the share price, we are not a -- we're a very reluctant seller, but we believe the value in terms of improved transparency as well as the improvement in the supply-demand dynamic overwhelms the cost to us of selling a portion of our position at the current share price. Now we've approached the company, and we've asked the company to simply seek a listing in the U.S. without the requirement for us to sell stock. At this point, the company has been unwilling to let us withhold the $500 million of stock in the offering. So we're going to go ahead with the offering, selling a portion of our stock at whatever the price is at the time the listing in order to catalyze what we think is a value-creating transaction for the company. Just further to Ryan's point, this is a company -- I've been on the Board -- I was on the Board for a number of years. I think it's an excellent management team that understands the music industry, where there seems to be a gap in understanding is in how the company approaches the capital markets and using -- taking advantage of the company's balance sheet, the free cash flow it generates and optimizing the company's use of capital. This is a business that's not going to require billions and billions of dollars of capital for acquisitions. The company has made that, I think, very clear. The nature of the company's dominant position in the marketplace also makes clear that it's very difficult for the company to do acquisitions of any kind of meaningful size in the industry. So we remain puzzled really as to why the company is not a more aggressive buyer -- or actually why it doesn't buy back stock at all and why in addition to pointing out that the stock is trading at the lowest multiple it traded at, it's also approaching the highest valuation for Spotify, a significant asset on the balance sheet. The company has intelligently held on to it at this point in time. But again, another opportunity for monetization and returning capital to shareholders. So that's our strong view on that topic. Okay. Let's focus to the positive. We are actually having a very good year. Let's talk about our largest investment at this point, Alphabet. And that's Bharath, who's going to take that on. Go ahead, Bharath. Bharath Alamanda: Sure. And maybe to rewind back to when we originally initiated our position in Alphabet more than 2.5 years ago, our investment thesis was that Google's leadership position in AI was being severely underappreciated. And our view then was the company had a unique full stack approach to AI that came with several structural advantages, namely frontier research capabilities, world-class technical infrastructure, scale distribution and the access to immense training data. And you could argue then that the main open question was around execution and whether the company would be able to harness all those inherent competitive strengths into their product road map. I think since we made our investment and one of the reasons the share price has appreciated meaningfully both this year and over the life for our investment, but we still continue to remain very optimistic shareholders, is they've really stepped up to that question and done an excellent job on the execution front and leveraging their strengths. And maybe to just provide a few recent examples of that. Earlier this week, Google released their latest and very widely anticipated Frontier AI model of Gemini 3.0. Not only did it immediately jumped to the top spot on all of the benchmark evaluation leader boards, more notably, they integrated Gemini 3.0 directly into search and the Google apps the same day that it was released, kind of highlighting the company's focus on improving the product velocity. Gemini 3.0 was also led by the DeepMind team, which was a start-up that the company had very presciently acquired all the way back in 2014, and that lab continues to be the leading kind of frontier research lab. On the hardware side, the company has spent the better part of a decade optimizing their technical infrastructure to specifically run machine learning and AI workloads. And as a result of that, they can now run those workloads at sort of industry-leading lowest cost per token. And they've developed their own proprietary TPU semiconductor chips, which has not only reduced their reliance on NVIDIA's GPUs for running internal workloads, but I think what we've seen more so over the last year is they're gaining increasing traction from third-party Google Cloud customers. On the scale distribution front, Google has incredibly valuable digital real estate and consumer mind share. And that's probably best seen through the rollout of AI overviews, which are the summary AI search responses that are directly embedded in search. AI overviews is now being served to more than 2 billion users. And if it were to be considered its own stand-alone app would be by far the most widely used AI app. And then lastly, kind of on the data front, we believe Google's ability to train kind of on a wide corpus of first-party data, including YouTube videos for image and video generation as this is a very valuable long-term differentiator. Tying all those advantages to the operating results, those advantages are now being clearly reflected in the company's ability to grow at scale. So for context, Google generated $100 billion of quarterly revenue in Q3, and those revenues grew at a 15% rate, right? Just their core search and YouTube franchises, despite their maturity, are continuing to grow at a low teens rate, and their cloud business, which is now a very scaled $50 billion run rate business, growing at an incredible 32% rate. So while the share price has appreciated meaningfully this year, we still think that the valuation is quite reasonable in light of the business quality, their leadership position in AI and their ability to continue to grow earnings from this point on at a high teens rate for a very long time. William Ackman: Great. Thank you so much. Why don't we go to Uber, Charles? Charles Korn: Sure. Thanks, Bill. So as a reminder for everyone, we invested in Uber early this year, what we believe was a very highly dislocated valuation with extremely strong fundamental and operational performance overshadowed by concerns regarding disintermediation risk. And big picture, we feel increasingly confident that the market structure is evolving consistent with our underwriting hypothesis. And over the course of 2025, basically, what Uber has done is they've advanced a number of partnerships with various autonomous vehicle and technology companies. And taken together, they're strategically advancing geographically focused commercial pilots with line of sights to thousands of autonomous vehicles covering major metro cities on their network within the coming years. And since our last update, one notable call out is a marquee partnership Uber announced with NVIDIA this past month. The partnership is interesting. It coalesces around NVIDIA's DRIVE AV platform as a reference compute and sensor architecture to make any vehicle an autonomous vehicle, i.e., L4 ready, which enables OEMs and developers to accelerate their AV technologies, respectively. And it offers an extremely credible counterpoint to Waymo and Tesla's respective architecture. So you essentially have what was looking like a potentially 2-player market developing to a credible third alternative, which can help some of these small long tail of AV players kind of accelerate their respective technology developments. And Uber's role here is they're going to be contributing valuable training data to an NVIDIA data factory, which will support a foundational model upon which others can draw. And the partnership overall, it's designed to lower cost of development and accelerate commercialization efforts for our industry participants. Now against this backdrop, Uber continues to operate commercial operations for Waymo in several markets, including exclusively in Austin and Atlanta with strong utilization data reinforcing Uber's unique value proposition. We expect the market structure will continue to evolve over time to maximize vehicle utilization and operating profits. And we believe basically Uber is positioning itself to become a technology and hardware-agnostic partner of choice for the AV ecosystem. Transitioning to discuss operating performance. In short, financial results continue to be excellent. Notwithstanding their market-leading scale, growth is actually accelerating with operational metrics achieving new all-time highs in users, engagement, frequency and trip growth. And so top line results also notably this growth is actually balanced across both the Mobility and Delivery business segments with 19% and 23% growth in the most recent quarter, respectively, which just gives you some scope of the scale and growth here. And that roughly 20% blended bookings growth translates to 33% adjusted EBITDA growth and more than 50% growth in earnings per share as the company is scaling margins off a relatively low base, which is very impressive. Notably, the company is achieving this level of operating -- attractive operating leverage and earnings growth while continuing to make investments to see the next generation of products and geographies, which we believe will sustain Uber's high rate of growth over the coming years. And to just kind of double-click on this concept of investment, so the stock has been relatively weak the last few weeks. And part of this, I think, was actually -- some people may have seen DoorDash, which is a primary competitor in the delivery space, announced an unexpected round of major investments, which caught investors off guard. The stock was down nearly 20% in response to that, and that's their primary competitor in delivery in the United States. So I think there was some concern, is Uber also going to need to make a similar round of investments? Or is the competitive intensity of the business increasing. And our perspective on this is basically DoorDash. They -- basically, the company has grown very rapidly. They're very strong operators, but they didn't have amazing kind of forward-looking vision on the product architecture. And so their technology stack kind of became slightly more outdated at a faster rate than one would anticipate for a newer, relatively speaking company. They've also done a number of acquisitions, and so they're using this as an opportunity to kind of integrate these acquisitions and rebuild their tech stack. But primarily, this seems like it was a miscommunication around the kind of IR and external communications from DoorDash, and we don't think this represents a fundamental shift in the competitive intensity or kind of a desire for DoorDash to lean in. And importantly, we don't think that Uber has to make these same kind of investments. They're making such investments while simultaneously achieving their multiyear financial targets. And so we think this is kind of a unique issue to one of their competitors. And so big picture, taking a step back, Uber is basically trading at a mid-20s multiple today, which we think is an extremely cheap valuation considering their high rate of earnings growth and attractive outlook. William Ackman: When does the Tesla overhang lift, if you will, the fear that Elon will -- there will be 10 million taxis driving around, charging people $5 to go unlimited distances. Charles Korn: What's interesting, what I'd say is a factual statement, right, is that Waymo is far more capable today from a technology standpoint than Tesla, right? Tesla has grand ambitions. But if you just look at the facts, the issue is it's hard to -- it's impossible to scale a business if you don't have unit economics that work, and it's a bit of a catch-22 where until you have a technology, until you have a cost structure that works, you can't scale. So it's hard to say. I think 2026 is likely to be another year of kind of experimentation and kind of evolution rather than revolution. I don't expect to see kind of a major breakthrough. I think the nature, too, of scaling in robotaxis is there's a requirement to kind of validate and evaluate the models you're creating to make sure they're performing in real-world scenarios consistent with your modeled expectations. And that, by its very nature is kind of a slow methodical approach because if you released 100,000 robotaxis without knowing how the models perform in real-world settings, there's real-world consequences and people can die. And I think actually, Elon has been pretty measured and thoughtful around making sure that they are cautious in terms of their rollout of the products to make sure that they're performing as expected. In this regard, we'd say Waymo is clearly -- has best-in-class data, best-in-class disclosure around safety, disengagement, et cetera. I think it will be positive if kind of Tesla demonstrated more of that. Ryan Israel: If I could add maybe one thing to that. I think the Tesla risk or the Tesla overhang is really centered on 2 variables. Number one, that Tesla itself will be the dominant market player in AVs and that if it is the dominant market player in AVs, it will not choose to partner with Uber. And so I think the way that this can resolve itself is that either one of those 2 premises shows to not be correct. So to Charles' point, if there are more AV companies such as Waymo and there's actually a handful of other potential AV companies that are showing very strong progress aside from Waymo, if those companies start to become more dominant in the space and/or they start partnering with Uber, I think the perception will be that this will not be owned by any one company for AVs, and therefore, it would be a much more balanced marketplace, which I think will help resolve some of that overhang. That may be knowable within the next, I would argue, 12 to 24 months, although the timing is a little uncertain. Secondly, to the extent that Tesla does become further along in actually deploying robotaxis at scale, which, to Charles' point, does remain to be seen. They're certainly behind a lot of the targets that they have suggested over the last several years. But once they start scaling up, to the extent they are more willing to talk about partnerships, that could be the other way that this overhang results. So I think there are multiple ways that will become clear over the next year or 2 in which this could resolve in the way that we think, which will ultimately be beneficial for Uber. William Ackman: In short, we basically think the Uber platform is enormously valuable to Tesla and to all the other sort of AV companies and it's becoming even more valuable over time, embedded in the mind share and the consumer experience, a bit like Google's presence in search. Okay. Let's talk Brookfield. Charles, go ahead. Charles Korn: Sure. So Brookfield, they've had a very active 2025 with strong operating performance, significant business building and corporate development activity, particularly in recent months, including the pending acquisition of Just Group, which is a U.K. pension insurer that they're going to be acquiring early next year and the recently announced buy-in of the 26% of Oaktree that they don't already own. To start, maybe I'll provide some perspectives on their financial performance, and I'll focus primarily for now on Brookfield Asset Management or BAM, which is, as a reminder, kind of comprises roughly 75% of the value of BN Corporation, i.e., the parent entity, which we own. BAM is generating very strong results. So they're seeing roughly 15% growth in fee revenues with particularly strong growth in their credit and renewables businesses. In renewables, they closed on their second transition fund earlier this year, which is driving some of that strength. That roughly mid-teens rate of fee revenues is translating into fee earnings growth at a slightly higher kind of 16% to 17% rate, which is basically strong operating leverage on the core BAM business, offset by lower margins at Oaktree, which we think is kind of a transitory development, which will reverse itself next year, setting the stage for even stronger kind of operating leverage. And so as we look to 2026 for BAM, we think they're poised for an excellent year with accelerating organic fundraising, further step-up in capital from BN Wealth Solutions. Again, part of this is that acquisition of Just Group and then efficiencies, which they'll garner from fully consolidating Oaktree within BAM. And so of note also, as you think about BAM for '26, they're going to be in market with multiple flagships next year, including their next-generation infrastructure and private equity funds and their recently launched artificial intelligence fund. And each of these flagships, these are large, chunky $10 billion, $15 billion, $20 billion, $25 billion funds, which drive step function increases in fee-bearing capital, fee revenues and, of course, operating profits. Now moving beyond BAM to the broader kind of Brookfield ecosystem and the cash flow streams that roll up to the parent BN, 2 kind of call outs. So one, carried interest is beginning to meaningfully accelerate at BN, growing roughly 150% the last few quarters off a relatively low base. Earlier this fall, the company provided a forecast for $6 billion of carried interest over the next 3 years, which should begin to meaningfully kind of show up in 2026. It may be somewhat back-end weighted, but it's basically setting the stage for very significant growth next year. And then second, I'd touch on Wealth Solutions, which is their annuities -- primarily the annuities business, that grew 15% this quarter, which was -- saw a strong earnings contribution from the relatively small P&C business they have within their wealth solutions portfolio, which is offset by lower growth in their annuities business. And here, what's happening is we believe they're repositioning the asset book for higher long-term yields, but it's driving some temporary dislocation, which we think will reverse itself in the near term. Taken together, so BN is tracking towards low to mid-teens distributable earnings growth this year, which we believe will meaningfully accelerate next year with step function changes, increasing both the earnings contributions from Wealth Solutions and a step-up in net carried interest realizations. Also of note, the company hosted their Annual Investor Day this past September, and they established a target for nearly $7 of earnings per share in 2030 or 25% compounded growth from here. And in that context, we note that -- we think Brookfield stock is extremely cheap. It's trading at roughly 15x our assessment of forward earnings, and we anticipate accelerated share price performance tracking with kind of the rate of earnings growth we anticipate to see from them over the next few years. William Ackman: Thank you, Charles. So Fannie, Freddie, was it yesterday? It seems like a long time ago that we gave a presentation on our thoughts for a path forward for Fannie and Freddie. The President and members of -- Treasury Secretary and others have talked and posted on Twitter about potential plans for an exit from conservatorship and/or an IPO for Fannie and Freddie. We think someday, a public offering of shares by the government may make sense, but we do think there's an important step that should be taken beforehand. That's a much lower risk alternative. So what we've proposed both privately to the administration, we had the opportunity to share these ideas with the President with Secretary Ludnick, Secretary Bessent as well as Director Pulte in the recent past, which we then shared in a public forum that the administration could get a sense of the market as well as the various commentaries view of this -- of our, let's say, trial balloon is really a very simple next step. If you think about the Trump administration's first term where the President started to put Fannie and Freddie on a path to removal from conservatorship, the most significant step was reversing the theft or stopping the theft, I guess, I would call it, where Secretary Mnuchin basically ended the net worth sweep and allowed these entities to start building capital. That was a very important step for actually reducing risk in our housing finance system, making -- putting Fannie and Freddie in a position where they could, on a stand-alone basis, support the guarantees that they had outstanding. I think that was a critically important step. But we think the next step should be an acknowledgment, really, it's an accounting for the payments that have been made to the government. So basically, U.S. government injected $191 billion into these companies after the financial crisis and extracted an appropriate pound of flesh, which is a 10% return on that capital as well as warrants on 79.9% of both companies. They basically took -- it was a distressed bail out with very onerous terms, the most onerous terms of any of the banking financially related companies, only, I think, tied maybe even -- actually, ultimately, the amended version of AIG, I think, was even less onerous than Fannie and Freddie. Now the administration -- the companies have paid back $301 billion of the original $191 million, which is more than the 10% return they're entitled to. But from an accounting perspective, the preferred remains outstanding on the balance sheet. That's really a function of the net worth sweep previously -- never-seen-before transaction. So what we're recommending is that the payments to the government have to be accounted for. The result would be eliminating the preferred line item from the liability section or the equity section of the company's balance sheet. And the next step, of course, will be exercising the warrants. The government will become now very large shareholders of both companies and then the businesses are in a position to be listed on the New York Stock Exchange. Importantly, we think they should stay in conservatorship. What that means is we're now -- there's literally 0 risk to mortgage rates. The government is still completely in control of both enterprises. And now the necessary next steps can take place over however long they take in a very measured, thoughtful manner. And we believe this accomplishes all of the administration's goals, at least the stated goals of showing how much value has been created for taxpayers. The President did the right thing in not selling these entities in his first term and they've increased in value probably fourfold or so from the $100 billion offer that was apparently made to take these businesses private, I guess. And we think there's still a lot more room to run. So we think it's not a good time to do a public offering of shares because it would be dilutive to the taxpayers' ownership of both entities, but the government will be able to show a mark-to-market value and demonstrate incremental important progress without taking a risk to mortgage rates, and we shall see. The good news is that transaction -- again, the President has got a lot on its plate, and we're approaching Thanksgiving, but it's actually theoretically possible. We've spoken to the exchange about a relisting. They're obviously prepared to do whatever is required to get that done. So it could be a nice Christmas present for the long-suffering shareholders of Fannie and Freddie, which include more recently some institutions. I mean, Pershing Square has been around here a while, but other institutions have bought stock over the course of the past year, and there are literally millions of small shareholders who are cheering for the President to save them, and this would be a very nice Christmas present for that group of owners. Why don't we go to Amazon? Bharath, why don't you update us? Bharath Alamanda: Sure. So earlier this year, we were able to opportunistically build a position in Amazon during the April market drawdown. It's a company we followed for a long time, and I always admired the fact that it operates... William Ackman: What price did we pay in the drawdown? Bharath Alamanda: Our average initial cost was around $175, which is a 25x entry multiple on forward earnings, the lowest multiple that the shares had ever traded at in their history. William Ackman: Thank you. Bharath Alamanda: So yes, it was a company we've been following for a long time, and we always admired the fact that they built and operate 2 of the world's great category-defining franchises between their cloud business, AWS and their e-commerce retail operations. Our view is that both of those businesses are supported by decades-long secular growth trends, occupy dominant positions in their markets and share the kind of core tenets of the Amazon ethos of focusing on the consumer value proposition and leveraging their scale to continue to reinvest and be the low-cost provider. Despite those compelling attributes, there were concerns around the growth trajectory of AWS and then coupled with the broader tariff-related market volatility, that kind of provided us the attractive entry point. And our view was that those concerns underestimated the resiliency of the business model as well as the duration of its growth runway. And while it's still early days, the company's operating results since then have kind of helped validate our thesis. So starting with the Cloud segment, AWS today is a $120 billion business that continues to grow at a high teens rate. And in fact, last quarter, the growth rate accelerated from 17% to 20%. Notably, that impressive growth rate was actually limited by capacity constraints as consumer demand for compute vastly exceeded the pace at which AWS is able to bring new supply online. William Ackman: Is that constraint driven by just the time to build the new facility or GPUs or... Bharath Alamanda: Yes, I think it's a combination of the above. So to that end, the company has been very focused on accelerating that build-out. So in the past 12 months, they brought online 4 gigawatts of power, which is more than any other cloud provider. And for context, Amazon has doubled their data center capacity since 2022 and are on track to double it again by 2027. So in light of the kind of supply-constrained nature of AWS' growth, we actually think those investments today to accelerate the build-out are very efficient and high return use of capital. And then kind of shifting to the retail business, they've seen very minimal, if any, impact from tariffs. And over a longer time frame, we're very encouraged by the potential for significant margin expansion in that segment. So if you were to look at peer margins and adjust for Amazon's business mix as well as taking into account their much higher margin and faster-growing advertising revenue stream, we estimate that Amazon's structural retail margins could be several hundred basis points above the 6.5% margins they're expected to realize in 2025. And in addition to that, they're also extracting a lot of productivity gains from their warehouse automation initiatives and their one-of-a-kind logistics network. And as just a proof point on that latter point, per unit shipping costs have been steadily declining for the last 8 quarters in a row. So stepping back, while it's still early days and while Amazon's share price has appreciated about 30% from our initial cost in April, it still trades at a very attractive multiple relative to peers like Microsoft and Walmart and especially in light of its ability to grow earnings at a nearly 20% rate for the next few years. William Ackman: Thank you. Let's go to Restaurant Brands. Feroz. Feroz Qayyum: Sure. Thanks, Bill. So Restaurant Brands actually continues to execute at a very high level, and its most recent results reinforce both the strength of its brands and the resiliency of its business model in what can only be described as a fairly tough economic backdrop for consumer businesses. During the quarter, the company-wide same-store sales grew at 4%, units grew by 3%, leading to 7% system-wide sales growth and operating income grew by 9%. So looking at their biggest businesses, Tim Hortons in Canada, they increased their same-store sales by about 4%, which outperformed the broader Canadian QSR industry by 3 whole percentage points. This now marks the 18th straight consecutive quarter of positive same-store sales. And that, by the way, has primarily been driven by underlying traffic growth. For several years now, Tim has been laying the groundwork in its Back to Basics plan with new innovation, both in cold beverage as well as afternoon foods while still maintaining their lead and providing good value for consumers in its core beverage, coffee and breakfast segments. Tim Hortons actually is also now growing its unit count in Canada for the first time in years, a market that many consider too mature. And these units are actually a lot more impactful to the company's bottom line than their units abroad because they're obviously higher unit volumes and Tims Canada has higher unit take rates as well. In the international business, same-store sales grew by 6.5%, also above the primary competitor, McDonald's, which has also been the case for actually several quarters now. The company also brought on a new partner to manage the Burger King China business, who will actually invest $350 million into the business shortly, and that will allow that BK China business to double unit counts over the next 5 years, and that will help restaurant brands, the total company achieve their 5% unit growth algorithm in the coming years. At Burger King in the U.S., same-store sales were up about 3%, again, also ahead of burger peers and one -- the results actually have also outperformed the broader U.S. burger category for multiple consecutive quarters. And that's really due to all the initiatives they've done under their Reclaim the Flame program. While investors were worried that competitors are pushing deeper into value, Burger King has actually done a really nice job striking a nice balance between innovation and premium offerings, doing nice tie-ins with movies and also providing everyday value with their Duos and Trios platforms. In what is -- can be best described as a very challenging economic backdrop, as Anthony alluded to, we think Restaurant Brands' results highlight the very nice defensive qualities of its business. So while low-income consumers have pulled back from spending many often skipping breakfast, Restaurant Brands has still continued to grow its sales as it's benefiting from the trade down for middle and higher-income consumers trading down. William Ackman: So are Chipotle customers becoming Burger King customers? Feroz Qayyum: Look, that's a question we've been discussing at length. I'm not sure it's specifically from Chipotle to Burger King, for example. But we do think what's happening, it's really a twin economy. So people that own stocks that are wealthy are doing incredibly well, and they're continuing to spend where they used to. At the same time, the low end of the economy is doing very poorly, and they're basically pulling back. So I think a brand like a Burger King or a Tim Hortons that caters to everyone is benefiting -- obviously losing those low-end customers, but it's benefiting from the mid-end trading down. But the fast casual space broadly, which obviously Chipotle is a member of, is missing that middle sort of demand vacuum where the high end isn't trading down, but the mid-end is trading down to the quick service category broadly. So that's certainly probably happening. What's also notable about restaurant brands is that it's obviously primarily franchise business model. And so it's also not as directly exposed to the labor and cost inflation to the same extent as others. And so thanks to its consistent growth and defensive business model, we expect that Restaurant Brands will actually still grow operating income at 8% this year, which is in line with its long-term algorithm. And the business still trades at a discount to its primary peers. So it's trading at about 17x earnings, whereas McDonald's and Yum! are trading at about 23x next year's earnings. We think a business of this quality with these characteristics should trade at a much higher valuation. So we're optimistic about the prospective returns from here. William Ackman: Okay. Great. So I'll just cover Howard Hughes. The short story here is the underlying real estate business of Howard Hughes is performing extremely well. The company reported an outstanding quarter really on every metric of net operating income, land sales, profits from their MPC business and the appreciation of their existing land portfolio. The management teams at Pershing Square and Howard Hughes are working very well together, which is great. And we are working, as we've publicly disclosed on a transaction to acquire an insurance company that would become really the beginnings of our diversified holding company strategy for the business. Our goal is to complete a transaction as early as the -- at least announce a transaction as early as year-end or perhaps in the early part of the new calendar year. We'll have a lot more to say about that if and when we are successful in completing a transaction that makes sense. But the short version of the story is that, we intend to by a good insurance platform with an excellent management team that can run a profitable insurance operation with Pershing Square managing the assets of that insurance company, I would say, akin to the way that Warren Buffett has managed his insurance company's assets and the way really he's managed the insurance company operations itself. Why don't we go to Hilton? Ryan, why don't you give us an update? I'll just point out, Hilton has been an excellent investment for us over many years now. We have enormous respect for the management team, and it's one of the best businesses that we've ever owned. It's become a smaller part of the portfolio, unfortunately, because -- or fortunately, because everyone else has recognized the qualities of the business. So we still think it's an attractive investment from here, but lower on the IRR thresholds than obviously when we originally acquired our position. But go ahead. Ryan Israel: Yes. So I just wanted to make a quick point that I think this quarter's results are really emblematic of why we think Hilton's business model is unique and incredibly resilient. So for example, the company same-store sales metric RevPAR actually declined about 1.5% this quarter as there were some macro softness, which clearly has impacted some of our restaurant businesses, but that actually impacted some of the travel businesses as well. And typically, what you would expect when a company has declining same-store sales, you would expect a decline in the profitability of the business. Hilton actually grew its adjusted EBITDA, its profit metric, 8% this quarter despite the decline in same-store sales, which is very unique and really reflects the 2 fundamental drivers of the business that are incredibly attractive to us, which are they have an enormous opportunity to grow their unit or hotel count around the world because the brands that they have are able to take advantage of the increased travel trends, and they are better than a lot of the alternative brands. And other people put up the capital for that because it's a good return for them and Hilton is able to earn a very high franchise fee. And that is really adding 6 to 7 points a year of growth to the business, and that's a trend, I think, will continue for a while. And the second factor is just incredibly strong cost control due to just overall great management. So the company is able to really limit the growth in its expenses despite having a very strong steady revenue growth base. So profits still grow even when same-store sales decline, which is a typical anomaly in business, but it's part of Hilton's core model. And then on top of that, this company has just superb capital allocation. So it continues to buy back about 5% of its shares on a year-over-year basis. So with a kind of consistent underlying tax rate, the company would have grown earnings at a low teens percent this quarter despite not growing same-store sales due to some macro softness. And so I think to your point, one of the reasons why we continue to hold Hilton is those unique characteristics where if the business performs in a normal macro environment well, we think there's a clear line of sight to 16%, 17% earnings per share growth annually for a very long time. If the macro is a little weaker and same-store sales don't even grow, we're still able to get pretty comfortably above a 10% rate of earnings per share growth, which is very unique. And so the market has recognized, as you pointed out, that this quality of the business and the growth characteristics should be deserving of a higher multiple, and the company trades at about 30x next year's consensus earnings, which is part of the reason why we've reduced our position is we think that the growth profile will offer us a reasonable return, but there's less opportunity for an accelerated annual return beyond the earnings per share growth when the multiples, I think are reasonable at 30x. But we still think it's very unique and a very strong management team, which is why we continue to hold the position even though it's somewhat smaller as you've been trimming as the share price and the multiple has increased over time. William Ackman: Let's do an interesting compare and contrast. Let's compare Universal Music to Hilton. They have some fairly analogous economic characteristics, and let's compare the trading multiple of one versus the other. And why is Hilton traded at 30x earnings and Universal traded 20 or 21x earnings? Ryan Israel: So I think you're entirely right, which is that while they obviously operate in different industries, the economic characteristics are very similar. They are both royalty-like companies that are very capital-light with very strong operating margins. In Hilton's case, we believe over time, the company is likely to grow at something along the lines of maybe 8% to 10% a year for revenue and that adjusted EBITDA is probably going to grow a little bit in excess of that. Those will sound very similar because that is exactly what UMG is growing at. Its revenue is about 10% right now. William Ackman: And management guidance -- let's stick with the management guidance on those numbers. Ryan Israel: Correct. And that is in line with the guidance over time. So it's interesting that they look incredibly similar on the operational performance, if you will. The key difference, as we pointed out earlier, is UMG has not bought back a single share, whereas Hilton pretty much like clockwork buys back about 5% of its shares. They allocate all of their free cash flow -- the substantial majority of free cash flow to share buybacks. And because of the high margins and the significant degree of predictable revenue growth, they have a nice amount of leverage, which the business can support. And obviously, UMG has an unlevered balance sheet when factoring in its stake in Spotify. I think the U.S. investor base, U.S. listing of Hilton, combined with the capital allocation has given investors a lot of confidence, which has allowed them to price in a multiple of something like 30x. And as we mentioned earlier this week, UMG was trading at 20x, which is a very large gap between the 2 despite very similar economic characteristics and growth characteristics currently. William Ackman: Let's go to Hertz on the other end of the balance sheet spectrum. Feroz Qayyum: Yes. We're not unlevered, in fact, very levered and also has some operational leverage. But look, the interesting thing about Hertz is that it's actually making a lot of progress on its turnaround efforts, and the results in the third quarter showed those. So it was the strongest quarter in years. It actually generated their first positive EPS for the first time in 2 years and they demonstrated meaningful traction on the operational levers that we've discussed previously as our investment thesis. Number one, the fleet refresh. When we invested, they basically had an upside down fleet. Now they've completely refreshed it. The average vehicle in the Hertz fleet is now less than 12 months old. As a result, depreciation per unit per month DPU, which is their metric, was $273 during the quarter, well below their long-term target of $300. And importantly, next year's vehicle purchase negotiations, which some investors are worried about given some of the tariffs and inflation, they're also nearly complete. And the management team is confident that, that will also support strong unit economics with depreciation of less than $300. Operationally, the company is also making big strides. So this quarter, utilization was 84%, the highest level the company has ever delivered since 2018. Revenue per day or RPDs were down low single digits, but they continue to improve and improved in October as the company has been implementing changes and modernizing its pricing systems. On the cost side, they also continuing to make progress through automating processes, lowering headcount and rationalizing some of their footprint. And we expect both SG&A and DOEs, which is their measure for expenses per day to decline from current levels. So the company is well on its way to delivering sort of a mid-single-digit EBITDA margin next year and has line of sight into delivering $1 billion of EBITDA in the coming years. What makes Hertz very interesting from these levels... William Ackman: $1 billion. It means $1 billion of annual? Feroz Qayyum: Exactly. $1 billion of annual EBITDA in the coming years. They have a target for 2027 actually. What makes Hertz really interesting from these levels is that it also has a number of upside levers or call options available to the company. So first, the company has been setting up infrastructure to sell more used cars through its own retail channels as well as its partnerships. The company actually has a partnership with both Amazon as well as Cox, and it's now live with their rent-to-buy program in over 100 cities where you can rent a car, try it out and if you like it, you can buy it. We believe the company can turn this into a meaningful profit center that can lead to structurally lower depreciation costs because obviously, you sell a car to the retail channel at a much higher profit than the wholesale channel. And then it also allows an opportunity for them to sell additional F&I revenues. Second, we believe Hertz also has the potential of being a significant partner to the various mobility companies that are rolling out autonomous vehicles. Hertz has an expertise in vehicle maintenance, servicing, and it has a very significant scale of -- with its parking facilities that make it an ideal partner to help manage as folks try to roll these out. Both these revenue streams have the potential of being large businesses for Hertz in the future and helping it further leverage its fixed cost base and brand. On liquidity, the company is also now in a much stronger position. Recall when we invested, some investors were speculating the company may need to declare bankruptcy again, and that is definitively not the case today. It has more than $2.2 billion of total liquidity. We actually helped facilitate a convertible bond issuance earlier this year and actually increased our exposure to the company. And the company also entered into a capped call transaction, which means that the convertible bonds are not dilutive unless the stock essentially triples from current prices. So with its current liquidity, as I mentioned, of over $2 billion, they have ample liquidity to address their near-term maturities and to help grow their fleet next year, which will again help them lever their fixed cost base. So stepping back, Hertz today is a much more leaner, more efficient company with, frankly, an enviable young fleet that its peers don't have. And on top of the core rental business, the company is also developing multiple new profit streams, as I mentioned, such as the retail used car sales, servicing AVs as well as serving the broader mobility segment. So we continue to believe that Hertz has asymmetric upside from current prices. But obviously, in light of the fact that it's going through an operational turnaround, we have sized this as a smaller investment than our typical holdings. William Ackman: Why is the stock so cheap in light of all of the above? Feroz Qayyum: So it's not immune to some of the consumer issues that we're seeing in the broader space. What's also notable is that the government shutdown has obviously had an impact on travel broadly. And so people are traveling a little bit less. Hertz does benefit to an extent as people have been taking out what are called one-way rentals. So instead of flying, you just take a car. But certainly, I think it's probably a net negative if the consumer environment is weaker and then people are traveling as much. And there's also -- there's been broader concern around RPDs. We think that's a little bit misguided. The way Hertz sort of reports RPDs, it's really burdened by the fact that they have mix towards smaller cars, which certainly have lower prices, but they're EBITDA accretive. And so next year, that should be a tailwind. And candidly, I think these car rental companies are generally misunderstood. There isn't a lot of market cap for long investors to dig into and to get excited. And so both Hertz and Avis have the potential to gather some of these long-only investors as they come out of the turnaround starting next year. And I think Hertz specifically has a very interesting opportunity to grow its EBITDA from basically nothing today to $1 billion in the coming years. William Ackman: Okay. Good. Thanks, Feroz. We've always received questions in advance of the call. We do our best to answer them during the pendency of the call. Just a couple that we didn't kind of get to. One is since both Howard Hughes and the Pershing Square funds are managed by Pershing Square, how should investors think about investing in Howard Hughes versus Pershing Square's core strategy? The answer is these are, I would say, different investments with some overlap. Howard Hughes, of course, the core business today is a master planned community business. It's a business we like. It's a business that we expect to generate a lot of cash over the next years and decades, and we think provides a very good base to build our version of a diversified holding company. With the acquisition of an insurance subsidiary or insurance company that becomes a subsidiary of the company, over time, as that business scales, that will become a more important part of the operation of the company. We intend to manage that insurance company portfolio, the float in U.S. treasuries, the equity and common stocks using the same kind of investment philosophy we have at Pershing Square. So there are clearly some similar elements. But it's an operating company. It's a C-corp. We intend to take the cash that the business generates over time and to deploy that capital in acquiring -- principally controlling interest in most likely private businesses. So the portfolio will look different. It's not a large cap or mega cap minority stake investment vehicle. It will be an operating company that will buy for the very long-term various businesses. Today, you're buying Howard Hughes at about a 15% discount to the price we paid for shares and an even bigger discount to kind of the, I would say, the NAV of the real estate portfolio. So that's a nice place to start an investment. But ultimately, the success of Howard Hughes will depend on how we do with our various initiatives there. I like Howard Hughes a lot, excited about what we're going to do there. An entity where you have -- that's a public company, we have access to the capital markets, may create some flexibility over time for us to do some things that we can't do in the Pershing Square funds. So over time, I would say they will be different entities, but the same investment principles will be applied and shareholder, I would say, orientation will be applied to both. And then I would -- the other thing I would say is that the Pershing Square management team has a very large investment in all of the above. So about approaching 30% of the AUM that we manage today is -- or I guess, 28% or so today is employee capital in the funds. And then on a look-through basis, therefore, the employees own an interest -- a meaningful interest in Howard Hughes. And then on top of that, the Pershing Square management company made a $900 million investment in the company. So we have, I would say, a very high degree of what you might call skin in the game in both the funds as well as Howard Hughes. I think Howard Hughes itself is at this point, still not well recognized. I think if and when we are successful in beginning to make this business look less like a real estate master planned community and more like a diversified holding company, we expect we deliver results and we expect the market to notice. With respect to hedging, our approach, as you likely know, is, one, we pay careful attention to what's going on in the world from a macro perspective, from a geopolitical perspective, from a political perspective, all these things can have an impact on markets. And we focus -- our first priority is what are the risks in the system that could cause a massive market decline. And to the extent we identify risks like that as we did pre-financial crisis or pre-COVID crisis or pre-Fed interest rate inflation, I wouldn't quite call it a crisis, but where the Fed was forced to raise rates very aggressively, we were able to hedge those risks because of the sort of surveillance of what's kind of going on in the world. Today, we really have no hedges in place. We don't try to hedge short-term kind of stock market declines or what some people might think of as a periodic -- the overall multiple, the market is above normal. There are lots of reasons why a market cap weighted index today appropriately should be trading at a higher multiple. If you think back to '09, we didn't warrant businesses, frankly, like NVIDIA, and we didn't have this massive growth driven by a major change in technology. We are seeing interesting places to put capital. We're doing due diligence. And our approach is to -- as we say, we sort of build a library of businesses that we get to know pretty well. Occasionally, new companies emerge, go public, get spun off. We track as many of them as we can in terms of ones that meet our criteria for business quality, and then every once in a while, they get really cheap. Amazon being kind of a recent example of a company we admired for years. It was always a little too expensive, but a business we want to own. And I think we started buying stock at something like $161 a share, which seem to be a really kind of unique opportunity. With that, I just want to thank you for joining the call, and we look forward to updating you. I think our next event will be our Annual Meeting that we will stream at some point in January or an Analyst Day. Thanks so much. Operator: Thank you, everyone. This concludes your conference call for today. You may now disconnect, and have a great day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings Third Quarter Earnings Call. [Operator Instructions] As a reminder, this call is being webcast and recorded on November 20, 2025. I will now turn the conference over to Daniel Tapia, Director of Investor Relations. Sir, you may begin. Daniel Tapia: Thank you, Michelle, and welcome, everyone, to our third quarter earnings call. Joining me today are Pedro Heilbron, CEO of Copa Holdings; and Peter Donkersloot, our CFO. Pedro will begin with an overview of our third quarter highlights, followed by Peter, who will walk us through the financial results. After that, we'll open the call for questions from analysts. Copa Holdings' financial reports have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures which are reconciled to IFRS figures and our earnings release available on our website, copaair.com. Our discussion today will also contain forward-looking statements, not limited to historical facts that reflect the company's current beliefs, expectations and/or intentions regarding future events and results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions subject to change. Many of these are discussed in our annual report filed with the SEC. With that, I will turn the call over to our CEO, Mr. Pedro Heilbron. Pedro Heilbron: Thank you, Daniel. Good morning, and thank you for joining us today. Before we begin, I want to thank all of our coworkers across the organization. As always, the dedication and hard work are instrumental in our financial and operational success. Copa delivered another strong quarter reinforcing the strength of our business model and our competitive advantages in Latin America. During the quarter, we achieved industry-leading profitability with an operating margin of 23.2%, up 2.9 percentage points year-over-year and a net margin of 19%, up 1.9 percentage points year-over-year. These results are driven by our continued focus on cost discipline and a healthy demand environment in the region. Now over to the key highlights for the quarter. Capacity in ASMs increased 5.8% compared to Q3 '24. Load factor increased by 1.8 percentage points to 88%. Passenger yields came in 2.6% lower year-over-year. Unit revenues or RASM increased 1% to $0.111 compared to Q3 '24. And unit cost, our CASM decreased 2.7% to $0.085 compared to Q3 '24, while CASM, excluding fuel, decreased 0.8% to $0.056. Operationally, Copa Airlines delivered an on-time performance of 89.7% and a flight completion factor of 99.8%, maintaining our position among the best in the industry. During the quarter, we started flights to Salta and Tocumen in Argentina. And as mentioned in our previous call, in the next few months, we expect to add service to Los Cabos, Mexico, Puerto Plata and Santiago in the Dominican Republic and Salvador, Bahia in Brazil, further strengthening our position as the most complete and convenient connecting hub for travel in the Americas. With regards to our fleet, during the quarter, we took delivery of five 737 MAX 8 aircraft. We added a second Boeing 737-800 freighter under an operating lease and Copa transferred an aircraft to Wingo, growing its fleet to 10 Boeing 737-800 NGs. We closed the quarter with 121 aircraft and we have since incorporated 2 additional MAX 8, bringing our fleet to 123 aircraft. We expect to receive 1 more MAX 8 before year-end finishing 2025 with 124 aircraft. For 2026, we anticipate adding 8 more 737 MAX 8, 2 of which we previously expected to receive in December 2025, ending 2026 with a total projected fleet of 132 aircraft. To conclude, in the third quarter, we again reported strong operational and financial results. Going forward, our guidance demonstrates confidence in our future performance, driven by healthy demand in the region and the strength of our business model, which consists of the best geographic position with our Hub of the Americas in Panama, structurally low unit cost and a strong balance sheet and a passenger-friendly product with industry-leading on-time performance. Our focus on these pillars enables us to consistently deliver industry leading results. Now I'll turn the call over to Peter, who will walk us through the financials in more detail. Peter Donkersloot Ponce: Thank you, Pedro, and good morning to all. I'd like to start by reinforcing Pedro's recognition of our team's continued dedication to achieving industry-leading performance. Let me provide some detail on our financial results for the quarter. Net profit came in at $173 million or $4.20 per share compared to $146 million or $3.50 per share in the third quarter of 2024, representing a year-over-year increase of 18.7% and 20.1%, respectively. Operating income reached $212 million or 22.2% higher year-over-year, and an industry-leading operating margin of 23.2%, 2.9 percentage points higher than the third quarter of 2024. On the cost side, CASM decreased 2.7% year-over-year to $0.085, driven primarily by lower fuel cost and maintenance expense. CASM, excluding fuel, came in at $0.056, down 0.8% compared to third quarter 2024. This figure reflects a realized gain from engine exchange transactions and a benefit related to the extension of 1 leased aircraft. Regarding our balance sheet, we ended the quarter with $1.3 billion in cash, short-term and long-term investments, representing 38% of the last 12-month revenues. Further demonstrating our financial strength and flexibility, we also have approximately $600 million in predelivery deposits for future aircraft. Additionally, we currently have 45 unencumbered aircraft. Total debt stood at $2.2 billion, entirely related to aircraft financing. Our adjusted net debt-to-EBITDA ratio came in at 0.7x and our average cost of debt continues to be highly competitive at 3.5%. Regarding the return of value to our shareholders, I'm pleased to announce that the company will make its fourth dividend payment of the year of $1.61 per share on December 15 to all shareholders of record as of December 1. As for our 2025 outlook, we remain confident in our full year performance. We are reaffirming our guidance and narrowing the operating margin range to the upper end now expected between 22% and 23%, with a full year capacity growth projected at approximately 8%. This outlook reflects a healthy demand environment in the region as well as our continued cost discipline. Our outlook is based on the following assumptions: load factor of approximately 87%; RASM of approximately $0.112; ex-fuel CASM of approximately $0.058; and an all-in fuel price of $2.40 per gallon. Looking ahead to 2026, we preliminary expect full year ASM capacity growth in the range between 11% to 13%, with an ex-fuel CASM in the range of $0.057 to $0.058. To conclude, we remain confident that our proven business model, robust balance sheet and disciplined execution provides a solid foundation to continue delivering consistent growth, strong financial results and industry-leading margins. Finally, I'd like to remind everyone that our Investor Day will take place at the New York Stock Exchange on December 11 at 11:00 a.m. Eastern Time. We look forward to sharing more about our company during this event. Thank you, and we'll now open the call for questions from the analysts. Operator: [Operator Instructions] Our first question will come from the line of Savi Syth with Raymond James. Savanthi Syth: Could you talk a little bit about the timing and nature of the kind of co-branded credit card renewal that you noted in third quarter? And just about the opportunity that you see in loyalty in general? Peter Donkersloot Ponce: Yes. Thank you, Savi. And yes, we had a renewal of our Visa agreement during the third quarter, and that's part of what you see, an 86%. We cannot disclose too much on that due to the confidentiality of the deal. But if we take that out, if the growth of the loyalty program would have been similar to the second quarter, there was over 30% growth year-over-year. Savanthi Syth: Great. Anything around the loyalty program initiatives? Is that just kind of the normal renewal? Any other kind of thoughts on how that program can kind of contribute in the future? Peter Donkersloot Ponce: So it's an important growth, 30% year-over-year over a small basis. We continue to grow. The program is maturing. We expect the program to continue to grow. There's a lot of new non-air partners in the program, and we expect the program to continue maturing and to continue growing at a decent rate going forward. And it's one of the priorities that we have for coming years. So the 30% growth, I mean, it's over a smaller base, and we expect that growth to continue and go -- slightly going down as the program matures. Savanthi Syth: Got it. And if I can ask just a clarification question on the growth next year. Could you tell like the 11% to 13%, how much of that is kind of [indiscernible] versus [ seat ]? Peter Donkersloot Ponce: Yes. So the full year growth that we are projecting between 11% to 13%, I would first say that half of that growth comes from the full year effect of the backloaded aircraft that we received this year. Of the other half, I would say, that 50%, 40 percentage points of that will come from adding frequencies to current destinations. And then the other 10% will come from adding new dots on the map. Some of them Pedro alluded to during his intervention. That's more or less the breakdown of our 11% to 13% growth in ASM for next year. Operator: Our next question comes from the line of Michael Linenberg with Deutsche Bank. Michael Linenberg: Yes. Just -- Peter, maybe to pick up on Savi's question on that growth for next year, sort of half of it is just the annualization of 2025 and then another large chunk of that remaining half, 40 points is frequencies. As we see that type of growth, what is the view on unit revenue trends? Normally, when we see a step-up in growth, we tend to see pressure, especially when you move into new markets. But it seems like if you're just focused on really strengthening what is already a strong position in the region, we should assume that unit revenue next year could be maybe somewhat flattish. What -- any thoughts on that or how you think about it for 2026? Pedro Heilbron: Mike, it's Pedro here. Yes. So I think in a way, you helped us answer the question. I mean we're not giving yet guidance on unit revenues. But you're right, most of the growth comes either full year effect or from adding frequencies. And of course, we're adding those frequencies in high-demand routes. When we average 88% for a quarter like we did in Q3, that means that many, many routes, many markets are above 90%. And that's where we're adding frequency. So the impact on unit revenues should be much less than one we would expect from double-digit ASM growth. Michael Linenberg: Great. And then just second question, since it is frequencies, when we look at the number of gates at Panama City and how full up you are and the number of banks, where are you when we think about banks and connectivity? I see some markets like you have 8 flights a day to Miami, you have 10 flights to Bogota. I recall where it was 2 banks, 3 banks, 4 banks. How many defined banks are you -- do you have today? And how much actually additional room do you have to add these additional frequencies because presumably, they're all in and out of Panama City. When do you start topping off or where do you start running out of connecting banks? Pedro Heilbron: Yes. Pedro here again, Mike. And so 2 things I'll say. First is that the airport is already working on its next phase of expansion. They're coming out with bids by the end of this year or early next year to expand the new T2 terminal and also to do some work on the taxiways and runways, one of those contracts actually has already been assigned. And then our civil aviation authorities is also bidding a redesign of the airspace. So all of this is going to happen in the next 3 to 4 years, and it's going to be done in a very pragmatic, I would say, way. That's going to be very good for the airport and for our hub. So we're really happy with that. In terms of frequencies, we're running 6 defined banks today, 6. Our first arrivals are like at 6 in the morning and our last departures are nearly at 11:00 p.m. And we do run wingtips, sometimes even triple wingtips at certain times of the day, like early in the morning, we run wingtips to the Caribbean, to Miami and places like that. And depending on the banks, we might run wingtips to maybe South America and other points. So they're still -- with this new phase of expansion that we're very, very involved with the airport authorities and the design even, and there's an international institution also very involved. We're going to have plenty of room to add wingtips if needed or even if it comes to adding banks, there will be room for that also. Operator: Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Jacob Gunning: This is Jake Gunning on for Duane. To ask a question about next year a little differently, not looking for guidance, but could you maybe talk about how you're preliminary thoughts on 2026 margins and earnings have changed over the last quarter? Pedro Heilbron: Yes. Again -- Pedro again. They haven't really changed. I mean in terms of our -- what we expect for unit cost, unit revenues, et cetera, we are kind of in the same place. Maybe the only wild card is what happens to fuel. And we've seen in the last few weeks, an increase in the crack spread for jet fuel, but that could change again in the next 2 weeks, and it has a lot to do with the conflict in Russia and mainly that and a few other reasons. So I would say that, that's the only wild card, and we haven't modeled how yields would react to that when there's -- when jet fuel is higher, usually, there's more pressure for everyone to adjust fares, but we haven't really modeled that. Jacob Gunning: Okay. And then just given the really healthy leverage, is there any debate or discussion on leaning more heavily into share buybacks versus dividends? Peter Donkersloot Ponce: Yes. So Peter now, and thank you for the question. And I'm going to talk a little bit about all the capital allocation plan that we have. And basically, we have, after this year around 46, 47 planes pending delivery from the order book we have. And given the fact that we are performing as Pedro said, 88% load factors, pretty decent margins. One of our top priorities right now is continue to reinvesting in the business. We believe the business can continue delivering healthy margin and growth. So that's one of our priorities for the capital allocation. And secondly, of course, we'll continue returning value to our shareholders as part of our capital allocation plan, and we have 2 ways to do that. One is our dividend policy that, as you know, it's 40% of last year's net income. We will maintain that dividend policy and maintain those quarterly payments. And then the second is we have a buyback -- a share buyback program open that was approved by the Board. It was approved around -- for $200 million. We have executed half of it, and we'll continue executing on the other half on an opportunistic basis. We don't have an end date for the plan. We will just continue delivering when we see the opportunity to do so. Operator: Our next question comes from the line of Filipe Nielsen with Citi. Filipe Ferreira Nielsen: I have 2 questions on CASM Ex. Looking at this year, you're continuing guiding to $0.058. And just trying to understand what are the moving parts after this quarter's one-off, positive one-offs if maybe you're being too conservative on this assumption? And the second one, looking for 2026. Maybe if we could -- you could like guide us on the moving parts of this expectation. Maybe for us, sounded a little too conservative given that you potentially could increase fixed cost dilution from the capacity expansion. Just trying to understand those points. Peter Donkersloot Ponce: Thank you, Filipe. Peter here. So yes, on the CASM Ex, we're guiding to approximately $0.058 for the quarter, of course, [ we're up ] for the year. We only use 1 decimal. So there's a range to that [ $0.058 ] that we are alluding to, it's not necessarily going to be exactly [ $0.0580 ] for the full year. And I would say that a -- I would also like to comment on the 2 items that we highlighted on our earnings release yesterday. First, we did highlight those 2 items more to make it easier to compare. And to give some color, the return conditions, it's every time we do a lease extension, what happens is we spread the provision for a longer period of time. So we did execute one, a lease extension during the quarter, and that's what you see that. That's around 1/3 of the effect of what we call out there. And the other 2/3, which I may say that are not necessarily one-offs, is the engine exchange and mainly due to the longer turnaround time that we have been seeing, the team is sending some engines to do engine exchange instead of sending into engine restoration. This transaction usually see some accounting benefits due to the difference between the book value and the transaction price. This transaction is something that we're doing this year, and most will continue doing next year. So I wanted to highlight that it's not necessarily a one-off transaction for the engine exchange. And for the year -- for the 2025, I address, it's a range of the [ $0.0580 ]. So we would need to model what is within that range of that decimal. And for 2026, we feel pretty comfortable what we wanted to guide is that we have enough levers in our tool of cost initiatives to offset inflation at the least and push the CASM even lower. So I think that's the guidance we're giving to CASM. It's directionality of the CASM that we have enough initiatives to address inflation and push the CASM at least even lower. That's the main point we want to address. Operator: Our next question comes from the line of Daniel McKenzie with Seaport Global. Daniel McKenzie: A couple of questions here. First, going back to the script, the healthy demand backdrop in the region. I'm wondering if you can elaborate on that. Macro has been especially volatile this year. And Latin America, just seems to be completely disregarding it, plowing through it. And so I'm just wondering, what is driving that? And -- or is it just that the demand is inelastic, given the wealth demographic of your customers. I'm just wondering if you can break it apart for us? Pedro Heilbron: Okay. So Pedro here, Dan. And it's -- I'm not going to say we have all the answers or that we can share all the answers we might have. There might be something with demographics, as you will explain. We have a lower percent of people that travel in Latin America versus what you would find in Europe or the U.S. but the traveling class does have, on average, the resources to travel so. And they're traveling more than before, I must say, and before the pandemic, that's noticeable and that's very clear. So an analysis of the demographic is not going to be easy. But demand remains healthy, we -- it continues to grow. There's a lot of capacity coming in, but load factors are holding up. And I would say that, that's what we're seeing in most regions and the regions where maybe that won't be the case are easy to point out. For example, we had the strong devaluation in Brazil last year, starting in mid last year, but the currency has been stable and even recuperated some ground since. So we see Brazil slowly coming back, maybe not all the way back to what it was in 2023, but it's on its way. The rest of South America looks fine, the [indiscernible] looks fine. The U.S. is pretty stable. Maybe just slightly down, but with a lot more capacity. So -- and I'm saying load factors, of course, demand is up. It's up double digits. Argentina has seen a lot of capacity come in. So still a strong market, but not nearly as strong as before because of all that capacity. But I think that's going to taper down. We ourselves are going to grow. We've grown quite a bit in Argentina. We won't be growing that much, if at all, in the future. So we're also adjusting our capacity and putting our capacity where it makes the most sense. So yes, I mean, in general, it's a healthy demand environment. Sometimes the additional $0.08 hit on yields a little bit, but even that has not been significant. Daniel McKenzie: Yes. Very impressive. The second question here. I'm wondering if you could speak to the durability of growth opportunities beyond 2026. So should we be thinking low double digits for the foreseeable future? Or how should we be thinking about growth longer term, say, 3 years out or so? Pedro Heilbron: Yes. I'll go with our aircraft order, which I think is the better way of understanding our growth plans. And as you know, we've always been very rational, very pragmatic. We never do crazy things. But for -- yes, you know us well. Like for the last 3 years, we have delivered plus 20% margins every quarter. One quarter we missed, we were 19.5%. So okay, we're right there. And that's because we're really careful. I mean, we focus on our business model. We focus on our low-cost and we grow capacity by what makes sense to us, not necessarily in response to anything else. So if you look at our fleet plan, it follows that same pattern. And it points to somewhere between 7% and 8% per year consistently. We have a little bit over 40 planes pending delivery for the next 4 years. And if you do the math, it's going to be around 7%, 8% average growth CAGR for that period. And I think that we have the opportunities, given the strength of our hub and network, our leading unit costs and customer service, on time performance. When we put everything together, we think that's really reasonable growth that we can sustain in a profitable way. Peter Donkersloot Ponce: And I would just add that, as Pedro alluded to, that's our plan of growth and should be around the 6%, 7% as Pedro alluded to the next couple of years. But Pedro said it very well, we're not obsessed with growth. We will only grow if there's profitability in that growth. We'll be more focused on making sure we can get the most profitability. And we have a lot of flexibility for that growth on the downside. And we have the lease aircraft. We have 4,500 unencumbered aircraft. We have the 700s that by any point, demand softens, we can decide to park, harvest the engines and even help us grow in the CASM. So there are a lot of tools we have to address whatever market comes to us, and we'll try to make the best out of it. Operator: Our next question comes from the line of Alberto Valerio with UBS. Alberto Valerio: One more on my side in terms of yields was, you see a healthy environment, but I think market was expecting a little bit more in terms of yields for this quarter as well for the next one, maybe a revising -- revision on the guidance. If there is any specific detail that make you guys be a little bit more conservative? And another one, if I may, in terms of competition in the region, we see an IPO in Mexico, we may see another IPO next year in Latin America and also in Brazil, Azul come back from Chapter 11. What is the perspective? And how is the market in the region, if you can take some details in terms of competition? Pedro Heilbron: Okay. A few things. So I think we already spoke quite a bit about 2026 yield. You're asking about fourth quarter. We do not give a quarter-by-quarter yield guidance but we did narrow our operating margin guidance to somewhere between 22% and 23%. So we narrowed it to the higher end of our previous guidance. So that's what we can share now. In terms of competition, it's something that we've lived with for a long time, always, I would say, but even more so in the last 4 years, in the last 4 years or 3 years, and we work on the -- on our competitive advantages to make them stronger. And that's our product, our unit costs and the strength of our network. So we're confident that we can continue delivering in 2026 and beyond the strong margins you've seen before. And the IPOs you alluded to, well, those are companies that were public before. So they're going back to where they were before they went through bankruptcy and all the other troubles they got into. We work hard to avoid that kind of situation and try to be a little bit more steady on everything we do. Operator: Our next question comes from the line of Tom Fitzgerald with TD Cowen. Thomas Fitzgerald: Just kind of going back to the high-level conceptually for next year. How do you think about like how -- from the incremental frequencies and then the 10 points for the new dots, just like in a normal year, how would you think about how those should theoretically compare to like system RASM? Peter Donkersloot Ponce: Yes. So normally, in a regular year, most of our growth goes to adding frequencies and then we always have a little of that growth to put on new markets. And then for those new markets for the next year, normally mature, and then they go in the first category of adding frequencies to those new markets as we normally open markets with 3 to 4 daily -- weekly flights and then we go building up. So that's more or less how we have deployed growth in the past years and how we've done it. Most of it going to frequencies and then a smaller portion go into new markets. Thomas Fitzgerald: Got it. Okay. I mean, normally just thinking about the like the -- just thinking about like the maturity ramp for like the incremental like departures, do you think that like is a decent discount like a 10-point discount to system average or pretty much in line with the system that you're producing? Pedro Heilbron: I would say it's pretty much in line. And kind of a related factor is that as we all know, Boeing deliveries were -- have been delayed quite a bit for the last 2 years. This year, they've been on time even earlier so there's a noticeable improvement there. But overall, we're still behind where we thought we were going to be if we had talked 3 years ago. So these are kind of overdue deliveries and we feel we have the demand for those aircraft, especially that we're adding frequencies as Peter mentioned. Thomas Fitzgerald: Okay. That's really helpful color. And then just as a follow-up, I was wondering if you could talk -- you've talked in the past about some of your -- some of the kind of lower-hanging fruit you guys have with technology and your ability to maybe price better, whether incorporating more dynamic pricing or upselling products like Economy Extra. I'm just wondering if you could -- maybe it's more of a preview for Investor Day, but I love the latest thinking there. Pedro Heilbron: Yes, we have to keep something for the Investor Day, you're right. You just helped me answer that question. There's still a lot of opportunities. We continue investing quite a bit in our digital tools and especially -- actually not necessarily in new digital tools, but making better what we already have. And there's an opportunity we have in doing better merchandiser -- merchandising, I'm sorry, better UX, better user experience. Those products we're offering make them more visible to our customers, especially in the booking flow and in the check-in flow. We're working on that and focusing on 3 things and 3 ancillary categories. Baggage, of course, upgrades to business class, and we're having a lot of success there. And also our premium economy cabin, which we call Economy Extra. We haven't given that enough visibility and there's nice upside there. So yes, that's where we're focusing, and we expect to continue increasing revenues in those categories. Operator: Our next question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: First one is just a follow-up on the competition. Pedro, you mentioned about Argentina being especially competitive and you also mentioned about Brazil, but which other regions do you see, let's say, higher-than-average competitive environment? And the second one, Pedro, you also mentioned about fuel being in the white card for 2026. Given that a potential environment, do you see Copa changed its hedging policy in some way? Pedro Heilbron: Okay. Yes. So yes, what I said in general terms is demand is healthy. It's growing at the pace of capacity in all of Latin America. So load factors are holding up well. I highlighted a few regions. Brazil got hit hard last year and at the beginning of this year because there was a sudden devaluation of the currency and a lot of capacity had come in because of that success, that was during the first half of 2024. Since the currency, and you know that very well, the currency has been stable, actually has improved since 12 months ago. And that market is coming back little by little. Less capacity has come in compared to the first half of last year. So we're seeing an improvement in our Brazil -- load factors and in our Brazil PRASM. So we're seeing improvement in those. And Q4 should be better in Q3 and Q3 was better in Q2. So it's going in the right direction. Not all the way back to where it was at the end of 2023, but it's in the right direction. And then Argentina has been booming, has been quite a market with all the economic changes that the new government has implemented in Argentina has been booming in general terms. The devaluation has been more predictable and not as significant as before. Inflation has been a lot more under control and traveling public in a country that loves to trouble -- loves to travel, it has been growing at a very strong pace. That has attracted a lot of capacity from us and from everyone. And when that happens, well, yield soften a little bit, but they're still very strong. And what I said is that we will not be growing so much in Argentina as we've done in the past, let's say, 12 months. And that's probably going to be the case with most other airlines serving the country. So it's going to stabilize, I would say. Guilherme Mendes: Pedro, maybe on the hedging policy? Pedro Heilbron: Oh, okay, the hedging policy. I forgot about hedging because we haven't done hedging in so long that it's -- yes, no, that's not going to change. What -- and usually the hedges -- many hedges are on WTI or Brent. And this what has shut up lately is the crack spread, so as jet fuel. And I don't know for how long that's going to happen and that's going to stay up there. So we're not planning to change our hedging strategy. We're happy with not hedging. It has worked well for us and it's going to remain that way. Operator: Our next question comes from the line of Savi Syth with Raymond James. Savanthi Syth: Just can I give an update on the densification plan, just how many aircraft are yet to go and just curious on how much of next year's unit costs might be driven by that and if there's anything kind of further that it will drive in '27? Peter Donkersloot Ponce: Yes. Thank you, Savi. We've done around half of the densification that we've planned to. And that was one additional row. So around 6 more seats per plane. We've done half of it. So around 25 of the -- let's call it, 50 that we said we were going to do, and we have another 25 left that we are planning to do during 2026. Savanthi Syth: Great. That's helpful. And just a clarification on the credit card benefit this quarter. Is that something that's just onetime this quarter? Or is that something that now is layered on and kind of continues going forward? Peter Donkersloot Ponce: So the -- again, on the credit card benefit, we saw 2 separate pieces and let's call it, to oversimplify half and half. Half is related to the extension of our agreement with Visa, and that is onetime every x amount of years. And then the other one is the growth of the program by itself, and that's the other half, and that's similar to what we saw in the second quarter, and that should be continued -- that growth should be continued and stable in that program. Operator: And our last question will come from the line of Jens Spiess with Morgan Stanley. Jens Spiess: Sorry, I joined late, so if you already answered this question, please disregard. I just wanted to get a sense of how much conservatism is built into your guidance. So backing out like fourth quarter at the midrange of your annual guidance for 2025, we get to an operating margin of around 22% and yields of 11.4%. So I just wanted to get a sense of how comfortable you feel with that number in the fourth quarter? And how much at the end, conservatism is built into it? Pedro Heilbron: So our hedging. Our fourth quarter 2025 guidance was narrowed down to between 22% and 23%, which was like the upper part of our previous guidance, which was 21% to 23%. And we're very comfortable with that range between 22% and 23%. Jens Spiess: All right. Perfect. And just in terms of yields, it does imply a deceleration of yields versus this third quarter. So I just wanted to get a sense of that and how you're looking into the next few quarters maybe? Pedro Heilbron: Yes, that question was asked before, and the response was that we do not guide a yield on a quarterly basis. Jens Spiess: Sorry, yes. I mean, looking at your RASM guidance for the full year, we are able to back out like the fourth quarter RASM, right, which does imply, I think, [ 11.4 ]? And does imply deceleration quarter-over-quarter. So I just want to get a sense of -- do you think there's potential upside to that or you feel quite comfortable with that number? Pedro Heilbron: I believe that our RASM guidance for the year is [ 11.2 ], and we haven't changed that guidance. Jens Spiess: Got it. So you feel comfortable with that guidance. All perfect. Operator: I would now like to hand the conference back over to Pedro Heilbron for closing remarks. Pedro Heilbron: Okay. Thank you all for your questions and for joining us today. We appreciate your continued interest and support. Of course, I look forward to seeing you in person at our Investor Day and answer even more questions. So as always, you can feel confident that we will keep working really hard to strengthen and develop our competitive advantage, and I'm confident we'll continue delivering very strong results in years to come. So thank you, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Magnera Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference being recorded. I would now like to turn the conference over to your speaker today, Robert Weilminster. Please go ahead. Robert Weilminster: Thank you, operator, and thank you, everyone, for joining Magnera's Fourth Fiscal Quarter 2025 Earnings Call. Joining me I have Magnera's Chief Executive Officer, Curt Begle; and Chief Financial Officer, Jim Till. Following our prepared remarks, we will have a question-and-answer session. To allow everyone the opportunity to participate we ask that you limit yourself to one question with a brief follow-up, then fall back into the queue for any additional questions. A few things to note before handing over the call on our website at magnera.com, you can find today's press release and earnings call presentation under Investor Relations. You can also go directly to ir.magnera.com to review the investor presentations from our recent conference attendance. As referenced on Slide 2, during the call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures in our earnings press release and in the appendix of the presentation available on our website. Additionally, a reminder that we will make certain forward-looking statements. These statements are made based upon management's expectations and beliefs concerning future events impacting the company therefore, are subject to risks and uncertainties. Actual results or outcomes may differ materially from those expressed or implied in our forward-looking statements. Some factors that could cause the results or outcomes to differ are in the company's latest SEC filings and our news releases. These statements speak only as of today, and we undertake no obligation to update them. I will now turn the call over to Magnera's CEO, Curt Bagle. Curtis Begle: Thank you, Robert. Good morning, and thank you for joining our call. I am pleased to present our fourth quarter results and discuss the significant progress achieved as we marked our first anniversary as Magnera. During this update, I would like to emphasize 3 key takeaways: First, our strategy to establish ourselves as a leader in advanced specialty materials is yielding positive results. Our global stature as an innovative organization with substantial scale and strategic geographic presence has enabled us to consistently succeed in the current bid cycle with top tier customers. We've been able to gain share in markets and product segments of our choosing. Second, the macroeconomic conditions across our operating regions remain challenging with a cautious outlook as we begin fiscal year 2026. Third, our focus remains on controllable factors. We have made measurable improvements in our synergy run rate performance and have already demonstrated substantial advancement with Project CORE introduced last quarter. The Magnera team delivered robust results to close the fiscal year, achieving $839 million in sales and adjusted EBITDA of $90 million for the quarter. For the full year, revenues reached $3.2 billion with an adjusted EBITDA standing at $362 million. We generated $126 million of free cash flow, representing a yield exceeding 30%. I wish to express my gratitude to our teams who have collaborated effectively, stabilized our organization, developed optimization plans and taken decisive actions positioning us for continued success. These financial outcomes were underpinned by several notable successes with our customers. In a subdued personal care market, we experienced ongoing product mix enhancements as consumers increasingly opted for premium softness and comfort. Our adult incontinence products experienced mid-single-digit growth through increased adoption rate and our customers increasingly seeking innovative features similar to those found in baby care items. Within consumer solutions, Increased demand for wipes and infrastructure contributed to our segment's portfolio increasing from 51% to 53% of our total revenue. Our consumer solutions portfolio utilization is tracking nicely with growth projects and targeted asset upgrades. Sales of infection prevention wipes rose 10% year-over-year, with balanced growth from both branded and private label customers. Demand for convenience surface cleaning and disinfecting remains strong across households and institutional use. Our strong positioning in cable wrap and specialty solutions has benefited from ongoing electrification and infrastructure growth worldwide. In response to growing sustainability requirements, we have provided advanced material solutions for wipes, tea and coffee filtration and compostable offerings for in-home and away from home usage. Looking forward to 2026, we anticipate an earnings improvement of approximately 9% and driven by synergy realization, project CORE initiatives and further advances in product mix and innovation. The company has successfully completed its stabilization phase following our formation and maintained uninterrupted delivery of premium products to our customers over the past year. Now entering the optimization phase of our transformation, we are cultivating an innovative culture aligned with our commitments to our customers. Our commercial teams have been integrated to ensure consistent service. Operational metrics and processes are being standardized and efficiency initiatives are underway throughout the organization. We continue to be action-oriented with our purpose, promise and beliefs providing our guiding compass. At this point, I will conclude opening remarks and invite Jim to provide a detailed overview of our financial performance. James Till: Thank you, Curt, and good morning, everyone. Before we dive into our results, I want to remind everyone that when we compare our performance to the prior quarter, all the prior period figures are adjusted on a constant currency basis to eliminate the impact of exchange rate fluctuations. Additionally, last year's results incorporate the full impact of the merger. For those interested in the details, the reconciliations between our adjusted and reported results are included in the appendix of today's presentation. Now turning to our financial results on Slide 9. We delivered performance that aligns with the expectations that we shared during the previous quarterly call. Volumes and earnings came in as anticipated, while cash flows exceeded our projections, reflecting the strong execution and discipline of our global teams. Our teams have done an exceptional job advancing synergy realization since the merger, implementing new robust cost reduction initiatives and optimizing our product mix capacity and allocations across the portfolio. During the quarter, these efforts helped offset softer baby demand in South America as well as general market softness in Europe. Despite the external challenges, adjusted EBITDA remained essentially flat for the quarter. Looking at the full year results, fiscal 2025 was a year of disciplined execution, strategic progress and solid cash generation. Our teams delivered strong operational performance, advanced merger synergies and maintained financial discipline. Free cash flow for the year exceeded the high end of our originally provided guidance range, reflecting an intense focus on CapEx and prudent working capital improvements. This strong cash generation is a testament to the dedication of our operational focus of our teams worldwide. Since the merger, we generated $126 million of free cash flow, representing a free cash flow yield of more than 30% relative to our year-end market capitalization. This performance has allowed us to strengthen our balance sheet and reduce our debt leverage to 3.8x at the end of the fourth quarter. We concluded the year with approximately $600 million of available liquidity, providing a solid financial foundation to support strategic investments, pursue growth opportunities and maintain flexibility in a dynamic market environment. Moving forward, we will continue to prioritize strengthening the balance sheet and maintaining operational agility. Moving on to my fourth quarter segment reviews, starting with Rest of World on Slide 10. Revenue declined 3% for the quarter as stronger performance in the select consumer solutions categories was offset by the pass-through of lower raw material costs and weaker consumption levels in Europe. Adjusted EBITDA for the segment increased $4 million, reflecting operational efficiencies, rigorous cost reduction programs and continued synergy benefits from the integration. These improvements underscore our resilience of our business model and effectiveness of our disciplined global operations. Turning to Americas on Slide 11. Revenues were down 9% for the quarter as a result of the pass-through of lower raw material costs and competitive pressures from imports in South America. For the full year, headwinds were partially offset by stronger demand in infrastructure and wipes end markets, which helped stabilize our overall annual results. Adjusted EBITDA in the Americas segment declined $5 million for the quarter, largely reflecting the volume and product mix challenges in South America. Despite the decline, we are confident that our ongoing improvement initiatives and synergy realization will support margin recovery in the coming quarters as operational excellence remains a central focus. Looking ahead to fiscal 2026. Our guidance assumptions are shown on Slide 12. At the $395 million midpoint, we are expecting EBITDA growth of approximately 9% year-over-year. This growth reflects continued synergy realization and ongoing benefits from Project CORE, including cost reductions and capacity rationalization. In terms of the free cash flow, we expect a range of $90 million to $110 million, including $80 million of capital investments which includes $10 million from the IT conversion related CapEx. This guidance reflects a prudent assessment of the near-term environment and a disciplined execution of our operational and financial strategies. This concludes my financial review, and I'll now turn it back over to Curt. Curtis Begle: Closing 2025, I'm pleased with the progress we made as a new company. We over-delivered on our free cash flow, delivered on our updated EBITDA guidance and CapEx commitments and strengthen our balance sheet. Looking forward to 2026, we are forecasting an increase in earnings as we continue to leverage our scale, unique value proposition and reliability to deliver for our stakeholders. We are confident in our ability to drive value creation through both EBITDA growth and robust free cash flow generation. Our priorities are clear: operational excellence; balance sheet strength; disciplined capital allocation and strategic investment in growth opportunities. These actions position us to continue building long-term shareholder value while maintaining flexibility in a dynamic global environment. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Richard Carlson with Wells Fargo. Richard Carlson: Congrats on the progress and happy anniversary. Curtis Begle: Thanks, Richard. Richard Carlson: So I actually have several questions, but I'll ask the first one, it's a big one and then I'll get back in the queue for the rest. But I just want to dig in a little bit more to EBITDA and some of the puts and takes. I think your range is plus 5% to plus 13%. So what are some of the moving parts there? What's maybe the underlying volume assumptions mix, price, things like that. And then it seems like -- and also a lot of this is from EBITDA margin expansion. So what's driving that, too? James Till: Thanks, Richard. Thanks for the questions. As we think about the guide for next year, the margin expansion is really -- the continued synergy realization that we've highlighted kind of throughout the year, it starts hitting more of a full run rate next year. So we've talked about kind of realizing 75% -- or 70% to 75% of the remaining outstanding unrealized synergies next year as well as Project CORE that we highlighted last quarter. So that will begin to ramp up here in the back half of Q1 and then we'll begin to get full realization in Q2, 3 and 4. So that's the lift on the EBITDA side in terms of margin expansion. In terms of the volumes, we're expecting sort of flattish for the overall business as we look at it today with some puts and takes between the regions. And that's really the driving factors. And so as you go to the bottom end of the range, the top end of the range, volume is going to be kind of the outstanding question for us and is the reason for the little bit wider range than you may expect. Curtis Begle: Yes. Richard, the other comment I would make is, we've highlighted in previous calls and commented again on this quarter, we'll be lapping some of the South America comes from prior year in the first 2 quarters. And so that's being offset by some of the positive signals of growth that we're seeing in the U.S. and a cautious outlook on Europe. Operator: Our next question comes from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. Thank you, and good morning, everyone. Curt, in listening to your prepared remarks, it sounds like you're having some success here in bid season. Can you just elaborate on where you're targeting share gains and having success and maybe just put that into the context of what you see unfolding mix-wise within the portfolio in '26. And the volume trends that you foresee globally? Curtis Begle: Yes. Thanks, Kevin. Appreciate you joining. As we've talked about historically, we had -- going into this year, obviously, there were contracts that we needed to see through and then we needed to understand from a cost profile and a differentiation, where we stood from an organization as we realized synergies and make sure that we were getting the value for the products that we were selling, also maximizing throughput and output on our most contemporary line. So as we've gone through the season, and we're probably 70% to 75% through. Typically, some of this carries into Q1 or Q2 of our fiscal year. We feel very good about how we position not only our ability to service our customers. As you can imagine, when there's a large combination of this size. One of the risks that a customer may see is how will they be treated and we'll be able to deliver for them with the quality and service that they deserve and expect. And I'm very proud of what the group has been able to accomplish. So that that certainly provided us with the right discussions at the highest levels inside of those organizations. And I will say that all of our customers are living in a very competitive environment as well. So finding ways to help them optimize their cost structure, but more importantly, provide some differentiated features through products such as lamination and some of our soft applications within the nonwoven segment, is really giving a good mix lift, particularly in our personal care side. We're seeing healthcare recover a little bit as well, which is a positive signal. And in some cases, seeing some growth in geographies that we hadn't historically looked at, and that's been a good job by our sales forces across the globe. And we look at consumer solutions, we comment on the fact that the mix of our portfolio is shifting from 51% to 53% in consumer solutions. As you look at -- it's difficult sometimes to see the forest through the trees. And so we try to really bucket those into major segments. We've talked about wipes. We have a great franchise inside of our consumer solutions space, both our own branded products for dry wipes that goes into institutional services and distribution channels with Sontara and Chicopee. But also, as you look at our broad portfolio globally within differentiated substrates inside of our portfolio, our spinlace technology continues to be preferred by the consumer and a great product and delivery for our customers as well as we round out with airlaid and spunlace technologies, which I think you have a little bit of an idea now that you've had a chance to visit 1 of the sites. So we're able to kind of capture general surface cleaning, general personal care cleaning and then also the institutional dry wipes goods. So we're excited about that. I talked about electrification initiatives. Our cable wrap business continues to build momentum through projects, green energy projects and high-voltage cable needs. That product line, and we believe, is, again, another great niche application where we have some unique value propositions there. And then on the infrastructure side, while you may see some softness in different parts of the world, the broad part of our portfolio is not just the building construction wrap, but in some of the other products that we've highlighted is a nice complement to those kind of total systems solutions for contractors and various distributors alike. So we continue to lean in on that front. And I don't want to be remiss if I didn't talk about some of the filtration projects we have, particularly in -- when you think about the beverage space, the 1 thing that we've really grown to appreciate over the past year is how significant and how trusted the sites that we had acquired are in that space, very high-quality demand, as you can expect. But more importantly, our ability to service and deliver for those customers is something that we really pride ourselves on and look to continue to improve in certain areas. And then there's demands on being on the front end of the ever change needs in the markets on compostable opportunities and addressing the customers' requirements from their ESG metrics, but more importantly, the safety and security of the products that they're putting in the market. Make no mistake across the board, we are -- we have to maintain the highest quality levels, highest service levels, not only who we do business with, but the applications, the end-use applications that we supply to. We are touching skin. We are in the operating room. We are protecting babies, adults, et cetera, and that's something that we take very seriously, but also something that, again, is a differentiation for us in a space that, again, can be competitive at times, but we are the trusted and reliable player in the geographies that we serve. Kevin McCarthy: Curt, my second question relates to free cash flow. I thought you did a nice job generating cash and deleveraging in the quarter. Specifically, can you unpack the forward-looking free cash flow range of $90 million to $110 million in 2026. Just looking for your thoughts on things like cash cost for integration and Project CORE, what you're baking in for working capital, cash taxes and other items you may care to call out? James Till: Sure. Thanks, Kevin. Absolutely. So when -- obviously, you start at the top of the house with the EBITDA. and then we've highlighted the $80 million of capital expenditures, which is $10 million of IT-related integration costs. On the integration and tax question, there's roughly $20 million of CORE, and then we have in the range of $30 million to $35 million for cash taxes. We've sort of highlighted that 10% to 11% of EBITDA, but we have some projects we think can offset that next year to help lower that number a little bit. And then the remaining is just our normal integration is we're in year 2 of a sort of a 3-year path. And so that -- the overall total of that category is roughly $80 million. And we highlighted that on Slide 12 to help you with the walks. Kevin McCarthy: Okay. And is working capital, Jim, expected to be smallish number? Or how would you characterize that? James Till: I apologize, right. In working capital, we assume flat. We have some items that were -- came in at the end of the quarter this year. There were onetime benefits. Roughly $10 million of that benefit will offset in next year. But we do have some items as we go off of legacy GLT terms, the remaining portion that should offset that. So we would assume flat for next year. Operator: Our next question comes from Roger Spitz with Bank of America. Roger Spitz: Maybe I missed it, but for fiscal 2025 overall, on a pro forma basis, what was the volume growth? Curtis Begle: Yes. Thanks, Roger. I think we finished right about 3% negative, 3.5%, and that was -- for the Americas, the decline was really because of the South America challenges that we have faced from a competitive standpoint. And then Europe was roughly 4%. So in total tonnage sold, right about the 3.5%, 4% negative for the year. Roger Spitz: Got it. And then for thinking about fiscal 2026, you're up 9% year-over-year. How should we think about the quarterly tempo of outperforming the 2025 fiscal quarters? Curtis Begle: Yes. So we don't provide quarterly details, but what I will tell you is we've highlighted, we are on a good trajectory into the synergy realization on the procurement side. I'm really proud of what the group had and the team has been able to do from offsetting the stand-alone costs from the SG&A front. We continue to make good progress from our overall BECCS programs inside of the facilities to offset other inflation. But Project CORE as we have communicated, will continue to ramp up throughout the year. We're going to see most of that benefit come in Q3, Q4, but we'll see that phased-in in a little bit of an impact this quarter and in Q2. So that's in terms of what we see, not a tremendous hockey stick going into next year. But in general, South America, the big kind of initial lap that we have for Q1, Q2 just because of the business that we were doing last year, and we've highlighted that in previous quarters, and that was -- those are the negotiations that are taking place right now. We feel like we're very well positioned going into 2026, back half of 2026 in particular. Operator: Our next question. Our next question comes from Edward Brucker with Barclays. Edward Brucker: congrats on the quarter. The first one, would you be able to just dive into the demand environment? It sounds like you're being cautious, which is prudent given what we've seen from a bunch of other packaging companies. But is it something where it's cyclical, where the consumer is just weaker right now and buying less product? Or do you think there's something more structural going on? Curtis Begle: Thanks for the question. I mean if you look at the portfolio that we have, these are products that are needed every day, essential goods and products, both on the disposal and durable side. Yes, we listen very intently and closely to our customers and even through various negotiations of what we can do to help them, not only secure business on the shelf, but find ways to cost reduce. So that comes from a number of different areas, whether it's new materials that we can provide, a new platform that we can run it on, but also down-gauging as they look for high-performance materials at lighter weight. So that's been a major point of emphasis. But in general, I would say that the European market is -- certainly has more caution to it based on what you're hearing, what everybody is talking up in the space. As we communicated before, we sell to both branded and private label. So again, as consumers make choices on the shelf, we're there. The 1 comment that I would make on the personal care front, there's always the concern about baby and whether birth rates are going to negatively impact this business long term. Fortunately for us, we highlighted at our adult incontinence products continue to really expand in terms of the acceptance rate and the need as aging populations are going on across the world. And when you talk about form, fit and function. That's a really important part of our developments with our customers, both from a discretion standpoint, but ultimately a performance standpoint. I could go into a number of different chemistries. We just reviewed some pH levels and helping to avoid rashes, things like that. But in terms of overall demand, I would say, consumption rates in various product lines, maybe a little bit softer in certain geographies with a little bit more positive demand than others, and we see that really by region. Even in the South American markets, where we've had more challenging run from import price pressure, which we've highlighted. What our customers have, I think, grown to appreciate is our ability to service them and be able to respond in very short order. And so we're there to service and take care of customers when they need us, but at the same time, making sure that we're getting the value for the products that we're manufacturing and selling. So in general, Asia, albeit small for us, pretty stable. Europe, definitely some concerns and that's why we provided some of that range. And then the Americas we'll see that. North America being positive and offset initially by some of the South America comps, but [ evening out ] throughout the year. Edward Brucker: Got it. That's helpful. And then the debt paydown on the term loan was a pleasant surprise. Would you be able to explain the rationale behind paying down that debt? And do you expect to use excess cash flow next year to do the same? Curtis Begle: Yes. Look, that was part of the capital allocation priorities that we've laid out, that we review with the Board every quarter. So that was just doing what we said we were going to do. At this point, we'll continue down that path with a focus on deleveraging and making sure that we're appropriately managing our cash and liquidity. As you can appreciate, working with our vendors and negotiating the best terms that we possibly can, the best prices we possibly can, proving that we have a very sound and solid liquidity and robust balance sheet. And so we'll continue to evaluate with our Board of Directors. But we believe that at this point, we'll continue down the path of the focus on deleveraging and debt reduction. Operator: our next question comes from Richard Carlson with Wells Fargo. Richard Carlson: Thanks for the follow-up. And actually, just piggybacking on that last question with the delevering. Of course, this is something you've been telling us that you plan on doing, but just wondering based on where your stock price has been recently, did the thought of spending that cash on repurchases come up at all or the thought of buying your debt in the open market? Curtis Begle: Richard, thanks for the question. As I mentioned, this is something that we have -- we review every quarter with our Board of Directors. And certainly, it's part of the conversation. But again, for us, we continue to believe that sticking to our original plan of debt reduction. As we talked about before, this is an opportunity for us to do what we say we're going to do and focus on the deleveraging portion. In terms of buying back debt. Again, I would say, I'm not really in a position to answer that other than I can fall back on the fact that we continue to keep all of those discussions in front of our Board of Directors and have robust dialogue each quarter. Richard Carlson: Understood. And then a couple of modeling questions, Jim. I think D&A was down quite a bit in the fourth quarter. How should we think about that? Is this a new run rate going forward? Or is that just some catch-up in the year? And then I don't think there is a share count in your press release. So is it safe to assume it was flat quarter-over-quarter? James Till: Yes. Share count was flat, correct on that. And then for the D&A guide, if you look at the year-to-date, there was some just purchase accounting finalization that got caught up for the year, as you highlighted. So I'd look at our year-to-date number as a better representative of the go forward. Richard Carlson: Got it. And then just 1 more if I could squeeze it in. CapEx is running in line with what you guys have been telling us for a year now. But I guess we're still just a little wondering if that 2% to 3% of sales, how long does that last? And are you able to properly capitalize the business at that level? I think there was a mention of eventually stepping that up a little bit. But I guess, maybe just remind us maybe from what you told us a year ago as far as how you see your CapEx projecting over a multiyear period? Curtis Begle: Yes. Thanks. Very good question. We -- again, coming into the combination of the 2 organizations, we had the opportunity to review and do a number of site visits. There was I think some expectation that plants or sites or lines were undercapitalized, and that certainly wasn't the case. We felt very comfortable coming into the year that we both had well-capitalized facility, capitalized businesses. And so the one thing that we'd be able to put into our overall spending discipline is a capital committee that we have internally, that review projects, both on stand-alone from an ROIC standpoint, but also our maintenance and our safety CapEx which I will tell you with 100% certainty, we've not sacrificed in any of those areas. So the normal maintenance PM programs, site maintenance, but more importantly, the safety guarding, et cetera, is the top priority. As you look at growth projects inside of the businesses as well, we have a large fleet of contemporary assets and also niche assets. And so our ability to upgrade some of those lines falls within the CapEx spend where we're not having to go out and buy a new line for $50 million or $90 million. We can take with what we have and provide that. The other thing that has been a really, really good work by the teams, understanding where we had like vendors or things such as belts on our lines that we process through every year from an expense standpoint, but also from spare parts on the capital side. So lining up vendors on that front, coordinating that with our procurement team and making sure that, again, offsetting that inflation that normally takes place. In equipment supply, the team has done an excellent job there. So in terms of the foreseeable future, as we've highlighted before, there will be a time that will pivot to large growth investments, new lines as the market warrants it and as we pick our places to put that capacity. But it goes back to our initiatives with Project CORE and prioritizing where we're going to spend that CapEx and where we have the greatest -- what business has the greatest right to win, opportunity to win and take care of our sites and ultimately, the safety of our employees. Operator: Our next question comes from Kevin McCarthy with Vertical Research. Kevin McCarthy: Appreciate you taking the follow-up. I was wondering if you could review and elaborate on the integration process? Maybe provide a little bit more color on what you've accomplished to date and what still lies ahead for fiscal '26 with regard to procurement, G&A and on the operational side as well? Any additional color there would be helpful. Curtis Begle: No. Thanks, Kevin. As we talked about early on, culture s a big thing, right, and putting organizations together and identifying the Magnera culture and then implementing that is a day-to-day job and making sure that we're touching and getting our 9,000 employees walking lockstep with us. So that journey will continue on and employee engagement is going to continue to be a main focus for us going into 2026 and beyond. But get good momentum from that front. Great work from the HR team on benefits and things like that as we peeled off of the need for some of the transition services agreement with Berry. The procurement team is well ahead from where we had anticipated. We've staffed that organization well with very key talent, done a fantastic job of really taking on the reins and going out and making sure that we're getting our best cost analysis and coordinating that with our innovation team. So good progress made there. And as I think we highlighted in the script or in the call, we're already seeing a little bit of that. We've experienced some of that procurement savings in Q4, a little bit in Q3. And that run rate coming into this year as part of our overall walk and range. So we continue to build momentum, and we continue to increase that pipeline. We're going to be moving away from, hey, this is synergy realization to just the savings programs and productivity savings that we look for every year. The one thing that I would say that, we've made also good progress on. It's just understanding and really putting together the right key operating metrics that we've populated throughout the organization. Some facilities are further along than others. And so as we're ramping them up and they're looking at the metrics that make the most sense for our business, that's been encouraging to see, again, the engagement, not only from the shop floor itself, but the entire team, especially when you can see some of the benefits of the run rate. Project CORE is certainly something that has a lot of attention on it internally. We review that quite frequently. And it does, as a reminder, it does impact all regions, the exception of Asia. And the purpose of that, again, from the capacity optimization standpoint is, the work that was done throughout this year, and we talked about the ability to cross qualify not only other raw materials with competing vendors, but more importantly, building flexibility in our network to be able to shift product from 1 asset, 1 site to another to make sure that we're getting the appropriate load that's a benefit to the customer, but it provides us with the lowest cost scenario. And as we continue to progress on the separation with the TSA needs, transition services agreement with Amkor, Berry Amcor now. We're going to be doing that through the systems changes throughout this year. And I would say that we're well ahead of schedule in terms of what our expectations were coming into the combination, and encouraged by what we've seen in -- over the course of the last month. Operator: I'm not showing any further questions at this time. I'd like to turn the call over to -- turn the call back to Curt Begle for any further remarks. Curtis Begle: We appreciate everybody joining the call today and your interest in Magnera. We continue to be very excited about the business, the future. And despite all the noise that goes on throughout the world, we're in a great position from having the best products and best capabilities to service not only our customers but the end consumers as we continue to protect the world. I look forward to speaking to many of you through our investment calls and investor calls as well as some of the investor conferences coming up. So everybody have a great day, and we look forward to connecting on our next quarter earnings call. Operator: Thank you. Ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources Fiscal 2025 Fourth Quarter and Year-End Financial Results Conference Call. [Operator Instructions]. Thank you. And I would now like to turn the conference over to Adam Prior, Director of Investor Relations. You may begin. Adam Prior: Thank you. Welcome to New Jersey Resources Fiscal 2025 Fourth Quarter and Year-End Conference Call and Webcast. I'm joined here today by Steve Westhoven, our President and CEO; Roberto Bel, our Senior Vice President and Chief Financial Officer; as well as other members of our senior management team. Certain statements in today's call contain estimates and other forward-looking statements within the meaning of the securities laws. We wish to caution listeners of this call that the current expectations, assumptions and beliefs forming the basis of our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to materially differ from our expectations as found on Slide 2. These items can also be found in the forward-looking statements section of yesterday's earnings release. Furnished on Form 8-K and in our most recent Forms 10-K and 10-Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We'll also be referring to certain non-GAAP financial measures such as net financial earnings or NFE. We believe that NFE net financial loss utility gross margin, financial margin, adjusted funds from operations and adjusted debt provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in Item 7 of our 10-K. The plan for today's presentation are available on our website and were furnished on our Form 8-K filed yesterday. Steve will start with this year's highlights and a business unit overview beginning on Slide 5. Roberto will then review our financial results. Then we will open it up for your questions. With that said, I will turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve. Stephen D. Westhoven: Thanks, Adam, and good morning, everyone. I hope you all had a chance to review our earnings materials, which include detailed disclosures on our growth prospects. I wanted to start by discussing a few highlights. We delivered excellent results in fiscal 2025, driven by strong execution and performance. For the fifth year in a row, we exceeded initial earnings guidance and long-term growth targets. After a successful 2025, there are a few key themes as we look ahead for fiscal 2026 and beyond. First, consistency and execution. We're guiding to NFEPS of $3.03 to $3.18 per share in fiscal 2026. The range is consistent with our long-term 7% to 9% growth rate, while leaving additional room for upside. Second, targeted capital deployment. We expect to invest roughly $5 billion over the next 5 years across the whole company with roughly 60% allocated to our utility New Jersey Natural Gas. To put the $5 billion in the context, this represents a 40% increase compared to the CapEx spend over the last 5 years. Third, a healthy balance sheet anchored and disciplined financial management. We expect credit metrics to remain strong with healthy cash flows, ample liquidity and a balanced debt maturity profile that supports long-term stability. Importantly, NJR requires no block equity issuance to execute on its capital plan. On the next slide, we highlight a few of the key drivers of our business segments. To begin, New Jersey Natural Gas is positioned for high single-digit rate base growth through 2030. S&T is expected to more than double net financial earnings by 2027, driven by favorable recontracting of both Adelphia and Leaf River. Looking ahead, we recently filed with FERC, a plan to increase working gas capacity by over 70% at Leaf River. And in Clean Energy Ventures, we expect to expand capacity by more than 50% over the next 2 years with a robust pipeline of safe harbor projects. In short, through a disciplined capital investment strategy, we have visibility to deliver sustainable growth well into the future, supported by a solid balance sheet. And we are able to achieve all this with minimal dilution to shareholders. Let me turn to a brief discussion of each business units, starting with the New Jersey Natural Gas on Slide 7. Our planned investments at New Jersey Natural Gas are expected to drive high single-digit rate base growth through 2030. The New Jersey Natural Gas operates within a constructive utility framework and continues to make responsible investments in safety and reliability while prioritizing affordability for our customers. Natural gas is by far the cheapest option for customers to eat their home. Energy efficiency programs such as SAVEGREEN further reduce usage and costs while aligning with environmental goals. For example, residential customers who fully participate in say agreeing a whole home offerings see a reduction of up to 30% in their energy usage, saving hundreds of dollars in utility costs every year. Moving to the next slide. Storage & Transportation is emerging as a key earnings growth driver for NJR. Over the next 2 years, we expect NFE to more than double at S&T, and this is largely driven by strong recontracting in both the Adelphia and Leaf River. These are fixed-price contracts with quality and creditworthy counterparties. When we recently reached a settlement in our FERC rate case Philadelphia, this constructive outcome enables recovery of the substantial investments and operational improvements made in recent years. While near-term earnings are set to double, we are actively pursuing organic growth opportunities for additional upside of Leaf River, which we outlined on the next slide. When we acquired Leaf River in 2019, we positioned NJR as a leading service provider in the Gulf Coast, one of the highest growing energy demand centers in the United States. In addition to the prime location, the long-term value of the asset was enhanced by expansion options beyond the three existing operating taverns. Since our purchase of the asset, market demand has strengthened. Throughout fiscal 2025, we conducted a number of nonbinding open seasons, which confirmed the high level of commercial interest and capacity expansion. Following this favorable response we filed a FERC application at the end of October that included several complementary investments to increase Leaf River's working gas capacity by over 70%. They include the expansion of our existing caverns to working gas capacity of 43 Bcf by 2028, and the development of an additional for cabin that will bring total capacity to 55 Bcf. Each phase of the investment is expected to be backed by long-term fee-based contracts, building on our already strong entity growth. This phased approach has an inherent speed to market advantage that positions NJR ahead of greenfield development options. To conclude, we see considerable upside in both the near and long term as S&T becomes a greater contributor to NJR's earnings profile. Moving to Clean Energy Ventures on Slide 10, we expect to grow in service capacity by more than 50% over the next 2 years. Looking ahead, we have a strong project pipeline designed to maintain investment tax credits through strategic safe harboring. This position CEV to deliver continued growth in high single-digit unlevered returns. So with that, I'll turn the call over to Roberto for a financial review. Roberto? Roberto Bel: Thanks, Steve. Fiscal 2025 was an excellent year with strong even growth, a solid balance sheet and continued investment across our businesses. Slide 12 highlights a few fiscal 2025 accomplishments. New Jersey Natural Gas achieved a constructive outcome in its recent rate case and deliver record investments for Leaf Green. Clean Energy Ventures added record new capacity. In fiscal 2025, CV placed 93 megawatts of new commercial solar capacity into service, expanding our portfolio to 479 megawatts. In addition, CD secured investment options for years to come through effective safe harboring. In Storage & Transportation, Adelphia received approval settlement on its third rate case we levering our advanced expansion initiatives. Energy Services achieved strong cash flow generation and our Home Services business was named a road top 20 ProPartner for the ninth consecutive year. We also marked an important milestone, 30 consecutive years of dividend increases and reporting confidence in our long-term plan. On the next slide, we finished the year at the top end of our guidance range, which was raised earlier this year. We deliver financial results ahead of expectations, roughly 2/3 of total EPS came from the utility. And when you exclude the net impact of the sale of our residential solar assets, that figure raises over 70% underscoring the stability of our earnings. Drivers of our performance include the completion of our rate case and a record year of saving investment. Additional drivers include approximately $0.30 per share from the sale of our initial solar portfolio, improved performance from our storage and transportation business and a solid winter results from Energy Services. Moving to a discussion of CapEx on Slide 14. We deployed $850 million across our businesses, which I'll highlight in the next few slides. On Slide 15, New Jersey Natural Gas represented approximately 64% of total CapEx with investments directed towards strengthening core infrastructure, enhancing system safety and reliability and supporting customer growth. Almost half of these investments are recovered with minimal lag. As shown on Slide 16, fiscal 2025 CapEx for CV came in well above expectations, reflecting accelerated progress. Importantly, our capital deployment target is fully safe harbor securing tax benefit for future capital expenditures. Building on this from 2025, I wanted to shift our CapEx outlook on Slide 17. We're sharing a 5-year CapEx outlook of $4.8 billion to $5.2 billion through fiscal 2030. This represents a 40% increase over the previous 5 years of capital spending across our businesses. We expect that more than 60% of our total projected CapEx will be dedicated to the utility with CV and S&P representing the balance. Together, these investments support our 7% to 9% long-term NFEPS growth target while maintaining a solid balance sheet as discussed in the next slide. Strong cash generation across our businesses translate into an adjusted FFO to adjusted debt ratio that is projected to remain at around 20% for the next 5 years with no block equity needed. Additionally, ample liquidity and a well laser debt maturity profile minimize near-term refinancing risk and preserve financial flexibility. And finally, we're initiating fiscal 2026 and EPS guidance with a range of $3.03 to $3.18 per share. The range is consistent with our long-term 7% to 9% growth rate, while leaving additional room for upside. The utility is expected to contribute approximately 70% of fiscal 2026 in the CPS complemented by earnings growth from CB and S&P and a baseline outlook for Energy Services. With that, I'll turn it back to Steve for concluding remarks on Slide 21. Stephen D. Westhoven: Thanks, Roberto. Over the last 25 years, we've delivered industry-leading returns, reflecting both the quality of our utility investments and disciplined contributions from our nonutility businesses. While our infrastructure investments have been the foundation of this performance energy services that complement that strength, enhancing consolidated returns and providing flexibility to reinvest in our infrastructure businesses. To recap fiscal 2025 was another year of solid execution, marking 5 consecutive years of exceeding initial earnings expectations. Our long-term growth remains anchored by our regulated utility with clear visibility into capital spending at New Jersey Natural Gas. Storage and Transportation is set for accelerated growth with earnings expected to more than double in the near term before we even begin to factor in those capacity expansions we highlighted earlier. Over the next 2 years, Clean Energy Ventures expects a 50% increase in installed capacity, and our project pipeline is secured into the future through proactive safe harboring. As they are today stands as a balanced diversified energy infrastructure company built for long-term stability and value creation. The outlook for fiscal 2026 and beyond is clear, well-funded and utility anchored. As we all know, New Jersey recently had a gubernatorial election electricity prices and affordability issues were front and center. We understand the challenges this data is facing today, and we look forward to working with you coming governor to meet your call for swift deployment of clean energy solutions and to continue providing affordable natural gas service to families and businesses. And finally, a sincere thank you to all NJR employees for your dedication and hard work throughout the past year. Your commitment is the foundation for our continued success. So with that, let's open the line for questions. Operator: [Operator Instructions]. And our first question comes from the line of Gabe Moreen with Mizuho. Gabriel Moreen: Good morning, everyone. Just a question maybe to start off on S&T here and Leaf River. It seems like a lot of positive developments. One, can you just talk about contract renegotiations and the extent to which, at this point, maybe all the original contracts have rolled over on a remarketed or resigned at market rates at this point? Or is there still more to go on that front in the years ahead? And then secondly, around the FID of some of the bigger expansions that you may be looking at, can you just talk about potential timing for FID-ing those projects given the customer interest that you've seen in some of the nonbinding open seasons? Stephen D. Westhoven: Yes, sure. So talking about the contracts the contract tenure at Leaf River, they've got various terms. So we've always got contracts that are coming on and off. I would say there's probably a bias towards the longer-term contracts currently. And certainly, the way the market is moving, any contract that you're signed enough for in the future is higher than ones in the past. Remember, when we purchased that deal, the average contract rate was probably about $0.09 a dekatherm per month. We're now up to almost $0.20 dekatherm per month on average. So big contract upgrade there. And that's really driving the doubling of the net from S&T over the next few years. And then moving forward, further constructive story, the open season provided for about 3x the amount of capacity that we had available. And if you look at the first filing we've got a few stages or phases of investment and expansion at that facility. I would say that before we make any investment, we've got contracts to back it. That's something we've talked about for a long time and we're not going to deviate from that. So we've got signed contracts in certain really quite a bit of clarity on where the revenues are coming to support those investments. So you can make that assumption moving forward. So as we make these investments, first two, we've got a expansion of the compressor station. We've got the enlargement of some of the existing facilities those -- we're starting to spend money and put this in motion. You can see this in our capital plan moving forward. Those are going to lead really nicely into a fourth cavern expansion in the out years, we'll make that idea as we get closer to that. But like we said, the open season certainly supports it, and it's very instructive for that business moving forward. Gabriel Moreen: And maybe if I can turn to CV, and I think a little bit more confidence in terms of the growth outlook there. Can you just talk about has anything shifted on the ground in terms of your ability to start construction, how much of the 50% increase here has actually started construction or waiting on interconnects and why you think you may be past some of the delays, I think that you may have seen in the past at this segment? Stephen D. Westhoven: Yes, we certainly have spent quite a bit of money. As you can imagine, the construction cycles are a little bit longer and they go across fiscal years. So we're spending money now for products that are going to be coming into service in the next fiscal year and then the fiscal year afterwards. When we talked about in the last call, we've safe harbor a little bit of projects, a large amount of megawatts. So we've got great options moving forward. I think the other thing to consider as well is that the capacity electric capacity shortfall, the State of New Jersey and PJM the quickest way to bring capacity to the market? Are those projects that are shovel-ready and we have a number of those. So we feel well positioned going forward. That combined with the fact that we've got mature positions within the PJM as well. So everything is moving forward. We've got a good position, a great number of options. And you can see by our capital plan and the extension of that capital plan out 5 years, the confidence that we have in our investments moving forward. Operator: And our next question comes from the line of Jamieson Ward with Jefferies. Jamieson Ward: Congrats on another strong result, and thanks for the extra visibility with the 5-year look on CapEx and on CEV, which I'll maybe build on Gabe's question here. With the favorable treasury guidelines and then, of course, all the planned investment in safe harbor, what's the realistic deployment time line. It's probably the most common inbound question we get. But as we think about that pipeline, how should we model the earnings cadence? Stephen D. Westhoven: So for the investments, we've got the capital plan that we put out there. Certainly, I just talked about it with Gabe from a policy perspective, we believe that there's going to be a lot of pressure to add as much capacity as great as possible, and that's favorable for our business. If you look at the amount of safe harbor projects we have especially over the next 2 years, we've got projects that are safe harbor that are far in excess of what we need in our capital plan. So you've got some ability to accelerate that. But the capital plan that we have is the most accurate picture of what we're going to be able to achieve. And I think looking at that, you can take your guidance from there. Jamieson Ward: That's terrific. I'll skip S&P because it was a very thorough answer before. I'll just ask one more quick one on CEV and then on the overall plan. So as we think about SREs, TREs, et cetera, what's the weighted average contract life? How should we be thinking about the time frame. That's the second most common question we get and it's CEV related. I think you're going to find a lot less questions after this deck. So thanks for all the information. But I'll just ask that one. Stephen D. Westhoven: So you say from a time-related perspective, the amount of time allotted into kind of TREs and SREs and how long they live? What's the -- I'm trying to get to the specifics of what you're asking. Jamieson Ward: Yes. So just at a high level, so we modeled like roll off over the next few years. And the question that we get is just how confident are you in basically the numbers that you've got there. So just looking for a very high level, just a weighted average life remaining, right? Because, of course, the strike sort of trimmed down or tailored down over the last few years, and you're going to have SMT, which you were speaking to earlier. Obviously doubling and picking up a lot of that lag there. So just a quick question on that and then one on the overall 2030 CapEx plan. Stephen D. Westhoven: So I'll talk about solar just from a kind of a broader perspective. We just talked about it was the quickest way to bring capacity to the market, and you can see the capital that we're able to deploy over the next 2 years being significant and potentially maybe be able to accelerate with certain policy adjustments. The process that we have, we've got the schedule for TRECs, SRECs, everybody knows the longevity of those I would also add that as infrastructure becomes harder to build in each of these facilities you've got the ability to repower or put in battery. You've already got an interconnect that's there as well. You've got kind of increases in Class 1 RECs that have been having over time. So speaking to just the long-term value of these facilities. As we need more capacity, it's not going to be constructive to retire capacity. So there's going to be some expectation that you continue to operate these facilities and moving forward? And then how do you make improvements in them as well. So we really view this as a long-term business, one that's supportive of the growing energy need that is certainly in the east, but over the entire U.S. as well. And you're going to see us looking to enhance whatever we can do with these facilities move forward, just like you'd expect, organic growth is important to us and how do we organically improve and grow those facilities as well. So hopefully, that answers your kind of long-term view of how we're how we're thinking about these assets. Jamieson Ward: Actually, that's terrific. I think actually, I'm good on the 4.8% to 5.2% through 2030 as well as I go through here. I was going to ask one on affordability, but saw your slides towards the end of the deck in the appendix there. You want to throw it down because that's the other -- as a final question. It's the other one we get, of course, just given everything in New Jersey, you spoke to it in the prepared remarks, you've got some great slides here, but anything else you'd want to add as we think about the next rate case. Of course, we just got new rates November of '24. But as we look ahead, how should we think about your affordability efforts in New Jersey specifically. And that's it for me. Stephen D. Westhoven: Thanks, Jamieson. So natural gas is the cheapest way that you can keep your home in business. So we like our position when the affordability conversation comes up. And like I said in the presentation, we've got energy efficiency programs and SAVEGREEN, we're able to save customers' money as well. And we look forward to working with the new administration and seeing ways that we can keep the affordability story going from our company and helping our customers reduce costs as much as possible. Operator: And our next question comes from the line of Eli Jossen with JPMorgan. Elias Jossen: Just wanted to start on the EPS growth outlook. Seeing some kind of drivers within the Leaf River storage capacity and overall S&T earnings upside. Are there any kind of headwinds elsewhere in the business to keep the growth rate largely the same possible decline in CEV contributions? Or can you just kind of frame tailwinds and headwinds for the overall range? Stephen D. Westhoven: Yes. I'd say that we're an energy infrastructure energy services company, and this country needs more energy. So we're going to make investments in order to grow that. And you can see that reflected in our capital. So it's all positive at this point. And we're at this point, just looking to execute on that plan in order to increase our earnings going forward. So confident in all those things. Elias Jossen: Got it. Maybe just to frame it differently. Is there sort of material upside from this S&T business within the growth range should you execute on some of the projects that you outlined? Stephen D. Westhoven: I mean there's always upside in our business. We're the same business that we were last year and the year before, and we've always been able to grab some upside in these markets. We certainly kind of normalize our expectations on basis, there's an ability to accelerate any of these infrastructure projects given the right policy initiatives. So there's always an ability to upside, but we put together a plan that we believe is executable. And we hope for the best. So hopefully, some of those things will come through, and we'll be able to execute maybe more quickly. Operator: [Operator Instructions]. The next question comes from the line of Travis Miller with Morningstar. Travis Miller: Kind of a combined question here on Slides 8 and 9. How much of that increase from fiscal 2025 to '27 on 8? Is the Adelphia rate case versus the recontracting and leaf River and then going to Slide 9, is that capacity expansion trajectory also earnings trajectory I guess the crux in both of those is the recontracting element. So first, that split between Adelphia rate case and the recontracting. And then is the recontracting and extra above that capacity addition. That makes sense? Stephen D. Westhoven: But there's probably more coming on Leaf River recontracting at sectors numbers. But the bottom line is that for existing assets and no capital investment we've been able to double the earnings coming from those assets, and that's really driven by better contracts, higher contracts coming from the customers. So great story. As far as looking at your forward growth opportunities, you're stating the beginning of expansion at Leaf River. We didn't talk about it, but you still got the ability to expand a little bit at Adelphia Gateway and add more customers in that pipeline as well. So depending on how far this market goes, and I believe it is going to go forward is going to need more and more energy and expansion of organic infrastructure. It's hard to determine where it will stop, right. But certainly, because we've got existing assets, we're able to expand that, and we're also able to make the investments that you see, at least in the short term. And then I would guess it is going to continue in the longer term as well. Travis Miller: Okay. Is that recontracting assumption based on today's rate at $0.27 -- at $0.20 dekatherm that you mentioned? Or is there another assumption you're making on the recontract? Stephen D. Westhoven: Yes. It's not assumption, Travis. These are contracts that we have in hand. So these aren't estimates of what forward value are. These are contracts that we've got signed in our hands and are driving our earnings over the next 2 years in that business unit. Travis Miller: The one high-level question. With all the CapEx you have and obviously the Leaf River, et cetera, how much capacity might you have to do more M&A in organic growth, either logistical, operational or financial. Stephen D. Westhoven: Yes. I mean we're always looking to kind of bolt-on acquisitions and things in happen or assets that are available. we're building these businesses. So if something comes along and it happens to fit and fits organically, we would take a look at it. So we've got the capacity on our balance sheet, and we like these businesses, the infrastructure business. So we'll continue to pursue it like we have in the past. Operator: And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back over to Adam Prior for closing remarks. Adam Prior: Thanks, Abby, and I'd like to thank all of you for joining us. As always, we appreciate your interest and investment in NJR and we look forward to talking to all of you at Utility Week in a couple of weeks, and thanks so much. Have a good rest of your day Operator: And this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Welcome to the Liquidity Services, Inc. Fourth Quarter of Fiscal Year 2025 Financial Results Conference Call. My name is Liz, and I will be your operator for today's call. Please note that this conference call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Michael Patrick, the services vice president and controller. Michael Patrick: Good morning. On the call today are William Angrick, our Chairman and Chief Executive Officer, and Jorge Celaya, our Executive Vice President and Chief Financial Officer. They will be available for questions after their prepared remarks. The following discussion and responses to your question reflect management's views as of today, November 20, 2025, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in filings with the SEC, including our most recent annual report on Form 10-Ks. As you listen to today's call, please have the press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, management will discuss certain non-GAAP financial measures. In our press release and filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including the reconciliations of these measures with their most comparable GAAP measures. Management also uses certain supplemental operating data as a measure of certain components of operating performance, which we also believe is useful for management and investors. This supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results. At this time, I will turn the presentation over to our Chairman and CEO, William Angrick. William Angrick: Good morning, and welcome to our Q4 earnings call. I will review our Q4 performance and the progress of our business segments. Next, Jorge Celaya will provide more details on the quarter. Our outstanding Q4 results reflect the depth, scale, and liquidity of our proprietary e-commerce marketplaces, value-added software solutions, and our team's customer-focused culture. Our ability to connect buyers and sellers in the circular economy across hundreds of diverse categories, ranging from multimillion-dollar industrial and construction assets to vehicles and retail consumer goods, is a key competitive advantage and positions us well in any economic climate. We continue to expand and enhance our capabilities, including our recent integration of a new payment solution to improve the buyer experience and operational efficiency of our marketplaces. Our growth in Q4 reflects the strong operational execution of our RISE strategy, as GMV, adjusted EBITDA, and our adjusted EPS grew 12%, 28%, and 16% year over year, respectively, all above our guidance range. Our Q4 adjusted EBITDA margins as a percentage of direct profit grew over 310 basis points over the prior year to 32.8%, reflecting a continued mix shift to higher-margin consignment and software solutions and the operating leverage of our technology platform. For the full year fiscal 2025, Liquidity Services made strong financial and strategic gains, and we see a clear path to our midterm goals of $2 billion in annual GMV and $100 million of annual adjusted EBITDA. Let me now cover some of the key highlights from our fiscal year 2025. We achieved a record $1.57 billion in GMV in fiscal 2025, eclipsing the $1.5 billion GMV milestone for the first time and achieved revenues of nearly $477 million, up 31% year over year. We achieved these marks with an increasingly diversified business as every Liquidity Services business segment grew both its top and bottom line during the year. Our strategy has prioritized low-touch consignment services and software solutions with recurring revenue characteristics that are creating substantial value for customers within a $100 billion-plus GMV market opportunity across the government, industrial, and retail sectors. Second, we generated strong profitability and free cash flow during fiscal 2025 with adjusted EBITDA of $60.8 million, up 25% year over year, our highest EBITDA in eleven years. Our asset-light business model and operational efficiencies, including the increasing use of AI-assisted technologies, allowed us to generate $59 million of free cash flow during the year, providing strong flexibility to execute our strategic plan. Our buyer base and liquidity continue to be a strong competitive advantage for Liquidity Services, and during fiscal 2025, we eclipsed 6 million registered buyers for the first time on our platform and set a new record of 4.1 million auction participants on our platform. We continued our expansion and diversification of our GovDeals segment during the year, which achieved a record $903 million of GMV, up 8% over the year, eclipsing the $900 million GMV threshold for the first time, driven by consistent growth in the number of new sellers, active sellers, and record vehicle and equipment sales volumes. We have further segmented our North American territories, identified government-adjacent markets, and added capacity to our GovDeals sales organization to drive further growth. We also continue to expand our CAG heavy equipment fleet category during fiscal 2025, which grew GMV 35% organically during the year. Our strong buyer base, sell-in-place service model, and user-friendly experience have allowed us to develop and grow relationships with national equipment fleet owners with recurring sales volumes. This has propelled this category from zero a few years ago to a run rate of more than $100 million of GMV, resulting in higher and more consistent growth and profitability within our CAG segment. Our retail segment grew GMV 30% year over year by securing new recurring program flows from existing and new clients and leveraging the strength of our multichannel buyer base and agile operating footprint. Additionally, we recently launched our new localized consumer auction channel, RetailRush, to drive higher recovery for our clients and value for consumers. We also further scaled our Machinio classified and dealer management software business in fiscal 2025. In addition to achieving record revenue and EBITDA during the year, our Machinio segment has expanded our Machinio sales capacity and developed platform innovations to target new growth opportunities within the heavy equipment, marine, and service industries. We completed the purchase of auction software in January 2025 to expand our software development capacity to grow our SaaS offering with existing and new customers and to provide a platform for the launch of our new consumer online auction channel, RetailRush. We are excited by the opportunity to accelerate and expand our innovations in the circular economy with our new auction software team and technology platform, which anchors our new software solutions business segment. During fiscal 2025, we continued to advance our Liquidity Services product roadmap with several innovations. For example, we deployed our new seller asset management or SAM tool in Canada on our GovDeals and AllSurplus marketplaces. The new SAM tool incorporates mobile responsive design templates, AI-assisted listening tools, and asset verification tools to enhance the speed and quality of our customers' daily usage on our platform. We are well underway in rolling these new tools out in the US market to our over 15,000 sellers. During fiscal 2025, we also deployed new payment processing capabilities as a value-added service. We expect this to improve the convenience and choices of payment for our buyers, but also to enhance our margins over time. Finally, we have benefited during fiscal 2025 from strong employee engagement, collaboration, and recruiting new talent this past year. Our human resources team sourced 51 management and functional support new hires during the year, and for the first time in our history, did so without using external recruiting agencies. Nearly 20% of our total new hires have been referrals from existing Liquidity Services team members, reflecting the pride we have within our organization. In summary, our role as the leading global provider of e-commerce marketplaces and software solutions powering the circular economy is a strongly differentiated valuable business. Our resilient, diversified platform provides stability for our customers and investors alike amid ongoing economic uncertainty. With our proven service offerings and continued investment in innovation, we are uniquely equipped to empower our buyers and sellers and drive sustainable long-term growth in the large and fragmented circular economy market. With over $186 million of cash on our balance sheet and zero debt, we continue to evaluate M&A opportunities in the large fragmented circular economy market that is still early on in digital transformation. I will now turn it over to Jorge Celaya for more details on the quarter and business outlook. Jorge Celaya: Good morning. For the full year fiscal year 2025, we surpassed $1.5 billion of GMV, setting a new annual record. We exceeded our rule of 40 goal with solid double-digit top-line growth and strong adjusted EBITDA growth of 25% to $61 million, the highest profitability in over a decade. And on the heels of the past four years, where we consistently grew adjusted EBITDA steadily from $43 million to $48 million, fiscal year 2025 reflected our capacity for operating leverage with our resilient diversified business model that delivered the $61 million this year in adjusted EBITDA, which was a 300 basis point improvement in our adjusted EBITDA margin as a percent of our segment's direct profit. Our cash flow performance also remained strong, generating $66.8 million in operating cash flow and achieving significant free cash flow conversion, which on average over the last five years has exceeded 100% where free cash flow is operating cash flow less CapEx. Our business model is focused on key financial objectives, including growing our segment's direct profit, a metric that serves to equalize the effect of growing consignment versus purchased GMV streams. We therefore also focus on adjusted EBITDA as a percent of our segment's direct profit. Consistently serving our customers with reliability while providing technology-enabled solutions and seller access to our significant buyer base globally has enabled our market share gains. Investing in our marketplaces and embedding leading technologies into our platform, including AI enhancements, reflects our commitment as industry leaders. Our fiscal year 2025 financial results are highlighted by strong year-over-year growth across each of our key metrics. Our consolidated GMV increased 15% and revenue grew 31% to $476.7 million, reflecting the significant purchase volumes in our retail segment earlier in the year. Our segment's direct profit in total grew 13% year over year. GAAP net income of $28.1 million increased 41%, resulting in earnings per share of $0.87 for fiscal year 2025. On a non-GAAP adjusted basis, earnings per share for the year was $1.28. Our effective tax rate for the fiscal year 2025 was 28.8%, and we spent $7.8 million in CapEx for the year. Our non-GAAP adjusted EBITDA was $60.8 million, up 25% versus the prior year. Our fiscal year 2025 was capped by a very strong fourth quarter, led by our GovDeals and Retail segments. While for this fourth quarter, the Retail segment's revenue was down sequentially from the fiscal third quarter, from lower purchase volumes which we guided to at the end of last quarter, GMV was sequentially up and the segment's direct profit and overall profitability also improved. Our consolidated results for our 2025 include GMV of $404.5 million, up 12%, revenue of $118.1 million, up 10%, resulting in a revenue to GMV ratio of 29% for the quarter with a lower mix of purchase flows in retail during the second half of the quarter. Our GAAP earnings per share was $0.24, up 20%. Our non-GAAP adjusted earnings per share was $0.37, up 16%. And our non-GAAP adjusted EBITDA was $18.5 million, up 28%. During the fiscal fourth quarter, we generated $38 million in cash flows from operations, conducted $16.1 million of share repurchases, and ended the quarter with $185.8 million in cash, cash equivalents, and short-term investments. We continue to have zero debt, and we have $26 million of available borrowing capacity under our credit facility. At the end of the quarter, we had $1.5 million of authorization remaining to perform share repurchases, and we have since received authorization from our board for an additional $15 million. Specifically comparing segment results from this fiscal fourth quarter to the same quarter last year, our GovDeals segment's GMV was up 12%, revenue up 17%, and direct profit up 19%, driven by high dollar value asset sales. The GovDeals segment direct profit of $22.3 million set a new quarterly record. The Retail segment was up 8% on GMV, up 6% on revenue, growing consignment programs, which offset the anticipated lower purchase volumes. Retail direct profit increased 19%, also setting a new quarterly record of $20.3 million, reflecting improved recovery rates on select purchase model programs, the mix and flows, and lower transaction processing. Machinio and software solutions combined to increase revenue by 29% and direct profit by 24%, driven by increased Machinio subscriptions and pricing for its services and the new software solutions business, which offers online auction solutions under our SaaS model. Moving to our outlook for 2026, our guidance range includes double-digit year-over-year growth in our profitability metrics, driven by the continuation of our recent higher-margin business mix combined with operational discipline. Despite last year's fiscal first quarter consolidated GMV and revenue growing 26% and 72%, respectively, GovDeals, CAG, and the Machinio and Software Solutions segments are expected to continue to reflect top-line growth year over year. While comparatively lower expected inventory purchase by our retail or RSCG segment may result in tempered year-over-year consolidated GMV and revenue, however, retail is expected to reflect higher segment direct profit margins and improved overall profitability compared to the fiscal first quarter of last year. On a consolidated basis, consignment GMV is expected to continue to be in the low 80s as a percent of total GMV. Consolidated revenue as a percent of GMV is expected to be slightly below 30%. And the total of our segment direct profits as a percent of consolidated revenue is expected to again be in the mid to high 40% range. These ratios can vary based on overall business mix, including asset categories in any given period. We will continue to focus on growth in our segment direct profits and our adjusted EBITDA, targeting our Rule of 40 through optimizing product and service mix and long-term operating leverage to improve margins and maintain strong cash conversion. Our business model is focused on our financial objectives while we emphasize serving our customers with reliability and innovation, enabling market share gains with technology-enabled services. Management guidance for 2026 is as follows: We expect GMV to range from $370 million to $405 million. GAAP net income is expected to range from $5 million to $8 million, with corresponding GAAP diluted earnings per share ranging from $0.15 to $0.25 per share. Non-GAAP adjusted diluted earnings per share is estimated in the range of $0.25 to $0.35 per share. We estimate non-GAAP adjusted EBITDA to range from $13.5 million to $16.5 million. The GAAP and non-GAAP earnings per share guidance assumes that our effective tax rate will be similar to fiscal year 2025 and that we have approximately 32.5 million to 33 million fully diluted weighted average shares outstanding for 2026. We expect CapEx will remain consistent with our recent levels of approximately $2 million per quarter, and our free cash flow conversion to remain in line with historical patterns. As has been our typical seasonal pattern, we expect the fiscal second half of the fiscal year to show higher GMV and higher profitability than our first half of the fiscal year. Thank you, and we will now take your questions. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press 11 on your touch-tone phone. If you wish to be removed from the queue, please press 11 again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Gary Prestopino from Barrington is on the line with a question. Gary Prestopino: Good morning, William and Jorge. Several questions. Hey, William, you know, good margin improvement here. You mentioned a new payment solution that is lowering, I guess, your cost of transactions. Could you maybe go into a little more detail on that and some of the things that also, you know, are positively impacting that adjusted EBITDA margin you are generating? William Angrick: Sure. Thanks for the question. I think one is just inherent operating leverage we are generating and putting more volume through our fixed cost, Gary, which is the beauty of a two-sided marketplace once you get the scale. Additionally, this is all with respect to the margin question. Like many firms, you know, we are studying and integrating AI-assisted technologies to maintain or improve quality of service but also reduce cost or efficiencies. We are seeing that play out in a number of areas: customer service and customer support, onboarding, identifying, recruiting, and onboarding employees, the payment solutions process, which does incorporate both some internally developed and third-party functionality to streamline and enhance how buyers pay. You know, we want to make sure that buyers have the full range of payment options, ease of sign-on, ease of payment, tracking their invoice. And because we are able to spread that investment over now $1.6 billion of GMV, you know, every basis point of savings is starting to multiply and reflect in our EBITDA margin. Also, we will see continued enhancement of our search and the matching of assets to buyers based on predictive analytics and also the historical record of bidding and buying. We are also introducing AI tools with regards to seller asset listing processes. We can enhance and improve and streamline that process for both third-party seller organizations and our internal organizations, which just means that we are enhancing and automating the data that is tagged to the assets being uploaded. It is a lot less manual and a richer description, and this is a huge opportunity in a business like ours where, you know, each asset has some unique provenance or unique condition categories. So we are excited about that. Part of that is in the seller asset management tool set I mentioned on the call, SAM, which touches every seller in our government business and our industrial CAG business. We rolled that out in Canada as a phase one to get feedback from clients on what they like, what they would continue to put in our suggestion queue, and with that feedback, we are now taking aim at the much larger US market. So that is another part of the lift of EBITDA. So there is just a ton of opportunity for our business, combining continued scale, continued enhancement of the buyer and seller experience, and then the use of AI. Gary Prestopino: Okay. But when you say a new payment solution, you are not, like, now allowing, you know, some of your buyers to use something like, say, a buy now pay later. You got a better rate on a credit card or credit agreement. These are all internally developed things. William Angrick: These are payment processing capabilities. We are not providing credit or a new payment solution like you mentioned, you know, buy now, pay later. That is not what this is about. This is about taking the combination of third-party available technologies, integrating them into our processes, and so it is a software-driven upgrade. It has nothing to do with providing financing solutions. Gary Prestopino: Okay. And then your guidance for consignment sales as a percent of GMV is about, what, 82% for Q1. As the company is evolving, do you think that can stay in the low eighties because that definitely also leads to some margin improvement, obviously, because... William Angrick: Yeah. I would expect that to tick up over time, Gary. Gary Prestopino: Okay. And then lastly, RetailRush. I think you said you were doing this in Columbus. Is that right? Are you expanding this nationwide? William Angrick: We have a single fulfillment activity in Columbus. It is an online consumer auction experience, and we are testing it in Columbus. As the customer, the winning bidder on the platform is responsible for picking up the item that they won. And we are using our own internally developed software to, essentially, on an expedited basis, screen and list and then make available for customer pickup in a location in Columbus. There absolutely is application for both internal and third parties to use the software and the platform nationally, but we are working on a prototype and a test in a single location prior to expanding beyond the single location. Gary Prestopino: Okay. Thank you. George Sutton from Craig Hallum is on the line with a question. George Sutton: Thank you. Nice results. So, for those listening or reading the transcript versus listening, recognize that William has a cold. So I am curious. You mentioned diversification of GovDeals in a variety of different routes that you are taking there. Can you just walk through what is the goal with GovDeals? How broad do you see that being? When you talk about government adjacent, what kinds of things are you talking about? William Angrick: Sure. Well, the public sector agencies that sell on GovDeals have a recurring flow of assets, and in some cases, they may use assets that they do not own. And in that case, we would be using the platform to service lessors who own the assets that the governments might lease or service providers that may take possession of assets at some point in the process. And when you look at the used vehicle market, the construction equipment market, which is a big part of GovDeals' historical liquidity and volume, adjacent sellers in the markets that we are serving, when I say markets, you have physical locations. They are asking us, hey, how can we get involved here? And so we are very deliberate on who we can invite and support in the marketplace. And we do segregate the account management when a commercial seller comes on board. So if you are leasing equipment, maybe it is construction equipment, and you have some government accounts, you may be interested in selling with us. And when I highlighted that our heavy equipment category in CAG for commercial sellers has grown from essentially a startup to over $100 million of GMV, that is a great example of a government-adjacent market. Sellers on AllSurplus, they have government clients and commercial clients, and they have a lot of used equipment, and they want to have a great experience and good recovery. So we are basically giving the same value prop to them that we have delivered successfully for over twenty years on the government side. George Sutton: Gotcha. Okay. That is helpful. One other question on retail. And just want to make sure we understand the focus on consignment versus purchase. You mentioned new recurring program flows. I assume you are referring to consignment flows. Can you give us kind of a broader picture of the competitive landscape and why you are heading in this consignment direction? William Angrick: Well, people who followed our business for a long time know that when we started in this business, we offered a consignment-only solution. And the market spoke and said, we want value-added services. We have some accounting reasons or SOX control reasons. We want to be able to use a purchase model arrangement. And so from really the beginning of the business, we have been agnostic. We will provide the bundle of services and different pricing models depending on what you need. And we will share the data. We will give you our advice, and the advice has always been you, the seller, you can make more money selling on consignment with our platform because you are sharing and retaining most of the upside. And I think people that have become more comfortable with our scale and service and transparency are more comfortable with consignment. You know, the old SOX rule was if you have your inventory leaving your facility, you are losing physical custody of that. You might only allow that to happen if you have a purchase invoice. And that really has nothing to do with the economics. It has to do with financial controls, account controllership. So I think that is the bias that has existed in the retail world for a long time. We have changed the narrative there because, you know, we can track that license plate of every item, and the client can see that virtually on their dashboard. And when we sell it, you know, they keep the majority of that net proceeds. And that is where I think the market is going. We facilitated that transition because of our success and ability and willingness to share data. And so, I would say the majority of new client programs coming online with us are consignment-oriented, and we are excited by that. George Sutton: Perfect. Okay. Thanks, guys. Appreciate it. Operator: That will conclude today's question and answer session. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the Third Quarter 2025 Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board; Dr. Nikolas Tsakos, Founder and CEO; Mr. George Saroglou, President and Chief Operating Officer; and Mr. Harrys Kosmatos, Co-CFO of the company. [Operator Instructions] I must advise that this conference is being recorded today. And now I pass the floor to Mr. Nicolas Bornozis, President of Capital Link and Investor Relations Adviser to Tsakos Energy Navigation Limited. Please go ahead, sir. Nicolas Bornozis: Thank you very much, and good morning to all of our participants. As you mentioned, I'm Nicolas Bornozis, President of Capital Link and Investor Relations Adviser to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the 9 months and third quarter ended September 30, 2025. In case you do not have a copy of today's earnings release, please call us at (212) 661-7566 or e-mail us at ten@capitalink.com, and we will have a copy for you e-mailed right away. Please note that prior to today's conference call, there is also a live audio and slide webcast which can be accessed on the company's website on the front page at www.tenn.gr. The conference call will follow the presentation slides, so please, we urge you to access the presentation slides on the company's website. Please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call. Also, please note that the slides of the webcast presentation are user controlled, and that means that by clicking on the proper button, you can move to the next or to the previous slides on your own. At this time, I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. And before turning the call over to Mr. Arapoglou, let me take the opportunity to congratulate Dr. Tsakos for your recent recognition in New York by the Philoptochos Society of the Greek Orthodox Cathedral, paying tribute to your personnel and the group's contribution to the Global Maritime Industry to Philanthropy, Education and Community Welfare. Congratulations. And at this moment, I would like to pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Please go ahead, sir. Efstratios-Georgios Arapoglou: Thank you, Nicolas. Good morning, and good afternoon to all. Thank you for joining us today for the announcement of the 9 months and third quarter results of 2025. No surprises. Our business model continues producing sustainable profits, beating estimates, as you saw, while at the same time, building up a solid stream of $4 billion of accretive future contracted revenue. This provides stability and more predictability in our results going forward, as we explained many times in the past and mitigate volatility in our stock price while maintaining a very solid cash position of nearly $300 million. These results are a product of high fleet utilization, best-in-class operating efficiency by now a trademark for TEN. We're reminding the market of our record 20 Vessel Newbuilding Program with deliveries starting Q1 2026 until Q4 2028, 10 of which the shuttle tankers with long-term accretive employment. The program includes, of course, 3 VLCCs, materially growing our presence in the sector -- in this sector of the market. At the same time, and as mentioned earlier, in earlier communications, we are focusing on selling our older tonnage in order to continue maintaining a young and very modern fleet. Lastly, as mentioned in our press release, after the $0.60 per share interim dividend in July, we declared payment of an additional $1 per share dividend. This will be paid in 2 equal tranches of $0.50 each, one in December 19, 2025, and one in February 19, 2026, in order to, going forward, gradually align dividend date to the timing of audited results as Nikos Tsakos will explain later. At today's stock price, the total dividend of $1.60 per share for the year represents a very attractive yield of over 4%. So congratulations once again to Nikos Tsakos and his team. Their proven track record and business model in a market with stronger tanker fundamentals and turbulent geopolitics. This ensures continued success. Thank you very much, and over to you, Nikos. Nikolas Tsakos: Chairman, thank you, and welcome, everybody, to our 32nd year 9 month call. First of all, I would like to congratulate Clio Hatzimichalis for becoming a full -- she is our lawyer keep us out of trouble for all this year. So we're very happy for her to join the main Board of the company and looking to spend much more time, productive time. Well, in September, when we reported our 6-month results, I think we were all satisfied. They were good results. We did not expect the market to take -- to become even better, even stronger. And that's where we are today. I think we're perhaps more than 50% higher on the spot market than we were back in September, which we were very satisfied having gone through the typical seasonal period and being with a lot of profitability. We had a couple of months of lull waiting for the developments of the IMO saga, I would say. I think rightly so, the postponement has been achieved, and that allows the shipowners and the related parties to this industry to be able to put more input and find solutions going for the -- going forward. So I think we welcome this development. Since that development has put the world in -- at peace, the end of too much tariffing each other has also been achieved and the market has gone from strength to strength. We are seeing a market which has limited supply of tonnage. And all our vessels right now are in very high demand. I was glad that we, of course, were way ahead of -- or beat the estimates, and we're looking forward because I think the quarter we're going through now is also going to be a very strong quarter. We just concluded our fourth long-term profit sharing almost arrangement today on our VLCCs with a very accretive minimum rates, minimum rates that we would be happy to have as fixed rates many years before, and that would be a minimum rate and then with unlimited upside for the company. And with this part of good news, I will ask George Saroglou, our President, to give us a quick update of what has happened in the last 9 months. George Saroglou: Thank you, Nikos. We are pleased to report today on another profitable quarter. Tanker markets have remained healthy during the course of the year. And as Nikos mentioned, energy majors continue to approach our company for time charter business. Since the start of the year, we have 40 new time charter fixtures and extension of time charters. And today, we have a backlog of approximately $4 billion as minimum fleet contracted revenue. We have a 32-year history as a public company. From 4 vessels in 1993, we have turned every crisis the world and shipping has faced through the years into a growth opportunity. And we have faced many crisis since the start of the new decades, a lot of which we did not actually expect. We faced a global COVID crisis in 2020 with lockdowns and unprecedented collapse in global oil demand. Then as the world was exiting COVID and we were trying to go back to normal, we've had the war in Ukraine in 2022 and a major -- which resulted in major disruption in energy trading. Then in late 2023, we had the attack of Hamas in Israel and the ensuing war and the continuous attacks of merchant vessels in the Red Sea until most of the shipping people decided not to cross the Red Sea anymore. The turmoil in the whole of Middle East, the unwinding of globalization, the introduction of tariffs in 2025, trade wars between the United States and China and the rest of the world and the decarbonization efforts of many global industries, including shipping, which, as you know, has the lowest carbon footprint when we compare while at the same time, it's the most efficient way to transport different land-scale cargoes around the world. So a lot to do in such a short time. So far, we have managed to navigate the TEN ship safely through these challenges, thanks to the company's crisis-resistant model. Let's hope we go back to more peaceful and normal times for all very soon. Today, TEN is one of the largest energy transporters in the world with a young, diversified, versatile fleet of 82 vessels, a pro forma fleet of 82 vessels. So in Slide 4, we list this pro forma fleet, and we start with the conventional tankers, both crude and product tankers. The red color shows the vessels that trade in the spot market, and we have 7 as we speak, and our new buildings under construction. With light blue, we have the vessels that are on time charter with profit sharing, 16 vessels and with dark blue, the vessels that are on fixed rate time charters, 39 vessels. In the next slide, we list the pro forma diversified fleet, which consists of our 2 LNG vessels and our 16 vessel shuttle tanker fleet. We are one of the largest shuttle tanker operators in the world with very young and technologically advanced vessels following the tender we won earlier in the year in Brazil, building the Samsung shipyard in South Korea, 9 shuttle tankers for Transpetro. We have 6 shuttle tankers in full operation after recently taking delivery of both Athens 04 and Paris 24, which commenced long time charters to an energy major. If we combine the 2 slides and account only for the current operating fleet of 62 vessels, 23 vessels or 37% of the operating fleet has market exposure, spot and time charter with profit sharing, while 55 vessels or 89% of the fleet is in secured revenue contracts, that is time charters and time charters with profit sharing. Our clients with whom we do repeat business through the years are the blue chip list of our world. ExxonMobil is the largest revenue client, followed by Equinor, Shell, Chevron, Total and BP. We believe that over the years, we have become the carrier of choice to energy majors, thanks to the fleet that we built, the operational and safety record, the disciplined financial approach and the strong balance sheet and financial performance. The left side of Slide 7 presents the all-in breakeven cost for the various vessel types we operate in TEN. Our operating model is simple. We try to have our time charter vessels generate revenue to cover the company's cash expenses, paying for the vessel operating and finance expenses, for overheads, chartering costs and commissions and let the revenue from the spot and profit-sharing trading vessels contribute to the profitability of the company. And thanks to the profit-sharing element for every $1,000 per day increase in spot rates, we have a positive $0.09 impact on the annual EPS based on the number of TEN vessels that we currently operate in -- have exposure to spot rates, and that is 23 vessels. We have a solid balance sheet with strong cash reserves. The fair market value of the operating fleet is approximately $4 billion against $1.9 billion debt, and the net debt to cap is around 47%. Fleet renewal and investing in eco-friendly greener tankers has been key to our operating model. Since January 1, 2023, we have further upgraded the quality of the fleet by divesting from our first-generation conventional tanker, replacing them with more energy-efficient newbuildings and modern secondhand tankers, including dual fuel vessels. In summary, we have sold 17 vessels with an average age of 17.3 years and capacity of 1.4 million deadweight tons and replaced them with 33 contracted and modern acquired tankers with an average age of 0.6 years and 3.4x the deadweight capacity of the vessels we sold. We continue to transition our fleet to greener and dual fuel vessels. We are currently one of the largest owners of dual fuel LNG-powered Aframax tankers with 6 vessels in the water. Global oil demand continues to grow year after every year. OPEC+ accelerated their voluntary production cuts, wars, economic sanctions, sanctions listed tankers and geopolitical events positively affect the tanker market and tanker freight rates. While the tanker order book remains at very healthy levels as a big part of the global tanker fleet is over 20 years. As we speak, almost 50% of the fleet is over 15 years and needs to be replaced soon. And with that, I will pass the floor to Harrys Kosmatos, who will walk us through the financial performance for the third quarter. Harrys? Harrys Kosmatos: Thank you. Thank you, George, and welcome, everyone, to our call. So I'll start with the 9-month highlights. So as the tanker markets continued their upward trajectory propelled by the crude sector and VLCCs in particular, available term rates for crude vessels merited a shift towards fixed employment in order to provide earnings visibility and further safeguard the cash generating ability of the fleet. To this effect and in line with the company's tried and tested employment model, bar some occasional aberrations for opportunistically capturing short-term fix reverted to the norm and operated most of the fleet during the first 9 months of the year in secured revenue contracts. In particular, with a fleet of almost 62 vessels in the water, similar to the corresponding 2024 9-month period, days under secured employment, that is vessels on fixed time charters and time charters for 47 provisions increased by 12%, while days on pure spot experienced a 32% decline. Of interest, days on profit sharing contracts alone increased by 18%, signifying TEN's commitment to maintaining a meaningful presence in the still lucrative spot market. Today, 23 vessels in the fleet, 7 on spot and 16 on profit shares do provide TEN with such operational latitude. As a result of this employment recalibration for the 9 months of 2025, TEN generated $577 million in gross revenues and operating income of $171 million, which incorporated $4.5 million of capital gains from the sale of 4 older vessels. Capital gains during the equivalent 2024 period were at $49 million from the sale of 5 vessels, highlighting TEN's policy to continue the strategic recycling of the fleet with newer, more eco-friendly vessels, new builders in the majority. In line with the above employment pattern and fewer vessels on dry dock compared to the 2024 9 months, 9 now from 11 last year, fleet utilization increased from 92.2% to 96.2% during the 2025 9 months. The fleet's Time Charter Equivalent rate for the first 9 months of 2025 settled at a healthy $30,703. During the 9-month period and in line with the reduction of the fleet's spot exposure explained above, Voyage expenses declined from $118 million in the 2024 9 months to $95 million now, a $23 million betterment. Charter hire expenses also decreased by $4.6 million, whilst vessel operating expenses increased by just over $7 million from the 2024 same period to settle at $155 million. As a result, operating expenses per ship per day for the 2025 9 months averaged still competitive $9,797, just 1/3 of the Time Charter Equivalent rate mentioned above. Depreciation and amortization came in at $126 million for the 9 months of 2025 from $118 million in the 2024 9 months, reflecting the introduction of 3 newbuilding vessels and the new depreciation calculation on the 2 vessels repurchased from lease structures. General and administrative expenses were at $32 million, reflecting the amortization of stock compensation awarded in July 2024, and scheduled to fully vest by July 2026. On the other hand, significant improvements were made in our interest costs as a result of declining global interest rates and despite $126 million increase in the company's debt obligations from the 2024 9 months due to new loans for TEN's Newbuilding Program. $72.7 million of interest costs now compared to $87.4 million in the 2024 9 months, a near $50 million saving. At the end of the 2025 9-month period with 61.2 vessels on average in the quarter and the 20 Vessel Newbuilding Program, our total debt obligations were at $1.9 billion, while net debt to cap stood at a comfortable 47.3%. TEN's loan-to-value for the 2025 9-month period was at a conservative 50%. Interest income came in at $7.7 million, a meaningful contribution. As a result of the above, the company during the first 9 months of 2025 generated a healthy net income of $103 million, which translates to $2.75 in earnings per share. Adjusted EBITDA for the 2025 9 months was at about $290 million, while cash at hand as of the end of September 2025, stood at a healthy $264 million after having paid $135 million in scheduled principal payments, $178 million in yard predelivery installments and capitalized costs and $20.3 million in preferred share coupons. And now let's move to the quarter 3 highlights. The third quarter of 2025 experienced similar movement in fleet employment patterns, which led to fleet utilization increasing from 92.8% in last year's third quarter to 94.8% during this year's third quarter, despite 4 vessels undergoing scheduled dry dockings during the period compared to 3 vessels in the 2024 third quarter. With vessels in the water slightly under the level of the 2024 third quarter, the fleet generated $186 million of gross revenues and $60.5 million in operating income, which included $8.9 million, call it $9 million of capital gains from the sale of 3 older vessels and not the similar performance from last year's third quarter, which did not incorporate any gains or losses from vessel sales. The resulting Time Charter Equivalent per ship per day was at $30,601, in line with the focus of diminishing our presence in the spot markets. Naturally, voyage expenses during the year's third quarter were lower compared to last year's third quarter, experiencing a $7.7 million decline to settle at $27.4 million. Operating expenses, on the other hand, increased in line with the introduction of 3 larger vessels and settled at $52 million. The resulting operating expenses per ship per day for the third quarter of 2025 came in at $9,904, again, ahead of the fleet average TCE and still competitive, thanks to the efficient and proactive management performed by TEN's technical managers. Depreciation and amortization were a touch higher from the 2024 third quarter levels at $42.4 million, again, reflecting the new vessel introductions and the 2 suezmax repurchased from sale and leaseback agreements. General and administrative expenses were $5 million lower from last year's third quarter at $9.2 million. Interest costs, again, following the downward trend in interest rates came in at $23.7 million from $32.2 million during last year's third quarter. In other words, savings of $8.5 million. On top of that, another $2.1 million in cash gains was realized through the interest income generated during the 2025 third quarter. As a result of all the above, TEN during the third quarter of 2025 reported $38.3 million of net income or $1.05 in earnings per share. The adjusted EBITDA during the third quarter of 2025 settled at about $96 million, reflecting the shift towards longer-term secured revenue contracts to meet our clients' increasing long-term demand. And with this, I pass it back to Nikos. Thank you. Nikolas Tsakos: Good. Thank you, Harrys. Since the figures are good, we didn't talk about them a lot. But as I said, I think we had good results in the first 6 months. The market had a long period, really expecting the developments of the net zero discussions at the IMO. And after the extension of the discussions, the market has taken off again, and we are looking at the business coming very strong in the spot market and a lot of employment. As we said today on our VLCCs has been extended for another 2 years and there's a huge appetite for business out there. There's an increasing presence of the gray fleet, a lot of breakdowns on those ships. And of course, we are going through, again, more than expected geopolitical challenges with hijacking of vessels like the recent one from Iran and the Somalia piracy on both on Greek vessels outside -- quite outside 500 miles away from the Somalia growth. So there's a lot of interference. And in the meantime, this has created a nervousness in the market going forward, which we are able to take advantage with our chartering strategy I described with 40 new ships totaling $4 billion of extended business over the next 5 years. And with that, we would like to open the floor to any questions. Operator: [Operator Instructions] Our first question comes from the line of Climent Molins with Value Investor's Edge. Climent Molins: I wanted to start by asking about the 12 VLCCs coming open throughout this month. You mentioned in the press release that the employment on the DS1 has been extended for 2 years. Could you clarify at what terms? And secondly, based on your data kit, the Ulysses should also come open this month. How do you plan to employ this vessel? Is there any appetite to trade on spot? Nikolas Tsakos: Yes. Thank you for your questions. We are trying right now to protect our ships from being actually hijacked by the major oil companies. So it's -- but joking apart, I think we are seeing a significant increase, a 20% increase from our profit-sharing arrangements of the past from our minimum profit sharing arrangements. So there is a significant appetite for the vessels out there. I cannot -- perhaps if you -- next week when you see Harrys in the states, he can give you more details on that. But of course, it's quite a positive situation. Climent Molins: Makes sense. I'll reach out. I also wanted to ask about the Maria Energy. It is fixed until February of next year, but the long-term contract you signed a while ago doesn't start until May, if I remember correctly. Do you plan to trade the vessel on spot once it comes off its current contract and before it starts the next one? Nikolas Tsakos: The vessel is actually fixed back to back to a 15-year employment. So there won't be any downtime between that other than the survey that she will have the scheduled survey, which will have to go before the delivery of this in April. So the vessel has been chartered back to back until she goes to her new charter. So there won't be any downtime. Climent Molins: Perfect. And final question for me. You have a couple of MR newbuilds delivering in early '26. Should we expect those to be fixed on long-term contracts before delivery? And should that be the case, what kind of duration are you looking at? Nikolas Tsakos: We're contemplating. As I said, there's a big appetite. We're here with our chartering team. They have, I think, 5 or 6 major oil companies looking for those ships. As you know, we're a big participant in the Cargill-Maersk pool. We're very happy with that performance of that pool. And I've been saying that for us, the best method or the only method of consolidation in our industry is through commercial pooling because whoever has a fleet of our size or smaller or around or bigger does not really -- you do not gain any economies of scale of just ordering more and more and more ships and running more ships because the ships are always there. So we are supporting the pool, and we're -- the pool has performed quite well. And we might be considering also pooling. Pooling gives you the upside of -- gives you full utilization and the upside of a spot market. Operator: Our next question comes from the line of Poe Fratt with Alliance Global Partners. Charles Fratt: Some of the questions were covered already, but when I look at your newbuild program, close to 20 major commitment. What are you looking at as far as the fleet renewal side? You've been active selling assets. Asset values are fairly firm in my mind. So what should we anticipate over the next, call it, year or so as far as on the asset sales side? Nikolas Tsakos: Our -- I say we are close to negotiating 5 of our first-generation vessels. And so if you put it in a 12 month -- if you put it -- if you take a 12 months forward, I think it would be perhaps double that, 10 vessels. We're looking to the transactions we have in mind would release close to $250 million of net cash, which is more than enough of what we need for our newbuilding program. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Dr. Tsakos for any final comments. Nikolas Tsakos: Thank you. Well, I hope, first of all, thank you for listening in. The market looks getting firmer and firmer. And from what I understand from my kids that are studying on the East Coast, the weather is [indiscernible] yet. So we're looking for further call. We're looking forward to continue with this positive market. Right now, we're taking advantage as much as possible with the team. And I would like to wish everybody a happy Thanksgiving next week. And don't forget that the TEN's share price is right now on Black Friday prices. So before next Black Friday, you buy some more of that. And I will ask our Chairman to have a final word. Thank you. Efstratios-Georgios Arapoglou: Happy Thanksgiving for me, too. I think that we're looking forward to beating all estimates next time around, touch wood. And again, congratulations to Nikos Tsakos team for excellent performance. Nikolas Tsakos: Thank you all. Happy Thanksgiving. Thank you. Efstratios-Georgios Arapoglou: Thank you. Bye. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Nynne Jespersen Lee: Good morning, and welcome to Nilfisk conference call for the third quarter of 2025. My name is Nynne Jespersen Lee, I'm Head of Investor Relations and Group Communications. And with me today are Jon Sintorn, CEO and Carl Bandhold, CFO. Before passing the word over to Jon, I would like you to turn your attention to Slide 2 regarding forward-looking statements. Please note that this presentation, including remarks from management, may contain forward-looking statements that should not be relied upon as predictions of actual results. For more details, please read the content on this slide. And with that, I would like to pass the word over to Jon. Jon Sintorn: Thank you, Nynne, and good morning, everyone. So let's immediately turn to our third quarter key highlights. A key milestone this quarter was positive organic growth in all 3 regions. Elevated tariffs from China to the U.S. and softer demand impacted our gross margin through pricing adjustments, supply chain flexibility and operational efficiency measures, we mitigated much of the impact and maintained a solid margin foundation. We continue to execute structural cost reductions, lowering overhead and administrative costs while maintaining momentum in product development, R&D. These changes are already visible in our cost base. In October, we finalized the divestment of our U.S. high-pressure washer business. This step enables us to further concentrate it on our core activities and strategic priorities. We also completed a comprehensive review of our product portfolio to reduce complexity. This included phasing out, selected development projects and inventory items. As part of this transformation, we announced the consolidation of our production from Brooklyn Park into Querétaro. This moves improves efficiency, reduces inventory cost and strengthen the competitiveness of our big industrial machines line. These strategic actions have resulted in significant special items for the quarter, of which most were noncash items, reflecting the execution of decisions that improve our competitiveness and profitability. As we continue to sharpen our focus and strengthen the company for long-term profitable growth, we are making deliberate choices about where to invest and where to step back. Now let's move to some of the key numbers for the third quarter. In the third quarter, we reported revenue of EUR 238.7 million, corresponding to an organic growth of 2.1%. EBITDA before special items came to EUR 30.1 million, a decrease of EUR 0.8 million compared to last year, corresponding to an EBITDA margin before special items of 12.6%, which is slightly down from the 12.8% prior year. The professional business saw organic growth of 3.5%. The service business saw strong organic growth of 5%, driven by strong service performance in EMEA and Americas. The Specialty business saw negative growth of 7.7%, and the consumer business saw a negative organic growth of 13% as a result of continued decline in market demand for specifically high-pressure washers, but also some for vacuum cleaners across most European markets, if we compare it to last year, third quarter. By region, we continue to grow in EMEA and APAC and Americas returned to growth. Turning now to a market outlook per region. We continued to see growth in the EMEA region for the 7th consecutive quarter. Organic growth in the core professional business in EMEA, meaning excluding consumer and private label was 2.8%. This was driven by strong service business growth and solid performance in Professional. M2H is an important part of our EMEA go-to-market strategy to serve contract cleaners, and we are reclassifying its status as our now primary associated company. Americas saw organic growth of 4.3%. And if we take out the recently divested U.S. high-pressure washer business, organic growth was 9.1%. However, is with a fairly low, compare to the same quarter of last year since it was a bit weak due to the SAP Go-Live by the end of that quarter last year. In APAC, we continue to make good progress and delivered another quarter of organic growth and this time of 7.9%. This was driven by professional and specialty business with the large orders across various markets. China's economy continues to face some challenges. In contrast, the rest of Asia and particularly the Pacific region shows good momentum and steady demand. In the first quarter, we presented our strategic road map for 2025, where we highlighted 3 areas of focus for this year, and those were improving our competitive position in North America, enhancing our operating model through decentralization and executing on structural efficiency improvements. And in the third quarter, we have made material progress across all 3 strategic priorities. North America, delivered positive organic growth in the quarter and made significant progress on improving our competitive position. We restructured our operations footprint by initiating the last step of the consolidating of Brooklyn Park production into Querétaro. At the same time, we reinforced our strong commercial presence in the U.S. Looking ahead to the fourth quarter, we will continue to increase sales and commercial density, drive sales of new products and maintain a strong focus on product and parts delivery performance. As for our operating model, we are starting to see positive effects from the increased accountability that has been placed with the regions as part of enhancing the operating model. One example is that we are starting to see effects in terms of lower backlog and better inventory management. In the fourth quarter, we will tailor value propositions even more effectively across customer verticals, continue reshaping our cost structure and adapt financial performance management to ensure an even sharper focus and accountability. As part of executing structural efficiency improvements, we realized targeted cost savings from previously announced restructuring programs in the third quarter. We also addressed working capital and finalized the divestment of the U.S. high-pressure washer business in October, allowing us to concentrate on core activities and strategic priorities. Coming into the fourth quarter, our focus remains on delivering additional cost savings and continuing to improve working capital discipline. In the third quarter, we announced the last step in the consolidating of our manufacturing operations in Brooklyn Park into Querétaro. This will significantly improve our cost competitiveness and operational efficiency. Currently, we are only producing 4 products in our Brooklyn Park site. And those are big industrial machines. The CS7500, the SC8000 scrubber and the SW8000 sweeper will move to Querétaro and the 7765 sweeper-scrubber combi machine will be pruned. This consolidation will deliver approximately EUR 8 million in annual savings, creating a leaner cost base and freeing up resources for growth. So with that, overview, I will now hand over to Carl, who will give you a financial update. Carl Bandhold: Thank you, Jon. And I will look forward to taking us through the financials of this exciting quarter where we made a lot of good progress on reshaping the company and achieved some milestones and good financial performance. Not least, organic growth across the business, reduction in capacity costs, positive cash flow. And then we will also talk a little bit more about our quite significant special items resulting from these changes. So let's start with the P&L. EBITDA for the quarter, as Jon mentioned, came in at EUR 30.1 million for 12.6% EBITDA margin, very close to 12.8% where we were in Q3 last year. What we see here, of course, is that gross margins have come down a little bit, primarily driven by tariffs, but also under absorption in our factories due to slightly lower volumes. I am very glad though that we were able to offset most of this with a reduction in our operating costs. Also important to highlight is, as Jon mentioned, M2H is a partner of ours, serving the contract in the segment in France. It's a partnership we have for more than 2 decades, which has been extremely successful in serving this customer segment. We own 49% of the company. And when we are working now in our new decentralized structure and developing go-to-market strategies for the 3 regions separately, we see that this is a key component of the way we want to go to market in EMEA at least. And therefore, we are recognizing that this is a core part of our company, and we include M2H's profit contribution in our operating profits. And as you can see in the box here, the Profit contribution from M2H last year was close to [ EUR 5 million, ] revenue close to EUR 90 million and the profit of -- close to 18%. So a highly profitable business. And over the time, when we have worked together, M2H has also built a very strong balance sheet with over EUR 40 million in cash, which is not included in our balance sheet in our financials. So a little nugget in the Nilfisk portfolio. And talking about the EMEA go-to-market strategy, let's look a little bit on growth. So the third quarter of 2025 was another quarter of growth in the EMEA region. So across all our businesses in EMEA, we grew 0.1%, but as Jon also mentioned, when you look at the core professional business, i.e., excluding Consumer and Private label, we grew close to 3% again. So another solid quarter there. On the consumer business, this is a business where 2024 was a super strong year for the market as a whole and for Nilfisk. And compared to that, we are coming down, where we see the market coming down specifically in the high-pressure washers, but also slightly in Max. But we see that we maintain or even improve our market shares across markets in Europe. For instance, we can say that in September, in Denmark, we had a 45% market share in Max. I'm also very, very glad to see that Thomas and the team in APAC delivered a third consecutive quarter of organic growth. So we see really solid performance there despite some volatility in some of those markets. And as we have talked about before, a few really nice projects where we are installing autonomous machines in airports and other locations across the region. And then going to Americas, where we have been a little bit more challenged recently, a nice quarter with organic growth, again, realizing that the comps from last year was not so high as we have SAP Go-Live in September. But still a nice performance and fun to see that we grew in the market. That said, I think it's important to note that the market in Americas, particularly has been quite volatile throughout this year, with a lot of uncertainty for our customers as well as for us with tariffs as well as a 42-day government shutdown. So we can see quite a lot of volatility between months in how our customers have behaved. Looking ahead, we expect this to come down a little bit now that the government is open again and the tariffs have stabilized. Talking about tariffs, let's move on to gross margin. So we had a fair gross margin of 41.2% in the third quarter, where price increases and mix offset tariffs and under absorption in the factories. Looking ahead, now tariffs have stabilized. Of course, going forward, we expect them to be at a higher level than what they were before March of this year, but more in line with what they were now in Q3. Also to note, as Jon mentioned, we have taken quite significant steps during 2025 to improve our production footprint. So we concluded the consolidation of our 2 factories in Hungary in the end of Q2. And now we are executing the consolidation of our 2 production sites in North America, into Querétaro during Q4 and Q1 of next year. And as Jon highlighted, the second will contribute by about EUR 8 million in cost savings and the two together a little bit over EUR 10 million on an annual basis in reduced production overhead. Talking about overhead then, let's look at other parts of our overhead. We did manage to achieve quite a significant reduction in overhead in the quarter compared to the third quarter last year of about EUR 3.5 million. This was primarily driven by head count reductions in support functions or admin costs, somewhat offset by slightly higher total costs for product development and slightly lower capitalization ratio of our total R&D expenses, which is a result of product portfolio and project portfolio review that Jon mentioned earlier, which means that we are refocusing our R&D project portfolio. And in the changeover, we see that capitalization is a little bit lower, but we expect this to come back going forward. And elaborating a little bit here, the move in the U.S. also means that we are moving some of our R&D resources to locations where we have been more productive in R&D projects. And when we look at the R&D portfolio going forward, we will focus more on facelifts and cost downs rather than big moonshot projects. So we expect this to change going forward and to continue to improve our competitiveness. Yes. So we saw positive cost reductions in the quarter. If we look at the trend on overhead costs, we talked earlier in the year about reducing our overhead cost by 6% to 8% by the end of the year, and we are making very good progress on achieving this. So if you compare to Q3 last year, we are down a few percentage points if you compare it to Q1 of this year, the third quarter reported number was down by 12%. Some of this, about 3 percentage points is FX, but even adjusting for that quite a significant improvement on cost sequentially. So we feel confident that we will be able to reach our goal of reducing overhead by 6% to 8% before year-end. And at the same time, you can also see that we are making good progress on reshaping our resource allocation where we are using fewer of our resources on administrative tasks and more on sales and product development, which will improve our competitiveness and hopefully return us to consistent growth going forward. Another positive development in the third quarter is on cash flow, where we had close to EUR 17 million in positive operating cash flow, and slightly more than EUR 10 million in free cash flow in the quarter. So while I'm glad to note a positive development in the third quarter, of course, we still have not had strong cash flow year-to-date as we have built up quite high inventory levels, and we have invested significantly in our restructuring programs. But we do still see quite a significant opportunity to reduce inventory and strengthen cash flow in the coming quarters. But reducing inventory is an integral part of how we manage our supply chain and releasing that inventory will require us to change how we operate significantly, which we are making progress on, but it's a lot of hard work. So talking about changes in how we operate. We made a number of changes in the quarter that we have touched on. We also made a number of decisions. And all of this has resulted in some significant impact on our accounting, especially -- especially in so-called special items. So with looking at this from the perspective of what are the changes we have made, which I think is the important takeaway here, and how is that changing the business. So firstly, as Jon mentioned, we were able to close the deal on divesting our U.S. high-pressure washer at the end of October. As we have mentioned before, this is in a business that is not part really of the core of what Nilfisk offers our customers, it is not sold to the same customers, it is not using the same technology that we use in any of our other high-pressure washer businesses. Following the tornado that hit the facility last year, and this is also a business that have had a negative profit contribution by about EUR 1.5 million on a full year basis. Also, obviously, an impaired business, so we were not able to get that much value when we sold it, but at least it was cash flow positive, but it meant an impairment of about EUR 11 million that we took in the third quarter. Also, as touched on before, we are consolidating our North American footprint by moving the last production from Brooklyn Park to Querétaro Mexico. The objective here clearly is to reduce our production overhead, improve efficiency in the factory and improve our long-term competitiveness. This resulted in special items of EUR 6.4 million, out of which just EUR 1.4 million was cash. This is primarily related to write-downs on fixed assets in the factory, but also impairment or nonprofitable contracts, i.e., the lease on the facility in Brooklyn Park. On that same direction, we also have reviewed our product and project portfolio to make sure that we focus our efforts on the products that we see as core to our assortment going forward. This will enable us to focus our product development, on keep maintaining and updating the key products, which is something that we have under invested in, in the last few years. So consolidating the product portfolio will enable us to keep our portfolio current. And it will also enable us to work on component commonality across our product platforms to reduce our costs. This product portfolio pruning will result in some quite significant impairments, EUR 23.3 million, which is mostly intangible asset resulting from capitalized R&D expenses in the past relating to these products, but also some inventory of products that we don't expect to sell. Those were really the bigger items. We also have some other things and special items. We have used some consultants in conjunction with working through these restructuring programs and our updated business plan and strategy that we expect to elaborate on in our annual report, and we have some updates on a couple of legal cases that we have communicated before. So that was quite a lot, but a lot of special items, I think, were worth to discuss. If we then start to look ahead and our outlook for the rest of 2025. We are narrowing our guidance on growth. So we're going from expecting an organic growth of 1% to 3% to guiding that we expect growth to be around 1%. And as we get closer to the year, we can see that getting to 2% or 3% organic growth does not seem very likely, which is why we set it to around 1%. On EBITDA margin, before special items, we maintain our guidance of 13% to 14%, which is supported by the progress on reducing our costs and expected stability on tariffs and such things. Supporting this outlook are a number of important assumptions. Firstly, continued stable market conditions in EMEA, also that APAC region maintains moderate growth for another quarter. And as I touched on briefly before, that the uncertainty for our customers in the U.S. is reduced now that the government is open again and the tariffs have stabilized. So those are our expectations for the rest of the year and the assumptions behind that. Thanks, everyone, and I return the question or the mic to Jon. Jon Sintorn: Thank you, Carl. And with that, our presentations have been concluded, and we hand over to the operator for Q&A and questions. Operator: [Operator Instructions] The first question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: A couple of questions from my side. On your guidance assumptions. Just to clarify, the 1% organic growth you are guiding, is that including or excluding the high-pressure washer business? Jon Sintorn: It is excluding high-pressure washers in the U.S. Kristian Tornøe Johansen: It is excluding, okay. So what is the organic growth rate for the group in the first 9 months, excluding. So I think I assume these minus 0.2% you're reporting, that's including the U.S. high-pressure washer business, correct? Carl Bandhold: Yes, that is correct, Kristian. Kristian Tornøe Johansen: Okay. And do you have that number excluding? Carl Bandhold: Not on top of mind, I'm afraid. Kristian Tornøe Johansen: Obviously, the reason for asking is to try to calculate what you are sort of implicitly guiding for Q4 because if I just take the -- the minus 0.2%, I get to an implicit guidance of 4.4% -- sorry, 4.7%. But obviously, that's wrong. If the 1% is excluding because then the minus 0.2% is not the right number to use, so, yes. If you have that number afterwards, that would be useful. Then the other question I had was just on your margin guidance of 13% to 14%. Obviously, you get a tailwind of 0.5 percentage point from the M2H reallocation. But still 13.2% for the first 9 months and keeping the other end, the 14%. Just curious what scenario you see which could take the full year margin to 14%? Carl Bandhold: No. As you say, we are above 13% and generally, Q4 is a strong quarter for us. So I think there is an opportunity that we will have quite a high margin in Q4. So that is within the realm of possibility. We have also seen -- our gross margin improved sequentially over the last couple of months. So I think we still see that we will sort of be within that range. Operator: Your next question comes from the line of Casper Blom from Danske Bank. Casper Blom: A question on divisional level. Your professional business looks as it's a bit getting particularly hit by tariffs here in this quarter. Can you give any kind of guidance as to whether you expect that to recover in Q4? That's the first one, please. Jon Sintorn: We will see a gradual recovery in the course of fourth quarter and then moving into the first quarter, on the back of operational activities that we have done to mitigate, but also on the back of some price increasing that we have initiated early this quarter. Casper Blom: Okay. Will you see full benefit of that price increases here in the quarter if you've initiated in the quarter, I guess, not so expectedly some carry on into '26 also then? Jon Sintorn: That's correct. And obviously, we monitor this very closely with effects in the markets, obviously, the stickiness of the pricing but also how the volumes develop. But it was initiated early this quarter. So it will not have the full effect until early next year. Casper Blom: Understood. Then on the service business, the EBITDA margin here is -- looks as if it's up compared to Q2 and Q1. Has there been anything sort of unusual going on there? Carl Bandhold: No, I think there is some variability in the margin there, depending a little bit on the mix between service labor and parts sales, basically. So that, I think, explains that there is some fluctuation quarter-to-quarter in service profitability. Casper Blom: Okay. And then just a final question. Will you be providing adjusted divisional EBITDA numbers given the change of accounting on associates? Carl Bandhold: Excellent question. I haven't thought about that. Let's -- we need to think about how we do that. Operator: [Operator Instructions] The next question comes from the line of Claus Almer from Nordea. Claus Almer: Also a few questions from my side. So the first one is the special items and the cleanup you've done on the balance sheet. Should we expect more cleanup in the coming quarters? Or was that it? That would be the first one. Carl Bandhold: I don't expect anything like this in the coming quarters, no. We have done a good review of both our business plan and our balance sheet. And I think we have taken the big items now. Claus Almer: So we see big items. So if you -- if more adjustments were to be made, in what area would that be? . Carl Bandhold: I don't expect any more adjustments, but I expect that we will continue to have some special items related to severance payment for additional cost reductions. Claus Almer: Right. Then the M2H reclassification, what is the ownership of that asset? Carl Bandhold: So Nilfisk owns 49% of the company and the remaining 51% is owned by the founder. . Claus Almer: And how are you then able to include it in our EBITDA? Carl Bandhold: It's -- we classify it as an operating or as a primary subsidiary. Claus Almer: But isn't that -- I'm no accounting expert, but isn't that you need to have split control of the company to put into your operational performance? Carl Bandhold: Well, you need -- we need control of the company to be able to include the whole P&L in our P&L. But we're only including the operating profit as part of our operating profit and that we can do for associates. Claus Almer: Okay. All right. And then just coming back to the U.S., excluding the whole tariff things, but the shutdown of the government should maybe postpone some orders or revenue from Q3 to Q4. Have you seen any -- or do you expect any impact from that or it's more gradual going also into 2026? Jon Sintorn: Well, coming from a fairly strong October, we have seen that the order intake in November has been weak, weaker than anticipated. So on the back of uncertainty. So we anticipate that the reopening of the government and tariff stabilization, we anticipate that it will somewhat improve the market activity level. So yes, we have seen effects. . Claus Almer: Okay. And so you say strong October, weak in November. If you sum those up, is that then in line with expectations? Or is it above or below internal expectations? Jon Sintorn: I guess, so far, in average-ish, in line with expectations. But as we stated, we anticipate that market activity levels pick up somewhat on the back of the reopening of the government. Operator: Ladies and gentlemen, that will be the last question. I would now like to turn the conference back over to Jon Sintorn for any closing remarks. Jon Sintorn: So thank you all for participating in today's call and for your continued interest and caring about Nilfisk. We will return with our full year 2025 report in February and look forward to speaking to many of you over the coming weeks. Thank you very much, and goodbye for now.
Thomas Pevenage: Hello, and good afternoon, good morning. Welcome to our conference call for the Third Quarter Trading Update. We are pleased to welcome you and take this opportunity to have a dialogue with you. So we have prepared a short presentation considering it's just a third quarter update and the full update that we provide in the full year and half year results. So basically, we'll cover the presentation together with Catherine and Olivier. [Operator Instructions] So you'll see our usual disclaimer on this slide, today's speakers, so Catherine Vandenborre, Chief Financial Officer of IBA. Olivier Legrain, our Co-CEO in charge of IBA Technologies, he is also joining us and happy to take questions and myself, Tom Pevenage, taking care of Investor Relations. So we'll start with the highlights -- key highlights on the business side. And then that's a specific topic for this trading update, we'll cover the corporate refinancing that you could discover as part of our press release earlier today. So I will now leave the floor to Catherine for the first section. Catherine Vandenborre: Yes. Good afternoon or good morning, everyone, and thank you very much for attending this trading update call. Like Thomas mentioned, we hold this call today basically to provide you with qualitative trading update. We will again confirm the trends in our operational activities, ensure that they remain fully aligned with our guidance. We will briefly discuss the trends we see in the markets, and we will present our new financial structure before, of course, answering any questions you may have. So first element that I would like to stress is that IBA remains fully confident and highly confident to meet this year guidance, being EBIT at least EUR 25 million, and that's supported by well under control OpEx, which remain below our long-term target of maximum 30% of sales and an already positive EBIT contribution from Proton Therapy. This is for us a very important milestone resulting from the scale-up of Proton Therapy activities and favorable project mix. Of course, it underpins our commitments in the profitability improvement trajectory that we set ourselves at the beginning of the year. In terms of equipment order intake, this one amounts to EUR 195 million. It's an increase of EUR 11 million versus Q3 2024, thanks to a strong contribution from IBA Technologies, which increased by 22% and more specifically RadioPharma solutions. To give a little bit more flavor and details, FPS has an excellent commercial momentum in high energy Cyclone IKON and Cyclone KIUBE systems in both emerging and more mature markets and applications. And in this we have a quite active pipeline in China. In PT, we have sold 4 Proteus ONE at the end of Q2 -- Q3, sorry, 2025. If you remember last year, same period, we had sold 3 Proteus One. And the sales includes 2 Proteus One orders from our existing customer, Apollo in India, which is expanding beyond its already operational multi-room facility in Chennai. In dosi, we see decreasing level of activity versus last year. We faced some headwinds in the U.S. and the Chinese markets. So in conclusion on the order intake, I would say that it's a very encouraging one, confirming the added value of all solutions to all customers and the positioning of the IBA Group portfolio of activities. Of course, '25 is not ended yet, and we will keep you informed on the order intake progresses that we will realize in the next weeks. In terms of backlog of equipments and services, it is maintained at EUR 1.3 billion, a slight decrease of -- decrease of EUR 0.1 billion versus Q3 2024. Let's say, it's more or less stable after the strong accelerated backlog conversion that we have observed in the first half of 2025, and that is due to the higher order intake in Q3. Finally, our net financial position amounts to EUR 60 million as working capital has continued to be impacted by the customer delays in delivery of large Proton Therapy projects in Spain and China. That being said, we see this amount as a peak and our net financial position is expected to gradually improve as from December '25, while we have secured a solid refinancing package on which we will come back in a few minutes. To give you some view on the progress that we have made across the different business segments. First, on the clinical side, PT more specifically, we signed a memorandum of understanding with Varian at ASTRO and this memorandum aims to strengthen interoperability, enhance clinical workflow and we went also to co-develop some technologies together, including technologies in connection to our road map on DynamicARC and FLASH therapy. We see also a very good momentum for Proton Therapy supported by the growing clinical evidences. In particular, we have seen an exciting first ever Level 1 clinical evidence provided by MD Anderson that demonstrates Proton Therapy's benefit in head and neck cancer versus conventional radiation therapy, offering same tumor control with reduced side effects and most importantly, improved survival rates. We see also strong commercial traction in APAC, which is reflected in our order intake and the pipeline in the U.S. remains quite active as well. Regarding NHa, our partnership in carbon therapy, the installation works of the first system are progressing and the financing efforts are ongoing in parallel to cover related costs. Going to dosimetry, like I said, we face some regional-specific challenges in the U.S. due to local competition. We have also some headwinds in China. We have closed the acquisition of the Berlin-based PhantomX company at the end of October '25. As you may have seen in our press release, PhantomX is a commercial stage company recognized for its advanced anthropomorphic phantoms, which are used in quality assurance for AI solutions in medical imaging. Now going to IBA Technology side. In the industrial segment, we see a continuing regulatory pressure on ETO sterilization, supporting the long-term shift towards e-beams and X-ray technology. We see also sustained progress on new applications like polymers, like PFAS with IBAs increased presence at specialized conferences and workbooks. On Radiopharma solutions, there are strong commercials and good commercial traction, which is reflected in sales, both in emerging and mature markets. We see very exciting times in Theranostics with increasing industry interest in nuclear medicine and especially from major pharma companies with particular focus on alpha emitters such as Actinium-225 and Astatine-211. Now I propose to discuss the financing package that we concluded in its rationale. Maybe first, as a reminder, we had undertaken a review of our financial structure considering 3 elements: first, the past and expected evolution of the business. Second, the expected evolution of working capital; and 3, possible investment opportunities. This review resulted in the closing of a refinancing package, including a EUR 125 million bank club deal with different tranches and a EUR 10 million subordinated loan from Wallonie had performed. The refinancing addresses 3 objectives. First one is the consolidation of IBA's balance sheet, acknowledging that past investment in long-term assets like PanTera, like NHa, like mi2, that those investments had been funded by operating cash flows and not long-term financing. Second, we want to increase our resilience in a volatile context. And third, we want to build firepower to capture possible inorganic growth opportunities, of course, opportunities meeting our investment criteria and especially being related to IBA markets and being accretive. Out of the EUR 135 million financing package, EUR 60 million has been drawn so far. Thomas will now further detail the current and intended use of funds as well as the key terms and conditions of the facilities. Thomas Pevenage: Thank you, Catherine. So you will see on this slide our intended allocation of the use of these credit facilities. So on the right-hand side, you find the different tranches of funding. On the left-hand side, potential uses for this. First of all, starting at the top, you will see the EUR 10 million subordinated loan and basically EUR 30 million drawn under the EUR 50 million 5-year term loan immediately reinforcing the long-term funding components of the balance sheet, which is the first item highlighted by Catherine in our financing strategy. Then we have an unused portion under this 5-year term loan amounting to EUR 20 million, which is available to cover more structural working capital over the medium term, let's think, for instance, of our Spanish Proton Therapy projects as well as to fund investment opportunities, while the latter will also benefit from specifically dedicated M&A term loan, that's the EUR 15 million tranche you see on the right-hand side. But then at the bottom, we have EUR 60 million of revolving credit facilities aiming to address short-term working capital fluctuations. Note that they can also play a usual role considering that some geographies in which we operate do not allow straightforward cash management solutions, namely India and China, for instance. And this from time to time can create imbalances between group entities having excess cash, while IBA SA in Belgium, where manufacturing, R&D and SQ activities take place may have some needs. And so those revolving credit facilities can accommodate for those intragroup cash management opportunities or challenges as well. So you see on this slide, basically, again, an overview of the different tranches of funding and the amounts already drawn versus what remains available. So EUR 61 million drawn so far, leaving EUR 74 million available. Time-wise, we have 6 months to consider drawing additional tranches under the EUR 50 million term loan and still 24 months under the acquisition term loan facility. We will regularly review the use of these credit lines going forward in function of the evolution of working capital, temporary and structural and as well as business opportunities. Now a few words on the terms and conditions. Bank facilities are based on a floating rate, so typically EURIBOR plus the margin and that margin is in line with our previous credit lines. Financial covenants also follow our previous standards and consist in a maximum net leverage ratio and a minimum level of corrected equity, corrected because equity then in this case includes subordinated loans. The net leverage is calculated on the net debt, excluding subordinated debts and the last 12 months of EBITDA. The net leverage covenant provides for a maximum of 3x. Besides, as customary within the club deal documentation framework, IVS to comply with certain undertakings related amongst others to M&A disposal assets or others. Now moving to the conclusion. We have in place a financing structure that is secured with a 5 years commitment from the financing partners, optimized. As Catherine said, the idea was definitely to have a package addressing an adequate mix of long term versus short term on the liability side and funding versus the asset side. Flexible to be able to address working capital volatility and as well to be able to flexibly in an agile way to capture investment opportunities and as well robust given the support of strong financing partners that you see listed on the right-hand side of the slide, so a pool of 4 banks and as well Wallonie Entreprendre, our long-standing financing partner. So we see the opportunity really to thank all of them for their trust and long-term commitment to IBA success. We are now ready to take your questions. Thomas Pevenage: [Operator Instructions] So first question is from David. David Vagman: Maybe first, on the refinancing, I didn't hear it. So can you come back on the covenants and maybe give us details about the cost of the financing? And can you confirm that you're actually not planning to use -- so in your budget to use to draw the [ FCM ] as in Slide 7. That's my first question, and then I have 2 more. But maybe we can start with this one. Henri de Romrée: Okay. Thank you, David. So first part of the question is related to the covenants. So basically, and it is currently the case today, we have 2 covenants, 2 financial covenants. First one is the net leverage ratio. So comparing the net debt excluding subordinated debt and the last 12 months EBITDA, so it's calculated on a rolling basis. And we have to comply with a level of maximum 3x. The second covenant is a minimum level of corrected equity. And why is it corrected? It's because it's including the subordinated debt as banks consider its equity from -- for that purpose. So I assume it's clear. So on the cost, then of course, as you can imagine, it's the exact level of margin is a confidential element from a bank perspective as well. And so we can only comment that we stay with a similar level of interest rate and margin basically as the current credit lines. So if you look at the average use of those credit facilities over the last period of time versus the interest charges on our P&L, you will have an idea of what you can expect for the future. The last question relates to the use of the revolving credit facilities specifically. So currently, we have drawn EUR 20 million out of the available EUR 60 million. We've commented on the expected treasury trajectory with improvements indeed versus the current position starting from the end of this year and improving over the next year, most of is tied to the delivery of our large Proton Therapy projects, namely in China and Spain. So definitely, use should reduce over time. I also commented on intragroup cash allocation that may require from time to time use of this credit lines. So this should not come as a surprise, if you maintain some use. But the idea that these are used a shorter-term type of buffer. David Vagman: And my second question, you anticipated a bit. It's on the Ortega contract deliveries for the year and for next year. Maybe you can also comment on the Chinese contract. What is reasonable to expect maybe to give us a range, not necessarily precise, but a rough indication of how many project you expect basically for which you expect payment actually this year and then next year? Catherine Vandenborre: Yes. I think on this one, we remain quite aligned with what we already mentioned at the moment of the publication of Q2 results. So -- to summarize, we have guarantee manufacturers 3 machines out of the 10 that have been ordered, 1 has been shipped. That's something that we already mentioned in Q2 results that we intended to ship in October. It has been done by the end of October, beginning of November. And so we expect to receive the payment on this machine in December conform to the terms we have in the contract. The second and the third machines will be shipped next year in the course normally of Q2 for 1, end of Q2, beginning of Q3 for the third one. And in terms of payments related to all these 10 machines, you may remember that we mentioned that's the working capital impact linked to the delay was close to EUR 30 million. It is a [ 1/3, 1/3, 1/3 ] by machine, let's say. David Vagman: Do you mean that above the 7, the remain -- your talking about the remaining 7 or... Catherine Vandenborre: So that was on the first 3 that we already manufactured. On the remaining 7, we will change a little bit the way we manufacture them. And so instead of starting to manufacture as soon as we can to be ready to ship from the moment that the customer is ready with the building of the hospitals. We will wait before doing the manufacturing, we will wait to have strong signals that the building will be at the moment that we can ship the machine, so there must still be some kind of delay at certain point of the time, and we want to remain a little bit flexible in the interest, of course, of the patient, but the general principle is that we will not start building the machine as long as we don't have very strong signals that the hospital can accommodate the equipment to avoid this strong working capital impact that we had on the first 3 machines. David Vagman: And is it fair to say then that the remaining 7 will be for beyond 2026? Catherine Vandenborre: It's -- so it will be spread over the entire term of the contract. But indeed, it's fair to say that the shipment of the remaining 7 will be after 2026, yes. David Vagman: And last question from my side is on the PT, the Proton Therapy services. With a question of how you've been monitoring, I would say, more the credit risk aspect of your customer. My question is also a bit related to the recent controversy in the Netherlands that some centers would be underutilized and 1 was facing more acute financial difficulties. If you can comment on this, it's a bit too different topic, but I think they're related? Catherine Vandenborre: So maybe on the credit risk linked to the customers. That's, of course, something that we monitor at the moment that the contracts closed. Where we do a number of analytics on this sort of ability of the customers, the ability to pay for the equipment on the 1 hand and then later for the services that the hospital intends to consolidate. Of course, during the course of the year and depending on the evolution of the revenues of the hospital we might see some volatility compared to what the first rate assessment that we did then we managed together with the customer, relatively proactive way and we try always to find solutions that could benefit all the parties. So in the best interest of all the stakeholders. So that's on the credit, let's say, question. On the fact that some hospital not necessarily let's say, fully booked the availability of the rooms in which big equipments are installed. So it's true that sometimes it can take a little bit more time. So it's a little bit longer for a hospital to build a room, but of course, it's in the best interest of everyone to try to maximize the use of the room. And so that's something in which we can possibly advise hospitals, what they can do, how long it takes to take 1 patients or it can, let's say, or the installation can use a bit maximum capacity. But at the end, of course, it's something that the hospitals have to implement. I think in some cases, we're seeing these hospitals are having full use of the capacity. In other case, we see a hospital having a very high use. I think that the maximum, which has been reached until now is 64 patients being treated over 1 day. So you see it's very much depending on 1 hospital to another. David Vagman: Any comment on the lines on your performance? Catherine Vandenborre: And what is -- you mean on the study, which was published on the Proton Therapy. David Vagman: Not the study, but that one center was I'm just quoting the article. And so I don't know, if it's correct, but that one center was particularly in the difficult financial situation? Catherine Vandenborre: I must admit that I didn't see the article honestly. So I can't comment, because it's a specific question, but I would be happy if you can send to the team the link of the article, and I will come back to you maybe with any specific comments to be provided. Thomas Pevenage: So David, thank you for your questions. We have further questions from Laura. Laura Roba: I have 3. So first of all, could you comment on backlog conversion for H2. Because it was very strong in H1. So I was wondering how did it look like then in Q3? And what can we expect for the remainder of the year? Then you mentioned in dosimetry that you were facing some headwinds? I was wondering to what extent this would impact the full year performance of that division? And then the last one on CGN. Do you have any update from them? Do you expect any until the end of the year? That's it. Thomas Pevenage: Okay. Laura. So I will address the first question, and then Catherine and Olivier will answer the other 2. So the first question relates to backlog conversion over H2 and it was a very active H1, and we are increasing the pace in H2. Definitely, so far, it should be visible in the numbers. And this being said, it will be less imbalanced as last year in terms of H1 versus H2 weighting. So yes, we're definitely on the right trajectory to reach ultimately the targets that we have reconfirmed as part of our press release, today. Catherine Vandenborre: Okay. If you don't have any further question on the backlog, I will continue on dosi. So like I was indeed mentioning, we saw some kind of headwinds in this mainly due to, let's say, competition that we see coming with some product that we don't have yet. So in order to come back to the level that we internally anticipated, we might have to do limited acquisitions. That's the reason why we started with 1 PhantomX, but we might have to do a few and very limited others. On your question whether we expect an impact, I understood on the guidance that we have provided. The answer is clearly no. So it's, let's say, headwinds compared to internal targets that we had. But all in all, and having in mind all the segments in which we operate and all the activities we have we don't expect any impact on the guidance that we communicated to the market. Olivier Legrain: Could you specify your question on CGM? I'm not sure I see an immediate answer. So it would be great if you could spell it out again. Laura Roba: Yes. I was just wondering, if you has any update from them, any contracts, if you see any activity from their side? Olivier Legrain: Nothing outstanding, Laura. I think there are a few public tenders for the moment in the Chinese market, where we are active, but there is nothing meaningful to mention at this stage. So nothing really different compared to what we have said so far. Thomas Pevenage: I think, lastly, we confirm that they are as part of the partnership agreement. So they have basically executed the technology transfer part, and they have the facility, the factory for local manufacturing that is ready to go. Now the main area of focus is on the market developments and getting the sales convergence. At this stage we don't see any product open questions. So we have, I would say, last chance slots, if anyone willing to show the question. In the meantime, we can already tell you so the presentation will be available on our website in the same link shortly after this call. Catherine Vandenborre: So I think, if there are no more questions, I would like to thank you again for your attendance to this call. It was a pleasure for us to have the opportunity to answer your questions. And we wish you a good evening/good afternoon/end of morning. Have a good day. That might be -- thank you very much. Thomas Pevenage: Thank you.
Andrew Jones: Great. Good morning, ladies and gentlemen, and welcome to LondonMetric's half year results presentation. It's very rare that we're in such salubrious accommodation as this. I hope it's rent-free. It's an office building, it must be. Sorry, cheap shot. Okay, that's the tick-tick, dirt went off. Right. Go down the list in a minute. Right. So normal lineup this morning. I'm going to give you a quick overview. I'm going to hog all the good numbers, pass over to Martin. He'll do a deep dive for you. And then I'll come back to talk about our activity and the makeup of the portfolio and our outlook for the periods ahead. And then we'll open it up to Q&A. And we have our team in the front row, which actually now includes Carl, which is good. So any really difficult questions are going his way. And then hopefully, we'll be all wrapped up by about 11. So -- okay. So we retain our position, in our opinion, as the U.K.'s triple or leading triple net income REIT. Our objective is to continue to own mission-critical assets across the winning sectors of real estate. I come on to talk about this a little bit later because it is a theme throughout the presentation. We want to be -- we want to make the right macro calls. Logistics is our strongest exposure, partly because it gives us the best rental growth. So that's back up at 54%. And then we have our hospitality and entertainment, which is dominated by our hotels and our theme parks at just under 18% and then our convenience retail assets at 14%. So those are our 3 key areas with health care making up the fourth. As a result, our objective must be to grow our income. That's what we are. We are a triple net income compounding business. And our net rental income, as you can see in front of you, is up 15%. Again, we'll come on to talk about that in a little bit more detail, and that has obviously allowed us to progress our dividend. We announced this morning a Q2 dividend of 3.05p, which gives us 6.1p for the period, which is up 7% on where it was last year. And obviously, we expect that to continue. We are well on track for our 11th year of dividend growth. We also operate the lowest cost platform in the sector with a sector-leading EPRA cost ratio, down from, I think, 7.8% at the full year to 7.7%. And despite Martin's objections, we obviously think that, that should fall lower in the coming periods. The portfolio is focused on reliable, repetitive and growing income. It's a strap line that we've now used for many, many years. It doesn't need to change. And that is supported by, again, 5.2% like-for-like annualized rental growth, and that's largely driven by 2 things. Uplift on rent review. You can see there, 18% is our average uplift. Open market was at 24%. Our open market logistics was 27%. And then our leasing and regears delivered another 24% above previous passing. So that's what -- you put all those together, that's how we deliver that 5.2% annualized income growth. In the period, this translated into GBP 10 million of additional rental income. And again, we'll come on and talk about -- we've got a good slide on this later on in the presentation. We have a further GBP 28 million that we expect to collect over the next 18 months from rent reviews and lease renewals. We expect that and hope that will be higher because it doesn't include asset management initiatives, and it doesn't include the leasing up of vacant space that we currently have in the portfolio. The total property return, you see it there at 3.3%. We come on to talk about that in a little bit more detail later on in my second stint. So turning then to the financial highlights. EPRA earnings were up at GBP 148.6 million. That's driven by a 15% increase in our net rental income. You see there on the right-hand side. That has driven an increase in our earnings per share at 6.7p, up slightly on where it was this time last year. But equally important, it's 28% higher than where it was in September '23. So we've seen a 28% increase over the last 2 years in our EPRA earnings. And that has allowed us, as I touched on, on the earlier slide, to increase our half year dividend to 6.1p. Again, that's up 7% in the year. It's actually up 27% over the 2 years. Total accounting return for the period, 4.1% if I exclude the huge banking fees that we paid for the -- in our various M&A transactions. If you strip those out, it's at 3.3%. Portfolio value is up 22% to GBP 7.4 billion. Relatively flat EPRA NTA, up on where it was a year ago, flat on where it was in March at 199.5p. And our LTV is up marginally at 35%, and that reflects the GBP 200 million cash component of the Urban Logistics acquisition that we completed on earlier in the summer. And we feel pretty comfortable with that. It may go up, it may go down. That will be dependent upon opportunities that we see in the -- by and large, in the investment market. And then just again, to steal one of Martin's slides, the dividend, I should say, is -- you can see there, 111% covered with a full cash cover as well. So on that note, I'll pass over to Martin, and then I'll come back to take you through the portfolio. Martin McGann: Okay. So good morning. So there's nothing here he hasn't covered. So I'm going to do it anyway. So look, following an intense period of M&A activity and asset recycling, we've delivered very significant earnings growth and dividend progression. Pleased to report net rental income is GBP 221.2 million, an increase of 14.6% over last year. The acquisitions of Highcroft and Urban Logistics, which contributed only for 4 and 3 months, respectively, and other acquisitions during the period have added GBP 27.6 million of additional rent. We've also added GBP 6.6 million of additional rent from our existing properties and developments. We lost GBP 12.2 million of rent from asset disposals during the period. Our rent collection remains exceptionally strong. We've collected 99.5% of rents due. Our gross to net income leakage remains very low at 1.5%. Our administrative overhead for the period is GBP 14.6 million. And our EPRA cost ratio continues to be sector-leading at 7.7%, I think, reflecting operational synergies and the culture of cost control. The increase in overheads in the period is almost exclusively headcount and remuneration costs. Our headcount is now 54, up from 48 at the year-end. That's a combination of former Urban Logistics employees, but also new recruits that we've made to ensure that we have the right level of resource and the right skills for the enlarged business. Our net finance costs have increased to GBP 59.7 million compared to GBP 45.4 million last year. That's an increase of 31.5%. This was due to the additional GBP 484 million of debt from our corporate acquisitions that came in at an average cost of 4.26%, which compared to LMP's cost of debt at that time of 4%. We've also run a higher drawn debt balance during the period. So despite the increase in financing costs, that tight cost control on top of revenue growth, income growth has driven our EPRA earnings to GBP 148.6 million or 6.7p per share, an increase of 9.7% over last year and supports the increase to the dividend, which I think Andrew only mentioned actually 3x for the period to 6.1p per share, providing very strong 100% dividend cover and importantly, full cash cover. So our trading performance has been strong with the portfolio valuations increasing by GBP 29.1 million, allowing us to report IFRS profits of GBP 130.3 million. This actually reflects a reduction on IFRS profits compared to last year, but it does include the full impact of M&A acquisition costs and goodwill impairment in the period. So there's been further significant change to the balance sheet this period as it reflects our most recent M&A. The acquisition of Highcroft added GBP 81 million of investment properties to the balance sheet and the acquisition of Urban Logistics a further GBP 1.14 billion to bring the total value of the portfolio to GBP 7.4 billion. In addition to our M&A activity, our active asset recycling has delivered GBP 125 million of other acquisition, development and capital expenditure, partly offsetting the divestment of GBP 155 million of noncore assets. This, together with our revaluation uplift of GBP 29.1 million, has contributed to the increased portfolio value. Gross debt, which I'll come on to in a moment, is GBP 2.8 billion, and the cash balance is GBP 206 million. The other net liability position at the period is GBP 116 million, rent paid in advance accounting for GBP 78 million worth of that amount. In summary, therefore, our EPRA net tangible assets at the year-end were GBP 4.67 billion or 199.5p per share, providing -- producing a 4.1% total accounting return after adjusting for those M&A costs and goodwill impairment. So as I've said, our gross debt balance is now GBP 2.8 billion. The increase is partly a result of our M&A activity through which we acquired GBP 484 million of new secured debt facilities and also other new facilities entered into during the period, which I'll come on to on the next slide. Our debt maturity now stands at 4.2 years compared with 4.7 years at the year-end. We expect to maintain that level of debt maturity by the year-end despite the passing of a further 6 months, as we launch into our public bond program. Our average cost of debt is 4.1% compared to 4% at the year-end, and we do not expect our finance cost to increase materially, as we manage debt maturities over the next 3 years. Our net debt-to-EBITDA stands at 6.9x, which is trending downwards as our earnings increase and is comfortably within our upper limit of 8.5x. Our policy continues to be to limit our exposure to interest rate volatility by entering into hedging and fixed rate arrangements. We acquired GBP 140 million of interest rate swaps through the Urban Logistics acquisition at an average cost of 3.2%. We continue to be well protected against adverse movements in interest rates. And at the period end, our drawn debt was 94% hedged. As a result of the GBP 205 million cash component to the acquisition of Urban Logistics, our LTV is now at 35.1% compared to 32.7% at the year-end. Looking further forward, we'll continue to manage our debt arrangements to ensure that refinancing risk is mitigated and that we are able to take advantage of our increased scale and credit rating to diversify our funding sources. We strengthened our financial position in the period by completing 2 new unsecured revolving credit facilities totaling GBP 350 million with new lenders at margins below our existing comparable facilities. We completed a new 3-year unsecured term loan of GBP 180 million at an even tighter margin. And we entered into a new GBP 150 million U.S. private placement, as a credit spread ahead of any other private placement by any European REIT in the last 3 years. That amount was drawn post period end. And since that period end, we've entered into a further facility for GBP 50 million with a new lender at a margin of 125 basis points. Crucially, I think this new well-priced liquidity has allowed us to repay on maturity facilities post period end with AIG, L&G and Canada Life, which bought fixed rate pricing materially more expensive than our new debt facilities and was therefore, earnings enhancing. Additionally, we repaid the most expensive tranche of the Urban Logistics debt of GBP 57.3 million, which was costing us 6.17%. As I said in the summer, our successful credit rating now allows us to plan for possible future debt capital markets activity in the form of a public bond issue to cover debt maturities in financial years 2027, 2028 and 2029. We are preparing for such an issue and expect to be active imminently. Our contracted rent roll at the period end now stands at GBP 421.1 million with the inclusion of rent on the Highcroft and Urban Logistics acquisitions. Additional rent of GBP 9.8 million in the period was generated from active asset management, rent reviews and regears. Looking further forward, reversion within the LMP portfolio and the newly acquired Urban Logistics portfolio is expected to add GBP 28 million of contracted rent. The rent roll will increase as a result to GBP 450 million. This is, I think, a conservative view of growth post period end, as it takes no account of that active asset management initiatives and initiatives not yet executed and the letting of vacant properties. This generation of significant earnings growth supports our confidence that we will continue to be able to grow our earnings and our well-covered dividend. With this in mind, we've increased our quarterly dividend payment, as Andrew said, for HY '26 to 3.05p per quarter, an increase of 7% on HY '25. And then finally, just that look back at the last 11 years now, during which we've been able to increase earnings per share more than threefold. We're in our 11th year of dividend progression with excellent dividend cover and significantly ahead of the growth in CPI. Our total property return is strong, an 11-year CAGR of 10%, a very material outperformance against the MSCI or Properties Index. Our total shareholder return driven both by share price appreciation and dividend progression equates to a compound annual growth rate of 10%. On that note, I'll hand back to Andrew. Andrew Jones: Okay. Thanks, Martin. Right. So this is a look at how the portfolio sits today, GBP 7.4 billion split really against those 4 key sectors that I touched on in my opening remarks. Logistics now up from 46% to 54%. Our largest investment, as you can see there, about GBP 4 billion, and that is driving and delivering the strongest rental growth, and we see that continuing over the next few years through rent reviews and lease renewals. Hotels and Leisure remain a key beneficiary of the shift in discretionary spending. And in the period, we've continued to add new Premier Inn investments through a sale and leaseback transaction with Whitbread and hopefully, we have more to come. Our convenience investments is very much around the grocery sector. It is -- we're Aldi, we're Lidl, we're M&S, we're Waitrose, we're Home Bargains, a bit of B&M sort of thing. We're not the big supermarkets. And that we see it delivers great, great solid income with around about 3% rental growth to come. In health care, we're working with Ramsay to -- on initiatives that will improve the profitability and the desirability of our private hospitals and -- both from their perspective and for ours, and we're hopeful that we'll be able to talk about that shortly. But overall, as you can see from the numbers there on the right-hand side, it remains reversionary and on track, as Martin showed you on his last but one slide to deliver further increases in rent over the coming years. That 3.3% number that you see there at the bottom of the column is the -- effectively is the CAGR of the 18% on the rent reviews and the lease renewals that I touched on in our opening slide. We actually see that accelerating a little bit over the next couple of years. And that will be as much around reversions as around how many reviews are coming through and where they sit. So investment activity, the macro environment remains uncertain. We still believe that interest rates are the yardstick by which all investments need to be assessed. Current swap rates, they move around. I mean -- I think they peaked this year at 412. And I think about this time last week, they were down at 357, which is very exciting. And then all of a sudden, we're up about 15. I think we're 373 today. I mean, just it creates uncertainty and without a doubt, impacts on liquidity, particularly on the larger lot sizes. I mean we put in here -- GBP 20 million is a number. I mean we could bring it down a little bit. We could move it up a bit. But GBP 20 million is what we think above that, we think that it gets more difficult because it does require some debt buyers. However, we are enjoying much, much more success, greater liquidity in the smaller lot sizes. We've sold year-to-date GBP 212 million of assets, average lot size of GBP 6 million. So that's an awful lot of transactions. I think it's 36 transactions in the period. And we are dealing with a completely different array of buyers. It is -- there's a lot of owner-occupiers, family offices, small property companies, local authority pension funds. And we are transacting in a wide range of assets. Pubs, hotels, garden centers, children's nurseries, food stores, DIY stores, warehouses, waste disposal facilities, I mean, we've got them all. We have got them all. So we are seeing an unbelievably wide church of buyers and probably as wide a type of buyer that I've witnessed in a long time. I mean I made a comment the other day at the Board meeting. I think we've done and transacted on more sales to owner occupiers in the last 3 years than I've done in my previous 30, okay? So it's a different market. And the small lot sizes that we have is a massive strength for us. On the acquisition side, obviously, that GBP 1.4 billion that we've done year-to-date has been in the winning sectors that are going to deliver us the best income growth. It's obviously been dominated, as Martin has touched on earlier with the 2 M&A transactions. And not surprisingly, it is about reinforcing our logistics, our hotel, our convenience retail and roadside, which are continuing to offer up, we think, superior rental growth prospects. And then the opportunities are coming from really 4 or 5. We cut this -- we changed how we cut this really. It is sale and leasebacks. I referenced the Whitbread transaction that we did earlier in the year. Development fundings, we enjoy development fundings. A lot of developers are short of money, and we're only too happy to help them, providing it's in our winning sectors, and it's predominantly been logistics and grocery food, as we continue to strengthen our partnership with some of our key operators like Marks & Spencer. And then the pension fund industry is going through a dramatic shift, moving from DB to DC. That is throwing up portfolios. A lot of corporate pension funds are coming out of direct real estate, and that is throwing up an awful lot. And it's not hardly a week goes by that you might read something in one of the papers or -- sorry, one of the sites [indiscernible] or whoever, suggesting that so and so selling their properties and either in whole or in part. I mean, Santander recently has been in the news. St. James's Place has been in the news. And we're seeing opportunities from that. I mean we announced on Tuesday the acquisition of 2 assets from a Columbia Threadneedle portfolio. That was probably sparked either through expiry or redemptions. And so we hunt there pretty aggressively. And obviously -- the fourth one, which obviously I can't talk about is opportunities that we see, obviously, in the -- other opportunities that we might see in the listed sector through additional M&A. So our M&A activity. So we've done 4 public takeovers over the last 2 years that has added GBP 4.4 billion worth of assets. But more importantly, it's added GBP 267 million worth of new rental income, and it's been a source. It's obviously given us great scale, but it's also given us a great improvement to our earnings. We have, as we regularly update the market on is, successfully exited a lot of the noncore and some of the weaker assets. I mean, over those 2 years, we've sold GBP 372 million worth of these assets. That's 8% of the assets that we've actually acquired by value, largely in line with our acquisition prices. Some are up, some are down, but I think we're virtually bang on at the moment. And I'd like to say that, that was an incredible skill. I suspect there's a bit of luck in there as well. As you can see, out of the 465 assets that we've acquired, we've actually sold the smaller ones, which is we sold out of 89 of those. I mean I'm not going to go through the individual companies that we've acquired and the progress we made because it's there for you to read just as well. But the fact of the matter is the core assets that attracted us to these businesses in the first place are delivering for us. Rental uplift is GBP 12 million since acquisition. And again, this goes into that GBP 28 million I talked about over the next 18 months. GBP 17 million of it is arguably coming -- is going to come through from some of the acquisitions that we've made over the last 2 years. So that's the rub of why we like these companies, okay? We see them being pregnant with rental growth and maybe the property market or indeed the equity market hasn't valued that potential growth maybe as accurately as maybe we think we might have done. So we run an occupier-led business model. It helps frame our buy, hold and sell decisions. But as well as buying -- choosing the right sectors and buying the best assets in those sectors, we also actively manage our income granularity. Over the last 6 months, we -- our top 10 occupiers are down from 38% to 33%. Our top 3 occupiers are down from 27% to 22%. We obviously want to own the right space, and we want to let on the right terms in the right location. But one of our key things under this occupier-led business model is occupier contentment, okay? We're very close to our customers. We want to do more deals with them. We want them to be happy. Our test is that we -- and particularly at the operational side of the businesses, so things like the theme parks, the hospitals and the hotels, we are targeting a rent EBITDA ratio of 2x, okay? And that's a magic number because that then ensures not only contentment, but it also gives us much better asset liquidity. And we see -- I should say, pub market, the pubs as well, by the way, would fall into that as well. And that gives us the comfort of income durability. So we look at something like -- so that 2x test, and we expect all of our investments to hit that. And if they don't hit that, we will look -- we will have looked or have executed or are looking at exits. So if I look at there -- if I take Merlin as an example, that's a business that will hit our targets in the U.K. It's a business that has strong sponsor support. It was a take private for those of you old enough to remember it for about GBP 6 billion by the Lego family or KIRKBI which is its name, the Kristiansen family, Blackstone, CPPIB of Canada and the Wellcome Trust. It's also a business that has significant freehold properties. I think 50% of the earnings that Merlin report worldwide comes from freehold assets. And so therefore, it has -- it is what we consider to be an asset-backed -- it's an asset-backed business model. They recently sold 29 of their Lego Discovery centers back to the Kristiansen family for GBP 200 million. So they have these various levers when they need to raise money. U.K. profitability is running ahead of -- in '25 is running ahead of '24, and we have the added comfort in this business that we have the top operating company. And let's remember, we are talking here about a worldwide business that is the second largest entertainment firm in the world after Disney. I think there might be other people who claim to be that, but we think they're the second. So asset management, I think, I probably touched on most of these key numbers, like-for-like income growth, high occupancy. 67% of the income enjoys contractual rental growth, which gives us great comfort and -- to support the numbers that Martin had in his slide, the GBP 28 million that we've already touched on. And then interesting, I think in some ways, if you said to me, you've got one slide to take away, this is my favorite slide because this is -- it's what it's all about. This is what proves whether or not we've made the right investments in the right sectors and bought the right buildings. Rent reviews over the period gave us an uplift of 18%. Our urban reviews are up 22%. Urban open market was up 27%, which is what I referred to before. And then lettings and regears, again, this is the ultimate test of the desirability of your buildings. In fact, you're able -- tenant occupy content and people don't regear buildings, if they don't want to be in them and if they're not happy. And on average, those regears have been struck at 24% above previous passing rent. We have some vacancy. We inherited a little bit of vacancy under the Urban Logistics acquisition, and we're working through that either through leasing or through disposals. But that obviously -- we're at 98.1%. Personally, I think that's a little bit low. We need to be targeting 99% plus. Ideally, I'd have 100%, quite frankly, or maybe just under. So the asset management team have certainly contributed and helped drive that annualized like-for-like income growth of over 5%. So when I think about the outlook, I'm not actually sure, but I'm pretty comfortable -- confident that this slide actually might have been exactly the same 6 months ago. So it just shows that the world I'm really moved on, as it really. So macro events will continue to dominate investor sentiment. I've talked about the gilt and the swap rates always influencing the property investment markets. I say always, it wasn't always the case, but it certainly feels like it's been the case for the last few years. However, we do think the consumer is in good shape. Savings ratios are good, employment is good, wage growth is good. And interest rate cuts and a decelerating rate of inflation that we got yesterday -- was it, I think maybe the day before, I can't remember. We'll continue to improve confidence. We'd just be nice if we got a little bit more confidence coming out of 11, Downing Street. And I think -- but we are in quite good shape. There are times when I probably stood up here and I've taken questions on credit card debt or unemployment rates or low wage growth. I don't think those apply here today. And by the way, I think we're in a very different situation to America. And I'll expand on that later, if anybody is interested. But in the real estate sector, I think there are structural cracks between the winners and losers. I think for us, we're looking for organic rental growth, contractual rental growth without CapEx, okay? There are lots of sectors that are talking about high headline rents, but those have been bought through improved building qualities and facilities, tenant incentives. I'm talking about organic rental growth here. That's what you get in a rent review. That's what's great about a rent review. Lots of people talk about ERVs, but ERV doesn't pay the dividend, okay? Cash does. Rental growth does. And we're seeing why we want to be in logistics because we're still collecting that in-built reversions, okay? It's coming through. It's like a helicopter chucking cash at you. I mean it's just a wonderful, wonderful feeling. And we think that our scale, as Martin and I have already touched on, continues to improve our efficiencies and supports our triple net income strategy. We expect to see further consolidation in listed markets with or without us. We think it will take place. Without a doubt, the structural shift in the institutional pension fund market is throwing up opportunities, and we would be disappointed if we weren't a beneficiary of that over the coming period. And that we expect -- as a result of all of that, we expect further income growth, we expect further earnings growth, and we expect further dividend progression. We are well on our way to our objective for dividend aristocracy, only another 14 years, okay? And I expect to be here for it. So on that note, thank you very much for the last 33 minutes of listening to us. And obviously, questions either in the room or -- oh gosh, that was quick, or on the phones would be very welcome. Ladies first, Vanessa. Vanessa Maria Guy Vazquez: Vanessa Guy from JPMorgan. I'm having a look at your Slide 13, where you show your 4 main core subsectors in real estate. It's been a moving target in terms of your buy, hold and sell strategy. And my question is, over the next 6 to 12 months, is there anything that there that stands out that you want to streamline probably and grow in another subsector, anything that you have as an internal target? And are there any other sectors that are not there that you're interested in and possibly trying to build up? Andrew Jones: Okay. So the first thing is I never give the guys and girls targets because they have a habit of hitting them, and they hit them quickly. So our logistics has moved up to over 50%. If it went to 60%, that because we found some great opportunities. If it went to 50%, it's because we found some opportunities to sell at amazing prices to people who coveted our assets more than us. Entertainment and Leisure at 18%, that's down from 21% at the beginning of the year. I could see us buying some more -- we like the budget hotel market. We've been selling out of some of the smaller Travelodges. It's a market we actually understand pretty well. We have brilliant relationships with both Travelodge and Whitbread. We'd like to maybe add a little bit more into the -- into that bucket. Convenience retail is great, but our ambitions there are only hampered by the lack of opportunities. Most of the investments we make there are fundings or our own developments. I mean, I think we're on site at the moment with 4 or 5 M&S Simply Foods across the portfolio. And obviously, that will nibble up that -- push that percentage up a little bit. And health care, Martin has repaid the debt -- the secured debt on the hospital assets. We're working through some asset management, work with Ramsay, let's say, we have a fantastic relationship with them. That might improve liquidity and desirability. We'll have to see. It seems to be a hot topic at the moment in that sector. But we don't have any targets. And just in terms of new sectors that you touched on there, Vanessa, what these -- we try to keep -- I'm color-blind, so we can't do very -- many more colors. But within these sectors, there are subsectors. So in logistics, there's mega, regional and urban. Entertainment and leisure, there's the theme parks and there are the hotels. In convenience, there is the discounters, the drive-through restaurants. I mean we own 77 drive-through restaurants. The chances are one of you is shopping or buying goods in one of our drive-throughs all the time, okay? But that's in convenience as well as our Aldi, Lidls, M&Ss and Waitrose. Health care is essentially the hospitals. So there are nuances. And actually, some of those subsectors move at slightly different paces. We're getting good rental growth, for example. We get better rental growth arguably out of DIY at the moment than we might be getting out of GM. We're getting better rental growth maybe in urban than we might be getting out of regional. So even within those colors, the subsectors move at different speeds. Ana? Ana Taborga: Ana Escalante from Morgan Stanley. So my question is regarding logistics market rental growth. It's true that we're coming from very strong years and that market rental growth has decelerated a bit. Do you think that, that's just the normal digestion of those previous super strong years? Or do you think we are starting to see some affordability issues here and there? Or another way to ask the question is, at what point we can start seeing rents being too high or resulting affordable for some? Or shall we expect that Urban Logistics rental growth to reaccelerate next year? Andrew Jones: Great question. Again, it goes back to the answer I gave before around different parts of that logistics market moving at different speeds. We certainly see urban the strongest, and that is simply a demand-supply issue, except in London. Come on to talk about that because I think that was your second part of one of your first question. So urban feels good. And that's -- for us, obviously, urban is defined by geography, but we also define it by size. So we'd be 100,000 square feet down. We feel okay. Regional, we define as 100 and a bit -- up to about 350-ish, give or take. That market definitely has supply that's being delivered on a spec basis. I mean there are people out there that do spec developments, which I don't understand, but anyway, they do. And also maybe a pullback on demand of capital commitments and whatever with an uncertain economic environment going forward. Mega is fine as well because mega tends to be pre-let and build-to-suit. So there's not a lot of -- I mean there are some people who I admire enormously, who go off and build 1 million square feet spec. I mean you've got -- I mean, that is ballsy. But good luck to them, and I hope they do well. So I think it's okay, but there is a bit in the middle where I think net absorption needs to increase. What I would say, and this applies not just to logistics but it also applies to, we're seeing it very, very directly in our convenience retailers as well. We can't get the developments to stack up. It's really difficult to get developments to stack up. And that suggests rents have to push up, but that might take a little -- that might take a year or 2 to fall through, whilst the net absorption. I mean, I think we had the biggest take-up, didn't we guys, in the last -- a big take-up in the last 6 months. London is tougher for us. Even in urban, it's tougher. I think there's more of an affordability issue in London than there is anywhere else, but it's had dramatic rental growth. So it's not surprising. If you -- I take the view that most things revert to the mean over a period of time, and that's what I suspect London is doing. London will still enjoy a great supply side dynamic, but maybe the demand side at the current rents is a bit soft. I mean -- I think our flagship sale probably still when it was about a year -- 9 months ago, 10 months ago. We sold a warehouse that we bought in Parsons Green, which for those of you who know Fulham's -- not a lot of warehouses in Parsons Green. And we ended up -- we were going to let it originally to a dark kitchen. I thought getting planning for the dark kitchen was going to be a bit tricky as little mopeds going up and down the street, was not going to be overly popular with the finite residents of Fulham. And we ended up letting it to a leisure operator, who put in a fantastic facility for both adults and children alike and did an incredible fit out. And we ended up selling it, I think, for just over GBP 1,000 a foot -- I think it's about GBP 1,060 a foot, which is probably about what this building is worth. But that rent was GBP 50. So that would be trickier, yes. Sorry. Max. Max, behind you. Maxwell Nimmo: It's Max Nimmo from Deutsche Numis. Just a higher-level question kind of related, speaking to Martin before about kind of economies of scale versus opportunities of scale. And just in terms of cost efficiencies on one side, as you said, about the 7.7% EPRA cost ratio, but also the ability to kind of move the needle at the other end. And I guess my question is around if you're still doing deals around that sort of GBP 6 million lot size... Andrew Jones: We're buying GBP 6 million. Maxwell Nimmo: Okay. But if the lot size still remain relatively small, are you not effectively working the team harder and everyone having to run faster to kind of keep going at the same pace? Andrew Jones: Definitely. We're not a charity. No, look, our average lot size on acquisitions would be significantly higher than that. In fact, you would actually argue today a very strong case that the arbitrage available in the direct market is to sell the smaller assets at GBP 6 million for very good pricing and reinvest them at GBP 50 million where the price -- where the air is a bit thinner and the competition is less, and therefore, you get a slightly better deal. But don't forget, what we're buying is not high operational assets. I mean, Will bought a portfolio of Premier Inns a few months back, let on 30-year leases. I mean he'll probably be the only one who's seen them. I have no intention of -- I don't have to worry about them. I mean they're going to compound beautifully over the next 5, 10, 15 years. It's going to be wonderful. But that doesn't need a huge amount of skill. I mean the rent comes in from our key tenants pretty easily. Maxwell Nimmo: That makes sense. And maybe just kind of a follow-up. You talked about the sort of 4 to 5 opportunities that you have. In fact, there are 4 that are on the screen there. Maybe if we park M&A to one side, given there aren't as many businesses left for that now, but I guess, just the opportunity set, how would you kind of rank them? It sounds like there's a lot that could come out of these sort of pension funds, but there's perhaps a bit of a learning situation needed for them in terms of what their NAVs are and how that kind of unlocks. So maybe just if you could kind of rank them in terms of your -- how you're thinking about them. Andrew Jones: Well, 1 and 2 are amazing. So sale and leasebacks and development fundings are amazing because those are the -- those opportunities effectively, you've got brand-new leases. And those are very often scenarios or situations where you can influence the lease, not just the rent, but the rent review clauses and the term. So those are fantastic. We like those, but we're obviously not in control of how many of those opportunities will present themselves. I mean we're working on a big sale leaseback at the moment. We're working on a development funding at the moment with one of our key customers. And we are absolutely -- we want -- in development funding, we want to be the occupier's partner of choice or even -- we want the occupier to say to the developer, can you fund this through another metric? I mean that's really what we want them to say. And we had an example of that in the period. Fund expiries and pension liquidations, Darren deals with this, they're coming. There is a value issue to your point, but -- and there's also a timing issue, when are they coming. Managers are not -- they seem to be more willing to drip things out and keep the feet train running for a bit longer than literally come up against a hard deadline. But look, you've got to be in it. We're buying tickets. We're doing a lot of talking on it. We've executed those assets that we announced on Tuesday from Well, and we've got a few others that we're working through. But it is coming. I mean you've seen -- I think Lone Star did the St. James's Place portfolio, didn't they last week. And then -- so -- and it's either the -- and then also the strategies that these managers employ is different. Sometimes it's being -- most often, it's being led by the investors putting in redemption notices so -- if you might have a reluctant manager. And then it's whether or not they do the whole lot or whether or not they chop it up into sectors to try and get maybe a slightly better price. Again, you're not in -- I mean, the whole thing about real estate is you're never in control. We don't sit there go press a screen. We want to -- I know what we want to buy. It just -- it's not on the screen. It's got to -- it doesn't appear on the screen like it might do in the equity markets. And so I think -- look, I would -- I mean, I do love 1 and 2. I mean, I do love 1 and 2 and 3 is going to be pricing dependent and 4, we won't talk about. Matt? Matthew Saperia: It's Matt Saperia from Peel Hunt. Martin, you're looking like you need a question so... Martin McGann: Maybe don't. Matthew Saperia: Are you sure? I think you talked about -- or you showed earlier on the debt maturity profile. You've obviously got a current cost of debt that's below the market rate. Yes, I think you also mentioned that you don't expect your financing costs to go up. So can you just talk us through how you get to that conclusion, given the maturity profile and the cost? Martin McGann: Yes, absolutely. So we have a series of refinancings coming at us. And when you look at our debt stack, it's too weighted in favor of our relationship banks, and there's not enough bond debt on it. We did -- we've done various private placements. We've never done a public bond. When we got our credit rating earlier in the year, that was the precursor to a public bond. We will do a series of those coming up. When you then look at what happens to our financing costs, you stop paying commitment fees on undrawn RCFs and you stop paying the fair value amortization on the debt we've acquired through M&A, and that is a lot. So if your interest rate may nudge up or your amortization of your cost of putting debt in place may nudge up, but the compensating fact that you don't have those other 2 components of your finance charge means it is almost exactly flat going forward over the next 3 or 4 years. So our cost of debt could go from 4.1% to 4.3%, but the number you see in the income statement for finance costs won't change. Andrew Jones: You're just saying that the lending banks have just been robbing us. Steve, you up? Martin McGann: You weren't going to get away with it. Suraj Goyal: It's Suraj Goyal from Green Street. Just a quick question on sort of e-commerce. So just wanted to understand what your sort of base case forecast is for 2030 and beyond and how that sort of reconciles for -- reconciles with the recent normalization that we've seen, also with sort of return policy changes for a lot of e-commerce players, et cetera. And then what that would look like in terms of long-term rental growth. Andrew Jones: I stand up here just in case my mic is not working. Look, we form -- our strategy and sector investments is based of evolving consumer behavior. U.K. penetration into online shopping is excellent. I mean we're world-class, but it doesn't stop. I mean it's a bit like when retailers say to me or retail owners, you say, we've rebased the rents. It's as if it stops. But there is an ongoing generation that they actually enjoy the delivery of online shopping rather than the destinations that maybe my parents might have enjoyed more so. So we still think it will continue. We think that it will -- that it needs to get more efficient, and we're seeing operators increasingly putting more money into automation in order to make that work because it has to -- no point having it, it has to be profitable. I'm not convinced that, that influences our investments in Urban Logistics as much as it might in mega. But we still think it's a trend that as we move through generations and my children become the key shopper, the idea for them of wanting to go to St. David's or wherever it might be, whichever shopping center it is, it just doesn't exist. They want to buy online. So I think it's an attractive tail. You might argue that the bigger jumps are behind us, but we still think we still expect it to grow. I think food is different. I think food is different. And that is probably -- I mean, it obviously jumped from about 7 to 15 during COVID, and then it's come back. I think it settled about 11, depending on which grocery you talk to. And that's different. But we are absolutely seeing those operators investing in their facilities, particularly cold. So we're building a cold facility for M&S down in Avonmouth in Bristol. So we think it will continue to grow. We think it's supportive. But also what we also expect is that the occupiers will want more efficient facilities. Their network needs to get more efficient, if they're going to be able to drive -- use that to drive profitability. It wasn't that long ago when I could have stood up here and people talk about online shopping, but nobody makes any money doing it. Actually I haven't had that question for a while because I used to just redirect them to the next report and accounts actually to see how profitable it actually was. Eleanor Frew: Eleanor Frew from Barclays. The exposure to your largest tenants has been coming down, partly as a result of your acquisition activity elsewhere. Are you happy with the current top 3 concentration? I see it's below 2019 levels. Or if not, are you looking to accelerate reduction or happy to carry on diluting over time? Andrew Jones: Thanks, Eleanor. Look, I was asked actually on a call -- a press call earlier about what are your tests on tenant exposure. So the hard deck was always 10, although we did take that up to about 11 and a bit a few years back when we -- when Primark was our largest customer. And then we ended up selling one of the big facilities and bringing it back down again. So 10 is a hard deck. I think we would like to improve -- I would like us to improve our granularity so that nobody is more than 5, and we will look to do that over the coming years. But this is what happens, isn't it? When you buy portfolios or you buy companies, sometimes it's not all perfect because if it was, somebody else probably would have taken them out before you. But again -- so therefore, there will be a sell-down, and we're already making progress on that. So it's a combination of that. Obviously, as we've improved, it increased the size of the business, that has brought some of the concentrations down a bit as well. But income granularity, as I said on this, is an important part of our business model, but understand an occupier contentment overrides all of this. So yes, I'd definitely expect it to stretch a bit. When we announced the -- about what is it -- about 20 months ago now that we announced the deal with LXI, we were going to be the proud owners of 146 Travelodges and that really bothered me. And I now think we have 63 Travelodges. So there are levers that we will pull. Thomas Musson: It's Tom Musson on Berenberg. And actually just following up on Max's earlier point on the opportunity set. If we think about Europe, you might argue that you can access a lower cost of capital in some European countries. And now with your scale and with the triple net lease business model, that could be value accretive for the right opportunity. I just wonder how outwardly looking you now are when it comes to what's next? Andrew Jones: Good question. I think that -- look, we would look at Europe as not a country. We would look at Europe as a combination. And so if we are to look at investing outside of the United Kingdom -- I mean, we have a facility at the moment. We have Heide Park in Germany. We would probably identify 2 or 3 countries that -- where we could predict and have a clear view of consumer behavior. Also, we would want -- obviously, it would be -- we feel more comfortable, if we were to go into another country with an existing customer. I'm not going to name any names. So it would -- there would be a few tests first, Tom, but I wouldn't say that we're actively looking. We get European opportunities put through to us. I mean the big opportunity in some ways from an equity perspective is that there isn't really a triple net champion in the European markets. So that's the equity opportunity for us, which we're quite aware of. And we do get a lot of incoming from some investors, as to why don't you do it because then it would give us that European triple net exposure. But the lease structures, the REIT regimes in these countries has to be friendly to us as well. Like I said, we're obviously learning a little bit more about Germany now than we would have done 5 years ago, but I wouldn't expect an announcement that we're just about to make a big acquisition in Germany. Martin McGann: If you go back your 20 months when we acquired LXI, we would undoubtedly have said that we will sell Heide, the German theme park. But the truth is Heide throws off great income. We put some euro debt against it, there's a natural hedge and it's cheap and in your view could evolve. It's a terrific asset and perhaps the market is not right to sell it into today. So we don't. Andrew Jones: I did use to say that Europe was for holidays. Stop saying that. Any other questions? Unknown Executive: Okay. So we've got a question from the webcast today from Andrew Saunders from Shore Capital. Now you've been able to get under the hood of the ULR asset. What are your thoughts? And what are your plans for the Melton Mowbray? Andrew Jones: Thank you, Andrew. Look, I think Urban was a well-run REIT, okay? Let's say that. It was a well-run company. We're very pleased with what we've inherited. There are undoubtedly assets that we wouldn't have bought, but I've no doubt if the situations have been reversed, they might have thought that there are assets that we bought that they wouldn't, but they don't particularly like. So that happens. It's what we call beauty is in the eye of the beholder. Otherwise, we'd all be wearing gray [indiscernible] and light blue shirts. Look, Melton Mowbray is a difficult one at lots of levels. We're on it. We fortunately allocated a price on the way in that would allow us to get out without losing our shirt and trousers. But yes, I mean, the acquisition price was elevated. The tenant, obviously, longevity was not what was probably originally anticipated. But we'll deal with it and we'll move on and the money we reinvested. I mean, at the moment, it's not in any of our forecasts. So if we do either let it or sell it, that will be money or income that comes in that isn't in our GBP 28 million that we're hoping to collect over the next 18 months. So that would be on top of that. But listen, all portfolios have some problem children like families. Unknown Executive: Thank you for that. And that's all the time we've got for questions. So I'll hand back to you, Andrew, for closing remarks. Andrew Jones: Thanks. Well, okay, that's great. We are literally just the right side of an hour. So thank you ever so much for your questions, your time and your comments. So thanks. Have a great day.
Norman Choong: Okay. Good evening, ladies and gentlemen. Thanks for joining this call today of PT Bumi Resources 9 months 2025 Earnings Call. My name is Norman Choong, I'll be your operator today. So we're very honored to have this call being hosted by Pak Andrew Beckham, Chief Operating Officer of Bumi; and also Pak Christopher Fong, the Chief Corporate Affairs Officer of Bumi. So as usual, we will run through the operational stats of 3Q '25, then followed by question-and-answer session. Pak Andrew, I'll pass the floor to you. Andrew Beckham: Thank you, Norman. Good evening, good afternoon, good morning to everyone here. Let me go through the slides. Next slide, please. Okay, okay. Production for the 9 months 2025 was at 54.9 million tonnes, down slightly from 2024 of 57.3 million tonnes, mainly due to the heavy rain, especially in the third quarter at KPC. Prices, realized coal prices for 9 months decreased $60 -- to $60 versus $73 in 9 months 2024, in line with the global coal market. Production costs, overall production costs came down mainly due to lower unit costs at KPC, and I'll go on to more details in that, driven by the oil price and stripping ratio. Next slide, please. Our guidance remains at this 73 million tonnes, 75 million tonnes of sales. We're limited by production, which is under the RKAB, so we can't get more coal produced out of KPC, but we will be well set up for the first quarter because of that. Prices are between $59 and $61. It's possible that we beat that if the fourth quarter continues to move up a little as it is doing at the moment. Cost-wise, we're running around the lower end of our guidance at $42, and we've reduced our strip ratio slightly and fuel costs, as we've mentioned. Next slide, please. Global markets, international coal prices have been pretty flat, down towards the summer. And as usual, towards the winter in the Northern Hemisphere, you're seeing prices tick up a bit. There's a bit more demand now from October, November in China, and prices are just coming up. I think you'll see that continue up until halfway through December. And then it will go pretty flat as the Christmas holiday is coming. But we see a little bit of improvement in the prices at the moment. Next slide, please. The forward curve is running long term, still at $120, $122 in calendar '27. The GC NEWC referring to here. This is still up at $108, $109. And there's a lot of -- I think if the markets, global markets continue to perform, you'll see this $113 to $116 in calendar '26 a big possibility. Next slide, please. With regards to the operations overall, in our sales for 9 months with 54.5 million tonnes compared to 55.8 million tonnes, there's a slight drop of 2%. This is because we -- our strip ratio has come down. You can see at KPC, we're at 8.6 year-to-date versus 9.2 last year. That's because we have opened up mines. We have improved the -- now the mines will be in there in a more stable position. So you'll see that strip ratio being slightly down. It will continue slightly down next year, if all goes to plan. Coal mined is slightly -- is below because of the wet weather in the third quarter that we've had, and rain continues at both KPC and Arutmin at the moment. Prices wise, the FOB prices are down 20% at KPC, and down 8% at Arutmin. Arutmin's price has fallen less because it sells more domestic coal. And so therefore, there's a fixed price there of $70 benchmark, which takes it from that increase from that sort of global market fall plus the fact that we have a lot more of the 4,200 to 5,000 CV coal, which is -- has maintained its price better than the very high-grade coal. Next slide, please. Here, you can see the rainfall and KPC at the top has pretty much 5, 6 months, over on the red is the actual against the long-term averages. And for 5, 6 months, it's been -- there's been 5 months that have actually been above the long term, and over the last August, September and coming into October, we've been at higher levels, continues at the moment. Rainfall itself, Kalimantan and Arutmin has been less than the global trends and has stayed pretty stable all the way through. Next slide, please. As I said, overburden has come down because of the unfavorable weather, but also because of our strip ratio at KPC. You can see Arutmin is slightly down from last year. Coal mined is slightly down by about 3%, 4%, but that's because of the weather and KPC now restricting its production based on RKAB requirements. Next slide, please. Coal sales, almost the same, not far off. We've used up the inventory. We have quite a bit of inventory. We will see inventory levels come very low towards the end of the year as we maximize as much sales as possible. And we'll probably into the first quarter have a tight stockpile there. Arutmin has been here and is slightly up on last year in terms of sales. As I mentioned, stripping ratios are down at both KPC and Arutmin, and that's part of the mine plan, our long-term mine plans that we see into 2024, the prices -- the mines was open, and now we're seeing the benefit come through. Next slide, please. Production costs, we reduced our costs. As I said, because of the strip ratio and because of fuel oil prices coming down, I'll talk more about that later. Arutmin maintained its costs slightly down on last year. And FOB price, as we all know, has dropped about 18% overall, especially at KPC, has been a big drop. Next slide, please. Average selling prices, as I mentioned, you can see the big drop from the international prices of $82.8 down to $67.4. That's been a major trouble for us. And the fact that the HPB has been following slowly behind doesn't help when we try to do our royalty payments and tax payments are now covering -- are based on that HPB if it's higher than the realized price we got. So it makes it harder for us. In a rising market, we don't have that problem. Average selling prices overall were from $73.7 to $60.4. Next slide, please. This is the fuel. You see we're running at about 1.12, 1.13 in the last quarter at the moment. Remember, we're now using B40 solution, which is biofuels 40% and that's more expensive than pure diesel. And so therefore, we're paying probably about $0.05 to $0.10 a tonne -- $0.05 to $0.10 a liter more than any other normal operations or normal industry in Indonesia. So it's another penalty that we have to take into consideration. And if they go to B50, that will have an effect on our fuel costs. Next slide, please. Bumi's reporting, we were running -- if you look at the revenue, we're up on our revenues because of BRMS improvement, our gross profit has improved. However, our net profit has come down. The main reasons for that, if we look at the other income and expense, it's been the KPC earnings because of the drop in coal price and write-offs in BRMS, our subsidiary of one of its assets. And in the income tax and profit sharing when you compare to 2024, in 2024, there was a deferred tax adjustment, which gave it a benefit of about $60 million, $70 million, which benefited. So you saw an improvement in the profit last year. However, operational wise, we're in a very good position, just we need the prices to recover. Assets, liabilities are running, are pretty strong. We're still at current ratio of 1 and also equities higher at $2.8 billion. Next slide, please. This just gives you the consolidated numbers, as we've done before, just to highlight the size of the revenues of $3.5 million against $4.2 million. These are in the back of the financial statements, I think Note 41-- 42 or 43, if you ever need quarterly numbers. Carry on, please. And this just gives you the comparison between the 2, just so you understand, we're not -- the numbers are set, the bottom line is still the same, but it does have an effect on all our numbers. Next slide, please. So overall, when you look at consolidated revenues are down 17%, but we've managed to reduce costs as well. Thanks to fuel, but also thanks to the mining, bringing our strip ratios down. Our gross profit is down overall when you include KPC and our operating income is slightly down by 22%. Operating margins remain pretty -- not significant change. But we hope with coal prices ticking up over the next couple of months, we should see a good fourth quarter. Next slide, please. Bumi's financial highlight, as I said, the equity is slightly down overall year-to-date from December. And the last 12 months consolidated adjusted EBITDA is running at $277 million at the moment, slightly down on last -- on 2024 because of coal prices. Next slide. And this is just in quarter-by-quarter, how the start up. And you can see the EBITDA each quarter from this year, like Q1 '25 has gradually increased as formatting prices slightly rise. If prices continue to rise in Q4, we should see that slightly better as well. Next slide, please. Cash still remains strong at $314 million in total. Below are the breakdown of KPC. Note that we have the restricted fund, the CDA. Restricted fund is for payment of contractors at the end of the month or it gets paid the following month, the 1 or 2 days after the year closed. The mine closure deposits, you have there of $45,000 and $55 million -- over $100 million is for mine closure assuming we get our extensions, we' have to keep these in bonds in with the government, even though we have probably another 15 years of mine life to go. So it is quite frustrating, but that's the rules with the government. Next slide, please. ESG, would you like to? Christopher Fong: Yes. We're on track year by year, so to the 9 months compared to 2024. We have -- our CSR programs were at $3.5 million. We're on track to spend what has been targeted. Our environmental spend overall is on track, and we will end up spending somewhere in the vicinity of $76 million, and that covers reclamation, planting trees and protecting our environment. Also safety issues, gas emissions, et cetera. What we don't have in this document, which we're doing a lot of work on, we've talked about it previously, is the ESG work we're undertaking now in terms of setting standards and emission targets and reporting on them. Also related to issues such as the weather issues at KPC, we have implemented research in terms of predictive ESG to using our data from all our weather stations to determine better usage of working days and to increase production and also maintenance days. So that's a program that will be -- is ongoing. It started the last few months, and we'll be reporting on results from that as we move forward into the new year. But it is certainly positive in the work we're doing, undertaking on an ESG platform. Moving on. Yes. Andrew Beckham: Norman, that's about it. We won't go into the detail, but KPC details and Arutmin details are attached so that people have the breakdown of the key assets, the coal assets. But we're happy to open it up to questions and -- questions now. Norman Choong: Thank you, Pak Andrew. Thank you, Pak Chris. [Operator Instructions] Okay. I think audience needs some time to warm up. Let me kick it off first. But I wanted to check with you, what's your view on your 2026 coal production numbers because I understand that a lot of mining companies are in the process to submit RKAB for next year. That's my first question. Andrew Beckham: Yes. Yes, we all submitted. I think all our player base are in waiting for the government. I think they're having a big review on the total level of coal production they want. I know it was -- used to be about 800 million to 900 million, it came down to 750 million this year, but I understand they are looking at further reductions. To be honest, I don't know what the results of that are going to be. but we're waiting to hear from the government on our RKAB. Norman Choong: I see. The amount that you've submitted is the same as 2025, is it? Andrew Beckham: Slightly up. It will be slightly up because Arutmin will be probably raising its production. Norman Choong: Got it. You also had an EGM yesterday. Can you like run us through what was the key result from the EGM? Christopher Fong: Yes, I'm happy to do that. The EGM, the basis of the EGM was firstly, to address the resignations of the CIC directors. And so it was a formality in having the EGM recognizing their resignation. Also, there was a change in one other person. The CFO has been -- has moved to a new position outside the group. So those were the 2 main areas of -- and purpose of having the EGM. And also there was one appointment, which was myself as a Director. Norman Choong: Congratulations, Pak Chris. Do we have any questions from the floor? Let's see. Okay, otherwise, I'll follow up with my question. But from the news, it seems like Bumi Group is quite active in M&A recently. So we have this Wolfram acquisition and Laman Mining, right? So just wanted to understand, does it seems to be -- does it mean that there's a change of direction where Bumi now have more flexible in terms of doing asset acquisition? And how is the -- maybe in terms of the financial muscle side of things looks like? Christopher Fong: Well, look, there's no secret that this year has been -- is a year of transformation at Bumi. We announced to the market fairly early this year that we are going through a diversification strategy. I think the market has been fairly surprised in the speed that we've taken this on. And that was the first announcement of the asset in Australia, which is a copper and gold asset, Wolfram Limited. We now have 100% of that asset. It's in Northern Queensland in Australia. We visited that site recently, the President and Director and myself and a few other directors. It wasn't the first visit from Bumi, but it was certainly the first visit for myself. It's a fantastic asset. It's in care and maintenance. So it's a brownfield asset. It will be up and running very quickly. We initially targeted for June next year, although we're keeping to that, but we expect that this will be sped up, and we will announce that when we are ready to. It's, as I said, it's a very good asset. It has a lot of data, it has a lot of resources and it has processing on site. So we expect to have some very positive news as we move forward into the new year on that particular asset. Also on our website, we have announced another asset in Australia called Jubilee Metals. And that, there will be more information next month on that, but it is also a gold play. So that's the second asset in Australia that we have acquired. So as I said, there'll be further news on that in December. And also what you just mentioned, bauxite. So we've had some agreements on bauxite. They're going through a legal process. And as the market well knows that the bauxite industry is well established in Indonesia and there are some issues over export. So we -- as the market expects, there will be further announcements, what we do with bauxite and when we do it in the near future. So we can certainly move forward in a transition plan that I think has taken the market by surprise because we talked about it, but we actually are doing it. Norman Choong: Thank you, Pak Chris. Maybe to follow up on this one, right? So these 2 acquisitions, are they funded by internal cash or debt? And further related to in terms of debt funding, could you remind us, what is the current covenant in terms of debt and fund raising? Andrew Beckham: We've done the raising. We create some of the money through the bond program that we have, the rupiah bond program that we have. Rates are around 8.5% to 9%, depending on the tenure. Those have been the ones funded. We have no specific covenants other than the normal bond regulations in Indonesia. But we don't -- we're very confident with gold prices and copper prices where they are. We expect payback within 1 to 2 years on these projects. Norman Choong: Okay. We have questions from the box already. The first one is from [ Benjamin Michael. ] How big is the bauxite resources of Laman Mining? And how big is alumina smelter? Andrew Beckham: Laman Mining has, I think reserves of about 30 million tonnes, but potentially, that could increase with a little bit more. There's a discussion over one area and an agreement. If that agreement is found, that would probably increase it to 50 million tonnes. And what was the second question, sorry? Norman Choong: The alumina smelter, how big is the capacity? Andrew Beckham: That, we haven't gone into detail. We can't go into detail at the moment. We'll announce when that -- we get to that point. Norman Choong: Okay, sure. I hope that answered your questions, Benjamin. Christopher Fong: What we can say is that part of our diversification strategy is not just going into minerals away from thermal coal, but also into downstream processing. So as I mentioned before, we cannot export bauxite, and bauxite can't be exported from Indonesia. So naturally, there will be a downstream processing component to that, but we will announce that in due course. Norman Choong: Sure. Second question is coming from [ Alden Lam ]. Is Pak Ashok Mitra still in KBC as CEO? That's his first question. Andrew Beckham: No. No. He's not already in the group. He's outside that now. Norman Choong: Okay. His second question is, can you share your thoughts on the impact of B50 to the Bumi mining cost? Andrew Beckham: I can't give you a number at the moment. I haven't done the numbers, but I should expect another $0.05 to $0.10 per liter, it may well cost if the subsidy that used to be there by the government is still not there. Norman Choong: Got it. Andrew, I have a client who just texted me. Question is with regards to the 2 directors from CIC that has just resigned from the EGM, does it mean that CIC will totally exit from the business? What do you think about it? Andrew Beckham: We understand the China government has a policy of not being invested in thermal coal. Yes. And that's what we believe is the reason. And if you see in the public markets, they're selling down their shares in Bumi at the moment. So we assume that, that's the plan, that's why they resigned and their plan is to exit. I think this is their last thermal coal asset that CIC has. Norman Choong: Got it. Okay. A question from [ Yoga ]. Can you share production outlook for Wolfram and Jubilee Mining including annual production target and cash costs? Christopher Fong: For Wolfram Mining, on an annualized basis, commencing in June 2026, we're expecting 50,000 ounces at this stage. Although we won't be surprised if we commenced production prior to that date. Andrew Beckham: Yes. And I think Jubilee would do about 25,000 once it's in full production. Cost wise, we'll come back to you once the budgets are closed and finished. Norman Choong: Okay. Can I follow up on these two? What are the rough mine life that we should expect with this kind of production? Andrew Beckham: Well, with gold, it's always a case of you drill as you go over and place the years. There's long mine life in both of them based on the potential resources and reserves available. And we'll update as we go, but we have more than enough mine life to get our money back and a good return. Norman Choong: Got it. Benjamin has more questions. He's asking, who is replacing Pak Ashok following the end of his tenure? And any other potential M&A going forward? Andrew Beckham: Well, at the moment, I'm acting CFO as well. There's a discussion, a big discussion going on internally and once it's been resolved, then we'll make an announcement. Christopher Fong: And to the second question, which I'm happy to answer. It's also no secret of our expansion plans in terms of the transition model. And we're expecting in the next -- within 5 years to be an EBITDA basis, 50% in par with our coal. So therefore, naturally, we will be announcing further acquisitions as we move forward. And we expect that in the next 6 to 12 months. Andrew Beckham: Norman, we can see what you're writing. I don't know if that was... Norman Choong: So sorry. So sorry. I mean I have to write it down, right? So yes, so sorry. I forgot to off my screen. Christopher Fong: So what I'm saying is, yes, it's very clear that we're undertaking a very aggressive transformation and we have a very big unit who are focusing on assets, not just in Australia but also in Indonesia. So that has been reflected in some of the announcements that we've talked about today, and there certainly will be more coming. But we also don't discount that -- look, we're still in thermal coal. We are very focused on streamlining, sorry, excuse me, that production. And that -- and you would have seen those results today that was significant savings and cost savings we're seeing at the mine. And that will continue. So we're very much focused on thermal coal. But as we expand in this transition, you'll see more metals and you'll see more downstream processing assets come on board. Norman Choong: Okay. Anyone have more questions? Yes. It seems there's no more questions. Maybe let's wait for a little bit more. Yes, I think there's no more questions from everyone. Okay. So that concludes the earnings call today. Thank you, Pak Andrew. Thank you, Pak Chris, for doing this for us. As usual, if you have questions, you know you can reach out to them directly or you can reach out to me. Christopher Fong: Sorry, Norman. Can I just add that, look, apart from this transformation, there has been a significant restructuring at Bumi. We have a much larger, more -- larger Investor Relations department. And we're very transparent so we're very happy for engagement from anybody who has questions about the business. Andrew Beckham: And if you're not getting the updates from the company, please contact us here. Norman Choong: Sure thing. Thank you so much. Thanks, everyone. Andrew Beckham: Thanks, Norman. Christopher Fong: Thank you. Norman Choong: Thank you.
Mark Blair: Good morning, everybody. I'm Mark Blair, the CEO of the Mr Price Group, and thanks for joining us while we take you through our interim results to the 27th of September 2025. I'm going to be talking a little bit about the operating environment. Praneel Nundkumar, the CFO, will take us through the detailed group performance, and then I'm going to share the longer-term thinking with you and also the short-term outlook. So moving into the operating environment. And I think there's already been much said about this. There's been other retailer presentations. So I probably don't have to say too much except to say I think these graphs tell the full picture. Since COVID-19, there's been a prolonged period of negative real wage growth, rising debt service costs and obviously, inflation has been more elevated, but it seems to be improving now. But if you look at that graph on the left-hand side, there you'll see the negative wage growth in 2022 and 2023, started picking up a bit thereafter, but all negatively indexed to the base of 2019. And what happened during that process over that time frame is that there was an access to debt of those consumers who could. And therefore, on the right-hand side, you see the debt service ratio going up as well. It's great to have a little tick down towards the end there going into 2025. And we're hopeful that when we get to the outlook and the shorter-term future discussion that, that starts to trend in the right direction. But I think the picture here that it tells is looking at what's happened to general wages and wage increases over the period, just relative to the cost of living, many of the items that make up the cost of living have increased at a higher rate than people's wages. So there's some negativity in that. I think the good news is that when we start looking out towards the future, some of these things are starting to turn quite nicely. Looking at the consumer spend and behavior. And of course, the 2020, 2021 part of that term is not that relevant. It's a COVID year and it's a bounce back. But you can just see what happened to total household expenditure over the period and 2.6%, 0.2% and 1%, I think, also tells the picture. Certainly, what we've seen as retailers is that retail patterns have been very erratic. So I'm talking about monthly performances, very dependent on what's happened to timing of holidays, et cetera. And certainly, we've seen the impact of around pay days, very strong performance. And as it gets further away from pay days, then performance tends to come off. So very erratic in that front. And of course, what we're living with is a scenario that is spending is one thing. I suppose discretionary spending is another and discretionary retailers have also had to deal with the threat of the online Chinese retailers and online gambling, but just to add a little bit more insight into that. Certainly, the statistics that we've got show that the international online players have been losing market share for a few quarters now, and that was on the back of regulation change. So that's a positive for us. And then I think with online gambling, there's been quite a few reports that I've read. And I guess some of them have got divergent views as well. In the one report that I read, it did refer to that sometimes the statistics aren't that well understood. And it depends what's in the numbers because to some extent, there could have been where online gambling was illegally taking place offshore and has now been localized and included for the first time, that could be a factor. And the other factor is that although one of the figures quoted was total wagered value of ZAR 761 billion, there was a view that, that includes seed capital and winnings reinvested and that, that seed capital is probably around ZAR 115 billion versus the ZAR 761 billion. The net losses at the end of the day, I've seen figures of ZAR 36 billion, ZAR 29 billion coming from online, but it's the incremental change year-on-year that in 2025 is estimated to be about ZAR 15 billion. That's the worrying part is that jump. And of course, at this point, we also don't know how the accessing of two-pot retirement funding aided a short-term diversion into gambling. We'll have to see how that settles down. But I think the point that I also want to make is that as retailers over the years, we've had to face many, many disruptions. And whether you're looking at the 5-year history or in fact, going much earlier than that, the introduction of cell phones was a good example. These are all bumps that we've had to overcome in the past, and we'll certainly make a plan to make sure we manage these ones as best we can. Looking at Mr. Price's sales growth versus the market. Obviously, in this graph, Mr Price Group is in the red bar. And what you see where you're looking at 2024, 2025 and then H1 and H2 in 2025 and H1 in 2026, Mr. Price consistently above the gray bar, which is the rest of the market. So I think just sort of concentrating on the short term for a moment, although, of course, we'd like the 5.5% to be a lot higher, what is absolutely not negotiable for us is the quality of those sales, and we're not after growing market share at all cost. We have to grow profitable market share, and that's what we've done consistently, very, very important for us. Also want to just stress, and we'll talk a little bit later about it as well, is that as we -- in H2 now, we are up against a much stronger base. I've spoken about the two-pot hitting there and accessing that retirement funding really boosted spend last year, kicked in, in October. And just from a monthly trading perspective, we had a really strong run up until February. So the base is very high. And I think that's probably the timing going into 2026 that the two-pot effect should be out of the system, and we can see how we're trading relative to a much cleaner base and therefore, have a much better read on the health of the consumer. But very pleased that for all those reporting periods, comfortably above our peer set with -- and I just want to stress the point again, with profitable market share gains. And I guess at the end of the day, this is the kind of picture that we strive for. And it's not myself as the CEO or Praneel as the CFO, managing this from the top. I'll get into what makes up the Mr Price DNA a little bit later. This is a process that's alive in our business and there's great alignment on it in our business. So shout out to the teams that deliver these, but I must say it's not a fight to get the shape done. So very pleasing that there's been a translation of positive top line growth that we've kicked on in the GP percentage, managed overheads and actually come up with a HEPS growth of 6.5% and then maintained our dividend policy as well. Also cash nicely up at just over -- just around ZAR 3 billion. I did mention the word consistency a bit earlier. That is something that we do strive for as well. And normally on graphs, we like to be red, but in this case, quite happy to be black. And the fact that for the last 4 reporting periods, all our numbers are in the black, I think that's the objective that we set out for. So consistency through merchandise execution, through cost savings, there's a lot of discipline that happens in our business to manage that outcome. So although those figures for us are in the black, of course, we'd like them to be higher in scale. But hopefully, that's the last slide that I'm going to talk to when we're starting to see green shoots out there that could start shaping the trajectory of those black lines here to hopefully what could become a steeper curve. I think we all look forward to that. But I think just relative to what's happening out there, the market is extremely promotional. You've seen what's happening to gross margins across the sector and to come up with another consistent performance relative to that market, I've got to be pretty satisfied about that. I'm now going to hand over to Praneel, and he's going to take you through the detailed earnings. Praneel Nundkumar: Thanks, Mark. Good morning to everyone joining us online on the webcast this morning. I'm pleased to present to you the Mr Price Group results, the interim results for the 26 weeks ending the 27th of September 2025. As you would have gathered from some of the slides that Mark presented just now, the first half was quite a challenge in terms of the operating environment that we had to deliver results in. Consumer confidence remained negative in the first half, and you would have seen that household expenditure growth was subdued. At our last results presentation in June, we did say that in an environment like this, our focus was on ensuring that sales would continue to grow ahead of the market and that, that would come at higher GP margin gains. I'm pleased to report back today that that's exactly how the first half transpired. Taking a look at the income statement. Revenue for the first half grew 5.4% to ZAR 18.5 billion, driven by retail sales up 5.5% ahead of the market's growth of 5.3%. Retail sales was impacted by comp sales growing 2.1%, up from 0.4% last year, and weighted average space growth grew 3.5% due to the addition of 91 new stores in the first half. Gross profit grew 6.3% to ZAR 7.1 billion, creating a nice positive wedge to sales with GP margins growing 30 basis points on last year. Expenses were well controlled, growing 5.6% to ZAR 5.9 billion, and operating profit grew 5.7% to ZAR 2.1 billion. Net finance expenses decreased 4.9%, and that was due to the interest earned on the positive cash balance in the first half, offsetting interest expenses coming in at ZAR 297 million, down on ZAR 313 million last year. This assisted the profit before tax number growing at 7.7% to ZAR 1.8 billion and profit after tax grew 7.3% to ZAR 1.3 billion. Profit attributable to equity holders of the parents were up 6.7% to ZAR 1.3 billion. And as Mark mentioned earlier, HEPS was up 6.5% for the first half. In summary, even through the constrained trading environment and consumer challenges that we spoke about, our management team was satisfied with delivering operating leverage through GP gains and strict cost control. Moving on to the segmental performance. The Apparel segment, which contributed 78.5% of retail sales grew 5.3% in the first half. This outgrew comparative markets whose sales grew only 4.7%. The Mr Price Apparel division maintained market share in the first half and expanded GP margins despite the market being highly promotional, resulting in an operating profit growth for the sector of 12.3%. As you'll note from the pie chart on the left, the Mr Price Apparel business contributes 42.6% to total sales, and it's really pleasing that on a 12-month basis, the division gained over ZAR 200 million in market share. The Studio 88 business also delivered a solid margin-accretive sales performance, and I'm very pleased to report that the Power Fashion business reported its 14th consecutive quarter of market share gains. Comp sales were up 1.7% for the sector. Unit growth was up 2.4% and the sales density just under ZAR 38,000 per square meter for the apparel sector. Moving on to the Homeware sector, which contributes 17.7% to total retail sales. Sales in this sector were up 5.1% with healthy comp growth at 4.3%. It was pleasing that operating profit in the sector also grew 12%, driven by all divisions expanding GP margins and managing costs really well. Unit growth was also up 2.6% and inflation was up 2.4% with sales density just under ZAR 30,000 a square meter. I must make a mention of the Yuppiechef business, who reported double-digit sales growth in the first half and continued to gain market share for 18 consecutive months now. Having a look at the Telecom segment, which now contributes 3.8% to retail sales, up from 3.6% last year, and this came through from retail sales growing 12.4%, consistent double-digit earnings growth from this sector over the last few periods. This also was positively impacted from market share gains of 50 basis points per GfK in the first half. Operating profit grew 16.8% on last year, and comps were slightly down at minus 1.9%, but unit growth was up at 4.3%. The Mr Price Cellular stand-alone stores grew by 12 stores in the first half, taking the total stores to 73 and 481 combo stores across the business. Moving on to space growth now. The group ended the first half on 3,100 stores in the first half, a total of 91 new stores for the period. As you can see, a lot of this growth coming through from the apparel sector, where the Studio 88 chain grew 42 new stores across its 5 trading businesses with Power Fashion growing 11 stores and Mr Price Apparel and Kids growing altogether in 11 stores. The Homeware segment also delivered 8 new stores for the period. And as I mentioned just now, the cellular business grew 12 new stand-alone stores. Weighted average space growth at 3.5%. And really just wanted to show you the table on the left -- I'm sorry, the right at the bottom that over the last 4 years, we've averaged just under 200 new stores per year. And even for F '26, you will see on the red bar graph that we're on track to deliver 200 stores this year, another 109 in the second half. Our management team are also very satisfied with the return metrics on new stores. These continue to exceed the internal thresholds that we've set for new store CapEx. Moving on to the slide that you all have been waiting for, the gross profit analysis. Group GP grew 30 basis points to 40.0% in the first half, up from 39.7% last year. As you can see from the slide, these GP gains were noted across all trading segments despite the highly promotional environment by competitors. The margin gains ensured that we had a smooth transition out of winter into fresh inputs into summer and spring merchandise. The Apparel segment, which grew 30 basis points was driven by the 2 largest divisions, Mr Price Apparel and Studio 88 and further margin recovery in the Homeware sector by 20 basis points ensures that the Homeware sector is on track to deliver their medium-term target of 41% to 43%. And you'll note that we did increase this target in June, so a higher target, but we're comfortable that they are in the range. The Telecoms margin grew 60 basis points, both for cellular and the mobile business, aided a lot by the transition into the private label devices that we've introduced, which aids the margin growth. We're expecting to be within the medium-term target ranges in the second half despite a strong base. A big focus area for me in the first half and for many of our teams, as Mark mentioned, was managing overhead costs in the environment that we spoke about. I'm pleased to report that total expenses grew 5.6% to ZAR 5.6 billion due to stringent and active cost management by our teams, which has now become quite a cornerstone of our value retail model. Our teams are agile at being able to respond when the sales calls are different to expectations. Depreciation and amortization grew 5.5% to ZAR 1.5 billion and employment costs, while growing 11.1% was impacted due to some credits in the base, prior year base effects from LTI schemes that were forfeited due to performance criteria not being met in the previous year. Excluding these credits, employment costs were up 8.6%, which includes the annual increase that we did together with 91 new stores, adding weighted average space growth. Occupancy costs were up 4.2% to ZAR 566 million and other operating costs down 3.1%, impacted by foreign gains -- ForEx gains in the first half compared to ForEx losses last year from our African territories that we trade in. Excluding these ForEx gains and losses, operating expenses were still only up 1.9%, which talks to the effectively managed overhead costs in the business. Moving on to operating margin. Operating margin grew 10 basis points to 11.5% compared to 11.4% last year. And you will note that all trading segments expanded operating margin due to a combination of the GP margin gains that I spoke about earlier and together with efficient cost control. You will note on the slide that the group -- op margin grew at a lower rate than the trading segments, and I must make a comment that you must tie that back to the previous slide where I spoke about the LTI base effects credits in the base, together with the fact that the group growth is impacted by central costs that don't sit within the divisions. Also to note that the H1 margins are seasonally lower than H2, and we continue to track into our medium-term target ranges for op margin as we look forward into the second half. Moving on to the balance sheet now. Also pleased to note that the gross inventory balance grew only 4.5% on last year. We exited winter cleanly, and that really goes out to our management teams and our merchant teams who made sure that we managed stock efficiently and worked very hard in the first half to get this outcome. Together with improved port operations, reducing the unnecessary stock buffers that we had to place into the supply chain in the previous year. Trade and other receivables were up 3.9%, and this really is a factor of credit sales, but also the lower repo rate compared to last year, which we'll talk about a bit more when we get on to the credit slide. And trade and other payables growing 21.7%, just a very big testament to the teams in our sourcing space who really work hard to get our suppliers on to supply chain finance, the program that we've spoken to you about before. It was pleasing to note that in the first half, we've been able to transition a lot of our international suppliers onto the program, which is the non-comp piece to last year. All in all, net working capital resulted in an inflow of ZAR 372 million, assisted the cash and cash equivalents balance growing to ZAR 3 billion, up 38% on last year and a very healthy cash conversion ratio of 81.8% with 0 long-term debt at the end of the first half. Having a look at the cash flow movements now at the beginning of the period, we started with ZAR 4.1 billion in cash. Cash from operations from working capital changes came in at ZAR 3.5 billion. We just spoke about the working capital improvement of ZAR 372 million and net interest received, as I mentioned, on positive balances, ZAR 322 million. From an investing perspective, we spent ZAR 590 million in terms of PPE and intangibles and the large outflows in the financing space relating to dividend payments in the first half of ZAR 1.5 billion. We also spoke to you about the acquisition of the Studio 88 tranche of shares of 9% for ZAR 770 million and then the lease liabilities of just under ZAR 1.6 billion to end the first half on just under ZAR 3 billion in cash. Moving along to CapEx. Capital expenditure in the first half came in at ZAR 574 million, almost 50% up on last year. And for the full year, we're still anticipating to get to ZAR 1.5 billion in terms of CapEx. But as we've noted previously, this comes through due to the investment into the supply chain program, the Gosforth Park DC. That project is on track for delivery within budget by September 2026. This is due to the investment to support future sustainable growth for the business and further mitigating risks through the multisite strategy. You'll also note on the slide that store CapEx came in at 43.6% of the total CapEx spend. This talks to our investment into the store portfolio for new stores, revamps and relocations, expansions also. Moving on to the credit growth performance. Credit sales grew 4.3%, slightly behind the cash sale growth to ZAR 2.1 billion, now contributing 11.8% of total sales. Most of the credit sales that we saw came through from existing account holders. And you will note that we've been talking about the approval rate for the last few cycles, and I'm pleased to report that the approval rate came in at 22.6%, 360 basis points ahead of last year's 19%. This has been quite a big focus for us in the first half and will continue to be in the second half also. We've also just noted the TransUnion Consumer Credit Index, while you see improvements coming through from 2023 into 2025, you see the little dip at the end of the red line now trending downwards, really giving an indication or a data point around consumer credit health in SA. The debtors book grew 5.5% to ZAR 3 billion, and the net bad debt ratio came in at 8.9%, slightly up from the 7.8% in March, but due to the deteriorating consumer environment that we spoke about earlier. The net bad debt book ratio still remains low relative to the sector due to our strict affordability criteria. Impairment provisions at 13% was slightly up on March -- slightly down on March's 13.2%, but we're very satisfied with the coverage ratio on that provision. Thank you very much. I'll now hand you over back to Mark, who will take you through the strategy and the outlook section. Mark Blair: Great. Thanks very much, Praneel. I often get questions and in fact, one of the reasons that we've set out the results presentation in this manner as to what is it about Mr Price that you would think is different? What is our secret sauce? And what are the things that lead to good performance and consistent performance. And I think the short answer is there's no one single thing, but it's a combination of things, and it's suppose the magical way that these things all come together. I'll go through some of the individual slides, but in many respects, I'll let you just read and absorb it. But these are the items that I'll cover. The diverse portfolio of our brands, differentiated fashion value merchandise, and that's where it all starts and it's critical to hold on to that. The trusted brand on the 40 years that we've spoken about, our Red Cap culture, which really is a differentiator, tried and tested processes over the years that we've refined, but we rely on, supply chain agility, a business model that's fit for purpose and also a business that technology has a big part to play. So if I just start off on just looking at the South African business and exactly where the consumer profiles are made up. What you can see there is all the income levels for consumers and that red block sets out exactly where the majority of the population falls in South Africa. I'll let you read those stats on the right-hand side as well, but the first point that I want to make here is that we've got businesses that span this. So we're not all contained in the red block, but we're very well represented there. But of course, we've got some of those divisions that operate within that do access clients outside of that red block. And of course, we've got businesses that solely target or mainly target people outside of that red block on both sides, in fact. The way to show that a little bit better perhaps is then looking at those brands individually. And the 2 that I was saying a little bit earlier is outside of the red blocks would be Power Fashion on the left-hand side, that services the low-income consumer to Yuppiechef on the right-hand side, who on average services a consumer earning well over ZAR 1 million per annum. But if you see those businesses and the spread that they've got across income levels in South Africa and the amount of reach that they've got within those particular brands, I think that's certainly part of our success. And that you all know about the investment matrix that we devised many years ago that was designed to make sure that we are bringing better representation to the income levels that we previously thought we are underexposed to. Being leaders in differentiated fashion value, as I said, was an absolute key and the most important thing to us. It's what gets us our customers, what keeps us our customers and what does set us apart. And the way we always look at it is by plotting it on the fashion value matrix. So it's important to note that Mr. Price doesn't always be the -- try and be the cheapest because cheapest is based on price. We know that there's a lot more things that go into customers' purchasing decisions, and those things start going into the quality of the products, the level of fashionability, et cetera. So if you look at that fashion value quadrant that you can see Mr. Price's position there, that's what we protect at all cost. Yes. And you can see that on the right-hand side, Mr. Price Apparel leads the fashion value matrix ahead of some of the more recent competitors and existing competitors. Having been in business for 40 years now, I think it's important to note that the accolades that you can see here aren't recent. They're not 1-year wonders. Many of these have, in fact, been accolades that we've achieved year after year. Mr. Price Apparel, Mr Price Home and Mr. Price Sport holding the highest brand equity in their respective sectors. Mr. Price Apparel remains the most shopped apparel retailer in South Africa with 3.5 million shoppers. Mr. Price Apparel was voted the coolest clothing store in South Africa again, and Mr. Price Apparel holds a high share of wallet in the market, too. I said that Red Cap culture was something that I really believe is a differentiator. And I suppose that permeates our business. Started off with the founders and the foundations that they led -- that they made. And it's obviously got huge roots inside our business, but extends outside of our business, too. But I think really what it starts off with is a team that is passionate about what they're doing, a team and a young workforce that takes responsibility and ownership for things and a team that's aligned. So when I was saying a little bit earlier that when times are tight, we call code red for overhead management. We don't have to explain it. People know and they get on with it. But it's a team that's aligned in all the big objectives that we're doing and that makes management's team and the broader management team, their jobs a lot easier. There's certainly an extremely strong performance culture and the reward structures that we've got are also aligned to performance. We deal with each other in an environment of mutual respect. And if you ask anyone, are they part of a Red Cap family, the answer would be absolutely we are. So that's all great, and it's the way that we interact with each other internally. As I said, that also then externalizes itself. And one of the things that is really, really important to us is that we speak openly and honestly with the investment community and in fact, all our stakeholders and that we've developed trust just as we've developed trust internally with one another. So that Red Cap culture is something to preserve at all costs as well. We've spoken about our tried and tested processes over the years. This is something that works really well for us. It's what management teams rely on when they're back turned and they know that the rest of the business is focused on what they're doing because there's guidelines in place and performing very well. And that starts with the in-house trend departments. It's how we test merchandise, how we test concepts, how we've introduced tech into the business, talks to the agility of our supply chain and also how we allocate merchandise to stores. So just on that, just to give you a little bit of elaboration, there's an initial allocation of stock to stores. There's a degree of holdback in terms of performance, but the push of stock to stores is depending on what the demand is happening in those locations. So it's not just all a push. And by managing it the way we do, that's a very key way that we manage minimizing our markdowns and stock being in the wrong quantities in the wrong locations. Supply chain, we've spoken a lot over the last couple of years as well. It is a differentiator. We do have great agility without having to own factories. And you'll see by what Praneel just explained with our stock management and our inventory balances, climate like we've got, I think we did a very good job in managing that. And that talks to the -- not just the management teams and the merch teams, but it also talks to the supply base and our supply chain at large. So we've got the flexibility there. We've got, obviously, things that we do to gain access to fabrics. And so far, that supply chain works for us nicely, and that will continue to evolve, but there's a large degree of risk mitigation by relying on any one territory. And obviously, where we do source from depends on proximity to market, the technical attribute of the merchandise and the price of the merchandise as well. I said a little bit earlier that the operating model is one of a value retailer, and the reward systems are aligned to that, that if there's overperformance, then the reward really comes through. That also protects you on the downside when performance isn't there, then there's no performance pay. And when we are talking about the DNA of the business, one thing that is completely understood across our whole business is the saying that every decision every day must support our value routes. That's lived in the business. Highly cash generative, what we do internally with cash. Our investment decisions are always based on an ROI and a business case. And if you get the investment, then you're also responsible for telling us and proving to us that the business case has been achieved. Likewise, very focused on cash generation, and I'll explain some of our achievements on that, not just the recent cash flow, but when you just stand back and see what we've done over the last couple of years and expanded our business and still in the position with cash, I think that's been well thought through and well executed, I think. Praneel was talking about the way that we manage overheads. We've done that year after year. And as I said, there's a lot of discipline and there's a call to action that has proved itself it works. I think the next phase of unlocking efficiencies, however, isn't the more tactical nature of things, which we tended to do. But with all the retail chains and the size of the business and the complexity of the business now, there's a much deeper level of work to unlock efficiency and it's the reengineering, reconsidering the business. So I've just recently launched a program to do exactly that. It's going to be Exco led. There's very senior members of our Exco team that are going to be heading up the project. And the brief is really if the Mr Price Group didn't exist and we are starting it today, how would we be shaping that organization. So it's not something that results are going to be focused on getting into the short term, but it's taking a long-term view of the business. And if we can get efficiency that way with our cost management that we currently do, and an environment that has got this healthier consumer behavior or environment, then I think that's the thing that's going to tick us up going into the future. We've also spoken -- in fact, we spoke at the last results presentation about being a data-driven organization. I won't go into everything here. But then in that middle block, you can see some of the -- how that's translated into actual statistics. Number of information dashboards, we've got AI and ML models deployed into the business, man hours saved through automation. One of the things that we're going to be focusing on is not necessarily implementing a CRM system, but making sure that we've got access to a lot more customer data that will help inform decisions. So that's a project that's currently underway as well. Okay. I want to now go and just talk about -- maybe just start by taking a step back and explaining the strategic planning process over the last 5 years or so. Yes, it's something that I'm -- we're often asked what are we up to, what's shaping our thinking, and I think it's certainly the right time to do that because we've said to the market, well, I guess, for probably the best part of 2 years now, that we're doing research. There's a lot of effort going into it. And as we do that research, I suppose just the way that we landed the acquisitions as well, that there is a body of work to be done. But as we do it, we can't get it distract from running the business. And I think that we've proved that we've achieved that. When I was appointed in 2019 and obviously, early part of 2019, the latter part of 2019, COVID hit South Africa in 2020, and that was a great time for us to sit back and think about where we wanted to take this group. So we did some detailed research there, but it was -- I also had to evaluate the business that I inherited from my predecessor. And obviously, there were certain things that I wanted to change in that. But there are limits to what you can do. So my initial priority was given that COVID was on the go and given that we were doing a lot -- or my plan was to do a lot to strengthen the inherent core structure of the business, and that's where the immediate focus went. So you had all known about the DC that we brought in, the ERP replatforming, et cetera. And overlaying all that was quite a significant change to our management team. So I had to be quite careful in what I introduced into the business, given what I've just explained and had to make sure that even in the case of an ERP, which is very time consuming, I wasn't being too demanding on the business whilst they were coping with all that change. So we had been through a process we had identified many organic concepts. And when I say many, there were numerous. And we ended up implementing Kids and Mr. Price Cellular. Kids was an offer that was preexisting, but how we were actually shaping it in the business changed. So those 2 took priority and now they're a ZAR 4.3 billion business. Simultaneously, whilst we are focused on building our backbone, whilst we are focused on these organic concepts, we actually had been through thorough market research. To cut a long story short, we acquired 3 businesses. And today, those businesses contribute to ZAR 11.7 billion turnover, which is 29%. The operating profit is ZAR 1.2 billion. And there, you can see the store numbers to date with a very healthy future rollout potential as well. So between 2019 and 2025, we invested ZAR 10 billion in CapEx. Our revenue went up from ZAR 22 billion to ZAR 40 billion, dramatically increased the number of stores. Our HEPS went up to ZAR 14.24, and we maintained our dividend payout ratio. I think to reflect on that and the achievement of that in probably one of the most tumultuous trading periods that I've experienced in business, to have acquired 3 businesses contributing that to our turnover. And as Praneel said, we've got about ZAR 3 billion of cash actually tells you the extent to which we've deployed the cash that is available to us and how we've executed over that period. So if you look at the group right now, I think we've got very strong bands. I've spoke a little bit about that, and we've got a great corporate culture. We've got a talented and ambitious team, and we're consistently performing. I said we'd like the numbers to be higher, but it's consistent and it's top quartile and top quartile metrics as well. But we are continually evaluating organic growth opportunities locally and acquisition opportunities. However, the bigger we get, and I think it becomes more and more difficult to identify other businesses that meet our capital allocation criteria. So when we're looking at South Africa, there's no doubt that we can still benefit from scale, and that is online growth, store growth, as I've spoken about. And I'm feeling very comfortable about the growth prospects relating to those 2 things. I've spoken a bit about the focus on the customer as well, the customer obsession and getting more data that will help us inform decisions that will benefit the customer and drive sales is a focus area and supply chain excellence is something that we are very focused on, too. The reengineering program that is about to start to look for efficiency that will -- my guess is it's going to take probably 3 to 6 months to really get to grips of what's in play there and therefore, the execution period thereafter. And something that we've handled, I think, very sensibly is selective integration with these acquisitions. So we haven't forced anything. Of course, some things became -- we were more urgent than others. But a lot of the integration now is really around supply chain and related activities, logistics, et cetera. So one of the things that we're actually going through right now is with one of our -- the chains that we acquired is ran a test on bringing them into our distribution network in a test area that's delivered exceptional results and that will now be rolled out across the rest of that chain. So that's -- it's an excellent example of selective integration. And of course, we're going to continue with the technology evolution and I must stress that whilst we're trying to reengineer and look for cost savings, this is an area that we'll probably seek to redirect money into technology to leapfrog even further. So how am I feeling about SA? I think I'm feeling very comfortable about the performance. I'm feeling very comfortable about our discipline and what we're aligned to run the business. And I think we've got adequate opportunities there to carry on growing the business. And hopefully, the economy will start playing its part and should paint a very good picture, which takes us into Phase 2 of the strategy. So if you just consider that we've got our group investment matrix in place in South Africa, we've got a well-established Exco structure. And I think we've been executing well. The business is in sound shape, as I said, but we've got to recognize that South Africa is a low-performing economy. If you look at the GDP growth, you've seen the reduction over the years to the low point there of GDP growth that was almost flat. The projection out to around 2030 still shows GDP under 2%. The projections I've seen to 2050 see it coming below that number by a bit as well. So -- and of course, with these projections, there's always the chance and it's probably the tendency that projections are never quite achieved. Sometimes they're too bullish, doesn't mean that we're not hopeful that the green shoots that we're seeing will translate. But of course, at these kind of levels, it's hardly a robust and a nongrowing economy the way that we would like it. So you do know about the existence of our Apex strategy team. That's been a dedicated team that's been in place for more than 2 years now. Whilst we are looking and elevating SA businesses, we also elevated our research to look for new areas of growth. And it's really around the long-term execution of a vision. It's not quick growth that we need to stick on. It's all about the long term. We've really unpacked the pros and cons of organic growth versus acquisitive growth, and there is room for both. But of course, there's different things to consider in each. And very importantly, we've been considering local opportunities at the same time as we've considered offshore opportunities. But just to say, just like anything that we've done and anything I've explained up until this point, we're a group that thinks very deeply about things. And certainly, our thinking has been multilayered and includes the use of third parties, advisers, country visits, et cetera, et cetera. So it's -- these layers all help paint the picture. The key outcome is, and this has been, as I said, multiyears work, is that key territories outside of South Africa have been identified. And by identifying those, we also consider all the key risk mitigation considerations. It's fair to say over the years, it's not just the last 2 years, of course, it's way beyond that, that we've had a look at or assessed many, many opportunities. And I'm talking particularly offshore now and the fact that we haven't landed any means that we've been very selective on what we're looking for. So -- and once again, it comes back to the principles that we're setting and do those businesses meet those or not. And I suppose looking at my responsibility as a CEO, I suppose all CEOs have got this responsibility. It's to consider the markets that you operate in. It's to consider growth, consider the risks of achieving that growth and ultimately adding shareholder value over time. So when we're looking at new territories, we are only interested in identifying sustainable regions for long-term growth. The market size, the ease of doing business and the competitive landscape within that region are all critical and will be evaluated. And of course, it has to have a stable macroeconomic and political environment and tailwinds for sustainable growth. And then lastly, it really doesn't help if you've -- if you've ticked some of those things that I've just mentioned, but the currencies all over the place were even weaker than the rand. Credit -- the rand strengthened recently, but obviously, we want territories that don't weaken that position. Looking at actual guiding principles rather than just territory now for individual considerations is the size of the transaction will be appropriately considered. Very importantly, we want to acquire on the merits of the target. The in-country management team is absolutely critical. They're the ones that have got to run the business the way they've been running the business with limited interference from us and our input would be strategic. And therefore, getting the right management team is probably you can't get beyond that into the next block if you can't give that a tick. The asset itself has to have very clear growth prospects, and we don't have any appetite whatsoever for a turnaround. And certainly, what we're looking for is that in terms of the company itself is that we would like that company to be a platform for regional growth. So I'm not saying an online platform or anything like that. I'm saying a management team platform that can do justice to a region instead of perhaps just the country that they're located now. And then, of course, you can -- all those things, I think, are quite obvious why we'd look for them. And then as a final piece, you also want to consider synergies, I suppose, both ways. And then lastly, you'd also want to consider what about our brands in those locations. But we wouldn't plan to lead in with our brands. We want to, as I said, acquire for the merits of the target and let that management team who knows that particular territory very well, assess our brands for suitability into the country. So a lot of thinking, a lot of progress being made on that front. And yes, I think it's been a very thorough process that we've been through over the last couple of years, and we'll continue to focus on. The outlook, which I was referring to quite a few times in the presentation. And look, I think the great thing is that change has to start somewhere. And if you had to look at the outlook that we're seeing now to perhaps a year or 2 ago, I think we're in a completely different position. We've got stable electricity supply. We've got improving port infrastructure. So from the infrastructural point of view, things are a lot better. And then also from where -- what's affecting the economy and the consumer, things are looking a lot better there as well. Rand has improved. We're targeting low inflation of around 3%. Interest rates have been declining, and they are forecast to carry on declining. So I think what I said a little bit earlier is that once we get out of this two-pot base, I think we're going to get a really good read on the health of the consumer. But obviously delighted at this point that things are heading in the right direction. And even GDP growth, even if it's only circa 1%, maybe 1.2% this year, it's also headed in the right direction. So looking good there. It's premature to say that there's been a consumer revival. I think the update from all the retailers is sort of proving that, that's not the case. But I think it could well be the case as we head into the new year, but we just got to get over this lumpy base. And as you know, we performed very well this time last year. In fact, it was only March that was a disappointing month for us. So a strong base up until the end of April -- up until the end of February. And then just in terms of trading post the end of September, retail sales were up 3.1%. We pointed out what the base was. It was 12.3%, which was high. But if you look at the individual months, the RLC for October has just come out. We obviously weren't happy with October performance, but we did gain market share, believe it or not. And the momentum going into November is much better. So we're back into that sort of mid-single digits, slightly above, which I think we'll take relative to the October performance. So quite happy that momentum is improving. Quite happy that as you reach out into the future, the economy and the consumer environment seems to be on the cusp of an improvement. So I think overall, we've got a lot to look forward to. Thank you. Matthew Warriner: Good morning, everybody. Thank you for all of the questions that have come through. There have been a high volume of questions, so we're going to do our best to get through as many as we can in the time that we have remaining. I'm going to start off with some questions around operational performance. As Praneel -- maybe we start with you. With the sales environment softer due to the consumer challenges, do you have the same cost levers to pull in H2? Quite a few questions around H2 OpEx and the impact on the full year. Praneel Nundkumar: Yes. Thanks for that question. I think we have demonstrated that cost control is something that's always top of mind for us. Just in terms of how we're seeing it playing out and maybe how you should be thinking about it is the medium-term target range that we had set. So we had noted in June that, that range was between 27.5% and 28.5% in terms of expenses to RSOI. Our focus is to come in within that range. Obviously, we'll try and manage as much as we can in the second half. And as Mark mentioned, post period trade, also a bit subdued, but gaining some momentum. So we're watching the sales growth quite closely. And as I mentioned, also, our merchants are reacting quickly when they need to, to manage inventory at the same time. So all in all, Matt, I think that the range is where we will most likely want to land up in, and that's what we're aiming for. Mark Blair: I think just something to add there is that the base isn't a surprise to us. We always knew it was there. And therefore, anything that we also have to do on a cost basis, the thinking doesn't just start now. To some extent, we've preempted things. We've identified areas that we need to start pulling back, and that's all been set in motion. Matthew Warriner: How should we think about management preference should demand be soft in the festive season? Are markdowns preferred during the festive season or rather than Jan, Feb to clear stock. A couple of other questions just around the high promotional environment in H1. Is promotion a seasonal thing that could impact H2 as well? Mark Blair: Yes. Look, to some extent, we've got to concentrate on what we're really good at, and that's getting that fashion value equation right. But I must say, when the top line is not there in the market generally, the retail environment does become rather brutal. You've got heavy, heavy promotions. And of course, what that does do is bring higher-priced merchandise more closely still well above ours, but closer to our price. So that's not a great equation. But of course, we also know that competitors can't be living with this elevated stock position all the time. So when you go into December, the worst thing that I think that could happen is that you carry on your problem into the new year. So of course, seeing the trends for this year. We have updated our views on merchandise, on stock flow, on stock commitments. To the extent that, that doesn't play out, then, of course, you're going to be -- I guess, there's the threat of margins going against you. So we -- by track record, that's something that we got against at all costs. We try and manage as well we can. And I think there are very limited scenarios that you would be comfortable carrying stock into the period post December, but then it's got to be that you've actually acquired it with -- and there's no risk to the carry. So it can't be very seasonal, very fashionable stuff that's trending that might be out because you're just going to then have to deal with the problem even more severely in the new year. Matthew Warriner: Thanks, Mark. I think you've covered the one major driver to GP performance in the second half. Praneel, maybe just to cover the second half of that, and I'll read out one specific question, but there have been several on this. If you could give some color on annual GP margin expectations. You mentioned in June several factors that could be supportive of H2 GP. Quite a few questions around the rand and input prices being better a couple of months ago, the impact into second half GP. Praneel Nundkumar: Yes. Thanks, Matt. From a GP perspective, I guess you would understand that there are some supportive factors. So we called out kind of oil prices, cotton prices. We've seen where the rand has been kind of trending recently. The other big one also is shipping rates coming down. So the one piece that's also unclear, and it ties back to the comments Mark was just making now in terms of the second half and the promotional activity, what we have seen and you would have seen in the market is that when there's deep discounting in the market, it impacts and the reaction really then starts sitting in, in terms of where GP lands. So I think that there is some support for GP in the second half. I think what we need to watch quite closely is whether the market is as promotional as it was in the first half. But I think when I take the kind of high-level view, I think the important thing is those medium-term targets. So you'll remember in June, we said that for the group, the medium-term target range is between 40% and 42%, which is the same for the apparel sector and the Homeware sector is slightly higher between 41% and 43%. So we are aiming to land within those ranges more in -- aiming for the middle part of those ranges, but that's kind of what we're expecting or what we know at the moment. Mark Blair: Of course, in an improving currency situation, you do have 2 choices. The first choice is to take margin or the second choice is to pass the pricing through. So without sort of revealing our hand at this point, there's going to be a combination of that, but it's very critical for us to keep an eye on what pricing and what relative value there is in the market so that we do keep our value proposition. Matthew Warriner: And then just lastly, with regards to operating metrics, quite a few questions on central overheads and then a question specifically talking about op margin gains were healthy at a segment level. Can you give us some color on the dilution when looking at it from a group perspective? And yes, several questions just around the central overheads into the second half as well. Praneel Nundkumar: Yes. Thanks, Matt. I think on the slide that when I paused on the op margin slide, I spoke about the fact that there are central costs sitting in the group line, which is not the same from a trading division perspective. And then on the overhead slide, I spoke about the fact that there's base effects of the LTIs that were forfeited in the prior year. So that really was the non-comp base effect. Also, when you look at the performance of the trading segments, you would have seen as I've gone through the segmental slides, you would have seen that the operating profit from the trading segments were quite healthy, which also means that from a group central cost perspective, there is an STI component based on performance that's also non-comp in last year. So those are the 2 key things that are sitting in that group central costs that then impact the group ratio compared to the divisional ratios. But again, the medium-term target range for op margin between 13% and 15% is what we're aiming for as we look forward into the second half. Matthew Warriner: Okay. Just moving on to drivers of sales. The last 4 years has seen some aggressive space growth. Will you continue with this approach going forward? And just some questions as well as to what returns we would expect on space growth going forward? Mark Blair: Yes. as Praneel was saying a little bit earlier, we've set internal thresholds roughly 3x our WACC. And look, I think if we landed at sort of space growth between 3.5% and 4% this year, that is going some, but it's a space that is working for us, as we said earlier. So to the extent that our actual store performances remain, then I'm very comfortable with continuing with store expansion. The question does become, does it become harder to find the quality space with not a lot of new property builds happening, that is always something that we'd look at. I would say we'd probably -- we'll go into the budgeting process for the new year shortly. In fact, it's underway now. But I'd probably say that it would be safe to sort of bet around space growth around 3%, maybe slightly lower. But of course, if we presented with great opportunities and we model them correctly and they're generating -- and on paper they're generating the returns, we mustn't be shy to take the good space. And the other thing is that it's not one chain we're looking for in terms of that space. So it's multiple chains that are performing that all have got the desire for the space. Our job internally is then to say how much capital are we putting into store growth because we also want to spend on revamps. And therefore, that limit that we place, which chain is getting the space. And of course, that then gets down to a couple of other factors, which includes store performance. Matthew Warriner: It seems like Home is turning around with volume growth and profit growth. Would this be a fair assessment? Mark Blair: Yes. I think the trajectory of Home, we've continued to see market share losses. So that is the one negative. But I suppose it was like we're discussing a little bit earlier around margins. We've had GP gains in the Home sector, and that's what it's absolutely all about. So it does show you that without achieving the top line that you want, and I'm not unhappy with the top line, but it could have been higher if we went and chase sales a bit more that we can still generate a good profit. So the home sector, in fact, all 3 businesses, Sheet Street, Yuppiechef and Mr Price Home, I'm very happy with. Matthew Warriner: Praneel, just last one on sales drivers. The credit environment seems to have showed some steady improvements. Is there an opportunity to push the channel more into 2026, considering the lower net bad to book relative to the industry? Praneel Nundkumar: Yes. I think the credit growth is always topical, but as we always say, it's not a big part of our business. We also noted, and you would have seen from the consumer environment and some of the data points around this challenge in the consumer environment, we're obviously trying to manage risk as closely as possible. So we noted in the first half that the approval rate was higher than last year by 360 basis points, so probably mid-22%. We most likely will expect that to continue into the second half. I think if the environment becomes more supportive, and we see the data points in terms of customer affordability and customer behavior from a credit score perspective being in line with that, then yes, that will be an opportunity for us. But again, not an aggressive growth for credit is expected, but we're watching the market and the consumer health and affordability very closely. Mark Blair: Yes. Just to add to that, that consumer health is critical. We've got our own experience going back quite a few years now where we pushed credit into the market in the absence of improving credit health -- on the consumer credit health, and it actually counted against us. And the problem was that by pushing it too early, because you've got a situation where customers rehabilitate themselves, pay down some months, don't others, you've got this lump that moves through your system, and it doesn't just take 6 or 12 months because that's a credit term because of the rehabilitation, you're probably left with a mess in your portfolio for about 18 months. So really premature for us to think about pushing credit at this point. Matthew Warriner: Praneel, just a balance sheet question before we move on to some capital allocation questions. With the improved port operations, are there more working capital benefits that come in relation to inventory days from holding less buffer stock? Praneel Nundkumar: Yes. So we've been looking at this buffer stock quite closely in terms of port operations. We did note that there's been some improvement in the operations. And we did say even in June that we started to relax some of those buffers that we had in. So in terms of managing inventory to year-end, obviously, quite tight. It will continue to be quite tight. So yes, I think that from an inventory perspective, we're not foreseeing any additional buffers required in the second half, and we're quite comfortable with the stock levels as we see them play out. I mean the merchants -- other than just the first half, obviously, the merchants have been very busy as we go into the festive period now to manage the inputs and we're watching the sales also. So if those come off, then we can react quite quickly in terms of where the stock lands, but it's something that's in hand. Mark Blair: I might just add there, too, that we've, for some time now, have been communicating our focus on cash flow and therefore, stock turn is one of those critical parts of that. So when you're in quite a tumultuous situation that there's supply chain issues relating to shipping and containers and vessels and everything that we've been through, it's quite hard for merchants to deliver stock turn improvements when you're building buffers into your processes, absolutely necessary buffers. But as that then reverses, our real objective of improving stock turns should then be executed. Matthew Warriner: Okay. Moving on to some questions on capital allocation. I've been several questions relating to the current cash balance and share price and therefore, appetite for share buybacks. Praneel Nundkumar: Yes. I think we've discussed before that from a share buyback perspective, we obviously have a framework that we look at in terms of a target share price, target P/E ratio in terms of how we look at leading indicators in terms of that opportunity. What we always come back to from a capital allocation perspective, though is what are the returns from the other avenues that we can deploy capital to. So we quite -- as Mark mentioned, in terms of the store returns, we're very satisfied with those store returns in terms of where the portfolio is delivering. So we find that a really good avenue to allocate capital to. And the other piece that from a capital allocation is quite key -- quite a big number. We spoke about the ZAR 770 million for the 9% acquisition of Studio 88. Remember, there's still 15% left. So looking forward, that's another big piece that also drives our capital allocation thinking in terms of how we deploy capital. And the dividend ratio -- dividend policy is a big one. I think our shareholders have come to love the kind of dividend flows that come through the 63% payout ratio. That's also quite a big consideration. And also just to note that this year, we said we were going to invest into the infrastructure of the DC. So you'll see that CapEx coming through this year and also into next year because that DC only goes live in September '26. So more CapEx allocated to that project to support growth in the future. Mark Blair: Yes. I suppose the overall thing is use the cash or return it to shareholders either through share buybacks or through dividends. I think certainly what I was explaining around our strategy and our plans for the future, we've got more than enough plans to warrant keeping our cash flow now and to make sure that we deploy it in the best areas to generate future returns for shareholders. Matthew Warriner: Okay. With regards to the strategy update, do you mean outside or inside of Africa? And would you take the MRP brand to them? Just some other questions relating to which countries offer the best upside with lowest risk. And then several questions relating to multiples, deal size, et cetera. So maybe, Mark, just what you can share now with regards to the question on markets and other information. Mark Blair: Yes. I largely addressed, I think, most of those things in what I already said. I think the -- I'll go back a few years now. And I suppose at one point, there was always this hope of an expansion into Africa. That was the new frontier for a value retailer that seemed like it was an obvious place to go. But it is difficult to do business in some of those territories. And as a result, I said I think there's limited opportunities in SA. There's none that we've identified in the rest of Africa. So that's not really a focus area for us at all. I think it's premature at this point to start speculating on which other markets and territories and stuff like that. I think we've got to finish our work and then communicate at the right time. Matthew Warriner: Great. So thank you very much for everybody for joining today. I think we've covered the main themes. There are obviously many questions in between on other topics. So I do have them and will reply. Otherwise, please do send them directly to me. We can either cover them via e-mail or in catch-ups over the next few weeks. Thanks very much for joining today. Mark Blair: Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Volex plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. And I'm sure the company will be most grateful for your participation. I'd now like to hand over to Group Chief Executive, Nat Rothschild. Good afternoon. Nathaniel Philip Victor Rothschild: Good afternoon, everyone, and welcome to the Volex half year results presentation. I'm going to provide you with a summary before handing over to Jon, who will give you more detail on the performance in each market. Following this, I'll update you on our strategy before we take questions at the end. Before we turn to the results, I'd like to talk to you about a further step in our strategic journey I'm delighted that Dave Webster has agreed to join as our Non-executive Chair, enhancing an already exceptional Board of Directors. Dave has unique industry experience. In his current role, he's led the transformation of CPM, a global leader in advanced process automation equipment. And prior to that, he was the driving force for growth and transformation as the CEO of Electrical Components International or ECI, a leader in consumer electrical and off-highway harnesses. He brings decades-long customer relationships in our space, particularly in North America, and he will strengthen the Board's sector insight. His experience will be invaluable as we scale our North American operations and deepen our customer partnerships in this important market. This month, incredibly marks 10 years since I joined the Board of Volex and became Executive Chairman in effect, combining the Chairman and CEO roles. I came into a business that was in decline with less than $400 million of revenue and a market cap of about GBP 50 million. And in fact, it dropped down to GBP 30 million at the low and I set about building a new organization, including talent from within Volex who had not been given the leadership they deserved. So with this excellent team to support me, a lot of hard work and endless travel, we've created one of the true standout success stories in U.K. industrials. A significant architect of this success is John Molloy, our global COO. And he will continue in the same role and is every bit is committed to the business as I am, and both of us have very significant personal investments in Volex. Indeed, my move into the Chief Executive position in Volex merely underlines my deep and ongoing commitment to driving further growth and customer engagement. I will continue to lead from the front, delivering our ambitious plans and bringing in new customers. And I'd also like to say that none of this would be possible without Jon Boaden exceptional financial skills and cool head as the business has become increasingly complex. I'm very grateful to Jon who is sitting next to me. I'm very much as well looking forward to working with Dave and the existing Board to pursue growth in our markets. There are very substantial opportunities ahead, and we have big ambitions. This is a sensible time to align more closely with corporate governance best practice given the scale of our organization and the strong performance we are setting out today. Moving on to the results. We've delivered another excellent first half with revenues of $584 million at an operating margin of 9.8%. We've generated further strong organic growth at 13% despite a challenging macroeconomic backdrop. And in particular, we've seen very strong growth in electric vehicles and data centers. And later in the presentation, Jon will take you through exactly what has happened in each sector. The strong performance is proof that our strategy is working. Investment we chose to make in previous years is supporting growth this year and beyond. Our capabilities make us a first choice provider of critical connectivity solutions for global technology businesses. As the world changes, we're changing with it, and we are evolving our footprint to follow the demands of our customers who are reconfiguring their supply chains to deal with tariff challenges. Our move towards centers of excellence where we can deliver a range of the most advanced Volex solutions in a single location has resonated strongly with customers. It also gives us the opportunity to rationalize smaller sites, thereby improving the overall efficiency of the group. We continue to win new projects with our customers, particularly with electric vehicle customers and in the North American off-highway space. Our first half performance positions us strongly relative to our 5-year plan, which, as you may recall, sees us getting to $1.2 billion of revenue by the end of FY '27. Our strong results for the first half or another significant step towards these objectives. Before we break out the individual markets, it's worth talking about how our customer-centric approach delivers deeply embedded customer relationships, giving us confidence in our strategy. As you should all know by now, we work with the biggest technology brands in the world who have earned recognition as leaders in their fields. They trust us to deliver manufacturing solutions that meet or exceed their quality, reliability and functionality requirements. Although our assemblies might be a small part of large and complex systems they play a critical role every time. This is no different whether we are powering a domestic appliance that brings convenience to everyday life or connecting the key components at the heart of life-saving technology. We've built a business that revolves around the customer. We anticipate their needs and rise to their challenges. Our engineers define innovative production solutions and optimize processes for products that are assured to perform in challenging environments. This creates strong customer lock-in and sticky relationships. In many cases, regulatory requirements form a barrier to our substitution in the supply chain. In others, our deep expertise and consistently strong delivery position us as a preferred manufacturing partner. So this customer-led approach, disciplined reinvestment and daily operational excellence form the foundation of a business that compounds value over time. Many of our largest customers have been working with Volex for longer than I have been operationally involved in the business. Over the past decade, revenues have trebled given by expanding share with existing customers, winning new products and customer projects and customers and a targeted acquisition strategy. Operating margins have strengthened from 2% to a consistent 9% to 10% range, maintained successfully for the past 5 full years. And as a result, operating profit has grown from $7 million in FY '16 to $106 million in FY '25. This performance reflects stringent cost control, relentless operational improvement, talent attraction and retention from the top to the bottom of the organization, plus targeted investments in future growth, each aligned with our customers' priorities. And this combination of growth and margin expansion has translated into basic earnings per share rising from $0.015 in FY '16 to over $0.36 in FY '25. Volex continues to steadily build capability, deepen relationships and deliver consistent, sustainable returns creating shareholder value that compounds year after year. I'll now hand over to Jon to take us through the financial performance in the end market. Jonathan Boaden: Thank you, Nat. So first and foremost, I'm incredibly pleased with the results that we've been able to deliver and this is an excellent performance of $584 million of revenue in the first half of the year, which represents organic growth of 13%. Profitability is towards the top end of our margin target at 9.8%, which means we've delivered $57.2 million of adjusted operating profit in the first half of the year. With lower interest costs, that means we've increased basic earnings per share by 30% to $0.197 per share on an adjusted basis. We've maintained a strong track record around return on capital employed despite the investment that we made in our business, which includes putting in additional working capital to support customers. And as a result, we've stayed at 20% return on capital employed. These results are an indication of a business that is in great shape and navigating dynamic market conditions effectively. Over the next few slides, I'm going to take you through what we've seen in each of our end market verticals. We've established a market-leading capability in electric vehicles and are recognized for our proficiency in both designing and producing key components to power the next generation of transports. Our long-standing partnership with leaders in EV technology has positioned us well to support a broad cross section of the EV market. Much of our 13% organic growth has come from expanding our capabilities laterally to meet evolving market demand. This includes delivering complete AC charging solutions through integrated end-to-end manufacturing. Consumer demand for electric vehicles has continued to grow in our key markets in the U.S., Europe and China. EV sales as a percentage of new car sales recently hit 30% in Europe and 58% in China. While changes in government incentives in some markets such as the U.S. may soften short-term consumer demand, long-term prospects across key geographies are strong. Our footprint allows us to be flexible around customer requirements. For example, we are moving a new program to Mexico to support the customers' tariff optimization strategy. And while this will push out the timing of the initial ramp-up, it is exactly the type of dynamic problem solving that strengthens relationships. With enhanced capabilities supporting a wide range of global automotive brands, we have confidence in our ability to grow EV in the medium term. It's worth starting the explanation about consumer electricals with some context about the performance we've seen over the last 18 months. We have what you might call a post destocking rebound in the first half of FY '25 when we hit $132 million of revenue. This normalized to $125 million in the second half of FY '25. For the first half of this year, we delivered $126 million, slightly down versus a year ago and more in line with the H2 performance. This represents an organic decline year-on-year of 6%. Main voltage power cord continue to represent the largest share of what we do. We work with some of the biggest consumer brands in the world where reliability, reputation and customer experience are key priorities. These brands choose Volex because they have confidence in our ability to exceed their quality and safety demands. Vertical integration and scale in this market means that we have relationships with all the major domestic appliance manufacturers. This is giving us significant traction as we continue to push our harnessing capabilities, an area where we see strong opportunities for growth. In fact, harnesses and other complex assemblies now constitutes almost 1/3 of revenues. In the second half of the year, we have a new incremental harness opportunities in Europe. We've seen some secondary impacts from tariffs on European domestic appliance manufacturers. Some of the Chinese competition have reallocated their marketing spend from the U.S. to Europe and are pushing inventory into the European market in response to U.S. tariffs. This is likely to result in some short-term rebalancing with medium-term growth weighted more towards harnessing opportunities. Now moving on to medical. Although medical is the smallest of our sectors, we proudly support health care innovators whose technologies are transforming patient outcomes and improving lives. Our assemblies distribute power and data through sophisticated medical equipment, ensuring reliability, accuracy and patient safety. The first half of the year has seen disruption in demand for complex medical devices, reductions in spending for both medical research and public health care and the impact of tariffs are leading to reduced or delayed orders for some large medical equipment. The effect is different between customers with some customers continuing to increase demand during the period, but others looking to reduce orders and manage inventory levels. We have the flexibility to manage this variability within our operations and support customers as demand pattern shift. It is against this backdrop that we saw our sales in the medical sector declined by around 10% organically during the first half of the year. It is likely that the uncertainties caused by the impact of tariffs and policy changes will continue in the short term and will result in a headwind to medical demand. However, we remain very positive in relation to the medium term. This is partly due to the success in winning new projects with significant medical brands, expanding the range of customers that we work with. In addition, structural growth drivers are very strong in this sector with rising demand due to demographic change and advances in technology, creating new diagnostic and treatment options. And with our significant and in-depth understanding of our customers' requirements, we are well positioned to meet the needs of these health care innovators. We've seen excellent organic growth of 48% in complex industrial technology with data centers a significant part of that, but we've also had growth across the other categories. Outside data centers, which I'll come back to shortly, we're delivering complex assemblies, both wire harnesses and printed circuit board assemblies into highly specialist and demanding applications. Our customers need exceptional quality and complete confidence that the solution will work first time and every time. Meeting their challenging technical and scheduling requirements takes coordination across our operations and engineering experience to support the build process. When we successfully deliver, we unlock additional project opportunities and further repeat business, which contributes to our growth. We are well positioned in the U.S. market with advanced facilities, which are accredited to deliver defense and aerospace products. This includes involvement in major programs that is stepping up to address current defense challenges. Our overall organic growth outside data centers was over 20%, and much of this came from defense projects. In parallel, we're seeing increased demand from core industrial applications such as building environmental systems. Although the end users are different in all cases, customers are relying on us to deliver a complex solution with maximum reliability in a competitive way. Our additional capacity in Mexico is an important part of fulfilling these requirements. In data centers, we're supplying high-performance copper data interconnect, operating at speeds of up to 800 gigabits per second. These cables form the critical physical links between servers, switches and storage systems within data center racks, enabling ultra-low latency, high bandwidth connectivity for AI and cloud applications. Growth in data center investment globally is fueling demand for these products and revenue is up by 80% compared to the comparative period. As with so much of our portfolio, our ability to manufacture in a variety of locations gives us a competitive advantage given in the ever-changing tariff landscape. And finally, turning to off-highway. Here, we've delivered really strong organic growth of 20% in the first half. This included a project for specialist military vehicles in Europe that doesn't repeat in the second half of the year. This was a project that we were able to win because of our ability to move quickly and respond to customer demand. Our success in this market is down to supporting specialist vehicle manufacturers in areas such as construction, agriculture and large passenger vehicles who have demanding requirements across a significant variety of products. Our ability to leverage our advanced manufacturing platforms to deliver efficient and repeatable solutions despite variable lot sizes is a differentiator in this market. We're making excellent progress in the North America, where expanded capacity and our highly skilled engineers and sales colleagues are securing new project wins. This comes at a time when U.S.-based manufacturers are looking for regional production to manage their supply chain objectives. Let me step you through what we've achieved in margins during the period. We are blending together various operating margins across our entities and then adding in investment in capacity growth and capability expansion. These investments include adding incremental manufacturing space or additional salespeople. On a year-on-year basis, we've improved our first half margins to 9.8%, which is towards the top end of our 5-year plan margin range of 9% to 10%. In achieving this, we've identified cost optimization improvements worth 0.7%, which broadly offsets the impact of inflation during the period. The optimization includes further benefits from rolling out automation as well as the productivity actions highlighted as part of the integration of Murat Ticaret. We also achieved savings through site rationalization of 0.5%. We have a mix benefit, which reflects lower consumer power cord sales and higher revenues from our data center customers. There was a small adverse impact from the weakening of the U.S. dollar, which is our main sales currency. Overall, 9.8% is a very strong first half result, particularly given the amount of investment that has gone into our business recently, Nat will come back to the theme of investment shortly. So now moving on to cash flow. As in previous years, there are some factors in the first half that tend to result in lower cash generation in H1 compared to the second half of the year. EBITDA was up to $73.6 million, a 20% increase over the comparative period. Capital expenditure was lower at $21.3 million, which is approximately 3.6% of revenue and well within the 3% to 4% range that we had guided to. Once again, we had an increase in working capital and higher inventory is a big driver in this. About half of the increase in inventory is coming from data centers, where we hold stock in hub locations to support timely fulfillment of demand. The remaining increase in inventory is across our other go-to-market sectors and reflects the impact of increased demand as well as building buffer stock to support relocation activity. Part of this expansion includes an increase in defense projects, where we hold a greater level of raw materials for operational reasons. Interest and tax are similar to the comparative period, which reflects the timing of tax payments and current debt interest costs in our growing business. The repayment of leases shown below free cash flow includes the exercise of an option to secure the freehold of 2 existing sites at a significant discount to market value, providing greater security and control. Our covenant net debt ratio, which is our preferred way of looking at leverage and excludes operating lease commitments, improved from 1.3x to 1.1x, giving us great balance sheet strength and flexibility. Our capital allocation priorities are unchanged from prior years. Our primary focus is on organic investments. In addition, we continue to explore acquisition opportunities in a disciplined way. I'll now hand back to Nat to update on our strategy. Nathaniel Philip Victor Rothschild: Thank you very much, Jon. I wanted to return to the key pillars of our strategy and outline how this contributed to our first half performance. First and foremost, we are in the right markets where we are winning new business, and I'm particularly pleased with the progress we've been making in off-highway in North America. Our team is getting a huge amount of traction with customers who are looking for a high-quality and cost-effective solution. It is an opportune time for Dave Webster to join our organization. And later this month, Dave and I will be on the road meeting with our customers and visiting a brand-new site we are opening this month in Central Mexico. The substantial growth we have delivered in the last 2 years reflects our ongoing investment program. For example, our product development strategy in EV is delivering growth. Our global capacity investments have given us capability in the right locations to support our customers' tariff mitigation strategies. And this is particularly the case in Mexico, where we have an abundant pipeline of opportunities, many of them new just in the last 6 months. We are a critical manufacturing partner for our customers who depend on our engineering capabilities, our attention to detail and our ability to meet challenging specifications. We build deep relationships by exceeding their expectations. Moving complex production from a competitor or between sites is a big decision. In the last 12 months, we relocated multiple programs for our customers without any major surprises and they have confidence in our ability to deliver. Our people are central to our performance. We trust our teams to deliver. We put our skilled managers at the heart of customer relationships. With the demand into our facilities in North America, we've been augmenting our team in the region, and we are seeing the benefits of this. And finally, acquisitions have been a significant element of our growth story, although it's just over 2 years since our last deal. In the first half of the year, we looked at a handful of varied opportunities but nothing met our strict criteria. With a huge amount of organic growth and new customer programs to deliver, we are looking for well-run businesses with strong management teams that can slot into our organization. We are continuing to pursue some interesting opportunities, but we won't compromise on our acquisition criteria. Every deal we do has to be the right deal for Volex. This investment approach is an important part of how we drive consistent growth and how we position ourselves to win incremental programs with new and existing customers. The qualification process we go through for major new programs is understandably stringent given our critical role. We built capacity ahead of demand based on market knowledge, so we can dedicate space to customers during the qualification process. This has been very successful. Take Batam, Indonesia, where we have now almost filled the additional space we opened last year and also Tijuana, Mexico where we are experiencing strong demand for tariff-free manufacturing, having doubled the size of the facility last year. This month, as I mentioned just a moment ago, we are opening a further purpose-built site in Central Mexico, doubling our capacity in this area. However, footprint is only part of the story. We need to have the right capabilities in our facilities to support evolving requirements and to enhance efficiency. An increasing number of our new programs are built to be highly automated from day 1. In addition, we are retrofitting automation technology to existing lines, reducing operating costs and enhancing throughput and yields. Our vertical integration is at the core of our competitiveness and this differentiates from many of our competitors. And we are currently rolling out additional specialist wire products that we extrude ourselves as well as making complex plastic components and connectors in-house. Our investment in product development focuses on both power products to meet evolving demands in the EV space as well as the next generation of data center cables. And we continue our strong focus on cash payback with the majority of capital programs achieving cash payback within 2 years and often much quicker. This market-leading approach to investment, it helps us to secure benefits quickly and gives us confidence to continue investing in our business. So it seems like yesterday, but we are 3.5 years through our 5-year plan. And our first half revenues of $584 million is a significant demonstration that our strategy is working. It's also proof that we are rapidly closing in on our target of achieving $1.2 billion of revenues. We've been comfortably maintaining our operating margins towards the upper end of the 9% to 10% range, and we are achieving this even after significant investment in growth. And this gives us a high degree of confidence that we will achieve the 5-year plan. So now is the time to summarize our performance and take you through the outlook for the second half. These are, once again, excellent results, a real achievement against the backdrop of tariff-related uncertainty and difficult macroeconomic conditions. And our growth is proof that the strategy is working powered by our investments in incremental capacity and capability. And in addition, as we scale up the business, we continue to achieve healthy margins at the top end of our target range as our operating leverage increases. We have confidence to invest and to pursue acquisitions because we have a strong balance sheet and very significant financial flexibility. And looking forward, we are off to a very good start for the second half of the year. We are mindful of the challenges for short-term uncertainty, particularly arising due to tariffs. However, this is a diversified business with deep long-term customer relationships. Those customers have supported our ability to grow despite these tough conditions, and we expect second half revenues to be broadly in line with the first half. In fact, we see the changing global trade environment as an opportunity for Volex. With our geographic capabilities and ability to support customers moving manufacturing between countries, we are well placed to secure further growth. Given our sustained focus on long-term value creation and our tremendous progress against our current 5-year plan, we have started working on a new 5-year plan and this new plan will reflect the strong and scalable business we have created and set out our ambitions for both revenue growth and margin improvement for the next stage in our journey. We will share this plan with investors in due course. And now we would be very happy to take your questions. Operator: [Operator Instructions] Jon, Nat you've had a number of questions from investors today. So thank you, firstly, to everybody for engagement. Jon, if I may just hand back to you, if you can take us through the Q&A and then I'll pick up from you at the end. Jonathan Boaden: Yes, of course. Thank you, Mark. Yes. So I'm going to collate the questions because often we get several questions on the same topic. So what I want to try and do is try and answer as many as possible and go through a broad cross section of the things that are being asked today. So the first question, one of the pre-submitted questions is, will your manufacturing center around Turkey or might you expand in the U.S. partly in order to mitigate the impact of tariffs? Nathaniel Philip Victor Rothschild: Do you want me to answer that one? So look, we've got 5,000 people in Turkey. We have, I think, 8 sites there at the moment. So we're committed to Turkey. We have more than enough expansion space at the moment, should we need it. And we've also just opened a brand-new low-cost site in the center of Turkey, where labor costs are highly competitive. I think in North America, North America has always been a critically -- the critically important market for us. And if you look at what we've done in Mexico where we have doubled the size of our Tijuana site, and as I said, at least one occasion in my presentation, we've opened a new purpose-built site or we're going actually next week to open a new purpose-built site in Central Mexico. So we are covered for the U.S. market through our investments in Mexico. So I think the -- and we have 2 sites -- 2 existing sites, 2 specialist sites in the U.S.A. at the moment. Jonathan Boaden: There's another question here about -- we announced that we were manufacturing partners for AFC Energy. And the question was to understand how significant that partnership is. Nathaniel Philip Victor Rothschild: So I think that you would need to go and extrapolate from the AFC business plan what -- how big the opportunity could be. But we have the capability to take costs out of the AFC, the portable hydrogen generators that AFC makes. And AFC's success will be contingent on dramatically reducing the cost of those generators. And we're working with AFC as we speak. And I think you need to look at their management team to answer that question. Jonathan Boaden: There's a question about when the San Luis Potosi facility will be operational, which is actually operational now. It opened at the beginning of the previous week. And Nat and I, as well as John Molloy and Dave Webster actually going to San Luis Potosi to see the new facility and to cut the ribbon on the site, but also more importantly, as an opportunity to introduce Dave Webster to the operations of Volex and to also take the chance to meet with customers. So that's a really exciting trip for us. So there's a question about Medical organic revenues have declined by 9.9%, driven by reduced global spending on health care and research. What is the plan to turn this around? And that's a question from Anthony. And I'll start and if you like Nat, you can add your thoughts. But really, we're not planning to do anything different in medical. Because actually, the strategy we have is working. We have some excellent deep relationships with customers. We have some excellent facilities and overall, we see very long-term structural growth drivers in the medical market, and we feel that we're well positioned. And it's a great strength in the portfolio effects we have across the 5 markets that if one of those markets is experiencing a short-term dip for various reasons, in this case, it's related to tariffs and changes in legislation, then we can still deliver 13% organic growth across the piece. So we don't feel that we need to do anything significantly different in medical because we're already doing all the right things. Nathaniel Philip Victor Rothschild: Yes. And just to add, if you strip out our largest medical customer, we grew organically year-on-year in Medical by a few points. And the medical business we have requires very little capital investment. So the sites we've got, for example, in Poland, and in Slovakia that are exclusively medical, they kick out big dividends up to the group every year. They have very, very healthy margins. The business is incredibly sticky. And we've managed to grow our -- we've managed to diversify our medical business tremendously over the last 10 years. And I'm very optimistic about the medical business. I think the amount of destocking that's occurred over the last 12 months. I think some of the customers have gone too far, and I think you can have a really kind of rip come back next year. Jonathan Boaden: Good. Thanks, Nat. It's a question from Stuart about the fact we referenced tariff-related uncertainty multiple times. And he'd like us to explain which specific tariff regimes by region products are the most material to Volex's P&L. So in terms of tariffs, it's our strategy with tariffs from the beginning has been to pass the costs on to our customers, and we've done that in 100% of cases that we pass through the cost of tariff to our customers. And in these results, there's only really 2 areas which we referenced in the presentation where we've seen the impact of tariffs. Part of it is in Medical, where some of our particularly euro-centric customers are seeing reduced demand as they sell into the U.S. And the other area that we mentioned in the presentation is in relation to consumer electricals where Chinese competition are flooding the European market with product at the moment, and there will be a rebalancing that will occur over a period of time in terms of demand. And we addressed the Medical piece earlier on why we still feel very confident in Medical. And in terms of the consumer piece, as we've talked about in the presentation, the big opportunity in consumer is around harnesses. Now quite often for domestic appliance manufacturers, we will sell them a power cord for $1, a harness for a washing machine or an other domestic appliance, we might sell that for $6. So you can see quite quickly that if we can grow the share of that harness market, that, that could have an appreciable impact on our revenue over a period of time, and that's very firmly where we have our sight set in that consumer electricals business. So there's a question from Peter about which of our 5 end markets, EV, consumer, medical, complex industrial technology and off-highway, do you expect to grow the fastest and why? And I feel that that's a question that's best saved for when we release our new 5-year plan. We've clearly seen tremendous growth over the life of the current 5-year plan, particularly in EV, in complex industrial technology. And the next 5-year plan that we will set out in due course will give an indication of where we think that future growth can come from. But overall, we feel very positive about the opportunities in end markets. And to that end, is there a particular end market that you feel particularly optimistic about, Nat, in terms of long-term growth opportunities? Nathaniel Philip Victor Rothschild: Well, true to form, I still feel optimistic about all of them. But I would pick out -- I think, look, we said it a lot that you have a situation where labor rates are going up in Mexico, and there is an opportunity to showcase low-cost manufacturing in Southeast Asia. And the -- it's reason of consumer electricals and then it's, for example, the commercial HVAC market, which are really suited for manufacturing in Southeast Asia. And those are areas of business that require less capital investment than some of our other silos. And I think those are very interesting areas. So there's a little piece of -- a growing piece of complex industrial technology, which -- and then there's the consumer electrical side where we are seeing -- we're getting great traction. So I've always said that the consumer electricals side of our business is very, very underappreciated. And where we came from 10 years ago, we had a non-vertically integrated power cord business and we had no consumer electricals harnesses at all. Now we have a business doing around $0.25 billion a year of revenue. And it's a very, very underappreciated part of our portfolio. Jonathan Boaden: Good. Thank you, Nat. So there's a question which is asking for -- from RW asking for some clarification because there's a statement I made, which is along the lines of that there's an increase in working capital driven by investment in inventory. And I mentioned that part of that is because we're operating through a hub model in data center sales. And the question is, can I please explain what that hub model means. Now how that works, how certain customers ask us to support them is by putting inventory into hub locations, particularly in the U.S., and that allows us to manufacture in Asia, and then we ship to the hub locations and then that inventory is available for the customer to pull to meet their requirements. And it works very well for the customer because that inventory sits on the Volex balance sheet which is one of the reasons why you see this adverse movement in working capital. But for operational reasons, from a customer's perspective, they like that confidence that as there are peaks and troughs in demand of their particular use case. So when they're building data centers that they need to move very quickly to populate the data center with infrastructure, which includes all the service switches. And then, of course, the cables that critically connect all of those things together. They want the confidence that they can go to these hub locations in the locality of where the data centers are being built and move very quickly to achieve their build-out requirements. There's a question from [indiscernible] about if we could explain or if I can explain the decline in revenue in Asia. So within the earnings release. We report revenue both in terms of the go-to-market sector, for example, EV or consumer electricals, but we also report a regional split and there is a reduction in Asia and quite a significant increase in North America, and it really just reflects the end markets where we've seen the biggest pull of data center products and the particular customer mix in those markets. So it's just really a function of how we report where particular customer revenue comes from as noted in that release. Question from Melvin. How significant is the volatility of the copper price to the business and what stocking, destocking is taking place in response. So as we've said previously, and remains to be the case for assemblies and products where copper is a significant element of the bill of materials, it is our policy to pass that copper risk through to the customer. So there is a repricing mechanism around copper and when copper goes up, then we're able to charge higher prices, which means our margins remain consistent in the face of copper volatility. And that is a process that has worked very well for us, but it also is something that's very well understood and accepted by the customers. And we haven't seen any significant evidence that customers are either stocking up or destocking in advance of anticipated moves in the copper market. So of course, the copper market moves very regularly and sometimes quite unpredictably. And for some of our customers where they choose not to take that risk, then we back off that risk ourselves by going up to a bank and hedging the copper exposure. There's a question here from Anthony saying that the markets have reacted favorably to these results has been seen by a substantial increase in the share price. Do you think the present share price and market cap is a true reflection of the value of the business? Or do you think the business is still undervalued given the future growth opportunities? Nathaniel Philip Victor Rothschild: So look, I think investors have to decide how to value Volex. I think given our growth rate, our organic growth rate, where we compare against other U.K. industrials, we should trade on a higher multiple. Jonathan Boaden: Good. There's a question from Theo about has Volex ever considered entering the grid electrical cable market given its growth? And if not, why? So I think this is referring to more like the national grids that the supply side of the electricity distribution market. Do you have any thoughts on that, Nat? Nathaniel Philip Victor Rothschild: This is a different business to us. So this is a business that is dominated by companies like Prysmian and Nexans and other large multinational businesses. And this is not what we do. And Also, the business has much lower margin characteristics. Those are sort of single-digit operating margin businesses. So we're looking for niches. We're trying to be maneuverable. We're looking for more -- for kind of less commoditized business. Jonathan Boaden: Yes. Great. There's a question about the percentage of revenue that each of our largest customers make up in the markets that we operate in? Well, in terms of customer concentration that we have a very broad range of customers. And there's nothing that we, from a management perspective, feel particularly concerned about in terms of customer concentration risk. We do have some larger customers, which tend to be very well-known household names that are leaders at the frontier of technology developments and in particular, we see that within complex industrial technologies and within the EV sector. And what's great with working with companies at the forefront of technology is through our manufacturing partnerships and the complex products that we offer to them, we're able to learn a lot about developments in the technology, and that helps us as we engage with other customers who are perhaps a bit behind the -- a bit further from the leading edge. There's a question about whether the boost that gold miners have had this year with rising gold prices has led to an increase in demand for off-highway vehicles to sort of support the gold market. Now I don't think we have seen anything down to that level of granularity. But perhaps a few words on where you see things in the off-highway space and particularly, I suppose, obviously, you have North American opportunity? Nathaniel Philip Victor Rothschild: Well, interestingly, we won a contract with Fortescue to make the wire harnesses that go into the next generation of electric mining trucks and I went down to their headquarters last year and met Dr. Andrew Forrest and had a tour. And that contract has actually unfortunately, gone away because of the decision by Fortescue to move all their production to China and partly because of some of the decisions that this government has taken. And we're trying now to kind of requalify ourselves on the China part of that business. But that's an example of exactly the type of business that we like to do, which is a big off-highway super customized, heavy harness with tons of complexity to it. Overall, the off-highway business has grown 20% in organically through our acquisition of Murat in Turkey in 2022, we've got almost every single one of the major customers and we're now trying, as we said in previous calls, we're trying to then cross-sell those opportunities into other geographic locations. So that includes North America and obviously, Asia as well. Jonathan Boaden: There's a question I'll take from Nick. Given I run one of our support functions, the finance team. And it's about given the growth of AI, what steps are Volex taking to implement AI in our own organization. And it's a good question that there's a tipping point now in terms of how these technologies have developed that it does allow you to run things in a more efficient way. And AI is just one of the avenues that we are looking at and actually using on a regular basis to become more efficient in the back office of Volex. And that's really important because as we grow revenue, if we want to look to enhance our margin position, and we need to do that through further operating leverage, which is all about running as efficiently as possible in the support functions of the organization so that the operating leverage comes through. And as well as AI that we're using cloud technology, we're using lots of applications. We're rolling out a new ERP system, which is going incredibly well and is giving access to a new feature set, and we're using more tools for greater collaboration across the business. So all of these things come together to put us in a position where we're enhancing the efficiency. I think as a final question. We had a question from Chris who says excellent results, well done. I know it's somewhat futuristic, but do you see data centers opening into space? So I didn't know whether you had -- any thoughts on that as we come to close the Q&A session. A rather left field question for the very end. Nathaniel Philip Victor Rothschild: Well, maybe on asteroids as well in space, but it's -- no, the answer is I don't have any great insight into the thinking of Elon Musk. He is the only person who could possibly pull something like that of. Jonathan Boaden: Very good. Thank you. Operator: That's great. Jon, Nat, thank you very much indeed for updating investors. And of course, if there are any further questions, Jon will give those to you post today's call. Thank you once again to you both. Nat, perhaps before I redirect those on the call to give you their feedback, which I know is particularly important to you both, perhaps I could just ask you for just a couple of closing comments. Nathaniel Philip Victor Rothschild: Well, it's 10 years since I've been doing this, and I think it's 5 to 6 for you now, isn't it as well. So we're in the midst of the journey, and we're grateful for the support of all of the retail investors and also the Investor Meet platform, which is very important to us, and we look forward to seeing you in 6 months' time. Operator: That's great. Jon, Nat, thanks once again for updating investors. If I please ask investors not to close this session as we'll now automatically redirect you to provide your feedback. It only take a few moments complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Volex plc, we'd like to thank you for attending today's presentation.
Operator: Good day, and welcome to the last Elastic N.V. Second Quarter Fiscal 2026 Earnings Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Eric Prengel, GVP of Finance. Please go ahead. Eric Prengel: Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Elastic N.V.'s second quarter fiscal 2026 financial results. On the call, we have Ashutosh Kulkarni, Chief Executive Officer, and Navam Welihinda, Chief Financial Officer. Following their prepared remarks, we will take questions. Our press release was issued today after the close of market and is posted on our website. Slides that are supplemental to the call can also be found on the Elastic Investor Relations website at ir.elastic.co. Our discussion will include forward-looking statements which may include predictions, estimates, and our expectations regarding demand for our products and solutions, and our future revenue and other information. These forward-looking statements are based on factors currently known to us, speak only as of the date of this call, and are subject to risks and uncertainties that could cause actual results to differ materially. We disclaim any obligation to update or revise these forward-looking statements unless required by law. Please refer to the risks and uncertainties included in the press release that we issued earlier today, included in the slides posted on the Investor Relations website, and those more fully described in our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures. Disclosures regarding non-GAAP measures, including reconciliations with the most comparable GAAP measures, can be found in the press release and slides. Unless specifically noted otherwise, all results and comparisons are on a fiscal year-over-year basis. The webcast replay of this call will be available on our company website under the Investor Relations link. Our third quarter fiscal 2026 quiet period begins at the close of business on Friday, January 16, 2026. We will be participating in Barclays Global Technology Conference on December 10 and the Needham Growth Conference on January 14. With that, I'll turn it over to Ashutosh Kulkarni. Ashutosh Kulkarni: Thank you, Eric, and thank you everyone for joining us on today's call. Q2 was an outstanding quarter for Elastic N.V., driven by robust growth across the company with AI positively impacting all areas of our business. We beat the high end of our guidance across all metrics, delivering revenue growth of 16% and a non-GAAP operating margin of 16.5%. Our team drove strong execution, achieving sales-led subscription revenue growth of 18% with strength in both Elastic Cloud and our self-managed offerings. We also increased the number of customers spending over $100,000 with us to more than 1,600 at quarter end. The importance of data, especially unstructured data, is growing at an unprecedented rate as enterprises continue to expand their use of AI. The Elastic platform, with its ability to sift through and find relevant insights in terabytes of structured and unstructured data in real-time, is uniquely suited to address the need for context in this age of AI. This ability is driving the acceleration and adoption of the Elastic platform by organizations for their search, AI, observability, and security needs. In Q2, we secured significant customer commitments across all solution areas. We maintained strong momentum in Search and AI while also seeing an uptick in platform consolidation for security and observability, with an increasing number of customers migrating from legacy products to our platform. These factors led to an acceleration in the number of large deals we were able to secure this quarter. In Q2, we signed over 30 commitments valued over $1,000,000 in annual commitment value, with five representing over $10,000,000 in total contract value. Of these five deals, two were greater than $20,000,000, a new record this quarter. In Q1 2025, we strategically realigned our sales team to focus capacity on our highest value opportunities. This quarter marked the fifth consecutive quarter of disciplined sales execution, demonstrating our continued commitment to driving enhanced performance and consistency across the field. These increasingly larger commitments are exemplified by an 8-figure new logo deal where Elastic Security was chosen by one of the largest chemical manufacturers in the world. The company initiated a competitive search to replace its fragmented security tools and simplify its IT infrastructure, seeking an XDR platform that could deliver advanced threat protection and a 35% increase in operational efficiency. Elastic prevailed against multiple competitors. We demonstrated superior capabilities by detecting threats overlooked by all other solutions. The customer chose Elastic due to the proven effectiveness of our technology, our open ecosystem, and ability to scale across their global operations. With the customer now progressing towards an AI-driven SOC, we believe our AI features will enable them to realize even more ambitious efficiency targets. Building on our momentum in security, our leadership in next-gen SIEM led to a $26,000,000 commitment with CISA, the U.S. Federal agency responsible for safeguarding critical civilian infrastructure. CISA selected Elastic Security on Elastic Cloud for a unified SIM as a service offering that will help to secure U.S. Federal civilian agencies. This program will standardize security data collection, enabling real-time threat detection and rapid incident response across agencies, while leveraging our standards-based, highly efficient platform to significantly reduce costs associated with data access and retention. We architected our next-gen SIEM solution knowing that security is fundamentally a data problem, one our Search AI platform is uniquely suited to solve. Capabilities like attack discovery, eSQL, and cross-cluster search help analysts investigate incidents and correlate events across environments without manually aggregating data or switching contexts, accelerating detection, response, and forensic analysis. Our ability to overcome complex data challenges by unlocking the value of unstructured data is directly linked to our continuing success in generative AI. In Q2, we saw strong demand for our platform as an increasing number of customers adopted Elastic for developing semantic search and agentic applications. Our deep expertise in managing unstructured data, combined with our clear product differentiation and context engineering leadership, positions Elastic as the natural choice for building Gen AI applications. This has led to widespread adoption and successful deal closures across numerous industries, addressing a wide variety of use cases. For example, a global financial institution operating in over 100 countries expanded its use of Elasticsearch in a 7-figure deal. This customer leverages the full Elastic platform in a self-managed environment for hundreds of use cases. Their search capabilities continue to grow as they centralize unstructured data to power insights for customer and employee-facing applications. Previously, they attempted to leverage a hyperscaler's Copilot product, but it did not surface sufficient relevant results. Now they are using Elasticsearch as their context engineering platform paired with an LLM for their internal AI applications. Elastic's ability to ensure accurate context and relevance has improved their results, and they are preparing to move the application into production. Our leadership in context engineering and relevance is translating directly into significant Gen AI customer adoption. In Q2, new customer commitments with Gen AI continue to grow. We signed four Gen AI deals that included new business of greater than $1,000,000 in annual contract value. We now have over 2,450 customers on Elastic Cloud using us for Gen AI use cases, with over 370 of these amongst our cohort of customers spending $100,000 or more with us annually, representing nearly a quarter of our greater than $100,000 ACV customer cohort leveraging Elastic for Gen AI use cases. In another Gen AI win from Q2, a global supply chain software provider expanded its use of Elasticsearch in an 8-figure deal to leverage our AI and vector search features in an embedded fashion in their key products. The customer is now also expanding the use of our platform to support future agentic use cases. We are seeing customers expand their use of Elasticsearch to develop their own agentic workflows, and to further empower enterprises in adopting AI agents, we've recently introduced AgentBuilder. This new product builds on the Elastic Inference service and provides an out-of-the-box conversational experience, allowing users to interact directly with any data in Elasticsearch and extends our technology into a new frontier beyond the vector database. It embodies a truly relevance-centric approach rooted in context engineering, by enabling users to explore their data and assemble the necessary tools for quickly building AI agents with robust workflow capabilities. AgentBuilder dramatically simplifies the entire operational life cycle of agents, including their development, configuration, execution, customization, and observability, all directly within Elasticsearch. This powerful capability strengthens our moat of broader Gen AI differentiation, which is also helping us land deals in observability and security, as customers grow with Elastic because of our AI features. An increase in AI-based security threats fueled the large expansion deal with one of the world's leading investment management companies. They are deploying our AI capabilities to proactively combat evolving attacks. This customer expanded its use of Elastic Security to enhance runtime protection with integrated AI, a critical need for securing applications. Default LLM security controls alone were insufficient. The customer required a security solution capable of evolving with their unique requirements. Elastic's Automation First architecture provided them the ability to rapidly evolve to keep up with ever-changing security challenges. As bad actors grow in sophistication, leveraging Elastic's attack discovery and AI assistant allows their SOC to scale their capabilities and proactively address issues. We are seeing similar success in adoption of our platform capabilities across our observability solution. In one observability win from the quarter, a leading U.S. Municipal technology and innovation agency signed a 7-figure expansion deal for Elastic Observability. The agency is tasked with providing infrastructure as a service to all municipality offices. They launched a new project to unify the city's data in a first-class data environment to modernize operations and decision-making. They chose Elastic Observability as the foundational technology due to our flexibility, open architecture, and ability to deliver cost savings at scale through features like searchable snapshots. The agency is now leveraging our AI assistant, which helps them remediate and triage issues, reducing their reliance on external consultant services. Building on foundational components for working with observability data, we introduced Streams this quarter. Streams is an agentic AI solution that simplifies working with logs to help SRE teams rapidly understand the why behind an issue for faster resolution. Streams can automatically organize logs, find meaning and problems in logs by applying AI and the power of Elasticsearch to this unstructured, messy log data. In Q2, we introduced a steady set of new AI capabilities, including a number of features that improve our performance as a vector database. We introduced a managed inference service natively through Elastic Cloud. Inference at scale is incredibly important for vector search, semantic search, and GenAI workflows, and we provide our customers with an API-based inference service using NVIDIA GPUs with our vector database for low latency, high throughput inference. We also continue to improve our vector database performance with new functionality, including the release of Disk BBQ. Disk BBQ is a new disk-friendly vector similarity search algorithm that delivers more efficient vector search at scale than traditional industry-standard search techniques used in many other vector databases. And finally, we announced our acquisition of GINA AI. GINA AI has developed leading frontier-class multilingual and multimodal embedding and re-ranker models, helping businesses and developers build powerful search applications. As enterprises build AI agents and develop software in new ways, defining context and grounding LLMs remains essential. This is why we have invested for years in developing our own embedding models, re-ranker models, data chunking strategies, and more. GINA AI extends and accelerates this strategy. These advancements in AI and vector search are not isolated. They are integral to our overarching strategy of delivering a powerful and flexible platform. This commitment to innovation extends across our diverse deployment options, ensuring our customers can leverage the full potential of Elastic regardless of their preferred architecture, Elastic Cloud or self-managed. We continue to innovate, making our platform more capable across both cloud and self-managed deployment profiles. As part of this, we made AutoOps available for the first time to our self-managed customers. AutoOps simplifies cluster management through a cloud-powered service that processes telemetry for real-time issue detection and resolution, all while ensuring the underlying customer data remains within the self-managed deployment. It is these organic innovations and strategic acquisitions that give us the confidence to be the leading data retrieval and context engineering platform for the AI era. Just last week, IDC recognized Elastic as a leader in multiple Marketscape reports, including in the Worldwide Observability Platforms report and in the Worldwide General Purpose Knowledge Discovery for Search report. In the general-purpose knowledge discovery report, we had the strongest position of any vendor in the analysis. We are proud of this recognition, which affirms our unique ability to deliver a unified platform that solves the most complex data and AI challenges. In closing, our market opportunity is stronger than ever, driven by robust growth, clear GenAI leadership, and a unique platform built for this moment. Our foundational investments in search uniquely position Elastic to deliver AI to enterprises everywhere. I would like to thank our customers, our partners, and our shareholders for their continued trust and confidence in Elastic, and to our employees, thank you for your tireless spirit of innovation. And now, I'll turn it over to Navam to go through our financial results in more detail. Navam Welihinda: Thank you, Ashutosh Kulkarni. Good afternoon, everyone. As you may recall, we raised our guidance for the quarter during Analyst Day on October 9, and I'm pleased to report that we exceeded both the top line and profitability of that improved guidance. We saw continued broad-based demand and notable strength in commitments across all geos, supported by healthy consumption trends. As Gen AI adoption and platform consolidation continue to be top priorities for enterprises, we are seeing sustained momentum in demand for our platform, reflected in the continued customer momentum and expansion in our sales pipeline during the quarter. Our total revenue in the second quarter was $423,000,000, representing growth of 16% as reported and 15% on a constant currency basis. Our sales-led subscription revenue in the second quarter was $349,000,000, growing 18% as reported and 17% on a constant currency basis. This strong performance reflects the strategic advantages of the Elasticsearch AI platform in addressing critical consolidation and generative AI use cases. Our current remaining performance obligation, or CRPO, which is a portion of RPO that we expect to recognize as revenue over the next twelve months, remains solid. At the end of Q2, CRPO was approximately $971,000,000 and grew 17% as reported and 15% in constant currency over Q2 of the prior year. Our top-line metrics were driven by strong consumption, deal momentum, and traction with greater than 100 ks ACV customers, all three drivers supported by Gen AI tailwind. First, the primary driver of revenue was healthy consumption across solution areas. We saw steady consumption growth throughout the quarter, fueled by a strong demand environment, driven by solid organic consumption growth from existing customers as well as revenue from new customers. Second, deal momentum during the quarter was significant. As Ashutosh Kulkarni referenced, we saw an uptick in consolidation and Gen AI use cases, which led to overall strength in large deals. We closed over 30 commitments greater than $1,000,000 in annual contract value, with five of them representing greater than $10,000,000 in total contract value, and two of those greater than $20,000,000 in total contract value. The strength of this can be seen through RPO, which grew 19% in the quarter as reported and 17% in constant currency. Our deal momentum occurred globally in both enterprise and public sector segments. Despite the U.S. Government shutdown in October, the team closed a notable win with CISA, as Ashutosh Kulkarni noted earlier. In the second quarter, deal momentum continued and supported our expansion of enterprise accounts and high propensity commercial accounts. During the quarter, our greater than 100,000 annual contract value customer count grew approximately 13%, representing approximately 180 net new customers over the past four quarters. Quarter over quarter, we added approximately 50 net new customers, and we continue to see strong expansion from our existing customer base. GenAI is proving to be a powerful catalyst for customer expansion, with 23% of our greater than 100,000 cohort now utilizing Elastic for GenAI use cases, an increase from 17% just one year ago. We see significant headroom for customers to initiate their Gen AI journey and scale into a 100 ks annual contract value cohort. Even with our existing 100 ks plus Gen AI customers, adoption is in its early stages. Now, turning to second quarter margins and profitability, I will discuss all measures on a non-GAAP basis. Our commitment to balancing growth with disciplined spending translated to robust operating leverage and strong bottom-line results. We continue to focus on costs and efficiency in our business. We delivered subscription gross margins of 82%, total gross margins of 78%, and an operating margin of 16.5%. Our disciplined approach to costs, combined with increasing revenue, underpins our strong profitability and free cash flow generation. Regarding cash flow, adjusted free cash flow was approximately $6,000,000 in Q2, representing a margin of 6%. The second quarter is typically a seasonally low free cash flow margin quarter for us, and we manage and view adjusted free cash flow on a full-year basis. For fiscal 2026, we expect to sustain the level of adjusted free cash flow margin that we achieved in fiscal 2025. In October, during our Analyst Day, we announced a $500,000,000 share repurchase program as part of our capital allocation framework. I am pleased to say that we are already underway on our program and began returning capital to shareholders during Q2. During the quarter, we returned approximately $114,000,000 in cash to shareholders. This represents purchases of approximately 1,400,000 shares at an average price per share of $84.45. As I mentioned at our Financial Analyst Day, we expect to use more than 50% of our $500,000,000 authorized amount in fiscal 2026. Now for the outlook for the third quarter and the remainder of fiscal 2026. Starting this quarter, we will begin providing guidance for sales-led subscription revenue. As we detailed during our recent Analyst Day, and in the past two quarters, sales-led subscription revenue is a key metric for measuring our success with larger strategic and enterprise accounts and high propensity commercial accounts. Sales-led subscription revenue is the fundamental driver of our financial framework, and we incentivize our sales team to meet customers where they are, in cloud or in self-managed departments. The momentum we are building in this quarter is evident. Our sales pipeline is very healthy; it has grown throughout the year. Given the strength of our business, we are raising our full fiscal year 2026 revenue guidance. For 2026, we expect total revenue in the range of $437,000,000 to $439,000,000, representing 15% growth at the midpoint or 13% in constant currency growth at the midpoint. We expect sales-led subscription revenue in the range of $364,000,000 to $366,000,000, representing 17% growth at the midpoint or 16% in constant currency growth at the midpoint. We expect non-GAAP operating margin to be approximately 17.5%. We expect non-GAAP diluted earnings per share in the range of $0.63 to $0.65, using between 108,000,000 and 109,000,000 diluted weighted average ordinary shares outstanding. For fiscal 2026, we are raising our total revenue, which improves our expected non-GAAP diluted EPS. We expect total revenue in the range of $1,715,000,000 to $1,721,000,000, representing approximately 16% growth at the midpoint or 15% constant currency growth at the midpoint. We expect sales-led subscription revenue in the range of $1,417,000,000 to $1,423,000,000, representing 18% growth at the midpoint or 17% in constant currency growth at the midpoint. We expect non-GAAP operating margin for the full fiscal 2026 to be approximately 16.25%. We expect non-GAAP diluted earnings per share in the range of $2.40 to $2.46, using between 108,000,000 and 110,000,000 diluted weighted average ordinary shares outstanding. The diluted weighted average shares outstanding reflect only share buybacks completed as of October 31, 2025. In summary, I am pleased with our second quarter results. We remain on track with our execution this fiscal year and on track to achieve the medium-term sales-led subscription revenue target growth rate we laid out during our financial Analyst Day. Elastic stands uniquely positioned as we bring relevance to unstructured data and allow enterprises to transform data into value. Our opportunity continues to grow. With that, I'll open it up for Q&A. Operator: Thank you. We will now begin the question and answer session. The first question comes from Matthew George Hedberg with RBC Capital Markets. Please go ahead. Matthew George Hedberg: Great. Thanks for taking my question, guys. Ashutosh Kulkarni, I want to start with you. I assume you're seeing strong consumption trends from your AI native customer base, but I'm curious if you could talk about the performance of your non-AI native customers. Are they seeing an increase or an acceleration in consumption due to sort of an increased AI focus within that customer base? Ashutosh Kulkarni: Yes, that's a great question. And yes, we are seeing that it's not just the AI native cohort, but we are seeing strong consumption across the board. Even in our traditional businesses, not just in search, but also in observability and security. Part of this is also that we are winning more and more commitments like I talked about in my prepared remarks. This was a remarkable quarter in terms of the number of commitments that we were able to secure, large commitments where customers are consolidating onto our platform for security, for observability. The five deals that we mentioned that were all greater than $10,000,000 in total contract value are all significant. I would expect that as deals like those, as customers start to consume, we are going to start to see the benefit of that in our cloud revenue and our total revenue. Just to bring everybody's attention to the fact that when we think about our business, we think about both cloud and self-managed. That's the reason why sales-led subscription revenue is such an important metric, and it came in at 18% this year. So very happy about it. Continuing to drive the momentum, consumption is strong, commitments are strong, we feel really good about the rest of the year. Matthew George Hedberg: That's really good to hear. And then maybe for Navam Welihinda, just a follow-up. All of your reported growth metrics were strong, including both CRPO and RPO, all kind of growing in the mid-teens or better. I'm curious though, billings isn't a key for you guys, but it did lag some of those focus metrics. Wondering if you could talk a little bit about why that was the case? Thanks. Navam Welihinda: Yes. Thanks for the question, Matt. And I agree with you, Q2 to us was a great quarter. We saw strength across the business, and what matters to us is commitments and consumption. Both commitments and consumption were strong. You noted correctly, CRPO grew 17% in Q2 compared to 16% last year. Also, RPO grew 19%, and that was because of the strength of the multi-year commitments that we laid out. Overall, the commitment side of the business was very, very strong. Now, as it pertains to your specific question on the year-over-year compare, going into the quarter, we expected variability in the second quarter for a few reasons. One of the main reasons is seasonality. You have to keep in mind that last year was anomalous because of a weaker Q1 commitments that we saw. So the billings distribution, the revenue distribution in last year throughout the year was just atypical. You can't over-index on the quarterly seasonality this year. As a matter of fact, when you think about sort of the ACV, which doesn't have the crosscurrents of billings, the ACV growth this year to date is stronger than what it was last year to date. Right? And that's a great sign. Then the second point I want to make was you all know there was a government shutdown that impacted our third month of the quarter, impacted everybody.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 ESCO Technologies Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. On the call today, we have Bryan Sayler, President and CEO, and Christopher L. Tucker, Senior Vice President and CFO. And now I'd like to turn the conference over to our first speaker today, Kate Lowrey, Vice President of Investor Relations. Kate, you now have the floor. Kate Lowrey: Thank you. Statements made during this call, which are not strictly historical, are forward-looking statements within the meaning of the Safe Harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions, and results may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the company's operations and business environment, including but not limited to, the risk factors referenced in the company's press release issued today. This will be included as an exhibit to the company's Form 8-Ks to be filed. We undertake no duty to update or revise these forward-looking statements, except as may be required by applicable laws or regulations. In addition, during this call, the company may discuss some non-GAAP financial measures in describing the company's operating results. A reconciliation of these measures to their most comparable GAAP measures can be found in the press release issued today and found on the company's website at www.escotechnologies.com under the link Investor Relations. Now I'll turn the call over to Bryan. Bryan Sayler: Thanks, Kate, and thanks, everyone, for joining today's call. We are pleased to meet with you this afternoon to discuss our fourth quarter results. By any measurement, we finished the year strong and closed out another great year at ESCO Technologies Inc. Q4 was the first full quarter to include the maritime business, which had impressive performance leading to a significant impact on our top and bottom line results. In addition to Maritime's contribution, we delivered 8% organic sales growth in the quarter. This top-line sales growth combined with a 100 basis points of adjusted EBIT margin expansion at the bottom line to drive a 30% year-over-year increase in adjusted earnings per share from continuing operations to a record $2.32 per share. 2025 was a truly transformative year for ESCO Technologies Inc. The successful acquisition of Maritime and the divestiture of VACCO were both pivotal steps in the evolution of our portfolio. We now have an expanded presence in the navy market, offering a broader suite of products across both US and UK platforms. With our exit from the space market, our A&D segment now has a sharper focus on serving the aerospace and navy end markets, both of which present durable long-term growth opportunities. Our exceptional financial results this year are a testament to the dedication and expertise of our global team. I want to extend my sincere thanks to everyone at ESCO Technologies Inc. for their hard work and dedication throughout the year. Their commitment enabled us to deliver outstanding operating performance during a period of significant change. Chris will take us through all of the financial details of the quarter. But before we do that, I want to give you a few comments on each of our segments. Let's start with aerospace and defense. We remain positive regarding the long-term outlook for both the aircraft and navy market. We see fundamental drivers across both of these markets and expect increasing production rates to drive growth going forward. We continue to see positive momentum on the navy side as in addition to contribution from Maritime, organic sales were up 53% in the quarter and 24% year-over-year. Our US and UK customer bases are highly focused on increasing build rates for submarines, and we see the benefits from this in our sales and our order rates. We continue to be very pleased with the Maritime acquisition, which has started off 2026 very well, already booking over $200 million in orders in the first month of the new fiscal year. We've been anticipating these orders, and it's been a really nice way to start off the new year. In aerospace, revenue was up over 10% in the quarter and 14% year-over-year. It's been good to see Boeing successfully ramp up production and to get approval to take 737 build rates up to 42 per month. As we all know, the end market demand is there, and their customers really need more planes. We remain positive on the long-term outlook for the aircraft end markets. Switching over to the utility solutions group, which had a solid quarter highlighted by record orders of over $100 million and a 29% adjusted EBIT margin. Sales growth was a little lower this quarter due to policy headwinds in the renewables market, but Doble's revenue was up over 7% over the prior year. As we have discussed previously, there are many factors driving the increase in electricity demand, and utilities need to both maintain and expand the grid. On the Doble side, revenue will vary from quarter to quarter, but the long-term growth drivers remain firmly in place. The renewables market is recalibrating right now, as developers focus on completing current projects as tax credits sunset under the new legislation. This has slowed growth domestically in the near term, but we continue to believe that longer-term renewables are a cost-competitive source of generation, and we think that long-term, utilities will favor a mix of generation sources and that renewables will continue to have a vital role to play as utilities work to meet increasing demand for electric power. Finally, I'll touch on the test business, which had a really nice fourth quarter with 10% revenue growth and a high teens EBIT margin. For the year, it was great to see a rebound in orders, which were up 25% over the prior year. One of the strengths of our test business is the diversity of the end markets that it serves. And with the exception of wireless, we are now back to seeing strong activity across all of our test and measurement and shielding industrial markets. The key takeaway here is that the test business has stabilized, and we feel good about their trajectory as we move into 2026. In summary, we're excited about the future as we continue to see robust growth drivers across our core aerospace, navy, and electric power markets. Supported by record backlog, a strong balance sheet, and entrenched positions in our served markets, we are well-positioned to deliver continued value for our shareholders. With that, I'll turn it over to Chris, who will run you through all of the financial details for the quarter. Christopher L. Tucker: Thanks, Bryan. Everyone can follow along on the chart presentation. We will start on page three, which shows the financial highlights for the quarter. The bar chart on page three illustrates that this was a strong quarter for ESCO Technologies Inc. You'll see as we go through the results a recurring theme of the 30% on a reported basis, and delivered organic growth of 13%. Sales for the quarter were $353 million, which represented 29% growth, and organic growth came in at 8%. So for orders and sales, you can see it was a great quarter. Moving to profitability, adjusted EBIT improved by 100 basis points to 23.9%, and adjusted earnings per share increased by 30% to $2.32. Next, we will go through the segment highlights, starting with Aerospace and Defense on Chart four. Orders were quite good with growth of 60% on a reported basis and organic growth of 12%. In total, we delivered $142 million of orders, which led to ending backlog of just over $800 million, a good indicator of future growth for the business. Sales for A&D in the quarter came in at just over $170 million, or growth of 72% on a reported basis, and organic growth was 13%. Organic growth was driven by growth in the commercial aerospace and navy end markets. Adjusted EBIT dollars grew by nearly 63% in the quarter, margins came in at 28.6%. Margins were down slightly from last year's record level in Q4, as we saw slight dilution from the Maritime acquisition and core margins down 80 basis points compared to last year's fourth quarter. Moving to the next chart, we have the utility solutions group, which once again saw good order activity and delivered 17% growth compared to last year's fourth quarter. The order growth was driven by Doble, which saw strength across the business. Backlogs for the utility group ended at just over $143 million, which represents growth of 20% compared to prior year end. Sales growth was more muted with 2% growth in the quarter. Once again, the growth came from Doble, which was up 7% while NRG was down 20%. Bryan mentioned this in his comments, but we've continued to see the renewables market scuffle a bit throughout 2025. Margins were very good for the utility business in the quarter with adjusted EBIT dollars increasing 12% and adjusted EBIT margins expanding by 270 basis points to 29.1%. This is a great performance as price increases, favorable mix, and good cost containment all contributed to the margin result. Moving to chart six, we have the test business. Order activity here was solid with growth of 6%. This business ended the year with a $187 million backlog, so it's been a nice year of recovery here and great to see the backlog up nearly 20% compared to September. Sales growth was strong in the quarter with a 10% increase to $72 million. Adjusted EBIT margins came in at 17.5%, a reduction compared to last year's record quarter as unfavorable mix and inflation were more than offset by leverage on the sales growth. Next is chart seven, where we show full year results for continuing operations. The data here is impressive with strong double-digit performance on key metrics, demonstrating the strength of our core portfolio and the clear benefits of the Maritime acquisition. You can see the note at the bottom highlighting that we have achieved record performance in 2025 on all key metrics. Orders finished in excess of $1.5 billion, growth of over 56%. Organic order growth was 11% with double-digit organic order growth from the utility and test businesses. Reported sales increased 19% to nearly $1.1 billion, with A&D and Test both delivering double-digit organic sales growth. On the profitability side, adjusted EBIT margin improvement was significant with 20.3%, representing an increase of 180 basis points. All three businesses delivered increased adjusted EBIT margins in 2025. This led to adjusted earnings per share of $6.30, representing growth of 26%. Next is chart eight with our cash flow highlights. Let's go ahead and break out year-end operating cash flow. Delivering just over $200 million from continuing operations, which compares to nearly $122 million in the prior year. Earnings growth and good working capital performance drove the 2025 increase. The teams across ESCO Technologies Inc. have focused sharply on working capital improvement, and we are starting to see nice benefits from that activity in our operating cash flow results. Capital spending increased to just over $36 million in 2025, as we saw modest increases from all three segments. We finished the year with an EBITDA to net debt ratio of 0.56 times as we saw strong cash generation and also proceeds from the VACCO divestiture facilitate a large debt pay down during the fourth quarter. Our last chart is number nine, which contains our fiscal 2026 guidance. We're expecting to show another strong year financially, with reported sales growth in a range of 16% to 20%. This is comprised of 6% to 8% organic growth from our A&D businesses and Maritime revenue in the range of $230 million to $245 million. For the Utility Group, we expect growth of 4% to 6%, which includes Doble growing in a range of 6% to 8%, partially offset by NRG. For Test, we expect top-line growth to be in the range of 3% to 5%. Additionally, we expect nice improvements from adjusted EBIT and adjusted EBITDA margins to drive overall adjusted earnings per share to a range of $7.50 to $7.80, which would represent growth of 24% to 29%. Bryan Sayler: The bar charts at the bottom here show a real nice trend for ESCO Technologies Inc. on sales and adjusted earnings per share growth. The four-year compound annual sales growth through 2025 is 16%, and the adjusted earnings per share CAGR is 27.5%. The company has delivered very well, and we feel strongly that 2026 will continue these great trends. That completes the financial summary. And now I'll turn it back over to Bryan. Bryan Sayler: Thanks, Chris. So as you've heard from our commentary, FY 2025 was a great year. And ESCO Technologies Inc.'s future remains bright. As we continue to see a path for value creation enhancement as we move forward. With that, we are finished with our prepared remarks. And we'll turn it over to Q&A. Operator: Thank you. Then wait for your name to be announced. To withdraw your question, please press star moment again. Our first question comes from the line of Tommy Moll with Stephens. Your line is open. Zach: Good afternoon. This is Zach on for Tommy, and thank you for taking my questions. Bryan Sayler: Hi, Zach. Zach: Could you please give context on how we should think about growth rates and margin trends at the segment level going forward? Christopher L. Tucker: Yeah. So, you know, if you look at the guide we had in there, I mean, we've got the A&D business on a core basis growing in that 6% to 8% range, and then we've got the maritime addition on top of there. Then we've got what do we have for Doble or six to eight. Six to eight for Doble and then three to five for test. We would expect margin improvement, you know, from all three of the segments next year. So, you know, I would say generally, we see 2026 as kind of on trend with how we've communicated, you know, where the business has been kind of running for the last couple of years. And kind of where we are in the cycle. Zach: Awesome. Thank you. And then can you please give an update on the integration of SMNP? Obviously, there was a delay getting the deal closed. But since the close, are you tracking ahead or behind what you had planned? Bryan Sayler: Yeah. I'd say that, you know, in terms of the cultural integration and financial integration, operations, and all that stuff, I think we're on plan. Maybe it's a little bit ahead of plan. I would say things are going very, very well on that front. In terms of financial results, I would say that the maritime business is ahead of what we originally communicated when the deal was announced. You know, we had some I would say we were prudent and, you know, gave the advertised plan a little bit of a haircut and yeah, as we've gotten through the regulatory approval and into the business, what we found is that they're actually performing at or above their originally advertised plan. It's that's been a very welcome result. Since then, we've had some real positive new order activity in the fourth quarter. And then just, you know, here in the early innings of the '26. So, yeah, we would say that everything's going great here and, probably better than, you know, we had expected. Zach: Good to hear. That's all I had, I'll turn it back. Operator: Thank you. Thanks, Zach. Our next question comes from the line of Jonathan E. Tanwanteng with CJS. Your line is open. CJS your line is open. Jonathan E. Tanwanteng: Hi. Good afternoon. Thank you for taking my questions, and really nice quarter and outlook. Really good job there. Wondering if you could expand on the previous comment. Just, you said something about $200 million in ESCO maritime orders. What programs were those associated with? Number one, how are you number two, thinking about growth going forward for that business that you've acquired? Bryan Sayler: Yeah. So the $200 million, it was more than $200 million, but it came in in the first quarter. So, Jonathan, it's in the UK. And so we're operating under a little bit of a different security scheme there, so we're not gonna be able to give precise details on programs and contacts and things like that. But suffice it to say that these were UK submarine-related programs. Jonathan E. Tanwanteng: Okay. Great. Can you disclose what time frame those are supposed to, revenue over? Christopher L. Tucker: Yeah. Those will run out for over two years, Jonathan. So we'll start to book a little bit of revenue in, let's say, second, third quarter, and then we kind of start to ramp it a little bit in the fourth. And then it would run out through '27 and beyond. So it's, you know, those are long-term, you know, programs. Jonathan E. Tanwanteng: Got it. Thank you very much. And then just on the aerospace side, are you expecting any headwinds from just the canceled flights you've been seeing with the shutdowns and the TSA? And exceeded ATCs? Or is that not really significant for you, number one? And number two, as you look into the room, into '26 that six to 8% growth rate, can you just us maybe what the underlying assumptions are? Especially with the build rates at DOEMs going up as much as I think they they're forecasting. Bryan Sayler: Sure. Sure. So on the shutdown, we really didn't see any impact from the shutdown and certainly not in the aircraft, you know, manufacturing or MRO space. So we are, you know, we are thinking that, we are thinking that, that's gonna move forward without any delay. Overall, I think you asked us about the six to 8% at Doble. And what we're seeing there is that we're seeing continued strong spending from the utilities that are really focused on grid infrastructure. It's less about the AI piece and it's way more about the, you know, reliability and maintaining their existing aging assets. And so that spending is really up. You know, we had a record fourth quarter of orders. And, yeah, here in the early part of the first quarter, it looks like that, you know, that trend is continuing. So we feel pretty good about the Doble business. I think the challenge here is the renewable side of the business is definitely seeing a little bit of a challenge as we move forward. Jonathan E. Tanwanteng: Got it. I think I might have misspoke. I was referring to the six to 8%, in For aircraft? For aircraft. Yes. Bryan Sayler: Yeah. So that wasn't what's happening there is we're seeing really good up growth in the build rates for the various platforms that we're on. And I would say from our perspective, you know, in particular, we're seeing growth on 787, we're seeing growth on 737. Yeah. And then we are seeing, you know, broad-based growth, seeing some military, you know, content that's coming through to our benefit. You know, there's more F-15s. You know, some of the newer sixth-generation platforms. All of that stuff is really working to our benefit in the aircraft business. Jonathan E. Tanwanteng: Okay. Great. Thank you. Operator: Thank you. Ladies and gentlemen, as a reminder to ask a question, we have a follow-up question from the line of Jonathan E. Tanwanteng with CJS. Your line is open. Jonathan E. Tanwanteng: Hi. I was just wondering if you could expand on the energy business a little bit. Just do you see an inflection point at some point, or might there be further downside as, you know, companies digest what the new policy is being made? Yeah. Wait it out a little bit. Yeah. Bryan Sayler: Well, I think it's, yes. So our assessment is as follows. I don't think it's a big secret that the, you know, the Inflation Reduction Act in 2022 really kind of turbocharged that entire industry. And so we were seeing, you know, 25-30% growth rates, you know, in 2023, 2024, you know, with the new administration coming in, they've kind of certainly got a different perspective. And then with the one big beautiful bill, the tax credits that were driving a lot of that activity are set to expire, I think, mid-next year. What we're seeing from the developers there is really kind of a focus right now on trying to get everything that they currently have under construction qualified for those tax credits. So, you know, the fundamentals of renewable energy, you know, relative to other forms of energy are still pretty positive from a cost and availability perspective. But right now, the focus is really on those existing programs. So what we think is gonna happen is there's gonna be a downstroke for the industry broadly this year. And that beginning, you know, let's say, call it this time next year, I think we would begin to see a little bit of a turn back to what I would call normal growth. So that'd be high single-digit growth. It's really driven by, you know, the fact that, you know, we just need a lot more generation than people are gonna be able to get built out of natural gas given all the constraints of that industry. And the solar in particular, pretty affordable. I think domestically, terrestrial wind is very challenged in the current environment. But internationally, it's still a pretty thriving business. You know? And, Jonathan, remember, we did not have any exposure in our business to any of the offshore wind stuff or any of the rooftop solar. And that, yeah, that's a lot of carnage in those spaces today. So listen. We think our business right now is very well managed. We've been able to maintain margins. And we believe, even though our top line is down a little bit, we think we're taking market share in a down market. And so we're gonna be well-positioned to kind of take advantage of that normalized growth when it returns in '27. Jonathan E. Tanwanteng: Got it. Thank you. And then last one for me. Just any thoughts on capital allocation from here? Looks like you're generating really solid cash flow. It looks like you'll have the debt from Maritime paid off in about a year. You know, what are your priorities at this point? Bryan Sayler: Yeah. We're, yeah. So listen. We've been successful with the acquisition of divestiture and put ourselves right back in a position where we've got a tremendous balance sheet and, you know, a lot of firepower. So we are very active in the M&A space. I don't have anything to announce, but I would say that the M&A market has significantly improved in the last half of the year. There's definitely a lot of very attractive assets that either are coming to market or are rumored to be coming to market here in the early next year. So we're looking at those things carefully. Now I want to be clear that we're gonna continue to be pretty disciplined about this stuff. We really are most interested in businesses that would fit squarely into our aerospace, our navy, or our utility end markets. And the reason for that is because we assess that those markets have, first of all, we understand them, but second of all, you know, we assess that those markets have very durable, long-term secular growth characteristics that provide us a really good opportunity to really grow a business like that added to our portfolio. So that's kind of our focus. We, you know, we've got the balance sheet to go do it, and we're starting to build that pipeline up again. Jonathan E. Tanwanteng: Okay. Great. Thank you again. Operator: Thank you, Jonathan. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Bryan for closing remarks. Bryan Sayler: Well, thanks, everyone. Yeah. Again, a really tremendous year. Transformational. Yeah. One more shout out to all the employees of ESCO Technologies Inc. who really have made this possible. It's been a lot of work. But, you know, our team is good at their jobs. And we've been very, very successful. And will continue to be in the years to come. So thanks a lot. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, ladies and gentlemen. Welcome to the Natural Grocers Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today's call is being recorded. I'd now like to turn the conference over to Ms. Jessica Thiessen, Vice President, Treasurer for Natural Grocers. Miss Thiessen, you may begin. Jessica Thiessen: Good afternoon, and thank you for joining us for the Natural Grocers by Vitamin Cottage Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. On the call with me today are Kemper Isely, Co-President, and Richard Helle, Chief Financial Officer. As a reminder, certain information provided during this conference call, including the company's outlook for fiscal 2026, contains forward-looking statements based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements due to a variety of factors, including the risks and uncertainties detailed in the company's most recently filed forms 10-Q and 10-Ks. The company undertakes no obligation to update forward-looking statements. Our remarks today include references to adjusted EBITDA, which is a non-GAAP measure. Please see our earnings release for a reconciliation of adjusted EBITDA to net income. Today's earnings release is available on the company's website and a recording of this call will be available on the website at investors.naturalgrocers.com. Now I will turn the call over to Kemper. Thank you, Jessica. Kemper Isely: And good afternoon, everyone. We are pleased with our fourth quarter performance with sales in line with guidance and diluted earnings per share above guidance. On today's call, I will highlight our financial results, including performance drivers, and provide an update on our key operational initiatives. Then Rich will discuss our fourth quarter results in greater detail and review our fiscal year 2026 outlook. Our fourth quarter sales were in line with guidance. Daily average comparable store sales increased 4.2% and on a two-year basis increased 11.3%. The moderation in fourth quarter sales comps compared to the third quarter was driven by several factors. We cycled 7% comps in each of the fourth quarters of the previous two fiscal years. As previously disclosed, UNFI's June 2025 cybersecurity incident constrained UNFI's ability to fulfill orders and distribute products to our stores and had a direct impact on our sales in June and July. Additionally, uncertainty in the economic environment has persisted and we saw consumer behavior shift toward more cautious retail spending in the fourth quarter. Over the past several years, we have focused on operational execution, including refining targeted promotions and store productivity initiatives. That ongoing effort combined with expense leverage from higher sales resulted in an operating margin improvement of 90 basis points for the fourth quarter, driving our fiscal year 2025 diluted earnings per share to a record $2 per share. We are proud that fiscal 2025 represented another year of record sales and earnings. Additionally, fiscal 2025 was our twenty-second consecutive year of positive comparable store sales growth. Consumers continued to be drawn to our differentiated offering of high-quality natural and organic products, reflecting their prioritization of health and wellness, including food and nutrition. We believe that consumers' prioritization of health and wellness will prove to be resilient. While we are seeing some macro pressures affecting the broader retail landscape, we believe that our commitment to always affordable prices provides compelling value for our customers, strengthening our competitive position during periods of economic uncertainty. Next, I will share an update on our key priorities that have fueled recent growth and are expected to drive our long-term success. We continue to enhance the personalization and interactivity of our nPower Rewards program offerings. During the fourth quarter, nPower net sales penetration held strong at 82%. The maturity and high penetration of our nPower Rewards program enables efficient and relevant customer engagement, including communicating our differentiation to new members, personalizing offers to tenured members, or presenting offers to customers who haven't engaged with us recently. Our Natural Grocers branded products continue to experience elevated growth. In the fourth quarter, our house branded products accounted for 8.8% of total sales, up from 8.4% a year ago. During fiscal 2025, we extended our natural brand offerings with the launch of 119 new items, all of which exhibit premium quality at compelling prices. Accelerating new store growth is another core element of our strategy. In fiscal 2025, we opened two new stores, relocated two stores, and remodeled one store. Today, we are reiterating our plan of opening six to eight new stores in fiscal 2026, underscoring the quality of our pipeline and execution capabilities. We are committed to 4% to 5% annual new store unit growth for the foreseeable future. We also remain committed to enhancing value for our stockholders by maintaining a balanced approach to capital allocation. In addition to investing in our business to drive faster unit growth, we are proud to announce that we are increasing the quarterly cash dividend by 25% to $0.15 per common share, reflecting our strong fiscal 2025 operating performance and financial position, as well as confidence in our ability to create long-term stockholder value. In closing, I would like to thank our Good4U crew. Their commitment to operational excellence and exceptional customer service was instrumental in driving our strong results. We are fortunate to have a crew who share an affinity for our founding principles and are dedicated to ensuring that our stores, operations, and supply chain reflect these values. Now I will turn our call over to Rich to discuss our financial results in greater detail and fiscal 2026 guidance. Richard Helle: Thank you, Kemper, and good afternoon. We are pleased with our fourth quarter results. Sales were in line with expectations, and diluted earnings per share exceeded our outlook. Net sales increased 4.2% from the prior year period to $336.1 million. Daily average comparable store sales increased 4.2% and on a two-year basis increased 11.3%. Comps were at the lower end of our guidance range, which we believe primarily reflects the shift in consumer retail spending. Our daily average comparable transaction count increased 2.4%, and our daily average comparable transaction size increased 1.8%, primarily due to annualized product inflation of approximately 2%. Items per basket were relatively flat year over year. In consideration of the broader macro environment, we continue to monitor consumer trends closely. We continued to see the greatest sales growth in our most differentiated offerings, including meat and dairy. These are often considered premium offerings because our product standards include humanely and sustainably sourced meat, pasture-raised and non-confinement dairy, and a minimum standard of free-range eggs. We saw a modest decline in the number of transactions using SNAP EBT in the fourth quarter. SNAP represents approximately 2% of net sales, and the reduction in SNAP transactions was immaterial to our overall sales comp for the quarter. Gross margin decreased 10 basis points to 29.5%, driven by lower product margin. Store expenses as a percentage of net sales decreased 90 basis points, primarily driven by lower long-lived asset impairment charges and expense leverage. These culminated in a net income increase of 31% to $11.8 million and diluted earnings per share of $0.51. Adjusted EBITDA increased 7.7% to $24.4 million. Briefly touching on the full year results, in fiscal 2025, total revenue increased 7.2% to $1.33 billion. Our daily average comparable store sales growth was 7.3%, and 14.3% on a two-year basis. Gross margin improved 50 basis points compared to the prior year, driven by higher product margin primarily attributed to effective promotions and store occupancy cost leverage. Store expenses as a percentage of sales were 50 basis points lower than the prior year, driven by expense leverage and lower long-lived asset impairment charges. For fiscal 2025, diluted earnings per share increased 36.1% to $2 compared to $1.47 in fiscal 2024, and adjusted EBITDA increased 17.5% to $97.9 million. Turning to the balance sheet and cash flow, we ended the fourth quarter in a strong liquidity position, including $17.1 million in cash and cash equivalents, no outstanding borrowings, and $70.1 million available for borrowing on our revolving credit facility. During fiscal 2025, we generated cash from operations of $55.3 million and invested $31 million in net capital expenditures, primarily for new and relocated stores, resulting in free cash flow of $24.3 million. Now I'd like to review the company's outlook, which reflects both the opportunities we see in our differentiated market position and appropriate caution given the current consumer environment. We believe our value proposition will continue to be compelling during periods of economic uncertainty. For fiscal year 2026, we expect to open six to eight new stores, relocate or remodel two to three existing stores, achieve daily average comparable store sales growth between 1.5% and 4%, and achieve diluted earnings per share between $2 and $2.15. We plan to direct $50 million to $55 million towards capital expenditures to support our growth initiatives. In addition, our outlook includes the benefits of our new store growth, targeted marketing focused on our value proposition and differentiation, and initiatives focused on driving higher productivity across our operations. The pace of new store openings will be weighted towards the back half of the fiscal year. Our current expectation is that sales comps will be at the low end of our outlook range in the first half of the year as we cycle relatively strong comps in the prior year, while increasing slightly in the second half of the year as we cycle lower comps. Additionally, the comp range reflects the uncertainty in the consumer environment. Kemper Isely: We expect modest inflation throughout the year in line with current trends. Richard Helle: Our outlook anticipates that year-over-year gross margin will be relatively flat, primarily depending on the level of promotional activity. We expect that year-over-year store expenses as a percentage of net sales will be relatively flat to slightly lower. Lastly, we are investing approximately $0.12 of diluted earnings per share in new store openings, primarily through higher preopening expenses and store expenses. Kemper Isely: We continue to believe that we have significant opportunity to achieve sustainable long-term growth due to our alignment with consumer trends, strong customer engagement through our nPower Rewards program, expansion of the Natural Grocers branded products, existing store productivity initiatives, and investment in new store unit growth. In closing, we had a solid quarter to conclude a record-setting fiscal year. We are confident in our ability to continue to drive profitable long-term growth and enhance value for all stakeholders. Now we'd like to open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Chuck Cerankosky with Northcoast Research. Please go ahead. Chuck Cerankosky: Good afternoon, everyone. Nice quarter. Kemper Isely: Thanks, Chuck. Chuck Cerankosky: Given the increased price sensitivity right now in the consumer environment, and the company's 8.8% own brands penetration, is this a good time to get that number higher and to make customers more aware of the value in the Natural Grocers brands? Kemper Isely: Yeah. I think that would be true. I mean, we definitely are marketing our own brand extensively right now, and we have some really compelling prices on items that we are promoting aggressively, and we do not have to discount those prices because they're already substantially better priced than our competitors. Chuck Cerankosky: Do you have any particular goals for the penetration over the next couple of years, like maybe 10%? Kemper Isely: Our goal is to increase the penetration by one full percentage point per year, so we're at 8.8%. So two years from now, we should be at 10.8% or even 11%. Scott Mushkin: The next question is from Scott Mushkin with R5 Capital. Please go ahead. Scott Mushkin: Hey guys, thanks for taking my questions. So one of the things we hear from investors about is kind of generally the space of natural organic is that it's not the macro. That it's similar to what we saw last decade that's, you know, kind of traditional supermarkets and others in the marketplace kinda caught up given what they saw with how strong your sales and others have been. And are offering a lot of the same products at lower prices. What do you think about that thought process? Kemper Isely: I think that that's been going on since 1978. And we've done a really good job of differentiating from those from the other supermarkets. And having an authentic story and an authentic brand that resonates with consumers. And it's helped us to build our business to over a billion-dollar business. The conventional supermarkets and Costco and Walmart, they only sell the product because it sells. It isn't because of the story of the product. We sell the product because it is what we are. And so, it makes a huge difference to our customers and keeps our customers incredibly loyal. And it also helps us to keep on growing and expanding our customer base. And companies like Whole Foods are kind of losing track of that by becoming, as they said, the Amazon-ination, whatever it was, the Wall Street Journal article was the other day. And then the Forbes article that followed up on it. And so that's making our brand all the stronger. And then you have the wannabes like Sprouts who doesn't really, I mean, they sell stuff because they it sells, but they don't really have the standards that we do or the ethics that we do about the products that we sell. Scott Mushkin: Then, Kemper, what specifically or Richard, what specifically in the business do you see that would kinda make you gravitate towards, hey. It's things are become much more challenging in the economy. And that's the root of you know, some of the more cautious comments. Kemper Isely: Well, the people that are on the periphery of shopping in our stores that aren't our most loyal customers have definitely pulled back and gone I don't I don't know where they're shopping, but they've pulled back. And so that's that's that's made it so that we're just a little more cautious about our growth. But I think that some of our new marketing initiatives will start to gain traction in not this quarter, but next quarter, and we should see an uptick again in our growth. Scott Mushkin: I mean, because of that. Doubt, Scott, that the economy is playing a factor today. I mean, we have massive economic uncertainty. Consumer sentiment is at historic lows. We've seen announcement of significant job layoffs. Had the government shutdown, the loss of government benefits. Richard Helle: Tariffs, you know, and their impact to inflation. I mean, a majority of Americans are expecting that tariffs will result in higher prices. Scott Mushkin: You've had a pretty large. Richard Helle: Well, they are resulting in higher prices. And they are. But there's an expectation of future higher prices from tariffs. All of it is kind of, you know, is creating this uncertainty. There's definitely, as you've heard, you know, across all retail, a pullback by lower and middle-income consumers. Kemper Isely: You know, and a bifurcation in the consumer segment where higher households are continuing to spend. But, you know, as we even heard this morning from Walmart, everybody is looking for value. And so we are going to lean into our differentiation. Richard Helle: Everybody's looking for value, part of our founding principles always affordable prices. And we're gonna continue to lean hard into that. And as Kemper said, you know, we're also very highly differentiated in terms of the quality of our shopping experience. We provide access to nutrition education. Kemper Isely: And we have high product standards that you can trust. So we're gonna continue to lean into those things. Our core customer base is resilient. Our core customer base is growing at a healthy rate. Scott Mushkin: So we have a lot of confidence that, you know, there is a lot of economic concern. That is certainly a driver. Kemper Isely: The natural and organic segment, yes, is pulling back, but so is the entire, I think, segment overall. And we still believe in the health and wellness trends. I mean, you look at GLP-1 penetration rates, they've doubled over the last year. Richard Helle: Significant interest in continuing for many more Americans to try those drugs. We understand that those individuals are looking for more nutritious options post that. And so we you know, it's not linear. Right? I mean, as Kemper said, natural and organic has been going through multiple cycles over the last four, five decades, and we'll continue to do that. But we believe the trends, the long-term trends that they will continue to have, you know, 4% to 6% industry growth. It's just not going to be a straight line. Scott Mushkin: Thanks for that color. And then I actually had just one more, and I apologize because my model's not front of me. So I probably should know this answer off top of my head. But are you guys thinking free cash flow next year will be positive, flat, and what's your thought process around 2026 free cash flow? Richard Helle: Yeah. Free cash flow will be positive next year. Yeah. That's that's our expectation. Yes. We are investing more in CapEx. Right? We are talking about increasing store openings, continuing to do relocations and remodels. We are looking at we're guiding $50 to $55 million in CapEx to support those initiatives. We're excited about the real estate pipeline that we have. Kemper Isely: And about the growth prospects, you know. And we've we've really refined our site selection process and are excited about the communities that we're going in and the positive impact that those communities will have to the overall business. Richard Helle: And then also we're strategically buying some of our buildings. So just to add a little bit more color to the CapEx. Scott Mushkin: Yeah. Alright. Well, guys, I appreciate it. And for the record, I kind of I definitely agree with you guys on the economy. I think it's a little bit tough sliding out there right now. But thanks for thanks for all the color. Kemper Isely: Sure. Thanks, Scott. Operator: Again, if you have a question, please press 1. Operator: Showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Kemper Isely for any closing remarks. Kemper Isely: Thank you for joining us to discuss our fourth quarter results. We take great pride in our sales and profitability growth in fiscal year 2025 and in recent years. We are committed to maximizing value for our stockholders as we look forward to fiscal year 2026. We expect to build upon our momentum by executing to our founding principles, including highlighting our always affordable pricing strategy and differentiated product offering, emphasizing operational excellence, and delivering on our new store unit growth plans. Thank you. And have a great day. Bye now. Operator: The conference call has now concluded. Thank you for attending the Natural Grocers Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. You may now disconnect.
Operator: Good afternoon, and welcome to the Ross Stores, Inc. third quarter 2025 Earnings Release Conference Call. The call will begin with prepared comments by management followed by a question and answer session. Before we get started, on behalf of Ross Stores, Inc., I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results including sales and earnings forecasts, new store openings, and other matters are based on the company's current forecast of aspects of its future business. These forward-looking statements are subject to risks that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and the company's fiscal 2024 Form 10-Ks and fiscal 2025 Form 10-Qs and 8-Ks on file with the SEC. And now I'd like to turn the call over to Jim Conroy, Chief Executive Officer. Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer, Bill Sheehan, Executive Vice President and Chief Financial Officer, and Connie Kao, Senior Vice President, Investor Relations. Jim Conroy: As noted in today's press release, we are very pleased with our third quarter sales results, which accelerated from the prior quarter. Total sales for the period grew 10% to $5.6 billion with comparable store sales increasing a strong 7%. Our merchants delivered a compelling assortment of brand name values which led to broad-based growth across all major merchandise categories. Those assortments, coupled with our new marketing campaigns, drove excitement, higher customer engagement, and increased store traffic. We had an excellent back-to-school selling season, strong trends that continued through the balance of the quarter. Additionally, the stores and supply chain organizations executed extremely well to support the elevated sales and inventory flow. The strength in top line, coupled with our continued focus on expense control, resulted in an operating margin of 11.6% that was much stronger than expected. Earnings per share for the thirteen weeks ended November 1, 2025, were $1.58 on net income of $512 million. Included in this year's third quarter earnings is an approximate $0.05 per share negative impact from tariff-related costs. These results compared to $1.48 per share on net earnings of $489 million in the prior year period. For the first nine months, earnings per share were $4.61 on net earnings of $1.5 billion compared to $4.53 per share on net income of $1.5 billion for the same period last year. Included in year-to-date 2025 earnings is an approximate $0.16 per share negative impact from tariff-related costs. Sales for the year-to-date period grew to $16.1 billion with comparable store sales up 3% over last year. For the third quarter at Ross Stores, Inc., cosmetics, shoes, and ladies were the strongest merchandise areas. By geography, we saw broad-based strength with the Southeast and the Midwest performing the best. BD's discounts, strong value, and fashion offerings continue to resonate with shoppers, and delivered comp gains relatively similar to Ross Stores, Inc. for the period. At quarter end, total consolidated inventories were up 9% versus last year, and average store inventories were up 15% as we advanced the inventory build for the holiday season into October. Packaway merchandise represented 36% of total inventories, compared to 38% last year. We feel very good about the health and levels of our inventory, and are well positioned to deliver a broad assortment of values this holiday selling season. During the third quarter, we opened 36 new Ross Stores, Inc. and four DD's discount stores. Similar to our summer opening group, we are pleased with the performance of our fall openings, particularly the results in the new markets, including the New York Metro Area. The openings in the third quarter completed our expansion program for 2025. For the year, we added a total of 90 locations, comprised of 80 Ross Stores, Inc. and 10 DD's. We plan to close and/or relocate 10 locations in the fourth quarter and expect to end the year with 1,903 Ross Stores, Inc. and 360 DD's locations. At this point, I would like to provide an update on our branded strategy which has now been fully embedded in our merchandising approach for more than a year. Over this period of time, the merchants have been laser-focused on delivering high-quality, branded bargains at compelling values. They've been able to deliver an assortment that spans good, better, and best brands to ensure that we are providing exceptional values to our diverse customer base. We would attribute a portion of the sequential improvement in the business to the successful implementation of the branded strategy. This strategy has particularly helped the ladies' business, which further accelerated this quarter and comped above the chain average. Additionally, the increased emphasis on brands has further strengthened our vendor partnerships and increased closeout opportunities. These efforts not only drove higher sales, but also helped us partially offset tariff impacts resulting in better-than-expected merchandise margins for the third quarter. While tariff uncertainties persist, we are encouraged by the exceptional product availability in the marketplace. This has enabled us to secure opportunistic buys that position us favorably for the holiday season. As a result, we now expect tariff-related costs in the fourth quarter to be negligible. From a pricing perspective, it is clear the consumer is prioritizing value and our updated assortment is driving stronger customer engagement. While pricing has increased across the retail environment, our commitment to delivering value remains unchanged. We will continue to maintain a strong value proposition relative to traditional retailers, while working to mitigate the impact on our merchandise margin. Bill will now provide further details on our third quarter results and fourth quarter guidance. Bill Sheehan: Thank you, Jim. As previously stated, comparable store sales rose 7% in the quarter. The gain was a result of both higher transaction and a larger average basket size. Operating margin decreased by 35 basis points to 11.6% mainly due to the impact of tariffs. Cost of goods sold increased by 35 basis points in the quarter. Distribution costs were higher by 60 basis points primarily due to the opening of a new distribution center earlier this year and tariff-related processing costs. Merchandise margin deleveraged by 10 basis points while buying expenses were flat compared to the prior year. Partially offsetting the higher costs in the quarter, were lower domestic freight and occupancy costs of 25 and 10 basis points, respectively. SG&A costs were flat year over year despite the headwinds from CEO transition costs. During the quarter, we repurchased 1.7 million shares of common stock for an aggregate cost of $262 million. We remain on track to buy back a total of $1.05 billion in shares this year. Now let's discuss our fourth quarter guidance. We're encouraged by our business momentum as we enter the critical holiday season. As a result, for the thirteen weeks ending January 31, 2026, we are raising our comparable store sales forecast to be up 3% to 4% with earnings per share in the range of $1.77 to $1.85. This updated guidance range reflects approximately $0.03 earnings per share of unfavorable timing of Packaway-related expenses that benefited the third quarter. Based on our year-to-date results, and updated fourth quarter forecast, we are increasing our earnings per share guidance for fiscal 2025 to be in the range of $6.38 to $6.46. As for tariffs, we now forecast the fourth quarter impact to be negligible, leading to a full-year cost of approximately $0.15 per share. These estimates are based on the current level of tariffs. In addition, and as a reminder, 2024 fourth quarter and full-year earnings per share of $1.79 and $6.32 respectively, include the benefit of approximately $0.14 in earnings per share related to the sale of a Packaway facility. Operating statement assumptions that support our fourth quarter guidance include the following. Total sales are projected to increase 6% to 8%. We expect operating margin to be in the range of 11.5% to 11.8% compared to 12.4% last year. Year-over-year change primarily reflects last year's benefit from the sale of a Packaway facility that was worth about 105 basis points. Net interest income is estimated to be about $30 million. Our tax rate is expected to be approximately 24% and weighted average diluted shares outstanding are projected to be about 322 million. Now I'll turn the call back to Jim for closing comments. Jim Conroy: Thank you, Bill. To sum up, we are pleased with our third quarter results and encouraged by our sales momentum. With a strong merchandising plan and a terrific product assortment, we are optimistic about our prospects for the fourth quarter. Additionally, the store and supply chain teams are well-positioned for the holiday season and our marketing campaigns have continued to build excitement. We believe that this multifaceted approach will help us continue our positive momentum and enable us to capture additional market share. Finally, I would like to thank the entire organization for their hard work and solid execution, which enabled us to deliver a strong third quarter performance. Despite the ongoing challenges and uncertainty in the macro environment, we remain focused on our core strategies, and executed well as a cohesive team across the entire company. At this point, we would like to open the call and respond to any questions you might have. Operator: John? Thank you. We will now be conducting a question and answer session. You may press 2 to remove yourself from the queue. We ask that you please limit yourself to one question and one follow-up. Thank you. One moment, please, while we poll for questions. And the first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question. Thanks, and congrats on a really great print. Jim Conroy: Thank you, Matt. Matthew Boss: So, Jim, could you help break down the inflection in same-store sales? Or the 500 basis points sequential acceleration that you saw? How much would you attribute to company-specific initiatives as we think about marketing or the early stages of store experience? Relative to the macro backdrop? And could you just elaborate on the strong momentum that you cited in November that supported the fourth quarter raise? Jim Conroy: Sure. It was a really nice sequential improvement. And I think in the prepared remarks, we used the word broad-based. So the merchandise categories, every single merchandise category in the third quarter, every single major merchandise category anyway, was positive or nicely positive. We had some businesses in the second quarter that were somewhat under, and they've really caught up. We've seen some really great improvement in most categories across the business. We also had broad-based strength across the country in terms of our geographic regions, including regions that you would otherwise think would be under pressure. So broad-based strength across the business. How much of it is internal versus external, it's hard to say. We acknowledge that there probably has been some tailwinds out there. Some people are calling out that weather may have been a help. Last year we called out that weather was a hindrance to our business a little bit. But in terms of headwinds, there's a whole bunch of other macro uncertainties that have probably left consumers a little bit uneasy in their shopping. So I give a lot of credit to the team. The product team leads the charge. The assortments look fantastic. They've navigated through tariffs very strategically, have maneuvered AURs. The marketing team has done a very nice job. Stores team has stepped up, really, the whole company. So I'm sure there might be something in the macro backdrop that's a tailwind to us, but I also give some credit to the team for just executing extremely well. Operator: And the next question comes from the line of Corey Tarlowe with Jefferies. Please proceed with your question. Corey Tarlowe: Great. Thanks, and good afternoon, and congrats on the strong results. Jim, I just wanted to hone in on this element of change. And you've come into the business and we were comping flat to start the year. And we've really substantially accelerated. And I wanted to get a flavor for what in your view are the major drivers of this improvement in the momentum? And then what do you think is perhaps the stickiest of all of these changes that is going to propel the business on a multiyear trajectory for continued growth and improvement in outperformance? Jim Conroy: Sure. Happy to have a shot at that. First, I'd start with I absolutely inherited a strong company that was being managed extremely well. So, you know, the company has been growing for years before I showed up. The first quarter was a bit of an anomaly. Right? We had a lot of macro headwinds that pushed the business to a flat after a challenging January and a very challenging February, which we called out last year. In terms of some of the things that have changed, it's not very different than my remarks on some of the first couple of investor calls. The merchandising team is extremely strong, and some of the best merchants in the world work for Ross Stores, Inc. And that strength continues to propel the business forward. If I added anything to the business, it's to sort of raise or amplify the voices of the marketing group and the stores team. So we can drive more traffic from a marketing standpoint. And when they get to the stores, they can enjoy a slightly better, or hopefully much better in-store shopping environment. And the overarching strategy is quite simple, which is just to get merchandising, marketing, and stores, perhaps add supply chain to that mix, operating in unison. So we're all kind of pushing the business forward for more growth. Corey Tarlowe: Understood. And then just as a follow-up, the new marketing campaigns have clearly resonated. What is it in your view that you think has materially helped to accelerate the amplification of all of these improvements that you've made in the business, particularly from a branded perspective that's really working from a marketing standpoint? And that's helping amplify the message even more and resonate with consumers. Jim Conroy: Sure. Sure. And coming in as an outsider, there's some disadvantages. I wasn't an off-price person, and I'm not a true merchant. But perhaps if there was one advantage, it was a set of fresh eyes. So from a marketing standpoint, we absolutely want to remain rooted in great branded values. But the challenge that I gave to the marketing team and the new agency was how do we create cut-through with a refreshed marketing message. So we've really contemporized how we go to market in terms of a creative standpoint. We've tweaked the merchandise mix a bit. Notably, we have an increased marketing expense, at least as a percentage of sales. But I think sort of this refreshed view of how you can look at the store and reach out to customers in a slightly different way and perhaps reach out to younger customers in a more aggressive way. It seems to be taking root. We are encouraged by it. We're excited by it. We've seen some hard metrics improve, and we've seen some qualitative factors improve nicely. And I certainly don't want to dampen anybody's enthusiasm because it's fantastic to see. But let's just remember that it's only been a few months now. Right? We've got a very busy holiday season to get through. And then, you know, we'll see what becomes sticky in your mind. Coming back to that part of your question, I think probably the stickiest thing ultimately will be the power of the Ross Stores, Inc. brand and just what that means for customers and the promise that it delivers to shoppers. And it's had a great legacy up to this point. And if I had any impact on it, it's, you know, how can we modernize it slightly so we continue to resonate with all customers, particularly younger customers. Corey Tarlowe: It's great color. Thank you so much, and best of luck. Jim Conroy: Thank you. Operator: And the next question comes from the line of Mark Altschwager with Baird. Please proceed with your question. Mark Altschwager: You're expecting tariff costs now to be negligible in Q4, which is great to hear. I was hoping you could update us on the mitigation efforts, you know, what's working, what's giving you the comfort with your ability to fully offset. And, you know, with that, hoping you could just speak specifically to the AUR trend you're seeing and also how we should interpret that Q4 guide as we think about the wraparound effects of tariffs for early 2026? Michael Hartshorn: Hi, Mark. It's Michael Hartshorn. Similar to what happened in the second quarter, as you saw in our commentary, the tariff-related costs came in lower than we expected. And our merchant teams have done a tremendous job balancing cost concessions with modest market-driven price increases where we can maintain our value gap against other retailers. In addition, they were able to take advantage, given the closeout availability, take advantage of closeouts in the marketplace, and chase above-plan sales. As we expected, as we imagined the year when we had lead time from the initial tariff announcements and had open to buy to fill. Our merchant teams have been able to mitigate the impact of tariffs as we progress through the year. In addition, with some tariff stability, we've been able to normalize ticketing activities in our distribution centers. For going forward, it's too early to speak to 2026, but barring any meaningful changes in the tariff policy, we would expect pricing stability which would eliminate the need for our merchants to make pricing decisions against a moving target. Mark Altschwager: Thank you. And then a quick follow-up on the comp acceleration. I believe you said consistency or you said strength across regions, but I'm wondering if there's any call out by demographic or income cohort. Michael Hartshorn: Sure. And just to follow-up on your AUR. So the comp components for the quarter, traffic, UPT, and AUR all increased in transactions where the biggest of those. In terms of demographic performance, we called out in previous quarters our Hispanic stores during the quarter. At both Ross Stores, Inc. and DD's, stores that have what I'd say is high trade area Hispanic population saw an improvement that was similar to the chain from quarter to quarter and ended up posting solid comps despite trailing the chain slightly. Other call outs, did mention in the call Southeast and Midwest were above our top performing market. In terms of bigger markets, California, Florida, and Texas were all relatively in line with the chain. Mark Altschwager: Thank you. Sure. Operator: And the next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question. Chuck Grom: Hey. Thanks. Good afternoon. Thanks. On the marketing change, can we double click on that a little bit and do you think you're driving new or lapsed customers think you're increasing engagement with existing customers? Where do you still see opportunity on that front? Jim Conroy: It's hard to tease out the components of the traffic. Do believe we're gaining some new customers. And reengaging with last customers. If you go through the analytics provided by Meta Platform and you go through TikTok, you we I think it's safe to say we have improved our engagement. In terms of where we are in terms of our evolution from a marketing and branding standpoint, it very, very early. Right? We we we hired an agency in the beginning of the year. Their first output was in the July time frame. We just released a couple of new spots for holiday that then translate across all the digital platforms as well. So very early innings. And Deepa and the marketing team have done an unbelievable job. But there's there's just even more in front of us, I think, for us to continue to learn and and react to that and, you know, continue to deliver some great messaging. Chuck Grom: That's great. And and just as a follow-up, you you noted that as a percentage of sales, you didn't increase, the spend. But it's well known that that you spend far less in dollars and as a percentage of sales relative to your largest peer. When you look ahead, do you think you need to grow that, or do you think you would continue to just reinvest and redeploy those dollars? Jim Conroy: It's a good question. Right now, we're gonna maintain our percent of sales where it is. You know, we have a financial and operating model that I wanna kinda work within. Clearly if we can spur on more business and and drive more customers and drive more sales, even at the same rate, we'll get them our marketing dollars. So it's it's too early to say we're we'll invest anymore in it and right now, the the the amount we're spending seems to be paying dividends. So stay tuned for that. But right there's there's no immediate plans for an increased spend there. Chuck Grom: Got it. Thank you. Thank you. Operator: And the next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question. Lorraine Hutchinson: Jim, you called out the branded strategy as a key driver of the comp acceleration. Can you talk about how this benefit has built over time and how much more opportunity you see going forward? Jim Conroy: Sure. Absolutely. And if you wanna go through the timeline, in the fourth quarter, last year, we had a decent quarter. We called out it it the the branded strategy touches everything, but it's probably most impactful to ladies. So if we just look at the ladies business and how it's sequentially changed over the last few quarters. Last year fourth quarter was pretty strong, but ladies was a drag on the comp. Then in Q1 and in Q2, the ladies business was slightly better, but still flattish. In Q2, it started to show some improvement. And a slight drag on the comp in Q1. With kind of in line with the company, maybe slightly comp enhancing. And in this most recent quarter, the entire business got better, substantially better. And the ladies business was actually comp enhancing. So if we posted a plus seven, you can intuit that the ladies business better than a plus seven. Lorraine Hutchinson: And how much more opportunity do you see in the How much more opportunity going forward do you see in the this lady's business from the branded strategy? Jim Conroy: I a fair amount, I think. I mean, we we as you know, we've been investing in that over four or five quarters. It had a drag on our merchandise margin that we thought would be an investment in the business. And that investment seems to be paying off now. I think, you know, what with one very solid quarter under our belt, I'd like to think that, you know, for the next three quarters until we at least anniversary that, we'll we'll see some outsized growth. And then, of course, the you know, that that team has has really started to build excitement. Some great leadership there. And I think after even after we anniversary this quarter, I think they'll they'll find some opportunities for for more comp improvement. There's not a lack of ideas innovation in that part of the business. Lorraine Hutchinson: Thank you. Operator: And the next question comes from the line of Paul Lejuez with Citibank. Please proceed with your question. Paul Lejuez: Hey, thanks. Jim, sorry if I missed a bit. Did you say anything about the monthly cadence? Curious if you could share anything on that front. Home versus apparel, and specifically, not just performance, home versus apparel, but AURs. In each of those categories? And then is there any quantification of how your customer base has changed? Like, within that ladies business, you know, can you can you isolate that you are getting a customer of a certain age that you did not previously have. Is there any quantification to that? Michael Hartshorn: I'll just start on a couple of those, Paul. During the quarter, we had a very strong back to school and held the trend, throughout the quarter. So throughout the the trends were fairly consistent, and that was true for both Ross Stores, Inc. and, DD's. On the AUR, I said in a previous commentary that was driven by traffic increases in traffic UPT and AUR with with the traffic or transactions for us. The biggest of those traffic and the basket were very similar. In terms of overall category performance, we mentioned children's and men's were relatively in line with the chain. Cosmetics, shoes, and ladies were best performers. Home was slightly below the chain average. If you you also ask about shifts in in business. You know, the things we measure against, usually you see bigger trends over time. We certainly talked about demographics and Hispanic customer. In terms of household income, the not only was the the sales very broad based across geographies and merchandise categories, they're also very broad based, across trade area income levels. And we did not see any significant shifts there. Paul Lejuez: Thank you. Good luck. Thank you. Operator: And the next question comes from the line of Alex Stratton with Morgan Stanley. Please proceed with your question. Alexandra Straton: Congrats on a great quarter. Just on maybe for you, Jim, on the upgrading the store experience. I think you highlighted that as an opportunity when you first started. Did any changes there play a role in the comp acceleration? Maybe how do you gauge effectiveness of those strategies? And what are your priorities on that front as you think about 4Q and into next year? Michael Hartshorn: I can take that. We're addressing the store experience on a couple different factors. First, we have begun refreshing, we expect to refresh all stores in the chain. Which we believe will provide a more modern look and feel the customer. This includes new parameter signing, wayfinding signage along with addressing cosmetic type repairs. We're halfway through the chain there, and though it's very, very early, the customer feedback has been good. The other focus areas within the store is you can imagine improving line lengths and throughput through the front end of the store and also improving our recovery throughout the day. And we're finding places to get efficiencies within the store and then reinvest it in those focus areas. In terms of immediate impact in quarter, I think it's very, very early days and if anything, we'd expect to build momentum over time. Alexandra Straton: Great. Thank you. Good luck. Sure. Thank you. Operator: And the next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question. Brooke Roach: Good afternoon, and thank you for taking our question. Jim, I wanted to get your thoughts on Ross Stores, Inc.'s approach to value gaps into holiday and 2026 as market prices move up. How much of the AUR growth in the third quarter was driven by price actions versus mix? And are there any categories where you've taken action on pricing where you're starting to see any signs of consumer elasticity? Jim Conroy: Sure. Happy to take it. In terms of the first part of your question, our strategy is, I think, a pretty typical off-price strategy of keeping an umbrella under traditional retailers in terms of pricing. We tend to be very intensely focused on the values that we provide which is one of the reasons why we were a little bit slower to make any changes to AUR because we really wanted to underscore what the customer that we were going to be delivering values including during a tariff environment. And holding true to that, and we've called out tariff impacts over the last couple of quarters, although they're going away for the fourth quarter, but holding true to that sort of promise perhaps has helped us pull in some new customers or bring back lapsed customers. So we're excited about that. I think Michael talked about in terms of transactions, AUR and UPT transactions was still the biggest driver of the comp. As we look at the fourth quarter, we've been pretty much bought up for the fourth quarter for a while. So wouldn't expect any significant changes in our strategy from a pricing standpoint for fourth quarter. I think it was encouraging that we were able to have a modest increase in our AUR. And not see degradation in units per transaction. That was up a little bit. And also continue to see transactions. But hopefully, that answers the question. I mean, it's been a very difficult thing to navigate for the last several months looking at the changing in tariffs and the changes in the retail environment and trying to find exactly the right set of prices for every single category. Have we made mistakes within that? Probably. And, you know, it's what ultimately falls out of that is a business that may start turning slightly slower, so you may mark it down in you move through it. But on balance, we haven't had any significant footfalls that have created massively increased markdowns or slow down in our terms. Brooke Roach: Thanks so much. Best of luck going forward. Thanks, Operator: And the next question comes from the line of Michael Binetti with Evercore. Please proceed with your question. Michael Binetti: Hey, guys. Thanks for taking our questions here. Congrats on a nice quarter. I guess as you look at marketing and some of the store refresh in the state of the fleet today, as you look at some of the initial successes and the top line impact here, how do you think about what to invest in and accelerate those things that are working to keep the top line going versus how you think about flowing through some of the earnings on these initiatives to investors next year? I think just at the highest level, maybe some thinking on the trade-offs between pushing sales harder. Now you've got some things that are very obviously working and then flow through versus investment next year. And then separately, you know, spoken a little bit about a strong pipeline of DD stores in the past. How are the Ross Stores, Inc. Banner stores in the Northeast area doing? And do you see an opportunity to accelerate store growth both chains at Ross Stores, Inc. in addition to DD's? Jim Conroy: Sure. Maybe I'll take the first one and Mike will take the second piece of that in terms of store growth. On the investors' flow through, yeah, I'm not even here a year, and I was very cautious when I first got here to quote, unquote, listen, learn, and lead. Right? I really wanted to learn a new business. I'm not bigger business, and the off-price sector, etcetera. for change as did the team, And while I had some hypotheses we I really wanted to be respectful of the financial model and the operating model that has been successful for the company for so long. So while we've made some changes over the last couple of quarters and perhaps we're seeing fruits of that, of those changes now. You know, I'd like to let some more time go before we come out and say, we're gonna over-invest betting on the come for future results. So anything we've done so far has been again, within the expense structure, the financial model of the company has, And we haven't spent anything from in an outsized way from a marketing perspective. Or really even from a store's perspective outside the sort of capital plan that was here when I when I got here. Three months from now, six months from now, if we continue to see positive ROI, to your point, we may then get more aggressive and say, look, you know, if we can break the model slightly from a financial standpoint, will we deliver higher comps and additional earnings perhaps. But right now, I'm I think we're all kinda committed to the operating model that's worked for the company for decades. Michael Hartshorn: Michael, on real estate, first on this year's store openings. As we said in the commentary, opened eighty Ross Stores, Inc. and DD's. As an entire group, the new stores have outperformed our plan and we're very excited, although it's very early. With the success in both Northeast and the New York stores, and also in our Puerto Rico stores that opened over the summer. So as I said, what we've seen thus far, we're really optimistic about the Northeast. Expansion. We feel good about the real estate lands. We have a very healthy pipeline. We've said before that we're going to reaccelerate the DD's growth in terms of the combined groups, we'll have more to say when we get to the end of the year in our 2026 guidance. Michael Binetti: Alright, guys. Congrats again. Best of luck to the holiday. Thank you. Jim Conroy: Thank you very much. Operator: And the next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question. Ike Boruchow: Hey, everyone. Jim, I was figured I would ask about self-checkout. I think it's something you've talked about in the past as a driver. Where how many stores is that rolled out to? How meaningful can that be, you know, or maybe over the next twelve months? And just kinda how are you thinking about ROI on that investment? Michael Hartshorn: Sure, Ike. It's in 80 stores today. And it's taken us a while to get to this point. We tried a couple different models, and it's taken us a while to get the shrink aspect of self-checkout correct. We now have a prototype that's worked well for us over the last year and we're not only seeing lower shrink, but we're seeing higher high customer adoption. We're seeing sales impacts in the stores that we put it in, and we'll be rolling it out to further stores next year. How big it will be depends on kind of the next phase of rollout, but where it works best for us is in our high volume stores. So we'll continue to roll it out. We'll have more to say on how many of those stores in the in the 2026 preview. Ike Boruchow: Thank you. Operator: And the next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question. Adrienne Yih: Great. Thank you. Good afternoon. Congrats on a great acceleration into holiday. First question on DD's. Did you see any I mean, was it patterned very similarly to the Ross Stores, Inc. Dress for Less stores? Or did you see any pressure, particularly in the early part of November, with the delay of the SNAP benefits? So has that rebounded? And then secondly, you mentioned that the results fully offset all of the tariff, the gross tariff amount. So should we assume that, that obviously is the case for the fourth quarter? But that kind of the biggest impact because of your turns being so fast that the biggest impact would have been felt in 2025, and we enter '26 in a pretty normal way state. In terms of tariffs, or there's probably a little bit of overhang in Q1? Thank you. Michael Hartshorn: Adrienne, on the DD's, DD's was very similar to Ross Stores, Inc. The business was very consistent across the quarter, so there's nothing that I would call out there. In terms of tariffs, We did say there continued to be an impact in Q3. But it will be neutral in Q4 as we've been able to chase the business with closeouts. We've been able to work with vendors and cost concessions. And I would expect it to be somewhat neutral. It is neutral in Q4 and expect it to be neutral as we move into '26. Adrienne Yih: Okay. And then my quick follow-up is just going to be there are very few companies that are the third quarter with overall sales growing faster than inventory. On an average basis or even at the end of the quarter. Obviously, you've built some inventory up. The availability is fantastic. Is this just sort of do you feel well, I'm gonna ask you questions I know the answer to. I mean, clearly, you can chase that inventory. But, I guess, as you think about kind of, like, heading into spring, what are you seeing in terms of kind of being a little bit more maybe disciplined or judicious about taking some of that pack away? Any changes to strategy as we head into spring when we think that broader retail will raise prices across the board. Michael Hartshorn: On the ending in the as we said in the commentary, we did end up 15% on the last day of the quarter. Actually, during the quarter, inventory was in line with sales. Which similar to prior year's holiday shopping and promotions. Are well underway ahead of Thanksgiving holiday and in anticipation of shifts, we set the sales floor for the holiday as we at the October, which is earlier than last year, and also advanced some of the inventory into the store. Adrienne Yih: Okay. Perfect. Thanks. Best of luck. Great quarter. Michael Hartshorn: Thank you. Operator: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question. Dana Telsey: Hi. Good afternoon, everyone, and congratulations on the terrific results. As you take a look at your customer, thanks. As you take a look at your customer, particularly an assessment of the lower-income customers, Are you seeing anything? Are you seeing a trade down to the core Ross Stores, Inc.? What are you seeing in DD's? And is there any difference in performance of the lower-income stores and lower-income areas versus others? And then just lastly, with the expansion into the New York area or the Northeast, If you think about your store expansion plans for next year, will a greater portion of those stores be in the Northeast? And how do you see opening cost? And is there is the opportunity greater sales from those stores in more dense areas leveraging the cost given it may be a higher cost structure? Thank you. Michael Hartshorn: Dana, on the trade down customer, it's really hard to peel apart in the data. We do measure the trade area demographics around the stores. And the seven comp was very broad-based across all income levels. So we didn't see any distinction between the lower higher income customers. In terms of entry into the Northeast, today about 70% of our store openings are in what I call existing markets and 30% in newer markets, would now include the Northeast and Puerto Rico, over the last couple years. It's included the Upper Midwest, I'd expect that pace to continue, and we'll gradually continue to add in New York over time into Puerto Rico. And continue to expand those markets. We don't think our return on opening a new store will decline as we enter the Northeast. As you say, the it's more dense population should drive a higher sales to support the additional investment and higher cost in some of the store base there. Dana Telsey: Got it. And then just one more thing, Jim. In terms of what you're seeing with the store refreshes, the great enhancements that you're making in brand in general, other categories besides women's where you're seeing this opportunity for? And when you think about the store refreshes, anything that is particularly notable that you see at the opportunity for next year? Thank you. Jim Conroy: Well, we certainly have some ideas about next year and, you we don't wanna sort of necessarily divulge those just yet. In terms of categories that have improved, we've seen sequential improvement across a number of different businesses. Perhaps the one to call out is the home business was a drag in Q2 and was nicely positive in Q3. And we feel, you know, well-positioned in that piece of the business as we go into the fourth quarter when it spikes as a percent of sales. So I think that may be another category that we can talk about some of the wins that that merchandise team has pulled together. And yes, I'm glad to hear the enthusiasm on store refreshes and the stores I think, are looking a bit better. I would come to come back to some of my earlier comments that it's still very early innings in some of these changes. So maybe that's just is good news in terms of the best is yet to come. Dana Telsey: Thank you. Thank you. Operator: And the next question comes from the line of John Kernan with TD Cowen. Please proceed with your question. John Kernan: Congrats on the great quarter, guys. Jon. Thanks, So just wanted to circle back to gross margin. The merch margin was down slightly. You're now lapping a lot of the initiatives in the branded segment. I'm just curious what you think the opportunities for merch margin are going forward. You are comfortably above the levels you were at pre-COVID as a benchmark. I'm just curious what you see as long-term drivers. And I just have a quick follow-up on distribution costs. Michael Hartshorn: I mean, you said, merch margin although it declined, it was a little better than we expected. As had less ticketing and some stronger shrink results helped there. Moving forward, you know, it's an area of continued focus. And certainly, we would like it to get better, but I think currently, we'd expect it to be relatively stable over time. I think there is Okay, got. We talked about we're a year and a half into the brand strategy. I think there's gonna continue to be opportunity to gain some leverage as we move through time as we built the branded relationships with the vendors. Gives us opportunity for closeouts. So I think there's still some opportunity there within gross margin, you know, the transportation cost will be a year-to-year, kinda market-based discussion. But I think there's ongoing improvement capture in merchandise margins. John Kernan: Yeah. Obviously, the new DCs gonna give you a lot of capacity. Just curious on, you know, distribution and deleverage. Is that something that continues into next year? Looks like it picked up in Q2 this year and I'm assuming it continues a little bit in the fourth quarter. Michael Hartshorn: Yeah. In Q3, that deleverage, like, talked about a bit before, the full impact of the opening of a new distribution center and also some tariff-related processing costs. As we move forward, we'd expect that that pressure from the new DC continued, but that pre-ticketing pressure we've seen before related to tariffs should improve a bit. So we'd expect just a slight headwind in Q4. As we grow capacity, we look beyond this year, we'll be able to continue to lever that new capacity until we open our next due distribution center, which is two to three years away. John Kernan: That's great. Thanks, guys. Operator: And the next question comes from the line of Aneesha Sherman with Bernstein. Please proceed with your question. Aneesha Sherman: Wanna follow-up on the brand strategy. As you've discussed it in the past, you've talked about not changing the good, better, best mix. But rather increasing the availability of branded goods versus, you know, unbranded and labeled. As you're now attracting new customers and growing AUR in basket size, are you rethinking that and potentially considering adding more higher-end brands to expand the mix on the higher side? And then a follow-up on home. Jim, you talked about home getting better this quarter, though it was still weaker than the chain for two quarters in a row. Have you pulled back on the assortment at all in response to that weakness? And are there any implications there in terms of holiday and gifting and home decor assortment going into the holiday period? Thank you. Jim Conroy: Of course. On the home piece, absolutely not. You know, we feel that the home business is really building momentum, and the team there has just created tremendous sequential improvement. As we get into the fourth quarter, the categories change a bit. Right? Toys increase quite a bit, food increases, etcetera. So, you know, those businesses kind of have nothing to do with the incoming trend line. And we feel extremely well-positioned from a gifting standpoint and from a toy standpoint. In terms of branded versus unbranded, a couple of points I would I guess I would say is over the last several years, right, the reason the brand strategy was put in place and certainly predated me was there was a notion that the company had migrated away a little bit too much from known brands chasing higher margin or higher markup kind of tertiary players. And we needed to rate that shift. That doesn't always mean higher-end brands, though. Right? There are some really great brands at all price points within the store, And we have a very diverse customer base in every definition of that term. So we wanna have the best-branded values for a good, better, or best pricing tier. Is there some opportunity to stretch higher? Perhaps. The merchants are always out there looking for the next new brand. It's always a small celebration within the buying office when we've opened a new brand and we've gotten access to new closeouts, etcetera. Over time, perhaps that will be that will include, you know, reaching up a little bit. But I would say it's across the board. Aneesha Sherman: That's helpful. Thank you. Of course. Operator: And the next question comes from the line of Marni Shapiro with Retail Tracker. Please proceed with your question. Marni Shapiro: Hey, guys. Congratulations on a great quarter, and congratulations on the New York store. I hear it is the place to be. I'm just curious on the marketing. You did what I'm hearing. It's what people say. So I'm so curious on the marketing side as you kinda dive a little bit more into marketing. Two things. Will you, at some point consider a loyalty program, and how would what would that look like if you thought about it? And are you doing even some of the more basic stuff like email or phone number captures that you can more directly talk to your consumers. Jim Conroy: So I'm not sure about the loyalty program. On the email and text, but we do have a pretty decent email database in existence today. You know, a few million active email addresses. And while we don't constantly update that number to the street, we saw a really nice increase in active emails over the last quarter. So that was great. We don't have an active text program at the moment. But who knows? The first order of business from a marketing standpoint was to experiment with some slightly different messaging, and maybe a slightly more contemporary aesthetic. And, over time, you might try some of these other ideas. Yes. The Brooklyn store has been just a great addition to the portfolio. Glad it's the place to be seen. We've seen a lot of interesting people come in recently. And we're constantly kind of spying on it with our CCTV. So we kinda know everybody that goes in and out. But yeah. So it's four of the yeah. Yeah. No. Everybody competitors, everybody. That story has been a really nice arrow in the quiver and who knows what it bodes for future stores there. I mean, that particular location is pretty unique, very high traffic. There are other stores that we've seen open up in that area, in the New York Metro Area that have had very strong openings, perhaps, you know, that that would probably be the outlier one. The one in Brooklyn that you're talking about. Marni Shapiro: Yep. Alright. Great. Thanks, guys. Best of luck for the holiday. Have a nice Thanksgiving holiday. Jim Conroy: Likewise. Thank you. Thanks, Marni. Bye. Operator: We have time for one last question coming from the line of Jay Sole with UBS. Please proceed with your question. Jay Sole: Great. Jim, my question is about the guidance because you're guiding to 3% to 4% comp. And I look back, you know, ex the post-COVID period, every company hasn't guided above a two to three in at least ten years. I'm just wondering what this signals. I mean, are you taking a different approach to guiding now being CEO? Or is it just that the quarter-to-date trends you're seeing are so good that you just felt like two to three just wasn't even relevant and you had to guide to three to four? Because sometimes the thought is that the guide is as much as internal signals and external signals sort of a signal to sort of plan conservatively and then just be prepared to chase, keep a lot of open liquidity. If opportunities materialize in the quarter. So just kind of wondering how you're thinking about guiding and why you decided to go to 3% to 4% instead of just sticking to the same old two to three. Michael Hartshorn: Yeah. It's Michael Hartshorn. It's probably less tricky than you think. It is our internal plan. So, you know, currently coming off a seven comp, that's how the underlying business is planned. And we always try to align the internal latest forecast with the plan. So there was there's no change in methodology. It is really how we're planning the business for the fourth quarter based on the momentum in Q3. Jay Sole: Got it. Alright. Thank you so much. You're welcome. Of course. Operator: There are no further questions at this time, and I would like to turn the floor back over to Jim Conroy for closing remarks. Jim Conroy: Very good. Well, thank you everybody for your interest in Ross Stores, Inc. We wish you all a very happy holiday season. Take care. Operator: Thank you. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.